What changed in this filing

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Item 1. Financial Statements

2022-06-10 compared with 2021-12-13 · 107 added, 212 removed, 274 unchanged (54% of the section changed)

51 unchanged sentences

Authorized 25,000,000 shares, $ 0.01 par value;

issued and outstanding 16,102,023 shares at 10/31/2021 and 15,918,642 at 1/31/2021 and 10/31/2020

issued and outstanding 16,102,023 shares at 4/30/2022 and 1/31/2022 and 15,918,642 at 4/30/2021

Additional paid-in capital 120,745 120,492 119,908

4 unchanged sentences

See accompanying notes to unaudited condensed consolidated financial statements.

Unaudited Condensed Consolidated Statements of Income

Unaudited Condensed Consolidated Statements of Operations

Three months ended

5 unchanged sentences

Selling, general and administrative expenses 14,451 11,983

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

Operating income 2,517 5,825

Pension expense 570 542

Interest expense 327 419

Income before income taxes 1,620 4,864

Income tax expense 295 384

Net income $ 1,325 $ 4,480

Net income per common share:

Basic $ 0.08 $ 0.28

Diluted $ 0.08 $ 0.28

Weighted average shares of common stock outstanding:

Basic 16,033 15,733

Diluted 16,082 15,767

See accompanying notes to unaudited condensed consolidated financial statements.

Unaudited Condensed Consolidated Statements of Income

Nine months ended

10/31/2021 10/31/2020

(In thousands, except per share data)

Net sales $ 144,720 $ 134,494

Costs of goods sold 94,414 84,112

Gross profit 50,306 50,382

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

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

Operating income 4,290 6,513

Operating loss ( 4,744 ) ( 4,295 )

Pension expense 195 506

Interest expense 427 293

Income before income taxes 1,511 3,570

Income tax expense 335 235

Net income $ 1,176 $ 3,335

Net income per common share:

Loss before income taxes ( 5,366 ) ( 5,094 )

Income tax benefits ( 282 ) ( 1,185 )

Net loss $ ( 5,084 ) $ ( 3,909 )

Net loss per common share:

Basic $ ( 0.32 ) $ ( 0.25 )

4 unchanged sentences

See accompanying notes to unaudited condensed consolidated financial statements.

Unaudited Condensed Consolidated Statements of Comprehensive Income

Unaudited Condensed Consolidated Statements of Comprehensive Loss

Three months ended

1 unchanged sentence

(In thousands)

Net income $ 1,325 $ 4,480

Other comprehensive income:

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

Nine months ended

10/31/2021 10/31/2020

(In thousands)

Net income $ 1,176 $ 3,335

Net loss $ ( 5,084 ) $ ( 3,909 )

Other comprehensive income:

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

Pension adjustments (net of tax expense of $ 0 and $ 116 at April 30, 2022 and 2021, respectively)

Net comprehensive loss $ ( 4,949 ) $ ( 3,582 )

See accompanying notes to unaudited condensed consolidated financial statements.

Unaudited Condensed Consolidated Statements of Cash Flows

Nine months ended

Three months ended

4/30/2022 4/30/2021

1 unchanged sentence

Operating activities

Net income $ 1,176 $ 3,335

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

Net loss $ ( 5,084 ) $ ( 3,909 )

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

Depreciation and amortization 1,129 1,151

1 unchanged sentence

Provision for doubtful accounts 15 15

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

Amortization of debt issuance costs 43 —

Deferred income taxes ( 370 ) ( 1,279 )

Stock-based compensation 253 253

Defined pension plan settlement 285 —

Amortization of net actuarial loss for pension plans 135 443

Surrender of life insurance policies ( 584 ) —

Changes in operating assets and liabilities:

5 unchanged sentences

Accounts payable and accrued liabilities ( 340 ) 5,422

Net cash provided by operating activities 820 12,652

Net cash used in operating activities ( 18,966 ) ( 6,958 )

Investing activities:

Capital expenditures ( 609 ) ( 233 )

Proceeds from sale of property, plant and equipment — 82

Proceeds from life insurance policy 483 —

Net cash used in investing activities ( 609 ) ( 233 )

