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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934

|   |  |                                                                                         
|-- |  | ----------------------------------------------------------------------------------------
|x  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934    
|   |  |                                                                                         
|   |  | For the Fiscal Year Ended: September 28, 2002                                           
|   |  |                                                                                         
|OR
|   |  |                                                                                         
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|   |  |                                                                                         
|   |  | For the transition period from          to                                              

Commission File Number 1-4817

WHITE ELECTRONIC DESIGNS CORPORATION

(Exact name of registrant as specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Indiana                                                        |  | 35-0905052                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               |  |                                     
|3601 E. University Drive
Phoenix, Arizona                      |  | 85034                               
|(Address of principal executive offices)                       |  | (Zip Code)                          
|                                                               |  |                                     
|Registrants telephone number, including area code:            |  | 602/437-1520                        

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act

|                                                              |  |                                          
|------------------------------------------------------------- |  | -----------------------------------------
|Title of Each Class                                           |  | Name of Each Exchange on Which Registered
|                                                              |  |                                          
|Common Stock, without par value
(stated value $.10 per share) |  | NASDAQ National Market                   

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x   No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in PART III of this Form 10-K or any amendment to
this Form 10-K.[x]

As of December 9, 2002, the aggregate market value of the Registrants Common
Stock held by non-affiliates (based upon the closing price of the shares on the
NASDAQ National Market on December 9, 2002) was approximately $166,390,000.

On December 9, 2002, 20,119,432 shares of the Registrants Common Stock were
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement prepared in connection with the 2003
Annual Meeting of Shareholders are incorporated by reference into PART III,
Items 10, 11, 12 and 13 of this Annual Report.





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|                                           |                                                                                                        |                                                 |  |  |  |  |  | 
|------------------------------------------ | ------------------------------------------------------------------------------------------------------ | ----------------------------------------------- |  |  |  |  |  | 
|PART I                                    
|                                           | ITEM 1 BUSINESS                                                                                       
|                                           |                                                                                                        | GENERAL                                        
|                                           |                                                                                                        | BUSINESS SEGMENTS AND CORPORATE ADDRESS        
|                                           |                                                                                                        | MICROELECTRONIC BUSINESS SEGMENT               
|                                           |                                                                                                        | DISPLAY BUSINESS SEGMENT                       
|                                           |                                                                                                        | PRINCIPAL CUSTOMERS                            
|                                           |                                                                                                        | RESEARCH, ENGINEERING AND PRODUCT DEVELOPMENT  
|                                           |                                                                                                        | REGULATORY MATTERS                             
|                                           |                                                                                                        | RAW MATERIALS                                  
|                                           |                                                                                                        | INTELLECTUAL PROPERTY                          
|                                           |                                                                                                        | EMPLOYEES                                      
|                                           |                                                                                                        | FINANCIAL INFORMATION BY GEOGRAPHIC SEGMENT    
|                                           |                                                                                                        | FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS
|                                           |                                                                                                        | RISK FACTORS                                   
|                                           | ITEM 2 PROPERTIES                                                                                     
|                                           | ITEM 3 LEGAL PROCEEDINGS                                                                              
|                                           | ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                            
|EXECUTIVE OFFICERS OF THE COMPANY         
|PART II                                   
|                                           | ITEM 5 MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS                      
|                                           | ITEM 6 SELECTED FINANCIAL DATA                                                                        
|                                           | ITEM 7 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS          
|                                           | ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                    
|                                           | ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE           
|PART III                                  
|                                           | ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                            
|                                           | ITEM 11 EXECUTIVE COMPENSATION                                                                        
|                                           | ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|                                           | ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                
|                                           | ITEM 14 CONTROLS AND PROCEDURES                                                                       
|PART IV                                   
|                                           | ITEM 15 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                               
|SIGNATURES                                
|Report of Independent Accountants         
|CONSOLIDATED BALANCE SHEET                
|CONSOLIDATED STATEMENT OF INCOME          
|CONSOLIDATED STATEMENT OF CASH FLOW       
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|Exhibit 10.41                             
|Exhibit 10.42                             
|Exhibit 23.1                              
|Exhibit 99.1                              
|Exhibit 99.2                              



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TABLE OF CONTENTS

|                                                                                                       |  |  |    | 
|------------------------------------------------------------------------------------------------------ |  |  | -- | 
|PART I                                                                                                 |  |  | 3  | 
|ITEM 1 BUSINESS                                                                                        |  |  | 3  | 
|GENERAL                                                                                                |  |  | 3  | 
|BUSINESS SEGMENTS AND CORPORATE ADDRESS                                                                |  |  | 3  | 
|MICROELECTRONIC BUSINESS SEGMENT                                                                       |  |  | 3  | 
|DISPLAY BUSINESS SEGMENT                                                                               |  |  | 4  | 
|PRINCIPAL CUSTOMERS                                                                                    |  |  | 6  | 
|RESEARCH, ENGINEERING AND PRODUCT DEVELOPMENT                                                          |  |  | 6  | 
|REGULATORY MATTERS                                                                                     |  |  | 6  | 
|RAW MATERIALS                                                                                          |  |  | 7  | 
|INTELLECTUAL PROPERTY                                                                                  |  |  | 7  | 
|EMPLOYEES                                                                                              |  |  | 8  | 
|FINANCIAL INFORMATION BY GEOGRAPHIC SEGMENT                                                            |  |  | 8  | 
|FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS                                                        |  |  | 8  | 
|RISK FACTORS                                                                                           |  |  | 9  | 
|ITEM 2 PROPERTIES                                                                                      |  |  | 14 | 
|ITEM 3 LEGAL PROCEEDINGS                                                                               |  |  | 14 | 
|ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                             |  |  | 14 | 
|EXECUTIVE
OFFICERS OF THE COMPANY                                                                      |  |  | 14 | 
|PART II                                                                                                |  |  | 15 | 
|ITEM 5 MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS                       |  |  | 15 | 
|ITEM 6 SELECTED FINANCIAL DATA                                                                         |  |  | 15 | 
|ITEM 7 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS           |  |  | 16 | 
|ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                     |  |  | 26 | 
|ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                     |  |  | 27 | 
|ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE            |  |  | 27 | 
|PART III                                                                                               |  |  | 27 | 
|ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                             |  |  | 27 | 
|ITEM 11 EXECUTIVE COMPENSATION                                                                         |  |  | 28 | 
|ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS |  |  | 28 | 
|ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                 |  |  | 28 | 
|ITEM 14 CONTROLS AND PROCEDURES                                                                        |  |  | 29 | 
|PART IV                                                                                                |  |  | 29 | 
|ITEM 15 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K                                |  |  | 29 | 
|SIGNATURES                                                                                             |  |  | 32 | 
|REPORT OF INDEPENDENT ACCOUNTANTS                                                                      |  |  | 35 | 
|CONSOLIDATED BALANCE SHEET                                                                             |  |  | 36 | 
|CONSOLIDATED STATEMENT OF INCOME                                                                       |  |  | 37 | 
|CONSOLIDATED STATEMENT OF CASH FLOW                                                                    |  |  | 39 | 
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                             |  |  | 40 | 





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PART I




ITEM 1 BUSINESS




GENERAL

White Electronic Designs Corporation is an Indiana corporation organized in
1951. On October 26, 1998, Bowmar Instrument Corporation (Bowmar) merged
with Electronic Designs, Inc. (EDI). In connection with the merger, Bowmar
changed its name to White Electronic Designs Corporation (the Company).

On January 29, 2001 the Company completed the acquisition by merger of
Panelview, Inc., (Panelview), a manufacturer of display products located in
Oregon. Panelview provides optical enhancements to display products sold to
the transportation, medical and instrumentation markets. The operations of
this subsidiary are included in the financial statements of White Electronic
Designs Corporation from the date of the merger.

The Panelview acquisition was treated as a purchase for financial reporting
purposes based on the following data.

|                                                  |  |   |            | 
|------------------------------------------------- |  | - | ---------- | 
|Purchase Price based on Stock & Acquisition Costs |  | $ | 9,150,268  | 
|Liabilities Assumed                               |  |   | 2,161,632  | 
|                                                  |  |   |            | 
|Total Purchase Cost                               |  | $ | 11,311,900 | 
|                                                  |  |   |            | 
|Assets Received                                   |  |   | 2,644,611  | 
|                                                  |  |   |            | 
|Acquired Goodwill                                 |  | $ | 8,667,289  | 
|                                                  |  |   |            | 
|Amortized Goodwill through September 28, 2002     |  | $ | 2,151,244  | 
|                                                  |  |   |            | 
|Goodwill remaining as of September 28, 2002       |  | $ | 6,516,045  | 
|                                                  |  |   |            | 

The Company will adopt SFAS 142 in fiscal 2003, which will stop the
amortization of the remaining goodwill. Instead, the remaining goodwill amount
will be tested at least annually for impairment, and any adjustments to the
carrying value of the goodwill will be taken as needed.




BUSINESS SEGMENTS AND CORPORATE ADDRESS

The Company has two business segments. Each of the two business segments
requires different design and manufacturing resources and serves customers in
different markets. The microelectronic business segment, which accounted for
approximately 56% of total Company sales in fiscal 2002, manufactures
high-density semiconductor memory and microprocessor products for use in
telecommunications, data communications and defense industries. The display
business segment, which accounted for approximately 44% of total Company sales
in fiscal 2002, manufactures ruggedized liquid crystal displays, and enhanced
viewing displays for customers in a variety of industries. The Companys
executive offices are located at 3601 E. University Drive, Phoenix, Arizona
85034, (602) 437-1520.




MICROELECTRONIC BUSINESS SEGMENT

Financial information for the microelectronic segment is disclosed in Note 16
of Notes to the Consolidated Financial Statements.

The microelectronic business segment manufactures a wide range of high-density
semiconductors memory and microprocessor products for customers in the
telecommunications, data communications, and defense industries.
Microelectronic segment product sales generally fall into two product
categories: high-reliability and commercial.

High-reliability products use various types of semiconductor components such as
SRAM, EEPROM, SDRAM, Flash, and microprocessor chips combined in ceramic
packages and laminated substrates to produce a high-density multichip or single
chip monolithic product for use in adverse environmental conditions. Multichip
packaging is a technique that places several semiconductor chips into a compact
package. A monolithic product does the same

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using only one semiconductor chip. The Companys high-reliability products are
sold to both foreign and domestic government defense contractors and are used
in military equipment such as aircraft, missiles, communications equipment, and
other equipment where computerized electronics are required. High-reliability
products are usually purchased by customers in the military defense industries
for use in harsh environments, and we sometimes use the word military to
describe our high-reliability products because they are built to meet certain
United States military standards.

Commercial products use various types of semiconductor memory components such
as SRAM, DRAM, and Flash chips combined on a substrate to produce a
high-density memory module, or PCMCIA memory card. Commercial products are not
designed for harsh environmental conditions. Our commercial products are used
primarily in the telecommunications and data communications markets such as
digital signal processing platforms, wireless base stations, broadband devices,
modem pools, local area network backbone switches, wide area network backbone
switches, network bridges, routers, servers, and hubs. Other uses include
embedded systems, handheld processors, test and diagnostic equipment, portable
scanners, and diskless network computers and workstations. Defense industry
customers may occasionally purchase commercial products if they do not have
harsh environmental requirements for the product.

The products designed, manufactured, and sold by the Company in its
microelectronic segment are sold to original equipment manufacturers in the
United States, Europe and Asia through the Companys sales personnel and
independent sales representatives and distributors. The Companys
microelectronic segment business is not seasonal. The Company does not provide
extended payment terms to its customers. Products in the microelectronic
segment are sold under a standard one-year warranty and may be subject to
repair or replacement during the warranty period.

The backlog for microelectronic products, represented by purchase orders from
our customers, was approximately $23,897,000 and $27,849,000 at the end of
fiscal years 2002 and 2001, respectively. This decrease was primarily caused
by a general business slowdown in the telecommunications equipment industry.
Approximately 85% of the segments fiscal 2001 backlog was shipped during
fiscal 2002 with the remaining backlog shippable in 2003 or beyond.
Approximately 78% of the fiscal 2002 year-end backlog is expected to be shipped
during fiscal 2003 with the remaining backlog shippable in fiscal 2004 and
beyond. The backlog after fiscal 2003 is a result of customer scheduling
requirements for high-reliability products, not capacity restraints.

Microelectronic Segment Competition

The Companys principal competitors in the commercial product market, Smart
Module Technology, a subsidiary of Solectron Corp., and Simple Technology, Inc.
are larger than the Company and have substantially greater financial,
technical, marketing, distribution and other resources. Smart Module
Technology manufactures a broad range of memory modules in high volume. In
addition, the Company competes with a number of smaller companies and larger
semiconductor companies whom 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 capability, lead times,
quality, product specification, pricing and customer service.

The Companys main competitor in the high-reliability product market is the
microelectronics division of Aeroflex Corporation. Aeroflex is a larger
business organization than the Company and may have greater financial and other
resources. The Company also competes against Austin Semiconductor, which is a
subsidiary of PMC Global Inc., a large privately held conglomerate. Companies
compete for this business on the basis of many factors, including cost and
quality systems (which allow for compliance 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 products
on standard military drawings, design capabilities, lead times, product
specification, pricing and customer service.




DISPLAY BUSINESS SEGMENT

Financial information for the display segment is disclosed in Note 16 of Notes
to the Consolidated Financial Statements.

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The display business segment manufactures liquid crystal flat panel display
products, which improve the operating characteristics of commercial display
products. This segment also performs higher level integration and enhancements
on existing displays, which account for a high percentage of Panelview
business. The Company offers a wide range of design and manufacturing
capabilities and can produce custom or standard displays. These enhanced
displays offer significant advantages over commercially available displays,
because they are sunlight readable and can be used in extreme operating
temperatures. The Company also re-manufactures commercially available liquid
crystal displays to meet custom packaging and environmental requirements. The
Companys displays are also complemented by keyboards, touch screens,
backlights, and electronic interfaces to provide flat panel display solutions
to our customers. Display segment product sales generally fall into two
categories: ruggedized and commercial.

Ruggedized displays are manufactured to perform in harsh environmental
conditions. The manufacturing process uses commercial displays that are
customized by strengthening their construction to withstand shock and
vibrations, adding films and laminated glass to provide sunlight readability
and expanded viewing angles, and adding temperature control devices so the
display will continue working under operating temperatures ranging from 35 to
+85 degrees Celsius. The Companys ruggedized products are primarily sold to
the commercial avionics industry and are also used by domestic and foreign
defense contractors for use in aircraft or ground vehicles.

Commercial display products offer greater viewing performance and operating
characteristics than off-the-shelf commercially available displays but are not
designed for the harsh environmental conditions that may occur in a ruggedized
display environment. The higher level integration process uses off-the-shelf
commercial displays that are enhanced by using films, filters, and laminated
glass to provide sunlight readability, improved backlighting to increase the
displays brightness, and that add temperature control devices so the display
will continue working under normal outdoor conditions. This process is
normally a high volume, low margin component of the display segment business.
The Companys commercial products are sold to customers in the medical, global
positioning systems, marine navigation, outdoor point-of-sale, and
instrumentation industries.

The display segment also manufactures and sells electromechanical components
and instrument packages consisting of ruggedized keyboards, aircraft trim
panels, rotating devices, including gear heads, mechanical counters, dial
drives, mechanical packages and related devices. Specific applications for
these products include controls for automatically tuning airborne radio
transmitters and receivers, controls for fuel flow in jet engines, and selected
automatic flight control servomechanisms. These products are sold principally
to defense contractors in the aerospace industry and aircraft instrument
manufacturers as information displays in aerospace and ground equipment.

The display segment backlog was approximately $18,521,000 and $19,983,000 at
the end of fiscal years 2002 and 2001, respectively. Approximately 72% of this
segments 2001 backlog was shipped during fiscal 2002 while the remaining
backlog is shippable in fiscal year 2003 and beyond. Approximately 83% of the
fiscal 2002 year-end backlog is expected to be shipped during fiscal 2003 with
the remaining backlog shippable in fiscal 2004 and beyond. The backlog after
2003 is a result of customer scheduling requirements for ruggedized products,
not capacity restraints. There are no seasonality factors affecting the
display business.

Display Segment Competition

The principal elements 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, ruggedness and
cost. While the primary competition for the AMLCD is currently cathode ray
tube displays, the Companys products compete with other flat panel displays
including gas plasma and electro-luminescent displays. The Company believes
that price, product reliability and the ability to meet delivery schedules are
key competitive factors. The Company competes with numerous other companies in
the display segment such as Planar and Polarvision, many of which have greater
financial resources, larger technical and marketing resources, and in some
instances more advanced technology products than those of the Company.

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PRINCIPAL CUSTOMERS

In fiscal 2002, two customers accounted for more than 10% of the Companys
sales. General Electric Medical Division accounted for 11.5% of total Company
sales, and Garmin International accounted for 10.8% of total Company sales.
Both customers are display segment customers. Comparatively, fiscal 2001 sales
for General Electric Medical Division and Garmin International were 0.0% and
2.2%, respectively. The loss of either of these customers would have a
material effect on the sales of the Company.

As a percent of display segment sales, the General Electric Medical Division
accounted for approximately 26%, and Garmin International accounted for
approximately 24%. No other customer accounted for more than 10% of display or
microelectronic segment sales, respectively.

The Companys sales are split between original equipment manufacturers in the
network and telecommunications industries, board assembly companies, and U.S.
prime contractors in the defense industry. Sales to prime contractors can be
for relatively large dollar amounts and sometimes call for deliveries over more
than one year. The award of new contracts or the expiration of old contracts
could have a significant short-term impact on sales and operating results.
Sales of commercial memory products are usually based on high volume purchase
orders with deliveries scheduled over several months. The award of new
purchase orders is based upon the Companys ability to supply the original
equipment manufacturer or assembly company with products that meet current
technological and quality requirements.

Total Company foreign sales for fiscal 2002, 2001, and 2000 were $28,804,000,
$27,208,000, and $13,861,000, respectively.




RESEARCH, ENGINEERING AND PRODUCT DEVELOPMENT

Current product development activities are directed primarily toward the
improvement of existing standard products. Some projects, however, are focused
on the development of new products or processes. The Company devotes minimal
resources to pure product development, but emphasizes the application of its
engineering expertise to the development and refinement of proprietary products
or technologies. Expenditures by the Company on product development for fiscal
years 2002, 2001, and 2000 amounted to approximately $4,264,000, $5,302,000,
and $5,014,000, respectively. Product development efforts are principally
conducted by the Companys engineering staff.

We believe that continued strategic investment in process technology and
product development is essential for us to remain competitive in the markets we
serve. We are committed to appropriate levels of expenditures for product
development.




REGULATORY MATTERS

Government Contracting Regulation

A significant portion of the Companys business in fiscal 2002 was derived from
subcontracts with prime contractors of the U.S. Government. As a U.S.
Government subcontractor, the Company is subject to Federal Government
contracting regulations. Under these regulations, the U.S. Government is
entitled for three years after final payment on certain negotiated contracts or
contract modifications to examine all of the Companys cost records with
respect to such contracts to determine whether the Company furnished complete,
accurate, and current cost or pricing data to the government in connection with
the negotiation of the price of the contract or modification. The U.S.
Government also has the right after final payment to seek a downward adjustment
to the price of a contract or modification if it determines that the contractor
failed to disclose complete, accurate and current data. Historically, the
Company has not experienced downward adjustments.

In addition, the Federal Acquisition Regulations govern the allowability of
costs incurred by the Company in the performance of U.S. Government contracts
to the extent that such costs are included in its proposals or are allocated to
U.S. Government contracts during performance of those contracts.

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The Companys subcontracts provide that they may be terminated at the
convenience of the U.S. Government. Upon such termination, the contractor is
normally entitled to receive the purchase price for delivered items,
reimbursement for allowable costs incurred and allocable to the contract, and
an allowance for profit on the allowable costs incurred or adjustment for loss
if completion of performance would have resulted in a loss. In addition, the
Companys subcontracts provide for termination for default if the Company fails
to perform or breaches a material obligation of a subcontract. In the event of
a termination for default, the customer may have the unilateral right at any
time to require the Company to return unliquidated progress payments pending
final resolution of the propriety of the termination for default. The Company
may also have to pay the excess, if any, of the cost of purchasing a substitute
item from a third party. If the customer has suffered other ascertainable
damages as a result of a sustained default, the customer could demand payment
of such damages by the Company.

In connection with the Companys U.S. Government business, the Company is also
subject to government investigations of its policies, procedures, and internal
controls for compliance with procurement regulations and applicable laws. The
Company may be subject to downward contract price adjustments, refund
obligations, or civil and criminal penalties. In certain circumstances in
which a contractor has not complied with the terms of a contract or with
regulations or statutes, the contractor might be debarred or suspended from
obtaining future contracts for a specified period of time. Any such suspension
or debarment of the Company would have a material adverse effect on the
Companys business.

It is the Companys policy to cooperate with the Government in any
investigations of which it has knowledge, but the outcome of any such
Government investigations cannot be predicted with certainty. The Company
believes it has complied in all material respects with applicable government
requirements.

Environmental Protection

Compliance with federal, state and local laws or regulations, which govern the
discharge of materials into the environment, has not had a material adverse
effect upon the capital expenditures, earnings or competitive position of the
Company.




RAW MATERIALS

The most significant raw materials that the Company purchases in its operations
are memory devices in wafer, die and component forms and AMLCD panels. In a
time of strong demand for memory integrated circuits and other products, the
Companys access to adequate supplies of wafers, dies and other components may
be constrained or subject to shortages. In addition, AMLCD panels may also be
in short supply at times. The Company is highly dependent on one SRAM
semiconductor manufacturer for memory devices, one major display manufacturer
of AMLCD panels, and one package manufacturer of ceramic packages for military
components. The Company believes it has good relationships with its vendors
and is not currently anticipating any difficulties in purchasing components.
However, the Company does not have specific long-term contractual arrangements
with its vendors, and the loss of any of its primary vendors or the loss of
access to steady sources of supply could have an adverse effect on the
Companys business.




INTELLECTUAL PROPERTY

The products the Company sells from both its microelectronic segment and its
display segment require a large amount of engineering design and manufacturing
expertise. However, the majority of these technological capabilities are not
protected by patents and licenses. The Company relies on the expertise of its
employees and its learned experiences in both the design and manufacture of its
products. It is possible, and it has occurred in the past, that a competitor
may also learn to design and produce products with similar performance
abilities as the Companys products. If a competitor were to do so, it may
result in increased competition and reduction of sales for the Companys
products.

The Company relies on trade secret protection for its technology, in part
through confidentiality agreements with its employees, consultants, and third
parties. However, these parties may breach these agreements, and, since many
agreements are made with companies much larger than itself, the Company may not
have adequate financial resources to adequately enforce its rights. Others may
also come to know about or determine its trade secrets

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through a variety of methods. In addition, the laws of certain territories in
which it develops, manufactures or sells its products may not protect its
intellectual property rights to the same extent as the laws of the United
States.




EMPLOYEES

The Company employs 312 people. Of such employees, 159 were employed in the
microelectronic segment, 148 in the display segment, and 5 in corporate
administration. A total of 30 of the Companys employees in the display
segment were employed pursuant to collective bargaining agreements covering
workers at the Companys display division in Fort Wayne, Indiana. This
agreement is effective through November 15, 2004. The Company believes its
labor relations are satisfactory.




FINANCIAL INFORMATION BY GEOGRAPHIC SEGMENT

See Note 16 in Notes to the Consolidated Financial Statement for information
relating to foreign sales by geographic segment.




FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS

This Annual Report on Form 10-K, including the Managements Discussion and
Analysis of Financial Conditions and Result of Operations, contains
forward-looking statements. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for such forward-looking statements. The words
believe, expect, anticipate and other similar statements of expectations
identify forward-looking statements, and include expectations regarding the
future demand for the Companys products; the amount of backlog to be shipped
in Fiscal 2003; expected changes in sales to certain industries; the market
acceptance and profitability of the Companys new products; expectations of
future amortization expense or goodwill impairment from the Panelview division;
future purchases of components; the need to draw on the Companys line of
credit; the effect of interest rate changes, expected levels of future product
development and capital expenditures; the expectation that operations should be
sufficient to fund cash needs in the short and long term; the economic recovery
of the telecommunications industry; the expected strength of the defense
industry and the economic and political environment relating to it and the
resulting upward trend expected in high-reliability product sales; the
Companys dependency on General Electric Medical Division and Garmin
International for display business; expectations of future product sales mix
and gross margins; general economic conditions pertaining to sales of displays;
future expected levels sales and other operating expenses; and the expected
effect on the Companys liquidity of funding the Companys pension plan, all
of which speak only as of the date the statement is made. These
forward-looking statements are based largely on Managements expectations and
are subject to a number of risks and uncertainties, some of which cannot be
predicted or quantified and are beyond the Companys control. Future events
and actual results could differ materially from those set forth in,
contemplated by, or underlying the forward-looking statements. Statements in
this Annual Report, including the Notes to the Consolidated Financial
Statement, Managements Discussion and Analysis of Financial Conditions and
Results of Operations, and the Risk Factors section contained in Item 1,
describe factors, among others, that could contribute to or cause such
differences. Additional factors that could cause actual results to differ
materially from those expressed in such forward-looking statements include the
loss of a principal customer; the failure of customers to accept the Companys
tamper-resistant packaging or the development of improved tamper-resistant
packaging by competitors; the inability to procure required components; any
downturn in the semiconductor and telecommunications markets which could cause
a decline in selling unit prices; reductions in military spending or changes in
the acquisition requirements for military products; the ability to locate
appropriate acquisition candidates, negotiate an appropriate purchase price,
and integrate into the Company the people, operations, and products from
acquired businesses; and changes or restrictions in the practices, rules and
regulations relating to sales in international markets. In addition, new
factors emerge from time to time and it is not possible for management to
predict all of such factors, nor can it assess the impact of each such factor
on the business or the extent to which any factor, or combination of factors,
may cause actual results to differ materially from forward-looking statements.
The Company undertakes no obligation to publicly update or review any
forward-looking statements, whether as a result of new information, future
events or otherwise.

8



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RISK FACTORS

Our Financial Results Could Be Seriously Harmed If The Markets In Which We Sell
Our Products Do Not Grow.

Our continued success depends in large part on the continued growth of various
industries that use our products, including the following industries:



| |  |  | data communications and telecommunications equipment;
| | - |  | -----------------------------------------------------
|
| |  |  | computers and computer related peripherals;          
|
| |  |  | medical electronics and equipment;                   
|
| |  |  | industrial controls;                                 
|
| |  |  | aviation electronics and equipment; and              
|
| |  |  | military equipment.                                  

Approximately 17% of our fiscal year 2002 product sales and 45% of our fiscal
year 2001 product sales were incorporated into data communications and
telecommunications end-products. The telecommunications industry has declined,
and it is reasonable to assume that the telecommunications industry could
continue to experience declining or slow growth rates. Any decline in the
demand for networking applications, mass storage, telecommunications, cellular
base stations, cellular handsets and other personal communication devices that
incorporate our products would reduce our sales revenue and possibly cause
losses from that portion of our business, which could lead to layoffs or
consolidation of the commercial product division into one of our other
divisions. Slower growth in the other markets in which we sell our products
would also lead to the same type of activity for any of our divisions.

