<PAGE>
 
                               F O R M   1 0 - K

      S E C U R I T I E S   A N D   E X C H A N G E   C O M M I S S I O N

                            Washington, D.C.  20549

(Mark One)
[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934 [FEE REQUIRED]

                    For the fiscal year ended July 31, 1998
 
 
[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
      1934 [NO FEE REQUIRED] EXCHANGE
 
        For the transition period from  _____________ to _____________ 
 
                       Commission File Number:  0-15240
 
               L O W R A N C E   E L E C T R O N I C S,   I N C.
     ---------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)

         Delaware                                       44-0624411     
  ------------------------                 ------------------------------------ 
  (State of incorporation)                 (I.R.S. Employer Identification No.)

                            12000 East Skelly Drive
                                Tulsa, Oklahoma                 74128
                    ----------------------------------------  ---------- 
                    (Address of principal executive offices)  (Zip Code)

      Registrant's telephone number, including area code:  (918) 437-6881

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                               Common Stock, par
                             value $.10 per share
                             --------------------
                               (Title of class)

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

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

              Aggregate Market Value of the Voting Stock Held By
               Non-Affiliates on November 11, 1998 - $3,719,029

                       Number of Shares of Common Stock
                 Outstanding on November 11, 1998 - 3,768,796

                      DOCUMENT INCORPORATED BY REFERENCE
         Proxy Statement for Annual Meeting of Stockholders to be held
                          December 8, 1998 - Part III
<PAGE>
 
                                   FORM 10-K

               Annual Report for Fiscal Year Ended July 31, 1998
 
                          LOWRANCE ELECTRONICS, INC.
                                                                 Page
                                                                 ----
                               Table of Contents
                               -----------------
 
                                    PART I
 
Item 1.     Business..........................................      1

Item 2.     Properties........................................     12

Item 3.     Legal Proceedings.................................     12

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


                                    PART II

Item 5.     Market for Registrant's Common Equity and Related
            Stockholder Matters...............................     12

Item 6.     Selected Financial Data...........................     13

Item 7.     Management's Discussion and Analysis of Financial
            Condition and Results of Operations...............     14

Item 8.     Financial Statements and Supplementary Data.......     24

Item 9.     Changes in and Disagreements with Accountants on
            Accounting and Financial Disclosure...............     24


                                   PART III

Item 10.    Directors and Executive Officers of the Registrant     25

Item 11.    Executive Compensation............................     25

Item 12.    Security Ownership of Certain Beneficial Owners
            and Management....................................     25

Item 13.    Certain Relationships and Related Transactions....     25


                                    PART IV

Item 14.    Exhibits, Financial Statement Schedules, and
            Reports on Form 8-K...............................     25
                                                            and F-1 to F-18

Signatures  ..................................................     30
<PAGE>
 
                          LOWRANCE ELECTRONICS, INC.
                                 Annual Report
                       For the Year Ended July 31, 1998


                                    PART I

Item 1.   Business

General

     The Company designs, manufactures, and markets sonars (also known as depth
sounders) and accessories for use in recreational and commercial boating.  The
Company's sonars are principally used by sports fishermen for detecting the
presence of fish and by sports fishermen and boaters as navigational and safety
devices for determining bottom depth in lakes, rivers, and coastal waters.  The
Company also designs, manufactures, and markets Global Positioning System (GPS)
navigational receivers that may be attached to and used with certain of the
Company's liquid crystal display (LCD) sonars or to provide stand-alone
navigational information.  The GPS navigational receivers can be used in a
variety of marine and non-marine applications, such as aviation, hunting,
hiking, and backpacking.  The sonars and GPS navigational receivers are marketed
under the Company's three trade names, "Lowrance" "Eagle", and "Sea", primarily
through wholesalers, original equipment manufacturers (OEMs), mail-order
catalogs, mass merchandisers, and other retail outlets in all fifty states and
to a lesser and limited extent in sixty-five foreign countries.

     The Company was formed in 1957, incorporated in 1958, and re-organized as a
Delaware corporation in 1986.  As used herein, the term "Company" refers to
Lowrance Electronics, Inc., (including its subsidiaries) and its predecessors,
unless the context indicates otherwise.

     The Company's principal executive offices are located at 12000 East Skelly
Drive, Tulsa, Oklahoma, 74128, and its telephone number is (918) 437-6881.

Products

     The Company's products consist of sonars and related equipment, such as
water temperature gauges, and Global Positioning System (GPS) navigational
products.

     Sonars

          Each sonar consists of a transmitter, receiver, display, and
     transducer. The transmitter, receiver, and display are normally combined in
     one housing connected by a cable to the transducer. The housing containing
     the transmitter, receiver, and display is normally mounted where it may be
     viewed by the boat operator, and the transducer is mounted under or in the
     hull of a boat. The transmitter takes electrical energy and sends it
     through the cable to the transducer, which converts the electrical energy
     to sound pulses. These sound pulses travel through the water until they hit
     the bottom or an object such as fish or a shipwreck and then bounce back as
     an echo. The transducer converts the echoes back to electrical impulses
     which are sent to the receiver. The receiver processes the impulses and
     transmits the information to the display for use by the boater.

                                       1
<PAGE>
 
     The Company's sonars are either waterproof or weatherproof and are designed
to withstand the harsh environments and shocks encountered by sport boats. Sport
boats, unlike offshore commercial boats, are usually open and subject to shock,
rain, salt spray, and temperature extremes that constantly test the durability
of the sonar. The Company's sonars are also designed for the needs of sport
fishermen who, unlike their commercial counterparts, are sometimes more
interested in the size, depth, and location of individual fish, depth of the
thermocline, and underwater structures, rather than the location of large
schools of fish. The Company's sonars are designed for and used by both fresh
and saltwater sports fishermen and boaters. The Company's sonars feature a
variety of transducers manufactured by the Company in different sizes and shapes
to fit all types of boats and with different frequencies and angles for both
deep and shallow water use. The Company's sonars are distinguished by the type
of display--graphic liquid crystal displays (LCDs) and flashers and digital LCDs
(other sonars).

     Graphic Liquid Crystal Display (LCD) Sonars. The Company's LCD products are
     easier to use, provide more advanced capabilities, and incorporate advanced
     signal processing, which allows automatic operation of LCD sonars in a way
     that sets the controls for best performance whether at trolling or high
     speeds. The Company markets eighteen LCD sonar models. All of the models
     utilize advanced computer technology and are keyboard controlled. The
     Company's LCD models graphically display the depth of the water, bottom
     contour, fish, and other underwater objects on a LCD and digitally display
     the water depth. Ten models can also digitally display the surface
     temperature of the water, boat speed, and distance traveled. LCD sonars are
     easier to read and interpret than the Company's flasher sonars. Because LCD
     sonars have no moving parts, they are more durable than other sonars. The
     more advanced models usually retail from $350 to $550. The other LCD
     models, with fewer features, usually retail from $99 to $300. The Company's
     various LCD models range in maximum depth capabilities from 350 feet to
     2,500 feet.

     Other Sonars. The Company's others sonars include flasher displays and
     digital displays. Flasher models were the first type of sonar products
     designed and manufactured by the Company. The display consists of a neon
     bulb affixed to a spinning disk. The bulb lights when it receives a sonar
     signal, flashing next to the appropriate depth mark on a calibrated
     circular dial. Digital sonars are marketed and used solely to determine
     water depth which is digitally depicted on a LCD. The flasher and digital
     sonars have varying depth capabilities ranging from 60 feet for flashers to
     1,000 feet for digital sonars and range in retail price from $140 to $300.

Global Positioning System (GPS).

     The Global Positioning System offers worldwide navigational information for
users via a constellation of twenty-four satellites. The system offers precise
global navigation for land, sea, and air applications providing constant updates
of an individual's or object's position in latitude, longitude, and altitude.
Additionally, GPS measures speed and direction of travel. The Company's GPS
navigational modules may be attached to and used with one of the Company's LCD
sonars and two LCD mapping models. The combination sonar/GPS models (module

                                       2
<PAGE>
 
included) usually retail from $700 to $1000, and the stand-alone, gimbal-mounted
GPS mapping model (module included) retail from $600 to $900.

     The Company's gimbal mount Global Map 2000 product displays the user's
position on a pictorial background map in addition to providing the navigational
information and course plotter available in all Lowrance and Eagle GPS products.
Further, the user, at their option, can purchase mapping cartridges with contain
over 7,000 highly detailed nautical charts. The Global Map 2000 retails for
approximately $899 including the GPS module and cartridge reader. This unit is
also sonar capable with the purchase of a sonar access module. During the fourth
quarter of fiscal 1998 the Company introduced four new gimbal mount GPS products
at breakthrough retail prices ranging from $549 to $699. These products each
contain detailed built-in mapping capabilities plus unique software which allows
the user to upload up to 2 megabytes of additional customized mapping detail
from the Company's proprietary IMS MapCreate CD ROM database which is included
free. The IMS MapCreate CD ROM includes all of Lowrance's acclaimed IMS
SmartMaps, IMS WorldMaps, U.S. Navigation Aids, U.S. Wrecks and Obstructions,
plus U.S. Rural Roads and more.

     In addition to the Company's gimbal-mounted GPS products, it offers an
extensive range of portable, hand-held GPS navigation receivers. The first such
product, the Eagle AccuNav Sport, began shipping in fiscal 1994, followed by the
Lowrance GlobalNav Sport in fiscal 1995. During fiscal 1996, the Company began
shipping its first hand-held GPS mapping receiver, the Lowrance GlobalMap Sport,
with capabilities similar to that of the GlobalMap 2000. Also during fiscal
1996, the Company manufactured and sold its first portable GPS receivers
specifically designed for use by commercial and private pilots. In fiscal 1997,
the Company began shipping its breakthrough 12-channel GPS receivers. Currently,
the Company has upgraded all of its hand-held GPS models to include 12 parallel-
channel receivers. All of the Company's hand-held GPS products feature high
resolution displays, detailed plotting and/or mapping functions, easy zoom-
in/zoom-out operation and enhanced software which includes a unique "initialize
from map" feature, sunrise/sunset and lunar phase information, position
averaging, and emergency nearest waypoint feature. The AirMap 100 and AirMap 300
also offer an HSI-style screen, and a detailed database of all North and South
American airports including runway diagrams, restricted air spaces, tower and
communication frequencies, obstructions and aviation services available.

Accessories

     The Company also has a line of accessories consisting of water temperature
gauges, cables, portable power packs, map data cartridges, map data CD ROMS, and
various mounting brackets, which are used primarily in conjunction with the
Company's sonars and GPS products.

                                       3
<PAGE>
 
Product Sales

     The following table sets forth the percentage of total sales of LCD and
other sonars and accessories, including GPS navigational products, sold by the
Company in the past three fiscal years.
 
                                     Percent of Total Product Sales
                                     ------------------------------
                                       1996       1997       1998 
                                       ----       ----       ----
Type of Sonar Displays -
 LCD's, including combination
  navigation units                     62.8%      51.4%      54.5%
 Other sonars                           4.0        4.0        3.7
GPS, including stand-alone units                            
 and modules                           23.7       35.8       31.1
Accessories                             9.5        8.8       10.7
                                      -----      -----      -----
                                                            
   Total                              100.0%     100.0%     100.0%
                                      =====      =====      =====
 
Distribution

     The Company markets its products under three trade names, "Lowrance",
"Eagle", and "Sea".  Sales of the Lowrance and Eagle brand products account for
over 98% of total sales.  Sales of Eagle products, as a percentage of total
sales were approximately 50% in 1996, 54% in 1997, and 47% in 1998.

     The Lowrance line in both sonar and GPS, with its selection of eighteen
interchangeable transducers and its more complicated keyboard, is intended for
the more sophisticated user.  The wide choice of transducers available with the
Lowrance sonars allows for greater installation and operating flexibility
through selection of a transducer of the appropriate size, shape, and frequency
to meet the boater's specific needs.  As a result of recent developments in
transducer design, the Company packages its Lowrance sonar models with a high-
performance transducer suitable for use on nearly all types of boat hulls.
Lowrance customers can exchange this transducer for credit toward one which
better meets their specialized requirement for installation or operation.
Generally, the boater will require special assistance with the installation and
operation of a Lowrance sonar.  To this end, the Company sells its Lowrance line
primarily to boat manufacturers, wholesalers, and retailers that the Company
believes have basic knowledge of the installation, use, and service of the
Lowrance line and can pass on such knowledge to customers.  As of July 31, 1998,
the Company had approximately 2,200 wholesalers and retailers purchasing
products in the Lowrance line.  A sonar installation subsidy is offered to
authorized dealers that sell and install Lowrance products as a means of sharing
the costs of the installation.  The Company believes that, over the past three
years, the Lowrance line has been sold primarily through dealers having the
requisite level of knowledge to sell, install, and properly instruct the
fisherman and boat owner as to the product's use.  Terms of payment for products
in the Lowrance line vary based on the time of the season with the longest
dating terms of 120 days being offered for shipments during the first quarter of
the fiscal year.

     The Eagle line is sold primarily to mass merchandisers, mail-order catalog
companies, retail sporting goods stores, and wholesalers that usually do not
provide technical assistance to the consumer regarding the installation and
operation of sonars and GPS.  Recognizing that special assistance will not be
available as to the selection of an appropriate transducer or the operation of
an Eagle sonar or GPS, the Company prepackages each Eagle sonar with a universal
transducer designed to work adequately on most boats and has simplified the
sonar's operating requirements.  The Eagle sonars do not have 

                                       4
<PAGE>
 
all of the installation and operating flexibility of the Lowrance sonars but are
less expensive to the consumer. Terms of payment for products in the Eagle line
are generally thirty days. However, dating terms similar to those for the
Lowrance line are also offered.

     Beginning in fiscal 1995, the Company began marketing a third brand of
sonar and GPS navigational products, "Sea". These products are marketed through
select coastal dealers and sales of Sea products accounted for less than two
percent of fiscal 1998 sales.

     The Company's products are sold in all fifty states and sixty-five
countries internationally. The Company's international sales totaled $20,000,000
in fiscal 1996, $25,000,000 in fiscal 1997, and $22,000,000 in fiscal 1998,
representing approximately , 21%, 24%, and 24% of total net sales in each
respective fiscal year. See Note 9 to the consolidated financial statements. The
two largest international markets for the Company's products are Canada and
Australia, where the Company maintains its own distribution warehouses for sales
and distribution of its products. Sales in neither of these two countries
represented 10% or more of the Company's total annual sales for the latest three
fiscal years.

