SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                 --------------
                                    FORM 10-K

(Mark One)
                  X  Annual Report Pursuant to Section 13 or 15(d) of the
                 --- Securities Exchange Act of 1934 for the fiscal year ended
                     December 31, 1998

                                       or

                     Transition Report Pursuant to Section 13 or 15(d) of the
                 --- Securities and Exchange Act of 1934


Commission File No.  0-28322

                               Asahi/America, Inc.
             (Exact name of registrant as specified in its charter)


<TABLE>
<S>                                               <C>
        Massachusetts                                 04-2621836
(State or other Jurisdiction of                    (I.R.S. Employer
Incorporation or Organization)                    Identification No.)

   35 Green Street                                   02148-0005
   Malden, Massachusetts                             (Zip Code)
(Address of principal executive offices)
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                                 (781) 321-5409
              (Registrant's telephone number, including area code)

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

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

                        Common Stock (without par value)
                        --------------------------------
                                (Title of Class)

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

Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Registration S-K is not contained herein and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated in Part III of this Form 10K or any amendments to this
Form 10K. ____

The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant as of March 10, 199 , was $4,576163. As of
March 10, 1999, there were issued and outstanding 3,405,000 shares of the
Registrant's Common Stock, without par value.

--------------------------------------------------------------------------------
                       DOCUMENTS INCORPORATED BY REFERENCE

The information required in Part III, Items 10, 11, 12 and 13, hereof is
incorporated by reference to the specified portions of the Registrant's Proxy
statement, to be filed pursuant to Regulation 14A under the Securities Exchange
Act of 1934 with respect to the 1999 annual meeting of stockholders, which will
be filed with the Commission on or before April 30, 1999; and certain exhibits
to the Registrant's Form S-1 Registration Statement (File No. 333-2314), the
Registrant's Form 10K for the years ended December 31, 1996 and 1997 and the
Registrant's Form 10Q for the quarter ended September 30, 1997 are incorporated
by reference in response to Part IV, Item 14.

<PAGE>

                       Asahi/America, Inc. and Subsidiary

                                TABLE OF CONTENTS

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<CAPTION>
Securities and Exchange Commission
Item Numbers and Description           PART I                              Page
----------------------------                                               ----

<S>      <C>                                                                <C>
Item 1.  Business                                                            2

Item 2.  Properties                                                         12

Item 3.  Legal Proceedings                                                  12

Item 4.  Submission of Matters to a Vote of Security Holders                12

                                     PART II

Item 5.  Market for the Registrant's Common Equity
         and Related Stockholder Matters                                    13

Item 6.  Selected Financial Data                                            14

Item 7.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations                                15

Item 7a. Quantitative and Qualitative Disclosure About Market Risk          21

Item 8.  Financial Statements and Supplementary Data                        21

Item 9.  Changes in and Disagreements with Accountants
         on Accounting and Financial Disclosure                             21

                                    PART III

Item 10. Directors and Executive Officers of the Registrant                 21

Item 11. Executive Compensation                                             21

Item 12. Security Ownership of Certain Beneficial Owners
         and Management                                                     21

Item 13. Certain Relationships and Related Transactions                     21

                               PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports
         on Form 8-K                                                        21
</TABLE>

<PAGE>

Statements made or incorporated in this Form 10-K include a number of
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934 For this purpose, any statements contained herein that are
not statements of historical fact may be deemed to be forward-looking
statements, including references to future growth improved margins and new
markets. Forward-looking statements include, without limitation, statements
containing the words "anticipates," "believes," "expects," "intends,", "plans",
"future," and similar expressions, which express management's belief,
expectations or intentions regarding the Company's future performance. Factors
which may cause actual results to differ materially from those indicated by such
forward-looking statements include, among others: 1) the inability of the
Company to renegotiate its supply agreement with its principal supplier of
valves or to secure an alternative source of supply, 2) the non-acceptance of
prospective markets of thermoplastic products, 3) a decrease in the Company's
available funds under its existing credit facility due to the failure to
maintain required financial ratios, 4) the inability of the Company's subsidiary
to achieve full production as scheduled due to equipment delivery and/or
production issues, 5) adverse fluctuations in the exchange rate of the United
States dollar versus the Japanese yen and the United States dollar versus the
Austrian schilling, and 6) the unanticipated impact of the "Year 2000" problem.


                                     PART I

Item 1. BUSINESS

Introduction

     Asahi/America, Inc. ("AAI", together with its wholly owned subsidiaries,
the "Company") markets and sells thermoplastic valves, piping systems, flow
meter devices, filtration equipment and components manufactured by the Company
and others for use in a variety of environmentally sensitive and industrial
applications, including semiconductor manufacturing, chemical processing, waste
and water treatment processing and pharmaceutical manufacturing, as well as for
use in mining, aquarium and other industries. AAI, an ISO 9001 quality control
certified manufacturer, produces electric and pneumatic valve actuators and
controls, proprietary double containment thermoplastic piping systems, custom
fabricated fittings and other specialty products including thermoplastic flow
meter devices and filtration equipment. AAI offers a broad selection of
industrial thermoplastic valves in, and, based on data recorded by the Valve
Manufacturer's Association, believes it has one of the largest shares of, the
United States industrial thermoplastic valve market.

     In July, 1997, the Company established a wholly owned subsidiary, Quail
Piping Products, Inc. ("Quail"), to manufacture and market corrugated
polyethylene piping systems for use in water, sewer and drain applications and
polyethylene duct pipe for use in the telecommunications industry for the
housing of fiber optic duct cable. Quail's manufacturing facilities, which are
located in Magnolia, Arkansas and Kingman, Arizona, are being financed by
Arkansas State Industrial Revenue Bonds and County of Mohave, Arizona Industrial
Development Bonds, respectively, through GE Capital Public Finance, Inc.
("GECPF"). Limited production of corrugated pipe, in the Arkansas facility,
commenced in the Spring of 1998, with full production by November, 1998, while
full production of fiber optic cable duct in the Arizona facility commenced in
October 1998. Production of corrugated pipe is scheduled to begin in the second
quarter of 1999 at the Arizona facility. These new product lines increase the
manufacturing component of the Company's business, further diversify the
Company's product offerings and distribution base and positions the Company to
penetrate new markets providing additional opportunity to increase sales of the
Company's distributed products.

     AAI is the exclusive master distributor in the United States, Latin America
and the Caribbean for Asahi Yukizai Kogyo Co., LTD, official English translation
Asahi Organic Chemicals Industry Co., LTD ("AOC"), a Japanese company that the
Company believes to be one of the largest manufacturers of thermoplastic valves
in the world. AAI is also the exclusive master distributor in the United States
for Alois-Gruber GmbH (together with its United States subsidiary, "Agru"), an
Austrian manufacturer of thermoplastic pipe and fittings.

     AOC, Nichimen Corporation and its affiliate, Nichimen America Inc.
("Nichimen America"), collectively own approximately 28% of the Company.
Nichimen Corporation, one of the largest Japanese trading companies, and
Nichimen America, provide credit and import services to the Company in
connection with its purchases from AOC and others.

     As a master distributor for AOC since 1974 and for Agru since 1985, AAI has
developed a network of more than 300 United States and approximately 34 foreign
distributors, with 11 additional foreign non-employee sales representatives.
Initially developed as the distribution channel for the products purchased by
AAI from AOC and Agru, this extensive distribution network also supports
increasing sales of the higher margin products manufactured by the Company.

     End users of the Company's products often specify thermoplastic valves and
piping systems over metal because

                                       2

<PAGE>

thermoplastics resist corrosion and do not contaminate transported fluids or
gases. The Company's products combine the benefits associated with all plastic
valve and piping products, such as light weight, ease of installation, long life
and low installed cost, with the additional benefits of thermoplastic products,
such as resistance to damage from corrosion. The Company seeks to identify
industrial applications where the end users' requirements justify the use of
industrial thermoplastics. Examples include double containment
corrosion-resistant piping systems that meet EPA regulations, piping systems for
compressed air and gases, and high purity pipe and valves to assure contaminant
free processing of liquids. AAI sells its products to distributors who sell to
end users. Representative end users include Motorola, Waste Management
Technologies, Micron Technology, the Army Corps of Engineers, Browning Ferris
Industries, IBM, Schering-Plough, Estee Lauder, Rhone Poulenc and DuPont, none
of which individually represents a material portion of the Company's sales.
Quail sells direct to end user customers.

     AAI was originally founded to be the exclusive master distributor in the
United States, Latin America and the Caribbean for AOC. Since the early 1980s,
the Company has pursued a program to broaden its product lines and customer base
in order to sell higher margin products that are complementary to the valves
supplied by AOC. Highlights in the implementation of this program include the
following:

     The addition of thermoplastic pipe. In 1985, AAI became the exclusive
     master distributor in the United States of thermoplastic pipe manufactured
     by Agru, enabling AAI to supply all of the components for complete
     thermoplastic piping systems. With the development of its own engineering
     and manufacturing capabilities, AAI is able to provide custom designed
     piping systems.

     The development of new products. AAI has developed a number of new higher
     margin products, including the introduction in 1980 of the its first valve
     actuator and in 1986 of its patented double containment piping system,
     known as DuoPro. AAI now manufactures several different types of pneumatic
     and electric actuators in a variety of sizes, which permit a valve to be
     operated from a remote site or controlled according to a programmed set of
     instructions. AAI's DuoPro piping systems, including detection systems, are
     designed to allow for detection and containment of accidental discharge of
     hazardous or toxic material, meet EPA requirements for underground
     transport of hazardous liquids, and address customer concerns for worker
     safety and protection of the environment.

     The acquisition of complementary product lines. The Company has sought to
     expand its product offerings by acquiring product lines that are not
     available from its principal suppliers.

     o    In 1994, AAI acquired its PolyFlo product line of double containment
          pipe and fittings that are extruded or molded in a proprietary,
          patented one-step process. The PolyFlo product line, which is
          manufactured by the Company, is available in internal diameters up to
          6 inches and complements AAI's DuoPro line, which is available in
          larger diameters.

     o    AAI added a line of pressure relief valves in October 1995, when it
          acquired an exclusive perpetual license of the technology to
          manufacture the valves in thermoplastics.

     o    In February 1996, AAI added a line of industrial filters, which
          alleviate environmental concerns relating to cartridge, oil and other
          waste disposal, which it now manufactures and assembles in its Malden,
          MA facility.

     o    On May , 1997, AAI acquired the thermoplastic flow meter division and
          related assets of Universal Flow Monitors, Inc. and The Rosaen
          Company. The acquired product lines included the design, development,
          manufacture, marketing and servicing of a line of thermoplastic vortex
          flow sensor products known as the "Vortex Shedding Product Line" and a
          new line of vortex products using ultrasonic sensing technology. The
          production process for the 3/4 inch ultrasonic shedding flow meter has
          been completed and ultrasonic meters in other sizes are in the
          development stage. This division was integrated into the AAI's
          existing facility. The new product lines complement the AAI's existing
          business and diversify its total product offerings.

     The formation of new companies. In July, 1997 the Company established a
     wholly owned subsidiary, Quail Piping Products, Inc., to manufacture and
     market corrugated polyethylene piping systems for use in water, sewer and
     drain applications and polyethylene fiber optic duct pipe for use in the
     telecommunications industry for the housing of fiber optic lines.
     Currently, from its Arkansas plant, Quail is producing corrugated
     polyethylene pipe in up to 24 inches in diameter, with an additional line
     dedicated to fiber optic duct. Quail's Arizona operation is currently
     producing duct pipe and will have the ability to produce up to 48" diameter
     corrugated pipe during the first half of 1999.

     The expansion of its distribution network. The expansion of the Company's
     product lines enables the Company to increase sales to existing
     distributors, add distributors serving new markets and provide direct sale
     and service to end

                                       3

<PAGE>

     customers. In addition, the Company has initiated a number of programs to
     support its distributors, including the addition of an in-house engineering
     department to provide technical support, a variety of advertising and
     promotional programs, a reorganized sales department to better serve and
     identify new markets and customers, and the conducting of product education
     seminars. See "Business--Distribution and Marketing."

     In February 1996, AAI was awarded ISO 9001 status by the International
Organization for Standardization based in Geneva, Switzerland, which is the
principal international body for establishing guidelines for and certifying
adherence to a stringent set of quality control and assurance standards. The
award is significant in validating AAI's manufacturing standards and AAI
believes that this standard, which is recognized in at least 80 countries, is of
increasing importance in the selection of vendors of industrial products. AAI's
two principal suppliers, AOC and Agru, are also ISO 9001 certified.

Industry Overview

     According to industry sources, the estimated United States market in 1998
for industrial valves was approximately $3.1 billion, unchanged from 1997.
Industry sources estimate that, in 1999, the market for metal valves will remain
relatively unchanged, at $3.2 billion, while the Company estimates its market
for thermoplastic industrial valves is expected to grow by approximately 6% to
8%.

     Traditionally, industrial companies have used metal pipe and valves for the
transportation of fluids and gases. As industrial manufacturing processes have
grown more sophisticated and environmental concerns have increased, the
disadvantages of metal valves and piping systems, including weight,
susceptibility to corrosion, and labor intensive fabrication and installation,
have become more apparent. In many applications, metal pipe and valves will
interact with the surrounding environment or the transported liquid or gas,
which may result in corrosion of the piping system, leakage, or contamination of
the transported liquid or gas.

     Advances in thermoplastic technology have made possible the manufacture of
thermoplastic valves and piping systems with the strength and temperature
resistance required for many industrial applications. Thermoplastic piping
systems can be used in applications involving pressures up to 230 pounds per
square inch and temperatures up to 300 degrees F and can provide superior
performance to metal systems in many applications. These applications include:

     Where the environment is corrosive or corrosive materials are being
     transported. The chemical processing industry was an early adopter of
     thermoplastic valves and pipe because chemical companies frequently
     transport corrosive fluids and gases which can degrade metal systems. In
     certain of these applications, thermoplastic systems require less frequent
     replacement than metal systems, which can result in a lower lifetime cost
     for a thermoplastic system.

     Where the potential for damage to the environment is a consideration.
     Federal, state and local environmental authorities are mandating that
     companies which handle toxic fluids take steps to prevent leakage into the
     environment. All owners of underground storage tanks are required to be in
     compliance with the EPA's requirements regarding leak containment. Owners
     may comply with these requirements by using piping systems which are either
     made of corrosion resistant material, such as plastic, or are treated with
     corrosion resistant coating. Furthermore, the EPA is mandating the use of
     double containment systems, such as the Company's Duo Pro and PolyFlo
     products, a "pipe-within-a-pipe architecture,, to reduce the likelihood of
     leakage and to detect leaks.

     Where the purity of the transported liquid or gas is a concern. In the
     semiconductor industry, manufacturers require thermoplastic piping systems
     for the transport of ultrapure water for washing computer chips. Likewise,
     pharmaceutical and biotechnology manufacturers employ high purity plastic
     piping systems to reduce the risk of contamination.

     Where installation costs are a significant factor in the total system cost.
     Because of the lighter weight of the components and the relatively easier
     installation, thermoplastic piping systems often can be installed more
     quickly than metal systems and without the use of heavy equipment that is
     often required to install comparable metal piping systems. Eliminating the
     need for heavy equipment and extensive labor can result in a lower
     installed cost for plastic systems than for comparable metal systems.

     Management believes that thermoplastic products will continue to increase
their share of the total market for industrial valves and piping systems. In
management's view, a number of factors drive this increase, including continued
improvement in thermoplastics technology, enforcement of environmental
regulations, more widespread recognition of the benefits of thermoplastic, and
increased familiarity with the skills required to install thermoplastic piping
systems.

                                       4

<PAGE>

Company Strategy

     Through its alliances with AOC and Agru, through its formation of Quail and
its additions of high quality manufactured product offerings, the Company
believes it has established itself as a market leader in thermoplastic
industrial valves and piping systems, as evidenced by the breadth of its product
line, industry recognition of its brand names, and the scope of its distribution
network. The Company's strategy is to:

     Provide a thermoplastic alternative to metal valves and piping systems. The
     Company considers its primary competitors to be the suppliers of
     traditional metal products. The Company believes that a substantial
     opportunity exists for suppliers of thermoplastic products to gain a larger
     share of the total industrial market for valves, pipe and related system
     components.

     Develop and market products manufactured by the Company. As a master
     distributor for AOC and Agru, AAI believes it offers a broader line of
     thermoplastic valves and pipe than any of its competitors. The Company
     seeks to leverage its valve and pipe sales by offering complementary higher
     margin products manufactured by the Company. These products include valve
     actuators and controls, double containment piping systems, custom fittings
     and other specialty products including thermoplastic flow meter devices and
     filtration equipment. Additionally, with the start up of Quail, the Company
     has positioned itself to enter new markets with its manufactured corrugated
     polyethylene piping systems and fiber optic cable duct, while providing
     additional opportunity to increase sales of AAI's distributed products.
     Sales of products manufactured by the Company increased by 29.5% from 1997
     to 1998, with sales of manufactured products have increased by over 106%
     from 1993 to 1998, from approximately $7.6 million (29.7% of total sales)
     to $15.7 million (41.8% of total sales). Total Company sales in 1998 to
     AAI's core markets were deeply affected by the instability of foreign
     markets and the rapid changes that occur within the technological sector,
     particularly semiconductor. This has caused an overall hesitation, cutback
     and decline in infrastructure expansion within the United States and
     foreign markets and has caused a general slowdown in daily recurring
     business. Despite this economic slowdown with AAI's core markets, the
     addition of Quail and its manufacturing processes, has enabled the Company
     to reposition itself to expand its higher margin manufacturing offering and
     achieve growth in other key vertical markets while working aggressively to
     expand into new markets and into new areas of opportunity. See
     "Management's Discussion and Analysis of Financial Condition and Results of
     Operations".

