SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended October 31, 1998
Commission File Number 2-37706
Bowles Fluidics Corporation
(exact name of registrant as specified in its charter)
Maryland 52-0741762
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6625 Dobbin Road, Columbia, Maryland 21045
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (410) 381-0400
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes x No __
The aggregate market value of the registrant's voting stock held by
non-affiliate persons and entities as of December 24, 1998, computed by
reference to the closing price for such stock on the composite reporting system
on such date, was $908,274 based on 1,038,027 shares.
The number of shares of the registrant's common stock outstanding as of December
24, 1998, was 12,685,011.
<PAGE>
PART I
Item 1. BUSINESS
Bowles Fluidics Corporation was incorporated under Maryland
law in 1961 (originally as Bowles Engineering Corporation) for the
purpose of advancing and exploiting the technology of fluidics. For about
ten years the principal business of the Company was research and
development primarily under contracts with agencies of the U.S.
government. From 1972 to 1979 its principal income was derived from the
sale of proprietary consumer products it had developed based upon fluid
oscillators, including massaging showers and oral irrigation devices.
These consumer products have since been discontinued. Since 1979 its
principal product has been proprietary windshield and rear window washer
nozzles for the automotive industry. Late in FY 1989, the Company
extended the automotive product line to include shipments of fluidic
defroster nozzles. The Company also provides its automotive customers
with tooling and application engineering services related to its
products.
The Company has continued to expend efforts on the research
and development of new fluidic products for the automotive and other
industries. The air conditioning outlet in the instrument panel of
automotive vehicles has been a particular focus. Prototypes have been
developed and presented to a number of potential customers. At present,
two customers have selected the Company as the supplier of these outlets,
one for a vehicle scheduled to start production in August 1999 and the
other for production in February 2000.
Principal Products and Markets
The Company is the leading designer, manufacturer and supplier
of windshield and rear window washer nozzles for passenger cars and light
trucks in North America. Defroster nozzles for a limited number of these
same light vehicles are also being manufactured and sold.
The Company's principal market for its fluidic nozzles, both
windshield washer and defroster, consists of North America, i.e., the
"Big Three" U.S. automotive manufacturers and foreign transplants. The
Company believes that it supplies about 80% of the total windshield
washer nozzle requirements for light vehicles (cars and light trucks)
manufactured in the United States, Canada and Mexico. The defroster
nozzle is currently being supplied to a number of vehicle models in this
market.
The Company has a licensing agreement covering Europe with a
major German automotive parts supplier for its windshield washer systems.
The Company itself has no international operations.
2
<PAGE>
In North America, over 90% of the Company's production of
nozzles is incorporated in vehicles produced by General Motors, Ford and
Chrysler, each of whom typically represents over 10% of the Company's
sales volume. The Company is, therefore, dependent upon the requirements
of the U.S. automotive industry producing cars and light trucks. Although
the Company enters into agreements with its customers to meet 100% of
their production requirements, notice of firm shipping requirements for
the coming week generally takes place weekly from the assembly plants and
at somewhat longer intervals from the first-tier suppliers. The Company's
monthly sales follow the seasonal pattern dictated by the production
levels of its customers. Consequently, sales for the second and fourth
quarters of the Company's fiscal year are typically higher than for the
first and third.
Sales also include technical services, i.e., design, tooling,
and prototyping services for the Company's customers. The requirements of
the automotive customers are for designs and tools to meet the needs of
forthcoming vehicle models or changes in existing models, as well as for
prototypes of new products desired for testing. These sales are, for the
most part, undertaken as a service to the customers, and the Company
contracts these services and tools so as to recover projected costs.
Patents and Competitive Products
The Company has engaged, since its inception, in research and
development in the fields of fluidics and fluid effect devices,
encompassing both gases and liquids. Over the past 19 years, 52 U.S.
patents have been granted to the Company's employees and assigned to the
Company. Ten applications are presently in process for additional U.S.
patents. Patents in selected other countries have also been granted for
most of the art covered by the U.S. patents. Although these patents
embody new and novel technology or product, there is available
competitive technology and alternative product. The extent to which the
expiration of an individual patent may affect the Company's competitive
position is difficult to determine.
In the past, U.S. patents were granted for a period of 17
years from the date of issue. However, beginning in June 1995, those
granted in the past can be for a period of either 17 years from date of
issue or 20 years from date of filing the application, whichever
expiration date is later. Those granted on applications filed after June
1995 are for a period of 20 years from date of filing.
The Company's fluidic windshield washer and defroster nozzles,
which are covered by issued U.S. and international patents, are in direct
competition with conventional nozzles of traditional design. The Company
believes that its products have advantages both in performance and in
economy of assembly to the vehicle by the car manufacturers.
3
<PAGE>
The Company is of the opinion that, in the long run, a history
of service, delivery, quality and economic supply is the most important
factor in binding its customers to it. Customers of the Company place a
great deal of emphasis on quality. The Company has maintained Ford's
preferred supplier rating (Q1 award) since 1985, has been rated an
excellent status in a supplier assessment by General Motors, and has been
a self-certified supplier for Chrysler since 1991. The Company's material
testing laboratory has been accredited by General Motors since 1992.
In addition, the Company's customers required that the Company
put into place a QS-9000-compliant quality system, the automotive version
of ISO 9000. The Company went through the initial independent assessment
in September 1996, received certification in December 1996 as a QS-9000
supplier with ISO 9001 addendum, and has maintained that certification
since then.
The Company does not grant North American licenses for its own
patents in which it has an interest in marketing a product. The Company
does pursue interests expressed by others in the Company's technology in
an attempt to broaden its use. To the extent that there may be additional
uses in markets not related to those of primary interest to the Company,
efforts are made to license the patents for such use.
Raw Material Sources and Availability
Raw materials, primarily plastic resin, are sourced within the
United States. Their market prices were generally stable during the
current year and adequate supply is expected to be available in the
coming year. The resins purchased are restricted to those approved by the
Company's customers.
Working Capital Requirements
The Company's standard credit terms for receivables are net 30
days. Adequate levels of inventories are normally maintained in order to
ensure compliance with the stringent delivery requirements of our
customers.
The design and acquisition of production tools, which
represent the major portion of technical services sales, normally take
several months to complete, during which period the Company accumulates
such costs which are included in work-in-process inventories. Sales
invoices for these tools and services are rendered only after completion
and customers' acceptance of qualified products produced by the tools.
