**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**WASHINGTON,DC  20549

**FORM 10-Q**

**x Quarterly Report Pursuant to Section 13or 15(d) of the Securities Exchange Act of 1934**

 

**For the Quarterly Period Ended May 31, 2006.**

**or**

**o Transition Report Pursuant to Section 13or 15(d) of the Securities Exchange Act of 1934**

 

**For the Transition Period From                             to                                       **

**Commission File Number 0-13394**

**VIDEODISPLAY CORPORATION**(Exact name of registrant as specified on its charter)

 

| **GEORGIA**                      |   | ** ** |   | **58-1217564**       |
|----------------------------------|--------|------------|--------|----------------------|
| (State or other  jurisdiction of |   |       |   | (I.R.S. Employer     |
| incorporation or  organization)  |   |       |   | Identification  No.) |

 

**1868TUCKER INDUSTRIAL ROAD, TUCKER, GEORGIA 30084**(Address of principal executive offices)

**770-938-2080**(Registrant’s telephone number including area code)

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bysection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes x No o

Indicate by check markwhether the registrant is a large accelerated filer, and accelerated filer, ora non-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act.

            Large accelerated filer o                             Accelerated filer o                            Non-accelerated filer x

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). Yes o No x

As of July 11, 2006, the registrant had 9,641,000shares of Common Stock outstanding.

 

 

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**Video Display Corporation andSubsidiariesIndex**
|               | ** **            | ** **                                                                                                           | ** ** | ** ** |
|---------------|-----------------------|----------------------------------------------------------------------------------------------------------------------|------------|------------|
| PART I.  | FINANCIAL INFORMATION |                                                                                                                 |       |
|          |                  |                                                                                                                 |       |       |
|          | Item 1.               | Financial Statements.                                                                                                |       |       |
|          |                  |                                                                                                                 |       |       |
|          |                  | Consolidated Balance Sheets —  May 31, 2006 (unaudited) and February 28, 2006                         |       |       |
|          |                  |                                                                                                                 |       |       |
|          |                  | Consolidated Statements of Operations —  Three months ended May 31, 2006 and 2005 (unaudited)              |       |       |
|          |                  |                                                                                                                 |       |       |
|          |                  | Consolidated Statement of Shareholders’ Equity —  For the three months ended May 31, 2006 (unaudited) |       |       |
|          |                  |                                                                                                                 |       |       |
|          |                  | Consolidated Statements of Cash Flows —  Three months ended May 31, 2006 and 2005 (unaudited)              |       |       |
|          |                  |                                                                                                                 |       |       |
|          |                  | Notes to Consolidated Financial Statements —  May 31, 2006 (unaudited)                                     |       |       |
|          |                  |                                                                                                                 |       |       |
|          | Item 2.               | Management’s Discussion and Analysis of Financial  Condition and Results of Operations.                         |       |       |
|          |                  |                                                                                                                 |       |       |
|          | Item 3.               | Quantitative and Qualitative Disclosure About Market  Risk.                                                          |       |       |
|          |                  |                                                                                                                 |       |       |
|          | Item 4.               | Controls and Procedures.                                                                                             |       |       |
|          |                  |                                                                                                                 |       |       |
| PART II. | OTHER INFORMATION     |                                                                                                                 |       |
|          |                  |                                                                                                                 |       |       |
|          | Item 1.               | Legal Proceedings.                                                                                                   |       |       |
|          |                  |                                                                                                                 |       |       |
|          | Item 1A.              | Risk Factors.                                                                                                        |       |       |
|          |                  |                                                                                                                 |       |       |
|          | Item 2.               | Unregistered Sales of Equity Securities and Use of  Proceeds.                                                        |       |       |
|          |                  |                                                                                                                 |       |       |
|          | Item 3.               | Defaults upon Senior Securities.                                                                                     |       |       |
|          |                  |                                                                                                                 |       |       |
|          | Item 4.               | Submission of Matters to a Vote of Security Holders.                                                                 |       |       |
|          |                  |                                                                                                                 |       |       |
|          | Item 5.               | Other Information.                                                                                                   |       |       |
|          |                  |                                                                                                                 |       |       |
|          | Item 6.               | Exhibits.                                                                                                            |       |       |
|          |                  |                                                                                                                 |       |       |
|          | SIGNATURES.           |                                                                                                                 |       |

** **

2

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** **

**ITEM 1.**                    FINANCIALSTATEMENTS

**Video DisplayCorporation and SubsidiariesConsolidated Balance Sheets(in thousands)**

** **
| ** **                                                                  | ** ** | **May 31,  2006** | ** ** | **February 28,  2006** | ** ** |
|-----------------------------------------------------------------------------|------------|------------------------|------------|-----------------------------|------------|
| ** **                                                                  | ** ** | **(unaudited)**        | ** ** | ** **                  | ** ** |
| **Assets**                                                                  | ** ** | ** **             |       |                        |       |
| Current Assets                                                              | ** ** | ** **             |       |                        |       |
| Cash                                                                        | ** ** | **$**                  | **2,698**  |                        | $          | 1,577 |   |
| Accounts  receivable, less allowance for possible losses of $431 and $381   | ** ** | **9,793**              |       | 9,483                       |       |
| Inventories, net                                                            | ** ** | **35,341**             |       | 34,645                      |       |
| Cost and  estimated earnings in excess of billings on uncompleted contracts | ** ** | **1,081**              |       | 968                         |       |
| Deferred income  taxes                                                      | ** ** | **3,196**              |       | 3,279                       |       |
| Prepaid expenses  and other                                                 | ** ** | **1,633**              |       | 1,720                       |       |
| Total current  assets                                                       | ** ** | **53,742**             |       | 51,672                      |       |
|                                                                        | ** ** | ** **             |       |                        |       |
| Property, plant and equipment:                                              | ** ** | ** **             |       |                        |       |
| Land                                                                        | ** ** | **605**                |       | 605                         |       |
| Buildings                                                                   | ** ** | **8,573**              |       | 8,454                       |       |
| Machinery and  equipment                                                    | ** ** | **19,896**             |       | 19,970                      |       |
|                                                                        | ** ** | **29,074**             |       | 29,029                      |       |
| Accumulated  depreciation and amortization                                  | ** ** | **(20,592**            | **)**      | (20,270                     | )          |
| Net property,  plant, and equipment                                         | ** ** | **8,482**              |       | 8,759                       |       |
| Goodwill                                                                    | ** ** | **1,318**              |       | 1,318                       |       |
| Intangible assets, net                                                      | ** ** | **3,431**              |       | 3,591                       |       |
| Other assets                                                                | ** ** | **107**                |       | 98                          |       |
|                                                                        | ** ** | ** **             |       |                        |       |
| Total assets                                                                | ** ** | **$**                  | **67,080** |                        | $          | 65,438 |   |
|                                                                        | ** ** | ** **             |       |                        |       |

 

The accompanyingnotes are an integral part of these statements.

3

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| ** **                                                                                          | ** ** | **May 31,  2006** | ** ** | **February 28,  2006** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------------|------------|
| ** **                                                                                          | ** ** | **(unaudited)**        | ** ** | ** **                  | ** ** |
| **Liabilities and Shareholders’  Equity**                                                      | ** ** | ** **             |       |                        |       |
| Current  liabilities                                                                                | ** ** | ** **             |       |                        |       |
| Accounts payable                                                                                    | ** ** | **$**                  | **5,353**  |                        | $          | 6,889 |   |
| Accrued  liabilities                                                                                | ** ** | **3,317**              |       | 2,833                       |       |
| Billings in  excess of cost and estimated earnings on uncompleted contracts                         | ** ** | **1,155**              |       | 965                         |       |
| Lines of credit                                                                                     | ** ** | **23,915**             |       | 17,567                      |       |
| Notes payable to  officers and directors                                                            | ** ** | **3,368**              |       | 6,948                       |       |
| Current  maturities of long-term debt and financing lease obligations                               | ** ** | **140**                |       | 140                         |       |
| Total current  liabilities                                                                          | ** ** | **37,248**             |       | 35,342                      |       |
| ** **                                                                                          | ** ** | ** **             |       |                        |       |
| Long-term debt,  less current maturities                                                            | ** ** | **802**                |       | 808                         |       |
| Financing lease  obligations, less current maturities                                               | ** ** | **325**                |       | 363                         |       |
|                                                                                                | ** ** | ** **             |       |                        |       |
| Convertible  notes payable, net of discount of  of $31 and $38                                      |       | **219**                | ** ** | 212                         |       |
| Deferred income  taxes                                                                              | ** ** | **340**                |       | 560                         |       |
| Total  liabilities                                                                                  | ** ** | **38,934**             |       | 37,285                      |       |
| ** **                                                                                          | ** ** | ** **             |       |                        |       |
| **Minority Interests**                                                                              | ** ** | **123**                |       | 123                         |       |
| **Commitments and Contingencies**                                                                   | ** ** | **—**             | ** ** | **—**                  |       |
| ** **                                                                                          | ** ** | ** **             |       |                        |       |
| **Shareholders’ Equity**                                                                       | ** ** | ** **             |       |                        |       |
| ** **                                                                                          | ** ** | ** **             |       |                        |       |
| Preferred stock,  no par value — 10,000 shares authorized; none issued and outstanding         | ** ** | **—**             | ** ** | **—**                  |       |
| Common stock, no  par value — 50,000 shares authorized; 9,648 and 9,628 issued and outstanding | ** ** | **7,221**              |       | 7,198                       |       |
| Additional  paid-in capital                                                                         | ** ** | **105**                |       | 92                          |       |
| Retained  earnings                                                                                  | ** ** | **21,536**             |       | 21,771                      |       |
| Accumulated  other comprehensive income (loss)                                                      | ** ** | **20**                 |       | (172                        | )          |
| Treasury stock,  86 shares at cost                                                                  | ** ** | **(859**               | **)**      | (859                        | )          |
| Total  shareholders’ equity                                                                    | ** ** | **28,023**             |       | 28,030                      |       |
| Total liabilities and  shareholders’ equity                                                    | ** ** | **$**                  | **67,080** |                        | $          | 65,438 |   |

 

The accompanyingnotes are an integral part of these statements.

