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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

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

|         |  |                                                                                     
|-------- |  | ------------------------------------------------------------------------------------
|CHECKBOX |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|        
|        
|        
|        
|         |  | For the Fiscal Year Ended:       September 29, 2001                                 

OR

|    |  |                                                                                         
|--- |  | ----------------------------------------------------------------------------------------
|BOX |  | TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OR THE SECURITIES EXCHANGE ACT OF 1934
|   
|   
|   
|   
|    |  | For the transition period from      to                                                  

Commission File Number 1-4817

WHITE ELECTRONIC DESIGNS CORPORATION

(Exact name of registrant as specified in its charter)

|                                                                                   |  |                                                
|---------------------------------------------------------------------------------- |  | -----------------------------------------------
|Indiana
(State or other jurisdiction of incorporation or organization)             |  | 35-0905052
(I.R.S. Employer Identification No.)
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|3601 E. University Drive
Phoenix, Arizona
(Address of principal executive offices) |  | 85034
(Zip Code)                               

|                                                    |  |             
|--------------------------------------------------- |  | ------------
|Registrants telephone number, including area code: |  | 602/437-1520

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

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

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

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

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

As of December 1, 2001, the aggregate market value of the Registrants Common
Stock held by non-affiliates (based upon the closing price of the shares on the
NASDAQ National Market on December 1, 2001) was approximately $ 115,500,000.

On December 1, 2001, 19,608,606 shares of the Registrants Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement prepared in connection with the 2002
Annual Meeting of Shareholders are incorporated by reference into PART III,
Items 10, 11, 12 and 13 of this Annual Report.





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TABLE OF CONTENTS



|                                                                                                                  |  |  |  |  |  |  |  | 
|----------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|PART I                                                                                                           
|ITEM 1 BUSINESS                                                                                                  
|GENERAL                                                                                                          
|MICROELECTRONIC BUSINESS SEGMENT                                                                                 
|DISPLAY BUSINESS SEGMENT                                                                                         
|PRINCIPAL CUSTOMERS                                                                                              
|RESEARCH, ENGINEERING AND PRODUCT DEVELOPMENT                                                                    
|REGULATORY MATTERS                                                                                               
|RAW MATERIALS                                                                                                    
|INTELLECTUAL PROPERTY                                                                                            
|EMPLOYEES                                                                                                        
|FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS                                                                  
|RISK FACTORS                                                                                                     
|ITEM 2  PROPERTIES                                                                                               
|ITEM 3 LEGAL PROCEEDINGS                                                                                         
|ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                       
|PART II                                                                                                          
|ITEM 5 MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS                                 
|ITEM 6 SELECTED FINANCIAL DATA (In thousands of dollars, except share and per share data)                        
|ITEM 7 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL                      CONDITION AND RESULTS OF OPERATIONS
|ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                               
|ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                               
|ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON                      ACCOUNTING AND FINANCIAL DISCLOSURE 
|PART III                                                                                                         
|ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                                       
|ITEM 11 EXECUTIVE COMPENSATION                                                                                   
|ITEM 12  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                                          
|ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                           
|PART IV                                                                                                          
|ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON                      FORM 8-K                     
|SIGNATURES                                                                                                       
|REPORT OF INDEPENDENT ACCOUNTANTS                                                                                
|CONSOLIDATED BALANCE SHEET                                                                                       
|CONSOLIDATED STATEMENT OF INCOME                                                                                 
|CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY                                                                   
|CONSOLIDATED STATEMENT OF CASH FLOW                                                                              
|EX-10.36                                                                                                         
|EX-21.1                                                                                                          
|EX-23.1                                                                                                          



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TABLE OF CONTENTS

|                                                |  |                                                                                       |  |   
|----------------------------------------------- |  | ------------------------------------------------------------------------------------- |  | --
|PART I                                          |  |                                                                                       |  |   
|                                               
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|ITEM 1                                          |  | BUSINESS                                                                              |  | 3 
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|GENERAL                                         |  |                                                                                       |  | 3 
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|MICROELECTRONIC BUSINESS SEGMENT                |  | 4                                                                                    
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|DISPLAY BUSINESS SEGMENT                        |  | 4                                                                                    
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|PRINCIPAL CUSTOMERS                             |  | 5                                                                                    
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|RESEARCH, ENGINEERING AND PRODUCT DEVELOPMENT   |  | 6                                                                                    
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|REGULATORY MATTERS                              |  | 6                                                                                    
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|RAW MATERIALS                                   |  | 7                                                                                    
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|INTELLECTUAL PROPERTY                           |  | 7                                                                                    
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|EMPLOYEES                                       |  | 7                                                                                    
|                                               
|                                               
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|FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS |  | 7                                                                                    
|                                               
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|RISK FACTORS                                    |  | 8                                                                                    
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|ITEM 2                                          |  | PROPERTIES                                                                            |  | 10
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|ITEM 3                                          |  | LEGAL PROCEEDINGS                                                                     |  | 11
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|ITEM 4                                          |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   |  | 11
|                                               
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|                                                |  |                                                                                       |  |   
|                                               
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|PART II                                         |  |                                                                                       |  |   
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|ITEM 5                                          |  | MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS             |  | 12
|                                               
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|                                               
|                                               
|                                                |  |                                                                                       |  |   
|                                               
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|ITEM 6                                          |  | SELECTED FINANCIAL DATA                                                               |  | 12
|                                               
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|                                                |  |                                                                                       |  |   
|                                               
|                                               
|                                               
|                                               
|ITEM 7                                          |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS |  | 13
|                                               
|                                               
|                                               
|                                               
|                                                |  |                                                                                       |  |   
|                                               
|                                               
|                                               
|                                               
|ITEM 7A                                         |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |  | 18
|                                               
|                                               
|                                               
|                                               
|                                                |  |                                                                                       |  |   
|                                               
|                                               
|                                               
|                                               
|ITEM 8                                          |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                           |  | 18
|                                               
|                                               
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|                                               
|                                                |  |                                                                                       |  |   
|                                               
|                                               
|                                               
|                                               
|ITEM 9                                          |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE  |  | 18
|                                               
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|                                               
|                                               
|PART III                                        |  |                                                                                       |  |   
|                                               
|                                               
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|                                                |  |                                                                                       |  |   
|                                               
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|                                               
|ITEM 10                                         |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                    |  | 18
|                                               
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|                                               
|                                               
|                                                |  |                                                                                       |  |   
|                                               
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|ITEM 11                                         |  | EXECUTIVE COMPENSATION                                                                |  | 19
|                                               
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|                                               
|                                                |  |                                                                                       |  |   
|                                               
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|                                               
|ITEM 12                                         |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT                        |  | 19
|                                               
|                                               
|                                               
|                                               
|                                                |  |                                                                                       |  |   
|                                               
|                                               
|                                               
|                                               
|ITEM 13                                         |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                        |  | 19
|                                               
|                                               
|                                               
|                                               
|                                                |  |                                                                                       |  |   
|                                               
|                                               
|                                               
|                                               
|PART IV                                         |  |                                                                                       |  |   
|                                               
|                                               
|                                               
|                                               
|ITEM 14                                         |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K                       |  | 19
|                                               
|                                               
|                                               
|                                               
|                                                |  |                                                                                       |  |   
|                                               
|                                               
|                                               
|                                               
|SIGNATURES                                      |  | 21                                                                                   
|                                               
|                                               
|                                               
|                                               
|REPORT OF INDEPENDENT ACCOUNTANTS               |  | 22                                                                                   
|                                               
|                                               
|                                               
|                                               
|CONSOLIDATED BALANCE SHEET                      |  | 23                                                                                   
|                                               
|                                               
|                                               
|                                               
|CONSOLIDATED STATEMENT OF INCOME                |  | 24                                                                                   
|                                               
|                                               
|                                               
|                                               
|CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY  |  | 25                                                                                   
|                                               
|                                               
|                                               
|                                               
|CONSOLIDATED STATEMENT OF CASH FLOW             |  | 26                                                                                   

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PART I




ITEM 1 BUSINESS




GENERAL

White Electronic Designs Corporation is an Indiana corporation organized in
1951. On October 26, 1998, Bowmar Instrument Corporation (Bowmar) merged
with Electronic Designs, Inc. (EDI). In connection with the merger, Bowmar
changed its name to White Electronic Designs Corporation (the Company).
While Bowmar was the legal acquirer, the merger was accounted for as a reverse
acquisition purchase whereby EDI was deemed to have acquired Bowmar for
financial reporting purposes. Consistent with the reverse acquisition purchase
accounting treatment, the historical financial statements presented for periods
prior to the merger date are the financial statements of EDI, not the
previously reported consolidated financial statements of Bowmar. The
operations of both companies combined as White Electronic Designs Corporation
have been included in the financial statements from the date of the merger.

On January 29, 2001 the Company completed the acquisition of Panelview, Inc., a
manufacturer of display products located in Oregon. Panelview provides optical
enhancements to display products sold to the transportation, medical and
instrumentation markets.

The Company issued 814,500 shares of common stock, and authorized the
additional issuance of 90,500 shares of common stock after one year, in
exchange for all of the outstanding shares of Panelview. Based on the average
market price of the Companys common stock in the period just prior to the
acquisition date, the transaction had a value of approximately $9.0 million.
This amount consists of $8,880,000 based on the market value of 905,000 shares
of common stock, and $142,000 of direct acquisition costs. In addition, the
former shareholders of Panelview can earn up to an additional $1 million of the
Companys common stock, if certain revenue and operating contribution targets
are met. The targets are based on Panelviews performance over the
twelve-month period from February 2001 through January 2002. If the targets
are achieved, the stock will be issued in April 2002.

As of September 29, 2001, the financial results of the Panelview division do
not make it appear likely that they will achieve the revenue and operating
contribution targets required to earn an additional $1 million of the Companys
stock. Therefore, no liability has been accrued for this cost, at this time.

Panelview will continue to operate as a wholly owned subsidiary of the Company,
and will be included in the display segment. The combination was treated as a
purchase for financial reporting purposes based on the following data.

|                                                  |  |   |            | 
|------------------------------------------------- |  | - | ---------- | 
|Purchase Price based on Stock & Acquisition Costs |  | $ | 9,022,602  | 
|                                                 
|                                                 
|                                                 
|                                                 
|Liabilities Assumed                               |  | $ | 2,161,632  | 
|                                                  |  |   |            | 
|Total Purchase Cost                               |  | $ | 11,184,234 | 
|                                                 
|                                                 
|                                                 
|                                                 
|Assets Received                                   |  | $ | 2,644,611  | 
|                                                  |  |   |            | 
|Acquired Goodwill                                 |  | $ | 8,539,623  | 
|                                                 
|                                                 
|                                                 
|                                                 
|Amortization period of goodwill (in months)       |  |   | 80         | 
|                                                 
|                                                 
|                                                 
|                                                 
|Goodwill expense per month                        |  | $ | 106,745    | 
|                                                  |  |   |            | 

As part of the purchase agreement, 90,500 shares of common stock were held back
pending any future claims that may arise against Panelview. If no claims
arise, these shares will be issued on January 29, 2002. A purchase liability,
based on the market value of the common shares at the time of acquisition, of
$888,000 has been accrued as a current liability.

The Company has two business segments. Each of the two business segments
require different design and manufacturing resources and serve customers in
different markets. The microelectronic segment manufactures high-density
semiconductor memory and microprocessor products for use in telecommunications,
data communications and military aerospace markets. The display segment
manufactures ruggedized liquid crystal displays, and display viewing
enhancements for customers in a variety of industries. The Companys executive
offices are located at 3601 E. University Drive, Phoenix, Arizona 85034, (602)
437-1520.

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MICROELECTRONIC BUSINESS SEGMENT

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

Commercial products use SRAM, DRAM and Flash memory components with existing
packaging technologies to create space saving solutions in industry standard
configurations (SIMMS, DIMMS, BGA), multiple bare die on laminate (MCM-L), and
boards packaged using standards established by the personal computer memory
card international association (PCMCIA cards). Commercial memory module
products range in density from 2 megabit to one gigabit, with data widths from
8 to 144 bits, and access speeds as fast as 8 nanoseconds in various package
options. Commercial products are sold mainly to original equipment
manufacturers in the network and telecommunications industries.

Military products use SRAM, EEPROM, SDRAM and Flash memory components in
ceramic packages and laminate to produce high-density multichip packages and
monolithic products for use in adverse environmental conditions. Multichip
packaging is a technique that places several semiconductor chips into a compact
package. A monolithic product does the same using only one semiconductor chip.
Military products range in density from one megabit to 288 megabits, with data
widths of 8 to 72, and speeds as fast as 15 nanoseconds in various package
options. Military products are sold primarily to both foreign and domestic
government contractors in the aerospace industry. Product sales are spread
over many different programs such as aircraft, missiles and communications
equipment.

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

The backlog for microelectronic products, represented by purchase orders from
our customers, was approximately $27,849,000 and $38,445,000 at the end of
fiscal years 2001 and 2000, respectively. This decrease was primarily caused
by a general business slowdown, during fiscal 2001, in the telecommunications
equipment industry. Approximately 90% of the segments fiscal 2000 backlog was
shipped during fiscal 2001. Approximately 85% of the fiscal 2001 year-end
backlog is expected to be shipped during fiscal 2002. The backlog after fiscal
2002 is a result of customer requirements and demand for the products, not
capacity restraints.

The Companys principal competitors in the commercial memory market, Smart
Module Technology, a subsidiary of Solectron Corp., and Simple Technology, Inc.
(STEC) are larger than the Company and have substantially greater financial,
technical, marketing, distribution and other resources. Smart Module
Technology. manufactures a broad range of memory modules in high volume. In
addition, the Company competes with a number of smaller companies, and larger
semiconductor companies, who are now in the market or may in the future, enter
the market. The Company competes in this market on the basis of many factors,
including access to advanced semiconductor products at competitive prices,
successful and timely product introduction, design capability, lead times,
quality, product specification, pricing and customer service.

The Companys main competitor in the military market is the microelectronics
division of Aeroflex Corporation. Aeroflex is a larger business organization
than the Company and may have greater financial and other resources. Companies
compete for this business on the basis of many factors, including cost and
quality systems (which allow for compliance with U.S. and foreign military
standards), longer term access to advanced semiconductor products in die and
wafer form, successful and timely product introduction, inclusion of products
on standard military drawings, design capabilities, lead times, product
specification, pricing and customer service.




DISPLAY BUSINESS SEGMENT

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

The Company designs and manufactures ruggedized active matrix liquid crystal
displays, AMLCDs, and enhanced viewing displays (ranging in size from 4.0 to
18.1) in display head, monitor, instrumentation, and computer system formats,
which are sold mainly to customers in the aviation and aerospace industries.
These displays offer

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significant advantages over other commercially available displays. Significant
features of these displays include sunlight readability and ruggedized
construction for operating temperatures from -35 to +85 degrees Celsius. The
Company is growing its display product segment by offering a broad range of
products based on different sized AMLCD panels, as well as developing advanced
display driver electronics. The acquisition of Panelview, Inc. in January,
2001, expanded the Companys optically enhanced display products to include
displays sold to the transportation, medical and instrumentation markets. As
with any new product, there is no assurance that the display products
developed, or to be developed, by the Company will be commercially acceptable
or profitable.

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

The Company also produces digital displays, which permit a more accurate
readout of information than is feasible with analog meters. These include
display devices, which respond electro-magnetically to electronic input
signals, thus eliminating mechanical transmission delays. These products are
sold primarily to aircraft instrument manufacturers.

The display segment backlog was approximately $19,983,000 and $9,705,000 at the
end of fiscal years 2001 and 2000, respectively. This fiscal 2001 backlog
includes $8.2 million of Panelview orders. Approximately 67% of this segments
2000 backlog was shipped during fiscal 2001. Approximately 72% of the fiscal
2001 year-end backlog is expected to be shipped during fiscal 2002. The
backlog after 2002 is a result of customer requirements not capacity
restraints. There are no seasonality factors affecting the display business.

The principal elements of competition among display suppliers are display
performance (e.g., brightness, color capabilities, contrast and viewing angle),
size and weight, design flexibility, power usage, durability and ruggedness and
cost. While the primary competition for the AMLCD is currently cathode ray
tube displays, the Companys products compete with other flat panel displays
including gas plasma and electro-luminescent displays. The Company believes
that price, product reliability and the ability to meet delivery schedules are
key competitive factors. The Company competes with numerous other companies in
the display segment, such as Planar and Polarvision, many of which have greater
financial resources, larger technical and marketing resources and in some
instances more advanced technology products than those of the Company.




PRINCIPAL CUSTOMERS

In fiscal 2001, sales to one customer did not account for more than 10% of
total company sales. The Companys sales are split between original equipment
manufacturers in the network and telecommunications industries, board assembly
companies, and U.S. prime contractors in the defense industry. Sales to prime
contractors can be for relatively large dollar amounts and sometimes call for
deliveries over more than one year. The award of new contracts or the
expiration of old contracts could have a significant short-term impact on sales
and operating results. Sales of commercial memory products are usually based
on high volume purchase orders with deliveries scheduled over several months.
The award of new purchase orders is based upon the Companys ability to supply
the original equipment manufacturer or assembly company with products that meet
current technological and quality requirements. The Company sells memory and
display products to over 400 companies throughout the world. Customers for the
Companys microelectronic products include Arrow Electronics, Cisco Systems,
Credence Systems, Honeywell, Intel/Dialogic, Lockheed Martin, Lucent
Technologies, Network Appliance, Northrop Grumman and Raytheon. Of these
customers, Lucent accounted for 11.0% of microelectronic segment sales, Arrow
Electronic accounted for 5.1% and Cisco 9.6%. The sales to Lucent and Cisco
occurred in the first half of Fiscal 2001 and were based on orders booked in
Fiscal 2000. There was very little activity with either of these customers in
the second half of Fiscal 2001 because of the general business slowdown in the
telecommunications equipment industry. No other customer accounted for more
than 5.0% of microelectronic segment sales. The Companys display customers
include Ametek Aerospace, Avex Aerospace, Avidyne, Computing Devices, Garmin
Industries, Honeywell, Litton, Rockwell, Smiths Industries, and the United
States Department of Defense.As a percent of display segment sales, the U.S.
Department of Defense accounted for 8.2%, Smiths Industries 6.6%, Litton 6.4%,
and Garmin 9.3%. Total Company foreign sales for fiscal 2001, 2000, and 1999
were $20,240,000, $14,367,000 and $10,472,000 respectively.

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##### Table of Contents






RESEARCH, ENGINEERING AND PRODUCT DEVELOPMENT

Current research and product development activities are directed primarily
toward the improvement of existing standard products. Some projects, however,
are focused on the development of new products or processes. The Company
devotes minimal resources to pure research and development, but emphasizes the
application of its engineering expertise to the development and refinement of
proprietary products or technologies. Expenditures by the Company on research
and product development for fiscal years 2001, 2000 and 1999 amounted to
approximately $5,302,000, $5,014,000, and $3,651,000, respectively. Research
and product development efforts are principally conducted by the Companys
engineering staff.

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




REGULATORY MATTERS

Government Contracting Regulation

A significant portion of the Companys business in fiscal 2001 was derived from
subcontracts with prime contractors of the U.S. Government. As a U.S.
Government subcontractor, the Company is subject to Federal Government
contracting regulations. Under these regulations, the U.S. Government is
entitled for three years after final payment on certain negotiated contracts or
contract modifications to examine all of the Companys cost records with
respect to such contracts to determine whether the Company furnished complete,
accurate and current cost or pricing data to the government in connection with
the negotiation of the price of the contract or modification. The U.S.
Government also has the right after final payment to seek a downward adjustment
to the price of a contract or modification if it determines that the contractor
failed to disclose complete, accurate and current data. Historically, the
Company has not experienced downward adjustments.

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

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

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

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

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Environmental Protection

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




RAW MATERIALS

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




INTELLECTUAL PROPERTY

The Company relies on trade secret laws to establish and maintain proprietary
rights in its technology and products. The Company enters into
confidentiality agreements with its employees, consultants and other third
parties with whom it contracts to protect its trade secrets.