4
<PAGE>
Research and Development
The Company's research and development costs, all
Company-funded, were:
% of Sales
----------
FY 1998 $ 866,390 4.1
FY 1997 $1,005,183 5.3
FY 1996 $1,175,890 6.5
In FY 1998, the Company's research and development efforts
were directed primarily toward basic research and the design of new
fluidic nozzles intended for a variety of purposes resulting in the
filing of a number of patent applications.
In FY 1997 and FY 1996, the Company's research and development
efforts were directed primarily toward the further development of fluidic
air conditioning outlets for cars and light trucks, and the advancement
of its knowledge of the workings of fluidic washer nozzles, including
wind tunnel testing. These efforts resulted in a number of patent
filings.
Potential sales of products still in the development stage
cannot be predicted since product capability and customer acceptance of
the new technology are difficult to determine.
Employees
The Company averaged approximately 275 employees during FY
1998 and employed 278 people on a full-time basis on October 31, 1998.
The increase from the 252 employed on October 25, 1997, was primarily in
the manufacturing departments.
Compliance with Environmental Regulations
The Company believes it is in compliance with all known
environmental regulations and has no plans for significant expenditures
to meet these requirements in the future.
Item 2. PROPERTIES
The Company entered into an amended lease in September 1993
for, in effect, all of the space at its facility in Columbia, Maryland,
its principal location until April 16, 2004. The lease amendment further
provides an option to continue the lease for an additional ten years or
to purchase the premises at 94% of fair market value at the end of the
initial term of the lease.
5
<PAGE>
The facility provides for the Company's current needs for
manufacturing windshield washer and defroster nozzles at levels adequate
to meet projected customer needs and for manufacturing committed air
conditioning outlets. Additional space for warehousing, however, will be
required in the near future.
The Columbia facilities are currently utilized as follows:
Manufacturing, Materials, Quality Control 66,264 sq. ft.
Administration and Sales 8,883 sq. ft.
Laboratories and Engineering 13,679 sq. ft.
---------------
Total Area 88,826 sq. ft.
================
Beginning April 15, 1997, the Company leased for three years
1,617 sq. ft. of office space in Southfield, Michigan, to be used by its
sales staff.
Item 3. LEGAL PROCEEDINGS
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None were submitted during the fourth quarter of the Company's
fiscal year.
6
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S STOCK AND RELATED STOCKHOLDER
MATTERS
Stock Price and Markets
The common stock of the Company is traded in the
"over-the-counter" market and is quoted on the NASD OTC Bulletin Board;
symbol BOWE. The preferred stock is unregistered and is not publicly
traded.
The high and low bid and asked prices of the common stock over
the last two fiscal years are listed below:
Bid Asked
----------------- ----------------
FY High Low High Low
--- ---- --- ---- ---
1997 1st Quarter 1 3/8 13/16 1 5/8 1 1/4
2nd Quarter 1 3/8 5/8 1 9/16 3/4
3rd Quarter 13/16 7/16 7/8 9/16
4th Quarter 3 1/8 3/4 3 1/2 7/8
1998 1st Quarter 1 3/4 1 1/4 2 1/16 1 3/8
2nd Quarter 1 3/4 1 1/16 2 1/2 1 3/8
3rd Quarter 1 3/4 1 2 1 3/8
4th Quarter 1 1/32 23/32 1 1/2 1 1/8
Note: The above quotes represent prices between dealers and
do not include retail mark-up, mark-down, or commissions.
They do not represent actual transactions.
On December 8, 1998, the Board of Directors of the Company
adopted a resolution authorizing the submission to the vote of the
stockholders of the Company of a proposed amendment to the Articles of
Incorporation of the Company under which all outstanding shares of common
stock will be subject to a reverse stock split at the ratio of 1,000
shares of common stock before the reverse split to 1 share of common
stock after the reverse split. The Board of Directors also adopted a
resolution authorizing the redemption of all fractional shares of common
stock resulting from the reverse stock split at the rate of $1,250 per
post reverse split share. This proposed amendment to the Articles of
Incorporation is pending subject to stockholder approval.
Following the reverse stock split and purchase of resulting
fractional shares of common stock, it is expected that the number of
shareholders of the Company's common stock will be reduced from
approximately 430 (as of October 15, 1998) to less than 200.
7
<PAGE>
The number of holders of the Company's preferred stock will remain
unchanged at approximately 18. As a result of the reduction in number of
record shareholders below 300, the Company intends to suspend its
obligation to file periodic reports with the Securities and Exchange
Commission pursuant to section 15(d) of the Exchange Act of 1934.
Approximate Number of Equity Security Holders
Approximate Number of
Record Holders
Title of Class (as of October 31, 1998)
-------------- ------------------------
Common Stock
$.10 Par Value 389
Preferred Stock
8% Cumulative 18
Included in the number of stockholders of record are shares
held in "nominee" or "street" name.
Dividends
The Company has never paid cash dividends on its common stock.
Payment of dividends on common stock is within the discretion of the
Company's Board of Directors and will depend, among other factors, on
current and forecasted earnings, investment requirements, and the
financial condition of the Company.
For information concerning dividends on preferred stock, see
Note 6 of Notes to Consolidated Financial Statements.
8
<PAGE>
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
October 31, 1998 October 25, 1997 October 26, 1996 October 28, 1995 October 29, 1994
---------------- ---------------- ---------------- ---------------- ----------------
<S><C>
Net sales $21,084,804 $18,842,673 $18,128,274 $16,972,876 $15,111,829
Net income 932,186 1,142,023 884,306 1,783,875 1,727,020
Basic earnings
per share .07 .08 .06 .14 .14
Diluted earnings
per share .06 .07 .05 .11 .11
Working capital 5,389,165 5,414,955 4,649,328 4,296,368 3,126,959
Total assets 12,355,321 11,784,701 10,719,852 9,292,446 8,478,227
Long-term debt -- -- -- 202,811 512,831
Stockholders' equity $ 9,378,219 $ 8,511,429 $ 7,439,552 $ 6,629,891 $ 4,907,664
</TABLE>
9
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
FY 1998 vs. FY 1997
Total FY 1998 sales of $21,084,804 increased 12% over FY 1997
sales of $18,842,673, almost all due to higher technical services sales.
