Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
Fiscal Year
All references herein to 2013 and 2012 mean the fiscal years ended February 28, 2013 and February 29, 2012, respectively. Unless otherwise noted, these policies and
disclosures pertain to our continuing operations.
Nature of Business
Video Display Corporation and subsidiaries (the Company or we) is a world-class 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 (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 GAAP for SEC registrants. The FASB amends the FASB ASC
through Accounting Standards Updates (ASUs). We refer to ASCs and ASUs throughout these consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with 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 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, goodwill, and 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
As of February 28, 2013, the Company was not in compliance with the fixed charge coverage ratio, the senior funded debt to EBITDA ratio (which the Company believes is the most restrictive covenant)
and permitted share repurchases covenants as defined by the Banks credit line agreements. The breach of these covenants resulted in a default under our debt agreement and a current classification of the loans earlier in this fiscal year. This
default could prompt the lender to declare all amounts outstanding under the debt agreement to be immediately due and payable and terminate all commitments to extend further credit; however, the Banks have given no current indication of any
intention of calling the loans. If the debts were called and the Company was unable to repay those amounts, the lender could proceed against the collateral granted to secure that indebtedness. If the lender under the debt agreement accelerates the
repayment of the borrowings, there can be no assurance that the Company will have sufficient assets and funds to repay the borrowings under its debt agreements. Additionally, due to the activity generated by the chairmans remarks at the 2012
annual shareholder meeting concerning any potential mergers, spinoffs, sale of the Company as a whole or any other method (see 8-K); the Company put negotiations on hold with the current syndication of banks.
As the current syndication of banks has given no indication of calling the loans, management believes the most
appropriate plan of action is to continue to operate the Company, while exploring those options mentioned by the chairman above, and to continue to make timely and current payments under the debt agreements. Management has forecast this plan and
believes that in the absence of the current syndication calling the loans, it can operate in this manner. The Company believes conditions are improving throughout all the divisions and has seen significant activity in new quotes and business won.
Management, while operating as noted above, is exploring opportunities for potential mergers, spinoffs, sale
of the Company as a whole or other methods. In the absence of obtaining new funding and/or any potential mergers, spinoffs, sale of the Company as a whole or any other method, management believes continuing and newly generated business as well as
CEOs commitment to infuse additional capital, if needed, will sustain the Company going forward.
As the
debt is maturing on December 1, 2013 and classified a current, the need for refinancing exists. Therefore, the Company has resumed talks with other banks about refinancing the current debt under an agreement with less restrictive covenants and
borrowing base calculations. Management believes that a new debt agreement can be obtained by the end of the second quarter of fiscal 2014; however, there can be no assurance that an agreement can be reached that is reasonable to the Company or at
all.
On December 23, 2010, the Company and its subsidiaries executed a Credit Agreement with RBC Bank
and Community & Southern Bank (collectively, the Banks) to provide financing to the Company to replace the prior credit agreement with RBC Bank that terminated in conjunction with this Agreement. The current Agreement initially
provided for a line of credit of up to $17.5 million and two term loans of $3.5 million and $3.0 million. On March 5, 2012 PNC Bank replaced RBC Bank in our agreement having acquired the U.S. operations of RBC Bank.
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1
st
Amendment: On May 26, 2011, the Banks amended the Credit Agreement to reduce the revolver commitment to $15.0 million, restate the covenants to pertain to only continuing operations of the
Company and to adjust the targets for the senior funded debt to EBITDA covenant for the Companys quarters ending May 31, 2011 and August 31, 2011.
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2
nd
Amendment: On July 26, 2011, the Banks again amended the Credit Agreement to include a swing-line promissory note of $1.0 million that is included in the revised $15.0 million revolver
commitment.
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3
rd
Amendment: On September 1, 2011, the Banks amended the Credit Agreement to allow the Company to repurchase a limited amount of the Companys common stock, equal to ten percent of the
Companys net earnings after taxes, subject to meeting certain share repurchase conditions and revised the definition of the fixed charge coverage ratio and total liabilities to tangible net worth to exclude such
repurchases.
|
28
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4
th
Amendment: On January 17, 2012, the Banks amended the Credit Agreement to allow the Company to purchase a promissory note, dated July 23, 2010, held by Hetra Secure Solutions Corporation
on StingRay56.
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5
th
Amendment: On March 5, 2012, the Banks amended the Credit Agreement to allow the Company to acquire StingRay56, Inc.
|
The outstanding balance of the line of credit at February 28, 2013 was $9.9 million and the balances of the term
loans were $2.0 million and $2.6 million, respectively. These loans are secured by all assets and personal property of the Company and a limited guarantee of the Chief Executive Officer of $3.0 million. The $3.0 million term loan is secured by real
estate property of the Company and a building owned by Southeastern Metro Savings, LLC, a company in which the Companys Chief Executive Officer is a minority officer. The building will continue to be in the collateral pool until such time as
the note is sufficiently paid down or it is replaced by other collateral.