     LEI Extras, Inc., a wholly-owned subsidiary, allows consumers to purchase
by mail-order extended warranties for their sonar units and accessories that
otherwise would be difficult to obtain. Because LEI Extras, Inc., is not
intended to directly compete with retail outlets that carry the Company's
products, the Company does not expect revenues from its mail-order operations to
be significant.

     Sales to Wal-Mart Stores, Inc., accounted for 14% and 10% of the Company's
net sales in fiscal years 1996 and 1997, respectively.  No customers accounted
for 10% or more of net sales in fiscal 1998.  The top ten customers, including
Wal-Mart Stores, Inc., accounted for approximately 34%, 34%, and 32% in 1996,
1997 and 1998, respectively, of the Company's net sales.

Inventories and Backlog

     The Company normally manufactures its products in anticipation of, and not
in response to, customer orders and fills orders within a short period of time
after receipt.  Thus, the Company must maintain significant inventories of
finished goods to permit it to fill orders promptly after receipt.  The
Company's receipt of orders generally peaks upon the introduction of a new
product and during the peak sales months of January, February, March, and April.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations".

     As of November 11, 1998, the Company's backlog of orders exceeded $9.6
million, including orders for new products which represented 34% of the backlog.
The backlog one year ago at this time was $9.8 million.  Backlog is not
necessarily comparable from year to year because of the significant impact on
backlog resulting from the timing and pent-up demand for the introduction of the
Company's new products each year.  While the Company believes that the present
backlog of orders is firm, the orders for its products are subject to
cancellation without further obligation by the customer at any time prior to
shipment.

                                       5
<PAGE>
 
Advertising and Promotion

     To support the sales of its products to wholesalers, mass merchandisers,
mail-order catalog companies, and others, the Company actively promotes and
advertises its products to fishermen, boat owners, and increasingly to other
outdoor enthusiasts.  The highly-technical nature of the Company's products
makes education of the user an important aspect of the Company's promotional
activities.  Through educating and familiarizing the user with the practical
benefits and use of sonar and GPS products, the Company endeavors to create
demand for its products.

     To satisfy this need, the Company utilizes a sales force of seventeen full-
time employees to promote its products worldwide.  Additionally, the Company
employs six manufacturer's representative groups to augment in sales force in
various parts of the United States.  The sales personnel employed by the Company
and the manufacturer's representatives have the knowledge and time necessary to
educate wholesalers, dealers, fishermen, and boat owners on sonar and GPS
products and demonstrate the practical benefits of these technologies.  The
sales personnel train wholesalers and dealers to sell the Company's products,
give demonstrations at outdoor recreation and boat shows, and participate in
store promotions, seminars, and talks.

     To supplement the sales force, the Company has a part-time independent
sales group known as the "pro-staff". The pro-staff consists of approximately
two hundred and fifty fishing professionals, tournament fishermen, serious
outdoors enthusiasts and pilots trained and equipped by the Company to promote
the Company's products at fishing tournaments, store promotions, club talks,
seminars, and tackle, and boat, hunting and aviation shows.

     The Company also advertises its products in newspapers, magazines, and on
television.  Within such advertising expenditures are separate advertising
programs designed specifically for the Lowrance line and the Eagle line.

    Public relations activities include a variety of press releases covering new
products and feature stories highlighting use of sonar and navigational
products; press trips, where products are demonstrated to members of the outdoor
media; distribution of product photos and other technical support for writers
and broadcasters.

     In addition to advertising expenses and public relations activities, the
Company incurs promotional expenses which include sponsorship of fishing
tournaments, store promotions, and contributions to environmental groups.  The
Company, through its Eagle brand, became an Affiliate Sponsor of the new Wal-
Mart FLW tournament trail in 1998.  The Wal-Mart FLW tour offers the world's
largest cash prize for bass tournaments, including a $1,000,000 purse.  The Wal-
Mart FLW tour is sponsored by Genmar Holdings, which also owns numerous boat
manufacturers including Ranger, Lund, Crestliner and Carver Yachts, to whom the
Company provides OEM sonar products.  Dealer and distributor support includes
the availability of point-of-purchase displays, posters, videos, and product
simulators to assist in displaying the Company's products.

Competition

Sonar and Sonar/GPS Combination Units -

     The Company encounters intense competition for its products from a number
of domestic and foreign manufacturers. More than 300 brands of sonars have been
offered to the consumer since the Company's formation in 1957. Presently, there
are more than twenty-five competitors worldwide.

                                       6
<PAGE>
 
Historically, the sonar market, as it relates to sonars marketed primarily to
sports fishermen and recreational boat owners, has been dominated by the Company
and Techsonic Industries, Inc. According to independent marketing research
commissioned by the Company and issued in March 1998, the Company together with
this competitor currently account for over 80% of sonar sales within this market
segment in the United States. In this study, the Company's total market share
(Eagle and Lowrance brands combined) was found to be greater than 50%. The
Company believes that the study results reflect current market conditions.

     Competition in the sports fishing and recreational boating market for the
Company's products is based upon a number of factors, including quality,
technological development, performance, service, and price.  The primary basis
for competition is technological innovation and price.  In order to maintain its
competitive position, the Company must continually enhance and improve its
products and anticipate rapid, major technological innovations and changes
within the industry.  Further, the Company believes that the sonar market in the
United States and Canada is mature, with no significant influx of new
participants to either boating or fishing in recent years.  Accordingly, the
Company's primary opportunity for sales growth in these markets is to take
market share from its competitors.  The Company continues to identify and pursue
significant new market opportunities for its sonar products internationally.

Hand-held GPS Units -

     The hand-held GPS market has expanded rapidly in the past several years and
the Company expects this trend to continue.  Target markets for these products
include, but are not limited to boating, sportfishing, hunting, hiking, off-road
vehicles, and aviation.  According to independent marketing research
commissioned by the Company and issued in March 1998, the market segment that
the Company operates in approximates the size of the sonar market.  According to
this same study, the Company's market share was found to be less than 20%.  Long
term growth in the Company's GPS market share will require continued development
of advanced GPS technologies which can be quickly brought to market at
competitive prices.

     Two competing GPS companies currently dominate this market and the Company
believes these two competitors combined continue to control in excess of 65% of
the hand-held GPS market.  The primary reason for their success is that both
companies have introduced and marketed several products retailing for under $200
and were the first to market hand-held GPS products into the recreational
market.  Both companies offer a range of higher priced products with more
features than their lowest priced models including products specifically aimed
at the avionics market.  In 1997, one of these competitors introduced a combined
GPS and sonar model and a sonar-only model. Recently the same competitor has
introduced two new sonar-only models.  The Company does not anticipate that
these models will have a significant adverse impact on its own extensive lines
of sonar products during fiscal 1999 because neither product has begun shipping
and their distribution base is limited.

     Currently, the Company offers five Eagle and seven Lowrance hand-held
products, which retail at prices between $169 and $799.  The Company began
shipping its Lowrance Global Map 100 and Eagle MapGuide Pro hand-held GPS
products with its proprietary IMS MapCreate CD ROM database included during the
fourth quarter of fiscal 1998.  These two models have exclusive features which
will allow the user to supplement the unit's built-in mapping data with up to 2
megabytes of customized maps created from the CD ROM database.  All of the
Company's GPS products feature 12 parallel-channel receivers, high resolution
displays, and internal battery back-up for stored information.  All 

                                       7
<PAGE>
 
of the Company's handheld GPS's also utilize rechargeable batteries that retail
for as little as $49.

     The Company's expanded line of hand-held GPS products has helped the
Company expand its presence in multiple non-marine retail markets and outlets.
These products, combined with an extensive advertising and promotion campaign in
1997, significantly increased consumer awareness and recognition of the Eagle
and Lowrance brand names in historically non-traditional markets. Currently, the
Company enjoys distribution through several new outdoor recreational outlets who
serve hikers, campers, skiers, climbers and other outdoor enthusiasts.

     The Company has attempted to differentiate its products through quality,
technological development, performance, price, and service.  The Company
believes its products offer a competitive advantage due to quality,
technological advancement, and the wide range of features.  This advantage
results from the Company's long history of product innovation, such as Advanced
Signal Processing (ASP), fully waterproof sonar/Loran-C and sonar/GPS
combination units, Grayline, interchangeable high-performance transducers and
dual-frequency capability, and innovative features such as optional Broadview
sonars, split screen sonar/navigational displays, digitized and CD ROM mapping
capabilities and programmable "windows".

     The Company has been an industry leader in offering advanced performance
products at strategically acceptable price points.  Further, the Company
believes that its service programs, designed to rapidly respond to the
customers' needs, along with the extended warranty programs covering the
Lowrance, Eagle and Sea product lines, are the most comprehensive services
available to the customer in the industry.

Product Research and Development

     The Company's operations and competitive position are dependent to a large
extent upon its ability to anticipate and react to the technological innovations
inherent in its industry.  The Company has been engaged in the development of
sonars and the refinement of its existing sonar models since its formation in
1957.  See "Patents and Trademarks" below.  In 1957, the Company invented and
marketed a portable sonar capable of locating individual fish and their depths.
Among other significant sonar advancements, the Company developed and patented
an effective interface suppression system and interchangeable high speed
transducers which permit operation of sonar at boat speeds of up to 70 miles per
hour.  The Company also introduced in 1979 a computer-controlled sonar with
microprocessor chip and software allowing high speed boating with accurate depth
readings and no false signals.  In 1987, the Company introduced the industry's
first high resolution and "Supertwist" high visibility liquid crystal displays.
In 1989, the Company introduced the first fully waterproof sonar/navigation
combination units featuring Loran-C circuitry and software contained solely in
the antenna coupler module.  Advanced Signal Processing (ASP), a breakthrough in
automatic sonar control developed in 1990, constantly evaluates the effect of
varying water conditions, boat speeds, and interference sources, adjusting the
sonar's many settings for optimum performance.  Based on the Company's belief
that the United States military's GPS would be the preferred method of
navigation in the future, if it became affordable, the Company introduced six
marine GPS products in 1992, with most at breakthrough price points.  The
SupraPro ID, a new sonar model introduced in 1994, retailed for under $100,
provided users with four times the resolution of its nearest competitive model.
Another model new in 1994, the GlobalMap 1000, represented the first fully
waterproof mapping unit with a built-in mapping database and the capability of
using highly-popular detailed mapping cartridges.  The AccuNav Sport hand-held
GPS 

                                       8
<PAGE>
 
product, which retailed for under $400, revolutionized the GPS market in 1994 by
offering users all the highly-detailed navigation plotting features previously
available only on larger and more costly gimbal-mounted GPS products at less
than half the price. In 1995, the Company introduced its latest generation of
"3D" sonar products, the ULTRA III 3D and the X-70A 3D, which provide expansive
underwater coverage and innovative "three dimensional" images of bottom contours
in addition to traditional detailed "2D" views. Six new 1995 products offered
the Company's new "Broadview" technology. By purchasing a "Broadview" accessory
transducer (which can be installed on the transom or on a trolling motor), users
can expand their sonar coverage to search out -- left or right -- to detect fish
and cover down and outward from the boat. In 1996, the Company introduced and
delivered its first hand-held GPS mapping products. In fiscal 1998, the Company
introduced two new sonar products with enhanced display screen resolution and
newly designed cases, as well as enhanced operating software in several of its
sonar and GPS products. Additionally, the Company delivered four new hand-held
GPS products, each utilizing new 12 parallel-channel receiver technology and
three of which offered exclusive technology which allows the user to upload
detailed customized maps from a CD ROM into the units memory. Two new gimbal-
mount products, one a GPS/mapping only product and the other a GPS/mapping/sonar
combo model, also offered this unique CD ROM capability, and began shipping
during the fourth quarter of fiscal 1998.

     Research and development expenditures of the Company were $3,439,000 in
fiscal 1996, $3,936,000 in fiscal 1997, and $2,650,000 in fiscal 1998.  The
Company plans additional development of its LCD sonars to increase performance
and versatility and is conducting research and development into other marine
electronic equipment utilizing technology with which it is familiar.  Also, the
Company intends to develop additional GPS products for use in marine and non-
marine applications.

     To augment its continued investment in product research and development,
the Company has invested in several new manufacturing and design technologies:
Surface Mount Technology (SMT) production equipment, Computer Aided Design (CAD)
systems, Application Specific Integrated Circuits (ASICS), Tape Automated
Bonding (TAB), Tab-On-Glass (TOG), and Liquid Crystal Display (LCD) assembly.
These advanced technologies, which were essential to the development of the
Company's new sonar and GPS products, have allowed the Company to reduce its
material and manufacturing costs and to provide even greater product
performance.

Manufacturing and Suppliers

     Through fiscal 1993, the Company manufactured substantially all of its
products at its plant in Tulsa, Oklahoma.  In fiscal 1994, the Company began
manufacturing most of its high volume transducer and cable assemblies in a
25,000 square foot leased manufacturing facility in Ensenada, Mexico, with the
finished assemblies shipped to Tulsa for final inspection, packaging, and
shipping.  During fiscal 1997, the Company expanded its production operation in
Mexico by consolidating its existing manufacturing operations in Ensenada,
Mexico into a newly constructed 88,000 square foot leased facility which has
been constructed to allow expansion to 108,000 square feet as the Company
requires more operating space.  Currently, the Company utilizes 70,000 square
feet for manufacturing, including a 26,000 square foot clean room within the
88,000 square feet presently occupied by the Company.  In the expanded Mexico
facility, the Company manufactures its transducer and cable assemblies as well
as assembles most of the liquid crystal displays used in its products.
Additionally, the Company performs final assembly, final testing and packing
operations on all of its products in the Mexico facility.  The transfer of the
final assembly and liquid crystal display assembly operations from the 

                                       9
<PAGE>
 
Company's Tulsa facility began in August 1996 and was completed in July 1997.
The Company will continue to assemble and test all circuit boards in its
existing facility in Tulsa. The manufacturing process primarily involves the
assembly of component parts purchased from suppliers. Quality control and
functional testing, including component testing, sub-assembly testing, and final
testing of finished products, are an integral part of the Company's
manufacturing process. The Company's Tulsa manufacturing facilities, with its
expanded Mexico operation, are sufficient to allow increased production without
substantial future capital investments.

