UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM
10-Q
 
FORM
10-Q
 
 
☒
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended August 31,November 30, 2021.
or
 
☐
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Transition Period From
                    
to
                    
Commission File Number
0-13394
 
 
VIDEO DISPLAY CORPORATION
(Exact name of registrant as specified on its charter)
 
GEORGIA
GEORGIA
 
58-1217564
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
5155 KING STREET, COCOA, FLORIDA 32926
(Address of principal executive offices)
800-241-5005
(Registrant’s telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
Common Stock, no par value
 
VIDE
 
OTCMKTS
 
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    
Yes
  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation
S-T
(§ (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    
Yes
  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated filer ☐  Accelerated filer ☐
    
Non-accelerated
filer		 ☐  Smaller reporting company ☒
    
     Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes  ☐
As of
August
 31, November 30, 2021, the registrant had 5,878,290 shares of Common Stock outstanding.
 
 
 
Video Display Corporation and Subsidiaries
Index
 
  Page
PART I. FINANCIAL INFORMATION
     
Page 
Item 1.Financial Statements.
Interim Condensed Consolidated Balance Sheets – August 31, 2021 (unaudited) and February 28, 20213
Interim Condensed Consolidated Statements of Operations - Three and six months ended August 31, 2021 and 2020 (unaudited)5
Interim Condensed Consolidated Statements of Shareholders’ Equity - Three and six months ended August 31, 2021 and 2020 (unaudited)6
Interim Condensed Consolidated Statements of Cash Flows – Six months ended August 31, 2021 and 2020 (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.15
Item 3.Quantitative and Qualitative Disclosure About Market Risk.22
Item 4.Controls and Procedures.22
PART II. OTHERI. FINANCIAL INFORMATION
     
    
  Item 1.  
Financial Statements.
Interim Condensed Consolidated Balance Sheets – November 30, 2021 (unaudited) and February 28, 2021
3
Interim Condensed Consolidated Statements of Operations – Three and nine months ended November 30, 2021 and 2020 (unaudited)
5
Interim Condensed Consolidated Statements of Shareholders’ Equity - Three and nine months ended November 30, 2021 and 2020 (unaudited)
6
Interim Condensed Consolidated Statements of Cash Flows – Nine months ended November 30, 2021 and 2020 (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.
15
Item 3.
Quantitative and Qualitative Disclosure About Market Risk.
21
Item 4.
Controls and Procedures.
21
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings.
   23 
    
  Item 1A.  
Risk Factors.
   23 
    
  Item 2.  
Unregistered Sales of Equity Securities and Use of Proceeds.
   23 
    
  Item 3.  
Defaults upon Senior Securities.
   23 
    
  Item 4.  
Submission of Matters to a Vote of Security Holders.
   23 
    
  Item 5.  
Other Information.
   23 
    
  Item 6.  
Exhibits.
   23 
   
  
SIGNATURES
   24 
  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.
     
.
2
2
ITEM 1 – FINANCIAL STATEMENTS
Video Display Corporation and Subsidiaries
Interim Condensed Consolidated Balance Sheets (unaudited)
(in thousands)
 
   
August 31,

2021
  February 28,
2021		 
   
(unaudited)
    
Assets
         
Current assets
         
Cash and cash equivalents
  
$
245
 
 $293 
Accounts receivable, less allowance for doubtful accounts of $14 and $12
  
 
1,168
 
  1,314 
Inventories, net
  
 
3,640
 
  4,027 
Contract assets
  
 
996
 
  1,534 
Prepaid expenses and other current assets
  
 
246
 
  279 
   
 
 
  
 
 
 
Total current assets
  
 
6,295
 
  7,447 
   
 
 
  
 
 
 
Property, plant, and equipment
         
Buildings
  
 
778
 
  766 
Construction in progress
  
 
12
 
  130 
Machinery and equipment
  
 
5,315
 
  5,162 
   
 
 
  
 
 
 
   
 
6,105
 
  6,058 
Accumulated depreciation
  
 
(5,110
) 
  (4,979) 
   
 
 
  
 
 
 
Net property, plant, and equipment
  
 
995
 
  1,079 
Right of use assets under operating leases
  
 
864
 
  1,127 
Intangible assets, net
  
 
182
 
  247 
Other noncurrent assets
  
 
2
 
  2 
   
 
 
  
 
 
 
Total assets
  
$
8,338
 
 $9,902 
   
 
 
  
 
 
 
   
November 30,
  February 28, 
   
2021
  2021 
        
   
(unaudited)
    
Assets
   
Current assets
   
Cash and cash equivalents
  
$
215
 
 $293 
Accounts receivable, less allowance for doubtful accounts of $14 and $12
  
 
703
 
  1,314 
Inventories
  
 
3,088
 
  4,027 
Contract assets
  
 
792
 
  1,534 
Employee retention credit refund receivable
 
 
796

 
  
0  

 
Prepaid expenses and other current assets
  
 
305
 
  279 
   
 
 
  
 
 
 
Total current assets
  
 
5,899
 
  7,447 
   
 
 
  
 
 
 
Property, plant, and equipment
         
Buildings
  
 
778
 
  766 
Construction in progress
  
 
20
 
  130 
Machinery and equipment
  
 
5,316
 
  5,162 
   
 
 
  
 
 
 
   
 
6,114
 
  6,058 
Accumulated depreciation
  
 
(5,179
) 
  (4,979) 
   
 
 
  
 
 
 
Net property, plant, and equipment
  
 
935
 
  1,079 
Right of use assets under operating leases
  
 
729
 
  1,127 
Intangible assets, net
  
 
151
 
  247 
Other noncurrent assets
  
 
2
 
  2 
   
 
 
  
 
 
 
Total assets
  
$
7,716
 
 $9,902 
   
 
 
  
 
 
 
The accompanying notes are an integral part of these interim condensed consolidated statements.
 
3
Video Display Corporation and Subsidiaries
Interim Condensed Consolidated Balance Sheets (unaudited) (continued)
(in thousands)
 
   
August 31,
2021
  February 28,
2021		 
   
(unaudited)
    
Liabilities and Shareholders’ Equity
         
Current liabilities
         
Accounts payable
  
$
934
 
 $602 
Accrued liabilities
  
 
574
 
  728 
Customer deposits
  
 
1,713
 
  1,717 
Note payable
  
 
71
 
  100 
Note payable to officer and director
  
 
250
 
  —   
Current maturities of financing lease obligations
  
 
98
 
  98 
Current operating lease liabilities
  
 
489
 
  601 
   
 
 
  
 
 
 
Total current liabilities
  
 
4,129
 
  3,846 
PPP related loans, noncurrent
  
 
0  
 
  1,084 
Finance lease obligations less current maturities
  
 
104
 
  142 
Long-term operating lease liabilities
  
 
412
 
  556 
   
 
 
  
 
 
 
Total liabilities
  
 
4,645
 
  5,628 
   
 
 
  
 
 
 
Shareholders’ Equity
         
Preferred stock, 0 par value – 10,000 shares authorized; NaN issued and outstanding
  
 
0—  
 
  0—   
Common stock, 0 par value – 50,000 shares authorized; 9,732 issued and 5,878 outstanding at August 31, 2021 and February
28, 2021
  
 
7,293
 
  7,293 
Additional
paid-in
capital
  
 
281
 
  281 
Retained earnings
  
 
12,401
 
  12,982 
Treasury stock, shares at cost; 3,854 at August 31, 2021 and February 28, 2021
  
 
(16,282
) 
  (16,282) 
   
 
 
  
 
 
 
Total shareholders’ equity
  
 
3,693
 
  4,274 
   
 
 
  
 
 
 
Total liabilities and shareholders’ equity
  
$
8,338
 
 $9,902 
   
 
 
  
 
 
 
   
November 30,
  February 28, 
   
2021
  2021 
        
   
(unaudited)
    
Liabilities and Shareholders’ Equity
         
Current liabilities
         
Accounts payable
  
$
962
 
 $602 
Accrued liabilities
  
 
809
 
  728 
Customer deposits
  
 
1,668
 
  1,717 
Note payable
  
 
26
 
  100 
Note payable to officer and director
  
 
458
 
  —   
Current maturities of financing lease obligations
  
 
98
 
  98 
Current operating lease liabilities
  
 
351
 
  601 
   
 
 
