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

or
o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 0-13394

VIDEO DISPLAY CORPORATION

(Exact name of registrant as specified on its charter)

GEORGIA		58-1217564
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

(Address of principal executive offices)

(Registrant’s telephone number including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ   No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o   No þ

     Indicate by check mark whether the registrant is a large accelerated filer, and accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ
				(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No þ

     As of January 14, 2010, the registrant had 8,371,721 shares of Common Stock outstanding.

 

 

Video Display Corporation and Subsidiaries
Index

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets — November 30, 2009 (unaudited) and February 28, 2009			3
Condensed Consolidated Statements of Operations — Three months and nine months ended November 30, 2009 and 2008 (unaudited)			5
Condensed Consolidated Statement of Shareholders’ Equity — Nine months ended November 30, 2009 (unaudited)			6
Condensed Consolidated Statements of Cash Flows — Nine months ended November 30, 2009 and 2008 (unaudited)			7
Notes to Condensed Consolidated Financial Statements — November 30, 2009 (unaudited)			9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.			18
Item 3. Quantitative and Qualitative Disclosure About Market Risk.			25
Item 4. Controls and Procedures.			25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.			26
Item 1A. Risk Factors.			26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.			26
Item 3. Defaults upon Senior Securities.			26
Item 4. Submission of Matters to a Vote of Security Holders.			26
Item 5. Other Information.			26
Item 6. Exhibits.			27
SIGNATURES			28
EX-10.(K)
EX-31.1
EX-31.2
EX-32.1

ITEM 1. FINANCIAL STATEMENTS

Video Display Corporation and Subsidiaries

		November 30,				February 28,
		2009				2009
		(unaudited)
Assets
Current Assets
Cash		$	720			$	662
Accounts receivable, less allowance for doubtful accounts of $663 and $608			7,723				9,088
Inventories, net			38,542				36,692
Cost and estimated earnings in excess of billings on uncompleted contracts			3,851				1,421
Deferred income taxes			3,157				2,724
Income taxes refundable			312				1,836
Investments			80				335
Prepaid expenses and other			500				612
Total current assets			54,885				53,370
Property, plant and equipment:
Land			585				585
Buildings			8,284				8,262
Machinery and equipment			21,990				21,786
			30,859				30,633
Accumulated depreciation and amortization			(24,963	)			(23,866	)
Net property, plant, and equipment			5,896				6,767
Goodwill			1,376				1,376
Intangible assets, net			1,961				2,083
Deferred income taxes			797				576
Other assets			32				36
Total assets		$	64,947			$	64,208

The accompanying notes are an integral part of these statements.

Video Display Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (continued)
(in thousands)

		November 30,				February 28,
		2009				2009
		(unaudited)
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable		$	7,967			$	7,175
Accrued liabilities			4,998				5,245
Billings in excess of cost and estimated earnings on uncompleted contracts			2				108
Current maturities of notes payable to officers and directors			541				396
Lines of credit			19,961				3,493
Current maturities of long-term debt and financing lease obligations			801				544
Total current liabilities			34,270				16,961
Line of credit			—				16,498
Long-term debt, less current maturities			1,113				1,707
Financing lease obligations, less current maturities			131				162
Notes payable to officers and directors, less current maturities			2,396				1,992
Other long term liabilities			350				123
Total liabilities			38,260				37,443
Shareholders’ Equity
Preferred stock, no par value — 10,000 shares authorized; none issued and outstanding			—				—
Common stock, no par value — 50,000 shares authorized; 9,707 and 8,372 issued and outstanding at November 30, 2009 and 9,707 and 8,601 issued and outstanding at February 28, 2009			7,293				7,293
Additional paid-in capital			165				147
Retained earnings			26,709				26,461
Accumulated other comprehensive loss			(90	)			(90	)
Treasury stock, 1,394 and 1,165 shares at cost			(7,390	)			(7,046	)
Total shareholders’ equity			26,687				26,765
Total liabilities and shareholders’ equity		$	64,947			$	64,208

The accompanying notes are an integral part of these statements.

Video Display Corporation and Subsidiaries

		Three Months Ended								Nine Months Ended
		November 30,								November 30,
		2009				2008				2009				2008
Net sales		$	17,513			$	18,208			$	50,704			$	56,422
Cost of goods sold			12,328				12,589				33,713				36,543
Gross profit			5,185				5,619				16,991				19,879
Operating expenses
Selling and delivery			1,711				1,895				5,234				5,682
General and administrative			3,202				4,402				11,084				12,762
			4,913				6,297				16,318				18,444
Operating profit (loss)			272				(678	)			673				1,435
Other income (expense)
Interest expense			(308	)			(326	)			(811	)			(894	)
Other, net			80				150				413				310
			(228	)			(176	)			(398	)			(584	)
Income before income tax expense (benefit)			44				(854	)			275				851
Income tax expense (benefit)			(26	)			(589	)			27				(17	)
Net income (loss)		$	70			$	(265	)		$	248			$	868
Net income (loss) per share — basic		$	.01			$	(.03	)		$	.03			$	.09
Net income (loss) per share — diluted		$	.01			$	(.03	)		$	.03			$	.09
Average shares outstanding — basic			8,372				9,276				8,445				9,385
Average shares outstanding — diluted			8,706				9,276				8,756				9,754

The accompanying notes are an integral part of these statements.

Video Display Corporation and Subsidiaries

																		Accumulated
		Common				Common				Additional								Other								Compre-
		Stock				Stock				Paid-in				Retained				Comprehensive				Treasury				hensive
		Shares				Amount				Capital				Earnings				Loss				Stock				Income
Balance, February 28, 2009			8,601			$	7,293			$	147			$	26,461			$	(90	)		$	(7,046	)
Net income			—				—				—				248				—				—			$	248
Total comprehensive income			—				—				—				—				—				—			$	248
Repurchase of Treasury Stock			(229	)			—				—				—				—				(344	)
Share based compensation			—				—				18				—				—				—
Balance, November 30, 2009			8,372			$	7,293			$	165			$	26,709			$	(90	)		$	(7,390	)

The accompanying notes are an integral part of these statements.

