• Data Display CRTs - offers a wide range of CRTs for use in data display screens, including computer terminal monitors and medical monitoring equipment.

• Entertainment CRTs - offers a wide range of CRTs and projection tubes for television and home theater equipment.

• Component Parts - provides replacement electron guns and other components for CRTs primarily for servicing the Company's internal needs.

During fiscal 2009, management of the Company focused key resources on strategic efforts to improve the profitability of operations while seeking acquisition opportunities that enhance the profitability and sales growth of the Company's more profitable product lines. In addition, 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 continually monitors historical sales trends as well as projected needs to ensure adequate on hand supplies of inventory and to ensure against overstocking of slower moving, obsolete items.
Certain of the Company's divisions maintain significant inventories of CRTs and component parts in an effort to ensure its customers a reliable source of supply. The Company's inventory turnover averages over 250 days, although in many cases the Company would anticipate holding 90 to 100 days of inventory in the normal course of operations. This level of inventory is higher than some of the Company's competitors because it sells a number of products representing older, or trailing edge, technology that may not be available from other sources. The market for these trailing edge technology products is declining and, as manufacturers for these products discontinue production or exit the business, the Company may make "last time" buys. In the monitor operations of the Company's business, the market for its products is characterized by fairly rapid change as a result of the development of new technologies, particularly in the flat panel display area. If the Company fails to anticipate the changing needs of its customers or accurately forecast their requirements, it may accumulate inventories of products which its customers no longer need and which the Company will be unable to sell or return to its vendors. The Company's management monitors the adequacy of its inventory reserves regularly, and at February 28, 2009, believes its reserves to be adequate.
Interest rate exposure - The Company had outstanding debt of approximately $24 million as of February 28, 2009, which is subject to interest rate fluctuations by the Company's lenders. Variable interest rates on the Company's loans and the potential for rate hikes could negatively affect the Company's future earnings. It is the intent of the Company to continually monitor interest rates and consider converting portions of the Company's debt from floating rates to fixed rates should conditions be favorable for such interest rate swaps or hedges.

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 net sales (amounts in thousands):
     (See Item 1. Business - Description of Principal Business and Principal
Products for discussion about the Company's Products and Divisions. See also
Note 13. Segment Information to the Consolidated Financial Statements.)

                                                      2009                     2008
                                               Amount         %         Amount         %
  Net Sales
  Display Segment
  Monitors                                    $ 40,596        55.7 %   $ 44,331        52.3 %
  Data Display CRTs                              8,003        11.0       11,285        13.3
  Entertainment CRTs                             1,281         1.7        2,217         2.6
  Component Parts                                  263         0.4          454         0.6

  Total Display Segment                         50,143        68.8       58,287        68.8
  Wholesale Distribution Segment                22,760        31.2       26,407        31.2

                                              $ 72,903       100.0 %   $ 84,694       100.0 %

  Costs and expenses
  Cost of goods sold                          $ 48,023        65.9 %   $ 56,199        66.4 %
  Selling and delivery                           7,388        10.1        7,725         9.1
  General and administrative                    16,854        23.1       15,565        18.4

                                                72,265        99.1       79,489        93.9

  Income from operations                           638         0.9        5,205         6.1

  Interest expense                              (1,083 )      (1.5 )     (1,771 )      (2.1 )
  Other income, net                                325         0.4          500         0.6

  Income (loss) before income taxes               (120 )      (0.2 )      3,934         4.6
  Provision for (benefit from) income taxes       (434 )      (0.6 )      1,163         1.4

  Net income                                  $    314         0.4 %   $  2,771         3.2 %

