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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year Ended: September 30, 2006
 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
  Indiana
    
    35-0905052(State or other jurisdiction of incorporation or organization)
    
    (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
  Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Stock, 
stated value $.10 per share
    
    The NASDAQ Stock Market, LLC
  o þ
 o þ
 þ o
 o
  o þ o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



TABLE OF CONTENTS
 NOTE REGARDING FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
    
    
    3PART I
    
    
    
    
    4ITEM 1
    
    BUSINESS
    
    
    4ITEM 1A
    
    RISK FACTORS
    
    
    11ITEM 1B
    
    UNRESOLVED STAFF COMMENTS
    
    
    20ITEM 2
    
    PROPERTIES
    
    
    20ITEM 3
    
    LEGAL PROCEEDINGS
    
    
    21ITEM 4
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    22OUR EXECUTIVE OFFICERS
    
    
    22PART II
    
    
    
    
    23ITEM 5
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    23ITEM 6
    
    SELECTED CONSOLIDATED FINANCIAL DATA
    
    
    24ITEM 7
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    25ITEM 7A
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    39ITEM 8
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    40ITEM 9
    
    CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    40ITEM 9A
    
    CONTROLS AND PROCEDURES
    
    
    40ITEM 9B
    
    OTHER INFORMATION
    
    
    41PART III
    
    
    
    
    42ITEM 10
    
    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    
    
    42ITEM 11
    
    EXECUTIVE COMPENSATION
    
    
    42ITEM 12
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    42ITEM 13
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    43ITEM 14
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    43PART IV
    
    
    
    
    44ITEM 15
    
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    
    
    44SIGNATURES
    
    
    48EX-4.3EX-10.13EX-10.14EX-10.26EX-10.27EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2
  2




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
    
    the loss of one or more principal customers or delays or cancellations of orders due to
the impact of adverse business conditions on one or more principle 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 and raw materials;
    
    any downturn in the semiconductor, electronics, home appliance, telecommunications or
other markets in which we operate, 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;
    
    the inability to develop, introduce and sell new products or the inability to develop
new manufacturing technologies;
    
    changes or restrictions in the practices, rules and regulations relating to sales in
international markets; and
    
    a negative outcome in our current litigation or additional litigation complaints.
  3




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PART I
 
     www.wedc.com
     4




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
    
    significant space savings and size advantages;
 
    
    improved power and electrical performance; and
 
    
    improved component compatibility.
   PRODUCT
    
    SAMPLE APPLICATIONMilitary/Industrial:
    
    System on a substrate
    
    
    
    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
    
    Memory modules
    
    
    
    Air-to-air missiles, such as the Sidewinder AIM-9X and AIM-120 AMRAAM
    
    Embedded computers used in the F-22 Raptor and Patriot PAC-3 Missile System
    
    Radar used in the F/A-18 Hornet
    
    Joint Strike Fighter, F-35
    
    European Typhoon Fighter Aircraft (EFA)
    
    Anti-tamper technology
    
    
    
    Various military programsCommercial:
    
    Multi-chip package
    
    
    
    Telephone, data, and video communications
    
    SDRAM/DDR II memory modules
    
    
    
    High-end servers for networking and ERP systems
    
    Wireless CDMA base stations
    
    Flash/SRAM memory PC card
    
    
    
    Linear Flash PCMCIA Cards
    
    Microelectronic system boards
    
    
    
    Home entertainment consoles
    
    Hotel entertainment systems
    
    Compact Flash
    
    
    
    Medical, embedded computing
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Backlog
  Competition
      
    
    Increased viewability (anywhere viewable); increased visibility in bright light conditions (Max-Vu);
 
    
    Increased visibility in bright light conditions; super bright low reflectance (SBLR);
 
    
    Ability to withstand heavy vibration and extreme temperatures; and
 
    
    Wider viewing angles.
  6




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##### Table of Contents



PRODUCT
    
    
    
    SAMPLE APPLICATIONMilitary/Industrial:
    
    Mechanical components
    
    
    
    Impulse counters, altitude counters, rounds counters, logicator F-16 trim panel
    
    Super bright low reflectance
technology (SBLR) & Max-Vu technology
    
    
    
    Ground based vehicles, such as the Abrams M1A2 Tank
    
    Aircraft displays, such as the ApacheHelicopter and the F-16 Fighting Falcon
    
    Cockpit instrumentation; marine navigation
    
    Global positioning systems (GPS)Commercial:
    
    Max-Vu process technology
    
    
    
    Mobile Personal Computers (PC), Tablet PCs
    
    Display module assembly
    
    
    
    Patient monitors
    
    Optically enhanced displays
    
    
    
    Drive-thru kiosks; medical instruments; Point-of-Service (POS) terminals; notebook PCs; automotive test equipment
    
    Membrane keypads
    
    
    
    Home appliances
    
    Keypad modules
    
    
    
    Hand-held barcode applications
 Backlog
  Competition
  7




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
    
    developing new products;
 
    
    improving existing products;
 8




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
    
    adapting existing products to new applications; and
 
    
    developing prototype components for specific programs.
   Government Contracting Regulations
       Environmental Protection
  9




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International Trade Regulations
          10




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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 goodwill has been impaired, and may become impaired in the future.
  We have made and may make other acquisitions and cannot assure you that any potential acquisition
will be successful.
  
    
    exposure to unanticipated liabilities of an acquired company;
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
    
    the potential loss of key customers or key personnel of an acquired company;
    
    the recording of goodwill and non-amortizable intangible assets that will be subject to
impairment testing on a regular basis and potential periodic impairment charges;
    
    the diversion of the attention of our management team from other business concerns;
    
    the risk 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; and
    
    our ability to assess, integrate and implement internal controls of an acquired company
in accordance with Section 404 of the Sarbanes-Oxley Act of 2002.
  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 have a concentrated customer base and, as a result, our net sales could decline significantly if
we lose a major customer.
  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.
  12




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We depend on the continuing trend of outsourcing by commercial OEMs and prime military contractors,
which is subject to factors beyond our control.
  Our failure to comply with United States government laws and regulations would reduce our ability
to be awarded future military business.
  We may have an adverse resolution of litigation which may harm our operating results or financial
condition.
  We may fail to meet expectations because our net sales, gross profits and net income will
fluctuate from period to period.
  
    
    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, in particular with respect to our
membrane keypad business;
    
    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;
 13




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
    
    expenses associated with acquisitions; and
    
    general economic conditions.
  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.
  Our failure to detect unknown defects in our products could materially harm our relationship with
customers, our reputation and our business.
  Our operating results could be seriously harmed if the markets in which we sell our products do not
grow.
  
    
    defense and aerospace equipment;
    
    computers and computer related peripherals;
    
    medical electronics and equipment;
    
    home appliances and consumer electronics;
    
    industrial controls; and
    
    telecommunication/datacommunication equipment.
  14




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Further downturns in the industries in which we operate could reduce the value of our inventories
and cause a reduction in our profits.
  We use manufacturing resources in Asia and Mexico, which limits our control of the manufacturing
process.
  
    
    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;
    
    political and economic instability in overseas locations; and
    
    global health related matters, such as SARS, Avian Flu and other health concerns.
 We are dependent on international markets for a large portion of our purchases and sales .
   
    
    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;
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
    
    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.
    Our business is dependent upon retaining key personnel and attracting new employees.
  Our failure to comply with environmental regulations could subject us to costs and production
delays .
  16




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If our selling prices decline and we fail to reduce our costs, our sales and operating results
will decline.
   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 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;
    
    we are unable to obtain raw materials in a timely manner or at favorable prices; or
    
    we are unable to maintain pricing to sustain or grow our gross margins.
 17
    Table of Contents    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.
  The United States and global responses to terrorism, the unsettled world political situations and
perceived nuclear threats increase uncertainties with respect to many of our businesses and may
adversely affect our business and results of operations.
   While we believe our control systems are effective, there are inherent limitations in all control
systems, and misstatements due to error or fraud may occur and not be detected.
  18




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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.
  
    
    voting rights, including the right to vote as a class on particular matters;
    
    preferences as to dividends and liquidation rights;
    
    conversion rights and anti-dilution protections; and
    
    redemption rights.
  Our shareholders rights plan may make it more difficult for others to obtain control of us.
  Our stock price has been volatile .
  19




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
    
    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;
    
    market reaction to acquisitions, joint ventures or strategic investments announced by us
or our competitors;
    
    lawsuits filed against the Company; and
    
    compliance with the Sarbanes-Oxley Act.
 
   
   Location
    
    Square Footage
    
    Primary Segment
    
    Own/LeasePhoenix, Arizona (Headquarters)
    
    74,000
    
    Microelectronic
    
    LeasePhoenix, Arizona (Flower Street)
    
    43,000
    
    Microelectronic
    
    OwnHillsboro, Oregon
    
    58,000
    
    Display
    
    LeaseFort Wayne, Indiana
    
    75,000
    
    Display
    
    OwnColumbus, Ohio
    
    41,000
    
    Display
    
    Own
  20




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McJimsey v. White Electronic Designs Corporation, et al. Afework v. White Electronic Designs Corporation, et al Anders v. White Electronic Designs Corporation, et al. Sammarco v. White Electronic Designs Corporation, et al.
 Dodt v. Shokrgozar,
et al. Christ v. Shokrgozar, et al.
  21




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Hamid R. Shokrgozar, 46,
President,
Chief Executive Officer and Chairman
of the Board
    
    Hamid R. 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. Shokrgozar holds
a Bachelor of Science in
Electrical Engineering from
California State University,
Fullerton.Roger A. Derse, 56,
Vice President, Chief Financial Officer
    
    Roger A. Dersehas been our Vice
President and Chief Financial
Officer since March 2004. Mr.
Derse has over 25 years
experience in finance and
accounting. He previously served
as Consultant/Acting CFO for
Vitron Manufacturing from 2002
through February 2004 and was
Executive Vice President and
Chief Operating and Financial
Officer for Nanonics Corporation
from 1998 to 2001. He was Chief
Financial Officer for the White
Microelectronics Division of
Bowmar Instrument Corporation
from 1993 to 1997. Mr. Derse
holds a Bachelor of Science in
Industrial Engineering from the
University of Michigan, a Master
in Accounting from the University
of Arizona, and is a Certified
Public Accountant.Dante V. Tarantine, 53,
Executive Vice President,
Sales & Marketing
    
    Dante V. Tarantinehas been our
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 Bachelor of
Science in Electrical Engineering
from California State University,
Northridge.
 22




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PART II
 
 ITEM 5
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES.
  2006Common stock market price
    
    Q1
    
    Q2
    
    Q3
    
    Q4High
    
    $
    5.55
    
    
    $
    6.08
    
    
    $
    6.00
    
    
    $
    5.30Low
    
    $
    4.96
    
    
    $
    5.07
    
    
    $
    4.70
    
    
    $
    4.50
 2005Common stock market price
    
    Q1
    
    Q2
    
    Q3
    
    Q4High
    
    $
    6.80
    
    
    $
    6.40
    
    
    $
    5.65
    
    
    $
    6.27Low
    
    $
    5.38
    
    
    $
    4.71
    
    
    $
    4.40
    
    
    $
    4.85
  Issuer Purchases of Equity Securities
  TotalNumber of
    
    
    MaximumShares
    
    
    Number ofPurchased as
    
    
    Shares thatTotal
    
    
    
    
    
    
    Part of
    
    
    May Yet BeNumber of
    
    
    Average
    
    
    Publicly
    
    
    PurchasedShares
    
    
    Price Paid
    
    
    Announced
    
    
    Under thePeriod
    
    Purchased
    
    
    per Share
    
    
    Plan
    
    
    PlanJuly 2, 2006 - July 29, 2006
    
    
    144,113
    
    
    $
    5.12
    
    
    