Video Display Corporation and Subsidiaries

		Nine Months Ended
		November 30,
		2009				2008
Operating Activities
Net income		$	248			$	868
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			1,720				1,750
Provision for doubtful accounts			157				254
Provision for inventory reserve			1,236				1,034
Non-cash charge for share based compensation			18				15
Deferred income taxes			(654	)			(1,002	)
Loss on sale of equipment			—				9
Change in other assets and liabilities			4				(21	)
Changes in working capital, net of effects from acquisitions:
Accounts receivable			1,208				(208	)
Inventories			(3,086	)			(3,177	)
Cost, estimated earnings and billings on uncompleted contracts			(2,537	)			1,367
Income taxes refundable			1,524				163
Prepaid expenses and other current assets			112				(216	)
Accounts payable and accrued liabilities			772				21
Net cash provided by operating activities			722				857
Investing Activities
Capital expenditures			(227	)			(794	)
Net investments in equity securities			255				(414	)
License agreement			(500	)			—
Net cash used in investing activities			(472	)			(1,208	)

Video Display Corporation and Subsidiaries

(in thousands)

		Nine Months Ended
		November 30,
		2009				2008
Financing Activities
Proceeds from long-term debt, lines of credit and financing lease obligations			10,388				21,696
Payments on long-term debt, lines of credit and financing lease obligations			(10,785	)			(17,380	)
Proceeds from loans from officers and directors			916				—
Repayments of loans from officers and directors			(367	)			(2,427	)
Purchases and retirements of common stock and purchase of treasury stock			(344	)			(1,921	)
Net cash used in financing activities			(192	)			(32	)
Effect of exchange rate changes on cash			—				(126	)
Net increase in cash			58				(509	)
Cash, beginning of period			662				1,636
Cash, end of period		$	720			$	1,127

The accompanying notes are an integral part of these statements.

Video Display Corporation and Subsidiaries

Note 1. — Summary of Significant Accounting Policies

     The condensed consolidated financial statements include the accounts of Video Display Corporation and its majority owned subsidiaries (collectively the “Company”) after elimination of all significant intercompany accounts and transactions.

     As contemplated by the Securities and Exchange Commission (the “Commission”) instructions to Form 10-Q, the following footnotes have been condensed and, therefore, do not contain all disclosures required in connection with annual consolidated financial statements. Reference should be made to the Company’s year-end consolidated financial statements and notes thereto, including a description of the accounting policies followed by the Company, contained in its Annual Report on Form 10-K for the fiscal year ended February 28, 2009, as filed with the Commission. There have been no material changes in accounting policies during the nine months ended November 30, 2009.

     The condensed consolidated financial information included in this report has been prepared by the Company, without audit. In the opinion of management, the condensed consolidated financial information included in this report contains all adjustments (all of which are normal and recurring) necessary for a fair presentation of the results for the interim periods. Nevertheless, the results shown for interim periods are not necessarily indicative of results to be expected for the full year. The February 28, 2009 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by U. S. generally accepted accounting principles.

     The Company has a subsidiary in the U.K., which uses the British pound as its functional currency. Assets and liabilities of this foreign subsidiary are translated using the exchange rate in effect at the end of the period. Revenues and expenses are translated using the average of the exchange rates in effect during the period. Translation adjustments and transaction gains and losses related to long-term intercompany transactions are accumulated as a separate component of shareholders’ equity.

Note 2. — New Accounting Pronouncements

     In June 2009, the Financial Accounting Standards Board (FASB) issued new guidance effective for financial statements issued for periods ending after September 15, 2009. “The FASB Accounting Standards Codification” (FASB ASC) establishes the source of authoritative GAAP recognized by the 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. On the effective date, the FASB ASC superseded all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the ASC became non-authoritative. Our adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

     In May 2009, the FASB issued revised guidance FASB ASC Topic 855 “Subsequent Events” which established general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In addition, this guidance requires disclosure of the date through which subsequent events were evaluated. These requirements are effective for interim and annual periods after June 15, 2009. The Company adopted these requirements for the quarter ended August 31, 2009. The adoption of these requirements did not result in a significant change in the subsequent events that the Company reports.

     In June 2009, the FASB issued revised guidance to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements. These revisions to FASB ASC 810, “Consolidation,” are effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for

Video Display Corporation and Subsidiaries

interim and annual reporting periods thereafter. Earlier application is prohibited. We do not expect that the adoption of this guidance will have a material impact on our consolidated financial statements.

     In April 2009, the FASB issued revised guidance for recognizing and measuring pre-acquisition contingencies in a business combination. These revisions, which are a part of FASB ASC 805, “Business Combinations,” address application issues raised by preparers, auditors, and members of the legal profession on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. This guidance is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. This guidance did not have a material impact on our consolidated financial statements.

     In April 2008, the FASB issued revised guidance for the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. These revisions to FASB ASC 350, “Intangible Assets,” are intended to improve the consistency between the useful life of recognized intangible assets and the period of expected cash flows used to measure the fair value of the intangible asset. This guidance is effective for fiscal years beginning after December 15, 2008. This guidance did not have a material impact on our consolidated financial statements.

     In December 2007, the FASB issued revised guidance for the accounting of business combinations. These revisions to FASB ASC 805, “Business Combinations,” require that the acquisition method of accounting (previously the purchase method) be used for all business combinations and that an acquirer be identified for each business combination. This guidance also establishes principles and requirements for how the acquirer: a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The guidance will apply prospectively to business combinations for which the acquisition date is on or after March 1, 2009. While we have not yet evaluated this statement for the impact, if any, that this guidance will have on its consolidated financial statements, we will be required to expense costs related to any acquisitions after February 28, 2009.

     In December 2009, the FASB issued revised guidance FASB ASC 2009-17, Consolidations (Topic 810) - Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, which codifies FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R). FASB ASC 2009-17 represents a revision to former FASB Interpretation No. 46 (Revised December 2003), Consolidation of Variable Interest Entities, to require an enterprise to qualitatively assess the determination of the primary beneficiary of a variable interest entity (VIE) based on whether the entity (1) has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (2) has the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. Also, SFAS 167 requires an ongoing reconsideration of the primary beneficiary, and amends the events that trigger a reassessment of whether an entity is a VIE. Enhanced disclosures are also required to provide information about an enterprise’s involvement in a VIE. SFAS No. 167 is effective for interim and annual reporting periods ending after November 15, 2009. We are currently evaluating the impact, if any, this standard will have on our consolidated financial statements.