Fiscal 2009 Compared to Fiscal 2008
Net Sales
Consolidated net sales decreased $11.7 million or 13.9% to $73.0 million for fiscal 2009, compared to $84.7 million for fiscal 2008. Display Segment sales decreased 14.0% or $8.2 million to $50.1 million for fiscal 2009, compared to $58.3 million for fiscal 2008. Wholesale Distribution Segment sales decreased 13.8% or $3.6 million from $26.4 million for fiscal 2008 to $22.8 million for fiscal 2009.
The net decrease in Display Segment sales for fiscal 2009 is attributed to a general weakening in the market, a down cycle in the fulfillment of long term contracts and the closing of the UK facility. The Monitor revenues declined $3.7 million primarily due to the reduced demand for new flight training systems for commercial and military flight training. Data Display CRT sales in fiscal 2009 declined due to the transition of the UK business to the Data Display CRTs division in the US and the general slowing of the US economy in the Company's third and fourth quarters. Entertainment CRT net sales declined $0.9 million in fiscal 2009 compared to fiscal 2008. A significant portion of the entertainment division's sales are to major television retailers as replacements for products sold under manufacturer and extended warranties. Due to continued lower retail sales prices for mid-size television sets, fewer extended warranties were sold by retailers, a trend consistent with recent prior fiscal years. The Company remains the primary supplier of product to meet manufacturers' standard warranties. Future sales trends in this division will be negatively impacted by the decreasing number of extended warranties sold for larger, more expensive sets. Because the Company is in the replacement market, it has the ability to track retail sales trends and, accordingly, can attempt to adjust quantities of certain size CRTs carried in stock and reduce exposure to obsolescence.
Components Parts sales decreased $0.2 million from fiscal 2008 to fiscal 2009. Component Parts sales have generally declined in recent years due to weaker demand for electron gun and stem sales. Component Parts sales have historically been dependent upon the demand by domestic and foreign television CRT remanufacturers. These sales have declined over the past few years as consumers move towards purchasing new technology as opposed to repairing existing sets. The division primarily supplies the other divisions with parts they need to complete the assembly of their products.
Wholesale Distribution Segment net sales decline is attributed to a decline in the overall economy, particularly the consumer market. The call center's sales declined about $1.0 million due to less calls taken and therefore less billable time. The call center acts as a consumer and dealer support center for in-warranty and out-of-warranty household products, appliances, parts and accessories for Black & Decker, Delonghi, Norelco, Coby and various other manufacturers. This call center also acts as a technical support center for these same manufacturers. The remainder of the decline was in the segment's dealer base which suffered due to reduced consumer demand. Gross Margins
Consolidated gross margins increased to 34.1% for fiscal 2009 from 33.6% for fiscal 2008.
Display Segment margins increased to 29.5% for fiscal 2009 from 28.9% for fiscal 2008. Gross margins within the Monitor operation increased to 29.5% for fiscal 2009 compared to 28.3% for fiscal 2008. This increase is primarily attributable to decreased costs on several contracts in fiscal 2009 at the Aydin division and the increases generated at the Z-Axis division form both internal growth and acquisitions. Data Display CRT gross margins increased to 28.4% for fiscal 2009 compared to 28.1% for fiscal 2008. This increase in margins is primarily a result of reduced overhead. Gross margins in Entertainment CRTs decreased to 16.3% for fiscal 2009 from 41.7% for fiscal 2008 due to the decrease in sales volume of high margin products at the company's Louisiana facility and the decreased production at the Chroma division. Gross margins from Component Parts increased to 46.5% for fiscal 2009 from 30.9% for fiscal 2008 for its customers outside the Company, primarily reflecting the specialization of its products.

The Wholesale Distribution Segment gross margins increased to 44.6% for fiscal 2009 from 44.0% for fiscal 2008, primarily due to customer and product
mix. Lower sales volumes translate into fewer price breaks for high volume dealers. Operating Expenses
Operating expenses as a percentage of sales increased to 33.3% for fiscal 2009 from 27.5% for fiscal 2008 primarily reflecting increases in research and development, legal fees, professional services and bad debts.
Display Segment operating expenses increased $1.8 million or 16.8% to $12.9 million for fiscal 2009 compared to $11.1 million in fiscal 2008. This increase is primarily due to the expenses mentioned above as all those expenses occurred in the Display Segment of the business.
Wholesale Distribution Segment operating expenses decreased $0.9 million or 7.4% to $11.3 million for fiscal 2009 compared to $12.2 million in fiscal 2008, primarily due to a decrease in salaries. These expenses (primarily payroll) are classified in general and administrative expense in the consolidated financial statements.
Interest Expense
Interest expense decreased $0.7 million or 38.8% to $1.1 million for fiscal 2009 compared to $1.8 million in fiscal 2008. The Company maintains various debt agreements with different interest rates, most of which are based on the prime rate or LIBOR. These decreases in interest expense primarily reflect lower market interest rates in effect during fiscal 2009 compared to fiscal 2008. Income Taxes
The effective tax rate for fiscal 2009 was (361.7%) compared to 29.6% for fiscal 2008. The lower effective rate in 2009 was primarily due to research and experimentation credits and various other permanent items. Foreign Currency Translation
Gains or losses resulting from the transactions with the Company's UK subsidiary are reported in current operations while currency translation adjustments are recognized in a separate component of shareholders' equity. There were no significant gains or losses recognized in either period related to the UK subsidiary.

