SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-K/A

                      ANNUAL REPORT PURSUANT TO SECTION 13
                     OF THE SECURITIES EXCHANGE ACT OF 1934



For the Fiscal Year Ended                         October 31, 1998
                          ------------------------------------------------------

Commission File Number                                 2-37706
                          ------------------------------------------------------
                          Bowles Fluidics Corporation
--------------------------------------------------------------------------------
             (exact name of registrant as specified in its charter)

              Maryland                                           52-0741762
--------------------------------------------------------------------------------
(State or other jurisdiction of                           (I.R.S. Employer
 incorporation or organization)                           Identification No.)

   6625 Dobbin Road, Columbia, Maryland                           21045
--------------------------------------------------------------------------------
(Address of principal executive offices)                       (Zip Code)

Registrant's telephone number:                 (410) 381-0400
                                 -----------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:

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

                                      None
--------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
                                                Yes   x        No
                                                     ---          ---
The aggregate market value of the registrant's voting stock held by
non-affiliate persons and entities as of December 24, 1998, computed by
reference to the closing price for such stock on the composite reporting system
on such date, was $908,274 based on 1,038,027 shares.

The number of shares of the registrant's common stock outstanding as of December
24, 1998, was 12,685,011.


                                     PART I
<PAGE>


Item 1.       BUSINESS

              Bowles Fluidics Corporation was incorporated under Maryland law in
        1961 (originally as Bowles Engineering Corporation) for the purpose of
        advancing and exploiting the technology of fluidics. For about ten years
        the principal business of the Company was research and development
        primarily under contracts with agencies of the U.S. government. From
        1972 to 1979 its principal income was derived from the sale of
        proprietary consumer products it had developed based upon fluid
        oscillators, including massaging showers and oral irrigation devices.
        These consumer products have since been discontinued. Since 1979 its
        principal product has been proprietary windshield and rear window washer
        nozzles for the automotive industry. Late in FY 1989, the Company
        extended the automotive product line to include shipments of fluidic
        defroster nozzles. The Company also provides its automotive customers
        with tooling and application engineering services related to its
        products.

              The Company has continued to expend efforts on the research and
        development of new fluidic products for the automotive and other
        industries. The air conditioning outlet in the instrument panel of
        automotive vehicles has been a particular focus. Prototypes have been
        developed and presented to a number of potential customers. At present,
        two customers have selected the Company as the supplier of these
        outlets, one for a vehicle scheduled to start production in August 1999
        and the other for production in February 2000.


        Principal Products and Markets

              The Company is the leading designer, manufacturer and supplier of
        windshield and rear window washer nozzles for passenger cars and light
        trucks in North America. Defroster nozzles for a limited number of these
        same light vehicles are also being manufactured and sold.

              The Company's principal market for its fluidic nozzles, both
        windshield washer and defroster, consists of North America, i.e., the
        "Big Three" U.S. automotive manufacturers and foreign transplants. The
        Company believes that it supplies about 80% of the total windshield
        washer nozzle requirements for light vehicles (cars and light trucks)
        manufactured in the United States, Canada and Mexico. The defroster
        nozzle is currently being supplied to a number of vehicle models in this
        market.

              The Company has a licensing agreement covering Europe with a major
        German automotive parts supplier for its windshield washer systems. The
        Company itself has no international operations.

              In North America, over 90% of the Company's production of nozzles
        is incorporated in vehicles produced by General Motors, Ford and
        Chrysler, each of whom typically represents over 10% of the Company's
        sales volume. The Company is, therefore, dependent upon the requirements
        of the U.S. automotive
                                       2
<PAGE>

        industry producing cars and light trucks. Although the Company enters
        into agreements with its customers to meet 100% of their production
        requirements, notice of firm shipping requirements for the coming week
        generally takes place weekly from the assembly plants and at somewhat
        longer intervals from the first-tier suppliers. The Company's monthly
        sales follow the seasonal pattern dictated by the production levels of
        its customers. Consequently, sales for the second and fourth quarters of
        the Company's fiscal year are typically higher than for the first and
        third.

              Sales also include technical services, i.e., design, tooling, and
        prototyping services for the Company's customers. The requirements of
        the automotive customers are for designs and tools to meet the needs of
        forthcoming vehicle models or changes in existing models, as well as for
        prototypes of new products desired for testing. These sales are, for the
        most part, undertaken as a service to the customers, and the Company
        contracts these services and tools so as to recover projected costs.


        Patents and Competitive Products

              The Company has engaged, since its inception, in research and
        development in the fields of fluidics and fluid effect devices,
        encompassing both gases and liquids. Over the past 19 years, 52 U.S.
        patents have been granted to the Company's employees and assigned to the
        Company. Ten applications are presently in process for additional U.S.
        patents. Patents in selected other countries have also been granted for
        most of the art covered by the U.S. patents. Although these patents
        embody new and novel technology or product, there is available
        competitive technology and alternative product. The extent to which the
        expiration of an individual patent may affect the Company's competitive
        position is difficult to determine.

              In the past, U.S. patents were granted for a period of 17 years
        from the date of issue. However, beginning in June 1995, those granted
        in the past can be for a period of either 17 years from date of issue or
        20 years from date of filing the application, whichever expiration date
        is later. Those granted on applications filed after June 1995 are for a
        period of 20 years from date of filing.

              The Company's fluidic windshield washer and defroster nozzles,
        which are covered by issued U.S. and international patents, are in
        direct competition with conventional nozzles of traditional design. The
        Company believes that its products have advantages both in performance
        and in economy of assembly to the vehicle by the car manufacturers.


              The Company is of the opinion that, in the long run, a history of
        service, delivery, quality and economic supply is the most important
        factor in binding its customers to it. Customers of the Company place a
        great deal of emphasis on quality. The Company has maintained Ford's
        preferred supplier rating (Q1 award) since 1985, has been rated an
        excellent status in a supplier assessment by

                                       3
<PAGE>

        General Motors, and has been a self-certified supplier for Chrysler
        since 1991. The Company's material testing laboratory has been
        accredited by General Motors since 1992.

              In addition, the Company's customers required that the Company put
        into place a QS-9000-compliant quality system, the automotive version of
        ISO 9000. The Company went through the initial independent assessment in
        September 1996, received certification in December 1996 as a QS-9000
        supplier with ISO 9001 addendum, and has maintained that certification
        since then.

              The Company does not grant North American licenses for its own
        patents in which it has an interest in marketing a product. The Company
        does pursue interests expressed by others in the Company's technology in
        an attempt to broaden its use. To the extent that there may be
        additional uses in markets not related to those of primary interest to
        the Company, efforts are made to license the patents for such use.


        Raw Material Sources and Availability

              Raw materials, primarily plastic resin, are sourced within the
        United States. Their market prices were generally stable during the
        current year and adequate supply is expected to be available in the
        coming year. The resins purchased are restricted to those approved by
        the Company's customers.


        Working Capital Requirements

              The Company's standard credit terms for receivables are net 30
        days. Adequate levels of inventories are normally maintained in order to
        ensure compliance with the stringent delivery requirements of our
        customers.

              The design and acquisition of production tools, which represent
        the major portion of technical services sales, normally take several
        months to complete, during which period the Company accumulates such
        costs which are included in work-in-process inventories. Sales invoices
        for these tools and services are rendered only after completion and
        customers' acceptance of qualified products produced by the tools.



