VIRCO MFG CORPORATION (Form: 10-Q, Received: 09/09/2008 14:55:23)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q


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

For the quarterly period ended July 31, 2008


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

For the transition period from to

Commission File number 1-8777

VIRCO MFG. CORPORATION

(Exact Name of Registrant as Specified in Its Charter)


Delaware		95-1613718

(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

2027 Harpers Way, Torrance, CA		90501

(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code: (310) 533-0474

No change
(Former name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer þ

Non-accelerated filer o
(Do not check if a smaller reporting company)

Smaller reporting company o

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

The number of shares outstanding for each of the registrant’s classes of common stock, as of the latest practicable date:

Common Stock, $.01 par value — 14,522,701 shares as of August 31, 2008.

VIRCO MFG. CORPORATION

INDEX


Part I. Financial Information			3

Item 1. Financial Statements			3
Condensed consolidated balance sheets — July 31, 2008, January 31, 2008 and July 31, 2007			3
Unaudited condensed consolidated statements of income — Three months ended July 31, 2008 and 2007			5
Unaudited condensed consolidated statements of income — Six months ended July 31, 2008 and 2007			6
Unaudited condensed consolidated statements of cash flows — Six months ended July 31, 2008 and 2007			7
Notes to unaudited condensed consolidated financial statements — July 31, 2008			8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			15

Item 3. Quantitative and Qualitative Disclosures about Market Risk			17

Item 4. Controls and Procedures			18

Part II. Other Information			19

Item 1A. Risk Factors			19

Item 4. Submission of Matters to a Vote of Security Holders			19

Item 6. Exhibits			19
Exhibit 10.1 — First Amendment to Lease, dated as of August 20, 2008, by and between AMB Property, L.P., a Delaware limited partnership (“Lessor”) and the Company (“Lessee”).
Exhibit 10.2 — Amendment No. 1 to the Second Amended and Restated Credit Agreement, dated as of July 31, 2008, between the Company and Wells Fargo Bank, National Association.
Exhibit 31.1 — Certification of Robert A. Virtue, Principal Executive Officer, pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2 — Certification of Robert E. Dose, Principal; Financial Officer, pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1 — Certifications of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

PART I

Item 1. Financial Statements

VIRCO MFG. CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS


	7/31/2008		1/31/2008		7/31/2007
	(In thousands, except share data)
	Unaudited (Note 1)		Unaudited (Note 1)
Assets

Current assets:
Cash	$	1,851	$	2,066	$	2,048
Trade accounts receivable		43,314		15,674		51,493
Less allowance for doubtful accounts		258		200		233

Net trade accounts receivable		43,056		15,474		51,260

Other receivables		80		284		409

Inventories:
Finished goods, net		14,759		14,564		21,028
Work in process, net		18,641		20,653		12,250
Raw materials and supplies, net		12,791		7,791		7,136

		46,191		43,008		40,414

Deferred tax assets, net		3,698		4,189		—
Prepaid expenses and other current assets		1,295		1,493		1,245

Total current assets		96,171		66,514		95,376

Property, plant and equipment:
Land and land improvements		3,630		3,612		3,596
Buildings and building improvements		49,558		49,558		49,555
Machinery and equipment		116,686		114,286		111,596
Leasehold improvements		1,487		1,475		1,467

		171,361		168,931		166,214
Less accumulated depreciation and amortization		125,398		122,598		119,397

Net property, plant and equipment		45,963		46,333		46,817

Goodwill and other intangible assets, net		2,291		2,298		2,304

Deferred tax assets, net		5,652		5,652		—
Other assets		6,238		6,238		5,846

Total assets	$	156,315	$	127,035	$	150,343

See Notes to Unaudited Condensed Consolidated Financial Statements.

VIRCO MFG. CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS


	7/31/2008			1/31/2008			7/31/2007
	(In thousands, except share data)
	Unaudited (Note 1)			Unaudited (Note 1)
Liabilities

Current liabilities
Checks released but not yet cleared bank	$	4,006		$	4,163		$	2,893
Accounts payable		13,710			14,313			14,850
Accrued compensation and employee benefits		5,012			7,762			7,445
Current portion of long-term debt		14,671			74			10,890
Other accrued liabilities		9,869			8,206			9,796


Total current liabilities		47,268			34,518			45,874

Non-current liabilities
Accrued self-insurance retention and other		4,866			3,848			4,708
Accrued pension expenses		13,647			12,749			16,686
Long-term debt, less current portion		20,079			3,772			25,153


Total non-current liabilities		38,592			20,369			46,547

Deferred income taxes		—			—			260

Commitments and contingencies

Stockholders’ equity
Preferred stock
Authorized 3,000,000 shares, $.01 par value; none issued or outstanding		—			—			—
Common stock
Authorized 25,000,000 shares, $.01 par value; issued 14,522,701 shares at 7/31/2008, 14,428,662 shares at 1/31/2008; and 14,428,662 shares at 7/31/2007		145			144			144
Additional paid-in capital		114,509			114,318			113,890
Retained deficit		(39,109	)		(37,224	)		(48,806	)
Accumulated comprehensive loss		(5,090	)		(5,090	)		(7,566	)


Total stockholders’ equity		70,455			72,148			57,662


Total liabilities and stockholders’ equity	$	156,315		$	127,035		$	150,343

See Notes to Unaudited Condensed Consolidated Financial Statements.

VIRCO MFG. CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Unaudited (Note 1)


	Three months ended
	7/31/2008		7/31/2007
	(In thousands, except per share data)

Net sales	$	80,216	$	88,931
Costs of goods sold		54,327		55,216


Gross profit		25,889		33,715

Selling, general and administrative expenses		19,610		20,825
Interest expense		565		900


Income before income taxes		5,714		11,990

Provision for income taxes		2,202		380


Net income	$	3,512	$	11,610


Dividend declared
Cash	$	0.025	$	—

Net income per common share
Basic	$	0.24	$	0.81
Diluted	$	0.24	$	0.80

Weighted average shares outstanding
Basic		14,423		14,398
Diluted		14,451		14,430

See Notes to Unaudited Condensed Consolidated Financial Statements.

VIRCO MFG. CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Unaudited (Note 1)


	Six months ended
	7/31/2008		7/31/2007
	(In thousands, except per share data)

Net sales	$	109,410	$	120,053
Costs of goods sold		73,968		74,788


Gross profit		35,442		45,265

Selling, general and administrative expenses		33,401		34,811
Interest expense		874		1,444


Income before income taxes		1,167		9,010

Provision for income taxes		511		380


Net income	$	656	$	8,630


Dividend declared
Cash	$	0.05	$	—

Net income per common share
Basic	$	0.05	$	0.60
Diluted	$	0.05	$	0.60

Weighted average shares outstanding
Basic		14,426		14,384
Diluted		14,443		14,500

See Notes to Unaudited Condensed Consolidated Financial Statements.

VIRCO MFG. VIRCO MFG. CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited (Note 1)


	Six months ended
	7/31/2008			7/31/2007
	(In thousands)

Operating activities

Net income	$	656		$	8,630
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		2,885			3,414
Provision for doubtful accounts		58			8
Gain on sale of property, plant and equipment		(1	)		(17	)
Deferred income taxes		491			—
Stock based compensation		413			249

Changes in operating assets and liabilities
Trade accounts receivable		(27,640	)		(32,672	)
Other receivables		204			(181	)
Inventories		(3,183	)		(2,577	)
Income taxes		14			366
Prepaid expenses and other current assets		198			234
Accounts payable and accrued liabilities		(1,944	)		4,020


Net cash used in operating activities		(27,849	)		(18,526	)

Investing activities
Capital expenditures		(2,487	)		(2,114	)
Proceeds from sale of property, plant and equipment		1			17


Net cash used in investing activities		(2,486	)		(2,097	)

Financing activities
Proceeds from long-term debt		30,941			20,816
Repayment of long-term debt		(37	)		(37	)
Purchase of treasury stock		(63	)		—
Cash dividend paid		(721	)		—


Net cash provided by financing activities		30,120			20,779

Net (decrease) increase in cash		(215	)		156
Cash at beginning of period		2,066			1,892


Cash at end of period	$	1,851		$	2,048

See Notes to Unaudited Condensed Consolidated Financial Statements.

VIRCO MFG. CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

July 31, 2008

Note 1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months and six months ended July 31, 2008, are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2009. The balance sheet at January 31, 2008 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2008 (“Form 10-K”). All references to the “Company” refer to Virco Mfg. Corporation and its subsidiaries.

Note 2. Seasonality

The market for educational furniture and equipment is marked by extreme seasonality, with over 50% of the Company’s total sales typically occurring from June to September each year, which is the Company’s peak season. Hence, the Company typically builds and carries significant amounts of inventory during and in anticipation of this peak summer season to facilitate the rapid delivery requirements of customers in the educational market. This requires a large up-front investment in inventory, labor, storage and related costs as inventory is built in anticipation of peak sales during the summer months. As the capital required for this build-up generally exceeds cash available from operations, the Company has historically relied on third-party bank financing to meet cash flow requirements during the build-up period immediately proceeding the peak season.

In addition, the Company typically is faced with a large balance of accounts receivable during the peak season. This occurs for two primary reasons. First, accounts receivable balances typically increase during the peak season as shipments of products increase. Second, many customers during this period are government institutions, which tend to pay accounts receivable more slowly than commercial customers.

The Company’s working capital requirements during and in anticipation of the peak summer season require management to make estimates and judgments that affect assets, liabilities, revenues and expenses, and related contingent assets and liabilities. On an on-going basis, management evaluates its estimates, including those related to market demand, labor costs, and stocking inventory.

Note 3. New Accounting Standards

In October 2006, the Financial Accounting Standards Board (“FASB”) ratified EITF 06-4, “ Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements ” (“EITF 06-4”). This statement is effective for fiscal years beginning after December 15, 2007. This statement clarifies that FASB 106, “Employers Accounting for Post-Retirement Benefits other than Pensions,” applies to endorsement split-dollar life insurance arrangements. Prior to 2003, the Company provided split-dollar life insurance benefits to substantially all management employees. In 2003, the Company terminated the program for all active employees and surrendered the related policies. The Company did not terminate the policies for employees that had retired prior to 2003. The Company has purchased life insurance on the lives of the retired participants that will pay death benefits in excess of the amount promised to participants. The Company adopted EITF 06-4 on February 1, 2008, and recorded a $1,820,000 adjustment to its balance sheet to record a non-current liability included with accrued pension benefits and an equal decrease in retained earnings. The Company expects

to incur approximately $120,000 per year of accretion expense related to the liability, offset by collection of death benefits. There was no impact on prior periods related to this adoption.

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “ Fair Value Measurements ”. This Standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, which is the year beginning February 1, 2008 for the Company. The Company adopted SFAS No. 157 effective February 1, 2008. The adoption of SFAS No. 157 for financial assets and liabilities held by the Company did not have a material effect on the Company’s financial statements or notes thereto. As of July 31, 2008, the Company has financial assets in cash, which is measured at fair value using quoted prices for identical assets in an active market (Level 1 fair value hierarchy) in accordance to SFAS No. 157.

