Net sales
Consolidated net sales increased 31.9% for the nine months ended November 30, 2018 and 150.2% for the three months ended November 30,
2018 compared to the nine months and three months ended November 30, 2017. The Companys AYON Cyber Security (ACS) division is up 103.8% for the nine months ending November 30, 2018 compared to the nine months last year. Their
business has been steadily growing over the past year and their backlog was $1.3 million at November 30, 2018. For the three months ending November 30, 2018 ACS was up 378.9% with steady shipments to its two largest customers. The
Display Systems division was up by 81.6% and 61.1% for the nine months and three months ended November 30, 2018 compared to the comparable periods last year. The division had strong sales with their top customer, Lockheed Martin and with a
large government contract this year. They are working on other projects with Lockheed Martin and expect to continue to do well with this account. The Data Display division showed a decrease of 51.4% for the nine months ended November 30, 2018
due to decreases throughout their customer base, the completion of a large long term order with a foreign customer by the Lexel division, and the sale of certain assets of the Lexel division. The Lexel division will expect less revenues going
forward as certain assets and business were sold in June, 2017 and the division is also uncertain of orders from one of their large customers. They have received some large orders from foreign customers which should help with their sales for the
remainder of the fiscal year. This division did have a 129.8% increase for the comparable three month period ended November 30, 2018 as business did increase as Lexels production began to stabilize after the plant move from last year.
AYON Visual Solutions (AVS) sales decreased by 78.2% and 32.0% for the nine months and three months ended November 30, 2018. This divisions sales are primarily driven by large contracts. It had none in the nine months ended
November 30, 2018 and had competed one in the first quarter last year. The division did receive a large contract of $1.3 million which will ship in the next fiscal year. The divisions primary supplier was sold to a competitor of the
Company, so the future of this division is uncertain. AVS does have a certain amount of potential business in the works. The other increase in sales was from the Companys new keyboard division, which posted sales of $1.1 million and
$0.4 million for the nine months and three months ended November 30, 2018 respectively. The Company acquired this company in October of 2017. This division is expected to continue at this level of sales each quarter.
Gross margins
Consolidated gross margins
increased both as a percentage to sales (25.8% to 10.7%) and actual dollars ($2,971 thousand to $931 thousand) for the nine months ended November 30, 2018 compared to the nine months ended November 30, 2017. Gross margins increased
for the three months ended November 30, 2018 compared to the three months ended November 30, 2017, both as a percentage to sales (26.3% to (8.7)%) and actual dollars, ($1,096 thousand to $(144) thousand).
The two Florida divisions performed well as the move to one facility is showing results. Both divisions showed large increases in both their
gross margin percentage to sales and in actual dollars. AYON Cyber Security (ACS) gross margin percentage was 48.1% compared to 28.0% and the gross margin dollars were $2,068 thousand compared to $591 thousand for the nine months ended
November 30, 2018 compared to the nine months ended November 30, 2017. For the three months ended November 30, 2018 compared to the same period last year, ACS gross margin percentage was 45.0% compared to 41.5% and gross margin
dollars were $848 thousand compared to $163 thousand. VDC Display Systems (VDCDS) gross margin percentage was 10.9% compared 3.2% and the gross margin dollars were $485 thousand compared to $78 thousand for the nine months ended
November 30, 2018 compared to the nine months ended November 30, 2017. For the three months ended November 30, 2018 compared to the same period last year, VDCDS gross margin percentage was 5.7% compared to 2.3%. Gross margin dollars
were $74 thousand compared to $19 thousand. The new keyboard division, Unicomp, had $467 thousand of gross margin dollars or 43.7% to sales for the nine months ended November 30, 2018 and $155 thousand of gross margin
dollars or 40.1% for the three months ended November 30, 2018.
The other two divisions had an erosion of margins due to poor sales
as discussed in the sales section above. The Data Display division had a negative $105 thousand in gross margin dollars and the AYON Visual Solution (AVS) division had $57 thousand for the nine months ended November 30, 2018. The Data
Division is expected to do better in the next quarter as the Lexel facility is expected to do better as a result of the foreign orders discussed in the sales section above. AVS division has been absorbed in the VDCDS division and has received the
large order for a video wall for a major electrical company. It is scheduled to be installed in the Companys next fiscal year.
Operating
expenses
Operating expenses decreased by 1.9% or $61 thousand for the nine months ended November 30, 2018 compared to the
nine months ended August 31, 2017. The decrease was due to legal expenses of $133 thousand associated with the bankruptcy proceedings with Lexel Imaging and the legal expenses for the sale of certain assets of Lexel Imaging in the first
quarter last year offset by higher engineering salaries at AYON Cyber Security and additional administration expenses of $382 thousand at Unicomp, the acquired keyboard division. Operating expenses decreased by 4.1% or $46 thousand for the
three months ended November 30, 2018 compared to the three months ended November 30, 2018. The Company expects to continue to reduce costs while increasing revenues with the completion of the consolidation of its two Florida businesses to
one location, the move of Lexel Imaging to a much lower cost facility and further consolidation of operations by merging the two Tucker business units, one into Lexel Imaging and the other into the Florida operations in the upcoming quarter.