        Research and Development

              The Company's research and development costs, all Company-funded,
        were:

                                                                % of Sales
                      FY 1998               $       866,390           4.1
                      FY 1997               $     1,005,183           5.3
                      FY 1996               $     1,175,890           6.5

                                       4
<PAGE>

              In FY 1998, the Company's research and development efforts were
        directed primarily toward basic research and the design of new fluidic
        nozzles intended for a variety of purposes resulting in the filing of a
        number of patent applications.

              In FY 1997 and FY 1996, the Company's research and development
        efforts were directed primarily toward the further development of
        fluidic air conditioning outlets for cars and light trucks, and the
        advancement of its knowledge of the workings of fluidic washer nozzles,
        including wind tunnel testing. These efforts resulted in a number of
        patent filings.

              Potential sales of products still in the development stage cannot
        be predicted since product capability and customer acceptance of the new
        technology are difficult to determine.


        Employees

              The Company averaged approximately 275 employees during FY 1998
        and employed 278 people on a full-time basis on October 31, 1998. The
        increase from the 252 employed on October 25, 1997, was primarily in the
        manufacturing departments.


        Compliance with Environmental Regulations

              The Company believes it is in compliance with all known
        environmental regulations and has no plans for significant expenditures
        to meet these requirements in the future.


Item 2. PROPERTIES

              The Company entered into an amended lease in September 1993 for,
        in effect, all of the space at its facility in Columbia, Maryland, its
        principal location until April 16, 2004. The lease amendment further
        provides an option to continue the lease for an additional ten years or
        to purchase the premises at 94% of fair market value at the end of the
        initial term of the lease.

              The facility provides for the Company's current needs for
        manufacturing windshield washer and defroster nozzles at levels adequate
        to meet projected customer needs and for manufacturing committed air
        conditioning outlets. Additional space for warehousing, however, will be
        required in the near future.

              The Columbia facilities are currently utilized as follows:

              Manufacturing, Materials, Quality Control        66,264 sq. ft.
              Administration and Sales                          8,883 sq. ft.
              Laboratories and Engineering                     13,679 sq. ft.

                  Total Area                                   88,826 sq. ft.

                                       5
<PAGE>

              Beginning April 15, 1997, the Company leased for three years 1,617
        sq. ft. of office space in Southfield, Michigan, to be used by its sales
        staff.


Item 3. LEGAL PROCEEDINGS

              None.


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

              None were submitted during the fourth quarter of the Company's
        fiscal year.


                                       6
<PAGE>


                                     PART II


Item 5. MARKET FOR REGISTRANT'S STOCK AND RELATED STOCKHOLDER
        MATTERS


        Stock Price and Markets

              The common stock of the Company is traded in the
        "over-the-counter" market and is quoted on the NASD OTC Bulletin Board;
        symbol BOWE. The preferred stock is unregistered and is not publicly
        traded.

              The high and low bid and asked prices of the common stock over the
        last two fiscal years are listed below:

                                         Bid                        Asked
                                         ---                        -----

    FY                           High          Low           High          Low
    --                           ----          ---           ----          ---

   1997      1st Quarter         1 3/8         13/16         1 5/8         1 1/4
             2nd Quarter         1 3/8           5/8        1 9/16           3/4
             3rd Quarter         13/16          7/16           7/8          9/16
             4th Quarter         3 1/8           3/4         3 1/2           7/8

   1998      1st Quarter         1 3/4         1 1/4        2 1/16         1 3/8
             2nd Quarter         1 3/4        1 1/16         2 1/2         1 3/8
             3rd Quarter         1 3/4             1             2         1 3/8
             4th Quarter        1 1/32         23/32         1 1/2         1 1/8

        Note: The above quotes represent prices between dealers and do not
        include retail mark-up, mark-down, or commissions. They do not represent
        actual transactions.


              On December 8, 1998, the Board of Directors of the Company adopted
        a resolution authorizing the submission to the vote of the stockholders
        of the Company of a proposed amendment to the Articles of Incorporation
        of the Company under which all outstanding shares of common stock will
        be subject to a reverse stock split at the ratio of 1,000 shares of
        common stock before the reverse split to 1 share of common stock after
        the reverse split. The Board of Directors also adopted a resolution
        authorizing the redemption of all fractional shares of common stock
        resulting from the reverse stock split at the rate of $1,250 per post
        reverse split share. This proposed amendment to the Articles of
        Incorporation is pending subject to stockholder approval.

              Following the reverse stock split and purchase of resulting
        fractional shares of common stock, it is expected that the number of
        record shareholders of the Company's common stock will be reduced from
        approximately 430 (as of October 15, 1998) to less than 200. The number
        of holders of the Company's preferred

                                       7
<PAGE>

        stock will remain unchanged at approximately 18. As a result of the
        reduction in number of record shareholders below 300, the Company
        intends to suspend its obligation to file periodic reports with the
        Securities and Exchange Commission pursuant to section 15(d) of the
        Exchange Act of 1934.


        Approximate Number of Equity Security Holders

                                                       Approximate Number of
                                                           Record Holders
                       Title of Class                  (as of October 31, 1998)
                       --------------                  ------------------------

                        Common Stock
                       $.10 Par Value                              430

                       Preferred Stock
                        8% Cumulative                               18

              Included in the number of stockholders of record are shares held
        in "nominee" or "street" name.


        Dividends

              The Company has never paid cash dividends on its common stock.
        Payment of dividends on common stock is within the discretion of the
        Company's Board of Directors and will depend, among other factors, on
        current and forecasted earnings, investment requirements, and the
        financial condition of the Company.

              For information concerning dividends on preferred stock, see Note
        6 of Notes to Consolidated Financial Statements.



                                       8
<PAGE>


Item 6.    SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>


                                        October 31, 1998   October 25, 1997    October 26, 1996   October 28, 1995  October 29, 1994
                                        ----------------   ----------------    ----------------   ----------------  ----------------


<S>                                          <C>                <C>                <C>                <C>                <C>
Net sales                                    $21,084,804        $18,842,673        $18,128,274        $16,972,876        $15,111,829

Net income                                       932,186          1,142,023            884,306          1,783,875          1,727,020

Basic earnings
  per share                                          .07                .08                .06                .14                .14

Diluted earnings
  per share                                          .06                .07                .05                .11                .11

Working capital                                5,389,165          5,414,955          4,649,328          4,296,368          3,126,959

Total assets                                  12,355,321         11,784,701         10,719,852          9,292,446          8,478,227

Long-term debt                                      --                 --                 --              202,811            512,831

Stockholders' equity                         $ 9,378,219        $ 8,511,429        $ 7,439,552        $ 6,629,891        $ 4,907,664
</TABLE>


                                       9
<PAGE>




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


        Results of Operations

                               FY 1998 vs. FY 1997

              Total FY 1998 sales of $21,084,804 increased 12% over FY 1997
        sales of $18,842,673, almost all due to higher technical services sales.
        Net income for FY 1998 was $932,186, an 18% decrease from the FY 1997
        net income of $1,142,023. The principal reasons for the decrease were
        higher manufacturing costs of the windshield washer nozzles and the
        unfavorable effect of the General Motors strike during the Company's
        third quarter.

              Product sales of light vehicle windshield washer and defroster
        nozzles increased 1.5% or $275,410 to $18,385,924 in FY 1998 from
        $18,110,514 in FY 1997. Sales of washer nozzles provided an increase of
        $595,206, while those of defroster nozzles decreased $319,797 due to
        declining sales of the related older vehicle models. Sales of washer
        nozzles to the Big Three U.S. car manufacturers were approximately equal
        to the prior year. The Company's third quarter sales of both washer and
        defroster nozzles in FY 1998 were significantly affected by the strike
        at the General Motors auto plants in June and July.