Fiscal 2008 Compared to Fiscal 2007
Net Sales
Consolidated net sales increased $5.3 million or 6.6% to $84.7 million for fiscal 2008, compared to $79.4 million for fiscal 2007. Display Segment sales increased 0.7% or $0.4 million to $58.3 million for fiscal 2008, compared to $57.9 million for fiscal 2007. Wholesale Distribution Segment sales increased 22.5% or $4.8 million from $21.6 million for fiscal 2007 to $26.4 million for fiscal 2008.
The net increase in Display Segment sales for fiscal 2008 is primarily attributed to the addition of the Clinton facility to the Data Display CRTs that offset declines in Monitors, other Data Display CRT facilities, and the Entertainment CRT sales, as compared to fiscal 2007. The Monitor revenues declined $0.7 million primarily due to the reduced demand for new flight training systems for commercial and military flight training. Data Display CRTs sales in fiscal 2008 benefited from the addition of the Clinton division, which offset declines in the Data and UK divisions. Entertainment CRT net sales declined $0.4 million in fiscal 2008 compared to fiscal 2007. A significant portion of the entertainment division's sales are to major television retailers as replacements for products sold under manufacturer and extended warranties. Due to continued lower retail sales prices for mid-size television sets, fewer extended warranties were sold by retailers, a trend consistent with recent prior fiscal years. The Company remains the primary supplier of product to meet manufacturers' standard warranties. Future sales trends in this division will be negatively impacted by the decreasing number of extended warranties sold for larger, more expensive sets. Because the Company is in the replacement market, it has the ability to track retail sales trends and, accordingly, can attempt to adjust quantities of certain size CRTs carried in stock and reduce exposure to obsolescence.
Components Parts sales increased $0.1 million from fiscal 2007 to fiscal 2008. Component Parts sales have generally declined in recent years due to weaker demand for electron gun and stem sales. Component Parts sales have historically been dependent upon the demand by domestic and foreign television CRT remanufacturers. These sales have declined over the past few years as consumers move towards purchasing new technology as opposed to repairing existing sets.
Wholesale Distribution Segment net sales growth is attributed to an expansion of the call center in fiscal 2006, which acts as a consumer and dealer support center for in-warranty and out-of-warranty household products, appliances, parts and accessories for Black & Decker, Delonghi, Norelco, Coby and various other manufacturers. This call center also acts as a technical support center for these same manufacturers. Gross Margins
Consolidated gross margins decreased to 33.6% for fiscal 2008 from 34.7% for fiscal 2007.
Display Segment margins increased from 28.6% for fiscal 2007 to 28.9% for fiscal 2008. Gross margins within the Monitor operation decreased to 28.3% for fiscal 2008 compared to 30.1% for fiscal 2007. This decrease is primarily attributable to delays and increased costs on several contracts in fiscal 2008 at the Aydin division. Data Display CRT gross margins increased to 28.1% for fiscal 2008 compared to 22.1% for fiscal 2007. This improvement in margins is primarily attributed to improved selling prices of certain CRT products with limited availability and reduced costs through transition to internal manufacturing of certain high resolution projection tubes. Gross margins in Entertainment CRTs increased from 30.3% for fiscal 2007 to 41.7% for fiscal 2008 due to the impact of the increased volume of high margin products at the company's Louisiana facility. Gross margins from Component Parts increased to 50.4% for fiscal 2008 from 2.8% for fiscal 2007, primarily reflecting the disposal of the unprofitable Wintron facility in May 2006.
The Wholesale Distribution Segment gross margins decreased from 51.2% for fiscal 2007 to 44.0% for fiscal 2008, primarily due to the impact of increased sales volume of lower margin call center "service sales" during fiscal 2008. Expenses for the call center are classified as operating expenses.