Note 3. — Business Acquisition

          On September 28, 2008 the Company acquired the assets of Boundless Technologies, Inc. (“Boundless Technologies”) of Farmingdale, N.Y. and has transferred Boundless Technologies operations to its subsidiary Z-Axis near Rochester, N. Y. Boundless Technologies designs and manufactures text terminals and thin clients for computer systems in manufacturing, retail, health care, financial, and educational settings. The assets acquired in the transaction have been recorded at fair market value at the date of acquisition and include raw material inventories valued at $196,598 and equipment valued at $86,176.

Video Display Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
November 30, 2009

Note 4. — Inventories

Inventories are stated at the lower of cost (first in, first out) or market.

Inventories consisted of the following (in thousands):

		November 30,				February 28,
		2009				2009
Raw materials		$	20,421			$	20,086
Work-in-process			8,310				7,938
Finished goods			14,300				12,245
			43,031				40,269
Reserves for obsolescence			(4,489	)			(3,577	)
		$	38,542			$	36,692

Note 5. — Costs and Estimated Earnings Related to Billings on Uncompleted Contracts

Information relative to contracts in progress consisted of the following (in thousands):

		November 30,				February 28,
		2009				2009
Costs incurred to date on uncompleted contracts		$	6,516			$	3,423
Estimated earnings recognized to date on these contracts			3,213				1,515
			9,729				4,938
Billings to date			(5,880	)			(3,625	)
Costs and estimated earnings in excess of billings, net		$	3,849			$	1,313
Costs and estimated earnings in excess of billings		$	3,851			$	1,421
Billings in excess of costs and estimated earnings			(2	)			(108	)
		$	3,849			$	1,313

     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 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

Video Display Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
November 30, 2009

specific contract terms, which might be a progress payment schedule, specific shipments, etc. None of the above contracts in progress contain 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.

     As of November 30, 2009 and February 28, 2009, 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 November 30, 2009 and February 28, 2009, there were no progress payments that had been netted against inventory.

Note 6. — Intangible Assets

     Intangible assets consist primarily of the unamortized value of purchased patents, customer lists, non-compete agreements and other intangible assets. Intangible assets are amortized over the period of their expected lives, generally ranging from 5 to 15 years. Amortization expense related to intangible assets was $622,000 and $661,000 for the nine months ended November 30, 2009 and 2008, respectively.

     The cost and accumulated amortization of intangible assets was as follows (in thousands):

		November 30, 2009								February 28, 2009
						Accumulated								Accumulated
		Cost				Amortization				Cost				Amortization
Customer lists		$	3,611			$	2,420			$	3,611			$	2,124
Non-compete agreements			1,245				1,222				1,245				1,054
Patents			777				486				777				395
Other intangibles			649				193				149				126
		$	6,282			$	4,321			$	5,782			$	3,699

Video Display Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
November 30, 2009

Note 7. — Long-term Debt and Financing Lease Obligations

     Long-term debt and financing lease obligations consisted of the following (in thousands):

		November 30,				February 28,
		2009				2009
Note payable RBC Bank; interest rate at LIBOR plus applicable margin as defined per the loan agreement, minimum 4.00% (2.51% combined rate as of November 30, 2009); monthly principal payments of $50 plus accrued interest, payable through July 2011; collateralized by all assets of the Company.		$	1,278			$	1,553
Mortgage payable to bank; interest rate at Federal Home Loan Bank Board Index rate plus 1.95% (7.25% as of November 30, 2009); monthly principal and interest payments of $5 payable through October 2021; collateralized by land and building of Teltron Technologies, Inc.			460				478
Other			1				33
			1,739				2,064
Financing lease obligations			306				349
			2,045				2,413
Less current maturities			(801	)			(544	)
		$	1,244			$	1,869

See Note 8 for further discussion of Company’s debt facility & covenants.

Note 8. — Lines of Credit

     On August 25, 2009, the Company and RBC Bank executed an amendment to the Loan and Security Agreement dated September 26, 2008 that provided a $17 million line of credit to the Company and a $3.5 million line of credit to the Company’s subsidiary Fox International, Ltd. As of November 30, 2009, the outstanding balances of these lines of credit were $16.5 million and $3.5 million, respectively. The available amounts for borrowing were $0.5 million and $0.0 million, respectively. These loans are secured by all assets and personal property of the Company. The agreement contains covenants, including requirements related to tangible cash flow, ratio of debt to cash flow and assets coverage. The agreement also includes restrictions on the incurrence of additional debt or liens, investments (including Company stock), divestitures and certain other changes in the business. The $17 million line of credit is due to expire in June 2010 and is classified in short-term liabilities. The Company’s subsidiary, Fox International, Ltd agreement expired in June 2009 and is classified in short term liabilities.

     The amendment called for covenants calculated on an annualized basis through the Company’s third quarter ending November 30, 2009 and calculated on a rolling twelve months thereafter, it amended the term loan dated September 26, 2008 by increasing the monthly principal on the term loan from $25,000 per month to $50,000 per month, changed the interest rate structure by affixing a minimum interest rate of 4%, granted additional collateral by securing the loans with mortgages on the Company’s New York and White Mills, Pa. properties, granted an extension of the Fox International Ltd. subsidiary’s line of credit for 90 days which expired September 30, 2009, and added a limited guarantee from the Chief Executive Officer on the outstanding loan with Fox International Ltd. On October 8, 2009, the Company executed another 90-day extension

Video Display Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
November 30, 2009

until December 31, 2009 with the bank for the Company to obtain new financing for the Fox International Ltd. line of credit.

     As of November 30, 2009, the Company was in violation of the Asset Coverage Ratio. The Company has received a waiver from RBC Bank for the covenant violation until the next measurement date of February 28, 2010. The waiver agreement was obtained on January 12, 2010 and contains no additional requirements for the Company to meet in order for it to be effective. If the current covenants are not amended prior to the next measurement date, management believes that it will violate the existing covenants for the term of the agreement. However, management and RBC Bank are negotiating possible revisions to financial covenants to levels that would be attainable by the Company.

