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<SEC-DOCUMENT>0000950148-08-000225.txt : 20080519
<SEC-HEADER>0000950148-08-000225.hdr.sgml : 20080519
<ACCEPTANCE-DATETIME>20080519172932
ACCESSION NUMBER:		0000950148-08-000225
CONFORMED SUBMISSION TYPE:	8-K
PUBLIC DOCUMENT COUNT:		2
CONFORMED PERIOD OF REPORT:	20080519
ITEM INFORMATION:		Regulation FD Disclosure
ITEM INFORMATION:		Financial Statements and Exhibits
FILED AS OF DATE:		20080519
DATE AS OF CHANGE:		20080519

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			VIRCO MFG CORPORATION
		CENTRAL INDEX KEY:			0000751365
		STANDARD INDUSTRIAL CLASSIFICATION:	PUBLIC BUILDING AND RELATED FURNITURE [2531]
		IRS NUMBER:				951613718
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			0131

	FILING VALUES:
		FORM TYPE:		8-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-08777
		FILM NUMBER:		08846218

	BUSINESS ADDRESS:	
		STREET 1:		2027 HARPERS WAY
		CITY:			TORRANCE
		STATE:			CA
		ZIP:			90501
		BUSINESS PHONE:		3105330474

	MAIL ADDRESS:	
		STREET 1:		P O BOX 44846
		CITY:			LOS ANGELES
		STATE:			CA
		ZIP:			90044
</SEC-HEADER>
<DOCUMENT>
<TYPE>8-K
<SEQUENCE>1
<FILENAME>v41011e8vk.htm
<DESCRIPTION>FORM 8-K
<TEXT>
<HTML>
<HEAD>
<TITLE>e8vk</TITLE>
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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 1pt solid black; font-size: 1pt">&nbsp;</DIV>




<DIV align="center" style="font-size: 14pt; margin-top: 12pt"><B>UNITED STATES<BR>
SECURITIES AND EXCHANGE COMMISSION</B>
</DIV>

<DIV align="center" style="font-size: 12pt"><B>Washington, D.C. 20549</B>
</DIV>

<DIV align="center" style="font-size: 18pt; margin-top: 12pt"><B>FORM 8-K</B>
</DIV>


<DIV align="center" style="font-size: 12pt; margin-top: 12pt"><B>CURRENT REPORT<BR>
Pursuant to Section&nbsp;13 or 15(d) of The Securities Exchange Act of 1934</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">Date of Report (Date of earliest event reported): May&nbsp;19, 2008</DIV>

<DIV align="center" style="font-size: 24pt; margin-top: 12pt"><B>VIRCO MFG. CORPORATION</B>
</DIV>

<DIV align="center" style="font-size: 10pt">(Exact name of registrant as specified in its charter)</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><B>Delaware</B><BR>
(State or other jurisdiction <BR>
of incorporation)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>001-8777</B><BR>
(Commission File Number)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>95-1613718</B><BR>
(IRS Employer<BR>
Identification No.)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><B>2027 Harpers Way <BR>
Torrance, California</B><BR>
(Address of principal executive offices)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B><BR>
90501</B><BR>
(Zip Code)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">Registrant&#146;s telephone number, including area code: (<B>310) 553-0474</B></DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">Not Applicable<BR>
(Former name or former address, if changed since last report.)</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Check the appropriate box below if the Form&nbsp;8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions (see General Instruction
A.2. below):
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT face="Wingdings">&#111;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Written communications pursuant to Rule&nbsp;425 under the Securities Act (17 CFR 230.425)
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT face="Wingdings">&#111;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Soliciting material pursuant to Rule&nbsp;14a-12 under the Exchange Act (17 CFR 240.14a-12)
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT face="Wingdings">&#111;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pre-commencement communications pursuant to Rule&nbsp;14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT face="Wingdings">&#111;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pre-commencement communications pursuant to Rule&nbsp;13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
</DIV>


