Overview

The Company manufactures and distributes a wide range of display devices, encompassing, among others, industrial, military, medical, and simulation display solutions. The Company is organized into the following four interrelated divisions that have similar products and markets served and therefore are aggregated into one reportable segment:

• Simulation and Training Products - offers a wide range of projection


          display systems for use in training, simulation, military, medical,
          industrial applications, video walls and command and control centers
          including ruggedized displays.

• Cyber Secure Products - provides advanced TEMPEST technology and (EMSEC)

products. This business also provides various contract services including


          the design and testing solutions for defense and niche commercial uses
          worldwide.

• Data Display CRTs - offers a wide range of CRTs for use in data display

screens, including computer terminal monitors and medical monitoring


          equipment.




     •    Other Computer Products - offers keyboard products with a plan to
          manufacture and offer cyber-secure keyboards as part of the cyber secure
          products division.


During fiscal 2020, management of the Company focused key resources on strategic
efforts to support the efforts of operations to increase market share. The
Company also seeks to look for acquisition opportunities that enhance the
profitability and shareholder value of the Company. The Company continues to
seek new products through acquisitions and internal development that complement
existing profitable product lines. Challenges facing the Company during these
efforts include:

Inventory management - The Company monitors its inventory for obsolescence due
to the rapid changes in display technology. The Company increased the inventory
reserves $0.1 million in the fiscal year ending February 29, 2020 and disposed
of $0.1 million in various raw material parts and demo equipment at its VDC
Display division and AYON Cyber Security divisions.

The Company's remaining business units utilize different inventory components
than the divisions had in the past. The Company provides for an obsolescence
reserve at each of its divisions to offset any obsolescence although most
purchases are for current orders, which should reduce the amount of obsolescence
in the future. The Company still has CRT inventory in stock and, although it
believes the inventory will be sold in the future, will continue to reserve for
any additional obsolescence. Management believes its inventory reserves at
February 29, 2020 to be adequate.

Operations



The following table sets forth, for the fiscal years indicated, the percentages
that selected items in the Company's consolidated statements of operations bear
to total revenues (amounts in thousands):

(See Item 1. Business - Description of Principal Business and Principal Products for discussion about the Company's Products and Divisions.)





                                                2020                       2019
                                         Amount          %          Amount          %
    Net Sales
    Simulation and Training                4,921         46.4 %       5,406         36.0 %
    Data Display CRTs                      2,541         24.0         2,533         16.9
    Broadcast and Control Centers             -            -            189          1.3
    Cyber Secure Products                  1,990         18.8         5,460         36.3
    Other Computer Products                1,145         10.8         1,435          9.5

    Total net sales                       10,597        100.0        15,023        100.0

    Costs and expenses
    Cost of goods sold                     8,220         77.6 %      10,983         73.1 %
    Selling and delivery                     623          5.9           844          5.6
    General and administrative             3,637         34.3         3,645         24.3

                                          12,480        117.8        15,472        103.0
    Loss from operations                  (1,883 )      (17.8 )        (449 )       (3.0 )
    Interest expense, net                     (8 )       (0.1 )         (19 )       (0.1 )
    Investment gain                           12          0.1            42          0.2
    Other income, net                        673          6.4           493          3.4

    (Loss) income before income taxes     (1,206 )      (11.4 )          67          0.5
    Income tax expense                        -            -             -            -

    Net (loss) income                     (1,206 )      (11.4 )          67          0.5





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Fiscal 2020 Compared to Fiscal 2019

