SEC Info - Video Display Corp. - ‘10-Q’ for 5/31/22

Video Display Corp. – ‘10-Q’ for 5/31/22

Video Display Corp. – ‘10-Q’ for 5/31/22

On: Wednesday, 7/20/22, at 2:33pm ET · For: 5/31/22 · Accession #: 1193125-22-198002 · File #: 0-13394

Previous ‘10-Q’: ‘10-Q’ on 1/14/22 for 11/30/21 · Next: ‘10-Q’ on 10/17/22 for 8/31/22 · Latest: ‘10-Q’ on 1/12/24 for 11/30/23 · 2 References:

Quarterly Report — Form 10-Q

Filing Table of Contents

‘10-Q’ — Quarterly Report

Document Table of Contents

This is an HTML Document rendered as filed. [ Alternative Formats ]

Dates Referenced Herein and Documents Incorporated by Reference

2 Previous Filings that this Filing References

On: Wednesday, 7/20/22, at 2:33pm ET · For: 5/31/22 · Accession #: 1193125-22-198002 · File #: 0-13394

Previous ‘10-Q’: ‘10-Q’ on 1/14/22 for 11/30/21 · Next: ‘10-Q’ on 10/17/22 for 8/31/22 · Latest: ‘10-Q’ on 1/12/24 for 11/30/23 · 2 References: To: Video Display Corp. – ‘10-K’ on 5/29/15 for 2/28/15 To: Video Display Corp. – ‘DEF 14A’ on 6/27/06 for 8/25/06

Quarterly Report — Form 10-QFiling Table of Contents

‘10-Q’ — Quarterly ReportDocument Table of Contents

This is an HTML Document rendered as filed. [ Alternative Formats ]

Dates Referenced Herein and Documents Incorporated by Reference

2 Previous Filings that this Filing References

Previous ‘10-Q’: ‘10-Q’ on 1/14/22 for 11/30/21 · Next: ‘10-Q’ on 10/17/22 for 8/31/22 · Latest: ‘10-Q’ on 1/12/24 for 11/30/23 · 2 References:

Quarterly Report — Form 10-Q

Filing Table of Contents

‘10-Q’ — Quarterly Report

Document Table of Contents

Page	(sequential)		(alphabetic)	↑Top
		Alternative Formats (Word, et al.) Controls and Procedures Defaults upon Senior Securities Exhibits Financial Statements Interim Condensed Consolidated Balance Sheets -- May 31, 2022 (unaudited) and February 28, 2022 Interim Condensed Consolidated Statements of Cash Flows -- Three months ended May 31, 2022 and 2021 (unaudited) Interim Condensed Consolidated Statements of Operations -- Three months ended May 31, 2022 and 2021 (unaudited) Interim Condensed Consolidated Statements of Shareholders' Equity -- Three months ended May 31, 2022 and 2021 (unaudited) Legal Proceedings Management's Discussion and Analysis of Financial Condition and Results of Operations May 31, 2022 (unaudited) and February 28, 2022 Notes to Interim Condensed Consolidated Financial Statements -- (unaudited) Other Information Quantitative and Qualitative Disclosure About Market Risk Risk Factors Signatures Submission of Matters to a Vote of Security Holders Table of Contents Three months ended May 31, 2022 and 2021 (unaudited) (Unaudited) Unregistered Sales of Equity Securities and Use of Proceeds
1	1st Page – Filing Submission
"	Table of Contents
"	Financial Statements
"	Interim Condensed Consolidated Balance Sheets -- May 31, 2022 (unaudited) and February 28, 2022
"	Interim Condensed Consolidated Statements of Operations -- Three months ended May 31, 2022 and 2021 (unaudited)
"	Interim Condensed Consolidated Statements of Shareholders' Equity -- Three months ended May 31, 2022 and 2021 (unaudited)
"	Interim Condensed Consolidated Statements of Cash Flows -- Three months ended May 31, 2022 and 2021 (unaudited)
"	Notes to Interim Condensed Consolidated Financial Statements -- (unaudited)
"	Management's Discussion and Analysis of Financial Condition and Results of Operations
"	Quantitative and Qualitative Disclosure About Market Risk
"	Controls and Procedures
"	Legal Proceedings
"	Risk Factors
"	Unregistered Sales of Equity Securities and Use of Proceeds
"	Defaults upon Senior Securities
"	Submission of Matters to a Vote of Security Holders
"	Other Information
"	Exhibits
"	Signatures

