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
2017 and 2016 mean the fiscal years ended February 28, 2017 and February 29, 2016, 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,
warranty reserves, bad debts, inventory reserves, valuations on deferred income tax 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 three 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 28, 2017, the Company operated using cash from operations of $1.2 million, which is primarily generated from an increase in accounts
receivable of $1.2 million. During the year ended February 29, 2016, operating cash flows provided $1.1 million. Related to these operational results the Companys working capital and liquid asset position deteriorated during the
year ended February 28, 2017 as presented below:
|
|
|
|
|
|
|
|
|
|
|
February 28,
2017
|
|
|
February 29,
2016
|
|
Working capital
|
|
$
|
6,408
|
|
|
$
|
6,796
|
|
Liquid assets
|
|
$
|
503
|
|
|
$
|
740
|
|
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 28, 2017. The Company implemented a plan to reduce
expenses at the divisions, as well as at the corporate location during the fiscal year ending February 28, 2017 with the expectation that expenses will be decreased by more than $1.7 million per year. The reduction in expenses was over
$2.0 million for the year. Management continues to explore options to monetize certain assets of the business and is in the process of securing a new lease for Lexel as further described in Note 11. The Company secured a $500 thousand line
of credit on September 14, 2016. 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 the operations, to sell strategic assets as noted above, the procurement of suitable financing, securing a lease for Lexel, 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 were included in the fiscal years ended 2017 and 2016, 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 $0.1 million in the fiscal year ended 2017 and $0.2 in the fiscal year ended 2016.
Cash and Cash Equivalents and Investments
Highly liquid investments with an original 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. Gains/ (losses) on trading securities held were approximately $0.2 million and ($2.8) million on February 28,
2017 and February 29, 2016 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 28, 2017 and February 29, 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 28,2017
|
|
|
Level 1 Assets
and Liabilities
|
|
|
Level 2 Assets
and Liabilities
|
|
|
Level 3 Assets
and Liabilities
|
|
Current trading investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stocks, options, and ETF (long)
|
|
$
|
484
|
|
|
$
|
484
|
|
|
|
|
|
|
|
|
|
Stocks, options, and ETF (short)
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total value of investments
|
|
|
482
|
|
|
|
482
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin balance (2% interest rate)
|
|
|
(114
|
)
|
|
|
(114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total value of liabilities
|
|
|
(114
|
)
|
|
|
(114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
368
|
|
|
$
|
368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 (2% interest rate)
|
|
|
(397
|
)
|
|
|
(397
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total value of liabilities
|
|
|
(397
|
)
|
|
|
(397
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
145
|
|
|
$
|
145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial instruments on the Companys consolidated balance sheets include cash, accounts
receivable, short-term liabilities, and debt. The estimated fair value of these financial instruments 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.
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 28, 2017
|
|
$
|
16
|
|
|
$
|
24
|
|
|
$
|
(20
|
)
|
|
$
|
20
|
|
February 29, 2016
|
|
$
|
52
|
|
|
$
|
17
|
|
|
$
|
(53
|
)
|
|
$
|
16
|
|
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.
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. The reserve for inventory obsolescence was approximately $1.9 million and $1.3 million at February 28, 2017 and February 29, 2016, respectively.
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 $237 thousand and $220 thousand for the fiscal years ended 2017 and 2016, respectively. Substantial betterments and costs to install to property, plant, and equipment are
capitalized, while routine repairs and maintenance are expensed as incurred.
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
The Company had no intangible assets for the fiscal year ended February 28, 2017; therefore, there was no amortization expense. During the
fiscal year ended February 29, 2016, the Company had intangible assets consisting 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 due to declining sales. 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.
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 28, 2017 and February 29, 2016, 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 28, 2017, total unrecognized compensation costs related to stock options and shares of restricted stock granted was $0.1 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 28, 2017, the
Company did not repurchase any shares of Company stock. During the fiscal year ended February 29, 2016, the Company repurchased 71,406 shares at an average price of $1.61 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, 2017.