4

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** **

**Video DisplayCorporation and SubsidiariesConsolidated Statements of Operations (unaudited)(in thousands, except per share data)**

** **
| ** **                                         | ** ** | **Three Months Ended  May 31,** | ** ** |
|----------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                         | ** ** | **2006**                                       | ** ** | **2005** | ** ** |
| ** **                                         |       |                                           | ** ** |   |   |
| Net sales                                          | ** ** | **$**                                          | **18,598** | ** ** | $ | 20,442 |   |
|                                               | ** ** | ** **                                     | ** ** |   |   |
| Cost of goods sold                                 | ** ** | **13,034**                                     | ** ** | 13,906 |   |
|                                               | ** ** | ** **                                     | ** ** |   |   |
| Gross profit                                       | ** ** | **5,564**                                      | ** ** | 6,536 |   |
|                                               | ** ** | ** **                                     | ** ** |   |   |
| Operating expenses                                 | ** ** | ** **                                     | ** ** |   |   |
| Selling and  delivery                              | ** ** | **1,915**                                      | ** ** | 1,714 |   |
| General and  administrative                        | ** ** | **3,551**                                      | ** ** | 3,568 |   |
|                                               | ** ** | **5,466**                                      | ** ** | 5,282 |   |
|                                               | ** ** | ** **                                     | ** ** |   |   |
| Operating profit                                   | ** ** | **98**                                         | ** ** | 1,254 |   |
|                                               | ** ** | ** **                                     | ** ** |   |   |
| Other income (expense)                             | ** ** | ** **                                     | ** ** |   |   |
| Interest expense                                   | ** ** | **(501**                                       | **)**      | (337 | ) |
| Other, net                                         | ** ** | **43**                                         | ** ** | 63 |   |
|                                               | ** ** | **(458**                                       | **)**      | (274 | ) |
|                                               | ** ** | ** **                                     | ** ** |   |   |
| Income (loss)  before income taxes                 | ** ** | **(360**                                       | **)**      | 980 |   |
|                                               | ** ** | ** **                                     | ** ** |   |   |
| Provision for (benefit  of) income taxes           | ** ** | **(125**                                       | **)**      | 374 |   |
|                                               | ** ** | ** **                                     | ** ** |   |   |
| Net income (loss)                                  | ** ** | **$**                                          | **(235**   | **)** | $ | 606 |   |
|                                               | ** ** | ** **                                     | ** ** |   |   |
| Basic earnings (loss)  per share of common stock   | ** ** | **$**                                          | **(.02**   | **)** | $ | .06 |   |
|                                               | ** ** | ** **                                     | ** ** |   |   |
| Diluted earnings (loss)  per share of common stock | ** ** | **$**                                          | **(.02**   | **)** | $ | .06 |   |
|                                               | ** ** | ** **                                     | ** ** |   |   |
| Basic weighted average  shares outstanding         | ** ** | **9,703**                                      | ** ** | 9,685 |   |
|                                               | ** ** | ** **                                     | ** ** |   |   |
| Diluted weighted  average shares outstanding       | ** ** | **9,921**                                      | ** ** | 9,928 |   |
|                                               | ** ** | ** **                                     | ** ** | ** ** | ** ** |

 

Theaccompanying notes are an integral part of these statements.

5

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##  

**Video DisplayCorporation and SubsidiariesConsolidated Statements of Shareholders’ EquityFor the Three Months Ended May 31, 2006 (unaudited)(in thousands)**

 
| ** **                                        | ** ** | **Common  Shares** | ** ** | **Share  Amount** | ** ** | **Additional  Paid-in  Capital** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive  Income (Loss)** | ** ** | **Treasury  Stock** | ** ** | **Comprehensive  Loss** | ** ** |
|---------------------------------------------------|------------|--------------------|------------|-------------------|------------|----------------------------------|------------|------------------------|------------|-----------------------------------------------------------|------------|---------------------|------------|-------------------------|------------|
|                                              |       |               |       |              |       |                             |       |                   |       |                                                      |       |                |       |                    |       |
| Balance,  February 28, 2006                  |       | 9,628              |       | $                 | 7,198      |                             | $          | 92                     |       | $                                                         | 21,771     |                | $          | (172                    | )          | $ | (859 | ) |   |   |
|                                              |       |               |       |              |       |                             |       |                   |       |                                                      |       |                |       |                    |       |
| Net  loss                                         |       | —             |       | —            |       | —                           |       | (235                   | )          | —                                                    |       | —              |       | $                       | (235       | ) |
| Foreign  currency translation adjustment          |       | —             |       | —            |       | —                           |       | —                 |       | 192                                                       |       | —              |       | 192                     |       |
| Total  comprehensive loss                         |       | —             |       | —            |       | —                           |       | —                 |       | —                                                    |       | —              |       | $                       | (43        | ) |
| Issuance of common stock  under stock option plan |       | 20                 |       | 23                |       | —                           |       | —                 |       | —                                                    |       | —              |       |                    |       |
| Share based compensation                          |       | —             |       | —            |       | 13                               |       | —                 |       | —                                                    |       | —              |       |                    |       |
|                                              |       |               |       |              |       |                             |       |                   |       |                                                      |       |                |       |                    |       |
| Balance,  May 31, 2006                       |       | 9,648              |       | $                 | 7,221      |                             | $          | 105                    |       | $                                                         | 21,536     |                | $          | 20                      |       | $ | (859 | ) |   |   |
|                                              |       |               |       |              |       |                             |       |                   |       |                                                      |       |                |       |                    |       |

 

The accompanying notes are anintegral part of these statements.

6

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##  

**Video DisplayCorporation and SubsidiariesConsolidated Statements of Cash Flows (unaudited)(in thousands)**

 
| ** **                                                                                | ** ** | **Three Months Ended  May 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                                                | ** ** | **2006**                                       | ** ** | **2005** | ** ** |
|                                                                                      | ** ** | ** **                                     |       |   |   |
| **Operating Activities**                                                                  | ** ** | ** **                                     |       |   |   |
| Net income (loss)                                                                         | ** ** | **$**                                          | **(235**   | **)** | $ | 606 |   |
| **Adjustments to reconcile net  income (loss) to net cash used in operating activities:** | ** ** | ** **                                     |       |   |   |
| Depreciation and  amortization                                                            | ** ** | **478**                                        |       | 388 |   |
| Provision for  bad debts                                                                  | ** ** | **51**                                         |       | 93 |   |
| Provision for  inventory reserve                                                          | ** ** | **203**                                        |       | 300 |   |
| Non-cash charge  for share based compensation                                             | ** ** | **13**                                         |       | — |   |
| Deferred income  taxes                                                                    | ** ** | **(137**                                       | **)**      | 131 |   |
| Interest on  convertible note                                                             | ** ** | **6**                                          |       | 38 |   |
| **Changes in working capital, net  of effects from acquisitions:**                        | ** ** | ** **                                     |       |   |   |
| Accounts  receivable                                                                      | ** ** | **(361**                                       | **)**      | 269 |   |
| Inventories                                                                               | ** ** | **(899**                                       | **)**      | (2,189 | ) |
| Prepaid expenses  and other assets                                                        | ** ** | **154**                                        |       | (478 | ) |
| Accounts payable  and accrued liabilities                                                 | ** ** | **(1,052**                                     | **)**      | (136 | ) |
| Net cash used in  operating activities                                                    | ** ** | **(1,779**                                     | **)**      | (978 | ) |
| ** **                                                                                | ** ** | ** **                                     |       |   |   |
| **Investing Activities**                                                                  | ** ** | ** **                                     |       |   |   |
| Capital  expenditures                                                                     | ** ** | **(40**                                        | **)**      | (121 | ) |
| Cash paid for  acquisition                                                                | ** ** | **—**                                     |       | (1,377 | ) |
| Net cash used in  investing activities                                                    | ** ** | **(40**                                        | **)**      | (1,498 | ) |
|                                                                                      | ** ** | ** **                                     |       |   |   |
| **Financing Activities**                                                                  | ** ** | ** **                                     |       |   |   |
| ** **                                                                                | ** ** | ** **                                     |       |   |   |
| Proceeds from  long-term debt, lines of credit and financing lease obligations            | ** ** | **10,221**                                     |       | 11,188 |   |
|                                                                                      | ** ** | ** **                                     |       |   |   |
| Payments on  long-term debt, lines of credit and financing lease obligations              | ** ** | **(3,916**                                     | **)**      | (7,034 | ) |
| Proceeds from  loans from related parties                                                 | ** ** | **220**                                        |       | — |   |
| Repayments of  loans from related parties                                                 | ** ** | **(3,800**                                     | **)**      | (14 | ) |
| Repurchase of  common stock                                                               | ** ** | **—**                                     |       | (317 | ) |
| Proceeds from  exercise of stock options                                                  | ** ** | **23**                                         |       | — |   |
| Net cash  provided by financing activities                                                | ** ** | **2,748**                                      |       | 3,823 |   |
|                                                                                      | ** ** | ** **                                     |       |   |   |
| Effect of exchange rate  changes on cash                                                  | ** ** | **192**                                        |       | 74 |   |
| ** **                                                                                | ** ** | ** **                                     |       |   |   |
| Net increase in cash                                                                      | ** ** | **1,121**                                      |       | 1,421 |   |
|                                                                                      | ** ** | ** **                                     |       |   |   |
| Cash, beginning of  period                                                                | ** ** | **1,577**                                      |       | 1,471 |   |
|                                                                                      | ** ** | ** **                                     |       |   |   |
| Cash, end of period                                                                       | ** ** | **$**                                          | **2,698**  |   | $ | 2,892 |   |

 

The accompanying notes are an integral part of thesestatements.

