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Due Diligence Report: (OTCBB: VIDE) Lack of Communication with Shareholders Brings Forth Red Flags
Summary:
Video Display Corporation, incorporated on November 28, 1984, is a provider and manufacturer of video products, components and systems for visual display and presentation of electronic information media in a range of requirements and environments. The Company designs, engineers, manufactures, markets, distributes and installs display products and systems, from basic components to turnkey systems, for Government, military, aerospace, medical, industrial and commercial organizations. The Company operates primarily in four divisions: display cathode ray tubes (CRTs), simulation and training products, broadcast and control center products, and cyber secure products. Its manufacturing and distribution facilities are located in Kentucky, Georgia and Florida.
The Company’s simulation and training products operations are conducted in Cape Canaveral, Florida (Display Systems). The Company’s simulation and training products operations involve the design, engineering and manufacture of digital projector display units. The Company customizes the units for specific applications, including ruggedization for military uses or size reduction due to space limitations in industrial and medical applications. The primary customers for its simulation and training products include defense, security, training and simulation areas of the United States and foreign militaries, as well as various defense contractors, such as the Boeing Company, L-3 Communications Corporation and Lockheed Martin Corporation. The Company produces flight simulator displays to provide a range of flight training simulations for military and commercial applications. The Company is engaged in the distribution and manufacture of CRTs using new and recycled CRT glass bulbs, primarily in the replacement market, for use in data display screens, including computer terminal monitors, medical monitoring equipment and various other data display applications, and in television sets. The Company’s Tucker, Georgia location is its primary distribution point for data display CRTs purchased from outside sources. The Company also distributes new CRTs and other electronic tubes purchased from original equipment manufacturers (OEMs). The Company sells CRTs into the replacement market. The Company’s broadcast and control center products division sells visual display products for use in video walls and command and control centers. The division operates as the North American distributor of a German company, eyevis GmbH.
The Company, through its subsidiary, AYON CyberSecurity, Inc. (ACS), is involved in TEMPEST technology, also known as Emanation Security (EMSEC), products and custom engineering solutions to include environmental performance and survivability technologies (MIL-STD-810 and DO-160) in support of military forces, intelligence agencies, prime contractors and commercial sectors across the world. Along with its TEMPEST products and services, the business also provides various contract services to Government agencies and prime contractors. Services performed by the division include design and testing solutions for defense and commercial uses across the world.
Video Display Corporation has a current market capitalization of $5.30 M with 5.89 M outstanding shares. Its daily average volume traded is 2,023 shares.
Financial Highlights (Q3 2015):
Revenue: 2.39 M
Gross Profit: -0.44 M
Net Income: -2.14 M
Cash and Cash Equivalents: 1.06 M
Total Debt: 0.20 M
Recent News and Analysis:
The company has not published or released any news since Jan 20, 2016 when it filed Q3 2016. During fiscal 2016, management of the Company is focusing key resources on strategic efforts to grow its business through internal sales or through niche acquisitions that enhance the profitability and sales of the Company’s more profitable product lines. Challenges facing the Company during these efforts include: Liquidity- As of and during the nine month period ended November 30, 2015, the Company operated using cash from operations and investing activities. The Company believes it can operate the Company with existing cash flows for the current level of business. Should business increase dramatically or an acquisition candidate be found, the Company may need to find more permanent sources of capital to fund the growth. Secondly, inventory management – The Company’s business units utilize different inventory components than the divisions had in the past. The Company has a monthly reserve at each of its divisions to offset any obsolescence although most purchases are for current orders, which should reduce the amount of obsolescence in the future. The Company still has CRT inventory in stock and, although it believes the inventory will be sold in the future, will continue to reserve for any additional obsolescence. Management believes the adequacy of its inventory reserves at November 30, 2015 and February 28, 2015 to be adequate.
Consolidated net sales were down 22.1% for the nine months ended November 30, 2015 compared to the nine months ended November 30, 2014. Sales for the Company’s VDC Display Systems division were down 28.6% for the nine months ending November 30, 2015 when compared to last year’s nine months ending November 30, 2014. The simulation market has experienced many delays on new contracts and upgrades, but the Company is beginning to see business conditions improving. The Company expects this division to exceed last year’s revenue by the end of the fiscal year.
Conclusions:
Despite the positively sounding MD&A that was reported with the quarterly financials, the stock has oddly quiet. Only 400 shares were traded by mid-day March 7, and no movement in the share price. This suggests very little interest from investors and may lead to the demise of this stock. With a mere $5.3 M market cap, and just 2000 shares traded daily on average, there does not seem to be much upside. Given low revenues, a negative gross profit and falling net income, a thorough due diligence is recommended before entering into any position in this stock.
Sources:
- http://www.reuters.com/finance/stocks/companyProfile?rpc=66&symbol=VIDE.PK
- https://www.google.ca/finance?q=OTCMKTS%3AVIDE&fstype=ii&hl=en&gl=ca&ei=nqbdVvnXKYuIjAG2ma74Bg
- http://finance.yahoo.com/q?s=vide&ql=1
- https://biz.yahoo.com/e/160114/vide10-q.html
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