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 2014 and 2013 mean the fiscal years ended February 28, 2014 and 2013,
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 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 (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 GAAP for SEC registrants. The FASB amends the FASB ASC through Accounting Standards Updates
(ASUs). ASCs and ASUs are referred to throughout these consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Examples
include provisions for returns, warranty reserves, bad debts, inventory reserves, valuations on deferred income tax assets, other intangible assets, accounting for percentage of completion contracts and the length of product life cycles and fixed
asset lives. Actual results could vary from these estimates.
Banking and Liquidity
In fiscal 2014, with the sale of the Companys Aydin Displays, Inc and Z-Axis, Inc. subsidiaries, the Company repaid all
remaining bank debt, which included a line of credit and two term loans. At February 28, 2013 the outstanding balance of the line of credit was $9.9 million; the outstanding balances of the term loans were $2.0 million and $2.6 million.
Currently, the only remaining debt of the Company is $0.3 million it owes on a building owned by its subsidiary, Teltron Technologies, Inc. in Birdsboro, PA.
The Company is currently operating using cash from operations and investing activities. The Company has a $20.8 million
working capital balance at February 28, 2014, including $8.4 million in liquid assets.
The Company believes it can
continue to operate the Company with existing cash flows for the current level of business. The Company is in negotiations for a new banking partner that can work with the Company on its current needs and will be there as opportunities present
themselves.
24
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 $0.1
million and $0.1 million were included in the fiscal years ended 2014 and 2013, 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.
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 $0.3 million in the fiscal years ended 2014 and 2013.
Cash
and Cash Equivalents and Investments
All highly liquid investments with a maturity date of three months or less at the
date of purchase are considered to be cash equivalents. Investment securities that are bought and held principally for the purpose of selling them in the near term are classified as trading and principally consist of equity securities
and mutual funds. These trading investments are carried at fair value with realized gains or losses and changes in fair value included in operations. Unrealized gains and losses approximated $78 thousand in 2014.
Fair Value Measurements and Financial Instruments
The 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:
|
|
|
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.
|
25
Assets measured at fair value on a recurring basis by the Company consist of
investment securities held for trading using Level 1 inputs.
The Companys financial instruments which are not
measured at fair value on the consolidated balance sheets include cash, accounts receivable, short-term liabilities, and debt. The estimated fair value of these financial instruments were determined using Level 2 inputs and approximate cost due
to the short period of time to maturity. Recorded amounts of long-term debt are considered to approximate fair value due to either rates that fluctuate with the market or are otherwise commensurate with the current market.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are customer obligations due under normal trade terms. The Company sells its products primarily to general
contractors, government agencies, manufacturers, and consumers of video displays and CRTs. Management performs continuing credit evaluations of its customers financial condition and although the Company generally does not require collateral,
letters of credit may be required from its customers in certain circumstances, such as foreign sales. The allowance for doubtful accounts is determined by reviewing all accounts receivable and applying credit loss experience to the current
receivable portfolio with consideration given to the current condition of the economy, assessment of the financial position of the creditors as well as payment history and overall trends in past due accounts compared to established thresholds. The
Company monitors credit exposure and assesses the adequacy of the allowance for doubtful accounts on a regular basis. Historically, the Companys allowance has been sufficient for any customer write-offs. Management believes accounts receivable
are stated at amounts expected to be collected.
26
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, 2014
|
|
$
|
21
|
|
|
$
|
30
|
|
|
$
|
11
|
|
|
$
|
40
|
|
February 28, 2013
|
|
|
64
|
|
|
|
(34
|
)
|
|
|
9
|
|
|
|
21
|
|
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 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. 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. Management believes that due to rapid
changes in display technology much of the CRT inventory has become obsolete. The Company wrote-off an additional $1.8 million in CRT inventory during the current fiscal year to bring in line with its estimates of the value of the inventory. There
have been no other significant changes in managements estimates in fiscal 2014 and 2013; however, the Company cannot guarantee the accuracy of future forecasts since these estimates are subject to change based on market conditions.
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 $268 thousand for the fiscal years ended
2014 and 2013. 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.
Intangibles
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.
27
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, 2014 and 2013, 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, 2014, total unrecognized compensation costs related to stock options and shares of restricted stock granted was $8.7 thousand. The amount of unrecognized share based compensation cost is expected to be recognized ratably over
a period of approximately one year.