The agreement contains three
covenants, as amended: a fixed charge coverage ratio, ratio of senior funded debt to earnings before interest, taxes, depreciation and amortization (EBITDA), and total liabilities to tangible net worth. The agreement also includes restrictions on
the incurrence of additional debt or liens, investments (including Company stock, as amended), divestitures and certain other changes in the business. The Agreement expires on December 1, 2013. The interest rate on these loans is a floating
LIBOR rate based on a fixed charge coverage ratio, minimum 4.0%, as defined in the loan documents.
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. The Company offers one-year and two-year limited warranties on certain products. 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.
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 income. Shipping and handling costs incurred are classified in selling and delivery in the consolidated
statements of income. Shipping costs of $0.3 million and $0.4 million were included in the fiscal years ended 2013 and 2012, respectively.
A portion of the Companys revenue is derived from contracts to manufacture video displays 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.
The Company utilizes the percentage of completion method as contemplated by this ASC to recognize revenue on all contracts to design, develop,
manufacture, or modify complex electronic equipment to a buyers specification. Percentage of completion is measured using the ratio of costs incurred to estimated total costs at completion. Any losses identified on contracts are recognized
immediately.
29
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 $0.9 million and $0.9 million in the fiscal years ended 2013 and 2012, respectively.
Financial Instruments
Fair values of cash, accounts
receivable, short-term liabilities, and debt approximate cost due to the short period of time to maturity. Recorded amounts of long-term debt and convertible debentures 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.
The following is a roll-forward of the
Allowance for Doubtful Accounts (in thousands):
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|
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|
|
Description
|
|
Balance at
Beginning
of Period
|
|
|
Additions:
Charged to
Costs and
Expenses
|
|
|
Deductions
|
|
|
Balance at
End of
Period
|
|
February 28, 2013
|
|
$
|
176
|
|
|
$
|
83
|
|
|
$
|
199
|
|
|
$
|
60
|
|
February 29, 2012
|
|
|
134
|
|
|
|
232
|
|
|
|
190
|
|
|
|
176
|
|
Warranty Reserves
The warranty reserve is determined by recording a specific reserve for known warranty issues and a general reserve based
on historical 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 change in the future.
Inventories
Inventories consist primarily of flat panel
displays, CRTs, electron guns, monitors, 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. Management considers the projected demand for its products in this estimate of net realizable value.
Management is able to forecast the usage of its products from buying trends of its customers and the open sales orders from customers. Thus, the Company is able to adjust inventory-stocking levels according to the projected demand. Management
reviews inventory levels on a quarterly basis. Such reviews include observations of product development trends of the Original Equipment Manufacturers (OEMs), new products being marketed, and technological advances relative to the product
capabilities of the Companys existing inventories. There have been no significant changes in managements estimates in fiscal 2013 and 2012; however, the Company cannot guarantee the accuracy of future forecasts since these estimates are
subject to change based on market conditions.
30
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 $0.8 million for the fiscal years ended
2013 and 2012. Substantial betterments to property, plant, and equipment are capitalized and 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.
Goodwill and Other Intangibles
Goodwill and non-amortizable intangible assets are assessed yearly for qualitative factors to determine if
an impairment event is likely to have occurred unless events or circumstances exist that would require an assessment in the interim. Using the revised guidance in FASB ASU 2011-08, the Company uses a qualitative approach to determine whether it is
more likely than not that the fair value of a reporting unit is less than its carrying value. If it is more likely, the Company, in order to estimate the fair value of goodwill and non-amortizable intangible assets estimates future revenue,
considers market factors, and estimates our future cash flows. Based on these key assumptions, judgments and estimates, we determine whether we need to record an impairment charge to reduce the value of the assets carried on our balance sheet to
their estimated fair value. Assumptions, judgments, and estimates about future values are complex and often subjective. They can be affected by a variety of factors, including external factors, such as industry and economic trends, and internal
factors, such as changes in our business strategy or our forecast. Although we believe the assumptions, judgments and estimates we have made are reasonable and appropriate, different assumptions, judgments and estimates could materially affect our
reported consolidated financial results. As a result of such testing in February 2013 and 2012, the Company determined there was no impairment of goodwill.
Amortizable intangible assets consist primarily of customer lists and non-competition agreements related to acquisitions. Intangible assets are amortized using the straight-line method over their
estimated period of benefit. The Company identifies and records impairment losses on intangible assets when events and circumstances indicate that such assets might be impaired. No impairment of intangible assets has been identified during either of
the periods presented.