     Identify and serve markets in diverse industries. The Company seeks to
     continue to expand the market for its products and diversify its end user
     base by identifying new applications where the benefits of thermoplastics
     are superior to metal piping systems. In the early 1980s, virtually all of
     the Company's products were sold through distributors to end users in the
     chemical processing industry. In 1998, total Company sales spanned numerous
     key industrial manufacturing industries, including the semiconductor,
     telecommunication, pharmaceutical and chemical processing industries,
     federal and local governmental agencies (in connection with environmental
     clean up of government-owned sites and water treatment facilities), and
     aquarium, cruise line, mining, waste management and municipal highway
     construction sectors. By expanding the applications for its products, the
     Company seeks to increase revenues, to reduce its vulnerability to economic
     downturns specific to the industries in which its customers operate, and to
     benefit from diverse market developments, including the anticipated
     returned growth of the semiconductor manufacturing industry, increased
     compliance with the EPA's underground storage tank regulations, and
     continued business concern for the protection of the environment.

     Acquire complementary product lines. The thermoplastic valve and pipe
     industry is fragmented, and the Company believes there are opportunities to
     expand its product base through acquisitions of complementary businesses
     and product lines. The Company believes that its current network of more
     than 300 United States and approximately 34 foreign distributors can serve
     as a marketing channel for complementary products. In the last four years,
     the Company expanded its product offerings with the acquisition of the
     PolyFlo product line, the acquisition of a line of industrial filtration
     equipment, a license of the technology for the manufacture of pressure
     relief valves and the May 1997 acquisition of the vortex flow meter
     division. Additionally, in July, 1997, the Company established the wholly
     owned subsidiary, Quail Piping Products, Inc. to manufacture and market
     corrugated polyethylene piping systems and polyethylene fiber optic cable
     duct. Management continues to explore and seek potential opportunities,
     including mergers and acquisitions, joint ventures, licensing, and start-up
     ventures that would benefit from exposure to the Company's broad and
     established distribution network or widen the Company's existing
     distribution channels.

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Products

     AAI manufactures and sells thermoplastic valve actuators and controls,
custom fabricated valves, proprietary double containment piping systems,
industrial filtration equipment and thermoplastic flow meter devices, while
Quail manufactures corrugated polyethylene piping systems and polyethylene duct
pipe for fiber optic cable. Products marketed and sold by AAI include
thermoplastic valves and pipe supplied by AOC and Agru, respectively. In
addition, AAI rents and sells specialized welding equipment for use in the
installation of its piping systems. With its broad product base, the Company is
able to offer its end users "one stop shopping" to meet substantially all of
their requirements for thermoplastic industrial valves, pipe and piping systems.

     The following table sets forth information concerning the contribution to
total sales from the Company's principal classes of products (excluding sale and
rental of welding equipment):

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                                                                      Year ended December 31,
                                                                --------------------------------------
                                                             1996                 1997               1998
                                                             ----                 ----               ----
                                                                            ($ in thousands)
<S>                                                 <C>       <C>          <C>       <C>       <C>       <C>  
Distributed products, including valves, pipe
  and fittings...................................   $24,579   64.9%        $24,518   64.6%     $21,086   56.1%
Manufactured products, including actuators and
  controls, fabricated valves and piping systems,
  filtration equipment and plastic flow meters...   $11,374   30.0%        $12,141   32.0%     $15,728   41.8%
</TABLE>

     Valves. The valves supplied by the Company are injection molded from one of
four primary resins: Polyvinyl Chloride (PVC); Chlorinated Polyvinyl Chloride
(CPVC); Polypropylene (PP); and Polyvinylidene Flouride (PVDF). Product
selection is based on such criteria as chemical and temperature resistance,
pressure tolerance levels, purity, abrasion resistance and cost. Valves made
from PVC are the lowest in cost. They typically have good chemical resistance,
can withstand temperatures up to 140 degrees F, and are used extensively in
applications for chlorinated water, salt water, and relatively mild chemicals.
CPVC and PP valves can withstand more severe chemicals and tolerate temperatures
up to 200 degrees F and 180 degrees F, respectively. PVDF can be used in
applications with temperatures up to 250 degrees F. It is ideally suited for
halogens, strong acids, mild caustics and is the most commonly specified
material for the transport of distilled water and high purity chemicals in the
semiconductor industry.

     The Company markets seven basic valve designs: ball, butterfly, swing
check, gate, globe, ball check and diaphragm. Most valves are available in all
four of the primary resins with a variety of elastomeric sealing materials as
options. With the size range of each valve style and the various seat, seal and
stem materials available, there are a tremendous number of variations for each
valve style. For example, the Company offers over 2,000 butterfly valve
configurations. Each valve style addresses specific fluid flow requirements.
Criteria for selecting one model over another include time to open, the presence
of suspended solids in the transported fluid, the potential for bacterial
growth, and line size.

     Manual valves range in price from $5.50 for a sampling valve to over
$25,000 for a 24 inch PVDF butterfly valve. A typical valve will sell for $50 to
$100. The Company processes approximately 3,000 invoices per month, indicating a
broad-based demand.

     Actuators and controls. To meet the growing demands of industry for plant
automation, reduced labor costs and increased productivity, the Company has
developed electric and pneumatic actuators and controls for remote and
programmable operation and control of valves. The Company's actuators and
controls enable the end user to program or remotely adjust valves in response
to, or in order to achieve, specified temperature, pressure, and flow rate of
the transported substance, whether a liquid or gas. These products enable the
end user to actuate and control precisely the valves in a system in response to
process variables. Additionally, valve modifications are custom designed and
fabricated by the Company to meet customer requirements, including special
stems, locking devices, stem extensions, lugs, etc. The Company currently offers
six basic types of actuators and controls in a variety of sizes that are
adaptable to a broad spectrum of the valves that it distributes for AOC.
Actuation and special valve modifications can add from $150 to $1,000 to the
price of a manual valve, with a positive effect on the Company's gross margins.

     Pipe and piping systems. As the exclusive United States distributor for
Agru, the Company supplies a line of thermoplastic pipe and fittings. In
addition, the Company fabricates two types of double containment piping systems,
which

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are sold under the brand names DuoPro and PolyFlo. These double containment
"pipe-within-a-pipe" systems are designed to contain accidental ruptures and
leaks and may be equipped with detection systems that signal and locate a leak
in the system. These systems are designed to meet environmental regulatory
requirements for the transport of certain toxic and corrosive materials.

     The Company supplies thermoplastic piping systems made of PP, PVDF, HDPE
and Halar. PP systems are offered in sizes from 3/8 inch to 24 inches, with PVDF
and Halar offered in sizes from 1/2 inch through 12 inches. HDPE pipe and
fittings are specifically used for compressed air lines, and are sold under the
Company's trade name "Air-Pro". Typically, piping is sold as a system with the
end user purchasing all the pipe, fittings and valves from one source. Piping
system orders average $10,000 to $15,000, with several each year exceeding
$100,000.

     In 1986, the Company developed and patented its DuoPro double containment
piping system to meet requirements set forth by the EPA's Underground Storage
Tank Regulations. Pipe and fittings primarily supplied by Agru are fabricated
into systems as large as 18 inch diameter inner pipe by 24 inch diameter
containment pipe. An average DuoPro system sells for $25,000 to $50,000.

     With the acquisition of the PolyFlo product line in 1994, the Company's
double containment pipe line was expanded to include pipe which is extruded
using a patented one-step manufacturing process.

     Filters. Many fluid flow processes include the need for filtration of the
transported liquids, including chemical solutions, electroplating fluids and
water, both in process and waste. The Company's AF Series Filters include a
patented back-washing system that reduces waste and improves filtering
efficiency. The AF Series Filters are back-washed directly to waste or recycling
tanks, without operator contact, reducing the often costly waste disposal
process and the potential for dangerous contamination.

     Flow meters. With increased concern from the semiconductor industry over
fluid contamination in the transport of both high purity chemicals and
ultra-pure deionized water for the cleaning of computer chips, in May, 1997, the
Company expanded its product offerings with two new thermoplastic flow meter
devices. Traditional flow meters use moving paddle wheels to measure fluid flow.
These wheels are located in the fluid flow path and are a potential source of
contamination. Their replacement also means that the entire line must be shut
down, an expensive process for semiconductor chip manufacturers. The Company's
flow meter line uses vortex shedding technology. As fluid moves past fixed
structures within the flow path, vortices are formed and measured by
peizoelectric crystals located within those fixed structures. The deletion of
any moving parts within the flow path reduces the risk for contamination. The
Company's FloSonex vortex flow meter uses ultrasonic technology for measurement,
removing all electronics from the pipe's interior. This is an important feature
as it removes the electronics from influence of the heat of the measured fluids
and because flow meter sensor replacement can be accomplished without shutting
down the line.

     Corrugated polyethylene pipe. Thermoplastic pipe is specified over
traditional materials in many new and upgraded water and waste projects for
highways, landscaping, sewers, irrigation and for municipal water supply
systems. Older systems utilize either concrete or steel. As concrete cracks and
steel corrodes, there is a growing demand for corrosion-resistant plastic pipe.
As engineers and contractors begin to specify plastic pipe for new projects and
municipal codes change, the low installation cost and longer life benefits of
plastic piping systems become more broadly recognized. The first Quail
manufacturing facility, in Magnolia, Arkansas was completed in the Spring of
1998. After overcoming a number of production issues with the equipment, full
production was achieved in November 1998. The corrugated polyethylene piping
industry grows at an estimated 20% per year. Currently Quail has ability to
produce pipe in up to 24" diameter size in its Magnolia plant, with up to 48"
diameter size by late spring 1999 in its second manufacturing plant in Kingman,
Arizona. Demand for duct pipe should continue as these systems are installed,
utilizing the advantages of lower cost, lighter weight and longer life.

     Polyethylene duct pipe for fiber optic cable. Today, information
communication networks are being configured using Internet Protocol technology.
Internet and local/long distance telephone service providers are combining,
using this technology to allow for quicker response time and lower costs. Fiber
optic lines, housed in fiber optic cable duct, are allowing for this
communication. Quail is becoming a major supplier of fiber optic cable duct,
much in part to a 36 month supply agreement awarded to Quail during 1998. As
technology continues to adapt, newer advanced fiber optic lines will be required
to be installed. Demand for duct pipe should continue as these lines are
installed, utilizing the advantages of lower cost, longer life and continuous
3800' lengths of pipe. So as to meet production demands, Quail's second regional
manufacturing plant was purchased in Kingman, AZ in June 1998, with
manufacturing of duct pipe commencing in October,

                                       7

<PAGE>

1998, together with Arkansas's operations, all operating at capacity.

     Other sources of sales. The Company also rents and sells specialized
welding equipment for use in the installation of its piping systems. In 1998,
revenues from the rental and sale of such equipment totaled approximately
$765,000.

     During the past three years, the Company has invested in additional
manufacturing equipment and plant expansion for AAI's operations in Malden,
Massachusetts, Quail's operations in Magnolia, Arkansas and in Kingman, Arizona,
and in new product development, with the goal of increasing its production
capability and building a broader base of manufactured products. Recent products
have included two electric actuators, a mini pneumatic actuator, printed circuit
boards for more precise control of actuators, a fail safe battery pack, and a
patented stem support assembly for landfill applications. While the Company will
continue to develop new products and accessories and introduce new product
lines, the Company has not incurred a material amount of expense for research
and development during the past three fiscal years. In May 1997, the Company
acquired the vortex division of Universal Flow Monitors, Inc. The acquired
product lines include the design, development, manufacture, marketing and
servicing of a line of thermoplastic vortex flow sensor products known as the
"Vortex Shedding Product Line" and a new line of vortex products using
ultrasonic sensing technology. The production process for the 3/4 inch
ultrasonic shedding flow meter has been completed and ultrasonic meters in other
sizes are currently in the development stage. In connection with this
acquisition, the Company established a dedicated Research and Development
department. This department is focusing its efforts on finalizing the
development of a full range of sizes for ultrasonic flow meter, developing
continued product and purity enhancements of the vortex shedding product line
and working to develop digital communications between the Company's flow meters
and actuators with the customers computer systems.

Distribution and Marketing

     Domestic. Substantially all of AAI's sales in the United States are made
through an established network of more than 300 independent distributors, many
of whom have been distributors of AAI's products for 20 years. Approximately 125
are stocking distributors, which carry an inventory of AAI's products. One
distributor accounted for 23%, 32% and 26% of the Company's sales in 1996, 1997
and 1998, respectively. AAI's principal distributor estimates that it sold the
AAI's products to not fewer than 5,000 end users in both 1997 and 1998.

     AAI supports its distributors with fourteen Company-employed sales
representatives and one national sales manager. AAI also has an internal group
of six employees who provide customer service and support to AAI's customer
base. AAI's sales force works jointly with the its distributors and
independently to develop sales leads, which are referred to the distributors.
Additional sales and marketing support is provided by AAI's staff of eight
engineers and two field technicians, who are available to provide technical
information on the AAI's products, suggest solutions to customers' requirements
and assist in the design and installation of full piping systems. AAI also
promotes its products through trade shows, customer product seminars, and the
use of promotional materials, including full color product brochures,
advertising in trade journals, and other public relations activities.

     AAI has developed an extensive educational program for its distributors to
train them in the use and benefits of its products. This program includes
in-house and regional seminars, as well as one-on-one presentations by AAI's
sales representatives to individual distributors and their sales forces. AAI's
provides its distributors with extensive written materials relating to its
products and their applications.

     AAI does not have contracts with its distributors. None of AAI's
distributors carry AAI products exclusively. AAI believes that the use of
distributors, which generally specialize in pipe and valve products and focus on
specific industry or geographic markets and, accordingly, have specific
knowledge of and contacts in particular markets, enhance the scope of AAI's
marketing efforts and permits the AAI to penetrate a broader market without the
significant costs associated with a large direct sales force that would
otherwise be required.

     Quail supports its direct customers with three Company-employed sales
representatives together with an internal group of three employees who provide
customer service, product knowledge and support to the customer base. Quail also
promotes its products through trade shows and related association memberships,
and the use of promotional materials, including full color product brochures and
other public relations activities. Quail has a 36 month long supply agreement
with a telecommunications customer requiring the production of minimum
quantities of pipe on a monthly basis. Quail is currently meeting the production
requirements and believes its relationship with this customer to be good.

     Foreign. The Company has an established network of approximately 22 foreign
distributors, with 11 additional foreign

                                       8

<PAGE>

non-employee sales representatives. For fiscal years 1996, 1997 and 1998, the
Company had export sales of approximately $1.6 million, $2.7 million and $2.2
million, respectively, primarily to Latin America. All of the Company's export
sales are denominated in United States dollars.

End Users

     AAI sells substantially all of its products through distributors to a
diversified end user base. A common characteristic of end users is the need for
pipe, valves and related components to control, transport and contain corrosive
fluids, ultrapure liquids, environmentally harmful fluids or gases. No single
end user is responsible for a material portion of the Company's sales. Principal
industries, representative applications and representative end users for the
Company's products include:

<TABLE>
<CAPTION>
                                       Representative
        Industry                        Applications                  Representative End Users
        --------                        ------------                  ------------------------

<S>                            <C>                                <C>
Chemical processing            Transfer of corrosive and          Dow Chemical, DuPont, Rohm
                               environmentally hazardous          & Haas, P.P.G., Clorox, B.F. Goodrich,
                               chemicals                          and Kerr McGee

Semiconductor                  Transfer of deionized water,       IBM, Motorola, Texas Instruments,
manufacturing                  ultra pure chemicals and           Micron Technology, Advanced Micro
                               chemical waste                     Devices, National Semiconductor, IBM,
                                                                  Samsung Semiconductor, and Matsushita

Landfill                       Collection of methane gas          WMX Technologies, Laidlaw Waste
                               and  leachate                      Systems, Inc. and Browning Ferris Industries

Aquariums                      Automated circulation of salt      New Orleans, Monterey Bay, Tampa Bay,
                               water and life support systems     Albuquerque BioPark, Omaha, Long Beach
                                                                  National Aquarium, China Aquarium and
                                                                  Colorado Ocean Journey

Federal Facilities             Soil remediation and transfer of   Aberdeen Proving Grounds, Tinker
                               hazardous waste                    Air Force Base, Hill Air Force
                                                                  Base, Tooele Army Base, Fort
                                                                  Belvoir Defense Laboratory, Nevada
                                                                  Test Site and China Lake

Mining                         Transfer of sulfuric acid and      Kennecott Utah Copper, Corporacion
                               cyanide                            Nacional de Cobre de Chile
                                                                  (Codelco), Sociedad Contractual
                                                                  Minera El Abra, and Cypress Mines

Pharmaceutical                 Transfer of chemical waste         Schering-Plough, Eli Lilly, Abbott
                                                                  Labs, Merck and Bristol-Myers
                                                                  Squibb
</TABLE>

Suppliers

     AAI has exclusive distribution agreements in defined territories for
substantially all of the valves and fittings and certain of the pipe sold by the
Company. AAI has been the exclusive master distributor of a broad line of valves
and related accessories for AOC in the United States, Latin America and the
Caribbean since 1977, and is currently in the final year of a ten year agreement
with AOC, Nichimen Corporation and Nichimen America which runs through December
31, 1999. While the agreement is in force, AAI may not purchase competing
products from any other manufacturer. Under the agreement, AAI must use its best
efforts to market AOC's valves in its territory and has agreed to purchase at
least $140 million of products from AOC over the term of the agreement. There
are no minimum annual purchase requirements, but

                                       9

<PAGE>

there are annual guidelines attached to the contract. Through December 31, 1998,
the Company had purchased approximately $81.8 million of product from AOC, with
the purchases in the years ended December 31, 1996, 1997 and 1998 totaling
approximately $10.4 million, $9.7 million and $10.3 million respectively. Total
purchases through December 31, 1998, were approximately $37.6 million behind the
annual guidelines on a cumulative basis. No assurances can be given that AOC
will agree to renew its contract with the Company at the end of the current
term. AOC is a principal stockholder of the Company.

