The accompanying notes are an integral part of
these consolidated statements.
The accompanying notes are an integral part of these consolidated statements.
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
Fiscal Year
All
references herein to 2016 and 2015 mean the fiscal years ended February 29, 2016 and February 28, 2015, respectively. Unless otherwise noted, these policies and disclosures pertain to our continuing operations.
Nature of Business
Video Display
Corporation and subsidiaries (the Company, our or we) is a provider and manufacturer of video products, components, and systems for data display and presentation of electronic information media in various
requirements and environments. 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 and commercial organizations.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after elimination of all
intercompany accounts and transactions.
Basis of Accounting
The FASB Accounting Standards Codification
(FASB ASC) establishes the source of authoritative accounting
standards generally accepted in the United States of America (U.S. GAAP) recognized by the Financial Accounting Standards Board (FASB) to be applied by nongovernmental entities. Rules and interpretive releases of the
Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. The FASB amends the FASB ASC through Accounting Standards Updates
(ASUs). ASCs and ASUs are referred to throughout these consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Examples include
provisions for returns, warranty reserves, bad debts, inventory reserves, valuations on deferred income tax assets, other intangible assets, accounting for percentage of completion contracts and the length of product life cycles and fixed asset
lives. Actual results could vary from these estimates.
Banking and Liquidity
The accompanying 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 has sustained losses for each of the last two years and has seen a decline in both its working capital and liquid assets during this time. These losses were a combination of
low revenues at all divisions without a commensurate reduction of expenses. During the year ended February 29, 2016 the Company operated using cash from operations of $0.8 million, which is primarily generated from a $0.7 million tax refund
that is non-recurring in nature. During the year ended February 28, 2015 operational cash flows used $0.4 million. Related to these operational results the Companys working capital and liquid asset position deteriorated during the year
ended February 29, 2016 as presented below:
|
|
|
|
|
|
|
|
|
|
|
February 29,
2016
|
|
|
February 28,
2015
|
|
Working capital
|
|
$
|
4,855
|
|
|
$
|
10,528
|
|
Liquid assets
|
|
$
|
636
|
|
|
$
|
2,578
|
|
26
Management has implemented a plan to improve the liquidity of the Company. The Company has been
implementing a plan to increase revenues at all the divisions, each structured to the particular division with an increase in the current backlog and growth in revenues subsequent to February 29, 2016. The Company has a plan to reduce expenses
at the divisions, as well as at the corporate location with the expectation that expenses will be decreased by more than $1.7 million per year. Management continues to explore options to monetize certain long-term assets of the business, including
current negotiations to sell its Lexel Imaging subsidiary where a final sale is expected during fiscal year ending February 28, 2017. If additional and more permanent capital is required to fund the operations of the Company, no assurance can
be given that the Company will be able to obtain the capital on terms favorable to the Company, if at all.
The ability of the Company to
continue as a going concern is dependent upon the success of managements plans to improve the operational effectiveness of continuing operations, to liquidate the subsidiary noted above, the procurement of suitable financing, or a combination
of these. The uncertainty regarding the potential success of managements plan create substantial doubt about the ability of the Company to continue as a going concern.
Revenue Recognition
Revenues are
recognized when there is persuasive evidence of an arrangement, delivery has occurred, the price has been fixed or is determinable and collect-ability can be reasonably assured. The Companys delivery term typically is F.O.B. shipping point.
In accordance with FASB ASC Topic 605-45
Revenue Recognition: Principal Agent Considerations,
shipping, and handling
fees billed to customers are classified in net sales in the consolidated statements of operations. Shipping costs of $0.1 million and $0.2 million were included in the fiscal years ended 2016 and 2015, respectively.
A portion of the Companys revenue is derived from contracts to manufacture display systems to a buyers specification. These
contracts are accounted for under the provisions of FASB ASC Topic 605-35
Revenue Recognition
:
Construction-Type and Production-Type Contracts
. These contracts are fixed-price and cost-plus contracts and are recorded on the
percentage of completion basis using the ratio of costs incurred to estimated total costs at completion as the measurement basis for progress toward completion and revenue recognition. Losses identified on contracts are recognized immediately.
Contract accounting requires significant judgment relative to assessing risks, estimating contract costs and making related assumptions for schedule and technical issues. With respect to contract change orders, claims, or similar items, judgment
must be used in estimating related amounts and assessing the potential for realization. These amounts are only included in contract value when they can be reliably estimated and realization is probable.
Research and Development
The Company
includes research and development expenditures in the consolidated financial statements as a part of general and administrative expenses. Research and development costs were approximately $0.2 million in the fiscal year ended 2016 and $0.1 in the
fiscal year ended 2015.
Cash and Cash Equivalents and Investments
Highly liquid investments with a maturity date of three months or less at the date of purchase are considered to be cash equivalents.
Investment securities that are held by the Company, are bought and held principally for the purpose of selling them in the near term, are classified as trading and principally consist of equity securities and mutual funds. These
trading investments are carried at fair value with realized gains or losses and changes in fair value included in operations. Unrealized (losses) on trading securities held were approximated ($2.7) million and ($2.8) million on February 29,
2016 and February 28, 2015 respectively.
