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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



|n |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ------------------------------------------------------------------------------------
| 
|  |  | For the Fiscal Year Ended: September 27, 2003                                       

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
(State or other jurisdiction of incorporation or organization)             |  | 35-0905052
(I.R.S. Employer Identification No.)
|                                                                                   | 
|3601 E. University Drive
Phoenix, Arizona
(Address of principal executive offices) |  | 85034
(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
Common Stock, without par value
(stated value $.10 per share) |  | Name of Each Exchange on Which Registered
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 Annual Report on Form 10-K or any
amendment to this Annual Report on Form 10-K.[   ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in the Exchange Act Rule 12b-2). Yes[x] No[   ]

As of March 28, 2003, 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 March 28, 2003) was approximately $120,029,000.

On December 12, 2003, 24,137,656 shares of the Registrants Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrants definitive Proxy Statement prepared in connection
with the 2004 Annual Meeting of Shareholders are incorporated by reference into
PART III, Items 10, 11, 12, 13, and 14 of this Annual Report on Form 10-K.





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|           |                                                                                                        |                                               |  |  |  |  |  | 
|---------- | ------------------------------------------------------------------------------------------------------ | --------------------------------------------- |  |  |  |  |  | 
|           | NOTE REGARDING FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS                                        
|PART I    
|           | ITEM 1 BUSINESS                                                                                       
|           |                                                                                                        | GENERAL                                      
|           |                                                                                                        | BUSINESS SEGMENTS                            
|           |                                                                                                        | MICROELECTRONIC SEGMENT                      
|           |                                                                                                        | DISPLAY SEGMENT                              
|           |                                                                                                        | SALES, MARKETING AND DISTRIBUTION            
|           |                                                                                                        | PRINCIPAL CUSTOMERS                          
|           |                                                                                                        | RESEARCH, ENGINEERING AND PRODUCT DEVELOPMENT
|           |                                                                                                        | REGULATORY MATTERS                           
|           |                                                                                                        | RAW MATERIALS                                
|           |                                                                                                        | INTELLECTUAL PROPERTY                        
|           |                                                                                                        | EMPLOYEES                                    
|           |                                                                                                        | FINANCIAL INFORMATION BY GEOGRAPHIC SEGMENT  
|           |                                                                                                        | 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 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 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                    
|           | ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                    
|           | ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE           
|           | ITEM 9A CONTROLS AND PROCEDURES                                                                       
|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 PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                        
|PART IV   
|           | ITEM 15 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                               
|SIGNATURES
|EX-21.1   
|EX-23.1   
|EX-31.1   
|EX-31.2   
|EX-32.1   
|EX-32.2   



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TABLE OF CONTENTS

|         |                                                                |                                                                                                |  |  |    |    |    |  |  | 
|-------- | -------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- |  |  | -- | -- | -- |  |  | 
|         | NOTE REGARDING FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS |                                                                                                |  |  | 3  |   
|PART I   |                                                                |                                                                                                |  |  |    |    | 4  | 
|         | ITEM 1                                                         | BUSINESS                                                                                       |  |  | 4  |   
|         |                                                                | GENERAL                                                                                        |  |  | 4  |   
|         |                                                                | BUSINESS SEGMENTS                                                                              |  |  | 4  |   
|         |                                                                | MICROELECTRONIC SEGMENT                                                                        |  |  |    | 4  |   
|         |                                                                | DISPLAY SEGMENT                                                                                |  |  |    | 6  |   
|         |                                                                | SALES, MARKETING AND DISTRIBUTION                                                              |  |  |    | 8  |   
|         |                                                                | PRINCIPAL CUSTOMERS                                                                            |  |  |    | 8  |   
|         |                                                                | RESEARCH, ENGINEERING AND PRODUCT DEVELOPMENT                                                  |  |  |    | 8  |   
|         |                                                                | REGULATORY MATTERS                                                                             |  |  |    | 9  |   
|         |                                                                | RAW MATERIALS                                                                                  |  |  |    | 10 |   
|         |                                                                | INTELLECTUAL PROPERTY                                                                          |  |  |    | 10 |   
|         |                                                                | EMPLOYEES                                                                                      |  |  |    | 10 |   
|         |                                                                | FINANCIAL INFORMATION BY GEOGRAPHIC SEGMENT                                                    |  |  |    | 10 |   
|         |                                                                | RISK FACTORS                                                                                   |  |  |    | 11 |   
|         | ITEM 2                                                         | PROPERTIES                                                                                     |  |  | 19 |   
|         | ITEM 3                                                         | LEGAL PROCEEDINGS                                                                              |  |  | 19 |   
|         | ITEM 4                                                         | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                            |  |  | 19 |   
|         |                                                                | EXECUTIVE OFFICERS OF THE COMPANY                                                              |  |  |    | 19 |   
|PART II  |                                                                |                                                                                                |  |  |    |    | 21 | 
|         | ITEM 5                                                         | MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS                                       |  |  | 21 |   
|         | ITEM 6                                                         | SELECTED FINANCIAL DATA                                                                        |  |  | 22 |   
|         | ITEM 7                                                         | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS          |  |  | 23 |   
|         | ITEM 7A                                                        | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                     |  |  | 35 |   
|         | ITEM 8                                                         | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                    |  |  | 36 |   
|         | ITEM 9                                                         | CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE           |  |  | 36 |   
|         | ITEM 9A                                                        | CONTROLS AND PROCEDURES                                                                        |  |  | 36 |   
|PART III |                                                                |                                                                                                |  |  |    |    | 37 | 
|         | ITEM 10                                                        | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                             |  |  | 37 |   
|         | ITEM 11                                                        | EXECUTIVE COMPENSATION                                                                         |  |  | 37 |   
|         | ITEM 12                                                        | SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |  |  | 37 |   
|         | ITEM 13                                                        | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                 |  |  | 38 |   
|         | ITEM 14                                                        | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                         |  |  | 38 |   
|PART IV  |                                                                |                                                                                                |  |  |    |    | 38 | 
|         | ITEM 15                                                        | EXHIBITS, FINANCIAL
STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                                |  |  | 38 |   
|         | SIGNATURES                                                     |                                                                                                |  |  |    |    | 43 | 

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NOTE REGARDING 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 and documents
incorporated herein by reference, 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, estimate,
anticipate, intend, may, might, will, would, could, project and
predict, or similar words and phrases regarding expectations generally
identify forward-looking statements. Forward looking statements contained
herein and in documents incorporated by reference herein include, but are not
limited to, statements regarding: future demand for our products; the impact
that the acquisition of Interface Data Systems, Inc. (IDS) will have on our
business; the amount of backlog to be shipped in fiscal 2004; expectations
regarding the recognition of deferred net sales and related gross profit in
2004; expected changes in sales to certain industries; expected sales of
microelectronic products in 2004; market acceptance and profitability of our
new products; expectations regarding future amortization expense or goodwill
impairment from our Panelview and IDS reporting units; expectations regarding
future purchases of components including possible allocations of display and
semiconductor components; expectations regarding the need to draw on our 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;
expectations regarding future minimum funding requirements for our pension
plan; expectations regarding our ability to renew our line of credit when it
matures in March 2004; expectations regarding 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 expectations for
the future demands for our products, including anti-tamper products; our
expectations regarding our ability to obtain a license to export materials
covered under ITAR; our expectations regarding a significant reduction in
future sales to General Electric Medical Division and Garmin International for
our display products; expectations of future product sales mix and gross
margins; general economic conditions pertaining to sales of displays; future
expected levels of sales and other operating expenses; and the expected effect
on our liquidity of funding our pension plan.

We may make additional written or oral forward-looking statements from time to
time in filings with the Securities and Exchange Commission (SEC) or in
public news releases. Such additional statements may include, but not be
limited to, projections of revenues, income or loss, capital expenditures,
acquisitions, plans for future operations, financing needs or plans, the impact
of inflation and plans relating to our products or services, as well as
assumptions relating to the foregoing. Forward-looking statements are based
largely on managements expectations and are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified and are beyond
our control. Future events and actual results could differ materially from
those set forth in, contemplated by, or underlying the forward-looking
statements, each of which speaks only as of the date the statement is made.
Statements in this Annual Report on Form 10-K, including those set forth in the
Notes to the Consolidated Financial Statements and the sections entitled
Business and Managements Discussion and Analysis of Financial Condition and
Results of Operations, and under the subheading entitled Risk Factors,
describe factors that could contribute to or cause actual results to differ
materially from our expectations. Additional factors that could cause actual
results to differ materially from those expressed in such forward-looking
statements include the loss of one or more principal customers; the failure of
customers to accept our anti-tamper packaging or the development of improved
anti- tamper 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 our business 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 our business or the extent to which any factor, or combination
of factors, may cause actual results to differ materially from forward-looking
statements. We do not undertake, and we specifically disclaim, any obligation
to publicly update or review any forward-looking statement contained in this
Annual Report on Form 10-K or in any document incorporated herein by reference,
whether as a result of new information, future events or otherwise.

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PART I




ITEM 1 BUSINESS




GENERAL

We design, develop and manufacture innovative microelectronic and display
components and systems for inclusion in high technology products for military,
industrial and commercial markets. Our microelectronic solutions include
advanced semiconductor and state of the art multi-chip packaging, as well as
our proprietary process for applying anti-tamper protection to mission critical
semiconductor components in military applications. Our display solutions
include enhanced flat panel display products, interface devices and
electromechanical assemblies. Our customers, which include military prime
contractors in the United States and Europe as well as commercial original
equipment manufacturers (OEMs), outsource many of their microelectronic and
display components and systems to us as a result of the combination of our
design, development and manufacturing expertise.

We are an Indiana corporation, originally incorporated in 1951 as Bowmar
Instrument Corporation (Bowmar). On October 26, 1998, Bowmar merged with
Electronic Designs, Inc. (EDI). In connection with the merger, Bowmar
changed its name to White Electronic Designs Corporation. At the time of the
merger, Bowmar was a manufacturer of high reliability electronic components and
interface and mechanical devices, mainly for military applications. EDI was a
manufacturer of commercial memory products for the telecommunications and data
communications markets and also had a small ruggedized display business serving
the military and industrial market. The merger provided us with a diversified
platform to expand our product offerings within both the military and
commercial markets. In order to complement our military/industrial display
business, we acquired Panelview, Inc. (Panelview) in January 2001. Panelview
was a designer and manufacturer of enhanced commercial flat panel display
products. Following the acquisition, we consolidated our display operations
into our Panelview subsidiary. In January 2003, we acquired IDS, a designer
and manufacturer of membrane keypads, flexible circuits, sensors, control
panels and handheld and desktop electronic devices. This acquisition allowed
us to expand our interface device product offerings and enhance our subsystem
solutions. In addition, with IDS design and manufacturing capabilities we can
offer fully integrated system level solutions. In May 2003, we announced our
intention to consolidate the manufacturing operations for our commercial memory
microelectronic products and move them from our facility in Marlborough,
Massachusetts to our recently acquired IDS facility in Phoenix, Arizona. We
completed this consolidation in September 2003.

We are headquartered in Phoenix, Arizona. Our mailing address is 3601 E.
University Drive, Phoenix, Arizona, 85034, and our telephone number at that
location is (602) 437-1520. Our website, which contains links to our financial
information and our filings with the SEC, is www.whiteedc.com. Unless
otherwise indicated in this Annual Report on Form 10-K, White Electronic
Designs, us, we, our, the Company and similar terms refer to White
Electronic Designs Corporation and its subsidiaries as a whole.




BUSINESS SEGMENTS

We have two business segments, each of which requires different design and
manufacturing resources and generally serves customers in different markets.
The microelectronic segment accounted for approximately 54% of our total sales
in fiscal 2003, while the display segment accounted for approximately 46% of
our total sales in fiscal 2003. Financial information for our business
segments is disclosed in Note 18 of the Notes to the Consolidated Financial
Statements.




MICROELECTRONIC SEGMENT

Our microelectronic segment packages semiconductor products primarily for
memory storage. Our products are sold to military prime contractors and
commercial OEMs in the aerospace, defense, military equipment, computer
networking and telecommunications/datacommunication industries. Certain
industries require these semiconductor parts to pass specific qualifications
due to the application requirements for those products. A commercial grade
product generally meets the standard of industries such as the consumer
electronic, computer networking and telecommunication/datacommunication
industries. Higher performing products, also known as high-reliability
products, are needed in certain industries, such as aerospace, defense, and
military equipment and systems, and are often referred to as military
products. Military products are designed to meet more stringent standards and
are resistant to adverse conditions, such as high and low temperature extremes.
High-reliability products can also be used in industrial applications where
products are exposed to harsh conditions.

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We address both military and commercial market opportunities with advanced
semiconductor packaging and microelectronic modules and assemblies. We believe
our microelectronic products generally provide our customers with the following
advantages over standard technology:



| |  | significant space savings and size advantages;
|- |  | ----------------------------------------------
| 
| |  | improved power and electrical performance, and
| 
| |  | improved component compatibility.             

In addition, our microelectronic segment also includes our anti-tamper security
processing for mission critical semiconductor components in military
applications. We are one of a limited number of licensees for anti-tamper
technology for microelectronic products, and have developed a proprietary
process for applying anti-tamper protection for mission critical semiconductor
components in military applications. We believe our process offers greater
scalability and increased yields than those of our competitors.

The following table describes the key products that we sell in the
microelectronic segment and some of their applications:

|                                     |  |                                                                                                                 
|------------------------------------ |  | ----------------------------------------------------------------------------------------------------------------
|PRODUCT                              |  | SAMPLE APPLICATION                                                                                              
|                                     |  |                                                                                                                 
|Military:                            |  |                                                                                                                 
|                                     |  |                                                                                                                 
| System module                      |  |  Counter-measure suite of the F-16 Fighting
Falcon                                                             
|                                     |  |                                                                                                                 
| Microprocessor modules             |  |  Air-to-air missiles, such as the Sidewinder
AIM-9X and AIM-120 AMRAAM                                         
|                                     |  |                                                                                                                 
|                                     |  |  Embedded computers used in the Apache
Helicopter, Advanced Amphibious Assault Vehicle
and the Abrams M1A2 Tank
|                                     |  |                                                                                                                 
| Advanced memory modules            |  |  Air-to-air missiles, such as the Sidewinder
AIM-9X and AIM-120 AMRAAM                                         
|                                     |  |                                                                                                                 
|                                     |  |  Embedded computers used in the Comanche
Helicopter, F-22 Raptor, Patriot PAC-3 Missile
System                 
|                                     |  |                                                                                                                 
|                                     |  |  Radar used in the F/A-18 Hornet                                                                               
|                                     |  |                                                                                                                 
|Anti-tamper semiconductor packaging |  | Precision guided munitions                                                                                     
|                                     |  |                                                                                                                 
|Commercial:                          |  |                                                                                                                 
|                                     |  |                                                                                                                 
| Multi-chip package                 |  |  Telephone, data, and video communications                                                                     
|                                     |  |                                                                                                                 
| SDRAM memory module                |  |  High-end servers for networking and ERP systems                                                               
|                                     |  |                                                                                                                 
|                                     |  |  Wireless CDMA base stations                                                                                   
|                                     |  |                                                                                                                 
| Flash memory PC card               |  |  Linear Flash PCMCIA Cards                                                                                     
|                                     |  |                                                                                                                 
| Microelectronic system boards      |  |  Home entertainment consoles                                                                                   

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Backlog

The backlog for microelectronic products, represented by customer purchase
orders, was approximately $31.7 million and $23.9 million at the end of fiscal
years 2003 and 2002, respectively. This increase was primarily caused by
higher orders for military products, and the inclusion of approximately $3.5
million of orders from IDS. Approximately 78% of the segments fiscal 2002
backlog was shipped during fiscal 2003 with the remaining backlog scheduled for
shipment in 2004 or beyond. Approximately 79% of the fiscal 2003 year-end
backlog is planned for shipment during fiscal 2004 with the remaining backlog
scheduled for shipment in fiscal 2005 and beyond. The backlog after fiscal
2004 is a result of customer scheduling requirements for high-reliability
products, and not restraints on our capacity.

Competition

In all phases of our operations, we compete primarily based on performance,
quality, durability and price. We have a number of present and potential
competitors, including customers, many of which have greater financial,
technical, marketing, distribution and other resources than we do.

Our principal competitors in the military markets are divisions of Aeroflex
Corporation, Austin Semiconductor and Teledyne Microelectronics Group. Our
principal competitors in the commercial microelectronic product market are
Simple Technology and Smart Module Technology, a subsidiary of Solectron Corp.
We also compete with manufacturers that provide single chip microelectronic
products.




DISPLAY SEGMENT

The display segment serves a number of markets with products and solutions that
are incorporated into global positioning systems, home appliances, consumer
electronics, medical devices, transportation, outdoor displays, military
avionics and various military applications. Our display solutions include
enhanced viewing liquid crystal flat panel display products, interface devices
and electromechanical assemblies. Enhanced viewing liquid crystal displays and
sunlight readable displays, can be used in either ruggedized or commercial
applications. Ruggedized displays are manufactured to perform in harsh
environmental conditions, while commercial display products offer greater
viewing performance than off-the-shelf displays, but are not designed for harsh
environmental conditions. Interface devices include electromechanical
components and instrument packages that can consist of ruggedized keyboards,
aircraft trim panels, rotating devices, mechanical packages, membrane keypads,
silver flexible circuits, graphic overlays, control panels and
keypad/controller assemblies.

We enhance standard flat panel displays using patented, proprietary and
commercially available technology. We believe our enhanced display products
offer several benefits, including:



| |  | Increased visibility in bright light conditions; super bright low reflectance (SBLR)
|- |  | ------------------------------------------------------------------------------------
| 
| |  | Ability to withstand heavy vibration and extreme temperatures; and                  
| 
| |  | Expanded viewing angles                                                             

Additionally, we combine various display, keyboard, and other components and
their supporting electronics into fully integrated solutions for our customers.

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The following table describes key products that we sell in the display segment
and some of their applications:

|                              |  |                                                                                                                                              
|----------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|PRODUCT                       |  | SAMPLE APPLICATION                                                                                                                           
|                              |  |                                                                                                                                              
|Military:                     |  |                                                                                                                                              
|                              |  |                                                                                                                                              
| Mechanical components       |  |  Impulse counters, altitude counters, rounds
counters, logicator F-16 trim panel                                                            
|                              |  |                                                                                                                                              
| SBLR                        |  |  Ground based vehicles, such as the Abrams
M1A2 Tank                                                                                        
|                              |  |                                                                                                                                              
|                              |  |  Aircraft displays, such as the Apache
Helicopter, and the F-16 Fighting Falcon                                                             
|                              |  |                                                                                                                                              
|Commercial:                   |  |                                                                                                                                              
|                              |  |                                                                                                                                              
| Display module assembly     |  |  Patient monitors                                                                                                                           
|                              |  |                                                                                                                                              
| Optically enhanced displays |  |  Drive-thru kiosks; medical instruments;
marine navigation; notebook personal
computers; cockpit instrumentation;
automotive test equipment;
|                              |  |                                                                                                                                              
| Membrane keypads            |  |  Home appliances                                                                                                                            
|                              |  |                                                                                                                                              
| Keypad modules              |  |  Hand-held barcode applications                                                                                                             

Backlog

The display segment backlog was approximately $16.0 million and $18.5 million
at the end of fiscal years 2003 and 2002, respectively. The decline from the
previous year is attributable to lower orders for our commercial display
products, partially offset by the inclusion of approximately $1.8 million of
backlog orders from IDS. Approximately 83% of this segments 2002 backlog was
shipped during fiscal 2003 while the remaining backlog is scheduled for
shipment in fiscal year 2004 and beyond. Approximately 81% of the fiscal 2003
year-end backlog is expected to be shipped during fiscal 2004 with the
remaining backlog scheduled for shipment in fiscal 2005 and beyond. The
backlog after 2003 is a result of customer scheduling requirements for display
and military interface products, and not restraints on our capacity.

Competition

The principal elements of competition among display product 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 active matrix
liquid crystal display (AMLCD) is currently cathode ray tube displays, our
products compete with other flat panel displays including gas plasma and
electro-luminescent displays. We believe that price, product reliability and
the ability to meet delivery schedules are key competitive factors. In all
phases of our operations, we compete primarily based on performance, quality,
durability and price. We have a number of present and potential competitors,
including customers, many of which have greater financial, technical,
marketing, distribution and other resources than we do.

In both the military and commercial markets for the display segment, we compete
with numerous companies, such as Global Display Solutions, Planar Systems, and
Polarvision a division of E. I. Du Pont De Nemours & Co. We also experience
significant competition from the internal capabilities of our current and
potential customers. Commercial customers may also choose to use standard
commercially available display products rather than our enhanced display

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products. The marketplace for commercial interface components is highly
fragmented with numerous companies offering similar products, such as Molex and
Durell, as well as competition from companies in Asia.




SALES, MARKETING AND DISTRIBUTION

We use an integrated sales approach to closely manage relationships at multiple
levels of the customers organization, including management, engineering and
purchasing personnel. This approach involves a team consisting of a senior
executive, a business development specialist, and members of our engineering
department. Our sales team consists of approximately 45 people, including 17
sales managers. Our use of experienced engineering personnel as part of the
sales effort enables close technical collaboration with our customers during
the design and qualification phase of new equipment. We believe that this is
critical to the incorporation of our products into our customers equipment.
Some of our executive officers are actively involved in key aspects of our
relationships with our major customers and work closely with our customers
senior management. We also use manufacturers representatives and independent
sales representatives and distributors as needed.

The military sales cycle, and certain commercial product sales, tends to be
long in nature with a protracted design phase. Once a product is designed into
a military system, it is typically sole-sourced to a particular supplier. Due
to the extensive qualification process and potential redesign required for
using an alternative source, customers are reluctant to change the incumbent
supplier. The majority of our business is not affected by seasonality factors;
however, our membrane keypad business is subject to seasonal fluctuations
relating to home appliance sales.

Our products are sold with a standard warranty and may be subject to repair or
replacement during the warranty period.




PRINCIPAL CUSTOMERS

Our customers consist mainly of military prime contractors and commercial OEMs,
and the contract manufacturers who work for them, in the United States, Europe
and Asia. Sales to military customers accounted for approximately $53.7
million, or 47%, of our sales in fiscal 2003 as compared to approximately $48.4
million, or 54%, in fiscal 2002. Sales to our commercial customers accounted
for approximately $59.8 million, or 53%, of our sales in fiscal 2003, as
compared to approximately $42.0 million, or 46%, in fiscal 2002.

In fiscal 2003, Garmin International, Inc., a display segment customer,
accounted for 11.3% of our total net sales. In fiscal 2002, two customers each
accounted for more than 10% of our total net sales. General Electric Medical
Division, also a display segment customer, accounted for 11.5% of total net
sales, and Garmin International accounted for 10.8% of total net sales. We
expect sales to both of these customers to decline significantly in the future.
In fiscal 2001, no customer accounted for more than 10% of our total net
sales.

Total foreign sales for fiscal 2003, 2002, and 2001 were approximately $29.2
million, $28.8 million and $27.2 million, respectively. Additional information
concerning sales by geographic area can be found in Note 18 of the Notes to the
Consolidated Financial Statements.




RESEARCH, ENGINEERING AND PRODUCT DEVELOPMENT

Our research and development efforts primarily involve engineering and design
relating to:



| |  | developing new products;                              
|- |  | ------------------------------------------------------
| 
| |  | improving existing products;                          
| 
| |  | adapting existing products to new applications; and   
| 
| |  | developing prototype components for specific programs.

Some of our product development costs are recoverable under contractual
arrangements; however, the majority of these costs are self-funded. Our
research and development expenditures approximated $6.0 million, $4.3 million
and $5.3 million in fiscal 2003, 2002, and 2001, respectively. We believe that
strategic investment in process technology and product development is essential
for us to remain competitive in the markets we serve. We are committed to
maintaining appropriate levels of expenditures for product development.

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REGULATORY MATTERS

Government Contracting Regulations

A significant portion of our business is derived from subcontracts with prime
contractors of the United States government. As a United States government
subcontractor, we are subject to federal contracting regulations. Our
extensive experience in the defense industry enables us to handle the strict
requirements that accompany these contracts.

Under federal contracting regulations, the United States government is entitled
for three years after final payment on certain negotiated contracts or contract
modifications to examine all of our cost records with respect to such contracts
to determine whether we furnished complete, accurate, and current cost or
pricing data in connection with the negotiation of the price of the contract or
modification. The United States 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, we have not experienced any such
downward adjustments.

In addition, the Federal Acquisition Regulations govern the allowability of
costs incurred by us in the performance of United States government contracts
to the extent that such costs are included in its proposals or are allocated to
United States government contracts during performance of those contracts.

Our subcontracts provide that they may be terminated at the convenience of the
United States 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, our subcontracts
provide for termination for default if we fail to perform or breach 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 us to return
unliquidated progress payments pending final resolution of the propriety of the
termination for default. We 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 from us of such damages.

In connection with our United States government business, we are also subject
to government investigations of our policies, procedures, and internal controls
for compliance with procurement regulations and applicable laws. We 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 would have a
material adverse effect on our business.

It is our policy to cooperate with the government in any investigations of
which we have knowledge, but the outcome of any such government investigations
cannot be predicted with certainty. We believe we have complied in all
material respects with applicable government requirements.

Environmental Protection

Our 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 our capital expenditures, earnings or competitive position within
our markets.

International Trade Regulations

We must comply with laws concerning the export of material used exclusively for
military purposes. The export of those types of materials is covered under
International Traffic in Arms Regulations (ITAR) laws. We are in the process
of applying for a license that will allow us to export materials covered under
these regulations, and we expect to receive a license in the near future.

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RAW MATERIALS

The most significant raw materials that we purchase for our operations are
memory devices in wafer, die and component forms and AMLCDs. We are highly
dependent on one static random access memory (SRAM) semiconductor
manufacturer for memory devices, one major display manufacturer of AMLCD
panels, and one package manufacturer of ceramic packages for military
components. Despite the risks associated with purchasing from single sources,
or from a limited number of sources, we have made the strategic decision to
select single source or limited source suppliers in order to obtain lower
pricing, receive more timely delivery and maintain quality control. We have
long-standing strategic relationships with world class semiconductor and
display suppliers. Because of these capabilities and relationships, we believe
we can continue to meet our customers requirements. In cases where
unanticipated customer demand or supply shortages occur, we attempt to arrange,
through strategic relationships with our semiconductor and glass suppliers, for
alternative sources of supply, where available, or defer planned production to
meet anticipated availability of critical components or materials. We do not
have specific long-term contractual arrangements with our vendors, but we
believe we have good relationships with our vendors.




INTELLECTUAL PROPERTY

We rely upon trade secrets, technical know-how and continuing technological
innovation to develop and maintain our competitive position. The products we
sell from both our microelectronic segment and our display segment require a
large amount of engineering design and manufacturing expertise. The majority
of these technological capabilities, however, 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
reduction of sales for our products.

Our trade secret protection for our technology, including our process for
applying anti-tamper protection to microelectronic products, is based in part
on confidentiality agreements that we enter into with our employees,
consultants and other 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. Others may also come to know about or determine our trade secrets. 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.

We have been issued a patent (patent #6181394B1) from the United States Patent
and Trademark Office for our Super Bright Low Reflectance (SBLR) technology.
This technology significantly reduces glare and reflections in liquid crystal
displays while simultaneously increasing brightness. This patent expires in
January 2018. We have also applied for three patents relating to our
anti-tamper manufacturing process.




EMPLOYEES

As of December 12, 2003, we had approximately 485 employees, including 45 in
sales and marketing, 66 in research, development and engineering, 334 in
manufacturing and quality assurance, and 40 in general and administrative.
Approximately 43 of our employees in the display segment are employed pursuant
to collective bargaining agreements covering workers at our Fort Wayne, Indiana
facility that expires on November 22, 2004. We believe our relationship with
our employees is good.