     AOC, which manufactures the valves it supplies to AAI at its plant in
Japan, warrants that its products are merchantable and free from defects in
material and workmanship, and indemnifies AAI against losses or claims arising
from the sale of the products. In the case of defective products, AOC agrees to
repair or replace the products. In addition, AOC must maintain a minimum of $3.0
million of product liability insurance that includes AAI as a named insured. AAI
may not distribute products produced by third parties that compete with the
products it purchases from AOC. Purchases by AAI are made under written purchase
orders. Once an order is accepted, it may not be canceled except by agreement of
the parties; AOC may not reject an order unreasonably or in bad faith. Either
party may terminate the agreement if the other party defaults and the default
continues for 30 days after notice or if the other party becomes subject to a
bankruptcy or insolvency proceeding.

     A large percentage of the pipe and fittings sold by AAI is supplied by Agru
under a five-year distribution agreement, which was amended and restated
effective as of January 1, 1995. Under the agreement, AAI has exclusive
distribution rights in the United States for certain products (PP, PVDF, and
Halar fittings and pipe, and PVDF welding equipment) and non-exclusive rights
for other products. AAI may not purchase products that compete with the
exclusive products unless Agru is unable to deliver products within four weeks
of order. Agru is obligated to repair or replace any defective product it
supplies. AAI is obligated to make minimum purchases from Agru each year, using
1994 total purchases of $3.1 million as a base. If purchases in any year decline
by 20% or more from the base, Agru may terminate the contract at the end of the
following year unless purchases in that year equal or exceed $3.1 million in
which case the contract continues in force. During the year ended December 31,
1998, total purchases from Agru totaled approximately $3.0 million. The
agreement is terminable in the event of serious breach which is not cured within
three months of notice, and in the event of the bankruptcy or insolvency of
either party. The agreement currently extends through December 31, 2004. Unless
either party gives notice of termination not less than 12 months prior to the
end of the terms, the contract automatically extends for five years.

     While there are other sources of supply for the products which AAI
purchases from AOC and Agru, AAI is not aware of other single sources of supply
that offer the variety and quality of products they produce. In addition,
several sources of supply have existing exclusive arrangements with other
companies that would preclude dealing with AAI. AAI's supply arrangements with
AOC and Agru are also subject to all of the usual risks of foreign trade. The
loss of either AOC or Agru as a supplier or the imposition of restrictions on
foreign trade would have a material adverse effect on the Company unless the
Company is successful in securing alternative supply arrangements.

Manufacturing and Distribution

     AAI has a technical support and engineering department of eight
professionals with an additional two professionals serving as field technicians,
who support the Company's sales and marketing activities and provide solutions
to special end user customer requirements, such as modifications of valves and
special piping system designs. The department has designed a number of actuators
and accessories that are sold in conjunction with AAI's valves. In addition, the
department assists end user customers in the design, engineering and
installation of complete valve and piping systems.

     At its Malden, Massachusetts facility, AAI manufactures and assembles a
variety of valve actuators, valve/actuator assemblies and accessories,
including, among others, industrial filtration equipment and thermoplastic flow
meter devices. AAI also operates a "clean room" for the fabrication and cleaning
of ultrapure water piping systems for the semiconductor and pharmaceutical
industries. In addition, AAI fabricates double containment piping systems and
assists the end user customer (or its mechanical contractor) with on-site
installation and testing. AAI rents and sells specialized welding equipment to
customers and contractors for this purpose. Additionally, in conjunction with
AAI's May, 1997 acquisition of the plastic flow meter division of Universal Flow
Monitors, Inc., AAI expanded its manufacturing capabilities to include the full
manufacturing, machining and testing of both the flow sensing and ultrasonic
flow meters. The Company's recently established wholly owned subsidiary, Quail
Piping Products, Inc. commenced production of corrugated polyethylene piping
systems and polyethylene fiber optic cable duct pipe in its Magnolia, Arkansas
manufacturing facility in the Spring of 1998. So as to enable an expedient
start-up of production for Quail's 36 month fiber optic duct pipe supply
agreement, the Company accelerated plans for establishing Quail's second
regional manufacturing site. As such, in June, 1998 the Company closed on the
purchase of a 55,000 square foot facility in Kingman, Arizona and commenced
production of duct pipe in October, 1998.

                                       10

<PAGE>

Quail's Arkansas plant is producing corrugated polyethylene pipe in up to 24
inches in diameter, with an additional line dedicated to fiber optic duct. The
Arizona operation is currently producing duct pipe and will have the ability to
produce up to 48" diameter corrugated pipe during the first half of 1999.

     On February 24, 1996, AAI was awarded ISO 9001 certification following a
fourteen month review process. The certification indicates that AAI's operations
meet the stringent standards for quality control and assurance established by
the International Organization for Standardization. ISO 9001 has been adopted to
date in more than 80 countries. It is anticipated that ISO certification will
increasingly become a prerequisite for doing business with many customers and in
many markets.

     AAI purchases and maintains an inventory of valves, pipe, fittings and
related fluid flow components and products, in anticipation of customer orders.
AAI has warehouse facilities at its principal offices in Malden, Massachusetts.
Because lead times for delivery from its principal suppliers are long, AAI
carries significant inventory in relation to sales in order to be able to meet
delivery requirements of its distributors and end user customers. Approximately
125 of the Company's distributors also stock inventory, principally valves and
valve accessories. Quail, which will maintain inventory of corrugated pipe, also
has adequate warehousing capacity at its Magnolia, Arkansas and Kingman, Arizona
facility.

Competition

     The industrial valve, pipe and fittings market is very fragmented, with
many manufacturers and suppliers. The Company estimates that there are more than
100 suppliers of metal valves and at least a dozen suppliers of thermoplastic
valves. There are also many suppliers of both metal and plastic pipe and
fittings. There is no single company that dominates the market for either
thermoplastic industrial valves or pipe. The Company believes that there are two
companies which have significant shares of both markets, and one additional
significant competitor in the valve market and three additional significant
competitors in the pipe market. Of its competitors, the Company is aware of only
one competitor that offers a comparable variety of thermoplastic valve and pipe
products as the Company. Many of the Company's competitors, especially
manufacturers of metal valves and pipe, have substantially greater financial,
marketing, personnel and other resources than the Company. A 1995 market study,
commissioned by the Company, indicated that the Company had one of the largest
shares of the United States market for industrial thermoplastic valves. With its
ability to provide complete fluid flow solutions to customers, the Company
believes that it continues to hold this market share.

     Suppliers of industrial valves, pipe and piping systems, whether metal or
plastic, compete primarily on the basis of price, performance and service to the
customer or end user. In applications requiring high performance of the valves
and pipe in terms of temperature, pressure and durability, the Company believes
that its products compete favorably in terms of performance, price and lifetime
cost with metal products available for the same applications. In certain
applications, alternative plastic products may be available at lower prices than
the Company's products. The Company believes, however, that many end users are
willing to pay higher prices for the Company's products in exchange for the
higher quality and service that the Company offers. The Company believes that
its competitive advantages include the breadth of its valve, actuator and pipe
product lines and its ability to supply complete piping systems, including
custom fabricated components, flow meter devices and industrial filtration
equipment. The Company believes that it has an advantage over other
manufacturers of valve actuation and piping products because of its ability to
offer "one stop shopping" to the end user.

Joint Venture

     In February 1990, AAI established a joint venture with Watts Industries,
Inc. ("Watts"), a United States manufacturer of metal valves, for the
development of an electric actuator to supply the partners' respective needs.
The two companies co-funded the tooling of the product, and AAI manufactures the
product for sale by AAI through its regular distribution network and for sale to
Watts, as OEM products, at a discounted price. The employees of both companies
executed confidentiality agreements to protect the confidential and proprietary
information possessed by each company and utilized in the development of the
actuator. All technology, information, material and data developed pursuant to
the joint venture as well as any trademarks, patents, copyrights or other
property interest that may result from the joint venture, is the joint and
several property of AAI and Watts. Development of the product was completed in
August 1992, and all manufacturing of the product line is done in AAI's plant.

Patents and Trademarks

     The Company exclusively owns six United States patents relating to its
double containment pipe assemblies, seven

                                       11

<PAGE>

United States patents relating to actuators and accessories used in conjunction
with plastic valves, as well as two corresponding Canadian patents and two
corresponding Canadian patent applications, and one United States patent
relating to the filter backwashing system. In conjunction with the May 1997
acquisition of the vortex flow meter division of Universal Flow Monitors, Inc.,
the Company acquired a United States patent and two United States patent
applications, which were subsequently issued into patents, relating to
ultrasonic vortex flow meters. Subsequently, the Company filed eleven patent
applications, in Europe, Japan, China, Taiwan and Korea. All of the United
States patents have been issued since December 1985, and extend at least until
2002. In addition, the Company owns 30 United States trademark applications and
seven pending trademark registrations. The trademark registrations, which are
renewable by their terms in the ordinary course of business, cover various
products offered for sale by the Company. The Company also owns copyright
registration for its catalogs and design guides, as well as for the printed
circuit boards it has developed for use in its valve actuators.

     All of the Company's intellectual property is owned or is held under a
perpetual license, is free and clear of restrictions of any nature and is not
subject to any license, sublicense, agreement or commitment with any third
party, other than a security interest to the Company's bank lender and the
non-exclusive license referred to hereinafter. The Company's intellectual
property rights are important to its business, and the Company intends to
enforce its intellectual property rights. However, the Company believes that
product quality and service are more important to the success of the Company.
Except as discussed below, the Company has not been engaged in any litigation
during the last six years in regard to its intellectual property rights.

     In July 1997, the United States Patent and Trademark Office reconfirmed the
validity of a patent owned by the Company (the "544 Patent"). In August 1997,
the Company instituted a patent infringement suit in the United States District
Court in New York (the "District Court") against MFRI, Inc. of Niles, Illinois,
and its associated companies, Perma-Pipe, Inc., Midwesco, Simtech, Inc. and Mr.
I. Wayne James, President of Simtech (and former employee of the
Company)(collectively, `MFRI"). In the fourth quarter of 1997 and first quarter
of 1998, the Company incurred approximately $400,000 and $132,000, respectively,
in legal expenses related to this patent issue. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Financial
Statements and Schedules". In February, 1999, the District Court ruled in favor
of the Company, rendering a decision of patent infringement against MFRI. The
case was referred to a Magistrate Judge for inquest hearing, scheduled for March
5, 1999, to direct a determination as to damages. In March, 1999, the Company
and MFRI reached an amicable settlement of this case. The settlement included
monetary consideration totaling $900,000, which was paid by MFRI to the Company
in March, 1999. Said monetary consideration included the advance payments of
royalties for the payment of a non-exclusive license, granted by the Company to
MFRI, under the 544 Patent.

Employees

     As of December 31, 1998, AAI had a work force of 130 people, of which 20
are executive and administrative personnel, 25 are engaged in sales and
marketing, 12 are engineering staff, 2 are research and development personnel
and 71 are engaged in manufacturing, assembling, fabricating and warehouse
operations. At December 31, 1998, Quail had a work force of 59 people, of which
7 are executive and administrative personnel, 5 are engaged in sales and
marketing and 47 are engaged in manufacturing operations. None of the Company's
employees are covered by a collective bargaining agreement. The Company believes
its labor relations to be good.

Item 2. PROPERTIES

     The Company's executive offices and AAI's manufacturing/warehouse facility,
comprised of approximately 94,000 square feet, is located in a modern facility
in Malden, Massachusetts. The Company considers its facility to be in good
operating condition and suitable for the purposes for which it is used.

     Quail conducts its manufacturing at two separate facilities. The first, a
18,400 square foot, 7.6 acre facility in Magnolia, Arkansas, was purchased in
October, 1997 and required certain improvements to accommodate Quail's
manufacturing process. The facility is now in good operating condition and
suitable for the purpose for which it is to be used. The second, a 55,000 square
foot, 9 acre facility in Kingman, Arizona, was purchased in June, 1998. The
facility is in good operating condition and suitable for the purpose for which
it is to be used.

Item 3. LEGAL PROCEEDINGS

     The Company is a plaintiff in a patent infringement lawsuit. See "Business
- Patents and Trademarks".

                                       12

<PAGE>

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     The Company submitted no matter to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1998.

                                     PART II

Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS

The Common Stock of Asahi/America, Inc. is traded on the Nasdaq National Market
System under the symbol ASAM. The following table sets forth the range of high
and low selling prices for the Common Stock of the Company for the fiscal
periods indicated, as reported on the Nasdaq National Market System. This
information reflects inter-dealer prices, without retail mark-up, mark-down, or
commission and may not necessarily reflect actual transactions.


<TABLE>
<CAPTION>
Fiscal 1998                           High           Low
---------------------------------------------------------
<S>                                    <C>           <C> 
       First Quarter                   7.38          5.63

       Second Quarter                  9.00          5.63
       Third Quarter                   7.25          5.00

       Fourth Quarter                  6.00          2.63
</TABLE>


On March 10, 1999, there were 145 record holders of the Company's Common Stock.
The Company believes the actual number of beneficial owners of the Common Stock
is greater than the stated number of holders of record because a large number of
shares of the Company's Common Stock is held in custodial or nominee accounts
for the benefit of persons other than the record holder.

The Company has never paid a dividend on its Common Stock and currently intends
to retain immediate future earnings to fund the growth of the business. In
subsequent periods, if the Company has funds legally available for the payment
of dividends, the Board of Directors intends to consider the payment of
dividends. The payment of dividends is within the discretion of the Board of
Directors and will depend upon the Company's earnings, its capital requirements
and financial condition, and other relevant factors.

                                       13

<PAGE>

Item 6. SELECTED CONSOLIDATED FINANCIAL DATA

     The selected consolidated financial data set forth below has been derived
from the consolidated financial statements of the Company audited by Arthur
Andersen LLP, independent public accountants, and their report is included
elsewhere herein. The selected consolidated financial data set forth below
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations.


<TABLE>
<CAPTION>
                                                                   Year ended December 31,
                                                       ---------------------------------------------------
                                                       1994        1995        1996        1997       1998
                                                       ----        ----        ----        ----       ----
                                                        (In thousands, except per share data)
<S>                                                  <C>         <C>         <C>         <C>         <C>     
Statements of Operations Data:
Net sales .......................................    $ 28,518    $ 34,998    $ 37,894    $337,934    $ 37,578
Cost of goods sold ..............................      18,608      23,409      24,346      24,173      24,773
Foreign currency (gains) losses .................          47        (391)       (378)       (345)         53
                                                     --------    --------    --------    --------    --------
    Gross profit ................................       9,863      11,980      13,926      14,106      12,752

Operating Expenses:
   Research and development .....................          --          --          --         186         329
   Selling, general and administrative
     expenses ...................................       7,613       8,682       9,751      10,647      11,614
                                                     --------    --------    --------    --------    --------
 Total operating expenses .......................       7,613       8,682       9,751      10,833      11,943
Income from operations ..........................       2,250       3,298       4,175       3,273         809
Other income ....................................          --          --          --          --         225
Interest expense, net ...........................        (536)       (713)       (196)       (201)       (516)
                                                     --------    --------    --------    --------    --------

Income before provision for income taxes ........       1,714       2,585       3,979       3,072         518
Provision for  income taxes .....................         596       1,000       1,541       1,290         341
                                                     --------    --------    --------    --------    --------
Net income before cumulative effect of Change
in Accounting Principle .........................    $  1,118    $  1,585    $  2,438    $  1,782    $    177
                                                     ========    ========    ========    ========    ======== 

Cumulative effect of Change in Accounting
Principle, net of benefit for income taxes of $138   $     --    $     --    $     --    $     --    $   (205)
                                                     ========    ========    ========    ========    ======== 

Net income ......................................    $  1,118    $  1,585    $  2,438    $  1,782    $    (28)
                                                     ========    ========    ========    ========    ======== 

Basic and diluted earnings  per share before
cumulative effect of Change in Accounting
Principle .......................................    $    .48    $    .68    $    .82    $    .53    $   0.05
                                                     ========    ========    ========    ========    ======== 

Basic and diluted (loss) per share effect of
cumulative effect of Change in Accounting
Principle .......................................    $     --    $     --    $     --    $     --    $  (0.06)
                                                     ========    ========    ========    ========    ======== 

Basic and diluted earnings (loss) per share .....    $    .48    $    .68    $    .82    $    .53    $  (0.01)
                                                     ========    ========    ========    ========    ======== 

Weighted average number of common
    shares outstanding ..........................       2,340       2,340       2,973       3,349       3,376

Weighted average number of  shares
     outstanding, assuming dilution .............       2,340       2,340       2,988       3,349       3,376
</TABLE>

                                       14

<PAGE>

<TABLE>
<CAPTION>
                                                             December 31,
                                            ---------------------------------------------
                                            1994      1995      1996      1997      1998
                                            ----      ----      ----      ----      -----
                                                           (In thousands)
<S>                                        <C>       <C>      <C>        <C>      <C>    
Balance Sheet Data:
Working capital........................    $2,116    $ 3,850  $ 9,043    $ 6,769  $ 8,310
Total assets...........................    21,308     22,452   28,443     32,049   48,224
Long-term liabilities..................     4,583      5,313    4,059      5,141   15,070
Total liabilities......................    15,479     15,018   12,239     13,448   29,464
Retained earnings (deficit)............    (1,160)       426    2,864      4,646    4,617
Stockholders' equity...................     5,829      7,434   16,204     18,601   18,760
</TABLE>


Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

Overview

The Company is a manufacturer and master distributor of thermoplastic valves,
piping systems, flow meter devices, filtration equipment and components
manufactured by the Company and others for use in a variety of environmentally
sensitive and industrial applications including semiconductor manufacturing,
chemical processing, waste and water treatment processing and pharmaceutical
manufacturing, as well as for use in mining, aquarium and other industries.
Manufactured products include valve actuators and controls, specialized valve
assemblies, double containment piping systems, thermoplastic flow meter devices
and filtration equipment. Distributed products consist principally of
thermoplastic valves, pipe and fittings which are purchased from two major
foreign suppliers under long term supply agreements. The Company also realizes
revenue for the rental and sale to contractors and end user customers of
specialized welding equipment that is used in connection with the installation
of the Company's piping systems.

