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 ended February 29, 2004

Commission file number 0-13394

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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)

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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 29, 2003, 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 $20,290,238.

The
number of shares outstanding of the registrant's Common Stock as of May 14, 2004 was 4,792,000.

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 2004 Annual Meeting of Stockholders in Part III, Items 10, 11, 12, 13 and 14.



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TABLE OF CONTENTS

|ITEM
NUMBER |  |                                                                                                                 |  | PAGE
NUMBER
|----------- |  | --------------------------------------------------------------------------------------------------------------- |  | -----------
|PART I     
|Item 1.     |  | Business                                                                                                        |  | 2          
|Item 2.     |  | Properties                                                                                                      |  | 8          
|Item 3.     |  | Legal Proceedings                                                                                               |  | 8          
|Item 4.     |  | Submission of Matters to a Vote of Security Holders                                                             |  | 9          
|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                           |  | 12         
|Item 7A.    |  | Quantitative and Qualitative Disclosures About Market Risk                                                      |  | 25         
|Item 8.     |  | Financial Statements and Supplementary Data                                                                     |  | 25         
|Item 9.     |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                            |  | 25         
|Item 9A.    |  | Controls and Procedures                                                                                         |  | 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, Financial Statement Schedules, and Reports on Form 8-K                                                |  | 27         

SIGNATURES

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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. 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 (79% of consolidated sales in fiscal 2004) as well as distribution of parts and
accessories for consumer products (21% of consolidated sales in fiscal 2004). Virtually all of the Company's earnings were derived from the display segment of the business in fiscal 2004. The
Company's four display segments are as follows with percentage of revenue contributions for fiscal 2004:

Monitor
Division (75%)
        Home Entertainment CRT Division (9%)
        Data Display CRT Division (13%)
        Components Division (3%)

(See
also Note 12 to Consolidated Financial Statements. Segment Information)

Manufacturing
and distribution facilities are located in Georgia, Florida, Louisiana, California, Texas, 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 the products offered 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 subsegments 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.

Segment Information

This information is provided in Note 12 to the Consolidated Financial Statements.

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), Lexington, Kentucky (Lexel); and San Jose, California (XKD).

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This
segment of the Company's operations involves the design, engineer and manufacture of complete monochrome and color monitor units using new CRTs or flat panel displays, including its
fastest growing training and simulation projection system division. The Company will customize these monitors for specific applications, including ruggedization for military uses or size reduction due
to space limitations in industrial and medical applications. Because of the Company's 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 successfully developed its monitor division during the past five
years from a zero revenue base to represent approximately 60% of fiscal 2004 consolidated net revenues.

The
monitor segment of the Company's operations markets its products in niche markets where competition from major multinational electronics companies tends not to be a significant
factor. The prime customers of this segment 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.

Although
most monitors are customized to meet a customer's specifications, all monitors sold include the following general components: CRTs 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); Dallas,
Texas (MagnaView); 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 distributor
of data display CRTs purchased from outside sources. The European location is a sales and distribution facility.

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.

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

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

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 $835,000, $910,000 and $549,000 for fiscal
2004, 2003 and 2002, respectively.

The
remaining operation in the component sector, Wintron, located in Howard, Pennsylvania, produces flyback transformers, coils and power transformers. Intercompany sales transactions
were $105,000, $221,000 and $210,000 for fiscal 2004, 2003 and 2002, 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 CRT 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 is expected to have a
positive effect on the Company's monitor division. The Company will continue to monitor these trends and continue to 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

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consumers.
In its relationship with consumer electronic manufacturers, Fox International receives the right, often exclusively, to ship parts to authorized dealers. Many of the manufacturers also
direct inquiries for replacement parts to Fox International. Each manufacturer requires a distributor to stock its most popular parts and monitors the order fill ratio to ensure that their customers
have access to sufficient replacement parts. Fox International attempts to maintain 98% fill ratios in order to secure favored distributor status from the manufacturers, requiring a significant
investment in inventories.

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 $114,000, $63,000 and $155,000 in fiscal 2004, 2003 and 2002, respectively. The Company's key patents are held by the subsidiaries within the monitor
division. Although the Company believes that the patents and trademarks owned are of value, the Company believes that success in its industry will be dependent upon 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 value that it allowed to expire in 2004.

Seasonal Variations in Business

Historically, there have not been any seasonal variations in the Company's CRT operating subsegments.

Working Capital Practices

The Company has a $12,000,000 line of credit with SouthTrust Bank, as well as a $2,750,000 secondary line of credit with Fifth Third Bank. 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 CRT division had direct and indirect net sales to the U.S. government, primarily the Department of Defense for training and
simulation programs, that comprised approximately 21%, 25% and 17% of CRT segment net sales and 16%, 20% and 13% of consolidated net sales in fiscal 2004, 2003 and 2002, respectively. Sales to foreign
customers were 14% of consolidated net sales for both fiscal 2004 and 2003 and 10% for fiscal year 2002. The Company's wholesale electronic parts distributor, Fox International, had net sales to one
customer, National Parts, Inc., that comprised approximately 19%, 18% and 20% of that subsidiary's net sales in fiscal 2004, 2003 and 2002, 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 $23,206,000 at February 29,

5

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2004
and $21,413,000 at February 28, 2003. The Company's Lexel division comprised $9,203,000 or 40% and $15,810,000 or 74% of the 2004 and 2003 backlog, respectively. It is anticipated that
more than 95% of the February 29, 2004 backlog is expected to ship during fiscal 2005.

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) which generated revenues of approximately $16,957,000, $15,083,000 and $9,098,000 for the fiscal years ended 2004, 2003 and 2002, respectively. The Company's costs and earnings in excess
of billings on these contracts were approximately $411,000 at February 29, 2004 and $514,000 at February 28, 2003. The Company had no billings in excess of costs and earnings on these
contracts at February 29, 2004 and February 28, 2003. 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. Through fiscal 2004, the Company has not incurred significant costs for basic
research or new product development and, therefore, has not segregated these costs as a separate item but has included such costs in the consolidated financial statements as a part of costs of goods
sold. As the Company continues to increase its development of new technology, these costs will be monitored and separately categorized, if material. Research and development costs amounted to
approximately $162,000, $285,000 and $579,000 in fiscal 2004, 2003 and 2002, respectively.

Employees

As of February 29, 2004, the Company employed a total of 404 persons on a full time basis. Of these, 154 were employed in executive, administrative, and
clerical positions, 34 were employed in sales and distribution, and 211 were employed in manufacturing operations. A union represents 5 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.

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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 sufficiently large enough to absorb the additional transportation costs incurred by foreign
CRT manufacturers.

The
Company believes it has a competitive advantage and is a sole source in providing many of its CRTs to the customer base of its Teltron and Lexel subsidiaries (companies within the
Monitor division) 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 flexibility to handle lower volume orders as well as its ability to provide internally
produced component parts. As a result, the Company can offer more customization in the design and engineering of new products.

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

The
Company does utilize flat panel displays in many of its monitor units. These flat panels are purchased from OEMs. The revenue generated in fiscal 2004 from products utilizing
flat panel technology was $6,329,000 as compared to $4,031,000 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. 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 gives it a competitive advantage. Fox International sells a wide

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variety
of electronic parts and accessories, including semiconductors, resistors, audio/video parts and batteries.

ITEM 2. PROPERTIES

The Company leases its corporate headquarters at 1868 Tucker Industrial Drive in Tucker, Georgia (within the Atlanta metropolitan area) and occupies approximately
10,000 square feet of the total 59,000 square feet at this location. The remainder is utilized as warehouse and assembly facilities. This location, as well as several others, is leased from related
parties at current market rates. See "Item
13Certain Relationships and Related Transactions". 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 
|Tucker, Georgia                                                      |  | 40,000      |  | January 2, 2006   
|White Mills, Pennsylvania                                            |  | 110,000     |  | Company Owned     
|Bossier City, Louisiana                                              |  | 26,000      |  | Company Owned     
|Dallas, Texas                                                        |  | 24,000      |  | January 31, 2005  
|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 17, 2005  
|Lexington, Kentucky                                                  |  | 152,000     |  | March 31, 2005    
|San Jose, California                                                 |  | 10,500      |  | March 31, 2006    
|Atlanta, Georgia                                                     |  | 500         |  | September 30, 2004
|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     

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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.

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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.

PART II

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

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

The
following table shows the range of prices for the Company's common stock as reported (and as adjusted for the stock dividend discussed below) by the NASDAQ for each quarterly period
beginning on March 1, 2002. The prices reflect inter-dealer prices, without mark-up, mark-down, or commission, and may not necessarily represent actual transactions.

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

There
were approximately 700 holders of record of the Company's common stock as of May 14, 2004.

The
Company paid a cash dividend of $0.05 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, as further
described in the notes to the consolidated financial statements.

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

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Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides information as of February 29, 2004 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     |  | 151,000                                                                                     |  | $                                                                           | 4.40 |                                                                                                                                            
|Equity compensation plans not approved by security holders |  |                                                                                            |  |                                                                             |     |                                                                                                                                            
|                                                           |  |                                                                                             |  |                                                                             |      |                                                                                                                                            
|Total                                                      |  | 151,000                                                                                     |  | $                                                                           | 4.40 |                                                                                                                                            
|                                                           |  |                                                                                             |  |                                                                             |      |                                                                                                                                            

Recent Sales of Unregistered Securities

In June 2001, the Company issued 186,000 shares of its common stock upon the surrender of $775,000 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.

