What changed in this filing

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Item 1. Financial Statements

2023-06-12 compared with 2022-12-12 · 116 added, 179 removed, 277 unchanged (52% of the section changed)

51 unchanged sentences

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

issued and outstanding 16,210,985 shares at 10/31/2022 and 16,102,023 at 1/31/2022 and 10/31/2021

issued and outstanding 16,210,985 shares at 4/30/2023 and 1/31/2023, and 16,102,023 at 4/30/2022

Additional paid-in capital 120,993 120,890 120,745

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 14,514 14,451

Operating income 8,800 2,517

Operating loss ( 1,312 ) ( 4,744 )

Unrealized gain on investment in trust account ( 299 ) —

1 unchanged sentence

Interest expense 712 427

Income before income taxes 8,194 1,620

Income tax expense 319 295

Net income $ 7,875 $ 1,325

Net income per common share:

Basic $ 0.49 $ 0.08

Diluted $ 0.48 $ 0.08

Weighted average shares of common stock outstanding:

Basic 16,211 16,033

Diluted 16,249 16,082

See accompanying notes to unaudited condensed consolidated financial statements.

Unaudited Condensed Consolidated Statements of Income

Nine months ended

10/31/2022 10/31/2021

(In thousands, except per share data)

Net sales $ 192,276 $ 144,720

Costs of goods sold 119,947 94,414

Gross profit 72,329 50,306

Selling, general and administrative expenses 57,099 46,016

Operating income 15,230 4,290

Unrealized loss on investment in trust account 85 —

Pension expense 650 1,800

Interest expense 1,692 979

Income before income taxes 12,803 1,511

Income tax expense 332 335

Net income $ 12,471 $ 1,176

Net income per common share:

Loss before income taxes ( 1,886 ) ( 5,366 )

Income tax benefit ( 444 ) ( 282 )

Net loss $ ( 1,442 ) $ ( 5,084 )

Net loss per common share:

Basic $ ( 0.09 ) $ ( 0.32 )

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 $ 7,875 $ 1,325

Other comprehensive income:

Pension adjustments (net of tax expense of $ 0 and $ 186 at October 31, 2022 and 2021, respectively)

Net comprehensive income $ 11,420 $ 1,891

See accompanying notes to unaudited condensed consolidated financial statements.

Unaudited Condensed Consolidated Statements of Comprehensive Income

Nine months ended

10/31/2022 10/31/2021

(In thousands)

Net income $ 12,471 $ 1,176

Net loss $ ( 1,442 ) $ ( 5,084 )

Other comprehensive income:

Pension adjustments (net of tax expense of $ 0 and $ 1,105 at October 31, 2022 and 2021, respectively)

Net comprehensive income $ 16,286 $ 4,329

Pension adjustments (net of tax expense of $ 0 and $ 0 at April 30, 2023 and 2022, respectively)

Net comprehensive loss $ ( 1,442 ) $ ( 4,949 )

See accompanying notes to unaudited condensed consolidated financial statements.

Unaudited Condensed Consolidated Statements of Cash Flows

Nine months ended

Three months ended

4/30/2023 4/30/2022

1 unchanged sentence

Operating activities

Net income $ 12,471 $ 1,176

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

Net loss $ ( 1,442 ) $ ( 5,084 )

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

Depreciation and amortization 1,195 1,129

4 unchanged sentences

Stock-based compensation 103 253

Defined pension plan settlement 64 285

Amortization of net actuarial loss for pension plans — 135

Non-cash unrealized loss on investment 85 —

Surrender of life insurance policies — ( 584 )

Non-cash unrealized gain on investment ( 299 ) —

Changes in operating assets and liabilities:

5 unchanged sentences

Accounts payable and accrued liabilities 5,391 ( 340 )

Net cash provided by operating activities 1,455 820

Net cash used in operating activities ( 11,715 ) ( 18,966 )

Investing activities:

Capital expenditures ( 1,533 ) ( 609 )

Purchases of marketable securities in trust accounts ( 7,280 ) —

Proceeds from sale of marketable securities in trust accounts 4,536 —

Proceeds for surrendering life insurance policies 2,744 483

Net cash used in investing activities ( 1,533 ) ( 609 )

