What changed in this filing

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Item 1. Financial Statements

2021-12-13 compared with 2021-09-14 · 133 added, 120 removed, 353 unchanged (42% of the section changed)

66 unchanged sentences

Selling, general and administrative expenses 17,782 16,457

Gain on sale of property, plant & equipment — ( 7 )

Operating income 2,517 5,825

11 unchanged sentences

See accompanying notes to unaudited condensed consolidated financial statements.

Unaudited Condensed Consolidated Statements of Operations

Six months ended

Unaudited Condensed Consolidated Statements of Income

Nine months ended

10/31/2021 10/31/2020

4 unchanged sentences

Selling, general and administrative expenses 46,016 43,876

Gain on sale of property, plant & equipment — ( 7 )

Operating income 4,290 6,513

1 unchanged sentence

Interest expense 979 1,317

Loss before income taxes ( 109 ) ( 1,294 )

Income tax expense (benefit) 40 ( 149 )

Net loss $ ( 149 ) $ ( 1,145 )

Net loss per common share:

Income before income taxes 1,511 3,570

Income tax expense 335 235

Net income $ 1,176 $ 3,335

Net income per common share:

Basic $ 0.07 $ 0.21

Diluted (a) $ ( 0.01 ) $ ( 0.07 )

Diluted $ 0.07 $ 0.21

Weighted average shares of common stock outstanding:

Basic 15,927 15,566

Diluted (a) 15,872 15,694

(a) Net loss per common share was calculated based on basic shares outstanding due to the anti-dilutive effect on the inclusion of common stock equivalent shares.

Diluted 15,963 15,586

See accompanying notes to unaudited condensed consolidated financial statements.

5 unchanged sentences

Other comprehensive income:

Pension adjustments (net of tax expense of $ 803 and $ 120 at July 31, 2021 and 2020, respectively)

Pension adjustments (net of tax expense of $ 186 and $ 124 at October 31, 2021 and 2020, respectively)

Net comprehensive income $ 1,891 $ 4,821

See accompanying notes to unaudited condensed consolidated financial statements.

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)

Six months ended

Unaudited Condensed Consolidated Statements of Comprehensive Income

Nine months ended

10/31/2021 10/31/2020

(In thousands)

Net loss $ ( 149 ) $ ( 1,145 )

Net income $ 1,176 $ 3,335

Other comprehensive income:

Pension adjustments (net of tax expense of $ 919 and $ 240 at July 31, 2021 and 2020, respectively)

Net comprehensive income (loss) $ 2,438 $ ( 455 )

Pension adjustments (net of tax expense of $ 1,105 and $ 364 at October 31, 2021 and 2020, respectively)

Net comprehensive income $ 4,329 $ 4,366

See accompanying notes to unaudited condensed consolidated financial statements.

Unaudited Condensed Consolidated Statements of Cash Flows

Six months ended

Nine months ended

10/31/2021 10/31/2020

1 unchanged sentence

Operating activities

Net loss $ ( 149 ) $ ( 1,145 )

Adjustments to reconcile net loss to net cash used in operating activities:

Net income $ 1,176 $ 3,335

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 3,431 3,895

1 unchanged sentence

Provision for doubtful accounts 70 60

Gain on sale of property, plant and equipment — ( 7 )

Deferred income taxes 247 184

2 unchanged sentences

Amortization of net actuarial loss for pension plans 1,192 1,395

Surrender of life insurance policies ( 584 ) —

Changes in operating assets and liabilities:

5 unchanged sentences

Accounts payable and accrued liabilities 11,234 741

Net cash used in operating activities ( 8,557 ) ( 15,855 )

Net cash provided by operating activities 820 12,652

Investing activities:

Capital expenditures ( 2,280 ) ( 1,900 )

Proceeds from sale of property, plant and equipment — 82

Proceeds from life insurance policy 483 —

3 unchanged sentences

Repayment of long-term debt ( 17,943 ) ( 34,512 )

Payment on deferred financing costs ( 118 ) —

Tax withholding payments on share-based compensation ( 176 ) ( 155 )

Net cash provided by financing activities 9,649 16,942

Net increase (decrease) in cash 239 ( 272 )

Net cash provided by (used in) financing activities 2,317 ( 10,782 )

Net increase in cash 1,340 52

Cash at beginning of period 402 1,150

2 unchanged sentences

Unaudited Consolidated Statements of Changes in Stockholders' Equity

Three-Month Period Ended July 31, 2021

Three-Month Period Ended October 31, 2021

In thousands, except share data Shares Amount Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholder's Equity

Balance at May 1, 2021 15,918,642 $ 159 $ 119,908 $ ( 55,951 ) $ ( 13,258 ) $ 50,858

Balance at August 1, 2021 16,102,023 $ 161 $ 119,985 $ ( 52,191 ) $ ( 10,998 ) $ 56,957

Net income — — — 1,325 — 1,325

4 unchanged sentences

Stock compensation expense — — 253 — — 253

Balance at July 31, 2021 16,102,023 $ 161 $ 119,985 $ ( 52,191 ) $ ( 10,998 ) $ 56,957

