Video Display Corporation and Subsidiaries

	August 31, 2004			February 29, 2004
	(unaudited)			(Note A)
Assets
Current assets
Cash and cash equivalents	$	3,942,000		$	3,021,000
Accounts receivable, less allowance for possible losses of $312,000 and $251,000	9,013,000			10,910,000
Inventories (Notes C and F)	28,906,000			26,275,000
Deferred income taxes	2,644,000			2,299,000
Prepaid expenses and other current assets	2,060,000			1,639,000
Total current assets	46,565,000			44,144,000

Property, plant and equipment:
Land	540,000			540,000
Buildings	7,090,000			7,016,000
Machinery and equipment	18,884,000			18,564,000
	26,514,000			26,120,000
Accumulated depreciation and amortization	(18,978,000		)	(18,384,000		)
Net property, plant, and equipment	7,536,000			7,736,000

Goodwill	1,318,000			1,227,000
Other assets	1,118,000			1,444,000

Total assets	$	56,537,000		$	54,551,000

The accompanying notes are an integral part of these statements.

Video Display Corporation and Subsidiaries

Consolidated Balance Sheets

	August 31, 2004				February 29, 2004
	(unaudited)				(Note A)
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable	$	4,217,000			$	4,103,000
Accrued liabilities	3,736,000				3,506,000
Line of credit (Note E)	2,610,000				2,610,000
Notes payable to shareholders	5,000				19,000
Current maturities of long-term debt (Note D)	1,859,000				1,959,000
Total current liabilities	12,427,000				12,197,000

Line of credit (Note E)	9,596,000				6,199,000
Long-term debt, less current maturities (Note D)	878,000				2,018,000
Notes payable to shareholders, less current maturities	5,016,000				8,272,000
Deferred income taxes	686,000				664,000
Total liabilities	28,603,000				29,350,000

Minority Interests	123,000				123,000

Commitments and Contingencies

Shareholders’ Equity (Note G)
Preferred stock, no par value – 2,000,000 shares authorized; none issued and outstanding	—				—
Common stock, no par value – 10,000,000 shares authorized; 4,834,000 and 4,792,000 issued and outstanding	6,765,000				6,318,000
Additional paid in capital	92,000				92,000
Retained earnings	20,955,000				18,688,000
Accumulated other comprehensive loss	(1,000			)	(20,000		)
Total shareholders’ equity	27,811,000				25,078,000
Total liabilities and shareholders’ equity	$		56,537,000		$	54,551,000

The accompanying notes are an integral part of these statements.

Video Display Corporation and Subsidiaries

Consolidated Statements of Income (unaudited)

	Three Months Ended August 31,						Six Months Ended August 31,
	2004			2003			2004			2003

Net sales	$	20,667,000		$	19,115,000		$	40,567,000		$	38,128,000

Cost of goods sold	13,832,000			12,485,000			27,146,000			25,267,000

Gross profit	6,835,000			6,630,000			13,421,000			12,861,000

Operating expenses
Selling and delivery	1,761,000			1,685,000			3,508,000			3,464,000
General and administrative	3,017,000			3,081,000			5,929,000			5,998,000
	4,778,000			4,766,000			9,437,000			9,462,000

Operating profit	2,057,000			1,864,000			3,984,000			3,399,000

Other income (expense)
Interest expense	(232,000		)	(322,000		)	(489,000		)	(641,000		)
Other, net	35,000			74,000			162,000			118,000
	(197,000		)	(248,000		)	(327,000		)	(523,000		)

Income before income taxes	1,860,000			1,616,000			3,657,000			2,876,000

Income tax expense	708,000			614,000			1,390,000			1,093,000

Net income	$	1,152,000		$	1,002,000		$	2,267,000		$	1,783,000

Basic earnings per share of common stock (Note G)	$	0.24		$	0.22		$	0.47		$	0.39

Diluted earnings per share of common stock (Note G)	$	0.23		$	0.21		$	0.46		$	0.37

Basic weighted average shares outstanding	4,828,000			4,579,000			4,822,000			4,609,000

Diluted weighted average shares outstanding	4,946,000			4,922,000			4,932,000			4,946,000

The accompanying notes are an integral part of these statements.