     Certain component parts of the Company's products are technologically
advanced and/or specifically designed for the Company's use, and thus are
presently available only through single-source suppliers, some of which are
located in foreign countries.  Certain other component parts are available from
a number of suppliers, but the Company largely relies on single-source suppliers
for these parts.  Purchasing from a single source in these instances allows the
Company to have more consistent quality in the component parts and to receive
quantity discounts and permits the Company to establish long-standing
relationships with its suppliers.  The Company believes long-standing
relationships lead to better performance with suppliers by shortening delivery
time, improving quality, and fostering a better understanding of and adaptation
to the nature of the Company's needs and the suppliers' capabilities.

     With respect to plastic component parts, such as housings for sonars, the
Company, because of the expense, generally maintains only one mold for each
plastic part.  Although typically the Company owns each mold and could move it
to another supplier, the Company is limited to one supplier at a time.

     The Company has never experienced a substantial interruption in product
shipment resulting in the loss of any material amount of sales due to
unavailability of or delay in receiving component parts.  However, if for any
reason (such as a protracted strike, war, fire, explosion, or wind damage
affecting production at the supplier's manufacturing plant or import
restrictions or a damaged or destroyed mold or a supplier being unable to obtain
certain raw materials necessary to produce component parts), certain critical
component parts were to become unavailable or the shipment of such parts were to
be substantially delayed, such unavailability or delay could materially and
adversely affect the Company's ability to produce its products on a timely basis
until an alternative source of supply or a replacement mold could be made
available.  This could adversely affect the Company's results of operations.
The use of alternate components may, in some cases, require the Company to
redesign other components or its sub-assemblies and the Company could experience
manufacturing delays.  The extent of the impact upon the Company's sales and
earnings would depend upon the products affected and the time of year of the
interruption.

     To protect against interruptions and loss of sales, the Company maintains a
limited amount of safety inventory of component parts and some insurance
coverage against loss of supply.  The Company limits the amount of safety stock
to avoid the cost of carrying raw material inventory and problems associated
with obsolescence.  To further protect against interruptions, the Company is
selective of its suppliers, and with limited exceptions, relies upon those who
are substantial in size, financial strength, background, and experience.

                                       10
<PAGE>
 
Product Warranty and Support Services

     Substantially all of the Company's products are sold with a full one-year
warranty.  The Company offers the consumer the right to extend the warranty for
an additional two years on sonar and GPS products by purchasing an extended
warranty package.  Warranty expenses have averaged approximately 2.2% of sales
during the last three fiscal years.  The Company emphasizes service after the
sale in connection with its products by providing a prepaid, pre-addressed
shipping label packed with each unit for use by the consumer located in the
United States electing to return the unit to the Company for warranty or non-
warranty repairs.  Warranty and non-warranty repairs are available from the
Company's plant in Tulsa, Oklahoma, and from dealers and distributors in sixty-
five foreign countries.

Patents and Trademarks

     Since 1970, the Company has obtained thirty-seven patents expiring at
various dates from 1987 through 2015.  Since 1970, thirteen design patents have
also been issued.  See "Product Research and Development" above.  All of the
Company's patents have been assigned to secure the Company's accounts receivable
and inventory line of credit financing.  The Company does not expect that the
expiration of patents will have an adverse impact on the Company's operations.

     Notwithstanding the number of patents it has obtained, the Company believes
that its technical and proprietary expertise and continuation of technological
advances are more important factors to the protection of its ongoing proprietary
interests and markets than its patents.  However, the Company will under certain
limited circumstances continue to file patent applications to insure its
products remain protected from attack from competitors.

     The Company has registered forty-eight trademarks with the United States
Patent Office including the trademark, "Lowrance" and the trademark "Eagle",
with an accompanying logo and has additional trademark applications filed.

Employees

     As of July 31, 1998, the Company employed 1,051 persons on a full-time
basis of whom approximately 871 were involved in manufacturing and materials. Of
the 871 full time employees involved in manufacturing and materials, 257
employees are located in the Company's headquarters in Tulsa and 614 are located
in the Company's leased manufacturing facility in Ensenada, Mexico. The
remaining 180 employees were engaged in research and development, sales and
marketing, and administration. During the year, the Company utilizes temporary
workers to allow it to adjust its workforce as its production needs change. All
of the temporary workers are located in the Tulsa facility. At July 31, 1998,
approximately 20 of such workers were engaged by the Company and are included in
the above amounts. Additionally, the Company retains, on a part-time basis, over
250 independent contractors, the "pro-staff", that assist in promoting its
products.

     The Company has never experienced a work stoppage, and none of its
employees are represented by a union. Management considers its employee
relations to be excellent.

                                       11
<PAGE>
 
Item 2. Properties

     The Company maintains its offices and manufacturing and warehouse
facilities at 12000 East Skelly Drive, Tulsa, Oklahoma, 74128. The Company's
Tulsa facilities are located on approximately 23 acres of land and consist
primarily of a masonry building containing approximately 116,000 square feet of
floor space, of which 25,000 square feet are used for manufacturing operations,
46,000 square feet for warehousing, and 45,000 square feet for office and
laboratory space.

     Prior to fiscal 1997, the Company, through its Mexican subsidiary, leased a
25,000 square foot manufacturing facility in Ensenada, Mexico.  In fiscal 1997,
the Company expanded its Ensenada, Mexico operations by leasing a new 88,000
square foot manufacturing facility which has been constructed to permit the
Company to expand into the built out, but unfinished 20,000 square foot, second
floor affording the Company 108,000 square feet.   The Company presently is
using 70,000 square feet for manufacturing including a 26,000 square foot clean
room of the 88,000 square feet occupied by the Company.  During fiscal 1997, the
existing facility was eliminated and combined with operations in the new
facility.

     The Company also leases a 79,000 square foot facility for warehousing and
shipping in Tulsa, Oklahoma and 2,500 square feet and 3,500 square feet of
warehousing, shipping and office space in Australia and Canada, respectively.

     The Company believes that its facilities and equipment are well suited to
its needs and are properly maintained.  The Company's current manufacturing
facilities, including the expanded Mexico facility are sufficient to allow for
increased production without significant capital investment.  The facilities and
equipment are believed to be operating in substantial compliance with all
current regulations.  All the facilities and equipment are, in the opinion of
the Company, adequately insured.

Item 3.   Legal Proceedings

     See footnote number 12 to the Consolidated Financial Statements

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


     None.

                                    PART II


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

     As of November 11, 1998, the Company had more than 400 actual holders of
its Common Stock. The Company has not paid cash dividends for over twenty years.
The Company's inventory and accounts receivable line of credit agreement
prohibits the payment of dividends without the prior written consent of the
lender. The Company anticipates that for the foreseeable future its earnings
will be retained for use in its business and no cash dividends will be paid on
the Common Stock. Declaration of dividends in the future will remain within the
discretion of the Company's Board of Directors and will depend upon the
Company's growth, profitability, financial condition, and other relevant
factors.

                                       12
<PAGE>
 
     The Company's Common Stock is traded in the over-the-counter market and is
listed with the NASDAQ National Market System under the NASDAQ symbol of "LEIX".
The table below reflects the high and low trade prices for each of the Company's
fiscal quarters for the latest two fiscal years.  The trade prices reflect
inter-dealer prices, without retail mark up, mark down, or commission and do not
necessarily represent actual transactions.
 
                        1997            1998 
                   --------------  ---------------
                    High    Low     High     Low
                     $       $       $        $  
                   ------  ------  ------  -------
    1st Quarter     8 1/4   5       6 1/2   4 7/32
    2nd Quarter     11      6 1/2   7 1/4   5
    3rd Quarter     10      7 1/2   8 1/2   5 1/2
    4th Quarter     8 5/8   5       7 1/8   3 7/16

Item 6.   Selected Financial Data

     The selected financial information shown below has been extracted from the
consolidated financial statements included elsewhere in this report and from
other financial information of the Company not appearing herein.  The balance
sheet information is presented as of the end of the fiscal years shown.  The
information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and related notes included elsewhere
herein.
 
                                          Years Ended July 31,
                             -------------------------------------------------
                             
                               1994       1995      1996      1997       1998
                             -------    -------   -------  --------    -------
                                  (in thousands, except per share amounts)
Operating Data:              
 Net sales                   $81,250    $91,116   $94,579  $104,659    $91,706
 Gross profit                $25,330    $31,069   $31,988  $ 26,881    $25,645
 Income (loss) before        
  income taxes and           
  extraordinary credit       $(1,663)   $ 2,061   $ 2,199  $ (7,877)   $(3,166)
 Net income (loss)           $  (672)   $ 1,422   $ 1,743  $ (5,190)   $(3,995)
                             
Per Share Data:              
 Weighted average number     
   of shares outstanding     
    Basic                      3,350      3,352     3,352     3,352      3,608
    Diluted                    3,350      3,396     3,387     3,352      3,608
                             
 Net income (loss)           
    Basic                    $  (.20)   $   .42   $   .52  $  (1.55)   $ (1.11)
    Diluted                  $  (.20)   $   .42   $   .51  $  (1.55)   $ (1.11)
                             
Balance Sheet Data:          
 Working capital             $12,872    $14,777   $18,509  $ 17,798    $19,633
 Total assets                $35,028    $40,228   $47,108  $ 61,366    $52,247
 Long term debt, less        
   current maturities        $ 9,379    $ 9,975   $13,705  $ 21,176    $23,038
 Stockholders' equity        $11,991    $13,452   $15,196  $  9,952    $ 7,172

                                       13
<PAGE>
 
Item 7.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations

General

     The following table sets forth for the periods indicated the relative
percentages that certain items of income and expense bear to net sales:
 
                                            Years Ended July 31,    
                                        ----------------------------
                                         1996        1997      1998 
                                        ------      ------    ------
                                           (percent of net sales)
    Net sales                           100.0%      100.0%    100.0%
    Cost of sales                        66.2        74.3      72.0
                                        -----       -----     -----
 
        Gross profit                     33.8        25.7      28.0
 
    Operating expenses:
      Selling and administrative         24.6        25.7      23.1
      Research and development            3.6         3.8       2.9
                                        -----       -----     -----
 
        Operating income (loss)           5.6        (3.8)      2.0
 
    Interest expense                     (2.0)       (2.3)     (3.8)
    Other, net                           (1.3)       (1.4)     (1.6)
                                        -----       -----     -----
 
    Income (loss) before income
      taxes                               2.3        (7.5)     (3.4)
    Provision (benefit) for
      income taxes                         .5        (2.6)      1.0
                                        -----       -----     -----
 
    Net income (loss)                     1.8        (4.9)     (4.4)
                                        =====       =====     =====
 
     Demand for the Company's products is seasonal with approximately 30% to 40%
of its sales and a majority of its net income usually occurring in the third
quarter (February, March, and April).  During this period, the Company's
customers purchase the Company's products so that the products will be available
to sport fishermen and recreational boat owners for the peak fishing and boating
season.  Generally, with the exception of the third quarter, quarterly results
are dependent on the timing and acceptance of new product introductions,
advertising, and product availability, and as such, the Company does not
experience any consistent quarterly trends for those three quarters.

                                       14
<PAGE>
 
     The following table sets forth the quarterly results for the past three
fiscal years:
 
 
    Years Ended July 31             Sales          Net Income (Loss)
--------------------------    -----------------   ------------------
                                       (dollars in thousands)
        1996
        ----
First Quarter (Aug.-Oct.)     $ 13,967    14.8%   $(1,175)    (67.4)%
Second Quarter (Nov.-Jan.)      20,692    21.9       (380)    (21.8)
Third Quarter (Feb.-Apr.)       32,761    34.6      2,237     128.3
Fourth Quarter (May-July)       27,159    28.7      1,061      60.9
                              --------   -----    -------   -------
 
         Total for Year       $ 94,579   100.0%   $ 1,743     100.0%
                              ========   =====    =======   =======
 
        1997
        ----
First Quarter (Aug.-Oct.)     $ 14,110    13.5%   $(2,371)    (45.7)%
Second Quarter (Nov.-Jan.)      20,114    19.2     (1,246)    (24.0)
Third Quarter (Feb.-Apr.)       39,594    37.8      1,209      23.3
Fourth Quarter (May-July)       30,841    29.5     (2,782)    (53.6)
                              --------   -----    -------   -------
 
         Total for Year       $104,659   100.0%   $(5,190)   (100.0)%
                              ========   =====    =======   =======
 
        1998
        ----
First Quarter (Aug.-Oct.)     $ 20,039    21.8%   $  (838)    (21.0)%
Second Quarter (Nov.-Jan.)      20,324    22.2       (337)     (8.4)
Third Quarter (Feb.-Apr.)       28,354    30.9        619      15.5
Fourth Quarter (May-July)       22,989    25.1     (3,439)    (86.1)
                              --------   -----    -------   -------
 
         Total for Year       $ 91,706   100.0%   $(3,995)   (100.0)%
                              ========   =====    =======   =======
 
     Demand for the Company's products is affected by the rapidly changing
technological environment of consumer electronics.  If the Company fails to
anticipate technological innovations advanced by its competitors and introduce
technologically competitive products, demand for the Company's products will
diminish.  In each of the past three fiscal years, new product sales have
accounted for more than 10% of total sales.

     Additionally, sales of the Company's products are affected by adverse
changes in economic conditions, increased oil prices or adverse weather
conditions.  The Company believes that the lower-priced and easier to use LCD
sonar products available in recent years attracted an increased number of less
serious fishermen to the marketplace who are more likely to reduce their
purchase of sonar products during adverse economic conditions and /or prolonged
adverse weather conditions.  The Company believes that the sonar market in the
United States and Canada is mature, with no significant growth in boating or
fishing participation in recent years.  Any opportunity for growth in these
markets will rely on the ability of the Company to increase its market share.
Some market growth for sonar products is anticipated as related to international
markets as the Company continues to focus efforts in these areas.  International
sales for 1998 decreased from 1997 by $3.1 million (12%).  Canadian and
Australian sales were down 9%, and all other International sales decreased 16%,
primarily because of the strengthening of the U.S. dollar and the general
softness in demand.  The total market for GPS products, both domestic and
international, is expected to continue to expand.  The Company's future success
in GPS is heavily dependent upon keeping pace with competitors who are rapidly
introducing new products and new pricing strategies in the increasingly
competitive marketplace.  Accordingly, the Company's future sales could be
adversely affected by a reduction in consumer spending, a decline in
recreational boating and sport fishing resulting from 

                                       15
<PAGE>
 
significant increases in oil prices, or new product introductions by
competitors.

