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We are offering 2,200,000 shares of our common stock. The selling shareholders identified in this prospectus are offering an additional 2,300,000 shares of common stock. We will not receive any of the proceeds from the sale of common stock held by the selling shareholders. Our common stock is traded on the Nasdaq National Market under the symbol WEDC. On July 1, 2003, the last reported sale price for our common stock was $10.60 per share.

Investing in our common stock involves risks. See “Risk Factors” beginning on page 4.

The underwriters have a 30-day option to purchase up to an additional 202,874 shares of common stock from us and up to an additional 472,126 shares from the selling shareholders to cover over-allotments.

The Securities and Exchange Commission and state securities regulators have not approved or disapproved of these securities or determined if this prospectus is truthful or complete. It is illegal for any person to tell you otherwise.

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock.

Our logo and the names of our products named in this prospectus, including “Super Bright Low Reflectance” and “SBLR” are our trademarks, trade names or service marks. Each trademark, trade name or service mark of another company appearing in this prospectus belongs to its holder, and does not belong to us.

You should read the following summary together with the more detailed information and financial statements and related notes included in this prospectus. This prospectus contains forward-looking statements that speak only as of the date they are made and involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a number of factors including those described under the heading “Risk Factors” and elsewhere in this prospectus. All references to “we,” “our,” “us,” “WEDC” and the “Company” refer to White Electronic Designs Corporation and its direct and indirect subsidiaries. References to “Interface Data Systems” or “IDS” refer to Interface Data Systems, Inc., a company we acquired in January 2003.

We design, develop and manufacture innovative microelectronic and display components and systems for high technology products used in military and commercial markets. Our microelectronic solutions include advanced semiconductor and state of the art multi-chip packages, as well as our proprietary process for applying anti-tamper security coating to mission critical semiconductor components used in military applications. Our display solutions include enhanced flat panel display products, interface devices and electromechanical assemblies. Our customers, which include military prime contractors in the United States and Europe as well as commercial original equipment manufacturers, outsource many of their microelectronic and display components and systems to us because of our design, development and manufacturing capabilities.

As part of the increasing United States defense budget, an emphasis is being placed on electronics to provide more sophisticated weaponry and to better equip the military. According to the Government Electronics and Information Technology Association, military electronic content spending could grow from $29 billion in fiscal year 2003 to $41 billion in 2013. An increasing number of military prime contractors are outsourcing their component, subsystem, system and manufacturing solutions to a select group of suppliers qualified to provide solutions to this market. Defense electronics require high reliability in extreme environments with greater functionality and reduced size. Our microelectronic solutions are able to meet these stringent military specifications. Our ruggedized displays are also designed and manufactured to perform in harsh environmental conditions as required by our military customers.

In addition, the United States has recently mandated certain military equipment be manufactured with anti-tamper protection to prevent reverse engineering of electronic circuits and unauthorized access to information stored on such circuits. We are one of a limited number of manufacturers that possesses this advanced capability and we have developed a proprietary process, which we believe offers greater scalability and yields than those of our competitors. As military and defense entities expand the deployment of technology and electronics across their activities and fulfill the mandate to protect such sensitive technology and data, we expect demand for our anti-tamper processes on products to increase.

We also serve a number of commercial market sectors, including display products and solutions for global positioning systems, home appliances, consumer electronics and medical devices as well as microelectronic solutions for communications and networking equipment. Our customers often require displays with high visibility in bright light conditions, expanded viewing angles and the ability to withstand heavy vibration or extreme temperatures. We deliver enhanced display solutions that meet these customer requirements by applying our proprietary glass lamination and film application processes to standard flat panel displays.

We recently acquired IDS, a designer and manufacturer of membrane keypads, flexible circuits, sensors, control panels, printed circuit boards and handheld electronic devices. This acquisition allowed us to expand our interface device product offerings, enhance our subsystem solutions capability and offer fully integrated system level solutions. We believe our design expertise and specialized manufacturing services combined with IDS’ capabilities will allow us to grow our existing outsource solution sales.

Our principal executive offices are located at 3601 E. University Drive, Phoenix, Arizona 85034. Our telephone number at that location is (602) 437-1520. Our website can be accessed at www.whiteedc.com. Information contained in our website does not constitute part of this prospectus. We are incorporated in the state of Indiana.

Except as described in the financial statements or otherwise specified in this prospectus, all information assumes no exercise of the underwriters’ over-allotment option.

The number of shares of common stock to be outstanding after this offering is based on the approximate number of shares outstanding as of May 23, 2003, and excludes:


	•	a total of 2,092,609 shares of our common stock issuable upon exercise of outstanding options, at a weighted average exercise price of $3.08 per share; and

	•	a total of 2,263,009 shares available for future issuance under our stock option plans.

We derived the statement of income data for the years ended September 30, 2000, September 29, 2001, and September 28, 2002 from our audited consolidated financial statements included in this prospectus. We derived the historical balance sheet data as of March 29, 2003 and the statement of income data for the six months ended March 30, 2002 and March 29, 2003 from our unaudited consolidated financial statements, included in this prospectus. We have prepared the unaudited consolidated financial statements on a basis consistent with the audited consolidated financial statements included in this prospectus and, in the opinion of management, these statements include all adjustments, consisting only of normal recurring adjustments, necessary for fair presentation of such data. This data should be read in conjunction with our consolidated financial statements and related notes included in this prospectus.

The “As Adjusted” balance sheet data as of March 29, 2003 set forth below gives effect to the receipt of the net proceeds from the sale by us of 2,200,000 shares of common stock in this offering at the public offering price of $10.00, after deducting underwriting discounts and commissions and estimated offering expenses payable by us and repayment of long-term debt.


(1)	On January 29, 2001, we completed the acquisition of Panelview and its results of operations are included from that date forward.

(2)	During the year ended September 29, 2001, we reserved or wrote off $4.3 million of raw material and finished goods inventory with a corresponding charge to cost of sales primarily as a result of the slow-down in demand for our products in the communications industry.

(3)	On September 29, 2002, we adopted FAS 142, which required us to discontinue the amortization of goodwill. See footnote 11 of the White Electronics Designs Corporation’s financial statements for the year ended September 28, 2002 included elsewhere in this prospectus.

(4)	On January 22, 2003, we completed the acquisition of IDS and its results of operations are included from that date forward.

The shares of our common stock offered by this prospectus are speculative and involve a high degree of risk of loss. Before making an investment, you should carefully read this entire prospectus and consider the following risks and speculative factors.

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

Our current orders from defense related companies account for a material portion of our overall net sales. Military sales accounted for approximately 49% of our overall sales for the six months ended March 29, 2003, 52% of our overall sales in fiscal year 2002 and 47% of our overall sales in fiscal year 2001. Military spending levels depend on factors that are outside of our control. Reductions or changes in military spending could have an adverse effect on our sales and profits. In addition, the United States defense industry is moving toward the purchase of commercial off-the-shelf products rather than those designed and manufactured to higher military specifications. To the extent that our products are substituted with commercial off-the-shelf products, our operations would suffer. Even if military spending continues to increase, shifts in military spending away from high technology programs to areas that we do not supply, such as personnel and infrastructure, would also negatively affect our sales and profits.

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

We are looking for strategic opportunities to grow and diversify our product offerings through acquisitions. In this regard, we recently completed the acquisition of IDS. Your evaluation of our business and prospects may be difficult because of our limited operating history with IDS. There can be no assurance that we will be successful in integrating the operations of IDS, identifying other appropriate candidates, or integrating products and operations with any such candidates which we may acquire.

Any such acquisitions could involve the dilutive issuance of equity securities and the incurrence of debt. In addition, the acquisition of IDS and future acquisitions may involve numerous additional risks, including:


	•	the diversion of the attention of our management team from other business concerns;

	•	risks of entering into markets or producing products where we have limited or no experience, including difficulties in integrating purchased technologies and products with our technologies and products;

	•	the potential loss of key customers of an acquired company;

	•	the potential loss of key personnel of an acquired company; and

	•	exposure to unanticipated liabilities of an acquired company.

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

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

We generally do not receive firm, long-term purchase commitments from our original equipment manufacturer (“OEM”) customers. Customers may cancel their orders, change production quantities or delay production for a number of reasons. Many of our customers’ industries are experiencing a significant

decrease in demand for their products and services. The generally uncertain economic condition of several of the industries of our customers has resulted, and may continue to result, in some of our customers delaying the delivery of some of the products we manufacture for them, and placing purchase orders for lower volumes of products than anticipated. Cancellations, reductions or delays by a significant customer or by a group of customers would seriously harm our results of operations by reducing our net sales. In addition, because many of our costs and operating expenses are fixed, a reduction in customer demand could harm our gross profit and operating income.

We have a highly concentrated customer base and our net sales could decline significantly if we lost a major customer.

A large portion of our net sales has been derived from sales to a small number of our customers. Our five largest customers accounted for approximately 34% and 35% of our net sales in the six months ended March 29, 2003 and in fiscal year 2002, respectively. Our customers are not subject to any minimum purchase requirements and can discontinue the purchase of our products at any time. In the event one or more of our major customers reduces, delays or cancels orders with us, and we are not able to sell our services and products to new customers at comparable levels, our net sales could decline significantly. In addition, any difficulty in collecting amounts due from one or more key customers would negatively impact our results of operations.

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

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

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

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

We must comply with laws and regulations relating to the formation, administration and performance of federal government contracts, which affects our military business and may impose added costs on our business. We are subject to government investigations of our policies, procedures, and internal controls for compliance with procurement regulations and applicable laws. If a government investigation uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including the termination of our contracts, the forfeiture of profits, the suspension of payments owed to us, fines, and our suspension or debarment from doing business with federal government agencies. Since military sales accounted for approximately 49% and 52% of our business in the six months ended March 29, 2003 and fiscal year 2002, respectively, any debarment or suspension of our ability to obtain

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

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


	•	our inability to adjust expenses for any particular quarter in response to net sales shortfalls because a substantial component of our operating expenses are fixed costs;

	•	the cyclical nature of the markets in which we serve;

	•	any adverse changes in the mix of products and types of manufacturing services that we provide. For example, high volume and low complexity commercial keypads have lower gross margins than high complexity microelectronic devices for defense contractors;

	•	the complexity of our manufacturing processes and the sensitivity of our production costs to declines in manufacturing yields, which make yield problems both possible and costly when they occur;

	•	expenses associated with acquisitions; and

	•	general economic conditions.

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

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

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

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

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

Our financial results could be seriously harmed if the markets in which we sell our products do not grow.

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


	•	defense and aerospace equipment;

	•	transportation;

	•	computers and computer related peripherals;

	•	medical electronics and equipment;

	•	home appliances;

	•	consumer electronics;

	•	industrial controls; and

	•	communications and networking equipment.

Approximately 12% of our product sales for the six months ended March 29, 2003 and 17% of our product sales for fiscal year 2002 were incorporated into data and voice communications end-products. The telecommunications industry has declined, and it is likely to experience additional declines for the foreseeable future. Slower growth in the other markets in which we sell our products could reduce our sales and adversely affect our business, financial condition and results of operations. For example, decreases in demand in the consumer electronics and home appliance industries, could negatively impact our sales and profits for our recently acquired subsidiary, IDS.

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

Historically, we have experienced reductions in the value of our inventories due to unexpected declines in demand from a softening of the semiconductor and communications industries. Such declines in inventory valuation in the past have caused us to write down several million dollars worth of inventory, which greatly reduced our profits for the given period. In 2001, for example, we reserved, or wrote off, approximately $4.3 million in excess inventory. In the event any of the industries in which we operate suffer declines, we may be forced to write down existing inventory which could adversely affect our results of operations.

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

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


	•	the outsourcing contractors’ ability to manufacture products that meet our technical specifications and quality standards;

	•	the outsourcing contractors’ ability to honor their product warranties;

	•	the financial solvency, labor concerns and general business condition of our outsourcing contractors;

	•	unexpected changes in and the burdens and costs of compliance with a variety of foreign laws and regulatory requirements; and

	•	political and economic instability in overseas locations.

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

Foreign suppliers of semiconductor and display related materials are regularly threatened with, or involved in, trade disputes and sanctions. During the period between 1997 and 1999, for example, we were forced to pay high tariffs to import various semiconductor parts from Taiwan. If any trade disputes or sanctions arise that affect our suppliers, we would be unable to access critical sources of raw materials we need to produce our products or would be required to pay higher than expected costs and our business could be adversely affected.

We anticipate that our international sales will continue to account for a significant portion of our net sales. Foreign sales accounted for approximately 19% and 32% of our overall net sales for the six months ended March 29, 2003 and fiscal year 2002, respectively. Approximately $16 million of our fiscal year 2002 sales were to approved foreign military equipment manufacturers, and if the United States Government placed restrictions on exporting military technology using our products in countries where we have customers, it could cause a significant reduction in our sales and profits.

As a result of our dependence on international markets, a significant portion of our sales and purchases are subject to the risks of international business such as:


	•	fluctuations in foreign currencies that may adversely affect the prices of our products and the prices of raw materials used in our products;

	•	trade disputes;

	•	changes in regulatory requirements, tariffs and other barriers;

	•	the possible implementation by the United States Government of quotas, duties, taxes or other changes or restrictions upon the importation or exportation of our products;

	•	the timing and availability of export licenses;

	•	general political and economic conditions in the countries in which we sell our products;

	•	language and other cultural differences which may inhibit our sales and marketing efforts;

	•	costs of complying with a variety of laws;

	•	difficulty of accounts receivable collections; and

	•	public health issues that could disrupt local economies.

Most of our technological capabilities are not subject to patents or licenses and, as a result, we may not be adequately protected and we may be subject to claims of infringement by third parties.

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

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

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

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

Our success depends to a significant degree upon the continued contributions of Hamid R. Shokrgozar, our President, Chief Executive Officer and Chairman, as well as other senior management and key personnel. The loss of the services of Mr. Shokrgozar or any of our senior management or key personnel could adversely affect our business. We may not be able to retain these employees and searching for their replacements could divert the attention of other senior management and increase our operating expenses. Of our current executive officers, only Mr. Shokrgozar has an employment contract with us. We currently do not maintain any key person life insurance.

To manage our operations effectively, we may need to hire and retain additional qualified employees in the areas of product design, engineering, operations management, manufacturing production and sales. We may have difficulty recruiting these employees or integrating them into our business.

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

We currently use limited quantities of hazardous materials common to our industry in connection with the production of our products. We must follow federal, state and local environmental laws and regulations regarding the use, handling, storage and disposal of these materials. To our knowledge, we are currently in material compliance with all federal, state and local environmental laws and regulations with respect to these materials. We could possibly be subject to fines, suspensions of production, alteration of our manufacturing processes or interruption or cessation of our operations if we fail to comply with present or future laws or regulations related to the use, handling, storage, or disposal of toxic, volatile or otherwise hazardous chemicals used in our manufacturing processes. These regulations could require us to acquire expensive remediation equipment or to incur other expenses to comply with environmental regulations. Our failure to control the use, handling, storage or disposal of, hazardous substances could subject us to liabilities and production delays, which could cause us to temporarily miss our customer’s delivery schedules, thereby reducing our sales for a given period. We may also have to pay noncompliance fines or other remediation costs, which would reduce our profits.

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

Even in the absence of cyclical conditions, the average selling prices of our products have historically decreased during the products’ lives, and we expect this trend to continue, especially with respect to sales in the commercial markets. In order to offset these average selling price decreases, we attempt to decrease manufacturing costs, and introduce new, higher priced products that incorporate advanced features. If these efforts are not successful, we will not be competitive because we will not be able to remain profitable at decreased selling prices, possibly leading to our exit from certain market sectors.

In addition, the selling prices for certain components used in our products, particularly random access memory (“RAM”) or static random access memory (“SRAM”) products and liquid crystal displays, fluctuate significantly with real and perceived changes in the balance of supply and demand for these products. Decreases in component costs can result in lower average selling prices for our competitors’ products. In the event we are unable to decrease per unit manufacturing costs faster than the rate at which average selling prices decline, our business, financial condition and results of operations will be seriously harmed. In addition, we expect our competitors to invest in new manufacturing capacity and significantly

improve manufacturing yields in the future. These developments could result in an increase in supply of competitive products and result in associated downward pressure on prices.

Our financial results could be adversely affected if we fail to develop, introduce and sell new products or fail to develop and implement new manufacturing technologies.

We operate in a highly competitive, quickly changing environment marked by rapid obsolescence of existing products. The future success of our business will depend in large part upon our ability to maintain and enhance our technological capabilities, make required capital investments, design, develop, manufacture, market and sell services and products that meet our customers’ changing needs, and successfully anticipate or respond to technological changes on a cost effective and timely basis.

Our sales will be reduced either through loss of business to one of our competitors, or discontinuance of our products in the market if any of the following occur:


	•	we fail to complete and introduce new product designs in a timely manner;

	•	we are unable to design and manufacture products according to the requirements of our customers;

	•	our customers do not successfully introduce new systems or products incorporating our products;

	•	market demand for our new products does not develop as anticipated; or

	•	we are unable to obtain raw materials in a timely manner or at favorable prices.

In particular, many of our display products have been developed based on products procured from Sharp Electronics Corporation. Our competitors in the enhanced display products market are investing substantial resources to develop flat panel displays using alternative technologies. If our competitors are successful in developing new products that offer significant advantages over our products, and we are unable to improve our technology or develop or acquire alternative technology that is more competitive, we will lose business to our competitors and our sales and profits from the display segment will be greatly reduced.

Increasing complexity in semiconductor chips makes manufacturing new generations of products substantially more difficult and costly than prior products. Ultimately, whether we can successfully introduce these and other new products depends on our ability to develop and implement new ways of manufacturing our products. If we are unable to design, develop, manufacture, market and sell new products successfully, we will lose business and possibly be forced to exit from the particular market or sector.

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

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

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

The issuance of shares of our common stock in this offering may cause the market price of our stock to decline.

Although our common stock is quoted on the Nasdaq National Market, it does not have a high average trading volume. The last reported sales price of our common stock on the Nasdaq National Market on July 1, 2003 was $10.60 per share. The 2,200,000 shares that we are offering through this prospectus represents 10.5% of our 20,984,066 outstanding shares of common stock as of May 23, 2003. An additional 202,874 shares will be offered by us if the underwriters exercise their over-allotment option. After the completion of this offering, the market price of our common stock may decline in response to the introduction into a thinly traded public market for our common stock of the substantial number of additional shares that are being offered.