3 unchanged sentences

Payment on deferred financing costs ( 125 ) ( 200 )

Tax withholding payments on share-based compensation ( 213 ) ( 176 )

Net cash provided by financing activities 12,816 18,755

Net increase in cash 816 1,340

Net decrease in cash ( 432 ) ( 820 )

Cash at beginning of period 1,057 1,359

2 unchanged sentences

Unaudited Consolidated Statements of Changes in Stockholders' Equity

Three-Month Period Ended October 31, 2022

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, 2022 16,210,985 $ 162 $ 120,684 $ ( 62,582 ) $ ( 5,759 ) $ 52,505

Net income — — — 7,875 — 7,875

Cash dividends — — — — — —

Pension adjustments, net of tax effect of $ 0

— — — — 3,545 3,545

Shares vested and others — — — — — —

Stock compensation expense — — 103 — — 103

Balance at October 31, 2022 16,210,985 $ 162 $ 120,787 $ ( 54,707 ) $ ( 2,214 ) $ 64,028

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

Nine-Month Period Ended October 31, 2022

Three-Month Period Ended April 30, 2023

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, 2023 16,210,985 $ 162 $ 120,890 $ ( 50,631 ) $ ( 2,360 ) $ 68,061

Net income — — — 12,471 — 12,471

Net loss — — — ( 1,442 ) — ( 1,442 )

Cash dividends — — — — — —

Pension adjustments, net of tax effect of $ 0

— — — — 3,815 3,815

Shares vested and others — — — — — —

Stock compensation expense — — 103 — — 103

Balance at October 31, 2022 16,210,985 $ 162 $ 120,787 $ ( 54,707 ) $ ( 2,214 ) $ 64,028

Nine-Month Period Ended October 31, 2021

Balance at April 30, 2023 16,210,985 $ 162 $ 120,993 $ ( 52,073 ) $ ( 2,360 ) $ 66,722

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

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

See accompanying notes to unaudited condensed consolidated financial statements.

Notes to unaudited Condensed Consolidated Financial Statements

October 31, 2022

April 30, 2023

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 months and nine months ended October 31, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2023.

Operating results for the three months ended April 30, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2024.

The balance sheet at January 31, 2023 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.

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.

Seasonality and Management Use of Estimates

7 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, 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, although not as severely as in the prior year.

The Company continues to experience 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.

Historically Virco ships approximately 50 % of its annual revenue in the months of June, July, and August.

In fiscal 2022, the seasonal peak was distorted due to severe supply chain interruptions, labor shortages, and COVID-19 related employee absences and the Company delivered less than 40 % of sales during June, July, and August.

In fiscal year ended January 31, 2023, the Company started to return to the traditional seasonality and delivered approximately 47 % of annual sales in June, July, and August.

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, 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

Recently Issued Accounting Updates

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.

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 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.

Other recently issued accounting updates are not expected to have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Standards

The Company evaluates all Accounting Standards Updates ("ASUs") issued by the Financial Accounting Standards Board ("FASB") for consideration of their applicability to our condensed consolidated financial statements.

We have assessed all ASUs issued but not yet adopted and concluded that those not disclosed are not relevant to the Company or are not expected to have a material impact.

Revenue Recognition

17 unchanged sentences

We do not manage or evaluate the business based on product line or any other discernable category.

Inventories are valued at the lower of cost (determined on a first-in, first-out basis) or net realizable value and includes material, labor and factory overhead.

Inventory is valued at the lower of cost or net realizable value (determined on a first-in, first-out basis) and includes material, labor, and factory overhead.

The Company records valuation adjustments for the excess cost of the inventory over its estimated net realizable value.

3 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 October 31, 2022, January 31, 2022 and October 31, 2021:

Inventory increased by $ 19,343,000 at April 30, 2023 compared to April 30, 2022.

The entire increase in inventory was attributable to increased quantity.

The cost and valuation of inventory was stable.

The quantity of inventory was increased in response to a material increase in unshipped sales orders (backlog).

The majority of the backlog is scheduled for delivery during the traditional seasonal peak from June through August.

The increase in inventory was financed by increased borrowing under the Company’s line of credit with PNC Bank and increased vendor credit, which traditionally increases with increased purchases of materials.

