UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended ~~October 31, 2017~~April 30, 2020



¨	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 1-8777

VIRCO MFG. CORPORATION

(Exact Name of Registrant as Specified in its Charter)



Delaware		95-1613718
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

2027 Harpers Way, Torrance, CA		90501
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code: (310) 533-0474

~~No change~~

~~Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report.~~Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered

Common Stock, $0.01 par value per share	VIRC	The Nasdaq Stock Market LLC

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 ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. ~~(Check one)~~:



Large accelerated filer	¨		Accelerated filer	¨
Non-accelerated filer	¨ý	~~(Do not check if a smaller reporting company)~~	Smaller reporting company	ý
			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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

The number of shares outstanding for each of the registrant’s classes of common stock, as of the latest practicable date:

Common Stock, $.01 par value — ~~15,357,457~~15,713,549 shares as of ~~December 13, 2017.~~June 8, 2020.

TABLE OF CONTENTS



Part I. Financial Information		3
	Item 1. Financial Statements	3
	Unaudited condensed consolidated balance sheets - ~~October 31, 2017,~~April 30, 2020, January 31, ~~2017~~2020 and ~~October 31, 2016~~April 30, 2019	3
	Unaudited condensed consolidated statements of ~~income~~operations - Three months ended ~~October 31, 2017~~April 30, 2020 and ~~2016~~2019	5
	Unaudited condensed consolidated statements of ~~income~~comprehensive loss - ~~Nine~~Three months ended ~~October 31, 2017~~April 30, 2020 and ~~2016~~2019	6
	Unaudited condensed consolidated statements of ~~comprehensive income~~cash flows - Three months ended ~~October 31, 2017~~April 30, 2020 and ~~2016~~2019	7
	Unaudited condensed consolidated statements of changes in equity and accumulated other comprehensive income (loss) - ~~Nine~~Three months ended ~~October 31, 2017~~April 30, 2020 and ~~2016~~2019	8
	~~Unaudited condensed consolidated statements of cash flows - Nine months ended October 31, 2017 and 2016~~	9
	Notes to unaudited condensed consolidated financial statements - ~~October 31, 2017~~April 30, 2020	109
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	1718
	Item 3. Quantitative and Qualitative Disclosures about Market Risk	1920
	Item 4. Controls and Procedures	1920
Part II. Other Information		2021
	Item 1. Legal Proceedings	2021
	Item 1A. Risk Factors	2021
	Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities	2021
	Item 3. Defaults Upon Senior Securities	2021
	Item 4. Mine Safety Disclosures	2021
	Item 5. Other Information	2021
	Item 6. Exhibits	2022
	EX-3.3
	EX-31.1
	EX-31.2
	EX-32.1
	EX-101 INSTANCE DOCUMENT
	EX-101 SCHEMA DOCUMENT
	EX-101 CALCULATION LINKBASE DOCUMENT
	EX-101 LABELS LINKBASE DOCUMENT
	EX-101 PRESENTATION LINKBASE DOCUMENT

PART I. Financial Information

Item 1. Financial Statements

Virco Mfg. Corporation

Unaudited Condensed Consolidated Balance Sheets


	10/31/2017		1/31/2017		10/31/2016		4/30/2020		1/31/2020		4/30/2019
	(In thousands, except share data)						(In thousands)
	Unaudited (Note 1)				Unaudited (Note 1)
Assets
Current assets
Cash	$	1,536	$	788	$	2,309	$	327	$	1,150	$	553
Trade accounts receivables, net	21,120		9,915		18,932		7,564		11,762		12,375
Other receivables	58		216		465		57		57		64
Income tax receivable	200		275		263		469		298		263
Inventories, net	36,377		35,689		31,655
Inventories							58,190		43,329		63,511
Prepaid expenses and other current assets	1,536		1,610		1,279		2,413		1,746		2,532
Total current assets	60,827		48,493		54,903		69,020		58,342		79,298
Non-current assets
Property, plant and equipment
Land	3,731		1,671		1,671		3,731		3,731		3,731
Land improvements	688		675		674		734		717		688
Buildings and building improvements	51,176		46,021		46,019		51,159		51,200		51,176
Machinery and equipment	101,894		99,896		98,710		111,250		110,610		109,087
Leasehold improvements	805		842		701		1,072		990		830
	158,294		149,105		147,775
Total property, plant and equipment							167,946		167,248		165,512
Less accumulated depreciation and amortization	115,551		114,780		113,550		128,520		127,351		124,159
Net property, plant and equipment	42,743		34,325		34,225		39,426		39,897		41,353
Operating lease right-of-use assets							20,487		21,325		23,295
Deferred tax assets, net	13,793		17,008		18,382		14,481		11,230		11,086
Other assets	8,282		8,361		7,071
Other assets, net							8,078		8,198		8,276
Total assets	$	125,645	$	108,187	$	114,581	$	151,492	$	138,992	$	163,308

See accompanying ~~notes.~~notes to unaudited condensed consolidated financial statements.

Virco Mfg. Corporation

Unaudited Condensed Consolidated Balance Sheets


	10/31/2017			1/31/2017			10/31/2016			4/30/2020			1/31/2020			4/30/2019
	(In thousands, except share and par value data)									(In thousands, except share and par value data)
	Unaudited (Note 1)						Unaudited (Note 1)
Liabilities
Current liabilities
Accounts payable	$	13,623		$	12,388		$	10,587		$	16,656		$	10,587		$	16,354
Accrued compensation and employee benefits	6,106			5,138			6,312			5,979			6,392			4,631
Current portion of long-term debt	3,278			68			89			10,618			878			24,226
Current portion operating lease liability										4,527			3,654			2,939
Other accrued liabilities	5,047			3,991			5,099			4,606			3,607			5,552
Total current liabilities	28,054			21,585			22,087			42,386			25,118			53,702
Non-current liabilities
Accrued self-insurance retention	1,613			1,350			1,200			1,802			1,410			1,773
Accrued pension expenses	17,404			18,699			22,244			21,365			21,310			14,218
Income tax payable	33			36			33			74			70			55
Long-term debt, less current portion	11,310			4,943			4,547			15,630			15,818			16,508
Other accrued liabilities	1,657			2,220			2,245
Operating lease liability, less current portion										18,854			19,787			22,221
Other long-term liabilities										662			661			555
Total non-current liabilities	32,017			27,248			30,269			58,387			59,056			55,330
Commitments and contingencies
Commitments and contingencies (Notes 6, 7 and 13)
Stockholders’ equity
Preferred stock:
Authorized 3,000,000 shares, $.01 par value; none issued or outstanding	—			—			—
Authorized 3,000,000 shares, $0.01 par value; none issued or outstanding										—			—			—
Common stock:
Authorized 25,000,000 shares, $.01 par value; issued and outstanding 15,357,457 shares at 10/31/2017 and 15,179,664 at 1/31/2017 and 10/31/2016	154			152			152
Authorized 25,000,000 shares, $0.01 par value; issued and outstanding 15,713,549 shares at 4/30/2020 and 1/31/2020 and 15,541,956 at 4/30/2019										157			157			155
Additional paid-in capital	117,237			116,976			116,809			119,036			118,782			118,292
Accumulated deficit	(40,868		)	(46,380		)	(41,396		)	(54,508		)	(49,810		)	(55,259		)
Accumulated other comprehensive loss	(10,949		)	(11,394		)	(13,340		)	(13,966		)	(14,311		)	(8,912		)
Total stockholders’ equity	65,574			59,354			62,225			50,719			54,818			54,276
Total liabilities and stockholders’ equity	$	125,645		$	108,187		$	114,581		$	151,492		$	138,992		$	163,308

See accompanying ~~notes.~~notes to unaudited condensed consolidated financial statements.

Virco Mfg. Corporation

Unaudited Condensed Consolidated Statements of ~~Income~~

~~Unaudited (Note 1)~~Operations

Three months ended
10/31/2017 10/31/2016
(In thousands, except per share data)
Net sales $ 68,794
$ 67,795
Costs of goods sold 44,327
43,484
Gross profit 24,467
24,311
Selling, general and administrative expenses 19,798
17,780
Gain on sale of property, plant & equipment (15 ) (1 )
Operating income 4,684
6,532
Interest expense, net 456
326
Income before income taxes 4,228
6,206
Income tax expense (benefit) 1,704
(17,792 )
Net income $ 2,524
$ 23,998

Net income per common share:
Basic $ 0.16
$ 1.59
Diluted $ 0.16
$ 1.57
Weighted average shares outstanding:
:

Basic 15,317
15,128
Diluted 15,483
15,293



	Three months ended
	4/30/2020			4/30/2019
	(In thousands, except per share data)
Net sales	$	17,599		$	26,893
Costs of goods sold	12,695			17,809
Gross profit	4,904			9,084
Selling, general and administrative expenses	11,931			12,681
Loss (gain) on sale of property, plant & equipment	—			—
Operating loss	(7,027		)	(3,597		)
Pension expense	542			188
Interest expense	404			700
Loss before income taxes	(7,973		)	(4,485		)
Income tax benefits	(3,275		)	(1,418		)
Net loss	$	(4,698	)	$	(3,067	)


Net loss per common share:
Basic	$	(0.30	)	$	(0.20	)
Diluted (a)	(0.30		)	(0.20		)
Weighted average shares of common stock outstanding:
Basic	15,654			15,486
Diluted (a)	15,654			15,486

(a) Net loss per common share was calculated based on basic shares outstanding due to the anti-dilutive effect on the inclusion of common stock equivalent shares.

See accompanying ~~notes.~~notes to unaudited condensed consolidated financial statements.