  
 
 
 
Total current liabilities
  
 
4,372
 
  3,846 
PPP related loans, noncurrent
  
 
0  
 
  1,084 
Finance lease obligations less current maturities
  
 
85
 
  142 
Long-term operating lease liabilities
  
 
372
 
  556 
   
 
 
  
 
 
 
Total liabilities
  
 
4,829
 
  5,628 
   
 
 
  
 
 
 
Shareholders’ Equity
         
Preferred stock, 0 par value – 10,000 shares authorized; NaN issued and outstanding
  
 
0—  
 
  0—   
Common stock, 0 par value – 50,000 shares authorized; 9,732 issued and 5,878 outstanding at November 30, 2021 and February
 
28, 2021
  
 
7,293
 
  7,293 
Additional
paid-in
capital
  
 
281
 
  281 
Retained earnings
  
 
11,595
 
  12,982 
Treasury stock, shares at cost;
3,854 at November 30, 2021 and February 28, 2021
  
 
(16,282
) 
  (16,282) 
   
 
 
  
 
 
 
Total shareholders’ equity
  
 
2,887
 
  4,274 
   
 
 
  
 
 
 
Total liabilities and shareholders’ equity
  
$
7,716
 
 $9,902 
   
 
 
  
 
 
 
The accompanying notes are an integral part of these interim condensed consolidated statements.
 
4
Video Display Corporation and Subsidiaries
Interim Condensed Consolidated Statements of Operations (unaudited)
(in i
n
thousands, except per share data)
 
   
Three Months Ended

August 31,
  
Six Months Ended

August 31,
 
   
2021
  2020  
2021
  2020 
Net sales
  
$
1,904
 
 $2,292  
$
3,761
 
 $5,997 
Cost of goods sold
  
 
1,853
 
  2,107  
 
3,343
 
  4,834 
   
 
 
  
 
 
  
 
 
  
 
 
 
Gross profit
  
 
51
 
  185  
 
418
 
  1,163 
   
 
 
  
 
 
  
 
 
  
 
 
 
Operating expenses
                 
Selling and delivery
  
 
123
 
  290  
 
282
 
  496 
General and administrative
  
 
903
 
  976  
 
1,895
 
  1,973 
   
 
 
  
 
 
  
 
 
  
 
 
 
   
1,026
  1,266  
2,177
  2,469 
   
 
 
  
 
 
  
 
 
  
 
 
 
Operating loss
  
 
(975
) 
  (1,081)  
 
(1,759
) 
  (1,306) 
   
 
 
  
 
 
  
 
 
  
 
 
 
Other income (expense)
                 
Interest income (expense), net
  
 
(4
) 
  (16)  
 
(14
) 
  (31) 
Investment gains (losses), net
  
 
—  
 
  4  
 
—  
 
  (6) 
Gain on extinguishment of PPP loans
  
 
1,084
 
  0    
 
1,084
 
  0   
Other, net
  
 
59
 
  92  
 
108
 
  335 
   
 
 
  
 
 
  
 
 
  
 
 
 
   
 
1,139
 
  80  
 
1,178
 
  298 
   
 
 
  
 
 
  
 
 
  
 
 
 
Income (loss) before income taxes
  
 
164
 
  (1,001)  
 
(581
) 
  (1,008) 
Income tax expense
  
 
0—
 
  0—  
 
0—
 
  0— 
   
 
 
  
 
 
  
 
 
  
 
 
 
Net income (loss)
  
$
164
 
 $(1,001)  
$
(581
) 
 $(1,008) 
   
 
 
  
 
 
  
 
 
  
 
 
 
Net income (loss) per share - basic
  
$
0.03
 
 $(0.17)  
$
(0.10
) 
 $(0.17) 
   
 
 
  
 
 
  
 
 
  
 
 
 
Net income (loss) per share - diluted
  
$
0.03
 
 $(0.17)  
$
(0.10
) 
 $(0.17) 
   
 
 
  
 
 
  
 
 
  
 
 
 
Basic weighted average shares outstanding
  
 
5,878
 
  5,878  
 
5,878
 
  5,878 
   
 
 
  
 
 
  
 
 
  
 
 
 
Diluted weighted average shares outstanding
  
 
6,078
 
  5,878  
 
5,878
 
  5,878 
   
 
 
  
 
 
  
 
 
  
 
 
 
   
Three Months Ended

November 30,
  
Nine Months Ended

November 30,
 
              
   
2021
  2020  
2021
  2020 
              
Net sales  
$
1,616
 
 $2,861  
 
$5,377
 
  $8,858 
Cost of goods sold
  
 
2,171
 
  1,913  
 
5,514
 
  6,747 
   
 
 
  
 
 
  
 
 
  
 
 
 
Gross (loss)
 
profit
  
 
(555
) 
  948  
 
(137
) 
  2,111 
   
 
 
  
 
 
  
 
 
  
 
 
 
Operating expenses
                 
Selling and delivery
  
 
126
 
  126  
 
408
 
  622 
General and administrative
  
 
978
 
  947  
 
2,873
 
  2,920 
   
 
 
  
 
 
  
 
 
  
 
 
 
   
1,104
  1,073  
3,281
  3,542 
   
 
 
  
 
 
  
 
 
  
 
 
 
Operating loss
  
 
(1,659
) 
  (125)  
 
(3,418
) 
  (1,431) 
   
 
 
  
 
 
  
 
 
  
 
 
 
Other income (expense)
                 
Interest expense, net
  
 
(6
) 
  (4)  
 
(20
) 
  (35) 
Investment gains, net
  
 
—  
 
  11  
 
—  
 
  5 
Gain on extinguishment of PPP loans
  
 
—  
 
  216  
 
1,084
 
  216 
Gain on sale of assets
 
 
—  

 
  
1,724

  
 
—  

 
  
1,724

 
Employee retention credit income
 
 
796

 
  
—  

  
 
796

 
  
—  

 
Other, net
  
 
63
 
  58  
 
171
 
  393 
   
 
 
  
 
 
  
 
 
  
 
 
 
   
 
853
 
  2,005  
 
2,031
 
  2,303 
   
 
 
  
 
 
  
 
 
  
 
 
 
(Loss) income
 before income taxes
  
 
(806
) 
  1,880  
 
(1,387
) 
  872 
Income tax expense
  
 
0—
 
 
 
  0—
 
 
  
 
0—
 
 
 
  0—
 
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
Net
 (loss)
income
  
$
(806
) 
 $1,880  
$
(1,387
) 
 $872 
   
 
 
  
 
 
  
 
 
  
 
 
 
Net
 (loss)
income per share - basic
  
$
(0.14
) 
 $0.32  
$
(0.24
) 
 $0.15 
   
 
 
  
 
 
  
 
 
  
 
 
 
Net
 (loss)
income per share - diluted
  
$
(0.14
) 
 $0.31  
$
(0.24
) 
 $0.14 
   
 
 
  
 
 
  
 
 
  
 
 
 
Basic weighted average shares outstanding
  
 
5,878
 
  5,878  
 
5,878
 
  5,878 
   
 
 
  
 
 
  
 
 
  
 
 
 
Diluted weighted average shares outstanding
  
 
5,878
 
  6,078  
 
5,878
 
  6,078 
   
 
 
  
 
 
  
 
 
  
 
 
 
The accompanying notes are an integral part of these interim condensed consolidated statements.
 
