Notes to Consolidated Financial Statements

Note 1. Summary of Significant Accounting Policies

Nature of Business

Video Display Corporation and subsidiaries (the “Company”, ”our” or “we”) is a provider and manufacturer of video products, components, and systems for data display and presentation of electronic information media in various requirements and environments. The Company designs, engineers, manufactures, markets, distributes and installs technologically advanced display products and systems, from basic components to turnkey systems for government, military, aerospace, medical and commercial organizations. The Company serves the simulation, ruggedized displays, video wall design and installation, tempest products, tempest services, cathode ray tubes (CRTS) and keyboard manufacturing.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after elimination of all intercompany accounts and transactions. Certain reclassifications have been made to prior year amounts to conform to the current year presentation.

Fiscal Year

All references herein to “2021” and “2020” mean the fiscal years ended February 28, 2021 and February 29, 2020, respectively.

Basis of Accounting

“The FASB Accounting Standards Codification” (“FASB ASC”) establishes the source of authoritative accounting standards generally accepted in the United States of America (“U.S. GAAP”) recognized by the Financial Accounting Standards Board (“FASB”). Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. The FASB amends the FASB ASC through Accounting Standards Updates (“ASUs”). ASCs and ASUs are referred to throughout these consolidated financial statements.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Examples include provisions for returns, warranty reserves, bad debts, inventory reserves, valuations on deferred income tax assets, other intangible assets, accounting for percentage of completion contracts and the length of product life cycles and fixed asset lives. Actual results could vary from these estimates.

Going Concern, Banking and Liquidity

The accompanying 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 has sustained losses for three of the last five years. The accumulated losses reported has resulted from a combination of lower revenues at certain divisions without a commensurate reduction of expenses. The Company’s working capital and liquid asset position is presented as follows:

During 2021, the Company sold a building it owned in Pennsylvania (Note 9) which provided $2 million in cash proceeds and also received approximately $2 million in PPP loans, of which $988 thousand has been forgiven to date (Note 3). Cash proceeds resulting from the sale of the building were utilized to satisfy certain debt obligations in addition to supporting operations.

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Management’s plans with regard to these matters are as follows: The Company has increased marketing efforts in its ruggedized displays, tempest services and small specialty displays. In addition, the Company has streamlined its operations and is focusing on increasing revenues by executing initiatives such as upgrading its sales and marketing efforts including a more user friendly website to market all the product lines it sells. The Company was able to increase revenue over the prior year and has been implementing a plan to increase revenues at all the divisions, each structured to the particular division. The Company has expanded its cyber security business by adding a second testing chamber and a new testing machine for testing tempest products allowing it to increase the business in cyber testing services to supplement the product side of the business. The Company completed the transfer of the remaining CRT operations in Florida to its Lexel Imaging facility in Lexington, KY in order to make room for the new business in its Cocoa facility. This will also reduce expenses in the CRT operation by having that business all under one roof. 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 plan is to further reduce expenses by closing the Tucker, Georgia facility as soon as the lease expires in 2022. There is no line of credit or other financing currently in place other than the remaining PPP loans.

If additional and more permanent capital is required to fund the operations of the Company, no assurance can be given that the Company will be able to obtain the capital on terms favorable to the Company, if at all.

The ability of the Company to continue as a going concern is dependent upon the success of management’s plans to improve the operational effectiveness of the operations, to sell strategic assets as noted above, 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.

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 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.

Contract assets represents revenue recognized in excess of amounts billed. Contract liabilities represents amounts collected prior to having completed performance on certain of our simulation or video wall system projects and are reported as Customer deposits on the accompanying consolidated balance sheets. The change in contract liabilities is due to the timing of customer deposits for orders offset by customer deposits recognized as revenue during the period. As of February 28, 2021 and February 29, 2020, approximately $664 thousand and $404 thousand, respectively, of revenue is expected to be recognized from remaining performance obligations for percentage of completion projects (including deferred revenue as well as amounts that will be invoiced and recognized as revenue in future periods). We expect to recognize revenue for these remaining performance obligations over the next 24 months. We have elected not to provide disclosures regarding remaining performance obligations for contracts with a term of 1 year or less.

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The following table presents the Company’s revenue disaggregated by division (in thousands):

Cash and Cash Equivalents and Investments

We consider all highly liquid investments purchased with original maturities of three months or less to be cash or cash equivalents. Investment securities that are held by the Company, are bought and held principally for the purpose of selling them in the near term, are classified as “trading” and principally consist of equity securities and mutual funds. These trading investments are carried at fair value with realized gains or losses and changes in fair value included in operations.