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, 2013 and
February 29, 2012, the Company recognized general and administrative expense of $9.5 thousand and $23.5 thousand, respectively, related to share-based compensation. 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, 2013, total unrecognized compensation costs related to stock options and shares of restricted stock granted was $3.7 thousand. The unrecognized share based
compensation cost is expected to be recognized ratably over a period of approximately one year.
On
September 3, 2010, the Company awarded employees restricted stock in recognition of their willingness to forego a portion of their salary during the past year. The restricted stock vests 25% at the end of each quarter and was fully vested at
the end of one year. The Company recognized $164,979 of general and administrative expenses related to the awards for the year ending February 29, 2012.
31
Stock Repurchase Program
The Company has a stock repurchase program, pursuant to which it was originally authorized to repurchase up to 1,632,500
shares of the Companys common stock in the open market. On July 8, 2009, 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 1,000,000
additional shares of the Companys 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 the fiscal year ended February 28, 2013, the Company
repurchased 22,031 shares at an average price of $4.10 per share, which were added to treasury shares on the consolidated balance sheet. Under this program, an additional 705,106 shares remain authorized to be repurchased by the Company at
February 28, 2013. As discussed in Note 5, the Loan and Security Agreement executed by Company on December 23, 2010 included restrictions on investments that restricted further repurchases of stock under this program. On September 1,
2011, the Agreement was amended to allow the Company to repurchase a limited amount of the Companys common stock, equal to ten percent of the Companys net earnings after taxes subject to meeting certain share repurchase conditions.
Taxes on Income
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 no valuation allowance is needed. 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.
The Company accounts for uncertain tax positions under the guidance in FASB ASC Topic 740-10-25-6,
Income Tax: Basic Recognition Threshold,
which prescribes the accounting for uncertainty in income taxes recognized in the Companys consolidated financial statements. This guidance requires that a position taken or expected
to be taken in a tax return be 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, 2013, and February 29, 2012, the Company did not have any material
unrecognized tax benefits.
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 upon the adoption of FASB ASC Topic 740-10-25 and, as of February 28, 2013 and
February 29, 2012, the Company did not have any interest and penalties accrued related to unrecognized tax benefits.
The Companys tax years ended February 28, 2012, 2011, and 2010 remain open to examination by the Internal Revenue Service (IRS).
Earnings per Share
Basic earnings per share is computed by dividing income 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.
32
The following is a reconciliation of basic earnings per share to diluted
earnings per share for 2013 and 2012, (in thousands, except for per share data):
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|
|
|
|
|
|
|
|
|
Net Income
(loss)
|
|
|
Average Shares
Outstanding
|
|
|
Net Income Per
Share
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
8
|
|
|
|
7,570
|
|
|
$
|
0.00
|
|
Effect of dilution:
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|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
|
|
|
|
53
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
8
|
|
|
|
7,623
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
3,577
|
|
|
|
7,612
|
|
|
$
|
0.47
|
|
Effect of dilution:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
|
|
|
|
190
|
|
|
|
(.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
3,577
|
|
|
|
7,802
|
|
|
$
|
0.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options, debentures, and other liabilities convertible into 37,000 and 11,000
shares, respectively, of the Companys common stock were anti-dilutive and, therefore, were excluded from the fiscal 2013 and 2012 diluted earnings 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. The Monitor and Data Display
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 9% of consolidated net sales for fiscal
2013 and 2012.
Recent Accounting Pronouncements
There are no recent accounting pronouncements that are expected to have a material effect on our consolidated financials.
Note 2. Costs and Estimated Earnings Related to Billings on Uncompleted Contracts
Information relative to contracts in progress consisted of the following (in thousands):
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|
|
|
|
|
|
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2013
|
|
|
2012
|
|
Costs incurred to date on uncompleted contracts
|
|
$
|
3,900
|
|
|
$
|
7,499
|
|
Estimated earnings recognized to date on these contracts
|
|
|
2,032
|
|
|
|
4,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,932
|
|
|
|
11,872
|
|
Billings to date
|
|
|
(3,748
|
)
|
|
|
(8,978
|
)
|
|
|
|
|
|
|
|
|
|
Costs and estimated earnings in excess of billings, net
|
|
$
|
2,184
|
|
|
$
|
2,894
|
|
|
|
|
|
|
|
|
|
|
Costs and estimated earnings in excess of billings
|
|
$
|
2,353
|
|
|
$
|
3,236
|
|
Billings in excess of costs and estimated earnings
|
|
|
(169
|
)
|
|
|
(342
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,184
|
|
|
$
|
2,894
|
|
|
|
|
|
|
|
|
|
|
33
Costs and estimated earnings in excess of billings 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. The effect of changes in the estimated profitability of contracts for fiscal 2013 was to increase net earnings by approximately $0.5 million pre-tax and $0.3 million after tax above the amounts that
would have been reported had the preceding year contract profitability estimates been used. The effect of changes in the estimated profitability of contracts for fiscal 2012 was to increase net earnings by approximately $0.6 million pre-tax and $0.4
million after tax below the amounts that would have been reported had the preceding year contract profitability estimates been used.