5
Video Display Corporation and Subsidiaries
Interim Condensed Consolidated Statements of Shareholders’ Equity
Three and SixNine Months Ended August 31,November 30, 2021 and 2020 (unaudited)
(in thousands)
 
   
Common

Shares*
   
Share

Amount
   
Additional

Paid-in

Capital
   
Retained

Earnings
  
Treasury

Stock
  
Total
Shareholders’
Equity
 
For the Three Months Ended August 31, 2021
                            
Balance, May 31, 2021 (unaudited)
   5,878   $7,293   $281   $12,237  $(16,282)  $3,529 
Net income
   —      —      —      164   —     164 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
Balance, August 31, 2021 (unaudited)
   5,878   $7,293   $281   $12,401  $(16,282)  $3,693 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
For the Six Months Ended August 31, 2021
                            
Balance, February 28, 2021 (audited)
   5,878   $7,293   $281   $12,982  $(16,282)  $4,274 
Net loss
   —      —      —      (581)   —     (581) 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
Balance, August 31, 2021 (unaudited)
   5,878   $7,293   $281   $12,401  $(16,282)  $3,693 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
For the Three Months Ended August 31, 2020
                            
Balance, May 31, 2020 (unaudited)
   5,878   $7,293   $281   $12,163  $(16,282)  $3,455 
Net loss
   —      —      —      (1,001)   —     (1,001) 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
Balance, August 31, 2020 (unaudited)
   5,878   $7,293   $281   $11,162  $(16,282)  $2,454 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
For the Six Months Ended August 31, 2020
                            
Balance, February 29, 2020 (audited)
   5,878   $7,293   $281   $12,170  $(16,282)  $3,462 
Net loss
   —      —      —      (1,008)   —     (1,008) 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
Balance, August 31, 2020 (unaudited)
   5,878   $7,293   $281   $11,162  $(16,282)  $2,454 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
   
Common

Shares*
   
Share

Amount
   
Additional

Paid-in

Capital
   
Retained

Earnings
  
Treasury

Stock
  
Total
Shareholders’
Equity
 
                       
For the Three Months Ended November 30, 2021
          
Balance, August 31, 2021 (unaudited)
   5,878   $7,293   $281   $12,401  $(16,282)  $3,693 
Net loss
   —      —      —      (806)   —     (806) 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
Balance, November 30, 2021 (unaudited)
   5,878   $7,293   $281   $11,595  $(16,282)  $2,887 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
For the Nine Months Ended November 30, 2021
                            
Balance, February 28, 2021 (audited)
   5,878   $7,293   $281   $12,982  $(16,282)  $4,274 
Net loss
   —      —      —      (1,387)   —     (1,387) 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
Balance, November 30, 2021 (unaudited)
   5,878   $7,293   $281   $11,595  $(16,282)  $2,887 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
For the Three Months Ended November 30, 2020
                            
Balance, August 31, 2020 (unaudited)
   5,878   $7,293   $281   $11,162  $(16,282)  $2,454 
Net income
   —      —      —      1,880   —     1,880 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
Balance, November 30, 2020 (unaudited)
   5,878   $7,293   $281   $13,042  $(16,282)  $4,334 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
For the Nine Months Ended November 30, 2020
                            
Balance, February 29, 2020 (audited)
   5,878   $7,293   $281   $12,170  $(16,282)  $3,462 
Net income
   —      —      —      872   —     872 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
Balance, November 30, 2020 (unaudited)
   5,878   $7,293   $281   $13,042  $(16,282)  $4,334 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
 
*
Common shares are shown net of Treasury Shares
The accompanying notes are an integral part of these interim condensed consolidated statements.
 
6
Video Display Corporation and Subsidiaries
Interim Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)
 
  
Six Months Ended

August 31,
   
Nine Months Ended

November 30,
 
  
2021
 
2020
   
2021
 
2020
 
Operating Activities
          
Net loss
  
$
(581
) 
 $(1,008) 
Adjustments to reconcile net loss to net cash used in operating activities:
     
Net (loss) income

  
$
(1,387
) $872 
Adjustments to reconcile net (loss) income to net cash used in operating activities:

     
Depreciation expense
  
 
131
 
  117   
 
200
 
  163 
Amortization of intangible assets
  
 
65
 
  75   
 
96
 
  107 
Provision for doubtful accounts
  
 
2
 
  (3)   
 
2
 
  6 
Provision for inventory reserve
  
 
(96
) 
  30 
Realized/unrealized loss on investments
  
 
—  
 
  6 
Inventory related charges

  
 
827
 
  45 
Realized/unrealized gain on investments

  
 
—  
 
  (5) 
Gain on sale of assets

  
 
—  
 
  (1,724) 
Gain on extinguishment of PPP loans
  
 
(1,084
) 
  —     
 
(1,084
) 
  (216) 
Other
  
 
7
 
  11 
Other, net

  
 
(36
) 
  4 
Changes in working capital items:
          
Accounts receivable
  
 
144
 
  (141)   
 
609
 
  65 
Inventories
  
 
483
 
  77   
 
112
 
  (813) 
Prepaid expenses and other assets
  
 
33
 
  222   
 
(26
) 
  193 
Contract assets
  
 
538
 
  (206)   
 
742
 
  (904) 
Employee retention credit refund receivabl
e

 
 
 
(796
)
 
  
0
 
Customer deposits
  
 
(4
) 
  (1,013)   
 
(49
) 
  (596) 
Accounts payable and accrued liabilities
  
 
178
 
  307   
 
441
 
  105 
  
 
  
 
   
 
  
 
 
Net cash used in operating activities
  
 
(184
) 
  (1,526)   
 
(349
) 
  (2,698) 
  
 
  
 
   
 
  
 
 
Investing Activities
          
Capital expenditures
  
 
(47
) 
  (31)   
 
(56
) 
  —   
Proceeds from sale of assets
 
 
 
—
 
  
2,028
 
Purchases of investments
  
 
—  
 
  (47)   
 
—  
 
  (47) 
Proceeds from sale of investments
  
 
—  
 
  24   
 
—  
 
  50 
  
 
  
 
   
 
  
 
 
Net cash used in investing activities
  
 
(47
) 
  (54) 
Net cash (used in) provided by investing activities

  
 
(56
) 
  2,031 
  
 
  
 
   
 
  
 
 
Financing Activities
          
Repayments of notes payable to officers and directors
  
 
—  
 
  (35)   
 
—  
 
  (1,227) 
Repayments of note payable
  
 
(29
) 
  —     
 
(74
) 
  —   
Repayments on lease financing
  
 
(38
) 
  —     
 
(57
) 
  —   
Proceeds from loans with officers and directors
  
 
250
 
  200   
 
458
 
  400 
Proceeds from PPP related loans
  
 
—  
 
  988   
 
—  
 
  988 
Marginal float borrowings
  
 
—  
 
  (3) 
Change in marginal float

  
 
—  
 
  4 
Net cash provided by financing activities
  
 
183
 
  1,150   
 
327
 
  165 
  
 
  
 
   
 
  
 
 
Net change in cash and cash equivalents
  
 
(48
) 
  (430)   
 
(78
) 
  (502) 
Cash and cash equivalents, beginning of year
  
 
293
 
  844   
 
293
 
  844 
  
 
  
 
   
 
  
 
 
Cash and cash equivalents, end of period
  
$
245
 
 $414   
$
215
 
 $342 
  
 
  
 
   
 
  
 
 
The accompanying notes are an integral part of these interim condensed consolidated statements.
 
7
Video Display Corporation and Subsidiaries
August 31,
November 30, 2021
Note 1. – Basis of Presentation of Principles of Consolidation
The accompanying unaudited interim condensed consolidated financial statements include the accounts of Video Display Corporation, Inc. 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, 2021 has been derived from audited financial statements. The accompanying unaudited condensed consolidated financial statements as of, and for the three and sixnine months ended, August 31,November 30, 2021 and 2020 have been prepared in accordance with (i) accounting principlesp
r
inciples generally accepted in the U.S. for interim financial information and (ii) the instructions to Form
10-Q
and Rule
10-01
of Regulation
S-X
of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, such statements do not include all of the information and disclosures required by accounting principles generally accepted in the U.S. for a complete presentation of financial statements. In the opinion of management, all adjustments (including those of a normal, recurring nature) considered necessary for a fair presentation have been included. Operating results for the three and sixnine months ended August 31,November 30, 2021 are not necessarily indicative of the results that may be expected for the year ending February 28, 2022. 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, 2021 filed with the SEC on May 28, 2021.
Note 2. – Going Concern, Banking & Liquidity
The accompanying unaudited interim condensed consolidated financial statements were prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company reported a net loss and a decrease in working capital and liquid assets for the sixnine month period ending August 31,November 30, 2021 primarily due to a decrease in revenues in three of four divisions.divisions along with a decrease in accounts receivables and inventory. 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 due to a combination of decreasing revenues across certain divisions without a commensurate reduction of expenses. The Company’s working capital and liquid asset position are presented below (in thousands) as of August 31,November 30, 2021 and February 28, 2021:
 