     Sales of sonar products including combination sonar/GPS units were down
$3.4 million (5.4%) from fiscal 1997 to 1998, following a decrease of
approximately $5.9 million (9.5%) from fiscal 1996 to 1997. The decline in sonar
sales when comparing 1997 to 1998 results from a generally poor retail selling
season due to adverse weather conditions, as well as the Company's significantly
reduced advertising expenditures and reduced tradeshow activity, and the effects
of price increases on certain of the Company's sonar products. Sales of GPS
products decreased approximately $9.6 million (23%) from fiscal 1997 to 1998 and
increased approximately $15.1 million (84%) from fiscal 1996 to 1997. The 1997
increase is primarily attributable to the introduction of the low-cost gimbal-
mount and hand-held GPS products. The decrease in GPS sales for 1998 relates to
increased competition at lower price points, significantly reduced advertising
expenses and the effects of price increases on certain of the Company's GPS
products.

     The Company's production of its products is scheduled on the basis of sales
forecasts rather than actual orders.  Products are designed and manufactured and
parts are ordered in advance of the peak sales period so that products can be
shipped within days of receipt of customers' orders.  The Company's
profitability is largely dependent upon its ability to accurately forecast and
plan for market demand for its products in advance of the peak selling season
and to meet the demand of the peak sales months with technologically acceptable
products at acceptable prices.

     The Company begins planning for sales during each fiscal year in February
or March of the preceding year. The planning includes the preparation of an
annual sales forecast for the upcoming fiscal year. The forecast is reviewed by
the Company at least monthly, and if necessary, the forecast is revised. The
forecast of products must allow time for ordering raw materials and parts, which
may take as long as five months for delivery following the Company's order, and
for manufacturing so that the Company has a build-up of finished goods inventory
sufficient to meet demand prior to the peak sales months. Failure by the Company
to accurately forecast market trends, introduction of technological
advancements, or the demand for particular models can result in a build-up of
raw material and finished goods inventory that is obsolete or must be liquidated
at reduced prices. The build-up of raw material and finished goods inventory in
anticipation of orders during the peak selling season, cash outlays required to
purchase tooling to manufacture new products, together with extended payment
terms of up to 150 days offered by the Company which historically result in a
significant increase in working capital requirements from a low in June through
August to a high in September through December.

     The Company uses a Material Requirements Planning (MRP) system to control
inventory by eliminating stockpiling and by utilizing a continuous flow method
of manufacturing.  Under the continuous flow method of manufacturing, parts and
supplies are ordered and scheduled for purchase and delivery only at such time
as they are expected to be needed in the manufacturing process.  The MRP system
also results in a reduction of the Company's safety stock and a shorter
manufacturing cycle.  However, extenuating circumstances can and do occur which
render a MRP system ineffective at controlling inventory levels.  Such
circumstances were experienced during 1997 and are discussed below in "Working
Capital".

     The following discussion and analysis relate to factors that have affected
the financial condition and operating results of the Company for fiscal years
1996 through 1998.  Reference should also be made to the 

                                       16
<PAGE>
 
Consolidated Financial Statements and the notes thereto included elsewhere
herein.

Results of Operations

Net Sales

     Net sales for fiscal 1998 decreased 12.4% from fiscal 1997.  Unit sales,
which includes sonar units, combination sonar/navigation units, and stand alone
navigation units decreased 16.3% and the average price per unit increased 1.2%.

     The decrease in unit sales resulted from a 28.4% reduction in the sales of
the Company's navigation products coupled with a 7.6% reduction in sales of
sonar products.  Reduced sales of the Company's low and mid cost navigation
products (43% decrease in units) was offset by increases in the unit sales of
portable mapping, aviation and high-end gimble units (28% increase in units).
Sales of the Lowrance sonar products increased 2.3%, offset by a decrease of
19.2% in the sales of Eagle sonar products.  The decreases in navigation sales
resulted from a significant reduction in advertising expenditures, price
increases in certain low cost models, and increased competition at the lower
price points.  The decreases in Eagle sonar sales resulted from generally weak
market conditions during the spring selling season caused by adverse weather
conditions in certain of the Company's key markets in North America.  The
Company believes that the Eagle products are generally purchased by the less
serious fisherman which are more likely to be influenced by poor weather
conditions.  Additionally, reduced advertising and consumer outdoor show
exposure along with price increases on certain models had a negative impact in
Eagle sonar sales.

     Net sales for fiscal 1997 increased 10.7% over fiscal 1996.  Unit sales
increased 19.4% and the average price per unit decreased 7.9%.

     When comparing fiscal 1997 to 1996, unit sales increased because of higher
sales of the Company's new low-cost hand-held GPS products which are sold
primarily to mass merchandisers, mail order catalog companies, retail sporting
goods stores and wholesalers.  This increase was slightly offset by decreased
sales of the Company's sonar products. The increase in GPS sales resulted from
the continuing expansion of this market, as well as the Company's introduction
of the $199 Eagle Explorer and the $239 Lowrance GlobalNav 200 models which
began shipping in the second and third quarters of fiscal 1997, respectively.
Also, the two new portable GPS products with mapping capabilities, which began
shipping in late 1996, were available for the entire year in 1997.  The decrease
in the average price per unit resulted from increased sales of the Explorer and
GlobalNav units and an increased weighting in the sonar sales mix toward low-
priced sonar units.  This weighting was the result of limited availability of
the Company's six new mid and upper priced sonar products.  Production delays
resulted in several of these products shipping in limited quantities until late
in the third quarter.  Additionally, retailers are allocating more shelf space
and are open to allocate more inventory dollars to GPS at the expense of sonar
products due to the rapid growth and market potential of GPS.

     Net sales for fiscal 1996 increased 3.8% over fiscal 1995.  Unit sales
decreased 2.7% and the average price per unit increased 10%.

     When comparing fiscal 1996 to 1995, unit sales decreased primarily due to
decreased sales of the Company's Eagle Sonar products which are sold primarily
to mass merchandisers, mail order catalog companies, retail sporting goods store
and wholesalers.  Management believes that the following factors 

                                       17
<PAGE>
 
contributed to reduced Eagle sonar sales: 1.) lack of sonar market growth in
North America in general, 2.) inventory dollars at retailers, historically
committed to sonar, are being redirected to Global Positioning System (GPS)
products, 3.) an unusually cold winter and cool spring in many of the Company's
key markets in the United States. The target market for Eagle sonar products is
more affected by adverse weather, 4.) a generally weak fishing tackle market,
and 5.) reduced sales to one of the Company's mass merchant retailers.
Additionally, sonar sales to Original Equipment Manufacturers (OEM's) were down
from 1995 levels. OEM sonar sales were down in line with an overall decrease in
new boat production versus 1995. Lowrance unit sales increased versus 1995
primarily as the result of the expansion of the Lowrance product line into
several national retail chains.

     Reduced unit sales for sonar products were partially offset by increased
sales of the Company's GPS products.  The increase in GPS sales resulted from
the continuing expansion of this market as well as the introduction of two new
portable GPS products with mapping capabilities which began shipping in late
1996.  The increase in the average price per unit resulted from decreased sales
of the Eagle and OEM sonar products offset by increased sales of the higher
priced GPS products.

Gross Profit

     The gross margin percentage increased from 25.7% to 28.0% from fiscal 1997
to fiscal 1998, due primarily to, (1) the shift in mix of units sold away from
the Company's low and mid-priced GPS units which generally have a
correspondingly low profit margin, (2) a continuing shift of manufacturing
operations to the Company's Mexico facility in fiscal 1998, (3) more efficient
operations offset by lower total volumes in fiscal 1998 versus 1997, and (4)
price increases on certain GPS and sonar models.

     The gross profit margin decreased from 33.8% in fiscal 1996 to 25.7% in
1997 due primarily to: 1) the shift in mix of units sold to the low-priced GPS
units which generally have a correspondingly low profit margin; 2) unplanned
production of certain new 1997 products in the Company's Tulsa production
facility versus in the new Mexico facility; 3) inefficiencies in certain
production processes in the Tulsa production facility; and 4) high production
labor cost and employee turnover in Tulsa due to record low unemployment in that
labor market. Additionally, the new sonar products, which began shipping in
volume in the second and third quarters of 1997, generally carry above average
margins for the Company, but were not available for much of the year.

     The gross profit margin decreased slightly to 33.8% in 1996 from 34.1% in
1995.  Price decreases on existing GPS products caused by competitive market
factors resulted in this decline.

Operating Expenses

     Operating expenses, as a percentage of net sales decreased to 26.0% versus
29.5% in 1997.  Total costs decreased by $6,960,000.  The major factors
contributing to this decrease were  (1) a reduction of approximately $5.6
million in advertising, selling and marketing expenditures and (2) reduced
research and development expenditures and general and administrative costs,
offset by increases in other variable operating expenses, namely, product
returns costs.

     Operating expenses, as a percentage of net sales increased from 28.3% in
fiscal 1996 to 29.5% in 1997.  Total cost increased $4,106,000.  The major
factors contributing to this increase were 1) $3,400,000 additional 

                                       18
<PAGE>
 
advertising and marketing expenses related to the Company's push to acquire
market share in the GPS market and in introducing the new sonar products; 2)
other variable selling expenses, such as freight-out and product returns cost,
were up approximately $700,000 due to increased volumes, and 3) research and
development expenditures were up $500,000 due to the Company's continuing
efforts to develop new products. Expense reductions in general and
administrative costs partially offset the effects of the above increases.

     Operating expenses, comprised of selling, administration and research and
development expenses, as a percentage of net sales, decreased from 28.6% in
fiscal 1995 to 28.3% in 1996.  Total costs increased $661,000.  The major
factors contributing to this increase were,  1.) increased sales and marketing
costs associated with efforts aimed at existing sonar markets as well as new GPS
markets, and  2.) increased research and development expenses which resulted
from the Company's efforts in new product development, primarily GPS.  These
cost increases were offset by a decrease of $1,100,000 in costs associated with
the Settlement Agreement and License Agreement with Computrol reached on January
10, 1995, and a decrease in other variable selling expenses consisting of
products returns costs.

Interest Expense

     Interest expense in 1998 increased by $1.1 million due to (1) increased
average borrowing levels related to the Company's revolving credit line as well
as new term loan borrowings of $5,000,000, (2) a .75% increase in the interest
rate under the revolving credit line and (3) an increase in interest charged by
the Company's suppliers due to the Company's continuing inability to pay within
stated terms.

     Interest expense in fiscal 1997 increased by $517,000 from 1996 due to
increased borrowing levels primarily associated with the Company's revolving
credit line.  The increased borrowings under the revolving credit line resulted
from higher working capital needs to support increased sales levels, the buildup
of  inventories, and for support of the move of certain manufacturing operations
to the Company's Mexico manufacturing facility.

     Interest expense in fiscal 1996 increased by $300,000 from 1995 due to
increased borrowing levels primarily associated with the Company's revolving
credit line.

Income Taxes

     The effective tax rate for fiscal 1996, 1997 and 1998 was 20.7% (34.1)% and
26.2%, respectively.  For Fiscal 1996, the effective tax rate is less than the
statutory federal tax rate of 34% due primarily to increases in state income tax
credits and refunds of prior years income taxes and related adjustments.  For
fiscal 1998, the Company established a valuation allowance of $2 million against
the net deferred tax asset which resulted in a 26.2% effective income tax
expense.

Income/(Loss)

     Net income (loss) as a percentage of net sales was (4.4%) in fiscal 1998,
(4.9%) in fiscal 1997, and 1.8% in fiscal 1996.

                                       19
<PAGE>
 
Liquidity and Capital Resources

     The Company's working capital needs increase in the fall and winter months
as the Company manufactures and stockpiles its products for the peak sales
months of January, February, March, and April.  Also, the days outstanding in
the Company's accounts receivable increase in the off-season due to favorable
purchase terms offered to customers in order to stimulate sales during these
slow periods.

     The Company's primary sources of liquidity are cash flow from operations,
an accounts receivable and inventory line of credit, lease financing as well as
financing provided by the Company's vendors. The line of credit allows the
Company to borrow up to 85% of its qualifying accounts receivable, 30% of
qualifying raw materials inventory, and 60% of qualifying finished goods
inventory. Borrowings for inventory, however, are limited to $13,000,000. A
yearly lease line of credit is usually established to finance the acquisition of
qualifying equipment and certain other assets.

     Traditionally, the Company's near-term liquidity is at its lowest during
the period August through December due to limits on borrowings against
inventories, cash outlays required to purchase tooling to manufacture new
products, and extended payment terms offered to customers to stimulate sales
during the seasonally slow period. As previously described, it is during this
period that the Company begins to manufacture and build-up inventory levels in
anticipation of product demands for the peak sales months. By the end of the
second quarter, sales historically increase and the Company's sources of
liquidity begin to improve.

     In fiscal 1996, the Company announced plans to expand its Mexican
manufacturing operation to meet increasing demand for its products, particularly
GPS models.  The Company entered into a long-term lease for a new manufacturing
facility and was responsible for funding a large portion of the leasehold
improvements necessary for the building to meet its specific production needs.
In addition to funding the leasehold improvements, it was necessary to build
additional inventory levels during the last few months of fiscal 1996 to support
expected sales during the first quarter of fiscal 1997.

     During fiscal 1997, the Company began relocating certain of its
manufacturing operations to its new plant in Mexico.  The start-up of the new
facility in Mexico was substantially on schedule.  However, record low
unemployment rates in Tulsa resulted in excessive turnover of production workers
and an inability to maintain sufficient trained staff to support the Company's
substantially increased production schedule intended to support record demand
for its GPS products.  This problem was magnified by management's focus on the
start-up of the new Mexico facility and production delays of the Company's six
new sonar models.  These problems caused an excessive build-up of raw material
and work-in process inventories that the Company could not convert to finished
goods during the fiscal year.  These factors resulted in inventories remaining
well above historical levels throughout fiscal 1997.  Management implemented
controls to better manage production scheduling and inventory levels.  During
fiscal 1998, first and second quarter sales exceeded 1997 levels for the same
periods, however, sales unexpectedly declined during the third and fourth
quarters.  The timing of the sales decline did not allow for reductions of
shipments of raw materials from vendors based on the long lead times for certain
component parts.  As result, inventory levels during 1998 continued to be higher
than historical levels.  Inventory is expected to gradually decline throughout
fiscal 1999.

     Cash flows provided by financing activities for fiscal 1997 were used to
finance capital additions (not financed by leases) of $2.7 million and to
provide funds consumed in operating activities of $2.6 million.  In fiscal 

                                       20
<PAGE>
 
1996, net cash provided by financing activities was used to finance capital
additions (not financed by leases) of $1.9 million and to provide funds consumed
in operating activities of $1.3 million.

