UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
For the Quarterly Period Ended
or
For the Transition Period From _________________ to ________________________
Commission File Number
(Exact name of registrant as specified on its charter)
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer
Identification No.) |
(Address of principal executive offices)
(Registrant’s telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) |
Name of each exchange on which registered |
| OTCMKTS |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐ |
Accelerated filer ☐ |
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Smaller reporting company |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of August 31, 2024, the registrant had
Video Display Corporation and Subsidiaries
Index
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PART I. FINANCIAL INFORMATION |
Page | |
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Item 1. |
Financial Statements. |
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Interim Condensed Consolidated Balance Sheets – August 31, 2024 (unaudited) and February 29, 2024 | 3 |
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Interim Condensed Consolidated Statements of Operations - Three and six months ended August 31, 2024, and 2023 (unaudited) | 5 |
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Interim Condensed Consolidated Statements of Shareholders’ Equity (Deficit) - Three and six months ended August 31, 2024, and 2023 (unaudited) | 6 |
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Interim Condensed Consolidated Statements of Cash Flows – Six months ended August 31, 2024 and 2023 (unaudited) | 7 |
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Notes to Interim Condensed Consolidated Financial Statements - (unaudited) | 8 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
14 |
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Item 3. |
Quantitative and Qualitative Disclosure About Market Risk. |
19 |
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Item 4. |
Controls and Procedures. |
19 |
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PART II. OTHER INFORMATION |
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Item 1. |
Legal Proceedings. |
21 |
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Item 1A. |
Risk Factors. |
21 |
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds. |
21 |
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Item 3. |
Defaults upon Senior Securities. |
21 |
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Item 4. |
Submission of Matters to a Vote of Security Holders. |
21 |
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Item 5. |
Other Information. |
21 |
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Item 6. |
Exhibits. |
21 |
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SIGNATURES |
22 | |
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31.1 |
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 |
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32 |
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
ITEM 1 – FINANCIAL STATEMENTS
Video Display Corporation and Subsidiaries
Interim Condensed Consolidated Balance Sheets (unaudited)
(in thousands)
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August 31, |
February 29, |
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2024 |
2024 |
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(unaudited) |
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Assets |
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Current assets |
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Cash and cash equivalents |
$ | $ | ||||||
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Accounts receivable, less allowance for doubtful accounts of $ |
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Inventories, net |
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Contract assets |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, plant, and equipment |
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Buildings |
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Construction in progress |
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Machinery and equipment |
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Accumulated depreciation |
( |
) | ( |
) | ||||
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Net property, plant, and equipment |
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Right of use assets under operating leases |
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Total assets |
$ | $ | ||||||
The accompanying notes are an integral part of these interim condensed consolidated statements.
Video Display Corporation and Subsidiaries
Interim Condensed Consolidated Balance Sheets (unaudited) (continued)
(in thousands)
|
August 31, |
February 29, |
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2024 |
2024 |
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(unaudited) |
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Liabilities and Shareholders’ Equity (Deficit) |
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Current liabilities |
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Accounts payable (including related party payables of ($ |
$ | $ | ||||||
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Accrued liabilities |
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Contract liabilities |
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Note payable to officers and directors, current (Note 5) |
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Current operating lease liability |
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Total current liabilities |
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Long-term liability |
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Total liabilities |
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Shareholders’ Equity (Deficit) |
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Preferred stock, par value – |
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Common stock, par value – |
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Additional paid-in capital |
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Retained earnings |
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Treasury stock, shares at cost; |
( |
) | ( |
) | ||||
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Total shareholders’ equity (deficit) |
( |
) | ( |
) | ||||
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Total liabilities and shareholders’ equity (deficit) |
$ | $ | ||||||
The accompanying notes are an integral part of these interim condensed consolidated statements.
Video Display Corporation and Subsidiaries
Interim Condensed Consolidated Statements of Operations (unaudited)
(in thousands, except per share data)
|
Three Months Ended August 31, |
Six Months Ended August 31, |
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|
2024 |
2023 |
2024 |
2023 |
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Net sales |
$ | $ | $ | $ | ||||||||||||
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Cost of goods sold |
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Gross profit |
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Operating expenses |
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Selling and delivery |
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General and administrative |
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Operating loss |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
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Other income (expense) |
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Interest income (expense), net |
( |
) | ( |
) | ||||||||||||
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Other, net |
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Total other income, net |
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Profit/loss from continuing operations before income taxes |
( |
) | ( |
) | ||||||||||||
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Income tax expense |
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Net profit/loss from continuing operations |
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||
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Loss from discontinued operations, net of tax |
( |
) | ( |
) | ||||||||||||
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Net profit/loss |
$ | ( |
) | $ | $ | ( |
) | $ | ( |
) | ||||||
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Net loss per share: |
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Net income (loss) per share continuing operations - basic |
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||
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Net income (loss) per share continuing operations - diluted |
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||
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Net loss per share discontinued operations-basic |
$ | ( |
) | $ | ( |
) | ||||||||||
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Net loss per share discontinued operations-diluted |
$ | ( |
) | $ | ( |
) | ||||||||||
| Net profit/loss per share total | $ | ( |
) | $ | $ | ( |
) | $ | ( |
) | ||||||
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Basic weighted average shares outstanding |
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Diluted weighted average shares outstanding |
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The accompanying notes are an integral part of these interim condensed consolidated statements.