Video Display Corporation and Subsidiaries

Consolidated Statements of Shareholders’ Equity and Comprehensive Income

for the Twelve Months Ended February 29, 2004 (audited) and

the Six Months Ended August 31, 2004 (unaudited)

	Common Shares		Share Amount			Additional Paid In Capital		Accumulated Other Comprehensive Income			Retained Earnings			Current Period Comprehensive Income

Balance at February 28, 2003	4,700,000		$	5,293,000		$	92,000	$	(233,000	)	$	17,004,000

Net income for the year	—		—			—		—			3,165,000			$	3,165,000
Unrealized gain on marketable equity securities	—		—			—		25,000			—			25,000
Foreign currency translation adjustment	—		—			—		62,000			—			62,000
Reclassification adjustment on the sale of marketable equity securities for a loss	—		—			—		126,000			—			126,000
Total comprehensive loss														$	3,378,000
Issuance of common stock under stock option plan	75,000		312,000			—		—			—
Conversion of convertible debentures	240,000		1,000,000			—		—			—
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 at February 29, 2004	4,792,000		6,318,000			92,000		(20,000		)	18,688,000

Net income for the period	—		—			—		—			2,267,000			$	2,267,000
Issuance of common stock under stock option plan	9,000		47,000			—		—			—			47,000
Foreign currency translation adjustment	—		—			—		19,000			—			19,000
Total comprehensive income														$	2,333,000
Issuance of common stock	33,000		400,000			—		—			—

Balance at August 31, 2004	4,834,000		$	6,765,000		$	92,000	$	(1,000	)	$	20,955,000

The accompanying notes are an integral part of these statements.

Video Display Corporation and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)

	Six Months Ended August 31,
	2004			2003

Operating Activities
Net income	$	2,267,000		$	1,783,000
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization	600,000			612,000
Provision for bad debts	61,000			87,000
Deferred income tax benefit	(323,000		)	—
Changes in working capital:
Accounts receivable	1,836,000			1,139,000
Inventories	(2,352,000		)	616,000
Prepaid expenses and other assets	(2,000		)	543,000
Accounts payable and accrued liabilities	389,000			(110,000		)
Net cash provided by operating activities	2,476,000			4,670,000

Investing activities
Capital expenditures	(314,000		)	(375,000		)
Cash paid for acquisition	(150,000		)	—
Other investing activities	—			47,000
Net cash used in investing activities	(464,000		)	(328,000		)

Financing activities
Proceeds from long-term debt and lines of credit	16,221,000			9,497,000
Payments on long-term debt and lines of credit	(17,333,000		)	(14,181,000		)
Proceeds from exercise of stock options	47,000			13,000
Purchase of common stock under repurchase program	—			(813,000		)
Redemption of redeemable common stock	—			(100,000		)
Proceeds from reissuance of common stock	—			51,000
Net cash used in financing activities	(1,065,000		)	(5,533,000		)

Effect of exchange rates on cash	(26,000		)	(12,000		)

Net change in cash	921,000			(1,203,000		)

Cash, beginning of period	3,021,000			2,392,000

Cash, end of period	$	3,942,000		$	1,189,000

The accompanying notes are an integral part of these statements.

Video Display Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with instructions for Form 10-Q as found in Article 10 of Regulation S-X. Accordingly, such consolidated financial statements do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of the results of operations for the periods covered have been reflected in the statements. The accompanying consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended February 29, 2004 included in the Company’s Annual Report on Form 10-K.

The consolidated financial statements included the accounts of the Company and its majority owned subsidiaries after elimination of all significant intercompany accounts and transactions. Certain prior period balances have been reclassified to conform to the current period presentation.

The Company has a subsidiary in the U.K., which uses the British pound as its functional currency. Assets and liabilities of this foreign subsidiary are translated using the exchange rate in effect at the end of the period. Revenues and expenses are translated using the average of the exchange rates in effect during the period. Translation adjustments and transaction gains and losses related to long-term intercompany transactions are accumulated as a separate component of shareholders’ equity.

