##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Quarterly Period Ended May 31, 2007.
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Transition Period From  to
 Commission File Number 0-13394
 VIDEO DISPLAY CORPORATION
  GEORGIA
    
    58-1217564(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 1868 TUCKER INDUSTRIAL ROAD, TUCKER, GEORGIA 30084
  770-938-2080
  þ o
  o o þ
 o þ




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Video Display Corporation and Subsidiaries
Index
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets 
May 31, 2007 (unaudited) and February 28, 2007
    
    
    3Consolidated Statements of Operations -
Three months ended May 31, 2007 and 2006 (unaudited)
    
    
    5Consolidated Statement of Shareholders Equity -
For the three months ended May 31, 2007 (unaudited)
    
    
    6Consolidated Statements of Cash Flows 
Three months ended May 31, 2007 and 2006 (unaudited)
    
    
    7Notes to Consolidated Financial Statements -
May 31, 2007 (unaudited)
    
    
    9Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosure About Market Risk
    
    
    26Item 4. Controls and Procedures
    
    
    26PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    27Item 1A. Risk Factors
    
    
    27Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 3. Defaults upon Senior Securities
    
    
    27Item 4. Submission of Matters to a Vote of Security Holders
    
    
    27Item 5. Other Information
    
    
    28Item 6. Exhibits
    
    
    28SIGNATURES
    
    
    29EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEO AND CFO
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 Video Display Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands)
 May 31,
    
    
    February 28,2007
    
    
    2007(unaudited)AssetsCurrent AssetsCash
    
    $
    902
    
    
    $
    1,226Accounts receivable, less allowance for
doubtful accounts of $485 and $458
    
    
    11,042
    
    
    
    10,497Inventories, net
    
    
    33,157
    
    
    
    33,344Cost and estimated earnings in excess of
billings on uncompleted contracts
    
    
    2,959
    
    
    
    2,963Deferred income taxes
    
    
    3,205
    
    
    
    3,042Prepaid expenses and other
    
    
    664
    
    
    
    737Total current assets
    
    
    51,929
    
    
    
    51,809Property, plant and equipment:Land
    
    
    585
    
    
    
    585Buildings
    
    
    8,237
    
    
    
    8,223Machinery and equipment
    
    
    20,417
    
    
    
    20,19629,239
    
    
    
    29,004Accumulated depreciation and amortization
    
    
    (21,432
    )
    
    
    (21,084
    )Net property, plant, and equipment
    
    
    7,807
    
    
    
    7,920Goodwill
    
    
    1,343
    
    
    
    1,343Intangible assets, net
    
    
    3,659
    
    
    
    3,894Other assets
    
    
    121
    
    
    
    121Total assets
    
    $
    64,859
    
    
    $
    65,087
  3




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Video Display Corporation and Subsidiaries
Consolidated Balance Sheets (continued)
(in thousands)
 May 31,
    
    
    February 28,2007
    
    
    2007(unaudited)Liabilities and Shareholders EquityCurrent liabilitiesAccounts payable
    
    $
    4,954
    
    
    $
    6,325Accrued liabilities
    
    
    4,156
    
    
    
    4,054Billings in excess of cost and estimated
earnings on uncompleted contracts
    
    
    
    
    
    
    34Current maturities of notes payable to officers and
directors
    
    
    442
    
    
    
    446Convertible notes payable, net of discount of $50 and
$75 respectively
    
    
    1,200
    
    
    
    1,175Income taxes payable
    
    
    488
    
    
    
    61Current maturities of long-term debt
and financing lease obligations
    
    
    719
    
    
    
    726Total current liabilities
    
    
    11,959
    
    
    
    12,821Lines of credit
    
    
    15,736
    
    
    
    13,593Long-term debt, less current maturities
    
    
    2,394
    
    
    
    2,550Financing lease obligations, less current maturities
    
    
    251
    
    
    
    269Notes payable to officers and directors,
less current maturities
    
    
    3,510
    
    
    
    5,619Other long term liabilities
    
    
    623
    
    
    
    623Deferred income taxes
    
    
    51
    
    
    
    71Total liabilities
    
    
    34,524
    
    
    