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

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 29, 2004 are derived from the Consolidated Financial Statements appearing elsewhere in this Report or in previous reports,
which have been audited by BDO Seidman, LLP, independent certified public accountants. The selected consolidated financial data should be read in conjunction with, and is qualified in its entirety by
reference to,

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

|                                                |  | 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                         |  |                       

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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 distinct segments(1) the manufacture and distribution of monitors, projection systems and CRTs and (2) the
wholesale distribution of consumer electronic parts. The monitor and CRT segment is organized into four distinct subsegments or divisions:



Fiscal 2004 Highlights



Fiscal 2004 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 CRT's and component parts in an effort to ensure its customers a reliable source of supply. The Company would
generally anticipate holding 90 to 100 days of inventory in the normal course of operations. This level of inventory is higher than some of the Company's competitors due to the fact that it
sells a number of

12

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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 subsegment 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 a broad range of products (which contributes to a higher total inventory) to be able to promptly provide those customers who are buying
products, or obtaining warranty replacements, for electronic part components. In 2004 and 2003, the Company recorded consolidated provisions of $1.5 million and $4.9 million,
respectively, for obsolescence and overstock.

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 Subsegments. See also Note 12 to the
Consolidated Financial StatementsSegment Information)

|                                             |                           | 2004 |        | 2003   |       | 2002 |  
|-------------------------------------------- | ------------------------- | ---- | ------ | ------ | ----- | ---- | -
|
|
|Sales:                                       |                           |      |        |        |       |      |  
|CRT segment                                  |                           |      |        |        |       |      |  
|Monitors                                     |                           | $    | 45,900 |        | 59.9  | %    | $
|Data display CRTs                            |                           |      | 7,801  |        | 10.2  |      |  
|Home entertainment CRTs                      |                           |      | 5,574  |        | 7.3   |      |  
|Electron guns and components                 |                           |      | 1,122  |        | 1.5   |      |  
|                                             |                           |      |        |        |       |      |  
|Total CRT Segment                            |                           |      | 60,397 |        | 78.9  |      |  
|Wholesale distribution segment               |                           |      |        |        |       |      |  
|                                             | Consumer electronic parts |      |        | 16,195 |       | 21.1 |  
|                                             |                           |      |        |        |       |      |  
|                                             |                           |      | 76,592 |        | 100.0 |      |  
|                                             |                           |      |        |        |       |      |  
|Costs and expenses:                          |                           |      |        |        |       |      |  
|Cost of goods sold                           |                           |      | 51,604 |        | 67.4  |      |  
|Selling and delivery                         |                           |      | 6,930  |        | 9.0   |      |  
|General and administrative                   |                           |      | 11,789 |        | 15.4  |      |  
|Recognized foreign currency translation loss |                           |      |       |        |      |      |  
|                                             |                           |      |        |        |       |      |  
|                                             |                           |      | 70,323 |        | 91.8  |      |  
|                                             |                           |      |        |        |       |      |  
|Operating profit (loss)                      |                           |      | 6,269  |        | 8.2   |      |  
|Interest expense                             |                           |      | (1,182 | )      | (1.5  | )    |  
|Other income (expense), net                  |                           |      | (50    | )      | (0.1  | )    |  
|                                             |                           |      |        |        |       |      |  
|Income (loss) before taxes                   |                           |      | 5,037  |        | (6.6  | )    |  
|Income tax (benefit) expense                 |                           |      | 1,872  |        | (2.4  | )    |  
|                                             |                           |      |        |        |       |      |  
|Net income (loss)                            |                           | $    | 3,165  |        | 4.1   | %    | $
|                                             |                           |      |        |        |       |      |  

13

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Fiscal 2004 Compared to Fiscal 2003

Net Sales

Consolidated net sales for fiscal 2004 increased $10,000 or less than 1% over fiscal 2003 net sales. The CRT division 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 CRT segment sales in fiscal 2004 is attributed to growth within the monitor sub-segment 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 sub-segments of $1,604,000,
$649,000 and $392,000, respectively.

The
net gain in monitor division 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 within the monitor division 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 division to increased demand within the defense sector. Revenue on new government orders
within the monitor division was $9,865,000 for the 2004 fiscal year.

Declines
in the data display division 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 Data Display division reduced bulk purchases of last time buys of CRTs in an effort to lower the Company's exposure to potential future declines
in demand.

The
component parts division recorded declines of $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 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.

Within
the entertainment division, sales of 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 a year ago. The Company is the primary supplier of replacement television CRTs to
the domestic entertainment market. A majority of the entertainment segment'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 are sold by retailers, a trend consistent with the past two fiscal years.
The Company remains the primary supplier of the manufacturer's standard warranties. Growth in this division will be impacted by the timing and number of extended warranties sold for the larger, more
expensive sets. Due to the fact that the Company is in the replacement market, it has the ability to track retail sales trends and, accordingly, can 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

14

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consumer
usage. Within the data display and monitor sub-segments, there has been an impact by flat panel technology. The Company has converted manufacturing of certain subsidiaries within
these sub-segments 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. As noted above, being in the replacement market, the Company has the ability to see product trends and make marketing, production and stocking decisions based on those trends.

The
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. CRT segment margins increased from 19.6% to 29.6% and the wholesale electronic parts segment margins decreased from 46.0% to 44.0%.

CRT
segment margins were impacted by a variety of factors. The Company's monitor division 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, the Data Display division 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, CRT 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 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, CRT segment expenses decreased $1,691,000 and Wholesale parts 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

15

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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 higher 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.

Fiscal 2003 Compared to Fiscal 2002

Net Sales

Consolidated net sales for fiscal 2003 increased $4,216,000 or 5.8% over fiscal 2002 net sales. CRT division and wholesale parts segment sales increased $669,000
or 1.1% and $3,547,000 or 26.3%, respectively for the comparative periods.

The
net increase in CRT segment sales in fiscal 2003 over fiscal 2002 is attributed to growth within the monitor sub-segment of $2,720,000 from an increase in number of
orders. Offsetting declines occurred in net sales of the data display, entertainment and component parts sub-segments of $1,623,000, $335,000 and $92,000, respectively.

The
net gain in monitor division sales includes increases from Display Systems of $3,498,000, Lexel of $1,721,000 (radar displays) and XKD of $554,000 (cockpit displays). These increases
reflect revenues from new contract orders received during fiscal 2003. There were offsetting declines of $1,604,000
resulting from management's decisions to shift production of high-resolution medical monitors and military displays produced by the MegaScan and Wolcott divisions, respectively. As a
result of this decision, plants were shut down and production was moved to the Z-Axis and Lexel divisions, respectively. This movement disrupted the ability to produce these monitors and
displays thereby, negatively impacting sales for these products. Z-Axis and Lexel will handle future sales of the high-resolution medical monitors and military display lines.
Teltron and Aydin had declines of $940,000 in comparative sales for fiscal 2003 to fiscal 2002. During fiscal 2003, the building addition construction was completed on the Birdsboro, Pennsylvania
(Teltron) facility and Aydin operations relocated from Horsham, Pennsylvania to the new Teltron facility. During the period of relocation there was a delay in the completion and shipment of orders
which negatively impacted Aydin's sales for the year.

Declines
in the data display division reflect declines primarily within the international locations including Mexico, U.K. and Netherlands. The international location sales were down
$1,206,000 when compared to a year ago. The Netherlands location was closed in mid-fiscal 2002 and Mexico was substantially closed in the fourth quarter of fiscal 2003.

The
component parts division recorded declines of $92,000 for the fiscal year ended 2003 as compared to a year ago. Electron gun and stem sales increased $153,000 while other component
parts declined $245,000, which was attributed to fewer units being sold.

16

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Within
the entertainment division, sales of projection tube CRTs increased $619,000 but were offset by declines in sales of replacement television CRTs by $954,000 for the year ended
February 28, 2003 as compared to the same period a year ago. The increase in projection CRTs sales reflects the continued efforts by the Company to expand its marketing of projection tubes for
use in home theater and commercial applications through greater direct sales contact and internet marketing.

The
Company is the primary supplier of replacement television CRTs to the domestic entertainment market. A majority of the entertainment segment'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 are sold by retailers, a trend consistent with the past two fiscal years. The Company remains the primary supplier of the manufacturer's standard warranties. Growth in this division will be
impacted by the timing and number of extended warranties sold for the larger, more expensive sets. Due to the fact that the Company is in the replacement market, it has the ability to track retail
sales trends and, accordingly, can attempt to adjust quantities of certain size CRTs carried in stock and reduce the exposure to obsolescence. In fiscal 2003, 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 sub-segments, there has been an impact by flat panel technology. The Company has converted manufacturing of certain
subsidiaries within these sub-segments to produce flat panel products. As noted above, being in the replacement market, the Company has the ability to see product trends and make
marketing, production and stocking decisions based on those trends. As a result of declining market conditions, management shut down the monochrome CRT manufacturing operations (closure of Mexican
operations) and began sourcing these products from overseas suppliers.

The
increase in the wholesale consumer parts segment of $3,547,000 is attributed primarily to the additions of the Applica, Inc. ("Applica") and Norelco distribution agreement
revenues. These agreements authorize Fox International to distribute parts and accessories for Applica's Black & Decker, Profinish, Quick & Easy, and Spacemaker product lines and for
Norelco's product lines. Sales generated pursuant to these agreements were approximately $5,800,000 and $718,000 in fiscal 2003 and 2002, respectively. These increases were offset by decreases of
approximately $1,500,000 in consumer retail sales, which have been negatively impacted by general economic conditions.

Gross Margins

Consolidated gross profit margins decreased from 31.7% to 25.5% for the year ended February 28, 2003 as compared to the year ended February 28,
2002. CRT segment margins decreased from 30.2% to 19.7% and the wholesale electronic parts segment margins increased from 38.0% to 46.1%.

The
primary factors for the decline of CRT margins were third quarter write-downs and write-offs of inventories and manufacturing equipment in the amount of $4,754,000
related to the closing of operations in Mexico, Wolcott, MegaScan and Aydin UK. These locations, which during the past few years had experienced reduced sales volume, lower margins due to aging
product lines with limited potential for future product development and high overhead were part of an internal restructuring of operations. Other locations within the Company with excess capacity and
newer, complementary product lines were determined to be the successors of these related customer bases. As such, certain raw materials inventories and equipment used in the manufacturing process of
these closed locations were written down or off as the Company has been able to more affordably source these products from overseas vendors or to shift the processes to more efficient locations within
the Company. Management determined it cost prohibitive to physically transfer the related materials and equipment to other

17

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Company
locations. Another component of the charge to cost of sales in the third quarter of fiscal 2003 was a write-down of $1,239,000, which reflects the carrying cost of inventories
previously manufactured by the Mexican operation to current net realizable value as well as the write-off of older or large quantity stocks.