As of February 28, 2013 and February 29, 2012, 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, 2013 and February 29, 2012, there were no progress payments that had been netted against inventory.
Note 3. Intangible Assets
Intangible assets consist primarily of the unamortized value of purchased patents/designs, customer
lists, non-compete agreements and miscellaneous other intangible assets. Intangible assets are amortized over the period of their expected lives, generally ranging from five to 15 years. Amortization expense related to intangible assets was $238
thousand and $283 thousand for fiscal 2013 and 2012, respectively. As of February 28, 2013 and February 29, 2012, the cost and accumulated amortization of intangible assets was as follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 28, 2013
|
|
|
February 29, 2012
|
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
Customer lists
|
|
$
|
3,611
|
|
|
$
|
2,818
|
|
|
$
|
3,611
|
|
|
$
|
2,701
|
|
Non-compete agreements
|
|
|
1,245
|
|
|
|
1,245
|
|
|
|
1,245
|
|
|
|
1,245
|
|
Patents/designs
|
|
|
777
|
|
|
|
713
|
|
|
|
777
|
|
|
|
692
|
|
Other intangibles
|
|
|
649
|
|
|
|
523
|
|
|
|
649
|
|
|
|
423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,282
|
|
|
$
|
5,299
|
|
|
$
|
6,282
|
|
|
$
|
5,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected amortization expense for the next five years and thereafter is as follows (in
thousands):
|
|
|
|
|
Year
|
|
Amortization Expense
|
|
2014
|
|
$
|
238
|
|
2015
|
|
$
|
163
|
|
2016
|
|
$
|
130
|
|
2017
|
|
$
|
120
|
|
2018
|
|
$
|
120
|
|
Thereafter
|
|
$
|
212
|
|
34
Note 4. Inventories
Inventories consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2013
|
|
|
2012
|
|
Raw materials
|
|
$
|
19,353
|
|
|
$
|
19,106
|
|
Work-in-process
|
|
|
7,423
|
|
|
|
6,853
|
|
Finished goods
|
|
|
7,742
|
|
|
|
7,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,518
|
|
|
|
32,986
|
|
Reserves for obsolescence
|
|
|
(3,028
|
)
|
|
|
(3,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
31,490
|
|
|
$
|
29,736
|
|
|
|
|
|
|
|
|
|
|
During fiscal 2013, the Company disposed of inventories of $2.7 million of which $1.4
million was previously allowed for through inclusion in the inventory reserve. During fiscal 2012, the Company disposed of inventories of $4.6 million of which $4.1 million was previously reserved and accrued in conjunction with the Clinton
settlement.
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, 2013
|
|
$
|
3,250
|
|
|
$
|
2,493
|
|
|
$
|
2,715
|
|
|
$
|
3,028
|
|
February 29, 2012
|
|
|
4,914
|
|
|
|
1,678
|
|
|
|
3,342
|
|
|
|
3,250
|
|
Note 5. Lines of Credit and Long-Term Debt
On December 23, 2010, the Company and its subsidiaries executed a Credit Agreement with RBC Bank
and Community & Southern Bank (collectively, the Banks) to provide financing to the Company to replace the prior credit agreement with RBC Bank that terminated in conjunction with this Agreement. The current Agreement initially
provided for a line of credit of up to $17.5 million and two term loans of $3.5 million and $3.0 million. On March 5, 2012 PNC Bank replaced RBC Bank in our agreement having acquired the U.S. operations of RBC Bank.
|
|
|
1
st
Amendment: On May 26, 2011, the Banks amended the Credit Agreement to reduce the revolver commitment to $15.0 million, restate the covenants to pertain to only continuing operations of the
Company and to adjust the targets for the senior funded debt to EBITDA covenant for the Companys quarters ending May 31, 2011 and August 31, 2011.
|
|
|
|
2
nd
Amendment: On July 26, 2011, the Banks again amended the Credit Agreement to include a swing-line promissory note of $1.0 million that is included in the revised $15.0 million revolver
commitment.
|
|
|
|
3
rd
Amendment: On September 1, 2011, the Banks amended the Credit Agreement to allow the Company to repurchase a limited amount of the Companys common stock, equal to ten percent of the
Companys net earnings after taxes, subject to meeting certain share repurchase conditions and revised the definition of the fixed charge coverage ratio and total liabilities to tangible net worth to exclude such
repurchases.
|
|
|
|
4
th
Amendment: On January 17, 2012, the Banks amended the Credit Agreement to allow the Company to purchase a promissory note, dated July 23, 2010, held by Hetra Secure Solutions Corporation
on StingRay56.
