SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 20-F

[ ]  REGISTRATION  STATEMENT  PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
     EXCHANGE ACT OF 1934 OR

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

For the fiscal year ended December 31, 1998

                                       OR

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

                         Commission File Number: 0-17250

                          ELECTROCON INTERNATIONAL INC.
             (Exact name of Registrant as specified in its charter)

                             British Virgin Islands
                 (Jurisdiction of incorporation or organization)

                                Prosperity Centre
                                  8/F, Block B
                             77 Container Port Road
                                   Kwai Chung
                           New Territories, Hong Kong
                    (Address of principal executive offices)

     Securities  registered or to be registered pursuant to Section 12(b) of the
Act: NONE

     Securities  registered pursuant to Section 12(g) of the Act: Common Shares,
$0.0001 par value per share

     Securities  for which there is a reporting  obligation  pursuant to Section
15(d) of the Act: NONE

     Indicate the number of outstanding  shares of each of the Issuer's  classes
of capital or common  stock as of the close of the period  covered by the annual
report:  7,460,418 Common Shares, par value $0.0001, were issued and outstanding
as of December 31, 1998.

     Indicate by check mark  whether the  registrant:  (i) 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 (ii) has been subject to such
filing requirements for the past 90 days.

                          Yes [X]    No [ ]

     Indicate by check mark which  financial  statement  item the Registrant has
elected to follow:
                         Item 17 [ ] Item 18 [X]

<PAGE>

                                TABLE OF CONTENTS

                                     Part I                                 Page
                                                                            ----

Item 1    Description of Business............................................  1
Item 2    Description of Property............................................ 14
Item 3    Legal Proceedings.................................................. 15
Item 4    Control of Registrant.............................................. 15
Item 5    Nature of Trading Market........................................... 16
Item 6    Exchange Controls and Other Limitations Affecting Security
                Holders...................................................... 16
Item 7    Taxation........................................................... 17
Item 8    Selected Financial Data............................................ 17
Item 9    Management's Discussion and Analysis of Financial
                Condition and Results of Operations.......................... 21
Item 10   Directors and Officers of Registrant............................... 27
Item 11   Compensation of Directors and Officers............................. 28
Item 12   Options to Purchase Securities from Registrant or Subsidiaries..... 29
Item 13   Interest of Management in Certain Transactions..................... 29

                                     Part II


Item 14   Description of Securities to be Registered......................... 32

                                    Part III


Item 15   Defaults upon Senior Securities.................................... 32
Item 16   Changes in Securities and Changes in Security for
                Registered Securities........................................ 32

                                     Part IV


Item 17   Financial Statements............................................... 32
Item 18   Financial Statements............................................... 32
Item 19   Financial Statements and Exhibits.................................. 32

     This Annual Report on Form 20-F contains forward-looking statements.  These
statements  are  subject to certain  risks and  uncertainties  that could  cause
actual   results   to  differ   materially   from  those   anticipated   in  the
forward-looking statements.  Factors that might cause such a difference include,
but are not limited to, those  discussed in the section  entitled "Risk Factors"
under Item 1 - "Description of Business."


                                       ii

<PAGE>



     Readers  should not place  undue  reliance on  forward-looking  statements,
which reflect  management's view only as of the date of this Report. The Company
undertakes no obligation to publicly revise these forward-looking  statements to
reflect subsequent events or circumstances. Readers should also carefully review
the risk factors  described in other  documents  the Company  files from time to
time with the Securities and Exchange Commission.
































                                       iii

<PAGE>


                                     PART I

Item 1.  DESCRIPTION OF BUSINESS

     As used in this Annual Report,  "China" refers to all parts of the People's
Republic of China other than the Special Administrative Region of Hong Kong. The
term "Company" refers to Electrocon International Inc. and, where the context so
requires or suggests, its direct and indirect subsidiaries.

The Company

     Electrocon  International  Inc. ("the  Company") was  incorporated in March
1988 as a limited liability International Business Company under the laws of the
British  Virgin Islands to serve as a holding  company for the Company's  wholly
owned subsidiary,  Electrocon Products Limited ("EPL"), a Hong Kong corporation.
As an  International  Business  Company,  the Company is  prohibited  from doing
business with persons  resident in the British Virgin Islands,  from owning real
estate in the British  Virgin  Islands  and from  acting as a bank or  insurance
company.  The Company was incorporated in the British Virgin Islands principally
to facilitate trading in its shares. The government of Hong Kong imposes duty on
the transfer of securities of Hong Kong corporations. No such duty is imposed by
the British  Virgin  Islands,  and the Company is also exempt from income tax in
the British Virgin Islands. The Company's corporate  administrative  matters are
conducted  through  its  registered  agent,  CITCO  Trust  Corporation  Limited,
Wickhams Cay, P. O. Box 662, Road Town,  Tortola,  British Virgin  Islands.  The
Company's  principal  executive offices are located at Prosperity  Centre,  8/F,
Block B, 77  Container  Port  Road,  Kwai  Chung,  New  Territories,  Hong Kong;
telephone: 852-2481-6022; facsimile: 852-2481-5804.

     The Company is a diversified, Hong Kong-based holding company that conducts
operations through its subsidiaries  primarily in two separate business segments
-- the  distribution of  semiconductor  products  (primarily  computer chips) to
small  and  medium-sized  manufacturers  located  in Hong Kong and China and the
distribution of golf carts, irrigation products and systems, fertilizer and turf
equipment to golf clubs in Hong Kong, Macau and China. In 1995, the Company also
entered the business of distributing personal computer products,  and in 1996 it
entered the business of distributing non-personal computer related products.

     The Company's  principal operating entities are Electrocon Products Limited
("EPL"),  Electrocon  (PRC) Limited  ("EPRC") and Bothgreat  Technology  Limited
("Bothgreat") Another affiliate - China Electrocon Ltd. ("CEL") - became dormant
in 1998.

Electrocon Products Limited

     EPL,  the  operating  entity  through  which the Company  conducts its chip
distribution business, was incorporated under the laws of Hong Kong as a limited
liability company in 1978 and became a wholly-owned subsidiary of the Company in
May 1988. (See "Computer Chip  Distribution  Business.") EPL's total 1998 sales,
including sales to affiliates,  were approximately $16,519,452, on which its net
income  was  $27,910.  EPL sells the chips  produced  by a number of  well-known
semiconductor producers to small and medium-sized manufacturers in Hong Kong and
China. EPL serves as a distributor for Texas Instruments Asia Limited ("TI HK"),
the Hong Kong  subsidiary  of Texas  Instruments  Incorporated,  to sell TI HK's


                                      -1-

<PAGE>


broad-based  semiconductor product lines in the Hong Kong market. TI HK supplied
approximately  87% of the  computer  chips sold by the Company in the year ended
December 31, 1996. During 1997, the Company experienced a decline in the margins
relating  to the DRAM  product  line of  computer  chips  purchased  from TI HK.
Accordingly,  in order to avoid exposure to volatile  prices and other high risk
factors  associated  with the DRAM product  line  supplied by TI HK, the Company
made a strategic decision to drop that product.  As a result, the Company bought
only 47% of its chips from TI HK in 1997 and 36% of its chips in 1998.  EPL also
serves as the distributor for Zilog, Inc., Linfinity  Microelectronics  Inc. and
TDK Semiconductor  Corporation in Hong Kong and China. The Company has continued
to expand  the  number of  semiconductor  manufacturers  it  represents  and the
variety of chips it sells. See "Computer Chip Distribution Business."

Electrocon (PRC) Limited

     EPRC,  a Hong  Kong  corporation,  was  formed  in 1993  as a  wholly-owned
subsidiary of EPL for the purpose of marketing and  distributing  the TI line of
chips in China.  The  function of the EPRC liaison  office,  which is located in
Shenzhen,  China,  is to contact new customers and take orders on behalf of EPL.
EPRC does not directly sell chips to these customers,  as such an arrangement is
not  legal  in China  unless  the  Company  forms a joint  venture  with a local
corporation or person.  EPRC's total 1998 sales,  including sales to affiliates,
were approximately $8,523, and it incurred a net loss of approximately $176,275.

Bothgreat Technology Limited

     In 1993, EPL acquired 90% of the now-outstanding common stock of Bothgreat,
a Hong Kong  corporation,  from two officers and  directors of the Company.  EPL
subsequently acquired the remaining 10% of Bothgreat. Bothgreat is a distributor
of golf course  irrigation  products and systems and turf equipment for sales in
Hong  Kong,  Macao  and  China.  During  1998,   Bothgreat's  total  sales  were
$5,639,605, and its net loss was $344,342.

China Electrocon Ltd.

     On August 2, 1995,  EPRC entered into a  Partnership  Agreement  with Segos
Electronics (HK) Limited ("Segos"),  a non-affiliate,  to develop CEL as a joint
venture subsidiary organized in China. CEL is 50% owned by EPRC and 50% owned by
Segos.  CEL distributes  personal  computer  products and had a network of seven
branches in China.  During 1998,  EPRC's share of net loss in 1998 was $121,296.
CEL became dormant in 1998.

Computer Chip Distribution Business

     The  Company,   principally  through  EPL  and  EPRC,  is  engaged  in  the
distribution and sale of computer chips in Hong Kong and China. The Company acts
as agent or distributor for a number of well-known  semiconductor  manufacturers
in Hong  Kong,  the  United  States  and  elsewhere.  The  Company's  customers,
primarily  small and  medium-sized  manufacturers  or traders,  all of which are
located  in Hong  Kong and  China,  use the  chips in a  variety  of  electronic
products, principally personal computers and consumer electronics products. This
segment of the  Company's  business  accounted  for  approximately  74.8% of its


                                      -2-
<PAGE>


operating  revenues  for the year ended  December 31,  1998.  Management  of the
Company intends to continue their efforts to reduce the Company's  dependence on
commodity chips used in the  manufacture of clocks and other commodity  products
and to concentrate on more  profitable  lines of chips.  See See "Suppliers" and
"Competition."

     The Company sells  hundreds of types of chips,  from  standard  "commodity"
chips,  which account for  approximately  35% of the revenues derived from chips
sold by the Company, to "high-tech"  microprocessors.  "Commodity" chips include
various large volume and low technology  content chips.  The group of custom and
semi-custom  chips,  which  includes  ASICs  (application   specific  integrated
circuits),  programmable logic devices,  standard cell components and chips with
gate arrays,  accounts for  approximately  65% of the chips sold by the Company.
There was no shortage of chips in 1998, and there was a continuous supply of all
variety of chips.


                                      -3-

<PAGE>


Customers and Marketing

     The Company's  chip  customers,  all in Hong Kong and China,  are primarily
small and medium-sized manufacturers and traders who purchase chips for use in a
variety of electronic  products.  These products include personal  computers and
peripherals (approximately 20%), consumer electronics,  including voice prom and
optocouplers  (approximately  45%),  telecommunications  (approximately 30%) and
others  (approximately 5%). The Company supplies over 500 customers in Hong Kong
and 280 customers in China, with no individual chip customer accounting for over
10% of the Company's 1998 chip sales.  Total sales of chips and electronic spare
parts were $16,473,418  during 1998 compared to $23,151,881 in 1997. The decline
in the Company's revenues from its semiconductor  business in 1998 was primarily
due to the  elimination  in 1997 of the DRAM  product  line of chips  previously
supplied by TI HK. See "Suppliers," below.

     As no single  customer  accounted for more than 10% of the  Company's  chip
sales during 1998, the Company believes that the loss of a single customer would
not have a material adverse impact on its revenues and earnings.

     The Company  estimates  that the worldwide  semiconductor  industry grew in
1998 by  approximately  14%,  while the  semiconductor  industry in Hong Kong is
estimated to have grown by  approximately  2.8%. The Company's  revenue from its
chip business declined by approximately 27.9% during 1998, primarily as a result
of its elimination of TI HK's DRAM product line. (See  "Suppliers,"  below.) The
Company  forecasts  that chip demand will continue to grow in the entire Eastern
Asian region and that China will offer the greatest  potential for growth during
the next  several  years.  The  Company  has  established  a  liaison  office in
Shenzhen, PRC with the intent of benefiting from opportunities that may arise in
China.

     For the most part, advertising and market promotion expenses for particular
products  for which the Company acts as a  distributor  are incurred by the chip
manufacturers  who  supply the chips to the  Company.  The  Company's  costs for
marketing such products are thus minimal.

Suppliers

     In Hong Kong,  the  Company  represents,  either as  distributor  or agent,
several of the world's largest semiconductor manufacturers. The Company has done
business with TI HK for over 16 years. TI HK supplied  approximately  87% of the
computer chips sold by the Company in the year ended  December 31, 1996.  During
1997,  the Company  experienced  a decline in the  margins  relating to the DRAM
product line of computer chips  purchased from TI HK.  Accordingly,  in order to
avoid exposure to volatile  prices and other high risk factors  associated  with
the DRAM product line  supplied by TI HK, the Company made a strategic  decision
to drop that product. As a result, the Company bought only 47% of its chips from
TI HK in 1997 and 36% in 1998.  The Company also  represents  TDK  Semiconductor
Corporation (which supplied approximately 19.5% of the chips sold by the Company
during 1998) and numerous  California  companies,  including Zilog,  Inc. (which
supplied  approximately  29% of the  chips  sold by the  Company  during  1998),
Linfinity  Microelectronics  (which supplied approximately 14% of the chips sold
by the Company during 1998) and SEEQ Technology Inc., Quality Technology,  Inc.,


                                   -4-


<PAGE>


Integrated   Circuits   Systems  and  others  which   together   accounted   for
approximately  1.5% of the  Company's  business in the year ended  December  31,
1998. The Company  represents these  manufacturers  on a non-exclusive  basis in
Hong Kong and China.

     Most of the Company's arrangements with its chip suppliers are evidenced by
formal  distributorship  or sales  representative  agreements that are typically
non-exclusive  and are for a period of one year. The Company's  agreements  with
its  suppliers  authorize the Company to represent or carry the product lines of
these chip  manufacturers  in Hong Kong and China.  To date, the Company has not
experienced any problems in renewing most  agreements,  and the Company believes
that it has a fairly stable relationship with its suppliers.  The Company has no
set return policies with its existing suppliers.

Seasonality and Backlog

     The seasonal  cycles in the Company's  business are related to the seasonal
cycles in the electronics  business generally and the types of finished products
made with chips supplied by the Company.  Sales of the Company's  chips that are
incorporated into toys, clocks and radios, for example,  generally increase from
April through October,  as the manufacturers of these consumer products increase
their production in anticipation of the Christmas  holiday season.  Sales of the
Company's chips used in computers are steady  throughout the year. To facilitate
fast,  "off-the-shelf"  delivery,  the Company  currently  maintains  an average
inventory of  approximately  four weeks of sales.  As of December 31, 1998,  the
Company's   inventory   of  chips  was  valued  at   approximately   $1,829,718.
Approximately  40%  of  these  inventories  represent  the  most  commonly  sold
commodity  items  and  have  a  relatively  fast  turnover.  The  60%  remainder
represents  custom and semi-custom items or add-on cards. New and improved chips
are constantly  being developed.  As a consequence,  inventories of chips can be
rendered obsolete within relatively short periods of time.  Although the Company
has not regularly experienced technological obsolescence in its inventories,  it
did provide for $113,515 of inventory in 1998 as obsolete and, therefore,  of no
further value to the Company.

Transportation

     At present,  the Company  incurs minimal  transportation  costs in its chip
distribution  business, as its customers are located in Hong Kong and China. The
Company  bears  all  transportation  costs  on  shipments  of chips  from  local
suppliers in Hong Kong to customers in Hong Kong and China.  The Company paid an
insignificant amount in transportation  costs in 1998.  Transportation costs may
increase  somewhat if the Company  further  expands its  business  into China or
other countries.

Competition

     The sale and marketing of computer chips is a highly competitive  business.
The Company's major competitors are other authorized distributors and agents for
the products the Company  represents as well as other product lines. A number of
the major manufacturers,  such as Motorola, National Semiconductor Ltd., Toshiba
and NEC,  also  market  their  own  products.  These  companies,  however,  sell
primarily  to  larger  customers,   while  the  Company  markets  to  small  and
medium-sized  customers.  The Company's major competitors in Hong Kong are Arrow
China,  Atek Electronics and WPI HK Ltd. in Hong Kong, and Gold Insignia,  Arrow
China and WPI HK Ltd.  in China.  In  addition  to these main  competitors,  the


                                      -5-
<PAGE>


Company  estimates that there are thousands of small to  medium-sized  companies
that compete with the Company.  These  companies  have lower  overheads than the
Company  and are,  therefore,  aggressively  price  competitive.  The  Company's
success in the market is  primarily  due to its product  reliability,  technical
support and excellent customer service.

Turf and Irrigation Business

     In 1993, EPL acquired 90% of the now-outstanding  common stock of Bothgreat
Technology Limited ("Bothgreat"), a Hong Kong corporation that was controlled by
Edward Y.F. Ting and Frederick T.F. Ko, both of whom were officers and directors
of the Company.  Bothgreat was organized in 1992 to act as a distributor of golf
turf and irrigation systems to businesses in China.  Bothgreat currently acts as
a non-exclusive distributor for several American companies that manufacture such
products,  such  as Rain  Bird,  John  Deere  and  Club  Car,  Inc.  Bothgreat's
distributorship  agreements are one-year agreements covering China (south of the
Pearl River delta) and Macau.  Bothgreat  previously had a distributor  greement
with J.R. Simplot;  however,  in January 1999, J.R. Simplot elected not to renew
that agreement.

     Bothgreat has organized its operation among two divisions -- irrigation and
turf  equipment -- and  attempts to compete in its markets by  providing  better
service to its customers than do its competitors.  In 1998 Bothgreat's net sales
were $5,639,605,  with a net loss of $344,342. Of the more than 100 customers of
Bothgreat,  no one  customer  accounted  for 10% or greater of the net sales for
1998.

     In April  1998,  the  Company  acquired  all of the assets and  business of
Flownet Irrigation  Engineering  Services Company in exchange for 300,000 shares
of the  Company's  common  stock.  The pump service  capability  obtained by the
Company  through  this  transaction  provided a solution to the  problems of the
Company's  various  irrigation  projects in China,  and  management is currently
studying  the  possibility  of  extending  the pump  service  into  other  Asian
territories such as Taiwan.

Other Investments and Activities

     Other than the Flownet  transaction  described  above,  the Company did not
acquire  or  dispose of any other  investments  or engage in any other  business
activities  during the fiscal year ended  December 31, 1998.  In July 1999,  the
Company entered into a license agreement with an unaffiiliated third party which
grants it the right to manufacture,  use and sell certain technology in exchange
for 250,000  shares of the  Company's  common  stock.  Management  is  currently
investigating the feasibility of pursuing that business opportunity.

Government Regulation

     United States export laws impose  restrictions  on the export and re-export
of all U.S.-origin goods and technology,  whether shipped directly from the U.S.
or from  foreign  subsidiaries  or  affiliates  of U.S.  companies.  The primary
purpose  of  these  restrictions  is to  prevent  certain  strategic  goods  and
technology   from  being   delivered   to  communist   and  other   "restricted"
destinations.   Thus,   exporters  may  generally  ship  U.S.-origin  goods  and
technology only under an export license granted by the United States  Department
of Commerce and only upon  receipt from the importer of certain  representations
as to the final  destination of the goods or technology being shipped.  Further,
neither the exporter,  the importer nor any other person may, without Department
of Commerce  approval,  re-export  U.S.-origin  goods or  technology  or foreign


                                      -6-

<PAGE>


products  containing  U.S.-origin parts or components or based on technical data
of  U.S.-origin  from  the  authorized   destination  to  any  other  restricted
destination.  Since  most  of the  Company's  chip  suppliers  are  either  U.S.
companies or subsidiaries or affiliates of U.S. companies, and its customers use
U.S.-origin  components,  virtually  all of the chips  sold by the  Company  are
subject to U.S.  export laws. U.S. export laws also apply to the components (and
end  products  using these  components)  obtained  from U.S.  suppliers  for the
Company's electronics business.

     The export and import of goods into and out of Hong Kong must be made under
a license granted by the Hong Kong  government.  The Company may also be subject
to the import,  export and trading laws of other  countries where it does or may
do business.

     A violation  of any export,  import or trading law by the Company or any of
its  affiliates  or  suppliers  that  results in the denial of export or trading
privileges  to any of such parties could have a material  adverse  effect on the
Company and its operations.  The Company  believes that it is in compliance with
all applicable  export,  import and trading laws and that it has taken all steps
necessary to ensure continued compliance with such laws. The Company is also not
aware of any denial orders  restricting the ability of any of its suppliers from
exporting chips or components to the Company. However, there can be no assurance
that such an order will not be issued in the future.

Employees

     As of March 31, 1999, the Company employed 40 persons on a full-time basis,
of whom  22  were  associated  with  its  chip  distribution  business,  17 were
associated with its turf and irrigation  equipment business and one employee was
a full-time  management  employee employed by Electrocon  International  Inc. In
addition,  CEL had one managerial employee. The Company and its subsidiaries are
not parties to any material labor contract or collective bargaining agreement.

Licenses, Franchises, Concessions and Royalty Agreements

     As  of  December  31,  1998,  the  Company  has  no  licenses,  franchises,
concessions or royalty  agreements that are material to its business as a whole,
except for the distributorship and sales representative agreements with its chip
and golf related products suppliers.