EMPLOYEES

The Company employs 309 people. Of such employees, 154 were employed in the
microelectronic segment and 151 in the display segment and 4 in corporate
administration. A total of 55 of the Companys employees in the display
segment were employed pursuant to collective bargaining agreements covering
workers at the Companys Display division in Fort Wayne, Indiana. This
agreement is effective through November 15, 2004. The Company believes its
labor relations are satisfactory.

FINANCIAL INFORMATION BY GEOGRAPHIC SEGMENT

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




FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS

Certain matters discussed in this document contain forward-looking statements.
The Private Securities Litigation Reform Act of 1995 provides a safe harbor
for such forward-looking statements. The words believe, expect,
anticipate and other similar statements of expectations identify
forward-looking statements, and include expectations regarding the future
demand for the Companys products, the amount of backlog to be shipped in
Fiscal 2002, expected changes in sales to certain industries, the market
acceptance and profitability of the Companys new products, expectations of
future amortization expense and performance by the Panelview division, future
purchases of components, the need to draw on the Companys line of credit, the
effect of interest rate changes and future research and development and capital
expenditures, all of which speak only as of the date the statement is made.
These forward-looking statements are based largely on Managements expectations
and are subject to a number of risks and uncertainties, some of which cannot be
predicted or quantified and are beyond the Companys control. Certain risks
are described above and in this Item 1 under the heading Risk Factors. In
light of these risks and uncertainties, there can be no assurance that the
forward-looking statements contained in this document will prove to be
accurate. Actual results may differ materially from those in the
forward-looking statements. Forward-looking statements speak only as of the
date the statement was made. The Company does not undertake, and specifically
disclaims, any obligation to update any forward-looking statements.

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RISK FACTORS

Operating Results

Capital Expenditures and Operating Expenses. The Companys need for continued
significant expenditures for capital equipment purchases, research and
development and ongoing customer service and support, among other factors, will
make it difficult for the Company to reduce its operating expenses in a
particular period if the Companys net sales for a period are not met because a
substantial component of the operating expenses are fixed costs. Accordingly,
there can be no assurance that the Company will be able to be profitable or
that it will not sustain losses in future periods. Due to the foregoing
factors, it is likely that in some future quarter the Companys operating
results will be below the expectations of public market analysts and investors.
In such an event, the price of the Company Common Stock may be materially
adversely affected.

Microelectronic Business. In connection with the Companys microelectronics
memory business, a wide array of factors could cause the Companys results of
operations and gross margins to fluctuate in the future from period to period.
The primary factors that might affect the Companys results of operations in
this regard include the cyclical nature of the semiconductor market; any loss
of a principal customer or any short term loss of a customer due to product
inventory accumulation by the customer; any inability to procure required
components; any adverse changes in the mix of products sold by the Company; and
any downturn of the semiconductor market which could cause a decline in selling
unit prices, diminished inventory value, and less demand for commercial memory
products as customers restrict inventory levels.

Even in the absence of cyclical conditions, the average selling prices of our
products have historically decreased during the products lives, and we expect
this trend to continue. In order to offset these average selling price
decreases, we attempt to decrease manufacturing costs, and introduce new,
higher priced products that incorporate advanced features. If these efforts
are not successful, our business, financial condition, and results of
operations could be seriously harmed.

Reduction in Inventory Values. Historically, the Company has experienced
reductions in value of the Companys inventories due to unexpected demand
declines, resulting from a softening of the semiconductor and
telecommunications industries. Such declines in inventory valuation have had
an adverse effect on the Companys financial condition and results of
operations in the past and could have an adverse effect on the Companys
financial condition and results of operations in future periods.

Dependence on Defense Industries

Our current orders from defense-related companies account for a material
portion of the Companys overall revenues. Military capital expenditure levels
have been declining for some years now and depend on factors that are outside
the control of the Company. In addition, the U.S. defense industry has been
moving toward the purchase of commercial off-the-shelf (COTS) products
rather than those manufactured as compliant to specified military standards.
In fiscal 2001, military related sales accounted for approximately 46% of the
Companys overall sales. Changes in military spending and the shift in
military demand for microelectronics and display products may have an adverse
effect on the sales and profit of the Company. Reductions in military spending
could adversely affect our business, financial condition, and results of
operations.

Dependence on International Sales and Purchases

The Company anticipates that international sales will continue to account for a
significant portion of the Companys net sales. In fiscal 2001, foreign sales
accounted for approximately 22% of the Companys overall sales. In addition,
the majority of the components used by the Company in connection with products
for military applications are acquired from foreign manufacturers worldwide,
particularly countries located in Asia. As a result, a significant portion of
the Companys sales and purchases are subject to the risks of international
business, including fluctuations in foreign currencies which can diminish
demand for the Companys products by making them more expensive, trade
disputes, changes in regulatory requirements, tariffs and other barriers, the
possibility of quotas, duties, taxes or other changes or restrictions upon the
importation or exportation of the products being implemented by the United
States, timing and availability of export licenses and the general economies of
these countries in which the Company transacts business. Foreign suppliers of
semiconductors and displays are regularly threatened with, or involved in,
pending trade disputes and sanctions which, if realized, could materially
adversely effect the Company by closing off critical sources of supply for the
raw materials used to produce our products.

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Downturns in the Markets in Which We Sell Our Products

During the years of 1999 and 2000, the telecommunications industry saw
explosive growth in sales mainly because of advances in computer technology,
development of enhanced signal carrying technologies, and the expansion of the
Internet. However, during 2001 the Company experienced a dramatic decline in
orders for networking and telecommunication equipment because of slowing
demand, broadband overcapacity, and failure of hundreds of Internet companies.
We currently sell a large majority of our commercial microelectronic products
to original equipment manufacturers in the telecommunications industry. The
growth of this industry helped our commercial division grow significantly
during 1999 and 2000. However, the downturn in the industry and the United
States economy in general in 2001 adversely affected the sales of our
commercial division. The Internet is still in a formative and developmental
stage. There may be unpredictable changes in the future that may cause reduced
growth in Internet usage. It would be reasonable to assume that the
telecommunications industry could continue to experience declining, or slow
growth rates, similar to many other industries that grew and matured. Given
our current dependence on this industry for a large portion of our sales and
profits, a continued period of slow growth, or a significant worsening of the
United States economy in general, would have a material adverse effect on our
business.

Our continued success also depends on continued growth of other various
industries that use our products, including the following industries: medical
electronics and equipment, global positioning systems and devices, outdoor
liquid crystal displays, industrial controls, aviation electronics and
equipment, and military equipment. Any decline in the demand for equipment in
these industries could also seriously harm our business, financial condition,
and operating results.

Absence of Contractually Assured Sources of Supply/General Limitations on Supply

The most significant raw materials that the Company purchases in its operations
are memory devices in wafer, die and component forms and AMLCD panels. In a
time of strong demand for memory integrated circuits and other products,
sources of supply of wafers, die and other components may be constrained and
subject to shortages, and the ability of the Company to compete is heavily
dependent on its ability to maintain access to steady sources of supply. AMLCD
panels may also be in short supply, at times. The Company is highly dependent
on one SRAM semiconductor manufacturer for memory devices, one major display
manufacturer of AMLCD panels, and one package manufacturer of ceramic packages
for military components. The Company does not have specific long-term
contractual arrangements with its vendors, although it believes it has good
relationships with its vendors. No assurance can be given that existing access
to the Companys current sources of supply may not be impaired in the future.
Any such impairment could have a material adverse effect on the Company.

A manufacturers ability to compete is heavily dependent on its ability to
maintain access to steady sources of supply. To address these needs, the
Company has maintained strong relationships with leading semiconductor,
display, and ceramic package manufacturers in the United States and the Far
East. The Company has no specific long-term contractual arrangement with its
vendors.

The Company has not encountered, and does not anticipate encountering any
significant difficulty in its purchase of components (some of which must be
ordered months in advance). However, any disruption of supplies from one of
our key vendors could seriously harm our business, financial condition, and
results of operations.

Maintaining Qualified Personnel

The Companys ability to compete in the market and successfully manufacture
quality products is dependent on our ability to attract and retain qualified
employees in the areas of product design, engineering, operations management,
manufacturing production, and sales. The demand for people with expertise in
these areas has been very high for the past several years, and competition for
qualified talent is intense. The loss of key personnel in any one of these
areas, particularly in our display segment, could have a material adverse
effect on the results of the business segment.

9



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Protection of Intellectual Property Rights

We rely on trade secret protection for our technology, in part through
confidentiality agreements with our employees, consultants, and third parties.
However, these parties may breach these agreements, and we may not have
adequate remedies for any breach. The loss of proprietary internal information
could have an adverse effect on our business.

Risks of Technology Change and Development of New Products

The Companys future results of operations will be dependent upon its ability
to improve and market its existing products and to develop, manufacture and
market new products. There can be no assurance that the Company will be able
to continue to improve and market its existing products or develop and market
new products, or that technological developments will not cause the Companys
products or technology to become obsolete or noncompetitive.

Many of the Companys display products have been developed based on products
procured from Sharp Electronics Corporation (Sharp). Competitors in the flat
panel display business are investing substantial resources in the development
and manufacture of flat panel displays using a number of alternative
technologies. In the event these efforts result in the development of products
that offer significant advantages over Sharps and the Companys products, and
the Company is unable, in a timely manner, to improve its technology or develop
or acquire alternative technology that is more competitive, the Companys
business and results of operations will be adversely affected.

Like many other companies that operate in the microelectronic and display
industries, we face a highly competitive, quickly changing environment marked
by rapid obsolescence of existing products. Our future success depends on our
ability to develop and introduce new products that customers choose to buy.
Ultimately, whether we can successfully introduce these new products depends on
our ability to develop and implement new ways of manufacturing products. If we
are unable to design, develop, manufacture, market and sell new products
successfully, our business, financial condition, and results of operations
would be seriously harmed.

Volatile Market Price for Company Stock

The market price for the Companys common stock is subject to fluctuations in
response to a number of factors, including variations in the Companys
quarterly operating results, perceptions about market conditions in the
microelectronics and defense industries, and the effect of general economic
conditions, many of which are unrelated to the Companys operating performance.
In addition, the stock market generally has experienced significant price and
volume fluctuations. These market fluctuations could have a material adverse
effect on the market price or liquidity of the Companys Common Stock.

Environmental Regulations

The Company is subject to a variety of federal, state and local governmental
regulations related to the storage, use, discharge and disposal of toxic,
volatile or otherwise hazardous chemicals used in its manufacturing process.
Increasing public attention has been focused on the environmental impact of
microelectronic manufacturing operations. While the use of toxic, volatile or
otherwise hazardous substances by the Company is small, there can be no
assurance that changes in environmental regulations will not impose the need
for additional capital equipment or other requirements. Any failure by the
Company to control the use of, or to adequately restrict the discharge of,
hazardous substances under present or future regulations could subject the
Company to substantial liability or could cause its manufacturing operations to
be suspended. Such liability or suspension of manufacturing operations could
have a material adverse effect on the Companys business, financial conditions
and results of operations.




ITEM 2 PROPERTIES

The Company leases a facility under an operating lease in Phoenix, Arizona
consisting of approximately 53,000 square feet. The facility is used as the
Companys corporate offices and for all manufacturing of the military
components of the microelectronic segment. The Company also leases a 33,000
square foot facility located in Westborough, Massachusetts for manufacturing
and development of commercial microelectronic products and display products.
The Company owns a facility in Ft. Wayne, Indiana consisting of a building with
approximately
75,000 square feet of space used for the manufacture of display and
electromechanical products. The Company

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also owns ten acres of vacant land
adjacent to the building. The Companys Panelview subsidiary leases
approximately 25,000 square feet of office and manufacturing space in the
Portland, Oregon area for manufacturing enhanced display products. Panelview
has recently entered into a lease for a 43,000 square foot facility to
consolidate the Companys display lamination activities. Panelview is expected
to move from its current facilities to the new facility in January 2002. All
of the Companys owned real property has been pledged as security for the
Companys line of credit and term loans with Bank One. Management considers
these properties to be well maintained and adequate for their use. All
properties have additional capacity, which could be utilized in the event of
increased production requirements.




ITEM 3   LEGAL PROCEEDINGS

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




|                                                             |  |  |  | 
|------------------------------------------------------------ |  |  |  | 
|ITEM 4   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|None                                                        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|EXECUTIVE OFFICERS OF THE COMPANY                           

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

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

|                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Hamid R. Shokrgozar, 41
President,
Chief Executive Officer and Chairman of
the Board |  | President, Chief Executive Officer and Chairman of the Board of the Company. Appointed President and CEO
of Bowmar Instrument Corporation on January 3, 1998 and Director of the Company in February 1998. From
1993 to 1998, Mr. Shokrgozar served as President of White Microelectronics, the largest division of
Bowmar Instrument, and served as Vice President Engineering and Technology from 1988 to 1993. Mr.
Shokrgozar was elected Chairman of the Board on August 31, 2000. Mr. Shokrgozar holds a U.S. Patent for
the invention of Stacked Silicon Die Carrier Assembly
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|William J. Rodes, 47
Chief Accounting Officer, Treasurer and
Secretary               |  | Chief Accounting Officer for the Company since October 2000. Mr. Rodes was appointed Treasurer and
Secretary of the Company in August 1999. Mr. Rodes was Corporate Controller from May 1999 to September
2000. Mr. Rodes was Controller for the White Microelectronics Division of Bowmar Instrument Corporation
from 1993 to 1999. From 1990 to 1991 he served as Manager of Cost Accounting and Financial Analysis for
California Micro Devices.                                                                                                                                  

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PART II




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

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

|                          |  |             |      |            |  |            |      |            |  |   |       |  |  |   |       | 
|------------------------- |  | ----------- | ---- | ---------- |  | ---------- | ---- | ---------- |  | - | ----- |  |  | - | ----- | 
|                          |  | Fiscal 2001 |      |            |  |            |      |            |  |  
|Common stock market price |  | Sep 29, 01  |      | Jun 30, 01 |  | Mar 31, 01 |      | Dec 30, 00
|                         
|High                      |  | $           | 4.60 |            |  | $          | 5.50 |            |  | $ | 10.63 |  |  | $ | 13.50 | 
|                         
|Low                       |  | $           | 2.85 |            |  | $          | 2.93 |            |  | $ | 4.38  |  |  | $ | 5.38  | 
|                         

|                          |  |             |       |           |  |           |       |           |  |   |       |  |  |   |      | 
|------------------------- |  | ----------- | ----- | --------- |  | --------- | ----- | --------- |  | - | ----- |  |  | - | ---- | 
|                          |  | Fiscal 2000 |       |           |  |           |       |           |  |  
|Common stock market price |  | Sep 30, 00  |       | Jul 1, 00 |  | Apr 1, 00 |       | Jan 1, 00
|                         
|High                      |  | $           | 18.63 |           |  | $         | 14.75 |           |  | $ | 18.38 |  |  | $ | 5.50 | 
|                         
|Low                       |  | $           | 10.38 |           |  | $         | 7.00  |           |  | $ | 4.25  |  |  | $ | 2.44 | 
|                         

As of December 1, 2001, there were approximately 11,139 holders of record of
the Common Stock. The Company has not paid cash dividends on its Common Stock
and does not expect to do so in the foreseeable future. The Company intends to
retain all earnings to provide funds for the operation and expansion of its
business. One of the Companys credit agreements precludes the payment of cash
dividends on the Companys Common Stock.




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

|                                                                     |                                         |                                        |        |            |      |      |        |            |      |      |        |             |       |   |          |           |       |   |          |           |      | 
|-------------------------------------------------------------------- | --------------------------------------- | -------------------------------------- | ------ | ---------- | ---- | ---- | ------ | ---------- | ---- | ---- | ------ | ----------- | ----- | - | -------- | --------- | ----- | - | -------- | --------- | ---- | 
|                                                                     |                                         |                                        |        |            |      |      |        |            |      |      |        | Fiscal
Year |       |   |          |           |       |   |          |          
|Operations:                                                          |                                         | 2001                                   |        | 2000       |      | 1999 |        | 1998       |      | 1997
|                                                                     |                                         |                                        |        |            |      |      |        |            |      |      |        |             |       |   | (Note 1) |           |       |   | (Note 1) |          
|                                                                    
|Net sales                                                            |                                         | $                                      | 96,761 |            |      | $    | 87,595 |            |      | $    | 58,038 |             |       | $ | 32,772   |           |       | $ | 42,104   |          
|                                                                    
|Gross margin                                                         |                                         | $                                      | 26,401 |            |      | $    | 31,171 |            |      | $    | 15,528 |             |       | $ | 7,043    |           |       | $ | 15,494   |          
|                                                                    
|Income (loss) from continuing operations after
income taxes (Note 2) |                                         | $                                      | 3,272  |            |      | $    | 6,561  |            |      | $    | (558   | )           |       | $ | (3,304   | )         |       | $ | 5,297    |          
|                                                                    
|Weighted average number of common:                                   |                                         |                                        |        |            |      |      |        |            |      |      |        |             |       |   |          |           |       |   |          |          
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | shares and equivalents-basic            |                                        |        | 19,230,781 |      |      |        | 17,544,136 |      |      |        | 15,394,451  |       |   |          | 7,072,000 |       |   |          | 6,948,000 |     
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | shares and equivalents-diluted (Note 3) |                                        |        | 20,528,337 |      |      |        | 19,539,501 |      |      |        |            |       |   |          |          |       |   |          | 7,579,000 |     
|                                                                    
|Income (loss) per common share:                                      |                                         |                                        |        |            |      |      |        |            |      |      |        |             |       |   |          |           |       |   |          |          
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                         | Continuing operations-basic            |        | $          | 0.17 |      |        | $          | 0.37 |      |        | $           | (0.06 | ) |          | $         | (0.47 | ) |          | $         | 0.74 | 
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                         | Continuing operations-diluted (Note 3) |        | $          | 0.16 |      |        | $          | 0.34 |      |        |             |       |   |          |           |       |   |          | $         | 0.68 | 
|                                                                    
|Net income per share-basic                                           |                                         | $                                      | 0.17   |            |      | $    | 0.37   |            |      | $    | (0.08  | )           |       | $ | (0.47    | )         |       | $ | 0.54     |          
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Net income per share-diluted (Note 3)                                |                                         | $                                      | 0.16   |            |      | $    | 0.34   |            |      | $    | (0.08  | )           |       | $ | (0.47    | )         |       | $ | 0.50     |          
|                                                                    
|Financial Positions (at year end):                                   |                                         |                                        |        |            |      |      |        |            |      |      |        |             |       |   |          |           |       |   |          |          
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Working capital                         |                                        | $      | 27,884     |      |      | $      | 23,378     |      |      | $      | 12,584      |       |   | $        | 5,207     |       |   | $        | 11,723    |     
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Total assets                            |                                        | $      | 57,228     |      |      | $      | 54,996     |      |      | $      | 38,771      |       |   | $        | 17,935    |       |   | $        | 25,137    |     
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Long-term debt                          |                                        | $      | 890        |      |      | $      | 1,519      |      |      | $      | 2,249       |       |   | $        |          |       |   | $        | 2,208     |     
|                                                                    



---

| |  | Note 1: As a result of the merger October 26, 1998 of White Electronic Designs Corporation (formerly Bowmar Instrument Corporation) and Electronic Designs, Inc. (EDI), which was
accounted for as a purchase by EDI of Bowmar, the financials for the 1997 and 1998 fiscal year ended include only the results of EDI.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
|
|
|
| |  | Note 2   See footnote 14 of the Consolidated Financial Statement provided elsewhere herein for discussion of discontinued operations.                                                                                                                                                                                 
|
|
|
|
| |  | Note 3   In 1999 and 1998, diluted net income per share is considered to be the same as basic net income per share
since the effect of the potentially dilutive convertible preferred is antidilutive.                                                                                                                

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

12



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---




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

Introduction

On October 26, 1998, Bowmar Instrument Corporation (Bowmar) merged with
Electronic Designs, Inc. (EDI). In connection with the merger, Bowmar
changed its name to White Electronic Designs Corporation (the Company).
While Bowmar was the legal acquirer, the merger was accounted for as a reverse
acquisition purchase whereby EDI was deemed to have acquired Bowmar for
financial reporting purposes. Consistent with the reverse acquisition purchase
accounting treatment, the historical financial statements presented for periods
prior to the merger date are the financial statements of EDI, not the
previously reported consolidated financial statements of Bowmar. The
operations of both companies combined as White Electronic Designs have been
included in the financial statements from the date of the merger.