The market price of our common stock may drop significantly when the resale restrictions on our common stock lapse.

Future sales of substantial amounts of shares of our common stock in the public market, or the perception that these sales could occur, could adversely affect the prevailing market price of our common stock and could impair our ability to raise additional capital through future sales of equity securities. Upon completion of this offering, we expect to have 23,184,066 shares outstanding. In addition, our directors, officers and employees have the right to purchase up to 2,092,609 additional shares of our common stock upon exercise of outstanding options under our existing equity incentive compensation plans. An additional 2,263,009 shares of our common stock are available under these plans for future option grants. Holders of 2,215,736 shares of our common stock have agreed with the underwriters to refrain from selling their shares for a period of 90 days after this offering. As these restrictions on resale end, the market price of our common stock could drop significantly if holders of these shares sell them or, if the market perceives they intend to sell them.

Management will have broad discretion over the allocation of proceeds from this offering.

While we currently intend to use the net proceeds of this offering to repay our indebtedness of $6.0 million under our existing term loan with Bank One and for potential future acquisitions and general corporate purposes, we may subsequently choose to use the proceeds for some other purpose. The effect of the offering will be to increase capital resources available to our management, who may allocate these capital resources as it determines is necessary. You will be relying on the judgment of our management with regard to the use of the capital resources generated by this offering. We intend to invest net proceeds of this offering that are not used to repay indebtedness or for general corporate purposes in short-term, interest-bearing, investment grade securities.

Our board of directors is authorized to issue shares of preferred stock that could have rights superior to our outstanding shares of common stock, and, if issued, could adversely impact the value of our common stock.

Our amended and restated articles of incorporation permit our board of directors, in its sole discretion, to issue up to 1,000,000 shares of authorized but unissued preferred stock. These shares may be issued by our board of directors, without further action by our shareholders, and may include any of the following rights, among others, which may be superior to the rights of our outstanding common stock:


	•	voting rights, including the right to vote as a class on particular matters;


	•	preferences as to dividends and liquidation rights;

	•	conversion rights;

	•	anti-dilution protections; and

	•	redemption rights.

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

Our shareholder rights plan may make it more difficult for others to obtain control of us, even if it would be beneficial to our shareholders.

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

Our stock price has been volatile, which may make it more difficult to realize gain on your investment in our stock.

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


	•	future announcements concerning our company, our competitors or our principal customers, such as quarterly operating results, changes in earnings estimates by analysts, technological innovations, new product introductions, governmental regulations or litigation;

	•	the liquidity within the market of our common stock;

	•	sales by our officers, directors and other insiders;

	•	investor perceptions concerning the prospects of our business;

	•	market conditions and investor sentiment affecting market prices of equity securities of high technology companies in the microelectronic or display industries;

	•	general economic, political and market conditions, such as recessions or international currency fluctuations; and

	•	market reaction to any acquisitions, joint ventures or strategic investments announced by us or our competitors.

This prospectus contains forward-looking statements. The words “believe,” “expect,” “anticipate” and other similar statements of expectations identify forward-looking statements, and include statements relating to our expectations for the future demand of our products, including anti-tamper products and our ability to increase sales of integrated systems; the expected strength and trends of the industries that we serve, including military markets and the economic and political environment relating to them and increasing levels of outsourcing; expected levels of sales, operating expenses and gross margins; our expectations regarding future shipments of backlog; our expectations regarding the use of proceeds from the offering; expectations regarding our ability to satisfy future cash requirements and the adequacy of our reserves; the impact that the recent acquisition of IDS will have on us; our intention to review acquisitions of additional businesses; our relationships with vendors; and our dependence on significant customers. A number of important factors could cause actual results to differ materially from those in the forward-looking statements. These factors include reductions in military spending or changes in the acquisition requirements for military products; the ability to integrate the people, operations, and products from acquired businesses; the loss of a principal customer; the failure of customers to accept new product offerings; and any downturn in the industries that we serve. Forward-looking statements involve risks and uncertainties. For a more detailed discussion of factors that could cause actual results to differ, please see the discussion under “Risk Factors” contained in this prospectus and the other information contained in our publicly available SEC filings, incorporated by reference into this prospectus.

In this prospectus, we rely on and refer to information and statistics regarding the markets for various products. We obtained this information and these statements from various third party sources, discussions with our customers, and our own internal estimates. We believe that the information and estimates from third party sources and discussions with our customers are reliable, but we have not independently verified them and we cannot guarantee that they are accurate.

Our net proceeds from the sale of the 2,200,000 shares of our common stock by us at the public offering price of $10.00 per share are estimated to be $20,165,000 after deducting underwriting discounts and commissions and our estimated offering expenses, or $22,072,016 if the underwriters exercise their over-allotment option. We expect to use the net proceeds of the offering to repay our indebtedness of $6.0 million under our term loan with Bank One which has an interest rate of LIBOR plus 1.5% and matures in March 2008. This term loan with Bank One was used to repay industrial revenue bonds acquired in the IDS acquisition. We also expect to use the net proceeds of the offering for potential future acquisitions and general corporate purposes, including expansion of our research and development relating to new products and our anti-tamper technology for microelectronic products. Pending such uses, we intend to invest the net proceeds from the offering in short-term, interest-bearing, investment grade securities. We will not receive any of the proceeds from the sale of 2,300,000 shares by the selling shareholders.

Our common stock trades on the Nasdaq National Market under the symbol “WEDC.” The following table sets forth the high and low sale prices for our common stock as reported by the Nasdaq National Market during the periods indicated.

The last reported sale price of our common stock on the Nasdaq National Market on July 1, 2003, was $10.60 per share. As of May 29, 2003, there were approximately 12,000 holders of record of our common stock.

We have never declared or paid cash dividends on our common stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any cash dividends in the foreseeable future.

The following table sets forth our capitalization as of March 29, 2003 and as adjusted to give effect to the issuance and sale by us of 2,200,000 shares of common stock in this offering at the offering price of $10.00, after deducting underwriting discounts and commissions and estimated offering expenses payable by us and repayment of Long-term debt.

This capitalization table should be read in conjunction with our consolidated financial statements and related notes for March 29, 2003, which are included in this prospectus.

(1)

The outstanding share information excludes as of May 23, 2003, outstanding options to purchase 2,092,609 shares of our common stock exercisable at a weighted average exercise price of $3.08 per share, 793,843 shares of our common stock subject to performance-based options and an additional 1,469,166 shares of our common stock reserved for future grant or issuance under our equity incentive compensation plans.

The following data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this prospectus and the financial statements and related notes thereto included in this prospectus.

We derived the selected consolidated statement of income data for the years ended September 30, 2000, September 29, 2001, and September 28, 2002 and the selected consolidated balance sheet data as of September 29, 2001 and September 28, 2002 from our audited consolidated financial statements included in this prospectus. We derived the selected consolidated statement of income data for the years ended September 30, 1998 and October 2, 1999 and the selected consolidated balance sheet data as of September 30, 1998, October 2, 1999, and September 30, 2000 from our audited consolidated financial statements, which are not included in this prospectus. We derived the selected consolidated statement of income data for the six months ended March 30, 2002 and March 29, 2003 and the selected consolidated balance sheet data as of March 29, 2003 from our unaudited consolidated financial statements, included in this prospectus. We have prepared the unaudited consolidated financial statements on a basis consistent with the audited consolidated financial statements included in this prospectus and, in the opinion of management, these statements include all adjustments, consisting only of normal recurring adjustments, necessary for fair presentation of such data. Our fiscal year end is the Saturday nearest September 30.


(1)	On October 26, 1998, Bowmar merged with EDI, and in connection with the merger, Bowmar changed its name to White Electronic Designs Corporation.

(2)	On January 29, 2001, we completed the acquisition of Panelview and its results of operations are included from that date forward.

(3)	During the year ended September 29, 2001, we reserved or wrote-off $4.3 million of raw material and finished goods inventory with a corresponding charge to cost of sales primarily as a result of the slow-down in demand for our products in the communications industry.

(4)	On September 29, 2002, we adopted SFAS 142, which required us to discontinue the amortization of goodwill. See footnote 11 of the White Electronic Designs Corporation’s financial statement’s for the year ended September 28, 2002 included elsewhere in this prospectus.

(5)	On January 22, 2003, we completed the acquisition of IDS and its results of operations are included from that date forward.

(6)	In the first quarter of fiscal 1999, the proceeds from the prior year sale of assets of Crystallume, Inc., a subsidiary of EDI, were reduced and the loss recorded as discontinued operations.

The following discussion of our results of operations and financial condition should be read together with the other financial information and consolidated financial statements and related notes included in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a variety of factors including those discussed in “Risk Factors” and elsewhere in this prospectus.

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

We were created as a result of the merger between Bowmar Instrument Corporation (“Bowmar”) and Electronic Designs, Inc. (“EDI”) in October 1998. At the time of the merger, Bowmar was a manufacturer of high reliability electronic components and interface and mechanical devices, mainly for military applications. EDI was a manufacturer of commercial microelectronic products for the communications and networking markets and also had a small ruggedized display business serving the military market. This merger provided us with a diversified platform to expand our product offerings within both the military and commercial markets.

In order to complement our military display business, we acquired Panelview, Inc. (“Panelview”) in January 2001. Panelview was a designer and manufacturer of enhanced commercial flat panel display products. Following the acquisition, we consolidated our display operations into our Panelview subsidiary.

In January 2003 we acquired IDS, a designer and manufacturer of membrane keypads, flexible circuits, sensors, control panels, printed circuit boards and handheld electronic devices. This acquisition allowed us to expand our interface device product offerings and our subsystem solutions capability and offer fully integrated system level solutions.

Our fiscal year end is the Saturday nearest September 30. The majority of our sales to customers are recognized for financial statement purposes when products are shipped to customers. We also maintain reserves for warranty return expense based on normal return rates. In addition, we have reserves for potential credit losses. Based on historical experience, we believe we have adequate reserves to account for potential losses or adjustments.

Our product and market diversification as well as our broad customer base have allowed us to maintain relative sales stability and profitability during the current economic downturn. Gross margins for sales of military products average approximately 50% while gross margins for sales of commercial products

We acquired IDS on January 22, 2003. From the date of acquisition through March 29, 2003, IDS contributed approximately $1.7 million to the commercial market of our microelectronic segment and approximately $3.4 million to the commercial market of our display segment. The foregoing information excludes IDS’ operating results for periods prior to the acquisition on January 22, 2003.

At March 29, 2003 and March 30, 2002, the backlog for the microelectronic segment was $34.0 million and $27.9 million, respectively, and the backlog for the display segment as of those dates was $20.5 million and $19.0 million, respectively. We expect to ship approximately 78% and 83% of the March 29, 2003 microelectronic and display backlog, respectively, in fiscal year 2003. Included within our backlog as of March 29, 2003 is $5.9 million contributed by IDS.

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

Six Months Ended March 29, 2003 Compared to the Six Months Ended March 30, 2002

Net Sales. Net sales consist of revenue generated from shipments of our products to our customers less provisions for returns and allowances. Net sales were $52.2 million for the six months ended March 29, 2003, an increase of $8.7 million, or 20%, from $43.5 million for the six months ended March 30, 2002. Net sales for the six months ended March 29, 2003 included $5.1 million from IDS.


	•	Military sales in the microelectronic segment were $20.5 million for the six months ended March 29, 2003, an increase of $5.1 million, or approximately 33%, from $15.4 million for the six months ended March 30, 2002. The increase was primarily due to an increase in the number of parts sold and an increase in the average unit-selling price.

	•	Commercial sales in the microelectronic segment were $8.2 million for the six months ended March 29, 2003, an increase of $0.6 million, or approximately 7% from $7.6 million for the six months ended March 30, 2002. Commercial sales in the microelectronic segment for the six months ended March 29, 2003 included $1.7 million from IDS, which offset a $1.1 million decrease in sales to the telecommunication and data communication markets.

	•	Military sales in the display segment were $5.3 million for the six months ended March 29, 2003, a decrease of $1.8 million, or approximately 26%, from $7.1 million for the six months ended March 30, 2002. The decrease was due to our decision to focus our resources on commercial display sales.

	•	Commercial sales in the display segment were $18.3 million for the six months ended March 29, 2003, an increase of $4.9 million, or approximately 37%, from $13.4 million for the six months ended March 30, 2002. The increase was primarily due to the inclusion of $3.4 million of sales from IDS.

Approximately $7.2 million of display sales for the six months ended March 29, 2003 came from one customer, Garmin International Inc. (“Garmin”), accounting for approximately 14% of our total sales and 31% of total display segment sales for the six months ended March 29, 2003. Another display customer, General Electric Company (“General Electric”), accounted for approximately 8% of our total sales and 18% of display segment sales for the six months ended March 29, 2003. We expect our sales to Garmin and General Electric to decline over the next six months due to a shift in their manufacturing strategies.

We are continually working with both customers in developing new products. One of our microelectronic customers, Raytheon Company (“Raytheon”), accounted for approximately 5% of our total sales and 10% of our microelectronic sales for the six months ended March 29, 2003. No other customer accounted for more than 10% of segment or total sales for this period.

For the six months ended March 29, 2003, IDS contributed sales of $5.1 million since its acquisition on January 22, 2003. Our sales historically have not been seasonal over the course of a year.

Gross Profit. Gross profit is the result of net sales less material costs, compensation and manufacturing overhead costs. Gross profit was $18.0 million for the six months ended March 29, 2003, an increase of $4.3 million, or approximately 31%, from $13.7 million for the six months ended March 30, 2002. Gross margin as a percentage of sales was approximately 34% for the six months ended March 29, 2003, compared to approximately 31% for the six months ended March 30, 2002. For the six months ended March 29, 2003, IDS contributed $1.1 million in gross profit.

Gross profit for the microelectronic segment was $12.8 million for the six months ended March 29, 2003, an increase of $4.0 million, or approximately 46%, from $8.8 million for the six months ended March 30, 2002. The majority of the increase in gross profit came from an increase in military sales in the microelectronic segment. Gross margin as a percentage of microelectronic segment sales was approximately 45% for the six months ended March 29, 2003, compared to approximately 38% for the six months ended March 30, 2002. The product mix in the microelectronic segment shifted to a greater number of military products, which have a higher selling price and higher gross margin than commercial products. Gross profit for the microelectronic segment for the six months ended March 29, 2003 included approximately $0.5 million from IDS.

Gross profit for the display segment was $5.2 million for the six months ended March 29, 2003, an increase of $0.3 million, or approximately 5%, from $4.9 million for the six months ended March 30, 2002. Gross profit for the display segment for the six months ended March 29, 2003 included approximately $0.6 million from IDS. Gross margin as a percentage of display segment sales was approximately 22% for the six months ended March 29, 2003, compared to approximately 24% for the six months ended March 30, 2002. This change was primarily due to a decrease in sales of military components, which typically carry a higher gross margin than commercial displays and components.

We anticipate that gross margins as a percentage of sales after the inclusion of IDS will decrease slightly as IDS sells primarily into commercial markets. IDS’ gross margins have historically been consistent with our commercial gross margins.

Selling, General and Administrative Expenses. Selling, general and administrative expenses consist mainly of compensation expense, selling expenses, such as commissions, information technology expenses and corporate administrative expenses. Selling, general and administrative expenses were $8.1 million for the six months ended March 29, 2003, an increase of $1.2 million, or approximately 17%, from $6.9 million for the six months ended March 30, 2002. This increase was due to a $0.7 million increase in general and administrative expenses and an increase in selling expenses of $0.5 million over the comparable period mainly because of higher commission and payroll expenses due to an increase of salespersons.

Selling, general and administrative expenses as a percentage of sales remained flat at approximately 16% for the six months ended March 29, 2003 and March 30, 2002. IDS contributed approximately $0.2 million of general and administrative expenses and approximately $0.3 million of selling expenses for the six months ended March 29, 2003. IDS’ selling, general and administrative expenses as a percentage of sales have historically been consistent with our selling, general and administrative expenses. As a result, we expect selling, general and administrative expenses as a percentage of sales to remain consistent following the addition of IDS.

Research and Development Expenses. Research and development expenses consist primarily of compensation for our engineering personnel, consulting expenses and project materials. Research and development expenses were $2.6 million for the six months ended March 29, 2003, an increase of

$0.5 million, or approximately 23%, from $2.1 million for the six months ended March 30, 2002. This increase was attributable to an increase in research and development expenses of $0.3 million in the microelectronic segment and $0.2 million in the display segment. The six months ended March 29, 2003, included $0.2 million of research and development expenses for IDS. As a percentage of sales, research and development expenses have remained consistent and average approximately 5% of sales. We are committed to research and development of new and existing products and expect research and development expenses to remain at approximately the same percentage of sales in the future following the addition of IDS.

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

Interest Expense. Interest expenses consist of interest expense on our long-term debt. Interest expense was $44,000 for the six months ended March 29, 2003, an increase of $17,000 from $27,000 for the six months ended March 30, 2002. Interest expense for the six months ended March 30, 2002 related to the outstanding balance on our term loan, which was paid off during fiscal year 2002. Interest expense for the six months ended March 29, 2003 related to our assumption of approximately $6.9 million of debt in connection with the acquisition of IDS. We intend to use a portion of the proceeds of this offering to pay off the debt related to our acquisition of IDS.

Interest Income. Interest income consists of interest earned on our cash balances in various types of interest bearing accounts. Interest income was $109,000 for the six months ended March 29, 2003, an increase of $36,000 compared to $73,000 for the six months ended March 30, 2002. This increase was attributable to the increase in cash equivalents between periods primarily as a result of the reinvestment of cash flows from operations.

Amortization of Goodwill and Intangible Assets. We adopted the provisions of Statement of Financial Accounting Standards No. 142 (SFAS 142), Goodwill and Other Intangible Assets, on September 29, 2002 and discontinued amortizing goodwill. Therefore, amortization expense for the six months ended March 30, 2002 included $0.7 million of goodwill, while goodwill amortization expense for the six months ended March 29, 2003 was $0.