<DIV style="width: 100%; border-bottom: 1pt solid black; margin-top: 10pt; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">








<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;7.01 Regulation&nbsp;FD Disclosure.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On May&nbsp;19, 2008, Virco Mfg. Corporation (the &#147;Company&#148;) mailed its Annual Report to
Stockholders, which included a Letter to Stockholders from the President of the Company, dated May
19, 2008 (the &#147;Letter&#148;). The Letter is attached to this report as Exhibit&nbsp;99.1.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information in this report (including the Letter) is furnished pursuant to Item&nbsp;7.01 and
shall not be deemed to be filed for the purposes of the Securities Exchange Act of 1934, nor shall
it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended,
except as shall be expressly set forth by specific reference in such a filing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Forward-Looking Statements</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This report and the Letter contain a number of forward-looking statements that reflect the
Company&#146;s current views with respect to future events and financial performance, including, but not
limited to, statements regarding plans and objectives of management for future operations,
including plans and objectives relating to products, pricing, marketing, expansion, manufacturing
processes and potential or contemplated acquisitions; new business strategies; the Company&#146;s
ability to continue to control costs and inventory levels; availability and cost of raw materials,
especially steel and petroleum-based products; the availability and cost of labor: the potential
impact of the Company&#146;s &#147;Assemble-To-Ship&#148; program on earnings; market demand; the Company&#146;s
ability to position itself in the market; references to current and future investments in and
utilization of infrastructure; statements relating to management&#146;s beliefs that cash flow from
current operations, existing cash reserves, and available lines of credit will be sufficient to
support the Company&#146;s working capital requirements to fund existing operations; references to
expectations of future revenues; pricing; and seasonality.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Such statements involve known and unknown risks, uncertainties, assumptions and other factors,
many of which are out of the Company&#146;s control and difficult to forecast, that may cause actual
results to differ materially from those which are anticipated. Such factors include, but are not
limited to, changes in, or the Company&#146;s ability to predict, general economic conditions, the
markets for school and office furniture generally and specifically in areas and with customers with
which the Company conducts its principal business activities, the rate of approval of school bonds
for the construction of new schools, the extent to which existing schools order replacement
furniture, customer confidence, and competition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Words such as &#147;anticipates,&#148; &#147;believes,&#148; &#147;expects,&#148; &#147;will continue,&#148; &#147;future,&#148; &#147;intends,&#148;
&#147;plans,&#148; &#147;estimates,&#148; &#147;projects,&#148; &#147;potential,&#148; &#147;budgets,&#148; &#147;may,&#148; &#147;could&#148; and similar expressions
identify forward-looking statements. Readers are cautioned not to place undue reliance on
forward-looking statements, which speak only as of the date of the Letter.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;9.01 Financial Statements and Exhibits.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;Exhibit&nbsp;99.1 &#151; Letter to Stockholders, dated May&nbsp;19, 2008.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SIGNATURES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="center"><U><B>VIRCO MFG. CORPORATION</B></U><BR>
(Registrant)<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date:  May 19, 2008&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Robert A. Virtue
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="center">
(Signature)</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="top">Name:&nbsp;&nbsp;</TD>
    <TD colspan="2" align="left">Robert A. Virtue&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="top">Title:&nbsp;&nbsp;</TD>
    <TD colspan="2" align="left">Chief Executive Officer and Chairman of the
Board of Directors</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>EXHIBIT INDEX</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="89%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Exhibit</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>No.</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Description</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="center"><DIV style="margin-left:0px; text-indent:-0px">99.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Letter to Stockholders, dated May&nbsp;19, 2008</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>2
<FILENAME>v41011exv99w1.htm
<DESCRIPTION>EXHIBIT 99.1
<TEXT>
<HTML>
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<TITLE>exv99w1</TITLE>
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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="right" style="font-size: 10pt; margin-top: 12pt">Exhibit&nbsp;99.1
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">To Our Stockholders<BR>
May&nbsp;19, 2008
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In last year&#146;s letter we described Equipment for Educators&#153;, our strategy for serving the seasonal
