<PAGE>   1

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            -----------------------
                       
                                   FORM 10-KSB

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [FEE REQUIRED]

For the fiscal year ended September 30, 1996

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]

For the transition period from __________ to __________

                         Commission file number: 0-21305

                            ELECTRONIC DESIGNS, INC.
                 (Name of small business issuer in its charter)

         DELAWARE                                         04-3298416
(State or other jurisdiction of                       (I.R.S. employer 
incorporation or organization)                      identification no.)

                               ONE RESEARCH DRIVE
                              WESTBOROUGH, MA 01581
                                 (508) 366-5151

             (Address, including zip code, of Registrant's principal
   executive offices and Registrant's telephone number, including area code)

                         -----------------------------
           
          SECURITIES REGISTERED UNDER SECTION 12(b) OF THE ACT: NONE.

  SECURITIES REGISTERED UNDER SECTION 12(g) OF THE ACT: COMMON STOCK, PAR VALUE
                       $.01 PER SHARE; REDEEMABLE WARRANTS

                          -----------------------------

     Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended during
the past 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.  X  Yes     No
                  ---     ---

     Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

     The Registrant's revenues for the fiscal year ended September 30, 1996 were
$58,654,000.

     The aggregate market value of the voting stock held by non-affiliates of
Registrant as of November 15, 1996 was $15,402,735 based on the closing sales
price of such stock on the Nasdaq Small-Cap Market. As of November 15, 1996,
there were 6,561,896 shares of Registrant's Common Stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrant's definitive Proxy Statement for its Annual Meeting of
Shareholders to be held February 26, 1997 (the "Proxy Statement") to be filed
pursuant to Regulation 14A of the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended, which is anticipated to be filed
within 120 days after the end of Registrant's fiscal year ended September 30,
1996, are incorporated by reference into Part III hereof.

<PAGE>   2

<TABLE>


TABLE OF CONTENTS

<S>                                                                                <C>  
PART I............................................................................   1

   ITEM 1.  DESCRIPTION OF BUSINESS...............................................   1

   ITEM 2.  DESCRIPTION OF PROPERTIES.............................................   6

   ITEM 3.  LEGAL PROCEEDINGS.....................................................   6

   ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................   6


PART II...........................................................................   7

   ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..............   7

   ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
            RESULTS OF OPERATIONS.................................................   8

   ITEM 7.  FINANCIAL STATEMENTS..................................................  13

   ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
            FINANCIAL DISCLOSURE..................................................  13

PART III..........................................................................  14

   ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
            COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.....................  14

   ITEM 10. EXECUTIVE COMPENSATION................................................  14

   ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........  14

   ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................  14

   ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K................................  15

            SIGNATURES............................................................  21
            AUDITED FINANCIAL STATEMENTS.......................................... F-1

</TABLE>

                                       i

<PAGE>   3


                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

     This Form 10-KSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward-looking statements. Certain factors that might
cause such a difference are discussed in the section entitled "Certain Factors
Affecting Future Operating Results" beginning on page 12 of this Form 10-KSB.

GENERAL BACKGROUND

     Electronic Designs, Inc. (formerly Crystallume)(the "Company") was
originally incorporated in California in 1984 under the name of Crystallume.
Since its inception in 1984 through October 10, 1995, the Company had been
primarily engaged in research and development related to diamond coatings using
Chemical Vapor Deposition ("CVD") technology.

      Effective October 10, 1995, the Company acquired all of the outstanding
stock of Electronic Designs, Inc., a privately held Massachusetts corporation
("EDI-MA"), in a purchase transaction (the "Acquisition"). EDI-MA manufactured
high density memory components used in commercial and military systems, and also
designed and manufactured flat panel display units suitable for avionics and
other specialty applications using active matrix liquid crystal displays. As a
result of the Acquisition, the Company has shifted its emphasis from diamond
research and development to the design, manufacture and sale of semiconductor
and flat panel display products.

     On March 6, 1996, the Company was reorganized as a Delaware corporation
under the name Electronic Designs, Inc. to reflect the shift in its business
focus.

INDUSTRY BACKGROUND

     Semiconductor Packaging: Worldwide demand for memory integrated circuits
("ICs") has grown significantly during the 1990's due to the proliferation of
personal computers, data communications systems and new telecommunications
systems; the introduction of memory intensive software applications; and the
increasing use of memory devices in many consumer products. The most widely used
memory devices are dynamic random access memories ("DRAMs") and static random
access memories ("SRAMs"). DRAMs are commercially available with higher
densities than SRAMs, while SRAMs do not require refresh circuitry and are
capable of higher speeds than DRAMs of the same density. SRAMs are used to take
advantage of the significantly increased performance capabilities of current
microprocessors.

     SRAMs are used in a wide variety of other electronic products, including
personal computers ("PCs"), cellular base stations and telephones, and high
speed data communications networks. In military and aerospace systems, SRAMs
provide the high performance memory required by fast military processors for
pattern recognition, command, control and communications and other applications.

     Memory modules are miniaturized memory subsystems which can consist of
multiple memory devices plus support chips in a single component. Standard
memory modules include modules that can be sourced from many module suppliers,
are designed to be incorporated into a wide variety of equipment, primarily use
DRAM and are typically found in desktop PCs. Standard memory modules for the PC
market include DRAM single in-line memory modules ("SIMM") used for 

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main memory and SRAM cache modules. Specialty memory modules typically emulate
the next generation of IC or provide a configuration of memory used with various
microprocessors other than in PC applications. Custom memory modules are
designed and manufactured to a customer's unique specification, application and
space requirements.

     While the market for memory ICs has grown rather steadily in recent years,
this market continues to display considerable volatility, particularly in the
commercial segment which has been the principal focus of the Company's
activities. No assurances can be given that such volatility, with periods of
flat or declining demand, will not continue and extend to the Company's military
memory products. Any such market developments could have a material adverse
effect on the Company's semiconductor packaging business.

     Flat Panel Displays: The information display industry is undergoing
significant changes and trends which are converging to drive a growing demand
for high performance, flat, lightweight, and power efficient displays that are
capable of delivering high volumes of information. Although cathode ray tube
displays ("CRTs") currently dominate the information display market, they are
large, heavy, fragile and require substantial amounts of power to operate. There
are several flat panel display technologies currently in development or
commercially available, including liquid crystal, gas plasma and
electroluminescent and field emission displays ("FEDs"). The liquid crystal
display ("LCD") market is the largest segment of the flat panel display market
and is dominated by a small number of large suppliers primarily located in
Japan. Passive Matrix LCDs have a less complex manufacturing process and lower
cost than Active Matrix LCDs ("AMLCDs") but have a lower image quality and
response time and a limited effective temperature range. As a result of
developments in the PC industry, the price-performance and form factor of PC
components now make it possible to integrate computers and displays to make
fast, compact systems for numerous specialized applications.

     Diamond Products: Diamond's properties make it the hardest and one of the
strongest materials, an excellent thermal conductor and an almost perfect
electrical insulator. Because of its unique properties, diamond is viewed as a
potentially ideal material for a wide variety of commercial and industrial
applications, including wear coatings to extend the lives of cutting tools and
machine components and electronic packaging materials to reduce the operating
temperature and increase the reliability and lifetime of electronic components.

PRODUCTS AND PRODUCT DEVELOPMENT

     The Company currently manufactures and sells approximately 150 memory
products and 15 display products for a wide range of commercial, industrial and
military applications. In fiscal 1996, memory products accounted for 92% of
Company sales.

     Memory products: The Company's memory products are primarily designed for
the SRAM market. The Company's memory products incorporate SRAM, DRAM and flash
memory components using existing packaging technologies such as components
suface mounted on boards, multiple bare die on laminate ("MCM-L") or ceramic
("MCM-C") or a single die in a ceramic package (military monolithics).
Commercial module products range in density from 2 Megabit ("M") to 1 gigabit,
widths from 8 to 64 inputs-outputs ("IOs"), speeds as fast as 8 nanoseconds
("ns") and in various package options. Memory products also include military
monolithic and MCM-C products screened for operating under extreme conditions
which range in density from 256K to 16M, with address widths from 1 to 32 IOs,
operating at speeds as fast as 15 ns and in various package options.

     Product development has consisted of activities related to the design,
prototyping and release to production of new products. In addition to the
development of new module and monolithic products based on 4M SRAM, recent
development efforts include new MCM-L and flash memory designs as well as high
density DRAMs using the Company's licensed "doubler" technology. MCM-Ls are
geared to any high end, high performance application where board space is an


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<PAGE>   5

issue or surface mount devices are desired, while applications for the high
density DRAM modules would include high-end servers and workstations.

     Display Products: The Company's current offering of AMLCDs includes 5.0",
5.5", 6.4", 10.4" and 14.2" diagonal panels in display head, monitor and
computer systems formats. These displays offer significant advantages over other
commercially available displays. Significant features include sunlight
readability and ruggedized construction for operating temperatures from -35 to
+85 degrees Celsius.

     Display product development is aimed at offering a broad range of products
based on different sized AMLCD panels, the development of a PC technology based
computer system incorporating the Company's displays, as well as the development
of electronic circuit boards for "smart" displays.

     Diamond Products: The Company has focused its efforts on a CVD process
which can produce a thin film of diamond on substrates made of appropriate
materials in order to develop commercial products of wide application. The
advantage of the CVD process is that a diamond coating can be applied in a
controllable manner to a wide variety of useful forms. Diamond products research
and development efforts have resulted in the introduction and production of
diamond coated cutting tool inserts and tungsten carbide rotating tools of
complex geometries for machining applications.

     The Company's diamond research is focused on improving tooling products and
related diamond coating processes as well as developing numerous other
applications for the Company's diamond coating process.

     The Company is developing a semiconductor product incorporating diamond as
a heat spreader to enable the devices to operate at higher power or lower
temperatures. Substituting diamond for existing heat spreading materials may
result in significantly better heat removal and greatly improved semiconductor
performance and reliability in heat sensitive operations.

     As with any new products, there is no assurance that the products developed
(or to be developed) by the Company will be commercially acceptable or
profitable.

PRODUCTION AND MANUFACTURING

     The process of manufacturing the Company's memory products consists of
packaging, in the case of die and wafer products, to be assembled using ceramic
or laminate packages; surface mount assembly and lead attach, in the case of
module products; extensive back end testing, which may include burn-in; and
marking. All processes are performed in the Company's facilities with the
exception of packaging which is subcontracted to manufacturers in Manila,
Philippines and California. In addition, the Company uses subcontractors from
time to time to perform surface mount assembly of products in order to provide
additional capacity and flexibility. Quality and reliability are emphasized in
the design and manufacture of the Company's products and the Company is ISO 9001
certified with respect to its memory products.

     The manufacture of the Company's display products consists of lamination of
glass and filters to the purchased AMLCD panel for ruggedization and graphics
enhancement; assembly of backlighting and electronic circuitry; final system
assembly; and testing. All operations are performed in the Company's facility in
Westborough.

     With respect to diamond coated tooling insert products, the Company has
achieved commercial production in limited quantities from its manufacturing
technology and is shipping orders to customers. Production capacity is not
currently a concern given the limited order flow. In the event of heightened
demand, however, there can be no assurances that the Company would have
sufficient production capacity.

MARKETING AND DISTRIBUTION

     The Company's memory and display products are distributed worldwide through
a combination of independent sales representatives, distributors and 

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<PAGE>   6

Company employed sales personnel. The Company has area sales offices in
Westborough, Dallas, Los Angeles and London, England. Each of these sales
offices is staffed by sales managers who have responsibility for supervision of
a number of sales representatives in each area.

CUSTOMERS

     The Company sells memory and display products to over 500 companies
throughout the world. Customers for the Company's commercial and industrial
products include Alcatel, Bay Networks, Inc., Cabletron System, Inc., Ericsson,
LG, Ltd., Motorola, Inc., Octel Communications Corp., Siemens, and 3Com Corp.
The Company's military customers include Harris Corporation, Hughes Aircraft
Company, Lockheed Corp., Raytheon Company and Rockwell International. In fiscal
year 1996, no single customer accounted for over 10% of the Company's revenues.

     Sales of the Company's memory and display products are generally made
pursuant to standard purchase orders, which are subject to rescheduling of
delivery dates and cancellation without significant penalties. The Company has
also entered into various corporate contracts, primarily with military
customers, and these contracts do not generally require minimum purchase
quantities of the Company's products. For these reasons, the Company believes
that its product backlog, while useful for scheduling production, does not
necessarily provide a reliable indicator of future revenues.

     The principal source of revenue for diamond products is research and
development contracts with the U.S. government, industry consortia and
commercial organizations and, on a limited basis, from the sale of prototype and
limited distribution products.

SUPPLIERS

     The most significant raw materials that the Company purchases in its
semiconductor and display products operations are memory devices in wafer, die
and component forms and AMLCD panels. To address these needs, the Company has
developed and maintains relationships with the leading semiconductor fabricators
in the United States and the Far East, including Micron Semiconductor, Inc.,
Mitsubishi Electronics America, Inc., Samsung Semiconductor, Inc. and
subsidiaries of Sharp Corporation.