7

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**Video DisplayCorporation and SubsidiariesNotes to Consolidated Financial Statements (unaudited)May 31, 2006**

Note 1. — Summary ofSignificant Accounting Policies

As contemplated by theSecurities and Exchange Commission (the “Commission”) instructions to Form 10-Q,the following footnotes have been condensed and, therefore, do not contain alldisclosures required in connection with annual financial statements. Referenceshould be made to the Company’s year-end financial statements and notesthereto, including a description of the accounting policies followed by theCompany, contained in its Annual Report on Form 10-K for the fiscalyear ended February 28, 2006, as filed with the Commission. Other than theadoption of Statement of Financial Accounting Standards No. 123 (Revised2004), *“Share-Based Payment”* as described inNote 10, there have been no material changes in accounting policy during Fiscal2007.

The financial informationincluded in this report has been prepared by the Company, without audit. In theopinion of management, the financial information included in this reportcontains all adjustments (all of which are normal and recurring) necessary fora fair presentation of the results for the interim periods. Nevertheless, theresults shown for interim periods are not necessarily indicative of results tobe expected for the full year. The February 28, 2006 consolidated balancesheet data was derived from audited financial statements, but does not includeall disclosures required by accounting principles generally accepted in theUnited States.

Theconsolidated financial statements include the accounts of the Company and itsmajority owned subsidiaries after elimination of all significant intercompanyaccounts and transactions. Certain prior period balances have been reclassifiedto conform to the current period presentation.

TheCompany has a subsidiary in the U.K., which uses the British pound as itsfunctional currency. Assets and liabilities of this foreign subsidiary aretranslated using the exchange rate in effect at the end of the period. Revenuesand expenses are translated using the average of the exchange rates in effectduring the period. Translation adjustments and transaction gains and lossesrelated to long-term intercompany transactions are accumulated as a separatecomponent of shareholders’ equity.

Note 2. — BusinessAcquisition

In May 2005, the Companyacquired the IDS division of Three Five Systems, Inc. Three Five Systemsspecializes in flat panel, touch screen and rack mount systems with custommilitary, industrial and commercial requirements. As part of this transaction,the Company acquired fixed assets of $74,000, inventories of $773,000, andvarious other assets of $530,000 in exchange for cash of $1,377,000. The otherassets include product development designs and drawings and a customer list, aswell as a non-compete agreement. The product development designs and drawingsare being amortized over a five year period, while the customer list is being amortizedover a three year period, which the Company estimates to be the useful life ofthese assets. The IDS division has moved to new facilities and is known asAydin North and is a part of the Company’s Pennsylvania based Aydin operations.The IDS operations of Three Five Systems, Inc. are not significant to theCompany.

The aggregate purchase price has been allocated basedon fair values as of the date of the completion of the acquisition as follows(in thousands):

 

| Inventories                                       |   | $   | 773    |   |
|---------------------------------------------------|--------|-----|--------|--------|
| Machinery &  equipment                   |   | 74  |   |
| Product designs,  customer lists and other assets |   | 530 |   |
|                                              |   | $   | 1,377  |   |

 

8

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Note 3. — Inventories

Inventories arestated at the lower of cost (first in, first out) or market.

Inventoriesconsisted of the following (in thousands):

 

|                            | ** ** | **May 31,  2006** | ** ** | **February 28,  2006** | ** ** |
|----------------------------|------------|------------------------|------------|-----------------------------|------------|
|                       | ** ** | ** **             |       |                        |       |
| Raw materials              | ** ** | **$**                  | **18,229** |                        | $          | 18,618 |   |
| Work-in-process            | ** ** | **3,749**              |       | 3,772                       |       |
| Finished goods             | ** ** | **17,999**             |       | 16,688                      |       |
|                       | ** ** | **39,977**             |       | 39,078                      |       |
| Reserves for  obsolescence | ** ** | **(4,636**             | **)**      | (4,433                      | )          |
| ** **                 | ** ** | **$**                  | **35,341** |                        | $          | 34,645 |   |

 

Note4. — Costs and Estimated Earnings Related to Billings on Uncompleted Contracts

Information relative to contracts in progress consisted of thefollowing:

 

|                                                                    | ** ** | **May 31,  2006** | ** ** | **February 28,  2006** | ** ** |
|--------------------------------------------------------------------|------------|------------------------|------------|-----------------------------|------------|
|                                                               | ** ** | ** **             | ** ** |                        |       |
| Costs incurred to date  on uncompleted contracts                   | ** ** | **$**                  | **5,396**  | ** **                  | $          | 4,528 |   |
| Estimated earnings  recognized to date on these contracts          | ** ** | **3,044**              | ** ** | 2,585                       |       |
|                                                               | ** ** | **8,440**              | ** ** | 7,113                       |       |
| Billings to date                                                   | ** ** | **(8,514**             | **)**      | (7,110                      | )          |
| Costs and estimated  earnings in excess (deficit) of billings, net | ** ** | **$**                  | **(74**    | **)**                       | $          | 3 |   |
|                                                               | ** ** | ** **             | ** ** |                        |       |
| Costs and estimated  earnings in excess of billings                | ** ** | **$**                  | **1,081**  | ** **                  | $          | 968 |   |
| Billings in excess of  costs and estimated earnings                | ** ** | **(1,155**             | **)**      | (965                        | )          |
|                                                               | ** ** | **$**                  | **(74**    | **)**                       | $          | 3 |   |
|                                                               | ** ** | ** **             | ** ** |                        |       |

 

Costs and estimatedearnings in excess of billings are the results of contracts in progress (jobs)in completing orders to customers’ specifications on contracts accounted forunder SOP 81-1 “Accounting for Performance of Construction-Type andCertain Production-Type Contracts”. Costs included are material, labor andoverhead. These jobs require design and engineering effort for a specificcustomer purchasing a unique product. The Company records revenue on thesefixed-price and cost-plus contracts on the percentage of completion basis usingthe ratio of costs incurred to estimated total costs at completion as themeasurement basis for progress toward completion and revenue recognition. Anylosses identified on contracts are recognized immediately. Contract accountingrequires significant judgment relative to assessing risks, estimating contractcosts and making related assumptions for schedule and technical issues. Withrespect to contract change orders, claims or similar items, judgment must beused in estimating related amounts and assessing the potential for realization.These amounts are only included in contract value when they can be reliablyestimated and realization is 

9

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probable. Billings are generated based onspecific contract terms, which might be a progress payment schedule, specificshipments, etc.None of the abovecontracts in progress contain post-shipment obligations.

As of May 31, 2006 and February 28,2006, there were no production costs which exceeded the aggregate estimatedcost of all in process and delivered units relating to long-term contracts. Additionally,there were no claims outstanding that would affect the ultimate realization offull contract values. As of May 31, 2006 and February 28, 2006, therewere no progress payments that had been netted against inventory.

Note 5. — IntangibleAssets

Intangible assets consistprimarily of the unamortized value of purchased patents, customer lists,non-compete agreements and other intangible assets. Intangible assets areamortized over the period of their expected lives, generally ranging from 5 to15 years. Amortization expense related to intangible assets was $160,000 and$122,000 for the three months ended May 31, 2006 and 2005, respectively.

The cost and accumulatedamortization of intangible assets was as follows (in thousands).