Fair Value Measurements and Financial Instruments
The FASBs fair value measurement guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:
27
|
|
|
|
|
Level 1
|
|
Quoted prices in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing
information on an ongoing basis.
|
|
|
Level 2
|
|
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data
for substantially the full term of the assets or liabilities.
|
|
|
Level 3
|
|
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
Assets measured at fair value on a recurring basis by the Company consist of investment securities held for
trading using Level 1 inputs. The following table sets forth our financial assets and liabilities that were accounted for at fair value on a recurring basis as of February 29, 2016 and February 28, 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29,
2016
|
|
|
Level 1 Assets
and Liabilities
|
|
|
Level 2 Assets
and Liabilities
|
|
|
Level 3 Assets
and Liabilities
|
|
Current trading investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stocks, options, and ETF (long)
|
|
$
|
542
|
|
|
$
|
542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total value of investments
|
|
|
542
|
|
|
|
542
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin balance
|
|
|
(397
|
)
|
|
|
(397
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total value of liabilities
|
|
|
(397
|
)
|
|
|
(397
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
145
|
|
|
$
|
145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 28,
2015
|
|
|
Level 1 Assets
and Liabilities
|
|
|
Level 2 Assets
and Liabilities
|
|
|
Level 3 Assets
and Liabilities
|
|
Current trading investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stocks, options, and ETF (long)
|
|
$
|
6,308
|
|
|
$
|
6,308
|
|
|
|
|
|
|
|
|
|
Stocks, options, and ETF (short)
|
|
|
(10
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
Mutual Funds
|
|
|
226
|
|
|
|
226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total value of investments
|
|
|
6,524
|
|
|
|
6,524
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin balance
|
|
|
(4,008
|
)
|
|
|
(4,008
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total value of liabilities
|
|
|
(4,008
|
)
|
|
|
(4,008
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,516
|
|
|
$
|
2,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys financial instruments which are not measured at fair value on the consolidated balance
sheets include cash, accounts receivable, short-term liabilities, and debt. The estimated fair value of these financial instruments were determined using Level 2 inputs and approximate cost due to the short period of time to maturity. Recorded
amounts of long-term debt are considered to approximate fair value due to either rates that fluctuate with the market or are otherwise commensurate with the current market.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are customer obligations due under normal trade terms. The Company sells its products primarily to general contractors,
government agencies, manufacturers, and consumers of video displays and CRTs. Management performs continuing credit evaluations of its customers financial condition and although the Company generally does not require collateral, letters of
credit may be required from its customers in certain circumstances, such as foreign sales. The allowance for doubtful accounts is determined by reviewing all accounts receivable and applying credit loss experience to the current receivable portfolio
with consideration given to the current condition of the economy, assessment of the financial position of the creditors as well as payment history and overall trends in past due accounts compared to established thresholds. The Company monitors
credit exposure and assesses the adequacy of the allowance for doubtful accounts on a regular basis. Historically, the Companys allowance has been sufficient for any customer write-offs. Management believes accounts receivable are stated at
amounts expected to be collected.
28
The following is a roll-forward of the allowance for doubtful accounts (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Balance at
Beginning
of Period
|
|
|
Additions:
Charged to
Costs and
Expenses
|
|
|
Deductions
|
|
|
Balance at
End of
Period
|
|
February 29, 2016
|
|
$
|
52
|
|
|
$
|
17
|
|
|
$
|
(53
|
)
|
|
$
|
16
|
|
February 28, 2015
|
|
$
|
40
|
|
|
$
|
27
|
|
|
$
|
(15
|
)
|
|
$
|
52
|
|
Warranty Reserves
The Company records, under the provisions of FASB ASC Topic 460-10-25 Guarantees: Recognition, a liability for estimated warranty
obligations at the date products are sold. Adjustments are made as new information becomes available.
The warranty reserve is determined
by recording a specific reserve for known warranty issues and a general reserve based on claims experience. The Company considers actual warranty claims compared to net sales, then adjusts its reserve liability accordingly. Actual claims incurred
could differ from the original estimates, requiring adjustments to the reserve. Management believes that historically its procedures have been adequate and does not anticipate that its assumptions are reasonably likely to materially change in the
future.
Inventories
Inventories
consist primarily of CRTs, electron guns, monitors, digital projectors, video components and electronic parts. Inventories are stated at the lower of cost (primarily first-in, first-out) or market.
Reserves on inventories result in a charge to operations when the estimated net realizable value declines below cost. Management regularly
reviews the Companys investment in inventories for declines in value and establishes reserves when it is apparent that the expected net realizable value of the inventory falls below its carrying amount. In fiscal 2016, the Company increased
the inventory reserves by $0.9 million, primarily at VDC Display Systems. The Company determined VDC Display Systems is the most vulnerable to inventory obsolescence due to the size and age of its inventory and the changes in its market segment. In
fiscal 2015, the Company disposed of $0.3 million of inventory at the VDC Display Systems facility and increased the reserves by another $0.3 million in various raw materials and demo equipment as they reduced inventories they are holding for legacy
repairs. The reserve for inventory obsolescence was approximately $1.3 million and $0.5 million at February 29, 2016 and February 28, 2015, respectively.
The Companys remaining business units utilize different inventory components than the divisions had in the past. The Company provides
monthly for an obsolescence reserve at each of its divisions to offset any obsolescence although most purchases are for current orders, which should reduce the amount of obsolescence in the future. The Company still has CRT inventory in stock and,
although it believes the inventory will be sold in the future, will continue to reserve for any additional obsolescence.
Property, Plant and Equipment
Property, plant, and equipment are stated at cost. Depreciation is computed principally by the straight-line method for financial
reporting purposes over the following estimated useful lives: Buildings ten to twenty-five years; Machinery and Equipment five to ten years. Depreciation expense totaled approximately $220 thousand and $253 thousand for the fiscal
years ended 2016 and 2015, respectively. Substantial betterments to property, plant, and equipment are capitalized and routine repairs and maintenance are expensed as incurred. The Company is expected to invest an additional $0.2 million to upgrade
the Cocoa, Florida location to accommodate the merger of the two Florida businesses into one facility. The Company does not anticipate any additional significant investments in capital assets for fiscal 2017.
