VIDEO DISPLAY CORPORATION Overview
The Company manufactures and distributes a wide range of display devices, encompassing, among others, industrial, military, medical, and simulation display solutions. The Company is organized into the following four interrelated divisions that have similar products and markets served and therefore are aggregated into one reportable segment:
• Simulation and Training
Products
- offers a wide range of projection display systems for use in training,
simulation, military, medical, industrial applications, video walls and
command and control centers including ruggedized displays.
• Cyber Secure Products
- provides advanced TEMPEST technology and (EMSEC) products. This business
also provides various contract services including the design and testing
solutions for defense and niche commercial uses worldwide.
• Data Display CRTs
- offers a wide range of CRTs for use in data display screens, including
computer terminal monitors and medical monitoring equipment.
• Other Computer Products
- offers keyboard products with a plan to manufacture and offer cyber-secure
keyboards as part of the cyber secure products division.
During fiscal 2022, management of the Company focused key resources on strategic efforts to support the efforts of operations to increase market share. The Company also seeks to look for acquisition opportunities that enhance the profitability and shareholder value of the Company. The Company continues to seek new products through acquisitions and internal development that complement existing profitable product lines. Challenges facing the Company during these efforts include:
Inventory management - Management regularly reviews the Company's investment in inventories for declines in value and writes down the cost when it is apparent that the expected net realizable value of the inventory falls below its carrying amount. The Company operates in an environment of constantly changing technologies and retains a certain amount of inventory for legacy products for maintenance and replacement capabilities for its customers. The Company also inventories product to ensure it has adequate inventory to fulfill orders for transitioning product lines. Management reviews inventory levels on a quarterly basis. Such reviews include observations of product development trends of the original equipment manufacturers, new products being marketed, and technological advances relative to the product capabilities of the Company's existing inventories.
Impact of
COVID-19
- The Company has been actively monitoring the novel coronavirus, or COVID-19, situation and its impact globally. Financial results for fiscal 2022 were impacted by COVID-19 due to delayed orders and/or the fulfillment of the related orders. However, the Company currently does not expect any material impact on our financial results for fiscal 2023. Management continues to operate normally with the exception of restrictions issued by federal and local governments and supply chain issues as a result of the pandemic. If a reoccurrence of the COVID-19 pandemic occurs, the Company may experience other disruptions that could severely impact the business, results of operations and prospects.
Sales generation
- The Company has experienced a significant decline in overall sales along with challenges in gross margin. Furthermore, the Company has been unable to reduce operating expenses at the needed level to offset the reduction in sales. In order to improve revenue generating activities, management is focused on increasing marketing efforts in its ruggedized displays, TEMPEST services and small specialty displays. The Company is also developing new products for customers in the TEMPEST sector of its business. Furthermore, the Company has expanded its cyber security business by adding a second testing chamber and a new testing machine for testing tempest products. The Company is aggressively seeking new business for this sector of its business and just completed and had accredited its new AIS system allowing it to increase the business in cyber testing services to supplement the product side of the business.
Operations
The following table sets forth, for the fiscal years indicated, the percentages that selected items in the Company's consolidated statements of operations bear to total revenues (amounts in thousands):
(See Item 1. Business - Description of Principal Business and Principal Products for discussion about the Company's Products and Divisions.)
2022 2021
Amount % Amount %
Net Sales
Simulation and Training 4,088 58.4 % 8,143 65.0 %
Data Display CRTs 992 14.2 1,496 11.9
Cyber Secure Products 612 8.7 1,558 12.4
Other Computer Products 1,309 18.7 1,344 10.7
Total net sales 7,001 100.0 12,541 100.0
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Costs and expenses
Cost of goods sold 7,324 103.7 % 9,925 79.2 %
Selling and delivery 555 7.9 905 7.3
General and administrative 3,753 53.6 3,989 31.8
11,632 165.2 14,819 118.3
Loss from operations (4,631 ) (65.2 ) (2,278 ) (18.3 )
Interest expense, net (25 ) (0.4 ) (4 ) (0.0 )
Employee retention credit income 796 11.4 - 0.0
Gain on extinguishment of PPP loans 1,084 15.5 988 7.9
Gain on disposal of assets - 0.0 1,724 13.8
Other income, net 216 3.1 415 3.3
(Loss) income before income taxes (2,560 ) (35.6 ) 845 6.8
Income tax expense - 0.0 33 0.3
Net (loss) income (2,560 ) (35.6 ) 812 6.5
Fiscal 2022 Compared to Fiscal 2021
Consolidated net sales decreased 44.2% for year ended
Gross Margins
Consolidated gross margins decreased to (4.6%) for fiscal 2022 from 20.9% for
fiscal 2021. Overall gross margin dollars decreased by
ACS gross margin percentage was 10.9% compared to 5.9% and the gross margin
dollars were
VDC Display Systems (VDCDS) gross margin percentage was 14.3% compared to 28.7%
in the prior year and the gross margin dollars were
The keyboard division, Unicomp, had
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The Data Display division had a negative
Operating Expenses
Operating expenses as a percentage of sales increased to 61.5% for fiscal 2022
from 39.1% in fiscal 2021. Operating expenses as a percentage of sales was
higher for fiscal 2022 when compared to fiscal 2021 due to the significant
reduction in sales in fiscal 2022 without a corresponding decrease in operating
expenses. Total operating expenses decreased 12.0% from
The Company is working to reduce costs in all areas of the business to bring its
cost structure in line with the current size of the business. The Company has
made strategic cuts at the corporate level and has merged its two
Interest Expense
Interest expense was
Other Income
In fiscal 2022, the Company had
In fiscal 2021, the Company had
Income Taxes
The Company had a net loss before taxes of approximately
Liquidity and Capital Resources
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 three of the last five years. The accumulated losses reported has resulted from a combination of lower revenues at certain divisions without a commensurate reduction of expenses. The Company's working capital and liquid asset position is presented as follows:
February 28,
February 28,
2022 2021
Working capital $ 509 $ 3,601
Liquid assets $ 245 $ 293
Management's plans with regard to improving working capital includes increasing marketing efforts in its ruggedized displays, TEMPEST services and small specialty displays. The Company is developing new products for customers in the TEMPEST sector of its business. Also, the Company has expanded its cyber security business by adding a second testing chamber and a new testing machine for testing tempest products. The Company is aggressively seeking new business for this sector of its business and just completed and had accredited its new AIS system allowing it to increase the business in cyber testing services to supplement the product side of the business.
