UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM10-Q
☒ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Quarterly Period Ended AugustMay 31, 20172018.
or
☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Transition Period From to
Commission File Number0-13394
VIDEO DISPLAY CORPORATION
(Exact name of registrant as specified on its charter)
GEORGIA | 58-1217564 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) |
Identification No.) |
1868 TUCKER INDUSTRIAL ROAD,
TUCKER, GEORGIA 30084
(Address of principal executive offices)
770-938-2080
(Registrant’s telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, and accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☒ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ No ☒
As of AugustMay 31, 2017,2018, the registrant had 5,890,7485,878,290 shares of Common Stock outstanding.
Video Display Corporation and Subsidiaries
ITEM 1 | – FINANCIAL STATEMENTS |
Video Display Corporation and Subsidiaries
Interim Condensed Consolidated Balance Sheets (unaudited)
(in thousands)
August 31, 2017 | February 28, 2017 | May 31, 2018 | February 28, 2018 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Assets | ||||||||||||||||
Current assets | ||||||||||||||||
Cash and cash equivalents | $ | 205 | $ | 135 | $ | 168 | $ | 81 | ||||||||
Trading investments, at fair value | 363 | 368 | 98 | 180 | ||||||||||||
Accounts receivable, less allowance for doubtful accounts of $22 and $20 | 1,625 | 2,771 | ||||||||||||||
Note receivable to officers and directors | 183 | 175 | ||||||||||||||
Accounts receivable, less allowance for doubtful accounts of $32 and $19 | 1,807 | 664 | ||||||||||||||
Note receivable due from officers and directors (Note7) | 196 | 191 | ||||||||||||||
Inventories, net | 4,659 | 5,838 | 4,457 | 4,584 | ||||||||||||
Prepaid expenses and other | 173 | 246 | 81 | 65 | ||||||||||||
|
|
|
| |||||||||||||
Total current assets | 7,208 | 9,533 | 6,807 | 5,765 | ||||||||||||
|
|
|
| |||||||||||||
Property, plant, and equipment | ||||||||||||||||
Land | 154 | 154 | 154 | 154 | ||||||||||||
Buildings | 2,717 | 2,712 | 2,753 | 2,799 | ||||||||||||
Machinery and equipment | 5,881 | 5,539 | 5,751 | 5,753 | ||||||||||||
|
|
|
| |||||||||||||
8,752 | 8,405 | 8,658 | 8,706 | |||||||||||||
Accumulated depreciation and amortization | (7,246 | ) | (7,124 | ) | (7,252 | ) | (7,243 | ) | ||||||||
|
|
|
| |||||||||||||
Net property, plant, and equipment | 1,506 | 1,281 | 1,406 | 1,463 | ||||||||||||
|
|
|
| |||||||||||||
Note receivable | 496 | 590 | ||||||||||||||
Investment in LLC | 500 | — | ||||||||||||||
Note receivable due from officers and directors (Note 7) Investment in real estate partnership –related party (Note 7) | | 348 — |
| | 398 375 |
| ||||||||||
Other assets | 26 | 26 | 26 | 26 | ||||||||||||
|
|
|
| |||||||||||||
Total assets | $ | 9,736 | $ | 11,430 | $ | 8,587 | $ | 8,027 | ||||||||
|
|
|
|
The accompanying notes are an integral part of these interim condensed consolidated statements.
Video Display Corporation and Subsidiaries
Interim Condensed Consolidated Balance Sheets (unaudited) (continued)
(in thousands)
August 31, | February 28, | |||||||||||||||
2017 | 2017 | May 31, 2018 | February 28, 2018 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Liabilities and Shareholders’ Equity | ||||||||||||||||
Current liabilities | ||||||||||||||||
Accounts payable | $ | 584 | $ | 1,397 | $ | 1,636 | $ | 1,054 | ||||||||
Accrued liabilities | 807 | 834 | 628 | 877 | ||||||||||||
Current maturities of long-term debt | 55 | 54 | 56 | 55 | ||||||||||||
Customer deposits | 121 | 418 | 262 | 439 | ||||||||||||
Notes payable to officers and directors | 183 | 175 | ||||||||||||||
Billings in excess of cost | 225 | — | ||||||||||||||
Notes payable to officers and directors (Note 7) | 196 | 191 | ||||||||||||||
Notes payable for acquisition | 100 | 100 | ||||||||||||||
Line of credit | 301 | 237 | 57 | 227 | ||||||||||||
Income taxes payable | — | 10 | ||||||||||||||
Deferred rent | 30 | 60 | ||||||||||||||
|
|
|
| |||||||||||||
Total current liabilities | 2,051 | 3,125 | 3,190 | 3,003 | ||||||||||||
Long-term debt, less current maturities | 50 | 77 | 9 | 23 | ||||||||||||
Notes payable to officers and directors | 496 | 590 | ||||||||||||||
Deferred rent | 120 | 180 | ||||||||||||||
Notes payable to officers and directors (Note 7) | 705 | 398 | ||||||||||||||
Other liabilities | 49 | 17 | ||||||||||||||
|
|
|
| |||||||||||||
Total liabilities | 2,717 | 3,972 | 3,953 | 3,441 | ||||||||||||
|
|
|
| |||||||||||||
Shareholders’ Equity | ||||||||||||||||
Preferred stock, no par value – 10,000 shares authorized; none issued and outstanding | — | — | — | — | ||||||||||||
Common stock, no par value – 50,000 shares authorized; 9,732 issued and 5,891 outstanding at August 31, 2017 and February 28, 2017 | 7,293 | 7,293 | ||||||||||||||
Common stock, no par value – 50,000 shares authorized; 9,732 issued and 5,878 outstanding at May 31, 2018, and 9,732 issued and 5,887 outstanding at February28, 2018 | 7,293 | 7,293 | ||||||||||||||
Additional paid-in capital | 234 | 186 | 260 | 256 | ||||||||||||
Retained earnings | 15,760 | 16,247 | 13,363 | 13,309 | ||||||||||||
Treasury stock, shares at cost; 3,841 at August 31, 2017 and February 28, 2017 | (16,268 | ) | (16,268 | ) | ||||||||||||
Treasury stock, shares at cost; 3,854 and 3,845 at May 31, 2018 and February 28, 2018 | (16,282 | ) | (16,272 | ) | ||||||||||||
|
|
|
| |||||||||||||
Total shareholders’ equity | 7,019 | 7,458 | 4,634 | 4,586 | ||||||||||||
|
|
|
| |||||||||||||
Total liabilities and shareholders’ equity | $ | 9,736 | $ | 11,430 | $ | 8,587 | $ | 8,027 | ||||||||
|
|
|
|
The accompanying notes are an integral part of these interim condensed consolidated statements.