NOTE B – ADOPTION OF 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 46R). FIN 46R 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 other parties. The provisions of FIN 46R 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 46R were effective at the end of the first reporting period ending after March 15, 2004. The Company has not identified any VIEs and, therefore, the adoption of this standard did not have a material impact on the Company’s financial position or results of operations.

In March 2004, the FASB issued an Exposure Draft for a proposed Statement of Financial Accounting Standards Statement to address the accounting for stock-based employee plans. The proposed statement, in its current form, would eliminate the ability to account for share-based compensation transactions using APB 25 and instead require that such transactions be accounted for using a fair-value-based method of accounting. The adoption of this statement, in its current form, would result in income statement effects similar to what is currently disclosed using a proforma basis (see the discussion under the caption “Stock-Based Compensation Plans” below) as allowed under Statement No. 123. The adoption of this proposed statement in its current form is not expected to have a material impact on the Company’s financial statements.

NOTE C - INVENTORIES

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

Inventories consisted of the following:

	August 31, 2004			February 29, 2004

Raw materials and work-in-process	$	15,372,000		$	11,937,000
Finished goods	16,264,000			16,844,000
	31,636,000			28,781,000
Reserves for obsolescence	(2,730,000		)	(2,506,000		)
	$	28,906,000		$	26,275,000

NOTE D - LONG-TERM DEBT

Long-term debt consisted of the following:

	August 31, 2004			February 29, 2004
Term loan facility, floating interest rate based on an adjusted LIBOR rate (4.50% as of August 31, 2004), quarterly principal payments of $313,000 through November 2005; collateralized by assets of Aydin Display, Inc.	$	1,250,000		$	1,875,000

Note payable to bank; interest rate of prime (4.5% as of August 31, 2004) plus 1.5%; collateralized by assets of XKD Corporation, paid in full.	—			542,000

Mortgage payable to bank; variable interest rate (5.5% as of August 31, 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.	501,000			526,000

Mortgage payable to bank; interest rate at FHLB plus 1.95% (7.35% as of August 31, 2004); monthly principal and interest payments of $5,000 payable through October 2021; collateralized by land and building of Teltron Technologies, Inc.	565,000			573,000

Other	421,000			461,000
	2,737,000			3,977,000
Less current portion	(1,859,000		)	(1,959,000		)
	$	878,000		$	2,018,000

NOTE E - LINES OF CREDIT

The Company has a $12,000,000 credit facility with a bank. The interest rate on the line of credit is a floating LIBOR rate (3.98% at August 31, 2004) based on a ratio of debt to EBITDA, as defined. The weighted average interest rate during the six months ended August 31, 2004 and the year ended February 29, 2004 was 3.71% and 3.70%. The average amount and maximum amount outstanding were $8,301,000 and $9,596,000, respectively, during the six months ended August 31, 2004, and $6,754,000 and $8,801,000, respectively, during fiscal year 2004. Borrowings under the line of credit are limited by eligible accounts receivable, inventory and real estate, as defined, and includes a commitment fee of 0.25% for the unused portion. As of August 31, 2004, the outstanding balance on the line of credit was $9,596,000 and the available amount for borrowing was $2,404,000.

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. As of August 31, 2004, the Company is in compliance with its loan covenants.

Additionally, the Company has a $2,750,000 secondary line of credit (collateralized by assets of Fox International, Inc.) with another bank. Interest on this line is at the rate of prime plus 1%. The line is limited by eligible accounts receivable and inventory. The outstanding balance at August 31, 2004 was $2,610,000 and the available amount for borrowing was $140,000. This line is due to expire on July 31, 2005 and, accordingly, is classified within current liabilities in the consolidated financial statements.

NOTE F – SUPPLEMENTAL CASH FLOW INFORMATION

	Six Months Ended
	August 31, 2004		August 31, 2003
Cash Paid for:
Interest	$	489,000	$	641,000
Income taxes, net of refunds	$	857,000	$	382,000

Non-cash Transactions:
Issuance of common stock for monitor division of Data Ray, Inc.	$	400,000	$	—

NOTE G – 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 period. Shares issued during the period are weighted for the portion of the period that they were outstanding. Diluted earnings per share is calculated in a manner consistent with that of basic earnings per share while giving effect to all dilutive potential common shares that were outstanding during the period.