Video Display Corporation and Subsidiaries
Interim Condensed Consolidated Statements of Shareholders’ Equity (Deficit)
Three and Six Months Ended August 31, 2024 and 2023 (unaudited)
(in thousands)
|
Common Shares* |
Share Amount |
Additional Paid-in Capital |
Retained Earnings |
Treasury Stock |
Total Shareholders’ Equity (Deficit) |
|||||||||||||||||||
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For the Three Months Ended August 31, 2024 |
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Balance, May 31, 2024 (unaudited) |
$ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||
|
Net loss |
- | ( |
) | ( |
) | |||||||||||||||||||
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Balance, August 31, 2024 (unaudited) |
$ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||
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For the Six Months Ended August 31, 2024 |
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Balance, March 1, 2024 (audited) |
$ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||
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Net loss |
- | ( |
) | ( |
) | |||||||||||||||||||
|
Balance, August 31, 2024 (unaudited) |
$ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||
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For the Three Months Ended August 31, 2023 |
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Balance, May 31, 2023 (unaudited) |
$ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||
|
Net income |
- | |||||||||||||||||||||||
|
Balance, August 31, 2023 (unaudited) |
$ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||
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For the Six Months Ended August 31, 2023 |
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Balance, March 1, 2023 (audited) |
$ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||
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Net loss |
- | ( |
) | ( |
) | |||||||||||||||||||
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Balance, August 31, 2023 (unaudited) |
$ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||
*
The accompanying notes are an integral part of these interim condensed consolidated statements.
Video Display Corporation and Subsidiaries
Interim Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)
|
Six Months Ended August 31, |
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2024 |
2023 |
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Operating Activities |
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Net loss |
$ | ( |
) | $ | ( |
) | ||
|
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |
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Loss from discontinued operations, net of tax |
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Depreciation expense |
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Non cash lease cost |
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Changes in working capital items: |
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Accounts receivable |
( |
) | ||||||
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Inventories |
( |
) | ||||||
|
Prepaid expenses and other assets |
( |
) | ||||||
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Contract assets |
||||||||
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Operating lease liabilities |
( |
) | ( |
) | ||||
|
Contract liabilities |
( |
) | ||||||
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Accounts payable and accrued liabilities |
( |
) | ||||||
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Net cash used in operating activities |
( |
) | ( |
) | ||||
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Investing Activities |
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Capital expenditures |
( |
) | ||||||
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Net cash used in investing activities |
( |
) | ||||||
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Financing Activities |
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Repayments on lease financing |
( |
) | ||||||
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Proceeds from loans with officers and directors |
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Net cash provided by financing activities |
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Discontinued Operations |
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Operating activities |
( |
) | ||||||
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Investing activities |
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Financing activities |
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| Net cash used in discontinued operations | ( |
) | ||||||
|
Net change in cash and cash equivalents |
( |
) | ||||||
|
Cash and cash equivalents, beginning of year |
||||||||
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Cash and cash equivalents, end of period |
$ | $ | ||||||
The accompanying notes are an integral part of these interim condensed consolidated statements.
Note 1. – Basis of Presentation of Principles of Consolidation
The accompanying unaudited interim condensed consolidated financial statements include the accounts of Video Display Corporation and its subsidiaries (“Video Display,” the “Company,” “we,” or “us”). All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying condensed consolidated balance sheet as of February 29, 2024 has been derived from audited financial statements. The accompanying unaudited condensed consolidated financial statements as of, and for the three and six months ended, August 31, 2024 and 2023 have been prepared in accordance with (i) accounting principles generally accepted in the U.S. for interim financial information and (ii) the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, such statements do not include all of the information and disclosures required by accounting principles generally accepted in the U.S. for a complete presentation of financial statements. In the opinion of management, all adjustments (including those of a normal, recurring nature) considered necessary for a fair presentation have been included. Operating results for the three and six months ended August 31, 2024, are not necessarily indicative of the results that may be expected for the year ending February 28, 2025. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Video Display’s Annual Report on Form 10-K for the year ended February 29, 2024, filed with the SEC on July 3, 2024.