    144,113
    
    
    
    1,068,497July 30, 2006 - August 26, 2006
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    1,068,497August 27, 2006 - September 30, 2006
    
    
    78,534
    
    
    $
    4.66
    
    
    
    78,534
    
    
    
    989,963Total
    
    
    222,647
    
    
    $
    4.96
    
    
    
    222,647
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2006
    
    2005
    
    2004
    
    2003
    
    2002(In thousands of dollars, except per share data)Statement of Operations Data:Net sales (Note 1)
    
    $
    108,928
    
    
    $
    117,031
    
    
    $
    108,962
    
    
    $
    113,534
    
    
    $
    90,458Net income (loss) (Notes 2 and 3)
    
    $
    6,013
    
    
    $
    (3,535
    )
    
    $
    4,807
    
    
    $
    10,150
    
    
    $
    8,740Earnings (loss) per share:Basic
    
    $
    0.25
    
    
    $
    (0.14
    )
    
    $
    0.20
    
    
    $
    0.48
    
    
    $
    0.44Diluted
    
    $
    0.24
    
    
    $
    (0.14
    )
    
    $
    0.19
    
    
    $
    0.44
    
    
    $
    0.42Balance Sheet Data (at year end):Total assets (Note 1)
    
    $
    130,508
    
    
    $
    121,268
    
    
    $
    124,900
    
    
    $
    119,806
    
    
    $
    68,366Long-term debt
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Shareholders equity (Note 1)
    
    $
    110,180
    
    
    $
    104,220
    
    
    $
    107,215
    
    
    $
    101,028
    
    
    $
    54,770
 This table should be read in conjunction with the Consolidated Financial Statements provided elsewhere herein.
  (1)
    
    In January 2003, the Company acquired 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 2006, fiscal 2005, fiscal 2004 and fiscal 2003 totaled approximately $23.5 million,
$28.8 million, $23.4 million and $16.1 million, respectively.(2)
    
    In fiscal 2003, the Company discontinued the amortization of its goodwill with the adoption
of SFAS No. 142, Goodwill and Other Intangible Assets, (SFAS 142). Goodwill amortization
expense, net of tax, was approximately $0.9 million in fiscal 2002.(3)
    
    In fiscal 2006, the Company recorded a non-cash goodwill impairment charge of approximately
$0.4 million in connection with its review of goodwill for impairment. In fiscal 2005, the
Company recorded a non-cash goodwill impairment charge of approximately $11.4 million in
connection with its review of goodwill for impairment and favorable income tax adjustments of
approximately $1.0 million. The goodwill impairments had no corresponding income tax benefit.
 24




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Overview
   Executive Summary
   25




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26




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
    
    Pursue the MIL-PRF-38534 Class K certification. This will allow the Company to offer the highest reliability level
military products intended for space applications;
    
    Pursue Circuit Card Assembly (CCA) for military customers, to offer system integration capabilities allowing the
Company to combine its manufactured components and multi-chip modules into a fully integrated product;
    
    Pursue the next generation anti-tamper technology for military and commercial applications;
    
    Pursue applications for industrial grade Compact Flash in ruggedized embedded computing systems including medical,
flight systems, factory automation, test and measurement and instrumentation;
    
    Pursue the next generation display enhancement technology, Max-Vu II technology;
    
    Pursue fully integrated display products with complete Touch Panel offering;
    
    Continue the stock repurchase program to enhance shareholder value; and
    
    Continue to pursue other external strategic alternative plans to further position the Company for growth.
 egments
  2006
    
    
    2005
    
    
    2004Microelectronic SegmentMilitary/Industrial Market
    
    $
    40,446
    
    
    $
    37,765
    
    
    $
    36,294Commercial Market
    
    
    19,751
    
    
    
    26,318
    
    
    
    24,39760,197
    
    
    
    64,083
    
    
    
    60,691Display SegmentMilitary/Industrial Market
    
    
    11,851
    
    
    
    11,515
    
    
    
    11,764Commercial Market
    
    
    36,880
    
    
    
    41,433
    
    
    
    36,50748,731
    
    
    
    52,948
    
    
    
    48,271Total
    
    $
    108,928
    
    
    $
    117,031
    
    
    $
    108,962Microelectronic SegmentMilitary/Industrial Market
    
    
    37
    %
    
    
    33
    %
    
    
    33
    %Commercial Market
    
    
    18
    %
    
    
    22
    %
    
    
    23
    %55
    %
    
    
    55
    %
    
    
    56
    %Display SegmentMilitary/Industrial Market
    
    
    11
    %
    
    
    10
    %
    
    
    11
    %Commercial Market
    
    
    34
    %
    
    
    35
    %
    
    
    33
    %45
    %
    
    
    45
    %
    
    
    44
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  Critical Accounting Policies and Estimates
  27




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##### Table of Contents




    
    We sell microelectronic and display products
primarily to military prime contractors and
commercial OEMs. A small portion of our products are
also sold through distributors or resellers. We
recognize 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. We
also provide limited design services pursuant to
related customer purchase orders and generally
recognize the associated revenue as such services are
performed. However, it may be deferred until certain
elements are completed. We may from time to time
enter into certain arrangements that contain multiple
elements such as performing limited design services
accompanied with follow-on manufacturing of related
products. We allocate revenue to the elements based
on relative fair value, and recognize revenue for
each element when there is evidence of an
arrangement, delivery has occurred or services have
been rendered, the price is fixed or determinable and
collectibility is reasonably assured. Arrangements
with multiple elements that are not considered
separate units of accounting require deferral of
revenue until certain other elements have been delivered or the services have
been performed. The amount of the revenue recognized is impacted by our
judgment as to whether an arrangement includes multiple elements, and whether
the elements are considered separate units of accounting.
    
    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 record trade accounts receivable at the invoiced
amount and they do not bear interest. 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.
Write-offs against the allowance totaled
approximately $32,000 in fiscal 2006, $274,000 in
fiscal 2005 and $170,000 in fiscal 2004.
    
    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 account for goodwill and intangible assets in
accordance with SFAS No. 142 which requires goodwill
to be tested for impairment on an annual basis (and
more frequently in certain circumstances) and written
down when impaired. We completed our transitional
testing for goodwill impairment upon adoption of SFAS
142, and our annual testing for fiscal 2004
determined that our recorded goodwill was not
impaired. However, in fiscal 2005 it was determined
that the goodwill in our commercial microelectronic
reporting unit in Phoenix and our display reporting
unit in Oregon were impaired. Accordingly, we wrote
down the related goodwill by approximately $11.4
million. In fiscal 2006, it was determined that our
interface electronics reporting unit in the display
segment was impaired. Accordingly, we wrote down all
$0.4 million of the unamortized IDS acquisition
goodwill related to this
 28




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##### Table of Contents



reporting unit. Goodwill
recorded was $5.3 million and $5.7 million at
September 30, 2006 and October 1, 2005, respectively.
See Notes 2 and 7 of the Notes to the Consolidated
Financial Statements for information relating to the
goodwill impairment. Furthermore, SFAS 142 requires
purchased intangible assets other than goodwill to be
amortized over their useful lives unless these lives
are determined to be indefinite. Purchased
intangible assets are carried at cost less
accumulated amortization. Amortization is computed
over the estimated useful lives of the respective
assets, generally two to fifteen years. We also
regularly evaluate intangible assets for impairment
pursuant to SFAS No. 144, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, and evaluate the continued
appropriateness of estimated future lives assigned to
these assets.
 
    
    With the adoption of SFAS 123(R) on October 2, 2005,
we are required to record the fair value of
stock-based compensation awards as an expense. In
order to determine the fair value of stock options on
the date of grant, the Company applies the
Black-Scholes option-pricing model. Inherent in this
model are assumptions related to expected price
volatility, option life, risk-free interest rate and
dividend yield. While the risk-free interest rate
and dividend yield are less subjective assumptions,
typically based on factual data derived from public
sources, the expected stock price volatility and
option life assumptions require a greater level of
judgment which makes them critical accounting
estimates.
 
    
    We account for income taxes in accordance with SFAS
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. We regularly
review our deferred tax assets for recoverability
and, if necessary, establish a valuation allowance.
During the ordinary course of business, there are
transactions and calculations for which the ultimate
tax determination is uncertain. We establish
reserves for tax related uncertainties based on
estimates of whether, and the extent to which,
additional taxes and interest will be due. These
reserves are established when, despite our belief
that our tax return positions are fully supportable,
we believe that certain positions are likely to be
challenged and may not be sustained on review by tax
authorities. We adjust these reserves in light of
changing facts and circumstances, such as the closing
of a tax audit. The provision for income taxes
includes the impact of reserve provisions and changes
to reserves that are considered appropriate, as well
as the related net interest.
 29




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##### Table of Contents



Results of Operations
  2006
    
    
    2005
    
    
    2004Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    69.5
    %
    
    
    70.3
    %
    
    
    70.9
    %Gross profit
    
    
    30.5
    %
    
    
    29.7
    %
    
    
    29.1
    %Operating expenses:Selling, general and administrative
    
    
    17.4
    %
    
    
    16.8
    %
    
    
    17.0
    %Research and development
    
    
    6.1
    %
    
    
    4.8
    %
    
    
    5.5
    %Amortization of intangible assets
    
    
    0.4
    %
    
    
    0.5
    %
    
    
    0.6
    %Goodwill impairment
    
    
    0.3
    %
    
    
    9.8
    %
    
    
    0.0
    %Total operating expenses
    
    
    24.2
    %
    
    
    31.9
    %
    
    
    23.1
    %Operating income (loss)
    
    
    6.3
    %
    
    
    (2.2
    %)
    
    
    6.0
    %Interest (income)
    
    
    (2.0
    %)
    
    
    (0.9
    %)
    
    
    (0.4
    %)Income (loss) before income taxes
    
    
    8.3
    %
    
    
    (1.3
    %)
    
    
    6.4
    %Provision for income taxes
    
    
    2.7
    %
    
    
    1.7
    %
    
    
    2.0
    %Net income (loss)
    
    
    5.5
    %
    
    
    (3.0
    %)
    
    
    4.4
    %
 Fiscal Year ended September 30, 2006 compared to Fiscal Year ended October 1, 2005
 Net Sales
  
    
    Military/industrial sales in the microelectronic segment were
$40.4 million for the year ended September 30, 2006, an increase
of $2.6 million, or approximately 7%, from $37.8 million for the
year ended October 1, 2005. We expect sales to
military/industrial customers to remain consistent in fiscal 2007
as compared to fiscal 2006.
    
    Commercial sales in the microelectronic segment were $19.8 million
for the year ended September 30, 2006, a decrease of $6.5 million,
or approximately 25%, from $26.3 million for the year ended
October 1, 2005. The decline was primarily attributable to lower
average selling prices reflecting decreased material costs and
lower demand of our product due to decreased business for some our
customers which in turn decreased their orders from us. However,
we anticipate commercial sales in the microelectronic segment to
grow slightly in fiscal 2007.
    
    Military/industrial sales in the display segment were $11.8
million for the year ended September 30, 2006, an increase of $0.3
million, or approximately 3%, from $11.5 million for the year
ended October 1, 2005. The slight increase was due to increased
requirements for products used in the commercial aviation
industry. We expect military/industrial sales in the display
segment in fiscal 2007 to be consistent with sales in fiscal 2006.
    