Video Display Corporation and Subsidiaries
Interim Condensed Consolidated Income Statements of Operations (unaudited)
(in thousands, except per share data)
Three Months Ended August 31, | Six Months Ended August 31, | Three Months Ended May 31, | ||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2018 | 2017 | |||||||||||||||||||
Net sales | $ | 3,161 | $ | 3,632 | $ | 7,058 | $ | 7,342 | $ | 4,021 | $ | 3,897 | ||||||||||||
Cost of goods sold | 2,683 | 3,042 | 5,983 | 6,336 | 3,025 | 3,300 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Gross profit | 478 | 590 | 1,075 | 1,006 | 996 | 597 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||
Selling and delivery | 226 | 216 | 469 | 448 | 249 | 243 | ||||||||||||||||||
General and administrative | 797 | 879 | 1,677 | 1,708 | 841 | 880 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
1,023 | 1,095 | 2,146 | 2,156 | 1,090 | 1,123 | |||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Operating loss | (545 | ) | (505 | ) | (1,071 | ) | (1,150 | ) | (94 | ) | (526 | ) | ||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Other income (expense) | ||||||||||||||||||||||||
Interest income/ (expense) | (4 | ) | (3 | ) | (8 | ) | — | |||||||||||||||||
Investment income/(loss) | (7 | ) | 139 | (6 | ) | 188 | ||||||||||||||||||
Interest income (expense) | (6 | ) | (4 | ) | ||||||||||||||||||||
Investment gains (loss) | (38 | ) | 1 | |||||||||||||||||||||
Other, net | 333 | (5 | ) | 603 | 206 | 192 | 270 | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
322 | 131 | 589 | 394 | 148 | 267 | |||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Income (loss) before income taxes | (223 | ) | (374 | ) | (482 | ) | (756 | ) | 54 | (259 | ) | |||||||||||||
|
|
|
| |||||||||||||||||||||
Income tax expense (benefit) | (2 | ) | 4 | 5 | 14 | |||||||||||||||||||
Income tax expense | — | 7 | ||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Net income (loss) | $ | (221 | ) | $ | (378 | ) | $ | (487 | ) | $ | (770 | ) | $ | 54 | $ | (266 | ) | |||||||
|
|
|
|
|
| |||||||||||||||||||
Net income (loss) per share: | ||||||||||||||||||||||||
Net loss per share-basic | $ | (0.04 | ) | $ | (0.06 | ) | $ | (0.08 | ) | $ | (0.13 | ) | ||||||||||||
Net loss per share-diluted | $ | (0.04 | ) | $ | (0.06 | ) | $ | (0.08 | ) | $ | (0.13 | ) | ||||||||||||
Net income (loss) per share-basic | $ | 0.01 | $ | (0.05 | ) | |||||||||||||||||||
Net income (loss) per share-diluted | $ | 0.01 | $ | (0.05 | ) | |||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Basic weighted average shares outstanding | 5,891 | 5,891 | 5,891 | 5,891 | 5,882 | 5,891 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Diluted weighted average shares outstanding | 5,891 | 5,891 | 5,891 | 5,891 | 6,073 | 5,891 | ||||||||||||||||||
|
|
|
|
|
|
The accompanying notes are an integral part of these interim condensed consolidated statements.
Video Display Corporation and Subsidiaries
Interim Condensed Consolidated Statement of Shareholders’ Equity
SixThree Months Ended AugustMay 31, 20172018 (unaudited)
(in thousands)
Common Shares* | Share Amount | Additional Paid-in Capital | Retained Earnings | Treasury Stock | ||||||||||||||||
Balance, February 28, 2017 | 5,891 | $ | 7,293 | $ | 186 | $ | 16,247 | $ | (16,268 | ) | ||||||||||
Net loss | — | — | — | (487 | ) | — | ||||||||||||||
Share based compensation | — | — | 48 | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance, August 31, 2017 | 5,891 | $ | 7,293 | $ | 234 | $ | 15,760 | $ | (16,268 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
Common Shares | Share Amount | Additional Paid-in Capital | Retained Earnings | Treasury Stock | Total | |||||||||||||||||||
Balance, February 28, 2018 | 5,887 | $ | 7,293 | $ | 256 | $ | 13,309 | $ | (16,272 | ) | $ | 4,586 | ||||||||||||
Net income | — | — | — | 54 | — | 54 | ||||||||||||||||||
Treasury Stock Purchase | (9 | ) | (10 | ) | (10 | ) | ||||||||||||||||||
Share based compensation | — | — | 4 | — | — | 4 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Balance, May 31, 2018 | 5,878 | $ | 7,293 | $ | 260 | $ | 13,363 | $ | (16,282 | ) | $ | 4,634 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these interim condensed consolidated statements.
Video Display Corporation and Subsidiaries
Interim Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)
Six Months Ended August 31, | Three Months Ended May 31, | |||||||||||||||
2017 | 2016 | 2018 | 2017 | |||||||||||||
Operating Activities | ||||||||||||||||
Net loss | $ | (487 | ) | $ | (770 | ) | ||||||||||
Net income (loss) | $ | 54 | $ | (266 | ) | |||||||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||||||||||
Depreciation and amortization | 119 | 119 | 62 | 58 | ||||||||||||
Provision for doubtful accounts | 3 | 8 | 13 | (3 | ) | |||||||||||
Provision for inventory reserve | 113 | 213 | 82 | 83 | ||||||||||||
Non-cash charge for share based compensation | 48 | 3 | 4 | 38 | ||||||||||||
Deferred rental income | (60 | ) | (60 | ) | (30 | ) | (30 | ) | ||||||||
Realized gain on investments | 5 | (178 | ) | |||||||||||||
Realized/Unrealized gain on investments | (51 | ) | (2 | ) | ||||||||||||
Changes in working capital items: | ||||||||||||||||
Accounts receivable | 1,144 | (1,055 | ) | (1,157 | ) | 964 | ||||||||||
Note receivable | 85 | 81 | 46 | — | ||||||||||||
Inventories | 1,066 | 297 | 45 | (114 | ) | |||||||||||
Prepaid expenses and other assets | 73 | (1,516 | ) | (14 | ) | 43 | ||||||||||
Customer deposits | (297 | ) | 1,569 | (177 | ) | (374 | ) | |||||||||
Accounts payable and accrued liabilities | (851 | ) | 766 | 571 | (419 | ) | ||||||||||
Cost, estimated earnings and billings on uncompleted contracts | — | (160 | ) | 225 | — | |||||||||||
Income taxes refundable/payable | — | 8 | — | 7 | ||||||||||||
|
|
|
| |||||||||||||
Net cash provided by (used in) operating activities | 961 | (675 | ) | |||||||||||||
Net cash used in operating activities | (327 | ) | (15 | ) | ||||||||||||
|
|
|
| |||||||||||||
Investing Activities | ||||||||||||||||
Capital expenditures | (343 | ) | (152 | ) | (5 | ) | (20 | ) | ||||||||
Purchases of investments | (1,153 | ) | (596 | ) | (906 | ) | (444 | ) | ||||||||
Investment in LLC | (500 | ) | — | |||||||||||||
Sales of investments | 1,121 | 793 | 1,148 | 599 | ||||||||||||
|
|
|
| |||||||||||||
Net cash provided by (used in) investing activities | (875 | ) | 45 | |||||||||||||
Net cash provided by investing activities | 237 | 135 | ||||||||||||||
|
|
|
| |||||||||||||
Financing Activities | ||||||||||||||||
Proceeds from related party loans | — | 846 | 357 | — | ||||||||||||
Proceeds from sale of investment in LLC | 166 | — | ||||||||||||||
Repayment of loans from related parties | (85 | ) | (85 | ) | (46 | ) | — | |||||||||
Proceeds/ repayments of line of credit and long-term debt | 37 | (25 | ) | |||||||||||||
Proceeds on marginal float | 32 | (202 | ) | |||||||||||||
Repayments of long-term debt | (14 | ) | — | |||||||||||||
Proceeds from line of credit | 31 | 103 | ||||||||||||||
Purchase of treasury stock | (10 | ) | — | |||||||||||||
Repayments of line of credit | (201 | ) | — | |||||||||||||
Payments on marginal float | (106 | ) | (134 | ) | ||||||||||||
|
|
|
| |||||||||||||
Net cash provided by (used in) financing activities | (16 | ) | 534 | 177 | (31 | ) | ||||||||||
|
|
|
| |||||||||||||
Net change in cash and cash equivalents | 70 | (96 | ) | 87 | 89 | |||||||||||
Cash and cash equivalents, beginning of year | 135 | 595 | 81 | 135 | ||||||||||||
|
|
|
| |||||||||||||
Cash and cash equivalents, end of period | $ | 205 | $ | 499 | $ | 168 | $ | 224 | ||||||||
|
|
|
|
The accompanying notes are an integral part of these interim condensed consolidated statements.
Video Display Corporation and Subsidiaries
AugustMay 31, 2017
Notes to Interim Condensed Consolidated Financial Statements2018
Note 1. – Summary of Significant Accounting Policies
The interim condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries after elimination of all significant intercompany accounts and transactions.
As contemplated by the Securities and Exchange Commission (the “SEC” or “Commission”) instructions to Form10-Q, the following footnotes have been condensed and, therefore, do not contain all disclosures required in connection with annual consolidated financial statements. Reference should be made to the Company’syear-end consolidated financial statements and notes thereto, including a description of the accounting policies followed by the Company, contained in its Annual Report on Form10-K as of and for the fiscal year ended February 28, 2017,2018, as filed with the Commission. There are no material changes in accounting policy during the sixthree months ended AugustMay 31, 2017.2018.