Management reviews and assesses long-lived assets, which includes property, plant, and equipment for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, management estimates the future cash flows expected to result from the use of the asset. If the sum of the undiscounted
expected cash flows is less than the carrying amount of the asset, an impairment loss is recognized based upon the estimated fair value of the asset.
29
Intangibles
Intangible assets consisted of customer lists for legacy products for the airline industry. The Company evaluated the asset for impairment and
determined it was appropriate to record an impairment charge equal to the remaining value of the intangible asset during the Companys third quarter ending November 30, 2015. The sales to these customers had been declining, and were only
46% to budget for the fiscal year. The amount of the impairment was $471 thousand. Amortization expense related to the intangible assets before the impairment charge to operations was approximately $88 thousand and $125 for the fiscal years ended
February 29, 2016 and February 28, 2015, respectively.
Stock-Based Compensation Plans
The Company accounts for employee share-based compensation under the fair value method and uses an option pricing model for estimating the fair
value of stock options at the date of grant as required by FASB ASC Topic 718-10-30,
Compensation Stock Compensation: Initial Measurement.
For the fiscal years ended February 29, 2016 and February 28, 2015, the
Company recognized immaterial amounts of share-based compensation in general and administrative expense; the liability for the share-based compensation recognized is presented in the consolidated balance sheet as part of additional paid in capital.
As of February 29, 2016, total unrecognized compensation costs related to stock options and shares of restricted stock granted was $4.7 thousand. The amount of unrecognized share based compensation cost is expected to be recognized ratably over
a period of approximately one year.
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 Companys
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
Companys common stock in the open market. There is no minimum number of shares required to be repurchased under the program. During the fiscal year ended February 29, 2016, the Company repurchased 71,406 shares at an average price of
$1.61 per share and during the fiscal year ended February 28, 2015, the Company repurchased 1,058,459 shares at an average price of $3.35 per share, which were added to treasury shares on the consolidated balance sheet. Under this program, an
additional 502,644 shares remain authorized to be repurchased by the Company at February 28, 2016.
Income Taxes
The Company accounts for income taxes under the asset and liability method prescribed in FASB ASC Topic 740,
Income Taxes,
which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Companys consolidated financial statements or tax returns. In estimating future tax
consequences, the Company generally considers all expected future events other than possible enactments of changes in the tax laws or rates.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The Company has determined that a valuation allowance is needed due to recent taxable net operating losses, the sale of profitable divisions and the limited taxable income in the carry back
periods. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date.
Deferred income taxes as of February 29, 2016 and February 28, 2015 reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and certain tax loss carryforwards, less any valuation allowance.
The Company accounts for uncertain tax positions as required in that a position taken or expected to be taken in a tax return is recognized in
the consolidated financial statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest
amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. As of February 29, 2016 and February 28, 2015 the Company did not have any material unrecognized tax benefits.
30
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as
components of interest expense and other expense, respectively, in arriving at pretax income. The Company did not have any interest and penalties accrued as of February 29, 2016 and February 28, 2015.
The Companys tax years ended February 28, 2015, 2014, and 2013 remain open to examination by the Internal Revenue Service
(IRS).
Earnings (Loss) per Share
Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common
shares outstanding during each year. Shares issued or repurchased during the year are weighted for the portion of the year that they were outstanding. Diluted earnings per share is calculated in a manner consistent with that of basic earnings per
share while giving effect to all potentially dilutive common shares that were outstanding during the period.
The following is a
reconciliation of basic earnings (loss) per share to diluted earnings (loss) per share for 2016 and 2015, (in thousands, except for per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
(loss)
|
|
|
Average Shares
Outstanding
|
|
|
Net
Income
(loss) Per
Share
|
|
2016
|
|
|
|
Basic-continuing operations
|
|
$
|
(6,674
|
)
|
|
|
5,909
|
|
|
$
|
(1.13
|
)
|
Basic-discontinued operations
|
|
|
528
|
|
|
|
5,909
|
|
|
|
0.09
|
|
Effect of dilution:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
|
|
|
|
1
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
(6,146
|
)
|
|
|
5,910
|
|
|
$
|
(1.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
Basic-continuing operations
|
|
$
|
(6,037
|
)
|
|
|
6,384
|
|
|
$
|
(0.95
|
)
|
Basic-discontinued operations
|
|
|
44
|
|
|
|
6,384
|
|
|
|
0.01
|
|
Effect of dilution:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
|
|
|
|
9
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
(5,993
|
)
|
|
|
6,393
|
|
|
$
|
(0.94
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options, debentures, and other liabilities convertible into 83,000 and 73,000 shares, respectively, of
the Companys common stock were anti-dilutive and, therefore, were excluded from the fiscal 2016 and 2015 diluted earnings (loss) per share calculation.
Segment Reporting
The Company applies
FASB ASC Topic 280,
Segment Reporting
to report information about operating segments in its annual and interim financial reports. An operating segment is defined as a component that engages in business activities, whose operating
results are reviewed by the chief operating decision maker in order to make decisions about allocating resources, and for which discrete financial information is available. We operate and manage our business as one reportable segment. All of our
divisions have similarities such as products and markets served; therefore, we believe they meet the criteria for aggregation under the applicable authoritative guidance and, as such, these operations are reported as one segment within the
Consolidated Financial Statements.
Sales to foreign customers were 19% of consolidated net sales for fiscal 2016 and 15% for fiscal 2015.