Virco Mfg. Corporation

Unaudited Condensed Consolidated Statements of ~~Income~~Comprehensive Loss

~~Unaudited (Note 1)~~

Nine months ended
10/31/2017 10/31/2016
(In thousands, except per share data)
Net sales $ 164,665
$ 149,976
Costs of goods sold 105,088
93,864
Gross profit 59,577
56,112
Selling, general and administrative expenses 49,768
44,915
Gain on sale of property, plant & equipment (16 ) (2 )
Operating income 9,825
11,199
Interest expense, net 1,280
1,076
Income before income taxes 8,545
10,123
Income tax expense (benefit) 3,204
(17,622 )
Net Income $ 5,341
$ 27,745

Net income per common share:
Basic $ 0.35
$ 1.84
Diluted $ 0.35
$ 1.83
Weighted average shares outstanding:
:
Basic 15,220
15,047
Diluted 15,324
15,186



	Three months ended
	4/30/2020			4/30/2019
	(In thousands)

Net loss	$	(4,698	)	$	(3,067	)
Other comprehensive income:
Pension adjustments (net of tax expense of $120 and $46 at April 30, 2020 and 2019, respectively)	345			130
Net comprehensive loss	$	(4,353	)	$	(2,937	)

See accompanying ~~notes.~~notes to unaudited condensed consolidated financial statements.

Virco Mfg. Corporation

Unaudited Condensed Consolidated Statements of ~~Comprehensive Income~~

~~Unaudited (Note 1)~~

Cash Flows

Three months ended
10/31/2017 10/31/2016
(In thousands)
Net Income $ 2,524
$ 23,998
Other comprehensive income
Pension adjustments (net of tax $92, $0 in 2018 and 2017) 148
330
Comprehensive income $ 2,672
$ 24,328



	Three months ended
	4/30/2020			4/30/2019
	(In thousands)
Operating activities
Net loss	$	(4,698	)	$	(3,067	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	1,393			1,452
Non-cash lease expense	778			89
Provision for doubtful accounts	15			15
Loss (gain) on sale of property, plant and equipment	—			—
Deferred income taxes	(3,251		)	(1,488		)
Stock-based compensation	254			186
Defined pension plan settlement	—			—
Amortization of net actuarial loss for pension plans	345			130
Changes in operating assets and liabilities:
Trade accounts receivable	4,183			863
Other receivables	—			(24		)
Inventories	(14,861		)	(16,222		)
Income taxes	(167		)	(77		)
Prepaid expenses and other current assets	(546		)	(709		)
Accounts payable and accrued liabilities	6,668			566
Net cash used in operating activities	(9,887		)	(18,286		)
Investing activities:
Capital expenditures	(488		)	(1,219		)
Proceeds from sale of property, plant and equipment	—			—
Net cash used in investing activities	(488		)	(1,219		)
Financing activities:
Borrowing from long-term debt	11,413			19,564
Repayment of long-term debt	(1,861		)	(244		)
Payment on deferred financing costs	—			—
Tax withholding payments on share-based compensation	—			—
Cash dividends paid	—			—
Net cash provided by financing activities	9,552			19,320

Net decrease in cash	(823		)	(185		)
Cash at beginning of period	1,150			738
Cash at end of period	$	327		$	553

See accompanying ~~notes.~~

~~Virco Mfg. Corporation~~

~~Condensed Consolidated Statements of Comprehensive Income~~

~~Unaudited (Note 1)~~

Nine months ended
10/31/2017 10/31/2016
(In thousands)
Net income $ 5,341
$ 27,745
Other comprehensive income
Pension adjustments (net of tax $276, $0 in 2018 and 2017) 444
990
Comprehensive income $ 5,785
$ 28,735
notes to unaudited condensed consolidated financial statements.

Virco Mfg. Corporation

~~Condensed~~Unaudited Consolidated Statements of ~~Cash Flows~~Changes in Equity and Accumulated Other Comprehensive Income (Loss)

~~Unaudited (Note 1)~~

Nine months ended
10/31/2017 10/31/2016
(In thousands)
Operating activities
Net income $ 5,341
$ 27,745
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 4,041
3,794
Provision for doubtful accounts 60
68
Increase in inventory reserve

720
93
Gain on sale of property, plant and equipment (16 ) (2 )
Deferred income taxes 3,387
(17,680 )
Stock-based compensation 602
443
Amortization of net actuarial loss for pension plans, net of tax 444
990
Changes in operating assets and liabilities:
Trade accounts receivable (11,265 ) (9,053 )
Other receivables 152
(431 )
Inventories, net (1,408 ) 2,948
Income taxes 73
49
Prepaid expenses and other current assets 152
(289 )
Accounts payable and accrued liabilities 1,721
(1,708 )
Net cash provided by operating activities 4,004
6,967
Investing activities
Capital expenditures (12,521 ) (3,239 )
Proceeds from sale of property, plant and equipment 28
2
Net cash used in investing activities (12,493 ) (3,237 )
Financing activities
Proceeds from long-term debt 36,742
37,004
Repayment of long-term debt (27,166 ) (38,976 )
Common stock repurchased (339 ) (264 )
Net cash provided by (used in) financing activities 9,237
(2,236 )

Net increase in cash 748
1,494
Cash at beginning of period 788
815
Cash at end of period $ 1,536
$ 2,309



	Three-Month Period Ended April 30, 2020

	Common Stock
In thousands, except share data	Shares	Amount		Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholder's Equity
Balance at February 1, 2020	15,713,549	$	157	$	118,782	$	(49,810	)	$	(14,311	)	$	54,818
Net loss	—	—		—		(4,698		)	—			(4,698		)
Cash dividends	—	—		—		—			—			—
Pension adjustments, net of tax effect of $120	—	—		—		—			345			345
Shares vested and others	—	—		—		—			—			—
Stock compensation expense	—	—		254		—			—			254
Balance at April 30, 2020	15,713,549	$	157	$	119,036	$	(54,508	)	$	(13,966	)	$	50,719



	Three-Month Period Ended April 30, 2019

	Common Stock
In thousands, except share data	Shares	Amount		Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholder's Equity
Balance at February 1, 2019	15,541,956	$	155	$	118,106	$	(52,192	)	$	(9,042	)	$	57,027
Net loss	—	—		—		(3,067		)	—			(3,067		)
Cash dividends	—	—		—		—			—			—
Pension adjustments, net of tax effect of $46	—	—		—		—			130			130
Shares vested and others	—	—		—		—			—			—
Stock compensation expense	—	—		186		—			—			186
Balance at April 30, 2019	15,541,956	$	155	$	118,292	$	(55,259	)	$	(8,912	)	$	54,276

See accompanying ~~notes.~~notes to unaudited condensed consolidated financial statements.

VIRCO MFG. CORPORATION

Notes to unaudited Condensed Consolidated Financial Statements

~~October 31, 2017~~April 30, 2020

Note 1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and ~~footnotes~~notes required by generally accepted accounting principles for complete financial ~~statements.~~statements and are presented in accordance with the requirements of Form 10-Q and Rule 10-01 of Regulation S-X. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2020 (“Form 10-K”). In the opinion of management, all adjustments ~~(consisting of normal recurring accruals)~~ considered necessary for a fair presentation have been included. Operating results for the ~~nine~~three months ended ~~October 31, 2017,~~April 30, 2020, are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, ~~2018.~~2021. The balance sheet at January 31, ~~2017,~~2020, has been derived from the audited consolidated financial statements at that date, but does not include all of the information and ~~footnotes~~notes required by accounting principles generally accepted in the United States for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2017 (“Form 10-K”). All references to the “Company” refer to Virco Mfg. Corporation and its subsidiaries.

Note 2. Seasonality and Management Use of Estimates

The market for educational furniture is marked by extreme seasonality, with approximately 50% of the Company’s total sales typically occurring from June to August each year, the Company’s peak season. Hence, the Company typically builds and carries significant amounts of inventory during and in anticipation of this peak summer season to facilitate the rapid delivery requirements of customers in the educational market. This requires a large up-front investment in inventory, labor, storage and related costs as inventory is built in anticipation of peak sales during the summer months. As the capital required for this build-up generally exceeds cash available from operations, the Company has generally relied on third-party bank financing to meet cash flow requirements during the build-up period immediately preceding the peak season. In addition, the Company typically is faced with a large balance of accounts receivable during the peak season. This occurs for two primary reasons. First, accounts receivable balances typically increase during the peak season as shipments of products increase. Second, many customers during this period are educational institutions and government ~~institutions,~~entities, which tend to pay accounts receivable ~~more slowly~~slower than commercial customers.

The Company’s working capital requirements during and in anticipation of the peak summer season require management to make estimates and judgments that affect assets, liabilities, revenues and expenses, and related contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to market demand, labor costs and stocking inventory. Significant estimates made by management include, but are not limited to, valuation of inventory; deferred tax assets and liabilities; useful lives of property, plant and equipment; liabilities under pension, warranty, self-insurance and environmental claims; and the accounts receivable allowance for doubtful accounts. Due to the inherent uncertainty involved in making assumptions and estimates, events and changes in circumstances arising after April 30, 2020, including those resulting from the impacts of the COVID-19 pandemic, may result in actual outcomes that differ from those contemplated by our assumptions and estimates.

Note 3. New Accounting Pronouncements

Recently Adopted Accounting Updates

In ~~February 2016,~~December 2019, the FASB issued ASU No. ~~2016-02,~~2019-12, ~~Leases~~Simplifying the Accounting for Income Taxes. ~~The new standard requires lessees~~This update simplifies various aspects related to ~~recognize most leases, including operating leases, on-balance sheet via a right of use asset and lease liability. Changes~~accounting for income taxes, removes certain exceptions to the ~~lessee accounting model may change key balance sheet measures~~general principles in ASC 740, and ~~ratios, potentially effecting analyst expectations~~clarifies and ~~compliance with~~amends existing guidance to improve consistent application. The Company adopted this ASU as of February 1, 2020 and the adoption of this standard did not have a material effect on our condensed consolidated financial ~~covenants.~~statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) which modifies the disclosure requirements of fair value measurements in Topic 820, Fair Value Measurement. For public companies the ASU removes disclosure requirements for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation process for Level 3 fair value measurements. The ~~new standard becomes effective~~ASU modifies the disclosure requirements

for investments in certain entities that calculate net asset value and clarifies that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. The ASU adds the disclosure requirement for changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The Company adopted this ASU as of February 1, 2020 and the adoption of this standard did not have a material effect on our condensed consolidated financial statements.