Note 2. – Going Concern, Banking & Liquidity
The accompanying unaudited interim condensed consolidated financial statements were prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company reported a net loss and a decrease in working capital for the six-month period ending August 31, 2024, primarily due to insufficient revenues in the Company. The Company also had an increase in liquid assets for the six month period primarily as a result of proceeds from loans from the Company’s CEO, offset by negative cash flows from operations due to a lack of revenue. The Company has sustained losses for the last four of five fiscal years and has seen overall a decline in working capital and liquid assets during this five -year period. Annual losses over this time are due to a combination of decreasing revenues across the divisions without a commensurate reduction of expenses. The Company’s working capital and liquid asset position are presented below (in thousands) as of August 31, 2024, and February 29, 2024:
|
August 31, 2024 |
February 29, 2024 |
|||||||
|
Working capital |
$ | ( |
) | $ | ( |
) | ||
|
Liquid assets |
$ | $ | ||||||
The Company has intensified its marketing efforts for ruggedized displays, specialized displays, ruggedized cameras, and simulation products to boost revenue. New products in the ruggedized category have been developed and are currently under development, including a new ruggedized camera, HMI displays, and an upgraded 6.4-inch communication display for the U.S. Navy. The Company has received orders for all three products. Production of these three new products will commence in the next quarters. Additionally, the Company continues to streamline its operations and is focused on increasing revenues through other initiatives. These initiatives include enhancing sales and marketing efforts, targeting repeat business, and have hired an experienced Simulation Business Development Manager, increasing customer visits, participating in trade shows, and conducting email marketing campaigns to promote its product lines.
In order, to assist funding operating activity, the Company’s CEO loaned an additional $
The ability of the Company to continue as a going concern is dependent upon the success of management’s plans to improve revenues, the operational effectiveness of continuing operations, the procurement of suitable financing, or a combination of these. The uncertainty regarding the potential success of management’s plan creates substantial doubt about the ability of the Company to continue as a going concern.
Note 3. – Recent Accounting Pronouncements
Accounting Pronouncements Recently Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost, including trade receivables. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model that requires the use of forward-looking information to calculate credit loss estimates. This guidance is effective for annual reporting periods beginning after December 15, 2022, for smaller reporting companies, with early adoption permitted. This standard was effective for the Company as of March 1, 2023, and there was no impact on the financial statements at adoption.
Note 4. - Inventories
Inventories are stated at the lower of cost (first in, first out) or market and consisted of the following (in thousands):
|
August 31, |
February 29, |
|||||||
|
2024 |
2024 |
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|
Raw materials |
$ | $ | ||||||
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Work-in-process |
||||||||
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Finished goods |
||||||||
| $ | $ | |||||||
Note 5. – Note Payable to Officers and Directors (Related Party Transactions)
The Company increased borrowings by $
Note 6. – Leases
Operating Leases
The Company leases its office space and manufacturing facilities under an operating lease agreement. The base lease terms expire during 2025. While the lease includes renewal options, the Company has only included the base lease term in its calculation of lease assets and liabilities.
Balance sheet information related to operating lease is as follows (in thousands):
|
August 31, 2024 |
February 29, 2024 |
|||||||
|
Assets |
||||||||
|
Operating lease right-of-use assets |
$ | $ | ||||||
|
Liabilities |
||||||||
|
Current portion of operating lease liabilities |
$ | $ | ||||||
|
Total operating lease liabilities |
$ | $ | ||||||
Operating lease costs are included in Cost of goods sold in the Company’s condensed consolidated statements of operations and totaled approximately $
Cash paid for amounts included in the measurement of operating lease liabilities was approximately $
Weighted average information associated with the measurement of the Company’s remaining operating lease obligations is as follows:
|
August 31, 2024 |
February 29, 2024 |
|||||||
|
Weighted average remaining lease term (in years) |
||||||||
|
Weighted average discount rate |
% | % | ||||||
The following table summarizes the maturity of the Company’s operating lease liabilities as of August 31, 2024 (in thousands):
|
FY2025 |
$ | |||
|
Total operating lease payments |
||||
|
Less imputed interest |
( |
) | ||
|
Total operating lease liabilities |
$ |
Included above is a lease for manufacturing and warehouse facilities leased from Southeast Metro Savings, LLC., (entity is controlled by the Company’s chief executive officer) under operating lease expiring in 2025. Lease costs under this lease totaled approximately $
Note 7 . – Supplemental Cash Flow Information
Supplemental cash flow information is as follows (in thousands):
|
Six Months |
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Ended August 31, |
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|
2024 |
2023 |
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Cash paid for: |
||||||||
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Interest |
$ | $ | ||||||
Note 8. – Shareholders’ Equity
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing income or loss available to common shareholders by the weighted average number of common shares outstanding during each period. Shares issued during the period are weighted for the portion of the period that they were outstanding. Diluted earnings (loss) per share is calculated in a manner consistent with that of basic earnings (loss) per share while giving effect to all potentially dilutive common shares that were outstanding during the period.