FINANCIAL INFORMATION BY GEOGRAPHIC SEGMENT

See Note 18 of the Notes to the Consolidated Financial Statement for
information relating to foreign sales by geographic segment.

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RISK FACTORS

We are dependent on sales to defense-related companies for a large portion of
our net sales and profits, and changes in military spending levels and patterns
could negatively affect us.

Our current orders from defense-related companies account for a material
portion of our overall net sales. Military sales accounted for approximately
47%, 54% and 47% of our total net sales in fiscal 2003, 2002 and 2001,
respectively. Military spending levels depend on factors that are outside of
our control. Reductions or changes in military spending could have a material
adverse effect on our sales and profits. In addition, the United States
defense industry is moving toward the purchase of commercial off-the-shelf
products rather than those designed and manufactured to higher military
specifications. To the extent that our products are substituted with
commercial off-the-shelf products, our operations would suffer. Even if
military spending continues to increase, shifts in military spending away from
high technology programs to areas that we do not supply, such as personnel and
infrastructure, would also negatively affect our sales and profits.

We acquired IDS in 2003; we may make other acquisitions and we cannot assure
you that any potential acquisition will be successful.

We are looking for strategic opportunities to grow and diversify our product
offerings through acquisitions. In this regard, we completed the acquisition
of IDS in January 2003. Your evaluation of our business and prospects may be
difficult because of our limited operating history with IDS. There can be no
assurance that we will be successful in integrating the operations of IDS,
identifying other appropriate acquisition candidates, or integrating products
and operations with any such candidates, which we may acquire. Any such
acquisitions could involve the dilutive issuance of equity securities and/or
the incurrence of debt. In addition, acquisitions may involve numerous
additional risks, including:



| |  | the diversion of the attention of our management team from
other business concerns;                                                                                                                  
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | risks of entering into markets or producing products where we
have limited or no experience, including the integration of the
purchased technologies and products with our technologies and
products;
| 
| |  | the potential loss of key customers of an acquired company;                                                                                                                                          
| 
| |  | the potential loss of key personnel of an acquired company; and                                                                                                                                      
| 
| |  | exposure to unanticipated liabilities of an acquired company.                                                                                                                                        

Even when an acquired company has already developed and marketed products,
there can be no assurance that the products will continue to be successful,
that product enhancements will be made in a timely fashion or that
pre-acquisition due diligence will have identified all possible issues that
might arise with respect to the acquired company or its products.

Our customers may cancel their orders, change production quantities or delay
production at any time, which could materially reduce our net sales and
operating results.

We generally do not receive firm, long-term purchase commitments from our OEM
customers. Customers may cancel their orders, change production quantities or
delay production for a number of reasons. Many of our customers industries
are experiencing a significant decrease in demand for their products and
services. The generally uncertain economic condition of several of the
industries of our customers has resulted, and may continue to result, in some
of our customers delaying the delivery of some of the products we manufacture
for them, and placing purchase orders for lower volumes of products than
originally anticipated. Cancellations, reductions or delays by a significant
customer or by a group of customers would seriously harm our results of
operations for a period by reducing our net sales in that period. In addition,
because many of our costs and operating expenses are fixed, a reduction in
customer demand could harm our gross profit and operating income.

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We have a highly concentrated customer base and, as a result, our net sales
could decline significantly if we lose a major customer.

A large portion of our net sales has been derived from sales to a small number
of our customers. Our five largest customers accounted for approximately 32%
and 35% of our net sales in fiscal year 2003 and fiscal year 2002,
respectively. Our customers are not subject to any minimum purchase
requirements and can discontinue the purchase of our products at any time. In
the event one or more of our major customers reduces, delays or cancels orders
with us, as we expect will occur with Garmin International and General Electric
Medical Division, and we are not able to sell our services and products to new
customers at comparable levels, our net sales could decline significantly. In
addition, any difficulty in collecting amounts due from one or more key
customers would negatively impact our results of operations.

We depend on military prime contractors and commercial OEM customers for the
sale of our products and the failure of these customers to achieve significant
sales of products incorporating our components would reduce our net sales and
operating results.

We sell substantially all of our products to military prime contractors and
commercial OEMs. The timing and amount of sales to these customers ultimately
depend on sales levels and shipping schedules for the products into which our
components are incorporated. We have no control over the volume of products
shipped by our military prime contractors and commercial OEM customers or
shipping dates, and we cannot be certain that our military prime contractors
and OEM customers will continue to ship products that incorporate our
components at current levels or at all. Our business will be harmed if our
military prime contractors and OEM customers fail to achieve significant sales
of products incorporating our components or if fluctuations in the timing and
volume of such sales occur. Failure of these customers to inform us of changes
in their production needs in a timely manner could also hinder our ability to
effectively manage our business.

We depend on the continuing trend of outsourcing by commercial OEMs and prime
military contractors.

Our net sales and future growth in our net sales depend in part on outsourcing,
in which we assume additional manufacturing and supply chain management
responsibilities from commercial OEMs and military prime contractors. To the
extent that these opportunities are not available, either because commercial
OEMs or military prime contractors decide to perform these functions
internally, or because they use other providers of these services, our results
of operations may be adversely affected.

Our failure to comply with United States government laws and regulations would
reduce our ability to be awarded future military business.

We must comply with laws and regulations relating to the formation,
administration and performance of federal government contracts as passed down
to us by our customers in their purchase orders, which affects our military
business and may impose added cost on our business. We are subject to
government investigations of our policies, procedures, and internal controls
for compliance with procurement regulations and applicable laws. If a
government investigation uncovers improper or illegal activities, we may be
subject to civil and criminal penalties and administrative sanctions, including
the termination of our contracts, the forfeiture of profits, the suspension of
payments owed to us, fines, and our suspension or debarment from doing business
with federal government agencies. Since military sales accounted for
approximately 47% and 54% of our business in fiscal year 2003 and fiscal year
2002, respectively, any debarment or suspension of our ability to obtain
military sales would greatly reduce our overall net sales and profits, and
would likely affect our ability to continue as a going concern.

We may fail to meet expectations because our net sales, gross profits and net
income are very likely to fluctuate from period to period.

Our operating results have varied in the past and will likely continue to
fluctuate. In connection with our business, a wide array of factors could
cause our net sales, gross profits and net income to fluctuate in the future
from period to period. In addition to other factors mentioned in this
report, primary factors that might affect our results of operations in this
regard include:

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| |  | our inability to adjust expenses for any particular quarter
in response to net sales shortfalls because a substantial component
of our operating expenses are fixed costs;                                                                             
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the cyclical nature of the markets in which we serve;                                                                                                                                                                                                  
| 
| |  | any adverse changes in the mix of products and types of
manufacturing services that we provide (e.g., high volume and low
complexity commercial keypads have lower gross margins than high
complexity microelectronic devices for defense contractors);
| 
| |  | 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;                                                     
| 
| |  | expenses associated with acquisitions; and                                                                                                                                                                                                             
| 
| |  | general economic conditions.                                                                                                                                                                                                                           

As a result of any of these or other factors, we could fail to achieve our
expectations as to future net sales, gross profits and net income. Any
downward fluctuation or failure to meet expectations will likely adversely
affect the value of an investment in our securities. Due to the foregoing
factors, it is likely that in some future periods our operating results will be
below the expectations of public market analysts and investors and, as a
result, the market price of our common stock may decline.

We have a lengthy sales cycle, which increases the likelihood that our
quarterly net sales will fluctuate and which may, in turn, adversely affect the
market price of our common stock.

Due to the complexity of our technology, our customers perform, and require us
to perform, extensive process and product evaluation and testing, which results
in a lengthy sales cycle. Our sales cycles often last for several months, and
may last for up to a year or more. As a result of this lengthy sales cycle,
our net sales and operating results may vary unpredictably from period to
period. This fact makes it more difficult to forecast our quarterly results
and can cause substantial variations in operating results from quarter to
quarter that are unrelated to the long-term trends in our business. This lack
of predictability and variability in our results could adversely affect the
market price of our common stock in particular periods.

Our failure to detect unknown defects in our products could materially harm our
relationship with customers, our reputation and our business.

Notwithstanding the testing that we perform on our products, defects could be
found in our existing or new products. These defects could result in product
liability or warranty claims. In addition, any defects found in our products
could result in a loss of net sales or market share, failure to achieve market
acceptance, injury to our reputation, indemnification claims, litigation,
increased insurance costs and increased service costs, any of which could
discourage customers from purchasing our products. Although we maintain a
warranty reserve, we cannot be certain that this reserve will be sufficient to
cover our warranty or other expenses that could arise in the future as a result
of defects found in our products.

Our operating 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
market sectors that use our products, including the following:



| |  | defense and aerospace equipment;           
|- |  | -------------------------------------------
| 
| |  | transportation;                            
| 
| |  | computers and computer related peripherals;
| 
| |  | medical electronics and equipment;         

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| |  | home appliances;                                
|- |  | ------------------------------------------------
| 
| |  | consumer electronics;                           
| 
| |  | industrial controls; and                        
| 
| |  | telecommunications/datacommunications equipment.

Approximately 12% of our product sales for fiscal year 2003 and 17% of our
product sales for fiscal year 2002 were incorporated into data and voice
communications end products. The telecommunications industry has declined, and
we believe any recovery will be slow as companies gradually use up their excess
network capacity. Slower growth in the other markets in which we sell our
products could reduce our sales, adversely affecting our business, financial
condition and results of operations. For example, decreases in demand in the
consumer electronics and home appliance markets, could negatively impact our
sales and profits for our recently acquired subsidiary, IDS.

Further downturns in the industries in which we operate could reduce the value
of our inventories and cause a reduction in our profits.

We have experienced reductions in the value of our inventories due to
unexpected demand declines, resulting from a softening of the semiconductor and
telecommunications industries. Such declines have caused us to write down
several million dollars worth of inventory, which greatly reduced our profits
for the given period. In 2001, for example, we reserved approximately $4.3
million in excess inventory. If any of the markets in which our customers
operate suffers a decline, we may be forced to write down existing inventory,
which could adversely affect our results of operations.

We utilize manufacturing resources in Asia, which limits our control of the
manufacturing process.

As part of our strategy to decrease manufacturing costs, we outsource some of
our manufacturing requirements to strategic partners in Taiwan and China.
Outsourcing, particularly with international manufacturers, carries certain
risks, including:



| |  | the outsourcing contractors ability to manufacture products
that meet our technical specifications and that have minimal
defects;                                             
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the outsourcing contractors ability to honor their product
warranties;                                                                                                        
| 
| |  | the financial solvency, labor concerns and general business
condition of our outsourcing contractors;                                                                          
| 
| |  | unexpected changes in and the burdens and costs of compliance
with a variety of foreign laws and regulatory requirements;                                                      
| 
| |  | increased chances of our intellectual property being
infringed as a result of the failure of foreign governments
to enforce the protection of intellectual
property rights; and
| 
| |  | political and economic instability in overseas locations.                                                                                                                      

We are dependent on international markets for a large portion of our purchases
and sales.

Foreign suppliers of semiconductor and display related materials are regularly
threatened with, or involved in, pending trade disputes and sanctions. For
example, during the period between 1997 and 1999, we were forced to pay high
tariffs to import various semiconductor parts from Taiwan. If trade disputes
or sanctions arise that affect our suppliers, we may be unable to obtain access
to critical sources of raw materials that we need to produce our products, in
which event our business could be adversely affected.

We anticipate that our foreign sales will continue to account for a significant
portion of our net sales. Foreign sales accounted for approximately 26% and
32% of our overall sales for fiscal year 2003 and fiscal year 2002,
respectively. Approximately $14 million of our fiscal year 2003 sales were to
approved foreign military equipment

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manufacturers, and if the United States government placed restrictions,
including recent International Traffic in Arms Regulations (ITAR) for which we
are in the process of applying for a license, on exporting military technology
using our products in countries where we have customers, or vendors, it could
cause a significant reduction in our sales and profits. Our foreign sales are
subject to the following risks:



| |  | fluctuations in foreign currencies, which may adversely
affect the prices of our products and the prices of raw materials
used in our products;                                                  
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | trade disputes;                                                                                                                                                                                  
| 
| |  | changes in regulatory requirements, license requirements, tariffs and other trade 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 or foreign governments;
| 
| |  | the timing and availability of export or other licenses;                                                                                                                                         
| 
| |  | general political and economic conditions in the countries in which we sell our products;                                                                                                        
| 
| |  | language and other cultural differences which may inhibit our sales and marketing efforts;                                                                                                       
| 
| |  | costs of complying with a variety of foreign laws;                                                                                                                                               
| 
| |  | difficulty of accounts receivable collections;                                                                                                                                                   
| 
| |  | increased chances of our intellectual property being
infringed as a result of the failure of foreign governments to
enforce the protection of intellectual property rights; and                  
| 
| |  | public health issues that could disrupt local economies.                                                                                                                                         

If we are unable to retain employees with key technical expertise or we are
otherwise unable to protect our intellectual property, or if we are found to
have infringed third party intellectual property rights, our financial
condition and future prospects could be materially harmed.

The products that 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.
If we were to lose one or more of our key employees, then we would likely lose
some portion of our institutional knowledge and technical know-how. 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 trade secret protection for most of our proprietary technology, in
part through confidentiality agreements with our employees, consultants and
third parties. If any of these agreements are found to be unenforceable, we
may be unable to adequately protect our technology. If any of these agreements
are breached, especially by 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. 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.

While we are currently not aware of any claims against us for the infringement
of intellectual property rights, any such claim could divert the efforts of our
technical and management personnel and require us to spend significant
resources to develop or otherwise obtain non-infringing technology. Any
successful claim against us would likely require us to pay substantial damages
or cease the use and sale of infringing products, or both.

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Our business is dependent upon retaining key personnel and attracting new
employees.

Our success depends to a significant degree upon the continued contributions of
Hamid R. Shokrgozar, our Chief Executive Officer, and other senior management
and key personnel. The loss of the services of Mr. Shokrgozar or any of our
senior management or key personnel could adversely affect our business. We may
not be able to retain these employees and searching for their replacements
could divert the attention of other senior management and increase our
operating expenses. Of our current executive officers, only Mr. Shokrgozar has
an employment contract with us. We currently do not maintain any key person
life insurance. To manage our operations effectively, we may need to hire and
retain additional qualified employees including in the areas of product design,
engineering, operations management, manufacturing production, sales, accounting
and finance. We may have difficulty recruiting these employees or integrating
them into our business.

Our failure to comply with environmental regulations could subject us to costs
and production delays.

We currently use limited quantities of hazardous materials common to our
industry in connection with the production of our products. We must follow
federal, state and local environmental laws and regulations regarding the
handling, storage and disposal of these materials. To our knowledge, we are
currently in material compliance with all federal, state and local
environmental laws and regulations regarding the handling, use, 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 laws or regulations related to the use, storage, handling, discharge
or disposal of toxic, volatile or otherwise hazardous chemicals used in 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 handling, use, storage
or disposal of, or adequately restrict the discharge of, hazardous substances
could subject us to liabilities and production delays, which could cause us to
miss our customers delivery schedules, thereby reducing our sales for a given
period. We may also have to pay regulatory fines, penalties or other costs
(including remediation costs), which could materially reduce our profits.

If we fail to match our costs to our selling prices, our sales and operating
results will decline.

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, especially with respect to sales in the commercial
markets. 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 because we will not be able to remain profitable at
decreased selling prices, possibly leading to our exit from certain market
sectors.

In addition to following the general pattern of decreasing average selling
prices, the selling prices for certain products, particularly random access
memory (RAM), dynamic random access memory (DRAM), or SRAM products and
liquid crystal displays, fluctuate significantly with real and perceived
changes in the balance of supply and demand for these products. If 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
result in a dramatic increase in worldwide supply and result in associated
downward pressure on prices.

If we fail to develop, introduce and sell new products or fail to develop and
implement new manufacturing technologies, our operating results could be
adversely affected.

We operate in a highly competitive, quickly changing environment marked by
rapid obsolescence of existing products. The future success of our business
will depend in large part upon our ability to maintain and enhance our
technological capabilities, make required capital investments, design, develop,
manufacture, market and sell services and products that meet our customers
changing needs, and successfully anticipate or respond to technological changes
on a cost effective and timely basis. Our sales will be reduced, either
through loss of business to our competitors or discontinuance of our products
in the market, if any of the following occur:

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| |  | we fail to complete and introduce new product designs in a
timely manner;                       
|- |  | ------------------------------------------------------------------------------------------------
| 
| |  | we are unable to design and manufacture products according to
the requirements of our customers;
| 
| |  | our customers do not successfully introduce new systems or products incorporating our products; 
| 
| |  | market demand for our new products does not develop as anticipated; or                          
| 
| |  | we are unable to obtain raw materials in a timely manner or at favorable prices.                

In particular, many of our display products have been developed based on
products procured from Sharp Electronics Corporation. Our competitors in the
enhanced 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
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. Increasing complexity in our microelectronic segment generally
requires the use of smaller geometries in semiconductor chips. This makes
manufacturing new generations of products substantially more difficult and
costly 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 or sector.

We depend on limited suppliers for certain critical raw materials. Our
inability to obtain sufficient raw materials at favorable prices could
increase our prices or otherwise harm our business.

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 raw materials 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 raw materials at favorable prices. 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 suppliers but we believe we are on good terms
with our suppliers. We cannot be certain 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 supply 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 of our product to our
customers. In addition, our gross profits could suffer if the prices for raw
materials increase, especially with respect to sales associated with military
contracts where prices are typically fixed. Several foreign suppliers dominate
the display industry. We are dependent on one of these foreign suppliers for
glass. Any disruption of glass supplies from this supplier 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 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 1,000,000 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:

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| |  | 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 may be issued. 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.

Our shareholders rights plan may make it more difficult for others to obtain
control of us.

Pursuant to the terms of our shareholders rights plan, we have distributed a
dividend of one right for each outstanding share of common stock. These rights
will cause substantial dilution to the ownership of a person or group that
attempts to acquire us on terms not approved by our Board of Directors, and may
have the effect of deterring hostile takeover attempts. The practical effect
of these provisions is to require a party seeking control of us to negotiate
with our Board of Directors, which could delay or prevent a change in control.
These provisions could discourage a future takeover attempt which individual
shareholders might deem to be in their best interests or in which shareholders
would receive a premium for their shares over current prices.

Our stock price has been volatile.

The price of our common stock fluctuates significantly. The trading price of
our common stock could be subject to wide fluctuations in response to:



| |  | future announcements concerning our company, our competitors
or our principal customers, such as quarterly operating results,
adjustments to previously reported results, changes in earnings
estimates by analysts, technological innovations, new product
introductions, governmental regulations, or litigation;
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the liquidity within the market of our common stock;                                                                                                                                                                                                                                                               
| 
| |  | sales of common stock by our officers, directors and other insiders;                                                                                                                                                                                                                                               
| 
| |  | investor perceptions concerning the prospects of our business;                                                                                                                                                                                                                                                     
| 
| |  | market conditions and investor sentiment affecting market
prices of equity securities of high technology companies in the
microelectronic or display industries;                                                                                                                                                   
| 
| |  | general economic, political and market conditions, such as
recessions or international currency fluctuations; and                                                                                                                                                                                                  
| 
| |  | market reaction to acquisitions, joint ventures or strategic
investments announced by us or our competitors.                                                                                                                                                                                                       

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ITEM 2 PROPERTIES

The following table sets forth the locations and general characteristics of the
physical properties that we own or lease in connection with the conduct of our
business:

|                    |  |                |        |                 |  |                 |  |      
|------------------- |  | -------------- | ------ | --------------- |  | --------------- |  | -----
|Location            |  | Square Footage |        | Primary Segment |  | Own/Lease      
|                    |  |                |        |                 |  |                
|Phoenix, Arizona    |  |                | 51,000 |                 |  | Microelectronic |  | Lease
|Phoenix, Arizona    |  |                | 43,000 |                 |  | Microelectronic |  | Own  
|Hillsboro, Oregon   |  |                | 76,000 |                 |  | Display         |  | Lease
|Fort Wayne, Indiana |  |                | 75,000 |                 |  | Display         |  | Own  
|Columbus, Ohio      |  |                | 41,000 |                 |  | Display         |  | Own  

In addition to the above properties, we own 10 acres of vacant land adjacent to
the Fort Wayne, Indiana facility. In the latter half of fiscal 2003, we
consolidated all of our microelectronic product manufacturing into our Phoenix,
Arizona facilities and closed our Marlborough, Massachusetts facility. Our
Panelview subsidiary leases approximately 76,000 square feet of office and
manufacturing space in Hillsboro, Oregon for manufacturing ruggedized and
industrial display products. Currently, all display manufacturing is done in a
51,000 square foot portion of the facility. We combined our display operations
in that facility during fiscal 2002. Presently, we are not using 17,000 square
feet of warehouse space in the facility and are attempting to sublease that
space. Additionally, an 8,000 square foot office at the Hillsboro facility,
which was previously used for display management and sales personnel, is
currently vacant. We are also attempting to sublease that space.

We consider all of our facilities to be well maintained and adequate for
current operations. All facilities have additional capacity, which could be
utilized in the event of increased production requirements. Our manufacturing
facilities that serve the military market must comply with stringent military
specifications. Our microelectronic module manufacturing facility in Phoenix,
Arizona is certified ISO-9001 and Class B status. Class B status means that we
are qualified to manufacture compliant military products. All of our owned
real property has been pledged as security for our line of credit with Bank
One.




ITEM 3 LEGAL PROCEEDINGS

From time to time, we are subject to claims and litigation incident to our
business. There are currently no material pending proceedings to which we are
a party, or in respect of which any of our properties are subject.




ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of our security holders during the fourth
quarter of fiscal 2003, through the solicitation of proxies or otherwise.




EXECUTIVE OFFICERS OF THE COMPANY

The names, ages, positions and business experience of all of our executive
officers are listed below. There are no family relationships between any of
our directors and executive officers or any arrangement or understanding
between any of our executive officers and any other person pursuant to which
any executive officer was appointed to his office.

|                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Hamid R. Shokrgozar, 43
President,
Chief Executive Officer and Chairman of the Board |  | Mr. Shokrgozarhas been our
President and Chief Executive
Officer since October 1998 and
the Chairman of the Board since
August 2000. Mr. Shokrgozar
served as a director and as
President and Chief Executive
Officer of Bowmar from January
1998 until the merger of Bowmar
and EDI in October 1998. Mr.
Shokrgozar served as President of
White Microelectronics, the
largest division of Bowmar, from
June 1993 to December 1997 and as
its Vice President of Engineering
and Technology from July 1988 to
June 1993. Mr. Shokrgozar also
served as Chairman of American
Electronic Association (AEA),
Arizona Council, during fiscal
years 1999 and 2000. In
addition, Mr. Shokrgozar holds a
United States Patent for the
invention of Stacked Die Carrier
Assembly. Mr.

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|                                                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|---------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                       |  | Shokrgozar holds
a Bachelors of Science in
Electrical Engineering from
California State University
Fullerton.                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|William J. Rodes, 49
Chief Accounting Officer, Treasurer
and Secretary |  | William J. Rodeshas been our
Chief Accounting Officer since
October 2000. Mr. Rodes was
appointed as our Treasurer and
Secretary in August 1999. He
served as our Corporate
Controller from May 1999 to
September 2000 and, prior to
that, as Controller of White
Microelectronics from 1993 to
1999. Mr. Rodes holds a
Bachelors of Science in
Accounting and a Masters of
Business Administration from the
University of Arizona.                                                                                                   
|                                                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Dante V. Tarantine, 50
Executive Vice President,
Sales & Marketing     |  | Dante V. Tarantinehas been our
Corporate Executive Vice
President, Sales and Marketing
since January 2003. Mr.
Tarantine served as our Senior
Vice President of Sales from
August 1998 to January 2003. He
previously served as our Senior
Vice President Sales and
Marketing from September 1991 to
August 1998 and as Vice President
of Marketing for White
Microelectronics from February
1987 to September 1991. Mr.
Tarantine holds a Bachelors of
Science in Electrical Engineering
from California State University
Northridge.

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PART II




ITEM 5 MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Our 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 during the fiscal years ended September 27, 2003
and September 28, 2002.

|                          |  |      |       |    |  |    |      |    |  |   |       |  |  |   |       | 
|------------------------- |  | ---- | ----- | -- |  | -- | ---- | -- |  | - | ----- |  |  | - | ----- | 
|                          |  | 2003
|                          |  |     
|Common stock market price |  | Q1   |       | Q2 |  | Q3 |      | Q4
|                          |  |      |       |    |  |    |      |   
|High                      |  | $    | 10.25 |    |  | $  | 8.42 |    |  | $ | 10.65 |  |  | $ | 14.34 | 
|Low                       |  | $    | 7.25  |    |  | $  | 5.96 |    |  | $ | 6.63  |  |  | $ | 9.71  | 

|                          |  |      |      |    |  |    |      |    |  |   |      |  |  |   |      | 
|------------------------- |  | ---- | ---- | -- |  | -- | ---- | -- |  | - | ---- |  |  | - | ---- | 
|                          |  | 2002
|                          |  |     
|Common stock market price |  | Q1   |      | Q2 |  | Q3 |      | Q4
|                          |  |      |      |    |  |    |      |   
|High                      |  | $    | 7.45 |    |  | $  | 8.50 |    |  | $ | 7.90 |  |  | $ | 8.85 | 
|Low                       |  | $    | 3.18 |    |  | $  | 5.60 |    |  | $ | 5.70 |  |  | $ | 6.30 | 

As of December 16, 2003, our stock price was $7.53, and there were
approximately 11,000 holders of record of our common stock. We have not paid
cash dividends on our common stock and do not expect to do so in the
foreseeable future. We intend to retain all earnings to provide funds for the
operation and expansion of our business. In addition, one of our credit
agreements precludes the payment of cash dividends on our common stock.

On January 22, 2003, in connection with our acquisition of IDS, we issued
577,595 shares of our common stock to the shareholders of IDS at a deemed price
of $7.99 per share (based on the average closing price of our common stock for
the three days preceding the closing date of the acquisition). In addition, we
agreed to assume IDS obligations with respect to certain outstanding stock
options and warrants, with the effect of such options being exercisable to
purchase 469,409 shares of our common stock and such warrants being exercisable
to purchase 168,850 shares of our common stock. Approximately 90% of such
options were vested and are exercisable at any time before November 2012 at an
average price of $2.32 per share. The warrants are exercisable at any time
before December 31, 2006 at a price of $2.96 per share. The issuance of stock
and assumption of outstanding stock option and warrant obligations were made
under available exemptions from the registration requirements of the Securities
Act of 1933 provided under Rule 506 of Regulation D promulgated under the
Securities Act of 1933 and under Section 4(2) of the Securities Act of 1933.