|
|
|
|
5
th
Amendment: On March 5, 2012, the Banks amended the Credit Agreement to allow the Company to acquire StingRay56, Inc.
|
The outstanding balance of the line of credit at February 28, 2013 was $9.9 million and the balances of the term
loans were $2.0 million and $2.6 million, respectively. These loans are secured by all assets and personal property of the Company and a limited guarantee of the Chief Executive Officer of $3.0 million. The $3.0 million term loan is secured by real
estate property of the Company and a building owned by Southeastern Metro Savings, LLC, a company in which the Companys Chief Executive Officer is a minority officer. The building will continue to be in the collateral pool until such time as
the note is sufficiently paid down or it is replaced by other collateral.
35
The agreement contains three covenants, as amended: a fixed charge coverage
ratio, ratio of senior funded debt to earnings before interest, taxes, depreciation and amortization (EBITDA), and total liabilities to tangible net worth. The agreement also includes restrictions on the incurrence of additional debt or liens,
investments (including Company stock, as amended), divestitures and certain other changes in the business. The Agreement expires on December 1, 2013. The interest rate on these loans is a floating LIBOR rate based on a fixed charge coverage
ratio, minimum 4.0%, as defined in the loan documents.
As of February 28, 2013, the Company was not in
compliance with the fixed charge coverage ratio, the senior funded debt to EBITDA ratio (which the Company believes is the most restrictive covenant) and permitted share repurchases covenants as defined by the Banks credit line agreements. The
breach of these covenants resulted in a default under our debt agreement and a current classification of the loans earlier in this fiscal year. This default could prompt the lender to declare all amounts outstanding under the debt agreement to be
immediately due and payable and terminate all commitments to extend further credit; however, the Banks have given no current indication of any intention of calling the loans. If the debts were called and the Company was unable to repay those
amounts, the lender could proceed against the collateral granted to secure that indebtedness. If the lender under the debt agreement accelerates the repayment of the borrowings, there can be no assurance that the Company will have sufficient assets
and funds to repay the borrowings under its debt agreements. Additionally, due to the activity generated by the chairmans remarks at the 2012 annual shareholder meeting concerning any potential mergers, spinoffs, sale of the Company as a whole
or any other method (see 8-K), the Company put negotiations on hold with the current syndication of banks.
Long-term debt
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2013
|
|
|
2012
|
|
Note payable to PNC Bank and Community & Southern Bank; interest rate at LIBOR plus applicable margin as
defined per the loan agreement, minimum 4.00%, default rate 9% (the Company is in breach of covenants; therefore, 9% rate applied.) Monthly principal payments of $58 plus accrued interest, payable through December 2013 with an extension to December
2015 with a renewal of the credit agreement in December 2013; collateralized by all assets of the Company.
|
|
|
1,983
|
|
|
|
2,683
|
|
Note payable to PNC Bank and Community & Southern Bank; interest rate at LIBOR plus applicable margin as
defined per the loan agreement, minimum 4.00%, default rate 9% (the Company is in breach of covenants; therefore, 9% rate applied.) Monthly principal payments of $17 plus accrued interest, payable through December 2013 with an extension to December
2025 with a renewal of the credit agreement in December 2013; collateralized by three properties of the Company and one property owned by the Chief Executive Officer.
|
|
|
2,567
|
|
|
|
2,767
|
|
Mortgage payable to bank; interest rate at Community Banks Base rate plus 0.5% (3.75% as of February 28,
2013); monthly principal and interest payments of $5 payable through October 2021; collateralized by land and building of Teltron Technologies, Inc.
|
|
|
327
|
|
|
|
373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,877
|
|
|
|
5,823
|
|
Less current maturities
|
|
|
(4,596
|
)
|
|
|
(945
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
281
|
|
|
$
|
4,878
|
|
|
|
|
|
|
|
|
|
|
36
Future maturities of lines of credit and long-term debt are as follows (in
thousands):
|
|
|
|
|
Year
|
|
Amount
|
|
2014
|
|
$
|
15,037
|
|
2015
|
|
|
48
|
|
2016
|
|
|
50
|
|
2017
|
|
|
52
|
|
2018
|
|
|
54
|
|
Thereafter
|
|
|
77
|
|
|
|
|
|
|
|
|
$
|
15,318
|
|
|
|
|
|
|
Note 6. Notes Payable to Officers and Directors
In conjunction with an agreement involving re-financing of the Companys lines of credit and Loan
and Security Agreement, on June 29, 2006 the Companys CEO provided a $6.0 million subordinated term note to the Company with monthly principal payments of $33.3 thousand plus interest through July 2021. The interest rate on this note is
equal to the prime rate plus one percent. The note was secured by a general lien on all assets of the Company, subordinate to the lien held by the Banks. The Company repaid the remaining balance outstanding under this loan agreement on
November 28, 2011 with consent from the Banks. The payoff was approximately $1.0 million. Interest payments of $86.4 thousand were paid on this note in fiscal 2012.