The following table sets forth the computation of basic and diluted earnings (loss) per share for the three and six month periods ended August 31, 2024, and 2023 (in thousands, except per share data):
|
Weighted |
Earnings |
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Average |
(Loss) |
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Net Income |
Common Shares |
Per |
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(Loss) |
Outstanding |
Share |
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Three months ended August 31, 2024 |
||||||||||||
|
Basic |
$ | ( |
) | $ | ( |
) | ||||||
|
Effect of dilution: |
||||||||||||
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Options |
- | |||||||||||
|
Diluted |
$ | ( |
) | $ | ( |
) | ||||||
|
Three months ended August 31, 2023 |
||||||||||||
|
Basic – continuing operations |
$ | $ | ||||||||||
|
Diluted – continuing operations |
||||||||||||
|
Basic – discontinued operations |
( |
) | ( |
) | ||||||||
|
Diluted – discontinued operations |
( |
) | ( |
) | ||||||||
|
Basic -total |
||||||||||||
|
Diluted - total |
$ | $ | ||||||||||
|
Weighted |
||||||||||||
|
Average |
Earnings (Loss) |
|||||||||||
|
Net |
Common Shares |
Per |
||||||||||
|
Income (Loss) |
Outstanding |
Share |
||||||||||
|
Six months ended August 31, 2024 |
||||||||||||
|
Basic |
$ | ( |
) | $ | ( |
) | ||||||
|
Effect of dilution: |
||||||||||||
|
Options |
- | |||||||||||
|
Diluted |
$ | ( |
) | $ | ( |
) | ||||||
|
Six months ended August 31, 2023 |
||||||||||||
|
Basic – continuing operations |
$ | $ | ||||||||||
|
Diluted – continuing operations |
||||||||||||
|
Basic – discontinued operations |
( |
) | ( |
) | ||||||||
|
Diluted – discontinued operations |
( |
) | ( |
) | ||||||||
|
Basic – total |
( |
) | ( |
) | ||||||||
|
Diluted - total |
$ | ( |
) | $ | ( |
) | ||||||
Stock options, convertible into
Stock Repurchase Program
The Company has a stock repurchase program, pursuant to which it had been authorized to repurchase up to
For the six-months ending August 31, 2024, and August 31, 2023, the Company did not purchase any shares of the Video Display Corporation stock. Under the Company’s stock repurchase program, an additional
Note 9. – Income Taxes
Due to the Company’s overall and historical net loss position, income tax expense was reported for the six- month period ending August 31, 2024, and August 31, 2023. Due to continued losses reported by the Company, a full valuation allowance was allocated to the deferred tax asset created by these losses.
Note 10. Discontinued Operations
On December 1, 2023, the Company sold their wholly-owned subsidiaries Lexel Imaging Systems, Inc and Unicomp GA LLC to Ordway Properties LLC in a stock deal for $
Both of these companies’ net sales, expenses and net losses are being shown as discontinued operations per ASC 205-20-45 “Reporting Discontinued Operations”. The operating losses and cash flows from these businesses are reflected as discontinued operations in the consolidated financial statements for all periods presented. The Company has reclassified results that were previously included in continuing operations as discontinued operations for these businesses.
The summarized financial information for discontinued operations for the three months and six months ended August 31, 2023, is as follows:
|
Three months ending August 31, 2023 |
Six months ending August 31, 2023 |
|||||||
|
Net sales |
$ | $ | ||||||
|
Cost of goods sold |
||||||||
|
Gross loss |
( |
) | ( |
) | ||||
|
Operating expenses |
||||||||
|
General and administrative |
||||||||
|
Total operating expenses |
||||||||
|
Operating (loss) from discontinued operations |
( |
) | ( |
) | ||||
|
Other income, net |
||||||||
|
Loss from discontinued operations |
( |
) | ( |
) | ||||
Note 11. – Legal Proceedings
The Company is involved in various legal proceedings related to claims arising in the ordinary course of business. The Company is not currently party to any legal proceedings the result of which management believes is likely to have a material adverse impact on its business, financial position, results of operations or cash flows.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the attached unaudited interim condensed consolidated financial statements and with the Company's 2024 Annual Report to Shareholders, which included audited consolidated financial statements and notes thereto as of and for the fiscal year ended February 29, 2024, as well as Management's Discussion and Analysis of Financial Condition and Results of Operations.
