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Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
 
FORM
10-Q
 
 
 
☒
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended August 31, 2022.
or
 
☐
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Transition Period From _________________ to ________________________
Commission File Number
0-13394
 
 
VIDEO DISPLAY CORPORATION
(Exact name of registrant as specified on its charter)
 
 
 
GEORGIA
  
58-1217564
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer
Identification No.)
5155 KING STREET, COCOA, FLORIDA 32926
(Address of principal executive offices)
800-241-5005
(Registrant’s telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
 
 
 
Title of each class
  
Trading
Symbol(s)
  
Name of each exchange
on which registered
Common Stock, no par value
  
VIDE
  
OTCMKTS
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer   ☐    Accelerated filer   ☐
       
Non-accelerated filer   ☐    Smaller reporting company   ☒
       
         Emerging growth company   ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act). Yes  ☐    No  ☐
As of August 31, 2022, the registrant had 5,878,290 shares of Common Stock outstanding.
 
 
 
Table of Contents
Video Display Corporation and Subsidiaries
Index
 
 
  
Page
 
PART I. FINANCIAL INFORMATION
  
Item 1.
    
  
    
  
 
3
 
    
  
 
5
 
    
  
 
6
 
    
  
 
7
 
    
  
 
8
 
Item 2.
    
  
 
14
 
Item 3.
    
  
 
21
 
Item 4.
    
  
 
21
 
  
Item 1.
    
  
 
23
 
Item 1A.
    
  
 
23
 
Item 2.
    
  
 
23
 
Item 3.
    
  
 
23
 
Item 4.
    
  
 
23
 
Item 5.
    
  
 
23
 
Item 6.
    
  
 
23
 
  
 
24
 
31.1
    
  
31.2
    
  
32
    
  
 
2
Table of Contents
ITEM 1
– FINANCIAL STATEMENTS
Video Display Corporation and Subsidiaries
Interim Condensed Consolidated Balance Sheets (unaudited)
(in thousands)
 

 
  
August 31,
 
 
February 28,
 
 
  
2022
 
 
2022
 
 
  
(unaudited)
 
 
 
 
Assets
                 
Current assets
                 
Cash and cash equivalents
   
$
241
 
   $ 245  
Accounts receivable, less allowance for doubtful accounts of $3 and $3
   
 
936
 
     390  
Employee retention credit refund receivable
   
 
463
 
     796  
Inventories, net
   
 
2,886
 
     3,342  
Contract assets
   
 
1,263
 
     444  
Prepaid expenses and other current assets
   
 
140
 
     297  
    
 
 
    
 
 
  
Total current assets
   
 
5,929
 
     5,514  
    
 
 
    
 
 
  
Property, plant, and equipment
                 
Buildings
   
 
778
 
     778  
Machinery and equipment
   
 
5,378
 
     5,359  
    
 
 
    
 
 
  
    
 
6,156
 
     6,137  
Accumulated depreciation
   
 
(5,370
) 
     (5,247 ) 
    
 
 
    
 
 
  
Net property, plant, and equipment
   
 
786
 
     890  
Right of use assets under operating leases
   
 
722
 
     592  
Intangible assets, net
   
 
54
 
     118  
Other noncurrent assets
   
 
2
 
     2  
    
 
 
    
 
 
  
Total assets
   
$
7,493
 
   $ 7,116  
    
 
 
    
 
 
  
The accompanying notes are an integral part of these interim condensed consolidated statements.
 
3
Table of Contents
Video Display Corporation and Subsidiaries
Interim Condensed Consolidated Balance Sheets (unaudited) (continued)
(in thousands)

 
 
  
August 31,
 
 
February 28,
 
 
  
2022
 
 
2022
 
 
  
(unaudited)
 
 
 
 
Liabilities and Shareholders’ Equity
                 
Current liabilities
                 
Accounts payable
   
$
1,406
 
   $ 1,465  
Accrued liabilities
   
 
957
 
     855  
Contract liabilities
   
 
1,921
 
     1,872  
Note payable to officers and directors, current (Note 6)
   
 
884
 
     458  
Current maturities of financing lease obligations
   
 
98
 
     98  
Current operating lease liabilities
   
 
469
 
     257  
    
 
 
    
 
 
  
Total current liabilities
   
 
5,735
 
     5,005  
Finance lease obligations less current maturities
   
 
21
 
     64  
Long-term operating lease liabilities
   
 
253
 
     333  
    
 
 
    
 
 
  
Total liabilities
   
 
6,009
 
     5,402  
    
 
 
    
 
 
  
Shareholders’ Equity
                 
Preferred stock, no par value
-
10,000 shares authorized; none issued and outstanding
   
 
—  
 
     —    
Common stock, no par value
-
50,000 shares authorized; 9,732 issued and 5,878 outstanding at August 31, 2022, and February
28, 2022
   
 
7,293
 
     7,293  
Additional
paid-in
capital
   
 
281
 
     281  
Retained earnings
   
 
10,192
 
     10,422  
Treasury stock, shares at cost; 3,854 at August 31, 2022 and February 28, 2022
   
 
(16,282
) 
     (16,282 ) 
    
 
 
    
 
 
  
Total shareholders’ equity
   
 
1,484
 
     1,714  
    
 
 
    
 
 
  
Total liabilities and shareholders’ equity
   
$
7,493
 
   $ 7,116  
    
 
 
    
 
 
  
The accompanying notes are an integral part of these interim condensed consolidated statements.
 
4
Table of Contents
Video Display Corporation and Subsidiaries
Interim Condensed Consolidated Statements of Operations (unaudited)
(in thousands, except per share data)
 

 
  
Three Months Ended

August 31,
 
 
Six Months Ended

August 31,
 
 
  
2022
 
 
2021
 
 
2022
 
 
2021
 
Net sales
   
$
1,966
 
   $ 1,904    
$
4,807
 
   $ 3,761  
Cost of goods sold
   
 
1,454
 
     1,853    
 
3,588
 
     3,343  
    
 
 
    
 
 
    
 
 
    
 
 
  
Gross profit
   
 
512
 
     51    
 
1,219
 
     418  
    
 
 
    
 
 
    
 
 
    
 
 
  
Operating expenses
                                 
Selling and delivery
   
 
131
 
     123    
 
280
 
     282  
General and administrative
   
 
847
 
     903    
 
1,713
 
     1,895  
    
 
 
    
 
 
    
 
 
    
 
 
  
    
 
978
 
     1,026    
 
1,993
 
     2,177  
    
 
 
    
 
 
    
 
 
    
 
 
  
Operating loss
   
 
(466
) 
     (975 )   
 
(774
) 
     (1,759 ) 
    
 
 
    
 
 
    
 
 
    
 
 
  
Other income (expense)
                                 
Interest income (expense), net
   
 
(4
) 
     (4 )   
 
(9
) 
     (14 ) 
Gain on sale of equipment, net
   
 
—  
 
     —      
 
3
 
     —    
Gain on extinguishment of PPP loans
   
 
—  
 
     1,084    
 
—  
 
     1,084  
Other, net
   
 
535
 
     59    
 
550
 
     108  
    
 
 