Net Sales



Consolidated net sales decreased 29.5% for year ended February 29, 2020 compared
to the year ended February 28, 2019 and decreased 9.0% for the three months
ended February 29, 2020 compared to the comparable three months last year. The
Company's AYON Cyber Security (ACS) division is down 63.5% for the year ending
February 29, 2020 compared to fiscal year ended February 28, 2019 and decreased
58.0% for the three months ended February 29, 2020 compared to the same three
months last year. Their business was down significantly with their two top
customers from the prior year. E-Tel remained their top customer, but the
business with them was down 56%. ACS' orders with the State Department decreased
by nearly 90%. This is partially due to not being able to ship a $0.9 million
order due to delays. Their backlog was $1.5 million at February 29, 2020. ACS
did 19% of the Company's business. The Display Systems division was down by 9.0%
for the year ended February 29, 2020 compared to last year, but was up 60.4% for
the quarter ended February 29, 2020 compared to the same three months last year.
The division had one large sale for a video wall of $1.3 million in the
Company's first quarter and ended the year with a strong quarter due to large
sales of Multi Mission Display products to two customers. The division ended the
year with a $4.5 million backlog aided by the acquisition of Jaco Displays on
January 21, 2020, a small display company out of Tampa, Florida. The Data
Display division sales were flat for the year ended February 29, 2020 due to
decreases throughout their customer base, but augmented by sales of a specialty
product, a direct view storage tube (DVST) to two customers. The Lexel division
will be dependent on continued sales of the DVST products and steady sales of
its cathode ray tube products (CRTs).  Lexel had a decrease of 17.2% for three
months ended February 29, 2020 compared to the three months ended February 28,
2019 primarily due to a strong fourth quarter last year. The Company's keyboard
division, posted sales of $1.1 million and $0.3 million for the year and three
months ended February 29, 2020 compared to $1.4 million and $0.4 million for the
comparable periods last year, respectively. The Company acquired this company in
October of 2017. This division is expected to continue at this level of sales
each quarter.

Gross Margins

Consolidated gross margins decreased to 22.4% for fiscal 2020 from 26.9% for
fiscal 2019. Overall gross margin dollars decreased by $1.7 million versus the
prior fiscal year due to lower revenues.

The two Florida divisions both had down years in revenues, but the move to one
facility enabled the display division to increase its margins due to the sharing
of the fixed costs. The cyber division's revenues were down too much to have an
impact on gross margins. The display division showed an increase in both their
gross margin percentage to sales and in actual gross margin dollars. ACS gross
margin percentage was 33.5% compared to 46.7% and the gross margin dollars were
$666 thousand compared to $2,551 thousand for the year ended February 29, 2020
compared to the year ended February 28, 2019. For the three months ended
February 29, 2020 compared to the same period last year, ACS gross margin
percentage was 47.0% compared to 41.7% and gross margin dollars were
$229 thousand compared to $483 thousand. VDC Display Systems (VDCDS) gross
margin percentage was 20.8% compared to 9.7% in the prior year and the gross
margin dollars were $1,022 thousand compared to $522 thousand for the year ended
February 29, 2020 compared to the year ended February 28, 2019. For the three
months ended February 29, 2020 compared to the same period last year, VDCDS
gross margin percentage was 33.4% compared to 3.91%. Gross margin dollars were
$515 thousand compared to $38 thousand. The keyboard division, Unicomp, had
$430 thousand of gross margin dollars or 37.6% to sales for the year ended
February 29, 2020 and $558 thousand of gross margin dollars or 38.9% for the
year ended February 28, 2019. For the quarter ended February 29, 2020, Unicomp
had $143 thousand of gross profit or 45.1% compared to $91 thousand or 24.8%.

The Data Display division for Lexel had $259 thousand in gross margin dollars
for the year ended February 29, 2020 compared to $352 thousand for the year
ended February 28, 2019. The Data Display division for Lexel had $302 thousand
in gross margin dollars for the three months ended February 29, 2020 compared to
$457 thousand for the three months ended February 28, 2019. The Company is
completing more consolidation of the operations and beginning April 1, 2020 all
CRT shipments and products will be produced and shipped from the Lexel Imaging
facility. Gross margins are expected to improve in fiscal 2021 due to these
changes.

Operating Expenses



Operating expenses as a percentage of sales increased to 40.2% for fiscal 2020
from 29.9% in fiscal 2019 primarily reflecting a 29.5% decrease in sales with
actual expenses decreasing 5.1% from $4.5 million in fiscal 2019 and
$4.3 million in fiscal 2020.

The Company is working to reduce costs in all areas of the business to bring its
cost structure in line with the current size of the business. The Company has
made strategic cuts at the corporate level and has merged its two Florida
locations, VDC Display Systems and AYON Cyber Security, which is saving
considerable operating expenses. The Company is expanding its product offerings
and in doing so, is adding costs strategically to support those businesses. The
Florida operations are completely in the Cocoa location. The remaining business
units are also making changes to maximize profitability.



