July 26, 2005
Mr. David Burton
United States Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: Requests From David Burton per Comment Letter on Form 8-K filed 6/30/05.
Dear Mr. Burton:
Please find below the answers to your queries of June 30, 2005.
Item 4-01. Changes in Registrant’s Certifying Accountant.
1) Revise to provide info required by Item 304(a)(1)(v) of Regulation S-K
Specifically |
| 304(a)(1)(iv)(B) |
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| 304(a)(1)(iv)(C) |
regarding internal weaknesses that BDO advised Video Display Corporation of during the most recent two years and subsequent time period.
RE: 304(a)(1)(iv)(B): The independent accountant (BDO Seidman) has not advised the registrant in written or verbal form of any reportable events (material weakness, etc.) during the two previous audit periods or period subsequent thereto other than the two disclosed in the Form 8-K submitted 6/27/2005.
The Form 8-K as submitted does adhere to Regulation S-K 304(a)(1)(iv)(B) as it states that BDO Seidman did discuss with the audit committee on June 10, 2005 the material weakness reported in the fiscal 2/28/2005 audit procedure and also reported to the audit committee subsequent to the February 28, 2003 audit a reportable event applicable to the 2003 fiscal year.
RE: 304(a)(1)(iv)(C): The registrant has not authorized BDO Seidman in writing to respond to a successor accountant on any and all matters of disagreement since, as the submitted Form 8-K discloses, and confirmed by letter from BDO Seidman, “There has been no disagreement between the Company and BDO Seidman, LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.”
2) Describe the nature of each reportable event and the amounts involved.
The first reportable event occurred in fiscal 2003 and is therefore not applicable to the reportable time period of the last two years audited. The event pertained to insufficient reconciliations of intercompany A/R and A/P balances. In the third quarter of fiscal 2004, the registrant implemented regular monthly transaction reconciliation and review processes to enhance its controls and procedures over intercompany transactions. The amount associated with this reportable event was $238,000.
The second reportable event occurred in fiscal 2005 and related to a procedure for preparing timely preparation of journal entries as well as the failure to routinely review and approve on a monthly basis all repetitive and non-repetitive journal entries made at divisional levels. The registrant has implemented new procedures which forbid any journal entries being prepared at divisional levels without first being approved by corporate level management.
There is no intent to restate or amend any previously submitted SEC Form 10Q or SEC Form 10K related to the aforementioned reportable events as financial adjustments, if any, have been recorded and reported in the applicable reporting periods.
3) Provide a schedule of fiscal year end adjustments.
See attached BDO Seidman analysis for adjusting entries and reasons therefore.
4) Provide letter or written communication from former accountant regarding disagreements, if any.
The respondent and the former accountant have previously submitted reports stating that there are no disagreements between the Company and BDO Seidman, LLP on any matter of accounting principles or practices, financial disclosures, or auditing scope or procedure.
5) To the extent a Form 8-K is amended to comply, please file updated Exhibit 16.
The respondent believes that an amended Form 8-K is not required based upon the above disclosures and adherence of the June 27, 2005 Form 8-K to SEC Regulation S-K reporting requirements. The respondent, however, is not averse to filing an amended
Form 8-K and would request SEC guidance on what additional or amended information, if any, should be included therein.
| Sincerely yours, | |
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| VIDEO DISPLAY CORPORATION | |
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| |
| /s/ Ronald D. Ordway |
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| Ronald D. Ordway | |
| Chief Executive Officer |
PROPOSED ADJUSTING JOURNAL ENTRIES
Client |
| Video Display Corporation |
| Client No. 065967-0001 |
| Year End February 28, 2005 |
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| Balance Sheet Effect |
| Pre-Tax |
| Net |
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| Working |
| (Memo) |
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| Assets |
| Liabilities |
| Equity |
| Income |
| Income *** |
| Gross Profit |
| Capital |
| Non- |
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| Workpaper |
| Proposed Journal Entry |
| Increase |
| Increase |
| Increase |
| Increase |
| Increase |
| Increase |
| Increase |
| Taxable |
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PAJE # |
| Adjustment Description |
| Type* |
| E** |
| Reference |
| Debit |
| Credit |
| (Decrease) |
| (Decrease) |
| (Decrease) |
| (Decrease) |
| (Decrease) |
| (Decrease) |
| (Decrease) |
| Items |
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| �� | Current Year PAJEs |
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1 |
| To reclassify O/S Checks to AP |
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| Cash Operating ‘0107-01-00 |
| K |
| 5 |
| Fox A-6 |
| 464,056 |
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| 464,056 |
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| 464,056 |
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| Accounts Payable ‘0301-01-00 |
| K |
| 7 |
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| 464,056 |
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| 464,056 |
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| (464,056 | ) |
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2 |
| Properly record inventory received |
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| Inventory |
| K |
| 5 |
| F-1/1 |
| 42,780 |
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| 42,780 |
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| 42,780 |
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| Accounts Payable |
| K |
| 7 |
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| 42,780 |
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| 42,780 |
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| (42,780 | ) |
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3 |
| To remove double capitalized asset and depreciation |
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| AR - Other |
| K |
| 5 |
| Fox M-3 |
| 11,290 |
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| 11,290 |
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| 11,290 |
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| Fixed Asset 0235-01-00 |
| K |
| 6 |
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| 11,290 |
| (11,290 | ) |
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| Acc. Dep - F&F 0236-01-00 |
| K |
| 6 |
| Fox M-3 |
| 612 |
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| 612 |
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| Depreciation Expense - |
| K |
| 1 |
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| 612 |
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| 612 |
| 612 |
| 612 |
| 612 |
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4 |
| To reduce prepaid insurance balance to proper amount |
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| Insurance Expense |
| K |
| 1 |
| G-2 |