     As of January 1, 2010, the Company was unable to refinance the Fox subsidiary’s line of credit that had an extension to refinance that expired on December 31, 2009. The Company expects to receive an additional 90-day extension on the Fox subsidiary’s line of credit. Additionally, the Company has 90 days to refinance the line of credit after the extension expires before the CEO’s limited guarantee would be enforced. The Company is in negotiations with financial institutions and expects the refinancing to be completed before the next filing.

     Management believes that it will be successful in its negotiations with lenders to revise the financial covenants to attainable levels or to obtain a waiver in the event no changes are made and a future default occurs. However, there can be no assurance that either an agreement can be reached or a waiver obtained. If an agreement cannot be reached or if the existing or amended covenants are not attainable and the lenders were to exercise their rights, the Company may experience liquidity problems which would have a material adverse effect on the Company, unless the lenders agree to additional waivers, forbearance or restructuring of the debt or unless the Company can refinance the debt.

Note 9. — Segment Information

     Condensed segment information is as follows (in thousands):

		Three Months								Nine Months
		Ended November 30,								Ended November 30,
		2009				2008				2009				2008
Net Sales
Display Segment		$	12,552			$	11,930			$	35,989			$	39,179
Wholesale Distribution Segment			4,961				6,278				14,715				17,243
		$	17,513			$	18,208			$	50,704			$	56,422
Operating profit
Display Segment		$	174			$	241			$	509			$	2,135
Wholesale Distribution Segment			98				(919	)			164				(700	)
Income from Operations			272				(678	)			673				1,435
Interest expense			(308	)			(326	)			(811	)			(894	)
Other income, net			80				150				413				310
Income before income taxes		$	44			$	(854	)		$	275			$	851

Note 10. — Supplemental Cash Flow Information

     Supplemental cash flow information is as follows (in thousands):

		Nine Months
		Ended November 30,
		2009				2008
Cash paid for:
Interest		$	780			$	911
Income taxes, net of refunds		$	(843	)		$	570

Video Display Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
November 30, 2009

Note 11. — Shareholder’s Equity

Net Income Per Share

     Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding during each period. Shares issued during the period are weighted for the portion of the period that they were outstanding. Diluted net income per share is calculated in a manner consistent with that of basic net income per share while giving effect to all potentially dilutive common shares outstanding during the period.

     The following table sets forth the computation of basic and diluted net income per share for the three and nine-month periods ended November 30, 2009 and 2008 (in thousands, except per share data):

						Average
						Shares				Net Income
		Net Income				Outstanding				Per Share
Three months ended November 30, 2009
Basic		$	70				8,372			$	0.01
Effect of dilution:
Options			—				334
Diluted		$	70				8,706			$	0.01
Three months ended November 30, 2008
Basic		$	(265	)			9,276			$	(0.03	)
Effect of dilution:
Options			—				—
Diluted		$	(265	)			9,276			$	(0.03	)
Nine months ended November 30, 2009
Basic		$	248				8,445			$	0.03
Effect of dilution:
Options			—				311
Diluted		$	248				8,756			$	0.03
Nine months ended November 30, 2008
Basic		$	868				9,385			$	0.09
Effect of dilution:
Options			—				369
Diluted		$	868				9,754			$	0.09

Video Display Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
November 30, 2009

Stock-Based Compensation Plans

     For the nine-month period ended November 30, 2009 and November 30, 2008, the Company recognized general and administrative expense of $17,271 and $23,069 respectively related to share-based compensation. After the adoption of FASB ASC Topic 718 “Compensation — Stock 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 November 30, 2009, total unrecognized compensation costs related to stock options granted was $57,580. The unrecognized stock option compensation cost is expected to be recognized over a period of approximately 3 years.

     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 Company’s common stock. The Company calculates the historic volatility based on the weekly stock closing price, adjusted for dividends and stock splits.

     The Company granted a total of 6,000 stock options for the three and nine months ended November 30, 2009.

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 Company’s 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 Company’s 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 nine months ended November 30, 2009, the Company repurchased 229,037 shares at an average price of $1.50 per share, which have been added to treasury shares on the consolidated balance sheet. Under the Company’s stock repurchase program, an additional 816,418 shares remain authorized to be repurchased by the Company at November 30, 2009. The Loan and Security Agreement executed by the Company on September 26, 2008 included restrictions on investments that restricted further repurchases of stock under this program. The bank granted a limited exception to these restrictions, allowing the Company to purchase unlimited shares providing the company meets the covenants in the loan agreement. Under the amendment to the credit agreement signed on August 25, 2009, repurchases are subject to prior written bank approval.

Note 12. — Comprehensive Income

     FASB ASC Topic 220 “Comprehensive Income” establishes standards for reporting and display of non-owner changes in shareholders’ equity. For the Company, total non-owner changes in shareholders’ equity include net income and the change in the cumulative foreign exchange translation adjustment component of shareholders’ equity. During the nine months ended November 30, 2009 and 2008, total comprehensive income was $0.3 million and $0.7 million, respectively.

Video Display Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
November 30, 2009

Note 13. — Related Party Transactions

     In conjunction with an agreement involving re-financing of the Company’s lines of credit and Loan and Security Agreement, on June 29, 2006 the Company’s CEO provided a $6.0 million subordinated term note to the Company with monthly principal payments of $33,333 plus interest through July 2021. The interest rate on this note is equal to the prime rate plus one percent. The note is secured by a general lien on all assets of the Company, subordinate to the lien held by RBC Bank. The balance outstanding under this loan agreement was approximately $2.8 million at November 30, 2009 and $2.2 million at February 28, 2009. Interest paid during the quarter ended November 30, 2009 and November 30, 2008 on this note was $50,574 and $41,844, respectively, and interest paid for the nine months ended November 30, 2009 and November 30, 2008 was $139,632 and $148,138, respectively.

     The Company has a demand note outstanding from another officer for $145,333, bearing interest at 8%. Interest paid during the quarter ended November 30, 2009 and November 30, 2008 on this note was $3,405 and $4,816, respectively, and interest paid for the nine months ended November 30, 2009 and November 30, 2008 was $10,878 and $14,735, respectively.

