Use these links to rapidly review the documentVideo Display Corporation and Subsidiaries Index to Consolidated Financial Statements Video Display Corporation and Subsidiaries Index to Consolidated Financial Statements Schedule PART IV TABLE OF CONTENTS



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D. C. 20549

FORM 10-K

|ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|------------------------------------------------------------------------------------
|For the fiscal year endedFebruary 28, 2005                                          

Commission file number0-13394

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

|Georgia(State or other jurisdiction of incorporation
or organization)                 |  | 58-1217564(I.R.S. Employer Identification No.)
|------------------------------------------------------------------------------------- |  | ----------------------------------------------
|1868 Tucker Industrial Drive, Tucker, Georgia(address of principal executive offices) |  | 30084(Zip Code)                               

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

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

|Title of each class        |  | Name of each exchange
on which registered
|-------------------------- |  | -----------------------------------------
|Common Stock, no par value |  | NASDAQ/NMS                               

Securities
Registered Pursuant to Section 12(g) of the Act:Common stock (no par value)

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

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2) Yes o    No ý

As of August 31, 2004, the aggregate market value of the voting and non-voting common equity held by non-affiliates based upon the
closing sales price for the Registrant's common stock as reported in the NASDAQ National Market System was $73,753,948.

The
number of shares outstanding of the registrant's Common Stock as of May 31, 2005 was 9,707,000.

DOCUMENTS INCORPORATED BY REFERENCE

The following documents (or parts thereof) are incorporated by reference into the following parts of this Form 10-K:

Portions
of the Definitive Proxy statement related to the 2005 Annual Meeting of Stockholders in Part III.



---





TABLE OF CONTENTS



|ITEM
NUMBER |  |                                                                                                                 |  | PAGE
NUMBER
|----------- |  | --------------------------------------------------------------------------------------------------------------- |  | -----------
|PART I     
|Item 1.     |  | Business                                                                                                        |  | 1          
|Item 2.     |  | Properties                                                                                                      |  | 7          
|Item 3.     |  | Legal Proceedings                                                                                               |  | 8          
|Item 4.     |  | Submission of Matters to a Vote of Security Holders                                                             |  | 8          
|PART II    
|Item 5.     |  | Market for the Registrant's Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 9          
|Item 6.     |  | Selected Financial Data                                                                                         |  | 10         
|Item 7.     |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                           |  | 11         
|Item 7A.    |  | Quantitative and Qualitative Disclosures About Market Risk                                                      |  | 23         
|Item 8.     |  | Financial Statements and Supplementary Data                                                                     |  | 24         
|Item 9.     |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                            |  | 24         
|Item 9A.    |  | Controls and Procedures                                                                                         |  | 24         
|Item 9B.    |  | Other Information                                                                                               |  | 25         
|PART III   
|Item 10.    |  | Directors and Executive Officers of the Registrant                                                              |  | 26         
|Item 11.    |  | Executive Compensation                                                                                          |  | 26         
|Item 12.    |  | Security Ownership of Certain Beneficial Owners and Management                                                  |  | 26         
|Item 13.    |  | Certain Relationships and Related Transactions                                                                  |  | 26         
|Item 14.    |  | Principal Accountant Fees and Services                                                                          |  | 26         
|PART IV    
|Item 15.    |  | Exhibits and Financial Statement Schedules                                                                      |  | 27         
|SIGNATURES  |  | 28                                                                                                             

i

---





PART I

ITEM 1. BUSINESS

General

Video Display Corporation (the "Company") is a leading designer, manufacturer and supplier of a wide range of display devices and component parts for military,
medical, industrial and consumer display applications. The Company's product line encompasses both cathode ray tube displays and flat panel displays with major emphasis on high-end niche
market displays for specialty applications. The Company also acts as a facilitator and wholesale distributor of parts and accessories for various original equipment manufacturers ("OEMs") of consumer
products. In addition, in fiscal 2005, the Company added a call center which acts as a consumer and dealer support center for in-warranty and out-of-warranty
household products, appliances, parts and accessories for various electronics manufacturers. This call center also acts as a technical support center for the same manufacturers. The Company markets
its products worldwide primarily from facilities located in the United States and one subsidiary operation in the United Kingdom.

Description of Principal Business

The Company generates revenues from four related display oriented businesses (78% of consolidated sales in fiscal 2005) as well as distribution of parts and
accessories for consumer products (22% of consolidated sales in fiscal 2005). Virtually all of the Company's earnings were derived from the display
segment of the business in fiscal 2005. Revenues, by category, from the display segment for fiscal 2005 were as follows:



(See
also Note 15 to Consolidated Financial Statements. Segment Information)

Manufacturing
and distribution facilities are located in Georgia, Florida, Louisiana, Pennsylvania, New York, Kentucky and Lye, U.K., in addition to several sales and service locations
worldwide.

The
consumer parts and accessories distribution business is operated under the Fox International name, headquartered in Bedford Heights, Ohio with one additional distribution center in
Richardson, Texas.

The
Company continues to explore opportunities to expand its product offerings in the display industry. This expansion will be achieved by adding new products or by acquiring existing
companies that would enhance the Company's position in the display industry. Management continually evaluates product trends in the industry and divisions in which the Company operates. Overall trends
are discussed herein under "Flat Panel and Other Technology". Research and development prior to 2003 consisted primarily of establishing the interchangeability of products from various manufacturers
and, when advantageous, manufacturing products to replace original electronic parts. Subsequent to that period, the Company has expended significant research and development funds (approximately
$652,000 in fiscal 2005) in both high resolution projection displays and AMLCD technologies.

Segment Information

This information is provided in Note 15 to the Consolidated Financial Statements.

1

---



Principal Products

Monitor Displays

The Company's monitor operations are conducted at Phelps, New York (Z-Axis); Birdsboro, Pennsylvania (Teltron and Aydin); Cape Canaveral, Florida
(Display Systems); and Lexington, Kentucky (Lexel).

This
portion of the Company's operations involves the design, engineer and manufacture of complete monochrome and color monitor and projector display units using new CRTs or flat panel
displays. The Company will customize these units for specific applications, including ruggedization for military uses or size reduction due to space limitations in industrial and medical applications.
Because of the Company's flexible and cost efficient manufacturing, it is able to handle low volume orders that generate higher margins. In its efforts to solidify its position in the display
industry, while reducing its dependence on CRT replacement markets, the Company has developed this high end display during the past five years from a zero revenue base to represent approximately 61.4%
of fiscal 2005 consolidated net revenues.

This
portion of the Company's operations targets niche markets where competition from major multinational electronics companies tends not to be a significant factor. The prime customers
for this product include defense, security, training and simulation areas of the U.S. and foreign militaries as well as the major defense contractors such as the Boeing Co., L-3
Communications, Lockheed Martin and others. These defense contractors utilize the Company's products for ruggedized mission critical applications such as shipboard and nuclear submarines. Flight
simulator displays are also produced to provide a full range of flight training simulations for military applications. The acquisition of Evans & Sutherland, Inc. in the third quarter of
fiscal 2005 allowed the Company to expand into the commercial flight training simulation market, as well. The primary components for the ruggedized product line consist of CRT and flat panel displays,
circuit boards and machine parts.

Although
most monitors are customized to meet a customer's specifications, all monitors sold include the following general components: CRT or flat panel displays, circuit boards, and
machine parts. Most of the Company's monitors are then ruggedized, which allows them to better withstand adverse conditions, such as extreme temperature, depth, altitude and vibration.

Cathode Ray Tubes ("CRTs")

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

The
Company's CRT manufacturing operations of new and recycled CRTs are conducted at facilities located in White Mills, Pennsylvania (Chroma); Bossier City, Louisiana (Novatron);
Lexington, Kentucky (Lexel); and Birdsboro, Pennsylvania (Teltron). With the closure of the Mexico manufacturing facility in fiscal 2003, the Tucker, Georgia location now acts as the Company's sole
distribution point of data display CRTs purchased from outside sources. The Lye, U.K. location is a sales and distribution facility for the Tucker, GA products.

The
Company maintains the capability of manufacturing a full range of monochrome CRTs as well as remanufacturing color CRTs from recycled glass. Its Teltron and Lexel operations
additionally manufacture a wide range of radar, infrared, camera and direct-view storage tubes for military and security applications. All CRTs manufactured by the Company are tested for
quality in accordance with standards approved by UL.

2

---



The
Company also distributes new CRTs and other electronic tubes purchased from original manufacturers, both domestic and international. The Company forecasts its inventory requirements
for six months to one year. Occasionally, manufacturers offer large quantities of overstocked original manufactured tubes at significant price reductions. The Company acquires these tubes when the
existing replacement market appears to demonstrate adequate future demand and the purchase price allows a reasonable profit for the risk. Due to the extended time frame for the replacement market to
develop (five to seven years), these purchased inventories sometimes do not turn as quickly as other inventories. Bulk CRT purchases have declined over the past few years as the Company is managing
current inventory levels against the anticipated reduction in future CRT demand due to the growth of flat panel technology.

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

In
addition to factors affecting the overall market for such products, the Company's sales volume in the CRT replacement markets is dependent upon the Company's ability to provide prompt
response to customers' orders, while maintaining quality control and competitive pricing. The Company's manufacturing activities are scheduled primarily around orders received.

Electron Guns and Components

The Company, through its Tucker, GA based electron gun manufacturing subsidiary, Southwest Vacuum, manufactures electron gun assemblies comprised of small metal,
glass and ceramic parts. The assembly process is highly labor intensive. While the particular electron guns being sold are of the Company's own design, most are replacements for electron guns
previously designed for original equipment CRTs used in television sets and computer monitors. Raw materials consist of glass and metal stamped parts.

Although
Southwest Vacuum markets its products to independent customers, the majority of electron guns produced by the Company are consumed internally among the Company's own CRT
manufacturing facilities. Sales to these related divisions, which have been eliminated in the consolidated financial statements, amounted to approximately $297,000, $835,000 and $910,000 for fiscal
2005, 2004 and 2003, respectively.

The
remaining operation in the component division, Wintron, located in Howard, Pennsylvania, produces flyback transformers, coils and power transformers. Intercompany sales transactions
were $287,000, $105,000 and $221,000 for fiscal 2005, 2004 and 2004, respectively.

Flat Panel and Other Technology

The Company anticipates that AMLCD and Plasma Display products, due to their lower space and power requirements, will eventually become the display of choice in
many display applications. The significance of this continuing trend has had an effect on the Display divisions of the Company. In anticipation of long-term trends toward flat panel
display usage, the Company has focused its efforts as well as its acquisition strategy toward flat panel technologies for niche market applications in the medical, simulation, training and military
markets. Other types of technology, including HDTV, have not had a significant impact on the Company's business. HDTV utilizes both CRT and flat panel technology and, therefore, has potential positive
effects on the Company due to higher margin CRT replacements. There may be long-term negative effects should the HDTV market move toward greater flat panel utilization, but HDTV is
expected to have a positive impact on the Company's CRT business in the near term, although there can be no assurance that this will be the case. The Company will

3

---



continue
to monitor these trends and make adjustments to its CRT inventory levels and operating facilities to reflect changes in demand.

Electronic Parts

Fox International distributes consumer electronic parts of most major consumer electronics manufacturers, both foreign and domestic. This subsidiary resells these
products to major electronic distributors, retail electronic repair facilities, third-party contractual repair shops, and directly to consumers. In its relationship with consumer electronic
manufacturers, Fox International receives the right, often exclusively, to ship parts to authorized dealers. Many of the manufacturers also direct inquiries for replacement parts to Fox International.
Manufacturers require a distributor to stock their most popular parts and monitor the order fill ratio to ensure that their customers have access to sufficient replacement parts. Fox International
attempts to maintain high fill ratios in order to secure favored distributor status from the manufacturers, requiring a significant investment in inventories. Fox International added a call center
that was fully operational in the fourth quarter of fiscal 2005. This call center is a consumer and dealer support center for both in-warranty and out-of-warranty
household products, appliances, parts and electronics for Black & Decker, Delonghi, Norelco, Coby, and numerous other manufacturers. This call center also performs as a technical support center
for the same manufacturers.

Patents and Trademarks

The Company is currently in the process of applying for several patents on newly developed products and technology and holds patents with respect to certain
products and services. The Company also sells products under various trademarks and tradenames. Additionally, the Company licenses certain electronic technology to other manufacturing companies, which
generated royalty revenues of approximately $92,000, $114,000 and $63,000 in fiscal 2005, 2004 and 2003, respectively. Although the Company believes that its patents and trademarks owned are of value,
the Company believes that success in its industry primarily will be dependent upon incorporating emerging technology into new product line introductions, frequent product enhancements, and customer
support and service. However, the Company intends to protect its rights when, in its view, these rights are infringed upon. The Company's key patents expire in 2014. The Company had several patents
that had no significant value that were allowed to expire in 2004.

Seasonal Variations in Business

Historically, there has not been seasonal variability in the Company's Display segment.

Working Capital Practices

The Company has a $27,500,000 line of credit with Bank of America, as well as a $2,750,000 secondary line of credit with Fifth Third Bank for Fox International,
which has been replaced subsequent to year end by a new $3,500,000 revolver, also with Bank of America. These lines are used primarily for the purchases of inventory as well as payments of accounts
payable.

Concentration of Customers

The Company sells to a variety of domestic and international customers on an open-unsecured account basis. These customers principally operate in the
medical, military, television and avionics industries. The Company's Display segment had direct and indirect net sales to the U.S. government, primarily the Department of Defense for training and
simulation programs, that comprised approximately 37%, 21% and 25% of Display segment net sales and 29%, 16% and 20% of consolidated net sales in fiscal 2005, 2004 and 2003, respectively. Sales to
foreign customers were 11%,

4

---



14%
and 14% of consolidated net sales for fiscal 2005, 2004 and 2003, respectively. The Company's wholesale electronic parts distributor, Fox International, had net sales to one customer, National
Parts, Inc., that comprised approximately 24%, 19% and 18% of that subsidiary's net sales in fiscal 2005, 2004 and 2003, respectively. The Company attempts to minimize credit risk by reviewing
all customers' credit history before extending credit, and by monitoring customers' credit exposure on a daily basis. The Company establishes an allowance for doubtful accounts receivable based upon
factors surrounding the credit risk of specific customers, historical trends and other information.

Backlog

The Company's backlog is comprised of undelivered, firm customer orders, which are scheduled to ship within eighteen months. The Company's backlog was
approximately $29,901,000 at February 28, 2005 and $23,206,000 at February 29, 2004. The Company's Lexel division comprised $9,291,000 or 31% and $9,203,000 or 40% of the 2005 and 2004
backlog, respectively. It is anticipated that more than 95% of the February 28, 2005 backlog will ship during fiscal 2006.

Government Contracts

The Company, primarily through its Aydin, Teltron, Lexel, XKD and Display Systems subsidiaries, had contracts with the U.S. government (principally the Department
of Defense and Department of Defense subcontractors) which generated revenues of approximately $23,761,000, $16,975,000 and $15,083,000 for the fiscal years ended 2005, 2004 and 2003, respectively.
The Company's costs and earnings in excess of billings on these contracts were approximately $284,000 at February 28, 2005 and $411,000 at February 29, 2004. The Company had no billings
in excess of costs and earnings on these contracts at February 28, 2005 and February 29, 2004. These contracts are typically less than twelve months in duration and specify a set number
of units to be shipped based on a set delivery schedule.
Most of these government contracts are on a per unit basis. These contracts are subject to government audit to ensure conformity with design specifications.

Environmental Matters

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

Research and Development

The objectives of the Company's research and development activities are to increase efficiency and quality in its manufacturing and assembly operations and to
enhance its existing product line by developing alternative product applications to existing cathode ray and electron optic technology. The Company continues its research and development in advanced
infrared imaging ("IR") for commercial and military applications. The Company has funded additional IR research in partnership with the University of Rhode Island. Potential future markets for IR
include military and security surveillance, target acquisition, fire fighting, and industrial and medical thermography. Although during fiscal 2005 the Company has incurred increasingly higher costs
for basic research or new product development (increasing by nearly $500,000 over fiscal 2004), it has not segregated these costs as a separate item but has included such costs in the consolidated
financial statements as a part of general and administrative costs. Research and development costs amounted to approximately $652,000, $162,000 and $285,000 in fiscal 2005, 2004 and 2003,
respectively.

5

---



Employees

As of February 28, 2005, the Company employed a total of 473 persons on a full time basis. Of these, 134 were employed in executive, administrative, and
clerical positions, 100 were employed in sales and distribution, and 239 were employed in manufacturing operations. A union represents 2 employees at the Wintron location in Howard, Pennsylvania. The
Company believes its employee relations to be satisfactory.