Three-Month Period Ended July 31, 2020

Balance at October 31, 2021 16,102,023 $ 161 $ 120,238 $ ( 50,866 ) $ ( 10,432 ) $ 59,101

Three-Month Period Ended October 31, 2020

In thousands, except share data Shares Amount Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholder's Equity

Balance at May 1, 2020 15,713,549 $ 157 $ 119,036 $ ( 54,508 ) $ ( 13,966 ) $ 50,719

Balance at August 1, 2020 15,918,642 $ 159 $ 119,149 $ ( 50,955 ) $ ( 13,621 ) $ 54,732

Net income — — — 4,480 — 4,480

4 unchanged sentences

Stock compensation expense — — 253 — — 253

Balance at July 31, 2020 15,918,642 $ 159 $ 119,149 $ ( 50,955 ) $ ( 13,621 ) $ 54,732

Six-Month Period Ended July 31, 2021

Balance at October 31, 2020 15,918,642 $ 159 $ 119,402 $ ( 46,475 ) $ ( 13,280 ) $ 59,806

Nine-Month Period Ended October 31, 2021

In thousands, except share data Shares Amount Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive loss Total Stockholder's Equity

Balance at February 1, 2021 15,918,642 $ 159 $ 119,655 $ ( 52,042 ) $ ( 13,585 ) $ 54,187

Net loss — — — $ ( 149 ) — ( 149 )

Net income — — — $ 1,176 — 1,176

Cash dividends — — — — — —

3 unchanged sentences

Stock compensation expense — — 759 — — 759

Balance at July 31, 2021 16,102,023 $ 161 $ 119,985 $ ( 52,191 ) $ ( 10,998 ) $ 56,957

Six-Month Period Ended July 31, 2020

Balance at October 31, 2021 16,102,023 $ 161 $ 120,238 $ ( 50,866 ) $ ( 10,432 ) $ 59,101

Nine-Month Period Ended October 31, 2020

In thousands, except share data Shares Amount Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive loss Total Stockholder's Equity

Balance at February 1, 2020 15,713,549 $ 157 $ 118,782 $ ( 49,810 ) $ ( 14,311 ) $ 54,818

Net loss — — — $ ( 1,145 ) — ( 1,145 )

Net income — — — $ 3,335 — 3,335

Cash dividends — — — — — —

3 unchanged sentences

Stock compensation expense — — 759 — — 759

Balance at July 31, 2020 15,918,642 $ 159 $ 119,149 $ ( 50,955 ) $ ( 13,621 ) $ 54,732

Balance at October 31, 2020 15,918,642 $ 159 $ 119,402 $ ( 46,475 ) $ ( 13,280 ) $ 59,806

See accompanying notes to unaudited condensed consolidated financial statements.

Notes to unaudited Condensed Consolidated Financial Statements

July 31, 2021

October 31, 2021

Basis of Presentation

4 unchanged sentences

In the opinion of management, all adjustments considered necessary for a fair presentation have been included.

Operating results for the three and six months ended July 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2022.

Operating results for the three and nine months ended October 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2022.

The balance sheet at January 31, 2021 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements.

5 unchanged sentences

All intercompany balances and transactions have been eliminated in consolidation.

The classification of certain prior year sales allowances of approximately $ 171,000 and $ 389,000 was made for the three and six months ended July 31, 2020, respectively.

The reclassification of certain prior year sales allowances of approximately $ 480,000 and $ 869,000 was made for the three and nine months ended October 31, 2020, respectively.

The amounts of reclassification representing the replacement of damaged goods, previously presented in net sales, is presented in costs of goods sold in the accompanying prior period statements of income or operations, which conform to current period presentation.

Management evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern over the next 12 months through September 30, 2022.

The Company has experienced an overall decline in net sales and net income for the fiscal year ended January 31, 2021.

For the first six-months of fiscal 2022 the Company experienced a material increase in orders and shipments as schools received funding to support a return to classroom instruction.

As a result of the reduced revenue in the prior fiscal year, the Company was not in compliance with its fixed-charge coverage ratio under its revolving and secured credit agreement with PNC Bank, as of July 31, 2020, prior to an amendment and waiver negotiated to satisfy the event of default that also reduced the ratio required for the rolling four-quarter period ended October 31, 2020 from 1.10 :1.00 to 1.00 :1.00.

However, the Company was not in compliance with this amended fixed-charge ratio of 1.00:1.00 as of October 31, 2020 due to the continuing decline in net sales and net income.

The Company successfully negotiated a waiver and amendment on December 11, 2020 to the agreement to satisfy the event of default and amend the fixed-charge coverage ratio covenant.

The amended covenant allows the Company to add back certain COVID-19 related costs incurred between May 1, 2020 through April 30, 2021, not to exceed $ 2 million, to adjusted EBITDA and retains a minimum fixed-charge coverage ratio of 1.10 :1.00 beginning with the quarter ended January 31, 2021 (see Note 7 ).