Net income for FY 1998 was $932,186, an 18% decrease from the FY 1997 net
income of $1,142,023. The principal reasons for the decrease were higher
manufacturing costs of the windshield washer nozzles and the unfavorable
effect of the General Motors strike during the Company's third quarter.
Product sales of light vehicle windshield washer and defroster
nozzles increased 1.5% or $275,409 to $18,385,923 in FY 1998 from
$18,110,514 in FY 1997. Sales of washer nozzles provided an increase of
$595,206, while those of defroster nozzles decreased $319,797 due to
declining sales of the related older vehicle models. Sales of washer
nozzles to the Big Three U.S. car manufacturers were approximately equal
to the prior year. The Company's third quarter sales of both washer and
defroster nozzles in FY 1998 were significantly affected by the strike at
the General Motors auto plants in June and July.
The Company's operating plans for the 1999 fiscal year assume
that production requirements for light vehicle production in North
America will be approximately equal to FY 1998.
Technical services sales increased 269% to $2,698,880 in FY
1998 from $732,159 in FY 1997. In FY 1998 tooling and design services
included those related to the new air conditioning outlets scheduled to
start production for two vehicles during the next two fiscal years and
those for newly designed washer nozzles for future car production, both
of which were an increase over the prior year.
For the 1999 fiscal year, technical services are forecasted to
be somewhat higher than FY 1998 due to continuing tooling sales related
to the new air conditioning outlets and washer nozzles.
Gross profit on total sales declined 15% to $4,938,956 in FY
1998 from $5,777,299 in FY 1997. As a percentage of total sales, gross
profit was 23.4% in FY 1998 versus 30.7% in FY 1997. Manufacturing costs
were higher as a number of newly designed washer nozzles began production
and a number of initiatives were taken including the introduction of cell
manufacturing to improve the manufacturing processes. The decline in
sales due to the General Motors strike also caused the gross profit to
decline. In addition, the significantly larger
10
<PAGE>
technical sales in FY 1998 versus FY 1997 which have essentially no
profit margin negatively impacted the gross profit percentage on total
sales.
Selling, general and administrative expenses declined 13% in
FY 1998 from FY 1997 due to the savings from the elimination of the
higher sales commissions paid to the manufacturer's representatives and
their replacement with the Company's own sales force in the Detroit area.
Research and development costs decreased 14% to $866,390 in FY
1998 from $1,005,183 in the prior year due to a decline in the spending
on the design and development of the automotive air conditioning outlets.
The Company's plans call for the maintenance of this level of R&D
spending in FY 1999.
Interest income declined in FY 1998 due principally to lower
cash and cash equivalents and investments available for sale. Other
income increased because of higher royalties and license income generated
by the sales of the Company's licensee outside North America.
The provision for income taxes of $575,953 in FY 1998 reflects
the lower income before taxes as compared to FY 1997. The effective
income tax rate for FY 1998 was higher than FY 1997 due to increases in
state taxes.
FY 1997 vs. FY 1996
Total FY 1997 sales of $18,842,673 increased 4% above FY 1996
sales of $18,128,274. Net income for FY 1997 rose to $1,142,023,
representing a 29% gain over FY 1996 net income of $884,306. Adjusting
for the FY 1996 nonrecurring accrual of $760,000, (which reduced the
Company's after-tax net income by $465,400) for the expenses related to
the termination of the sales agreement with its manufacturer's
representatives, net income for FY 1997 declined 15% principally due to
higher application engineering and tooling costs.
Product sales of light vehicle windshield washer and defroster
nozzles increased 5% to $18,110,514 in FY 1997 from $17,292,030 in FY
1996. Higher volume of shipments of newly and previously designed washer
nozzles to the Big Three U.S. car manufacturers as well as the transplant
manufacturers in the U.S. was the reason for the gain, even though
defroster outlet sales declined due to discontinuation of certain models.
This 5% increase compares favorably with the 2% gain in North American
light vehicle production during the same period.
In contrast to the increase in product sales for FY 1997,
technical services sales decreased 12% to $732,159 from FY 1996's
$836,244. Sales of tooling for new windshield washer nozzles were down
due to deferrals in the completion and approvals of these tooling
programs.
11
<PAGE>
Gross profit on total sales declined 6% to $5,777,299 in FY
1997. The margin on sales diminished to 30.7% in FY 1997 from 33.8% in
the previous fiscal year. The declines occurred principally due to
increased application engineering expenses associated with the
customization of new windshield and rear window washer nozzles. In
addition, higher tooling costs over and above amounts billed to customers
were incurred for the development and support of both washer nozzle and
air conditioning outlet tooling projects.
Selling, general and administrative expenses declined $548,359
or 15% in FY 1997 from FY 1996 because of the accrual in fiscal year 1996
of $760,000 for expenses related to the termination of the Company's
sales agreement with its manufacturer's representatives. Excluding this
nonrecurring accrual, selling, general and administrative expenses
increased 7% in fiscal year 1997 principally due to professional fees for
services related to strategic and financial planning for the Company.
Research and development costs decreased 15% to $1,005,183
from $1,175,890 the previous fiscal year. Spending on various new
product programs was cut back and larger amounts were spent on the design
and development of the automotive air conditioning outlets.
In FY 1997, the provision for income taxes was $657,420,
reflecting the higher income before taxes and approximately the same
effective tax rate as in the previous fiscal year.
Liquidity and Capital Resources
Current assets at the 1998 fiscal year end were $7,825,174
compared with $8,195,361 at the end of the prior fiscal year. The decline
of $370,187 was principally related to the decline of $584,385 in cash
and cash equivalents and investments available for sale partially offset
by the addition of the income taxes receivable of $194,213.
Inventories rose by 6% during the fiscal year. Finished goods
were built up to reach more comfortable levels to meet the stringent
customer service requirements, and the tooling work-in-process declined
since the tools were completed and approved for sale.
Current liabilities declined 12% or $344,397 as the remaining
payments were made during FY 1998 for the liability associated with the
termination of the Company's sales agreement with its manufacturer's
representatives.
The current ratio of 3.2:1 at the 1998 fiscal year end
increased in comparison to the 2.9:1 ratio at the 1997 fiscal year end
principally due to the decline in current liabilities.
12
<PAGE>
Cash provided by operating activities in the amount of
$1,493,822 in fiscal year 1998 resulted principally from net income of
$932,186 plus the non-cash charges for depreciation and amortization of
$1,091,634 offset by an increase in working capital of $843,803.