Patents and Trademarks

     As of December 31, 1998,  the Company does not hold and has not applied for
any patents or trademarks in the United States or other countries.

Certain Foreign Issuer Considerations

     Transfer of Sovereignty  over Hong Kong to China.  The principal  executive
offices of the Company and all  operations and assets of the Company are located
in Hong Kong and  China.  Prior to July 1, 1997,  Hong Kong was a British  Crown
Colony with  responsibility  for administering  its own internal affairs.  After
several years of negotiations  concerning Hong Kong's future,  Great Britain and
China signed  (December  1984) and ratified  (May 1985) the  Sino-British  Joint
Declaration on the Future of Hong Kong (the Sino-British Agreement). Pursuant to
the Sino-British Agreement, Hong Kong was restored to China on July 1, 1997.


                                      -7-
<PAGE>


     Ownership  of  Real  Property.  All  land  in Hong  Kong  is  owned  by the
Government  of the Hong Kong  Special  Administrative  Region (the  Government).
Prior to July 1, 1997, the Government granted Crown Leases to persons, firms and
corporations  on the basis of an annual crown rental payment and other terms and
conditions therein  contained.  Crown Leases were freely assignable during their
term. In  implementation  of the  Sino-British  Agreement,  the New  Territories
Leases (Extension) Ordinance was enacted and came into effect on April 25, 1988.
Pursuant to that Ordinance,  all leases in the New Territories of Hong Kong were
extended up to June 30, 2047.  Such  extension was at no premium but was subject
to an annual fee  equivalent  to 3% of the ratable  value of the  property to be
charged  with  effect  from the date on which  the  original  lease  would  have
expired.

     The land  ownership  system in China is similar to Hong Kong,  in which all
land is  owned  by the  government.  The  Chinese  government  and  its  various
government  instrumentalities grant leases to persons, firms and corporations on
the basis of an annual  rental  payment  and other  terms and  conditions.  Such
leases are generally freely transferable during their term.

     Enforceability  of Certain Civil  Liabilities  and Certain  Foreign  Issuer
Considerations.  The Company is a British  Virgin Islands  holding  corporation.
Outside  the  United  States,  it may be  difficult  for  investors  to  enforce
judgments  against  the  Company  obtained  in the  United  States in any action
brought  against it under the securities  laws of the United  States,  including
actions  predicated  upon  civil  liability  provisions  of  the  United  States
securities  laws.  In addition,  most of the  Company's  officers and  directors
reside  outside the United States and most of the assets of these persons and of
the Company are located  outside of the United  States.  As a result,  it may be
difficult or impossible  for investors to effect  service of process  within the
United  States  upon such  persons,  or to enforce  against  the Company or such
persons judgments obtained in United States courts predicated upon the liability
provisions of the United States securities laws. The Company has been advised by
its British  Virgin  Islands  counsel and by its Hong Kong counsel that there is
substantial  doubt as to the  enforceability  against  the Company or any of its
directors and officers  located outside the United States in original actions or
in actions for  enforcement  of judgments of United States courts of liabilities
predicated  solely  on the  civil  liability  provisions  of the  United  States
securities laws.

     The Company has been advised by its counsel that no treaty  exists  between
Hong Kong or the British Virgin Islands and the United States  providing for the
reciprocal  enforcement of foreign judgments.  However,  the courts of Hong Kong
and the  British  Virgin  Islands  are  generally  prepared  to accept a foreign
judgment as evidence of a debt due. An action may then be commenced in Hong Kong
or the British  Virgin Islands for recovery of this debt. A Hong Kong or British
Virgin  Islands court will only accept a foreign  judgment as evidence of a debt
due if: (i) the judgment is for a liquidated amount in a civil matter;  (ii) the
judgment is final and  conclusive  and has not been stayed or satisfied in full;
(iii) the  judgment  is not  directly or  indirectly  for the payment of foreign
taxes, penalties, fines or charges of a like nature (in this regard, a Hong Kong
or British  Virgin  Islands court is unlikely to accept a judgment for an amount
obtained  by  doubling,  trebling or  otherwise  multiplying  a sum  assessed as
compensation  for the loss or damage  sustained by the person in whose favor the
judgment  was  given);   (iv)  the  judgment  was  not  obtained  by  actual  or
constructive  fraud or duress;  (v) the foreign court has taken  jurisdiction on


                                      -8-

<PAGE>


grounds  that are  recognized  by the common law rules as to conflict of laws in
Hong Kong or the  British  Virgin  Islands;  (vi) the  proceedings  in which the
judgment  was  obtained  were  not  contrary  to  natural  justice;   (vii)  the
proceedings  in which the judgment  was  obtained,  the judgment  itself and the
enforcement  of the judgment are not contrary to the public  policy of Hong Kong
or the British  Virgin  Islands;  (viii) the person against whom the judgment is
given is  subject to the  jurisdiction  of the Hong Kong or the  British  Virgin
Islands  court;  and (ix) the  judgment  is not on a claim for  contribution  in
respect of damages  awarded by a judgment  that does not satisfy the  foregoing.
Enforcement of a foreign judgment in Hong Kong or the British Virgin Islands may
also be limited or affected by applicable bankruptcy,  insolvency,  liquidation,
arrangement,  moratorium  or similar laws  relating to or  affecting  creditors'
rights  generally  and will be subject to a statutory  limitation of time within
which proceedings may be brought.

     Under United States law,  majority and controlling  shareholders  generally
have  certain   fiduciary   responsibilities   to  the  minority   shareholders.
Shareholder  action  must be taken in good  faith  and  actions  by  controlling
shareholders that are obviously  unreasonable may be declared null and void. The
British Virgin Islands law protecting the interests of the minority shareholders
may not be as protective in all  circumstances  as the law  protecting  minority
shareholders  in United States  jurisdictions.  While British Virgin Islands law
does  permit a  shareholder  of a  British  Virgin  Islands  company  to sue its
directors  derivatively,  i.e. in the name of and for the benefit of the company
and to sue the  company  and its  directors  for his  benefit and the benefit of
others  similarly  situated,  the  circumstances in which any such action may be
brought and the  procedures and defenses that may be available in respect of any
such action may result in the rights of shareholders of a British Virgin Islands
company being more limited than those rights of  shareholders in a United States
company.

Risk Factors

THIS ANNUAL REPORT  CONTAINS  FORWARD-LOOKING  STATEMENTS  WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND SECTION 21E
OF THE  SECURITIES  EXCHANGE ACT OF 1934 (THE  "EXCHANGE  ACT").  ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE  FORWARD-LOOKING  STATEMENTS
AS A RESULT OF THE RISK FACTORS SET FORTH BELOW.  PROSPECTIVE  INVESTORS  SHOULD
CAREFULLY CONSIDER, TOGETHER WITH THE OTHER INFORMATION APPEARING IN THIS ANNUAL
REPORT, THE FOLLOWING  FACTORS,  AMONG OTHERS, IN EVALUATING THE COMPANY AND ITS
BUSINESS.

     Important  Factors  Related to  Forward-Looking  Statements  and Associated
Risks.  The Company may from time to time make  written or oral  forward-looking
statements.  Written  forward-looking  statements may appear in documents  filed
with  the  Securities  and  Exchange  Commission  (the  "Commission"),  in press
releases and in reports to shareholders. The forward-looking statements included
herein  are based on  current  expectations  that  involve a number of risks and
uncertainties.  These  forward-looking  statements are based on assumptions that
competitive  conditions  affecting  the Company  will not change  materially  or
adversely,  that  demand for the  Company's  products  will be strong,  that the
Company  will retain  existing  key  management  personnel,  that the  Company's
forecasts  will  accurately  anticipate  market demand and that there will be no
material  adverse  change in the Company's  operations or business.  Assumptions


                                      -9-


<PAGE>



relating to the foregoing involve judgments with respect to, among other things,
future  economic,   competitive  and  market   conditions  and  future  business
decisions,  all of which are difficult or impossible to predict  accurately  and
many of which are  beyond the  control  of the  Company.  Although  the  Company
believes that the  assumptions  underlying  the  forward-looking  statements are
reasonable,  any of the assumptions could prove inaccurate and, therefore, there
can be no assurance that the results contemplated in forward-looking information
will be realized.

         In  addition,  as disclosed  elsewhere  under other risk  factors,  the
business and  operations of the Company are subject to  substantial  risks which
increase the uncertainty inherent in such forward-looking  statements.  In light
of the significant  uncertainties  inherent in the  forward-looking  information
included herein,  the inclusion of such information  should not be regarded as a
representation  by the Company or any other person that the  objectives or plans
of the  Company  will be  achieved.  The Private  Securities  Reform Act of 1995
contains  a safe  harbor for  forward-looking  statements  on which the  Company
relies in making such  disclosures.  In  connection  with this "safe harbor" the
Company is hereby identifying  important factors that could cause actual results
to differ materially from those contained in any forward-looking statements made
by or on behalf of the Company.  Any such statement is qualified by reference to
the cautionary statements included in this Annual Report on Form 20-F.

     China and Hong Kong and the Sino-British Agreement. The principal executive
and  corporate  offices  of the  Company  and all  operations  and assets of the
Company are located in Hong Kong and China. Prior to July 1, 1997, Hong Kong was
a British Crown Colony with  responsibility  for  administering its own internal
affairs.  Sovereignty  over Hong Kong was transferred  effective July 1, 1997 to
China.  Although management believes that any changes in conditions in Hong Kong
are not  likely to have a  material  effect  upon the  Company,  there can be no
assurance as to the  continued  stability of  political,  economic or commercial
conditions in Hong Kong, and any instability could have an adverse impact on the
Company's business.

     The Hong Kong  dollar  and the  United  States  dollar  have been  fixed at
approximately  7.80 Hong Kong  dollars to $1.00 U.S.  since  1983.  The  Chinese
government  has  expressed  its  intention  in the  basic  law to  maintain  the
stability of the Hong Kong  currency.  There can be no assurance  that this will
continue  and the Company  could face  increased  currency  risks if the current
exchange rate mechanism is changed.

     Internal  Political and Other Risks. The Company maintains several branches
in China and serves as  distributor of certain  products in China.  As a result,
the  Company's  operations  and assets are  subject  to  significant  political,
economic, legal and other uncertainties associated with doing business in China.
Changes in  policies  by the Chinese  government  resulting  in changes in laws,
regulations or the interpretation thereof,  confiscatory taxation,  restrictions
on  imports  and  sources  of  supply,  import  duties,   corruption,   currency
revaluations or the  expropriation  of private  enterprise  could materially and
adversely  affect the Company.  Under Deng  Xiaoping's  leadership,  the Chinese
government  pursued  economic reform  policies  including the  encouragement  of
private economic activity and greater economic decentralization.  With the death
of Deng  Xiaoping  there can be no assurance  that the Chinese  government  will
continue to pursue such  policies,  that such  policies  will be  successful  if
pursued,  that such policies will not be significantly altered from time to time
or that  business  operations  in China would not become  subject to the risk of

                                      -10-

<PAGE>


nationalization,  which  could  result in the total loss of  investment  in that
country.  Economic  development  may be  limited  as well by the  imposition  of
austerity measures intended to reduce inflation,  the inadequate  development of
infrastructure  and  the  potential  unavailability  of  adequate  power,  water
supplies,  transportation and communications. If for any reason the Company were
required to  discontinue  doing business in China,  the Company's  profitability
would be substantially impaired.

     Uncertain  Legal System and  Application of Laws. The legal system of China
relating  to  foreign  investments  is both new and  continually  evolving,  and
currently  there  can be no  certainty  as to the  application  of its  laws and
regulations in particular instances.  China does not have a comprehensive system
of  laws.  Enforcement  of  existing  laws or  agreements  may be  sporadic  and
implementation and interpretation of laws inconsistent. The Chinese judiciary is
relatively  inexperienced in enforcing the laws that exist,  leading to a higher
than usual degree of uncertainty as to the outcome of any litigation. Even where
adequate  law  exists  in China,  it may not be  possible  to  obtain  swift and
equitable enforcement of that law.

     Inherent Risks of Doing Business in China.  Conducting business in China is
inherently risky.  Corruption,  extortion,  bribery,  pay-offs,  theft and other
fraudulent  practices  are common in China.  There can be no assurance  that the
Company will not suffer losses relating to such practices.

     Relations Between China and Taiwan. Relations between China and Taiwan have
been unresolved  since Taiwan was  established in 1949. The general  election in
Taiwan in 1996 heightened  tensions between them. Although not directly a threat
to the Company,  peaceful and normal  relations  between China and its neighbors
reduces  the  potential  for events  which  could have an adverse  impact on the
Company's business.

     Asian Economic Problems. Recently, several countries in Southeast Asia have
experienced a significant  devaluation  of their  currencies  and decline in the
value of their  capital  markets.  In addition,  several  Asian  countries  have
experienced a number of bank failures and  consolidations.  The Company does not
believe  that the  declines  in  Southeast  Asia will  affect the demand for the
Company's products.  However,  because the Company sells most of its products in
Hong  Kong  dollars  and  pays  for  most of its  products  in U.S.  dollars,  a
devaluation in the Hong Kong dollar, if such were to occur despite assurances to
the contrary by the Chinese government,  would have a material adverse effect on
the Company's operations. Investors are cautioned that there can be no assurance
that the decline in Southeast  Asia will not have a material  adverse  effect on
the Company's  business,  financial  condition,  results of operations or market
price of its securities.

     Dependence on Single Major Supplier.  TI HK supplied  approximately  87% of
the  computer  chips sold by the Company in the year ended  December  31,  1996.
During 1997,  the Company  experienced a decline in the margins  relating to the
DRAM product line of computer chips purchased from TI HK. Accordingly,  in order
to avoid exposure to volatile prices and other high risk factors associated with
the DRAM product line  supplied by TI HK, the Company made a strategic  decision
in 1997 to drop that product.  As a result,  the Company  bought only 47% of its
chips from TI HK in 1997 and 36% in 1998. Management anticipates that TI HK will
represent an even smaller  percent of the Company's  computer chip  purchases in
1999.  Discontinuance  of the TI HK DRAM product line has had a material adverse
effect on the  Company's  revenues.  There can be no assurance  that the Company
will  succeed in  obtaining  new  suppliers  to  replace  the  revenues  lost by
discontinuing the DRAM line of computer chips.

                                      -11-

<PAGE>


     Dependence on Key Personnel.  The Company's future  performance will depend
to a  significant  extent upon the efforts and  abilities of certain  members of
senior  management as well as upon the  Company's  ability to attract and retain
other qualified personnel. In particular,  the Company is largely dependent upon
the  continued  efforts of Mr.  Edward  Ting,  the  Company's  President,  Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer and Chairman
of its Board of Directors,  and Mr. Clement Cheung,  Secretary,  Treasurer and a
director  of the  Company.  To the extent  that the  services of Mr. Ting or Mr.
Cheung would be  unavailable  to the Company,  the Company  would be required to
obtain other  personnel to perform the duties that they otherwise would perform.
There can be no  assurance  that the  Company  would be able to  employ  another
qualified person or persons, with the appropriate  background and expertise,  to
replace Mr. Ting or Mr. Cheung on terms suitable to the Company.

     Potential  Fluctuations in Operating Results.  The Company's  quarterly and
annual  operating  results are  affected by a wide variety of factors that could
materially and adversely affect net sales, gross profit and profitability.  This
could result from any one or a combination of factors,  many of which are beyond
the control of the Company.  Results of  operations  in any period should not be
considered  indicative  of results to be  expected  in any  future  period,  and
fluctuations in operating  results may also result in fluctuations in the market
price of the Company's Common Stock.

     Year  2000.  The  Company  has  customized   business  management  software
developed  by a local Hong Kong  company.  Management  of the  Company is in the
process of evaluating  its software to ensure that it is Year 2000 compliant and
has engaged a programmer  to perform this task.  Management  believes  that this
software will be Year 2000 compliant by the end of 1998;  however,  there can be
no assurance  that the Company's  software  will  function  properly in the year
2000.  Computer  malfunctions  due to Year 2000  problems  could have a material
adverse effect on the Company's operations.

     Enforceability of Civil Liabilities.  The Company is a holding  corporation
organized as an  International  Business  Company  under the laws of the British
Virgin  Islands and its principal  operating  subsidiary is organized  under the
laws of Hong Kong,  where the  Company's  principal  executive  offices are also
located. Outside the United States, it may be difficult for investors to enforce
judgments  against the Company  obtained in the United States in actions brought
against  the  Company,   including  actions   predicated  upon  civil  liability
provisions  of federal  securities  laws.  In  addition,  most of the  Company's
officers and directors  reside  outside the United States and most of the assets
of these persons and of the Company are located outside of the United States. As
a result,  it may not be possible  for  investors  to effect  service of process
within the United States upon such persons, or to enforce against the Company or
such  persons  judgments  predicated  upon  the  liability  provisions  of  U.S.
securities  laws.  The Company has been advised by its Hong Kong counsel and its
British  Virgin  Islands  counsel  that  there  is  substantial  doubt as to the
enforceability  against the Company or any of its directors or officers  located
outside the United States in original  actions or in actions for  enforcement of
judgments of U.S. courts of liabilities predicated solely on the civil liability
provisions of federal securities laws.

     Certain Legal  Consequences of Incorporation in the British Virgin Islands.
The  Company  is  organized  under  the  laws  of the  British  Virgin  Islands.
Principles  of law  relating to matters  affecting  the  validity  of  corporate
procedures,  the  fiduciary  duties of the Company's  management,  directors and
controlling  shareholders  and the rights of the Company's  shareholders  differ
from, and may not be as protective of shareholders as, those that would apply if
the  Company  were  incorporated  in a  jurisdiction  within the United  States.

                                      -12-

<PAGE>


Directors  of the  Company  have  the  power  to take  certain  actions  without
shareholder  approval,  including an amendment of the  Company's  Memorandum  or
Articles  of  Association,  a change in the  Company's  authorized  capital  and
certain fundamental corporate transactions,  including reorganizations,  certain
mergers or  consolidations,  and the sale or  transfer of assets.  In  addition,
there is doubt that the  courts of the  British  Virgin  Islands  would  enforce
liabilities predicated upon U.S. securities laws.

     Exemptions under the Exchange Act as a Foreign Private Issuer.  The Company
is a foreign  private issuer within the meaning of rules  promulgated  under the
Exchange Act. As such,  and though its Common Stock is registered  under Section
12(g) of the Exchange Act, it is exempt from certain  provisions of the Exchange
Act applicable to United States public companies including:  the rules under the
Exchange Act  requiring the filing with the  Commission of quarterly  reports on
Form 10-Q or current  reports on Form 8-K,  the  sections  of the  Exchange  Act
regulating the solicitation of proxies, consents or authorizations in respect to
a security  registered  under the  Exchange Act and the sections of the Exchange
Act  requiring  insiders to file public  reports of their  stock  ownership  and
trading activities and establishing  insider liability for profits realized from
any "short-swing"  trading  transaction  (i.e., a purchase and sale, or sale and
purchase,  of the issuer's equity securities within six months or less). Because
of the exemptions  under the Exchange Act applicable to foreign private issuers,
shareholders of the Company are not afforded the same protections or information
generally  available to investors  in public  companies  organized in the United
States.

     Volatility  of Stock  Price.  The markets for equity  securities  have been
volatile and the price of the Company's Common Stock has been and could continue
to be subject to wide fluctuations in response to quarter to quarter  variations
in operating results, news announcements,  trading volume, sales of Common Stock
by officers, directors and principal shareholders of the Company, general market
trends and other factors.

Item 2.  DESCRIPTION OF PROPERTY

British Virgin Islands

     The  registered  office of the  Company is  located in the CITCO  Building,
Wickhams Cay, P.O. Box 662, Road Town,  Tortola,  British Virgin  Islands.  Only
corporate  administrative  matters are  conducted  at such  office,  through the
Company's  registered  agent,  CITCO Trust  Corporation  Limited.  The  material
properties  of the Company  and its  subsidiaries,  both owned and  leased,  are
described below.

Hong Kong

     Commercial Property.  Since October 1989, the Company's principal executive
offices have been located in the Prosperity Centre,  Kwai Chung, Hong Kong. This
facility,  consisting of approximately  7,500 square feet,  houses the Company's
executive  offices and warehouse space. The Company leases the space through EPL
from an unaffiliated  company for a base rent of approximately  $6,250 per month
and additional  expenses of  approximately  $2,936 per month in maintenance  and
other fees. The lease expires on September 6, 2001.


                                      -13-

<PAGE>


     Residential  Property.  Since 1991, the Company has provided its President,
Mr.  Edward Ting,  with a leased  accommodation  in Hong Kong for his use.  This
property,  located on Broadcast  Street in Hong Kong,  consists of approximately
1,000  square feet and the rental rate is  approximately  $2,000 per month.  The
property is leased on a monthly  basis under an oral  arrangement.  See Item 11,
"Compensation  of Officers and Directors,"  Item 13,  "Interest of Management in
Certain  Transactions,"  and  Note  11  to  the  Financial  Statements  included
herewith.