| 214,390 |
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| (214,390 | ) | (214,390 | ) | (214,390 | ) | (214,390 | ) |
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| Prepaid Insurance |
| K |
| 5 |
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| 214,390 |
| (214,390 | ) |
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| (214,390 | ) |
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5 |
| To correctly state prepaid professional fees |
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| Professional fees expense |
| K |
| 2 |
| G-1 |
| 20,156 |
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| (20,156 | ) | (20,156 | ) | (20,156 | ) |
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| Prepaid Professional fees |
| K |
| 5 |
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| 20,156 |
| (20,156 | ) |
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| (20,156 | ) |
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6 |
| To remove double capitalized asset |
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| Manual A/P |
| K |
| 7 |
| M-9.2 |
| 42,844 |
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| (42,844 | ) |
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| 42,844 |
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| Sales Tax Payable |
| K |
| 7 |
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| 3,856 |
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| (3,856 | ) |
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| 3,856 |
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| Machinery & Equipment |
| K |
| 5 |
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| 46,700 |
| (46,700 | ) |
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| (46,700 | ) |
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7 |
| To properly amortize Dataray Intanglibles |
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| Amortization Expense |
| K |
| 1 |
| S-5 |
| 18,333 |
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| (18,333 | ) | (18,333 | ) | (18,333 | ) | (18,333 | ) |
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| Other Assets |
| K |
| 6 |
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| 18,333 |
| (18,333 | ) |
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8 |
| To remove pending payable adjustment (Reverse Murry Fox Journal Entry) |
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| COGS |
| K |
| 1 |
| Fox HH-2 |
| 148,083 |
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| (148,083 | ) | (148,083 | ) | (148,083 | ) | (148,083 | ) |
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| Pending Payables |
| K |
| 7 |
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| 148,083 |
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| 148,083 |
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| (148,083 | ) |
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9 |
| To record the debt from the XKD royalty |
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| Accrued Royalty |
| K |
| 7 |
| HH-9/2 |
| 350,000 |
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| (350,000 | ) |
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| 350,000 |
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| Discount on Debt |
| K |
| 8 |
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| 150,000 |
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| (150,000 | ) |
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| Note Payable |
| K |
| 8 |
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| 500,000 |
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| K |
| 9 |
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10 |
| To accret debt discount for Q3, Q4, and for Santamaria conversion |
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| Interest Expense |
| K |
| 2 |
| HH-9/2 |
| 56,250 |
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| (56,250 | ) | (56,250 | ) | (56,250 | ) |
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| Debt discount |
| K |
| 8 |
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| 56,250 |
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| 56,250 |
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11 |
| To account for Santamaria conversion of Debt to Equity |
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| Note Payable |
| K |
| 8 |
| HH-9/2 |
| 125,000 |
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| (125,000 | ) |
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| Common Stock |
| K |
| 9 |
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| 125,000 |
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| 125,000 |
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12 |
| To record expense for utility expense not accrued for at year-end |
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| Utility Expense |
| K |
| 2 |
| VI |
| 49,502 |
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| (49,502 | ) | (49,502 | ) | (49,502 | ) |
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| Accounts Payable |
| K |
| 7 |
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| 49,502 |
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| 49,502 |
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| (49,502 | ) |
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13 |
| To correctly account for Warranty Exchange Items at the Florida Location |
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| Revenue |
| K |
| 1 |
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| 96,000 |
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| (96,000 | ) | (96,000 | ) | (96,000 | ) | (96,000 | ) |
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| Deferred Revenue |
| K |
| 7 |
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| 96,000 |
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| 96,000 |
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| (96,000 | ) |
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14 |
| To correctly state the Company’s AR reserve needed |
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| Bad Debt Expense |
| E |
| 2 |
| C-5 |
| 32,000 |
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| (32,000 | ) | (32,000 | ) | (32,000 | ) |
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| Allowance for doubtful accounts |
| E |
| 5 |
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| 32,000 |
| (32,000 | ) |
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| (32,000 | ) |
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PAJE Totals |
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| 1,825,152 |
| 1,825,152 |
| 175,869 |
| 184,971 |
| (509,102 | ) | (634,102 | ) | (634,102 | ) | (476,195 | ) | (198,840 | ) | — |
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* Indicate whether PAJE is estimated (E), known (K) or projected sampling error (P)
** Enter effect code: 1 = Sales or CGS, 2 = Other taxable income or deductible expense (except income tax), 3 = Other non-taxable income or non-deductible expense (permanent difference), 4 = Income tax expense (or benefit), 5 = Current asset, 6 = Long-term asset, 7 = Current liability, 8 = Long-term liability, 9 = Equity
*** Tax effect of PAJEs, where applicable, is reflected on the Totals sheet with an offsetting effect on current liabilities. If a significant PAJE would affect current assets or long-term deferred tax assets or liabilities instead of current liabilities, manual override should be considered