 

|                        | ** ** | **May 31, 2006** | ** ** | **February 28, 2006** | ** ** |
|------------------------|------------|----------------------------|------------|---------------------------------|------------|
| ** **             | ** ** | **Cost**                   | ** ** | **Accumulated  Amortization**   | ** ** | **Cost** | ** ** | **Accumulated  Amortization** | ** ** |
|                   |       |                       |       |                            |       |   |   |   |   |
| Customer lists         | ** ** | **$**                      | **2,968**  | ** **                      | **$**      | **742** |   | $ | 2,968 |   | $ | 658 |   |
| Non-compete agreements | ** ** | **1,230**                  | ** ** | **363**                         |       | 1,230 |   | 301 |   |
| Patents                | ** ** | **335**                    | ** ** | **86**                          |       | 335 |   | 78 |   |
| Other intangibles      | ** ** | **119**                    | ** ** | **30**                          |       | 119 |   | 24 |   |
|                   | ** ** | **$**                      | **4,652**  | ** **                      | **$**      | **1,221** |   | $ | 4,652 |   | $ | 1,061 |   |

 

 

10

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Note 6. — Long-term Debtand Financing Lease Obligations

Long-term debt and financing lease obligations consisted of thefollowing (in thousands):

 

|                                                                                                                                                                                                                                                                                            | ** ** | **May 31,  2006** | ** ** | **February 28,  2006** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------------|------------|
| Mortgage payable to  bank; interest rate at Federal Home Loan Bank Board Index rate plus 1.95%  (7.35% as of May 31, 2006); monthly principal and interest payments of  $5 payable through October 2021; collateralized by land and building of  Teltron Technologies, Inc. | ** ** | **$**                  | **535**    |                        | $          | 540 |   |
|                                                                                                                                                                                                                                                                                       | ** ** | ** **             |       |                        |       |
| Mortgage payable to  Pennsylvania Industrial Development Authority; interest rate at 4.25%;  monthly principal and interest payments of $2.8 payable through  October 2017; collateralized by a second priority lien on land and  building of Teltron Technologies, Inc.         | ** ** | **303**                |       | 308                         |       |
|                                                                                                                                                                                                                                                                                       | ** ** | ** **             |       |                        |       |
| Other                                                                                                                                                                                                                                                                                      | ** ** | **11**                 |       | 14                          |       |
|                                                                                                                                                                                                                                                                                       | ** ** | **849**                |       | 862                         |       |
| Financing lease  obligations                                                                                                                                                                                                                                                               | ** ** | **418**                |       | 449                         |       |
|                                                                                                                                                                                                                                                                                       | ** ** | **1,267**              |       | 1,311                       |       |
| Less current maturities                                                                                                                                                                                                                                                                    | ** ** | **(140**               | **)**      | (140                        | )          |
|                                                                                                                                                                                                                                                                                       | ** ** | ** **             |       |                        |       |
|                                                                                                                                                                                                                                                                                       | ** ** | **$**                  | **1,127**  |                        | $          | 1,171 |   |

 

Note 7. — Lines ofCredit

TheCompany maintains a $27.5 million credit facility, executed in November 2004,with a bank, collateralized by equipment, inventories and accounts receivableof the Company. The interest rate on this line is a floating LIBOR rate basedon a ratio of debt to EBITDA, as defined in the loan documents. As of May 31,2006, the outstanding balance of this line of credit was $20.4 million and theavailable amount for borrowing was $6.6 million, including the impact of$450,000 in outstanding letters of credit. The line of credit agreementcontains covenants, including requirements related to tangible cash flow, ratioof debt to cash flow and asset coverage. Additionally, the bank requires thatany contemplated acquisitions be accretive. The Company was not in compliance with theconsolidated Fixed Charge Coverage Ratio and the consolidated Senior FundedDebt to EBITDA ratio covenants at May 31, 2006. To provide additionalflexibility in funding for working capital requirements, and to cure thecovenant violations existing under this line, on June 29, 2006 the Companyexecuted a new line of credit with a syndicate of two banks as discussed inNote 13 Subsequent Events.

Additionally, in April 2005, the Companyconverted a $2.8 million short term line of credit (collateralized by assets ofFox International, Inc.) with a bank to a $3.5 million line of credit withanother bank. (The $2.8 million short term line of credit repaid during Fiscal2006 replaced a term loan facility with a bank, also collateralized by assetsof Fox International, Inc., executed on July 31, 2004.) As part ofthe new financing, the lender paid off the balance of the short term line ofcredit and a mortgage secured by the land and building of Fox International, Inc.The interest rate on this line is a floating LIBOR rate based on a ratio ofdebt to EBITDA, as defined in the loan documents. As of May 31, 2006, 

11

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the outstanding balance of this line of credit was$3.5 million with no remaining borrowing availability. The line of creditagreement contains covenants, including requirements related to tangible cash flow,ratio of debt to cash flow and asset coverage. Additionally, the bank requiresthat any contemplated acquisitions be accretive. The Company was not in compliance with theconsolidated Fixed Charge Coverage Ratio and the consolidated Senior FundedDebt to EBITDA ratio covenants at May 31, 2006. To provide additional flexibility infunding for working capital requirements, and to cure the covenant violationsexisting under this line, on June 29, 2006 the Company executed a new lineof credit with a syndicate of two banks as discussed in Note 13 SubsequentEvents.

Note 8. — SegmentInformation

Condensed segmentinformation is as follows (in thousands):

 

|                                   | ** ** | **Three Months  Ended May 31,** | ** ** |
|-----------------------------------|------------|------------------------------------------------|------------|
| ** **                        | ** ** | **2006**                                       | ** ** | **2005** | ** ** |
| Net Sales                         | ** ** | ** **                                     | ** ** |   |   |
| Display Segment                   | ** ** | **$**                                          | **13,981** | ** ** | $ | 15,781 |   |
| Wholesale  Distribution Segment   | ** ** | **4,617**                                      | ** ** | 4,661 |   |
|                              | ** ** | **$**                                          | **18,598** | ** ** | $ | 20,442 |   |
|                              | ** ** | ** **                                     | ** ** |   |   |
| Operating profit                  | ** ** | ** **                                     | ** ** |   |   |
| Display Segment                   | ** ** | **$**                                          | **323**    | ** ** | $ | 896 |   |
| Wholesale  Distribution Segment   | ** ** | **(225**                                       | **)**      | 358 |   |
| Income from Operations            | ** ** | **98**                                         | ** ** | 1,254 |   |
|                              | ** ** | ** **                                     | ** ** |   |   |
| Interest expense                  | ** ** | **(501**                                       | **)**      | (337 | ) |
| Other income, net                 | ** ** | **43**                                         | ** ** | 63 |   |
| Income (loss) before income taxes | ** ** | **$**                                          | **(360**   | **)** | $ | 980 |   |

 

Note 9. —Supplemental Cash Flow Information

Supplemental cashflow information is as follows (in thousands):

 

|                                             | ** ** | **Three Months  Ended May 31,** | ** ** |
|---------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                  | ** ** | **2006**                                       | ** ** | **2005** | ** ** |
| Cash Paid for:                              | ** ** | ** **                                     |       |   |   |
| Interest                                    | ** ** | **$**                                          | **468**    |   | $ | 337 |   |
| Income taxes,  net of refunds               | ** ** | **$**                                          | **27**     |   | $ | 1,174 |   |
|                                        | ** ** | ** **                                     |       |   |   |
| Non-cash Transactions:                      | ** ** | ** **                                     |       |   |   |
| Conversion of note  payable to common stock | ** ** | **$**                                          | **—** |   | $ | 125 |   |

 

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Note 10. — Shareholder’sEquity

**Earnings Per Share**

Basicearnings (loss) per share is computed by dividing income (loss) available tocommon shareholders by the weighted average number of common shares outstandingduring each period. Shares issued during the period are weighted for theportion of the period that they were outstanding. Diluted earnings (loss) pershare is calculated in a manner consistent with that of basic earnings (loss)per share while giving effect to all dilutive potential common shares that wereoutstanding during the period.

Thefollowing table sets forth the computation of basic and diluted earnings (loss)per share for the three month periods ended May 31, 2006 and 2005 (inthousands, except per share data):

 
| ** **                            | ** ** | **Net  Income (Loss)** | ** ** | **Weighted  Average  Common Shares  Outstanding** | ** ** | **Earnings  (Loss) Per  Share** | ** ** |
|---------------------------------------|------------|-----------------------------|------------|--------------------------------------------------------|------------|--------------------------------------|------------|
| Three months ended  May 31, 2006 |       |                        |       |                                                   |       |                                 |       |
| Basic                                 |       | $                           | (235       | )                                                      | 9,703      |                                 | $          | (0.02 | ) |
| Effect of  dilution:                  |       |                        |       |                                                   |       |                                 |       |
| Convertible debt                      |       | —                      |       | —                                                 |       |                                 |       |
| Options                               |       | —                      |       | —                                                 |       |                                 |       |
| Diluted                               |       | $                           | (235       | )                                                      | 9,703      |                                 | $          | (0.02 | ) |
|                                  |       |                        |       |                                                   |       |                                 |       |
| Three months ended  May 31, 2005 |       |                        |       |                                                   |       |                                 |       |
| Basic                                 |       | $                           | 606        |                                                   | 9,685      |                                 | $          | 0.06 |   |
| Effect of  dilution:                  |       |                        |       |                                                   |       |                                 |       |
| Convertible debt                      |       | 23                          |       | 20                                                     |       |                                 |       |
| Options                               |       | —                      |       | 223                                                    |       |                                 |       |
| Diluted                               |       | $                           | 629        |                                                   | 9,928      |                                 | $          | 0.06 |   |
|                                  |       |                        |       |                                                   |       |                                 |       |

 

**Stock-Based Compensation Plans**

On March 1, 2006, the Company adopted Statementof Financial Accounting Standards (“SFAS”) No. 123 (Revised 2004), *“Share-Based Payment”*(“Statement No. 123(R)”),which requires employee share-based compensation to be accounted for under thefair value method and requires the use of an option pricing model forestimating the fair value of stock options at the date of grant. Previously,the Company accounted for stock options under the intrinsic value methodprescribed by Accounting Principles Board Opinion No. 25, “*Accounting for Stock Issued to Employees,*”and related interpretations, and provided the required pro forma disclosuresprescribed by SFAS No. 123, “*Accountingfor Stock-Based Compensation,*” (“Statement No. 123”), asamended. Since the exercise price of options equaled the market price of thestock on the date of grant, the stock options had no intrinsic value and,therefore, no expense was recognized for stock options by the Company prior tothe beginning of Fiscal 2007.