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 28, 2017 and February 29, 2016, 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 28, 2017 and February 29, 2016 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 28, 2017 and February 29, 2016.
The Companys 2015, 2014 and 2013 tax years 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 2017 and 2016, (in thousands,
except for per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
(loss)
|
|
|
Average Shares
Outstanding
|
|
|
Net
Income(loss) Per
Share
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1,006
|
)
|
|
|
5,891
|
|
|
$
|
(0.17
|
)
|
Effect of dilution:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
(1,006
|
)
|
|
|
5,891
|
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(6,146
|
)
|
|
|
5,909
|
|
|
$
|
(1.04
|
)
|
Effect of dilution:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
(6,146
|
)
|
|
|
5,910
|
|
|
$
|
(1.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options, debentures, and other liabilities convertible into 69,000 and 83,000 shares, respectively, of
the Companys common stock were anti-dilutive and, therefore, were excluded from the fiscal 2017 and 2016 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 similar products, production process, markets served and distribution methods; 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.
31
Recent Accounting Pronouncements
In May, 2014, the FASB issued Accounting Standards Update (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
adoption of this standard did not have a material effect on our consolidated financial statements.
In July 2015, the FASB issued 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. We do not believe this standard will have a material effect on our 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. We do not expect the adoption of this
update to have a significant effect on our 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 28,
|
|
|
February 29,
|
|
|
|
2017
|
|
|
2016
|
|
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 28, 2017 and February 29, 2016, 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 28, 2017 and February 29, 2016, 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. In the fiscal year ended February 29, 2016, 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 its 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). As of February 28, 2017 and February 29, 2016, the cost and
accumulated amortization of intangible assets was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 28, 2017
|
|
|
February 29, 2016
|
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
Patents/designs
|
|
$
|
|
|
|
$
|
|
|
|
$
|
233
|
|
|
$
|
233
|
|
Customer lists
|
|
|
|
|
|
|
|
|
|
|
2,863
|
|
|
|
2,863
|
|
Non-compete
agreements
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
1,000
|
|
Other intangibles
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,102
|
|
|
$
|
4,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
Note 4. Inventories
Inventories consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2017
|
|
|
2016
|
|
Raw materials
|
|
$
|
5,217
|
|
|
$
|
5,827
|
|
Work-in-process
|
|
|
1,001
|
|
|
|
990
|
|
Finished goods
|
|
|
1,519
|
|
|
|
1,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,737
|
|
|
|
8,486
|
|
Reserves for obsolescence
|
|
|
(1,899
|
)
|
|
|
(1,270
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,838
|
|
|
$
|
7,216
|
|
|
|
|
|
|
|
|
|
|
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 28, 2017
|
|
$
|
1,270
|
|
|
$
|
1,076
|
|
|
$
|
(447
|
)
|
|
$
|
1,899
|
|
February 29, 2016
|
|
$
|
493
|
|
|
$
|
916
|
|
|
$
|
(139
|
)
|
|
$
|
1,270
|
|
Note 5. Line of Credit and Long-Term Debt
The Company has a $0.5 million line of credit with the Brand Banking Company with a current balance of $0.2 million at
February 28, 2017. The only other commercial debt of the Company is $0.1 million it owes on a building owned by its subsidiary, Teltron Technologies, Inc. in Birdsboro, PA.
Long-term debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2017
|
|
|
2016
|
|
Mortgage payable to bank; interest rate at BB&T Bank base rate plus 0.5% (4.25% as of
February 28, 2017); monthly principal and interest payments of $5 thousand payable through October 2021; collateralized by land and building of Teltron Technologies, Inc.
|
|
$
|
131
|
|
|
$
|
183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131
|
|
|
|
183
|
|
Less current maturities
|
|
|
(54
|
)
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
77
|
|
|
$
|
131
|
|
|
|
|
|
|
|
|
|
|
34
Future maturities of lines of long-term debt are as follows (in thousands):
|
|
|
|
|
Year
|
|
Amount
|
|
2018
|
|
$
|
54
|
|
2019
|
|
|
56
|
|
2020
|
|
|
21
|
|
|
|
|
|
|
|
|
$
|
131
|
|
|
|
|
|
|
Note 6. Notes Payable to Officers and Directors
The Company owed the Chief Executive officer $85 thousand dollars at the beginning of the Companys fiscal year ended
February 28, 2017. The Company repaid the $85 thousand during the first quarter of the fiscal year ended February 28, 2017. The interest rate was eight percent. The Company paid $1 thousand interest on this loan for fiscal 2017.