We Cannot Adjust Expenses For Any Particular Quarter In Response To Revenue
Shortfalls Because A Substantial Component Of Our Operating Expenses Are Fixed
Costs.

Our need for continued significant expenditures for capital equipment
purchases, product development and ongoing customer service and support, among
other factors, make it difficult for us to reduce our operating expenses in a
particular period if our net sales for a period are not met, because a
substantial component of the operating expenses are fixed costs. Accordingly,
we cannot assure you that we will be able to be profitable or that we will not
sustain losses in future periods. Due to the foregoing factors, it is likely
that in some future quarter our operating results will be below the
expectations of public market analysts and investors. In such an event, the
price of our common stock is likely to decline.

We May Fail To Meet Expectations Because Our Revenues, Gross Margins, and
Profits Are Very Likely To Fluctuate From Period To Period.

In connection with our microelectronics memory business, a wide array of
factors could cause our revenues, gross margins, and profits to fluctuate in
the future from period to period. The primary factors that might affect our
results of operations in this regard include the following:



| |  |  | the cyclical nature of the semiconductor market;                                                                                                                                                               
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | any loss of a principal customer or any short term loss of a
customer due to product inventory accumulation by the customer;                                                                                   
|
| |  |  | any inability to procure required components;                                                                                                                                                                  
|
| |  |  | any adverse changes in the mix of products that we sell; and                                                                                                                                                   
|
| |  |  | any downturn of the semiconductor market which could cause a
decline in selling unit prices, diminished inventory value, and less
demand for commercial memory products as customers restrict inventory
levels.

Even in the absence of cyclical conditions, the average selling prices of our
products have historically decreased during the products lives, and we expect
this trend to continue. In order to offset these average selling price
decreases, we attempt to decrease manufacturing costs, and introduce new,
higher priced products that incorporate advanced features. If these efforts
are not successful, we will not be competitive in the marketplace and our sales
and profits will decline, possibly leading to our exit from these markets.

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In addition to following the general pattern of decreasing average selling
prices, the selling prices for certain products, particularly commodity static
RAM or SRAM products, fluctuate significantly with real and perceived changes
in the balance of supply and demand for these products. In the event we are
unable to decrease per unit manufacturing costs faster than the rate at which
average selling prices continue to decline, our business, financial condition
and results of operations will be seriously harmed. In addition, we expect our
competitors to invest in new manufacturing capacity and achieve significant
manufacturing yield improvements in the future. These developments could
dramatically increase the worldwide supply of SRAM products and result in
associated downward pressure on prices.

Downturns In The Semiconductor And Telecommunications Industries Could Reduce
The Value Of Our Inventories And Cause A Reduction In Our Profits.

Historically, we have experienced reductions in value of our inventories due to
unexpected demand declines, resulting from a softening of the semiconductor and
telecommunications industries. Such declines in inventory valuation in the
past have caused us to write down several million dollars worth of inventory,
which greatly reduced our profits for the given period.

Our Future Operations Are Very Likely to Fluctuate And Therefore May Fail to
Meet Expectations.

Our operating results have varied in the past and may continue to fluctuate in
the future. In addition, our operating results may not follow any past trends.
Our future operating results will depend on many factors and may fluctuate and
fail to meet our expectations or those of others for a variety of reasons,
including the following:



| |  |  | the intense competitive pricing pressure to which our products are
subject, which can lead to rapid and unexpected declines in average
selling prices;                                                                                                            
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the complexity of our manufacturing processes and the sensitivity
of our production costs to declines in manufacturing yields, which make
yield problems both possible and costly when they occur; and                                                            
|
| |  |  | the need for constant, rapid new product introductions, which
present an ongoing design and manufacturing challenge, which can be
significantly impacted by even relatively minor errors, and which may
result in products never achieving expected market demand.

As a result of these or other factors we could fail to achieve our expectations
as to future revenues, gross profit and income from operations. Any downward
fluctuation or failure to meet expectations will likely adversely affect the
value of an investment in our securities. Also, the performance of the
semiconductor industry as a whole is characterized by cyclical swings in
revenue and profitability, and these swings may harm us.

We Are Dependent On Military Sales For A Large Portion Of Our Revenue, And
Reductions In Military Spending Could Negatively Affect Our Sales And Profits.

Our current orders from defense-related companies account for a material
portion of our overall revenue. Military capital expenditure levels depend on
factors that are outside of our control. In addition, the U.S. defense
industry is moving toward the purchase of commercial off-the-shelf products
rather than those manufactured as compliant to specified military standards.
Military related sales accounted for approximately 52% of our overall sales in
fiscal year 2002 and 47% of our overall sales in fiscal year 2001. Changes in
military spending and demand for microelectronics and display products have
adversely affected our sales and profits in the past, and may have such an
adverse effect in the future. Reductions in military spending could have a
further adverse effect on our sales and profits.

Failure To Comply With U.S. Government Laws And Regulations Would Reduce Our
Ability To Be Awarded Future Military Business.

In connection with our U.S. Government business, we are subject to government
investigations of our policies, procedures, and internal controls for
compliance with procurement regulations and applicable laws. In certain
circumstances in which a contractor has not complied with the terms of a
contract, or with regulations or statutes, the contractor might be debarred or
suspended from obtaining future contracts for a specified period of time.
Since military sales accounted for approximately 52% of our business in fiscal
year 2002, any debarment or suspension of

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our ability to obtain military sales would greatly reduce our overall revenue
and profits, and would likely affect our ability to continue as a going
concern.

We Are Dependent On International Markets For a Large Portion Of Our Sales and
Purchases.

We anticipate that our international sales will continue to account for a
significant portion of our net sales. In fiscal year 2002, foreign sales
accounted for approximately 32% of our overall sales. In addition, the
majority of the components we use in connection with products for military
applications are acquired from foreign manufacturers, particularly those
located in Asia. As a result, a significant portion of our sales and purchases
are subject to the risks of international business such as:



| |  |  | approximately $16 million of our fiscal year 2002 sales
were to approved foreign military equipment manufacturers, and if
the U.S. Government placed restrictions on exporting military
technology using our products in countries where we have
customers, it could cause a significant reduction in our sales
and profits;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | fluctuations in foreign currencies;                                                                                                                                                                                                                                                                                         
|
| |  |  | trade disputes;                                                                                                                                                                                                                                                                                                             
|
| |  |  | changes in regulatory requirements, tariffs and other barriers;                                                                                                                                                                                                                                                             
|
| |  |  | the possibility of quotas, duties, taxes or other
changes or restrictions upon the importation or exportation of
our products implemented by the United States government;                                                                                                                                                 
|
| |  |  | the timing and availability of export licenses; and                                                                                                                                                                                                                                                                         
|
| |  |  | general economic conditions in the countries in which we sell our products.                                                                                                                                                                                                                                                 

Foreign suppliers of semiconductor and display related materials are regularly
threatened with, or involved in, pending trade disputes and sanctions. If any
trade disputes or sanctions arise that affect our suppliers, we would be unable
to get access to critical sources of raw materials we need to produce our
products and our business could be adversely affected.

Most Of Our Technological Capabilities Are Not Subject To Enforceable Patents
Or Licenses.

The products we sell from both our microelectronic segment and our display
segment require a large amount of engineering design and manufacturing
expertise. However, the majority of our technological capabilities are not
protected by patents and licenses. We rely on the expertise of our employees,
and our learned experiences in both the design and manufacture of our products.
It is possible, and it has occurred in the past, that a competitor may also
learn to design and produce products with similar performance abilities as our
products. If a competitor were to do so, it may result in increased
competition, and a reduction of sales for our products.

We Rely on Proprietary Rights And Intellectual Property That May Not Be
Adequately Protected.

We rely on trade secret protection for our technology, in part through
confidentiality agreements with our employees, consultants and third parties.
However, these parties may breach these agreements, and, since many agreements
are made with companies much larger than us, we may not have adequate financial
resources to adequately enforce our rights. Also, others may come to know
about or determine our trade secrets through a variety of methods. In
addition, the laws of certain territories in which we develop, manufacture or
sell our products may not protect our intellectual property rights to the same
extent as the laws of the United States.

Interruptions In The Availability Of Raw Materials Can Seriously Harm Our
Financial Performance.

The semiconductor industry has historically been characterized by wide
fluctuations in the demand for and supply of semiconductors. These
fluctuations have helped produce many occasions when supply and demand for
semiconductors have not been in balance. In the past, our operating results
have been harmed by these industry-wide fluctuations in the demand for
semiconductors, which have resulted in under-utilization of our manufacturing
capacity. In some cases, industry wide shortages have lasted more than a year.
If these cycles continue, they may limit our ability to procure semiconductor
products and meet our customers delivery schedules, which could lead to a loss
of business. Also, higher prices for raw materials could reduce our profits on
previously established purchase

11



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orders from our customers. Depending on the severity of the shortages, our
sales and profits could be significantly reduced.

The display industry is dominated by several foreign glass suppliers. We are
dependent on these foreign suppliers for glass for our commercial and
industrial display products. Any disruption of glass supplies from these
vendors would cause us to delay deliveries to our customers, which could lead
to a loss of business and reduced profits from our display segment.

Our manufacturing operations require raw materials that must meet exacting
standards. The most significant raw materials that we purchase are memory
devices in wafer, die, and component forms and AMLCD panels. Shortages of
wafers and other components may occur when there is a strong demand for memory
integrated circuits and other related products. AMLCD panels may also be in
short supply at times. We rely heavily on our ability to maintain access to
steady sources of these products. We are highly dependent on one SRAM
semiconductor manufacturer for memory devices, one major display manufacturer
of AMLCD panels, and one package manufacturer of ceramic packages for military
components. We do not have specific long-term contractual arrangements with
our vendors but we believe we are on good terms with our vendors. We cannot
assure you that we will continue to have access to our current sources of
supply or that we will not encounter supply problems in the future. Any
interruption in our sources of raw materials could reduce our sales in a given
period, and possibly cause a loss of business to a competitor, if we could not
reschedule the deliveries to our customers.

Our Inability To Retain Qualified Personnel Could Negatively Impact Our
Operations.

Our operations are dependent upon our ability to attract and retain qualified
employees in the areas of product design, engineering, operations management,
manufacturing production and sales. The demand for people with expertise in
these areas has been very high for the past several years and competition for
qualified talent is intense. The loss of key personnel in any one of these
areas could limit our ability to expand our business and could result in the
inability to deliver products to our customers, leading to a loss of business
from these customers.

Our Financial Results Could Be Adversely Impacted If We Fail To Develop,
Introduce And Sell New Products Or Fail To Develop And Implement New
Manufacturing Technologies.

We operate in a highly competitive, quickly changing environment marked by
rapid obsolescence of existing products, our future success depends on our
ability to improve and market existing products and to develop and introduce
new products that customers choose to buy.

If we fail to complete and introduce new product designs in a timely manner or
are unable to manufacture products according to the requirements of these
designs, or if our customers do not successfully introduce new systems or
products incorporating our products, or market demand for our new products do
not develop as anticipated, our sales will be reduced either through loss of
business to one of our competitors, or discontinuance of the product in the
market. In particular, many of our display products have been developed based
on products procured from Sharp Electronics Corporation. Our competitors in
the flat panel display products market are investing substantial resources to
develop flat panel displays using alternative technologies. If our competitors
are successful in developing new products that offer significant advantages
over Sharp Electronics and our products, and we are unable to improve our
technology or develop or acquire alternative technology that is more
competitive, we will lose business to our competitors and our sales, and
profits, from the display segment will be greatly reduced.

The new products that the microelectronic and display markets require tend to
be increasingly complex, incorporating more functions and operating at faster
speeds than prior products. Increasing complexity generally requires smaller
features on a chip. This makes manufacturing new generations of products
substantially more difficult than prior products. Ultimately, whether we can
successfully introduce these and other new products depends on our ability to
develop and implement new ways of manufacturing our products. If we are unable
to design, develop, manufacture, market and sell new products successfully, we
will lose business and possibly be forced to exit from the particular market.

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The Volatility Of Our Stock Price Could Negatively Affect The Market Price Or
Liquidity Of Our Common Stock.

The market price of our common stock is subject to fluctuations in response to
a number of factors, such as variations in our quarterly operating results,
perceptions about market conditions in the microelectronics industry and
general economic conditions. In addition, the stock market generally has
experienced significant price and volume fluctuations. These market
fluctuations could have a material adverse effect on the market price or
liquidity of our common stock.

Our Board Of Directors Is Authorized To Issue Shares Of Preferred Stock That
Could Have Rights Superior To Our Outstanding Shares Of Common Stock, And, If
Issued, Could Adversely Impact The Value Of Our Common Stock.

Our amended and restated articles of incorporation permit our board of
directors, in its sole discretion, to issue up to 500,000 shares of authorized
but unissued preferred stock. These shares may be issued by our board of
directors, without further action by our shareholders, and may include any of
the following rights, among others, which may be superior to the rights of our
outstanding common stock:



| |  |  | voting rights, including the right to vote as a class on particular matters;
| | - |  | ----------------------------------------------------------------------------
|
| |  |  | preferences as to dividends and liquidation rights;                         
|
| |  |  | conversion rights;                                                          
|
| |  |  | anti-dilution protections, and                                              
|
| |  |  | redemption rights.                                                          

Since our board of directors has the authority to determine, from time to time,
the terms of our authorized preferred stock, there is no limit on the amount of
common stock that could be issuable upon conversion of any future series of
preferred stock that they may issue. The rights of holders of our common stock
will be subject to, and may be adversely affected by, the rights of the holders
of any series of preferred stock that may be issued in the future. In
addition, the market price of our common stock may be adversely affected by the
issuance of any series of preferred stock with voting or other rights superior
to those of our common stock. The issuance of any series of preferred stock
could also have the effect of making it more difficult for a third party to
acquire a majority of our outstanding common stock.

We May Engage In Acquisitions And We Cannot Assure You That Any Potential
Acquisition Will Be Successful.

We are looking for opportunities to grow and diversify our product offerings
through acquisitions. There can be no assurance that we will be successful in
identifying appropriate candidates or in successfully combining operations with
such candidates if they are identified.

Any such acquisitions could involve the dilutive issuance of equity securities
and/or the incurrence of debt. In addition, acquisitions involve numerous
risks, including difficulties in assimilation of the acquired companys
operations, particularly in the period immediately following consummation of an
acquisition, the diversion of the attention of our management from other
business concerns, risks of entering into markets and in producing products
where he have limited experience, and the potential loss of key customers of
the acquired company, all of which could materially, adversely affect our
business. Even when an acquired company has already developed and marketed
products, there can be no assurance that product enhancements will be made in a
timely fashion or that all pre-acquisition due diligence will have identified
all possible issues that might arise with respect to such products.

Failure To Comply With Environmental Regulations Could Subject Us To Costs And
Production Delays.

We currently use small quantities of hazardous materials common to our industry
in the production of microelectronic and display products. We must follow
Environmental Protection Agency (EPA) guidelines regarding the handling,
storage and disposal of these materials. To our knowledge, we are currently in
material compliance with all EPA and state requirements regarding the handling,
storage and disposal of these materials. We could possibly be subject to
fines, suspensions of production, alteration of our manufacturing processes or
interruption or cessation of our operations if we fail to comply with present
or future governmental regulations related to the use, storage, handling,
discharge or disposal of toxic, volatile or otherwise hazardous chemicals used
in

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our manufacturing processes. These regulations could require us to acquire
expensive remediation equipment or to incur other expenses to comply with
environmental regulations. Our failure to control the use, disposal or storage
of, or adequately restrict the discharge of, hazardous substances could subject
us to liabilities and production delays, which could cause us to temporarily
miss our customers delivery schedules, thereby reducing our sales for a given
period. We may also have to pay noncompliance fines or other remediation
costs, which would reduce our profits for a given period.




ITEM 2 PROPERTIES

The Company leases a facility under an operating lease in Phoenix, Arizona
consisting of approximately 53,000 square feet. The facility is used as the
Companys corporate offices and for all manufacturing of the high-reliability
components of the microelectronic segment. The Company also leases a 33,000
square foot facility located in Westborough, Massachusetts for manufacturing
and development of commercial microelectronic products. The Company owns a
facility in Fort Wayne, Indiana consisting of a building with approximately
75,000 square feet of space used for the manufacture of electromechanical
products. The Company also owns ten acres of vacant land adjacent to the
building. The Companys Panelview subsidiary leases approximately 68,000
square feet of office and manufacturing space in the suburban Portland, Oregon
area for manufacturing ruggedized and industrial display products. Currently,
all display manufacturing is done in a 43,000 square foot facility in
Hillsboro, Oregon. The company combined its display operations in that
facility during fiscal 2002. The Company is currently using the previous
17,000 square foot display manufacturing facility for warehouse space. An
8,000 square foot office, which was previously used for display management and
sales personnel, is currently vacant while the Company attempts to sublease the
space. All of the Companys owned real property has been pledged as security
for the Companys line of credit and term loans with Bank One. Management
considers these properties to be well maintained and adequate for their use.
All properties have additional capacity, which could be utilized in the event
of increased production requirements.




ITEM 3 LEGAL PROCEEDINGS

From time to time, the Company is subject to claims and litigation incident to
its business. There are currently no material pending proceedings to which the
Company is a party, or any of its property is the subject.




ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.




EXECUTIVE OFFICERS OF THE COMPANY

The names, ages, positions and business experience of all of the executive
officers of the Company are listed below. Officers are appointed annually by
the Board of Directors at the meeting of directors immediately following the
Annual Meeting of Shareholders and serve until the next annual election or
until their successors have been elected and qualified or as otherwise provided
in the Companys by-laws.

There are no family relationships between any of the directors and executive
officers of the Company nor any arrangement or understanding between any such
executive officer and any other person pursuant to which he was elected as an
executive officer.

|                                                                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Hamid R. Shokrgozar, 42
President,
Chief Executive Officer and 
Chairman of the Board |  | Mr. Shokrgozar is President, Chief
Executive Officer and Chairman of
the Board of the Company. Mr.
Shokrgozar was appointed President
and CEO of Bowmar Instrument
Corporation in January 1998 and
Director of the Company in
February 1998. From 1993 to 1998,
Mr. Shokrgozar served as President
of White Microelectronics, the
largest division of Bowmar
Instrument, and served as Vice
President Engineering and
Technology from 1988 to 1993. Mr.
Shokrgozar was elected Chairman of
the Board on August 31, 2000. Mr.
Shokrgozar holds a U.S. Patent for
the invention of Stacked Silicon
Die Carrier Assembly.
|                                                                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|William J. Rodes, 48
Chief Accounting Officer, 
Treasurer and Secretary               |  | Mr. Rodes has been the Chief
Accounting Officer for the Company
since October 2000. Mr. Rodes was
appointed Treasurer and Secretary
of the Company in August 1999.
Mr. Rodes was Corporate Controller
from May 1999 to September 2000.
Mr. Rodes was Controller for the
White Microelectronics Division of
Bowmar Instrument Corporation from
1993 to 1999. From 1990 to 1991
he served as Manager of Cost
Accounting and Financial Analysis
for California Micro Devices.                                                                                                                                              

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PART II




ITEM 5 MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The Companys common stock is currently traded on the NASDAQ National Market
under the symbol WEDC. The following table sets forth the high and low sales
prices for the common stock by quarter over the last two fiscal years.

Fiscal 2002

|                          |  |            |      |            |  |            |      |            |  |   |      |  |  |   |      | 
|------------------------- |  | ---------- | ---- | ---------- |  | ---------- | ---- | ---------- |  | - | ---- |  |  | - | ---- | 
|Common stock market price |  | Sep 28, 02 |      | Jun 29, 02 |  | Mar 20, 02 |      | Dec 29, 01
|                          |  |            |      |            |  |            |      |           
|High                      |  | $          | 8.85 |            |  | $          | 7.90 |            |  | $ | 8.50 |  |  | $ | 7.45 | 
|                          |  |            |      |            |  |            |      |            |  |   |      |  |  |   |      | 
|Low                       |  | $          | 6.30 |            |  | $          | 5.70 |            |  | $ | 5.60 |  |  | $ | 3.18 | 
|                          |  |            |      |            |  |            |      |            |  |   |      |  |  |   |      | 

Fiscal 2001

|                          |  |            |      |            |  |            |      |            |  |   |       |  |  |   |       | 
|------------------------- |  | ---------- | ---- | ---------- |  | ---------- | ---- | ---------- |  | - | ----- |  |  | - | ----- | 
|Common stock market price |  | Sep 29, 01 |      | Jun 30, 01 |  | Mar 31, 01 |      | Dec 30, 00
|                          |  |            |      |            |  |            |      |           
|High                      |  | $          | 4.60 |            |  | $          | 5.50 |            |  | $ | 10.63 |  |  | $ | 13.50 | 
|                          |  |            |      |            |  |            |      |            |  |   |       |  |  |   |       | 
|Low                       |  | $          | 2.85 |            |  | $          | 2.93 |            |  | $ | 4.38  |  |  | $ | 5.38  | 
|                          |  |            |      |            |  |            |      |            |  |   |       |  |  |   |       | 

As of December 9, 2002, there were approximately 10,777 holders of record of
the common stock. The Company has not paid cash dividends on its common stock
and does not expect to do so in the foreseeable future. The Company intends to
retain all earnings to provide funds for the operation and expansion of its
business. One of the Companys credit agreements precludes the payment of cash
dividends on the Companys common stock.




ITEM 6 SELECTED FINANCIAL DATA

(In thousands of dollars, except share and per share data)

|                                                            |                                         |                                        |        |             |        |      |        |            |        |      |        |            |        |   |        |            |        |   |        |           |        |  
|----------------------------------------------------------- | --------------------------------------- | -------------------------------------- | ------ | ----------- | ------ | ---- | ------ | ---------- | ------ | ---- | ------ | ---------- | ------ | - | ------ | ---------- | ------ | - | ------ | --------- | ------ | -
|                                                            |                                         |                                        |        | Fiscal Year
|                                                            |                                         |                                        |        |            
|Statement of Income Data:                                   |                                         | 2002                                   |        | 2001        |        | 2000 |        | 1999       |        | 1998
|                                                            |                                         |                                        |        |             |        |      |        |            |        |     
|                                                            |                                         |                                        |        |             |        |      |        |            |        |      |        |            |        |   |        |            |        |   |        | (Note 1) 
|Net sales                                                   |                                         | $                                      | 90,458 |             |        | $    | 96,761 |            |        | $    | 87,595 |            |        | $ | 58,038 |            |        | $ | 32,772 |          
|                                                            |                                         |                                        |        |             |        |      |        |            |        |      |        |            |        |   |        |            |        |   |        |          
|Gross margin                                                |                                         | $                                      | 28,900 |             |        | $    | 26,401 |            |        | $    | 31,171 |            |        | $ | 15,528 |            |        | $ | 7,043  |          
|                                                            |                                         |                                        |        |             |        |      |        |            |        |      |        |            |        |   |        |            |        |   |        |          
|Income (loss) from continuing operations
after income taxes |                                         | $                                      | 8,740  |             |        | $    | 3,272  |            |        | $    | 6,561  |            |        | $ | (558   | )          |        | $ | (3,304 | )        
|                                                            |                                         |                                        |        |             |        |      |        |            |        |      |        |            |        |   |        |            |        |   |        |          
|Weighted average number of common:                          |                                         |                                        |        |             |        |      |        |            |        |      |        |            |        |   |        |            |        |   |        |          
|                                                            | shares and equivalents-basic            |                                        |        | 19,815,162  |        |      |        | 19,230,781 |        |      |        | 17,544,136 |        |   |        | 15,394,451 |        |   |        | 7,072,000 |       
|                                                            | shares and equivalents-diluted (Note 2) |                                        |        | 20,922,434  |        |      |        | 20,528,337 |        |      |        | 19,539,501 |        |   |        |           |        |   |        |          |       
|                                                            |                                         |                                        |        |             |        |      |        |            |        |      |        |            |        |   |        |            |        |   |        |          
|Income (loss) per common share:                             |                                         |                                        |        |             |        |      |        |            |        |      |        |            |        |   |        |            |        |   |        |          
|                                                            |                                         | Continuing operations-basic            |        | $           | 0.44   |      |        | $          | 0.17   |      |        | $          | 0.37   |   |        | $          | (0.06  | ) |        | $         | (0.47  | )
|                                                            |                                         | Continuing operations-diluted (Note 2) |        | $           | 0.42   |      |        | $          | 0.16   |      |        | $          | 0.34   |   |        | $          | (0.06  | ) |        | $         | (0.47  | )
|                                                            |                                         |                                        |        |             |        |      |        |            |        |      |        |            |        |   |        |            |        |   |        |          
|Net income per share-basic                                  |                                         | $                                      | 0.44   |             |        | $    | 0.17   |            |        | $    | 0.37   |            |        | $ | (0.08  | )          |        | $ | (0.47  | )        
|Net income per share-diluted (Note 2)                       |                                         | $                                      | 0.42   |             |        | $    | 0.16   |            |        | $    | 0.34   |            |        | $ | (0.08  | )          |        | $ | (0.47  | )        
|Balance Sheet Data (at year end):                           |                                         |                                        |        |             |        |      |        |            |        |      |        |            |        |   |        |            |        |   |        |          
|                                                            |                                         | Working capital                        |        | $           | 35,469 |      |        | $          | 27,884 |      |        | $          | 23,378 |   |        | $          | 12,584 |   |        | $         | 5,207  |  
|                                                            |                                         | Total assets                           |        | $           | 68,366 |      |        | $          | 57,228 |      |        | $          | 54,996 |   |        | $          | 38,771 |   |        | $         | 17,935 |  
|                                                            |                                         | Long-term debt                         |        | $           |       |      |        | $          | 890    |      |        | $          | 1,519  |   |        | $          | 2,249  |   |        | $         |       |  
|                                                            |                                         | Redeemable preferred stock             |        | $           |       |      |        | $          |       |      |        | $          |       |   |        | $          | 120    |   |        | $         |       |  
|                                                            |                                         |                                        |        |             |        |      |        |            |        |      |        |            |        |   |        |            |        |   |        |          

Note 1: As a result of the merger October 26, 1998 of White Electronic Designs
Corporation (formerly Bowmar Instrument Corporation) and Electronic Designs,
Inc. ,(EDI), which was accounted for as a purchase by EDI of Bowmar, the
financials for the 1998 fiscal year ended include only the results of EDI.

Note 2  In 1999 and 1998, diluted net income per share is considered to be the
same as basic net income per share since the effect of the potentially dilutive
convertible preferred stock is antidilutive. This table should be read in
conjunction with the Consolidated Financial Statements provided elsewhere
herein.

