VIDEO DISPLAY CORP - Annual Report: 2002 (Form 10-K)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-K

For the fiscal year ended February 28, 2002

Commission file number 0-13394

VIDEO DISPLAY CORPORATION
(Exact name of registrant as specified in its charter)

1868 Tucker Industrial Drive, Tucker, Georgia 30084
(address of principal executive offices and zip code)

Registrant's telephone number, including area code: (770) 938-2080

Securities Registered Pursuant to Section 12(b) of the Act: NONE

Securities Registered Pursuant to Section 12(g) of the Act:

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

        The aggregate market value of the voting stock held by non-affiliates of the registrant at May 13, 2002 is $17,023,000.

        The number of shares outstanding of the registrant's Common Stock as of May 13, 2002 is 4,748,748.

DOCUMENTS INCORPORATED BY REFERENCE HEREIN

        Certain exhibits which were filed with the Securities and Exchange Commission as part of the registrant's Registration Statement on Form S-18 (Commission File No. 2-94626-A) are incorporated by reference into Part IV.

        Portions of the proxy statement for the annual 2002 shareholders meeting are incorporated by reference into Part III.

PART I

ITEM 1.    BUSINESS

General

        Video Display Corporation (the "Company") is a leading supplier of a complete range of display products and component parts for the display industry. Its product line consists of a wide variety of electron optic parts for original equipment manufacturers ("OEMs"), cathode ray tubes ("CRTs") and monitor manufacturers. The Company manufactures monochrome and color CRTs for medical, military, industrial and television applications and high and low-end monochrome and color CRT and AMLCD monitor displays for specialty high-performance and ruggedized requirements. The Company also acts as a wholesale distributor of electronic parts and CRTs purchased from domestic and foreign manufacturers. The Company's operations are principally located in the U.S.; however, the Company does have subsidiary operations located in Mexico and the United Kingdom.

Description of Principal Business

        The Company began operations in 1975 in Stone Mountain, Georgia manufacturing and recycling replacement CRTs for color and black/white television sets. Beginning in 1983, with the growth of the computer industry, the Company expanded to meet the needs of the replacement market for computer monitors and other data display screens by acquiring production equipment and customers from other smaller CRT remanufacturers. Today, the Company with its plants in Louisiana, Pennsylvania, Georgia, Texas, New York, Connecticut, Florida, Massachusetts, Kentucky, California, Mexico, and Lye, U.K. combine to form an international display manufacturing and display replacement parts distribution network for military, medical, training simulation and other niche market display applications.

        In November 2001, the Company acquired the Marquee™ line of CRT projectors from Christie Digital Systems Canada Inc. ("Christie"). These assets were transferred to the Company's subsidiary, VDC Display Systems ("Display Systems") of Cape Canaveral, Florida and compliment Display System's position in the simulation, virtual reality, home theater and other specialized markets.

        In June 2001, the Company acquired the common stock of XKD Corporation ("XKD") of San Jose, California. XKD is a manufacturer of high-resolution displays used for training, simulation, ruggedized military/industrial, and instrumentation applications.

        In May 2000, the Company acquired the common stock of Lexel Imaging Systems, Inc. ("Lexel") of Lexington, Kentucky. Lexel manufactures a wide range of CRT storage tubes and other complete visual displays for commercial and military programs.

        In June 2000, the Company acquired certain assets of the Electro Optical division of Imaging and Sensing Technology ("IST") in Horseheads, New York. IST provides a product line that includes specialty CRTs and complete visual displays used to produce computer-generated graphics, high quality photography and medical diagnostic images. The acquired assets of IST were integrated into Lexel's Lexington, Kentucky facility.

        In September and December 2000, the company acquired the CRT operations of the Raytheon Corporation and the assets of the former Datagraphix business unit of Anacomp, respectively. These operations were consolidated into Lexel's facility in the latter part of fiscal 2001.

        During fiscal 2000, in order to support the data display segment, the Company opened offices in Cape Canaveral, Florida and Wolcott, Connecticut. The Florida location, Display Systems, provides custom CRT solutions for training rooms, board rooms, teleconferencing, flight training simulators, command and control centers, air traffic control, ship simulators, process status displays and integrated home theater. The Wolcott, Connecticut location ("VDC Wolcott") offers high-resolution monochrome displays for use in medical and military applications.

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        During fiscal 1999, the Company acquired the assets and assumed certain liabilities of the U.S. and U.K. Display Divisions of Aydin Corporation ("Aydin"); acquired 100% of the outstanding common stock of Mengel Industries, Inc. ("MII"); and acquired the net assets of both Wintron, Inc. ("Wintron") and MegaScan Corporation ("MegaScan"). Aydin offers a complete line of high-resolution commercial and ruggedized CRT monitors, AMLCD flat panel displays and monitors used by the public and private sector industries including medical diagnostic or treatment centers, utility and financial companies, and the military industry. MII supplies independent, OEM and hospital service personnel with CRTs, camera tubes and other components for medical imaging within the healthcare industry. Wintron manufactures high quality, custom-designed deflection components, high voltage power supplies, coils and flyback transformers and other CRT drive circuitry for airborne, commercial and military applications. MegaScan offers a specialty line of high-resolution monochrome CRT monitors to the medical display industry.

        In fiscal 1996, the Company acquired the assets and assumed certain of the liabilities of Teltron Technologies, Inc. ("Teltron") and the stock of Z-Axis, Inc. ("Z-Axis"). Teltron is involved in the development and production of new and recycled camera and CRTs and special purpose sensors. Teltron's products are used in camera tube applications including nuclear inspection, UV sensing, x-ray and astronomy; military applications including avionics instrument displays, marine radar displays, helmet mounted displays, vehicular displays, and target monitoring image tubes; and in CRT applications including OEM displays, flying spot scanners, photo typesetting and electrostatic deflection tube applications. Z-Axis is involved in the design and production of color and monochrome video display monitors. Z-Axis' monitors are used in industrial control, medical instruments, test equipment, visual aid devices, on-board tracking systems, point-of-sale terminals and naval tactical displays.

        The Company, through Southwest Vacuum Devices, Inc. ("Southwest Vacuum") located in Tucker, Georgia, is involved in the manufacturing, marketing and distribution of electron guns and related hardware. The electron gun is a main component of a CRT and Southwest Vacuum provides the Company the ability to supply virtually all of its internal electron gun requirements.

        In the late 1980's, the Company entered the market of wholesale distribution of consumer electronic parts and consumer products and accessories with the acquisition of Fox International Ltd., Inc. ("Fox International") of Cleveland, Ohio. Fox International is involved in the wholesale distribution of consumer electronic parts for most major U.S. and foreign electronic manufacturers.