Recently Issued Accounting Updates

In August 2018, the FASB issued Accounting Standards Update No. 2018-14 (ASU 2018-14), Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20), which amends the current disclosure requirements regarding defined benefit pensions and other post retirement plans, and allows for the removal of certain disclosures, while adding certain new disclosure requirements. This standard is effective for fiscal years beginning after December 15, ~~2018, but may be adopted at any time,~~2020 and ~~requires a modified retrospective transition.~~allows for early adoption. The Company is currently evaluating the effect the standard will have on the consolidated financial statements and related disclosures.

In ~~August~~June 2016, the FASB issued ASU ~~No. 2016-15,~~2016-13, ~~Statement~~Financial Instruments - Credit Losses (Topic 326): Measurement of ~~Cash Flows - Classification~~Credit Losses on Financial Instruments. ASU 2016-13 replaces the incurred loss impairment methodology for measuring and recognizing credit losses with a methodology that reflects expected credit losses and requires consideration of ~~Certain Cash Receipts~~a broader range of reasonable and ~~Cash Payments.~~supportable information to inform credit loss estimates. The new standard provides classification guidance on eight cash flow issues including debt prepayment, settlement of zero-coupon bonds, contingent consideration payments made after a business combination, proceeds fromadoption date, as modified by the ~~settlements of insurance claims, proceeds from the settlement of corporate-owned life insurance policies and distributions received from equity method investees. The new standard becomes effective~~recently issued ASU 2019-10 discussed below, will be for the ~~Company for~~ fiscal ~~years beginning~~year ending after December 15, ~~2017.~~2022 and interim periods therein. The Company ~~anticipates~~is currently evaluating the effect the standard will have ~~an immaterial effect on consolidated statements of cash flows.~~

In March 2017, the FASB issued authoritative guidance related to the presentation of net periodic pension cost in the income statement. This guidance requires that the service cost component of net periodic pension cost is presented in the same line as other compensation costs arising from services rendered by the respective employees during the period. The other components of net periodic pension cost are required to be presented in the income statement separately from the service cost component and outside of earnings from operations. This guidance also allows for the service cost component to be eligible for capitalization when applicable. This guidance is effective for fiscal years beginning after December 15, 2017, which will be the Company’s first quarter of fiscal 2019, and requires retrospective adoption for the presentation of the service cost component and other components

of net periodic pension cost in the income statement and prospective adoption for capitalization of the service cost component. Early adoption is permitted at the beginning of a fiscal year. The Company adopted this standard in the first quarter of fiscal 2018 and it had no effect on the ~~condensed~~ consolidated financial statements and related disclosures.

In ~~March 2016,~~November 2019, the FASB issued ASU ~~No. 2016-09,~~2019-10, ~~Improvements~~Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates. ASU 2019-10 moves the effective date for certain previously issued amendments to ~~Employee Share-Based Payment Accounting.~~ ~~The new standard is intended~~later dates, depending on the filing status of the respective entity. Specifically, due to simplify accounting for share based employment awards to employees. Changes include: all excess tax benefits/deficiencies should be recognized as income tax expense/benefit; entities can make elections on how to account for forfeitures;the amendment and ~~cash paid by an employer when directly withholding shares for tax withholding purposes should be classified~~the Company’s status as a ~~financing activity on the cash flow statement. The Company implemented~~smaller reporting company, the new ~~standard in~~effective dates for relevant previously issued amendments not yet adopted by the first quarter of fiscal 2018. The primary impact of implementation was the recognition of excess tax benefits in our provision for income taxes rather than paid-in capital beginning with the first quarter of fiscal 2018. Upon adoption, the balance of the unrecognized excess tax benefits of approximately $172,000 was reversed with the impact recordedCompany relate to ~~retained earnings. Prior to the adoption of this standard, that amount would have been recognized~~ASU 2016-13 as an adjustment to "Additional paid-in capital" in the Condensed Consolidated Balance Sheets. Excess tax benefits will be recorded in the operating section of the Condensed Consolidated Statements of Cash Flows on a prospective basis. Prior to fiscal 2018, the tax benefits or shortfalls were recorded in financing cash flows. The presentation requirements for cash flows related to employee taxes paid for withheld shares in the financing section had no impact to any of the periods presented in our Condensed Consolidated Statements of Cash Flows since such cash flows have historically been presented as a financing activity.described above.

~~In July 2015, the FASB~~Other recently issued ~~authoritative guidance~~accounting updates are not expected to ~~simplify the subsequent measurement of inventories by replacing the lower of cost or market test with~~have a lower of cost and net realizable value test. This guidance is effective for fiscal years beginning after December 15, 2016 and requires prospective adoption with early adoption permitted. The Company adopted this standard in the first quarter of fiscal 2018 and it had no effectmaterial impact on the ~~condensed~~Company’s consolidated financial ~~statements and related disclosures.~~statements.

~~In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09,~~ ~~Revenue from Contracts with Customers~~ (Topic 606) (ASU 2014-09), and has modified the standard thereafter. The core principal of the standard requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The new revenue standard will be effective for the Company on February 1, 2018. The standard permits the use of either a full retrospective method, where the standard is applied to each prior reporting period presented or a cumulative effect transition method, or modified retrospective method, where the cumulative effect of initially applying the standard is recognized at the date of initial application. We anticipate using the modified retrospective method and we are currently evaluating the effect the new revenue standard will have on our consolidated financial statements.

Note 4. Revenue Recognition

The Company manufactures, markets and distributes a wide variety of school and office furniture to wholesalers, distributors, educational institutions and governmental entities. Revenue is recorded for promised goods or services when control is transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services.

The Company's sales generally involve a single performance obligation to deliver goods pursuant to customer purchase orders. Prices for our products are based on published price lists and customer agreements. The Company has determined that the performance obligations are satisfied at a point in time when the Company completes delivery per the customer contract. The majority of sales are free on board ("FOB") destination where the destination is specified per the customer contract and may include delivering the furniture into the classroom, school site or warehouse. Sales of furniture that are sold FOB factory are typically made to resellers of our product who in turn provide logistics to the ultimate customer. Once a product has been delivered per the shipping terms, the customer is able to direct the use of, and obtain substantially all of the remaining benefits from, the asset. The Company considers control to have transferred upon shipment or delivery in accordance with shipping terms because the Company has a present right to payment at that time, the customer has legal title to the asset, the Company has transferred physical possession of the asset, and the customer has significant risks and rewards of ownership of the asset.

Sales are recorded net of discounts, sales incentives and rebates, sales taxes and estimated returns and allowances. The Company offers sales incentives and discounts through various regional and national programs to our customers. These programs include product rebates, product returns allowances and trade promotions. Variable consideration for these programs is estimated in the transaction price at contract inception based on current sales levels and historical experience using the expected value method, subject to constraint.

The Company generates revenue primarily by manufacturing and distributing products through direct-to-customers and resellers. Control transfers to both resellers and direct customers at a point in time when the delivery process is complete as determined by the corresponding shipping terms. Therefore, we do not consider them to be meaningfully different revenue streams given similarities in the nature of the products, performance obligation and distribution processes. Sales are predominately in the United States and to a similar class of customer. We do not manage or evaluate the business based on product line or any other discernable category.

For product produced by and sourced from third parties, management has determined that it is the principal in all cases, since it (i) bears primary responsibility for fulfilling the promise to the customer; (ii) bears inventory risk before and/or after the good or service is transferred to the customer; and (iii) has discretion in establishing the price for the sale of good or service to the customer.

Note 5. Inventories

~~Inventory is~~Inventories are valued at the lower of cost (determined on a first-in, first-out basis) or net realizable value and includes material, labor and factory overhead. The Company maintains valuation allowances for estimated slow-moving and obsolete inventory to reflect the difference between the cost of inventory and the estimated ~~market~~net realizable value. ~~Allowances~~Valuation allowances for slow-moving and obsolete inventory are determined through a physical inspection of the product in connection with a physical inventory, a review of slow-moving product and consideration of active marketing programs. The market for education furniture is traditionally driven by value, not style, and the Company has not typically incurred significant obsolescence expenses. If market conditions are less favorable than those anticipated by management, additional valuation allowances may be required. Due to reductions in sales volume in the past years, the Company’s manufacturing facilities are operating at reduced levels of capacity. The Company records the cost of excess capacity as a period expense, not as a component of capitalized inventory valuation.

The following table presents ~~an updated~~a breakdown of the Company’s ~~net inventory (in thousands)~~inventories as of ~~October 31, 2017,~~April 30, 2020, January 31, ~~2017~~2020 and ~~October 31, 2016:~~April 30, 2019:


							4/30/2020		1/31/2020		4/30/2019
							(in thousands)
	10/31/2017		1/31/2017		10/31/2016
Finished goods	$	11,890	$	11,174	$	9,498	$	27,348	$	15,401	$	26,546
WIP	13,988		13,486		11,906		19,159		15,957		24,009
Raw materials	10,499		11,029		10,251		11,683		11,971		12,956
Inventories, net	$	36,377	$	35,689	$	31,655
Total inventories							$	58,190	$	43,329	$	63,511

Note 6. Leases

The Company has operating leases on real property, equipment, and automobiles that expire at various dates. The Company determines if an arrangement is a lease at inception and assesses classification of the lease at commencement. All of the Company’s leases are classified as operating leases, as a lessee. The Company uses the implicit rate when readily determinable, or the incremental borrowing rate. Our incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments using company specific credit spreads. The Company’s lease terms include options to extend or terminate the lease only when it is reasonably certain that we will exercise that option. Lease expense for our operating leases is recognized on a straight-line basis over the lease term.