Operating Expenses
Operating expenses as a percentage of sales decreased from 28.6% for fiscal 2007 to 27.5% for fiscal 2008 primarily reflecting the impact of increased sales without increasing expenses during fiscal 2008.
Display Segment operating expenses decreased $0.6 million or 5.4% to $11.5 million for fiscal 2008 compared to $11.7 million in fiscal 2007. This reduction is primarily due to cost savings derived from management's efforts to consolidate facilities, reduce overhead personnel and disposal of unprofitable operations.
Wholesale Distribution Segment operating expenses increased $1.1 million or 9.9% to $12.2 million for fiscal 2008 compared to $11.1 million in fiscal 2007, primarily due to additional expenses associated with the call center, which was expanded late in fiscal 2006. These expenses (primarily payroll) are classified in general and administrative expense in the consolidated financial statements. Interest Expense
Interest expense decreased $0.3 million or 15.1% to $1.8 million for fiscal 2008 compared to $2.1 million in fiscal 2007. The Company maintains various debt agreements with different interest rates, most of which are based on the prime rate or LIBOR. These decreases in interest expense primarily reflect a reduced balance on the debt and lower market interest rates in effect during fiscal 2008 compared to fiscal 2007.
Income Taxes
The effective tax rate for fiscal 2008 was 29.6% compared to 41.7% for fiscal 2007. The lower effective rate in 2008 was primarily due to the impact of a state tax refund received of approximately $0.2 million (net of federal taxes), which related to amendments to apportionment factors in previously filed state of Kentucky income tax returns, and $0.2 million due to domestic production activities.
Foreign Currency Translation
Gains or losses resulting from the transactions with the Company's UK subsidiary are reported in current operations while currency translation adjustments are recognized in a separate component of shareholders' equity. There were no significant gains or losses recognized in either period related to the UK subsidiary.
Management's Discussion of Liquidity and Capital Resources At February 28, 2009 and February 29, 2008, the Company had total cash of $0.7 million and $1.6 million, respectively. The Company's working capital was $36.4 and $39.0 million at February 28, 2009 and February 29, 2008. At February 28, 2009, the Company's $17.0 million in outstanding lines of credit were classified as long-term debt as the bank agreement was extended during fiscal 2009 to June 2010, as discussed later in this section. In recent years, the Company has financed its growth and cash needs primarily through income from operations, borrowings under revolving credit facilities, borrowings from its CEO and long-term debt.
The Company specializes in certain products representing trailing-edge technology that may not be available from other sources, and may not be currently manufactured. In many instances, the Company's products are components of larger display systems for which immediate availability is critical