The Company was in compliance with the covenants as of July 31, 2021.

The Company expects the impact of COVID-19 to continue to be a challenge for the foreseeable future and believes the economy will be adversely impacted for an indeterminate period, including the demand for its products and supply of materials and labor required to manufacture products.

For the first nine-months of fiscal 2022 the Company experienced an increase in shipments and material increase in orders as schools received funding to support a return to classroom instruction.

However, as a result of severe supply chain disruptions and labor shortages, the Company has experienced an increase in raw material prices and an increase in backlog which negatively impacted the Company’s net income for the nine months ended October 31, 2021.

As a result the Company was in violation of its financial covenants under the Restated Credit Agreement as of October 31, 2021.

On December 7, 2021, the Company successfully negotiated and entered into Amendment No.

1 to the Restated Credit Agreement (“Amendment No.

1”) with PNC Bank.

Amendment No.

1 provided a limited waiver of the Company’s violation of the covenant to maintain a fixed charge coverage ratio of at least 1.10 to 1.00 for the four fiscal quarter periods ended October 31, 2021, and amended the fixed charge coverage ratio as follows:

(i) 1.00 to 1.00 for each of the consecutive four fiscal quarter periods of Borrowers ending January 31, 2022 and April 30, 2022, and (ii) 1.10 to 1.00 for each consecutive four fiscal quarter periods of Borrowers ending thereafter.

In connection with Amendment No.

1, the Company also agreed to pay to PNC Bank a non-refundable fee of $ 50,000 (see Note 7 ).

The Company expects the impact of supply chain constraints and COVID-19 to continue to be a challenge for the foreseeable future and believes the economy will be adversely impacted for an indeterminate period, including the demand for its products and supply of materials and labor required to manufacture products.

The extent of the impact will depend on numerous factors that are unknown, uncertain and cannot be reasonably predicted.

Based on the Company’s current projections, including COVID-19 related costs, and its ability to manage certain controllable expenditures, management believes it will maintain compliance with the financial covenants for the next 12 months and that the Company’s existing cash, projected operating cash flows and available credit facilities, described in Note 7 , are adequate to meet its operating needs, liabilities and commitments over the next 12 months from the issuance of the interim financial statements.

Based on the Company’s current projections, including COVID-19 related costs and raw material costs, and its ability to introduce price increases and manage certain controllable expenditures, management believes it will maintain compliance with the financial covenants for the next 12 months after the interim financial statements are issued and that the Company’s existing cash, projected operating cash flows and available credit facilities, described in Note 7 , are adequate to meet its operating needs, liabilities and commitments over the next 12 months from the issuance of the interim financial statements.

Seasonality and Management Use of Estimates

The market for educational furniture is marked by extreme seasonality, with approximately 50 % of the Company’s total sales typically occurring from June to August each year, the Company’s peak season.

Hence, the Company typically builds and carries significant amounts of inventory during and in anticipation of this peak summer season to facilitate the rapid delivery requirements of customers in the educational market.

Hence, the Company typically builds and

carries significant amounts of inventory during and in anticipation of this peak summer season to facilitate the rapid delivery requirements of customers in the educational market.

This requires a large up-front investment in inventory, labor, storage and related costs as inventory is built in anticipation of peak sales during the summer months.

4 unchanged sentences

Second, many customers during this period are educational institutions and government entities, which tend to pay accounts receivable slower than commercial customers.

For the three and six months ended July 31, 2021, management believes that the traditional peak season has been and will continue to be impacted by economic conditions related to COVID 19.

For the three and nine months ended October 31, 2021, management believes that the traditional peak season has been and will continue to be impacted by economic conditions related to COVID 19.

The Company has experienced difficulty sourcing desired levels of temporary labor and permanent hires in the manufacturing and distribution facilities.

In addition, the Company is experiencing supply chain disruptions for raw materials.

These conditions have adversely impacted sales volume for the months of June and July.

The Company anticipates that a larger portion of its annual sales will occur in September, October, and November of the current fiscal year compared to prior years.

These conditions have adversely impacted sales volume for the months of June, July, August, and September.

In October, sales increased compared to the prior year.

The Company anticipates that a larger portion of its annual sales will occur in fourth quarter of the current fiscal year compared to prior years.

The Company’s working capital requirements during and in anticipation of the peak summer season require management to make estimates and judgments that affect assets, liabilities, revenues and expenses, and related contingent assets and liabilities.

5 unchanged sentences

and the accounts receivable allowance for doubtful accounts.

Due to the inherent uncertainty involved in making assumptions and estimates, events and changes in circumstances arising after July 31, 2021, including those resulting from the continuing impacts of the COVID-19 pandemic, may result in actual outcomes that differ from those contemplated by our assumptions and estimates.

Due to the inherent uncertainty involved in making assumptions and estimates, events and changes in circumstances arising after October 31, 2021, including those resulting from the continuing impacts of the COVID-19 pandemic, may result in actual outcomes that differ from those contemplated by our assumptions and estimates.