Competition

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

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

The
Company believes it has a competitive advantage and is a sole source in providing many of its CRTs to the customer base of its Teltron and Lexel subsidiaries as these operations have
been providing reliable products and services to these customers for more than 30 years. Lexel manufactures a broad range of CRT and DVST solutions used in military, industrial and commercial
applications, including Avionics, Projection, Medical and general purpose displays. Teltron offers a wide range of high performance imaging devices and high resolution CRTs for medical,
X-ray, infrared, military and aerospace applications.

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

With
the operations of Lexel, Display Systems and XKD Corp., the Company has become one of the leading suppliers within the specialty display markets, especially in the military and
medical imaging industries.

The
Company utilizes flat panel displays in many of its monitor units. These flat panels are purchased from OEMs. The revenue generated in fiscal 2005 from products utilizing flat
panel technology was $8,910,000 as compared to $6,329,000 a year ago. Being in the replacement market, the Company has the opportunity to see trends in OEM sales, and while the growth in flat panel
products is outpacing growth in CRT products, on a percentage basis, the CRT market remains more dominant. Because of this, the Company still considers the replacement CRT market to be a viable market
for its products. As trends continue to define themselves, and replacement of these products occur in five to seven years, the Company foresees a bigger impact and utilization of flat panel products
in its business.

6

---



There
is competition in the area of flat panel technology and the Company will rely on its ability to adapt and incorporate designs into its future products so that it may compete in a profitable
nature. The flat panel market is made up of many competitors of various sizes, none holding a dominant position in the flat panel marketplace.

The
Company's competition in the consumer electronics parts segment comes primarily from other parts distributors. Many of these distributors are smaller than Fox International but a few
are of equal or greater revenue size. Prices for major manufacturers' products can be directly affected by the manufacturers' suggested resale price. The Company believes that its service to customers
and warehousing and shipping network give it a competitive advantage. Fox International sells a wide variety of electronic parts and accessories, including semiconductors, resistors, audio/video parts
and batteries. In addition, Fox International operates a call center that serves as both a consumer and dealer support center for household products, parts and accessories, as well as serving as a
technical support center for these products.

ITEM 2. PROPERTIES

The Company leases its corporate headquarters at 1868 Tucker Industrial Drive in Tucker, Georgia (within the Atlanta metropolitan area) and its headquarters
occupy approximately 10,000 square feet of the total 59,000 square feet at this location. The remainder is utilized as warehouse and assembly facilities. This location, as well as one other, is leased
from a related party at current market rates. See "Item 13Certain Relationships and Related Transactions". Management believes the facilities to be adequate for its needs. The following
table details manufacturing, warehouse, and administrative facilities:

|Location                                                             |  | Square Feet |  | Lease Expires    
|-------------------------------------------------------------------- |  | ----------- |  | -----------------
|CRT, Monitor and Electron Gun Manufacturing and Warehouse Facilities |  |             |  |                  
|Tucker, Georgia                                                      |  | 59,000      |  | October 31, 2008 
|Stone Mountain, Georgia                                              |  | 45,000      |  | December 31, 2007
|White Mills, Pennsylvania                                            |  | 110,000     |  | Company Owned    
|Bossier City, Louisiana                                              |  | 26,000      |  | Company Owned    
|Lye, England                                                         |  | 4,800       |  | February 28, 2006
|Birdsboro, Pennsylvania                                              |  | 40,000      |  | Company Owned(a) 
|Phelps, New York                                                     |  | 32,000      |  | Company Owned    
|Howard, Pennsylvania                                                 |  | 19,000      |  | Company Owned    
|Cape Canaveral, Florida                                              |  | 30,000      |  | January 16, 2006 
|Lexington, Kentucky                                                  |  | 152,000     |  | March 31, 2010   
|San Jose, California                                                 |  | 10,500      |  | March 31, 2006   
|Wholesale Electronic Parts Distribution                              |  |             |  |                  
|Bedford Heights, Ohio                                                |  | 60,000      |  | Company Owned(b) 
|Richardson, Texas                                                    |  | 13,000      |  | April 30, 2007   
|Buffalo, New York                                                    |  | 30,000      |  | July 31, 2007    

---

7

---





ITEM 3. LEGAL PROCEEDINGS

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

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

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

8

---





PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

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

The
following table shows the range of prices for the Company's common stock as reported (and as adjusted for the stock dividend discussed below) by NASDAQ for each quarterly period
beginning on March 1, 2003. The prices reflect inter-dealer prices, without mark-up, mark-down, or commission, and may not necessarily represent actual transactions.
These prices have been adjusted to reflect the 100% stock dividend paid in November 2004.

|         |  | For Fiscal Years Ended
|-------- |  | ----------------------
|
|
|
|May      |  | $                     
|August   |  |                       
|November |  |                       
|February |  |                       

There
were approximately 2,000 holders of record of the Company's common stock as of May 16, 2005.

The
Company paid a cash dividend of $0.04 per share or $392,000 in December 2004 and $0.025 per share or $245,000 in January 2004. Payment of cash dividends in the future
will be dependent upon the earnings and financial condition of the Company and other factors which the Board of Directors may deem appropriate. The Company is restricted by certain loan agreements
regarding the payout of cash dividends.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides information as of February 28, 2005 regarding compensation plans (including individual compensation arrangements) under which
Common Stock of the Company is authorized for issuance.

|Stock Option Plan                                          |  | Number of
securities to be
issued upon exercise
of outstanding
options, warrants
and rights |  | Weighted-average
exercise price of
outstanding options,
warrants and rights |      | Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- | ---- | -------------------------------------------------------------------------------------------------------------------------------------------
|
|Equity compensation plans approved by security holders     |  | 272,000                                                                                     |  | $                                                                           | 2.42 |                                                                                                                                            
|Equity compensation plans not approved by security holders |  |                                                                                            |  |                                                                             |     |                                                                                                                                            
|                                                           |  |                                                                                             |  |                                                                             |      |                                                                                                                                            
|Total                                                      |  | 272,000                                                                                     |  | $                                                                           | 2.42 |                                                                                                                                            
|                                                           |  |                                                                                             |  |                                                                             |      |                                                                                                                                            

Recent Sales of Unregistered Securities

In August 2003, the Company sold 8,000 shares of its common stock for $51,000 in cash to three individuals in an arm's length transaction. There was no
underwriter involved with this transaction. In issuing these shares the Company relied on Section 4(2) of the Securities Act of 1933, based upon the

9

---



limited
offering to three individuals, one of whom was an officer of the Company. The common stock issued is not convertible into any other form of securities.

In
October 2003, the Company issued 240,000 shares of its common stock upon the surrender of $1,000,000 in principal amount of its convertible debentures. There was no underwriter
involved with this transaction. In issuing these shares the Company relied on Section 4(2) of the Securities Act of 1933, based upon the limited offering to three individuals, one of whom was
an officer of the Company. The common stock issued is not convertible into any other form of securities.

Issuer Purchases of Equity Securities

The Company did not repurchase any of its equity securities during the fourth quarter of the fiscal year covered by this Report.

ITEM 6. SELECTED FINANCIAL DATA

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

Data
relating to the five fiscal years ended February 28, 2005 are derived from the Consolidated Financial Statements appearing elsewhere in this Report or in previous reports,
which have been audited by BDO Seidman, LLP, independent registered public accounting firm. The selected consolidated financial data should be read in conjunction with, and is qualified in its
entirety by reference to, Management's Discussion and Analysis, the consolidated financial statements of the Company, the notes thereto and the report thereon included elsewhere in this Report.

|                                                |  | For Fiscal Years Ended
|----------------------------------------------- |  | ----------------------
|
|
|Statement of Operations Data                    |  |                       
|Net sales                                       |  | $                     
|Gross profit                                    |  |                       
|Goodwill amortization expense                   |  |                       
|Operating profit (loss)                         |  |                       
|Net income (loss)                               |  |                       
|                                                |  |                       
|Net income (loss) per sharebasic(a)            |  | $                     
|Net income (loss) per sharediluted(a)          |  | $                     
|Average number of shares outstandingbasic(a)   |  |                       
|Average number of shares outstandingdiluted(a) |  |                       
|Cash dividends per share                        |  | $                     
|Balance Sheet Data (at year end)                |  |                       
|Total assets                                    |  | $                     
|Working capital                                 |  | $                     
|Long-term obligations                           |  |                       
|Redeemable common stock                         |  |                       

---

10

---



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

Overview

The Company is a worldwide leader in the manufacture and distribution of a wide range of display devices, encompassing, among others, entertainment, military,
medical and simulation display solutions.
The Company is comprised of two segments(1) the manufacture and distribution of monitors, projection systems and CRT displays and (2) the wholesale distribution of consumer
electronic parts. The display segment is organized into four interrelated operations aggregated into one operating segment pursuant to the aggregation criteria of SFAS 131:



Fiscal 2005 Highlights



11

---





Fiscal 2005 Challenges

Inventory managementthe Company continually monitors historical sales trends as well as projected
future needs to ensure adequate on hand supplies of inventory and to ensure against overstocking of slower moving, obsolete items.

Certain
of the Company's divisions maintain significant inventories of CRTs and component parts in an effort to ensure its customers a reliable source of supply. This level of inventory
is higher than some of the Company's competitors due to the fact that it sells a number of products representing older, or trailing edge, technology that may not be available from other sources. The
market for these trailing edge technology products is declining and, as manufacturers for these products discontinue production or exit the business, the Company may make last time buys. In the
monitor portion of the Company's business, the market for its products is characterized by fairly rapid change as a result of the development of new technologies, particularly in the flat panel
display area. If the Company fails to anticipate the changing needs of its customers and accurately forecast their requirements, it may accumulate inventories of products which its customers no longer
need and which the Company will be unable to sell or return to its vendors.

The
wholesale distribution segment also maintains in inventory a broad range of products (which contributes to a higher total inventory) in order to be able to promptly provide those
customers who are buying products, or obtaining warranty replacements, for electronic part components.

In
fiscal 2005 and 2004, the Company recorded consolidated provisions of approximately $1.4 million and $1.5 million, respectively, for obsolescence and overstock.

12

---



Operations

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

(See
Item 1. BusinessDescription of Principal Business and Principal Products for discussion about the Company's Products and Divisions. See also Note 15 to the
Consolidated Financial StatementsSegment Information)

|                                             |                           | 2005 |        | 2004   |       | 2003 |  
|-------------------------------------------- | ------------------------- | ---- | ------ | ------ | ----- | ---- | -
|
|
|Sales:                                       |                           |      |        |        |       |      |  
|Display segment                              |                           |      |        |        |       |      |  
|Monitors/Projectors                          |                           | $    | 50,806 |        | 61.4  | %    | $
|Data display CRTs                            |                           |      | 8,510  |        | 10.3  |      |  
|Home entertainment CRTs                      |                           |      | 4,281  |        | 5.2   |      |  
|Electron guns and components                 |                           |      | 813    |        | 1.0   |      |  
|                                             |                           |      |        |        |       |      |  
|Total Display Segment                        |                           |      | 64,410 |        | 77.8  |      |  
|Wholesale distribution segment               |                           |      |        |        |       |      |  
|                                             | Consumer electronic parts |      |        | 18,330 |       | 22.2 |  
|                                             |                           |      |        |        |       |      |  
|                                             |                           |      | 82,740 |        | 100.0 |      |  
|                                             |                           |      |        |        |       |      |  
|Costs and expenses:                          |                           |      |        |        |       |      |  
|Cost of goods sold                           |                           |      | 55,729 |        | 67.4  |      |  
|Selling and delivery                         |                           |      | 7,035  |        | 8.5   |      |  
|General and administrative                   |                           |      | 13,197 |        | 15.9  |      |  
|Recognized foreign currency translation loss |                           |      |       |        |      |      |  
|                                             |                           |      |        |        |       |      |  
|                                             |                           |      | 75,961 |        | 91.8  |      |  
|                                             |                           |      |        |        |       |      |  
|Operating profit (loss)                      |                           |      | 6,779  |        | 8.2   |      |  
|Interest expense                             |                           |      | (1,060 | )      | (1.3  | )    |  
|Other income (expense), net                  |                           |      | 176    |        | 0.2   |      |  
|                                             |                           |      |        |        |       |      |  
|Income (loss) before taxes                   |                           |      | 5,895  |        | 7.1   |      |  
|Income tax (benefit) expense                 |                           |      | 2,173  |        | 2.6   |      |  
|                                             |                           |      |        |        |       |      |  
|Net income (loss)                            |                           | $    | 3,722  |        | 4.5   | %    | $
|                                             |                           |      |        |        |       |      |  

Fiscal 2005 Compared to Fiscal 2004

Net Sales

Consolidated net sales increased $6,148,000 for fiscal 2005 or 8.0% compared to fiscal 2004 net sales. The Display segment increased $4,013,000 or 6.6% while the
wholesale parts segment increased $2,135,000 or 13.2% for the comparative periods.

The
net increase in Display segment sales in fiscal 2005 is attributed to continued growth in monitor revenues of $4,906,000, as well as increases within the data display revenues of
$708,000 compared to the prior fiscal year. There were offsetting declines within the home entertainment and component parts revenues of $1,292,000 and $309,000, respectively.

Increases
in monitor revenues reflect new contracts with Boeing Co., Lockheed Martin, and others, which began in fiscal 2004. Specifically, Display Systems and Aydin Displays posted
increases of $5,364,000 and $3,134,000, respectively compared to fiscal 2004. There were offsetting declines of $3,524,000 at Lexel during the year due to the fact that Lexel completed one of its
major contracts during fiscal 2004. Lexel's other product lines, however, maintained backlogs of $9,291,000 at February 28, 2005.

13

---





Increases in data display revenues are attributed primarily to Management's decision in late fiscal 2004 to distribute commercial and military projection tube displays from its Data
Display location in Tucker, Georgia. These projection tube displays carry a higher price per unit than its' normal inventory.

Within
the entertainment division, sales declined $1,292,000 compared to fiscal 2004. There were declines of $247,000 at the Novatron location, which is a result of management's decision
in late fiscal 2004 to distribute projection tube displays from its Data Display location, which is a part of the data display division. The Magnaview location showed decreases of $142,000 compared to
last fiscal year. Management closed this location in January 2005 and merged its operations with its Chroma location in White Mills, PA as of February 1, 2005. The Chroma location showed
decreases of $905,000 compared to fiscal 2004, which is a result of weaker demand in the television tube replacement market. The Company is the primary supplier of replacement television CRTs to the
domestic entertainment market. A majority of the entertainment division's sales (37%) are to major television retailers as replacements for products sold under manufacturer and extended warranties.
Due to continued lower retail sales prices for mid-size television sets (25" to 30"), fewer extended warranties were sold by retailers, a trend consistent with the past two fiscal years.
The Company remains the primary supplier of product to meet manufacturers' standard warranties. Growth in this division will be negatively impacted by the decreasing number of extended warranties sold
for the larger, more expensive sets.

Sales
of component parts declined $309,000 compared to the fiscal year ended February 29, 2005. Sales of these parts have declined over the past two fiscal years due to weaker
demand for electron gun and stem sales. Electron gun sales have historically been dependent upon the demand by domestic and foreign television CRT remanufacturers. These sales have declined over the
past few years as consumers move towards purchasing new technology as opposed to repairing existing sets. The Company's Wintron location is in the process of transitioning to two newer camera
technologies. One such technology will assist border guards with under car inspections and another will assist correctional facilities with the supervision of inmates. If successful, the Company
believes these new technologies will have a positive impact on the component division sales.

Within
the wholesale parts segments, sales were positively impacted by the addition of a new call center in fiscal 2005. This call center added approximately $3,153,000 in new sales for
the fiscal year, which was offset by declines in other areas of that segment's business of $1,018,000.

Gross Margins

Consolidated gross profit margins remained unchanged at 32.6% for the year ended February 28, 2005 as compared to the fiscal year ended February 29,
2004. Display margins decreased slightly to 29.3% from 29.6% and the wholesale electronic parts margins remained relatively unchanged at 44.4% for the year ended February 28, 2005 as compared
to 44.0% at February 29, 2004.