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The Company elected to adopt Statement No. 123(R) usingthe modified prospective method, which requires compensation expense to berecorded for all unvested share-based awards beginning in the first quarter ofadoption. Accordingly, prior period information presented in this Report on Form 10-Qhas not been restated to reflect the fair value method of expensing stockoptions.

For the three month period ended May 31, 2006,the Company recognized general and administrative expense of $13,500 related toshare-based compensation. After the adoption of SFAS No. 123(R), theliability for the share-based compensation recognized is presented in theconsolidated balance sheet as part of additional paid in capital. As of May 31,2006, total unrecognized compensation costs related to stock options grantedwas $247,000. The unrecognized stock option compensation cost is expected to berecognized over a period of approximately 5 years.

Prior to expiration on May 1, 2006 the Companymaintained an incentive stock option plan whereby options to purchase up to 1.2million shares could be granted to directors and key employees at a price notless than fair market value at the time the options were granted. Upon vesting,options granted are exercisable for a period not to exceed ten years. Nofurther options may be granted pursuant to the plan after the expiration date;provided however, those options outstanding at that date will remainexercisable in accordance with their respective terms.

The Company estimates the fair value of stockoptions granted using the Black-Scholes option-pricing model, which requiresthe Company to estimate the expected term of the stock option grants andexpected future stock price volatility over the term. The term represents theexpected period of time the Company believes the options will be outstandingbased on historical information. Estimates of expected future stock pricevolatility are based on the historic volatility of the Company’s common stock.The Company calculates the historic volatility as the standard deviation of thedifferences in the natural logarithms of the weekly stock closing price,adjusted for dividends and stock splits.

No options were granted during the three month periods ended May 31,2006 and 2005.

Had compensation cost been determinedbased upon the fair value at the grant date for awards under the stock optionplan consistent with the methodology prescribed under Statement No. 123,the effect on the Company’s pro forma net income and net income per share wouldhave been as follows (in thousands, except per share data):

 

|                                                                                         | ** ** | **Three Months  Ended May 31,  2005** | ** ** |
|-----------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| Net income, as reported                                                                 |       | $                                                    | 606        |   |
| Stock-based employee  compensation expense, as reported                                 |       | —                                               |       |
| Stock-based employee  compensation expense determinedunder fair value basis, net of tax |       | (14                                                  | )          |
| Pro forma net income                                                                    |       | $                                                    | 592        |   |
|                                                                                    |       |                                                 |       |
| Net earnings per share:                                                                 |       |                                                 |       |
| Basic — as  reported                                                               |       | $                                                    | 0.06       |   |
| Basic — pro  forma                                                                 |       | $                                                    | 0.06       |   |
| Diluted — as  reported                                                             |       | $                                                    | 0.06       |   |
| Diluted — pro forma                                                                |       | $                                                    | 0.06       |   |

 

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**Stock Repurchase Program**

TheCompany has a stock repurchase program, pursuant to which it was originallyauthorized to repurchase up to 462,500 shares of the Company’s common stock inthe open market. On January 11,2006, the Board of Directors of the Company approved a continuation of thestock repurchase program, and authorized the Company to repurchase up to600,000 additional shares of the Company’s common stock, depending on themarket price of the shares. There is no minimum number of shares required to berepurchased under the program. Under this program, an additional 658,618 sharesremain authorized to be repurchased by the Company at May 31, 2006. Asdiscussed in Note 13. Subsequent Events, the Loan and Security Agreement executed by Company on June, 29, 2006includes restrictions on investments which currently restrict furtherrepurchases of stock under this program.

Note11. — Comprehensive Income

Statement of Financial Accounting Standards No. 130“Reporting Comprehensive Income” establishes standards for reporting anddisplay of non-owner changes in shareholders’ equity. For the Company, totalnon-owner changes in shareholders’ equity include net income and the change inthe cumulative foreign exchange translation adjustment component ofshareholders’ equity. During the three months ended May 31, 2006 and 2005,total comprehensive income (loss) was $(43,000) and $1.1 million, respectively.

Note12. — Related Party Transactions

On February 27, 2006 the Company’s ChiefExecutive Officer loaned the Company $6.8 million under a note agreementproviding for interest at six percent or the prime rate plus 1⁄4 of one percent,whichever is higher, paid monthly. Principal payments are due in a series ofmonthly payments, with a final payment of $1.0 million due October 1,2006. The note is secured by a general lien on all assets of the Company,subordinate to the lien held by Bank of America. The balance outstanding underthis loan agreement was $3.0 million at May 31, 2006. See related commentsin Note 13. Subsequent Events.

The Company has a demand note outstanding fromanother officer, bearing interest at 6%. During the three months ended May 31,2006, an additional $220,000 was advanced on this demand note, resulting in abalance outstanding of $368,000 at May 31, 2006.

Note13. — Subsequent Events

On June 15, 2006, the Company announced thatits Board of Directors had approved the sale of a majority of the net assets ofthe Wintron Technology division, primarily accounts receivable, inventory andproperty, plant and equipment, through a leveraged management buyout. Thepurchase agreement is being drafted for the sale which will become effective June 1,2006, based on the closing net book value of net assets sold as of May 31,2006. Total proceeds from the sale are expected to be approximately $380,000,and the sale at net book value will not generate a gain or loss. Net sales fromthe Wintron facility for the three months ended May 31, 2006 were$126,000, producing a loss before income taxes of $74,000. Fiscal 2006 netsales and loss before income taxes were $500,000 and $649,000, respectively.

OnJune 22, 2006, the Company announced an agreement in principle to acquirethe business and assets of EDL Displays, Inc. (“EDL”) located in DaytonOhio. The total purchase price of the assets acquired, including accountsreceivable, inventory, equipment and certain intellectual property is anticipatedto be approximately $1.2 million, including the assumption of approximately$0.7 million in bank loans. Upon close of the acquisition, the EDL business 

15

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will be relocated and mergedinto the Company’s Aydin Displays operation. The purchase agreement is in finaldrafting, and completion of the transaction is scheduled to occur before theclose of the Company’s second fiscal quarter.

OnJune 29, 2006, Video Display Corporation and Subsidiaries executed a Loanand Security Agreement with a syndicate including RBC Centura Bank and RegionsBank to provide a $17 million line of credit to the Company and a $3.5 millionline of credit to the Company’s subsidiary Fox International, Inc., bothwith a maturity of 24 months. These new lines of credit replace two lines ofcredit outstanding with Bank of America, which were terminated in conjunctionwith this agreement. In addition, the agreement provides for an equipment termloan of $3.0 million with payments amortized over 60 months. These loans aresecured by all assets and personal property of the Company. The agreementcontains covenants, including requirements related to tangible cash flow, ratioof debt to cash flow and assets coverage. The agreement also includesrestrictions on the incurrence of additional debt or liens, investments,divestitures and certain other changes in the business. The interest rate onthese loans is a floating LIBOR rate based on a fixed charge coverage ratio, asdefined in the loan documents.

Alsoin conjunction with this agreement, the CEO of the Company provided a $6.0million subordinated term note with an amortization of 15 years, and a maturityof 60 months. The interest rate on this note is equal to the prime rate plusone percent. The remaining balance of $3.0 million on the note provided to theCompany by the CEO on February 27, 2006 was repaid effective with theissue of the new note.

 

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### **Video Display Corporation and SubsidiariesMay 31, 2006**

**ITEM 2.**                    MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Thefollowing discussion should be read in conjunction with the attached interimconsolidated financial statements and with the Company’s 2006 Annual Report toShareholders, which included audited financial statements and notes thereto forthe fiscal year ended February 28, 2006, as well as Management’sDiscussion and Analysis of Financial Condition and Results of Operations.

**Overview**

The Company is a worldwide leader in the manufactureand distribution of a wide range of display devices, encompassing, amongothers, entertainment, military, medical and simulation display solutions. TheCompany is comprised of two segments - (1) the manufacture anddistribution of monitors, projection systems and CRT displays and (2) thewholesale distribution of consumer electronic parts. The display segment isorganized into four interrelated operations aggregated into one operatingsegment pursuant to the aggregation criteria of SFAS 131:

·                  **Monitors** — offers a complete range of CRT, flat paneland projection display systems for use in training and simulation, military,medical and industrial applications.

·                  **Data Display** — offers a complete range of CRTs for use indata display screen, including computer terminal monitors and medicalmonitoring equipment.

·                  **Home Entertainment**— offers a wide range of CRTs and projectiontubes for television and home theater equipment.

·                  **Components** — provides replacement electron guns andother components for CRTs primarily for servicing the Company’s internal needs.