Assets measured at fair value on a recurring basis by the Company consist of investment securities that are held for trading using Level 1 inputs. The Company owned investment securities during each of the last two fiscal years. However, all investment security positions were liquidated as of February 28, 2021 and February 29, 2020.

The Company’s financial instruments which are not measured at fair value on the consolidated balance sheets include cash, accounts receivable, short-term liabilities, and debt. The estimated fair value of these financial instruments approximate cost due to the short period of time to maturity. Recorded amounts of long-term debt are considered to approximate fair value due to either rates that fluctuate with the market or are otherwise commensurate with the current market.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are customer obligations due under normal trade terms. The Company sells its products primarily to general contractors, government agencies, manufacturers, and consumers of video displays and CRTs. Management performs continuing credit evaluations of its customers’ financial condition and although the Company generally does not require collateral, letters of credit may be required from its customers in certain circumstances, such as foreign sales. The allowance for doubtful accounts is determined by reviewing all accounts receivable and applying credit loss experience to the current receivable portfolio with consideration given to the current condition of the economy, assessment of the financial position of the creditors as well as payment history and overall trends in past due accounts compared to established thresholds. The Company monitors credit exposure and assesses the adequacy of the allowance for doubtful accounts on a regular basis. Historically, the Company’s allowance has been sufficient for any customer write-offs. Management believes accounts receivable are stated at amounts expected to be collected.

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The following is a roll-forward of the allowance for doubtful accounts (in thousands):

Warranty Reserves

The Company records a liability for estimated warranty obligations at the date products are sold. Adjustments are made as new information becomes available.

The warranty reserve is determined by recording a specific reserve for known warranty issues and a general reserve based on claims experience. The Company considers actual warranty claims compared to net sales, then adjusts its reserve liability accordingly. Actual claims incurred could differ from the original estimates, requiring adjustments to the reserve. Management believes that historically its procedures have been adequate and does not anticipate that its assumptions are reasonably likely to materially change in the future.

Inventories

Inventories consist primarily of CRTs, electron guns, monitors, digital projectors, video components and electronic parts. Inventories are stated at the lower of cost (first-in, first-out) or market.

Reserves on inventories result in a charge to cost of goods sold when the estimated net realizable value declines below cost. Management regularly reviews the Company’s investment in inventories for declines in value and establishes reserves when it is apparent that the expected net realizable value of the inventory falls below its carrying amount. The reserve for inventory obsolescence was approximately $0.8 million at February 28, 2021 and February 29, 2020.

The Company’s remaining business units utilize different inventory components than the divisions had in the past. The Company provides for an obsolescence reserve at each of its divisions to offset any obsolescence although most purchases are for current orders, which should reduce the amount of obsolescence in the future. The Company still has CRT inventory in stock and, although it believes the inventory will be sold in the future, will continue to reserve for any additional obsolescence.

Property, Plant and Equipment

Property, plant, and equipment are stated at cost. Depreciation is computed principally by the straight-line method for financial reporting purposes over the following estimated useful lives: Buildings – ten to twenty-five years; Machinery and Equipment – five to ten years. In addition, leasehold improvements are amortized over the shorter of the useful life of the asset or the related lease term. Depreciation expense totaled approximately $223 thousand and $226 thousand for the fiscal years ended 2021 and 2020, respectively. Substantial betterments to property, plant, and equipment are capitalized and routine repairs and maintenance are expensed as incurred.

Business Combinations

When the Company acquires businesses, it applies the acquisition method of accounting and recognizes the identifiable assets acquired, the liabilities assumed, and any non-controlling interests in an acquiree at their fair values on the acquisition date, which requires significant estimates and assumptions. Goodwill, if any, would be measured as the excess of the fair value of the consideration transferred over the net of the acquisition date fair values of the identifiable assets acquired and liabilities assumed. The acquisition method requires the Company to record provisional amounts for any items for which the accounting is not complete at the end of a reporting period. The Company must complete the accounting during the measurement period, which cannot exceed one year. Adjustments made during the measurement period could have a material impact on the Company’s financial condition and results of operations.

