The following discussion should be read in conjunction with the attached interim condensed consolidated financial statements and with the Company's 2012 Annual Report to Shareholders, which included audited consolidated financial statements and notes thereto for the fiscal year ended February 29, 2012, as well as Management's Discussion and Analysis of Financial Condition and Results of Operations.

Overview

The Company is a worldwide leader in the manufacturing and distribution of a wide range of display devices, encompassing, among others, industrial, military, medical, and simulation display solutions. The Company is comprised of one segment - the manufacturing and distribution of displays and display components. The Company is organized into four interrelated operations aggregated into one reportable segment pursuant to the aggregation criteria of FASB ASC Topic 280 "Segment Reporting":

• Monitors - offers a complete range of CRT, flat panel and projection display systems for use in training and simulation, military, medical, and industrial applications.

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

• Entertainment CRT - 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 2013, management of the Company is focusing key resources on strategic efforts to dispose of unprofitable operations and seek acquisition opportunities that enhance the profitability and sales growth of the Company's more profitable product lines. 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 future needs to ensure adequate on-hand supplies of inventory and to mitigate the risk of overstocking slower moving, obsolete items. The Company's inventories increased particularly in the monitor division due to new product lines it is carrying, due to requirements to fulfill contracts and last-time buys. The Company has two new divisions, Aydin Visual Solutions and Aydin Cyber Security which between the two have added $1.7 million in inventory since February 29, 2012. The Aydin Displays subsidiary has increased inventories by $0.8 million since February 29, 2012 to secure products that would no longer be available and are needed for an active contract and the Lexel subsidiary increased inventory by $1.3 million due to last time buys of glass and other items needed for current orders. The other divisions decreased their inventories.

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 approximately 310 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 and 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. Because of this, the Company's management monitors the adequacy of its inventory reserves regularly, and at November 30, 2012 and February 29, 2012, believes its reserves to be adequate.

Interest rate exposure- The Company had outstanding debt of $16.2 million as of November 30, 2012, all of which is subject to interest rate fluctuations by the Company's lenders. Higher rates applied by the Federal Reserve Board could have a negative effect on the Company's 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.

Results of Operations

The following table sets forth, for the three and nine months ended November 30,
2012 and 2011, the percentages that selected items in the Condensed Consolidated
Statements of Income bear to total sales:



                                       Three Months                   Nine Months
                                    Ended November 30,            Ended November 30,
                                    2012           2011           2012           2011
     Sales
     Monitors                          96.6 %        92.3 %          95.3 %        91.6 %
     Data display CRTs                  3.1           7.4             4.2           7.9
     Entertainment CRTs                 0.1           0.1             0.1           0.2
     Components parts                   0.2           0.2             0.4           0.3

     Total Company                    100.0 %       100.0 %         100.0 %       100.0 %
     Costs and expenses
     Cost of goods sold                74.0 %        66.5 %          72.3 %        67.9 %
     Selling and delivery              10.3           8.8            11.0           8.1
     General and administrative        13.9          12.7            14.9          12.8

                                       98.2 %        88.0 %          98.2 %        88.8 %

     Operating profit                   1.8 %        12.0 %           1.8 %        11.2 %

     Interest expense                  (1.3 )%       (1.2 )%         (1.4 )%       (1.3 )%
     Other income, net                  0.7           0.4             1.0           0.3

     Income before income taxes         1.2 %        11.2 %           1.4 %        10.2 %
     Income tax expense                 0.0           3.4             0.2           3.2

     Net income                         1.2 %         7.8 %           1.2 %         7.0 %

This year's results have been negatively impacted by two new divisions, Aydin Visual Solutions and Aydin Cyber Security. The two divisions have net losses of $565 thousand and $1.1 million, respectively through the nine months ended November 30, 2012. These two entities are still in the start up stages, causing the losses noted and decreasing consolidated net income of the company.

Net sales

Consolidated net sales decreased $3.4 million for the three months ended November 30, 2012 and $12.0 million for the nine months ended November 30, 2012 as compared to the three and nine months ended November 30, 2011. The Component Parts division had a slight increase in sales during both time periods ending November 30, 2012, but the other divisions all had decreases. The Data Display and Entertainment divisions both generated less than half the sales of the comparable periods ending November 30, 2011.