    
 
 
    
 
 
    
 
 
  
    
 
531
 
     1,139    
 
544
 
     1,178  
    
 
 
    
 
 
    
 
 
    
 
 
  
Income (loss) before income taxes
   
 
65
 
     164    
 
(230
) 
     (581 ) 
Income tax expense
   
 
—
  
 
     —      
 
—
  
 
     —    
    
 
 
    
 
 
    
 
 
    
 
 
  
Net income (loss)
   
$
65
 
   $ 164    
$
(230
) 
   $ (581 ) 
    
 
 
    
 
 
    
 
 
    
 
 
  
Net income (loss) per share - basic
   
$
0.01
 
   $ 0.03    
$
(0.04
) 
   $ (0.10 ) 
    
 
 
    
 
 
    
 
 
    
 
 
  
Net income (loss) per share - diluted
   
$
0.01
 
   $ 0.03    
$
(0.04
) 
   $ (0.10 ) 
    
 
 
    
 
 
    
 
 
    
 
 
  
Basic weighted average shares outstanding
   
 
5,878
 
     5,878    
 
5,878
 
     5,878  
    
 
 
    
 
 
    
 
 
    
 
 
  
Diluted weighted average shares outstanding
   
 
6,078
 
     6,078    
 
5,878
 
     5,878  
    
 
 
    
 
 
    
 
 
    
 
 
  
The accompanying notes are an integral part of these interim condensed consolidated statements.
 
5
Table of Contents
Video Display Corporation and Subsidiaries
Interim Condensed Consolidated Statements of Shareholders’ Equity
Three and Six Months Ended August 31, 2022 and 2021 (unaudited)
(in thousands)
 
    
Common

Shares*
     
Share

Amount
     
Additional

Paid-in

Capital
     
Retained

Earnings
    
Treasury

Stock
    
Total
Shareholders’
Equity
  
For the Three Months Ended August 31, 2022
                                                    
Balance, May 31, 2022 (unaudited)
      5,878      $ 7,293      $ 281      $ 10,127     $ (16,282 )    $ 1,419  
Net income
      —          —          —          65       —         65  
    
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
Balance, August 31, 2022 (unaudited)
      5,878      $ 7,293      $ 281      $ 10,192     $ (16,282 )    $ 1,484  
    
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
For the Six Months Ended August 31, 2022
                                                    
Balance, February 28, 2022 (audited)
      5,878      $ 7,293      $ 281      $ 10,422     $ (16,282 )    $ 1,714  
Net loss
      —          —          —          (230 )      —         (230 ) 
    
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
Balance, August 31, 2022 (unaudited)
      5,878      $ 7,293      $ 281      $ 10,192     $ (16,282 )    $ 1,484  
    
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
For the Three Months Ended August 31, 2021
                                                    
Balance, May 31, 2021 (unaudited)
      5,878      $ 7,293      $ 281      $ 12,237     $ (16,282 )    $ 3,529  
Net income
      —          —          —          164       —         164  
    
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
Balance, August 31, 2021 (unaudited)
      5,878      $ 7,293      $ 281      $ 12,401     $ (16,282 )    $ 3,693  
    
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
For the Six Months Ended August 31, 2021
                                                    
Balance, February 28, 2021 (audited)
      5,878      $ 7,293      $ 281      $ 12,982     $ (16,282 )    $ 4,274  
Net loss
      —          —          —          (581 )      —         (581 ) 
    
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
Balance, August 31, 2021 (unaudited)
      5,878      $ 7,293      $ 281      $ 12,401     $ (16,282 )    $ 3,693  
    
 
 
     
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
 
*
Common shares are shown net of Treasury Shares
The accompanying notes are an integral part of these interim condensed consolidated statements.
 
6
Table of Contents
Video Display Corporation and Subsidiaries
Interim Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)
 

 
  
Six Months Ended

August 31,
 
 
  
2022
 
 
2021
 
Operating Activities
                 
Net loss
   
$
(230
) 
   $ (581 ) 
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
                 
Depreciation expense
   
 
117
 
     131  
Amortization of intangible assets
   
 
64
 
     65  
Provision for doubtful accounts
   
 
—  
 
     2  
Provision for inventory reserve
   
 
—  
 
     (96 ) 
Gain on disposal of equipment
   
 
(3
) 
     —    
Gain on extinguishment of PPP loans
   
 
—  
 
     (1,084 ) 
Other
   
 
11
 
     7  
Changes in working capital items:
                 
Accounts receivable
   
 
(546
) 
     144  
Inventories
   
 
456
 
     483  
Prepaid expenses and other assets
   
 
157
 
     33  
Contract assets
   
 
(819
) 
     538  
Employee retention credit refund receivable
   
 
333
 
     —    
Contract liabilities
   
 
49
 
     (4 ) 
Accounts payable and accrued liabilities
   
 
43
 
     178  
    
 
 
    
 
 
  
Net cash provided by (used in) operating activities
   
 
(368
) 
     (184 ) 
    
 
 
    
 
 
  
Investing Activities
                 
Capital expenditures
   
 
(13
) 
     (47 ) 
Proceeds from sale of equipment
   
 
3
 
     —    
    
 
 
    
 
 
  
Net cash provided by (used in) investing activities
   
 
(10
) 
     (47 ) 
    
 
 
    
 
 
  
Financing Activities
                 
Repayments of long-term debt
   
 
—  
 
     (29 ) 
Repayments on lease financing
   
 
(52
) 
     (38 ) 
Proceeds from loans with officers and directors
   
 
426
 
     250  
    
 
 
    
 
 
  
Net cash provided by (used in) financing activities
   
 
374
 
     183  
    
 
 
    
 
 
  
Net change in cash and cash equivalents
   
 
(4
) 
     (48 ) 
Cash and cash equivalents, beginning of year
   
 
245
 
     293  
    
 
 
    
 
 
  
Cash and cash equivalents, end of period
   
$
241
 
   $ 245  
    
 
 
    
 
 
  
The accompanying notes are an integral part of these interim condensed consolidated statements.
 