3 unchanged sentences

Payment on deferred financing costs ( 200 ) —

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

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

Net increase in cash 1,340 52

Net cash provided by financing activities 18,755 7,345

Net (decrease) increase in cash ( 820 ) 154

Cash at beginning of period 1,359 402

2 unchanged sentences

Unaudited Consolidated Statements of Changes in Stockholders' Equity

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

Net income — — — 1,325 — 1,325

Cash dividends — — — — — —

Pension adjustments, net of tax effect of $ 186

— — — — 566 566

Shares vested and others — — — — — —

Stock compensation expense — — 253 — — 253

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

Net income — — — 4,480 — 4,480

Cash dividends — — — — — —

Pension adjustments, net of tax effect of $ 124

— — — — 341 341

Shares vested and others — — — — — —

Stock compensation expense — — 253 — — 253

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

Nine-Month Period Ended October 31, 2021

Three-Month Period Ended April 30, 2022

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, 2022 16,102,023 $ 161 $ 120,492 $ ( 67,178 ) $ ( 6,029 ) $ 47,446

Net income — — — $ 1,176 — 1,176

Net loss — — — ( 5,084 ) — ( 5,084 )

Cash dividends — — — — — —

3 unchanged sentences

Stock compensation expense — — 253 — — 253

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

Nine-Month Period Ended October 31, 2020

Balance at April 30, 2022 16,102,023 $ 161 $ 120,745 $ ( 72,262 ) $ ( 5,894 ) $ 42,750

Three-Month Period Ended April 30, 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 income — — — $ 3,335 — 3,335

Net loss — — — ( 3,909 ) — ( 3,909 )

Cash dividends — — — — — —

3 unchanged sentences

Stock compensation expense — — 253 — — 253

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

Balance at April 30, 2021 15,918,642 $ 159 $ 119,908 $ ( 55,951 ) $ ( 13,258 ) $ 50,858

See accompanying notes to unaudited condensed consolidated financial statements.

Notes to unaudited Condensed Consolidated Financial Statements

October 31, 2021

April 30, 2022

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 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.

Operating results for the three months ended April 30, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2023.

The balance sheet at January 31, 2022 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.

1 unchanged sentence

Corporation and its subsidiaries.

Principles of Consolidation and Reclassification

The consolidated financial statements include the accounts of Virco Mfg.

Corporation and its wholly-owned subsidiaries.

All intercompany balances and transactions have been eliminated in consolidation.

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 after the interim financial statements are issued.

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

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 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 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, 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.

For the three months ended April 30, 2022, management believes that the traditional peak season has been and will continue to be impacted by economic conditions related to supply chain disruption and COVID 19.

The Company is experiencing supply chain disruptions for raw materials.

In addition, the Company's customers are experiencing supply chain disruption impacting the completion of new school construction and renovation.

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 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.

Due to the inherent uncertainty involved in making assumptions and estimates, events and changes in circumstances arising after April 30, 2022, including those resulting from the continuing impacts of the COVID-19 pandemic and supply chain disruption, 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 ASU 2019-10, will be for the fiscal year ending after December 15, 2022 and interim periods therein.

The adoption date, as modified by the recently issued ASU 2019-10, will be for the fiscal year beginning 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.

14 unchanged sentences

Variable consideration for these programs is estimated in the transaction price at contract inception based on current sales levels and historical experience using the expected value method, subject to constraint.

We do not consider our revenue generated through direct-to-customers and resellers to be meaningfully different revenue streams given similarities in the nature of the products, performance obligation and distribution processes.

The Company generates revenue primarily by manufacturing and distributing products through resellers and direct-to-customers.

Control transfers to both resellers and direct customers at a point in time when the delivery process is complete as determined by the corresponding shipping terms.

Therefore, we do not consider them to be meaningfully different revenue streams given similarities in the nature of the products, performance obligation and distribution processes.

Sales are predominately in the United States and to a similar class of customer.