The decrease in the Monitor division was lead by the Company's Display Systems division, with sales decreasing for the nine-month period ending November 30, 2012, compared to the nine months ending November 30, 2011, from

$10.2 million to $5.4 million or 46.7%. The sales decrease is a result of a transition from selling "CRT products" to developing and selling digital display solutions. The typical sales cycle of a new product solution is 12 to 18 months. Management believes Display Systems is at the cusp of seeing the results of this transition. The Company's Aydin subsidiary's sales decreased by 29.0% for the nine-month comparable period ending November 30, 2012, from $20.8 million to $14.8 million. The decrease was primarily due to approximately $5.0 million of shipments on long-term military contracts which have been delayed and approximately $1.0 million of projects not renewed due to lack of funding. The Z-Axis subsidiary was down 25.8% due to fewer shipments to their two major customers. Last year one of Z-Axis's major customers used Z-Axis's products to correct problems with their products already in the market place which created abnormally high demand. The second customer's demand has slowed due to decreases in orders from their military customers caused by the slowdown in overseas conflicts. Overall, the Company expects results to improve over the first nine months of the fiscal year; however, the revenues are not expected to reach last year's 12 - month results. The Data Display division decrease was due to the shutdown of the division's Clinton facility in the fourth quarter of fiscal 2012 and the Tucker facility's decrease was primarily to its top customer in flight simulation and decreases among most of its customer base.

Gross margins

Consolidated gross margins decreased by 38.9% for the three months ended November 30, 2012 over the three months ended November 30, 2011 and as a percent to sales decreased from 33.5% to 26.0%. The consolidated gross margin decreased by 34.7% for the nine months ended November 30, 2012 over the nine months ended November 30, 2011 and as a percent to sales decreased from 32.1% to 27.7% due to the decreased sales noted above while absorbing fixed costs.

Gross margins within the Monitor division decreased by 33.7% for the three month period ended November 30, 2012 over the comparable three month period ended November 30, 2011 and decreased by 32.0% for the nine month period ended November 30, 2012 over the comparative nine month period ended November 30, 2011 due to decreased sales volume. The actual gross margin percentages increased at Aydin Displays for the nine month period ending November 30, 2012 despite lower sales due to product mix. The gross margin percentage at Display Systems decreased by 61.5% due to a lack of sales volume. The Data Display division gross margins decreased by 136.0% for the three-month comparable period ended November 30, 2012, and decreased by 82.2% for the nine months ended November 30, 2012 compared to the nine months ended November 30, 2011, due to the impact of the decreased revenue at the Company's display facility caused by a reduction in demand for these products due to changes in technology, i.e. CRTs being replaced by flat screens in certain applications. The gross margins in home entertainment CRTs and the Component Parts were negligible as both divisions sales continue to decline and are not material to the results of the Company. The Company expects gross margins to improve slightly compared to the first nine months of the fiscal year due to improved margins at VDCDS, Aydin Displays and Z-Axis based on the forecasted product mix at these divisions.

Operating expenses

Operating expenses as a percentage of sales increased from 21.5% to 24.2% for the comparable three months ended November 30, 2012 and increased from 20.9% to 25.9% for the nine months ended November 30, 2012. This was primarily due to a larger decrease in revenues than expenses. Actual expenses decreased by $0.4 million for the three month period and by $0.7 million for the nine month period ending November 30, 2012 which was not as significant as the decrease in sales. We expect selling expenses will continue to track at last year's levels as the Company continues its marketing efforts to boost revenues. General and Administrative expenses are down approximately $800 thousand and we anticipate they will continue to decrease compared to last year.

Interest expense

Interest expense decreased 10.0% for the three-month comparable period ended November 30, 2012, and decreased 15.3% for the comparable nine month period ended November 30, 2012 due to decreased average borrowings by the Company. The Company expects to have higher interest costs due to the higher interest rate being charged by the bank for the covenant breach; this will be somewhat offset as the outstanding debt decreases, due to increased cash flow from operations and the management of current assets. The Company maintains various debt agreements with different interest rates, most of which are based on the prime rate or LIBOR.

Income taxes

The effective tax rate for the three months ended November 30, 2012 and 2011 was 0.0% and 30.0%, respectively and for the nine months ended November 30, 2012 and 2011 was 12.1% and 30.9%, respectively. These rates differ from the Federal statutory rate primarily due to the effect of state taxes, the permanent non-deductibility of certain expenses for tax purposes, and research and experimentation credits.

Liquidity and Capital Resources

As of November 30, 2012, the Company had total cash of zero as all cash is swept on a daily basis and pays down the line of credit and availability under the line of credit was approximately $0.1 million based on the accounts receivable and inventory borrowing base calculations. The Company's working capital was $22.4 million and $37.3 million at November 30, 2012 and February 29, 2012, respectively. The decrease in the working capital is due to $15.0 million of debt reclassified to a short-term liability due to the Company's bank covenant violation and the likelihood of doing so in subsequent quarters. In recent years, the Company has financed its growth and cash needs primarily through income from operations, borrowings under revolving credit facilities, advances from the Company's Chief Executive Officer and long-term debt. Liquidity provided by operating activities of the Company is reduced by working capital requirements (largely inventories and accounts receivable), debt service, capital expenditures, and product line additions.