On March 30, 2016, the Company entered into an assignment with recourse of the note receivable from
Z-Axis
Inc.
(Z-Axis)
with Ronald D. Ordway, CEO, and Jonathan R. Ordway, related parties, for the sum of $912 thousand. The note receivable is collateralized by a
security interest in the shares of
Z-Axis
as well as a personal guaranty of its majority shareholder.
Z-Axis
is current on all scheduled payments regarding this note.
The Company retains the right to repurchase the note at any time for 80% of the outstanding principle balance. Also, 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. Accordingly, the Company has recognized this transaction as a secured borrowing in accordance with the provisions of ASC
860-10.
The $
0.9 million, 9% interest rate, note originated on March 30, 2016, with payments beginning on April 16, 2016 and continuing for 56 months thereafter. The balance of the note at February 28, 2017 was $765 thousand.
Note 7. Accrued Expenses and Warranty Obligations
The following provides a reconciliation of changes in the Companys warranty reserve for fiscal years 2017 and 2016. The Company provides
no other guarantees.
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
Balance at beginning of year
|
|
$
|
125
|
|
|
$
|
100
|
|
Provision for current year sales
|
|
|
148
|
|
|
|
196
|
|
Warranty costs incurred
|
|
|
(146
|
)
|
|
|
(171
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
127
|
|
|
$
|
125
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
February 28,
2017
|
|
|
February 29,
2016
|
|
Accrued compensation and benefits
|
|
$
|
386
|
|
|
$
|
354
|
|
Accrued warranty
|
|
|
127
|
|
|
|
125
|
|
Accrued professional fees
|
|
|
133
|
|
|
|
214
|
|
Accrued other
|
|
|
188
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
834
|
|
|
$
|
877
|
|
|
|
|
|
|
|
|
|
|
35
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 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, 2015
|
|
|
73
|
|
|
$
|
4.10
|
|
Granted
|
|
|
10
|
|
|
|
1.06
|
|
Forfeited or expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at February 29, 2016
|
|
|
83
|
|
|
$
|
3.73
|
|
Granted
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(14
|
)
|
|
|
5.07
|
|
|
|
|
|
|
|
|
|
|
Outstanding at February 28, 2017
Options exercisable
|
|
|
69
|
|
|
$
|
3.46
|
|
February 29, 2016
|
|
|
83
|
|
|
$
|
3.74
|
|
February 28, 2017
|
|
|
59
|
|
|
|
3.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range
of Exercise Prices
|
|
|
Number
Outstanding at
February 28, 2017
(in thousands)
|
|
|
Weighted Average
Remaining
Contractual Life
(in years)
|
|
|
Weighted
Average
Exercise Price
|
|
|
Number
Exercisable at
February 28, 2017
(in thousands)
|
|
|
Weighted
Average
Exercise Price
|
|
$
|
1.00 - 1.25
|
|
|
|
10
|
|
|
|
8.0
|
|
|
$
|
1.06
|
|
|
|
0
|
|
|
$
|
1.06
|
|
|
2.44 - 2.44
|
|
|
|
9
|
|
|
|
1.0
|
|
|
|
2.44
|
|
|
|
9
|
|
|
|
2.44
|
|
|
3.17 - 3.27
|
|
|
|
17
|
|
|
|
3.9
|
|
|
|
3.18
|
|
|
|
17
|
|
|
|
3.18
|
|
|
3.59 - 3.65
|
|
|
|
9
|
|
|
|
4.0
|
|
|
|
3.59
|
|
|
|
9
|
|
|
|
3.59
|
|
|
4.00 - 4.20
|
|
|
|
18
|
|
|
|
3.6
|
|
|
|
4.11
|
|
|
|
18
|
|
|
|
4.11
|
|
|
7.65 -7.71
|
|
|
|
6
|
|
|
|
0.5
|
|
|
|
7.65
|
|
|
|
6
|
|
|
|
7.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69
|
|
|
|
3.8
|
|
|
$
|
3.46
|
|
|
|
59
|
|
|
$
|
3.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
The assumptions used and the weighted average calculated value of the units is as follows for the years ended February 28, 2017 and 2016.