The Company distributes its products through an extensive network of domestic
and foreign distributors which are supported by Company sales, marketing and
engineering personnel. Substantially all of the Company's purchases of valves
are made from its Japanese supplier and are transacted in Japanese yen. As a
result, the Company is exposed to fluctuations in foreign currency exchange
rates. The Company may use hedging procedures including foreign exchange forward
contracts and currency options in managing the fluctuations in foreign currency
exchange rates. The Company also purchases pipe and fittings from an Austrian
supplier. Since August 1995, purchases from the Company's Austrian supplier have
been denominated in United States dollars.

In July, 1997, the Company established a wholly owned subsidiary, Quail Piping
Products, Inc. ("Quail") to manufacture and market corrugated polyethylene
piping systems for use in water, sewer and drain applications and polyethylene
duct pipe for fiber optic cable for use by the telecommunications industry.
Quail's first manufacturing facility, for which limited production commenced in
the Spring of 1998, is located in Magnolia, Arkansas. In June 1998, the Company
and Quail closed on the purchase of a second manufacturing facility in Kingman,
Arizona, which commenced production in October, 1998. Limited production of
corrugated pipe in the Arkansas facility commenced in the Spring of 1998, with
full production by November, 1998, while full production of fiber optic cable
duct in the Arizona facility commenced in October 1998. Production of corrugated
pipe is scheduled to begin in the second quarter of 1999 at the Arizona
facility. These new product lines increase the manufacturing component of the
Company's business, further diversify the Company's product offerings and
distribution base and positions the Company to penetrate new markets providing
additional opportunity to increase sales of the Company's distributed products.

                                       15

<PAGE>



Results of  Operations

The following table sets forth, for the periods indicated, the Company's net
sales as well as certain income and expense items, expressed as a percentage of
sales:

<TABLE>
<CAPTION>
                             Year Ended December 31,
                                                          1996          1997          1998
                                                          ----          ----          ----
<S>                                                      <C>            <C>           <C>   
Net sales                                                100.0%        100.0%        100.0%
Cost of goods sold                                        63.3          62.8          66.1
                                                         -----         -----         -----
     Gross Profit                                         36.7          37.2          33.9
Research and development expenses                           --           0.5           0.8
Selling, general and administrative expenses              25.7          28.1          30.9
                                                         -----         -----         -----
     Income from operations                               11.0           8.6           2.2
Interest and other expense, net                            0.5           0.5           0.8
                                                         -----         -----         -----
Income before provision for income taxes                  10.5           8.1           1.4
Provision for income taxes                                 4.1           3.4           0.9
                                                         -----         -----         -----
Net Income before cumulative effect of
   change in accounting principle                          6.4           4.7           0.5
Cumulative effect of change in accounting
   principle, net of benefit for income taxes               --            --          (0.5)
                                                         -----         -----         -----
Net income                                                  6.4           4.7           0.0
</TABLE>

Years Ended December 31, 1998 and December 31, 1997

Net sales for the year ended December 31, 1998 were $37.6 million, relatively
unchanged from 1997. Sales of manufactured products increased 30% in 1998 as
compared to 1997 due primarily to the commencement of sales from Quail, coupled
with increased sales of actuation and filtration products and a full year's
sales of the vortex flow meter product line, offsetting the decline in sales of
dual containment pipe products and welding equipment revenues. Quail experienced
its first full quarter, in Q'4 1998, of production with sales of its fiber optic
cable duct pipe, from both its Arkansas and Arizona plants, coupled with limited
sales volume of its corrugated polyethylene pipe. Sales of corrugated
polyethylene pipe were below the Company's anticipated levels for the year, due
to delays in the shipping of the related equipment and certain performance
issues experienced with the set-up and start-up of the equipment. The Company
and the equipment manufacturer have resolved the manufacturing issues, and
currently the equipment is working at a level acceptable to the Company.
Distributed product sales decreased by 14% in 1998 as compared to 1997 due
mainly to a general decline in demand for such products as a result of the broad
weaknesses across the industrial manufacturing marketplace due in part to the
instability of foreign markets and the rapid changes that occur within the
technological sector, particularly the semiconductor industry. This has caused
an overall hesitation, cutback and decline in infrastructure expansion within
the United States and foreign markets and has caused a general slowdown in daily
recurring business.

Gross profit as a percentage of sales (gross margin) for the year ended December
31, 1998 was 33.9% as compared to 37.2% for the year ended December 31, 1997.
The approximate 3.3% decline in gross margin is primarily attributable to the
prolonged start-up, including labor and material costs for testing and
correcting equipment issues, associated with Quail's Magnolia, Arkansas location
and the expenses incurred therein. Also, continued aggressive pricing to
maintain and increase sales volume for the Company's products, the lack of
economies of scale within the production process due to lower than expected
sales volume, a price increase implemented by the Company's Japanese supplier on
the Company's purchase of valves and an approximate 14% downward turn in the
value of the U.S. dollar as compared to the Japanese yen throughout the fourth
quarter of 1998, all contributed to the decline in gross margin. The 1998 gross
profit included foreign currency losses of $53,000, (0.1%) of sales, while the
1997 gross profit included foreign currency gains of $345,000, 0.9% of sales.

Selling, general and administrative expenses were $11.6 million for the year
ended December 31, 1998 as compared to $10.6 million in 1997. Selling, general
and administrative expenses as a percentage of net sales were 30.9% in 1998 as
compared to 28.1% in 1997. Included in selling, general and

                                       16

<PAGE>

administrative expenses for 1998 were approximately $1.1 million of expenses
related to the start-up, administration and initial sales and marketing process
of Quail's Arkansas and Arizona facilities, and approximately $132,000 related
to the Company's patent infringement lawsuit. Included in selling, general and
administrative expenses for 1997 are approximately $400,000 of legal expenses
incurred by the Company related to a patent infringement lawsuit. The final
decision from the December 1997 patent infringement lawsuit was made in
February, 1999. The New York District Court ruled in favor of the Company,
rendering a decision of patent infringement against MFRI, Inc. The case was
referred to a Magistrate Judge for inquest hearing, scheduled for March 5, 1999,
to direct a determination as to damages. In March, 1999, the Company and MFRI
reached an amicable settlement of this case. The settlement included monetary
consideration totaling $900,000, which was paid by MFRI to the Company in March,
1999. Said monetary consideration included the advance payments of royalties for
the payment of a non-exclusive license, granted by the Company to MFRI, under
the 544 Patent. Selling, general and administrative expenses, excluding the
above mentioned charges increased by approximately $87,000 in 1998 as compared
to the 1997 period. The increase is reflective of increased amortization
expenses as a result of the Company's May 1997 acquisition of the plastic flow
meter division, increased commission expenses related to flow meter sales and to
the attainment of other recurring and project related business, coupled with an
overall increase in sales related travel and entertainment expenses. These
increases offset certain reductions, made by the Company, to reduce overall
overhead and labor expenses in 1998, which will carry over into 1999.

In connection with the Company's May, 1997 acquisition of the flow meter
division of Universal Flow Monitors, Inc., the Company established a dedicated
Research and Development department. This department initially focused its
efforts on finalizing the development of a full range of sizes for ultrasonic
flow meters, developing continued product and purity enhancements of the vortex
shedding product line and working to develop digital communications between the
Company's flow meters and actuators with customer's computer systems. Research
and development expenses were $329,000 in 1998 as compared to $186,000 in 1997.
This increase is a result of a full year of expense in 1998.

Included in other income for the year ended December 31, 1998 is a gain of
$225,000 received as a result of a settlement related to performance issues,
received from the manufacturer of Quail's corrugated pipe manufacturing
equipment. The settlement was in the form of credits to be taken on future
purchases.

Interest expense increased approximately $397,000 in 1998 as compared to 1997
due primarily to interest expense incurred in 1998 on the Arkansas and Arizona
Industrial Development Bonds, financed through GECPF, for the purchase of the
facilities and manufacturing equipment for Quail's operations. Interest expense
was further increased by additional borrowings on the Company's line of credit
to support Company operations and the start-up of Quail. Interest income
increased by approximately $82,000 in 1998 as compared to 1997. This increase is
primarily a result of the interest earned on the Company's restricted cash,
associated with the Industrial Development Bonds, being held in escrow for
equipment purchases related to Quail's facilities.

Years Ended December 31, 1997 and December 31, 1996

Net sales for the year ended December 31, 1997 were $37.9 million, relatively
unchanged from 1996. The Company experienced increases in sales from its
distributed valve and manufactured actuation products primarily as a result of
increased demand from and direct sales efforts to the chemical processing and
mining industries. Sales of distributed valves benefited from the favorable
movement of the US dollar against the Japanese yen. As a result of the favorable
movement of the US dollar, the Company has been able to be competitive with its
pricing of distributed valves, achieving growth in certain of its key vertical
markets and expanding into new markets as well. Sales for 1997 also benefited
from the May 1997 acquisition of the flow meter division of Universal Flow
Monitors, Inc. The Company integrated the new manufacturing process into its
Malden, Massachusetts facility according to plan and was able to achieve
positive results from its operation. Sales in 1997 were adversely affected by
decreased demand for the Company's high purity and manufactured dual containment
piping systems and the related decline in the sale and rental of welding
equipment, for which sales decreased significantly in 1997 as compared to 1996.
This decrease is directly attributable to the deferral of and the decrease in
the construction of new plants within the semiconductor industry, the Company's
largest vertical market in 1996. Sales to the semiconductor industry represented
approximately 31% of the Company's total sales in 1996 as compared to
approximately 16% in 1997.

During 1996, 1997 and 1998, export sales accounted for 4%, 7% and 6%,
respectively, of net sales. Sales to the Company's largest customer accounted
for 23%, 32% and 26%, in 1996, 1997 and 1998, respectively.

Gross profit as a percentage of sales (gross margin) for the year ended December
31, 1997 improved 0.5 percentage points, or 1.4%, to 37.2% from 36.7% in 1996,
due to the overall increase in the Company's sales of manufactured products
coupled with the lower average product costs for certain of the Company's
distributed products, associated with the continued

                                       17

<PAGE>

favorable movement of the US dollar against the Japanese yen. Sales generated
from the newly acquired flow meter division coupled with an increase in sales of
actuation products and filtration equipment offset the decline in sales of the
Company's dual containment piping systems, leading to the overall increase in
sales of manufactured product and contributing to the increase in gross margin.
Although the Company instituted a price increase on certain of its distributed
products in 1997, aggressive pricing to promote the sales of these items offset
the gross margin effects of the price increase. The 1997 gross profit included
foreign currency gains aggregating $345,000.

Selling, general and administrative expenses were $10.6 million for the year
ended December 31, 1997 as compared to $9.8 million in 1996. Selling, general
and administrative expenses as a percentage of net sales were 28.1% in 1997 as
compared to 25.7% in 1996. Included in selling, general and administrative
expenses for 1997 are approximately $400,000, or 1.0% of sales, of legal
expenses incurred by the Company related to a patent infringement lawsuit
whereby the Company is enforcing its US patent rights against a major
competitor. The above mentioned expenses reduced net income and both basic and
diluted earnings per share by approximately $226,000 or $.07, respectively, for
the year ended December 31, 1997. Additionally, selling, general and
administrative expenses increased in 1997 over 1996 due to increased
amortization expense as a result of the Company's May, 1997 acquisition, higher
operating costs to support the approximate 38,000 square foot expansion in
office, plant and warehouse capacity, increased payroll in support of
anticipated 1997 sales volumes and an increase in promotion and advertising
expenses to facilitate sales opportunities in new and existing markets.

In connection with the Company's May, 1997 acquisition of the flow meter
division of Universal Flow Monitors, Inc., the Company established a dedicated
Research and Development department. This department is initially focusing its
efforts on finalizing the development of a full range of sizes for ultrasonic
flow meter, developing continued product and purity enhancements of the vortex
shedding product line and working to develop digital communications between the
Company's flow meters and actuators with the customers computer systems.

Interest expense decreased $39,000, to $300,000, for the year ended December 31,
1997 due to lower average interest rates on borrowings on the Company's line of
credit in 1997 as compared to 1996 and due to decreases in interest on the
Company's Industrial Revenue Bonds and capital lease obligations.

Liquidity and Capital Resources

The Company has financed its operations through cash generated from operations,
the sale of equity securities, borrowings under lines of credit and Industrial
Revenue Bond financing. In addition, the Company has benefited from favorable
payment terms under a $8 million open account arrangement, for the purchase of
Japanese valve products, as to which the majority of its purchases are at
payment terms of 180 days after the bills of lading dates.

In June 1998, the Company and its bank amended its then existing line of credit
agreement and executed a loan agreement for an $11,000,000 secured, committed
revolving line of credit. This line of credit is secured by substantially all
assets of AAI and extends through January 31, 2000. Interest on this credit line
is based on the prime rate or LIBOR plus 1.55% to 2.30%. There is an unused fee
ranging from .15% to .25%, based on the performance levels of certain financial
ratios. The Company is required to maintain certain financial ratios, including,
among others, debt service, minimum working capital and tangible net worth. The
credit line is for working capital and merger and acquisition purposes. As of
December 31, 1998, there was $4,639,844 outstanding under the line of credit.
Subsequent to year-end, this loan agreement was retroactively amended. The
amended agreement provides for the maximum amount of borrowings, including
issued letters of credit, which may at any time be outstanding, be the lesser of
$11 million or the sum of 80% of qualified accounts receivable and 50% of
eligible inventory, as defined. The interest on borrowings is at the prime rate
plus 1%. The Company is required to maintain certain financial ratios,
including, among others, minimum working capital, debt service and tangible net
worth, as defined in the amended agreement. The Company was in compliance with
these covenants under the amended agreement as of December 31, 1998.

On May 1, 1997, the Company acquired the related assets of the plastic flow
meter division of Universal Flow Monitors, Inc. and The Rosaen Company
including, two product lines with related inventory, equipment, patents and
patent application rights. The total purchase price of $3.0 million was paid
with cash and through borrowings on the Company's revolving credit line. The
Company accounted for the acquisition as a purchase.

In July, 1997, the Company established a wholly-owned subsidiary, Quail Piping
Products, Inc. to manufacture and market corrugated polyethylene piping systems
for use in water, sewer and drainage applications and polyethylene fiber optic
duct

                                       18

<PAGE>

pipe for use in the telecommunications industry. Quail's first manufacturing
facility, for which limited production commenced in the Spring, 1998, is located
in Magnolia, Arkansas. The facility and manufacturing equipment are being
financed by Arkansas Industrial Revenue Bonds (the "Arkansas Bonds") totaling
$4.3 million. As of December 31, 1998, the Company had expended approximately
$4.2 million in connection with the purchase of the facility and equipment for
use in Quail's Arkansas operations. Payments on the bonds began in January 1998,
with equal monthly principal payments and extend until December 2007. The bonds
bear interest at 5.89%. In June 1998, for the purchase price of $1,139,844, the
Company and Quail purchased a second manufacturing facility in Kingman, Arizona,
commencing production of fiber optic cable duct in October, 1998, anticipating
to commence production of corrugated polyethylene piping in Q'2, 1999. Total
project costs for the Arkansas facility and equipment, which are estimated to be
$8 million, are being financed through the County of Mohave Industrial
Development Bonds (the "Arizona Bonds") which were finalized in August 1998.
These bonds, which total $8 million, bear interest at 5.65% and are payable in
equal monthly installment over 10 years, beginning in September, 1998. As of
December 31, 1998, the Company had expended approximately $5.2 million in
connection with the purchase of the facility and equipment for use in Quail's
Arizona operations. In accordance with both the Arkansas Bonds and the Arizona
Bonds (collectively, the "Bonds"), the Company is required to maintain certain
financial ratios, including, among others, minimum working capital, debt service
and tangible net worth, as defined. The Company was not in compliance with
certain of its financial covenants as of December 31, 1998. Subsequent to
year-end, the Company received a waiver for the noncompliance and the Bond
Agreements were amended, changing the covenant ratios for 1999 and thereafter.