Funds were used for capital expenditures in the amount of
$2,014,132 principally for production and computer equipment. The Company
expects to spend approximately the same amount for capital expenditures
in FY 1999. During the year, the Company sold $1,586,735 of U.S. Treasury
Bills to meet working capital and capital expenditure requirements.
The Company's $1,000,000 short-term line of credit was not
utilized during the fiscal year 1998 and had no balance outstanding at
October 31, 1998. The preferred stock dividend was declared and paid in
January 1998.
The Company's cash flow, financial position, and credit
facilities should provide an adequate base for working capital and
production investment requirements resulting from projected production
rates by North American automotive manufacturers, additional market
penetration, and potential new products near term, including air
conditioning outlets.
Impact of Year 2000
The management of the Company has considered the impact of the
changeover before, during and after midnight, December 31, 1999, to
January 1, 2000, on the handling of data and information, any related
software, and functions of operations. Inadequate handling of the
changeover could have a significant impact on the Company as follows:
a) business systems - internal computer information system,
CAD/CAM engineering design systems, payroll and personnel systems, and
electronic data interchange (EDI) systems;
b) manufacturing, warehouse and support equipment;
c) technical infrastructure, e.g. network, computer server,
personal computers, and telephone systems;
d) production, service, and other suppliers;
e) environmental support systems, e.g. security and
maintenance systems;
f) dedicated research and development systems.
The changeover will have no direct impact on the Company's
products themselves.
13
<PAGE>
The Company's management has addressed each one of the above
issues where the impact applies and has in general either updated the
system, acquired a new system, tested the system and found compliance, or
been assured by the equipment or software manufacturer that the related
items were in compliance. A timetable was established in 1997, and all
the necessary steps have been taken and completed with respect to the
Company's internal systems. The Company's suppliers have been surveyed to
assess the status of their systems, focusing on those with the largest
potential impact on the Company. Questionable areas with respect to the
Company's customers and suppliers continue to be addressed.
Aside from the acquisition of new systems which were
considered to be necessary and timely for the future successful
functioning of the business, the costs of the steps taken were not
material to the Company's profitability or financial condition.
The most reasonable likely worst cases if the changeover were
not handled properly by the Company's systems or its suppliers would be
loss of power and/or communications for a temporary period which would
impact production. Since the Company provides its products to and
communicates daily with the auto companies' assembly plants or their
other suppliers, this loss could be a serious problem. The Company plans
to build inventory to meet this short-term contingency and consider
alternative means of communications. Any significant loss of revenue
would be directly related to lost production by the North American auto
companies, which is not considered probable and cannot be estimated at
this time.
Forward-Looking Statements
This report contains certain forward-looking statements
subject to risks and uncertainties which could cause actual results to
differ materially from those anticipated. Readers are cautioned not to
place undue reliance on those forward-looking statements which speak only
as of the date of this report.
14
<PAGE>
Schedule A: Relationship to Net Sales
<TABLE>
<CAPTION>
Percent Change of Dollars
-------------------------
Period-to-Period
Percentage of Net Sales Increase or (Decrease)
------------------------------- -------------------------
FY 1998 FY 1997 FY 1996 1997-1998 1996-1997
------- ------- ------- --------- ---------
<S><C>
Net sales 100.0 100.0 100.0 11.9 3.9
Direct labor, material and other product-related costs 76.5 69.3 66.2 23.6 8.7
Selling, general and administrative expenses 12.8 16.4 20.1 (13.0) (15.1)
Research and development costs 4.1 5.3 6.5 (13.8) (14.5)
----- ----- -----
Operating income 6.6 8.9 7.2 (17.6) 27.8
Interest income 0.3 0.6 0.5 (39.1) 31.5
Other income (expense) net 0.3 -- -- -- --
----- ----- -----
Net income before taxes 7.2 9.5 7.7 (16.2) 29.4
===== ===== =====
</TABLE>
15
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Page
----
<S><C>
Report of Independent Accountants...............................................17
Financial Statements:
Consolidated Statements of Income....................................18
Consolidated Balance Sheets..........................................19
Consolidated Statements of Changes in Stockholders' Equity...........20
Consolidated Statements of Cash Flows................................21
Notes to Consolidated Financial Statements...........................22
</TABLE>
16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
December 16, 1998
To the Board of Directors and Stockholders
Bowles Fluidics Corporation
In our opinion, the accompanying consolidated balance sheets
and the related consolidated statements of income, changes in stockholders'
equity, and cash flows present fairly, in all material respects, the financial
position of Bowles Fluidics Corporation as of October 31, 1998, and October 25,
1997, and the results of its operations and its cash flows for each of the three
fiscal years in the period ended October 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
17
<PAGE>
BOWLES FLUIDICS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Years Ended
---------------------------------------------------------------
October 31, October 25, October 26,
1998 1997 1996
----------- ----------- ------------
<S><C>
Net sales $21,084,804 $18,842,673 $ 18,128,274
Cost of sales 16,145,848 13,065,374 11,996,305
---------- ---------- -----------
Gross profit 4,938,956 5,777,299 6,131,969
Selling, general and
administrative expenses 2,691,141 3,094,769 3,643,128
Research and development
costs 866,390 1,005,183 1,175,890
---------- ---------- -----------
Operating income 1,381,425 1,677,347 1,312,951
Interest income 71,530 117,541 89,401
Other income (expense), net 55,184 4,555 (11,417)
---------- ---------- -----------
Income before taxes 1,508,139 1,799,443 1,390,935
Provision for income taxes 575,953 657,420 506,629
---------- ---------- -----------
Net income 932,186 1,142,023 884,306
Preferred stock dividends
accrued (74,646) (74,646) (74,645)
---------- ---------- -----------
Income applicable to common
shareholders $ 857,540 $ 1,067,377 $ 809,661
========== ========== ===========
Basic earnings per share $ .07 $ .08 $ .06