     Cash flows provided by financing activities were used to finance the net
capital additions for fiscal 1998 and net cash used in operating activities.
The Company's financing package was amended in August and December 1997, which
gave the Company $5,000,000 in additional term loan financing ($1.8 million was
repaid during fiscal 1998).  The amendments also gave the Company an additional
$3 million in borrowing capacity secured by certain inventories and receivables
located outside of the United States.  The interest rate under the revolving
line of credit was increased to prime plus 1.5% from prime plus .75%.

     In November 1998, the Company's financing package was amended, giving the
Company additional term borrowings of $1.8 million under an existing term loan
and deferring principal payments until March 1, 1999 on an aggregate total term
loan of $4.8 million (including the additional $1.8 million borrowing).  This
amended term loan contains two payment options; 1) repay the $1.8 million
advance in February 1999, then make monthly principal payments of $80,000
beginning March 1, 1999 or 2.) amortize the entire $4.8 million term loan with
monthly principal payments of $80,000 beginning March 1, 1999.

     Management expects the sources discussed above to satisfy the Company's
current financing needs.  At July 31, 1998, there were approximately $1.3
million of borrowings available under the Company's revolving line of credit.
This additional availability was related solely to outstanding checks for
payments to vendors and was depleted in early August 1998.  Management expects
to be at maximum borrowing limits throughout fiscal 1999.  Because the line of
credit will be at its maximum during this period, the Company will be required
to delay payments to vendors as it has historically done.  Management does not
expect any significant long-term effect from these delayed payments as most
vendors have supplied the Company for many years.  Additionally, because of the
additional financing noted above, overall lower projected inventory levels and
an expected return to profitability in fiscal 1999, the Company expects its
level of past due payments to remain below the levels experienced in either
fiscal 1997 or 1998.

Working Capital

     The Company's working capital ratio was 1.9 at July 31, 1998 and 1.6 at
July 31, 1997. The change in this ratio is due to the lower level of working
capital at July 31, 1998, as discussed above and below.

     Inventory levels at July 31, 1998 were down $2.6 million or 9.5% from July
31, 1997.  This decrease resulted from lower sales levels during the third and
fourth quarters of 1998 versus 1997.  The decrease in trade payables directly
relates to the decrease in inventories and the additional borrowings discussed
above.

     Management expects that inventories will continue to decline during fiscal
1999.  As the inventory level declines, management also expects payments to
vendors to improve correspondingly.  The Company does not expect substantial
realization problems with this inventory.

Long-Term Debt and Revolving Credit Agreement

     At July 31, 1998, the Company's term and revolving credit loan agreement,
which is more fully described in Note 3 to the Consolidated 

                                       21
<PAGE>
 
Financial Statements, provided for interest at a rate of to 1.5% over prime with
maximum borrowings of up to $26,500,000 on the revolving line of credit.

     In August and December 1997, the Company expanded the borrowings available
under its term and revolving credit loan agreements.  This amended financing
package included an additional $5 million of term loans and up to $3 million of
additional borrowings under its revolving line of credit secured by certain
inventories and receivables located outside the United States.  Of the
additional $5 million of term loans, $1.8 million  was repaid during fiscal
1998.

     In November 1998, the Company's financing package was amended to allow for
additional term loan of $1.8 million.  As discussed above, the Company has two
options for repayment of this additional advance; 1) repayment of the entire
$1.8 million advance in February 1999 with monthly payments of $80,000 beginning
in March 1999, or 2) amortize entire $4.8 million (including the additional
advance of $1.8 million) term loan with principal payments of $80,000 in March
1999.

Capital Expenditures

     Capital expenditures were $3,968,000, $3,790,000, and $1,304,000 for the
years ended July 31, 1996, 1997, and 1998, respectively.  Of the fiscal 1998
total, substantially all of this amount was related to production equipment and
tooling.

Effects of Inflation

     A significant portion of the Company's costs and expenses consist of
materials, supplies, salaries, and wages that are affected by inflation.  Due to
the intense market pressures on prices, the Company does not believe that it
will be able to pass on inflationary increases in its selling prices.
Accordingly, the Company concentrates on changes in design, manufacturing
process, material scheduling, and sourcing to help contain costs.  The Company
does not expect that the effects of inflation will have a significant impact on
its profitability in the near future.  Additionally, a significant portion of
the Company's raw material items are sourced overseas.  Significant devaluation
of the dollar relative to these currencies would not be able to be passed on in
the form of price increases to consumers.

Recently-Issued Accounting Principles

     The Company adopted the provision of SFAS No. 128, Earnings Per Share,
effective for the year ended July 31, 1998.  This Statement establishes new
standards for computing and presenting earnings per share and requires
restatement for all prior period earnings per share data.  The adoption of this
Statement resulted in the dual presentation of basic and diluted earnings per
share on the Company's income statement.  In accordance with this statement, the
Company has applied these provisions on a retroactive basis.

     The Company adopted the provisions of SFAS No. 129, Disclosures of
Information about Capital Structure, effective for the year ended July 31, 1998.
This Statement consolidates existing pronouncements on required disclosures
about a company's capital structure including a brief discussion of rights and
privileges for securities outstanding.  The adoption of this Statement has no
material effect of the Company's consolidated financial statements.

                                       22
<PAGE>
 
     In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income.  This Statement requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements.  SFAS No. 130 is effective
for financial statement periods beginning after December 15, 1997.  Management
does not anticipate that is Statement will have a significant effect on the
Company's consolidated financial statements.

     In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information.  This
Statement establishes standards for reporting information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial reports issued to
stockholders.  It also establishes standards for related disclosures about
products and services, geographic areas and major customers.  SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997.  Management does
not anticipate that this Statement will have a significant effect on the
Company's consolidated financial statements.

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities.  SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value.  SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met.  Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement.  Companies must formally document, designate, and
assess the effectiveness of transactions that receive hedge accounting.  SFAS
No. 133 is effective for fiscal years beginning after June 15, 1999, however,
companies may implement the statement as of the beginning of any fiscal quarter
beginning June 16, 1998.  SFAS No. 133 cannot be applied retroactively and must
be applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts that were issued, acquired, or substantively
modified after December 31, 1997 (and, at the company's election, before January
1, 1998).  The Company has not yet quantified the impact of adopting SFAS No.
133 on its financial statements and has not determined the timing of or method
of the adoption of SFAS No. 133.  However, as of July 31, 1998, the Company had
no outstanding derivative instruments.

Year 2000 Compliance

     The Company is taking appropriate steps to ensure that its computer systems
will properly recognize date sensitive information when the year changes to 2000
or "00".  Systems that do not properly recognize such information could generate
erroneous data or cause a system to fail.  The Company is in the process of
evaluating its computer systems to identify those that could be effected by this
issue.  All significant systems have been tested and an implementation plan is
in place to address and resolve any issues by August 1999.  The Company is also
communicating with key suppliers and vendors to coordinate year 2000 compliance.
The costs associated with ensuring that the Company's systems are year 2000
compliant are expected to approximate $500,000 and will be incurred during the
fiscal year 1999.  The Company believes that the year 2000 issue will not pose
significant operational problems for the Company's computer systems, and
therefore, will not have a significant impact on the operations of the Company.

                                       23
<PAGE>
 
     The highest risk area for the Company related to the year 2000 issues is
noncompliance by third parties.  At this time, the most reasonably likely worst
case scenario would be year 2000 noncompliance by third parties that comprised a
significant level of business conducted with the Company.  Depending upon the
level of noncompliance, the Company could be adversely impacted by such things
as communication problems with third parties, including order processing,
purchase order placement and/or scheduling problems related to the manufacturing
of the Company's products.  The major risk areas associated with third party
noncompliance have been identified.  As the year 2000 compliance process
continues, the Company will develop contingency plans that it deems necessary
based on its evaluations of third party readiness.  No such contingency plans
have been developed to date.  Based upon its assessment of third party
assurances at this time, the Company does not anticipate any material
disruptions in its business activities as a result of third party year 2000
noncompliance, although it cannot be certain that such disruptions will not
occur.

Quantitative and Qualitative Disclosure About Market Risk

     The Company is exposed to cash flow and interest rate risk due to changes
in interest rates with respect to its long-term debt. See note 3 to the
consolidated financial statements for details on the Company's long-term debt.

Outlook

     The Company anticipates a return to profitability in fiscal 1999, primarily
as the result of addressing operational issues which have plagued the Company in
1997 and 1998, continuing favorable economic and favorable market conditions,
market acceptance of the Company's new, less restrictive distribution programs
and its 1999 product offering, and lower manufacturing cost related to
continuing efficiencies from the Company's Mexico manufacturing facility.
Management currently anticipates positive cash flows from operations in fiscal
1999 based on attaining current projections for net income and inventory levels.
The Company is expecting additional new products to contribute significantly to
the 1999 net sales projections.  All of these models are currently in
production.  The expectation for returned profitability based on the above
factors constitutes forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934.  The Company believes that these forecasts are based on reasonable
assumptions, however, no assurances can be given that these goals will be
achieved.  If the Company experiences production delays due to raw materials
shortages or unforeseen competitive pressures, this could have a material
adverse affect on current projections.  Also, because of the dynamic environment
in which the Company operates, one or more key factors which are discussed in
"Part I, Item 1. Business" could have an adverse effect on results for the
upcoming year.

Item 8.   Financial Statements and Supplementary Data

     The Consolidated Financial Statements and Supplementary Data are indexed in
Item 14 hereof.

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

     None.

                                       24
<PAGE>
 
                                   PART III

Item 10.  Directors and Executive Officers of the Registrant

     Incorporated by reference to the Company's Proxy Statement to be filed with
the Securities and Exchange Commission in connection with the Company's 1998
annual meeting.


Item 11.  Executive Compensation

     Incorporated by reference to the Company's Proxy Statement to be filed with
the Securities and Exchange Commission in connection with the Company's 1998
annual meeting.


Item 12.  Security Ownership of Certain Beneficial Owners and Management

     Incorporated by reference to the Company's Proxy Statement to be filed with
the Securities and Exchange Commission in connection with the Company's 1998
annual meeting.

Item 13.  Certain Relationships and Related Transactions

     Incorporated by reference to the Company's Proxy Statement to be filed with
the Securities and Exchange Commission in connection with the Company's 1998
annual meeting.


                                    PART IV

Item 14.  Exhibits, Financial Statements, and Reports on Form 8-K

     (a)  Financial Statements and Exhibits:

                                                                           Page
                                                                           ----
          1.   Consolidated Financial Statements:
 
                 Index to Consolidated Financial Statements                 F-1
 
                 Report of Independent Public Accountants                   F-2
 
               Consolidated Balance Sheets - July 31, 1997 and 1998         F-3
 
                 Consolidated Statements of Income (Loss) for the Years
                   Ended July 31, 1996, 1997, and 1998                      F-4
 
                 Consolidated Statements of Stockholders' Equity for the
                   Years Ended July 31, 1996, 1997, and 1998                F-5
 
                 Consolidated Statements of Cash Flows for the Years
                   Ended July 31, 1996, 1997, and 1998                      F-6
 
                 Notes to Consolidated Financial Statements
                   for the Years Ended July 31, 1996, 1997, and 1998        F-7
 
          2.   Exhibits:

               3.1  Certificate of Incorporation of Lowrance Electronics,
                    Inc., previously filed as Exhibit 3.1 to the Company's

                                       25
<PAGE>
 
                    Registration Statement on Form S-1 (SEC File No. 33-9464),
                    which is incorporated herein by reference thereto.

               3.2  By-Laws of Lowrance Electronics, Inc., previously filed as
                    Exhibit 3.2 to the Company's Registration Statement on Form
                    S-1 (SEC File No. 33-9464), which is incorporated herein by
                    reference thereto.

               4.1  Shareholders' Agreement dated December 22, 1978, by and
                    between Darrell J. Lowrance, James L. Knight, and Ben V.
                    Schneider previously filed as Exhibit 4.3 to the Company's
                    Registration Statement on Form S-1 (SEC File No. 33-9464),
                    which is incorporated by reference thereto.

               4.2  First Amendment to Shareholders' Agreement dated October 7,
                    1986 by and between Darrell J. Lowrance, James L. Knight,
                    and Ben V. Schneider previously filed as Exhibit 4.4 to the
                    Company's Registration Statement on Form S-1 (SEC File No.
                    33-9464), which is incorporated by reference thereto.

               4.3  Agreement between Stockholders dated October 7, 1986, by and
                    between the Company and Darrell J. Lowrance, James L.
                    Knight, and Ben V. Schneider previously filed as Exhibit 4.5
                    to the Company's Registration Statement on Form S-1 (SEC
                    File No. 33-9464), which is incorporated herein by reference
                    thereto.

               10.1 1986 Incentive Stock Option Plan of the Company previously
                    filed as Exhibit 10.1 to the Company's Registration
                    Statement on Form S-1 (SEC File No. 33-9464), which is
                    incorporated herein by reference thereto.

               10.2 Lowrance Retirement Plan and Trust previously filed as
                    Exhibit 10.2 to the Company's Registration Statement on Form
                    S-1 (SEC File No. 33-9464), which is incorporated herein by
                    reference thereto.

               10.3 Form of Distributor Agreements previously filed as Exhibit
                    10.4 to the Company's Registration Statement on Form S-1
                    (SEC File No. 33-9464), which is incorporated herein by
                    reference thereto.

               10.4 Form of Service Center Agreement previously filed as Exhibit
                    10.5 to the Company's Registration Statement on Form S-1
                    (SEC File No. 33-9464), which is incorporated herein by
                    reference thereto.

               10.5 Credit Agreement dated April 27, 1989, by and between the
                    Company and Norwest Business Credit, Inc., previously filed
                    as Exhibit 10.8 to the Company's 1989 Annual Report on Form
                    10-K, which is incorporated herein by reference thereto.

               10.6 Promissory note dated April 27, 1989, by the Company in
                    favor of Norwest Leasing, Inc., previously filed as Exhibit
                    10.7 to the Company's 1989 Annual Report on Form 10-K, which
                    is incorporated herein by reference thereto.

                                       26
<PAGE>
 
               10.7  1989 Stock Option Plan of the Company previously filed as
                     Appendix A to the Company's Proxy Statement for its Annual
                     Meeting of Stockholders held on December 12, 1989, which is
                     incorporated herein by reference thereto.