At December 31, 1998 cash and cash equivalents were $1.1 million.

The Company used $675,000 of cash flow from operations during the year ended
December 31, 1998 as compared to $2.2 million of cash flow generated from
operations for the comparable 1997 period. The decrease is due to the
significantly lower net income level in the 1998 period as compared to the 1997
period coupled with higher working capital requirements in 1998 as compared to
1997. Accounts receivable at December 31, 1998 increased $1.9 million from
December 31, 1997, mainly due to the timing of the Company's sales and payments
between periods coupled with the first six months of production and sales from
Quail. Inventory at December 31, 1998, increased $2.0 million from December 31,
1997, primarily due to lower than expected sales levels for the Company and the
addition of Quail's production process and initial ramp up of inventory. From
December 31, 1996 to December 31, 1997, accounts receivable decreased $1.1
million and inventory increased $508,000. The accounts receivable decrease was a
result of concerted collection efforts and the timing of sales and collections
while the increase in inventory was mainly due to the timing of inventory
receipts, additional on-hand inventory as a result of the Company's May 1, 1997
acquisition of the plastic flow meter division and lower than expected fourth
quarter 1998 sales level. Furthermore, accounts payable and accrued expenses at
December 31, 1998 increased $1.7 million from December 31, 1997 as a result of
increased inventory levels and the addition of Quail.

The Company's industrial revenue bonds funded through the Massachusetts
Industrial Finance Agency (MIFA) are secured by a letter of credit issued by a
bank which is cross-collateralized and cross-defaulted with the Company's line
of credit, as amended. The bonds consist of six separate series each with
differing interest rates and maturities. Interest rates range from 4.2% to 5.1%
and are subject to adjustment in 1999, 2004 and 2009. The maximum principal
payable in any one year is $320,000 payable in 2014. The bonds are secured by an
irrevocable letter of credit issued by a bank, which expires in March 1999. This
letter of credit is secured by substantially all assets of AAI and does not
affect the availability under AAI's revolving credit line. As of December 31,
1998, the Company had $3,615,000 outstanding related to the MIFA obligations.
Subsequent to year-end, a substitute letter of credit was obtained and the
interest rate was adjusted from 5.10% to 4.30%.

The Company believes that its current funds together with its line of credit
facility and cash generated from operations will be sufficient to fund the
Company's operations, debt service and capital requirements at least through the
next 12 months.

New Accounting Standards

In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting For Derivative Instruments
and Hedging Activities. The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Statement 133 is
effective for fiscal years beginning after June 15, 1999. A company may also
implement the Statement as of the beginning of any fiscal quarter after issuance
(that is, fiscal quarters beginning June 16, 1998 and thereafter). Statement 133
cannot be applied retroactively. The Company believes that the adoption of
Statement 133 will not have a material effect on its financial statements.

                                       19

<PAGE>

Material Uncertainties

Year 2000 Compliance. The Year 2000 (Y2K) issue exists because many computer
systems and applications currently use two-digit date fields to designate a
year. As the century date change occurs, many date sensitive systems will
recognize the year 2000 as 1900, or not at all. This inability to recognize or
properly treat Y2K may cause systems to process critical financial and
operational information incorrectly. The Company utilizes software and related
technologies throughout its business that could be affected by the date change
in Y2K. The Company has established an internal task force which has developed a
testing and compliance program to ascertain whether and to what extent there may
be a need to update its computer systems to become Y2K compliant. Additionally,
the Company is in the process of communicating with key third party vendors and
customers to ascertain their ability to become compliant. To manage its Y2K
program, the Company has divided its efforts into four program areas:
1)Information Technology (computer hardware, software, and other data exchange
sources); 2)Physical Plant (manufacturing equipment and facilities); 3)Products
(including product development); and 4)Extended Enterprise (suppliers and
customers). For each of these program areas, the Company is using a four-step
approach: 1)Ownership (creating awareness, assigning tasks); 2)Inventory
(listing items to be assessed for Y2K readiness); 3)Assessment (prioritizing the
inventoried items, assessing their Y2K readiness, planning corrective actions,
making initial contingency plans); and 4)Corrective Action Deployment
(implementing corrective actions, verifying implementation, developing,
finalizing and executing contingency plans). As of December 31, 1998, the
Ownership and Inventory steps were essentially complete for all program areas.
The target completion dates for priority items by remaining steps are as
follows: Assessment May 1999; Corrective Action Deployment -- September 1999. To
date, the Company has achieved approximately fifty percent of its Assessment
goals for its four program areas. The Assessment status for each program area is
as follows: 1)Information Technology: Substantially all of the Company's
business information systems (manufacturing, distribution, sales, financial, and
human resources) have been assessed, corrected and verified, and corrected
systems have been or have been identified to be deployed. Hardware assessment is
in process and on schedule for completion. There can be no assurance that the
Company will complete in a timely manner the testing of such software/hardware
products or the development/installation of any updates necessary to render such
products Y2K compliant. Likewise, there can be no assurance that the Company
will not encounter Y2K problems arising from these technologies or any other
technologies that the Company may acquire in the future. 2)Physical Plant:
Manufacturing equipment assessment is substantially completed with corrective
actions, if necessary, scheduled. Facilities assessment is in process with
continued assessments being made. These efforts are expected to be completed on
schedule. 3)Products: the Company continues to assess the readiness of its
current products. Product assessments are expected to be completed on time.
4)Extended Enterprise: the Company has begun contacting its suppliers regarding
their Y2K readiness. The Company's Y2K supplier program includes assessing the
readiness of its suppliers with a particular focus on those considered essential
for prevention of a material disruption of the Company's business operations.
The assessment is ongoing. The Company is also discussing Y2K status with
selected strategic customers. The ability of vendors to supply and customers to
purchase may be affected by Y2K issues, as vendors may be unable to supply
and/or customers unable to purchase. There can be no assurance that the Company
will not experience a disruption in its business as a result of third party
noncompliance, the occurrence of which may have a material adverse effect on the
Company's business, operating results and financial condition. Costs to Address
Y2K Issues: Although the Company does not expect the non-capitalized costs
associated with its Y2K project plan to be material, outside of labor time
incurred by existing employees, there can be no assurance that unidentified Y2K
problems will not cause the Company to incur material expenses in responding to
such problems or otherwise have a material adverse effect on the Company's
business, operating results and financial performance. Capitalizable costs,
including costs of new hardware and software and the related costs of
implementation and installation will approximate $1.6 million. Risks of Y2K
Issues and Contingency Plans: The Company continues to assess the Y2K issues
relating to its physical plant, products, suppliers and customers, as well as
legal risks that may be associated with noncompliance. The Company's contingency
planning process, although currently in the initial discussion stage, will be
intended to mitigate worst-case business disruptions, such as delays in product
delivery, which could potentially result from events such as supply chain
disruptions. As noted above, the Company expects its contingency plans to be
complete by September 1999. If there are unidentified dependencies on internal
systems or on key third parties to operate the business, or if any required
modifications are not completed in a timely basis or are more costly to
implement than currently anticipated, the Company's business, financial
condition or results of operations could be materially adversely affected.

Sources of Supply. The Company purchases substantially all of its requirements
for valves from Asahi Organic Chemicals Industry Co. Ltd. ("AOC"), and a large
percentage of the pipe and fittings sold by the Company are supplied by
Alois-Gruber GmbH ("Agru"). The Company has an exclusive contract of supply and
distribution in defined territories with AOC that extends through 1999. Under
the contract with AOC, the Company agreed to purchase $140 million of product
over

                                       20

<PAGE>

the 10 year term of the contract. Through December 31, 1998, the Company had
purchased approximately $81.8 million of product. The Company's contract with
Agru renews automatically for an additional five year period unless either party
gives notice of termination no less than twelve months prior to the end of the
term. The contract term currently extends through 2004. Although alternative
sources of supply are available, the loss of either AOC or Agru as a source of
supply would have a material adverse effect on the Company. Although the Company
has had negotiations with AOC regarding extension of the contract, there has
been no agreement reached and there can be no assurance that the agreement will
be extended.

Item 7a. Quantitative and Qualitative Disclosures About Market Risk

Substantially all of the Company's purchases of valves are made from its
Japanese supplier and are transacted in Japanese yen. As a result, the Company
is exposed to fluctuations in foreign currency exchange rates. In accordance
with Statement of Financial Accounting Standards (SFAS) No. 119, Disclosure
About Derivative Financial Instruments and Fair Value of Financial Instruments,
the Company may use hedging procedures including foreign exchange forward
contracts and currency options in managing the fluctuations in foreign currency
exchange rates. The Company charges foreign currency transaction gains and
losses to operations in accordance with SFAS No. 52, Foreign Currency
Translation. See "Notes To Consolidated Financial Statements".

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this item is submitted as a separate section of this Report on
page 25.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     Not applicable.

                                    PART III

Information required by Part III (Items 10 through 13) is incorporated by
reference to the Company's definitive proxy statement, for its annual meeting of
stockholders to be held on May 26, 1999, which will be filed with the Securities
and Exchange Commission pursuant to Regulation 14A under the Securities Exchange
Act of 1934, on or before April 30, 1999. If for any reason such a statement is
not filed within such a period, this Report will be appropriately amended.


Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     (a)  (1) and (2): The response to this portion of Item 14 is submitted as a
          separate section of this report on page 25.

     (a)  (3) Exhibits:

<TABLE>
<CAPTION>
Exhibit
Number                 Description
------                 -----------

<S>                 <C>
3.1*                Restated Articles of Organization of the Registrant.

3.2*                Bylaws of the Registrant, as amended to date.

4.1*                1996 Equity Incentive Plan.

4.2*                Independent (Non-Employee and Non-Five Percent Stockholder)
                    Directors' Stock Option Plan.

4.3**               Employee Stock Purchase Plan
</TABLE>

                                       21

<PAGE>

<TABLE>
<S>                 <C>
4.4.1*              Loan Agreement between Registrant and Massachusetts
                    Industrial Finance Agency dated as of March 1, 1994
                    pertaining to $4,150,000 Massachusetts Industrial Finance
                    Agency Industrial Revenue Bonds, Asahi/America Issue, Series
                    1994.

4.4.2*              Bond Purchase Agreement by and among Tucker Anthony
                    Incorporated and Massachusetts Industrial Finance Agency and
                    the Registrant.

4.4.3*              Reimbursement Agreement between the Registrant and Citizens
                    Trust Company dated as of March 1, 1994.

9.1*                Asahi/America, Inc. Voting Trust Agreement dated January 11,
                    1993.

10.1*               Distribution Agreement dated April 1, 1993, among Asahi
                    Yukizai Kogyo Co., Ltd., Nichimen Corporation, Nichimen
                    America Inc. and Registrant.

10.1.1***           Equipment Purchase Agreement, dated August 13, 1997 by and
                    between Unicor Plastic Machinery, Inc. and Asahi/America,
                    Inc.

10.2****            Employment Agreement (Restated) dated as of January 1, 1996
                    by and between Registrant and Leslie B. Lewis.

10.2.1*             Life insurance policy covering Leslie B. Lewis.

10.2.2              Amended and Restated Employment Agreement dated as of
                    January 1, 1999 by and between Registrant and Kozo Terada.

10.3*               Master Equipment Lease No. 9000118 between Registrant
                    (Lessee) and Citizens Leasing Corporation (Lessor) dated
                    September 23, 1993.

10.3.1*             First Amendment to Lease Schedule by and between Citizens
                    Leasing Corporation and Registrant dated March 11, 1994.

10.4.1**            Credit Agreement between Registrant and Citizens Bank of
                    Massachusetts dated as of January 23, 1997.

10.4.2**            Revolving Credit Note in favor of Citizens Bank of
                    Massachusetts dated as of January 23, 1997.

10.4.3**            Discretionary Credit Line Note in favor of Citizens Bank of
                    Massachusetts dated as of January 23, 1997.

10.5*               Restated Contract dated as of January 1, 1995 between
                    Registrant and Agru- Alois Gruber GmbH.

10.6*               Agreement entered into as of July 26, 1995 by and between
                    Registrant and Watts Industries, Inc.

10.8*               Consulting Agreement dated January 8, 1995 by and between
                    Registrant and Bloomberg Associates, Inc.

10.9*               Purchase and Sale Agreement dated as of February 2, 1996 by
                    and between Manganaro Realty Associates and Registrant.

10.10*              Purchase and Sale Agreement dated as of March 11, 1996 by
                    and between Asahi/America Co., Inc. and Creative Filtration
                    Systems, Inc.
</TABLE>

                                       22

<PAGE>

<TABLE>
<S>                 <C>
10.11****           Letter Agreement regarding security interest dated December
                    30, 1997 by the Registrant and Asahi Engineered Products,
                    Inc. in favor of Citizens Bank of Massachusetts, Inc.

10.12****           Loan Agreement (Equipment) among GE Capital Public Finance,
                    Inc., Lender, Arkansas Development Finance Authority,
                    Issuer, and Quail Piping Products, Inc., Borrower, dated as
                    of November 1, 1997.

10.13****           Loan Agreement (Real Estate) among GE Capital Public
                    Finance, Inc., Lender, Arkansas Development Finance
                    Authority, Issuer, and Quail Piping Products, Inc.,
                    Borrower, dated as of November 1, 1997.

10.14****           Guaranty and Negative Pledge Agreement in favor of
                    Registrant and GE Capital Public Finance, Inc.

21.1****            Subsidiaries of the Registrant

23                  Consent of Arthur Andersen LLP

27.1                Financial Data Schedule
</TABLE>
--------------------------------------------
*    Incorporated by reference to the Registrant's Registration Statement on
     Form S-1 as amended (File No. 333-2314)
**   Incorporated by reference to the Registrant's 1996 Form 10K (File No.
     0-28322)
***  Incorporated by reference to the Registrant's September 30, 1997 Form 10Q
     (File No. 0-28322)
**** Incorporated by reference to the Registrant's 1997 Form 10K (File No.
     0-28322)

     (b) Reports on Form 8-K

         No reports on Form 8-K were filed by the Company during the
         last quarter of the period covered by this report.

                                       23

<PAGE>


                                   Signatures

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 24th day of
March 1999.


                                            ASAHI/AMERICA, INC.



                                            By:/s/ Leslie B. Lewis
                                               -----------------
                                               Leslie B. Lewis
                                               Principal Executive Officer and
                                               President


     Pursuant to the requirements of Sections 13 or 15(d) of the Securities and
Exchange Act of 1934, this report has been signed below by the following persons
in their capacities and on the dates indicated.


<TABLE>
<CAPTION>
<S>                                 <C>                                          <C> 
/s/ Leslie B. Lewis                 Principal Executive Officer,                 March 24, 1999
------------------------            President and
Leslie B. Lewis                     Director

/s/ Nannette S. Lewis               Director                                     March 24, 1999
------------------------
Nannette S. Lewis

/s/ Masashi Uesugi                  Director                                     March 24, 1999
------------------------
Masashi Uesugi

/s/ Masahiro Inoue                  Director                                     March 24, 1999
------------------------
Masahiro Inoue

/s/ Kozo Terada                     Vice President,                              March 24, 1999
------------------------            Treasurer and
Kozo Terada                         Principal Financial
                                    and Accounting Officer

/s/ Samuel J. Gerson                Director                                     March 24, 1999
------------------------
Samuel J. Gerson


/s/ Jeffrey C. Bloomberg            Director                                     March 24, 1999
------------------------
Jeffrey C. Bloomberg

/s/ Martin J. Reid                  Director                                     March 24, 1999
------------------------
Martin J. Reid
</TABLE>

                                       24


<PAGE>

                       ASAHI/AMERICA, INC. AND SUBSIDIARY

                                    FORM 10-K
                         ITEMS 8 AND 14 (a) (1) AND (2)


                   INDEX OF FINANCIAL STATEMENTS AND SCHEDULES

The following financial statements of the registrant and its subsidiary required
to be included in Items 8 and 14 (a) (1) are listed below:

<TABLE>
<CAPTION>
                                                                               Page
                                                                               ----
<S>                                                                            <C>
Report of Independent Public Accountants                                       F-2
Consolidated balance sheets as of December 31, 1997 and 1998                   F-3
For the years ended December 31, 1996, 1997 and 1998:
         Consolidated statements of operations                                 F-4
         Consolidated statements of stockholders' equity                       F-5
         Consolidated statements of cash flows                                 F-6
Notes to Consolidated financial statements                                     F-7
</TABLE>


The following financial statement schedule of the Registrant and its subsidiary
is included in Item 14(a) (2):

     Consolidated financial statement schedules for the years ended December 31,
1996, 1997 and 1998:

          Not applicable.

<PAGE>

                      ASAHI/AMERICA, INC. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 1997 AND 1998
                         TOGETHER WITH AUDITORS' REPORT


<PAGE>

                      ASAHI/AMERICA, INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



<TABLE>
<CAPTION>
                                                                         PAGE
<S>                                                                      <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                                 F-2

CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1997 AND 1998             F-3

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998                     F-4

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998                     F-5

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998                     F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                               F-7
</TABLE>

                                      F-1

<PAGE>

                       REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Asahi/America, Inc.:

We have audited the accompanying consolidated balance sheets of Asahi/America,
Inc. (a Massachusetts corporation) and subsidiaries as of December 31, 1997 and
1998, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1998. These consolidated financial statements are the responsibility of
Asahi's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Asahi/America, Inc.
and subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.