The Company has an operating lease for its corporate office, manufacturing and distribution facility located in Torrance, CA, currently with a remaining lease term through April 30, 2025. The Company leases equipment under a 5-year operating lease arrangement. The Company has the option of buying the assets at the end of the lease period at a price that does not result in the Company being reasonably certain of exercising the option. In addition, the Company leases trucks, automobiles, and forklifts under operating leases that include certain fleet management and maintenance services. Certain of the leases contain renewal or purchase options and require payment for property taxes and insurance. Tenant improvements are capitalized and depreciated over the remaining life of the applicable lease, and related tenant allowances are recorded as a reduction to the ROU asset.

In accordance with ASC 842, quantitative information regarding our leases is as follows:



	Three-Months Ended
	4/30/2020			4/30/2019
	(in thousands)
Operating lease cost	$	1,440		$	1,380
Short-term lease cost	36			54
Short-term sublease income	(10		)	(10		)
Variable lease cost (1)	455			448
Total lease cost	$	1,921		$	1,872

Other operating leases information:
Cash paid for amounts included in the measurement of lease liabilities	$	662,000		$	1,291,000
Right-of-use assets obtained in exchange for new lease liabilities	$	270,000		394,000
Weighted-average remaining lease term (years)	4.7			5.7
Weighted-average discount rate	6.4		%	6.4		%

(1) Subsequent to the issuance of the Company’s condensed consolidated financial statements as of April 30, 2019, management identified an immaterial correction related to the disclosure of certain variable lease payments. Variable lease expense for the three-months ended April 30, 2019 did not previously include $448,000 of variable lease payments for property taxes, insurance and common area maintenance related to triple net leases. Management ~~continually monitors production costs, material costs~~corrected the disclosure related to variable lease expense in the table above for the three-months ended April 30, 2019 and, ~~inventory levels to determine that interim inventories~~except for this change, the correction had no impact upon the Company’s condensed consolidated financial statements

Minimum future lease payments for operating leases in effect as of April 30, 2020, are ~~fairly stated.~~as follows:



	Operating Lease
	(in thousands)
Remaining of 2021	$	4,414
2022	5,708
2023	5,275
2024	5,214
2025	5,370
Thereafter	1,350
Remaining balance of lease payments	$	27,331

Short-term lease liabilities	$	4,527
Long-term lease liabilities	18,854
Total lease liabilities	$	23,381

Difference between undiscounted cash flows and discounted cash flows	$	3,950

Note 5.7. Debt

Outstanding balances ~~(in thousands)~~ for the Company’s long-term debt were as follows:


	10/31/2017		1/31/2017		10/31/2016		4/30/2020		1/31/2020		4/30/2019
	(in thousands)						(in thousands)
Revolving credit line	$	8,814	$	4,914	$	4,602	$	19,740	$	9,969	$	33,354
Other	5,774		97		34		6,508		6,727		7,380
Total debt	14,588		5,011		4,636		$	26,248	$	16,696	$	40,734
Less current portion	3,278		68		89		10,618		878		24,226
Non-current portion	$	11,310	$	4,943	$	4,547	$	15,630	$	15,818	$	16,508

~~On December 22, 2011, the~~The Company ~~entered into~~has a Revolving Credit and Security Agreement (the “Credit Agreement”) with PNC Bank, National Association, as administrative agent and lender (“PNC”). The Credit Agreement has been amended twenty times since it’s origination in 2011 through fiscal 2019, which, among other things, extended the maturity date of the Credit Agreement for three years until March 19, 2023.

The Credit Agreement is an asset-based line of credit ~~agreement currently matures on December 22, 2019~~that is subject to a borrowing base limitation and ~~has~~generally provides for advances of up to 85% of eligible accounts receivable, plus a ~~maximum availability~~percentage equal to the lesser of ~~$49,500,000,~~60% of the value of eligible inventory or 85% of the liquidation value of eligible inventory, plus ~~sub-lines for~~$15,000,000 from January 1 through July of each year, minus undrawn amounts of letters of credit and ~~a $2,500,000 line for equipment financing. Borrowings~~reserves. The Credit Agreement is secured by substantially all of the Company's, as defined, personal property and certain of the Company's real property. The principal amount outstanding under the Credit Agreement ~~bear~~and any accrued and unpaid interest is due no later than March 19, 2023, and the Credit Agreement is subject to certain prepayment penalties upon earlier termination of the Credit Agreement. Prior to the maturity date, principal amounts outstanding under the Credit Agreement may be repaid and reborrowed at the option of the Borrowers without premium or penalty, subject to borrowing base limitations, seasonal adjustments and certain other conditions.

The Credit Agreement bears interest, at the Borrowers' option, at either the Alternate Base Rate (as defined in the Credit Agreement) ~~plus 0.50% to 1.50%~~ or the Eurodollar Currency Rate (as defined in the Credit Agreement), in each case plus ~~1.50%~~an applicable margin. The applicable margin for Alternate Base Rate loans is a percentage within a range of 0.75% to ~~2.50%.~~1.25%, and the applicable margin for Eurodollar Currency Rate loans is a percentage within a range of 1.75% to 2.25%, in each case based on the EBITDA of the Borrower's at the end of each fiscal quarter and may be increased at PNC's option by 2.0% during the continuance of an event of default. Accrued interest with respect to principal amounts outstanding under the Credit Agreement is payable in arrears on a monthly basis for Alternative Base Rate loans, and at the end of the applicable interest period but at most every three months for Eurodollar Currency Rate loans. The interest rate at ~~October 31, 2017~~April 30, 2020 was ~~4.75%~~4.50%. ~~Approximately $12,009,000 was available for borrowing as of October 31, 2017.~~

~~The Credit Agreement restricts~~In March 2019, the Company ~~from issuing dividends or making payments~~entered into Amendment No. 19 which, among other things, (i) increased the Maximum Revolving Advance Amount to $65,000,000 with ~~respect~~seasonal adjustments to the ~~Company's capital stock~~credit limit and subject to ~~an annual limit~~borrowing base limitations, (ii) increased seasonal advance to $15,000,000 from January to July of ~~$1.3 million,~~each year, (iii) increased equipment loan to $2,000,000, (iv) reduced borrowings under the line to less than or equal to $10,000,000 for a period of 30 consecutive days during the fourth quarter of each fiscal year. In April 2019, the Company entered into Amendment No. 20 which, among other things, waived the covenant violation for the fourth quarter of fiscal 2019, amended the minimum EBITDA covenant and ~~contains numerous other covenants, including these financial covenants: (1)~~the fixed charge coverage ratio for fiscal 2020, and ~~(2) minimum EBITDA amount, in~~eliminated the Company’s ability to pay dividends or repurchase stock during fiscal 2020. For fiscal year beginning February 1st, 2020, the covenant for the fixed charge coverage ratio is 1.10 to 1.00 for each ~~case as~~consecutive four fiscal quarter period of ~~the end of the relevant monthly, quarterly or annual measurement period.~~Borrowers ending thereafter. The Company was in compliance with its financial covenants as of April 30, 2020.

To date the impact of COVID-19 on liquidity has been to moderate the seasonal increase in accounts receivable and production of inventory for summer delivery. Both the increase in accounts receivable and inventory are traditionally financed through the Company’s line of credit with PNC Bank. Reductions in receivables and inventory were substantially offset by a reduction in borrowing under the line with PNC Bank.

Events of default (subject to certain cure periods and other limitations) under the Credit Agreement include, but are not limited to, (i) non-payment of principal, interest or other amounts due under the Credit Agreement, (ii) the violation of terms, covenants, representations or warranties in the Credit Agreement or related loan documents, (iii) any event of default under agreements governing certain indebtedness of the Borrowers and certain defaults by the Borrowers under other agreements that would materially adversely affect the Borrowers, (iv) certain events of bankruptcy, insolvency or liquidation involving the Borrowers, (v) judgments or judicial actions against the Borrowers in excess of $250,000, subject to certain conditions, (vi) the failure of the Company to comply with Pension Benefit Plans (as defined in the Credit Agreement), (vii) the invalidity of loan

documents pertaining to the Credit Agreement, (viii) a change of control of the Borrowers and (ix) the interruption of operations of any of the Borrowers' manufacturing facilities for five consecutive days during the ~~second quarter of fiscal year ending January 31, 2018.~~ peak season or 15 consecutive days during any other time, subject to certain conditions.

Pursuant to the Credit Agreement, substantially all of the ~~Company's~~Borrowers' accounts receivable are automatically and promptly swept to repay amounts outstanding under the ~~Revolving~~ Credit ~~Facility~~Agreement upon receipt by the ~~Company. On April 4, 2016, the Company entered into Amendment No. 12~~Borrowers. Due to this automatic liquidating nature of the Credit Agreement, ~~which, among other things, increased~~if the Borrowers breach any covenant, violate any representation or warranty or suffer a deterioration in their ability to borrow pursuant to the borrowing ~~availability for~~base calculation, the ~~period from June 1, 2016 through August 15, 2016~~Borrowers may not have access to cash liquidity unless provided by PNC at its discretion. In addition, certain of the covenants and modified the clean down provision to reduce borrowings under the line to less than $6,000,000 from a period of 60 consecutive days to 30 consecutive days. On October 26, 2016, the Company entered into Amendment No. 13 torepresentations and warranties set forth in the Credit Agreement which, among other things, reduced the maximum availability of $49,750,000 to $49,500,000 to allow for a sub-line for the company's credit card program. On March 13, 2017, the Company entered into Amendment No. 14 to the Credit Agreement which established a $2,500,000 equipment line to facilitate the capital expenditure plan for 2018contain limited or no materiality thresholds, and ~~to establish covenants for 2018. On June 8, 2017, the Company entered into Amendment No. 15 to the Credit Agreement which, among other things, will allow the restatement~~many of the ~~amount~~representations and warranties must be true and correct in all material respects upon each borrowing, which the Borrowers expect to occur on an ongoing basis. There can be no assurance that the Borrowers will be able to comply with all such covenants and be able to continue to make such representations and warranties on an ongoing basis.