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM

i 10-Q

i ☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended i May 31, i 2022 / .

i ☐	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

i 0-13394

i VIDEO DISPLAY CORPORATION

(Exact name of registrant as specified on its charter)


GEORGIA		i 58-1217564
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

i 5155 KING STREET, i COCOA, FLORIDA i 32926

(Address of principal executive offices)

i 800- i 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
i Common Stock, no par value	i 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. i 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). i 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.

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

i ☐

As of May 31, 2022, the registrant had i 5,878,290 shares of Common Stock outstanding.

Table of Contents

Video Display Corporation and Subsidiaries

Index


			Page
PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Interim Condensed Consolidated Balance Sheets – May 31, 2022 (unaudited) and February 28, 2022		3

		Interim Condensed Consolidated Statements of Operations – Three months ended May 31, 2022 and 2021 (unaudited)		5

		Interim Condensed Consolidated Statements of Shareholders’ Equity - Three months ended May 31, 2022 and 2021 (unaudited)		6

		Interim Condensed Consolidated Statements of Cash Flows – Three months ended May 31, 2022 and 2021 (unaudited)		7

		Notes to Interim Condensed Consolidated Financial Statements – (unaudited)		8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14

	Item 3.	Quantitative and Qualitative Disclosure About Market Risk		20

	Item 4.	Controls and Procedures		20

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings		22

	Item 1A.	Risk Factors		22

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.		22

	Item 3.	Defaults upon Senior Securities.		22

	Item 4.	Submission of Matters to a Vote of Security Holders.		22

	Item 5.	Other Information.		22

	Item 6.	Exhibits		22

SIGNATURES				23
	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	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Table of Contents

Video Display Corporation and Subsidiaries

Interim Condensed Consolidated Statements of Cash Flows (unaudited)

(in thousands)


	Three Months Ended May 31,
	2022			2021
Operating Activities
Net loss	$	( i 295	)	$	( i 745	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation expense		i 67			i 63
Amortization of intangible assets		i 32			i 32
Provision for doubtful accounts		i —			( i 6	)
Provision for inventory reserve		i —			i 15
Gain on disposal of equipment		( i 3	)		i —
Other		i 7			i 4
Changes in working capital items:
Accounts receivable		( i 683	)		i 886
Inventories		i 359			i 83
Prepaid expenses and other assets		i 93			( i 41	)
Contract assets		( i 792	)		i 513
Employee retention credit refund receivable		i 185			i —
Customer deposits		i 38			( i 50	)
Accounts payable and accrued liabilities		i 600			( i 150	)

Net cash (used in) provided by operating activities		( i 392	)		i 604

Investing Activities
Capital expenditures		( i 3	)		( i 23	)
Proceeds from disposal of equipment		i 3			i —

Net cash used in investing activities		i —			( i 23	)

Financing Activities
Repayments of long-term debt		i —			( i 14	)
Repayments on lease financing		( i 26	)		( i 18	)
Proceeds from loans with officers and directors		i 326			i —

Net cash provided by (used in) financing activities		i 300			( i 32	)

Net change in cash and cash equivalents		( i 92	)		i 549
Cash and cash equivalents, beginning of year		i 245			i 293

Cash and cash equivalents, end of period	$	i 153		$	i 842

The accompanying notes are an integral part of these interim condensed consolidated statements.

Table of Contents

Video Display Corporation and Subsidiaries

May 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 months ended, May 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 months ended May 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

also had

a decrease in liquid assets for the three 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. i The Company’s working capital and liquid asset position are presented below (in thousands) as of May 31, 2022 and February 28, 2022:


	May 31, 2022		February 28, 2022
Working capital	$	i 348	$	i 509
Liquid assets	$	i 153	$	i 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

Table of Contents

Video Display Corporation and Subsidiaries

May 31, 2022

In order to assist funding operating activity, the Company’s CEO loaned an additional $ i 326,000 to the company during the first quarter of fiscal year 2023. There is i i no / line of credit outstanding or other financing currently in place other than the note payable with the Company CEO with a balance of $ i 784,000. 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 May 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.