                                                   /s/ ARTHUR ANDERSEN LLP




Boston, Massachusetts
February   16,  1999  (except
   for the  matter  discussed
   in  Note 20,  as to  which
   the date is March 8, 1999)

                                      F-2

<PAGE>


                      ASAHI/AMERICA, INC. AND SUBSIDIARIES

             CONSOLIDATED BALANCE SHEETS--DECEMBER 31, 1997 AND 1998



<TABLE>
<CAPTION>
                                               ASSETS
                                                                            1997                  1998
<S>                                                                      <C>                 <C>          
CURRENT ASSETS:
   Cash and cash equivalents                                             $   915,601         $   1,056,987
   Restricted cash (Note 11(c))                                                   --             2,855,071
   Accounts receivable, less allowance for doubtful accounts of            4,212,867             6,154,853
     $263,000 in 1997 and $257,000 in 1998
   Inventories                                                             9,335,982            11,373,751
   Prepaid expenses and other current assets                                 611,389             1,263,844
                                                                         -----------         -------------

         Total current assets                                             15,075,839            22,704,506
                                                                         -----------         -------------

PROPERTY AND EQUIPMENT, NET                                               11,754,268            20,199,720
                                                                         -----------         -------------

OTHER ASSETS:
   Goodwill, net of accumulated amortization of $1,653,868 in 1997         2,470,335             2,156,229
     and $1,967,974 in 1998
   Other, net                                                              2,748,438             3,163,592
                                                                         -----------         -------------

         Total other assets                                                5,218,773             5,319,821
                                                                         -----------         -------------

                                                                         $32,048,880         $  48,224,047
                                                                         ===========         =============

                                 LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Demand note payable to a bank                                         $ 1,000,000         $   4,639,844
   Current portion of MIFA obligations                                       145,000               150,000
   Current portion of GECPF obligations                                      430,000             1,252,200
   Current portion of capital lease obligations                              149,326               331,042
   Accounts payable                                                        4,857,107             5,825,677
   Accrued expenses                                                          991,786             1,678,951
   Deferred income taxes                                                     734,000               517,000
                                                                         -----------         -------------

         Total current liabilities                                         8,307,219            14,394,714
                                                                         -----------         -------------

MIFA OBLIGATIONS, LESS CURRENT PORTION                                     3,615,000             3,465,000
                                                                         -----------         -------------

GECPF OBLIGATIONS, LESS CURRENT PORTION                                    1,047,292            10,328,067
                                                                         -----------         -------------

CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION                              301,873               522,468
                                                                         -----------         -------------

DEFERRED INCOME TAXES                                                        177,000               754,000
                                                                         -----------         -------------

COMMITMENTS AND CONTINGENCIES (Notes 9 and 14)

STOCKHOLDERS' EQUITY:
   Preferred stock, $10.00 par value-
     Authorized--1,000,000 shares
     Issued and outstanding--none                                                 --                    --
   Common stock, no par value-
     Authorized--10,000,000 shares
     Issued and outstanding--3,358,669 and 3,382,228 shares at            13,603,333            13,720,921
     December 31, 1997 and 1998, respectively
   Additional paid-in capital                                                579,130               579,130
   Retained earnings                                                       4,645,533             4,617,247
                                                                         -----------         -------------
                                                                          18,827,996            18,917,298

   Less--Note receivable from stockholder/officer                             227,500               157,500
                                                                         ------------        --------------

         Total stockholders' equity                                       18,600,496            18,759,798
                                                                         -----------         -------------

                                                                         $32,048,880         $  48,224,047
                                                                         ===========         =============
</TABLE>


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

                                      F-3

<PAGE>

                      ASAHI/AMERICA, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998



<TABLE>
<CAPTION>
                                                              1996                  1997              1998
<S>                                                       <C>                 <C>               <C>            
NET SALES                                                 $  37,894,238       $    37,934,003   $    37,578,050

COST OF GOODS SOLD                                           23,968,230            23,827,618        24,826,480
                                                          -------------       ---------------   ---------------

         Gross profit                                        13,926,008            14,106,385        12,751,570

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                  9,751,265            10,647,716        11,614,172

RESEARCH AND DEVELOPMENT                                             --               185,830           328,579
                                                          -------------       ---------------   ---------------

         Income from operations                               4,174,743             3,272,839           808,819

INTEREST AND OTHER INCOME                                       143,606                98,705           406,146

INTEREST EXPENSE                                               (339,197)             (299,695)         (696,767)
                                                          -------------       ---------------   --------------- 

         Income before provision for income taxes             3,979,152             3,071,849           518,198

PROVISION FOR INCOME TAXES                                    1,541,000             1,290,000           340,837
                                                          -------------       ---------------   ---------------

         Net income before cumulative effect of           $   2,438,152       $     1,781,849   $       177,361
                                                          =============       ===============   ===============
         change in accounting principle

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE,      $          --       $            --   $      (205,647)
                                                          =============       ===============   ===============
NET OF BENEFIT FOR INCOME TAXES OF $137,944 (Note 3)

         Net income (loss)                                $   2,438,152       $     1,781,849   $       (28,286)
                                                          =============       ===============   ===============

BASIC AND DILUTED EARNINGS PER SHARE BEFORE               $         .82       $           .53   $           .05
                                                          =============       ===============   ===============
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE

BASIC AND DILUTED (LOSS) PER SHARE EFFECT OF              $          --       $            --   $         (.06)
                                                          =============       ===============   ==============
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE,
NET OF INCOME TAXES

BASIC AND DILUTED EARNINGS (LOSS) PER SHARE               $         .82       $           .53   $         (.01)
                                                          =============       ===============   ==============

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING                 2,972,877             3,349,335         3,376,199
                                                          =============       ===============   ===============

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING,                2,987,932             3,349,335         3,376,199
                                                          =============       ===============   ===============
ASSUMING DILUTION
</TABLE>


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

                                      F-4

<PAGE>

                      ASAHI/AMERICA, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998


<TABLE>
<CAPTION>
                                                                                                               Note
                                                                                                           Receivable
                                                                                  Additional                 from        Total
                                                            Number of               Paid-in    Retained   Stockholder/ Stockholders'
                                                             Shares   No Par Value  Capital    Earnings     Officer       Equity
                                                                              
<S>                                                        <C>        <C>          <C>        <C>          <C>         <C>
BALANCE, DECEMBER 31, 1995                                 2,340,000  $ 7,338,283  $ 20,163   $  425,532   $(350,000)  $ 7,433,978
                                                                       
   Initial public offering of common stock, net of         1,000,000    6,165,871        --           --          --     6,165,871
   issuance costs of $1,334,129

   Proceeds from note receivable from stockholder/officer         --           --        --           --      52,500        52,500

   Exercise of stockholder's stock repurchase rights              --           --   113,967           --          --       113,967

   Net income                                                     --           --        --    2,438,152          --     2,438,152
                                                           ---------  -----------  --------   ----------   ---------   -----------

BALANCE, DECEMBER 31, 1996                                 3,340,000   13,504,154   134,130    2,863,684    (297,500)   16,204,468

   Issuance of stock under Employee Stock Purchase Plan       18,669       99,179        --           --          --        99,179

   Proceeds from note receivable from stockholder/officer         --           --        --           --      70,000        70,000

   Proceeds from contingent shares (Note 13(a))                   --           --   445,000           --          --       445,000

   Net income                                                     --           --        --    1,781,849          --     1,781,849
                                                           ---------  -----------  --------   ----------   ---------   -----------

BALANCE, DECEMBER 31, 1997                                 3,358,669   13,603,333   579,130    4,645,533    (227,500)   18,600,496

   Issuance of stock under Employee Stock Purchase Plan       23,559      117,588        --           --          --       117,588

   Proceeds from note receivable from stockholder/officer         --           --        --           --      70,000        70,000

   Net loss                                                       --           --        --      (28,286)         --       (28,286)
                                                           ---------  -----------  --------   ----------   ---------   -----------

BALANCE, DECEMBER 31, 1998                                 3,382,228  $13,720,921  $579,130   $4,617,247   $(157,500)  $18,759,798
                                                           =========  ===========  ========   ==========   =========   ===========
</TABLE>

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

                                      F-5

<PAGE>

                      ASAHI/AMERICA, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998


<TABLE>
<CAPTION>
                                                              1996          1997          1998
<S>                                                       <C>            <C>           <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss)                                      $ 2,438,152    $ 1,781,849   $   (28,286)
   Cumulative effect of change in accounting principle,            --             --       205,647
     net of income taxes of $137,944
   Adjustments to reconcile net income (loss) to net
   cash provided by (used in) operating activities-
     Depreciation and amortization                          1,284,827      1,461,015     1,763,794
     (Benefit) provision for deferred income taxes           (152,000)      (115,000)      360,000
     Changes in assets and liabilities, net of 1997
       acquisition (Note 17)-
       Accounts receivable                                   (845,290)     1,078,457    (1,941,986)
       Inventories                                           (466,272)      (507,748)   (2,037,769)
       Prepaid expenses and other current assets              447,708       (381,023)     (652,455)
       Accounts payable                                       180,921       (533,091)      968,570
       Accrued expenses                                       614,627       (621,753)      687,165
                                                          -----------    -----------   -----------

              Net cash provided by (used in) operating
              activities                                    3,502,673      2,162,706      (675,320)
                                                          -----------    -----------   -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property and equipment                      (3,388,476)    (2,472,977)   (1,661,277)
   Acquisition of certain assets of Universal Flow                 --     (3,000,000)           --
   Monitors, Inc.
   Decrease (increase) in other assets                         20,927     (1,187,013)     (775,803)
                                                          -----------    -----------   -----------

              Net cash used in investing activities        (3,367,549)    (6,659,990)   (2,437,080)
                                                          -----------    -----------   -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net (payments on) proceeds from demand note             (3,377,000)     1,000,000     3,639,844
     payable to a bank
   Payments on capital lease obligations                     (104,524)      (126,410)     (302,383)
   Proceeds from reimbursement of amounts financed                 --      1,477,292       311,143
     under GECPF
   Payments on MIFA obligations                               (68,336)      (135,000)     (145,000)
   Payments on GECPF obligations                                   --             --      (704,066)
   Proceeds from initial public offering, net of            6,165,871             --            --
     issuance costs
   Proceeds from note receivable from                          52,500         70,000        70,000
     stockholder/officer
   Proceeds from stock issued under ESPP                           --         99,179       117,588
   Proceeds from sales-leaseback financing                         --             --       266,660
                                                          -----------    -----------   -----------

              Net cash provided by financing activities     2,668,511      2,385,061     3,253,786
                                                          -----------    -----------   -----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS        2,803,635     (2,112,223)      141,386

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                  224,189      3,027,824       915,601
                                                          -----------    -----------   -----------

CASH AND CASH EQUIVALENTS, END OF YEAR                    $ 3,027,824    $   915,601   $ 1,056,987
                                                          ===========    ===========   ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   Cash paid during the year for-
     Interest                                             $   290,363    $   230,278   $   722,264
                                                          ===========    ===========   ===========
     Income taxes                                         $ 1,106,196    $ 1,731,351   $   209,500
                                                          ===========    ===========   ===========

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
   Acquisition of equipment under capital lease           
   obligations                                            $    13,063    $   263,526   $   438,951
                                                          ===========    ===========   ===========
   Exercise of stockholder's stock repurchase right       $   113,967    $        --   $        --
                                                          ===========    ===========   ===========
   Purchase of certain assets with contingent
   restricted stock                                       $        --    $   445,000   $        --
                                                          ===========    ===========   ===========
   Acquisition of equipment under GECPF bond              
   financing                                              $        --    $        --   $ 7,711,020
                                                          ===========    ===========   ===========
</TABLE>

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

                                      F-6

<PAGE>

                      ASAHI/AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998


(1)    ORGANIZATION

       (a)   Historical Background

             Asahi/America, Inc. (AAI) was established on August 18, 1977 as a
             Massachusetts corporation and is involved in the manufacturing and
             distribution of thermoplastic valves, actuators and controls,
             piping systems, flow meters, filtration systems and related
             components for environmentally sensitive and industrial
             applications. These applications include chemical processing,
             semiconductor and pharmaceutical manufacturing, wastewater
             treatment, as well as for the aquarium and mining industries. AAI
             has exclusive distribution agreements with two international
             manufacturers (see Note 9).

       (b)   Quail Piping Products, Inc.

             In July 1997, AAI established a wholly owned subsidiary, Quail
             Piping Products, Inc. (Quail) (together with AAI, the Company), to
             manufacture and market polyethylene piping systems for use in
             water, sewer and drain applications and polyethylene duct pipe for
             fiber optic cable for use in the telecommunications industry.
             Quail's manufacturing facilities, which are located in Magnolia,
             Arkansas and Kingman, Arizona, are being financed principally by
             Industrial Development Bonds through GE Capital Public Finance,
             Inc. (GECPF) (see Note 11).

(2)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       The accompanying consolidated financial statements reflect the
       application of certain accounting policies as described below and
       elsewhere in the notes to consolidated financial statements. The
       preparation of these consolidated financial statements in conformity with
       generally accepted accounting principles requires management to make
       estimates and assumptions that affect the reported amounts of assets and
       liabilities and disclosure of contingent assets and liabilities at the
       date of the financial statements and the reported amounts of revenues and
       expenses during the reporting period. Actual results could differ from
       those estimates.

       (a)   Principles of Consolidation

             The accompanying consolidated financial statements include the
             accounts of AAI and its wholly owned subsidiaries, Asahi Engineered
             Products, Inc. and Quail. All significant intercompany balances and
             transactions have been eliminated in consolidation.

       (b)   Revenue Recognition

             The Company recognizes revenue on product sales at the time the
             products are shipped. Rental revenues, which are less than 10% of
             total revenues for all periods presented, are recognized over the
             related rental period.

                                      F-7

<PAGE>

                      ASAHI/AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998

                                   (Continued)


       (c)   Cash and Cash Equivalents

             The Company considers all highly liquid investments with a maturity
             of three months or less to be cash equivalents. Cash equivalents at
             December 31, 1998 consist mainly of treasury bills.

       (d)   Inventories

             AAI accounts for inventories using the lower of last-in, first-out
             (LIFO) cost or market value. Quail accounts for inventories using
             the lower of first-in, first-out (FIFO) cost or market value.

       (e)   Depreciation

             The Company provides for depreciation using the straight-line
             method and charges to operations amounts estimated to allocate the
             cost of the assets over their estimated useful lives as follows:

<TABLE>
<CAPTION>
                Asset Classification        Estimated
                                           Useful Life

<S>                                         <C>       
             Machinery and equipment          5-10 years
             Furniture and fixtures              7 years
             Building and improvements      7.5-40 years
</TABLE>

       (f)   Goodwill

             Goodwill was recorded as a result of a change in ownership control
             in 1989, from the acquisition of Poly-Flowlines Company in 1994 and
             from the acquisition of the vortex flow meter division of Universal
             Flow Monitors, Inc. in 1997 (see Note 17). Goodwill from the
             Poly-Flowlines acquisition and the change in ownership control is
             being amortized on the straight-line basis over 10 years. Goodwill
             related to the vortex flow meter acquisition is being amortized on
             the straight-line basis over 20 years.

       (g)   Other Assets

             Other assets primarily consist of costs of obtaining patents and
             costs related to internal use software. The Company provides for
             amortization using the straight-line method and charges to
             operations amounts estimated to allocate the cost of the assets
             over their estimated useful lives as follows:

<TABLE>
<CAPTION>
                 Asset Classification         Estimated
                                             Useful Life

<S>                                             <C>    
             Software costs                        5 years
             Patents                            5-20 years

                                      F-8
</TABLE>

<PAGE>

                      ASAHI/AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998

                                   (Continued)

             The Company assesses the realizability of intangible assets
             including goodwill in accordance with Statement of Financial
             Accounting Standards (SFAS) No. 121, Accounting for the Impairment
             of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of.
             SFAS No. 121 requires, among other things, that an entity review
             its long-lived assets and certain related intangibles for
             impairment whenever changes in circumstances indicate that the
             carrying amount of an asset may not be fully recoverable. As a
             result of its review, the Company does not believe that any
             impairment related to its long-lived assets currently exists.

       (h)   Research and Development Costs

             The Company charges research and development costs to operations as
             incurred.

       (i)   Earnings per Share

             In March 1997, the Financial Accounting Standards Board (FASB)
             issued SFAS No. 128, Earnings per Share. This statement established
             standards for computing and presenting earnings per share and
             applies to all entities with publicly traded common stock or
             potential common stock. This statement is effective for fiscal
             years ending after December 15, 1997. The Company adopted the
             provisions of SFAS No. 128 as of December 31, 1997. Accordingly,
             earnings per share for 1996 were retroactively restated to reflect
             the adoption of SFAS No. 128.

             Basic net income per share and basic pro forma net income per share
             were computed by dividing net income or pro forma net income by the
             weighted average number of common shares outstanding during the
             period. Diluted net income per share and diluted pro forma net
             income per share were computed by dividing net income or pro forma
             net income by diluted weighted average number of common and common
             equivalent shares outstanding during the period. The weighted
             average number of common equivalent shares outstanding has been
             determined in accordance with the treasury-stock method. Common
             stock equivalents consist of common stock issuable on the exercise
             of outstanding options.

