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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Feb. 28, 2019

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after elimination of all intercompany accounts and transactions. Certain reclassifications have been made to prior year amounts to conform to the current year presentation.

Fiscal Year

All references herein to “2019” and “2018” mean the fiscal years ended February 28, 2019 and February 28, 2018, respectively.

Basis of Accounting

“The FASB Accounting Standards Codification” (“FASB ASC”) establishes the source of authoritative accounting standards generally accepted in the United States of America (“U.S. GAAP”) recognized by the Financial Accounting Standards Board (“FASB”). Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. The FASB amends the FASB ASC through Accounting Standards Updates (“ASUs”). ASCs and ASUs are referred to throughout these consolidated financial statements.

Use Of Estimates

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Examples include provisions for returns, warranty reserves, bad debts, inventory reserves, valuations on deferred income tax assets, other intangible assets, accounting for percentage of completion contracts and the length of product life cycles and fixed asset lives. Actual results could vary from these estimates.

Banking and Liquidity

The accompanying consolidated financial statements were prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company had sustained losses for each of the three prior years, but did record a profit for the current fiscal year and has seen an increase in both its working capital and liquid assets during this current year. The historical losses resulted from a combination of low revenues at all divisions without a commensurate reduction of expenses. This year, the Company did increase sales and report a lower operating loss compared to the previous year. The Company’s working capital and liquid asset position is presented as follows:


	February 28, 2019		February 28, 2018
Working capital	$	3,354	$	2,762
Liquid assets	$	410	$	261

Management has implemented a plan to improve the liquidity of the Company. The Company has been implementing a plan to increase revenues at all the divisions, each structured to the particular division with an increase in revenues of over $3.0 million for fiscal year ended February 28, 2019. The Company is expanding its cyber security business by adding a second testing chamber for testing tempest products allowing it to increase the business in cyber testing services to supplement the product side of the business. The Company is also now involved in ruggedized displays, recently bringing on engineering familiar with these products. The Company implemented a plan to reduce expenses at the divisions, as well as at the corporate location during the fiscal year ending February 28, 2019 with the closing of two divisions and relocating the operations of those two divisions to other divisions within the Company with similar business activities. The Company is also in the process of moving the corporate accounting functions to the Cocoa, Florida location which allows the Company to become more efficient and save money on reducing redundant operations. The Company moved two of its plants in an effort to reduce expenses and increase efficiencies. The plant move at its subsidiary in Lexington, Kentucky, took longer than anticipated and negatively affected cash flow. The long term prospects for this subsidiary are promising and management is now seeing a turn around. The plant move at the Florida operations was successful as the Company merged two businesses and was able to keep production on schedule. Management continues to explore options to monetize certain long-term assets of the business, including the possible sale of a building in Pennsylvania. If additional and more permanent capital is required to fund the operations of the Company, no assurance can be given that the Company will be able to obtain the capital on terms favorable to the Company, if at all.

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

Revenue Recognition

We recognize revenue when we transfer control of the promised products or services to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those products or services. We derive our revenue primarily from sales of simulation and video wall systems, cyber secure products, data displays, and keyboards. We exclude sales and usage-based taxes from revenue.

Our simulation and video wall systems are custom-built (using commercial

off-the-shelf

products) to customer specifications under fixed price contracts. Judgment is required to determine whether each product and service is considered to be a distinct performance obligation that should be accounted for separately under the contract. Generally, these contracts contain one performance obligation (the installation of a fully functional system). We recognize revenue for these systems over time as control is transferred based on labor hours incurred on each project.

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

Timing of invoicing to customers may differ from timing of revenue recognition; however, our contracts do not include a significant financing component as substantially all of our invoices have terms of 30 days or less. We are applying the practical expedient to exclude from consideration any contracts with payment terms of one year or less and we never offer terms extending beyond one year.

Contract liabilities represent amounts collected prior to having completed performance on certain of our simulation or video wall system projects. No revenue was recognized in 2019 from performance obligations that were satisfied in prior periods. As of February 28, 2019, approximately $521k of revenue is expected to be recognized from remaining performance obligations for simulation system projects (including deferred revenue as well as amounts that will be invoiced and recognized as revenue in future periods). We expect to recognize revenue these remaining performance obligations over the next 24 months. We have elected not to provide disclosures regarding remaining performance obligations for contracts with a term of 1 year or less.

For the fiscal year ended February 28, 2019, revenue recognized by division of the Company is as follows (in thousands):


Simulation and training (including video walls)	$	5,406
Cyber security		5,459
Data displays		2,533
Other computer products (keyboards)		1,436
Broadcast and control centers		189

Total revenue	$	15,023

Cash and Cash Equivalents and Investments

We consider all highly liquid investments purchased with original maturities of three months or less to be cash or cash equivalents. Investment securities that are held by the Company, are bought and held principally for the purpose of selling them in the near term, are classified as “trading” and principally consist of equity securities and mutual funds. These trading investments are carried at fair value with realized gains or losses and changes in fair value included in operations. The Company liquidated its investment accounts in in fiscal 2019.