The following table sets forth the computation of basic and diluted earnings per share for the three and six-month periods ended August 31, 2004 and 2003:

	Net Income		Weighted Average Shares Outstanding	Earnings Per Share
Quarter ended August 31, 2004
Basic	$	1,152,000	4,828,000	$	0.24
Effect of dilution:
Stock options	—		118,000
Diluted	$	1,152,000	4,946,000	$	0.23

Quarter ended August 31, 2003
Basic	$	1,002,000	4,579,000	$	0.22
Effect of dilution:
Stock options	—		97,000
Convertible debt	13,000		246,000
Diluted	$	1,015,000	4,922,000	$	0.21

Six months ended August 31, 2004
Basic	$	2,267,000	4,822,000	$	0.47
Effect of dilution:
Stock options	—		110,000
Diluted	$	2,267,000	4,932,000	$	0.46

Six months ended August 31, 2003
Basic	$	1,783,000	4,609,000	$	0.39
Effect of dilution:
Stock options	—		91,000
Convertible debt	27,000		246,000
Diluted	$	1,810,000	4,946,000	$	0.37

Stock-Based Compensation Plans

The Company has an incentive stock option plan whereby total options to purchase 150,000 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. Statement of Financial Accounting Standards 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. The Company granted 9,000 and 6,000 stock options during the quarters ended August 31, 2004 and 2003, respectively.

Based on the additional disclosure requirements of SEAS 148, "Accounting for Stock Based Compensation — Transition and Disclosure — an Amendment to SFAS 123", the following illustrates the assumptions and the effect on net income and net income per share if the Company had applied the fair value recognition provisions of SFAS 123.

	Three Months Ended						Six Months Ended
	August 31,			August 31,			August 31,			August 31,
	2004			2003			2004			2003
Net income, as reported	$	1,152,000		$	1,002,000		$	2,267,000		$	1,783,000
Stock-based employee compensation expense, as reported	—			—			—			—
Stock-based employee compensation expense determined under fair value basis, net of tax	(12,000		)	(15,000		)	(21,000		)	(27,000		)
Pro forma net income	$	1,140,000		$	987,000		$	2,246,000		$	1,756,000

Net earnings per share:
Basic – as reported	$	0.24		$	0.22		$	0.47		$	0.39
Basic – pro forma	$	0.24		$	0.22		$	0.46		$	0.38
Diluted – as reported	$	0.23		$	0.21		$	0.46		$	0.37
Diluted – pro forma	$	0.23		$	0.20		$	0.45		$	0.36

Stock Repurchase Program

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. Through August 31, 2004, the Company has repurchased 292,000 shares under this program. No shares were repurchased during the first six months of the current fiscal year.

NOTE H – BUSINESS ACQUISITION

In March 2004, the Company acquired the monitor operations of Colorado based Data Ray, Inc. The Company acquired inventory, fixed assets and various other assets of $459,000 in exchange for cash of $150,000 and $400,000 of the Company’s common stock, resulting in goodwill of approximately $91,000. These operations were consolidated into the Company’s Z-Axis, Inc. operations located in Phelps, NY, since the date of acquisition. The $400,000 of common stock was issued at $12 dollars per share, the market value of the stock at the date of purchase. The common stock has a put feature whereby Data Ray can redeem the stock for $11 per share if the price of the stock is below $12 after the one year anniversary date of the purchase agreement.

NOTE I – SUBSEQUENT EVENTS

Acquisition

On October 14, 2004, the Company announced it had finalized and completed its Asset Purchase Agreement with Evans & Sutherland. Under this agreement, the Company will pay $5,250,000 for Evans & Sutherland’s ESCP® and Targetview CRT projector product lines. This acquisition will be financed by a loan from an officer of the Company. Under the terms of the final agreement, the Company will consolidate all CRT projector manufacturing, sales and support with its established Marquee™ projector operations in Cape Canaveral, Florida. The Company expects this consolidation will be completed by the end of the year.