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ITEM 7 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations Fiscal 2002 vs. Fiscal 2001

|                                      |  |             |        |      |  |   |        |  
|------------------------------------- |  | ----------- | ------ | ---- |  | - | ------ | -
|(In thousands of dollars)            
|                                      |  | Fiscal Year
|                                      |  |            
|                                      |  | 2002        |        | 2001
|                                      |  |             |        |     
|Net sales:                            |  |             |        |      |  |   |        |  
|Microelectronic segment               |  | $           | 50,331 |      |  | $ | 73,569 |  
|Display segment                       |  |             | 40,127 |      |  |   | 23,192 |  
|                                      |  |             |        |      |  |   |        |  
|Total net sales                       |  | $           | 90,458 |      |  | $ | 96,761 |  
|Cost of sales:                        |  |             |        |      |  |   |        |  
|Microelectronic segment               |  |             | 30,516 |      |  |   | 54,661 |  
|Display segment                       |  |             | 31,042 |      |  |   | 15,699 |  
|                                      |  |             |        |      |  |   |        |  
|Total cost of sales                   |  |             | 61,558 |      |  |   | 70,360 |  
|Gross margin:                         |  |             |        |      |  |   |        |  
|Microelectronic segment               |  |             | 19,815 |      |  |   | 18,908 |  
|Display segment                       |  |             | 9,085  |      |  |   | 7,493  |  
|                                      |  |             |        |      |  |   |        |  
|Total gross margin                    |  | $           | 28,900 |      |  | $ | 26,401 |  
|Gross margin as a percentage of sales |  |             | 32     | %    |  |   | 27     | %
|                                      |  |             |        |      |  |   |        |  

Revenues

Net sales decreased 6.5% to $90.5 million for the year ended September 28, 2002
compared to $96.8 million for the year ended September 29, 2001. Sales in the
microelectronic segment declined by 31.6% and were partially offset by a 73.0%
increase in display segment revenue.

Commercial sales in the microelectronic segment decreased 65.2% to $15.0
million in fiscal year 2002 from $43.2 million in fiscal year 2001. The
decrease was directly related to the decline in the telecommunication and
datacommunication markets, which began in the third quarter of fiscal year
2001. Cisco Systems and Lucent Technologies, telecommunication and
datacommunication customers that accounted for 20.7% of microelectronic segment
sales during fiscal year 2001, accounted for less than 1% of sales for the
microelectronic segment in fiscal year 2002. The sales to Cisco and Lucent in
fiscal 2001 occurred during the first two quarters of that year and were based
on orders booked in fiscal 2000. These two customers alone accounted for half
of the $28.0 million decrease in commercial microelectronic sales over the
comparable periods, while the remaining decrease was attributable to lower
purchases by other telecommunication and datacommunication customers. It is
unknown when the telecommunication and datacommunication markets will recover,
or if they will increase to, or exceed, historical levels.

The $28.0 million decline in commercial sales was offset by an approximate $5.0
million increase in high-reliability sales in the microelectronic segment.
High-reliability revenues increased 16.2% and were $35.3 million for the year
ended September 28, 2002 compared to $30.4 million for the year ended September
29, 2001. Sales of the newly developed tamper resistant coating technology
totaled approximately $2.2 million in fiscal year 2002, while fiscal year 2001
did not have any sales, as the product was still under development. The
increase in high-reliability sales included higher volume sales of
high-density, multi-chip packages used in domestic and international defense
and avionic applications. The upward trend of high-reliability sales is
expected to continue because of the current economic and political environment
relating to defense spending.

Display segment revenue increased 73.0% to $40.1 million for the year ended
September 28, 2002 compared to $23.2 million for the year ended September 29,
2001. Ruggedized display sales decreased 20.5% to $7.4 million for the year
ended September 28, 2002 from $9.3 million for the year ended September 29,
2001. Sales of interface and

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mechanical components remained flat from the comparable period at approximately
$6.1 million. Sales of commercial display products increased $18.9 million, or
246%, to $26.6 million for the year ended September 28, 2002 from $7.7 million
for the year ended September 29, 2001. The majority of the increase of
commercial display sales was attributable to an increase of $17.5 million in
sales to General Electric Medical Division and Garmin International. The sales
volume from the previous year to General Electric and Garmin increased because
of the introduction of new medical and global positioning system products that
began production in fiscal 2002.

Excluding the sales to General Electric and Garmin, sales to other
commercial display product customers increased $1.4 million in fiscal 2002 as
compared to the prior year. The increase is due to the fact that fiscal 2002
includes twelve months of Panelview revenue while fiscal 2001 only includes
eight months of Panelview revenue, since the acquisition of Panelview occurred
February of 2001. The additional four-month period of October 2001 through
January 2002 in fiscal year 2002 accounted for $1.8 million in revenue.
Therefore, sales of commercial products to other customers actually decreased
approximately $400,000 during the comparable period of February through
September 2002 versus the same period in 2001.

Sales of commercial display products will continue to be dependent on the
activities of General Electric and Garmin and the strength of their markets
over the coming year. Sales of commercial display products to other customers
are dependent on general economic conditions and the Companys ability to
penetrate other markets with enhanced viewing displays.

Gross Margin

Total company gross margin increased 9.5% to $28.9 million for the year ended
September 28, 2002 from $26.4 million for the year ended September 29, 2001.
Total company gross margin as a percentage of sales increased to 31.9% for the
year ended September 28, 2002 from 27.3% for the year ended September 29, 2001.

Gross margin dollars for the microelectronic segment increased to $19.8 million
for the year ended September 28, 2002 compared to $18.9 million for the year
ended September 29, 2001. Gross margin as a percentage of microelectronic
segment sales was 39.4% and 25.7% for the years ended September 28, 2002, and
September 29, 2001, respectively. During fiscal 2002, sales of
high-reliability products totaled approximately $35.3 million as compared to
$30.4 million in fiscal 2001. Sales of commercial products were $15.0 million
in fiscal 2002, as compared to $43.2 million in fiscal 2001. Because sales of
high-reliability products made up the majority of microelectronic segment sales
and their margins exceeded 40%, the overall segment margin improved by 13%,
while the overall segment margin dollars only increased by $900,000, primarily
as a result of the change in product mix. At the same time, sales of
commercial microelectronic products, which have margins averaging around 20%,
declined by $28 million from the previous year and made up a smaller percentage
of sales in fiscal 2002. The decrease in margin dollars from the commercial
products was offset by the increase in margin dollars from the high-reliability
products.

During the second quarter of fiscal year 2001, based on numerous order
cancellations and a severe decrease in demand for the Companys products used
in the telecommunications industry, the Company reviewed the major inventory
items in raw materials that did not have a forecasted demand for usage.
Approximately $6.2 million of inventory was identified that fell within this
category. Of that $6.2 million of inventory, the Company identified items that
were not expected to be used within the next twelve months and would probably
become obsolete over that period. The Company reserved $3.0 million against
this inventory based on its estimates of the parts most likely to go unused.
In addition to the $3.0 million reserve, approximately $1.3 million of
additional inventory was scrapped during that quarter because of poor yields or
obsolescence. Therefore, the gross margin as a percentage of sales in fiscal
year 2001 decreased 6% due to the approximate $4.3 million of inventory related
charges taken in the microelectronic segment during the second quarter of
fiscal year 2001.

During fiscal year 2002, approximately $420,000 of the inventory identified in
fiscal year 2001 was scrapped and charged against the reserve. The amount of
inventory in this excess category gradually decreased to approximately $2.5
million from $6.2 million, as of September 28, 2002. As this excess inventory
was used, it was charged through cost of goods sold when it shipped. During
this time, the Company completed quarterly inventory reviews and determined
that a raw material reserve of approximately $2.1 million was still needed to
account for possible inventory obsolescence of these remaining parts because of
their age and lack of usage. Also during this period, an additional $350,000
of finished goods items were identified as slow moving and were placed on
reserve. These

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additional items require the Company to maintain a $2.4 million reserve for raw
materials and finished goods. In fiscal year 2002, these activities did not
have a material impact on gross margins and operating results.

Gross margin as a percentage of commercial microelectronic sales for fiscal
year 2001 totaled 14% after the previously mentioned inventory write-down.
Gross margin as a percentage of commercial microelectronic sales for fiscal
year 2002 was 20%, or 6% higher than the previous year. However, due to the
decline in sales in fiscal year 2002 from fiscal year 2001, actual gross margin
dollars on commercial microelectronic sales decreased $2.9 million. Gross
margin for high-reliability sales for fiscal year 2002 increased to $16.8
million for the year ended September 28, 2002 compared to $13.0 million for the
year ended September 29, 2001. The increase was due to lower component costs
than in the previous year. Therefore, even though microelectronic segment
revenue decreased from fiscal year 2001 to fiscal year 2002, gross margin
dollars increased due to the higher sales and higher margin on high-reliability
microelectronic sales compared to commercial microelectronic sales.

Gross margin as a percentage of display segment sales decreased to 22.6% for
the year ended September 28, 2002 from 32.3% for the year ended September 29,
2001. The 9% decrease of gross margin as a percentage of display segment sales
was due to significantly higher commercial product sales over the comparable
period which have a much lower gross margin than ruggedized display sales.
Gross margin as a percentage of commercial product sales was 18% for fiscal
year 2002 compared to 21% for fiscal year 2001, due to high volume sales during
fiscal year 2002 which had a slightly lower margin. Gross margin on ruggedized
display sales also decreased in fiscal year 2002 from fiscal year 2001 mainly
because of lower sales in 2002, but still averaged approximately 36% for the
year. As a result, although display revenue increased 73% for the year ended
September 28, 2002 compared to the year ended September 29, 2001, gross margin
dollars only increased 21%, or $1.6 million.

|                                    |  |             |        |      |  |   |        |  
|----------------------------------- |  | ----------- | ------ | ---- |  | - | ------ | -
|Operating Expenses                 
|(In thousands of dollars)          
|                                    |  | Fiscal Year
|                                    |  |            
|                                    |  | 2002        |        | 2001
|                                    |  |             |        |     
|Selling, general and administrative |  | $           | 13,939 |      |  | $ | 15,222 |  
|Product development                 |  |             | 4,264  |      |  |   | 5,302  |  
|Interest expense                    |  |             | 147    |      |  |   | 491    |  
|Interest (income)                   |  |             | (165   | )    |  |   | (11    | )
|Amortization of intangible assets   |  |             | 1,587  |      |  |   | 1,144  |  
|                                    |  |             |        |      |  |   |        |  
|Total expenses                      |  | $           | 19,772 |      |  | $ | 22,148 |  
|                                    |  |             |        |      |  |   |        |  

Selling, General and Administrative Expenses

Total selling expenses for the year ended September 28, 2002 totaled $7.5
million, which was $1.4 million lower than the year ended September 29, 2001.
The overall reduction was attributable to decreased selling expenses in the
microelectronic segment due to lower commission expense on lower sales. The
$2.4 million decrease in microelectronic segment selling expenses was offset by
an increase of $1.0 million in display segment selling expenses, which was
attributable to higher commission expense and an increase of sales personnel.
Total Company commission expense totaled $2.9 million and $4.0 million for the
years ended September 28, 2002 and September 29, 2001, respectively. Selling
expense in fiscal year 2002 was 8.3% of sales, compared to 9.2% in the prior
year. Total selling expenses are expected to remain consistent with changes in
sales through the next fiscal year.

Total general and administrative expenses, including corporate expenses,
totaled $6.4 million for the year ended September 28, 2002, which was
consistent with general and administrative expenses for the year ended
September 29, 2001. General and administrative expenses for the
microelectronic segment totaled $1.6 million in fiscal year 2002, which
accounted for a $500,000 decrease from fiscal year 2001 due to a reduction of
administrative personnel and a reduction of spending. The decrease in the
microelectronic segment was offset by a $438,000 increase in general and
administrative expenses in the display segment, which related to an increase of
spending in that segment. Corporate expenses for the comparable years were
relatively the same. Total general and administrative expenses

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were 7.0% of sales for fiscal 2002, compared to 6.5% of sales in the prior
year. Total general and administrative expenses may increase slightly because
of increases in wages, corporate services, and other expenses related to
corporate administration.

Product Development Expenses

Product development expenses for the year ended September 28, 2002 decreased
19.6%, or $1 million, as compared to the year ended September 29, 2001. A
portion of the decrease was due to fewer commercial products under development
in the microelectronic segment, accounting for a 36% decrease in commercial
product development expenses, or $843,000, in fiscal year 2002 when compared to
fiscal year 2001.

During fiscal year 2001, the Company began its product development on tamper
resistant coating for certain high-reliability microelectronic devices. The
tamper resistant coating development was complete by the end of fiscal year
2001, and the process went into production at the start of fiscal year 2002.
Therefore, fiscal year 2001 included $312,000 of product development expenses
for tamper resistant coating, while all tamper resistant coating expenses for
fiscal year 2002 were a part of the cost of sales for the microelectronic
segment.

Ongoing product development projects for the microelectronic division include
new packaging designs for memory products to include SDRAM, SSRAM,
microprocessor modules, and ball grid array products; continual development of
tamper resistant coating technology; and qualification of new semiconductor
products. Total microelectronic product development was $3.0 million for the
year ended September 28, 2002.

The display segment increased product development expenses slightly, as new
engineers were hired during the last part of fiscal year 2002 to expand display
coating and enhancement technologies. Total display product development was
$1.3 million for the year ended September 28, 2002.

For the Company as a whole, product development expenses were 4.7% and 5.5% of
sales for the years ended September 28, 2002 and September 29, 2001,
respectively. The Company expects product development expenses to remain at
approximately the same percentage of sales in the future.

Interest Expense/Income

Interest expense for the year ended September 28, 2002 totaled $147,000, a
$344,000 decrease from the year ended September 29, 2001. Interest expense
during fiscal year 2001 was incurred on the Companys line of credit and a Bank
One term loan. The line of credit was paid of during the third quarter of 2001
and was not used during fiscal year 2002. The Bank One term loan was paid off
during the second quarter of fiscal year 2002. Two additional bank notes
totaling $3.1 million were secured for the purchase of capital equipment during
the second quarter of fiscal year 2002. Both notes were paid off during
September 2002 since there was available cash, and the Company could reduce its
interest expense.

Once the Company paid off its line of credit, the Company began maintaining its
excess cash in an interest-bearing money market account, which was opened
during the fourth quarter of fiscal year 2001. Interest income on this account
totaled $165,000 for the year ended September 28, 2002.

Amortization of Intangible Assets

Amortization expense for the year ended September 28, 2002 increased $443,000
when compared to the year ended September 29, 2001. Both years had
amortization expense of $290,000 relating to the Electronic Designs and Bowmar
merger of 1998. Fiscal year 2001 included eight months of amortization expense
for the Panelview acquisition, while fiscal year 2002 includes twelve months of
amortization expense. Thus, the $443,000 difference of amortization relates to
the four additional months of Panelview amortization in fiscal year 2002.

Beginning in fiscal year 2003, the Company will adopt SFAS 142 (see Note 3 of
Notes to the Consolidated Financial Statements, Newly Issued Accounting
Standards). The effect of this accounting standard will be to stop
amortization of goodwill. We expect the adoption of this standard for fiscal
year 2003 will reduce amortization expense by $1.3 million for the year as
compared to fiscal 2002.

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The intangible asset relating to the Electronic Designs and Bowmar merger has
two components. The first component is an assembled workforce asset. The
remaining assembled workforce asset amount of $17,083 will be subsumed into
goodwill at the beginning of fiscal year 2003 upon adoption of FAS 142. The
second component is a technology asset amortized at $7,117 per month and will
be fully amortized as of October 2003. Therefore, amortization expense for
fiscal year 2003 will total approximately $85,400. This intangible asset is
not impaired and will continue to amortize through fiscal 2003 since it is not
classified as goodwill.

Income Taxes

During the fourth quarter of fiscal year 2002, the Company reduced its
valuation allowance of approximately $1.7 million operating loss carry
forwards, as the Company believes it is more likely than not that it will
realize a benefit for the deferred tax. The Company also reversed
approximately $1.1 million of tax reserves that had been recorded in previous
years. An additional $0.3 million of tax benefit was also recorded in the
fourth quarter of fiscal year 2002 to recognize the extra-territorial exclusion
credit for foreign sales this fiscal year. In total, a tax benefit of
approximately $3.1 million attributable to the items mentioned above was
recorded during the quarter ended September 28, 2002, reducing the annual tax
liability to $388,000 and reducing the applied 38% tax rate to an effective
rate of 4% for the year. The Company also recorded a $576,000 tax benefit from
the exercise of stock options during the fiscal year.

Results of Operations Fiscal 2001 vs. Fiscal 2000

|                                      |  |             |        |      |  |   |        |  
|------------------------------------- |  | ----------- | ------ | ---- |  | - | ------ | -
|Results of Operations                
|(In thousands of dollars)            
|                                      |  | Fiscal Year
|                                      |  |            
|                                      |  | 2001        |        | 2000
|                                      |  |             |        |     
|Net sales:                            |  |             |        |      |  |   |        |  
|Microelectronic segment               |  | $           | 73,569 |      |  | $ | 74,289 |  
|Display segment                       |  |             | 23,192 |      |  |   | 13,306 |  
|                                      |  |             |        |      |  |   |        |  
|Total net sales                       |  | $           | 96,761 |      |  | $ | 87,595 |  
|Cost of sales:                        |  |             |        |      |  |   |        |  
|Microelectronic segment               |  |             | 54,661 |      |  |   | 48,594 |  
|Display segment                       |  |             | 15,699 |      |  |   | 7,830  |  
|                                      |  |             |        |      |  |   |        |  
|Total cost of sales                   |  |             | 70,360 |      |  |   | 56,424 |  
|Gross margin:                         |  |             |        |      |  |   |        |  
|Microelectronic segment               |  |             | 18,908 |      |  |   | 25,695 |  
|Display segment                       |  |             | 7,493  |      |  |   | 5,476  |  
|                                      |  |             |        |      |  |   |        |  
|Total gross margin                    |  | $           | 26,401 |      |  | $ | 31,171 |  
|Gross margin as a percentage of sales |  |             | 27     | %    |  |   | 36     | %
|                                      |  |             |        |      |  |   |        |  

Revenues

Net sales increased 10.5% to $96.8 million for the year ended September 29,
2001 compared to $87.6 million for the year ended September 30, 2000. This
increase was primarily due to a 74.3% increase in sales of the display segment
to $23.2 million in fiscal year 2001 from $13.3 million in fiscal year 2000.
The majority of the increase was due to the inclusion of Panelviews $7.7
million of sales in fiscal 2001. The remaining $2.2 million increase included
a $2.5 million increase in ruggedized display sales, offset by a slight
decrease in electromechanical sales. Sales of ruggedized displays increased
because of increased activity in the military aerospace industry, as well as
new sales to industrial customers needing ruggedization for outdoor use, such
as oilfield services. Panelview sales of display viewing enhancement systems
accounted for $5.9 million of the revenue generated by that subsidiary. The
outdoor recreation and medical instrumentation industries accounted for
approximately $3.0 million of Panelviews sales for fiscal year 2001.

Net sales for the microelectronic segment decreased slightly to $73.6 million
for the year ended September 29, 2001 from $74.3 million in the year ended
September 30, 2000. High-reliability microelectronic sales increased 13% to
$30.4 million from $27.0 million, while commercial microelectronic sales
declined 8.7% to $43.2 million, compared to $47.3 million in the prior year. A
general increase in spending for the electronic components used in defense
systems caused the increase in sales of high-reliability products, as order
rates increased through the year. Sales of commercial components were hurt by
the slowdown in the telecommunications and network equipment industry during
2001. Many of the Companys customers experienced excess inventories when
demand for their products slowed in early 2001. This excess inventory caused
many of those customers to dramatically reduce their orders for the Companys
products, causing sales for the second half of fiscal 2001 to be approximately
55% lower than the first half.

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Gross Margin

Gross margin as a percentage of net sales was 27.3% for the year ended
September 29, 2001, compared to 35.6% for the year ended September 30, 2000.
The microelectronic segment saw a decline of margins to 25.7% from 34.6% of
sales. In March 2001, based on numerous order cancellations and a severe
decrease in demand for the Companys products used in the telecommunications
industry, the Company reviewed the major inventory items in raw materials that
did not have a forecasted demand for usage. Approximately $6.2 million of
inventory was identified that fell into this category. Of that $6.2 million of
inventory, the Company identified items that were not expected to be used
within the next twelve months and would probably become obsolete over that
period. The Company reserved $3.0 million against this inventory based on its
estimates of the parts most likely to go unused. During fiscal year 2001,
approximately $750,000 of the identified inventory was scrapped and charged
against the reserve. In addition to the $3.0 million reserve, approximately
$1.3 million of additional inventory was scrapped during that quarter because
of poor yields or obsolescence. Therefore, the decrease of gross margin as a
percentage of sales in fiscal year 2001 compared to fiscal year 2000 was
primarily caused by approximately $4.3 million of inventory related charges
taken in the microelectronic segment during the second quarter of fiscal year
2001.

Fiscal 2001 was also a period of rapidly falling prices for some electronic
memory components. This downward pricing pressure made it difficult to
maintain margins for commercial microelectronic components. Gross margin as a
percentage of sales for commercial products, including the effect of the
inventory charges, decreased approximately 18% in fiscal 2001 compared to
fiscal year 2000. Gross margin as a percentage of sales for high-reliability
products over this same period increased approximately 3% from fiscal year
2000.

Gross margin for the display segment saw a decline to 32.3% from 41.2% in the
previous year. Even though actual dollar gross margin on display sales
increased by $2.0 million from the previous year, the percentage declined
mainly because of the inclusion of Panelview display products that
traditionally have margins approximating 20%, while ruggedized display products
have margins of approximately 40%. Actual margins for ruggedized display
products were 42% in fiscal 2001, compared to 46% in the prior year. The
slight decrease was mainly because of new programs implemented in the second
half of the year that required time to develop production efficiencies.

|                                    |  |             |        |      |  |   |        | 
|----------------------------------- |  | ----------- | ------ | ---- |  | - | ------ | 
|Operating Expenses                 
|(In thousands of dollars)          
|                                    |  | Fiscal Year
|                                    |  |            
|                                    |  | 2001        |        | 2000
|                                    |  |             |        |     
|Selling, general and administrative |  | $           | 15,222 |      |  | $ | 14,102 | 
|Product development                 |  |             | 5,302  |      |  |   | 5,014  | 
|Interest expense                    |  |             | 491    |      |  |   | 615    | 
|Interest (income)                   |  |             | (11    | )    |  |   |       | 
|Amortization of intangible assets   |  |             | 1,144  |      |  |   | 753    | 
|                                    |  |             |        |      |  |   |        | 
|Total expenses                      |  | $           | 22,148 |      |  | $ | 20,484 | 
|                                    |  |             |        |      |  |   |        | 

Selling, General and Administrative Expenses

Selling expenses for the year ended September 29, 2001 increased $293,000 from
the previous year. Microelectronic sales expense declined $297,000; while
display sales expense increased $590,000, due to the inclusion of Panelview
expenses, which totaled $688,000 for the year. The decrease in the
microelectronic selling expense was due to a decrease in commissions on lower
sales, and a reduction of work force in commercial microelectronics. Overall
selling expenses were also reduced due to a company-wide effort to reduce
overall spending. Selling expense in fiscal 2001 was 9.2% of sales, compared
to 9.9% in the prior year.

General and administrative expenses, including corporate expenses, increased
$826,000 overall for the year ended September 29, 2001, of which $474,000 was
due to the inclusion of expenses from the Panelview division. The remaining
increase of general and administrative expense was due to an increase of
corporate headcount and an increase in general corporate expenses such as
legal, information services, accounting, and insurance expenses. Some

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administrative expenses, such as insurance, were generally higher due to the
acquisition of Panelview during the year. Information services expenses were
higher because of the installation of a new enterprise computer system at our
commercial division. Total general and administrative expenses were 6.5% of
sales in Fiscal 2001, compared to 6.2% in the prior year.

Research and Product Development Expenses

Research and development expenses for the year ended September 29, 2001
increased $288,000 from the previous year. These expenses totaled 5.4% of net
sales for the current period, which was slightly lower than the 5.7% from the
prior year. The main source of the increase came from the microelectronic
segment, which increased spending $375,000 from the previous year. During this
period, the microelectronic segment spent $312,000 to begin development of
tamper resistant memory modules. Other major ongoing product development
efforts in the microelectronic segment include SDRAM, SSRAM, microprocessor
modules, ball grid array products, development of new packaging designs for
memory products, and qualification of new semiconductor products. The display
segment product development expenses were $87,000 less than last year due to a
reduction in interface equipment development.

Interest Expense

Interest expense decreased $135,000 for the year ended September 29, 2001, when
compared to the previous year. Borrowings against the line of credit declined
during the third and fourth quarters due to increased cash flow because of
collection of accounts receivable, a reduction of inventory purchases, a
reduction of payroll due to a decreased headcount, and a reduction in overall
company-wide spending. Interest rates in fiscal year 2001 decreased
significantly since fiscal year 2000 with averages for the twelve-month period
dropping to 7.98% from 8.9% and quarterly averages declining to 6.67% from
9.20%.

Amortization of Intangible Assets

Amortization expense increased $391,000 for the year ended September 29, 2001,
when compared to the previous year. The amortization expense for Fiscal year
2000 included $39,000 per month of goodwill expense associated with the
Electronic Designs and Crystallume merger. That intangible asset was fully
amortized as of September 2000. Both comparable fiscal years had amortization
expense of $290,000 relating to the Electronic Designs and Bowmar merger.
Fiscal year 2001 included eight months monthly amortization expense of $106,745
for the Panelview acquisition that occurred January 29, 2001.

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.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates. The most significant
accounting estimates inherent in the preparation of the Companys consolidated
financial statements include the following items:



| |  |  | Inventory represents a significant portion of the Companys assets.
Historically, the Company has experienced fluctuations in the demand
for its products based on cyclical fluctuations in the microelectronic
and display industries. These fluctuations in demand may cause our
inventory on hand to lose value or become obsolete. Therefore, in
order to present the appropriate inventory value on our financial
statements, the Company identifies slow moving or obsolete inventories
and estimates appropriate loss provisions. These provisions are based
on managements comparison of the value of inventory on hand against
expected future sales. If future actual sales are less favorable than
those projected by management, additional inventory write-downs may be
required.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | The Company maintains an allowance for doubtful accounts for
estimated losses resulting from the inability of its customers to make
required payments. Management makes these estimates based on an
analysis of accounts receivable using available information on our
customers financial status and payment histories. Historically, bad
debt losses have not been significant or have not differed materially
from the Companys estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The Company estimates potential warranty obligations for its
products based on annual product sales and historical customer product
return data. Based on this data, the Company records estimated
warranty reserves and expense needed to account for the estimated cost
of product returns.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  |  | The Company maintains a pension plan for certain employees. To
account for the expenses relating to this plan, the Company makes
estimates concerning the expected rate of return on plan assets, and
discount rates to be used to calculate future benefit obligations.
Changes in the expected rate of return on plan assets affect the amount
of income expected to be earned in the future. The Company bases its
estimates on the expected rate of return using historical data on the
rate of return from equities and fixed income investments, as well as
financial industry projections for future returns on equities and fixed
income investments. If the actual future rate of return on plan assets
does not equal the estimated rate, the Company may have to fund future
benefit obligations by contributing money from Company general assets
into the plan. Changes in the discount rate affect the value of the
future benefit obligations of the plan. A lower discount rate
increases the liability of the plan because it raises the value of
future benefit obligations. This will also cause an increase in
pension expense recognized. The Company uses published bond yields to
estimate the discount rate to use for calculating the value of future
benefit obligations.
|
| |  |  | In fiscal 2003, the Company will adopt SFAS 142, Goodwill and Other
Intangible Assets. The adoption of this standard will require
impairment testing of the goodwill recorded for the Panelview
acquisition on an annual basis, or more often, if necessary. The
Company will make estimates during the evaluation of the goodwill
concerning the value of assets and liabilities and expected future cash
flows to determine the validity of the goodwill amount on the balance
sheet as compared to the business valuation placed on the Panelview
subsidiary. If these estimates do not assign a valuation to the
Panelview subsidiary that is higher than the balance sheet amount, a
goodwill impairment charge will need to be taken through the income
statement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  |  | The Company follows accounting standard SFAS 109, Accounting for
Income Taxes. This standard requires the Company to recognize a
deferred tax asset for the reduction of income taxes that will be
applied using previous years operating loss carry forwards. The
ability to recognize this asset is based on the expectations that the
Company will be profitable in future periods. If these estimated
future profits do not occur, the Company may not be able to use its
operating loss carry forwards and the asset will become impaired. If
the deferred tax asset becomes impaired, a charge will need to be taken
through the income statement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  |  | The majority of the Companys sales are recognized when the product
ships to the customer. Some product shipments are to a distributor and
may be returned based on conditions set forth in their distributor
agreement. Therefore, actual sales on those shipments are not
recognized until the distributor ships the product to its customer and
notifies the Company of the shipment at the end of the month. This
deferred revenue is included in accrued expenses on the balance sheet.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

Liquidity and Capital Resources

Cash on hand as of September 28, 2002 totaled $12.1 million. During fiscal
year 2002, cash provided by operations was approximately $12.5 million. The
sum of net income, excluding the $3.1 million non-cash tax benefit item
described below, depreciation, and amortization totaled approximately $9.5
million for the year. Capital expenditures for the year were approximately
$4.8 million. Excluding the change in the Panelview purchase liability,
accrued expenses increased approximately $2.3 million from the prior year. The
$888,000 change in the Panelview purchase liability was a non-cash transaction.