========== ========== ===========
Diluted earnings per share $ .06 $ .07 $ .05
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
BOWLES FLUIDICS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 31, October 25,
1998 1997
----------- -----------
<S><C>
ASSETS
Current
Cash and cash equivalents $ 1,734,261 $ 755,525
Investments available for sale -- 1,563,121
Accounts receivable 3,233,775 3,112,063
Income taxes receivable 194,213 --
Inventories 2,263,144 2,130,615
Other current assets 399,781 634,037
----------- -----------
Total current assets 7,825,174 8,195,361
----------- -----------
Property and equipment, net 4,408,404 3,494,335
Other assets 121,743 95,005
----------- -----------
Total assets $ 12,355,321 $ 11,784,701
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable - trade $ 1,109,902 $ 1,122,437
Accrued expenses 1,326,107 1,609,807
Income taxes payable -- 48,162
----------- -----------
Total current liabilities 2,436,009 2,780,406
Other liabilities 541,093 492,866
----------- -----------
Total liabilities 2,977,102 3,273,272
----------- -----------
Commitments and contingencies
Stockholders' equity
8% Convertible preferred stock 933,080 933,080
Common stock 1,268,501 1,264,001
Additional paid-in capital 2,732,833 2,728,083
Retained earnings 4,443,805 3,586,265
----------- -----------
Total stockholders' equity 9,378,219 8,511,429
----------- -----------
Total liabilities and stockholders' equity $ 12,355,321 $ 11,784,701
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
BOWLES FLUIDICS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------------ -------------------- Additional
Shares Shares Paid-in Retained
Total (000's) Amount (000's) Amount Capital Earnings
----------- ------- -------- ------- ------ ------- ----------
<S><C>
Balance October 28, 1995 $6,629,891 933 $933,080 12,610 $1,261,001 $2,726,583 $1,709,227
Preferred stock dividends (74,645) (74,645)
Net income 884,306 884,306
---------- ------ -------- ------ ---------- ---------- ----------
Balance October 26, 1996 7,439,552 933 933,080 12,610 1,261,001 2,726,583 2,518,888
Stock options exercised 4,500 30 3,000 1,500
Preferred stock dividends (74,646) (74,646)
Net income 1,142,023 1,142,023
---------- ------ -------- ------ ---------- ---------- ---------
Balance October 25, 1997 8,511,429 933 933,080 12,640 1,264,001 2,728,083 3,586,265
Stock options exercised 9,250 45 4,500 4,750
Preferred stock dividends (74,646) (74,646)
Net income 932,186 932,186
---------- ------ -------- ------ ---------- ---------- ----------
Balance October 31, 1998 $9,378,219 933 $933,080 12,685 $1,268,501 $2,732,833 $4,443,805
========= === ======= ====== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
BOWLES FLUIDICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
October 31, October 25, October 26,
1998 1997 1996
----------- ----------- ---------
<S><C>
Cash flows from operating activities:
Net income $ 932,186 $ 1,142,023 $ 884,306
Adjustments to reconcile net income
provided by operating activities:
Depreciation and amortization 1,091,634 960,346 750,449
Deferred income taxes 332,759 (5,900) (241,315)
(Gain)/Loss on disposal of assets 4,660 21,089 3,088
Accretion of interest on investments (23,614) (45,269) (31,659)
---------- ---------- ---------
2,337,625 2,072,289 1,364,869
---------- ---------- ---------
Change in operating accounts:
Accounts receivable (121,712) (336,405) (14,264)
Inventories (132,529) (144,550) (86,719)
Other assets (26,447) (74,958) (122,381)
Accounts payable (12,535) 17,926 109,090
Accrued expenses (283,700) (189,549) 537,235
Income taxes (242,375) 8,162 (71,441)
Other liabilities (24,505) 156,433 428,049
---------- ---------- ---------
(843,803) (562,941) 779,569
---------- ---------- ---------
Net cash provided by operating activities: 1,493,822 1,509,348 2,144,438
---------- ---------- ---------
Cash flows from investing activities:
Capital expenditures (2,014,132) (1,027,780) (1,321,331)
Purchase of investments -- (1,540,015) (566,664)
Patents and trademarks (32,347) (4,433) --
Proceeds from sale of equipment 10,054 1,441 --
Proceeds from sale of investments 1,586,735 600,000 700,000
---------- ---------- ---------
Net cash used in investing activities (449,690) (1,970,787) (1,187,995)
---------- ---------- ---------
Cash flows from financing activities:
Principal payment of debt -- -- (271,669)
Preferred stock dividends (74,646) (74,646) (74,645)
Proceeds from issuance of common stock 9,250 4,500 --
---------- ---------- ---------
Net cash used by financing activities (65,396) (70,146) (346,314)
---------- ---------- ---------
Net increase(decrease) in cash and cash
equivalents 978,736 (531,585) 610,129
Cash and cash equivalents:
- Beginning of period 755,525 1,287,110 676,981
---------- ---------- ---------
- End of period $ 1,734,261 $ 755,525 $1,287,110
========== ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
General. The Company and its wholly owned subsidiary, Fluid Effects
Corporation, operate on a 52/53-week fiscal year which ends on the last
Saturday of October. The fiscal year 1998 has 53 weeks and fiscal years
1997 and 1996 have 52 weeks. Assets and liabilities, and revenues and
expenses, are recognized on the accrual basis of accounting. Fluid Effects
Corporation was merged into the Company as of April 6, 1998.
Cash Equivalents. Cash equivalents are highly liquid investments with
original maturities of 90 days or less.
Investments. Investments, which are available for sale, consist of U.S.
Treasury Bills with original maturities over 90 days, but not greater than
365 days, and are carried at cost plus accrued interest, which
approximates market.
Inventory Pricing. Inventories are carried at the lower of cost
(first-in, first-out) or market.
Property, Equipment and Depreciation. The cost of property and equipment
is depreciated over the estimated useful life of the related assets.
Depreciation is computed on the straight-line method for all assets based
on the following estimated lives:
Years
-----
Production machinery and equipment 3-10
Office furniture and equipment 5-7
Laboratory and machine shop equipment 3-10
Leasehold improvements lease term
Depreciation expense for the fiscal years ended 1998, 1997, and 1996
was $1,085,349, $939,678, and $711,282 respectively.
Patents. Costs associated with obtaining United States patents are
capitalized and amortized using the straight-line method over the life of
the patent beginning with the date of issue or date of filing the
application. The Company initially charges all costs associated with the
acquisition of U.S. and foreign patents to expense, then capitalizes those
costs related to U.S. patents upon issuance of those patents.
Management reviews all of the patent costs and writes off any patents
which are considered to be of no foreseeable economic benefit to the
Company. The Company recognizes income from patent licenses in accordance
with the respective payment terms of each license agreement.