    Commercial sales in the display segment were $36.9 million for the
year ended September 30, 2006, a decrease of $4.5 million, or
approximately 11%, from $41.4 million for the year ended October
1, 2005. The decrease from the prior year is attributable to
decreased sales to NCR of $8.7 million and to Whirlpool of $1.1
million compared to the prior year, as well as decreased orders
from our other appliance customers, partially offset by
 30




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##### Table of Contents



increased sales to Hewlett Packard Company of $8.6 million during the
period. We expect commercial sales in the display segment to
increase in fiscal 2007.
    Gross Profit
    Selling, General and Administrative Expenses
  31




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##### Table of Contents



s
 Research and Development Expenses
   Amortization of Intangible Assets
  Goodwill Impairment
    Interest Income
  32




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##### Table of Contents



Income Taxes
     Fiscal Year ended October 1, 2005 compared to Fiscal Year ended October 2, 2004
 Net Sales
  
    
    Military/industrial sales in the microelectronic segment were
$37.8 million for the year ended October 1, 2005, an increase of
$1.5 million, or approximately 4%, from $36.3 million for the year
ended October 2, 2004.
    
    Commercial sales in the microelectronic segment were $26.3 million
for the year ended October 1, 2005, an increase of $1.9 million,
or approximately 8%, from $24.4 million for the year ended October
2, 2004. The growth was primarily attributable to products used
in the high-end server applications and product sold to a hotel
industry supplier for their entertainment video systems.
    
    Military/industrial sales in the display segment were
$11.5 million for the year ended October 1, 2005, a
decrease of $0.2 million, or approximately 2%, from
$11.8 million for the year ended October 2, 2004.
The slight decrease was due to decreased requirements
for products used in the commercial aviation
industry.
    
    Commercial sales in the display segment were $41.4
million for the year ended October 1, 2005, an
increase of $4.9 million, or approximately 13%, from
$36.5 million for the year ended October 2, 2004.
The increase from prior year is attributable to
increased sales to NCR of $9.3 million and $2.7
million of our tablet personal computer products over
the prior year, partially offset by decreased sales
to other customers during the period.
 33




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##### Table of Contents



Gross Profit
    Selling, General and Administrative Expenses
  34




---



##### Table of Contents



Research and Development Expenses
  Amortization of Intangible Assets
  Goodwill Impairment
  Interest Income
  Income Taxes
  Liquidity and Capital Resources
   35




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36




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##### Table of Contents



Contractual Obligations
  Payments due by Period as of September 30, 2006(in thousands)Less than
    
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    
    1 year
    
    
    1 - 3 years
    
    
    3 - 5 years
    
    
    5 yearsOperating leases
    
    $
    10,180
    
    
    $
    1,540
    
    
    $
    3,086
    
    
    $
    1,965
    
    
    $
    3,589Pension funding (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Contractual Cash Obligations
    
    $
    10,180
    
    
    $
    1,540
    
    
    $
    3,086
    
    
    $
    1,965
    
    
    $
    3,589
 
 (1)
    
    We are committed to meeting the annual minimum funding requirements relating to our
pension plan, which covers approximately 32 employees at our Ft. Wayne facility. We cannot
estimate expected minimum funding requirements at this time. We may also make contributions
to the pension fund in excess of the minimum funding requirements during any year. See Note
12 to the Consolidated Financial Statements for additional information regarding the pension
fund. Contingencies
 McJimsey v. White Electronic Designs Corporation, et al. Afework v. White Electronic Designs Corporation, et al Anders v. White Electronic Designs Corporation, et al. Sammarco v. White Electronic Designs Corporation, et al.
 Dodt v. Shokrgozar,
et al. Christ v. Shokrgozar, et al.
 37




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##### Table of Contents



38




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##### Table of Contents



Recent Accounting Pronouncements
      
   39




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##### Table of Contents



ITEM 9
    
    CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
  Evaluation of Disclosure Controls and Procedures.
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##### Table of Contents



Changes in Internal Control over Financial Reporting.
 Managements Report on Internal Control over Financial Reporting.
 Internal Control-Integrated
Framework
  
  Annual
Salary Increases
  Name
    
    Title
    
    SalaryRoger A. Derse
    
    Vice President, Chief Financial Officer, Secretary, Treasurer
    
    $
    220,500
 Cash
Bonuses
  Name
    
    Title
    
    BonusHamid R. Shokrgozar
    
    President, Chief Executive Officer, Chairman of the Board
    
    $
    25,000Roger A. Derse
    
    Vice President, Chief Financial Officer, Secretary, Treasurer
    
    $
    10,000Dante V. Tarantine
    
    Executive Vice President, Sales & Marketing
    
    $
    7,500
  Change
in Control Agreements
   Extension
of Credit Facility
  41




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##### Table of Contents



PART III
 
    www.wedc.com
 
   
 ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  42




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##### Table of Contents



Equity Compensation Plan Information
  Number of Securitiesto be Issued Upon
    
    Weighted AverageExercise of
    
    Exercise Price ofOutstanding Options,
    
    Outstanding Options,
    
    Number of SecuritiesWarrants and
    
    Warrants, and
    
    Remaining AvailablePlan category
    
    Restricted Stock
    
    Restricted Stock
    
    for Future IssuanceEquity compensation plans approved
by security holders (1)
    
    
    1,367,502
    
    
    $
    4.39
    
    
    
    1,056,662Equity compensation plans not
approved by security holders (2)
    
    
    1,024,294
    
    
    $
    4.96
    
    
    
    4,827Total
    
    
    2,391,796
    
    
    $
    4.63
    
    
    
    1,061,489
 
 (1)
    
    Equity compensation plans approved by security holders include the 1994 Flexible Stock Plan, as
amended, the 2001 Director Stock Plan, the Amendment to Companys Stock Plan for Non-Employee
Directors and the 2006 Director Restricted Stock Plan.(2)
    
    Equity Compensation Plans not approved by security holders include the following plans: Shokrgozar Plan
 2000 Broad Based Non-qualified Stock Plan
 IDS Plan
 
   
   43




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##### Table of Contents



PART IV
 
  (a)(1) Financial Statements
  Financial Statements
    
    PageReport of Independent Registered Public Accounting Firm
    
    
    49Consolidated Balance Sheet as of September 30, 2006 and October 1, 2005
    
    
    51Consolidated Statement of Operations for the years
ended September 30, 2006, October 1, 2005
and October 2, 2004
    
    
    52Consolidated Statement of Shareholders Equity
for the years ended September 30, 2006, October 1, 2005
and October 2, 2004
    
    
    53Consolidated Statement of Cash Flows for the years
ended September 30, 2006, October 1, 2005
and October 2, 2004
    
    
    54Notes To Consolidated Financial Statements
    
    
    55
 (a)(2) Financial Statement Schedules
  Financial Schedule
    
    PageSchedule II Valuation and Qualifying Accounts and Reserves
    
    
    78
 (a)(3) Exhibits
 ExhibitNumber
    
    Description2.1
    
    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).
 44




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##### Table of Contents



ExhibitNumber
    
    Description2.5
    
    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).2.6
    
    Agreement and Plan of Merger dated September 26, 2006, by and between Interface Data Systems,
Inc. and White Electronic Designs Corporation.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).4.3*
    
    Amendment No. 2 to Rights Agreement, effective December 5, 2006.10.1
    
    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).
 45




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##### Table of Contents



ExhibitNumber
    
    Description10.9
    
    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
    
    Amendment effective March 28, 2006 to JPMorgan Chase Bank, N.A. Loan and Security Agreement,
dated January 7, 2000 (incorporated herein by reference to Exhibit 10.2 on Form 10-Q, filed
May 11, 2006).10.11
    
    Amendment effective June 28, 2006 to JPMorgan Chase Bank, N.A. Loan and Security Agreement,
dated January 7, 2000 (incorporated herein by reference to Exhibit 10.2 on Form 10-Q, filed
August 10, 2006).10.12
    
    Rule 10b5-1 Stock Purchase Plan, dated June 21, 2006 (incorporated by reference to Exhibit
10.3 on Form 10-Q, filed August 10, 2006).10.13*
    
    Amendment effective September 28, 2006 to JPMorgan Chase Bank, N.A. Loan and Security
Agreement, dated January 7, 2000.10.14*
    
    Amendment effective December 11, 2006 to JPMorgan Chase Bank, N.A. Loan and Security
Agreement, dated January 7, 2000.10.15**
    
    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).10.16**
    
    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).10.17**
    
    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).10.18**
    
    Executive Employment Agreement made as of December 14, 2004 between White Electronic
Designs Corporation and Hamid R. Shokrgozar (incorporated by reference to Exhibit 10.16 to the
Companys Annual Report on Form 10-K filed on December 16, 2004).10.19**
    
    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).10.20
    
    Industrial Real Estate Lease dated February 4, 1997 between Bowmar Instrument Corp., as
tenant, and Allred Phoenix Properties, L.L.C., as landlord (incorporated herein by reference
to Exhibit 10.5 to the Companys Annual Report on Form 10-K for the fiscal year ended
September 27, 1997).10.21
    
    Sixth Modification Agreement between Bank One N.A. and White Electronic Designs Corporation,
effective March 19, 2004 (incorporated here in by reference to Exhibit 10.1 on Form 10-Q,
filed on May 14, 2004).10.22
    
    First Amendment to certain Industrial Real Estate Lease dated February 4, 1997 between White
Electronic Designs Corporation (as successor  in  interest of Bowmar Instrument Corp.) and
Gus
Enterprises  XII, L.L.C. (as successor  in  interest of Allred Phoenix Properties,
L.L.C.) dated November 5, 2004 (incorporated herein by reference to Exhibit 10.21 to the
Companys Annual Report on Form 10-K filed on December 16, 2004).10.23**
    
    2006 Director Restricted Stock
Plan, effective March 24, 2006 (incorporated by reference to
Exhibit 4.4 to the Registration Statement on Form S-8,
filed on March 24, 2006, Registration No. 333-132688).10.24**
    
    First Amendment to 2006 Director
Restricted Stock Plan, effective August 24, 2006 (incorporated
by reference to the Form 8-K filed on August 30, 2006).10.25**
    
    Form of Restricted Stock Agreement
to 2006 Director Restricted Stock Plan, effective August 24,
2006 (incorporated by reference to the Form 8-K filed on
August 30, 2006).10.26* **
    
    Change of Control Agreement between
Dante V. Tarantine and White Electronic Designs Corporation, effective
December 13, 2006.10.27* **
    
    Change of Control Agreement
between Roger A. Derse and White Electronic Designs Corporation,
effective December 13, 2006.
 46




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##### Table of Contents



ExhibitNumber
    
    Description21.1*
    
    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.##
    
    Furnished herewith. 47




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##### Table of Contents



Date:
    
    December 14, 2006
    
    
    
    /s/Roger A. DerseRoger A. Derse
Chief Financial Officer, Secretary and Treasurer
  /s/ Hamid R. Shokrgozar
    
    
    
    /s/ Edward A. WhiteHamid R. Shokrgozar
    
    
    
    Edward A. WhitePresident, Chief Executive Officer
    
    
    
    Vice Chairman of the Board of Directorsand Chairman of the Board of DirectorsDate:
    
    December 14, 2006
    
    
    
    Date:
    
    December 14, 2006/s/ Thomas M. Reahard
    
    
    
    /s/ Thomas J. ToyThomas M. Reahard
    
    
    
    Thomas J. ToyLead Director
    
    
    
    DirectorDate:
    
    December 14, 2006
    
    
    
    Date:
    
    December 14, 2006/s/ Jack A. Henry
    
    
    
    /s/ Roger A. DerseJack A. Henry
    
    
    
    Roger A. DerseDirector
    
    
    
    Chief Financial Officer, Secretary and TreasurerDate:
    
    December 14, 2006
    
    
    
    Date:
    
    December 14, 2006/s/ Paul D. QuadrosPaul D. QuadrosDirectorDate:
    
    December 14, 2006
 48




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Consolidated financial statements and financial statement schedule
  No. 123(R), Share-Based Payment
 Internal control over financial reporting
 Internal
Control  Integrated Framework Internal Control  Integrated Framework
  49