During Fiscal 2007,management of the Company is focusing key resources on strategic efforts todispose of unprofitable operations and seek acquisition opportunities thatenhance the profitability and sales growth of the Company’s more profitableproduct lines. In addition, the Company plans to seek new products throughacquisitions and internal development that complement existing profitableproduct lines. Challenges facing the Company during these efforts include:

***Inventorymanagement*** - theCompany continually monitors historical sales trends as well as projectedfuture needs to ensure adequate on hand supplies of inventory and to ensureagainst overstocking of slower moving, obsolete items.

Certain of the Company’s divisions maintainsignificant inventories of CRTs and component parts in an effort to ensure itscustomers a reliable source of supply. The Company’s inventory turnover averagesover 175 days, although in many cases the Company would anticipate holding 90to 100 days of inventory in the normal course of operations. This level ofinventory is higher than some of the Company’s competitors due to the fact thatit sells a number of products representing older, or trailing edge, technologythat may not be available from other sources. The market for these trailingedge technology products is declining and, as manufacturers for these productsdiscontinue production or exit the business, the Company may make last timebuys. In the monitor operations of the Company’s business, the market for itsproducts is characterized by fairly rapid change as a result of the developmentof new technologies, particularly in the flat panel display area. If theCompany fails to anticipate the changing needs of its customers and accuratelyforecast their requirements, it may accumulate inventories of products whichits customers no longer need and which the Company will be unable to sell orreturn to its vendors. Because of this, the Company’s management monitors theadequacy of its inventory reserves regularly, and at May 31, 2006,believes its reserves to be adequate.

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***Interest rate exposure*** — The Company had outstanding bank debt inexcess of $24.0 million as of May 31, 2006, all of which is subject tointerest rate fluctuations by the Company’s lenders. Higher rates applied bythe Federal Reserve Board over the past four fiscal quarters and potentialcontinued rate hikes have negatively affected the Company’s earnings and willcontinue to negatively impact the Company’s earnings. It is the intent of theCompany to continually monitor interest rates and consider converting portionsof the Company’s debt from floating rates to fixed rates should conditions befavorable for such interest rate swaps or hedges.

**Resultsof Operations**

Thefollowing table sets forth, for the three months ended May 31, 2006 and2005, the percentages which selected items in the Statements of Operations bearto total sales:

 

|                                       | ** ** | **Three Months  Ended May 31,** | ** ** |
|---------------------------------------|------------|------------------------------------------------|------------|
| ** **                            | ** ** | **2006**                                       | ** ** | **2005** | ** ** |
| Sales                                 |       |                                           |       |   |   |
| Display Segment                       |       |                                           |       |   |   |
| Monitors                              | ** ** | **56.8**                                       | %          | 56.8 | % |
| Data Display CRTs                     | ** ** | **13.6**                                       |       | 14.4 |   |
| Entertainment CRTs                    | ** ** | **4.0**                                        |       | 5.2 |   |
| Electron Guns and Components          | ** ** | **0.8**                                        |       | 0.8 |   |
| Total Display Segment                 | ** ** | **75.2**                                       | %          | 77.2 | % |
| Wholesale Distribution Segment        | ** ** | **24.8**                                       |       | 22.8 |   |
|                                  | ** ** | **100.0**                                      | %          | 100.0 | % |
| Costs and  expenses                   |       |                                           |       |   |   |
| Cost of goods sold                    | ** ** | **70.1**                                       | %          | 68.0 | % |
| Selling and delivery                  | ** ** | **10.3**                                       |       | 8.4 |   |
| General and administrative            | ** ** | **19.1**                                       |       | 17.5 |   |
|                                  | ** ** | **99.5**                                       | %          | 93.9 | % |
|                                  |       |                                           |       |   |   |
| Income from  Operations               | ** ** | **0.5**                                        | %          | 6.1 | % |
|                                  |       |                                           |       |   |   |
| Interest expense                      | ** ** | **(2.7**                                       | **)**%     | (1.6 | )% |
| Other income,  net                    | ** ** | **0.2**                                        |       | 0.3 |   |
| Income (loss)  before income taxes    | ** ** | **(2.0**                                       | **)**%     | 4.8 | % |
| Benefit  (Provision) for income taxes | ** ** | **0.7**                                        |       | (1.8 | ) |
| Net Income (loss)                     | ** ** | **1.3**                                        | %          | 3.0 | % |

 

Net sales

Consolidated net sales decreased $1.8 million forthe three months ended May 31, 2006 compared to the three months ended May 31,2005. Display segment sales decreased $1.8 million for the three-monthcomparative period and sales within the Wholesale Distribution segment were flatfor the three-month comparative period.

The net decrease in Display Segment sales for thethree months ended May 31, 2006 is primarily attributed to declines inMonitor and Data Display CRT revenues, as compared to the same period ended May 31,2005. The Monitor revenues declined $1.1 million over the three-month periodprimarily due to the fulfillment of a military contract for replacement CRTsearly in fiscal 2006, which has not been renewed. The Data Display CRT revenuesdeclined $0.4 million over the three-month period primarily due to reducedshipments of lower priced replacement CRTs compared to 

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the prior year period. Entertainment CRTs revenues declined $0.3million over the comparable three-month period. A significant portion of theentertainment division’s sales are to major television retailers asreplacements for products sold under manufacturer and extended warranties. Dueto continued lower retail sales prices for mid-size television sets (25” to 30”),fewer extended warranties were sold by retailers, a trend consistent withrecent prior fiscal years. The Company remains the primary supplier of productto meet manufacturers’ standard warranties. Growth in this division will benegatively impacted by the decreasing number of extended warranties sold forthe larger, more expensive sets. Because the Company is in thereplacement market, it has the ability to track retail sales trends and,accordingly, can attempt to adjust quantities of certain size CRTs carried instock and reduce exposure to obsolescence.

Electron Gun and Components revenues remained flatover the comparable three-month period. Electron Gun and Componentsrevenues have generally declined in recent years due to weaker demand forelectron gun and stem sales. Electron gun sales have historically beendependent upon the demand by domestic and foreign television CRTremanufacturers. These sales have declined over the past few years as consumersmove towards purchasing new technology as opposed to repairing existing sets.

###### Wholesale Distribution segment net sales wereflat for the three-month period ended May 31, 2006 compared to the sameperiod a year ago. The Wholesale Distribution segment operates a call centerwhich acts as a consumer and dealer support center for both in-warranty andout-of-warranty household products, appliances, parts and accessories for Black &Decker, Delonghi, Norelco, Coby and various other manufacturers. This callcenter also acts as a technical support center for these same manufacturers.

###### Gross margins

Consolidated gross margins decreased from 32.0% forthe three months ended May 31, 2005 to 29.9% for the three months ended May 31,2006.

Display segment margins decreased from 20.1% to18.0% for the comparative three month period. Gross margins within the Monitordivision increased to 15.5% for the three months ended May 31, 2006 from14.5% for the three months ended May 31, 2005. This increase is primarilyattributable to the impact of certain relocation and integration costs inFiscal 2005, partially offset by higher than expected design costs on certainflat panel products during the three months ended May 31, 2006. Datadisplay gross margins decreased from 2.3% for the three months ended May 31,2005 to 0.5% for the three months ended May 31, 2006, due to the impact ofthe reduced sales volume and inventory adjustments during the three monthsended May 31, 2006. Gross margins in home entertainment CRTs decreasedfrom 2.9% for the three months ended May 31, 2005 to 1.9% for the threemonths ended May 31, 2006, due to the impact of the reduced sales volume. Grossmargins from component parts sold also decreased from 0.3% for the three monthsended May 31, 2005 to 0.2% for the three months ended May 31, 2006.

The Wholesale Distribution segment gross marginsremained flat at 11.9% for the three months ended May 31, 2006 as comparedto the three months ended May 31, 2005. Expenses for the call center areclassified as operating expenses.

##### Operatingexpenses

Operating expenses as a percentage of salesincreased from 25.8% for the three months ended May 31, 2005 to 29.4% forthe three months ended May 31, 2006.

Display segment operating expenses decreased $0.2million for the three month period as compared to the comparable prior yearperiod. Management attributes the majority of this decrease to certaincorporate expenses, such as reduced professional fees.

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Wholesale Distribution segment operating expensesincreased $0.4 million compared to the three month period a year ago, primarilydue to additional expenses associated with the call center which was expandedduring the second half of Fiscal 2006. These expenses (primarily payroll andtelephone) are classified in general and administrative expense in theconsolidated financial statements.

###### Interestexpense

Interest expense increased$0.2 million for the three months ended May 31, 2006 as compared to thesame period a year ago. The Company maintains various debt agreements withdifferent interest rates, most of which are based on the prime rate or LIBOR.  These increases in interest expense reflecthigher average borrowings outstanding and higher market interest rates ineffect during the comparable periods.

###### Income taxes

Theeffective tax rate for the three months ended May 31, 2006 and May 31,2005 was (34.7%) and 38.2%, respectively. These rates differ from the Federalstatutory rate primarily due to the effect of state taxes and the permanentnon-deductibility of certain expenses for tax purposes.

##### Foreigncurrency translation

Gainsor losses resulting from the transactions with the Company’s UK subsidiary arereported in current operations while currency translation adjustments arerecognized in a separate component of shareholders’ equity. There were nosignificant gains or losses recognized in either period related to the UKsubsidiary.