     In a time of strong demand for memory and other IC products, sources of
supply of wafers, die and other components may be constrained and subject to
shortages, and a semiconductor packager's ability to compete is heavily
dependent on its ability to maintain access to steady sources of supply. While
the Company has no specific long-term contractual arrangements with its vendors,
the Company believes that it has good relationships with these vendors and that
it is an important part of their marketing and distribution programs, and as
such is an important customer to each. No assurances, however, can be given that
the Company's existing access to these sources of supply may not be impaired in
particular cases. Any reduction in the Company's ability to acquire memory
devices from its existing sources of supply would have a material adverse effect
on the Company.

COMPETITION

     The Company's principal competitors in the commercial module market are
Integrated Device Technology, Inc. ("IDT"), Cypress Semiconductor, Inc.
("Cypress") and Smart Modular Technologies, Inc. These companies are publicly
held, larger than the Company and have substantially greater financial,
technical, marketing, distribution and other resources. They both manufacture
memory products in monolithic form and supply modules which incorporate these
devices. In addition, the Company competes with a number of smaller companies
and larger semiconductor companies who are now in the market or may in the
future enter the market. The Company competes in this market on the basis of
many factors, including access to advanced semiconductor products at competitive
prices, successful and timely product introduction, design 

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capability, lead times, quality, product specification, pricing and customer
service.

     The Company's principal competitors in the military memory market are
Dense-Pac Microsystems, Inc., and White Technology, a division of Bowmar, Inc.,
two companies similar in size to itself. The Company may also compete from time
to time in this market with Cypress and IDT, particularly in lower density
technology. The Company competes in this market on the basis of many factors,
including its quality system which allows it to comply with U.S. and foreign
military standards, longer term access to advanced semiconductor products in die
and wafer form, successful and timely product introduction, inclusion of its
products on standard military drawings, design capability, lead times, product
specification, pricing and customer service.

     The principal bases of competition among display suppliers are display
performance (e.g., brightness, color capabilities, contrast and viewing angle),
size and weight, design flexibility, power usage, durability and ruggedness.
While the primary competition for the Company's AMLCD is currently CRTs, its
products compete with other flat panel displays including gas plasma and
electroluminescent displays. Because of display performance and the significant
investments previously and currently being made by a number of Japanese and
Korean companies, the Company believes that AMLCDs will displace CRTs as the
leader in the avionics display market and eventually in all display markets. The
present main competitive force for the Company's display products is the make or
buy scenario within its customers and new and existing companies purchasing and
enhancing AMLCDs manufactured by third parties.

     The thin film diamond industry is undergoing rapid development and
technological change. CVD diamond coating technology is being vigorously pursued
by several large, well capitalized companies in the United States, Europe and
Japan, including General Electric Company, Sumitomo Electric Industries, Ltd.,
DeBeers Industrial Diamonds, Ltd. In addition, a number of large companies that
may require CVD diamond technology as part of their core business have been
developing or are expected to develop their own processes for diamond coating
their products. AB Sandvik Coromant, Kennametal, Inc., Teledyne Firth Sterling
and Balzers have all announced diamond coated carbide cutting tools. All of the
companies discussed above have greater engineering, manufacturing, marketing and
financial capabilities than the Company. The Company's diamond products must
also compete with products made with other diamond processes and with
alternative materials. The Company faces growing competition from developers of
diamond-like substitutes. In the future, new technologies and materials may be
developed that will provide further competition.

PATENTS AND PROPRIETARY TECHNOLOGY

     With respect to memory and display products, the Company does not rely on
patents, and has no patents on memory or display products. The Company has
licensed technology for a patent on foldable electronic assembly modules
whereby, in addition to an initial license fee, the Company is required to pay a
3% royalty on the sale of any products relying on the patent

     In its diamond activities, the Company has been granted 23 U.S. patents and
3 European patents, has 7 additional patents pending in the U.S. and has one
foreign patent pending. The issued patents and patent applications primarily
relate to Diamond Coated Carbide (DCCTM) CVD diamond products and materials and
methods of manufacturing CVD diamond. In addition to the Company's owned
patents, the Company is the exclusive licensee of technology and patents arising
from research sponsored by the National Center for Manufacturing Science
("NCMS") regarding processes for improving the adhesion of CVD diamond to
tungsten carbide. The Company has a worldwide, royalty-free right to use the
adhesion technology for all applications, except that it is obligated to pay
NCMS a royalty equal to 2% of its sales of cutting tool inserts and round tools
utilizing the licensed technology (up to a maximum of $1,400,000 of royalties).
The Company is designated the exclusive agent for licensing use of the
technology for diamond coated inserts and is obligated to grant licenses, if
requested, to NCMS members. The prescribed license fee is 

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$100,000 plus a 4% royalty and is to be shared equally between the Company and
NCMS. The Company may share technology rights with other strategic partners in
the future. To date, no such licenses have been granted.

     The Company relies upon trade secrets and other non-patent proprietary
information. In addition, the Company's employees are generally required to
enter into agreements providing for confidentiality and the assignment of rights
to inventions made by them during their employment, and the Company routinely
enters into nondisclosure agreements that are intended to maintain the secrecy
of its confidential information delivered to third parties for research and
other purposes. There can be no assurance that disputes will not arise as to
ownership of portions of the Company's technology or that the Company's
confidentiality, assignment and nondisclosure agreements will provide the
necessary protection.

EMPLOYEES

     As of October 31, 1996, the Company employed approximately 125 persons, all
on a full time basis, including 82 in memory products, 19 in display products,
14 in diamond products and 10 in administration and finance. None of the
Company's employees is represented by a labor union or is the subject of a
collective bargaining agreement. The Company has never experienced a work
stoppage and believes that its employee relations are good. The Company believes
that its success will depend in large part on its ability to retain and attract
qualified management, technical and marketing personnel.

ITEM 2. DESCRIPTION OF PROPERTIES

     In connection with the Acquisition, the Company has relocated its
headquarters to One Research Drive, Westborough, Massachusetts. The Company
leases this 33,000 square foot facility under a lease expiring in 1998, subject
to the Company's three-year renewal option. The Company's diamond operations are
located in 15,000 square feet of a building in Santa Clara, California under a
lease agreement expiring in 2001. The Company's U.S. sales offices are leased
generally for a six month term in executive suite type office buildings. The
Company's sales office in London is leased under a long-term lease expiring in
2004.

ITEM 3. LEGAL PROCEEDINGS

     None

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

     Not applicable.


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                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

                           PRICE RANGE OF COMMON STOCK

<TABLE>

     The Company's Common Stock was traded on the Nasdaq Small-Cap Market under
the symbol "CRYS" from March 23, 1994 to July 5, 1995 and under the symbol
"EDIX" from March 12, 1996 until the present time. The Company's Common Stock
was also traded on the Pacific Stock Exchange under the symbol "CYL" from March
23, 1994 to August 10, 1995. On July 5, 1995 and August 10, 1995, respectively,
the Company's Common Stock was de-listed from the Nasdaq Small-Cap Market and
the Pacific Stock Exchange due to a deficiency with respect to the net tangible
asset maintenance requirements. During the interim period that it was de-listed
from the Nasdaq Small-Cap Market, the Company's shares of common stock were
quoted on Nasdaq's Bulletin Board. The following table sets forth the high and
low closing sales prices per share for the period the Common Stock was listed on
the Nasdaq Small-Cap Market and the high and low bid quotations per share for
the period the Common Stock was quoted on the Nasdaq Bulletin Board. The
over-the-counter market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not represent actual transactions.

<CAPTION>

                                                               HIGH            LOW
                                                               ----            ---
<S>                                                            <C>            <C>   
FISCAL 1995
-----------
First Quarter...............................................   $5.250         $3.125
Second Quarter..............................................    5.000          2.500
Third Quarter...............................................    4.000          2.625
Fourth Quarter1.............................................    4.813          0.875

FISCAL 1996
-----------
First Quarter1..............................................   $4.125         $3.375
Second Quarter1.............................................    5.750          2.563
Third Quarter...............................................    6.875          3.500
Fourth Quarter..............................................    6.000          3.500

<FN>

--------
1    Reflects the high and low closing sales prices and high and low bid quotations
of the Nasdaq Small-Cap Market and Bulletin Board, respectively, on a combined
basis.

</TABLE>

     On November 15, 1996, the Company's Common Stock was held by 186 holders of
record.

                       PRICE RANGE OF REDEEMABLE WARRANTS

     The Company's Redeemable Warrants were traded on the Nasdaq Small-Cap
Market under the symbol "CRYSW" from March 23, 1994 to July 5, 1995 and under
the symbol "EDIXW" from March 12, 1996 until the present time. The Company's
Redeemable Warrants were also traded on the Pacific Stock Exchange under the
symbol "CYL WS" from March 23, 1994 to August 10, 1995. On July 5, 1995 and
August 10, 1995, respectively, the Company's Redeemable Warrants were de-listed
from the Nasdaq Small-Cap Market and the Pacific Stock Exchange due to a
deficiency with respect to the net tangible asset maintenance requirements.
During the interim period that they were de-listed from the Nasdaq Small-Cap
Market, the Company's Redeemable Warrants were quoted on Nasdaq's Bulletin
Board. The following table sets forth the high and low closing sales prices per
warrant for the period the Redeemable Warrants were listed on the Nasdaq
Small-Cap Market and the high and low bid quotations per Redeemable Warrants for
the period the Redeemable Warrants were quoted on the Nasdaq Bulletin Board. The
over-the-counter market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not represent actual transactions.

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<PAGE>   10

<TABLE>

                                                                         HIGH            LOW
                                                                         ----            ---



<S>                                                                      <C>            <C>   
FISCAL 1995
-----------
First Quarter...............................................             $1.750         $0.938
Second Quarter..............................................              1.438          0.563
Third Quarter...............................................              0.875          0.375
Fourth Quarter1.............................................              0.938          0.125

FISCAL 1996
-----------
First Quarter1..............................................             $1.000         $0.750
Second Quarter1.............................................              1.563          0.813
Third Quarter...............................................              1.625          0.875
Fourth Quarter..............................................              1.625          0.625
<FN>

---------- 
1    Reflects the high and low closing sales prices and high and low bid
quotations of the Nasdaq Small-Cap Market and Bulletin Board, respectively, on a
combined basis.

</TABLE>

     On November 15, 1996, the Company's Redeemable Warrants were held by 18
holders of record.

     DIVIDEND POLICY

     The Company has never paid a dividend on its Common or Preferred Stock and
does not anticipate that it will declare or pay cash dividends on its Common or
Preferred Stock in the foreseeable future. The Company intends to retain future
earnings, if any, for use in its business.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
        RESULTS OF OPERATIONS

     This Form 10-KSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward-looking statements. Certain factors that might
cause such a difference are discussed in the section entitled "Certain Factors
Affecting Future Operating Results" beginning on page 12 of this Form 10-KSB.

     Since its inception in 1984 through October 10, 1995, Electronic Designs,
Inc. (formerly Crystallume) (the "Company") had been primarily engaged in
research and development related to diamond coatings using CVD.

     Effective October 10, 1995, the Company acquired all of the outstanding
stock of Electronic Designs, Inc., a privately held Massachusetts corporation
("EDI-MA"), in a purchase transaction (the "Acquisition"). EDI-MA manufactured
high density memory components used in commercial and military systems, and also
designed and manufactured flat panel display units suitable for avionics and
other specialty applications using active matrix liquid crystal displays. As a
result of the Acquisition, the results of operations and cash flows of EDI-MA
are included in the results of operations and cash flows of the Company from the
date of the Acquisition.

     In March 1996, the Company changed its state of incorporation from
California to Delaware and changed its name to Electronic Designs, Inc.

     This Management's Discussion and Analysis should be read in conjuntion with
the Consolidated Financial Statements beginning on page F-1.

RESULTS OF OPERATIONS

Revenues

     Revenues increased to $58,654,000 in fiscal 1996 from $1,639,000 in fiscal
1995. This increase in revenues was due to the results of operations of EDI-MA
being included in results of operations of the Company from October 10, 1995.

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<PAGE>   11

     On a pro forma basis (see Note 3 to consolidated financial statements),
combined revenues of the Company and EDI-MA increased by 49% to $59,223,000 in
fiscal 1996 as compared to $39,621,000 in fiscal 1995. This increase was due to
increases in flat panel display and memory product revenues in fiscal 1996
compared to fiscal 1995. In fiscal 1996, memory product revenues increased due
to higher unit volumes and average selling prices. Average selling prices
increased as a result of market conditions, the increased proportion of
commercial memory modules sold, which generally have higher selling prices
compared to the Company's military memory products, and the increased proportion
of higher density memory products.

     In the first nine months of calendar 1996, the semiconductor industry has
experienced price erosion in semiconductor memories. In addition, the book to
bill ratio was below parity after being above parity for a four year period. The
effects of these developments on the Company's results to date have been:
declines in the average selling prices and the value of orders of its commercial
memory module products; a slowdown in the rate of new orders received for its
commercial memory module products; and reductions in cost and increased
availability of most memory devices which the Company purchases for
incorporation in its products.

     While the increased availability of memory devices has allowed the Company
to increase its unit volumes and shorten its lead-times to its customers,
revenues from commercial memory products declined in the last quarter of fiscal
1996 from the comparative quarter of fiscal 1995 and from the third quarter of
fiscal 1996, which represented a decline from the second quarter of fiscal 1996.

     The Company believes that, in the near term, it will be unable to increase
its volumes in commercial memory products sufficiently to offset declines in
selling prices and to maintain its current revenue levels in these products.
While the Company has seen substantial new demand for its flat panel display
products and continues to introduce new products, revenues from these efforts
may not be sufficient to offset declining revenues in commercial memory
products.