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50




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WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEET
 September 30,
    
    
    October 1,2006
    
    
    2005(in thousands, except per share data)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    55,829
    
    
    $
    51,008Accounts receivable, less allowance for
doubtful accounts of $256 and $250
    
    
    19,020
    
    
    
    19,457Inventories, net
    
    
    19,401
    
    
    
    19,609Assets held for sale
    
    
    1,924
    
    
    
    Prepaid expenses and other current assets
    
    
    6,512
    
    
    
    825Deferred income taxes
    
    
    4,323
    
    
    
    4,508Total Current Assets
    
    
    107,009
    
    
    
    95,407Property, plant and equipment, net
    
    
    13,367
    
    
    
    14,952Goodwill
    
    
    5,306
    
    
    
    5,670Intangible assets, net
    
    
    4,609
    
    
    
    5,121Other assets
    
    
    217
    
    
    
    118Total Assets
    
    $
    130,508
    
    
    $
    121,268LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesAccounts payable
    
    $
    5,794
    
    
    $
    5,712Accrued salaries and benefits
    
    
    2,043
    
    
    
    2,356Other accrued expenses
    
    
    7,635
    
    
    
    3,701Deferred revenue
    
    
    1,961
    
    
    
    1,797Total Current Liabilities
    
    
    17,433
    
    
    
    13,566Accrued long-term pension liability
    
    
    303
    
    
    
    547Deferred income taxes
    
    
    1,197
    
    
    
    1,725Other long-term liabilities
    
    
    1,395
    
    
    
    1,210Total Liabilities
    
    
    20,328
    
    
    
    17,048Commitments and ContingenciesShareholders EquityPreferred stock, 1,000,000 shares authorized, no shares issued
    
    
    
    
    
    
    Common stock, $0.10 stated value, 60,000,000 shares authorized,
24,666,390 and 24,479,276 shares issued
    
    
    2,467
    
    
    
    2,448Treasury stock, 285,587 and 44,442 shares, at par
    
    
    (29
    )
    
    
    (4
    )Additional paid-in capital
    
    
    90,637
    
    
    
    90,829Retained earnings
    
    
    17,142
    
    
    
    11,129Accumulated other comprehensive loss
    
    
    (37
    )
    
    
    (182
    )Total Shareholders Equity
    
    
    110,180
    
    
    
    104,220Total Liabilities and Shareholders Equity
    
    $
    130,508
    
    
    $
    121,268
 The accompanying notes are an integral part of these consolidated financial statements.
 51




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WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENT OF OPERATIONS
 Year endedSeptember 30,
    
    
    October 1,
    
    
    October 2,2006
    
    
    2005
    
    
    2004(In thousands, except share data and per share data)Net sales
    
    $
    108,928
    
    
    $
    117,031
    
    
    $
    108,962Cost of sales
    
    
    75,713
    
    
    
    82,298
    
    
    
    77,297Gross profit
    
    
    33,215
    
    
    
    34,733
    
    
    
    31,665Operating expenses:Selling, general and administrative
    
    
    18,970
    
    
    
    19,704
    
    
    
    18,498Research and development
    
    
    6,592
    
    
    
    5,634
    
    
    
    6,036Amortization of intangible assets
    
    
    473
    
    
    
    606
    
    
    
    641Goodwill impairment
    
    
    364
    
    
    
    11,435
    
    
    
    Total operating expenses
    
    
    26,399
    
    
    
    37,379
    
    
    
    25,175Operating income (loss)
    
    
    6,816
    
    
    
    (2,646
    )
    
    
    6,490Interest expense
    
    
    
    
    
    
    
    
    
    
    2Interest (income)
    
    
    (2,180
    )
    
    
    (1,138
    )
    
    
    (454
    )Income (loss) before income taxes
    
    
    8,996
    
    
    
    (1,508
    )
    
    
    6,942Provision for income taxes
    
    
    2,983
    
    
    
    2,027
    
    
    
    2,135Net income (loss)
    
    $
    6,013
    
    
    $
    (3,535
    )
    
    $
    4,807Earnings (loss) per share  basic
    
    $
    0.25
    
    
    $
    (0.14
    )
    
    $
    0.20Earnings (loss) per share  diluted
    
    $
    0.24
    
    
    $
    (0.14
    )
    
    $
    0.19Weighted average number of common
shares and equivalents:Basic
    
    
    24,488,041
    
    
    
    24,437,672
    
    
    
    24,201,436Diluted
    
    
    24,930,566
    
    
    
    24,437,672
    
    
    
    25,001,906
 The accompanying notes are an integral part of these consolidated financial statements.
 52




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WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
 Additional
    
    
    
    
    
    
    
    
    
    
    Accumulated
    
    
    TotalCommon
    
    
    Common
    
    
    Treasury
    
    
    Paid-in
    
    
    Unearned
    
    
    
    
    
    
    Other Compre-
    
    
    ShareholdersShares
    
    
    Stock
    
    
    Stock
    
    
    Capital
    
    
    Compensation
    
    
    Retained Earnings
    
    
    hensive Loss
    
    
    Equity(In thousands of dollars, except share data)Balance, September 27, 2003
    
    
    24,067,184
    
    
    $
    2,406
    
    
    $
    (4
    )
    
    $
    89,129
    
    
    $
    (34
    )
    
    $
    9,857
    
    
    $
    (326
    )
    
    $
    101,028Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,807
    
    
    
    
    
    
    
    4,807Minimum pension liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    109
    
    
    
    109Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,916Stock options exercised
    
    
    220,956
    
    
    
    22
    
    
    
    
    
    
    
    575
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    597Common stock issued through
employee stock purchase plan
    
    
    47,170
    
    
    
    5
    
    
    
    
    
    
    
    264
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    269Stock compensation earned during the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    26Tax benefits related to exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    379
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    379Balance, October 2, 2004
    
    
    24,335,310
    
    
    
    2,433
    
    
    
    (4
    )
    
    
    90,347
    
    
    
    (8
    )
    
    
    14,664
    
    
    
    (217
    )
    
    
    107,215Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,535
    )
    
    
    
    
    
    
    (3,535
    )Minimum pension liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    35Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,500
    )Stock options exercised
    
    
    119,752
    
    
    
    12
    
    
    
    
    
    
    
    288
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    300Common stock issued through
employee stock purchase plan
    
    
    24,214
    
    
    
    3
    
    
    
    
    
    
    
    104
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    107Stock compensation earned during the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    8Tax benefits related to exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90Balance, October 1, 2005
    
    
    24,479,276
    
    
    
    2,448
    
    
    
    (4
    )
    
    
    90,829
    
    
    
    
    
    
    
    11,129
    
    
    
    (182
    )
    
    
    104,220Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,013
    
    
    
    
    
    
    
    6,013Minimum pension liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    145
    
    
    
    145Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,158Stock options and warrants exercised
    
    
    187,114
    
    
    
    19
    
    
    
    
    
    
    
    443
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    462Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    373
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    373Common stock repurchased through
common stock purchase plan
    
    
    
    
    
    
    
    
    
    
    (25
    )
    
    
    (1,174
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,199
    )Tax benefits related to exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    166
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    166Balance, September 30, 2006
    
    
    24,666,390
    
    
    $
    2,467
    
    
    $
    (29
    )
    
    $
    90,637
    
    
    $
    
    
    
    $
    17,142
    
    
    $
    (37
    )
    
    $
    110,180
 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 FLOWS
 Year EndedSeptember 30,
    
    
    October 1,
    
    
    October 2,2006
    
    
    2005
    
    
    2004(In thousands)OPERATING ACTIVITIES:Net income (loss)
    
    $
    6,013
    
    
    $
    (3,535
    )
    
    $
    4,807Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Depreciation and amortization
    
    
    4,160
    
    
    
    4,067
    
    
    
    4,416Amortization of premium on marketable securities
    
    
    
    
    
    
    
    
    
    
    80Goodwill impairment
    
    
    364
    
    
    
    11,435
    
    
    
    Premium on marketable securities
    
    
    
    
    
    
    
    
    
    
    (120
    )Deferred income tax
    
    
    (404
    )
    
    
    670
    
    
    
    1,188(Gain)/loss on disposition of property, plant and equipment
    
    
    26
    
    
    
    (41
    )
    
    
    264Stock-based compensation expense related to employee stock awards
    
    
    373
    
    
    
    
    
    
    
    Tax benefit related to exercise of stock options
    
    
    166
    
    
    
    90
    
    
    
    379Excess tax benefits from stock-based compensation
    
    
    (84
    )
    
    
    
    
    
    
    Net changes in balance sheet accounts:Accounts receivable
    
    
    437
    
    
    
    (418
    )
    
    
    650Inventories
    
    
    208
    
    
    
    5,135
    
    
    
    (6,026
    )Prepaid expenses and other current assets
    
    
    313
    
    
    
    759
    
    
    
    143Other assets
    
    
    (99
    )
    
    
    10
    
    
    
    (40
    )Accounts payable
    
    
    37
    
    
    
    (4,239
    )
    
    
    996Accrued expenses and deferred revenue
    
    
    (2,214
    )
    
    
    2,554
    
    
    
    (3,494
    )Other long-term liabilities
    
    
    184
    
    
    
    (407
    )
    
    
    924Net cash provided by operating activities
    
    
    9,480
    
    
    
    16,080
    
    
    
    4,167INVESTING ACTIVITIES:Acquisition of property, plant and equipment
    
    
    (4,060
    )
    
    
    (3,509
    )
    
    
    (2,299
    )Proceeds from disposition of property, plant, and equipment
    
    
    54
    
    
    
    
    
    
    
    Proceeds from maturity of marketable security
    
    
    
    
    
    
    
    
    
    
    5,120Net cash provided by (used for) investing activities
    
    
    (4,006
    )
    
    
    (3,509
    )
    
    
    2,821FINANCING ACTIVITIES:Common stock issued for exercise of options
    
    
    462
    
    
    
    300
    
    
    
    598Common stock issued through employee purchase plan
    
    
    
    
    
    
    107
    
    
    
    268Repurchase of common stock
    
    
    (1,199
    )
    
    
    
    
    
    
    Excess tax benefits from stock-based compensation
    
    
    84
    
    
    
    
    
    
    
    Net cash provided by (used for) financing activities
    
    
    (653
    )
    
    
    407
    
    
    
    866Net change in cash
    
    
    4,821
    
    
    
    12,978
    
    
    
    7,854Cash at beginning of year
    
    
    51,008
    
    
    
    38,030
    
    
    
    30,176Cash at end of year
    
    $
    55,829
    
    
    $
    51,008
    
    
    $
    38,030SUPPLEMENTAL CASH FLOW INFORMATION:Cash paid for interest
    
    $
    
    
    
    $
    
    
    
    $
    2Cash paid for income taxes
    
    $
    4,649
    
    
    $
    1,653
    
    
    $
    167SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:Acquisition of property, plant and equipment in accounts payable
    
    $
    45
    
    
    $
    881
    
    
    $
    
 The accompanying notes are an integral part of these financial statements.
 54




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##### Table of Contents



a.
    
    Principles of ConsolidationThe consolidated financial statements include the accounts of the Company and all of its
wholly-owed subsidiaries. All significant inter-company accounts and transactions have been
eliminated. The Company does not have any investments in less than wholly-owned
subsidiaries or any interests in variable interest entities in which the Company is the
primary beneficiary.b.
    
    Fiscal Year-EndThe Companys fiscal year ends on the Saturday nearest September 30.c.
    
    Cash and Cash EquivalentsThe 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.
    
    Accounts ReceivableTrade accounts receivable are recorded at the invoiced amount and do not bear interest. 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 $32,000 in fiscal 2006, $274,000 in
fiscal 2005 and $170,000 in fiscal 2004.e.
    