Fair Value Measurements and Financial Instruments

The FASB’s fair value measurement guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:


Level 1		Quoted prices in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2		Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3		Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets measured at fair value on a recurring basis by the Company consisted of investment securities that were held for trading using Level 1 inputs. The Company liquidated all of its investment securities during the year ended February 28, 2019. The following table sets forth our financial assets and liabilities that were accounted for at fair value on a recurring basis as of February 28, 2018 (in thousands):


	February 28, 2018			Level 1 Assets and Liabilities			Level 2 Assets and Liabilities		Level 3 Assets and Liabilities
Current trading investments:
Stocks, options, and ETF (long)		291			291			—		—
Stocks, options, and ETF (short)		(5	)		(5	)

Total value of investments		286			286			—		—
Current liabilities:
Margin balance		(106	)		(106	)		—		—

Total value of liabilities		(106	)		(106	)		—		—

Total		180			180			—		—

The Company’s financial instruments which are not measured at fair value on the consolidated balance sheets include cash, accounts receivable, short-term liabilities, and debt. The estimated fair value of these financial instruments approximate cost due to the short period of time to maturity. Recorded amounts of long-term debt are considered to approximate fair value due to either rates that fluctuate with the market or are otherwise commensurate with the current market.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are customer obligations due under normal trade terms. The Company sells its products primarily to general contractors, government agencies, manufacturers, and consumers of video displays and CRTs. Management performs continuing credit evaluations of its customers’ financial condition and although the Company generally does not require collateral, letters of credit may be required from its customers in certain circumstances, such as foreign sales. The allowance for doubtful accounts is determined by reviewing all accounts receivable and applying 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 as well as payment history and overall trends in past due accounts compared to established thresholds. The Company monitors credit exposure and assesses the adequacy of the allowance for doubtful accounts on a regular basis. Historically, the Company’s allowance has been sufficient for any customer write-offs. Management believes accounts receivable are stated at amounts expected to be collected.

The following is a roll-forward of the allowance for doubtful accounts (in thousands):


Description	Balance at Beginning of Period		Additions: Charged to Costs and Expenses		Deductions			Balance at End of Period
February 28, 2019	$	19	$	—	$	(3	)	$	16
February 28, 2018	$	20	$	—	$	(1	)	$	19

Warranty Reserves

The Company records a liability for estimated warranty obligations at the date products are sold. Adjustments are made as new information becomes available.

The warranty reserve is determined by recording a specific reserve for known warranty issues and a general reserve based on claims experience. The Company considers actual warranty claims compared to net sales, then adjusts its reserve liability accordingly. Actual claims incurred could differ from the original estimates, requiring adjustments to the reserve. Management believes that historically its procedures have been adequate and does not anticipate that its assumptions are reasonably likely to materially change in the future.

Inventories

Inventories consist primarily of CRTs, electron guns, monitors, digital projectors, video components and electronic parts. Inventories are stated at the lower of cost

(first-in,

first-out)

or market.

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. The reserve for inventory obsolescence was approximately $0.9 million and $1.4 million at February 28, 2019 and February 28, 2018, respectively.

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

Property, Plant and Equipment

Property, plant, and equipment are stated at cost. Depreciation is computed principally by the straight-line method for financial reporting purposes over the following estimated useful lives: Buildings – ten to twenty-five years; Machinery and Equipment – five to ten years. In addition, leasehold improvements are amortized over the shorter of the useful life of the asset or the related lease term. Depreciation expense totaled approximately $256 thousand and $261 thousand for the fiscal years ended 2019 and 2018, respectively. Substantial betterments to property, plant, and equipment are capitalized and routine repairs and maintenance are expensed as incurred. The Company is expected to invest an additional $0.1 million to upgrade the Cocoa, Florida location to accommodate the increase in business at the Florida facility. The Company does not anticipate any additional significant investments in capital assets for fiscal 2020.

Management reviews and assesses long-lived assets, which includes property, plant, and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, management estimates the future cash flows expected to result from the use of the asset. If the sum of the undiscounted expected cash flows is less than the carrying amount of the asset, an impairment loss is recognized based upon the estimated fair value of the asset.

Share-Based Compensation Plans

The Company accounts for employee share-based compensation under the fair value method and uses an option pricing model for estimating the fair value of stock options at the date of grant.

Share Repurchase Program

The Company has a share repurchase program, pursuant to which it had been authorized to repurchase up to 2,632,500 shares of the Company’s common stock in the open market. On January 20, 2014 the Board of Directors of the Company approved a

one-time

continuation of the stock repurchase program, and authorized the Company to repurchase up to 1,500,000 additional shares of the Company’s common stock in the open market. There is no minimum number of shares required to be repurchased under the program. During the fiscal year ended February 28, 2019, the Company repurchased 8,858 shares at an average price of $1.12 per share, which were added to treasury shares on the consolidated balance sheet, and during the fiscal year ended February 28, 2018, the Company repurchased 3,600 shares at an average price of $1.24 per share. Under this program, an additional 490,186 shares remain authorized to be repurchased by the Company at February 28, 2019.