The condensed consolidated financial information included in this report has been prepared by the Company, without audit. In the opinion of management, the interim condensed consolidated financial information included in this report contains all adjustments (all of which are normal and recurring) necessary for a fair presentation of the results for the interim periods. Nevertheless, the results shown for interim periods are not necessarily indicative of results to be expected for the full year. The February 28, 20172018 consolidated balance sheet data was derived from the audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (U.S. GAAP).
Effective March 1, 2018 we adopted Accounting Standards Update (“ASU”)No. 2014-09, Revenue from Contracts with Customers and the additional related ASUs (ASC “606”), which replaces existing revenue guidance and outlines a single set of comprehensive principles for recognizing revenue under GAAP. We elected the modified retrospective method upon adoption with no impact to the opening retained earnings or revenue reported.
The adoption of ASC 606 represents a change in accounting principle that will more closely align revenue recognition with the delivery of the Company’s goods and services and will provide the financial statement readers with enhanced disclosures.
These standards provide guidance on recognizing revenue, including a five-step method to determine when revenue recognition is appropriate.
Step 1: Identify the contract with the customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations
Step 5: Recognize revenue as the Company satisfies a performance obligation
ASC 606 provides that revenue is recognized when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. We generally satisfy performance obligations upon shipment of the product or service to the customer. This is consistent with the time in which the customer obtains control of the product or service. For service contracts, which are transferred to the customer over time, revenue is recognized over time as the services are performed. Some contracts include installation services, which are completed in a short period of time and the revenue is recognized when the installation is complete. Customized products with no alternative future use to the Company, and that have an enforceable right to payment for performance completed to date, are also recorded over time. The Company considers this to be a faithful depiction of the transfer to the customer of revenue over time as the work or service is performed. Revenue is recognized as performance obligations are met, which includes design, manufacture of product/system, installation andset-up. In certain cases, we recognize revenue using thepercentage-of-completion method of accounting. These are fixed price contracts. These types of contracts are satisfied over time. Based on the nature of products provided or services performed, revenue is recognized as costs are incurred (the percentage of completion cost to cost method).
Video Display Corporation and Subsidiaries
May 31, 2018
Revenue is measured as the amount of consideration the Company expects to receive in exchange for the transfer of goods or services. Performance obligations in a contract are identified based on the products or services that are transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the product or service on its own or together with other resources and are distinct from other promises in the contract.
Note 2. – Financial Condition and Going ConcernBanking & Liquidity
The accompanying 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. TheEven though the Company reported net income for the period ending May 31, 2018 and a slight increase in working capital and liquid assets for the three month period, the Company has sustained losses for each of the last three fiscal years and has seen overall a decline in both its working capital and liquid assets during this time. Lossesthree year period. Annual losses over this time are due to a combination of decreasing revenues across allcertain divisions without a commensurate reduction of expenses. The Company’s working capital and liquid asset position are presented below (in thousands) as of AugustMay 31, 20172018 and February 28, 2017:2018:
August 31, 2017 | February 28, 2017 | May 31, 2018 | February 28, 2018 | |||||||||||||
Working capital | $ | 5,157 | $ | 6,408 | $ | 3,617 | $ | 2,762 | ||||||||
Liquid assets | $ | 568 | $ | 503 | $ | 266 | $ | 261 |
Management has implemented a plan to improve the liquidity of the Company. The Company has been fulfilling a plan to increase revenues at all the divisions, each structured to the particular division which has resulted with an increase in the current backlog. Operating costs decreased during the quarter ended August 31, 2017 compared to the same quarter last year by 6.6%backlog and versus the first quarter ending May 31, 2017 by 8.9%.growth in revenues. The Company has reduced other expenses at the divisions, as well as at the corporate location with the expectation that further decreases can be achieved. The completion ofCompany has completed the merger of the two Florida businesses into one facility and the relocation of Lexel Imaging into a new facility havefacility. These changes are projected to realize annual savings of approximately $500 thousand per year.through reduced expenses. Management continues to explore options to monetize certain long-term assets of the business. 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.
Video Display Corporation and Subsidiaries
August 31, 2017
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. – Fair Value Measurements and Financial Instruments
The Financial Accounting Standards Board’s (FASB’s) fair value measurement guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:
Video Display Corporation and Subsidiaries
May 31, 2018
Level 1 | Quoted prices in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. | |
Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | |
Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
Assets measured at fair value on a recurring basis by the Company consist of investment securities held for trading using Level 1 inputs. The following table sets forth financial assets and liabilities that were accounted for at fair value on a recurring basis as of AugustMay 31, 20172018 and February 28, 20172018 (in thousands):
August 31, 2017 | Level 1 Assets and Liabilities | Level 2 Assets and Liabilities | Level 3 Assets and Liabilities | |||||||||||||
Current trading investments: | ||||||||||||||||
Stocks, options and ETF (long) | 509 | 509 | — | — | ||||||||||||
Stocks, options and ETF (short) | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total value of investments | $ | 509 | $ | 509 | — | — | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Current Liabilities: | ||||||||||||||||
Margin balance | (146 | ) | (146 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total value of liabilities | (146 | ) | (146 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 363 | $ | 363 | — | — | ||||||||||
|
|
|
|
|
|
|
| |||||||||
February 28, 2017 | Level 1 Assets and Liabilities | Level 2 Assets and Liabilities | Level 3 Assets and Liabilities | |||||||||||||
Current trading investments: | ||||||||||||||||
Stocks, options and ETF (long) | 484 | 484 | — | — | ||||||||||||
Stocks, options and ETF (short) | (2 | ) | (2 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total value of investments | $ | 482 | $ | 482 | — | — | ||||||||||
Current Liabilities: | ||||||||||||||||
Margin balance | (114 | ) | (114 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total value of liabilities | (114 | ) | (114 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 368 | $ | 368 | — | — | ||||||||||
|
|
|
|
|
|
|
|
Video Display Corporation and Subsidiaries
August 31, 2017
May 31, 2018 | Level 1 Assets and Liabilities | Level 2 Assets and Liabilities | Level 3 Assets and Liabilities | |||||||||||||
Current trading investments: | ||||||||||||||||
Stocks, options and ETF (long) | 98 | 98 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total value of investments | $ | 98 | $ | 98 | — | — | ||||||||||
|
|
|
|
|
|
|
|
February 28, 2018 | Level 1 Assets and Liabilities | Level 2 Assets and Liabilities | Level 3 Assets and Liabilities | |||||||||||||
Current trading investments: | ||||||||||||||||
Stocks, options and ETF (long) | 291 | 291 | — | — | ||||||||||||
Stocks, options and ETF (short) | (5 | ) | (5 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total value of investments | $ | 286 | $ | 286 | — | — | ||||||||||
Current Liabilities: | ||||||||||||||||
Margin balance | (106 | ) | (106 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total value of liabilities | (106 | ) | (106 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 180 | $ | 180 | — | — | ||||||||||
|
|
|
|
|
|
|
|
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 were determined using Level 2 inputs and 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 interest rates that fluctuate with the market or are otherwise commensurate with the current market.
Video Display Corporation and Subsidiaries
May 31, 2018
Note 4. – Recent Accounting Pronouncements
In May, 2014, the FASB issued Accounting Standards Update No. (ASU) ASU2014-09,“Revenue with Contracts from Customers”.ASU 2014-09 clarifies the principles which created a single, comprehensive revenue recognition model for recognizing revenue and develops a common revenuefrom contracts with customers. The standard for U.S. GAAP and International Financial Reporting Standards (“IFRS”). The new guidance (i) removes inconsistencies, and weaknesses in revenue requirements, (ii) provides a more robust framework for addressing revenue issues, (iii) improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets, (iv) provides more useful information to users of financial statements through improved disclosure requirements, and (v) simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. The guidance iswas effective for interim and annual reporting periods beginning after December 15, 2016 including interim periods within that reporting period; however,2017 and may be adopted either retrospectively or on a one year delay has been approvedmodified retrospective basis. ASU2014-09 did not result in a significant change in the judgement or timing associated with the issuancerecognition of ASU 2015-14“Revenue with Contractsrevenue from Customers”.the sale of the Company’s products or services. The Company is still evaluating the effects that the adoption of this update will haveadopted ASU2014-09 on the Company’s consolidated financial position or results of operations.