The
remainder of the decline in CRT margins is attributed in part to decreases in margins within the monitor sub-segment. Display Systems margins declined due to the fact
that products sold in the previous year included bulk inventories acquired at significantly reduced costs related to the acquisition of the Marquee product line in the third quarter of
fiscal 2002. As these inventories have been sold, replacement items have been purchased at current market costs and, thus, have increased the cost of items produced.

The
increase in the wholesale consumer parts segment margins is largely attributable to the Applica and Norelco distribution agreements. The revenues associated 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 increased from 26.6% for the year ended February 28, 2002 to 28.9% for the year ended February 28, 2003.

The
CRT segment operating expenses increased $2,901,000 for the year ended February 28, 2003 as compared to a year ago. Included in operating expenses is $572,000 of accounts
receivable and other assets that were written off in the third quarter of fiscal 2003 related to the closure of the Mexican operations. Additionally, a third quarter non-cash charge of
$1,296,000 was recognized for the cumulative foreign currency translation adjustment related to the Mexican subsidiary that was previously carried as a component of shareholders' equity.

Operating
expenses increased by $828,000 compared to the prior year at Display Systems in order to handle the increased business generated from the Christie Marquee product
line acquired in fiscal 2002. Based on expected increased sales volume, it is anticipated that these costs will continue to increase slightly in the near term and then stabilize as sales level out.
Additionally, there were increased operating costs associated with the closure of the Mexican operations including severance payments, as required by Mexican law of $217,000, which were paid during
the third and fourth quarters of 2003. The increases were offset by reductions to operating expenses of $223,000 related to the locations closed during the year. Additionally, the Company adopted SFAS
No. 142 at the beginning of fiscal 2003 and, accordingly, ceased amortization of goodwill at that time. Goodwill amortization expense was $320,000 for the year ended February 28, 2002.

The
wholesale parts segment operating expenses were up $1,298,000 for the year ended February 28, 2003 as compared to a year ago, but as a percentage of sales decreased from 41.3%
to 40.3%. The increase includes $1,520,000 related to increases in delivery, labor and commission expenses associated with the Applica and Norelco revenue increases. Offsetting decreases of $222,000
were experienced in
various operating expense line items. The delivery and commission expenses related to the Applica and Norelco lines are a function of sales volume. As sales increase it is expected that these costs
will increase as well. However, the percentage of total operating expenses to net sales as a whole should stabilize or decline slightly as certain overhead expenses are expected to remain fixed.

Interest Expense

Interest expense decreased $92,000 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

18

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the
comparable periods. While overall debt decreased during the twelve month comparative periods by $840,000, the mix of interest rates changed.

Income Taxes

The effective tax rate for fiscal 2003 was (23.9)% compared to 45.4% for fiscal 2002. The effective tax rate for 2003 was lower than the Federal statutory rate
due to differences between income tax and financial reporting purposes relating to the abandonment of Mexican net operating losses, effects of state income taxes and offset by a decrease in
non-deductible operating expenses of $118,000 in fiscal 2003 compared to $467,000 in fiscal 2002. Non-deductible expenses in 2002 included goodwill amortization.

Management's Discussion of Liquidity and Capital Resources

At February 29, 2004 and February 28, 2003, the Company had total cash and cash equivalents of $3,021,000 and $2,392,000, respectively. The
Company's working capital was $31,947,000 and $26,739,000 at February 29, 2004 and February 28, 2003, 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. Liquidity provided by operating activities of the Company is reduced by working
capital requirements, largely inventories and accounts receivables, debt service, capital expenditures, product line additions and, in fiscal 2004, dividends.

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.

The
Company continues to monitor its cash and financing positions seeking 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 the
first quarter of fiscal 2005, the Company acquired the assets of Colorado based Data-Ray Corporation's CRT monitor operations. The asset purchase included the issuance of 33,000 shares of
the Company's common stock and $150,000 cash to the seller for a total consideration of $550,000.

Cash
provided by operations was $7,148,000 in 2004 and $3,009,000 in 2003, while in 2002, $2,544,000 was used in operations. 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 subsegment 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
subsegments. 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. In 2002,
additional investments in working capital to support sales growth and product line acquisitions (Christie Marquee) were $6,342,000.

Investing
activities used cash of $697,000, $1,106,000 and $3,441,000 in 2004, 2003 and 2002, respectively. Capital expenditures were $727,000 in 2004 as compared to $1,137,000 and
$3,156,000 in

19

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2003
and 2002, respectively. Capital expenditures in 2004 were primarily for building improvements and computer hardware. Capital expenditures in 2003 and 2002 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 and $509,000 in 2003 and 2002, respectively, 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 used cash of $5,942,000 and $1,217,000 in 2004 and 2003 and provided cash of $3,375,000 in 2002. During 2004 and 2003, the Company used cash of $4,386,000 and
$840,000, respectively, towards debt reduction while in 2002 cash proceeds of $3,358,000 from new debt were used primarily for the purchase of the Christie Marquee product line. 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 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. The Company increased its borrowings from its CEO by $1,116,000 during 2003 to pay for stock repurchases and to assist with short-term refinancing needs. The debt with the CEO
bears interest at the higher of 6% or prime plus 1%. In February 2003, this note was converted from a demand note payable to a term loan maturing in February 2006.

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.

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 2003, the Company borrowed a net $1,116,000 from the CEO to assist with the repurchase of stock and
short-term financing.

20

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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 $60,000 are due in 2005
with a final payment of $15,000 due in 2006. 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 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                                                         |  | $                     
|Capital lease obligations                                                          |  |                       
|Operating lease obligations                                                        |  |                       
|Purchase obligations*                                                              |  |                       
|Other long-term liabilities reflected on the Registrant's balance sheet under GAAP |  |                       
|                                                                                   |  |                       
|Total                                                                              |  | $                     
|                                                                                   |  |                       

---

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

21

---



warranty
reserves. The company uses the following methods and assumptions in determining its estimates:

Reserves on inventories

Reserves on inventories result in a charge to operations when the estimated net realizable value declines below cost. Management regularly reviews the Company's
investment in inventories for declines in value and establishes reserves when it is apparent that the expected realizable value of the inventory falls below its original cost. The age of the inventory
is not as significant as is the projected demand for CRTs. Management is able to identify consumer buying trends, such as size and application, well in advance of supplying replacement CRTs. Thus, the
Company is able to adjust inventory-stocking levels according to the projected demand. The average life of a CRT is five to seven years, at which time the Company's replacement market develops.
Management is also able to observe the production trends of the OEMs and the new products that are being promoted.

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 $2,506,000 and $2,339,000 at February 29, 2004 and
February 28, 2003, respectively. Amounts written off in 2004, 2003 and 2002 were $1,373,000, $4,254,000 and $353,000, respectively.

Revenue Recognition

Revenue from product sales is recognized when goods are shipped. The Company's delivery term typically is FOB 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 (see paragraph
below regarding Warranty Reserves). 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.

Revenue
from contracts that are long-term in nature at the Company's Aydin subsidiary is recognized by the percentage of completion method
(cost-to-cost basis). Profit estimates are revised periodically based upon changes in facts. Any losses identified on contracts are recognized immediately. Revenue related to
all other contracts is recognized upon shipment of product due to the short-term nature of these contracts.

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 are classified in cost of sales in the consolidated statements of operations. Shipping costs of $2,042,000, $2,080,000 and $1,010,000 were incurred in the three years ended 2004, 2003 and 2002,
respectively.

Allowance for bad debts

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

Management
reviews the valuation of accounts receivable on a monthly basis. The allowance for doubtful accounts is estimated based on historical experience of write-offs and
current economic conditions that might impact the collectibility of customer accounts, including such factors as

22

---



bankruptcies
and insolvencies. The Company performs ongoing credit evaluations of its customers. The Company continually updates the history it uses to make these estimates so as to reflect the most
recent information available. The allowance for doubtful accounts was approximately $251,000 and $502,000 at February 29, 2004 and February 28, 2003, respectively. The decrease in the
allowance was due primarily to write-offs of $336,000 in 2004 of previously reserved amounts.

Warranty reserves

Warranty reserves are determined by recording a specific reserve for known warranty issues and a general reserve based on historical claims experience. Actual
claims incurred could differ from the original estimates, requiring adjustments to the reserve. The reserve for warranty obligations was approximately $821,000 and $687,000 at February 29, 2004
and February 28, 2003, respectively.

Other Accounting Policies

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

Other
significant accounting policies, not involving the same level of measurement uncertainties as those discussed above, are nevertheless important to an understanding of the financial
statements. Policies related to the impairment of long-lived assets require difficult judgments on matters that are often subject to multiple sources of authoritative accounting guidance.
See also Note 1 to the Consolidated Financial StatementsSummary of Significant Accounting Policies.

Forward-Looking Information

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

Recent Accounting Pronouncements

In January 2003, the FASB issued Financial Accounting Standards Board Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities,
which was revised in December 2003 (FIN 46 R). FIN 46 R requires an investor with a majority of the variable interests (primary beneficiary) in a variable interest entity (VIE) to consolidate
the entity and also requires majority and significant variable interest investors to provide certain disclosures. A VIE is an entity in which the voting equity investors do not have a controlling
financial interest or the equity investment at risk is insufficient to finance the entity's activities without receiving additional subordinated financial support from the other parties. The
provisions of FIN 46 R were effective immediately for all arrangements entered into with new VIEs created after January 31, 2003. For arrangements entered into with VIEs created before
January 31, 2003, the provisions of FIN 46 R are effective at the end of the first reporting period

23

---



ending
after March 15, 2004. The Company has not identified any VIEs and, therefore, does not expect the adoption of FIN 46 R will have a material impact on its financial position or results of
operations.