               10.8  First, Second, and Third Amendments to Credit Agreement
                     dated April 27, 1989, by and between the Company and
                     Norwest Business Credit, Inc., previously filed as Exhibit
                     10.8 to the Company's 1990 Annual Report on Form 10-K,
                     which is incorporated herein by reference thereto.

               10.9  Fourth and Fifth Amendments to Credit Agreement dated April
                     27, 1989, by and between the Company and Norwest Business
                     Credit, Inc., previously filed as Exhibit 10.9 to the
                     Company's 1992 Annual Report on Form 10-K, which is
                     incorporated herein by reference thereto.

               10.10 Sixth Amendment to Credit Agreement dated March 17, 1993,
                     by and between the Company and Norwest Business Credit,
                     Inc., which is incorporated herein by reference thereto.

               10.11 Seventh Amendment to Credit Agreement dated October 21,
                     1993, by and between the Company and Norwest Business
                     Credit, Inc., previously filed as Exhibit 10.11 to the
                     Company's 1993 Annual Report on Form 10-K, which is
                     incorporated herein by reference thereto.

               10.12 Eighth Amendment to Credit Agreement dated September 29,
                     1993, by and between the Company and Norwest Business
                     Credit, Inc., previously filed as Exhibit 10.12 to the
                     Company's 1993 Annual Report on Form 10-K, which is
                     incorporated herein by reference thereto.

               10.13 Loan and Security Agreement dated December 15, 1993, by the
                     Company in favor of Barclays Business Credit, Inc., which
                     is incorporated herein by reference thereto.

               10.14 Amended and Restated Secured Promissory Note dated October
                     16, 1995, by and between the Company and Shawmut Capital
                     Corporation (formally Barclays Business Credit, Inc.),
                     which is incorporated herein by reference thereto.

               10.15 Amended and Restated Revolving Credit Notes dated October
                     16, 1995, by and between the Company and Shawmut Capital
                     Corporation (formally Barclays Business Credit, Inc.),
                     which is incorporated herein by reference thereto.

               10.16 First Amendment to Loan and Security Agreement dated
                     October 16, 1995, by and between the Company and Shawmut
                     Capital Corporation (formally Barclays Business Credit,
                     Inc.), which is incorporated herein by reference thereto.

               10.17 Amended and Restated Stock Pledge Agreement dated October
                     16, 1995, by and between the Company and Shawmut Capital
                     Corporation (formally Barclays Business Credit, 

                                       27
<PAGE>
 
                     Inc.), which is incorporated herein by reference thereto.

               10.18 Unconditional Guaranty dated October 16, 1995, by and
                     between Sea Electronics, Inc. and Shawmut Capital
                     Corporation, which is incorporated herein by reference
                     thereto.

               10.19 First Amendment to Mortgage, Security Agreement, Financing
                     Statement and Assignment of Rents dated October 16, 1995,
                     by and between the Company and Shawmut Capital Corporation
                     (formally Barclays Business Credit, Inc.) previously filed
                     as Exhibit 10.19 to the Company's 1996 Annual Report on
                     Form 10-K, which is incorporated herein by reference
                     thereto.

               10.20 Lease Agreement entered into by and between Eric Juan De
                     Dios Flourie Geffroy and Electronica Lowrance De Mexico, S.
                     A. de C. V. dated August 30, 1996, previously filed as
                     Exhibit 10.20 to the Company's 1996 Annual Report on Form
                     10-K, which is incorporated herein by reference thereto.

               10.21 Lease Agreement entered into by and between Refugio Geffroy
                     De Flourie, Eric Juan De Dios Flourie Geffroy, Elizabeth
                     Flourie Geffroy, Edith Flourie Geffroy and Electronica
                     Lowrance De Mexico, S. A. de C. V. dated August 30, 1996,
                     previously filed as Exhibit 10.21 to the Company's 1996
                     Annual Report on Form 10-K, which is incorporated herein by
                     reference thereto.

               10.22 Second Amendment to Loan and Security Agreement dated
                     November 1, 1996, by and between the Company and Fleet
                     Capital Corporation (formally Shawmut Capital Corporation),
                     which is incorporated herein by reference thereto.

               10.23 Third Amendment to Loan and Security Agreement dated
                     December 31, 1996, by and between the Company and Fleet
                     Capital Corporation (formally Shawmut Capital Corporation),
                     which is incorporated herein by reference thereto.

               10.24 Fourth Amendment to Loan and Security Agreement dated
                     August 14, 1997, by and between the Company and Fleet
                     Capital Corporation (formally Shawmut Capital Corporation),
                     which is incorporated herein by reference thereto.

               10.25 Fifth Amendment to Loan and Security Agreement dated August
                     25, 1997, by and between the Company and Fleet Capital
                     Corporation (formally Shawmut Capital Corporation), 
                     which is incorporated herein by reference thereto.

               10.26 Sixth Amendment to Loan and Security Agreement dated August
                     28, 1997, by and between the Company and Fleet Capital
                     Corporation (formally Shawmut Capital Corporation), filed
                     herewith.

               10.27 Seventh Amendment to Loan and Security Agreement dated
                     November 6, 1997, by and between the Company and Fleet
                     Capital Corporation (formally Shawmut Capital Corporation),
                     filed herewith.

                                       28
<PAGE>
 
               10.28 Eighth Amendment to Loan and Security Agreement dated
                     December 9, 1997, by and between the Company and Fleet
                     Capital Corporation (formally Shawmut Capital Corporation),
                     filed herewith.

               10.29 Ninth Amendment to Loan and Security Agreement dated
                     September 14, 1998, by and between the Company and Fleet
                     Capital Corporation (formally Shawmut Capital Corporation),
                     filed herewith.

               10.30 Tenth Amendment to Loan and Security Agreement dated
                     November 12, 1998, by and between the Company and Fleet
                     Capital Corporation (formally Shawmut Capital Corporation),
                     filed herewith.

               22.1  Subsidiaries of the Company previously filed as Exhibit
                     22.1 to the Company's 1993 Annual Report on Form 10-K,
                     which is incorporated herein by reference thereto.

               22.12 Subsidiaries of the Company previously filed as Exhibit
                     22.12 to the Company's 1995 Annual Report on Form 10-K,
                     which is incorporated herein by reference thereto.

     (b)  Reports on Form 8-K:

          No reports on Form 8-K were filed for the three months ended July 31,
          1998.

                                       29
<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.

                                   LOWRANCE ELECTRONICS, INC.


DATE:    November 12, 1998         BY:/s/ Darrell J. Lowrance
       --------------------------     -------------------------------------
                                       Darrell J. Lowrance,
                                       President and
                                       Chief Executive Officer


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


/s/ Darrell J. Lowrance       President, Chief Executive       November 12, 1998
---------------------------   Officer, and Director                       
Darrell J. Lowrance           (Principal Executive Officer)                
                        
                        


/s/ Mark C. Wilmoth           Vice President of Finance and    November 12, 1998
---------------------------   Chief Financial Officer                         
Mark C. Wilmoth               (Principal Financial Officer and                
                              Principal Accounting Officer)                    
                        
                        


/s/ Alpo F. Crane             Director                         November 12, 1998
---------------------------
Alpo F. Crane           



/s/ Willard P. Britton        Director                         November 12, 1998
---------------------------
Willard P. Britton      



/s/ Peter F. Foley, III       Director                         November 12, 1998
---------------------------
Peter F. Foley, III     



/s/ Ronald G. Weber           Executive Vice President of      November 12, 1998
---------------------------   Technology and Engineering                   
Ronald G. Weber               and Director                                  
                        
                        

/s/ Robert F. Biolchini       Secretary and Director           November 12, 1998
---------------------------
Robert F. Biolchini     

                                       30
<PAGE>
 
            INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
                                                                 Page
---------------------------------------------------------------------
 
Report of Independent Public Accountants                          F-2
 
Consolidated Balance Sheets - July 31, 1997 and 1998              F-3
 
Consolidated Statements of Income (Loss) for the Years
  Ended July 31, 1996, 1997, and 1998                             F-4
 
Consolidated Statements of Stockholders' Equity for the
  Years Ended July 31, 1996, 1997, and 1998                       F-5
 
Consolidated Statements of Cash Flows for the Years Ended
  July 31, 1996, 1997, and 1998                                   F-6
 
Notes to Consolidated Financial Statements for the Years Ended
  July 31, 1996, 1997, and 1998                                   F-7
 

                                      F-1
<PAGE>
 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Shareholders and Board of Directors of Lowrance Electronics, Inc.:

We have audited the accompanying consolidated balance sheets of LOWRANCE
ELECTRONICS, INC., (a Delaware corporation) and subsidiaries as of July 31, 1998
and 1997, and the related consolidated statements of income (loss),
stockholders' equity, and cash flows for each of the three years in the period
ended July 31, 1998.  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 in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

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



                                              ARTHUR ANDERSEN LLP



Tulsa, Oklahoma
October 9, 1998

                                      F-2
<PAGE>
 
                           LOWRANCE ELECTRONICS, INC.
                          CONSOLIDATED BALANCE SHEETS

                                     ASSETS

                                                     JULY 31,
                                                ----------------
                                                  1997     1998
                                                  ----     ----

                                                 (in thousands)

CURRENT ASSETS:
 Cash and cash equivalent                       $   866  $   637
 Trade accounts receivable, net of reserves
   of $907,000 in 1997 and $683,000 in 1998      16,346   13,742
 Inventories (Note 2)                            27,880   25,224
 Current deferred income taxes                    1,587    1,457
 Prepaid expenses                                   400      610
 Income tax refund receivable                       957        -
                                                -------  -------
     Total current assets                        48,036   41,670
 
PROPERTY, PLANT, AND EQUIPMENT, net (Note 2)     11,209    9,891
 
OTHER ASSETS                                      1,106      277
 
DEFERRED INCOME TAXES                             1,015      409
                                                -------  -------
 
                                                $61,366  $52,247
                                                =======  =======

                     LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
 Current maturities of long-term debt           $ 4,149  $ 3,498
 Accounts payable                                21,496   15,026
 Accrued liabilities:                                    
   Compensation and benefits                      2,664    1,729
   Product costs                                  1,076    1,130
   Other                                            853      654
                                                -------  -------
     Total current liabilities                   30,238   22,037
                                                -------  -------
                                                         
LONG-TERM DEBT, less current maturities                  
  (Note 3)                                       21,176   23,038
                                                -------  -------
 
SERIES "A" REDEEMABLE PREFERRED STOCK, 
   $.50 par value, 70,000 shares 
   authorized and issued (Note 5)                     -        -
 
STOCKHOLDERS' EQUITY, per accompanying
 statements (Note 5):
 Preferred stock, no par value, 230,000 
   shares authorized, none issued                     -        -
 Common stock, $.10 par value, 10,000,000
   shares authorized, 3,352,458 shares 
   issued in 1997 and 3,768,796 shares 
   issued in 1998                                   335      377
 Paid-in capital                                  5,600    7,073
 Retained earnings                                4,214      219
 Foreign currency translation adjustment           (197)    (497)
                                                -------  -------
     Total stockholders' equity                   9,952    7,172
                                                -------  -------
                                                $61,366  $52,247
                                                =======  =======

The accompanying notes are an integral part of these consolidated balance
sheets.

                                      F-3
<PAGE>
 
                          LOWRANCE ELECTRONICS, INC.
                   CONSOLIDATED STATEMENTS OF INCOME (LOSS)
                   
 
                                               FOR THE YEARS ENDED JULY 31,
                                          -------------------------------------
                                            1996          1997           1998
                                          -------       --------        -------
                                        (in thousands, except per share amounts)
NET SALES                                 $94,579       $104,659        $91,706
COST OF SALES                              62,591         77,778         66,061
                                          -------       --------        -------
                                                    
 Gross profit                              31,988         26,881         25,645
                                          -------       --------        -------
                                                    
OPERATING EXPENSES:                                 
 Selling and administrative                23,285         26,894         21,220
 Research and development                   3,439          3,936          2,650
                                          -------       --------        -------
                                                    
 Total operating expenses                  26,724         30,830         23,870
                                          -------       --------        -------
                                                    
 Operating income (loss)                    5,264         (3,949)         1,775
                                          -------       --------        -------
                                                    
OTHER EXPENSES:                                     
 Interest                                   1,881          2,398          3,509
 Other                                      1,184          1,530          1,432
                                          -------       --------        -------
                                                    
 Total other expenses                       3,065          3,928          4,941
                                          -------       --------        -------
                                                    
INCOME (LOSS) BEFORE INCOME TAXES           2,199         (7,877)        (3,166)
 
PROVISION (BENEFIT) FOR INCOME
 TAXES (Note 7)                               456         (2,687)           829
                                          -------       --------        -------

NET INCOME (LOSS)                         $ 1,743       $ (5,190)       $(3,995)
                                          =======       ========        ======= 

NET INCOME (LOSS) PER COMMON SHARE 
 (Note 5)

 Basic                                    $   .52       $  (1.55)       $ (1.11)
                                          =======       ========        ======= 

 Diluted                                  $   .51       $  (1.55)       $ (1.11)
                                          =======       ========        ======= 

WEIGHTED AVERAGE COMMON
 SHARES OUTSTANDING (Note 5)

 Basic                                      3,352          3,352          3,608
                                          =======       ========        ======= 

 Diluted                                    3,387          3,352          3,608
                                          =======       ========        ======= 





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

                                      F-4
<PAGE>
 
                          LOWRANCE ELECTRONICS, INC.
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
               FOR THE YEARS ENDED JULY 31, 1996, 1997, AND 1998
                                   (NOTE 5)

                                            
                                                                  Foreign  
                             Common Stock                         Currency 
                            --------------  Paid-In  Retained   Translation 
                            Shares  Amount  Capital  Earnings    Adjustment
                            ------  ------  -------  ---------  ------------
                                             (in thousands)
 
Balance -
  July 31, 1995              3,352    $335   $5,600   $ 7,661         $(144)
Net income                       -       -        -     1,743             -
Foreign currency
  translation adjustment         -       -        -         -             1
                            ------  ------  -------   -------         -----
 
Balance -
  July 31, 1996              3,352     335    5,600     9,404          (143)
Net loss                         -       -        -    (5,190)            -
Foreign currency
  translation adjustment         -       -        -         -           (54)
                            ------  ------  -------   -------         -----
 
Balance -
  July 31, 1997              3,352     335    5,600     4,214          (197)
Net loss                         -       -        -    (3,995)            -
Exercise of common stock
  options                       75       7      196         -             -
Issuance of common stock       341      35    1,277         -             -
Foreign currency
  translation adjustment         -       -        -         -          (300)
                            ------  ------  -------   -------         -----
 