On January 29, 2001, the Company acquired Panelview, Inc. The acquisition did
not meet the requirements of a significant business purchase. Therefore, the
results of operations for Panelview are included in the Fiscal 2001 financial
statements as a subsidiary of the Company, while the Fiscal 2000 and Fiscal
1999 statements do not contain pro forma Panelview results.

Certain matters discussed in this Annual Report on Form 10-K, including the
Notes to Consolidated Financial Statements and this Managements Discussion
and Analysis of Financial Conditions and Result of Operations contain
forward-looking statements. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for such forward-looking statements. The words
believe, expect, anticipate and other similar statements of expectations
identify forward-looking statements, and include expectations regarding the
future demand for the Companys products, the amount of backlog to be shipped
in Fiscal 2002, expected changes in sales to certain industries, the market
acceptance and profitability of the Companys new products, expectations of
future amortization expense and performance by the Panelview division, future
purchases of components, the need to draw on the Companys line of credit, the
effect of interest rate changes and future research and development and capital
expenditures, all of which speak only as of the date the statement is made.
These forward-looking statements are based largely on Managements expectations
and are subject to a number of risks and uncertainties, some of which cannot be
predicted or quantified and are beyond the Companys control. Future events
and actual results could differ materially from those set forth in,
contemplated by, or underlying the forward-looking statements. Statements in
this Annual Report, including the Notes to the Consolidated Financial
Statement, this Managements Discussion and Analysis of Financial Conditions
and Results of Operations, and the Risk Factors section contained in Item 1,
describe factors, among others, that could contribute to or cause such
differences. In addition, new factors emerge from time to time and it is not
possible for management to predict all of such factors, nor can it assess the
impact of each such factor on the business or the extent to which any factor,
or combination of factors, may cause actual results to differ materially from
forward-looking statements. The Company undertakes no obligation to publicly
update or review any forward-looking statements, whether as a result of new
information, future events or otherwise.

Results of Operations Fiscal 2001 vs. Fiscal 2000

Revenues

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

Net Sales for the microelectronic segment decreased slightly to $73.6 million
in fiscal 2001 from $74.3 million in the prior year. High-reliability
microelectronic sales increased 12.5% to $30.4 million from $27.0 million,
while the

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commercial division sales declined 8.7% to $43.2 million, compared to $47.3
million in the prior year. A general increase in spending for the electronic
components used in defense systems caused the increase in sales of
high-reliability products, as order rates increased through the year. This
slight uptrend is expected to continue over the next year because the economic
environment for defense spending is favorable. Sales of commercial components
were hurt by the slowdown in the telecommunications and network equipment
industry during 2001. Many of our customers experienced excess inventory
situations when demand for their products slowed in early 2001. This excess
inventory caused many of our customers to dramatically reduce their orders for
our products, causing sales for the second half of fiscal 2001 to be
approximately 55% lower than the first half. Sales of commercial components
are expected to remain at reduced levels until our customers use their excess
inventory.

Gross Margin

Gross margin as a percentage of net sales was 27.3% for the year ended
September 29, 2001, compared to 35.6% in the previous year. The
microelectronic segment saw a decline of margins to 25.7% from 34.6%. This
decline was primarily caused by approximately $4.3 million of inventory related
charges taken in the microelectronic segment during the second quarter of the
fiscal year. Approximately $1.3 million of this charge related to product that
was scrapped because of poor yields or obsolescence. The remaining $3.0
million was an inventory reserve taken against raw materials and finished
goods, because of a slowdown in demand for the Companys products in the
telecommunication industry. This inventory is not expected to be used within
the next twelve months and, therefore, has a high probability of becoming
obsolete over that period. Fiscal 2001 was also a period of rapidly falling
prices for electronic memory components. This downward pricing pressure also
made it difficult to maintain margins for our commercial memory division, as
gross margin for our commercial products decreased to 14% in fiscal 2001, from
31% in the prior year.

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

Selling, General and Administrative Expenses

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

General and administrative expenses, including corporate expenses, increased
$826,000 overall for the year ended September 29, 2001, of which $474,000 was
due to the inclusion of expenses from the Panelview division. Approximately
$250,000 of the increase in Fiscal 2001 was for consulting fees that have
resulted in a research and development tax credit of approximately $900,000.
The $900,000 the tax credit is reflected in the operating statement of Fiscal
2001, and resulted in an effective tax rate of 23% in fiscal 2001 compared to a
rate of 39% in the prior year. The remaining increase of general and
administrative expense was due to an increase of corporate headcount and an
increase in general corporate expenses such as legal, information services,
accounting, and insurance expenses. Some administrative expenses, such as
insurance, were generally higher because of the acquisition of Panelview during
the year. Information services expenses were higher because of the
installation of a new enterprise computer system at our Commercial division.
Total general and administrative expenses were 6.5% of sales in Fiscal 2001,
compared to 6.2% in the prior year.

Research and Product Development Expenses

Research and development expenses for the year ended September 29, 2001
increased $288,000 from the previous year. These expenses totaled 5.4% of net
sales for the current period, which was slightly lower than the 5.7% from prior
year. The main source of the increase came from the microelectronic segment,
which increased spending $375,000 from the previous year. During this period,
the microelectronic segment spent $312,000 to begin development of tamper
resistant memory modules. Other major ongoing product development efforts in
the

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microelectronic segment include SDRAM, SSRAM, microprocessor modules, ball grid
array products, development of new packaging designs for memory products, and
qualification of new semiconductor products. The display segment research and
development expenses were $87,000 less than last year due to a reduction in
interface equipment development. The Company expects research and development
expenses to remain at approximately the same percentage of sales in the future.

Interest Expense

Interest expense decreased $135,000 for the year ended September 29, 2001, when
compared to the previous year. Borrowings against the line of credit declined
during the third and fourth quarters due to increased cash flow because of
collection of accounts receivable, a reduction of inventory purchases, a
reduction of payroll due to a decreased headcount, and a reduction in overall
company-wide spending. Interest rates have decreased significantly since last
year with averages for the twelve-month period dropping to 7.98% from 8.9% and
quarterly averages declining to 6.67% from 9.2%.

Amortization of Intangible Assets

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

Amortization expense for next year, Fiscal 2002, will include $290,000 relating
to the merger of Bowmar and Electronic Designs, plus $1.3 million relating to
the acquisition of Panelview. The Company does not intend to adopt FAS 142,
Goodwill and Other Intangible Assets, until the fiscal year of 2003, which
begins in October of 2002.

Results of Operations Fiscal 2000 vs. Fiscal 1999

Revenues

Net Sales increased 51% to $87.6 million for the year ended September 30, 2000
from $58.0 million in the same period of 1999. This increase was primarily due
to a 63% increase in sales of microelectronic components to $74.3 million from
$45.5 million. Sales of commercial memory products increased 74% from the
previous year because of substantially higher shipment volume combined with
increased average selling prices based on new product sales. Sales of high
reliability products increased 48% from the previous year based on higher
shipment volumes of monolithic products and level average selling prices when
compared to the previous year. Display sales increased 6%, or $731,000, from
the previous year on slightly higher shipment volumes.

Gross Margin

Gross margin as a percentage of net sales improved to 35.6% for the period
ended September 30, 2000, from 26.8% in the previous year. The microelectronic
segment saw margins improve to 34.6% from 25.6%. The improvement was primarily
because of higher shipment volumes in both the commercial and high reliability
memory products, which spread fixed manufacturing costs over more units, and a
favorable product mix which included new commercial products and memory modules
which have a higher average selling price. Gross margin for the display
segment improved to 41.2% from 30.9% in the previous year because of a higher
ratio of liquid crystal display sales and higher shipments of ruggedized liquid
crystal displays which had higher selling prices than the product mix the
previous year.

Selling, General and Administrative Expenses

Selling expenses for the year ended September 30, 2000, increased $2.3 million
from the same period of the previous year. Increases in spending for
microelectronic sales represented $1.8 million of this increase. The largest
component of the increase in microelectronic expenses was a $1.3 million
increase in sales commission expenses based upon a 63% sales increase for the
segment from the previous year. The remaining increase was mainly due to
expenses for new sales personnel, advertising and marketing to support sales
into the telecommunications markets. Selling

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expenses for the display segment were $510,000 higher than the previous year
and were mainly used to target the aviation markets.

General and administrative expenses increased $1.2 million for the year ended
September 30, 2000, when compared to the same period in the previous year.
This increase was mainly due to higher salary and benefit expenses relating to
employee incentive pay, legal expenses, costs associated with shareholder
services and the change in listing of our common stock from the American Stock
Exchange to the NASDAQ National Market.

For the year ended September 30, 2000, selling, general and administrative
expense decreased as a percentage of sales to 16.1% from 18.4% in the prior
year.

Research and Product Development Expenses

Research and development expenses for the year ended September 30, 2000
increased $1.4 million from the previous year and totaled 5.7% of net sales.
The main source of the increase came from the microelectronic segment, which
increased spending $1.5 million from the previous year. Major ongoing product
development efforts include SDRAM, microprocessor modules, ball grid array
products, development of new packaging designs for memory products, and
qualification of new semiconductor products. The display segment expenses were
$116,000 lower than the previous year mainly because of reductions in spending
for interface and mechanical products. Spending on liquid crystal display
development was approximately 10% of net sales in 2000.

Merger Expense

Merger expense of $850,000 was incurred during fiscal 1999, related to the
merger of Bowmar Instrument Corporation and Electronic Designs, Inc., which
occurred on October 26, 1998 and formed White Electronic Designs Corporation.
These expenses consisted mainly of severance costs and charges for professional
services to complete the merger. No additional merger related costs were
incurred during fiscal year 2000.

Discontinued Operations

In connection with the October 1997 sale by EDI of its Crystallume Diamond
Products Division, the Company had recorded a receivable in the amount of
$625,000. As previously disclosed, the buyer asserted an indemnity claim
against the Company and refused to pay the $625,000 balance due, including the
initial installment of $250,000, which was due on October 1, 1998. The Company
and the buyer have resolved this matter. In exchange for executing mutual
releases the Company has reduced the receivable to $325,000. The results of
this settlement are reflected in the fiscal 1999 Statement of Income under
results from discontinued operations.

Interest Expense

Interest expense increased $144,000 for the year ended September 30, 2000, when
compared to the same period in the previous year. The increase was caused by
additional borrowings against our line of credit to support higher inventory
levels necessary to meet sales requirements.

Amortization of Intangible Assets

Amortization expense increased $21,000 for the year ended September 30, 2000.
Twelve months of amortization was taken in Fiscal 2000, while only eleven
months of amortization were included in the same period of Fiscal 1999 because
of the timing of the merger.

Seasonality and Inflation

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

Liquidity and Capital Resources

Cash on hand as of September 29, 2001 totaled $5.0 million. During fiscal year
2001, cash provided by operations was approximately $11.9 million. The sum of
net income, depreciation, and amortization totaled approximately $6.3 million
for the period. Capital expenditures for the year were approximately $1.6
million. Inventory was significantly lower on

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September 29, 2001, accounting for $8.7 million of net cash provided. Those
changes in assets, along with a $574,000 stock option tax benefit, helped to
offset the $6.1 million reduction of accounts payable.

Accounts receivable decreased $0.6 million from the fiscal year ended September
30, 2000. This decrease is consistent with lower quarterly sales in the fourth
quarter when compared to the fourth quarter of last year. Sales were $21.4
million in the fourth quarter of fiscal year 2001 versus $25.1 million in the
fourth quarter of fiscal year 2000. The current accounts receivable balance of
$14.0 million represents 65% of the current quarterly sales rate and is higher
than the 59% ratio at September 30, 2000. The higher ratio is due to a lower
collection rate in the microelectronic segment and a higher percentage of
international sales, which have longer payment terms than domestic sales.
Accounts receivable totals include $2.0 million of receivables from the
Panelview acquisition.

During fiscal 2001, the Company recorded a $574,000 tax benefit from the
exercise of stock options during the fiscal year. The Company also will
receive a research and development tax credit in the amount of approximately
$900,000, which directly reduced the income tax expense for fiscal year 2001.
Deferred income tax increased a net of $718,000 for fiscal year 2001. The
Company expects to continue to realize the benefit of its deferred income tax
asset over the next five years.

Inventory levels decreased $7.2 million during the 2001 fiscal year. This
decrease is partially the result of a $3.0 million inventory reserve taken
against microelectronic inventory, and lower purchases of inventory for our
commercial division because of decreased orders in the second half of the year.
These decreases were partially offset by the inclusion of $2.2 million of
Panelview display inventory. Inventory purchases within the fiscal fourth
quarter of 2001 were minimized in an effort to further reduce inventory on
hand. The current inventory balances also take into account projected first
quarter fiscal year 2002 production requirements. Inventory amounts, when
compared to the current quarterly sales rate, decreased from 95.1% of fourth
quarter sales in fiscal year 2000, to 78% of fourth quarter sales in fiscal
year 2001. The Company is currently managing its inventory levels to match
projected production requirements. The Company will continue to review
inventory levels against projected demand, for obsolescence and lower of cost
or market factors, and expects to make appropriate adjustments when needed.

Accounts payable as of September 29, 2001, were $3.0 million less than at the
end of fiscal 2000. The decrease was attributable to the decrease in inventory
purchases and a company-wide reduction in overall spending. The inclusion of
Panelviews accounts payable of $1.7 million in the fiscal 2001 amounts
partially offset the pay down of accounts payable.

Capital expenditures for the fiscal year ended September 29, 2001, totaled
approximately $1.6 million. Approximately $1.4 million was spent on production
equipment for the microelectronic manufacturing facilities, including $266,000
spent on an expansion to house the tamper-resistant memory module coating
processes. The remaining capital expenditure funds were spent on computer
equipment and various manufacturing equipment throughout the Company. Cash
received from sales of fixed assets during fiscal year 2001 totaled $24,000.
Capital expenditures for fiscal 2002 are expected to be at approximately the
same level as fiscal 2001. Future capital expenditures will be funded by cash
from operations, line of credit borrowings, or operating lease financing.

Cash payments for the acquisition of Panelview totaled $531,000. Approximately
$319,000 of cash was generated fiscal year 2001 through the issuance of common
stock from the exercise of employee stock options.

The Company uses a $12 million revolving credit agreement with Bank One for
short-term financing needs. As of the end of the fourth quarter, the Company
was in compliance with all debt covenant requirements in the credit agreement.
The revolving credit line has been fully paid since July 2001; the Company is
generating a level of internal cash flow sufficient to sustain the day-to-day
operations. The Company believes that cash generated by operations, in
addition to its borrowing capability, should be sufficient to fund its cash
needs for the next twelve months.

Recently Enacted Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB), issued FAS 141
Business Combinations. FAS 141 basically requires the purchase method of
accounting be used for all business combinations, and eliminates the use of the
pooling of interests method. The Company has used the purchase method to
account for the merger of Bowmar and Electronic Designs in fiscal 1999, and the
acquisition of Panelview in fiscal 2001. The Company will comply with the
requirements of FAS 141 for all future business combinations.

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In June 2001, the FASB issued FAS 142 Goodwill and Other Intangible Assets.
FAS 142 changes the method of expensing purchased goodwill from a business
combination, from monthly amortization to a method that measures the impairment
of the goodwill asset, and takes write-downs when appropriate. The provisions
of this statement are required to be applied starting with fiscal years
beginning after December 15, 2001. The Company intends to adopt the provisions
of FAS 142 for fiscal year 2003, which begins September 29, 2002. At that
time, the Company will stop the monthly amortization of $106,745 for Panelview
purchased goodwill, and assess the need for any changes in the goodwill asset
based on current valuations.

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

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




ITEM 7A     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of the fiscal year ended September 29, 2001, the Company had no outstanding
balance against its revolving line of credit with Bank One. During the fiscal
year, the average outstanding balance on a daily basis was approximately $2.9
million. The interest charged against these borrowings is a combination of the
Bank One prime rate, which is similar to the prime rate charged by major
banking institutions in the United States, and the London Interbank Offering
Rate (LIBOR) plus 2.25%. During fiscal 2001 the prime rate averaged 7.98%,
and was 6.0% as of September 29, 2001. The Company did not borrow against the
LIBOR rate during the last quarter of the 2001 fiscal year.

The Company is subject to changes in prime rate based on Federal Reserve
actions and general market interest fluctuations. The Company is also subject
to fluctuations in the LIBOR rate. The Federal Reserve has lowered interest
rates multiple times during Fiscal 2001. Based on average borrowings of $2.9
million per year, a hypothetical increased rate change of 1% would increase our
interest expense approximately $29,000 per year from current expense levels.
The Company believes that moderate interest rate increases will not have a
material adverse impact on its results of operations or financial position in
the foreseeable future.

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




ITEM 8     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data required by Regulation S-X are
included in Part IV, Item 14 of the Annual Report on Form 10-K.




|       |  |                                                                                     
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|ITEM 9 |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
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|None   |  |                                                                                     




PART III




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|ITEM 10 |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item for directors is set forth in the
Companys 2002 Proxy Statement relating to the Companys Annual Meeting of
Stockholders to be held on February 21, 2002, (the 2002 Proxy Statement),
under the heading Election of Directors and the heading Section 16(a)
Beneficial Ownership Reporting Compliance and is incorporated herein by this
reference as if set forth in full. The information required by this Item for
Executive

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Officers of the Company is set forth in Part I of this Form 10-K, under the
heading Executive Officers of the Company.




| |  | 
| |  | 

ITEM 11   EXECUTIVE COMPENSATION

The information required by this Item is set forth in the Companys 2002 Proxy
Statement under the heading Executive Compensation and is incorporated herein
by this reference as if set forth in full. The information set forth under the
heading Compensation Committee Report on Executive Compensation contained in the 2002 Proxy Statement are not incorporated by reference.




ITEM 12    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is set forth in the Companys 2002 Proxy
Statement under the heading Principal Stockholders and under the heading
Security Ownership by Management and is incorporated herein by reference as
if set forth in full.




ITEM 13   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is set forth in the Companys 2002 Proxy
Statement under the heading Certain Transactions and under the heading
Compensation Committee Interlocks and Insider Participation and is
incorporated herein by this reference as if set forth in full.