In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory”. ASU 2015-11 requires an entity to measure inventory within the scope of this update at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation. The guidance is effectiveMarch 1, 2018. See Note 1 for annual reporting periods beginning after December 15, 2016 and related interim periods. Early adoption is permitted. The adoption of this standard did not have a material effect on its consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes”.ASU 2015-17 requires deferred tax assets and liabilities, along with related valuation allowances, to be classified as noncurrent on the balance sheet. Each tax jurisdiction will now only have one net noncurrent deferred tax asset or liability. The new guidance does not change the existing requirement that prohibits offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. The guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is permitted. The adoption of this standard did not have a material effect on its consolidated financial statements.additional information.
In February 2016, the FASB issued ASU2016-02,“Leases” “Leases”. ASU2016-02 increases transparency and comparability among organizations by requiring entities to recognize lease assets and lease liabilities on the balance sheet and disclose key information about the lease arrangements. The guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted. The Company is in the process of evaluating the impact of this guidance on the Company’s consolidated financial statements.
Video Display Corporation and Subsidiaries
August 31, 2017
Note 5. – Inventories
Inventories are stated at the lower of cost (first in, first out) or market and consisted of the following (in thousands):
August 31, | February 28, | |||||||||||||||
2017 | 2017 | May 31, 2018 | February 28, 2018 | |||||||||||||
Raw materials | $ | 4,829 | $ | 5,217 | $ | 4,448 | $ | 4,657 | ||||||||
Work-in-process | 570 | 1,001 | 487 | 403 | ||||||||||||
Finished goods | 1,245 | 1,519 | 1,004 | 923 | ||||||||||||
|
|
|
| |||||||||||||
6,644 | 7,737 | 5,939 | 5,983 | |||||||||||||
Reserves for obsolescence | (1,985 | ) | (1,899 | ) | (1,482 | ) | (1,399 | ) | ||||||||
|
|
|
| |||||||||||||
$ | 4,659 | $ | 5,838 | $ | 4,457 | $ | 4,584 | |||||||||
|
|
|
|
Note 6. – Line of Credit and Long-Term Debt
The Company has a $0.5 million line of credit with the Brand Banking Company with a current balance of $0.1 million at May 31, 2018. The line matured on June 30, 2018, is personally guaranteed by the Chief Executive Officer and Other Obligationshas an interest rate of LIBOR plus 3.75%. The line has been extended until July 31, 2018 while the Company and the bank work through the details of a new line of credit.
Long-termThe Company has outstanding debt consisted of the following (in thousands):$0.1 million secured by a building owned by its subsidiary, Teltron Technologies, Inc. in Birdsboro, PA.
August 31, | February 28, | |||||||
2017 | 2017 | |||||||
Mortgage payable to bank; interest rate at BB&T Bank base rate plus 0.5% (4.00% as of August 31, 2017); monthly principal and interest payments of $5 thousand payable through October 2021; collateralized by land and building of Teltron Technologies, Inc. | $ | 105 | $ | 131 | ||||
|
|
|
| |||||
105 | 131 | |||||||
Less current maturities | (55 | ) | (54 | ) | ||||
|
|
|
| |||||
$ | 50 | $ | 77 | |||||
|
|
|
|
The Company had no outstanding margin account borrowing as of May 31, 2018 and $0.1 million as of August 31, 2017 and February 28, 2017.2018. The margin account borrowings are used to purchase marketable equity securities and are netted against the investments in the balance sheet to show net trading investments. The gross investments were $0.5$0.3 million leaving net investments of $0.4$0.2 million after the margin account borrowings of $0.1 million as of August 31, 2017 andat February 28, 2017.2018. The margin interest rate is 2%.
Video Display Corporation and Subsidiaries
AugustMay 31, 20172018
Long-term debt consisted of the following (in thousands):
May 31, | February 28, | |||||||
2018 | 2018 | |||||||
Mortgage payable to bank; interest rate at BB&T Bank base rate plus 0.5% (5.25% as of May 31, 2018); monthly principal and interest payments of $5 thousand payable through October 2021; collateralized by land and building of Teltron Technologies, Inc. | $ | 65 | $ | 78 | ||||
|
|
|
| |||||
65 | 78 | |||||||
Less current maturities | (56 | ) | (55 | ) | ||||
|
|
|
| |||||
$ | 9 | $ | 23 | |||||
|
|
|
|
Note 7. – Related Party Transactions
On March 30, 2016, the Company entered into an assignment with recourse of the note receivable fromZ-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 ofZ-Axis as well as a personal guaranty of its majority shareholder.Z-Axis is current on all scheduled payments regarding this note. 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 byZ-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 secured borrowing in accordance with the provisions of ASC860-10. 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 $679$544 thousand and $765$589 thousand as of AugustMay 31, 20172018 and February 28, 2017,2018, respectively.
For the quarter ending May 31, 2018, the Company borrowed $357 thousand from Ronald D. Ordway, the CEO of the Company. As of May 31, 2018, the Company owes in aggregate $901 thousand to officers and directors.
On July 3, 2017, the Company and Ordway Properties, LLC purchased Honeyhill Properties, LLC which is the owner of the building at 510 Henry Clay Blvd. in Lexington, KY for $1,500,000. Video Display Corporation invested $500,000 towards the purchase price and is accountingaccounted for the investment under the cost method since Ordway Properties, LLC iswas the majority owner. TheDuring the period ending November 30, 2017 the Company is a one third ownerreduced its share in Honeyhillthe LLC by $125,000, selling to Ordway Properties, LLC. In addition, during the period ending May 31, 2018, the Company’s sold its remaining $375,000 ownership interest to Ordway Properties, LLC with Ordway Properties being a two thirds owner.receiving $166,457 in cash and $208,543 in forgiveness of rent that was accrued and owed. There was no gain or loss on the sale. The building is the new facility for the Company’s Lexel Imaging subsidiary, which had previously signed a five (5) year lease agreement with Honeyhill Properties, LLC on June 15, 2017 before the sale took place.2017.
Video Display Corporation and Subsidiaries
May 31, 2018
Note 8. – Supplemental Cash Flow Information
Supplemental cash flow information is as follows (in thousands):
Six Months | ||||||||||||||||
Ended August 31, | Three Months Ended May 31, | |||||||||||||||
2017 | 2016 | 2018 | 2017 | |||||||||||||
Cash paid for: | ||||||||||||||||
Interest | $ | 8 | $ | 9 | $ | 6 | $ | 4 | ||||||||
|
|
|
| |||||||||||||
Income taxes, net of refunds | $ | 23 | $ | 6 | ||||||||||||
|
| |||||||||||||||
Non-cash activity: | ||||||||||||||||
Note receivable paid directly to officer | $ | 85 | $ | 65 | $ | 46 | 42 | |||||||||
|
|
|
| |||||||||||||
Note payable to officer | $ | (85 | ) | $ | (65 | ) | $ | 46 | 42 | |||||||
|
|
|
| |||||||||||||
Reduction of accrued rent in lieu of cash received resulting from sale of remaining interest in Honeyhill interest (Note 7) | $ | 209 | — | |||||||||||||
|
| |||||||||||||||
Imputed interest expense | $ | 33 | $ | 42 | $ | 13 | 16 | |||||||||
|
| |||||||||||||||
Imputed interest income | $ | (33 | ) | $ | (42 | ) | $ | (13 | ) | (16 | ) | |||||
|
|
|
| |||||||||||||
Capital additions transferred from inventory | $ | 113 | — | $ | — | 113 | ||||||||||
|
|
|
|
Note 9. – Shareholder’s Equity
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing income or loss available to common shareholders by the weighted average number of common shares outstanding during each period. Shares issued during the period are weighted
Video Display Corporation and Subsidiaries
August 31, 2017
for the portion of the period that they were outstanding. Diluted earnings (loss) per share is calculated in a manner consistent with that of basic earnings (loss) per share while giving effect to all potentially dilutive common shares that were outstanding during the period.