The following table presents a breakdown of the Company’s inventories as of April 30, 2023, January 31, 2023 and April 30, 2022:

4/30/2023 1/31/2023 4/30/2022

4 unchanged sentences

Total inventories $ 85,640 $ 67,406 $ 66,297

The Company has operating leases on real property, equipment, and automobiles that expire at various dates though 2026.

The Company has operating leases on real property, equipment, and automobiles, expiring at various dates through 2026.

The Company determines if an arrangement is a lease at inception and assesses classification of the lease at commencement.

All of the Company’s leases are classified as operating leases.

The Company uses the implicit rate when readily determinable, or the incremental borrowing rate.

Pursuant to ASC 842 - Leases , the Company uses the implicit rate when readily determinable, or the incremental borrowing rate.

Our incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments using Company specific credit spreads.

1 unchanged sentence

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

The Company has an operating lease for its corporate office, manufacturing and distribution facility located in Torrance, CA, currently with a remaining lease term through April 2025.

The Company's lease terms include options to extend or terminate the lease only when it is reasonably certain that we exercise that option.

The Company leases equipment under a 5-year operating lease arrangement.

The Company has the option of buying the assets at the end of the lease period at a price that does not result in the Company being reasonably certain of exercising the option.

In addition, the Company leases trucks and automobiles under operating leases that include certain fleet management and maintenance services.

Certain of the leases contain renewal or purchase options and require payment for property taxes and insurance.

The Company records lease expense on a straight-line basis based on the contractual lease payments.

In accordance with ASC 842, the Company recognizes the present value of the future lease commitments as an operating lease liability, and a corresponding right-of-use asset (“ROU asset”), net of tenant allowances.

Tenant improvements and related tenant allowances are recorded as a reduction to the ROU asset.

The Company elected to account for leases with an original term of 12 months or less that do not contain a purchase option as short-term leases.

Additionally, certain of the leases provide for variable payment for property taxes, insurance, and common area maintenance payments among others.

The Company recognizes variable lease expenses for these leases in the period incurred.

The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The quantitative information regarding our leases is as follows:

Three Months Ended Nine Months Ended

Three Months Ended

4/30/2023 4/30/2022

10 unchanged sentences

Weighted-average discount rate 6.33 % 6.38 %

Minimum future lease payments for operating leases in effect as of October 31, 2022, are as follows:

Minimum future lease payments for operating leases in effect as of April 30, 2023, are as follows:

Operating Lease

19 unchanged sentences

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.

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 $ 65.0 million 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 $ 15.0 million from January through July of each year, minus undrawn amounts of letters of credit and reserves.

The Restated 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 $ 10.0 million 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 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 $ 65.0 million to $ 70.0 million 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 (London Inter-Bank Offered Rate) pricing on the Revolving Credit Facility and replaced with BSBY (Bloomberg Short-Term Bank Yield) 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.

The Company was in compliance with its debt covenants as of October 31, 2022.

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

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.

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.

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 Restated 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.

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

The Company was in compliance with its debt covenants as of April 30, 2023.

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

Approximately $ 14.5 million was available for borrowing as of October 31, 2022.

The interest rate as of October 31, 2022 was 7.50 %.

Approximately $ 16.6 million was available for borrowing as of April 30, 2023.

The interest rate range for outstanding loan balances during the quarter ended April 30, 2023 was 7.65 % to 9.75 %.

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

1 unchanged sentence

The original note was dated August 2017 for $ 5.8 million, at a fixed rate of 4 % per year and 20 years term.

The outstanding amount under this note was $ 4.7 million as of October 31, 2022.

Management believes that the carrying value of debt approximated fair value at October 31, 2022, as all of the long-term debt bears interest at variable rates based on prevailing market conditions.

The outstanding amount under this note was $ 4.6 million as of April 30, 2023.

On May 19, 2023, the Company entered into Amendment No.

3 to Amended and Restated Revolving Credit and Security Agreement (“Amendment No.

3”) with PNC, with an effective date of May 5, 2023.

Amendment No.