In February 2008, the FASB issued FSP FAS 157-2, Effective Date of FASB Statement No. 157 (FSP FAS 157-2), which permits a one year deferral of the application of SFAS No. 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The Company will adopt SFAS No. 157 for non-financial assets and non-financial liabilities on February 1, 2009 and does not expect the provisions to have a material effect on its results of operations, financial position or cash flows.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115”. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, which is the year beginning February 1, 2008 for the Company. The Company adopted SFAS No. 159 on February 1, 2008 and elected not to measure any additional financial instruments or other items at fair value.

In September 2006, the FASB issued SFAS No. 158, “ Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans ,” an amendment of FASB Statements No. 87, 88, 106, and 132(R). This standard requires recognition of the funded status of a benefit plan in the statement of financial position. The standard also requires recognition in other comprehensive income of certain gains and losses that arise during the period but are deferred under pension accounting rules, as well as modifies the timing of reporting and adds certain disclosures. SFAS No. 158 provides recognition and disclosure elements to be effective as of the end of the fiscal after December 15, 2006, and measurement elements to be effective for fiscal years ending after December 15, 2008. The Company adopted the recognition provisions of SFAS No. 158 and applied them to the funded status of the its defined benefit plans resulting in a decrease in Shareholders Equity of $1,900,000. In the fiscal year ending January 31, 2009 the Company will recognize the impact of using the fiscal year end date for recording pension expense and liabilities. The Company will use the second alternative transition method (Method 2). The actuarial valuation prepared at year end will cover a 13 month period, and the estimated transition period adjustment will be charged to retained earnings. The Company is currently evaluating the impact on its financial statements, if any, from the adoption of this standard.

In December 2007, the FASB issued SFAS No. 141 (Revised), “ Business Combinations ” (“SFAS No. 141(R)”), replacing SFAS No. 141, “ Business Combinations ” (“SFAS No. 141”), and SFAS No. 160, “ Noncontrolling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51 ” (“SFAS No. 160”). SFAS No. 141(R) retains the fundamental requirements of SFAS No. 141, broadens its scope by applying the acquisition method to all transactions and other events in which one entity obtains control over one or more other businesses, and requires, among other things, that assets acquired and liabilities assumed be measured at fair value as of the acquisition date, that liabilities related to contingent considerations be recognized at the acquisition date and remeasured at fair value in each subsequent reporting period, that acquisition-related costs be expensed as incurred, and that income be recognized if the fair value of the net assets acquired exceeds the fair value of the consideration transferred. SFAS No. 160 establishes accounting and reporting standards for noncontrolling interests (i.e., minority interests) in a subsidiary, including changes in a parent’s ownership interest in a subsidiary and requires, among other things, that noncontrolling interests in subsidiaries be classified as a separate component of equity. Except for the presentation and disclosure requirements of SFAS No. 160, which are to be applied retrospectively for all periods presented, SFAS No. 141 (R) and SFAS No. 160 are to be applied prospectively in financial statements issued for fiscal years beginning after December 15, 2008. The Company does not anticipate any material impact to its financial statements from the adoption of SFAS No. 160.

Note 4. Inventories

Fiscal year end financial statements at January 31, 2008 reflect inventories verified by physical counts with the material content valued by the LIFO method. At July 31, 2008 and 2007, there were no physical verifications of inventory quantities. Cost of sales is recorded at current cost. The effect of penetrating LIFO layers is not recorded at interim dates unless the reduction in inventory is expected to be permanent. No such adjustments have been made for the three-month or six-month periods ended July 31, 2008 and 2007. LIFO reserves at July 31, 2008, January 31, 2008 and July 31, 2007 were $7,193,000, $7,193,000 and $7,357,000, respectively. Management continually monitors production costs, material costs and inventory levels to determine that interim inventories are fairly stated.

Note 5. Debt

Effective as of March 18, 2008, the Company entered into the Second Amended and Restated Credit Agreement (the “Agreement”), dated as of March 12, 2008, with Wells Fargo Bank, National Association (the “Lender”) and a related Revolving Line of Credit Note (the “Note”), dated as of March 12, 2008, in favor of the Lender. The Agreement provides the Company with a secured revolving line of credit (the “Revolving Credit”) of up to $65,000,000, with seasonal adjustments to the credit limit, and includes a sub-limit of up to $10,000,000 for the issuance of letters of credit. The Revolving Credit is secured by a first priority perfected security interest in certain of the personal and real property of the Company and its subsidiaries in favor of the Lender.

Effective July 31, 2008, the Company entered into Amendment No. 1 (the “First Amendment”) to the Second Amended and Restated Credit Agreement with the Lender. The First Amendment modified the Agreement to provide for, among other items, a borrowing base formula that may limit the amount available under the Revolving Credit or the letter of credit subfeature, monthly monitoring of the borrowing base and auditing of the collateral. In addition, the amendment modified or eliminated certain covenants, including the leverage ratio. Availability under the line was $21,951,000 at July 31, 2008.

The Revolving Credit will mature on February 1, 2010. Interest under the Revolving Credit is payable monthly at a fluctuating rate equal to the Lender’s prime rate or, if the Company elects, LIBOR plus a fluctuating margin. The Agreement provides for an unused commitment fee of 0.25%.

The Agreement is subject to various financial covenants including a minimum consolidated fixed charge coverage ratio, and a maximum leverage ratio. The Agreement also places certain restrictions on activities by the Company, including capital expenditures, new operating leases, dividends and the repurchase of the Company’s common stock. The Agreement is secured by certain of the Company’s accounts receivable, inventories, equipment and real property. The Company was in compliance with its covenants at July 31, 2008. Management believes the carrying value of debt approximated fair value at July 31, 2008 and 2007, as all of the long-term debt bears interest at variable rates based on prevailing market conditions.

The foregoing description of each of the Agreement, the Note, the Revolving Credit and the First Amendment are qualified in the entirety by reference to the agreements attached as Exhibits 10.1, 10.2, 10.3 and 10.4 to the Form 8-K submitted by the Company to the SEC on March 24, 2008 and the agreement attached as Exhibit 10.2 hereto, each of which is incorporated herein by reference. These agreements have been included to provide investors with information regarding their terms and are not intended to provide any other factual information about the Company.

At January 31, 2008, the Company borrowed under an asset based line of credit with Wells Fargo. The revolving line typically provided for advances of 80% on eligible accounts receivable and 20%- 60% on eligible inventory. The advance rates fluctuated depending on the time of year and the types of assets. The agreement had an unused commitment fee of 0.375%. Interest was at prime or LIBOR +2.5%. Availability under the line was $19,074,000 at January 31, 2008. This line was replaced by the Agreement, as described above.

Note 6. Income Taxes

There were no significant increases or decreases in the unrecognized tax benefits during the three and six months ended July 31, 2008. As of July 31, 2008, the Company does not believe there are any positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months.

The Internal Revenue Service (the “IRS”) has completed the examination of all of the Company’s federal income tax returns through 2004 with no issues pending or unresolved. The years 2004 through 2007 remain open for examination by the IRS. The tax years 2003 to 2007 remain open for major state taxing jurisdictions. The Company is not being audited by a major taxing jurisdiction at July 31, 2008. Subsequent to July 31, 2008, the Company was notified by the IRS that it will be auditing the Company’s tax filings for fiscal year ended January 31, 2007.

At January 31, 2008, the Company had net operating losses carried forward for federal and state income tax purposes, expiring at various dates through 2027. Federal net operating losses that can potentially be carried forward total approximately $3,202,000 at January 31, 2008. State net operating losses that can potentially be carried forward total approximately $21,019,000 and at January 31, 2008. The Company also had determined that it was more likely than not that some portion of the state net operating loss carry forwards and other state deferred tax assets would not be realized and had provided a valuation allowance of $841,000 on the deferred tax assets at January 31, 2008. The Company evaluates the valuation allowance on a quarterly basis.

Note 7. Net Income per Share


	Three Months Ended				Six Months Ended
	7/31/2008		7/31/2007		7/31/2008		7/31/2007
	(In thousands, except per share data)				(In thousands, except per share data)

Net income	$	3,512	$	11,610	$	656	$	8,630

Average shares outstanding		14,423		14,398		14,426		14,384
Net effect of dilutive stock options based on the treasury stock method using average market price		32		32		17		116


Totals		14,451		14,430		14,443		14,500

Net income per share — basic	$	0.24	$	0.81	$	0.05	$	0.60
Net income per share — diluted	$	0.24	$	0.80	$	0.05	$	0.60

Note 8. Stock Based Compensation

The Company’s two stock plans are the 2007 Employee Incentive Plan (the “2007 Plan”) and the 1997 Employee Incentive Stock Plan (the “1997 Plan”). The 1997 Plan expired in 2007. Under the 2007 Plan, the Company is permitted to grant an aggregate of 1,000,000 shares of common stock to its employees and directors in the form of stock options or other stock-based awards. As of July 31, 2008, 48,531 stock awards and 262,500 stock units have been issued under the 2007 Plan and 724,613 shares remain available for future grant. At July 31, 2008 there were 161,433 unexercised options outstanding that were issued pursuant to the 1997 Plan. Stock options granted under the 2007 Plan and 1997 Plan have an exercise price equal to the market price at the date of grant and have a maximum term of 10 years.

The shares of common stock issued upon exercise of a previously granted stock option are considered new issuances from shares reserved for issuance upon adoption of the various plans. While the Company does not have a formal written policy detailing the procedure for exercising stock options, it requires that the option holders provide a written notice of exercise to the stock plan administrator plus the applicable exercise price and tax withholdings, if any, prior to issuance of the shares.

Accounting for the Plans

Summary of restricted stock and stock unit awards at July 31, 2008 and 2007:


									Unrecognized
									Compensation
	Expense for 3 months ended				Expense for 6 months ended				Cost at
	7/31/2008		7/31/2007		7/31/2008		7/31/2007		7/31/2008


2007 Stock Incentive Plan

262,500 Restricted Stock Units, issued 6/19/2007, vesting over 5 years	$	89,000	$	58,000	$	177,000	$	58,000	$	1,364,000
35,644 Grants of Restricted Stock, issued 6/17/2008, vesting over 1 year		29,000		—	$	29,000		—		146,000
12,887 Grants of Restricted Stock, issued 6/19/2007, vesting over 1 year		7,000		15,000	$	29,000	$	15,000		—

1997 Employee Incentive Stock Plan

270,000 Restricted Stock Units, issued 6/30/2004, vesting over 5 years		89,000		59,000		178,000		147,000		323,000
17,640 Grants of Restricted Stock, issued 6/20/2006, vesting over 1 year		—		8,000		—		29,000		—


Totals for the period	$	214,000	$	140,000	$	413,000	$	249,000	$	1,833,000

Stockholders’ Rights

On October 15, 1996, the Board of Directors declared a dividend of one preferred stock purchase right (the “Rights”) for each outstanding share of the Company’s common stock. Each of the Rights entitles a stockholder to purchase for an exercise price of $50.00 ($20.70, as adjusted for stock splits and stock dividends), subject to adjustment, one one-hundredth of a share of Series A Junior Participating Cumulative Preferred Stock of the Company, or under certain circumstances, shares of common stock of the Company or a successor company with a market value equal to two times the exercise price. The Rights are not exercisable, and would only become exercisable for all other persons when any person has acquired or commences to acquire a beneficial interest of at least 20% of the Company’s outstanding common stock. The Rights have no voting privileges, and may be redeemed by the Board of Directors at a price of $.001 per Right at any time prior to the acquisition of a beneficial ownership of 20% of the outstanding common shares. There are 200,000 shares (483,153 shares as adjusted by stock splits and stock dividends) of Series A Junior Participating Cumulative Preferred Stock reserved for issuance upon exercise of the Rights. On July 31, 2007, the Company and Mellon Investor Services LLC entered into an amendment to the Rights Agreement governing the Rights. The amendment, among other things, extended the term of the Rights issued under the

Rights Agreement to October 25, 2016, removed the dead-hand provisions from the Rights Agreement, and formally replaced the former Rights Agent, The Chase Manhattan Bank, with its successor-in-interest, Mellon Investor Services LLC.