Diluted earnings (loss) per share is not presented separately because there are no adjustments to the numerator in calculating dilutive net loss per share and all potentially dilutive common stock equivalents would be antidilutive. The following table presents a reconciliation of allsets forth the shares used in the calculationcomputation of basic and dilutivediluted earnings (loss) per share for the three and six monththree-month periods ended AugustMay 31, 20172018 and 20162017 (in thousands, except per share data):
Weighted | Net Income (Loss) | Weighted Average Common Shares Outstanding | Earnings (Loss) Per Share | |||||||||||||||||||||
Average | Earnings (Loss) | |||||||||||||||||||||||
Net | Common Shares | Per | ||||||||||||||||||||||
Income (Loss) | Outstanding | Share | ||||||||||||||||||||||
Six months ended August 31, 2017 | ||||||||||||||||||||||||
Three months ended May 31, 2018 | ||||||||||||||||||||||||
Basic | $ | (487 | ) | 5,891 | $ | (0.08 | ) | $ | 54 | 5,882 | $ | 0.01 | ||||||||||||
Effect of dilution: | ||||||||||||||||||||||||
Options | — | — | — | — | 191 | — | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Diluted | $ | (487 | ) | 5,891 | $ | (0.08 | ) | $ | 54 | 6,073 | $ | 0.01 | ||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Six months ended August 31, 2016 | ||||||||||||||||||||||||
Three months ended May 31, 2017 | ||||||||||||||||||||||||
Basic | $ | (770 | ) | 5,891 | $ | (0.13 | ) | $ | (266 | ) | 5,891 | $ | (0.05 | ) | ||||||||||
Effect of dilution: | ||||||||||||||||||||||||
Options | — | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Diluted | $ | (770 | ) | 5,891 | $ | (0.13 | ) | $ | (266 | ) | 5,891 | $ | (0.05 | ) | ||||||||||
|
|
|
|
|
| |||||||||||||||||||
Three months ended August 31, 2017 | ||||||||||||||||||||||||
Basic | $ | (221 | ) | 5,891 | $ | (0.04 | ) | |||||||||||||||||
Effect of dilution: | ||||||||||||||||||||||||
Options | — | — | — | |||||||||||||||||||||
|
|
| ||||||||||||||||||||||
Diluted | $ | (221 | ) | 5,891 | $ | (0.04 | ) | |||||||||||||||||
|
|
| ||||||||||||||||||||||
Three months ended August 31, 2016 | ||||||||||||||||||||||||
Basic | $ | (378 | ) | 5,891 | $ | (0.06 | ) | |||||||||||||||||
Effect of dilution: | ||||||||||||||||||||||||
Options | — | — | — | |||||||||||||||||||||
|
|
| ||||||||||||||||||||||
Diluted | $ | (378 | ) | 5,891 | $ | (0.06 | ) | |||||||||||||||||
|
|
|
The number of anti-dilutive equity based compensation awards at August
Video Display Corporation and Subsidiaries
May 31, 2017 and 2016 was 209,000 and 9,000.2018
Stock-Based Compensation Plans
For the six-monththree-month period ended AugustMay 31, 20172018 and 2016,2017, the Company recognized general and administrative expenses of $48$4 thousand and $3$38 thousand, respectively, related to share-based compensation. The liability for the share-based compensation recognized is presented in the consolidated balance sheet as part of additional paid in capital. As of AugustMay 31, 2017,2018, and AugustMay 31, 20162017 total unrecognized compensation costs related to stock options granted was $45$21 thousand and $2$77 thousand, respectively. The unrecognized stock option compensation cost is expected to be recognized over a period of approximately 3 years.
Video Display Corporation and Subsidiaries
August 31, 2017
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 remain outstanding based on historical information. Estimates of expected future stock price volatility are based on the historic volatility of the Company’s common stock, which represents the standard deviation of the differences in the weekly stock closing price, adjusted for dividends and stock splits.
140,000 new options and 60,000 replacement options were granted during the six month period ended August 31, 2017 and noNo options were granted for the sixthree month period ending AugustMay 31, 2016.2018 with 200,000 options granted during the three month period ended May 31, 2017.
Stock Repurchase Program
The Company has a stock repurchase program, pursuant to which it had been authorized to repurchase up to 2,632,500 shares of the Company’s common stock in the open market. On January 20, 2014, the Board of Directors of the Company approved aone-time continuation of the stock repurchase program, and authorized the Company to repurchase up to 1,500,000 additional shares of the Company’s common stock in the open market. There is no minimum number of shares required to be repurchased under the program.
For the six monthsquarter ending AugustMay 31, 20172018, the Company repurchased 8,858 shares at an average cost of $1.12 per share and Augustfor the quarter ending May 31, 2016,2017, the Company did not purchase any shares of the Video Display Corporation stock. Under the Company’s stock repurchase program, an additional 502,644490,186 shares remain authorized to be repurchased by the Company at AugustMay 31, 2017.2018.
Note 10. – Income Taxes
The effectiveDue to the Company’s overall and historical net loss position, no income tax rate for the six months ended August 31, 2017 and 2016 was (1.1%) and (1.4%) respectively. The Company lost $0.5 and $0.8 million dollars for the six months ending August 31, 2017 and August 31, 2016, respectively. Income tax expense of $5 thousand and $14 thousand was reported for the six months ended Augustthree month period ending May 31, 2018 with only $7 thousand reported for the comparable period in the prior period. Due to continued losses reported by the Company, a full valuation allowance was allocated to the deferred tax asset created by these losses. Income tax expense reported during the three month period ending May 31, 2017 and 2016, respectively, and pertains toresulted from state taxes owed related to the Lexel Imaging subsidiary which is located in Kentucky, due to profitability reported related to Lexel in 2017 with no offsetting state net operating losses. DueThere was no similar income tax expense reported for fiscal 2018 due to the consolidatednet operating losses generated by the Company, a full valuation allowance was allocated to the deferred tax asset created by the loss.Lexel.
Note 11. – Legal Proceedings
The Company is involved in various legal proceedings related to claims arising in the ordinary course of business.
On May 19, 2017, Lexel Imaging’s Chapter 11 Bankruptcy case was dismissed upon approval of a settlement agreement between Lexel Imaging (Lexel) and its landlord, Alidade Bull Lea, LLC (Alidade). The settlement agreement requires Lexel to surrender possession of the rental property on or before September 30, 2017 and remit to Alidade all past due rent of approximately $232 thousand. Lexel is also required to make payments totaling $100 thousand into an escrow account by July 28, 2017. These funds will be held by Alidade’s counsel until full and timely compliance with the settlement agreement are met, at which time the funds will be returned to Lexel.
The settlement agreement also stipulates certain events of default for non-compliance. Events of default include, but are not limited to the following; 1) failure to make timely payment of back owed rent, escrow payments, and ongoing monthly rents through the exit date, 2) failure to enter into a new lease agreement or asset purchase agreement for all or substantially all of Lexel’s assets, with an unaffiliated third party on or before June 30, 2017, and 3) failure to vacate the property as defined. In the event of non-compliance Lexel has agreed to the following; 1) escrow amounts will be forfeited, 2) a stipulated $200 thousand civil judgment will be awarded to Alidade, 3) eviction from the property within 10
Video Display Corporation and Subsidiaries
AugustMay 31, 20172018
days, and 4) Lexel will pay all legal fees incurred by Alidade related to enforcement of the settlement agreement and foregoing remedies. The Company complied with all of the stipulations and successfully vacated the building on September 15, 2017.
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 interim condensed consolidated financial statements and with the Company’s 20172018 Annual Report to Shareholders, which included audited condensed consolidated financial statements and notes thereto as of and for the fiscal year ended February 28, 2017,2018, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Video Display Corporation and Subsidiaries
May 31, 2018
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 fourfive 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 –CRTs– offers a wide range of CRTs for use in data display screens, including computer terminal monitors and medical monitoring equipment.
Broadcast and Control Center Products –offershigh-end visual display products for use in video walls and command and control centers.
Other Computer Products – offers a variety of keyboard products.