  
August 31,

2021
   February 28,
2021		   
November 30,

2021
   February 28,
2021		 
Working capital
  $2,166   $3,601   $1,527   $3,601 
Liquid assets
  $245   $293   $215   $293 
The Company has increased marketing efforts in its ruggedized displays, TEMPEST products and services and small specialty displays. In addition, the Company has streamlined its operations and is focusing on increasing revenues by executing initiatives such as upgrading its sales and marketing efforts including a more user friendly website, the hiring of an experienced Rugged Display Business Development Manager, increasing the number of customer visits and trade shows post pandemic in order to market all the Company’s product lines it sells.lines. These efforts have not increased revenues to date as the Company’s business typically has a longer lead time from initial contact to a sale. The pandemic has also slowed down the process of obtaining new business as many of our customers and potential customers are still working from home. The Company has expanded its cyber security business by adding an additional test chamber and test equipment to provide additional TEMPEST service capabilities and for qualifying TEMPEST products allowing it to increase the business in cyber testing services to supplement the product side of the business. The Company just completed and had accredited its new AIS system which will allow for the opportunity to increase the service business. The Company also completed the transfer of the remaining CRT operations in Florida to its Lexel Imaging facility in Lexington, KY in order to make room for the new business in its Cocoa facility. This will also reduce expenses in the CRT operation by having that business all under one roof. The Company also moved the corporate accounting functions to the Cocoa, Florida location which allows the Company to become more efficient and save money on reducing redundant operations. The plan is to further reduce expenses by closing the Tucker, Georgia facility as soon as the lease expires in March, 2022.
 
8
Video Display Corporation and Subsidiaries
August 31,November 30, 2021
 
In order to assist funding operating activity, the Company’s CEO
has
loaned $250,000$457,568
in aggregate to the
Company during the second quarterand third quarters of fiscal 2022. There are no repayment terms related to the loan; however, the Company plans to repay the note within the next twelve months and therefore has classified the loan as a current liability on the condensed consolidated balance sheets as of August 31,November 30, 2021.
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
Inventories are stated at the lower of cost (first in, first out) or market and consisted of the following (in thousands):
 
   
August 31,
2021
   
February 28,
2021
 
Raw materials
  
$
2,979
 
  
$
2,888
 
Work-in-process
  
 
882
 
  
 
1,166
 
Finished goods
  
 
481
 
  
 
771
 
   
 
 
   
 
 
 
   
 
4,342
 
  
 
4,825
 
Reserves for obsolescence
  
 
(702
) 
  
 
(798
) 
   
 
 
   
 
 
 
   
$
3,640
 
  
$
4,027
 
   
 
 
   
 
 
 
   
November 30,
   
February 28,
 
   
2021
   
2021
 
         
         
Raw materials
  
$
1,719
 
  
$
2,888
 
Work-in-process
  
 
969
 
  
 
1,166
 
Finished goods
  
 
400
 
  
 
771
 
   
 
 
   
 
 
 
   
 
3,088
 
  
 
4,825
 
Reserves for obsolescence
  
 
0
  
 
  
 
(798
)
 
   
 
 
   
 
 
 
   
$
3,088
 
  
$
4,027
 
   
 
 
   
 
 
 
 
9
Video Display Corporation and Subsidiaries
August 31,
November 30, 2021
 
The Company has maintained inventory on hand to support discontinued products and has made purchases to have product available for its customers while they transitioned to newer technologies. Products the Company maintain lasts many years and the timeframe for possible replacement has been difficult to estimate. As a result, the Company has historically recorded an inventory reserve to offset any obsolescence or slow moving inventory concerns related to CRT inventory and component parts for legacy products. Although management believed that the related value of inventory that was reserved would be sold in the future, a reserve was historically recorded for obsolescence due to the uniqueness and age of the related inventory. In third quarter fiscal 2022, management continued to challenge the valuation of its inventory while considering current market conditions and recent sales activity for the related inventory and made the determination to write off the inventory reserve against the related value of the inventory. Also, due to depressed sales for the nine month period ending November 30, 2021 and the market for certain products, an additional $827 thousand inventory charge was recorded to cost of sales. These adjustments were required in order to properly state the inventory value at the lower of cost or market.

Note 5. – Paycheck Protection Promissory (“PPP”) Related Loans
On April 13, 2020 our Lexel Imaging subsidiary entered into a Paycheck Protection Promissory Note (the “PPP Loan”) with the Central BankPPP loan for
 $216,200
and on January 27, 2021 entered into a second round PPP Loanloan for $304,442.
$304,442. On April 23, 2020, Video Display Corporation entered into a $772,000
first round PPP Loan with the Renasant Bankloan and on February 11, 2021, entered into a second round PPP Loan with Central Bankloan for $780,112.
$780,112.
The PPP Loansloans 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. SuchSu
c
h forgiveness will be determined, subject to limitations, based on the use of loan proceeds for certain permissible purposes as set forth in the PPP, including, but not limited to, payroll costs, mortgage interest, rent or utility costs (collectively, “Qualifying Expenses”), and on the maintenance of employee and compensation levels during a certain time period following the funding of the PPP Loans.loans. 
The Company has used the proceeds of the PPP Loans
l
oans for Qualifying Expenses. In fiscal 2021, the Company received forgiveness on the first round $216,200 Lexel Imaging PPP Loan
l
oan in November 2020 and on the first round $772,000 Video Display PPP Loan
l
oan in December 2020.
The Company received forgiveness on the second round of PPP Loans with the Central Bank ($loans
($1,084,554 in aggregate)
in August 2021. The forgiveness qualified as a gain on extinguishment of debt for the three and six months ended August 31, 2021 on the condensed consolidated statements of operations and the related liability was removed from the condensed consolidated balance sheets asbased on the forgiveness date of August 31, 2021.the related PPP loan. 
Note 6. – Leases
Operating Leases
The Company leases its office space and manufacturing facilities under operating lease agreements. The base lease terms expire at various dates from 2022 to 2025. While each of the leases include renewal options, the Company has only included the base lease term in its calculation of lease assets and liabilities.
Balance sheet information related to operating leases is as follows (in thousands):
 
  
August 31,
2021
   
November 30,
2021
 
Assets
      
  
 
 
Operating lease
right-of-use
assets
  $864   $729 
  
 
 
Liabilities
      
  
 
 
Current portion of operating lease liabilities
  $489   $351 
Noncurrent portion of operating lease liabilities
   412    372 
  
 
   
 
 
Total operating lease liabilities
  $901   $723 
  
 
   
 
 

10
Video Display Corporation and Subsidiaries
November 30, 2021
Operating lease costs are included in Cost of goods sold in the Company’s condensed consolidated statements of operations and totaled approximately $146$104 thousand for the three months ended August 31,November 30, 2021 and $293 $405
thousand for the sixnine months ended August 31,November 30, 2021. Operating lease costs were $147 thousand for the three months ended August 31,November 30, 2020 and $293$440 thousand for the sixnine months ended August 31,November 30, 2020.
Cash paid for amounts included in the measurement of operating lease liabilities was approximately $143$189 thousand and $286 $475
thousand
for the three months and sixnine months ended August 31,November 30, 2021. The Company paid $143 thousand and $286$440 thousand for the three months and sixnine months ended August 31,November 30, 2020. The Company did not modify any existing leases or execute any new leases during the sixnine months ended AugustNovember 30, 2021. On September 9, 2021, the Company exercised an option to terminate the lease on its Tucker, Georgia location effective March 31, 2021.
10
Video Display Corporation2022. The terms of the option to terminate included prepaying the remaining rent through March 31, 2022, an additional penalty of three month’s rent and Subsidiariesprepaying the property taxes for 2021 and for the first three months of 2022.