        The Company continues to explore opportunities to expand the products offered in the display industry. This expansion will be achieved by adding new products to its inventory or by acquiring existing companies that would enhance the Company's position in the display industry. Research and development primarily consists of establishing the interchangeability of products from various manufacturers and, when advantageous, manufacturing products to replace original electronic parts.

Segment Information

        This information is provided in the notes to the consolidated financial statements, Note 12.

Products

Cathode Ray Tubes ("CRTs")

        Since its organization in 1975, Video Display Corporation has been engaged in the distribution and manufacture of CRTs using new and recycled CRT glass bulbs, primarily in the replacement market, for use in data display screens, including computer terminal monitors, medical monitoring equipment and various other data display applications and in television sets. The Company currently markets CRTs in over 3,000 types and sizes.

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        The Company's CRT operations are conducted at its facilities near Atlanta, Georgia, and at facilities located in White Mills, Pennsylvania (Chroma); Bossier City, Louisiana (Novatron); Monterrey, Mexico (Video Electronics); Dallas, Texas (Magna View); Lexington, Kentucky (Lexel) San Jose, California (XKD); and Lye, England (VDC, Ltd.). At each North American facility, the Company manufactures new or recycles CRTs to meet original specifications. The European location is a sales and distribution facility.

        The recycling process for monochrome CRTs involves the cleaning and reconditioning of the glass bulb and the insertion of new electronic components, which are purchased from OEMs and the Company's electron gun subsidiary. The Company's Atlanta, Georgia and Monterrey, Mexico facilities also assemble monochrome CRTs using new glass bulbs obtained from suppliers in standard sizes where customer requirements warrant the higher cost of new glass. The recycling of color CRTs involves the insertion of new electronic components, while leaving the original display screen intact. All CRTs manufactured by the Company are tested for quality in accordance with standards approved by UL and are shipped to customers or warehoused to meet future customer demand. The Company provides one-year limited warranties on its computer and other data display CRTs and two-year limited warranties on its color television components. Management believes that the Company is the largest recycler of CRTs in the domestic replacement markets for both television and data display uses.

        The Company also distributes new CRTs and other electronic tubes purchased from original manufacturers, both domestic and international. Some of these manufacturers offer large quantities of overstocked original manufactured tubes from time to time at significant price reductions. The Company acquires these tubes when the existing replacement market demonstrates adequate future demand and the purchase price allows a reasonable profit for the risk. However, these purchased inventories sometimes do not turn as quickly as other inventories.

        The Company markets its products through approximately 200 independent wholesale electronics distributors located throughout the U.S. and sells directly to OEMs and their service organizations. The Company also supplies, under private-brand labeling, many of the replacement tubes marketed by several national brand name television manufacturers.

        In addition to factors affecting the overall market for such products, the Company's sales volumes in both the color television and the data display CRT replacement markets are dependent upon the Company's ability to provide prompt response to customers' orders, while maintaining quality control and competitive pricing. While the Company's manufacturing activities are scheduled primarily around orders received, it also manufactures a wide variety of CRTs for stock inventory in anticipation of customer demand.

Monitor Displays

        With its most recent acquisitions, the Company continues to position itself to compete in the design and manufacture of complete monitor units for use in the healthcare, military and industrial sectors.

        The Company's monitor operations are conducted at Phelps, New York (Z-Axis); Birdsboro, Pennsylvania (Teltron); Horsham, Pennsylvania (Aydin); Billerica, Massachusetts (MegaScan); Wolcott, Connecticut (VDC Wolcott); Cape Canaveral, Florida (Display Systems), Lexington, Kentucky (Lexel); and San Jose, California (XKD).

        The Company's monitor segment involves the design, engineer and manufacture of complete monochrome and color monitor units using new CRTs or flat panel displays. The Company will customize these monitors for specific applications, including ruggedization for military uses or size reduction due to space limitations in industrial and medical applications. Because of the Company's

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flexible and cost efficient manufacturing, it is able to handle low volume orders that generate higher margins.

Electron Guns and Components

        The Company, through its electron gun manufacturing subsidiary Southwest Vacuum, manufactures electron gun assemblies comprised of small metal and ceramic parts in a glass housing. The assembly process is highly labor intensive. While the particular electron guns being sold are of the Company's own design, most are replacements for electron guns previously designed for original equipment CRTs used in television sets and computer monitors. Therefore, the total amount of research and development expense is not significant and is not segregated in the consolidated financial statements, but is instead included in cost of sales. Raw materials consist of glass and metal stamped parts.

        The electron gun division markets electron gun component parts to OEMs who manufacture high resolution and specialty tubes for unique applications. The majority of electron guns produced by the Company are consumed internally among the Company's own CRT manufacturing facilities. Sales to these related divisions, which have been eliminated in the consolidated financial statements, amounted to approximately $549,000, $434,000, and $483,000 for fiscal 2002, 2001 and 2000, respectively.

        Electron gun sales are historically dependent upon the demand by domestic and foreign television CRT remanufacturers. The Company continues to seek alternative, growth-oriented markets to fully utilize its electron gun and component assembly facility.

        The Company, through its subsidiary Wintron located in Howard, Pennsylvania, produces flyback transformers, coils and power transformers. Intercompany sales transactions were $210,000, $85,000 and $14,000 for fiscal 2002, 2002 and 2001, respectively; and may become more significant as the Company's monitor segment grows.

Flat Panel Technology

        The Company anticipates that AMLCD and Plasma Display products, due to their lower space and power requirements, will eventually become the display of choice in many new display applications. To date, this has not had a significant effect on the Company's operations due to the nature of the Company's business primarily emphasizing replacement and service parts and specialty niche markets. In anticipation of long-term trends toward flat panel display usage, the Company has focused its R&D efforts as well as its acquisition strategy toward flat panel technologies for niche market applications in the medical, simulation, training and military markets. The Company will continue to monitor these trends and continue to make adjustments to its CRT inventory levels and operating facilities to reflect these changes in demand.

Electronic Parts

        Fox International distributes consumer electronic parts of most major consumer electronics manufacturers, both foreign and domestic. This subsidiary resells these products to major electronic distributors; retail electronic repair facilities; third-party contractual repair shops; and directly to consumers. In its relationship with consumer electronic manufacturers, Fox International receives the right, often exclusively, to ship parts to authorized dealers. Many of the manufacturers also direct inquiries for replacement parts to Fox International. Each manufacturer requires a distributor to stock its most popular parts and monitors the order fill ratio to ensure that their customers have access to sufficient replacement parts. Fox International maintains very high fill ratios in order to secure favored distributor status from the manufacturers, requiring a significant investment in inventories. To a limited extent, Fox International has the ability to rotate its stock with certain vendors to mitigate any risk of investment in inventories.