During fiscal 2018,2019, 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. During the quarter ended August 31, 2017, the expenses of the Company did increase over last year. See below in “Liquidity”. Challenges facing the Company during these efforts include:
Liquidity- The accompanying 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. TheEven though the Company reported net income for the period ending May 31, 2018 and a slight increase in working capital and liquid assets for the three month period, the Company has sustained losses for each of the last three fiscal years and has seen overall a decline in both its working capital and liquid assets during this time. Lossesthree year period. Annual losses over this time are due to a combination of decreasing revenues across allcertain divisions without a commensurate reduction of expenses. The Company’s working capital and liquid asset position are presented below (in thousands) as of AugustMay 31, 20172018 and February 28, 2017:2018:
August 31, 2017 | February 28, 2017 | |||||||
Working capital | $ | 5,157 | $ | 6,408 | ||||
Liquid assets | $ | 568 | $ | 503 |
Video Display Corporation and Subsidiaries
August 31, 2017
May 31, 2018 | February 28, 2018 | |||||||
Working capital | $ | 3,617 | $ | 2,762 | ||||
Liquid assets | $ | 266 | $ | 261 |
Management has implemented a plan to improve the liquidity of the Company. The Company has been fulfilling a plan to increase revenues at all the divisions, each structured to the particular division which has resulted with an increase in the current backlog. Operating costs decreased during the quarter ended August 31, 2017 compared to the same quarter last year by 6.6%backlog and versus the first quarter ending May 31, 2017 by 8.9%.growth in revenues. The Company has reduced other expenses at the divisions, as well as at the corporate location with the expectation that further decreases can be achieved. The completion ofCompany has completed the merger of the two Florida businesses into one facility and the relocation of Lexel Imaging into a new facility havefacility. These changes are projected to realize annual savings of approximately $500 thousand per year. Management continues to explore options to monetize certain long-term assets of the business. 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.
Video Display Corporation and Subsidiaries
May 31, 2018
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, to liquidate the subsidiary 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.
Inventory management – The Company’s business units utilize different inventory components than the divisions had in the past. The Company has a monthly 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 component parts for legacy products, although it believes the inventory will be sold in the future, will continue to reserve for any additional obsolescence. Management believes its inventory reserves at AugustMay 31, 20172018 and February 28, 20172018 are adequate.
Results of Operations
The following table sets forth, for the three and six months ended AugustMay 31, 20172018 and 2016,2017, the percentages that selected items in the Interim Condensed Consolidated Income Statements of Operations bear to total sales:
Three Months | Six Months | |||||||||||||||
Ended August 31, | Ended August 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Sales | ||||||||||||||||
Simulation and Training (VDC Display Systems) | 27.6 | % | 27.3 | % | 23.2 | % | 25.5 | |||||||||
Data Display CRT (Lexel and Data Display) | 29.7 | 54.2 | 40.5 | 56.7 | ||||||||||||
Broadcast and Control Centers (AYON Visual) | 3.5 | 4.0 | 12.0 | 5.0 | ||||||||||||
Cyber Secure Products (AYON Cyber Security) | 39.2 | 14.5 | 24.3 | 12.9 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Company | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | |||||||||
Costs and expenses | ||||||||||||||||
Cost of goods sold | 84.9 | % | 83.8 | % | 84.8 | % | 86.3 | |||||||||
Selling and delivery | 7.2 | 5.9 | 6.6 | 6.1 | ||||||||||||
General and administrative | 25.2 | 24.2 | 23.8 | 23.3 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
117.3 | % | 113.9 | % | 115.2 | % | 115.7 | ||||||||||
Operating loss | (17.3 | )% | (13.9 | )% | (15.2 | )% | (15.7 | ) | ||||||||
Interest income/expense | (0.1 | )% | (0.1 | )% | (0.1 | )% | — | |||||||||
Other income, net | 10.3 | 3.7 | 8.5 | 5.4 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Loss before income taxes | (7.1 | )% | (10.3 | )% | (6.8 | )% | (10.3 | ) | ||||||||
Income tax benefit/expense | (0.1 | ) | 0.1 | 0.1 | 0.2 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Net loss | (7.0 | )% | (10.4 | )% | (6.9 | )% | (10.5 | ) | ||||||||
|
|
|
|
|
|
|
|
Video Display Corporation and Subsidiaries
August 31, 2017
(in thousands) | Three Months Ended May 31 | |||||||||||||||
2018 | 2017 | |||||||||||||||
Net Sales | Dollars | Dollars | ||||||||||||||
Simulation and Training (VDC Display Systems) | 1,723 | 42.9 | % | 765 | 19.6 | % | ||||||||||
Data Display CRT (Lexel and Data Display) | 504 | 12.5 | 1,918 | 49.2 | ||||||||||||
Broadcast and Control Centers (AYON Visual) | 122 | 3.0 | 738 | 19.0 | ||||||||||||
Cyber Secure Products (AYON Cyber Security) | 1,314 | 32.7 | 476 | 12.2 | ||||||||||||
Other Computer Products (Unicomp) | 358 | 8.9 | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Company | 4,021 | 100.0 | % | 3,897 | 100.0 | % | ||||||||||
Costs and expenses | ||||||||||||||||
Cost of goods sold | 3,025 | 75.2 | % | 3,300 | 84.7 | % | ||||||||||
Selling and delivery | 249 | 6.2 | 243 | 6.2 | ||||||||||||
General and administrative | 841 | 20.9 | 880 | 22.6 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
4,115 | 102.3 | % | 4,423 | 113.5 | % | |||||||||||
Operating loss | (94 | ) | (2.3 | )% | (526 | ) | (13.5 | )% | ||||||||
Interest income (expense) | (6 | ) | (0.1 | )% | (4 | ) | (0.1 | )% | ||||||||
Investment gains (loss) | (38 | ) | (0.9 | ) | 1 | 0.0 | ||||||||||
Other income, net | 192 | 4.7 | 270 | 7.0 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Income (loss) before income taxes | 54 | 1.4 | % | (259 | ) | (6.6 | )% | |||||||||
Income tax expense | — | — | 7 | 0.2 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income (loss) | 54 | 1.4 | % | (266 | ) | (6.8 | )% | |||||||||
|
|
|
|
|
|
|
|
Net sales
Consolidated net sales decreased 3.9% for the six months ended August 31, 2017 and 13.0%increased 3.2% for the three months ended AugustMay 31, 20172018 compared to the six months and three months ended AugustMay 31, 2016.2017. The Company’s AYON Cyber Security division iswas up 81.0% and 134.8%176% or $0.8 million for the six monthsquarter from last year’s quarter. The division’s success is a combination of new business and three months ending August 31, 2017 compared to the comparable quarters last year. Their businessrepeat orders from several customers acquired in recent years. The division also has been steadily growinga strong backlog of over the past year and their backlog was $2.2 million at August 31, 2017 and they were informed the week of September 25th, they were the recipient of another $1.5 million order. AYON Visual Solutions sales increased 133.4% for the six months ended August 31, 2017, but decreased for the three months ended August 31, 2017 compared to the same quarters last year. AYON Visual Solutions business is project driven and they completed a couple of projects in the first quarter. They have completed all of their current projects and presently are bidding and seeking new projects. They do have smaller orders between the larger projects.$3.0 million. The Display Systems division was downup by 12.5% and 12.3%125% for the six monthsquarter or $1.0 million, due primarily to supply programs with major customers who are refreshing the projects with new enhancements. This division also has a strong backlog of over $2.5 million. The other increase in sales
Video Display Corporation and three months ended AugustSubsidiaries
May 31, 2017 compared to2018
was from the comparable periods last year.Company’s new keyboard division, which posted sales of $0.4 million. The Company acquired this company in October of 2017. This division is working with customers with projects expected to begin shipping in third and fourth quartercontinue at this year, similar to last year.level of sales each quarter. The Data Display division showed a decrease of 31.3% and 52.3% for the six months and three months ended August 31, 2017 compared to the same periods last year74% due to decreases throughout their customer base, and the completion of a large long term order with a foreign customer by the Lexel division, and the sale of certain assets of the Lexel division. The Lexel division will expect less revenues going forward as certain assets and business were sold in June, 2017. The Data division should have steady business driven by their number one customer’s orders for replacement CRTs for their simulators. AYON Visual Solution’s (AVS) sales decreased by 84% or $0.6 million. This division’s sales are primarily driven by large contracts. It had none in the quarter ending May 31, 2018 and had competed one in the first quarter last. The division’s primary supplier was sold to a competitor of the Company, so the future of this division is uncertain. AVS does have a certain amount of potential business in the works.