3 unchanged sentences

Valuation adjustments for slow-moving and obsolete inventory are calculated using an estimated percentage applied to inventories based on a physical inspection of the product in connection with a physical inventory, a review of slow-moving products and component stage, inventory category, historical and forecasted consumption of sales, and consideration of active marketing programs.

The market for education furniture is traditionally driven by value, not style, and the Company has not typically incurred significant obsolescence expenses.

The market for education furniture is traditionally driven by value, not style, and the Company has not typically incurred material obsolescence expenses.

If market conditions are less favorable than those anticipated by management, additional valuation adjustments may be required.

1 unchanged sentence

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 October 31, 2021, January 31, 2021 and October 31, 2020:

The following table presents a breakdown of the Company’s inventories as of April 30, 2022, January 31, 2022 and April 30, 2021:

4/30/2022 1/31/2022 4/30/2021

11 unchanged sentences

Lease expense for our operating leases is recognized on a straight-line basis over the lease term.

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

Three-Months Ended Nine-Months Ended

The quantitative information regarding our leases is as follows:

Three-Months Ended

4/30/2022 4/30/2021

2 unchanged sentences

Short-term lease cost 97 96

Short-term sublease income ( 10 ) ( 10 ) ( 30 ) ( 30 )

Sublease income ( 10 ) ( 10 )

Variable lease cost 253 530

5 unchanged sentences

Weighted-average discount rate 6.38 % 6.40 %

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

Minimum future lease payments for operating leases in effect as of April 30, 2022, are as follows:

Operating Lease

(in thousands)

Remaining of 2022 $ 1,452

For the year ending January 31, (in thousands)

Remaining balance of lease payments $ 16,595

11 unchanged sentences

Non-current portion $ 14,564 $ 14,173 $ 14,795

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 Company and Virco Inc., its wholly-owned subsidiary (the “Borrowers”) have 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.

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

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 and effectively incorporated all of the prior amendments into an amended and restated form of 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.

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

The Restated Credit Agreement is subject to certain prepayment penalties upon early 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.

In connection with Amendment No.

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

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 %.

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.

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 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.

The Restated Credit Agreement also contains certain financial covenants, including a fixed charge coverage ratio and limits on capital expenditures.

The Company was in violation of its financial covenants under the Restated Credit Agreement as of January 31, 2022, due to an increase in the Company’s net loss primarily attributable to the effects of supply chain disruptions and labor shortages.

On April 15, 2022, the Company entered into Amendment No.

2 to the Credit Agreement (“Amendment No.

2”), which implemented the following changes to the Credit Agreement and Revolving Credit Facility:

extended the final maturity date of the Revolving Credit Facility from March 19, 2023 to April 15, 2027;

increased the borrowing limit from $ 65,000,000 to $ 70,000,000 in July 2022 and August 2022, and increased the borrowing limit from $ 40,000,000 to $ 45,000,000 in October 2022;

waived the Company’s violation of the covenant to maintain a fixed charge coverage ratio of at least 1.00 for the period ended January 31, 2022;

for the first and second quarters of fiscal year ending January 31, 2023, implemented a temporary year-to-date adjusted EBITDA covenant in lieu of testing the fixed charge coverage ratio covenant as of such quarters, with quarterly testing of the fixed charge coverage ratio to resume for the third fiscal quarter and thereafter;

permits a sale and leaseback transaction of the Company’s property at 1655 Amity Road and release of the lender’s pledge on the property, with the net proceeds to be used for a proposed share repurchase;

retired LIBOR pricing on the Revolving Credit Facility and replaced with BSBY index, with pricing tiers and spreads to remain the same;

extended the P-card, ACH Credit, and ACH debit facilities for an additional year beyond their current maturities;

Borrowers to pay a $ 250,000 extension fee and $ 75,000 waiver and amendment fee, with $ 200,000 due at closing and $ 125,000 due on the first anniversary of closing.

Based on the Company’s current projections, including COVID-19 related costs, raw material costs and its ability to introduce price increases, management believes it will maintain compliance with the financial covenants within Amendment No.

2, although there are uncertainties there within, such as raw material costs and supply chain challenges.

The Company was in compliance with its debt covenants as of April 30, 2022.