Note 14. — Income Taxes

     The effective tax rate for the three months ended November 30, 2009 and November 30, 2008 was (59.1)% and 69.0%, respectively and for the nine months ended November 30, 2009 and November 30, 2008 was 9.8% and (2.0)%, respectively. These rates differ from the Federal statutory rate primarily due to the effect of state taxes, the permanent non-deductibility of certain expenses for tax purposes and research and experimentation tax credits.

Note 15. — Subsequent Events

     As of November 30, 2009, the Company was in violation of the Asset Coverage Ratio. The Company has received a waiver from RBC Bank for the covenant violation until the next measurement date of February 28, 2010. The waiver agreement was obtained on January 12, 2010 and contains no additional requirements for the Company to meet in order for it to be effective. If the current covenants are not amended prior to the next measurement date, management believes that it will violate the existing covenants for the term of the agreement. However, management and RBC Bank are negotiating possible revisions to financial covenants to levels that would be attainable by the Company.

     As of January 1, 2010, the Company was unable to refinance the Fox subsidiary’s line of credit that had an extension to refinance that expired on December 31, 2009. The Company expects to receive an additional 90-day extension on the Fox subsidiary’s line of credit. Additionally, the Company has 90 days to refinance the line of credit after the extension expires before the CEO’s limited guarantee would be enforced. The Company is in negotiations with financial institutions and expects the refinancing to be completed before the next filing.

     Management believes that it will be successful in its negotiations with lenders to revise the financial covenants to attainable levels or to obtain a waiver in the event no changes are made and a future default occurs. However, there can be no assurance that either an agreement can be reached or a waiver obtained. If an agreement cannot be reached or if the existing or amended covenants are not attainable and the lenders were to exercise their rights, the Company may experience liquidity problems which would have a material adverse effect on the Company, unless the lenders agree to additional waivers, forbearance or restructuring of the debt or unless the Company can refinance the debt.

     In preparing the condensed consolidated financial statements, management evaluated subsequent events through January 14, 2010, the date of filing this Quarterly Report on Form 10-Q. Other than as described above, management is not aware of any significant events that occurred subsequent to the balance sheet date but prior to the filing of this report that would have a material impact on the Company’s condensed consolidated financial statements, or that required recognition or disclosure in the condensed consolidated financial statements.

Video Display Corporation and Subsidiaries
November 30, 2009

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following discussion should be read in conjunction with the attached interim condensed consolidated financial statements and with the Company’s 2009 Annual Report to Shareholders, which included consolidated audited financial statements and notes thereto for the fiscal year ended February 28, 2009, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

     The Company is a leader in the manufacture and distribution of a wide range of display devices, encompassing, among others, entertainment, military, medical and simulation display solutions. The Company is comprised of two segments — (1) the manufacture and distribution of monitors, projection systems, and CRT displays and (2) the wholesale distribution of consumer electronic parts. The display segment is organized into four interrelated operations aggregated into one operating segment pursuant to the aggregation criteria of ASC Topic 280 “Segment Reporting”:

	•		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.

     During Fiscal 2010, management of the Company is focusing key resources on strategic efforts to dispose of unprofitable operations and seek acquisition opportunities that enhance the profitability and sales growth of the Company’s more profitable product lines. In addition, the Company plans to seek new products through acquisitions and internal development that complement existing profitable product lines. Challenges facing the Company during these efforts include:

     Inventory management — the Company continually monitors historical sales trends as well as projected future needs to ensure adequate on-hand supplies of inventory and to ensure against overstocking of slower moving, obsolete items.

     Certain of the Company’s divisions maintain significant inventories of CRTs and component parts in an effort to ensure its customers a reliable source of supply. The Company’s inventory turnover averages over 250 days, although in many cases the Company would anticipate holding 90 to 100 days of inventory in the normal course of operations. This level of inventory is higher than some of the Company’s competitors due to the fact that it sells a number of products representing older, or trailing edge, technology that may not be available from other sources. The market for these trailing edge technology products is declining and, as manufacturers for these products discontinue production or exit the business, the Company makes last time buys. In the monitor operations of the Company’s business, the market for its products is characterized by fairly rapid change as a result of the development of new technologies, particularly in the flat panel display area. If the Company fails to anticipate the changing needs of its customers or accurately forecast their requirements, it may accumulate inventories of products which its customers no longer need and which the Company will

Video Display Corporation and Subsidiaries
November 30, 2009

be unable to sell or return to its vendors. Because of this, the Company’s management monitors the adequacy of its inventory reserves regularly, and at November 30, 2009 and February 28, 2009 believes its reserves to be adequate.

     Interest rate exposure — The Company had outstanding bank debt in excess of $21.2 million as of November 30, 2009, all of which is subject to interest rate fluctuations by the Company’s lenders. Changes in rates by the Federal Reserve Board have the potential to negatively affect the Company’s earnings. It is the intent of the Company to continually monitor interest rates and consider converting portions of the Company’s debt from floating rates to fixed rates should conditions be favorable for such interest rate swaps or hedges.

Results of Operations

     The following table sets forth, for the three and nine months ended November 30, 2009 and 2008, the percentages that selected items in the Statements of Operations bear to total sales:

		Three Months								Nine Months
		Ended November 30,								Ended November 30,
		2009				2008				2009				2008
Sales
Display Segment
Monitors			62.2	%			55.2	%			58.7	%			56.0	%
Data Display CRTs			8.6				8.1				11.1				11.2
Entertainment CRTs			0.5				1.7				0.9				1.8
Components Parts			0.4				0.5				0.3				0.4
Total Display Segment			71.7	%			65.5	%			71.0	%			69.4	%
Wholesale Distribution Segment			28.3				34.5				29.0				30.6
			100.0	%			100.0	%			100.0	%			100.0	%
Costs and expenses
Cost of goods sold			70.4	%			69.1	%			66.5	%			64.8	%
Selling and delivery			9.7				10.4				10.3				10.1
General and administrative			18.3				24.2				21.9				22.6
			98.4	%			103.7	%			98.7	%			97.5	%
Income from operations			1.6	%			(3.7	)%			1.3	%			2.5	%
Interest expense			(1.8)	%			(1.8	)%			(1.6)	%			(1.6	)%
Other income, net			0.5				0.8				0.8				.6
Income before income taxes			0.3	%			(4.7	)%			0.5	%			1.5	%
Provision for income taxes			(0.1	)			(3.2	)			0.0				0.0
Net income			0.4	%			(1.5	)%			0.5	%			1.5	%