     As a result of the increased availability of commercial memory products
there can be no assurance that new competitors will not enter the Company's
markets or that existing competitors, particularly those who manufacture their
own semiconductor devices, will not reduce selling prices of products to a level
at which the Company cannot economically compete.

     The Company derives a substantial portion of its revenues and earnings from
sales to defense contractors and subcontractors of memory products manufactured
as compliant to military specifications. Trends in the defense industry include
reductions in spending from year to year and the movement toward the purchase of
commercial off-the-shelf ("COTS") products rather than those manufactured as
compliant to specified military standards. To date, these changes have not had a
materially adverse effect on the Company's results due to increased demand
resulting from upgrading of existing military systems and the slow rate of
adoption of the COTS program.

Gross profit

     Gross profit for fiscal 1996 was $16,949,000 compared to $283,000 in fiscal
1995 due to the results of operations of EDI-MA being included in results of
operations of the Company from October 10, 1995. Gross profit in fiscal 1996
included a nonrecurring charge of $1,100,000 related to the revaluation, to
their estimated fair value, of inventories acquired as part of the Acquisition.
This amount was charged to cost of revenues in the first quarter of fiscal 1996
as the acquired inventories were sold.

     On a pro forma basis, combined gross profit increased to $18,329,000, or
30.9% of revenues ("gross margin"), in fiscal 1996, from $12,433,000, or 31.4%
gross margin, in the prior year. The decrease in gross margin for fiscal 



                                       9

<PAGE>   12

1996 resulted from the higher mix of commercial module products sold which
traditionally have had lower gross margins as a consequence of their higher
purchased material content and from inventory writeoffs taken as a result of
declining memory prices. Recent declines in average selling prices of the
Company's commercial memory products have generally to date followed declines in
the Company's raw material costs and thus have not had a significant impact on
the Company's gross margin.

     Due to the pass-through nature of its commercial memory business, the
Company believes that, in the near term, it will continue to be able to offset
future declines in selling prices with decreases in costs of raw materials.
However, in the event of prolonged or sudden declines in selling prices, there
can be no assurance that the Company will continue to be able to maintain its
gross margins by offsetting future declines in selling prices with decreases in
its product costs.

     The Company purchases its semiconductor components from a small number of
large suppliers, including foreign suppliers who are regularly the target of
threatened or pending trade disputes and sanctions which, if realized, could
impact the ability of the Company to obtain critical raw materials. The Company
has not been materially adversely affected by this situation in the past and
does not currently anticipate experiencing any material adverse impact in the
future.

     The Company generally does not have specific contractual arrangements with
its suppliers. While the Company believes it has good relationships with its
vendors, in the event that product availability becomes more limited in the
future, there is no assurance that these sources of supply will continue under
terms that permit the Company to compete in its targeted markets.

Operating expenses

     Research and development expenses in fiscal 1996 increased 65% to
$2,579,000 from $1,563,000 in fiscal 1995. The increase reflects research and
development expenses related to memory and display products associated with the
acquired operations of EDI-MA.

     Due to a reduction in headcount in, and a redirection of, diamond
development efforts, pro forma research and development expenses decreased
$790,000 or 23% to $2,679,000 in fiscal 1996 from $3,469,000 in the prior year.

     Selling, general and administrative expenses were $9,087,000 in fiscal 1996
compared to $2,537,000 in fiscal 1995. This increase reflects expenses
associated with EDI-MA.

     On a pro forma basis, combined selling, general and administrative expenses
decreased by $616,000 or 6% to $9,399,000 in fiscal 1996, from $10,015,000 in
the prior year. Higher commissions to outside sales representatives of
approximately $900,000 due to the increase in revenues of the Company on a pro
forma basis and increased legal and accounting fees were generally offset by
bonus and severance expenses incurred in fiscal 1995 as a result of the
Acquisition which did not recur in fiscal 1996. Savings realized from reductions
in salaries and other expenses as a result of the restructuring of the Company's
operations (as discussed below) were approximately $700,000 after the first
quarter of fiscal 1996.

     The restructuring charge of $590,000 in fiscal 1996 relates primarily to
severance costs associated with restructuring activities at the Company's
diamond operations to eliminate duplicative managerial and administrative
positions and to consolidate the Company's executive offices in Westborough,
Massachusetts.

Other expenses

     Interest expense increased $515,000 in fiscal 1996 to $893,000 from
$378,000 in fiscal 1995 primarily due to approximately $750,000 of interest on



                                       10

<PAGE>   13

the $10,000,000 in bank loans incurred to finance the Acquisition, less net
repayments of $7,250,000 over the period from the Acquisition. This increase was
partially offset by reduced expense as a result of the conversion of a
$1,035,000 convertible secured note payable to a shareholder to common stock on
October 10, 1995, lower equipment financing costs and a refund in the first
quarter of fiscal 1996 of interest previously paid on an income tax assessment.

     On a pro forma basis, other expense, net decreased $475,000 in fiscal 1996
to $855,000 from $1,330,000 in fiscal 1995 due to the repayments of the bank
loans noted above which were assumed, for pro forma purposes, to be outstanding
for all of 1995 as if the Acquisition had occurred at the beginning of fiscal
1995.

LIQUIDITY AND CAPITAL RESOURCES

     At September 30, 1996, cash and cash equivalents were $3,290,000 as
compared to $2,045,000 at September 30, 1995.

     In fiscal 1996, the Company generated $5,605,000 of cash from operating
activities as compared to a use of $4,162,000 in fiscal 1995. In fiscal 1996,
cash was generated through net income before depreciation and amortization,
inventory reductions and an increase in accounts payable. This amount was
partially offset by reductions in accrued expenses and an increase in accounts
receivable. In fiscal 1995, cash used for operating activities was primarily to
fund the net loss incurred in the year.

     The Company used $8,456,000 for investing activities in fiscal 1996
primarily reflecting $8,088,000 of net cash paid for the Acquisition. The
Company used $368,000 of cash for capital equipment expenditures. In addition,
the Company acquired test equipment under a financing lease of $375,000 payable
over four years. Capital additions were primarily related to memory products in
fiscal 1996 as compared to $412,000, for diamond operations, in fiscal 1995.

     The Company anticipates that it will continue to incur capital expenditures
to increase its test and manufacturing capacity and has obtained an equipment
line of credit from its bank to finance a portion of these capital expenditures.
The Company does not anticipate significant capital expenditures for diamond
operations in the next fiscal year. With regard to the utilization of the
Company's facilities, it is currently operating three shifts per day in its
memory test operations and two shifts per day in its memory module and flat
panel assembly operations. The Company sublets a portion of its facility in
Santa Clara, California as a result of the restructuring referred to above and
believes that its facilities are generally adequate and suitable for its
operations in the next 12 months.

     In fiscal 1996, the Company generated $4,096,000 in cash from financing
activities. Long-term borrowings under a credit facility discussed below
generated $5,500,000, net proceeds from the sale of common stock generated
$2,275,000 and repayments of long-term debt and notes payable to officers used
$3,679,000. In fiscal 1995, the Company generated $3,657,000 from financing
activities primarily from the sale of stock Units and from bridge notes issued
to finance the initial deposit for the Acquisition.

     In connection with the Acquisition in October 1995, the Company entered
into, and in October 1996 amended and restated, a Loan and Security Agreement
(the "Agreement") with a bank. Under the terms of the Agreement, the Company is
allowed to borrow (i) up to $3,500,000 in the form of a term loan (ii) up to
$6,000,000 under a revolving credit facility (the "Revolver") and (iii) up to
$1,500,000 in the form of an equipment loan. At September 30, 1996, $2,750,000
was outstanding under the term loan and in October 1996, the Company borrowed
the additional $750,000 under the term facility. Letters of credit in the
aggregate amount of $150,000 were outstanding at September 30, 

                                       11
<PAGE>   14


1996. No loans were outstanding under the Revolver or equipment loan at
September 30, 1996.

     The Company believes that it is in compliance with all material covenants
under the Agreement as of September 30, 1996. Borrowings under the Revolver are
limited to a borrowing base which is calculated on a formula which includes
domestic and foreign accounts receivable and certain inventories, less amounts
outstanding under the term loan and letters of credit. Under the terms of the
Agreement, as amended, availability under the Revolver at September 30, 1996 was
limited to $2,384,000.

     The Company anticipates that the combination of its current cash balance,
accounts receivable balance, Revolver, equipment loan facility and its cash flow
from operations will be sufficient to meet the Company's liquidity requirements
for the next 12 months.

     If cash generated from operations is insufficient to meet the Company's
requirements for the service of its loans, its working capital needs and its
anticipated capital expenditures, the Company may be required to raise
additional capital through the sale of additional equity securities or seek
alternative methods of financing. There can be no assurance that such additional
financing, if required, can be obtained on acceptable terms, if at all.

CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS

     This Form 10-KSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward-looking statements. Certain factors that might
cause such a difference include the following: the cyclicality in the Company's
targeted markets, particularly for its commercial memory products; the rapidity
of technological change and highly competitive nature of the semiconductor
packaging industry; competition from larger companies in the commercial module
market; the rapidity of the display transition from CRT to AMLCD; dependence on
contracts with defense related companies for its memory and display products;
regulatory, political, economic and currency risks associated with international
sales which accounted for approximately 30% of net sales in fiscal 1996; risks
related to the financial condition and success of the Company's customers, the
Company's customers' products and the general economy; the likelihood that steep
declines in sales, pricing and gross margins of commercial memory products will
occur toward the end of a product's life cycle; absence of firm contractual
relationships with certain key suppliers of significant raw materials for its
memory and display products; the recent growth and expansion of operations and
resultant strain on its limited personnel and management, manufacturing and
other resources; the Company's dependence on key personnel and ability to
attract and retain qualified management, manufacturing, quality assurance,
engineering, marketing, sales and support personnel; the possibility that
subsequent changes in ownership may limit the Company's use of net operating
loss and research and development tax credit carryforwards; uncertainty
regarding the Company's ability to integrate CVD diamond technology into its
electronic products; and market acceptance of diamond coated tool inserts.

SEASONALITY AND INFLATION

     The Company's business is not seasonal in nature. Management believes that
the Company's operations have not been materially affected by inflation.



                                       12
<PAGE>   15

RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS

     In March, 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." In October, 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." Both SFAS No. 121 and No. 123 are effective for fiscal years
beginning after December 15, 1995. The Company will implement these standards as
required in its next fiscal year and, at this time, the future adoption of SFAS
No. 121 and No. 123 is not expected to have a material effect on the Company's
consolidated financial position or results of operations. With respect to SFAS
No. 123, the Company intends to adopt the standard through disclosure only.

ITEM 7. FINANCIAL STATEMENTS

     The index to the Company's Consolidated Financial Statements and the report
of the Company's independent accountants appear in Item 13(a)(1) of Part III of
this Form 10-KSB.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
`       FINANCIAL DISCLOSURE

     A change in accountants was previously disclosed on a Form 8-K that was
filed with the Securities and Exchange Commission on November 2, 1995.


                                       13


<PAGE>   16





                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
        COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

     Information pertaining to directors and executive officers of the Company
is set forth under "Election of Directors" and "Information Regarding Nominees
and Executive Officers" in the Company's Proxy Statement for the Annual Meeting
of Stockholders to be held on February 26, 1997, and is incorporated herein by
reference.

     The information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934 by the directors, executive officers and beneficial owners
of more than ten percent of the Common Stock of the Company required by this
item is set forth under "Compliance Under Section 16(a) of the Securities
Exchange Act of 1934" in the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held on February 26, 1997, and is incorporated herein by
reference.

ITEM 10. EXECUTIVE COMPENSATION

     The Information pertaining to executive compensation is set forth under
"Executive Compensation" in the Company's Proxy Statement for the Annual Meeting
of Stockholders to be held on February 26, 1997, and is incorporated herein by
reference.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information pertaining to security ownership of management and certain
beneficial owners of Company Common Stock is set forth under "Security Ownership
by Management" and "Principal Shareholders" in the Company's Proxy Statement for
the Annual Meeting of Stockholders to be held on February 26, 1997, and is
incorporated herein by reference.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information pertaining to certain relationships and related
transactions is set forth under "Certain Relationships and Related Transactions"
in the Company's Proxy Statement for the Annual Meeting of Stockholders to be
held on February 26, 1997, and is incorporated herein by reference.




                                       14
<PAGE>   17






ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K

          (a)(1)  FINANCIAL STATEMENTS
                  --------------------
<TABLE>
  
The following financial statements of the Registrant are filed as part of this
report:
<CAPTION>

                                                                                               Page
                                                                                               ----
      <S>                                                                                       <C>
      Report of Independent Accountants........................................................ F-1

      Consolidated Balance Sheet as of September 30, 1996 and 1995............................. F-2

      Consolidated Statement of Operations for the years ended September 30,
      1996 and 1995............................................................................ F-3

      Consolidated Statement of Shareholders' Equity for the years ended
      September 30, 1996 and 1995.............................................................. F-4

      Consolidated Statement of Cash Flows for the years ended September 30,
      1996 and 1995............................................................................ F-5

      Notes to Consolidated Financial Statements............................................... F-6

</TABLE>

       (a)(2)  EXHIBITS
               --------
The following is a complete list of exhibits filed or incorporated by reference
as part of this report:

Exhibit
Number                                Exhibit Title
------                                -------------

  2.1(G)             Agreement and Plan of Reorganization, dated as of
                     August 11, 1995, among Registrant, EDI, and CR-ED
                     Acquisition Corp., including all amendments thereto.