Within
the Display segment, data display gross margins decreased from 19.1% at February 29, 2004 to 16.2% at February 28, 2005. During the fourth quarter of fiscal 2005,
management decided to increase its reserve for inventory obsolescence within this division. Excluding the effects of this adjustment, gross margins for data display would've been 20.9% for the year
ended February 28, 2005, which reflects the positive impact of management's decision to distribute higher margin projection tubes from its Data Display location in Tucker, GA. Gross margins in
home entertainment CRTs decreased from 42.6% at February 29, 2004 to 36.7% at February 28, 2005. This reflects lower sales volume for the comparable periods. Revenues decreased
$1,292,000 for the comparable periods. In monitors/projectors, gross margins increased from 29.1% to 30.4% for the comparable periods. This increase is attributable to increases in revenues of
$4,906,000. Revenues increased without a corresponding increase in costs by improving production efficiency as fixed costs were absorbed by greater production. Gross margins from component parts sold
decreased from 58.4% to 56.1% for the comparable periods. This decrease was due to decreases in sales within this division of $309,000 for the comparable periods.

14

---



Operating Expenses

Consolidated operating expenses as a percentage of sales remained flat at 24.4% for the year ended February 28, 2005 as compared to the year ended
February 29, 2004.

Display
segment operating expenses increased $359,000, while operating expenses for the consumer parts distribution segment increased $1,154,000. Within the Display segment, most of this
increase was posted within the monitor operations as increased growth has required additional administrative support. The Company's Cape Canaveral operations have added 20 people during the fiscal
year ended February 28, 2005. Within the consumer parts distribution segment, these increases reflect additional labor and overhead associated with its new call center that was opened in fiscal
2005.

Interest Expense

Interest expense decreased $47,000 for the year ended February 28, 2005 as compared to the year ended February 29, 2004. The Company maintains
various debt agreements with different interest rates, most of which are based on the prime rate or LIBOR. LIBOR and prime rates were slightly lower during the comparable periods.

Income Taxes

The effective tax rate for fiscal 2005 was 36.9% compared to 37.6% for fiscal 2004.

Fiscal 2004 Compared to Fiscal 2003

Net Sales

Consolidated net sales increased $10,000 for fiscal 2004 or less than 1% over fiscal 2003 net sales. The Display segment increased $838,000 or 1.4% while the
wholesale parts segment sales decreased $828,000 or 4.9% for the comparative periods.

The
net increase in Display segment sales in fiscal 2004 is attributed to growth in revenues from monitors and projectors sales of $3,483,000. This increase is attributed in large part
to stronger demand from military and defense contractors. Offsetting declines occurred in net sales of the data display, entertainment, and component parts divisions of $1,604,000, $649,000 and
$392,000, respectively.

The
net gain in monitor and projector sales includes increases from Display Systems of $4,367,000, Aydin Displays of $1,903,000 and XKD of $467,000 (cockpit displays). These increases
reflect revenues from new contract orders received from the Boeing Co., Lockheed Martin and others during fiscal 2004. There were offsetting declines during the fiscal year of $941,000 at the Lexel
operation. One of its major contracts was completed during fiscal 2004, though Lexel's other product lines, including direct view storage tubes, maintained backlogs of $9,203,000 at
February 29, 2004. The other offsetting declines were the result of the Company's decision to close two locations, MegaScan and Wolcott, in
fiscal 2003. These two locations provided net sales of $270,000 and $868,000 during the 2003 fiscal year. Management attributes the overall increase within this segment to increased demand within the
defense sector. Revenue on new government orders was $9,865,000 for the 2004 fiscal year.

Declines
in the data display revenues of $1,604,000 for fiscal 2004 compared to 2003 continue to reflect the continued sluggish replacement market for CRTs. These declines are due to
decreased unit sales in fiscal 2004 and not to the loss of any particular customers. These declines are also a reflection of customer decisions to purchase new monitors with updated products and
technologies instead of repairing older monitors. The Company reduced bulk purchases of last time buys of CRTs in an effort to lower the Company's exposure to potential future declines in demand.

Component
parts revenue declined by $392,000 for the fiscal year ended 2004 as compared to a year ago. Electron gun and stem sales were negatively impacted by weaker demand during the
fiscal

15

---



year,
while the Company's Wintron location was negatively impacted as they transition to newer technologies. Electron gun sales have historically been dependent upon the demand by domestic and foreign
television CRT remanufacturers. These sales have declined as consumers move towards purchasing new technology as opposed to repairing existing sets.

Net
revenues from projection tube CRTs decreased $52,000, while declines in sales of replacement television CRTs totaled $597,000 for the year ended February 29, 2004 as compared
to the same period in the previous fiscal year. The Company is the primary supplier of replacement television CRTs to the domestic entertainment market. A majority of the entertainment CRT sales (37%)
are to major television retailers as replacements for products sold under manufacturer and extended warranties. Due to continued lower retail sales prices for mid-size television sets (25"
to 30"), fewer extended warranties are sold by retailers, a trend consistent with the two previous fiscal years. The Company remains the primary supplier of the manufacturer's standard warranties.
Growth in home entertainment CRT sales is expected to be impacted by the timing and number of extended warranties sold for the larger, more expensive sets. Due to the fact that the Company is in the
replacement market, it has the ability to track retail sales trends and, accordingly, can attempt to adjust quantities of certain size CRTs carried in stock and reduce the exposure to obsolescence. In
fiscal 2004, retail trends continued to indicate increased sales in the mid-to-larger size television sets.

Flat
panel technology has not had a significant impact on the television replacement market. Most of the flat panel units sold within the television market are for commercial usage
rather than end user consumer usage. Within the data display and monitor divisions, there has been an impact by flat panel technology. The Company has converted manufacturing of certain subsidiaries
within these divisions to produce flat panel products. The Company's XKD and Aydin subsidiaries flat panel sales for fiscal 2004 comprised approximately 50% and 90% of their total net sales,
respectively.

The
decrease in the wholesale consumer parts segment net sales of $828,000 is attributed primarily to the declines in sales under the distribution sales agreements of parts and
accessories for Applica and Norelco product lines. These declines were attributed primarily to the sluggish market for original consumer electronic parts, which also negatively impacted repair and
warranty sales of this segment.

Gross Margins

Consolidated gross profit margins increased to 32.6% from 25.5% for the year ended February 29, 2004 as compared to the year ended February 28,
2003. Display segment margins increased from 19.6% to 29.6% and the wholesale electronic parts segment margins decreased from 46.0% to 44.0%.

Display
segment margins were impacted by a variety of factors. The Company's monitor sales increased 8.2% while cost of sales increased 2.2%. An increase of high volume orders in 2004
versus 2003 helped keep costs down by improving production efficiency as fixed costs were absorbed by greater throughput. To a lesser extent, Data Display sales experienced higher margins due to the
Company's ability to purchase CRTs from cheaper outside sources, as opposed to manufacturing these products at the former Mexico subsidiary. Purchases from these outside sources average approximately
$17 per CRT as opposed to $37 per CRT from the former Mexico subsidiary. Fiscal 2003 included write-downs and write-offs of inventories and manufacturing equipment of $4,754,000 related to
the closing of operations of Mexico, Wolcott, MegaScan, and Aydin UK locations. Excluding the effects of these adjustments, Display segment margins would have been 27.8% for fiscal 2003. Additionally,
several CRT locations with higher volume, particularly Aydin, Display Systems and XKD, were able to achieve these increases without adding comparable fixed overhead and as such their margins were
generally improved.

The
decrease in the wholesale consumer parts segment margins is largely attributable to the overall decrease in sales related to the Applica and Norelco distribution agreements. The
revenues associated

16

---



with
these agreements include primarily handling charges and shipping income, which accounts for an approximately 79% profit margin before the effects of offsetting operating expenses.

Operating Expenses

Operating expenses as a percentage of sales decreased from 28.9% for the year ended February 28, 2003 to 24.4% for the year ended February 29, 2004.

Included
in operating expenses for fiscal 2003 were write-offs of accounts receivable and other assets in the amount of $572,000 related to the Mexico manufacturing location
that was shut down. A non-cash charge of $1,296,000 was also recognized in fiscal 2003 for the cumulative foreign currency translation adjustment to reflect the impairment of the Company's
investment in the Mexican subsidiary. Excluding the effects of these adjustments, operating expenses as a percentage of sales would have been 26.5% for fiscal 2003.

Excluding
the above adjustments, Display segment expenses decreased $1,691,000 and Wholesale Parts segment expenses increased $116,000. The closure of the three facilities, relocation of
the Aydin facility and other cost cutting programs implemented in late fiscal 2003 resulted in the decreased CRT expense. Specifically, the closure of the Wolcott, MegaScan and Mexico operations
resulted in savings of $105,000, $359,000 and $1,295,000 of operating costs, respectively. The savings are due to a reduction of compensation expense caused by the decrease in personnel and a
reduction in overhead caused by the closures of these facilities in the prior year. Increases to the Wholesale Parts segment include increases to warehouse rent and labor of approximately $57,000, as
well as corporate expenses totaling $41,000 allocated during fiscal 2004 that were not allocated previously.

Interest Expense

Interest expense decreased $311,000 for the year ended February 29, 2004 as compared to February 28, 2003. The Company maintains various debt
agreements with different interest rates, most of which are based on the prime rate or LIBOR. LIBOR and prime rates were slightly lower during the comparable periods. Overall debt decreased during the
comparative periods by $5,386,000, which was the primary reason for the decrease in interest expense.

Income Taxes

The effective tax rate for fiscal 2004 was 37.6% compared to (23.9)% for fiscal 2003. The effective tax rate for 2004 was lower than the Federal statutory rate
due to differences between income tax and financial reporting purposes relating primarily to the effect of state income taxes and the non-deductibility of certain expenses for tax
purposes.

Management's Discussion of Liquidity and Capital Resources

At February 28, 2005 and February 29, 2004, the Company had total cash and cash equivalents of $1,471,000 and $3,021,000, respectively. The
Company's working capital was $37,220,000 and $31,947,000 at February 28, 2005 and February 29, 2004, respectively. In recent years, the Company has financed its growth and cash needs
primarily through income from operations, borrowings under revolving credit facilities and long-term debt.

The
Company specializes in certain products representing trailing-edge technology that may not be available from other sources, and may not be currently manufactured. In many
instances, the Company's products are components of larger display systems for which immediate availability is critical for the customer. Accordingly, the Company enjoys higher gross margins, but
typically has larger investments in inventories than those of its competitors.

17

---



The
Company continually monitors its cash and financing positions in order to find ways to lower its interest costs and to produce positive operating cash flow. The Company examines
possibilities to grow its business as opportunities present themselves, such as new sales contracts or niche acquisitions. There could be an impact on working capital requirements to fund this growth.
As in the past, the intent is to finance such projects with operating cash flows or existing bank lines; however, more permanent sources of capital may be required in certain circumstances. In
March 2004, the Company signed an agreement in principle to acquire the assets of Colorado based Data-Ray Corporation's CRT monitor operations. The asset purchase included the
issuance of the Company's common stock and cash to the seller of $550,000 total consideration. The transaction closed in the first quarter of fiscal 2005. In November 2004, the Company
purchased inventories, fixed assets and intangible assets of Evans & Sutherland for $5,250,000 cash.

Cash
provided by operations was $2,350,000 in 2005, $7,148,000 in 2004 and $3,009,000 in 2003. Working capital requirements increased $3,963,000 in 2005 due primarily to greater
investments in inventory within the Company's monitor operations related to contracts begun in fiscal 2004. Working capital requirements decreased $908,000 in 2004 due primarily to improved inventory
management resulting in a $1,006,000 decrease in inventories, net of reserves. Compared to prior years, inventory turnover has remained flat and the Company has reduced its bulk purchases of last time
buys of CRTs as it anticipates future reduced demand for these products in the replacement market. Working capital requirements increased $1,974,000 in 2003 due primarily to purchase requirements
within the monitor divisions related to contracts that began in the fourth quarter of that year, $1,754,000, and to reductions in accounts payable and accrued liabilities of $1,722,000 from cash
generated from earnings, offset somewhat by reductions in accounts receivable of $943,000 due to better collection efforts within the data display and monitor divisions. The average days outstanding
for accounts receivable decreased from 58 days in fiscal 2003 to 53.5 days in fiscal 2004, due to more aggressive collection efforts.

Investing
activities used cash of $6,169,000, $697,000 and $1,106,000 in 2005, 2004 and 2003, respectively. In 2005, the primary use of cash was related to the acquisition of inventories
and related assets of Evans & Sutherland, Inc. This asset acquisition of $5,250,000 was integrated into the Company's Cape Canaveral, Florida facility. Capital expenditures were $769,000
in 2005 as compared to $727,000 and $1,137,000 in 2004 and 2003, respectively. Capital expenditures in 2005 and 2004 were primarily for building improvements and computer hardware. Capital
expenditures in 2003 primarily related to additions to the facility in Birdsboro, Pennsylvania and fixed assets and trademarks purchased to assist in the integration of the Christie projector product
line at the Cape Canaveral, Florida facility. Additions to debt of $463,000 in 2003 were incurred to finance a portion of the building addition costs. The Company does not anticipate any significant
investment in capital assets for 2005.

Financing
activities provided cash of $2,318,000 in 2005 and used cash of $5,942,000 and $1,217,000 in 2004 and 2003. During 2005, the Company used cash of $14,358,000 from its new line
of credit to pay off its original line of credit, plus a term note and a note to an officer of the Company. Cash of $5,250,000 was also used to fund the purchase of assets of Evans and
Sutherland, Inc. The Company also paid a cash dividend during 2005 of $392,000 or $0.04 per share. During 2004 and 2003, the Company used cash of $4,386,000 and $840,000, respectively, towards
debt reduction. The Company paid a cash dividend in fiscal 2004 of $245,000 or $0.05 per share. Though the Company's primary objective is to reduce debt and grow through acquisitions, the Board also
believed that the benefits of a cash dividend to shareholders under the new tax laws regarding dividends needed to be considered.

In
2004, the Company signed an agreement with its primary lender to provide for a new two-year revolving line of credit in the amount of $12,000,000 to replace the existing
$9,500,000 line. The interest rate on the new revolver is variable based upon the ratio of senior funded debt to EBITDA. At February 29, 2004, the floating rate was 3.6% but can increase or
decrease in a range of 1.75% to 2.50% spread over LIBOR rates. Also in 2004, the Company entered into an agreement with another

18

---



of
its lenders to replace its $2,500,000 term note with a secured one-year line of credit in the amount of $2,750,000. The interest rate on the new line is prime plus one percent and is
limited to available borrowings based on receivables and inventories.

In
November 2004, the Company finalized a new line of credit to replace its' prior credit facility. Under the terms of this new facility, the bank paid off the existing line of
credit, as well as the term note collateralized by the assets of Aydin, Inc., a note due to an officer of the company and the loan from the Chief Executive Officer used to finance the purchase
of the Evans & Sutherland, Inc. assets. The maximum amount available for borrowings under this new line is $27,500,000 compared to $12,000,000 under the prior facility. Proceeds from
this line are available for working capital needs of the Company and are subject to various covenants. As of February 28, 2005, the Company was in compliance with all covenants.

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

The
Company has a stock repurchase program, pursuant to which it is authorized to repurchase up to 462,500 shares of the Company's common stock in the open market. In 2004 and 2003,
231,000 shares and 61,000 shares were repurchased for $1,574,000 and $414,000, respectively. No shares were repurchased in fiscal 2002. Under this program, an additional 170,500 shares remain
authorized to be repurchased by the Company.

In
2004, the Company redeemed $100,000 of common stock previously issued for the purchase of inventory. Issuances of common stock, primarily through stock option exercises, provided cash
of $363,000 in 2004. Dividend payments in 2004 amounted to $245,000, which were the first dividends declared and paid by the Company in its history. The policy regarding future payments of dividends
will be reviewed periodically by the Board of Directors and will be based on the earnings and financial position of the Company and other factors which the Board of Directors deems appropriate.

Subsequent
to year end, the Company finalized and agreement with Bank of America to replace its secondary line of credit with Fifth Third Bank with a new $3,500,000 credit facility. As
part of the agreement, the Company paid off the balance of the prior facility as well as a mortgage held with Fifth Third bank.

Transactions with Related Parties, Contractual Obligations and Commitments

At February 29, 2004, the Company had outstanding borrowings from its CEO in the amount of $8,216,000, with principal due in 2006 and monthly interest due
at the higher rate of 6% or prime (4.25% at February 29, 2004) plus 1%. During November 2004, the Company negotiated a credit facility with a new lender. As part of the new agreement,
the bank agreed to pay off the amount due to the Company's CEO, and accordingly, at February 28, 2005, the balance due to him was $0.

During
fiscal 2004, the Company repaid $80,000 to an Officer and Director, resulting in a balance of $75,000 at February 29, 2004. Principal payments of $120,000 were made in
fiscal 2005, while an additional $240,000 was borrowed during the fiscal year, resulting in a balance of $195,000 at February 28, 2005. These borrowings bear interest at 6%.