22
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. (continued)
Income Taxes. The Company uses the asset and liability method for
accounting for income taxes. Under this method, deferred income taxes are
recognized for the tax consequences of temporary differences by applying
enacted statutory tax rates applicable to future years to differences
between the financial statements carrying amounts and the tax bases of
existing assets and liabilities.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from those estimates.
Reclassifications. Certain 1996 and 1997 amounts have been reclassified
to conform to the 1998 presentation.
Concentrations of Credit Risk. Financial instruments which potentially
subject the Company to concentrations of credit risk consist primarily of
accounts receivable and cash investments. The Company's customer base
includes the significant U.S. automotive manufacturers and a large number
of automotive parts suppliers. The Company does not require collateral for
its trade accounts receivable. However, the Company's credit evaluation
process and reasonably short collection terms help to mitigate any
concentration of credit risk. The Company also has cash investment
policies that limit the amount of credit exposure to any one financial
institution and require placement of investments in financial institutions
evaluated as highly creditworthy.
2. Inventories
Inventories are comprised of:
1998 1997
---------- -----------
Raw material $ 720,084 $ 620,567
Work and tooling in progress 791,805 1,016,845
Finished goods 751,255 493,203
---------- ----------
Total $2,263,144 $2,130,615
========= =========
Tooling in progress includes costs accumulated under short-term contracts
to produce tooling for certain of the Company's customers of $598,193 and
$865,700 in 1998 and 1997 respectively.
23
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Property and Equipment, net
Property and Equipment, net, is comprised of:
1998 1997
---------- ----------
Production machinery and equipment $6,328,351 $4,946,390
Office furniture and equipment 2,502,438 2,321,844
Laboratory and machine shop equipment 1,586,801 1,428,516
Leasehold improvements 894,816 812,120
----------- ----------
Total property and equipment 11,312,406 9,508,870
Less accumulated depreciation (6,904,002) (6,014,535)
--------- ---------
Property and equipment, net $4,408,404 $3,494,335
========= =========
4. Line of Credit
In May 1996, the Company entered into a fourth amended and restated
agreement with Mercantile-Safe Deposit & Trust Company to reaffirm and
extend its $1,000,000 line of credit until May 8, 1997, on an unsecured
basis. At the Company's request and the Bank's discretion the line of
credit was extended until May 8, 1999, and may be reaffirmed each year
thereafter. The interest rate is Mercantile's prime rate, floating, which
was 8% as of October 31, 1998. In addition, a 3/8% annual fee is assessed
on the unused portion of this credit facility. Advances on the line of
credit are limited to 85% of eligible accounts receivable and 40% of
finished goods inventory. No amount was outstanding on this credit line at
October 31, 1998, or October 25, 1997.
In addition to the maintenance of certain financial ratios, the
covenants of the fourth amended loan agreement require the Company's
tangible net worth to be not less than $2,000,000 as of the close of each
fiscal year.
5. Debt
No debt was outstanding as of October 31, 1998, and October 25, 1997.
In February 1996 the unpaid balance of the then outstanding loan from
Mercantile-Safe Deposit & Trust Company was paid in total.
24
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Stockholders' Equity
The 8% convertible preferred stock of the Company at October 31,
1998, and October 25, 1997, consists of 3,000,000 authorized shares, par
value $1.00 per share, with 933,080 shares issued and outstanding on both
dates.
The common stock of the Company at October 31, 1998, and October
25, 1997, consists of 17,000,000 authorized shares, par value $.10 per
share. On October 31, 1998, the shares issued and outstanding were
12,685,011, whereas on October 25, 1997, they were 12,640,011.
The Company's preferred stock provides for an annual dividend of
$.08 per share from the net earnings of the Company and is cumulative only
for those years in which the Company has earnings, and $1.00 per share in
liquidation before any distribution can be made to holders of common
stock. If any dividends payable on the preferred stock with respect to any
fiscal year of the Company are not paid for any reason, the rights of the
holders of the preferred stock to receive payment of such dividends shall
not lapse or terminate; but unpaid dividends shall accumulate and shall be
paid without interest to the holders of the preferred stock when and as
authorized by the Board of Directors before any dividends shall be paid on
any other class of stock.
The Company's preferred stock may at the option of the holder, at
any time dividends are current, be converted into common stock of the
Company at the conversion rate of four shares of common for each share of
preferred. Additionally, the preferred stock is redeemable at par in whole
or in part at the option of the Board of Directors at any time the
dividends are current after a period of 10 years subsequent to issue. At
October 31, 1998, 683,080 shares have been outstanding for more than 10
years and dividends are current, and thus can be redeemed. The common
stock has one (1) vote per share and the preferred stock has four (4)
votes per share.
Reserved Shares. As of and for the three fiscal years in the period
ended October 31, 1998, there were 300,000 shares of common stock reserved
for issuance in connection with the Company's stock option plans. None of
the authorized shares of common stock are reserved for conversion of
preferred stock. Under the laws of the State of Maryland, the
authorization of the preferred stock in itself provides the authorization
of common stock necessary for conversion.
Quasi-reorganization. Effective October 29, 1994, the Board of
Directors approved a quasi-reorganization which had the impact of
eliminating the retained earnings deficit as an adjustment to additional
paid-in capital.
25
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Income Taxes
The Company and its subsidiary file a consolidated federal income tax
return and separate state income tax returns. The provision for income
taxes consisted of the following:
1998 1997 1996
-------- -------- ----------
Federal:
Current $195,218 $620,131 $678,938
Deferred 292,675 (6,100) (222,600)
-------- --------- --------
487,893 614,031 456,338
-------- --------- --------
State:
Current 47,976 43,189 68,791
Deferred 40,084 200 (18,500)
-------- --------- --------
88,060 43,389 50,291
-------- --------- --------
$575,953 $657,420 $506,629
======= ======= =======
The components of the deferred tax asset and liability for 1998 and
1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S><C>
Deferred tax assets:
Accrued vacation and retirement programs $ 43,818 $ 83,600
Non-deductible reserves 261,882 490,600
------- -------
Total deferred tax assets 305,700 574,200
------- -------
Deferred tax liabilities:
Property and equipment (368,000) (303,700)
------- -------
Total deferred tax liabilities (368,000) (303,700)
------- -------
Net deferred tax asset (liability) $ (62,300) $ 270,500
======= =======
</TABLE>
Reconciliation of the provisions for income taxes at the U.S. federal
statutory rate to the effective tax expense were as follows:
1998 1997 1996
------------- ------------ ---------
U.S. statutory income tax $512,767 $611,811 $472,918
State taxes, net of federal
income tax benefit 58,736 28,637 33,711
Other, net 4,450 16,972 --
-------- -------- --------
$575,953 $657,420 $506,629
======== ======== ========
Cash paid for income taxes was $489,000, $584,000, and $877,000 for
1998, 1997, and 1996 respectively.