The Company's line of ~~revolving advances to $14,000,000 for June 2017 and $11,000,000 for July 2017 and extend the time to borrow under the $2,500,000 Equipment Line until March 12, 2018.~~

In August 2017, the Company purchased a manufacturing building in Conway Arkansas for $7,200,000 with Virco making a 20% down payment and the seller providing financing for the remaining balance of $5,760,000 for 20 years at a fixed rate of 4% per year. The Company has been operating a component fabrication operation in this building since 1998 under a series of 10 year leases. The current lease would have expired in March 2018. Upon purchase of the building, annual depreciation expense for the building is anticipated to be approximately $300,000 per year less than current rent expense. Annual debt service payments are anticipated to be approximately $300,000 per year less than current rent expense. In connection to this purchase, the Company entered into Amendment No. 16 to the Credit Agreementcredit with PNC ~~Bank which, among other things, will (a) consent~~is structured to the acquisition of the building, (b) permit the Company to incur the additional indebtedness and (c) amend the Credit Agreement in certain respects, which Lenders and Agent are willing to do on the terms and subject to the conditions contained in this Amendment.

~~The Company believes that the Revolving Credit Facility will~~ provide ~~sufficient liquidity to meet its capital requirements for at least the next 12 months. All of~~seasonal credit availability during the Company's ~~debt is a variable rate~~peak summer season. Approximately $12,343,000 was available for borrowing as of ~~interest or the debt was recently issued.~~ April 30, 2020.

Management believes that the carrying value of debt approximated fair value at ~~October 31, 2017~~April 30, 2020 and ~~2016,~~2019, as all of the long-term debt bears interest at variable rates based on prevailing market ~~conditions except for the fixed-rate debt issued to finance the purchase of the manufacturing building in Conway Arkansas as described above.~~conditions.

Note 6.8. Income Taxes

The Company recognizes deferred income taxes under the asset and liability method of accounting for income taxes in accordance with the provisions of ASC No. 740, Accounting for Income ~~Taxes.~~Taxes. Deferred income taxes are recognized for differences between the financial statement and tax basis of assets and liabilities at enacted statutory tax rates in effect for the years in which the differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. In assessing the realizability of deferred tax assets, the Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income or reversal of deferred tax liabilities during the periods in which those temporary differences become deductible. The Company maintains a partial valuation allowance of $1,075,000, $1,183,000 and $1,907,000 as of April 30, 2020, January 31, 2020 and April 30, 2019 to reduce against certain state deferred tax assets that the Company does not believe it is more-likely-than-not to realize.

On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The CARES Act modified the limitation for business interest expense deduction and the new limitation has increased from 30 to 50 percent of adjusted taxable income. Historically deferred taxes related to interest expense limitation were fully offset by a valuation allowance. The Company performed an analysis of the impact of the CARES Act and calculated a tax benefit of approximately

$200,000 which was driven by the release of the valuation allowance related to the business interest limitation.

The Company's tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items. The Company's income tax expense for the three months ended October 31, 2017 was $1.7 million on pre-tax income of $4.2 million or an effective tax rate of 40.3 percent. The Company's income tax expense for the nine months ended October 31, 2017 was $3.2 million on pre-tax income of $8.5 million or an effective tax rate of 37.5 percent. For the three months ended October 31, 2016, the Company's income tax benefit was $17.8 million on pre-tax income of $6.2 million. The Company's income tax benefit for the nine months ended October 31, 2016 was $17.6 million on pre-tax income of $10.1 million.

The Company adopted ASU 2016-09 related to stock compensation in the first quarter of fiscal 2018. Upon adoption, the balance of the unrecognized excess tax benefits of approximately $172,000 was recognized with the impact recorded to retained earnings.

~~See "Note 3. Recently Adopted Accounting Standards" in the Notes to Condensed Consolidated Financial Statements" for more information regarding the implementation of ASU No. 2016-09.~~

~~In 2016, the Company closed its IRS examination for its tax return for the year ended~~ January 31, ~~2013 with no changes. The January 31, 2014~~2016 and subsequent years remain open for examination by the IRS and state tax authorities. The Company is not currently under any state examination. The Company is currently under IRS examination for its fiscal year ended January 31, 2016 Federal tax return.

Note 7.9. Net ~~Income~~loss per Share

Three Months Ended Nine Months Ended
10/31/2017 10/31/2016 10/31/2017 10/31/2016
(In thousands, except per share data)
Net income $ 2,524
$ 23,998
$ 5,341
$ 27,745
Weighted average shares outstanding 15,317
15,128
15,220
15,047
Net effect of dilutive shares - based on the treasury stock method using average market price 166
165
104
139
Totals 15,483
15,293
15,324
15,186

Net income per share - basic $ 0.16
$ 1.59
$ 0.35
$ 1.84
Net income per share - diluted $ 0.16
$ 1.57
$ 0.35
$ 1.83



	Three Months Ended
	4/30/2020			4/30/2019
	(In thousands, except per share data)

Net loss	$	(4,698	)	$	(3,067	)

Weighted average shares of common stock outstanding	15,654			15,486
Net effect of dilutive shares - based on the treasury stock method using average market price	—			—
Totals	15,654			15,486

Net loss per share - basic	$	(0.30	)	$	(0.20	)
Net loss per share - diluted (a)	$	(0.30	)	$	(0.20	)

(a) All exercisable and non-exercisable restricted stock awards and/or units were not included in the computation of diluted net loss per share at April 30, 2020 and 2019, because their inclusion would have been anti-dilutive. The number of stock awards and/or units outstanding, which met this anti-dilutive criterion for the three months ended April 30, 2020 and 2019, was 75,000 and 180,000, respectively.

Note 8.10. Stock-Based Compensation

Stock Incentive ~~Plans~~Plan

The Company's two stock plans are the 2019 Employee Stock Incentive Plan (the “2019 Plan”) and the 2011 Employee Incentive Stock Plan (the “2011 Plan”).

Under the 2019 Plan, the Company may grant an aggregate of 1,000,000 shares to its employees in the form of restricted stock units and non-employee directors in the form of restricted stock awards. Restricted stock units and awards granted under the 2019 Plan are expensed ratably over the vesting period of the awards. The Company determines the fair value of its restricted stock units or awards and related compensation expense as the difference between the market value of the units or awards on the date of grant less the exercise price of the units or awards granted. During the three-month periods ended April 30, 2020, the Company granted 0 awards, vested 0 shares according to their terms and forfeited 0 shares under the 2019 Plan. As of April 30, 2020, there were approximately 772,000 shares available for future issuance under the 2019 Plan.

Under the 2011 Plan, the Company may grant an aggregate of 2,000,000 shares to its employees in the form of restricted stock units and non-employee directors in the form of restricted stock ~~options or~~ awards. Restricted stock ~~or stock~~ units ~~awarded~~and awards granted under the 2011 Plan are expensed ratably over the vesting period of the awards. The Company determines the fair value of its restricted stock ~~unit~~units or awards and related compensation expense as the difference between the market value of the units or awards on the date of grant less the exercise price of the units or awards granted. During the ~~quarter~~three-month periods ended ~~July 31, 2017,~~April 30, 2020, the Company granted 0 restricted awards ~~for 504,404 shares of restricted~~to non-employee directors and 0 units to its employees; vested 0 stock awards and ~~188,673 shares of restricted stock awards vested~~0 units according to their ~~terms. There were no additional awards granted or vested during~~terms and forfeited 0 stock units under the ~~third quarter ended October 31, 2017. There~~2011 Plan. As of April 30, 2020, there were approximately ~~259,832~~32,892 shares available for future issuance under the 2011 ~~Plan as of October 31, 2017.~~

Under the 2007 Plan, the Company may grant an aggregate of 1,000,000 shares to its employees and non-employee directors in the form of stock options or awards. Restricted stock or stock units awarded under the 2007 Plan are expensed ratably over the vesting period of the awards. The Company determines the fair value of its restricted stock unit awards and related compensation expense as the difference between the market value of the awards on the date of grant less the exercise price of the awards granted. The Company granted no awards during the third quarter ended October 31, 2017. On June 19, 2017, the 2007 Plan expired and no further awards may be made under the 2007 Plan.

~~Accounting for~~During the ~~Plans~~

~~Restricted Stock Unit Awards~~

~~The following table presents a summary of~~three months ended April 30, 2020, stock-based compensation expense related to restricted stock units and awards recognized in cost of goods sold and selling, general and administrative expenses was $63,000 and 191,000, respectively. During the three months ended April 30, 2019, stock-based compensation expense related to restricted stock ~~unit~~units and/or awards ~~at October 31, 2017~~recognized in cost of goods sold and ~~2016:~~selling, general and administrative expenses was $59,000 and 127,000, respectively.

Expense for 3 months ended Expense for 9 months ended Unrecognized
Compensation
Cost at
Date of Grants Units Granted Terms of Vesting 10/31/2017 10/31/2016 10/31/2017 10/31/2016 10/31/2017
2011 Stock Incentive Plan
06/20/2017 40,404 1 year $ 50,000
$ —
$ 83,000
$ —
$ 116,000
06/20/2017 464,000 5 years 107,000
—
183,000
—
2,011,000
06/21/2016 51,284 1 year —
50,000
66,000
83,000
—
06/21/2016 36,000 3 years (8,000 ) 12,000
16,000
20,000
—
06/22/2015 48,000 4 years 8,000
8,000
25,000
24,000
52,000
06/22/2015 27,174 1 year —
—
—
25,000
—
06/24/2014 490,000 5 years 60,000
60,000
180,000
180,000
380,000
06/19/2012 520,000 5 years —
37,000
49,000
111,000
—
Totals for the period $ 217,000
$ 167,000
$ 602,000
$ 443,000
$ 2,559,000
As of April 30, 2020, there was $2,435,000 of unrecognized compensation expense related to unvested restricted stock units and/or awards, which is expected to be recognized over a weighted average period of approximately 2 years.