    35,546Commitments and ContingenciesShareholders EquityPreferred stock, no par value  10,000 shares
authorized; none issued and outstanding
    
    
    
    
    
    
    Common stock, no par value  50,000 shares
authorized; 9,702 and 9,649 issued and
outstanding at May 31, 2007 and 9,707 and 9,600
issued and outstanding at February 28, 2007
    
    
    7,292
    
    
    
    7,284Additional paid-in capital
    
    
    196
    
    
    
    171Retained earnings
    
    
    24,229
    
    
    
    23,376Accumulated other comprehensive income
    
    
    132
    
    
    
    95Treasury stock, 184 and 166 shares at cost
    
    
    (1,514
    )
    
    
    (1,385
    )Total shareholders equity
    
    
    30,335
    
    
    
    29,541Total liabilities and shareholders equity
    
    $
    64,859
    
    
    $
    65,087
  4




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Video Display Corporation and Subsidiaries
Consolidated Statements of Operations (unaudited)
(in thousands, except per share data)
 Three Months EndedMay 31,2007
    
    
    2006Net sales
    
    $
    21,465
    
    
    $
    18,598Cost of goods sold
    
    
    13,925
    
    
    
    13,034Gross profit
    
    
    7,540
    
    
    
    5,564Operating expensesSelling and delivery
    
    
    1,922
    
    
    
    1,915General and administrative
    
    
    3,885
    
    
    
    3,5515,807
    
    
    
    5,466Operating profit
    
    
    1,733
    
    
    
    98Other income (expense)Interest expense
    
    
    (471
    )
    
    
    (501
    )Other, net
    
    
    65
    
    
    
    43(406
    )
    
    
    (458
    )Income (loss) before income taxes
    
    
    1,327
    
    
    
    (360
    )Provision for (benefit of) income taxes
    
    
    474
    
    
    
    (125
    )Net income (loss)
    
    $
    853
    
    
    $
    (235
    )Basic earnings (loss) per share of common stock
    
    $
    .09
    
    
    $
    (.02
    )Diluted earnings (loss) per share of common
stock
    
    $
    .09
    
    
    $
    (.02
    )Basic weighted average shares outstanding
    
    
    9,655
    
    
    
    9,703Diluted weighted average shares outstanding
    
    
    9,716
    
    
    
    9,921
  5




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Video Display Corporation and Subsidiaries
Consolidated Statements of Shareholders Equity
For the Three Months Ended May 31, 2007 (unaudited)
(in thousands)
 AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    Compre-Common
    
    
    Share
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    Treasury
    
    
    hensiveShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Income
    
    
    Stock
    
    
    IncomeBalance, February 28, 2007
    
    
    9,600
    
    
    $
    7,284
    
    
    $
    171
    
    
    $
    23,376
    
    
    $
    95
    
    
    $
    (1,385
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    853
    
    
    
    
    
    
    
    
    
    
    $
    853Foreign currency
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37
    
    
    
    
    
    
    
    37Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    890Issuance of common stock
under stock option plan
    
    
    67
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Repurchase of Treasury Stock
    
    
    (18
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (129
    )Share based compensation
    
    
    
    
    
    
    
    
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    Balance, May 31, 2007
    
    
    9,649
    
    
    $
    7,292
    
    
    $
    196
    
    
    $
    24,229
    
    
    $
    132
    
    
    $
    (1,514
    )
  6




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Video Display Corporation and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
(in thousands)
 Three Months EndedMay 31,2007
    
    
    2006Operating ActivitiesNet income (loss)
    
    $
    853
    
    
    $
    (235
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    583
    
    
    
    478Provision for doubtful accounts
    
    
    27
    
    
    
    51Provision for inventory reserve
    
    
    103
    
    
    
    203Non-cash charge for share based compensation
    
    
    25
    
    
    
    13Deferred income taxes
    
    
    (183
    )
    
    
    (137
    )Interest on convertible note
    
    
    25
    
    
    
    6Changes in working capital, net of effects
from acquisitions:Accounts receivable
    
    
    (571
    )
    
    
    (361
    )Inventories
    
    
    83
    
    
    