  2.2(H)             Agreement of Merger, dated as of October 10, 1995,
                     by and among Registrant, EDI, and CR-ED Acquisition
                     Corp.

  2.3(K)             Agreement of Merger dated March 6, 1996, by and
                     between Crystallume, a California corporation, and
                     Electronic Designs, Inc., a Delaware corporation
                     and wholly owned subsidiary of Crystallume.

 2.4(J)              Articles of merger of parent and subsidiary
                     corporations, dated as of July 27, 1996 by and
                     between Electronic Designs, Inc., a Delaware
                     corporation and Electronic Designs,Inc., a
                     Massachusetts corporation.

  3.1(I)             Registrant's Bylaws, as amended to date.

  3.2(I)             Registrant's Certificate of Incorporation currently
                     in effect.

  4.1(F)             Certificate of Determination, filed with Secretary
                     of State of California on April 19, 1995.

  4.2(K)             Specimen of Common Stock Certificate.

  4.3(B)             Form of Redeemable Warrant.


                                       15
<PAGE>   18

  4.4(B)             Form of Redeemable Warrant Agreement.

  4.5(F)             Form of Warrant to purchase shares of Common Stock.

  4.6(F)             Form of Stock Certificate for 12% Series A
                     Convertible Preferred Stock.

  4.7(G)             Private Offering Summary for Units.

  4.8(F)             Amended and Restated Supplement to Private
                     Offering Summary, dated August 16, 1995.

  4.9(F)             Subscription Agreement for Units.

  4.10(H)            Addendum to Subscription Agreement.

  4.11(H)            Updated Subscription Agreement.

  4.12(H)            Form of Purchase Agreement for Shares of
                     Crystallume Common Stock.

  4.13(A)            Amended and Restated Registration Rights Agreement
                     dated May 7, 1993 among Registrant and certain
                     investors.

  4.14(A)            First Amendment, dated December 28, 1993, to Amended
                     and Restated Registration Rights Agreement among
                     Registrant and certain investors.

  4.15(B)            Second Amendment, dated February 25, 1994, to Amended
                     and Restated Registration Rights Agreement among
                     Registrant and certain investors.

  4.16(B)            Third Amendment, dated March 2, 1994, to Amended and
                     Restated Registration Rights Agreement among
                     Registrant and certain investors.

  4.17(E)            Second Amended and Restated Registration Rights
                     Agreement, dated July 25, 1994, among Registrant and
                     certain investors.

  4.18(F)            Third Amended and Restated Registration Rights
                     Agreement, dated as of April 30, 1995.

  4.19(F)            Revised and Restated Amendment to Third Amended and
                     Restated Registration Rights Agreement, dated as of
                     September 25, 1995.

  4.20(F)            Agreement respecting New York Life Insurance
                     Company's registration rights, dated as of October 10,
                     1995.

  4.21(F)            Agreement respecting Technology Funding Partners III,
                     L.P.'s registration rights, dated as of October 10,
                     1995.

  4.22(H)            Agreement respecting Silicon Valley Bank's
                     registration rights, dated as of October 10, 1995.

 *10.1               1987 Stock Option Plan adopted by Registrant on
                     February 9, 1987, as amended.

 *10.2               Employee Stock Purchase Plan adopted by Registrant on
                     March 6, 1996, as amended.


                                       16

<PAGE>   19



*10.3(H)             Electronic Designs, Inc. Amended and Restated 1986
                     Stock Option Plan.1

 10.4(A)             Lease Agreement for Bohannon Park facility, dated
                     November 25, 1987, as amended from time to time
                     through March 31, 1993 between Registrant and David
                     D. Bohannon Organization.

 10.5(C)             Industrial Lease, dated June 1, 1994, between
                     Registrant and the Kontrabecki Group.

 10.6(H)             Lease Agreement between Flanders Westborough Delaware,
                     Inc. and EDI, dated December 18, 1992

 10.7(H)             Lease Agreement between David Wallis Shaw and Stefanie
                     Gail Brown Shaw and E.D. Electronics Limited, dated
                     June 24, 1985.

 10.8(A)             Master Equipment Lease Agreement, dated December 5,
                     1990, between Registrant and Phoenix Growth Capital
                     Corp.

 10.9(E)             Master Equipment Lease Agreement, dated July 15, 1994,
                     between Registrant and MMC/GATX Partnership No. 1.

 10.10(D)            Equipment Purchase, Security and License Agreement,
                     dated September 26, 1994, by and between Registrant
                     and Applied Science and Technology, Inc.

 10.11(A)            Contract for Research, dated February 15, 1990,
                     between Registrant and the National Center for
                     Manufacturing Sciences, Inc., modified February 1,
                     1992.

 10.12(A)            Funded Research and Development Program Agreement,
                     dated February 26, 1992, between Registrant and Brush
                     Wellman, Inc.

 10.13(A)            Contract for Research, dated May 2, 1993, between
                     Registrant and the Regents of the University of
                     California (with respect to Los Alamos National
                     Laboratories).

 10.14(A)            Contract for Research, dated June 30, 1993, between
                     Registrant and the United States Army.

 10.15(A)            Warrant to purchase Series D Preferred Stock of
                     Registrant, dated September 30, 1988, issued in
                     favor of Phoenix Growth Capital Corp.

 10.16(A)            Purchase Agreement and Second Amendment to
                     Registration Rights Agreement, dated March 31, 1993,
                     among Registrant and certain investors.

 10.17(A)            Term Loan Agreement, dated as of December 15, 1993,
                     between Registrant and ASTeX, including form of
                     Secured Term Note.

 10.18(B)            Form of Warrants, dated March 3, 1994, issued in
                     favor of Private Capital Group Ltd.  and in favor
                     of Richard Moyer to purchase an aggregate of 100,000
                     shares of Common Stock.


                                       17
<PAGE>   20




 10.19               Letter extending the expiration date of Warrants,
                     dated March 3, 1994, issued in favor of Richard
                     Moyer to purchase an aggregate of 50,000 shares
                     of Common Stock from March 2, 1997 to March 2, 1999.

 10.20(E)            Warrant to purchase Common Stock of Registrant, dated
                     August 12, 1994, issued in favor of MMC/GATX
                     Partnership No. 1.

 10.21(H)            Secured Demand Note, dated August 10, 1995, in an
                     aggregate principal amount of $600,000 payable by
                     Registrant in favor of New York Life Insurance
                     Company.

 10.22(H)            Secured Demand Note, dated August 10, 1995, in an
                     aggregate principal amount of $200,000 payable by
                     Registrant in favor of Technology Funding Partners III,
                     L.P.

 10.23(H)            First Amendment to Security Agreement, effective
                     August 10, 1995, by and among Registrant, New York
                     Life Insurance Company and Technology Funding
                     Partners III, L.P.

 10.24(H)            Second Amendment to Security Agreement, effective
                     August 28, 1995, by and among Registrant, New York
                     Life Insurance Company and Technology Funding
                     Partners III, L.P.

 10.25(H)            Security and Intercreditor Agreement, dated as of
                     August 10, 1995, by and among Registrant, New York
                     Life Insurance Company and Technology Funding
                     Partners III, L.P.

 10.26(H)            Secured Demand Note, dated August 28, 1995, in an
                     aggregate principal amount of $100,000 payable by
                     Registrant in favor of Technology Funding Partners III,
                     L.P.

 10.27(H)            Re-Assignment of Patents and Patent Applications,
                     dated October 5, 1995, by and between  the
                     Registrant and New York Life Insurance Company.

 10.28(H)            New York Life Insurance Company's Agreement to
                     purchase shares of Common Stock in exchange for
                     cancellation of a $600,000 Secured Demand Note and
                     $1,035,000 Secured Promissory Note.

 10.29(H)            Technology Funding Partners III, L.P.'s Agreement
                     to purchase shares of Common stock in exchange for
                     cancellation of a $200,000 Secured Demand Note and
                     a $100,000 Secured Demand Note.

 10.30(H)            Dickinson Holding Corp.'s Agreement to purchase
                     Common Stock, including all amendments thereto.

 10.31(L)            Amended and Restated Loan and Security Agreement,
                     dated October 23, 1996, by and between Registrant
                     and Silicon Valley Bank.

 10.32               Collateral Assignment, Patent Mortgage and Security
                     Agreement, dated October 23, 1996, by and between
                     Registrant and Silicon Valley Bank.


                                       18

<PAGE>   21



*10.33(E)            Letter Agreement regarding employment, effective October
                     11, 1994, between Registrant and Jeffrey R.
                     Osorio.

*10.34(H)            Agreement of Non-disclosure, to Maintain Confidence and to
                     Transfer Future Inventions, dated November 17, 1994, by and
                     between Registrant and Jeffrey R.
                     Osorio.

*10.35(F)            Employment Agreement, dated as of August 18, 1995, by
                     and between Registrant and Paul J. McIntire.

*10.36(F)            Employment Agreement, dated as of October 10, 1995,
                     by and between Registrant and Donald F. McGuinness.

*10.37(F)            Severance Agreement, dated as of December 21, 1994, by
                     and between EDI and Donald F. McGuinness, including
                     all amendments thereto.

*10.38(G)            Severance Agreement, dated as of December 21, 1994, by
                     and between EDI and Frank D. Edwards.

*10.39(F)            Severance Agreement, dated as of October 10, 1995, by
                     and between Registrant and Thomas A. Schultz.

 10.40(H)            Agreement of Non-disclosure, to Maintain Confidence
                     and to Transfer Future Inventions, dated February 24,
                     1986, by and between Registrant and Thomas A. Schultz.

*10.41(F)            Severance Agreement, dated as of October 11, 1995, by
                     and between Registrant and John A. Herb.

 10.42(H)            Agreement of Non-disclosure, to Maintain Confidence and
                     to Transfer Future Inventions, dated July 5, 1988, by
                     and between Registrant and John A. Herb.

*10.43(H)            Severance Agreement, dated as of October 13, 1995, by
                     and between Registrant and Laurie Conner.

*10.44(H)            Severance Agreement, dated November 29, 1995, by and
                     between Registrant and Jeffrey R. Osorio.

 11.1                Statement re: Computation of Per Share Earnings.

 16.1(G)             Letter from Arthur Andersen LLP regarding Change in
                     Certifying Accountant.

 21.1                Subsidiaries of the Registrant.

 23.1                Consent of Price Waterhouse LLP.

 24.1                Power of Attorney (See page 21)

27.1                 Financial Data Schedule.

(A)                  Incorporated by reference to the Registrant's Registration 
Statement on Form SB-2. File No. 33-62448LA (withdrawn).

(B)                  Incorporated by reference to the Registrant's Registration 
Statement on Form SB-2. File No. 33-76186LA (effective March 22, 1994).

(C)                  Incorporated by reference to the Registrant's Quarterly 
Report on Form 10-QSB for the third quarter of the fiscal year ending September
30, 1994 (filed on August 15, 1994).

                                       19
<PAGE>   22


(D)                  Incorporated by reference to Registrant's Current Report 
on Form 8-K (filed on October 11, 1994).

(E)                  Incorporated by reference to Registrant's Registration 
Statement on Form SB-2.  File No. 33-84412LA (effective November 1, 1994).

(F)                  Incorporated by reference to Registrant's Current Report 
on Form 8-K (filed on October 25, 1995).

(G)                  Incorporated by reference to Registrant's Current Report 
on Form 8-K (filed on November 2, 1995).

(H)                  Incorporated by reference to Registrant's Annual Report 
on Form 10-KSB (filed on December 18, 1995).

(I)                  Incorporated by reference to Registrant's Registration 
Statement on Form S-3. File No. 333-3328 (effective May 16, 1996).

(J)                  Incorporated by reference to the Registrant's Quarterly 
Report on Form 10-QSB for the third quarter of the fiscal year ending September
30, 1996 (filed on August 12, 1996).

(K)                  Incorporated by reference to Registrant's Current Report 
on Form 8-K/A (filed on August 23, 1996).

(L)                  Incorporated by reference to Registrant's Current Report 
on Form 8-K (filed on October 30, 1996).

---------------
*     A management contract or compensatory plan required to be filed as an 
exhibit to Form 10-KSB.

1     Formerly known as EDI PurchaseCo, Inc.

       (b)     REPORTS ON FORMS 8-K
               --------------------
During the quarter ended September 30, 1996, a Report on Form 8-K/A was filed on
August 23, 1996 providing additional exhibits related to the reorganization of
the Registrant in Delaware under the name Electronic Designs, Inc.


                                       20

<PAGE>   23





                                   SIGNATURES

     In accordance with the requirements of Section 13 or 15(e) of the
Securities Exchange Act of 1934, the Registrant has caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

                                        ELECTRONIC DESIGNS, INC.

Date: November 27, 1996                 By: /s/ Donald F. McGuinness
                                            ------------------------------
                                            Donald F. McGuinness
                                            President and
                                            Chief Executive Officer

                                POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints Donald F. McGuinness and Frank D. Edwards and
each of them, his true and lawful attorneys-in-fact and agents with full power
of substitution, for him in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Report on Form 10-KSB and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intent and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done or by
virtue hereof.

<TABLE>
     In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.