31
Recent Accounting Pronouncements
In May, 2014, the FASB issued ASU 2014-09
Revenue with Contracts from Customers.
ASU 2014-09 clarifies the principles for
recognizing revenue and develops a common revenue standard for U.S. GAAP and International Financial Reporting Standards (IFRS) . The new guidance (i) removes inconsistencies, and weaknesses in revenue requirements,
(ii) provides a more robust framework for addressing revenue issues, (iii) improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets, (iv) provides more useful information
to users of financial statements through improved disclosure requirements, and (v) simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer.
The guidance is effective for annual reporting periods beginning after December 15, 2016 including interim periods within that reporting
period; however, a one year delay has been approved with the issuance of ASU 2015-14,
Revenue with Contracts from customers
. The Company is still evaluating the effects that the adoption of this update will have on the
Companys consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15,
Presentation of Financial
Statements. Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entitys Ability to continue as a Going Concern.
Prior to its effective date there was no guidance in U.S. GAAP about managements responsibility
to evaluate whether there is substantial doubt about an entitys ability to continue as a going concern or to provide related footnote disclosures. This update requires that an entitys management should evaluate whether there are
conditions or events, considered in the aggregate, that raise substantial doubt about the entitys ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date
that the financial statements are available to be issued when applicable.) This update is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The Company is still evaluating the
effects that the adoption of this update will have on the Companys consolidated financial statements.
In July 2015, the FASB issued
Accounting Standards Update No. (ASU 2015-11),
Simplifying the Measurement of Inventory
. ASU 2015-11 requires an entity to measure inventory within the scope of this update at the lower of cost and net realizable value. Net
realizable value is the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation. The guidance is effective for annual reporting periods beginning after December 15,
2016 and related interim periods. Early adoption is permitted. The Company does not believe this standard will have a material effect on its consolidated financial statements.
In November 2015, the FASB issued Accounting Standards Update No. (ASU 2015-17),
Balance Sheet Classification of Deferred
Taxes.
ASU 2015-17 requires deferred tax assets and liabilities, along with related valuation allowances, to be classified as noncurrent on the balance sheet. Each tax jurisdiction will now only have one net noncurrent deferred tax asset
or liability. The new guidance does not change the existing requirement that prohibits offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. The guidance is effective for annual reporting
periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is permitted. The Company does not expect the adoption of this update to have a significant effect on the Companys
consolidated financial statements.
In February 2016, the FASB issued Accounting Standards Update No. (ASU 2016-02),
Leases
. ASU 2016-02 increases transparency and comparability among organizations by requiring entities to recognize lease assets and lease liabilities on the balance sheet and disclose key information about the lease arrangements.
The guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted. The Company is in the process of evaluating the impact of this
guidance on the Companys consolidated financial statements.
32
Note 2. Costs and Estimated Earnings Related to Billings on Uncompleted Contracts
Information relative to contracts in progress consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
February 29,
|
|
|
February 28,
|
|
|
|
2016
|
|
|
2015
|
|
Costs incurred to date on uncompleted contracts
|
|
$
|
912
|
|
|
$
|
|
|
Estimated earnings recognized to date on these contracts
|
|
|
724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,636
|
|
|
|
|
|
Billings to date
|
|
|
(1,796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Billings in excess of costs and estimated earnings
|
|
$
|
(160
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Costs and estimated earnings in excess of billings
|
|
$
|
|
|
|
$
|
|
|
Billings in excess of costs and estimated earnings
|
|
|
(160
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(160
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Billings in excess of costs and estimated earnings are the results of contracts in progress (jobs) in
completing orders to customers specifications on contracts accounted for under FASB ASC Topic 605-35,
Revenue Recognition: Construction-Type and Production-Type Contracts.
Costs included are material, labor, and overhead.
These jobs require design and engineering effort for a specific customer purchasing a unique product. The Company records revenue on these fixed-price and cost-plus contracts on the percentage of completion basis using the ratio of costs incurred to
estimated total costs at completion as the measurement basis for progress toward completion and revenue recognition. Any losses identified on contracts are recognized immediately. Contract accounting requires significant judgment relative to
assessing risks, estimating contract costs and making related assumptions for schedule and technical issues. With respect to contract change orders, claims, or similar items, judgment must be used in estimating related amounts and assessing the
potential for realization. These amounts are only included in contract value when they can be reliably estimated and realization is probable. Billings are generated based on specific contract terms, which might be a progress payment schedule,
specific shipments, etc. None of the above contracts in progress contains post-shipment obligations. Changes in job performance, manufacturing efficiency, final contract settlements, and other factors affecting estimated profitability may result in
revisions to costs and income and are recognized in the period in which the revisions are determined.
As of February 29, 2016 and
February 28, 2015, there were no production costs that exceeded the aggregate estimated cost of all in process and delivered units relating to long-term contracts. Additionally, there were no claims outstanding that would affect the ultimate
realization of full contract values. As of February 29, 2016 and February 28, 2015, there were no progress payments that had been netted against inventory.