7
Table of Contents
Video Display Corporation and Subsidiaries
August 31, 2022
Note 1. – Basis of Presentation of Principles of Consolidation
The accompanying unaudited interim condensed consolidated financial statements include the accounts of Video Display Corporation and its subsidiaries (“Video Display,” the “Company,” “we,” or “us”). All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying condensed consolidated balance sheet as of February 28, 2022 has been derived from audited financial statements. The accompanying unaudited condensed consolidated financial statements as of, and for the three and six months ended, August 31, 2022 and 2021 have been prepared in accordance with (i) accounting principles generally accepted in the U.S. for interim financial information and (ii) the instructions to Form
10-Q
and Rule
10-01
of Regulation
S-X
of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, such statements do not include all of the information and disclosures required by accounting principles generally accepted in the U.S. for a complete presentation of financial statements. In the opinion of management, all adjustments (including those of a normal, recurring nature) considered necessary for a fair presentation have been included. Operating results for the three and six months ended August 31, 2022 are not necessarily indicative of the results that may be expected for the year ending February 28, 2023. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Video Display’s Annual Report on Form
10-K
for the year ended February 28, 2022 filed with the SEC on May 31, 2022.
Note 2. – Going Concern, Banking & Liquidity
The accompanying unaudited interim condensed consolidated financial statements were prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company reported a net loss and a decrease in working capital for the
six-month
period ending August 31, 2022 primarily due to insufficient revenues in the Company. The Company also had a decrease in liquid assets for the six month period primarily as a result of the lack of revenue. The Company has sustained losses for the last three of five fiscal years and has seen overall a decline in working capital and liquid assets during this five -year period. Annual losses over this time are due to a combination of decreasing revenues across the divisions without a commensurate reduction of expenses. The Company’s working capital and liquid asset position are presented below (in thousands) as of August 31, 2022 and February 28, 2022:
 

 
  
August 31,

2022
 
  
February 28,
2022
 
Working capital
   
$
194
 
    $ 509  
Liquid assets
   
$
241
 
    $ 245  
The Company has increased marketing efforts in its ruggedized displays, TEMPEST products and services and small specialty displays in an effort to increase revenue. New products in the ruggedized and TEMPEST areas have been developed and are now being evaluated by potential customers. In addition, the Company has continued to streamline its operations and is focusing on increasing revenues by executing initiatives such as upgrading its sales and marketing efforts including targeting efforts towards repeatable business, the hiring of an experienced Rugged Display Business Development Manager, increased customer visits, trade shows and
e-mail
blasts to market all the product lines it sells. The Company was able to increase its fiscal revenue over the prior fiscal year and has been implementing a plan to increase revenues at all the divisions, each structured to the particular division. The Company is restructuring its cyber security services business by adding a dedicated sales person for the service business to increase the business in cyber testing services and developing new products to supplement the product side of the business. The Lexel Imaging facility in Lexington, KY is working with some customers on last time buys for certain types of CRTs while also exploring new opportunities that are a fit for the division. The Company moved the corporate accounting functions to the Cocoa, Florida location which allows the Company to become more efficient and save money on reducing redundant operations. The former headquarters and distribution center in Tucker, Georgia closed as of March 31, 2022.
 
8
Table of Contents
Video Display Corporation and Subsidiaries
August 31, 2022
 
In order to assist funding operating activity, the Company’s CEO loaned an additional $426,000 to the company during
the
first six months of fiscal year 2023. There is no line of credit outstanding or other financing currently in place other than the note payable with the Company CEO with a balance of $884,000. There are no repayment terms related to the loan, however, the Company plans to repay the note within
the
next twelve months and therefore has classified the loan as a current liability on the condensed consolidated balance sheets as of August 31, 2022.
The ability of the Company to continue as a going concern is dependent upon the success of management’s plans to improve revenues, the operational effectiveness of continuing operations, the procurement of suitable financing, or a combination of these. The uncertainty regarding the potential success of management’s plan creates substantial doubt about the ability of the Company to continue as a going concern.
Note 3. – Recent Accounting Pronouncements
Accounting Pronouncements Recently Adopted
In December 2019, the FASB issued ASU
2019-12, Income
Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU
2019-12”),
which simplifies the accounting for income taxes by removing certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new ASU also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates. These changes aim to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing the disclosures. The guidance is effective for the Company beginning on March 1, 2021 and prescribes different transition methods for the various provisions. Effective March 1, 2021, we adopted ASU
2019-12
with no material impact on the Company’s financial statements or related disclosures.
Recent Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU
2016-13,
Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost, including trade receivables. ASU
2016-13
replaces the existing incurred loss impairment model with an expected loss model that requires the use of forward-looking information to calculate credit loss estimates. This guidance is effective for annual reporting periods beginning after December 15, 2022 for smaller reporting companies, with early adoption permitted. Entities will apply the amendments using a modified retrospective approach. The Company does not expect the adoption of ASU
2016-13
to have a material impact on its financial statements and related disclosures.
Note 4. – Inventories
Inventories are stated at the lower of cost (first in, first out) or market and consisted of the following (in thousands):
 

 
  
August 31,
 
  
February 28,
 
 
  
2022
 
  
2022
 
Raw materials
   
$
1,627
 
   
$
2,037
 
Work-in-process
   
 
920
 
   
 
846
 
Finished goods
   
 
339
 
   
 
459
 
    
 
 
     
 
 
  
    
$
2,886
 
   
$
3,342
 
    
 
 
     
 
 
  
 
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August 31, 2022
 
Note 5. – Paycheck Protection Promissory (“PPP”) Related Loans
On April 13, 2020, our Lexel Imaging subsidiary entered into a PPP loan for $216,200 and on January 27, 2021, entered into a second round PPP loan for $304,442. On April 23, 2020, Video Display Corporation entered into a $772,000 first round PPP loan and on February 11, 2021, entered into a second round PPP loan for $780,112. The PPP loans were made under, and were subject to the terms and conditions of, the PPP which was established under the CARES Act and is administered by the U.S. Small Business Administration. Under the terms of the CARES Act, recipients can apply for and receive forgiveness for all, or a portion of the loans granted under the PPP. Such forgiveness was granted, based on the use of loan proceeds for certain permissible purposes as set forth in the PPP, including, but not limited to, payroll costs, mortgage interest, rent or utility costs (collectively, “Qualifying Expenses”), and on the maintenance of employee and compensation levels during a certain time period following the funding of the PPP loans.
The Company has used the proceeds of the PPP loans for Qualifying Expenses. In fiscal 2021, the Company received forgiveness on the first round $216,200 Lexel Imaging PPP loan in November 2020 and on the first round $772,000 Video Display PPP loan in December 2020. The Company received forgiveness on the second round of PPP loans ($1,084,554 in aggregate) in August 2021 (fiscal 2022). The forgiveness qualified as a gain on extinguishment of debt on the consolidated statements of operations and the related liability was removed from the consolidated balance sheets based on the forgiveness date of the related PPP loan.
Note 6. – Note Payable to Officers and Directors (Related Party Transactions)
The Company increased borrowings by $426 thousand to fund working capital needs and owes an additional $161 thousand in Company rent for the six months ending August 31, 2022 that is due to the CEO. The $884 thousand note contains no repayment terms and is expected to be repaid in fiscal 2023 along with the $474 thousand in rent owed. The note payable and rent owed are included in the Company’s consolidated balance sheets as of August 31, 2022 as a note payable to officers and directors and within accounts payable, respectively.
Note 7. – Leases
Operating Leases
The Company leases its office space and manufacturing facilities under operating lease agreements. The base lease terms expire at various dates from 2022 to 2025. While each of the leases include renewal options, the Company has only included the base lease term in its calculation of lease assets and liabilities.
Balance sheet information related to operating leases is as follows (in thousands):
 
    
August 31,
2022
  
Assets
         
Operating lease
right-of-use
assets
    $ 722  
    
 
 