|
|
|
|
|
Risk-free interest rate
|
|
|
0.50
|
%
|
Expected dividend yield
|
|
|
|
|
Expected volatility
|
|
|
42
|
%
|
Expected life in years
|
|
|
9
|
|
Service period in years
|
|
|
2
|
|
Weighted average calculated value of united granted
|
|
$
|
1.06
|
|
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 28,
|
|
|
February 29,
|
|
|
|
2017
|
|
|
2016
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
|
|
State
|
|
|
19
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
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 28,
2017
|
|
|
February 29,
2016
|
|
Statutory U.S. federal income tax rate
|
|
$
|
(370
|
)
|
|
$
|
(863
|
)
|
State income taxes, net of federal benefit
|
|
|
19
|
|
|
|
7
|
|
Valuation allowance
|
|
|
530
|
|
|
|
791
|
|
Other
|
|
|
(160
|
)
|
|
|
(65
|
)
|
|
|
|
|
|
|
|
|
|
Taxes at effective income tax rate
|
|
$
|
19
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
The income tax expense effective tax rate for fiscal 2017 was (1.8%) % compared to 0% for fiscal 2016. The higher effective
rate in 2017 compared to the effective rate in 2016 was primarily due to state income taxes, 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 28,
|
|
|
February 29,
|
|
|
|
2017
|
|
|
2016
|
|
Current deferred tax assets(liabilities):
|
|
|
|
|
|
|
|
|
Uniform capitalization costs
|
|
$
|
87
|
|
|
$
|
141
|
|
Inventory reserves
|
|
|
703
|
|
|
|
470
|
|
Accrued liabilities
|
|
|
127
|
|
|
|
114
|
|
Allowance for doubtful accounts
|
|
|
7
|
|
|
|
6
|
|
Other
|
|
|
(3
|
)
|
|
|
(22
|
)
|
Valuation Allowance
|
|
|
(921
|
)
|
|
|
(709
|
)
|
|
|
|
|
|
|
|
|
|
Net current deferred tax assets
|
|
|
|
|
|
|
|
|
Non-current
deferred tax
assets:
|
|
|
|
|
|
|
|
|
Amortization of intangibles
|
|
|
55
|
|
|
|
81
|
|
Deferred rent
|
|
|
67
|
|
|
|
111
|
|
Non-deductible
losses
|
|
|
2,107
|
|
|
|
2,285
|
|
State net operating loss carry-forward
|
|
|
534
|
|
|
|
491
|
|
Federal net operating loss carry-forward
|
|
|
3,174
|
|
|
|
2,622
|
|
Federal tax credit carry forward
|
|
|
318
|
|
|
|
318
|
|
Foreign tax credit carry-forward
|
|
|
99
|
|
|
|
99
|
|
Basis difference of property, plant and equipment
|
|
|
106
|
|
|
|
135
|
|
Valuation allowance
|
|
|
(6,460
|
)
|
|
|
(6,142
|
)
|
|
|
|
|
|
|
|
|
|
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 $9.4 million and
$9.3 million, respectively. The net operating loss carryforwards expire at various dates through fiscal 2037, 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 28, 2017 or February 29, 2016 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 $1.4 million and $1.5 million in fiscal 2017 and 2016, respectively.