PART IV




|        |  |                                                                                                                                                                                                                                                                      
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|ITEM 14 |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K                                                                                                                                                                                                      
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|(a)(1)  |  | Financial Statements and Supplementary Data                                                                                                                                                                                                                          
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|        |  | Consolidated Financial Statements                                                                                                                                                                                                                                    
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|(a)(2)  |  | Financial Statement Schedules for the Years Ended September 29, 2001,
September 30, 2000, and October 2, 1999                                                                                                                                                        
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|        |  | Financial statement schedules have been omitted because either they are
not required or are not applicable, or because the information has been
included in the consolidated financial statements or notes thereto.                                                  
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|(a)(3)  |  |                                                                                                                                                                                                                                                                      
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|        |  | Exhibits                                                                                                                                                                                                                                                             
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|2.1     |  | Agreement and Plan of Merger dated May 3, 1998 by and among Bowmar
Instrument Corporation and Electronic Designs, Inc. and Bravo
Acquisition Subsidiary, Inc. (incorporated herein by reference to
Exhibit 2 to the current Report on Form 8-K filed on May 6, 1998.)
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|2.1A    |  | Amendment to Agreement and Plan of Merger dated June 9, 1998
(incorporated herein by reference to Exhibit 2.1A to the Registration
Statement on Form S-4 filed on June 11, 1998, Registration No.
333-56565)                                                         
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|2.1B    |  | Amendment to Agreement and Plan of Merger dated August 24, 1998
(incorporated herein by reference to Exhibit 2.1B to the Registration
Statement on Form S-4, filed on September 2, 1998, Registration No.
333-56565)                                                 
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|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)                                                                                        

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|3.2     |  | Amended and Restated Code of By-Laws of White Electronic Designs
Corporation (incorporated herein by reference to Exhibit 3.2 to
the June 9, 1998 Registration Statement on Form S-4 filed June 11,
1998)                                                                                                                         
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|        |  |                                                                                                                                                                                                                                                                                                                                   
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|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)                                                                                                                                                                                 
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|        |  |                                                                                                                                                                                                                                                                                                                                   
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|4.1A    |  | Amendment No. 1 to Rights Agreement, effective as of May 3, 1998
(incorporated herein by reference to Exhibit 4.3 to the
Registration Statement on Form S-4, filed on June 11, 1998,
Registration No. 333-56565)                                                                                                                  
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|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)                       
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|        |  |                                                                                                                                                                                                                                                                                                                                   
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|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)       
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|**10.14 |  | 1994 Flexible Stock Plan (incorporated herein by reference to                                                                                                                                                                                                                                                                     
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|        |  | Exhibit A to the Companys definitive Proxy Statement prepared in
connection with the 1994 Annual Meeting of Shareholders)                                                                                                                                                                                                        
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|10.27   |  | Revolving Credit and Term Loan Agreement by and between Bank One,
Texas and White Electronic Designs Corporation, an Indiana
Corporation, dated January 7, 2000. (Incorporated herein by
reference to Exhibit 10.27 to the Companys 10-Q for the quarter
ended January 1, 2000)                                                  
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|        |  |                                                                                                                                                                                                                                                                                                                                   
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|10.28   |  | First Amendment to Revolving Credit Agreement by and between Bank
One effective as of June 3, 2000; Promissory Note effective June
3, 2000, Notice of Final Agreement effective June 3, 2000
(incorporated herein by reference to Exhibit 10.28 to the
Companys Quarterly Report on Form 10-Q for the quarter ended July
1, 2000)
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|        |  |                                                                                                                                                                                                                                                                                                                                   
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|10.29   |  | Agreement and Plan of Reorganization dated January 29, 2001, by
and among White Electronic Designs Corporation, PV Acquisition
Corporation, Panelview, Inc. and Panelview Partners L.P.
(incorporated herein by reference to Exhibit 10.29 to the
Companys Quarterly Report on Form 10-Q, filed on February 13,
2001)            
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|       
|        |  |                                                                                                                                                                                                                                                                                                                                   

|        |  |                                                                                                                                                                                                                                                          
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**10.30 |  | Amendment to Companys 1994 Flexible Stock Plan, effective May 7,
2001 (incorporated herein by reference to Exhibit 99 to the
Registration Statement on Form S-8, filed on May 9, 2001,
Registration No. 333-60544)                                      
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                          
|       
|       
|       
|       
|**10.31 |  | White Electronic Designs Corporation 2001 Director Stock Plan
(incorporated herein by reference to Exhibit 99 to the
Registration Statement on Form S-8, filed on May 9, 2001,
Registration No. 333-60536)                                               
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                          
|       
|       
|       
|       
|**10.32 |  | White Electronic Designs Corporation 2000 Employee Stock Purchase
Plan (incorporated herein by reference to Exhibit 99 to the
Registration Statement on Form S-8, filed May 9, 2001,
Registration No. 333-60546)                                         
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                          
|       
|       
|       
|       
|**10.33 |  | Amendment to Companys Stock Option Plan for Non-Employee
Directors (incorporated herein by reference to Exhibit 99 to the
Registration Statement on Form S-8, filed on May 9, 2001,
Registration No. 333-60548)                                         
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                          
|       
|       
|       
|       
|**10.34 |  | White Electronic Designs Corporation 2000 Broad Based Employee
Stock Option Plan (incorporated herein by reference to Exhibit 99
to the Registration Statement on Form S-8, filed on May 9, 2001,
Registration No. 333-60542)                            
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                          
|       
|       
|       
|       
|**10.35 |  | Executive Employment Agreement made as of February 22, 2001
between White Electronic Designs Corporation and Hamid R.
Shokrgozar (incorporated herein by reference to Exhibit 10.35 to
the Companys Quarterly Report on Form 10-Q filed on May 15,
2001)

20



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##### Table of Contents



|       |  |                                                                                                                                                           
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|      
|      
|      
|      
|       |  |                                                                                                                                                           
|      
|      
|      
|      
|*10.36 |  | Industrial Building Lease by and between Transwestern West Union
and White Electronic Designs Corporation, an Indiana Corporation,
dated October 12, 2001.
|      
|      
|      
|      
|       |  |                                                                                                                                                           
|      
|      
|      
|      
|*21.1  |  | Subsidiaries of White Electronic Designs Corporation.                                                                                                     
|      
|      
|      
|      
|       |  |                                                                                                                                                           
|      
|      
|      
|      
|*23.1  |  | PricewaterhouseCoopers, LLP consent for Form S-3 filed April 11,
2001, and Forms S-8 filed May 9, 2001.                                                   



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



---

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




SIGNATURES

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

|                         |  |                                      |  |                                               
|------------------------ |  | ------------------------------------ |  | ----------------------------------------------
|                         |  | WHITE ELECTRONIC DESIGNS CORPORATION
|                        
|                        
|                        
|                        
|                         |  |                                      |  |                                               
|                        
|                        
|                        
|                        
|Date:  December 18, 2001 |  |                                      |  | /s/William J. Rodes

William J. Rodes         
|                        
|                        
|                        
|                        
|                         |  |                                      |  | Chief Accounting Officer,
Secretary, Treasurer

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

|                                                                                                                                 |  |                                                                                                            
|-------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------
|/s/Hamid R. Shokrgozar
Hamid R. Shokrgozar
President, Chief Executive Officer
and Chairman of the Board
Date:  December 18, 2001 |  | /s/Donald F. McGuinness
Donald F. McGuinness
Director
Date:  December 18,2001                              
|                                                                                                                                
|/s/Thomas M. Reahard
Thomas M. Reahard
Director
Date:  December 18, 2001                                                         |  | /s/Thomas J. Toy
Thomas J. Toy
Director
Date:  December 18,2001                                            
|                                                                                                                                
|/s/Norman T. Hall
Norman T. Hall
Director
Date:  December 18, 2001                                                               |  | /s/William J. Rodes
William J. Rodes
Chief Accounting Officer, Secretary, Treasurer
Date:  December 18,2001
|                                                                                                                                
|/s/Edward A. White
Edward A. White
Vice Chairman of the Board
and Director                                                       |  |                                                                                                            
|                                                                                                                                
|Date:  December 18, 2001                                                                                                         |  |                                                                                                            

21



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##### Table of Contents






REPORT OF INDEPENDENT ACCOUNTANTS

TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
WHITE ELECTRONIC DESIGNS CORPORATION

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, shareholders equity, and of cash flows
present fairly, in all material respects, the financial position of White
Electronic Designs Corporation and Subsidiaries at September 29, 2001 and
September 30, 2000, and the results of their operations and their cash flows
for each of the three years in the period ended September 29, 2001, in
conformity with accounting principles generally accepted in the United States
of America. These financial statements are the responsibility of the Companys
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP

Phoenix, Arizona
November 5, 2001

22



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##### Table of Contents



WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY




CONSOLIDATED BALANCE SHEET


(In thousands of dollars, except share data)


|                                           |                                                                                                 |                            |                           |        |               |        |               |         |        |        | 
|------------------------------------------ | ----------------------------------------------------------------------------------------------- | -------------------------- | ------------------------- | ------ | ------------- | ------ | ------------- | ------- | ------ | ------ | 
|                                          
|                                           |                                                                                                 |                            |                           |        | September 29, |        | September 30,
|                                           |                                                                                                 |                            |                           |        | 2001          |        | 2000         
|                                          
|ASSETS                                     |                                                                                                 |                            |                           |        |               |        |               |        
|                                          
|                                          
|                                          
|                                          
|Current Assets                             |                                                                                                 |                            |                           |        |               |        |               |        
|                                          
|                                          
|                                          
|                                          
|                                           | Cash                                                                                            |                            | $                         | 5,032  |               |        | $             | 1,857   |       
|                                          
|                                          
|                                          
|                                          
|                                           | Accounts receivable, less allowance for
doubtful accounts of $638 and $417                      |                            |                           | 14,020 |               |        |               | 14,658  |       
|                                          
|                                          
|                                          
|                                          
|                                           | Inventories, net                                                                                |                            |                           | 16,707 |               |        |               | 23,884  |       
|                                          
|                                          
|                                          
|                                          
|                                           | Prepaid expenses                                                                                |                            |                           | 594    |               |        |               | 1,752   |       
|                                          
|                                          
|                                          
|                                          
|                                           | Deferred income taxes                                                                           |                            |                           | 2,741  |               |        |               | 1,829   |       
|                                          
|                                           |                                                                                                 |                            | Total Current Assets      |        |               | 39,094 |               |         |        | 43,980 | 
|                                          
|                                          
|                                          
|                                          
|                                           |                                                                                                 |                            |                           |        |               |        |               |        
|                                          
|                                          
|                                          
|                                          
|Property, plant and equipment, net         |                                                                                                 |                            | 7,914                     |        |               |        | 8,025         |        
|                                          
|                                          
|                                          
|                                          
|Deferred income taxes                      |                                                                                                 |                            | 1,934                     |        |               |        | 2,128         |        
|                                          
|                                          
|                                          
|                                          
|Goodwill and intangibles                   |                                                                                                 |                            | 8,086                     |        |               |        | 690           |        
|                                          
|                                          
|                                          
|                                          
|Other assets, net                          |                                                                                                 |                            | 200                       |        |               |        | 173           |        
|                                          
|                                           |                                                                                                 |                            | Total Assets              |        | $             | 57,228 |               |         | $      | 54,996 | 
|                                          
|                                           |                                                                                                 |                            |                           |        |               |        |               |        
|                                          
|                                          
|                                          
|                                          
|LIABILITIES AND SHAREHOLDERS EQUITY       |                                                                                                 |                            |                           |        |               |        |               |        
|                                          
|                                          
|                                          
|                                          
|Current Liabilities                        |                                                                                                 |                            |                           |        |               |        |               |        
|                                          
|                                          
|                                          
|                                          
|                                           | Current portion of long-term debt                                                               |                            | $                         | 628    |               |        | $             | 6,835   |       
|                                          
|                                          
|                                          
|                                          
|                                           | Accounts payable                                                                                |                            |                           | 5,798  |               |        |               | 8,832   |       
|                                          
|                                          
|                                          
|                                          
|                                           | Accrued salaries and benefits                                                                   |                            |                           | 1,874  |               |        |               | 3,342   |       
|                                          
|                                          
|                                          
|                                          
|                                           | Other accrued expenses                                                                          |                            |                           | 2,910  |               |        |               | 1,593   |       
|                                          
|                                           |                                                                                                 |                            | Total Current Liabilities |        |               | 11,210 |               |         |        | 20,602 | 
|                                          
|                                          
|                                          
|                                          
|Long term debt                             |                                                                                                 |                            | 890                       |        |               |        | 1,519         |        
|                                          
|                                          
|                                          
|                                          
|Other long term liabilities                |                                                                                                 |                            | 1,348                     |        |               |        | 1,252         |        
|                                          
|                                           |                                                                                                 |                            | Total Liabilities         |        | $             | 13,448 |               |         | $      | 23,373 | 
|                                          
|                                           |                                                                                                 |                            |                           |        |               |        |               |        
|                                          
|                                          
|                                          
|                                          
|Shareholders Equity                       |                                                                                                 |                            |                           |        |               |        |               |        
|                                          
|                                          
|                                          
|                                          
|                                           | Common stock, $0.10 stated value, authorized 60,000,000
shares issued 19,594,124 and 18,534,201 |                            |                           | 1,959  |               |        |               | 1,853   |       
|                                          
|                                          
|                                          
|                                          
|                                           | Treasury stock, 44,442 and 44,442 shares, at cost                                               |                            |                           | (4     | )             |        |               | (4      | )     
|                                          
|                                          
|                                          
|                                          
|                                           | Additional paid-in capital                                                                      |                            |                           | 50,858 |               |        |               | 42,079  |       
|                                          
|                                          
|                                          
|                                          
|                                           | Accumulated deficit                                                                             |                            |                           | (9,033 | )             |        |               | (12,305 | )     
|                                          
|                                           |                                                                                                 | Total Shareholders Equity |                           |        | 43,780        |        |               |         | 31,623 |       
|                                          
|Total Liabilities and Shareholders Equity |                                                                                                 | $                          | 57,228                    |        |               | $      | 54,996        |        
|                                          

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

23



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##### Table of Contents



WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY




CONSOLIDATED STATEMENT OF INCOME


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


|                                                                                                                                                      |                                     |         |        |             |            |      |        |        |            |   |        |        |            | 
|----------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------- | ------- | ------ | ----------- | ---------- | ---- | ------ | ------ | ---------- | - | ------ | ------ | ---------- | 
|                                                                                                                                                     
|                                                                                                                                                      |                                     |         |        | Fiscal Year
|                                                                                                                                                      |                                     |         |        | 2001        |            | 2000 |        | 1999  
|                                                                                                                                                     
|Net sales                                                                                                                                             |                                     | $       | 96,761 |             |            | $    | 87,595 |        |            | $ | 58,038 |       
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|Cost of sales                                                                                                                                         |                                     |         | 70,360 |             |            |      | 56,424 |        |            |   | 42,510 |       
|                                                                                                                                                     
|Gross margin                                                                                                                                          |                                     |         | 26,401 |             |            |      | 31,171 |        |            |   | 15,528 |       
|                                                                                                                                                     
|Expenses:                                                                                                                                             |                                     |         |        |             |            |      |        |        |            |   |        |       
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                      | Selling, general and administrative |         |        | 15,222      |            |      |        | 14,102 |            |   |        | 10,683 |           
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                      | Product development                 |         |        | 5,302       |            |      |        | 5,014  |            |   |        | 3,651  |           
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                      | Interest expense                    |         |        | 480         |            |      |        | 615    |            |   |        | 471    |           
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                      | Merger expense                      |         |        |            |            |      |        |       |            |   |        | 850    |           
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                      | Amortization of intangible assets   |         |        | 1,144       |            |      |        | 753    |            |   |        | 732    |           
|                                                                                                                                                     
|                                                                                                                                                      | Total expenses                      |         |        | 22,148      |            |      |        | 20,484 |            |   |        | 16,387 |           
|                                                                                                                                                     
|Income/(loss) before income taxes
and discontinued operations                                                                                         |                                     |         | 4,253  |             |            |      | 10,687 |        |            |   | (859   | )     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|Provision (benefit) for income taxes                                                                                                                  |                                     |         | 981    |             |            |      | 4,126  |        |            |   | (301   | )     
|                                                                                                                                                     
|Income/(loss) from continuing operations                                                                                                              |                                     |         | 3,272  |             |            |      | 6,561  |        |            |   | (558   | )     
|                                                                                                                                                     
|Discontinued operations (Note 16)
Loss from discontinued operations of Crystallume
Diamond Products Division, net of applicable
income tax of $16,000 |                                     |         |       |             |            |      |       |        |            |   | (277   | )     
|                                                                                                                                                     
|Loss from discontinued operations                                                                                                                     |                                     |         |       |             |            |      |       |        |            |   | (277   | )     
|                                                                                                                                                     
|Net income/(loss)                                                                                                                                     |                                     | $       | 3,272  |             |            | $    | 6,561  |        |            | $ | (835   | )     
|                                                                                                                                                     
|Earnings (loss) per share  basic, continuing operations                                                                                              |                                     | $       | 0.17   |             |            | $    | 0.37   |        |            | $ | (0.06  | )     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|Loss per share  basic, discontinued operations                                                                                                       |                                     |         |       |             |            |      |       |        |            |   | (0.02  | )     
|                                                                                                                                                     
|Net income (loss) per common share  basic                                                                                                            |                                     | $       | 0.17   |             |            | $    | 0.37   |        |            | $ | (0.08  | )     
|                                                                                                                                                     
|Earnings (loss) per share-diluted, continuing operations                                                                                              |                                     | $       | 0.17   |             |            | $    | 0.34   |        |            | $ | (0.06  | )     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|Loss per share-diluted, discontinued operations                                                                                                       |                                     |         |       |             |            |      |       |        |            |   | (0.02  | )     
|                                                                                                                                                     
|Net income per common share-diluted                                                                                                                   |                                     | $       | 0.16   |             |            | $    | 0.34   |        |            | $ | (0.08  | )     
|                                                                                                                                                     
|Weighted average number of common
shares and equivalents:                                                                                             |                                     |         |        |             |            |      |        |        |            |   |        |       
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                      |                                     | Basic   |        |             | 19,230,781 |      |        |        | 17,544,136 |   |        |        | 15,394,451 | 
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                     
|                                                                                                                                                      |                                     | Diluted |        |             | 20,528,337 |      |        |        | 19,539,501 |   |        |        | 15,394,451 | 
|                                                                                                                                                     

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

24



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##### Table of Contents



WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY




CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY


|                                                                                 |                  |   |           |      |        |   |          |     |         |   |             |   |          |   |            |     |   |   |         |   |              |   |        |     |  
|-------------------------------------------------------------------------------- | ---------------- | - | --------- | ---- | ------ | - | -------- | --- | ------- | - | ----------- | - | -------- | - | ---------- | --- | - | - | ------- | - | ------------ | - | ------ | --- | -
|(In thousands of dollars, except share data)                                    
|                                                                                
|                                                                                 |                  |   |           |      |        |   |          |     |         |   |             |   |          |   | Additional |     |   |   |         |   | Total Share-
|                                                                                 |                  |   | Preferred |      | Common |   | Treasury |     | Paid-in |   | Accumulated |   | holders'
|                                                                                 |                  |   | Stock     |      | Stock  |   | Stock    |     | Capital |   | Deficit     |   | Equity  
|                                                                                
|Balance, September 30, 1998                                                      |                  | $ |          |      |        | $ | 72       |     |         | $ | (186        | ) |          | $ | 26,998     |     |   | $ | (17,582 | ) |              | $ | 9,302  |    
|                                                                                
|Common stock issued for exercise
options and related tax benefits: 76,159 shares |                  |   |           |      |        |   | 8        |     |         |   |             |   |          |   | 14         |     |   |   |         |   |              |   | 22     |    
|Payment
of preferred dividends                                                   |                  |   |           |      |        |   |          |     |         |   |             |   |          |   |            |     |   |   | (360    | ) |              |   | (360   | )  
|Acquired
through merger                                                          |                  |   | 120       |      |        |   | 1,511    |     |         |   | 182         |   |          |   | 10,260     |     |   |   |         |   |              |   | 12,073
|Net
loss                                                                         |                  |   |           |      |        |   |          |     |         |   |             |   |          |   |            |     |   |   | (835    | ) |              |   | (835   | )  
|                                                                                
|Balance, October 2, 1999                                                         |                  | $ | 120       |      |        | $ | 1,591    |     |         | $ | (4          | ) |          | $ | 37,272     |     |   | $ | (18,777 | ) |              | $ | 20,202 |    
|                                                                                
|Common stock issued for exercise
of options: 1,020,799 shares                    |                  |   |           |      |        |   | 103      |     |         |   |             |   |          |   | 2,071      |     |   |   |         |   |              |   | 2,174  |    
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Tax benefit related to exercise
of stock options                                 |                  |   |           |      |        |   |          |     |         |   |             |   |          |   | 2,793      |     |   |   |         |   |              |   | 2,793  |    
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Payment of preferred dividend                                                    |                  |   |           |      |        |   |          |     |         |   |             |   |          |   |            |     |   |   | (89     | ) |              |   | (89    | )  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Conversion of preferred stock
to common stock:                                   |                  |   |           |      |        |   |          |     |         |   |             |   |          |   |            |     |   |   |         |   |              |   |        |    
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | 1,588,693 shares |   |           | (120 | )      |   |          | 159 |         |   |             |   |          |   |            | (57 | ) |   |         |   |              |   |        | (18 | )
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Net income                                                                       |                  |   |           |      |        |   |          |     |         |   |             |   |          |   |            |     |   |   | 6,561   |   |              |   | 6,561  |    
|                                                                                
|Balance, September 30, 2000                                                      |                  | $ |          |      |        | $ | 1,853    |     |         | $ | (4          | ) |          | $ | 42,079     |     |   | $ | (12,305 | ) |              | $ | 31,623 |    
|                                                                                
|Common stock issued for exercise
of options: 249,770 shares                      |                  |   |           |      |        |   | 25       |     |         |   |             |   |          |   | 294        |     |   |   |         |   |              |   | 319    |    
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Tax benefit related to exercise
of stock options                                 |                  |   |           |      |        |   |          |     |         |   |             |   |          |   | 574        |     |   |   |         |   |              |   | 574    |    
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Common stock issued in
acquisition of Panelview:                                 |                  |   |           |      |        |   |          |     |         |   |             |   |          |   |            |     |   |   |         |   |              |   |        |    
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|814,500 shares                                                                   |                  |   |           |      |        |   | 81       |     |         |   |             |   |          |   | 7,911      |     |   |   |         |   |              |   | 7,992  |    
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Net income                                                                       |                  |   |           |      |        |   |          |     |         |   |             |   |          |   |            |     |   |   | 3,272   |   |              |   | 3,272  |    
|                                                                                
|Balance, September 29, 2001                                                      |                  | $ |          |      |        | $ | 1,959    |     |         | $ | (4          | ) |          | $ | 50,858     |     |   | $ | (9,033  | ) |              | $ | 43,780 |    
|                                                                                