    (899
    )Prepaid expenses and other current assets
    
    
    73
    
    
    
    154Accounts payable and accrued liabilities
    
    
    (1,269
    )
    
    
    (1,052
    )Cost, estimated earnings and billings, net, on uncompleted contracts
    
    
    (30
    )
    
    
    Income taxes payable
    
    
    426
    
    
    
    Net cash provided by (used in) operating activities
    
    
    145
    
    
    
    (1,779
    )Investing ActivitiesCapital expenditures
    
    
    (235
    )
    
    
    (40
    )Net cash used in investing activities
    
    
    (235
    )
    
    
    (40
    )
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Video Display Corporation and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
(in thousands)
 Three Months EndedMay 31,2007
    
    
    2006Financing ActivitiesProceeds from long-term debt, lines of credit
and financing lease obligations
    
    
    6,449
    
    
    
    10,221Payments on long-term debt, lines of credit
and financing lease obligations
    
    
    (4,486
    )
    
    
    (3,916
    )Proceeds from loans from officers and directors
    
    
    
    
    
    
    220Repayments of loans from officers and directors
    
    
    (2,113
    )
    
    
    (3,800
    )Purchases and retirements of common stock and
purchase of treasury stock
    
    
    (129
    )
    
    
    Proceeds from exercise of stock options
    
    
    8
    
    
    
    23Net cash (used in) provided by financing activities
    
    
    (271
    )
    
    
    2,748Effect of exchange rate changes on cash
    
    
    37
    
    
    
    192Net (decrease) increase in cash
    
    
    (324
    )
    
    
    1,121Cash, beginning of period
    
    
    1,226
    
    
    
    1,577Cash, end of period
    
    $
    902
    
    
    $
    2,698
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Video Display Corporation and Subsidiaries
May 31, 2007
       Accounting for Uncertainty in Income Taxes
  9




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Video Display Corporation and Subsidiaries
May 31, 2007
       10




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Video Display Corporation and Subsidiaries
May 31, 2007
     May 31,
    
    
    February 28,2007
    
    
    2007Raw materials
    
    $
    19,022
    
    
    $
    19,540Work-in-process
    
    
    5,120
    
    
    
    4,210Finished goods
    
    
    14,505
    
    
    
    14,98038,647
    
    
    
    38,730Reserves for obsolescence
    
    
    (5,490
    )
    
    
    (5,386
    )$
    33,157
    
    
    $
    33,344
   May 31,
    
    
    February 28,2007
    
    
    2007Costs incurred to date on uncompleted contracts
    
    $
    4,754
    
    
    $
    9,733Estimated earnings recognized to date on these contracts
    
    
    1,578
    
    
    
    6,7696,332
    
    
    
    16,502Billings to date
    
    
    (3,373
    )
    
    
    (13,573
    )Costs and estimated earnings in excess
of billings, net
    
    $
    2,959
    
    
    $
    2,929Costs and estimated earnings in excess of billings
    
    $
    2,959
    
    
    $
    2,963Billings in excess of costs and estimated earnings
    
    
    
    
    
    
    (34
    )$
    2,959
    
    
    $
    2,929
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Video Display Corporation and Subsidiaries
May 31, 2007
    12




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Video Display Corporation and Subsidiaries
May 31, 2007
    May 31, 2007
    
    
    February 28, 2007Accumulated
    
    
    
    
    
    
    AccumulatedCost
    
    
    Amortization
    
    
    Cost
    
    
    AmortizationCustomer lists
    
    $
    3,611
    
    
    $
    1,226
    
    
    $
    3,611
    
    
    $
    1,089Non-compete
agreements
    
    
    1,245
    
    
    
    615
    
    
    
    1,245
    
    
    
    552Patents
    
    
    765
    
    
    
    184
    
    
    
    765
    
    
    
    154Other intangibles
    
    
    149
    
    
    
    86
    
    
    
    149
    
    
    
    81$
    5,770
    
    
    $
    2,111
    
    
    $
    5,770
    
    
    $
    1,876
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Video Display Corporation and Subsidiaries
May 31, 2007
   May 31,
    
    
    February 28,2007
    
    
    2007Note payable to bank syndicate (RBC Centura and
Regions Bank); interest rate at LIBOR plus
applicable margin as defined per the loan
agreement, (7.40% combined rate as of May 31,
2007); monthly principal payments of $50 plus
accrued interest, payable through July 2011;
collateralized by all assets of the Company.
    