New Accounting Pronouncements

3 unchanged sentences

ASU 2016-13 replaces the incurred loss impairment methodology for measuring and recognizing credit losses with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

The adoption date, as modified by the recently issued ASU 2019-10, will be for the fiscal year ending after December 15, 2022 and interim periods therein.

The adoption date, as modified by ASU 2019-10, will be for the fiscal year ending after December 15, 2022 and interim periods therein.

The Company is currently evaluating the effect the standard will have on the consolidated financial statements and related disclosures.

9 unchanged sentences

Once a product has been delivered per the shipping terms, the customer is able to direct the use of, and obtain substantially all of the remaining benefits from, the asset.

The Company considers control to have transferred upon shipment or delivery in accordance with shipping

terms because the Company has a present right to payment at that time, the customer has legal title to the asset, the Company has transferred physical possession of the asset, and the customer has significant risks and rewards of ownership of the asset.

The Company considers control to have transferred upon shipment or delivery in accordance with shipping terms because the Company has a present right to payment at that time, the customer has legal title to the asset, the Company has transferred physical possession of the asset, and the customer has significant risks and rewards of ownership of the asset.

Sales are recorded net of discounts, sales incentives and rebates, sales taxes and estimated returns and allowances.

12 unchanged sentences

The Company records the cost of excess capacity as a period expense, not as a component of capitalized inventory valuation.

The following table presents a breakdown of the Company’s inventories as of July 31, 2021, January 31, 2021 and July 31, 2020:

The following table presents a breakdown of the Company’s inventories as of October 31, 2021, January 31, 2021 and October 31, 2020:

10/31/2021 1/31/2021 10/31/2020

12 unchanged sentences

In accordance with ASC 842, quantitative information regarding our leases is as follows:

Three-Months Ended Six-Months Ended

Three-Months Ended Nine-Months Ended

10/31/2021 10/31/2020 10/31/2021 10/31/2020

10 unchanged sentences

Weighted-average discount rate 6.4 % 6.4 %

Minimum future lease payments for operating leases in effect as of July 31, 2021, are as follows:

Minimum future lease payments for operating leases in effect as of October 31, 2021, are as follows:

Operating Lease

14 unchanged sentences

Non-current portion $ 12,547 $ 9,553 $ 5,185

The Company (the “Borrowers”) has a Revolving Credit and Security Agreement (the “Credit Agreement”) with PNC Bank, National Association, as administrative agent and lender (“PNC”).

The Credit Agreement has been amended twenty-two times since it’s origination in 2011 through fiscal 2021, which, among other things, extended the maturity date of the Credit Agreement for three years until March 19, 2023.

The Credit Agreement is an asset-based loan consisting of (i) a revolving line of credit with a Maximum Revolving Advance Amount of $ 65,000,000 that is subject to a borrowing base limitation and generally provides for advances of up to 85 % of eligible accounts receivable, plus a percentage equal to the lesser of 60 % of the value of eligible inventory or 85 % of the liquidation value of eligible inventory, plus $ 15,000,000 from January through July of each year, minus undrawn amounts of letters of credit and reserves and (ii) an equipment loan of $ 2,000,000 .

The Credit Agreement is secured by substantially all of the Company's, as defined, personal property and certain of the Company's real property.

The principal amount outstanding under the Credit Agreement and any accrued and unpaid interest is due no later than March 19, 2023, and the Credit Agreement is subject to certain prepayment penalties upon earlier termination of the Credit Agreement.

Prior to the maturity date, principal amounts outstanding under the Credit Agreement may be repaid and reborrowed at the option of the Borrowers without premium or penalty, subject to borrowing base limitations, seasonal adjustments and certain other conditions, including reduced borrowings under the revolving line to less than or equal $ 10,000,000 for a period of 30 consecutive days during the fourth quarter of each fiscal year.

The Credit Agreement also contains certain financial covenants, including a fixed charge coverage ratio beginning on February 1 st , 2020 of not less than 1.10 to 1.00, and capital expenditures not to exceed $ 8,000,000 .

The Company was in violation with its financial covenants as of July 31, 2020.

On September 8, 2020, the Company entered into Amendment No.

21 to the Credit Agreement (“Amendment No.

21”) with its lender, PNC Bank.

The Company and Virco Inc., its wholly-owned subsidiary (the “Borrowers”) has a Revolving Credit and Security Agreement (the “Credit Agreement”) with PNC Bank, National Association, as administrative agent and lender (“PNC”).

The Credit Agreement was amended numerous times since its origination in December 2011.

On September 28, 2021, the Borrowers entered into an Amended and Restated Revolving Credit and Security Agreement (the “Restated Credit Agreement”) with PNC Bank, which amended and restated the prior Credit Agreement.

The material terms of the Restated Credit Agreement are substantially the same as those of the prior Credit Agreement.

The Restated Credit Agreement permits the Company to issue dividends or make payments with respect to the Company’s capital stock in an aggregate amount up to $ 3,000,000 during any fiscal year, provided that no default shall have occurred or is continuing or would result from any such payment, and the Company must demonstrate pro forma compliance with a 12-month trailing fixed charge coverage ratio of not less than 1.20 :1.00 as of the fiscal quarter immediately preceding the date of any such dividend or payment.