~~Note 9. Stockholders’ Equity~~

The Company’s Credit Agreement with PNC restricts the Company from issuing dividends or making payments with respect to the Company's capital stock to an annual limit of $1.3 million. Such dividends payments are also subject to compliance with financial and other covenants provided in the Credit Agreement. On December 12, 2017, the Company's Board of Directors authorized and approved a cash dividend program under which the Company will issue $0.015 per share of cash dividend to shareholders of record as of December 28, 2017.

The Company adopted ASU 2016-09 related to stock compensation in the first quarter of fiscal 2018. Upon adoption, the balance of the unrecognized excess tax benefits of approximately $172,000 was reversed with the impact recorded to retained earnings.

~~See "Note 3. Recently Adopted Accounting Standards" in the Notes to Condensed Consolidated Financial Statements" for more information regarding the implementation of ASU No. 2016-09.~~

Note ~~10.~~11. Retirement Plans

The Company and its subsidiaries cover certain employees under a noncontributory defined benefit retirement plan, entitled the Virco Employees’ Retirement Plan (the “Pension Plan”). ~~Benefits under the Employees Retirement Plan are based on years of service and career average earnings.~~ As more fully described in the Form 10-K, benefit accruals under the Employees Retirement Plan were frozen effective December 31, 2003. There is no service cost incurred under this plan.

The Company also provides a supplementary retirement plan for certain key employees, the VIP Retirement Plan (the “VIP Plan”). ~~The VIP Plan provides a benefit of up to 50% of average compensation for the last 5 years in the VIP Plan, offset by benefits earned under the Pension Plan.~~ As more fully described in the Annual Report on Form 10-K for the year ended January 31, 2019, benefit accruals under this plan were frozen since December 31, 2003. There is no service cost incurred under this plan.

The Company also provides a non-qualified plan for certain former non-employee directors of the Company (the “Non-Employee Directors Retirement Plan”). The Non-Employee Directors Retirement Plan provides a lifetime annual retirement benefit equal to the director’s annual retainer fee for the fiscal year in which the director terminated his or her position with the Board, subject to the director having provided 10 years of service to the Company. As more fully described in the Form 10-K, benefit accruals under this plan were frozen effective December 31, 2003. There is no service cost incurred under this plan.

~~The~~ net periodic pension cost ~~(income)~~ for the Pension Plan ~~the VIP Plan,~~ and the ~~Non-Employee Directors Retirement~~VIP Plan for the three ~~and nine~~ months ended ~~October 31, 2017~~April 30, 2020 and ~~2016~~2019 were as ~~follows (in thousands):~~follows:


																Combined Employee Retirement Plans
	Three Months Ended															Three Months Ended
	Pension Plan						VIP Plan				Non-Employee Directors Retirement Plan					4/30/2020			4/30/2019
	10/31/2017			10/31/2016			10/31/2017		10/31/2016		10/31/2017		10/31/2016			(in thousands)
Service cost	$	—		$	—		$	—	$	—	$	—	$	—		$	—		$	—
Interest cost	304			296			89		90		9		3			301			355
Expected return on plan assets	(342		)	(284		)	—		—		—		—			(224		)	(343		)
Amortization of transition amount	—			—			—		—		—		—
Recognized (gain) loss due to Curtailments	—			—			—		—		—		—
Plan settlement																—			—
Amortization of prior service cost	—			—			—		—		—		—			—			—
Recognized net actuarial (gain) loss	179			282			60		77		—		(29		)
Recognized net actuarial loss																465			176
Benefit cost	$	141		$	294		$	149	$	167	$	9	$	(26	)	$	542		$	188

Nine Months Ended
Pension Plan VIP Plan Non-Employee Directors Retirement Plan
10/31/2017 10/31/2016 10/31/2017 10/31/2016 10/31/2017 10/31/2016
Service cost $ —
$ —
$ —
$ —
$ —
$ —
Interest cost 912
888
267
270
27
9
Expected return on plan assets (1,026 ) (852 ) —
—
—
—
Amortization of transition amount —
—
—
—
—
—
Recognized (gain) loss due to Curtailments —
—
—
—
—
—
Amortization of prior service cost —
—
—
—
—
—
Recognized net actuarial (gain) loss 537
846
180
231
—
(87 )
Benefit cost $ 423
$ 882
$ 447
$ 501
$ 27
$ (78 )
401(k) Retirement Plan

The Company’s retirement plan, which covers all U.S. employees, allows participants to defer from 1% to 75% of their eligible compensation through a 401(k)-retirement program. The plan includes Virco stock as one of the investment options. At April 30, 2020 and 2019, the plan held 763,586 shares and 673,964 shares of Virco stock, respectively. For the three months ended April 30, 2020 and 2019, the compensation costs incurred for employer match was $210,000 and $187,000, respectively.

Note ~~11.~~12. Warranty Accrual

The Company provides aan assurance type warranty against all substantial defects in material and workmanship. The standard warranty offered on products sold through January 31, 2013 is 10 years. Effective February 1, 2014 the Company modified its warranty to a limited lifetime warranty. The warranty effective February 1, 2014 is not anticipated to have a significant effect on warranty expense. Effectiveafter January 1, 2017 ~~the Company~~was modified ~~the warranty offered~~ to provide specific warranty periods by product component, with no warranty period longer than ten years. The Company’s warranty is not a guarantee of service life, which depends upon events outside the Company’s control and may be different from the warranty period. The Company accrues an estimate of its exposure to warranty claims based upon both product sales data and an analysis of actual warranty claims incurred.

The following is a summary of the Company’s warranty-claim activity for the three ~~and nine~~ months ended ~~October 31, 2017~~April 30, 2020 and ~~2016.~~2019:


	Three Months Ended						Nine Months Ended						Three Months Ended
	10/31/2017			10/31/2016			10/31/2017			10/31/2016			4/30/2020			4/30/2019
	(In thousands)												(in thousands)
Beginning balance	$	1,000		$	1,000		$	1,000		$	1,000		$	800		$	700
Provision	173			155			355			331			60			71
Costs incurred	(173		)	(155		)	(355		)	(331		)	(60		)	(71		)
Ending balance	$	1,000		$	1,000		$	1,000		$	1,000		$	800		$	700

Note ~~12.~~13. Contingencies

The Company has a self-insured retention for product and general liability losses up to $250,000 per occurrence, workers’ compensation liability losses up to $250,000 per occurrence and for automobile liability losses up to $50,000 per occurrence. The Company has purchased insurance to cover losses in excess of the retention up to a limit of $30,000,000. The Company

has obtained an actuarial estimate of its total expected future losses for liability claims and recorded a liability equal to the net present value.

The Company and its subsidiaries are defendants in various legal proceedings resulting from operations in the normal course of business. It is the opinion of management, in consultation with legal counsel, that the ultimate outcome of all such matters will not materially affect the Company’s financial position, results of operations or cash flows.

Note ~~13. Subsequent Events~~14. Delivery Costs

For the quarter ended April 30, 2020 and 2019, shipping and classroom delivery costs of approximately $2,078,000 and $2,761,000, respectively, were included in selling, general and administrative expenses in the accompanying consolidated statements of operations.

Note 15. COVID-19

On ~~November 14, 2017, Virco entered into~~March 11, 2020, the World Health Organization declared the current coronavirus (COVID-19) outbreak to be a ~~fourth amendment (the “Amendment”)~~global pandemic. In response to this declaration and the ~~lease agreement pursuant~~rapid spread of COVID-19 within the United States, federal, state and local governments throughout the country have imposed varying degrees of restriction on social and commercial activity to promote social distancing in an effort to slow the spread of the illness. The Company has been operating its manufacturing and distribution facilities on a voluntary basis to give employees the flexibility to remain at home with children who are out of school or for other personal reasons as they deem necessary. Office employees and others who can work from home continue to do so. Appropriate measures are being taken to protect the health of employees performing essential on-site operations.

The Company’s Conway, Arkansas facilities, which represent approximately two thirds of the Company’s production and distribution capacity, has been fully operational for this period of time. In accordance with State of California and local orders that include guidance on the definition and responsibilities of “essential businesses,” the Company ~~leases~~has been operating its Torrance facility. During May, the Company closed its Torrance facility for several days before and after Memorial Day to perform comprehensive cleaning of production and office ~~manufacturing~~areas. Management estimates that the Torrance facility is currently staffed at approximately 50% of its normal level.

The impacts of COVID-19 are expected to continue to be a challenge for the foreseeable future. The Company believes the economy will be adversely impacted for an indeterminate period, including the demand for our products. Consequently, the Company believes that it may report lower sales and ~~warehouse facility in Torrance, California.~~earnings than would otherwise have been expected for the remainder of fiscal year 2021. The ~~Amendment extends the term~~extent of the ~~lease for an additional 62 months through April 30, 2025,~~impact will depend on numerous factors that are unknown, uncertain and provides for monthly base lease payments that increase after each 12-month period. The monthly base lease payments range from approximately $396,890.00 per month (which applies for the period from May 1, 2020 to February 28, 2021) to $446,703.19 per month (which applies for the period from March 1, 2024 to April 30, 2025).cannot be predicted.