    $
    2,500
    
    
    $
    2,650Mortgage payable to bank; interest rate at
Federal Home Loan Bank Board Index rate plus
1.95% (7.35% as of May 31, 2007); monthly
principal and interest payments of $5 payable
through October 2021; collateralized by land
and building of Teltron Technologies, Inc
    
    
    515
    
    
    
    521Other
    
    
    13
    
    
    
    163,028
    
    
    
    3,187Financing lease obligations
    
    
    336
    
    
    
    3583,364
    
    
    
    3,545Less current maturities
    
    
    (719
    )
    
    
    (726
    )$
    2,645
    
    
    $
    2,819
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Video Display Corporation and Subsidiaries
May 31, 2007
   Three MonthsEnded May 31,2007
    
    
    2006Net salesDisplay segment
    
    $
    14,659
    
    
    $
    13,981Wholesale distribution segment
    
    
    6,806
    
    
    
    4,617$
    21,465
    
    
    $
    18,598Operating profitDisplay segment
    
    $
    1,596
    
    
    $
    323Wholesale distribution segment
    
    
    137
    
    
    
    (225
    )Income from operations
    
    
    1,733
    
    
    
    98Interest expense
    
    
    (471
    )
    
    
    (501
    )Other income, net
    
    
    65
    
    
    
    43Income (loss) before income taxes
    
    $
    1,327
    
    
    $
    (360
    )
   Three MonthsEnded May 31,2007
    
    
    2006Cash Paid for:Interest
    
    $
    492
    
    
    $
    468Income
taxes, net of refunds
    
    $
31
    

    $
    27
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Video Display Corporation and Subsidiaries
May 31, 2007
  Earnings Per Share
   WeightedAverage
    
    
    EarningsNet
    
    
    Common Shares
    
    
    (Loss) PerIncome (Loss)
    
    
    Outstanding
    
    
    ShareThree months ended May 31, 2007Basic
    
    $
    853
    
    
    
    9,655
    
    
    $
    0.09Effect of dilution:Convertible debt
    
    
    
    
    
    
    Options
    
    
    
    
    
    
    61Diluted
    
    $
    853
    
    
    
    9,716
    
    
    $
    0.09Three months ended May 31, 2006Basic
    
    $
    (235
    )
    
    
    9,703
    
    
    $
    (0.02
    )Effect of dilution:Convertible debt
    
    
    
    
    
    
    20Options
    
    
    
    
    
    
    198Diluted
    
    $
    (235
    )
    
    
    9,921
    
    
    $
    (0.02
    )
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Video Display Corporation and Subsidiaries
May 31, 2007
 Stock-Based Compensation Plans
    Stock Repurchase Program
      17




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Video Display Corporation and Subsidiaries
May 31, 2007
        18




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Video Display Corporation and Subsidiaries
May 31, 2007
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Overview
  
    
    Monitors offers a complete range of CRT, flat panel and projection display systems for
use in training and simulation, military, medical and industrial applications.
    
    Data Display CRTs offers a complete range of CRTs for use in data display screen, including
computer terminal monitors and medical monitoring equipment.
    
    Entertainment CRTs offers a wide range of CRTs and projection tubes for television and home
theater equipment.
    