Note 9. Comprehensive Income (Loss)

Comprehensive income (loss) for the three months and six months ended July 31, 2008 and 2007 was the same as net income (loss) reported on the statements of operations. Accumulated comprehensive income (loss) at July 31, 2008 and 2007 and January 31, 2008 is composed of minimum pension liability adjustments.

Note 10. Retirement Plans

The Company and its subsidiaries cover all employees under a noncontributory defined benefit retirement plan, entitled the Virco Employees’ Retirement Plan (the “Plan”). Benefits under the Plan are based on years of service and career average earnings. As more fully described in the Form 10-K, benefit accruals under the Plan were frozen effective December 31, 2003.

The Company also provides a supplementary retirement plan for certain key employees, the VIP Retirement Plan (the “VIP Plan”). The VIP Plan provides a benefit of up to 50% of average compensation for the last five years in the VIP Plan, offset by benefits earned under the Virco Employees’ Retirement Plan. As more fully described in the Form 10-K, benefit accruals under this plan were frozen effective December 31, 2003.

The Company also provides a non-qualified plan for non-employee directors of the Company (the “Non-Employee Directors Retirement Plan”). The Non-Employee Directors Retirement Plan provides a lifetime annual retirement benefit equal to the director’s annual retainer fee for the fiscal year in which the director terminates his or her position with the Board, subject to the director providing 10 years of service to the Company. As more fully described in the Form 10-K, benefit accruals under this plan were frozen effective December 31, 2003.

The net periodic pension costs for the Plan, the VIP Plan, and the Non-Employee Directors Retirement Plan for the three months and six months ended July 31, 2008 and 2007 were as follows (in thousands):


	Three Months Ended
													Non-Employee Directors
	Pension Plan						VIP Retirement Plan						Retirement Plan
	2008			2007			2008			2007			2008			2007


Service cost	$	—		$	41		$	—		$	50			5		$	6
Interest cost		388			345			90			90			8			7
Expected return on plan assets		(300	)		(224	)		—			—			—			—
Amortization of transition amount		—			(9	)		—			—			—			—
Amortization of prior service cost		138			117			(80	)		(134	)		—			6
Recognized net actuarial loss or (gain)		50			49			40			30			(8	)		(7	)
Settlement and curtailment		—			—			—			—			—			—

Net periodic pension cost	$	276		$	319		$	50		$	36		$	5		$	12


	Six Months Ended
													Non-Employee Directors
	Pension Plan						VIP Retirement Plan						Retirement Plan
	2008			2007			2008			2007			2008			2007


Service cost	$	—		$	82		$	—		$	100		$	10		$	12
Interest cost		776			690			180			180			16			14
Expected return on plan assets		(600	)		(448	)		—			—			—			—
Amortization of transition amount		—			(18	)		—			—			—			—
Amortization of prior service cost		276			234			(160	)		(268	)		—			12
Recognized net actuarial loss or (gain)		100			98			80			60			(16	)		(14	)


	Six Months Ended
									Non-Employee Directors
	Pension Plan				VIP Retirement Plan				Retirement Plan
	2008		2007		2008		2007		2008		2007


Settlement and curtailment		—		—		—		—		—		—

Net periodic pension cost	$	552	$	638	$	100	$	72	$	10	$	24

Note 11. Warranty

The Company accrues an estimate of its exposure to warranty claims based upon both current and historical product sales data and warranty costs incurred. The majority of the Company’s products sold through January 31, 2005 carry a five-year warranty. Effective February 1, 2005, the Company extended its standard warranty period to 10 years. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. The warranty liability is included in accrued liabilities in the accompanying consolidated balance sheets.

The following is a summary of the Company’s warranty claim activity for the three months and six months each ended July 31, 2008 and 2007 (in thousands):


	Three Months Ended						Six Months Ended
	7/31/2008			7/31/2007			7/31/2008			7/31/2007
				(In thousands)

Beginning Accrued Warranty Balance	$	1,950		$	1,850		$	1,750		$	1,750
Provision		412			191			955			536
Costs Incurred		(362	)		(241	)		(705	)		(486	)

Ending Accrued Warranty Balance	$	2,000		$	1,800		$	2,000		$	1,800

Note 12. Subsequent Events

Subsequent to the quarter ended July 31, 2008 the Company entered into a five-year extension of a lease for the manufacturing and distribution facility located in Torrance, CA. This agreement extends the lease through February 28, 2015. On August 21, 2008 the Company entered into an agreement to sell a former manufacturing and warehouse facility located in Conway, AR. This building has been held as rental property for the last two years. The Company anticipates sales proceeds of approximately $2.5 million, and will record a gain on sale of nearly $1 million. The Company anticipates that the sale will close in the third quarter ending October 31, 2008.

VIRCO MFG. CORPORATION

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

Results of Operations

The Company’s results for the first six months of fiscal 2008 have been adversely impacted by current economic conditions, significant cost increases for steel, plastic, energy and other commodities, and the related impact on school budgets and spending. The current economic environment has negatively impacted sales revenue in multiple ways. First, the challenging economic conditions have adversely impacted government budgets, which in turn have affected school funding. On a state-by-state basis, which is the level at which most funding for school furniture and equipment is actually generated, our decline in revenue is in states that were most affected by declines in real estate values. Two states with large declines in housing values — California and Florida — account for 100% of our revenue decline. Second, school budgets have been impacted by increased costs for energy and food, further affecting the funds available for furniture and equipment. Finally, the Company received orders from schools later in the year this year than in prior years, further compressing the narrow delivery window associated with shipments of educational furniture and equipment. The Company also absorbed significant cost increases with respect to two of its most significant raw materials, steel and plastic, as well as increased energy costs, affecting manufacturing operations, and increased fuel costs, affecting the expenses associated with the distribution of furniture to school locations. As more fully described in the Company’s annual report on Form 10-K for the fiscal year ended January 31, 2008, the Company sells a significant portion of its annual sales volume under annual fixed price contracts. During the period covered by the contracts, the Company has limited, and, in some cases, no ability to increase selling prices. During the first six months of fiscal 2008, the Company worked to maintain the strength of its financial position, strengthen its competitive position in the education market, and recover gross margin lost to increasing energy and commodity costs. As more fully discussed in the Company’s annual report on Form 10-K, Virco sells a significant portion of furniture that is priced under a nationwide contract. Under this contract the Company is the exclusive supplier of movable classroom furniture and is the exclusive authorized reseller for many of its vendor partners. Subsequent to July 31, 2008, Virco was awarded a new three-year nationwide contract with this same purchasing alliance covering the period beginning January 31, 2009 through December 31, 2011. In addition to the three year extension, the Company has added valuable new vendor partners for which it is the sole reseller under this contract. The Company received a mid-year price adjustment under the contract as well as price adjustments for 2009 designed to recover the increased costs of commodities and energy. In addition to the successful extension and expansion of this contract, the Company has instituted mid-year price adjustments to virtually all dealers and resellers of its product. New product development has continued throughout the period ended July 31, 2008, and acceptance of our new products by the market has been encouraging. In order to maintain the financial strength of the Company, production levels were sharply reduced in the second quarter to control inventory and our line of credit with Wells Fargo Bank was amended to maintain appropriate levels of liquidity and to modify covenants to match economic conditions.

For the three months ended July 31, 2008, the Company earned a pre-tax profit of $5,714,000 on sales of $80,216,000 compared to a pre-tax profit of $11,990,000 on sales of $88,931,000 in the same period last year.

Sales for the second quarter decreased by $8,715,000, a 9.8% decrease, compared to the same period last year. Incoming orders for the same period decreased by approximately 9.5% compared to the prior year. The reasons for these decreases are described in more detail above. Backlog at July 31, 2008 increased by approximately 5% compared to the prior year. Gross margin as a percentage of sales decreased to 32.3% in 2007 compared to 37.9% in the prior year. The decrease in margin was caused by increased costs of raw materials and a 26% reduction in production hours during the second quarter, which adversely affected absorption of overhead costs.

Selling, general and administrative expense for the second quarter ended July 31, 2008 decreased by approximately $1,215,000 compared to the same period last year, but increased as a percentage of sales by 1.0%. The decrease in spending was attributable to decreased variable compensation expenses. Freight and field service expenses remained stable, but increased as a percentage of sales due to increased fuel and energy prices. Interest expense decreased by approximately $335,000 compared to the same period last year as a result of reduced interest rates.

For the six months ended July 31, 2008 the Company earned a pre-tax profit of $1,167,000 on sales of $109,410,000 compared to a pre-tax profit of $9,010,000 on sales of $120,053,000 in the same period last year.

Sales for the first six months decreased by $10,643,000, or 8.9%, compared to the same period last year. The decrease was attributable to a reduction in sales volume, offset in part by an increase in prices. Incoming orders for the same period decreased by approximately 7.1%. Gross margin as a percentage of sales decreased to 32.4% compared to 37.7% in the same period last year. In dollars, gross margin decreased by approximately $9.8 million. Approximately $4 million of the reduction was

attributable to a change in sales volume, approximately $3.3 million due to decreased overhead absorption, with the balance attributable to increased material costs.

Selling, general and administrative expense for the six months ended July 31, 2008 decreased by approximately $1,410,000 compared to the same period last year, but increased as a percentage of sales by 1.5%. The decrease in spending was attributable to decreased variable compensation costs. Freight and field service costs were stable, but increased as a percentage of sales due to increased fuel and energy prices.

Interest expense decreased by approximately $570,000 compared to the same period last year due to reduced interest rates in addition to lower loan balances during the first quarter.

As more fully discussed in the Company’s annual report on Form 10-K for the period ended January 31, 2008, the Company benefited from federal and state net operating loss carry forwards and had a 100% valuation allowance against net deferred tax assets as of the second quarter ended July 31, 2007. As such, income tax expense consisted primarily of alternative minimum tax and other minimum taxes. During the third quarter of 2007 the Company reduced the valuation allowance. For the first six months ended July 31, 2008, the income tax provision reflects a more typical effective tax rate.