The Restated Credit Agreement also requires the Company to maintain a minimum fixed charge coverage ratio, and contains numerous other covenants that limit under certain circumstances the ability of the Borrowers and their subsidiaries to, among other things, merge with or acquire other entities, incur new liens, incur additional indebtedness, sell assets outside of the ordinary course of business, enter into transactions with affiliates, or substantially change the general nature of the business of the Borrowers.

In connection with the Restated Credit Agreement, the Company also agreed to pay to PNC Bank a non-refundable fee of $ 50,000 .

The maturity date of the Restated Credit Agreement is March 19, 2023.

The other material terms of the Restated Credit Agreement are substantially the same as those of the original Credit Agreement, consisting of (i) a revolving line of credit with a Maximum Revolving Advance Amount of $ 65,000,000 that is subject to a borrowing base limitation and generally provides for advances of up to 85 % of eligible accounts receivable, plus a percentage equal to the lesser of 60 % of the value of eligible inventory or 85 % of the liquidation value of eligible inventory, plus $ 15,000,000 from January through July of each year, minus undrawn amounts of letters of credit and reserves and (ii) an equipment loan of $ 2,000,000 .

The Restated Credit Agreement is secured by substantially all of the Borrowers’ personal property and certain of the Borrowers’ real property.

The principal amount outstanding under the Credit Agreement and any accrued and unpaid interest is due no later than March 19, 2023, and the Restated Credit Agreement is subject to certain prepayment penalties upon earlier termination of the Restated Credit Agreement.

Prior to the maturity date, principal amounts outstanding under the Restated Credit Agreement may be repaid and reborrowed at the option of the Borrowers without premium or penalty, subject to borrowing base limitations, seasonal adjustments and certain other conditions, including reduced borrowings under the revolving line to less than or equal $ 10,000,000 for a period of 30 consecutive days during the fourth quarter of each fiscal year.

The Restated Credit Agreement also contains certain financial covenants, including a fixed charge coverage ratio beginning on February 1 st , 2021 of not less than 1.10 to 1.00, and capital expenditures not to exceed $ 8,000,000 .

The Company was in violation of its financial covenants under the Restated Credit Agreement as of October 31, 2021 due to a decline in the Company’s net income primarily attributable to the effects of severe supply chain disruptions and labor shortages due to COVID-19.

On December 7, 2021, the Company successfully negotiated and entered into Amendment No.

1 to the Restated Credit Agreement (“Amendment No.

1”) with PNC Bank.

Amendment No.

21 provided a limited waiver of the Company’s violation of the covenant to maintain a fixed charge coverage ratio of at least 1.00 to 1.00 for the four fiscal quarter period ended July 31, 2020, and amended the fixed charge coverage ratio as follows:

(i) 1.00 to 1.00 for the consecutive four fiscal quarter period ended October 31, 2020, and (ii) 1.10 to 1.00 for each consecutive four fiscal quarter period ending thereafter.

In connection with Amendment No.

1, the Company also agreed to pay to PNC Bank a non-refundable fee of $ 50,000 .

However, the Company was not in compliance with this amended fixed-charge ratio of 1.00 :1.00 as of October 31, 2020 due to the continuing decline in net sales and net income.

The Company successfully negotiated and entered into Amendment No.

22 on December 11, 2020 to the Revolving Credit and Security Agreement (“Amendment No.

22”) with its lender, PNC Bank.

Amendment No.

22 provided a limited waiver of the fixed-charge coverage Ratio for the four fiscal quarter period ended October 31, 2020 and amended the fixed-charge coverage calculation to allow for the add back of certain COVID-19 related costs incurred from May 1, 2020 through April 30, 2021 not to exceed $ 2 million to adjusted EBITDA beginning with the four fiscal quarter period ended January 31, 2021, and retains the required minimum coverage ratio of 1.10 :1.00.

In connection with Amendment No.

22, the Company also agreed to pay PNC Bank a non-refundable fee of $ 40,000 .

The Company was in compliance with the covenants as of July 31, 2021.

The Credit Agreement bears interest, at the Borrowers’ option, at either the Alternate Base Rate (as defined in the Credit Agreement) or the Eurodollar Currency Rate (as defined in the Credit Agreement), in each case plus an applicable margin.

The applicable margin for Alternate Base Rate loans is a percentage within a range of 1.25 % to 1.75 %, and the applicable margin for Eurodollar Currency Rate loans is a percentage within a range of 2.25 % to 2.75 %, in each case based on the EBITDA of the Borrower's at the end of each fiscal quarter and may be increased at PNC's option by 2.0 % during the continuance of an event of default.

The interest rate as of July 31, 2021 was 4.5 %.

The Revolving Credit Facility bears interest, at the Borrowers’ option, at either the Alternate Base Rate (as defined in the Credit Agreement) or the LIBOR Rate (as defined in the Credit Agreement), in each case plus an applicable margin.