  
Liabilities
       
 
Current portion of operating lease liabilities
    $ 469  
Noncurrent portion of operating lease liabilities
      253  
    
 
 
  
Total operating lease liabilities
    $ 722  
    
 
 
  
 
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August 31, 2022
 
Operating
 
lease costs are included in Cost of goods sold in the Company’s condensed consolidated statements of operations and totaled approximately $
90
 thousand for the three months ended August 31, 2022
,
and $
204
 thousand for the six months ended August 31, 2022. Operating lease costs were $
146
 thousand for the three months ended August 31, 2021 and $
293
 thousand for the six months ended August 31, 2021.
Cash
paid for amounts included in the measurement of operating lease liabilities was approximately $90 thousand and $204 for the three months and six months ended August 31, 2022. The Company paid $143 thousand and $286 thousand for the three months and six months ended August 31, 2021. The Company executed a new
one-year
lease on the facility in Lexington, KY in July
2022
with a new building owner unrelated to the Company. The annual rent on the lease is $311 thousand.
Weighted average information associated with the measurement of the Company’s remaining operating lease obligations is as follows:
 
    
August 31, 2022
  
Weighted average remaining lease term
      2.5 years  
Weighted average discount rate
      6 % 
The following table summarizes the maturity of the Company’s operating lease liabilities as of August 31, 2022 (in thousands):
 
FY2023
    $ 250  
FY2024
      319  
FY2025
      190  
    
 
 
  
Total operating lease payments
      759  
Less imputed interest
      (37 ) 
    
 
 
  
Total operating lease liabilities
    $ 722  
    
 
 
  
Included above are leases for manufacturing and warehouse facilities leased from Southeast Metro Savings, LLC and Honeyhill Properties, LLC (entities which are controlled by the Company’s chief executive officer) under operating leases expiring at various dates through 2025. Lease costs under these leases totaled approximately $64 thousand for the three months and $161 thousand for the six months ended August 31, 2022. Lease costs under these leases totaled approximately $97 thousand for the three months and $194 thousand for the six months ended August 31, 2021.
The Company subleases certain of its warehousing space at its Kentucky location. The Tucker sublease expired concurrently with the head lease in March 2022 and the Kentucky lease was month to month until May 2022. The Tucker lessee did not pay any rent for March and we do not expect them to pay, therefore it is not included in Other Income.
Sublease income and lease income are included in Other, net in the Company’s condensed consolidated statements of operations and totaled approximately $3 thousand for the three months and $18 thousand for the six months ended August 31, 202
2
 and totaled approximately $56 thousand for the three months and $107 thousand for the six months ended August 31, 2021.
Financing Leases
The Company has one financing lease entered into on November 23, 2020 for Tempest testing equipment for $277,000 and is included in machinery and equipment on the condensed consolidated balance sheets as of August 31, 2022 and February 28, 2022. The lease expires on December 1, 2023 and the incremental borrowing rate on the lease is 12.5%.
 
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August 31, 2022
 
Balance sheet information related to financing lease is as follows (in thousands):
 

 
  
August 31, 2022
 
Financing lease
right-of-use
assets
    $ 119  
    
 
 
  
Current portion of financing lease liabilities
    $ 98  
Noncurrent portion of financing lease liabilities
      21  
    
 
 
  
Total financing lease liabilities
    $ 119  
 
 
 
 
 
The following table summarizes the maturity of the Company’s finance lease liabilities as of August 31, 2022 (in thousands):

 
Fiscal Year
  
Amount
 
2023
    $ 52  
2024
      78  
    
 
 
  
Total finance lease payments
    $ 130  
Less imputed interest
      (11 ) 
    
 
 
  
Total finance lease liabilities
    $ 119  
    
 
 
  
Note 8 . – Supplemental Cash Flow Information
Supplemental cash flow information is as follows (in thousands):
 

 
  
Six Months
 
 
  
Ended August 31,
 
 
  
2022
 
  
2021
 
Cash paid for:
                  
Interest
   
$
 9
 
  
$
 14
 
    
 
 
     
 
 
  
Note 9. – Shareholders’ Equity
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing income or loss available to common shareholders by the weighted average number of common shares outstanding during each period. Shares issued during the period are weighted for the portion of the period that they were outstanding. Diluted earnings (loss) per share is calculated in a manner consistent with that of basic earnings (loss) per share while giving effect to all potentially dilutive common shares that were outstanding during the period.
 
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August 31, 2022
 
The following table sets forth the computation of basic and diluted earnings (loss) per share for the three and six month periods ended August 31, 2022 and 2021 (in thousands, except per share data):
 

 
  
Net Income
(Loss)
 
  
Weighted
Average
Common Shares
Outstanding
 
  
Earnings
(Loss)
Per
Share
 
Three months ended August 31, 2022
                           
Basic
    $ 65        5,878      $  0.01  
Effect of dilution:
                           
Options
      —          200        —    
    
 
 
     
 
 
     
 
 
  
Diluted
    $ 65        6,078      $ 0.01  
    
 
 
     
 
 
     
 
 
  
Three months ended August 31, 2021
                           
Basic
    $  164        5,878      $ 0.03  
Effect of dilution:
                           
Options
      —          200        —    
    
 
 
     
 
 
     
 
 
  
Diluted
    $ 164        6,078      $ 0.03  
    
 
 
     
 
 
     
 
 
  
 

 
  
Net Income
(Loss)
 
  
Weighted

Average
Common Shares
Outstanding
 
  
Earnings

(Loss)
Per
Share
 
Six months ended August 31, 2022
                           
Basic
    $ (230 )       5,878      $ (0.04 ) 
Effect of dilution:
                           
Options
      —          —          —    
    
 
 
     
 
 
     
 
 
  
Diluted
    $ (230 )       5,878      $ (0.04 ) 
    
 
 
     
 
 
     
 
 
  
Six months ended August 31, 2021
                           
Basic
    $ (581 )       5,878      $ (0.10 ) 
Effect of dilution:
                           
Options
      —          —          —    
    
 
 
     
 
 
     
 
 
  
Diluted
    $ (581 )       5,878      $ (0.10 ) 
    
 
 
     
 
 
     
 
 
  
Stock options, debentures, and other liabilities convertible into 200,000 shares of the Company’s common stock were anti-dilutive and, therefore, were excluded for the six months ended August 31, 2022 and 2021 diluted loss per share calculations. For the three-month and six
 
-month periods ended August 31, 2022 and August 31, 2021, there was no expense related to share-based compensation as all options were fully vested. No options were granted for the
six-
 
month
period ending August 31, 2022 or for the six
 
-month period ended August 31, 2021
.
 