Stock Split

On September 8, 2004, the Company announced a two for one stock split of its common stock, payable as a stock dividend on November 1, 2004, to shareholders of record at the close of business on September 23, 2004. Shareholders will receive one share of common stock for every one share of the Company stock held on the record date. Immediately prior to the distribution there will be approximately 4,834,000 shares of common stock outstanding and immediately after the distribution there will be approximately 9,668,000 shares of common stock outstanding. The following table presents proforma information for common shares outstanding and earnings per share if the dividend had been paid in the second quarter:

	Three Months Ended				Six Months Ended
	August 31,		August 31,		August 31,		August 31,
	2004		2003		2004		2003
Net income, as reported	$	1,152,000	$	1,002,000	$	2,267,000	$	1,783,000
Basic weighted average shares outstanding, as reported	4,828,000		4,579,000		4,822,000		4,609,000
Basic weighted average shares outstanding, based on stock split	9,656,000		9,158,000		9,644,000		9,218,000
Diluted weighted average shares outstanding, as report	4,946,000		4,922,000		4,932,000		4,946,000
Diluted weighted average shares outstanding, based on stock split	9,892,000		9,844,000		9,864,000		9,892,000

Net earnings per share:
Basic – as reported	$	0.24	$	0.22	$	0.47	$	0.39
Basic – pro forma	$	0.12	$	0.11	$	0.24	$	0.20
Diluted – as reported	$	0.23	$	0.21	$	0.46	$	0.37
Diluted – pro forma	$	0.12	$	0.11	$	0.23	$	0.19

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the attached interim consolidated financial statements and with the Company’s 2004 Annual Report to Stockholders, which included audited financial statements and notes thereto for the fiscal year ended February 29, 2004, as well as 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:

• Monitors – offers a complete range of CRTs, flat panel displays and projection systems for use in training and simulation, military, medical and industrial applications.

• Data Display – offers a complete range of CRTs for use in data display screen, including computer terminal monitors and medical monitoring equipment.

• Home Entertainment – offers a complete range of CRTs and projection tubes for television and home theater equipment.

• Components – provides replacement electron guns for CRTs for independent customers as well as servicing the Company’s internal needs.

Second Quarter and Year to Date 2005 Highlights

• Monitor division revenue - the Company’s monitor division continued a strong growth trend. The Company now has the ability to compete in various niche markets within the defense, medical and projection display industries. Net sales within this segment increased in the second quarter of fiscal 2005 by $1,314,000 or 11.1% compared to the second quarter of fiscal 2004. For the six months ended August 31, 2004, net revenue increased $2,455,000 or 10.7% compared to the same period a year ago. This increase reflects new military contracts started in fiscal 2004.

• Monitor division gross profit – the Company’s monitor division sales increased 10.7%, while cost of sales increased 6.3%. The Company did more high volume contract work during the first half of fiscal 2005 as compared to the first half of fiscal 2004, while it was able to contain costs on orders of higher volume.

• Reduction of debt – for the six months ended August 31, 2004, the Company’s total debt was reduced by $1,813,000 compared to the same period a year ago, which contributed to a $152,000 decrease in interest expense for the first half of fiscal 2005.

Fiscal 2005 Challenges

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

Certain of the Company’s divisions maintain significant inventories of CRT’s and component parts in an effort to ensure its customers a reliable source of supply. The Company’s inventory turnover averages 175 days, although in many cases the Company would 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 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 segment 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. Because of this, the Company’s management monitors the adequacy of its inventory reserves regularly, and at August 31, 2004, believes its reserves to be adequate.

Results of Operations

The following table sets forth, for the three and six months ended August 31, 2004 and 2003, the percentages which selected items in the Statements of Income bear to total sales:

	Three Months Ended August 31,				Six Months Ended August 31,
	2004		2003		2004		2003
Sales
CRT Segment
Monitors	63.5	%	61.8	%	62.6	%	60.2	%
Data Display CRT’s	8.2		9.5	%	9.6		9.7
Entertainment CRT’s	5.3		7.0		5.6		7.5
Electron Guns and Components	0.9		0.7		1.0		1.4
Total CRT Segment	77.9	%	79.0	%	78.8	%	78.8	%
Wholesale Consumer Parts Segment	22.1		21.0		21.2		21.2
	100.0	%	100.0	%	100.0	%	100.0	%
Costs and expenses
Cost of goods sold	66.9	%	65.3	%	66.9	%	66.3	%
Selling and delivery	8.5		8.8		8.6		9.1
General and administrative	14.6		16.1		14.6		15.6
	90.0	%	90.2	%	90.1	%	91.0	%