China

     The Company leases a commercial  property consisting of approximately 1,762
square  feet  at  Bellview  Tower,  Lo Hu  District,  Shenzhen  City,  Guangdong
Province,  China which it utilizes for its China liaison office. The property is
owned by Mr.  Clement  Cheung,  a Director of the  Company.  The Company  pays a
monthly  rent of  approximately  $2,821  pursuant  to a  three-year  lease which
expires  May  31,  2000.  See  Item  13,  "Interest  of  Management  in  Certain
Transactions."

     In 1995,  the Company  purchased  two  townhouse  units located at Oriental
Pearl  Gardens,  Units B8 and B9, in  Shanghai,  China,  which were  utilized as
offices  and  staff  quarters  for EPL and  Bothgreat.  Each  unit  consists  of
approximately  1,500  square  feet.  The  purchase  price of each  property  was
approximately $150,000, and was paid in full in 1995. The Company sold these two
properties in 1998 for an aggregate of $338,214.

Item 3.  LEGAL PROCEEDINGS

     The  Company  is not aware of any  legal  proceedings  contemplated  by any
governmental   authority  involving  the  Company,  its  subsidiaries  or  their
property. No director, officer or affiliate of the Company or any associate of a
director,  officer or  affiliate  of the  Company is an adverse  party or has an
adverse  interest  in  any  legal  proceedings  involving  the  Company  or  its
subsidiaries.  The Company and its ordinary  subsidiaries are not parties to any
legal proceedings other than routine litigation  incidental to their businesses,
nor are there  any  pending  material  legal  proceedings  with  respect  to the
property of the Company and its subsidiaries.

Item 4.  CONTROL OF REGISTRANT

     The Company is not directly or  indirectly  owned or  controlled by another
corporation or by any foreign government.  The following table sets forth, as of
June 1, 1999,  the  beneficial  ownership of the Company's  Common Stock by each
person  known by the  Company  to own  beneficially  more than 10% of the Common
Stock  of the  Company  outstanding  as of such  date  and by the  officers  and
directors of the Company as a group. Except as otherwise  indicated,  all shares
are owned directly.

            Identity of                       Amount              Percent of
         persons or groups              Beneficially Owned           Class
         ---------------------          ------------------        ----------
         Group consisting of            2,022,500 shares(1),(2)      26.2%
         Edward Ting, Viola Ting
         and David Nominees
         Limited
         Officers and directors         2,062,500 shares(2)          26.7%
         as a group (3 persons)
--------------------

(1)  Of these  shares,  1,467,500  shares are owned  outright by Edward Ting, an
     officer and director of the Company,  and 305,000 shares are owned outright
     by his wife,  Viola Ting. Mr. Ting is deemed to be the beneficial  owner of
     the Common Stock held by Viola Ting.  Mr. Ting  disclaims  ownership of the
     Common Stock owned by his wife.


                                      -14-
<PAGE>


(2)  Includes  250,000 warrants to purchase common stock of the Company owned by
     Mr. Ting. Does not include 365,163 shares held by an entity of which Edward
     Ting and Clement Cheung are officers and directors.

     There are no  arrangements  known to the Company the operation of which may
at a subsequent date result in a change in control of the Company.

Item 5.   NATURE OF TRADING MARKET

     The   Company's   Common  Stock  is  traded  only  in  the  United   States
over-the-counter  market.  The  Common  Stock has been  quoted  on the  National
Association of Securities  Dealers,  Inc. Automated  Quotation System ("NASDAQ")
under the trading symbol "EPLTF."

     The table set forth below presents the range, on a quarterly basis, of high
and low sale prices per share of Common Stock as reported by NASDAQ for the last
two  fiscal  years and for the first two  quarters  of the  fiscal  year  ending
December 31, 1998. The quotations  represent  prices between  dealers and do not
include retail markup, markdown or commissions and may not necessarily represent
actual transactions.

      Quarter Ended                     High                      Low
      -------------                     ----                      ---

Fiscal 1997
     March 31, 1997                    $2.0625                    $1.00
     June 30, 1997                     $1.1875                    $0.50
     September 30, 1997                $1.75                      $0.625
     December 31, 1997                 $1.9375                    $0.75

Fiscal 1998
     March 31, 1998                    $2.0625                    $1.00
     June 30, 1998                     $1.125                     $0.59375
     September 30, 1998                $0.56                      $0.28
     December 31, 1998                 $0.38                      $0.19

Fiscal 1999
     March 31, 1999                    $0.38                      $0.13
     June 30, 1999                     $1.47                      $0.16

     Transfer  Agent.  The  transfer  agent  for  the  Company's  securities  is
Corporate Stock Transfer, Inc., Denver, Colorado.

Item 6.  EXCHANGE CONTROLS AND OTHER LIMITATIONS
         AFFECTING SECURITY HOLDERS

     There are no exchange control  restrictions on payments of dividends on the
Company's Common Stock or on the conduct of the Company's  operations  either in
Hong Kong, where the Company's  principal  executive offices are located, or the
British Virgin Islands,  where the Company is incorporated.  Other jurisdictions
in which the Company  conducts  operations may have various  exchange  controls.
Taxation and  repatriation of profits  regarding the Company's China  operations
are regulated by Chinese laws and regulations.  To date, these controls have not
had and are not expected to have a material  impact on the  Company's  financial
results.  There are no material British Virgin Islands laws which impose foreign
exchange  controls  on the  Company  or that  affect the  payment of  dividends,
interest or other payments to nonresident  holders of the Company's  securities.
British  Virgin  Islands  law and  the  Company's  Memorandum  and  Articles  of
Association  impose no limitations on the right of nonresident or foreign owners
to hold or vote the Company's securities.


                                      -15-
<PAGE>


Item 7.   TAXATION

     No reciprocal tax treaty  regarding  withholding  exists between the United
States and the British Virgin Islands. Under current British Virgin Islands law,
dividends,  interest or  royalties  paid by the Company to  individuals  are not
subject to tax as long as the recipient is not a resident of the British  Virgin
Islands. If the Company were to pay a dividend,  the Company would not be liable
to withhold any tax, but  shareholders  would receive gross  dividends,  if any,
irrespective of their residential or national status.

     Dividends,   if  any,  paid  to  any  United  States  resident  or  citizen
shareholder would be treated as dividend income for United States federal income
tax   purposes.   Such   dividends   would   not  be   eligible   for   the  70%
dividends-received  deduction allowed to United States corporations on dividends
from a domestic  corporation  under  Section 243 of the United  States  Internal
Revenue Code of 1986 (the "Internal  Revenue Code").  Various  Internal  Revenue
Code  provisions  impose  special taxes in certain  circumstances  on non-United
States  corporations  and their  shareholders.  Shareholders  of the Company are
urged to consult their tax advisors with regard to such  possibilities and their
own tax situation.

     In addition to United States federal income  taxation,  shareholders may be
subject to state and local taxes upon their receipt of dividends.

Item 8.   SELECTED FINANCIAL DATA

     The  selected  financial  information  set forth below is derived  from the
audited Consolidated  Financial Statements of the Company, which are prepared in
accordance with generally accepted accounting principles in the United States of
America  ("U.S.  GAAP") and stated in United States  dollars.  The  Consolidated
Financial  Statements  at December  31,  1997 and 1998 and for the fiscal  years
ended December 31, 1996, 1997 and 1998 have been audited by independent auditors
and appear elsewhere herein. The Consolidated  Financial  Statements at December
31,  1994,  1995 and 1996 and for the fiscal  years ended  December 31, 1994 and
1995 also have been  audited by  independent  auditors but do not appear in this
Annual Report. The selected  consolidated  financial data are qualified in their
entirety  by  reference  to,  and  should  be  read  in  conjunction  with,  the
Consolidated  Financial  Statements,  related  Notes  and Item 9,  "Management's
Discussion  and  Analysis of  Financial  Condition  and  Results of  Operations"
included elsewhere in this Annual Report.

     The Company  prepares  its  financial  statements  in U.S.  dollars for the
following  reasons:  (i) the  Company  is  incorporated  in the  British  Virgin
Islands,  whose  currency  is the U.S.  dollar;  (ii) the Company  conducts  the
majority of its business  transactions in U.S.  dollars;  and (iii) the exchange
rate between the Hong Kong dollar and the United States dollar has been fixed at
7.80 Hong Kong  dollars  to $1.00 U.S.  since  1983.  Accordingly,  there are no
material  adjustments  on the  translation of Hong Kong dollar amounts into U.S.
dollar amounts.


                                      -16-
<PAGE>

<TABLE>
<CAPTION>
                                              Selected Financial Data
                                         (Stated in United States dollars)


                           Year Ended           Year Ended          Year Ended          Year Ended           Year Ended
                          Dec. 31, 1994        Dec. 31, 1995       Dec. 31, 1996       Dec. 31, 1997       Dec. 31, 1998
                          -------------        -------------       -------------       -------------       -------------
<S>                        <C>                  <C>                 <C>                 <C>                  <C>
Statement of
Operations Data(1)
-----------------
Net Sales                  32,739,471           45,094,812          53,510,211          29,086,564           22,338,588

Gross Profit on Sales       2,175,917            4,666,282           3,431,425           3,274,858           3,750,792

Operating Expenses          2,306,037            3,227,311           3,563,450           3,502,226           4,003,868

Income (Loss)
from Operations              (130,120)           1,438,971            (132,025)           (227,368)           (253,076)

Other Income - Net             47,571              373,892              83,903             151,115              37,845

Income (Loss) from
Continuing
Operations
before Income
Taxes                        (281,504)           1,672,647            (153,865)           (345,805)           (649,399)

Provision (Credit) for
Income Taxes                   57,094              261,865            (106,086)             21,041               23,906

Net Income (Loss)
before Minority
Interest                     (338,598)           1,410,782             (47,779)           (366,846)           (673,305)

Minority Interest              (2,195)             (32,211)               --                  --                   --

Net Income (Loss)            (340,793)           1,378,571             (47,779)           (366,846)           (673,305)

Net Income (Loss)
per Common Share
and Common Share
Equivalent (2)                (0.0520)              0.2095             (0.0073)             (0.054)             (0.091)
</TABLE>



                                      -17-
<PAGE>

<TABLE>
<CAPTION>
                                             Selected Financial Data
                                         (Stated in United States dollars)


                             Year Ended          Year Ended          Year Ended          Year Ended           Year Ended
                           Dec. 31, 1994        Dec. 31, 1995       Dec. 31, 1996       Dec. 31, 1997       Dec. 31, 1998
                           -------------        -------------       -------------       -------------       -------------
<S>                           <C>                  <C>                 <C>                 <C>                 <C>
Balance Sheet
Data (1)
------------------

Accounts Receivable-
Net                           3,677,746            4,101,452           4,791,683           5,738,649           4,366,540

Inventories                   2,672,388            3,498,279           4,444,163           3,394,900           2,425,248

Total Current
Assets                       10,452,960           11,869,356          13,464,919          13,165,590          11,287,450


Fixed Assets-Net                352,453            1,138,983           1,100,213           1,004,794             670,251

Total Assets                 10,907,946           13,266,160          14,827,854          14,393,400          12,468,763

Total Current
Liabilities                  10,348,474           11,147,000          12,913,878          11,860,603          10,307,547

Non-Current
Liabilities                      44,179              168,679              11,274              25,148              45,472

Stockholders'
Equity                          487,023            1,950,481           1,902,702           2,507,649           2,115,744
</TABLE>

----------------------

(1)  Assets and  liabilities are translated into United States dollars using the
     approximate  rate of exchange ruling at the balance sheet date.  Income and
     expenses are  translated  at the average rate in effect  during the period.
     The  exchange  rate has  remained  fixed at 7.80 Hong Kong dollars to $1.00
     U.S. since 1983.

(2)  Based on 7,370,009  shares for the year ended December 31, 1998,  6,780,844
     shares for the year ended December 31, 1997,  6,624,211 shares for the year
     ended December 31, 1996,  6,579,082  shares for the year ended December 31,
     1995 and 6,553,211 shares for the year ended December 31, 1994.

     The Company has no set dividend policy, and future dividends,  if any, will
depend on the Company's net income, financial position and capital requirements,
economic  and  market   conditions,   industry   standards  and  other  factors.
Accordingly, there is no assurance that future dividends will be paid.


                                      -18-
<PAGE>

Item 9.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS

     The following  discussion and analysis  should be read in conjunction  with
Item 8, "Selected Financial Data" and the Consolidated  Financial Statements and
Notes thereto appearing elsewhere in this Annual Report.

Overview

     During 1998,  the Company  derived its revenues from two primary  facets of
operations,  namely  distribution  and sales of computer  chips in Hong Kong and
China and distribution and sales of turf and irrigation equipment in China, Hong
Kong and Macau.

     Computer Chip Business.  The Company is currently an agent and  distributor
for a number of well-known  suppliers of computer chips through EPL. In 1998, as
in previous years,  the Company  purchased the majority of its chips from TI HK.
(See Item 1, "Description of  Business--Computer  Chip Distribution  Business.")
The   Company's   distribution   and   representation   agreements   with  these
manufacturers are typically non-exclusive and for a period of one year, at which
time they are renewable.  These agreements authorize the Company to represent or
carry the product lines of these chip  manufacturers in Hong Kong and China. The
Company  now sells to over 780 small and  medium-size  Hong Kong  customers  and
approximately  280 small and medium-size  Chinese  customers.  Net sales in 1998
from this business segment were approximately $16,698,983.

     Turf and Irrigation Equipment Business.  The Company commenced its business
of distributing and selling turf and irrigation  equipment in China in 1993. The
products  include Rain Bird irrigation  systems and John Deere and Club Car golf
cart and utility vehicles.  The Company supplies Rain Bird irrigation systems to
golf courses in Hong Kong and Macau,  and sells golf and turf  equipment to over
60 golf  courses  in Hong  Kong,  China and  Macau.  Net sales in 1998 from this
business were approximately $5,639,605.

Results of Operations

     The following  table sets forth selected income data as a percentage of net
sales for the fiscal years indicated.

                                          Year ended December 31,
                                    -------------------------------------
Income Statement Data               1996             1997            1998
                                    ----             ----            ----

Net sales                          100.0%           100.0%          100.0%
Cost of sales                      (93.6)           (88.7)          (83.2)
Gross profit                         6.4             11.3            16.8
Operating expenses                  (6.7)           (12.0)          (17.9)
Operating (loss)                    (0.2)            (0.7)           (1.1)
Other income (expense), net         (0.4)            (0.4)           (1.8)
(Loss) before income tax            (0.3)            (1.2)           (2.9)
Income tax (expense)/benefit        (0.2)            (0.1)            0.1
Net(loss)                           (0.1)            (1.3)           (3.0)


                                      -19-
<PAGE>


Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

     Net Sales. Net sales from different industry segments were as follows:

                                    1997            1998              % Change
                                    ----            ----              --------

Semiconductor Business            $23,151,881        $16,698,983       (27.9)%
Turf and Irrigation
  Equipment Business                5,934,683          5,639,605        (5.0)%
                                -------------      -------------      -------
                                  $29,086,564        $22,338,588       (23.2)%

     Total  revenues  from  the chip  distribution  business  for the year  were
$16,698,983,  a decrease of approximately  28%, due primarily to lower prices in
DRAMs and,  to a lesser  extent,  to a near  collapse  in the global  market for
memory chips This had an impact on the Company's  financial  performance.  It is
not the first time the memory market has  experienced  such  volatility,  and it
probably  will not be the last.  This is the reason the Company has been working
to reduce its exposure to this  commodity-type  business for a number of years -
investing instead in differentiated products being manufactured by other reputed
chip makers such as Zilog, TDK and Linfinity.

     Net sales from the turf and irrigation  equipment  business decreased by 5%
due primarily to the loss of JR Simplot distributorship, and to a lesser extent,
to the sluggishness in the industry following the economic crisis in Asia.

     Gross Profits.  Gross profits from the different  industry segments were as
follows:

                                     1997             1998        % Change
                                     ----             ----        --------

Semiconductor business           $2,219,479       $2,074,036       (6.6)%
Turf and irrigation equipment
   business                      $1,055,379       $1,676,756       58.9%
                                 ----------       ----------       -----
                                 $3,274,858       $3,750,792       14.5%

     The decline of 7% in gross profit in the semiconductor  business was due to
the reasons explained above. The overall  improvement in gross profit and margin
was  attributable  to a tremendous  increase in the gross profit in the turf and
irrigation  equipment business.  Several long-term projects that the Company had
committed last year yielded good returns.

     Operating Expenses.  Operating expenses were $4,003,868 in 1998 compared to
$3,502,226 in 1997, representing a 14% increase. This increase was primarily due
to  provisions  created for bad and doubtful  accounts  ($135,774)  and obsolete
inventory  ($113,515)  in the  Company's  core  subsidiaries,  as well as  stock
warrant expenses ($75,000).



                                      -20-
<PAGE>

     Other Income  (Expenses),  Net. The details of other expenses,  net, are as
follows: Year Ended December 31, 1997 1998

Interest income                                   $229,252         $224,438
Interest expense                                  (461,329)        (537,310)
                                                     --
Share of losses of an affiliated company           (37,475)        (121,296)
Others, net                                        151,115           37,845
                                                 ---------        ---------
                                                 ($118,437)       ($396,323)
                                                 =========        =========

     Interest  expenses  increased because the Company had to borrow from one of
its  directors  on a  short-term  basis.  The  Company's  share of losses in CEL
increased  substantially  because CEL  discontinued  its operations in the later
part of 1998 following substantial losses from its operations.

     The  Company's  future  operating  results  may be  affected by a number of
factors,  including,  but not limited to,  sales  price  erosion,  uncertainties
relative to Asian  economic  conditions,  its ability to  effectively  integrate
acquired products and operations in China, its ability to successfully  maintain
or  increase  market  share and its  ability  to  effectively  manage  fixed and
variable expense growth relative to revenue growth.

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

     Net Sales. Net sales from different industry segments were as follows:

                                       1996           1997        % Change
                                       ----           ----        --------

Semiconductor Business             $47,679,740     $23,151,881    (51.44)%
Turf and Irrigation
  Equipment Business                 5,830,471       5,934,683      1.79 %
                                 -------------   -------------   ---------
                                   $53,510,211     $29,086,564    (45.64)%

     Net sales from the chip business decreased  approximately 51% due primarily
to the Company's strategic decision to drop the DRAM product line supplied by TI
HK to avoid  its  exposure  to  volatile  prices  and other  high  risk  factors
associated  with that product.  As a result,  the Company bought only 47% of its
chips from TI HK in 1997,  compared to 87% in 1996. The Company has since signed
agreements with TDK  Semiconductor  Corporation and other well-known  vendors to
sustain its revenues and increase its gross margin.

     Net  sales  from the  turf  and  irrigation  equipment  business  increased
modestly by 1.8% due to the  volatility  in the region  following  the  economic
crisis in Asia.

     Gross Margins. Gross margins were as follows:

                  1996              1997             % Change
                  ----              ----             --------

               $3,431,425         3,274,858          (4.56)%

     The slight decline in gross profit was due to the reasons  explained above.
Despite the  significant  decline in  revenues,  the Company was  successful  in
obtaining  new  distributorships  in Hong Kong and China.  The new product lines
improved  the gross  margin and enabled the Company to preserve its gross profit
dollars.

                                      -21-
<PAGE>


     Selling  Administrative and General Expenses.  Selling,  administrative and
general  expenses  were  $3,502,226  in 1997  compared  to  $3,563,450  in 1996,
representing  a 1.7%  decrease.  This  decrease  was due to  austerity  measures
established by all the companies in the group.

     Other Income (Expenses),  Net. The details of other income (expenses), net,
are as follows:

                                 Year Ended December 31,
                             1996                      1997
                             ----                      ----

Exchange gain              $ 37,418                  $  64,668
Others                       46,485                     86,447
                          ---------                  ---------
                           $ 83,903                   $151,115

     Other income increased from $46,485 in 1996 to $86,447 in 1997, an increase
of approximately  85.96%.  This increase was primarily the result of higher bank
interest income and the write-back of certain unclaimed customer deposits.

     The  Company's  future  operating  results  may be  affected by a number of
factors,  including,  but not limited  to,  sales  price  erosion  uncertainties
relative to Asian  economic  conditions,  its ability to  effectively  integrate
acquired products and operations in China, its ability to successfully  maintain
or  increase  market  share and its  ability  to  effectively  manage  fixed and
variable expense growth relative to revenue growth.

Liquidity and Capital Resources

     Over the last three years,  the Company lost $157,387 in operations  before
depreciation,  amortization  and other  non-cash  items,  and used  $974,131  in
additional  working  capital  resulting  in  $1,131,518  of cash  flows  used in
operations.  In  addition,  the Company  generated  $215,842  from other  normal
business  operations  including  the  sale  of  property,  plant  and  equipment
($357,060),  cash acquired from purchase of a business  ($100,557),  purchase of
property, plant and equipment ($222,544) and investment in an affiliated company
($19,231).  The Company also used  $293,948 for  repayments  of its  obligations
under  capital lease and increased  its  restricted  cash by $804,874.  This was
financed by short-term  borrowings  of $733,202,  a loan from a related party of
$500,000 and advances from a director aggregating  $134,991.  This resulted in a
net decrease in cash of $646,305.