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 on certain products, but typically has larger investments in inventories than those of its competitors.

On December 23, 2010, the Company and its subsidiaries executed a new Credit Agreement with RBC Bank and Community & Southern Bank (collectively, the "Banks") to provide new financing to the Company to replace the existing credit agreement with RBC Bank that terminated in conjunction with this Agreement. The new Agreement provided for a line of credit of up to $17.5 million and two term loans of $3.5 million and $3.0 million.

• 1st Amendment: On May 26, 2011, the Banks amended the Credit Agreement to reduce the revolver commitment to $15.0 million, restate the covenants to pertain to only continuing operations of the Company and to adjust the targets for the senior funded debt to EBITDA covenant for the Company's quarters ending May 31, 2011 and August 31, 2011.

• 2nd Amendment: On July 26, 2011, the Banks again amended the Credit Agreement to include a swing-line promissory note of $1.0 million that is included in the revised $15.0 million revolver commitment.

• 3rd Amendment: On September 1, 2011, the Banks amended the Credit Agreement to allow the Company to repurchase a limited amount of the Company's common stock, equal to ten percent of the Company's net earnings after taxes, subject to meeting certain share repurchase conditions and revised the definition of the fixed charge coverage ratio and total liabilities to tangible net worth to exclude such repurchases.

• 4th Amendment: On January 17, 2012, the Banks amended the Credit Agreement to allow the Company to purchase a promissory note, dated July 23, 2010, held by Hetra Secure Solutions Corporation on StingRay56.

• 5th Amendment: On March 5, 2012, the Banks amended the Credit Agreement to allow the Company to acquire StingRay56, Inc.

The outstanding balance of the line of credit at November 30, 2012 was $11.1 million and the balances of the term loans were $2.2 million and $2.6 million, respectively. The outstanding balance of the line of credit at February 29, 2012 was $11.1 million and the balances of the term loans were $2.7 million and $2.8 million, respectively. These loans are secured by all assets and personal property of the Company and a limited guarantee of the Chief Executive Officer of $3.0 million. The $3.0 million term loan is secured by real estate property of the Company and a building owned by Southeastern Metro Savings, LLC, a company in which the Company's Chief Executive Officer is a minority officer. The building will continue to be in the collateral pool until such time as the note is sufficiently paid down or it is replaced by other collateral.

The Agreement contains three covenants: a fixed charge coverage ratio, ratio of senior funded debt to earnings before interest, taxes, depreciation and amortization (EBITDA), and total liabilities to tangible net worth. 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 Agreement expires on December 1, 2013. The interest rate on these loans is a floating LIBOR rate based on a fixed charge coverage ratio, minimum 4.0%, as defined in the loan documents.

As of November 30, 2012, the Company was not in compliance with the senior funded debt to EBITDA ratio and permitted share repurchases covenants as defined by the Banks credit line agreements. A breach of these covenants could result in default under our debt agreement, which could prompt the lender to declare all amounts outstanding under the debt agreement to be immediately due and payable and terminate all commitments to extend further credit. If the Company were unable to repay those amounts, the lender could proceed against the collateral granted to secure that indebtedness. If the lender under the debt agreement accelerates the repayment of the borrowings, there can be no assurance that the Company will have sufficient assets and funds to repay the borrowings under its debt agreements. The Company has been in talks with other banks about refinancing the current debt under an agreement with less restrictive covenants and borrowing base calculations. Management believes that a new debt agreement can be obtained by the end of the fourth quarter, however, there can be no assurance that an agreement can be reached that is reasonable to the Company or at all. Additionally, due to the activity generated by the chairman's remarks at the annual shareholder meeting concerning any potential mergers, spinoffs, sale of the Company as a whole or any other method (see 8-K), the Company put negotiations on hold with the banks amendment of the facility or potential refinance until the uncertainty and any potential outcomes could be realized. Upon any definite agreement being reached, the Company will resume the negotiations on its debt facility. As a result of these violations and the Company's likelihood of not meeting them at the next reporting period, the debt has been classified as current at November 30, 2012. The senior funded debt to EBITDA covenant was deemed to be the most restrictive by the Company and the Banks.