In addition to the financial covenants, the Restated Credit Agreement provides for customary events of default, subject to certain cure periods and other limitations.

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.

1 unchanged sentence

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

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.

Approximately $ 11,699,000 was available for borrowing as of April 30, 2022.

The interest rate as of April 30, 2022 was 5.25 %.

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

Management believes that the carrying value of debt approximated fair value at April 30, 2022, 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.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income or reversal of deferred tax liabilities during the periods in which those temporary differences become deductible.

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, 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.

The CARES Act provides single-employer pension companies additional time to meet the funding obligations.

Consequently, the tax deduction related to such contributions will be deferred until the funding payment is made.

The CARES Act also modifies the limitation for business interest expense deduction.

The new limitation has increased from 30 to 50 percent of adjusted taxable income.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income or reversal of deferred tax liabilities during the periods in which those temporary

differences become deductible.

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 carry backs, 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.

The Company incurred operating losses for fiscal years ended January 31, 2022 and 2021 and when combined with operating results from fiscal year ended January 31, 2020, the Company had incurred a cumulative operating loss for the last three fiscal years.

As a result, the Company identified objective and verifiable negative evidence in the form of cumulative losses in the U.S.

and in certain state jurisdictions over the preceding twelve quarters ended January 31, 2022.

While the Company has taken significant measures to return to profitability, and order rates at the beginning of the year are favorable, the short-term outlook for the school furniture market is challenging, particularly relating to ongoing supply chain difficulties.

During the fourth quarter of the year ended January 31, 2022, based on 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 the realization of a majority of the net deferred tax assets no longer met the more likely than not criteria and a valuation allowance was recorded against the majority of the net deferred tax assets.

Valuation allowances of $ 10,099,000 , $ 11,412,000 and $ 996,000 as of April 30, 2022, January 31, 2022 and April 30, 2021, respectively, are needed for federal deferred tax assets and certain state net operating loss carryforwards to reduce the carrying amount of deferred tax assets to an amount that is more-likely-than-not to be realized.

For the first quarter ended April 30, 2022 and 2021, the effective tax rates were 5.3 % and 23.3 %, respectively.

The change in effective tax rates for the three months ended April 30, 2022 was primarily due to the recording of a valuation allowance needed for federal deferred tax assets and certain state net operating loss carryforwards which commenced in the fourth quarter of fiscal year ended January 31, 2022 and continued through the period ended April 30, 2022.

Effective tax rate for the first quarter ended April 30, 2021 was 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.

The January 31, 2017 and subsequent years remain open for examination by the IRS and state tax authorities.

1 unchanged sentence

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

Net income per Share

Three Months Ended Nine Months Ended

Net loss per Share

Three Months Ended

4/30/2022 4/30/2021

(In thousands, except per share data)

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

Net loss $ ( 5,084 ) $ ( 3,909 )

Weighted average shares of common stock outstanding 16,033 15,824

Net effect of dilutive shares - based on the treasury stock method using average market price 49 34 36 20

Dilutive effect of common stock equivalents from equity incentive plans — —

Totals 16,033 15,824

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

Net loss per share - basic $ ( 0.32 ) $ ( 0.25 )

Net loss per share - diluted (a) $ ( 0.32 ) $ ( 0.25 )

(a) At April 30, 2022 and 2021, approximately 169,000 and 155,000 shares of common stock equivalents were excluded from the computation of diluted net loss per share, as the effect would be anti-dilutive since the Company reported a net loss.

Stock-Based Compensation

Stock Incentive Plan

The Company's two stock incentive plans are the 2019 Employee Stock Incentive Plan (the “2019 Plan”) and the 2011 Employee Incentive Stock Plan (the “2011 Plan”).

Under the Company's 2019 Plan, the Company may grant an aggregate of 1,000,000 shares to its employees in the form of restricted stock units and non-employee directors in the form of restricted stock awards.

Restricted stock units and awards granted under the 2019 Plan are expensed ratably over the vesting period of the awards.

The Company's two stock incentive plans are the 2019 Omnibus Equity Incentive Plan (the “2019 Plan”) and the 2011 Stock Incentive Plan (the “2011 Plan”).