              The Company's operating plans for the 1999 fiscal year assume that
        production requirements for light vehicle production in North America
        will be approximately equal to FY 1998.

              Technical services sales increased 269% to $2,698,880 in FY 1998
        from $732,159 in FY 1997. In FY 1998 tooling and design services
        included those related to the new air conditioning outlets scheduled to
        start production for two vehicles during the next two fiscal years and
        those for newly designed washer nozzles for future car production, both
        of which were an increase over the prior year.

              For the 1999 fiscal year, technical services are forecasted to be
        somewhat higher than FY 1998 due to continuing tooling sales related to
        the new air conditioning outlets and washer nozzles.

              Gross profit on total sales declined 15% to $4,938,956 in FY 1998
        from $5,777,299 in FY 1997. As a percentage of total sales, gross profit
        was 23.4% in FY 1998 versus 30.7% in FY 1997. Manufacturing costs were
        higher as a number of newly designed washer nozzles began production and
        a number of initiatives were taken including the introduction of cell
        manufacturing to improve the manufacturing processes. The decline in
        sales due to the General Motors strike also caused the gross profit to
        decline. In addition, the significantly larger technical sales in FY
        1998 described above versus FY 1997 which have essentially no profit
        margin negatively impacted the gross profit percentage on

                                       10
<PAGE>

        total sales. These sales are undertaken as a service to the Company's
        customers and are contracted so as to recover only projected costs.

              Selling, general and administrative expenses declined 13% in FY
        1998 from FY 1997 due to the savings from the elimination of the higher
        sales commissions paid to the manufacturer's representatives and their
        replacement with the Company's own sales force in the Detroit area.

              Research and development costs decreased 14% to $866,390 in FY
        1998 from $1,005,183 in the prior year due to a decline in the spending
        on the design and development of the automotive air conditioning
        outlets. The Company's plans call for the maintenance of this level of
        R&D spending in FY 1999.

              Interest income declined in FY 1998 due principally to lower cash
        and cash equivalents and investments available for sale. Other income
        increased because of higher royalties and license income generated by
        the sales of the Company's licensee outside North America.

              The provision for income taxes of $575,953 in FY 1998 reflects the
        lower income before taxes as compared to FY 1997. The effective income
        tax rate for FY 1998 was higher than FY 1997 due to increases in state
        taxes.


                               FY 1997 vs. FY 1996

              Total FY 1997 sales of $18,842,673 increased 4% above FY 1996
        sales of $18,128,274. Net income for FY 1997 rose to $1,142,023,
        representing a 29% gain over FY 1996 net income of $884,306. Adjusting
        for the FY 1996 nonrecurring accrual of $760,000, (which reduced the
        Company's after-tax net income by $465,400) for the expenses related to
        the termination of the sales agreement with its manufacturer's
        representatives, net income for FY 1997 declined 15% principally due to
        higher application engineering and tooling costs.

              Product sales of light vehicle windshield washer and defroster
        nozzles increased 5% to $18,110,514 in FY 1997 from $17,292,030 in FY
        1996. Higher volume of shipments of newly and previously designed washer
        nozzles to the Big Three U.S. car manufacturers as well as the
        transplant manufacturers in the U.S. was the reason for the gain, even
        though defroster outlet sales declined due to discontinuation of certain
        models. This 5% increase compares favorably with the 2% gain in North
        American light vehicle production during the same period.

              In contrast to the increase in product sales for FY 1997,
        technical services sales decreased 12% to $732,159 from FY 1996's
        $836,244. Sales of tooling for new windshield washer nozzles were down
        due to deferrals in the completion and approvals of these tooling
        programs.

              Gross profit on total sales declined 6% to $5,777,299 in FY 1997.
        The margin on sales diminished to 30.7% in FY 1997 from 33.8% in the
        previous fiscal year. The declines occurred principally due to increased
        application engineering

                                       11
<PAGE>

        expenses associated with the customization of new windshield and rear
        window washer nozzles. In addition, higher tooling costs over and above
        amounts billed to customers were incurred for the development and
        support of both washer nozzle and air conditioning outlet tooling
        projects.

              Selling, general and administrative expenses declined $548,359 or
        15% in FY 1997 from FY 1996 because of the accrual in fiscal year 1996
        of $760,000 for expenses related to the termination of the Company's
        sales agreement with its manufacturer's representatives. Excluding this
        nonrecurring accrual, selling, general and administrative expenses
        increased 7% in fiscal year 1997 principally due to professional fees
        for services related to strategic and financial planning for the
        Company.

              Research and development costs decreased 15% to $1,005,183 from
        $1,175,890 the previous fiscal year. Spending on various new product
        programs was cut back and larger amounts were spent on the design and
        development of the automotive air conditioning outlets.

              In FY 1997, the provision for income taxes was $657,420,
        reflecting the higher income before taxes and approximately the same
        effective tax rate as in the previous fiscal year.


        Liquidity and Capital Resources

              Current assets at the 1998 fiscal year end were $7,825,174
        compared with $8,195,361 at the end of the prior fiscal year. The
        decline of $370,187 was principally related to the decline of $584,385
        in cash and cash equivalents and investments available for sale
        partially offset by the addition of the income taxes receivable of
        $194,213.

              Inventories rose by 6% during the fiscal year. Finished goods were
        built up to reach more comfortable levels to meet the stringent customer
        service requirements, and the tooling work-in-process declined since the
        tools were completed and approved for sale.

              Current liabilities declined 12% or $344,397 as the remaining
        payments were made during FY 1998 for the liability associated with the
        termination of the Company's sales agreement with its manufacturer's
        representatives.

              The current ratio of 3.2:1 at the 1998 fiscal year end increased
        in comparison to the 2.9:1 ratio at the 1997 fiscal year end principally
        due to the decline in current liabilities.

              Cash provided by operating activities in the amount of $1,493,822
        in fiscal year 1998 resulted principally from net income of $932,186
        plus the non-cash charges for depreciation and amortization of
        $1,091,634 offset by an increase in working capital of $843,803.

                                       12
<PAGE>

              Funds were used for capital expenditures in the amount of
        $2,014,132 principally for production and computer equipment. The
        Company expects to spend approximately the same amount for capital
        expenditures in FY 1999. During the year, the Company sold $1,586,735 of
        U.S. Treasury Bills to meet working capital and capital expenditure
        requirements.
 .
              The Company's $1,000,000 short-term line of credit was not
        utilized during the fiscal year 1998 and had no balance outstanding at
        October 31, 1998. The preferred stock dividend was declared and paid in
        January 1998.

              The Company's cash flow, financial position, and credit facilities
        should provide an adequate base for working capital and production
        investment requirements resulting from projected production rates by
        North American automotive manufacturers, additional market penetration,
        and potential new products near term, including air conditioning
        outlets.


        Impact of Year 2000

              The management of the Company has considered the impact of the
        changeover before, during and after midnight, December 31, 1999, to
        January 1, 2000, on the handling of data and information, any related
        software, and functions of operations. Inadequate handling of the
        changeover could have a significant impact on the Company as follows:

              a) business systems - internal computer information system,
        CAD/CAM engineering design systems, payroll and personnel systems, and
        electronic data interchange (EDI) systems;

              b)  manufacturing, warehouse and support equipment;

              c) technical infrastructure, e.g. network, computer server,
        personal computers, and telephone systems;

              d)  production, service, and other suppliers;

              e) environmental support systems, e.g. security and maintenance
        systems;

              f) dedicated research and development systems.