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Accounts receivable increased $0.9 million from the fiscal year ended September
29, 2001. This increase is consistent with higher quarterly sales in the
fourth quarter of fiscal year 2002 when compared to the fourth quarter of last
year. Sales were $23.7 million in the fourth quarter of fiscal year 2002
versus $21.4 million in the fourth quarter of fiscal year 2001. The accounts
receivable balance of $15.0 million at September 28, 2002 represents 63% of the
current quarterly sales rate and is lower than the 66% ratio at September 29,
2001. The lower ratio is due to a higher collection rate in both the
microelectronic segment and display segment.

Inventory levels decreased approximately $0.6 million during fiscal year 2002.
This decrease is the result of lower purchases of inventory by the Companys
microelectronic segment, which offsets the additional inventory on hand for the
display segment to support their increased revenues. The current inventory
balances for both segments take into account projected first quarter fiscal
year 2003 production requirements. Inventory amounts, when compared to the
current quarterly sales rate, decreased to 68% of fourth quarter sales in
fiscal year 2002 from 78% of fourth quarter sales in fiscal year 2001. The
Company is currently managing its inventory levels to match projected
production requirements. The Company will continue to review inventory levels
against projected demand for obsolescence and the lower of cost or market
factors and will make appropriate adjustments when needed.

Accounts payable as of September 28, 2002 were $0.2 million more than at the
end of fiscal year 2001. Accrued expenses increased $2.3 million since the
prior year-end. The change in accrued expenses includes a $971,000 increase in
income taxes because of higher income in fiscal 2002, a $500,000 increase in
payroll accruals relating to higher incentive compensation than the previous
year, and a $642,000 increase in estimated warranty expenses mainly because of
higher sales for the display business segment.

The Company maintains a pension plan for its union employees at its Fort Wayne,
Indiana facility pursuant to a collective bargaining agreement. Mainly because
of the severe decline in the equity markets during fiscal 2002, a higher than
expected benefit payout rate based on a new contract with the union and a lower
discount rate, the pension benefit obligation is currently under-funded by
approximately $733,000. See Note 10 of Notes to Consolidated Financial
Statements for additional financial details. The Company expects to fund its
pension obligation through expected investment income on plan assets and cash
contributions to the plan over the next several years. The actual amount of
cash contributions will be dependent on the actual investment income during
that period. The Company believes that funding the plan over the next several
years will not have a material effect on the Companys liquidity. Also, the
Company recognized a minimum pension liability of $255,000, net of tax, and a
long-term pension liability of $671,000 on its balance sheet for fiscal 2002
relating to the decrease in value of plan assets during the year. In fiscal
2003, the Company expects actual pension expense to increase from $132,000 in
fiscal 2002 to approximately $180,000 in fiscal 2003.

Capital expenditures for the fiscal year ended September 28, 2002, totaled
approximately $4.8 million. Approximately $2.0 million was spent on production
equipment for the microelectronic manufacturing facilities, including $1.1
million spent on a specific piece of testing equipment for the high-reliability
components. An additional $2.2 million was spent on production equipment for
the display manufacturing facilities, including approximately $2.0 million
spent on a specific piece of coating equipment for the display division.
Approximately $0.2 million was spent on leasehold improvements for Panelviews
new building in Oregon. The remaining $0.4 million of capital expenditures
related to computer equipment and various other office equipment purchased
throughout the Company. Capital expenditures for fiscal 2003 are expected to
be approximately the same as fiscal 2002. The Company believes future capital
expenditures will be funded by cash from operations, line of credit borrowings,
or operating lease financing.

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Financing activities used $604,000 of cash during fiscal year 2002. The
Company secured two bank notes through Bank One N.A. totaling approximately
$3.1 million for the purchase of capital equipment during the second quarter of
fiscal year 2002. Due to the availability of cash on hand, both notes were
paid off during September 2002. The Company also paid down the original Bank
One note that had a balance of $1.5 million as of the beginning of this fiscal
year. Therefore, the Company borrowed $3.1 million and repaid $4.6 million,
bringing total Company debt down to zero as of September 28, 2002.
Approximately $914,000 of cash was generated during fiscal year 2002 through
the issuance of common stock. Of that $914,000, $724,000 of common stock was
issued for the exercise of stock options, and $190,000 of common stock was
issued through the employee stock purchase plan.

The Company had the use of a $12 million revolving credit agreement with Bank
One for short-term financing needs, but amended that agreement as of March 28,
2002, to reduce the borrowing ability to a maximum of $8.0 million based on
lower borrowing expectations and to reduce unused credit line fees. The Bank
One amended revolving line of credit bears a variable interest rate, which was
4.75% as of September 28, 2002, and extends until March 29, 2004. As of the
end of the fourth quarter, the Company was in compliance with all debt covenant
requirements in the credit agreement. The revolving credit line has been fully
paid since July 2001, and the Company is generating a level of internal cash
flow sufficient to sustain the current level of day-to-day operations. The
Company believes that cash generated by operations, in addition to its
borrowing capability, should be sufficient to fund its cash needs for the next
twelve months as well as over the long-term. If we are able to identify
appropriate opportunities, the Company may need to incur debt and/or issue
additional equity securities in connection with one or more acquisitions.

|                                   |  |                                                 |       |        |  |           |       |           |  |         |       |  |  |   |       |       |  |   |     | 
|---------------------------------- |  | ----------------------------------------------- | ----- | ------ |  | --------- | ----- | --------- |  | ------- | ----- |  |  | - | ----- | ----- |  | - | --- | 
|Contractual Cash Obligations      
|(In thousands of dollars)         
|
|                                  
|                                   |  | Payments due by Period as of September 28, 2002
|                                   |  |                                                
|                                   |  |                                                 |       |        |  | Less than |       |           |  |         |       |  |  |   |       | After
|                                   |  | Total                                           |       | 1 year |  | 1-3 years |       | 4-5 years |  | 5 years
|                                   |  |                                                 |       |        |  |           |       |           |  |        
|Long-term debt                     |  | $                                               |      |        |  | $         |      |           |  | $       |      |  |  | $ |      |       |  | $ |    | 
|Capital lease obligations          |  |                                                 |      |        |  |           |      |           |  |         |      |  |  |   |      |       |  |   |    | 
|Operating leases                   |  |                                                 | 7,078 |        |  |           | 1,608 |           |  |         | 2,421 |  |  |   | 2,332 |       |  |   | 717 | 
|Other long-term obligations        |  |                                                 |      |        |  |           |      |           |  |         |      |  |  |   |      |       |  |   |    | 
|                                   |  |                                                 |       |        |  |           |       |           |  |         |       |  |  |   |       |       |  |   |     | 
|Total Contractual Cash Obligations |  | $                                               | 7,078 |        |  | $         | 1,608 |           |  | $       | 2,421 |  |  | $ | 2,332 |       |  | $ | 717 | 
|                                   |  |                                                 |       |        |  |           |       |           |  |         |       |  |  |   |       |       |  |   |     | 

Recently Enacted Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 141 (SFAS 141), Business Combinations,
and No. 142 (SFAS 142), Goodwill and Other Intangible Assets, collectively
referred to as the Standards. SFAS 141 supersedes Accounting Principles
Board Opinion (APB) No. 16, Business Combination. The provisions of SFAS 141
(1) require that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001, (2) provide specific criteria for
the initial recognition and measurement of intangible assets apart from
goodwill, and (3) require that unamortized negative goodwill be written off
immediately as an extraordinary gain instead of being deferred and amortized.
SFAS 141 also requires that upon adoption of SFAS 142, the Company reclassify
the carrying amounts of certain intangible assets into or out of goodwill,
based on certain criteria. SFAS 142 supersedes APB 17, Intangible Assets, and
is effective for fiscal years beginning after December 15, 2001. SFAS 142
primarily addresses the accounting for goodwill and intangible assets
subsequent to their initial recognition. The provisions of SFAS 142 (1)
prohibit the amortization of goodwill and indefinite-lived intangible assets,
(2) require that goodwill and indefinite-lived intangibles assets be tested at
least annually for impairment (and in interim periods if certain events occur
indicating that the carrying value of goodwill and/or indefinite-lived
intangible assets may be impaired), (3) require that reporting units be
identified for the purpose of assessing potential future impairments of
goodwill, and (4) remove the forty-year limitation on the amortization period
of intangible assets that have finite lives.

SFAS 142 requires that goodwill be tested annually for impairment using a
two-step process. The first step is to identify a potential impairment and, in
transition, this step must be measured as of the beginning of the fiscal year.

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However, a company has six months from the date of adoption to complete the
first step. The Company expects to
complete that first step of the goodwill impairment test during the first
quarter of fiscal 2003. The second step of the goodwill impairment test
measures the amount of the impairment loss (measured as of the beginning of the
year of adoption), if any, and must be completed by the end of the Companys
fiscal year. Intangible assets deemed to have an indefinite life will be
tested for impairment using a one-step process, which compares the fair value
to the carrying amount of the asset as of the beginning of the fiscal year, and
pursuant to the requirements of SFAS 142, will be completed during the first
quarter of fiscal 2003. Any impairment loss resulting from the transitional
impairment tests will be reflected as the cumulative effect of a change in
accounting principle in the first quarter of fiscal 2003.

The Company adopted the provisions of SFAS 142 for fiscal year 2003, which
began September 29, 2002. At that time, the Company stopped the monthly
amortization of $108,600 for Panelview purchased goodwill and will assess the
need for any changes in the remaining goodwill asset based on further
valuation. The Company also stopped amortization on the assembled work force
asset relating to the EDI and Bowmar merger, as this component was subsumed
into goodwill upon adoption of SFAS 142. Because of the continuing goodwill
amortization through the end of fiscal 2002 and the increasing sales and
profits at the Panelview subsidiary, the Company, at this time, believes that
an impairment charge will not be needed in the first quarter of fiscal 2003.
The actual result will not be known until the completion of the impairment
tests.

In June 2001, the FASB issued
FAS 143 Accounting for Asset Retirement Obligations.
FAS 143 changes the way in which long-lived asset retirement
obligations are recognized on the balance sheet and income statement.
The Company believes that adoption of this standard will have no
material effect on the Companys financial reporting and disclosure.

In August 2001, the FASB issued
FAS 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. FAS 144 requires that one accounting model be used for
long-lived assets to be disposed of by sale. The Company believes
that adoption of this standard will have no material effect on the
Company's financial reporting and disclosure.

In April 2002, the Financial Accounting Standards Board (FASB) issued Statement
of Accounting Standards No. 145 (SFAS 145), which rescinded and amended the
Boards position concerning gains and losses on the extinguishments of debt,
intangible assets of motor carriers, and certain lease modifications. The
Company believes that adoption of this standard will have no material effect on
the Companys financial reporting and disclosure.

In June 2002, the Financial Accounting Standards Board (FASB) issued Statement
of Accounting Standards No. 146 (SFAS No. 146), Accounting for Costs Associated
with Exit or Disposal Activities. This statement nullifies Emerging Issues
Task Force (EITF) Issue No. 94-3, and removes the previous requirement to
record a liability for the costs associated with exit activities when a company
commits to an exit plan. SFAS 146 now requires a company to record a liability
for costs associated with an exit activity, at fair value, only when a
liability is incurred. The Company believes that adoption of this standard
will have no material effect on the Companys financial reporting and
disclosure.

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of the fiscal year ended September 28, 2002, the Company had no outstanding
balance against its revolving line of credit with Bank One, nor did it borrow
against the line of credit during the fiscal year. Should the Company have
borrowed against the line, the interest charged against these borrowings would
have been a combination of the Bank One prime rate, which is similar to the
prime rate charged by major banking institutions in the United States, and the
London Interbank Offering Rate (LIBOR) plus 2.25%. During fiscal 2002 the
prime rate averaged 4.84%, and was 4.75% as of September 28, 2002.

The Company is subject to changes in prime rate based on Federal Reserve
actions and general market interest fluctuations. The Company is also subject
to fluctuations in the LIBOR rate. As of the end of September, 2002, the LIBOR
rate was approximately 1.81%. Due to the average borrowing rate of zero
dollars over the past fiscal year, a change in interest rate would not affect
the Companys results of operations or financial position. Should the Company
begin borrowing against the credit line, a hypothetical increased rate change
of 1% would increase interest expense by approximately $10,000 per average
million dollars borrowed on an annual basis from current expense levels. The
Company believes that moderate interest rate increases will not have a material
adverse impact on its results of operations or financial position in the
foreseeable future.

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The Company believes it is not subject in a material way to other forms of
market risk, such as foreign currency exchange risk on foreign customer
purchase orders (the Company accepts payment in U. S. dollars only), or
commodity price risk.




ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data required by Regulation S-X are
included in Part IV, Item 15 of the Annual Report on Form 10-K.




ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.




PART III




ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item for directors is set forth in the
Companys 2003 Proxy Statement (which will be filed with the Securities
Exchange Commission no later than 120 days following year end) relating to the
Companys Annual Meeting of Shareholders to be held on February 27, 2003, (the
2003 Proxy Statement), under the heading Election of Directors and the
heading Section 16(a) Beneficial Ownership Reporting Compliance and is
incorporated herein by this reference as if set forth in full.

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ITEM 11 EXECUTIVE COMPENSATION

The information required by this Item is set forth in the Companys 2003 Proxy
Statement under the heading Executive Compensation and is incorporated herein
by this reference as if set forth in full. The information set forth under the
headings Report of the Compensation Committee and Stock Price Performance
Graph contained in the 2003 Proxy Statement are not incorporated by reference.




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

The information required by this Item is set forth in the Companys 2003 Proxy
Statement under the heading Principal Shareholders and under the heading
Security Ownership by Management and is incorporated herein by reference as
if set forth in full.

Equity Compensation Plan Information

The following table provides information as of September 28, 2002, with respect
to the shares of the Companys common stock that may be issued under the
Companys existing equity compensation plans.

|                                                               |  |                            |           |                           |  |                      |      |  |  |  |           | 
|-------------------------------------------------------------- |  | -------------------------- | --------- | ------------------------- |  | -------------------- | ---- |  |  |  | --------- | 
|                                                               |  | Number of securities to be |           | Weighted average exercise |  | Number of securities
|                                                               |  | issued upon exercise of    |           | price of outstanding      |  | remaining available 
|                                                               |  | outstanding options,       |           | options, warrants, and    |  | for future          
|Plan category                                                  |  | warrants and rights        |           | rights                    |  | issuance            
|                                                               |  |                            |           |                           |  |                     
|Equity compensation plans approved
by security holders (1)     |  |                            | 1,775,244 |                           |  | $                    | 3.46 |  |  |  | 1,578,162 | 
|                                                               |  |                            |           |                           |  |                      |      |  |  |  |           | 
|Equity compensation plans not approved
by security holders (2) |  |                            | 946,434   |                           |  | $                    | 4.09 |  |  |  | 223,812   | 
|                                                               |  |                            |           |                           |  |                      |      |  |  |  |           | 
|Total                                                          |  |                            | 2,721,678 |                           |  | $                    | 3.68 |  |  |  | 1,801,974 | 
|                                                               |  |                            |           |                           |  |                      |      |  |  |  |           | 



---

|(1) |  | Equity compensation plans approved by security holders include approved stock option plans and the approved employee stock option plan.                                                                                                                                                                                                                                                                                                                                                 
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Equity Compensation Plans not approved by security holders include the following plans:
McGuinness Plan  The Companys Board of Directors approved
an independent grant to Don McGuinness during fiscal 1999 for a non-qualified stock option to purchase up to 102,000 shares of common stock at an exercise price of $1.125 per share, vesting ratably over three years. At September 28, 2002, a total of 102,000 shares from this independent option right were still under option.
|   
|    |  | Shokrgozar Plan  During fiscal 2000, the Companys Board of Directors approved an independent grant to Mr. Shokrgozar for a nonqualified stock option to purchase up to 125,000 shares of common stock at an exercise price of $2.750 per share, vesting over four years. At September 28, 2002, 125,000 shares from this independent option right were still under option.                                                                                                            
|   
|    |  | 2000 Broad Based Non-qualified Stock Plan  During fiscal 2001, the Companys Board of Directors approved the 2000 Broad Based Non-qualified Stock Plan, which provides for the issuance of options to purchase shares of Common Stock at an exercise price equal to the fair market value at the date of grant. As of September 28, 2002, 223,812 shares were available for grant and 719,434 granted options were unexercised.                                                        




ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is set forth in the Companys 2003 Proxy
Statement under the heading Certain Transactions and under the heading
Compensation Committee Interlocks and Insider Participation and is
incorporated herein by this reference as if set forth in full.

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ITEM 14 CONTROLS AND PROCEDURES

Within the 90-day period prior to the filing this Annual Report on 10-K, an
evaluation was carried out under the supervision and with the participation of
our management, including our President and Chief Executive Officer and our
Chief Accounting Officer, of the effectiveness of our disclosure controls and
procedures. Based on that evaluation, our President and Chief Executive
Officer and our Chief Accounting Officer have concluded that our disclosure
controls and procedures are effective to ensure that information required to be
disclosed by us in reports that we file or submit under the Securities Exchange
Act of 1934 is recorded, processed, summarized, and reported within the time
periods specified in Securities and Exchange Commission rules and forms. There
were no significant changes in our internal controls or other factors that
could significantly affect these controls subsequent to the date of our
managements evaluation, and there were no corrective actions with regard to
significant deficiencies and material weaknesses.




PART IV




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



|(a)(1) |  | Financial Statements and Supplementary Data                                                                                                                                                                        
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      
|       |  | Consolidated Financial Statements                                                                                                                                                                                  
|      
|(a)(2) |  | Financial Statement Schedules for the Years Ended September 28, 2002,
September 29, 2001, and September 30, 2000                                                                                                   
|      
|       |  | Financial statement schedules have been omitted because either they are
not required or are not applicable, or because the information has been
included in the consolidated financial statements or notes thereto.
|      
|(a)(3) |  | Exhibits                                                                                                                                                                                                           

|     |  |                                                                                                                                                                                                                                                                      
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1  |  | Agreement and Plan of Merger dated May 3, 1998 by and among Bowmar
Instrument Corporation and Electronic Designs, Inc. and Bravo
Acquisition Subsidiary, Inc. (incorporated herein by reference to
Exhibit 2 to the current Report on Form 8-K filed on May 6, 1998.)
|     |  |                                                                                                                                                                                                                                                                      
|2.1A |  | Amendment to Agreement and Plan of Merger dated June 9, 1998
(incorporated herein by reference to Exhibit 2.1A to the Registration
Statement on Form S-4 filed on June 11, 1998, Registration No.
333-56565).                                                        
|     |  |                                                                                                                                                                                                                                                                      
|2.1B |  | Amendment to Agreement and Plan of Merger dated August 24, 1998
(incorporated herein by reference to Exhibit 2.1B to the Registration
Statement on Form S-4, filed on September 2, 1998, Registration No.
333-56565).                                                
|     |  |                                                                                                                                                                                                                                                                      
|3.1  |  | Amended and Restated Articles of Incorporation of White Electronic
Designs Corporation (incorporated herein by reference to Exhibit 3.1 on
Form 10-K filed December 24, 1998).                                                                                       
|     |  |                                                                                                                                                                                                                                                                      
|3.2  |  | Amended and Restated Code of By-Laws of White Electronic Designs
Corporation (incorporated herein by reference to Exhibit 3.2 to the
June 9, 1998 Registration Statement on Form S-4 filed June 11, 1998).                                                           
|     |  |                                                                                                                                                                                                                                                                      
|4.1  |  | Shareholder Rights Agreement, effective December 6, 1996,
(incorporated herein by reference to Exhibit 5 on Form 8-K, filed on
December 19, 1996).                                                                                                                   
|     |  |                                                                                                                                                                                                                                                                      
|4.1A |  | Amendment No. 1 to Rights Agreement, effective as of May 3, 1998
(incorporated herein by reference to Exhibit 4.3 to the Registration
Statement on Form S-4, filed on June 11, 1998, Registration No.
333-56565).                                                    

29



---



##### Table of Contents



|        |  |                                                                                                                                                                                                                                                                                                                                    
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1    |  | Agreement to be Bound by Registration Rights Agreements, dated as
of May 3, 1998, by and between Bowmar Instrument Corporation and
Electronic Designs, Inc. (incorporated herein by reference to Exhibit
10.1 to the Registration Statement on Form S-4, filed on Jun 11, 1998,
Registration No. 333-56565).                       
|        |  |                                                                                                                                                                                                                                                                                                                                    
|**10.2  |  | Agreement to be Bound by Severance Agreements and Employment
Agreement, dated as of May 3, 1998, by and between Bowmar Instrument
Corporation and Electronic Designs, Inc. (incorporated herein by
reference to Exhibit 10.2 to the Registration Statement on Form S-4,
filed on June 11, 1998, Registration No. 333-56565).       
|        |  |                                                                                                                                                                                                                                                                                                                                    
|**10.14 |  | 1994 Flexible Stock Plan (incorporated herein by reference to
Exhibit A to the Companys definitive Proxy Statement prepared in
connection with the 1994 Annual Meeting of Shareholders).                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                    
|10.27   |  | Revolving Credit and Term Loan Agreement by and between Bank One,
Texas and White Electronic Designs Corporation, an Indiana Corporation,
dated January 7, 2000. (Incorporated herein by reference to Exhibit
10.27 to the Companys 10-Q for the quarter ended January 1, 2000).                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                    
|10.28   |  | First Amendment to Revolving Credit Agreement by and between Bank
One effective as of June 3, 2000; Promissory Note effective June 3,
2000, Notice of Final Agreement effective June 3, 2000 (incorporated
herein by reference to Exhibit 10.28 to the Companys Quarterly Report
on Form 10-Q for the quarter ended July 1, 2000).
|        |  |                                                                                                                                                                                                                                                                                                                                    
|10.29   |  | Agreement and Plan of Reorganization dated January 29, 2001, by
and among White Electronic Designs Corporation, PV Acquisition
Corporation, Panelview, Inc. and Panelview Partners L.P. (incorporated
herein by reference to Exhibit 10.29 to the Companys Quarterly Report
on Form 10-Q, filed on February 13, 2001).            
|        |  |                                                                                                                                                                                                                                                                                                                                    
|**10.30 |  | Amendment to Companys 1994 Flexible Stock Plan, effective May 7,
2001 (incorporated herein by reference to Exhibit 99 to the
Registration Statement on Form S-8, filed on May 9, 2001, Registration
No. 333-60544).                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                    
|**10.31 |  | White Electronic Designs Corporation 2001 Director Stock Plan
(incorporated herein by reference to Exhibit 99 to the Registration
Statement on Form S-8, filed on May 9, 2001, Registration No.
333-60536).                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                    
|**10.32 |  | White Electronic Designs Corporation 2000 Employee Stock Purchase
Plan (incorporated herein by reference to Exhibit 99 to the
Registration Statement on Form S-8, filed May 9, 2001, Registration No.
333-60546).                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                    
|**10.33 |  | Amendment to Companys Stock Option Plan for Non-Employee Directors
(incorporated herein by reference to Exhibit 99 to the Registration
Statement on Form S-8, filed on May 9, 2001, Registration No.
333-60548).                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                    
|**10.34 |  | White Electronic Designs Corporation 2000 Broad Based Employee Stock
Option Plan (incorporated herein by reference to Exhibit 99 to the
Registration Statement on Form S-8, filed on May 9, 2001, Registration
No. 333-60542).                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                    
|**10.35 |  | Executive Employment Agreement made as of February 22, 2001 between
White Electronic Designs Corporation and Hamid R. Shokrgozar
(incorporated herein by reference to Exhibit 10.35 to the Companys
Quarterly Report on Form 10-Q filed on May 15, 2001).                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                    
|10.36   |  | Industrial Building Lease by and between Transwestern West Union
and White Electronic Designs Corporation, an Indiana Corporation, dated
October 12, 2001.                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                    
|10.37   |  | Business Purpose Promissory Note between Banc One Leasing
Corporation and White Electronic Designs Corporation, effective April
1, 2002 (incorporated herein by reference to Exhibit 10.37 to the
Companys Quarterly Report on Form 10-Q filed on May 13, 2002).                                                                  

30



---



##### Table of Contents



|        |  |                                                                                                                                                                                                                                                
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.38   |  | Third Modification agreement between Bank One N.A. and White
Electronic Designs Corporation, effective March 28, 2002 (incorporated
herein by reference to Exhibit 10.38 to the Companys Quarterly Report
on Form 10-Q filed on May 13, 2002).
|        |  |                                                                                                                                                                                                                                                
|10.39   |  | Business Purpose Promissory Note between Banc One Leasing
Corporation and Panelview, Inc., effective March 12, 2002 (incorporated
herein by reference to Exhibit 10.39 to the Companys Quarterly Report
on Form 10-Q filed on May 13, 2002).  
|        |  |                                                                                                                                                                                                                                                
|10.40   |  | Loan and Security Agreement between Banc One Leasing Corporation
and Panelview, Inc., effective March 12, 2002 (incorporated herein by
reference to Exhibit 10.40 to the Companys Quarterly Report on Form
10-Q filed on May 13, 2002).       
|        |  |                                                                                                                                                                                                                                                
|**10.41 |  | Non-Qualified Stock Option Agreement between Electronic Designs
Corporation and Donald McGuinness, dated December 3, 1998.                                                                                                                     
|        |  |                                                                                                                                                                                                                                                
|**10.42 |  | Non-Qualified Stock Option Agreement between White Electronic
Designs Corporation and Hamid Shokrgozar, dated November 10, 1999.                                                                                                               
|        |  |                                                                                                                                                                                                                                                
|21.1    |  | Subsidiaries of White Electronic Designs Corporation.                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                
|*23.1   |  | PricewaterhouseCoopers LLP consent for Form S-3 filed November 15,
2002, and Forms S-8, Filed May 9, 2001.                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                
|*99.1   |  | Certification Pursuant To 18 U.S.C. Section 1350, As Adopted
Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                        
|        |  |                                                                                                                                                                                                                                                
|*99.2   |  | Certification Pursuant To 18 U.S.C. Section 1350, As Adopted
Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                        



|(b) |  | Reports on Form 8-K
|--- |  | -------------------
|   
|    |  | None.              
|   
|(c) |  | See (a)(3) above.  
|   
|(d) |  | Not applicable.    