The Company typically measures customer relationship and other intangible assets using an income approach. Significant estimates and assumptions used in this approach include discount rates and certain assumptions that form the basis of the forecasted cash flows expected to be generated from the asset (e.g., future revenue growth rates, operating margins and attrition rates). If the subsequent actual results and updated projections of the underlying

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business activity change compared with the assumptions and projections used to develop these values, the Company could record impairment charges. In addition, the Company has estimated the economic lives of certain acquired tangible and intangible assets and these lives are used to calculate depreciation and amortization expense. If the Company’s estimates of the economic lives change, depreciation or amortization expenses could be increased or decreased, or the acquired asset could be impaired.

Impairment of Long-lived Assets

Management reviews and assesses long-lived assets, which includes property, plant, and equipment and intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, management estimates the future cash flows expected to result from the use of the asset. If the sum of the undiscounted expected cash flows is less than the carrying amount of the asset, an impairment loss is recognized based upon the estimated fair value of the asset. The Company did not recognize any impairment charges associated with its long-lived or intangible assets.

Share-Based Compensation Plans

The Company accounts for employee share-based compensation under the fair value method and uses an option pricing model for estimating the fair value of stock options at the date of grant.

Share Repurchase Program

The Company has a share 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. During the fiscal years ended February 28, 2021 and February 29, 2020, the Company did not repurchase any of its shares. Under this program, an additional 490,186 shares remain authorized to be repurchased by the Company at February 28, 2021.

Income Taxes

The Company accounts for income taxes under the asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s consolidated financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than possible enactments of changes in the tax laws or rates.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company has determined that a valuation allowance is needed due to recent taxable net operating losses, the sale of profitable divisions and the limited taxable income in the carry back periods. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and certain tax loss carryforwards, less any valuation allowance.

The Company accounts for uncertain tax positions as required in that a position taken or expected to be taken in a tax return is recognized in the consolidated financial statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. As of February 28, 2021 and February 29, 2020, the Company did not have any material unrecognized tax benefits.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as components of interest expense and other expense, respectively, in arriving at pretax income. The Company did not have any interest and penalties accrued as of February 28, 2021 and February 29, 2020.

The Company’s tax years ended back to fiscal 2018 remain open to examination by the Internal Revenue Service (“IRS”).

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Earnings (Loss) per Share

Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares outstanding during each year. Shares issued or repurchased during the year are weighted for the portion of the year that they were outstanding. Diluted earnings per share is calculated in a manner consistent with that of basic earnings per share while giving effect to all potentially dilutive common shares that were outstanding during the period.

The following is a reconciliation of basic earnings (loss) per share to diluted earnings (loss) per share for 2021 and 2020, (in thousands, except for per share data):

Stock options convertible into 200,000 shares of the Company’s common stock were anti-dilutive in fiscal 2020 due to the net loss position and therefore, were excluded from the fiscal 2020 diluted earnings (loss) per share calculation.

Segment Reporting

An operating segment is defined as a component that engages in business activities, whose operating results are reviewed by the chief operating decision maker in order to make decisions about allocating resources, and for which discrete financial information is available. We operate and manage our business as one reportable segment. All of our divisions have similarities such as products and markets served; therefore, we believe they meet the criteria for aggregation under the applicable authoritative guidance and, as such, these operations are reported as one segment within the consolidated financial statements.

Sales to foreign customers were 7% of consolidated net sales for fiscal 2021 and 11% of consolidated net sales for fiscal 2020.

Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

Effective March 1, 2020 we adopted Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820-10): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which changes the fair value measurement disclosure requirements of ASC Topic 820, Fair Value Measurements and Disclosures. Under this ASU, certain disclosure requirements for fair value measurements are eliminated, amended or added. 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, 2020 and prescribes different transition methods for the various provisions. The adoption of ASU 2018-13 did not have a material impact on the Company’s financial statements and disclosures.

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Recent Accounting Pronouncements Not Yet 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. The Company does not expect the adoption of ASU 2019-12 to have a material impact on its financial statements and related disclosures.

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.

The following is a roll forward of the inventory reserves (in thousands):

During fiscal 2021 and 2020, the Company wrote off or disposed of inventories of $0.1 and $0.1 million, respectively, of which all were previously reserved for through inclusion in the inventory reserve.    