    InventoriesInventories 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.f.
    
    Property, Plant and EquipmentProperty, 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 Statement of
Financial Accounting Standards (SFAS) No. 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. The Company has never had a write-down of
property, plant and equipment.
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##### Table of Contents



g.
    
    Goodwill and Other Intangible AssetsWe account for goodwill and other intangible assets in accordance with SFAS No. 142,
Goodwill and Other Intangible Assets, (SFAS 142). 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). SFAS 142 also requires that
reporting units be identified for purposes of assessing potential impairments and eliminated
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 estimated 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 estimated 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.As of October 1, 2005, the Company completed the first step impairment tests for the
goodwill relating to its acquisition of Panelview, Inc. (Panelview) and the reporting
units resulting from the acquisition of Interface Data Systems, Inc. (IDS). The fair
value of Panelview and the Phoenix-based IDS reporting units did not exceed the related
carrying value. The implied fair value of the goodwill was determined and an impairment
charge of $11.4 million was recognized for the excess of the carrying amount over the fair
value amount in the fourth quarter of fiscal 2005.Due to the less than expected financial performance in our Columbus, Ohio-based reporting
unit, the Company tested goodwill relating to this reporting unit in the third quarter of
fiscal 2006. The Companys annual impairment test is done at the end of the fiscal year.
The fair value of the Columbus-based IDS reporting unit did not exceed the related carrying
value. The implied fair value of the goodwill was determined and an impairment charge of
$0.4 million was recognized to write down all of the IDS acquisition value goodwill
associated with this reporting unit in the third quarter of fiscal 2006. See Note 7 of the
Notes to the Consolidated Financial Statements for further discussion.Goodwill recorded was $5.3 million and $5.7 million at September 30, 2006 and October 1,
2005, respectively. Furthermore, SFAS 142 requires purchased intangible assets other than
goodwill to be amortized over their useful lives unless these lives are determined to be
indefinite. Purchased intangible assets are carried at cost less accumulated amortization.
Amortization is computed over the estimated useful lives of the respective assets, generally
two to fifteen years.h.
    
    Product WarrantiesEstimated future warranty obligations related to certain products are provided by charges to
operations in the period in which the related revenue is recognized. The Company
establishes a reserve for warranty obligations based on its historical warranty experience.i.
    
    Revenue RecognitionThe Company sells its microelectronic and display products primarily to military prime
contractors and commercial OEMs. 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
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##### Table of Contents



j.
    
    Shipping CostsShipping 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
to the Company by our customers are classified as revenue.k.
    
    Research and DevelopmentResearch and development costs are expensed as incurred.l.
    
    Income TaxesThe Company accounts for income taxes in accordance with SFAS No. 109, Accounting for
Income Taxes, 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.m.
    
    Fair Value of Financial InstrumentsThe Company values financial instruments as required by SFAS No. 107, Disclosures about
Fair Value of Financial Instruments. The carrying amounts of cash and cash equivalents,
accounts receivable and accounts payable approximate their fair value due to the relatively
short maturity of these items.n.
    
    Accounting EstimatesThe 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.o.
    
    Earnings (Loss) per ShareBasic earnings (loss) per share are computed by dividing income or loss available to common
shareholders by the weighted average number of common shares outstanding during the period.
Diluted earnings (loss) per share are similar to basic earnings (loss) 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 if the
increase results in dilution.
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2006Income
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    AmountEarnings per share-basicNet Income
    
    $
    6,013,000
    
    
    
    24,488,041
    
    
    $
    0.25Income available to common stockholders
    
    
    6,013,000
    
    
    
    24,488,041
    
    
    
    0.25Effects of Dilutive SecuritiesStock options
    
    
    
    
    
    
    442,898
    
    
    
    (0.01
    )Earnings per share-dilutedIncome available to common stockholders
    
    $
    6,013,000
    
    
    
    24,930,939
    
    
    $
    0.24
  2005Loss
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    AmountLoss per share-basicNet Loss
    
    $
    (3,535,000
    )
    
    
    24,437,672
    
    
    $
    (0.14
    )Earnings available to common stockholders
    
    
    (3,535,000
    )
    
    
    24,437,672
    
    
    
    (0.14
    )Effects of Dilutive SecuritiesStock options
    
    
    
    
    
    
    
    
    
    
    Loss per share-dilutedLoss available to common stockholders
    
    $
    (3,535,000
    )
    
    
    24,437,672
    
    
    $
    (0.14
    )
  2004Income
    
    
    Shares
    
    
    Per share(Numerator)
    
    
    (Denominator)
    
    
    amountEarnings per share-basicNet Income
    
    $
    4,807,000
    
    
    
    24,201,436
    
    
    $
    0.20Earnings available to common stockholders
    
    
    4,807,000
    
    
    
    24,201,436
    
    
    
    0.20Effects of Dilutive SecuritiesStock options
    
    
    
    
    
    
    800,470
    
    
    
    (0.01
    )Earnings per share-dilutedEarnings available to common stockholders
    
    $
    4,807,000
    
    
    
    25,001,906
    
    
    $
    0.19
  p.
    
    Stock-Based CompensationStock OptionsEffective October 2, 2005, the Company adopted SFAS No. 123(R), Share-Based Payment (SFAS
123(R)), which requires the measurement and recognition of compensation expense in the
financial statements for all share-based payment awards made to employees and directors
based on estimated fair
 58




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##### Table of Contents



2005
    
    
    2004Net income (loss)  as reported
    
    $
    (3,535
    )
    
    $
    4,807Less: Total stock-based employee compensation
expense determined under the fair value based
method for all awards, net of related tax effects
    
    
    (1,525
    )
    
    
    (730
    )Net income (loss)  pro forma
    
    $
    (5,060
    )
    
    $
    4,077Earnings (loss) per share-basic as reported
    
    $
    (0.14
    )
    
    $
    0.20Earnings (loss) per share-basic pro forma
    
    $
    (0.20
    )
    
    $
    0.17Earnings (loss) per share-diluted as reported
    
    $
    (0.14
    )
    
    $
    0.19Earnings (loss) per share-diluted pro forma
    
    $
    (0.20
    )
    
    $
    0.16
 59




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##### Table of Contents



A summary of the Companys stock option activity for fiscal year 2006 follows (in thousands,
except per share amounts):
 Options OutstandingWeighted AverageOptions Available
    
    Options
    
    Exercise Price Perfor Grant
    
    Outstanding
    
    ShareBalance at October 1, 2005
    
    
    1,167
    
    
    
    2,208
    
    
    $
    4.70Granted
    
    
    (220
    )
    
    
    220
    
    
    
    4.86Exercised
    
    
    
    
    
    
    (137
    )
    
    
    2.29Expired
    
    
    27
    
    
    
    (31
    )
    
    
    8.82Forfeited
    
    
    25
    
    
    
    (25
    )
    
    
    5.15999Shares transferred to 2006 Director Restricted Stock Plan
    
    
    (117
    )Balance at September 30, 2006
    
    
    882
    
    
    
    2,235
    
    
    $
    4.80
 The total pretax intrinsic value of options exercised during fiscal year 2006 was
approximately $442,000.The total fair value of all options that vested during fiscal year 2006 was approximately
$394,000.As of September 30, 2006, total compensation cost related to unvested stock options not yet
recognized was approximately $0.6 million which is expected to be recognized over the next
four years.We recognize compensation expense using the straight-line method for stock option awards that
vest ratably over the vesting period. SFAS 123(R) requires forfeitures to be estimated at the
time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ
from those estimates. In our pro forma information required under SFAS 123 for periods prior
to fiscal 2006, we only accounted for forfeitures as they occurred.The fair value of each option grant was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions:
 Employee Stock Options2006
    
    2005
    
    2004Expected options term (years)
    
    
    5.3
    
    
    
    5.2
    
    
    
    4.7Risk free interest rate
    
    
    4.56
    %
    
    
    4.13
    %
    
    
    3.35
    %Volatility
    
    
    55
    %
    
    
    68
    %
    
    
    81
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
 Employee Stock Purchase Plan2006
    
    2005
    
    2004Expected options term (years)
    
    
    
    
    
    
    0.5
    
    
    
    0.5Risk free interest rate
    
    
    
    
    
    
    3.79
    %
    
    
    1.79
    %Volatility
    
    
    
    
    
    
    39
    %
    
    
    58
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
 The Company used historical volatility as the expected volatility in the Black-Scholes model.
The expected life of employee stock options represents the weighted-average period the stock
options are expected to remain outstanding. The risk-free interest rate assumption is based
upon observed interest rates appropriate for the weighted average expected option life of the
Companys employee stock options. The dividend yield assumption is based on the Companys
history and expectation of dividend payouts.
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The weighted-average estimated fair value of the discount on the shares sold under the
Employee Stock Purchase Plan during fiscal years 2005 and 2004 was $0.80 and $1.05,
respectively. The Employee Stock Purchase Plan was terminated effective December 31, 2004.Restricted Stock UnitsThe following table summarizes restricted stock unit activity for the year ended September 30,
2006 (in thousands, except per share amounts):
 Weighted-Number of
    
    AverageRestricted
    
    Grant-DateStock Units
    
    Fair ValueOutstanding on October 1, 2005
    
    
    
    
    
    $
    Granted
    
    
    38
    
    
    
    5.81Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding on September 30, 2006
    
    
    38
    
    
    $
    5.81
 As of September 30, 2006, there was $0.2 million pre-tax of total restricted stock unit
compensation expense related to nonvested awards not yet recognized, which is expected to be
recognized over the next three years.q.
    
    Newly Issued Accounting StandardsIn December 2004, the FASB issued SFAS No. 151, Inventory Costs  an amendment of ARB No. 43,
Chapter 4. This Statement amends the guidance in Accounting Research Bulletin (ARB) No. 43,
Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle
facility expense, freight, handling costs, and wasted material (spoilage). This Statement
requires that those items be recognized as current period charges regardless of whether they
meet the criterion of abnormal. In addition, this Statement requires that allocation of fixed
production overheads to the costs of conversion be based on the normal capacity of the
production facilities. The provisions of this Statement are now in effect for inventory costs
incurred in fiscal 2006. The implementation of this Statement has not had a material impact on
the Companys consolidated financial condition or results of operations.In March 2005, the FASB issued Financial Interpretation (FIN) No. 47, Accounting for
Conditional Asset Retirement Obligations. This interpretation clarifies that the term
conditional asset retirement obligation as used in SFAS No. 143, Accounting for Asset
Retirement Obligations, refers to a legal obligation to perform an asset retirement activity
in which the timing and/or method of settlement are conditional on a future event that may or
may not be within the control of the entity. Accordingly, an entity is required to recognize
a liability for the fair value of a conditional asset retirement obligation if the fair value
of the liability can be reasonably estimated. The Company implemented FIN No. 47 effective
September 30, 2006. The implementation of this Statement has not had a material impact on the
Companys financial condition or results of operations.In July 2006, the FASB issued FIN No. 48, Accounting for Uncertainty in Income Taxes. The
interpretation applies to all tax positions related to income taxes subject to FASB Statement
No. 109, Accounting for Income Taxes. FIN No. 48 clarifies the accounting for uncertainty
in income taxes by prescribing a minimum recognition threshold in determining if a tax
position should be reflected in the financial statements. Only tax positions that meet the
more likely than not recognition threshold may be recognized. The interpretation also
provides guidance on classification, interest and penalties, accounting in interim periods,
disclosure, and transition requirements for uncertain tax positions. FIN No. 48 will be
effective for the Companys fiscal year ending September 29, 2007. The Company is currently
evaluating the impact FIN No. 48 will have on the Companys financial condition and results of
operations.
 61




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3.
    