In
December 2003, the Staff of the Securities and Exchange Commission (SEC or the Staff) issued Staff Accounting Bulletin No. 104 (SAB 104), Revenue Recognition, which
supercedes SAB 101, Revenue Recognition in Financial Statements. While the wording of SAB 104 has changed to reflect the issuance of EITF 00-21, the revenue recognition principles of SAB
101 remain largely unchanged by the issuance of SAB 104. EITF 00-21 was effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption
of this standard did not have a material impact on the Company's financial condition or 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 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:



24

---





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 $21,002,000 of outstanding debt at February 29, 2004 related to long-term indebtedness under variable rate debt. Interest on the outstanding balance of this debt will
be charged based on a variable rate related to the prime rate or the LIBOR rate. Both rate bases are incremented for margins specified in their agreements. Thus, the Company's interest rate is subject
to market risk in the form of fluctuations in interest rates. The effect of a hypothetical one percentage point increase across all maturities of variable rate debt would result in an decrease of
approximately $210,000 in pre-tax net income assuming no further changes in the amount of borrowings subject to variable rate interest from amounts outstanding at February 29, 2004.
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

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Securities
Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange

25

---



Commission's
rules and forms, and that such information is accumulated and communicated to the Company's management, including the Chief Executive Officer and Chief Financial Officer, as appropriate,
to allow timely decisions regarding required disclosure.

The
Company's Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act) as of the end of the period covered by this report. Based on such evaluation, such officers have concluded that, as of the
end of the period covered by this report, the Company's disclosure controls and procedures are effective.

There
have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act)
during the fiscal quarter ended February 29, 2004 that have materially affected, or are reasonably likely to materially affect the Company's internal control over financial reporting.

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 2004 fiscal year end, with respect to
directors and executive officers of the Company, is incorporated herein by reference in response to this item. In no event shall the information contained in Video Display Corporation's Proxy
Statement under the heading "Compensation and Stock Option Committee Report" or under the heading "Performance Graph" be incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information contained in Video Display Corporation's Proxy Statement to be filed within 120 days of the Company's 2004 fiscal year end, with respect to
executive compensation and transactions, is incorporated herein by reference in response to this item. In no event shall the information contained in Video Display Corporation's Proxy Statement under
the heading "Compensation and Stock Option Committee Report" or under the heading "Performance Graph" be incorporated herein by reference.

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

The information contained in Video Display Corporation's Proxy Statement to be filed within 120 days of the Company's 2004 fiscal year end, with respect to
security ownership of certain beneficial owners and management, is incorporated herein by reference in response to this item.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information contained in Video Display Corporation's Proxy Statement to be filed within 120 days of the Company's 2004 fiscal year end, with respect to
certain relationships and related transactions, is incorporated herein by reference in response to this item.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information contained in Video Display Corporation's Proxy Statement to be filed within 120 days of the Company's 2004 fiscal year end, with respect to
certain relationships and related transactions, is incorporated herein by reference in response to this item.

26

---



PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K



1.

Financial Statements:Index to Consolidated Financial Statements.

F-12.

Financial Statement Schedule:Index to Consolidated Financial Statements Schedule.

F-26




During
the quarter ended February 29, 2004, the Company filed one current report on Form 8-K:

|Filing Date      |  | Items Reported |  | Financial Statements
|---------------- |  | -------------- |  | --------------------
|January 14, 2004 |  | 7 and 9        |  | None                



|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           | ) | Lease dated January 1, 1996 by and between Registrant (Lessee) and Ronald D. Ordway (Lessor) with respect to premises located at 4701 Granite Drive, Tucker, Georgia.          
|10(e           | ) | $10,000,000 amended and restated promissory note dated May 4, 2001 between Registrant (Maker) and SouthTrust Bank (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:        |  | VIDEO DISPLAY CORPORATION
|------------ |  | -------------------------
|May 28, 2004 |  | By:                      

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 |  | May 28, 2004
|/s/ERV KUCZOGIErv Kuczogi               |  | President and Director                          |  | May 28, 2004
|/s/MURRAY FOXMurray Fox                 |  | Director                                        |  | May 28, 2004
|/s/CARLETON E. SAWYERCarleton E. Sawyer |  | Director                                        |  | May 28, 2004
|/s/CAROLYN HOWARDCarolyn Howard         |  | Director                                        |  | May 28, 2004
|/s/GREGORY A. KITTLEGregory A. Kittle   |  | Chief Financial Officer                         |  | May 28, 2004
|/s/PETER FRENDPeter Frend               |  | Director                                        |  | May 28, 2004
|/s/JOHN MORRISJohn Morris               |  | Director                                        |  | May 28, 2004

28

---





Video Display Corporation and Subsidiaries    Index to Consolidated Financial Statements

|Report of Independent Certified Public Accountants                                                                                                   |  | F-2
|---------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---
|Consolidated Balance Sheets as of February 29, 2004 and February 28, 2003                                                                            |  | F-3
|Consolidated Statements of Operations for the years ended February 29, 2004 and February 28, 2003 and 2002                                           |  | F-5
|Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss) for the years ended February 29, 2004 and February 28, 2003 and 2002 |  | F-6
|Consolidated Statements of Cash Flows for the years ended February 29, 2004 and February 28, 2003 and 2002                                           |  | 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 29, 2004 and February 28, 2003, and the related
consolidated statements of operations, shareholders' equity and comprehensive income and cash flows for each of the three years in the period ended February 29, 2004. 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Video Display Corporation and subsidiaries as
of February 29, 2004 and February 28, 2003, and the results of their operations and their cash flows for each of the three years in the period ended February 29, 2004, in
conformity with accounting principles generally accepted in the United States of America.





Atlanta,
Georgia
May 14, 2004

F-2

---





Video Display Corporation and Subsidiaries    Consolidated Balance Sheets

|                                  |                                                                          | February 29,
2004 |            | February 28,
2003 |  
|--------------------------------- | ------------------------------------------------------------------------ | ----------------- | ---------- | ----------------- | -
|Assets(Notes 5 and 6)             |                                                                          |                   |            |                   |  
|Current assets                    |                                                                          |                   |            |                   |  
|                                  | Cash and cash equivalents                                                |                   | $          | 3,021,000         |  
|                                  | Accounts receivable, net of allowance of $251,000 and $502,000 (Note 15) |                   |            | 10,910,000        |  
|                                  | Inventories (Note 3)                                                     |                   |            | 26,275,000        |  
|                                  | Deferred income taxes (Note 11)                                          |                   |            | 2,299,000         |  
|                                  | Prepaid expenses and other (Notes 2 and 4)                               |                   |            | 1,639,000         |  
|                                  |                                                                          |                   |            |                   |  
|Total current assets              |                                                                          |                   | 44,144,000 |                   |  
|                                  |                                                                          |                   |            |                   |  
|Property, plant and equipment     |                                                                          |                   |            |                   |  
|                                  | Land                                                                     |                   |            | 540,000           |  
|                                  | Buildings                                                                |                   |            | 7,016,000         |  
|                                  | Machinery and equipment                                                  |                   |            | 18,564,000        |  
|                                  |                                                                          |                   |            |                   |  
|                                  |                                                                          |                   | 26,120,000 |                   |  
|                                  | Accumulated depreciation                                                 |                   |            | (18,384,000       | )
|                                  |                                                                          |                   |            |                   |  
|Net property, plant and equipment |                                                                          |                   | 7,736,000  |                   |  
|                                  |                                                                          |                   |            |                   |  
|Goodwill (Note 1)                 |                                                                          |                   | 1,227,000  |                   |  
|Other assets (Note 4)             |                                                                          |                   | 1,444,000  |                   |  
|                                  |                                                                          |                   |            |                   |  
|                                  |                                                                          | $                 | 54,551,000 |                   | $
|                                  |                                                                          |                   |            |                   |  

See accompanying notes to consolidated financial statements.

F-3

---



Video Display Corporation and Subsidiaries    Consolidated Balance Sheets

|                                                                                                               |                                               | February 29,
2004 |            | February 28,
2003 |  
|-------------------------------------------------------------------------------------------------------------- | --------------------------------------------- | ----------------- | ---------- | ----------------- | -
|Liabilities and Shareholders' Equity                                                                           |                                               |                   |            |                   |  
|Current liabilities                                                                                            |                                               |                   |            |                   |  
|                                                                                                               | Accounts payable                              |                   | $          | 4,103,000         |  
|                                                                                                               | Accrued liabilities (Note 9)                  |                   |            | 3,506,000         |  
|                                                                                                               | Lines of credit (Note 6)                      |                   |            | 2,610,000         |  
|                                                                                                               | Notes payable to shareholders (Note 7)        |                   |            | 19,000            |  
|                                                                                                               | Current maturities of long-term debt (Note 5) |                   |            | 1,959,000         |  
|                                                                                                               |                                               |                   |            |                   |  
|Total current liabilities                                                                                      |                                               |                   | 12,197,000 |                   |  
|Lines of credit (Note 6)                                                                                       |                                               |                   | 6,199,000  |                   |  
|Long-term debt, less current maturities (Note 5)                                                               |                                               |                   | 2,018,000  |                   |  
|Notes payable to shareholders, less current maturities (Note 7)                                                |                                               |                   | 8,272,000  |                   |  
|Convertible subordinated debentures (Note 8)                                                                   |                                               |                   |           |                   |  
|Deferred income taxes (Note 11)                                                                                |                                               |                   | 664,000    |                   |  
|                                                                                                               |                                               |                   |            |                   |  
|Total liabilities                                                                                              |                                               |                   | 29,350,000 |                   |  
|                                                                                                               |                                               |                   |            |                   |  
|Minority interests                                                                                             |                                               |                   | 123,000    |                   |  
|Redeemable common stock;15,000 shares issued and outstanding (Notes 1 and 16)                                  |                                               |                   |           |                   |  
|Commitments and contingencies(Notes 13 and 14)                                                                 |                                               |                   |            |                   |  
|Shareholders' equity(Notes 1, 6 and 10)                                                                        |                                               |                   |            |                   |  
|Preferred stock; no par value2,000,000 shares authorized, none issued and outstanding                         |                                               |                   |           |                   |  
|Common stock; no par value10,000,000 shares authorized; 4,792,000 and 4,700,000 shares issued and outstanding |                                               |                   | 6,318,000  |                   |  
|Additional paid-in capital                                                                                     |                                               |                   | 92,000     |                   |  
|Retained earnings                                                                                              |                                               |                   | 18,688,000 |                   |  
|Accumulated other comprehensive loss                                                                           |                                               |                   | (20,000    | )                 |  
|                                                                                                               |                                               |                   |            |                   |  
|Total shareholders' equity                                                                                     |                                               |                   | 25,078,000 |                   |  
|                                                                                                               |                                               |                   |            |                   |  
|                                                                                                               |                                               | $                 | 54,551,000 |                   | $
|                                                                                                               |                                               |                   |            |                   |  

See accompanying notes to consolidated financial statements.