     In 1998,  the Company  lost  $199,885 in  operations  before  depreciation,
amortization  and other non-cash items,  and used $49,283 in additional  working
capital resulting in a use of $249,168 in operating activities. In addition, the
Company used funds for the purchase of property,  plant and equipment  amounting
to $68,050. The Company also used $12,713 for repayment of its obligations under
capital leases, $285,023 for repayment of short-term borrowings and $127,639 for
repayment of advances  from a director,  and increased  its  restricted  cash by
$242,011.  This was financed by advances from a director aggregating $134,991, a
loan from a related  party of $500,000,  proceeds from the disposal of property,
plant and  equipment  of  $334,214  and cash  acquired  from the  purchase  of a
business of $100,557. This resulted in a net increase in cash of $89,158.

     At June 30, 1999, the Company had approximately  $15,000 in commitments for
capital expenditures. This will be funded principally by retained earnings.

     The Company is not aware of any commitments, contingencies or events within
its control which may  significantly  change its ability to generate  sufficient
cash from internal or external sources to meet its needs.


                                      -22-
<PAGE>


Foreign Currency Exchange

     Uncertainty  in  world  economies  and the  expectations  for  higher  U.S.
interest  rates caused a gradual  strengthening  of the U.S.  dollar  during the
period.  Most of the Company's total revenue was derived from sales in Asia. The
net income effect of foreign currency exchange rate fluctuations versus the U.S.
dollar on the Company's Asian operations was minimal.


Item 10.  DIRECTORS AND OFFICERS OF REGISTRANT

     The directors  and  executive  officers of the Company at December 31, 1998
are  identified  below.  The  directors  are  elected at the  annual  meeting of
shareholders  and each  serves  until his  successor  takes  office or until his
earlier death, resignation or removal. The officers serve at the pleasure of the
Board of Directors of the Company.

Name                      Age         Position with the Company
----                      ---         -------------------------

Edward Y. F. Ting         52          President, Chief Executive Officer,
                                      Chief Operating Officer, Chief Financial
                                      Officer, Chairman of the Board and
                                      Director

Clement W. Cheung         43          Secretary, Treasurer and Director

Viola Ting                55          Director

James Mak                 44          Director

Chris G. Mendrop          47          Director


     EDWARD Y. F. TING has served as Chief  Executive  Officer,  Chief Financial
Officer,  Chairman of the Board,  President  and a director of the Company since
its  inception.  He has served as the Company's  Chief  Operating  Officer since
April 1994. He has also served as Managing Director of EPL since March 1980, and
served as an officer and director of several other entities during the time that
they were subsidiaries of the Company.

     CLEMENT  CHEUNG was elected a director  of the Company in October  1992 and
appointed  Secretary and Treasurer in August 1996. Mr. Cheung joined EPL in 1990
as an accounting and  administrative  manager.  Prior to joining EPL, Mr. Cheung
was the  controller  for Econ  Electronics  Limited,  which was  acquired by the
Company in 1990.

     VIOLA TING was elected a director of the  Company in 1995.  Mrs.  Ting is a
homemaker.

     JAMES MAK was appointed a director of the Company in March 1998. Mr. Mak is
a manager  of the  Australian  Consulate  General  where he is  responsible  for
information  technology  and  financial  control  functions.  He was employed as
general  manager of EPL and as vice president,  group  operations of the Company
from  1994  until  1996.  Prior to  joining  EPL,  Mr.  Mak was the  manager  of
management information systems of the Province of Nova Scotia in Canada. Mr. Mak
received a Bachelor of Science degree, with honors, in Computer Science from the
University of Manitoba in 1977 and a Masters of Business  Administration  degree
from Dalhousie University in Canada in 1983.



                                      -23-
<PAGE>


     CHRIS G. MENDROP was appointed a director of the Company in March 1998. Mr.
Mendrop is the Chief  Executive  Officer of Blake Street Group LLC, Blake Street
Securities  LLC and Blake Street  Advisors LLC  (collectively  the "Blake Street
Group").  He has served as the Chief Executive  Officer of each of the companies
included in the Blake Street Group since those companies were formed in January,
March and July 1998.  From July 1992 until January 1998,  Mr.  Mendrop was Chief
Executive Officer of Corporate Development Capital, Inc., an investment advisory
and financial consulting firm located in Denver,  Colorado.  Mr. Mendrop holds a
Masters of Business  Administration  degree in Finance  from the  University  of
Colorado.

     Except for Edward Ting and Viola Ting,  who are husband and wife, no family
relationship  exists among any of the named  directors and  executive  officers.
Except as described herein,  no arrangement or understanding  exists between any
such director or officer and any other persons pursuant to which any director or
executive officer was elected as a director or executive officer of the Company.

Item 11.  COMPENSATION OF DIRECTORS AND OFFICERS

     The  following  table  sets  forth  certain  information  as to each of the
Company's  executive  officers and directors  whose cash  compensation  exceeded
$60,000 and for all  executive  officers as a group for the year ended  December
31, 1998:

<TABLE>
<CAPTION>
                                                                                  Cash               Non-Cash
Name of Individual                   Capacities in Which Served               Compensation         Compensation
------------------                   --------------------------               ------------          -----------

<S>                          <C>                                               <C>                  <C>
Edward Y.F. Ting             President, Chief Executive Officer,
                             Chief Financial Officer, Chairman
                             of the Board and Director                           $ 146,000           $ 67,346(1)
Clement W. Cheung            Secretary, Treasurer and Director                   $  37,657           $ 33,691
All directors and
officers as a group (5 persons)                                                  $ 189,657           $101,037
</TABLE>

---------------------

(1)  Includes the value of housing provided to Mr. Ting valued at $24,000 during
     fiscal   1998.   (See  Item  13,   "Interest  of   Management   in  Certain
     Transactions.")

     In 1996,  the Company  instituted a defined  contribution  retirement  plan
which  covers  the   employees  of  Bothgreat  and  EPL.  The  Company  and  its
subsidiaries  set aside  $26,037  pursuant to the plan for the fiscal year ended
December  31, 1998,  and $33,319  pursuant to the plan for the fiscal year ended
December 31, 1997.

Item 12.  OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR
          SUBSIDIARIES

     There are no options to purchase  securities of the Company  outstanding as
of the date of this  Annual  Report.  Mr.  Edward  Ting,  the  President  of the
Company, holds the right to be issued a warrant exercisable for a period of five
years from March 25, 1998 to purchase  250,000  shares of the  Company's  Common
Stock at an exercise  price of $1.00 per share during the first year,  $1.10 per
share during the second year,  $1.20 per share during the third year,  $1.50 per
share during the fourth year and $1.75 per share during the fifth year. See Item
13, "Interest of Management in Certain Transactions," below.

Item 13.  INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS

     Since 1992,  the Company has provided a director,  Mr. Edward Ting,  with a
leased  accommodation  in Hong  Kong  for his use.  This  property,  located  on
Broadcast Street in Hong Kong,  consists of approximately 1,000 square feet, and
the rental rate is  approximately  $2,000 per month. The property is leased on a
monthly basis under an oral arrangement.

     The Company leases a commercial property in Bellview Tower, Lo Hu District,
Shenzhen  City,  China,  from Edward Ting,  the  President  of the Company.  The
Company pays a monthly  rent of  approximately  $2,821  pursuant to a three-year
lease  which  expires on May 31,  2000.  Rent paid by the  Company  to Mr.  Ting
amounted to $33,846 in each of 1998, 1997 and 1996.

     During 1997,  the Board of Directors  granted stock bonuses to employees of
the Company in an aggregate  amount of 70,000 shares.  Clement  Cheung  received
20,000 of those shares.

     During 1997,  a director  advanced  short-term  loans to the Company in the
amount of $127,639. The loans bear interest at the rate of 10% per annum and are
repayable within one year.

     In March 1998, Bothgreat obtained a standby letter of credit for one of its
suppliers  from a bank.  The letter of credit was  collateralized  by a security
interest  in a  $500,000  deposit  owned  by  Glas-Aire  Industries  Group  Ltd.
("Glas-Aire").  At that  time,  Mr.  Edward  Ting was Chief  Executive  Officer,
Chairman of the Board of Directors and a principal  shareholder of Glas-Aire and
Chris  G.  Mendrop  and  Clement   Cheung  were   directors  of  Glas-Aire.   As
consideration  for Glas-Aire  agreeing to provide the security for the letter of
credit,  the  Company  agreed as  follows:  (i) to issue to  Glas-Aire a warrant
exercisable  for a period of five years from March 25, 1998 to purchase  250,000
shares of the  Company's  Common  Stock at an exercise  price of $1.00 per share
during the first year,  $1.10 per share during the second year,  $1.20 per share
during the third  year,  $1.50 per share  during  the fourth  year and $1.75 per
share during the fifth year;  (ii) to pay Glas-Aire a fee in the amount of 1% of
the collateral, or $5,000, payable in advance for the six month period beginning
on the date the letter of credit was issued by the bank and an additional fee of

                                      -24-
<PAGE>


1%, also payable in advance, for the six-month period immediately  following the
initial  six-month  period,  if the collateral  continued to be utilized for the
letter of  credit,  with the  understanding  that the  collateral  would be made
available by Glas-Aire to collateralize the letter of credit for a period not to
exceed one year;  and (iii) the pledge to Glas-Aire by Mr. Ting of all shares of
Glas-Aire common stock owned by him, his wife or under his control.  In November
1998,  the  Company  defaulted  on the  letter of  credit  and  $250,000  of the
collateral  was seized,  resulting in the Company being indebted to Glas-Aire in
the amount of $250,000.  In December 1998,  Glas-Aire made a loan to the Company
in the  principal  amount of $500,000 and $250,000 of the loan proceeds was used
to repay Glas-Aire for the seized collateral for the letter of credit. This loan
was evidenced by a promissory  note, bore interest at the rate of 10% per annum,
unless a default occurred in which case the interest rate would increase to 12%,
and was  payable on demand.  The loan was  secured by a first  priority  lien on
212,331  shares of Glas-Aire  common stock owned by Mr. Edward Ting and a second
priority lien on the remaining 301,584 shares of Glas-Aire common stock owned by
Edward and Viola Ting which had previously  been pledged to secure the letter of
credit arrangement. In April 1999, Mr. Edward Ting purchased the promissory note
from  Glas-Aire in order to enable him to sell his  Glas-Aire  shares which were
encumbered by the debt. As a result,  the Company is now indebted to Mr. Ting in
the amount of $500,000,  plus interest.  In addition,  Glas-Aire transferred the
warrant to Mr. Ting.

     During  1998,  there  were no  other  material  transactions,  and none are
presently proposed, to which the Company or any of its subsidiaries was or is to
be a party, in which either (i) any director or officer of the Company,  or (ii)
any  corporation  or  foreign  corporation  directly  or  indirectly  owning  or
controlling the Company or (iii) any relative or spouse of any of the foregoing,
or any relative of such spouse, who has the same home as such person or who is a
director or officer of any  subsidiary of the Company had or is to have a direct
or indirect material interest.



                                      -25-
<PAGE>

                                     PART II

Item 14.  DESCRIPTION OF SECURITIES TO BE REGISTERED

     Not Applicable.

                                    PART III

Item 15.  DEFAULTS UPON SENIOR SECURITIES

     Not Applicable.

Item 16.  CHANGES  IN SECURITIES AND CHANGES IN SECURITY FOR
          REGISTERED SECURITIES

     There have been no material  modifications  in the constituent  instruments
defining  the  rights of the  holders of any class of the  Company's  registered
securities or any material  limitations in the rights  evidenced by any class of
the Company's registered securities.

                                     PART IV

Item 17.  FINANCIAL STATEMENTS

     Not Applicable.

Item 18.  FINANCIAL STATEMENTS

     Reference  is made to Item  19(a)  for a list of all  financial  statements
filed as part of this Annual Report on Form 20-F, which are hereby  incorporated
by this reference and made a part hereof.


                                      -26-
<PAGE>


Item 19.  FINANCIAL STATEMENTS AND EXHIBITS

     (a) The  following  Financial  Statements  are filed as part of this Annual
Report: Page

Report of Independent Auditors on the                                  F-1
Consolidated Financial Statements for Years Ended
December 31, 1998 and 1997

Report of Independent Auditors on the                                  F-2
Consolidated Financial Statements for Year Ended
December 31, 1996

Consolidated Balance Sheets at December 31, 1998 and 1997              F-3

Consolidated Statements of Operations for the Years
   Ended December 31, 1998, 1997 and 1996                              F-5

Consolidated Statements of Stockholders' Equity for
   the Years Ended December 31, 1998, 1997 and 1996                    F-6

Consolidated Statements of Cash Flows for the Years
   Ended December 31, 1998, 1997 and 1996                              F-7

Notes to Consolidated Financial Statements                             F-9

     (b) Financial Statements schedules.

          All schedules are omitted as they are not applicable.

     (c) There  are no  exhibits  filed  with this Form 20-F for the year  ended
December 31, 1998.



                                      -27-
<PAGE>


                                   SIGNATURES



     Pursuant to the  requirements  of Section 12 of the Securities and Exchange
Act of 1934, the registrant  certifies  that it meets all the  requirements  for
filing on Form 20-F and has duly caused  this annual  report to be signed on its
behalf by the undersigned, thereunto duly authorized.



                                     ELECTROCON INTERNATIONAL INC.


Date: July 31, 1999                  By: /s/ Edward Ting
                                        ----------------------------------------
                                         Edward Ting, President, Chief Executive
                                         Officer, Chief Operating Officer,
                                         Chief Financial Officer and
                                         Chairman of the Board








<PAGE>





















                          ELECTROCON INTERNATIONAL INC.

                        Consolidated Financial Statements
              For the years ended December 31, 1998, 1997 and 1996








<PAGE>



ELECTROCON INTERNATIONAL INC.


CONSOLIDATED FINANCIAL STATEMENTS






CONTENTS                                                                PAGE(S)



Independent Auditors' Report on the Consolidated Financial Statements
  for the years ended December 31, 1998 and 1997                              1


Independent Auditors' Report on the Consolidated
  Financial Statements for the year ended December 31, 1996                   2


Consolidated Balance Sheets at December 31, 1998 and 1997                 3 & 4


Consolidated Statements of Operations for the years
  ended December 31, 1998, 1997 and 1996                                      5


Consolidated Statements of Stockholders' Equity for the
  years ended December 31, 1998, 1997 and 1996                                6


Consolidated Statements of Cash Flows for the years
  ended December 31, 1998, 1997 and 1996                                  7 & 8


Notes to Consolidated Financial Statements                               9 - 22






<PAGE>





INDEPENDENT AUDITORS' REPORT

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF ELECTROCON INTERNATIONAL INC.

We have  audited the  accompanying  consolidated  balance  sheets of  Electrocon
International Inc. and its subsidiaries as of December 31, 1998 and 1997 and the
related  consolidated  statements of operations,  stockholders'  equity and cash
flows for the two years in the period ended December 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 auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material respects,  the financial position of Electrocon  International Inc. and
its  subsidiaries  at  December  31,  1998  and 1997  and the  results  of their
operations  and their cash flows for the two years in the period ended  December
31, 1998 in conformity  with  accounting  principles  generally  accepted in the
United States of America.





/s/ Deloitte Touche Tohmatsu
DELOITTE TOUCHE TOHMATSU
Hong Kong
June 15, 1999, except for note 19 as to which is dated July 1, 1999



                                      F-1


<PAGE>




INDEPENDENT AUDITORS' REPORT

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
ELECTROCON INTERNATIONAL INC.

We  have  audited  the  accompanying   consolidated  statements  of  operations,
stockholders'  equity and cash flows of  Electrocon  International  Inc. and its
subsidiaries  for the year ended December 31, 1996.  These financial  statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material respects,  the consolidated results of the operations and cash flows of
Electrocon  International  Inc. and its subsidiaries for the year ended December
31, 1996 in conformity  with  accounting  principles  generally  accepted in the
United States of America.





/s/ BDO Binder
BDO Binder
Hong Kong
July 14, 1997



                                      F-2
<PAGE>



ELECTROCON INTERNATIONAL INC.

<TABLE>
<CAPTION>

CONSOLIDATED BALANCE SHEETS
(Amounts stated in United States Dollars)

                                                                                                    December 31,
                                                                                             1998                  1997
ASSETS                                                                                       ----                  ----
<S>                                                                                      <C>                 <C>
Current assets
Cash and cash equivalents                                                               $     303,990         $     214,832
Restricted cash (Note 8)                                                                    3,956,385             3,714,374
Accounts receivable:
  - Trade, less allowance for doubtful accounts of
      $233,162 (1997: $180,193)                                                             3,866,119             5,153,691
  - Affiliated company, less allowance for doubtful accounts
      of $82,805 (1997: Nil)                                                                  280,146               428,903
  - Others                                                                                    220,275               156,055
Inventories (Note 3)                                                                        2,425,248             3,394,900
Costs in excess of billings on construction contracts (Note 4)                                153,808                  -
Prepaid expenses and deposits                                                                  81,479                61,624
Prepaid income taxes                                                                             -                   41,311
                                                                                          -----------           -----------

Total current assets                                                                       11,287,450            13,165,690

Property and equipment, net (Note 6)                                                          670,251             1,004,794

Investment in an affiliated company                                                             2,234               123,530

Investments in Golf Club memberships, at cost                                                 410,055                99,386

Intangible asset (Note 7)                                                                      98,773                  -
                                                                                          -----------           -----------


Total assets                                                                              $12,468,763           $14,393,400
                                                                                          -----------           -----------

</TABLE>




See notes to consolidated financial statements.



                                      F-3
<PAGE>



ELECTROCON INTERNATIONAL INC.

<TABLE>
<CAPTION>

CONSOLIDATED BALANCE SHEETS
(Amounts stated in United States Dollars)

                                                                                                    December 31,
                                                                                             1998                  1997
LIABILITIES AND STOCKHOLDERS' EQUITY                                                         ----                  ----
<S>                                                                                     <C>                   <C>
Current liabilities
Short-term borrowings (Note 8)                                                            $ 5,481,296           $ 5,766,319
Current portion of obligation under capital leases (Note 9)                                     9,744                 7,167
Loan from related party (Note 10)                                                             500,000                  -
Accounts payable and accrued expenses
  - Trade                                                                                   3,769,818             5,676,670
  - Others                                                                                    337,467               132,747
Billings in excess of costs on construction contracts (Note 5)                                 74,231               150,061
Amount due to director (Note 13)                                                              134,991               127,639
                                                                                          -----------           -----------


Total current liabilities                                                                  10,307,547            11,860,603

Obligations under capital leases, net of current portion (Note 9)                                -                    3,582

Deferred income taxes (Note 12)                                                                45,472                21,566
                                                                                          -----------           -----------

Total liabilities                                                                          10,353,019            11,885,751
                                                                                          -----------           -----------

Commitments and contingencies (Note 14)

Stockholders' equity
Common stock, par value $0.0001 per share;
  authorized 20,000,000 shares;
  issued and outstanding 1998: 7,460,420 shares
  and 1997: 7,160,420 shares                                                                      746                   716
Additional paid-in capital                                                                  6,223,997             5,942,627
Accumulated deficit                                                                        (4,071,655)           (3,398,350)
Foreign currency translation adjustment                                                       (37,344)              (37,344)
                                                                                          -----------           -----------


Total stockholders' equity                                                                  2,115,744             2,507,649
                                                                                          -----------           -----------

Total liabilities and stockholders' equity                                                $12,468,763           $14,393,400
                                                                                          -----------           -----------
</TABLE>



See notes to consolidated financial statements.




                                      F-4
<PAGE>



ELECTROCON INTERNATIONAL INC.

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts stated in United States Dollars)

                                                                                        Year ended December 31,
                                                                                1998             1997              1996
                                                                                ----             ----              ----
<S>                                                                          <C>               <C>              <C>
Net revenue                                                                  $22,338,588       $29,086,564      $53,510,211
Cost of sales                                                                 18,587,796        25,811,706       50,078,786
                                                                             -----------       -----------      -----------

Gross profit                                                                   3,750,792         3,274,858        3,431,425
Selling, administrative and general expenses                                   4,003,868         3,502,226        3,563,450
                                                                             -----------       -----------      -----------

Loss from operations                                                            (253,076)         (227,368)        (132,025)
Interest income                                                                  224,438           229,252          214,212
Interest expense                                                                (537,310)         (461,329)        (307,956)
Equity in loss of an affiliated company                                         (121,296)          (37,475)         (11,999)
Other income (Note 11)                                                            37,845           151,115           83,903
                                                                             -----------       -----------      -----------

Loss before income taxes                                                        (649,399)         (345,805)        (153,865)
Provision (credit) for income taxes (Note 12)                                     23,906            21,041         (106,086)
                                                                             -----------       -----------      -----------

Net loss                                                                    $   (673,305)     $   (366,846)    $    (47,779)
                                                                            ------------       -----------      -----------

Loss per share - basic                                                     $      (0.091)    $      (0.054)    $   (0.0073)
                                                                            ------------       -----------      -----------

Weighted average number of shares outstanding                                  7,370,009         6,780,844        6,624,211
                                                                            ------------       -----------      -----------
</TABLE>



See notes to consolidated financial statements.



                                      F-5
<PAGE>



ELECTROCON INTERNATIONAL INC.