Note 3. Paycheck Protection Promissory (“PPP”) Related Loans

On April 13, 2020 our Lexel Imaging subsidiary entered into a Paycheck Protection Promissory Note (the “PPP Loan”) with the Central Bank 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 with the Renasant Bank and on February 11, 2021, entered into a second round PPP Loan with Central Bank for $780,112. The PPP Loans were made under, and are 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. The terms of the two outstanding loans are five years with maturity dates of January 27, 2026 and February 11, 2026 and they contain a fixed annual interest rate of 1.00%. Payments of principle and interest on the PPP Loans are deferred for the first sixteen months of the term of the PPP Loans until July 27, 2022 and August 11, 2022, respectively. Principle and interest are payable monthly and may be prepaid by the Company at any time prior to maturity with no prepayment penalties. 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 will be determined, subject to limitations, 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.

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The Company believes it has used the proceeds of the PPP Loans for Qualifying Expenses. 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 $988,200 debt forgiveness was recorded as a gain upon debt extinguishment in the consolidated statements of operations with the related liability removed from the consolidated balance sheets.

As of February 28, 2021, the Company has a long-term liability of $1,084 thousand related to the second round outstanding PPP Loans on the consolidated balances sheets.

Note 4. Notes Receivable and Payable to Officers and Directors (Related Party Transactions)

On March 30, 2016, the Company entered into an assignment with recourse of the note receivable from Z-Axis Inc. (Z-Axis) with Ronald D. Ordway, CEO, and Jonathan R. Ordway, related parties, for the sum of $912 thousand. The note receivable is collateralized by a security interest in the shares of Z-Axis as well as a personal guaranty of its majority shareholder. The Company retains the right to repurchase the note at any time for 80% of the outstanding principle balance. Also, in the event of default by Z-Axis, the Company is obligated to repurchase the note for 80% of the remaining principle balance plus any accrued interest. Accordingly, the Company has recognized this transaction as a secured borrowing. The $0.9 million, 9% interest rate note originated on March 30, 2016, with payments beginning on April 16, 2016 and continuing for 56 months thereafter. The balance of the note was paid off in December 2020.

In January 2020, to assist the Company in funding the debt assumed resulting from the acquisition of Jaco Displays, LLC, the Company borrowed $505,180 from Ronald D. Ordway, CEO, comprised of cash proceeds received of $148,330 with the remaining $356,850 in debt assumed as the CEO personally funded certain liabilities resulting from the acquisition. The Company combined this amount borrowed with another $438,832 owed to Mr. Ordway in back rent along with $82,838 from previous borrowings, and signed a promissory note for the aggregate balance of $1,026,850 at a six percent interest rate due on or before July 24, 2020 with Mr. Ordway. The Company made a $35,000 payment to Mr. Ordway in March 2020 and borrowed another $200,000 in August 2020 leaving a balance of $1,191,850 at August 31, 2020. This note was paid in full on September 11, 2020 with part of the proceeds from the sale of a building the Company owned in Pennsylvania as disclosed in Note 9. From November 2020 through January 2021, the Company borrowed an additional $400,000 from the CEO which was paid in full in February 2021. The CEO also forgave approximately $36,000 in accrued interest on these loans.

As of February 28, 2021, there are no notes receivables or notes payables outstanding with officers and directors.

Accrued liabilities consisted of the following (in thousands):

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Note 6. Stock Options

The Video Display Corporation 2006 Stock Incentive Plan (“Plan”), provides options to purchase up to 500,000 shares of the Company’s common stock may be granted and up to 100,000 restricted common stock shares may be awarded. Options may not be granted at a price less than the fair market value, determined on the day the options are granted. Options granted to a participant who is the owner of ten percent or more of the common stock of the Company may not be granted at a price less than 110% of the fair market value, determined on the day the options are granted. The exercise price of each option granted is fixed and may not be re-priced. The life of each option granted is determined by the plan administrator, but may not exceed the lesser of seven years from the date the participant has the vested right to exercise the option, or nine years from the date of the grant. The life of an option granted to a participant who is the owner of ten percent or more of the common stock of the Company may not exceed five years from the date of grant. All full-time or part-time employees, and Directors of the Company, are eligible for participation in the Plan. In addition, any consultant or advisor who renders bona fide services to the Company, other than in connection with the offer or sale of securities in a capital-raising transaction, is eligible for participation in the Plan. The Plan may be terminated by action of the Board of Directors.

Information regarding the stock option plans is as follows:

The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing model, which requires the Company to estimate the expected term of the stock option grants and expected future stock price volatility over the term. The term represents the expected period of time the Company believes the options will be outstanding based on historical information. Estimates of expected future stock price volatility are based on the historic volatility of the Company’s common stock. The Company calculates the historic volatility based on the weekly stock closing price, adjusted for dividends and stock splits. The fair value of the stock options is based on the stock price at the time the option is granted, the annualized volatility of the stock and the discount rate at the grant date. No options were granted in fiscal 2020 or 2021.