Under the 2019 Plan, the Company may grant an aggregate of 1,000,000 shares to its employees in the form of restricted stock units and non-employee directors in the form of restricted stock awards.

Restricted stock units and awards granted under the

2019 Plan are expensed ratably over the vesting period of the awards.

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 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.

During the three-month period ended April 30, 2022, the Company granted 0 awards, vested 0 shares according to their terms and forfeited 0 shares under the 2019 Plan.

As of April 30, 2022, there were approximately 608,435 shares available for future issuance under the 2019 Plan.

The Board of Directors has approved an increase in the number of shares available for grant under the 2019 Plan from 1,000,000 to 2,000,000 shares, which increase is subject to approval of the Company’s stockholders at the upcoming 2022 Annual Meeting of Stockholders.

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 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 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.

The 2011 Plan expired in 2021 and no new awards may be made under the 2011 Plan, although existing awards will remain outstanding in accordance with their terms.

There were no restricted stock awards granted or vested under the 2011 Plan during the three-month period ended April 30, 2022.

During the three months ended April 30, 2022 and 2021, 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 $ 55,000 and $ 198,000 , respectively.

As of April 30, 2022, there was $ 908,000 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

4 unchanged sentences

As more fully described in the Annual Report on Form 10-K for the year ended January 31, 2022, benefit accruals under this plan were frozen since December 31, 2003.

During the second quarter ended July 31, 2021, the Company, at the retirees request, paid lump-sum distributions for the related benefit obligations.

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 $ 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:

The net periodic pension cost for the Pension Plan and the VIP Plan for the three months ended April 30, 2022 and 2021 were as follows:

Combined Employee Retirement Plans

Three Months Ended Nine Months Ended

Three Months Ended

4/30/2022 4/30/2021

(in thousands)

$ — $ — $ — $ —

Interest cost 298 281

3 unchanged sentences

Recognized net actuarial loss 134 443

$ 570 $ 542 $ 1,800 $ 1,626

401(k) Retirement Plan

2 unchanged sentences

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

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.

At April 30, 2022 and 2021, the plan held 1,165,985 shares and 970,632 shares of Virco stock, respectively.

For the three months ended April 30, 2022 and 2021, the compensation costs incurred for employer match, which is paid in the form of Company stock, was $ 330,000 and $ 184,000 , 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 nine months ended October 31, 2021 and 2020:

Three Months Ended Nine Months Ended

The following is a summary of the Company’s warranty-claim activity for the three months ended April 30, 2022 and 2021:

Three Months Ended

4/30/2022 4/30/2021

5 unchanged sentences

Contingencies

The Company has a self-insured retention for product losses up to $ 250,000 per occurrence, workers’ compensation liability losses up to $ 250,000 per occurrence, general liability losses up to $ 50,000 and automobile liability losses up to $ 50,000 per occurrence.

The Company has purchased insurance to cover losses in excess of the retention up to a limit of $ 30,000,000 .

The Company has a self-insured retention for product losses up to $ 250,000 per occurrence, workers’ compensation liability losses up to $ 250,000 per occurrence, general liability losses up to $ 50,000 per occurrence and automobile liability losses up to $ 50,000 per occurrence.

The Company has purchased insurance to cover losses in excess of the self-insurance retention or deductible up to a limit of $ 30,000,000 .

The Company has obtained an actuarial estimate of its total expected future losses for liability claims and recorded a liability equal to the net present value.

2 unchanged sentences

Delivery Costs

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.

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.

Appropriate measures are being taken to protect the health of employees performing essential on-site operations.

Office employees and others who can work from home continued to work from home.

The Company’s Conway, Arkansas facilities, which represent approximately two thirds of the Company’s production and distribution capacity, has been fully operational during the pandemic.

In accordance with State of California and local orders that include guidance on the definition and responsibilities of “essential businesses,” the Company has been operating its Torrance facility.

For the three months ended April 30, 2022 and 2021, shipping and classroom delivery costs of approximately $ 3,254,000 and $ 2,921,000 , respectively, were included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

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