3 amended the Restated Credit Agreement and the secured revolving line of credit provided to the Company under the revolving credit facility to reflect the following material changes:

Maximum size of the PNC line of credit has been increased to $ 72.5 million during the months of June through August of 2023, to provide additional availability for the Company’s forecast through the 2023 peak borrowing period;

Increase in the total inventory sublimit under the Credit Agreement to $ 35.0 million and increase in the Assemble-to-ship (ATS) inventory sublimit to $ 15.0 million during the months of May through August of 2023;

The Company agreed to pay an amendment fee of $ 50,000 , which is 0.67 % on the incremental line increase of $ 7.5 million;

Increase in the Applicable Margin (as defined in the Credit Agreement) of 25 basis points.

Management believes that the carrying value of debt approximated fair value at April 30, 2023, 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 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, 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 $ 8,893,000 , $ 11,412,000 and $ 1,237,000 as of October 31, 2022, January 31, 2022 and October 31, 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.

The Company has taken significant measures to return to profitability, order rates for the first nine months of the year were favorable, and the third quarter and year-to-date results are showing significant improvement compared to the prior year.

Despite these improvements the Company is still operating at a cumulative twelve quarter operating loss at October 31, 2022.

If the current favorable trends in operating income continue through the balance of the year, the Company will utilize a material portion of the net operating losses and will re-evaluate the balance of the valuation allowance on a quarterly basis.

For the three months ended October 31, 2022 and 2021, the effective income tax rates were 3.9 % and 18.2 %, respectively.

For the nine months ended October 31, 2022 and 2021, the effective income tax rates were 2.6 % and 22.2 %, respectively.

The change in effective tax rates for the three and nine months ended October 31, 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 October 31, 2022.

The effective tax rate for the three and nine months ended October 31, 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 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, to determine whether sufficient future taxable income will be generated to realize existing deferred tax assets.

Valuation allowances of $ 575,000 , $ 864,000 and $ 10,099,000 as of April 30, 2023, January 31, 2023 and April 30, 2022, 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 three months ended April 30, 2023 and 2022, the effective income tax rates were 23.5 % and 5.3 %, respectively.

The change in effective tax rates for the three months ended April 30, 2023 was primarily due to the change in forecasted mix of income before federal and state income taxes and estimated permanent differences.

The effective tax rate 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.

The January 31, 2018 and subsequent fiscal years remain open for examination by the IRS and state tax authorities.

The Company is not currently under any state examination.

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

Net Income per Share

Basic net income per share is calculated by dividing net income by the weighted-average number of common shares outstanding.

Diluted net income per share is calculated by dividing net income by the weighted-average number of common shares outstanding plus the dilutive effect of stock award grants.

The following table sets forth the computation of basic and diluted income per share:

Three Months Ended Nine Months Ended

Net Loss per Share

Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding.

The following table sets forth the computation of basic net loss per share:

Three Months Ended

4/30/2023 4/30/2022

(In thousands, except per share data)

Net income $ 7,875 $ 1,325 $ 12,471 $ 1,176

Net loss $ ( 1,442 ) $ ( 5,084 )

Weighted average shares of common stock outstanding 16,211 16,033

Dilutive effect of common stock equivalents from equity incentive plans 38 49 18 36

Dilutive effect of common stock equivalents from equity incentive plans (a) — —

Totals 16,211 16,033

Net income per share - basic $ 0.49 $ 0.08 $ 0.77 $ 0.07

Net income per share - diluted $ 0.48 $ 0.08 $ 0.77 $ 0.07

Net loss per share - basic $ ( 0.09 ) $ ( 0.32 )

Net loss per share - diluted $ ( 0.09 ) $ ( 0.32 )

(a) At April 30, 2023 and 2022, approximately 85,000 and 169,000 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

1 unchanged sentence

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”).

The 2011 Plan expired in 2021 and no new award may be made under the 2011 Plan.

Under the 2019 Plan, the Company may grant an aggregate of up to 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.

1 unchanged sentence

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, 2022, the Company granted 0 awards, vested 114,470 shares according to their terms and forfeited 0 shares under the 2019 Plan.

As of October 31, 2022, there were approximately 608,435 shares available for future issuance under the 2019 Plan.

Under the 2011 Plan, the Company was originally allowed to grant an aggregate of up to 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.