**Liquidityand Capital Resources**

Asof May 31, 2006, the Company had total cash of $2.7 million. The Company’sworking capital was $16.5 million and $16.4 million at May 31, 2006 and February 28,2006, respectively. In recent years, the Company has financed its growth andcash needs primarily through income from operations, borrowings under revolvingcredit facilities, advances from the Company’s Chief Executive Officer andlong-term debt. Liquidity provided by operating activities of the Company isreduced by working capital requirements, largely inventories and accountsreceivable, debt service, capital expenditures, product line additions anddividends.

The Company specializes in certain productsrepresenting trailing-edge technology that may not be available from othersources, and may not be currently manufactured. In many instances, the Company’sproducts are components of larger display systems for which immediateavailability is critical for the customer. Accordingly, the Company enjoyshigher gross margins on certain products, but typically has larger investmentsin inventories than those of its competitors.

The Company continues to monitor its cash andfinancing positions, seeking to find ways to lower its interest costs and toproduce positive operating cash flow. The Company examines possibilities togrow its business as opportunities present themselves, such as new salescontracts or niche acquisitions. There could be an impact on working capitalrequirements to fund this growth. As in the past, the intent is to finance suchprojects with operating cash flows or existing bank lines; however, morepermanent sources of capital may be required in certain circumstances.

Cashused in operations for the three months ended May 31, 2006 was $1.8million as compared to cash used of $1.0 million for the three months ended May 31,2005. This net increase in cash used is primarily the result of an increase inaccounts receivable of $0.4 million, an increase in inventory of $0.9 million,and a decrease in accounts payable and accrued expenses of $1.1 million, inaddition to the impact of the reduced net income of the comparable periods. Theincrease in accounts receivable reflects normal variations in the timing ofinvoicing and account collection. The increase in inventory is primarily due toan increase in certain inventory in the Monitor operations, in anticipation ofshipments 

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during the threemonth periods ended August 31, 2006 and November 30, 2006. Thedecrease in account payable and accrued expenses is attributable to normalfluctuations in the timing of purchases and the processing of invoices forpayment.

Investingactivities used cash of $40,000 related to the purchase of various equipmentitems during the three months ended May 31, 2006, compared to cash used of$1.5 million during the three months ended May 31, 2005. This decrease primarily reflects cash ofapproximately $1.4 million used to acquire the IDS division of Three FiveSystems, Inc. in May 2005.

Financingactivities provided cash of $2.8 million for the three months ended May 31,2006, compared to cash provided of $3.8 million for the three months ended May 31,2005, reflecting a $2.1 million net increase in advances under outstandinglines of credit and a $3.8 million repayment of an advance from the Company’sChief Executive Officer at the end of Fiscal 2006.

The Company’s debt agreements with financialinstitutions contain affirmative and negative covenants, including requirementsrelated to tangible net worth and debt service coverage and new loans. Additionally,dividend payments, capital expenditures and acquisitions have certainrestrictions. Substantially all of the Company’s retained earnings arerestricted based upon these covenants.

The Company was not in compliance with theconsolidated Fixed Charge Coverage Ratio and the consolidated Senior FundedDebt to EBITDA ratio covenant under the Line of Credit agreements at May 31,2006. To provide additional flexibility in funding for working capitalrequirements, and to cure the covenant violations existing under these lines,on June 29, 2006 the Company executed a new Loan and Security Agreementwith a syndicate of two banks as discussed in this Item 2 under the captionSubsequent Events.

TheCompany has a stock repurchase program, pursuant to which it was originallyauthorized to repurchase up to 462,500 shares of the Company’s common stock inthe open market. On January 11,2006, the Board of Directors of the Company approved a continuation of thestock repurchase program, and authorized the Company to repurchase up to600,000 additional shares of the Company’s common stock, depending on themarket price of the shares. There is no minimum number of shares required to berepurchased under the program. Under this program, an additional 658,618 sharesremain authorized to be repurchased by the Company at May 31, 2006. Asdiscussed in this Item 2 under the caption Subsequent Events, the Loan andSecurity Agreement executed by Company on June, 29, 2006 includes restrictionson investments which currently restrict further repurchases of stock under thisprogram.

##### **Critical Accounting Policies**

Management’s Discussionand Analysis of Financial Condition and Results of Operations are based uponthe Company’s consolidated financial statements. These financial statementshave been prepared in accordance with accounting principles generally acceptedin the United States of America. These principles require the use of estimatesand assumptions that affect amounts reported and disclosed in the financialstatements and related notes. The accounting policies that may involve a higherdegree of judgments, estimates, and complexity include reserves on inventories,revenue recognition, the allowance for bad debts and warranty reserves. TheCompany uses the following methods and assumptions in determining itsestimates:

*Reserveson inventories*

Reserves on inventoriesresult in a charge to operations when the estimated net realizable valuedeclines below cost. Management regularly reviews the Company’s investment ininventories for declines in value and establishes reserves when it is apparentthat the expected net realizable value of the inventory falls below itscarrying amount. Management considers the projected demand for CRTs in thisestimate of net realizable value. Management is able to 

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identify consumer buying trends, such as size andapplication, well in advance of supplying replacement CRTs. Thus, the Companyis 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’sreplacement market develops. Management reviews inventory levels on a quarterlybasis. Such reviews include observations of product development trends of theOEMs, new products being marketed, and technological advances relative to theproduct capabilities of the Company’s existing inventories. There have been nosignificant changes in management’s estimates in fiscal 2006 and 2005; however,the Company cannot guarantee the accuracy of future forecasts since theseestimates are subject to change based on market conditions.

*RevenueRecognition*

Revenue is recognized onthe sale of products when the products are shipped, all significant contractualobligations have been satisfied, and the collection of the resulting receivableis reasonably assured. The Company’s delivery term typically is F.O.B. shippingpoint.

In accordance withEmerging Issues Task Force (EITF) issue 00-10, shipping and handling feesbilled to customers are classified in net sales in the consolidated statementsof operations. Shipping and handling costs incurred are classified in sellingand delivery in the consolidated statements of operations.

A portion of the Company’srevenue is derived from contracts to manufacture CRTs to a buyers’specification. These contracts are accounted for under the provisions of theAmerican Institute of Certified Public Accountants’ Statement of Position No. 81-1,“Accounting for Performance of Construction-Type and Certain Production-TypeContracts”. These contracts are fixed-price and cost-plus contracts and arerecorded on the percentage of completion basis using the ratio of costsincurred to estimated total costs at completion as the measurement basis forprogress toward completion and revenue recognition. Any losses identified oncontracts are recognized immediately. Contract accounting requires significantjudgment relative to assessing risks, estimating contract costs and makingrelated assumptions for schedule and technical issues. With respect to contractchange orders, claims or similar items, judgment must be used in estimatingrelated amounts and assessing the potential for realization. These amounts areonly included in contract value when they can be reliably estimated and realizationis probable.

The WholesaleDistribution segment has several distribution agreements that it accounts forusing the gross revenue basis as prescribed by EITF issue 99-19. TheCompany uses the gross method because the Company has general inventory risk,physical loss inventory risk and credit risk. The call center service revenueis recognized based on written pricing agreements with each manufacturer, on aper call, per email or per standard mail basis.

*Allowance for bad debts*

The allowance for bad debtsis determined by reviewing all accounts receivable and applying historicalcredit loss experience to the current receivable portfolio with considerationgiven to the current condition of the economy, assessment of the financialposition of the creditors as well as past payment history and overall trends inpast due accounts compared to established thresholds. The Company monitorscredit exposure and assesses the adequacy of the allowance for bad debts on aregular basis. Historically, the Company’s allowance has been sufficient forany customer write-offs. Although the Company cannot guarantee future results,management believes its policies and procedures relating to customer exposureare adequate.

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###### *Warrantyreserves*

The warranty reserve isdetermined by recording a specific reserve for known warranty issues and ageneral reserve based on historical claims experience. The Company considersactual warranty claims compared to net sales, then adjusts its reserveliability accordingly. Actual claims incurred could differ from the originalestimates, requiring adjustments to the reserve. Management believes thathistorically its procedures have been adequate and does not anticipate that itsassumptions are reasonably likely to change in the future.

###### *Other AccountingPolicies*

Other loss contingencies are recorded asliabilities when it is probable that a liability has been incurred and theamount of the loss is reasonably estimable. Disclosure is required when thereis a reasonable possibility that the ultimate loss will exceed the recordedprovision. Contingent liabilities are often resolved over long time periods. Estimatingprobable losses requires analysis of multiple factors that often depend onjudgments about potential actions by third parties.

**Forward-LookingInformation and Risk Factors**

Thisreport contains forward-looking statements and information that is based onmanagement’s beliefs, as well as assumptions made by, and information currentlyavailable to management. When used in this document, the words “anticipate,” “believe,”“estimate,” “intends,” “will,” and “expect” and similar expressions areintended to identify forward-looking statements. Such statements involve anumber of risks and uncertainties. These risks and uncertainties, which areincluded under Part I, Item 1A. Risk Factors in the Company’s AnnualReport of Form 10-K for the year ended February 28, 2006 couldcause actual results to differ materially.