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Patents and Trademarks

        The Company holds certain patents with respect to some of its products and markets its services and products under various trademarks and tradenames. Additionally, in fiscal 2001 the Company began licensing certain electronic technology to other manufacturing companies, which generated royalty revenues of approximately $155,000 in fiscal 2002. Although the Company believes that the patents and trademarks owned are of value, the Company believes that success in its industry will be dependent upon new product introductions, frequent product enhancements, and customer support and service. However, the Company intends to protect its rights when, in its view, these rights are infringed upon. The Company's key patents expire in 2014.

Seasonal Variations in Business

        Historically, there have not been any seasonal variations in the Company's CRT operating subsegments. The wholesale electronic parts distribution segment has experienced minimally higher sales during the Company's third quarter, which includes the impact of higher repair parts sales during the beginning of the new fall television season.

Working Capital Practices

        Information contained under the caption "Management's Discussion and Analysis" ("MD&A") in this Report is incorporated herein by reference in response to this item.

Concentration of Customers

        The Company sells to a variety of domestic and international customers on an open-unsecured account basis. These customers principally operate in the medical, military, television and avionics industries. The Company's CRT division had net sales to the U.S. government that comprised approximately 15%, 17% and 15% of CRT segment net sales and 13%, 13% and 11% of consolidated net sales in fiscal 2002, 2001 and 2000, respectively. The Company's wholesale electronic parts distributor, Fox International, had net sales to one customer that comprised approximately 20%, 22% and 19% of that subsidiary's net sales in fiscal 2002, 2001 and 2000, respectively. Other subsidiaries have a few concentrated customers and vendors that could, if lost, negatively affect sales. The Company attempts to minimize credit risk by reviewing all customers' credit history before extending credit, and by monitoring customers' credit exposure on a daily basis. The Company establishes an allowance for doubtful accounts receivable based upon factors surrounding the credit risk of specific customers, historical trends and other information.

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Backlog

        The Company's backlog is comprised of undelivered, firm customer orders, which are scheduled to ship within eighteen months. The Company's backlog was approximately $22,312,000 at February 28, 2002 and $25,623,000 at February 28, 2001. The Company's Lexel division comprised $15,810,000 (71%) and $16,400,000 (64%) of the February 28, 2002 and 2001 backlog, respectively. It is anticipated that more than 95% of the February 28, 2002 backlog is expected to ship during fiscal 2003.

Government Contracts

        The Company, primarily through its Aydin, Teltron, Lexel, Wolcott and Display Systems subsidiaries, had contracts with the U.S. government which generated revenues of approximately $9,098,000, $9,282,000 and $7,134,000 for the fiscal years ended 2002, 2001 and 2000, respectively. The Company's costs and earnings in excess of billings on these contracts were approximately $924,000 at February 28, 2002 and $158,000 at February 28, 2001. The Company's billings in excess of costs and earnings on these contracts were approximately $0 at February 28, 2002 and $164,000 at February 28, 2001.

Environmental Matters

        The Company's operations are subject to federal, state and local laws and regulations relating to the generation, storage, handling, emission, transportation and discharge of materials into the environment. The costs of complying with environmental protection laws and regulations have not had a material adverse impact on the Company's financial condition or results of operations in the past and are not expected to have a material adverse impact in the foreseeable future.

Research and Development

        The objectives of the Company's research and development activities are to increase efficiency and quality in its manufacturing and assembly operations and to enhance its products by implementing new developments in cathode ray and electron optic technology. The Company's commercial and military divisions continue their research and development in advanced infrared imaging ("FLIR"). The Company has funded additional FLIR research in partnership with the University of Rhode Island. Potential future markets for FLIR include military and security surveillance, target acquisition, fire fighting, and industrial and medical thermography. Through fiscal 2002, the Company has not incurred significant costs for basic research or new product development and, therefore, has not segregated these costs as a separate item but has included such costs in the consolidated financial statements as a part of costs of goods sold. As the Company continues to increase its development of new technology, these costs will be monitored and separately categorized, if material. Research and development costs amounted to approximately $550,000 in fiscal 2002.

Employees

        As of February 28, 2002, the Company employed a total of 584 persons on a full time basis. Of these, 181 are employed in executive, administrative, and clerical positions, 63 are employed in sales and distribution, and 340 are employed in manufacturing operations. Of the Company's 584 employees, 78 are employed at the Company's Mexican subsidiary and 9 are employed at the Company's other foreign locations. A union represents 13 employees. The Company believes its employee relations to be satisfactory.

Competition

        Although the Company believes that it is the largest domestic recycler and distributor of recycled CRTs in the United States CRT replacement market, it competes with other CRT manufacturers, as

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well as OEMs, many of which have greater financial resources than the Company. The Company believes it is the only company that offers complete service in replacement markets with its manufacturing and recycling capabilities. As a wholesale distributor of original equipment purchased from other manufacturers, the Company also competes with numerous other distributors, as well as the manufacturers' own distribution centers, many of which are larger and have substantially greater financial resources than the Company. The Company's ability to compete effectively in this market is dependent upon its continued ability to respond promptly to customer orders and to offer competitive pricing. The Company expects that competition may increase, especially in the computer and other display replacement markets, should domestic and foreign competitors expand their presence in the domestic replacement markets.

        Compared to domestic manufacturing prices on new CRTs, the Company's prices are competitive due to lower manufacturing costs associated with recycling the glass portion of previously used tubes, which the Company obtains at a fraction of the cost of new glass. The Company has to date been able to maintain competitive pricing with respect to imported CRTs because, generally, the CRT replacement market is characterized by customers requiring a variety of types of CRTs in quantities not sufficiently large enough to absorb the additional transportation costs incurred by foreign CRT manufacturers.

        The Company believes it has a competitive advantage and is a sole source in providing many of its CRTs to the customer base of its Teltron and Lexel subsidiaries as these operations have been providing reliable products and services to these customers for more than 30 years.

        The Company believes that it has a competitive advantage in the monitor industry due to its flexibility to handle lower volume orders as well as its ability to provide internally produced component parts. As a result, the Company can offer more customization in the design and engineering of new products.

        With the Company's acquisition of Lexel and the relatively new operations of Display Systems and XKD Corp., the Company has become one of the leading suppliers within the specialty CRT and monitor markets, especially in the military and medical imaging industries.

        The Company's competition in the consumer electronics parts segment comes primarily from other parts distributors. Many of these distributors are smaller than the Company but a few are of equal or greater sales size. Prices for major manufacturers' products can be directly affected by the manufacturers' suggested resale price. The Company believes that its service to customers and warehousing and shipping network give it a competitive advantage.