Restricted stock units and awards granted under the 2011 Plan are expensed ratably over the vesting period of the awards.

The 2011 Plan expired in 2021 and no new awards may be made under the 2011 Plan.

During the nine-month period ended October 31, 2022, the Company vested 233,270 shares according to their terms and forfeited 0 shares under the 2011 Plan.

During the three months ended October 31, 2022, 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 $ 28,000 and $ 75,000 , respectively.

During the three months ended October 31, 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 $ 54,000 and $ 199,000 , respectively.

During the nine months ended October 31, 2022, 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 $ 120,000 and $ 389,000 , respectively.

During the nine months ended October 31, 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 $ 164,000 and $ 595,000 , respectively.

As of October 31, 2022, there was $ 652,000 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 2 years.

During the three-month period ended April 30, 2023, the Company granted 0 awards, vested 0 shares according to their terms and forfeited 0 shares under the 2019 Plan.

As of April 30, 2023, there were approximately 608,435 shares available for future issuance under the 2019 Plan.

The following table summarizes the stock-based compensation expense related to restricted stock awards recognized in the Company's statement of operations for the three months ended April 30, 2023 and 2022:

Three Months Ended

4/30/2023 4/30/2022

(in thousands)

Cost of goods sold $ 28 $ 55

Selling, general and administrative expenses 75 198

Total stock-based compensation expense $ 103 $ 253

As of April 30, 2023, there was $ 446,000 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 1 year.

Retirement Plans

3 unchanged sentences

The Company also provides a supplementary retirement plan for certain key employees, the VIP Retirement Plan (the “VIP Plan”).

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.

The net periodic pension cost for the Pension Plan and the VIP Plan for the three and nine months ended October 31, 2022 and 2021 were as follows:

Combined Employee Retirement Plans

Three Months Ended Nine Months Ended

As more fully described in the Annual Report on Form 10-K for the year ended January 31, 2023, benefit accruals under the VIP Plan were frozen since December 31, 2003.

There is no service cost incurred under the VIP Plan.

The following table summarizes t he net periodic pension cost for the Pension Plan and the VIP Plan for the three months ended April 30, 2023 and 2022:

Three Months Ended

4/30/2023 4/30/2022

7 unchanged sentences

Benefit cost $ 161 $ 195

During the three and nine month periods ended October 31, 2022, the Company 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 $ 64,000 recorded in pension expense in the accompanying condensed consolidated statements of operations and an actuarial gain on the plan re-measurement of $ 3,347,000 , net of tax, recorded to accumulated other comprehensive income for the three and nine months ended October 31, 2021.

401(k) Retirement Plan

2 unchanged sentences

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

At October 31, 2022 and 2021, the plan held 1,250,468 shares and 1,026,096 shares of Virco stock, respectively.

For the three months ended October 31, 2022 and 2021, the compensation costs incurred for employer match, which is paid in the form of Company stock, was $ 333,000 and $ 217,000 respectively.

For the nine months ended October 31, 2022 and 2021, the compensation costs incurred for employer match, which is paid in the form of Company stock, was $ 985,000 and $ 608,000 respectively.

At April 30, 2023 and 2022, the plan held 1,320,482 shares and 1,165,985 shares of Virco stock, respectively.

For the three months ended April 30, 2023 and 2022, the compensation costs incurred for employer match, which is paid in the form of Company stock, was $ 403,000 and $ 330,000 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, 2022 and 2021:

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, 2023 and 2022:

Three Months Ended

4/30/2023 4/30/2022

11 unchanged sentences

Delivery Costs

For the three months ended October 31, 2022 and 2021, shipping and classroom delivery costs of approximately $ 8,393,000 and $ 6,209,000 , respectively, were included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

For the nine months ended October 31, 2022 and 2021, shipping and classroom delivery costs of approximately $ 18,776,000 and $ 14,242,000 , respectively, were included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

For the three months ended April 30, 2023 and 2022, shipping and classroom delivery costs of approximately $ 3,343,000 and $ 3,254,000 , respectively, were included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

Subsequent Events

On May 19, 2023, the Company executed Amendment No.

3 to the Restated Credit Agreement, with an effective date of May 5, 2023.

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