              The changeover will have no direct impact on the Company's
        products themselves.
              The Company's management has addressed each one of the above
        issues where the impact applies and has in general either updated the
        system, acquired a new system, tested the system and found compliance,
        or been assured by the equipment or software manufacturer that the
        related items were in compliance. A timetable was established in 1997,
        and all the necessary steps have been taken and completed with respect
        to the Company's internal systems. The Company's suppliers have been
        surveyed to assess the status of their systems, focusing on

                                       13
<PAGE>

        those with the largest potential impact on the Company. Questionable
        areas with respect to the Company's customers and suppliers continue to
        be addressed.

              Aside from the acquisition of new systems which were considered to
        be necessary and timely for the future successful functioning of the
        business, the costs of the steps taken were not material to the
        Company's profitability or financial condition.

              The most reasonable likely worst cases if the changeover were not
        handled properly by the Company's systems or its suppliers would be loss
        of power and/or communications for a temporary period which would impact
        production. Since the Company provides its products to and communicates
        daily with the auto companies' assembly plants or their other suppliers,
        this loss could be a serious problem. The Company plans to build
        inventory to meet this short-term contingency and consider alternative
        means of communications. Any significant loss of revenue would be
        directly related to lost production by the North American auto
        companies, which is not considered probable and cannot be estimated at
        this time.


        Forward-Looking Statements

              This report contains certain forward-looking statements subject to
        risks and uncertainties which could cause actual results to differ
        materially from those anticipated. Readers are cautioned not to place
        undue reliance on those forward-looking statements which speak only as
        of the date of this report.

                                       14
<PAGE>



Schedule A:  Relationship to Net Sales

<TABLE>
<CAPTION>



                                                                                                           Percent Change of Dollars
                                                                                                                 Period-to-Period
                                                                               Percentage of Net Sales        Increase or (Decrease)

                                                                          FY 1998      FY 1997      FY 1996    1997-1998   1996-1997
                                                                          -------      -------      -------    ---------   ---------

<S>                                                                        <C>          <C>          <C>          <C>           <C>
Net sales                                                                  100.0        100.0        100.0        11.9          3.9

Direct labor, material and other product-related costs                      76.5         69.3         66.2        23.6          8.7

Selling, general and administrative expenses                                12.8         16.4         20.1       (13.0)       (15.1)

Research and development costs                                               4.1          5.3          6.5       (13.8)       (14.5)
                                                                           -----         ----         ----

Operating income                                                             6.6          8.9          7.2       (17.6)        27.8

Interest income                                                              0.3          0.6          0.5       (39.1)        31.5

Other income (expense) net                                                   0.3           --           --          --           --
                                                                           -----         ----         ----

Net income before taxes                                                      7.2          9.5          7.7       (16.2)        29.4
                                                                           =====         ====         ====
</TABLE>

                                       15
<PAGE>




Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>



                                                                                                       Page

        <S>                                                                                            <C>
        Report of Independent Accountants...............................................................17

        Financial Statements:

              Consolidated Statements of Income.........................................................18

              Consolidated Balance Sheets...............................................................19

              Consolidated Statements of Changes in Stockholders' Equity................................20

              Consolidated Statements of Cash Flows.....................................................21

              Notes to Consolidated Financial Statements................................................22
</TABLE>

                                       16
<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS





December 16, 1998

To the Board of Directors and Stockholders
         Bowles Fluidics Corporation


     In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows present fairly, in all material respects, the financial position of
Bowles Fluidics Corporation as of October 31, 1998, and October 25, 1997, and
the results of its operations and its cash flows for each of the three fiscal
years in the period ended October 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.



                                                      PricewaterhouseCoopers LLP
Baltimore, Maryland


                                       17
<PAGE>




BOWLES FLUIDICS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>


                                                                      For the Years Ended

                                                     October 31,            October 25,            October 26,
                                                         1998                   1997                   1996

<S>                                             <C>                    <C>                    <C>
Product sales                                   $     18,385,924       $     18,110,514       $     17,292,030
Technical services sales                               2,698,880                732,159                836,244
                                                     -----------           ------------           ------------

Net sales                                             21,084,804             18,842,673             18,128,274

    Cost of sales                                     16,145,848             13,065,374             11,996,305
                                                      ----------             ----------             ----------

Gross profit                                           4,938,956              5,777,299              6,131,969

    Selling, general and
       administrative expenses                         2,691,141              3,094,769              3,643,128
    Research and development
       costs                                             866,390              1,005,183              1,175,890
                                                     -----------             ----------             ----------

Operating income                                       1,381,425              1,677,347              1,312,951

    Interest income                                       71,530                117,541                 89,401
    Other income (expense), net                           55,184                  4,555                (11,417)
                                                      ----------           ------------           ------------

Income before taxes                                    1,508,139              1,799,443              1,390,935

    Provision for income taxes                           575,953                657,420                506,629
                                                     -----------            -----------            -----------

Net income                                               932,186              1,142,023                884,306

    Preferred stock dividends
       accrued                                           (74,646)               (74,646)               (74,645)
                                                       ----------          ------------            -----------

Income applicable to common
    shareholders                                $        857,540       $      1,067,377       $        809,661
                                                     ===========              =========            ===========

Basic earnings per share                        $            .07       $            .08       $            .06
                                                   =============          =============        ===============

Diluted earnings per share                      $            .06       $            .07       $            .05
                                                   =============         ==============        ===============
</TABLE>


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

                                       18
<PAGE>

<TABLE>
<CAPTION>

BOWLES FLUIDICS CORPORATION
CONSOLIDATED BALANCE SHEETS
                                                                             October 31,            October 25,
                                                                                  1998                   1997
                                                                                  ----                   ----
ASSETS

Current
<S>                                                                         <C>                   <C>
    Cash and cash equivalents                                               $     1,734,261       $       755,525
    Investments available for sale                                                 --                   1,563,121
    Accounts receivable                                                           3,233,775             3,112,063
    Income taxes receivable                                                         194,213               --
    Inventories                                                                   2,263,144             2,130,615
    Other current assets                                                            399,781               634,037
                                                                                -----------           -----------

       Total current assets                                                       7,825,174             8,195,361
                                                                                 ----------            ----------

Property and equipment, net                                                       4,408,404             3,494,335

Other assets                                                                        121,743                95,005
                                                                                -----------          ------------

Total assets                                                                $    12,355,321       $    11,784,701
                                                                                 ==========            ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current
    Accounts payable - trade                                                $     1,109,902       $     1,122,437
    Accrued expenses                                                              1,326,107             1,609,807
    Income taxes payable                                                             --                    48,162
                                                                               ------------           -----------

       Total current liabilities                                                  2,436,009             2,780,406

Other liabilities                                                                   541,093               492,866
                                                                                -----------           -----------

Total liabilities                                                                 2,977,102             3,273,272
                                                                                 ----------            ----------

Commitments and contingencies

Stockholders' equity
    8% Convertible preferred stock                                                  933,080               933,080
    Common stock                                                                  1,268,501             1,264,001
    Additional paid-in capital                                                    2,732,833             2,728,083
    Retained earnings                                                             4,443,805             3,586,265
                                                                                 ----------            ----------