Stock Repurchase Program
The Company has a stock repurchase program, pursuant to which it had been authorized to repurchase up to 2,632,500 shares of
the Companys common stock in the open market. On January 20, 2014 the Board of Directors of the Company approved a one time continuation of the stock repurchase program, and authorized the Company to repurchase up to 1,500,000 additional
shares of the Companys common stock in the open market. There is no minimum number of shares required to be repurchased under the program. During the fiscal year ended February 28, 2014, the Company repurchased 572,597 shares at an
average price of $3.78 per share and 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 1,632,509 shares remain authorized to be repurchased by the Company at February 28, 2014.
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.
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, 2014 and 2013, 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 as of February 28, 2014 and 2013.
The Companys tax years ended February 28, 2013, 2012, and 2011 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.
28
The following is a reconciliation of basic earnings (loss) per share to diluted
earnings (loss) per share for 2014 and 2013, (in thousands, except for per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
(loss)
|
|
|
Average Shares
Outstanding
|
|
|
Net
Income(loss) Per
Share
|
|
|
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic-continuing operations
|
|
$
|
(5,460
|
)
|
|
|
7,557
|
|
|
$
|
(0.72
|
)
|
Basic-discontinued operations
|
|
|
2,779
|
|
|
|
7,557
|
|
|
|
0.37
|
|
Effect of dilution:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
|
|
|
|
25
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
(2,681
|
)
|
|
|
7,582
|
|
|
$
|
(0.35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic-continuing operations
|
|
$
|
(2,482
|
)
|
|
|
7,570
|
|
|
$
|
(0.33
|
)
|
Basic-discontinued operations
|
|
|
2,490
|
|
|
|
7,570
|
|
|
|
0.33
|
|
Effect of dilution:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
|
|
|
|
53
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
8
|
|
|
|
7,623
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options, debentures, and other liabilities convertible into 38,000 and 37,000 shares,
respectively, of the Companys common stock were anti-dilutive and, therefore, were excluded from the fiscal 2014 and 2013 diluted earnings (loss) per share calculation.
Segment Reporting
The Company applies FASB ASC Topic 280,
Segment Reporting
to report information about operating segments in
its annual and interim financial reports. An operating segment is defined as a component that engages in business activities, whose operating results are reviewed by the chief operating decision maker in order to make decisions about allocating
resources, and for which discrete financial information is available. We operate and manage our business as one reportable segment. All of our divisions have similarities such as products and markets served; therefore, we believe they meet the
criteria for aggregation under the applicable authoritative guidance and, as such, these operations are reported as one segment within the Consolidated Financial Statements.
Sales to foreign customers were 10% of consolidated net sales for fiscal 2014 and 12% for fiscal 2013.
Recent Accounting Pronouncements
In April 2014, the FASB issued ASU 2014-08,
Reporting Discontinued Operations and Disclosures of Disposals of
Components of an Entity.
ASU 2014-08 changes the criteria for determining which disposals can be presented as discontinued operations and modified related disclosure requirements. Under the new guidance, a discontinued operation
is defined as: (i) a disposal of a component or group of components that is disposed of or is classified as held for sale that represents a strategic shift that has or will have a major effect on an entitys operations and financial
results or (ii) an acquired business or nonprofit activity that is classified as held for sale on the date of acquisition. The standard states that a strategic shift could include a disposal of (i) a major geographical area of
operations, (ii) a major line of business, (iii) a major equity method investment, or (iv) other major parts of an entity. Under the current U.S. GAAP, an entity is prohibited from reporting a discontinued operation if it
has certain continuing cash flows or involvement component after the disposal. The new guidance eliminates these criteria.
The standard expands the disclosures for discontinued operations and requires new disclosures related to individually material
disposals that do not meet the definition of a discontinued operation, an entitys continuing involvement with a discontinued operation following the disposal date and retained equity method investments in a discontinued operation. The
guidance is effective for annual periods beginning on or after December 15, 2014 and interim periods within that year. The Company does not expect the adoption of this update to have a significant effect on the Companys consolidated
financial position or results of operations.