Gross margins
Consolidated gross margins were increased both as a percentage to sales (15.2%(24.8% to 13.7%15.3%) and actual dollars ($1,075996 thousand to $1,006$597 thousand) for the six months ended August 31, 2017 compared to the six months ended August 31, 2016. Gross margins decreased for the three months ended AugustMay 31, 20172018 compared to the three months ended AugustMay 31, 2016,2017.
The two Florida divisions performed well as the move to one facility is showing results. Both divisions showed large increases in both as atheir gross margin percentage to sales (15.1% to 16.2%) and in actual dollars, ($478 thousand to $590 thousand).
Three of the divisions showed an increase in their gross margin percentage. AYON Visual Solutions increased 263.1% with a $194 thousand increase in gross margins for the comparable six months ending August 31, 2017 based on completing two large projects.dollars. AYON Cyber Security increased 231.5% with a $753 thousand increase duegross margin percentage was 46.8% compared to the steady flow of orders for phones and some contract work which was service related. The Data Displays division increased gross margins by 179.4% or $107 thousand on the strength of steady orders from their top customer, a flight simulation company. VDC Display Systems division2.0% and the Lexel Imaging division both had a decrease in gross margins primarily duemargin dollars were $616 thousand compared to lower revenues. The Company has completed the move of AYON Cyber Security except for the machine shop and merged it with VDC Display Systems to control costs. Each of these divisions are expected to improve their results as the year progresses, AYON as it ships against its approximately +$3.0 million backlog and VDC Display Systems due to upcoming orders they have been pursuing. Both will benefit from economies of scale now that they are both in the same facility.
Gross margins$10 thousand for the three months ended AugustMay 31, 2017 were impacted by2018 compared to the move of Lexel Imaging from one facility to another, shutting down production temporarily, the sale of some of Lexel’s business to a competitorthree months ended May 31, 2017. VDC Display Systems gross margin percentage was 18.6% compared 3.9% and the completiongross margin dollars were $321 thousand compared to $30 thousand for the three months ended May 31, 2018 compared to the three months ended May 31, 2017. The new keyboard division, Unicomp, had $157 thousand of a large multi-year order by Lexelgross margin dollars or 43.8% to sales.
The other two divisions had an erosion of margins due to poor sales as discussed in the sales section above. The Data Display division was down $457 thousand in gross margin dollars and the completion of several projects by AYON Visual Solution. LexelSolution (AVS) division was down $197 thousand. The Data Division is expected to be up and runningdo better in the next quarter and is expected to be profitable with the reduction in overhead expenses as a result of the move.
Video Display Corporation and Subsidiaries
August 31, 2017
quarter.
Operating expenses
Operating expenses decreased by 0.5%2.9% or $10$33 thousand for the sixthree months ended AugustMay 31, 20172018 compared to the sixthree months ended AugustMay 31, 2016.2017. The expenses decreased despitedecrease was due to legal expenses of $165$133 thousand associated with the bankruptcy proceedings with Lexel Imaging and the legal expenses for the sale of certain assets of Lexel Imaging. Operating expenses decreasedImaging in the first quarter last year offset by 6.5% or $71 thousand for the three months ended August 31, 2017 compared to the three months ended August 31, 2017.higher engineering salaries at AYON Cyber Security. The Company expects to continue to reducecontrol costs while increasing revenues with the completion of the consolidation of its two Florida businesses to one location and the move of Lexel Imaging to a much lower cost facility. Both businesses have completed their moves.
Interest expense
Interest expense was $8$6 thousand for the six monthsquarter ending AugustMay 31, 2017and $4 thousand for the three months ending August 31, 20172018 and $4 thousand for the six monthsquarter ending August 31, 2016 and $0 for the six months ending August 31, 2016 and $3 for the three months ending AugustMay 31, 2017. The interest expense is related to the line of credit with the bank, the balance owed on a building the Company owns in Pennsylvania the line of credit at the Company’s bank and the interest on the margin balance in the Company’s investment account, which is a 2% rate.
Video Display Corporation and Subsidiaries
May 31, 2018
Other Income/ expense
For the sixthree months ended AugustMay 31, 2018, the Company earned $113 thousand on royalties, $33 thousand on the gain on the sale of equipment, $35 thousand in rental income, and $11 thousand in other, offset by losses in investments of $38 thousand. For the three months ended May 31, 2017, the Company earned $294 thousand on the sale of certain assets to a competitor, $208 thousand on royalties, $71 thousand in rental income and another net of $24 thousand on other income and expenses. For the six months ended August 31, 2016, the Company had $178 thousand in investment gains, $160 thousand in royalty income $60 thousand inand rental income $17 thousand in scrap sales and $9 thousand in dividend income offset by $92 thousand in asset disposals. For the three months ended August 31, 2017 the Company had other income of $326 thousand dollars, primarily $294 thousand on the sale of certain assets of Lexel Imaging compared to $134 thousand for the same three months last year.$34 thousand.
Income taxes
The effective tax rate for the six months ended August 31, 2017 and 2016 was (1.1%) and (1.4%) respectively. The Company lost $0.5 and $0.8 million dollars for the six months ended August 31, 2017 and August 31, 2016, respectively, which resulted in a tax expense of $5 thousand and $14 thousand in Kentucky state taxes for the Lexel Imaging subsidiary, respectively. 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, 2018 with only $7 thousand reported for the comparable period in the prior period. Due to continued losses reported by the Company, a full valuation allowance was allocated to the deferred tax asset created by the loss. The net effect of this allowance was to have zero Federalthese losses. Income tax expense forreported during the quarter ended Augustthree month period ending May 31, 2017 and August 31, 2016, respectively.resulted from state taxes owed related to the Lexel Imaging subsidiary which is located in Kentucky, due to profitability reported related to Lexel in 2017 with no offsetting state net operating losses. There was no similar income tax expense reported for fiscal 2018 due to net operating losses generated by Lexel.
Liquidity and Capital Resources
The accompanying 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. TheEven though the Company reported net income for the period ending May 31, 2018 and a slight increase in working capital and liquid assets for the three month period, the Company has sustained losses for each of the last three fiscal years and has seen overall a decline in both its working capital and liquid assets during this time. Lossesthree year period. Annual losses over this time are due to a combination of decreasing revenues across allcertain divisions without a commensurate reduction of expenses. The Company’s working capital and liquid asset position are presented below (in thousands) as of AugustMay 31, 20172018 and February 28, 2017:2018:
August 31, 2017 | February 28, 2017 | |||||||
Working capital | $ | 5,157 | $ | 6,408 | ||||
Liquid assets | $ | 568 | $ | 503 |
Video Display Corporation and Subsidiaries
August 31, 2017
May 31, 2018 | February 28, 2018 | |||||||
Working capital | $ | 3,617 | $ | 2,762 | ||||
Liquid assets | $ | 266 | $ | 261 |
Management has implemented a plan to improve the liquidity of the Company. The Company has been fulfilling a plan to increase revenues at all the divisions, each structured to the particular division which has resulted with an increase in the current backlog. Operating costs decreased during the quarter ended August 31, 2017 compared to the same quarter last year by 6.6%backlog and versus the first quarter ending May 31, 2017 by 8.9%.growth in revenues. The Company has reduced other expenses at the divisions, as well as at the corporate location with the expectation that further decreases can be achieved. The completion ofCompany has completed the merger of the two Florida businesses into one facility and the relocation of Lexel Imaging into a new facility havefacility. These changes are projected to realize annual savings of approximately $500 thousand per year. Management continues to explore options to monetize certain long-term assets of the business. 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 revenues, the operational effectiveness of continuing operations, to liquidate the subsidiary 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.
Video Display Corporation and Subsidiaries
May 31, 2018
Cash providedused by operations for the sixthree months ended AugustMay 31, 20172018 was $0.9$0.3 million. The net lossearnings from operations was $0.5$0.1 million and adjustments to reconcile net lossincome to net cash were $0.2$0.1 million including inventory reserves, depreciation andnon-cash charges for share based compensation. Changes in working capital provided $1.2used $0.5 million, primarily due to a decrease in inventory of $1.1 million, a decreasean increase in accounts receivable of $1.1 million smaller adjustments totalingand a decrease in customer deposits of $0.2 million, offset by a decrease in accounts payable of $0.9$0.6 million, a decreaseand an increase in customer depositsbillings in excess of $0.3costs of $0.2 million. Cash used by operations for the sixthree months ended AugustMay 31, 20162017 was $0.7$0.0 million.