The applicable margin for Alternate Base Rate loans is a percentage within a range of 1.25 % to 1.75 %, and the applicable margin for LIBOR Rate loans is a percentage within a range of 2.25 % to 2.75 %, and may be increased at the Lender’s option by 2.0 % during the continuance of an event of default.

Accrued interest with respect to principal amounts outstanding under the Credit Agreement is payable in arrears on a monthly basis for Alternative Base Rate loans, and at the end of the applicable interest period, but at most every three months for LIBOR Rate loans.

The interest rate as of October 31, 2021 was 4.5 %.

The Company also incurs a fee on the unused portion of the revolving line of credit at a rate of 0.375 %.

Last year the impact of COVID-19 on liquidity was to moderate the seasonal increase in accounts receivable and production of inventory for summer delivery.

Seasonal increases in accounts receivable and inventory are traditionally financed through the Company’s line of credit with PNC Bank.

The principal amount outstanding under the Credit Agreement and any accrued and unpaid interest is due no later than March 19, 2023, and the Revolving Credit Facility is subject to an early termination fee upon an earlier termination of the Revolving Credit Facility.

During the fiscal year ending January 31, 2021, the impact of COVID-19 on liquidity was to moderate the seasonal increase in accounts receivable and production of inventory for summer delivery.

Seasonal increases in accounts receivable and inventory

are traditionally financed through the Company’s line of credit with PNC Bank.

Reductions in inventory were substantially offset by a reduction in borrowing under the revolving line with PNC Bank.

In addition to the financial covenants, the Credit Agreement contains events of default as disclosed in Note 3 to our Annual Report on Form 10-K for the year-ended January 31, 2021.

Substantially all of the Borrowers' accounts receivable are automatically and promptly swept to repay amounts outstanding under the Credit Agreement upon receipt by the Borrowers.

Due to this automatic liquidating nature of the Credit Agreement, if the Borrowers breach any covenant, violate any representation or warranty or suffer a deterioration in their ability to borrow pursuant to the borrowing base calculation, the Borrowers may not have access to cash liquidity unless provided by PNC at its discretion.

In addition to the financial covenants, the Restated Credit Agreement contains events of default as disclosed in Note 3 to our Annual Report on Form 10-K for the year-ended January 31, 2021.

Substantially all of the Borrowers' accounts receivable are automatically and promptly swept to repay amounts outstanding under the Restated Credit Agreement upon receipt by the Borrowers.

Due to this automatic liquidating nature of the Restated Credit Agreement, if the Borrowers breach any covenant, violate any representation or warranty or suffer a deterioration in their ability to borrow pursuant to the borrowing base calculation, the Borrowers may not have access to cash liquidity unless provided by PNC at its discretion.

The Company's revolving line of credit with PNC is structured to provide seasonal credit availability during the Company's peak summer season.

Approximately $ 41,182,000 was available for borrowing as of July 31, 2021.

Management believes that the carrying value of debt approximated fair value at July 31, 2021 and 2020, as all of the long-term debt bears interest at variable rates based on prevailing market conditions.

Approximately $ 13,741,000 was available for borrowing as of October 31, 2021.

Management believes that the carrying value of debt approximated fair value at October 31, 2021, as all of the long-term debt bears interest at variable rates based on prevailing market conditions.

In assessing the realizability of deferred tax assets, the Company considers whether it is more-likely-than-not that some portion or all of its deferred tax assets will not be realized.

1 unchanged sentence

As a part of this evaluation, the Company assesses all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, the availability of tax carrybacks, tax-planning strategies, and results of recent operations (including cumulative losses in recent years), to determine whether sufficient future taxable income will be generated to realize existing deferred tax assets.

On the basis of this evaluation, and after considering future reversals of existing taxable temporary differences and the effects of seasonality on the Company’s business, the Company determined that its U.S.

federal deferred tax assets are more-likely-than-not to be realizable, but that valuation allowances of $ 1,144,000 , $ 1,064,000 and $ 1,186,000 as of July 31, 2021, January 31, 2021 and July 31, 2020, respectively, are needed for certain state NOL’s to reduce the carrying amount of deferred tax assets to an amount that is more-likely-than-not to be realized.

For the three months ended July 31, 2021 and 2020, the effective tax rates were 24.6 % and 46.8 %, respectively.

For the six months ended July 31, 2021 and 2020, the effective tax rates were ( 36.7 )% and 11.5 %, respectively.

Effective tax rates for the three months and six months ended July 31, 2021 and 2020 were primarily due to the change in forecasted mix of income before taxes in various jurisdictions, estimated permanent differences and the recording of a partial valuation allowance on net deferred tax assets.

On March 27, 2020, the then President signed the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act").

On the basis of this evaluation, and after considering future reversals of existing taxable temporary differences, the effects of seasonality on the Company’s business and the effects of severe supply chain disruptions and labor shortages due to COVID-19, the Company determined that its U.S.

federal deferred tax assets are more-likely-than-not to be realizable, but that valuation allowances of $ 1,237,000 , $ 1,064,000 and $ 1,133,000 as of October 31, 2021, January 31, 2021 and October 31, 2020, respectively, are needed for certain state NOL’s to reduce the carrying amount of deferred tax assets to an amount that is more-likely-than-not to be realized.