---

|*  |  | Filed herewith.                                       
|-- |  | ------------------------------------------------------
|  
|** |  | Management compensatory contract, plan or arrangement.

31



---



##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

|                        |  |                                      |                                                                                       | 
|----------------------- |  | ------------------------------------ | ------------------------------------------------------------------------------------- | 
|                        |  | WHITE ELECTRONIC DESIGNS CORPORATION
|                        |  |                                      |                                                                                       | 
|                        |  |                                      |                                                                                       | 
|Date: December 20, 2002 |  |                                      | /s/ William J. Rodes

William J. Rodes
Chief Accounting Officer,
Secretary, Treasurer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the date indicated:

|                                                                                                         |  |                                                                                      |  |       |  |                  
|-------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------ |  | ----- |  | -----------------
|/s/Hamid R. Shokrgozar

Hamid R. Shokrgozar
President, Chief Executive Officer
and Chairman of the Board |  | /s/Donald F. McGuinness

Donald F. McGuinness
Director                              
|Date:                                                                                                    |  | December 20, 2002                                                                    |  | Date: |  | December 20, 2002
|                                                                                                         |  |                                                                                      |  |       |  |                  
|/s/Thomas M. Reahard
Thomas M. Reahard
Director                                                          |  | /s/Thomas J. Toy
Thomas J. Toy
Director                                             
|Date:                                                                                                    |  | December 20, 2002                                                                    |  | Date: |  | December 20, 2002
|                                                                                                         |  |                                                                                      |  |       |  |                  
|/s/Norman T. Hall

Norman T. Hall
Director                                                               |  | /s/William J. Rodes

William J. Rodes
Chief Accounting Officer, Secretary, Treasurer
|Date:                                                                                                    |  | December 20, 2002                                                                    |  | Date: |  | December 20, 2002
|                                                                                                         |  |                                                                                      |  |       |  |                  
|/s/Edward A. White

Edward A. White
Vice Chairman of the Board and Director                              |  |                                                                                      |  |      
|Date:                                                                                                    |  | December 20, 2002                                                                    |  |       |  |                  

32



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##### Table of Contents



CERTIFICATIONS

I, Hamid R. Shokrgozar, certify that:



| | 1. |  | I have reviewed this annual report on Form 10-K of White Electronic
Designs Corporation:                                                                                                                                                                                                                                
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in
all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this annual report;                   
|
| | 4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                   

|   |  |                                                                                                                                                                                                                                                                                             
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a) |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this annual report is being prepared;
|b) |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the Evaluation
Date); and                                                                                                  
|c) |  | presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;                                                                                                                        



| | 5. |  | The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the audit committee of registrants board of directors (or persons
performing the equivalent functions):
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|   |  |                                                                                                                                                                                                                                                                                               
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a) |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors
any material weaknesses in internal controls; and
|b) |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                        



| | 6. |  | The registrants other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: December 20, 2002

| |  |                                            
| |  | -------------------------------------------
| |  | /s/Hamid R. Shokrgozar                     
| |  |                                            
| |  | Hamid R. Shokrgozar
Chief Executive Officer

33



---



##### Table of Contents



CERTIFICATIONS (Continued)

I, William J. Rodes, certify that:



| | 1. |  | I have reviewed this annual report on Form 10-K of White Electronic
Designs Corporation:                                                                                                                                                                                                                                
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in
all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this annual report;                   
|
| | 4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                   

|   |  |                                                                                                                                                                                                                                                                                             
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a) |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this annual report is being prepared;
|b) |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the Evaluation
Date); and                                                                                                  
|c) |  | presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;                                                                                                                        



| | 5. |  | The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the audit committee of registrants board of directors (or persons
performing the equivalent functions):
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|   |  |                                                                                                                                                                                                                                                                                               
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a) |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors
any material weaknesses in internal controls; and
|b) |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                        



| | 6. |  | The registrants other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: December 20, 2002

| |  |                                          
| |  | -----------------------------------------
| |  | /s/William J. Rodes                      
| |  |                                          
| |  | William J. Rodes
Chief Accounting Officer

34



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##### Table of Contents






Report of Independent Accountants

To the Shareholders and Board of Directors of
White Electronic Designs Corporation

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, shareholders equity, and of cash flows
present fairly, in all material respects, the financial position of White
Electronic Designs Corporation and Subsidiaries at September 28, 2002 and
September 29, 2001, and the results of their operations and their cash flows
for each of the three years in the period ended September 28, 2002 in
conformity with accounting principles generally accepted in the United States
of America. 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 auditing standards generally accepted in the United States of
America, 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 our opinion.

PricewaterhouseCoopers LLP
Phoenix, Arizona
November 6, 2002

35



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##### Table of Contents






WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET

(In thousands of dollars, except share data)

|                                           |                                                                                                                 |                           |        |               |        |               |        |        |        | 
|------------------------------------------ | --------------------------------------------------------------------------------------------------------------- | ------------------------- | ------ | ------------- | ------ | ------------- | ------ | ------ | ------ | 
|                                           |                                                                                                                 |                           |        | September 28, |        | September 29,
|                                           |                                                                                                                 |                           |        | 2002          |        | 2001         
|                                           |                                                                                                                 |                           |        |               |        |              
|ASSETS                                     |                                                                                                                 |                           |        |               |        |               |        |       
|Current Assets                             |                                                                                                                 |                           |        |               |        |               |        |       
|                                           | Cash                                                                                                            |                           | $      | 12,097        |        |               | $      | 5,032  |       
|                                           | Accounts receivable, less allowance for
doubtful accounts of $626 and $638                                      |                           |        | 14,916        |        |               |        | 14,020 |       
|                                           | Inventories, net                                                                                                |                           |        | 16,109        |        |               |        | 16,707 |       
|                                           | Prepaid expenses                                                                                                |                           |        | 575           |        |               |        | 594    |       
|                                           | Deferred income taxes                                                                                           |                           |        | 3,995         |        |               |        | 2,741  |       
|                                           |                                                                                                                 |                           |        |               |        |               |        |       
|                                           |                                                                                                                 | Total Current Assets      |        |               | 47,692 |               |        |        | 39,094 | 
|Property, plant and equipment, net         |                                                                                                                 |                           | 10,481 |               |        |               | 7,914  |       
|Deferred income taxes                      |                                                                                                                 |                           | 3,122  |               |        |               | 1,934  |       
|Goodwill                                   |                                                                                                                 |                           | 6,516  |               |        |               | 7,686  |       
|Intangible assets                          |                                                                                                                 |                           | 370    |               |        |               | 400    |       
|Other assets, net                          |                                                                                                                 |                           | 185    |               |        |               | 200    |       
|                                           |                                                                                                                 |                           |        |               |        |               |        |       
|                                           |                                                                                                                 | Total Assets              |        | $             | 68,366 |               |        | $      | 57,228 | 
|                                           |                                                                                                                 |                           |        |               |        |               |        |       
|LIABILITIES AND SHAREHOLDERS EQUITY       |                                                                                                                 |                           |        |               |        |               |        |       
|Current Liabilities                        |                                                                                                                 |                           |        |               |        |               |        |       
|Current portion of long-term debt          |                                                                                                                 | $                         |       |               |        | $             | 628    |       
|                                           | Accounts payable                                                                                                |                           |        | 6,037         |        |               |        | 5,798  |       
|                                           | Accrued salaries and benefits                                                                                   |                           |        | 2,344         |        |               |        | 1,874  |       
|                                           | Accrued expenses                                                                                                |                           |        | 3,842         |        |               |        | 2,910  |       
|                                           |                                                                                                                 |                           |        |               |        |               |        |       
|                                           |                                                                                                                 | Total Current Liabilities |        |               | 12,223 |               |        |        | 11,210 | 
|Accrued long-term pension liability        |                                                                                                                 |                           | 671    |               |        |               |       |       
|Long term debt                             |                                                                                                                 |                           |       |               |        |               | 890    |       
|Other long term liabilities                |                                                                                                                 |                           | 702    |               |        |               | 1,348  |       
|                                           |                                                                                                                 |                           |        |               |        |               |        |       
|Total Liabilities                          |                                                                                                                 | $                         | 13,596 |               |        | $             | 13,448 |       
|                                           |                                                                                                                 |                           |        |               |        |               |        |       
|Shareholders Equity                       |                                                                                                                 |                           |        |               |        |               |        |       
|                                           | Preferred stock, authorized 500,000, no shares issued                                                           |                           |        |              |        |               |        |       |       
|                                           | Common stock, $0.10 stated value, authorized 60,000,000
shares issued and outstanding 20,091,542 and 19,594,124 |                           |        | 2,009         |        |               |        | 1,959  |       
|                                           | Treasury stock, 44,442 and 44,442 shares, at cost                                                               |                           |        | (4            | )      |               |        | (4     | )     
|                                           | Additional paid-in capital                                                                                      |                           |        | 53,313        |        |               |        | 50,858 |       
|                                           | Accumulated deficit                                                                                             |                           |        | (293          | )      |               |        | (9,033 | )     
|                                           | Accumulated other comprehensive loss                                                                            |                           |        | (255          | )      |               |        |       |       
|                                           |                                                                                                                 |                           |        |               |        |               |        |       
|Total Shareholders Equity                 |                                                                                                                 |                           | 54,770 |               |        |               | 43,780 |       
|                                           |                                                                                                                 |                           |        |               |        |               |        |       
|Total Liabilities and Shareholders Equity |                                                                                                                 | $                         | 68,366 |               |        | $             | 57,228 |       
|                                           |                                                                                                                 |                           |        |               |        |               |        |       

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

36



---



##### Table of Contents






WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In thousands of dollars except and per share data)

|                                                          |                                     |   |             |            |      |   |        |            |   |   |        |            | 
|--------------------------------------------------------- | ----------------------------------- | - | ----------- | ---------- | ---- | - | ------ | ---------- | - | - | ------ | ---------- | 
|                                                          |                                     |   | Fiscal Year
|                                                          |                                     |  
|                                                          |                                     |   | 2002        |            | 2001 |   | 2000  
|                                                          |                                     |   |             |            |      |   |       
|Net sales                                                 |                                     | $ | 90,458      |            |      | $ | 96,761 |            |   | $ | 87,595 |           
|Cost of sales                                             |                                     |   | 61,558      |            |      |   | 70,360 |            |   |   | 56,424 |           
|                                                          |                                     |   |             |            |      |   |        |            |   |   |        |           
|Gross margin                                              |                                     |   | 28,900      |            |      |   | 26,401 |            |   |   | 31,171 |           
|                                                          |                                     |   |             |            |      |   |        |            |   |   |        |           
|Expenses:                                                 |                                     |   |             |            |      |   |        |            |   |   |        |           
|                                                          | Selling, general and administrative |   |             | 13,939     |      |   |        | 15,222     |   |   |        | 14,102     | 
|                                                          | Product development                 |   |             | 4,264      |      |   |        | 5,302      |   |   |        | 5,014      | 
|                                                          | Interest expense                    |   |             | 147        |      |   |        | 491        |   |   |        | 615        | 
|                                                          | Interest (income)                   |   |             | (165       | )    |   |        | (11        | ) |   |        |           | 
|                                                          | Amortization of intangible assets   |   |             | 1,587      |      |   |        | 1,144      |   |   |        | 753        | 
|                                                          |                                     |   |             |            |      |   |        |            |   |   |        |           
|                                                          | Total expenses                      |   |             | 19,772     |      |   |        | 22,148     |   |   |        | 20,484     | 
|                                                          |                                     |   |             |            |      |   |        |            |   |   |        |           
|Income before income taxes                                |                                     |   | 9,128       |            |      |   | 4,253  |            |   |   | 10,687 |           
|Provision for income taxes                                |                                     |   | 388         |            |      |   | 981    |            |   |   | 4,126  |           
|                                                          |                                     |   |             |            |      |   |        |            |   |   |        |           
|Net income                                                |                                     | $ | 8,740       |            |      | $ | 3,272  |            |   | $ | 6,561  |           
|                                                          |                                     |   |             |            |      |   |        |            |   |   |        |           
|Net income per common share  basic                       |                                     | $ | 0.44        |            |      | $ | 0.17   |            |   | $ | 0.37   |           
|                                                          |                                     |   |             |            |      |   |        |            |   |   |        |           
|Net income per common share-diluted                       |                                     | $ | 0.42        |            |      | $ | 0.16   |            |   | $ | 0.34   |           
|                                                          |                                     |   |             |            |      |   |        |            |   |   |        |           
|Weighted average number of common
shares and equivalents: |                                     |   |             |            |      |   |        |            |   |   |        |           
|                                                          | Basic                               |   |             | 19,815,162 |      |   |        | 19,230,781 |   |   |        | 17,544,136 | 
|                                                          | Diluted                             |   |             | 20,922,434 |      |   |        | 20,528,337 |   |   |        | 19,539,501 | 
|                                                          |                                     |   |             |            |      |   |        |            |   |   |        |           

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

37



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WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
(In thousands of dollars, except share data)

|                                                                                        |  |              |            |        |  |           |       |          |  |         |      |             |  |               |    |               |  |            |        |   |  |   |         |                   |  |       |      |   |  |   |        |  
|--------------------------------------------------------------------------------------- |  | ------------ | ---------- | ------ |  | --------- | ----- | -------- |  | ------- | ---- | ----------- |  | ------------- | -- | ------------- |  | ---------- | ------ | - |  | - | ------- | ----------------- |  | ----- | ---- | - |  | - | ------ | -
|                                                                                        |  |              |            |        |  |           |       |          |  |         |      |             |  |               |    |               | 
|                                                                                        |  |              |            |        |  |           |       |          |  |         |      |             |  |               |    |               |  | Additional |        |   |  |   |         | Accumulated Other |  | Total
|                                                                                        |  | Common       |            | Common |  | Preferred |       | Treasury |  | Paid-in |      | Accumulated |  | Comprehensive |    | Shareholders'
|                                                                                        |  | Stock Shares |            | Stock  |  | Stock     |       | Stock    |  | Capital |      | Deficit     |  | Loss          |    | Equity       
|                                                                                       
|Balance, October 2, 1999                                                                |  |              | 15,919,524 |        |  | $         | 1,591 |          |  | $       | 120  |             |  | $             | (4 | )             |  | $          | 37,272 |   |  | $ | (18,777 | )                 |  | $     |     |   |  | $ | 20,202 |  
|                                                                                       
|Net income                                                                              |  |              |            |        |  |           |       |          |  |         |      |             |  |               |    |               |  |            |        |   |  |   | 6,561   |                   |  |       |      |   |  |   | 6,561  |  
|Common stock issued for exercise
of options                                             |  |              | 1,025,984  |        |  |           | 103   |          |  |         |      |             |  |               |    |               |  |            | 2,071  |   |  |   |         |                   |  |       |      |   |  |   | 2,174  |  
|Tax benefit related to exercise
of stock options                                        |  |              |            |        |  |           |       |          |  |         |      |             |  |               |    |               |  |            | 2,793  |   |  |   |         |                   |  |       |      |   |  |   | 2,793  |  
|Payment of preferred dividend                                                           |  |              |            |        |  |           |       |          |  |         |      |             |  |               |    |               |  |            |        |   |  |   | (89     | )                 |  |       |      |   |  |   | (89    | )
|Conversion of preferred stock
to common stock                                           |  |              | 1,588,693  |        |  |           | 159   |          |  |         | (120 | )           |  |               |    |               |  |            | (57    | ) |  |   |         |                   |  |       |      |   |  |   | (18    | )
|                                                                                       
|Balance, September 30, 2000                                                             |  |              | 18,534,201 |        |  | $         | 1,853 |          |  | $       |     |             |  | $             | (4 | )             |  | $          | 42,079 |   |  | $ | (12,305 | )                 |  | $     |     |   |  | $ | 31,623 |  
|                                                                                       
|Net income                                                                              |  |              |            |        |  |           |       |          |  |         |      |             |  |               |    |               |  |            |        |   |  |   | 3,272   |                   |  |       |      |   |  |   | 3,272  |  
|Common stock issued for exercise
of options                                             |  |              | 245,423    |        |  |           | 25    |          |  |         |      |             |  |               |    |               |  |            | 294    |   |  |   |         |                   |  |       |      |   |  |   | 319    |  
|Tax benefit related to exercise
of stock options                                        |  |              |            |        |  |           |       |          |  |         |      |             |  |               |    |               |  |            | 574    |   |  |   |         |                   |  |       |      |   |  |   | 574    |  
|Common stock issued in
acquisition of Panelview                                         |  |              | 814,500    |        |  |           | 81    |          |  |         |      |             |  |               |    |               |  |            | 7,911  |   |  |   |         |                   |  |       |      |   |  |   | 7,992  |  
|                                                                                       
|Balance, September 29, 2001                                                             |  |              | 19,594,124 |        |  | $         | 1,959 |          |  | $       |     |             |  | $             | (4 | )             |  | $          | 50,858 |   |  | $ | (9,033  | )                 |  | $     |     |   |  | $ | 43,780 |  
|                                                                                       
|Net income                                                                              |  |              |            |        |  |           |       |          |  |         |      |             |  |               |    |               |  |            |        |   |  |   | 8,740   |                   |  |       |      |   |  |   | 8,740  |  
|Minimum pension liability,
net of tax of $156,000                                       |  |              |            |        |  |           |       |          |  |         |      |             |  |               |    |               |  |            |        |   |  |   |         |                   |  |       | (255 | ) |  |   | (255   | )
|                                                                                        |  |              |            |        |  |           |       |          |  |         |      |             |  |               |    |               |  |            |        |   |  |   |         |                   |  |       |      |   |  |   |        |  
|Total comprehensive income                                                              |  |              |            |        |  |           |       |          |  |         |      |             |  |               |    |               |  |            |        |   |  |   |         |                   |  |       |      |   |  |   | 8,485  |  
|                                                                                        |  |              |            |        |  |           |       |          |  |         |      |             |  |               |    |               |  |            |        |   |  |   |         |                   |  |       |      |   |  |   |        |  
|Common stock issued for exercise
of options                                             |  |              | 343,585    |        |  |           | 35    |          |  |         |      |             |  |               |    |               |  |            | 689    |   |  |   |         |                   |  |       |      |   |  |   | 724    |  
|Tax benefit related to exercise
of stock options                                        |  |              |            |        |  |           |       |          |  |         |      |             |  |               |    |               |  |            | 576    |   |  |   |         |                   |  |       |      |   |  |   | 576    |  
|Common stock issued through
employee stock purchase plan                                |  |              | 43,646     |        |  |           | 4     |          |  |         |      |             |  |               |    |               |  |            | 185    |   |  |   |         |                   |  |       |      |   |  |   | 190    |  
|Common stock held in escrow for
Panelview and common stock
issued for Panelview earnout |  |              | 110,187    |        |  |           | 11    |          |  |         |      |             |  |               |    |               |  |            | 1,005  |   |  |   |         |                   |  |       |      |   |  |   | 1,016  |  
|                                                                                       
|Balance, September 28, 2002                                                             |  |              | 20,091,542 |        |  | $         | 2,009 |          |  | $       |     |             |  | $             | (4 | )             |  | $          | 53,313 |   |  | $ | (293    | )                 |  | $     | (255 | ) |  | $ | 54,770 |  
|                                                                                       

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

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WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
(In thousands of dollars)

|                                                                                  |                                                       |                                   |        |               |       |               |         |               |        |   |         |       |        |  
|--------------------------------------------------------------------------------- | ----------------------------------------------------- | --------------------------------- | ------ | ------------- | ----- | ------------- | ------- | ------------- | ------ | - | ------- | ----- | ------ | -
|                                                                                  |                                                       |                                   |        |               |       |               |         | Year Ended    |        |   |         |      
|                                                                                  |                                                       |                                   |        | September 28, |       | September 29, |         | September 30,
|                                                                                  |                                                       |                                   |        | 2002          |       | 2001          |         | 2000         
|                                                                                  |                                                       |                                   |        |               |       |               |         |              
|OPERATING ACTIVITIES:                                                             |                                                       |                                   |        |               |       |               |         |               |        |   |         |      
|Net income                                                                        |                                                       | $                                 | 8,740  |               |       | $             | 3,272   |               |        | $ | 6,561   |      
|Adjustments to reconcile net income to net cash
provided by operating activities: |                                                       |                                   |        |               |       |               |         |               |        |   |         |      
|                                                                                  | Depreciation and amortization                         |                                   |        | 3,814         |       |               |         | 2,966         |        |   |         | 2,486 |       
|                                                                                  | Deferred income tax (benefit) expense                 |                                   |        | (2,286        | )     |               |         | (694          | )      |   |         | 119   |       
|                                                                                  | Tax benefit upon issuance of common stock for options |                                   |        | 576           |       |               |         | 574           |        |   |         | 2,793 |       
|                                                                                  | Loss on sale of fixed asset                           |                                   |        | 2             |       |               |         |              |        |   |         |      |       
|                                                                                  | Net changes in balance sheet accounts:                |                                   |        |               |       |               |         |               |        |   |         |       |       
|                                                                                  |                                                       | Accounts receivable               |        |               | (896  | )             |         |               | 1,803  |   |         |       | (4,284 | )
|                                                                                  |                                                       | Inventories                       |        |               | 600   |               |         |               | 8,749  |   |         |       | (9,301 | )
|                                                                                  |                                                       | Prepaid expenses                  |        |               | 19    |               |         |               | 1,248  |   |         |       | (1,398 | )
|                                                                                  |                                                       | Other assets                      |        |               | 13    |               |         |               | 34     |   |         |       | 17     |  
|                                                                                  |                                                       | Accounts payable                  |        |               | 239   |               |         |               | (6,071 | ) |         |       | 4,135  |  
|                                                                                  |                                                       | Accrued expenses                  |        |               | 2,289 |               |         |               | (151   | ) |         |       | (332   | )
|                                                                                  |                                                       | Other long-term liabilities       |        |               | (646  | )             |         |               | 94     |   |         |       | 62     |  
|                                                                                  |                                                       |                                   |        |               |       |               |         |               |        |   |         |      
|Net cash provided by operating activities                                         |                                                       | $                                 | 12,464 |               |       | $             | 11,824  |               |        | $ | 858     |      
|                                                                                  |                                                       |                                   |        |               |       |               |         |               |        |   |         |      
|INVESTING ACTIVITIES:                                                             |                                                       |                                   |        |               |       |               |         |               |        |   |         |      
|Acquisition of property, plant & equipment                                        |                                                       |                                   | (4,798 | )             |       |               | (1,626  | )             |        |   | (2,313  | )    
|Cash received in sale of fixed assets                                             |                                                       |                                   | 3      |               |       |               | 24      |               |        |   |        |      
|Cash payments for acquisition, net of cash acquired                               |                                                       |                                   |       |               |       |               | (531    | )             |        |   |        |      
|                                                                                  |                                                       |                                   |        |               |       |               |         |               |        |   |         |      
|Net cash (used in) investing activities                                           |                                                       | $                                 | (4,795 | )             |       | $             | (2,133  | )             |        | $ | (2,313  | )    
|                                                                                  |                                                       |                                   |        |               |       |               |         |               |        |   |         |      
|FINANCING ACTIVITIES:                                                             |                                                       |                                   |        |               |       |               |         |               |        |   |         |      
|Borrowings on line of credit                                                      |                                                       |                                   |       |               |       |               | 75,831  |               |        |   | 74,965  |      
|Repayments on line of credit                                                      |                                                       |                                   |       |               |       |               | (82,037 | )             |        |   | (73,488 | )    
|Borrowings of long-term debt                                                      |                                                       |                                   | 3,083  |               |       |               |        |               |        |   | 193     |      
|Retirement of long-term debt                                                      |                                                       |                                   | (4,601 | )             |       |               | (628    | )             |        |   | (730    | )    
|Issuance of common stock                                                          |                                                       |                                   | 914    |               |       |               | 319     |               |        |   | 2,174   |      
|Payment of preferred stock dividend                                               |                                                       |                                   |       |               |       |               |        |               |        |   | (89     | )    
|Redemption of preferred stock                                                     |                                                       |                                   |       |               |       |               |        |               |        |   | (18     | )    
|                                                                                  |                                                       |                                   |        |               |       |               |         |               |        |   |         |      
|Net cash provided by (used in) financing activities                               |                                                       | $                                 | (604   | )             |       | $             | (6,516  | )             |        | $ | 3,007   |      
|                                                                                  |                                                       |                                   |        |               |       |               |         |               |        |   |         |      
|Net change in cash                                                                |                                                       |                                   | 7,065  |               |       |               | 3,175   |               |        |   | 1,552   |      
|Cash at beginning of year                                                         |                                                       |                                   | 5,032  |               |       |               | 1,857   |               |        |   | 305     |      
|                                                                                  |                                                       |                                   |        |               |       |               |         |               |        |   |         |      
|Cash at end of year                                                               |                                                       | $                                 | 12,097 |               |       | $             | 5,032   |               |        | $ | 1,857   |      
|                                                                                  |                                                       |                                   |        |               |       |               |         |               |        |   |         |      
|SUPPLEMENTAL CASH FLOWS INFORMATION:                                              |                                                       |                                   |        |               |       |               |         |               |        |   |         |      
|Cash paid for interest                                                            |                                                       | $                                 | 119    |               |       | $             | 480     |               |        | $ | 612     |      
|Cash paid for income taxes                                                        |                                                       | $                                 | 2,277  |               |       | $             | 1,262   |               |        | $ | 18      |      
|                                                                                  |                                                       |                                   |        |               |       |               |         |               |        |   |         |      
|NON-CASH INVESTING AND FINANCING ACTIVITIES                                       |                                                       |                                   |        |               |       |               |         |               |        |   |         |      
|Conversion of Preferred Stock                                                     |                                                       | $                                 |       |               |       | $             |        |               |        | $ | 102     |      
|                                                                                  |                                                       |                                   |        |               |       |               |         |               |        |   |         |      
|Details of acquisition                                                            |                                                       |                                   |        |               |       |               |         |               |        |   |         |      
|                                                                                  |                                                       | Fair value of assets acquired     |        | $             |      |               |         | $             | 2,645  |   |         | $     |       |  
|                                                                                  |                                                       | Fair value of liabilities assumed |        |               |      |               |         |               | (2,162 | ) |         |       |       |  
|                                                                                  |                                                       |                                   |        |               |       |               |         |               |        |   |         |      
|Net assets acquired                                                               |                                                       | $                                 |       |               |       | $             | 483     |               |        | $ |        |      
|Acquisition costs                                                                 |                                                       |                                   |       |               |       |               | 142     |               |        |   |        |      
|                                                                                  |                                                       |                                   |        |               |       |               |         |               |        |   |         |      
|Stock issued in connection with the merger                                        |                                                       | $                                 | 1,016  |               |       | $             | 7,992   |               |        | $ |        |      
|                                                                                  |                                                       |                                   |        |               |       |               |         |               |        |   |         |      

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

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WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     NATURE OF OPERATIONS

White Electronic Designs Corporation, formerly Bowmar Instrument Corporation
and its subsidiaries (collectively the Company) design and manufacture high
density, microelectronic memory products, advanced matrix liquid crystal
displays, interface products, and electromechanical components and packages.
The Companys customers include both domestic and international original
equipment manufacturers in the telecommunications, defense and instrumentation
industries. The Company operates under two business segments, microelectronics
and display, with the majority of sales and operating income generated by the
microelectronic business segment.



|2. |  | MERGER AND ACQUISITION
|-- |  | ----------------------

On October 26, 1998, Bowmar Instrument Corporation (Bowmar) merged with
Electronic Designs, Inc. (EDI). In connection with the merger, Bowmar
changed its name to White Electronic Designs Corporation. While Bowmar was the
legal acquirer, the merger was accounted for as a reverse acquisition purchase
whereby EDI was deemed to have acquired Bowmar for financial reporting
purposes. The operations of both companies combined as White Electronic
Designs Corporation have been included in the financial statements from the
date of the merger.