The Company borrowed $0.5 million from the Companys CEO in January 2013 with an interest rate of eight percent.
This was borrowed on a short term basis and the Company expects to repay the funds within the first quarter of the new fiscal year with bank approval.
Note 7. Accrued Expenses and Warranty Obligations
The following provides a reconciliation of changes in the Companys warranty reserve for fiscal
years 2013 and 2012. The Company provides no other guarantees.
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
Balance at beginning of year
|
|
$
|
151
|
|
|
$
|
216
|
|
Provision for current year sales
|
|
|
541
|
|
|
|
190
|
|
Warranty costs incurred
|
|
|
(472
|
)
|
|
|
(255
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
220
|
|
|
$
|
151
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
February 28,
2013
|
|
|
February 29,
2012
|
|
Accrued compensation and benefits
|
|
$
|
980
|
|
|
$
|
1,052
|
|
Accrued liability to issue stock
|
|
|
168
|
|
|
|
|
|
Accrued warranty
|
|
|
220
|
|
|
|
151
|
|
Accrued customer advances
|
|
|
551
|
|
|
|
78
|
|
Accrued other
|
|
|
362
|
|
|
|
664
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,281
|
|
|
$
|
1,945
|
|
|
|
|
|
|
|
|
|
|
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 five years from the date the participant has the vested right to exercise the option, or seven years from the date of the
37
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, and must include two or more outside, independent 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, 2011
|
|
|
96
|
|
|
$
|
5.05
|
|
Granted
|
|
|
9
|
|
|
|
3.65
|
|
Forfeited or expired
|
|
|
(46
|
)
|
|
|
3.42
|
|
|
|
|
|
|
|
|
|
|
Outstanding at February 29, 2012
|
|
|
59
|
|
|
$
|
4.46
|
|
Granted
|
|
|
9
|
|
|
|
4.00
|
|
Forfeited or expired
|
|
|
(6
|
)
|
|
|
3.27
|
|
|
|
|
|
|
|
|
|
|
Outstanding at February 28, 2013
|
|
|
62
|
|
|
$
|
4.50
|
|
Options exercisable
|
|
|
|
|
|
|
|
|
February 29, 2012
|
|
|
33
|
|
|
$
|
4.98
|
|
February 28, 2013
|
|
|
44
|
|
|
|
4.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range
of Exercise Prices
|
|
Number
Outstanding
at
February 28, 2013
(in thousands)
|
|
|
Weighted
Average
Remaining
Contractual Life
(in
years)
|
|
|
Weighted
Average
Exercise Price
|
|
|
Number
Exercisable
at
February 28, 2013
(in thousands)
|
|
|
Weighted
Average
Exercise Price
|
|
$3.20 - 3.27
|
|
|
7
|
|
|
|
5.3
|
|
|
$
|
3.20
|
|
|
|
7
|
|
|
$
|
3.20
|
|
3.59 - 3.65
|
|
|
18
|
|
|
|
5.0
|
|
|
|
3.62
|
|
|
|
9
|
|
|
|
3.65
|
|
4.00 - 4.20
|
|
|
26
|
|
|
|
4.3
|
|
|
|
4.13
|
|
|
|
17
|
|
|
|
4.19
|
|
7.65 - 7.71
|
|
|
11
|
|
|
|
3.9
|
|
|
|
7.68
|
|
|
|
11
|
|
|
|
7.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
|
|
|
|
5.2
|
|
|
$
|
4.50
|
|
|
|
44
|
|
|
$
|
4.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
On September 3, 2010, the Company awarded employees restricted stock in recognition of their willingness to forego a
portion of their salary during the past year. The restricted stock vests 25% at the end of each quarter and will be fully vested at the end of one year. The Company recognized $0 and $164,979 of general and administrative expenses related to the
awards for years ending February 28, 2013 and February 29, 2012, respectively.