Note 3. Intangible Assets
Intangible assets consist of customer lists for airlines using legacy products. The Company evaluated the asset for
impairment and determined it appropriate to record an impairment charge equal to the remaining value of this intangible asset in the third quarter of this fiscal year due to declining sales associated with this asset. The amount of the impairment is
$471 thousand. Amortization expense related to intangible assets was $88 thousand for fiscal 2016 (excluding the impairment charge) and $125 thousand for fiscal 2015. As of February 29, 2016 and February 28, 2015, the cost and accumulated
amortization of intangible assets was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2016
|
|
|
February 28, 2015
|
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
Patents/designs
|
|
$
|
233
|
|
|
$
|
233
|
|
|
$
|
233
|
|
|
$
|
233
|
|
Customer lists
|
|
|
2,863
|
|
|
|
2,863
|
|
|
|
2,863
|
|
|
|
2,304
|
|
Non-compete agreements
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
1,000
|
|
Other intangibles
|
|
|
6
|
|
|
|
6
|
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,102
|
|
|
$
|
4,102
|
|
|
$
|
4,102
|
|
|
$
|
3,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
Note 4. Inventories
Inventories consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
February 29,
|
|
|
February 28,
|
|
|
|
2016
|
|
|
2015
|
|
Raw materials
|
|
$
|
3,878
|
|
|
$
|
5,309
|
|
Work-in-process
|
|
|
199
|
|
|
|
438
|
|
Finished goods
|
|
|
1,669
|
|
|
|
1,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,746
|
|
|
|
7,498
|
|
Reserves for obsolescence
|
|
|
(1,270
|
)
|
|
|
(493
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,476
|
|
|
$
|
7,005
|
|
|
|
|
|
|
|
|
|
|
During fiscal 2016, the Company disposed of inventories of $0.1 million of which $0.1 was previously reserved
for through inclusion in the inventory reserve. During fiscal 2015, the Company disposed of inventories of $0.3 million of which none were previously reserved for through inclusion in the inventory reserve.
The following is a roll forward of the Inventory Reserves (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Balance at
Beginning
of Period
|
|
|
Additions:
Charged to
Costs and
Expenses
|
|
|
Deductions
|
|
|
Balance at
End of
Period
|
|
February 29, 2016
|
|
$
|
493
|
|
|
$
|
916
|
|
|
$
|
(139
|
)
|
|
$
|
1,270
|
|
February 28, 2015
|
|
$
|
111
|
|
|
$
|
519
|
|
|
$
|
(137
|
)
|
|
$
|
493
|
|
Note 5. Lines of Credit and Long-Term Debt
Currently, the only commercial debt of the Company is $0.2 million it owes on a building owned by its subsidiary, Teltron
Technologies, Inc. in Birdsboro, PA.
The Company had outstanding margin account borrowing of $0.4 as of February 29, 2016 and $4.0
million as of February 28, 2015. The margin account borrowings are used to purchase marketable equity securities and are netted against the investments in the balance sheet to show net trading investments. The gross investments as of
February 29, 2016 were $0.5 million leaving net investments of $0.1 million after the margin account borrowings of $0.4 million and as of February 28, 2015 were $6.5 million leaving net investments of $2.5 million after the margin account
borrowings of $4.0 million. The margin interest rate is 2%.
Long-term debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
February 29,
|
|
|
February 28,
|
|
|
|
2016
|
|
|
2015
|
|
Mortgage payable to bank; interest rate at BB&T Bank base rate plus 0.5% (4.00% as of February
29, 2016); monthly principal and interest payments of $5 thousand payable through October 2021; collateralized by land and building of Teltron Technologies, Inc.
|
|
|
183
|
|
|
|
233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
183
|
|
|
|
233
|
|
Less current maturities
|
|
|
(52
|
)
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
131
|
|
|
$
|
183
|
|
|
|
|
|
|
|
|
|
|
34
Future maturities of lines of long-term debt are as follows (in thousands):
|
|
|
|
|
Year
|
|
Amount
|
|
2017
|
|
$
|
52
|
|
2018
|
|
|
55
|
|
2019
|
|
|
56
|
|
2020
|
|
|
20
|
|
|
|
|
|
|
|
|
$
|
183
|
|
|
|
|
|
|
Note 6. Notes Payable to Officers and Directors
The Companys Chief Executive officer lent the Company $285 thousand dollars during the Companys fiscal year
ended February 29, 2016. The Company repaid $200 thousand before the end of the year and the remaining $85 thousand was repaid in April, 2016. The $85 thousand was shown as a current payable on the Companys February 29, 2016 balance
sheet. The interest rate was eight percent. The Company paid $3 thousand interest on this loan for fiscal 2016.
Note 7. Accrued Expenses and Warranty Obligations
The following provides a reconciliation of changes in the Companys warranty reserve for fiscal years 2016 and 2015.
The Company provides no other guarantees.
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Balance at beginning of year
|
|
$
|
23
|
|
|
$
|
45
|
|
Provision for current year sales
|
|
|
37
|
|
|
|
57
|
|
Warranty costs incurred
|
|
|
(45
|
)
|
|
|
(79
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
15
|
|
|
$
|
23
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
February 29,
2016
|
|
|
February 28,
2015
|
|
Accrued compensation and benefits
|
|
$
|
199
|
|
|
$
|
203
|
|
Accrued customer deposits
|
|
|
61
|
|
|
|
107
|
|
Accrued warranty
|
|
|
15
|
|
|
|
23
|
|
Accrued professional fees
|
|
|
214
|
|
|
|
149
|
|
Accrued other
|
|
|
127
|
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
616
|
|
|
$
|
603
|
|
|
|
|
|
|
|
|
|
|
Note 8. Stock Options
Upon recommendation of the Board of Directors of the Company, on August 25, 2006, the shareholders of the Company
approved the Video Display Corporation 2006 Stock Incentive Plan (Plan), whereby options to purchase up to 500,000 shares of the Companys common stock may be granted and up to 100,000 restricted common stock shares may be awarded.