The
Company issued $2,000,000 in face value, 8% five-year convertible subordinated debentures in payment of the acquisition of the stock of Z-Axis in 1997. The
debentures were issued to the former owners of Z-Axis, of which the Company's CEO was a majority shareholder. The debentures were convertible at the holder's option into the Company's
common shares based upon a conversion rate of $4.17 per share, as adjusted for the April 2001 stock dividend. During 2002, $775,000 of debentures plus accrued interest was converted into
186,068 common shares. In 2004, the Company's CEO, in

19

---



accordance
with the provisions of his subordinated debt agreement, converted his remaining $1,000,000 debentures into 240,000 common shares.

Contractual Obligations

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

|                                                                                   |  | Payments due by period |           
|---------------------------------------------------------------------------------- |  | ---------------------- | ----------
|
|Long-term debt obligations                                                         |  | $                      | 23,604,000
|Interest obligations on long-term debt                                             |  |                        | 1,078,000 
|Capital lease obligations                                                          |  |                        |          
|Operating lease obligations                                                        |  |                        | 4,955,000 
|Purchase obligations                                                               |  |                        | 345,000   
|Other long-term liabilities reflected on the Registrant's balance sheet under GAAP |  |                        |          
|                                                                                   |  |                        |           
|Total                                                                              |  | $                      | 29,982,000
|                                                                                   |  |                        |           

---

Off-Balance Sheet Arrangements

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

Critical Accounting Policies

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

Reserves on inventories

Reserves on inventories result in a charge to operations when the estimated net realizable value declines below cost. Management regularly reviews the Company's
investment in inventories for declines in value and establishes reserves when it is apparent that the expected net realizable value of the inventory falls below its carrying amount. Management
attempts to determine by historical usage analysis and interchangeability of CRT types along with repair contracts currently maintained by its customers, as well as numerous other market factors, the
projected demand for CRTs in this estimate of net realizable value. Management is able to identify consumer buying trends, such as size and application, well in advance of supplying replacement CRTs.
Thus, the Company is able to adjust inventory-stocking levels according to the projected demand. The average life of a CRT is five to seven

20

---



years,
at which time the Company's replacement market develops. Management reviews inventory levels on a quarterly basis. Such reviews include observations of product development trends of the OEM's,
new products being marketed, and technological advances relative to the product capabilities of the Company's existing inventories. There have been no significant changes in management's estimates in
fiscal 2005 and 2004; however, the Company cannot guarantee the accuracy of future forecasts since these estimates are subject to change based on market conditions.

In
fiscal 2005, the Company wrote off approximately $835,000 of inventory. The Company wrote off approximately $1,373,000 of inventory in fiscal 2004 related to changing market
conditions affecting primarily its Southwest Vacuum and Fox International businesses. The reserve for inventory obsolescence was approximately $3,057,000 and $2,506,000 at February 28, 2005 and
February 29, 2004, respectively. Amounts written off in 2005, 2004 and 2003 were $835,000, $1,373,000 and $4,254,000, respectively.

Revenue Recognition

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

In
accordance with EITF 00-10, shipping and handling fees billed to customers are classified in net sales in the consolidated statements of operations. Shipping and handling
costs incurred are classified in selling and delivery in the consolidated statements of operations.

A
portion of the Company's revenue is derived from contracts to manufacture CRTs to a buyers' specification. These contracts are accounted for under the provisions of the American
Institute of Certified Public Accountants' Statement of Position No. 81-1, "Accounting for Performance of Construction-Type and Certain Production-Type
Contracts". These contracts are fixed-price and cost-plus contracts and are recorded on the percentage of completion basis using the ratio of costs incurred to estimated total costs at
completion as the measurement basis for progress toward completion and revenue recognition. Any losses identified on contracts are recognized immediately. Contract accounting requires significant
judgment relative to assessing risks, estimating contract costs and making related assumptions for schedule and technical issues. With respect to contract change orders, claims or similar items,
judgment must be used in estimating related amounts and assessing the potential for realization. These amounts are only included in contract value when they can be reliably estimated and realization
is probable.

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

Allowance for bad debts

The allowance for bad debts is determined by reviewing all accounts receivable and applying historical credit loss experience to the current receivable portfolio
with consideration given to the current condition of the economy, assessment of the financial position of the creditors as well as past payment history and overall trends in past due accounts compared
to established thresholds. The Company monitors credit exposure and assesses the adequacy of the allowance for bad debts on a regular basis. Historically, the Company's allowance has been sufficient
for any customer write-offs. Although the Company cannot guarantee future results, management believes its policies and procedures relating to customer exposure are adequate.

21

---



Warranty reserves

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

Other Accounting Policies

Other loss contingencies are recorded as liabilities when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable.
Disclosure is required when there is a reasonable possibility that the ultimate loss will exceed the recorded provision. Contingent liabilities are often resolved over long time periods. Estimating
probable losses requires analysis of multiple factors that often depend on judgments about potential actions by third parties.

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement No. 123 (R) (revised 2004) Share-Based
payment, which is a revision of FASB Statement No. 123,Accounting for Stock-Based
Compensation. Statement 123 (R) supersedes Accounting Principal Board Opinion (APB) No. 25,Accounting for Stock Issued to
Employees, and amends FASB No. 95,Statement of Cash Flows. Generally, the approach to accounting in
Statement 123 (R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements as based on their fair
values. Currently the Company accounts for these payments under the intrinsic value provisions of APB No. 25 with no expense recognition in the financial statements.
Statement 123 (R) is effective for the Company beginning March 1, 2006. The Statement offers several alternatives for implementation. At this time, management has not made
a decision as to the alternative it may select.

In
November 2004, the FASB issued Statement of Financial Accounting Standards No. 151 ("SFAS No. 151"),Inventory
Costs, an amendment of APB No. 43, Chapter 4. The amendments made by SFAS No. 151 will improve financial reporting by requiring that abnormal amounts of idle
facility expense, freight, handling costs, and wasted materials (spoilage) be recognized as current-period charges and by requiring the allocation of fixed production overheads to inventory based on
the normal capacity of production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Earlier application is permitted
for inventory costs incurred during fiscal years beginning after November 24, 2004. The Company is currently evaluating the impact that adoption of SFAS No. 151 will have on its
financial position and results of operations.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

Except for the historical information contained herein, the matters discussed in this Annual Report on Form 10-K are forward-looking statements
relating to future events which involve certain risks and uncertainties. Further, there can be no assurance that the trends reflected in historical information will continue in the future.

Investors
should consider carefully the following risk factors, in addition to the other information included and incorporated by reference in this annual report on
Form 10-K. All statements other than statements of historical facts included in this report are statements that constitute "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934. The words "expect", "estimate", "anticipate", "predict", "believe" and similar expressions and
variations thereof are intended to identify forward-looking statements. Such statements

22

---



appear
in a number of places in this report and include statements regarding the intent, belief or current expectations of the Company, its directors or its officers with respect to, among other
things: (i) trends affecting the Company's financial condition or results of operations; (ii) the Company's financing plans; (iii) the Company's business and growth strategies,
including potential acquisitions; and (iv) other plans and objectives for future operations. Investors are cautioned that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties and that actual results may differ materially from those predicted in the forward-looking statements or which may be anticipated from historical results
or trends. In addition to the information contained in the Company's other filings with the Securities and Exchange Commission, factors which could affect future performance include, among others, the
following:



Impact of Inflation

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's primary market risks include fluctuations in interest rates and variability in interest rate spread relationships, such as prime to LIBOR spreads.
Approximately $23,604,000 of outstanding debt at February 28, 2005 related to long-term indebtedness under variable rate debt. Interest on the outstanding balance of this debt will
be charged based on a variable rate related to the prime rate or the LIBOR rate. Both rate bases are incremented for margins specified in their agreements. Thus, the Company's interest rate is subject
to market risk in the form of fluctuations in interest rates. The effect of a hypothetical one percentage point increase across all maturities of variable rate debt would result in a decrease of
approximately $236,000 in pre-tax net income assuming no further changes in the

23

---



amount
of borrowings subject to variable rate interest from amounts outstanding at February 28, 2005. The Company does not trade in derivative financial instruments.

The
Company has a subsidiary in the U.K., which is not material, but uses the British pound as its functional currency. Due to its limited operations outside of the U.S., the Company's
exposure to changes in foreign currency exchange rates between the U.S. dollar and foreign currencies or to weakening economic conditions in foreign markets is not expected to significantly effect the
Company's financial position.

Beginning
January 1, 1997, the Company reported its former Mexican subsidiary on the basis of the functional currency being the U.S. dollar as over 90% of the subsidiary's sales
and purchases were with the parent with accounts receivable and accounts payable settled in U.S. dollars. Due to the closure of the Mexican subsidiary in fiscal 2003, cumulative foreign currency
translation losses of $1,296,000 previously included as a separate component of shareholders' equity were recognized in operating expense. These translation losses accumulated prior to
January 1, 1997, when the functional currency of this subsidiary was the Mexican peso.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures.

Based on their evaluation as of February 28,2005, our Chief Executive Officer and Chief Financial Officer, have concluded that our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were not sufficiently effective to ensure that the
information required to be disclosed by us in this Annual Report on Form 10-K was recorded, processed, summarized and reported within the time periods specified in the Securities
and Exchange Commission's rules and Form 10-K. The areas of the internal controls that are deemed by Management to contain material weakness surround the failure to retain financial
reporting personnel necessary to properly identify and record in a timely fashion, non-routine transactions and to prepare financial statements and related disclosures timely; and the failure of
Management to routinely review and approve on a monthly basis all repetitive and non-repetitive journal entries made at divisional levels, to ensure that all entries were made and
calculated properly, which could effect the reported results for the accounting period.

Changes in internal controls.

The control weakness stated in the above Evaluation of Procedures requires the Company to make changes in internal controls over financial reporting. The Company
is actively seeking additional financial reporting personnel with the requisite skills; a change in controls to require that Corporate Management review and approve the accounting for all non-routine
transactions entered into; and a change in controls to require that Company divisional accounting personnel be required to submit all non-repetitive monthly, or other period, journal entries to
Corporate Management for review and approval prior to entry into divisional or corporate records. Management believes that these changes in

24

---



review
procedures and the addition of financial reporting personnel will ensure that the disclosed weakness in reporting procedures no longer should have a material effect on financial reporting.

Limitations on the effectiveness of controls.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal
controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control
system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Video Display Corp. have been
detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can
be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon
certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time,
control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and not be detected.

ITEM 9B. OTHER INFORMATION

None.

25

---





PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information contained in Video Display Corporation's Proxy Statement to be filed within 120 days of the Company's 2005 fiscal year end (the "2005 Proxy
Statement"), with respect to directors and executive officers of the Company under the headings "Election of Directors" and "Executive Officers", is incorporated herein by reference in response to
this item; provided, however, that the information contained in the 2005 Proxy Statement under the heading "Compensation and Stock Option Committee Report" or under the heading "Performance Graph"
shall not be incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information contained in Video Display Corporation's Proxy Statement to be filed within 120 days of the Company's 2005 fiscal year end under the
heading, "Executive Compensation and Other Benefits", with respect to executive compensation, is incorporated herein by reference in response to this item.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information contained in the 2005 Proxy Statement under the headings "Common Stock Ownership" and "Executive Compensation and Other Benefits", is incorporated
herein by reference in response to this item.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information contained in the 2005 Proxy Statement under the heading, "Transactions with Affiliates", is incorporated herein by reference in response to this
item.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information contained in the 2005 Proxy Statement under the heading, "Audit Fees and All Other Fees" is incorporated herein by reference in response to this
item.

26

---





PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES



|    |  |                                                           |  |                                                     |  |     
|--- |  | --------------------------------------------------------- |  | --------------------------------------------------- |  | ----
|(a) |  | The following documents are filed as part of this Report: |  |                                                    
|    |  | 1.                                                        |  | Financial Statements:                               |  |     
|    |  |                                                           |  | Index to Consolidated Financial Statements          |  | F-1 
|    |  | 2.                                                        |  | Financial Statement Schedule:                       |  |     
|    |  |                                                           |  | Index to Consolidated Financial Statements Schedule |  | F-29
|(b) |  | Exhibits                                                  |  |                                                    

|Exhibit
Number |     | Exhibit Description                                                                                                                                                            
|-------------- | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*3             | (a) | Articles of Incorporation of the Company.                                                                                                                                      
|*3             | (b) | By-Laws of the Company.                                                                                                                                                        
|*10            | (a) | Employee Stock Option Plan.                                                                                                                                                    
|*10            | (b) | Lease dated January 1, 1992 by and between Registrant (Lessee) and Ronald D. Ordway (Lessor) with respect to premises located at 4601 Lewis Road, Stone Mountain, Georgia.     
|*10            | (c) | Lease dated November 1, 2003 by and between Registrant (Lessee) and Ronald D. Ordway (Lessor) with respect to premises located at 1868 Tucker Industrial Road, Tucker, Georgia.
|10             | (d) | $27,500,000 promissory note dated November 10, 2004 between Registrant (Maker) and Bank of America (Holder).                                                                   
|21             |     | Subsidiary companies                                                                                                                                                           
|23             |     | Consent of BDO Seidman, LLP                                                                                                                                                    
|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             |     | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                       

---

27

---





SIGNATURES

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

|                    |  |                           |  |                                                                                      
|------------------- |  | ------------------------- |  | -------------------------------------------------------------------------------------
|Date: June 17, 2005 |  | VIDEO DISPLAY CORPORATION
|                    |  | By:                       |  | /s/RONALD D. ORDWAYRonald D. Ordway Chairman of the Board and
Chief Executive Officer

POWER OF ATTORNEY

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

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

|SignatureName                        |  | Capacity                                        |  | Date         
|------------------------------------- |  | ----------------------------------------------- |  | -------------
|                                      |  |                                                 |  |              
|/s/RONALD D. ORDWAYRonald D. Ordway   |  | Chief Executive Officer,
Treasurer and Director |  | June 17, 2005
|/s/ERV KUCZOGIErv Kuczogi             |  | President and Director                          |  | June 17, 2005
|/s/CAROLYN HOWARDCarolyn Howard       |  | Director                                        |  | June 17, 2005
|/s/GREGORY A. KITTLEGregory A. Kittle |  | Chief Financial Officer                         |  | June 17, 2005
|/s/PETER FRENDPeter Frend             |  | Director                                        |  | June 17, 2005

28

---





Video Display Corporation and Subsidiaries    Index to Consolidated Financial Statements



|Report of Independent Registered Public Accounting Firm                                                                                                           |  | F-2
|----------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---
|Consolidated Balance Sheets as of February 28, 2005 and February 29, 2004                                                                                         |  | F-3
|Consolidated Statements of Operations for the years ended February 28, 2005 and February 29, 2004 and February 28, 2003                                           |  | F-5
|Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss) for the years ended February 28, 2005 and February 29, 2004 and February 28, 2003 |  | F-6
|Consolidated Statements of Cash Flows for the years ended February 28, 2005 and February 29, 2004 and February 28, 2003                                           |  | F-7
|Notes to Consolidated Financial Statements                                                                                                                        |  | F-8

F-1

---





Report of Independent Registered Public Accounting Firm

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

We
have audited the accompanying consolidated balance sheets of Video Display Corporation and subsidiaries as of February 28, 2005 and February 29, 2004, and the related
consolidated statements of operations, shareholders' equity and comprehensive income (loss) and cash flows for each of the three years in the period ended February 28, 2005. These financial
statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of their internal
control over financial reporting. Our audits include consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness on the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Video Display Corporation and subsidiaries as
of February 28, 2005 and February 29, 2004, and the results of their operations and their cash flows for each of the three
years in the period ended February 28, 2005, in conformity with accounting principles generally accepted in the United States of America.

|                               |  |                    
|------------------------------ |  | -------------------
|Atlanta, Georgia
June 14, 2005 |  | /s/BDO SEIDMAN, LLP

F-2

---





Video Display Corporation and Subsidiaries    Consolidated Balance Sheets

|                                  |                                                                          | February 28,
2005 |            | February 29,
2004 |  
|--------------------------------- | ------------------------------------------------------------------------ | ----------------- | ---------- | ----------------- | -
|Assets(Notes 1, 7 and 8)          |                                                                          |                   |            |                   |  
|Current assets                    |                                                                          |                   |            |                   |  
|                                  | Cash and cash equivalents                                                |                   | $          | 1,471,000         |  
|                                  | Accounts receivable, net of allowance of $339,000 and $251,000 (Note 18) |                   |            | 11,929,000        |  
|                                  | Inventories (Note 6)                                                     |                   |            | 32,105,000        |  
|                                  | Deferred income taxes (Note 14)                                          |                   |            | 2,555,000         |  
|                                  | Prepaid expenses and other (Note 2)                                      |                   |            | 744,000           |  
|                                  |                                                                          |                   |            |                   |  
|Total current assets              |                                                                          |                   | 48,804,000 |                   |  
|                                  |                                                                          |                   |            |                   |  
|Property, plant and equipment     |                                                                          |                   |            |                   |  
|                                  | Land                                                                     |                   |            | 540,000           |  
|                                  | Buildings                                                                |                   |            | 7,155,000         |  
|                                  | Machinery and equipment                                                  |                   |            | 19,485,000        |  
|                                  |                                                                          |                   |            |                   |  
|                                  |                                                                          |                   | 27,180,000 |                   |  
|                                  | Accumulated depreciation                                                 |                   |            | (19,543,000       | )
|                                  |                                                                          |                   |            |                   |  
|Net property, plant and equipment |                                                                          |                   | 7,637,000  |                   |  
|                                  |                                                                          |                   |            |                   |  
|Goodwill (Note 4)                 |                                                                          |                   | 1,318,000  |                   |  
|Other assets (Note 3)             |                                                                          |                   | 4,020,000  |                   |  
|                                  |                                                                          |                   |            |                   |  
|                                  |                                                                          | $                 | 61,779,000 |                   | $
|                                  |                                                                          |                   |            |                   |  

See
accompanying notes to consolidated financial statements.