Liquidity and Capital Resources

As a result of seasonally high shipments in the second quarter, accounts and notes receivable increased by approximately $27.6 million at July 31, 2008 compared to January 31, 2008. Receivables decreased at July 31, 2008 compared to July 31, 2007 due to the decrease in second quarter sales compared to the prior year. The Company traditionally builds large quantities of component inventory during the first quarter in anticipation of seasonally high summer shipments. During the second and third quarters, the Company reduces levels of component production and assembles components to a finished goods state as customer orders are received. At July 31, 2008, inventories were higher than the prior year. The increase in inventory is primarily attributable to increased levels of raw materials and product purchased for re-sale. The increase in raw materials is in large part attributable to decreased second quarter production. Management believes that the increased levels of purchased materials should result in reduced purchases in the third quarter. Production levels for the balance of the year will be driven by sales demand, not a requirement to reduce inventories of manufactured product.

The increase in receivables and inventory during the first six months was financed through the credit facility with Wells Fargo Bank. At July 31, 2008 compared to July 31, 2007, borrowings under the line of credit were comparable.

The Company has established a goal of limiting capital spending to approximately than $5,000,000 for 2008, which is slightly less than anticipated depreciation expense. Capital spending for the six months ended July 31, 2008 was $2,487,000 compared to $2,114,000 for the same period last year. Capital expenditures are being financed through the Company’s credit facility established with Wells Fargo Bank and operating cash flow. Approximately $21,951,000 was available for borrowing as of July 31, 2008.

Net cash used in operating activities for the six months ended July 31, 2008 was $27,849,000 compared to $18,526,000 for the same period last year. The increase in cash used in operations for the first six months was primarily attributable to decreased profitability compared to the prior year. The Company believes that cash flows from operations, together with the Company’s unused borrowing capacity with Wells Fargo Bank will be sufficient to fund the Company’s debt service requirements, capital expenditures and working capital needs for the next twelve months.

During the first six months of the year, the Company declared and paid two quarterly cash dividends of $0.025 per share. Subsequent to the July 31, 2008, the Company declared a third quarterly cash dividend of $.025 per share, payable September 16, 2008. Payment of a quarterly dividend was predicated on 1) the strength of our balance sheet; 2) anticipated cash flows; and 3) future cash requirements. Management anticipates that subsequent quarterly dividends will continue to be paid following a review of these factors and Board approval.

On June 5, 2008, the Company announced that its Board of Directors authorized a stock repurchase program under which the Company may acquire up to $3 million of the Company’s common stock in fiscal year 2008. Such repurchases may be made pursuant to open market or privately negotiated transactions. This $3 million common stock repurchase program includes any unused amounts previously authorized for repurchase by Company such that the maximum aggregate amount of common stock that the Company may repurchase is $3 million of the Company’s common stock. Actual repurchases will be made after due consideration of stock price, projected cash flows and alternative uses of capital. During the second quarter, the Company repurchased 13,000 shares of stock for $63,000.

Off Balance Sheet Arrangements

During the six months ended July 31, 2008, there were no material changes in the Company’s off balance sheet arrangements or contractual obligations and commercial commitments from those disclosed in the Company’s annual report on Form 10-K for the fiscal year ended January 31, 2008. Subsequent to the quarter ended July 31, 2008 the Company entered into a five-year extension of a lease for the manufacturing and distribution facility located in Torrance, CA. This agreement extends the lease through February 28, 2015.

Critical Accounting Policies and Estimates

The Company’s critical accounting policies are outlined in its annual report on Form 10-K for the fiscal year ended January 31, 2008.

Forward-Looking Statements

From time to time, including in this quarterly report, the Company or its representatives have made and may make forward-looking statements, orally or in writing, including those contained herein. Such forward-looking statements may be included in, without limitation, reports to stockholders, press releases, oral statements made with the approval of an authorized executive officer of the Company and filings with the Securities and Exchange Commission. The words or phrases “anticipates,” “expects,” “will continue,” “believes,” “estimates,” “projects,” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The results contemplated by the Company’s forward-looking statements are subject to certain risks and uncertainties that could cause actual results to vary materially from anticipated results, including without limitation, material availability and cost of materials, especially steel, availability and cost of labor, demand for the Company’s products, competitive conditions affecting selling prices and margins, capital costs and general economic conditions. Such risks and uncertainties are discussed in more detail in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2008.

The Company’s forward-looking statements represent its judgment only on the dates such statements were made. By making any forward-looking statements, the Company assumes no duty to update them to reflect new, changed or unanticipated events or circumstances.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Agreement is subject to various financial covenants including a minimum consolidated current ratio, a minimum consolidated fixed charge coverage ratio, and a maximum leverage ratio. The Agreement also places certain restrictions on activities by the Company, including capital expenditures, new operating leases, dividends and the repurchase of the Company’s common stock. The Agreement is secured by certain of the Company’s accounts receivable, inventories, equipment and real property. The Company was in compliance with its covenants at July 31, 2008. Management believes the carrying value of debt

approximated fair value at July 31, 2008 and 2007, as all of the long-term debt bears interest at variable rates based on prevailing market conditions.

As more fully described on the Company’s annual report on Form 10K for the fiscal year ended January 31, 2008, the Company sells a substantial quantity of furniture under annual fixed price contracts, with little and sometimes no ability to increase prices during the duration of the contact. During the course of the contract, the results of operations can be impacted by the cost of certain commodities. During the six month period ended July 31, 2008, the Company has been adversely impacted by increased costs for steel, plastic, and fuel.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that the information required to be disclosed in reports filed with the Securities and Exchange Commission (the “Commission”) pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Assessing the costs and benefits of such controls and procedures necessarily involves the exercise of judgment by management, and such controls and procedures, by their nature, can provide only reasonable assurance that management’s objectives in establishing them will be achieved.

The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including its Principal Executive Officer along with its Principal Financial Officer, of the effectiveness of the design and operation of disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q, pursuant to Exchange Act Rule 13a-15. Based upon the foregoing, the Company’s Principal Executive Officer, along with the Company’s Principal Financial Officer, concluded that, subject to the limitations noted in this Part I, Item 4, the Company’s disclosure controls and procedures are effective in ensuring that (i) information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and (ii) information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting

There was no change in the Company’s internal control over financial reporting during the fiscal quarter ended July 31, 2008 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II

VIRCO MFG. CORPORATION

OTHER INFORMATION

Item 1A. Risk Factors

As more fully described on the Company’s annual report on Form 10K for the fiscal year ended January 31, 2008, approximately 40% of the Company’s sales are priced under a nationwide contract. Subsequent to the quarter ended July 31, 2008, Virco was awarded a new three-year nationwide contract with this same purchasing alliance covering the period beginning January 31, 2009 through December 31, 2011.

Other than as discussed above, there have been no material changes in risk factors as disclosed in the Form 10-K for the period ended January 31, 2008.

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

The following is a description of matters submitted to a vote of registrant’s stockholders at the Annual Meeting of Stockholders held June 17, 2008.

Election of three directors whose terms expire in 2011.


	Votes For		Authority Withheld

Donald S. Friesz		10,337,051		2,612,430
Glen D. Parish		10,334,387		2,615,094
James R. Wilburn		10,337,225		2,612,257

Ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal year 2008 was approved; 12,899,356 shares were voted for the proposal, 39,871 shares were voted against it and 10,254 shares abstained.

Item 6. Exhibits

Exhibit 10.1 — First Amendment to Lease, dated as of August 20, 2008, by and between AMB Property, L.P., a Delaware limited partnership (“Lessor”) and the Company (“Lessee”).

Exhibit 10.2 — Amendment No. 1 to the Second Amended and Restated Credit Agreement, dated as of July 31, 2008, between the Company and Wells Fargo Bank, National Association.

Exhibit 31.1 — Certification of Robert A. Virtue, Principal Executive Officer, pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31.2 — Certification of Robert E. Dose, Principal Financial Officer, pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.1 — Certifications of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

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 thereunto duly authorized.


	VIRCO MFG. CORPORATION
Date: September 9, 2008	By:	/s/ Robert E. Dose
		Robert E. Dose
		Vice President — Finance

Exhibit 10.1

FIRST AMENDMENT TO LEASE

This First Amendment to Lease (“Amendment”) is made and entered into as of August 20, 2008, by and between AMB Property, L.P., a Delaware limited partnership (“Lessor”) and Virco Mfg. Corporation, a Delaware corporation (“Lessee”).

RECITALS

A. Lessor and Lessee are parties to that certain Standard Industrial/Commercial Single Lessee Lease — Net dated February 1, 2005 which includes an Addendum to American Industrial Real Estate Association Standard Industrial/Commercial Single Lessee Lease — Net (“Addendum”) as amended by a First Amendment to Lease dated November 7, 2005 (collectively “Lease”). Pursuant to the terms and conditions of the Lease, Lessee leased from Lessor the premises commonly known as 2027 Harpers Way, Torrance (“Premises”).

B. Lessee has requested and Lessor has agreed to extend the term of the Lease on the terms set forth in this Amendment.

C. All capitalized terms used herein but not specifically defined in this Amendment shall have the meanings ascribed to such terms in the Lease. The term “Lease” where used in the Lease shall hereinafter refer to the Lease, as amended by this Amendment.

AGREEMENTS

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants, conditions and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lessor and Lessee hereby agree as follows:

1. Extension of Term . The Term of the Lease is hereby extended (“Extended Term”) until and including February 28, 2015 (“Lease Termination Date”). The Extended Term shall commence on full execution of this Amendment (“Extended Term Commencement Date”).

2. Base Rent . During the Extended Term, the monthly Base Rent as set forth in paragraph 1.5 of the Lease and as described in paragraph 4 of the Lease shall be as follows:


Extended Term Commencement Date — February 28, 2010			- $234,780.00
March 1, 2010 — February 28, 2011			- $296,270.00
March 1, 2011 — February 29, 2012			- $307,450.00
March 1, 2012 — February 28, 2013			- $318,630.00
March 1, 2013 — February 28, 2014			- $329,810.00
March 1, 2014 — February 28, 2015			- $340,990.00

3. Management Fee . Notwithstanding anything to the contrary, commencing on March 1, 2010, payable monthly thereafter as, when and in the manner that Rent is payable under the Lease, Lessee shall pay to Lessor a property management fee equal to 1.25% of the Base Rent.