For the fiscal year ended February 28, 2021, there was no expense recognized on options as all options outstanding were fully vested. There was $7 thousand of share-based compensation in general and administrative expense in the statements of operations for the year ended February 29, 2020. As of February 28, 2021, there was no unrecognized compensation costs related to stock options.

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Significant components of the Company’s net deferred income tax assets consist of the following (in thousands):

Deferred tax assets have been reduced by a valuation allowance because, in the opinion of management, it is more likely than not that the Company’s deferred tax assets will not be realized. The Company has determined that a 100% valuation allowance is needed due to historical cumulative taxable net operating losses and the limited taxable income related to the carry back periods. The Company has available federal and state net operating loss carry forwards of $16.6 million and $14.9 million, for the fiscal years ending February 28, 2021 and February 29, 2020, respectively. The net operating loss carry forwards expire at various dates through fiscal 2041, if not used.

Note 8. Benefit Plan

The Company maintains defined contribution plans that are available to all employees. The Company did not make a contribution in the fiscal year ended February 28, 2021 or February 29, 2020 to the Company’s 401(k) plan.

Note 9. Commitments and Contingencies

Operating Leases

The Company leases its office space and manufacturing facilities and equipment 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. The Company has one finance lease.

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Balance sheet information related to operating leases is as follows (in thousands):

Rent expense is included in Cost of goods sold in the Company’s consolidated statements of operations and totaled approximately $0.6 million for both fiscal 2021 and fiscal 2020. The Company did not have any variable lease costs or short-term lease costs for the year ended February 28, 2021.

Cash paid for amounts included in the measurement of operating lease liabilities was approximately $0.6 for both fiscal 2021 and fiscal 2020. The Company did not modify any existing operating leases or execute any new operating leases during the fiscal year ended February 28, 2021.

Weighted average information associated with the measurement of the Company’s remaining operating lease obligations is as follows:

The following table summarizes the maturity of the Company’s operating lease liabilities as of February 28, 2021 (in thousands):

The Company subleases certain of its warehousing space and also leased a building that it owned in Pennsylvania until it was sold in September 2020 for net proceeds of $2,028 thousand which resulted in a gain on sale of assets in the amount of $1,724 thousand as recorded on the consolidated statements of operations. The remaining sublease expires concurrently with the operating lease in March 2022. Sublease income and lease income are included in Other income, net in the Company’s consolidated statements of operations and totaled approximately $0.3 million for the year ended February 28, 2021. Lease payments to be received as of February 28, 2021 are as follows (in thousands):

Financing Leases

The Company has one financing lease entered into on November 23, 2020 for Tempest testing equipment for $277,000. The lease expires on December 1, 2023 and the incremental borrowing rate on the lease is 12.5%.

Balance sheet information related to financing lease is as follows (in thousands):

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The following table summarizes the maturity of the Company’s finance lease liabilities as of February 28, 2021 (in thousands):

Related Party Leases

Included in the operating lease section 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. Rent expense under these leases totaled approximately $0.4 million in fiscal 2021 and in fiscal 2020.    

Future minimum rental payments due under leases with related parties are as follows (in thousands):

Legal Proceedings

The Company is involved in various legal proceedings relating to claims arising in the ordinary course of business.

Note 10. Concentrations of Risk and Major Customers

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash, accounts receivable and historically investments prior to liquidation. At times, such cash in banks are in excess of the FDIC insurance limit.

The Company sells to a variety of domestic and international customers on an open-unsecured account basis, in certain cases requiring letters of credit. These customers principally operate in the medical, military, and avionics industries. The Company had direct and indirect net sales to the U.S. government, primarily the Department of Defense for training and simulation programs, which comprised approximately 48% and 52% of consolidated net sales in fiscal 2021 and 2020, respectively. Sales to foreign customers were 7% of consolidated net sales in fiscal 2021 and 11% of consolidated net sales in fiscal 2020. The Company had two customers who each comprised more than 10% of the Company’s sales in fiscal year 2021 (aggregated 36%). These accounts are in good standing with the Company.

The Company attempts to minimize credit risk by reviewing all customers’ credit history before extending credit, by monitoring customers’ credit exposure on a daily basis and requiring letters of credit for certain sales. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.

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