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|       |  |                                                 
|------ |  | ------------------------------------------------
|ITEM 6 |  | SELECTED FINANCIAL DATA                         
|       |  | (In thousands of dollars, except per share data)

|                                  |         |   |          |      |      |   |        |      |          |   |        |      |  |   |          |      |  |   |        |       |  
|--------------------------------- | ------- | - | -------- | ---- | ---- | - | ------ | ---- | -------- | - | ------ | ---- |  | - | -------- | ---- |  | - | ------ | ----- | -
|                                  |         |   | 2003     |      | 2002 |   | 2001   |      | 2000     |   | 1999  
|                                  |         |   |          |      |      |   |        |      |          |   |       
|                                  |         |   | (Note 1) |      |      |   |        |      | (Note 2) |   |        |      |  |   | (Note 3)
|Statement of Income Data:         |         |   |          |      |      |   |        |      |          |   |        |      |  |   |          |      |  |   |        |      
|Net sales                         |         | $ | 113,534  |      |      | $ | 90,458 |      |          | $ | 96,761 |      |  | $ | 87,595   |      |  | $ | 58,038 |      
|Net income (loss)                 |         | $ | 10,150   |      |      | $ | 8,740  |      |          | $ | 3,272  |      |  | $ | 6,561    |      |  | $ | (835   | )    
|Earnings (loss) per share:        |         |   |          |      |      |   |        |      |          |   |        |      |  |   |          |      |  |   |        |      
|                                  | Basic   |   | $        | 0.48 |      |   | $      | 0.44 |          |   | $      | 0.17 |  |   | $        | 0.37 |  |   | $      | (0.08 | )
|                                  | Diluted |   | $        | 0.44 |      |   | $      | 0.42 |          |   | $      | 0.16 |  |   | $        | 0.34 |  |   | $      | (0.08 | )
|Balance Sheet Data (at
year end): |         |   |          |      |      |   |        |      |          |   |        |      |  |   |          |      |  |   |        |      
|Total assets                      |         | $ | 119,806  |      |      | $ | 68,366 |      |          | $ | 57,228 |      |  | $ | 54,996   |      |  | $ | 38,771 |      
|Long-term obligations             |         | $ |         |      |      | $ |       |      |          | $ | 890    |      |  | $ | 1,519    |      |  | $ | 2,249  |      
|Shareholders equity              |         | $ | 101,028  |      |      | $ | 54,770 |      |          | $ | 43,780 |      |  | $ | 31,623   |      |  | $ | 20,202 |      
|Preferred stock                   |         | $ |         |      |      | $ |       |      |          | $ |       |      |  | $ |         |      |  | $ | 120    |      

This table should be read in conjunction with the Consolidated Financial
Statements provided elsewhere herein.

Notes to Selected Financial Data

(1)  In 2003, the Company acquired Interface Data Systems (IDS) for a purchase
price of approximately $18.6 million. The effect of this transaction increased
our total assets by approximately $18.0 million and our shareholders equity by
approximately $9.0 million. Net sales for IDS in fiscal 2003 totaled
approximately $16.1 million. See Note 4 to our consolidated financial
statements for additional details. In addition, the Company discontinued the
amortization of its goodwill with the adoption of the provisions of SFAS 142.
Goodwill amortization expense, net of tax, was approximately $0.9 million and
$0.8 million in fiscal 2002 and 2001, respectively.

(2)  In 2001, the Company acquired Panelview Inc. for a purchase price of
approximately $9.1 million. The effect of the transaction increased our total
assets by approximately $9.0 million as well as our shareholders equity by
approximately $8.0 million. Net sales for Panelview in fiscal 2003 totaled
approximately $34.4 million. See Note 4 to our consolidated financial
statements for additional details.

(3) In 1999, net income per share-diluted is considered to be the same as net
income per share-basic since the effect of the potentially dilutive convertible
preferred was antidilutive.

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

The following discussion of our results of operations and financial condition
should be read together with the other financial information and the
consolidated financial statements and related notes included elsewhere in this
Annual Report on Form 10-K.

Overview

We design, develop and manufacture innovative microelectronic and display
components and systems for inclusion in high technology products used in the
military, industrial, and commercial markets. Our microelectronic solutions
include advanced semiconductor and state of the art multi-chip packaging, as
well as our proprietary process for applying anti-tamper protection to mission
critical semiconductor components in military applications. Our display
solutions include enhanced flat panel display products, interface devices and
electromechanical assemblies. Our customers, which include military prime
contractors in the United States and Europe as well as commercial OEMs,
outsource many of their microelectronic and display components and systems to
us as a result of the combination of our design, development and manufacturing
expertise.

We were formed as a result of the merger between Bowmar and EDI in October
1998. At the time of the merger, Bowmar was a manufacturer of high reliability
electronic components and interface and mechanical devices, mainly for military
applications. EDI was a manufacturer of commercial memory products for the
telecommunications and networking markets and also had a small ruggedized
display business serving the military and industrial markets. This merger
provided us with a diversified platform to expand our product offerings within
both the military and commercial markets. In order to complement our
military/industrial display business, we acquired Panelview, a designer and
manufacturer of enhanced commercial flat panel display products, in January
2001. Following the acquisition, we consolidated our display operations into
our Panelview subsidiary. In January 2003, we acquired Interface Data Systems,
Inc. (IDS), a designer and manufacturer of membrane keypads, flexible circuits,
sensors, control panels, and handheld and desktop electronic devices. This
acquisition allowed us to expand our interface device product offerings and
enhance our subsystem solutions. In addition, with IDSs design and
manufacturing capabilities we can now offer fully integrated system level
solutions.

Our product and market diversification as well as our broad customer base have
allowed us to maintain relative sales stability and profitability during the
recent economic downturn. Gross margins for sales of military/industrial
products average approximately 50% while gross margins for sales of commercial
products traditionally average approximately 20%. The following table shows
our historical net sales by our two business segments and the markets they
serve (in thousands):

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|                        |                            |   |         |        |      |   |        |        |   |   |        |        |  
|----------------------- | -------------------------- | - | ------- | ------ | ---- | - | ------ | ------ | - | - | ------ | ------ | -
|                        |                            |   | 2003    |        | 2002 |   | 2001  
|                        |                            |   |         |        |      |   |       
|Microelectronic Segment |                            |   |         |        |      |   |        |        |   |   |        |       
|                        | Military/Industrial Market |   | $       | 42,426 |      |   | $      | 35,322 |   |   | $      | 30,399 |  
|                        | Commercial Market          |   |         | 19,007 |      |   |        | 15,009 |   |   |        | 43,170 |  
|                        |                            |   |         |        |      |   |        |        |   |   |        |       
|                        |                            |   | 61,433  |        |      |   | 50,331 |        |   |   | 73,569 |       
|                        |                            |   |         |        |      |   |        |        |   |   |        |       
|Display Segment         |                            |   |         |        |      |   |        |        |   |   |        |       
|                        | Military/Industrial Market |   |         | 11,307 |      |   |        | 13,126 |   |   |        | 15,502 |  
|                        | Commercial Market          |   |         | 40,794 |      |   |        | 27,001 |   |   |        | 7,690  |  
|                        |                            |   |         |        |      |   |        |        |   |   |        |       
|                        |                            |   | 52,101  |        |      |   | 40,127 |        |   |   | 23,192 |       
|                        |                            |   |         |        |      |   |        |        |   |   |        |       
|Total                   |                            | $ | 113,534 |        |      | $ | 90,458 |        |   | $ | 96,761 |       
|                        |                            |   |         |        |      |   |        |        |   |   |        |       
|Microelectronic Segment |                            |   |         |        |      |   |        |        |   |   |        |       
|                        | Military/Industrial Market |   |         | 37     | %    |   |        | 39     | % |   |        | 31     | %
|                        | Commercial Market          |   |         | 17     | %    |   |        | 17     | % |   |        | 45     | %
|                        |                            |   |         |        |      |   |        |        |   |   |        |       
|                        |                            |   | 54      | %      |      |   | 56     | %      |   |   | 76     | %     
|                        |                            |   |         |        |      |   |        |        |   |   |        |       
|Display Segment         |                            |   |         |        |      |   |        |        |   |   |        |       
|                        | Military/Industrial Market |   |         | 10     | %    |   |        | 15     | % |   |        | 16     | %
|                        | Commercial Market          |   |         | 36     | %    |   |        | 29     | % |   |        | 8      | %
|                        |                            |   |         |        |      |   |        |        |   |   |        |       
|                        |                            |   | 46      | %      |      |   | 44     | %      |   |   | 24     | %     
|                        |                            |   |         |        |      |   |        |        |   |   |        |       
|Total                   |                            |   | 100     | %      |      |   | 100    | %      |   |   | 100    | %     
|                        |                            |   |         |        |      |   |        |        |   |   |        |       

For the year ended September 27, 2003, IDS contributed approximately $5.5
million of net sales to the commercial market of our microelectronic segment
and approximately $10.5 million of net sales to the commercial market of our
display segment. The foregoing information includes IDSs net sales from the
date of acquisition on January 22, 2003.

Restatement of Interim Consolidated Financial Statements

As a result of a change in the way we do business with a reseller that began in
2003, we determined that revenue relating to shipments to that reseller should
be recognized at the time the reseller sells the product to its end customers
rather than at the time the goods are shipped to the reseller. As a
consequence, we plan to restate our unaudited interim financial information for
each of the first three quarters of fiscal 2003 to reflect the effects of this
change. The impact of this change on our previously reported unaudited
operating results for each of the first three quarters of fiscal 2003 and for
the nine months ended June 28, 2003 is as follows (in thousands, except per
share data):

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|                         |                         |  |             |        |             |  |             |        |             |  |   |        |   |  |   |        |  
|------------------------ | ----------------------- |  | ----------- | ------ | ----------- |  | ----------- | ------ | ----------- |  | - | ------ | - |  | - | ------ | -
|                         |                         |  | 1st Quarter |        | 2nd Quarter |  | 3rd Quarter |        | Nine Months
|                         |                         |  |             |        |             |  |             |        |            
|Net sales                |                         |  |             |        |             |  |             |        |             |  |   |        |   |  |   |       
|                         | As originally reported  |  | $           | 23,604 |             |  | $           | 28,638 |             |  | $ | 32,214 |   |  | $ | 84,456 |  
|                         | Restatement adjustments |  |             | (248   | )           |  |             | (176   | )           |  |   | (692   | ) |  |   | (1,116 | )
|                         |                         |  |             |        |             |  |             |        |             |  |   |        |   |  |   |        |  
|                         | As restated             |  | $           | 23,356 |             |  | $           | 28,462 |             |  | $ | 31,522 |   |  | $ | 83,340 |  
|                         |                         |  |             |        |             |  |             |        |             |  |   |        |   |  |   |        |  
|Gross profit             |                         |  |             |        |             |  |             |        |             |  |   |        |   |  |   |       
|                         | As originally reported  |  | $           | 8,433  |             |  | $           | 9,557  |             |  | $ | 10,424 |   |  | $ | 28,413 |  
|                         | Restatement adjustments |  |             | (138   | )           |  |             | (176   | )           |  |   | (426   | ) |  |   | (741   | )
|                         |                         |  |             |        |             |  |             |        |             |  |   |        |   |  |   |        |  
|                         | As restated             |  | $           | 8,295  |             |  | $           | 9,381  |             |  | $ | 9,998  |   |  | $ | 27,672 |  
|                         |                         |  |             |        |             |  |             |        |             |  |   |        |   |  |   |        |  
|Net income               |                         |  |             |        |             |  |             |        |             |  |   |        |   |  |   |       
|                         | As originally reported  |  | $           | 2,230  |             |  | $           | 2,470  |             |  | $ | 2,713  |   |  | $ | 7,413  |  
|                         | Restatement adjustments |  |             | (94    | )           |  |             | (117   | )           |  |   | (287   | ) |  |   | (497   | )
|                         |                         |  |             |        |             |  |             |        |             |  |   |        |   |  |   |        |  
|                         | As restated             |  | $           | 2,136  |             |  | $           | 2,353  |             |  | $ | 2,426  |   |  | $ | 6,916  |  
|                         |                         |  |             |        |             |  |             |        |             |  |   |        |   |  |   |        |  
|Basic earnings per share |                         |  |             |        |             |  |             |        |             |  |   |        |   |  |   |       
|                         | As originally reported  |  | $           | 0.11   |             |  | $           | 0.12   |             |  | $ | 0.13   |   |  | $ | 0.36   |  
|                         | Restatement adjustments |  | $           |       |             |  | $           | (0.01  | )           |  | $ | (0.01  | ) |  | $ | (0.02  | )
|                         |                         |  |             |        |             |  |             |        |             |  |   |        |   |  |   |        |  
|                         | As restated             |  | $           | 0.11   |             |  | $           | 0.11   |             |  | $ | 0.12   |   |  | $ | 0.34   |  
|                         |                         |  |             |        |             |  |             |        |             |  |   |        |   |  |   |        |  

The restatement adjustments resulted in the deferral of $1,116,000 of net sales
and $741,000 of related gross profit for the first nine months of fiscal 2003.
Of those amounts, $573,000 of net sales and $383,000 of related gross profit
were recognized during the fourth quarter of 2003 when the reseller sold the
related products through to its end customers. The net impact of the
restatement was a
reduction of our net income for fiscal 2003 of $240,000. As of September 27,
2003, we had deferred net sales of $543,000 and related gross profit of
$358,000 on sales to the reseller and we expect to recognize such amounts in
operating results during the first six months of fiscal 2004 when the related
products are sold by the reseller to its end customers.

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 reporting
period. Actual results could differ from those estimates. The most
significant accounting estimates inherent in the preparation of our
consolidated financial statements include the following items:



| |  |  | The Company sells its microelectronic and display products
primarily to military prime contractors and commercial original
equipment manufacturers. A small portion of the Companys products
are also sold through distributors or resellers. The Company
recognizes revenue on product sales when persuasive evidence of an
arrangement with the customer exists, title to the product has
passed to the customer, which usually occurs at time of shipment,
the sales price is fixed or determinable, and collectibility of the
related billing is reasonably assured. Advance payments from
customers are deferred and recognized when the related products are
shipped. Revenue relating to products sold to distributors or
resellers who either have return rights or where the Company has a
history of accepting product returns are deferred and recognized
when the distributor or reseller sells the product to the end
customer. The Company also provides limited design services
pursuant to related customer purchase orders and recognizes the
associated revenue as such services are performed. The Company
maintains an allowance for doubtful accounts to cover potential
credit losses relating to its trade accounts receivable. The
allowance is based on the Companys historical collection experience
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | as well as an analysis of specific past due accounts. Write-offs
against the allowance totaled approximately $145,000 in fiscal 2003,
$209,000 in fiscal 2002, and $96,000 in fiscal 2001.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Historically, we have experienced fluctuations in the demand
for our products based on cyclical fluctuations in the
microelectronic and display markets. These fluctuations may cause
inventory on hand to lose value or become obsolete. In order to
present the appropriate inventory value on our financial statements,
we identify slow moving or obsolete inventories and record
provisions to write down such inventories to net realizable value.
These provisions are based on managements comparison of the value
of inventory on hand against expected future sales. If future sales
are less favorable than those projected by management, additional
inventory provisions may be required.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | We maintain an allowance for doubtful accounts for estimated
losses resulting from the inability of our customers to make
required payments. We make 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 differed materially from our estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  |  | We maintain a pension plan for eligible union employees at
our Fort Wayne, Indiana facility. To account for the cost of this
plan, we make estimates concerning the expected long-term rate of
return on plan assets, and discount rates to be used to calculate
future benefit obligations. Changes in the expected long-term rate
of return on plan assets affect the amount of investment income
expected to be earned in the future. We base our related estimates
using historical data on the rate of return from equities and fixed
income investments, as well as projections for future returns on
such investments. If the actual returns on plan assets do not
equal the estimated amounts, we may have to fund future benefit
obligations with additional contributions to the plan. Changes in
the discount rate affect the value of the plans future benefit
obligations. A lower discount rate increases the liabilities of the
plan because it raises the value of future benefit obligations.
This will also cause an increase in pension expense recognized. We use published bond yields
to estimate the discount rate used for calculating the value of
future benefit obligations.                                                                        
|
| |  |  | We adopted the provisions of SFAS 142 as of September 29,
2002 and discontinued amortization of goodwill at that time. We
also identified our reporting units, allocated our assets and
liabilities to such reporting units and completed the first step
impairment test for goodwill relating to our Panelview reporting
unit. The fair value of the Panelview reporting unit was determined
using a discounted cash flow model with a long-term growth rate of
5%, and a discount rate of 15%. The fair value of the reporting
unit exceeded its carrying value, therefore, an impairment of
goodwill was not indicated. At September 27, 2003, we completed the
first step of our impairment tests for goodwill relating to both the
Panelview and IDS reporting units. The fair value of the reporting
units was determined using a discounted cash flow model with a
long-term growth rate of 5% for each reporting unit, and discount
rates of 13.1% and 16.5%, respectively. The fair value of the
reporting units exceeded the carrying values, therefore, goodwill
impairment was not indicated. If our actual cash flows for these
reporting units are less than projected, the related goodwill may
become impaired and a related impairment charge will be required.
|
| |  |  | The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes (SFAS 109) which 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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Results of Operations

The following table sets forth, for the periods indicated, certain operating
data expressed as a percentage of net sales.

|                           |                                     |  |       |      |      |  |       |      |   |  |       |      |  
|-------------------------- | ----------------------------------- |  | ----- | ---- | ---- |  | ----- | ---- | - |  | ----- | ---- | -
|                           |                                     |  | 2003  |      | 2002 |  | 2001 
|                           |                                     |  |       |      |      |  |      
|Net sales                  |                                     |  | 100.0 | %    |      |  | 100.0 | %    |   |  | 100.0 | %   
|Cost of sales              |                                     |  | 65.9  | %    |      |  | 68.1  | %    |   |  | 72.7  | %   
|                           |                                     |  |       |      |      |  |       |      |   |  |       |     
|Gross profit               |                                     |  | 34.1  | %    |      |  | 31.9  | %    |   |  | 27.3  | %   
|                           |                                     |  |       |      |      |  |       |      |   |  |       |     
|Operating expenses:        |                                     |  |       |      |      |  |       |      |   |  |       |     
|                           | Selling, general and administrative |  |       | 14.6 | %    |  |       | 15.4 | % |  |       | 15.7 | %
|                           | Research and development            |  |       | 5.3  | %    |  |       | 4.7  | % |  |       | 5.5  | %
|                           | Amortization of goodwill            |  |       | 0.0  | %    |  |       | 1.7  | % |  |       | 1.1  | %
|                           | Amortization of intangible assets   |  |       | 1.0  | %    |  |       | 0.1  | % |  |       | 0.1  | %
|                           |                                     |  |       |      |      |  |       |      |   |  |       |     
|Total operating expenses   |                                     |  | 20.9  | %    |      |  | 21.9  | %    |   |  | 22.4  | %   
|                           |                                     |  |       |      |      |  |       |      |   |  |       |     
|Operating income           |                                     |  | 13.2  | %    |      |  | 10.0  | %    |   |  | 4.9   | %   
|Interest expense           |                                     |  | 0.1   | %    |      |  | 0.2   | %    |   |  | 0.5   | %   
|Interest (income)          |                                     |  | -0.2  | %    |      |  | -0.2  | %    |   |  | 0.0   | %   
|                           |                                     |  |       |      |      |  |       |      |   |  |       |     
|Income before income taxes |                                     |  | 13.3  | %    |      |  | 10.1  | %    |   |  | 4.4   | %   
|Provision for income taxes |                                     |  | 4.4   | %    |      |  | 0.4   | %    |   |  | 1.0   | %   
|                           |                                     |  |       |      |      |  |       |      |   |  |       |     
|Net income                 |                                     |  | 8.9   | %    |      |  | 9.7   | %    |   |  | 3.4   | %   
|                           |                                     |  |       |      |      |  |       |      |   |  |       |     

Fiscal Year ended September 27, 2003 compared to Fiscal Year ended September 28, 2002

Net Sales

Net sales were $113.5 million for the year ended September 27, 2003, an
increase of $23.0 million, or 26%, from $90.5 million for the year ended
September 28, 2002. Net sales for the year ended September 27, 2003 included
$16.1 million from IDS.



| |  |  | Military/industrial sales in the microelectronic segment were
$42.4 million for the year ended September 27, 2003, an increase of
$7.1 million, or approximately 20%, from $35.3 million for the year
ended September 28, 2002. The growth in sales was mainly
attributable to increased sales of our ball grid array memory
products and microprocessor products. We expect sales of these
products to increase further in 2004.                                                                                                                        
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Commercial sales in the microelectronic segment were $19.0
million for the year ended September 27, 2003, an increase of $4.0
million, or approximately 27% from $15.0 million for the year ended
September 28, 2002. Commercial sales in the microelectronic segment
for the year ended September 27, 2003 included $5.5 million from
IDS, which offset a $1.5 million decrease in sales to the
telecommunication and data communication markets.                                                                                                       
|
| |  |  | Military/industrial sales in the display segment were $11.3
million for the year ended September 27, 2003, a decrease of $1.8
million, or approximately 14%, from $13.1 million for the year ended
September 28, 2002. The decrease was due to our decision to focus
our resources on our commercial display sales and to not pursue
military related orders that required a disproportionate amount of
our engineering resources when compared to the amount of the order.
We will pursue military related orders when the order meets our
requirements.
|
| |  |  | Commercial sales in the display segment were $40.8 million
for the year ended September 27, 2003, an increase of $13.8 million,
or approximately 51%, from $27.0 million for the year ended
September 28, 2002. The increase was primarily due to the inclusion
of $10.5 million of net sales                                                                                                                                                                                                                                                            

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| |  |  | from IDS, and an increase of $3.3
million of net sales of commercial display products from our
Panelview division mainly from sales of products into new markets,
such as automotive test equipment.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Approximately $12.8 million, or 25%, of 2003 net sales for our display segment
came from Garmin International, Inc., while General Electric Medical Division,
accounted for approximately $7.7 million, or 15%, of 2003 display segment
sales. We expect that our sales to Garmin and General Electric will decline
significantly during the first quarter of fiscal 2004 due to a shift in their
manufacturing strategies.

Northrup Grumman accounted for approximately $6.2 million or 10%, of our 2003
microelectronic segment sales. No other customer accounted for more than 10%
of segment or total net sales for this period.

The majority of our sales are not subject to seasonal fluctuations over the
course of a year. Sales of our membrane keypad products, which totaled
approximately $7.0 million in fiscal year 2003, are subject to seasonal
fluctuations relating to home appliance sales in the spring and fall.

Gross Profit

Gross profit was $38.7 million for the year ended September 27, 2003, an
increase of $9.8 million or approximately 34% from $28.9 million for the year
ended September 28, 2002. For the year ended September 27, 2003, IDS
contributed $2.7 million in gross profit. Gross margin as a percentage of net
sales was approximately 34% for the year ended September 27, 2003, compared to
approximately 32% for the year ended September 28, 2002.

Gross profit for the microelectronic segment was $25.9 million for the year
ended September 27, 2003, an increase of $6.1 million, or approximately 31%,
from $19.8 million for the year ended September 28, 2002. The majority of the
increase in gross profit came from an increase in military/industrial sales in
the microelectronic segment. Gross margin as a percentage of microelectronic segment sales was approximately 42%
for the year ended September 27, 2003, compared to approximately 39% for the
year ended September 28, 2002. The product mix in the microelectronic segment
shifted to a greater number of military products, which have a higher selling
price and higher gross margin than commercial products. Gross profit for the
microelectronic segment for the year ended September 27, 2003 included
approximately $1.0 million from IDS.

During fiscal 2003, approximately $0.9 million of our commercial
microelectronic inventory was written off against the related inventory
reserve. Also, approximately $0.1 million of additional commercial inventory
was identified as slow moving and a corresponding charge was recorded. Sales
of inventory which had previously been written down were insignificant.

Gross profit for the display segment was $12.8 million for the year ended
September 27, 2003, an increase of $3.7 million, or approximately 41%, from
$9.1 million for the year ended September 28, 2002. Gross profit for the
display segment for the year ended September 27, 2003 included approximately
$1.7 million from IDS. Gross margin as a percentage of display segment sales
was approximately 25% for the year ended September 27, 2003, compared to
approximately 23% for the year ended September 28, 2002. Gross profits in 2003
included the reversal of $0.7 million of accrued costs relating to a completed
customer order. Sales of inventory which had previously been written down were
insignificant.

We anticipate that gross margins in our display segment, after the inclusion of
IDS, will decrease slightly in fiscal 2004 as IDS sells primarily into
commercial markets. IDSs gross margins have historically been consistent with
our commercial gross margins.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist mainly of compensation
expense, selling expenses, including commissions, information technology
expenses and corporate administrative expenses. Selling, general and
administrative expenses were $16.6 million for the year ended September 27,
2003, an increase of $2.7 million, or approximately 19%, from $13.9 million for
the year ended September 28, 2002. This increase was due to a $1.1 million
increase in general and administrative expenses, and an increase in selling
expenses of $1.6 million over the comparable period mainly because of higher
commission and payroll expenses, and the inclusion of IDS. Selling,

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general
and administrative expenses as a percentage of net sales decreased slightly to
approximately 14.6% for the year ended September 27, 2003 from 15.4% for the
year ended September 28, 2002.

IDS contributed approximately $0.7 million of general and administrative
expenses and approximately $1.1 million of selling expenses for the year ended
September 27, 2003 accounting for $1.8 million of the $2.7 million increase in
selling, general and administrative expenses for the year. IDS selling,
general and administrative expenses as a percentage of sales have historically
been consistent with our selling, general and administrative expenses. As a
result, we expect selling, general and administrative expenses as a percentage
of net sales to remain consistent.

Research and Development Expenses

Research and development expenses consist primarily of compensation for our
engineering personnel, consulting expenses and project materials. Research and
development expenses were $6.0 million for the year ended September 27, 2003,
an increase of $1.7 million, or approximately 40%, from $4.3 million for the
year ended September 28, 2002. This increase was attributable to increases of
$1.0 million in the microelectronic segment and $0.7 million in the display
segment. The year ended September 27, 2003, included $0.6 million of research
and development expenses for IDS. As a percentage of sales, research and
development expenses have remained consistent and average approximately 5% of
net sales. We are committed to research and development of new and existing
products and expect research and development expenses to remain at
approximately the same percentage of net sales in the future.

Ongoing product development projects for the microelectronic segment include
new packaging designs for memory products including synchronous dynamic random
access memory (SDRAM), and synchronous static random access memory (SSRAM),
along with microprocessor modules and ball grid array products; continuing
development of anti-tamper technology for microelectronic products; and
qualification of new semiconductor products. Ongoing product development
projects for the display segment include glass lamination process technology
and display systems development.

Interest Expense

Interest expense consists of interest expense on our long-term debt. Interest
expense was $88,000 for the year ended September 27, 2003, a decrease of
$59,000 from $147,000 for the year ended September 28, 2002. Interest expense
for the year ended September 28, 2002 related to amounts outstanding on our
term loan, which was paid off during fiscal year 2002. Interest expense for
the year ended September 27, 2003 related to our assumption of approximately
$6.9 million of debt in connection with the acquisition of IDS. We paid off
the IDS debt in the fourth quarter of fiscal 2003.

Interest Income

Interest income consists of interest earned on our cash balances in various
types of interest bearing accounts, and interest earned on investments in
short-term marketable securities. Interest income was $250,000 for the year
ended September 27, 2003; an increase of $85,000 compared to $165,000 for the
year ended September 28, 2002. This increase was attributable to the increase
in cash equivalents between periods primarily as a result of the reinvestment
of cash flows from operations, and the proceeds received from our stock
offering which was completed in July 2003.

Amortization of Goodwill and Intangible Assets

We adopted Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets (SFAS 142), on September 29, 2002, and discontinued
amortization of goodwill at that time. Goodwill amortization for the year
ended September 28, 2002 totaled $1.5 million.

Intangible asset amortization for the year ended September 27, 2003
totaled $1.1 million, of which approximately $1.0 million related to intangible
assets acquired from IDS.

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Income Taxes

Income tax expense consists of current and deferred federal and state income
taxes. Income tax expense was $5.0 million for the year ended September 27,
2003, compared to $0.4 million for the year ended September 28, 2002. The
effective tax rate was approximately 33% for the year ended September 27, 2003,
compared to approximately 4% for the year ended September 28, 2002. The
increase in the effective tax rate in 2003 was a result of $3.1 million of
income tax benefits in 2002 relating to the reversal of a valuation allowance
on deferred tax assets as we believed it was more likely than not
that we would realize the related tax benefits, as well as the reversal of an income tax reserve
as a result of the completion of certain prior years tax returns.