<CAPTION>

     Signature                                Title                                Date
     ---------                                -----                                ----

<S>                              <C>                                       <C>


/s/ Donald F. McGuinness         Chairman of the Board, President          November 27, 1996
------------------------         and Chief Executive Officer
Donald F. McGuinness             (Principal Executive Officer)
                                 

Frank D. Edwards                 Senior Vice President of                  November 27, 1996
--------------------             Finance, Chief Financial
Frank D. Edwards                 Officer, Treasurer, Secretary,
                                 and Director (Principal
                                 Financial and Accounting Officer)
                                 

/s/ Thomas A. Schultz            Director                                  November 27, 1996
---------------------             
Thomas A. Schultz

/s/ Thomas J. Toy                Director                                  November 27, 1996
--------------------             
Thomas J. Toy

/s/ Norman T. Hall               Director                                  November 27, 1996
--------------------             
Norman T. Hall


</TABLE>

                                       21


<PAGE>   24

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
Electronic Designs, Inc.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Electronic
Designs, Inc. and its subsidiaries at September 30, 1996 and 1995, and the
results of their operations and their cash flows for years then ended in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.


PRICE WATERHOUSE LLP


Boston, Massachusetts
October 25, 1996


                                      F-1
<PAGE>   25

<TABLE>
ELECTRONIC DESIGNS, INC.
CONSOLIDATED BALANCE SHEET

<CAPTION>
                                                           SEPTEMBER 30,
                                                       1996            1995
<S>                                               <C>             <C>         
ASSETS
Current assets:
  Cash and cash equivalents                       $  3,290,000    $  2,045,000
  Accounts receivable, net of allowance for
    uncollectible accounts and sales returns of
    $370,000 and $10,000 at September 30, 1996
    and 1995, respectively                           6,356,000         588,000
Inventories                                          5,483,000          83,000
Prepaid expenses                                       143,000          84,000
                                                  ------------    ------------

          Total current assets                      15,272,000       2,800,000

Property and equipment, net                          3,843,000       2,455,000
Other assets                                            87,000       1,079,000
Intangible assets, net                               1,861,000             -
                                                  ------------    ------------
                                                  $ 21,063,000    $  6,334,000
                                                  ============    ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Current portion of long-term debt               $    828,000    $    545,000
  Notes payable to shareholders                            -           900,000
  Accounts payable                                   5,329,000         878,000
  Accrued expenses and other liabiities              2,690,000         760,000
                                                  ------------    ------------

          Total current liabilities                  8,847,000       3,083,000

Deferred rent                                          130,000         104,000
Long-term debt, net of current portion               2,939,000         648,000
Long-term note payable to shareholder                      -         1,035,000
                                                  ------------    ------------

          Total liabilites                          11,916,000       4,870,000
                                                  ------------    ------------

Commitments (Note 15)

Shareholders' equity:
  Convertible preferred stock; $0.01 par
    value; 8,000,000 shares authorized; 1,823
    and 3,985 shares issued and outstanding at
    September 30, 1996 and 1995, respectively              -               -
  Common stock; $0.01 par value; 20,000,000
    shares authorized; 6,341,896 and 3,595,464
    shares issued and outstanding at September
    30, 1996 and 1995, respectively                     64,000          36,000
  Additional paid in capital                        26,943,000      22,096,000
  Accumulated deficit                              (17,860,000)    (20,668,000)
                                                  ------------    ------------

          Total shareholders' equity                 9,147,000       1,464,000
                                                  ------------    ------------
                                                  $ 21,063,000    $  6,334,000
                                                  ============    ============
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                      F-2


<PAGE>   26

<TABLE>
ELECTRONIC DESIGNS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS

<CAPTION>
                                                   YEAR ENDED SEPTEMBER 30,
                                                 ----------------------------
                                                     1996           1995

<S>                                              <C>            <C>        
Revenues                                         $58,654,000    $ 1,639,000
Cost of revenues                                  41,705,000      1,356,000
                                                 -----------    -----------
  Gross profit                                    16,949,000        283,000

Operating expenses:
  Research and development                         2,579,000      1,563,000
  Selling, general and administrative              9,087,000      2,537,000
  Restructuring                                      590,000            -
  Amortization of intangible assets                  469,000            -
                                                 -----------    -----------
                                                  12,725,000      4,100,000
                                                 -----------    -----------
Income (loss) from operations                      4,224,000     (3,817,000)
                                                 -----------    -----------

Other income (expense):
  Interest income                                     53,000         37,000
  Interest expense                                  (893,000)      (378,000)
                                                 -----------    -----------
                                                    (840,000)      (341,000)
                                                 -----------    -----------

Income (loss) before income taxes                  3,384,000     (4,158,000)
Provision for income taxes                           576,000            -
                                                 -----------    -----------

Net income (loss)                                $ 2,808,000    $(4,158,000)
                                                 ===========    =========== 

Net income (loss) per share                      $      0.38    $     (1.29)
                                                 ===========    =========== 

Weighted average common shares and equivalents     9,795,000      3,226,000
                                                 ===========    =========== 
</TABLE>



   The accompanying notes are an integral part of these financial statements.

                                      F-3


<PAGE>   27
ELECTRONIC DESIGNS, INC. 
<TABLE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

<CAPTION>
                                                                                                       ADDITIONAL 
                                                    CONVERTIBLE PREFERRED STOCK    COMMON STOCK          PAID-IN  
                                                      SHARES      AMOUNT         SHARES     AMOUNT       CAPTIAL  
<S>                                                    <C>            <C>      <C>            <C>      <C>         
Balance September 30, 1994                                 -           -       3,151,466      32,000   18,558,000 

 Common stock issued under stock option
  plan at $0.22 to $3.75 per share                         -           -          45,498         -         11,000 
 Sale of Units, each Unit consisting of one
  share of Series A convertible preferred stock,
  warrants to purchase 100 shares of common stock 
  and 100 shares of common stock, at $1,000 per
  Unit, net of expenses of $463,000                    3,829           -         382,900       4,000    3,362,000 
 Issuance of warrants to purchase common stock             -           -               -           -        9,000 
 Conversion of accrued interest into Units at 
  $1,000 per Unit                                        156           -          15,600           -      156,000 
 Net Loss                                                  -           -               -           -            -  
                                                    -------------------------------------------------------------- 
Balance September 30, 1995                             3,985           -       3,595,464      36,000   22,096,000    

 Common stock issued under employee stock
  option and stock purchase plans at $0.22 to
  $4.09 per share                                          -           -          93,744        1,000      78,000 
 Issuance of options to purchase 315,000 shares
  of common stock at $0.22 per share in
  connection with acquisition of Electronic
  Designs, Inc.                                            -           -               -            -     598,000  
 Sale of common stock, at $2.25 to $2.50 per 
  share, net of expenses of $145,000                       -           -         951,111       10,000   2,170,000      
 Issuance of common stock to underwriters for
  placement of Units                                       -           -          40,000            -           - 
 Common stock issued in payment of consulting
  services at $2.00 per share                              -           -          10,053            -      20,000 
 Conversion of notes and interest payable to
  shareholders into common stock at $2.50 per
  share                                                    -           -         781,724        8,000   1,946,000 
 Issuance of warrants to purchase common stock             -           -               -            -      28,000 
 Exercise of warrants to purchase common stock
  at $3.25 per share                                       -           -           5,000            -      16,000 
 Conversion of preferred stock into common stock      (2,162)          -         864,800        9,000      (9,000)
 Net income                                                -           -               -            -           - 
                                                    -------------------------------------------------------------- 
Balance September 30, 1996                             1,823          $-       6,341,896      $64,000 $26,943,000 
                                                    ==============================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                                TOTAL    
                                                             ACCUMULATED    SHAREHOLDERS'
                                                                DEFICIT        EQUITY    
<S>                                                          <C>              <C>        
Balance September 30, 1994                                    (16,510,000)    2,080,000  
                                                                                         
 Common stock issued under stock option                                                  
  plan at $0.22 to $3.75 per share                                      -        11,000  
 Sale of Units, each Unit consisting of one                                              
  share of Series A convertible preferred stock,                                         
  warrants to purchase 100 shares of common stock                                        
  and 100 shares of common stock, at $1,000 per                                           
  Unit, net of expenses of $463,000                                     -      3,366,000 
 Issuance of warrants to purchase common stock                          -          9,000 
 Conversion of accrued interest into Units at                                            
  $1,000 per Unit                                                       -        156,000 
 Net Loss                                                      (4,158,000)    (4,158,000)
                                                            ---------------------------- 
Balance September 30, 1995                                    (20,668,000)     1,464,000 
                                                                                         
 Common stock issued under employee stock                                                
  option and stock purchase plans at $0.22 to                                            
  $4.09 per share                                                       -         79,000 
 Issuance of options to purchase 315,000 shares                                          
  of common stock at $0.22 per share in                                                  
  connection with acquisition of Electronic                                              
  Designs, Inc.                                                         -        598,000 
 Sale of common stock, at $2.25 to $2.50 per                                             
  share, net of expenses of $145,000                                    -      2,180,000 
 Issuance of common stock to underwriters for                                            
  placement of Units                                                    -              - 
 Common stock issued in payment of consulting                                            
  services at $2.00 per share                                           -         20,000 
 Conversion of notes and interest payable to                                             
  shareholders into common stock at $2.50 per                                            
  share                                                                 -      1,954,000 
 Issuance of warrants to purchase common stock                          -         28,000 
 Exercise of warrants to purchase common stock                                           
  at $3.25 per share                                                    -         16,000 
 Conversion of preferred stock into common stock                        -              - 
 Net income                                                     2,808,000      2,808,000 
                                                            ---------------------------- 
Balance September 30, 1996                                   $(17,860,000)    $9,147,000 
                                                            ============================                                   
</TABLE>
                                                            
   The accompanying notes are an integral part of these financial statements.

                                     F-4
<PAGE>   28


<TABLE>
ELECTRONIC DESIGNS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS

<CAPTION>
                                                     YEAR ENDED SEPTEMBER 30,
                                                   --------------------------
                                                        1996          1995

<S>                                                <C>            <C>         
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

Cash flows from operating activities:
  Net income (loss)                                $ 2,808,000    $(4,158,000)
  Adjustments to reconcile net income (loss)
    to net cash provided by (used in) 
    operating activities:
      Depreciation and amortization                  1,639,000        426,000
      Noncash portion of restructuring expense          57,000            -
      Common stock issued in payment of interest
        and other expenses                              28,000        156,000
      Changes in assets and liabilities, net of
        acquired amounts:
        Increase in accounts receivable               (281,000)      (165,000)
        (Increase) decrease in inventories           2,932,000        (83,000)
        Decrease in prepaid expenses                    22,000          3,000
        (Increase) decrease in other assets              8,000       (983,000)
        Increase (decrease) in accounts payable        320,000        (47,000)
        Increase (decrease) in accrued expense      (1,954,000)       604,000
        Increase in deferred rent                       26,000         85,000
                                                   -----------    ----------- 
          Net cash flows provided by (used in)
            operating activities                     5,605,000     (4,162,000)
                                                   -----------    ----------- 

Cash flows from investing activities:
  Capital equipment expenditures                      (368,000)      (412,000)
  Cash paid for acquisition of Electronic
    Designs, Inc., net of cash acquired             (8,088,000)           -
                                                   -----------    ----------- 
          Net cash flows used in investing
            activities                              (8,456,000)      (412,000)
                                                   -----------    ----------- 

Cash flows from financing activities:
  Sale of common stock, net                          2,275,000         11,000
  Sale of stock Units, net                                 -        3,366,000
  Proceeds from issuance of long-term debt           5,500,000            -
  Principal repayments on long-term debt            (3,389,000)      (620,000)
  Proceeds from notes payable                              -          900,000
  Repayment of notes payable to officers              (290,000)           -
                                                   -----------    ----------- 
          Net cash flows provided by financing
            activities                               4,096,000      3,657,000
                                                   -----------    ----------- 
Net increase (decrease) in cash and cash
  equivalents                                        1,245,000       (917,000)

Cash and cash equivalents at beginning of
  year                                               2,045,000      2,962,000
                                                   -----------    ----------- 

Cash and cash equivalents at end of year           $ 3,290,000    $ 2,045,000
                                                   ===========    ===========

</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-5



<PAGE>   29


ELECTRONIC DESIGNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS

Electronic Designs, Inc. (the "Company") was incorporated under the name
Crystallume on September 24, 1984 to develop advanced products incorporating
diamond films and coatings. Effective October 10, 1995, the Company acquired all
of the outstanding stock of Electronic Designs, Inc., a privately held
Massachusetts corporation ("EDI-MA")(see Note 3). In March 1996, the Company
reincorporated in Delaware and changed its name to Electronic Designs, Inc.

The Company develops and manufactures high density memory components used in
commercial and military systems, flat panel display units suitable for avionics
and other specialty applications using active matrix liquid crystal displays and
advanced products incorporating diamond films and coatings, for the commercial,
industrial and military markets in the U.S. and internationally.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements reflect the financial position and results
of operations of the Company and its wholly-owned subsidiaries, including the
effects of acquiring, and the results of operations of, EDI-MA since the date of
the acquisition. All intercompany balances have been eliminated in
consolidation.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Cash equivalents
consist of investments in money market accounts, certificates of deposit and a
repurchase agreement with a bank and are subject to minimal credit and market
risk.