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

i Inventories are stated at the lower of cost (first in, first out) or market and consisted of the following (in thousands):


	May 31, 2022		February 28, 2022
Raw materials	$	i 1,571	$	i 2,037
Work-in-process		i 1,085		i 846
Finished goods		i 327		i 459

	$	i 2,983	$	i 3,342

Table of Contents

Video Display Corporation and Subsidiaries

May 31, 2022

Note 5. – Paycheck Protection Promissory (“PPP”) Related Loans

On April 13, 2020, our Lexel Imaging subsidiary entered into a PPP loan for $ i 216,200 and on January 27, 2021, entered into a second round PPP loan for $ i 304,442. On April 23, 2020, Video Display Corporation entered into a $ i 772,000 first round PPP loan and on February 11, 2021, entered into a second round PPP loan for $ i 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 $ i 216,200 Lexel Imaging PPP loan in November 2020 and on the first round $ i 772,000 Video Display PPP loan in December 2020. The Company received forgiveness on the second round of PPP loans ($ i 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.

/ i

Note 6. – Note Payable to Officers and Directors (Related Party Transactions)

The Company increased borrowings by $ i 326 thousand to fund working capital needs and owes an additional $ i 50 thousand in Company rent for the quarter ending May 31, 2022 that is due to the CEO. The $ i 784 thousand note contains i no repayment terms and is expected to be repaid in i fiscal 2023 along with the $ i 410 thousand in rent owed. The note payable and rent owed are included in the Company’s consolidated balance sheets as of May 31, 2022 as a note payable to officers and directors and within accounts payable, respectively.

/ i

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):


	May 31, 2022
Assets
Operating lease right-of-use assets	$	i 493

Liabilities
Current portion of operating lease liabilities	$	i 200
Noncurrent portion of operating lease liabilities		i 293

Total operating lease liabilities	$	i 493

Operating lease costs are included in Cost of goods sold in the Company’s condensed consolidated statements of operations and totaled approximately $ i 114 thousand for the three months ended May 31, 2022 and $ i 149 thousand for the three months ended May 31, 2021.

Table of Contents

Video Display Corporation and Subsidiaries

May 31, 2022

Cash paid for amounts included in the measurement of operating lease liabilities was approximately $ i 114 thousand for the three months ended May 31, 2022 and $ i 145 thousand for the three months ended May 31, 2021. The Company did not modify any existing leases or execute any new leases during the three months ended May 31, 2022.

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


	May 31, 2022
Weighted average remaining lease term		i 2.8 years
Weighted average discount rate		i 6	%

/ i

The following table summarizes the maturity of the Company’s operating lease liabilities as of May 31, 2022 (in thousands):


FY2023	$	i 159
FY2024		i 190
FY2025		i 190

Total operating lease payments		i 539
Less imputed interest		( i 46	)

Total operating lease liabilities	$	i 493

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 $ i i 97 / thousand for the three months ended May 31, 2022 and the three months ended May 31, 2021.

The Company subleases certain of its warehousing space at its Kentucky location. The Tucker sublease expired concurrently with the head lease in i March 2022 and the Kentucky lease was month to month until i May 2022. The Tucker le

see 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 $ i 15,000 for the three months ended May 31, 2022 and $ i 51,000 for the three months ended May 31, 2021.

Financing Leases

The Company has one financing lease entered into on November 23, 2020 for Tempest testing equipment for $ i 277,000

and is included in machinery and equipment on the condensed consolidated balance sheets as of May 31, 2022 and February 28, 2022.

The lease expires on December 1, 2023 and the incremental borrowing rate on the lease is i 12.5%.