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

25



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WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY




CONSOLIDATED STATEMENT OF CASH FLOW


|                                                                                  |                                        |                                                       |                                   |       |               |        |               |       |            |   |        |       |        |        |  
|--------------------------------------------------------------------------------- | -------------------------------------- | ----------------------------------------------------- | --------------------------------- | ----- | ------------- | ------ | ------------- | ----- | ---------- | - | ------ | ----- | ------ | ------ | -
|(In thousands of dollars)                                                        
|                                                                                 
|                                                                                  |                                        |                                                       |                                   |       |               |        |               |       | Year Ended |   |        |       |       
|                                                                                  |                                        |                                                       |                                   |       | September 29, |        | September 30, |       | October 2,
|                                                                                  |                                        |                                                       |                                   |       | 2001          |        | 2000          |       | 1999      
|                                                                                 
|OPERATING ACTIVITIES:                                                             |                                        |                                                       |                                   |       |               |        |               |       |            |   |        |      
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Net income                                                                        |                                        | $                                                     | 3,272                             |       |               | $      | 6,561         |       |            | $ | (835   | )    
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Adjustments to reconcile net income to net cash
provided by operating activities: |                                        |                                                       |                                   |       |               |        |               |       |            |   |        |      
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Depreciation and amortization          |                                                       |                                   | 2,966 |               |        |               | 2,486 |            |   |        | 2,244 |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Deferred income tax (benefit) expense  |                                                       |                                   | (694  | )             |        |               | 119   |            |   |        | (117  | )     
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Cash received in sale of fixed assets  |                                                       |                                   | 24    |               |        |               |      |            |   |        |      |        |        |  
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Net changes in balance sheet accounts: |                                                       |                                   |       |               |        |               |       |            |   |        |       |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                        | Accounts receivable                                   |                                   |       | 1,803         |        |               |       | (4,284     | ) |        |       | (4,394 | )     
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                        | Inventories                                           |                                   |       | 8,749         |        |               |       | (9,301     | ) |        |       | (1,984 | )     
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                        | Prepaid expenses                                      |                                   |       | 1,248         |        |               |       | (1,398     | ) |        |       | 26     |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                        | Tax benefit upon issuance of common stock
for options |                                   |       | 574           |        |               |       | 2,793      |   |        |       |       |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                        | Other assets                                          |                                   |       | 34            |        |               |       | 17         |   |        |       | 238    |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                        | Accounts payable                                      |                                   |       | (6,071        | )      |               |       | 4,135      |   |        |       | 443    |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                        | Accrued expenses                                      |                                   |       | (151          | )      |               |       | (332       | ) |        |       | 1,253  |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                        | Other long-term liabilities                           |                                   |       |              |        |               |       | 62         |   |        |       | 851    |       
|                                                                                 
|Net cash provided by (used in) operating activities                               |                                        | $                                                     | 11,754                            |       |               | $      | 858           |       |            | $ | (2,275 | )    
|                                                                                 
|                                                                                  |                                        |                                                       |                                   |       |               |        |               |       |            |   |        |      
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|INVESTING ACTIVITIES                                                              |                                        |                                                       |                                   |       |               |        |               |       |            |   |        |      
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Acquisition of property, plant & equipment                                        |                                        |                                                       | (1,626                            | )     |               |        | (2,313        | )     |            |   | (2,109 | )    
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Cash
payments for acquisition, net of cash acquired                               |                                        |                                                       | (531                              | )     |               |        |              |       |            |   | 224    |      
|                                                                                 
|Net cash provided by (used in) investing activities                               |                                        | $                                                     | (2,157                            | )     |               | $      | (2,313        | )     |            | $ | (1,885 | )    
|                                                                                 
|                                                                                  |                                        |                                                       |                                   |       |               |        |               |       |            |   |        |      
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|FINANCING ACTIVITIES:                                                             |                                        |                                                       |                                   |       |               |        |               |       |            |   |        |      
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|(Repayments)/borrowings under line of credit, net                                 |                                        |                                                       | (6,207                            | )     |               |        | 1,477         |       |            |   | 4,730  |      
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Change
in long-term liabilities                                                   |                                        |                                                       | 94                                |       |               |        | 193           |       |            |   | 34     |      
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Retirement of long-term debt                                                      |                                        |                                                       | (628                              | )     |               |        | (730          | )     |            |   | (2,717 | )    
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Issuance of common stock                                                          |                                        |                                                       | 319                               |       |               |        | 2,174         |       |            |   | 22     |      
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Payment of preferred stock dividend                                               |                                        |                                                       |                                  |       |               |        | (89           | )     |            |   | (360   | )    
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Redemption of preferred stock                                                     |                                        |                                                       |                                  |       |               |        | (18           | )     |            |   |       |      
|                                                                                 
|Net cash provided by (used in) financing activities                               |                                        | $                                                     | (6,422                            | )     |               | $      | 3,007         |       |            | $ | 1,709  |      
|                                                                                 
|Net change in cash                                                                |                                        |                                                       | 3,175                             |       |               |        | 1,552         |       |            |   | (2,451 | )    
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Cash at beginning of year                                                         |                                        |                                                       | 1,857                             |       |               |        | 305           |       |            |   | 2,756  |      
|                                                                                 
|Cash at end of year                                                               |                                        | $                                                     | 5,032                             |       |               | $      | 1,857         |       |            | $ | 305    |      
|                                                                                 
|SUPPLEMENTAL CASH FLOWS INFORMATION:                                              |                                        |                                                       |                                   |       |               |        |               |       |            |   |        |      
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Net cash paid for interest                                                        |                                        | $                                                     | 480                               |       |               | $      | 612           |       |            | $ | 404    |      
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Net cash recovered from income tax refunds                                        |                                        | $                                                     | 1,262                             |       |               | $      | 18            |       |            | $ | 129    |      
|                                                                                 
|NON-CASH INVESTING AND FINANCING ACTIVITIES                                       |                                        |                                                       |                                   |       |               |        |               |       |            |   |        |      
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Conversion of Preferred Stock                                                     |                                        | $                                                     |                                  |       |               | $      | 102           |       |            | $ |       |      
|                                                                                 
|Details of acquisition                                                            |                                        |                                                       |                                   |       |               |        |               |       |            |   |        |      
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                        |                                                       | Fair value of assets acquired     |       | $             | 2,645  |               |       | $          |  |        |       | $      | 18,074 |  
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  |                                        |                                                       | Fair value of liabilities assumed |       |               | (2,162 | )             |       |            |  |        |       |        | (5,351 | )
|                                                                                 
|Net assets acquired                                                               |                                        | $                                                     | 483                               |       |               | $      |              |       |            | $ | 12,723 |      
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Acquisition costs                                                                 |                                        |                                                       | 142                               |       |               |        |              |       |            |   | (650   | )    
|                                                                                 
|Stock issued in connection with the merger                                        |                                        | $                                                     | 8,880                             |       |               | $      |              |       |            | $ | 12,073 |      
|                                                                                 

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

26



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##### Table of Contents



WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|1. |  | NATURE OF OPERATIONS
|-- |  | --------------------

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



|2. |  | MERGER AND ACQUISITIONS
|-- |  | -----------------------

On January 29, 2001 the Company completed the acquisition of Panelview, Inc., a
manufacturer of display products located in Oregon. Panelview provides optical
enhancements to display products sold to the transportation, medical and
instrumentation markets.

The Company issued 814,500 shares of common stock, and authorized the
additional issuance of 90,500 shares of common stock after one year, in
exchange for all of the outstanding shares of Panelview. Based on the average
market price of the Companys common stock in the period just prior to the
acquisition date, the transaction had a value of approximately $9.0 million.
This amount consists of $8,880,313 based on the market value of 905,000 shares
of common stock, and $142,289 of direct acquisition costs. In addition, the
former shareholders of Panelview can earn up to an additional $1 million of the
Companys common stock, if certain revenue and operating contribution targets
are met. The targets are based on Panelviews performance over the
twelve-month period from February 2001 through January 2002. If the targets
are achieved, the stock will be issued in April 2002.

As of September 29, 2001, the financial results of the Panelview division do
not make it appear likely that they will achieve the revenue and operating
contribution targets required to earn an additional $1 million of the Companys
stock. Therefore, no liability has been accrued for this cost, at this time.

Panelview will continue to operate as a wholly owned subsidiary of the Company,
and will be included in the display segment. The combination was treated as a
purchase for financial reporting purposes based on the following data.

|                                                  |  |   |            | 
|------------------------------------------------- |  | - | ---------- | 
|Purchase Price based on Stock & Acquisition Costs |  | $ | 9,022,602  | 
|                                                 
|                                                 
|                                                 
|                                                 
|Liabilities Assumed                               |  | $ | 2,161,632  | 
|                                                  |  |   |            | 
|Total Purchase Cost                               |  | $ | 11,184,234 | 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |  |   |            | 
|                                                 
|                                                 
|                                                 
|                                                 
|Assets Received                                   |  | $ | 2,644,611  | 
|                                                  |  |   |            | 
|Acquired Goodwill                                 |  | $ | 8,539,623  | 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |  |   |            | 
|                                                 
|                                                 
|                                                 
|                                                 
|Amortization period of goodwill (in months)       |  |   | 80         | 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |  |   |            | 
|                                                 
|                                                 
|                                                 
|                                                 
|Goodwill expense per month                        |  | $ | 106,745    | 
|                                                  |  |   |            | 

As part of the purchase agreement, 90,500 shares of common stock were held back
pending any future claims that may arise against Panelview. If no claims
arise, these shares will be issued January 29, 2002. A purchase liability,
based on the market value of the common shares at the time of acquisition, of
$888,031 has been accrued as a current liability.

The following unaudited pro forma information shows the results of operations
of White Electronic Designs and Panelview for the fiscal years 2001 and 2000
assuming the companies had been combined as of October 3, 1999. This pro forma
information may not be indicative of the results that actually would have
happened if the companies had been combined for the entire periods presented,
and is not intended to be a projection of future results.

27



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##### Table of Contents



WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Panelview Proforma Data
(Dollars in thousands except per share data)

|                           |  |             |            |             |  |   |            | 
|-------------------------- |  | ----------- | ---------- | ----------- |  | - | ---------- | 
|                           |  | Fiscal 2001 |            | Fiscal 2000
|Net Sales                  |  | $           | 99,871     |             |  | $ | 96,104     | 
|                          
|                          
|                          
|                          
|Cost of Sales              |  |             | 73,075     |             |  |   | 62,896     | 
|                           |  |             |            |            
|Gross Margin               |  |             | 26,796     |             |  |   | 33,208     | 
|                          
|                          
|                          
|                          
|                           |  |             |            |             |  |   |            | 
|                          
|                          
|                          
|                          
|Operating Expenses         |  |             | 23,491     |             |  |   | 23,485     | 
|                          
|                          
|                          
|                          
|                           |  |             |            |             |  |   |            | 
|                           |  |             |            |            
|Income Before Taxes        |  |             | 3,305      |             |  |   | 9,723      | 
|                          
|                          
|                          
|                          
|Provision for Income Taxes |  |             | 783        |             |  |   | 4,246      | 
|                          
|                          
|                          
|                          
|                           |  |             |            |             |  |   |            | 
|                          
|                          
|                          
|                          
|Net Income                 |  | $           | 2,522      |             |  | $ | 5,477      | 
|                          
|                          
|                          
|                          
|                           |  |             |            |             |  |   |            | 
|                          
|                          
|                          
|                          
|Basic Shares               |  |             | 19,502,010 |             |  |   | 18,358,636 | 
|                          
|                          
|                          
|                          
|Earnings per share  basic |  | $           | 0.13       |             |  | $ | 0.30       | 

On October 26, 1998, Bowmar Instrument Corporation (Bowmar) merged with
Electronic Designs, Inc. (EDI). In connection with the merger, Bowmar
changed its name to White Electronic Designs Corporation (the Company). While
Bowmar was the legal acquirer, the merger was accounted for as a reverse
acquisition purchase whereby EDI was deemed to have acquired Bowmar for
financial reporting purposes. Consistent with the reverse acquisition purchase
accounting treatment, the historical financial statements presented for periods
prior to the merger date are the financial statements of EDI, not the
previously reported consolidated financial statements of Bowmar. The
operations of both companies combined as White Electronic Designs Corporation
have been included in the financial statements from the date of the merger.
Pursuant to the Merger each outstanding share of common stock of EDI was
converted into 1.275 shares of common stock of Bowmar.



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



| | a. |  | Principles of Consolidation 
The consolidated financial statements include the accounts of the Company.
All significant inter-company accounts and transactions are eliminated.
Certain amounts in prior fiscal years consolidated financial statements
have been reclassified to conform to current presentation.                                                                                                                                                                   
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | Fiscal Year-End 
The Companys fiscal year-end is the Saturday nearest September 30.                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | c. |  | Fair Value of Financial Instruments 
The Company values financial instruments as required by SFAS No. 107,
Disclosures about Fair Value of Financial Instruments (SFAS No. 107).
The carrying amounts of cash and cash equivalents and bank notes payable
approximate fair value due to the short maturity of those instruments.
The carrying amounts of
account receivables and accounts payable approximate their fair value due
to the relatively short maturity of these items.
|
| | d. |  | Inventories 
Inventories are valued at the lower of cost or market with costs
determined using the average and standard costs methods with standard
costs approximating actual.                                                                                                                                                                                                                                                                                                      

28



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WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | e. |  | Property, Plant and Equipment 
Property, plant and equipment, including property under capital lease
agreements, are stated at cost. Depreciation is determined on a
straight-line basis over the estimated useful lives ranging from 5 to 20
years for buildings and improvements and 3 to 7 years for machinery and
equipment. Leasehold improvements are amortized over the lives of the
leases or estimated useful lives of the assets, whichever is less. When
assets are sold or otherwise retired, the cost and accumulated
depreciation are removed from the books and the resulting gain or loss is
included in operating results.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | f. |  | Goodwill and Intangible Assets 
Intangible assets represent the goodwill generated from the January 29,
2001 acquisition of Panelview and identified intangible assets from the
October 26, 1998 merger with White Electronic Designs Corporation. The
merger intangible assets are being amortized over periods ranging from
four to five years and the acquisition goodwill is being amortized over 80
months. The Company periodically evaluates the carrying value of its
goodwill and intangible assets in accordance with SFAS 121 Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of, based upon the estimated cash flows to be generated by the
related assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | g. |  | Government Contracts 
Sales under government contracts, which are usually based on firm fixed
price contracts, are recorded when the units are shipped and accepted by
the government. 
The Companys subcontracts provide that they may be terminated at the
convenience of the U.S. Government. Upon such termination, the contractor
is normally entitled to receive the purchase price for delivered items,
reimbursement for allowable costs incurred and allocable to the contract
and an allowance for profit on the allowable costs incurred or adjustment
for loss if completion of performance would have resulted in a loss. In
addition, the Companys subcontracts provide for termination for default
if the Company fails to perform or breaches a material obligation of a
subcontract. In the event of a termination for default, the customer may
have the unilateral right at any time to require the Company to return
unliquidated progress payments pending final resolution of the propriety
of the termination for default. The Company may also have to pay the
excess, if any, of the cost of purchasing a substitute item from a third
party. If the customer has suffered other ascertainable damages as a
result of a sustained default, the customer could demand payment of such
damages by the Company.
|
| | h. |  | Sales Recognition and Accounts Receivable 
The majority of the Companys sales are recognized when the
products are shipped to the customer. Some product shipments to
distributors may be returned based on conditions set forth in their
distributor agreement. Therefore, product sales on these shipments
to distributors are not recognized until the distributor ships the
products to the end user customer. The Company also maintains
reserves for warranty return expense based on normal return rates.
In addition, the Company has reserves for potential credit losses,
and distributor price protection adjustments. Based on historical
experience, the Company believes it has adequate reserves to account
for potential losses or adjustments. Write-offs for uncollectible
accounts totaled $95,644 in fiscal 2001, $112,188 in fiscal 2000, and
$36,000 in fiscal 1999.                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| | i. |  | Income Taxes 
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes
(SFAS 109). SFAS 109 is an asset and liability approach that requires
the recognition of deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the financial
statement carrying amounts and the tax bases of assets and liabilities.
Deferred tax assets are recognized, net of any valuation allowance, for
deductible temporary differences and net operating loss and tax credit
carry forwards.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

29



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WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



| | j. |  | Newly Issued Accounting Standards 
In June 2001, the Financial Accounting Standards Board (FASB) issued FAS
141, Business Combinations. FAS 141 requires the purchase method of
accounting be used for all business combinations, and eliminates the use
of the pooling of interests method. The Company has used the purchase
method to account for the merger of Bowmar and Electronic Designs in
fiscal 1999, and the acquisition of Panelview in fiscal 2001. The Company
will comply with the requirements of FAS 141 for all future business
combinations. 
In June 2001, the FASB issued FAS 142, Goodwill and Other Intangible
Assets. FAS 142 changes the method of expensing purchased goodwill from a
business combination, from monthly amortization to a method that measures
the impairment of the goodwill asset, and takes write downs when
appropriate. The provisions of this statement are required to be applied
starting with fiscal years beginning after December 15, 2001. The Company
intends to adopt the provisions of FAS 142 for fiscal year 2003, which
begins September 29, 2002. At that time, the Company will stop the
monthly amortization of $106,745 for Panelview purchased goodwill, and
assess the need for any changes in the goodwill asset based on current
valuations. 
In June 2001, the FASB issued FAS 143, Accounting for Asset Retirement
Obligations. FAS 143 changes the way in which long-lived asset retirement
obligations are recognized on the balance sheet and income statement. The
Company believes that adoption of this standard will have no material
effect on the Companys financial reporting and disclosure. 
In August 2001, the FASB issued FAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. FAS 144 requires that one accounting model
be used for long-lived assets to be disposed of by sale. The Company
believes that adoption of this standard will have no material effect on
the Companys financial reporting and disclosure.
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | k. |  | Accounting Estimates 
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | l. |  | Research and Development 
Expenditures for research and development are expensed as incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       



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

Inventories consist of the following:

|                  |  |                    |            |                    |  |   |            | 
|----------------- |  | ------------------ | ---------- | ------------------ |  | - | ---------- | 
|                 
|                  |  | September 29, 2001 |            | September 30, 2000
|                 
|Raw materials     |  | $                  | 8,396,000  |                    |  | $ | 12,163,000 | 
|                 
|                 
|                 
|                 
|Work-in-process   |  |                    | 6,402,000  |                    |  |   | 9,952,000  | 
|                 
|                 
|                 
|                 
|Finished goods    |  |                    | 1,909,000  |                    |  |   | 1,769,000  | 
|                 
|Total Inventories |  | $                  | 16,707,000 |                    |  | $ | 23,884,000 | 
|                 

The inventories are net of reserve for excess and obsolete inventories of
$5,084,000 and $2,216,000 for fiscal 2001 and 2000 respectively.