4. Lessor’s Work . Lessor, at its sole cost and expense in a commercially reasonable time and manner using Lessor’s standard grade of materials, finishes and construction techniques, shall complete the following (collectively “Lessor’s Work”):

Install new HVAC units to properly serve the front office building (“New HVAC Units”). Repair or replace, as reasonably determined by Lessor and Lessee, interior ducting to make the new HVAC units fully

			operational. Notwithstanding the installation of the New HVAC Units, Lessee shall continue to be responsible for the maintenance and repair of the HVAC units after their replacement.

	b.		Install new walk pads around all HVAC units on the entire roof area (both the front office building and the entire rear building).

	c.		Repair window mullions broken by the settling in the downstairs courtyard as well as the ponding problem at the upstairs (entry) courtyard.

	d.		Install a new COOL roof (“New Roof”) to include 81 new skylights on the rear warehouse and 116 new skylights on the front warehouse. Each skylight shall have security grills. Lessee’s use of the Premises including, but not limited to, its manufacturing processes shall not damage the New Roof including, but not limited to, emitting particulates which damage the New Roof. Notwithstanding anything to the contrary, Lessor shall, at Lessee’s sole cost and expense, maintain the New Roof including, but not limited to, Lessor entering into a roof maintenance contract with a contractor approved by Lessee, which approval shall not be unreasonably withheld, delayed or conditioned.

	e.		To the extent that Lessor’s costs are not increased for Lessor’s Work, Lessor shall cooperate with Lessee in incorporating environmentally sensitive characteristics into the design and execution of Lessor’s Work including, but not limited installation of a “cool roof,” i.e., a roof that reflects and emits a portion of the sun’s heat back to the sky instead of transferring it to the Building.

	f.		Repair or replace broken ground aggregate panels in the vicinity of the gated entry to the main lobby entrance but excluding the path leading all the way out to Harpers Way.

	g.		At such time as the Building is repainted by Lessee, Lessor shall re-caulk various panel joints on the exterior walls.

Notwithstanding the foregoing or anything to the contrary, Lessor shall not install solar panels or wind turbines on the Building. Further, Lessor shall not repair or replace broken and aging sprinkler system back flow devices.

Lessee, at its sole cost and expense, shall cooperate with Lessor and Lessor’s contractors in the completion of Lessor’s Work. Such cooperation shall include, but not be limited to, providing access to the Premises at all reasonable times to Lessor and Lessor’s contractors, moving all furniture, fixtures, equipment and decorations (collectively “Lessee Property”) in the manner deemed necessary by Lessor or Lessor’s contractors to allow Lessor or Lessor’s contractors to complete Lessor’s Work, and returning installing, attaching or affixing the Lessee Property after completion of Lessor’s Work.

5. Lessee Improvement Allowance . Subject to Lessee’s compliance with the provisions of this Amendment and the Lease, Lessor shall provide to Lessee an allowance in the amount of Six Hundred Thousand and zero/00 Dollars ($600,000.00) (the “TI Allowance”) to construct and install only improvements and upgrades to the two buildings which constitute the Building (“Alterations”) and which have been approved in writing by Lessor pursuant to this Amendment which approval shall not be unreasonably withheld or delayed. The Alterations shall include, but not necessarily be limited to, new carpet and paint, wall coverings, ceiling tiles and ceiling finishes, bathroom repairs and upgrades in both the front office building and the administrative area and shop offices and restrooms of the rear manufacturing building and repair of broken or aging sprinkler system backflow devices. Additionally, Lessee may use a portion of the TI Allowance on the replacing of old and inefficient roof top air handlers, HVAC equipment, and blowers with new, more energy efficient models and hiring an engineer to investigate the load capacity of the storage mezzanine in the manufacturing area of the Building and a portion of the TI allowance not to exceed $50,000 for a backup electrical generator which shall be the property of Lessor at the end of the Term, Extended Term or earlier termination of the Lease. The TI Allowance shall be used to design, prepare, plan, obtain the approval of, construct and install the Alterations and for no other purpose. Except as otherwise expressly provided herein, Lessor shall have no obligation to contribute the TI Allowance unless and until the Alterations have been completed in a good and workmanlike manner in lien free condition and evidence of same reasonably satisfactory to Lessor has been received by Lessor to include, but not be limited to (a) receipt by Lessor of unconditional mechanics’ lien releases from the contractor and all subcontractors, labor suppliers and materialmen for the Alterations completed by the contractor, subcontractors, labor suppliers and materialmen and for which Lessee seeks funds from the TI Allowance to pay for such Alterations, (b) receipt by Lessor of

any and all documentation reasonably required by Lessor detailing the Alterations have been completed and the materials and supplies used as of the date of Lessee’s request for the progress payment, including, without limitation, invoices, bills, or statements for the Alterations completed and the materials and supplies used, and (c) completion by Lessor or Lessor’s agents of any inspections of the Alterations completed and materials and supplies used as deemed reasonably necessary by Lessor. The TI Allowance progress payments shall be paid to Lessee within fourteen (14) days from the satisfaction of the conditions set forth in the immediately preceding sentence. Should the total cost of constructing the Alterations be less than the TI Allowance, the TI Allowance shall be automatically reduced to the amount equal to said actual cost. Notwithstanding the foregoing or anything to the contrary, the TI Allowance shall only be paid by Lessor to Lessee for Alterations completed by Lessee, and for which Lessee has complied with items (a) and (b) above, between full execution of this Amendment and December 31, 2009 (“TI Completion Period”). To the extent that Alterations are not completed during the TI Completion Period, Lessor shall not have any obligation to pay, nor shall Lessee have any right to receive, the TI Allowance. If the Lease is terminated prior to the date on which the Alterations are completed, for any reason due to the default of Lessee hereunder or under the Lease, in addition to any other remedies available to Lessor under the Lease, Lessee shall pay to Lessor as additional rent under the Lease, within five (5) days of receipt of a statement therefor, any and all costs incurred by Lessor and not reimbursed or otherwise paid by Lessee through the date of termination in connection with the Alterations to the extent planned, installed and/or constructed as of such date of termination, including, but not limited to, any costs related to the removal of all or any portion of the Alterations and restoration costs related thereto.

6. “As-Is” . Except for the completion of Lessor’s Work and payment of TI Allowance pursuant to this Amendment, Lessee acknowledges and agrees that its tenancy of the Premises through the Lease Termination Date is a continuation of its tenancy of the Premises under the Lease. Therefore, Lessee accepts the Premises in its existing condition, “as-is, where is, and with all faults”. Except as specifically set forth herein, it is expressly understood and agreed that Lessor has no responsibility or obligation to or for (1) repair or perform any work with respect to the Premises including, but not limited to, the building, floor, roof, storefront (if any), walls, ceiling, lighting fixtures, heating, ventilating and air-conditioning systems, plumbing, bathrooms, utilities systems or otherwise, (2) the condition of the Premises, (3) the suitability of the Premises for any use by Lessee, (4) the presence of any hazardous, toxic or environmentally sensitive materials in, on or below the Premises, or (5) the existence of any other physical impairment or impairment to the Premises not specifically disclosed in this Lease. Lessee acknowledges and agrees that, during its tenancy of the Premises, it has had sufficient opportunity to investigate and inspect the physical condition of the Premises and accepts the Premises subject to the foregoing in its existing condition, “as-is, where is and with all faults”. Notwithstanding the foregoing or anything to the contrary in the Lease, Lessee shall have no obligation or liability for the presence of any hazardous, toxic or environmentally sensitive materials in, on or below the Premises, except to the extent that same were brought on to the Premises by Lessee or its employees, agents, agents, contractors, visitors or invitees.

7. New Roof Repairs and Maintenance . Notwithstanding anything to the contrary in the Lease and Addendum, upon completion of the New Roof, Lessor, at Lessee’s sole cost and expense, shall maintain and repair the New Roof (“New Roof Repair Costs”), as deemed reasonably necessary by Lessor including, but not limited to a roof inspection and maintenance contract. The New Roof Repair Costs may, at Lessor’s sole option, be estimated by Lessor and paid by Lessee on a monthly basis as additional rent under the Lease in the same time and manner as rent is otherwise paid under the Lease, or paid by Lessee, as additional rent, within fifteen (15) days of receipt by Lessee from Lessor of a bill for such New Roof Repair Costs.

8. New HVAC Repairs and Maintenance . Notwithstanding anything to the contrary in the Lease and Addendum, upon completion of the New HVAC Units, Lessee shall, at its sole cost and expense, maintain, repair and replace the New HVAC Units and any ducting or additional equipment related thereto (“Related HVAC Equipment”) including, but not limited to a obtaining and maintaining, at Lessee’s sole cost and expense, a service contract (“HVAC Contract”), with a licensed HVAC contractor (“HVAC Contractor”) approved by Lessor in advance, providing for the maintenance and repair of the New HVAC Units and Related HVAC Equipment and providing for at least quarterly maintenance of the New HVAC Units and Related HVAC Equipment by the HVAC Contractor. If Lessee fails to obtain or maintain the HVAC Contract, fails to perform any maintenance or repairs suggested or required by the HVAC Contractor, or fails to perform any of Lessee’s obligations under this Paragraph 7, after five (5) days written notice from Lessor to Lessee, Lessor may, at Lessee’s sole cost and expense plus an administrative fee payable by Lessee to Lessor, as additional rent, equal to fifteen percent (15%) of such cost and expense, obtain and maintain the HVAC Contract, authorize or perform any repairs or maintenance suggested or required by the HVAC Contractor, perform such Lessee’s obligations or authorize or perform any repairs, replacements or maintenance which would be Lessee’s obligations as deemed reasonably necessary by Lessor. Notwithstanding the foregoing and except to the extent caused by the negligent or intentional acts or omissions of Lessee, its employees, agents, or contractors or the breach by Lessee of any

of its obligations under the Lease, Lessee shall have no obligation to replace the New HVAC Units or Related HVAC Equipment until after February 28, 2015.

9. Capital Expenditures . Paragraph 53(j) of the Addendum is hereby deleted and of no further force or effect.

10. Lessor’s Obligations Under Lease . Notwithstanding anything to the contrary in the Lease, Lessee acknowledges and agrees that Lessor has completed its obligations under Paragraphs 54(d) and (f) of the Addendum and Paragraph 2 of Exhibit A (Work Letter Agreement) to the Lease and has no further obligations thereunder.

11. Exercise of Option to Extend . Notwithstanding anything to the contrary, the Extended Term as set forth in this Amendment shall be deemed the exercise of the Option to Extend granted in the Lease and Lessee shall have no further option to extend the term of the Lease beyond the Lease Expiration Date.

12. Warehouse Condition . Schedule 1, “Warehouse Condition,” of the Lease is amended as follows:

	a.		Item 9: Notwithstanding anything to the contrary contained in Schedule 1, Lessor, at its sole cost and expense, shall remove ventilation ducting and ventilation equipment and make any repairs to the roof and roof structure necessitated by their removal.

	b.		Item 11: Notwithstanding anything to the contrary contained in Schedule 1, Lessor, at its sole cost and expense, shall remove all roof mounted equipment as set forth in Item 11 of Schedule 1 and make any repairs to the roof necessitated by their removal.

	c.		Items 15, 16 and 17: Notwithstanding anything to the contrary contained in Schedule 1, Lessee shall not be required to “add high bay lighting” as set forth in items 15, 16 and 17.

	d.		Item 22: Notwithstanding anything to the contrary contained in Schedule 1, Lessee shall not be responsible to “restore door #30 at wood grinder”.

	e.		Item 23: Notwithstanding anything to the contrary contained in Schedule 1, Lessee shall be responsible to remove the small spray booth at the lower level under the upholstery area, but it shall not be required to remove the stack assembly.

	f.		Item 24: Notwithstanding anything to the contrary contained in Schedule 1, Lessee shall not be obligated to “install walls made of drywall and galvanized studs under upholstery mezzanine.”