F-4

---





Video Display Corporation and Subsidiaries        Consolidated Statements of Operations

|                                                         |                                              | February 29,
2004 |            | February 28,
2003 |   | February 28,
2002 |           
|-------------------------------------------------------- | -------------------------------------------- | ----------------- | ---------- | ----------------- | - | ----------------- | ----------
|Net sales (Note 15)                                      |                                              | $                 | 76,592,000 |                   | $ | 76,582,000        |           
|Cost of goods sold                                       |                                              |                   | 51,604,000 |                   |   | 57,042,000        |           
|                                                         |                                              |                   |            |                   |   |                   |           
|Gross profit                                             |                                              |                   | 24,988,000 |                   |   | 19,540,000        |           
|                                                         |                                              |                   |            |                   |   |                   |           
|Operating expenses                                       |                                              |                   |            |                   |   |                   |           
|                                                         | Selling and delivery                         |                   |            | 6,930,000         |   |                   | 7,830,000 
|                                                         | General and administrative                   |                   |            | 11,789,000        |   |                   | 13,036,000
|                                                         | Recognized foreign currency translation loss |                   |            |                  |   |                   | 1,296,000 
|                                                         |                                              |                   |            |                   |   |                   |           
|                                                         |                                              |                   | 18,719,000 |                   |   | 22,162,000        |           
|                                                         |                                              |                   |            |                   |   |                   |           
|Operating profit (loss)                                  |                                              |                   | 6,269,000  |                   |   | (2,622,000        | )         
|                                                         |                                              |                   |            |                   |   |                   |           
|Other income (expense)                                   |                                              |                   |            |                   |   |                   |           
|                                                         | Interest expense                             |                   |            | (1,182,000        | ) |                   | (1,493,000
|                                                         | Other, net                                   |                   |            | (103,000          | ) |                   | (179,000  
|                                                         |                                              |                   |            |                   |   |                   |           
|                                                         |                                              |                   | (1,285,000 | )                 |   | (1,672,000        | )         
|                                                         |                                              |                   |            |                   |   |                   |           
|Income (loss) before income taxes and minority interests |                                              |                   | 4,984,000  |                   |   | (4,294,000        | )         
|Provision for (benefit from) income taxes (Note 11)      |                                              |                   | 1,872,000  |                   |   | (1,026,000        | )         
|                                                         |                                              |                   |            |                   |   |                   |           
|Income (loss) before minority interests                  |                                              |                   | 3,112,000  |                   |   | (3,268,000        | )         
|Minority interests                                       |                                              |                   | 53,000     |                   |   | (18,000           | )         
|                                                         |                                              |                   |            |                   |   |                   |           
|Net income (loss)                                        |                                              | $                 | 3,165,000  |                   | $ | (3,286,000        | )         
|                                                         |                                              |                   |            |                   |   |                   |           
|Net income (loss) per sharebasic                        |                                              | $                 | 0.68       |                   | $ | (0.69             | )         
|                                                         |                                              |                   |            |                   |   |                   |           
|Net income (loss) per sharediluted                      |                                              | $                 | 0.65       |                   | $ | (0.69             | )         
|                                                         |                                              |                   |            |                   |   |                   |           
|Average shares outstandingbasic                         |                                              |                   | 4,674,000  |                   |   | 4,758,000         |           
|                                                         |                                              |                   |            |                   |   |                   |           
|Average shares outstandingdiluted                       |                                              |                   | 4,900,000  |                   |   | 4,758,000         |           
|                                                         |                                              |                   |            |                   |   |                   |           

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, 2001 |                                                                                                                   | 4,559,000                  |          | $            | 4,533,000 |                            | $ | 92,000            |   | $                                             | 19,453,000 |                                          | $
|                           | Net income for the year                                                                                           |                            |         |              |           |                           |   |                   |  |                                               |            | 1,182,000                                |  
|                           | Unrealized loss on marketable equity securities                                                                   |                            |         |              |           |                           |   |                   |  |                                               |            |                                         |  
|                           | Foreign currency translation adjustment                                                                           |                            |         |              |           |                           |   |                   |  |                                               |            |                                         |  
|                           |                                                                                                                   |                            |          |              |           |                            |   |                   |   |                                               |            |                                          |  
|                           |                                                                                                                   | Total comprehensive income |          |              |           |                            |   |                   |   |                                               |            |                                          |  
|                           |                                                                                                                   |                            |          |              |           |                            |   |                   |   |                                               |            |                                          |  
|                           | Issuance of common stock under stock option plan                                                                  |                            | 4,000    |              |           | 17,000                     |   |                   |  |                                               |            |                                         |  
|                           | Conversion of subordinated debentures to common stock                                                             |                            | 186,000  |              |           | 775,000                    |   |                   |  |                                               |            |                                         |  
|                           |                                                                                                                   |                            |          |              |           |                            |   |                   |   |                                               |            |                                          |  
|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 |                                          | $
|                           |                                                                                                                   |                            |          |              |           |                            |   |                   |   |                                               |            |                                          |  

See accompanying notes to consolidated financial statements.

F-6

---





Video Display Corporation and Subsidiaries        Consolidated Statements of Cash Flows

|                                                                                                       |                                                                  | February 29,
2004                        |            | February 28,
2003 |           | February 28,
2002 |            
|------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------- | ---------------------------------------- | ---------- | ----------------- | --------- | ----------------- | -----------
|Operating Activities                                                                                   |                                                                  |                                          |            |                   |           |                   |            
|Net income (loss)                                                                                      |                                                                  | $                                        | 3,165,000  |                   | $         | (3,286,000        | )          
|Adjustments to reconcile net income (loss) to net cash cash provided by (used in) operating activities |                                                                  |                                          |            |                   |           |                   |            
|                                                                                                       | Depreciation and amortization                                    |                                          |            | 1,322,000         |           |                   | 1,313,000  
|                                                                                                       | Provision for losses on accounts and notes receivable            |                                          |            | 85,000            |           |                   | 649,000    
|                                                                                                       | Provision for inventory reserves                                 |                                          |            | 1,540,000         |           |                   | 4,953,000  
|                                                                                                       | Deferred income taxes                                            |                                          |            | 54,000            |           |                   | (627,000   
|                                                                                                       | Recognized foreign currency translation loss                     |                                          |            |                  |           |                   | 1,296,000  
|                                                                                                       | Net income (loss) allocated to minority interests                |                                          |            | (53,000           | )         |                   | 18,000     
|                                                                                                       | Loss on disposal of fixed assets                                 |                                          |            | 1,000             |           |                   | 667,000    
|                                                                                                       | Loss on sale of marketable equity securities                     |                                          |            | 126,000           |           |                   |           
|                                                                                                       | Changes in working capital items, net of effect of acquisitions: |                                          |            |                   |           |                   |            
|                                                                                                       |                                                                  | Accounts receivable                      |            |                   | 125,000   |                   |            
|                                                                                                       |                                                                  | Inventories                              |            |                   | 1,006,000 |                   |            
|                                                                                                       |                                                                  | Prepaid expenses and other assets        |            |                   | 87,000    |                   |            
|                                                                                                       |                                                                  | Accounts payable and accrued liabilities |            |                   | (310,000  | )                 |            
|                                                                                                       |                                                                  |                                          |            |                   |           |                   |            
|Net cash provided by (used in) operating activities                                                    |                                                                  |                                          | 7,148,000  |                   |           | 3,009,000         |            
|                                                                                                       |                                                                  |                                          |            |                   |           |                   |            
|Investing Activities                                                                                   |                                                                  |                                          |            |                   |           |                   |            
|                                                                                                       | Capital expenditures                                             |                                          |            | (727,000          | )         |                   | (1,137,000 
|                                                                                                       | Proceeds from disposal of fixed assets                           |                                          |            |                  |           |                   | 43,000     
|                                                                                                       | Proceeds from sale of marketable securities                      |                                          |            | 30,000            |           |                   |           
|                                                                                                       | Other investing activities                                       |                                          |            |                  |           |                   | (12,000    
|                                                                                                       |                                                                  |                                          |            |                   |           |                   |            
|Net cash used in investing activities                                                                  |                                                                  |                                          | (697,000   | )                 |           | (1,106,000        | )          
|                                                                                                       |                                                                  |                                          |            |                   |           |                   |            
|Financing Activities                                                                                   |                                                                  |                                          |            |                   |           |                   |            
|                                                                                                       | Proceeds from long-term debt and lines of credit                 |                                          |            | 19,525,000        |           |                   | 19,149,000 
|                                                                                                       | Repayments of long-term debt and lines of credit                 |                                          |            | (23,911,000       | )         |                   | (19,989,000
|                                                                                                       | Proceeds from stock option exercises                             |                                          |            | 312,000           |           |                   | 37,000     
|                                                                                                       | Proceeds from issuance of common stock                           |                                          |            | 51,000            |           |                   |           
|                                                                                                       | Redemption of redeemable common stock                            |                                          |            | (100,000          | )         |                   |           
|                                                                                                       | Dividend paid on common stock                                    |                                          |            | (245,000          | )         |                   |           
|                                                                                                       | Purchases and retirements of common stock                        |                                          |            | (1,574,000        | )         |                   | (414,000   
|                                                                                                       |                                                                  |                                          |            |                   |           |                   |            
|Net cash (used in) provided by financing activities                                                    |                                                                  |                                          | (5,942,000 | )                 |           | (1,217,000        | )          
|                                                                                                       |                                                                  |                                          |            |                   |           |                   |            
|Effect of exchange rates on cash                                                                       |                                                                  |                                          | 120,000    |                   |           | 91,000            |            
|                                                                                                       |                                                                  |                                          |            |                   |           |                   |            
|Net change in cash and cash equivalents (Note 16)                                                      |                                                                  |                                          | 629,000    |                   |           | 777,000           |            
|Cash and cash equivalents, beginning of year                                                           |                                                                  |                                          | 2,392,000  |                   |           | 1,615,000         |            
|                                                                                                       |                                                                  |                                          |            |                   |           |                   |            
|Cash and cash equivalents, end of year                                                                 |                                                                  | $                                        | 3,021,000  |                   | $         | 2,392,000         |            
|                                                                                                       |                                                                  |                                          |            |                   |           |                   |            