We treated the acquisition of IDS as a purchase under SFAS No. 141, Business Combinations (SFAS 141), and we have accounted for the related goodwill and intangible assets in accordance with SFAS No. 142. Intangible asset amortization expense for the six months ended March 29, 2003 totaled $0.3 million; approximately $43,000 of that amount is attributable to intangible assets relating to the EDI/ Bowmar merger, while the rest relates to IDS intangible assets.

Income Taxes. Income tax expense consists of current and deferred federal and state income taxes. Income tax expense was $2.3 million for the six months ended March 29, 2003, compared to $1.5 million for the six months ended March 30, 2002. The effective tax rate was approximately 33% for the six months ended March 29, 2003, compared to approximately 38% for the six months ended March 30, 2002. This decrease was principally due to the impact of research and experimentation credits and extra-territorial exclusion deductions for foreign sales.

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

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


	•	Military sales in the microelectronic segment were $35.3 million for fiscal year 2002, an increase of $4.9 million, or approximately 16%, from $30.4 million for fiscal year 2001. Sales of products with our newly developed anti-tamper technology totaled approximately $2.2 million in fiscal year


		2002, while fiscal year 2001 sales were $0 for anti-tamper technology, as this process technology was still under development. The increase in military sales was also attributable to a higher volume of high-density, multi-chip packages used in domestic and international defense and avionics applications.

	•	Commercial sales in the microelectronic segment were $15.0 million for fiscal year 2002, a decrease of $28.2 million, or approximately 65%, from $43.2 million for fiscal year 2001. The decrease was directly related to the decline in the telecommunications and data communications markets, which began in the third quarter of fiscal year 2001. Cisco Systems and Lucent Technologies, customers that accounted for approximately 21% of microelectronic segment sales during fiscal year 2001, accounted for less than 1% of sales for the microelectronic segment in fiscal year 2002. The sales to Cisco Systems and Lucent Technologies in fiscal year 2001 occurred during the first two quarters of that year and were based on orders booked in fiscal year 2000. The decline from these two customers accounted for approximately 50% of the $28.2 million decrease in commercial microelectronic sales over the comparable periods, while the remaining decrease was attributable to lower purchases by other telecommunications and data communications customers.

	•	Military sales in the display segment were $13.1 million for fiscal year 2002, a decrease of $2.4 million, or approximately 15%, from $15.5 million for fiscal year 2001. This decrease was due to our decision to focus our resources on commercial display sales.

	•	Commercial sales in the display segment were $27.0 million for fiscal year 2002, an increase of $19.3 million, or approximately 251%, from $7.7 million for fiscal year 2001. The majority of the increase of commercial display sales was attributable to an increase of $17.5 million in sales to General Electric and Garmin, resulting from the introduction of new medical and global positioning system products.

Excluding the sales to General Electric and Garmin, sales to other commercial display product customers increased $1.4 million in fiscal year 2002 as compared to fiscal year 2001. The increase is due to the fact that fiscal year 2002 includes twelve months of Panelview net sales while fiscal year 2001 only includes eight months of Panelview net sales, since the acquisition of Panelview occurred in January 2001. The additional four month period of October 2001 through January 2002 in fiscal year 2002 accounted for $1.8 million in net sales. Therefore, sales of commercial products to customers excluding General Electric and Garmin actually decreased approximately $0.4 million during the comparable period of February through September 2002 versus the same period in 2001.

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

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

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

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

During fiscal year 2002, approximately $0.4 million of the inventory identified in fiscal year 2001 was written off and charged against the reserve. The amount of inventory in this excess category gradually decreased to approximately $2.5 million from $6.2 million, as of September 28, 2002. As this excess inventory was used, it was charged through cost of sales when it shipped. During this time, we completed quarterly inventory reviews and determined that a raw material reserve of approximately $2.1 million was still needed to account for possible inventory obsolescence of these remaining parts because of their age and lack of usage. Also during this period, an additional $0.4 million of finished goods items were identified as slow moving and were reserved. These additional items require us to maintain a $2.4 million reserve for raw materials and finished goods. In fiscal year 2002, these activities did not have a material impact on gross margins and operating results.

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

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $13.9 million for fiscal year 2002, a decrease of $1.3 million, or approximately 8%, from $15.2 million for fiscal year 2001. This decrease was attributable to decreased selling expenses in the microelectronic segment of $2.4 million due to lower commission expense on lower sales, a reduction of administrative personnel and a reduction in spending. This decrease was offset by an increase of $1.0 million in display segment selling expenses, which was attributable to higher commission expense and an increase of sales personnel. Total commission expense was $2.9 million for fiscal year 2002, a decrease of $1.1 million, or approximately 28%, from $4.0 million for fiscal year 2001.

Research and Development Expenses. Research and development expenses were $4.3 million for fiscal year 2002, a decrease of $1.0 million, or approximately 20%, from $5.3 million for fiscal year 2001. As a whole, our research and development expenses were approximately 5% of sales for fiscal year 2002, compared to approximately 5% of sales for fiscal year 2001. This decrease was primarily due to fewer commercial products under development in the microelectronic segment.

During fiscal year 2001, we began product development on anti-tamper technology for certain microelectronic devices in the military market. The anti-tamper technology development was completed by the end of fiscal year 2001, and the process went into production at the start of fiscal year 2002. Therefore, fiscal year 2001 included $0.3 million of product development expenses for anti-tamper technology.

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

Interest Expense. Interest expense was $0.1 million for fiscal year 2002, a decrease of $0.4 million, or approximately 70%, from $0.5 million for fiscal year 2001. Interest expense during fiscal year 2001 was incurred on our line of credit and a term loan. The balance on the line of credit was $0 as of the end of the third quarter of fiscal year 2001 and as of the end of fiscal year 2002. The balance on the term loan was $0 as of the end of the second quarter of fiscal year 2002. Two additional loans totaling $3.1 million were obtained for the purchase of capital equipment during the second quarter of fiscal year 2002. Both loans were paid down to $0 during the fiscal year ended September 2002.

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

Amortization of Goodwill and Intangible Assets. Amortization expense was $1.6 million for fiscal year 2002, an increase of $0.5 million, or approximately 39%, from $1.1 million for fiscal year 2001. Fiscal year 2001 included eight months of amortization expense for the Panelview acquisition, while fiscal year

2002 included twelve months of amortization expense. Thus, the $0.4 million difference of amortization relates to the four additional months of Panelview amortization in fiscal year 2002. Both years had amortization expense of $0.3 million relating to the EDI/ Bowmar merger which occurred in fiscal year 1999.

Income Taxes. During the fourth quarter of fiscal year 2002, we reduced our valuation allowance of approximately $1.7 million related to net operating loss carry forwards, as we believe it is more likely than not that we will realize a benefit for the related deferred tax asset. We also reversed approximately $1.1 million of tax reserves that had been recorded in previous years. An additional $0.3 million of tax benefit was also recorded in the fourth quarter of fiscal year 2002 to recognize extra-territorial exclusion deductions for foreign sales this fiscal year. In total, a tax benefit of approximately $3.1 million attributable to the items mentioned above was recorded during the quarter ended September 28, 2002, reducing the annual tax liability to $0.4 million and reducing the applied 38% tax rate to an effective rate of 4% for the year.

Fiscal Year Ended September 29, 2001 Compared to Fiscal Year Ended September 30, 2000

Net Sales. Net sales were $96.8 million for fiscal year 2001, an increase of $9.2 million, or approximately 10%, from $87.6 million for fiscal year 2000.


	•	Military sales in the microelectronic segment were $30.4 million for fiscal year 2001, an increase of $3.4 million, or approximately 13%, from $27.0 million for fiscal year 2000. This increase was caused by a general increase in spending for the electronic components used in defense systems.

	•	Commercial sales in the microelectronic segment were $43.2 million for fiscal year 2001, a decrease of $4.1 million, or approximately 9%, from $47.3 million for fiscal year 2000. Sales of commercial components were hurt by the slowdown in the communications and network equipment industry during 2001. Many of our customers experienced excess inventories when demand for their products slowed in early 2001. This excess inventory caused many of those customers to dramatically reduce their orders for our products, causing sales for the second half of fiscal year 2001 to be approximately 55% lower than the first half.


	•	Military sales in the display segment were $15.5 million for fiscal year 2001, an increase of $2.2 million, or approximately 17%, from $13.3 million for fiscal year 2000. This increase was caused by increased activity in the defense industry, as well as new sales to industrial customers needing ruggedized products for outdoor use.

	•	Commercial sales in the display segment were $7.7 million for fiscal year 2001. These sales were due to the inclusion of Panelview’s $7.7 million of sales in fiscal year 2001.

Gross Profit. Gross profit was $26.4 million for fiscal year 2001, a decrease of $4.8 million, or approximately 15%, from $31.2 million for fiscal year 2000. Gross margin as a percentage of sales was approximately 27% for fiscal year 2001, compared to approximately 36% for fiscal year 2000.

Gross profit for the microelectronic segment was $18.9 million for fiscal year 2001, a decrease of $6.8 million, or approximately 26.4%, from $25.7 million for fiscal year 2000. Gross margin as a percentage of microelectronic segment sales was approximately 26% for fiscal year 2001, compared to approximately 35% for fiscal year 2000.

During the second quarter of fiscal year 2001, based on numerous order cancellations and a severe decrease in demand for our products used in the communications industry, we reviewed the major inventory items in raw materials that did not have a forecasted demand for usage. Approximately $6.2 million of inventory was identified that fell into this category. Of that $6.2 million of inventory, we identified items that were not expected to be used within the next twelve months and would probably become obsolete over that period. We reserved $3.0 million against this inventory based on our estimates

of the parts most likely to go unused. During fiscal year 2001, approximately $0.8 million of the identified inventory was written off and charged against the reserve. In addition to the $3.0 million reserve, approximately $1.3 million of additional inventory was written off during that quarter because of poor yields or obsolescence. These inventory charges of approximately $4.3 million represented 4% of net sales for fiscal year 2001.

Fiscal year 2001 was also a period of rapidly falling prices for some electronic memory components. This downward pricing pressure made it difficult to maintain margins for commercial microelectronic components. Gross margin as a percentage of commercial microelectronic sales for fiscal year 2001 totaled approximately 14% after the previously mentioned $4.3 million inventory charge, a decrease from approximately 32% of net sales in fiscal year 2000. This decline in commercial microelectronic gross margin was partially offset by an increase in military microelectronic gross margin for fiscal year 2001 compared to fiscal year 2000.

Gross profit for the display segment was $7.5 million for fiscal year 2001, an increase of $2.0 million, or approximately 36.3%, from $5.5 million for fiscal year 2000. Gross margin as a percentage of display segment sales was approximately 32% for fiscal year 2001, compared to approximately 41% for fiscal year 2000. The decline in gross margin as a percentage of display segment sales was mainly a result of the inclusion of Panelview commercial display products that traditionally have lower margins than military display products.

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $15.2 million for fiscal year 2001, an increase of $1.1 million, or approximately 8%, from $14.1 million for fiscal year 2000. This increase was due to the addition of expenses incurred by our Panelview subsidiary, as well as an increase in corporate headcount, an increase in general corporate expenses such as legal, information services, accounting and insurance expenses, and because of the installation of a new enterprise software platform.

Research and Development Expenses. Research and development expenses were $5.3 million for fiscal year 2001, an increase of $0.3 million, or approximately 6%, from $5.0 million for fiscal year 2000. The main source of this increase was due to product development expenses of approximately $0.3 million associated with the development of anti-tamper technology for microelectronic products.

Interest Expense. Interest expense was $0.5 million for fiscal year 2001, a decrease of $0.1 million, or approximately 20%, from $0.6 million for fiscal year 2000. Interest expense during fiscal year 2001 was incurred on our line of credit and a term loan. Borrowings against the line of credit declined during the third and fourth quarters of fiscal year 2001 due to increased cash flow because of collection of accounts receivable, a reduction of inventory purchases and a reduction of payroll due to a decreased headcount. Interest rates in fiscal year 2001 decreased significantly as compared to fiscal year 2000 with averages for the twelve month period dropping to 7.98% from 8.9% and quarterly averages declining to 6.67% from 9.20%.

Interest Income. Interest income was $11,000 for fiscal year 2001, compared to interest income of $0 for fiscal year 2000. This interest income was attributable to the reinvestment of cash flows from operations in an interest-bearing money market account after we paid off our line of credit during the third quarter of fiscal year 2001.

Amortization of Goodwill and Intangible Assets. Amortization expense was $1.1 million for fiscal year 2001, an increase of $0.3 million, or approximately 52%, from $0.8 million for fiscal year 2000. The amortization expense for fiscal year 2000 included $0.5 million of goodwill expense associated with the EDI/ Bowmar merger. That intangible asset was fully amortized as of September 2000. Fiscal year 2001 included eight months of amortization expense totaling $0.9 million for the Panelview acquisition that occurred January 29, 2001.

Income Taxes. Income tax expense decreased from $4.1 million in fiscal year 2000 to $1.0 million in fiscal year 2001 primarily as a result of lower pre-tax income as well as the impact of federal and state income tax credits earned during fiscal year 2001. Our effective income tax rate was 23.0% in fiscal year

2001 compared to 38.6% in fiscal year 2000 with the decrease primarily attributable to the impact of the previously mentioned income tax credits offset by nondeductible goodwill amortization expense relating to the Panelview acquisition.

We have prepared the following table on a basis consistent with the audited consolidated financial statements included in this prospectus and, in the opinion of management, this chart includes all adjustments, consisting only of normal recurring adjustments, necessary for fair presentation of such data.

We maintained consistent net sales on a quarterly basis from the quarter ended June 30, 2001 to the quarter ended December 28, 2002, ranging from $21.4 million to $23.7 million. In the quarter ended March 29, 2003, net sales increased to $28.6 million primarily as a result of the $5.1 million contribution from IDS.

The income tax benefit recognized in the fourth quarter of fiscal year 2002 related to the net effect of the previously mentioned release of the valuation allowance and reversal of other tax reserves, offset by the income tax provision for the quarter.

Our business has not historically been seasonal in nature. With the acquisition of IDS, we may experience some seasonality in connection with sales of our consumer goods products. For those products, we may experience an increase in sales during the time leading up to the holiday selling season.

Cash on hand as of March 29, 2003 totaled $11.1 million. Capital expenditures for the period were approximately $1.0 million.

Accounts receivable increased $5.4 million from fiscal year 2002, including $4.8 million of IDS accounts receivable. The current accounts receivable balance of $20.3 million represents 71% of the current quarterly sales rate and is higher than the 63% ratio at September 28, 2002. The increase is due to increased March shipments compared to September 2002 shipments, as 60% of the quarterly sales for the second quarter of fiscal year 2003 shipped in March, compared to 48% in September 2002.

Inventories increased from $16.1 million at September 28, 2002 to $17.0 million at March 29, 2003 due to the net impact of a $2.4 million increase resulting from the IDS acquisition offset by increased

Accounts payable and accrued expenses as of March 29, 2003, were $5.0 million higher than at the end of fiscal 2002. This increase includes $3.4 million of IDS accounts payable and accrued expenses. An increase of accounts payable and accrued expenses, exclusive of the liabilities assumed, produced a cash source of $2.2 million for the six months ended March 29, 2003.

Capital expenditures for the six months ended March 29, 2003, totaled approximately $1.0 million. Approximately $0.7 million was spent on production equipment for the microelectronic manufacturing facilities. The remaining capital expenditure funds were spent on computer equipment and leasehold improvements for both the microelectronic and display divisions.

We have a $12.0 million revolving line of credit with Bank One, which was increased from $8.0 million in March 2003. Borrowings under the line of credit bear interest at either LIBOR plus 1.5% or the Bank One prime rate. The line of credit matures on March 28, 2004. We borrowed $6.1 million on the line of credit in the second quarter of 2003 to pay off the assumed long-term debt from our acquisition of IDS. The funds were drawn temporarily on the credit line until a term loan was obtained. A term loan in the amount of $6.0 million was obtained on March 13, 2003 from Bank One, the proceeds were used to repay borrowings on the line of credit. The term loan bears interest at LIBOR plus 1.5% and matures in March 2008. As of the end of March 2003, a balance of $128,000 remained on the credit line at an annual interest rate of 4.25%.

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

We intend to use a portion of the proceeds of this offering to pay off the debt that we assumed in connection with our acquisition of IDS. The remaining amount of proceeds we expect to use for potential future acquisitions and general corporate purposes, including research and development.

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 net sales and expenses during the reported period. Actual results could differ from those estimates. The most significant accounting estimates inherent in the preparation of our consolidated financial statements include the following items:


	•	Inventory represents a significant portion of our assets. Historically, we have experienced fluctuations in the demand for our products based on cyclical fluctuations in the microelectronic


		and display markets. These fluctuations in demand may cause our inventory on hand to lose value or become obsolete. Therefore, in order to present the appropriate inventory value on our financial statements, we identify slow moving or obsolete inventories and record provisions to write down such inventories to net realizable value. These provisions are based on management’s comparison of the value of inventory on hand against expected future sales. If actual sales are less favorable than those estimated by management, additional inventory write-downs may be required.

	•	We estimate potential warranty obligations for our products based on annual product sales and historical customer product return data. Based on this data, we record warranty reserves to estimate the expense needed to account for the estimated cost of product returns.

	•	We adopted the provisions of SFAS 142 on September 29, 2002, and discontinued the amortization of goodwill. At that date, we identified our reporting units, and allocated such assets and liabilities to such reporting units. We completed the first step of our impairment test, by comparing the estimated fair value of the reporting unit with the carrying amount. The fair value of the reporting unit was determined using a discounted cash flow model with a long-term growth rate of 5%, and a discount rate of 15%. The fair value of the reporting unit exceeded the carrying value, therefore an impairment of the goodwill was not indicated, and completion of the second step was not required.

	•	We follow accounting standard SFAS 109, Accounting for Income Taxes. This standard requires us to recognize a deferred tax asset for the reduction of income taxes that will be applied using previous years’ operating loss carry forwards. The ability to recognize this asset is based on the expectations that we will be profitable in future periods. If these estimated future profits do not occur, we may not be able to use our operating loss carry forwards and the asset will become impaired. If the deferred tax asset becomes impaired, a charge will need to be taken through the income statement.