Fiscal Year Ended September 28, 2002 Compared to Fiscal Year Ended September 29, 2001

Net Sales

Net sales were $90.5 million for fiscal year 2002, a decrease of $6.3 million,
or approximately 6.5%, from $96.8 million for fiscal year 2001.



| |  |  | Military/industrial sales in the microelectronic segment were
$35.3 million for fiscal year 2002, an increase of $4.9 million, or
approximately 16%, from $30.4 million for fiscal year 2001. Sales
of products with our newly developed anti-tamper technology totaled
approximately $2.2 million in fiscal year 2002, while fiscal year
2001 did not have any such sales, as this process technology was
still under development. The increase in military/industrial sales
was also attributable to a higher volume of high-density, multi-chip
packages used in domestic and international defense and avionics
applications.                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Commercial sales in the microelectronic segment were $15.0
million for fiscal year 2002, a decrease of $28.2 million, or
approximately 65%, from $43.2 million for fiscal year 2001. The
decrease was directly related to the decline in the
telecommunications and data communications markets, which began in
the third quarter of fiscal year 2001. Cisco Systems and Lucent
Technologies, customers that accounted for approximately 21% 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 Systems and Lucent
Technologies in fiscal year 2001 occurred during the first two
quarters of that year and were based on orders booked in fiscal
year 2000. The decline from these two customers accounted for half
of the $28.2 million decrease in commercial microelectronic sales
over the comparable periods, while the remaining decrease was
attributable to lower purchases by other telecommunications and
data communications customers.
|
| |  |  | Military/industrial sales in the display segment were $13.1
million for fiscal year 2002, a decrease of $2.4 million, or
approximately 15%, from $15.5 million for fiscal year 2001. This
decrease was due to our decision to focus our resources on our
commercial display sales.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  |  | Commercial sales in the display segment were $27.0 million
for fiscal year 2002, an increase of $19.3 million, or approximately
251%, from $7.7 million for fiscal year 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, resulting from the introduction of new medical
and global positioning system products. Sales to other customers
increased by approximately $1.8 million because of the inclusion
of Panelview sales for twelve months in fiscal 2002 as compared to
eight months in the previous year.                                                                                                                                                                                                                                                                                                                                                                                                                

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Gross Profit

Gross profit was $28.9 million for fiscal year 2002, an increase of $2.5
million, or approximately 9%, from $26.4 million for fiscal year 2001. Gross
margin as a percentage of net sales was approximately 32% for fiscal year 2002,
compared to approximately 27% for fiscal year 2001.

Gross profit for the microelectronic segment was $19.8 million for fiscal year
2002, an increase of $0.9 million, or approximately 5%, from $18.9 million for
fiscal year 2001. Gross margin as a percentage of microelectronic segment
sales was approximately 39% for fiscal year 2002, compared to approximately 26%
for fiscal year 2001. This increase was due to an increase in
military/industrial sales and a significant decrease in the commercial sales.
Military products had significantly higher average selling prices and gross
margins than commercial products.

During fiscal year 2001, based on severe declines in the telecommunications
industry, we identified $6.2 million of commercial inventory within our
microelectronic segment that did not have a forecasted demand for usage. We
provided a reserve of $3.0 million against this inventory in fiscal year 2001
based on our estimates of the parts most likely to go unused. In addition,
$1.3 million of raw materials and finished goods inventory was written off
because of poor yields or obsolescence. These inventory charges of
approximately $4.3 million represented 4% of net sales for fiscal year 2001.

During fiscal year 2002, approximately $0.4 million of the inventory identified
in fiscal year 2001 was written off against the reserve. The amount of
inventory in this excess category gradually decreased to approximately $2.5
million as of September 28, 2002 from the originally identified $6.2 million.
During this time, we completed quarterly inventory reviews and determined that
a 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, $0.4 million of finished goods
items were identified as slow moving and a corresponding reserve was provided.
These additional items required us to maintain a $2.4 million reserve for raw
materials and finished goods relating to our commercial microelectronic
products. In fiscal year 2002, these activities did not have a material impact
on our gross margins and operating results.

Gross profit for the display segment was $9.1 million for fiscal year 2002, an
increase of $1.6 million, or approximately 21%, from $7.5 million for fiscal
year 2001. Gross margin as a percentage of display segment sales was
approximately 23% for fiscal year 2002, compared to approximately 32% for
fiscal year 2001. This decrease was primarily due to significantly higher
commercial display sales over the comparable period, which have a lower gross
margin than military/industrial display sales.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $13.9 million for fiscal year
2002, a decrease of $1.3 million, or approximately 8%, from $15.2 million for
fiscal year 2001. This decrease was attributable to decreased selling expenses
in the microelectronic segment of $2.4 million due to lower commission expense
on lower net sales, a reduction of administrative personnel, and a reduction in
spending. This decrease 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 commission expense was $2.9 million
for fiscal year 2002, a decrease of $1.1 million, or approximately 28%, from
$4.0 million for fiscal year 2001.

Research and Development Expenses

Research and development expenses were $4.3 million for fiscal year 2002, a
decrease of $1.0 million, or approximately 20%, from $5.3 million for fiscal
year 2001. Research and development expenses were approximately 5% of net
sales for fiscal year 2002, compared to approximately 6% of net sales for
fiscal year 2001. This decrease was primarily due to fewer commercial products
under development in the microelectronic segment. During fiscal year 2001, we
began development on anti-tamper technology for certain microelectronic devices
in the military/industrial market. The anti-tamper technology development was
completed 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 $0.3
million of product development expenses for anti-tamper technology.

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Display segment research and development expenses were $1.3 million for fiscal
year 2002, as compared to $1.2 million for fiscal year 2001. This increase was
a result of a number of new engineers hired during the last part of fiscal year
2002 to expand display coating and enhancement technologies.

Interest Expense

Interest expense was $0.1 million for fiscal year 2002, a decrease of $0.4
million, or approximately 70%, from $0.5 million for fiscal year 2001.
Interest expense during fiscal year 2001 was incurred on our line of credit and
a term loan. The line of credit was paid off during the third quarter of
fiscal year 2001 and was not used during fiscal year 2002. The term loan was
paid off during the second quarter of fiscal year 2002. Two additional loans
totaling $3.1 million were obtained for the purchase of equipment during the
second quarter of fiscal year 2002. Both loans were paid off during the fiscal
year ended September 2002.

Interest Income

Interest income was $0.2 million for fiscal year 2002, compared to $11,000 for
fiscal year 2001. This increase was attributable to the reinvestment of cash
flows from operations in an interest-bearing money market account after we paid
off our line of credit during the third quarter of fiscal year 2001.

Amortization of Goodwill and Intangible Assets

Amortization expense was $1.6 million for fiscal year 2002, an increase of $0.5
million, or approximately 39%, from $1.1 million for fiscal year 2001. Fiscal
year 2001 included eight months of goodwill amortization relating to the
Panelview acquisition, while fiscal year 2002 included 12 months of such
amortization.

Income Taxes

During the fourth quarter of fiscal year 2002, we reversed a deferred tax
valuation allowance of approximately $1.7 million relating to our net operating
loss carry forwards, as we believed it was more likely than not that we would
realize the related tax benefits. We also reversed approximately $1.1 million
of tax reserves that had been recorded in previous years as a result of the
completion of certain prior years tax returns. An additional $0.3 million tax
benefit was also recorded in the fourth quarter of fiscal year 2002 to
recognize the extra-territorial exclusion deduction applicable to foreign sales
of that fiscal year. In total, a tax benefit of approximately $3.1 million was
recorded during the quarter ended September 28, 2002, reducing our effective
rate to 4% for the year.

Liquidity and Capital Resources

Cash on hand as of September 27, 2003 totaled approximately $30.2 million,
while marketable securities consisting of a short-term corporate note totaled
approximately $5.1 million. The short-term corporate note was purchased with a
portion of the proceeds from our public stock offering in July 2003. During
fiscal year 2003, cash provided by operating activities was approximately $18.0
million. Depreciation and amortization totaled approximately $4.8 million for
the year.

Purchase of property, plant and equipment for the year ended September 27,
2003, totaled approximately $3.9 million. Approximately $2.5 million was spent
on production equipment for our microelectronic manufacturing facilities. In
addition, approximately $1.3 million was spent on production equipment for our
display and interface products manufacturing facilities.

Accounts receivable increased approximately $4.8 million from fiscal year 2002,
including approximately $3.6 million of IDS accounts receivable.
Days-sales-outstanding at September 27, 2003 was 60 days, slightly higher than
the 57 days at September 28, 2002, due to some of our customers taking longer
to pay in fiscal year 2003 than in fiscal year 2002.

Inventories increased approximately $2.6 million from fiscal year 2002,
including approximately $2.9 million of IDS inventories. Inventory of
approximately $18.7 million as of September 27, 2003 represents 89 days of
inventory on hand, a slight decrease from 93 days on hand at September 28,
2002. Inventory levels are based on projected production requirements for the
first quarter of fiscal 2004.

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Accounts payable as of September 27, 2003, were approximately $2.0 million
higher than at the end of fiscal 2002. This increase includes approximately
$1.9 million of IDS accounts payable. Accrued expenses as of September 27,
2003, were approximately the same as the end of fiscal 2002, and included
approximately $1.1 million of IDS accrued expenses. Excluding the impact of
IDS, the decrease in accrued expenses was mainly due to a $0.8 million lower
income tax payable than last year. Deferred revenue at September 27, 2003 was
approximately $3.0 million, and consisted of approximately $2.5 million of
advance payments from customers, and approximately $0.5 million of revenue
relating to inventory held at a reseller.

We maintain a pension plan for eligible union employees at our Fort Wayne,
Indiana facility pursuant to a collective bargaining agreement. Mainly because
of a lower discount rate used to value expected future benefit obligations, the
pension plan is currently under funded by approximately $0.5 million. See Note
13 to the consolidated financial statements for additional information. We
expect to fund our pension obligation through expected returns on plan assets
and Company contributions to the plan over the next several years. Actual
contributions will be dependent on the actual investment returns during that period. During fiscal 2003, we
contributed $0.4 million to the plan. We believe that funding the plan over
the next several years will not significantly impact our liquidity.

We have a $12.0 million revolving line of credit with Bank One. Borrowings
under the line of credit bear interest at either the London Interbank Offered
Rate (LIBOR) plus 1.5%, or the Bank One prime rate. The line of credit
matures on March 28, 2004 and we do not anticipate any difficulties in renewing
the line of credit at that time. We borrowed approximately $6.1 million on the
line of credit in the second quarter of fiscal year 2003 to pay off debt
assumed from our acquisition of IDS. The funds were drawn temporarily on the
credit line until a term loan was obtained. We obtained a term loan in the
amount of $6.0 million on March 13, 2003 from Bank One, which we used to repay
borrowings on the line of credit. The term loan bears interest at LIBOR plus
1.5% and matures in March 2008. As of the end of September 2003, there were no
borrowings against the line of credit.

We raised approximately $22.0 million from the sale of 2.4 million shares of
our common stock through a public offering that was completed during the fourth
quarter of 2003. We used a portion of the net proceeds from the offering to
pay off the remaining portion of the $6.0 million term loan. An additional
$2.4 million of cash was received pursuant to common stock options exercised
and shares purchased through our employee stock purchase plan throughout fiscal
year 2003.

We are in compliance with all debt covenant requirements of the loan
agreements. We believe that our existing sources of liquidity, including
expected cash flows from operating activities, existing cash balances, existing
credit facilities and other financing sources, will satisfy our cash
requirements for at least the next twelve months.

Contractual Obligations

We have entered into certain long-term contractual obligations that will
require various payments over future periods as follows:

Contractual Obligations
(In thousands of dollars)

|                                   |  |                                                 |       |        |  |           |       |           |  |         |       |  |  |   |       |       |  |   |     | 
|---------------------------------- |  | ----------------------------------------------- | ----- | ------ |  | --------- | ----- | --------- |  | ------- | ----- |  |  | - | ----- | ----- |  | - | --- | 
|                                   |  | Payments due by Period as of September 27, 2003
|                                   |  |                                                
|                                   |  |                                                 |       |        |  | Less than |       |           |  |         |       |  |  |   |       | After
|                                   |  | Total                                           |       | 1 year |  | 1-3 years |       | 4-5 years |  | 5 years
|                                   |  |                                                 |       |        |  |           |       |           |  |        
|Operating leases                   |  | $                                               | 6,725 |        |  | $         | 1,832 |           |  | $       | 2,861 |  |  | $ | 1,876 |       |  | $ | 156 | 
|Pension
funding (1)                |  |                                                 |       |        |  |           |       |           |  |         |       |  |  |   |       |       |  |   |     | 
|                                   |  |                                                 |       |        |  |           |       |           |  |         |       |  |  |   |       |       |  |   |     | 
|Total Contractual Cash Obligations |  | $                                               | 6,725 |        |  | $         | 1,832 |           |  | $       | 2,861 |  |  | $ | 1,876 |       |  | $ | 156 | 
|                                   |  |                                                 |       |        |  |           |       |           |  |         |       |  |  |   |       |       |  |   |     | 

(1)  The Company is committed to meeting the annual minimum funding
requirements relating to our pension plan. Based on current actuarial
estimates, there are no minimum funding requirements expected for the next
four years. The Company cannot estimate expected minimum funding requirements
after four years at this time. The Company may also make contributions to the
pension fund in excess of the minimum funding requirements during any year.

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Recently Enacted Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141 (SFAS 141), Business Combinationsand No. 142 (SFAS 142), Goodwill and
Other Intangible Assets. SFAS 141 superseded APB Opinion No. 16, Business
Combinations. The provisions of SFAS 141 require that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001;
provide specific criteria for the initial recognition and measurement of
intangible assets apart from goodwill; and, 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,
certain intangible assets be reclassified into or out of goodwill based on
certain criteria. SFAS 142 supersedes APB Opinion No. 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 prohibit
the amortization of goodwill and indefinite-lived intangible assets and require
that such assets be tested annually for impairment (and in interim periods if
events or circumstances indicate that the related carrying amount may be
impaired), require that reporting units be identified for purposes of assessing potential impairments, and remove
the forty-year limitation on the amortization period of intangible assets that
have finite lives.

SFAS 142 requires that goodwill be tested for impairment using a two-step
process. The first step of the goodwill impairment test, which is used to
identify potential impairment, compares the fair value of a reporting unit with
its carrying amount, including goodwill. If the fair value of a reporting unit
exceeds its carrying amount, goodwill of the reporting unit is not considered
to be impaired and the second step of the impairment test is unnecessary. If
the carrying amount of a reporting unit exceeds its fair value, the second step
of the goodwill impairment test must be performed to measure the amount of
impairment loss, if any. The second step of the goodwill impairment test
compares the implied fair value of reporting unit goodwill with the carrying
amount of that goodwill. The implied fair value of goodwill is determined in
the same manner as the amount of goodwill recognized in a business combination.
If the carrying amount of the reporting unit goodwill exceeds the implied fair
value of that goodwill, an impairment loss is recognized in an amount equal to
that excess.

The Company adopted SFAS 142 as of September 29, 2002 and completed the first
step impairment test for goodwill relating to its Panelview reporting unit as
of that date. The fair value of the Panelview reporting unit was determined
using a discounted cash flow model using a long-term growth rate of 5%, and a
discount rate of 15%. The fair value of the reporting unit exceeded its
carrying value, therefore, an impairment was not indicated.

As of September 27, 2003 the Company completed the first step impairment tests
for the goodwill relating to its Panelview and IDS reporting units. The fair
value of each reporting unit was determined using a discounted cash flow model
using a long-term growth rate of 5% and discount rates of 13.1% and 16.5%,
respectively. The fair value of each reporting unit exceeded the related
carrying value and, therefore, impairments were not indicated. If our
estimates of future cash flows for these reporting units decline, the related
goodwill may become impaired.

Amortization of $1.1 million for the year ended September 27, 2003 relates to
the Companys intangible assets other than goodwill. Goodwill amortization in
fiscal years 2002 and 2001 relates primarily to Panelview.

Pro forma net income for fiscal years 2002 and 2001 excluding goodwill
amortization along with a comparison to 2003 is as follows:

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|                                                           |  |      |        |      |  |      |       |  |  |   |       | 
|---------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ----- |  |  | - | ----- | 
|                                                           |  | 2003 |        | 2002 |  | 2001
|                                                           |  |      |        |      |  |     
|Net income  as reported                                   |  | $    | 10,150 |      |  | $    | 8,740 |  |  | $ | 3,272 | 
|Add back: goodwill amortization expense,
net of tax effect |  |      |       |      |  |      | 932   |  |  |   | 815   | 
|                                                           |  |      |        |      |  |      |       |  |  |   |       | 
|Net income  as adjusted                                   |  | $    | 10,150 |      |  | $    | 9,672 |  |  | $ | 4,087 | 
|                                                           |  |      |        |      |  |      |       |  |  |   |       | 
|Earnings per share-basic:                                  |  |      |        |      |  |      |       |  |  |   |       | 
|Reported net income                                        |  | $    | 0.48   |      |  | $    | 0.44  |  |  | $ | 0.17  | 
|Goodwill amortization                                      |  |      |       |      |  |      | 0.05  |  |  |   | 0.04  | 
|                                                           |  |      |        |      |  |      |       |  |  |   |       | 
|Adjusted earnings per share-basic                          |  | $    | 0.48   |      |  | $    | 0.49  |  |  | $ | 0.21  | 
|                                                           |  |      |        |      |  |      |       |  |  |   |       | 
|Earnings per share-diluted:                                |  |      |        |      |  |      |       |  |  |   |       | 
|Reported net income                                        |  | $    | 0.44   |      |  | $    | 0.42  |  |  | $ | 0.16  | 
|Goodwill amortization                                      |  |      |       |      |  |      | 0.04  |  |  |   | 0.04  | 
|                                                           |  |      |        |      |  |      |       |  |  |   |       | 
|Adjusted earnings per share-diluted                        |  | $    | 0.44   |      |  | $    | 0.46  |  |  | $ | 0.20  | 
|                                                           |  |      |        |      |  |      |       |  |  |   |       | 

In November 2002, the FASB issued Interpretation No. 45 (FIN 45), Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. FIN 45 requires that a guarantor
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. FIN 45 also requires
additional disclosure by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees. The initial
recognition and measurement provisions of FIN 45 are applicable for guarantees
issued or modified after December 31, 2002. The disclosures required by FIN 45
are included in Note 15, Commitments and Contingencies.

In December 2002, the FASB issued SFAS 148, Accounting for Stock-Based
Compensation  Transition and Disclosure  an amendment to FAS 123. SFAS 148
provides alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. SFAS
148 also requires that disclosures of the pro forma effect of using the fair
value method of accounting for stock-based employee compensation be displayed
more prominently and in a tabular format. Additionally, SFAS 148 requires
disclosure of the pro forma effect in annual and interim financial statements.
The Company has no plans to change to the fair value based method of accounting
for stock-based employee compensation.

In January 2003, the FASB issued FASB Interpretation 46 (FIN 46),
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied to the first interim
or annual period beginning after December 15, 2003 Additionally, certain
transitional disclosures are required immediately if it is reasonably possible
that the Company will consolidate or disclose information about a variable
interest entity when FIN 46 becomes effective. The Company does not expect the
adoption of FIN 46 to have a material effect on its financial condition or
results of operations.

In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances). The adoption of SFAS
150 had no impact on the Companys consolidated financial position or results
of operation.




ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of September 27, 2003, we had no borrowings on our revolving line of credit
with Bank One. Should we borrow against the line, interest charged on these
borrowings would be at either the banks prime rate or LIBOR plus 1.5%. During
fiscal 2003, the banks prime rate averaged 4.25% and was 4.0% as of September
27, 2003.

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We are subject to changes in the prime rate based on Federal Reserve actions
and general market interest fluctuations. We are also subject to fluctuations
in the LIBOR rate. As of September 27, 2003, the LIBOR rate was approximately
1.29%. Should we begin borrowing against the credit line, annual interest
expense would be approximately $40,000 for every $1.0 million borrowed. A
hypothetical increased rate change of 1% would increase interest expense by
approximately $10,000 per $1.0 million borrowed on an annual basis. We believe
that moderate interest rate increases will not have a material adverse impact
on our results of operations or financial position.

We have also invested in a $5.1 million short-term corporate note, which is
subject to market fluctuations based on changes in interest rates. We intend
to hold the note until maturity at the end of January 2004. However, if we were to sell the note prior to maturity,
we could lose a portion of the related investment.

We believe that we are not subject in any material way to other forms of market
risk, such as foreign currency exchange risk on foreign customer purchase
orders (we accept 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 under Part IV, Item 15 of this Annual Report on Form 10-K.




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

None.




ITEM 9A CONTROLS AND PROCEDURES

We have evaluated, under the supervision and with the participation of
management, including our Chief Executive Officer and Chief Accounting Officer,
the effectiveness of the design and operation of our disclosure controls and
procedures (as that term is defined under Rule 13a-15(e) and Rule 15d-15(e) of
the Securities Exchange Act of 1934). Based upon this evaluation, our Chief Executive Officer
and Chief Accounting Officer concluded that, as of the fiscal year ended
September 27, 2003, except as described below, our disclosure controls and
procedures are effective.

During the fourth quarter of fiscal 2003, we determined the need to restate our
consolidated financial statements for the first three quarters of fiscal 2003
as a result of a change in the way we do business with a reseller that began in
the first quarter of fiscal 2003. The fact that we did not identify this
matter until the fourth quarter represents a material weakness in internal
control as defined under standards established by the American Institute of
Certified Public Accountants. We believe that this material weakness is
attributable to the Companys recent growth in terms of both size and
complexity coupled with the fact that accounting and finance department
resources had not been added to support that growth. We have recently
reorganized responsibilities within that department and have added one, and
expect to add two additional accounting and finance personnel in the
near future.

As of the date of this Annual Report
on Form 10-K, we believe we have a plan that, when completed,
will eliminate the material
weakness in internal control
described above. There were no other changes during
our fiscal fourth quarter ended September 27, 2003 that have materially
affected, or are reasonably likely to materially affect, our disclosure
controls and procedures.

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PART III




ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item for our directors is set forth in our
Proxy Statement (which will be filed with the Securities Exchange Commission no
later than 120 days following our 2003 fiscal year-end) relating to our annual
meeting of shareholders to be held on March 3, 2004 (the 2004 Proxy
Statement), under the heading Election of Directors and under the heading
Section 16(a) Beneficial Ownership Reporting Compliance, and is incorporated
herein by this reference as if set forth in full.

The information required by this Item for our executive officers is set forth
under Part I of this Annual Report on Form 10-K, following Item 4, under the
subheading Executive Officers of the Company.

We have adopted a Code of Ethics and Business Conduct that applies to all of
our executive officers and division controllers. A copy of the Code of Ethics
and Business Conduct is posted on our internet web site at www.whiteedc.com.
If we make any amendment to, or grant any waivers of, a provision of the Code
of Ethics and Business Conduct that applies to our principal executive officer,
principal financial officer or principal accounting officer where such
amendment or waiver is required to be disclosed under applicable SEC rules, we
intend to disclose such amendment or waiver and the reasons therefore on our
internet web site.




ITEM 11 EXECUTIVE COMPENSATION

The information required by this Item is set forth in the 2004 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 2004 Proxy Statement are not incorporated herein by
this reference.




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

The information required by Item 403 of Regulation S-K under this Item is set
forth in the 2004 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 27, 2003, with respect
to the shares of the Companys common stock that may be issued under the
Companys existing equity compensation plans.

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|                                                              |  |                            |           |                           |  |                         |      |  |  |  |           | 
|------------------------------------------------------------- |  | -------------------------- | --------- | ------------------------- |  | ----------------------- | ---- |  |  |  | --------- | 
|                                                              |  | Number of securities to be |           | Weighted average exercise |  |                         |      | 
|                                                              |  | issued upon exercise of    |           | price of outstanding      |  | Number of securities   
|                                                              |  | outstanding options,       |           | options, warrants, and    |  | remaining available for
|Plan category                                                 |  | warrants and rights        |           | rights                    |  | future issuance        
|                                                              |  |                            |           |                           |  |                        
|Equity compensation
plans approved by
security holders(1)     |  |                            | 1,330,932 |                           |  | $                       | 3.72 |  |  |  | 1,307,094 | 
|                                                              |  |                            |           |                           |  |                         |      |  |  |  |           | 
|Equity compensation
plans not approved
by security holders(2) |  |                            | 1,053,300 |                           |  | $                       | 4.51 |  |  |  | 204,745   | 
|                                                              |  |                            |           |                           |  |                         |      |  |  |  |           | 
|Total                                                         |  |                            | 2,384,232 |                           |  | $                       | 4.07 |  |  |  | 1,511,839 | 
|                                                              |  |                            |           |                           |  |                         |      |  |  |  |           | 

(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:

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 27, 2003, 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 27, 2003, 204,745 shares were available for grant and 662,986
granted options were unexercised.

IDS Plan  The Company assumed
the IDS Stock Option Plan and 169,000 warrants with the acquisition
of IDS in January, 2003. As of September 27, 2003, 96,464 granted options were
unexercised, and no shares were available for grant, and all of the
warrants were unexercised.




ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is set forth in the 2004 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.




ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item is set forth in the 2004 Proxy Statement
under the heading Independent Accountants Fees and Services and is
incorporated herein by this reference as if set forth in full.




PART IV




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

(a)(1) Financial Statements

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                                   |  |      |    |  | 
|------------------------------------------------------------------------------------------------------------------ |  | ---- | -- |  | 
|Financial Statements                                                                                               |  | Page
|                                                                                                                   |  |     
|Report of Independent Auditors                                                                                     |  |      | 44 | 
|Consolidated Balance Sheet as of September 27,
2003 and September 28, 2002                                         |  |      | 45 | 
|Consolidated Statement of Income for the years
ended September 27, 2003, September 28, 2002
and September 29, 2001 |  |      | 46 | 
|Consolidated Statement of Shareholders Equity                                                                     |  |      |    | 

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|                                                                                                                      |                                                                                    |      |       |    | 
|--------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | ---- | ----- | -- | 
|Financial Statements                                                                                                  |                                                                                    | Page
|                                                                                                                      |                                                                                    |     
|                                                                                                                      | for the years ended September 27, 2003, September 28, 2002,
and September 29, 2001 |      |       | 47 | 
|Consolidated Statement of Cash Flow for the years
ended September 27, 2003, September 28, 2002
and September 29, 2001 |                                                                                    |      | 48    |   
|Notes To Consolidated Financial Statements                                                                            |                                                                                    |      | 49-68 |   

(a)(2)Financial Statement Schedules

INDEX TO FINANCIAL STATEMENT SCHEDULES

|                   |                                                              |      |  |    | 
|------------------ | ------------------------------------------------------------ | ---- |  | -- | 
|Financial Schedule |                                                              | Page
|                   |                                                              |     
|                   | Schedule II
 Valuation and Qualifying Accounts and Reserves |      |  | 69 | 

(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.)
|   
|2.2 |  | 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).                                                        
|   
|2.3 |  | 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).                                                

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|       |  |                                                                                                                                                                                                                                                                                                                                     |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|2.4    |  | Agreement and Plan of Reorganization dated as of January 22, 2003 by and
among White Electronic Designs Corporation, IDS Reorganization Corp., and
Interface Data, Systems, Inc. (incorporated herein by reference to Exhibit 2.1 to the Current
Report on Form 8-K filed January 24, 2003.                                        
|      
|2.5    |  | 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).            
|      
|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 3.1 on Form S-3
filed June 2, 2003).                                                                                                                                                                     
|      
|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).                                                                                                                                                                                 
|      
|4.2    |  | 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).                                                                                                                  
|      
|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).       
|      
|10.3   |  | 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).                                                                                                                                          
|      
|10.4   |  | 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).                                                                                                               
|      
|10.5   |  | 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).                                                  
|      
|10.6   |  | 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).
|      
|10.7   |  | 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).                                                                                    
|      
|10.8   |  | Fourth Modification agreement between Bank One N.A. and White Electronic
Designs Corporation, effective January 13, 2003 (incorporated herein by
reference to Exhibit 10.41 to the Companys Quarterly Report on Form 10-Q
filed on February 11, 2003).                                                                            

40



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##### Table of Contents



|      |  |                                                                                                                                                                                                                                                               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|10.9  |  | Fifth Modification agreement between Bank One N.A. and White Electronic
Designs Corporation, effective March 13, 2003 (incorporated herein by
reference to Exhibit 10.42 to the Companys Quarterly Report on Form 10-Q
filed on May 13, 2003).              
|     
|10.10 |  | Term loan agreement between Bank One N.A. and White Electronic Designs
Corporation, effective March 13, 2003 (incorporated herein by reference to
Exhibit 10.43 to the Companys Quarterly Report on Form 10-Q filed on May 13, 2003).                       
|     
|10.11 |  | Modification letter to term loan agreement between Bank One N.A. and
White Electronic Designs Corporation, effective April 24, 2003
(incorporated herein by reference to Exhibit 10.43 to the Companys
Quarterly Report on Form 10-Q filed on May 13, 2003).
|     
|10.12 |  | 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).                                                  

|        |  |                                                                                                                                                                                                                                                            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|**10.13 |  | 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).                                         
|       
|**10.14 |  | 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).                                         
|       
|**10.15 |  | 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).                            
|       
|**10.16 |  | 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).
|       
|**10.17 |  | Non-Qualified Stock Option Agreement between Electronic Designs
Corporation and Donald McGuinness dated December 3, 1998 (incorporated
herein by reference to Exhibit 10.41 to the Companys Annual Report on
Form 10-K filed on December 23, 2002).      
|       
|**10.18 |  | Non-Qualified Stock Option Agreement between White Electronic Designs
Corporation and Hamid Shokrgozar dated November 10, 1999 (incorporated
herein by reference to Exhibit 10.42 to the Companys Annual Report on
Form 10-K filed on December 23, 2002).
|       
|*21.1   |  | Subsidiaries of White Electronic Designs Corporation.                                                                                                                                                                                                     
|       
|*23.1   |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                                                                                    
|       
|*31.1   |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                  
|       
|*31.2   |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                  
|       
|*32.1   |  | Certification Pursuant to 18 U.S. C. Section 1350, As Adopted Pursuant
To Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                  
|       
|*32.2   |  | 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.