Total stockholders' equity                                                        9,378,219             8,511,429
                                                                                 ----------            ----------

Total liabilities and stockholders' equity                                  $    12,355,321       $    11,784,701
                                                                                 ==========            ==========
</TABLE>

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


                                       19
<PAGE>

<TABLE>
<CAPTION>



BOWLES FLUIDICS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                                                     Preferred Stock                Common Stock           Additional
                                                  Shares                         Shares                    Paid-in     Retained
                                   Total         (000's)         Amount         (000's)      Amount        Capital     Earnings
                                -----------      -------         ------         -------   ------------ -------------  ----------

<S>                             <C>            <C>            <C>           <C>           <C>           <C>           <C>
Balance October 28, 1995        $ 6,629,891            933    $   933,080        12,610   $ 1,261,001   $ 2,726,583   $ 1,709,227

Preferred stock dividends           (74,645)                                                                              (74,645)

Net income                          884,306                                                                               884,306
                                -----------    -----------    -----------   -----------   -----------   -----------   -----------

Balance October 26, 1996          7,439,552            933        933,080        12,610     1,261,001     2,726,583     2,518,888

Stock options exercised               4,500                                          30         3,000         1,500

Preferred stock dividends           (74,646)                                                                              (74,646)

Net income                        1,142,023                                                                             1,142,023
                                -----------    -----------    -----------   -----------   -----------   -----------   -----------

Balance October 25, 1997          8,511,429            933        933,080        12,640     1,264,001     2,728,083     3,586,265

Stock options exercised               9,250                                          45         4,500         4,750

Preferred stock dividends           (74,646)                                                                              (74,646)

Net income                          932,186                                                                               932,186
                                -----------    -----------    -----------   -----------   -----------   -----------   -----------

Balance October 31, 1998        $ 9,378,219            933    $   933,080        12,685   $ 1,268,501   $ 2,732,833   $ 4,443,805
                                ===========    ===========    ===========   ===========   ===========   ===========   ===========
</TABLE>


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

                                       20
<PAGE>

BOWLES FLUIDICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>


                                                                            For the Years Ended

                                                                 October 31,        October 25,        October 26,
                                                                     1998               1997               1996
                                                                     ----               ----               ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                         <C>                <C>                <C>
    Net income                                              $       932,186    $     1,142,023    $       884,306
       Adjustments to reconcile net income
       provided by operating activities:
          Depreciation and amortization                           1,091,634            960,346            750,449
          Deferred income taxes                                     332,759             (5,900)          (241,315)
          (Gain)/Loss on disposal of assets                           4,660             21,089              3,088
          Accretion of interest on investments                      (23,614)           (45,269)           (31,659)
                                                                 ----------         ----------         ----------
                                                                  2,337,625          2,072,289          1,364,869
                                                                  ---------          ---------          ---------
       Change in operating accounts:
          Accounts receivable                                      (121,712)          (336,405)           (14,264)
          Inventories                                              (132,529)          (144,550)           (86,719)
          Other assets                                              (26,447)           (74,958)          (122,381)
          Accounts payable                                          (12,535)            17,926            109,090
          Accrued expenses                                         (283,700)          (189,549)           537,235
          Income taxes                                             (242,375)             8,162            (71,441)
          Other liabilities                                         (24,505)           156,433            428,049
                                                                 ----------          ---------         ----------
                                                                   (843,803)          (562,941)           779,569
                                                                  ---------          ---------         ----------
Net cash provided by operating activities:                        1,493,822          1,509,348          2,144,438
                                                                  ---------          ---------          ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Capital expenditures                                         (2,014,132)        (1,027,780)        (1,321,331)
    Purchase of investments                                          --             (1,540,015)          (566,664)
    Patents and trademarks                                          (32,347)            (4,433)            --
    Proceeds from sale of equipment                                  10,054              1,441             --
    Proceeds from sale of investments                             1,586,735            600,000            700,000
                                                                  ---------         ----------         ----------
Net cash used in investing activities                              (449,690)        (1,970,787)        (1,187,995)
                                                                  ---------          ---------          ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Principal payment of debt                                          --                --              (271,669)
    Preferred stock dividends                                       (74,646)           (74,646)           (74,645)
    Proceeds from issuance of common stock                            9,250              4,500               --
                                                                 -----------        -----------        ----------
Net cash used by financing activities                               (65,396)           (70,146)          (346,314)
                                                                 -----------        ----------         ----------

Net increase(decrease) in cash and cash
equivalents                                                         978,736           (531,585)           610,129

CASH AND CASH EQUIVALENTS:
    - Beginning of period                                           755,525          1,287,110            676,981
                                                                 ----------          ---------         ----------
    - End of period                                         $     1,734,261    $       755,525    $     1,287,110
                                                                  =========         ==========          =========
</TABLE>

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


                                       21
<PAGE>

BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     GENERAL. The Company and its wholly owned subsidiary, Fluid Effects
     Corporation, operate on a 52/53-week fiscal year which ends on the last
     Saturday of October. The fiscal year 1998 has 53 weeks and fiscal years
     1997 and 1996 have 52 weeks. Assets and liabilities, and revenues and
     expenses, are recognized on the accrual basis of accounting. Fluid Effects
     Corporation was merged into the Company as of April 6, 1998.

     CASH EQUIVALENTS. Cash equivalents are highly liquid investments with
     original maturities of 90 days or less.

     INVESTMENTS. Investments, which are available for sale, consist of U.S.
     Treasury Bills with original maturities over 90 days, but not greater than
     365 days, and are carried at cost plus accrued interest, which approximates
     market.

     INVENTORY PRICING. Inventories are carried at the lower of cost (first-in,
     first-out) or market.

     PROPERTY, EQUIPMENT AND DEPRECIATION. The cost of property and equipment is
     depreciated over the estimated useful life of the related assets.
     Depreciation is computed on the straight-line method for all assets based
     on the following estimated lives:

                                                      Years
                                                      -----

              Production machinery and equipment      3-10
              Office furniture and equipment          5-7
              Laboratory and machine shop equipment   3-10
              Leasehold improvements                  lease term

        Depreciation expense for the fiscal years ended 1998, 1997, and 1996 was
     $1,085,349, $939,678, and $711,282 respectively.

     PATENTS. Costs associated with obtaining United States patents are
     capitalized and amortized using the straight-line method over the life of
     the patent beginning with the date of issue or date of filing the
     application. The Company initially charges all costs associated with the
     acquisition of U.S. and foreign patents to expense, then capitalizes those
     costs related to U.S. patents upon issuance of those patents.

        Management reviews all of the patent costs and writes off any patents
     which are considered to be of no foreseeable economic benefit to the
     Company. The Company recognizes income from patent licenses in accordance
     with the respective payment terms of each license agreement.


                                       22
<PAGE>

BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 1.  (continued)

     INCOME TAXES. The Company uses the asset and liability method for
     accounting for income taxes. Under this method, deferred income taxes are
     recognized for the tax consequences of temporary differences by applying
     enacted statutory tax rates applicable to future years to differences
     between the financial statements carrying amounts and the tax bases of
     existing assets and liabilities.

     USE OF ESTIMATES. The preparation of financial statements in conformity
     with generally accepted accounting principles requires management to make
     estimates and assumptions that affect the amounts reported in the financial
     statements and accompanying notes. Actual results could differ from those
     estimates.

     RECLASSIFICATIONS. Certain 1996 and 1997 amounts have been reclassified to
     conform to the 1998 presentation.