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Video Display Corporation and Subsidiaries
August 31, 2022
 
Stock
Repurchase Program
The Company has a stock repurchase program, pursuant to which it had been authorized to repurchase up to 2,632,500 shares of the Company’s common stock in the open market. On January 20, 2014, the Board of Directors of the Company approved a
one-time
continuation of the stock repurchase program, and authorized the Company to repurchase up to 1,500,000 additional shares of the Company’s common stock in the open market. There is no minimum number of shares required to be repurchased under the program.
For
the
six-months
ending August 31, 2022 and August 31, 2021, the Company did not purchase any shares of the Video Display Corporation stock. Under the Company’s stock repurchase program, an additional 490,186 shares remain authorized to be repurchased by the Company at August 31, 2022.
Note 10. – Income Taxes
Due to the Company’s overall and historical net loss position, no income tax expense was reported for the
six-
month period ending August 31, 2022 and August 31, 2021. Due to continued losses reported by the Company, a full valuation allowance was allocated to the deferred tax asset created by these losses.
Note 11. – Legal Proceedings
The Company is involved in various legal proceedings related to claims arising in the ordinary course of business. The Company is not currently party to any legal proceedings the result of which management believes is likely to have a material adverse impact on its business, financial position, results of operations or cash flows.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the attached unaudited interim condensed consolidated financial statements and with the Company’s 2022 Annual Report to Shareholders, which included audited consolidated financial statements and notes thereto as of and for the fiscal year ended February 28, 2022, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
The Company manufactures and distributes a wide range of display devices, encompassing, among others, industrial, military, medical, and simulation display solutions. The Company is comprised of one segment - the manufacturing and distribution of displays and display components. The Company is organized into four interrelated operations aggregated into one reportable segment.
 
 
•
 
Simulation and Training Products
–
offers a wide range of projection display systems for use in training and simulation, military, medical, entertainment and industrial applications.
 
 
•
 
Cyber Secure Products –
offers advanced TEMPEST technology, and EMSEC products. This business also provides various contract services including the design and testing solutions for defense and niche commercial uses worldwide.
 
 
•
 
Data Display
CRTs –
offers a wide range of CRTs for use in data display screens, including computer terminal monitors and medical monitoring equipment.
 
 
•
 
Other Computer Products –
offers a variety of keyboard products.
During fiscal 2023, management of the Company is focusing key resources on strategic efforts to grow its business through internal sales of the Company’s more profitable product lines and reduce expenses in all areas of the business to bring its cost structure in line with the current size of the business. Challenges facing the Company during these efforts include:
 
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August 31, 2022
 
Liquidity –
The accompanying unaudited interim condensed consolidated financial statements were prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company reported a net loss and a decrease in working capital for the
six-month
period ending August 31, 2022 primarily due to insufficient revenues in the Company. The Company also had a decrease in liquid assets for the six month period primarily as a result of the lack of revenue. The Company has sustained losses for the last three of five fiscal years and has seen overall a decline in working capital and liquid assets during this five -year period. Annual losses over this time are due to a combination of decreasing revenues across the divisions without a commensurate reduction of expenses. The Company’s working capital and liquid asset position are presented below (in thousands) as of August 31, 2022 and February 28, 2022:
 
 
  
August 31,

2022
 
  
February 28,
2022
 
Working capital
  
$
194
 
  
$
509
 
Liquid assets
  
$
241
 
  
$
245
 
The Company has increased marketing efforts in its ruggedized displays, TEMPEST products and services and small specialty displays in an effort to increase revenue. New products in the ruggedized and TEMPEST areas have been developed and are now being evaluated by potential customers. In addition, the Company has continued to streamline its operations and is focusing on increasing revenues by executing initiatives such as upgrading its sales and marketing efforts including targeting efforts towards repeatable business, the hiring of an experienced Rugged Display Business Development Manager, increased customer visits, trade shows and
e-mail
blasts to market all the product lines it sells. The Company was able to increase its fiscal revenue over the prior fiscal year and has been implementing a plan to increase revenues at all the divisions, each structured to the particular division. The Company is restructuring its cyber security services business by adding a dedicated sales person for the service business to increase the business in cyber testing services and developing new products to supplement the product side of the business. The Lexel Imaging facility in Lexington, KY is working with some customers on last time buys for certain types of CRTs while also exploring new opportunities that are a fit for the division. The Company moved the corporate accounting functions to the Cocoa, Florida location which allows the Company to become more efficient and save money on reducing redundant operations. The former headquarters and distribution center in Tucker, Georgia closed as of March 31, 2022.
In order to assist funding operating activity, the Company’s CEO loaned an additional $426,000 to the company during the first six months of fiscal year 2023. There is no line of credit outstanding or other financing currently in place other than the note payable with the Company CEO with a balance of $884,000. There are no repayment terms related to the loan, however, the Company plans to repay the note within the next twelve months and therefore has classified the loan as a current liability on the condensed consolidated balance sheets as of August 31, 2022.
The ability of the Company to continue as a going concern is dependent upon the success of management’s plans to improve revenues, the operational effectiveness of continuing operations, the procurement of suitable financing, or a combination of these. The uncertainty regarding the potential success of management’s plan create substantial doubt about the ability of the Company to continue as a going concern.
Inventory valuation
– Management regularly reviews the Company’s investment in inventories for declines in value and writes down the cost when it is apparent that the expected net realizable value of the inventory falls below its carrying amount. The Company operates in an environment of constantly changing technologies and retains a certain amount of inventory for legacy products for maintenance and replacement capabilities for its customers. The Company maintains inventory on certain products to ensure it has adequate inventory to fulfill orders for transitioning product lines. Management reviews inventory levels on a quarterly basis. Such reviews include observations of product development trends of the original equipment manufacturers, new products being marketed, and technological advances relative to the product capabilities of the Company’s existing inventories.
 
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August 31, 2022
 
Impact of
COVID-19
– The Company has been actively monitoring the novel
coronavirus, or COVID-19, situation and
its impact globally. Financial results for the six months ended August 31, 2022 and 2021 have been
impacted by COVID-19 due to
delayed orders and/or the fulfillment of the related orders. However, the Company currently does not expect any material impact on our financial results for the remainder of fiscal 2023. Management continues to operate normally with the exception of enabling employees to work from home and abiding by travel restrictions issued by federal and local governments.
If the COVID-19 pandemic continues,
the Company may experience other disruptions that could severely impact the business, results of operations and prospects.
Results of Operations
The following table sets forth, for the three and six months ended August 31, 2022 and 2021, the percentages that selected items in the Interim Condensed Consolidated Statements of Operations bear to total sales (amounts in thousands):
 
    
Three Months
    
Six Months
  
    
Ended August 31,
    
Ended August 31,
  
    
2022
     2021    
2022
     2021  
Net Sales
         
Simulation and Training (VDC Display Systems)
   
 
56.5
% 
     56.4 %   
 
65.8
% 
     55.4  
Data Display CRT (Lexel and Data Display)
   
 
20.7
 
     11.4    
 
18.4
 
     12.0  
Cyber Secure Products (AYON Cyber Security)
   
 
10.1
 
     16.9    
 
5.6
 
     13.9  
Other Computer Products (Unicomp)
   
 
12.7
 
     15.3    
 
10.2
 
     18.7  
  
 
 
    
 
 
    
 
 
    
 
 
  