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ITEM 2.    PROPERTIES

        The Company leases its corporate headquarters at 1868 Tucker Industrial Drive in Tucker, Georgia (within the Atlanta metropolitan area) and occupies approximately 10,000 square feet of the total 59,000 square feet at this location. The remainder is utilized as warehouse and assembly facilities. This location, as well as several others, is leased from related parties at current market rates. See "Item 13—Certain Relationships and Related Transactions". The following table details manufacturing, warehouse, and administrative facilities:

(a)

The Birdsboro, Pennsylvania property secures a mortgage to a bank with a principal balance of $509,000 as of February 28, 2002. The mortgage bears interest at a rate of prime (4.75% as of February 28, 2002) plus 0.5%. Monthly principal and interest payments of $5,000 commenced in May 2002 and are payable through October 2021.

(b)

The Bedford Heights, Ohio property secures a mortgage to a bank with a principal balance of $627,000 as of February 28, 2002. The mortgage bears interest of 7.5% and monthly principal and interest payments of $4,000 are payable through December 2003 with a final payment of $539,000 due in December 2003.

ITEM 3.    LEGAL PROCEEDINGS

        The Company is involved in various legal proceedings relating to claims arising in the ordinary course of business. There are no material proceedings to which the Company is a party and management is unaware of any significant contemplated actions against the Company.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this Report.

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS

        The Company's common stock is traded on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") national market system under the symbol VIDE.

        The following table shows the range of prices for the Company's common stock as reported (and as adjusted for the stock dividend discussed below) by the NASDAQ for each quarterly period beginning on March 1, 2000.

        There were approximately 825 holders of record of the Company's common stock as of May 13, 2002.

        The Company has not paid cash dividends in the past. Payment of cash dividends in the future will be dependent upon the earnings and financial condition of the Company and other factors which the Board of Directors may deem appropriate. The Company is restricted by certain loan agreements regarding the payout of cash dividends, as further described in the notes to the consolidated financial statements.

        In March 2001, the Company's Board of Directors declared a stock dividend of 0.20 shares of common stock for each common share outstanding. The stock dividend was issued on April 16, 2001 to all common stock shareholders of record as of March 31, 2001. All per share data for all periods presented in this Report, including the consolidated financial statements, reflect the increase in the amount of common stock outstanding due to the stock dividend.

ITEM 6.    SELECTED FINANCIAL DATA

        The following table sets forth certain selected financial data with respect to the Company's last five fiscal years.

        Data relating to the five fiscal years ended February 28, 2002 are derived from the Consolidated Financial Statements appearing elsewhere in this Report or in previous reports, which have been audited by BDO Seidman, LLP, independent certified public accountants. The selected consolidated financial data should be read in conjunction with, and is qualified in its entirety by reference to,

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management's discussion and analysis, the consolidated financial statements of the Company, the notes thereto and the report thereon included elsewhere in this Report.

(a)

Includes the effects of a 20% stock dividend declared in March 2001 and issued on April 16, 2001 for all periods presented.

(b)

Includes the impact of the Lexel acquisition in 2001, the Vanco International disposition in 2000 and the Aydin acquisition in 1999.

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        Safe Harbor Statement under the Private Securities Litigation Reform Act:    Except for the historical information contained herein, the matters discussed herein are forward-looking statements that involve risk and uncertainties, including but not limited to (i) economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services and prices, and (ii) other factors discussed in the Company's filings with the Securities and Exchange Commission.

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Operations

        The following table sets forth, for the fiscal years indicated, the percentages which selected items in the Company's consolidated statements of income bear to total revenues:

Fiscal 2002 Compared to Fiscal 2001

Net Sales

        Consolidated net sales for fiscal 2002 increased $1,560,000 or 2.2% over fiscal 2001 net sales. CRT division segment sales increased $2,652,000 or 4.7% over fiscal 2001 while the wholesale parts segment declined $1,092,000 or (7.5)%.

        The net increase in CRT segment sales can be attributed to growth within the monitor subsegment, primarily at Display Systems and Lexel. These locations added $2,622,000 and $4,852,000, respectively to fiscal 2002 sales. The offsetting declines are primarily attributed to the decline in revenues in the entertainment subsegment and declines at the Aydin and Z-Axis locations. The monitor division increased $3,422,000 or 9.4%, data display CRT sales increased $552,000 or 5.3%; entertainment CRT sales decreased $986,000 or (13.1)%; and the electron gun/component parts segment decreased $336,000 or (17.3)%.

        The increase in monitor division sales was impacted in several ways. The Lexel operations integrated the fiscal 2001 acquisitions of IST and Raytheon product lines, which contributed approximately $6,000,000 in additional sales in fiscal 2002, and streamlined processes to allow for better delivery times, thereby decreasing the amount of backlog. The successful integration of the acquired

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product lines into the Lexel facility were not completed until late in the fourth quarter of fiscal 2001. Offsetting sales declines in the monitor division occurred at Aydin and Z-Axis in the amount of approximately $2,600,000. Aydin's government sales were down slightly due to completion of pre-existing contracts, which were not replaced at the same rate with new contracts. Commercial sales of monitors were negatively impacted as well. Certain customers had been lost during the previous year's change of production facilities from Aydin to Z-Axis. Additionally, there has been a slight impact as some commercial customers have changed to flat panel technology.

        In November 2001, Displays Systems in Florida began shipping the Marquee™ product line acquired from Christie and recognized sales of $2,269,000 from this product line during the third and fourth quarters of fiscal 2002.

        The Company is the primary supplier of replacement CRTs to the entertainment market. A majority of the entertainment segment's sales (41%) are to major television retailers as replacements for products sold under manufacturer and extended warranties. Due to the economics of lower retail sales prices for mid-size television sets (25" to 30"), fewer extended warranties are sold. The Company remains the primary supplier of the manufacturer's standard warranties. Growth in this division will be impacted by the timing and number of extended warranties sold for the larger, more expensive sets. Due to the fact that the Company is in the replacement market, it has the ability to track retail sales trends and accordingly, can adjust quantities of certain size CRTs carried in stock and reduce the exposure to obsolescence.

        Flat panel technology has not had an impact on the television replacement market. Most of the flat panel units sold within the television market are for commercial usage rather than end user consumer usage. Within the data display and monitor subsegments, there has been an impact by flat panel technology. The Company has made adjustments internally and several of the subsidiaries within these subsegments currently produce flat panel products. As noted above, being in the replacement market, the Company has the ability to see product trends and make marketing, production and stocking decisions based on those trends.