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


	May 31, 2022
Financing lease right-of-use assets	$	i 151

Current portion of financing lease liabilities	$	i 98
Noncurrent portion of financing lease liabilities		i 43

Total financing lease liabilities	$	i 141

Table of Contents

Video Display Corporation and Subsidiaries

May 31, 2022

The following table sets forth the computation of basic and diluted earnings (loss) per share for the three-month periods ended May 31, 2022 and 2021 (in thousands, except per share data):

Weighted

Average

Loss

Net

Common Shares

Per

Loss

Outstanding

Three months ended May 31, 2022

Basic

( i 295

)

i 5,878

( i 0.05

)

Effect of dilution:

Options

—

Diluted

( i 295

)

i 5,878

( i 0.05

)

Three months ended May 31, 2021

Basic

( i 745

)

i 5,878

( i 0.13

)

Effect of dilution:

Options

—

Diluted

( i 745

)

i 5,878

( i 0.13

)

Stock options, debentures, and other liabilities convertible into i 200,000 shares, of the Company’s common stock were anti-dilutive and, therefore, were excluded from the May 31, 2022 and 2021 diluted earnings (loss) per share calculations. For the three-month period ended May 31, 2022 and May 31, 2021, there was no expense related to share-based compensation as all options were fully vested. i i No / options were granted for the three month period ending May 31, 2022 or for the three month period ended May 31, 2021.

Stock Repurchase Program

The Company has a stock repurchase program, pursuant to which it had been authorized to repurchase up to i 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 i 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 quarter ending May 31, 2022 and May 31, 2021, the Company did i i no / t purchase any shares of the Video Display Corporation stock. Under the Company’s stock repurchase program, an additional i 490,186 shares remain authorized to be repurchased by the Company at May 31, 2022.

Note 10. – Income Taxes

Due to the Company’s overall and historical net loss position, i i no / income tax expense was reported for the three month period ending May 31, 2022 and May 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.

/ i

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.

Video Display Corporation and Subsidiaries

May 31, 2022

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:

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 three-month period ending May 31, 2022 primarily due to insufficient revenues in the Company. The Company also had a decrease in liquid assets for the three-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 May 31, 2022 and February 28, 2022:


	May 31, 2022		February 28, 2022
Working capital	$	348	$	509
Liquid assets	$	153	$	245

Video Display Corporation and Subsidiaries

May 31, 2022

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 $326,000 to the Company during the first quarter 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 $784,000. 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 May 31, 2022.

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.

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 three months ended May 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 months ended May 31, 2022 and 2021, the percentages that selected items in the Interim Condensed Consolidated Statements of Operations bear to total sales (amounts in thousands):

Video Display Corporation and Subsidiaries

May 31, 2022


	Three Months Ended May 31
	2022						2021
	Amount			%			Amount			%
Net Sales
Simulation and Training (VDC Display Systems)		2,052			72.2	%		1,011			54.4	%
Data Display CRT (Lexel and Data Display)		476			16.8			232			12.5
Cyber Secure Products (AYON Cyber Security)		72			2.5			204			11.0
Other Computer Products (Unicomp)		241			8.5			410			22.1

Total net sales		2,841			100.0	%		1,857			100.0	%
Costs and expenses
Cost of goods sold		2,130			75.0	%		1,490			80.2	%
Selling and delivery		149			5.2			158			8.5
General and administrative		870			30.6			993			53.5

		3,149			110.8	%		2,641			142.2	%
Operating loss		(308	)		(10.8	)%		(784	)		(42.2	)%
Interest (expense), net		(5	)		(0.2	)%		(10	)		(0.5	)%
Other income, net		18			0.6			49			2.6

Loss before income taxes		(295	)		(10.4	)%		(745	)		(40.1	)%
Income tax expense		—			—			—			—

