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 2021, 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 - The Company monitors its inventory for obsolescence due
to the rapid changes in display technology. The Company inventory reserves were
unchanged in the fiscal year ending
The Company's remaining business units utilize different inventory components
than the divisions had in the past. The Company provides 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. Management believes its inventory reserves at
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 2021 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 2022. Management continues to operate normally with the exception of enabling employees to work from home and abiding by travel restrictions issued by federal and local governments. If the COVID-19 pandemic continues, the Company may experience other disruptions that could severely impact the business, results of operations and prospects.
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.)
2021 2020
Amount % Amount %
Net Sales
Simulation and Training 8,143 65.0 % 4,921 46.4 %
Data Display CRTs 1,496 11.9 2,541 24.0
Cyber Secure Products 1,558 12.4 1,990 18.8
Other Computer Products 1,344 10.7 1,145 10.8
Total net sales 12,541 100.0 10,597 100.0
Costs and expenses
Cost of goods sold 9,925 79.2 % 8,220 77.6 %
Selling and delivery 905 7.3 623 5.9
General and administrative 3,989 31.8 3,637 34.3
14,819 118.3 12,480 117.8
Loss from operations (2,278 ) (18.2 ) (1,883 ) (17.8 )
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Interest expense, net (4 ) (0.0 ) (8 ) (0.1 )
Investment gain 5 0.0 12 0.1
Gain on extinguishment of PPP loans 988 7.9 - 0.0
Gain on disposal of assets 1,724 13.8 - 0.0
Other income, net 410 3.3 673 6.4
Income (loss) before income taxes 845 6.8 (1,206 ) (11.4 )
Income tax expense 33 0.3 - -
Net income (loss) 812 6.5 (1,206 ) (11.4 )
Fiscal 2021 Compared to Fiscal 2020
Consolidated net sales increased 18.4% for year ended
Gross Margins
Consolidated gross margins decreased to 20.9% for fiscal 2021 from 22.4% for
fiscal 2020. Overall gross margin dollars increased by
ACS gross margin percentage was 5.9% compared to 33.5% and the gross margin
dollars were
VDC Display Systems (VDCDS) gross margin percentage was 28.7% compared to 20.8%
in the prior year and the gross margin dollars were
The keyboard division, Unicomp, had
The Data Display division had a negative
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Operating Expenses
Operating expenses as a percentage of sales decreased slightly to 39.1% for
fiscal 2021 from 40.2% in fiscal 2020. Total operating expenses increased 14.9%
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 2021, the Company had
Income Taxes
The Company had
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 has increased marketing efforts in its ruggedized displays, tempest services and small specialty displays. In addition, 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. The Company's working capital and liquid asset position is presented as follows:
February 28, February 29,
2021 2020
Working capital $ 3,602 $ 1,263
Liquid assets $ 293 $ 844
As for significant liquidity impacting events that occurred during fiscal 2021,
the Company sold a building it owned in
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operations. The plan is to further reduce expenses by closing the
Cash used in operations was
Investing activities provided
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. On
Transactions with Related Parties, Contractual Obligations, and Commitments
The Company leases one building from the Company's CEO in
The Company also borrows money from the Chief Executive Officer on a short-term
basis when funds are needed as disclosed in Note 4. On
In conjunction with the acquisition of
Contractual Obligations
Future contractual maturities of long-term debt, future contractual obligations
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
PPP note obligations $ 1,120 $ - $ 516 $ 604 $ -
Finance lease obligations 286 104 182 - -
Operating lease obligations 1,232 576 466 190 -
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Note payable 100 100 - - -
Warranty reserve obligations 41 41 - - -
Total $ 2,779 $ 821 $ 1,164 $ 794 $ -
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
Reserves on inventories
Reserves on inventories result in a charge to operations when the estimated net
realizable value declines below cost. Management regularly reviews the Company's
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 2021, the Company increased the inventory
reserves by
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.
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. At
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Other loss contingencies
Other loss contingencies are recorded as liabilities when it is probable that a liability has been incurred and the amount of the loss can reasonably be estimated. Disclosure is required when there is a reasonable possibility that the ultimate loss will exceed the recorded provision. Contingent liabilities are often resolved over long time periods. Estimating probable losses requires analysis of multiple factors that often depend on judgments about potential actions by third parties.
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 under
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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