29
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,
2013
|
|
|
|
Costs incurred to date on uncompleted contracts
|
|
$
|
816
|
|
Estimated earnings recognized to date on these contracts
|
|
|
269
|
|
|
|
|
|
|
|
|
|
1,085
|
|
Billings to date
|
|
|
(1,018
|
)
|
|
|
|
|
|
Costs and estimated earnings in excess of billings, net
|
|
$
|
67
|
|
|
|
|
|
|
|
|
Costs and estimated earnings in excess of billings
|
|
$
|
108
|
|
Billings in excess of costs and estimated earnings
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
$
|
67
|
|
|
|
|
|
|
The Company had two divisions in previous reporting periods who accounted for material
contracts on the percentage of completion basis, Aydin Displays and VDC Display Systems. As of February 28, 2014, VDC Display Systems did not have any open contracts in progress and the Aydin Displays division had been sold. The
February 28, 2013 balances have been reclassified to reflect only the balances of VDC Display Systems.
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. There were no open contracts at February 28, 2014 accounted for under FASB ASC Topic 605-35,
Revenue
Recognition: Construction-Type and Production-Type Contracts.
As of February 28, 2014 and 2013, 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, 2014 and 2013, there were no progress payments that had been netted against inventory.
30
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 $126 thousand
for fiscal 2014 and 2013. As of February 28, 2014 and February 28, 2013, the cost and accumulated amortization of intangible assets was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 28, 2014
|
|
|
February 28, 2013
|
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
|
|
|
|
Customer lists
|
|
$
|
233
|
|
|
$
|
225
|
|
|
$
|
233
|
|
|
$
|
216
|
|
Non-compete agreements
|
|
|
2,863
|
|
|
|
2,187
|
|
|
|
2,863
|
|
|
|
2,070
|
|
Patents/designs
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
1,000
|
|
Other intangibles
|
|
|
6
|
|
|
|
6
|
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,102
|
|
|
$
|
3,418
|
|
|
$
|
4,102
|
|
|
$
|
3,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected amortization expense for the next five years and thereafter is as follows (in
thousands):
|
|
|
|
|
Year
|
|
Amortization Expense
|
|
2015
|
|
$
|
125
|
|
2016
|
|
$
|
117
|
|
2017
|
|
$
|
117
|
|
2018
|
|
$
|
117
|
|
2019
|
|
$
|
117
|
|
Thereafter
|
|
$
|
91
|
|
Note 4. Inventories
Inventories consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
February 28,
2014
|
|
|
February 28,
2013
|
|
|
|
|
Raw materials
|
|
$
|
7,906
|
|
|
$
|
7,447
|
|
Work-in-process
|
|
|
242
|
|
|
|
694
|
|
Finished goods
|
|
|
1,878
|
|
|
|
5,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,026
|
|
|
|
13,852
|
|
Reserves for obsolescence
|
|
|
(111
|
)
|
|
|
(2,679
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,915
|
|
|
$
|
11,173
|
|
|
|
|
|
|
|
|
|
|
During fiscal 2014, the Company disposed of inventories of $5.3 million of which $3.2 million
was previously reserved for through inclusion in the inventory reserve. During fiscal 2013, the Company disposed of inventories of $0.4 million all of which was previously reserved.
Raw materials include approximately $2.9 million of inventory which the purchaser of the Companys wholly-owned
subsidiary, Lexel Imaging, Inc. agreed to purchase over a five-year period. (See Note 16)
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, 2014
|
|
$
|
2,679
|
|
|
$
|
658
|
|
|
$
|
3,226
|
|
|
$
|
111
|
|
February 28, 2013
|
|
|
2,391
|
|
|
|
685
|
|
|
|
397
|
|
|
|
2,679
|
|
Note 5. Lines of Credit and Long-Term Debt
In fiscal 2014, with the sale of the Companys Aydin Displays, Inc and Z-Axis, Inc. subsidiaries, the
Company repaid all remaining bank debt, which included a line of credit and two term loans. At February 28, 2013 the outstanding balance of the line of credit was $9.9 million; the outstanding balances of the term loans were $2.0 million and
$2.6 million. Currently, the only remaining debt of the Company is $0.3 million it owes on a building owned by its subsidiary, Teltron Technologies, Inc. in Birdsboro, PA.
