Video Display (VIDE) 10-Q2025 Q1 Quarterly report

The accompanying notes are an integral part of these interim condensed consolidated statements.

The accompanying notes are an integral part of these interim condensed consolidated statements.

The accompanying notes are an integral part of these interim condensed consolidated statements.

* Common Shares are shown net of Treasury Shares

The accompanying notes are an integral part of these interim condensed consolidated statements.

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 May 31, 2024, and for the three months ended, May 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 months ended May 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 three-month period ending May 31, 2024, primarily due to insufficient revenues in the Company. The Company also had a decrease in liquid assets for the three- month period primarily as a result of the 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 May 31, 2024, and February 29, 2024:

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 $200,000 to the company during the first quarter 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 sheet as of May 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 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):

Note 5. – Note Payable to Officers and Directors (Related Party Transactions)

The Company increased borrowings by $200 thousand to fund working capital needs and owes an additional $47 thousand in Company rent for the quarter ending May 31, 2024, that is due to the CEO. The $2,344 thousand note contains no repayment terms and is expected to be repaid in fiscal 2025 along with the $188 thousand in rent owed. The note payable and rent owed are included in the Company’s consolidated balance sheets as of May 31, 2024, as a note payable to officers and directors and within accounts payable, respectively.         

Note 6. – Leases

Operating Leases

The Company leases its office space and manufacturing facilities under an operating lease agreement. The base lease term expires in 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 the operating lease is as follows (in thousands):

Operating lease costs are included in Cost of goods sold in the Company’s condensed consolidated statements of operations and totaled approximately $47 thousand for the three months ended May 31, 2024, and $47 thousand for the three months ended May 31, 2023.

Cash paid for amounts included in the measurement of operating lease liabilities was approximately $47 thousand for the three months ended May 31, 2024, and $47 thousand for the three months ended May 31, 2023. The Company did not modify any existing leases or execute any new leases during the three months ended May 31, 2024.

Weighted average information associated with the measurement of the Company’s remaining operating lease obligations is as follows:

The following table summarizes the maturity of the Company’s operating lease liabilities as of May 31, 2024 (in thousands):

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 $47 thousand for the three months ended May 31, 2024, and $47 thousand for the three months ended May 31, 2023.

Note 7. – Supplemental Cash Flow Information

Supplemental cash flow information is as follows (in thousands):

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-month periods ended May 31, 2024, and 2023 (in thousands, except per share data):

Stock options, debentures, and other liabilities convertible into 140,000 shares, of the Company’s common stock were anti-dilutive and, therefore, were excluded from the May 31, 2024, and 2023 diluted earnings (loss) per share calculations. For the three-month period ended May 31, 2024, and May 31, 2023, there was no expense related to share-based compensation as all options were fully vested. No options were granted for the three-month period ending May 31, 2024, or for the three -month period ended May 31, 2023.

Stock Repurchase Program

The Company has a stock repurchase program, pursuant to which it had been authorized to repurchase up to 2,632,500 shares of the Company’s common stock in the open market. On January 20, 2014, the Board of Directors of the Company approved a one-time continuation of the stock repurchase program, and authorized the Company to repurchase up to 1,500,000 additional shares of the Company’s common stock in the open market. There is no minimum number of shares required to be repurchased under the program.

For the quarter ending May 31, 2024, and May 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 on May 31, 2024.

Note 9. – Income Taxes

Due to the Company’s overall and historical net loss position, no income tax expense was reported for the three- month period ending May 31, 2024, and May 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 $365,000. At the closing, the buyer paid the seller by the reduction of debt shown as rent payable owed by Video Display Corporation to Ordway Properties LLC. The Company recognized a gain on the sale of $370,000.

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 ended May 31, 2023, is as follows:

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.

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 three-month period ending May 31, 2024, primarily due to insufficient revenues in the Company. The Company also had a decrease in liquid assets for the three-month period primarily as a result of the 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 May 31, 2024, and February 29, 2024:

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.

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 months ended May 31, 2024, and 2023, the percentages that selected items in the Interim Condensed Consolidated Statements of Operations bear to total sales (amounts in thousands):

Net sales

Consolidated net sales decreased 5.1% for the three months ended May 31, 2024, compared to the three months ended May 31, 2023. The Company’s display division decreased 1.3% for the three months ended May 31, 2024, compared to the previous year three months ended May 31, 2023 due to customer delays. The Company’s AYON Cyber Security division decreased 90.7% for the three months ended May 31, 2024, or $75 thousand compared to the same three months last year. Scheduling delays and equipment issues were the primary causes for the decreased revenue. The division is primarily doing service work and testing for customers.

Gross margins

Consolidated gross margins increased as a percentage to sales (33.6% from 32.4%) but decreased in actual dollars by $11 thousand due to lower sales for the three months ended May 31, 2024 compared to the three months ended May 31, 2023.

The VDC Display Systems division gross margin percentage to sales and gross margin dollars were equivalent compared to last year for the quarter ended May 31, 2024. VDC Display Systems sales and gross margins were affected by delay in some orders due to customer request and on parts needed to complete orders.

The AYON Cyber Security division had negative gross margins of $1 thousand on service business. The gross margin percentage was a negative 11.3% for the period ended May 31, 2024, compared to 13.1% for the same quarter last year.

Operating expenses

Operating expenses increased by 0.9% or $7 thousand for the three months ended May 31, 2024, compared to the three months ended May 31, 2023. The increase was due to the increased costs in selling expenses, primarily employee and contractor commissions. The Company reduced costs in administrative expenses, primarily in outside engineering contract expense.

Interest expense

There was not any interest expense for the quarter ended May 31, 2024, compared to $2 thousand for the quarter ended May 31, 2023. The interest expense was on the lease of TEMPEST equipment which was completed on December 1, 2023.

Other Income/Expense

For the three months ended May 31, 2024, the Company did not have any other income. For the three months ended May 31, 2023, the Company had $2 thousand for insurance audit refund.

Income taxes

Due to the Company’s overall and historical net loss position, no income tax expense was reported for the three- month period ending May 31, 2024, and May 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.

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 three-month period ending May 31, 2024, primarily due to insufficient revenues in the Company. The Company did have a decrease in liquid assets for the three-month period primarily as a result of the 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 May 31, 2024, and February 29, 2024:

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 quarter ended May 31, 2024, was $0.3 million. Adjustments to net loss were $0.1 million for depreciation and non-cash lease costs. Changes in working capital were $0.2 million and primarily relate to a change in contract assets of $0.2 million, a change in contract liabilities of $0.2 million, a change in accounts payable of $0.1 million, offset by a change in inventory of $0.3 million. Cash used in operations for the quarter ended May 31, 2023 was $0.2 million.

There was no net investing activity for the period ended May 31, 2024. Investing activities included $10 thousand of proceeds from disposal of equipment for the period ended May 31, 2023, from discontinued operations.

Financing activities provided $0.2 million from proceeds from borrowings from the Company CEO for the period ended May 31, 2024. Financing activities provided $0.1 million for the period ended May 31, 2023, from proceeds from additional borrowing from the Company’s CEO.

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 quarter ending May 31, 2024, and May 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 at May 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 May 31, 2024, the Company has established a valuation allowance of $6.4 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 May 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 May 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 May 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

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.