        The decline in the wholesale consumer parts segment of $1,092,000 is attributed primarily to the decline in consumer retail sales during the comparative periods. Sales to larger distributors have declined slightly as well. General economic conditions have had a direct, negative impact on this segment. To help offset these declines, Fox International signed a distribution agreement in fiscal 2002 with Applica, Inc. ("Applica"), authorizing Fox International to distribute parts and accessories for Applica's Black & Decker Toaster Oven, Profinish, Quick & Easy, and Spacemaker product lines. Sales earned pursuant to this agreement were $718,000 in fiscal 2002.

Gross Margins

        Consolidated gross margins increased from 29.5% to 31.7% for the year ended February 28, 2002 as compared to the year ended February 28, 2001. CRT division margins increased from 28.3% to 30.2% and wholesale electronic parts division margins increased from 33.9% to 38.0% for the same comparative period.

        The increase in margins within the CRT division resulted from increases in sales volume at Lexel and Display Systems while manufacturing overhead remained stable. Margins at Lexel increased from 9.9% to 16.8%, or $1,538,000. Display System's gross margins increased in dollars by $1,117,000, while its gross margin percentage remained essentially flat. Additionally, margins have improved in the data display subsegment as sales of higher margin high-resolution color tubes have increased in comparison to lower margin monochrome tubes.

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        Margins in the wholesale consumer parts segment have increased due primarily to higher margins obtained on Black & Decker distribution sales. Additionally, margins have improved on sales to this segment's primary electronics retailer.

Operating Expenses

        Operating expenses as a percentage of sales increased from 26.0% for the year ended February 28, 2001 to 26.6% for the year ended February 28, 2002.

        The CRT division operating expenses increased $297,000 for the year ended February 28, 2002 as compared to February 28, 2001. Included in these increases were expenses within the monitor subsegment for the new California operations of $318,000 that were not present in the previous year. Also, expenses increased at Display Systems by $587,000, due to the increase in business with the Christie product line. Despite its significant increase in sales volume, Lexel's operating expenses increased only $41,000, as the existing administrative infrastructure was able to absorb the increased sales volume. Included in the CRT division expenses for fiscal 2001 was a $514,000 write-down of a note receivable.

        The wholesale consumer parts segment increased operating expenses $543,000, (11.2%) in the year ended February 28, 2002 as compared to a year ago. This segment incurred costs to shut down its warehouse in Solon, Ohio and to open a warehouse in New York for the Black & Decker product line. Additionally, when Fox International acquired the Black & Decker distribution agreement with Applica, there were outstanding coupon offers the Company had to honor that included free shipping. The segment's delivery expense increased $310,000 despite an overall decrease in sales. The Company believes that the majority of these coupons have been utilized and, going forward, that Fox International will be able to charge its customers for shipping costs related to this product line.

        In fiscal 2003, management expects certain operating expenses to decline as a result of steps taken to reduce costs at its Mexican subsidiary. The monthly lease on the operating facility has been decreased by $20,000 per month, while anticipated headcount reductions of approximately 50 employees, once fully implemented, will provide additional savings of $40,000 per month.

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Interest Expense

        Interest expense decreased $507,000 to $1,585,000 for the comparative fiscal periods due primarily to decreases in variable interest rates through fiscal 2002. A gradual decrease throughout the period at rates from 8.25% to 4.37% was realized on the Company's Primary line of credit. The notes payable to officer have interest rates of prime plus 1%, which varied from 9.5% to 5.75% during fiscal 2002, and LIBOR plus 2.4%, respectively, which varied from 7.58% to 4.37% during fiscal 2002. The Company's debt levels increased in fiscal 2002, which can be attributed primarily to the increase in the Primary line of credit from $8,500,000 to $9,285,000 and the increase in notes payable to an officer of $3,000,000 relating to the Christie product line acquisition in the third quarter of fiscal 2002.

Income Taxes

        The effective tax rate for fiscal 2002 is 45.4% as compared to 92.4% for fiscal 2001. The decrease in the effective rate is attributable to higher income before income taxes in 2002 compared to 2001, as expenses that are not deductible for tax purposes remained relatively constant. The Company had expenses of $467,000 and $438,000 that were not deductible for tax purposes in fiscal 2002 and 2001, respectively.

Fiscal 2001 Compared to Fiscal 2000

Net Sales

        Consolidated net sales for fiscal 2001 increased $6,968,000 or 10.9% over fiscal 2000 net sales. CRT division segment sales increased $9,110,000 or 19.3% over fiscal 2000 while the wholesale parts segment declined $2,142,000 or 12.8%.

        Within the CRT segment, data display CRT sales increased $157,000 or 1.5%; entertainment CRT sales decreased $1,806,000 or 19.3%; the electron gun/component parts segment decreased $172,000 or 8.5%; and the monitor division increased $10,931,000 or 43.0%.

        The net increase in CRT division sales was primarily attributed to growth within the monitor segment. The Company's newest locations within this segment, Display Systems in Florida and Lexel in Kentucky, contributed $2,687,000 and $10,268,000, respectively, for the year ended February 28, 2001. Excluding these sales, overall CRT division sales were down $3,845,000. With data display and electron gun component parts sales being relatively flat, the decline excluding new locations was attributed primarily to the entertainment and monitor divisions.

        The Company is the primary supplier of replacement CRTs to the entertainment market. Due to the continued decrease in retail sales prices of mid-size television sets (25" to 30"), declines in extended warranty sales by major television retailers continued to occur. In turn, the Company's entertainment division sales were negatively impacted as a majority of their sales within this division are for warranty related repairs. Extended warranties on the larger size television sets (32" and up) were anticipated to increase both in volume and dollars as the demand for these sets have increased and the CRT costs are more expensive than the smaller sized sets. The Company continued to supply manufacturer warranty replacements in the smaller size range (up to 25"). Additionally, being in the replacement market, the Company has the ability to track retail sales trends. Accordingly, the Company adjusted quantity levels of CRT sizes thereby reducing the impact of obsolete inventory exposure.

        Flat panel technology has not had an impact on the television replacement market. Most of the flat panel units sold within the television market are for commercial usage rather than end user consumer usage. Within the data display and monitor subsegments, there was an impact by flat panel technology. The Company made adjustments internally and several of the subsidiaries within these subsegments began producing flat panel products. As noted above, being in the replacement market,

14

the Company has the ability to see product trends and make marketing, production and stocking decisions based on those trends.

        The monitor division sales, net of sales at the newest locations, declined $2,024,000 from the same period a year ago. Sales within the monitor segment included military contracts, which vary from year to year. While the Company did not lose a military contract in the past year, the completed contracts were not immediately being replaced with new contracts. Additionally, during the transition of manufacturing processes between Aydin and Z-Axis during fiscal 2000, the Company lost business to competitors within the commercial market. The transition was done so that Aydin could focus primarily on ruggedized monitors used for military applications and Z-Axis could continue to focus on the commercial monitor market. Extended lead times during the transition period caused former Aydin commercial customers to seek other procurement alternatives. Z-Axis took steps to address these issues and was successful in reducing lead times. The Company also allocated marketing personnel to these areas in an attempt to reclaim the lost sales.