38
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,
|
|
|
|
2013
|
|
|
2012
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(2
|
)
|
|
$
|
484
|
|
State
|
|
|
145
|
|
|
|
391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
143
|
|
|
|
875
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(217
|
)
|
|
|
781
|
|
State
|
|
|
(77
|
)
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(294
|
)
|
|
|
898
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(151
|
)
|
|
$
|
1,773
|
|
|
|
|
|
|
|
|
|
|
Income before provision for taxes consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2013
|
|
|
2012
|
|
U.S. operations
|
|
$
|
(143
|
)
|
|
$
|
5,350
|
|
Foreign operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(143
|
)
|
|
$
|
5,350
|
|
|
|
|
|
|
|
|
|
|
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,
2013
|
|
|
February 29,
2012
|
|
Statutory U.S. federal income tax rate
|
|
$
|
(49
|
)
|
|
$
|
1,819
|
|
State income taxes, net of federal benefit
|
|
|
(6
|
)
|
|
|
212
|
|
Research and experimentation credits
|
|
|
(82
|
)
|
|
|
(128
|
)
|
Deferred tax rate change
|
|
|
|
|
|
|
|
|
Non-deductible expenses
|
|
|
19
|
|
|
|
14
|
|
Domestic production activities deduction
|
|
|
(38
|
)
|
|
|
(145
|
)
|
Other
|
|
|
5
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Taxes at effective income tax rate
|
|
$
|
(151
|
)
|
|
$
|
1,773
|
|
|
|
|
|
|
|
|
|
|
The effective tax rate for fiscal 2013 was a negative 105% compared to 33.1% for fiscal
2012. The lower effective rate in 2013 compared to the effective rate in 2012 was primarily due to research and experimentation credits, the domestic production activities deduction and various other permanent items.
Deferred income taxes as of February 28, 2013 and February 29, 2012 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 carry forwards.
39
The sources of the temporary differences and carry forwards, and their
effect on the net deferred tax asset consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2013
|
|
|
2012
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Uniform capitalization costs
|
|
$
|
586
|
|
|
$
|
410
|
|
Inventory reserves
|
|
|
1,120
|
|
|
|
1,203
|
|
Accrued liabilities
|
|
|
500
|
|
|
|
465
|
|
Allowance for doubtful accounts
|
|
|
22
|
|
|
|
65
|
|
Amortization of intangibles
|
|
|
720
|
|
|
|
624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,948
|
|
|
|
2,767
|
|
State net operating loss carry-forward
|
|
|
165
|
|
|
|
106
|
|
Foreign tax credit carry-forward
|
|
|
99
|
|
|
|
99
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Basis difference of property, plant and equipment
|
|
|
(299
|
)
|
|
|
(329
|
)
|
Other
|
|
|
(35
|
)
|
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
2,878
|
|
|
$
|
2,584
|
|
|
|
|
|
|
|
|
|
|
Current asset
Non-current asset
|
|
$
|
2,219
659
|
|
|
$
|
1,936
648
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,878
|
|
|
$
|
2,584
|
|
|
|
|
|
|
|
|
|
|
Undistributed earnings of the Companys foreign subsidiary have been considered to
be indefinitely reinvested and, accordingly, no provision for U.S. federal and state income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income
taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the foreign country. The Company closed the foreign subsidiary and has determined the tax liability to be immaterial.
Note 10. Benefit Plan
The Company maintains defined contribution plans that are available to all U.S. employees. The Company
made a contribution in the fiscal year ended 2013 of $75,000 and did not make a contribution in fiscal 2012 for 401(k) matching contributions.
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 2018. 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 $1.3 million in fiscal 2013 and 2012, respectively.
Future minimum rental payments due under these leases are as follows (in thousands):
|
|
|
|
|
Fiscal Year
|
|
Amount
|
|
2014
|
|
$
|
1,313
|
|
2015
|
|
|
884
|
|
2016
|
|
|
373
|
|
2017
|
|
|
321
|
|
2018
|
|
|
314
|
|
Thereafter
|
|
|
159
|
|
|
|
|
|
|
|
|
$
|
3,364
|
|
|
|
|
|
|
40
Related Party Leases
Included above are leases for manufacturing and warehouse facilities leased from the Companys Chief Executive
Officer under operating leases expiring at various dates through 2018. Rent expense under these leases totaled approximately $314 thousand in fiscal 2013 and 2012.
Future minimum rental payments due under these leases with related parties are as follows (in thousands):
|
|
|
|
|
Fiscal Year
|
|
Amount
|
|
2014
|
|
$
|
314
|
|
2015
|
|
|
314
|
|
2016
|
|
|
314
|
|
2017
|
|
|
314
|
|
2018
|
|
|
314
|
|
Thereafter
|
|
|
160
|
|
|
|
|
|
|
|
|
$
|
1,730
|
|
|
|
|
|
|
Legal Proceedings
The Company is involved in various legal proceedings relating to claims arising in the ordinary course of business.