    FACILITIES CLOSUREIn October 2004, the Company announced that it would be closing its Flower Street facility in
Phoenix, Arizona (acquired as part of the IDS acquisition) and relocating employees and the
machinery and equipment to the Companys leased facility in the headquarters building. In
November 2004, the Company entered into an amendment of its headquarters lease to add another
31,000 square feet of space in this facility which was improved to accommodate the additional
manufacturing relocated in the second quarter of fiscal 2006. The amended headquarters lease
covers up to approximately 74,000 square feet. The lease term will expire in July 2015 and is
subject to two five-year renewal options. The Company incurred approximately $4.1 million in
capital expenditures for the leasehold improvements. The Company has put the Flower Street land
and building on the market and expects net proceeds from the sale to exceed the net book value;
however, the Company does not expect any ultimate gain or loss to have a material impact on its
consolidated results of operations (see Note 5).4.
    
    INVENTORIES, NETInventories consist of the following (in thousands of dollars):
 September 30,
    
    
    October 1,2006
    
    
    2005Gross inventories:Raw materials
    
    $
    13,422
    
    
    $
    12,933Work-in-process
    
    
    5,420
    
    
    
    6,603Finished goods
    
    
    3,361
    
    
    
    3,354Total gross inventories
    
    
    22,203
    
    
    
    22,890Less reserve for excess and obsolete inventories
    
    
    (2,802
    )
    
    
    (3,281
    )Total net inventories
    
    $
    19,401
    
    
    $
    19,609
  62




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##### Table of Contents



5.
    
    ASSETS HELD FOR SALEAssets held for sale consisted of the following (in thousands of dollars):
 September 30, 2006
    
    
    October 1, 2005Land
    
    $
    300
    
    
    $
    Building and improvements
    
    
    1,624
    
    
    
    $
    1,924
    
    
    $
    
 The Company has land and a building in Phoenix, Arizona on the market as a result of the
consolidation of the microelectronic segment and the relocation of the employees to the
headquarters facility. The net book value of the land and building is presented as assets held
for sale and depreciation of the building was discontinued in the second quarter of fiscal 2006.6.
    
    PREPAID EXPENSES AND OTHER CURRENT ASSETSPrepaid expenses and other current assets consist of the following (in thousands of dollars):
 September 30,
    
    
    October 1,2006
    
    
    2005Litigation insurance receivable (Note 14)
    
    $
    6,000
    
    
    $
    Other
    
    
    512
    
    
    
    825Total accrued expenses
    
    $
    6,512
    
    
    $
    825
 7.
    
    GOODWILL AND INTANGIBLE ASSETSChanges in the carrying amount of goodwill for the fiscal years ended September 30, 2006 and
October 1, 2005 are as follows (in thousands of dollars):
 Microelectronic
    
    
    DisplaySegment
    
    
    Segment
    
    
    TotalBalance as of October 2, 2004
    
    $
    8,636
    
    
    $
    8,469
    
    
    $
    17,105Goodwill impairment
    
    
    (7,144
    )
    
    
    (4,291
    )
    
    
    (11,435
    )Balance as of October 1, 2005
    
    
    1,492
    
    
    
    4,178
    
    
    
    5,670Goodwill impairment
    
    
    
    
    
    
    (364
    )
    
    
    (364
    )Balance as of September 30, 2006
    
    $
    1,492
    
    
    $
    3,814
    
    
    $
    5,306
   63




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##### Table of Contents



Gross
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Net AmountSeptember 30, 2006Customer relationships
    
    $
    4,100
    
    
    $
    (1,002
    )
    
    $
    3,098Existing technology
    
    
    2,427
    
    
    
    (1,160
    )
    
    
    1,267Other
    
    
    1,244
    
    
    
    (1,000
    )
    
    
    244Total intangible assets
    
    $
    7,771
    
    
    $
    (3,162
    )
    
    $
    4,609October 1, 2005Customer relationships
    
    $
    4,100
    
    
    $
    (729
    )
    
    $
    3,371Existing technology
    
    
    2,427
    
    
    
    (960
    )
    
    
    1,467Other
    
    
    1,283
    
    
    
    (1,000
    )
    
    
    283Total intangible assets
    
    $
    7,810
    
    
    $
    (2,689
    )
    
    $
    5,121
 64




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##### Table of Contents



September 30,
    
    
    October 1,2006
    
    
    2005Balance at beginning of year
    
    $
    5,121
    
    
    $
    5,643Change in intangible pension asset
    
    
    (39
    )
    
    
    84Amortization
    
    
    (473
    )
    
    
    (606
    )Balance at end of year
    
    $
    4,609
    
    
    $
    5,121
 
 2007
    
    $
    4732008
    
    
    4732009
    
    
    4732010
    
    
    4732011
    
    
    473Thereafter
    
    
    1,999$
    4,364
 8.
    
    PROPERTY, PLANT AND EQUIPMENTProperty, plant and equipment consist of the following (in thousands of dollars):
 September 30,
    
    
    October 1,2006
    
    
    2005Land
    
    $
    397
    
    
    $
    697Buildings and improvements
    
    
    1,831
    
    
    
    3,738Machinery and equipment
    
    
    17,461
    
    
    
    16,129Furniture and fixtures
    
    
    4,163
    
    
    
    3,432Leasehold improvements
    
    
    6,392
    
    
    
    2,225Construction in progress
    
    
    678
    
    
    
    3,020Total, at cost
    
    
    30,922
    
    
    
    29,241Less accumulated depreciation and amortization
    
    
    (17,555
    )
    
    
    (14,289
    )Net property, plant and equipment
    
    $
    13,367
    
    
    $
    14,952
 Depreciation expense was $3.7 million, $3.5 million and $3.7 million for fiscal years 2006,
2005 and 2004, respectively.9.
    
    OTHER ACCRUED EXPENSESAccrued expenses consist of the following (in thousands of dollars):
 September 30,
    
    
    October 1,2006
    
    
    2005Accrued litigation settlement (Note 14)
    
    $
    6,000
    
    
    $
    Sales commissions
    
    
    506
    
    
    
    914Warranty
    
    
    413
    
    
    
    622Income taxes
    
    
    
    
    
    
    1,308Other accruals
    
    
    716
    
    
    
    857Total accrued expenses
    
    $
    7,635
    
    
    $
    3,701
 65




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##### Table of Contents



Warranty reserve, October 2, 2004
    
    $
    640Provision for warranty claims
    
    
    914Warranty claims charged against the reserve
    
    
    (932
    )Warranty reserve, October 1, 2005
    
    
    622Provision for warranty claims
    
    
    121Warranty claims charged against the reserve
    
    
    (330
    )Warranty reserve, September 30, 2006
    
    $
    413
 10.
    
    LINE OF CREDITWe have a $12.0 million revolving line of credit with JPMorgan Chase Bank, N.A. Borrowings
under the line of credit bear interest at the lower of the London Interbank Offered Rate
(LIBOR) plus 1.5%, or the JPMorgan Chase Bank, N.A. prime rate. The line of credit expires
on March 31, 2007. We are currently negotiating the terms and conditions of a new credit
facility with JPMorgan Chase Bank, N.A. A commitment fee of 0.25% is charged on the unused
portion of the line. The Company is in compliance with all debt covenant requirements contained
in its line of credit agreement. As of September 30, 2006, there were no borrowings against the
line of credit, and we have not borrowed against the line of credit since April 2003.11.
    
    INCOME TAXESThe provision for income taxes consists of the following (in thousands of dollars):
 2006
    
    
    2005
    
    
    2004CurrentFederal
    
    $
    3,186
    
    
    $
    1,066
    
    
    $
    803State
    
    
    201
    
    
    
    291
    
    
    
    144Total current
    
    
    3,387
    
    
    
    1,357
    
    
    
    947DeferredFederal
    
    
    (298
    )
    
    
    818
    
    
    
    1,190State
    
    
    (106
    )
    
    
    (148
    )
    
    
    (2
    )Total deferred
    
    
    (404
    )
    
    
    670
    
    
    
    1,188Income tax provision
    
    $
    2,983
    
    
    $
    2,027
    
    
    $
    2,135
  2006
    
    
    2005
    
    
    2004Income tax expense (benefit) provision at statutory rate
    
    $
    3,059
    
    
    $
    (513
    )
    
    $
    2,361State taxes, net of federal benefit
    
    
    115
    
    
    
    (56
    )
    
    
    257Federal and state credits
    
    
    (47
    )
    
    
    (816
    )
    
    
    (415
    )Extraterritorial income exclusion
    
    
    (94
    )
    
    
    (139
    )
    
    
    (30
    )Non-deductible goodwill impairment
    
    
    124
    
    
    
    4,311
    
    
    
    Manufacturers deduction
    
    
    (93
    )
    
    
    
    
    
    
    Adjustments related to prior year accruals
    
    
    (119
    )
    
    
    (786
    )
    
    
    Other
    
    
    38
    
    
    
    26
    
    
    
    (38
    )Income tax provision
    
    $
    2,983
    
    
    $
    2,027
    
    
    $
    2,135
 66




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##### Table of Contents



September 30,
    
    
    October 1,2006
    
    
    2005Deferred tax assets:Tax credits
    
    $
    275
    
    
    $
    200Allowance for doubtful accounts
    
    
    101
    
    
    
    98Inventories
    
    
    2,453
    
    
    
    2,902Deferred revenue
    
    
    771
    
    
    
    703Accrued expenses and other liabilities
    
    
    856
    
    
    
    550Pension
    
    
    21
    
    
    
    82Net operating loss carry forwards
    
    
    1,104
    
    
    
    1,359Deferred tax assets
    
    
    5,581
    
    
    
    5,894Deferred tax liabilities:Property, plant, and equipment
    
    
    (552
    )
    
    
    (1,029
    )Intangible assets
    
    
    (1,722
    )
    
    
    (1,908
    )Other
    
    
    (181
    )
    
    
    (174
    )Deferred tax liabilities
    
    
    (2,455
    )
    
    
    (3,111
    )Net deferred tax assets
    
    $
    3,126
    
    
    $
    2,783
 As of September 30, 2006, the Company had federal net operating loss carry forwards of
approximately $3.2 million, which expire at various dates through 2018. There were state tax
credit carry forwards of approximately $0.3 million as of September 30, 2006, which expire at
various dates through 2021.Ownership changes, as defined in Internal Revenue Code Section 382, have limited the amount of
net operating loss carry forwards that can be utilized by the Company annually to offset future
taxable income and liability.During the fourth quarter of fiscal 2005, the Internal Revenue Service completed its examination
of our federal income tax returns for the fiscal years ended September 28, 2002 and September
27, 2003. Based on the results of the examination, we decreased our tax liabilities by
approximately $0.8 million and decreased income tax expense by a corresponding amount.In October 2004, Congress passed the American Jobs Creation Act of 2004 (the Act), which
eliminated the extraterritorial income exclusion, and provides a deduction from taxable income
equal to a stipulated percentage of qualified income from domestic production activities,
referred to as the manufacturer deduction. The extraterritorial income exclusion will be phased
out through 2006, and the manufacturer deduction will be phased in through 2010. Additionally,
the federal research and experimentation credit expired on December 31, 2005, which increased
the Companys effective rate in fiscal 2006. However, on
December 9, 2006, Congress extended the
research and experimentation credit through December 31, 2007 and made it retroactive to January
1, 2006, subject to the expected signing by the President of the
United States. Due to the provisions of SFAS 109, the Company will record the benefit of the
retroactive portion in the fiscal quarter that the bill is enacted.
 67




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##### Table of Contents



12.
    