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS  OF STOCKHOLDERS' EQUITY
(Amounts stated in United States Dollars)

                                                                                                     Foreign       Total
                                                 Common stock        Additional                     currency      stock-
                                             Shares                    paid-in      Accumulated    translation    holders'
                                           outstanding     Amount      capital        deficit      adjustment     equity

<S>                                        <C>             <C>       <C>           <C>             <C>          <C>
Balance at January 1, 1996                  6,624,211       $662      $4,970,888    $(2,983,725)    $(37,344)    $1,950,481

Loss for the year                                -          -               -           (47,779)        -           (47,779)
                                            ---------    -------       ---------     ----------      -------      ---------

Balance at December 31, 1996                6,624,211        662       4,970,888     (3,031,504)     (37,344)     1,902,702

Issuance of stock bonus
  to employees (Note 1)                        70,000          7          39,368           -            -            39,375

Stock issued in settlement
  of payable (Note 1)                         466,209         47         932,371           -            -           932,418

Loss for the year                                -          -               -          (366,846)        -          (366,846)
                                            ---------    -------       ---------     ----------      -------      ---------

Balance at December 31, 1997                7,160,420        716       5,942,627     (3,398,350)     (37,344)     2,507,649

Stock issued on purchase of
  business (Note 1)                           300,000         30         206,370           -            -           206,400

Issuance of warrant (Note 10)                    -          -             75,000           -            -            75,000

Loss for the year                                -          -               -          (673,305)        -          (673,305)
                                            ---------    -------       ---------     ----------      -------      ---------

Balance at December 31, 1998                7,460,420       $746      $6,223,997    $(4,071,655)    $(37,344)    $2,115,744
                                            ---------    -------       ---------     ----------      -------      ---------
</TABLE>



See notes to consolidated financial statements.



                                      F-6
<PAGE>


ELECTROCON INTERNATIONAL INC.

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts stated in United States Dollars)

                                                                                        Year ended December 31,
                                                                                1998             1997              1996
                                                                                ----             ----              ----
<S>                                                                        <C>                 <C>               <C>
Cash flows from operating activities:
Net loss                                                                   $    (673,305)      $  (366,846)      $  (47,779)
Adjustments to reconcile net loss
  to net cash provided by operating activities:
    Share of loss of an affiliated company                                       121,296            37,475           11,999
    Issuance of stock bonus to employees                                            -               39,375             -
    Issuance of warrant (Note 10)                                                 75,000              -                -
    Depreciation and amortization                                                149,230           142,852          161,350
    Gain on disposal of property and equipment                                   (31,786)             -              (5,959)
    Provision for doubtful debts                                                 135,774            28,039           86,333
    Deferred income taxes                                                         23,906            21,041          (65,382)
  Changes in assets and liabilities:
    Accounts receivable                                                          954,564          (975,005)        (776,564)
    Inventories                                                                  969,652         1,049,263         (945,884)
    Costs in excess of billings of construction contracts                       (153,808)          145,010          (92,171)
    Prepaid expenses and deposits                                                (19,496)           57,878           (4,522)
    Prepaid income taxes                                                          41,311            49,084          (90,395)
    Accounts payable and accrued expenses                                     (1,765,676)       (1,108,570)       1,870,002
    Billings in excess of costs on construction contracts                        (75,830)          150,061             -
    Income taxes payable                                                            -                 -            (253,035)
                                                                              ----------        ----------       ----------

Net cash used in operating activities                                           (249,168)         (730,343)        (152,007)
                                                                              ----------        ----------       ----------
Cash flows from investing activities:
  Purchase of business, net of cash acquired                                     100,557              -                -
  Proceeds from disposal of property and equipment                               338,214              -              18,846
  Additions to property and equipment                                            (68,050)          (45,102)        (109,392)
  Investment in affiliated company                                                  -                 -             (19,231)
                                                                              ----------        ----------       ----------

Net cash provided by (used in) investing activities                              370,721           (45,102)        (109,777)
                                                                              ----------        ----------       ----------

Balance carried forward                                                     $    121,553       $  (775,445)       $(261,784)
                                                                              ----------        ----------       ----------

                                                                                                           - 7 -



                                      F-7
<PAGE>



ELECTROCON INTERNATIONAL INC.

<CAPTION>

CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
(Amounts stated in United States Dollars)

                                                                                        Year ended December 31,
                                                                                1998             1997              1996
                                                                                ----             ----              ----

<S>                                                                          <C>                 <C>              <C>
Balance carried forward                                                      $   121,553         $(775,445)       $(261,784)
                                                                              ----------        ----------       ----------

Cash flows from financing activities:
Payment of obligations under capital leases                                      (12,713)         (109,939)        (171,296)
(Decrease) increase in short-term borrowings                                    (285,023)          812,785          205,440
Increase in restricted cash                                                     (242,011)         (220,865)        (341,998)
Advances from director                                                           134,991           127,639             -
Repayment of advances from director                                             (127,639)             -                -
Loan from related party                                                          500,000              -                -
                                                                              ----------        ----------       ----------

Net cash (used in) provided by financing activities                              (32,395)          609,620         (307,854)
                                                                              ----------        ----------       ----------

Net increase (decrease) in cash and cash equivalents                              89,158          (165,825)        (569,638)
Cash and cash equivalents at beginning of year                                   214,832           380,657          950,295
                                                                              ----------        ----------       ----------

Cash and cash equivalents at end of year                                     $   303,990         $ 214,832        $ 380,657
                                                                              ----------        ----------       ----------

Supplemental disclosure of cash flow information
Cash paid during the year for:
  Interest paid                                                              $   556,014        $  451,464        $ 310,132
  Income taxes (refund)                                                          (41,311)          (49,084)         302,727

Non cash transactions:
  Stock issued in settlement of payable                                      $      -           $  932,418        $    -
  Stock issued for purchase of business                                          206,400              -                -
  Property acquired under capital leases                                            -                 -              23,744
  Golf Club memberships acquired in lieu of settlement
     of account receivable                                                       313,000              -                -

Purchase of business:
  Fair value of assets acquired                                               $  121,037        $     -           $    -
  Stock issued                                                                  (206,400)             -                -
  Cash received                                                                   44,411              -                -
  Goodwill on purchase                                                           116,204              -                -
                                                                              ----------        ----------       ----------

  Liabilities assumed                                                         $   75,252        $     -          $     -
                                                                              ----------        ----------       ----------
</TABLE>


See notes to consolidated financial statements.



                                      F-8
<PAGE>


ELECTROCON INTERNATIONAL INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in United States Dollars)


         1.       ORGANIZATION AND ACTIVITIES

                  Electrocon  International Inc. ("the Company") is incorporated
         with limited liability in the British Virgin Islands.

                  The Company is a diversified,  Hong Kong-based holding company
         that conducts  operations  through its subsidiaries,  all wholly-owned,
         primarily  in two  separate  business  segments - the  distribution  of
         semiconductor   products   (primarily  computer  chips)  to  small  and
         medium-sized   manufacturers   located   in  the  Hong   Kong   Special
         Administrative  Region ("Hong Kong") of the People's  Republic of China
         ("PRC") and in other  regions of the PRC and the  distribution  of golf
         carts,  irrigation products and systems,  fertilizer and turf equipment
         to golf clubs in Hong Kong,  Macau and the PRC.  In 1995,  the  Company
         also  entered  into the  business  of  distributing  personal  computer
         related  products  through  its  50%  held  affiliated  company,  China
         Electrocon  Limited,  and, in 1996, began  distribution of non-personal
         computer related products.  China Electrocon  Limited became dormant in
         1998. China Electrocon Limited became dormant in 1998.

                  On June 10,  1997,  the Company  issued  70,000  shares of its
         common stock as bonuses to its  employees.  These shares were valued at
         $39,375 for the purpose of calculating stock  compensation to employees
         based on the  quoted  market  price of the  Company's  common  stock of
         $0.5625 on the date of issuance.

                  On September 30, 1997,  the Company  issued  466,209 shares of
         its  common  stock to a  creditor  at a price of $2 per  share  for the
         settlement of debt amounting to $932,148.

                  On April 10, 1998, the Company acquired the entire interest in
         Flownet Irrigation Service Company, an unincorporated  business in Hong
         Kong, for a total consideration of $161,989, which was satisfied by the
         issue of 300,000 shares of common stock less a cash adjustment received
         from the vendor of $44,411. The major activity of the acquired business
         is the provision of irrigation  engineering  services.  The acquisition
         has been  accounted for as a purchase and  accordingly,  the assets and
         liabilities  of the  acquired  business  have  been  recorded  at their
         estimated fair value at the date of acquisition. The excess of purchase
         price over the estimated fair value of the net assets acquired,  in the
         amount of $116,204, has been recorded as goodwill and is amortized over
         5 years.

                  The pro  forma  results  for  1997  and  1998,  assuming  this
         acquisition  had  been  made at the  beginning  of 1997,  would  not be
         materially different from the reported results for these years.

                  The consolidated  financial  statements of the Company and its
         subsidiaries  have been prepared in accordance with generally  accepted
         accounting  principles  in the United States of America  ("U.S.  GAAP")
         which differ from those used in the  statutory  accounts of most of its
         subsidiaries.  There are no material  differences between the U.S. GAAP
         amounts  and  the  amounts  used  in  the  statutory  accounts  of  the
         subsidiaries.



                                      F-9
<PAGE>


ELECTROCON INTERNATIONAL INC.


(Amounts stated in United States Dollars)

         2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

                  Principles of  consolidation  -  The  consolidated   financial
         statements  include  the accounts of the Company and its  subsidiaries.
         Intercompany    balances   and    transactions    are   eliminated   on
         consolidation.

                  Investments   in    affiliated  companies, owned  20%  to  50%
         inclusive, are accounted for using the equity method.

                  Cash and cash equivalents - Cash and cash equivalents  include
         cash on hand, cash accounts, interest bearing savings accounts and time
         certificate  of deposit  accounts  with an  original  maturity of three
         months or less.

                  Inventories   -   Inventories,   which   comprise   electronic
         components and spare parts held for resale,  are stated at the lower of
         cost  or  market  value.   Cost,  which  comprises  direct   materials,
         sub-contracting   charges  and  freight,   is   calculated   using  the
         weighted-average method.

                  Construction  contracts - Construction contracts are stated at
         cost plus estimated profit,  less provision for any foreseeable  losses
         and progress billings. Cost includes direct materials, direct labor and
         allocated  overhead  expenses.  Where  construction costs incurred plus
         aggregate estimated profits less foreseeable losses exceed the progress
         billings,  the  excess  is shown in the  balance  sheet  under  current
         assets. For contracts where progress billings exceed construction costs
         incurred plus aggregate  estimated profits less foreseeable losses, the
         excess amount is shown in the balance sheet under current liabilities.

                  Property and  equipment - Property and  equipment is stated at
         cost less accumulated depreciation. The costs of major improvements are
         capitalized  whereas the costs of maintenance  and repairs are expensed
         in the year incurred. Depreciation and amortization are provided on the
         declining  balance  method  except for  leasehold  land in the PRC held
         under long lease,  which is amortized on a straight-line  basis, at the
         following rates per annum:

               Leasehold land in the PRC held under long lease             2%
               Buildings erected thereon                                   2%
               Furniture, fixtures and office equipment             15% - 25%
               Motor vehicles                                             25%
               Motor vessels                                              15%
               Leasehold improvements                                     15%

                  Long lease is  defined  as a lease  having 50 or more years to
         run.

                  Valuation  of  long-lived  assets - The  Company  periodically
         evaluates the carrying value of long-lived  assets to be held and used,
         including  goodwill  and  other  intangible  assets,  when  events  and
         circumstances warrant such a review. The carrying value of a long-lived
         asset is considered  impaired when the  anticipated  undiscounted  cash
         flow from such asset is  separately  identifiable  and is less than its
         carrying value. In that event, a loss is recognized based on the amount
         by which  the  carrying  value  exceeds  the fair  market  value of the
         long-lived asset.  Fair market value is determined  primarily using the
         anticipated cash flows discounted at a rate  commensurate with the risk
         involved. Losses on long-lived assets to be  disposed of are determined



                                      F-10
<PAGE>


ELECTROCON INTERNATIONAL INC.


         in a similar manner, except that fair market values are reduced for the
         costs to dispose.


(Amounts stated in United States Dollars)


2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

                  Loss per share - Loss per share is  calculated  based upon the
         weighted  average number of common shares and common share  equivalents
         outstanding.  The dilutive  effect of share options and warrants  which
         are common share  equivalents  is calculated  using the treasury  stock
         method.  On March 3, 1997,  the Financial  Accounting  Standards  Board
         ("FASB") issued Statement of Financial  Accounting  Standards  ("SFAS")
         No. 128,  "Earnings  Per Share".  This  pronouncement  provides for the
         calculation  of basic and diluted  earnings per share.  The adoption of
         this new  standard  had no impact on the  Company.  The effect of stock
         options and  warrants on loss per share would be  anti-dilutive  and no
         diluted loss per share is disclosed.  The stock options  expired during
         the year ended December 31, 1998.

                  Revenue  recognition - The Company recognizes revenue from the
         sale of goods and  services at the time when  shipments of products and
         services  rendered are made to customers  and provides an allowance for
         estimated  costs  associated with returns of  non-conforming  products.
         Profits from construction contracts which are expected to last for over
         one year are  recognized  under  the  percentage-of-completion  method,
         using progress  billings in relation to estimated  total revenue of the
         contracts  to  measure  the stage of  completion.  Estimated  profit is
         recognized  only  when a  contract  is more than 20%  completed  at the
         balance sheet date.

                  Income taxes - Deferred income  taxes are  provided at enacted
         statutory  rates for temporary  differences resulting from  differences
         between the book and tax bases of assets and liabilities  in accordance
         with SFAS No. 109 "Accounting for Income Taxes".

                  Foreign  currency  translation  - Assets  and  liabilities  of
         foreign  subsidiaries are translated at year end exchange rates,  while
         revenues and expenses are translated at average currency exchange rates
         during  the  year.   Adjustments  resulting  from  translating  foreign
         currency  financial  statements are reported as a separate component of
         stockholders'   equity.   Gains  or  losses   from   foreign   currency
         transactions are included in the statement of operations.

                  Post-retirement  and  post-employment  benefits - The  Company
         does not provide  post-retirement  benefits,  other than pensions,  and
         post-employment benefits, if any, are not significant.

                  Stock-based  compensation  - The FASB  issued  SFAS  No.  123,
         "Accounting  for  Stock-Based  Compensation"  in October 1995. SFAS 123
         encourages  companies to adopt a fair value  approach to accounting for
         stock  options that would  require  compensation  cost to be recognized
         based on the fair  value of stock  options  granted.  The  Company  has
         elected,  as  permitted  by the  standard,  to  continue  to follow the
         intrinsic  value based method of accounting for stock options issued to
         employees consistent with Accounting  Principles Board (APB) Option No.
         25,  "Accounting  for Stock Issued to  Employees."  Under the intrinsic
         method,  compensation cost for stock options is measured as the excess,
         if any,  of the  quoted  market  price  of the  Company's  stock at the
         measurement date over the exercise price.


                                      F-11
<PAGE>


ELECTROCON INTERNATIONAL INC.


(Amounts stated in United States Dollars)


2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

                  Concentration  of credit risk - The Company sells to customers
         located in Hong Kong and other  regions of the PRC. The Company  grants
         credit to all  qualified  customers on an unsecured  basis but does not
         believe it is exposed to any undue  concentration of credit risk to any
         significant degree.

                  New  accounting  standards  adopted  - In  1999,  the  Company
         adopted  SFAS No. 130  "Reporting  comprehensive  Income",  SFAS No.131
         "Disclosures  about Segments of an Enterprise  and Related  Information
         and SFAS No. 132 "Employers'  Disclosures  about Pensions and the other
         Post-retirement Benefits".

                  SFAS No. 130, "Reporting  Comprehensive  Income",  establishes
         standards  for  reporting  and  display of  comprehensive  income,  its
         components and accumulated balances. Comprehensive income is defined to
         include all changes in equity except those  resulting from  investments
         by owners and distributions to owners.  Among other  disclosures,  SFAS
         No. 130  requires  that all items that are  required  to be  recognized
         under  current  accounting  standards as  components  of  comprehensive
         income be reported in a financial  statement that is displayed with the
         same  prominence as other financial  statements.  Since the Company did
         not have any items of other comprehensive income in the years reported,
         the net loss reported in the  consolidated  statements of operations is
         equivalent to total comprehensive loss.

                  SFAS No. 131, "Disclosures about Segments of an Enterprise and
         Related   Information",   which  supersedes  SFAS  No.  14,  "Financial
         Reporting for Segments of a Business Enterprise", establishes standards
         for the way that public  enterprises report information about operating
         segments in interim financial  statements issued to the public. It also
         establishes  standards for disclosures regarding products and services,
         geographic  areas and major customers.  SFAS No. 131 defines  operating
         segments as components of an enterprise about which separate  financial
         information  is  available  that is  evaluated  regularly  by the chief
         operating  decision maker in deciding how to allocate  resources and in
         assessing performance.  The adoption of SFAS No. 131 had no significant
         effect on disclosure.

                  SFAS No. 132, "Employers' Disclosures about Pensions and Other
         Post-retirement  Benefits",  amends  the  disclosure  requirements  for
         pensions and other post-retirement benefits.  Adoption of this standard
         did not change the Company's financial statement disclosures.

                  New  accounting  standard  not  yet  adopted  - The  Financial
         Accounting  Standards  Board  has  issued a new  standard  SFAS  No.133
         "Derivative Instruments and Hedging Activities". Management has not yet
         completed the analysis of the impact this would have on the financial
         statements of the Company.

                  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 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.


                                      F-12
<PAGE>


ELECTROCON INTERNATIONAL INC.


(Amounts stated in United States Dollars)


         3.       INVENTORIES

                  The components of inventories were as follows:

                                                   December 31,
                                            1998                  1997
                                            ----                  ----

         Finished goods                   $2,176,867            $2,501,729
         Raw materials and spare parts       248,381               893,171
                                          ----------            ----------

                                          $2,425,248            $3,394,900
                                          ----------            ----------

         4.       COSTS IN EXCESS OF BILLINGS ON CONSTRUCTION CONTRACTS

                  Costs in excess of billings on construction contracts included
the following:

                                                 December 31,
                                          1998                  1997
                                          ----                  ----

         Costs incurred                  $652,769             $   2,517
         Add: Estimated profit            265,864                13,637
                                         --------              --------

                                          918,633                16,154

         Less: Progress billings         (764,825)              (16,154)
                                         --------              --------

                                         $153,808             $    -
                                         --------              --------




                                      F-13
<PAGE>



ELECTROCON INTERNATIONAL INC.


(Amounts stated in United States Dollars)


         5.       BILLINGS IN EXCESS OF COSTS ON CONSTRUCTION CONTRACTS

                  Billings in excess of costs on construction contracts included
the following:

<TABLE>
<CAPTION>
                                                                          December 31,
                                                                   1998                  1997
                                                                   ----                  ----

<S>                                                              <C>                   <C>
         Costs incurred                                          $  59,614             $  10,730
         Add: Estimated profit                                      61,732                  -
                                                                  --------              --------

                                                                   121,346                10,730
         Less: Progress billings                                   195,577               160,791
                                                                  --------              --------
                                                                 $  74,231              $150,061
                                                                  --------              --------
</TABLE>



         6.       PROPERTY AND EQUIPMENT, NET
<TABLE>
<CAPTION>
                                                                         December 31,
                                                                  1998                  1997
                                                                  ----                  ----
<S>                                                            <C>                  <C>
         Cost
         Land and buildings held under long lease               $     -              $   314,920
         Furniture, fixtures and office equipment                  561,317               529,724
         Motor vessels                                             477,148               477,148
         Motor vehicles                                            254,425               185,952
         Leasehold improvements                                    115,714               128,535
                                                                 ---------             ---------

         Total                                                   1,408,604             1,636,279
         Less: Accumulated depreciation and amortization           738,353               631,485
                                                                 ---------            ----------

                                                                $  670,251            $1,004,794
                                                                 ---------            ----------
</TABLE>

    Included in property and equipment are the following  assets  acquired under
capital leases:

                                                             December 31,
                                                      1998              1997
                                                      ----              ----
         Cost
         Motor vehicles                               $54,282          $23,744
         Less: Accumulated amortization                15,938           10,447
                                                      -------          -------

                                                      $38,344          $13,297
                                                      -------          -------

                                      F-14
<PAGE>


ELECTROCON INTERNATIONAL INC.


(Amounts stated in United States Dollars)

                  Motor  vessels with net book values  amounting to $268,518 and
         $315,903 as of December 31, 1998 and 1997, respectively, are registered
         in the name of a third party as trustee for the Company.