     CONCENTRATIONS OF CREDIT RISK. Financial instruments which potentially
     subject the Company to concentrations of credit risk consist primarily of
     accounts receivable and cash investments. The Company's customer base
     includes the significant U.S. automotive manufacturers and a large number
     of automotive parts suppliers. The Company does not require collateral for
     its trade accounts receivable. However, the Company's credit evaluation
     process and reasonably short collection terms help to mitigate any
     concentration of credit risk. The Company also has cash investment policies
     that limit the amount of credit exposure to any one financial institution
     and require placement of investments in financial institutions evaluated as
     highly creditworthy.


 2.  INVENTORIES

        Inventories are comprised of:
<TABLE>
<CAPTION>

                                                            1998                 1997
                                                       --------------      -------------

<S>                                                 <C>                  <C>            
Raw material                                             $  720,084           $  620,567
Work and tooling in progress                                791,805            1,016,845
Finished goods                                              751,255              493,203
                                                         ----------           ----------
     Total                                               $2,263,144           $2,130,615
                                                         ==========           ==========
</TABLE>

     Tooling in progress includes costs accumulated under short-term contracts
     to produce tooling for certain of the Company's customers of $598,193 and
     $865,700 in 1998 and 1997 respectively.

                                       23
<PAGE>

BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


3.PROPERTY AND EQUIPMENT, NET

        Property and Equipment, net, is comprised of:
<TABLE>
<CAPTION>

                                                                    1998                  1997
                                                              --------------             --------

<S>                                                                <C>                  <C>
Production machinery and equipment                                 $6,328,351           $4,946,390
Office furniture and equipment                                      2,502,438            2,321,844
Laboratory and machine shop equipment                               1,586,801            1,428,516
Leasehold improvements                                                894,816              812,120
                                                               --------------           ----------
     Total property and equipment                                  11,312,406            9,508,870
Less accumulated depreciation                                      (6,904,002)          (6,014,535)
                                                                    ---------            ---------
     Property and equipment, net                                   $4,408,404           $3,494,335
                                                                    =========            =========
</TABLE>


 4.  LINE OF CREDIT

        In May 1996, the Company entered into a fourth amended and restated
     agreement with Mercantile-Safe Deposit & Trust Company to reaffirm and
     extend its $1,000,000 line of credit until May 8, 1997, on an unsecured
     basis. At the Company's request and the Bank's discretion the line of
     credit was extended until May 8, 1999, and may be reaffirmed each year
     thereafter. The interest rate is Mercantile's prime rate, floating, which
     was 8% as of October 31, 1998. In addition, a 3/8% annual fee is assessed
     on the unused portion of this credit facility. Advances on the line of
     credit are limited to 85% of eligible accounts receivable and 40% of
     finished goods inventory. No amount was outstanding on this credit line at
     October 31, 1998, or October 25, 1997.

        In addition to the maintenance of certain financial ratios, the
     covenants of the fourth amended loan agreement require the Company's
     tangible net worth to be not less than $2,000,000 as of the close of each
     fiscal year.


 5.  DEBT

        No debt was outstanding as of October 31, 1998, and October 25, 1997. In
     February 1996 the unpaid balance of the then outstanding loan from
     Mercantile-Safe Deposit & Trust Company was paid in total.



                                       24
<PAGE>



BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


6.STOCKHOLDERS' EQUITY

        The 8% convertible preferred stock of the Company at October 31, 1998,
     and October 25, 1997, consists of 3,000,000 authorized shares, par value
     $1.00 per share, with 933,080 shares issued and outstanding on both dates.

        The common stock of the Company at October 31, 1998, and October 25,
     1997, consists of 17,000,000 authorized shares, par value $.10 per share.
     On October 31, 1998, the shares issued and outstanding were 12,685,011,
     whereas on October 25, 1997, they were 12,640,011.

        The Company's preferred stock provides for an annual dividend of $.08
     per share from the net earnings of the Company and is cumulative only for
     those years in which the Company has earnings, and $1.00 per share in
     liquidation before any distribution can be made to holders of common stock.
     If any dividends payable on the preferred stock with respect to any fiscal
     year of the Company are not paid for any reason, the rights of the holders
     of the preferred stock to receive payment of such dividends shall not lapse
     or terminate; but unpaid dividends shall accumulate and shall be paid
     without interest to the holders of the preferred stock when and as
     authorized by the Board of Directors before any dividends shall be paid on
     any other class of stock.

        The Company's preferred stock may at the option of the holder, at any
     time dividends are current, be converted into common stock of the Company
     at the conversion rate of four shares of common for each share of
     preferred. Additionally, the preferred stock is redeemable at par in whole
     or in part at the option of the Board of Directors at any time the
     dividends are current after a period of 10 years subsequent to issue. At
     October 31, 1998, 683,080 shares have been outstanding for more than 10
     years and dividends are current, and thus can be redeemed. The common stock
     has one (1) vote per share and the preferred stock has four (4) votes per
     share.

     RESERVED SHARES. As of and for the three fiscal years in the period ended
     October 31, 1998, there were 300,000 shares of common stock reserved for
     issuance in connection with the Company's stock option plans. None of the
     authorized shares of common stock are reserved for conversion of preferred
     stock. Under the laws of the State of Maryland, the authorization of the
     preferred stock in itself provides the authorization of common stock
     necessary for conversion.

     QUASI-REORGANIZATION. Effective October 29, 1994, the Board of Directors
     approved a quasi-reorganization which had the impact of eliminating the
     retained earnings deficit as an adjustment to additional paid-in capital.

                                       25
<PAGE>

BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 7.  INCOME TAXES

        The Company and its subsidiary file a consolidated federal income tax
     return and separate state income tax returns. The provision for income
     taxes consisted of the following:
<TABLE>
<CAPTION>

                                            1998                  1997                 1996
                                       ----------------       -------------        --------

Federal:
<S>                                            <C>                 <C>                  <C>
     Current                                   $195,218            $620,131             $678,938
     Deferred                                   292,675              (6,100)            (222,600)
                                               --------           ---------              -------
                                                487,893             614,031              456,338
                                                -------             -------              -------
State:
     Current                                     47,976              43,189               68,791
     Deferred                                    40,084                 200              (18,500)
                                               --------          ----------              -------
                                                 88,060              43,389               50,291
                                               --------            --------             --------
                                               $575,953            $657,420             $506,629
                                                =======             =======              =======

        The components of the deferred tax asset and liability for 1998 and 1997 were as follows:

                                                                            1998              1997
                                                                            ----              ----
Deferred tax assets:
     Accrued vacation and retirement programs                       $       43,818    $       83,600
     Non-deductible reserves                                               261,882           490,600
                                                                           -------           -------
        Total deferred tax assets                                          305,700           574,200
                                                                           -------           -------

Deferred tax liabilities:
     Property and equipment                                               (368,000)         (303,700)
                                                                           -------           -------
        Total deferred tax liabilities                                    (368,000)         (303,700)
                                                                           -------           -------

        Net deferred tax asset (liability)                          $      (62,300)   $      270,500
                                                                            =======          =======

          Reconciliation of the provisions for income taxes at the U.S. federal statutory rate to the effective tax
       expense were as follows:

                                                   1998               1997              1996
                                                ------------       ------------      -------

U.S. statutory income tax                           $512,767           $611,811     $472,918
State taxes, net of federal
  income tax benefit                                  58,736             28,637       33,711
Other, net                                             4,450             16,972           --
                                                   ---------           --------       ------

                                                    $575,953           $657,420     $506,629
                                                     =======            =======      =======
</TABLE>

          Cash paid for income taxes was $489,000, $584,000, and $877,000 for
1998, 1997, and 1996 respectively.