                                      F-9

<PAGE>

                      ASAHI/AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998

                                   (Continued)

             Basic and diluted earnings per share were calculated as follows:

<TABLE>
<CAPTION>
                                                         1996         1997        1998
<S>                                                   <C>          <C>          <C>
              Basic-
                Net income (loss)                     $2,438,152   $1,781,849   $  (28,286)
                                                      ==========   ==========   ==========

                Weighted   average   common   shares   2,972,877    3,349,335    3,376,199
                  outstanding

              Diluted-
                Effect of dilutive securities
                Stock options                             15,055           --           --
                                                      ----------   ----------   ----------

                Weighted   average   common   shares   
                  outstanding, assuming dilution       2,987,932    3,349,335    3,376,199
                                                      ----------   ----------   ----------
              Basic and diluted earnings per share       $   .82      $   .53      $  (.01)
                                                         =======      =======      =======
</TABLE>

             As of December 31, 1996, 1997 and 1998, 334,945, 313,167 and
             311,500 options, respectively, were outstanding but not included in
             the diluted weighted average common share calculation as the effect
             would have been antidilutive.

       (j)   Concentration of Credit Risk

             SFAS No. 105, Disclosure of Information About Financial Instruments
             with Off-Balance-Sheet Risk and Financial Instruments with
             Concentrations of Credit Risk, requires disclosure of any
             significant off-balance-sheet and credit risk concentrations. The
             financial instrument that potentially subjects the Company to
             concentrations of credit risk is accounts receivable. As of
             December 31, 1996, 1997 and 1998, one customer accounted for 20%,
             36% and 21% of total accounts receivable, respectively. The Company
             had one customer account for 23%, 32% and 26% of total revenues in
             1996, 1997 and 1998, respectively.

       (k)   New Accounting Standards

             In June 1998, the FASB issued SFAS No. 133, Accounting For
             Derivative Instruments and Hedging Activities. The Statement
             establishes accounting and reporting standards requiring that every
             derivative instrument (including certain derivative instruments
             embedded in other contracts) be recorded in the balance sheet as
             either an asset or liability measured at its fair value. The
             Statement requires that changes in the derivative's fair value be
             recognized in earnings currently, unless specific hedge accounting
             criteria are met. Special accounting or qualifying hedges allows

                                      F-10

<PAGE>

                      ASAHI/AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998

                                   (Continued)

             derivative gains and losses to offset related results on the hedged
             item in the income statement, and requires that a company must
             formally document, designate and assess the effectiveness of
             transactions that receive hedge accounting.

             SFAS No. 133 is effective for fiscal years beginning after June 15,
             1999. A Company may also implement the SFAS No. 133 as of the
             beginning of any fiscal quarter after issuance (that is, fiscal
             quarters beginning June 16, 1998 and thereafter). SFAS No. 133
             cannot be applied retroactively. SFAS No. 133 must be applied to
             (a) derivative instruments and (b) certain derivative instruments
             embedded in hybrid contracts that were issued, acquired or
             substantially modified after December 31, 1997 (and, at the
             company's election, before January 1, 1998). The Company believes
             that the adoption of SFAS No. 133 will not have a material effect
             on its financial statements.

       (l)   Financial Instruments

             The estimated fair value of the Company's financial instruments,
             which include cash and cash equivalents, accounts receivable,
             accounts payable and debt, approximates their carrying value.

(3)    ACCOUNTING FOR START-UP COSTS

       In May 1998, the American Institute of Certified Public Accountants
       issued Statement of Position (SOP) 98-5, Reporting on the Costs of
       Start-Up Activities. SOP 98-5, which is effective for fiscal years
       beginning after December 15, 1998 but provides for early adoption,
       requires that the costs of start-up activities, including organization
       costs, be expensed as incurred. Initial adoption of SOP 98-5 should be
       reported as a cumulative effect of a change in accounting principle.
       During the quarter ended December 31, 1998 the Company adopted the
       provisions of SOP 98-5, which resulted in a net charge to income of
       $206,000 (net of income taxes of $138,000) of previously capitalized
       start-up costs. Amortization expense related to these costs through
       September 30, 1998 was not material to the financial statements.

(4)    ALLOWANCE FOR DOUBTFUL ACCOUNTS

       A summary for the allowance for doubtful accounts activity is as follows:

<TABLE>
<CAPTION>
                                                   1996         1997        1998

<S>                                              <C>          <C>         <C>     
        Balance, beginning of year               $244,893     $283,067    $263,469

           Amounts charged to expense              67,382           --          --

           Amounts written-off                    (29,208)     (19,598)     (6,555)
                                                ---------     --------    --------

        Balance, end of year                     $283,067     $263,469    $256,914
                                                 ========     ========    ========
</TABLE>

                                      F-11

<PAGE>

                      ASAHI/AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998

                                   (Continued)


(5)    INVENTORIES

       Inventories at December 31, 1997 and 1998 consist of the following:

<TABLE>
<CAPTION>
                                        1997            1998

<S>                                  <C>             <C>        
       Raw materials                 $  514,157      $   909,462
       Finished goods                 8,643,781       10,055,545
       LIFO surplus                     178,044          408,744
                                     ----------      -----------

                                     $9,335,982      $11,373,751
                                     ==========      ===========
</TABLE>

       Had the first-in, first-out (FIFO) method of inventory costing been
       used by Asahi, inventories at December 31, 1997 and 1998 would have
       been $9,157,938 and $10,965,007, respectively.

(6)    PROPERTY AND EQUIPMENT

       Property and equipment are stated at cost. Construction period interest,
       on borrowings used to finance construction of facilities, is included in
       the cost of the construction facilities. Property and equipment and
       accumulated depreciation consist of the following at December 31, 1997
       and 1998:

<TABLE>
<CAPTION>
                                                                    1997          1998

<S>                                                              <C>           <C>        
       Machinery and equipment                                   $ 6,750,027   $14,099,448
       Furniture and fixtures                                        525,887       642,851
       Building and improvements                                   5,654,030     7,997,224
       Land                                                        1,255,134     1,415,765
       Construction-in-process                                     1,831,388     1,181,256
                                                                ------------  ------------
                                                                  16,016,466    25,286,544

       Less--Accumulated depreciation                               4,262,198     5,086,824
                                                                 ------------  ------------

                                                                 $11,754,268   $20,199,720
                                                                 ===========   ===========
</TABLE>

(7)    ACCRUED EXPENSES

       Accrued expenses consist of the following at December 31, 1997 and 1998:

<TABLE>
<CAPTION>
                                                1997         1998

<S>                                           <C>         <C>       
       Accrued payroll/payroll-related        $416,811    $  428,066
       Other accruals                          574,975     1,250,885
                                              --------    ----------

                                              $991,786    $1,678,951
                                              ========    ==========
</TABLE>

                                      F-12

<PAGE>

                      ASAHI/AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998

                                   (Continued)

(8)    INCOME TAXES

       The Company accounts for income taxes under the liability method in
       accordance with SFAS No. 109, Accounting for Income Taxes. Under SFAS No.
       109, deferred tax assets or liabilities are computed based on the
       differences between the financial statement and income tax bases of
       assets and liabilities as measured by the enacted tax rates. The
       provision for deferred taxes is based on changes in the asset or
       liability from period to period. The provision for income taxes consists
       of the following for the years ended December 31, 1996, 1997 and 1998:

<TABLE>
<CAPTION>
                                1996            1997       1998
       Current-
<S>                           <C>            <C>         <C>       
         Federal              $1,436,000     $1,192,000  $(121,077)
         State                   257,000        213,000    (36,030)
                              ----------     ----------  ---------

                               1,693,000      1,405,000   (157,107)
                              ----------     ----------  ---------

       Deferred-
         Federal                (111,000)       (66,000)   290,000
         State                   (41,000)       (49,000)    70,000
                              ----------     ----------  ---------

                                (152,000)      (115,000)   360,000
                              ----------     ----------  ---------

                              $1,541,000     $1,290,000  $ 202,893
                              ==========     ==========  =========
</TABLE>

       The components of the net deferred tax liability recognized in the
       accompanying consolidated balance sheets with the approximate income tax
       effect of each type of temporary difference are as follows:

<TABLE>
<CAPTION>
                                                       1997           1998

<S>                                                  <C>           <C>        
       Nondeductible reserves and accruals           $   445,000   $   666,000
       Depreciation                                     (177,000)     (820,000)
       LIFO reserve                                   (1,179,000)   (1,117,000)
                                                     -----------   -----------

                Net deferred tax liability           $  (911,000)  $(1,271,000)
                                                     ===========   ===========
</TABLE>

       The Company's policy is to provide for a valuation allowance on deferred
       tax assets for which realization is uncertain.

       The provision for income taxes differs from the amount computed by
       applying the statutory federal income tax rate as follows:

<TABLE>
<CAPTION>
                                                        1996      1997      1998

<S>                                                      <C>       <C>       <C>  
        Provision at federal statutory rate              34.0%     34.0%     34.0%
        State income tax, net of federal benefit          4.2       6.3      11.8
        Change in valuation allowance                      --      (1.8)       --
        Amortization of goodwill                          1.8       2.1      34.5
        Other, net                                       (1.3)      1.4      35.9
                                                        -----     -----     -----

                Effective tax rate                       38.7%     42.0%    116.2%
                                                        =====     =====     =====
</TABLE>

                                      F-13

<PAGE>

                      ASAHI/AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998

                                   (Continued)

       Other, net consists primarily of nondeductible meals and entertainment
       expenses and premiums paid for officers' life insurance policies.

(9)    RELATED PARTY ARRANGEMENTS

       (a)   Distributorship Agreement and Inventory Arrangements

             AAI has a 10-year exclusive distributorship agreement with a
             Japanese valve manufacturer, Asahi Yukizai Kogyo Co., LTD.,
             (official English translation, Asahi Organic Chemical Industry
             Company LTD) (AOC) and Nichimen Corporation, a Japanese trading
             company, and Nichimen America, Inc., the Japanese trading company's
             U.S. affiliate (together, Nichimen). Both AOC and Nichimen are
             greater than 10% stockholders of the Company. Under the terms of
             the agreement, AAI is expected to purchase a total of $140,000,000
             of merchandise over a 10-year period, which began January 2, 1990.
             The agreement provides for annual purchase guidelines but does not
             assess penalties if either the annual purchase guidelines or other
             cumulative totals are not met. AAI has made cumulative purchases of
             approximately $81,792,000 under this agreement through December 31,
             1998. For their services, Nichimen is paid by AOC a combined markup
             of approximately 8% of the invoiced price of AAI's purchases from
             AOC.

             AAI purchased approximately $10,351,000, $9,664,000 and $10,345,000
             of valves from AOC during the years ended December 31, 1996, 1997
             and 1998, respectively. The accompanying consolidated balance
             sheets include accounts payable to Nichimen America, Inc. of
             approximately $2,909,000 and $2,728,000 at December 31, 1997 and
             1998, respectively.

             To facilitate purchases from AOC, AAI has, from time to time, made
             arrangements with a bank whereby irrevocable letters of credit for
             180 days are drawn upon shipment. Currently, Nichimen America, Inc.
             allows the Company to purchase on open account and to maintain a
             payable balance of up to $8 million. At December 31, 1997 and 1998,
             there were no letters of credit issued by the bank that have been
             drawn under these arrangements.

       (b)   Related Party Transactions

             AAI sells products to an entity controlled by the chief executive
             officer's father. Sales to this customer were $306,751, $312,331
             and $255,537 in 1996, 1997 and 1998, respectively. Management
             believes that all transactions were made at terms no more favorable
             than similar transactions with nonrelated parties.

                                      F-14

<PAGE>


                      ASAHI/AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998

                                   (Continued)

(10)   FOREIGN CURRENCY TRANSACTIONS

       The Company charges foreign currency transaction gains or losses to
       operations in accordance with SFAS No. 52, Foreign Currency Translation.
       The foreign currency transaction gain (loss) recorded in cost of goods
       sold in the accompanying consolidated statements of income for the years
       ended December 31, 1996, 1997 and 1998 was approximately $378,000,
       $345,000 and $(53,000), respectively.

       AAI purchases product through Nichimen America, Inc. denominated in
       Japanese yen. AAI may enter into foreign exchange forward and option
       contracts to reduce the exposure to changes in foreign currencies related
       to the purchase of inventories. Gains and losses on the contracts that
       are hedges of firm commitments are deferred and recognized in the
       accompanying consolidated statement of income in the same period as the
       related transaction.

       In accordance with SFAS No. 119, Disclosure About Derivative Financial
       Instruments and Fair Value of Financial Instruments, at December 31, 1997
       and 1998, AAI had foreign exchange forward contracts, all having
       maturities of less than one year, to buy Japanese yen in amounts equal to
       $962,106 and $972,319 respectively. The deferred gain related to these
       contracts as of December 31, 1997 was $64,793. There was no deferred gain
       or loss related to these contracts as of December 31, 1998.

(11)   DEBT

       (a)   MIFA Obligations

             In connection with the purchase of its Malden facility, the Company
             issued bonds through the Massachusetts Industrial Finance Agency
             (MIFA) for a total of $4,150,000. The bonds bear interest at rates
             that range from 4.2% to 5.1%. Interest is payable semiannually and
             is subject to adjustment in 1999, 2004 and 2009. The bonds are
             payable in annual installments, which commenced on March 1, 1995,
             of $125,000; the installments increase $5,000 per year through
             1999. The bonds require payments of $160,000 (increasing $5,000 to
             $15,000 each year) to $320,000 per year from 2000 to 2014. The
             bonds are secured by an irrevocable letter of credit issued by a
             bank, which expires in March 1999. This letter of credit, which
             does not affect the availability under Asahi's revolving credit
             lines, is subject to the same covenants and is cross-collateralized
             and cross-defaulted with the Company's revolving credit lines (Note
             11 (b)). As of December 31, 1998, the Company had $3,615,000
             outstanding related to the MIFA obligations. A substitute letter of
             credit was obtained on March 1, 1999 which expires March 2004 and
             the interest rate was adjusted from 5.10% to 4.30%.

       (b)   Revolving Credit Lines

             In January 1997, the Company and its bank executed a loan agreement
             that provides for a $5,000,000 committed unsecured revolving credit
             line (the Committed Line) and a $5,000,000

                                      F-15

<PAGE>

                      ASAHI/AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998

                                   (Continued)

             discretionary unsecured revolving credit line (the Discretionary
             Line). Interest on the credit lines is based on the prime rate
             (8.5% at December 31, 1997 and 7.75% at December 31, 1998) or
             LIBOR plus 1.65%, as elected by the Company at each borrowing
             date. The Company is required to maintain certain financial
             ratios, including, among others, minimum working capital and
             tangible net worth, as defined in the agreements. The
             Discretionary Line expired on September 30, 1997. The Committed
             Line extended through September 30, 1998.

             In June 1998, the Company and its bank executed a new loan
             agreement for an $11,000,000 secured, committed revolving line of
             credit (the New Committed Line). The New Committed Line replaced
             the Committed Line and is secured by substantially all assets of
             AAI and extends through January 31, 2000. Interest on this credit
             line is based on the prime rate or LIBOR plus 1.55% to 2.40%. There
             is an unused fee ranging from .15% to .25%, based on borrowing
             levels. The Company is required to maintain certain financial
             ratios, including, among others, minimum working capital, debt
             service and tangible net worth. The credit line is for working
             capital and merger and acquisition purposes. As of December 31,
             1998, the Company had $4,639,844 outstanding under the New
             Committed Line.

             Subsequent to year-end, the New Committed Line was retroactively
             amended as of December 31, 1998. The amended agreement provided
             that the maximum amount of borrowings, including issued letters of
             credit, which may at any time be outstanding, be the lesser of $11
             million or the sum of 80% of qualified accounts receivable and 50%
             of eligible inventory, as defined. The interest on borrowings is at
             the prime rate plus 1%. The Company is required to maintain certain
             financial ratios, including, among others, minimum working capital,
             debt service and tangible net worth, as defined in the amended
             agreement. The Company was in compliance with these covenants under
             the amended agreement as of December 31, 1998.

       (c)   GECPF Obligations

             In connection with the purchase of the building and manufacturing
             equipment for Quail in Magnolia, Arkansas, GECPF financed the
             purchase through the issuance of $4,300,000 of Arkansas State
             Industrial Revenue Bonds, of which $3,600,000 represents bonds
             related to equipment and $700,000 represents bonds related to real
             estate, building improvements and other equipment, (collectively,
             the Arkansas Borrowings). The Arkansas Borrowings bear interest at
             5.89% commencing January 1, 1998 and are payable monthly. Principal
             payments on the Arkansas Borrowings are $35,833 per month
             commencing January 1, 1998 and end December 31, 2007. The equipment
             bonds are secured by the related financed assets and the real
             estate bonds are secured by a self-reducing letter of credit equal
             to the outstanding principal balance plus 90 days interest, which
             reduces the availability under the Company's line of credit.

             In June 1998, AAI and Quail purchased a second manufacturing
             facility in Kingman, Arizona, commencing production of fiber optic
             cable duct in October 1998. In connection with the purchase

                                      F-16

<PAGE>

                      ASAHI/AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998

                                   (Continued)

             of the building and manufacturing equipment for this facility,
             GECPF financed the purchase through the issuance of $8,000,000 of
             County of Mohave Industrial Development Bonds, of which $6,205,000
             represents bonds related to equipment and $1,795,000 represents
             bonds related to real estate, building improvements and other
             equipment (collectively, the Arizona Borrowings). The Arizona
             Borrowings bear interest at 5.65% which began September 27, 1998
             and are payable monthly. Principal payments on the Arizona
             Borrowings are $68,517 per month from September 27, 1998 to August
             27, 2003 and $64,817 per month from September 27, 2003 to August
             27, 2008. The equipment bonds are secured by the related financed
             assets and the real estate bonds are secured by a self-reducing
             letter of credit equal to the outstanding principal balance plus
             90 days interest, which reduces the availability under the
             Company's line of credit.