Income from Operations	10.0	%	9.8	%	9.8	%	9.0	%

Interest expense	1.1	%	1.7	%	1.2	%	1.7	%
Other income	0.2		0.4		0.4		0.3
Income before income taxes	9.1	%	8.5	%	9.0	%	7.5	%
Provision for income taxes	3.4		3.2		3.4		2.8

Net Income	5.6	%	5.3	%	5.6	%	4.7	%

Net sales

Consolidated net sales increased $1,552,000 and $2,439,000 for the three and six months ended August 31, 2004 as compared to the same period ended August 31, 2003. CRT division sales increased $1,002,000 and $1,946,000 for the three and six-month comparative periods ended August 31, 2004. The wholesale division sales increased $550,000 for the three-month comparative period and $493,000 for the six-month comparative periods ended August 31, 2004.

The net increase in CRT segment sales is attributed to growth within the monitor segment of $1,314,000 for the three months ended August 31, 2004 and $2,455,000 for the six months ended August 31, 2004. This increase is due in large

part to stronger demand from military and defense contractors. The data display segment showed a decrease of $117,000 for the three month period and an increase of $209,000 for the six month comparative period. The entertainment segment showed decreases of $248,000 and $602,000 for the three and six month periods, while the components segment showed an increase for the three month period of $53,000 and a decrease of $116,000 for the six month period.

The net gain in monitor segment sales for the six months ended August 31, 2004 includes increases from Display Systems of $2,506,000 and Aydin Displays of $2,886,000. These increases reflect revenues from new contract orders received from the Boeing Co., Lockheed Martin and others during the latter part of fiscal 2004. There were offsetting declines of $2,745,000 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 significant backlogs at August 31, 2004. Z-Axis sales decreased $229,000 compared to a year ago, though management expects the recent acquisition of the Data Ray, Inc. monitor business to positively impact Z-Axis’ sales during the second half of fiscal 2005.

The data display division showed an increase in sales of $209,000 compared to the six month period ended August 31, 2003. Management attributes this primarily to its decision in late fiscal 2004 to distribute projection tube displays from its Data Display location in Tucker, Georgia instead of its Novatron location, which is a part of the entertainment division.

Within the entertainment division, sales declined $248,000 and $602,000 for the three and six month comparative periods. The Company is the primary supplier of replacement television CRT’s 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 were sold by retailers, a trend consistent with the past two fiscal years. The Company remains the primary supplier of product to meet manufacturers’ standard warranties. Growth in this division will be impacted by the timing and number of extended warranties sold for the larger, more expensive sets. Because 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 CRT’s carried in stock and reduce exposure to obsolescence.

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

Gross margins

Consolidated gross margins decreased from 34.7% to 33.1% for the quarter and from 33.7% to 33.1% for the six months ended August 31, 2004 as compared to August 31, 2003. CRT segment margins were relatively flat for the three and six month comparative periods. The wholesale parts segment margins decreased from 45.9% to 39.7% and from 47.2% to 42.1% for the same comparative periods.

The wholesale parts segment margins were negatively impacted due to higher sales to two customers, National Parts and Best Buy, which carry lower margins. Also, the wholesale parts segment has a distribution agreement with Applica and Norelco. The revenues for these products include a handling charge and shipping revenue which carry significant profit margins. These sales were down slightly compared to the comparative periods a year ago.

Operating expenses

Operating expenses as a percentage of sales decreased from 24.9% to 23.1% for the quarter ended August 31, 2004 as compared to August 31, 2003 and from 24.8% to 23.3% for the same six month comparative period. CRT segment selling expenses increased $103,000 while the wholesale parts segment expenses remained flat for the comparative periods. Despite the increase in selling expenses within the CRT segment, selling expenses remained flat as a percentage of sales for the comparative periods.