13. Lessor’s Address for Payments and Notices . The address for notices to Lessor as set forth in the Lease shall be to:

AMB Property, L.P.
c/o AMB Property Corporation
Pier 1, Bay 1
San Francisco, CA 94111
Attention: Daniel L. Anderson

The address for payments to Lessor as set forth in the Lease shall be to:

AMB Property, L.P.
c/o AMB Property Corporation
P.O. Box 6156
Hicksville, NY 11802-6156

14. Broker’s Fees . Except for The Klabin Company, who shall be paid pursuant to a separate written agreement with Lessor, Lessee represents and warrants that it has dealt with no broker, agent or other person in connection with this transaction and that no broker, agent or other person brought about this transaction and Lessee shall indemnify, defend, protect and hold Lessor harmless from and against any claims, losses, liabilities, demands, costs, expenses or causes of action by any broker, agent or other person claiming a commission or other form of compensation by virtue of having dealt with Lessee with regard to this leasing transaction.

15. Effect of Amendment . Except as modified herein, the terms and conditions of the Lease shall remain unmodified and continue in full force and effect. In the event of any conflict between the terms and conditions of the Lease and this Amendment, the terms and conditions of this Amendment shall prevail. Except as otherwise provided herein, the terms and provisions of the Lease are hereby incorporated in this Amendment.

16. Authority . Subject to the provisions of the Lease, this Amendment shall be binding upon and inure to the benefit of the parties hereto, their respective heirs, legal representatives, successors and assigns. Each party hereto and the persons signing below warrant that the person signing below on such party’s behalf is authorized to do so and to bind such party to the terms of this Amendment.

17. Counterparts . This Amendment may be executed in counterparts by the parties, which counterparts, each of which shall be an original, but all of which shall constitute one and the same instrument.

18. Estoppel . Lessee warrants, represents and certifies to Lessor that as of the date of this Amendment, (a) Lessor is not in default under the Lease, as amended by this Amendment, and (b) Lessee does not have any defenses or offsets to payment of rent and performance of its obligations under the Lease, as amended by this Amendment, as and when the same become due.

[signatures on following page]

IN WITNESS WHEREOF, the parties hereto have signed this Amendment as of the date first written above.


Lessor:		Lessee:

AMB Property, L.P. a Delaware limited partnership		Virco Mfg. Corporation, a Delaware corporation

By:	AMB Property Corporation,
	a Maryland corporation, its general partner	By:	/s/ Robert E. Dose Name: Robert E. Dose Its: VP Finance


By:	/s/ Daniel L. Anderson

	Daniel L. Anderson Senior Vice President

Exhibit 10.2

AMENDMENT NO. 1 TO
SECOND AMENDED AND RESTATED Credit AGREEMENT

AMENDMENT NO. 1 dated as of July 31, 2008 (“ Amendment ”) between VIRCO MFG. CORPORATION , a Delaware corporation (the “ Borrower ”), and WELLS FARGO BANK, NATIONAL ASSOCIATION (the “ Bank ”), and amends the Second Amended and Restated Credit Agreement dated as of March 12, 2008 (as amended, restated, supplemented or otherwise modified, the “ Credit Agreement ”) between the Borrower and the Bank. Terms defined in the Credit Agreement and not otherwise defined herein are used herein as therein defined.

WHEREAS, subject to the satisfaction of the conditions set forth herein, the Borrower and the Bank have agreed to certain amendments to the Credit Agreement.

NOW, THEREFORE, in consideration of the mutual agreements herein contained and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties hereto agree as follows:

Section 1. Amendment to Section 1. 1(a) of the Credit Agreement. Section 1.1(a) of the Credit Agreement hereby is amended and restated in its entirety as follows:

(a) Line of Credit . During the Line of Credit Period, Bank hereby agrees, subject to the terms and conditions of this Agreement, to make advances (“ Advances ”) to Borrower from time to time in an aggregate principal amount at any time outstanding not to exceed the lesser of (i) the Maximum Line of Credit Amount minus the Letter of Credit Usage or (ii) the Borrowing Base minus the Letter of Credit Usage (“ Line of Credit ”). The proceeds of all advances made hereby shall be used to finance Borrower’s working capital requirements and for other lawful purposes consistent with the provisions hereof. Borrower’s obligation to repay advances under the Line of Credit shall be evidenced by a promissory note substantially in the form of Exhibit A attached hereto (“ Line of Credit Note ”), all terms of which are incorporated herein by this reference. In connection with the foregoing, the amount, if any, by which the LC Usage Amount at any time exceeds the lesser of the Maximum Line of Credit Amount or the Borrowing Base, in either case, at such date shall be payable immediately by Borrower to Bank.

Section 2. Amendment to Section 1. 1(b) of the Credit Agreement. Section 1.1(b) of the Credit Agreement hereby is amended and restated in its entirety as follows:

(b) Letter of Credit Subfeature . As a subfeature under the Line of Credit, Bank agrees from time to time during the term thereof to issue or cause an affiliate to issue sight commercial or standby letters of credit for the account of Borrower (each, a “ Letter of Credit ” and collectively, “ Letters of Credit ”); provided however, Bank shall have no obligation to issue a Letter of Credit if any of the following would result after giving effect to the requested Letter of Credit: (i) the Letter of Credit Usage would exceed the Borrowing Base less the then extant amount of outstanding Advances, or (ii) the Letter of Credit Usage would exceed $10,000,000, or (iii) the Letter of Credit Usage would exceed the Maximum Line of Credit Amount less the then extant amount of outstanding Advances. The form and substance of each Letter of Credit shall be subject to approval by Bank, in its sole discretion. Each commercial Letter of Credit shall be issued for a term not to exceed one hundred eighty (180) days, as designated by Borrower; provided, however, that no commercial Letter of Credit shall have an expiration date subsequent to the Line of Credit Termination Date. Each standby Letter of Credit shall be issued for a term not to exceed twelve (12) months, as designated by Borrower; provided, however , that no standby Letter of Credit shall have an expiration date subsequent to the Line of Credit Termination Date. Each Letter of Credit shall be subject to the additional terms and conditions of the Letter of Credit agreements, applications and any related documents required by Bank in connection with the issuance thereof. Each drawing paid under a Letter of Credit shall be deemed an Advance under the Line of Credit and shall be repaid by Borrower in accordance with the terms and conditions of this Agreement applicable to such advances; provided, however, that if Advances under the Line of Credit are not available, for any reason, at the time any drawing is paid, then Borrower shall immediately pay to Bank the full amount drawn, together with interest thereon from the date such drawing is paid to the date such amount is fully repaid by Borrower, at the rate of interest applicable to advances under the Line of Credit. In such event Borrower agrees that Bank, in its sole discretion, may debit any account maintained by Borrower with Bank for the amount of any such drawing. All Prior Letters of Credit which are outstanding as of the date hereof shall be deemed “Letters of Credit” hereunder.

Section 3. Amendments to Section 1. 2(f) of the Credit Agreement. Section 1.2(f) of the Credit Agreement hereby is amended and restated in its entirety as follows:

(f) Collateral Audits; Appraisals .

(i) Borrower shall pay to Bank its customary fees plus reasonable out-of-pocket expenses for each financial or collateral analysis and examination (i.e., audit) of Borrower and its Subsidiaries performed by personnel employed by Bank (or the actual charges paid or incurred by Bank if it elects to employ the services of one or more Persons to perform such audits); provided, however that so long as no Event of Default has occurred and is continuing, Borrower shall not be obligated to reimburse Bank the fees and costs of more than two (2) audits in any fiscal year.

(ii) Bank shall have the right to have the Inventory, Equipment and the Real Property Collateral of the Borrower and its Subsidiaries appraised from time to time by a qualified appraiser selected by Bank. Borrower shall pay to Bank its customary fees plus reasonable out-of-pocket expenses for each appraisal conducted by personnel employed by Bank (or the actual charges paid or incurred by Bank if it elects to employ the services of one or more third Persons to appraise the Inventory, Equipment and Real Property Collateral of Borrower and its Subsidiaries).

Section 4. Amendments to Article II of the Credit Agreement . Article II of the Credit Agreement hereby is supplemented by adding the following Sections 2.16 and 2.17 immediately following Section 2.15 appearing in Article II:

Section 2.16. Eligible Accounts .

The Eligible Accounts are bona fide existing payment obligations of Account Debtors created by the sale and delivery of Inventory or the rendition of services to such Account Debtors in the ordinary course of Borrower’s business, owed to Borrower without any known defenses, disputes, offsets, counterclaims, or rights of return or cancellation. As to each Account that is identified by Borrower as an Eligible Account in a Borrowing Base Certificate submitted to Bank, such Account is not excluded as ineligible by virtue of one or more of the defining criteria set forth in the definition of Eligible Accounts.

Section 2.17. Eligible Inventory .

All Eligible Inventory is of good and merchantable quality, free from known defects. As to each item of Inventory that is identified by Borrower as Eligible Inventory in a Borrowing Base Certificate submitted to Bank, such Inventory is not excluded as ineligible by virtue of one or more of the defining criteria set forth in the definition of Eligible Inventory.

Section 5. Amendments to Section 4.3 of the Credit Agreement . Section 4.3 of the Credit Agreement hereby is amended by redesignating clause (g) thereof as clause (k) and inserting the following clauses (g), (h), (i) and (j) immediately following clause (f) thereof:

(g) Account Debtor Information . Not later than 30 days after July 31 and January 31 of each year, a detailed report setting forth a true and complete list of all Account Debtors of Borrower and its Subsidiaries as of July 31 and January 31, respectively, together with the address, phone number and name of the primary relationship contact for each Account Debtor;

(h) Borrowing Base Reports . Not later than the fifth Business Day following the end of each month, a detailed calculation of the Borrowing Base (including detail regarding those Accounts of Borrower that are not Eligible Accounts), in the form of the Borrowing Base Certificate;

(i) Weekly Reports . If the date of determination is between April 1 and July 31, not later than Monday of each week for the week most recently ended:

(i) an aging of the Accounts of Borrower, together with a reconciliation to the detailed calculation of the Borrowing Base previously provided to Bank,

(ii) an aging, by vendor, of the accounts payable and any book overdraft of Borrower and its Subsidiaries, and

(iii) Inventory reports specifying the cost of the Inventory of Borrower and its Subsidiaries, by category (i.e., by reference to whether such Inventory is raw material, work-in-process, “assemble-to-ship” component or finished goods Inventory), as adjusted to reflect the market value of such Inventory if lower than the cost thereof, with additional detail showing additions to and deletions therefrom;

(j) Monthly Reports . If the date of determination is between August 1 and March 31, not later than the 10th day of each month for the month most recently ended:

(i) an aging of the Accounts of Borrower, together with a reconciliation to the detailed calculation of the Borrowing Base previously provided to Bank,

(ii) an aging, by vendor, of the accounts payable and any book overdraft of Borrower and its Subsidiaries, and

Section 6. Amendment to Section 5.11 of the Credit Agreement . Section 5.11 of the Credit Agreement hereby is amended and restated in its entirety as follows:

Section 5.11 Minimum Net Income .