Overview
The Company designs, engineers, manufactures, markets, distributes and installs technologically advanced display products and systems, from basic components to turnkey systems, for government, military, aerospace, medical, industrial, and commercial organizations. The Company is comprised of one segment - the manufacturing and distribution of displays and display components. The Company is organized into two interrelated operations aggregated into one reportable segment.
|
● |
Simulation and Training Products – offers a wide range of projection display systems for use in training and simulation, military, medical, entertainment and industrial applications. |
|
● |
Cyber Secure Products – offers advanced TEMPEST technology, and EMSEC products. This business also provides various contract services including the design and testing solutions for defense and niche commercial uses worldwide. |
During fiscal 2025, management of the Company is focusing key resources on strategic efforts to grow its business through internal sales of the Company’s more profitable product lines and reduce expenses in all areas of the business to bring its cost structure in line with the current size of the business. Challenges facing the Company during these efforts include:
Liquidity –
The accompanying unaudited interim condensed consolidated financial statements were prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company reported a net loss and a decrease in working capital for the six-month period ending August 31, 2024, primarily due to insufficient revenues in the Company. The Company also had an increase in liquid assets for the six month period primarily as a result of proceeds from loans from the Company’s CEO, offset by negative cash flows from operations due to a lack of revenue. The Company has sustained losses for the last four of five fiscal years and has seen overall a decline in working capital and liquid assets during this five -year period. Annual losses over this time are due to a combination of decreasing revenues across the divisions without a commensurate reduction of expenses. The Company’s working capital and liquid asset position are presented below (in thousands) as of August 31, 2024, and February 29, 2024:
|
August 31, 2024 |
February 29, 2024 |
|||||||
|
Working capital |
$ | (1,310 | ) | $ | (1,118 | ) | ||
|
Liquid asset |
$ | 258 | $ | 169 | ||||
The Company has intensified its marketing efforts for ruggedized displays, specialized displays, ruggedized cameras, and simulation products to boost revenue. New products in the ruggedized category have been developed and are currently under development, including a new ruggedized camera, HMI displays, and an upgraded 6.4-inch communication display for the U.S. Navy. The Company has received orders for all three products. Production of these three new products will commence in the next quarters. Additionally, the Company continues to streamline its operations and is focused on increasing revenues through other initiatives. These initiatives include enhancing sales and marketing efforts, targeting repeat business, and have hired an experienced Simulation Business Development Manager, increasing customer visits, participating in trade shows, and conducting email marketing campaigns to promote its product lines.
In order, to assist funding operating activity, the Company’s CEO loaned an additional $200 thousand to the company during the first six months of fiscal year 2025. There is no line of credit outstanding or other financing currently in place other than the note payable with the Company CEO with a balance of $2,343,918. There are no repayment terms related to the loan, however, the Company plans to repay the note within the next twelve months and therefore has classified the loan as a current liability on the condensed consolidated balance sheets as of August 31, 2024.
The ability of the Company to continue as a going concern is dependent upon the success of management’s plans to improve revenues, the operational effectiveness of continuing operations, the procurement of suitable financing, or a combination of these. The uncertainty regarding the potential success of management’s plan create substantial doubt about the ability of the Company to continue as a going concern.
Inventory valuation – Management regularly reviews the Company’s investment in inventories for declines in value and writes down the cost when it is apparent that the expected net realizable value of the inventory falls below its carrying amount. The Company operates in an environment of constantly changing technologies and retains a certain amount of inventory for legacy products for maintenance and replacement capabilities for its customers. The Company maintains inventory on certain products to ensure it has adequate inventory to fulfill orders for transitioning product lines. Management reviews inventory levels on a quarterly basis. Such reviews include observations of product development trends of the original equipment manufacturers, new products being marketed, and technological advances relative to the product capabilities of the Company’s existing inventories.