31
Long-term debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
February 28,
2014
|
|
|
February 28,
2013
|
|
Note payable to Community & Southern Bank; interest rate at LIBOR plus 400 basis points as defined per the
loan agreement, minimum 5.00%, 5% rate applied. Monthly principal payments of $0 plus accrued interest, payable through August 2014; collateralized by all assets of the Company. On September 6, 2013, this entire liability was assumed by
Community and Southern Bank. Note paid off January 16, 2014.
|
|
|
|
|
|
|
1,983
|
|
|
|
|
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 was 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 two properties of the Company and one property owned by the Chief Executive Officer. Note paid off August 30, 2013.
|
|
|
|
|
|
|
2,567
|
|
|
|
|
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 thousand payable through October 2021; collateralized by land and building of Teltron Technologies, Inc.
|
|
|
281
|
|
|
|
327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
281
|
|
|
|
4,877
|
|
Less current maturities
|
|
|
(48
|
)
|
|
|
(4,596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
233
|
|
|
$
|
281
|
|
|
|
|
|
|
|
|
|
|
Future maturities of lines of long-term debt are as follows (in thousands):
|
|
|
|
|
Year
|
|
Amount
|
|
2015
|
|
$
|
48
|
|
2016
|
|
|
51
|
|
2017
|
|
|
52
|
|
2018
|
|
|
54
|
|
2019
|
|
|
56
|
|
Thereafter
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
$
|
281
|
|
|
|
|
|
|
Note 6. Notes Payable to Officers and Directors
The Company borrowed $0.5 million from the Companys CEO in January 2013 with an interest rate of eight
percent. The Company had additional borrowings during the course of fiscal year 2014 for an additional $0.25 million. All the funds were borrowed on a short term basis and the Company fully repaid the funds by the end of the third quarter of fiscal
2014.
32
Note 7. Accrued Expenses and Warranty Obligations
The following provides a reconciliation of changes in the Companys warranty reserve for fiscal years
2014 and 2013. The Company provides no other guarantees.
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
Balance at beginning of year
|
|
$
|
43
|
|
|
$
|
43
|
|
Provision for current year sales
|
|
|
116
|
|
|
|
125
|
|
Warranty costs incurred
|
|
|
(114
|
)
|
|
|
(125
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
45
|
|
|
$
|
43
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
February 28,
2014
|
|
|
February 28,
2013
|
|
|
|
|
Accrued compensation and benefits
|
|
$
|
313
|
|
|
$
|
203
|
|
Accrued liability to issue stock
|
|
|
|
|
|
|
168
|
|
Accrued warranty
|
|
|
45
|
|
|
|
43
|
|
Accrued professional fees
|
|
|
136
|
|
|
|
237
|
|
Accrued other
|
|
|
431
|
|
|
|
544
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
925
|
|
|
$
|
1,195
|
|
|
|
|
|
|
|
|
|
|
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 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 29, 2012
|
|
|
59
|
|
|
$
|
4.46
|
|
Granted
|
|
|
9
|
|
|
|
4.00
|
|
Forfeited or expired
|
|
|
(6
|
)
|
|
|
3.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at February 28, 2013
|
|
|
62
|
|
|
$
|
4.50
|
|
Granted
|
|
|
19
|
|
|
|
3.83
|
|
Forfeited or expired
|
|
|
(9
|
)
|
|
|
4.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at February 28, 2014
|
|
|
72
|
|
|
$
|
4.37
|
|
|
|
|
Options exercisable
|
|
|
|
|
|
|
|
|
February 28, 2013
|
|
|
44
|
|
|
$
|
4.79
|
|
February 28, 2014
|
|
|
53
|
|
|
|
4.56
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range
of Exercise Prices
|
|
Number
Outstanding at
February 28, 2014
(in thousands)
|
|
|
Weighted Average
Remaining
Contractual Life
(in years)
|
|
|
Weighted
Average
Exercise Price
|
|
|
Number
Exercisable at
February 28, 2014
(in thousands)
|
|
|
Weighted
Average
Exercise Price
|
|
|
|
|
|
|
|
$3.20 - 3.27
|
|
|
7
|
|
|
|
4.3
|
|
|
$
|
3.20
|
|
|
|
7
|
|
|
$
|
3.20
|
|
3.59 - 3.65
|
|
|
27
|
|
|
|
3.1
|
|
|