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. 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

Revenue from product sales is recognized when goods are shipped. 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.

Revenue
from contracts that are long-term in nature at the Company's Aydin subsidiary is recognized by the percentage of completion method (cost-to-cost basis). Profit estimates are
revised periodically based upon changes in facts. Any losses identified on contracts are recognized immediately. Revenue related to all other contracts is recognized upon shipment of product due to
the short-term nature of these contracts.

In
the consolidated statements of operations, revenues from shipping and handling fees charged to customers are included under the caption "Net sales" and shipping costs incurred are
included under the caption "Selling and delivery." Shipping costs of $2,042,000, $2,080,000 and $1,010,000 were incurred in the three years ended 2004, 2003 and 2002, respectively.

F-8

---



Cash and Cash Equivalents

Cash and cash equivalents include cash on account, demand deposits and certificates of deposit with maturities of less than three months.

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 Company records an allowance for doubtful accounts based on specifically identified amounts that senior
management believes to be uncollectible. The Company also records additional allowances based on certain percentages of its aged receivables, which are determined based on historical experience and
the assessment of the general financial conditions affecting its customer base. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. Based on
the information available to management, the Company believes its allowance for doubtful accounts as of February 29, 2004 is adequate. However, actual write-offs might exceed the recorded allowance.

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 realizable value of the inventory falls below its original cost. The age of the inventory is not as significant as
is the projected demand for CRTs. Management is able to identify consumer buying trends, such as size and application, well in advance of supplying replacement CRTs. Thus, the Company is able to
adjust inventory-stocking levels according to the projected demand. The average life of a CRT is five to seven years, at which time the Company's replacement market develops. Management is also able
to observe the production trends of the OEMs and the new technologies that are being promoted. Based on the information available to management, the Company believes its reserve on inventories as of
February 29, 2004 is adequate. However, actual write-offs might be different than the recorded reserve.

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.

F-9

---



Depreciation
expense totaled approximately $1,163,000, $1,130,000 and $1,240,000 for the three years ended 2004, 2003 and 2002, 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

In June 2001, the Financial Accounting Standards Board (the "FASB") issued SFAS No.142, "Goodwill and Other Intangible Assets." SFAS No.142 requires, among other
things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually.

In
addition, SFAS No. 142 requires that the Company identify reporting units for purposes of assessing potential future impairments of goodwill, reassess the useful lives of other
existing recognized finite-lived intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for
impairment in accordance with the guidance in SFAS No. 142. This statement was required to be applied in fiscal years beginning after December 15, 2001, to all goodwill and other intangible assets
recognized at that date, regardless of when those assets were initially recognized. SFAS No. 142 required the Company to complete a transitional goodwill impairment test within six months from the
date of adoption and reassess the useful lives of other intangible assets within the first interim quarter after adoption.

The
Company adopted SFAS No. 142 on March 1, 2002 and, accordingly, ceased amortization of goodwill at that time. Goodwill amortization expense of $320,000 was included in the
consolidated statement of operations for the year ended February 28, 2002.

The
following table presents the impact of SFAS No. 142 on operating profit, net income, and diluted earnings per share as if it had been in effect for the year ended February 28, 2002.

|                                        |  | 2002
|--------------------------------------- |  | ----
|Operating profit, as reported           |  | $   
|Add back: Goodwill amortization         |  |     
|                                        |  |     
|Adjusted operating income               |  | $   
|                                        |  |     
|Net income, as reported                 |  | $   
|Add back: Goodwill amortization         |  |     
|Tax effect                              |  |     
|                                        |  |     
|Adjusted net income                     |  | $   
|                                        |  |     
|Diluted earnings per share, as reported |  | $   
|Goodwill amortization                   |  |     
|                                        |  |     
|Adjusted diluted earnings per share     |  | $   
|                                        |  |     

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 subsegment. As a result of such testing in December 2003, the Company
determined there

F-10

---



was
no impairment of goodwill that should be included in the accompanying financial statements. At February 29, 2004, February 28, 2003 and February 28, 2002 the net book value recorded for goodwill
was $1,227,000.

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 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.

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 29,
2004 |           | February 28,
2003 |   | February 28,
2002 |      
|--------------------------------------------------------------------------------------- | ------------------- | ----------------- | --------- | ----------------- | - | ----------------- | -----
|Net income (loss), as reported                                                          |                     | $                 | 3,165,000 |                   | $ | (3,286,000        | )    
|Stock-based employee compensation expense, as reported                                  |                     |                   |          |                   |   |                  |      
|Stock-based employee compensation expense determined under fair value basis, net of tax |                     |                   | (35,000   | )                 |   | (23,000           | )    
|                                                                                        |                     |                   |           |                   |   |                   |      
|Pro forma net income (loss)                                                             |                     | $                 | 3,130,000 |                   | $ | (3,309,000        | )    
|                                                                                        |                     |                   |           |                   |   |                   |      
|Net earnings (loss) per share:                                                          |                     |                   |           |                   |   |                   |      
|                                                                                        | Basicas reported   |                   | $         | 0.68              |   | $                 | (0.69
|                                                                                        | Basicpro forma     |                   | $         | 0.67              |   | $                 | (0.70
|                                                                                        | Dilutedas reported |                   | $         | 0.65              |   | $                 | (0.69
|                                                                                        | Dilutedpro forma   |                   | $         | 0.64              |   | $                 | (0.70

The
weighted average fair value of options, calculated using the Black-Scholes option pricing model, granted during the years 2004, 2003 and 2002 was $4.77, $2.89 and $4.33,
respectively. The weighted average remaining life of options outstanding at February 29, 2004, February 28, 2003 and February 28, 2002 was 3.9, 5.4 and 5.3 years, respectively.

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 2004, 2003 and

F-11

---



2002,
respectively: expected volatility of 75%, 60% and 60%; a risk-free interest rate of 3.5%, 2.1% and 4.5%; expected lives of 3.0, 3.3 and 3.5 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.

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
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.

F-12

---



The
following is a reconciliation from basic earnings (loss) per share to diluted earnings (loss) per share for each of the last three years.

|                    |                  | Net Income
(Loss) |            | Weighted
Average Shares
Outstanding |           | Earnings (Loss) Per
Share |  
|------------------- | ---------------- | ----------------- | ---------- | ----------------------------------- | --------- | ------------------------- | -
|2004                |                  |                   |            |                                     |           |                           |  
|Basic               |                  | $                 | 3,165,000  |                                     | 4,674,000 |                           | $
|Effect of dilution: |                  |                   |            |                                     |           |                           |  
|                    | Options          |                   |            |                                    |           | 86,000                    |  
|                    | Convertible debt |                   |            | 26,000                              |           | 140,000                   |  
|                    |                  |                   |            |                                     |           |                           |  
|Diluted             |                  | $                 | 3,191,000  |                                     | 4,900,000 |                           | $
|                    |                  |                   |            |                                     |           |                           |  
|2003                |                  |                   |            |                                     |           |                           |  
|Basic               |                  | $                 | (3,286,000 | )                                   | 4,758,000 |                           | $
|Effect of dilution: |                  |                   |            |                                     |           |                           |  
|                    | Options          |                   |            |                                    |           |                          |  
|                    | Convertible debt |                   |            |                                    |           |                          |  
|                    |                  |                   |            |                                     |           |                           |  
|Diluted             |                  | $                 | (3,286,000 | )                                   | 4,758,000 |                           | $
|                    |                  |                   |            |                                     |           |                           |  
|2002                |                  |                   |            |                                     |           |                           |  
|Basic               |                  | $                 | 1,182,000  |                                     | 4,701,000 |                           | $
|Effect of dilution: |                  |                   |            |                                     |           |                           |  
|                    | Options          |                   |            |                                    |           | 71,000                    |  
|                    | Convertible debt |                   |            | 59,000                              |           | 301,000                   |  
|                    |                  |                   |            |                                     |           |                           |  
|Diluted             |                  | $                 | 1,241,000  |                                     | 5,073,000 |                           | $
|                    |                  |                   |            |                                     |           |                           |  

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. Stock
options in the amount of 20,000 shares for the year ended 2002 were excluded from the diluted earnings per share calculation due to their anti-dilutive effect.

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 12).