        The decline in the wholesale consumer parts segment of $2,142,000 was attributed primarily to the sale of Vanco International ("Vanco") in September 1999. Vanco had sales of $2,130,000 for the year ended February 29, 2000.

Gross Margins

        Consolidated gross margins decreased from 31.8% to 29.5% for the year ended February 28, 2001 as compared to the year ended February 29, 2000. CRT division margins decreased from 30.5% to 28.2% and wholesale electronic parts division margins decreased from 35.6% to 33.9% for the same comparative period.

        The decline in margins within the CRT division resulted from the increases in the monitor segment due to the Company's recent acquisition, Lexel, whose gross margin rates were lower than the other CRT division locations. Lexel's reduced margins were a reflection of higher quality requirements, including more expensive materials and increased labor demanded by the products' intended use. These uses include military applications. Also included in the reduced margins were costs incurred due to the integration of the IST business acquired in June 2000 into the Lexel facility. The Company incurred additional expenses in the fourth quarter with the incorporation of the Raytheon and Anacomp businesses into Lexel, but on a much smaller scale than the IST integration.

        The wholesale consumer parts division margins were down in part due to the exclusion of Vanco in fiscal 2001. Additionally, there were declines in margins realized on the fire and safety product line as selling prices were reduced to move some older, slower moving merchandise. Lastly, margins on the increased volume sales to the major electronics distributor are lower than to other retail customers.

Operating Expenses

        Operating expenses as a percentage of sales decreased from 27.6% for the year ended February 29, 2000 to 26.0% for the year ended February 28, 2001.

        The CRT division operating expenses increased $2,217,000 for the year ended February 28, 2001 as compared to February 29, 2000. Included in these increases were expenses for the new Florida and Kentucky operations of $1,382,000 that were not present in the previous year. Additionally, included in the CRT division expenses for fiscal 2001 was a $514,000 write-down of a note receivable. The Company held an unsecured note receivable as a result of a litigation settlement. The note had an original face value of $1,500,000 due in monthly installments of $15,000 over a term of 100 months. During 2001, monthly payments on the note were delinquent and payments made were less than the required contractual amounts. Payments eventually ceased in the fourth quarter of 2001. As of February 28, 2001, the Company believed that it was probable that they would be unable to collect any

15

of the outstanding amounts due under the contractual terms of the loan agreement and considered the loan impaired. In accordance with SFAS No. 114, "Accounting by Creditor's of Impairment of a Loan", the Company wrote off the remaining $514,000 balance of the note.

        The wholesale consumer parts division reduced operating expenses $1,426,000 in the year ended February 28, 2001 as compared to a year ago. Included in this reduction was the elimination of operating expenses from Vanco of $866,000. Additionally, Fox International reduced its operating expenses by approximately $334,000 by eliminating two locations and reducing personnel at its headquarter location in Cleveland, Ohio. Also, reductions in delivery expense of $148,000 incurred as a result of more cost effective packaging and a switch by Fox International to a more cost competitive shipping provider.

Interest Expense

        Interest expense increased $577,000 to $2,092,000 for the comparative fiscal period due to increases in overall debt and changes in variable interest rates through fiscal 2001. The increase in debt can be attributed primarily to the increase in the Primary line of credit from $3,040,000 to $5,500,000; the $3,000,000 loan in conjunction with the Lexel acquisition; and the increase in notes payable to an officer of $1,400,000 relating to the IST acquisition. The Primary line was a gradual increase throughout the period at a fixed rate of 7.25%. The Lexel acquisition loan was funded in May 2000 and has an interest rate based on LIBOR plus up to 2%. During the ten months outstanding in fiscal 2001, the Lexel loan's interest rate fluctuated from 9.0% at inception to 9.5% in November 2000 and to 8.5% by February 28, 2001. The note payable to officer has an interest rate of prime plus 1%, which varied from 9.5% at its June 2000 inception to 8.5% by February 28, 2001.

Income Taxes

        The effective tax rate for fiscal 2001 was 92.4% as compared to 31.5% for fiscal 2000. The increase in the effective rate was attributable to the non-deductibility of amortization on certain intangible assets combined with lower income before income taxes. Also, the fiscal 2000 rate was positively impacted by foreign effective rates in the amount of $80,000.

Management's Discussion of Liquidity and Capital Resources

        As of February 28, 2002, the Company had total cash and cash equivalents of $1,615,000. The Company's working capital was $27,569,000 and $26,311,000 at February 28, 2002 and 2001, respectively. The increase in working capital can be attributed primarily to the purchase of Christie's Marquee™ projector product line and the acquisition of 100% of the common stock of XKD Corporation. In the XKD acquisition, net current assets of $403,000 were acquired and long-term debt of $702,000 was assumed. In conjunction with the $3,700,000 Christie product line purchase, debt financing was used to obtain the assets, of which approximately $1,500,000 have maturities in excess of one year.

        Cash used in operations for fiscal 2002 was $2,544,000 as compared to cash provided by operations of $973,000 in fiscal 2001. Fiscal 2002 net income adjusted for non-cash items provided cash of $3,798,000. Increases in accounts receivable, inventories and prepaid expenses and decreases in customer advances used cash of $6,980,000. The changes in working capital exclude the effects of the assets purchased and liabilities assumed related to the XKD acquisition in fiscal 2002. During fiscal 2001, operating cash flows were provided primarily by net income adjusted for non-cash items of $2,314,000, and an increase in customer advances of $1,652,000. Offsetting increases in accounts receivable, inventories, prepaid expenses, and other assets, and declines in accounts payable used cash of $2,993,000.

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        The increase in accounts receivable of $2,349,000 during 2002 was due primarily to an 11% increase in sales in the fourth quarter of fiscal 2002 as compared to the same period in fiscal 2001. Fourth quarter sales benefited from the late third quarter purchase of the Marquee™ product line. The increase in inventories of $2,092,000 was also primarily attributable to the purchase of the Marquee™ product line from Christie. Inventory purchased from Christie amounted to approximately $2,500,000 at the end of the third quarter of fiscal 2002. Absent the current year Christie purchase and XKD acquisition, there was an overall slowdown in purchasing, as existing stock levels were being utilized. Increases in prepaid expenses and other assets were primarily attributed to an increase in costs in excess of billings of $765,000 over the same period a year ago. This increase is attributable to the contractual timing of customer billings. Decreases in customer advances received in the prior fiscal year accounted for a reduction in cash of $1,408,000 as a significant portion of the related CRTs were manufactured and shipped to customers in fiscal 2002. The decrease in accounts payable and accrued liabilities was due to a reduction in trade accounts payable in the comparative periods, due primarily to a reduction in fourth quarter purchasing. The acquisition of the Christie product line included significant materials used in fourth quarter shipments, which reduced purchasing requirements and corresponding accounts payable. Additionally, fourth quarter shipments of Christie product generated cash that was used to pay down trade payables. The Christie acquisition was funded by new debt.