Total net sales
   
 
100.0
% 
     100.0 %   
 
100.0
% 
     100.0  
Costs and expenses
         
Cost of goods sold
   
 
74.0
% 
     97.3 %   
 
74.6
% 
     88.9  
Selling and delivery
   
 
6.6
 
     6.5    
 
5.8
 
     7.5  
General and administrative
   
 
43.1
 
     47.4    
 
35.7
 
     50.4  
  
 
 
    
 
 
    
 
 
    
 
 
  
  
 
123.7
% 
     151.2 %   
 
116.1
% 
     146.8  
Operating loss
   
 
(23.7
)% 
     (51.2 )%   
 
(16.1
)% 
     (46.8 ) 
Interest income (expense), net
   
 
(0.2
)% 
     (0.2 )%   
 
(0.2
)% 
     (0.4 ) 
Other income (expense), net
   
 
27.2
 
     60.0    
 
11.5
 
     31.7  
  
 
 
    
 
 
    
 
 
    
 
 
  
Income (loss) before income taxes
   
 
3.3
% 
     8.6 %   
 
(4.8
)% 
     (15.5 ) 
Income tax expense
   
 
—  
 
     —      
 
—  
 
     —    
  
 
 
    
 
 
    
 
 
    
 
 
  
Net income (loss)
   
 
3.3
% 
     8.6 %   
 
(4.8
)% 
     (15.5 ) 
  
 
 
    
 
 
    
 
 
    
 
 
  
Net sales
Consolidated net sales increased 27.8% for the six months ended August 31, 2022, and increased 3.2% for the three months ended August 31, 2022 compared to the six months and three months ended August 31, 2021. The Display Systems division was up 51.7% for the six months ended August 31, 2022 compared to the comparable period last year. The division has a varied mix of products including ruggedized displays, simulation, projector systems and specialty displays. For the three months ended August 31, 2022, the Display System division was up 3.5% compared to the same three months last
 
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August 31, 2022
 
year. The Company is focused on the ruggedized displays sector of the business, having delivered approximately $0.8 million of rugged displays to two customers in the quarter and recently received orders for ruggedized displays of approximately $1.8 million from two other customers. The Company’s AYON Cyber Security (ACS) division is down 48.5% for the six months ending August 31, 2022 compared to the six months last year. Their business decreased due to lack of product orders for the Department of the State and Canada. The Company’s service side of the cyber business (testing other company’s products for compliance) was their primary revenue source. For the three months ending August 31, 2022 ACS business decreased 72.5% compared to the comparable three-month period from last year. The Data Display division increased 96.2% and 87% for the six months and three months ended August 31, 2022 compared to the same period in the prior year due to increases in the sales of CRTs to a large customer. The Company is expecting order(s) for a specialty product, a direct view storage tube (DVST) which should help revenues in the third quarter. Sales for this product have been slow due to the pandemic. The division expects to sell the DVST products for at least the next five to seven years. The Company’s keyboard division was down 30.1% for the six months ended August 31, 2022 and down 14.5% for three months ended August 31, 2022 respectively compared to the same periods last year. The Company acquired this company in October of 2017. This division is expected to continue at this level of sales each quarter.
Gross margins
Consolidated gross margins were increased both as a percentage to sales (26% from 11.1%) and actual dollars ($1,219 thousand from $418 thousand) for the six months ended August 31, 2022 compared to the six months ended August 31, 2021. For the three months ended August 31, 2022, consolidated gross margins increased as a percentage to sales (26.0% from 2.7%) and actual dollars ($512 thousand from $51 thousand).
VDC Display Systems gross margin dollars were $1,076 thousand compared to $352 thousand for the six months ended August 31, 2022 compared to the six months ended August 31, 2021. VDC Display Systems gross margin percentage also increased from 16.9% to 34.0% for the six months ended August 31, 2022 compared to the same six months in 2021. AYON Cyber Security gross margin dollars were $60 thousand compared to $217 thousand for the six months ended August 31, 2022 compared to the six months ended August 31, 2021. AYON Cyber Security gross margin percentage decreased to 22.1% from 41.4% for the six months ended August 31, 2022 compared to the same six month period in 2021 due to the sales mix of primarily service jobs as the material costs were lower.
The Data Display division had a gross margin of $0 compared to a negative gross margin of $392 thousand for the six months ended August 31, 2022 and August 31, 2021 respectively. The keyboard division, Unicomp, had $87 thousand of gross margin dollars or 17.8% to sales for the six months ending August 31, 2022 compared to $241 thousand or 34.3% for the six months ending August 31, 2021.
For the three months ended August 31, 2022, the display division (rugged displays, specialty displays, simulators and video walls) produced 74% of the Company’s gross margins. The division had an increase in gross margin percentage to sales from 7.7% last year to 34.2% this year. The Data division saw an increase in gross margins of $290 thousand from a negative $289 thousand the prior year quarter to $1 thousand this quarter. Unicomp gross margin dollars were flat with an increase in the percentage to sales. The cyber division had a decline in gross margin dollars of 67.1%.
Operating expenses
Operating expenses decreased 8.3% or $180 thousand for the six months ended August 31, 2022 compared to the six months ended August 31, 2021. The decrease was due primarily to the decreased costs in administration expenses. The Company reduced costs primarily in salaries, by not replacing staff when they resigned while business was slow. The Company expects to continue to control costs while increasing revenues in tempest services, specialized displays and ruggedized displays. When business increases we will look to fill some of the vacant positions.
 
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August 31, 2022
 
Operating expenses decreased by 4.7% or $48 thousand for the three months ended August 31, 2022 compared to the three months ended August 31, 2021. The decrease was due primarily to the reduction of salaries and contractor expenses including commissions.
Interest expense
Interest expense was $9 thousand for the six months ended August 31, 2022 compared to $14 thousand for the six months ended August 31, 2021. Interest expense was $4 thousand for the three months ended August 31, 2022 and August 31, 2021. Interest expense in fiscal 2023 relates primarily to interest expense on the lease of TEMPEST equipment.
Other Income/ expense
For the six months ended August 31, 2022, the Company received $498 thousand in proceeds from a class action lawsuit, $18 thousand in rental income, $32 thousand in retention credit revenue, $3 thousand on the sale of assets and $2 in interest income. For the six months ended August 31, 2021, the Company had $1.1 million in gains on the extinguishment of PPP loans, $107 thousand in rental income, and $4 thousand in debt recovery offset by $4 thousand in commissions on the rental income.
For the three months ended August 31, 2022 the Company received $498 thousand in proceeds from a class action lawsuit, had $3 thousand in rental income, $32 thousand in retention credit revenue and $2 in interest income. For the three months ended August 31, 2021, the Company had $1.1 million in gains on extinguishment of PPP loans, $56 thousand in rental income, $4 thousand in bad debt recovery, offset by $2 thousand in rental commissions.
Income taxes
Due to the Company’s overall and historical net loss position, no income tax has been reported and a full valuation allowance has been allocated to the deferred tax asset created by these losses.
Liquidity and Capital Resources
The accompanying unaudited interim condensed consolidated financial statements were prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company reported a net loss and a decrease in working capital for the
six-month
period ending August 31, 2022 primarily due to insufficient revenues in the Company. The Company also had a decrease in liquid assets for the six month period primarily as a result of the lack of revenue. The Company has sustained losses for the last three of five fiscal years and has seen overall a decline in working capital and liquid assets during this five -year period. Annual losses over this time are due to a combination of decreasing revenues across the divisions without a commensurate reduction of expenses. The Company’s working capital and liquid asset position are presented below (in thousands) as of August 31, 2022 and February 28, 2022:
 