|
3.61
|
|
|
|
18
|
|
|
|
3.62
|
|
4.00 - 4.20
|
|
|
27
|
|
|
|
5.1
|
|
|
|
4.07
|
|
|
|
17
|
|
|
|
4.09
|
|
7.65 - 7.71
|
|
|
11
|
|
|
|
2.8
|
|
|
|
7.68
|
|
|
|
11
|
|
|
|
7.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
|
|
|
|
3.9
|
|
|
$
|
4.37
|
|
|
|
53
|
|
|
$
|
4.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
34
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,
2014
|
|
|
February 28,
2013
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(2,337
|
)
|
|
$
|
(1,206
|
)
|
State
|
|
|
(25
|
)
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,362
|
)
|
|
|
(1,139
|
)
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
1,632
|
|
|
|
(217
|
)
|
State
|
|
|
244
|
|
|
|
(77
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
1,876
|
|
|
|
(294
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(486
|
)
|
|
$
|
(1,433
|
)
|
|
|
|
|
|
|
|
|
|
Income before provision for taxes consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
February 28,
2014
|
|
|
February 28,
2013
|
|
|
|
|
U.S. operations
|
|
$
|
(5,946
|
)
|
|
$
|
(3,915
|
)
|
Foreign operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(5,946
|
)
|
|
$
|
(3,915
|
)
|
|
|
|
|
|
|
|
|
|
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,
2014
|
|
|
February 28,
2013
|
|
|
|
|
Statutory U.S. federal income tax rate
|
|
$
|
(2,022
|
)
|
|
$
|
(1,331
|
)
|
State income taxes, net of federal benefit
|
|
|
(69
|
)
|
|
|
(6
|
)
|
Research and experimentation credits
|
|
|
(50
|
)
|
|
|
(82
|
)
|
Valuation allowance
|
|
|
1,556
|
|
|
|
|
|
Non-deductible expenses
|
|
|
12
|
|
|
|
19
|
|
Domestic production activities deduction
|
|
|
|
|
|
|
(38
|
)
|
Other
|
|
|
87
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Taxes at effective income tax rate
|
|
$
|
(486
|
)
|
|
$
|
(1,433
|
)
|
|
|
|
|
|
|
|
|
|
The income tax benefit effective tax rate for fiscal 2014 was 8% compared to 36% for fiscal
2013. The lower effective rate in 2014 compared to the effective rate in 2013 was primarily due to the valuation allowance the Company recognized on the net operating loss carryforwards, research and experimentation credits, the domestic production
activities deduction 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 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.
Deferred income taxes as of
February 28, 2014 and 2013 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.
35
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,
2014
|
|
|
February 28,
2013
|
|
Current deferred tax assets (liabilities):
|
|
|
|
|
|
|
|
|
Uniform capitalization costs
|
|
$
|
159
|
|
|
$
|
586
|
|
Inventory reserves
|
|
|
41
|
|
|
|
1,120
|
|
Accrued liabilities
|
|
|
59
|
|
|
|
500
|
|
Allowance for doubtful accounts
|
|
|
15
|
|
|
|
22
|
|
Other
|
|
|
(32
|
)
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
Net current deferred tax assets
|
|
|
242
|
|
|
|
2,194
|
|
|
|
|
Non-current deferred tax assets:
|
|
|
|
|
|
|
|
|
Amortization of intangibles
|
|
|
241
|
|
|
|
720
|
|
Deferred rent
|
|
|
200
|
|
|
|
|
|
State net operating loss carry-forward
|
|
|
351
|
|
|
|
165
|
|
Federal net operating loss carry-forward
|
|
|
1,369
|
|
|
|
|
|
Foreign tax credit carry-forward
|
|
|
99
|
|
|
|
99
|
|
Basis difference of property, plant and equipment
|
|
|
56
|
|
|
|
(299
|
)
|
Valuation allowance
|
|
|
(1,556
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net non-current deferred tax assets
|
|
|
760
|
|
|
|
685
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
1,002
|
|
|
$
|
2,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current asset
|
|
$
|
242
|
|
|
$
|
2,219
|
|
Non-current asset
|
|
|
760
|
|
|
|
660
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,002
|
|
|
$
|
2,879
|
|
|
|
|
|
|
|
|
|
|
The Company has available federal and state net operating loss carryforwards of $1.4 million
and $0.3 million, respectively. The net operating loss carryforwards expire in fiscal 2034.