Net loss		(295	)		(10.4	)%		(745	)		(40.1	)%

Net sales

Consolidated net sales increased 53.0% for the three months ended May 31, 2022 compared to the three months ended May 31, 2021. The Display Systems division increased 102.9% for the quarter or $1.0 million, due primarily to overall increase in activity on installations for simulators for two customers ($1.2 million). The Company’s AYON Cyber Security division decreased 64.7% for the quarter or $0.1 million compared to last year’s same quarter. The division is going through some changes to increase its TEMPEST service business and on the product side of the business, the division’s engineers are working on new products certain government agencies have requested and have submitted a new TEMPEST phone for approval. The Data Display division had an increase of 104.8% due to increased orders from its CRT customers. The Data division is working closely with the customers to place orders before some materials become unavailable prompting some customers to place additional orders. Lexel is working with customers in Asia for their needs on direct view storage tubes (DVST) and should have steady business driven by replacement CRTs for simulators, medical CRTs and phosphor coating business improvements. The keyboard division had a decrease in sales of 41.2%, the business has slowed this year after the launch of their new line up of keyboards last year produced strong last year’s first quarter. All divisions have experienced some form of delay in new orders from customers due to the pandemic, and supply chain issues but there are signs that businesses are finding ways to move forward.

Gross margins

Consolidated gross margins increased both as a percentage to sales (25.0% to 19.8%) and actual dollars ($711 thousand to $367 thousand) for the three months ended May 31, 2022 compared to the three months ended May 31, 2021.

The Display Systems division showed increases in both their gross margin percentage to sales and in actual dollars. VDC Display Systems gross margin percentage was 34.0% compared to 26.7% and the gross margin dollars were $697 thousand compared to $270 thousand for the three months ended May 31, 2022 compared to the three months ended May 31, 2021, an increase of 158.2%. AYON Cyber Security gross margin percentage was a negative 5.4% compared to 11.8% and the gross margin dollars were negative $4 thousand compared to $24 thousand for the three months ended May 31, 2022 compared to the three months ended May 31, 2021. AYON Cyber Security has seen very little product business, but is developing a TEMPEST video wall which customers have shown interest in and is marketing the service side of the business for testing other companies’ products which is expected to grow.

Video Display Corporation and Subsidiaries

May 31, 2022

The Data Display division had a negative gross margin of $1 thousand or a negative 0.3% compared to a negative gross margin of $103 thousand and a negative gross margin of 44.3% for the three months ended May 31, 2022 and May 31, 2021 respectively. The keyboard division, Unicomp, had $20 thousand of gross margin dollars or 8.2% to sales for the three months ending May 31, 2022 compared to $176 thousand or 43.0% for the three months ending May 31, 2021.

Operating expenses

Operating expenses decreased by 11.5% or $132 thousand for the three months ended May 31, 2022 compared to the three months ended May 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.

Interest expense

Interest expense was $5 thousand for the quarter ended May 31, 2022 compared to $10 thousand for the quarter ended May 31, 2021. The interest expense was on the lease of TEMPEST equipment.

Other Income/ expense

For the three months ended May 31, 2022, the Company had $15 thousand in rental income and $3 thousand on the sale of assets. For the three months ended May 31, 2021, the Company earned $51 thousand in rental income with $2 thousand in other expense for commissions on the rentals.

Income taxes

Due to the Company’s overall and historical net loss position, no income tax expense was reported for the three- month period ending May 31, 2022 and May 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.

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 three-month period ending May 31, 2022 primarily due to insufficient revenues in the Company. The Company did have a decrease in liquid assets for the three-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 May 31, 2022 and February 28, 2022:


	May 31, 2022		February 28, 2022
Working capital	$	348	$	509
Liquid assets	$	153	$	245

Video Display Corporation and Subsidiaries

May 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 quarter ended May 31, 2022 was $0.4 million. Deductions to net loss of $0.3 million were $0.1 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 $0.7 million offset by a change in accounts payable of $0.6 million, a change in inventory of $0.4 million and a change in employee retention credit receivables of $0.2 million. Cash provided by operations for the three months ended May 31, 2021 was $0.6 million. Adjustments to net loss of $0.7 million were $0.1 million for depreciation and amortization. Changes in working capital provided $1.2 million, primarily $0.9 million from accounts receivable and $0.5 million from the change in contract assets offset by $0.2 million change in accounts payable and accrued liabilities.

Investing activities used $3 thousand and $23 thousand for the periods ended May 31, 2022 and May 31, 2021 respectively for capital equipment.