Results of Operations
The following table sets forth, for the three and six months ended August 31, 2024, and 2023, the percentages that selected items in the Interim Condensed Consolidated Statements of Operations bear to total sales (amounts in thousands):
|
Three Months |
Six Months |
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|
Ended August 31, |
Ended August 31, |
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|
2024 |
2023 |
2024 |
2023 |
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Net Sales |
||||||||||||||||
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Simulation and Training (VDC Display Systems) |
86.4 | % | 87.2 | % | 93.5 | % | 91.5 | % | ||||||||
|
Cyber Secure Products (AYON Cyber Security) |
13.6 | 12.8 | 6.5 | 8.5 | ||||||||||||
|
Total net sales |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
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Costs and expenses |
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|
Cost of goods sold |
62.6 | % | 60.9 | % | 64.7 | % | 64.3 | % | ||||||||
|
Selling and delivery |
10.7 | 7.8 | 10.3 | 6.1 | ||||||||||||
|
General and administrative |
37.2 | 33.0 | 35.3 | 34.8 | ||||||||||||
| 110.5 | % | 101.7 | % | 110.3 | % | 105.2 | % | |||||||||
|
Operating loss |
(10.5 | )% | (1.7 | )% | (10.3 | )% | (5.2 | )% | ||||||||
|
Interest income (expense), net |
- | % | (0.1 | )% | - | % | (0.1 | )% | ||||||||
|
Other income (expense), net |
- | 27.5 | - | 13.7 | ||||||||||||
|
Income (loss) before income taxes |
(10.5 | ) % | 25.7 | % | (10.3 | ) % | 8.4 | % | ||||||||
|
Income tax expense |
- | - | - | - | ||||||||||||
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Net income (loss) from continuing operations |
(10.5 | )% | 25.7 | % | (10.3 | )% | 8.4 | % | ||||||||
|
Loss from discontinued operations |
- | % | (15.2 | )% | - | % | (10.9 | )% | ||||||||
|
Net loss |
(10.5 | )% | 10.5 | % | (10.3 | )% | (1.5 | )% | ||||||||
Net sales
Consolidated net sales decreased 11.1% for the six months ended August 31, 2024, and decreased 17.3% for the three months ended August 31, 2024, compared to the six months and three months ended August 31, 2023. The Company’s display division decreased 9.2% for the six months ended August 31, 2024, and decreased 18.0% for three months ended August 31, 2024, due to new design time needed for two new products and a redesign on a product for another customer and material delays on other orders. The Company’s AYON Cyber Security division decreased 32.2% for the six months ended August 31, 2024, and decreased 12.2% for the three months ended August 31, 2024, compared to the six months and three months ended August 31, 2023. Redesign delays and TEMPEST testing issues were the primary causes for the decreased revenue. The division had other orders that were scheduled to ship during the quarter and will be completed and shipped in the next quarter.
Gross margins
Consolidated gross margins decreased as a percentage to sales (35.3% from 35.7%) but decreased in actual dollars by $166 thousand due to lower sales for the six months ended August 31,2024, and decreased as a percentage to sales (37.4% from 39.1%) for the three months ended August 31, 2024, compared to the six and three months ended August 31, 2023.
The VDC Display Systems division gross margin percentage to sales increased from 35.0% to 36.6% and increased from 36.2% to 39.6% for the six months and three months ended August 31, 2024, compared to the six months and three months ended August 31, 2023. VDC Display Systems gross margins dollars decreased due to lower sales, affected by delay in some orders due to redesign, new product design time and delays on parts needed to complete orders.
The AYON Cyber Security division had lower gross margin dollars and as a percent to sales for both the six months and three months ended August 31, 2024, compared to the six months and three months ended August 31,2023. The division gross margins were affected by the product mix. This year had more product sales versus service sales which reduces the gross margin due to material costs of the products.
Operating expenses
Operating expenses decreased by 1.0% or $16 thousand for the six months ended August 31, 2024, compared to the six months ended August 31, 2023. The operating expenses decreased by 3.0% or $23 thousand for the three months ended August 31, 2023. The Company reduced costs in administrative expenses, primarily in outside engineering contract expense.
Interest expense
The company had less than $1 thousand of interest expense for the six months ended August 31, 2024, compared to $3 thousand for the six months ended August 31, 2023. Interest expense was $1 thousand for the three months ended August 31, 2023. Interest expense in fiscal 2024 relates primarily to interest expense on the lease of TEMPEST equipment.
Other Income/ expense
For the six months and three months ended August 31, 2024, the Company did not have any other income. For the six months ended August 31, 2023, the Company had $238 thousand in retention credit income, $284 thousand in a write off of prior year deferred salary of the Company CEO, and $2 thousand for an insurance audit refund.
Income taxes
Due to the Company’s overall and historical net loss position, no income tax has been reported and a full valuation allowance has been allocated to the deferred tax asset created by these losses.
Liquidity and Capital Resources
The accompanying unaudited interim condensed consolidated financial statements were prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company reported a net loss and a decrease in working capital for the six-month period ending August 31, 2024, primarily due to insufficient revenues in the Company. The Company also had an increase in liquid assets for the six month period primarily as a result of proceeds from loans from the Company’s CEO, offset by negative cash flows from operations due to a lack of revenue. The Company has sustained losses for the last four of five fiscal years and has seen overall a decline in working capital and liquid assets during this five -year period. Annual losses over this time are due to a combination of decreasing revenues across the divisions without a commensurate reduction of expenses. The Company’s working capital and liquid asset position are presented below (in thousands) as of August 31, 2024, and February 29, 2024:
|
August 31, 2024 |
February 29, 2024 |
|||||||
|
Working capital |
$ | (1,310 | ) | $ | (1,118 | ) | ||
|
Liquid assets |
$ | 258 | $ | 169 | ||||
Management continues to implement plans to improve liquidity and to increase revenues at all divisions. The ability of the Company to continue as a going concern is dependent upon the success of management’s plans to improve revenues, the operational effectiveness of continuing operations, the procurement of suitable financing, or a combination of these. The uncertainty regarding the potential success of management’s plan create substantial doubt about the ability of the Company to continue as a going concern.