    
August 31,

2022
      February 28,
2022		  
Working capital
   
$
194
 
    $ 509  
Liquid assets
   
$
241
 
    $ 245  
 
18
Table of Contents
Video Display Corporation and Subsidiaries
August 31, 2022
 
Management continues to implement plans to improve liquidity and to increase revenues at all divisions. The ability of the Company to continue as a going concern is dependent upon the success of management’s plans to improve revenues, the operational effectiveness of continuing operations, the procurement of suitable financing, or a combination of these. The uncertainty regarding the potential success of management’s plan create substantial doubt about the ability of the Company to continue as a going concern.
Cash used in operations for the six months ended August 31, 2022 was $0.4 million. Deductions to net loss of $0.2 million were $0.2 million for depreciation and amortization. Changes in working capital were $0.3 million, primarily change in contract assets of $0.8 million and a change in accounts receivable of $0.5 million, offset by a change in inventories of $0.5 million, a change in employee retention credit receivables of $0.3 million and a change in prepaid expenses and other assets of 0.2 million. Cash used in operations for the six months ended August 31, 2021 was $0.2 million. Adjustments to net loss of $0.6 million were $0.2 million for depreciation and amortization offset by $0.1 million for a change in inventory reserves and $1.1 million related to gain recorded on the extinguishment of the remaining PPP loans. Changes in working capital provided $1.4 million, primarily $0.2 million from accounts receivable and $0.5 million from the change in contract assets, by $0.2 million change in accounts payable and $0.5 million in inventories.
Investing activities used $10 thousand and $47 thousand for the six months ended August 31, 2022 and August 31, 2021 respectively for capital equipment.
Financing activities provided $0.4 million for the six months ended August 31, 2022 primarily from proceeds from additional borrowing from the Company’s CEO. Financing activities provided $183 thousand for the six months ended August 31, 2021 as the result of borrowings from the CEO of $250 thousand offset by payment of debt and lease payments.
The Company has a stock repurchase program, pursuant to which it has been authorized to repurchase up to 2,632,500 shares of the Company’s common stock in the open market. On January 20, 2014, the Board of Directors of the Company approved a
one-time
continuation of the stock repurchase program, and authorized the Company to repurchase up to 1,500,000 additional shares of the Company’s common stock on the open market, depending on the market price of the shares. There is no minimum number of shares required to be repurchased under the program.
For the six months ending August 31, 2022 and August 31, 2021, the Company did not purchase any shares of the Video Display Corporation stock. Under the Company’s stock repurchase program, an additional 490,186 shares remain authorized to be repurchased by the Company at August 31, 2022.
Critical Accounting Policies and Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon the Company’s interim condensed consolidated financial statements. These interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. These principles require the use of estimates and assumptions that affect amounts reported and disclosed in the interim condensed consolidated financial statements and related notes. The accounting policies that may involve a higher degree of judgments, estimates, and complexity include reserves on inventories, revenue recognition, and the sufficiency of the valuation reserve related to deferred tax assets. The Company uses the following methods and assumptions in determining its estimates:
Inventory Valuation
Management regularly reviews the Company’s investment in inventories for declines in value and writes down the cost when it is apparent that the expected net realizable value of the inventory falls below its carrying amount. The Company operates in an environment of constantly changing technologies and retains a certain amount of inventory for legacy products for maintenance and replacement capabilities for its customers. The Company maintains inventory on certain products to ensure it has adequate inventory to fulfill orders for transitioning product lines. Management reviews inventory levels on a quarterly basis. Such reviews include observations of product development trends of the original equipment manufacturers, new products being marketed, and technological advances relative to the product capabilities of the Company’s existing inventories.     
 
19
Table of Contents
Video Display Corporation and Subsidiaries
August 31, 2022
 
Revenue Recognition
We recognize revenue when we transfer control of the promised products or services to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those products or services. We derive our revenue primarily from sales of simulation and video wall systems, cyber secure products, data displays, and keyboards. We exclude sales and usage-based taxes from revenue.
Our simulation and video wall systems are custom-built (using commercial
off-the-shelf
products) to customer specifications under fixed price contracts. Judgment is required to determine whether each product and service is considered to be a distinct performance obligation that should be accounted for separately under the contract. Generally, these contracts contain one performance obligation (the installation of a fully functional system). We recognize revenue for these systems over time as control is transferred based on labor hours incurred on each project.
We recognize revenue related to our cyber secure products, data displays, and keyboards at a point in time when control is transferred to the customer (generally upon shipment of the product to the customer).
Timing of invoicing to customers may differ from timing of revenue recognition; however, our contracts do not include a significant financing component as substantially all of our invoices have terms of 30 days or less. We are applying the practical expedient to exclude from consideration any contracts with payment terms of one year or less and we never offer terms extending beyond one year.
Other Loss Contingencies
Other loss contingencies are recorded as liabilities when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. Disclosure is required when there is a reasonable possibility that the ultimate loss will exceed the recorded provision. Contingent liabilities are often resolved over long time periods. Estimating probable losses requires analysis of multiple factors that often depend on judgments about potential actions by third parties.
Income Taxes
Deferred income taxes are provided to reflect the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. As of August 31, 2022, the Company has established a valuation allowance of $5.6 million on the Company’s deferred tax assets.
The Company accounts for uncertain tax positions under the provisions of ASC 740, which contains a
two-step
approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not, that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating the Company’s tax positions and tax benefits, which may require periodic adjustments. At August 31, 2022, the Company did not record any liabilities for uncertain tax positions.
 