The Company has streamlined its operations and is focusing on increasing revenues by executing initiatives such as upgrading its sales and marketing efforts including a more user friendly website to market all the product lines it sells and email blasts to targeted customers with
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specific product lines. These efforts have not increased revenues to date as the Company's business typically has longer lead times from initial contact to a sale. The pandemic has also slowed down the process of obtaining new business as many of our customers and potential customers are still working from home. Furthermore, supply chain challenges have slowed down production of certain products due to long lead times on critical items of production, impacting cash flow.
The Company moved the corporate accounting functions to the
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.
Cash used in operations was
Investing activities used
Financing activities provided
The Company has a stock repurchase program, pursuant to which it has been authorized to repurchase up to 2,632,500 shares of the Company's common stock in the open market. OnJanuary 20, 2014 , the Board of Directors of the Company approved a one-time continuation of the stock repurchase program, and authorized the Company to repurchase up to 1,500,000 additional shares of the Company's common stock, depending on the market price of the shares. There is no minimum number of shares required to be repurchased under the program. During fiscal years 2022 and 2021, the Company did not repurchase any of the Company's stock. Under this program, an additional 490,186 shares remain authorized to be repurchased by the Company atFebruary 28, 2022 .
Transactions with Related Parties and Contractual Obligations
The Company leases a building in
The Company borrows money from the Chief Executive Officer from time to time to
support operations. In fiscal 2022, the Company has borrowed approximately
Contractual Obligations
Future contractual maturities due under operating and finance leases and other
obligations at
Payments due by period
Less than 1 - 3 3 - 5 More than
Total 1 year years years 5 years
Finance lease obligations $ 181 $ 104 $ 77 $ - $ -
Operating lease obligations 656 276 380 - -
Note payable -related party 458 458 - - -
Warranty reserve obligations 24 24 - - -
Total $ 1,319 $ 862 $ 457 $ - $ -
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Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations are based upon the Company's consolidated financial
statements. These consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in
Inventory valuation
Management regularly reviews the Company's investment in inventories for declines in value and writes down the cost when it is apparent that the expected net realizable value of the inventory falls below its carrying amount. The Company operates in an environment of constantly changing technologies and retains a certain amount of inventory for legacy products for maintenance and replacement capabilities for its customers. The Company maintains inventory on certain products to ensure it has adequate inventory to fulfill orders for transitioning product lines. Management reviews inventory levels on a quarterly basis. Such reviews include observations of product development trends of the original equipment manufacturers, new products being marketed, and technological advances relative to the product capabilities of the Company's existing inventories.
Revenue recognition
The Company recognizes revenue upon transfer control of the promised products or services to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services. VDC derives revenue primarily from sales of simulation and video wall systems, cyber secure products, data displays, and keyboards. The Company excludes sales and usage-based taxes from revenue.
The Company's simulation and video wall systems are custom-built (using commercial off-the-shelf products) to customer specifications under fixed price contracts. Judgment is required to determine whether each product and service is considered to be a distinct performance obligation that should be accounted for separately under the contract. Generally, these contracts contain one performance obligation (the installation of a fully functional system). The Company recognizes revenue for these systems over time as control is transferred based on labor hours incurred on each project based on the percentage of completion method.
The Company recognizes revenue related to its cyber secure products, data displays, and keyboards at a point in time when control is transferred to the customer (generally upon shipment of the product to the customer).
Timing of invoicing to customers may differ from timing of revenue recognition; however, the Company's contracts do not include a significant financing component as substantially all invoices have terms of 30 days or less. The Company is applying the practical expedient to exclude from consideration any contracts with payment terms of one year or less and does not offer terms extending beyond one year.
Income taxes
Deferred income taxes are provided to reflect the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. The Company has
established a valuation allowance of
The Company accounts for uncertain tax positions under the provisions of ASC Topic 740, which contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not, that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating the Company's tax positions and tax benefits, which may require periodic adjustments. AtFebruary 28, 2022 , the Company did not record any liabilities for uncertain tax positions. Off-Balance Sheet Arrangements The Company does not have during the periods presented, and the Company does not currently have, any off-balance sheet arrangements, as defined underSEC rules. 16
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Recent Accounting Pronouncements
Refer to Note 1, "Summary of Significant Accounting Policies" for a discussion of recent accounting pronouncements and their effect on the Company.
Impact of Inflation
Inflation has not had a material effect on the Company's results of operations to date.
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