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

Under SFAS No. 142, goodwill is evaluated for potential impairment on an annual basis or whenever circumstances indicate that an impairment may have occurred, using a two-step process. The first step of the goodwill impairment test, used to identify potential impairment, compares the estimated fair value of the reporting unit containing the goodwill with the related carrying amount. If the estimated fair value of the reporting unit exceeds its carrying amount, the reporting units goodwill is not considered to be impaired and the second step of the impairment test is unnecessary. If the reporting units carrying amount exceeds its estimated fair value, the second step must be performed to measure the amount of the goodwill

impairment loss, if any. The second step compares the implied fair value of the reporting units goodwill, determined in the same manner as the amount of goodwill recognized in a business combination, with the carrying amount of such goodwill. If the carrying amount of the reporting units goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The Company performs its annual impairment analysis during the fourth quarter of each year.

The Company adopted SFAS 142 effective September 29, 2002 and discontinued amortization of goodwill as of that date. During the first quarter of fiscal 2003, the Company identified its reporting unit with goodwill (Panelview), and completed the first step impairment test as of September 29, 2002. As no impairment was identified by the first step test, completion of the second step test was not required. The fair value of the Panelview reporting unit was determined using the discounted cash flow model using a growth rate of 5% and a discount rate of 15%.

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143, Accounting for Asset Retirement Obligations. Under this standard, asset retirement obligations will be recognized when incurred at their estimated fair value. In addition, the cost of the asset retirement obligation will be capitalized as a part of the assets carrying valued and depreciated over the assets remaining useful life. The Company adopted SFAS No. 143 effective September 29, 2002, and the adoption did not impact its financial condition or results of operations.

The Company adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets effective September 29, 2002. SFAS No. 144 requires that all long-lived assets (including discontinued operations) that are to be disposed of by sale be measured at the lower of book value or fair value less cost to sell. Additionally, SFAS No. 144 expands the scope of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and will be eliminated from the ongoing operations of the entity in a disposal transaction. The Company’s adoption of SFAS No. 144 did not impact its financial condition or results of operations.

In April 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 145, Rescission of FAS Nos. 4, 44, and 64, Amendment of FAS 13, and Technical Corrections as of April 2002. SFAS No. 145 rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that Statement, SFAS No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements and excludes extraordinary item treatment for gains and losses associated with the extinguishment of debt that do not meet the Accounting Principles Board (APB) Opinion No. 30, Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions criteria. Any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods presented that does not meet the criteria in APB No. 30 for classification as an extraordinary item shall be reclassified. SFAS No. 145 also amends FASB Statement No. 13, Accounting for Leases and amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The Company adopted SFAS No. 145 effective September 29, 2002 and the adoption did not impact its financial condition or results of operations.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF No. 94-3, a liability for an exit cost as defined in EITF No. 94-3 was recognized at the date of an entity’s commitment to an exit plan. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated by the Company after December 31, 2002.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment to FAS 123. SFAS No. 148 provides alternative methods of transition for voluntary change to the fair value based method of accounting for stock-based employee

compensation. SFAS No. 148 also requires that disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation be displayed more prominently and in a tabular format. Additionally, SFAS No. 148 requires disclosure of the pro forma effect in annual and interim financial statements. The transition and annual disclosure requirements of SFAS No. 148 are effective for the Company’s fiscal year 2003. The interim disclosure requirements are effective for the second quarter of fiscal year 2003. The Company has no plans to change to the fair value based method of accounting for stock-based employee compensation.

In November 2002, the FASB issued Interpretation No. 45 (FIN No. 45), Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN No. 45 requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. FIN No. 45 also expands the disclosures required to be made by a guarantor about its obligations under certain guarantees that it has issued. Initial recognition and measurement provisions of FIN No. 45 are applicable on a prospective basis to guarantees issued or modified. The disclosure requirements are effective immediately. The Company does not expect the adoption of FIN No. 45 to have a material effect on its financial condition or results of operations.

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

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

We were created as a result of the merger between Bowmar and EDI in October 1998. At the time of the merger, Bowmar was a manufacturer of high reliability electronic components and interface and mechanical devices, mainly for military applications. EDI was a manufacturer of commercial microelectronic products for the communications and networking markets and also had a small ruggedized display business serving the military market. This merger provided us with a diversified platform to expand our product offerings within both the military and commercial markets.

In order to complement our military display business, we acquired Panelview in January 2001. Panelview was a designer and manufacturer of enhanced commercial flat panel display products. Following the acquisition, we consolidated our display operations into our Panelview subsidiary.

In January 2003 we acquired IDS, a designer and manufacturer of membrane keypads, flexible circuits, sensors, control panels, printed circuit boards and handheld electronic devices. This acquisition allowed us to expand our interface device product offerings, enhance our subsystem solutions capability and offer fully integrated system level solutions.

Trend Toward Outsourcing. We believe that the trend toward outsourcing is continuing across a wide range of industries and that an increasing number of military prime contractors and commercial OEMs are outsourcing their component, subsystem, system and manufacturing requirements. Outsourcing frequently permits a more efficient process, lower manufacturing costs and shortened product development times. By outsourcing, companies focus their resources on core competencies, such as product design, sales, marketing and distribution. Outsourcing allows companies to gain specialized skills, improve inventory management, and lower capital equipment investments. In addition, we believe that military prime contractors and commercial OEMs are increasingly outsourcing to a more select group of high quality suppliers with broader capabilities in order to avoid inefficiencies of managing too many suppliers.

Increasing Military Spending and Expanded Deployment of Electronics in Military Markets. The recent trend for rapid increased military spending continues. In February 2003, President Bush proposed to Congress a fiscal year 2004 defense budget of approximately $380 billion, reflecting a 4% increase over the fiscal year 2003 defense budget. Additionally, the Bush Administration projects the defense budget will increase approximately $20 billion annually over the next five years, with a projected defense budget of $483 billion by 2009.

As part of the increasing defense budget, an emphasis is being placed on electronics to provide more sophisticated weaponry and to better equip the military. The recent war in Iraq demonstrated this increased reliance on high technology. According to the Government Electronics and Information Technology Association, military electronic content spending could grow from $29 billion in fiscal 2003 to $41 billion in 2013. To meet stringent military specifications for high reliability, suppliers of electronics must incorporate greater functionality while reducing size. For example, the military is procuring a weapons modification kit that converts existing munitions into precision guided munitions. To develop these kits, electronic manufacturers must provide highly reliable electronic content in a confined space, in

part through innovative semiconductor packaging. According to United States military estimates, purchases of these types of weapons modifications kits are projected to be approximately 236,000 units by 2007, totaling approximately $4.7 billion.

In addition, flat panel displays are increasingly being deployed in combat aircraft, ground vehicles and global positioning systems to display military information. Many of these applications require keyboard, mechanical and display interfaces that are rugged, compact, and durable. For example, the military is procuring defense advanced global positioning system receivers, or DAGRs, handheld devices used by soldiers that incorporate a keypad, electronics and a display in one system. According to United States military estimates, the United States military is expected to purchase approximately 188,000 DAGR units over the next decade.

Outsourcing Growth in the Military Market. In the military market, prime contractors are responsible for the management of large, often complex programs as contracted by the Department of Defense. The cost of failure in these programs can be extremely high, the manufacturing requirements are typically complex and products are produced in relatively small quantities. Therefore, outsourcing the design and manufacturing of subsystems and systems to companies with specialized skills in the military market is increasing. Companies that provide these services are required to maintain and adhere to a number of strict certifications, security clearances, and traceability standards that are often quite comprehensive. As a result, there is a select group of suppliers qualified to provide outsourced solutions to this market.

Anti-Tamper Protection for Electronics. With the increasing reliance on military electronics and the risk that unauthorized reverse engineering of such electronics could provide unauthorized access to technology and information, the United States is implementing requirements to prevent unauthorized access to proprietary technology. Anti-tamper technology has been mandated by the United States government and is currently being developed by a limited number of companies. Each of these companies have developed proprietary processes based on this technology.

Increasing Commercial Demand for Enhanced Display Products. According to Data Analysis Group, the market for flat panel displays is expected to grow approximately 90% from $26.0 billion in 2001 to $49.4 billion in 2005. The applications for flat panel displays include notebook PCs, desktop monitors, televisions, cellular phones and vehicles, as well as other emerging applications.

Commercially available flat panel displays are typically standardized products manufactured in large volumes and intended primarily for traditional indoor and office use. Such displays are not designed to withstand heavy or continual vibration or hot and cold temperature extremes. Off-the-shelf displays also have narrow viewing angles and insufficient backlighting to make them bright enough to read in bright light conditions. We believe there is a growing need for the enhancement of off-the-shelf flat panel displays to meet the needs of more demanding applications.

We design, develop and manufacture innovative microelectronic and display solutions for high technology products used in military and commercial markets. Our unique design, engineering expertise and traditional outsource manufacturing capabilities enable our customers to simplify and more efficiently manage the manufacturing process, shorten the time to market, reduce costs and improve component compatibility.

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


	•	significant space savings and size advantages;

	•	improved power performance; and

	•	improved component compatibility.

In addition, we are one of a limited number of manufacturers licensing anti-tamper technology for microelectronic products, and have developed a proprietary process for applying anti-tamper security coating for mission critical semiconductor components in military applications. We believe our process offers greater scalability and yields than those of our competitors.

Display Solutions. Our display solutions include enhanced flat panel display products, interface devices and electromechanical assemblies. We enhance standard flat panel displays using patented, proprietary and commercially available technology. Our enhanced display products offer several benefits, including:


	•	increased visibility in bright light conditions;

	•	ability to withstand heavy vibration and extreme temperatures; and

	•	expanded viewing angles.

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

Our objective is to grow our earnings by designing, developing and manufacturing innovative products and solutions that address our customers’ needs. The key elements of our strategy are to:

Further Integrate Capabilities to Grow System and Subsystem Level Solutions Sales. We have a long-standing reputation for providing excellent design and manufacturing services and innovative products. We believe our recent acquisition of IDS will allow us to significantly expand our current product offerings by integrating various microelectronic, display, interface components and their supporting electronics into fully integrated solutions. We intend to leverage IDS’ capabilities with our strong customer relationships to grow our existing outsource solutions sales and facilitate our entry into new product markets with larger sales potential.

Target Military Market Opportunities. Within the military market, we focus our resources on high technology products in areas where we believe government funding is likely to increase or remain stable. In particular, we are focused on programs with increasing electronic content and we believe that the projected broader deployment of microelectronic products will lead to an increase in military spending on these programs. Because of our extensive government contracting experience, we have developed strong relationships with military prime contractors and our products are selected for inclusion on some of the most significant military programs. We intend to leverage these relationships and our reputation with military prime contractors to grow our component products sales and provide additional systems and subsystems for significant military programs.

Capitalize on the Growing Demand for Secure Electronics. We are a leader in anti-tamper process technology for microelectronic products, which is now mandated for certain technologically advanced military equipment. Our anti-tamper protection was developed to prevent reverse engineering of electronic circuits and unauthorized access to information stored on such circuits. As military and defense entities expand the deployment of technology and electronics across their activities and fulfill mandates to protect such sensitive technology and data, we expect demand for anti-tamper process products to increase. Additionally, we intend to target certain commercial markets that deal with highly sensitive confidential data, such as gaming and financial services, where electronic products need protection from unauthorized access.

Utilize our Technological and Manufacturing Expertise to Increase Sales of our Display Products. We have developed glass lamination and film application processes to improve the viewing performance of liquid crystal displays. We also have the expertise to enhance thousands of delicate glass displays at our manufacturing facility each year with minimal product losses. We believe that the market for enhanced displays will continue to grow and that we are well positioned to benefit from this growth due to our technical and manufacturing expertise. In order to drive new opportunities in this market, we are

leveraging existing commercial OEM relationships, targeting commercial OEM relationships in additional markets where we believe there is a need for enhanced displays, working with commercial OEMs to develop additional products and enhance our existing products, and focusing on customer service.

Leverage Customer Relationships to Cross-sell Innovative Products and Solutions. Our military and commercial customers often call on our substantial design and engineering expertise to solve their design challenges. We promote our involvement in the design phase of a project as it keeps us at the forefront of the evolution of our customers’ systems. This activity allows us to cross-sell other solutions to these customers.

Continue to Pursue Strategic Acquisitions. We have historically supplemented our internal growth, customer base and product offerings by acquiring strategically complementary businesses. Since October 1998 when we merged with EDI, we have continually reviewed strategic acquisitions in a highly selective manner. In January 2001 we acquired Panelview to complement our military flat panel display capabilities with commercial display enhancement capability. Following the acquisition, we consolidated our display operations into our Panelview subsidiary and our total display sales have grown significantly. We recently acquired IDS, a designer and manufacturer of membrane keypads, flexible circuits, sensors, control panels, printed circuit boards and handheld electronic devices. This acquisition allowed us to expand our interface device product offerings and our subsystem solutions capability. We intend to continue to evaluate opportunities to selectively acquire companies, or lines of business, that broaden our market and sales opportunities.

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

The following table describes key products that we sell in the microelectronic segment, their applications, and representative customers for each product.

Our Display Products. Our display segment serves a number of markets with products and solutions that are incorporated into global positioning systems, home appliances, consumer electronics, medical devices, outdoor displays, military avionics and various other military applications. Our display segment manufactures enhanced viewing liquid crystal displays, interface devices and electromechanical assemblies. Enhanced viewing liquid crystal displays can be either ruggedized or commercial. Ruggedized displays are manufactured to perform in harsh environmental conditions, while commercial display products offer greater viewing performance than off-the-shelf displays, but are not designed for harsh environmental conditions. Interface devices include electromechanical components and instrument packages that can

consist of ruggedized keyboards, aircraft trim panels, rotating devices, mechanical packages, membrane keypads, silver flexible circuits, graphic overlays, control panels, and keypad/ controller assemblies.

The following table describes key products that we sell in the display segment, their applications, and representative customers for each product.

We use an integrated sales approach to closely manage relationships at multiple levels of the customer’s organization, including management, engineering and purchasing personnel. This approach involves a team consisting of a senior executive, a business development specialist and members of our engineering department. Our sales team consists of approximately 45 people, including 10 sales managers. Our use of experienced engineering personnel as part of the sales effort enables close technical collaboration with our customers during the design and qualification phase of new products. We believe this is critical to the incorporation of our products into our customers’ equipment. Some of our executive officers are actively involved in key aspects of our relationships with our major customers and work closely with our customers’ senior management. We also use manufacturers’ representatives and independent sales representatives as needed.

The military sales cycle tends to be long in nature with a protracted design phase. Once a product is designed into a system, it is typically sole-sourced to a particular supplier. Due to the extensive qualification process and potential redesign required for using an alternative source, customers are reluctant to change the incumbent supplier.

Our customers include military prime contractors in the United States and Europe as well as commercial OEMs. The following table shows our top ten customers, in alphabetical order, in the microelectronic and display segments based on sales generated during the first six months of fiscal 2003.

During the six months ended March 29, 2003, Garmin accounted for approximately 14% of our total sales and 31% of total display segment sales for the six months ended March 29, 2003. Another display customer, General Electric, accounted for approximately 8% of our total sales and 18% of display segment sales for the six months ended March 29, 2003. One of our microelectronic customers, Raytheon, accounted for approximately 5% of our total sales and 10% of our microelectronic sales for the six months ended March 29, 2003.

In fiscal year 2002, two customers accounted for more than 10% of our sales. General Electric accounted for approximately 12% of our total sales, and Garmin accounted for approximately 11% of our total sales. As a percentage of our display business sales, General Electric accounted for approximately 26%, and Garmin accounted for approximately 24%.

A significant portion of our sales, including sales of both microelectronic and display products, are shipped to foreign customers located in more than 13 countries. Export sales as a percent of our total sales in fiscal years ended 2002, 2001 and 2000 were approximately 32%, 28% and 16%, respectively. The largest percentage of our foreign sales in fiscal year 2002 came from Taiwan, which accounted for approximately 32% of our total foreign sales.

At March 29, 2003 and March 30, 2002, the backlog for the microelectronic segment was $34.0 million and $27.9 million, respectively, and the backlog for the display segment for the same dates was $20.5 million and $19.0 million, respectively. We expect to ship approximately 78% and 83% of the March 29, 2003 microelectronic and display backlog, respectively, in fiscal year 2003. Included within our backlog as of March 29, 2003 is $5.9 million contributed by IDS.

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

Military and Commercial Microelectronic Market. Our principal competitors in the military markets are divisions of Aeroflex Corporation, Austin Semiconductor and Teledyne. Our principal competitors in the commercial microelectronic product market are SimpleTech and Smart Modular Technology, a subsidiary of Solectron Corp. We also compete with manufacturers that provide single chip microelectronic products.

Military and Commercial Display Markets. In both military and commercial display markets, we compete with numerous companies, such as Planar Systems and PolarVision, a subsidiary of DuPont Displays. Commercial customers may also choose to develop display products internally or use standard commercially available display products rather than our enhanced display products. The marketplace for interface components is highly fragmented with numerous companies offering similar products, such as Molex and Durell.

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


	•	developing new products;

	•	improving existing products;

	•	adapting existing products to new applications; and

	•	developing prototype components for specific programs.

Some of our product development costs are recoverable under contractual arrangements, however the majority of these costs are self-funded. Our expenditures on product development for the six months ended March 29, 2003 amounted to approximately $2.6 million and for fiscal years 2002 and 2001 amounted to approximately $4.3 million and $5.3 million, respectively.

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

We assemble, test, package, and ship products at our manufacturing facilities listed below:

We consider all of our facilities to be well maintained and adequate for current operations. All facilities have additional capacity, which could be utilized in the event of increased production requirements.

We recently decided to consolidate all of our microelectronic manufacturing into our primary Phoenix facility by the end of calendar 2003. As a result of that decision, we have listed our second Phoenix facility, which was obtained in the IDS acquisition, for sale, and have announced our intention to not renew the lease on our Marlborough, Massachusetts facility when it expires in February 2004.

Our manufacturing facilities that serve the military market must comply with stringent military specifications. Our microelectronic module manufacturing facility in Phoenix, Arizona is certified ISO-9001 and Class B status. Class B status means that we are qualified to manufacture compliant military products.