On January 29, 2001 the Company completed the acquisition of Panelview, Inc., a
manufacturer of display products located in Oregon. Panelview provides optical
enhancements to display products sold to the transportation, medical and
instrumentation markets. The operations of this subsidiary are included in the
financial statements from the date of the merger.

The Company issued 905,000 shares of common stock on January 31, 2001 in
exchange for all of the outstanding shares of Panelview. Based on the average
market price of the Companys common stock in the period just prior to the
acquisition date, the transaction had a value of approximately $9.1 million.
This amount consists of $9,008,000 based on the market value of 905,000 shares
of common stock, and $142,000 of direct acquisition costs. In addition, the
former shareholders of Panelview, pursuant to the purchase agreement, had the
potential to earn up to an additional $1 million of the Companys common stock
if certain revenue and operating contribution targets were met over the
twelve-month period from February 2001 through January 2002. Panelview did not
meet the requirements of its earn-out targets during the period primarily
because expected new business from a large customer did not begin until later
in the year than previously anticipated, and additional business from an
existing large customer was also delayed during this period. Approximately 87%
of the revenue target was met. Therefore, the Company issued 19,687 shares on
March 7, 2002, for a total value of $127,667, to the former shareholders of
Panelview, Inc. The operating contribution target was not met therefore no
shares were issued for that component of the purchase agreement.

As part of the purchase agreement, 90,500 shares of common stock were held
in escrow pending any potential claims that could have arisen against
Panelview. There were no claims against Panelview during the period of
February 2001 through January 2002. Therefore, the 90,500 shares that were
issued on January 31, 2001, and held back pursuant to the escrow agreement were
delivered on March 5, 2002.

Panelview operates as a wholly owned subsidiary of the Company and is included
in the display segment. The combination was treated as a purchase for
financial reporting purposes based on the following data:

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WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                  |  |   |            | 
|------------------------------------------------- |  | - | ---------- | 
|Purchase Price based on Stock & Acquisition Costs |  | $ | 9,150,268  | 
|Liabilities Assumed                               |  |   | 2,161,632  | 
|                                                  |  |   |            | 
|Total Purchase Cost                               |  | $ | 11,311,900 | 
|Assets Received                                   |  |   | 2,644,611  | 
|                                                  |  |   |            | 
|Acquired Goodwill                                 |  | $ | 8,667,289  | 
|Amortized Goodwill through September 28, 2002     |  | $ | 2,151,244  | 
|Goodwill remaining as of September 28, 2002       |  | $ | 6,516,045  | 
|                                                  |  |   |            | 

The Company will adopt SFAS 142 in fiscal 2003, which will stop the
amortization of the remaining goodwill on a monthly basis. Instead, the
remaining goodwill amount will be tested at least annually for impairment, and
any adjustments to the carrying value of the goodwill, if needed, will be taken
at that time.

The following unaudited pro forma information shows the results of operations
for fiscal year 2001, assuming the companies had been combined as of October 1,
2000. This pro forma information may not be indicative of the results that
actually would have happened if the companies had been combined for the entire
periods presented, and is not intended to be a projection of future results.

|                           |  |                    |            | 
|-------------------------- |  | ------------------ | ---------- | 
|(In thousands of dollars) 
|                           |  | Fiscal Year Ending
|                           |  | September 29, 2001
|                           |  |                   
|Revenues                   |  | $                  | 99,871     | 
|Cost of sales              |  |                    | 73,075     | 
|                           |  |                    |            | 
|Gross margin               |  |                    | 26,796     | 
|Operating expenses         |  |                    | 23,491     | 
|                           |  |                    |            | 
|Income before taxes        |  |                    | 3,305      | 
|Provision for income taxes |  |                    | 783        | 
|                           |  |                    |            | 
|Net income                 |  | $                  | 2,522      | 
|                           |  |                    |            | 
|Basic shares               |  |                    | 19,502,010 | 
|Earnings per share  basic |  | $                  | 0.13       | 
|                           |  |                    |            | 



|3. |  | SIGNIFICANT ACCOUNTING POLICIES
|-- |  | -------------------------------



| | a. |  | Principles of Consolidation                                                                                                                                                                                                                                                                                          
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    |  | The consolidated financial statements include the accounts of the
Company. All significant inter-company accounts and transactions are
eliminated. Certain amounts in prior fiscal years consolidated
financial statements have been reclassified to conform to the current
year presentation.                      
|
| | b. |  | Fiscal Year-End                                                                                                                                                                                                                                                                                                      
|
| |    |  | The Companys fiscal year-end is the Saturday nearest September 30.                                                                                                                                                                                                                                                  
|
| | c. |  | Fair Value of Financial Instruments                                                                                                                                                                                                                                                                                  
|
| |    |  | The Company values financial instruments as required by SFAS No. 107,
Disclosures about Fair Value of Financial Instruments (SFAS No. 107).
The carrying amounts of cash and cash equivalents and bank notes payable
approximate fair value due to the short maturity of those instruments.
The carrying amounts of

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WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| |    |  | account receivables and accounts payable approximate their fair value due
to the relatively short maturity of these items.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | d. |  | Cash and Cash Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |    |  | The Company considers all highly liquid debt instruments and money market
funds purchased with an initial maturity of three months or less to be
cash equivalents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | e. |  | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |    |  | Inventories are valued at the lower of cost or market with cost
determined using the average or standard costs methods, with standard
costs approximating actual.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | f. |  | Property, Plant and Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |    |  | Property, plant and equipment, including property under capital
lease agreements, are stated at cost. Depreciation is determined on a
straight-line basis over the estimated useful lives ranging from 5 to 20
years for buildings and improvements and 3 to 7 years for machinery and
equipment. Leasehold improvements are amortized over the lives of the
leases or estimated useful lives of the assets, whichever is less. When
assets are sold or otherwise retired, the cost and accumulated
depreciation are removed from the books and the resulting gain or loss is
included in operating results. The Company periodically evaluates the
carrying value of its long-lived assets in accordance with SFAS 121
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, based upon the estimated cash flows to be
generated by the related assets.                                                                                                                                                                                                                                           
|
| | g. |  | Goodwill and Intangible Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |    |  | Goodwill and intangible assets represent the goodwill generated from the
January 29, 2001 acquisition of Panelview and identified intangible
assets from the October 26, 1998 merger with White Electronic Designs
Corporation. The goodwill from the Panelview acquisition was amortized
monthly from February 2001 through September 2002. As discussed below,
the Company will adopt SFAS 142 beginning in October 2002, and will stop
amortization based on that standards requirements. The intangible
assets are being amortized over periods ranging from four to five years,
and will continue to amortize through October 2003. The Company
periodically evaluates the carrying value of its goodwill and intangible
assets in accordance with SFAS 121 Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, based
upon the estimated cash flows to be generated by the related assets.                                                                                                                                                                                                 
|
| | h. |  | Government Contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |    |  | Sales under government contracts, which are usually based on firm fixed
price contracts, are recorded when the units are shipped and accepted by
the government.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |    |  | The Companys subcontracts provide that they may be terminated at the
convenience of the U.S. Government. Upon such termination, the
contractor is normally entitled to receive the purchase price for
delivered items, reimbursement for allowable costs incurred and allocable
to the contract and an allowance for profit on the allowable costs
incurred or adjustment for loss if completion of performance would have
resulted in a loss. In addition, the Companys subcontracts provide for
termination for default if the Company fails to perform or breaches a
material obligation of a subcontract. In the event of a termination for
default, the customer may have the unilateral right at any time to
require the Company to return unliquidated progress payments pending
final resolution of the propriety of the termination for default. The
Company may also have to pay the excess, if any, of the cost of
purchasing a substitute item from a third party. If the customer has
suffered other ascertainable damages as a result of a sustained default,
the customer could demand payment of such damages by the Company.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | i. |  | Sales Recognition and Accounts Receivable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    |  | The majority of the Companys sales are recognized when the
products are shipped to the customer. Shipping terms are FOB
shipping point, and title passes to the customer at shipment. There
are no other obligations to the customer after shipment. Some
product shipments to distributors may be returned based on
conditions set forth in their distributor agreement. Therefore,
product sales on these shipments to distributors are not recognized
until the distributor sells the products to the end user. The
Company also maintains reserves for warranty return expense based on
normal return rates. In addition, the Company has reserves for
potential credit losses, and distributor price protection
adjustments. Based on historical experience, the Company believes
it has adequate reserves to account for potential losses or
adjustments. Write-offs for uncollectible accounts totaled $209,454
in fiscal 2002, $95,644 in fiscal 2001, and $112,188 in fiscal 2000.
|
| | j. |  | Shipping Costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |    |  | Shipping costs include freight/mailing charges associated with delivery
of goods from the Companys facility to the customers designated
locations. The Companys policy is to classify shipping costs as part of
cost of goods sold in the statement of income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | k. |  | 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
carry forwards.                                                                                                                                                                                                                                                                                                                                                                                   
|
| | l. |  | Newly Issued Accounting Standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |    |  | In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141 (SFAS 141), Business
Combinations, and No. 142 (SFAS 142), Goodwill and Other Intangible
Assets, collectively referred to as the Standards. SFAS 141 supersedes
Accounting Principles Board Opinion (APB) No. 16, Business Combination.
The provisions of SFAS 141 (1) require that the purchase method of
accounting be used for all business combinations initiated after June 30,
2001, (2) provide specific criteria for the initial recognition and
measurement of intangible assets apart from goodwill, and (3) require
that negative goodwill be written off immediately as an extraordinary
gain instead of being deferred and amortized. SFAS 141 also requires
that upon adoption of SFAS 142, the Company reclassify the carrying
amounts of certain intangible assets into or out of goodwill, based on
certain criteria.                           
|
| |    |  | SFAS 142 supersedes APB 17, Intangible Assets, and is effective for
fiscal years beginning after December 15, 2001. SFAS 142 primarily
addresses the accounting for goodwill and intangible assets subsequent to
their initial recognition. The provisions of SFAS 142 (1) prohibit the
amortization of goodwill and indefinite-lived intangible assets, (2)
require that goodwill and indefinite-lived intangibles assets be tested
at least annually for impairment (and in interim periods if certain
events occur indicating that the carrying value of goodwill and/or
indefinite-lived intangible assets may be impaired), (3) require that
reporting units be identified for the purpose of assessing potential
future impairments of goodwill, and (4) remove the forty-year limitation
on the amortization period of intangible assets that have finite lives.                                                                                                                     
|
| |    |  | SFAS 142 requires that goodwill be tested annually for impairment using a
two-step process. The first step is to identify a potential impairment
and, in transition, this step must be measured as of the beginning of the
fiscal year. However, a company has six months from the date of adoption
to complete the first step. The Company expects to complete that first
step of the goodwill impairment test during the first quarter of fiscal                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| |    |  | 2003.  The second step of the goodwill impairment test measures the
amount of the impairment loss (measured as of the beginning of the year
of adoption), if any, and must be completed by the end of the Companys
fiscal year. Intangible assets deemed to have an indefinite life will be
tested for impairment using a one-step process, which compares the fair
value to the carrying amount of the asset as of the beginning of the
fiscal year, and pursuant to the requirements of SFAS 142, will be
completed during the first quarter of fiscal 2003. Any impairment loss
resulting from the transitional impairment tests will be reflected as the
cumulative effect of a change in accounting principle in the first
quarter of fiscal 2003.
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    |  | The Company intends to adopt the provisions of SFAS 142 for fiscal year
2003, which begins September 29, 2002. At that time, the Company will
stop the amortization of Panelview purchased goodwill and will assess the
need for any changes in the remaining goodwill asset based on valuations
performed at that time. Because of the goodwill amortization through the
end of fiscal 2002 and the increasing sales and profits at the Panelview
subsidiary, the Company, at this time, believes that an impairment charge
will not be needed in the first quarter of fiscal 2003. The actual
result will not be known until completion of the impairment tests.                                                                                      
|
| |    |  | In June 2001, the FASB issued
FAS 143 Accounting for Asset Retirement Obligations. FAS 143 changes the way in which long-lived asset retirement
obligations are recognized on the balance sheet and income statement.
The Company believes that adoption of this standard will have no
material effect on the Companys financial reporting and
disclosure.                                                                                                                                                                                                                                                                                                                                                                                             
|
| |    |  | In August 2001, the FASB issued
FAS 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. FAS 144 requires that one accounting model be used for
long-lived assets to be disposed of by sale. The Company believes
that adoption of this standard will have no material effect on the
Companys financial reporting and disclosure.                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |    |  | In April 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 145 (SFAS 145), which
rescinded and amended the Boards position concerning gains and losses on
the extinguishments of debt, intangible assets of motor carriers, and
certain lease modifications. The Company believes that adoption of this
standard will have no material effect on its financial position and
results of operations.                                                                                                                                                                                                                                                                                          
|
| |    |  | In June 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 146 (SFAS No. 146),
Accounting for Costs Associated with Exit or Disposal Activities. This
statement nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, and
removes the previous requirement to record a liability for the costs
associated with exit activities when a company commits to an exit plan.
SFAS 146 now requires a company to record a liability for costs
associated with an exit activity, at fair value, only when a liability is
incurred. The Company believes that adoption of this standard will have
no material effect on the Companys financial reporting and disclosure.                        
|
| | m. |  | Accounting Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |    |  | The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates.                                                                                                                                                                                                                                                                                                        
|
| | n. |  | Research and Development                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |    |  | Expenditures for product development are expensed as incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|4. |  | INVENTORIES
|-- |  | -----------

Inventories consist of the following:

|                                            |  |                    |            |                    |  |   |            |  |  |  |  | 
|------------------------------------------- |  | ------------------ | ---------- | ------------------ |  | - | ---------- |  |  |  |  | 
|                                            |  | September 29, 2002 |            | September 29, 2001 |  |  
|                                            |  |                    |            |                    |  |  
|Raw materials                               |  | $                  | 9,546,000  |                    |  | $ | 8,396,000  |  |  |  |  | 
|Work-in-process                             |  |                    | 5,215,000  |                    |  |   | 6,402,000  |  |  |  |  | 
|Finished goods                              |  |                    | 1,348,000  |                    |  |   | 1,909,000  |  |  |  |  | 
|                                            |  |                    |            |                    |  |   |            |  |  |  |  | 
|Total inventories                           |  | $                  | 16,109,000 |                    |  | $ | 16,707,000 |  |  |  |  | 
|                                            |  |                    |            |                    |  |   |            |  |  |  |  | 
|Reserve for excess and obsolete inventories |  | $                  | 4,876,000  |                    |  | $ | 5,084,000  |  |  |  |  | 
|                                            |  |                    |            |                    |  |   |            |  |  |  |  | 

During the second quarter of Fiscal 2001, the Company undertook a review of its
microelectronic inventories in regard to slowing demand for products in the
electronics industries. Based on this analysis, the Company took a reserve
against inventory of $3,000,000 for items in which there was limited visibility
of demand over the next twelve months. The charge for this reserve was
recorded in the Companys cost of revenue amount.



|5. |  | INTANGIBLE ASSETS AND GOODWILL
|-- |  | ------------------------------

The intangible asset balances and related accumulated amortization as of Fiscal
year end 2002 and 2001 are as follows:

|                                     |                                                         |   |             |            |             |   |           |           |  
|------------------------------------ | ------------------------------------------------------- | - | ----------- | ---------- | ----------- | - | --------- | --------- | -
|                                     |                                                         |   | Fiscal 2002 |            | Fiscal 2001
|                                     |                                                         |   |             |            |            
|Goodwill:                            |                                                         |   |             |            |             |   |           |          
|                                     | Gross intangible assets   January 29, 2001 acquisition |   | $           | 8,667,289  |             |   | $         | 8,539,622 |  
|                                     | Accumulated Amortization  January 29, 2001 acquisition |   |             | (2,151,244 | )           |   |           | (853,960  | )
|                                     |                                                         |   |             |            |             |   |           |          
|Total goodwill                       |                                                         |   | 6,516,045   |            |             |   | 7,685,662 |          
|Intangible assets:                   |                                                         |   |             |            |             |   |           |          
|                                     | Gross intangible assets   October 26, 1998 merger      |   |             | 1,247,000  |             |   |           | 1,247,000 |  
|                                     | Accumulated Amortization  October 26, 1998 merger      |   |             | (1,137,400 | )           |   |           | (847,000  | )
|                                     | Intangible asset related to future pension funding      |   |             | 260,000    |             |   |           |          |  
|                                     |                                                         |   |             |            |             |   |           |          
|Total intangible assets              |                                                         |   | 369,600     |            |             |   | 400,000   |          
|                                     |                                                         |   |             |            |             |   |           |          
|Total goodwill and intangible assets |                                                         | $ | 6,885,645   |            |             | $ | 8,085,662 |          
|                                     |                                                         |   |             |            |             |   |           |          



|6. |  | PROPERTY, PLANT AND EQUIPMENT
|-- |  | -----------------------------

Property, plant and equipment consists of the following:

|                                               |  |                    |            |                    |  |   |            |  
|---------------------------------------------- |  | ------------------ | ---------- | ------------------ |  | - | ---------- | -
|                                               |  | September 29, 2002 |            | September 29, 2001
|                                               |  |                    |            |                   
|Land                                           |  | $                  | 246,000    |                    |  | $ | 246,000    |  
|Buildings and improvements                     |  |                    | 634,000    |                    |  |   | 611,000    |  
|Machinery and equipment                        |  |                    | 11,527,000 |                    |  |   | 7,784,000  |  
|Tooling                                        |  |                    | 1,487,000  |                    |  |   | 1,487,000  |  
|Furniture and fixtures                         |  |                    | 2,259,000  |                    |  |   | 1,807,000  |  
|Leasehold improvements                         |  |                    | 2,121,000  |                    |  |   | 1,979,000  |  
|                                               |  |                    |            |                    |  |   |            |  
|Total, at cost                                 |  |                    | 18,274,000 |                    |  |   | 13,914,000 |  
|Less accumulated depreciation and amortization |  |                    | (7,793,000 | )                  |  |   | (6,000,000 | )
|                                               |  |                    |            |                    |  |   |            |  
|Net property, plant, and equipment             |  | $                  | 10,481,000 |                    |  | $ | 7,914,000  |  
|                                               |  |                    |            |                    |  |   |            |  

Depreciation expense was $2,227,000, $1,822,000, and $1,733,000 for fiscal
years 2002, 2001, and 2000 , respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.     ACCRUED EXPENSES

Other accrued expenses consists of the following major categories:

|                             |  |                    |           |                    |  |   |           | 
|---------------------------- |  | ------------------ | --------- | ------------------ |  | - | --------- | 
|                             |  | Year Ending       
|                             |  |                   
|                             |  | September 28, 2002 |           | September 29, 2001
|                             |  |                    |           |                   
|Sales commission             |  | $                  | 648,473   |                    |  | $ | 699,535   | 
|Panelview purchase liability |  |                    |          |                    |  |   | 888,031   | 
|Income taxes                 |  |                    | 1,392,053 |                    |  |   | 420,824   | 
|Warranty reserve             |  |                    | 798,299   |                    |  |   | 156,071   | 
|Other accruals               |  |                    | 1,003,447 |                    |  |   | 745,656   | 
|                             |  |                    |           |                    |  |   |           | 
|Total other accrued expenses |  | $                  | 3,842,272 |                    |  | $ | 2,910,117 | 
|                             |  |                    |           |                    |  |   |           | 



|8. |  | LONG-TERM DEBT
|-- |  | --------------

Long-term debt consists of the following:

|                                  |  |                    |   |                    |  |   |           |  
|--------------------------------- |  | ------------------ | - | ------------------ |  | - | --------- | -
|                                  |  | September 28, 2002 |   | September 29, 2001
|                                  |  |                    |   |                   
|Term loan, Bank One               |  | $                  |  |                    |  | $ | 1,518,000 |  
|Bank One revolving line of credit |  |                    |  |                    |  |   |          |  
|                                  |  |                    |   |                    |  |   |           |  
|Sub-total                         |  |                    |  |                    |  |   | 1,518,000 |  
|Less Current Portion              |  |                    |  |                    |  |   | (628,000  | )
|                                  |  |                    |   |                    |  |   |           |  
|Total long-term debt              |  | $                  |  |                    |  | $ | 890,000   |  
|                                  |  |                    |   |                    |  |   |           |  

The availability of cash under the revolving line of credit is based on
eligible accounts receivable and inventories. There is a charge of 1/4 of 1%
per month on the unused portion of the line of credit, and the line has a
maximum borrowing availability of $8.0 million. The line of credit charges
interest at the Bank One prime rate, which is similar to the prime rate
changed by major banking institutions in the United States, and expires March
29, 2004.

The revolving line of credit agreement includes a covenant that precludes the
payment of cash dividends on common stock, and other financial covenants
including tangible net worth and minimum debt service coverage.

The weighted average interest rate on long-term debt for fiscal 2002, 2001, and
2000 was approximately 4.84%, 7.98%, and 9.05% respectively.

Long-term debt maturity schedule:

|             |      |               |   |   | 
|------------ | ---- | ------------- | - | - | 
|Fiscal Year  |      | Bank One Loan
|             |      |               |  
|             | 2003 |               | $ |  | 
|             | 2004 |               |   |  | 
|             | 2005 |               |   |  | 
|             | 2006 |               |   |  | 
|             | 2007 |               |   |  | 
|             |      |               |   |  
|5 year total |      | $             |  |  
|             |      |               |   |  

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|9. |  | INCOME TAXES
|-- |  | ------------

The provision for income taxes consists of the following:

|                     |               |         |            |           |            |      |          |             |           |   |           |           |           | 
|-------------------- | ------------- | ------- | ---------- | --------- | ---------- | ---- | -------- | ----------- | --------- | - | --------- | --------- | --------- | 
|                     |               |         |            |           |            |      |          | Fiscal Year |           |   |           |          
|                     |               |         |            | 2002      |            | 2001 |          | 2000       
|                     |               |         |            |           |            |      |          |            
|Current              |               |         |            |           |            |      |          |             |           |   |           |          
|                     |               | Federal |            | $         | 2,408,000  |      |          | $           | 1,531,000 |   |           | $         | 3,428,000 | 
|                     |               | State   |            |           | 265,000    |      |          |             | 144,000   |   |           |           | 579,000   | 
|                     |               |         |            |           |            |      |          |             |           |   |           |          
|                     | Total Current |         |            | 2,673,000 |            |      |          | 1,675,000   |           |   |           | 4,007,000 |          
|                     |               |         |            |           |            |      |          |             |           |   |           |          
|Deferred             |               |         |            |           |            |      |          |             |           |   |           |          
|                     |               | Federal |            |           | (2,111,000 | )    |          |             | (537,000  | ) |           |           | 89,000    | 
|                     |               | State   |            |           | (174,000   | )    |          |             | (157,000  | ) |           |           | 30,000    | 
|                     |               |         |            |           |            |      |          |             |           |   |           |          
|Total Deferred       |               |         | (2,285,000 | )         |            |      | (694,000 | )           |           |   | 119,000   |          
|                     |               |         |            |           |            |      |          |             |           |   |           |          
|Income tax provision |               | $       | 388,000    |           |            | $    | 981,000  |             |           | $ | 4,126,000 |          
|                     |               |         |            |           |            |      |          |             |           |   |           |          

A reconciliation between the U.S. statutory and effective income tax rates is
as follows:

|                                     |  |      |            |      |  |             |           |   |  |   |           | 
|------------------------------------ |  | ---- | ---------- | ---- |  | ----------- | --------- | - |  | - | --------- | 
|                                     |  |      |            |      |  | Fiscal Year |           |   |  |  
|                                     |  | 2002 |            | 2001 |  | 2000       
|                                     |  |      |            |      |  |            
|Provision at statutory rate          |  | $    | 3,104,000  |      |  | $           | 1,446,000 |   |  | $ | 3,634,000 | 
|State taxes, net of federal benefit  |  |      | 365,000    |      |  |             | 149,000   |   |  |   | 402,000   | 
|Federal and state credits            |  |      | (504,000   | )    |  |             | (900,000  | ) |  |   |          | 
|Extraterritorial income exclusion    |  |      | (365,000   | )    |  |             |          |   |  |   |          | 
|Non-deductible goodwill amortization |  |      | 493,000    |      |  |             | 320,000   |   |  |   |          | 
|Valuation allowance and reserves     |  |      | (2,773,000 | )    |  |             |          |   |  |   |          | 
|Other                                |  |      | 68,000     |      |  |             | (34,000   | ) |  |   | 90,000    | 
|                                     |  |      |            |      |  |             |           |   |  |   |           | 
|Effective tax                        |  | $    | 388,000    |      |  | $           | 981,000   |   |  | $ | 4,126,000 | 
|                                     |  |      |            |      |  |             |           |   |  |   |           | 

The income tax effect of loss carry forwards, tax credit carry forwards and
temporary differences between financial and tax reporting give rise to the
deferred income assets and liabilities. Such deferred income tax assets and
liabilities consisted of the following:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|           |                                        |          |           |           |                    |           |                    |            |           |           | 
|---------- | -------------------------------------- | -------- | --------- | --------- | ------------------ | --------- | ------------------ | ---------- | --------- | --------- | 
|           |                                        |          |           |           | September 28, 2002 |           | September 29, 2001
|           |                                        |          |           |           |                    |           |                   
|Current:   |                                        |          |           |           |                    |           |                    |           
|           | Allowance for doubtful accounts        |          | $         | 202,000   |                    |           | $                  | 212,000    |          
|           | Inventories                            |          |           | 3,081,000 |                    |           |                    | 2,638,000  |          
|           | Plant, property, and equipment         |          |           |          |                    |           |                    |           |          
|           | Deferred revenue                       |          |           | 73,000    |                    |           |                    | 26,000     |          
|           | Accrued expenses and other liabilities |          |           | 157,000   |                    |           |                    | 390,000    |          
|           | Net operating loss carry forwards      |          |           | 482,000   |                    |           |                    | 482,000    |          
|           | Deferred tax asset valuation allowance |          |           |          |                    |           |                    | (1,007,000 | )        
|           |                                        |          |           |           |                    |           |                    |           
|           |                                        |          | Subtotal  |           | $                  | 3,995,000 |                    |            | $         | 2,741,000 | 
|           |                                        |          |           |           |                    |           |                    |           
|Long term: |                                        |          |           |           |                    |           |                    |           
|           | Property, plant, and equipment         |          | $         | (639,000  | )                  |           | $                  | (749,000   | )        
|           | Intangible assets                      |          |           | (43,000   | )                  |           |                    | (157,000   | )        
|           | Net operating loss carry forwards      |          |           | 2,694,000 |                    |           |                    | 3,629,000  |          
|           | Tax credits                            |          |           | 504,000   |                    |           |                    |           |          
|           | Other                                  |          |           | 606,000   |                    |           |                    | (79,000    | )        
|           | Deferred tax asset valuation allowance |          |           |          |                    |           |                    | (710,000   | )        
|           |                                        |          |           |           |                    |           |                    |           
|           |                                        | Subtotal |           | $         | 3,122,000          |           |                    | $          | 1,934,000 |          
|           |                                        |          |           |           |                    |           |                    |           
|Total      |                                        | $        | 7,117,000 |           |                    | $         | 4,675,000          |           
|           |                                        |          |           |           |                    |           |                    |           

During the fourth quarter of fiscal year 2002, the Company reduced its
valuation allowance of $1.7 million relating to its net operating loss carry
forwards, as the Company believes it is more likely than not that it will
realize a benefit for the deferred tax assets. In addition, the Company
reversed approximately $1.1 million of income tax reserves that had been
recorded in previous years.