         7.       INTANGIBLE ASSET
                                                            December 31,
                                                       1998             1997
                                                       ----             ----

         Goodwill on purchase of business (note 1)    $ 116,204       $     -
         Less: Amortization                              17,431             -
                                                      ---------        ---------

                                                      $  98,773       $     -
                                                      ---------        ---------

         8.       SHORT-TERM BORROWINGS

                  The  outstanding  amounts at the balance sheet dates represent
         overdrafts,  letters of credit and trust  receipts  loan  balances with
         various banks.  The facilities and the amounts  utilized at the balance
         sheet dates are as follows:
<TABLE>
<CAPTION>
                                                                     December 31,
                                                              1998                  1997
                                                              ----                  ----
<S>                                                         <C>                   <C>
         Credit facilities granted                          $6,089,744            $6,243,590
                                                             ---------             ---------


         Utilized                                           $5,481,296            $5,766,319
                                                             ---------             ---------

         Weighted average interest rate on borrowings
           at end of year                                        10.8%                  9.8%
                                                             ---------             ---------
</TABLE>

                  The Company  maintains  short-term  bank credit  lines in Hong
         Kong for use in its  operations  in Hong Kong and other  regions of the
         PRC.  Interest  rates are  generally  based on the banks' prime lending
         rates,  and cost of funds and the credit lines are normally  subject to
         annual review.  At December 31, 1998 the above banking  facilities were
         secured by bank deposits of approximately $3.9 million. In addition, at
         December 31, 1998 a director has pledged  personal  bank  deposits to a
         bank as collateral for facilities of approximately  $2,948,718 provided
         to the Company of which  approximately  $2,660,689  was utilized at the
         balance  sheet  date.  No  charges  have  been made in  respect  of the
         provision of the collateral.


                                      F-15
<PAGE>


ELECTROCON INTERNATIONAL INC.


(Amounts stated in United States Dollars)


         9.       OBLIGATIONS UNDER CAPITAL LEASES

                  Obligations under capital leases consist of the following:
<TABLE>
<CAPTION>
                                                                                      December 31,
                                                                               1998                  1997
                                                                               ----                  ----
<S>                                                                         <C>                    <C>
         Capital leases at 7.25% per annum, due in
           installments to June 1999                                         $   3,582                10,749
         Capital lease at 12.75% per annum, due in
           installments to October 1999                                          6,162                  -
                                                                              --------              --------

                                                                                 9,744                10,749
         Less: Current portion of obligations under capital leases               9,744                 7,167
                                                                              --------              --------


                                                                             $    -                 $  3,582
                                                                              --------              --------
</TABLE>

         10.      LOAN FROM RELATED PARTY

                  In March 1998, a subsidiary  of the Compay  obtained a standby
         letter of credit for one of its  suppliers  from a bank.  The letter of
         credit was  collateralized by a security interest in a $500,000 deposit
         owned by Glas-Aire Industries Group Ltd.  ("Glas-Aire").  At that time,
         Mr. Edward Ting was Chief Executive  Officer,  Chairman of the Board of
         Directors and a principal shareholder of Glas-Aire and Chris G. Mendrop
         and Clement Cheung were directors of Glas-Aire.  As  consideration  for
         Glas-Aire  agreeing to provide the  security  for the letter of credit,
         the  Company  agreed  as  follows:  (i)  issue to  Glas-Aire  a warrant
         exercisable  for a period of five years from March 25, 1998 to purchase
         250,000  shares of the Company's  Common Stock at an exercise  price of
         $1.00 per share  during  the first  year,  $1.10 per share  during  the
         second  year,  $1.20 per share  during the third year,  $1.50 per share
         during the fourth year and $1.75 per share during the fifth year;  (ii)
         to pay  Glas-Aire  a fee  in the  amount  of 1% of the  collateral,  or
         $5,000,  payable in advance for the six month  period  beginning on the
         date the letter of credit was issued by the bank and an additional  fee
         of 1%, also payable in advance,  for the six-month  period  immediately
         following the initial six-month period, if the collateral  continued to
         be utilized for the letter of credit,  with the understanding  that the
         collateral  would be made available by Glas-Aire to  collateralize  the
         letter of credit  for a period  not to exceed  one year;  and (iii) the
         pledge to Glas-Aire by Mr. Ting of all shares of Glas-Aire common stock
         owned by him, his wife or under his control. The Company has recognized
         expense of $75,000 in 1998 in respect of the warrant. In November 1998,
         the  Company  defaulted  on the  letter of credit and  $250,000  of the
         collateral  was  seized,  resulting  in the Company  being  indebted to
         Glas-Aire in the amount of $250,000. In December 1998, Glas-Aire made a
         loan to the Company in the principal amount of $500,000 and $250,000 of
         the loan proceeds was used to repay Glas-Aire for the seized collateral
         for the letter of credit. This loan was evidenced by a promissory note,
         bore interest at the rate of 10% per annum,  unless a default  occurred
         in which case the interest  rate would  increase to 12% and was payable
         on demand.  The loan was  secured by a first  priority  lien on 212,331
         shares of Glas-Aire  common stock owned by Mr. Edward Ting and a second
         priority lien on the remaining 301,584 shares of Glas-Aire common stock
         owned by Edward  and Viola Ting which had  previously  been  pledged to
         secure the letter of credit arrangement. In April 1999, Mr. Edward Ting
         purchased the promissory  note from Glas-Aire in order to enable him to
         sell his  Glas-Aire  shares  which were  encumbered  by the debt.  As a
         result,  the  Company  is now  indebted  to Mr.  Ting in the  amount of
         $500,000, plus interest. In addition, Glas-Aire transferred the warrant
         to Mr. Ting.


                                      F-16
<PAGE>


ELECTROCON INTERNATIONAL INC.

         11.      OTHER INCOME
                                               Years ended December 31,
                                        1998           1997            1996
                                        ----           ----            ----
         Foreign exchange gain         $   -          $  64,668        $37,418
         Other                           37,845          86,447         46,485
                                       --------        --------       --------

                                       $ 37,845        $151,115        $83,903
                                       --------        --------       --------

         12.      INCOME TAXES

                  Under  current  law,  the  Company's  income is not subject to
         taxation in the British  Virgin  Islands.  The Hong Kong  subsidiaries'
         income tax  provision  has been  calculated  by applying  the Hong Kong
         statutory  income tax rates of 16%, 16.5% and 16.5% for the years ended
         December 31, 1998, 1997 and 1996 to the subsidiaries' estimated taxable
         income  which was  earned in or  derived  from  Hong  Kong  during  the
         respective years. Each company in Hong Kong files a separate tax return
         and tax  losses are  available  only  against  that  company's  taxable
         income.  The Company is not  subject to income tax in other  regions of
         the PRC.

                  The  provision for  income taxes represents Hong Kong taxation
         as follows:

<TABLE>
<CAPTION>
                                                            Years ended December 31,
                                                     1998             1997              1996
                                                     ----             ----              ----
<S>                                                   <C>               <C>             <C>
        Current year provision                     $   -             $   -           $    -
        Overprovision in prior years                   -                 -             (40,704)
                                                    --------          --------         --------
                                                        -                 -             (40,704)
        Deferred tax provision (credit)               23,906            21,041          (65,382)
                                                    --------          --------         --------
        Provision (credit) for income taxes         $ 23,906          $ 21,041        $(106,086)
                                                    --------          --------         --------
</TABLE>

                  A  reconciliation  of income  tax  provision  (credit)  to the
         amount computed by applying the Hong Kong statutory income tax rates to
         (loss)  income before  income taxes in the  consolidated  statements of
         operations is as follows:
<TABLE>
<CAPTION>
                                                                               Years ended December 31,
                                                                        1998             1997              1996
                                                                        ----             ----              ----
<S>                                                                    <C>               <C>            <C>
         Hong Kong statutory tax rate                                       16%             16.5%            16.5%

         Income tax at Hong Kong statutory
           rate on pre-tax loss                                        $(72,237)         $(71,080)      $  (22,252)
         Over-provision of tax in prior year                               -                 -             (40,703)
         Operating loss (profit) not subject to income tax               96,143            92,121          (40,325)
         Other                                                             -                 -              (2,806)
                                                                       --------          --------         --------
                                                                       $ 23,906          $ 21,041        $(106,086)
                                                                       --------          --------         --------
</TABLE>


                                      F-17
<PAGE>


ELECTROCON INTERNATIONAL INC.


(Amounts stated in United States Dollars)

     At  the balance sheet date,  the major  components  of deferred  income tax
         liabilities are as follows:
                                                     December 31,
                                              1998                  1997
                                              ----                  ----

         Tax loss carry forwards            $ 245,092              $151,489
         Depreciation                         (64,681)              (89,110)
         Valuation allowances                (225,883)              (83,945)
                                             --------              --------

         Deferred income tax liability       $(45,472)             $(21,566)
                                             --------              --------

                At December  31,  1998 the Company had tax losses of  $1,531,822
        which are available for carry forward indefinitely.

         13.      RELATED PARTY TRANSACTIONS

                Related  party  transactions  not  described  elsewhere in these
        financial statements are as follows:

                  a)  The   Company   has   provided  a  director   with  leased
                  accommodation  on a monthly  basis for his use since 1992 at a
                  monthly rental of approximately $2,000.

                  b)  The  Company  leases  residential   accommodation  from  a
                  director at a monthly rental of  approximately  $2,821 under a
                  lease which is renewable on an annual basis.  Rental  expenses
                  amounted  to $33,846,  $33,846  and $33,846 in 1998,  1997 and
                  1996, respectively.

                  c) In 1997,  the Company  issued  70,000  shares of its common
                  stock as bonus to its employees and a director received 20,000
                  of those shares.

                  d) In 1997,  a  director  advanced  $127,639,  to the  Company
                  bearing  interest at 10% per annum.  The advance was repaid in
                  1998.

                  e) In 1998,  another director advanced $134,991 to the Company
                  interest-free without repayment terms.

                  f)  At  December  31,  1998,  a  director  has  also  provided
                  collateral for banking  facilities  provided to the Company as
                  detailed in Note 8.

                  g) Sales by the  Company to China  Electrocon  Limited,  a 50%
                  held  affiliate,  totalled  $Nil in 1998,  $81,000  in 1997and
                  $950,416 in 1996.




                                      F-18
<PAGE>


ELECTROCON INTERNATIONAL INC.


(Amounts stated in United States Dollars)

         14.      OPERATING LEASE COMMITMENTS

                  The Company leases  premises under  operating  leases expiring
         through  September  2001.  Rental  expense under  operating  leases was
         $170,788 in 1998, $219,679 in 1997 and $252,524 in 1996. As of December
         31, 1998, future minimum rental payments under operating leases were as
         follows:

               1999                      $159,006
               2000                       110,128
               2001                        58,686
                                         --------

         Total minimum lease payments    $327,820
                                         --------

         15.      STOCK OPTION PLANS

                  In  July  1995,  the  Company  granted  stock  options  to its
         employees to purchase up to 325,017  shares of common stock.  Under the
         plan, a maximum of 108,339  shares of common stock may be acquired at a
         price of $1 per share  within the period from July 28, 1995 to December
         31, 1996;  a maximum of 108,339  shares of common stock may be acquired
         at a price of $1.25 per  share  within  the  calendar  year  commencing
         January 1, 1997; and a maximum of 108,339 shares of common stock may be
         acquired  at a price  of $1.50  per  share  within  the  calendar  year
         commencing  January  1,  1998.  The right to  acquire  these  shares is
         cumulative and non-assignable. These options expire upon termination of
         employment  with the Company.  No stock  compensation  to employees was
         calculated  as the  exercise  price was in excess of the quoted  market
         price  for the  Company's  common  stock  ($0.3125)  on the date  these
         options were first granted.

                  In August 1995,  the Company also granted stock options to its
         shareholders,  some of whom are officers,  to purchase 1,900,000 shares
         of common  stock at a price of $1.50.  Under  the  plan,  a maximum  of
         633,334  shares of common stock may be acquired  within the period from
         August 22, 1995 to December 31,  1996,  a maximum of 633,333  shares of
         common  stock may be  acquired  within  the  calendar  year  commencing
         January 1, 1997; and a maximum of 633,333 shares of common stock may be
         acquired within the calendar year commencing January 1, 1998. The right
         to acquire the shares is cumulative and may be assigned.

                  The following summarizes the stock options outstanding:

                                      Number                Average
                                     of shares             exercise
                                                             price

         At January 1, 1996           2,225,017              $1.46
         Expired                       (741,673)              1.43
                                      ---------              -----

         December 31, 1996            1,483,344               1.48
         Expired                       (741,672)              1.46
                                      ---------              -----

         December 31, 1997              741,672              $1.50
         Expired                       (741,672)              1.50
                                      ---------              -----
         December 31, 1998                 -               $   -
                                      ---------              -----



                                      F-19
<PAGE>


ELECTROCON INTERNATIONAL INC.


(Amounts stated in United States Dollars)


                  The  grant-date  fair value of the options  granted in 1995 is
         estimated to be $0.07 per share using the Black-Scholes  option pricing
         model with the  following  assumptions:  (a)  risk-free  interest  rate
         5.56%;  (b) expected  life - 2 years (c)  expected  volatility - 91.1%;
         expected dividend yield - Nil.

                  The  Company has  accounted  for the stock  options  using the
         intrinsic value method. As the effect on net income,  basic and diluted
         earnings per  share is  insignificant had the  Company adopted the fair
         value  based  method  of  accounting  for  stock  options,  no separate
         disclosure is noted.

         16.      EMPLOYEE BENEFIT PLAN

                  Commencing  January 1996 the employees of the entities located
         in Hong Kong are covered under a defined contribution plan covering all
         full-time  monthly-paid  permanent  staff under the  employment  of the
         entities   located  in  Hong  Kong.   The  plan   provides  for  annual
         contributions  by  the  Company  of  5%  of  eligible  compensation  of
         employees based on length of service.

                  The expense related  to the above  plan was  $26,037  in 1998,
         $33,319 in 1997 and $36,897 in 1996.


         17.      SUPPLEMENTARY INFORMATION

                  Movements on allowances for doubtful accounts are as follows:
<TABLE>
<CAPTION>

                                                                     Balance at            Charged to              Balance
                                                                      beginning             cost and               at end
                                                                       of year              expenses               of year

<S>                              <C>                                    <C>                  <C>                   <C>
         Year ended December 31, 1998                                   $180,193             $135,774              $315,967
                                                                        --------             --------              --------

         Year ended December 31, 1997                                   $152,154             $ 28,039              $180,193
                                                                        --------             --------              --------

         Year ended December 31, 1996                                  $  65,821             $ 86,333              $152,154
                                                                        --------             --------              --------
</TABLE>

         18.      FAIR VALUE OF FINANCIAL INSTRUMENTS

                  The  following  disclosure  of the  estimated  fair  value  of
         financial  instruments is made in accordance  with the  requirements of
         SFAS No. 107 "Disclosures  About Fair Value of Financial  Instruments".
         The estimated  fair value amounts have been  determined by the Company,
         using  available   market   information   and   appropriate   valuation
         methodologies.  The  estimates  presented  herein  are not  necessarily
         indicative  of the amounts that the Company  could realize in a current
         market  exchange.  The carrying  amounts of cash and cash  equivalents,
         inventories,  accounts  receivable,  accounts  payable  and  short-term
         borrowings are reasonable estimates of their fair value.

                                      F-20
<PAGE>


ELECTROCON INTERNATIONAL INC.


(Amounts stated in United States Dollars)


         19.      SUBSEQUENT EVENT

                           In July  1999,  the  Company  entered  into a license
         agreement with an unaffiliated third party which grants it the right to
         manufacture,  use and sell certain  technology  in exchange for 250,000
         shares  of  the  Company's   common  stock.   Management  is  currently
         investigating the feasibility of pursuing this business opportunity.

         20.      SEGMENT INFORMATION

                  The  Company's   operations   comprise  the   distribution  of
         electronic  components  in  Hong  Kong  and  the  distribution  of golf
         equipment  and  installation  of golf course  irrigation  and  drainage
         systems in Hong Kong and in other regions of the PRC. The  geographical
         and  industrial  distribution  of sales,  operating  income  (loss) and
         assets,  major customers and suppliers for the years ended December 31,
         1998, 1997 and 1996 are shown as follows:

                  Geographical segments
<TABLE>
<CAPTION>
                                                                          Other
                                                                       regions of
                                                  Hong Kong              the PRC                Total
<S>                                               <C>                  <C>                   <C>
         Year ended December 31, 1998:

         Net revenues                             $10,557,498          $11,781,090           $22,338,588
         Operating income (loss)                       93,676             (346,752)             (253,076)
         Total assets                               8,741,455            3,727,308            12,468,763
         Long-lived assets                            646,157              532,922             1,179,079
                                                  -----------          -----------           -----------
         Year ended December 31, 1997:

         Net revenues                             $16,438,529          $12,648,035           $29,086,564
         Operating income (loss)                       66,811             (294,179)             (227,368)
         Total assets                               8,864,269            5,529,131            14,393,400
         Long-lived assets                            921,216              182,964             1,104,180
                                                  -----------          -----------           -----------
         Year ended December 31, 1996:

         Net revenues                             $43,870,274           $9,639,937           $53,510,211
         Operating income (loss)                      815,173             (947,198)             (132,025)
         Total assets                              12,515,969            2,311,885            14,827,854
         Long-lived assets                          1,022,512              179,418             1,201,930
                                                  -----------          -----------           -----------
</TABLE>



                                      F-21
<PAGE>


ELECTROCON INTERNATIONAL INC.


(Amounts stated in United States Dollars)


         20.      SEGMENT INFORMATION - continued

                  Business segments
<TABLE>
<CAPTION>
                                              Distribution          Distribution
                                               and sale of        and installation
                                             semi-conductors           of golf
                                             and electronic           equipment
                                               spare parts           and systems              Total
<S>                                           <C>                  <C>                   <C>
         Year ended December 31, 1998:

         Net revenues                           $16,698,983           $5,639,605           $22,338,588
         Operating income (loss)                     91,266             (344,342)             (253,076)
         Total assets as of December 31           9,138,068            3,330,695            12,468,763
         Capital expenditure                         18,798               49,252                68,050
         Depreciation and amortization               97,453               51,777               149,230
                                                -----------          -----------           -----------

         Year ended December 31, 1997:

         Net revenues                                                $23,151,881           $5,934,683           $29,086,564
         Operating income (loss)                                          61,950             (289,318)             (227,368)
         Total assets as of December 31                               10,333,770            4,059,630            14,393,400
         Capital expenditure                                              22,263               22,839                45,102
         Depreciation                                                    115,232               25,289               140,521
                                                                     -----------          -----------           -----------

         Year ended December 31, 1996:

         Net revenues                                                $47,679,740           $5,830,471           $53,510,211
         Operating income (loss)                                        (446,329)             314,304              (132,025)
         Total assets as of December 31                               11,768,643            3,059,211            14,827,854
         Capital expenditure                                              80,521               52,615               133,136
         Depreciation                                                    133,562               25,457               159,019
                                                                     -----------          -----------           -----------
</TABLE>

                  Major customers and suppliers

                  No single  customer  accounted  for 10% or more of total sales
         for the years ended  December 31, 1998,  1997 and 1996.  The  Company's
         principal suppliers are Texas Instruments Asia Limited,  Zilog Inc. and
         TDK Semiconductor Corporation which represented, respectively, 32%, 25%
         and 15% in 1998 and 47%,  13% and 12% in 1997 of total  purchases.  The
         Company's  principal  supplier is Texas  Instruments Asia Limited which
         represented 87% in
         1996 of total purchase.



                                      F-22
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SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 20-F

[ ]  REGISTRATION  STATEMENT  PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
     EXCHANGE ACT OF 1934 OR

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

For the fiscal year ended December 31, 1998

                                       OR

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

                         Commission File Number: 0-17250

                          ELECTROCON INTERNATIONAL INC.
             (Exact name of Registrant as specified in its charter)

                             British Virgin Islands
                 (Jurisdiction of incorporation or organization)

                                Prosperity Centre
                                  8/F, Block B
                             77 Container Port Road
                                   Kwai Chung
                           New Territories, Hong Kong
                    (Address of principal executive offices)

     Securities  registered or to be registered pursuant to Section 12(b) of the
Act: NONE

     Securities  registered pursuant to Section 12(g) of the Act: Common Shares,
$0.0001 par value per share

     Securities  for which there is a reporting  obligation  pursuant to Section
15(d) of the Act: NONE

     Indicate the number of outstanding  shares of each of the Issuer's  classes
of capital or common  stock as of the close of the period  covered by the annual
report:  7,460,418 Common Shares, par value $0.0001, were issued and outstanding
as of December 31, 1998.

     Indicate by check mark  whether the  registrant:  (i) 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 (ii) has been subject to such
filing requirements for the past 90 days.

                          Yes [X]    No [ ]

     Indicate by check mark which  financial  statement  item the Registrant has
elected to follow:
                         Item 17 [ ] Item 18 [X]
TABLE OF CONTENTS

                                     Part I                                 Page
                                                                            ----

Item 1    Description of Business............................................  1
Item 2    Description of Property............................................ 14
Item 3    Legal Proceedings.................................................. 15
Item 4    Control of Registrant.............................................. 15
Item 5    Nature of Trading Market........................................... 16
Item 6    Exchange Controls and Other Limitations Affecting Security
                Holders...................................................... 16
Item 7    Taxation........................................................... 17
Item 8    Selected Financial Data............................................ 17
Item 9    Management's Discussion and Analysis of Financial
                Condition and Results of Operations.......................... 21
Item 10   Directors and Officers of Registrant............................... 27
Item 11   Compensation of Directors and Officers............................. 28
Item 12   Options to Purchase Securities from Registrant or Subsidiaries..... 29
Item 13   Interest of Management in Certain Transactions..................... 29

                                     Part II

Item 14   Description of Securities to be Registered......................... 32

                                    Part III

Item 15   Defaults upon Senior Securities.................................... 32
Item 16   Changes in Securities and Changes in Security for
                Registered Securities........................................ 32

                                     Part IV

Item 17   Financial Statements............................................... 32
Item 18   Financial Statements............................................... 32
Item 19   Financial Statements and Exhibits.................................. 32

     This Annual Report on Form 20-F contains forward-looking statements.  These
statements  are  subject to certain  risks and  uncertainties  that could  cause
actual   results   to  differ   materially   from  those   anticipated   in  the
forward-looking statements.  Factors that might cause such a difference include,
but are not limited to, those  discussed in the section  entitled "Risk Factors"
under Item 1 - "Description of Business."