The Company accounts for its investments in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS 115"). SFAS 115 requires the Company to
classify its investments among three categories: held-to-maturity, which are
reported at amortized cost; trading securities, which are reported at fair
value, with unrealized gains and losses included in earnings; and
available-for-sale securities, which are reported at fair value, with unrealized
gains and losses excluded from earnings and reported as a separate component of
shareholders' equity.

At September 30, 1996, the Company held an investment in a repurchase agreement
which matures in October 1996 and is classified as held-to-maturity. At
September 30, 1996, the fair market value of this investment approximates its
amortized cost of $2,190,000.

REVENUE RECOGNITION

Product sales to end-user customers are recognized upon the shipment of
products. Product sales to distributors are recognized upon shipment from the
distributor to the end-user customers. Contract revenues, which consist
primarily of revenues earned under fixed price and cost-plus-fixed-fee Small
Business Innovative Research program grants and other U.S. government research
contracts, are recognized as costs are incurred.

                                      F-6
<PAGE>   30

CONCENTRATION OF CREDIT RISK

Financial instruments which potentially expose the Company to concentrations of
credit risk consist primarily of trade accounts receivable. To minimize its risk
with respect to accounts receivable, ongoing credit evaluations of customers'
financial condition are performed, although collateral is not required. In
addition, the Company maintains reserves for potential credit losses and such
losses, in the aggregate, have not exceeded management's expectations.

INVENTORIES

Inventories are valued at the lower of cost or market, cost being determined on
the basis of the first-in, first-out method. Cost includes material, labor and
manufacturing overhead.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost. Depreciation is provided on the
straight-line method over estimated useful lives of three to seven years.
Leasehold improvements are amortized over the life of the related lease.

INTANGIBLE ASSETS

Intangible assets, consisting primarily of the value allocated to EDI-MA's
customer relationships and backlog at the date of acquisition, are being
amortized over the estimated period benefited of 5 years, using the
straight-line method. At September 30, 1996, accumulated amortization on
intangible assets was $469,000.

FAIR VALUE OF FINANCIAL INSTRUMENTS

At September 30,1996, the Company's financial instruments consist of cash and
cash equivalents, accounts receivable, accounts payable and long-term debt. The
fair values of these instruments approximate their carrying value.

INCOME TAXES

The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS
109 is an asset and liability approach that requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of temporary
differences between the financial statement carrying amounts and the tax bases
of assets and liabilities. Deferred tax assets are recognized, net of any
valuation allowance, for deductible temporary differences and net operating loss
and tax credit carryforwards.

NET INCOME (LOSS) PER SHARE

Net income (loss) per share represents earnings per common and common equivalent
share which is determined on the basis of the weighted average number of shares
outstanding during the respective period after giving effect to (i) all options
and warrants using the modified treasury stock method, if dilutive; and (ii) the
conversion of preferred stock using the if-converted method, if dilutive.
Primary and fully-diluted earnings per share are the same.

USE OF ESTIMATES

The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.


                                      F-7
<PAGE>   31

RECLASSIFICATIONS

Certain prior period amounts have been reclassified to conform to the current
period presentation. Such reclassifications had no effect on the reported net
loss.

RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS

In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets to be Disposed Of." In October 1995, the
FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation." Both SFAS
No. 121 and No. 123 are effective for fiscal years beginning after December 15,
1995. The Company will implement these standards as required in its next fiscal
year and, at this time, the future adoption of SFAS No. 121 and No. 123 is not
expected to have a material effect on the Company's consolidated financial
position or results of operations. With respect to SFAS No. 123, the Company
intends to adopt the standard through disclosure only.

3. ACQUISITION

Effective October 10, 1995, the Company acquired all of the outstanding stock of
EDI-MA, pursuant to an Agreement and Plan of Reorganization, for $13,000,000,
less certain expenses incurred by EDI-MA as a result of the transaction. The
aggregate purchase price of $12,210,000 consisted of cash consideration of
$11,322,000, notes payable of $290,000 and fully-vested options to purchase
315,000 shares of the Company's common stock at $0.22 per share that were valued
at $598,000. The cash portion of the purchase price was financed primarily
through bank borrowings and, to a lesser extent, private placements of equity
securities.

The acquisition of EDI-MA has been recorded in accordance with the purchase
method and, accordingly, the purchase price plus the Company's direct
acquisition costs of $290,000 have been allocated to the assets and liabilities
acquired based on their estimated fair values at the date of acquisition. The
fair value of assets acquired was $20,622,000, including cash of $2,508,000, and
the liabilities assumed totaled $8,122,000. The results of operations and cash
flows of EDI-MA are included in the results of operations and cash flows of the
Company from the date of acquisition.

The following pro forma data has been prepared as if the acquisition was
completed at the beginning of the periods presented, is presented for
illustrative purposes only and is not necessarily indicative of results of
operations which would have actually been achieved had the acquisition of EDI-MA
occurred at the beginning of the periods. In addition, the pro forma data does
not include $1,100,000, relating to the revaluation of inventories acquired to
their estimated fair value, which was included in cost of revenues in the first
quarter of fiscal 1996 as the acquired inventories were sold. Only those pro
forma adjustments which are expected to have a continuing impact on the results
of operations of the combined companies have been included.

                                      F-8
<PAGE>   32
 
<TABLE>
<CAPTION>
                                         YEAR ENDED SEPTEMBER 30,
                                            1996           1995
                                                (UNAUDITED)

<S>                                     <C>            <C>         
Revenues                                $59,223,000    $39,621,000
Cost of revenues                         40,894,000     27,188,000
                                        -----------    -----------
  Gross profit                           18,329,000     12,433,000
Operating expenses:
  Research and development                2,679,000      3,469,000
  Selling, general and administrative     9,399,000     10,015,000
  Restructuring                             590,000            -
  Amortization of intangible assets         469,000        469,000
                                        -----------    -----------
                                         13,137,000     13,953,000
                                        -----------    -----------
Income (loss) from operations             5,192,000     (1,520,000)
Other expense, net                         (855,000)    (1,330,000)
                                        -----------    -----------
Income (loss) before income taxes         4,337,000     (2,850,000)
Provision for income taxes                  576,000            -
                                        -----------    -----------
Net income (loss)                       $ 3,761,000    $(2,850,000)
                                        ===========    =========== 
Net income (loss) per share             $      0.48    $     (0.65)
                                        ===========    =========== 

</TABLE>

<TABLE>
4. INVENTORIES

Inventories consisted of the following:

<CAPTION>
                               SEPTEMBER 30,
                             1996        1995

<S>                       <C>          <C>    
Raw materials             $3,244,000   $26,000
Work-in-process            1,241,000       -
Finished goods               998,000    57,000
                          ----------   -------
                          $5,483,000   $83,000
                          ==========   =======
</TABLE>
                                     

<TABLE>
5.  PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:


<CAPTION>
                                   USEFUL LIFE           SEPTEMBER 30,
                                    IN YEARS         1996           1995

<S>                                <C>           <C>            <C>        
Machinery and equipment                2-5       $ 6,235,000    $ 4,430,000
Tooling                                 3            425,000            -
Furniture and fixtures                 10            122,000        306,000
Leasehold improvements             lease term        708,000        435,000
                                                 -----------    -----------
                                                   7,490,000      5,171,000
Less - Accumulated depreciation                   (3,647,000)    (2,716,000)
                                                 -----------    -----------
                                                 $ 3,843,000    $ 2,455,000
                                                 ===========    ===========

</TABLE>


                                      F-9
<PAGE>   33

At September 30, 1996 and 1995, property and equipment held under capital leases
amounted to $2,285,000 and $3,400,000, respectively, and related accumulated
amortization on this property and equipment amounted to $568,000 and $2,200,000,
respectively. Amortization expense related to property and equipment held under
capital leases amounted to $405,000 and $270,000 during the years ended
September 30, 1996 and 1995, respectively.

<TABLE>
6. ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consisted of the following:

<CAPTION>
                             SEPTEMBER 30,
                           1996         1995

<S>                     <C>           <C>     
Employee related        $1,050,000    $552,000
Deferred revenue           750,000         -
Income taxes               353,000         -
Other                      537,000     208,000
                        ----------    --------
                        $2,690,000    $760,000
                        ==========    ========
</TABLE>


<TABLE>
7.  BORROWINGS

Borrowings consisted of the following:

<CAPTION>
                                                SEPTEMBER 30,
                                               1996         1995

<S>                                        <C>           <C>     
Term loan from bank                        $2,750,000    $      -
Note payable to equipment vendor              149,000       294,000
Capital lease obligations (see Note 15)       868,000       899,000
                                           ----------    ----------
                                            3,767,000     1,193,000
Less - current portion of long-term debt     (828,000)     (545,000)
                                           ----------    ----------
Long-term debt, net of current portion     $2,939,000    $  648,000
                                           ==========    ==========

Note payable to shareholders               $       -     $  900,000
                                           ==========    ==========

Long-term note payable to shareholder      $       -     $1,035,000
                                           ==========    ==========

</TABLE>

TERM LOAN FROM BANK AND REVOLVING CREDIT FACILITY

In October 1995, the Company entered into, and in October 1996 amended and
restated, its Loan and Security Agreement (the "Agreement") with a bank. Under
the terms of the Agreement, the Company is allowed to borrow (i) up to
$3,500,000 in the form of a term loan (ii) up to $6,000,000 (with a $5,000,000
sublimit on letters of credit) under a revolving credit facility (the
"Revolver") and (iii) up to $1,500,000 in the form of an equipment loan.

Borrowings under the term loan bear interest, payable monthly, at 1/2% over the
prime rate (8.75% at September 30, 1996). The Company may repay borrowings under
the term loan at any time, however, $73,000 must be repaid on a monthly basis
through October 2000. Borrowings outstanding of $2,750,000 at September 30, 1996
rolled over to the term loan under the amended Agreement.


                                      F-10
<PAGE>   34

Borrowings under the Revolver are limited to the lesser of (i) $6,000,000 less
outstanding letters of credit or (ii) the "borrowing base" less outstanding
letters of credit. The borrowing base is calculated on a formula of eligible
accounts receivable and inventory, less amounts outstanding under the term loan.
Borrowings under the Revolver bear interest, payable monthly, at 1/2% over the
prime rate (8.75% at September 30, 1996). The Company may repay borrowings under
the Revolver at any time, however, all outstanding borrowings must be repaid in
full on September 30, 1997. At September 30, 1996, letters of credit in the
aggregate amount of $150,000 were outstanding. No revolving loans were
outstanding at September 30, 1996. Under the terms of the Agreement, as amended,
availability under the Revolver at September 30, 1996 was limited to $2,384,000.

Borrowings under the equipment loan bear interest, payable monthly, at 1% over
the prime rate (9.25% at September 30, 1996). The Company may repay borrowings
under the equipment loan at any time, however, 1/48th of the amount outstanding
on July 23, 1997 must be repaid on a monthly basis through August 2001. No
amounts were outstanding under the equipment loan at September 30, 1996.

Borrowings under the Agreement are collateralized by a security interest in
substantially all of the assets of the Company. The Agreement also requires the
Company to comply with certain affirmative and negative covenants, including the
maintenance of specified financial ratios. Management believes that the Company
is in compliance with the covenants as of September 30, 1996.

The Company paid facility fees of $160,000 to the bank in connection with
obtaining and the subsequent renegotiation of the Agreement. The Company also
issued, in October 1995, a warrant to the bank to purchase up to 276,686 shares
of common stock at an exercise price of $3.50 per share (see Note 10).

NOTE PAYABLE TO EQUIPMENT VENDOR

In September 1994, the Company purchased a diamond deposition system for a total
purchase price of $536,000. The Company made a cash payment to the vendor of
$106,000 and financed the remaining $430,000 by issuing a note that is secured
by the equipment. The note bears interest at 13% per year, with principal and
accrued interest payable in equal monthly installments of $14,488 through August
1997.

NOTES PAYABLE TO SHAREHOLDERS

In September 1994, the Company received $1,035,000 in cash as consideration for
the issuance of a convertible secured promissory note due in September 1997, to
New York Life Insurance Company ("New York Life"). Collateral for the note,
which bore interest at 15% per year, included all unsecured assets and an
assignment of all intellectual property. During the year ended September 30,
1995, the Company issued 156 Units (see Note 9) to New York Life in payment of
interest due on this note.

In August 1995, the Company received $900,000 in cash in consideration for the
issuance of additional secured promissory notes to certain shareholders
(including New York Life) due in August 1996. These notes bore interest at 10%
per year and were secured by a shared security interest in the collateral
assigned to the $1,035,000 note held by New York Life. In consideration for the
issuance of the notes, these shareholders received warrants to purchase 90,000
shares of common stock at an exercise price of $2.00 (see Note 10).

In October 1995, the outstanding principal balances of the notes payable of
$1,935,000, plus accrued interest of $19,000, were converted into 781,725 shares
of common stock.

                                      F-11
<PAGE>   35

8. INCOME TAXES

For the year ended September 30, 1996, the provision for income taxes of
$576,000 consisted of current Federal income taxes of $145,000 and current state
income taxes of $431,000. The difference between the amount of income taxes at
the applicable Federal statutory rate and the effective tax rate was
attributable to a decrease in the valuation allowance for deferred tax assets
due to the actual utilization of net operating losses and to state income taxes.
For the year ended September 30, 1995, there was no provision or benefit for
income taxes. The difference between the amount of income taxes at the
applicable Federal statutory rate and the effective tax rate was primarily due
to an increase in the valuation allowance for deferred tax assets not
recognizing currently the tax benefit of the Company's net operating loss
generated given that its future realization was not sufficiently assured.