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Interest Expense



Interest expense was $8 thousand for fiscal 2020 and $19 thousand for fiscal
2019 related to the Company's obligations. The marginal decrease in interest
expense results from a lower average in debt obligations outstanding.

Other Income, net



In fiscal 2020, the Company earned $0.7 million in other income, primarily due
to $0.2 million in royalty income, $0.4 million in rental income and
$0.1 million in investment income and scrap. In fiscal 2019, the Company earned
$0.5 million in other income, primarily due to rental income of $191 thousand,
$130 thousand in royalty income, scrap sales of $108 thousand and $33 thousand
in gain on sale of assets.

Income Taxes

The Company had net loss before taxes of approximately $1.2 million in which a
full valuation allowance is provided due to historical losses resulting in an
effective tax rate of 0%. In fiscal 2019, the Company had a profit before taxes
of $0.1 million with no income tax expense recorded due to the historical loss
position of the Company.

Liquidity and Capital Resources



The accompanying consolidated financial statements were prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company has sustained
losses for four of the last five years and has reported a decrease in its
working capital during this current year. The historical losses resulted from a
combination of low revenues at all divisions without a commensurate reduction of
expenses. The Company has seen a rise in the backlog for customer orders and
increased activity within the markets it serves. In the fourth quarter, the
Company acquired a small display company to increase its presence in the
ruggedized display market. The Company's working capital and liquid asset
position is presented as follows:



                                    February 29,      February 28,
                                        2020              2019
                  Working capital   $       1,263     $       3,354
                  Liquid assets     $         844     $         410


Management has implemented a plan to improve the liquidity of the Company. The
Company has been implementing a plan to increase revenues at all the divisions,
each structured to the particular division. The fiscal year ended February 29,
2020 was a transition year for the Company. Many of the legacy programs the
Company serviced were heading into new phases or the next generation of the
product line. This caused delays in the normal flow of the orders for these
programs. The Company is working with these customers and expects these programs
to be placing orders to be fulfilled in the Company's new fiscal year. The
Company has expanded its cyber security business by adding a second testing
chamber for testing tempest products allowing it to increase the business in
cyber testing services to supplement the product side of the business. The
Company is also now involved in ruggedized displays, recently bringing on
engineering familiar with these products and acquiring a small specialized
display company in January 2020. With the acquisition of the display company,
the Company is in the process of completing the transfer of the remaining CRT
operations to its Lexel Imaging facility in Lexington, KY in order to make room
for the new business in its Cocoa facility. This will also reduce expenses in
the CRT operation by having that business all under one roof. The Company also
moved the corporate accounting functions to the Cocoa, Florida location which
allows the Company to become more efficient and save money on reducing redundant
operations. The plant move at its subsidiary in Lexington, Kentucky, took longer
than anticipated and negatively affected cash flow. This subsidiary saw a turn
-around in the fiscal year, being the only division to have a profitable year.
The plant move at the Florida operations was successful as the Company merged
two businesses and was able to keep production on schedule. Management continues
to explore options to monetize certain long-term assets of the business,
including the possible sale of a building in Pennsylvania. If additional and
more permanent capital is required to fund the operations of the Company, no
assurance can be given that the Company will be able to obtain the capital on
terms favorable to the Company, if at all.

The ability of the Company to continue as a going concern is dependent upon the
success of management's plans to improve the operational effectiveness of the
operations, to sell strategic assets as noted above, the procurement of suitable
financing, or a combination of these. The uncertainty regarding the potential
success of management's plan create substantial doubt about the ability of the
Company to continue as a going concern.



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Cash provided by operations was $0.5 million in fiscal 2020 and $0.2 million in
fiscal 2019. During fiscal 2020, the net loss from operations was $1.2 million
and adjustments to reconcile net loss to net cash were $0.2 million with
$0.1 million in inventory reserves, and by $0.2 million in depreciation. Working
capital related accounts generated $1.5 million in cash with customer deposits
adding $1.2 million, accounts receivables adding $0.7 million, and accounts
payable and accrued liabilities adding $0.4 million, offset by an increase in
inventories of $0.9 million.