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##### Table of Contents



(b) Reports on Form 8-K

During the last quarter of fiscal year 2003, or following the end of fiscal
year 2003, the Company furnished the following reports on Form 8-K with the
SEC:



| |                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Report on Form 8-K filed July 30, 2003 regarding the Companys
preliminary third quarter earnings results, as disclosed via a press
release on July 30, 2003.                        
|
| | Report on Form 8-K filed November 25, 2003 regarding the Companys
preliminary fourth quarter and total year earnings results, as disclosed
via a press release on November 25, 2003.

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##### 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 24, 2003 |  | /s/William J. RodesWilliam 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. ShokrgozarHamid R. Shokrgozar
President, Chief Executive Officer
and Chairman of the Board
Date: December 24, 2003 |  | /s/ Edward A. WhiteEdward A. White
Vice Chairman of the Board of Directors
Date: December 24, 2003            
|                                                                                                                               
|                                                                                                                                |  |                                                                                                               
|                                                                                                                               
|/s/ Thomas M. ReahardThomas M. Reahard
Director
Date: December 24, 2003                                                         |  | /s/ Thomas J. ToyThomas J. Toy
Director
Date: December 24, 2003                                               
|                                                                                                                               
|                                                                                                                                |  |                                                                                                               
|                                                                                                                               
|/s/ Norman T. HallNorman T. Hall
Director
Date: December 24, 2003                                                               |  | /s/ William J. RodesWilliam J. Rodes
Chief Accounting Officer, Secretary and Treasurer
Date: December 24, 2003

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Report of Independent Auditors

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

In our opinion, the consolidated financial
statements listed in the index appearing under Item 15(a)(1)
present fairly, in all material respects, the financial position of White
Electronic Designs Corporation and Subsidiaries at September 27, 2003 and
September 28, 2002, and the results of their operations and their cash flows
for each of the three years in the period ended September 27, 2003 in
conformity with accounting principles generally accepted in the United States
of America. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 15(a)(2)
presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement schedule are the responsibility of the Companys
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule 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.

As described in Note 2, the Company changed its method of accounting for
goodwill and other intangible assets effective September 29, 2002.

PricewaterhouseCoopers LLP
Phoenix, Arizona
November 25, 2003

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WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET

(In thousands of dollars, except share data)

|                                     |                                                                                                         |                                            |        |               |         |               |        |        |        | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ------------- | ------- | ------------- | ------ | ------ | ------ | 
|                                     |                                                                                                         |                                            |        | September 27, |         | September 28,
|                                     |                                                                                                         |                                            |        | 2003          |         | 2002         
|                                     |                                                                                                         |                                            |        |               |         |              
|ASSETS                               |                                                                                                         |                                            |        |               |         |               |        |       
|Current Assets                       |                                                                                                         |                                            |        |               |         |               |        |       
|                                     | Cash and cash equivalents                                                                               |                                            | $      | 30,176        |         |               | $      | 12,097 |       
|                                     | Marketable securities                                                                                   |                                            |        | 5,080         |         |               |        |       |       
|                                     | Accounts receivable, less allowance for
doubtful accounts of $397 and $626                              |                                            |        | 19,689        |         |               |        | 14,916 |       
|                                     | Inventories, net                                                                                        |                                            |        | 18,718        |         |               |        | 16,109 |       
|                                     | Prepaid expenses and other current assets                                                               |                                            |        | 1,727         |         |               |        | 575    |       
|                                     | Deferred income taxes                                                                                   |                                            |        | 5,222         |         |               |        | 3,995  |       
|                                     |                                                                                                         |                                            |        |               |         |               |        |       
|                                     |                                                                                                         | Total Current Assets                       |        |               | 80,612  |               |        |        | 47,692 | 
|Property, plant and equipment, net   |                                                                                                         |                                            | 15,689 |               |         |               | 10,481 |       
|Deferred income taxes                |                                                                                                         |                                            |       |               |         |               | 3,122  |       
|Goodwill                             |                                                                                                         |                                            | 17,040 |               |         |               | 6,533  |       
|Intangible assets                    |                                                                                                         |                                            | 6,310  |               |         |               | 353    |       
|Other assets, net                    |                                                                                                         |                                            | 155    |               |         |               | 185    |       
|                                     |                                                                                                         |                                            |        |               |         |               |        |       
|                                     |                                                                                                         | Total Assets                               |        | $             | 119,806 |               |        | $      | 68,366 | 
|                                     |                                                                                                         |                                            |        |               |         |               |        |       
|LIABILITIES AND SHAREHOLDERS EQUITY |                                                                                                         |                                            |        |               |         |               |        |       
|Current Liabilities                  |                                                                                                         |                                            |        |               |         |               |        |       
|                                     | Accounts payable                                                                                        |                                            | $      | 8,074         |         |               | $      | 6,037  |       
|                                     | Accrued salaries and benefits                                                                           |                                            |        | 2,496         |         |               |        | 2,344  |       
|                                     | Accrued expenses                                                                                        |                                            |        | 3,251         |         |               |        | 3,407  |       
|                                     | Deferred revenue                                                                                        |                                            |        | 3,048         |         |               |        | 435    |       
|                                     |                                                                                                         |                                            |        |               |         |               |        |       
|                                     |                                                                                                         | Total Current Liabilities                  |        |               | 16,869  |               |        |        | 12,223 | 
|Accrued long-term pension liability  |                                                                                                         |                                            | 712    |               |         |               | 671    |       
|Deferred income taxes                |                                                                                                         |                                            | 503    |               |         |               |       |       
|Other long term liabilities          |                                                                                                         |                                            | 694    |               |         |               | 702    |       
|                                     |                                                                                                         |                                            |        |               |         |               |        |       
|                                     |                                                                                                         | Total Liabilities                          |        |               | 18,778  |               |        |        | 13,596 | 
|                                     |                                                                                                         |                                            |        |               |         |               |        |       
|Shareholders Equity                 |                                                                                                         |                                            |        |               |         |               |        |       
|                                     | Preferred stock, 1,000,000 shares authorized, no shares issued                                          |                                            |        |              |         |               |        |       |       
|                                     | Common stock, $0.10 stated value, 60,000,000 shares authorized,
24,067,184 and 20,091,542 shares issued |                                            |        | 2,406         |         |               |        | 2,009  |       
|                                     | Treasury stock, 44,442 and 44,442 shares, at cost                                                       |                                            |        | (4            | )       |               |        | (4     | )     
|                                     | Additional paid-in capital                                                                              |                                            |        | 89,129        |         |               |        | 53,313 |       
|                                     | Unearned compensation                                                                                   |                                            |        | (34           | )       |               |        |       |       
|                                     | Retained earnings (accumulated deficit)                                                                 |                                            |        | 9,857         |         |               |        | (293   | )     
|                                     | Accumulated other comprehensive loss                                                                    |                                            |        | (326          | )       |               |        | (255   | )     
|                                     |                                                                                                         |                                            |        |               |         |               |        |       
|                                     |                                                                                                         | Total Shareholders Equity                 |        |               | 101,028 |               |        |        | 54,770 | 
|                                     |                                                                                                         |                                            |        |               |         |               |        |       
|                                     |                                                                                                         | Total Liabilities and Shareholders Equity |        | $             | 119,806 |               |        | $      | 68,366 | 
|                                     |                                                                                                         |                                            |        |               |         |               |        |       

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

45



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WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME

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

|                                                          |                                     |   |               |            |               |   |               |            |  |   |        |            | 
|--------------------------------------------------------- | ----------------------------------- | - | ------------- | ---------- | ------------- | - | ------------- | ---------- |  | - | ------ | ---------- | 
|                                                          |                                     |   | Year ended   
|                                                          |                                     |   |              
|                                                          |                                     |   | September 27, |            | September 28, |   | September 29,
|                                                          |                                     |   | 2003          |            | 2002          |   | 2001         
|                                                          |                                     |   |               |            |               |   |              
|Net sales                                                 |                                     | $ | 113,534       |            |               | $ | 90,458        |            |  | $ | 96,761 |           
|Cost of sales                                             |                                     |   | 74,847        |            |               |   | 61,558        |            |  |   | 70,360 |           
|                                                          |                                     |   |               |            |               |   |               |            |  |   |        |           
|Gross profit                                              |                                     |   | 38,687        |            |               |   | 28,900        |            |  |   | 26,401 |           
|                                                          |                                     |   |               |            |               |   |               |            |  |   |        |           
|Operating expenses:                                       |                                     |   |               |            |               |   |               |            |  |   |        |           
|                                                          | Selling, general and administrative |   |               | 16,607     |               |   |               | 13,939     |  |   |        | 15,222     | 
|                                                          | Research and development            |   |               | 6,015      |               |   |               | 4,264      |  |   |        | 5,302      | 
|                                                          | Amortization of goodwill            |   |               |           |               |   |               | 1,503      |  |   |        | 1,060      | 
|                                                          | Amortization of intangible assets   |   |               | 1,106      |               |   |               | 84         |  |   |        | 84         | 
|                                                          |                                     |   |               |            |               |   |               |            |  |   |        |           
|                                                          | Total operating expenses            |   |               | 23,728     |               |   |               | 19,790     |  |   |        | 21,668     | 
|                                                          |                                     |   |               |            |               |   |               |            |  |   |        |           
|Operating income                                          |                                     |   | 14,959        |            |               |   | 9,110         |            |  |   | 4,733  |           
|Interest expense                                          |                                     |   | 88            |            |               |   | 147           |            |  |   | 491    |           
|Interest (income)                                         |                                     |   | (250          | )          |               |   | (165          | )          |  |   | (11    | )         
|                                                          |                                     |   |               |            |               |   |               |            |  |   |        |           
|Income before income taxes                                |                                     |   | 15,121        |            |               |   | 9,128         |            |  |   | 4,253  |           
|Provision for income taxes                                |                                     |   | 4,971         |            |               |   | 388           |            |  |   | 981    |           
|                                                          |                                     |   |               |            |               |   |               |            |  |   |        |           
|Net income                                                |                                     | $ | 10,150        |            |               | $ | 8,740         |            |  | $ | 3,272  |           
|                                                          |                                     |   |               |            |               |   |               |            |  |   |        |           
|Earnings per share  basic                                |                                     | $ | 0.48          |            |               | $ | 0.44          |            |  | $ | 0.17   |           
|                                                          |                                     |   |               |            |               |   |               |            |  |   |        |           
|Earnings per share  diluted                              |                                     | $ | 0.44          |            |               | $ | 0.42          |            |  | $ | 0.16   |           
|                                                          |                                     |   |               |            |               |   |               |            |  |   |        |           
|Weighted average number of common
shares and equivalents: |                                     |   |               |            |               |   |               |            |  |   |        |           
|                                                          | Basic                               |   |               | 21,320,307 |               |   |               | 19,815,162 |  |   |        | 19,230,781 | 
|                                                          | Diluted                             |   |               | 22,920,209 |               |   |               | 20,922,434 |  |   |        | 20,528,337 | 
|                                                          |                                     |   |               |            |               |   |               |            |  |   |        |           

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

46



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WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY

(In thousands of dollars, except share data)

|                                                         |                      |  |            |  |        |   |          |  |         |   |              |   |              |   |               |  |               |   |                    |   |             |   |         |   |  |   |      |   |  |   |         |        | 
|-------------------------------------------------------- | -------------------- |  | ---------- |  | ------ | - | -------- |  | ------- | - | ------------ | - | ------------ | - | ------------- |  | ------------- | - | ------------------ | - | ----------- | - | ------- | - |  | - | ---- | - |  | - | ------- | ------ | 
|                                                         |                      |  |            |  |        |   |          |  |         |   |              |   |              |   | Additional    |  |               |   | Retained Earnings/ |   | Accumulated |   | Total  
|                                                         |                      |  | Common     |  | Common |   | Treasury |  | Paid-in |   | Unearned     |   | (Accumulated |   | Other Compre- |  | Shareholders
|                                                         |                      |  | Shares     |  | Stock  |   | Stock    |  | Capital |   | Compensation |   | Deficit)     |   | hensive Loss  |  | Equity       
|                                                         |                      |  |            |  |        |   |          |  |         |   |              |   |              |   |               |  |              
|Balance, September 30, 2000                              |                      |  | 18,534,201 |  |        | $ | 1,853    |  |         | $ | (4           | ) |              | $ | 42,079        |  |               |   |                    |   |             | $ | (12,305 | ) |  | $ |     |   |  | $ | 31,623  |       
|                                                         |                      |  |            |  |        |   |          |  |         |   |              |   |              |   |               |  |               |   |                    |   |             |   |         |   |  |   |      |   |  |   |         |       
|Net income                                               |                      |  |            |  |        |   |          |  |         |   |              |   |              |   |               |  |               |   |                    |   |             |   | 3,272   |   |  |   |      |   |  |   | 3,272   |       
|                                                         |                      |  |            |  |        |   |          |  |         |   |              |   |              |   |               |  |               |   |                    |   |             |   |         |   |  |   |      |   |  |   |         |       
|                                                         | Comprehensive income |  |            |  |        |   |          |  |         |   |              |   |              |   |               |  |               |   |                    |   |             |   |         |   |  |   |      |   |  |   |         | 3,272  | 
|                                                         |                      |  |            |  |        |   |          |  |         |   |              |   |              |   |               |  |               |   |                    |   |             |   |         |   |  |   |      |   |  |   |         |       
|Stock options exercised                                  |                      |  | 245,423    |  |        |   | 25       |  |         |   |              |   |              |   | 294           |  |               |   |                    |   |             |   |         |   |  |   |      |   |  |   | 319     |       
|Tax benefits related to exercise of stock options        |                      |  |            |  |        |   |          |  |         |   |              |   |              |   | 574           |  |               |   |                    |   |             |   |         |   |  |   |      |   |  |   | 574     |       
|Common stock issued for Panelview acquisition            |                      |  | 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                                |                      |  |            |  |        |   |          |  |         |   |              |   |              |   |               |  |               |   |                    |   |             |   |         |   |  |   | (255 | ) |  |   | (255    | )     
|                                                         |                      |  |            |  |        |   |          |  |         |   |              |   |              |   |               |  |               |   |                    |   |             |   |         |   |  |   |      |   |  |   |         |       
|                                                         | Comprehensive income |  |            |  |        |   |          |  |         |   |              |   |              |   |               |  |               |   |                    |   |             |   |         |   |  |   |      |   |  |   |         | 8,485  | 
|                                                         |                      |  |            |  |        |   |          |  |         |   |              |   |              |   |               |  |               |   |                    |   |             |   |         |   |  |   |      |   |  |   |         |       
|Stock options exercised                                  |                      |  | 343,585    |  |        |   | 35       |  |         |   |              |   |              |   | 689           |  |               |   |                    |   |             |   |         |   |  |   |      |   |  |   | 724     |       
|Common stock issued through
employee stock purchase plan |                      |  | 43,646     |  |        |   | 4        |  |         |   |              |   |              |   | 185           |  |               |   |                    |   |             |   |         |   |  |   |      |   |  |   | 190     |       
|Common stock issued for Panelview acquisition            |                      |  | 110,187    |  |        |   | 11       |  |         |   |              |   |              |   | 1,005         |  |               |   |                    |   |             |   |         |   |  |   |      |   |  |   | 1,016   |       
|Tax benefits related to exercise of stock options        |                      |  |            |  |        |   |          |  |         |   |              |   |              |   | 576           |  |               |   |                    |   |             |   |         |   |  |   |      |   |  |   | 576     |       
|                                                         |                      |  |            |  |        |   |          |  |         |   |              |   |              |   |               |  |               |   |                    |   |             |   |         |   |  |   |      |   |  |   |         |       
|Balance, September 28, 2002                              |                      |  | 20,091,542 |  |        | $ | 2,009    |  |         | $ | (4           | ) |              | $ | 53,313        |  |               |   |                    |   |             | $ | (293    | ) |  | $ | (255 | ) |  | $ | 54,770  |       
|                                                         |                      |  |            |  |        |   |          |  |         |   |              |   |              |   |               |  |               |   |                    |   |             |   |         |   |  |   |      |   |  |   |         |       
|Net income                                               |                      |  |            |  |        |   |          |  |         |   |              |   |              |   |               |  |               |   |                    |   |             |   | 10,150  |   |  |   |      |   |  |   | 10,150  |       
|Minimum pension liability                                |                      |  |            |  |        |   |          |  |         |   |              |   |              |   |               |  |               |   |                    |   |             |   |         |   |  |   | (71  | ) |  |   | (71     | )     
|                                                         |                      |  |            |  |        |   |          |  |         |   |              |   |              |   |               |  |               |   |                    |   |             |   |         |   |  |   |      |   |  |   |         |       
|                                                         | Comprehensive income |  |            |  |        |   |          |  |         |   |              |   |              |   |               |  |               |   |                    |   |             |   |         |   |  |   |      |   |  |   |         | 10,079 | 
|                                                         |                      |  |            |  |        |   |          |  |         |   |              |   |              |   |               |  |               |   |                    |   |             |   |         |   |  |   |      |   |  |   |         |       
|Stock options exercised                                  |                      |  | 964,963    |  |        |   | 96       |  |         |   |              |   |              |   | 2,127         |  |               |   |                    |   |             |   |         |   |  |   |      |   |  |   | 2,223   |       
|Common stock issued in
public offering                   |                      |  | 2,402,874  |  |        |   | 240      |  |         |   |              |   |              |   | 21,718        |  |               |   |                    |   |             |   |         |   |  |   |      |   |  |   | 21,958  |       
|Common stock issued through
employee stock purchase plan |                      |  | 30,210     |  |        |   | 3        |  |         |   |              |   |              |   | 193           |  |               |   |                    |   |             |   |         |   |  |   |      |   |  |   | 196     |       
|Common stock issued for IDS acquisition                  |                      |  | 577,595    |  |        |   | 58       |  |         |   |              |   |              |   | 4,557         |  |               |   |                    |   |             |   |         |   |  |   |      |   |  |   | 4,615   |       
|Options and warrants issued for IDS acquisition          |                      |  |            |  |        |   |          |  |         |   |              |   |              |   | 4,457         |  |               |   | (51                | ) |             |   |         |   |  |   |      |   |  |   | 4,406   |       
|Stock compensation earned during the year                |                      |  |            |  |        |   |          |  |         |   |              |   |              |   |               |  |               |   | 17                 |   |             |   |         |   |  |   |      |   |  |   | 17      |       
|Tax benefits related to exercise of stock options        |                      |  |            |  |        |   |          |  |         |   |              |   |              |   | 2,764         |  |               |   |                    |   |             |   |         |   |  |   |      |   |  |   | 2,764   |       
|                                                         |                      |  |            |  |        |   |          |  |         |   |              |   |              |   |               |  |               |   |                    |   |             |   |         |   |  |   |      |   |  |   |         |       
|Balance, September 27, 2003                              |                      |  | 24,067,184 |  |        | $ | 2,406    |  |         | $ | (4           | ) |              | $ | 89,129        |  |               | $ | (34                | ) |             | $ | 9,857   |   |  | $ | (326 | ) |  | $ | 101,028 |       
|                                                         |                      |  |            |  |        |   |          |  |         |   |              |   |              |   |               |  |               |   |                    |   |             |   |         |   |  |   |      |   |  |   |         |       

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 27, |        | September 28, |        | September 29,
|                                                                                  |                                                   |                             |         | 2003          |        | 2002          |        | 2001         
|                                                                                  |                                                   |                             |         |               |        |               |        |              
|OPERATING ACTIVITIES:                                                             |                                                   |                             |         |               |        |               |        |               |       |   |         |      
|Net income                                                                        |                                                   | $                           | 10,150  |               |        | $             | 8,740  |               |       | $ | 3,272   |      
|Adjustments to reconcile net income to net cash
provided by operating activities: |                                                   |                             |         |               |        |               |        |               |       |   |         |      
|                                                                                  | Depreciation and amortization                     |                             |         | 4,846         |        |               |        | 3,814         |       |   |         | 2,966 |       
|                                                                                  | Deferred income tax (benefit) expense             |                             |         | 32            |        |               |        | (2,286        | )     |   |         | (694  | )     
|                                                                                  | Tax benefits related to exercise of stock options |                             |         | 2,764         |        |               |        | 576           |       |   |         | 574   |       
|                                                                                  | Loss on sale of property, plant, and equipment    |                             |         | 52            |        |               |        | 2             |       |   |         |      |       
|                                                                                  | Net changes in balance sheet accounts:            |                             |         |               |        |               |        |               |       |   |         |       |       
|                                                                                  |                                                   | Accounts receivable         |         |               | (1,607 | )             |        |               | (896  | ) |         |       | 1,803  |  
|                                                                                  |                                                   | Inventories                 |         |               | (43    | )             |        |               | 600   |   |         |       | 8,749  |  
|                                                                                  |                                                   | Prepaid expenses            |         |               | (1,073 | )             |        |               | 19    |   |         |       | 1,248  |  
|                                                                                  |                                                   | Other assets                |         |               | 794    |               |        |               | 13    |   |         |       | 34     |  
|                                                                                  |                                                   | Accounts payable            |         |               | 1,026  |               |        |               | 239   |   |         |       | (6,071 | )
|                                                                                  |                                                   | Accrued expenses            |         |               | 1,042  |               |        |               | 2,289 |   |         |       | (151   | )
|                                                                                  |                                                   | Other long-term liabilities |         |               | (8     | )             |        |               | (646  | ) |         |       | 94     |  
|                                                                                  |                                                   |                             |         |               |        |               |        |               |       |   |         |      
|Net cash provided by operating activities                                         |                                                   | $                           | 17,975  |               |        | $             | 12,464 |               |       | $ | 11,824  |      
|                                                                                  |                                                   |                             |         |               |        |               |        |               |       |   |         |      
|INVESTING ACTIVITIES:                                                             |                                                   |                             |         |               |        |               |        |               |       |   |         |      
|Acquisition of property, plant and equipment                                      |                                                   |                             | (3,862  | )             |        |               | (4,798 | )             |       |   | (1,626  | )    
|Cash received in sale of property, plant, and equipment                           |                                                   |                             |        |               |        |               | 3      |               |       |   | 24      |      
|Purchase of marketable securities                                                 |                                                   |                             | (5,080  | )             |        |               |       |               |       |   |        |      
|Cash payments for acquisition, net of cash acquired                               |                                                   |                             | (8,391  | )             |        |               |       |               |       |   | (531    | )    
|                                                                                  |                                                   |                             |         |               |        |               |        |               |       |   |         |      
|Net cash used in investing activities                                             |                                                   | $                           | (17,333 | )             |        | $             | (4,795 | )             |       | $ | (2,133  | )    
|                                                                                  |                                                   |                             |         |               |        |               |        |               |       |   |         |      
|FINANCING ACTIVITIES:                                                             |                                                   |                             |         |               |        |               |        |               |       |   |         |      
|Borrowings on line of credit                                                      |                                                   |                             | 6,128   |               |        |               |       |               |       |   | 75,831  |      
|Repayments on line of credit                                                      |                                                   |                             | (6,128  | )             |        |               |       |               |       |   | (82,037 | )    
|Borrowings of long-term debt                                                      |                                                   |                             | 6,000   |               |        |               | 3,083  |               |       |   |        |      
|Repayments of long-term debt                                                      |                                                   |                             | (12,940 | )             |        |               | (4,601 | )             |       |   | (628    | )    
|Common stock issued for exercise of options                                       |                                                   |                             | 2,223   |               |        |               | 724    |               |       |   | 319     |      
|Common stock issued in public offering                                            |                                                   |                             | 21,958  |               |        |               |       |               |       |   |        |      
|Common stock issued through employee purchase plan                                |                                                   |                             | 196     |               |        |               | 190    |               |       |   |        |      
|                                                                                  |                                                   |                             |         |               |        |               |        |               |       |   |         |      
|Net cash provided by (used in) financing activities                               |                                                   | $                           | 17,437  |               |        | $             | (604   | )             |       | $ | (6,516  | )    
|                                                                                  |                                                   |                             |         |               |        |               |        |               |       |   |         |      
|Net change in cash                                                                |                                                   |                             | 18,079  |               |        |               | 7,065  |               |       |   | 3,175   |      
|Cash at beginning of year                                                         |                                                   |                             | 12,097  |               |        |               | 5,032  |               |       |   | 1,857   |      
|                                                                                  |                                                   |                             |         |               |        |               |        |               |       |   |         |      
|Cash at end of year                                                               |                                                   | $                           | 30,176  |               |        | $             | 12,097 |               |       | $ | 5,032   |      
|                                                                                  |                                                   |                             |         |               |        |               |        |               |       |   |         |      
|SUPPLEMENTAL CASH FLOW INFORMATION:                                               |                                                   |                             |         |               |        |               |        |               |       |   |         |      
|Cash paid for interest                                                            |                                                   | $                           | 88      |               |        | $             | 147    |               |       | $ | 491     |      
|Cash paid for income taxes                                                        |                                                   | $                           | 3,911   |               |        | $             | 2,277  |               |       | $ | 1,262   |      
|Common stock issued for acquisition                                               |                                                   | $                           | 4,615   |               |        | $             | 1,016  |               |       | $ | 7,992   |      
|Options and warrants issued for acquisition                                       |                                                   | $                           | 4,457   |               |        | $             |       |               |       | $ |        |      
|                                                                                  |                                                   |                             |         |               |        |               |        |               |       |   |         |      

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 designs, develops and manufactures
innovative microelectronic and display components and systems for high
technology products used in the military/industrial and commercial markets.
The Companys microelectronic solutions include advanced semiconductor and
state of the art multi-chip packaging, as well as a proprietary process for
applying anti-tamper protection to mission critical semiconductor components in
military applications. The Companys display solutions include enhanced flat
panel display products, interface devices and electromechanical assemblies.
The Companys customers, which include military prime contractors in the United
States and Europe as well as commercial original equipment manufacturers
(OEMs), outsource many of their microelectronic and display components and
systems to us as a result of the combination of our design, development and
manufacturing expertise. The Companys operations include two reportable
segments: microelectronics and display, with the majority of sales and
operating income generated by the microelectronic segment.



|2. |  | CHANGE IN ACCOUNTING PRINCIPLE
|-- |  | ------------------------------

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141 (SFAS 141), Business Combinationsand No. 142 (SFAS 142), Goodwill and
Other Intangible Assets. SFAS 141 superseded APB Opinion No. 16, Business
Combinations. The provisions of SFAS 141 require that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001;
provide specific criteria for the initial recognition and measurement of
intangible assets apart from goodwill; and, 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,
certain intangible assets be reclassified into or out of goodwill based on
certain criteria. SFAS 142 supersedes APB Opinion No. 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 prohibit
the amortization of goodwill and indefinite-lived intangible assets and require
that such assets be tested annually for impairment (and in interim periods if
events or circumstances indicate that the related carrying amount may be
impaired), require that reporting units be identified for purposes of assessing
potential impairments, and remove the forty-year limitation on the amortization
period of intangible assets that have finite lives.