<TABLE>
The components of deferred income taxes were as follows:

<CAPTION>
                                                   SEPTEMBER 30,
                                                 1996         1995

<S>                                        <C>            <C>       
DEFERRED TAX ASSETS
  Accounts receivable                      $    59,000    $        -
  Inventories                                  706,000         37,000
  Property and equipment                        13,000        167,000
  Accrued expenses and other liabilities       831,000        271,000
  Tax credit carryforwards                   1,572,000        859,000
  Net operating loss carryforwards           5,107,000      7,238,000
                                           -----------    ----------- 
    Total deferred tax assets                8,288,000      8,572,000
  Deferred tax asset valuation allowance    (7,561,000)    (8,572,000)
                                           -----------    ----------- 
                                               727,000            -
                                           -----------    ----------- 

DEFERRED TAX LIABILITIES
  Intangible assets                           (727,000)           -
                                           -----------    ----------- 
    Total deferred tax liabilities            (727,000)           -
                                           -----------    ----------- 
Net deferred income taxes                  $        -     $       -
                                           ===========    ===========
</TABLE>

The Company has provided a full valuation allowance against the net deferred tax
assets, since realization of these future tax benefits was not sufficiently
assured at September 30, 1996 and 1995. If the Company achieves profitability in
future periods, these deferred tax assets may be available to offset future
income tax liabilities and expense.

At September 30, 1996, for Federal income tax purposes, the Company has
approximately $12,884,000 of net operating loss carryforwards that expire at
various dates through 2010, which are available to offset future Federal taxable
income. For California income tax purposes, the Company has approximately
$1,514,000 of net operating loss carryforwards that expire at various dates
through 2000, which are available to offset future California taxable income.
The Company also has research and development tax credit carryforwards available
to offset future Federal and California income tax liabilities in the
approximate amount of $1,073,000 and $239,000, respectively, that expire at
various dates through 2007. The Company also has approximately $260,000 of
alternative minimum tax credit carryforwards which are available to offset
future Federal income tax liabilities.

Ownership changes, as defined in the Internal Revenue Code (the "Code"), have
limited the amount of net operating loss and research and development tax credit
carryforwards that can be utilized by the Company annually to offset future
taxable income or tax liabilities. As of September 30, 1996, the annual
limitation amount, calculated as defined in the Code, is approximately $700,000.
At September 30, 1996, all of the net operating loss carryforwards are subject
to this limitation and, as a result, approximately $3,000,000 of 

                                      F-12
<PAGE>   36

these carryforwards will expire unutilized. Subsequent changes in ownership
could further affect the limitation in future years.

9.  PREFERRED STOCK

The Company has designated 4,126 shares of its authorized preferred stock as 12%
Series A Preferred Stock ("Series A Stock").

In September 1995, the Company completed a private placement of 3,829 Units for
net proceeds of approximately $3,366,000 and converted $156,000 of accrued
interest due under the convertible secured promissory note to New York Life into
156 Units (see Note 7). Each Unit consisted of one share of Series A Stock, 100
shares of common stock and a warrant to purchase 100 shares of common stock.

The holders of the Series A Stock are entitled to receive cumulative dividends,
at an annual rate of $120 per share, when and if declared by the Board of
Directors. Unpaid dividends at September 30, 1996 amounted to approximately
$235,000.

In the event of liquidation or dissolution of the Company, the holder of each
share of Series A Stock shall receive, prior to any distribution to holders of
common stock, an amount equal to $1,000 plus any accrued but unpaid dividends.
The holder of each share of Series A Stock is entitled to the number of votes
equal to the number of shares of common stock into which the Series A Stock
could be converted.

If the closing price of the Company's common stock, as traded on NASDAQ, has
been at least $4.00 per share for at least twenty consecutive days, the Company
may thereafter redeem the Series A Stock at $1,100 per share.

In October 1996, the Company called for the redemption of all Series A Stock
outstanding as of November 29, 1996. Each share of Series A Stock is convertible
at any time on or before November 29, 1996, at the option of the stockholder,
into 400 shares of common stock (subject to anti-dilution adjustments).

10. COMMON STOCK

COMMON STOCK WARRANTS

In connection with obtaining the bank borrowings described in Note 7, the
Company issued a warrant in October 1995 to purchase up to 276,686 shares of
common stock at an exercise price of $3.50 per share. The warrants expire in
October 1998. The Company assigned a value of $28,000 to these warrants.

During the year ended September 30, 1995, in connection with the Unit offering,
the Company issued warrants to purchase 398,500 shares of common stock at $3.25
per share. The warrants expire in September 1998. Approximately $40,000 of the
proceeds received from the Unit offering was assigned by the Company to the
value of these warrants. Warrants to purchase 5,000 shares of common stock were
exercised during the year ended September 30, 1996.

In consideration for the issuance of secured promissory notes to certain
shareholders in August 1995 (which have since been repaid)(see Note 7), these
shareholders received warrants to purchase 90,000 shares of common stock at an
exercise price of $2.00 per share. The warrants expire in August 1998. The
Company assigned a value of $9,000 to these warrants.

In connection with the Company's initial public offering in 1994, the Company
sold 1,000,000 redeemable warrants at $0.10 per warrant. Each redeemable warrant
entitles the holder to purchase one share of common stock for $6.00 per share
and expires in March 1997. These warrants may be redeemed by the Company, at
$0.10 per share, if the Company's common stock trades at $9.00 per share for
more than twenty consecutive days.


                                      F-13
<PAGE>   37

Also in connection with the Company's initial public offering, the Company
granted to its underwriters warrants to purchase up to (a) 100,000 shares of
common stock at $6.48 per share and (b) 100,000 additional redeemable warrants
at $0.12 per warrant. The underwriter's warrants are exercisable through March
1999.

In March 1994, warrants to purchase up to 100,000 shares of common stock at
$6.00 per share were issued to two financial and business consultants for their
services for the period September 1993 through March 1994. These warrants expire
in March 1997 and March 1999.

During the year ended September 30, 1994, warrants to purchase 44,142 shares of
common stock at an exercise price of $2.83 per share were issued in connection
with obtaining lease financing for certain equipment. These warrants expire in
August 2001.

During 1991 and 1992, warrants to purchase 17,965 shares of common stock at an
exercise price of $7.90 per share were issued in connection with obtaining lease
financing for certain equipment. These warrants expire in November 1998.

RESERVED SHARES
<TABLE>

The Company has reserved shares of authorized but unissued common stock as of
September 30,1996 for the following:

<S>                                            <C>      
Exercise of common stock warrants              1,022,293
Exercise of redeemable common stock warrants   1,100,000
Conversion of Series A Stock                     729,200
Stock option and stock purchase plans          2,975,609
                                               ---------
  Total shares reserved                        5,827,102
                                               =========
</TABLE>


11.  STOCK OPTION AND STOCK PURCHASE PLANS

STOCK OPTION PLANS

In February 1987, the Company adopted the 1987 Stock Option Plan (the "Plan").
The Plan, as amended, allows for the issuance of up to 2,659,748 shares of the
Company's common stock. Options granted under the Plan must be granted at the
fair market value of such shares on the date of grant. Generally, options vest
over a two to five-year period and expire two to five years from the date of
grant.

<TABLE>
The following table summarizes stock option activity under the Plan:

<CAPTION>
                                   OPTIONS      OPTION
                                 OUTSTANDING    PRICES

<S>                              <C>         <C> 
Balance at September 30, 1994      469,422   $ 0.22-3.75

  Granted                          137,792   $ 2.58-3.75
  Cancelled                        (41,904)  $ 0.22-3.75
  Exercised                        (45,498)  $ 0.22-3.75
                                 ---------   -----------
Balance at September 30, 1995      519,812   $ 0.22-3.75

  Granted                        1,198,000   $ 3.38-5.13
  Cancelled                        (59,252)  $ 0.22-3.75
  Exercised                        (85,325)  $ 0.22-3.38
                                 ---------   -----------
Balance at September 30, 1996    1,573,235   $ 0.22-5.13
                                 =========   ===========

</TABLE>

    
                                  F-14
<PAGE>   38



Of the total options outstanding, approximately 517,000 were fully vested as of
September 30, 1996. If not exercised, these options will expire at various dates
through September 2001. At September 30, 1996, options to purchase approximately
846,000 shares of common stock were available for future grant under the Plan.

In October 1995, fully-vested options to purchase 314,826 shares of the
Company's common stock at $0.22 per share that were valued at $598,000 were
issued to employees in exchange for fully vested options of EDI-MA. During
fiscal 1996, options for the purchase of 2,740 shares were exercised and at
September 30, 1996, 312,086 options remained outstanding which expire in May
2003.

STOCK PURCHASE PLANS

In November 1995, the Board of Directors adopted the 1996 Employee Stock
Purchase Plan. This plan provides for the purchase by employees of up to 250,000
shares of common stock at 85% of the fair market value on the first or last day
of the offering period (as defined in the plan), whichever is lower. During the
year ended September 30, 1996, 5,679 shares were issued under the plan at $4.09
per share.

12.  RESTRUCTURING

The restructuring charge is primarily associated with the costs of severance
benefits for six employees provided in connection with restructuring activities
at the Company's diamond operations following the acquisition of EDI-MA.
Duplicate managerial and administrative positions were eliminated, occupied
space in the Santa Clara, California facility was reduced, and the corporate
offices and related functions were consolidated in Westborough, Massachusetts.
As of September 30, 1996, there were no remaining amounts accrued relative to
this restructuring.

13.  SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

During the years ended September 30, 1996 and 1995, the Company paid $893,000,
and $211,000, respectively, for interest.

During the year ended September 30, 1996, the Company paid $374,000 for income
taxes. No amounts were paid in 1995 for income taxes.

Noncash investing and financing activities include:

o    In October 1995, notes payable to shareholders of $1,935,000, plus accrued
     interest of $19,000, were converted into 781,724 shares of common stock
     (see Note 7).

o    In October 1995, 50,053 shares of common stock were issued to underwriters
     and consultants for services performed in connection with the issuance of
     Units (see Note 9) and the acquisition of EDI-MA (see Note 3).

o    In October 1995, options to purchase 314,826 shares of common stock at
     $0.22 per share were issued as partial consideration for the acquisition of
     EDI-MA (see Notes 3 and 11).

o    In October 1995, the Company issued warrants to purchase 276,686 shares of
     common stock at an exercise price of $3.50 per share in order to secure the
     bank borrowings related to the acquisition of EDI-MA. These warrants expire
     in October 1998 (see Note 7).

o    During the year ended September 30, 1996, 864,800 shares of common stock
     were issued in conversion of 2,162 shares of Series A convertible preferred
     stock.

                                      F-15

<PAGE>   39

o    In September 1995, the Company converted $156,000 of accrued interest due
     under the convertible secured note payable to shareholder into 156 Units
     (see Note 7).

o    In August 1995, the Company issued warrants to purchase 90,000 shares of
     common stock in connection with the issuance of secured promissory notes
     totaling $900,000 (see Note 7).

o    The Company has acquired equipment under capital leases and vendor-provided
     financing (see Notes 4 and 7).

14.  RETIREMENT SAVINGS PLAN

The Company maintains defined contribution savings plans under section 401(k) of
the Internal Revenue Code. These plans cover substantially all employees who
meet minimum age and service requirements and allow participants to defer a
portion of their annual compensation on a pre-tax basis. Company contributions
to the plan are made at the discretion of the Board of Directors and amounted to
$115,000 and $0 during the years ended September 30, 1996 and 1995,
respectively.

15.  COMMITMENTS

<TABLE>
The Company has noncancelable operating leases for certain business equipment
and office space expiring at various dates. As of September 30, 1996, future
minimum payments for all noncancelable leases, are summarized as follows:

<CAPTION>
                                      OPERATING      CAPITAL
<C>                                   <C>           <C>      
1997                                  $  593,000    $ 619,000
1998                                     432,000      155,000
1999                                     314,000      111,000
2000                                     315,000       83,000 
2001                                     271,000         -
Thereafter                               153,000         -
                                      ----------    ---------              
                                      $2,078,000    $ 968,000
Amount representing interest          ==========     (100,000)
                                                    --------- 
Present value of minimum lease payments             $ 868,000           
                                                    =========           
</TABLE>

  
Rent expense under operating leases for the years ended September 30, 1996, and
1995 was approximately $559,000 and $265,000, respectively. The Company's
building lease agreement provides for variable rent payments which the Company
expenses on a straight-line basis over the term of the lease. As of September
30, 1996, the Company had accrued $130,000 in deferred rent expense to be
amortized over the remaining term of 5 years.

Obligations under capital leases have interest rates which range from 8% to 15%
and require monthly payments which range from $9,000 to $19,000 at September 30,
1996.

16.  BUSINESS SEGMENT FINANCIAL DATA

The Company designs, develops, manufactures and sells high-technology products,
classified in two principal industry segments or lines of business, Memory and
Display Products and Diamond Products. Memory and Display Products relate to
memory circuits in monolithic and modular form and active matrix liquid crystal
displays sold primarily in the commercial, industrial and military markets in
the U.S. and internationally. Diamond Products relate to developing products
incorporating diamond films and coatings.