CRT segment increases included increases within the monitor segment of $164,000, reflecting the continued growth and need for support personnel within this division. These increases were offset by declines within the data display segment of $67,000, which reflect lower payroll costs achieved through the reduction of personnel.

Interest expense

Interest expense decreased $90,000 and $152,000 for the three and six months ended August 31, 2004 as compared to the same periods a year ago. The Company maintains various debt agreements with different interest rates, most of which are based on the prime rate or LIBOR. Overall debt decreased $1,813,000 during the comparable periods, which was the primary reason for the decrease in interest expense.

Income taxes

The effective tax rate for the six months ended August 31, 2004 is 38.0% as compared to 38.0% a year ago. These rates are greater than the Federal statutory rate primarily due to the effect of state taxes and the permanent non-deductibility of certain expenses for tax purposes.

Foreign currency translation

Gains or losses resulting from the transactions with its UK subsidiary are reported in current operations while currency translation adjustments are recognized in a separate component of shareholders’ equity. There were no significant gains or losses recognized in either period related to the UK subsidiary.

Liquidity and capital resources

As of August 31, 2004, the Company had total cash and cash equivalents of $3,942,000. The Company’s working capital was $34,138,000 and $31,947,000 at August 31, 2004 and February 29, 2004. 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 receivable, 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 March 2004, the Company acquired the assets of Colorado based Data-Ray Corporation’s CRT monitor operations. Consideration for the purchase included the issuance of $400,000 of the Company’s common stock and $150,000 cash to the seller.

Cash provided by operations for the six months ended August 31, 2004 was $2,746,000 as compared to $4,670,000 for the same period a year ago. Net income for the six months ended August 31, 2004 adjusted for non-cash items provided cash of $2,605,000. Working capital requirements decreased $129,000 for the six months ended August 31, 2004 due primarily to improved collections of receivables, which provided cash of $1,836,000. Increases in accounts payable, accrued liabilities provided cash of $389,000. Increases in inventory and prepaid expenses used cash of $2,352,000 and $2,000, respectively. Inventory purchases were primarily increases within the monitor segment required to fill open backlog orders. For the six months ended August 31, 2003, working capital requirements decreased primarily from more aggressive collection efforts of receivables, which provided cash of $1,139,000, a decrease in prepaid expenses, which provided cash of $543,000, a decrease in purchase requirements for inventories, which provided cash of $616,000. Working capital requirements for the six months ended August 31, 2003 increased $110,000 to reduce overall accounts payable and accrued liabilities.

Investing activities used cash of $464,000 in the first six months of fiscal 2005, compared to $328,000 for fiscal 2004. Capital expenditures were $314,000 for the period ended August 31, 2004 as compared to $375,000 for the period ended August 31, 2003. Capital expenditures in 2005 were primarily for building improvements and computer hardware. Capital expenditures were primarily within the monitor segment to support the growth within this segment. The Company does not anticipate any significant investments in capital assets for 2005. In the first six months of fiscal 2005, the Company paid $150,000 related to the acquisition of Data Ray, Inc.

Financing activities used cash of $1,065,000 for the six months ended August 31, 2004, and used cash of $5,533,000 for the same period a year ago. During the six months ended August 31, 2004, the Company used net cash of $3,397,000 from lines of credit primarily to finance working capital needs and also to repay $3,216,000 against outstanding borrowings from the CEO, reducing the balance of his note to $5,000,000. Additionally, long-term debt was reduced by $1,240,000 for the six months ended August 31, 2004. During the period ended August 31, 2003, the Company used cash of $4,684,000, primarily for debt reduction.

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 the first quarter of fiscal 2004, 125,000 shares were repurchased for $812,000. No shares have been repurchased in fiscal 2005. Under this program, 170,500 shares remain authorized to be repurchased by the Company.

In the first quarter of fiscal 2004, the Company redeemed $100,000 of common stock previously issued for the purchase of inventory. The Company paid a cash dividend of $245,000 in the fourth quarter of fiscal 2004, 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.