Cash used in operations for the six months ended August 31, 2024, was $0.1 million. Offsets to net losses of $0.3 million were $0.1 million for depreciation and amortization and $0.1 million for noncash lease cost. Changes in working capital were $0.1 million, primarily a decrease in contract liabilities of $0.5 million, a decrease in accounts payable of $0.2 million and a decrease in prepaid expenses and other assets of 0.1 million, offset by a decrease in accounts receivable of $0.4 million, a decrease in inventories of $0.4 million, and a decrease in contract assets of $0.1 million.
Cash used in operations for the six months ended August 31, 2023, was $0.5 million. Adjustments to net losses of $0.1 million were $0.1 million for depreciation, $0.1 million for non-cash lease cost, and by $0.4 million for the loss from discontinued operations. Changes in working capital used $1.0 million, primarily an increase in accounts receivable of $1.3 million, an increase in inventory of $0.6 million, offset by an increase in contract liabilities of $0.4 million, an increase in accounts payable of $0.2 million, a decrease in contract assets of $0.2 million and a decrease in prepaid expenses of $0.1 million.
There were no investing activities for the six months ended August 31, 2024. Investing activities included $33 thousand of capital expenditures for the six months ended August 31, 2023.
Financing activities provided $200 thousand for the six months ended August 31, 2024, as the result of borrowings from the CEO. Financing activities provided $582 thousand for the six months ended August 31, 2023, as the result of borrowings from the CEO of $630 thousand offset by payment of debt and lease payments.
The Company has a stock repurchase program, pursuant to which it has been authorized to repurchase up to 2,632,500 shares of the Company’s common stock in the open market. On January 20, 2014, the Board of Directors of the Company approved a one-time continuation of the stock repurchase program, and authorized the Company to repurchase up to 1,500,000 additional shares of the Company’s common stock on the open market, depending on the market price of the shares. There is no minimum number of shares required to be repurchased under the program.
For the six months ending August 31, 2024, and August 31, 2023, the Company did not purchase any shares of the Video Display Corporation stock. Under the Company’s stock repurchase program, an additional 490,186 shares remain authorized to be repurchased by the Company as of August 31, 2024.
Critical Accounting Policies and Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon the Company’s interim condensed consolidated financial statements. These interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. These principles require the use of estimates and assumptions that affect amounts reported and disclosed in the interim condensed consolidated financial statements and related notes. The accounting policies that may involve a higher degree of judgments, estimates, and complexity include reserves on inventories, revenue recognition, and the sufficiency of the valuation reserve related to deferred tax assets. The Company uses the following methods and assumptions in determining its estimates:
Inventory Valuation
Management regularly reviews the Company’s investment in inventories for declines in value and writes down the cost when it is apparent that the expected net realizable value of the inventory falls below its carrying amount. The Company operates in an environment of constantly changing technologies and retains a certain amount of inventory for legacy products for maintenance and replacement capabilities for its customers. The Company maintains inventory on certain products to ensure it has adequate inventory to fulfill orders for transitioning product lines. Management reviews inventory levels on a quarterly basis. Such reviews include observations of product development trends of the original equipment manufacturers, new products being marketed, and technological advances relative to the product capabilities of the Company’s existing inventories.
Revenue Recognition
We recognize revenue when we transfer control of the promised products or services to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those products or services. We derive our revenue primarily from sales of simulation and video wall systems, cyber secure products, data displays, and keyboards. We exclude sales and usage-based taxes from revenue.
Our simulation and video wall systems are custom-built (using commercial off-the-shelf products) to customer specifications under fixed price contracts. Judgment is required to determine whether each product and service is considered to be a distinct performance obligation that should be accounted for separately under the contract. Generally, these contracts contain one performance obligation (the installation of a fully functional system). We recognize revenue for these systems over time as control is transferred based on labor hours incurred on each project.
We recognize revenue related to our cyber secure products, data displays, and keyboards at a point in time when control is transferred to the customer (generally upon shipment of the product to the customer).
Timing of invoicing to customers may differ from timing of revenue recognition; however, our contracts do not include a significant financing component as substantially all of our invoices have terms of 30 days or less. We are applying the practical expedient to exclude from consideration any contracts with payment terms of one year or less and we never offer terms extending beyond one year.