        Investing activities used cash of $3,441,000 and $6,686,000 in fiscal 2002 and 2001, respectively. Amounts paid for capital expenditures were $3,156,000 in fiscal 2002 as compared to $1,466,000 in fiscal 2001. The new addition to the facility in Birdsboro, PA was $1,334,000, which was financed with a construction loan of $509,000 with the remainder paid in cash. The Company purchased fixed assets and intangible assets in the amount of $1,248,000 from Christie to assist in the integration of the projector line and to acquire the Marquee™ trademark.

        Financing activities provided $3,375,000 and $5,664,000 in fiscal 2002 and 2001, respectively. During fiscal 2002, the Company paid cash for the Christie Marquee™ product line. The purchase was funded by short-term debt with the Company's CEO at an interest rate of LIBOR plus 2.4%. In fiscal 2001, the Company borrowed $3,000,000 from a bank to finance the Lexel acquisition. That note was consolidated into the Company's $10,000,000 credit facility with the same bank in May 2001. The credit facility bears interest at a floating rate of LIBOR based on a debt to EBITDA ratio, as defined. Depending on the ratio, the LIBOR adjustment can fluctuate from 1.5% (for a ratio less than 1.75) to 3.0% (for a ratio greater than 4.25). The note matures on July 1, 2003. The amount of credit available for advance was reduced by $500,000 on July 1, 2001, and will be reduced by an additional $500,000 on July 1, 2002. During fiscal 2002, the Company increased its borrowings under its revolving credit facility to fund operations. In both fiscal years 2002 and 2001, the Company paid $1,250,000 of principal payments on the Aydin loan in accordance with its terms.

        The Company established a stock repurchase program, pursuant to which it is authorized to repurchase up to 462,500 shares of the Company's common stock in the open market. No shares were repurchased in fiscal 2002 and 2001.

Transactions with Related Parties, Contractual Obligations and Commitments

        At February 28, 2000 the Company had outstanding borrowings in the form of a demand note from its CEO in the amount of $2,200,000. In June 2000, the Company borrowed an additional $1,400,000 from the CEO to assist with the acquisition of certain assets of the electro optics division of IST. This borrowing was combined with the existing demand note and, as of February 28, 2001, the outstanding balance was $3,600,000. During 2002, the Company borrowed an additional $3,000,000 from the CEO to finance the product line acquisition from Christie. This borrowing is a one-year agreement with interest due monthly based on LIBOR (1.9% at February 28, 2002) plus 2.4%. Additionally, the Company borrowed $500,000 from the CEO during 2002 for short-term financing purposes. As of February 28, 2002, the cumulative outstanding balance due the CEO was $7,100,000.

17

        Subsequent to year-end, the Company borrowed an additional $740,000 and repaid $340,000 from the CEO of the Company for short-term operating purposes, increasing the balance due the CEO to $7,500,000.

        During fiscal 2002, the Company borrowed an additional $98,000 from a Director, resulting in a balance of $241,000 at February 28, 2002. Yearly principal payments of $24,000 are payable through 2007 with a final payment of $121,000 due in 2008. These borrowings bear interest at 10%.

        The Company issued $2,000,000 in face value, 8% five-year convertible subordinated debentures in payment of the acquisition of the stock of Z-Axis in fiscal 1997. The debentures are convertible at the holder's option into common shares based upon a conversion rate of $4.17 per share, as adjusted for the April 2001 stock dividend. During fiscal 2002, $775,000 of debentures plus accrued interest were converted into 186,068 common shares. In May 2001, the Company's CEO, in accordance with the provisions of the subordinated debt agreement, elected to extend the maturity date of his remaining $1,000,000 debentures to May 31, 2003.

Contractual Obligations

        Future maturities of long-term debt and future minimum rental payments due under operating leases are as follows (in thousands):

        Included in the above operating lease commitments are leases for four of the Company's manufacturing facilities and certain warehouse space from shareholders and officers. Future minimum rental payments due under these leases with related parties are as follows (in thousands):

Other Commercial Commitments (in thousands)

Off-Balance Sheet Arrangements

        Historically, the Company has not relied upon off-balance sheet arrangements (such as sale-leasebacks), transactions or relationships that would materially affect liquidity or the availability of, or requirements for, capital resources.

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Critical Accounting Policies

        Management's Discussion and Analysis of Results of Operations and Financial Condition are based upon the Company's consolidated financial statements. These 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 financial statements and related notes. The accounting policies that may involve a higher degree of judgments, estimates, and complexity include reserves on inventories, 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 realizable value of the inventory falls below its original cost. The age of the inventory is not as significant as is the projected demand for CRTs. 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 is also able to observe the production trends of the OEMs and the new products that are being promoted.

Allowance for bad debts

        The allowance is determined by reviewing known customer exposures and applying historical credit loss experience to the current receivable portfolio with consideration given to the current condition of the economy, assessment of the financial position of the creditors and overall trends in past due accounts compared to established thresholds. The company monitors credit exposure and assesses the adequacy of the allowance for bad debts on a regular basis.

Warranty reserves

        The warranty reserve is determined by recording a specific reserve for known warranty issues and a general reserve based on historical claims experience. Actual claims incurred could differ from the original estimates, requiring adjustments to the reserve.

Use of estimates

        The company incorporates many years of historical data into the determination of each of these estimates. The company has a proven history of using accurate estimates and sound assumptions to calculate and record appropriate reserves. Actual results may differ from these estimates under different assumptions or conditions.

Other Accounting Policies

        Other loss contingencies are recorded as liabilities when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. 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 forecasts that often depend on judgments about potential actions by third parties.

        Other significant accounting policies, not involving the same level of measurement uncertainties as those discussed above, are nevertheless important to an understanding of the financial statements.

19

Policies related to revenue recognition and impairment of long-lived assets require difficult judgments on matters that are often subject to multiple sources of authoritative accounting guidance. See also Note 1 to the consolidated financial statements, Summary of Significant Accounting Policies, which discusses accounting policies that must be selected by management when there are acceptable alternatives.