38
Future minimum rental payments due under these leases are as follows (in thousands):
|
|
|
|
|
Fiscal Year
|
|
Amount
|
|
2018
|
|
$
|
1,268
|
|
2019
|
|
|
1,240
|
|
2020
|
|
|
1,263
|
|
2021
|
|
|
1,053
|
|
2022
|
|
|
394
|
|
Thereafter
|
|
|
586
|
|
|
|
|
|
|
|
|
$
|
5,804
|
|
|
|
|
|
|
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 $0.4 million in fiscal 2017 and $0.5 million in fiscal 2016. 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
|
|
2018
|
|
$
|
384
|
|
2019
|
|
|
388
|
|
2020
|
|
|
394
|
|
2021
|
|
|
394
|
|
2022
|
|
|
394
|
|
Thereafter
|
|
|
586
|
|
|
|
|
|
|
|
|
$
|
2,540
|
|
|
|
|
|
|
Legal Proceedings
The Company is involved in various legal proceedings relating to claims arising in the ordinary course of business.
On January 23, 2017, Lexel Imaging Systems, Inc. (Lexel), a wholly owned subsidiary of Video Display Corporation, was named as a
Defendant in Forcible Detainer Complaint (the Complaint) filed against Lexel by Alidade Bull Lea, LLC (Alidade), the owner of real property located at 1500 Bull Lea Road, Suite 150, Lexington, Kentucky, 40511 (the
Property). The Property is currently leased by Lexel. The complaint sought to evict Lexel from the Property and obtain a judgment against Lexel for $232 thousand for back rent and late fees. A hearing was held February 13,
2017.
After being unable to settle the Complaint, and with Lexel being unable to remove itself from the property in less than 10 days
without significant interruption to business operations, Lexel filed for Chapter 11 bankruptcy protection in the Eastern District of Kentucky Case No.17-50240 on February 10, 2017 (the Ch. 11 Bankruptcy). Lexel and Alidade mediated
the Ch. 11 Bankruptcy and reached a settlement on May 19, 2017 which requires Lexel to surrender possession of the Property on or before September 30, 2017 and remit to Alidade all past due rent of approximately $232 thousand. This amount is
included in accounts payable as of February 28, 2017. Lexel is also required to make payments totaling $100 thousand into an escrow account between May 19, 2017 and July 28, 2017. These funds will be held by Alidades counsel until full and
timely compliance with the settlement agreement are met, at which time the funds will be returned to Lexel. On May 19, 2017, upon approval of the settlement agreement, the Ch. 11 Bankruptcy case was dismissed.
The settlement agreement also stipulates certain events of default for non-compliance. Events of default include, but are not limited to the
following; 1) failure to make timely payment of back-owed rent, escrow payments, and ongoing monthly rents through the exit date, 2) failure to enter into a new lease agreement or asset purchase agreement for all or substantially all of Lexels
assets, with an unaffiliated third party on or before June 30, 2017, and 3) failure to vacate the property, as defined. In the event of non-compliance Lexel has agreed to the following; 1) escrow amounts will be forfeited, 2) a stipulated $200
thousand civil judgment will be awarded to Alidade, 3) eviction from the property within 10 days, and 4) Lexel will pay all legal fees incurred by Alidade related to enforcement of the settlement agreement and foregoing remedies.
Effective May 18, 2017, Ordway Properties, LLC entered into an Offer and Agreement to purchase property in Lexington, Kentucky. The
Companys management intends on entering into a lease of this property on or before June 30, 2017, in order to move Lexels operations on or before September 30, 2017. In the event managements intentions are determined to be a
violation of the above settlement agreement, it is at least reasonably possible that, in addition to the $232 thousand currently accrued, Lexel could incur: 1) losses of $100 thousand related to forfeiture of the escrow deposit, 2) costs of $200
thousand for the civil judgment, 3) additional legal fees incurred by Alidade related to enforcement of the settlement agreement (while foregoing remedies), and 4) subjection to eviction from the property causing significant interruption to business
operations, which includes inventory of $2.3 million as of February 28, 2017. No assurance can be given that the Company will be able to secure a suitable lease agreement on favorable terms, if at all. While management believes its relocation
plans are appropriate under the settlement agreement, they can provide no assurance that their actions will not trigger a default under the settlement agreement, as noted above.