Permit Net Income as of the end of any fiscal year of the Borrower to be less than $1.0.

Section 7. Amendment to Section 5.13 of the Credit Agreement. Section 5.13 of the Credit Agreement hereby is amended and restated in its entirety as follows:

Section 5.13 Maximum Leverage Ratio .

Permit the Consolidated Leverage Ratio, measured as of the end of each fiscal quarter of each fiscal year, to be less than the required ratio set forth in the following table for the corresponding period:


		Maximum Consolidated
Applicable Fiscal Quarter		Leverage Ratio

July 31, 2008		4.25 to 1.00

October 31, 2008		1.50 to 1.00

January 31, 2009		1.75 to 1.00

Except as otherwise set forth in this table, the fiscal quarter ended January 31 of each fiscal year		1.25 to 1.00


		Maximum Consolidated
Applicable Fiscal Quarter		Leverage Ratio

Fiscal quarter ended April 30 of each fiscal year		2.50 to 1.00

Except as otherwise set forth in this table, the fiscal quarter ended July 31 of each fiscal year		3.50 to 1.00

Except as otherwise set forth in this table, the fiscal quarter ended October 31 of each fiscal year		1.25 to 1.00

Section 8. Amendments to Annex A to the Credit Agreement . (a) The following definitions hereby are inserted in Annex A to the Credit Agreement in the proper alphanumerical order:

“ Amendment No. 1 ” means Amendment No. 1 to Second Amended and Restated Credit Agreement dated as of March 12, 2008 between the Borrower and the Bank.

“ Borrowing Base ” means, as of any date of determination, the result of:

(a) 80% of the amount of Eligible Accounts, less the amount, if any, of the Dilution Reserve, plus

(b) the lower of:

(i) the Maximum Inventory Amount, and

(ii) the sum of:

(A) the Designated Finished Goods Advance Rate of the value of Eligible Finished Goods Inventory, plus

(B) the Designated ATS Advance Rate of the value of Eligible ATS Inventory, plus

(c) such reserves as the Bank, in the exercise of its reasonable credit judgment, determines are necessary or appropriate, including, without limitation, a $100,000 reserve for the payment of licensing royalties payable in connection with the sale of inventory.

“ Borrowing Base Certificate ” means a certificate substantially in the form of Exhibit C delivered by the chief financial officer of Borrower to Bank.

“ Collateral Access Agreement ” means a landlord waiver, bailee letter, or acknowledgement agreement of any lessor, warehouseman, processor, consignee, or other Person in possession of, having a Lien upon, or having rights or interests in Borrower’s or its Subsidiaries’ books and records, Equipment or Inventory, in each case, in form and substance satisfactory to Bank.

“ Designated ATS Advance Rate ” means, at any date, a percentage equal to (a) if such date is on or after March 1 and on or before July 31 of each year, 50% and (b) at all other times, 20%.

“ Designated Finished Goods Advance Rate ” means, at any date, a percentage equal to (a) if such date is on or after March 1 and on or before July 31 of each year, 60% and (b) at all other times, 50%.

“ Dilution ” means, at any date, a percentage, based upon the experience of the immediately prior 30 consecutive days, that is the result of dividing the Dollar amount of (a) bad debt write-downs, discounts, advertising allowances, credits, returns of merchandise, freight allowances, notes taken in lieu of payment, miscellaneous credits and adjustments, or other dilutive items with respect to Borrower’s Accounts during such period, by (b) Borrower’s gross billings with respect to Accounts during such period.

“ Dilution Reserve ” means, as of any date of determination, an amount sufficient to reduce the advance rate against Eligible Accounts as follows:


If Dilution is:		Then the Dilution Reserve is:

Less than 5.0%		- 0 -
5.0% or greater but less than 10.0%		An amount sufficient to reduce advance rates by 5.0%
10.0% or greater but less than 15.0%		An amount sufficient to reduce advance rates by 10.0%
15.0% or greater but less than 20.0%		An amount sufficient to reduce advance rates by 15.0%
20.0% or greater but less than 25.0%		An amount sufficient to reduce advance rates by 20.0%
25.0% or greater but less than 30.0%		An amount sufficient to reduce advance rates by 25.0%
For each additional 5.0% increase in Dilution		An amount sufficient to reduce advance rates by an incremental 5.0%

“ Eligible Accounts ” means those Accounts created by Borrower in the ordinary course of its business, that arise out of Borrower’s sale of goods or rendition of services, that comply with each of the representations and warranties respecting Eligible Accounts made in the Loan Documents, and that are not excluded as ineligible by virtue of one or more of the excluding criteria set forth below; provided, however, that such criteria may be revised from time to time by Bank in Bank’s discretion to address the results of any audit performed by Bank from time to time after the Closing Date. In determining the amount to be included, Eligible Accounts shall be calculated net of customer deposits and unapplied cash and shall not give effect to any credits reflected on Borrower’s agings that would otherwise reduce the amount of ineligible Accounts. Eligible Accounts shall not include the following:

(a) (i) with respect to Accounts due on or before the date that is 30 days after the original invoice date thereof, Accounts that the Account Debtor has failed to pay within 90 days of the original invoice date therefor or within 60 days of the due date thereof, or

(ii) with respect to Accounts due on or after the date that is 31 days after the original invoice date thereof, Accounts that the Account Debtor has failed to pay within 120 days of the original invoice date therefor or within 30 days of the due date thereof; provided, however, that no Accounts shall constitute Eligible Accounts hereunder if such Accounts are outstanding (or provide terms of payment) more than 180 days after the original invoice thereof,

(b) Accounts owed by an Account Debtor (or its Affiliates) where 20% or more of all Accounts owed by that Account Debtor (or its Affiliates) are deemed ineligible under clause (a) above,

(c) Accounts with respect to which the Account Debtor is an Affiliate of Borrower or an employee or agent of Borrower or any Affiliate of Borrower,

(d) Accounts arising in a transaction wherein goods are placed on consignment or are sold pursuant to a guaranteed sale, a sale or return, a sale on approval, a bill and hold, a cash on delivery or any other terms by reason of which the payment by the Account Debtor may be conditional,

(e) Accounts that are not payable in Dollars,

(f) Accounts with respect to which the Account Debtor either (i) does not maintain its chief executive office in the United States, or (ii) is not organized under the laws of the United States or any state thereof, or (iii) is the government of any foreign country or sovereign state, or of any state, province, municipality, or other political subdivision thereof, or of any department, agency, public corporation, or other instrumentality thereof, unless (y) the Account is supported by an irrevocable letter of credit satisfactory to Bank (as to form, substance, and issuer or domestic confirming bank) that has been delivered to Bank and is directly drawable by Bank, or (z) the Account is covered by credit insurance in form, substance, and amount, and by an insurer, satisfactory to Bank,

(g) Accounts with respect to which the Account Debtor is either the United States or any department, agency, or instrumentality of the United States (exclusive, however, of Accounts with respect to which Borrower has complied, to the reasonable satisfaction of Bank, with the Assignment of Claims Act, 31 USC § 3727),

(h) Accounts with respect to which the Account Debtor is a creditor of Borrower, has or has asserted a right of setoff, has disputed its obligation to pay all or any portion of the Account, or is the subject of litigation (including any collection actions) undertaken by Borrower,

(i) Accounts with respect to an Account Debtor whose total obligations owing to Borrower exceed 20% (such percentage as applied to a particular Account Debtor being subject to reduction by Bank in its discretion if the creditworthiness of such Account Debtor deteriorates) of all Eligible Accounts, to the extent of the obligations owing by such Account Debtor in excess of such percentage; provided, however, that, in each case, the amount of Eligible Accounts that are excluded because they exceed the foregoing percentage shall be determined by Bank based on all of the otherwise Eligible Accounts prior to giving effect to any eliminations based upon the foregoing concentration limit,

(j) Accounts with respect to which the Account Debtor is subject to an Insolvency Proceeding, is not Solvent, has gone out of business, or as to which Borrower has received notice of an imminent Insolvency Proceeding or a material impairment of the financial condition of such Account Debtor or as to which Borrower has referred the Account Debtor to Borrower’s legal or collection department (or a third Person providing such services),

(k) Accounts with respect to which the Account Debtor is located in a state or jurisdiction (e.g., New Jersey, Minnesota, and West Virginia) that requires, as a condition to access to the courts of such jurisdiction, that a creditor qualify to transact business, file a business activities report or other report or form, or take one or more other actions, unless Borrower has so qualified, filed such reports or forms, or taken such actions (and, in each case, paid any required fees or other charges), except to the extent that Borrower may qualify subsequently as a foreign entity authorized to transact business in such state or jurisdiction and gain access to such courts, without incurring any cost or penalty viewed by Bank to be significant in amount, and such later qualification cures any access to such courts to enforce payment of such Account,

(l) Accounts, the collection of which, Bank, in its discretion, believes to be doubtful by reason of the Account Debtor’s financial condition,

(m) Accounts that are not subject to a valid and perfected first priority Lien in favor of Bank,

(n) Accounts with respect to which (i) the goods giving rise to such Account have not been shipped and billed to the Account Debtor, or (ii) the services giving rise to such Account have not been performed and billed to the Account Debtor,

(o) Accounts that represent the right to receive progress payments or other advance billings that are due prior to the completion of performance by Borrower of the subject contract for goods or services, or

(p) Accounts representing service, finance, late or collection charges, to the extent of such service, finance, late or collection charges.

“ Eligible ATS Inventory ” means Inventory that qualifies as Eligible Finished Goods Inventory except for the fact that such Inventory constitutes “assemble-to-ship” (“ ATS ”) Inventory.

“ Eligible Finished Goods Inventory ” means Inventory consisting of first quality finished goods held for sale in the ordinary course of Borrower’s business that complies with each of the representations and warranties respecting Eligible Finished Goods Inventory made in the Loan Documents, and that is not excluded as ineligible by virtue of the one or more of the excluding criteria set forth below; provided, however, that such criteria may be revised from time to time by Bank in Bank’s discretion to address the results of any audit or appraisal performed by Bank from time to time after the Closing Date. In determining the amount to be so included, Inventory shall be valued at the lower of cost or market on a basis consistent with Borrower’s historical accounting practices. An item of Inventory shall not be included in Eligible Inventory if:

(a) Borrower does not have good, valid, and marketable title thereto,

(b) it is not located at one of the locations in the continental United States set forth on Schedule E-1 or in transit from one such location to another such location,

(c) it is located on real property leased by Borrower or in a contract warehouse, in each case, unless it is subject to a Collateral Access Agreement (except if the leased real property is Borrower’s facility located at 2027 Harpers Way, Torrance, California, in which case no Collateral Access Agreement shall be required) executed by the lessor or warehouseman, as the case may be, and unless it is segregated or otherwise separately identifiable from goods of others, if any, stored on the premises,

(d) it is not subject to a valid and perfected first priority Lien in favor of the Bank,

(e) it consists of goods returned or rejected by Borrower’s customer,

(f) it consists of goods that are obsolete or slow moving, restrictive or custom items, work-in-process, raw materials, or goods that constitute spare parts, packaging and shipping materials, supplies used or consumed in Borrower’s business, bill and hold goods, defective or damaged goods, “seconds,” or Inventory sold or acquired on consignment, or

(g) it contains or bears any intellectual property rights licensed to Borrower or any Subsidiary, unless Bank is reasonably satisfied that it may sell or otherwise dispose of such Inventory without (i) infringing the rights of such licensor, (ii) violating any contract with such licensor, or (iii) incurring any liability with respect to payment of royalties other than royalties incurred pursuant to sale of such Inventory under the current licensing agreement.