F-3

---



Video Display Corporation and Subsidiaries

Consolidated Balance Sheets

|                                                                                                               |                                                  | February 28,
2005 |            | February 29,
2004 |  
|-------------------------------------------------------------------------------------------------------------- | ------------------------------------------------ | ----------------- | ---------- | ----------------- | -
|Liabilities and Shareholders' Equity                                                                           |                                                  |                   |            |                   |  
|Current liabilities                                                                                            |                                                  |                   |            |                   |  
|                                                                                                               | Accounts payable                                 |                   | $          | 5,190,000         |  
|                                                                                                               | Accrued liabilities (Note 12)                    |                   |            | 3,080,000         |  
|                                                                                                               | Lines of credit (Note 8)                         |                   |            | 2,688,000         |  
|                                                                                                               | Notes payable to officers and directors (Note 9) |                   |            | 49,000            |  
|                                                                                                               | Current maturities of long-term debt (Note 7)    |                   |            | 577,000           |  
|                                                                                                               |                                                  |                   |            |                   |  
|Total current liabilities                                                                                      |                                                  |                   | 11,584,000 |                   |  
|Lines of credit (Note 8)                                                                                       |                                                  |                   | 19,296,000 |                   |  
|Long-term debt, less current maturities (Note 7)                                                               |                                                  |                   | 848,000    |                   |  
|Notes payable to officers and directors, less current maturities (Note 9)                                      |                                                  |                   | 146,000    |                   |  
|Convertible notes payable, net of discount of $94,000 (Note 10)                                                |                                                  |                   | 281,000    |                   |  
|Deferred income taxes (Note 14)                                                                                |                                                  |                   | 434,000    |                   |  
|                                                                                                               |                                                  |                   |            |                   |  
|Total liabilities                                                                                              |                                                  |                   | 32,589,000 |                   |  
|                                                                                                               |                                                  |                   |            |                   |  
|Minority interests                                                                                             |                                                  |                   | 123,000    |                   |  
|Commitments(Notes 10, 16, 17 and 21)                                                                           |                                                  |                   |           |                   |  
|Shareholders' equity(Notes 1, 4, 11 and 13)                                                                    |                                                  |                   |            |                   |  
|Preferred stock; no par value2,000,000 shares authorized, none issued and outstanding                         |                                                  |                   |           |                   |  
|Common stock; no par value10,000,000 shares authorized; 9,704,000 and 4,792,000 shares issued and outstanding |                                                  |                   | 7,026,000  |                   |  
|Additional paid-in capital                                                                                     |                                                  |                   | 92,000     |                   |  
|Retained earnings                                                                                              |                                                  |                   | 22,018,000 |                   |  
|Accumulated other comprehensive loss                                                                           |                                                  |                   | (69,000    | )                 |  
|                                                                                                               |                                                  |                   |            |                   |  
|Total shareholders' equity                                                                                     |                                                  |                   | 29,067,000 |                   |  
|                                                                                                               |                                                  |                   |            |                   |  
|                                                                                                               |                                                  | $                 | 61,779,000 |                   | $
|                                                                                                               |                                                  |                   |            |                   |  

See
accompanying notes to consolidated financial statements.

F-4

---





Video Display Corporation and Subsidiaries    Consolidated Statements of Operations

|                                                         |                                              | February 28,
2005 |            | February 29,
2004 |   | February 28,
2003 |           
|-------------------------------------------------------- | -------------------------------------------- | ----------------- | ---------- | ----------------- | - | ----------------- | ----------
|Net sales (Note 18)                                      |                                              | $                 | 82,740,000 |                   | $ | 76,592,000        |           
|Cost of goods sold                                       |                                              |                   | 55,729,000 |                   |   | 51,604,000        |           
|                                                         |                                              |                   |            |                   |   |                   |           
|Gross profit                                             |                                              |                   | 27,011,000 |                   |   | 24,988,000        |           
|                                                         |                                              |                   |            |                   |   |                   |           
|Operating expenses                                       |                                              |                   |            |                   |   |                   |           
|                                                         | Selling and delivery                         |                   |            | 7,035,000         |   |                   | 6,930,000 
|                                                         | General and administrative                   |                   |            | 13,197,000        |   |                   | 11,789,000
|                                                         | Recognized foreign currency translation loss |                   |            |                  |   |                   |          
|                                                         |                                              |                   |            |                   |   |                   |           
|                                                         |                                              |                   | 20,232,000 |                   |   | 18,719,000        |           
|                                                         |                                              |                   |            |                   |   |                   |           
|Operating profit (loss)                                  |                                              |                   | 6,779,000  |                   |   | 6,269,000         |           
|                                                         |                                              |                   |            |                   |   |                   |           
|Other income (expense)                                   |                                              |                   |            |                   |   |                   |           
|                                                         | Interest expense                             |                   |            | (1,060,000        | ) |                   | (1,182,000
|                                                         | Other, net                                   |                   |            | 176,000           |   |                   | (103,000  
|                                                         |                                              |                   |            |                   |   |                   |           
|                                                         |                                              |                   | (884,000   | )                 |   | (1,285,000        | )         
|                                                         |                                              |                   |            |                   |   |                   |           
|Income (loss) before income taxes and minority interests |                                              |                   | 5,895,000  |                   |   | 4,984,000         |           
|Provision for (benefit from) income taxes (Note 14)      |                                              |                   | 2,173,000  |                   |   | 1,872,000         |           
|                                                         |                                              |                   |            |                   |   |                   |           
|Income (loss) before minority interests                  |                                              |                   | 3,722,000  |                   |   | 3,112,000         |           
|Minority interests                                       |                                              |                   |           |                   |   | 53,000            |           
|                                                         |                                              |                   |            |                   |   |                   |           
|Net income (loss)                                        |                                              | $                 | 3,722,000  |                   | $ | 3,165,000         |           
|                                                         |                                              |                   |            |                   |   |                   |           
|Net income (loss) per sharebasic                        |                                              | $                 | 0.38       |                   | $ | 0.34              |           
|                                                         |                                              |                   |            |                   |   |                   |           
|Net income (loss) per sharediluted                      |                                              | $                 | 0.38       |                   | $ | 0.33              |           
|                                                         |                                              |                   |            |                   |   |                   |           
|Average shares outstandingbasic                         |                                              |                   | 9,673,000  |                   |   | 9,348,000         |           
|                                                         |                                              |                   |            |                   |   |                   |           
|Average shares outstandingdiluted                       |                                              |                   | 9,903,000  |                   |   | 9,800,000         |           
|                                                         |                                              |                   |            |                   |   |                   |           

See
accompanying notes to consolidated financial statements.

F-5

---



Video Display Corporation and Subsidiaries        Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss)

|                           |                                                                                                                   | Common
Shares |                            | Share
Amount |           | Additional
Paid-in
Capital |   | Retained
Earnings |   | Accumulated
Other
Comprehensive
Income (Loss) |            | Current Year
Comprehensive
Income (Loss) |  
|-------------------------- | ----------------------------------------------------------------------------------------------------------------- | ------------- | -------------------------- | ------------ | --------- | -------------------------- | - | ----------------- | - | --------------------------------------------- | ---------- | ---------------------------------------- | -
|Balance, February 28, 2002 |                                                                                                                   | 4,749,000     |                            | $            | 5,325,000 |                            | $ | 92,000            |   | $                                             | 20,635,000 |                                          | $
|                           | Net loss for the year                                                                                             |               |                           |              |           |                           |   |                   |  |                                               |            | (3,286,000                               | )
|                           | Unrealized loss on marketable equity securities                                                                   |               |                           |              |           |                           |   |                   |  |                                               |            |                                         |  
|                           | Foreign currency translation adjustment                                                                           |               |                           |              |           |                           |   |                   |  |                                               |            |                                         |  
|                           | Foreign currency translation adjustment recognized in operations resulting from liquidation of foreign subsidiary |               |                           |              |           |                           |   |                   |  |                                               |            |                                         |  
|                           |                                                                                                                   |               |                            |              |           |                            |   |                   |   |                                               |            |                                          |  
|                           |                                                                                                                   |               | Total comprehensive income |              |           |                            |   |                   |   |                                               |            |                                          |  
|                           |                                                                                                                   |               |                            |              |           |                            |   |                   |   |                                               |            |                                          |  
|                           | Issuance of common stock under stock option plan                                                                  |               | 12,000                     |              |           | 37,000                     |   |                   |  |                                               |            |                                         |  
|                           | Repurchase of common stock                                                                                        |               | (61,000                    | )            |           | (69,000                    | ) |                   |  |                                               |            | (345,000                                 | )
|                           |                                                                                                                   |               |                            |              |           |                            |   |                   |   |                                               |            |                                          |  
|Balance, February 28, 2003 |                                                                                                                   | 4,700,000     |                            |              | 5,293,000 |                            |   | 92,000            |   |                                               | 17,004,000 |                                          |  
|                           | Net income for the year                                                                                           |               |                           |              |           |                           |   |                   |  |                                               |            | 3,165,000                                |  
|                           | Unrealized gain on marketable equity securities                                                                   |               |                           |              |           |                           |   |                   |  |                                               |            |                                         |  
|                           | Reclassification adjustment on the sale of marketable equity securities for a loss                                |               |                           |              |           |                           |   |                   |  |                                               |            |                                         |  
|                           | Foreign currency translation adjustment                                                                           |               |                           |              |           |                           |   |                   |  |                                               |            |                                         |  
|                           |                                                                                                                   |               |                            |              |           |                            |   |                   |   |                                               |            |                                          |  
|                           |                                                                                                                   |               | Total comprehensive income |              |           |                            |   |                   |   |                                               |            |                                          |  
|                           |                                                                                                                   |               |                            |              |           |                            |   |                   |   |                                               |            |                                          |  
|                           | Conversion of convertible debentures                                                                              |               | 240,000                    |              |           | 1,000,000                  |   |                   |  |                                               |            |                                         |  
|                           | Issuance of common stock under stock option plan                                                                  |               | 75,000                     |              |           | 312,000                    |   |                   |  |                                               |            |                                         |  
|                           | Issuance of common stock                                                                                          |               | 8,000                      |              |           | 51,000                     |   |                   |  |                                               |            |                                         |  
|                           | Repurchase of common stock                                                                                        |               | (231,000                   | )            |           | (338,000                   | ) |                   |  |                                               |            | (1,236,000                               | )
|                           | Dividend paid on common stock                                                                                     |               |                           |              |           |                           |   |                   |  |                                               |            | (245,000                                 | )
|                           |                                                                                                                   |               |                            |              |           |                            |   |                   |   |                                               |            |                                          |  
|Balance, February 29, 2004 |                                                                                                                   | 4,792,000     |                            |              | 6,318,000 |                            |   | 92,000            |   |                                               | 18,688,000 |                                          |  
|                           | Net income for the year                                                                                           |               |                           |              |           |                           |   |                   |  |                                               |            | 3,722,000                                |  
|                           | Foreign currency translation adjustment                                                                           |               |                           |              |           |                           |   |                   |  |                                               |            |                                         |  
|                           |                                                                                                                   |               |                            |              |           |                            |   |                   |   |                                               |            |                                          |  
|                           |                                                                                                                   |               | Total comprehensive income |              |           |                            |   |                   |   |                                               |            |                                          |  
|                           |                                                                                                                   |               |                            |              |           |                            |   |                   |   |                                               |            |                                          |  
|                           | Issuance of common stock under stock option plan                                                                  |               | 28,000                     |              |           | 183,000                    |   |                   |  |                                               |            |                                         |  
|                           | Issuance of common stock                                                                                          |               | 33,000                     |              |           | 400,000                    |   |                   |  |                                               |            |                                         |  
|                           | Issuance of 100% stock dividend                                                                                   |               | 4,841,000                  |              |           |                           |   |                   |  |                                               |            |                                         |  
|                           | Conversion of debt to common stock                                                                                |               | 10,000                     |              |           | 125,000                    |   |                   |  |                                               |            |                                         |  
|                           | Dividend paid on common stock                                                                                     |               |                           |              |           |                           |   |                   |  |                                               |            | (392,000                                 | )
|                           |                                                                                                                   |               |                            |              |           |                            |   |                   |   |                                               |            |                                          |  
|Balance, February 28, 2005 |                                                                                                                   | 9,704,000     |                            | $            | 7,026,000 |                            | $ | 92,000            |   | $                                             | 22,018,000 |                                          | $
|                           |                                                                                                                   |               |                            |              |           |                            |   |                   |   |                                               |            |                                          |  

See accompanying notes to consolidated financial statements.

F-6

---





Video Display Corporation and Subsidiaries        Consolidated Statements of Cash Flows