39
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 32.0% and 40% of consolidated net sales in fiscal 2017 and 2016, respectively. Sales to foreign customers were 21% and 24% of
consolidated net sales in fiscal 2017 and 2016, respectively. The Company had three customers who comprised more than 10% of the Companys sales in fiscal year 2017, Lockheed Martin (19%), TSAV (13%) and Fujitsu (11%). 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.
Note 13. Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
(in thousands)
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2017
|
|
|
2016
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
15
|
|
|
$
|
61
|
|
|
|
|
|
|
|
|
|
|
Income taxes, net of refunds
|
|
$
|
20
|
|
|
$
|
(725
|
)
|
|
|
|
|
|
|
|
|
|
Non-cash
activity:
|
|
|
|
|
|
|
|
|
Note receivable paid directly to officer
|
|
$
|
147
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to officer
|
|
$
|
147
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Imputed interest expense
|
|
$
|
87
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Imputed interest income
|
|
$
|
87
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
40
Note14. Selected Quarterly Financial Data (unaudited)
The following table sets forth selected quarterly consolidated financial data for the fiscal years ended February 28, 2017 and
February 29, 2016, respectively. The summation of quarterly net income (loss) per share may not agree with annual net income (loss) per share due to rounding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
|
(in thousands, except per share amounts)
|
|
Net Sales
|
|
$
|
3,710
|
|
|
$
|
3,632
|
|
|
$
|
5,299
|
|
|
$
|
6,998
|
|
Gross profit (loss)
|
|
|
416
|
|
|
|
590
|
|
|
|
898
|
|
|
|
835
|
|
Net income (loss)
|
|
|
(391
|
)
|
|
|
(378
|
)
|
|
|
(45
|
)
|
|
|
(192
|
)
|
Basic net income (loss) per share
|
|
$
|
(0.07
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
Diluted net income (loss) per share
|
|
$
|
(0.07
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
2016
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
|
(in thousands, except per share amounts)
|
|
Net Sales
|
|
$
|
3,456
|
|
|
$
|
5,376
|
|
|
$
|
3,809
|
|
|
$
|
5,728
|
|
Gross profit (loss)
|
|
|
75
|
|
|
|
983
|
|
|
|
(246
|
)
|
|
|
1,222
|
|
Net income (loss)
|
|
|
(1,569
|
)
|
|
|
(1,366
|
)
|
|
|
(2,139
|
)
|
|
|
(1,072
|
)
|
Basic net income (loss) per share
|
|
$
|
(0.26
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(0.18
|
)
|
Diluted net income (loss) per share
|
|
$
|
(0.26
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(0.18
|
)
|
Note 15. Lexel Imagining
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 in the form of a note receivable 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.
41
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 was presented as discontinued operations as Video Display Corporation through the third quarter of its fiscal year
ending February 28, 2017 while it was still considering offers for the sale of the entity.
In February, 2017 the Company decided to
accept an offer to sell certain assets of Lexel Imaging, Inc., which is expected to occur in the first half of fiscal year 2018, and retain and operate the remainder of the company as part of its continuing operations. Accordingly, this year and
last years results of operations, balance sheets and statements of cash flows include the results of Lexel Imaging, Inc. as continuing operations.
Note 16. Subsequent Events
As described
in Note 11, a settlement was approved between Lexel and Alidade on May 19, 2017, which requires Lexel to surrender possession of property being leased from Alidade on or before September 30, 2017. The future minimum rental payments subsequent to
February 28, 2017 under this lease have been included in the schedule in Note 11. Lexel is currently negotiating a new lease, but has not yet agreed to terms. No assurance can be given that the Company will be able to secure a lease agreement on
favorable terms, if at all.