26
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Earnings per Share
Effective October 26, 1997, the Company adopted Statement of
Financial Accounting Standard No. 128 "Earnings per Share" ("SFAS 128").
SFAS 128 replaced the presentation of primary earnings per share (EPS) and
fully diluted EPS with a presentation of basic EPS and diluted EPS. All
earnings per share amounts presented in the financial statements here have
been restated in accordance with SFAS 128.
Basic earnings per share is determined based on the weighted
average number of common shares outstanding during the periods. Diluted
earnings per share is determined based on the weighted average number of
common shares outstanding and potential dilution of securities that could
share in earnings.
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
For the Years Ended
-------------------------------------------------------
October 31, October 25, October 26,
1998 1997 1996
----------------- --------------- ----------------
<S><C>
Numerator:
Numerator for basic earnings per share:
Income applicable to common
shareholders $ 857,540 $ 1,067,377 $ 809,661
Effect of dilutive securities:
Preferred Stock Dividends 74,646 74,646 74,646
------------ ----------- -----------
Numerator for diluted earnings per share
Income applicable to common shareholders after assumed conversion
$ 932,186 $ 1,142,023 $ 884,306
---------- ---------- ----------
Denominator:
Denominator for basic earnings per share:
Weighted average shares outstanding
during the period 12,660,294 12,633,764 12,610,011
Effect of dilutive securities:
Employee Stock Options 32,160 48,607 91,887
Assumed Conversion of Preferred Stock 3,732,320 3,732,320 3,732,320
----------- ----------- -----------
Denominator for diluted earnings per
share 16,424,774 16,414,691 16,434,218
---------- ---------- ----------
Earnings per Share:
Basic $ .07 $ .08 $ .06
=== === ===
Diluted $ .06 $ .07 $ .05
=== === ===
</TABLE>
27
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Commitments and Contingencies
The Company leases its facilities under non-cancelable operating
leases which expire in 2004 for Columbia, Maryland, and in 2000 for
Southfield, Michigan. As of October 31, 1998, minimum annual aggregate
rentals are as follows:
Year Ended Amount
---------- ------
1999 $ 594,929
2000 572,831
2001 561,646
2002 561,646
2003 561,646
thereafter 257,421
-----------
Total minimum future rental payments $3,110,119
Rent expense under all leases for 1998, 1997, and 1996 was $666,908,
$644,008, and $626,565 respectively.
Management is unaware of any pending legal proceedings which would
have a material adverse effect on the financial statements of the Company.
10. Employee Benefit Plans
On November 1, 1990, the Company adopted a defined contribution
(401k) plan covering substantially all of its employees. Contributions and
costs were determined by matching 50% of employee contributions up to 4%
of each covered employee's earnings. As of April 1, 1994, the Company
increased its matching contribution to 50% of the employee contributions
up to 6% of each covered employee's earnings. The Company's contributions
to the plan were $169,685, $151,314, and $119,640 in 1998, 1997, and 1996
respectively.
The Company has agreed to retirement programs for certain former
officers providing for the payment of certain retirement benefits. The
unfunded present value, at a discount rate of 7.5%, of these benefits
accumulated as of October 31, 1998, amounts to approximately $323,000, of
which $264,000 is included in other liabilities. Expenses related to these
programs were $41,090 in 1998, $46,476 in 1997, and $44,000 in 1996.
28
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Stock Options
In May 1992, the Company adopted its key employee incentive stock
option plan. Activity in the Company's incentive stock option plan was as
follows:
1998 1997 1996
------- ------- ------
Options outstanding, beginning of year 70,000 180,000 180,000
Options granted -- -- --
Options exercised (45,000) (30,000) --
Options expired (25,000) (80,000) --
--------- ---------- -------
Options outstanding, end of year -- 70,000 180,000
========= ========== =======
Options activities are at exercise prices ranging from $.15 to $.65
per share.
Statement of Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" (FAS 123) became effective for the Company in
1997. As allowed by FAS 123, the Company has elected to continue to follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" (APB 25), in accounting for its stock option plans. FAS 123
requires the Company to present pro forma information as if the Company
had accounted for stock options granted since December 15, 1995, under the
fair value method of FAS 123. No pro forma information has been presented
by the Company as no stock options have been issued since December 15,
1995, the effective date of FAS 123.
12. Termination of Sales Agreement
During the fiscal year 1996, the Company accrued $760,000 ($465,400
net of income taxes) for the termination in May 1997 of the sales
agreement with its manufacturer's representatives. The payments commenced
in May 1997 and were completed at May 14, 1998.
13. Major Customers
Over 90% of the Company's production of nozzles is incorporated in
vehicles produced by General Motors, Ford, and Chrysler, each of whom
typically represents over 10% of the Company's sales volume. The Company
is, therefore, substantially dependent upon the North American production
requirements of these three automotive companies. In addition, the
Company's customers required that a QS-9000-compliant quality system be
developed and registered by an independent organization. In September
1996, the Company was assessed by Underwriters Laboratories Inc., received
QS-9000 certification with ISO 9001 addendum as of December 20, 1996, and
has maintained that certification since then.
29
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. New Accounting Pronouncements
The Financial Accounting Standards Board has issued the following
Statements of Financial Standards ("FAS") which are not yet effective for
the Company:
o FAS No. 131, Disclosures about Segments of an Enterprise and
Relative Information
This statement becomes effective for fiscal years beginning after
December 15, 1997, and changes the way public companies report
information about segments of their business in their financial
statements and requires them to report selected segment
information in their quarterly reports to stockholders. The
Company intends to adopt the disclosure requirement by this
statement for the year ending October 30, 1999.
o FAS No. 133, Accounting for Derivative Instruments and Hedging
Activities
This statement becomes effective for fiscal years beginning after
June 15, 1999. This standard establishes accounting and reporting
standards for derivative instruments and hedging activities. The
Company does not believe this new standard will have any impact on
the Company upon adoption.