In addition to our domestic manufacturing facilities, through IDS, we now have relationships with manufacturing facilities in China and Taiwan, which enable us to provide our customers with significant cost savings for certain products. In certain situations, our relationship with these foreign manufacturing

The most significant raw materials that we purchase for our operations are AMLCDs and memory devices in wafer, die and component forms. We are highly dependent on one SRAM semiconductor manufacturer for memory devices, one major display manufacturer of AMLCD panels, and one package manufacturer of ceramic packages for military components. Despite the risks associated with purchasing from single sources, or from a limited number of sources, we have made the strategic decision to select single source or limited source suppliers in order to obtain lower pricing, receive more timely delivery and maintain quality control. We have long-standing strategic relationships with world class semiconductor and glass suppliers. Because of these capabilities and relationships, we believe we can continue to meet our customers’ requirements. In cases where unanticipated customer demand or supply shortages occur, we attempt to arrange, through strategic relationships with our world class semiconductor and glass suppliers, for alternative sources of supply, where available, or defer planned production to meet anticipated availability of critical components or materials.

While we do not have specific long-term contractual arrangements with our vendors, we believe we have good relationships with our vendors and we are not currently anticipating any difficulties in purchasing components.

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

We rely on trade secret protection for our technology, in part through confidentiality agreements with our employees, consultants, and third parties. For example, we believe the process for applying anti-tamper coating to microelectronic products is protected by non-disclosure agreements. However, if these agreements are found to be unenforceable, we may be unable to adequately protect our technology. Additionally, third parties may breach these agreements, and, since many agreements are made with companies much larger than us, we may not have adequate financial resources to adequately enforce our rights. Also, others may come to know about or determine our trade secrets. In addition, the laws of certain territories in which we develop, manufacture or sell our products may not protect our intellectual property rights to the same extent as the laws of the United States.

SBLR is a patented technology that significantly reduces glare and reflections in liquid crystal displays while simultaneously increasing brightness. This patent expires in January 2018.

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

Under federal government contracting regulations, the United States government is entitled for three years after final payment on certain negotiated contracts or contract modifications to examine all of our

cost records with respect to such contracts to determine whether we furnished complete, accurate, and current cost or pricing data to the government in connection with the negotiation of the price of the contract or modification. The United States government also has the right after final payment to seek a downward adjustment to the price of a contract or modification if it determines that the contractor failed to disclose complete, accurate and current data. Historically, we have not experienced downward adjustments.

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

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

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

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

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

As of May 29, 2003, we had approximately 513 employees, including 45 in sales and marketing, 402 in engineering, manufacturing and quality assurance, and 66 in general and administrative. Approximately 30 of our employees in the display segment are employed pursuant to collective bargaining agreements covering workers at our display division in Fort Wayne, Indiana that expires on November 22, 2004. We believe our relationship with our employees is good.

We are involved from time to time in litigation and other legal proceedings incidental to our business. There are currently no material pending proceedings to which we are a party, or any of our property is subject.

Our executive officers and directors and their ages as of May 29, 2003 are as follows:

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

William J. Rodes has been our Chief Accounting Officer since October 2000. Mr. Rodes was appointed our Treasurer and Secretary in August 1999. Mr. Rodes served as our Corporate Controller from May 1999 to September 2000. Mr. Rodes served as Controller of White Microelectronics from 1993 to 1999. Mr. Rodes holds a Bachelors of Science in Accounting and a Masters of Business Administration from the University of Arizona.

Dan V. Tarantine has been our Corporate Executive Vice President, Sales and Marketing since January 2003. He served as our Senior Vice President of Sales from August 1998 to January 2003. He previously served as our Senior Vice President Sales and Marketing from September 1991 to August 1998 and as Vice President of Marketing for White Microelectronics from February 1987 to September 1991. Mr. Tarantine holds a Bachelors of Science in Electrical Engineering from California State University Northridge.

Norman T. Hall has served on our Board since October 1998. He previously served on the EDI Board from October 1995 to October 1998. Mr. Hall has been a partner in Alliant Partners since 1990, an investment banking firm specializing in mergers, acquisitions and divestitures, as well as private debt and equity financings for growth or acquisitions. Mr. Hall currently also serves as a director of Atmel Corporation, a semiconductor manufacturer. Mr. Hall holds a Juris Doctorate and Masters of Business Administration from Golden Gate University, a Ph.D. and M.S. from the University of Hawaii, and an S.Sc. from the University of Alberta. He is a member of the State Bar of California.

Thomas M. Reahard has served on our Board since November 1995. Mr. Reahard has been the Chairman and Chief Executive Officer of Symmetry Software Corporation, a computer software development corporation, since 1984. Mr. Reahard holds a Bachelors of Science in Industrial Engineering from Cornell University and a Masters of Science in Industrial Engineering from the University of Missouri.

Thomas J. Toy has served on our Board since October 1998. Mr. Toy is a Managing Director of PacRim Venture Partners, a venture capital firm he co-founded in 1999. Previously, he was at Technology Funding, a venture capital firm, from January 1987 to March 1999. While at Technology Funding,

Mr. Toy was a Partner and Managing Director of Corporate Finance and Chairperson of the firm’s investment committee. Mr. Toy also serves as a director of UTStarcom, a manufacturer of wireless communications equipment. Mr. Toy holds B.A. and M.M. degrees from Northwestern University.

Edward A. White has served on our Board since we were founded in September 1951. Mr. White previously served as Chairman of our board from September 1983 to October 1998. Mr. White founded the Company in September 1951 and has served as our President and Chief Executive Officer from June 1980 to May 1986. Mr. White holds a Bachelors of Science in Engineering from Tufts University.

We retained Alliant Partners in 2002 to act as a financial adviser to us in connection with our acquisition of IDS. As compensation for their services, we paid Alliant Partners a fee of $250,000. Norman T. Hall, a director of ours since October 1998, is a partner at Alliant Partners.

New York Life Insurance Company (“NYL”) is selling 2,000,000 shares of our common stock in this offering. As of May 23, 2003, NYL beneficially owned approximately 2,272,126 shares of our common stock, which is equal to approximately 10.8% of the outstanding shares of our common stock. After the sale of 2,000,000 shares in this offering, NYL will beneficially own approximately 272,126 shares, or 1.2%, of the outstanding shares of our common stock, assuming no exercise of the underwriters’ over-allotment option.

Edward A. White, through the Edward A. White Family Limited Partnership, is selling 300,000 shares of our common stock in this offering. Edward A. White, our Vice Chairman and member of our board of directors, is the sole general partner and beneficial owner of the shares held by this trust. As of May 23, 2003, Mr. White beneficially owned approximately 1,210,733 shares of our common stock, which is equal to approximately 5.8% of the outstanding shares of our common stock. After the sale of 300,000 shares in this offering, Mr. White will beneficially own approximately 910,733 shares, or 3.9%, of the outstanding shares of our common stock, assuming no exercise of the underwriters’ over-allotment option.

The following table sets forth information regarding the beneficial ownership of our common stock as of May 23, 2003 and as adjusted to reflect the sale of common stock under this prospectus by:


	•	the selling shareholder;

	•	each director;

	•	each executive officer;

	•	all directors and executive officers as a group; and

	•	owners of more than 5% of our common stock.

Except as otherwise noted, the address of each person listed in the table is c/o White Electronic Designs Corporation, 3601 E. University Drive, Phoenix, Arizona 85034. Beneficial ownership is determined in accordance with SEC rules and includes voting and investment power with respect to shares. To our knowledge, except under applicable community property laws or as otherwise indicated, the persons named in the table have sole voting and sole investment control with respect to all shares beneficially owned. The applicable percentage of ownership for each shareholder is based on 20,984,066 shares of common stock outstanding as of May 23, 2003, together with all shares of common stock subject to options exercisable within 60 days following May 23, 2003 for that shareholder. Shares of common stock issuable upon exercise of options and other rights beneficially owned are deemed outstanding for the purpose of computing the percentage ownership of the person holding these options and other rights, but are not deemed outstanding for computing the percentage ownership of any other person.


	(1)	Assumes no exercise of the underwriters’ over-allotment option. Percent ownership is based on: (i) before this offering, 20,984,066 shares of common stock outstanding as of May 23, 2003 plus any shares issuable pursuant to options held by the person or group in question which may be exercised either within 60 days of May 23, 2003; and (ii) after this offering an additional 2,200,000 shares to be issued by us in the offering.

	(2)	Options exercisable within 60 days following May 23, 2003 by the listed person are included in the number of shares beneficially owned by the listed persons and the percentage ownership calculations.

	(3)	Includes options to purchase 50,086 shares of our common stock granted under our 1992 Non-Qualified Stock Option Plan for Non-Employee Directors; and options to purchase 27,501 shares of our common stock granted under our 2001 Director’s Stock Option Plan.

	(4)	Includes options to purchase 32,000 shares of our common stock granted under our 1992 Non-Qualified Stock Option Plan for Non-Employee Directors; and options to purchase 27,501 shares of our common stock granted under our 2001 Directors Stock Option Plan.

	(5)	Includes options to purchase 459,833 shares of our common stock granted under our 1994 Flexible Stock Plan; options to purchase 114,583 shares of our common stock from an independent grant in fiscal year 2000; and options to purchase 96,875 shares of our common stock granted under our 2000 Broad Based Non-Qualified Stock Plan.

	(6)	Includes options to purchase 10,000 shares of our common stock granted under our 1992 Non-Qualified Stock Option Plan for Non-Employee Directors; and options to purchase 27,501 shares of our common stock granted under our 2001 Directors Stock Option Plan.

	(7)	Includes options to purchase 14,000 shares of our common stock granted under our 1992 Non-Qualified Stock Option Plan for Directors; and options to purchase 16,667 shares of our common stock granted under our 2001 Director’s Stock Option Plan. Mr. White has advised us that 1,180,066 shares of our common stock beneficially owned by him have been transferred to the Edward A. White Family Limited Partnership, of which Mr. White is the sole general partner and of which he and his wife are sole limited partners.

	(8)	Includes options to purchase 43,498 shares of our common stock granted under our 1994 Flexible Stock Plan.

	(9)	Includes options to purchase 84,833 shares of our common stock granted under our 1994 Flexible Stock Plan; and options to purchase 21,666 shares of our common stock under our 2000 Broad Based Non-Qualified Stock Plan.


(10)	The address for New York Life Insurance Company is 51 Madison Avenue Room 3009, New York, New York 10010.

Upon completion of this offering, we expect to have 23,184,066 shares of common stock outstanding. Of these shares, 2,732,384 shares will be subject to restrictions on resale as follows:


	•	2,215,736 shares will be subject to lock-up agreements generally providing that the holders of these shares will not offer, sell, contract to sell or grant any option to purchase or otherwise dispose of our common stock or any securities exercisable for or convertible into our common stock owned by them (other than the shares that they may purchase and sell on the open market) for a period of 90 days after the effective date of the registration statement filed in connection with this offering. Beginning 90 days after the effective date, 1,943,610 of these shares will be held by affiliates and will be eligible to be sold pursuant to the volume limitations and other requirements of Rule 144 of the Securities Act, and 272,126 of these shares will be freely tradeable without restriction; and

	•	up to 516,648 shares are subject to an Escrow Agreement, between us, the former shareholders of IDS, and Bank One Trust Company, N.A., as the escrow agent, dated January 22, 2003. Under the terms of this Escrow Agreement, these shares will not be released until, at the earliest, January 22, 2004, subject to claims that may arise in connection with our acquisition of IDS. Once released, these shares will be “restricted securities” within the meaning of Rule 144 of the Securities Act, provided, however, that we are required to register these shares for resale within 45 days of the date that they are released.

As part of our acquisition with EDI in 1998, we agreed to assume existing registration rights agreements that EDI had entered into with its former shareholders. As a result of our assumption of these registration rights agreements, some of our shareholders, including our largest shareholder New York Life Insurance Company, have the right to demand registration of the shares of our common stock that they hold. As a condition to our obligation to register these shares, we must receive a written request from the holders of at least 30% of these shares to register at least 27% of these shares. Our obligation to register these shares expires on March 22, 2004.

In connection with our recent acquisition of IDS, we agreed to register up to approximately 746,445 shares of our common stock issued, or issuable pursuant to an outstanding warrant that we assumed, to the former shareholders of IDS within 45 days of the release of certain shares held in escrow to satisfy potential claims that may arise in connection with the acquisition. Assuming there are no claims then outstanding, the shares will be released from escrow on January 22, 2004.

We and the selling shareholders have entered into an underwriting agreement with the underwriters named below. The underwriters obligations are several, which means that each underwriter is required to purchase a specific number of shares, but is not responsible for the commitment of any other underwriter to purchase shares. Subject to the terms and conditions of the underwriting agreement, each underwriter has severally agreed to purchase from us and the selling shareholders the number of shares of common stock set forth opposite its name below.

The underwriters have advised us and the selling shareholders that the underwriters propose to offer the shares of common stock to the public at the public offering price per share set forth on the cover page of this prospectus. The underwriters may offer shares to securities dealers, who may include the underwriters, at that public offering price less a concession of up to $0.36 per share. The underwriters may allow, and those dealers may reallow, a concession to other securities dealers of up to $0.10 per share. After the offering to the public, the offering price and other selling terms may be changed by the underwriters.

We have granted the underwriters an option to purchase up to 202,874 additional shares of common stock, and the selling shareholders have granted the underwriters an option to purchase up to 472,126 additional shares of common stock, at the public offering price per share, less the underwriting discounts and commissions, set forth on the cover page of this prospectus. This option is exercisable during the 30-day period after the date of this prospectus. The underwriters may exercise this option only to cover over-allotments made in connection with this offering. If this option is exercised, each of the underwriters will be obligated to purchase approximately the same percentage of the additional shares as the number of shares of common stock to be purchased by that underwriter, as shown in the table above, bears to the total number of shares shown.

The underwriting discount is equal to the public offering price per share of common stock less the amount paid by the underwriters to us and the selling shareholders per share of common stock. The underwriting discount is 6.0% of the public offering price. The following table shows the per share and total underwriting discount to be paid to the underwriters by us and the selling shareholders. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase additional shares.

The underwriting agreement provides that the obligations of the several underwriters to purchase the shares of common stock offered hereby are subject to certain conditions precedent and that the underwriters will purchase all shares of the common stock offered hereby, other than those covered by the over-allotment option described above, if any of these shares are purchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the nondefaulting underwriters may be increased or the underwriting agreement may be terminated.

The underwriting agreement also provides that we and the selling shareholders will indemnify the underwriters against certain liabilities that may be incurred in connection with this offering, including

The underwriters are offering the shares of our common stock, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the shares, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officers’ certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.

We have agreed not to offer, sell, contract to sell, grant options to purchase, or otherwise dispose of any shares of our common stock or securities exchangeable for or convertible into our common stock for a period of 180 days after the date of this prospectus without the prior written consent of Needham & Company, Inc. This agreement does not apply to options issuable under any existing employee benefit plans. Our directors, officers and the selling shareholders have agreed not to, directly or indirectly, sell, hedge, or otherwise dispose of any shares of common stock, options to acquire shares of common stock or securities exchangeable for or convertible into shares of common stock, for a period of 90 days after the date of this prospectus without the prior written consent of Needham & Company, Inc. Needham & Company, Inc. may, in its sole discretion and at any time without notice, release all or any portion of the securities subject to these lock-up agreements.

In connection with this offering, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of our common stock. Specifically, the underwriters may over-allot in connection with this offering by selling more shares than are set forth on the cover page of this prospectus. This creates a short position in our common stock for their own account. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase under the over-allotment option. To close out a short position, the underwriters may bid for, and purchase, common stock in the open market. The underwriters may also elect to reduce any short position by exercising all or part of the over-allotment option. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. If the underwriters sell more shares than could be covered by the over-allotment option, a naked short position, the position can only be entirely closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriter is concerned that there may be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase shares in the offering.

The underwriters may also impose a penalty bid. This occurs when a particular underwriter or dealer repays selling concessions allowed to it for distributing our common stock in this offering because the underwriters repurchase that stock in stabilizing or short covering transactions.

Finally, the underwriters and selling group members, if any, or their affiliates may bid for, and purchase, our common stock on the Nasdaq National Market immediately prior to the commencement of sales in this offering, in accordance with Rule 103 of Regulation M under the Securities Exchange Act of 1934. Rule 103 generally provides that:


	•	a passive market maker may not effect transactions or display bids for our common stock in excess of the highest independent bid price by persons who are not passive market makers;

	•	net purchases by a passive market maker on each day are generally limited to 30% of the passive market maker’s average daily trading volume in our common stock during a specified two month prior period or 200 shares, whichever is greater, and must be discontinued when that limit is reached; and

	•	passive market making bids must be identified as such.

Any of these activities may stabilize or maintain the market price of our common stock at a price that is higher than the price that might otherwise exist in the absence of these activities or may prevent or retard a decline in the market price of our stock. The underwriters are not required to engage in these activities, and may discontinue any of these activities at any time without notice. These transactions may be effected on the Nasdaq National Market or otherwise.

Neither we, the selling shareholders nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the common stock. In addition, neither we, the selling shareholders nor any of the underwriters make any representation that the underwriters will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.

Some of the underwriters and their affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with us. They have received customary fees and commissions for these transactions.

The validity of the common stock offered hereby will be passed upon for us by Snell & Wilmer L.L.P., Phoenix, Arizona. Certain legal matters in connection with this offering will be passed upon for the underwriters by Kaye Scholer LLP, Los Angeles, California.

The financial statements of White Electronic Designs Corporation as of September 28, 2002 and September 29, 2001 and for each of the three years in the period ended September 28, 2002 included in this Prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting.

We have filed with the Securities and Exchange Commission a Registration Statement on Form S-3 under the Securities Act with respect to the common stock offered hereby. This prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules. For further information with respect to us and the common stock offered hereby, reference is made to the Registration Statement and to the exhibits and schedules. Statements made in this prospectus concerning the contents of any document referred to herein are not necessarily complete. With respect to each such document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved. The Registration Statement and the exhibits and schedules may be inspected without charge at the public reference facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of all or any part of the Registration Statement may be obtained from the SEC’s offices upon payment of fees prescribed by the SEC. The SEC maintains a World Wide Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the site is http://www.sec.gov.