Forward-Looking Information

        This report contains forward-looking statements and information that is based on management's beliefs, as well as assumptions made by, and information currently available to management. When used in this document, the words "anticipate," "believe," "estimate," "intends," "will," and "expect" and similar expressions are intended to identify forward-looking statements. Such statements involve a number of risks and uncertainties. Among the factors that could cause actual results to differ materially are the following: business conditions, rapid or unexpected technological changes, product development, inventory risks due to shifts in product demand, competition, domestic and foreign government relations, fluctuations in foreign exchange rates, rising costs for components or unavailability of components, the timing of orders booked, lender relationships, and the risk factors listed from time to time in the Company's reports filed with the Commission.

Recent Accounting Pronouncements

        In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 supersedes Accounting Principles Board Opinion ("APB") No. 16, "Business Combinations," and eliminates the pooling-of-interest method of accounting for business combinations. SFAS No. 141 also changes the criteria for recognizing intangible assets apart from goodwill and states the following criteria should be considered in determining the recognition of intangible assets: (1) whether the intangible asset arises from contractual or other rights, or (2) whether the intangible asset is separable or divisible from the acquired entity and capable of being sold, transferred, licensed, returned or exchanged.

        SFAS No. 142, generally effective January 1, 2002, supersedes APB No. 17, "Intangible Assets," and requires goodwill and other acquired intangible assets that have an indefinite useful life to no longer be amortized; however, these assets must be reviewed at least annually for impairment. The Company currently amortizes goodwill over its estimated useful life of five to fifteen years. The Company recorded $320,000, or $0.07 per share on a pre-tax basis, of goodwill amortization in 2002. The Company's management is currently evaluating the impact the adoption of this statement will have on the financial statements.

        In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. SFAS No. 143 is effective for fiscal years beginning after June 30, 2002. The Company does not anticipate the adoption of this statement will have a material impact on the financial statements.

        In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 144 addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. However, SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for: (1) recognition and measurement of the impairment of long-lived assets to be held and used and (2) measurement of long-lived assets to be disposed of by sale. SFAS No. 144 is effective for fiscal years beginning after

20

December 15, 2001. The Company does not anticipate the adoption of this standard will have a material impact on the financial statements.

Impact of Inflation

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

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        The Company's primary market risks include fluctuations in interest rates and variability in interest rate spread relationships, such as prime to LIBOR spreads. Approximately $25,228,000 of outstanding debt at February 28, 2002 related to long-term indebtedness under variable rate debt. Interest on the outstanding balance of this debt will be charged based on a variable rate related to the prime rate or the LIBOR rate. Both rate bases are incremented for margins specified in their agreements. Thus, the Company's interest rate is subject to market risk in the form of fluctuations in interest rates. The effect of a hypothetical one percentage point increase across all maturities of variable rate debt would result in an decrease of approximately $252,000 in pre-tax net income assuming no further changes in the amount of borrowings subject to variable rate interest from amounts outstanding at February 28, 2002. The Company does not trade in derivative financial instruments.

        The Company reports its Mexican subsidiary on the basis of the functional currency being the U.S. dollar as over 90% of the subsidiary's sales and purchases are with the parent with accounts receivable and accounts payable settled in U.S. dollars. Additionally, the subsidiary leases its facilities and incurs rent based upon U.S. dollars. Any exchange gains or losses due to the actual exchange of pesos and U.S. dollars are minimal. The Company also has a subsidiary in the U.K., which is not material, but uses the British pound as its functional currency. Due to its limited operations outside of the U.S., the Company's exposure to changes in foreign currency exchange rates between the U.S. dollar and foreign currencies or to weakening economic conditions in foreign markets is not expected to significantly effect the Company's financial position.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The financial statements listed on page F-1 of this Report are filed as part of this Report on the pages indicated.

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

        None.

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PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        The information contained in Video Display Corporation's Proxy Statement to be filed within 120 days of the Company's 2002 fiscal year end, with respect to directors and executive officers of the Company, is incorporated herein by reference in response to this item. In no event shall the information contained in Video Display Corporation's Proxy Statement under the heading "Compensation and Stock Option Committee Report" or under the heading "Performance Graph" be incorporated herein by reference.

ITEM 11.    EXECUTIVE COMPENSATION

        The information contained in Video Display Corporation's Proxy Statement to be filed within 120 days of the Company's 2002 fiscal year end, with respect to executive compensation and transactions, is incorporated herein by reference in response to this item. In no event shall the information contained in Video Display Corporation's Proxy Statement under the heading "Compensation and Stock Option Committee Report" or under the heading "Performance Graph" be incorporated herein by reference.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The information contained in Video Display Corporation's Proxy Statement to be filed within 120 days of the Company's 2002 fiscal year end, with respect to security ownership of certain beneficial owners and management, is incorporated herein by reference in response to this item.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        The information contained in Video Display Corporation's Proxy Statement to be filed within 120 days of the Company's 2002 fiscal year end, with respect to certain relationships and related transactions, is incorporated herein by reference in response to this item.

22

PART IV

ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)

The following documents are filed as part of this Report:

(b)

Reports on Form 8-K:

The Registrant filed no reports on Form 8-K during the last quarter of the fiscal year covered by this Report.

(c)

Exhibits

*

Incorporated by reference to other documents on file with the Securities and Exchange Commission which were previously filed.

**

Indicates executive compensation plans and arrangements.

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SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

POWER OF ATTORNEY

        Know all men by these presents, that each person whose signature appears below constitutes and appoints Ronald D. Ordway as attorney-in-fact, with power of substitution, for him in any and all capacity, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact may do or cause to be done by virtue hereof.

        Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

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Video Display Corporation and Subsidiaries

Index to Consolidated Financial Statements

F-1

Report of Independent Certified Public Accountants

Board of Directors and Shareholders of
Video Display Corporation
Tucker, Georgia

        We have audited the accompanying consolidated balance sheets of Video Display Corporation and subsidiaries as of February 28, 2002 and 2001, and the related consolidated statements of income, shareholders' equity and comprehensive income and cash flows for each of the three years in the period ended February 28, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Video Display Corporation and subsidiaries as of February 28, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended February 28, 2002, in conformity with accounting principles generally accepted in the United States of America.

BDO Seidman, LLP

Atlanta, Georgia
May 17, 2002

F-2

Video Display Corporation and Subsidiaries

Consolidated Balance Sheets

See accompanying notes to consolidated financial statements.

F-3

Video Display Corporation and Subsidiaries

Consolidated Balance Sheets

See accompanying notes to consolidated financial statements.

F-4

Video Display Corporation and Subsidiaries

Consolidated Statements of Income

See accompanying notes to consolidated financial statements.

F-5

Video Display Corporation and Subsidiaries

Consolidated Statements of Shareholders' Equity
and Comprehensive Income (Loss)

See accompanying notes to consolidated financial statements.

F-6

Video Display Corporation and Subsidiaries

Consolidated Statements of Cash Flows