Options may not be granted at a price less than the fair market value, determined on the day the options are granted. Options granted to a participant who is the owner of ten percent or more of the common stock of the Company may not be granted at a
price less than 110% of the fair market value, determined on the day the options are granted. The exercise price of each option granted is fixed and may not be re-priced. The life of each option granted is determined by the plan administrator, but
may not exceed the lesser of seven years from the date the participant has the vested right to exercise the option, or nine years from the date of
35
the grant. The life of an option granted to a participant who is the owner of ten percent or more of the common stock of the Company may not exceed five years from the date of grant. All
full-time or part-time employees, and Directors of the Company, are eligible for participation in the Plan. In addition, any consultant or advisor who renders bona fide services to the Company, other than in connection with the offer or sale of
securities in a capital-raising transaction, is eligible for participation in the Plan. The plan administrator is appointed by the Board of Directors of the Company. The Plan may be terminated by action of the Board of Directors, but in any event
will terminate on the tenth anniversary of its effective date.
Prior to expiration on May 1, 2006, the Company maintained an
incentive stock option plan whereby options to purchase up to 1.2 million shares could be granted to directors and key employees at a price not less than fair market value at the time the options were granted. Upon vesting, options granted are
exercisable for a period not to exceed ten years. No further options may be granted pursuant to the plan after the expiration date; however, those options outstanding at that date will remain exercisable in accordance with their respective terms.
Information regarding the stock option plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
(in thousands)
|
|
|
Average Exercise Price
Per Share
|
|
Outstanding at February 28, 2014
|
|
|
72
|
|
|
$
|
4.37
|
|
Granted
|
|
|
19
|
|
|
|
2.82
|
|
Forfeited or expired
|
|
|
(18
|
)
|
|
|
3.83
|
|
|
|
|
|
|
|
|
|
|
Outstanding at February 28, 2015
|
|
|
73
|
|
|
$
|
4.10
|
|
Granted
|
|
|
10
|
|
|
|
1.06
|
|
Forfeited or expired
|
|
|
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
Outstanding at February 29, 2016
Options exercisable
|
|
|
83
|
|
|
$
|
3.73
|
|
February 28, 2015
|
|
|
73
|
|
|
$
|
4.55
|
|
February 29, 2016
|
|
|
83
|
|
|
|
3.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range
of Exercise Prices
|
|
Number
Outstanding at
February 28, 2016
(in thousands)
|
|
|
Weighted
Average
Remaining
Contractual Life
(in years)
|
|
|
Weighted
Average
Exercise Price
|
|
|
Number
Exercisable at
February 28, 2016
(in thousands)
|
|
|
Weighted
Average
Exercise Price
|
|
$1.00 1.25
|
|
|
10
|
|
|
|
9.0
|
|
|
$
|
1.06
|
|
|
|
0
|
|
|
$
|
1.06
|
|
2.44 2.44
|
|
|
9
|
|
|
|
2.0
|
|
|
|
2.44
|
|
|
|
9
|
|
|
|
2.44
|
|
3.17 3.27
|
|
|
17
|
|
|
|
4.9
|
|
|
|
3.18
|
|
|
|
7
|
|
|
|
3.20
|
|
3.59 3.65
|
|
|
18
|
|
|
|
2.0
|
|
|
|
3.62
|
|
|
|
18
|
|
|
|
3.62
|
|
4.00 4.20
|
|
|
18
|
|
|
|
4.6
|
|
|
|
4.11
|
|
|
|
18
|
|
|
|
4.11
|
|
7.65 7.71
|
|
|
11
|
|
|
|
0.8
|
|
|
|
7.68
|
|
|
|
11
|
|
|
|
7.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
|
|
|
|
3.8
|
|
|
$
|
3.74
|
|
|
|
63
|
|
|
$
|
4.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing model,
which requires the Company to estimate the expected term of the stock option grants and expected future stock price volatility over the term. The term represents the expected period of time the Company believes the options will be outstanding based
on historical information. Estimates of expected future stock price volatility are based on the historic volatility of the Companys common stock. The Company calculates the historic volatility based on the weekly stock closing price, adjusted
for dividends and stock splits. The fair value of the stock options is based on the stock price at the time the option is granted, the annualized volatility of the stock and the discount rate at the grant date.
36
Note 9. Taxes on Income
Provision (benefit) for income taxes in the consolidated statements of income consisted of the following components (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
February 29,
|
|
|
February 28,
|
|
|
|
2016
|
|
|
2015
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
391
|
|
State
|
|
|
|
|
|
|
(114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
277
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
883
|
|
State
|
|
|
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,003
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
1,280
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes differs from the amount computed by applying the federal statutory rate of 34%
to income before income taxes as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
February 29,
2016
|
|
|
February 28,
2015
|
|
Statutory U.S. federal income tax rate
|
|
$
|
(2,269
|
)
|
|
$
|
(1,327
|
)
|
State income taxes, net of federal benefit
|
|
|
(196
|
)
|
|
|
(114
|
)
|
Research and experimentation credits
|
|
|
|
|
|
|
(15
|
)
|
Valuation allowance
|
|
|
2,483
|
|
|
|
2,739
|
|
Non-deductible expenses
|
|
|
|
|
|
|
19
|
|
Other
|
|
|
(18
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
Taxes at effective income tax rate
|
|
$
|
|
|
|
$
|
1,280
|
|
|
|
|
|
|
|
|
|
|
The income tax expense effective tax rate for fiscal 2016 was 0% compared to 27% for fiscal 2015. The lower effective rate in
2016 compared to the effective rate in 2015 was primarily due to the valuation allowance the Company recognized on deferred tax benefits not expected to be realized, research and experimentation credits, the non-deductible losses and various other
permanent items.