The SEC allows us to “incorporate by reference” certain of our publicly-filed documents into this prospectus, which means that information included in those documents is considered part of this prospectus. Information that we file after the date of this prospectus will automatically update and supersede this information. We incorporate by reference the documents listed below and any future filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this prospectus and prior to the closing date of the offering.

Any statement contained in a document that is incorporated by reference will be modified or superseded for all purposes to the extent that a statement contained in this prospectus (or in any other document that is subsequently filed with the SEC and incorporated by reference) modifies or is contrary to the previous statement. Any statement so modified or supersede will not be deemed a part of this prospectus except as so modified or superseded.

The following documents filed with the SEC are incorporated by reference in this prospectus:


	1.	Our Annual Report on Form 10-K for the fiscal year ended September 28, 2002.

	2.	Our Proxy Statement for our 2003 Annual Meeting of Shareholders held on February 27, 2003.

	3.	Our Quarterly Reports on Form 10-Q for the first quarter ended December 28, 2002 and the second quarter ended March 29, 2003.

	4.	Our Current Reports on Form 8-K filed October 16, 2002, November 15, 2002, January 24, 2003, as amended on April 7, 2003, and January 30, 2003.

	5.	Our registration of our common stock pursuant to Section 12(g) of the Securities and Exchange Act of 1934, on Form 8-A filed June 7, 2000.

	6.	Our registration of our common stock purchase rights pursuant to Section 12(b) of the Securities and Exchange Act of 1934, on Form 8-A filed May 21, 1998.

We will furnish without charge to you, on written or oral request, a copy of any or all of the documents incorporated by reference, other than exhibits to those documents unless such exhibits are specifically incorporated by reference in such documents. You should direct any requests for documents to White Electronic Designs Corporation, 3601 E. University Drive, Phoenix, Arizona 85034, Attention: Chief Financial Officer, telephone: (602) 437-1520.

In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, shareholder’s equity, and of cash flows present fairly, in all material respects, the financial position of White Electronic Designs Corporation and Subsidiaries at September 28, 2002 and September 29, 2001, and the results of their operations and their cash flows for each of the three years in the period ended September 28, 2002 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

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

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

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

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

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

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

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

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

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

a. Principles of Consolidation. The consolidated financial statements include the accounts of the Company. All significant inter-company accounts and transactions are eliminated. Certain amounts in prior fiscal years’ consolidated financial statements have been reclassified to conform to the current year presentation.

b. Fiscal Year-End. The Company’s fiscal year-end is the Saturday nearest September 30.

c. Fair Value of Financial Instruments. The Company values financial instruments as required by SFAS No. 107, Disclosures about Fair Value of Financial Instruments (“SFAS No. 107”). The carrying amounts of cash and cash equivalents and bank notes payable approximate fair value due to the short

maturity of those instruments. The carrying amounts of account receivables and accounts payable approximate their fair value due to the relatively short maturity of these items.

d. Cash and Cash Equivalents. The Company considers all highly liquid debt instruments and money market funds purchased with an initial maturity of three months or less to be cash equivalents.

e. Inventories. Inventories are valued at the lower of cost or market with cost determined using the average or standard costs methods, with standard costs approximating actual.

f. Property, Plant and Equipment. Property, plant and equipment, including property under capital lease agreements, are stated at cost. Depreciation is determined on a straight-line basis over the estimated useful lives ranging from 5 to 20 years for buildings and improvements and 3 to 7 years for machinery and equipment. Leasehold improvements are amortized over the lives of the leases or estimated useful lives of the assets, whichever is less. When assets are sold or otherwise retired, the cost and accumulated depreciation are removed from the books and the resulting gain or loss is included in operating results. The Company periodically evaluates the carrying value of its long-lived assets in accordance with SFAS 121 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of”, based upon the estimated cash flows to be generated by the related assets.

g. Goodwill and Intangible Assets. Goodwill and intangible assets represent the goodwill generated from the January 29, 2001 acquisition of Panelview and identified intangible assets from the October 26, 1998 merger of Bowmar and EDI. The goodwill from the Panelview acquisition was amortized monthly from February 2001 through September 2002. As discussed below, the Company will adopt SFAS 142 beginning in October 2002, and will stop amortization based on that standard’s requirements. The intangible assets are being amortized over periods ranging from four to five years, and will continue to amortize through October 2003. The Company periodically evaluates the carrying value of its goodwill and intangible assets in accordance with SFAS 121 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of”, based upon the estimated cash flows to be generated by the related assets.

h. Government Contracts. Sales under government contracts, which are usually based on firm fixed price contracts, are recorded when the units are shipped and accepted by the government.

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

i. Sales Recognition and Accounts Receivable. The majority of the Company’s sales are recognized when the products are shipped to the customer. Shipping terms are FOB shipping point, and title passes to the customer at shipment. There are no other obligations to the customer after shipment. Some product shipments to distributors may be returned based on conditions set forth in their distributor agreement. Therefore, product sales on these shipments to distributors are not recognized until the distributor sells the products to the end user. The Company also maintains reserves for warranty return expense based on normal return rates. In addition, the Company has reserves for potential credit losses, and distributor price protection adjustments. Based on historical experience, the Company believes it has adequate reserves to

account for potential losses or adjustments. Write-offs for uncollectible accounts totaled $112,188 in fiscal 2000, $95,644 in fiscal 2001, and $209,454 in fiscal 2002.

j. Shipping Costs. Shipping costs include freight/mailing charges associated with delivery of goods from the Company’s facility to the customer’s designated locations. The Company’s policy is to classify shipping costs as part of cost of sales in the statement of income.

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

l. Accounting for Stock-Based Compensation. The Company has adopted the disclosure only provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123) and Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure (SFAS 148). 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.

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

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 2000, 2001, and 2002 is not necessarily representative of the pro forma impact on reported results for future years.

m. Newly Issued Accounting Standards. In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141 (SFAS 141), Business Combinations, and No. 142 (SFAS 142), Goodwill and Other Intangible Assets, collectively referred to as the “Standards”. SFAS 141 supersedes Accounting Principles Board Opinion (APB) No. 16, Business Combination. The provisions of SFAS 141 (1) require that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, (2) provide specific criteria for the initial recognition and measurement of intangible assets apart from goodwill, and (3) require that negative goodwill be written off immediately as an extraordinary gain instead of being deferred and amortized.

SFAS 141 also requires that upon adoption of SFAS 142, the Company reclassify the carrying amounts of certain intangible assets into or out of goodwill, based on certain criteria.

SFAS 142 supersedes APB 17, Intangible Assets, and is effective for fiscal years beginning after December 15, 2001. SFAS 142 primarily addresses the accounting for goodwill and intangible assets subsequent to their initial recognition. The provisions of SFAS 142 (1) prohibit the amortization of goodwill and indefinite-lived intangible assets, (2) require that goodwill and indefinite-lived intangibles assets be tested at least annually for impairment (and in interim periods if certain events occur indicating that the carrying value of goodwill and/or indefinite-lived intangible assets may be impaired), (3) require that reporting units be identified for the purpose of assessing potential future impairments of goodwill, and (4) remove the forty-year limitation on the amortization period of intangible assets that have finite lives.

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

The Company intends to adopt the provisions of SFAS 142 for fiscal year 2003, which begins September 29, 2002. At that time, the Company will stop the amortization of Panelview purchased goodwill and will assess the need for any changes in the remaining goodwill asset based on valuations performed at that time. Because of the goodwill amortization through the end of fiscal 2002 and the increasing sales and profits at the Panelview subsidiary, the Company, at this time, believes that an impairment charge will not be needed in the first quarter of fiscal 2003. The actual result will not be known until completion of the impairment tests.

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

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

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

In June 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 146 (SFAS No. 146), Accounting for Costs Associated with Exit or Disposal Activities. This statement nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, and removes the previous requirement to record a liability for the costs associated with exit activities when a company

commits to an exit plan. SFAS 146 now requires a company to record a liability for costs associated with an exit activity, at fair value, only when a liability is incurred. The Company believes that adoption of this standard will have no material effect on the Company’s financial reporting and disclosure.

n. 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.

o. Research and Development. Expenditures for product development are expensed as incurred.

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.

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

The Company adopted SFAS No. 142 during first quarter of fiscal year 2003. Had SFAS 142 been effective October 3, 1999, net income and earnings per share for fiscal years 2000, 2001 and 2002 would have been reported as the following amounts:

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

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

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

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

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

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

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

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

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

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

long-term pension liability of $671,000 on its balance sheet for fiscal 2002 relating to the decrease in value of plan assets during the year.

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

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

Stock Options Plans. In February 1987, EDI adopted the 1987 Stock Option Plan (the “Plan”). The Plan, as amended, allows for the issuance of up to 2,259,748 shares of the Company’s common stock. Options granted under the Plan must be granted at the fair market value of such shares on the date of grant and must have an expiration date no more that ten years from the date of grant. Generally, options vest over a five-year period and expire five years from the date of grant. Additionally, in October 1995, in connection with the acquisition of EDI-MA, fully vested options to purchase 314,826 shares of the Company’s common stock at $0.22 per share that were valued at $598,000 were issued to employees in exchange for fully vested options of EDI-MA. At the date of the merger of Bowmar and EDI, Bowmar assumed all then outstanding unexercised EDI options and converted the number of shares issuable upon exercise and the exercise price per share using the 1.275 exchange ratio. Both EDI plans were then terminated, and there are no shares available for future grants. At September 28, 2002, there were 279,273 shares from the 1987 Stock Option Plan under option, and 124,402 shares from the EDI-MA acquisition plan under option.

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

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

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

During fiscal 1999, the Company’s Board of Directors approved an independent grant to Donald McGuinness, who was the President of EDI prior to the EDI/ Bowmar merger in October 1998, for a nonqualified stock option to purchase up to 102,000 shares of common stock at an exercise price of $1.125 per share, vesting ratably over three years. At September 28, 2002, 102,000 shares from this independent option right were still under option.

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

During fiscal 2001, the Company’s Board of Directors approved the 2000 Broad Based Non-qualified Stock Plan, which provides for the issuance of options to purchase shares of common stock at an exercise price equal to the fair market value at the date of grant. As of September 28, 2002, 223,812 shares were available for grant and 719,434 granted options were unexercised.

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

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

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

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

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

In February 2001, the Company’s Board of Directors adopted the White Electronic Designs Corporation 2000 Employee Stock Purchase Plan. This plan provided for the purchase by employees of up to 300,000 shares of common stock at 85% of the fair market value on the first or last day of the offering period (as defined in the plan), whichever is lower. This plan began July 1, 2001, and will continue for ten years unless terminated sooner. There were no shares issued under this plan in fiscal year 2000 or 2001, and 43,646 shares issued under this plan in fiscal year 2002.

Pro forma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its stock option plans and employee stock purchase plan under the fair value based method of that Statement. The fair value for these options was

estimated at the date of grant using a Black-Scholes option-pricing model with the following weighted-average assumptions:

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

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 2000, 2001, and 2002 was $1,207,000, $1,564,000, and $1,799,000 respectively. Future minimum annual fixed rentals required under non-cancelable operating leases having an original term of more than one year are $1,608,000 in 2003, $1,283,000 in 2004, $1,138,000 in 2005, $1,160,000 in 2006, and $1,172,000 in 2007, and $717,000 thereafter.

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.

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

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

number of Rights held by the holder divided by 50% of the then current market price of the common stock.

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

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

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

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

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

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

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

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

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

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

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

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

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

The Company sells its products primarily to original equipment manufacturers, or electronic assembly houses in the United States. In fiscal 2002, two customers accounted for more than 10% of the Company’s sales. General Electric Medical Division accounted for 11.5% of total Company sales, and Garmin

International accounted for 10.8% of total Company sales. The loss of either of these customers would have a material affect on the Company’s results of operations.

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

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

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

The condensed consolidated balance sheet as of March 29, 2003, the consolidated statement of operations for the three months and six months ended March 29, 2003 and March 30, 2002, and the condensed consolidated statement of cash flows for the six months ended March 29, 2003 and March 30, 2002, have been prepared by the Company and are unaudited. The consolidated condensed balance sheet as of September 28, 2002, was derived from the audited consolidated financial statements. It is the opinion of management that all adjustments, which are of a normal recurring nature necessary to present fairly such financial statements, have been made.

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this prospectus. The results of operations for the three months and six months ended March 29, 2003 are not necessarily indicative of the operating results for the full year.

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America 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, as well as net sales and expenses reported for the periods presented. The Company regularly assesses these estimates and, while actual results may differ, management believes that the estimates are reasonable.

Certain amounts in the consolidated financial statements and notes thereto have been reclassified to conform to current classifications.

The Company has adopted the disclosure only provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123) and Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure (SFAS 148). 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.

SFAS 128 requires the presentation of basic and diluted earnings per share (EPS). Basic EPS is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period.

Diluted EPS is computed giving effect to all potential dilutive common shares that were outstanding during the period unless they are antidilutive. Potential dilutive common shares consist of the incremental common shares that could be issued upon exercise of stock options and shares purchased through the employee stock purchase program.

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:

Options excluded from the calculation of diluted net income per share were 359,000 and 213,256, as the exercise price was greater than the average share price for the period.

Options excluded from the calculation of diluted net income per share were 374,000 and 203,256, as the exercise price was greater than the average share price for the period.

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

Accrued expenses consists of the following major categories (in thousands of dollars):

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

The Company’s second business segment is the display segment. The display segment manufactures enhanced viewing liquid crystal displays and interface devices. Enhanced viewing liquid crystal displays can be either ruggedized or commercial. Ruggedized displays are manufactured to perform in harsh environmental conditions, while commercial display products offer greater viewing performance than off-the-self displays, but are not designed for harsh environmental conditions. Interface devices include

electromechanical components and instrument packages that can consist of ruggedized keyboards, aircraft trim panels, rotating devices, mechanical packages, membrane keypads, silver flexible circuits, graphic overlays, control panels, and keypad/controller assemblies. The display segment serves a number of markets, to include transportation, GPS systems, military avionics, commercial avionics, home appliances, outdoor kiosks, medical patient monitors, and various military applications.

The Company’s segments have common customers, mainly in the aerospace and defense industry. Different purchasing groups within the customers’ parent company, however, usually purchase the products from each segment. There are no inter-segment sales.

The Company sells its products primarily to original equipment manufacturers, or electronic assembly houses in the United States. One customer from the display segment, Garmin International, accounted for 14% of total Company sales for the six months ended March 29, 2003. The loss of this of this customer would have a material effect on the Company’s results of operations.

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

On January 22, 2003, the Company acquired 100% of the voting stock of Interface Data Systems, Inc. (“IDS”), a privately held corporation headquartered in Phoenix, Arizona. The results of IDS’ operations have been included in the consolidated financial statements since that date. IDS designs and manufactures membrane keypads, silver flexible circuits, graphic overlays, sensors, electro luminescent lamps (EL), control panels, keypad/controller assemblies, and handheld and desktop electronic devices for original equipment manufacturers. IDS sells to the home appliance, consumer electronics, industrial process

controls, medical and communications industries. IDS has manufacturing facilities in Phoenix, Arizona and Columbus, Ohio and has a network of strategic manufacturing alliances in China and Taiwan. The acquisition of IDS expands the Company’s product offerings and allows the Company to provide system and subsystem level solutions to our customers. The goodwill recognized in the purchase price is based on expected synergies between the Company’s current products and the products manufactured by IDS, to expand sales within both companies’ customer base.

The purchase price of the acquisition was $18.5 million, which included a cash payment of $9.0 million; 577,595 shares of the Company’s common stock issued at $7.99 per share (based on the average closing price for the three days prior to the acquisition close date) totaling $4,614,984; the assumption of certain IDS employee stock options and warrants with a value of $4,456,539; and $473,424 of acquisition costs. A total of 469,409 of the Company’s stock options were issued, based on an exchange ratio of .3377, for certain IDS employee stock options. Additionally, approximately 169,000 warrants for shares of the Company’s common stock were authorized, based on an exchange ratio of .3377, for certain IDS warrants. IDS will continue to operate as a wholly owned subsidiary of the Company. The net sales from the Columbus, Ohio division have been included in the Company’s display segment, while the net sales from the IDS Arizona division fall into both the display and microelectronic segments. Financial statements for the three months ended March 29, 2003 contain the financial activity from IDS for the months of February and March.

The acquisition was treated as a purchase under SFAS No. 141, Business Combinations (SFAS 141); and the related goodwill and intangible assets are being accounted for as stated in SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142). The Company is using independent appraisers and business valuation experts to assist in the allocation of the purchase price. At this time, the valuation of the IDS Phoenix, Arizona real estate asset is not complete. An initial valuation of $3.2 million has been placed on that asset for purposes of this preliminary purchase price calculation. When the final appraisal is complete, assets and goodwill will be adjusted accordingly. The following table represents a preliminary allocation of the purchase price:

None of the goodwill is deductible for tax purposes. The preliminary allocation of goodwill and intangible assets by segment is as follows:

Following is an unaudited table for IDS as of January 22, 2003, the date of the acquisition.

The accompanying unaudited pro forma combined statements of income for the three and six months ended March 29, 2003 give effect to the acquisition as if it had occurred as of September 30, 2001. The unaudited pro forma combined financial information is included only for purposes of illustration, and it does not necessarily indicate what the financial condition or operating results would have been if the acquisition of IDS by the Company had been completed on the dates indicated.

The Company secured a term loan through Bank One NA in the amount of $6,000,000 and used the funds to pay off long-term debt that was acquired in the IDS acquisition. The term of the loan is for five years, with monthly principle payments of $33,333 and a final payment of approximately $4.0 million. The Company’s buildings have been used as collateral for the loan.

The Company revised its existing $8.0 million revolving credit agreement with Bank One as of January 13, 2003, to change the interest rate to approximate LIBOR plus 1.5% for certain amounts, or the Bank One Prime Rate. An additional modification was made on March 13, 2003 to increase the limit to $12.0 million.

As of March 29, 2003, the interest rate on the line of credit was 4.25% based on the Bank One Prime Rate. The revolving credit agreement extends until March 28, 2004. The Company is in compliance with all of its loan covenants.