             As of December 31, 1998, there was $11,580,267 outstanding related
             to the GECPF obligations. There was $2,855,071 of proceeds
             remaining in escrow, to be disbursed as final payments of the
             equipment and real estate. This amount is included in restricted
             cash in the accompanying consolidated balance sheet.

             In accordance with both the Arkansas Borrowings and the Arizona
             Borrowings (collectively, the Borrowings), the Company is required
             to maintain certain financial ratios, including, among others,
             minimum working capital, debt service and tangible net worth, as
             defined. The Company was not in compliance with certain of its
             financial covenants as of December 31, 1998. Subsequent to
             year-end, the Company received a waiver for the events of
             noncompliance as of December 31, 1998 and the Borrowings were
             amended, changing the covenant ratios for 1999 and thereafter. The
             Company would have been in compliance with all of the required
             financial ratios as of December 31, 1998 under the agreement, as
             amended.

       (d)   Capital Leases

             The Company leases certain equipment under capital leases. Future
             minimum lease payments under these leases as of December 31, 1998
             are as follows:

<TABLE>
<CAPTION>
               Year                                                  Capital
                                                                     Leases
<S>           <C>                                                   <C>     
              1999                                                  $390,167
              2000                                                   375,068
              2001                                                   134,083
              2002                                                    34,981
              2003                                                    13,159
                                                                    --------
                      Total minimum lease payments                   947,458
             Less--Amount representing interest                       93,948
                                                                    --------
                      Capital lease obligations                      853,510
             Less--Current portion of capital lease obligations      331,042
                                                                    --------
                                                                    $522,468
                                                                    ========
</TABLE>

                                      F-17


<PAGE>


                      ASAHI/AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998

                                   (Continued)

(12)   STOCKHOLDERS' EQUITY

       (a)   Note Receivable from Stockholder/Officer

             On October 1, 1991, the Company loaned $350,000 to a
             stockholder/officer of the Company. The terms of the loan were
             amended on March 31, 1993, and interest began accruing on April 1,
             1996 at the prime rate (7.75% as of December 31, 1998) plus 1%. The
             outstanding principal and interest are due in equal quarterly
             payments, which commenced April 1996, over a five-year period. The
             proceeds of the loan were used for the purchase of the Company
             common stock by the officer from another stockholder. The balance
             outstanding under this note at December 31, 1998 was $157,500.

       (b)   Initial Public Offering

             In May 1996, the Company sold 1,334,000 shares of common stock to
             the public, at an offering price of $7.50 per share (including
             174,000 shares sold pursuant to an overallotment option exercised
             by the underwriters), of which 1,000,000 shares were sold by the
             Company and 334,000 shares were sold by selling stockholders. Net
             proceeds to the Company were $6,165,871 after deducting offering
             expenses of $1,334,129.

       (c)   Stock Split

             In March 1996, the Board of Directors approved an 836-to-1 stock
             split of the Company's common stock. All share and per share
             amounts have been retroactively restated as a result of this stock
             split.

       (d)   Preferred Stock

             The Board of Directors has the authority to issue up to 1,000,000
             shares of preferred stock, $10.00 par value, in one or more series
             and to fix the rights, preferences, privileges and restrictions
             thereof, including dividend rights, dividend rates, conversion
             rights, voting rights, terms of redemption, redemption prices,
             liquidation preferences and the number of shares constituting any
             series or the designation of such series, without further vote or
             action of the stockholders.

(13)   STOCK-BASED COMPENSATION PLANS

       (a)   Quail Executive Stock Options

             In connection with the establishment of Quail, the Company and the
             individual hired as President of Quail (the Executive) entered into
             a stock purchase agreement whereby the Company agreed to sell to
             the Executive 68,461 shares of the Company's common stock for $6.50
             per share if certain

                                      F-18

<PAGE>

                      ASAHI/AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998

                                   (Continued)

             financial performance milestones are met in any one of the first
             three years of Quail's operation. The purchase price for the
             shares was paid to the Company in July 1997 and was in the form of
             certain equipment and trademark rights valued at $145,000 and a
             $300,000 irrevocable letter of credit. The total purchase price of
             $445,000 was recorded in stockholders' equity as additional
             paid-in capital. If the performance milestones are not met, the
             shares will not be sold to the Executive and the Executive
             forfeits to the Company the amounts paid for the shares.

             In March 1998, prior to any of the performance milestones being
             met, the Company amended its agreement with the Executive whereby
             the Company issued the Executive an option to purchase 68,461
             shares of the Company's common stock for $6.50 per share which was
             the fair market value of the underlying common stock. As such, the
             option grant has been accounted for under fixed plan accounting and
             no compensation charge has been recognized. The option vests in
             seven annual increments beginning on the first anniversary of the
             date of grant. The amended agreement provides for accelerated
             vesting in any of the first three years if the performance
             milestones are met.

       (b)   Equity Incentive Plan

             On March 11, 1996, the Board of Directors and stockholders approved
             the Asahi/America Equity Incentive Plan (the Incentive Plan). The
             aggregate number of shares of common stock that may be issued
             pursuant to the Incentive Plan is 330,000 shares. The Company may
             grant incentive stock options and other stock compensation
             arrangements to eligible employees and consultants. The exercise
             price of each incentive stock option may not be less than 100%
             (110% for greater than 10% stockholders) of the fair market value
             of common stock at the date of grant. Nonqualified stock options
             may be granted to any employee, officer, director or consultant of
             the Company. The terms of each nonqualified stock option are
             determined by the Board of Directors. All options vest in three
             equal annual increments beginning on the first anniversary of the
             date of grant.

       (c)   Independent Directors' Stock Option Plan

             On March 11, 1996, the Board of Directors and stockholders approved
             the Asahi/America Independent Directors' Stock Option Plan (the
             Directors' Plan). The Directors' Plan authorizes the issuance of an
             option to each Company director who is neither an employee of Asahi
             nor a holder of, or affiliated with or related to a holder of, 5%
             or more of Asahi's common stock, to purchase up to 10,000 shares of
             Asahi's common stock on the date of election to the Board of
             Directors. These shares are granted at fair market value and are
             fully vested upon grant. A total of 30,000 shares of common stock
             is reserved under the Directors' Plan.

                                      F-19

<PAGE>

                      ASAHI/AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998

                                   (Continued)

             The following schedule summarizes the activity under the Incentive
Plan and the Directors' Plan for the three years ended December 31, 1998:

<TABLE>
<CAPTION>
                                                      Shares      Weighted
                                                                  Average
                                                                  Exercise
                                                                   Price

<S>                                                    <C>         <C>   
              Granted, Fiscal 1996                     359,500     $ 7.56

                Canceled                                (9,500)      7.50
                                                      --------    -------

              Outstanding, December 31, 1996           350,000       7.56

                Granted                                 16,500       7.83

                Canceled                               (53,333)      7.50
                                                      --------    -------

              Outstanding, December 31, 1997           313,167       7.58

                Granted                                 36,000       7.11

                Canceled                               (37,667)      7.45
                                                      --------    -------

              Outstanding, December 31, 1998           311,500    $  7.53
                                                      ========    =======
</TABLE>

             The range of exercise prices for the options outstanding at
             December 31, 1998 was $6.63 to $9.50 per share. Options canceled
             during the years ended December 31, 1996, 1997 and 1998 related
             primarily to employee terminations.

             There were 196,167 stock options exercisable under both stock
             option plans as of December 31, 1998. The weighted average exercise
             price was $7.59 and the range of actual exercise prices was $7.50
             to $9.50 for the shares exercisable at December 31, 1998.

             There were 48,500 total stock options available for future grants
             under the equity incentive plan as of December 31, 1998. There were
             no stock options available for future grant under the Directors'
             Plan.

       (d)   Employee Stock Purchase Plan

             In July 1996, the Company established the Asahi/America, Inc.
             Employee Stock Purchase Plan (the Purchase Plan), which allows
             substantially all employees to acquire shares of common stock

                                      F-20

<PAGE>

                      ASAHI/AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998

                                   (Continued)

             of the Company. The Purchase Plan authorizes the issuance of up to
             a total of 150,000 shares of common stock to participating
             employees.

             The price at which shares may be purchased is 85% of the fair
             market value per share of the common stock on either the semiannual
             offering commencement date or the semiannual offering termination
             date. Purchases under the Purchase Plan are subject to certain
             limitations, as defined.
             In 1997 and 1998, there were 18,669 and 23,559 shares issued under
             the Purchase Plan, respectively.

       (e)   Proforma Adjustment


             SFAS No. 123 established a fair-value-based method of accounting
             for stock-based compensation plans. The Company adopted the
             disclosure-only alternative under SFAS No. 123 for stock options
             granted to employees and directors, which requires disclosure of
             the pro forma effects on earnings and earnings per share as if the
             fair value accounting as calculated under SFAS No. 123 had been
             used, as well as certain other information. The Company accounts
             for stock-based compensation in accordance with Accounting
             Principles Board Opinion No. 25, Accounting for Stock Issued to
             Employees, as permitted by SFAS No. 123.

             The Company had no stock option grants prior to 1996; accordingly,
             the Company has computed only the pro forma disclosures required
             under SFAS No. 123 for all stock options granted since 1996 and
             under the Purchase Plan using the Black-Scholes option pricing
             model.

             The assumptions used for the three years ended December 31, 1998
             are as follows:

<TABLE>
<CAPTION>
                                                               1996                    1997             1998

<S>                                                          <C>                   <C>               <C>
              Risk-free interest rates                       6.48%-6.69%           6.20%- 6.38%      5.40%- 5.61%
              Expected dividend yield                             0%                    0%                0%
              Expected lives                                   5 years               5 years           5 years
              Expected volatility                                25%                   25%               25%
             Weighted average remaining contractual          9.33 years            8.51 years        7.92 years
                life of options outstanding
             Weighted average fair value of options           $    2.70             $    2.77         $    2.24
                granted
</TABLE>

                                      F-21

<PAGE>

                      ASAHI/AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998

                                   (Continued)

             The pro forma effect of applying SFAS No. 123 would be as follows:

<TABLE>
<CAPTION>
                                                           1996        1997         1998

<S>                                                     <C>          <C>          <C>       
              Net income (loss) as reported             $2,438,152   $1,781,849   $ (28,286)
                                                        ==========   ==========   =========
              Pro forma net income (loss)               $2,226,948   $1,435,489   $(360,926)
                                                        ==========   ==========   =========
              Basic and diluted proforma earnings       $      .82   $      .53   $   (.01)
                                                        ==========   ==========   ========
                 (loss) per share as reported
              Pro forma basic and diluted proforma      $      .77   $      .43   $   (.11)
                                                        ==========   ==========   ========
                 earnings (loss) per share
</TABLE>

(14)   LEASE COMMITMENTS

       The Company leases certain office space and certain equipment under
       operating leases through July 2003. The approximate future minimum lease
       payments under these leases are as follows:

<TABLE>
<CAPTION>
        Year                                           Amount

<S>    <C>                                            <C>     
       1999                                           $255,000
       2000                                            168,000
       2001                                             33,000
       2002                                               3000
       2003                                              2,000
                                                      --------

               Total minimum lease payments           $461,000
                                                      ========
</TABLE>

       Rental expense incurred under these leases and charged to
       operations was approximately $204,000, $344,000 and $288,000 for
       the years ended December 31, 1996, 1997 and 1998, respectively.

(15)   OTHER EMPLOYEE BENEFITS

       (a)   Profit Sharing Plan

             The Asahi/America, Inc. Profit Sharing Plan (the Plan) is a
             combined 401(k) and profit sharing plan.

             Employer contributions for the profit sharing portion of the Plan
             are discretionary and determined by the Board of Directors. The
             Company made a contribution to the Plan of $100,000 in 1996. There
             was no contribution made in 1997 or 1998.

             Under the terms of the 401(k) portion of the Plan, eligible
             employees may contribute limited percentages of their salaries to
             the Plan, and the Company matches a portion. The Company's

                                      F-22

<PAGE>

                      ASAHI/AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998

                                   (Continued)

             matching contributions were approximately $31,000, $43,000 and
             $49,000 for the years ended December 31, 1996, 1997 and 1998,
             respectively.

       (b)   Postretirement and Postemployment Benefits

             The Company has no obligations for postretirement or postemployment
             benefits.

(16)   SETTLEMENT WITH EQUIPMENT VENDOR

       Included in other income for the year ended December 31, 1998 is a gain
       of $225,000 received as a result of a settlement related to performance
       issues, with the manufacturer of Quail's corrugated equipment. This
       settlement was in the form of credits to be taken on future purchases.

(17)   BUSINESS SEGMENTS

       The Company has adopted SFAS No. 131, Disclosures About Segments of an
       Enterprise and Related Information in the fiscal year ended December 31,
       1998. SFAS No. 131 establishes standards for reporting information
       regarding operating segments in annual financial statements and requires
       selected information for those segments to be presented in interim
       financial reports issued to stockholders. SFAS No. 131 also establishes
       standards for related disclosures about products and services and
       geographic areas. Operating segments are identified as components of an
       enterprise about which separate discrete financial information is
       available for evaluation by the chief operating decision maker, or
       decision making group, in making decisions on how to allocate resources
       and assess performance. The Company's chief decision-maker, as defined
       under SFAS No. 131, is a combination of the President and Chief Executive
       Officer, the Chief Financial Officer and other operating and financial
       officers. To date, the Company has viewed its operations and manages its
       business as two segments, AAI and Quail, as being strategic business
       units that offer different products (see Note 1). The Company evaluates
       the performance of its operating segments based on revenues from external
       customers, net income (loss) before provision from income taxes and total
       assets.

                                      F-23

<PAGE>

                      ASAHI/AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998

                                   (Continued)

       Summarized financial information concerning the Company's reportable
       segments for the year ended December 31, 1998 is as follows:

<TABLE>
<CAPTION>
                                                           AAI            Quail         Eliminating     Consolidated

<S>                                                   <C>             <C>              <C>             <C>          
       Revenues from external customers               $  35,166,327   $   2,489,577    $     (77,854)  $  37,578,050
       Net income (loss) before provision for             1,094,187        (575,989)              --         518,198
          income taxes
       Gross profit                                      12,137,955         613,615               --      12,751,570
       Selling, general and administrative               10,475,024       1,139,148               --      11,614,172
         expenses
       Depreciation and amortization                      1,488,915         274,879               --       1,763,794
       Interest expense, net                                240,165         275,456               --         515,621
       Accounts receivable, net                           4,883,737       1,271,116               --       6,154,853
       Inventory, net                                    10,560,090         813,661               --      11,373,751
       Capital expenditures                                 814,492       9,027,922               --       9,842,414
       Total assets                                      36,323,176      16,476,375       (4,575,504)     48,224,047
</TABLE>

       As of December 31, 1997, management viewed its operations and managed its
       business as one principal segment, AAI. Operations for Quail in 1997 were
       not significant. As a result, the financial information for the year
       ended December 31, 1997 disclosed herein represents all of the material
       financial information related to the Company's principal operating
       segment.

(18)   SIGNIFICANT CUSTOMER AND EXPORT SALES

       During 1996, 1997 and 1998, one customer accounted for 23%, 32% and 26%
       respectively, of net sales. During 1996, 1997 and 1998, export sales
       accounted for 4%, 7% and 6%, respectively, of net sales.

(19)   ACQUISITION

       In May 1997, the Company acquired the vortex flow meter division of
       Universal Flow Monitors, Inc. and the Rosaen Company for $3,000,000. The
       acquisition was accounted for as a purchase. The results of operations of
       the vortex flow meter division have been included in the Company's
       statement of income since the date of acquisition. Pro forma information
       has not been presented due to immateriality.

                                      F-24

<PAGE>

                      ASAHI/AMERICA, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998

                                   (Continued)

       The Company allocated the purchase price to the acquired assets as
       follows:

<TABLE>
<CAPTION>
<S>                                     <C>
        Patents                         $1,100,000
        Goodwill                         1,652,120
        Fixed assets                        71,906
        Inventory                          155,974
        Noncompete agreement                20,000
                                        ----------

                                        $3,000,000
</TABLE>

(20)   PATENT LITIGATION

       In July 1997, the United States Patent and Trademark Office reconfirmed
       the validity of a patent owned by the Company. In August 1997, the
       Company instituted a patent infringement suit in the United States
       District Court in New York against a competitor. In the fourth quarter of
       1997 and first quarter of 1998, the Company incurred approximately
       $400,000 and $132,000, respectively, in legal expenses related to this
       patent issue. These costs are included in selling, general, and
       administrative expense in the accompanying statement of operations. In
       February 1999, the Court ruled in favor of the Company as it upheld the
       validity of the Company's patent. The Court has referred the case to a
       Magistrate Judge for an inquest hearing, scheduled for March 5, 1999 and
       directed a determination as to damages to be completed within three
       months of the hearing. On March 8, 1999, the Company and its competitor
       reached an amicable settlement of this case. This settlement included
       monetary consideration from the competitor to the Company, as well as the
       granting by the Company of a nonexclusive license for this patent to the
       competitor, totaling $900,000, which was paid to the Company in March
       1999.