The deferred tax assets were reduced by a valuation allowance because, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets will not be realized. The Company has determined that a 100% valuation allowance is needed due to recent taxable net operating losses, the sale of profitable divisions and the limited
taxable income in the carry back periods.
37
The sources of the temporary differences and carry forwards, and their effect on the net deferred tax asset
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
February 29,
|
|
|
February 28,
|
|
|
|
2016
|
|
|
2015
|
|
Current deferred tax assets(liabilities):
|
|
|
|
|
|
|
|
|
Uniform capitalization costs
|
|
$
|
141
|
|
|
$
|
123
|
|
Inventory reserves
|
|
|
470
|
|
|
|
183
|
|
Accrued liabilities
|
|
|
114
|
|
|
|
119
|
|
Allowance for doubtful accounts
|
|
|
6
|
|
|
|
19
|
|
Other
|
|
|
(22
|
)
|
|
|
(10
|
)
|
Valuation Allowance
|
|
|
(709
|
)
|
|
|
(434
|
)
|
|
|
|
|
|
|
|
|
|
Net current deferred tax assets
|
|
|
|
|
|
|
|
|
Non-current deferred tax assets:
|
|
|
|
|
|
|
|
|
Amortization of intangibles
|
|
|
81
|
|
|
|
185
|
|
Deferred rent
|
|
|
111
|
|
|
|
155
|
|
Non-deductible losses
|
|
|
2,285
|
|
|
|
1,035
|
|
State net operating loss carry-forward
|
|
|
491
|
|
|
|
381
|
|
Federal net operating loss carry-forward
|
|
|
2,622
|
|
|
|
1,908
|
|
Federal tax credit carry forward
|
|
|
318
|
|
|
|
|
|
Foreign tax credit carry-forward
|
|
|
99
|
|
|
|
99
|
|
Basis difference of property, plant and equipment
|
|
|
135
|
|
|
|
97
|
|
Valuation allowance
|
|
|
(6,142
|
)
|
|
|
(3,860
|
)
|
|
|
|
|
|
|
|
|
|
Net non-current deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Current asset
Non-current asset
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The Company has available federal and state net operating loss carryforwards of $7.7 million and $11.8
million, respectively. The net operating loss carryforwards expire in fiscal 2036, if not used.
Note 10. Benefit Plan
The Company maintains defined contribution plans that are available to all employees. The Company did not make a
contribution in the fiscal year ended February 29, 2016 or February 28, 2015 to the Companys 401(k) plan.
Note 11. Commitments and Contingencies
Operating Leases
The
Company leases various manufacturing facilities and transportation equipment under leases classified as operating leases, expiring at various dates through 2025. These leases provide that the Company pay taxes, insurance, and other expenses on the
leased property and equipment. Rent expense for all leases was approximately $0.9 million and $0.8 million in fiscal 2016 and 2015, respectively.
38
Future minimum rental payments due under these leases are as follows (in thousands):
|
|
|
|
|
Fiscal Year
|
|
Amount
|
|
2017
|
|
$
|
507
|
|
2018
|
|
|
390
|
|
2019
|
|
|
393
|
|
2020
|
|
|
398
|
|
2021
|
|
|
394
|
|
Thereafter
|
|
|
980
|
|
|
|
|
|
|
|
|
$
|
3,062
|
|
|
|
|
|
|
Related Party Leases
Included above are leases for manufacturing and warehouse facilities leased from the Companys chief executive officer and Ordway
Properties, LLC under operating leases expiring at various dates through 2025. Rent expense under these leases totaled approximately $508 thousand in fiscal 2016 and $314 thousand in fiscal 2015. The Companys Stone Mountain lease terminated on
March 23, 2016 when the building location was sold. The Company consolidated its operations in its Tucker, GA. location.
Future
minimum rental payments due under these leases with related parties are as follows (in thousands):
|
|
|
|
|
Fiscal Year
|
|
Amount
|
|
2017
|
|
$
|
394
|
|
2018
|
|
|
384
|
|
2019
|
|
|
388
|
|
2020
|
|
|
394
|
|
2021
|
|
|
394
|
|
Thereafter
|
|
|
980
|
|
|
|
|
|
|
|
|
$
|
2,934
|
|
|
|
|
|
|
Legal Proceedings
The
Company is involved in various legal proceedings relating to claims arising in the ordinary course of business. Management is of the opinion, that the ultimate resolution of these matters will not have a material adverse effect on the Companys
business, consolidated financial condition, results of operation or cash flows.
Note 12. Concentrations of Risk and Major Customers
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash,
accounts receivable and investments. At times, such cash in banks are in excess of the FDIC insurance limit.
The Company sells to a
variety of domestic and international customers on an open-unsecured account basis, in certain cases requiring letters of credit. These customers principally operate in the medical, military, and avionics industries. The Company had direct and
indirect net sales to the U.S. government, primarily the Department of Defense for training and simulation programs, which comprised approximately 49% and 41% of consolidated net sales in fiscal 2016 and 2015, respectively. Sales to foreign
customers were 19% and 15% of consolidated net sales in fiscal 2016 and 2015, respectively. The Company had two customers who comprised more than 10% of the Companys sales in fiscal year 2016, Lockheed Martin (35%) and Flight Safety
(10.1%). The Company had one account who comprised more than 10% in fiscal 2015, Lockheed Martin (27%). The accounts are in good standing with the Company.
The Company attempts to minimize credit risk by reviewing all customers credit history before extending credit, by monitoring
customers credit exposure on a daily basis and requiring letters of credit for certain sales. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends
and other information.