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 employees. The Company made a
contribution in the fiscal year ended 2013 of $75 thousand and did not make a contribution in fiscal 2014 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 2019. These leases provide that the Company pay taxes, insurance, and other expenses on the leased property and equipment. Rent expense for all leases was approximately $0.8 million and $0.7 million in fiscal 2014
and 2013, respectively.
36
Future minimum rental payments due under these leases are as follows (in thousands):
|
|
|
|
|
Fiscal Year
|
|
Amount
|
|
|
|
2015
|
|
$
|
319
|
|
2016
|
|
|
317
|
|
2017
|
|
|
315
|
|
2018
|
|
|
314
|
|
2019
|
|
|
160
|
|
|
|
|
|
|
|
|
$
|
1,425
|
|
|
|
|
|
|
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 2014 and 2013.
Future minimum rental payments due under these leases with related parties are as follows (in thousands):
|
|
|
|
|
Fiscal Year
|
|
Amount
|
|
2015
|
|
$
|
314
|
|
2016
|
|
|
314
|
|
2017
|
|
|
314
|
|
2018
|
|
|
314
|
|
2019
|
|
|
160
|
|
|
|
|
|
|
|
|
$
|
1,416
|
|
|
|
|
|
|
Legal Proceedings
The Company is involved in various legal proceedings relating to claims arising in the ordinary course of business. Management
is of the opinion that the ultimate resolution of these matters will not have a material adverse effect on the Companys business, consolidated financial condition, results of operation or cash flows.
Note 12. Concentrations of Risk and Major Customers
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist
principally of cash 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 28% and 31% of consolidated net sales in fiscal 2014 and 2013, respectively. Sales to
foreign customers were 10% and 12% of consolidated net sales in fiscal 2014 and 2013, respectively. The Company had two customers who comprised more than 10% of the Companys sales in FY 2014, Lockheed Martin (20.7%) and Diversified
Systems, Inc (10.1%). 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.
37
Note 13. Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
(in thousands)
|
|
|
|
February 28,
2014
|
|
|
February 28,
2013
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
814
|
|
|
$
|
722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes, net of refunds
|
|
$
|
(227
|
)
|
|
$
|
(119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
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 note receivable in conjunction with the sale of Z-Axis, Inc
|
|
$
|
1,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receipt of note receivable in conjunction with the sale of Lexel Imaging, Inc
|
|
$
|
1,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock grant related to the acquisition of StingRay56
|
|
$
|
166
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
Note 14. Selected Quarterly Financial Data (unaudited)
The following table sets forth selected quarterly consolidated financial data for the fiscal years ended
February 28, 2014 and 2013, respectively. The summation of quarterly net income per share may not agree with annual net income per share due to rounding. Excludes discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
|
(in thousands, except per share amounts)
|
|
|
|
|
|
|
Net Sales
|
|
$
|
4,201
|
|
|
$
|
2,585
|
|
|
$
|
3,721
|
|
|
$
|
3,904
|
|
Gross profit
|
|
|
178
|
|
|
|
224
|
|
|
|
226
|
|
|
|
(1,706
|
)
|
Net income (loss)
|
|
|
(451
|
)
|
|
|
(804
|
)
|
|
|
(651
|
)
|
|
|
(3,554
|
)
|
Basic net income (loss) per share
|
|
$
|
(0.06
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.47
|
)
|
Diluted net income (loss) per share
|
|
$
|
(0.06
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
|
(in thousands, except per share amounts)
|
|
|
|
|
|
|
Net Sales
|
|
$
|
3,117
|
|
|
$
|
2,354
|
|
|
$
|
2,630
|
|
|
$
|
3,924
|
|
Gross profit
|
|
|
441
|
|
|
|
164
|
|
|
|
295
|
|
|
|
408
|
|
Net income
|
|
|
(619
|
)
|
|
|
(713
|
)
|
|
|
(643
|
)
|
|
|
(507
|
)
|
Basic net income per share
|
|
$
|
(0.08
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.07
|
)
|
Diluted net income per share
|
|
$
|
(0.08
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.07
|
)
|
38
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. The Company is in the process of
repossessing the property as the buyer has not made any payments other than a minimal amount of interest. The Company expects to be in possession of the building no later than June, 2014.