    BENEFIT PLANS
 Defined Benefit Plan
   68




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##### Table of Contents



September 30,
    
    
    October 1,2006
    
    
    2005(In thousands)Defined Benefit PlanReconciliation of Projected Benefit ObligationBenefit obligation beginning of year
    
    $
    3,363
    
    
    $
    3,085Service cost
    
    
    63
    
    
    
    61Interest cost
    
    
    182
    
    
    
    183Benefits paid
    
    
    (155
    )
    
    
    (154
    )Actuarial (gain) loss
    
    
    (136
    )
    
    
    188Benefit obligation end of year
    
    $
    3,317
    
    
    $
    3,363Reconciliation of Fair Value of Plan AssetsPlan assets at fair market value beginning of year
    
    $
    2,811
    
    
    $
    2,610Actual return on plan assets
    
    
    238
    
    
    
    288Employer contributions
    
    
    
    
    
    
    80Benefits paid
    
    
    (155
    )
    
    
    (154
    )Expenses
    
    
    (6
    )
    
    
    (13
    )Plan assets at fair market value end of year
    
    $
    2,888
    
    
    $
    2,811Funded Status
    
    $
    (428
    )
    
    $
    (552
    )Unrecognized prior service cost
    
    
    244
    
    
    
    283Unrecognized actuarial loss
    
    
    58
    
    
    
    264Net amount recognized
    
    $
    (126
    )
    
    $
    (5
    )Amounts recognized in the consolidated balance sheetAccrued benefit liability
    
    $
    (428
    )
    
    $
    (552
    )Intangible assets
    
    
    244
    
    
    
    283Accumulated other comprehensive loss
    
    
    58
    
    
    
    264Net amount recognized
    
    $
    (126
    )
    
    $
    (5
    )
 2006
    
    
    2005
    
    
    2004(In thousands)Components of Net Periodic Benefit CostService cost
    
    $
    89
    
    
    $
    87
    
    
    $
    83Interest cost
    
    
    182
    
    
    
    183
    
    
    
    172Expected return on market-related plan assets
    
    
    (189
    )
    
    
    (177
    )
    
    
    (172
    )Amortization of prior service cost
    
    
    39
    
    
    
    39
    
    
    
    27Recognized actuarial loss
    
    
    
    
    
    
    
    
    
    
    11Net periodic benefit cost
    
    $
    121
    
    
    $
    132
    
    
    $
    121
 2006
    
    2005
    
    2004(In thousands)Additional InformationIncrease (decrease) in minimum liability included in
other comprehensive income
    
    $
    (145
    )
    
    $
    (35
    )
    
    $
    (109
    )
  September 30,
    
    October 1,
    
    October 2,2006
    
    2005
    
    2004Weighted-Average AssumptionsDiscount Rate
    
    
    5.89
    %
    
    
    5.65
    %
    
    
    5.92
    %Expected return on plan assets
    
    
    7.00
    %
    
    
    7.00
    %
    
    
    7.00
    %
 69




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##### Table of Contents



2006
    
    
    2005Cash and cash equivalents
    
    $
    48
    
    
    $
    102Fixed income mutual funds
    
    
    1,203
    
    
    
    1,109Equity mutual funds
    
    
    1,631
    
    
    
    1,594Other
    
    
    6
    
    
    
    6Total
    
    $
    2,888
    
    
    $
    2,811
    PensionPeriod
    
    Benefits2007
    
    $
    1912008
    
    
    2012009
    
    
    1992010
    
    
    2112011
    
    
    242Years 2012-2016
    
    
    1,339
 401(k) PlanThe Company has an Incentive Savings 401(k) Plan covering its non-union employees who have
completed six months of service. During fiscal 2006, the Company matched employee contributions
equal to 50% of the first 6% of the participants wage base. During fiscal 2006, 2005 and 2004,
the Company made contributions to the plan of approximately $413,000, $352,000 and $293,000,
respectively.13.
    
    STOCK OPTIONS, WARRANTS, AND STOCK PURCHASE PLANSStock Option PlansExecutives 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
equals the fair market value of
 70




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##### Table of Contents



2006
    
    
    2005
    
    
    2004Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedShares
    
    
    Average
    
    
    Shares
    
    
    Average
    
    
    Shares
    
    
    AverageUnder
    
    
    Exercise
    
    
    Under
    
    
    Exercise
    
    
    Under
    
    
    ExerciseOption
    
    
    Price
    
    
    Option
    
    
    Price
    
    
    Option
    
    
    PriceBeginning balance outstanding
    
    
    2,208
    
    
    $
    4.70
    
    
    
    2,047
    
    
    $
    4.43
    
    
    
    2,215
    
    
    $
    4.15Granted
    
    
    220
    
    
    $
    4.86
    
    
    
    325
    
    
    $
    6.11
    
    
    
    179
    
    
    $
    7.33Exercised
    
    
    (137
    )
    
    $
    2.29
    
    
    
    (108
    )
    
    $
    2.36
    
    
    
    (232
    )
    
    $
    2.76Expired
    
    
    (31
    )
    
    $
    8.82
    
    
    
    (42
    )
    
    $
    7.65
    
    
    
    (27
    )
    
    $
    10.14Forfeited
    
    
    (25
    )
    
    $
    5.15
    
    
    
    (14
    )
    
    $
    7.23
    
    
    
    (88
    )
    
    $
    6.10Ending balance outstanding
    
    
    2,235
    
    
    $
    4.80
    
    
    
    2,208
    
    
    $
    4.70
    
    
    
    2,047
    
    
    $
    4.43Options exercisable at year end
    
    
    1,985
    
    
    $
    4.77
    
    
    
    2,071
    
    
    $
    4.58
    
    
    
    1,691
    
    
    $
    3.92Shares available for future grant
    
    
    882
    
    
    
    
    
    
    
    1,167
    
    
    
    
    
    
    
    1,442Weighted average fair value of
all options
granted during the year
    
    
    
    
    
    $
    2.59
    
    
    
    
    
    
    $
    4.21
    
    
    
    
    
    
    $
    5.05
 71




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##### Table of Contents



Options Outstanding
    
    
    Options ExercisableWeighted-
    
    
    Weighted-
    
    
    
    
    
    
    
    
    
    
    Weighted-
    
    
    Weighted-Average
    
    
    Average
    
    
    
    
    
    
    
    
    
    
    Average
    
    
    AverageRemaining
    
    
    Exercise
    
    
    Aggregate
    
    
    
    
    
    
    Remaining
    
    
    Exercise
    
    
    AggregateRange of
    
    Number
    
    
    Contractual
    
    Price per
    Intrinsic
    
    
    Number
    
    
    Contractual
    
    
    Price per
    
    
    IntrinsicExercise Prices
    
    Outstanding
    
    
    Life (in Years)
    
    
    Share
    
    
    Value
    
    
    Exercisable
    
    
    Life (in Years)
    
    
    Share
    
    
    Value0.0000 - 1.6000
    
    
    253
    
    
    
    2.15
    
    
    $
    1.13
    
    
    
    
    
    
    
    253
    
    
    
    
    
    
    $
    1.131.6001 - 3.2000
    
    
    384
    
    
    
    2.82
    
    
    
    2.63
    
    
    
    
    
    
    
    384
    
    
    
    
    
    
    
    2.633.2001 - 4.8000
    
    
    588
    
    
    
    5.43
    
    
    
    3.97
    
    
    
    
    
    
    
    493
    
    
    
    
    
    
    
    3.834.8001 - 6.4000
    
    
    314
    
    
    
    7.89
    
    
    
    5.54
    
    
    
    
    
    
    
    177
    
    
    
    
    
    
    
    5.966.4001 - 8.0000
    
    
    516
    
    
    
    6.67
    
    
    
    6.98
    
    
    
    
    
    
    
    498
    
    
    
    
    
    
    
    6.958.0001 - 9.6000
    
    
    87
    
    
    
    6.59
    
    
    
    8.67
    
    
    
    
    
    
    
    87
    
    
    
    
    
    
    
    8.679.6001 - 11.2000
    
    
    81
    
    
    
    4.06
    
    
    
    10.59
    
    
    
    
    
    
    
    81
    
    
    
    
    
    
    
    10.5911.2001 - 12.8000
    
    
    12
    
    
    
    6.91
    
    
    
    12.19
    
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    12.19Total
    
    
    2,235
    
    
    
    5.25
    
    
    $
    4.80
    
    
    $
    2,468
    
    
    
    1,985
    
    
    
    4.74
    
    
    $
    4.77
    
    
    $
    2,436
 The aggregate intrinsic value in the preceding table represents the total pretax intrinsic
value, based on the Companys closing stock price of $4.97 on September 29, 2006, which would
have been received by the option holders had all option holders exercised their in-the-money
options as of that date. The total number of in-the-money options exercisable as of September
30, 2006 was approximately 1,130,000.Restricted Stock PlanEffective March 24, 2006, the White Electronic Designs Corporation 2006 Director Restricted
Stock Plan was approved by the shareholders. Under this plan, non-employee directors receive an
annual grant of 7,500 shares at the Annual Meeting of Shareholders that vest ratably over a
three year period. The Company values these shares using the intrinsic method. The 37,500
shares granted on March 24, 2006 were valued at $5.81 per share, the closing price of the stock
on the date of grant.Stock Purchase PlansIn February 2001, the Companys Board of Directors adopted the White Electronic Designs
Corporation 2000 Employee Stock Purchase Plan. This plan provided for the purchase by employees
of up to 300,000 shares of common stock at 85% of the fair market value on the first or last day
of the offering period (as defined in the plan), whichever is lower. This plan began July 1,
2001; however, it was terminated effective December 31, 2004. The final offering period was
from July 1, 2004 through December 31, 2004. There were 24,214 shares issued under this plan in
fiscal year 2005, and 47,170 shares issued under this plan in fiscal year 2004.14.
    
    COMMITMENTS AND CONTINGENCIESThe Company leases certain property and equipment under non-cancelable lease agreements, some of
which include renewal options, of up to ten years. Total rent expense for fiscal 2006, 2005,
and 2004 was approximately $2.0 million, $1.8 million and $1.3 million, respectively. Future
minimum annual fixed rentals required under non-cancelable operating leases having an original
term of more than one year are approximately $1.5 million in 2007, $1.6 million in 2008, $1.5
million in 2009, $1.1 million in 2010, and $0.9 million in 2011.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
 72




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##### Table of Contents



McJimsey v. White Electronic Designs Corporation, et al. Afework v. White Electronic Designs Corporation, et al Anders v. White Electronic Designs Corporation, et al. Sammarco v. White Electronic Designs Corporation, et al.
 Dodt v.
Shokrgozar, et al. Christ v. Shokrgozar, et al.
  73




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15.
    
    CONCENTRATIONS OF CREDIT RISKOur 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 write-offs of bad debts totaled approximately $32,000 in fiscal 2006,
$274,000 in fiscal 2005, and $170,000 in fiscal 2004. Sales to military customers accounted for
approximately $52.3 million, or 48%, of our sales in fiscal 2006, as compared to approximately
$49.3 million, or 42%, of our sales in fiscal 2005. Sales to our commercial customers accounted
for approximately $56.6 million, or 52%, of our sales in fiscal 2006, as compared to $67.8
million, or 58%, of our sales in fiscal 2005.In fiscal 2006, On Command Corporation accounted for approximately $7.4 million, or 12%, of
microelectronic segment net sales, while Hewlett Packard Company accounted for approximately
$8.6 million, or 18%, of display segment net sales. In fiscal 2005, On Command Corporation
accounted for approximately $9.3 million, or 15%, of our microelectronic segment sales, while
NCR Corporation accounted for approximately $9.3 million, or 18%, of our display segment sales.
No one customer accounted for 10% or more of total net sales for fiscal year 2006 or 2005.
Foreign sales for fiscal 2006, 2005 and 2004 were approximately $31.1 million, $20.7 million and
$18.4 million, respectively. Additional information concerning sales by geographic area can be
found in Note 17.Throughout the year, the Company maintained certain bank account balances in excess of the FDIC
insured limits.16.
    