39
Note 13. Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
(in thousands)
|
|
|
|
February 29,
|
|
|
February 28,
|
|
|
|
2016
|
|
|
2015
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
61
|
|
|
$
|
78
|
|
|
|
|
|
|
|
|
|
|
Income taxes, net of refunds
|
|
$
|
(725
|
)
|
|
$
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
Non-cash activity:
|
|
|
|
|
|
|
|
|
Lexel Imaging Reacquisition -
|
|
$
|
|
|
|
$
|
473
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
Lexel Imaging Reacquisition
|
|
|
|
|
|
|
|
|
Note receivable
|
|
$
|
|
|
|
$
|
900
|
|
|
|
|
|
|
|
|
|
|
Receipt of note receivable in conjunction with the sale of
Z-Axis, Inc
|
|
$
|
|
|
|
$
|
95
|
|
|
|
|
|
|
|
|
|
|
Note 14. Selected Quarterly Financial Data (unaudited)
The following table sets forth selected quarterly consolidated financial data for the fiscal years ended February 29,
2016 and February 28, 2015, respectively. The summation of quarterly net income (loss) per share may not agree with annual net income (loss) per share due to rounding. Excludes discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
|
(in thousands, except per share amounts)
|
|
Net Sales
|
|
$
|
2,360
|
|
|
$
|
2,923
|
|
|
$
|
2,387
|
|
|
$
|
3,952
|
|
Gross profit (loss)
|
|
|
64
|
|
|
|
250
|
|
|
|
(422
|
)
|
|
|
708
|
|
Net income (loss)
|
|
|
(1,569
|
)
|
|
|
(1,366
|
)
|
|
|
(2,139
|
)
|
|
|
(1,072
|
)
|
Basic net income (loss) per share
|
|
$
|
(0.26
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(0.19
|
)
|
Diluted net income (loss) per share
|
|
$
|
(0.26
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(0.19
|
)
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
|
(in thousands, except per share amounts)
|
|
Net Sales
|
|
$
|
3,695
|
|
|
$
|
2,592
|
|
|
$
|
3,557
|
|
|
$
|
2,974
|
|
Gross profit (loss)
|
|
|
977
|
|
|
|
14
|
|
|
|
674
|
|
|
|
(280
|
)
|
Net income (loss)
|
|
|
139
|
|
|
|
149
|
|
|
|
(2,836
|
)
|
|
|
(3,445
|
)
|
Basic net income (loss) per share
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
$
|
(0.45
|
)
|
|
$
|
(0.54
|
)
|
Diluted net income (loss) per share
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
$
|
(0.45
|
)
|
|
$
|
(0.54
|
)
|
Note 15. Gain on Sale of Property, Plant and Equipment
On August 28, 2014, the Company sold its property at 8-18 Riverside Drive in White Mills, PA for $500 thousand. The
Company received $497 thousand after closing costs and recognized a gain on sale of $364 thousand.
Note 16. Discontinued Operations
On March 26, 2014 with an effective date of February 28, 2014, the Company completed the sale of the
Companys wholly-owned subsidiary, Lexel Imaging, Inc. to Citadal Partners, LLC for approximately $3.9 million, consisting of $1.0 million cash payable over 180 days and included in current assets as a note and a guarantee to purchase $2.9
million in inventory over a five year period. The inventory was adjusted to its net realizable value as part of the sale. The Company recognized a loss on the sale of $4.4 million pre-tax during the year ended February 28, 2014. Lexel Imaging,
Inc. had net sales of $ 7.6 million and a pre-tax net loss of $0.8 million for the twelve months ending February 28, 2014.
On
November 17, 2014 Video Display reacquired Lexel Imaging, Inc when Citadal Partners, LLC defaulted on two notes payable to Video Display Corporation owed as financing on the original sale of the Lexel Imaging. Lexel Imaging is still presented
as discontinued operations as Video Display Corporation is still considering offers for the sale of the entity.
Lexels net sales,
expenses, net profits, operating income and cash flows, are being shown as discontinued operations per ASC 205-20-45
Reporting Discontinued Operations
for all periods presented.
The summarized financial information for discontinued operations for the year-ended February 29, 2016, and February 28, 2015, is as
follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2016
|
|
|
Fiscal 2015
|
|
Net sales
|
|
|
6,747
|
|
|
|
1,543
|
|
Cost of goods sold
|
|
|
5,294
|
|
|
|
1,388
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,453
|
|
|
|
155
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Selling and delivery
|
|
|
46
|
|
|
|
|
|
General and administrative
|
|
|
933
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
979
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) from discontinued operations
|
|
|
474
|
|
|
|
(8
|
)
|
41
|
|
|
|
|
|
|
|
|
Other income
|
|
|
61
|
|
|
|
75
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
61
|
|
|
|
75
|
|
Gain on sale of assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations before income taxes
|
|
|
535
|
|
|
|
67
|
|
Income tax expense
|
|
|
7
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
|
528
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
Note 17. Subsequent Events
On March 30, 2016 Video Display Corporation entered into an assignment with recourse of their note receivable from
Z-Axis,
Inc. with Ronald D. Ordway, CEO, and Jonathan R. Ordway, related parties, for the sum of $912 thousand. The balance on the note at the time of the assignment was $1.14 million. The Company recognized an
impairment of this note in the amount of $228 thousand to net realizable value at February 29, 2016. The Company also retains the right to repurchase the note at any time for 80% of the outstanding principle balance. In the event of default by
Z-Axis, the Company is obligated to repurchase the note for 80% of the remaining principle balance plus any accrued interest. The note receivable is collateralized by a security interest in the share of Z-Axis as well as a personal guaranty of its
majority shareholder. Z-Axis is current on all scheduled payments regarding this note.