August 31, 2021
Weighted average information associated with the measurement of the Company’s remaining operating lease obligations is as follows:
 
   
August 31, November 30,
2021
 
Weighted average remaining lease term
   1.51.2 years 
Weighted average discount rate
   6% 
The following table summarizes the maturity of the Company’s operating lease liabilities as of August 31,November 30, 2021 (in thousands):
 
FY2022
  $332   $143 
FY2023
   263    262 
FY2024
   190    190 
FY2025
   185    185 
  
 
   
 
 
Total operating lease payments
   970    780 
Less imputed interest
   (69)    (57) 
  
 
   
 
 
Total operating lease liabilities
  $901   $723 
  
 
   
 
 
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 $97 thousand for the three months and $194$291 thousand for the sixnine months ended August 31,November 30, 2021. Lease costs under these leases totaled approximately $97 thousand for the three months and $194$291 thousand for the sixnine months ended August 31,November 30, 2020
.
In September 2020, the Company sold its Pennsylvania building for net proceeds of $2.028 million which resulted in a gain on sale of assets in the amount of $1,724 thousand. The $1,724 thousand gain is recorded as a gain on sale of assets on the condensed consolidated statements of operations for the three and nine months ending November 30, 2020.
The Company subleases certain of its warehousing space in its Tucker and Kentucky locations. The Tucker sublease
expires
concurrently with the head lease in March 2022 and the Kentucky lease expiresexpired November 30, 2021. The Kentucky lessee exercised an option to remain u
n
til January 31, 2022.

11
Video Display Corporation and Subsidiaries
November 30, 2021
.
Sublease income and lease income are included in Other, net in the Company’s condensed consolidated statements of operations and totaled approximately $56,000 $55
thousand
for the three months and $107,000 $172
thousand
for the sixnine months ended August 31,November 30, 2021 and totaled approximately $91 thousand for the three months and $181 thousand for the sixnine months ended August 31,November 30, 2020. Future remaining lease payments expected to be received as of August 31,November 30, 2021 are as follows (in thousands):
 
FY2022
  $87   $46 
FY2023
   12    12 
  
 
   
 
 
Total
  $99   $58 
  
 
   
 
 
Financing Leases
The Company has one financing lease entered into on November 23, 2020
for
Tempest testing equipment for $277,000. The
lease
expires on December 1, 2023
and the incremental borrowinginterest rate onimplicit in the lease is
 12.5%.

Balance sheet information related to financing lease is as follows (in thousands):
   
August 31, 2021
 
Financing lease
right-of-use
assets
  $217 
   
 
 
 
Current portion of financing lease liabilities
  $98 
Noncurrent portion of financing lease liabilities
   104 
   
 
 
 
Total financing lease liabilities
  $202 
   
 
 
 
11
Video Display Corporation and Subsidiaries
August 31, 2021
 
   
November 30,
 
2021
 
Financing lease
right-of-use
assets
  $195 
   
 
 
 
Current portion of financing lease liabilities
  $98 
Noncurrent portion of financing lease liabilities
   85 
   
 
 
 
Total financing lease liabilities
  $183 
   
 
 
 
The following table summarizes the maturity of the Company’s finance lease liabilities as of August 31,November 30, 2021 (in thousands):
 
Fiscal Year
  
Amount
   
Amount
 
2022
  $52   $26 
2023
   104    104 
2024
   78    78 
  
 
   
 
 
Total finance lease payments
  $234   $208 
Less imputed interest
   (32)    (25) 
  
 
   
 
 
Total finance lease liabilities
  $202   $183 
  
 
   
 
 
Note 7 . – Supplemental Cash Flow Information
Supplemental cash flow information is as follows (in thousands):
 
   
Six Months
Ended August 31,
 
   
2021
   
2020
 
Cash paid for:
          
Interest
  
$
14
 
  
$
1
 
   
 
 
   
 
 
 
Non-cash
activity:
          
Note receivable paid directly to officer
  
$
 —  
 
  
$
112
 
   
 
 
   
 
 
 
Note payable to officer
  
$
—  
 
  
$
112
 
   
 
 
   
 
 
 
Imputed interest expense
  
$
—  
 
  
$
6
 
   
 
 
   
 
 
 
Imputed interest income
  
$
—  
 
  
$
6
 
   
 
 
   
 
 
 
   
Nine Months
 
   
Ended November 30,
 
   
2021
   
2020
 
         
Cash paid for:
    
Interest
  
$
21
 
  
$
1
 
   
 
 
   
 
 
 
Non-cash
activity:
          
Note receivable paid directly to officer
  
$
—  
 
  
$
170
 
   
 
 
   
 
 
 
Note payable to officer
  
$
—  
 
  
$
170
 
 
 
 
 
 
 
 
 
 
Forgiveness of PPP loans (Note 5
)

 
$
1,084
 
 
$
216
 
 
 
 
 
 
 
 
 
 
Equipment finance lease (Note 6
)

 
$
—
 
 
 
$
277
 
   
 
 
   
 
 
 
Imputed interest expense
  
$
—  
 
  
$
8
 
   
 
 
   
 
 
 
Imputed interest income
  
$
—  
 
  
$
8
 
   
 
 
   
 
 
 
12
Video Display Corporation and Subsidiaries
November 30, 2021
Note 8. – Shareholders’ Equity
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing income or loss available to common shareholders by the weighted average number of common shares outstanding during each period. Shares issued during the period are weighted for the portion of the period that they were outstanding. Diluted earnings (loss) per share is calculated in a manner consistent with that of basic earnings (loss) per share while giving effect to all potentially dilutive common shares that were outstanding during the period.
12

Video Display Corporation and Subsidiaries
August 31, 2021
The following table sets forth the computation of basic and diluted earnings (loss) per share for the three and sixnine month periods ended August 31,November 30, 2021 and 2020 (in thousands, except per share data):
 
                                                                
   
Net Income
(Loss)
   
Weighted
Average
Common Shares
Outstanding
   
Earnings (Loss)
Per

Share
 
Three months ended August 31, 2021
               
Basic
  $164    5,878   $0.03 
Effect of dilution:
               
Options
   0—      200    0—   
   
 
 
   
 
 
   
 
 
 
Diluted
  $164    6,078   $0.03 
   
 
 
   
 
 
   
 
 
 
Three months ended August 31, 2020
               
Basic
  $(1,001)    5,878   $(0.17) 
Effect of dilution:
               
Options
   0—      0—      0—   
   
 
 
   
 
 
   
 
 
 
Diluted
  $(1,001)    5,878   $(0.17) 
   
 
 
   
 
 
   
 
 
 
   
Net (Loss)
Income
   
Weighted
Average
Common Shares
Outstanding
   
(Loss)
Earnings
Per
Share
 
             
Three months ended November 30, 2021
      
Basic
  $(806)    5,878   $(0.14) 
Effect of dilution:
               
Options
   0—      0—      0—   
   
 
 
   
 
 
   
 
 
 
Diluted
  $(806)    5,878   $(0.14) 
   
 
 
   
 
 
   
 
 
 
Three months ended November 30, 2020
               
Basic
  $1,880    5,878   $0.32 
Effect of dilution:
               
Options
   0—      200    0—   
   
 
 
   
 
 
   
 
 
 
Diluted
  $1,880    6,078   $0.31 
   
 
 
   
 
 
   
 
 
 
 
                                                                
   
Net Income
(Loss)
   
Weighted
Average
Common Shares
Outstanding
   
Earnings (Loss)
Per

Share
 
Six months ended August 31, 2021
               
Basic
  $(581)    5,878   $(0.10) 
Effect of dilution:
               
Options
   0—      0—      0—   
   
 
 
   
 
 
   
 
 
 
Diluted
  $(581)    5,878   $(0.10) 
   
 
 
   
 
 
   
 
 
 
Six months ended August 31, 2020
               
Basic
  $(1,008)    5,878   $(0.17) 
Effect of dilution:
               
Options
   0—      0—      0—   
   
 
 
   
 
 
   
 
 
 
Diluted
  $(1,008)    5,878   $(0.17) 
   
 
 
   
 
 
   
 
 
 
   
Net (Loss)
Income
   
Weighted
Average
Common Shares
Outstanding
   
(Loss)

Earnings

Per
Share
 
             
Nine months ended November 30, 2021
      
Basic
  $(1,387)
 
   5,878   $(0.24) 
Effect of dilution:
               