SFAS 142 requires that goodwill be tested for impairment using a two-step
process. The first step of the goodwill impairment test, which is used to
identify potential impairment, compares the fair value of a reporting unit with
its carrying amount, including goodwill. If the fair value of a reporting unit
exceeds its carrying amount, goodwill of the reporting unit is not considered
to be impaired and the second step of the impairment test is unnecessary. If
the carrying amount of a reporting unit exceeds its fair value, the second step
of the goodwill impairment test must be performed to measure the amount of
impairment loss, if any. The second step of the goodwill impairment test
compares the implied fair value of reporting unit goodwill with the carrying
amount of that goodwill. The implied fair value of goodwill is determined in
the same manner as the amount of goodwill recognized in a business combination.
If the carrying amount of the reporting unit goodwill exceeds the implied fair
value of that goodwill, an impairment loss is recognized in an amount equal to
that excess.

The Company adopted SFAS 142 as of September 29, 2002 and completed the first
step impairment test for goodwill relating to its Panelview reporting unit as
of that date. The fair value of the Panelview reporting unit was determined
using a discounted cash flow model using a long-term growth rate of 5%, and a
discount rate of 15%. The fair value of the reporting unit exceeded its
carrying value, therefore, an impairment was not indicated.

As of September 27, 2003 the Company completed the first step impairment tests
for the goodwill relating to its Panelview and IDS reporting units. The fair
value of each reporting unit was determined using a discounted cash flow model
using a long-term growth rate of 5% and discount rates of 13.1% and 16.5%,
respectively. The fair value of each reporting unit exceeded the related
carrying value and, therefore, impairments of the related goodwill were not
indicated. If our actual cash flows for these reporting units are less than
projected, the related goodwill may become impaired and an impairment charge
will be required.

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WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amortization of $1.1 million for the year ended September 27, 2003 relates to
the Companys intangible assets other than goodwill. Goodwill amortization in
fiscal years 2002 and 2001 relates primarily to Panelview.

Pro forma net income for fiscal years 2002 and 2001 excluding goodwill
amortization along with a comparison to 2003 is as follows:

|                                                           |  |             |        |      |  |      |       |  |  |   |       | 
|---------------------------------------------------------- |  | ----------- | ------ | ---- |  | ---- | ----- |  |  | - | ----- | 
|                                                           |  | Fiscal Year
|                                                           |  |            
|                                                           |  | 2003        |        | 2002 |  | 2001
|                                                           |  |             |        |      |  |     
|Net income  as reported                                   |  | $           | 10,150 |      |  | $    | 8,740 |  |  | $ | 3,272 | 
|Add back: goodwill amortization
expense, net of tax effect |  |             |       |      |  |      | 932   |  |  |   | 815   | 
|                                                           |  |             |        |      |  |      |       |  |  |   |       | 
|Net income  as adjusted                                   |  | $           | 10,150 |      |  | $    | 9,672 |  |  | $ | 4,087 | 
|                                                           |  |             |        |      |  |      |       |  |  |   |       | 
|Earnings per share  basic:                                |  |             |        |      |  |      |       |  |  |   |       | 
|Reported net income                                        |  | $           | 0.48   |      |  | $    | 0.44  |  |  | $ | 0.17  | 
|Goodwill amortization                                      |  |             |       |      |  |      | 0.05  |  |  |   | 0.04  | 
|                                                           |  |             |        |      |  |      |       |  |  |   |       | 
|Adjusted
earnings per share  basic                        |  | $           | 0.48   |      |  | $    | 0.49  |  |  | $ | 0.21  | 
|                                                           |  |             |        |      |  |      |       |  |  |   |       | 
|Earnings per share  diluted:                              |  |             |        |      |  |      |       |  |  |   |       | 
|Reported net income                                        |  | $           | 0.44   |      |  | $    | 0.42  |  |  | $ | 0.16  | 
|Goodwill amortization                                      |  |             |       |      |  |      | 0.04  |  |  |   | 0.04  | 
|                                                           |  |             |        |      |  |      |       |  |  |   |       | 
|Adjusted earnings per share-diluted                        |  | $           | 0.44   |      |  | $    | 0.46  |  |  | $ | 0.20  | 
|                                                           |  |             |        |      |  |      |       |  |  |   |       | 



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



| | a. |  | Principles of Consolidation                                                                                                                                                                                                                                                                                                           
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    |  | The consolidated financial statements include the accounts of the Company
and its wholly-owed subsidiaries. All significant inter-company accounts
and transactions have been 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 ends on the Saturday nearest September 30.                                                                                                                                                                                                                                                                  
|
| | c. |  | 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.                                                                                                                                                                    
|
| | d. |  | Marketable Securities                                                                                                                                                                                                                                                                                                                 
|
| |    |  | Marketable securities consist of a short-term corporate note with a
maturity date of January 30, 2004. We expect to hold the note to
maturity, and it is recorded at cost which approximates fair value.                                                                                                                              
|
| | e. |  | Inventories                                                                                                                                                                                                                                                                                                                           
|
| |    |  | Inventories are valued at the lower of cost or market with cost
determined using the average or standard cost methods, with standard
costs approximating actual costs.                                                                                                                                                                

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WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | f. |  | Property, Plant and Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    |  | Property, plant and equipment 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 shorter. 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 property, plant, and
equipment in accordance with SFAS 144 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. |  | Revenue Recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |    |  | The Company sells its microelectronic and display products
primarily to military prime contractors and commercial original
equipment manufacturers. A small portion of the Companys products
are also sold through distributors or resellers. The Company
recognizes revenue on product sales when persuasive evidence of an
arrangement with the customer exists, title to the product has
passed to the customer which usually occurs at time of shipment, the
sales price is fixed or determinable, and collectibility of the
related billing is reasonably assured. Advance payments from
customers are deferred and recognized when the related products are
shipped. Revenue relating to products sold to distributors or
resellers who either have return rights or where the Company has a
history of accepting product returns are deferred and recognized
when the distributor or reseller sells the product to the end
customer. The Company also provides limited design services
pursuant to related customer purchase orders and recognizes the
associated revenue as such services are performed. The Company
maintains an allowance for doubtful accounts to cover potential
credit losses relating to its trade accounts receivable. The
allowance is based on the Companys historical collection experience
as well as an analysis of specific past due accounts. Write-offs
against the allowance totaled approximately $145,000 in fiscal 2003,
$209,000 in fiscal 2002, and $96,000 in fiscal 2001.
|
| |    |  | The Companys contracts with military prime contractors provide that
they may be terminated at the convenience of the U.S. Government. Upon
such termination, the Company 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | h. |  | Shipping Costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |    |  | Shipping costs include charges associated with delivery of goods from the
Companys facilities to its customers and are reflected in costs of goods
sold. Shipping costs paid by our customers are classified as revenue.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | i. |  | Research and Development                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |    |  | Research and development costs are expensed as incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | j. |  | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |    |  | The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards 109, Accounting for Income Taxes (SFAS
109) which 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

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WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | k. |  | Fair Value of Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                              
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    |  | The Company values financial instruments as required by SFAS 107,
Disclosures about Fair Value of Financial Instruments (SFAS 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 account receivables and accounts payable
approximate their fair value due to the relatively short maturity of
these items.         
|
| | l. |  | 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 reporting period. Actual results could differ from those
estimates.
|
| | m. |  | Earnings per Share                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |    |  | Basic earnings per share are computed by dividing income available to
common shareholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share are similar to
basic earnings per share except that the denominator is increased to
include the number of additional common shares that would have been
outstanding if the potentially dilutive common shares had been issued.               
|
| |    |  | A reconciliation of the numerator and denominator of basic and diluted
earnings per share is as follows:                                                                                                                                                                                                                                                                                                                                         

|                                                                                                                                                                                  |  |             |            |               |  |           |            |  |  |   |      | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ---------- | ------------- |  | --------- | ---------- |  |  | - | ---- | 
|2003                                                                                                                                                                             
|                                                                                                                                                                                 
|                                                                                                                                                                                  |  | Income      |            | Shares        |  | Per Share
|                                                                                                                                                                                  |  | (Numerator) |            | (Denominator) |  | Amount   
|                                                                                                                                                                                  |  |             |            |               |  |          
|Net Income                                                                                                                                                                        |  | $           | 10,150,000 |               |  |           |            |  |  |   |      | 
|Earnings per share-basic                                                                                                                                                          |  |             |            |               |  |           |            |  |  |   |      | 
|Net Income                                                                                                                                                                        |  | $           | 10,150,000 |               |  |           | 21,320,307 |  |  | $ | 0.48 | 
|                                                                                                                                                                                  |  |             |            |               |  |           |            |  |  |   |      | 
|Earnings available to common stockholders                                                                                                                                         |  | $           | 10,150,000 |               |  |           |            |  |  |   |      | 
|Effects of Dilutive Securities                                                                                                                                                    |  |             |            |               |  |           |            |  |  |   |      | 
|Stock options and warrants                                                                                                                                                        |  |             |            |               |  |           | 1,599,902  |  |  |   |      | 
|                                                                                                                                                                                  |  |             |            |               |  |           |            |  |  |   |      | 
|Earnings per share-diluted                                                                                                                                                        |  |             |            |               |  |           |            |  |  |   |      | 
|Earnings available to common stockholders                                                                                                                                         |  | $           | 10,150,000 |               |  |           | 22,920,209 |  |  | $ | 0.44 | 
|                                                                                                                                                                                  |  |             |            |               |  |           |            |  |  |   |      | 
|Options excluded from the calculation of diluted earnings per share were
156,000, as the exercise price of those options was greater than the average
share price for the period.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                                                                                                  |  |             |           |               |  |           |            |  |  |   |      | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | --------- | ------------- |  | --------- | ---------- |  |  | - | ---- | 
|2002                                                                                                                                                                             
|                                                                                                                                                                                 
|                                                                                                                                                                                  |  | Income      |           | Shares        |  | Per share
|                                                                                                                                                                                  |  | (Numerator) |           | (Denominator) |  | amount   
|                                                                                                                                                                                  |  |             |           |               |  |          
|Net Income                                                                                                                                                                        |  | $           | 8,740,000 |               |  |           |            |  |  |   |      | 
|Earnings per share-basic                                                                                                                                                          |  |             |           |               |  |           |            |  |  |   |      | 
|Net Income                                                                                                                                                                        |  | $           | 8,740,000 |               |  |           | 19,815,162 |  |  | $ | 0.44 | 
|                                                                                                                                                                                  |  |             |           |               |  |           |            |  |  |   |      | 
|Earnings available to common stockholders                                                                                                                                         |  | $           | 8,740,000 |               |  |           |            |  |  |   |      | 
|Effects of Dilutive Securities                                                                                                                                                    |  |             |           |               |  |           |            |  |  |   |      | 
|Stock options                                                                                                                                                                     |  |             |           |               |  |           | 1,107,272  |  |  |   |      | 
|                                                                                                                                                                                  |  |             |           |               |  |           |            |  |  |   |      | 
|Earnings per share-diluted                                                                                                                                                        |  |             |           |               |  |           |            |  |  |   |      | 
|Earnings available to common stockholders                                                                                                                                         |  | $           | 8,740,000 |               |  |           | 20,922,434 |  |  | $ | 0.42 | 
|                                                                                                                                                                                  |  |             |           |               |  |           |            |  |  |   |      | 
|Options excluded from the calculation of diluted earnings per share were
366,000, as the exercise price of those options was greater than the average
share price for the period.

|                                                                                                                                                                                  |  |             |           |               |  |           |            |  |  |   |      | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | --------- | ------------- |  | --------- | ---------- |  |  | - | ---- | 
|2001                                                                                                                                                                             
|                                                                                                                                                                                 
|                                                                                                                                                                                  |  | Income      |           | Shares        |  | Per share
|                                                                                                                                                                                  |  | (Numerator) |           | (Denominator) |  | amount   
|                                                                                                                                                                                  |  |             |           |               |  |          
|Net Income                                                                                                                                                                        |  | $           | 3,272,000 |               |  |           |            |  |  |   |      | 
|                                                                                                                                                                                  |  |             |           |               |  |           |            |  |  |   |      | 
|Earnings per share-basic                                                                                                                                                          |  |             |           |               |  |           |            |  |  |   |      | 
|Net Income                                                                                                                                                                        |  | $           | 3,272,000 |               |  |           | 19,230,781 |  |  | $ | 0.17 | 
|                                                                                                                                                                                  |  |             |           |               |  |           |            |  |  |   |      | 
|Earnings available to common stockholders                                                                                                                                         |  | $           | 3,272,000 |               |  |           |            |  |  |   |      | 
|Effects of Dilutive Securities                                                                                                                                                    |  |             |           |               |  |           |            |  |  |   |      | 
|Stock options                                                                                                                                                                     |  |             |           |               |  |           | 1,297,556  |  |  |   |      | 
|                                                                                                                                                                                  |  |             |           |               |  |           |            |  |  |   |      | 
|Earnings per share  diluted                                                                                                                                                      |  |             |           |               |  |           |            |  |  |   |      | 
|Earnings available to common stockholders                                                                                                                                         |  | $           | 3,272,000 |               |  |           | 20,528,337 |  |  | $ | 0.16 | 
|                                                                                                                                                                                  |  |             |           |               |  |           |            |  |  |   |      | 
|Options excluded from the calculation of diluted earnings per share were
387,000, as the exercise price of those options was greater than the average
share price for the period.



| | n. |  | Stock-Based Compensation                                                                                                                                                                                                                                                                                                     
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    |  | The Company accounts for employee stock options relating to its common
stock in accordance with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and provides the
pro forma disclosures required by SFAS No. 123 Accounting for Stock
Based Compensation (SFAS No. 123).
|
| |    |  | Had the Company determined employee stock compensation expense in
accordance with SFAS No. 123, the Companys net income for fiscal years
2003, 2002, and 2001 would have been reduced to the pro forma amounts
indicated below (in thousands except share data):                                                            

|                                                                                                                                              |  |      |        |      |  |      |        |   |  |   |        |  
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                                                                                                              |  | 2003 |        | 2002 |  | 2001
|                                                                                                                                              |  |      |        |      |  |     
|Net income  as reported                                                                                                                      |  | $    | 10,150 |      |  | $    | 8,740  |   |  | $ | 3,272  |  
|Less: Total stock-based employee
compensation expense determined under
the fair value based method for all
awards, net of related tax effects |  |      | (988   | )    |  |      | (1,895 | ) |  |   | (2,000 | )
|                                                                                                                                              |  |      |        |      |  |      |        |   |  |   |        |  
|Net income  pro forma                                                                                                                        |  | $    | 9,162  |      |  | $    | 6,845  |   |  | $ | 1,272  |  
|                                                                                                                                              |  |      |        |      |  |      |        |   |  |   |        |  
|Earnings per share-basic as reported                                                                                                          |  | $    | 0.48   |      |  | $    | 0.44   |   |  | $ | 0.17   |  
|Earnings per share-basic pro forma                                                                                                            |  | $    | 0.43   |      |  | $    | 0.35   |   |  | $ | 0.07   |  
|                                                                                                                                              |  |      |        |      |  |      |        |   |  |   |        |  
|Earnings per share-diluted as reported                                                                                                        |  | $    | 0.44   |      |  | $    | 0.42   |   |  | $ | 0.16   |  
|Earnings per share-diluted pro forma                                                                                                          |  | $    | 0.40   |      |  | $    | 0.33   |   |  | $ | 0.06   |  
|                                                                                                                                              |  |      |        |      |  |      |        |   |  |   |        |  

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| |  |  | The fair value of each option grant has been determined using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

|                              |  |      |      |      |  |      |      |   |  |  |      |  
|----------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|Employee Stock Options        |  | 2003 |      | 2002 |  | 2001
|                              |  |      |      |      |  |     
|Expected options term (years) |  |      | 5.0  |      |  |      | 6.3  |   |  |  | 7.7  |  
|Risk free interest rate       |  |      | 2.98 | %    |  |      | 4.75 | % |  |  | 4.08 | %
|Volatility                    |  |      | 92   | %    |  |      | 146  | % |  |  | 149  | %

|                              |  |      |      |      |  |      |      |   |  |  |      |  
|----------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|Employee Stock Purchase Plan  |  | 2003 |      | 2002 |  | 2001
|Expected options term (years) |  |      | 0.5  |      |  |      | 0.5  |   |  |  |     |  
|Risk free interest rate       |  |      | 0.94 | %    |  |      | 2.00 | % |  |  | 0.00 | %
|Volatility                    |  |      | 50   | %    |  |      | 55   | % |  |  | 0    | %



| |    |  | The weighted-average estimated fair value of employee stock options
granted during fiscal years 2003, 2002 and 2001 was $6.55, $5.94, and
$4.97 per share, respectively. The weighted-average estimated fair value
of the discount on the shares sold under the Employee Stock Purchase Plan
during fiscal years 2003, 2002 and 2001 was $1.14, $0.77 and $.0.00,
respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | o. |  | Newly Issued Accounting Standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |    |  | In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires
that a guarantor recognize, at the inception of a guarantee, a liability
for the fair value of the obligation undertaken in issuing the guarantee.
FIN 45 also requires additional disclosure by a guarantor in its interim
and annual financial statements about its obligations under certain
guarantees. The initial recognition and measurement provisions of FIN 45 are applicable for
guarantees issued or modified after December 31, 2002. The disclosures
required by FIN 45 are included in Note 15, Commitments and
Contingencies.                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |    |  | In December 2002, the FASB issued SFAS 148, Accounting for Stock-Based
Compensation  Transition and Disclosure  an amendment to FAS 123. SFAS
148 provides alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee
compensation. SFAS 148 also requires that disclosures of the pro forma
effect of using the fair value method of accounting for stock-based
employee compensation be displayed more prominently and in a tabular
format. Additionally, SFAS 148 requires disclosure of the pro forma
effect in annual and interim financial statements. . The Company has no
plans to change to the fair value based method of accounting for
stock-based employee compensation.                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |    |  | In January 2003, the FASB issued FASB Interpretation 46 (FIN 46),
Consolidation of Variable Interest Entities, an Interpretation of ARB No.
51. FIN 46 requires certain variable interest entities to be
consolidated by the primary beneficiary of the entity if the equity
investors in the entity do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated
financial support from other parties. FIN 46 is effective for all new
variable interest entities created or acquired after January 31, 2003.
For variable interest entities created or acquired prior to February 1,
2003, the provisions of FIN 46 must be applied to the first interim or
annual period beginning after December 15, 2003 Additionally, certain
transitional disclosures are required immediately if it is reasonably
possible that the Company will consolidate or disclose information about
a variable interest entity when FIN 46 becomes effective. The Company
does not expect the adoption of FIN 46 to have a material effect on its
financial condition or results of operations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| |  |  | In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS
150 establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities
and equity. It requires that an issuer classify a financial instrument
that is within its scope as a liability (or an asset in some
circumstances). The adoption of SFAS 150 had no impact on the Companys
consolidated financial position or results of operation.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | MERGER AND ACQUISITIONS
|-- |  | -----------------------

On January 22, 2003, the Company acquired the outstanding stock of Interface
Data Systems, Inc. (IDS), a privately held corporation headquartered in
Phoenix, Arizona. The results of IDS operations have been included in the
consolidated financial statements since that date. IDS designs and
manufactures membrane keypads, silver flexible circuits, graphic overlays,
sensors, electro luminescent lamps, control panels, keypad/controller
assemblies, and handheld and desktop electronic devices for original equipment
manufacturers. IDS sells to the home appliance, consumer electronics,
industrial process controls, medical and communications markets. IDS has
manufacturing facilities in Phoenix, Arizona and Columbus, Ohio and has
strategic manufacturing alliances in China and Taiwan. The acquisition of IDS
expands the Companys product offerings and allows the Company to provide
system and subsystem level solutions to our customers.

The net sales from the Columbus, Ohio location have been included in the
Companys display segment, while the net sales from the IDS Phoenix, Arizona
location have been included in both the display and microelectronic segments.
The IDS acquisition was treated as a purchase business combination and its
results of operations have been included in the Companys consolidated
financial statements since the acquisition date.

The purchase price of the IDS acquisition was approximately $18.6 million,
which included a cash payment of $9.0 million; 577,595 shares of the Companys
common stock valued at $4.6 million; the assumption of certain IDS employee
stock options and warrants with a value of $4.5 million; and $0.5 million of
acquisition costs. The Company issued approximately 469,000 options and
169,000 warrants to purchase its common stock in exchange for IDS options and
warrants that were outstanding at the date of the acquisition. Approximately
38,000 of the options were unvested at the date of the acquisition and the
related unearned compensation of approximately $51,000 is being recognized over
the remaining vesting period.

The following table summarizes the estimated fair values of the assets acquired
and liabilities assumed as of the acquisition date. The Company used
independent appraisers to assist in the determination of certain of these fair
values (in thousands of dollars):

|                              |  |   |        | 
|----------------------------- |  | - | ------ | 
|Current assets                |  | $ | 7,909  | 
|Property, plant and equipment |  |   | 5,121  | 
|Intangible assets             |  |   | 7,100  | 
|Goodwill                      |  |   | 10,507 | 
|Other                         |  |   | 764    | 
|                              |  |   |        | 
|Total assets acquired         |  |   | 31,401 | 
|                              |  |   |        | 
|Current liabilities           |  |   | 4,012  | 
|Long-term debt                |  |   | 5,980  | 
|Deferred income taxes         |  |   | 3,387  | 
|                              |  |   |        | 
|Total liabilities assumed     |  |   | 13,379 | 
|                              |  |   |        | 
|Net assets acquired           |  | $ | 18,022 | 
|                              |  |   |        | 

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WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The breakdown of acquired goodwill and intangible assets by business segment is
as follows:

|                          |  |                        |  |         |      |             |       |        |       |   |       |  |       |   |        |  |       | 
|------------------------- |  | ---------------------- |  | ------- | ---- | ----------- | ----- | ------ | ----- | - | ----- |  | ----- | - | ------ |  | ----- | 
|(In thousands of dollars) |  | Amortization           |  |         |      |             |       | Micro- |       |   |       | 
|Asset                     |  | Period (in years)      |  | Display |      | Electronics |       | Total 
|                          |  |                        |  |         |      |             |       |       
|Goodwill                  |  |                        |  |         |      | $           | 1,953 |        |       | $ | 8,554 |  |       | $ | 10,507 | 
|                          |  |                        |  |         |      |             |       |        |       |   |       |  |       |   |        | 
|Intangible assets:        |  |                        |  |         |      |             |       |        |       |   |       |  |       |   |        | 
|                          |  | Non-compete agreements |  |         | 2.5  |             |       |        | 200   |   |       |  | 200   |   |        |  | 400   | 
|                          |  | Contracted backlog     |  |         | 0.67 |             |       |        | 194   |   |       |  | 406   |   |        |  | 600   | 
|                          |  | Existing techology     |  |         | 10   |             |       |        | 1,319 |   |       |  | 681   |   |        |  | 2,000 | 
|                          |  | Customer relationships |  |         | 15   |             |       |        | 2,704 |   |       |  | 1,396 |   |        |  | 4,100 | 
|                          |  |                        |  |         |      |             |       |        |       |   |       |  |       |   |        | 
|                          |  |                        |  |         |      | $           | 4,417 |        |       | $ | 2,683 |  |       | $ | 7,100  | 
|                          |  |                        |  |         |      |             |       |        |       |   |       |  |       |   |        | 

The accompanying pro forma statement of income information gives effect to
the IDS acquisition as if it had occurred at the beginning of each period
presented. The pro forma information is included only for purposes of
illustration, and does not necessarily indicate what the Companys operating
results would have been had the acquisition of IDS been completed on the date
indicated.

|                                            |  |               |         |               |  |   |         | 
|------------------------------------------- |  | ------------- | ------- | ------------- |  | - | ------- | 
|(In thousands of dollars except share data)
|                                           
|                                            |  | Year ended   
|                                            |  |              
|                                            |  | September 27, |         | September 28,
|                                            |  | 2003          |         | 2002         
|                                            |  |               |         |              
|Net sales                                   |  | $             | 120,767 |               |  | $ | 116,267 | 
|                                            |  |               |         |               |  |   |         | 
|Net income                                  |  | $             | 9,722   |               |  | $ | 8,213   | 
|                                            |  |               |         |               |  |   |         | 
|Earnings per share-basic                    |  | $             | 0.45    |               |  | $ | 0.40    | 
|Earnings per share-diluted                  |  | $             | 0.42    |               |  | $ | 0.38    | 
|                                            |  |               |         |               |  |   |         | 

On January 29, 2001, the Company acquired 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. Panelviews operating results have been included in the financial
statements from the date of the acquisition.

The purchase price of the Panelview acquisition was approximately $9.1
million and included 905,000 shares of common stock, and $142,000 of direct
acquisition costs. In addition, the former shareholders of Panelview 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. The Company
issued 19,687 additional shares of its common stock valued at $128,000 on March
7, 2002 in connection with these provisions of the purchase agreement.

The accompanying pro forma statement of income information gives effect to the
Panelview acquisition as if it had occurred as of October 1, 2000. The pro
forma information is included only for purposes of illustration, and does not
necessarily indicate what the Companys operating results would have been had
the acquisition of Panelview been completed on the date indicated.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|                                            |  |                    |        | 
|------------------------------------------- |  | ------------------ | ------ | 
|(In thousands of dollars except share data)
|                                           
|                                            |  | Year Ended        
|                                            |  | September 29, 2001
|                                            |  |                   
|Net sales                                   |  | $                  | 99,871 | 
|                                            |  |                    |        | 
|Net income                                  |  | $                  | 2,522  | 
|                                            |  |                    |        | 
|Earnings per share  basic                  |  | $                  | 0.13   | 
|Earnings per share  diluted                |  | $                  | 0.12   | 
|                                            |  |                    |        | 



|5. |  | PLANT CLOSURE
|-- |  | -------------

In May 2003, the Company announced plans to close its Marlboro, Massachusetts
facility and move the related operations to the Companys two Arizona
facilities in an effort to reduce costs and consolidate the microelectronic
segment. The move was substantially completed by September 27, 2003. The
Company accelerated the depreciation of leasehold improvements at the
Massachusetts facility so that such assets were fully depreciated by September
27, 2003. Remaining production assets were relocated to the Arizona facilities
and will continue to be used. Therefore, a related impairment charge was not
required.