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

30



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WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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

The intangible asset balances and related accumulated amortization as of Fiscal
year end 2001 and 2000 are as follows:

|                                                      |  |             |           |             |  |   |           |  
|----------------------------------------------------- |  | ----------- | --------- | ----------- |  | - | --------- | -
|                                                     
|                                                      |  | Fiscal 2001 |           | Fiscal 2000
|                                                     
|Intangible Assets Gross October 26, 1998 Merger       |  | $           | 1,247,000 |             |  | $ | 1,247,000 |  
|                                                     
|                                                     
|                                                     
|                                                     
|Goodwill Gross January 29, 2001 Acquisition           |  |             | 8,539,622 |             |  |   | 0         |  
|                                                     
|                                                     
|                                                     
|                                                     
|Accumulated Amortization October 26, 1998 Merger      |  |             | (847,000  | )           |  |   | (557,000  | )
|                                                     
|                                                     
|                                                     
|                                                     
|Accumulated Amortization January 29, 2001 Acquisition |  |             | (853,960  | )           |  |   | 0         |  
|                                                     
|Intangible Assets, Net                                |  | $           | 8,085,662 |             |  | $ | 690,000   |  
|                                                     



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

Property, plant and equipment consists of the following:

|                                               |  |                    |            |                    |  |   |            |  
|---------------------------------------------- |  | ------------------ | ---------- | ------------------ |  | - | ---------- | -
|                                              
|                                               |  | September 29, 2001 |            | September 30, 2000
|                                              
|Land                                           |  | $                  | 246,000    |                    |  | $ | 246,000    |  
|                                              
|                                              
|                                              
|                                              
|Buildings and improvements                     |  |                    | 611,000    |                    |  |   | 600,000    |  
|                                              
|                                              
|                                              
|                                              
|Machinery and equipment                        |  |                    | 7,784,000  |                    |  |   | 7,117,000  |  
|                                              
|                                              
|                                              
|                                              
|Tooling                                        |  |                    | 1,487,000  |                    |  |   | 1,487,000  |  
|                                              
|                                              
|                                              
|                                              
|Furniture and fixtures                         |  |                    | 1,807,000  |                    |  |   | 1,698,000  |  
|                                              
|                                              
|                                              
|                                              
|Leasehold improvements                         |  |                    | 1,979,000  |                    |  |   | 1,750,000  |  
|                                              
|Total, at cost                                 |  |                    | 13,914,000 |                    |  |   | 12,898,000 |  
|                                              
|                                              
|                                              
|                                              
|Less accumulated depreciation and amortization |  |                    | (6,000,000 | )                  |  |   | (4,873,000 | )
|                                              
|Net Property, Plant and Equipment              |  | $                  | 7,914,000  |                    |  | $ | 8,025,000  |  
|                                              

At fiscal year-end 2001 and 2000, property, plant and equipment held under
capital leases amounted to $0 and $375,000 respectively. Related accumulated
amortization on property and equipment under capital leases amounted to $0 and
$375,000 at the end of fiscal 2001 and 2000, respectively. Amortization
expense for such equipment approximated $0, $70,300, and $94,000 for fiscal
years 2001, 2000 and 1999, respectively. Depreciation expense was $1,822,000,
$1,733,000 and $1,512,000 for fiscal years 2001, 2000 and 1999, respectively.



|7. |  | LONG-TERM DEBT
|-- |  | --------------

Long-term debt consists of the following:

|                                  |           |   |                    |           |                    |   |           |           | 
|--------------------------------- | --------- | - | ------------------ | --------- | ------------------ | - | --------- | --------- | 
|                                 
|                                  |           |   | September 29, 2001 |           | September 30, 2000
|                                 
|Term loan, Bank One               |           | $ | 1,518,000          |           |                    | $ | 2,147,000 |          
|                                 
|                                 
|                                 
|                                 
|Bank One revolving line of credit |           |   | 0                  |           |                    |   | 6,207,000 |          
|                                 
|                                 
|                                 
|                                 
|Obligations under capital leases  |           |   | 0                  |           |                    |   | 0         |          
|                                 
|                                  | Sub-Total |   |                    | 1,518,000 |                    |   |           | 8,354,000 | 
|                                 
|                                 
|                                 
|                                 
|Less current portion              |           |   | 628,000            |           |                    |   | 6,835,000 |          
|                                 
|Total long term debt              |           | $ | 890,000            |           |                    | $ | 1,519,000 |          
|                                 

The availability of cash under the revolving line of credit is based on
eligible accounts receivable and inventories. There is a charge of 1/4 of 1%
per month on the unused portion of the line of credit. The line of credit
charges interest at the Bank One prime rate, which is similar to the prime
rate changed by major banking institutions in the United States, and matures
January 7, 2003.

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

The aggregate maturities of the above debt excluding the revolving line of
credit are approximately $628,000 in 2002 and $890,000 in 2003.

The weighted average interest rate on long-term debt for fiscal 2001, 2000, and
1999 was approximately 7.98%, 9.05%, and 8.05% respectively.

31



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WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|8. |  | INCOME TAXES
|-- |  | ------------

The provision (benefits) for income taxes on continuing operations consists of
the following:

|                               |  |      |           |      |  |             |           |  |  |   |          |  
|------------------------------ |  | ---- | --------- | ---- |  | ----------- | --------- |  |  | - | -------- | -
|                              
|                               |  |      |           |      |  | Fiscal Year |           |  |  |  
|                               |  | 2001 |           | 2000 |  | 1999       
|                              
|Current                        |  | $    | 1,675,000 |      |  | $           | 4,007,000 |  |  | $ | 129,000  |  
|                              
|                              
|                              
|                              
|Deferred                       |  |      | (694,000  | )    |  |             | 119,000   |  |  |   | (430,000 | )
|                              
|Income tax provision (benefit) |  | $    | 981,000   |      |  | $           | 4,126,000 |  |  | $ | (301,000 | )
|                              

A reconciliation of the provision for income taxes on continuing operations
between the U.S. statutory and effective rates follows:

|                                      |  |      |           |      |  |             |           |   |  |   |          |  
|------------------------------------- |  | ---- | --------- | ---- |  | ----------- | --------- | - |  | - | -------- | -
|                                     
|                                      |  |      |           |      |  | Fiscal Year |           |   |  |  
|                                      |  | 2001 |           | 2000 |  | 1999       
|                                     
|Provision (benefit) at statutory
rate |  | $    | 1,446,000 |      |  | $           | 3,634,000 |   |  | $ | (292,000 | )
|                                     
|                                     
|                                     
|                                     
|State taxes, net of federal benefit   |  |      | 149,000   |      |  |             | 402,000   |   |  |   | (30,000  | )
|                                     
|                                     
|                                     
|                                     
|Federal and state credits             |  |      | (900,000  | )    |  |             |          |   |  |   |         |  
|                                     
|                                     
|                                     
|                                     
|Goodwill                              |  |      | 320,000   |      |  |             |          |   |  |   |         |  
|                                     
|                                     
|                                     
|                                     
|Other                                 |  |      |          |      |  |             | (51,000   | ) |  |   | (8,000   | )
|                                     
|                                     
|                                     
|                                     
|Permanent difference                  |  |      | (34,000   | )    |  |             | 141,000   |   |  |   | 29,000   |  
|                                     
|Effective Tax                         |  | $    | 981,000   |      |  | $           | 4,126,000 |   |  | $ | (301,000 | )
|                                     

The income tax effect of loss carry forwards, tax credit carry forwards and
temporary differences between financial and tax reporting give rise to the
deferred income assets and liabilities.

Deferred income taxes consisted of the following:

|         |                                        |            |                                        |            |                    |           |                    |           |           |           |  
|-------- | -------------------------------------- | ---------- | -------------------------------------- | ---------- | ------------------ | --------- | ------------------ | --------- | --------- | --------- | -
|        
|         |                                        |            |                                        |            | September 29, 2001 |           | September 30, 2000
|        
|Current: |                                        |            |                                        |            |                    |           |                    |          
|        
|        
|        
|        
|         | Allowance for doubtful accounts        |            | $                                      | 212,000    |                    |           | $                  | 164,000   |          
|        
|        
|        
|        
|         | Inventories                            |            |                                        | 2,638,000  |                    |           |                    | 1,480,000 |          
|        
|        
|        
|        
|         | Plant, Property and Equipment          |            |                                        |           |                    |           |                    | 74,000    |          
|        
|        
|        
|        
|         | Deferred Revenue                       |            |                                        | 26,000     |                    |           |                    | 56,000    |          
|        
|        
|        
|        
|         | Accrued expenses and other liabilities |            |                                        | 390,000    |                    |           |                    | 366,000   |          
|        
|        
|        
|        
|         | Net operating loss carry forwards      |            |                                        | 482,000    |                    |           |                    | 482,000   |          
|        
|        
|        
|        
|         | Deferred tax asset valuation allowance |            |                                        | (1,007,000 | )                  |           |                    | (793,000  | )        
|        
|Subtotal |                                        | $          | 2,741,000                              |            |                    | $         | 1,829,000          |          
|        
|         |                                        | Long Term: |                                        |            |                    |           |                    |           |           |          
|        
|        
|        
|        
|         |                                        |            | Property, Plant and Equipment          |            |                    | (749,000  | )                  |           |           | (645,000  | )
|        
|        
|        
|        
|         |                                        |            | Intangible Assets                      |            |                    | (157,000  | )                  |           |           | (272,000  | )
|        
|        
|        
|        
|         |                                        |            | Net operating loss carry forwards      |            |                    | 3,629,000 |                    |           |           | 4,048,000 |  
|        
|        
|        
|        
|         |                                        |            | Other                                  |            |                    | (78,000   | )                  |           |           | (79,000   | )
|        
|        
|        
|        
|         |                                        |            | Deferred tax asset valuation allowance |            |                    | (710,000  | )                  |           |           | (924,000  | )
|        
|         |                                        | Subtotal   |                                        | $          | 1,934,000          |           |                    | $         | 2,128,000 |          
|        
|         |                                        | Total      |                                        | $          | 4,676,000          |           |                    | $         | 3,957,000 |          
|        

Based on the Companys taxable income in recent years and projecting future
taxable income over the period in which the deferred income tax assets are
deductible, the Company believes that it is more likely than not that it will
realize the benefit of the deferred tax assets.

As of September 29, 2001, the Company had federal net operating loss carry
forward for tax purposes of approximately $11,556,000, which expire at various
dates through 2018. In addition, the Company has state tax net operating loss
carry forwards of $2,245,000, which expire at various dates through 2003.

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

32



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##### Table of Contents



WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|9. |  | BENEFIT PLAN
|-- |  | ------------

The benefit plan statement lists pension benefit information as of September
29, 2001, pursuant to the Companys defined benefit pension plan for union
employees at its Fort Wayne, Indiana facility pursuant to a collective
bargaining agreement. Benefits are based primarily on a benefits multiplier
and years of service. The Company funds the amount equal to the minimum
funding required plus additional amounts which may be approved by the Company
from time to time. The following statements list pension benefit information
as of September 29, 2001 and September 30, 2000.

|                                                                 |                                                    |      |           |               |   |               |           |            |   |   |           |           |   | 
|---------------------------------------------------------------- | -------------------------------------------------- | ---- | --------- | ------------- | - | ------------- | --------- | ---------- | - | - | --------- | --------- | - | 
|                                                                
|                                                                 |                                                    |      |           | September 29, |   | September 30, |           | October 2,
|Benefits Plan                                                    |                                                    | 2001 |           | 2000          |   | 1999         
|                                                                
|Reconciliation of Projected Benefit Obligation                   |                                                    |      |           |               |   |               |           |            |   |   |           |          
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Benefit obligation beginning of year               |      | $         | 2,233,223     |   |               | $         | 2,147,593  |   |   | $         | 2,258,116 |  
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Service Cost                                       |      |           | 44,510        |   |               |           | 45,063     |   |   |           | 49,217    |  
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Interest cost                                      |      |           | 160,878       |   |               |           | 156,661    |   |   |           | 146,900   |  
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Plan amendments                                    |      |           |              |   |               |           |           |   |   |           | 133,176   |  
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Benefits paid                                      |      |           | (134,823      | ) |               |           | (129,349   | ) |   |           | (126,083  | )
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Actuarial (gain) loss                              |      |           | 42,966        |   |               |           | 13,255     |   |   |           | (313,733  | )
|                                                                
|                                                                
|                                                                
|                                                                
|Benefit obligation-end of year                                   |                                                    | $    | 2,346,754 |               |   | $             | 2,233,223 |            |   | $ | 2,147,593 |          
|                                                                
|Reconciliation of Fair Value of Plan Assets                      |                                                    |      |           |               |   |               |           |            |   |   |           |          
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Plan assets at fair market value-beginning of year |      | $         | 2,412,928     |   |               | $         | 2,407,165  |   |   |           | 2,353,962 |  
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Actual return on plan assets                       |      |           | (5,354        | ) |               |           | 177,861    |   |   |           | 217,067   |  
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Employer contributions                             |      |           | 8,745         |   |               |           | 4,974      |   |   |           | 15,289    |  
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Benefits paid                                      |      |           | (134,823      | ) |               |           | (129,349   | ) |   |           | (126,083  | )
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Expenses                                           |      |           | (25,079       | ) |               |           | (47,723    | ) |   |           | (53,070   | )
|                                                                
|Plan assets at fair market value-end of year                     |                                                    | $    | 2,256,417 |               |   | $             | 2,412,928 |            |   | $ | 2,407,165 |          
|                                                                
|Funded Status                                                    |                                                    | $    | (90,337   | )             |   | $             | 179,705   |            |   |   | 259,572   |          
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Unrecognized transition (assets) obligation        |      |           |              |   |               |           |           |   |   |           |          |  
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Unrecognized prior service cost                    |      |           | 136,152       |   |               |           | 161,037    |   |   |           | 185,922   |  
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Unrecognized actuarial (gain) loss                 |      |           | (125,713      | ) |               |           | (330,013   | ) |   |           | (341,032  | )
|                                                                
|Net amount recognized                                            |                                                    | $    | (79,898   | )             |   | $             | 10,729    |            |   | $ | 104,462   |          
|                                                                
|Weighted-Average Assumptions                                     |                                                    |      |           |               |   |               |           |            |   |   |           |          
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Discount rate                                      |      |           | 7.25          | % |               |           | 7.50       | % |   |           | 7.50      | %
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Expected return on plan assets                     |      |           | 7.00          | % |               |           | 7.00       | % |   |           | 7.00      | %
|                                                                
|                                                                
|                                                                
|                                                                
|Amounts recognized in the statement of financial position        |                                                    |      |           |               |   |               |           |            |   |   |           |          
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Prepaid benefit cost                               |      |           |              |   |               | $         | 10,729     |   |   |           | 104,462   |  
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Accrued benefit liability                          |      |           | (90,337       | ) |               |           |           |   |   |           |          |  
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Intangible assets                                  |      |           | 10,439        |   |               |           |           |   |   |           |          |  
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Accumulated other comprehensive income             |      |           |              |   |               |           |           |   |   |           |          |  
|                                                                
|Net amount recognized                                            |                                                    | $    | (79,898   | )             |   | $             | 10,729    |            |   | $ | 104,462   |          
|                                                                
|Components of Net Periodic Benefit Cost                          |                                                    |      |           |               |   |               |           |            |   |   |           |          
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Service cost                                       |      | $         | 87,510        |   |               | $         | 88,063     |   |   |           | 86,492    |  
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Interest cost                                      |      |           | 160,878       |   |               |           | 156,661    |   |   |           | 146,900   |  
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Expected return on market-related plan assets      |      |           | (164,198      | ) |               |           | (163,604   | ) |   |           | (160,546  | )
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Amortization of transition (assets) obligation     |      |           |              |   |               |           |           |   |   |           |          |  
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Amortization of prior cost                         |      |           | 24,885        |   |               |           | 24,885     |   |   |           | 24,885    |  
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Recognized actuarial (gain) loss                   |      |           | (9,703        | ) |               |           | (7,298     | ) |   |           |          |  
|                                                                
|Net periodic benefit cost                                        |                                                    | $    | 99,372    |               |   | $             | 98,707    |            |   | $ | 97,731    |          
|                                                                
|                                                                 | Curtailment (gain) loss                            |      |           |              |   |               |           |           |   |   |           |          |  
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Settlement (gain) loss                             |      |           |              |   |               |           |           |   |   |           |          |  
|                                                                
|Net periodic benefit cost after curtailments and
and settlements |                                                    | $    | 99,372    |               |   | $             | 98,707    |            |   | $ | 97,731    |          
|                                                                

33



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WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In addition, the Company has an Incentive Savings 401K Plan covering non-union
employees of the Company who have completed six month of service. During
fiscal 2001, the Company matched employee contributions equal to 50% of the
first 6% of the participants wage base. During each of the fiscal years 2001,
2000, and 1999, the Company made contributions to the plan of approximately
$267,430, $219,375, and $133,475 respectively.



|10. |  | STOCK OPTIONS, WARRANTS, AND STOCK PURCHASE PLANS
|--- |  | -------------------------------------------------

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

In connection with the merger with Electronic Design, Inc., Bowmar assumed all
outstanding EDI options and EDI warrants exercisable for shares of EDI common
stock and each such EDI option and EDI warrant was by virtue of the merger and
without any action on the part of the holder thereof, exercisable for shares of
Bowmar stock having the same terms and condition as the EDI options and EDI
warrants (including such terms and conditions as may be incorporated by
reference into the agreements evidencing EDI options and EDI warrants pursuant
to the plans or arrangements pursuant to which such EDI options and EDI
warrants were granted ) except that the number of shares issuable upon exercise
has been multiplied by the Exchange Ratio of 1.275 and rounded to the nearest
whole number of shares of Bowmar Stock and the exercise price per share of EDI
Stock under such option or warrants equals the exercise price per share of EDI
Stock under such EDI options or EDI warrant divided by the Exchange ratio of
1.275 and rounded to the nearest cent.

Stock Options Plans

In February 1987, EDI adopted the 1987 Stock Option Plan (the Plan). The
Plan, as amended, allows for the issuance of up to 2,259,748 shares of the
Companys common stock. Options granted under the Plan must be granted at the
fair market value of such shares on the date of grant and must have an
expiration date no more that ten years from the date of grant. Generally,
options vest over a five-year period and expire five years from the date of
grant. Additionally, in October 1995, in connection with the acquisition of
EDI-MA, fully vested options to purchase 314,826 shares of the Companys common
stock at $0.22 per share that were valued at $598,000 were issued to employees
in exchange for fully vested options of EDI-MA. At the date of the merger with
White Electronic Designs Corporation, Bowmar assumed all then outstanding
unexercised EDI options and converted the number of shares issuable upon
exercise and the exercise price per share using the 1.275 exchange ratio. Both
EDI plans were then terminated, and there are no shares available for future
grants. At September 29, 2001, there were 500,800 shares from the 1987 Stock
Option Plan under option, and 133,096 shares from the EDI-MA acquisition plan
under option.

Under the Companys shareholder approved 1994 Flexible Stock Plan, Common Stock
is available for the grant of options, appreciation rights, restricted stock
awards, performance shares and other stock-based awards. The vesting and terms
of the options granted under this plan are determined when awarded by the Board
of Directors. In February,
2001, the Stockholders approved an amendment to the plan that changed the name
to White Electronic Designs Corporations 1994 Flexible Stock Plan and
changed the number of shares of Common Stock available for grant to 2,200,000.
At September 29, 2001 there were 991,261 shares available for future grants to
directors, officers and employees at prices not less than the fair value at the
date of grant by the Board of Directors. At September 30, 2001, 1,130,443
shares from this plan remained outstanding.

During fiscal 1995, the Board of Directors terminated the Companys shareholder
approved 1986 Stock Option Plan. At September 30, 2001, 1,500 shares from the
Companys 1986 Plan remained under option.