On May 2, 2013, the Company sold its property at 1416 Alpine Boulevard in Bossier City, LA for $532 thousand. The Company
received cash of $495 thousand after commissions and closing costs. The Company recognized a gain on sale of $397 thousand.
Note 16. Discontinued Operations
On August 30, 2013, Video Display Corporation (the Company) completed the sale of the
assets and the transfer of specified liabilities of the Companys wholly-owned subsidiary, Aydin Displays Inc. (Aydin). Aydins assets were sold to a newly formed acquisition affiliate of Sparton Corp. for a combination of cash
totaling $15 million, plus an additional earn-out potential that could be in excess of $6 million dollars based upon the achievement of reaching certain projected levels of EBITDA generated by the new Aydin in the subsequent 12-month
period to the August 30, 2013 closing. The sale provisions included a holdback of $1.2 million on the proceeds which was put into an escrow account until August 30, 2014. The Company recognized a gain on the sale of the Aydin assets of
$2.9 million pre-tax. The potential earn-out is not included in the gain recognized. Along with the sale, the Company signed a lease agreement with the buyer, whereby the Company rented a building owned by another subsidiary of the Company to the
buyer with no rent for a five year period. The Company deferred $0.6 million of the gain, and will recognize it as rental income over the five-year period. Aydin had net sales of $8.3 million and pre-tax net income of $0.5 million for the six months
ending August 30, 2013 before the sale.
On January 16, 2014, the Company sold their wholly-owned subsidiary,
Z-Axis, Inc. The sale includes Z-Axis as well as its BEAR Power Supplies and Boundless Technologies business units. Z-Axis, Inc. was sold to one of the subsidiarys original founders for approximately $9 million in cash and a $1 million dollar
note. The Company recognized a gain on the sale of $5.4 million pre-tax. Z-Axis had $7.8 million in net sales and pre-tax net profit of $0.6 million for the ten and a half months of fiscal 2014 before the sale.
On March 26, 2014 with an effective date of February 28, 2014, the Company completed the sale of the Companys
wholly-owned subsidiary, Lexel Imaging, Inc. to Citadal Partners, LLC for approximately $3.9 million, consisting of $1.0 million cash payable over 180 days and included in current assets as a note and a guarantee to purchase $2.9 million in
inventory over a five year period. The inventory was adjusted to its net realizable value as part of the sale. The Company recognized a loss on the sale of $4.4 million pre-tax. Lexel Imaging, Inc. had net sales of $ 7.6 million and a pre-tax
net loss of $0.8 million for the twelve months ending February 28, 2014.
All of these companies net sales,
expenses and net profits are being shown as discontinued operations per ASC 205-20-45
Reporting Discontinued Operations.
The assets, liabilities, operating income and cash flows from these businesses are reflected as discontinued
operations in the consolidated financial statements for all periods presented. The Company has reclassified results that were previously included in continuing operations as discontinued operations for these businesses.
39
The summarized financial information for discontinued operations for the
year-ended February 28, 2014, and 2013, is as follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2014
|
|
|
Fiscal 2013
|
|
|
|
|
Net sales
|
|
|
23,637
|
|
|
|
37,078
|
|
Cost of goods sold
|
|
|
18,319
|
|
|
|
25,472
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
5,318
|
|
|
|
11,606
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Selling and delivery
|
|
|
1,609
|
|
|
|
3,195
|
|
General and administrative
|
|
|
3,638
|
|
|
|
4,972
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
5,247
|
|
|
|
8,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit from discontinued operations
|
|
|
71
|
|
|
|
3,439
|
|
|
|
|
Other income (expense)
|
|
|
190
|
|
|
|
349
|
|
Interest expense
|
|
|
(6
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
184
|
|
|
|
333
|
|
Gain on sale of assets
|
|
|
3,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,140
|
|
|
|
333
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations before income taxes
|
|
|
4,211
|
|
|
|
3,772
|
|
|
|
|
Income tax expense
|
|
|
1,432
|
|
|
|
1,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
|
2,779
|
|
|
|
2,490
|
|
|
|
|
|
|
|
|
|
|
Note 17. Subsequent Events
None.