Options
   0—      0—      0—   
   
 
 
   
 
 
   
 
 
 
Diluted
  $(1,387)   5,878   $(0.24) 
   
 
 
   
 
 
   
 
 
 
Nine months ended November 30, 2020
               
Basic
  $872    5,878   $0.15 
Effect of dilution:
               
Options
   0—      200    0—   
   
 
 
   
 
 
   
 
 
 
Diluted
  $872    6,078   $0.14 
   
 
 
   
 
 
   
 
 
 

13
Video Display Corporation and Subsidiaries
November 30, 2021
Stock options, debentures, and other liabilities convertible into 200,000
shares of the Company’s common stock were anti-dilutive and, therefore, were excluded from the three and nine months ended August 31, 2020 and for the six months ended August 31,November 30, 2021 and 2020 diluted loss per share calculations. For the three-month and six month periods ended August 31, 2021 and August 31, 2020, there was 0 expense related to share-based compensation as allAll options were fully vested. NaNvested related to the periods presented. In addition, 0 new options wereor equity awards have been granted for the six month period ending August 31, 2021 or for the six month period ended August 31, 2020.periods
presented.
Stock Repurchase Program
The
Company has a stock repurchase program, pursuant to
which it had been authorized to repurchase up to 2,632,500 shares of the Company’s common stock in the open market. On January 20
, 2014
, the Board of Directors of the Company approved a
one-time
one
-time
continuation of the stock repurchase program, and authorized the Company to repurchase up to 1,500,000 additional shares of the Company’s common stock in the open market. There is no
minimum number of shares required to be repurchased under the program.
13
Video Display Corporation and Subsidiaries
August 31, 2021
For the sixnine months ending August 31,November 30, 2021 and August 31,November 30, 2020, the Company did 0t purchase any shares of the Video Display Corporation stock. Under the Company’s stock repurchase program, an additional 490,186 shares remain authorized to be repurchased by the Company at August 31,November 30, 2021.
Note 9. – Income Taxes
Due to the Company’s overall and historical net loss position, no income tax expenseprovision was reported for the sixnine month periodperiods ending August 31,November 30, 2021 and August 31,November 30, 2020. Due to continued losses reported by the Company,In addition, a full valuation allowance was allocated to the deferred tax asset created by these losses.
On March 11, 2021, President Biden signed the American Rescue Plan Act (“ARPA”). The ARPA includes several provisions, such as measures that extend and expand the employee retention credit, previously enacted under the CARES Act, through December 31, 2021. For the three and nine months ended November 30, 2021, the Company recorded an employee retention credit of $796 thousand. This credit has been recorded as an employee retention credit refund receivable on the condensed consolidated balance sheets and as employee retention credit income on the condensed consolidated statements of operations. The Company has recorded these amounts at November 30, 2021 as management believes collection is probable as the conditions in order to receive the refund have been met.
Note 10. – 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.
 
14
Video Display Corporation and Subsidiaries
August 31,November 30, 2021
 
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 2021 Annual Report to Shareholders, which included audited consolidated financial statements and notes thereto as of and for the fiscal year ended February 28, 2021, 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 2022, 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 and liquid assets for the sixnine month period ending August 31,November 30, 2021 primarily due to a decrease in revenues in three of four divisions.divisions along with a decrease in accounts receivables and inventory. 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 due to a combination of decreasing revenues across certain divisions without a commensurate reduction of expenses. The Company’s working capital and liquid asset position are presented below (in thousands) as of August 31,November 30, 2021 and February 28, 2021:
 
  
November 30,

2021
   February 28,
2021		 
  
August 31,

2021
   February 28,
2021		         
Working capital
  
$
 2,166
 
  $ 3,601   
$
1,527
 
  $3,601 
Liquid assets
  
$
245
 
  $293   
$
215
 
  $293 
The Company has increased marketing efforts in its ruggedized displays, TEMPEST products and services and small specialty displays. In addition, the Company has streamlined its operations and is focusing on increasing revenues by executing initiatives such as upgrading its sales and marketing efforts including a more user friendly website, the hiring of an experienced Rugged Display Business Development Manager, increasing the number of customer visits and trade shows post pandemic in order to market all the Company’s product lines it sells.lines. These efforts have not increased revenues to date as the Company’s business typically has a longer lead time from initial contact to a sale. The pandemic has also slowed down the
15
Video Display Corporation and Subsidiaries
November 30, 2021
process of obtaining new business as many of our customers and potential customers are still working from home. The Company has expanded its cyber security business by adding an additional test chamber and test equipment to provide additional TEMPEST service capabilities and for qualifying TEMPEST products
15
Video Display Corporation and Subsidiaries
August 31, 2021
allowing it to increase the business in cyber testing services to supplement the product side of the business. The Company just completed and had accredited its new AIS system which will allow for the opportunity to increase the service business. The Company also completed the transfer of the remaining CRT operations in Florida to its Lexel Imaging facility in Lexington, KY in order to make room for the new business in its Cocoa facility. This will also reduce expenses in the CRT operation by having that business all under one roof. The Company also moved the corporate accounting functions to the Cocoa, Florida location which allows the Company to become more efficient and save money on reducing redundant operations. The plan is to further reduce expenses by closing the Tucker, Georgia facility as soon as the lease expires in March, 2022.
In order to assist funding operating activity, the Company’s CEO has loaned $250,000$457,568 in aggregate to the Company during the second quarterand third quarters of fiscal 2022. There are no repayment terms related to the loan; however, the Company plans to repay the note within the next twelve months and therefore has classified the loan as a current liability on the condensed consolidated balance sheets as of August 31,November 30, 2021.
The ability of the Company to continue as a going concern is dependent upon the success of management’s plans to improve revenues, the operational effectiveness of continuing operations, the procurement of suitable financing, or a combination of these. The uncertainty regarding the potential success of management’s plan create substantial doubt about the ability of the Company to continue as a going concern.
Inventory management
– TheManagement regularly reviews the Company’s business units utilize differentinvestment in inventories for declines in value and writes down the cost when it is apparent that the expected net realizable value of the inventory components than the divisions have in the past.falls below its carrying amount. The Company hasoperates in an environment of constantly changing technologies and retains a reserve at each of its divisions to offset any obsolescence although most purchases are for current orders, which should reduce thecertain amount of obsolescence in the future. The Company still has CRT inventory in stock and component parts for legacy products althoughfor maintenance and replacement capabilities for its customers. The Company also inventories product to ensure it believeshas 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 inventory will be sold inoriginal equipment manufacturers, new products being marketed, and technological advances relative to the future, will continue to reserve for any additional obsolescence. Management believes its inventory reserves at August 31, 2021 and February 28, 2021 are adequate.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 and sixnine months ended August 31,November 30, 2021 and 2020 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 2022. Management continues to operate normally with the exception of enabling employees to work from home and abiding by travel restrictions issued by federal and local governments.
If the COVID-19 pandemic continues,
the Company may experience other disruptions that could severely impact the business, results of operations and prospects.
Results of Operations
The following table sets forth, for the three and sixnine months ended August 31,November 30, 2021 and 2020, the percentages that selected items in the Interim Condensed Consolidated Statements of Operations bear to total sales (amounts in thousands):sales:
 
   
Three Months
Ended August 31,
  
Six Months
Ended August 31,
 
   
2021
  2020  
2021
  2020 
Net Sales
     
Simulation and Training (VDC Display Systems)
  
 
56.4
% 
  49.8%  
 
55.4
% 
  49.1 
Data Display CRT (Lexel and Data Display)
  
 
11.4
 
  14.8  
 
12.0
 
  18.4 
Broadcast and Control Centers (AYON Visual)
  
 
—  
 
  —    
 
—  
 
  —   
Cyber Secure Products (AYON Cyber Security)
  