and logistically intensive market for educational furniture, fixtures and equipment (FF&#038;E).
Equipment for Educators has four key features:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">1. It doubles the size of our addressable market from $400M (furniture only) to $800M (the full
FF&#038;E product universe), thus aligning our strategy with the budgeting and purchasing protocols of
our public and private school customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">2. It relies primarily on our own vertically integrated American factories, which continue to gain
margin advantage as the all-in costs of global sourcing are realized.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">3. It generates value-added performance in a market defined by two economic barriers to entry:
extreme seasonality and high freight costs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">4. It relies on low-risk, non-capital intensive new products to gain market share, turning our
infrastructure investments of 1998-2000 into long-term operating annuities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Successful execution of Equipment for Educators&#153; generated the following accomplishments in 2007:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Revenue increased 2.9%, from $223,107,000 to $229,565,000.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Pre-tax earnings increased 52.6%, from $7,991,000 to $12,192,000.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Operating cash flow increased 54.7%, from $10,915,000 to $16,884,000.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Gross margin improved from 35.2% to 36.4%.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Pre-tax margin improved from 3.6% to 5.3%.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>We resumed payment of a regular quarterly cash dividend of $0.025 per share.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>We strengthened our balance sheet and added new manufacturing capabilities to our American
factories, putting us on the right side of current trends in credit markets and the global supply
chain.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In our annual reports we normally focus on the longer-term aspects of our business. This year, the
view looking forward is very much different than the view looking back. In our case the difference
is accentuated by seasonality. Leading into the summer of 2007, the American economy was in the
midst of one of the biggest bubbles in history. Tax receipts were high and so were the spending
levels of public institutions. Leading into the summer of 2008, we find ourselves in a severe
economic downturn with consumer confidence at a 26-year low.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Just as it was difficult to predict the trajectory of the real-estate bubble, it&#146;s difficult to
predict the impact of this downturn on the FF&#038;E market. We won&#146;t have a good picture of its
overall severity until mid-year, by which time we will have established our own course for peak
season deliveries. It seems relatively certain that tax receipts and related public spending will
decline as the year progresses, perhaps even more precipitously after early July, when many states
establish their new budgets. So, despite relatively stable order rates at this early stage, our
outlook remains cautious for the second half of 2008 and perhaps the first half of 2009.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">After deliberate consideration, we have decided to treat this period of economic uncertainty as an
opportunity. By continuing to aggressively enhance our products, services and market
relationships, we hope to put even greater distance between ourselves and our competitors. In last
year&#146;s report we discussed several emerging trends that might help us in this effort. All of those
trends &#151; rising prices in Asia, declining quality and reliability of extended supply chains, and
higher freight costs &#151; have intensified since 2007. To these we can now add a tighter credit
market, which may restrict the ability of smaller FF&#038;E suppliers to finance peak season demand.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our ability to finance seasonal inventories and receivables is substantial. This year we&#146;re well
positioned to service segments of the FF&#038;E market that may experience delivery interruptions for
any of the reasons listed above. We also have the ability and willingness to finance higher levels
of business for our vendor partners, who increasingly find our public contracts and values-based
approach to doing business an attractive alternative to other channels of distribution.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">So, while we can&#146;t predict the future, we can take advantage of our more flexible structure to both
manage risk and benefit from whatever opportunities may develop. As we pointed out in our fourth
quarter report, we&#146;re a much leaner company than in 2000, when the last economic slowdown began.