The Company continues to monitor its cash and financing positions, seeking to find ways to lower its interest costs and to produce positive operating cash flow. The Company examines possibilities to grow its business as opportunities present themselves, such as new sales contracts 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 for the nine months ended November 30, 2012 was $1.2 million. Net income from operations provided $0.5 million, and adjustments to reconcile net income to net cash were $1.2 million including depreciation and reserves. Changes in working capital used $0.5 million primarily due to an increase in inventory of $2.8 million and an increase in costs on uncompleted contracts of $0.2 million offset by an increase in accounts payable and accrued liabilities of $0.2 million, a decrease in accounts receivable of $1.3 million, a decrease in short-term notes receivable of $0.3 million, a decrease in prepaid expenses of $0.1 million, and a decrease in refundable taxes of $0.6 million. Cash provided by operations for the nine months ended November 30, 2011 was $2.2 million.

Investing activities used cash of $0.6 million due to the purchase of equipment for $0.63 million offset by $0.05 million for the proceeds from the sale of the Chroma property during the nine months ended November 30, 2012. Cash provided by investing activities for the nine months ended November 30, 2011 was $1.0 million.

Financing activities used cash of $0.7 million for the nine months ended November 30, 2012, due to net repayments against the line of credit of $0.68 million and the purchase of treasury stock for $0.09 million. Cash used by financing activities for the nine months ended November 30, 2011 was $4.5 million.

The Company's debt agreements with financial institutions contain affirmative and negative covenants, including requirements related to tangible net worth and debt service coverage and new loans. Additionally, dividend payments, capital expenditures, and acquisitions have certain restrictions. Substantially all of the Company's retained earnings are restricted based upon these covenants.

The Company has a stock repurchase program, pursuant to which it was originally authorized to repurchase up to 1,632,500 shares of the Company's common stock in the open market. On July 8, 2009, 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 1,000,000 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. For the nine months ended November 30, 2012, the Company repurchased 22,031 shares at an average price of $4.10 per share. The Company repurchased 57,087 shares in the nine months ended November 30, 2011. Under the Company's stock repurchase program, an additional 705,106 shares remain authorized to be repurchased by the Company at November 30, 2012. The Credit Agreement executed by the Company on December 23, 2010 included restrictions on investments that restricted further repurchases of stock under this program. On September 1, 2011, the Agreement was amended to allow the Company to repurchase a limited amount of the Company's common stock, equal to ten percent of the Company's net earnings after taxes subject to meeting certain share repurchase conditions.

On March 1, 2011, the Company sold its Fox International Ltd., Inc. subsidiary to FI Acquisitions, a company majority owned by the Company's Chief Executive Officer. The Company put its Fox International Ltd. subsidiary up for auction on January 15, 2011, and gave all interested parties a thirty-day due diligence period that was later extended until March 23, 2011, to give any potential bidders more time. FI Acquisitions was the only bidder and paid the net book value, approximately $3.5 million, for Fox International Ltd. in a stock sale, satisfied by the Company's Chief Executive Officer exchanging 800,000 shares of the Company's stock valued at approximately $3.3 million, approximately $50 thousand in cash and a reduction in notes payable to officers and directors of approximately $200 thousand. As the sale was at net book value, no gain or loss was recorded by the Company.

Critical Accounting Estimates

Management's Discussion and Analysis of Financial Condition and Results of Operations are based upon the Company's condensed consolidated financial statements. These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the use of estimates and assumptions that affect amounts reported and disclosed in the condensed consolidated financial statements and related notes. The accounting policies that may involve a higher degree of judgments, estimates, and complexity include reserves on inventories, revenue recognition, the allowance for bad debts and warranty reserves. 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.

Management considers the projected demand for CRTs in this estimate of net realizable value. Management is able to identify consumer-buying trends, such as size and application, well in advance of supplying replacement CRTs. Thus, the Company is able to adjust inventory-stocking levels according to the projected demand. The average life of a CRT is five to seven years, at which time the Company's replacement market develops. Management reviews inventory levels on a quarterly basis. Such reviews include observations of product development trends of the original equipment manufacturers, new products being marketed, and technological advances relative to the product capabilities of the Company's existing inventories. There were no significant changes in management's estimates in the third quarter of fiscal 2013 and 2012; however, the Company cannot guarantee the accuracy of future forecasts since these estimates are subject to change based on market conditions. The Company is currently assessing the adequacy of certain reserves in its monitor operations and anticipates that there will be additional reserves set aside during the fourth quarter.

Revenue recognition

Revenue is recognized on the sale of products when the products are shipped, all significant contractual obligations have been satisfied, and the collection of the resulting receivable is reasonably assured. The Company's delivery term typically is F.O.B. shipping point.

In accordance with FASB ASC Topic 605-45 "Revenue Recognition: Principal Agent Considerations", shipping and handling fees billed to customers are classified . . .