Balance -
  July 31, 1998              3,768    $377   $7,073   $   219         $(497)
                            ======  ======  =======   =======         =====
 

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

                                      F-5
<PAGE>
 
                          LOWRANCE ELECTRONICS, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Note 8)
 
                                                  FOR THE YEARS ENDED JULY 31,
                                                -------------------------------
                                                  1996       1997       1998
                                                --------   --------   --------
                                                        (in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income (loss)                              $  1,743   $ (5,190)  $ (3,995)
 Adjustments to reconcile net income (loss)
  to net cash used in operating activities:
  Depreciation and amortization                    2,561      2,837      2,897
  (Gain)loss on sale of fixed assets                  55         (7)        (2)
  Foreign currency translation adjustment              1        (54)      (300)
 Change in operating assets and liabilities:
  (Increase)decrease in trade accounts
   receivable                                     (2,156)    (3,525)     2,604
  (Increase)decrease in inventories               (2,797)    (7,107)     2,656
  Decrease (increase) in
   income tax refund receivable                        -       (957)       957
  (Increase)decrease in prepaid expenses
   and deferred income taxes                         (55)    (1,633)       526
  (Increase)decrease in other assets                (467)      (396)       555
  Increase(decrease) in accounts payable             664     13,338     (6,470)
  Increase(decrease) in accrued liabilities         (855)       129     (1,080)
                                                --------   --------   --------
 
  Net cash used in operating activities           (1,306)    (2,565)    (1,652)
                                                --------   --------   --------
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 Capital expenditures                             (1,942)    (2,722)      (583)
 Proceeds from sale of property, plant
  and equipment                                        2          -          -
                                                --------   --------   --------
 
  Net cash used in investing activities           (1,940)    (2,722)      (583)
                                                --------   --------   --------
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 Borrowings under line of credit                  96,406    104,213     93,397
 Repayments of borrowings under line of
  credit                                         (92,574)   (97,117)   (94,613)
 Borrowings under term loan                        1,507        500      5,000
 Principal payments on term loan and
  capital lease obligations                       (2,115)    (2,064)    (3,293)
 Proceeds from issuance of common stock                -          -      1,515
                                                --------   --------   --------
 
  Net cash provided by
    financing activities                           3,224      5,532      2,006
                                                --------   --------   --------
 
  Net increase(decrease)in cash and
    cash equivalent                                  (22)       245       (229)
CASH AND CASH EQUIVALENT - beginning of year         643        621        866
                                                --------   --------   --------
 
CASH AND CASH EQUIVALENT - end of year          $    621   $    866   $    637
                                                ========   ========   ========

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

                                      F-6
<PAGE>
 
                          LOWRANCE ELECTRONICS, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               FOR THE YEARS ENDED JULY 31, 1996, 1997, AND 1998


(1)  BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Business -
     Lowrance Electronics, Inc., and subsidiaries (the Company) design,
     manufacture, market and distribute sonars (also known as depth-sounders and
     fish-finders), global positioning system (GPS) navigational equipment and
     other marine electronic products and various related accessories. The
     Company's sonars are principally used by sports fishermen for detecting the
     presence of fish and by sports fishermen and boaters as navigational and
     safety devices for determining bottom depth in lakes, rivers, and coastal
     waters. The Company's GPS receivers are used in a variety of marine and 
     non-marine applications, including aviation, hunting, hiking and
     backpacking.
     
     During fiscal 1997 and 1998, the Company incurred significant operating
     losses and for the last three fiscal years has had net cash outflows from
     operations. In response to the operating results, the Company has addressed
     operational problems related to the start-up of it's Mexico manufacturing
     facility and related manufacturing operations which are still located in
     Tulsa, Oklahoma. The Company has refocused its sales and marketing efforts
     to, 1) minimize restrictions on the distribution of some of its more
     popular products under the Lowrance brand name, and 2) increase
     expenditures for print advertising and boat show attendance which had
     decreased significantly in fiscal 1998. In addition, as discussed in Note
     3, the Company and its primary lender amended the credit agreement to
     provide for an additional $1.8 million advance under an existing loan to
     meet short-term vendor requirements related to past due payables.

     Management believes that cash provided by operations and borrowings
     available under the amended credit agreement will provide the Company with
     adequate cash flow to meet its obligations. However, no assurances can be
     given that the operating goals will be achieved.

     Principles of Consolidation -
     The consolidated financial statements include the accounts of the Company
     and its wholly-owned subsidiaries. All material intercompany transactions
     and accounts have been eliminated in consolidation.

     Property and Depreciation -
     Property, plant, and equipment is stated at cost. For financial reporting
     purposes, depreciation is provided on a straight-line basis over the
     estimated service lives of the respective classes of property. The building
     is being depreciated using an estimated useful life of thirty years, while
     the estimated lives for other assets range from two to fifteen years. Fully
     depreciated property and equipment with a cost of approximately $16 million
     is still in use as of July 31, 1998.

     When property is retired, or otherwise disposed of, the cost and related
     accumulated depreciation are removed from the accounts, and the resulting
     gain or loss is credited or charged to operations.

                                      F-7
<PAGE>
 
     Maintenance, repairs, and renewals, including replacement of minor items of
     physical properties, are charged to income; major additions and betterments
     to physical properties are capitalized.

     Research and Development Costs -
     Costs associated with the development of new products and changes to
     existing products are charged to expense as incurred and include an
     allocation of indirect costs.

     Foreign Currency Translations -
     Foreign currency transactions and financial statements are translated in
     accordance with Statement of Financial Accounting Standards ("SFAS") No.
     52. Assets and liabilities are translated to U.S. dollars at the current
     exchange rate. Income and expense accounts are translated using the
     weighted average exchange rate for the period. Adjustments arising from
     translation of foreign financial statements are reflected in the cumulative
     translation adjustment in the equity section of the consolidated balance
     sheet. Transaction gains and losses are included in net income (loss).

     Derivatives -
     The Company uses forward sales contracts to hedge against losses due to
     changes in foreign currencies. Gains and losses realized from the contracts
     are recognized currently as other income or expense. Gains and losses
     resulting from the contracts have not had a material impact on the
     Company's results of operations. There are no open forward sales contracts
     at July 31, 1998.

     Use of Estimates in the Preparation of Financial Statements -
     The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make estimates and
     assumptions that affect the reported amounts of assets and liabilities and
     disclosure of contingent assets and liabilities at the date of the
     financial statements and the reported amounts of revenues and expenses
     during the reporting period. Actual results could differ from those
     estimates.

     Accrued Product Costs -
     Product Warranties - The majority of the Company's sales are made under a
     one-year product warranty. A provision is made at the time of sale for the
     estimated future warranty costs.

     Dealer Premium Coupons - The Company offers a sonar installation subsidy to
     qualified boat and motor dealers of its Lowrance product line. At the time
     of shipment, the Company provides for the estimated cost of this program.

     Returns and Refurbishments - Estimated costs related to refurbishment of
     returned goods are accounted for by providing a reserve based on the
     Company's historical experience. These reserves are analyzed and adjusted
     quarterly. Returns are recorded as a reduction of net sales at the time of
     receipt of the goods.

     Cash and Cash Equivalent -
     For purposes of the Consolidated Statements of Cash Flows, the Company
     considers only certificates of deposit with a maturity of three months or
     less to be cash equivalents.

                                      F-8
<PAGE>
 
     Advertising -
     Advertising costs are expensed as incurred. The Company expensed
     approximately $2,500,000, $4,200,000 and $2,700,000 during the years 1996,
     1997 and 1998, respectively, for advertising.

     Fair Value of Financial Instruments -
     Cash and cash equivalents, accounts receivable and accounts payable - The
     carrying amount of these assets and liabilities approximates fair value
     because of the short maturity of these instruments.

     Long-Term Debt and Revolving Credit Line - The amounts outstanding under
     the Company's term loan and revolving credit line bear interest at current
     market rates, thus their carrying amounts approximate fair market value.
     Interest rates underlying capitalized equipment leases approximate current
     market rates.

     Recently Issued Accounting Principles

     The Company adopted the provision of SFAS No. 128, Earnings Per Share,
     effective for the year ended July 31, 1998.  This Statement establishes new
     standards for computing and presenting earnings per share and requires
     restatement for all prior period earnings per share data.  The adoption of
     this Statement resulted in the dual presentation of basic and diluted
     earnings per share on the Company's income statement.  In accordance with
     this statement, the Company has applied these provisions on a retroactive
     basis.  The adoption of this Statement did not cause a material difference
     between previously reported and restated earnings (loss) per share
     information for the years ended July 31, 1996 and 1997.

     The Company adopted the provisions of SFAS No. 129, Disclosures of
     Information about Capital Structure, effective for the year ended July 31,
     1998. This Statement consolidates existing pronouncements on required
     disclosures about a company's capital structure including a brief
     discussion of rights and privileges for securities outstanding. The
     adoption of this Statement had no material effect on the Company's
     consolidated financial statements.

     In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
     Reporting Comprehensive Income. This Statement requires that all items that
     are required to be recognized under accounting standards as components of
     comprehensive income be reported in a financial statement that is displayed
     with the same prominence as other financial statements. SFAS No. 130 is
     effective for financial statement periods beginning after December 15,
     1997. Management does not anticipate that this Statement will have a
     significant effect on the Company's consolidated financial statements.

     In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
     Disclosures about Segments of an Enterprise and Related Information. This
     Statement established standards for reporting information about operating
     segments in annual financial statements and requires reporting of selected
     information about operating segments in interim financial reports issued to
     stockholders. It also establishes standards for related disclosures about
     products and services, geographic areas and major customers. SFAS No. 131
     is effective for fiscal years beginning after December 15, 1997. Management
     does not anticipate that this Statement will have a significant effect on
     the Company's consolidated financial statements.

                                      F-9
<PAGE>
 
     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
     Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
     establishes accounting and reporting standards requiring that every
     derivative instrument (including certain derivative instruments embedded in
     other contracts) be recorded in the balance sheet as either an asset or
     liability measured at its fair value. SFAS No. 133 requires that changes in
     the derivative's fair value be recognized currently in earnings unless
     specific hedge accounting criteria are met. Special accounting for
     qualifying hedges allows a derivative's gains and losses to offset related
     results on the hedged item in the income statement. Companies must formally
     document, designate, and assess the effectiveness of transactions that
     receive hedge accounting. SFAS No. 133 is effective for fiscal years
     beginning after June 15, 1999, however, companies may implement the
     statement as of the beginning of any fiscal quarter beginning June 16,
     1998. SFAS No. 133 cannot be applied retroactively and must be applied to
     (a) derivative instruments and (b) certain derivative instruments embedded
     in hybrid contracts that were issued, acquired, or substantively modified
     after December 31, 1997 (and, at the company's election, before January 1,
     1998). The Company has not yet quantified the impact of adopting SFAS No.
     133 on its financial statements and has not determined the timing of or
     method of the adoption of SFAS No. 133. However, as of July 31, 1998, the
     Company had no outstanding derivative instruments.

     Reclassifications -
     Certain reclassifications have been made to prior years' consolidated
     financial statements to conform to the current year presentation.

(2)  BALANCE SHEET DETAIL

     Inventories -
     Inventories are priced at the lower of cost (first-in, first-out) or
     market and consist of the following:

                                                      1997      1998
                                                    -------   -------
                                                      (in thousands)
      Raw materials                                 $ 9,928   $ 6,127
      Work-in-process                                 9,327     4,820
      Finished goods                                  9,851    15,887
      Excess, obsolete, and realization reserves     (1,226)   (1,610)
                                                    -------   -------
 
       Total inventories                            $27,880   $25,224
                                                    =======   =======
 
 
    Property, Plant, and Equipment -                  1997      1998
                                                    -------   -------
                                                      (in thousands)
      Land                                          $   557   $   557
      Building and improvements                       4,470     4,354
      Machinery and equipment                        23,607    24,990
      Office furniture and fixtures                   5,152     5,141
                                                    -------   -------
                                                     33,786    35,042
      Less - accumulated depreciation                22,577    25,151
                                                    -------   -------
       Net property, plant, and equipment           $11,209   $ 9,891
                                                    =======   =======
 

                                      F-10
<PAGE>
 
    The property, plant, and equipment accounts include the following amounts
    for leased property under capitalized leases:

                                                      1997      1998
                                                    -------   -------
                                                      (in thousands)
      Machinery and equipment                       $ 5,856   $ 5,438
      Office furniture and fixtures                   1,086     1,007
                                                    -------   -------
                                                      6,942     6,445
      Less - accumulated depreciation                 2,785     3,234
                                                    -------   -------
       Net property, plant, and equipment                        
         under capitalized leases                   $ 4,157   $ 3,211
                                                    =======   =======
                                                              
                                                              
    Reserve for Doubtful Accounts and Sales           1997      1998
                                                    -------   -------
      Returns                                         (in thousands)  
      Balance, beginning of period                  $   539   $   907
      Charged to expense                                437       329
      Net (write-offs) recoveries                       (69)     (553)
                                                    -------   -------
      Balance, end of period                        $   907   $   683
                                                    =======   =======
 
    Excess, Obsolete, and Realization Reserve
      Balance, beginning of period                  $   676   $ 1,226
      Charged to expense                                773     1,190
      Net (write-offs) recoveries                      (223)     (806)
                                                    -------   -------
      Balance, end of period                        $ 1,226   $ 1,610
                                                    =======   =======
 
(3) LONG-TERM DEBT AND REVOLVING CREDIT LINE


    Long-term debt and the revolving credit line are summarized below:

 
                                                      1997      1998
                                                    -------   -------
                                                      (in thousands)
 
      Revolving credit line                         $18,621   $17,404
      Term loans                                      2,487     5,410
      Capitalized equipment lease
       obligations, payable in monthly
       installments of approximately
       $135,000, including interest at
       rates from 7% to 11%, with final
       payments ranging from August 1998
       through November 2001                          4,217     3,722
                                                    -------   -------
                                                     25,325    26,536
      Less - current maturities                       4,149     3,498
                                                    -------   -------
 
       Total long-term debt                         $21,176   $23,038
                                                    =======   =======
 
    Future maturities of the above debt obligations at July 31, 1998, are
    approximately $3,498,000, $1,949,000, $20,897,000, and $192,000 for the
    years ending July 31, 1999 through 2002, respectively.