During fiscal 2019, the net income from operations was $0.2 million and
adjustments to reconcile net income to net cash were $0.5 million to reduce
inventory reserves, by $0.1 in investment gains offset by $0.3 million in
depreciation. Changes in working capital generated $0.4 million, primarily due
to a decrease in inventories of $1.7 million, an increase in customer deposits
of $0.6 million, offset by an increase in accounts receivable of $1.1 million,
an increase in prepaid expenses of $0.4 million, and an decrease in accounts
payable of $0.3 million.

Investing activities used $0.1 million in fiscal 2020 and provided $0.4 million
of cash in fiscal 2019. For fiscal 2020, $0.1 million was used to purchase fixed
assets. The Company is expected to invest an additional $0.2 million to upgrade
the Cocoa, Florida and on equipment to support the business in fiscal 2021.

Investing activities in fiscal 2019 consisted of the sale of $1.3 million in
investment securities, the purchase of $1.0 million of investment securities,
capital expenditures of $0.2 million and proceeds from the sale of equipment of
$0.1 million.

Financing activities provided $0.1 million for the year ended February 29, 2020 resulting primarily from proceeds received on related party notes.



Financing activities used $0.3 million for the year ended February 28, 2019.
Proceeds from related party notes and from the line of credit provided cash of
$1 million offset by related payments on these obligations approximating
$1.2 million along with $0.1 in margin payments.

The Company has a stock repurchase program, pursuant to which it has been
authorized to repurchase up to 2,632,500 shares of the Company's common stock in
the open market. On January 20, 2014, the Board of Directors of the Company
approved a one-time continuation of the stock repurchase program, and authorized
the Company to repurchase up to 1,500,000 additional shares of the Company's
common stock, depending on the market price of the shares. There is no minimum
number of shares required to be repurchased under the program. During the fiscal
year ended February 29, 2020, the Company did not repurchase any of the
Company's stock and during the fiscal year ended February 28, 2019, the Company
repurchased 8,858 shares of Company stock at an average price of $1.12 per
share. Under this program, an additional 490,186 shares remain authorized to be
repurchased by the Company at February 29, 2020.

Transactions with Related Parties, Contractual Obligations, and Commitments



The Company leases one building from the Company's CEO in Lexington, KY
(Honeyhill Properties) and one building owned by Ordway Properties LLC in Cocoa,
Florida. The building in Lexington, KY serves as the manufacturing operations
for the CRT division. The building in Cocoa, Florida is the new operational site
for both VDC Display Systems and AYON Cyber Security. See Note 9.

The Company also borrows money from the Chief Executive Officer on a short term
basis when funds are needed. See Note 4. On March 30, 2016 Video Display
Corporation entered into an assignment with recourse of their note receivable
from Z-Axis, Inc. with Ronald D. Ordway and Jonathan R. Ordway for the sum of
$912 thousand. The Company also retains the right to repurchase the note at any
time for 80% of the outstanding principle balance. In the event of default by
Z-Axis, the Company is obligated to repurchase the note for 80% of the remaining
balance plus any accrued interest.

In conjunction with the acquisition of Jaco Displays, LLC, the Company borrowed
$505,180 from Ronald D Ordway, CEO to fund the acquisition, and combined the
amount borrowed with another $438,832 owed to Mr. Ordway in back rent along with
$82,838 from previous borrowings, and signed a promissory note for $1,026,850 at
a six percent interest rate due on or before July 24, 2020 with Mr. Ordway.

Contractual Obligations



Future contractual maturities of long-term debt, future contractual obligations
due under operating leases, and other obligations at February 29, 2020 are as
follows (in thousands):



                                                                   Payments due by period
                                                             Less than      1 - 3      3 - 5       More than
                                                 Total        1 year        years      years        5 years
Notes payable obligations                       $ 1,126     $     1,126     $   -      $   -      $        -
Interest obligations on long-term debt (a)           25              25         -          -               -
Operating lease obligations                       1,813             590        572        272             379
Warranty reserve obligations                         51              51         -          -               -

Total                                           $ 3,015     $     1,792     $  572     $  272     $       379





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Table of Contents (a) This line item was calculated by utilizing the effective rate on note payable

obligations outstanding as of February 29, 2020.

In addition, refer to Note 4 as it relates to the note receivable and corresponding related obligations pertaining to Z-Axis which are not included in the chart above.