Income Taxes
Deferred income taxes are provided to reflect the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. As of August 31, 2024, the Company has established a valuation allowance of $6.5 million on the Company’s deferred tax assets.
The Company accounts for uncertain tax positions under the provisions of ASC 740, which contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not, that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating the Company's tax positions and tax benefits, which may require periodic adjustments. At August 31, 2024, the Company did not record any liabilities for uncertain tax positions.
Forward - Looking Information and Risk Factors
This report contains forward-looking statements and information that is based on management’s beliefs, as well as assumptions made by, and information currently available to management. When used in this document, the words “anticipate,” “believe,” “estimate,” “intends,” “will,” and “expect” and similar expressions are intended to identify forward-looking statements. Such statements involve a number of risks and uncertainties. These risks and uncertainties, which are included under Part I, Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the year ended February 29, 2024 could cause actual results to differ materially.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company’s primary market risks include changes in technology. The Company operates in an industry which is continuously changing. Failure to adapt to the changes could have a detrimental effect on the Company.
ITEM 4. CONTROLS AND PROCEDURES
Our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, such as this quarterly report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Our disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.
Our chief executive officer and chief financial officer have conducted an evaluation of the effectiveness of our disclosure controls and procedures as of August 31, 2024. We perform this evaluation on a quarterly basis so that the conclusions concerning the effectiveness of our disclosure controls and procedures can be reported in our annual report on Form 10-K and quarterly reports on Form 10-Q. Based on this evaluation, our chief executive officer and chief financial officer have concluded that, as of such date, our disclosure controls and procedures were not effective due to an unremediated material weakness in our internal control over financial as set forth below.
Material Weakness in Internal Control Over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our consolidated financial statements will not be prevented or detected on a timely basis. In connection with management’s assessment of our internal control over financial reporting described above, management concluded that, as of August 31, 2024, a material weakness existed in our internal control over financial reporting.
Our material weakness related to the following control deficiency:
The Company lacks accounting staff with the appropriate level of technical abilities to perform the control activities in the financial statement close process with a sufficient level of precision. Specifically, management had not maintained effective controls over the financial reporting process, including management review controls over key disclosures and financial reporting schedules.
Remediation of Material Weakness in Internal Control Over Financial Reporting
Management is committed to maintaining a strong internal control environment and is in the process of implementing control deficiency remediation efforts which includes retraining and hiring additional resources to assist with the financial reporting process. The Company believes that these remediation efforts will represent improvements in the related controls. The Company has started to implement these steps, however, some of these steps will take time to be fully integrated and confirmed to be effective and sustainable. Additional controls may also be required over time. Until the remediation steps set forth above are fully implemented and tested, the material weakness described above will continue to exist.
Changes in Internal Controls
There have not been any changes in our internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II
|
Item 1. |
Legal Proceedings |
None.
|
Item 1A. |
Risk Factors |
Information regarding risk factors appears under the caption Forward-Looking Information and Risk Factors in Part I, Item 2 of this Form 10-Q and in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended February 29, 2024. There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K.
|
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
None.
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Item 3. |
Defaults upon Senior Securities |
None.
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Item 4. |
Submission of Matters to a Vote of Security Holders |
None.
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Item 5. |
Other information |
.
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Item 6. |
Exhibits |
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Exhibit Number |
Exhibit Description |
|
|
3(a) |
Articles of Incorporation of the Company (incorporated by reference to Exhibit 3A to the Company’s Registration Statement on Form S-18 filed January 15, 1985). |
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3(b) |
By-Laws of the Company (incorporated by reference to Exhibit 3B to the Company’s Registration Statement on Form S-18 filed January 15, 1985). |
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10(b) |
Lease dated February 19, 2015 by and between Registrant (Lessee) and Ordway Properties LLC (Lessor) with respect to premises located at 5155 King Street, Cocoa, FL. (incorporated by reference to Exhibit 10(g) to the Company’s 2015 Annual Report on Form 10-K.) |
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|
10(c) |
Video Display Corporation 2006 Stock Incentive Plan. (incorporated by reference to Appendix A to the Company’s 2006 Proxy Statement on Schedule 14A) |
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31.1 |
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 |
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1 |
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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101.INS |
Inline XBRL Instance Document |
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101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL Document and include in Exhibit 101) |
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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VIDEO DISPLAY CORPORATION |
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October 15, 2024 |
By: |
/s/ Ronald D. Ordway |
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Ronald D. Ordway |
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Chief Executive Officer |
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| October 15, 2024 | By: | /s/ Gregory L. Osborn | |
| Gregory L. Osborn | |||
| Chief Financial Officer | |||