As of September 28, 2002, the Company had federal net operating loss carry
forwards of approximately $10,324,000, which expire at various dates through
2018. In addition, the Company has state tax net operating loss carry forwards
of $1,688,000, which expire at various dates through 2003.

Ownership changes, as defined in Internal Revenue Code Section 382, have
limited the amount of net operating loss and tax credit carry forwards that can
be utilized by the Company annually to offset future taxable income and
liability.

(In thousands of dollars)

|                                        |  |              |        |            |  |            |       |             |  |           |  |         |  |  |  |  |  |   |        |  
|--------------------------------------- |  | ------------ | ------ | ---------- |  | ---------- | ----- | ----------- |  | --------- |  | ------- |  |  |  |  |  | - | ------ | -
|                                        |  | Balance at   |        | Charged to |  | Charged to |       |             |  |           |  | Balance
|                                        |  | Beginning of |        | Costs and  |  | Other      |       | Deductions/ |  | at End   
|Description                             |  | Period       |        | Expenses   |  | Accounts   |       | Writeoffs   |  | of Period
|                                        |  |              |        |            |  |            |       |             |  |          
|Deferred Tax Asset Valuation Allowance: |  |              |        |            |  |            |       |             |  |           |  |         |  |  |  |  |  |   |        |  
|Year ended September 29, 2001           |  | $            | (1,717 | )          |  |            |       |             |  |           |  |         |  |  |  |  |  | $ | (1,717 | )
|Year ended September 28, 2002           |  | $            | (1,717 | )          |  |            | 1,717 |             |  |           |  |         |  |  |  |  |  | $ |       |  

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WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|10. |  | BENEFIT PLAN
|--- |  | ------------

The following table summarizes information relating to the Companys defined
benefit pension plan for union employees at its Fort Wayne, Indiana facility
pursuant to a collective bargaining agreement. Benefits are based primarily on
a benefits multiplier and years of service. The Company funds the amount equal
to the minimum funding required plus additional amounts which may be approved
by the Company from time to time. The Company recognized a minimum pension liability of $255,000, net of
tax, and a long-term pension liability of $671,000 on its balance sheet for fiscal 2002 relating to the
decrease in value of plan assets during the year.

|                                                   |                                                           |   |               |           |               |   |               |           |   |   |        |          |  
|-------------------------------------------------- | --------------------------------------------------------- | - | ------------- | --------- | ------------- | - | ------------- | --------- | - | - | ------ | -------- | -
|                                                   |                                                           |   | September 28, |           | September 29, |   | September 30,
|                                                   |                                                           |   | 2002          |           | 2001          |   | 2000         
|                                                   |                                                           |   |               |           |               |   |              
|Reconciliation of Projected Benefit Obligation     |                                                           |   |               |           |               |   |               |           |   |   |        |         
|                                                   | Benefit obligation beginning of year                      |   | $             | 2,346,754 |               |   | $             | 2,233,223 |   |   |        |          |  
|                                                   | Service Cost                                              |   |               | 50,031    |               |   |               | 44,510    |   |   |        |          |  
|                                                   | Interest cost                                             |   |               | 172,206   |               |   |               | 160,878   |   |   |        |          |  
|                                                   | Benefits paid                                             |   |               | (128,951  | )             |   |               | (134,823  | ) |   |        |          |  
|                                                   | Actuarial (gain) loss                                     |   |               | 318,709   |               |   |               | 42,966    |   |   |        |          |  
|                                                   |                                                           |   |               |           |               |   |               |           |   |   |        |         
|Benefit obligation-end of year                     |                                                           |   | 2,758,749     |           |               |   | 2,346,754     |           |   |   |        |         
|                                                   |                                                           |   |               |           |               |   |               |           |   |   |        |         
|Reconciliation of Fair Value of Plan Assets        |                                                           |   |               |           |               |   |               |           |   |   |        |         
|Plan assets at fair market value-beginning of year |                                                           | $ | 2,256,417     |           |               | $ | 2,412,928     |           |   |   |        |         
|                                                   | Actual return on plan assets                              |   |               | (226,339  | )             |   |               | (5,354    | ) |   |        |          |  
|                                                   | Employer contributions                                    |   |               | 149,245   |               |   |               | 8,745     |   |   |        |          |  
|                                                   | Benefits paid                                             |   |               | (128,951  | )             |   |               | (134,823  | ) |   |        |          |  
|                                                   | Expenses                                                  |   |               | (24,592   | )             |   |               | (25,079   | ) |   |        |          |  
|                                                   |                                                           |   |               |           |               |   |               |           |   |   |        |         
|Plan assets at fair market value-end of year       |                                                           | $ | 2,025,780     |           |               | $ | 2,256,417     |           |   |   |        |         
|                                                   |                                                           |   |               |           |               |   |               |           |   |   |        |         
|Funded Status                                      |                                                           | $ | (732,969      | )         |               | $ | (90,337       | )         |   |   |        |         
|                                                   | Unrecognized prior service cost                           |   |               | 260,023   |               |   |               | 136,152   |   |   |        |          |  
|                                                   | Unrecognized actuarial (gain) loss                        |   |               | 410,515   |               |   |               | (125,713  | ) |   |        |          |  
|                                                   |                                                           |   |               |           |               |   |               |           |   |   |        |         
|Net amount recognized                              |                                                           | $ | (62,431       | )         |               | $ | (79,898       | )         |   |   |        |         
|                                                   |                                                           |   |               |           |               |   |               |           |   |   |        |         
|Weighted-Average Assumptions                       |                                                           |   |               |           |               |   |               |           |   |   |        |         
|                                                   | Discount rate                                             |   |               | 6.50      | %             |   |               | 7.25      | % |   |        | 7.50     | %
|                                                   | Expected return on plan assets                            |   |               | 7.00      | %             |   |               | 7.00      | % |   |        | 7.00     | %
|                                                   | Amounts recognized in the statement of financial position |   |               |           |               |   |               |           |   |   |        |          |  
|                                                   | Prepaid benefit cost                                      |   |               |          |               |   |               |          |   |   |        | 10,729   |  
|                                                   | Accrued benefit liability                                 |   |               | (732,969  | )             |   |               | (90,337   | ) |   |        |         |  
|                                                   | Intangible assets                                         |   |               | 260,023   |               |   |               | 10,439    |   |   |        |         |  
|                                                   | Accumulated other comprehensive income                    |   |               | 410,515   |               |   |               |          |   |   |        |         |  
|                                                   |                                                           |   |               |           |               |   |               |           |   |   |        |         
|Net amount recognized                              |                                                           | $ | (62,431       | )         |               | $ | (79,898       | )         |   | $ | 10,729 |         
|                                                   |                                                           |   |               |           |               |   |               |           |   |   |        |         
|Components of Net Periodic Benefit Cost            |                                                           |   |               |           |               |   |               |           |   |   |        |         
|                                                   | Service cost                                              |   | $             | 76,844    |               |   | $             | 87,510    |   |   | $      | 88,063   |  
|                                                   | Interest cost                                             |   |               | 172,206   |               |   |               | 160,878   |   |   |        | 156,661  |  
|                                                   | Expected return on market-related plan assets             |   |               | (155,686  | )             |   |               | (164,198  | ) |   |        | (163,604 | )
|                                                   | Amortization of prior cost                                |   |               | 38,414    |               |   |               | 24,885    |   |   |        | 24,885   |  
|                                                   | Recognized actuarial (gain) loss                          |   |               |          |               |   |               | (9,703    | ) |   |        | (7,298   | )
|                                                   |                                                           |   |               |           |               |   |               |           |   |   |        |         
|Net periodic benefit cost                          |                                                           | $ | 131,778       |           |               | $ | 99,372        |           |   | $ | 98,707 |         
|                                                   |                                                           |   |               |           |               |   |               |           |   |   |        |         

The Company has an Incentive Savings 401K Plan covering non-union employees of
the Company who have completed six month of service. During fiscal 2002, the
Company matched employee contributions equal to 50% of the first 6% of the
participants wage base. During fiscal years 2002, 2001, and 2000, the Company
made contributions to the plan of approximately $247,593, $267,430, and
$219,375, respectively.

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WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.     STOCK OPTIONS, WARRANTS, AND STOCK PURCHASE PLANS

The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock Based Compensation
(SFAS 123). As allowed by SFAS 123, the Company has elected to continue to
follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees (APB 25) in accounting for its stock option plans. Accordingly,
since all options are issued with exercise prices greater than or equal to the
market price on the grant date, no compensation cost has been recognized for
the stock option plans.

Stock Options Plans

In February 1987, EDI adopted the 1987 Stock Option Plan (the Plan). The
Plan, as amended, allows for the issuance of up to 2,259,748 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 and must have an
expiration date no more that ten years from the date of grant. Generally,
options vest over a five-year period and expire five years from the date of
grant. Additionally, in October 1995, in connection with the acquisition of
EDI-MA, 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. At the date of the merger with
White Electronic Designs Corporation, Bowmar assumed all then outstanding
unexercised EDI options and converted the number of shares issuable upon
exercise and the exercise price per share using the 1.275 exchange ratio. Both
EDI plans were then terminated, and there are no shares available for future
grants. At September 28, 2002, there were 279,273 shares from the 1987 Stock
Option Plan under option, and 124,402 shares from the EDI-MA acquisition plan
under option.

Under the Companys shareholder approved 1994 Flexible Stock Plan, common stock
is available for the grant of options, appreciation rights, restricted stock
awards, performance shares and other stock-based awards. The vesting and terms
of the options granted under this plan are determined when awarded by the Board
of Directors. In February 2001, the Shareholders approved an amendment to the
plan that changed the name to White Electronic Designs Corporations 1994
Flexible Stock Plan and changed the number of shares of common stock available
for grant to 2,200,000. At September 28, 2002, there were 1,016,808 shares
available for future grants to directors, officers and employees at prices not
less than the fair value at the date of grant by the Board of Directors. At
September 28,2002, a total of 1,051,923 shares from this plan remained
outstanding.

During fiscal 1995, the Board of Directors terminated the Companys shareholder
approved 1986 Stock Option Plan. At September 28, 2002, 1,000 shares from the
Companys 1986 Stock Option Plan remained under option.

The Companys approved 1992 Non-Qualified Stock Option Plan for Directors
provides for the issuance of options to purchase shares of common stock to
directors at an exercise price equal to the fair market value on the date of
grant. In February 2001, the Shareholders approved an amendment to the plan
that changed the name to White Electronic Designs Corporations Director Stock
Option Plan and changed the number of shares of common stock available for
grant to 281,000. The Board of Directors terminated this plan in fiscal year
2001. A total of 80,000 options remained unexercised at September 28, 2002.

During fiscal 1999, the Companys Board of Directors approved an independent
grant to Mr. McGuinness for a nonqualified stock option to purchase up to
102,000 shares of common stock at an exercise price of $1.125 per share,
vesting ratably over three years. At September 28, 2002, 102,000 shares from
this independent option right were still under option.

During fiscal 2000, the Companys Board of Directors approved an independent
grant to Mr. Shokrgozar for a nonqualified stock option to purchase up to
125,000 shares of common stock at an exercise price of $2.750 per share,
vesting over four years. At September 28, 2002, 125,000 shares from this
independent option right were still under option.

During fiscal 2001, the Companys Board of Directors approved the 2000 Broad
Based Non-qualified Stock Plan, which provides for the issuance of options to
purchase shares of common stock at an exercise price equal to the fair market
50Table of Contents

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

value at the date of grant. As of September 28, 2002, 223,812 shares were
available for grant and 719,434 granted options were unexercised.

The Companys Shareholders approved the White Electronic Designs Corporation
2001 Director Stock Plan in February 2001, which authorizes non-employee
directors of the corporation to purchase shares of common stock at an exercise
price equal to the fair market value on the date of grant and a vesting period
of two years. The total number of shares approved for grant was 500,000. As
of September 28, 2002, 305,000 shares were available for grant, and 195,000
granted options were unexercised.

A summary of the Companys stock option activity and related information is as
follows:

|                                                               |  |        |           |          |  |          |      |          |  |             |           |          |  |   |      |  |  |          |            |   |  |   |      | 
|-------------------------------------------------------------- |  | ------ | --------- | -------- |  | -------- | ---- | -------- |  | ----------- | --------- | -------- |  | - | ---- |  |  | -------- | ---------- | - |  | - | ---- | 
|                                                               |  |        |           |          |  |          |      |          |  | Fiscal Year |           |          |  |   |      |  |  |         
|                                                               |  | 2002   |           | 2001     |  | 2000    
|                                                               |  |        |           |          |  |         
|                                                               |  |        |           |          |  | Weighted |      |          |  |             |           | Weighted |  |   |      |  |  | Weighted
|                                                               |  | Shares |           | Average  |  | Shares   |      | Average  |  | Shares      |           | Average 
|                                                               |  | Under  |           | Exercise |  | Under    |      | Exercise |  | Under       |           | Exercise
|                                                               |  | Option |           | Price    |  | Option   |      | Price    |  | Option      |           | Price   
|                                                               |  |        |           |          |  |          |      |          |  |             |           |         
|Beginning balance outstanding                                  |  |        | 2,993,839 |          |  | $        | 3.40 |          |  |             | 2,083,577 |          |  | $ | 2.13 |  |  |          | 2,692,234  |   |  | $ | 1.80 | 
|Granted                                                        |  |        | 129,000   |          |  |          | 6.33 |          |  |             | 1,301,000 |          |  |   | 5.15 |  |  |          | 530,000    |   |  |   | 3.84 | 
|Canceled                                                       |  |        | (104,845  | )        |  |          | 4.30 |          |  |             | (140,968  | )        |  |   | 3.44 |  |  |          | (117,858   | ) |  |   | 1.74 | 
|Exercised                                                      |  |        | (339,962  | )        |  |          | 2.11 |          |  |             | (249,770  | )        |  |   | 1.30 |  |  |          | (1,020,799 | ) |  |   | 2.13 | 
|                                                               |  |        |           |          |  |          |      |          |  |             |           |          |  |   |      |  |  |          |            |   |  |   |      | 
|Ending balance outstanding                                     |  |        | 2,678,032 |          |  | $        | 3.67 |          |  |             | 2,993,839 |          |  | $ | 3.40 |  |  |          | 2,083,577  |   |  | $ | 2.13 | 
|                                                               |  |        |           |          |  |          |      |          |  |             |           |          |  |   |      |  |  |          |            |   |  |   |      | 
|Options exercisable at year end                                |  |        | 1,674,193 |          |  | $        | 2.92 |          |  |             | 1,328,315 |          |  | $ | 1.96 |  |  |          | 1,190,153  |   |  | $ | 1.65 | 
|Shares available for future grant                              |  |        | 1,545,620 |          |  |          |      |          |  |             | 1,580,261 |          |  |   |      |  |  |          | 378,817    |   |  |   |      | 
|                                                               |  |        |           |          |  |          |      |          |  |             |           |          |  |   |      |  |  |          |            |   |  |   |      | 
|Weighted average grant-date fair value of
all options granted: |  |        |           |          |  | $        | 5.94 |          |  |             |           |          |  | $ | 4.97 |  |  |          |            |   |  | $ | 3.12 | 
|Options granted where price equals market price                |  |        |           |          |  | $        | 5.94 |          |  |             |           |          |  | $ | 4.97 |  |  |          |            |   |  | $ | 3.12 | 
|Options granted where price exceeds market price               |  |        |           |          |  | none     |      |          |  |             |           | none     |  |   |      |  |  | none    
|Options granted where price is less than market price          |  |        |           |          |  | none     |      |          |  |             |           | none     |  |   |      |  |  | none    

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WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes additional information about the Companys stock
options outstanding as of September 28, 2002.

|                         |                     |  |           |         |          |   |                  |       |             |  |          |     |         |  |           |         |  |   |      |       | 
|------------------------ | ------------------- |  | --------- | ------- | -------- | - | ---------------- | ----- | ----------- |  | -------- | --- | ------- |  | --------- | ------- |  | - | ---- | ----- | 
|                         |                     |  |           |         |          |   | Weighted         |       | Weighted    |  |          |     |         |  | Weighted 
|                         |                     |  | Shares    |         | Average  |   | Average          |       |             |  |          |     | Average
|                         |                     |  | Under     |         | Exercise |   | Remaining        |       | Exercisable |  | Exercise
|                         |                     |  | Option    |         | Price    |   | Contractual Life |       | Shares      |  | Price   
|                         |                     |  |           |         |          |   |                  |       |             |  |         
|Range of exercise price: |                     |  |           |         |          |   |                  |       |             |  |          |     |         |  |           |         |  |   |      |      
|                         | $0.0000   $1.6000  |  |           | 525,415 |          |   | $                | 0.90  |             |  |          | 5.0 |         |  |           | 504,818 |  |   | $    | 0.89  | 
|                         | $1.6001   $3.2000  |  |           | 842,100 |          |   | $                | 2.56  |             |  |          | 5.2 |         |  |           | 724,739 |  |   | $    | 2.53  | 
|                         | $3.2001   $4.8000  |  |           | 820,234 |          |   | $                | 3.82  |             |  |          | 8.6 |         |  |           | 267,401 |  |   | $    | 3.83  | 
|                         | $4.8001   $6.4000  |  |           | 119,000 |          |   | $                | 6.24  |             |  |          | 9.5 |         |  |           |        |  |   | $    |      | 
|                         | $6.4001   $8.0000  |  |           | 199,200 |          |   | $                | 7.23  |             |  |          | 8.1 |         |  |           | 95,139  |  |   | $    | 7.22  | 
|                         | $8.0001   $9.6000  |  |           |        |          |   | $                |      |             |  |          |    |         |  |           |        |  |   | $    |      | 
|                         | $9.6001   $11.2000 |  |           | 162,083 |          |   | $                | 10.60 |             |  |          | 8.0 |         |  |           | 77,096  |  |   | $    | 10.60 | 
|                         | $11.2001 - $12.8000 |  |           |        |          |   | $                |      |             |  |          |    |         |  |           |        |  |   | $    |      | 
|                         | $12.8001 - $14.4000 |  |           |        |          |   | $                |      |             |  |          |    |         |  |           |        |  |   | $    |      | 
|                         | $14.4001 - $16.0000 |  |           | 10,000  |          |   | $                | 16.00 |             |  |          | 7.9 |         |  |           | 5,000   |  |   | $    | 16.00 | 
|                        
|                         |                     |  | 2,678,032 |         |          | $ | 3.67             |       |             |  | 6.8      |     |         |  | 1,674,193 |         |  | $ | 2.92 |      
|                        

On December 3, 1998, the Board of Directors approved the repricing of options
to employees (excluding the Chief Executive Officer and the Chief Financial
officer) of the Company. The revised exercise price is $1.125 per share (the
market closing price on the date of repricing) instead of the original exercise
prices that ranged from $1.688 to $3.490 per share. In the above table these
options are shown as being canceled and new options granted. This repricing
was prior to the effective date of the repricing provisions of FIN 44, which
was effective for options repriced after December 15, 1998. Therefore,
variable plan accounting was not required. Since the repricing on December 3,
1998, there have been no other repricings.

Stock Purchase Plans

The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, (APB 25), and the related
interpretations in accountings for its employee stock options. The Company has
adopted the disclosure-only provisions of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation, (Statement No.
123).

In February 2001, the Companys Board of Directors adopted the White Electronic
Designs Corporation 2000 Employee Stock Purchase Plan. This plan provided for
the purchase by employees of up to 300,000 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. This plan began July 1, 2001, and will
continue for ten years unless terminated sooner. There were 43,646 shares
issued under this plan in fiscal year 2002, and no shares issued under this
plan in fiscal year 2001 or 2000.

Pro forma information regarding net income and earnings per share is required
by SFAS No. 123, and has been determined as if the Company had accounted for
its stock option plans and employee stock purchase plan under the fair value
based method of that Statement. The fair value for these options was estimated
at the date of grant using a Black-Scholes option-pricing model with the
following weighted-average assumptions:
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WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|                              |  |                             |      |                              |  |      |      |      |  |      |     |      |  |  |      |   |  |  |      |   |  |  |     |  
|----------------------------- |  | --------------------------- | ---- | ---------------------------- |  | ---- | ---- | ---- |  | ---- | --- | ---- |  |  | ---- | - |  |  | ---- | - |  |  | --- | -
|                              |  | EMPLOYEE STOCK OPTION PLANS |      | EMPLOYEE STOCK PURCHASE PLAN
|                              |  |                             |      |                             
|                              |  | 2002                        |      | 2001                         |  | 2000 |      | 2002 |  | 2001 |     | 2000
|                              |  |                             |      |                              |  |      |      |      |  |      |     |     
|Expected options term (years) |  |                             | 6.3  |                              |  |      | 7.7  |      |  |      | 6.0 |      |  |  | 0.5  |   |  |  |     |   |  |  |    |  
|Risk free interest rate       |  |                             | 4.75 | %                            |  |      | 4.08 | %    |  |      | 5.7 | %    |  |  | 2.00 | % |  |  | 0.00 | % |  |  | 0.0 | %
|Volatility                    |  |                             | 146  | %                            |  |      | 149  | %    |  |      | 176 | %    |  |  | 55   | % |  |  | 0    | % |  |  | 0   | %
|Dividends                     |  |                             | 0    | %                            |  |      | 0    | %    |  |      | 0   | %    |  |  | 0    | % |  |  | 0    | % |  |  | 0   | %
|                              |  |                             |      |                              |  |      |      |      |  |      |     |      |  |  |      |   |  |  |      |   |  |  |     |  

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the vesting period of the options. The pro forma
information required under FAS 123 for 2002, 2001, and 2000 is as follows:

(In thousands except for per share information):

|                                         |  |      |       |      |  |      |        |   |  |   |       |  
|---------------------------------------- |  | ---- | ----- | ---- |  | ---- | ------ | - |  | - | ----- | -
|                                         |  | 2002 |       | 2001 |  | 2000
|                                         |  |      |       |      |  |     
|Net income  as reported                 |  | $    | 8,740 |      |  | $    | 3,272  |   |  | $ | 6,561 |  
|Stock compensation expense  net of tax  |  |      | (190  | )    |  |      | (2,000 | ) |  |   | (555  | )
|                                         |  |      |       |      |  |      |        |   |  |   |       |  
|Net income  pro forma                   |  | $    | 8,550 |      |  | $    | 1,272  |   |  | $ | 6,006 |  
|                                         |  |      |       |      |  |      |        |   |  |   |       |  
|Basic earnings per share  as reported   |  | $    | 0.44  |      |  | $    | 0.17   |   |  | $ | 0.37  |  
|Basic earnings per share  pro forma     |  | $    | 0.43  |      |  | $    | 0.07   |   |  | $ | 0.34  |  
|                                         |  |      |       |      |  |      |        |   |  |   |       |  
|Diluted earnings per share  as reported |  | $    | 0.42  |      |  | $    | 0.16   |   |  | $ | 0.34  |  
|Diluted earnings per share  pro forma   |  | $    | 0.41  |      |  | $    | 0.06   |   |  | $ | 0.31  |  
|                                         |  |      |       |      |  |      |        |   |  |   |       |  

Because additional option grants are expected to be made in future years and
options vest over several years, the pro forma impact on fiscal years 2002,
2001, and 2000 is not necessarily representative of the pro forma impact on
reported results for future years.

The Black-Scholes option pricing model was developed for use in estimating the
value of traded options that have no vesting restrictions and are fully
transferable. In addition, option-pricing models require the input of highly
subjective assumptions including the expected stock price volatility.



|12. |  | COMMITMENTS AND CONTINGENCIES
|--- |  | -----------------------------

The Company leases certain property and equipment under non-cancelable lease
agreements some of which include renewal options of up to five years. Total
rent expense for 2002, 2001, and 2000 was $1,799,000, $1,564,000, and
$1,207,000 respectively. Future minimum annual fixed rentals required under
non-cancelable operating leases having an original term of more than one year
are $1,608,000 in 2003, $1,283,000 in 2004, $1,138,000 in 2005, $1,160,000 in
2006, and $1,172,000 in 2007, and $717,000 thereafter.



|13. |  | CONCENTRATIONS OF CREDIT RISK
|--- |  | -----------------------------

The Company performs ongoing credit evaluations of its customers financial
condition and, generally, requires no collateral from its customers.

At certain times throughout the year the Company may maintain certain bank
accounts in excess of the FDIC insured limits.

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WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|14. |  | SHAREHOLDERS RIGHTS PLAN
|--- |  | ------------------------

On December 6, 1996, the Board of Directors adopted a shareholder rights plan
to protect shareholders against unsolicited attempts to acquire control of the
Company, which do not offer what the Company believes to be an adequate price
for all shareholders. To implement the plan, the Board declared a dividend of
one common share purchase right (a Right or Rights) for each outstanding
share of the Companys common stock and entered into a rights agreement with
American Stock Trust and Transfer, as Rights Agent (the Rights Agreement).
If and when the Rights become exercisable, each Right will entitle the
registered holder to purchase from the Company one share of common stock of the
Company at a purchase price of $20.00 (subject to adjustment pursuant to
certain anti-dilution provisions) (the Purchase Price). The terms of the
rights are set forth in the Rights Agreements.

Separate certificates representing the Rights will be distributed only upon an
event triggering a distribution. Pursuant to the Rights Agreement, if a person
or group (an Acquiring Person) acquires 15% or more of the Companys
outstanding voting stock or announces a tender or exchange offer that would
result in the ownership by the Acquiring Person of 15% or more of the
outstanding voting stock, the Rights certificates will be distributed and each
holder of the Rights (other than the Acquiring Person) may either exercise the
Rights to acquire common stock of the Company at the then Purchase Price or
convert the Rights into that number of shares of common stock equal to the
Purchase Price times the number of Rights held by the holder divided by 50% of
the then current market price of the common stock.