15. Proposed Reverse Stock Split
On December 8, 1998, the Board of Directors of the Company adopted a
resolution authorizing the submission to the vote of the stockholders of
the Company of a proposed amendment to the Articles of Incorporation of
the Company under which all outstanding shares of common stock will be
subject to a reverse stock split at the ratio of 1000 shares of common
stock before the reverse split to 1 share of common stock after the
reverse split. The Board of Directors also adopted a resolution
authorizing the redemption of all fractional shares of common stock
resulting from the reverse stock split at the rate of $1,250 per post
reverse split share. This proposed amendment to the Articles of
Incorporation is pending subject to stockholder approval.
30
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
31
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors of the Registrant
Information is included in the Proxy Statement for the Annual Meeting
of Stockholders scheduled for March 11, 1999.
Executive Officers of the Registrant
<TABLE>
<CAPTION>
Name, Age and Position: Business Experience During Past Five Years:
<S><C>
William Ewing III Chairman of the Board since July 1996. Responsible for the formation of overall
Chairman of the Board corporate policy and planning. Member of Board of Directors since 1985.
of Directors Previously Vice President and Treasurer of Reeves Industries, Inc., 1995-1997,
Age 52 and Managing Director of Chemical Bank, 1992-1994.
Ronald D. Stouffer President since March 1994. Responsible for execution of the Company's policies
President and for the Company's operations. Executive Vice President responsible for
Chief Executive Officer engineering and manufacturing from 1982 to 1994. Member of Board of Directors
Age 67 since 1978. Joined the Company in 1967.
Eric W. Koehler Appointed Executive Vice President and member of Board of Directors December 17,
Executive Vice President 1997, in charge of marketing, sales, and engineering functions. Previously Vice
Age 36 President, Marketing, since March 1994, responsible for marketing and sales
functions. Director of Marketing, 1990-1994. Joined the Company in 1989.
Melvyn J. L. Clough Vice President, Operations, since joining the Company in November 1995.
Vice President, Responsible for manufacturing operations including industrial engineering and
Operations tooling. Previously Engineering Manager for A. Raymond, Inc., 1992-1995.
Age 51
Richard W. Hess Vice President, Automotive Products Engineering, since April 1998. Responsible
Vice President, for the Company's engineering of automotive products. Previously Vice
Engineering President, Engineering, since joining the Company in 1992.
Age 55
</TABLE>
32
<PAGE>
Executive Officers of the Registrant (continued)
<TABLE>
<CAPTION>
Name, Age and Position: Business Experience During Past Five Years:
<S><C>
Eleanor M. Kupris Vice President, Administration, since 1982. Corporate Secretary since March
Secretary and Vice Presi- 1992. Responsible for purchasing and personnel. Joined the Company in 1966.
dent, Administration
Age 57
David A. Quinn Vice President, Finance, and Treasurer since joining the Company in October
Vice President, 1993. Responsible for treasury, accounting and financial planning functions.
Finance, and Treasurer Previously CFO for Bruning Paint Company, 1991-1993.
Age 62
Dharapuram N. Srinath Vice President, Advanced Engineering, since April 1998. Responsible for the
Vice President, development of new products, other than automotive, and research and
Advanced Engineering development. Previously Vice President, Quality Assurance, from March 1995, and
Age 47 Director of Quality Assurance and Product Reliability, 1992-1995. Joined the
Company in 1978.
Arlene M. Hardy Corporate Controller since 1990. Responsible for accounting functions. Joined
Corporate Controller the Company in 1986.
Age 51
</TABLE>
The names, ages and positions of all of the executive officers of the
Company are listed above, along with their business experience during
the past five years. Officers are appointed annually by the Board of
Directors at its meeting immediately following the Annual Meeting of
Stockholders. There are no family relationships among any of the
officers of the Company, nor any arrangements or understanding between
any such officers and another person pursuant to which they were
elected as officers.
Item 11. EXECUTIVE COMPENSATION
Information is included in the Proxy Statement for the Annual Meeting
of Stockholders scheduled for March 11, 1999.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information is included in the Proxy Statement for the Annual Meeting
of Stockholders scheduled for March 11, 1999.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information is included in the Proxy Statement for the Annual Meeting
of Stockholders scheduled for March 11, 1999.
33
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1 Financial Statements
Included in Part II of this report:
Report of Independent Accountants
Consolidated Statements of Income for the three years
ended October 31, 1998, October 25, 1997, and October
26, 1996
Consolidated Balance Sheets at October 31, 1998, and
October 25, 1997
Consolidated Statements of Changes in Stockholders'
Equity for the three years ended October 31, 1998,
October 25, 1997, and October 26, 1996
Consolidated Statements of Cash Flows for the three
years ended October 31, 1998, October 25, 1997, and
October 26, 1996
Notes to Consolidated Financial Statements
(a) 2 Financial Statements Schedules
Schedules are omitted because of the absence of
conditions under which they are required or because
the required information is given in the financial
statements or notes thereto.
(b) Reports on Form 8-K
A Form 8-K was filed on October 6, 1998, during the
fourth quarter of the Company's fiscal year indicating the
unanimous election at an informal meeting of the Board of
Directors on July 14, 1998, and confirmed at a meeting of the
Board on September 22, 1998, of Frederic Ewing II, James
Parkinson, and Neil T. Ruddock to the Board of Directors to
serve until the next Annual Meeting of Stockholders.
34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BOWLES FLUIDICS CORPORATION
BY:
Chairman of
the Board and
Director
________________________ ____________________________
William Ewing III Date
President and
Director
________________________ ____________________________
Ronald D. Stouffer Date
Executive
Vice President and
Director
________________________ ____________________________
Eric W. Koehler Date
Vice President
Finance
________________________ ____________________________
David A. Quinn Date
Corporate Controller
________________________ ____________________________
Arlene M. Hardy Date
Director
________________________ ____________________________
David C. Dressler Date
Director
________________________ ____________________________
Frederic Ewing II Date
Director
________________________ ____________________________
Jim Parkinson Date
Director
________________________ ____________________________
Neil T. Ruddock Date
35
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<CASH> 1,734,261
<SECURITIES> 0
<RECEIVABLES> 3,427,988
<ALLOWANCES> 0
<INVENTORY> 2,263,144
<CURRENT-ASSETS> 7,825,174
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1,268,501
0
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</TABLE>