Employee severance expense of
approximately $462,000 was recorded during
2003. Remaining severance expense to be incurred in 2004 approximates
$80,000. The Company also recorded during 2003 approximately $137,000 related to
the remaining building lease expense.



|6. |  | INVENTORIES
|-- |  | -----------

Inventories consist of the following (in thousands of dollars):

|                                                 |  |                    |        |                    |  |   |        |  
|------------------------------------------------ |  | ------------------ | ------ | ------------------ |  | - | ------ | -
|                                                 |  | September 27, 2003 |        | September 28, 2002
|                                                 |  |                    |        |                   
|Gross inventories:                               |  |                    |        |                    |  |   |        |  
|Raw materials                                    |  | $                  | 13,221 |                    |  | $ | 13,226 |  
|Work-in-process                                  |  |                    | 6,286  |                    |  |   | 5,638  |  
|Finished goods                                   |  |                    | 4,069  |                    |  |   | 2,121  |  
|                                                 |  |                    |        |                    |  |   |        |  
|Total gross inventories                          |  |                    | 23,576 |                    |  |   | 20,985 |  
|Less reserve for excess
and obsolete inventories |  |                    | (4,858 | )                  |  |   | (4,876 | )
|                                                 |  |                    |        |                    |  |   |        |  
|Total net inventories                            |  | $                  | 18,718 |                    |  | $ | 16,109 |  
|                                                 |  |                    |        |                    |  |   |        |  

Raw materials include approximately $2.4 million and $1.1 million at year end
2003 and 2002, respectively, for which the Company has received advance payment
from the customer.



|7. |  | INTANGIBLE ASSETS AND GOODWILL
|-- |  | ------------------------------

The Companys acquired intangible assets, all of which are subject to
amortization, consist of the following as of September 27, 2003 and September
28, 2002 (in thousands of dollars):

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|                        |                        |        |       |              |             |        |        |      |   |   |       |       | 
|----------------------- | ---------------------- | ------ | ----- | ------------ | ----------- | ------ | ------ | ---- | - | - | ----- | ----- | 
|                        |                        |        | Gross |              | Accumulated |        | Net   
|Intangible Assets       |                        | Amount |       | Amortization |             | Amount
|                        |                        |        |       |              |             |       
|September 27, 2003      |                        |        |       |              |             |        |        |      |   |   |       |      
|                        | Customer relationships |        | $     | 4,100        |             |        | $      | (182 | ) |   | $     | 3,918 | 
|                        | Existing technology    |        |       | 2,427        |             |        |        | (553 | ) |   |       | 1,874 | 
|                        | Other                  |        |       | 1,225        |             |        |        | (707 | ) |   |       | 518   | 
|                        |                        |        |       |              |             |        |        |      |   |   |       |       | 
|Total intangible assets |                        | $      | 7,752 |              |             | $      | (1,442 | )    |   | $ | 6,310 |      
|                        |                        |        |       |              |             |        |        |      |   |   |       |       | 
|September 28, 2002      |                        |        |       |              |             |        |        |      |   |   |       |      
|                        | Customer relationships |        | $     |             |             |        | $      |     |   |   | $     |      | 
|                        | Existing technology    |        |       | 427          |             |        |        | (334 | ) |   | $     | 93    | 
|                        | Other                  |        |       | 260          |             |        |        |     |   |   |       | 260   | 
|                        |                        |        |       |              |             |        |        |      |   |   |       |       | 
|Total intangible assets |                        | $      | 687   |              |             | $      | (334   | )    |   | $ | 353   |      
|                        |                        |        |       |              |             |        |        |      |   |   |       |       | 

Changes in the carrying amount of acquired intangible assets during fiscal 2003
and 2002 (in thousands of dollars):

|                                   |  |      |        |      |  |   |     |  
|---------------------------------- |  | ---- | ------ | ---- |  | - | --- | -
|                                   |  | 2003 |        | 2002
|                                   |  |      |        |     
|Balance at beginning of year       |  | $    | 353    |      |  | $ | 177 |  
|Additions                          |  |      | 7,100  |      |  |   |    |  
|Change in intangible pension asset |  |      | (37    | )    |  |   | 260 |  
|Amortization                       |  |      | (1,106 | )    |  |   | (84 | )
|                                   |  |      |        |      |  |   |     |  
|Balance at end of year             |  | $    | 6,310  |      |  | $ | 353 |  
|                                   |  |      |        |      |  |   |     |  

Estimated Aggregate Amortization Expense
for the Next Five Fiscal Years:

|           |  |   |       | 
|---------- |  | - | ----- | 
|2004       |  | $ | 640   | 
|2005       |  |   | 607   | 
|2006       |  |   | 473   | 
|2007       |  |   | 473   | 
|2008       |  |   | 473   | 
|Thereafter |  |   | 3,644 | 
|           |  |   |       | 
|           |  | $ | 6,310 | 
|           |  |   |       | 

Changes in the carrying amount of goodwill for the years ended September 27,
2003 and September 28, 2002 are as follows (in thousands of dollars):

|                                          |  |                 |       |         |  |       |        |   |  |   |        |  
|----------------------------------------- |  | --------------- | ----- | ------- |  | ----- | ------ | - |  | - | ------ | -
|                                          |  | Microelectronic |       | Display |  |       |        |  
|                                          |  | Segment         |       | Segment |  | Total
|                                          |  |                 |       |         |  |      
|Balance
as of September 29, 2001          |  | $               | 221   |         |  | $     | 7,686  |   |  | $ | 7,907  |  
|Goodwill
acquired  Panelview acquisition |  |                 |       |         |  |       | 129    |   |  |   | 129    |  
|Amortization expense                      |  |                 | (204  | )       |  |       | (1,299 | ) |  |   | (1,503 | )
|                                          |  |                 |       |         |  |       |        |   |  |   |        |  
|Balance as of September 28, 2002          |  | $               | 17    |         |  | $     | 6,516  |   |  | $ | 6,533  |  
|Goodwill acquired  IDS acquisition       |  |                 | 8,554 |         |  |       | 1,953  |   |  |   | 10,507 |  
|                                          |  |                 |       |         |  |       |        |   |  |   |        |  
|Balance as of September 27, 2003          |  | $               | 8,571 |         |  | $     | 8,469  |   |  | $ | 17,040 |  
|                                          |  |                 |       |         |  |       |        |   |  |   |        |  

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|8. |  | PROPERTY, PLANT AND EQUIPMENT
|-- |  | -----------------------------

Property, plant and equipment consists of the following (in thousands of
dollars):

|                                               |  |                    |        |                    |  |   |        |  
|---------------------------------------------- |  | ------------------ | ------ | ------------------ |  | - | ------ | -
|                                               |  | September 27, 2003 |        | September 28, 2002
|                                               |  |                    |        |                   
|Land                                           |  | $                  | 697    |                    |  | $ | 246    |  
|Buildings and improvements                     |  |                    | 3,897  |                    |  |   | 634    |  
|Machinery and equipment                        |  |                    | 14,254 |                    |  |   | 11,527 |  
|Tooling                                        |  |                    |       |                    |  |   | 1,487  |  
|Furniture and fixtures                         |  |                    | 2,820  |                    |  |   | 2,259  |  
|Leasehold improvements                         |  |                    | 1,936  |                    |  |   | 2,121  |  
|Construction in progress                       |  |                    | 719    |                    |  |   |       |  
|                                               |  |                    |        |                    |  |   |        |  
|Total, at cost                                 |  | $                  | 24,323 |                    |  | $ | 18,274 |  
|Less accumulated depreciation and amortization |  |                    | (8,634 | )                  |  |   | (7,793 | )
|                                               |  |                    |        |                    |  |   |        |  
|Net property, plant, and equipment             |  | $                  | 15,689 |                    |  | $ | 10,481 |  
|                                               |  |                    |        |                    |  |   |        |  

Depreciation expense was $3,724,000, $2,227,000, and $1,822,000 for fiscal
years 2003, 2002, and 2001, respectively.



|9. |  | ACCRUED EXPENSES
|-- |  | ----------------

Accrued expenses consist of the following (in thousands of dollars):

|                       |  |                    |       |                    |  |   |       | 
|---------------------- |  | ------------------ | ----- | ------------------ |  | - | ----- | 
|                       |  | September 27, 2003 |       | September 28, 2002
|                       |  |                    |       |                   
|Sales commissions      |  | $                  | 1,212 |                    |  | $ | 648   | 
|Income taxes           |  |                    | 542   |                    |  |   | 1,392 | 
|Other accruals         |  |                    | 1,497 |                    |  |   | 1,367 | 
|                       |  |                    |       |                    |  |   |       | 
|Total accrued expenses |  | $                  | 3,251 |                    |  | $ | 3,407 | 
|                       |  |                    |       |                    |  |   |       | 



|10. |  | LONG-TERM DEBT
|--- |  | --------------

During the second quarter of 2003, the Company entered into a five-year term
loan through Bank One NA (Bank One) in the amount of $6,000,000 to pay off
long-term debt assumed in connection with the IDS acquisition. The
Company repaid $750,000 in April 2003, and modified the terms of the loan to
require monthly principal payments of $29,222 and a final payment of
approximately $4.0 million. The Companys buildings were used as collateral
for the loan. In July 2003, the Company used a portion of the proceeds from
the 2003 public offering of common stock discussed in Note 11 to repay all
outstanding amounts under the term loan.

The Company has a $12.0 million line of credit with Bank One that matures on
March 20, 2004. Borrowings against the line are limited to eligible accounts
receivable and inventories and bear interest at prime or LIBOR plus 1.5%. A
commitment fee of 0.25% is charged on the unused portion of the line. At
September 27, 2003, there were no borrowings outstanding against the line of
credit. The agreement requires the Company to maintain compliance with certain
financial covenants. .

The weighted average interest rate on the Companys borrowings for fiscal 2003,
2002 and 2001 was approximately 4.25%, 4.84% and 7.98%, respectively.



|11. |  | PUBLIC OFFERING OF COMMON STOCK
|--- |  | -------------------------------

In July 2003, the Company completed a public offering of its common stock which
resulted in net proceeds (after deducting underwriting discounts and
commissions and offering expenses) of approximately $22.0 million. The Company
initially sold 2,200,000 common shares on July 8, 2003 and an additional
202,874 shares on August 1, 2003,

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following the exercise by the underwriters of
an over-allotment option. Two selling shareholders also participated in the
offering and sold 2,772,126 shares of common stock held by them. The Company
did not receive any proceeds from the sale of the selling shareholders shares.
In July 2003, the Company used a portion of the proceeds from the offering to
repay all outstanding amounts owing under its term loan with Bank One. The
Company expects to use the remaining net proceeds for potential acquisitions and
general corporate purposes, including expansion of research and development
relating to new products and our anti-tamper technology for microelectronic
products.



|12. |  | INCOME TAXES
|--- |  | ------------

The provision for income taxes consists of the following (in thousands of
dollars):

|                     |         |   |       |       |      |   |        |        |   |   |       |       |  
|-------------------- | ------- | - | ----- | ----- | ---- | - | ------ | ------ | - | - | ----- | ----- | -
|                     |         |   | 2003  |       | 2002 |   | 2001  
|                     |         |   |       |       |      |   |       
|Current              |         |   |       |       |      |   |        |        |   |   |       |      
|                     | Federal |   | $     | 4,252 |      |   | $      | 2,408  |   |   | $     | 1,531 |  
|                     | State   |   |       | 845   |      |   |        | 265    |   |   |       | 144   |  
|                     |         |   |       |       |      |   |        |        |   |   |       |       |  
|Total current        |         |   | 5,097 |       |      |   | 2,673  |        |   |   | 1,675 |      
|                     |         |   |       |       |      |   |        |        |   |   |       |       |  
|Deferred             |         |   |       |       |      |   |        |        |   |   |       |      
|                     | Federal |   |       | (62   | )    |   |        | (2,111 | ) |   |       | (537  | )
|                     | State   |   |       | (64   | )    |   |        | (174   | ) |   |       | (157  | )
|                     |         |   |       |       |      |   |        |        |   |   |       |       |  
|Total deferred       |         |   | (126  | )     |      |   | (2,285 | )      |   |   | (694  | )    
|                     |         |   |       |       |      |   |        |        |   |   |       |       |  
|Income tax provision |         | $ | 4,971 |       |      | $ | 388    |        |   | $ | 981   |      
|                     |         |   |       |       |      |   |        |        |   |   |       |       |  

A reconciliation of the income tax provision calculated at the U.S. federal
statutory tax rate of 34% to the actual tax provision is as follows (in
thousands of dollars):

|                                       |  |      |       |      |  |      |        |   |  |   |       |  
|-------------------------------------- |  | ---- | ----- | ---- |  | ---- | ------ | - |  | - | ----- | -
|                                       |  | 2003 |       | 2002 |  | 2001
|                                       |  |      |       |      |  |     
|Income tax provision at statutory rate |  | $    | 5,141 |      |  | $    | 3,104  |   |  | $ | 1,446 |  
|State taxes, net of federal benefit    |  |      | 559   |      |  |      | 365    |   |  |   | 149   |  
|Federal and state credits              |  |      | (376  | )    |  |      | (504   | ) |  |   | (900  | )
|Extraterritorial income exclusion      |  |      | (377  | )    |  |      | (365   | ) |  |   |      |  
|Non-deductible goodwill amortization   |  |      |      |      |  |      | 493    |   |  |   | 320   |  
|Valuation allowance and reserves       |  |      |      |      |  |      | (2,773 | ) |  |   |      |  
|Other                                  |  |      | 24    |      |  |      | 68     |   |  |   | (34   | )
|                                       |  |      |       |      |  |      |        |   |  |   |       |  
|Income tax provision                   |  | $    | 4,971 |      |  | $    | 388    |   |  | $ | 981   |  
|                                       |  |      |       |      |  |      |        |   |  |   |       |  

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 (in thousands of dollars):

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|                          |                                        |   |                    |        |                    |   |       |       |  
|------------------------- | -------------------------------------- | - | ------------------ | ------ | ------------------ | - | ----- | ----- | -
|                          |                                        |   | September 27, 2003 |        | September 28, 2002
|                          |                                        |   |                    |        |                   
|Deferred tax assets:      |                                        |   |                    |        |                    |   |       |      
|                          | Tax credits                            |   | $                  | 504    |                    |   | $     | 504   |  
|                          | Allowance for doubtful accounts        |   |                    | 158    |                    |   |       | 202   |  
|                          | Inventories                            |   |                    | 2,901  |                    |   |       | 3,081 |  
|                          | Deferred revenue                       |   |                    | 985    |                    |   |       | 73    |  
|                          | Accrued expenses and other liabilities |   |                    | 696    |                    |   |       | 157   |  
|                          | Pension                                |   |                    | 161    |                    |   |       | 156   |  
|                          | Net operating loss carry forwards      |   |                    | 3,157  |                    |   |       | 3,524 |  
|                          | Other                                  |   |                    |       |                    |   |       | 102   |  
|                          |                                        |   |                    |        |                    |   |       |       |  
|Deferred tax assets       |                                        | $ | 8,562              |        |                    | $ | 7,799 |      
|                          |                                        |   |                    |        |                    |   |       |       |  
|Deferred tax liabilities: |                                        |   |                    |        |                    |   |       |      
|                          | Property, plant, and equipment         |   | $                  | (1,386 | )                  |   | $     | (639  | )
|                          | Intangible assets                      |   |                    | (2,398 | )                  |   |       | (43   | )
|                          | Other                                  |   |                    | (59    | )                  |   |       |      |  
|                          |                                        |   |                    |        |                    |   |       |       |  
|Deferred tax liabilities  |                                        | $ | (3,843             | )      |                    | $ | (682  | )    
|                          |                                        |   |                    |        |                    |   |       |       |  
|Net
deferred tax asset    |                                        | $ | 4,719              |        |                    | $ | 7,117 |      
|                          |                                        |   |                    |        |                    |   |       |       |  

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 determined that it was more likely than not that it
would realize the related deferred tax benefits. In addition, the Company
reversed approximately $1.1 million of income tax reserves that had been
recorded in previous years as a result of the completion of certain prior years
tax returns.

As of September 27, 2003, the Company had federal net operating loss carry
forwards of approximately $9.0 million, which expire at various dates through
2018.

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.



|13. |  | BENEFIT PLANS
|--- |  | -------------

Defined Benefit Plan

The Company has a non-contributory pension plan for eligible 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 an amount equal to the minimum funding
required plus additional amounts which may be approved by the Company from time
to time. Contributions were $400,000 in 2003 and $149,245 in 2002.

The expected long-term rate of return on plan assets is updated annually taking
into consideration the related asset allocation, historical returns on the
types of assets held in the plan, and the current economic environment. Based
on these factors, the Company expects its plan assets to earn a long-term rate
of return of 7.00 percent per annum. Changes in the mix of plan assets could
impact the amount of recorded pension income or expense, the funded status of
the plan and the need for future cash contributions. The discount rate used to
calculate the expected present value of future benefit obligations as of
September 27, 2003 was 5.87%. The Company periodically reviews the plan asset mix, benchmark
discount rate, expected rate of return and other actuarial assumptions and
adjusts them as deemed necessary.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                     |                                                    |      |                |       |               |   |       |       |  
|---------------------------------------------------- | -------------------------------------------------- | ---- | -------------- | ----- | ------------- | - | ----- | ----- | -
|                                                     |                                                    |      | (In thousands)
|                                                     |                                                    |      |               
|                                                     |                                                    |      | September 27,  |       | September 28,
|Benefits Plan                                        |                                                    | 2003 |                | 2002 
|                                                     |                                                    |      |                |      
|Reconciliation of Projected Benefit Obligation       |                                                    |      |                |       |               |   |       |      
|                                                     | Benefit obligation beginning of year               |      | $              | 2,759 |               |   | $     | 2,347 |  
|                                                     | Service cost                                       |      |                | 56    |               |   |       | 50    |  
|                                                     | Interest cost                                      |      |                | 175   |               |   |       | 172   |  
|                                                     | Benefits paid                                      |      |                | (130  | )             |   |       | (129  | )
|                                                     | Actuarial loss                                     |      |                | 227   |               |   |       | 319   |  
|                                                     |                                                    |      |                |       |               |   |       |       |  
|Benefit obligation end of year                       |                                                    |      | 3,087          |       |               |   | 2,759 |      
|                                                     |                                                    |      |                |       |               |   |       |       |  
|Reconciliation of Fair Value of Plan Assets          |                                                    |      |                |       |               |   |       |      
|                                                     | Plan assets at fair market value beginning of year |      | $              | 2,026 |               |   |       | 2,256 |  
|                                                     | Actual return on plan assets                       |      |                | 271   |               |   |       | (226  | )
|                                                     | Employer contributions                             |      |                | 400   |               |   |       | 149   |  
|                                                     | Benefits paid                                      |      |                | (130  | )             |   |       | (129  | )
|                                                     | Expenses                                           |      |                | (25   | )             |   |       | (25   | )
|                                                     |                                                    |      |                |       |               |   |       |       |  
|Plan assets at fair market value end of year         |                                                    | $    | 2,542          |       |               | $ | 2,026 |      
|                                                     |                                                    |      |                |       |               |   |       |       |  
|Funded Status                                        |                                                    | $    | (544           | )     |               | $ | (733  | )    
|                                                     | Unrecognized prior service cost                    |      |                | 225   |               |   |       | 260   |  
|                                                     | Unrecognized actuarial (gain) loss                 |      |                | 487   |               |   |       | 411   |  
|                                                     |                                                    |      |                |       |               |   |       |       |  
|Net amount recognized                                |                                                    | $    | 168            |       |               | $ | (62   | )    
|                                                     |                                                    |      |                |       |               |   |       |       |  
|Weighted-Average Assumptions                         |                                                    |      |                |       |               |   |       |      
|                                                     | Discount rate                                      |      |                | 5.87  | %             |   |       | 6.50  | %
|                                                     | Expected return on plan assets                     |      |                | 7.00  | %             |   |       | 7.00  | %
|Amounts recognized in the consolidated balance sheet |                                                    |      |                |       |               |   |       |      
|                                                     | Accrued benefit liability                          |      |                | (544  | )             |   |       | (733  | )
|                                                     | Intangible assets                                  |      |                | 225   |               |   |       | 260   |  
|                                                     | Accumulated other comprehensive income             |      |                | 487   |               |   |       | 411   |  
|                                                     |                                                    |      |                |       |               |   |       |       |  
|Net amount recognized                                |                                                    | $    | 168            |       |               | $ | (62   | )    
|                                                     |                                                    |      |                |       |               |   |       |       |  

|                                                       |                                               |      |     |      |   |      |     |      |   |   |    |      |  
|------------------------------------------------------ | --------------------------------------------- | ---- | --- | ---- | - | ---- | --- | ---- | - | - | -- | ---- | -
|Components of Net Periodic Benefit Cost (in thousands) |                                               | 2003 |     | 2002 |   | 2001
|                                                       |                                               |      |     |      |   |     
|                                                       | Service cost                                  |      | $   | 82   |   |      | $   | 77   |   |   | $  | 88   |  
|                                                       | Interest cost                                 |      |     | 175  |   |      |     | 172  |   |   |    | 161  |  
|                                                       | Expected return on market-related plan assets |      |     | (136 | ) |      |     | (156 | ) |   |    | (164 | )
|                                                       | Amortization of prior service cost            |      |     | 35   |   |      |     | 38   |   |   |    | 25   |  
|                                                       | Recognized actuarial (gain) loss              |      |     | 14   |   |      |     |     |   |   |    | (10  | )
|                                                       |                                               |      |     |      |   |      |     |      |   |   |    |      |  
|Net periodic benefit cost                              |                                               | $    | 170 |      |   | $    | 132 |      |   | $ | 99 |     
|                                                       |                                               |      |     |      |   |      |     |      |   |   |    |      |  

401(k) Plan

The Company has an Incentive Savings 401(k) Plan covering its non-union
employees who have completed six months of service. During fiscal 2003, the
Company matched employee contributions equal to 50% of the first 6% of the
participants wage base. During fiscal 2003, 2002 and 2001, the Company made
contributions to the plan of approximately $271,000, $248,000 and $267,000,
respectively.



|14. |  | STOCK OPTIONS, WARRANTS, AND STOCK PURCHASE PLANS
|--- |  | -------------------------------------------------

Stock Options Plans

Executives and other key employees have been granted options to purchase common
shares under stock option plans adopted during the period 1987 through 2001.
The option exercise price generally equals the fair market value of

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the Companys common shares on
the day of the grant. Options generally vest ratably over a four-year period and have a
maximum term of ten years.

The Company issued approximately 469,000 options and 169,000 warrants to
purchase its common stock in connection with the IDS acquisition. The stock
options had a weighted average exercise price of $2.32 per share and expire in
2012, while the warrants have a weighted average exercise price of $2.96 and
expire December 31, 2006. Approximately 38,000 of the options were unvested at
the time of the acquisition, and the related unearned compensation of
approximately $51,000 is being recognized over the remaining vesting period of
two years.

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

|                                                                   |  |        |           |          |  |          |      |          |  |        |           |          |  |   |      |  |  |          |           |   |  |   |      | 
|------------------------------------------------------------------ |  | ------ | --------- | -------- |  | -------- | ---- | -------- |  | ------ | --------- | -------- |  | - | ---- |  |  | -------- | --------- | - |  | - | ---- | 
|                                                                   |  | 2003   |           | 2002     |  | 2001    
|                                                                   |  |        |           |          |  |         
|                                                                   |  |        |           |          |  | Weighted |      |          |  |        |           | Weighted |  |   |      |  |  | Weighted
|                                                                   |  | Shares |           | Average  |  | Shares   |      | Average  |  | Shares |           | Average 
|                                                                   |  | Under  |           | Exercise |  | Under    |      | Exercise |  | Under  |           | Exercise
|                                                                   |  | Option |           | Price    |  | Option   |      | Price    |  | Option |           | Price   
|                                                                   |  |        |           |          |  |          |      |          |  |        |           |         
|Beginning balance outstanding                                      |  |        | 2,678,032 |          |  | $        | 3.67 |          |  |        | 2,993,839 |          |  | $ | 3.40 |  |  |          | 2,083,577 |   |  | $ | 2.13 | 
|Issued in IDS acquisition                                          |  |        | 469,277   |          |  |          | 3.90 |          |  |        |           |          |  |   |      |  |  |          |           |   |  |   |      | 
|Granted                                                            |  |        | 155,132   |          |  |          | 9.11 |          |  |        | 129,000   |          |  |   | 6.33 |  |  |          | 1,301,000 |   |  |   | 5.15 | 
|Canceled                                                           |  |        | (123,050  | )        |  |          | 7.16 |          |  |        | (104,845  | )        |  |   | 4.30 |  |  |          | (140,968  | ) |  |   | 3.44 | 
|Exercised                                                          |  |        | (964,009  | )        |  |          | 2.31 |          |  |        | (339,962  | )        |  |   | 2.11 |  |  |          | (249,770  | ) |  |   | 1.30 | 
|                                                                   |  |        |           |          |  |          |      |          |  |        |           |          |  |   |      |  |  |          |           |   |  |   |      | 
|Ending balance outstanding                                         |  |        | 2,215,382 |          |  | $        | 4.15 |          |  |        | 2,678,032 |          |  | $ | 3.67 |  |  |          | 2,993,839 |   |  | $ | 3.40 | 
|                                                                   |  |        |           |          |  |          |      |          |  |        |           |          |  |   |      |  |  |          |           |   |  |   |      | 
|Options exercisable at year end                                    |  |        | 1,598,233 |          |  | $        | 3.45 |          |  |        | 1,674,193 |          |  | $ | 2.92 |  |  |          | 1,328,315 |   |  | $ | 1.96 | 
|Shares available for future grant                                  |  |        | 1,511,839 |          |  |          |      |          |  |        | 1,545,620 |          |  |   |      |  |  |          | 1,580,261 |   |  |   |      | 
|                                                                   |  |        |           |          |  |          |      |          |  |        |           |          |  |   |      |  |  |          |           |   |  |   |      | 
|Weighted average fair value of all
options granted during the year |  |        |           |          |  | $        | 6.55 |          |  |        |           |          |  | $ | 5.94 |  |  |          |           |   |  | $ | 4.97 | 
|                                                                   |  |        |           |          |  |          |      |          |  |        |           |          |  |   |      |  |  |          |           |   |  |   |      | 

The following table summarizes additional information about the Companys stock
options outstanding as of September 27, 2003.

|                         |                     |  |                     |         |                     |   |                  |       |             |  |          |     |         |  |           |         |  |   |      |       | 
|------------------------ | ------------------- |  | ------------------- | ------- | ------------------- | - | ---------------- | ----- | ----------- |  | -------- | --- | ------- |  | --------- | ------- |  | - | ---- | ----- | 
|                         |                     |  | Options Outstanding |         | Options Exercisable
|                         |                     |  |                     |         |                    
|                         |                     |  |                     |         |                     |   | 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   |  |                     | 362,283 |                     |   | $                | 0.90  |             |  |          | 4.2 |         |  |           | 362,283 |  |   | $    | 0.90  | 
|                         | $1.6001 - $3.2000   |  |                     | 555,238 |                     |   | $                | 2.51  |             |  |          | 4.8 |         |  |           | 539,230 |  |   | $    | 2.50  | 
|                         | $3.2001 - $4.8000   |  |                     | 722,242 |                     |   | $                | 3.82  |             |  |          | 7.1 |         |  |           | 424,560 |  |   | $    | 3.82  | 
|                         | $4.8001 - $6.4000   |  |                     | 122,757 |                     |   | $                | 6.14  |             |  |          | 8.1 |         |  |           | 49,750  |  |   | $    | 6.15  | 
|                         | $6.4001 - $8.0000   |  |                     | 181,875 |                     |   | $                | 7.22  |             |  |          | 6.9 |         |  |           | 132,289 |  |   | $    | 7.22  | 
|                         | $8.0001 - $9.6000   |  |                     | 115,132 |                     |   | $                | 8.66  |             |  |          | 9.6 |         |  |           |        |  |   | $    |      | 
|                         | $9.6001 - $11.2000  |  |                     | 143,855 |                     |   | $                | 10.52 |             |  |          | 6.6 |         |  |           | 90,121  |  |   | $    | 10.60 | 
|                         | $11.2001 - $12.8000 |  |                     | 12,000  |                     |   | $                | 12.19 |             |  |          | 9.9 |         |  |           |        |  |   | $    |      | 
|                         |                     |  |                     |         |                     |   |                  |       |             |  |          |     |         |  |           |         |  |   |      |       | 
|                         |                     |  | 2,215,382           |         |                     | $ | 4.15             |       |             |  | 6.2      |     |         |  | 1,598,233 |         |  | $ | 3.45 |      
|                         |                     |  |                     |         |                     |   |                  |       |             |  |          |     |         |  |           |         |  |   |      |       | 

Stock Purchase Plans

In February 2001, the Companys Board of Directors adopted the White Electronic
Designs Corporation 2000 Employee Stock Purchase Plan. This plan provides 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),

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

whichever is lower. This plan began July 1, 2001, and will
continue for ten years unless terminated sooner. There were 30,210 shares
issued under this plan in fiscal year 2003, 43,646 shares issued in fiscal year
2002, and no shares issued under this plan in fiscal year 2001.



|15. |  | 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 2003, 2002, and 2001 was $2,215,000, $1,799,000 and
$1,564,000, respectively. Future minimum annual fixed rentals required under
non-cancelable operating leases having an original term of more than one year
are $1,832,000 in 2004, $1,450,000 in 2005, $1,411,000 in 2006, $1,285,000 in
2007, $591,000 in 2008, and $156,000 thereafter.