Income Taxes

The Company accounts for income taxes under the asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s consolidated financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than possible enactments of changes in the tax laws or rates.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company has determined that a valuation allowance is needed due to recent taxable net operating losses, the sale of profitable divisions and the limited taxable income in the carry back periods. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date.

Deferred income taxes as of February 28, 2019 and February 28, 2018 reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and certain tax loss carryforwards, less any valuation allowance.

The Company accounts for uncertain tax positions as required in that a position taken or expected to be taken in a tax return is recognized in the consolidated financial statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. As of February 28, 2019 and February 28, 2018 the Company did not have any material unrecognized tax benefits.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as components of interest expense and other expense, respectively, in arriving at pretax income. The Company did not have any interest and penalties accrued as of February 28, 2019 and February 28, 2018.

The Company’s tax years ended February 28, 2018, 2017 and 2016 remain open to examination by the Internal Revenue Service (“IRS”).

Earnings (Loss) per Share

Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares outstanding during each year. Shares issued or repurchased during the year are weighted for the portion of the year that they were outstanding. Diluted earnings per share is calculated in a manner consistent with that of basic earnings per share while giving effect to all potentially dilutive common shares that were outstanding during the period.

The following is a reconciliation of basic earnings (loss) per share to diluted earnings (loss) per share for 2019 and 2018, (in thousands, except for per share data):


	Net Income (Loss)			Average Shares Outstanding		Net Income (Loss) Per Share
2019
Basic		67			5,879		0.01
Effect of dilution:
Options		—			200		—

Diluted earnings per share		67			6,079		0.01

2018
Basic	$	(2,938	)		5,890	$	(0.50	)
Effect of dilution:
Options		—			—		—

Diluted earnings per share	$	(2,938	)		5,890	$	(0.50	)

Stock options, debentures, and other liabilities convertible into 200,000 shares, of the Company’s common stock were anti-dilutive and, therefore, were excluded from the fiscal 2018 diluted earnings (loss) per share calculation.

Segment Reporting

An operating segment is defined as a component that engages in business activities, whose operating results are reviewed by the chief operating decision maker in order to make decisions about allocating resources, and for which discrete financial information is available. We operate and manage our business as one reportable segment. All of our divisions have similarities such as products and markets served; therefore, we believe they meet the criteria for aggregation under the applicable authoritative guidance and, as such, these operations are reported as one segment within the consolidated financial statements.

Sales to foreign customers were 11% and 16% of consolidated net sales for fiscal 2019 and fiscal 2018, respectively.

Recent Accounting Pronouncements

New Accounting Pronouncements Adopted in Fiscal 2019

Effective March 1, 2018 we adopted Accounting Standards Update (“ASU”)

No. 2014-09,

Revenue from Contracts with Customers

and the additional related ASUs (codified in “ASC 606”), which replaces existing revenue guidance and outlines a single set of comprehensive principles for recognizing revenue under GAAP. We elected the modified retrospective method upon adoption (applied to those contracts which were not completed as of March 1, 2018) with no impact to opening retained earnings or revenue reported. Results of reporting periods beginning on or after March 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported under the previous revenue recognition standard (ASC 605).

New Accounting Pronouncements Not Yet Adopted as of February 28, 2019

In February 2016, the FASB issued ASU

2016-02,

“Leases”. The final guidance requires lessees to recognize a

right-of-use

asset and a lease liability for all leases (with the exception of short-term leases) at the commencement date and recognize expenses on their income statements similar to the current Topic 840,

Leases

. It is effective for fiscal years and interim periods beginning after December 15, 2018 and early adoption is permitted. We plan to adopt the new standard effective March 1, 2019 using the modified retrospective approach, which allows application of the standard at the adoption date rather than at the beginning of the earliest comparative period presented. We expect to elect the package of available practical expedients that will enable us to retain the lease classification and initial direct costs for any leases that existed prior to the adoption of the standard and will not reassess whether any contracts executed prior to the adoption of the standard are or contain leases. We expect that the adoption of this standard will result in the recognition of material

right-of-use

assets and corresponding liabilities in our consolidated balance sheets, but do not expect the adoption to have a material impact on our consolidated statements of operations or our consolidated statements of cash flows. The adoption of this standard will result in expanded lease related disclosures in the notes to our consolidated financial statements. While we are currently evaluating the final impact the adoption of this standard will have, we have identified existing lease contracts, have prepared and reviewed the necessary entries for the transition, and are updating our controls and procedures for leases under the new standard.