                                      F-16
<PAGE>   40

<TABLE>
Business segment information for the year ended September 30, 1996 is as
follows:

<CAPTION>
                                           OPERATING      IDENTIFIABLE
                              REVENUES    INCOME (LOSS)      ASSETS

<S>                          <C>          <C>              <C>        
Memory and Display Products  $57,476,000  $ 5,875,000      $18,597,000
Diamond Products               1,178,000   (1,651,000)       2,466,000
                             -----------  -----------      -----------
Total consolidated           $58,654,000  $ 4,224,000      $21,063,000
                             ===========  ===========      ===========
</TABLE>


Capital equipment expenditures were $284,000 and $84,000 for
the Memory and Display Products and Diamond Products segments, respectively, in
1996 and depreciation expense was $670,000 and $500,000, respectively.

In the year ended September 30,1995, the Company operated in only one segment,
Diamond Products.

Approximately $19,900,000, or 34% of total revenues, for the year ended
September 30, 1996 represent export sales to unaffiliated customers, primarily
in Europe. In the year ended September 30,1995, the Company had no significant
export sales.
<PAGE>   41




                                          EXHIBIT INDEX

Exhibit
Number                          Exhibit Title                       Page No.
------                          -------------                       --------

  2.1(G)      Agreement and Plan of Reorganization, dated as of       
              August 11, 1995, among Registrant, EDI, and CR-ED
              Acquisition Corp., including all amendments thereto.

  2.2(H)      Agreement of Merger, dated as of October 10, 1995,
              by and among Registrant, EDI, and CR-ED Acquisition
              Corp.

  2.3(K)      Agreement of Merger dated March 6, 1996, by and
              between Crystallume, a California corporation, and
              Electronic Designs, Inc., a Delaware corporation
              and wholly owned subsidiary of Crystallume.

  2.4(J)      Articles of merger of parent and subsidiary
              corporations, dated as of July 27, 1996 by and
              between Electronic Designs, Inc., a Delaware
              corporation and Electronic Designs,Inc., a
              Massachusetts corporation.

  3.1(I)      Registrant's Bylaws, as amended to date.

  3.2(I)      Registrant's Certificate of Incorporation currently
              in effect.

  4.1(F)      Certificate of Determination, filed with Secretary
              of State of California on April 19, 1995.

  4.2(K)      Specimen of Common Stock Certificate.

  4.3(B)      Form of Redeemable Warrant.

  4.4(B)      Form of Redeemable Warrant Agreement.

  4.5(F)      Form of Warrant to purchase shares of Common Stock.

  4.6(F)      Form of Stock Certificate for 12% Series A
              Convertible Preferred Stock.

  4.7(G)      Private Offering Summary for Units.

  4.8(F)      Amended and Restated Supplement to Private
              Offering Summary, dated August 16, 1995.

  4.9(F)      Subscription Agreement for Units.

  4.10(H)     Addendum to Subscription Agreement.

  4.11(H)     Updated Subscription Agreement.

  4.12(H)     Form of Purchase Agreement for Shares of
              Crystallume Common Stock.

  4.13(A)     Amended and Restated Registration Rights Agreement
              dated May 7, 1993 among Registrant and certain
              investors.

<PAGE>   42


  4.14(A)     First Amendment, dated December 28, 1993, to Amended
              and Restated Registration Rights Agreement among
              Registrant and certain investors.

  4.15(B)     Second Amendment, dated February 25, 1994, to Amended
              and Restated Registration Rights Agreement among
              Registrant and certain investors.

  4.16(B)     Third Amendment, dated March 2, 1994, to Amended and
              Restated Registration Rights Agreement among
              Registrant and certain investors.

  4.17(E)     Second Amended and Restated Registration Rights
              Agreement, dated July 25, 1994, among Registrant and
              certain investors.

  4.18(F)     Third Amended and Restated Registration Rights
              Agreement, dated as of April 30, 1995.

  4.19(F)     Revised and Restated Amendment to Third Amended and
              Restated Registration Rights Agreement, dated as of
              September 25, 1995.

  4.20(F)     Agreement respecting New York Life Insurance
              Company's registration rights, dated as of October 10,
              1995.

  4.21(F)     Agreement respecting Technology Funding Partners III,
              L.P.'s registration rights, dated as of October 10,
              1995.

  4.22(H)     Agreement respecting Silicon Valley Bank's
              registration rights, dated as of October 10, 1995.

*10.1         1987 Stock Option Plan adopted by Registrant on
              February 9, 1987, as amended............................... 47

*10.2         Employee Stock Purchase Plan adopted by Registrant on
              March 6, 1996, as amended.................................. 53

*10.3(H)      Electronic Designs, Inc. Amended and Restated 1986
              Stock Option Plan.1

 10.4(A)      Lease Agreement for Bohannon Park facility, dated
              November 25, 1987, as amended from time to time
              through March 31, 1993 between Registrant and David
              D. Bohannon Organization.

 10.5(C)      Industrial Lease, dated June 1, 1994, between
              Registrant and the Kontrabecki Group.

 10.6(H)      Lease Agreement between Flanders Westborough Delaware,
              Inc. and EDI, dated December 18, 1992

 10.7(H)      Lease Agreement between David Wallis Shaw and Stefanie
              Gail Brown Shaw and E.D. Electronics Limited, dated
              June 24, 1985.

 10.8(A)      Master Equipment Lease Agreement, dated December 5,
              1990, between Registrant and Phoenix Growth Capital
              Corp.




<PAGE>   43



 10.9(E)      Master Equipment Lease Agreement, dated July 15, 1994,
              between Registrant and MMC/GATX Partnership No. 1.

 10.10(D)     Equipment Purchase, Security and License Agreement,
              dated September 26, 1994, by and between Registrant
              and Applied Science and Technology, Inc.

 10.11(A)     Contract for Research, dated February 15, 1990,
              between Registrant and the National Center for
              Manufacturing Sciences, Inc., modified February 1,
              1992.

 10.12(A)     Funded Research and Development Program Agreement,
              dated February 26, 1992, between Registrant and Brush
              Wellman, Inc.

 10.13(A)     Contract for Research, dated May 2, 1993, between
              Registrant and the Regents of the University of
              California (with respect to Los Alamos National
              Laboratories).

 10.14(A)     Contract for Research, dated June 30, 1993, between
              Registrant and the United States Army.

 10.15(A)     Warrant to purchase Series D Preferred Stock of
              Registrant, dated September 30, 1988, issued in
              favor of Phoenix Growth Capital Corp.

 10.16(A)     Purchase Agreement and Second Amendment to
              Registration Rights Agreement, dated March 31, 1993,
              among Registrant and certain investors.

 10.17(A)     Term Loan Agreement, dated as of December 15, 1993,
              between Registrant and ASTeX, including form of
              Secured Term Note.

 10.18(B)     Form of Warrants, dated March 3, 1994, issued in
              favor of Private Capital Group Ltd.  and in favor
              of Richard Moyer to purchase an aggregate of 100,000
              shares of Common Stock.

 10.19        Letter extending the expiration date of Warrants,
              dated March 3, 1994, issued in favor of Richard
              Moyer to purchase an aggregate of 50,000 shares
              of Common Stock from March 2, 1997 to March 2, 1999........ 59

 10.20(E)     Warrant to purchase Common Stock of Registrant, dated
              August 12, 1994, issued in favor of MMC/GATX
              Partnership No. 1.

 10.21(H)     Secured Demand Note, dated August 10, 1995, in an
              aggregate principal amount of $600,000 payable by
              Registrant in favor of New York Life Insurance
              Company.

 10.22(H)     Secured Demand Note, dated August 10, 1995, in an
              aggregate principal amount of $200,000 payable by
              Registrant in favor of Technology Funding Partners III,
              L.P.


<PAGE>   44



 10.23(H)     First Amendment to Security Agreement, effective
              August 10, 1995, by and among Registrant, New York
              Life Insurance Company and Technology Funding
              Partners III, L.P.

 10.24(H)     Second Amendment to Security Agreement, effective
              August 28, 1995, by and among Registrant, New York
              Life Insurance Company and Technology Funding
              Partners III, L.P.

 10.25(H)     Security and Intercreditor Agreement, dated as of
              August 10, 1995, by and among Registrant, New York
              Life Insurance Company and Technology Funding
              Partners III, L.P.

 10.26(H)     Secured Demand Note, dated August 28, 1995, in an
              aggregate principal amount of $100,000 payable by
              Registrant in favor of Technology Funding Partners III,
              L.P.

 10.27(H)     Re-Assignment of Patents and Patent Applications,
              dated October 5, 1995, by and between  the
              Registrant and New York Life Insurance Company.

 10.28(H)     New York Life Insurance Company's Agreement to
              purchase shares of Common Stock in exchange for
              cancellation of a $600,000 Secured Demand Note and
              $1,035,000 Secured Promissory Note.

 10.29(H)     Technology Funding Partners III, L.P.'s Agreement
              to purchase shares of Common stock in exchange for
              cancellation of a $200,000 Secured Demand Note and
              a $100,000 Secured Demand Note.

 10.30(H)     Dickinson Holding Corp.'s Agreement to purchase
              Common Stock, including all amendments thereto.

 10.31(L)     Amended and Restated Loan and Security Agreement,
              dated October 23, 1996, by and between Registrant
              and Silicon Valley Bank.

 10.32        Collateral Assignment, Patent Mortgage and Security
              Agreement, dated October 23, 1996, by and between
              Registrant and Silicon Valley Bank......................... 60

*10.33(E)     Letter Agreement regarding employment, effective October
              11, 1994, between Registrant and Jeffrey R.
              Osorio.

*10.34(H)     Agreement of Non-disclosure, to Maintain Confidence and to
              Transfer Future Inventions, dated November 17, 1994, by and
              between Registrant and Jeffrey R.
              Osorio.

*10.35(F)     Employment Agreement, dated as of August 18, 1995, by
              and between Registrant and Paul J. McIntire.

*10.36(F)     Employment Agreement, dated as of October 10, 1995,
              by and between Registrant and Donald F. McGuinness.

*10.37(F)     Severance Agreement, dated as of December 21, 1994, by
              and between EDI and Donald F. McGuinness, including
              all amendments thereto.


<PAGE>   45



*10.38(G)     Severance Agreement, dated as of December 21, 1994, by
              and between EDI and Frank D. Edwards.

*10.39(F)     Severance Agreement, dated as of October 10, 1995, by
              and between Registrant and Thomas A. Schultz.

 10.40(H)     Agreement of Non-disclosure, to Maintain Confidence
              and to Transfer Future Inventions, dated February 24,
              1986, by and between Registrant and Thomas A. Schultz.

*10.41(F)     Severance Agreement, dated as of October 11, 1995, by
              and between Registrant and John A. Herb.

 10.42(H)     Agreement of Non-disclosure, to Maintain Confidence and
              to Transfer Future Inventions, dated July 5, 1988, by
              and between Registrant and John A. Herb.

*10.43(H)     Severance Agreement, dated as of October 13, 1995, by
              and between Registrant and Laurie Conner.

*10.44(H)     Severance Agreement, dated November 29, 1995, by and
              between Registrant and Jeffrey R. Osorio.

 11.1         Statement re: Computation of Per Share Earnings............ 65

 16.1(G)      Letter from Arthur Andersen LLP regarding Change in
              Certifying Accountant.

 21.1         Subsidiaries of the Registrant............................. 66

 23.1         Consent of Price Waterhouse LLP............................ 67

 24.1         Power of Attorney (See page 21)

 27.1         Financial Data Schedule.................................... 68

 (A)          Incorporated by reference to the Registrant's Registration 
 Statement on Form SB-2. File No.  33-62448LA (withdrawn).

 (B)          Incorporated by reference to the Registrant's Registration 
 Statement on Form SB-2. File No. 33-76186LA (effective March 22, 1994).

 (C)          Incorporated by reference to the Registrant's Quarterly 
 Report on Form 10-QSB for the third quarter of the fiscal year ending 
 September 30, 1994 (filed on August 15, 1994).

 (D)          Incorporated by reference to Registrant's Current Report on 
 Form 8-K (filed on October 11, 1994).

 (E)          Incorporated by reference to Registrant's Registration 
 Statement on Form SB-2.  File No. 33-84412LA (effective November 1, 1994)

 (F)          Incorporated by reference to Registrant's Current Report on 
 Form 8-K (filed on October 25, 1995).

 (G)          Incorporated by reference to Registrant's Current Report on 
 Form 8-K (filed on November 2, 1995).

 (H)          Incorporated by reference to Registrant's Annual Report 
 on Form 10-KSB (filed on December 18, 1995).

 (I)          Incorporated by reference to Registrant's Registration 
 Statement on Form S-3. File No. 333-3328 (effective May 16, 1996).


<PAGE>   46



(J)           Incorporated by reference to the Registrant's Quarterly Report 
on Form 10-QSB for the third quarter of the fiscal year ending September 30, 
1996 (filed on August 12, 1996).

(K)           Incorporated by reference to Registrant's Current Report on 
Form 8-K/A (filed on August 23, 1996).

(L)           Incorporated by reference to Registrant's Current Report on 
Form 8-K (filed on October 30, 1996).

---------------
*     A management contract or compensatory plan required to be filed as 
an exhibit to Form 10-KSB.

1     Formerly known as EDI PurchaseCo, Inc.