|                                                                                                       |                                                                  | February 28,
2005                        |            | February 29,
2004 |            | February 28,
2003 |            
|------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------- | ---------------------------------------- | ---------- | ----------------- | ---------- | ----------------- | -----------
|Operating Activities                                                                                   |                                                                  |                                          |            |                   |            |                   |            
|Net income (loss)                                                                                      |                                                                  | $                                        | 3,722,000  |                   | $          | 3,165,000         |            
|Adjustments to reconcile net income (loss) to net cash cash provided by (used in) operating activities |                                                                  |                                          |            |                   |            |                   |            
|                                                                                                       | Depreciation and amortization                                    |                                          |            | 1,449,000         |            |                   | 1,322,000  
|                                                                                                       | Provision for losses on accounts and notes receivable            |                                          |            | 186,000           |            |                   | 85,000     
|                                                                                                       | Provision for inventory reserves                                 |                                          |            | 1,386,000         |            |                   | 1,540,000  
|                                                                                                       | Deferred income taxes                                            |                                          |            | (485,000          | )          |                   | 54,000     
|                                                                                                       | Interest on convertible note                                     |                                          |            | 56,000            |            |                   |            
|                                                                                                       | Recognized foreign currency translation loss                     |                                          |            |                  |            |                   |           
|                                                                                                       | Net income (loss) allocated to minority interests                |                                          |            |                  |            |                   | (53,000    
|                                                                                                       | Loss on disposal of fixed assets                                 |                                          |            |                  |            |                   | 1,000      
|                                                                                                       | Loss on sale of marketable equity securities                     |                                          |            |                  |            |                   | 126,000    
|                                                                                                       | Changes in working capital items, net of effect of acquisitions: |                                          |            |                   |            |                   |            
|                                                                                                       |                                                                  | Accounts receivable                      |            |                   | (1,205,000 | )                 |            
|                                                                                                       |                                                                  | Inventories                              |            |                   | (4,693,000 | )                 |            
|                                                                                                       |                                                                  | Prepaid expenses and other assets        |            |                   | 923,000    |                   |            
|                                                                                                       |                                                                  | Accounts payable and accrued liabilities |            |                   | 1,011,000  |                   |            
|                                                                                                       |                                                                  |                                          |            |                   |            |                   |            
|Net cash provided by operating activities                                                              |                                                                  |                                          | 2,350,000  |                   |            | 7,148,000         |            
|                                                                                                       |                                                                  |                                          |            |                   |            |                   |            
|Investing Activities                                                                                   |                                                                  |                                          |            |                   |            |                   |            
|                                                                                                       | Capital expenditures                                             |                                          |            | (769,000          | )          |                   | (727,000   
|                                                                                                       | Cash paid for acquisition                                        |                                          |            | (150,000          | )          |                   |           
|                                                                                                       | Cash paid for product acquisition and other assets               |                                          |            | (5,250,000        | )          |                   |           
|                                                                                                       | Proceeds from disposal of fixed assets                           |                                          |            |                  |            |                   |           
|                                                                                                       | Proceeds from sale of marketable equity securities               |                                          |            |                  |            |                   | 30,000     
|                                                                                                       |                                                                  |                                          |            |                   |            |                   |            
|                                                                                                       | Other investing activities                                       |                                          |            |                  |            |                   |           
|                                                                                                       |                                                                  |                                          |            |                   |            |                   |            
|Net cash used in investing activities                                                                  |                                                                  |                                          | (6,169,000 | )                 |            | (697,000          | )          
|                                                                                                       |                                                                  |                                          |            |                   |            |                   |            
|Financing Activities                                                                                   |                                                                  |                                          |            |                   |            |                   |            
|                                                                                                       | Proceeds from long-term debt and lines of credit                 |                                          |            | 48,173,000        |            |                   | 19,350,000 
|                                                                                                       | Repayments of long-term debt and lines of credit                 |                                          |            | (37,550,000       | )          |                   | (23,656,000
|                                                                                                       | Proceeds from loans from related parties                         |                                          |            | 3,240,000         |            |                   | 175,000    
|                                                                                                       | Repayments of loans from related parties                         |                                          |            | (11,336,000       | )          |                   | (255,000   
|                                                                                                       | Proceeds from stock option exercises                             |                                          |            | 183,000           |            |                   | 312,000    
|                                                                                                       | Proceeds from issuance of common stock                           |                                          |            |                  |            |                   | 51,000     
|                                                                                                       | Redemption of redeemable common stock                            |                                          |            |                  |            |                   | (100,000   
|                                                                                                       | Dividend paid on common stock                                    |                                          |            | (392,000          | )          |                   | (245,000   
|                                                                                                       | Purchases and retirements of common stock                        |                                          |            |                  |            |                   | (1,574,000 
|                                                                                                       |                                                                  |                                          |            |                   |            |                   |            
|Net cash provided by (used in) financing activities                                                    |                                                                  |                                          | 2,318,000  |                   |            | (5,942,000        | )          
|                                                                                                       |                                                                  |                                          |            |                   |            |                   |            
|Effect of exchange rates on cash                                                                       |                                                                  |                                          | (49,000    | )                 |            | 120,000           |            
|                                                                                                       |                                                                  |                                          |            |                   |            |                   |            
|Net change in cash and cash equivalents                                                                |                                                                  |                                          | (1,550,000 | )                 |            | 629,000           |            
|Cash and cash equivalents, beginning of year                                                           |                                                                  |                                          | 3,021,000  |                   |            | 2,392,000         |            
|                                                                                                       |                                                                  |                                          |            |                   |            |                   |            
|Cash and cash equivalents, end of year                                                                 |                                                                  | $                                        | 1,471,000  |                   | $          | 3,021,000         |            
|                                                                                                       |                                                                  |                                          |            |                   |            |                   |            

See Note 19 for supplemental cash flow information.

See
accompanying notes to consolidated financial statements.

F-7

---





Video Display Corporation and Subsidiaries        Notes to Consolidated Financial Statements

Note 1. Summary of Significant Accounting Policies

Nature of Business

Video Display Corporation (the "Company") principally manufactures and distributes cathode ray tubes ("CRTs") in the worldwide replacement market for use in
television sets and data display screens for medical, military and industrial monitoring systems as well as manufacturing and distributing electron optic parts, which are significant components in new
and recycled CRTs and monitors. The Company also manufactures low and high-end monochrome and color CRT and AMLCD monitor displays for use in specialty high performance and ruggedized applications.
The Company also acts as a wholesale distributor of electronic parts and CRTs purchased from domestic and foreign manufacturers. In addition, the Company operates a call center which acts as a
consumer and dealer support center for both in-warranty and out-of-warranty household products, appliances, parts and accessories for Black & Decker, Delonghi, Norelco, Coby and various other
manufacturers. This call center also acts as a technical support center for these same manufacturers. The Company's operations are principally located in the U.S.; however, the Company does have a
subsidiary operation located in the United Kingdom.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries after elimination of all intercompany accounts and
transactions.

Use of Estimates

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

Revenue Recognition

In accordance with SEC SAB Topic 13A, revenue is recognized on the sale of products when the products are shipped, all significant contractual obligations have
been satisfied, and the collection of the resulting receivable is reasonably assured. The Company's delivery term typically is F.O.B. shipping point. The Company offers one-year and two-year limited
warranties on certain products. The Company records a liability for estimated warranty obligations at the date products are sold. Adjustments are made as new information becomes available. The
provisions of FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others", which the Company adopted in
December 2002, require disclosures about the guarantees that an entity has issued, including a reconciliation of changes in the entity's product warranty liabilities.

In
accordance with EITF 00-10, shipping and handling fees billed to customers are classified in net sales in the consolidated statements of operations. Shipping and handling costs
incurred are classified in selling and delivery in the consolidated statements of operations. Shipping costs of $1,963,000, $2,042,000 and $2,080,000 were included in the three fiscal years ended
2005, 2004 and 2003, respectively.

F-8

---



A
portion of the Company's revenue is derived from contracts to manufacture CRTs to a buyers' specification. These contracts are accounted for under the provisions of the American
Institute of Certified Public Accountants' Statement of Position No. 81-1, "Accounting for Performance of Construction-Type and Certain Production-Type Contracts". The Company utilizes the percentage
of completion method as contemplated by this Statement to recognize revenue on all contracts to design, develop, manufacture, or modify complex electronic equipment to a buyer's specification.
Percentage of completion is measured using the ratio of costs incurred to estimated total costs at completion. Any losses identified on contracts are recognized immediately.

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

Cash and Cash Equivalents

Cash and cash equivalents include cash on account.

Financial Instruments

Fair values of cash and cash equivalents, accounts receivable, short-term investments and short-term debt approximate cost due to the short period of time to
maturity. The recorded amounts of long-term debt and convertible debentures are considered to approximate fair value due to either rates which fluctuate with the market or are otherwise commensurate
with the current market. Fair values of investments are based on quoted market prices or pricing models using current market rates, which approximate carrying value.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are customer obligations due under normal trade terms. The Company sells its products primarily to manufacturers and consumers of CRTs and to
consumers of electronic products. Management performs continuing credit evaluations of its customers' financial condition and although the Company generally does not require collateral, letters of
credit may be required from its customers in certain circumstances, such as foreign sales. The allowance for bad debts is determined by reviewing all accounts receivable and applying historical credit
loss experience to the current receivable portfolio
with consideration given to the current condition of the economy, assessment of the financial position of the creditors as well as past payment history and overall trends in past due accounts compared
to established thresholds. The Company monitors credit exposure and assesses the adequacy of the allowance for bad debts on a regular basis. Historically, the Company's allowance has been sufficient
for any customer write-offs. Although the Company cannot guarantee future results, management feels its policies and procedures relating to customer exposure are adequate.

Inventories

Inventories consist primarily of CRTs, electron guns, monitors and electronic parts. Inventories are stated at the lower of cost (first-in, first-out) or market.

Reserves
on inventories result in a charge to operations when the estimated net realizable value declines below cost. Management regularly reviews the Company's investment in inventories
for declines in value and establishes reserves when it is apparent that the expected net realizable value of

F-9

---



the
inventory falls below its carrying amount. Management considers the projected demand for CRTs in this estimate of net realizable value. Management is able to identify consumer buying trends, such
as size and application, well in advance of supplying replacement CRTs. Thus, the Company is able to adjust inventory-stocking levels according to the projected demand. The average life of a CRT is
five to seven years, at which time the Company's replacement market develops. Management reviews inventory levels on a quarterly basis. Such reviews include observations of product development trends
of the OEM's, new products being marketed, and technological advances relative to the product capabilities of the Company's existing inventories. There have been no significant changes in management's
estimates in fiscal 2005 and 2004; however, the Company cannot guarantee the accuracy of future forecasts since these estimates are subject to change based on market conditions.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation and amortization are computed principally by the straight-line method for financial reporting
purposes over the following estimated useful lives: Buildingsten to twenty-five years; Machinery and Equipmentfive to ten years. Depreciation expense totaled approximately
$1,196,000, $1,163,000 and $1,130,000 for the three years ended 2005, 2004 and 2003, respectively. Substantial betterments to property, plant and equipment are capitalized and routine repairs and
maintenance are expensed as incurred.

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

Goodwill and Other Intangibles

Goodwill is tested for impairment annually on December 1 unless events or evidence exist that would significantly alter amounts used in the calculation.
The Company used a multiple of EBITDA (earnings before interest, tax, depreciation and amortization expenses) in evaluating the fair value of the monitor divisions. As a result of such testing in
December 2004, the Company determined there was no impairment of goodwill that should be included in the accompanying financial statements.

Intangible
assets consist primarily of customer lists and non-competition agreements related to acquisitions. Intangible assets are amortized using the straight line method over their
estimated period of benefit. The Company identifies and records impairment losses on intangible assets when events and circumstances indicate that such assets might be impaired. The Company considers
factors such as significant changes in the regulatory or business climate and projected future cash flows from the respective asset. No impairment of intangible assets has been identified during any
of the periods presented.

Stock-Based Compensation Plans

The Company adopted the disclosure provisions of Statement of Financial Accounting Standards (SFAS or Statement) No. 148, "Accounting for Stock-Based
CompensationTransition and Disclosure", which amends SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 148 provides alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee compensation, which was originally provided under SFAS No. 123. The

F-10

---



Statement
also improves the timeliness of disclosures by requiring the information be included in interim, as well as annual, financial statements.

SFAS
No. 123 encourages, but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to
account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related Interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee must pay to
acquire the stock. The option price of all the Company's stock options is equal to the market value of the stock at the grant date. As such, no compensation expense is recorded in the accompanying
consolidated financial statements.

Intangible
assets consist primarily of customer lists and non-competition agreements related to acquisitions. Intangible assets are amortized using the straight line method over their
estimated period of benefit.

The
Company identifies and records impairment losses on intangible assets when events and circumstances indicate that such assets might be impaired. The Company considers factors such as
significant changes in the regulatory or business climate and projected future cash flows from the respective asset. No impairment of intangible assets has been identified during any of the periods
presented.

Had
compensation cost been determined based upon the fair value at the grant date for awards under the stock option plan consistent with the methodology prescribed under SFAS No. 123,
the Company's pro forma net income (loss) and net income (loss) per share would have differed from the amounts reported as follows:

|                                                                                        |                     | February 28,
2005 |           | February 29,
2004 |   | February 28,
2003 |     
|--------------------------------------------------------------------------------------- | ------------------- | ----------------- | --------- | ----------------- | - | ----------------- | ----
|Net income (loss), as reported                                                          |                     | $                 | 3,722,000 |                   | $ | 3,165,000         |     
|Stock-based employee compensation expense, as reported                                  |                     |                   |          |                   |   |                  |     
|Stock-based employee compensation expense determined under fair value basis, net of tax |                     |                   | (49,000   | )                 |   | (35,000           | )   
|                                                                                        |                     |                   |           |                   |   |                   |     
|Pro forma net income (loss)                                                             |                     | $                 | 3,673,000 |                   | $ | 3,130,000         |     
|                                                                                        |                     |                   |           |                   |   |                   |     
|Net earnings (loss) per share:                                                          |                     |                   |           |                   |   |                   |     
|                                                                                        | Basicas reported   |                   | $         | 0.38              |   | $                 | 0.34
|                                                                                        | Basicpro forma     |                   | $         | 0.38              |   | $                 | 0.34
|                                                                                        | Dilutedas reported |                   | $         | 0.38              |   | $                 | 0.33
|                                                                                        | Dilutedpro forma   |                   | $         | 0.37              |   | $                 | 0.32

The
weighted average fair value of options, calculated using the Black-Scholes option pricing model, granted during the years 2005, 2004 and 2003 was $12.67, $4.77 and $2.89,
respectively. The weighted average remaining life of options outstanding at February 28, 2005, February 29, 2004 and February 28, 2003 was 3.1, 5.4 and 5.3 years, respectively.

Prior
year basic and diluted net earnings (loss) per share have been recast to reflect the November 1, 2004 stock split disclosed under the EPS heading of this footnote.

F-11

---



The
fair value of stock options used to compute pro forma net income applicable to common shareholders and earnings per share disclosures is the estimated present value at grant date
using the Black-Scholes option-pricing model with the following weighted average assumptions for 2005, 2004 and 2003, respectively: expected volatility of 43%, 75% and 60%; a risk-free interest rate
of 2.5%, 3.5% and 2.1%; expected lives of 2.0, 3.0 and 3.3 years; and a dividend yield of 0.00% for all years.

Taxes on Income

The Company accounts for income taxes under the asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected
future events other than possible enactments of changes in the tax laws or rates. The effect on deferred tax assets and liabilities of a change in tax rates are recognized as income or expense in the
period that includes the enactment date.

Investments

The Company's investment in marketable equity securities is recorded at fair value based upon quoted market prices and is classified as available-for-sale
securities. Changes in fair value of these marketable equity securities are reflected in the accompanying statements of shareholders' equity. Investments are included within the captions "Prepaid
expenses and other" and "Other assets" in the accompanying consolidated balance sheets. The Company sold its remaining investment in marketable equity securities in 2004, recognizing a loss of
$151,000, which is included within the caption "Other income" in the accompanying statements of operations.

Advertising Costs

Advertising costs are expensed during the period in which they are incurred. Total advertising expenses for the fiscal years ended February 28, 2005,
February 29, 2004, and February 28, 2003 was $139,000, $106,000, and $106,000, respectively.

Research and Development

The objectives of the Company's research and development activities are to increase efficiency and quality in its manufacturing and assembly operations and to
enhance its existing product line by developing alternative product applications to existing cathode ray and electron optic technology. The Company continues its research and development in advanced
infrared imaging ("IR") for commercial and military applications. The Company has funded additional IR research in partnership with the University of Rhode Island. Potential future markets for IR
include military and security surveillance, target acquisition, fire fighting, and industrial and medical thermography. The Company has included
research and development costs in the consolidated financial statements as a part of general and administrative expenses. Research and development costs amounted to approximately $652,000, $162,000
and $285,000 in fiscal 2005, 2004 and 2003, respectively.

Foreign Currency Translations

Assets and liabilities of foreign subsidiaries are translated using the exchange rate in effect at the end of the year. Revenues and expenses are translated using
the average of the exchange rates in effect during the year. Translation adjustments and transaction gains and losses related to long-term

F-12

---



intercompany
transactions are accumulated as a separate component of shareholders' equity. The Company has a subsidiary in the U.K., which is not material, and uses the British pound as its functional
currency.

The
Company reported its former Mexican subsidiary on the basis of the functional currency being the U.S. dollar, effective January 1, 1997, as over 90% of the subsidiary's sales
and purchases were with the parent with accounts receivable and accounts payable settled in U.S. dollars. Cumulative foreign currency translation losses of $1,296,000 related to the Mexican subsidiary
were recognized in operating expense in fiscal 2003 due to the closing of this operation at that time. This cumulative translation adjustment was previously recorded as a separate component of
shareholders' equity.