Financing activities provided $0.3 million for the period ended May 31, 2022 from proceeds from additional borrowing from the Company’s CEO. Financing activities used $32 thousand in the period ended May 31, 2021 for 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 quarter ending May 31, 2022 and May 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 May 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.

Video Display Corporation and Subsidiaries

May 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 May 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 May 31, 2022, the Company did not record any liabilities for uncertain tax positions.

Video Display Corporation and Subsidiaries

May 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 May 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 May 31, 2022, a material weakness existed in our internal control over financial reporting.

Video Display Corporation and Subsidiaries

May 31, 2022

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.

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.

Video Display Corporation and Subsidiaries

May 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)


	May 31, 2022			February 28, 2022
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	i 153		$	i 245
Accounts receivable, less allowance for doubtful accounts of $ i 3 and $ i 3		i 1,073			i 390
Employee retention credit refund receivable		i 611			i 796
Inventories, net		i 2,983			i 3,342
Contract assets		i 1,236			i 444
Prepaid expenses and other current assets		i 204			i 297

Total current assets		i 6,260			i 5,514

Property, plant, and equipment
Buildings		i 778			i 778
Machinery and equipment		i 5,364			i 5,359

		i 6,142			i 6,137
Accumulated depreciation		( i 5,316	)		( i 5,247	)

Net property, plant, and equipment		i 826			i 890
Right of use assets under operating leases		i 493			i 592
Intangible assets, net		i 86			i 118
Other noncurrent assets		i 2			i 2

Total assets	$	i 7,667		$	i 7,116


	May 31, 2022			February 28, 2022
	(unaudited)
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable	$	i 1,945		$	i 1,465
Accrued liabilities		i 975			i 855
Contract liabilities		i 1,910			i 1,872
Note payable to officers and directors, current (Note 6)		i 784			i 458
Current maturities of financing lease obligations		i 98			i 98
Current operating lease liabilities		i 200			i 257

Total current liabilities		i 5,912			i 5,005
Finance lease obligations less current maturities		i 43			i 64
Long-term operating lease liabilities		i 293			i 333

Total liabilities		i 6,248			i 5,402

Shareholders’ Equity
Preferred stock, i i no / par value – i i 10,000 / shares authorized; i i i i no / / / ne issued and outstanding		i —			i —
Common stock, i i no / par value – i i 50,000 / shares authorized; i i 9,732 / issued and i i 5,878 / outstanding at May 31, 2022, and February 28, 2022		i 7,293			i 7,293
Additional paid-in capital		i 281			i 281
Retained earnings		i 10,127			i 10,422
Treasury stock, shares at cost; i i 3,854 / at May 31, 2022 and February 28, 2022		( i 16,282	)		( i 16,282	)

Total shareholders’ equity		i 1,419			i 1,714

Total liabilities and shareholders’ equity	$	i 7,667		$	i 7,116


		VIDEO DISPLAY CORPORATION

July 20, 2022	By:	/s/ *Ronald D. Ordway*
		Ronald D. Ordway
		Chief Executive Officer

July 20, 2022	By:	/s/ *Gregory L. Osborn*
		Gregory L. Osborn
		Chief Financial Officer

This ‘10-Q’ Filing	Date	Other Filings

	12/1/23
	2/28/23
	12/15/22
Filed on:	7/20/22
For Period end:	5/31/22	10-K, NT 10-Q
	3/31/22
	2/28/22	10-K
	5/31/21	10-Q
	3/1/21
	2/28/21	10-K
	2/11/21
	1/27/21
	11/23/20
	4/23/20
	4/13/20
	1/20/14
		List all Filings


Fiscal Year	Amount
2023	$	i 78
2024		i 78

Total finance lease payments	$	i 156
Less imputed interest		( i 15	)

Total finance lease liabilities	$	i 141


	Three Months Ended May 31,
	2022		2021

Cash paid for:
Interest	$	i 5	$	i 7

Large accelerated filer

Accelerated filer

i
Non-accelerated
filer

Smaller reporting company

Emerging growth company