    SHAREHOLDERS RIGHTS PLANOn December 6, 1996, the Board of Directors adopted a shareholder rights plan to protect
shareholders against unsolicited attempts to acquire control of the Company, under certain
circumstances, including situations in which the Board believes that an inadequate price is
being offered to shareholders. On November 30, 2006, the Board of Directors approved Amendment
No. 2 to the rights plan extending the plan until December 5, 2016. Amendment No. 2 also
increased the purchase price for each common share pursuant to the exercise of a Right (as
defined in the plan) from $20 to $40, subject to adjustment from time to time as provided in the
plan.17.
    
    FINANCIAL DATA BY BUSINESS SEGMENTThe 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 55% of total Company net sales in fiscal 2006, while the display
segment accounted for approximately 45% of total Company net sales in fiscal 2006.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 telecommunication 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 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 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
 74




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2006
    
    
    2005
    
    
    2004United States of America
    
    $
    77,814
    
    
    $
    96,295
    
    
    $
    90,529Europe and Middle East
    
    
    10,761
    
    
    
    10,412
    
    
    
    11,360Asia Pacific
    
    
    16,742
    
    
    
    8,076
    
    
    
    4,765Other
    
    
    3,611
    
    
    
    2,250
    
    
    
    2,308Total Sales
    
    $
    108,928
    
    
    $
    117,033
    
    
    $
    108,962
 75




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##### Table of Contents



OPERATIONS BY BUSINESS SEGMENTS
(in thousands)
 2006
    
    
    2005
    
    
    2004Net salesMicroelectronics
    
    $
    60,197
    
    
    $
    64,083
    
    
    $
    60,691Display
    
    
    48,731
    
    
    
    52,948
    
    
    
    48,271Total net sales
    
    $
    108,928
    
    
    $
    117,031
    
    
    $
    108,962Income (loss) before tax (1)Microelectronics
    
    $
    9,336
    
    
    $
    3,133
    
    
    $
    8,477Display
    
    
    (340
    )
    
    
    (4,641
    )
    
    
    (1,535
    )Total income (loss) before tax
    
    $
    8,996
    
    
    $
    (1,508
    )
    
    $
    6,942Identifiable assetsMicroelectronics
    
    $
    36,518
    
    
    $
    38,780
    
    
    $
    44,760Display
    
    
    27,622
    
    
    
    26,853
    
    
    
    37,330General corporate
    
    
    66,368
    
    
    
    55,635
    
    
    
    42,810Total identifiable assets
    
    $
    130,508
    
    
    $
    121,268
    
    
    $
    124,900Capital expendituresMicroelectronics
    
    $
    3,607
    
    
    $
    3,822
    
    
    $
    1,125Display
    
    
    498
    
    
    
    568
    
    
    
    1,175Total capital expenditures
    
    $
    4,105
    
    
    $
    4,390
    
    
    $
    2,300Depreciation and amortization expenseMicroelectronics
    
    $
    2,435
    
    
    $
    2,304
    
    
    $
    2,467Display
    
    
    1,725
    
    
    
    1,763
    
    
    
    1,949Total depreciation and amortization expense
    
    $
    4,160
    
    
    $
    4,067
    
    
    $
    4,416
 
 (1)
    
    Fiscal year 2006 reflects a non-cash goodwill impairment charge of approximately $0.4
million for the display segment in connection with the review of goodwill for impairment in
the third quarter. Fiscal year 2005 reflects a non-cash goodwill impairment charge of
approximately $7.1 million for the microelectronic segment and $4.3 million for the display
segment in connection with the annual review of goodwill for impairment. 76




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##### Table of Contents



Fiscal 2006Year
    
    Sep 30
    
    Jul 1
    
    Apr 1
    
    Dec 31(In thousand of dollars, except per share data)Net sales
    
    $
    108,928
    
    
    $
    29,726
    
    
    $
    26,944
    
    
    $
    27,380
    
    
    $
    24,880Gross profit
    
    $
    33,215
    
    
    $
    8,532
    
    
    $
    8,448
    
    
    $
    8,968
    
    
    $
    7,268Income before income taxes
    
    $
    8,996
    
    
    $
    2,885
    
    
    $
    2,284
    
    
    $
    2,597
    
    
    $
    1,231Net income
    
    $
    6,013
    
    
    $
    2,029
    
    
    $
    1,459
    
    
    $
    1,716
    
    
    $
    810Earnings per share-basic
    
    $
    0.25
    
    
    $
    0.08
    
    
    $
    0.06
    
    
    $
    0.07
    
    
    $
    0.03Earnings per share-diluted
    
    $
    0.24
    
    
    $
    0.08
    
    
    $
    0.06
    
    
    $
    0.07
    
    
    $
    0.03
 Fiscal 2005Year
    
    Oct 1 (1)
    
    Jul 2
    
    Apr 2
    
    Jan 1(In thousand of dollars, except per share data)Net sales
    
    $
    117,031
    
    
    $
    29,976
    
    
    $
    30,329
    
    
    $
    27,860
    
    
    $
    28,866Gross profit
    
    $
    34,733
    
    
    $
    9,373
    
    
    $
    9,170
    
    
    $
    8,653
    
    
    $
    7,537Income (loss)
before income taxes
    
    $
    (1,508
    )
    
    $
    (8,164
    )
    
    $
    2,747
    
    
    $
    2,212
    
    
    $
    1,697Net income (loss)
    
    $
    (3,535
    )
    
    $
    (8,321
    )
    
    $
    2,070
    
    
    $
    1,506
    
    
    $
    1,210Earnings (loss) per
share-basic
    
    $
    (0.14
    )
    
    $
    (0.34
    )
    
    $
    0.08
    
    
    $
    0.06
    
    
    $
    0.05Earnings (loss) per
share-diluted
    
    $
    (0.14
    )
    
    $
    (0.34
    )
    
    $
    0.08
    
    
    $
    0.06
    
    
    $
    0.05
 
 (1)
    
    During the quarter ended October 1, 2005, the Company recorded a non-cash goodwill
impairment charge of $11.4 million and a favorable $0.8 million income tax adjustment. The
goodwill impairment did not have a corresponding income tax benefit. 77




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##### Table of Contents



Schedule II
 White Electronic Designs Corporation and Subsidiaries
Valuation and Qualifying Accounts and Reserves
  Charged/Balance at
    
    (credited) to
    
    
    
    
    
    
    
    
    
    Balancebeginning
    
    costs and
    
    
    
    
    
    
    
    
    
    at endFiscal year ended
    
    of period
    
    expenses
    
    Other
    
    Deductions
    
    of periodAccounts ReceivableSeptember 30, 2006
    
    $
    250
    
    
    $
    38
    
    
    $
    
    
    
    $
    (32
    )
    
    $
    256October 1, 2005
    
    $
    560
    
    
    $
    (36
    )
    
    $
    
    
    
    $
    (274
    )
    
    $
    250October 2, 2004
    
    $
    397
    
    
    $
    333
    
    
    $
    
    
    
    $
    (170
    )
    
    $
    560InventoriesSeptember 30, 2006
    
    $
    3,282
    
    
    $
    895
    
    
    $
    (399
    )(1)
    
    $
    (976
    )
    
    $
    2,802October 1, 2005
    
    $
    4,350
    
    
    $
    1,455
    
    
    $
    (659
    )(1)
    
    $
    (1,864
    )
    
    $
    3,282October 2, 2004
    
    $
    4,858
    
    
    $
    1,011
    
    
    $
    (643
    )(2)
    
    $
    (876
    )
    
    $
    4,350
 
 (1)
    
    Relates primarily to sales of parts previously reserved for.(2)
    
    Relates primarily to the closure of the Massachusetts facility and the related
disposition/transfer of inventory. 78




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##### Table of Contents



Exhibit Index
 ExhibitNumber
    
    Description2.1
    
    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).2.6
    
    Agreement and Plan of Merger dated September 26, 2006, by and between Interface Data Systems,
Inc. and White Electronic Designs Corporation.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).4.3*
    
    Amendment No. 2 to Rights Agreement, effective December 5, 2006.10.1
    
    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).
 79




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##### Table of Contents



ExhibitNumber
    
    Description10.4
**
    
    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).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
    
    Amendment effective March 28, 2006 to JPMorgan Chase Bank, N.A. Loan and Security Agreement,
dated January 7, 2000 (incorporated herein by reference to Exhibit 10.2 on Form 10-Q, filed
May 11, 2006).10.11
    
    Amendment effective June 28, 2006 to JPMorgan Chase Bank, N.A. Loan and Security Agreement,
dated January 7, 2000 (incorporated herein by reference to Exhibit 10.2 on Form 10-Q, filed
August 10, 2006).10.12
    
    Rule 10b5-1 Stock Purchase Plan, dated June 21, 2006 (incorporated by reference to Exhibit
10.3 on Form 10-Q, filed August 10, 2006).10.13*
    
    Amendment effective September 28, 2006 to JPMorgan Chase Bank, N.A. Loan and Security
Agreement, dated January 7, 2000.10.14*
    
    Amendment effective December 11, 2006 to JPMorgan Chase Bank, N.A. Loan and Security
Agreement, dated January 7, 2000.10.15**
    
    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).10.16**
    
    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).10.17**
    
    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).10.18**
    
    Executive Employment Agreement made as of December 14, 2004 between White Electronic
Designs Corporation and Hamid R. Shokrgozar (incorporated by reference to Exhibit 10.16 to the
Companys Annual Report on Form 10-K filed on December 16, 2004).
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##### Table of Contents



ExhibitNumber
    
    Description10.19**
    
    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).10.20
    
    Industrial Real Estate Lease dated February 4, 1997 between Bowmar Instrument Corp., as
tenant, and Allred Phoenix Properties, L.L.C., as landlord (incorporated herein by reference
to Exhibit 10.5 to the Companys Annual Report on Form 10-K for the fiscal year ended
September 27, 1997).10.21
    
    Sixth Modification Agreement between Bank One N.A. and White Electronic Designs Corporation,
effective March 19, 2004 (incorporated here in by reference to Exhibit 10.1 on Form 10-Q,
filed on May 14  ̧ 2004).10.22
    
    First Amendment to certain Industrial Real Estate Lease dated February 4, 1997 between White
Electronic Designs Corporation (as successor  in  interest of Bowmar Instrument Corp.) and
Gus Enterprises  XII, L.L.C. (as successor  in  interest of Allred Phoenix Properties,
L.L.C.) dated November 5, 2004 (incorporated herein by reference to Exhibit 10.21 to the
Companys Annual Report on Form 10-K filed on December 16, 2004).10.23**
    
    2006 Director Restricted Stock
Plan, effective March 24, 2006 (incorporated by reference to
Exhibit 4.4 to the Registration Statement on Form S-8,
filed on March 24, 2006, Registration No. 333-132688).10.24**
    
    First Amendment to 2006 Director
Restricted Stock Plan, effective August 24, 2006 (incorporated
by reference to the Form 8-K filed on August 30, 3006).10.25**
    
    Form of Restricted Stock Agreement
to 2006 Director Restricted Stock Plan, effective August 24,
2006 (incorporated by reference to the Form 8-K filed on
August 30, 2006).10.26* **
    
    Change of Control Agreement between
Dante V. Tarantine and White Electronic Designs Corporation,
effective December 13, 2006.10.27* **
    
    Change of Control Agreement between
Roger A. Derse and White Electronic Designs Corporation,
effective December 13, 2006.21.1*
    
    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.##
    
    Furnished herewith. 81