    Component Parts provides replacement electron guns and other components for CRTs
primarily for servicing the Companys internal needs.
  Inventory management
  Interest rate exposure
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Video Display Corporation and Subsidiaries
May 31, 2007
  Results of Operations
  Three MonthsEnded May 31,2007
    
    2006SalesDisplay SegmentMonitors
    
    
    46.0
    %
    
    
    56.8
    %Data Display CRTs
    
    
    18.6
    
    
    
    13.6Entertainment CRTs
    
    
    3.0
    
    
    
    4.0Electron Guns and Components
    
    
    0.7
    
    
    
    0.8Total Display Segment
    
    
    68.3
    %
    
    
    75.2
    %Wholesale Distribution Segment
    
    
    31.7
    
    
    
    24.8100.0
    %
    
    
    100.0
    %Costs and expensesCost of goods sold
    
    
    64.9
    %
    
    
    70.1
    %Selling and delivery
    
    
    9.0
    
    
    
    10.3General and administrative
    
    
    18.1
    
    
    
    19.192.0
    %
    
    
    99.5
    %Income from Operations
    
    
    8.0
    %
    
    
    0.5
    %Interest expense
    
    
    (2.2
    )%
    
    
    (2.7
    )%Other income, net
    
    
    0.3
    
    
    
    0.2Income (loss) before income taxes
    
    
    6.1
    %
    
    
    (2.0
    )%Benefit (Provision) for income taxes
    
    
    2.2
    
    
    
    .7Net Income (loss)
    
    
    3.9
    %
    
    
    1.3
    %
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Video Display Corporation and Subsidiaries
May 31, 2007
 Net sales
   Gross margins
   Operating expenses
    21




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Video Display Corporation and Subsidiaries
May 31, 2007
 Interest expense
  Income taxes
  Accounting for Uncertainty in Income Taxes
 Foreign currency translation
  Liquidity and Capital Resources
       22




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Video Display Corporation and Subsidiaries
May 31, 2007
   Critical Accounting Policies
  Reserves on inventories
  Revenue Recognition
    23




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Video Display Corporation and Subsidiaries
May 31, 2007
   Allowance for doubtful accounts
  Warranty reserves
  Other Accounting Policies
  Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes
 24




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Video Display Corporation and Subsidiaries
May 31, 2007
    Forward-Looking Information and Risk Factors
  25




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Video Display Corporation and Subsidiaries
May 31, 2007
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
   
 ITEM 4. CONTROLS AND PROCEDURES
   Changes in Internal Controls
  26




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Video Display Corporation and Subsidiaries
May 31, 2007
 
 PART II
 
 Legal Proceedings
  
 Risk Factors
  
 Unregistered Sales of Equity Securities and Use of Proceeds
  
 Defaults upon Senior Securities
  
 Submission of Matters to a Vote of Security Holders
  27




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Video Display Corporation and Subsidiaries
May 31, 2007
 
 Other information
  
 Exhibits
 ExhibitNumber
    
    Exhibit Description3(a)
    
    Articles of Incorporation of the Company (incorporated by reference to
Exhibit 3A to the Companys Registration Statement on Form S-18 filed
January 15, 1985).3(b)
    
    By-Laws of the Company (incorporated by reference to Exhibit 3B to the
Companys Registration Statement on Form S-18 filed January 15, 1985).10(d)
    
    $27,500,000 promissory note dated November 10, 2004 between the Company
and Bank of America (holder) (incorporated by reference to Exhibit
10(d) to the Companys 2005 Annual Report on Form 10-K).10(e)
    
    $6,800,000 term note dated February 27, 2006 between the Company and
Ronald D. Ordway (holder) (incorporated by reference to Exhibit 10(e)
to the Companys 2006 Annual Report on Form 10-K) .10(h)
    
    Loan and Security Agreement and related documents, dated June 14, 2006,
among Video Display Corporation and Subsidiaries and RBC Centura Bank
and Regions Bank as lenders and RBC Centura Bank as collateral agent
(incorporated by reference to Exhibit 10(h) to the Companys Current
Report on Form 8-K dated June 29, 2006).10(i)
    
    $6,000,000 Subordinated Note, dated June 29, 2006, between Video
Display Corporation and Ronald D. Ordway (holder) (incorporated by
reference to Exhibit 10(i) to the Companys Current Report on Form 8-K
dated June 29, 2006).31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 28




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##### Table of Contents



SIGNATURES
  VIDEO DISPLAY CORPORATIONJuly 23, 2007
    By:
    /s/ Ronald D. OrdwayRonald D. OrdwayChief Executive OfficerJuly 23, 2007
    By:
    /s/ Gregory L. OsbornGregory L. OsbornChief Financial Officer 29