Here are some comparisons between our corporate structure then and now:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Metric</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Fiscal 2000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Fiscal 2007</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">287,342,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">229,565,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest and Depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">18,374,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,919,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross Margin</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">32.4</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">36.4</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Headcount</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,200</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sales per Employee</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">125,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">191,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Pre-tax Operating Margin</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">2.4</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">5.3</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Capital Expenditures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">22,711,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,832,000</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The foundation of our flexibility is our experienced workforce. When we developed our modular
manufacturing model (we call it &#147;Assemble-to-Ship,&#148; or ATS), our employees needed to learn new
skills so they could fabricate in winter, assemble in spring, and distribute in summer. We&#146;ve been
running ATS for seven full years now, and we firmly believe it&#146;s the most efficient way to deal
with the seasonality of our market. We&#146;re also proud that with our employees&#146; dedicated efforts,
we were able to keep a meaningful number of manufacturing jobs in the U.S.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Pictures really are better than words at communicating certain things. This year, to illustrate
the strategic linkage between Equipment for Educators&#153; and our recent capital investments, we&#146;ve
provided a portfolio of the products, services and infrastructure we bought with those dollars.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Under the category of annual capital expenditures we include: 1) infrastructure; 2) acquisitions;
3) new product development; 4) tooling; 5) equipment purchases or upgrades; and 6) regular
maintenance of our facilities and software. Between 1997 and 2000, when we invested heavily in
infrastructure, capital expenditures averaged $25,101,000 per year. From 2001 to the present, when
investments switched from infrastructure to product development and service enhancement, capital
expenditures have averaged $3,674,000 per year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The portfolio begins with our Conway manufacturing and distribution facility, which opened in the
year 2000. With approximately 1,200,000 square feet under roof, this facility was designed
specifically to support our ATS operating model, which in turn was developed to address the
seasonality of our core FF&#038;E market. Concurrent with this big bet on infrastructure, we also
switched from an in-house IT platform to SAP.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Together, these two investments totaled over $62,000,000 between 1997 and 2000. In retrospect,
this investment may have exceeded the combined investments of all other suppliers to the FF&#038;E
market over the last decade. Even if not strictly accurate (we have no way of knowing for sure
since many suppliers are private), this relative imbalance between Virco&#146;s market inputs and those
of other individual suppliers reflects our deep strategic and financial commitment to FF&#038;E.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The burden of these investments contributed to large losses between 2003 and 2005 when our revenue
declined faster than we could depreciate the new assets. The revenue decline was concentrated in
commodity institutional furniture such as folding chairs, folding tables and upholstered stack
chairs. Unlike FF&#038;E, these products weren&#146;t protected by seasonality or the &#147;price/cube threshold&#148;
(the point at which cheap labor is offset by freight costs). This made them susceptible to
outsourcing, which is exactly what our former big box retail customers did. We estimate the annual
value of revenue lost to OEM knock-offs at approximately $40,000,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As we explained thoroughly in last year&#146;s report (available online at www.virco.com), we made a
counter-cyclical decision to keep our American factories open at a time when conventional wisdom
suggested closing one or both of them. Many market participants presumed that products sourced
from Asia were permanently cost-advantaged, regardless of their physical characteristics or the
purchasing behavior of their end users. This presumption led to the logical conclusion that what
had happened to folding chairs would soon happen to classroom furniture.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We respectfully disagreed, and instead drew up a strategic list of products that we felt were best
produced in America. We then began developing those products or finding partners who could supply
them for us. To accelerate our move into a broader FF&#038;E product assortment, we acquired Furniture
Focus&#153; in 2002. The owners of Furniture Focus, now members of our executive management team,
</DIV>
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</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">were pioneers in the concept of FF&#038;E &#147;packaging,&#148; which integrates all the moveable and depreciable
assets of a new school construction project into a single purchasing vehicle. They brought with
them proprietary PlanSCAPE<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP> project management software and a number of crucial supplier
relationships.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In 2002 we also initiated our ongoing design partnership with Peter Glass and Bob Mills. Two years