Critical Accounting Estimates

Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations are based upon the Company's consolidated financial
statements. These consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America ("U.S. GAAP"). These principles require the use of estimates and
assumptions that affect amounts reported and disclosed in the consolidated
financial statements and related notes. The accounting policies that may involve
a higher degree of judgments, estimates, and complexity include reserves on
inventories, contract revenue recognition as well as profitability or loss
recognition estimates, and the sufficiency of the valuation reserve relating to
deferred tax assets. The Company uses the following methods and assumptions in
determining its estimates:

Reserves on inventories

Reserves on inventories result in a charge to operations when the estimated net
realizable value declines below cost. Management regularly reviews the Company's
investment in inventories for declines in value and establishes reserves when it
is apparent that the expected net realizable value of the inventory falls below
its carrying amount. In fiscal 2020, the Company increased the inventory
reserves by less than $0.1 million which was offset by a $0.1 million write off
of inventory against the reserve primarily at VDC Display Systems. The Company
determined VDC Display Systems is the most vulnerable to inventory obsolescence
due to the size and age of its inventory and the changes in its market segment.
The Company did not have significant changes in inventory reserves as the
inventory management has improved and the number of inventory items has
stabilized. The Company cannot guarantee the accuracy of future forecasts since
these estimates are subject to change based on market conditions. The reserve
for inventory obsolescence was approximately $0.8 million and $0.9 million at
February 29, 2020 and February 28, 2019, respectively.

The Company's remaining business units utilize different inventory components
than the divisions had in the past. The Company provides monthly for an
obsolescence reserve at each of its divisions to offset any obsolescence
although most purchases are for current orders, which should reduce the amount
of obsolescence in the future. The Company still has CRT inventory in stock and,
although it believes the inventory will be sold in the future, will continue to
reserve for any additional obsolescence.

Revenue recognition



The Company recognizes revenue upon transfer control of the promised products or
services to customers, in an amount that reflects the consideration the Company
expects to be entitled to in exchange for those products or services. VDC
derives revenue primarily from sales of simulation and video wall systems, cyber
secure products, data displays, and keyboards. The Company excludes sales and
usage-based taxes from revenue.

The Company's simulation and video wall systems are custom-built (using
commercial off-the-shelf products) to customer specifications under fixed price
contracts. Judgment is required to determine whether each product and service is
considered to be a distinct performance obligation that should be accounted for
separately under the contract. Generally, these contracts contain one
performance obligation (the installation of a fully functional system). The
Company recognizes revenue for these systems over time based on labor hours
incurred on each project.

The Company recognizes revenue related to its cyber secure products, data displays, and keyboards at a point in time when control is transferred to the customer (generally upon shipment of the product to the customer).



Timing of invoicing to customers may differ from timing of revenue recognition;
however, the Company's contracts do not include a significant financing
component as substantially all invoices have terms of 30 days or less. The
Company is applying the practical expedient to exclude from consideration any
contracts with payment terms of one year or less and does not offer terms
extending beyond one year.

Income taxes



Deferred income taxes are provided to reflect the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. The Company has
established a valuation allowance of $6.1 million on the Company's deferred tax
assets.



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The Company accounts for uncertain tax positions under the provisions of ASC
Topic 740, which contains a two-step approach to recognizing and measuring
uncertain tax positions. The first step is to evaluate the tax position for
recognition by determining if the weight of available evidence indicates it is
more likely than not, that the position will be sustained on audit, including
resolution of related appeals or litigation processes, if any. The second step
is to measure the tax benefit as the largest amount, which is more than 50%
likely of being realized upon ultimate settlement. The Company considers many
factors when evaluating and estimating the Company's tax positions and tax
benefits, which may require periodic adjustments. At February 29, 2020, the
Company did not record any liabilities for uncertain tax positions.

Other loss contingencies



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

Off-Balance Sheet Arrangements

The Company does not have during the periods presented, and the Company does not currently have, any off-balance sheet arrangements, as defined under SEC rules.

Recent Accounting Pronouncements

Refer to Note 1, Summary of Significant Accounting Policies" for a discussion of recent accounting pronouncements and their effect on the Company.

Impact of Inflation

Inflation has not had a material effect on the Company's results of operations to date.

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