In the event that the Company is acquired in a merger or other transaction
where it is not the surviving corporation or where all or part of its common
stock is exchanged for securities, cash or property of another person, or in
the event that 50% or more of the Companys assets are sold, proper provision
will be made so that each holder of the Right (other than the Acquiring Person)
will have the right to receive, upon exercise thereof, that number of shares of
common stock of the acquiring corporation which at the time of such transaction
will have a market value of two times the exercise price of the Right.
Similarly, in the event that a person acquires 15% or more of the outstanding
common stock of the Company, proper provision will be made so that each holder
of a Right (other than the Acquiring Person) will thereafter have the right to
receive upon exercise that number of shares of common stock of the Company
having a market value of two times the exercise price of the Right.

The Rights Agreement also contains an exchange option. At any time after a
person becomes an Acquiring Person, and prior to the acquisition by such
Acquiring Person of 50% or more of the outstanding common stock of the Company,
the Board of Directors may exchange the Rights (other than Rights owned by the
Acquiring Person, which Rights shall become void), in whole or in part, at an
exchange ratio of one share of common stock per Right.

Finally, the Rights are subject to redemption. At any time prior to the tenth
calendar day following the date of a public announcement that a person or group
has become an Acquiring Person, the Board of Directors of the Company may
redeem the Rights in whole, but not in part, at a price of $.01 per Right.

The terms of the Rights may be amended by the Board of Directors without the
consent of the holders of the Rights, except that from and after such time as
any person becomes an Acquiring Person, no such amendment may adversely affect
the interests of the holders of the Rights. Until a Right is exercised, the
holder thereof, as such, will have no rights as a shareholder of the Company,
including, without limitation, the right to vote or to receive dividends. The
Rights cannot be bought, sold or otherwise traded separately from the common
stock. Certificates for common stock issued after the date of the Rights
Agreement carry a notation that indicates the Rights are attached. The Rights
will expire on December 5, 2006 unless extended or unless the Rights are
earlier redeemed by the Company. The Rights Agreement was amended in
connection with the EDI merger to exempt from operation of the Rights Agreement
the execution of the Agreement and Plan of Merger with EDI and the transactions
contemplated thereby.

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WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|15. |  | EARNINGS PER SHARE (EPS)
|--- |  | ------------------------

Basic EPS is computed by dividing income available to common Shareholders by
the weighted average number of common shares that were outstanding during the
period. Dilutive potential common shares consist of the incremental common
shares issuable upon exercise of stock options.

A reconciliation of the numerator and denominator of basic and diluted EPS is
as follows:

Fiscal 2002

|                                          |  |             |           |               |  |           |            |  |  |   |      | 
|----------------------------------------- |  | ----------- | --------- | ------------- |  | --------- | ---------- |  |  | - | ---- | 
|                                          |  | Income      |           | Shares        |  | Per share
|                                          |  | (Numerator) |           | (Denominator) |  | amount   
|                                         
|Net Income                                |  | $           | 8,740,000 |               |  |           |            |  |  |   |      | 
|                                         
|Basic EPS                                 |  |             |           |               |  |           |            |  |  |   |      | 
|Net Income                                |  | $           | 8,740,000 |               |  |           | 19,815,162 |  |  | $ | 0.44 | 
|                                         
|Earnings available to common stockholders |  | $           | 8,740,000 |               |  |           |            |  |  |   |      | 
|Effects of Dilutive Securities            |  |             |           |               |  |           |            |  |  |   |      | 
|Common stock equivalents                  |  |             |           |               |  |           | 1,107,272  |  |  |   |      | 
|                                         
|Dilutive EPS                              |  |             |           |               |  |           |            |  |  |   |      | 
|Earnings available to common stockholders |  | $           | 8,740,000 |               |  |           | 20,922,434 |  |  | $ | 0.42 | 
|                                         

Options excluded from the calculation of diluted net income per share were
194,000, as the exercise price was greater than the average share price for the
period.

Fiscal 2001

|                                          |  |             |           |               |  |           |            |  |  |   |      | 
|----------------------------------------- |  | ----------- | --------- | ------------- |  | --------- | ---------- |  |  | - | ---- | 
|                                          |  | Income      |           | Shares        |  | Per share
|                                          |  | (Numerator) |           | (Denominator) |  | amount   
|                                         
|Net Income                                |  | $           | 3,272,000 |               |  |           |            |  |  |   |      | 
|                                         
|Basic EPS                                 |  |             |           |               |  |           |            |  |  |   |      | 
|Net Income                                |  | $           | 3,272,000 |               |  |           | 19,230,781 |  |  | $ | 0.17 | 
|                                         
|Earnings available to common stockholders |  | $           | 3,272,000 |               |  |           |            |  |  |   |      | 
|Effects of Dilutive Securities            |  |             |           |               |  |           |            |  |  |   |      | 
|Common stock equivalents                  |  |             |           |               |  |           | 1,297,556  |  |  |   |      | 
|                                         
|Dilutive EPS                              |  |             |           |               |  |           |            |  |  |   |      | 
|Earnings available to common stockholders |  | $           | 3,272,000 |               |  |           | 20,528,337 |  |  | $ | 0.16 | 
|                                         

Options excluded from the calculation of diluted net income per share were
387,000, as the exercise price was greater than the average share price for the
period.

Fiscal 2000

|                                          |  |             |           |               |  |           |            |  |  |   |      | 
|----------------------------------------- |  | ----------- | --------- | ------------- |  | --------- | ---------- |  |  | - | ---- | 
|                                          |  | Income      |           | Shares        |  | Per share
|                                          |  | (Numerator) |           | (Denominator) |  | amount   
|                                         
|Net Income                                |  | $           | 6,561,000 |               |  |           |            |  |  |   |      | 
|                                         
|Less: preferred stock dividends           |  | $           | (89,000   | )             |  |           |            |  |  |   |      | 
|Basic EPS                                 |  |             |           |               |  |           |            |  |  |   |      | 
|Income available to common stockholders   |  | $           | 6,472,000 |               |  |           | 17,544,136 |  |  | $ | 0.37 | 
|                                         
|Earnings available to common stockholders |  | $           | 6,472,000 |               |  |           |            |  |  |   |      | 
|Effects of Dilutive Securities            |  |             |           |               |  |           |            |  |  |   |      | 
|Common stock equivalents                  |  |             |           |               |  |           | 1,995,365  |  |  |   |      | 
|                                         
|Dilutive EPS                              |  |             |           |               |  |           |            |  |  |   |      | 
|Earnings available to common stockholders |  | $           | 6,561,000 |               |  |           | 19,539,501 |  |  | $ | 0.34 | 
|                                         

Options excluded from the calculation of diluted net income per share were
35,000, as the exercise price was greater than the average share price for the
period.

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WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|16. |  | OPERATIONS BY BUSINESS SEGMENTS
|--- |  | -------------------------------

The Company operates in two business segments. The microelectronic segment
packages semiconductor products mainly for memory storage. Its products are
sold to original equipment manufacturers in the telecommunications, computer
networking, aerospace defense, and military equipment industries. Certain
industries require these semiconductor parts to pass specific qualifications
due to their application requirements of those components. A commercial grade
component generally meets the standard of industries such as the
telecommunication and computer networking industries. A higher-grade
component, known as a high-reliability component, is needed in industries such
as aerospace defense and military equipment industries. High-reliability
components are designed to meet more stringent standards and are resistant to
adverse conditions, such as extreme temperatures, both high and low.
High-reliability components can also be used in commercial and industrial
applications where components are exposed to harsh conditions. The
microelectronic segment also offers tamper resistant coating technology, which
is used to secure microelectronics in various military applications.

The Companys second business segment is the display segment. The display
segment manufactures ruggedized and commercial liquid crystal displays and
display viewing enhancements. Ruggedized displays are manufactured to perform
in harsh environmental conditions. Commercial display products offer greater
viewing performance than off-the-self displays, but are not designed for harsh
environmental conditions. The display segment serves a number of markets, to
include transportation, GPS systems, military avionics, commercial avionics,
medical patient monitors, and various military applications.

The Companys segments have common customers, mainly in the aerospace defense
industry. Different purchasing groups within the customers parent company,
however, usually purchase the products from each segment. There are no
inter-segment sales. Transfers of inventory between segments are made at cost,
and are treated as transfers between locations.

The assets identified by segment are those assets used in the Companys
operations and do not include general corporate assets such as cash, goodwill,
or deferred tax assets. Capital expenditures report asset purchases and do not
include equipment added through the use of operating leases.

The Company sells its products primarily to original equipment manufacturers,
or electronic assembly houses in the United States. In fiscal 2002, two
customers accounted for more than 10% of the Companys sales. General Electric
Medical Division accounted for 11.5% of total Company sales, and Garmin
International accounted for 10.8% of total Company sales. The loss of either
of these customers would have a material affect on the Companys results of
operations.

A significant portion of the Companys business activity in each segment is
from contractors who have contracts with the United States Department of
Defense.

A significant portion of the Companys sales were shipped to foreign customers.
Export sales as a percent of total sales in fiscal 2002, 2001, and 2000 were
32%, 28%, and 16%, respectively.

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WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Sales by Major Geographic Segment
(in thousands of dollars)

|                         |                      |   |             |        |             |   |             |        |  |   |        |        | 
|------------------------ | -------------------- | - | ----------- | ------ | ----------- | - | ----------- | ------ |  | - | ------ | ------ | 
|                         |                      |   | Fiscal 2002 |        | Fiscal 2001 |   | Fiscal 2000
|                         |                      |   |             |        |             |   |            
|Domestic sales           |                      |   |             |        |             |   |             |        |  |   |        |       
|United States            |                      | $ | 61,654      |        |             | $ | 69,553      |        |  | $ | 73,734 |       
|                         |                      |   |             |        |             |   |             |        |  |   |        |       
|                         | Total domestic sales |   | $           | 61,654 |             |   | $           | 69,553 |  |   | $      | 73,734 | 
|                         |                      |   |             |        |             |   |             |        |  |   |        |       
|Foreign sales
Canada     |                      | $ | 2,027       |        |             | $ | 2,030       |        |  | $ | 1,542  |       
|Taiwan                   |                      |   | 9,230       |        |             |   | 2,273       |        |  |   | 119    |       
|India                    |                      |   | 1,471       |        |             |   | 5,161       |        |  |   | 580    |       
|Korea                    |                      |   | 1,095       |        |             |   | 1,327       |        |  |   | 603    |       
|Israel                   |                      |   | 783         |        |             |   | 1,002       |        |  |   | 582    |       
|Other Asian countries    |                      |   | 926         |        |             |   | 1,200       |        |  |   | 746    |       
|United Kingdom           |                      |   | 3,664       |        |             |   | 4,395       |        |  |   | 3,878  |       
|Germany                  |                      |   | 3,580       |        |             |   | 3,839       |        |  |   | 2,779  |       
|Italy                    |                      |   | 3,396       |        |             |   | 1,885       |        |  |   | 709    |       
|France                   |                      |   | 1,749       |        |             |   | 2,463       |        |  |   | 1,291  |       
|Other European countries |                      |   | 831         |        |             |   | 1,376       |        |  |   | 809    |       
|Other countries          |                      |   | 52          |        |             |   | 257         |        |  |   | 223    |       
|                         |                      |   |             |        |             |   |             |        |  |   |        |       
|                         | Total foreign sales  |   | $           | 28,804 |             |   | $           | 27,208 |  |   | $      | 13,861 | 
|                         |                      |   |             |        |             |   |             |        |  |   |        |       
|Total sales              |                      | $ | 90,458      |        |             | $ | 96,761      |        |  | $ | 87,595 |       
|                         |                      |   |             |        |             |   |             |        |  |   |        |       

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WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

OPERATIONS BY BUSINESS SEGMENTS
(In thousands of dollars)

|                                            |  |      |        |      |  |             |        |  |  |   |        | 
|------------------------------------------- |  | ---- | ------ | ---- |  | ----------- | ------ |  |  | - | ------ | 
|                                            |  |      |        |      |  | Fiscal Year |        |  |  |  
|                                            |  | 2002 |        | 2001 |  | 2000       
|                                            |  |      |        |      |  |            
|Net sales                                   |  |      |        |      |  |             |        |  |  |   |        | 
|Microelectronic                             |  | $    | 50,331 |      |  | $           | 73,569 |  |  | $ | 74,289 | 
|Display                                     |  |      | 40,127 |      |  |             | 23,192 |  |  |   | 13,306 | 
|                                            |  |      |        |      |  |             |        |  |  |   |        | 
|Total net sales                             |  | $    | 90,458 |      |  | $           | 96,761 |  |  | $ | 87,595 | 
|                                            |  |      |        |      |  |             |        |  |  |   |        | 
|Income
before tax                           |  |      |        |      |  |             |        |  |  |   |        | 
|Microelectronics                            |  | $    | 8,783  |      |  | $           | 2,765  |  |  | $ | 9,199  | 
|Display                                     |  |      | 345    |      |  |             | 1,488  |  |  |   | 1,488  | 
|                                            |  |      |        |      |  |             |        |  |  |   |        | 
|Total income before tax                     |  | $    | 9,128  |      |  | $           | 4,253  |  |  | $ | 10,687 | 
|                                            |  |      |        |      |  |             |        |  |  |   |        | 
|Identifiable
assets                         |  |      |        |      |  |             |        |  |  |   |        | 
|Microelectronics                            |  | $    | 25,909 |      |  | $           | 26,519 |  |  | $ | 39,392 | 
|Display                                     |  |      | 23,857 |      |  |             | 20,401 |  |  |   | 7,508  | 
|General corporate                           |  |      | 18,600 |      |  |             | 10,308 |  |  |   | 8,096  | 
|                                            |  |      |        |      |  |             |        |  |  |   |        | 
|Total assets                                |  | $    | 68,366 |      |  | $           | 57,228 |  |  | $ | 54,996 | 
|                                            |  |      |        |      |  |             |        |  |  |   |        | 
|Capital
expenditures                        |  |      |        |      |  |             |        |  |  |   |        | 
|Microelectronics                            |  | $    | 2,186  |      |  | $           | 1,437  |  |  | $ | 2,140  | 
|Display                                     |  |      | 2,612  |      |  |             | 189    |  |  |   | 173    | 
|                                            |  |      |        |      |  |             |        |  |  |   |        | 
|Total capital expenditures                  |  | $    | 4,798  |      |  | $           | 1,626  |  |  | $ | 2,313  | 
|                                            |  |      |        |      |  |             |        |  |  |   |        | 
|Depreciation
and amortization expense       |  |      |        |      |  |             |        |  |  |   |        | 
|Microelectronics                            |  | $    | 2,016  |      |  | $           | 1,856  |  |  | $ | 2,082  | 
|Display                                     |  |      | 1,797  |      |  |             | 1,110  |  |  |   | 404    | 
|                                            |  |      |        |      |  |             |        |  |  |   |        | 
|Total depreciation and amortization expense |  | $    | 3,814  |      |  | $           | 2,966  |  |  | $ | 2,486  | 
|                                            |  |      |        |      |  |             |        |  |  |   |        | 

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WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.     INTERIM FINANCIAL RESULTS (UNAUDITED)

(In thousand of dollars, except per share data and common share market price data)

|                               |  |             |        |             |  |        |        |        |  |        |        |      |  |        |        |        |  |        |        |        |  |   |        |  |  |   |        |  |  |   |        |  |  |   |        |   |  |   |        | 
|------------------------------ |  | ----------- | ------ | ----------- |  | ------ | ------ | ------ |  | ------ | ------ | ---- |  | ------ | ------ | ------ |  | ------ | ------ | ------ |  | - | ------ |  |  | - | ------ |  |  | - | ------ |  |  | - | ------ | - |  | - | ------ | 
|                               |  | Fiscal 2002 |        | Fiscal 2001
|                               |  |             |        |            
|                               |  | Year        |        | Sep 28      |  | Jun 29 |        | Mar 30 |  | Dec 29 |        | Year |  | Sep 29 |        | Jun 30 |  | Mar 31 |        | Dec 30
|                               |  |             |        |             |  |        |        |        |  |        |        |      |  |        |        |        |  |        |        |       
|Net sales                      |  | $           | 90,458 |             |  | $      | 23,734 |        |  | $      | 23,204 |      |  | $      | 22,155 |        |  | $      | 21,365 |        |  | $ | 96,761 |  |  | $ | 21,379 |  |  | $ | 22,087 |  |  | $ | 26,253 |   |  | $ | 27,042 | 
|                               |  |             |        |             |  |        |        |        |  |        |        |      |  |        |        |        |  |        |        |        |  |   |        |  |  |   |        |  |  |   |        |  |  |   |        |   |  |   |        | 
|Gross margin                   |  | $           | 28,900 |             |  | $      | 7,867  |        |  | $      | 7,349  |      |  | $      | 6,876  |        |  | $      | 6,808  |        |  | $ | 26,401 |  |  | $ | 6,741  |  |  | $ | 7,201  |  |  | $ | 3,376  |   |  | $ | 9,084  | 
|                               |  |             |        |             |  |        |        |        |  |        |        |      |  |        |        |        |  |        |        |        |  |   |        |  |  |   |        |  |  |   |        |  |  |   |        |   |  |   |        | 
|Income before income taxes     |  | $           | 9,128  |             |  | $      | 3,011  |        |  | $      | 2,244  |      |  | $      | 2,003  |        |  | $      | 1,870  |        |  | $ | 4,253  |  |  | $ | 1,275  |  |  | $ | 1,830  |  |  | $ | (2,484 | ) |  | $ | 3,633  | 
|                               |  |             |        |             |  |        |        |        |  |        |        |      |  |        |        |        |  |        |        |        |  |   |        |  |  |   |        |  |  |   |        |  |  |   |        |   |  |   |        | 
|Net income (loss)              |  | $           | 8,740  |             |  | $      | 4,949  |        |  | $      | 1,401  |      |  | $      | 1,327  |        |  | $      | 1,063  |        |  | $ | 3,272  |  |  | $ | 1,630  |  |  | $ | 1,050  |  |  | $ | (1,644 | ) |  | $ | 2,237  | 
|                               |  |             |        |             |  |        |        |        |  |        |        |      |  |        |        |        |  |        |        |        |  |   |        |  |  |   |        |  |  |   |        |  |  |   |        |   |  |   |        | 
|Net income per share  basic   |  | $           | 0.44   |             |  | $      | 0.25   |        |  | $      | 0.07   |      |  | $      | 0.07   |        |  | $      | 0.05   |        |  | $ | 0.17   |  |  | $ | 0.08   |  |  | $ | 0.05   |  |  | $ | (0.09  | ) |  | $ | 0.12   | 
|Net income per share  diluted |  | $           | 0.42   |             |  | $      | 0.24   |        |  | $      | 0.07   |      |  | $      | 0.06   |        |  | $      | 0.05   |        |  | $ | 0.16   |  |  | $ | 0.08   |  |  | $ | 0.05   |  |  | $ | (0.09  | ) |  | $ | 0.11   | 
|                               |  |             |        |             |  |        |        |        |  |        |        |      |  |        |        |        |  |        |        |        |  |   |        |  |  |   |        |  |  |   |        |  |  |   |        |   |  |   |        | 

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EXHIBIT INDEX

|     |  |                                                                                                                                                                                                                                                                      
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1  |  | Agreement and Plan of Merger dated May 3, 1998 by and among Bowmar
Instrument Corporation and Electronic Designs, Inc. and Bravo
Acquisition Subsidiary, Inc. (incorporated herein by reference to
Exhibit 2 to the current Report on Form 8-K filed on May 6, 1998.)
|     |  |                                                                                                                                                                                                                                                                      
|2.1A |  | Amendment to Agreement and Plan of Merger dated June 9, 1998
(incorporated herein by reference to Exhibit 2.1A to the Registration
Statement on Form S-4 filed on June 11, 1998, Registration No.
333-56565).                                                        
|     |  |                                                                                                                                                                                                                                                                      
|2.1B |  | Amendment to Agreement and Plan of Merger dated August 24, 1998
(incorporated herein by reference to Exhibit 2.1B to the Registration
Statement on Form S-4, filed on September 2, 1998, Registration No.
333-56565).                                                
|     |  |                                                                                                                                                                                                                                                                      
|3.1  |  | Amended and Restated Articles of Incorporation of White Electronic
Designs Corporation (incorporated herein by reference to Exhibit 3.1 on
Form 10-K filed December 24, 1998).                                                                                       
|     |  |                                                                                                                                                                                                                                                                      
|3.2  |  | Amended and Restated Code of By-Laws of White Electronic Designs
Corporation (incorporated herein by reference to Exhibit 3.2 to the
June 9, 1998 Registration Statement on Form S-4 filed June 11, 1998).                                                           
|     |  |                                                                                                                                                                                                                                                                      
|4.1  |  | Shareholder Rights Agreement, effective December 6, 1996, (incorporated
herein by reference to Exhibit 5 on Form 8-K, filed on December 19,
1996).                                                                                                                   
|     |  |                                                                                                                                                                                                                                                                      
|4.1A |  | Amendment No. 1 to Rights Agreement, effective as of May 3, 1998
(incorporated herein by reference to Exhibit 4.3 to the Registration
Statement on Form S-4, filed on June 11, 1998, Registration No.
333-56565).                                                    



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##### Table of Contents



|        |  |                                                                                                                                                                                                                                                                                                                                    
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1    |  | Agreement to be Bound by Registration Rights Agreements, dated as of
May 3, 1998, by and between Bowmar Instrument Corporation and
Electronic Designs, Inc. (incorporated herein by reference to Exhibit
10.1 to the Registration Statement on Form S-4, filed on June 11, 1998,
Registration No. 333-56565).                      
|        |  |                                                                                                                                                                                                                                                                                                                                    
|**10.2  |  | Agreement to be Bound by Severance Agreements and Employment Agreement,
dated as of May 3, 1998, by and between Bowmar Instrument Corporation
and Electronic Designs, Inc. (incorporated herein by reference to
Exhibit 10.2 to the Registration Statement on Form S-4, filed on June
11, 1998, Registration No. 333-56565).       
|        |  |                                                                                                                                                                                                                                                                                                                                    
|**10.14 |  | 1994 Flexible Stock Plan (incorporated herein by reference to Exhibit A
to the Companys definitive Proxy Statement prepared in connection with
the 1994 Annual Meeting of Shareholders).                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                    
|10.27   |  | Revolving Credit and Term Loan Agreement by and between Bank One, Texas
and White Electronic Designs Corporation, an Indiana Corporation, dated
January 7, 2000. (Incorporated herein by reference to Exhibit 10.27 to
the Companys 10-Q for the quarter ended January 1, 2000).                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                    
|10.28   |  | First Amendment to Revolving Credit Agreement by and between Bank
One effective as of June 3, 2000; Promissory Note effective June 3,
2000, Notice of Final Agreement effective June 3, 2000 (incorporated
herein by reference to Exhibit 10.28 to the Companys Quarterly
Report on Form 10-Q for the quarter ended July 1, 2000).
|        |  |                                                                                                                                                                                                                                                                                                                                    
|10.29   |  | Agreement and Plan of Reorganization dated January 29, 2001, by and
among White Electronic Designs Corporation, PV Acquisition
Corporation, Panelview, Inc. and Panelview Partners L.P.
(incorporated herein by reference to Exhibit 10.29 to the Companys
Quarterly Report on Form 10-Q, filed on February 13, 2001).            
|        |  |                                                                                                                                                                                                                                                                                                                                    
|**10.30 |  | Amendment to Companys 1994 Flexible Stock Plan, effective May 7,
2001 (incorporated herein by reference to Exhibit 99 to the
Registration Statement on Form S-8, filed on May 9, 2001,
Registration No. 333-60544).                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                    
|**10.31 |  | White Electronic Designs Corporation 2001 Director Stock Plan
(incorporated herein by reference to Exhibit 99 to the Registration
Statement on Form S-8, filed on May 9, 2001, Registration No.
333-60536).                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                    
|**10.32 |  | White Electronic Designs Corporation 2000 Employee Stock Purchase
Plan (incorporated herein by reference to Exhibit 99 to the
Registration Statement on Form S-8, filed May 9, 2001, Registration
No. 333-60546).                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                    
|**10.33 |  | Amendment to Companys Stock Option Plan for Non-Employee Directors
(incorporated herein by reference to Exhibit 99 to the Registration
Statement on Form S-8, filed on May 9, 2001, Registration No.
333-60548).                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                    
|**10.34 |  | White Electronic Designs Corporation 2000 Broad Based Employee Stock
Option Plan (incorporated herein by reference to Exhibit 99 to the
Registration Statement on Form S-8, filed on May 9, 2001,
Registration No. 333-60542).                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                    
|**10.35 |  | Executive Employment Agreement made as of February 22, 2001 between
White Electronic Designs Corporation and Hamid R. Shokrgozar
(incorporated herein by reference to Exhibit 10.35 to the Companys
Quarterly Report on Form 10-Q filed on May 15, 2001).                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                    
|10.36   |  | Industrial Building Lease by and between Transwestern West Union and
White Electronic Designs Corporation, an Indiana Corporation, dated
October 12, 2001.                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                    
|10.37   |  | Business Purpose Promissory Note between Banc One Leasing
Corporation and White Electronic Designs Corporation, effective
April 1, 2002 (incorporated herein by reference to Exhibit 10.37 to
the Companys Quarterly Report on Form 10-Q filed on May 13, 2002).                                                                  



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##### Table of Contents



|        |  |                                                                                                                                                                                                                                                
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.38   |  | Third Modification agreement between Bank One N.A. and White
Electronic Designs Corporation, effective March 28, 2002
(incorporated herein by reference to Exhibit 10.38 to the Companys
Quarterly Report on Form 10-Q filed on May 13, 2002).
|        |  |                                                                                                                                                                                                                                                
|10.39   |  | Business Purpose Promissory Note between Banc One Leasing
Corporation and Panelview, Inc., effective March 12, 2002
(incorporated herein by reference to Exhibit 10.39 to the Companys
Quarterly Report on Form 10-Q filed on May 13, 2002).  
|        |  |                                                                                                                                                                                                                                                
|10.40   |  | Loan and Security Agreement between Banc One Leasing Corporation and
Panelview, Inc., effective March 12, 2002 (incorporated herein by
reference to Exhibit 10.40 to the Companys Quarterly Report on Form
10-Q filed on May 13, 2002).       
|        |  |                                                                                                                                                                                                                                                
|**10.41 |  | Non-Qualified Stock Option Agreement between Electronic Designs
Corporation and Donald McGuinness, dated December 3, 1998.                                                                                                                     
|        |  |                                                                                                                                                                                                                                                
|**10.42 |  | Non-Qualified Stock Option Agreement between White Electronic
Designs Corporation and Hamid Shokrgozar, dated November 10, 1999.                                                                                                               
|        |  |                                                                                                                                                                                                                                                
|21.1    |  | Subsidiaries of White Electronic Designs Corporation.                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                
|*23.1   |  | PricewaterhouseCoopers LLP consent for Form S-3 filed November 15,
2002, and Forms S-8, Filed May 9, 2001.                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                
|*99.1   |  | Certification Pursuant To 18 U.S.C. Section 1350, As Adopted
Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                        
|        |  |                                                                                                                                                                                                                                                
|*99.2   |  | Certification Pursuant To 18 U.S.C. Section 1350, As Adopted
Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                        
|        |  |                                                                                                                                                                                                                                                
|*       |  | Filed herewith.                                                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                
|**      |  | Management compensatory contract, plan or arrangement.