The Companys approved 1992 Non-Qualified Stock Option Plan for Directors
provides for the issuance of options to purchase shares of Common Stock to
directors at an exercise price equal to the fair market value on the date of
grant. In February 2001, the Stockholders approved an amendment to the plan
that changed the name to White Electronic Designs Corporations Director Stock
Option Plan and changed the number of shares of Common Stock available for
grant to 281,000. The Board of Directors terminated this plan in fiscal year
2001. A total of 90,000 options remained unexercised at September 29, 2001.

34



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##### Table of Contents



WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During fiscal 1999, the Companys Board of Directors approved an independent
grant to Mr. McGuinness for a nonqualified stock option to purchase up to
102,000 shares of common stock at an exercise price of $1.125 per share,
vesting ratably over three years. At September 29, 2001, 102,000 shares from
this independent option right were still under option.

During fiscal 2000, the Companys Board of Directors approved an independent
grant to Mr. Shokrgozar for a nonqualified stock option to purchase up to
125,000 shares of common stock at an exercise price of $2.750 per share,
vesting over four years. At September 29, 2001, 125,000 shares from this
independent option right were still under option.

During fiscal 2001, the Companys Board of Directors approved the 2000 Broad
Based Non-qualified Stock Plan, which provides for the issuance of options to
purchase shares of Common Stock at an exercise price equal to the fair market
value at the date of grant. As of September 29, 2001, 209,000 shares were
available for grant and 791,000 granted options were unexercised.

The Companys Shareholders approved the White Electronic Designs Corporation
2001 Director Stock Plan in February 2001, which authorizes non-employee
directors of the corporation to purchase shares of Common Stock at an exercise
price equal to the fair market value on the date of grant and a vesting period
of two years. The total number of shares approved for grant was 500,000. As
of September 29, 2001, 380,000 shares were available for grant, and 120,000
granted options were unexercised.

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

|                                             |  |        |           |                  |  |                     |      |                |  |                     |            |                |  |   |      |                  |  |   |            |   |  |   |      | 
|-------------------------------------------- |  | ------ | --------- | ---------------- |  | ------------------- | ---- | -------------- |  | ------------------- | ---------- | -------------- |  | - | ---- | ---------------- |  | - | ---------- | - |  | - | ---- | 
|                                            
|                                             |  |        |           |                  |  |                     |      |                |  | Fiscal Year         |            |                |  |   |      |                  |  |  
|                                             |  | 2001   |           | 2000             |  | 1999               
|                                            
|                                             |  | Shares |           |                  |  |                     |      |                |  |                     |            |                |  |   |      |                  |  |   |            |   |  |  
|                                             |  | Under  |           | Weighted Average |  |                     |      |                |  | Weighted Average    |            |                |  |   |      | Weighted Average
|                                             |  | Option |           | Exercise Price   |  | Shares Under Option |      | Exercise Price |  | Shares Under Option |            | Exercise Price
|                                            
|Beginning balance outstanding                |  |        | 2,083,577 |                  |  | $                   | 2.13 |                |  |                     | 2,692,234  |                |  | $ | 1.80 |                  |  |   | 2,715,586  |   |  | $ | 2.31 | 
|                                            
|                                            
|                                            
|                                            
|Granted                                      |  |        | 1,301,000 |                  |  |                     | 5.15 |                |  |                     | 530,000    |                |  |   | 3.84 |                  |  |   | 1,271,178  |   |  |   | 1.19 | 
|                                            
|                                            
|                                            
|                                            
|Canceled                                     |  |        | (140,968  | )                |  |                     | 3.44 |                |  |                     | (117,858   | )              |  |   | 1.74 |                  |  |   | (1,218,371 | ) |  |   | 2.37 | 
|                                            
|                                            
|                                            
|                                            
|Exercised                                    |  |        | (249,770  | )                |  |                     | 1.30 |                |  |                     | (1,020,799 | )              |  |   | 2.13 |                  |  |   | (76,159    | ) |  |   | 0.28 | 
|                                            
|Ending balance outstanding                   |  |        | 2,993,839 |                  |  | $                   | 3.40 |                |  |                     | 2,083,577  |                |  | $ | 2.13 |                  |  |   | 2,692,234  |   |  | $ | 1.80 | 
|                                            
|Shares available for future grant            |  |        | 1,580,261 |                  |  |                     |      |                |  |                     | 378,817    |                |  |   |      |                  |  |   | 562,390    |   |  |   |      | 
|                                            
|                                            
|                                            
|                                            
|Weighted average fair value of
option grants |  | $      | 4.97      |                  |  |                     |      |                |  | $                   | 3.12       |                |  |   |      |                  |  | $ | 0.68       |   |  |   |      | 
|                                            

The following table summarizes additional information about the Companys stock
options outstanding as of September 29, 2001.

|                         |                   |  |           |                     |  |                     |         |                  |  |                  |     |          |  |  |           |         |  |   |         |           |  | 
|------------------------ | ----------------- |  | --------- | ------------------- |  | ------------------- | ------- | ---------------- |  | ---------------- | --- | -------- |  |  | --------- | ------- |  | - | ------- | --------- |  | 
|                        
|                         |                   |  |           | Options Outstanding |  | Options Exercisable
|                        
|                         |                   |  |           |                     |  |                     |         |                  |  |                  |     |          |  |  |           |         |  |   |         | Weighted-
|                         |                   |  |           | Shares              |  |                     |         |                  |  | Weighted Average |     |          |  |  |           | Average
|                         |                   |  |           | Under               |  | Weighted Average    |         | Remaining        |  | Exercisable      |     | Exercise
|                         |                   |  |           | Option              |  | Exercise Price      |         | Contractual Life |  | Shares           |     | Price   
|                        
|Range of exercise price: |                   |  |           |                     |  |                     |         |                  |  |                  |     |          |  |  |           |         |  |   |         |          
|                        
|                        
|                        
|                        
|                         | $0.170 - $  1.600 |  |           | 689,014             |  |                     | $       | 0.9405           |  |                  |     | 5.1      |  |  |           | 555,595 |  |   | $       | 0.8962    | 
|                        
|                        
|                        
|                        
|                         | $1.601 - $  3.200 |  |           | 986,825             |  |                     | $       | 2.5603           |  |                  |     | 6.0      |  |  |           | 746,987 |  |   | $       | 2.5145    | 
|                        
|                        
|                        
|                        
|                         | $3.201 - $  4.800 |  |           | 931,000             |  |                     | $       | 3.8233           |  |                  |     | 9.5      |  |  |           | 0       |  |   | $       | 0.0000    | 
|                        
|                        
|                        
|                        
|                         | $4.801 - $  6.400 |  |           | 0                   |  |                     | $       | 0.0000           |  |                  |     | 0.0      |  |  |           | 0       |  |   | $       | 0.0000    | 
|                        
|                        
|                        
|                        
|                         | $6.401 - $  8.000 |  |           | 209,000             |  |                     | $       | 7.1785           |  |                  |     | 8.6      |  |  |           | 18,734  |  |   | $       | 7.1875    | 
|                        
|                        
|                        
|                        
|                         | $8.001 - $  9.600 |  |           | 0                   |  |                     | $       | 0.0000           |  |                  |     | 0.0      |  |  |           | 0       |  |   | $       | 0.0000    | 
|                        
|                        
|                        
|                        
|                         | $9.601 - $11.200  |  |           | 168,000             |  |                     | $       | 10.6049          |  |                  |     | 8.9      |  |  |           | 4,499   |  |   | $       | 10.3750   | 
|                        
|                        
|                        
|                        
|$11.201 - $12.800        |                   |  | 0         |                     |  | $                   | 0.0000  |                  |  |                  | 0.0 |          |  |  | 0         |         |  | $ | 0.0000  |          
|                        
|                        
|                        
|                        
|$12.801 - $14.400        |                   |  | 0         |                     |  | $                   | 0.0000  |                  |  |                  | 0.0 |          |  |  | 0         |         |  | $ | 0.0000  |          
|                        
|                        
|                        
|                        
|$14.401 - $16.000        |                   |  | 10,000    |                     |  | $                   | 16.0000 |                  |  |                  | 8.9 |          |  |  | 2,500     |         |  | $ | 16.0000 |          
|                        
|                         |                   |  | 2,993,839 |                     |  | $                   | 3.3990  |                  |  |                  | 7.2 |          |  |  | 1,328,315 |         |  | $ | 1.9555  |          
|                        

35



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##### Table of Contents



WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On December 3, 1998, the Board of Directors approved the repricing of options
to employees (excluding the Chief Executive Officer and the Chief Financial
officer) of the Company. The revised exercise price is $1.125 per share (the
market closing price on the date of repricing) instead of the original exercise
prices that ranged from $1.688 to $3.490 per share. In the above table these
options are shown as being canceled and new options granted.

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

|                              |  |      |      |      |  |      |     |   |  |  |     |  
|----------------------------- |  | ---- | ---- | ---- |  | ---- | --- | - |  |  | --- | -
|                             
|                              |  | 2001 |      | 2000 |  | 1999
|                             
|Expected options term (years) |  |      | 7.7  |      |  |      | 6.0 |   |  |  | 4.4 |  
|                             
|                             
|                             
|                             
|Risk free interest rate       |  |      | 4.08 | %    |  |      | 5.7 | % |  |  | 5.5 | %
|                             
|                             
|                             
|                             
|Volatility                    |  |      | 149  | %    |  |      | 176 | % |  |  | 67  | %
|                             
|                             
|                             
|                             
|Dividends                     |  |      | 0    | %    |  |      | 0   | % |  |  | 0   | %
|                             

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the vesting period of the options. The pro forma
information for 2001, 2000 and 1999 follows:
(In thousands except for per share information):

|                                                                           |  |      |        |      |  |      |       |   |  |   |       |  
|-------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                                                          
|                                                                           |  | 2001 |        | 2000 |  | 1999
|                                                                          
|Net income (loss), continuing operations                                   |  | $    | 3,272  |      |  | $    | 6,561 |   |  | $ | (558  | )
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Operation compensation expense                                             |  |      | (2,000 | )    |  |      | (555  | ) |  |   | (363  | )
|                                                                          
|Pro forma net income (loss), continuing
operations                         |  | $    | 1,272  |      |  | $    | 6,006 |   |  | $ | (921  | )
|                                                                          
|Pro forma net income (loss), income per
share continuing operations, basic |  | $    | 0.07   |      |  | $    | 0.34  |   |  | $ | (0.08 | )
|                                                                          

Because additional option grants are expected to be made in future years and
options vest over several years, the pro forma impact on fiscal years 2001,
2000, and 1999 is not necessarily representative of the pro forma impact on
reported results for future years.

Stock Purchase Plans

In November 1995, the EDI Board of Directors adopted the 1996 Employee Stock
Purchase Plan. This plan provided for the purchase by employees of up to
250,000 shares of common stock at 85% of the fair market value on the first or
last day of the offering period (as defined in the plan), whichever is lower.
This plan was terminated in October 1998 resulting from the merger of EDI and
the Company. There were no shares issued under this plan in fiscal 2001, 2000,
or 1999. There were 17,744 shares issued at $1.66 under this plan in fiscal
1998.

In February 2001, the Companys Board of Directors adopted the White Electronic
Designs Corporation 2000 Employee Stock Purchase Plan. This plan provided for
the purchase by employees of up to 300,000 shares of common stock at 85% of the
fair market value on the first or last day of the offering period (as defined
in the plan), whichever is lower. This plan began July 1, 2001, and will
continue for ten years unless terminated sooner. There were no shares issued
under this plan in fiscal 2001.



|11. |  | COMMITMENTS AND CONTINGENCIES
|--- |  | -----------------------------

The Company leases certain property and equipment under non-cancelable lease
agreements some of which include renewal options of up to five years. Total
rent expense for 2001, 2000, and 1999 was $1,564,000, $1,207,000 and $1,337,000
respectively. Future minimum annual fixed rentals required under
non-cancelable operating leases having an original term of more than one year
are $2,048,000 in 2002, $1,915,000 in 2003, $1,592,000 in 2004, $1,463,000 in
2005, and $1,537,000 in 2006, and $2,693,259 thereafter.

36



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##### Table of Contents



WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|12. |  | CONCENTRATIONS OF CREDIT RISK
|--- |  | -----------------------------

The Company sells its products primarily to large original equipment
manufacturers, or electronic assembly houses in the United States. In fiscal
2001, no one customer accounted for more than 10% of the Companys sales. The
Company performs ongoing credit evaluations of its customers financial
condition and, generally, requires no collateral from its customers. At
certain times throughout the year the Company may maintain certain bank
accounts in excess of the FDIC insured limits.



|13. |  | SHAREHOLDERS RIGHTS PLAN
|--- |  | ------------------------

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

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

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

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

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

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

37



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##### Table of Contents



WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

of the Rights Agreement the execution of the Agreement and Plan
of Merger with EDI and the transactions contemplated thereby.



|14. |  | DISCONTINUED OPERATIONS
|--- |  | -----------------------

On May 13, 1997, the Company announced the decision to divest Crystallume. As
a consequence, the Company recorded a provision for loss on disposal of
Crystallume of $973,000, which included a provision for operating losses during
the phase out period (May 13, 1997 to the estimated date of disposal).
Revenues related to discontinued operations were $744,000 for fiscal 1997. The
losses from discontinued operations for fiscal 1997 were recorded net of
current income tax benefits of $649,000. The results of Crystallume have been
retroactively separated from the Companys ongoing operations in the
consolidated statement of operations and, at September 30, 1997, the assets of
Crystallume, consisting primarily of fixed assets, have been separately
classified on the balance sheet as a current asset.

On October 27, 1997, the Company sold the assets, effective as of October 1,
1997, of Crystallume pursuant to an Asset Purchase Agreement (the Agreement).
The assets sold include all intellectual property, manufacturing equipment,
inventories and certain specific contracts related to Crystallumes diamond
films and coating business. The buyer assumed none of the liabilities, except
that it assumed the obligation to perform under the acquired contracts with
Crystallumes customers, facility lessor and equipment lessors. The purchase
price consisted of: $500,000 in cash at closing; $625,000 payable over three
years, plus simple interest at 9.5%; and an agreement for future payments based
on product and license revenues earned by the buyer using Crystallume
intellectual property over the next five and seven years, respectively.

On October 1, 1998, the date that the first installment in the amount of
$250,000 was due, the Company received a letter from the buyer asserting
certain indemnity claims under the Agreement in the amount of the total
purchase price and claimed its right to set-off its indemnifiable damages
against amounts due to the Company. The Company and the buyer have resolved
this matter. In exchange for executing mutual releases, the Company has
reduced the receivable to $325,000. In fiscal 1999, $200,000 was received and
$125,000 was received in fiscal 2000. This settlement resulted in a loss of
$342,000 net taxes in fiscal 1999.



|15. |  | EARNINGS PER SHARE
|--- |  | ------------------

The Company has adopted the provisions of the Statement of Financial Accounting
Standards No. 128, Earnings Per Share (SFAS 128) effective January 3, 1998.
SFAS 128 requires the presentation of basic and diluted earnings per share.
Basic EPS is computed by dividing income available to common stockholders by
the weighted average number of common shares that were outstanding during the
period. Dilutive potential common shares consist of the incremental common
shares issuable upon exercise of stock options. All prior period earnings per
share amounts have been restated to comply with the SFAS 128.

In accordance with the disclosure requirements of SFAS 128, a reconciliation of
the numerator and denominator of basic and diluted EPS is provided as follows
(in thousands, except per share amounts):

|                                                         |  |             |           |               |  |           |            |  |  |   |      |  |  |  |  | 
|-------------------------------------------------------- |  | ----------- | --------- | ------------- |  | --------- | ---------- |  |  | - | ---- |  |  |  |  | 
|                                                        
|Fiscal 2001                                             
|                                                         |  |             |           |              
|                                                         |  | Income      |           | Shares        |  | Per share |            |  |  |  
|                                                         |  | (Numerator) |           | (Denominator) |  | Amount    |            |  |  |  
|                                                        
|Earnings from continuing operations, net of tax          |  | $           | 3,272,000 |               |  |           |            |  |  |   |      |  |  |  |  | 
|                                                        
|Basic EPS                                                |  |             |           |               |  |           |            |  |  |   |      |  |  |  |  | 
|                                                        
|                                                        
|                                                        
|                                                        
|Earnings applicable to continuing operations, net of tax |  | $           | 3,272,000 |               |  |           | 19,230,781 |  |  | $ | 0.17 |  |  |  |  | 
|                                                        
|Earnings available to common stockholders                |  | $           | 3,272,000 |               |  |           |            |  |  |   |      |  |  |  |  | 
|                                                        
|                                                        
|                                                        
|                                                        
|Effects of Dilutive Securities                           |  |             |           |               |  |           |            |  |  |   |      |  |  |  |  | 
|                                                        
|                                                        
|                                                        
|                                                        
|Common stock equivalents                                 |  |             |           |               |  |           | 1,297,556  |  |  |   |      |  |  |  |  | 
|                                                        
|Dilutive EPS                                             |  |             |           |               |  |           |            |  |  |   |      |  |  |  |  | 
|                                                        
|                                                        
|                                                        
|                                                        
|Earnings available to common stockholders                |  | $           | 3,272,000 |               |  |           | 20,528,337 |  |  | $ | 0.16 |  |  |  |  | 
|                                                        

Options excluded from the calculation of diluted
net income per share were 387,000 because they did not meet the
dilutive requirements of SFAS 128.

38



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WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                         |  |             |           |               |  |           |            |  |  |   |      | 
|-------------------------------------------------------- |  | ----------- | --------- | ------------- |  | --------- | ---------- |  |  | - | ---- | 
|                                                        
|Fiscal 2000                                             
|                                                        
|                                                         |  | Income      |           | Shares        |  | Per Share
|                                                         |  | (Numerator) |           | (Denominator) |  | Amount   
|                                                        
|Earnings from continuing operations, net of Tax          |  | $           | 6,561,000 |               |  |           |            |  |  |   |      | 
|                                                        
|                                                        
|                                                        
|                                                        
|Less: preferred stock dividends                          |  |             | (89,000   | )             |  |           |            |  |  |   |      | 
|Basic EPS                                               
|Earnings applicable to continuing operations, net of tax |  | $           | 6,472,000 |               |  |           | 17,544,136 |  |  | $ | 0.37 | 
|                                                        
|                                                        
|                                                        
|                                                        
|Loss applicable to discontinued operations, net of tax   |  |             |           |               |  |           |            |  |  | $ | 0.37 | 
|                                                        
|Earnings available to common stock holders               |  | $           | 6,472,000 |               |  |           |            |  |  |   |      | 
|                                                        
|                                                        
|                                                        
|                                                        
|Effects of Dilutive Securities                           |  |             |           |               |  |           |            |  |  |   |      | 
|                                                        
|                                                        
|                                                        
|                                                        
|Common stock equivalents                                 |  |             |           |               |  |           | 1,995,365  |  |  |   |      | 
|                                                        
|Dilutive EPS                                             |  |             |           |               |  |           |            |  |  |   |      | 
|                                                        
|                                                        
|                                                        
|                                                        
|Earnings available to common stock holders               |  | $           | 6,561,000 |               |  |           | 19,539,501 |  |  | $ | 0.34 | 
|                                                        

Options excluded from the calculation of diluted
net income per share were 35,000 because they did not meet the
dilutive requirements of SFAS 128.

|                                                         |  |             |            |               |  |           |            |  |  |   |       |  
|-------------------------------------------------------- |  | ----------- | ---------- | ------------- |  | --------- | ---------- |  |  | - | ----- | -
|                                                        
|Fiscal 1999                                             
|                                                        
|                                                         |  | Income      |            | Shares        |  | Per Share
|                                                         |  | (Numerator) |            | (Denominator) |  | Amount   
|                                                        
|Earnings from continuing operations, net of tax          |  | $           | (558,000   | )             |  |           |            |  |  |   |       |  
|                                                        
|                                                        
|                                                        
|                                                        
|Less: preferred stock dividends                          |  |             | (360,000   | )             |  |           |            |  |  |   |       |  
|                                                        
|Basic EPS                                                |  |             |            |               |  |           |            |  |  |   |       |  
|                                                        
|                                                        
|                                                        
|                                                        
|Earnings applicable to continuing operations, net of tax |  | $           | (918,000   | )             |  |           | 15,394,451 |  |  | $ | (0.06 | )
|                                                        
|                                                        
|                                                        
|                                                        
|Loss applicable to discontinued operations, net of tax   |  |             | (277,000   | )             |  |           | 15,394,451 |  |  | $ | (0.02 | )
|                                                        
|Earnings available to common stock holders               |  | $           | (1,195,000 | )             |  |           |            |  |  | $ | (0.08 | )
|                                                        
|                                                        
|                                                        
|                                                        
|Effects of Dilutive Securities                           |  |             |            |               |  |           |            |  |  |   |       |  
|                                                        
|                                                        
|                                                        
|                                                        
|Common stock equivalents                                 |  |             |            |               |  |           |            |  |  |   |       |  
|                                                        
|Dilutive EPS                                             |  |             |            |               |  |           |            |  |  |   |       |  
|                                                        
|                                                        
|                                                        
|                                                        
|Earnings available to common stock holders               |  | $           | (1,195,000 | )             |  |           | 15,394,451 |  |  | $ | (0.08 | )
|                                                        

The convertible preferred stock is not included in the calculation of dilutive
earnings per share for fiscal 1999, because its inclusion would be
anti-dilutive. The effect of common stock equivalents is not included in
fiscal 1999 diluted loss per share calculation as their inclusion would be
anti-dilutive.