 
16.9
 
  22.0  
 
13.9
 
  22.8 
Other Computer Products (Unicomp)
  
 
15.3
 
  13.4  
 
18.7
 
  9.7 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total net sales
  
 
100.0
% 
  100.0%  
 
100.0
% 
  100.0 
Costs and expenses
     
Cost of goods sold
  
 
97.3
% 
  91.9%  
 
88.9
% 
  80.6 
Selling and delivery
  
 
6.5
 
  12.7  
 
7.5
 
  8.3 
General and administrative
  
 
47.4
 
  42.6  
 
50.4
 
  32.9 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
 
151.2
% 
  147.2%  
 
146.8
% 
  121.8 
Operating loss
  
 
(51.2
)% 
  (47.2)%  
 
(46.8
)% 
  (21.8) 
Interest income (expense), net
  
 
(0.2
)% 
  (0.7)%  
 
(0.4
)% 
  (0.5) 
Other income (expense), net
  
 
60.0
 
  4.2  
 
31.7
 
  5.5 
  
 
 
  
 
 
  
 
 
  
 
 
 
Income (loss) before income taxes
  
 
8.6
% 
  (43.7)%  
 
(15.5
)% 
  (16.8) 
Income tax expense
  
 
—  
 
  —    
 
—  
 
  —   
  
 
 
  
 
 
  
 
 
  
 
 
 
Net income (loss)
  
 
8.6
% 
  (43.7)%  
 
(15.5
)% 
  (16.8) 
  
 
 
  
 
 
  
 
 
  
 
 
 
   
Three Months
  
Nine Months
 
   
Ended November 30,
  
Ended November 30,
 
   
2021
  2020  
2021
  2020 
              
Net Sales
     
Simulation and Training (VDC Display Systems)
  
 
63.8
% 
  77.9%  
 
57.9
% 
  58.4 
Data Display CRT (Lexel and Data Display)
  
 
15.9
 
  7.1  
 
13.2
 
  14.7 
Broadcast and Control Centers (AYON Visual)
  
 
—  
 
  —    
 
—  
 
  —   
Cyber Secure Products (AYON Cyber Security)
  
 
1.7
 
  2.6  
 
10.3
 
  16.3 
Other Computer Products (Unicomp)
  
 
18.6
 
  12.4  
 
18.6
 
  10.6 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total net sales
  
 
100.0
% 
  100.0%  
 
100.0
% 
  100.0 
 
16
Video Display Corporation and Subsidiaries
August 31,November 30, 2021
 
Costs and expenses
     
Cost of goods sold
  
 
134.3
% 
  66.9%  
 
102.6
% 
  76.2 
Selling and delivery
  
 
7.8
 
  4.4  
 
7.6
 
  7.0 
General and administrative
  
 
60.5
 
  33.1  
 
53.4
 
  33.0 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
 
202.6
% 
  104.4%  
 
163.6
% 
  116.2 
Operating loss
  
 
(102.6
)% 
  (4.4)%  
 
(63.6
)% 
  (16.2) 
Interest expense, net
  
 
(0.4
)% 
  (0.1)%  
 
(0.3
)% 
  (0.4) 
Other income (expense), net
  
 
53.2
 
  70.2  
 
38.2
 
  26.4 
  
 
 
  
 
 
  
 
 
  
 
 
 
Income (loss) before income taxes
  
 
(49.9
)% 
  65.7%  
 
(25.8
)% 
  9.8 
Income tax expense
  
 
—  
 
  —    
 
—  
 
  —   
  
 
 
  
 
 
  
 
 
  
 
 
 
Net income (loss)
  
 
(49.9
)% 
  65.7%  
 
(25.8
)% 
  9.8 
  
 
 
  
 
 
  
 
 
  
 
 
 
Net sales
Consolidated net sales decreased 37.3%39.3% for the sixnine months ended August 31,November 30, 2021, and decreased 16.9%43.5% for the three months ended August 31,November 30, 2021 compared to the sixnine months and three months ended August 31,November 30, 2020. The Company’s AYON Cyber Security (ACS) division is down 61.7%61.8% for the sixnine months ending August 31,November 30, 2021 compared to the sixnine months last year. TheirThe business decreased due to lack of product orders for the Department of the State and Canada. The Company is developing new products for customers in this area and expects to have them reviewed by customers byin the endearly part of thisnext year. The Company’s service side of the cyber business (testing other company’s products for compliance) was theiris the primary revenue source. For the three months ending August 31,November 30, 2021, ACS business decreased 36.3%64.0%. The Display Systems division was down 29.2%39.8% for the sixnine months ended August 31,November 30, 2021 compared to the comparable period last year. 26.8%33.1% of the division’s business has been in the new specialized displays segment of the division.area. The other approximate two thirds has beenis mixed between different programs including ruggedized displays, simulation and video walls. For the three months ended August 31,November 30, 2021, the Display System division was down 6.1%53.8% compared to the same three months last year. The Company is focused on the ruggedized displays and simulation sectors of the business, having recently received an order for simulation and pursuing opportunities in both the ruggedized displays and simulation business. The Data Display division decreased 59.1% and 35.6%45.7% for the six months and threenine months ended August 31,November 30, 2021 due to decreases in the sales of a specialty product know as a DVST (Direct view storage tube) because of delays caused by
Covid-19.Covid-19,
The Data Display division is also seeing reduced salesbut increased 27.2% for replacement CRTs for flight simulator customersthree months ended November 30, 2021 due to the decrease in flights right now.increased CRT sales. The division expects to sell the DVST products for at least the next five to seven years. The Company’s keyboard division was up 20.1%6.8% for the sixnine months ended August 31,November 30, 2021 and down 5.0%15.2% for three months ended August 31,November 30, 2021 respectively compared to the same periods last year. The Company acquired this company in October of 2017.This division experienced increased sales with the new product line introduced last year, but sales have now leveled off. This division is expected to continue at this level of sales each quarter.
Gross margins
Consolidated gross margins were decreased both as a percentage to sales (11.1%(2.6%) to 19.4%)23.8% and actual dollars ($418137) thousand to $1,163 thousand)$2,111 thousand for the sixnine months ended August 31,November 30, 2021 compared to the sixnine months ended August 31,November 30, 2020.
VDC Display Systems gross margin dollars were $352$461 thousand compared to $798$1,683 thousand for the sixnine months ended August 31,November 30, 2021 compared to the sixnine months ended August 31,November 30, 2020. VDC Display Systems gross margin percentage also decreased from 27.1%32.5% to 16.9%14.8% for the sixnine months ended August 31,November 30, 2021 compared to the same sixnine months in 2020. AYON Cyber Security gross margin dollars were $217$158 thousand compared to $204$210 thousand for the sixnine months ended August 31,November 30, 2021 compared to the sixnine months ended August 31,November 30, 2020. AYON Cyber Security gross margin percentage increased to 41.4%28.7% from 14.9%14.6% for the sixnine months ended August 31,November 30, 2021 compared to the same sixnine month period in 2020 due to the sales mix of primarily service jobs as the material costs were lower.
17
Video Display Corporation and Subsidiaries
November 30, 2021
The Data Display division had a negative gross margin of $392$1,072 thousand or a negative 87.1%151.4% compared to a negative gross margin of $69$147 thousand and a negative gross margin of 6.3%11.3% for the sixnine months ended August 31,November 30, 2021 and August 31,November 30, 2020 respectively. The negative gross margins were driven by $532 thousand of inventory write offs and fixed overhead. The keyboard division, Unicomp, had $241$315 thousand of gross margin dollars or 34.3%31.4% to sales for the sixnine months ending August 31,November 30, 2021 compared to $230$364 thousand or 39.4%38.7% for the sixnine months ending August 31,November 30, 2020.
17
Video Display Corporation and Subsidiaries
August 31, 2021
For the three months ended August 31,November 30, 2021 compared to the same period last year, three of theall four divisions reported lower gross margin dollars than last year. The cyber division did better than last year in gross margin dollars and gross margin percentage. The sales mix for the cyber division this year was primarily service versus products which requires no material costs and as last year the division completed a low margin product job. Overall gross margins for the quarter were down to the low sales volume.volume caused by delays in receiving raw materials and other factors caused by Covid.
Operating expenses
Operating expenses decreased 12%7.4% or $292$261 thousand for the sixnine months ended August 31,November 30, 2021 compared to the sixnine months ended August 31,November 30, 2020. The decrease was due primarily to the reduction of salaries and contractor expenses including commissions.
Operating expenses decreasedincreased by 19.0%2.8% or $240$30 thousand for the three months ended August 31,November 30, 2021 compared to the three months ended August 31,November 30, 2020. The decrease was due primarily to the decreased costs in selling expenses. The Company is focusing on reducing costs while increasing the sales effort. The Company expects to continue to control costs while increasing revenues in tempest services, specialized displays and ruggedized displays.
Interest income (expense),expense, net
Interest expense was $14$20 thousand for the sixnine months ended August 31,November 30, 2021 compared to $31$35 thousand for the sixnine months ended August 31,November 30, 2020. Interest expense was $6 thousand for the three months ended November 30, 2021 compared to $4 thousand for the three months ended August 31, 2021 compared to $16 thousand for the three months ended August 31,November 30, 2020. Interest expense in fiscal 2022 relates primarily to interest expense on the lease of TEMPEST equipment along with interest related to the PPP loans that were outstanding.equipment. Interest in fiscal 2021 primarily related to interest expense on notes owed to the CEO.CEO and the TEMPEST equipment lease.
Other income (expense), net
For the sixnine months ended August 31,November 30, 2021, the Company had $1.1 million in gains on the extinguishment of PPP loans, $107$796 thousand in employee retention credit income, $172 thousand in rental income, and $4 thousand in debt recovery offset by $4$5.4 thousand in commissions on the rental income. For the sixnine months ended August 31,November 30, 2020, the Company had $1,724 thousand in a gain on the sale of assets, $148 thousand in royalty income, $181$237 thousand in rental income, $6$216 thousand in gain on extinguishment of debt, $9 thousand in discontinued scrap items, and $6$5 thousand in investment losses.gains.
For the three months ended August 31,November 30, 2021, the Company had $1.1 million$796 thousand in gains on extinguishment of PPP loans, $56employee retention credit income, $64.4 thousand in rental income $4 thousand in bad debt recovery, offset by $2$1.8 thousand in rental commissions. For the three months ended August 31,November 30, 2020 the Company had $91$1,724 thousand in a gain on the sale of assets, $216 thousand in gain on extinguishment of debt, $56 thousand in rental income, $1$11 thousand in investment gains and $3 thousand in scrap items, and $4 thousand in investment gains.sales.
Income taxes
Due to the Company’s overall and historical net loss position, no income tax benefit has been reported and instead a full valuation allowance has been allocated to the deferred tax asset created by these losses.
18
Video Display Corporation and Subsidiaries
November 30, 2021
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 and liquid assets for the sixnine month period ending August 31,November 30, 2021 primarily due to a decrease in revenues in three of four divisions.divisions along with a decrease in accounts receivables and inventory. The Company has sustained losses for the last
18
Video Display Corporation and Subsidiaries
August 31, 2021
three of five fiscal years and has seen overall a decline in working capital and liquid assets during this five year period due to a combination of decreasing revenues across certain divisions without a commensurate reduction of expenses. The Company’s working capital and liquid asset position are presented below (in thousands) as of August 31,November 30, 2021 and February 28, 2021:
 