**SubsequentEvents**

On June 15, 2006, the Company announced thatits Board of Directors had approved the sale of a majority of the net assets ofthe Wintron Technology division, primarily accounts receivable, inventory andproperty, plant and equipment, through a leveraged management buyout. Thepurchase agreement is being drafted for the sale which will become effective June 1,2006, based on the closing net book value of net assets sold as of May 31,2006. Total proceeds from the sale are expected to be approximately $380,000,and the sale at net book value will not generate a gain or loss. Net sales fromthe Wintron facility for the three months ended May 31, 2006 were$126,000, producing a loss before income taxes of $74,000. Fiscal 2006 netsales and loss before income taxes were $500,000 and $649,000, respectively.

OnJune 22, 2006, the Company announced an agreement in principle to acquirethe business and assets of EDL Displays, Inc. (“EDL”) located in DaytonOhio. The total purchase price of the assets acquired, including accountsreceivable, inventory, equipment and certain intellectual property isanticipated to be approximately $1.2 million, including the assumption ofapproximately $0.7 million in bank loans. Upon close of the acquisition, theEDL business will be relocated and merged into the Company’s Aydin Displaysoperation. The purchase agreement is in final drafting, and completion of thetransaction is scheduled to occur before the close of the Company’s secondfiscal quarter.

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OnJune 29, 2006, Video Display Corporation and Subsidiaries executed a Loanand Security Agreement with a syndicate including RBC Centura Bank and RegionsBank to provide a $17 million line of credit to the Company and a $3.5 millionline of credit to the Company’s subsidiary Fox International, Inc., bothwith a maturity of 24 months. These new lines of credit replace two lines ofcredit outstanding with Bank of America, which were terminated in conjunctionwith this agreement. In addition, the agreement provides for an equipment termloan of $3.0 million with payments amortized over 60 months. These loans aresecured by all assets and personal property of the Company. The agreementcontains covenants, including requirements related to tangible cash flow, ratioof debt to cash flow and assets coverage. The agreement also includesrestrictions on the incurrence of additional debt or liens, investments,divestitures and certain other changes in the business. The interest rate onthese loans is a floating LIBOR rate based on a fixed charge coverage ratio, asdefined in the loan documents.

Alsoin conjunction with this agreement, the CEO of the Company provided a $6.0million subordinated term note with an amortization of 15 years, and a maturityof 60 months. The interest rate on this note is equal to the prime rate plusone percent. The remaining balance of $3.0 million on the note provided to theCompany by the CEO on February 27, 2006 was repaid effective with theissue of the new note.

 

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**ITEM 3.**                    QUANTITATIVEAND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

TheCompany’s primary market risks include fluctuations in interest rates andvariability in interest rate spread relationships, such as prime to LIBORspreads. Approximately $24.5 million of outstanding debt at May 31, 2006related to long-term indebtedness under variable rate debt. Interest on theoutstanding balance of this debt will be charged based on a variable raterelated to the prime rate or the LIBOR rate. Both rate bases are incrementedfor margins specified in their agreements. Thus, the Company’s interest rate issubject to market risk in the form of fluctuations in interest rates. Theeffect of a hypothetical one percentage point increase across all maturities ofvariable rate debt would result in a decrease of approximately $0.3 million inpre-tax net income assuming no further changes in the amount of borrowingssubject to variable rate interest from amounts outstanding at May 31,2006. The Company does not trade in derivative financial instruments.

The Company has a subsidiary in the U.K., which is notmaterial, but uses the British pound as its functional currency. Due to itslimited operations outside of the U.S., the Company’s exposure to changes inforeign currency exchange rates between the U.S. dollar and foreign currenciesor to weakening economic conditions in foreign markets is not expected tosignificantly impact the Company’s financial position.

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** **

**ITEM 4.**                    CONTROLS ANDPROCEDURES

Ourdisclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e))are designed to provide reasonable assurance that information required to bedisclosed in our reports filed or submitted under the Securities Exchange Actof 1934, such as this quarterly report on Form 10-Q, is recorded,processed, summarized and reported within the time periods specified in the SECrules and forms. Our disclosure controls and procedures are also designedto ensure that such information is accumulated and communicated to ourmanagement, including our chief executive officer and chief financial officer,to allow timely decisions regarding required disclosure.

Our chief executive officer and chief financialofficer have conducted an evaluation of the effectiveness of our disclosurecontrols and procedures as of May 31, 2006. We perform this evaluation ona quarterly basis so that the conclusions concerning the effectiveness of ourdisclosure controls and procedures can be reported in our annual report on Form 10-Kand quarterly reports on Form 10-Q. Based on this evaluation, ourchief executive officer and chief financial officer have concluded that ourdisclosure controls and procedures were effective as of May 31, 2006.

**Changesin Internal Controls**

During the three months ended May 31, 2006, theCompany initiated changes in its internal control over financial reporting toaddress material weaknesses discussed in the 2006 Annual Report on Form 10-K.Subsequent to the end of the fiscal year, the Company hired replacementfinancial reporting personnel with the requisite skills, who are being trainedin the Company’s reporting procedures and controls. The monthly, quarterly andannual closing processes are being documented and the participating members ofthe financial staff are being cross-trained on upgraded procedures. Managementbelieves that these training procedures and the replacement of financialreporting personnel will ensure that the disclosed material weaknesses will nothave a material effect on financial reporting in current and future periods.

There have not been any other changes in the ourinternal controls over financial reporting (as such term is defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act) during the fiscal quarter to whichthis report relates that have materially affected, or are reasonably likely tomaterially affect, our internal controls over financial reporting.

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** **

**PART II**
| Item 1.  | Legal Proceedings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|     | No new material legal proceedings or material  changes in existing litigation occurred during the quarter ended May 31,  2006.                                                                                                                                                                                                                                                                                                                                                                                                                       |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Item 1A. | Risk Factors                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|     | Information regarding risk factors appears under the  caption Forward-Looking Statements and Risk Factors in Part I, Item 2 of  this Form 10-Q and in Part I, Item 1A of our Annual Report on  Form 10-K for the fiscal year ended February 28, 2006. There  have been no material changes from the risk factors previously disclosed in  our Annual Report on Form 10-K.                                                                                                                                                   |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Item 2.  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|     | None.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Item 3.  | Defaults upon Senior Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|     | The Company was not in compliance with the  consolidated Fixed Charge Coverage Ratio and the consolidated Senior Funded  Debt to EBITDA ratio covenant under the Line of Credit agreements at May 31,  2006. To provide additional flexibility in funding for working capital  requirements, and to cure the covenant violations existing under these lines,  on June 29, 2006 the Company executed a new Loan and Security Agreement  with a syndicate of two banks as discussed in Part II, Item 2 under the  caption Subsequent Events. |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Item 4.  | Submission of Matters to a Vote of Security Holders                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|     | None.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

 

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| Item 5. | Other information |
|---------|-------------------|
|    |              |
|    | None.             |
|    |              |
| Item 6. | Exhibits          |

 
| Exhibit  Number  | ** ** | **Exhibit Description**                                                                                                                                                                                                                                                                                                                                       |
|------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |       |                                                                                                                                                                                                                                                                                                                                                               |
|   3(a) |       | Articles of Incorporation of the Company  (incorporated by reference to Exhibit 3A to the Company’s Registration  Statement on Form S-18 filed January 15, 1985).                                                                                                                                                                              |
|   3(b) |       | By-Laws of the Company (incorporated by reference to  Exhibit 3B to the Company’s Registration Statement on Form S-18  filed January 15, 1985).                                                                                                                                                                                                |
| 10(d)            |       | $27,500,000 promissory note dated November 10,  2004 between the Company and Bank of America (holder) (incorporated by  reference to Exhibit 10(d) to the Company’s 2005 Annual Report on  Form 10-K).                                                                                                                                    |
| 10(e)            |       | $6,800,000 term note dated February 27, 2006  between the Company and Ronald D. Ordway (holder) (incorporated by reference  to Exhibit 10(e) to the Company’s 2006 Annual Report on  Form 10-K) .                                                                                                                                         |
| 10(h)            |       | Loan and Security Agreement and related documents,  dated June 14, 2006, among Video Display Corporation and Subsidiaries  and RBC Centura Bank and Regions Bank as lenders and RBC Centura Bank as  collateral agent (incorporated by reference to Exhibit 10(h) to the  Company’s Current Report on Form 8-K dated June 29, 2006). |
| 10(i)            |       | $6,000,000 Subordinated Note, dated June 29,  2006, between Video Display Corporation and Ronald D. Ordway (holder)  (incorporated by reference to Exhibit 10(i) to the Company’s  Current Report on Form 8-K dated June 29, 2006).                                                                                                  |
| 31.1             |       | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                     |
| 31.2             |       | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                     |
| 32.1             |       | Certification pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                     |

 

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SIGNATURES

Pursuant to therequirements of the Securities and Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
|                     |   |                      |
|---------------------|--------|---------------------------|
|                |   | VIDEO DISPLAY CORPORATION |
|                |   |                      |
| July 14,  2006 | By:    | /s/ Ronald D. Ordway      |
|                |   | Ronald D. Ordway          |
|                |   | Chief Executive Officer   |
|                |   |                      |
|                |   |                      |
| July 14,  2006 | By:    | /s/ Michael D. Boyd       |
|                |   | Michael D. Boyd           |
|                |   | Chief Financial Officer   |

 

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