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

The Company operates in two business segments. The microelectronic segment
packages semiconductor products mainly for memory storage. Its products are
sold to original equipment manufacturers in the telecommunications, computer
networking, aerospace defense, and military equipment industries. The display
segment designs and manufactures AMLCDs and other interface products. Display
products are sold mainly to customers in the aviation and aerospace industries.
The segments have common customers, mainly in the aerospace defense industry.
However, the products from each segment are usually purchased by different
purchasing groups within the parent company. There are no inter-segment sales.
Transfers of inventory between segments are made at cost, and are treated as
transfers between locations.

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

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

The Company has two reportable business segments, each of which requires
different design and manufacturing resources, and serves customers in different
markets. The microelectronic segment manufactures mainly memory products for
use in telecommunications, data communications and military aerospace markets.
The display segment manufactures liquid crystal displays and electromechanical
components for customers mainly in the aviation industry.
A significant portion of the Companys sales are to foreign customers. Export
sales as a percent of total sales in fiscal 2001, 2000, and 1999 were 22%, 16%,
and 18% respectively.

39



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##### Table of Contents



WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Sales by Major Geographic Segment
(in thousands of dollars)

|              |  |   |        |             |  |             |        |             |  |   |        |  |  | 
|------------- |  | - | ------ | ----------- |  | ----------- | ------ | ----------- |  | - | ------ |  |  | 
|             
|              |  |   |        | Fiscal 2001 |  | Fiscal 2000 |        | Fiscal 1999
|             
|United States |  | $ | 76,777 |             |  | $           | 73,626 |             |  | $ | 47,566 | 
|             
|             
|             
|             
|Europe        |  | $ | 13,732 |             |  | $           | 9,846  |             |  | $ | 7,866  | 
|             
|             
|             
|             
|Asia          |  |   | 6,252  |             |  |             | 4,123  |             |  |   | 2,606  | 
|             
|Total         |  | $ | 96,761 |             |  | $           | 87,595 |             |  | $ | 58,038 | 
|             

OPERATIONS BY BUSINESS SEGMENTS

|                                      |  |      |        |      |  |             |        |  |  |   |        |  
|------------------------------------- |  | ---- | ------ | ---- |  | ----------- | ------ |  |  | - | ------ | -
|                                     
|                                      |  |      |        |      |  | Fiscal Year |        |  |  |  
|                                      |  | 2001 |        | 2000 |  | 1999       
|                                     
|Net sales                             |  |      |        |      |  |             |        |  |  |   |        |  
|                                     
|                                     
|                                     
|                                     
|Microelectronic                       |  | $    | 73,569 |      |  | $           | 74,289 |  |  | $ | 45,463 |  
|                                     
|                                     
|                                     
|                                     
|Display                               |  |      | 23,192 |      |  |             | 13,306 |  |  |   | 12,575 |  
|                                     
|Total Net Sales                       |  | $    | 96,761 |      |  | $           | 87,595 |  |  | $ | 58,038 |  
|                                     
|Income Before Tax                     |  |      |        |      |  |             |        |  |  |   |        |  
|                                     
|                                     
|                                     
|                                     
|Microelectronics                      |  | $    | 2,765  |      |  | $           | 9,199  |  |  | $ | (38    | )
|                                     
|                                     
|                                     
|                                     
|Display                               |  |      | 1,488  |      |  |             | 1,488  |  |  |   | 29     |  
|                                     
|                                     
|                                     
|                                     
|Merger costs                          |  |      | 0      |      |  |             | 0      |  |  |   | (850   | )
|                                     
|Total income before tax               |  | $    | 4,253  |      |  | $           | 10,687 |  |  | $ | (859   | )
|                                     
|Identifiable Assets                   |  |      |        |      |  |             |        |  |  |   |        |  
|                                     
|                                     
|                                     
|                                     
|Microelectronics                      |  | $    | 26,519 |      |  | $           | 39,392 |  |  | $ | 24,239 |  
|                                     
|                                     
|                                     
|                                     
|Display                               |  |      | 20,401 |      |  |             | 7,508  |  |  |   | 8,517  |  
|                                     
|                                     
|                                     
|                                     
|General corporate                     |  |      | 10,308 |      |  |             | 8,096  |  |  |   | 6,015  |  
|                                     
|Total Assets                          |  | $    | 57,228 |      |  | $           | 54,996 |  |  | $ | 38,771 |  
|                                     
|Capital Expenditures                  |  |      |        |      |  |             |        |  |  |   |        |  
|                                     
|                                     
|                                     
|                                     
|Microelectronics                      |  | $    | 1,436  |      |  | $           | 2,140  |  |  | $ | 1,731  |  
|                                     
|                                     
|                                     
|                                     
|Display                               |  |      | 189    |      |  |             | 173    |  |  |   | 378    |  
|                                     
|Total capital expenditures            |  | $    | 1,625  |      |  | $           | 2,313  |  |  | $ | 2,109  |  
|                                     
|Depreciation and amortization expense |  |      |        |      |  |             |        |  |  |   |        |  
|                                     
|                                     
|                                     
|                                     
|Microelectronics                      |  | $    | 1,868  |      |  | $           | 2,082  |  |  | $ | 1,834  |  
|                                     
|                                     
|                                     
|                                     
|Display                               |  |      | 1,110  |      |  |             | 404    |  |  |   | 410    |  
|                                     
|Total                                 |  | $    | 2,978  |      |  | $           | 2,486  |  |  | $ | 2,244  |  
|                                     

40



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##### Table of Contents



WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|18. |  | INTERIM FINANCIAL RESULTS (UNAUDITED)
                (In thousand of dollars, except per share data)
|--- |  | -----------------------------------------------------------------------------------------------------



|                                                             |  |             |        |        |  |        |        |        |  |        |        |  |  |   |        |   |  |   |        | 
|------------------------------------------------------------ |  | ----------- | ------ | ------ |  | ------ | ------ | ------ |  | ------ | ------ |  |  | - | ------ | - |  | - | ------ | 
|                                                            
|                                                             |  | Fiscal 2001
|                                                             |  | Year        |        | Sep 29 |  | Jun 30 |        | Mar 31 |  | Dec 30
|                                                            
|Net sales                                                    |  | $           | 96,761 |        |  | $      | 21,379 |        |  | $      | 22,087 |  |  | $ | 26,253 |   |  | $ | 27,042 | 
|                                                            
|Gross margin                                                 |  | $           | 26,401 |        |  | $      | 6,741  |        |  | $      | 7,201  |  |  | $ | 3,376  |   |  | $ | 9,084  | 
|                                                            
|Income (loss) from continuing operations
before income taxes |  | $           | 4,253  |        |  | $      | 1,275  |        |  | $      | 1,830  |  |  | $ | (2,484 | ) |  | $ | 3,633  | 
|                                                            
|Income (loss) from continuing
operations                     |  | $           | 3,272  |        |  | $      | 1,630  |        |  | $      | 1,050  |  |  | $ | (1,644 | ) |  | $ | 2,237  | 
|                                                            
|Net income (loss)                                            |  | $           | 3,272  |        |  | $      | 1,630  |        |  | $      | 1,050  |  |  | $ | (1,644 | ) |  | $ | 2,237  | 
|                                                            
|Net income per share  basic                                 |  | $           | 0.17   |        |  | $      | 0.08   |        |  | $      | 0.05   |  |  | $ | (0.09  | ) |  | $ | 0.12   | 
|                                                            
|                                                            
|                                                            
|                                                            
|Net income per share  diluted                               |  | $           | 0.16   |        |  | $      | 0.08   |        |  | $      | 0.05   |  |  | $ | (0.09  | ) |  | $ | 0.11   | 
|                                                            
|Common stock market price: (a)                               |  |             |        |        |  |        |        |        |  |        |        |  |  |   |        |   |  |   |        | 
|                                                            
|                                                            
|                                                            
|                                                            
|High                                                         |  | $           | 13.50  |        |  | $      | 4.60   |        |  | $      | 5.50   |  |  | $ | 10.63  |   |  | $ | 13.50  | 
|                                                            
|                                                            
|                                                            
|                                                            
|Low                                                          |  | $           | 2.85   |        |  | $      | 2.85   |        |  | $      | 2.93   |  |  | $ | 4.38   |   |  | $ | 5.38   | 
|                                                            
|Preferred market price: (a)                                  |  |             |        |        |  |        |        |        |  |        |        |  |  |   |        |   |  |   |        | 
|                                                            
|                                                            
|                                                            
|                                                            
|High                                                         |  | $           |       |        |  | $      |       |        |  | $      |       |  |  | $ |       |   |  | $ |       | 
|                                                            
|                                                            
|                                                            
|                                                            
|Low                                                          |  | $           |       |        |  | $      |       |        |  | $      |       |  |  | $ |       |   |  | $ |       | 
|                                                            

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                             |  |             |        |        |  |       |        |       |  |       |        |  |  |   |        |  |  |   |        | 
|------------------------------------------------------------ |  | ----------- | ------ | ------ |  | ----- | ------ | ----- |  | ----- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                                            
|                                                             |  | Fiscal 2000
|                                                             |  | Year        |        | Sep 30 |  | Jul 1 |        | Apr 1 |  | Jan 1
|                                                            
|Net sales                                                    |  | $           | 87,595 |        |  | $     | 25,112 |       |  | $     | 23,035 |  |  | $ | 21,299 |  |  | $ | 18,149 | 
|                                                            
|Gross margin                                                 |  | $           | 31,171 |        |  | $     | 9,083  |       |  | $     | 7,952  |  |  | $ | 8,007  |  |  | $ | 6,128  | 
|                                                            
|Income (loss) from continuing operations
before income taxes |  | $           | 10,687 |        |  | $     | 3,562  |       |  | $     | 3,035  |  |  | $ | 2,428  |  |  | $ | 1,662  | 
|                                                            
|Income (loss) from continuing
operations                     |  | $           | 6,561  |        |  | $     | 2,193  |       |  | $     | 1,865  |  |  | $ | 1,489  |  |  | $ | 1,014  | 
|                                                            
|Net income (loss)                                            |  | $           | 6,561  |        |  | $     | 2,193  |       |  | $     | 1,865  |  |  | $ | 1,489  |  |  | $ | 1,014  | 
|                                                            
|Net income per share  basic                                 |  | $           | 0.37   |        |  | $     | 0.12   |       |  | $     | 0.10   |  |  | $ | 0.08   |  |  | $ | 0.06   | 
|                                                            
|                                                            
|                                                            
|                                                            
|Net income per share  diluted                               |  | $           | 0.34   |        |  | $     | 0.11   |       |  | $     | 0.10   |  |  | $ | 0.07   |  |  | $ | 0.05   | 
|                                                            
|Common stock market price: (a)                               |  |             |        |        |  |       |        |       |  |       |        |  |  |   |        |  |  |   |        | 
|                                                            
|                                                            
|                                                            
|                                                            
|High                                                         |  | $           | 18.63  |        |  | $     | 18.63  |       |  | $     | 14.75  |  |  | $ | 18.38  |  |  | $ | 5.50   | 
|                                                            
|                                                            
|                                                            
|                                                            
|Low                                                          |  | $           | 2.44   |        |  | $     | 10.38  |       |  | $     | 7.00   |  |  | $ | 4.25   |  |  | $ | 2.44   | 
|                                                            
|Preferred market price: (a)                                  |  |             |        |        |  |       |        |       |  |       |        |  |  |   |        |  |  |   |        | 
|                                                            
|                                                            
|                                                            
|                                                            
|High                                                         |  | $           | 94.94  |        |  | $     |       |       |  | $     |       |  |  | $ | 94.94  |  |  | $ | 71.00  | 
|                                                            
|                                                            
|                                                            
|                                                            
|Low                                                          |  | $           | 38.44  |        |  | $     |       |       |  | $     |       |  |  | $ | 59.00  |  |  | $ | 38.44  | 
|                                                            

(a)  Both common and preferred shares were traded on the American Stock
Exchange. On June 8, 2000, the Company began trading on the NASDAQ National
Market.

On February 7, 2000, the Preferred Stock was redeemed or converted into common
stock.





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##### Table of Contents



EXHIBIT INDEX

|            |  |                                                                                                                                                                                                                                                                                                                                    
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT NO. |  | DESCRIPTION                                                                                                                                                                                                                                                                                                                        
|           
|2.1         |  | Agreement and Plan of Merger dated May 3, 1998 by and among Bowmar
Instrument Corporation and Electronic Designs, Inc. and Bravo
Acquisition Subsidiary, Inc. (incorporated herein by reference to
Exhibit 2 to the current Report on Form 8-K filed on May 6, 1998.)                                                              
|           
|           
|           
|           
|2.1A        |  | Amendment to Agreement and Plan of Merger dated June 9, 1998
(incorporated herein by reference to Exhibit 2.1A to the Registration
Statement on Form S-4 filed on June 11, 1998, Registration No.
333-56565).                                                                                                                      
|           
|           
|           
|           
|2.1B        |  | Amendment to Agreement and Plan of Merger dated August 24, 1998
(incorporated herein by reference to Exhibit 2.1B to the Registration
Statement on Form S-4, filed on September 2, 1998, Registration No.
333-56565).                                                                                                              
|           
|           
|           
|           
|3.1         |  | Amended and Restated Articles of
Incorporation of White Electronic Designs Corporation (incorporated
herein by reference to Exhibit 3.1 on Form 10-K filed December 24,
1998).                                                                                                                                                     
|           
|           
|           
|           
|3.2         |  | Amended and Restated Code of By-Laws of White Electronic Designs
Corporation (incorporated herein by reference to Exhibit 3.2 to
the June 9, 1998 Registration Statement on Form S-4 filed June 11,
1998).                                                                                                                         
|           
|           
|           
|           
|4.1         |  | Shareholder Rights Agreement, effective December 6, 1996,
(incorporated herein by reference to Exhibit 5 on Form 8-K, filed
on December 19, 1996).                                                                                                                                                                                 
|           
|           
|           
|           
|4.1A        |  | Amendment No. 1 to Rights Agreement, effective as of May 3, 1998
(incorporated herein by reference to Exhibit 4.3 to the
Registration Statement on Form S-4, filed on June 11, 1998,
Registration No. 333-56565).                                                                                                                  
|           
|           
|           
|           
|10.1        |  | Agreement to be Bound by Registration Rights Agreements, dated as
of May 3, 1998, by and between Bowmar Instrument Corporation and
Electronic Designs, Inc. (incorporated herein by reference to
Exhibit 10.1 to the Registration Statement on Form S-4, filed on
Jun 11, 1998, Registration No. 333-56565).                       
|           
|           
|           
|           
|10.2        |  | Agreement to be Bound by Severance Agreements and Employment
Agreement, dated as of May 3, 1998, by and between Bowmar
Instrument Corporation and Electronic Designs, Inc. (incorporated
herein by reference to Exhibit 10.2 to the Registration Statement
on Form S-4, filed on June 11, 1998, Registration No. 333-56565).       
|           
|           
|           
|           
|**10.14     |  | 1994 Flexible Stock Plan (incorporated herein by reference to
Exhibit A to the Companys definitive Proxy Statement prepared in
connection with the 1994 Annual Meeting of Shareholders).                                                                                                                                          
|           
|           
|           
|           
|10.27       |  | Revolving Credit and Term Loan Agreement by and between Bank One,
Texas and White Electronic Designs Corporation, an Indiana
Corporation, dated January 7, 2000. (Incorporated herein by
reference to Exhibit 10.27 to the Companys 10-Q for the quarter
ended January 1, 2000).                                                  
|           
|           
|           
|           
|10.28       |  | First Amendment to Revolving Credit Agreement by and between Bank
One effective as of June 3, 2000; Promissory Note effective June
3, 2000, Notice of Final Agreement effective June 3, 2000
(incorporated herein by reference to Exhibit 10.28 to the
Companys Quarterly Report on Form 10-Q for the quarter ended July
1, 2000).
|           
|           
|           
|           
|10.29       |  | Agreement and Plan of Reorganization dated January 29, 2001, by
and among White Electronic Designs Corporation, PV Acquisition
Corporation, Panelview, Inc. and Panelview Partners L.P.
(incorporated herein by reference to Exhibit 10.29 to the
Companys Quarterly Report on Form 10-Q, filed on February 13,
2001).            
|           
|           
|           
|           
|**10.30     |  | Amendment to Companys 1994 Flexible Stock Plan, effective May 7,
2001 (incorporated herein by reference to Exhibit 99 to the
Registration Statement on Form S-8, filed on May 9, 2001,
Registration No. 333-60544).                                                                                                               
|           
|           
|           
|           
|**10.31     |  | White Electronic Designs Corporation 2001 Director Stock Plan
(incorporated herein by reference to Exhibit 99 to the
Registration Statement on Form S-8, filed on May 9, 2001,
Registration No. 333-60536).                                                                                                                        
|           
|           
|           
|           
|**10.32     |  | White Electronic Designs Corporation 2000 Employee Stock Purchase
Plan (incorporated herein by reference to Exhibit 99 to the
Registration Statement on Form S-8, filed May 9, 2001,
Registration No. 333-60546).                                                                                                                  
|           
|           
|           
|           
|**10.33     |  | Amendment to Companys Stock Option Plan for Non-Employee
Directors (incorporated herein by reference to Exhibit 99 to the
Registration Statement on Form S-8, filed on May 9, 2001,
Registration No. 333-60548).                                                                                                                  
|           
|           
|           
|           
|**10.34     |  | White Electronic Designs Corporation 2000 Broad Based Employee
Stock Option Plan (incorporated herein by reference to Exhibit 99
to the Registration Statement on Form S-8, filed on May 9, 2001,
Registration No. 333-60542).                                                                                                     
|           
|           
|           
|           
|**10.35     |  | Executive Employment Agreement made as of February 22, 2001
between White Electronic Designs Corporation and Hamid R.
Shokrgozar (incorporated herein by reference to Exhibit 10.35 to
the Companys Quarterly Report on Form 10-Q filed on May 15,
2001).                                                                         
|           
|           
|           
|           
|*10.36      |  | Industrial Building Lease by and between Transwestern West Union
and White Electronic Designs Corporation, an Indiana Corporation,
dated October 12, 2001.                                                                                                                                                                         
|           
|           
|           
|           
|*21.1       |  | Subsidiaries of White Electronic Designs Corporation.                                                                                                                                                                                                                                                                              
|           
|           
|           
|           
|*23.1       |  | PricewaterhouseCoopers, LLP consent for Form S-3 filed April 11,
2001, and Forms S-8 filed May 9, 2001.                                                                                                                                                                                                                            



---

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