  
November 30,

2021
   February 28,
2021		 
  
August 31,

2021
   February 28,
2021		         
Working capital
  
$
 2,166
 
  $ 3,601   
$
1,527
 
  $3,601 
Liquid assets
  
$
245
 
  $293   
$
215
 
  $293 
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 sixnine months ended August 31,November 30, 2021 was $0.2$0.3 million. Adjustments to net loss were non cash operating items of $0.6 million were $0.2$0.3 million for depreciation and amortization, offset by $0.1$0.8 million for a change in inventory reservesrelated charges and $1.1 million related to the gain recorded on the extinguishment of the remaining PPP loans. Changes in working capital provided $1.4$1.0 million, primarily $0.2from $0.6 million in accounts receivable, $0.1 million from accounts receivable and $0.5the decrease in inventory, $0.7 million from the change in contract assets by $0.2and $0.4 million from the change in accounts payable and $0.5accrued liabilities partially offset by a $0.8 million in inventories.employee retention credit refund receivable. Cash used by operations for the sixnine months ended August 31,November 30, 2020 was $1.5$2.7 million. AdjustmentsSignificant adjustments to net loss were $0.2income included $1.9 million
for non-cash depreciation
in gains resulting from the sale of a building and amortization charges.forgiveness of a PPP loan. Changes in working capital used $0.8$2.0 million, primarily due to a decreasean increase in contract assets of $0.9 million, an increase in custom deposits of $1.0$0.6 million and an increase in contract assets by $0.2inventories $0.8 million, offset by an increasea decrease in prepaid expenses of $0.2 million and accounts payable and accrued liabilities of $0.3 million and a decrease in prepaid expenses and other assets of $0.2$0.1 million.
Investing activities used $47$56 thousand for the sixnine months ended August 31,November 30, 2021 all related to capital asset expenditures compared to $54 thousand forexpenditures. For the sixnine months ended August 31,November 30, 2020, of which $31 thousand related to capital expenditures. In addition, forcash provided by investing activities was $2 million and resulted primarily from the six months ended August 31, 2020, $47 thousand in cash was used for trading security purchases offset with $24 thousand received from sale of investments. There has been no investing activity to datea building in third quarter fiscal 2022.2021.
Financing activities provided $183 thousand$0.3 million for the sixnine months ended August 31,November 30, 2021 compared to $1,500 thousand$0.2 million for the comparable period in the prior year. For the sixnine months ended August 31,November 30, 2021, $250$458 thousand was provided resulting from borrowings from the CEO marginally offset by the repayment of notes of $74 thousand and lease financing. Forfinancing of $57 thousand. Financing activities provided $0.2 million for the sixnine months ended August 31,November 30, 2020 cash was provided resulting from $1.0 million in proceeds received from the PPP Loans, $200 thousandloans, $0.4 million in proceeds borrowed from the CEO marginally offset by repaymentrepayments of $35 thousand$1.2 million in related party loans.
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.
19
Video Display Corporation and Subsidiaries
November 30, 2021
For the sixnine months ending August 31,November 30, 2021 and August 31,November 30, 2020, the Company did not purchase any shares of the Video Display Corporation stock. Under the Company’s stock repurchase program, an additional 490,186 shares remain authorized to be repurchased by the Company at August 31,November 30, 2021.
19
Video Display Corporation and Subsidiaries
August 31, 2021
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:
Reserves on InventoriesInventory Valuation
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 reserveswrites 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 also inventories product it acquires on a last-time buy basis 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. Management believes its inventory reservesvalues at August 31,November 30, 2021 and February 28, 2021 are adequate.
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.
20
Video Display Corporation and Subsidiaries
November 30, 2021
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.
20
Video Display Corporation and Subsidiaries
August 31, 2021
Income Taxes
Deferred income taxes are provided to reflect the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. As of August 31,November 30, 2021, the Company has established a valuation allowance of $5.3$5.6 million on the Company’s deferred tax assets.
The Company accounts for uncertain tax positions under the provisions of ASC 740, which contains a
two-step
approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not, that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating the Company’s tax positions and tax benefits, which may require periodic adjustments. At August 31,November 30, 2021, the Company did not record any liabilities for uncertain tax positions.
21
Video Display Corporation and Subsidiaries
August 31, 2021
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, 2021 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.
21
Video Display Corporation and Subsidiaries
November 30, 2021
Our chief executive officer and chief financial officer have conducted an evaluation of the effectiveness of our disclosure controls and procedures as of August 31,November 30, 2021. 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 our disclosure controls and procedures were effective as of August 31,November 30, 2021.
Changes in Internal Controls
There have not been any changes in our internal controls over financial reporting (as such term is defined in
Rules 13a-15(f) and
15d-15(f) under
the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
 
22
Video Display Corporation and Subsidiaries
August 31,November 30, 2021
 
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
Form 10-Q
and in Part I, Item 1A of our Annual Report on Form
10-K
for the fiscal year ended February 28, 2021. 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
 
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
  VIDEO DISPLAY CORPORATION
October 15, 2021January 14, 2022  By: 
/s/ Ronald D. Ordway
   Ronald D. Ordway
   Chief Executive Officer
October 15, 2021January 14, 2022  By: 
/s/ Gregory L. Osborn
   Gregory L. Osborn
   Chief Financial Officer
 
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