Recent Accounting Pronouncements

In January 2003, the FASB issued Financial Accounting Standards Board Interpretation No. 46 (FIN 46 R), Consolidation of Variable Interest Entities, which was
revised in December 2003 (FIN 46 R). FIN 46 R requires an investor with a majority of the variable interests (primary beneficiary) in a variable interest entity (VIE) to consolidate the entity and
also requires majority and significant variable interest investors to provide certain disclosures. A VIE is an entity in which the voting equity investors do not have a controlling financial interest
or the equity investment at risk is insufficient to finance the entity's activities without receiving additional subordinated financial support from the other parties. The provisions of FIN 46 R were
effective immediately for all arrangements entered into with

F-13

---



new
VIEs created after January 31, 2003. For arrangements entered into with VIEs created before January 31, 2003, the provisions of FIN 46 R are effective at the end of the first reporting period
ending after March 15, 2004. The Company has not identified any VIEs and, therefore, does not expect the adoption of FIN 46 R will have a material impact on its financial position or results of
operations.

In
December 2003, the Staff of the Securities and Exchange Commission (SEC or the Staff) issued Staff Accounting Bulletin No. 104 (SAB 104), Revenue Recognition, which supercedes SAB
101, Revenue Recognition in Financial Statements. While the wording of SAB 104 has changed to reflect the issuance of EITF 00-21, the revenue recognition principles of SAB 101 remain largely unchanged
by the issuance of SAB 104. EITF 00-21 was effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of this standard did not have a material impact
on the Company's financial condition or results of operations.

Fiscal Year

All references herein to "2004", "2003" and "2002" mean the fiscal years ended February 29, 2004, February 28, 2003 and 2002, respectively.

Reclassification

Certain balances have been reclassified in the 2003 and 2002 consolidated financial statements to conform to the 2004 presentation.

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

Information
relative to contracts in progress consisted of the following:

|                                                         |  | 2004 |            | 2003 |  
|-------------------------------------------------------- |  | ---- | ---------- | ---- | -
|Costs incurred to date on uncompleted contracts          |  | $    | 3,490,000  |      | $
|Estimated earnings recognized to date on these contracts |  |      | 1,778,000  |      |  
|                                                         |  |      |            |      |  
|                                                         |  |      | 5,268,000  |      |  
|Billings to date                                         |  |      | (4,857,000 | )    |  
|                                                         |  |      |            |      |  
|Costs and earnings in excess of billings, net            |  |      | 411,000    |      | $
|                                                         |  |      |            |      |  
|Costs and earnings in excess of billings                 |  | $    | 411,000    |      | $
|Billings in excess of costs and earnings                 |  |      |           |      |  
|                                                         |  |      |            |      |  
|                                                         |  | $    | 411,000    |      | $
|                                                         |  |      |            |      |  

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

F-14

---



Note 3. Inventories

Inventories
consisted of the following:

|                                  |  | 2004 |            | 2003 |  
|--------------------------------- |  | ---- | ---------- | ---- | -
|Raw materials and work-in-process |  | $    | 11,937,000 |      | $
|Finished goods                    |  |      | 16,844,000 |      |  
|                                  |  |      |            |      |  
|                                  |  |      | 28,781,000 |      |  
|Reserves for obsolescence         |  |      | (2,506,000 | )    |  
|                                  |  |      |            |      |  
|                                  |  | $    | 26,275,000 |      | $
|                                  |  |      |            |      |  

Note 4. Notes Receivable

The Company holds a commercial note receivable with an original amount of $504,000 from the sale of its building in Wolcott, Connecticut. The note bears interest
at 8% payable monthly. The principal amount, originally due in full on December 6, 2003, was extended to January 2009. Interest only payments are required through August 2004. Combined principal and
interest payments commence in September 2004 in the amount of $9,000 per month through the maturity date. The note is secured by a first mortgage on the property. The current and non-current portions
of the $400,000 outstanding balance at February 29, 2004 are classified in "Prepaid expenses and other" and "Other assets" in the amounts of $51,000 and $349,000, respectively, in the accompanying
consolidated balance sheet.

F-15

---



Note 5. Long-Term Debt

Long-term debt consisted of the following:

|                                                                                                                                                                                                                                                                                            |  | 2004 |            | 2003 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | -
|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.                                                        |  | $    | 1,875,000  |      | $
|Term loan facility (converted to line of credit); interest rate of prime collateralized by inventories and receivables of Fox International, Inc.                                                                                                                                           |  |      |           |      |  
|Note payable to bank; interest rate of prime plus 1.5%; maturing in fiscal 2005; collateralized by assets of XKD Corporation.                                                                                                                                                               |  |      | 542,000    |      |  
|Mortgage payable to bank; variable interest rate (6.76% as of February 29, 2004); 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. |  |      | 526,000    |      |  
|Mortgage payable to bank; interest rate at FHLB index rate (5.45% as of February 29, 2004) plus 1.95%; monthly principal and interest payments of $5,000 payable through October 2021; collateralized by land and building of Teltron Technologies,
Inc.                                    |  |      | 573,000    |      |  
|Other                                                                                                                                                                                                                                                                                       |  |      | 461,000    |      |  
|                                                                                                                                                                                                                                                                                            |  |      |            |      |  
|                                                                                                                                                                                                                                                                                            |  |      | 3,977,000  |      |  
|Less current maturities                                                                                                                                                                                                                                                                     |  |      | (1,959,000 | )    |  
|                                                                                                                                                                                                                                                                                            |  |      |            |      |  
|                                                                                                                                                                                                                                                                                            |  | $    | 2,018,000  |      | $
|                                                                                                                                                                                                                                                                                            |  |      |            |      |  

Future
maturities of long-term debt are as follows:

Year

Amount2005

$
1,959,0002006


780,0002007


151,0002008


145,0002009


478,000Thereafter


464,000$
3,977,000


F-16

---



Note 6. Lines of Credit

On November 21, 2003, the Company amended its existing line of credit with a commercial bank expanding the maximum availability from $9,500,000 to $12,000,000.
The amended line of credit agreement expires in September 2005. In addition to the $12,000,000 line of credit, the lender also agreed to advance up to $3,500,000 of short-term (180 day) bridge
financing to allow the Company to consider methods of acquisition of real property currently under lease by the Company. The Company ultimately did not require the bridge financing as acquisition of
the property did not occur.

The
interest rate on the amended line of credit is a variable rate based upon the Company's earning performance. The rate can increase or decrease in a range of 1.75% to 2.50% spread
over LIBOR rates. At February 29, 2004, the floating rate was 3.60% based on a ratio of debt to EBITDA, as defined. The weighted average interest rate for 2004, 2003 and 2002 was 3.7%, 3.4% and
4.6%. The average amount and maximum amount outstanding were $6,754,000 and $8,801,000, respectively, during the fiscal year ended February 29, 2004 and $9,248,000 and $9,524,000, respectively,
during fiscal year 2003. Borrowings under the line of credit are limited to eligible accounts receivable, inventory and real estate, as defined, and includes a commitment fee of 0.25% for the unused
portion. As of February 29, 2004 and February 28, 2003, the outstanding balance on the line of credit was $6,199,000 and $9,229,000, respectively, and the available amount for borrowing
was $5,801,000 and $271,000, respectively.

The
line of credit agreement contains affirmative and negative covenants, including requirements related to tangible net worth and debt service coverage. Additionally, dividend payments,
capital expenditures and acquisitions have certain restrictions. Substantially all of the Company's retained earnings are restricted based upon these covenants.

Additionally,
the Company converted a $2,750,000 term loan facility (collateralized by assets of Fox International, Inc.) with another bank to a short-term revolving note due July 31,
2004. 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 29, 2004 was
$2,610,000 and the available amount for borrowing was $140,000.

Note 7. 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.

During
fiscal 2004, the Company repaid $80,000 to a Director, resulting in a balance of $75,000 at February 29, 2004. Principal payments of $60,000 are payable in 2005 with
a final payment of $15,000 due in 2006. These borrowings bear interest at an annual rate of 6%.

Note 8. Convertible Subordinated Debentures

The Company issued $2,000,000 in face value, 8% five-year convertible subordinated debentures to four individuals 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

F-17

---



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 9. Accrued Expenses and Warranty Obligations

The following provides a reconciliation of changes in the Company's warranty reserve for fiscal years 2004, 2003 and 2002. The Company provides no other
guarantees.

|                                 |  | Fiscal Year Ended |           
|-------------------------------- |  | ----------------- | ----------
|
|Balance at beginning of year     |  | $                 | 687,000   
|Provision for current year sales |  |                   | 2,022,000 
|Warranty costs incurred          |  |                   | (1,888,000
|                                 |  |                   |           
|Balance at end of year           |  | $                 | 821,000   
|                                 |  |                   |           

Accrued
liabilities consisted of the following:

|                                  |  | 2004 |           | 2003
|--------------------------------- |  | ---- | --------- | ----
|Accrued compensation and benefits |  |      | 1,328,000 |     
|Accrued royalties                 |  |      | 456,000   |     
|Accrued warranty                  |  |      | 821,000   |     
|Accrued other                     |  |      | 901,000   |     
|                                  |  |      |           |     
|                                  |  | $    | 3,506,000 |     
|                                  |  |      |           |     

Note 10. 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 29, 2004 and February 28, 2003, the
Company had approximately 272,000 and 278,000 shares, respectively, available for the granting of options under the stock option plan. Information regarding the stock