                                       26
<PAGE>

BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 8.  EARNINGS PER SHARE

        Effective October 26, 1997, the Company adopted Statement of Financial
     Accounting Standard No. 128 "Earnings per Share" ("SFAS 128"). SFAS 128
     replaced the presentation of primary earnings per share (EPS) and fully
     diluted EPS with a presentation of basic EPS and diluted EPS. All earnings
     per share amounts presented in the financial statements here have been
     restated in accordance with SFAS 128.

        Basic earnings per share is determined based on the weighted average
     number of common shares outstanding during the periods. Diluted earnings
     per share is determined based on the weighted average number of common
     shares outstanding and potential dilution of securities that could share in
     earnings.

        The following table sets forth the computation of basic and diluted
     earnings per share:
<TABLE>
<CAPTION>

                                                                          For the Years Ended
                                                         -------------------------------------------------------

                                                           October 31,         October 25,        October 26,
                                                              1998                1997               1996
                                                         ----------------    ----------------   ----------------
<S>                                                         <C>                 <C>                <C>
Numerator:
Numerator for basic earnings per share:
 Income applicable to common
 shareholders                                               $   857,540         $ 1,067,377        $   809,661
Effect of dilutive securities:
   Preferred Stock Dividends                                     74,646              74,646             74,646
                                                           ------------        ------------       ------------
Numerator for diluted earnings per share
   Income applicable to common shareholders after
   assumed conversion                                       $   932,186         $ 1,142,023        $   884,306
                                                             ----------          ----------         ----------

Denominator:
Denominator for basic earnings per share:
   Weighted average shares outstanding
   during the period                                         12,660,294          12,633,764         12,610,011
Effect of dilutive securities:
   Employee Stock Options                                        32,160              48,607             91,887
   Assumed Conversion of Preferred Stock                      3,732,320           3,732,320          3,732,320
                                                            -----------         -----------        -----------
Denominator for diluted earnings per
share                                                        16,424,774          16,414,691         16,434,218
                                                             ----------          ----------         ----------

Earnings per Share:
         Basic                                           $          .07      $          .08     $          .06
                                                                    ===                 ===                ===

         Diluted                                         $          .06      $          .07     $          .05
                                                                    ===                 ===                ===
</TABLE>

BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


   9.  COMMITMENTS AND CONTINGENCIES

          The Company leases its facilities under non-cancelable operating
       leases which expire in 2004 for Columbia, Maryland, and in 2000 for
       Southfield, Michigan. As of October 31, 1998, minimum annual aggregate
       rentals are as follows:


                                       27
<PAGE>

                     Year Ended                                 Amount
                     ----------                                 ------
                        1999                                $   594,929
                        2000                                    572,831
                        2001                                    561,646
                        2002                                    561,646
                        2003                                    561,646
                     thereafter                                 257,421

Total minimum future rental payments                         $3,110,119

          Rent expense under all leases for 1998, 1997, and 1996 was $666,908,
       $644,008, and $626,565 respectively.

          Management is unaware of any pending legal proceedings which would
       have a material adverse effect on the financial statements of the
       Company.


  10.  EMPLOYEE BENEFIT PLANS

          On November 1, 1990, the Company adopted a defined contribution (401k)
       plan covering substantially all of its employees. Contributions and costs
       were determined by matching 50% of employee contributions up to 4% of
       each covered employee's earnings. As of April 1, 1994, the Company
       increased its matching contribution to 50% of the employee contributions
       up to 6% of each covered employee's earnings. The Company's contributions
       to the plan were $169,685, $151,314, and $119,640 in 1998, 1997, and 1996
       respectively.

          The Company has agreed to retirement programs for certain former
       officers providing for the payment of certain retirement benefits. The
       unfunded present value, at a discount rate of 7.5%, of these benefits
       accumulated as of October 31, 1998, amounts to approximately $323,000, of
       which $264,000 is included in other liabilities. Expenses related to
       these programs were $41,090 in 1998, $46,476 in 1997, and $44,000 in
       1996.


BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


  11.  STOCK OPTIONS

          In May 1992, the Company adopted its key employee incentive stock
       option plan. Activity in the Company's incentive stock option plan was as
       follows:
<TABLE>
<CAPTION>

                                                           1998           1997          1996
                                                         ---------      ---------     ------

<S>                                                          <C>           <C>           <C>    
Options outstanding, beginning of year                       70,000        180,000       180,000
Options granted                                               -             -              -
</TABLE>


                                       28
<PAGE>
<TABLE>
<CAPTION>

<S>                                                         <C>            <C>       <C>
Options exercised                                           (45,000)       (30,000)         -
Options expired                                             (25,000)       (80,000)         -
                                                        -----------    -----------   -----------
Options outstanding, end of year                              -             70,000       180,000
                                                        ===========    ===========   ===========
</TABLE>

          Options activities are at exercise prices ranging from $.15 to $.65
       per share.

          Statement of Accounting Standards No. 123 "Accounting for Stock-Based
       Compensation" (FAS 123) became effective for the Company in 1997. As
       allowed by FAS 123, the Company has elected to continue to follow
       Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
       to Employees" (APB 25), in accounting for its stock option plans. FAS 123
       requires the Company to present pro forma information as if the Company
       had accounted for stock options granted since December 15, 1995, under
       the fair value method of FAS 123. No pro forma information has been
       presented by the Company as no stock options have been issued since
       December 15, 1995, the effective date of FAS 123.

  12.  TERMINATION OF SALES AGREEMENT

          During the fiscal year 1996, the Company accrued $760,000 ($465,400
       net of income taxes) for the termination in May 1997 of the sales
       agreement with its manufacturer's representatives. The payments commenced
       in May 1997 and were completed at May 14, 1998.

  13.  MAJOR CUSTOMERS

          Over 90% of the Company's production of nozzles is incorporated in
       vehicles produced by General Motors, Ford, and Chrysler, each of whom
       typically represents over 10% of the Company's sales volume. The Company
       is, therefore, substantially dependent upon the North American production
       requirements of these three automotive companies. In addition, the
       Company's customers required that a QS-9000-compliant quality system be
       developed and registered by an independent organization. In September
       1996, the Company was assessed by Underwriters Laboratories Inc.,
       received QS-9000 certification with ISO 9001 addendum as of December 20,
       1996, and has maintained that certification since then.
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


  13.  (Continued)

          Three customers each had sales exceeding 10% of the Company revenues:

                          1998                  1997                  1996
                          ----                  ----                  ----

Customer A            $3,727,630            $3,819,124            $3,845,926
Customer B             2,977,928             3,506,208             2,378,921
Customer C             2,411,813             2,367,381             2,511,570

  14.  NEW ACCOUNTING PRONOUNCEMENTS

                                       29
<PAGE>

          The Financial Accounting Standards Board has issued the following
       Statements of Financial Standards ("FAS") which are not yet effective for
       the Company:

       o  FAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATIVE
          INFORMATION

          This statement becomes effective for fiscal years beginning after
          December 15, 1997, and changes the way public companies report
          information about segments of their business in their financial
          statements and requires them to report selected segment information in
          their quarterly reports to stockholders. The Company intends to adopt
          the disclosure requirement by this statement for the year ending
          October 30, 1999.

       o  FAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
          ACTIVITIES

          This statement becomes effective for fiscal years beginning after June
          15, 1999. This standard establishes accounting and reporting standards
          for derivative instruments and hedging activities. The Company does
          not believe this new standard will have any impact on the Company upon
          adoption.