For the three months ended October 31, 2021 and 2020, the effective tax rates were 18.2 % and 7.9 %, respectively.

For the nine months ended October 31, 2021 and 2020, the effective tax rates were 22.2 % and 6.6 %, respectively.

Effective tax rates for the three months and nine months ended October 31, 2021 and 2020 were primarily due to the change in forecasted mix of income before taxes in various jurisdictions, estimated permanent differences and the recording of a partial valuation allowance on net deferred tax assets.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed.

The Company has performed an analysis of the impact of the CARES Act and have determined that the impact would not be significant.

6 unchanged sentences

The Company is currently under IRS examination for its fiscal year ended January 31, 2016 Federal tax return.

Net income (loss) per Share

Three Months Ended Six Months Ended

Net income per Share

Three Months Ended Nine Months Ended

10/31/2021 10/31/2020 10/31/2021 10/31/2020

(In thousands, except per share data)

Net income (loss) $ 3,760 $ 3,553 $ ( 149 ) $ ( 1,145 )

Net income $ 1,325 $ 4,480 $ 1,176 $ 3,335

Weighted average shares of common stock outstanding 16,033 15,733 15,927 15,566

1 unchanged sentence

Totals 16,082 15,767 15,963 15,586

Net income (loss) per share - basic $ 0.24 $ 0.23 $ ( 0.01 ) $ ( 0.07 )

Net income (loss) per share - diluted (a) $ 0.24 $ 0.23 $ ( 0.01 ) $ ( 0.07 )

(a) At July 31, 2021 and 2020, approximately 1,500 and 5,000 shares of common stock equivalents were excluded in the computation of diluted net loss per share, as the effect would be anti-dilutive since the Company reported a net loss.

Net income per share - basic $ 0.08 $ 0.28 $ 0.07 $ 0.21

Net income per share - diluted $ 0.08 $ 0.28 $ 0.07 $ 0.21

Stock-Based Compensation

4 unchanged sentences

The Company determines the fair value of its restricted stock units or awards and related compensation expense as the difference between the market value of the units or awards on the date of grant less the exercise price of the units or awards granted.

During the six-month period ended July 31, 2021, the Company granted 68,870 awards to non-employee directors, vested 140,295 shares according to their terms and forfeited 0 shares under the 2019 Plan.

As of July 31, 2021, there were approximately 628,435 shares available for future issuance under the 2019 Plan.

During the nine-month period ended October 31, 2021, the Company granted 68,870 awards to non-employee directors, vested 140,295 shares according to their terms and forfeited 0 shares under the 2019 Plan.

As of October 31, 2021, there were approximately 628,435 shares available for future issuance under the 2019 Plan.

Under the 2011 Plan, the Company may grant an aggregate of 2,000,000 shares to its employees in the form of restricted stock units and non-employee directors in the form of restricted stock awards.

1 unchanged sentence

During the six-month period ended July 31, 2021, the Company granted 0 restricted awards to non-employee directors and 0 units to its employees;

During the nine-month period ended October 31, 2021, the Company granted 0 restricted awards to non-employee directors and 0 units to its employees;

vested 0 stock awards and 119,200 units according to their terms and forfeited 0 stock units under the 2011 Plan.

As of July 31, 2021, there were approximately 12,892 shares available for future issuance under the 2011 Plan.

During the three months ended July 31, 2021, stock-based compensation expense related to restricted stock units and awards recognized in cost of goods sold and selling, general and administrative expenses was $ 55,000 and $ 198,000 , respectively.

During the three months ended July 31, 2020, stock-based compensation expense related to restricted stock units and/or awards recognized in cost of goods sold and selling, general and administrative expenses was $ 65,000 and $ 187,000 , respectively.

During the six months ended July 31, 2021, stock-based compensation expense related to restricted stock units and awards recognized in cost of goods sold and selling, general and administrative expenses was $ 110,000 and $ 396,000 , respectively.

During the six months ended July 31, 2020, stock-based compensation expense related to restricted stock units and/or awards recognized in cost of goods sold and selling, general and administrative expenses was $ 128,000 and $ 378,000 , respectively.

As of July 31, 2021, there was $ 1,668,000 of unrecognized compensation expense related to unvested restricted stock units and/or awards, which is expected to be recognized over a weighted average period of approximately 3 years.

As of October 31, 2021, there were approximately 12,892 shares available for future issuance under the 2011 Plan.

During the three months ended October 31, 2021, stock-based compensation expense related to restricted stock units and awards recognized in cost of goods sold and selling, general and administrative expenses was $ 54,000 and $ 199,000 , respectively.

During the three months ended October 31, 2020, stock-based compensation expense related to restricted stock units and/or awards recognized in cost of goods sold and selling, general and administrative expenses was $ 65,000 and $ 188,000 , respectively.