20
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Video Display Corporation and Subsidiaries
August 31, 2022
 
Forward-
Looking Information and Risk Factors
This report contains forward-looking statements and information that is based on management’s beliefs, as well as assumptions made by, and information currently available to management. When used in this document, the words “anticipate,” “believe,” “estimate,” “intends,” “will,” and “expect” and similar expressions are intended to identify forward-looking statements. Such statements involve a number of risks and uncertainties. These risks and uncertainties, which are included under Part I, Item 1A. Risk Factors in the Company’s Annual Report on Form
10-K
for the year ended February 28, 2022 could cause actual results to differ materially.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company’s primary market risks include changes in technology. The Company operates in an industry which is continuously changing. Failure to adapt to the changes could have a detrimental effect on the Company.
ITEM 4. CONTROLS AND PROCEDURES
Our disclosure controls and procedures (as defined in Exchange Act
Rule 13a-15(e))
are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, such as this quarterly report on
Form 10-Q,
is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Our disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.
Our chief executive officer and chief financial officer have conducted an evaluation of the effectiveness of our disclosure controls and procedures as of August 31, 2022. We perform this evaluation on a quarterly basis so that the conclusions concerning the effectiveness of our disclosure controls and procedures can be reported in our annual report on Form
10-K
and quarterly reports on Form
10-Q.
Based on this evaluation, our chief executive officer and chief financial officer have concluded that, as of such date, our disclosure controls and procedures were not effective due to an unremediated material weakness in our internal control over financial reporting as set forth below.
As we continue to evaluate our internal control over financial reporting, we may determine that additional measures should be taken to address the identified control deficiency or other deficiencies, and/or that we should modify the remediation plan described below.
Material Weakness in Internal Control Over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our consolidated financial statements will not be prevented or detected on a timely basis. In connection with management’s assessment of our internal control over financial reporting described above, management concluded that, as of August 31, 2022, a material weakness existed in our internal control over financial reporting.
Our material weakness related to the following control deficiency:
We did not design and maintain effective controls over inventory. Specifically, controls confirming that inventory received was recorded in the correct reporting period. In addition, controls pertaining to timely assessing and valuing inventory at the lower of cost or net realizable value while considering changes in technology and market conditions that may impact the valuation of inventory were not operating effectively. These control deficiencies in the aggregate resulted in a material weakness in internal control over financial reporting pertaining to inventory. The control deficiencies identified resulted in errors in the Company’s books and records which led to audit adjustments for the year ended February 28, 2022. The errors noted were not material to the financial statements reported in any interim or annual period and did not result in a revision to previously filed financial statements. However, these control deficiencies could result in misstatements of the aforementioned accounts and disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected in a timely manner. Accordingly, we have determined that these control deficiencies when evaluated in the aggregate constitute a material weakness.
 
 
21
Table of Contents
Video Display Corporation and Subsidiaries
August 31, 2022
 
Remediation of Material Weakness in Internal Control Over Financial Reporting
Management is committed to maintaining a strong internal control environment and is in the process of implementing control deficiency remediation efforts which includes retraining and hiring additional resources to assist with the inventory management processes. The Company believes that these remediation efforts will represent improvements in the related controls. The Company has started to implement these steps, however, some of these steps will take time to be fully integrated and confirmed to be effective and sustainable. Additional controls may also be required over time. Until the remediation steps set forth above are fully implemented and tested, the material weakness described above will continue to exist.
Changes in Internal Controls
There have not been any changes in our internal controls over financial reporting (as such term is defined in
Rules 13a-15(f) and
15d-15(f) under
the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
 
22
Table of Contents
Video Display Corporation and Subsidiaries
August 31, 2022
 
PART II
 
Item 1.
Legal Proceedings
None.
 
Item 1A.
Risk Factors
Information regarding risk factors appears under the caption Forward-Looking Information and Risk Factors in Part I, Item 2 of this Form
10-Q
and in Part I, Item 1A of our Annual Report on Form
10-K
for the fiscal year ended February 28, 2022. There have been no material changes from the risk factors previously disclosed in our Annual Report on Form
10-K.
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
None.
 
Item 3.
Defaults upon Senior Securities
None.
 
Item 4.
Submission of Matters to a Vote of Security Holders
None.
 
Item 5.
Other information
None.
 
Item 6.
Exhibits
 
Exhibit
Number
  
Exhibit Description
3(a)   Articles of Incorporation of the Company (incorporated by reference to Exhibit 3A to the Company’s Registration Statement on Form
S-18
filed January 15, 1985).(P)
3(b)  
By-Laws
of the Company (incorporated by reference to Exhibit 3B to the Company’s Registration Statement on
Form S-18
filed January 15, 1985).(P)
10(a)   Lease dated April 1, 2015 by and between Registrant (Lessee) and Ronald D. Ordway (Lessor) with respect to premises located at 1868 Tucker Industrial Road, Tucker, Georgia. (incorporated by reference to Exhibit 10(c) to the Company’s 2015 Annual Report on Form 10-K.)
10(b)   Lease dated February 19, 2015 by and between Registrant (Lessee) and Ordway Properties LLC (Lessor) with respect to premises located at 5155 King Street, Cocoa, FL. (incorporated by reference to Exhibit 10(g) to the Company’s 2015 Annual Report on Form 10-K.)
10(c)   Video Display Corporation 2006 Stock Incentive Plan. (incorporated by reference to Appendix A to the Company’s 2006 Proxy Statement on Schedule 14A)
31.1   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1   Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document
104   Cover Page Interactive Data File (embedded within the Inline XBRL document)
 
23
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
      VIDEO DISPLAY CORPORATION
October 17, 2022     By:  
/s/ Ronald D. Ordway
          Ronald D. Ordway
          Chief Executive Officer
October 17, 2022     By:  
/s/ Gregory L. Osborn
          Gregory L. Osborn
          Chief Financial Officer
 
 
24

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Ronald D. Ordway, certify that:

 

  1.

I have reviewed this quarterly report on Form 10-Q of Video Display Corporation;

 

  2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

  4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15f and 15d-15f) for the registrant and have:

 

  a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c)

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d)

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

 

  a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

 

Date: October 17, 2022      

/s/ Ronald D. Ordway

          Ronald D. Ordway
          Chief Executive Officer

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Gregory L. Osborn, certify that:

 

  1.

I have reviewed this quarterly report on Form 10-Q of Video Display Corporation;

 

  2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

  4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15f and 15d-15f) for the registrant and have:

 

  a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c)

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d)

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

 

  a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

 

Date: October 17, 2022      

/s/ Gregory L. Osborn

          Gregory L. Osborn
          Chief Financial Officer

Exhibit 32

CERTIFICATION

PURSUANT TO SECTION 906

OF

THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C SECTION 1350)

The undersigned, as the Chief Executive Officer of Video Display Corporation, certifies that, to the best of his knowledge and belief, the Quarterly Report on Form 10-Q for the quarter ended August 31, 2022 (the “Report”), which accompanies this certification, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Video Display Corporation at the dates and for the periods indicated. The foregoing certification is made pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) and shall not be relied upon for any other purpose.

 

                    This 17th day of October, 2022      

/s/ Ronald D. Ordway

          Ronald D. Ordway
          Chief Executive Officer

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Video Display Corporation and will be retained by Video Display Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

CERTIFICATION

PURSUANT TO SECTION 906

OF

THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C SECTION 1350)

The undersigned, as the Chief Financial Officer of Video Display Corporation, certifies that, to the best of his knowledge and belief, the Quarterly Report on Form 10-Q for the quarter ended August 31, 2022 (the “Report”), which accompanies this certification, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Video Display Corporation at the dates and for the periods indicated. The foregoing certification is made pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) and shall not be relied upon for any other purpose.

 

                    This 17th day of October, 2022      

/s/ Gregory L. Osborn

          Gregory L. Osborn
          Chief Financial Officer

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Video Display Corporation and will be retained by Video Display Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

The information in this Exhibit 32 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.