In June 2001, the FASB issued SFAS No. 141, Business Combinations (SFAS 141) and No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 141 superseded APB Opinion No. 16, Business Combinations. The provisions of SFAS 141 require that the purchase method of accounting be used for all business combinations initiated after June 30, 2001; provide specific criteria for the initial recognition and measurement of intangible assets apart from goodwill; and, require that unamortized negative goodwill be written off immediately as an extraordinary gain instead of being deferred and amortized. SFAS 141 also requires that upon adoption of SFAS 142, certain intangible assets be reclassified into or out of goodwill based on certain criteria. SFAS 142 supersedes APB Opinion No. 17, Intangible Assets, and is effective for fiscal years beginning after December 15, 2001, although earlier adoption is encouraged. SFAS 142 primarily addresses the accounting for goodwill and intangible assets subsequent to their initial recognition. The provisions of SFAS 142 prohibit the amortization of goodwill and indefinite-lived intangible assets and require that such assets be tested annually for impairment (and in interim periods if events or circumstances indicate that the related carrying amount may be impaired), require that reporting units be identified for purposes of assessing potential impairments, and remove the forty-year limitation on the amortization period of intangible assets that have finite lives.

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

The Company adopted SFAS 142 effective September 29, 2002 and discontinued amortization as of that date. During the first quarter of fiscal 2003, the Company identified its reporting unit with goodwill (Panelview), and completed the first step impairment test as of September 29, 2002. As no impairment was identified by the first step test, completion of the second step test was not required. The fair value of the Panelview reporting unit was determined using the discounted cash flow model using a growth rate of 5% and a discount rate of 15%.

Amortization for the three months and six months ended March 29, 2003 relates to the Company’s intangible assets, while amortization for the three months and six months ended March 30, 2002 relates to goodwill and intangible assets, including $377,000 and $749,000, respectively, of goodwill amortization.

On a comparative basis, net income excluding goodwill amortization for the three months and six months ended March 29, 2003 and for the three months and six months ended March 30, 2002 would have been as follows:

In November 2002, the FASB issued Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. FIN 45 requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. FIN 45 also requires additional disclosure by a guarantor in its interim and annual financial statements about its obligations under certain guarantees. The

initial recognition and measurement provisions of FIN 45 are applicable for guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ended after December 15, 2002.

The Company estimates potential warranty obligations for its products based on annual product sales and historical customer product return data. Based on this data, the Company records estimated warranty reserves and expense needed to account for the estimated cost of product returns.

Following is a reconciliation of warranty liability as of March 29, 2003 since September 28, 2002:

We have audited the accompanying consolidated balance sheet of Interface Data Systems, Inc. (an Arizona corporation) and subsidiary as of June 29, 2002, and the related consolidated statements of income, stockholders’ equity and cash flows for the year then ended. 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 audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Interface Data Systems, Inc. and subsidiary as of June 29, 2002, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying notes are an integral part of this consolidated financial statement.

Operations. Interface Data Systems, Inc. was incorporated on April 2, 1991, under the laws of the state of Arizona. The Company designs and manufacturers membrane and elastomer keypads, control panels, custom full-travel keyboards, and complete electronic interface devices. These capabilities include hardware, software, and packaging, and are focused on hand-held through desktop electronic instruments. The Company also has turnkey manufacturing services, including the sourcing of components and full functional testing. The Company operates under a 52/53 week year-end, with year-end falling on the Saturday closest to June 30. The year ended June 29, 2002 was a 52-week year.

Principles of Consolidation. The accompanying consolidated financial statements include the accounts of Interface Data Systems, Inc. and its wholly owned subsidiary, IDS Acquisition Corporation (collectively, the “Company”). All intercompany transactions have been eliminated for the year ended June 29, 2002.

Cash and Cash Equivalents. For purposes of reporting the consolidated statement of cash flows, the Company considers all highly liquid instruments with original maturities of three months or less to be cash equivalents.

Accounts Receivable. The Company does not require collateral on accounts receivable balances. The allowance for doubtful accounts totaled approximately $137,000 at June 29, 2002.

Inventories. Inventories are carried at the lower of cost or market using the first-in, first-out (FIFO) method for raw materials and specific identification for work-in-process and finished goods.

Property. Property is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets which range from 3 to 31.5 years.

Stock Based Compensation. The Company grants stock options to employees for a fixed number of shares with an exercise price which generally does not exceed the fair value of the shares at the date of grant. The Company accounts for stock option grants in accordance with Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees, and has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based Compensation, and, accordingly, recognizes no compensation expense for the stock option grants unless they are granted at less than fair value.

Income Taxes. The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes.

Advertising. Advertising costs are expensed as they are incurred. Advertising costs for the year ended June 29, 2002, totaled approximately $35,000.

Revenue Recognition. Sales are recorded at the time individual items are shipped.

Research and Development. Research and development expenses are charged to expense as incurred.

Shipping Costs. Substantially all costs of shipping products to customers are included in cost of sales.

Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 revenue and expenses during the reporting period. Actual results may differ from those estimates.

Included in cost of sales for the year ended June 29, 2002, is depreciation expense of approximately $997,000. Included in selling, general and administrative expenses for the year ended June 29, 2002, is depreciation expense of approximately $250,000. Included in research and development expenses for the year ended June 29, 2002, is depreciation expense of approximately $54,000.

Annual principal payments on notes payable and long-term debt for the years subsequent to June 29, 2002 are scheduled as follows:

Principal payments made to related parties was approximately $25,000 for the year ended June 29, 2002. Interest paid to related parties was approximately $17,000 for the year ended June 29, 2002.

The Company’s borrowing agreements contain certain covenants, including the maintenance of certain financial ratios. The Company was in compliance with the covenants requiring the maintenance of certain financial ratios at June 29, 2002. However, they were in violation of the covenant requiring the timely issuance of audited financial statements. The bank has waived this violation as of and for the year ended June 29, 2002.

At June 29, 2002, the Company had approximately $9,394,000 of unused letters of credit with a bank, which collateralize the industrial bonds noted above, with a facility fee ranging between 1.5% and 2.75%.

During the fiscal year 2002, the Company entered into an equipment capital lease agreement which expires in May 2006. The gross amount of the asset recorded under this capital lease agreement was approximately $96,000 and the related accumulated amortization was approximately $23,000 as of June 29, 2002. Amortization expense on this capital lease is included in depreciation expense. Future minimum lease payments on this lease obligation for the years subsequent to June 29, 2002 are scheduled as follows:

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows at June 30, 2002:

Significant components of the federal and state income tax expense at June 29, 2002 are as follows:

Cash paid for interest for the year ended June 29, 2002, was approximately $559,000.

Total income tax payments, net of any refunds received, during the year ended June 29, 2002, were approximately $27,000.

During the year ended June 29, 2002, the Company entered into a capital lease obligation for equipment totaling approximately $96,000.

The Company leases certain equipment under noncancelable operating leases that expire in various years through fiscal year 2005. Total rent expense was approximately $233,000 for the year ended June 29, 2002.

Future minimum payments under noncancelable operating leases with initial terms of one year or more for the years subsequent to June 29, 2002 are as follows:

In January 2001, the Company’s Board of Directors issued a stock warrant to purchase 500,000 shares of Class A stock to the President of the Company at $1.00 per share, which was less than the fair value of the Company’s Class A stock on the date of issuance, as determined by management of the Company. The warrant is exercisable at the rate of 20 percent per year commencing December 31, 2001 with a provision that upon a change in control of the Company, the warrant shall become 100% exercisable. In connection with this issuance, the Company recorded an increase to additional paid-in capital and recorded unearned compensation of $500,000 representing the excess of the fair value of the shares underlying the warrant over the exercise price. Unearned compensation is being amortized to selling, general and administrative expense over the service period with $100,000 charged to expense for the year ended June 29, 2002.

During the year ended June 24, 1995, the Company’s Board of Directors adopted a Long-Term Incentive Plan (the Plan) for employees and directors, for the issuance of various stock based awards for a maximum of 900,000 shares of Class A Stock and 600,000 shares of Class B Stock. In January 2001, the Company’s Board of Directors approved an amendment to increase the total shares covered by the Plan from 1,500,000 shares to 1,750,000 shares. The options granted generally become exercisable at the rate of 25 percent per year, commencing retroactively two years from the date of hire, and for new employees subsequent to fiscal 1995, two years from the date of grant. In September 2001, the Company changed the vesting schedule for options granted from that point forward to a vesting rate of 25% per year commencing on the date of grant.

The Company has elected to follow APB 25, and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123 (SFAS 123), Accounting for Stock-Based Compensation, requires use of options valuation models that were not developed for use in valuing employee stock options. Under

APB 25, because the exercise price of the Company’s employee stock options was not less than the market price of the underlying stock on the date of grant, no compensation expense is recognized. Had compensation expense been determined based on the fair value at the grant date of rewards consistent with the provisions of SFAS 123, the effect on the Company’s income would not have been significant for the period presented. The Company further believes that, based on the models required to be used by SFAS 123, pro forma amounts derived under such methodologies would not be representative, if material, since such models are not designed for use of stock options of the type issued by the Company.

The following table summarizes information about stock options outstanding at June 29, 2002:

Major Customers. During the year ended June 29, 2002, the Company had major customers with sales greater than 5% of total sales of which sales were approximately as follows:

Information regarding accounts receivable from these major customers at June 29, 2002 was approximately as follows:

The Company performs ongoing credit risk evaluations of its customers’ financial condition and generally does not require collateral. The Company’s significant customers are major, well-known businesses in the telephone equipment, entertainment systems, and appliance industries, generally in the United States. Credit losses have been provided for in the financial statements and are within the range of management’s expectations.

Cash Deposits. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash balances. At June 29, 2002, the Company’s uninsured balance was approximately $2,192,000.

The Company paid consulting fees of approximately $6,000 to a company owned by a member of the Board of Directors during the year ended June 29, 2002.

The Company sponsors a 401(k) Plan covering substantially all employees. The Plan provides for employer contributions based primarily on employee participation. The total contributions made to the Plan by the Company were approximately $94,000 for the year ended June 29, 2002.

(14) Event (Unaudited) Subsequent to the Date of the Independent Auditors’ Report

On January 22, 2003, White Electronic Designs Corporation (“White”) acquired the Company in exchange for $9.0 million in cash and 577,595 shares of White common stock as well as the issuance of 639,097 White options in exchange for all of the Company’s vested and unvested stock options and warrants outstanding as of the acquisition date.

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

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

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles. However, certain information or footnote disclosures have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the statements include all adjustments necessary (which are of a normal and recurring nature) for the fair presentation of the results of the interim periods presented. These financial statements should be read in connection with the Company’s audited financial statements for the year ended June 29, 2002, included elsewhere in this document.

Inventories consisted of the following at December 28, 2002 (in thousands of dollars):

On January 22, 2003, White Electronic Designs Corporation (“White”) completed the acquisition of Interface Data Systems, Inc. (“IDS”) in exchange for $9.0 million in cash and 577,595 shares of White common stock as well as the issuance of 639,097 White options in exchange for all of IDS’ vested and unvested stock options and warrants outstanding as of the acquisition date.

The accompanying unaudited pro forma combined statements of income for the year ended September 28, 2002 and for the six months ended March 29, 2003 give effect to that acquisition as if it had occurred as of October 1, 2001. The unaudited pro forma combined financial information is included only for purposes of illustration, and it does not necessarily indicate what the financial condition or operating results would have been if the acquisition of IDS by White had been completed on the dates indicated.

White accounted for the acquisition of IDS as a purchase business combination. The pro forma allocation of the purchase price to the acquired assets and liabilities is based on management’s preliminary estimates of the respective fair values and is subject to completion.

The unaudited pro forma combined financial information should be read in conjunction with the notes to the unaudited pro forma combined financial information, White’s audited and unaudited historical consolidated financial statements included elsewhere in this prospectus, and the audited and unaudited historical financial statements of IDS included elsewhere in this prospectus.

White’s fiscal year ends the Saturday closest to September 30th (September 28, 2002) while IDS’ fiscal year ends the Saturday closest to June 30th (June 29, 2002). Consistent reporting periods have been used for purposes of preparing the accompanying unaudited pro forma financial information.

The accompanying notes are an integral part of these unaudited pro forma combined financial statements.


	(a)	Represents a reduction in the depreciation of IDS property, plant and equipment based on the fair value adjustments of such assets, as well as the impact relating to revisions of the remaining useful lives of such assets.

	(b)	Represents expense relating to amortization of unearned compensation attributable to unvested IDS’ options assumed at the date of the acquisition.

	(c)	Represents the effect of adjustments increasing amortization of identifiable intangible assets based on the adjustment of such assets to fair value as discussed in the Notes.

	(d)	Represents the aggregate pro forma income tax effect of the adjustments summarized at (a) through (c) above.

	(e)	Pro forma net income per common share — basic has been adjusted to reflect the issuance of 577,595 shares of White common stock in exchange for the outstanding shares of IDS common stock. Pro forma net income per common share — diluted is similar to pro forma net income per share — basic, except that the denominator has been increased to include the number of additional common shares that would have been outstanding if the stock options issued in exchange for IDS options and warrants had been exercised.





	Per Share		Total


Public Offering Price	$	10.00	$	45,000,000
Underwriting Discounts	$	0.60	$	2,700,000
Proceeds, before expenses, to White Electronic Designs Corporation	$	9.40	$	20,680,000
Proceeds, before expenses, to the selling shareholders	$	9.40	$	21,620,000


Common stock offered by the Company		2,200,000 shares

Common stock offered by the selling shareholders		2,300,000 shares

Common stock to be outstanding after the offering		23,184,066 shares

Use of proceeds		To repay indebtedness incurred in connection with the acquisition of Interface Data Systems and for potential future acquisitions and general corporate purposes.

Nasdaq National Market Symbol		WEDC



		Fiscal Year Ended						Six Months Ended

		September 30,		September 29,		September 28,		March 30,		March 29,
		2000		2001⁽¹⁾⁽²⁾		2002		2002		2003⁽³⁾⁽⁴⁾

Statement of Income Data:
Net sales		$	87,595	$	96,761	$	90,458	$	43,520	$	52,242
Gross profit			31,171		26,401		28,900		13,684		17,989
Income before income taxes			10,687		4,253		9,128		3,873		7,005
Net income		$	6,561	$	3,272	$	8,740	$	2,390	$	4,700
Net income per common share
	Basic	$	0.37	$	0.17	$	0.44	$	0.12	$	0.23
	Diluted	$	0.34	$	0.16	$	0.42	$	0.12	$	0.22
Weighted average number of common shares and equivalents
	Basic		17,544		19,231		19,815		19,671		20,341
	Diluted		19,540		20,528		20,922		20,780		21,600



	March 29, 2003

	Historical		As Adjusted

Balance Sheet Data:
Cash and cash equivalents	$	11,135	$	25,300
Working capital		36,502		51,067
Total assets		94,249		108,414
Current liabilities		17,799		17,399
Long-term debt		5,600		0
Total shareholders’ equity		68,923		89,088


		High		Low

Fiscal Year Ended September 29, 2001
	First Quarter	$	13.50	$	5.38
	Second Quarter		10.62		4.39
	Third Quarter		5.50		2.93
	Fourth Quarter		4.60		2.85
Fiscal Year Ended September 28, 2002
	First Quarter		7.45		3.18
	Second Quarter		8.50		5.60
	Third Quarter		7.90		5.70
	Fourth Quarter		8.85		6.30
Fiscal Year Ending September 27, 2003
	First Quarter		10.25		7.28
	Second Quarter		8.42		5.96
	Third Quarter		10.65		6.63
	Fourth Quarter (through July 1, 2003)		10.85		9.83


	Page

Prospectus Summary		1
Summary Consolidated Financial Data		3
Risk Factors		4
Special Note Regarding Forward Looking Statements		13
Use Of Proceeds		14
Price Range Of Common Stock		15
Dividend Policy		15
Capitalization		16
Selected Consolidated Financial Data		17
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations		19
Business		33
Management		43
Certain Relationships And Related Transactions		44
Principal And Selling Shareholders		45
Shares Eligible for Future Sale		47
Underwriting		48
Legal Matters		50
Experts		50
Where You Can Find More Information		50
Index to Consolidated Financial Statements		F-1



		As of March 29, 2003

		Actual			As Adjusted


		(In thousands)
Cash and cash equivalents		$	11,135		$	25,300

Long-term debt		$	5,600		$	—

Shareholders’ equity:
	Preferred stock, no par value; 1,000,000 shares authorized; no shares issued and outstanding, actual and as adjusted		—			—
	Common stock, $0.10 stated value; 60,130,560 shares authorized; 20,761,585 shares issued and outstanding, actual; 22,961,585 as adjusted⁽¹⁾		2,076			2,296
	Treasury stock, 44,442 shares, at cost		(4	)		(4	)
	Additional paid-in capital		62,745			82,690
	Retained earnings		4,407			4,407
	Accumulated other comprehensive loss		(255	)		(255	)
	Unearned compensation		(46	)		(46	)

	Total shareholders’ equity		68,923			89,088

	Total capitalization	$	74,523		$	89,088


	September 30,		October 2,		September 30,		September 29,		September 28,		March 29,
	1998		1999		2000		2001		2002		2003

Balance Sheet Data:
Cash and cash equivalents	$	2,756	$	305	$	1,857	$	5,032	$	12,097	$	11,135
Working capital		5,654		12,584		23,378		27,884		35,469		36,502
Total assets		18,382		38,771		54,996		57,228		68,366		94,249
Total debt		2,332		7,414		8,354		1,518		—		6,000
Total liabilities		9,080		18,569		23,373		13,448		13,596		25,326
Total shareholders’ equity		9,302		20,202		31,623		43,780		54,770		68,923



	Quarters Ended

	June 30,		Sept 29,			Dec 29,			Mar 30,			June 29,		Sept 28,			Dec 28,			Mar 29,
	2001		2001			2001			2002			2002		2002			2002			2003


	(in thousands)
Net sales	$	22,087	$	21,379		$	21,365		$	22,155		$	23,204	$	23,734		$	23,604		$	28,638
Cost of sales		14,886		14,638			14,557			15,279			15,855		15,868			15,171			19,081