Investing activities used $0.9provided $0.2 million. $1.1 million was used for the purchase of investment securities $0.5 million for the purchase of a one third interest in an LLC (owns building rented by Lexel Imaging), and $0.4 million for capital improvements offset by $1.1$0.9 million for the sale of investment securities for the sixthree months ended AugustMay 31, 2017.2018. Investing activities provided a negligible amountcash of cash$0.1 million during the sixthree months ended AugustMay 31, 2016.2017.
Financing activities provided $0.2 million for the quarter ended May 31, 2018. The sale of an LLC provided $0.2 million and a loan from the Company’s CEO provided another $0.4 million. This was offset by repayments to the line of credit of $0.2 million and repayment of margin borrowing in the Company’s investment account of $0.1 million. Financing activities were negligible for the sixthree months ended AugustMay 31, 2017. Financing activities provided $0.5 million primarily due to the proceeds from related party loan of $0.8 million offset by the repayment of $0.1 million to the CEO and $0.2 million for the repayment of margin dollars in the investment account for the six months ended August 31, 2016.
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 aone-time continuation of the stock repurchase program, and authorized the Company to repurchase up to 1,500,000 additional shares of the Company’s common stock on the open market, depending on the market price of the shares. There is no minimum number of shares required to be repurchased under the program.
For the six months ended Augustquarter ending May 31, 20172018, the Company repurchased 8,858 shares at an average cost of $1.12 per share and Augustfor the quarter ending May 31, 2016,2017, the Company did not repurchasepurchase any shares.shares of the Video Display Corporation stock. Under the Company’s stock repurchase program, an additional 502,644490,186 shares remain authorized to be repurchased by the Company at AugustMay 31, 2017.2018.
Critical Accounting 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:
Video Display Corporation and Subsidiaries
August 31, 2017
Reserves on Inventories
Reserves on inventories result in a charge to operations 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. 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. Management believes its inventory reserves at AugustMay 31, 20172018 and February 28, 201729, 2018 are adequate.
Video Display Corporation and Subsidiaries
May 31, 2018
Revenue Recognition
Effective March 1, 2018 we adopted Accounting Standards Update (“ASU”)No. 2014-09,Revenue from Contractswith Customers and the additional related ASUs (ASC “606”), which replaces existing revenue guidance and outlines a single set of comprehensive principles for recognizing revenue under GAAP. These standards provide guidance on recognizing revenue, including a five-step method to determine when revenue recognition is appropriate. ASC 606 provides that revenue is recognized when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. We generally satisfy performance obligations upon delivery of the product or service to the customer. This is consistent with the time in which the customer obtains control of the product or service. In certain cases, we recognize revenue using thepercentage-of-completion method of accounting. Based on the salenature of products when the products are shipped, all significant contractual obligations have been satisfied, and the collection of the resulting receivable is reasonably assured. The Company’s delivery term typically is F.O.B. shipping point.
In accordance with ASC 605-45 “Revenue Recognition: Principal Agent Considerations”, shipping and handling fees billed to customers are classified in net sales in the consolidated income statements. Shipping and handling costs incurred are classified in selling and delivery in the consolidated income statements.
A portion of the Company’sprovided or services performed, revenue is derived from contracts to manufacture simulation systems to a buyers’ specification. These contractsrecognized as costs are accounted for under the provisions of ASC 605-35 “Revenue Recognition:Construction-Type and Production-Type Contracts”. These contracts are fixed-price and cost-plus contracts and are recorded on theincurred (the percentage of completion basis usingcost to cost method). We elected the ratio of costs incurredmodified retrospective method upon adoption with no impact to estimated total costs at completion as the measurement basis for progress toward completion andopening retained earnings or revenue recognition. Any losses identified on contracts are recognized immediately. Contract accounting requires significant judgment relative to assessing risks, estimating contract costs and making related assumptions for schedule and technical issues. With respect to contract change orders, claims, or similar items, judgment must be used in estimating related amounts and assessing the potential for realization. These amounts are only included in contract value when they can be reliably estimated and realization is probable.reported.
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 AugustMay 31, 20172018 and February 28, 20172018 the Company has established a valuation allowance of $7.6$5.8 million and $7.4 million, respectivelyfor both periods on the Company’s current andnon-current deferred tax assets.
The Company accounts for uncertain tax positions under the provisions of ASC 740, which contains atwo-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
Video Display Corporation and Subsidiaries
August 31, 2017
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 AugustMay 31, 2017,2018, the Company did not record any liabilities for uncertain tax positions.
Recent Accounting Pronouncements
In May, 2014, the FASB issued Accounting Standards Update No. (ASU) ASU2014-09,“Revenue with Contracts from Customers”.ASU 2014-09 clarifies the principles which created a single, comprehensive revenue recognition model for recognizing revenue and develops a common revenuefrom contracts with customers. The standard for U.S. GAAP and International Financial Reporting Standards (“IFRS”). The new guidance (i) removes inconsistencies, and weaknesses in revenue requirements, (ii) provides a more robust framework for addressing revenue issues, (iii) improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets, (iv) provides more useful information to users of financial statements through improved disclosure requirements, and (v) simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. The guidance iswas effective for interim and annual reporting periods beginning after December 15, 2016 including interim periods within that reporting period; however,2017 and may be adopted either retrospectively or on a one year delay has been approvedmodified retrospective basis. ASU2014-09 did not result in a significant change in the judgement or timing associated with the issuancerecognition of ASU 2015-14“Revenue with Contractsrevenue from Customers”.the sale of the Company’s products or services. The Company is still evaluating the effects that the adoption of this update will haveadopted ASU2014-09 on the Company’s consolidated financial position or results of operations.
In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory”. ASU 2015-11 requires an entity to measure inventory within the scope of this update at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation. The guidance is effectiveMarch 1, 2018. See Note 1 for annual reporting periods beginning after December 15, 2016 and related interim periods. Early adoption is permitted. The adoption of this standard did not have a material effect on its consolidated financial statements.
In November 2015, the FASB issued Accounting Standards Update No. (ASU 2015-17), “Balance Sheet Classification of Deferred Taxes”.ASU 2015-17 requires deferred tax assets and liabilities, along with related valuation allowances, to be classified as noncurrent on the balance sheet. Each tax jurisdiction will now only have one net noncurrent deferred tax asset or liability. The new guidance does not change the existing requirement that prohibits offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. The guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is permitted. The adoption of this standard did not have a material effect on its consolidated financial statements.additional information.
In February 2016, the FASB issued ASU2016-02,“Leases” “Leases”. ASU2016-02 increases transparency and comparability among organizations by requiring entities to recognize lease assets and lease liabilities on the balance sheet and disclose key information about the lease arrangements. The guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted. The Company is in the process of evaluating the impact of this guidance on the Company’s consolidated financial statements.
Video Display Corporation and Subsidiaries
May 31, 2018
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 Form10-K for the year ended February 28, 20172018 could cause actual results to differ materially.
Video Display Corporation and Subsidiaries
August 31, 2017
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 ActRule 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 onForm 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 AugustMay 31, 2017.2018. 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 onForm 10-K and quarterly reports onForm 10-Q. Based on this evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective as of AugustMay 31, 2017.2018.
Changes in Internal Controls
There have not been any changes in our internal controls over financial reporting (as such term is defined inRules 13a-15(f) and 15d-15(f)and15d-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
AugustMay 31, 20172018
Item 1. | Legal Proceedings |
None.
Item 1A. | Risk Factors |
Information regarding risk factors appears under the caption Forward-Looking Statements and Risk Factors in Part I, Item 2 of this Form10-Q and in Part I, Item 1A of our Annual Report on Form10-K for the fiscal year ended February 28, 2017.2018. There have been no material changes from the risk factors previously disclosed in our Annual Report on Form10-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 |
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
VIDEO DISPLAY CORPORATION | ||||||
| By: | /s/ Ronald D. Ordway | ||||
Ronald D. Ordway | ||||||
Chief Executive Officer |
| By: | /s/ Gregory L. Osborn | ||||
Gregory L. Osborn | ||||||
Chief Financial Officer |
24