Video Display Corporation and Subsidiaries
November 30, 2009

Net sales

     Consolidated net sales decreased $0.7 million for the three months ended November 30, 2009 and decreased $5.7 million for the nine months ended November 30, 2009 as compared to the three and nine months ended November 30, 2008, respectively. Display segment sales increased $0.6 million for the three-month comparative period and decreased $3.2 million for the nine-month comparative period. Sales within the Wholesale Distribution segment decreased $1.3 million for the three-month comparative period and decreased $2.5 million for the nine-month comparative period.

     The net increase in Display Segment sales for the three months ended November 30, 2009 is attributed to the monitor division, as compared to the same period ended November 30, 2008. The Monitor revenues increased $0.8 million for the three-month comparable period but decreased $1.8 million over the nine-month period primarily due to delays in releases of long-term contracts during the first half of the year. The Entertainment revenues decreased $0.2 to the comparable three-month period and $0.6 to the comparable nine-month period primarily due to the slowdown of replacement CRTs. The Display revenues decreased $0.7 million for the comparable nine-month period due to the decrease in demand for this market. The decrease in sales in the wholesale segment for both the third quarter and the nine months ending November 30, 2009 are due to management’s decisions to reduce unprofitable sales and a slower economy.

Gross margins

     Consolidated gross margins decreased from 30.9% for the three months ended November 30, 2008 to 29.6% for the three months ended November 30, 2009 and decreased from 35.2% for the nine months ended November 30, 2008 to 33.5% for the nine months ended November 30, 2009.

     Display segment margins decreased from 32.3% to 25.2% for the comparable three month period ended November 30, 2009 and decreased from 31.3% to 26.8% for the comparative nine month period ended November 30, 2009 due to the absorption of the fixed overhead costs on lower sales volume. Gross margins within the Monitor division decreased from 31.6% to 26.4% for the comparable three-month period ended November 30, 2009 and decreased from 31.0% to 26.1% for the nine months ended November 30, 2009. This decrease is primarily attributable to the impact of lower sales in the Monitor division in Fiscal 2010. Data Display division gross margins decreased from 30.7% to 23.4% for the three month comparable period ended November 30, 2009 due to lower sales volume at the Data facility, and increased from 30.0% for the nine months ended November 30, 2008 to 32.7% for the nine months ended November 30, 2009, due to the impact of the increased margins at the Company’s Clinton Displays facility. Gross margins in home entertainment CRTs decreased from 38.0% to (79.8%) for the three-month comparable period ended November 30, 2009 and decreased from 27.2% for the nine months ended November 30, 2008 to (26.1%) for the nine months ended November 30, 2009, due to the reduction of manufactured tubes at the Chroma division. Gross margins from Component Parts sold decreased from 135.1% to 6.1% for the three-month comparable period ended November 30, 2009 and decreased from 128.3% for the nine months ended November 30, 2008 compared to 109.4% for the nine months ended November 30, 2009.

     The Wholesale Distribution segment margins increased from 28.1% to 40.8% for the three months comparable period ended November 30, 2009 and increased from 44.2% to 49.8% for the comparable nine-month period ended November 30, 2009 due to the changes in customer and product mix.

Video Display Corporation and Subsidiaries
November 30, 2009

Operating expenses

     Operating expenses as a percentage of sales decreased from 34.6% to 28.1% for the three-month comparable period ended November 30, 2009 and decreased from 32.7% for the nine months ended November 30, 2008 to 32.2% for the nine months ended November 30, 2009. The decreases in percentages and actual expenses are due primarily to a reduction in personnel costs for the comparable quarters as a result of management’s focus on reducing costs.

     Display segment operating expenses decreased from 32.4% to 23.8% of net sales for the three-month comparable period ended November 30, 2009 and increased from 17.9% to 18.0% for the nine-month period as compared to the comparable prior year period. The decreases are reduced wages, legal and professional fees.

     Wholesale Distribution segment operating expenses were flat at 38.8% of net sales for the three-month comparable period ended November 30, 2009 and decreased from 14.8% to 14.1% for the nine month period as compared to the comparable prior year period, primarily due to a reduction in salaries to offset a decline in sales as a result of management’s focus on reducing costs.

Interest expense

     Interest expense remained flat for the three-month comparable period ended November 30, 2009 and for the nine months ended November 30, 2009 as compared to the same period a year ago. The Company maintains various debt agreements with different interest rates, most of which are based on the prime rate or LIBOR. The interest expense reflects higher average borrowings outstanding and higher average interest rates.

Income taxes

     The effective tax rate for the three months ended November 30, 2009 and November 30, 2008 was (59.1)% and 69.0%, respectively and for the nine months ended November 30, 2009 and November 30, 2008 was 9.8% and (2.0)%, respectively. These rates differ from the Federal statutory rate primarily due to the effect of state taxes, the permanent non-deductibility of certain expenses for tax purposes and research and experimentation tax credits.

Liquidity and Capital Resources

     As of November 30, 2009, the Company had total cash of $0.7 million. The Company’s working capital was $20.6 million and $36.4 million at November 30, 2009 and February 28, 2009, respectively. This fluctuation is due to the line of credit becoming a short-term liability during the current year. In recent years, the Company has financed its growth and cash needs primarily through income from operations, borrowings under revolving credit facilities, advances from the Company’s Chief Executive Officer and long-term debt. Liquidity provided by operating activities of the Company is reduced by working capital requirements, largely inventories and accounts receivable, debt service, capital expenditures, product line additions, stock repurchases and dividends.

Video Display Corporation and Subsidiaries
November 30, 2009

     The Company markets certain products representing trailing-edge technology that may not be available from other sources, and may not be currently manufactured. In many instances, the Company’s products are components of larger display systems for which immediate availability is critical for the customer. Accordingly, the Company enjoys higher gross margins on certain products, but typically has larger investments in inventories than those of its competitors.