F-18

---



option
plan is as follows, which includes the effect of the 20% stock dividend issued on April 16, 2001 for all periods presented:

|                                 |                      | Number of
Shares |         | Weighted
Average
Exercise
Price
|-------------------------------- | -------------------- | ---------------- | ------- | -------------------------------
|Outstanding at February 28, 2001 |                      | 180,000          |         | $                              
|                                 | Granted              |                  | 42,000  |                                
|                                 | Exercised            |                  |        |                                
|                                 | Forfeited or expired |                  | (2,000  | )                              
|                                 |                      |                  |         |                                
|Outstanding at February 28, 2002 |                      | 220,000          |         | $                              
|                                 | Granted              |                  | 21,000  |                                
|                                 | Exercised            |                  | (12,000 | )                              
|                                 | Forfeited or expired |                  | (1,000  | )                              
|                                 |                      |                  |         |                                
|Outstanding at February 28, 2003 |                      | 228,000          |         | $                              
|                                 | Granted              |                  | 6,000   |                                
|                                 | Exercised            |                  | (83,000 | )                              
|                                 | Forfeited or expired |                  |        |                                
|                                 |                      |                  |         |                                
|Outstanding at February 29, 2004 |                      | 151,000          |         | $                              
|                                 |                      |                  |         |                                

|Options exercisable |  | Number of
Shares |  | Weighted
Average
Exercise
Price
|------------------- |  | ---------------- |  | -------------------------------
|February 29, 2004   |  | 145,000          |  | 4.20                           
|February 28, 2003   |  | 220,000          |  | 4.12                           
|February 28, 2002   |  | 220,000          |  | 3.93                           

|  |             | Options Outstanding |         | Options Exercisable
|- | ----------- | ------------------- | ------- | -------------------
|
|
|$ | 2.29 - 3.96 |                     | 75,000  |                    
|  | 4.40 - 5.50 |                     | 44,000  |                    
|  | 6.50 - 7.24 |                     | 18,000  |                    
|  | 7.29 - 9.34 |                     | 14,000  |                    
|  |             |                     |         |                    
|  |             |                     | 151,000 |                    
|  |             |                     |         |                    

F-19

---



Note 11. Taxes on Income

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

Fiscal Year EndedFebruary 29,
2004

February 28,
2003

February 28,
2002Current:Federal

$
1,534,000

$
(337,000
)
$
560,000State


282,000


(62,000
)

105,000Foreign


2,000





1,818,000


(399,000
)

665,000Deferred:Federal


7,000


(889,000
)

369,000State


1,000


(162,000
)

24,000Foreign


46,000


424,000


(70,000
)54,000


(627,000
)

323,000Total

$
1,872,000

$
(1,026,000
)
$
988,000


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

2004

2003

2002U.S. operations

$
4,789,000

$
(259,000
)
$
2,359,000Foreign operations


195,000


(4,035,000
)

(184,000
)$
4,984,000

$
(4,294,000
)
$
2,175,000


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

|                                           |  | Fiscal Year Ended
|------------------------------------------ |  | -----------------
|
|Taxes at statutory federal income tax rate |  | $                
|State income taxes, net of federal benefit |  |                  
|Foreign operating losses abandoned         |  |                  
|Non-deductible expenses                    |  |                  
|Change in valuation allowance              |  |                  
|Other                                      |  |                  
|                                           |  |                  
|Taxes at effective income tax rate         |  | $                
|                                           |  |                  

Deferred
income taxes as of February 29, 2004 and February 28, 2003 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-20

---



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

2004

2003Deferred tax assets:Investment capital loss carryforwards

$
287,000

$
240,000Foreign net operating loss carryforwards





46,000Uniform capitalization costs


436,000


455,000Inventory reserves


727,000


664,000Accrued liabilities


927,000


758,000Allowance for doubtful accounts


101,000


191,000Other


10,000


68,0002,488,000


2,422,000Valuation allowance


(240,000
)

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


(478,000
)

(414,000
)Other


(135,000
)

(79,000
)Net deferred tax assets

$
1,635,000

$
1,689,000Current asset


2,299,000


2,243,000Non-current liability


(664,000
)

(554,000
)$
1,635,000

$
1,689,000


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 12. Segment Information

The Company's chief operating decision maker aggregates operating segments based on the type of products produced by the segment. Based on the quantitative
thresholds specified in SFAS 131, the Company has determined that it has two reportable segments with subsegments within one of the main segments. The two reportable segments are as follows: (1) the
manufacture and distribution of cathode ray tubes and electron guns in the replacement market and (2) the wholesale distribution of consumer electronic parts from foreign and domestic manufacturers.
The subsegments within the CRT segment consists of data display CRTs, home entertainment (television and projection) CRTs, monitors and
component parts. Sales to foreign customers were 14% of consolidated net sales in both fiscal 2004 and 2003, and 10% for fiscal year 2002. Foreign operations are included in the data display
subsegment.

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

F-21

---



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 industry segment and applicable
subsegments:

Fiscal Year Ended2004

2003

2002(in thousands)Net SalesCRT segmentMonitors

$
45,900

$
42,417

$
39,697Data display


7,801


9,405


11,028Home entertainment


5,574


6,223


6,558Component parts


1,122


1,514


1,60760,397


59,559


58,890Wholesale Distribution segment


16,195


17,023


13,476$
76,592

$
76,582

$
72,366Operating Profit (Loss)CRT segmentMonitors

$
5,702

$
2,314

$
4,326Data display


(1,092
)

(7,749
)(a)

(2,272
)Home entertainment


1,546


1,981


2,088Component parts


(33
)

(143
)

(46
)6,123


(3,597
)

4,096Wholesale Distribution segment


146


975


(445
)$
6,269

$
(2,622
)
$
3,651Depreciation and AmortizationCRT segmentMonitors

$
943

$
894

$
691Data display


117


117


338Home entertainment


120


120


150Component parts


48


49


721,228


1,180


1,251Wholesale Distribution segment


94


133


409$
1,322

$
1,313

$
1,660


---

F-22

---



As of2004

2003

2002Capital Expenditures**CRT segmentMonitors

$
652

$
970

$
3,033Data display


38


39


120Home entertainment


20





Component parts





8


16710


1,017


3,169Wholesale Distribution segment


17


120


87$
727

$
1,137

$
3,256


---

Identifiable AssetsCRT segmentMonitors

$
30,082

$
32,424

$
30,924Data display


12,470


13,899


20,854Home entertainment


2,900


3,232


3,305Component parts


2,150


2,537


2,34347,602


52,092


57,426Wholesale Distribution segment


6,949


5,243


4,415$
54,551

$
57,335

$
61,841


Note 13. 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, $129,000 and $0 in fiscal
2004, 2003 and, 2002, respectively for 401(k) matching contributions.

Note 14. 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 $2,073,000, $2,412,000 and $2,340,000 in 2004, 2003 and 2002,
respectively.

F-23

---



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

Fiscal Year

Amount2005

$
1,707,0002006


925,0002007


698,0002008


351,0002009


129,000$
3,810,000


Related Party Leases

Included above are leases for manufacturing and warehouse facilities leased from shareholders and officers under operating leases expiring at various dates
through 2008. Rent expense under these leases totaled approximately $434,000, $434,000 and $491,000 in 2004, 2003 and 2002, respectively.

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

Fiscal Year

Amount2005

$
434,0002006


434,0002007


334,0002008


334,0002009


129,000$
1,665,000


Note 15. 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 CRT division had direct and indirect net sales to the U.S. government, primarily the Department of Defense for training and simulation programs, that comprised
approximately 21%, 25% and 17% of CRT segment net sales and 16%, 20% and 13% of consolidated net sales in fiscal 2004, 2003 and 2002, respectively. Sales to foreign customers were 14% of consolidated
net sales for both fiscal 2004 and 2003 and 10% for fiscal year 2002. The Company's wholesale electronic parts distributor, Fox International, had net sales to one customer, National Parts, Inc., that
comprised approximately 19%, 18% and 20% of that subsidiary's net sales in fiscal 2004, 2003 and 2002, 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-24

---



Note 16. Supplemental Cash Flow Information

|                          |                              | 2004 |   | 2003      |  | 2002
|------------------------- | ---------------------------- | ---- | - | --------- |  | ----
|Cash paid (received) for: |                              |      |   |           |  |     
|                          | Interest                     |      | $ | 1,032,000 |  | $   
|                          |                              |      |   |           |  |     
|                          | Income taxes, net of refunds |      | $ | 1,813,000 |  | $   
|                          |                              |      |   |           |  |     

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
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.

During
2002, three holders of subordinated debentures converted $775,000 into 186,068 shares of the Company's common stock. Also in 2002, the Company acquired $968,000 of assets and
assumed $968,000 of liabilities in the acquisition of the outstanding common stock of XKD, Corp. No cash was exchanged in this transaction.

Note 17. Selected Quarterly Financial Data (unaudited)

The following table sets forth selected quarterly consolidated financial data for the years ended 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.

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

|                                  |  | 2003
|--------------------------------- |  | ----
|
|
|Net Sales                         |  | $   
|Gross profit                      |  |     
|Net income (loss)                 |  |     
|Basic earnings (loss) per share   |  | $   
|Diluted earnings (loss) per share |  | $   

---

F-25

---





Video Display Corporation and Subsidiaries        Index to Consolidated Financial Statement Schedule

|Report of Independent Registered Public Accounting Firm |  | F-27
|------------------------------------------------------- |  | ----
|Schedule IIValuation and Qualifying Accounts           |  | F-28

F-26

---



Report of Independent Registered Public Accounting Firm

Video
Display Corporation
Tucker, Georgia

The
audits referred to in our report dated May 14, 2004 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
May 14, 2004 |  | /s/ BDO SEIDMAN, LLP
|----------------------------- |  | --------------------

F-27

---



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 29, 2004 |          | $ | 502,000   |  | $        | 85,000    |         
|                                 | February 28, 2003 |          | $ | 343,000   |  | $        | 649,000   |         
|                                 | February 28, 2002 |          | $ | 289,000   |  | $        | 278,000   |         
|Reserves for inventory:          |                   |          |   |           |  |          |           |         
|                                 | February 29, 2004 |          | $ | 2,339,000 |  | $        | 1,540,000 |         
|                                 | February 28, 2003 |          | $ | 1,640,000 |  | $        | 4,953,000 |         
|                                 | February 28, 2002 |          | $ | 1,643,000 |  | $        | 350,000   |         

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F-28

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