During 2007, the Company acquired the Cathode Ray Tube Manufacturing and Distribution Business and certain
other assets of Clinton Electronics Corp. (Clinton), including inventory, fixed assets, for a total purchase price of $2,550,000, pursuant to an Asset Purchase Agreement between the parties (the APA). The form of
consideration for the assets acquired included: (i) a $1.0 million face value Convertible Note; (ii) an agreement to deliver a stock certificate representing Company Common Shares having $1,125,000 in market value of the
Companys common stock in January of 2008; and (iii) an agreement to deliver a stock certificate representing Company Common Shares having $500,000 in market value of the Companys common stock in January of 2009. The Company had paid
the $1.0 million Note Payable in January 2008. The Company disputed certain representations made by Clinton in the APA including, but not limited to, representations concerning revenue, expenses, and inventory. As a result of this dispute, the
Company did not issue the stock certificates scheduled for delivery January of 2008 and January of 2009. As such, the Company had accrued a potential liability of $1,625,000 and this accrued liability was reflected in the Companys Balance
Sheet until the settlement was reached.
On August 24, 2011, the Company and the Clinton Electronics
Corporation signed a settlement agreement ending the dispute involving the purchase of certain assets by the Company, pursuant to an Asset Purchase Agreement between the two companies. Prior to the negotiated settlement, the companies had agreed to
arbitrate the dispute.
The terms of the settlement were not disclosed. There was no effect to the income
statement due to the settlement. The previously accrued liability covered the settlement and the write off of disputed inventory from the original agreement. The settlement did 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 and accounts receivable. 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 37% and 42% of consolidated net sales in
fiscal 2013 and 2012, respectively. Sales to foreign customers were 9% of consolidated net sales in fiscal 2013 and 2012. The Company had one customer who comprised more than 10% of the Companys sales in FY 2013, Lockheed Martin (14.8%). The
account is in good standing with the Company.
41
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,
|
|
|
|
2013
|
|
|
2012
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
722
|
|
|
$
|
815
|
|
|
|
|
|
|
|
|
|
|
Income taxes, net of refunds
|
|
$
|
(119
|
)
|
|
$
|
785
|
|
|
|
|
|
|
|
|
|
|
Non-cash activity:
|
|
|
|
|
|
|
|
|
Reduction of note receivable for
|
|
|
|
|
|
|
|
|
Acquisition of StingRay56
|
|
$
|
250
|
|
|
$
|
|
|
Receipt of note receivable in conjunction with the sale of the Chroma property
|
|
$
|
690
|
|
|
$
|
|
|
Receipt of treasury stock in conjunction with the sale of Fox International, Ltd.
|
|
$
|
|
|
|
$
|
3,272
|
|
|
|
|
|
|
|
|
|
|
Reduction of notes payable to officers and directors in conjunction with the sale of Fox International,
Ltd.
|
|
$
|
|
|
|
$
|
199
|
|
|
|
|
|
|
|
|
|
|
Note 14. Selected Quarterly Financial Data (unaudited)
The following table sets forth selected quarterly consolidated financial data for the fiscal years
ended February 28, 2013 and February 29, 2012, respectively. The summation of quarterly net income per share may not agree with annual net income per share due to rounding. Excludes discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
|
(in thousands, except per share amounts)
|
|
Net Sales
|
|
$
|
12,560
|
|
|
$
|
12,379
|
|
|
$
|
12,613
|
|
|
$
|
11,551
|
|
Gross profit
|
|
|
3,610
|
|
|
|
3,502
|
|
|
|
3,282
|
|
|
|
2,520
|
|
Net income (loss)
|
|
|
159
|
|
|
|
143
|
|
|
|
148
|
|
|
|
(442
|
)
|
Basic net income (loss) per share
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
$
|
(0.06
|
)
|
Diluted net income (loss) per share
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
|
(in thousands, except per share amounts)
|
|
Net Sales
|
|
$
|
17,025
|
|
|
$
|
16,541
|
|
|
$
|
16,036
|
|
|
$
|
14,629
|
|
Gross profit
|
|
|
5,330
|
|
|
|
5,214
|
|
|
|
5,370
|
|
|
|
4,031
|
|
Net income
|
|
|
1,238
|
|
|
|
1,001
|
|
|
|
1,258
|
|
|
|
80
|
|
Basic net income per share
|
|
$
|
0.16
|
|
|
$
|
0.13
|
|
|
$
|
0.17
|
|
|
$
|
0.01
|
|
Diluted net income per share
|
|
$
|
0.15
|
|
|
$
|
0.13
|
|
|
$
|
0.17
|
|
|
$
|
0.01
|
|
42
Note 15. Gain on Sale of Property, Plant and Equipment
On July 5, 2012 the Company sold its property at 8-18 Riverside Drive in White Mills, PA for $750
thousand. The Company received a $60 thousand down payment and financed the remaining $690 thousand on a ten-year note at an 8% interest rate. The Company is accounting for the sale on the installment method. The total gain on the sale is
approximately $602 thousand. The Company recognized approximately $48 thousand of the gain at the time of the sale and the remaining gain of approximately $554 thousand will be recognized as payments are received.
Note 16. Subsequent Events
None.