As part of mergers, acquisitions and other transactions entered into during the
ordinary course of business (including public offerings of our stock), from
time to time, the Company has indemnified certain sellers, buyers or other
parties related to the transaction from and against certain liabilities
associated with conditions in existence (or claims associated with actions
taken) prior to the closing of the transaction. These indemnity provisions
generally require the Company to indemnify the party against certain
liabilities that may arise in the future from the pre-closing activities of the
Company. The indemnity classifications include certain operating liabilities,
such as patent infringement, claims existing at closing, or other obligations.
Given the nature of these indemnity obligations, it is not possible to estimate
the maximum potential exposure. We do not consider any of such obligations as
having a probable likelihood of payment that is reasonably estimable, and accordingly,
we have not recorded any obligations associated with these indemnities.



|16. |  | CONCENTRATIONS OF CREDIT RISK
|--- |  | -----------------------------

Our customers consist mainly of military prime contractors and commercial OEMs
and contract manufacturers who work for them, in the United States, Europe and
Asia. We perform ongoing credit evaluations of our customers financial
condition and, generally, require no collateral from our customers. Our losses
from bad debts totaled approximately $145,000 in fiscal 2003, $209,000 in
fiscal 2002, and $96,000 in fiscal 2001. Sales to military customers accounted
for approximately $53.7 million, or 47%, of our sales in fiscal 2003 as
compared to approximately $48.4 million, or 54%, in fiscal 2002. Sales to our
commercial customers accounted for approximately $59.8 million, or 53%, of our
sales in fiscal 2003, as compared to approximately $42.0 million, or 46%, in
fiscal 2002.

In fiscal 2003, Garmin International, Inc., a display segment customer,
accounted for 11.3% of our net sales. In fiscal 2002, General Electric Medical
Division, also a display segment customer, accounted for 11.5% of net sales, and Garmin International accounted for 10.8%
of total net sales. In fiscal 2001, no customer accounted for more than 10% of
net sales.

Foreign sales for fiscal 2003, 2002 and 2001, were approximately $29.2 million,
$28.8 million, and $27.2 million respectively. Additional information
concerning sales by geographic area can be found in Note 18.

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



|17. |  | 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. The plan will expire on December 5, 2006 unless extended
or unless the rights under the plan are earlier redeemed by the Company.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|18. |  | FINANCIAL DATA BY BUSINESS SEGMENT
|--- |  | ----------------------------------

The Company has two business segments each of which requires different design
and manufacturing resources and generally serves customers in different
markets. The microelectronic segment accounted for approximately 54% of total
Company sales in fiscal 2003, while the display segment accounted for
approximately 46% of total Company sales in fiscal 2003.

Our microelectronic segment packages semiconductor products mainly for memory
storage. Our products are sold to military prime contractors and commercial
OEMs in the aerospace, defense, military equipment, computer networking and
telecommunications industries. Certain industries require these semiconductor
parts to pass specific qualifications due to the application requirements for
those products. A commercial grade product generally meets the standard of
industries such as the consumer electronic, computer networking and
telecommunication industries. Higher performing products, also known as high-reliability
products, are needed in certain industries, such as aerospace, defense, and
military equipment, and are often referred to as military products. Military
products are designed to meet more stringent standards and are resistant to
adverse conditions, such as high and low extreme temperatures.
High-reliability products can also be used in industrial applications where
products are exposed to harsh conditions. Our microelectronic segment also
includes our anti-tamper security coating for mission critical semiconductor
components in military applications.

The display segment serves a number of markets with products and solutions that
are incorporated into global positioning systems, home appliances, consumer
electronics, medical devices, outdoor displays, military avionics and various
military applications. Our display segment manufactures enhanced viewing
liquid crystal displays, interface devices and electromechanical assemblies.
Enhanced viewing liquid crystal displays can be either ruggedized or
commercial. Ruggedized displays are manufactured to perform in harsh
environmental conditions, while commercial display products offer greater
viewing performance than off-the-self displays, but are not designed for harsh
environmental conditions. Interface devices include electromechanical
components and instrument packages that can consist of ruggedized keyboards,
aircraft trim panels, rotating devices, mechanical packages, membrane keypads,
silver flexible circuits, graphic overlays, control panels, and
keypad/controller assemblies.

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 exclude equipment under operating
leases.

In fiscal 2003, Garmin International accounted for 25% of display segment net
sales, while General Electric Medical Division accounted for approximately 15%
of display segment net sales. Northrup Grumman accounted for approximately 10%
of microelectronic net sales in fiscal 2003.

In fiscal 2002, General Electric Medical Division accounted for approximately
26% of display segment net sales, while Garmin International account for
approximately 24% of display segment net sales.

In fiscal 2001, Lucent Technologies and Cisco Systems accounted for 11% and
10%, respectively, of microelectronic segment net sales.

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A significant portion of the Companys sales were shipped to foreign customers.
Export sales as a percent of total sales in fiscal 2003, 2002, and 2001 were
26%, 32%, and 28%, respectively. A summary of net sales by geographic region
is as follows (in thousands of dollars):

|                               |  |      |         |      |  |      |        |  |  |   |        | 
|------------------------------ |  | ---- | ------- | ---- |  | ---- | ------ |  |  | - | ------ | 
|                               |  | 2003 |         | 2002 |  | 2001
|                               |  |      |         |      |  |     
|North America (primarily U.S.) |  | $    | 85,637  |      |  | $    | 63,681 |  |  | $ | 71,583 | 
|Taiwan                         |  |      | 12,156  |      |  |      | 9,230  |  |  |   | 2,273  | 
|Europe and Middle East         |  |      | 11,931  |      |  |      | 14,003 |  |  |   | 14,960 | 
|Asia Pacific excluding Taiwan  |  |      | 3,604   |      |  |      | 3,492  |  |  |   | 7,688  | 
|Other                          |  |      | 206     |      |  |      | 52     |  |  |   | 257    | 
|                               |  |      |         |      |  |      |        |  |  |   |        | 
|Total sales                    |  | $    | 113,534 |      |  | $    | 90,458 |  |  | $ | 96,761 | 
|                               |  |      |         |      |  |      |        |  |  |   |        | 

OPERATIONS BY BUSINESS SEGMENTS
(In thousands of dollars)

|                                            |  |      |         |      |  |      |        |  |  |   |        | 
|------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                            |  | 2003 |         | 2002 |  | 2001
|                                            |  |      |         |      |  |     
|Net sales                                   |  |      |         |      |  |      |        |  |  |   |        | 
|Microelectronic                             |  | $    | 61,433  |      |  | $    | 50,331 |  |  | $ | 73,569 | 
|Display                                     |  |      | 52,101  |      |  |      | 40,127 |  |  |   | 23,192 | 
|                                            |  |      |         |      |  |      |        |  |  |   |        | 
|Total net sales                             |  | $    | 113,534 |      |  | $    | 90,458 |  |  | $ | 96,761 | 
|                                            |  |      |         |      |  |      |        |  |  |   |        | 
|Income before tax                           |  |      |         |      |  |      |        |  |  |   |        | 
|Microelectronics                            |  | $    | 12,568  |      |  | $    | 8,783  |  |  | $ | 2,765  | 
|Display                                     |  |      | 2,553   |      |  |      | 345    |  |  |   | 1,488  | 
|                                            |  |      |         |      |  |      |        |  |  |   |        | 
|Total income before tax                     |  | $    | 15,121  |      |  | $    | 9,128  |  |  | $ | 4,253  | 
|                                            |  |      |         |      |  |      |        |  |  |   |        | 
|Identifiable assets                         |  |      |         |      |  |      |        |  |  |   |        | 
|Microelectronics                            |  | $    | 43,902  |      |  | $    | 25,909 |  |  | $ | 26,519 | 
|Display                                     |  |      | 35,271  |      |  |      | 23,857 |  |  |   | 20,401 | 
|General corporate                           |  |      | 40,633  |      |  |      | 18,600 |  |  |   | 10,308 | 
|                                            |  |      |         |      |  |      |        |  |  |   |        | 
|Total assets                                |  | $    | 119,806 |      |  | $    | 68,366 |  |  | $ | 57,228 | 
|                                            |  |      |         |      |  |      |        |  |  |   |        | 
|Capital expenditures                        |  |      |         |      |  |      |        |  |  |   |        | 
|Microelectronics                            |  | $    | 2,533   |      |  | $    | 2,186  |  |  | $ | 1,437  | 
|Display                                     |  |      | 1,329   |      |  |      | 2,612  |  |  |   | 189    | 
|                                            |  |      |         |      |  |      |        |  |  |   |        | 
|Total capital expenditures                  |  | $    | 3,862   |      |  | $    | 4,798  |  |  | $ | 1,626  | 
|                                            |  |      |         |      |  |      |        |  |  |   |        | 
|Depreciation and amortization expense       |  |      |         |      |  |      |        |  |  |   |        | 
|Microelectronics                            |  | $    | 2,992   |      |  | $    | 2,016  |  |  | $ | 1,856  | 
|Display                                     |  |      | 1,854   |      |  |      | 1,797  |  |  |   | 1,110  | 
|                                            |  |      |         |      |  |      |        |  |  |   |        | 
|Total depreciation and amortization expense |  | $    | 4,846   |      |  | $    | 3,814  |  |  | $ | 2,966  | 
|                                            |  |      |         |      |  |      |        |  |  |   |        | 

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WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|19. |  | INTERIM FINANCIAL RESULTS (UNAUDITED)
|--- |  | -------------------------------------

(In thousand of dollars, except per share data)

|                             |  |             |         |           |  |           |        |           |  |           |        |  |  |   |        |  |  |   |        | 
|---------------------------- |  | ----------- | ------- | --------- |  | --------- | ------ | --------- |  | --------- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                             |  | Fiscal 2003
|                             |  |            
|                             |  | Year(3,4)   |         | Sep 27(1) |  | Jun 28(2) |        | Mar 29(2) |  | Dec 28(2)
|                             |  |             |         |           |  |           |        |           |  |          
|Net sales                    |  | $           | 113,534 |           |  | $         | 30,194 |           |  | $         | 31,522 |  |  | $ | 28,462 |  |  | $ | 23,356 | 
|                             |  |             |         |           |  |           |        |           |  |           |        |  |  |   |        |  |  |   |        | 
|Gross profit                 |  | $           | 38,687  |           |  | $         | 11,013 |           |  | $         | 9,998  |  |  | $ | 9,381  |  |  | $ | 8,295  | 
|                             |  |             |         |           |  |           |        |           |  |           |        |  |  |   |        |  |  |   |        | 
|Income before income taxes   |  | $           | 15,121  |           |  | $         | 4,818  |           |  | $         | 3,612  |  |  | $ | 3,538  |  |  | $ | 3,153  | 
|                             |  |             |         |           |  |           |        |           |  |           |        |  |  |   |        |  |  |   |        | 
|Net income (loss)            |  | $           | 10,150  |           |  | $         | 3,235  |           |  | $         | 2,426  |  |  | $ | 2,353  |  |  | $ | 2,136  | 
|                             |  |             |         |           |  |           |        |           |  |           |        |  |  |   |        |  |  |   |        | 
|Earnings
per share  basic   |  | $           | 0.48    |           |  | $         | 0.14   |           |  | $         | 0.12   |  |  | $ | 0.11   |  |  | $ | 0.11   | 
|Earnings
per share  diluted |  | $           | 0.44    |           |  | $         | 0.13   |           |  | $         | 0.11   |  |  | $ | 0.11   |  |  | $ | 0.10   | 
|                             |  |             |         |           |  |           |        |           |  |           |        |  |  |   |        |  |  |   |        | 

|                             |  |             |        |        |  |        |        |        |  |        |        |  |  |   |        |  |  |   |        | 
|---------------------------- |  | ----------- | ------ | ------ |  | ------ | ------ | ------ |  | ------ | ------ |  |  | - | ------ |  |  | - | ------ | 
|                             |  | Fiscal 2002
|                             |  |            
|                             |  | Year        |        | Sep 28 |  | Jun 29 |        | Mar 30 |  | Dec 29
|                             |  |             |        |        |  |        |        |        |  |       
|Net sales                    |  | $           | 90,458 |        |  | $      | 23,734 |        |  | $      | 23,204 |  |  | $ | 22,155 |  |  | $ | 21,365 | 
|                             |  |             |        |        |  |        |        |        |  |        |        |  |  |   |        |  |  |   |        | 
|Gross profit                 |  | $           | 28,900 |        |  | $      | 7,867  |        |  | $      | 7,349  |  |  | $ | 6,876  |  |  | $ | 6,808  | 
|                             |  |             |        |        |  |        |        |        |  |        |        |  |  |   |        |  |  |   |        | 
|Income before income taxes   |  | $           | 9,128  |        |  | $      | 3,011  |        |  | $      | 2,244  |  |  | $ | 2,003  |  |  | $ | 1,870  | 
|                             |  |             |        |        |  |        |        |        |  |        |        |  |  |   |        |  |  |   |        | 
|Net income (loss)            |  | $           | 8,740  |        |  | $      | 4,949  |        |  | $      | 1,401  |  |  | $ | 1,327  |  |  | $ | 1,063  | 
|                             |  |             |        |        |  |        |        |        |  |        |        |  |  |   |        |  |  |   |        | 
|Earnings
per share  basic   |  | $           | 0.44   |        |  | $      | 0.25   |        |  | $      | 0.07   |  |  | $ | 0.07   |  |  | $ | 0.05   | 
|Earnings
per share  diluted |  | $           | 0.42   |        |  | $      | 0.24   |        |  | $      | 0.07   |  |  | $ | 0.06   |  |  | $ | 0.05   | 
|                             |  |             |        |        |  |        |        |        |  |        |        |  |  |   |        |  |  |   |        | 

(1)  During the quarter ended
September 27, 2003 we incurred expenses relating
to the closure of our Marlboro, Massachusetts facility of approximately $0.8
million. During that same quarter we reversed accrued costs relating to a
completed customer order at our display segment of approximately $0.7 million.

(2)  As a result of a change in the way the Company does business with a
reseller that began in 2003, the Company determined that revenue relating to
shipments to that reseller should be recognized at the time the reseller sells
the product to its end customer rather than at the time the goods are shipped
to the reseller. As a consequence, the Company plans to restate its unaudited
interim financial information for each of the first three quarters of fiscal
2003 to reflect the effects of this change. The impact of this change on the
Companys previously reported unaudited operating results for each of the first
three quarters of fiscal 2003 is as follows (in thousands of dollars, except
share and per share data):

|                                     |  |               |        |             |  |             |      |   |  |   |        | 
|------------------------------------ |  | ------------- | ------ | ----------- |  | ----------- | ---- | - |  | - | ------ | 
|Three
months ended December 28, 2002
|                                    
|                                     |  | As previously |        | Restatement |  |             |      |  
|                                     |  | reported      |        | adjustments |  | As restated
|                                     |  |               |        |             |  |            
|Net sales                            |  | $             | 23,604 |             |  | $           | (248 | ) |  | $ | 23,356 | 
|Gross profit                         |  | $             | 8,433  |             |  | $           | (138 | ) |  | $ | 8,295  | 
|Operating income                     |  | $             | 3,226  |             |  | $           | (138 | ) |  | $ | 3,088  | 
|Net income                           |  | $             | 2,230  |             |  | $           | (94  | ) |  | $ | 2,136  | 
|                                     |  |               |        |             |  |             |      |   |  |   |        | 
|Earnings per share  basic           |  | $             | 0.11   |             |  | $           |     |   |  | $ | 0.11   | 
|Earnings per share  diluted         |  | $             | 0.11   |             |  | $           |     |   |  | $ | 0.10   | 
|                                     |  |               |        |             |  |             |      |   |  |   |        | 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|                                  |  |               |        |             |  |             |       |   |  |   |        | 
|--------------------------------- |  | ------------- | ------ | ----------- |  | ----------- | ----- | - |  | - | ------ | 
|Three months ended March 29, 2003
|                                 
|                                  |  | As previously |        | Restatement |  |             |       |  
|                                  |  | reported      |        | adjustments |  | As restated
|                                  |  |               |        |             |  |            
|Net sales                         |  | $             | 28,638 |             |  | $           | (176  | ) |  | $ | 28,462 | 
|Gross profit                      |  | $             | 9,557  |             |  | $           | (176  | ) |  | $ | 9,381  | 
|Operating income                  |  | $             | 3,715  |             |  | $           | (176  | ) |  | $ | 3,539  | 
|Net income                        |  | $             | 2,470  |             |  | $           | (117  | ) |  | $ | 2,353  | 
|                                  |  |               |        |             |  |             |       |   |  |   |        | 
|Earnings per share  basic        |  | $             | 0.12   |             |  | $           | (0.01 | ) |  | $ | 0.11   | 
|Earnings per share  diluted      |  | $             | 0.11   |             |  | $           |      |   |  | $ | 0.11   | 
|                                  |  |               |        |             |  |             |       |   |  |   |        | 

|                                 |  |               |        |             |  |             |       |   |  |   |        | 
|-------------------------------- |  | ------------- | ------ | ----------- |  | ----------- | ----- | - |  | - | ------ | 
|Three months ended June 28, 2003
|                                
|                                 |  | As previously |        | Restatement |  |             |       |  
|                                 |  | reported      |        | adjustments |  | As restated
|                                 |  |               |        |             |  |            
|Net sales                        |  | $             | 32,214 |             |  | $           | (692  | ) |  | $ | 31,522 | 
|Gross profit                     |  | $             | 10,424 |             |  | $           | (426  | ) |  | $ | 9,998  | 
|Operating income                 |  | $             | 4,036  |             |  | $           | (426  | ) |  | $ | 3,610  | 
|Net income                       |  | $             | 2,713  |             |  | $           | (287  | ) |  | $ | 2,426  | 
|                                 |  |               |        |             |  |             |       |   |  |   |        | 
|Earnings per share  basic       |  | $             | 0.13   |             |  | $           | (0.01 | ) |  | $ | 0.12   | 
|Earnings per share  diluted     |  | $             | 0.12   |             |  | $           | (0.01 | ) |  | $ | 0.11   | 
|                                 |  |               |        |             |  |             |       |   |  |   |        | 

The restatement adjustments resulted in the deferral of $1,116,000 of net sales
and $741,000 of related gross profit for the first nine months of fiscal 2003.
Of those amounts, $573,000 of net sales and $383,000 of related gross profit
were recognized during the fourth quarter of 2003 when the reseller sold the
related products through to its end customers. The net impact of the
restatement was a reduction of the
Companys net income for fiscal 2003 of $240,000. As of September 27, 2003,
the Company had deferred net sales of $543,000 and related gross profit of
$358,000 on sales to the reseller and expects to recognize such amounts in
operating results during the first six months of fiscal 2004 when the related
products are sold by the reseller to its end customers.

(3)  The Company acquired Interface Data System Inc. on January 22, 2003.

(4)  The Company changed its method of accounting for goodwill effective
September 29, 2002 and discontinued amortization of goodwill as of that date.

68



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Schedule II

White Electronic Designs Corporation and Subsidiaries
Valuation and Qualifying Accounts and Reserves

The following reserves were deducted in the balance sheet from the asset to
which applicable (in thousands of dollars):

|                    |                    |           |            |          |               |       |          |            |      |           |  |       |     |  |         |        |   |  |  |       | 
|------------------- | ------------------ | --------- | ---------- | -------- | ------------- | ----- | -------- | ---------- | ---- | --------- |  | ----- | --- |  | ------- | ------ | - |  |  | ----- | 
|                    |                    |           |            |          |               |       | Charged/ |            |      |           |  |       |     |  |         |        |   |  | 
|                    |                    |           | Balance at |          | (credited) to |       |          |            |      |           |  |       |     |  | Balance
|                    |                    |           | beginning  |          | costs and     |       |          |            |      |           |  |       |     |  | at end 
|Fiscal year ended   |                    | of period |            | expenses |               | Other |          | Deductions |      | of period
|                    |                    |           |            |          |               |       |          |            |      |          
|Accounts Receivable |                    |           |            |          |               |       |          |            |      |           |  |       |     |  |         |        |   |  |  |      
|                    | September 27, 2003 |           |            | 626      |               |       |          | (226       | )    |           |  | 142   | (1) |  |         | (145   | ) |  |  | 397   | 
|                    | September 28, 2002 |           |            | 638      |               |       |          | 197        |      |           |  |       |     |  |         | (209   | ) |  |  | 626   | 
|                    | September 29, 2001 |           |            | 417      |               |       |          | 317        |      |           |  |       |     |  |         | (96    | ) |  |  | 638   | 
|Inventories         |                    |           |            |          |               |       |          |            |      |           |  |       |     |  |         |        |   |  |  |      
|                    | September 27, 2003 |           |            | 4,876    |               |       |          | 537        |      |           |  | 1,076 | (1) |  |         | (1,631 | ) |  |  | 4,858 | 
|                    | September 28, 2002 |           |            | 5,084    |               |       |          | 781        |      |           |  |       |     |  |         | (989   | ) |  |  | 4,876 | 
|                    | September 29, 2001 |           |            | 2,216    |               |       |          | 3,669      |      |           |  |       |     |  |         | (801   | ) |  |  | 5,084 | 
|Deferred Tax Asset  |                    |           |            |          |               |       |          |            |      |           |  |       |     |  |         |        |   |  |  |      
|                    | September 27, 2003 |           |            |         |               |       |          |           |      |           |  |       |     |  |         |       |   |  |  |      | 
|                    | September 28, 2002 |           |            | 1,717    |               |       |          | (1,717     | )(2) |           |  |       |     |  |         |       |   |  |  |      | 
|                    | September 29, 2001 |           |            | 1,717    |               |       |          |           |      |           |  |       |     |  |         |       |   |  |  | 1,717 | 

|      |  |                                                                                                  
|----- |  | -------------------------------------------------------------------------------------------------
|(1) - |  | Addition related to IDS acquisition.                                                             
|(2) - |  | Represents a reversal of a valuation allowance relating to our net operating loss
carry forwards.

69



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##### Table of Contents



INDEX TO EXHIBITS

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.)                                                              
|       |  |                                                                                                                                                                                                                                                                                                                                    
|2.2    |  | 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).                                                                                                                      
|       |  |                                                                                                                                                                                                                                                                                                                                    
|2.3    |  | 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).                                                                                                              
|       |  |                                                                                                                                                                                                                                                                                                                                    
|2.4    |  | Agreement and Plan of Reorganization dated as of January 22, 2003 by and
among White Electronic Designs Corporation, IDS Reorganization Corp., and
Interface Data, Systems, Inc. (incorporated herein by reference to Exhibit 2.1
to the Current Report on Form 8-K filed January 24, 2003.                                        
|       |  |                                                                                                                                                                                                                                                                                                                                    
|2.5    |  | 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).            
|       |  |                                                                                                                                                                                                                                                                                                                                    
|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 3.1 on Form S-3
filed June 2, 2003).                                                                                                                                                                     
|       |  |                                                                                                                                                                                                                                                                                                                                    
|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).                                                                                                                                                                                 
|       |  |                                                                                                                                                                                                                                                                                                                                    
|4.2    |  | 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).                                                                                                                  
|       |  |                                                                                                                                                                                                                                                                                                                                    
|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).       
|       |  |                                                                                                                                                                                                                                                                                                                                    
|10.3   |  | 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).                                                                                                                                          
|       |  |                                                                                                                                                                                                                                                                                                                                    
|10.4   |  | 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).                                                                                                               
|       |  |                                                                                                                                                                                                                                                                                                                                    
|10.5   |  | 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).                                                  
|       |  |                                                                                                                                                                                                                                                                                                                                    
|10.6   |  | 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).
|       |  |                                                                                                                                                                                                                                                                                                                                    
|10.7   |  | 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).                                                                                    
|       |  |                                                                                                                                                                                                                                                                                                                                    
|10.8   |  | Fourth Modification agreement between Bank One N.A. and White Electronic
Designs Corporation, effective January 13, 2003 (incorporated herein by
reference to Exhibit 10.41 to the Companys Quarterly Report on Form 10-Q
filed on February 11, 2003).                                                                            
|       |  |                                                                                                                                                                                                                                                                                                                                    





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##### Table of Contents



|        |  |                                                                                                                                                                                                                                                              
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.9    |  | Fifth Modification agreement between Bank One N.A. and White Electronic
Designs Corporation, effective March 13, 2003 (incorporated herein by
reference to Exhibit 10.42 to the Companys Quarterly Report on Form 10-Q
filed on May 13, 2003).              
|        |  |                                                                                                                                                                                                                                                              
|10.10   |  | Term loan agreement between Bank One N.A. and White Electronic Designs
Corporation, effective March 13, 2003 (incorporated herein by reference to
Exhibit 10.43 to the Companys Quarterly Report on
Form 10-Q filed on May 13, 2003).                       
|        |  |                                                                                                                                                                                                                                                              
|10.11   |  | Modification letter to term loan agreement between Bank One N.A. and
White Electronic Designs Corporation, effective April 24, 2003
(incorporated herein by reference to Exhibit 10.43 to the Companys
Quarterly Report on Form 10-Q filed on May 13, 2003).
|        |  |                                                                                                                                                                                                                                                              
|10.12   |  | 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).                                                  
|        |  |                                                                                                                                                                                                                                                              
|**10.13 |  | 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).                                            
|        |  |                                                                                                                                                                                                                                                              
|**10.14 |  | 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).                                            
|        |  |                                                                                                                                                                                                                                                              
|**10.15 |  | 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).                               
|        |  |                                                                                                                                                                                                                                                              
|**10.16 |  | 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).   
|        |  |                                                                                                                                                                                                                                                              
|**10.17 |  | Non-Qualified Stock Option Agreement between Electronic Designs
Corporation and Donald McGuinness dated December 3, 1998 (incorporated
herein by reference to Exhibit 10.41 to the Companys Annual Report on
Form 10-K filed on December 23, 2002).         
|        |  |                                                                                                                                                                                                                                                              
|**10.18 |  | Non-Qualified Stock Option Agreement between White Electronic Designs
Corporation and Hamid Shokrgozar dated November 10, 1999 (incorporated
herein by reference to Exhibit 10.42 to the Companys Annual Report on
Form 10-K filed on December 23, 2002).   
|        |  |                                                                                                                                                                                                                                                              
|*21.1   |  | Subsidiaries of White Electronic Designs
Corporation.                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                              
|*23.1   |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                              
|*31.1   |  | Certification Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                              
|*31.2   |  | Certification Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                              
|*32.1   |  | Certification Pursuant to 18 U.S. C. Section 1350, As Adopted Pursuant
To Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                              
|*32.2   |  | Certification Pursuant to 18 U.S. C. Section 1350, As Adopted Pursuant
To Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                     



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