later, we introduced their first collection, Zuma<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP>, which immediately established new standards for
comfort, style and affordability in classroom furniture.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Since then, we&#146;ve introduced an average of one major product line per year in a methodical effort
to populate the price points and functional categories on our strategic FF&#038;E product list. We&#146;ve
added 91 patents to our portfolio of intellectual property, including 88 through organic
development and 3 through acquisition. We&#146;ve doubled our capacity in the key manufacturing
processes that support new products, with special emphasis on speed of delivery and choice of
color. We also executed several upgrades of our PlanSCAPE and SAP software, including a
trouble-free upgrade in 2007 to SAP version ECC 6.0.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Some of the revenue lost to commoditized imports may take years to recover, if we decide to make
the attempt at all. Because these products lack the protection of seasonality or the price/cube
threshold, they&#146;re subject to ongoing price and value cutting regardless of their sourcing model.
We believe this ultimately leads to brand destruction even for associated non-commodity products
with a higher value-added component.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On the other hand, we see many opportunities to combine our design skills with world-class
infrastructure and expanding industry partnerships to grow branded, value-added FF&#038;E revenue.
Since 2003, when our revenue bottomed out at $191,852,000, virtually all of our growth has been
generated by the products and acquisitions illustrated in this year&#146;s report. Our new product
pipeline remains full, and we expect to continue our pattern of releasing at least one major
product line per year. This year&#146;s release was Text&#153;, a series of student desks and seminar tables
with elegant contours that harmonize with our new seating collections such as Zuma<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP>, Sage&#153;,
Metaphor&#153;, and Telos&#153;.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We learned the skills of efficient capital deployment, especially new product development, largely
out of necessity. By combining these new skills with our traditional manufacturing know-how and
strong market position, we believe the fundamentals are in place to provide the balanced and
sustainable stockholder returns we aspired to when we launched Equipment for Educators&#153; in 2003.
These include: 1) regular quarterly cash dividends; 2) potential share price appreciation; and 3)
share repurchases.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We continue to believe that a return portfolio consisting of these three elements allows
stockholders to choose the return(s) that best meet their personal investment goals. Rather than
diversifying into business activities outside our strategic expertise, we prefer to let
stockholders diversify on their own using free cash generated by continuing operations. The
durability of those cash flows is therefore essential to assessing Virco&#146;s intrinsic value.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We&#146;ve spent the last five years methodically populating categories and price points to reinforce
the leading position of our FF&#038;E product assortment. We&#146;ve strengthened our balance sheet to
support the financial demands of a highly seasonal business. We&#146;ve extended both our customer and
supplier relationships by doing business according to a deeply held set of values that applies to
all of our constituents, including competitors. And we&#146;ve added to our operational capabilities by
making efficient, targeted investments in domestic infrastructure, which continues to gain cost and
performance advantages compared to extended supply chain models.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Collectively, these efforts have built a solid market position that generates durable cash flow.
While the market itself may experience ups and downs, our long-term ability to generate cash
depends more on market position than market condition. As we continue to add new products and
services without reliance on leverage or heavy capital investments, we believe our market position
will improve even more.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our current share price fails to recognize this favorable momentum. For that reason and as part of
our program to provide a balanced portfolio of returns, we are considering the implementation of a
share repurchase program later this year. In addition, we reiterate our long-term financial goals
of 8% &#150; 10% pre-tax operating margin; $15 &#150; $20,000,000 annual operating cash flow; sustained
double-digit return on equity; and combined cash dividends and share repurchases of approximately
30% of operating cash flow.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have long favored a non-leveraged approach to market development. We think that approach is
more appropriate now than ever. Regardless of what happens over the short term, America will
continue to value the educational process. And by supporting that process
with value-added products fabricated and assembled in American factories by American workers, we
intend to walk the talk of corporate social responsibility while providing sustainable returns to
stockholders. As always, we thank our owners, employees, customers, and partners for helping us
realize this vision.
</DIV>


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