    At July 31, 1997, the Company had a $30 million financing package which
    consisted of a $3.5 million term loan together with a $26.5 million
    revolving credit line. The revolving credit line provided for borrowings up
    to $26.5 million based on varying percentages of qualifying categories 

                                      F-11
<PAGE>
 
    of receivables and inventories and carried an interest rate of prime plus
    .75%. Borrowing against inventories was limited to $12 million in total.

    During August and December 1997, and September and November 1998, the
    Company's financing package was amended.  Significant provisions of the
    amendments included:  1) the due date was extended to December 2000,  2) an
    additional term loan of $4,000,000 was funded with a required $800,000
    principal payment which was made in May 1998 and additional principal
    payments of $66,666 beginning monthly in August 1998, with an interest rate
    of prime plus 1.5%.  Total monthly principle payments on the term loans are
    now $89,833, 3) an additional $1,000,000 was funded on the term loan which
    was subsequently repaid in July 1998, 4) up to an additional $3,000,000 in
    borrowings were made available under the revolving line of credit secured by
    certain inventories and receivables located outside the United States,  5)
    the interest rate on the revolving line of credit was increased to prime
    plus 1.5% from prime plus .75%,  6) the total facility was increased from
    $30,000,000 to $33,911,000, and 7)in November 1998, an additional advance of
    $1.8 million on an existing term loan was funded.  The Company has two
    repayment options; (A) repayment of the $1.8 million advance in February
    1999, or (B) amortize the entire $4.8 million term loan (including the $1.8
    million advance) over 60 months beginning in March 1999 with a due date of
    December 2000.  Under either option, principal payments of $80,000 per month
    are required beginning in March 1999.

    Current maturities for the revolving credit line are estimated based on
    future results and collateral limitations. The terms of the foregoing
    agreement include a commitment fee based on the unused portion of the bank
    credit line in lieu of compensating balances.

    The agreement requires, among other things, that the Company maintain a
    minimum tangible net worth, limits the ratio of total liabilities to
    tangible net worth and requires the Company to maintain a minimum fixed
    charge ratio. Additionally, the agreement limits the level of operating
    leases, and limits capital expenditures and capital leases. Violation of any
    of these provisions would constitute an event of default which, if not
    cured, would empower the lender to declare all amounts immediately payable.
    The agreement also contains a provision that in the event of a defined
    change of ownership, the agreement may be terminated.

    The Company's indebtedness is collateralized by substantially all of the
    Company's assets. The Company had unfunded outstanding checks at July 31,
    1997 and 1998 of $1.6 million and 1.3 million, respectively. These
    outstanding checks are included in accounts payable.

    Average short-term borrowings under the revolving credit line and related
    interest rates shown in the following table are weighted by using the
    average month-end principal balances.

                                            Years Ended July 31,      
                                       -----------------------------
                                         1996       1997       1998  
                                       -------    -------    -------  
                                              (in thousands)
     Highest amount borrowed           $15,773    $24,095    $20,872
     Average amount borrowed           $11,850    $16,202    $18,025
     Weighted average interest rate        9.2%       9.1%      10.4%

                                      F-12
<PAGE>
 
(4)  LEASES


     Capital Leases -
     Certain equipment is leased under agreements that are structured as capital
     leases. Accordingly, such equipment has been recorded as an asset, and the
     discounted value of the remaining lease obligations has been recorded as a
     liability in the accompanying Consolidated Balance Sheets (See Note 3).

     The following is a schedule by years of future minimum lease payments under
     capital leases, together with the present value of the net minimum lease
     payments as of July 31, 1998, (in thousands):

       Years ending July 31:
          1999                                                       $1,730
          2000                                                        1,031
          2001                                                        1,297
          2002                                                          195
                                                                     ------
       Total minimum lease payments                                   4,253
       Less amounts representing interest                               531
                                                                     ------
 
       Present value of net minimum lease payments                   $3,722
                                                                     ======
 
       Current portion of obligations under
        capital leases                                               $1,424
 
       Long-term portion of obligations under
         capital leases                                              $2,298
 
     Operating Leases -

     During 1996, 1997 and 1998, the Company recorded $1,119,000, $1,765,000 and
     $1,889,000, respectively, of expense related to operating leases.

     At July 31, 1998, future minimum rental payments for operating leases
     totaled $7,183,000. On August 30, 1996, the Company entered into a ten year
     non-cancelable lease for a manufacturing facility in Ensenada, Mexico. The
     lease has a fair market purchase option after three years and accordingly
     was accounted for as an operating lease. Payments for this facility are
     approximately $46,500 per month and began November 1, 1996. The lease also
     includes rent escalations of 3% per year beginning in October 1998. Total
     future minimum rental payments under operating leases for the years ending
     July 31, 1999 through July 31, 2003 (including the rental for the Mexican
     facility assuming the purchase option is not exercised) are approximately
     $1,622,000, $1,228,000, $813,000, $709,000, and $644,000, respectively, and
     $2,167,000 thereafter.

(5)  STOCKHOLDERS' EQUITY AND RELATED ITEMS

     The Company's 1989 Stock Option Plan provides for a maximum of 400,000
     common shares available for issue. Options and stock appreciation rights
     granted cannot have terms greater than ten years. The Plan provides for 
     non-qualified stock options to be granted at an option price of not less
     than 100% of the fair market value of the Company's Common Stock at the
     date of grant.

                                      F-13
<PAGE>
 
     Following is a summary of outstanding and exercisable options under the
     Plan as of July 31 for the respective years set forth below:

                                       1996    1997
                                      ------  ------ 
      Total outstanding               75,000  75,000
      Average option price             $2.71   $2.71


     In 1998, all 75,000 outstanding common stock options were exercised at a
     weighted average price of $2.71 per share. No additional options were
     granted.

     On May 13, 1996, the Company issued 70,000 shares of Series "A" Redeemable
     Preferred Stock in a private placement to five key officers of the Company.
     The Series "A" Preferred Stock is a nonvoting stock paying a noncumulative
     dividend of 2 1/2 cents. Each share of Series "A" Preferred Stock is
     convertible into five shares of the Company's Common Stock at a cash
     purchase price of $5.00 per share of Common Stock, but only if (i) the
     Chief Executive Officer of the Company sells in excess of 30 percent of his
     Common Stock of the Company or (ii) the Company sells substantially all of
     its assets and operations to a third party. The Series "A" Preferred Stock
     has been issued for a term of ten years for a purchase price of $6.875 per
     share. The Company financed the total purchase price of $481,250 for the
     five key officers of the Company pursuant to Promissory Notes bearing
     interest at Chase prime and Security Agreements where all of such Series
     "A" Preferred Stock is pledged to the Company to secure the Promissory
     Notes. In the event the Series "A" Preferred Stock is not converted within
     the ten year term, the holder is required to surrender the Series "A"
     Preferred Stock for cancellation by the Company in exchange for the Company
     forgiving the principal amount of the Promissory Note. If any of the key
     officers terminate their employment with the Company for any reason, except
     death, they immediately forfeit ownership rights to the Series "A"
     Preferred Stock which is immediately surrendered to the Company for
     cancellation in exchange for cancellation of the principal amount owing on
     the Promissory Note, provided all accrued interest on the Promissory Note
     is paid to the date of the key employee's termination. The Promissory Notes
     receivables have been netted against Preferred Stock in the Consolidated
     Balance Sheets.

     During fiscal 1998, members of the Company's Board of Directors purchased
     341,338 shares of newly issued, unregistered and restricted common stock in
     a private placement for $1,310,738 in cash.

                                      F-14
<PAGE>
 
    The Company adopted the disclosure-only provisions of SFAS 123 "Accounting
    for Stock-Based Compensation."  Accordingly, no compensation cost has been
    recognized for the stock option plans.  Had compensation cost for the
    Company's stock option plans been determined consistent with the provisions
    of SFAS 123, the Company's net income (loss) and earnings (loss) per share
    would have been changed to the pro forma amounts indicated below:

                                     1996     1997      1998
                                    ------  --------  --------
      NET INCOME (LOSS):
           As reported              $1,743  $(5,190)  $(3,995)
           Pro forma                 1,711   (5,344)   (4,144)
 
      EARNINGS (LOSS) PER SHARE:
           Basic-as reported        $  .52  $ (1.55)  $ (1.11)
           Diluted-as reported         .51    (1.55)    (1.11)
           Pro forma-Basic             .51    (1.59)    (1.15)
           Pro forma-Diluted           .51    (1.59)    (1.15)
 
    Because the SFAS 123 method of accounting has not been applied to options
    granted prior to August 1, 1995, the resulting pro forma compensation cost
    may not be representative of that to be expected in future years.

    The fair value of each option grant is estimated on the date of grant using
    the Modified Black-Scholes European option pricing model with the following
    weighted average assumption:  dividend yield of 0%, expected volatility of
    85.84%, risk-free interest rate of 6.41% and expected life of five years.

(6) RETIREMENT PLANS

    Substantially all U.S. Company employees participate in the Lowrance Savings
    Plans which require the Company to contribute 3% of the participants'
    qualified earnings to the Plans. Also, each participant may make
    contributions of qualified earnings into the Plans which will be matched by
    the Company at 100% for the first $10 per pay period and 50% thereafter, not
    to exceed 3% of compensation. Contributions made by the Company to the Plans
    for the years ended July 31, 1996, 1997, and 1998 were approximately
    $586,000, $678,000, and $462,000, respectively.

(7) INCOME TAXES

    The provision (benefit) for income taxes consists of the following:

                                              Years Ended July 31,    
                                             ----------------------
                                              1996     1997    1998
                                             -----    -----   -----
                                                 (in thousands)
       Current                               $ 365  $  (823)  $  93
       Deferred                                 91   (1,864)    736
                                             -----  -------   -----
                                                    
         Total                               $ 456  $(2,687)  $ 829
                                             =====  =======   =====
 

                                      F-15
<PAGE>
 
    The provision (benefit) for income taxes differs from the amount calculated
    by multiplying income (loss) before provision (benefit) for income taxes by
    the statutory Federal income tax rate due to the following:

                                          Years Ended July 31,  
                                        ------------------------
                                         1996     1997     1998
                                        ------  --------  ------
      Statutory rate                     34.0%    (34.0)%  (34.0)%
      Change in valuation allowance         -         -     63.2
      Foreign income taxes                  -        .9      2.8
      State income taxes                 (3.8)      (.9)    (2.3)
      Refunds of prior year taxes                         
       and related adjustments           (8.6)        -        -
      Research & development credits        -         -     (1.4)
      Other                               (.9)      (.1)    (2.1)
                                        ------  --------  ------
                                                          
      Effective rate                     20.7%    (34.1)%   26.2%
                                        ======  ========  =======

    The Company accounts for income taxes in accordance with Statement No. 109
    of the Financial Accounting Standards Board which requires an asset and
    liability approach to financial accounting and reporting for income taxes.
    The difference between the financial statement and tax bases of assets and
    liabilities is determined and deferred tax assets or liabilities are
    computed for those differences that have future tax consequences. The
    Company had a net operating loss carryforward of approximately $5.6 million
    and $9.3 million at July 31, 1997 and July 31, 1998, which expires July 31,
    2012 and July 31, 2013. After the completion of the fourth quarter of fiscal
    1998, the Company determined that a valuation allowance of $2,000,000
    against the net operating loss carryforward was necessary as of July 31,
    1998. Statement No. 109 requires that deferred tax assets be reduced by a
    valuation allowance if it is more likely than not that some portion or all
    of the deferred tax asset will not be realized.

    The tax effect of temporary differences giving rise to the Company's
    consolidated deferred income taxes at July 31 are as follows:

                                                    1997     1998
                                                   ------  --------
                                                    (in thousands)
       Deferred tax assets -
         Reserves for product costs                $  412  $   466
         Reserves for compensation and benefits       620      499
         State tax credit carryforwards               314      286
         Accounts receivable reserves                 183      142
         Other accruals                                58       64
         NOL carryforward                           1,961    3,457
                                                   ------  -------
                                                   $3,548  $ 4,914
         Less: valuation allowance                      -   (2,000)
                                                   ------  -------
         Net deferred tax asset                     3,548    2,914
                                                   ======  =======
 
       Deferred tax liabilities -
         Depreciation                              $  946  $ 1,048
                                                   ======  =======

                                      F-16
<PAGE>
 
(8)  CONSOLIDATED STATEMENTS OF CASH FLOWS
   
     The Company acquired approximately $2,026,000, $1,068,000 and $721,000 in
     equipment under capital lease obligations during 1996, 1997, and 1998.
     These transactions were accounted for as non-cash investing and financing
     activities, and therefore, are not included in the Consolidated Statements
     of Cash Flows.  Interest of approximately $1,881,000, $2,398,000 and
     $3,422,000 was paid during 1996, 1997, and 1998, respectively.  Income tax
     payments for 1996 were $541,000.  No income tax payments were made in 1997
     or 1998.  An income tax refund of $957,000 was received in 1998.
   
(9)  SALES BY GEOGRAPHIC REGION
   
     The Company markets its products internationally through foreign
     distributors, except in Canada and Australia where it has established its
     own distribution operations.  The following table presents a summary of
     domestic, export, and foreign sales:
   
                             1996      1997      1998
                            -------  --------   -------
                                  (in thousands)
        Net sales:
          Domestic          $74,560  $ 79,217   $69,376
          Export sales        9,598    12,010    10,116
          Foreign sales      10,421    13,432    12,214
                            -------  --------   -------
   
            Total           $94,579  $104,659   $91,706
                            =======  ========   =======
   
     The majority of export and foreign sales are concentrated in Canada,
     Australia and Europe.

(10) SALES TO A MAJOR CUSTOMER

     During 1996 and 1997, one customer accounted for approximately 14% and 10%,
     respectively, of consolidated net sales in each year. No other customer
     accounted for 10% or more of consolidated net sales in 1996, 1997, or 1998.

(11) CONCENTRATIONS OF CREDIT RISK

     The Company extends credit to various companies in the marine and non-
     marine markets in the normal course of business. Within these markets,
     certain concentrations of credit risk exist. These concentrations of credit
     risk may be similarly affected by changes in economic or other conditions
     and may, accordingly, impact the Company's overall credit risk. However,
     management believes that receivables are well diversified, thereby reducing
     the potential credit risk and that allowances for doubtful accounts are
     adequate to absorb estimated losses at July 31, 1998.

                                      F-17
<PAGE>
 
     At July 31, 1997 and 1998, trade receivables related to these group
     concentrations were:

                                    1997                   1998
                                    ----                   ----
                                                  
       Marine                        42%                    45%
       Non-Marine                    58%                    55%
 

                                      F-18