~~On December 12, 2017, the Company's Board of Directors declared a cash dividend of $0.015 per share to shareholders of record as of December 28, 2017, with a payment date of January 10, 2018.~~

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

Results of Operations

Three Months Ended April 30, 2020

Results of operations for the three months ended April 30, 2020 have been significantly impacted by economic conditions driven by the COVID-19 epidemic. The majority of our primary customers, the K-12 public school systems, closed school campuses and initiated remote learning on or about March 15, 2020. Subsequent to that date there have been significant impacts on the Companies business operations. Selling activities have been significantly impacted. Our direct sales force, one of the Companies distinct competitive advantages, have been unable to make in person sales calls and has been required to call on customers using telephonic or other electronic methods. Our primary customers, educators and district business officials are typically working remotely. Orders of furniture were impacted, but the severity of the impact varied by funding source. Transactional orders, which are typically smaller, sometimes made through internet and other resellers, and are frequently for more immediate delivery, fell sharply. Project orders; typically larger, frequently requiring project management and full-service, characterized by a longer selling process - typically months in advance of the order - remained strong. Funding sources for project orders are frequently bond funded, precluding funding from being diverted to alternative expenditures. Delivery of furniture to customers has been adversely impacted. Customers deferred deliveries of furniture during the initial school closures. This caused a reduction in first quarter shipments, but because orders were stable, our backlog of orders at April 30, 2020 was approximately $8,324,000 greater than the prior year.

The current condition of the K-12 education market is one of significant disruption. The vast majority of schools closed on or about March 15, 2020. The vast majority of schools are remaining closed for the balance of the school year, with the current academic year being completed remotely. Public schools are expected to begin the next school year under normal or slightly accelerated schedules, but the balance of on-site versus remote learning has not been determined. The Company’s business has been intensely seasonal, but the seasonal curve has been extremely stable for many years. The current COVID-19 affected conditions are having an impact on the seasonal nature of our business, and also on the competitive landscape of suppliers of furniture for schools. The Company is operating both manufacturing and distribution facilities, utilizing all reasonable methods to protect the health of our employees. Activity levels in the facilities has been moderated to reflect the level of business activity. At this time, the Company has not incurred significant disruptions in its supply chain that had a material impact on operations. The Company believes that some competitors may fail to successfully deliver furniture to customers this summer. Resellers of furniture may be less likely to commit to large inventories of unsold furniture sourced from China. The China supply chain is more challenged than in prior years, both by these uncertain times as well as the impact of tariffs imposed in recent years. Management believes that while the market for school furniture may decline in the fiscal year ending January 31, 2021, there are meaningful opportunities to take market share without having to do so through pricing tactics.

For the three months ended ~~October 31, 2017,~~April 30, 2020, the Company ~~earned~~incurred a pre-tax ~~income~~loss of ~~$4,228,000~~$7,973,000 on net sales of ~~$68,794,000~~$17,599,000 compared to a pre-tax ~~income~~loss of ~~$6,206,000~~$4,485,000 on net sales of ~~$67,795,000~~$26,893,000 in the same period in ~~the prior year.~~

2019. Net sales for the three months ended ~~October 31, 2017 increased~~April 30, 2020 decreased by ~~$999,000 or 1.5%. This increase was primarily~~$9,294,000, a 34.6% decrease, compared to the same period last year. Net sales decreased largely due to ~~a modest increase~~the impact of COVID-19 as described above. The decrease in ~~price~~sales was substantially all volume related with the volume decline very slightly offset by ~~a small decrease~~an increase in ~~volume. The Company began the quarter with a backlog of orders that was approximately $7.5 million greater than the prior year.~~selling prices.

~~As discussed in the Company’s Form 10K~~Order rates for the fiscal year ended January 31, 2017, there are two significant funding sources that drive the Company’s sales, bond-funded business and business funded from the operating budgets of the schools. The Company experienced robust growth in orders and shipment during the first ~~six months, which is more heavily influenced~~quarter decreased by ~~bond-funded projects. Orders in the third quarter are typically more dependent on the operating budgets of the schools. Orders for the third quarter were comparable~~approximately 2.1% compared to the prior year ~~increasing by less than 1%. Ending~~period. Because orders declined slightly while deliveries were delayed due to COVID-19, order backlog at ~~October 31, 2017~~April 30, 2020 increased by approximately 21.2%. Backlog at April 30, 2020 was ~~$16.9 million~~$47,578,000 compared to ~~$10.7 million~~$39,254,000 at ~~the same date last year.~~April 30, 2019.

~~The third quarter results reflected continued increase in seasonality of~~Gross margin for the ~~Company’s business. School districts in many parts of the Country have accelerated the beginning of back to school to mid-August, impacting the summer delivery window. Gross margin~~three months ended April 30, 2020 decreased as a percentage of sales ~~decreased~~ to ~~35.6%~~27.9% in the current quarter compared to 33.8% in the prior quarter. Last year the Company reduced the level of standard product produced to inventory for summer delivery and prioritized product targeted to specific customer project orders. This tactic enabled the Company to achieve improved levels of on-time delivery and customer satisfaction during the summer in the prior year. For the current year, the Company is more aggressively pursuing the same tactic. Production and the related investment in inventory were delayed to receipt of specific orders, and production of standard product, which more often supplies transactional orders, was reduced. Our production strategy combined with a cautious approach to building inventory in this current economic environment caused factory production levels to decline by approximately 20% for the ~~three months ended October 31, 2017~~first quarter of fiscal 2021 compared to ~~35.9% in~~ the ~~same period last year, which was attributable to several factors. First was the composition of business in the quarter-growth in resale of our vendor partner products increased in this quarter.~~prior year. The second factor was the relationship between the selling price increases relative to the cost increases incurred. The Company raised selling prices on certain marketing programs at the beginning of this year, but only increased prices modestly in effort to increase sales volume. The Company did not raise prices adequately to compensate for all the cost increases subsequently incurred during the quarter. The primary change in costs related to raw materials (primarily steel) and employee compensation.reduced production levels adversely impacted factory efficiency.

Selling, general and administrative expenses decreased by approximately $750,000 compared to the prior year but increased as a percentage of sales. The decrease in spending is attributable to variable selling and service costs.

Interest expense decreased for the ~~three months~~quarter ended ~~October 31, 2017 increased by $2,018,000~~April 30, 2020 compared to the same period last year. The ~~increase~~Company has borrowed less money to finance accounts receivable and production of inventory in ~~selling, general and administrative expenses was attributable to variable freight and service expenses, driven by the~~anticipation of increased ~~portion of business sold with full service. Interest expense increased due to increased levels of borrowing.~~summer shipping activity.

~~For~~Income tax benefit for the ~~nine months~~quarter ended ~~October 31, 2017, the Company earned a pre-tax profit of $8,545,000 on net sales of $164,665,000~~April 30, 2020 increased compared to ~~a pre-tax profit~~the prior year. The effective tax rate for the first quarter of ~~$10,123,000 on net sales of $149,976,000 in~~2021 was 41.1% compared to 31.6% for the same period last year. Net sales for the nine months ended October 31, 2017 increased by $14,689,000 compared to the same period last year. This increase was the result of growth in both volume and price. The Company began the year with a backlog of orders that was approximately $1.3 million greater than the prior year. Order rates for the first nine months increased by approximately 13% compared to the prior year.

Gross margin as a percentage of sales declined to 36.2% for the nine months ended October 31, 2017 compared to 37.4% in the same period last year. There are three primary reasons for the decrease. First, for the first nine months, nearly the entire increase in sales was from service intensive project type business, which include larger, more complex orders. Bidding on these projects can be intense, and typically include a larger portion of products sourced from third party manufacturing partners. Margins on product from third party manufacturing partners typically have a lower margin than product manufactured by Virco. The second factor was the relationship between the selling price increases relative to the cost increases incurred. The Company raised selling prices on certain marketing programs at the beginning of this year, but increased prices modestly in effort to increase sales volume. The Company did not raise prices adequately to compensate for all the cost increases subsequently incurred during the year. Third, production levels in our factories increased by nearly 10%, but increased compensation costs combined with more complex orders to fill substantially offset manufacturing efficiencies from the increased production volume.

Selling, general and administrative expenses for the nine months ended October 31, 2017 increased by approximately $4,853,000 compared to the same period last year. The increase in selling, general and administrative expenses was attributable to variable freight, variable service, variable selling, and variable compensation expenses driven by the increased sales volume and by the increase in project related business. Interest expense increased due to increased levels of borrowing.

Income tax expense for the third quarter and nine months ended October 31, 2017 is not comparable to the prior year. The Company had a valuation allowance against deferred tax assets at July 31, 2016. This valuation allowance was substantially reversed in the third quarter of the prior year. The third quarter and nine months ended October 31, 2017 reflect a normalized income tax rate.

Liquidity and Capital Resources

~~As discussed~~The impact of COVID-19 on liquidity has been to moderate the seasonal increase in accounts receivable and production of inventory for summer delivery. Both the ~~Company's Form 10-K, approximately 50%~~increase in accounts receivable and inventory are traditionally financed through the Company’s line of credit with PNC Bank. Reductions in receivables and inventory were substantially offset by a reduction in borrowing under the ~~Company's annual~~line. Net cash used in operating activities for the three months ended April 30, 2020 was $9,887,000 compared to $18,286,000 for the same period last year. The reduction was attributable to reduced inventory and accounts receivable in addition to an increase in accounts payable

Accounts receivable were lower at April 30, 2020 than at April 30, 2019 due to decreased sales ~~volume is shipped in June through August. The~~during the quarter. Due to the seasonal nature of our business, the Company traditionally builds large quantities of inventory during the first ~~and second quarters~~quarter of each fiscal year in anticipation of seasonally high summer shipments. In addition, the Company finances a large balance of accounts receivable during the peak season. Accounts receivable increased by $11,205,000 from January 31, 2017 to October 31, 2017. This compares to prior year when accounts receivable grew by $9,003,000 during the same period.