                                       ii
Readers  should not place  undue  reliance on  forward-looking  statements,
which reflect  management's view only as of the date of this Report. The Company
undertakes no obligation to publicly revise these forward-looking  statements to
reflect subsequent events or circumstances. Readers should also carefully review
the risk factors  described in other  documents  the Company  files from time to
time with the Securities and Exchange Commission.

                                       iii
PART I

Item 1.  DESCRIPTION OF BUSINESS

     As used in this Annual Report,  "China" refers to all parts of the People's
Republic of China other than the Special Administrative Region of Hong Kong. The
term "Company" refers to Electrocon International Inc. and, where the context so
requires or suggests, its direct and indirect subsidiaries.

The Company

     Electrocon  International  Inc. ("the  Company") was  incorporated in March
1988 as a limited liability International Business Company under the laws of the
British  Virgin Islands to serve as a holding  company for the Company's  wholly
owned subsidiary,  Electrocon Products Limited ("EPL"), a Hong Kong corporation.
As an  International  Business  Company,  the Company is  prohibited  from doing
business with persons  resident in the British Virgin Islands,  from owning real
estate in the British  Virgin  Islands  and from  acting as a bank or  insurance
company.  The Company was incorporated in the British Virgin Islands principally
to facilitate trading in its shares. The government of Hong Kong imposes duty on
the transfer of securities of Hong Kong corporations. No such duty is imposed by
the British  Virgin  Islands,  and the Company is also exempt from income tax in
the British Virgin Islands. The Company's corporate  administrative  matters are
conducted  through  its  registered  agent,  CITCO  Trust  Corporation  Limited,
Wickhams Cay, P. O. Box 662, Road Town,  Tortola,  British Virgin  Islands.  The
Company's  principal  executive offices are located at Prosperity  Centre,  8/F,
Block B, 77  Container  Port  Road,  Kwai  Chung,  New  Territories,  Hong Kong;
telephone: 852-2481-6022; facsimile: 852-2481-5804.

     The Company is a diversified, Hong Kong-based holding company that conducts
operations through its subsidiaries  primarily in two separate business segments
-- the  distribution of  semiconductor  products  (primarily  computer chips) to
small  and  medium-sized  manufacturers  located  in Hong Kong and China and the
distribution of golf carts, irrigation products and systems, fertilizer and turf
equipment to golf clubs in Hong Kong, Macau and China. In 1995, the Company also
entered the business of distributing personal computer products,  and in 1996 it
entered the business of distributing non-personal computer related products.

     The Company's  principal operating entities are Electrocon Products Limited
("EPL"),  Electrocon  (PRC) Limited  ("EPRC") and Bothgreat  Technology  Limited
("Bothgreat") Another affiliate - China Electrocon Ltd. ("CEL") - became dormant
in 1998.

Electrocon Products Limited

     EPL,  the  operating  entity  through  which the Company  conducts its chip
distribution business, was incorporated under the laws of Hong Kong as a limited
liability company in 1978 and became a wholly-owned subsidiary of the Company in
May 1988. (See "Computer Chip  Distribution  Business.") EPL's total 1998 sales,
including sales to affiliates,  were approximately $16,519,452, on which its net
income  was  $27,910.  EPL sells the chips  produced  by a number of  well-known
semiconductor producers to small and medium-sized manufacturers in Hong Kong and
China. EPL serves as a distributor for Texas Instruments Asia Limited ("TI HK"),
the Hong Kong  subsidiary  of Texas  Instruments  Incorporated,  to sell TI HK's

                                      -1-
broad-based  semiconductor product lines in the Hong Kong market. TI HK supplied
approximately  87% of the  computer  chips sold by the Company in the year ended
December 31, 1996. During 1997, the Company experienced a decline in the margins
relating  to the DRAM  product  line of  computer  chips  purchased  from TI HK.
Accordingly,  in order to avoid exposure to volatile  prices and other high risk
factors  associated  with the DRAM product  line  supplied by TI HK, the Company
made a strategic decision to drop that product.  As a result, the Company bought
only 47% of its chips from TI HK in 1997 and 36% of its chips in 1998.  EPL also
serves as the distributor for Zilog, Inc., Linfinity  Microelectronics  Inc. and
TDK Semiconductor  Corporation in Hong Kong and China. The Company has continued
to expand  the  number of  semiconductor  manufacturers  it  represents  and the
variety of chips it sells. See "Computer Chip Distribution Business."

Electrocon (PRC) Limited

     EPRC,  a Hong  Kong  corporation,  was  formed  in 1993  as a  wholly-owned
subsidiary of EPL for the purpose of marketing and  distributing  the TI line of
chips in China.  The  function of the EPRC liaison  office,  which is located in
Shenzhen,  China,  is to contact new customers and take orders on behalf of EPL.
EPRC does not directly sell chips to these customers,  as such an arrangement is
not  legal  in China  unless  the  Company  forms a joint  venture  with a local
corporation or person.  EPRC's total 1998 sales,  including sales to affiliates,
were approximately $8,523, and it incurred a net loss of approximately $176,275.

Bothgreat Technology Limited

     In 1993, EPL acquired 90% of the now-outstanding common stock of Bothgreat,
a Hong Kong  corporation,  from two officers and  directors of the Company.  EPL
subsequently acquired the remaining 10% of Bothgreat. Bothgreat is a distributor
of golf course  irrigation  products and systems and turf equipment for sales in
Hong  Kong,  Macao  and  China.  During  1998,   Bothgreat's  total  sales  were
$5,639,605, and its net loss was $344,342.

China Electrocon Ltd.

     On August 2, 1995,  EPRC entered into a  Partnership  Agreement  with Segos
Electronics (HK) Limited ("Segos"),  a non-affiliate,  to develop CEL as a joint
venture subsidiary organized in China. CEL is 50% owned by EPRC and 50% owned by
Segos.  CEL distributes  personal  computer  products and had a network of seven
branches in China.  During 1998,  EPRC's share of net loss in 1998 was $121,296.
CEL became dormant in 1998.

Computer Chip Distribution Business

     The  Company,   principally  through  EPL  and  EPRC,  is  engaged  in  the
distribution and sale of computer chips in Hong Kong and China. The Company acts
as agent or distributor for a number of well-known  semiconductor  manufacturers
in Hong  Kong,  the  United  States  and  elsewhere.  The  Company's  customers,
primarily  small and  medium-sized  manufacturers  or traders,  all of which are
located  in Hong  Kong and  China,  use the  chips in a  variety  of  electronic
products, principally personal computers and consumer electronics products. This
segment of the  Company's  business  accounted  for  approximately  74.8% of its

                                      -2-
operating  revenues  for the year ended  December 31,  1998.  Management  of the
Company intends to continue their efforts to reduce the Company's  dependence on
commodity chips used in the  manufacture of clocks and other commodity  products
and to concentrate on more  profitable  lines of chips.  See See "Suppliers" and
"Competition."

     The Company sells  hundreds of types of chips,  from  standard  "commodity"
chips,  which account for  approximately  35% of the revenues derived from chips
sold by the Company, to "high-tech"  microprocessors.  "Commodity" chips include
various large volume and low technology  content chips.  The group of custom and
semi-custom  chips,  which  includes  ASICs  (application   specific  integrated
circuits),  programmable logic devices,  standard cell components and chips with
gate arrays,  accounts for  approximately  65% of the chips sold by the Company.
There was no shortage of chips in 1998, and there was a continuous supply of all
variety of chips.

                                      -3-
Customers and Marketing

     The Company's  chip  customers,  all in Hong Kong and China,  are primarily
small and medium-sized manufacturers and traders who purchase chips for use in a
variety of electronic  products.  These products include personal  computers and
peripherals (approximately 20%), consumer electronics,  including voice prom and
optocouplers  (approximately  45%),  telecommunications  (approximately 30%) and
others  (approximately 5%). The Company supplies over 500 customers in Hong Kong
and 280 customers in China, with no individual chip customer accounting for over
10% of the Company's 1998 chip sales.  Total sales of chips and electronic spare
parts were $16,473,418  during 1998 compared to $23,151,881 in 1997. The decline
in the Company's revenues from its semiconductor  business in 1998 was primarily
due to the  elimination  in 1997 of the DRAM  product  line of chips  previously
supplied by TI HK. See "Suppliers," below.

     As no single  customer  accounted for more than 10% of the  Company's  chip
sales during 1998, the Company believes that the loss of a single customer would
not have a material adverse impact on its revenues and earnings.

     The Company  estimates  that the worldwide  semiconductor  industry grew in
1998 by  approximately  14%,  while the  semiconductor  industry in Hong Kong is
estimated to have grown by  approximately  2.8%. The Company's  revenue from its
chip business declined by approximately 27.9% during 1998, primarily as a result
of its elimination of TI HK's DRAM product line. (See  "Suppliers,"  below.) The
Company  forecasts  that chip demand will continue to grow in the entire Eastern
Asian region and that China will offer the greatest  potential for growth during
the next  several  years.  The  Company  has  established  a  liaison  office in
Shenzhen, PRC with the intent of benefiting from opportunities that may arise in
China.

     For the most part, advertising and market promotion expenses for particular
products  for which the Company acts as a  distributor  are incurred by the chip
manufacturers  who  supply the chips to the  Company.  The  Company's  costs for
marketing such products are thus minimal.

Suppliers

     In Hong Kong,  the  Company  represents,  either as  distributor  or agent,
several of the world's largest semiconductor manufacturers. The Company has done
business with TI HK for over 16 years. TI HK supplied  approximately  87% of the
computer chips sold by the Company in the year ended  December 31, 1996.  During
1997,  the Company  experienced  a decline in the  margins  relating to the DRAM
product line of computer chips  purchased from TI HK.  Accordingly,  in order to
avoid exposure to volatile  prices and other high risk factors  associated  with
the DRAM product line  supplied by TI HK, the Company made a strategic  decision
to drop that product. As a result, the Company bought only 47% of its chips from
TI HK in 1997 and 36% in 1998.  The Company also  represents  TDK  Semiconductor
Corporation (which supplied approximately 19.5% of the chips sold by the Company
during 1998) and numerous  California  companies,  including Zilog,  Inc. (which
supplied  approximately  29% of the  chips  sold by the  Company  during  1998),
Linfinity  Microelectronics  (which supplied approximately 14% of the chips sold
by the Company during 1998) and SEEQ Technology Inc., Quality Technology,  Inc.,

                                   -4-
Integrated   Circuits   Systems  and  others  which   together   accounted   for
approximately  1.5% of the  Company's  business in the year ended  December  31,
1998. The Company  represents these  manufacturers  on a non-exclusive  basis in
Hong Kong and China.

     Most of the Company's arrangements with its chip suppliers are evidenced by
formal  distributorship  or sales  representative  agreements that are typically
non-exclusive  and are for a period of one year. The Company's  agreements  with
its  suppliers  authorize the Company to represent or carry the product lines of
these chip  manufacturers  in Hong Kong and China.  To date, the Company has not
experienced any problems in renewing most  agreements,  and the Company believes
that it has a fairly stable relationship with its suppliers.  The Company has no
set return policies with its existing suppliers.

Seasonality and Backlog

     The seasonal  cycles in the Company's  business are related to the seasonal
cycles in the electronics  business generally and the types of finished products
made with chips supplied by the Company.  Sales of the Company's  chips that are
incorporated into toys, clocks and radios, for example,  generally increase from
April through October,  as the manufacturers of these consumer products increase
their production in anticipation of the Christmas  holiday season.  Sales of the
Company's chips used in computers are steady  throughout the year. To facilitate
fast,  "off-the-shelf"  delivery,  the Company  currently  maintains  an average
inventory of  approximately  four weeks of sales.  As of December 31, 1998,  the
Company's   inventory   of  chips  was  valued  at   approximately   $1,829,718.
Approximately  40%  of  these  inventories  represent  the  most  commonly  sold
commodity  items  and  have  a  relatively  fast  turnover.  The  60%  remainder
represents  custom and semi-custom items or add-on cards. New and improved chips
are constantly  being developed.  As a consequence,  inventories of chips can be
rendered obsolete within relatively short periods of time.  Although the Company
has not regularly experienced technological obsolescence in its inventories,  it
did provide for $113,515 of inventory in 1998 as obsolete and, therefore,  of no
further value to the Company.

Transportation

     At present,  the Company  incurs minimal  transportation  costs in its chip
distribution  business, as its customers are located in Hong Kong and China. The
Company  bears  all  transportation  costs  on  shipments  of chips  from  local
suppliers in Hong Kong to customers in Hong Kong and China.  The Company paid an
insignificant amount in transportation  costs in 1998.  Transportation costs may
increase  somewhat if the Company  further  expands its  business  into China or
other countries.

Competition

     The sale and marketing of computer chips is a highly competitive  business.
The Company's major competitors are other authorized distributors and agents for
the products the Company  represents as well as other product lines. A number of
the major manufacturers,  such as Motorola, National Semiconductor Ltd., Toshiba
and NEC,  also  market  their  own  products.  These  companies,  however,  sell
primarily  to  larger  customers,   while  the  Company  markets  to  small  and
medium-sized  customers.  The Company's major competitors in Hong Kong are Arrow
China,  Atek Electronics and WPI HK Ltd. in Hong Kong, and Gold Insignia,  Arrow
China and WPI HK Ltd.  in China.  In  addition  to these main  competitors,  the

                                      -5-
Company  estimates that there are thousands of small to  medium-sized  companies
that compete with the Company.  These  companies  have lower  overheads than the
Company  and are,  therefore,  aggressively  price  competitive.  The  Company's
success in the market is  primarily  due to its product  reliability,  technical
support and excellent customer service.

Turf and Irrigation Business

     In 1993, EPL acquired 90% of the now-outstanding  common stock of Bothgreat
Technology Limited ("Bothgreat"), a Hong Kong corporation that was controlled by
Edward Y.F. Ting and Frederick T.F. Ko, both of whom were officers and directors
of the Company.  Bothgreat was organized in 1992 to act as a distributor of golf
turf and irrigation systems to businesses in China.  Bothgreat currently acts as
a non-exclusive distributor for several American companies that manufacture such
products,  such  as Rain  Bird,  John  Deere  and  Club  Car,  Inc.  Bothgreat's
distributorship  agreements are one-year agreements covering China (south of the
Pearl River delta) and Macau.  Bothgreat  previously had a distributor  greement
with J.R. Simplot;  however,  in January 1999, J.R. Simplot elected not to renew
that agreement.

     Bothgreat has organized its operation among two divisions -- irrigation and
turf  equipment -- and  attempts to compete in its markets by  providing  better
service to its customers than do its competitors.  In 1998 Bothgreat's net sales
were $5,639,605,  with a net loss of $344,342. Of the more than 100 customers of
Bothgreat,  no one  customer  accounted  for 10% or greater of the net sales for
1998.

     In April  1998,  the  Company  acquired  all of the assets and  business of
Flownet Irrigation  Engineering  Services Company in exchange for 300,000 shares
of the  Company's  common  stock.  The pump service  capability  obtained by the
Company  through  this  transaction  provided a solution to the  problems of the
Company's  various  irrigation  projects in China,  and  management is currently
studying  the  possibility  of  extending  the pump  service  into  other  Asian
territories such as Taiwan.

Other Investments and Activities

     Other than the Flownet  transaction  described  above,  the Company did not
acquire  or  dispose of any other  investments  or engage in any other  business
activities  during the fiscal year ended  December 31, 1998.  In July 1999,  the
Company entered into a license agreement with an unaffiiliated third party which
grants it the right to manufacture,  use and sell certain technology in exchange
for 250,000  shares of the  Company's  common  stock.  Management  is  currently
investigating the feasibility of pursuing that business opportunity.

Government Regulation

     United States export laws impose  restrictions  on the export and re-export
of all U.S.-origin goods and technology,  whether shipped directly from the U.S.
or from  foreign  subsidiaries  or  affiliates  of U.S.  companies.  The primary
purpose  of  these  restrictions  is to  prevent  certain  strategic  goods  and
technology   from  being   delivered   to  communist   and  other   "restricted"
destinations.   Thus,   exporters  may  generally  ship  U.S.-origin  goods  and
technology only under an export license granted by the United States  Department
of Commerce and only upon  receipt from the importer of certain  representations
as to the final  destination of the goods or technology being shipped.  Further,
neither the exporter,  the importer nor any other person may, without Department
of Commerce  approval,  re-export  U.S.-origin  goods or  technology  or foreign

                                      -6-
products  containing  U.S.-origin parts or components or based on technical data
of  U.S.-origin  from  the  authorized   destination  to  any  other  restricted
destination.  Since  most  of the  Company's  chip  suppliers  are  either  U.S.
companies or subsidiaries or affiliates of U.S. companies, and its customers use
U.S.-origin  components,  virtually  all of the chips  sold by the  Company  are
subject to U.S.  export laws. U.S. export laws also apply to the components (and
end  products  using these  components)  obtained  from U.S.  suppliers  for the
Company's electronics business.

     The export and import of goods into and out of Hong Kong must be made under
a license granted by the Hong Kong  government.  The Company may also be subject
to the import,  export and trading laws of other  countries where it does or may
do business.

     A violation  of any export,  import or trading law by the Company or any of
its  affiliates  or  suppliers  that  results in the denial of export or trading
privileges  to any of such parties could have a material  adverse  effect on the
Company and its operations.  The Company  believes that it is in compliance with
all applicable  export,  import and trading laws and that it has taken all steps
necessary to ensure continued compliance with such laws. The Company is also not
aware of any denial orders  restricting the ability of any of its suppliers from
exporting chips or components to the Company. However, there can be no assurance
that such an order will not be issued in the future.

Employees

     As of March 31, 1999, the Company employed 40 persons on a full-time basis,
of whom  22  were  associated  with  its  chip  distribution  business,  17 were
associated with its turf and irrigation  equipment business and one employee was
a full-time  management  employee employed by Electrocon  International  Inc. In
addition,  CEL had one managerial employee. The Company and its subsidiaries are
not parties to any material labor contract or collective bargaining agreement.

Licenses, Franchises, Concessions and Royalty Agreements

     As  of  December  31,  1998,  the  Company  has  no  licenses,  franchises,
concessions or royalty  agreements that are material to its business as a whole,
except for the distributorship and sales representative agreements with its chip
and golf related products suppliers.

Patents and Trademarks

     As of December 31, 1998,  the Company does not hold and has not applied for
any patents or trademarks in the United States or other countries.

Certain Foreign Issuer Considerations

     Transfer of Sovereignty  over Hong Kong to China.  The principal  executive
offices of the Company and all  operations and assets of the Company are located
in Hong Kong and  China.  Prior to July 1, 1997,  Hong Kong was a British  Crown
Colony with  responsibility  for administering  its own internal affairs.  After
several years of negotiations  concerning Hong Kong's future,  Great Britain and
China signed  (December  1984) and ratified  (May 1985) the  Sino-British  Joint
Declaration on the Future of Hong Kong (the Sino-British Agreement). Pursuant to
the Sino-British Agreement, Hong Kong was restored to China on July 1, 1997.

                                      -7-
Ownership  of  Real  Property.  All  land  in Hong  Kong  is  owned  by the
Government  of the Hong Kong  Special  Administrative  Region (the  Government).
Prior to July 1, 1997, the Government granted Crown Leases to persons, firms and
corporations  on the basis of an annual crown rental payment and other terms and
conditions therein  contained.  Crown Leases were freely assignable during their
term. In  implementation  of the  Sino-British  Agreement,  the New  Territories
Leases (Extension) Ordinance was enacted and came into effect on April 25, 1988.
Pursuant to that Ordinance,  all leases in the New Territories of Hong Kong were
extended up to June 30, 2047.  Such  extension was at no premium but was subject
to an annual fee  equivalent  to 3% of the ratable  value of the  property to be
charged  with  effect  from the date on which  the  original  lease  would  have
expired.

     The land  ownership  system in China is similar to Hong Kong,  in which all
land is  owned  by the  government.  The  Chinese  government  and  its  various
government  instrumentalities grant leases to persons, firms and corporations on
the basis of an annual  rental  payment  and other  terms and  conditions.  Such
leases are generally freely transferable during their term.