for the customer. Accordingly, the Company enjoys higher gross margins, but typically has larger investments in inventories than those of its competitors.
The Company continually monitors its cash and financing positions in order to find ways to lower its interest costs and to produce positive operating cash flow. The Company examines possibilities to grow its business through internal sales growth or niche acquisitions. There could be an impact on working capital requirements to fund this growth. As in the past, the intent is to finance such projects with operating cash flows or existing bank lines; however, more permanent sources of capital may be required in certain circumstances.
Cash provided by operations was $1.3 million in fiscal 2009 and $5.7 million in fiscal 2008. During fiscal 2009, net working capital items decreased by $2.6 million primarily to a decrease in net income of $2.5 million and $1.2 million increase in refundable income taxes. During fiscal 2008, net working capital items increased by $0.6 million due to an increase in accounts payable of $1.0 million and a $0.7 million decrease in cost, estimated earnings and billings net on uncompleted contracts offset by a $3.1 million increase in gross inventories.
Investing activities used cash of $1.3 million and $0.8 million in fiscal 2009 and fiscal 2008 respectively. Capital expenditures exclusive of acquisitions were $0.9 million and $0.8 million in fiscal 2009 and fiscal 2008 respectively. Capital expenditures in fiscal 2009 and 2008 were for general maintenance requirements and computer hardware. The Company does not anticipate significant investments in capital assets for fiscal 2010 beyond normal maintenance requirements.
Financing activities used cash of $0.8 million and $4.5 million in fiscal 2009 and fiscal 2008 respectively. During fiscal 2009, the Company used cash for the net repayment of loans to related parties of $0.6 million and for the repurchase of common stock of $4.3 million while increasing borrowing on its revolver by $4.2 million. During fiscal 2008, the Company used cash for net repayment of loans from related parties of $3.0 million and for the repurchase of common stock of $1.3 million.
On September 26, 2008, the Company executed a Loan and Security Agreement with RBC Bank to provide a $17 million line of credit to the Company and a $3.5 million line of credit to the Company's subsidiary Fox International, Ltd. As of February 28, 2009, the outstanding balances of these lines of credit were $16.5 million and $3.5 million, respectively. The available amounts for borrowing were $0.5 million and $0.0 million, respectively at February 28, 2009. These loans are secured by all assets and personal property of the Company. The agreement contains covenants, including requirements related to tangible cash flow, ratio of debt to cash flow and assets coverage. The agreement also includes restrictions on the incurrence of additional debt or liens, investments (including Company stock), divestitures and certain other changes in the business. The Company's $17.0 million line of credit was extended to June 2010, and accordingly is classified under long term liabilities on the Company's balance sheet. The Company's subsidiary, Fox International, Ltd agreement expired in June, 2009 and is classified in short term liabilities. The interest rate on these loans is a floating LIBOR rate based on a fixed charge coverage ratio, as defined in the loan documents. In conjunction with Loan and Security Agreement, the syndicate also executed a $1.7 million term note with the Company repayable in 32 monthly increments of $25,000 each through July 1, 2011, and the Chief Executive Officer ("CEO") of the Company personally provided a $6.0 million subordinated term note to the Company. See related information in Notes 7 and 8 to the Consolidated Financial Statements. These new lines of credit replaced the existing lines of credit with a syndicate including RBC Centura Bank and Regions Bank, which were terminated in conjunction with this agreement. As of February 28, 2009, the Company was not in compliance with the consolidated Fixed Charge Coverage Ratio as defined by the RBC credit line agreements. The Company received a waiver of this covenant violation from RBC Bank through the July 15, 2009 reporting of the next measurement of this covenant as of the Company's first fiscal quarter end. The Company is in negotiations with RBC Bank for a new revolving line of credit and term loan with more favorable thresholds for the covenants. Management believes based on their projections, the Company will be able to meet the new covenants and be in compliance under the new loan agreements.
The Company has a stock repurchase program, pursuant to which it was originally authorized to repurchase up to 1,062,500 shares of the Company's common stock in the open market. On December 4,

2008, 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 570,000 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 28, 2009, the Company repurchased 899,877 shares at an average price of $4.91 per share, which have been added to treasury shares on the consolidated balance sheet. Under this program, an additional 45,455 shares remain authorized to be repurchased by the Company at February 28, 2009. As discussed in Note 7, the Loan and Security Agreement executed by Company on June 29, 2006 included restrictions on investments that restricted further repurchases of stock under this program. The participating banks granted an exception to these restrictions, allowing the Company to purchase unlimited shares providing the company meets the covenants in the loan agreement.
Transactions with Related Parties, Contractual Obligations, and Commitments In conjunction with an agreement involving re-financing of the Company's lines of credit and Loan and Security Agreement, on June 29, 2006 the Company's CEO provided a $6.0 million subordinated term note to the Company with monthly principal payments of $33,333 plus interest through July 2021. The interest rate on this note is equal to the prime rate plus one percent. The note is secured by a general lien on all assets of the Company, subordinate to the lien held by the RBC Bank. The balance outstanding under this loan agreement was approximately $2.2 million at February 28, 2009.
The Company has a demand note outstanding from another officer, bearing interest at 8 percent. Principal payments of $63,000 and $44,000 were made on this note in fiscal 2009 and 2008, respectively, there were no additional advances on this note during fiscal 2009 or 2008. The balance outstanding on this note is $189,000 at February 28, 2009.

Contractual Obligations
     Future maturities of long-term debt and future contractual obligations due
under operating leases at February 28, 2009 are as follows (in thousands):

. . .