~~For~~During the first ~~nine months,~~quarter ended April 30, 2020, the Company increased inventory by approximately ~~$688,000 at October 31, 2017~~$14.9 million compared to January 31, ~~2017. This compares to a decrease~~2020, approximately $1.4 million less than what was added in the first quarter of ~~$2,948,000 during~~the prior year. Because the Company started the year with less inventory, and produced less, inventory levels at April 30, 2020 were approximately $5.3 million less than at the same ~~period~~date last year. ~~Inventory at October 31, 2017 was $4,722,000 more than the prior year in order to support a larger backlog of orders at October 31, 2017.~~ The increase in ~~accounts receivable at October 31, 2017 compared to~~inventory during the ~~January 31, 2017,~~first quarter of this year was financed ~~in part by vendor credit, which naturally increases with increased third quarter business activity, and~~ through the Company's credit facility with PNC ~~Bank.~~Bank, National Association ("PNC").

~~Interest expense for the nine months ended October 31, 2017 is slightly higher the same period last year. Borrowings~~Borrowing under the Company's revolving line of credit with PNC ~~Bank~~ at ~~October 31, 2017~~April 30, 2020 is ~~greater than~~approximately $13.6 million lower compared to the ~~borrowings at October 31, 2016 due~~same quarter last year. The decrease in borrowing is primarily attributable to ~~increased inventory~~decreased accounts receivable and ~~accounts receivable.~~

~~Capital spending~~decreased levels of inventory. Accrual basis capital expenditures were $922,000 for the ~~nine~~three months ended ~~October 31, 2017 was $12,521,000~~April 30, 2020 compared to ~~$3,239,000~~$884,000 for the same period last year. The primary component of the increase was the purchase of a manufacturing facility in Conway, AR. The Company had previously occupied the building under a 10-year lease. The increase in capital spending is anticipated to continue for the year as the Company is investing more in factory automation and technology. Capital expenditures are being financed through the Company's credit facility with ~~PNC Bank and operating cash flow.~~

Subsequent to October 31, 2017, the Company entered in to a five-year extension for the manufacturing and distribution facility located in Torrance, CA. The Company has occupied this building under a series of leases from 1994 to date.PNC.

The Company believes that cash flows from operations, together with the Company's unused borrowing capacity under its revolving line of credit with PNC ~~Bank~~ will be sufficient to fund the Company's debt service requirements, capital expenditures and working capital needs for at least the next twelve ~~months.~~months and that it will be in compliance with debt covenants during that same period. However, we are not able to estimate the full impact of the COVID-19 outbreak on our financial condition and results of operations given the inherent uncertainty as to when the COVID-19 pandemic will end, and businesses and schools will begin operations. Approximately $12,343,000 was available for borrowing as of April 30, 2020.

Off Balance Sheet Arrangements

None.

Critical Accounting Policies and Estimates

The Company's critical accounting policies are outlined in its Annual Report on Form 10-K for the fiscal year ended January 31, ~~2017.~~2020. There have been no significant changes in the quarter ended ~~October 31, 2017.~~April 30, 2020. New Accounting Pronouncements in the Notes to unaudited Condensed Consolidated Financial Statements in Item 1 to this Quarterly Report on Form 10-Q.

Forward-Looking Statements

From time to time, including in this Quarterly Report on Form 10-Q for the quarterly period ended ~~October 31, 2017,~~April 30, 2020, the Company or its representatives have made and may make forward-looking statements, orally or in writing. Such forward-looking statements may be included in, without limitation, reports to stockholders, press releases, oral statements made with the approval of an authorized executive officer of the Company and filings with the Securities and Exchange Commission ("SEC"). The words or phrases “anticipates,” “expects,” “will continue,” “believes,” “estimates,” “projects,” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The results contemplated by the Company's forward-looking statements are subject to certain risks and uncertainties that could cause actual results to vary materially from anticipated results, including without limitation, availability of funding for educational institutions, availability and cost of materials, especially steel, availability and cost of labor, demand for the Company's products, competitive conditions affecting selling prices and margins, capital costs and general economic

conditions. Such risks and uncertainties are discussed in more detail in the Company's Form 10-K for the fiscal year ended January 31, ~~2017 and in this Form 10-Q~~2020 under the caption "Risk Factors".

The Company's forward-looking statements represent its judgment only on the dates such statements were made. By making any forward-looking statements, the Company assumes no duty to update them to reflect new, changed or unanticipated events or circumstances.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

~~Not applicable.~~The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act as of our second quarter of fiscal 2020 and are not required to provide the information under this item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including its Principal Executive Officer along with its Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”) as of ~~October 31, 2017.~~April 30, 2020. Based upon the foregoing, the Company's Principal Executive Officer along with the Company's Principal Financial Officer concluded that the Company's disclosure controls and procedures as of such date were effective to ensure that the information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to Company management, including its Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, Company management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company's internal control over financial reporting during the fiscal quarter covered by this quarterly report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

PART II — Other Information

Virco Mfg. Corporation

Item 1. Legal Proceedings

The Company is a party to various legal actions arising in the ordinary course of business which, in the opinion of the Company, are not material in that management either expects that the Company will be successful on the merits of the pending cases or that any liabilities resulting from such cases will be substantially covered by insurance. While it is impossible to estimate with certainty the ultimate legal and financial liability with respect to these actions, management believes that the aggregate amount of such liabilities will not be material to the results of operations, financial position, or cash flows of the Company.

Item 1A. Risk Factors

You should carefully consider and evaluate the information in this Quarterly Report and the risk factors set forth under the caption “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 31, ~~2017~~2020 (the “Form 10-K”), which was filed with the SEC on April ~~25, 2017.~~30, 2020. The risk factors associated with our business have not materially changed compared to the risk factors disclosed in the Form ~~10-K, except as noted below.~~

~~Approximately 50% of our sales are priced through one contract, under which we are the exclusive supplier of classroom furniture.~~

The following should be added to this risk factor which is set forth in the Form 10-K: On November 1, 2017, the Company signed a new nationwide contract/price list for a five year period ended December 31, 2022. The Company also received two 2-year renewal options under the new contract.

~~Comprehensive tax reform bills are currently under consideration by the U.S. Congress, which could have a material effect on us.~~

The U.S. Congress is considering comprehensive tax reform bills that include significant changes to taxation of business entities. While the House and Senate versions of the tax reform bills differ in certain respects, these changes include, among others, a permanent reduction to the federal corporate income tax rate and a partial limitation on the deductibility of business interest expense. It is unclear whether a tax reform bill will be enacted into law or, if enacted, what form it would take. The impact of any potential tax reform on us is uncertain. However we expect that a reduction in the federal corporate income tax rate, if enacted, would impair the value of our deferred tax assets, which stood at $13.8 million at October 31, 2017.10-K.

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

~~None.~~

~~Item 6. Exhibits~~

~~Exhibit 31.1 — Certification~~On June 9, 2020, the Board of ~~Robert A. Virtue, Chief Executive Officer, pursuant to Rules 13a-14 and 15d-14~~Directors of the ~~Securities Exchange Act,~~Company approved and adopted amendments to the Company’s Bylaws to help facilitate the conduct of a virtual annual meeting of stockholders in 2020 as ~~adopted pursuant to section 302~~a result of the ~~Sarbanes-Oxley Act~~COVID-19 pandemic. The Bylaws, as amended and restated, clarify that stockholder meetings may be held by means of ~~2002~~.remote communications. The Third Amended and Restated Bylaws provide, among other things:

~~Exhibit 31.2 — Certification~~

that stockholder meetings may be held solely by means of ~~Robert E. Dose, Vice President, Finance, pursuant~~remote communications;

that the presence of a stockholder “in person” at a stockholder meeting includes presence by remote communication, if applicable; and

that the list of stockholders entitled to ~~Rules 13a-14 and 15d-14~~vote at a stockholder meeting may also be provided on a reasonably accessible electronic network.

This description of the ~~Securities Exchange Act, as adopted pursuant~~amendments to ~~section 302~~the Bylaws is not complete and is qualified in its entirety by reference to the text of the ~~Sarbanes-Oxley Act~~Third Amended and Restated Bylaws, a copy of ~~2002.~~which is filed as Exhibit 3.3 to this Quarterly Report on Form 10-Q and incorporated by reference herein.

Item 6. Exhibits



Exhibit Number	Document
3.3	Third Amended and Restated Bylaws of the Company dated June 9, 2020.
31.1	~~Exhibit 32.1 —~~ Certification of Robert A. Virtue, Chief Executive Officer, pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Robert E. Dose, Vice President, Finance, pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certifications of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 101.INS — XBRL Instance Document.

Exhibit 101.SCH — XBRL Taxonomy Extension Schema Document.

Exhibit 101.CAL — XBRL Taxonomy Extension Calculation Linkbase Document.

Exhibit 101.LAB — XBRL Taxonomy Extension Label Linkbase Document.

Exhibit 101.PRE — XBRL Taxonomy Extension Presentation Linkbase Document.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	VIRCO MFG. CORPORATION
Date: ~~December 15, 2017~~June 12, 2020	By:	/s/ Robert E. Dose
		Robert E. Dose
		Vice President — Finance
		(Principal Financial Officer)

2223



			Expense for 3 months ended					Expense for 9 months ended				Unrecognized Compensation Cost at
Date of Grants	Units Granted	Terms of Vesting	10/31/2017			10/31/2016		10/31/2017		10/31/2016		10/31/2017
2011 Stock Incentive Plan
06/20/2017	40,404	1 year	$	50,000		$	—	$	83,000	$	—	$	116,000
06/20/2017	464,000	5 years	107,000			—		183,000		—		2,011,000
06/21/2016	51,284	1 year	—			50,000		66,000		83,000		—
06/21/2016	36,000	3 years	(8,000		)	12,000		16,000		20,000		—
06/22/2015	48,000	4 years	8,000			8,000		25,000		24,000		52,000
06/22/2015	27,174	1 year	—			—		—		25,000		—
06/24/2014	490,000	5 years	60,000			60,000		180,000		180,000		380,000
06/19/2012	520,000	5 years	—			37,000		49,000		111,000		—
Totals for the period			$	217,000		$	167,000	$	602,000	$	443,000	$	2,559,000