Earnings Per Share

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

The
following is a reconciliation from basic earnings (loss) per share to diluted earnings (loss) per share for each of the last three years. (Note: prior year amounts have been restated
to reflect 100% stock dividend in November 2004.)

|                    |                  | Net Income
(Loss) |            | Weighted
Average
Shares
Outstanding |           | Earnings (Loss)
Per Share |  
|------------------- | ---------------- | ----------------- | ---------- | ----------------------------------- | --------- | ------------------------- | -
|2005                |                  |                   |            |                                     |           |                           |  
|Basic               |                  | $                 | 3,722,000  |                                     | 9,673,000 |                           | $
|Effect of dilution: |                  |                   |            |                                     |           |                           |  
|                    | Options          |                   |            |                                    |           | 200,000                   |  
|                    | Convertible debt |                   |            | 35,000                              |           | 30,000                    |  
|                    |                  |                   |            |                                     |           |                           |  
|Diluted             |                  | $                 | 3,757,000  |                                     | 9,903,000 |                           | $
|                    |                  |                   |            |                                     |           |                           |  
|2004                |                  |                   |            |                                     |           |                           |  
|Basic               |                  | $                 | 3,165,000  |                                     | 9,348,000 |                           | $
|Effect of dilution: |                  |                   |            |                                     |           |                           |  
|                    | Options          |                   |            |                                    |           | 172,000                   |  
|                    | Convertible debt |                   |            | 26,000                              |           | 280,000                   |  
|                    |                  |                   |            |                                     |           |                           |  
|Diluted             |                  | $                 | 3,191,000  |                                     | 9,800,000 |                           | $
|                    |                  |                   |            |                                     |           |                           |  
|2003                |                  |                   |            |                                     |           |                           |  
|Basic               |                  | $                 | (3,286,000 | )                                   | 9,516,000 |                           | $
|Effect of dilution: |                  |                   |            |                                     |           |                           |  
|                    | Options          |                   |            |                                    |           |                          |  
|                    | Convertible debt |                   |            |                                    |           |                          |  
|                    |                  |                   |            |                                     |           |                           |  
|Diluted             |                  | $                 | (3,286,000 | )                                   | 9,516,000 |                           | $
|                    |                  |                   |            |                                     |           |                           |  

Stock
options and debentures convertible into 344,000 shares were anti-dilutive and excluded from the 2003 diluted earnings per share calculation due to the Company's net loss.

F-13

---



On
September 8, 2004, the Company announced a two for one stock split of its common stock, payable as a stock dividend on November 1, 2004, to shareholders of record at the
close of business on September 23, 2004. Shareholders received one share of common stock for every one share of the Company's stock held on the record date. On November 1, 2004,
approximately 4,841,000 shares of the Company's common stock were distributed to shareholders as a result of this dividend.

Segment Reporting

The Company applies SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" to report information about operating segments in
annual and interim financial reports. An operating segment is defined as a component that engages in business activities, whose operating results are reviewed by the executive officers in order to
make decisions about allocating resources, and for which discrete financial information is available (see Note 15). The Company meets the aggregation criteria as established in SFAS
No. 131. The Company's call center does not currently meet SFAS 131 separate segment reporting requirements and is not presented as a discrete segment.

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement No. 123 (revised 2004) Share Based payment, which is a revision
of FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement 123 (R) supersedes Accounting Principal Board Opinion (APB) No. 25, Accounting for Stock Issued to
Employees, and amends FASB No. 95, Statement of Cash Flows. Generally, the approach to accounting in Statement 123 (R) requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the financial statements as based on their fair values. Currently, the Company accounts for these payments under the
intrinsic value provisions of APB No. 25 with no expense recognition in the financial statements. Statement 123 (R) is effective for the Company beginning March 1, 2006.
The Statement offers several alternatives for implementation. At this time, management has not made a decision as to the alternative it may select.

In
November 2004, the FASB issued Statement of Financial Accounting Standards No. 151 ("SFAS No. 151"), Inventory Costs, an amendment of APB No. 43, Chapter 4. The amendments made
by SFAS No. 151 will improve financial reporting by requiring that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) be recognized as current-period
charges and by requiring the allocation of fixed production overheads to inventory based on the normal capacity of production facilities. SFAS No. 151 is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. Earlier application is permitted. The Company is currently evaluating the impact that adoption of SFAS No. 151 will have on its financial position
and results of operations.

Fiscal Year

All references herein to "2005", "2004" and "2003" mean the fiscal years ended February 28, 2005, February 29, 2004 and February 28, 2003,
respectively.

Reclassification

Certain prior year balances have been reclassified in the consolidated financial statements to conform to the current year presentation.

F-14

---



Note 2. Costs and Earnings in Excess of Billings on Contracts

Information relative to contracts in progress consisted of the following:

|                                                         |  | 2005 |            | 2004 |  
|-------------------------------------------------------- |  | ---- | ---------- | ---- | -
|Costs incurred to date on uncompleted contracts          |  | $    | 6,017,000  |      | $
|Estimated earnings recognized to date on these contracts |  |      | 3,556,000  |      |  
|                                                         |  |      |            |      |  
|                                                         |  |      | 9,573,000  |      |  
|Billings to date                                         |  |      | (9,289,000 | )    |  
|                                                         |  |      |            |      |  
|Costs and earnings in excess of billings, net            |  | $    | 284,000    |      | $
|                                                         |  |      |            |      |  
|Costs and earnings in excess of billings                 |  | $    | 284,000    |      | $
|Billings in excess of costs and earnings                 |  |      |           |      |  
|                                                         |  |      |            |      |  
|                                                         |  | $    | 284,000    |      | $
|                                                         |  |      |            |      |  

Costs
and earnings in excess of billings are the results of contracts in progress (jobs) in completing orders to customers' specifications on contracts accounted for under SOP 81-1
"Accounting for Performance of Construction-Type and Certain Production-Type Contracts". Costs included are material, labor and overhead. These jobs require design and engineering effort for a
specific customer purchasing a unique product. The Company records revenue on these fixed-price and cost-plus contracts on the percentage of completion basis using the ratio of costs incurred to
estimated total costs at completion as the measurement basis for progress toward completion and revenue recognition. Any losses identified on contracts are recognized immediately. Contract accounting
requires significant judgment relative to assessing risks, estimating contract costs and making related assumptions for schedule and technical issues. With respect to contract change orders, claims or
similar items, judgment must be used in estimating related amounts and assessing the potential for realization. These amounts are only included in contract value when they can be reliably estimated
and realization is probable. Billings are generated based on specific contract terms, which might be a progress payment schedule, specific shipments, etc. None of the above contracts in progress
contain post-shipment obligations.

As
of February 28, 2005 and February 29, 2004, there were no production costs which exceeded the aggregate estimated cost of all in process and delivered units relating to
long-term contracts. Additionally, there were no claims outstanding that would affect the ultimate realization of full contract values. As of February 28, 2005 and February 29, 2004,
there were no progress payments that had been netted against inventory.

Costs
and earnings in excess of billings are classified in the consolidated balance sheets under the caption "Prepaid expenses and other".

F-15

---



Note 3. Other Assets

Other assets consist primarily of security deposits, patents and other intangible assets. Patents and intangible assets are amortized over the period of their
expected lives. Expected amortization expense for the next five years is as follows:

Amortization
expense:February 28, 2006

$
478,000February 28, 2007


472,000February 29, 2008


456,000February 28, 2009


447,000February 28, 2010


447,000


As
of February 28, 2005, the total unamoritized balance of all patents and other intangible assets was $3,448,000.

Note 4. Acquisition

In March 2004, the Company acquired the monitor operations of Colorado based Data Ray, Inc. The Company acquired inventory, fixed assets and various
other assets of $459,000 in exchange for cash of $150,000 and $400,000 of the Company's common stock, resulting in goodwill of approximately $91,000. These operations were consolidated into the
Company's Z-Axis, Inc. operations located in Phelps, NY, since the date of acquisition. The $400,000 of common stock was issued at $12 dollars per share, the market value of the
stock at the date of purchase. The common stock had a put feature whereby Data Ray could redeem the stock for $5.50 per share if the price per share of the Company's stock was below $6.00 after the
one year anniversary date of the purchase agreement. The price of the stock was in excess of $6.00 at the one year anniversary date of the agreement. The monitor operations of Data Ray are not
significant to the Company.

The
following table presents the total purchase price of the acquisition:

Cash

$
150,000Value of Video Display common stock issued


400,000Total Purchase Price Consideration

$
550,000


The
aggregate purchase price has been allocated based on fair values as of the date of the completion of the acquisition as
follows:

Finished goods

$
279,000Machinery & equipment


80,000Goodwill


91,000Other assets


100,000$
550,000


F-16

---





Note 5. Purchase of Assets

In October 2004, the Company entered into an agreement with Evans & Sutherland, Inc. to purchase certain assets. Under this agreement, the
Company paid a total of $5,250,000 for the following assets related to Evans & Sutherland's ESCP® and Targetview CRT projector product lines: inventory valued at $2,244,000, fixed
assets valued at $248,000 and intangible assets valued at $2,758,000, consistent with SFAS 142 "Goodwill and Other Intangible Assets". The intangible assets consist of a non-compete
agreement valued at $1,000,000 and amortizable over 5 years, and a customer list valued at $1,758,000 amortizable over a 15 year period. Amortization expense related to the intangible
assets acquired was $93,000 for the year ended February 28, 2005. The purchase was financed initially by a loan from the Chief Executive Officer, which subsequently was refinanced under the
Company's new line of credit. Following this acquisition, the Company began the process of moving the acquired assets and integrating them with the existing Marquee projector operations
in Cape Canaveral, Florida. The integration was substantially completed by the end of December 2004. The Company has a presence in the military flight training and simulation market, and with
this acquisition has been able to expand into the commercial flight training and simulation market.

Fixed
assets and raw materials were valued at current replacement costs, which was consistent with the book value of the assets acquired. The non-compete agreement was valued
at $1,000,000 as this was the amount of revenue the Company could reasonably expect to lose should Evans & Sutherland violate this agreement. The customer list was valued at $1,758,000, being
the expected average annual gross profit that could be reasonably expected to be generated from that list over its expected useful life.

Note 6. Inventories

Inventories consisted of the following:

2005

2004Raw materials

$
7,834,000

$
8,037,000Work-in-process


3,800,000


3,900,000Finished goods


23,528,000


16,844,00035,162,000


28,781,000Reserves for obsolescence


(3,057,000
)

(2,506,000
)$
32,105,000

$
26,275,000


F-17

---



Note 7. Long-Term Debt

Long-term debt consisted of the following:

|                                                                                                                                                                                                                                                                                                                                  |  | 2005 |           | 2004 |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- | -
|Term loan facility; floating interest rate based on an adjusted LIBOR rate (4.25% as of February 29, 2004); quarterly principal payments of $313,000 payable through November 2005; collateralized by assets of Aydin
Displays, Inc., paid in full.                                                                               |  | $    |          |      | $
|Note payable to bank; interest rate of prime plus 1.5%; collateralized by assets of XKD Corporation, paid in full.                                                                                                                                                                                                                |  |      |          |      |  
|Mortgage payable to bank; variable interest rate (6.03% as of February 28, 2005); monthly principal and interest payments of $6,000 payable until December 2008 with a final principal payment of $350,000 in December
2008; collateralized by land and building of Fox International, Inc.; paid in full subsequent to year end. |  |      | 479,000   |      |  
|Mortgage payable to bank; interest rate at FHLB plus 1.95% (7.35% as of February 28, 2005); monthly principal and interest payments of $5,000 payable through October 2021; collateralized by land and building of
Teltron Technologies, Inc.                                                                                     |  |      | 557,000   |      |  
|Other                                                                                                                                                                                                                                                                                                                             |  |      | 389,000   |      |  
|                                                                                                                                                                                                                                                                                                                                  |  |      |           |      |  
|                                                                                                                                                                                                                                                                                                                                  |  |      | 1,425,000 |      |  
|Less current maturities                                                                                                                                                                                                                                                                                                           |  |      | (577,000  | )    |  
|                                                                                                                                                                                                                                                                                                                                  |  |      |           |      |  
|                                                                                                                                                                                                                                                                                                                                  |  | $    | 848,000   |      | $
|                                                                                                                                                                                                                                                                                                                                  |  |      |           |      |  

Future
maturities of long-term debt are as follows:

Year

Amount2006

$
577,0002007


40,0002008


42,0002009


45,0002010


47,000Thereafter


674,000$
1,425,000


Note 8. Lines of Credit

Until November 2004, the Company had a $12,000,000 credit facility with a bank. The interest rate on the line of credit was a floating LIBOR rate based on a ratio
of debt to EBITDA, as defined. The weighted average interest rate during the nine months ended November 30, 2004 and the year ended February 29, 2004 was 3.84% and 3.70%. The average amount and
maximum amount outstanding were $8,821,000 and $9,596,000, respectively, during the nine months ended November 30, 2004, and $6,754,000 and $8,801,000, respectively, for the fiscal year ended February
29, 2004. Borrowings under the line of credit were limited by eligible accounts receivable, inventory and real estate, as defined, and included a commitment fee of 0.25% for the unused portion. This
line of credit was paid off in

F-18

---



November
2004 and replaced with another credit facility from another bank, as described in the following paragraph.

In
November 2004, the Company executed a new line of credit to replace its prior credit facility. The new line of credit has a maximum availability for borrowing of $27,500,000, and is
collateralized by
equipment, inventories and accounts receivable of the Company. The interest rate on this line is a floating LIBOR rate based on a ratio of debt to EBITDA, as defined. As part of the new financing, the
lender paid off the balance of the prior line of credit, the term loan collateralized by the assets of Aydin, Inc., the balance due to an officer of the Company, and loan for the Chief Executive
Officer of the Company that financed the acquisition of certain assets of Evans & Sutherland, Inc. As of February 28, 2005, the outstanding balance of this line of credit was $19,296,000 and
the available amount for borrowing was $8,204,000. The line of credit agreement contains covenants, including requirements related to tangible cash flow, asset and debt service coverage. Additionally,
the bank requires that any contemplated acquisitions be accretive. As of February 28, 2005, the Company was in compliance with all covenants.

Additionally,
the Company has a $2,750,000 secondary line of credit (collateralized by assets of Fox International, Inc.) with another bank. Interest on this facility is at the rate of
prime plus 1%. The line is limited by eligible accounts receivable and inventory. The outstanding balance at February 28, 2005 was $2,688,000 and the available amount for borrowing was $62,000. This
line was due to expire on July 31, 2005 and, accordingly, is classified within current liabilities in the consolidated financial statements. Subsequent to year end, this secondary line was paid
off and replaced by a $3,500,000 line of credit with Bank of America.

Note 9. Notes Payable to Officers and Directors

At February 28, 2002 the Company had outstanding borrowings in the form of a demand note and a one-year note payable to its CEO in the amount of $4,100,000 and
$3,000,000, respectively. During fiscal 2003, the Company borrowed an additional $1,656,000 and repaid $540,000 to the CEO to assist with the repurchase of stock and short-term financing. In February
2003, the two notes were combined into a three year term note with interest due monthly at an annual rate of 6% or prime (4.00% at February 29, 2004) plus 1%, whichever is higher. As of February 29,
2004, the cumulative outstanding balance due the CEO was $8,216,000. The Company executed a new line of credit agreement in November 2004. As part of this agreement, the new credit facility paid off
the balance due to the CEO; accordingly, at February 28, 2005, the balance due to him was $0.

During
fiscal 2004, the Company repaid $80,000 to an Officer and Director, resulting in a balance of $75,000 at February 29, 2004. Principal payments of $120,000 were made in fiscal
2005, while an additional $240,000 was borrowed during the fiscal year, resulting in a balance of $195,000 at February 28, 2005. These borrowings bear interest at 6%.

Note 10. Convertible Notes Payable

In June 2001, the Company announced the acquisition of the outstanding common stock of XKD Corporation ("XKD"). The purchase price included royalty payments up to
$2,000,000 based on specific future revenues of XKD, options to acquire 10,000 shares of the Company's common stock, and the release of indemnification of the seller of personal obligations of
corporate notes payable in the amount of $1,900,000. During August 2004, the Company signed an agreement with the four persons party to the royalty agreement. Total accrued royalties of $350,000 were
exchanged for four non-interest bearing notes payable, valued at $125,000 each, which are convertible at any time into

F-19

---



common
shares of the Company's stock at a rate of $12.50 per share. The Company recognized a $150,000 discount on the debt to reflect the inherent interest in the notes. This discount on debt is
accreted as interest expense over the three year life of the notes. The discount fully accretes upon conversion of the debt to equity. During the fourth quarter of fiscal 2005, one of the parties
converted his note into 10,000 shares of the Company's common stock. Accordingly, total interest expense accreted on these notes during the 2005 fiscal year was $56,000.

Note 11. Convertible Subordinated Debentures

The Company issued $2,000,000 in face value, 8% five-year convertible subordinated debentures in payment of the acquisition of the stock of Z-Axis in fiscal 1997.
The debentures are convertible at the holder's option into common shares based upon a conversion rate of $4.17 per share, as adjusted for the April 2001 stock dividend. During fiscal 2002, $775,000 of
debentures plus accrued interest was converted into 186,068 common shares. In October 2003, the Company's CEO, in accordance with the provisions of the subordinated debt agreement, converted his
remaining $1,000,000 of subordinated debentures into 240,000 shares of the Company's common stock.

Note 12. Accrued Expenses and Warranty Obligations

The following provides a reconciliation of changes in the Company's warranty reserve for fiscal years 2005, 2004 and 2003. The Company provides no other
guarantees.