Gross profit		7,201		6,741			6,808			6,876			7,349		7,866			8,433			9,557
Selling, general and administrative		3,463		3,942			3,433			3,490			3,693		3,323			3,993			4,119
Research and development		1,413		1,116			1,119			1,024			1,006		1,115			1,193			1,446
Interest (income)/expense, net		101		16			(7	)		(39	)		7		20			(65	)		1
Amortization of goodwill and intangible assets		394		392			393			398			399		398			21			277

Income before income taxes		1,830		1,275			1,870			2,003			2,244		3,011			3,291			3,714
Provision for income taxes		780		(355	)		807			676			843		(1,938	)		1,061			1,244

Net income	$	1,050	$	1,630		$	1,063		$	1,327		$	1,401	$	4,949		$	2,230		$	2,470



	Payments Due by Period as of March 29, 2003

	Total		1 year		2-3 years		4-5 years		After 5 years

Long-term debt	$	6,000	$	400	$	800	$	800	$	4,000
Capital lease obligations		81		12		50		19		—
Operating leases		6,517		877		2,592		2,332		716
Other long-term obligations		—		—		—		—		—

Total Contractual Cash Obligations	$	12,598	$	1,289	$	3,442	$	3,151	$	4,716



Product		Sample Application		Representative Customers


Military:
•	System module	•	Countermeasure suite of the F-16 Fighting Falcon	•	Northrop Grumman
•	Microprocessor and memory modules	•	Air-to-air missiles, such as the Sidewinder AIM-9X and AIM-120 AMRAAM	•	Raytheon
		•	Embedded computers used in the Apache Helicopter, Advanced Amphibious Assault Vehicle and the Abrams M1A2 Tank	•	Lockheed; General Dynamics
•	Advanced memory modules	•	Air-to-air missiles, such as the Sidewinder AIM-9X and AIM-120 AMRAAM	•	Raytheon
		•	Embedded computers used in the Comanche Helicopter, F-22 Raptor, Patriot PAC-3 Missile System	•	Kaiser; Raytheon; Rockwell Collins; Lockheed; Boeing
		•	Radar used in the F/A-18 Hornet	•	Raytheon
•	Anti-tamper semiconductor packaging (ATSP)	•	Secure communication radio	•	Classified prime contractors
		•	Precision guided munitions
Commercial:
•	Memory based multi-chip package	•	Telephone, data, and video communications	•	Calix
•	Advanced memory module	•	High-end servers for networking and ERP systems	•	Unisys
		•	Wireless CDMA base stations	•	Ericsson
•	Flash memory PC card	•	Linear Flash PCMCIA Cards	•	Computer Motion; Riverstone Networks; BreconRidge; Philips Medical; Siemens Transit


Microelectronics		Displays

Arrow Electronics		Ametek
BAE Systems		Delphi Display
Calix		Electrolux Home Products
Ineltek		Garmin
Jan Devices		General Electric
Lockheed		Honeywell
On Command		Manufacturers Services
Raytheon		Smiths Industries
Sanmina-SCI Systems		U.S. Department of Defense
Unisys		Whirlpool


Name	Age		Position(s)

Hamid R. Shokrgozar		43	President, Chief Executive Officer and Chairman of the Board
William J. Rodes		48	Chief Accounting Officer, Treasurer and Secretary
Dan V. Tarantine		50	Corporate Executive Vice President, Sales and Marketing
Norman T. Hall		49	Director
Thomas M. Reahard		51	Director
Thomas J. Toy		48	Director
Edward A. White		75	Vice Chairman and Director



	Beneficial Ownership							Beneficial Ownership
	Prior to Offering⁽¹⁾							After Offering⁽¹⁾
						Number of							Options
	Number of					Shares		Number of					Exercisable
Beneficial Owners	Shares		Percent			Offered		Shares		Percent			Within 60 Days⁽²⁾

Directors and Executive Officers:
Norman T. Hall⁽³⁾		103,087		*			—		103,087		*			2,499
Thomas M. Reahard⁽⁴⁾		62,501		*			—		62,501		*			2,499
Hamid R. Shokrgozar⁽⁵⁾		679,791		3.2	%		—		679,791		2.9	%		22,916
Thomas J. Toy⁽⁶⁾		37,501		*			—		37,501		*			2,499
Edward A. White⁽⁷⁾		1,210,733		5.8	%		300,000		910,733		3.9	%		1,666
William J. Rodes⁽⁸⁾		43,498		*			—		43,498		*			2,498
Dan V. Tarantine⁽⁹⁾		106,499		*			—		106,499		*			3,124
Directors and executive officers as a group (7 persons)		2,243,610		10.7	%		300,000		1,943,610		8.4	%		37,701


	*	Less than 1% of the outstanding shares of our common stock.


	A.G. Edwards & Sons, Inc.


	Raymond James


		Number of
Underwriter		Shares

Needham & Company, Inc.			2,250,000
A.G. Edwards & Sons, Inc.			1,125,000
Raymond James & Associates, Inc.			1,125,000

	Total		4,500,000


	Total Per		Total No		Total Full
	Share		Exercise		Exercise

Paid by WEDC	$	0.60	$	1,320,000	$	1,441,724
Paid by the selling shareholders	$	0.60	$	1,380,000	$	1,663,276


WHITE ELECTRONIC DESIGNS CORPORATION
Fiscal Years Ended September 28, 2002, September 29, 2001, and September 30, 2000
	Report of Independent Accountants	F-2
	Consolidated Balance Sheet	F-3
	Consolidated Statement of Income	F-4
	Consolidated Statement of Shareholders’ Equity	F-5
	Consolidated Statement of Cash Flow	F-6
	Notes to Consolidated Financial Statements	F-7
Three and Six Months Ended March 29, 2003 and March 30, 2002 (unaudited)
	Condensed Consolidated Balance Sheet	F-27
	Consolidated Statement of Operations	F-28
	Condensed Consolidated Statement of Cash Flows	F-29
	Notes to Condensed Consolidated Financial Statements	F-30
INTERFACE DATA SYSTEMS, INC.
Fiscal Year Ended June 29, 2002
	Report of Independent Accountants	F-41
	Consolidated Balance Sheet	F-42
	Consolidated Statement of Income	F-43
	Consolidated Statement of Stockholders’ Equity	F-44
	Consolidated Statement of Cash Flows	F-45
	Notes to Consolidated Financial Statements	F-46
Six Months Ended December 28, 2002 (unaudited)
	Consolidated Balance Sheet	F-53
	Consolidated Statement of Income	F-54
	Consolidated Statement of Cash Flows	F-55
	Notes to Unaudited Consolidated Financial Information	F-56
PRO FORMA FINANCIAL INFORMATION
Fiscal Year Ended September 28, 2002
	Pro Forma Combined Statement of Income	F-58
Six Months Ended March 29, 2003
	Pro Forma Combined Statement of Income	F-59
	Notes to Pro Forma Combined Statement of Income	F-60



		Fiscal Year

		2000		2001			2002

Net sales		$	87,595	$	96,761		$	90,458
Cost of sales			56,424		70,360			61,558

Gross margin			31,171		26,401			28,900

Expenses:
	Selling, general and administrative		14,102		15,222			13,939
	Product development		5,014		5,302			4,264
	Interest expense		615		491			147
	Interest (income)		—		(11	)		(165	)
	Amortization of intangible assets		753		1,144			1,587

	Total expenses		20,484		22,148			19,772

Income before income taxes			10,687		4,253			9,128
Provision for income taxes			4,126		981			388

Net income		$	6,561	$	3,272		$	8,740

Net income per common share — basic		$	0.37	$	0.17		$	0.44
Net income per common share — diluted		$	0.34	$	0.16		$	0.42
Weighted average number of common shares and equivalents:
	Basic		17,544,136		19,230,781			19,815,162
	Diluted		19,539,501		20,528,337			20,922,434


																	Accumulated
	Common										Additional						Other			Total
	Stock		Common		Preferred			Treasury			Paid-in			Accumulated			Comprehensive			Shareholders’
	Shares		Stock		Stock			Stock			Capital			Deficit			Loss			Equity

Balance, October 2, 1999		15,919,524	$	1,591	$	120		$	(4	)	$	37,272		$	(18,777	)	$	—		$	20,202
Net income															6,561						6,561
Common stock issued for exercise of options		1,025,984		103								2,071									2,174
Tax benefit related to exercise of stock options												2,793									2,793
Payment of preferred dividend															(89	)					(89	)
Conversion of preferred stock to common stock		1,588,693		159		(120	)					(57	)								(18	)

Balance, September 30, 2000		18,534,201	$	1,853	$	—		$	(4	)	$	42,079		$	(12,305	)	$	—		$	31,623
Net income															3,272						3,272
Common stock issued for exercise of options		245,423		25								294									319
Tax benefit related to exercise of stock options												574									574
Common stock issued in acquisition of Panelview		814,500		81								7,911									7,992

Balance, September 29, 2001		19,594,124	$	1,959	$	—		$	(4	)	$	50,858		$	(9,033	)	$	—		$	43,780
Net income															8,740						8,740
Minimum pension liability, net of tax of $156,000																		(255	)		(255	)

Total comprehensive income																					8,485

Common stock issued for exercise of options		343,585		35								689									724
Tax benefit related to exercise of stock options												576									576
Common stock issued through employee stock purchase plan		43,646		4								185									190
Common stock held in escrow for Panelview and common stock issued for Panelview earnout		110,187		11								1,005									1,016

Balance, September 28, 2002		20,091,542	$	2,009	$	—		$	(4	)	$	53,313		$	(293	)	$	(255	)	$	54,770



			Year Ended

			September 30,			September 29,			September 28,
			2000			2001			2002

Operating Activities:
Net income			$	6,561		$	3,272		$	8,740
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization			2,486			2,966			3,814
	Deferred income tax (benefit) expense			119			(694	)		(2,286	)
	Tax benefit upon issuance of common stock for options			2,793			574			576
	Loss on sale of fixed asset			—			—			2
	Net changes in balance sheet accounts:
		Accounts receivable		(4,284	)		1,803			(896	)
		Inventories		(9,301	)		8,749			600
		Prepaid expenses		(1,398	)		1,248			19
		Other assets		17			34			13
		Accounts payable		4,135			(6,071	)		239
		Accrued expenses		(332	)		(151	)		2,289
		Other long-term liabilities		62			94			(646	)

Net cash provided by operating activities				858			11,824			12,464

Investing Activities:
Acquisition of property, plant & equipment				(2,313	)		(1,626	)		(4,798	)
Cash received in sale of fixed assets				—			24			3
Cash payments for acquisition, net of cash acquired				—			(531	)		—

Net cash (used in) investing activities				(2,313	)		(2,133	)		(4,795	)

Financing Activities:
Borrowings on line of credit				74,965			75,831			—
Repayments on line of credit				(73,488	)		(82,037	)		—
Borrowings of long-term debt				193			—			3,083
Retirement of long-term debt				(730	)		(628	)		(4,601	)
Issuance of common stock				2,174			319			914
Payment of preferred stock dividend				(89	)		—			—
Redemption of preferred stock				(18	)		—			—

Net cash provided by (used in) financing activities				3,007			(6,516	)		(604	)

Net change in cash				1,552			3,175			7,065
Cash at beginning of year				305			1,857			5,032

Cash at end of year			$	1,857		$	5,032		$	12,097

Supplemental Cash Flows Information:
Cash paid for interest			$	612		$	480		$	119
Cash paid for income taxes				18			1,262			2,277
Non-cash Investing and Financing Activities
Conversion of Preferred Stock				102			—			—
Details of acquisition
	Fair value of assets acquired			—			2,645			—
	Fair value of liabilities assumed			—			(2,162	)		—
Net assets acquired				—			483			—
Acquisition costs				—			142			—
Stock issued in connection with the merger				—			7,992			1,016


Purchase Price based on Stock & Acquisition Costs	$	9,150,268
Liabilities Assumed		2,161,632

Total Purchase Cost	$	11,311,900
Assets Received		2,644,611

Acquired Goodwill	$	8,667,289
Amortized Goodwill through September 28, 2002	$	2,151,244
Goodwill remaining as of September 28, 2002	$	6,516,045


	Fiscal Year Ending
	September 29, 2001

	(In thousands
	of dollars)
Revenues	$	99,871
Cost of sales		73,075

Gross margin		26,796
Operating expenses		23,491

Income before taxes		3,305
Provision for income taxes		783

Net income	$	2,522

Basic shares		19,502,010
Earnings per share — basic	$	0.13


	September 29, 2001		September 28, 2002

Raw materials	$	8,396,000	$	9,546,000
Work-in-process		6,402,000		5,215,000
Finished goods		1,909,000		1,348,000

Total inventories	$	16,707,000	$	16,109,000

Reserve for excess and obsolete inventories	$	5,084,000	$	4,876,000



		Fiscal Year Ended

		September 30, 2000		September 29, 2001		September 28, 2002


		($000s except for earnings per share amounts)
	Reported net income	$	6,561	$	3,272	$	8,740
	Add back goodwill amortization, net of taxes		178		723		1,323

	Adjusted net income	$	6,739	$	3,995	$	10,063

Basic earnings per share:
	Reported net income	$	0.37	$	0.17	$	0.44

	Goodwill amortization	$	0.01	$	0.04	$	0.07

	Adjusted net income	$	0.38	$	0.21	$	0.51

Diluted earnings per share:
	Reported net income	$	0.34	$	0.16	$	0.42

	Goodwill amortization	$	0.01	$	0.04	$	0.06

	Adjusted net income	$	0.35	$	0.20	$	0.48


	September 29, 2001			September 29, 2002

Land	$	246,000		$	246,000
Buildings and improvements		611,000			634,000
Machinery and equipment		7,784,000			11,527,000
Tooling		1,487,000			1,487,000
Furniture and fixtures		1,807,000			2,259,000
Leasehold improvements		1,979,000			2,121,000

Total, at cost		13,914,000			18,274,000
Less accumulated depreciation and amortization		(6,000,000	)		(7,793,000	)

Net property, plant, and equipment	$	7,914,000		$	10,481,000



	Year Ending

	September 29, 2001		September 28, 2002

Sales commission	$	699,535	$	648,473
Panelview purchase liability		888,031		—
Income taxes		420,824		1,392,053
Warranty reserve		156,071		798,299
Other accruals		745,656		1,003,447

Total other accrued expenses	$	2,910,117	$	3,842,272


	September 29, 2001			September 28, 2002

Term loan, Bank One	$	1,518,000		$	—
Bank One revolving line of credit		—			—

Sub-total		1,518,000			—
Less Current portion		(628,000	)		—

Total long-term debt	$	890,000		$	—


Fiscal Year	Bank One Loan

2003	$	—
2004		—
2005		—
2006		—
2007		—

5 year total	$	—


			September 29, 2001			September 28, 2002

Current:
	Allowance for doubtful accounts		$	212,000		$	202,000
	Inventories			2,638,000			3,081,000
	Plant, property, and equipment			—			—
	Deferred revenue			26,000			73,000
	Accrued expenses and other liabilities			390,000			157,000
	Net operating loss carry forwards			482,000			482,000
	Deferred tax asset valuation allowance			(1,007,000	)		—

		Subtotal	$	2,741,000		$	3,995,000


			September 29, 2001			September 28, 2002

Long term:
	Property, plant, and equipment		$	(749,000	)	$	(639,000	)
	Intangible assets			(157,000	)		(43,000	)
	Net operating loss carry forwards			3,629,000			2,694,000
	Tax credits			—			504,000
	Other			(79,000	)		606,000
	Deferred tax asset valuation allowance			(710,000	)		—

		Subtotal	$	1,934,000		$	3,122,000

Total			$	4,675,000		$	7,117,000


					(Charged)				Balance
		Balance at			Credited to		Charged to		at
		Beginning of			Income Tax		Other	Deductions/	End of
Description		Period			Expense		Accounts	Writeoffs	Period


		(In thousands of dollars)
Deferred Tax Asset Valuation Allowance:
	Year ended September 30, 2000	$	(1,717	)					$	(1,717	)
	Year ended September 29, 2001	$	(1,717	)					$	(1,717	)
	Year ended September 28, 2002	$	(1,717	)	$	1,717			$	—


				Weighted		Weighted				Weighted
		Shares		Average		Average				Average
		Under		Exercise		Remaining		Exercisable		Exercise
		Option		Price		Contractual Life		Shares		Price

Range of exercise price:
	$0.0000 - $1.6000		525,415	$	0.90		5.0		504,818	$	0.89
	$1.6001 - $3.2000		842,100	$	2.56		5.2		724,739	$	2.53
	$3.2001 - $4.8000		820,234	$	3.82		8.6		267,401	$	3.83
	$4.8001 - $6.4000		119,000	$	6.24		9.5		—	$	—
	$6.4001 - $8.0000		199,200	$	7.23		8.1		95,139	$	7.22
	$8.0001 - $9.6000		—	$	—		—		—	$	—
	$9.6001 - $11.2000		162,083	$	10.60		8.0		77,096	$	10.60
	$11.2001 - $12.8000		—	$	—		—		—	$	—
	$12.8001 - $14.4000		—	$	—		—		—	$	—
	$14.4001 - $16.0000		10,000	$	16.00		7.9		5,000	$	16.00

			2,678,032	$	3.67		6.8		1,674,193	$	2.92



	Employee Stock									Employee Stock
	Option Plans									Purchase Plan

	2000			2001			2002			2000			2001			2002

Expected options term (years)		6.0			7.7			6.3			—			—			0.5
Risk free interest rate		5.7	%		4.08	%		4.75	%		0.0	%		0.00	%		2.00	%
Volatility		176	%		149	%		146	%		0	%		0	%		55	%
Dividends		0	%		0	%		0	%		0	%		0	%		0	%


	Income			Shares		Per share
	(Numerator)			(Denominator)		amount

Net Income	$	6,561,000
Less: preferred stock dividends	$	(89,000	)

Basic EPS
Income available to common stockholders	$	6,472,000			17,544,136	$	0.37

Earnings available to common stockholders	$	6,472,000
Effects of Dilutive Securities
Common stock equivalents					1,995,365

Dilutive EPS
Earnings available to common stockholders	$	6,561,000			19,539,501	$	0.34