     The Company continues to monitor its cash and financing positions, seeking to find ways to lower its interest costs and to produce positive operating cash flow. The Company examines possibilities to grow its business as opportunities present themselves, such as new sales contracts or niche acquisitions. There could be an impact on working capital requirements to fund this growth. As in the past, the intent is to finance such projects with operating cash flows or existing bank lines; however, more permanent sources of capital may be required in certain circumstances.

     Cash provided by operations for the nine months ended November 30, 2009 was $0.7 million as compared to cash provided of $0.9 million for the nine months ended November 30, 2008. This net decrease in cash provided is primarily the result of a decrease in net income, an increase in uncompleted contracts, and an increase in inventories due to last time buys partially offset by an income tax refund and an increase in accounts payables.

     Investing activities used cash of $0.5 million primarily related to license agreements and purchases of equipment offset by changes in outside investments during the nine months ended November 30, 2009, compared to cash used of $1.2 million during the nine months ended November 30, 2008 for equipment purchases and the purchase of outside investments.

     Financing activities used cash of $0.2 million for the nine months ended November 30, 2009, compared to cash used of $0.0 million for the nine months ended November 30, 2008, reflecting net payments on the Company’s line of credit, and borrowings from the Company’s Chief Executive Officer and the purchases of Treasury stock.

     The Company’s debt agreements with financial institutions contain affirmative and negative covenants, including requirements related to tangible cash flow, ratio of debt to cash flow and assets coverage. The agreement also includes restrictions on the incurrence of additional debt or liens, investments (including Company stock), divestitures and certain other changes in the business. Substantially all of the Company’s retained earnings are restricted based upon these covenants. As of November 30, 2009, the Company was in violation of the Asset Coverage Ratio. The Company has received a waiver from RBC Bank for the covenant violation until the next measurement date of February 28, 2010. The waiver agreement was obtained on January 12, 2010 and contains no additional requirements for the Company to meet in order for it to be effective. If the current covenants are not amended prior to the next measurement date, management believes that it will violate the existing covenants for the term of the agreement. However, management and RBC Bank are negotiating possible revisions to financial covenants to levels that would be attainable by the Company.

     As of January 1, 2010, the Company was unable to refinance the Fox subsidiary’s line of credit that had an extension to refinance that expired on December 31, 2009. The Company expects to receive an additional 90-day extension on the Fox subsidiary’s line of credit. Additionally, the Company has 90 days to refinance the line of credit after the extension expires before the CEO’s limited guarantee would be enforced. The Company is in negotiations with financial institutions and expects the refinancing to be completed before the next filing.

     Management believes that it will be successful in its negotiations with lenders to revise the financial covenants to attainable levels or to obtain a waiver in the event no changes are made and a future default occurs. However, there can be no assurance that either an agreement can be reached or a waiver obtained. If an agreement cannot be reached or if the existing or amended covenants are not attainable and the lenders were to exercise their rights, the Company may experience liquidity problems which would have a material adverse effect on the Company, unless the lenders agree to additional waivers, forbearance or restructuring of the debt or unless the Company can refinance the debt.

     The Company has a stock repurchase program, pursuant to which it was originally authorized to repurchase up to 462,500 shares of the Company’s common stock in the open market. On July 8, 2009, the Board of Directors of the Company approved a continuation of the stock repurchase program, and authorized the Company to repurchase up to 1,000,000 additional shares of the Company’s common stock, depending on the market price of the shares. There is no minimum number of shares required to be repurchased under the program. Under this program, an additional 816,418 shares remain authorized to be repurchased by the Company at November 30, 2009. The Loan and Security Agreement executed by the Company on September 26, 2008 includes restrictions on investments that currently restrict further repurchases of stock under this program.

Video Display Corporation and Subsidiaries
November 30, 2009

Critical Accounting Policies

     Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon the Company’s consolidated financial statements. These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the use of estimates and assumptions that affect amounts reported and disclosed in the condensed consolidated financial statements and related notes. The accounting policies that may involve a higher degree of judgment, estimation, and complexity include reserves on inventories, revenue recognition, the allowance for bad debts and warranty reserves. The Company uses the following methods and assumptions in determining its estimates:

Reserves on inventories

     Reserves on inventories result in a charge to operations when the estimated net realizable value declines below cost. Management regularly reviews the Company’s investment in inventories for declines in value and establishes reserves when it is apparent that the expected net realizable value of the inventory falls below its carrying amount. Management considers the projected demand for CRTs in this estimate of net realizable value. Management is able to identify consumer buying trends, such as size and application, well in advance of supplying replacement CRTs. Thus, the Company is able to adjust inventory-stocking levels according to the projected demand. The average life of a CRT is five to seven years, at which time the Company’s replacement market develops. Management reviews inventory levels on a quarterly basis. Such reviews include observations of product development trends of the OEMs, new products being marketed, and technological advances relative to the product capabilities of the Company’s existing inventories. There have been no significant changes in management’s estimates in fiscal 2010 and 2009; however, the Company cannot guarantee the accuracy of future forecasts since these estimates are subject to change based on market conditions.

Revenue Recognition

     Revenue is recognized on the sale of products when the products are shipped, all significant contractual obligations have been satisfied, and the collection of the resulting receivable is reasonably assured. The Company’s delivery term typically is F.O.B. shipping point.

     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 operations. Shipping and handling costs incurred are classified in selling and delivery in the consolidated statements of operations.

     A portion of the Company’s revenue is derived from contracts to manufacture flat panel and CRTs 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”. These contracts are fixed-price and cost-plus contracts and are recorded 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.

     The Wholesale Distribution Segment has several distribution agreements that it accounts for using the gross revenue basis and one agreement that uses the net revenue basis as prescribed by FASB ASC Topic 605-45 “Revenue Recognition: Principal Agent Considerations”. The Company uses the gross method because the Company has general inventory risk, physical loss inventory risk and credit risk on the majority of its agreements but uses the net method on the one agreement because it does not have those same risks for that agreement. The call center service revenue is recognized based on written pricing agreements with each manufacturer, on a per-call, per-email, or per-standard-mail basis.

Video Display Corporation and Subsidiaries
November 30, 2009

Allowance for doubtful accounts

     The allowance for doubtful accounts is determined by reviewing all accounts receivable and applying historical 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 Company’s allowance has been sufficient for any customer write-offs. Although the Company cannot guarantee future results, management believes its policies and procedures relating to customer exposure are adequate.

Warranty reserves

     The warranty reserve is determined by recording a specific reserve for known warranty issues and a general reserve based on 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.

Other Accounting Policies

     Other loss contingencies are recorded as liabilities when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. Disclosure is required when there is a reasonable possibility that the ultimate loss will exceed the recorded provision. Contingent liabilities are often resolved over long time periods. Estimating probable losses requires analysis of multiple factors that often depend on judgments about potential actions by third parties.

Reclassified Revenues

     In the current year, the Company classified certain revenues previously reported on a gross basis to the net basis in the statement of operations. For comparative purposes, amounts in the prior years have been reclassified to conform to the current year presentation. These reclassifications had no effect on previously reported results of operations or retained earnings.

Recent Accounting Pronouncements

     See Note 2 in Notes to Condensed Consolidated Financial Statements (unaudited) for a full description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on our results of operations and financial conditions, which is incorporated herein by reference.

Forward-Looking Information and Risk Factors

     This report contains forward-looking statements and information that is based on management’s beliefs, as well as assumptions made by, and information currently available to management. When used in this document, the words “anticipate,” “believe,” “estimate,” “intends,” “will,” and “expect” and similar expressions are intended to identify forward-looking statements. Such statements involve a number of risks and uncertainties. These risks and uncertainties, which are included under Part I, Item 1A. Risk Factors in the Company’s Annual Report of Form 10-K for the year ended February 28, 2009 could cause actual results to differ materially.

Video Display Corporation and Subsidiaries
November 30, 2009

ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     The Company’s primary market risks include fluctuations in interest rates and variability in interest rate spread relationships, such as prime to LIBOR spreads. Approximately $21.2 million of outstanding debt at November 30, 2009 is related to indebtedness under variable rate debt. Interest on the outstanding balance of this debt will be charged based on a variable rate related to the prime rate or the LIBOR rate. Both rate bases are incremented for margins specified in their agreements. Thus, the Company’s interest rate is subject to market risk in the form of fluctuations in interest rates. The effect of a hypothetical one percentage point increase across all maturities of variable rate debt would result in a decrease of approximately $0.2 million in pre-tax income assuming no further changes in the amount of borrowings subject to variable rate interest from amounts outstanding at November 30, 2009. The Company does not trade in derivative financial instruments.

     The Company has a subsidiary in the U.K., which is not material, but uses the British pound as its functional currency. Due to its limited operations outside of the U.S., the Company’s exposure to changes in foreign currency exchange rates between the U.S. dollar and foreign currencies or to weakening economic conditions in foreign markets is not expected to significantly impact the Company’s financial position.

ITEM 4.		CONTROLS AND PROCEDURES

     Our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, such as this quarterly report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Our disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

     Our chief executive officer and chief financial officer have conducted an evaluation of the effectiveness of our disclosure controls and procedures as of November 30, 2009. We perform this evaluation on a quarterly basis so that the conclusions concerning the effectiveness of our disclosure controls and procedures can be reported in our annual report on Form 10-K and quarterly reports on Form 10-Q. Based on this evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective as of November 30, 2009.

Changes in Internal Controls

     There have not been any changes in our internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Video Display Corporation and Subsidiaries
November 30, 2009

PART II

Item 1.		Legal Proceedings

          On June 4, 2009, the Company announced that its Aydin Displays, Inc., subsidiary had entered into a License Agreement with BARCO Federal Systems, LLC, and BARCO N.V. a Belgian corporation. The License Agreement resolves all active litigation filed and currently pending between the companies in the U.S. District Court of North Georgia. As part of the Agreement, BARCO issued a non-exclusive license to Aydin Displays, Inc. for the use of BARCO’s patented Flicker Compensation(FC) technology utilized in certain advanced naval and industrial LCD displays. Under the terms of this agreement, Aydin is currently the only company worldwide licensed by BARCO for utilization of BARCO’s FC in advanced LCD displays.

          Through this agreement the Company is able to provide continued uninterrupted sales and support of LCD displays utilizing FC technology to existing and potential customer base. The Company looks on this agreement as mutually beneficial to both BARCO and Aydin in growing LCD display business.

Item 1A.		Risk Factors

Information regarding risk factors appears under the caption Forward-Looking Statements and Risk Factors in Part I, Item 2 of this Form 10-Q and in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended February 28, 2009. There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K.

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.		Defaults upon Senior Securities

None

Item 4.		Submission of Matters to a Vote of Security Holders

None.

Item 5.		Other information

None.

Video Display Corporation and Subsidiaries
November 30, 2009

Item 6.		Exhibits

Exhibit Number		Exhibit Description
3(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(b)		Lease dated June 1, 2008 by and between Registrant (Lessee) and Ronald D. Ordway (Lessor) with respect to premises located at 4601 Lewis Road, Stone Mountain, Georgia. (incorporated by reference to Exhibit 10(b) to the Company’s 2009 Annual Report on Form 10-K)
10(c)		Lease dated November 1, 2008 by and between Registrant (Lessee) and Ronald D. Ordway (Lessor) with respect to premises located at 1868 Tucker Industrial Road, Tucker, Georgia. (incorporated by reference to Exhibit 10(c) to the Company’s 2009 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 September 26, 2008, among Video Display Corporation and Subsidiaries and RBC Centura Bank as lender and RBC Centura Bank as collateral agent (incorporated by reference to Exhibit 10(h) to the Company’s Report on Form 10-Q dated January 14, 2009).
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).
10(j)		Amendment to Loan Documents and Waiver between Video Display Corporation and RBC Bank dated August 25, 2009(incorporated by reference to Exhibit 10(j) to the Company’s Report on Form 10-Q dated August 27, 2009).
10(k)		Waiver Agreement between Video Display Corporation and RBC Bank dated January 12, 2010.
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.

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.