Fiscal Year Ended2005

2004

2003Balance at beginning of year

$
821,000

$
687,000

$
543,000Provision for current year sales


1,021,000


2,022,000


1,257,000Warranty costs incurred


(1,132,000
)

(1,888,000
)

(1,113,000
)Balance at end of year

$
710,000

$
821,000

$
687,000


Accrued
liabilities consisted of the following:

2005

2004Accrued compensation and benefits

$
1,404,000

$
1,328,000Accrued royalties





456,000Accrued warranty


710,000


821,000Accrued other


966,000


901,000$
3,080,000

$
3,506,000


Note 13. Stock Options

The
Company has an incentive stock option plan whereby total options to purchase 600,000 shares may be granted to key employees at a price not less than fair market value at the time the
options are granted and are exercisable beginning on the first anniversary of the grant date for a period not to exceed ten years. The stock option plan stipulates that, in the event of a stock
dividend, all outstanding grants will be proportionally adjusted both in number of options and exercise price. At February 28, 2005 and February 29, 2004, the Company had approximately 254,000 and
263,000 shares, respectively, available for the granting of options under the stock option plan.

F-20

---



The
Company paid a 100% stock dividend on November 1, 2004. The effect of this dividend was to double the number of common shares outstanding. This also doubled the number of shares of
all stock options outstanding, while reducing the exercise price to half its original amount.

Information
regarding the stock option plan is as follows, which includes the effect of the 20% stock dividend issued on April 16, 2001 and the 100% stock dividend issued in November
2004 for all periods presented:

Number of
Shares

Weighted
Average
Exercise
PriceOutstanding at February 28, 2002

440,000

$
1.97Granted

42,000


3.39Exercised

(24,000
)

1.57Forfeited or expired

(2,000
)

3.63Outstanding at February 28, 2003

456,000

$
2.11Granted

12,000


4.67Exercised

(166,000
)

2.14Forfeited or expired




Outstanding at February 29, 2004

302,000

$
2.20Granted

18,000

$
13.30Exercised

(43,000
)
$
6.55Forfeited or expired




Outstanding at February 28, 2005

277,000

$
2.42


Options exercisable

Number of
Shares

Weighted
Average
Exercise
PriceFebruary 28, 2005

272,000

$
2.42February 29, 2004

290,000


2.20February 28, 2003

440,000


2.06February 28, 2002

440,000


1.97


|             |  | Options Outstanding |  | Options Exercisable
|------------ |  | ------------------- |  | -------------------
|
|
|$1.15 - 1.98 |  | 146,000             |  | 1.4                
|2.20 - 2.75  |  | 60,000              |  | 5.0                
|3.25 - 3.62  |  | 36,000              |  | 3.9                
|3.65 - 13.30 |  | 35,000              |  | 2.5                
|             |  |                     |  |                    
|             |  | 277,000             |  | 3.1                
|             |  |                     |  |                    

F-21

---





Note 14. Taxes on Income

Provision
for (benefit from) income taxes in the consolidated statements of operations consisted of the following components:

Fiscal Year EndedFebruary 28,
2005

February 29,
2004

February 28,
2003Current:Federal

$
2,238,000

$
1,534,000

$
(337,000
)State


420,000


282,000


(62,000
)Foreign





2,000


$
2,658,000


1,818,000


(399,000
)Deferred:Federal


(408,000
)

7,000


(889,000
)State


(77,000
)

1,000


(162,000
)Foreign





46,000


424,000(485,000
)

54,000


(627,000
)Total

$
2,173,000

$
1,872,000

$
(1,026,000
)


Income
(loss) before provision for (benefit from) taxes consisted of the following:

2005

2004

2003U.S. operations

$
5,556,000

$
4,789,000

$
(259,000
)Foreign operations


339,000


195,000


(4,035,000
)$
5,895,000

$
4,984,000

$
(4,294,000
)


The
effective income tax rate differed from the statutory federal income tax rate as follows:

Fiscal Year EndedFeb. 28, 2005

Feb. 29, 2004

Feb. 28, 2003Taxes at statutory federal income tax rate

$
2,004,000

$
1,695,000

$
(1,466,000
)State income taxes, net of federal benefit


225,000


187,000


(153,000
)Foreign operating (income) losses


(115,000
)

(66,000
)

519,000Non-deductible expenses


59,000


71,000


40,000Other





(15,000
)

34,000Taxes at effective income tax rate

$
2,173,000

$
1,872,000

$
(1,026,000
)


Deferred
income taxes as of February 28, 2005 and February 29, 2004 reflect the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes and certain tax loss carryforwards.

F-22

---



The
sources of the temporary differences and their effect on the net deferred tax asset consisted of the following:

2005

2004Deferred tax assets:Investment capital loss carryforwards

$
224,000

$
287,000Uniform capitalization costs


487,000


436,000Inventory reserves


1,160,000


727,000Accrued liabilities


883,000


927,000Allowance for doubtful accounts


136,000


101,000Other


65,000


10,0002,955,000


2,488,000Valuation allowance


(240,000
)

(240,000
)Deferred tax liabilities:Basis difference of property, plant and equipment


(464,000
)

(478,000
)Other


(130,000
)

(135,000
)Net deferred tax assets

$
2,121,000

$
1,635,000Current asset


2,555,000


2,299,000Non-current liability


(434,000
)

(664,000
)$
2,121,000

$
1,635,000


Investment
loss carryforwards consist primarily of investment losses, which may be utilized to offset any future taxable gains on the sale of investments. Investment loss carryforwards
in the amount of $57,000 and $230,000 expire in 2005 and 2009, respectively. The Company has provided a valuation allowance of $240,000 on these loss carryforwards, as full realization of these assets
is not considered likely.

Undistributed
earnings of the Company's foreign subsidiary are considered to be indefinitely reinvested and, accordingly, no provision for U.S. federal and state income taxes has been
provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits)
and withholding taxes payable to the foreign country. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its
hypothetical calculation.

Note 15. Segment Information

Based on the quantitative thresholds specified in SFAS 131, the Company has determined that it has two reportable segments. The two reportable segments are as
follows: (1) the manufacture and distribution of displays and display components and (2) the wholesale distribution of consumer electronic parts from foreign and domestic manufacturers.
The divisions within the Display segment consist of data display CRTs, home entertainment (television and projection) CRTs, projectors and other monitors and component parts. These divisions have
similar economic criteria, and are appropriately aggregated consistent with the criteria of SFAS 131. Sales to foreign customers were 11% of consolidated net sales in fiscal 2005 and 14% in
both fiscal 2004 and 2003. Foreign operations are included in the display division.

F-23

---



The
accounting policies of the operating segments are the same as those described in Note 1 -Summary of Significant Accounting Policies. Segment amounts disclosed reflect elimination
entries made in consolidation. The chief operating decision maker evaluates performance of the segments based on operating income. Costs excluded from this profit measure primarily consist of interest
expense and income taxes.

The
following table sets forth net sales, operating profit, depreciation and amortization, capital expenditures, and identifiable assets for each reportable industry segment and
applicable divisions:

|                               |                    | Fiscal Year Ended |       
|------------------------------ | ------------------ | ----------------- | ------
|
|
|Net Sales                      |                    |                   |       
|Display segment                |                    |                   |       
|                               | Monitors           |                   | $     
|                               | Data display       |                   |       
|                               | Home entertainment |                   |       
|                               | Component parts    |                   |       
|                               |                    |                   |       
|                               |                    |                   | 64,410
|Wholesale Distribution segment |                    |                   | 18,330
|                               |                    |                   |       
|                               |                    | $                 | 82,740
|                               |                    |                   |       
|Operating Profit (Loss)        |                    |                   |       
|Display segment                |                    |                   |       
|                               | Monitors           |                   | $     
|                               | Data display       |                   |       
|                               | Home entertainment |                   |       
|                               | Component parts    |                   |       
|                               |                    |                   |       
|                               |                    |                   | 6,764 
|Wholesale Distribution segment |                    |                   | 15    
|                               |                    |                   |       
|                               |                    | $                 | 6,779 
|                               |                    |                   |       
|Depreciation and Amortization  |                    |                   |       
|Display segment                |                    |                   |       
|                               | Monitors           |                   | $     
|                               | Data display       |                   |       
|                               | Home entertainment |                   |       
|                               | Component parts    |                   |       
|                               |                    |                   |       
|                               |                    |                   | 1,338 
|Wholesale Distribution segment |                    |                   | 111   
|                               |                    |                   |       
|                               |                    | $                 | 1,449 
|                               |                    |                   |       

---

F-24

---





As ofFeb. 28, 2005

Feb. 29, 2004

Feb. 28, 2003Capital Expenditures**Display segmentMonitors

$
399

$
652

$
970Data display


10


38


39Home entertainment


1


20


Component parts


7





8417


710


1,017Wholesale Distribution segment


352


17


120$
769

$
727

$
1,137


---

Identifiable AssetsDisplay segmentMonitors

$
37,811

$
30,082

$
32,424Data display


12,033


12,470


13,899Home entertainment


2,121


2,900


3,232Component parts


2,224


2,150


2,53754,189


47,602


52,092Wholesale Distribution segment


7,590


6,949


5,243$
61,779

$
54,551

$
57,335


Note 16. Benefit Plan

The Company has a defined contribution plan that covers substantially all U.S. employees. Employees may contribute up to 15% of their compensation, as allowed by
IRS regulations. At the Company's discretion, employee contributions of up to 4% of their compensation can be matched at 50% by the Company. The Company accrued $75,000, $75,000 and $129,000 in fiscal
2005, 2004 and, 2003, respectively for 401(k) matching contributions.

Note 17. Commitments

Operating Leases

The Company leases various manufacturing facilities and transportation equipment under leases classified as operating leases. These leases provide that the
Company pays taxes, insurance and other expenses on the leased property and equipment. Rent expense for all leases was approximately $1,772,000, $2,073,000 and $2,412,000 in 2005, 2004 and 2003,
respectively.

F-25

---



Future
minimum rental payments due under these leases are as follows:

Fiscal Year

Amount2006

$
1,595,0002007


1,110,0002008


942,0002009


775,0002010


533,000$
4,955,000


Related Party Leases

Included above are leases for manufacturing and warehouse facilities leased from the CEO under operating leases expiring at various dates through 2008. Rent
expense under these leases totaled approximately $314,000, $434,000 and $434,000 in fiscal 2005, 2004 and 2003, respectively.

Future
minimum rental payments due under these leases with related parties are as follows:

Fiscal Year

Amount2006

$
314,0002007


314,0002008


314,0002009


129,000$
1,071,000


Note 18. Concentrations of Risk and Major Customers

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. At times, such
cash in banks are in excess of the FDIC insurance limit.

The
Company sells to a variety of domestic and international customers on an open-unsecured account basis. These customers principally operate in the medical, military, television and
avionics industries. The Company's Display segment had direct and indirect net sales to the U.S. government, primarily the Department of Defense for training and simulation programs, that comprised
approximately 37%, 21% and 25% of Display segment net sales and 29%, 16% and 20% of consolidated net sales in fiscal 2005, 2004 and 2003, respectively. Sales to foreign customers were 11% of
consolidated net sales for fiscal 2005 and 14% for both fiscal 2004 and 2003. The Company's wholesale electronic parts distributor, Fox International, had net sales to one customer, National
Parts, Inc., that comprised approximately 24%, 19% and 18% of that subsidiary's net sales in fiscal 2005, 2004 and 2003, respectively. The Company attempts to minimize credit risk by reviewing
all customers' credit history before extending credit, and by monitoring customers' credit exposure on a daily basis. The Company establishes an allowance for doubtful accounts receivable based upon
factors surrounding the credit risk of specific customers, historical trends and other information.

F-26

---



Note 19. Supplemental Cash Flow Information

|               |                              | 2005 |   | 2004      |  | 2003
|-------------- | ---------------------------- | ---- | - | --------- |  | ----
|Cash paid for: |                              |      |   |           |  |     
|               | Interest                     |      | $ | 967,000   |  | $   
|               |                              |      |   |           |  |     
|               | Income taxes, net of refunds |      | $ | 1,363,000 |  | $   
|               |                              |      |   |           |  |     

Non-cash investing and financing activities:

During 2004, the Company's CEO converted $1,000,000 of subordinated debentures into 240,000 shares of the Company's common stock.

During
2005, the Company acquired the monitor operations of Data Ray, Inc. The Company acquired inventory, fixed assets and various other assets of $459,000 in exchange for cash of
$150,000 and $400,000 of the Company's common stock.

Also
during 2005, the Company signed an agreement exchanging accrued royalties of $350,000 for four non-interest bearing convertible notes payable, valued at $125,000 each. The Company
recognized a $150,000 discount on debt to reflect the inherent interest in the notes.

During
2003, the Company sold the building at its Wolcott, Connecticut facility for a $504,000 note receivable due in full on December 9, 2003. Also in 2003, the Company issued
$100,000 of redeemable common stock (15,000 shares) in exchange for inventory.

F-27

---



Note 20. Selected Quarterly Financial Data (unaudited)

The following table sets forth selected quarterly consolidated financial data for the years ended February 28, 2005, February 29, 2004 and
February 28, 2003, respectively. The summation of quarterly (loss) earnings per share may not agree with annual (loss) earnings per share.

|                           |  | 2005 |       
|-------------------------- |  | ---- | ------
|
|
|Net Sales                  |  | $    | 19,900
|Gross profit               |  |      | 6,586 
|Net income                 |  |      | 1,115 
|Basic earnings per share   |  | $    | 0.12  
|Diluted earnings per share |  | $    | 0.11  

---

|                           |  | 2004
|-------------------------- |  | ----
|
|
|Net Sales                  |  | $   
|Gross profit               |  |     
|Net income                 |  |     
|Basic earnings per share   |  | $   
|Diluted earnings per share |  | $   

Note 21. Subsequent Events

On April 13, 2005, the Company negotiated a line of credit with Bank of America to replace its existing line with Fifth Third Bank. As part of this
agreement, the Company paid off the existing line of credit as well as a mortgage held with the same institution. The maximum available for borrowing under this new line is $3,500,000. The interest
rate on this facility is based on a floating LIBOR rate plus 1.75%. This line of credit expires in November 2006.

On
May 9, 2005, the Company announced it had signed an agreement to acquire certain assets of the Innovative Display Systems division of Three-Five Systems. Innovative Display
Systems, formerly known as Advanced Video Technologies specializes in flat panel, touch screen and rack mount systems with custom military, industrial and commercial requirements. In exchange for cash
of $1,376,000, the Company acquired inventories valued at $772,000, machinery and equipment of $74,000, and various other assets of $530,000. The Company has begun the process of consolidating these
operations into its Aydin Displays operations in Birdsboro, PA and expects this consolidation process to be complete by the end of August 2005.

F-28

---





Video Display Corporation and Subsidiaries    Index to Consolidated Financial Statements Schedule



|Report of Independent Registered Public Accounting Firm on Financial Statement Schedule |  | F-30
|--------------------------------------------------------------------------------------- |  | ----
|Schedule IIValuation and Qualifying Accounts                                           |  | F-31

F-29

---





Report of Independent Registered Public Accounting Firm

Video Display Corporation
Tucker, Georgia

The
audits referred to in our report dated June 14, 2005 relating to the consolidated financial statements of Video Display Corporation and subsidiaries, which are contained in
Item 8 of this Form 10-K, included the audit of the financial statement schedule listed in the accompanying schedule. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial statement schedule based upon our audits.

In
our opinion, such schedule presents fairly, in all material respects, the information set forth therein.



Atlanta, Georgia
June 14, 2005

F-30

---





VIDEO DISPLAY CORPORATION AND SUBSIDIARIES        SCHEDULE II -VALUATION AND QUALIFYING ACCOUNTS

|Column A                         |                   | Column B |   | Column C  |  | Column D |           | Column E
|-------------------------------- | ----------------- | -------- | - | --------- |  | -------- | --------- | --------
|
|
|Allowance for doubtful accounts: |                   |          |   |           |  |          |           |         
|                                 | February 28, 2005 |          | $ | 251,000   |  | $        | 186,000   |         
|                                 | February 29, 2004 |          | $ | 502,000   |  | $        | 85,000    |         
|                                 | February 28, 2003 |          | $ | 343,000   |  | $        | 649,000   |         
|Reserves for inventory:          |                   |          |   |           |  |          |           |         
|                                 | February 28, 2005 |          | $ | 2,506,000 |  | $        | 1,386,000 |         
|                                 | February 29, 2004 |          | $ | 2,339,000 |  | $        | 1,540,000 |         
|                                 | February 28, 2003 |          | $ | 1,640,000 |  | $        | 4,953,000 |         

---

F-31

---