On October 14, 2004, the Company entered into an Asset Purchase Agreement with Evans & Sutherland. Under this agreement, the Company will pay $5,250,000 for Evans & Sutherland's ESCP® and Targetview CRT projector product lines. This acquisition will be financed by a loan from an officer of the Company. Under the terms of the final agreement, the Company will consolidate all CRT projector manufacturing, sales and support with its established Marquee™ projector operations in Cape Canaveral, Florida. The Company expects this consolidation will be completed by the end of the calendar year.

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,

revenue recognition, the allowance for bad debts and warranty reserves. The Company uses the following methods and assumptions in determining its estimates:

Reserves on inventories

Reserves on inventories result in a charge to operations when the estimated net realizable value declines below cost. Management regularly reviews the Company’s investment in inventories for declines in value and establishes reserves when it is apparent that the expected 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. These reviews include observations of product development trends of the OEM’s, new products being marketed, and technological advances relative to the product capabilities of the Company’s existing inventories. The Company’s reserves on inventories increased $224,000 during the first six months of fiscal 2005.

Revenue Recognition

Revenue from product sales is recognized when goods are shipped. The Company does not offer rights of return to customers; however, it does offer one and two-year limited warranties on certain products.

Revenue from contracts that are long-term in nature is recognized by the percentage of completion method. Profit estimates are revised periodically based upon actual costs incurred. Any expected losses identified on contracts are recognized immediately. Revenue related to short-term contracts is recognized upon shipment of product, which is typically mandated by set delivery dates in the related contract.

Allowance for bad debts

The allowance for bad debts 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. The Company’s allowance for bad debts increased $61,000 during the first six months of fiscal 2005.

Warranty reserves

The Company’s warranty reserve is 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 Company’s warranty reserves decreased $165,000 during the first six months of fiscal 2005. The majority of this decrease occurred at the Company’s Lexel operation in Lexington, KY due to improved quality on certain products that had experienced higher than average warranty claims.

Other Accounting Policies

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

PART II

Item 1. Legal Proceedings

No new legal proceedings or material changes in existing litigation occurred during the quarter ended August 31, 2004.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

a) The Company held its annual meeting of stockholders on August 20, 2004 and solicited votes by proxy in

conjunction with such meeting.

b) The following matter was approved by the shareholders:

(i) The approval of management’s nominees to the Board of Directors with the nominees receiving the following votes:

	For	Withheld	Abstain
Ronald D. Ordway	4,389,986	269,963	152,980
Ervin Kuczogi	4,389,746	270,203	152,980
Peter Frend	4,389,986	269,963	152,980
Carolyn Howard	4,389,986	269,963	152,980
Carleton E. Sawyer	4,389,986	269,963	152,980

Item 5. Other information

None

Item 6. Exhibits and Reports on Form 8-K

None

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

Class		Number of Shares
Common Stock, No Par Value		4,834,000

PART I.	FINANCIAL INFORMATION

	Item 1. Financial Statements

	Consolidated Balance Sheets – August 31, 2004 (unaudited) and February 29, 2004 (audited)

	Consolidated Statements of Income - Three and six months ended August 31, 2004 and 2003 (unaudited)

	Consolidated Statements of Shareholders’ Equity and Comprehensive Income - Twelve months ended February 29, 2004 (audited) and the six months ended August 31, 2004 (unaudited)

	Consolidated Statements of Cash Flows – Six months ended August 31, 2004 and 2003 (unaudited)

	Notes to consolidated financial statements - August 31, 2004 (unaudited)

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

	Item 3. Quantitative and Qualitative Disclosure About Market Risk

	Item 4. Controls and Procedures

PART II.	OTHER INFORMATION

	Item 1. Legal Proceedings
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
	Item 3. Defaults upon its Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K

SIGNATURES

EXHIBIT 31.1 302 CERTIFICATION OF CEO
EXHIBIT 31.2 302 CERTIFICATION OF CFO
EXHIBIT 32.1 906 CERTIFICATION OF CEO
EXHIBIT 32.2 906 CERTIFICATION OF CFO

		VIDEO DISPLAY CORPORATION


October 15, 2004	By:	/s/ Ronald D. Ordway
		Ronald D. Ordway
		Chief Executive Officer


October 15, 2004	By:	/s/ Gregory A. Kittle
		Gregory A. Kittle
		Chief Financial Officer