  15.  PROPOSED REVERSE STOCK SPLIT

          On December 8, 1998, the Board of Directors of the Company adopted a
       resolution authorizing the submission to the vote of the stockholders of
       the Company of a proposed amendment to the Articles of Incorporation of
       the Company under which all outstanding shares of common stock will be
       subject to a reverse stock split at the ratio of 1000 shares of common
       stock before the reverse split to 1 share of common stock after the
       reverse split. The Board of Directors also adopted a resolution
       authorizing the redemption of all fractional shares of common stock
       resulting from the reverse stock split at the rate of $1,250 per post
       reverse split share. This proposed amendment to the Articles of
       Incorporation is pending subject to stockholder approval.


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


           None.


                                       30
<PAGE>


                                    PART III


Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors of the Registrant

      Information is included in the Proxy Statement for the Annual Meeting of
      Stockholders scheduled for April 7, 1999.

Executive Officers of the Registrant
<TABLE>
<CAPTION>

     <S>                                   <C>
     Name, Age and Position:               Business Experience During Past Five Years:

     William Ewing III                     Chairman of the Board since July 1996.  Responsible for the formation of
     Chairman of the Board                 overall corporate policy and planning.  Member of Board of Directors
     of Directors                          since 1985.  Previously Vice President and Treasurer of Reeves
        Age 52                             Industries, Inc., 1995-1997, and Managing Director of Chemical Bank,
                                           1992-1994.

     Ronald D. Stouffer                    President since March 1994.  Responsible for execution of the Company's
     President                             policies and for the Company's operations.  Executive Vice President
     Chief Executive Officer               responsible for engineering and manufacturing from 1982 to 1994.  Member
        Age 67                             of Board of Directors since 1978.  Joined the Company in 1967.

     Eric W. Koehler                       Appointed Executive Vice President and member of Board of Directors
     Executive Vice President              December 17, 1997, in charge of marketing, sales, and engineering
        Age 36                             functions.  Previously Vice President, Marketing, since March 1994,
                                           responsible for marketing and sales functions.  Director of Marketing,
                                           1990-1994.  Joined the Company in 1989.

     Melvyn J. L. Clough                   Vice President, Operations, since joining the Company in November 1995.
     Vice President,                       Responsible for manufacturing operations including industrial engineering
     Operations                            and tooling.  Previously Engineering Manager for  A. Raymond, Inc.,
        Age 51                             1992-1995.

     Richard W. Hess                       Vice President, Automotive Products Engineering, since April 1998.
     Vice President,                       Responsible for the Company's engineering of automotive products.
     Engineering                           Previously Vice President, Engineering, since joining the Company in 1992.
        Age 55
</TABLE>

                                       31
<PAGE>
<TABLE>
<CAPTION>


 Executive Officers of the Registrant (continued)

     Name, Age and Position:               Business Experience During Past Five Years:
     -----------------------               -------------------------------------------

     <S>                                   <C>
     Eleanor M. Kupris                     Vice President, Administration, since 1982.  Corporate Secretary since
     Secretary and Vice Presi-             March 1992.  Responsible for purchasing and personnel.  Joined the
     dent, Administration                  Company in 1966.
        Age 57

     David A. Quinn                        Vice President, Finance, and Treasurer since joining the Company in
     Vice President,                       October 1993.  Responsible for treasury, accounting and financial
     Finance, and Treasurer                planning functions.  Previously CFO for Bruning Paint Company, 1991-1993.
        Age 62

     Dharapuram N. Srinath                 Vice President, Advanced Engineering, since April 1998.  Responsible for
     Vice President,                       the development of new products, other than automotive, and research and
     Advanced Engineering                  development.  Previously Vice President, Quality Assurance, from March
        Age 47                             1995, and Director of Quality Assurance and Product Reliability,
                                           1992-1995.  Joined the Company in 1978.

     Arlene M. Hardy                       Corporate Controller since 1990.  Responsible for accounting functions.
     Corporate Controller                  Joined the Company in 1986.
        Age 51

     The names, ages and positions of all of the executive officers of the
     Company are listed above, along with their business experience during the
     past five years. Officers are appointed annually by the Board of Directors
     at its meeting immediately following the Annual Meeting of Stockholders.
     There are no family relationships among any of the officers of the Company,
     nor any arrangements or understanding between any such officers and another
     person pursuant to which they were elected as officers.

Item 11.      EXECUTIVE COMPENSATION

     Information is included in the Proxy Statement for the Annual Meeting of
Stockholders scheduled for April 7, 1999.

Item 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Information is included in the Proxy Statement for the Annual Meeting of
Stockholders scheduled for April 7, 1999.

Item 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information is included in the Proxy Statement for the Annual Meeting of
Stockholders scheduled for April 7, 1999.


                                       32
<PAGE>




                                     PART IV


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


       (a)   1    Financial Statements

                      Included in Part II of this report:

                           Report of Independent Accountants

                           Consolidated Statements of Income for the three years
                           ended October 31, 1998, October 25, 1997, and October
                           26, 1996

                           Consolidated Balance Sheets at October 31, 1998, and
                           October 25, 1997

                           Consolidated Statements of Changes in Stockholders'
                           Equity for the three years ended October 31, 1998,
                           October 25, 1997, and October 26, 1996

                           Consolidated Statements of Cash Flows for the three
                           years ended October 31, 1998, October 25, 1997, and
                           October 26, 1996

                           Notes to Consolidated Financial Statements

       (a)   2    Financial Statements Schedules

                      Schedules are omitted because of the absence of conditions
                      under which they are required or because the required
                      information is given in the financial statements or notes
                      thereto.

       (b)   Reports on Form 8-K

                  A Form 8-K was filed on October 6, 1998, during the fourth
             quarter of the Company's fiscal year indicating the unanimous
             election at an informal meeting of the Board of Directors on July
             14, 1998, and confirmed at a meeting of the Board on September 22,
             1998, of Frederic Ewing II, James Parkinson, and Neil T. Ruddock to
             the Board of Directors to serve until the next Annual Meeting of
             Stockholders.


                                       33
<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.

                                                      BOWLES FLUIDICS CORPORATION

                                                      BY:

                                                      Chairman of
                                                     the Board and
-------------------------------                         Director                ----------------------------------
William Ewing III                                                                              Date

                                                     President and
-------------------------------                         Director                ----------------------------------
Ronald D. Stouffer                                                                             Date
                                                       Executive
                                                   Vice President and
-------------------------------                         Director                ----------------------------------
Eric W. Koehler                                                                                Date

                                                     Vice President
-------------------------------                         Finance                 ----------------------------------
David A. Quinn                                                                                 Date


-------------------------------                   Corporate Controller          ----------------------------------
Arlene M. Hardy                                                                                Date


-------------------------------                         Director                ----------------------------------
David C. Dressler                                                                              Date


-------------------------------                         Director                ----------------------------------
Frederic Ewing II                                                                              Date


-------------------------------                         Director                ----------------------------------
Jim Parkinson                                                                                  Date


-------------------------------                         Director                ----------------------------------
Neil T. Ruddock                                                                                Date

</TABLE>

                                       34