During the nine months ended October 31, 2021, stock-based compensation expense related to restricted stock units and awards recognized in cost of goods sold and selling, general and administrative expenses was $ 164,000 and $ 595,000 , respectively.

During the nine months ended October 31, 2020, stock-based compensation expense related to restricted stock units and/or awards recognized in cost of goods sold and selling, general and administrative expenses was $ 193,000 and $ 566,000 , respectively.

As of October 31, 2021, there was $ 1,415,000 of unrecognized compensation expense related to unvested restricted stock units and/or awards, which is expected to be recognized over a weighted average period of approximately 3 years.

Retirement Plans

6 unchanged sentences

As the amount of the lump-sum settlement exceeded the sum of the service and interest cost for the year, the distribution was treated as a settlement in accordance with U.S.

GAAP, resulting in plan settlement loss of $ 220,000 recorded in pension expense in the accompanying condensed consolidated statements of operations and an actuarial gain on the plan re-measurement of $ 1,770,000 , net of tax, recorded to accumulated other comprehensive income for the three and six-months ended July 31, 2021.

The net periodic pension cost for the Pension Plan and the VIP Plan for the three and six months ended July 31, 2021 and 2020 were as follows:

GAAP, resulting in plan settlement loss of $ 285,000 recorded in pension expense in the accompanying condensed consolidated statements of operations and an actuarial gain on the plan re-measurement of $ 2,059,000 , net of tax, recorded to accumulated other comprehensive income for the three and nine months ended October 31, 2021.

The net periodic pension cost for the Pension Plan and the VIP Plan for the three and nine months ended October 31, 2021 and 2020 were as follows:

Combined Employee Retirement Plans

Three Months Ended Six Months Ended

Three Months Ended Nine Months Ended

10/31/2021 10/31/2020 10/31/2021 10/31/2020

11 unchanged sentences

The plan includes Virco stock as one of the investment options.

At July 31, 2021 and 2020, the plan held 991,899 shares and 850,789 shares of Virco stock, respectively.

For the three months ended July 31, 2021 and 2020, the compensation costs incurred for employer match, which is paid in the form of Company stock, was $ 207,000 and $ 195,000 , respectively.

For the six months ended July 31, 2021 and 2020, the compensation costs incurred for employer match, which is paid in the form of Company stock, was $ 391,000 and $ 405,000 , respectively.

At October 31, 2021 and 2020, the plan held 1,026,096 shares and 893,811 shares of Virco stock, respectively.

For the three months ended October 31, 2021 and 2020, the compensation costs incurred for employer match, which is paid in the form of Company stock, was $ 217,000 and $ 182,000 , respectively.

For the nine months ended October 31, 2021 and 2020, the compensation costs incurred for employer match, which is paid in the form of Company stock, was $ 608,000 and $ 587,000 , respectively.

Warranty Accrual

6 unchanged sentences

The Company accrues an estimate of its exposure to warranty claims based upon both product sales data and an analysis of actual warranty claims incurred.

The following is a summary of the Company’s warranty-claim activity for the three and six months ended July 31, 2021 and 2020:

Three Months Ended Six Months Ended

The following is a summary of the Company’s warranty-claim activity for the three and nine months ended October 31, 2021 and 2020:

Three Months Ended Nine Months Ended

10/31/2021 10/31/2020 10/31/2021 10/31/2020

11 unchanged sentences

Delivery Costs

For the three months ended July 31, 2021 and 2020, shipping and classroom delivery costs of approximately $ 5,112,000 and $ 4,907,000 , respectively, were included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income.

For the six months ended July 31, 2021 and 2020, shipping and classroom delivery costs of approximately $ 8,033,000 and $ 6,985,000 , respectively, were included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

For the three months ended October 31, 2021 and 2020, shipping and classroom delivery costs of approximately $ 6,209,000 and $ 6,014,000 , respectively, were included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income.

For the nine months ended October 31, 2021 and 2020, shipping and classroom delivery costs of approximately $ 14,242,000 and $ 12,999,000 , respectively, were included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

On March 11, 2020, the World Health Organization declared the current coronavirus (COVID-19) outbreak to be a global pandemic.

In response to this declaration and the rapid spread of COVID-19 within the United States, federal, state and local governments throughout the country have imposed varying degrees of restriction on social and commercial activity to promote social distancing in an effort to slow the spread of the illness.

During first quarter ended April 30, 2021, the Company operated its manufacturing and distribution facilities on a voluntary basis to give employees the flexibility to remain at home with children who are out of school or for other personal reasons as they deem necessary.

Through April 30, 2021, the Company operated its manufacturing and distribution facilities on a voluntary basis to give employees the flexibility to remain at home with children who are out of school or for other personal reasons as they deem necessary.

Subsequent to April 30, 2021 and after vaccinations were available, the Company required all manufacturing and distribution employees to return to work.

4 unchanged sentences

Subsequent Events

As discussed in Notes 1 and 7, the Company executed Amendment No.

1 to the Restated Credit Agreement.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements