VIDEO DISPLAY CORPORATION SHAREHOLDER LETTER

DECEMBER 28, 2016

To Our Shareholders:

In order to bring our Shareholders up to date with the current position and operations of Video Display Corporation (OTC Bulletin Board: VIDE), this letter is issued as an overview of the status of both of these factors as of today.

FINANCIAL:

A summary copy of our Financial Statements as reported on the Company’s second quarter report to the Securities & Exchange Commission (unaudited) as of August 31, 2016 are attached herewith.  A full copy of the 10-Q Filing is available online at the Edgar SEC Filings website.

In summary, revenues for the 6 month period ended 8/31/2016, excluding the Lexel Imaging Inc. subsidiary which was reported as a discontinued operation since the business was reported as being for sale, were $3,813,000 compared to the first 6 months of the previous comparable period of $5,283,000.  The net loss reported for the period was substantially reduced at ($770,000) versus the previous comparable period’s reported loss of ($2,935,000).   Both reported periods included income generated from discontinued operations.  Net loss on a per share basis for the six months in fiscal 2017 was ($0.13) versus ($0.50) for the previous comparable period in fiscal 2016.

Although the Company’s working capital as shown on the 10Q filing reports has increased by nearly $2.0 million, a major portion of that capital consists of customer deposits against future order deliveries and therefore the net liquidity and cash position remains relatively unchanged when compared to the Balance Sheet at the end of our fiscal 2016 year end.  Shareholder’s Book Equity has decreased during the first six months through 8/31/2016 by nearly $767,000 when compared to the end of fiscal 2/28/2016.  The Company has secured a new bank line of credit as of September 2016 in the amount of $500,000 to support raw material purchase requirements associated with recently booked purchase orders on several large contracts for deliveries during the balance of this fiscal year.

OPERATIONS:

VDC currently has four remaining operating subsidiaries:

(1)     Lexel Imaging Systems, Lexington KY

(2)     AYON CyberSecurity Systems, Palm Bay FL

(3)     VDC Display Systems, Cocoa FL

(4)     AYON Visual Solutions, Tucker GA

In addition to these subsidiaries, VDC continues to own the industrial real estate currently leased as part of the 2013 Agreement of Sale of Aydin Displays to Sparton Corp (NYSE: SPA) located in Birdsboro, PA.

The Company’s backlog of orders booked or anticipated currently stands at approximately $16.8 million for delivery primarily during the next 12 month period.  It is comprised of the following:

  (1)  Lexel Imaging Systems:   $7.25 million

  (2)  AYON CyberSecurity:       $2.54 million

  (3)  VDC Display Systems:      $3.56 million

  (4)  AYON Visual Solutions:   $3.49 million

The Company has numerous additional opportunities currently in the bidding or negotiating stages; however, these opportunities may or may not result in winning contracts.

Management continues its attempts to improve operating results through reduction of operating expenses.  We have reduced the leased space at Lexel Imaging in Kentucky which resulted in a substantial reduction in leasing costs.  In addition, the VDC DS Cape Canaveral operations have been moved to a new modern facility located just off I-95 in Cocoa, FL which allows the Company to present a far better image and is more convenient for the display customers visiting Display Systems in Cocoa.

AYON CyberSecurity has also reduced its floor space by 50%, going from 20,000 ft. to 10,000 ft. and has signed a one year lease for that space in Palm Bay FL.  However, the new VDC DS 34,000 ft. building is intended to be the new home of AYON CyberSecurity as well, upon the termination of the 12 month lease period to further reduce the base operating costs once positioned with VDC DS in the Cocoa facility.

In summary, we see the balance of fiscal 2017 and continuing on into fiscal 2018 as a period of growth and opportunity for the Company.  Operating expenses are now more aligned with the lower annual volume of revenues.  As we anticipate and succeed in generating future top line growth, VDC may be more successful in generating bottom line profits as well.

Ronald D. Ordway
Chief Executive Officer

Source: Video Display Corporation