“ Eligible Inventory ” means Eligible ATS Inventory, Eligible Finished Goods Inventory or Eligible Raw Material Inventory.

“ Eligible Raw Material Inventory ” means Inventory that qualifies as Eligible Finished Goods Inventory except for the fact that such Inventory constitutes raw materials.

“ First Amendment Effective Date ” means the first date on which all conditions set forth in Section 12 of Amendment No. 1 have been satisfied.

“ Maximum Inventory Amount ” means, as of any date of determination, an amount equal to (a) if such date is on or after March 1 and on or before June 30 of any calendar year, $30,000,000, (b) if such date is on or after July 1 and on or before July 31 of any calendar year, $25,000,000 and (c) at all other times, $15,000,000.

(b) The following definition appearing in Annex A to the Credit Agreement hereby is amended and restated in its entirety as follows:

“ Affiliate ” means, as applied to any Person, any other Person who, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. For purposes of this

definition, “control” means the possession, directly or indirectly through one or more intermediaries, of the power to direct the management and policies of a Person, whether through the ownership of stock, by contract, or otherwise; provided, however, that, for purposes of the definition of Eligible Accounts and Section 5.9 hereof: (a) any Person which owns directly or indirectly 10% or more of the Stock having ordinary voting power for the election of directors or other members of the governing body of a Person or 10% or more of the partnership or other ownership interests of a Person (other than as a limited partner of such Person) shall be deemed an Affiliate of such Person, (b) each director (or comparable manager) of a Person shall be deemed to be an Affiliate of such Person and (c) each partnership or joint venture in which a Person is a partner or joint venturer shall be deemed an Affiliate of such Person.

(c) The following definitions appearing in Annex A to the Credit Agreement hereby are deleted from Annex A: Consolidated Current Assets; Consolidated Current Liabilities; Consolidated Current Assets.

Section 9. Supplements to Exhibits and Schedules . The Credit Agreement hereby is supplemented to include Exhibit C attached hereto and Schedule E-1 attached hereto.

Section 10. Consent to Amendments . Each Guarantor hereby acknowledges and consents to this Amendment, and affirms and acknowledges that the Guaranty and each other Loan Document to which it is a party remains in full force and effect and that such Person remains obligated thereunder without defense, offset or counterclaim of any kind whatsoever, as if such Guaranty or other Loan Document were executed and delivered to the Bank on the date hereof.

Section 11. Representations and Warranties. To induce the Bank to enter into this Amendment, the Borrower represents and warrants to the Bank that:

(a) Representations and Warranties in Credit Agreement . Each of the representations and warranties of the Borrower and its Subsidiaries contained in the Credit Agreement, the other Loan Documents or in any document or instrument delivered pursuant to or in connection with the Credit Agreement (i) were true and correct when made and (ii) after giving effect to this Amendment, continue to be true and correct on the date hereof (except to the extent that such representations and warranties relate expressly to an earlier date).

(b) Authority . The execution and delivery by the Borrower of this Amendment and the performance by the Borrower of its obligations under this Amendment (i) are within its power and authority, (ii) have been duly authorized by all necessary proceedings, (iii) do not and will not conflict with or result in any breach or contravention or any provision of law, statute, rule or regulation to which the Borrower is subject or any judgment, order, writ, injunction, license or permit applicable to the Borrower so as to materially adversely affect the assets, business or any activity of the Borrower, (iv) do not conflict with any provision of the certificate of incorporation or bylaws of the Borrower or any agreement or other instrument binding upon the Borrower, (v) do not and will not require any waivers, consents or approvals by any of its creditors which have not been obtained, or (vi) do not and will not require any approval which has not been obtained.

(c) Enforceability of Obligations . This Amendment and the Credit Agreement, as amended hereby, constitute the legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with its terms, except as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors’ rights and except to the extent that availability of the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought.

(d) No Event of Default . No Event of Default or Default has occurred and is continuing.

Section 12. Conditions to Effectiveness. This Amendment shall become effective on the date when the following conditions precedent have been satisfied:

(a) The Borrower, each Guarantor and the Bank shall have delivered an executed counterpart of this Amendment.

(b) No Event of Default or Default shall have occurred and be continuing or would result after giving effect to the transactions contemplated hereby.

(c) The representations and warranties set forth in Section 5 hereof shall be true and correct on the effective date of this Amendment.

(d) No injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the consummation of the transactions contemplated herein shall have been issued and remain in force by any Governmental Authority against the Borrower, any Guarantor or the Bank.

(e) The Borrower shall have paid all reasonable out-of-pocket costs and expenses of the Bank, to the extent invoices therefor have been presented.

(f) All other documents and legal matters in connection with the transactions contemplated by this Amendment shall have been delivered or executed or recorded and shall be in form and substance satisfactory to the Bank.

Section 13. Admissions and Acknowledgments. The Borrower and each Guarantor expressly acknowledges and agrees with each of the following:

(a) That such Person does not dispute the validity or enforceability of any of the Loan Documents or any of their respective obligations under any of the foregoing, or the validity, priority, enforceability, scope or extent of any charge, Lien, security interest or any other encumbrance of the Bank in, on or against any of the Collateral in any judicial, administrative or other proceeding;

(b) That such Person shall not challenge or dispute the validity of any of its obligations under the Loan Documents to which it is party or any other obligations incurred by such Person pursuant to the Loan Documents; and

(c) That the Indebtedness evidenced by the Loan Documents is secured by first priority, non-avoidable, perfected, valid and enforceable liens on and security interests in the Collateral, subject only to Permitted Liens.

Section 14. Reference to and Effect on Loan Documents.

(a) Upon the effectiveness of this Amendment, on and after the date hereof, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof” or words of like import, and each reference in the other Loan Documents to the Credit Agreement, shall mean and be a reference to the Credit Agreement as amended hereby.

(b) Except as expressly set forth herein, this Amendment shall not by implication or otherwise limit, impair, constitute a waiver of, or otherwise affect the rights and remedies of the Bank under the Credit Agreement or any other Loan Document, and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other Loan Document, all of which are ratified and affirmed in all respects and shall continue in full force and effect.

(c) Nothing herein shall be deemed to entitle the Borrower or any Guarantor to a waiver, amendment, modification or other change of any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other Loan Document in similar or difference circumstances.

(d) This Amendment shall be a Loan Document for all purposes.

Section 15. Benefits of Amendment . The terms and provisions of this Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns to the extent contemplated by the Credit Agreement.

Section 16. Interpretation . The Article and Section headings used in this Amendment are for convenience of reference only and shall not affect the construction hereof.

Section 17. Execution in Counterparts . This Amendment may be executed in any number of counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Amendment. Faxed signatures of this Amendment shall be binding for all purposes.

Section 18. Severability . If any provision of this Amendment shall be held to be invalid, illegal or unenforceable under applicable law in any jurisdiction, such provision shall be ineffective only to the extent of such invalidity, illegality or unenforceability, which shall not affect any other provisions hereof or the validity, legality and enforceability of such provision in any other jurisdiction.

Section 19. Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of California. The arbitration provisions of Section 7.11 of the Credit Agreement are incorporated herein by reference.

Section 20. Expenses . The Borrower agrees to pay the reasonable out-of-pocket expenses of the Bank, including but not limited to the reasonable fees, charges and disbursements, including but not limited to the fees, charges and disbursements of Gibson, Dunn & Crutcher LLP, special counsel for the Bank, incurred in connection with the preparation, negotiation, execution and delivery of this Amendment and any subsequent waiver, amendment or modification of the Credit Agreement or any other Loan Document and the security arrangements in connection herewith or therewith.

Section 21. No Course of Dealing. The execution and delivery of this Amendment shall not establish a course of dealing among the Bank, the Borrower and the Guarantors or in any other way obligate the Bank to hereafter provide any further amendments, waivers, or consents of any kind to the Borrower and the Guarantors.

Section 22. Arm’s Length Agreement. Each of the parties to this Amendment agrees and acknowledges that this Amendment has been negotiated in good faith, at arm’s length, and not by any means forbidden by law.

Section 23. Entire Agreement. This Amendment together with all other instruments, agreements, and certificates executed by the parties in connection herewith or with reference thereto, embody the entire understanding and agreement between the parties hereto and thereto with respect to the subject matter hereof and thereof and supercede all prior agreements, understandings, and inducements, whether express or implied, oral or written.

[Signature Pages Follow]

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered as of the date first set forth above.


VIRCO MFG. CORPORATION , as the Borrower
By:	/s/ Robert E. Dose
	Name:	Robert E. Dose
	Title:	Vice President — Finance, Secretary and Treasurer

VIRCO, INC. , as a Guarantor
By:	/s/ Robert E. Dose
	Name:	Robert E. Dose
	Title:	Vice President — Finance, Secretary and Treasurer

VIRCO MGMT. CORPORATION , as a Guarantor
By:	/s/ Robert E. Dose
	Name:	Robert E. Dose
	Title:	Vice President — Finance, Secretary and Treasurer

WELLS FARGO BANK, NATIONAL ASSOCIATION
By:	/s/ Jeff Heisinger
	Name:	Jeff Heisinger
	Title:	Vice President

Signature Page to Amendment No. 1

Virco Mfg. Corporation

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Robert A. Virtue, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Virco Mfg. Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: September 9, 2008	/s/ Robert A. Virtue
	Robert A. Virtue
	President and Chief Executive Officer (Principal Executive Officer)

EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Robert E. Dose, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Virco Mfg. Corporation;

(a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: September 9, 2008	/s/ Robert E. Dose
	Robert E. Dose
	Vice President of Finance (Principal Financial Officer)

Exhibit 32.1

CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18
U.S.C. § 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert A. Virtue, Chief Executive Officer of Virco Mfg. Corporation (the “Company”), certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1. the Quarterly Report of the Company on Form 10-Q for the quarter ended July 31, 2008, as filed with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date: September 9, 2008	/s/ Robert A. Virtue
	Robert A. Virtue
	President and Chief Executive Officer (Principal Executive Officer)

I, Robert E. Dose, Vice President of Finance of Virco Mfg. Corporation (the “Company”), certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date: September 9, 2008	/s/ Robert E. Dose
	Robert E. Dose
	Vice President of Finance (Principal Financial Officer)

These certifications accompany the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject the Company to the liability of that section.

End of Filing

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