     Enforceability  of Certain Civil  Liabilities  and Certain  Foreign  Issuer
Considerations.  The Company is a British  Virgin Islands  holding  corporation.
Outside  the  United  States,  it may be  difficult  for  investors  to  enforce
judgments  against  the  Company  obtained  in the  United  States in any action
brought  against it under the securities  laws of the United  States,  including
actions  predicated  upon  civil  liability  provisions  of  the  United  States
securities  laws.  In addition,  most of the  Company's  officers and  directors
reside  outside the United States and most of the assets of these persons and of
the Company are located  outside of the United  States.  As a result,  it may be
difficult or impossible  for investors to effect  service of process  within the
United  States  upon such  persons,  or to enforce  against  the Company or such
persons judgments obtained in United States courts predicated upon the liability
provisions of the United States securities laws. The Company has been advised by
its British  Virgin  Islands  counsel and by its Hong Kong counsel that there is
substantial  doubt as to the  enforceability  against  the Company or any of its
directors and officers  located outside the United States in original actions or
in actions for  enforcement  of judgments of United States courts of liabilities
predicated  solely  on the  civil  liability  provisions  of the  United  States
securities laws.

     The Company has been advised by its counsel that no treaty  exists  between
Hong Kong or the British Virgin Islands and the United States  providing for the
reciprocal  enforcement of foreign judgments.  However,  the courts of Hong Kong
and the  British  Virgin  Islands  are  generally  prepared  to accept a foreign
judgment as evidence of a debt due. An action may then be commenced in Hong Kong
or the British  Virgin Islands for recovery of this debt. A Hong Kong or British
Virgin  Islands court will only accept a foreign  judgment as evidence of a debt
due if: (i) the judgment is for a liquidated amount in a civil matter;  (ii) the
judgment is final and  conclusive  and has not been stayed or satisfied in full;
(iii) the  judgment  is not  directly or  indirectly  for the payment of foreign
taxes, penalties, fines or charges of a like nature (in this regard, a Hong Kong
or British  Virgin  Islands court is unlikely to accept a judgment for an amount
obtained  by  doubling,  trebling or  otherwise  multiplying  a sum  assessed as
compensation  for the loss or damage  sustained by the person in whose favor the
judgment  was  given);   (iv)  the  judgment  was  not  obtained  by  actual  or
constructive  fraud or duress;  (v) the foreign court has taken  jurisdiction on

                                      -8-
grounds  that are  recognized  by the common law rules as to conflict of laws in
Hong Kong or the  British  Virgin  Islands;  (vi) the  proceedings  in which the
judgment  was  obtained  were  not  contrary  to  natural  justice;   (vii)  the
proceedings  in which the judgment  was  obtained,  the judgment  itself and the
enforcement  of the judgment are not contrary to the public  policy of Hong Kong
or the British  Virgin  Islands;  (viii) the person against whom the judgment is
given is  subject to the  jurisdiction  of the Hong Kong or the  British  Virgin
Islands  court;  and (ix) the  judgment  is not on a claim for  contribution  in
respect of damages  awarded by a judgment  that does not satisfy the  foregoing.
Enforcement of a foreign judgment in Hong Kong or the British Virgin Islands may
also be limited or affected by applicable bankruptcy,  insolvency,  liquidation,
arrangement,  moratorium  or similar laws  relating to or  affecting  creditors'
rights  generally  and will be subject to a statutory  limitation of time within
which proceedings may be brought.

     Under United States law,  majority and controlling  shareholders  generally
have  certain   fiduciary   responsibilities   to  the  minority   shareholders.
Shareholder  action  must be taken in good  faith  and  actions  by  controlling
shareholders that are obviously  unreasonable may be declared null and void. The
British Virgin Islands law protecting the interests of the minority shareholders
may not be as protective in all  circumstances  as the law  protecting  minority
shareholders  in United States  jurisdictions.  While British Virgin Islands law
does  permit a  shareholder  of a  British  Virgin  Islands  company  to sue its
directors  derivatively,  i.e. in the name of and for the benefit of the company
and to sue the  company  and its  directors  for his  benefit and the benefit of
others  similarly  situated,  the  circumstances in which any such action may be
brought and the  procedures and defenses that may be available in respect of any
such action may result in the rights of shareholders of a British Virgin Islands
company being more limited than those rights of  shareholders in a United States
company.

Risk Factors

THIS ANNUAL REPORT  CONTAINS  FORWARD-LOOKING  STATEMENTS  WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND SECTION 21E
OF THE  SECURITIES  EXCHANGE ACT OF 1934 (THE  "EXCHANGE  ACT").  ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE  FORWARD-LOOKING  STATEMENTS
AS A RESULT OF THE RISK FACTORS SET FORTH BELOW.  PROSPECTIVE  INVESTORS  SHOULD
CAREFULLY CONSIDER, TOGETHER WITH THE OTHER INFORMATION APPEARING IN THIS ANNUAL
REPORT, THE FOLLOWING  FACTORS,  AMONG OTHERS, IN EVALUATING THE COMPANY AND ITS
BUSINESS.

     Important  Factors  Related to  Forward-Looking  Statements  and Associated
Risks.  The Company may from time to time make  written or oral  forward-looking
statements.  Written  forward-looking  statements may appear in documents  filed
with  the  Securities  and  Exchange  Commission  (the  "Commission"),  in press
releases and in reports to shareholders. The forward-looking statements included
herein  are based on  current  expectations  that  involve a number of risks and
uncertainties.  These  forward-looking  statements are based on assumptions that
competitive  conditions  affecting  the Company  will not change  materially  or
adversely,  that  demand for the  Company's  products  will be strong,  that the
Company  will retain  existing  key  management  personnel,  that the  Company's
forecasts  will  accurately  anticipate  market demand and that there will be no
material  adverse  change in the Company's  operations or business.  Assumptions

                                      -9-
relating to the foregoing involve judgments with respect to, among other things,
future  economic,   competitive  and  market   conditions  and  future  business
decisions,  all of which are difficult or impossible to predict  accurately  and
many of which are  beyond the  control  of the  Company.  Although  the  Company
believes that the  assumptions  underlying  the  forward-looking  statements are
reasonable,  any of the assumptions could prove inaccurate and, therefore, there
can be no assurance that the results contemplated in forward-looking information
will be realized.

         In  addition,  as disclosed  elsewhere  under other risk  factors,  the
business and  operations of the Company are subject to  substantial  risks which
increase the uncertainty inherent in such forward-looking  statements.  In light
of the significant  uncertainties  inherent in the  forward-looking  information
included herein,  the inclusion of such information  should not be regarded as a
representation  by the Company or any other person that the  objectives or plans
of the  Company  will be  achieved.  The Private  Securities  Reform Act of 1995
contains  a safe  harbor for  forward-looking  statements  on which the  Company
relies in making such  disclosures.  In  connection  with this "safe harbor" the
Company is hereby identifying  important factors that could cause actual results
to differ materially from those contained in any forward-looking statements made
by or on behalf of the Company.  Any such statement is qualified by reference to
the cautionary statements included in this Annual Report on Form 20-F.

     China and Hong Kong and the Sino-British Agreement. The principal executive
and  corporate  offices  of the  Company  and all  operations  and assets of the
Company are located in Hong Kong and China. Prior to July 1, 1997, Hong Kong was
a British Crown Colony with  responsibility  for  administering its own internal
affairs.  Sovereignty  over Hong Kong was transferred  effective July 1, 1997 to
China.  Although management believes that any changes in conditions in Hong Kong
are not  likely to have a  material  effect  upon the  Company,  there can be no
assurance as to the  continued  stability of  political,  economic or commercial
conditions in Hong Kong, and any instability could have an adverse impact on the
Company's business.

     The Hong Kong  dollar  and the  United  States  dollar  have been  fixed at
approximately  7.80 Hong Kong  dollars to $1.00 U.S.  since  1983.  The  Chinese
government  has  expressed  its  intention  in the  basic  law to  maintain  the
stability of the Hong Kong  currency.  There can be no assurance  that this will
continue  and the Company  could face  increased  currency  risks if the current
exchange rate mechanism is changed.

     Internal  Political and Other Risks. The Company maintains several branches
in China and serves as  distributor of certain  products in China.  As a result,
the  Company's  operations  and assets are  subject  to  significant  political,
economic, legal and other uncertainties associated with doing business in China.
Changes in  policies  by the Chinese  government  resulting  in changes in laws,
regulations or the interpretation thereof,  confiscatory taxation,  restrictions
on  imports  and  sources  of  supply,  import  duties,   corruption,   currency
revaluations or the  expropriation  of private  enterprise  could materially and
adversely  affect the Company.  Under Deng  Xiaoping's  leadership,  the Chinese
government  pursued  economic reform  policies  including the  encouragement  of
private economic activity and greater economic decentralization.  With the death
of Deng  Xiaoping  there can be no assurance  that the Chinese  government  will
continue to pursue such  policies,  that such  policies  will be  successful  if
pursued,  that such policies will not be significantly altered from time to time
or that  business  operations  in China would not become  subject to the risk of

                                      -10-
nationalization,  which  could  result in the total loss of  investment  in that
country.  Economic  development  may be  limited  as well by the  imposition  of
austerity measures intended to reduce inflation,  the inadequate  development of
infrastructure  and  the  potential  unavailability  of  adequate  power,  water
supplies,  transportation and communications. If for any reason the Company were
required to  discontinue  doing business in China,  the Company's  profitability
would be substantially impaired.

     Uncertain  Legal System and  Application of Laws. The legal system of China
relating  to  foreign  investments  is both new and  continually  evolving,  and
currently  there  can be no  certainty  as to the  application  of its  laws and
regulations in particular instances.  China does not have a comprehensive system
of  laws.  Enforcement  of  existing  laws or  agreements  may be  sporadic  and
implementation and interpretation of laws inconsistent. The Chinese judiciary is
relatively  inexperienced in enforcing the laws that exist,  leading to a higher
than usual degree of uncertainty as to the outcome of any litigation. Even where
adequate  law  exists  in China,  it may not be  possible  to  obtain  swift and
equitable enforcement of that law.

     Inherent Risks of Doing Business in China.  Conducting business in China is
inherently risky.  Corruption,  extortion,  bribery,  pay-offs,  theft and other
fraudulent  practices  are common in China.  There can be no assurance  that the
Company will not suffer losses relating to such practices.

     Relations Between China and Taiwan. Relations between China and Taiwan have
been unresolved  since Taiwan was  established in 1949. The general  election in
Taiwan in 1996 heightened  tensions between them. Although not directly a threat
to the Company,  peaceful and normal  relations  between China and its neighbors
reduces  the  potential  for events  which  could have an adverse  impact on the
Company's business.

     Asian Economic Problems. Recently, several countries in Southeast Asia have
experienced a significant  devaluation  of their  currencies  and decline in the
value of their  capital  markets.  In addition,  several  Asian  countries  have
experienced a number of bank failures and  consolidations.  The Company does not
believe  that the  declines  in  Southeast  Asia will  affect the demand for the
Company's products.  However,  because the Company sells most of its products in
Hong  Kong  dollars  and  pays  for  most of its  products  in U.S.  dollars,  a
devaluation in the Hong Kong dollar, if such were to occur despite assurances to
the contrary by the Chinese government,  would have a material adverse effect on
the Company's operations. Investors are cautioned that there can be no assurance
that the decline in Southeast  Asia will not have a material  adverse  effect on
the Company's  business,  financial  condition,  results of operations or market
price of its securities.

     Dependence on Single Major Supplier.  TI HK supplied  approximately  87% of
the  computer  chips sold by the Company in the year ended  December  31,  1996.
During 1997,  the Company  experienced a decline in the margins  relating to the
DRAM product line of computer chips purchased from TI HK. Accordingly,  in order
to avoid exposure to volatile prices and other high risk factors associated with
the DRAM product line  supplied by TI HK, the Company made a strategic  decision
in 1997 to drop that product.  As a result,  the Company  bought only 47% of its
chips from TI HK in 1997 and 36% in 1998. Management anticipates that TI HK will
represent an even smaller  percent of the Company's  computer chip  purchases in
1999.  Discontinuance  of the TI HK DRAM product line has had a material adverse
effect on the  Company's  revenues.  There can be no assurance  that the Company
will  succeed in  obtaining  new  suppliers  to  replace  the  revenues  lost by
discontinuing the DRAM line of computer chips.

                                      -11-
Dependence on Key Personnel.  The Company's future  performance will depend
to a  significant  extent upon the efforts and  abilities of certain  members of
senior  management as well as upon the  Company's  ability to attract and retain
other qualified personnel. In particular,  the Company is largely dependent upon
the  continued  efforts of Mr.  Edward  Ting,  the  Company's  President,  Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer and Chairman
of its Board of Directors,  and Mr. Clement Cheung,  Secretary,  Treasurer and a
director  of the  Company.  To the extent  that the  services of Mr. Ting or Mr.
Cheung would be  unavailable  to the Company,  the Company  would be required to
obtain other  personnel to perform the duties that they otherwise would perform.
There can be no  assurance  that the  Company  would be able to  employ  another
qualified person or persons, with the appropriate  background and expertise,  to
replace Mr. Ting or Mr. Cheung on terms suitable to the Company.

     Potential  Fluctuations in Operating Results.  The Company's  quarterly and
annual  operating  results are  affected by a wide variety of factors that could
materially and adversely affect net sales, gross profit and profitability.  This
could result from any one or a combination of factors,  many of which are beyond
the control of the Company.  Results of  operations  in any period should not be
considered  indicative  of results to be  expected  in any  future  period,  and
fluctuations in operating  results may also result in fluctuations in the market
price of the Company's Common Stock.

     Year  2000.  The  Company  has  customized   business  management  software
developed  by a local Hong Kong  company.  Management  of the  Company is in the
process of evaluating  its software to ensure that it is Year 2000 compliant and
has engaged a programmer  to perform this task.  Management  believes  that this
software will be Year 2000 compliant by the end of 1998;  however,  there can be
no assurance  that the Company's  software  will  function  properly in the year
2000.  Computer  malfunctions  due to Year 2000  problems  could have a material
adverse effect on the Company's operations.

     Enforceability of Civil Liabilities.  The Company is a holding  corporation
organized as an  International  Business  Company  under the laws of the British
Virgin  Islands and its principal  operating  subsidiary is organized  under the
laws of Hong Kong,  where the  Company's  principal  executive  offices are also
located. Outside the United States, it may be difficult for investors to enforce
judgments  against the Company  obtained in the United States in actions brought
against  the  Company,   including  actions   predicated  upon  civil  liability
provisions  of federal  securities  laws.  In  addition,  most of the  Company's
officers and directors  reside  outside the United States and most of the assets
of these persons and of the Company are located outside of the United States. As
a result,  it may not be possible  for  investors  to effect  service of process
within the United States upon such persons, or to enforce against the Company or
such  persons  judgments  predicated  upon  the  liability  provisions  of  U.S.
securities  laws.  The Company has been advised by its Hong Kong counsel and its
British  Virgin  Islands  counsel  that  there  is  substantial  doubt as to the
enforceability  against the Company or any of its directors or officers  located
outside the United States in original  actions or in actions for  enforcement of
judgments of U.S. courts of liabilities predicated solely on the civil liability
provisions of federal securities laws.

     Certain Legal  Consequences of Incorporation in the British Virgin Islands.
The  Company  is  organized  under  the  laws  of the  British  Virgin  Islands.
Principles  of law  relating to matters  affecting  the  validity  of  corporate
procedures,  the  fiduciary  duties of the Company's  management,  directors and
controlling  shareholders  and the rights of the Company's  shareholders  differ
from, and may not be as protective of shareholders as, those that would apply if
the  Company  were  incorporated  in a  jurisdiction  within the United  States.

                                      -12-
Directors  of the  Company  have  the  power  to take  certain  actions  without
shareholder  approval,  including an amendment of the  Company's  Memorandum  or
Articles  of  Association,  a change in the  Company's  authorized  capital  and
certain fundamental corporate transactions,  including reorganizations,  certain
mergers or  consolidations,  and the sale or  transfer of assets.  In  addition,
there is doubt that the  courts of the  British  Virgin  Islands  would  enforce
liabilities predicated upon U.S. securities laws.

     Exemptions under the Exchange Act as a Foreign Private Issuer.  The Company
is a foreign  private issuer within the meaning of rules  promulgated  under the
Exchange Act. As such,  and though its Common Stock is registered  under Section
12(g) of the Exchange Act, it is exempt from certain  provisions of the Exchange
Act applicable to United States public companies including:  the rules under the
Exchange Act  requiring the filing with the  Commission of quarterly  reports on
Form 10-Q or current  reports on Form 8-K,  the  sections  of the  Exchange  Act
regulating the solicitation of proxies, consents or authorizations in respect to
a security  registered  under the  Exchange Act and the sections of the Exchange
Act  requiring  insiders to file public  reports of their  stock  ownership  and
trading activities and establishing  insider liability for profits realized from
any "short-swing"  trading  transaction  (i.e., a purchase and sale, or sale and
purchase,  of the issuer's equity securities within six months or less). Because
of the exemptions  under the Exchange Act applicable to foreign private issuers,
shareholders of the Company are not afforded the same protections or information
generally  available to investors  in public  companies  organized in the United
States.

     Volatility  of Stock  Price.  The markets for equity  securities  have been
volatile and the price of the Company's Common Stock has been and could continue
to be subject to wide fluctuations in response to quarter to quarter  variations
in operating results, news announcements,  trading volume, sales of Common Stock
by officers, directors and principal shareholders of the Company, general market
trends and other factors.

Item 2.  DESCRIPTION OF PROPERTY

British Virgin Islands

     The  registered  office of the  Company is  located in the CITCO  Building,
Wickhams Cay, P.O. Box 662, Road Town,  Tortola,  British Virgin  Islands.  Only
corporate  administrative  matters are  conducted  at such  office,  through the
Company's  registered  agent,  CITCO Trust  Corporation  Limited.  The  material
properties  of the Company  and its  subsidiaries,  both owned and  leased,  are
described below.

Hong Kong

     Commercial Property.  Since October 1989, the Company's principal executive
offices have been located in the Prosperity Centre,  Kwai Chung, Hong Kong. This
facility,  consisting of approximately  7,500 square feet,  houses the Company's
executive  offices and warehouse space. The Company leases the space through EPL
from an unaffiliated  company for a base rent of approximately  $6,250 per month
and additional  expenses of  approximately  $2,936 per month in maintenance  and
other fees. The lease expires on September 6, 2001.

                                      -13-
Residential  Property.  Since 1991, the Company has provided its President,
Mr.  Edward Ting,  with a leased  accommodation  in Hong Kong for his use.  This
property,  located on Broadcast  Street in Hong Kong,  consists of approximately
1,000  square feet and the rental rate is  approximately  $2,000 per month.  The
property is leased on a monthly  basis under an oral  arrangement.  See Item 11,
"Compensation  of Officers and Directors,"  Item 13,  "Interest of Management in
Certain  Transactions,"  and  Note  11  to  the  Financial  Statements  included
herewith.

China

     The Company leases a commercial  property consisting of approximately 1,762
square  feet  at  Bellview  Tower,  Lo Hu  District,  Shenzhen  City,  Guangdong
Province,  China which it utilizes for its China liaison office. The property is
owned by Mr.  Clement  Cheung,  a Director of the  Company.  The Company  pays a
monthly  rent of  approximately  $2,821  pursuant  to a  three-year  lease which
expires  May  31,  2000.  See  Item  13,  "Interest  of  Management  in  Certain
Transactions."

     In 1995,  the Company  purchased  two  townhouse  units located at Oriental
Pearl  Gardens,  Units B8 and B9, in  Shanghai,  China,  which were  utilized as
offices  and  staff  quarters  for EPL and  Bothgreat.  Each  unit  consists  of
approximately  1,500  square  feet.  The  purchase  price of each  property  was
approximately $150,000, and was paid in full in 1995. The Company sold these two
properties in 1998 for an aggregate of $338,214.

Item 3.  LEGAL PROCEEDINGS

     The  Company  is not aware of any  legal  proceedings  contemplated  by any
governmental   authority  involving  the  Company,  its  subsidiaries  or  their
property. No director, officer or affiliate of the Company or any associate of a
director,  officer or  affiliate  of the  Company is an adverse  party or has an
adverse  interest  in  any  legal  proceedings  involving  the  Company  or  its
subsidiaries.  The Company and its ordinary  subsidiaries are not parties to any
legal proceedings other than routine litigation  incidental to their businesses,
nor are there  any  pending  material  legal  proceedings  with  respect  to the
property of the Company and its subsidiaries.

Item 4.  CONTROL OF REGISTRANT

     The Company is not directly or  indirectly  owned or  controlled by another
corporation or by any foreign government.  The following table sets forth, as of
June 1, 1999,  the  beneficial  ownership of the Company's  Common Stock by each
person  known by the  Company  to own  beneficially  more than 10% of the Common
Stock  of the  Company  outstanding  as of such  date  and by the  officers  and
directors of the Company as a group. Except as otherwise  indicated,  all shares
are owned directly.

            Identity of                       Amount              Percent of
         persons or groups              Beneficially Owned           Class
         ---------------------          ------------------        ----------
         Group consisting of            2,022,500 shares(1),(2)      26.2%
         Edward Ting, Viola Ting
         and David Nominees
         Limited
         Officers and directors         2,062,500 shares(2)          26.7%
         as a group (3 persons)
--------------------

(1)  Of these  shares,  1,467,500  shares are owned  outright by Edward Ting, an
     officer and director of the Company,  and 305,000 shares are owned outright
     by his wife,  Viola Ting. Mr. Ting is deemed to be the beneficial  owner of
     the Common Stock held by Viola Ting.  Mr. Ting  disclaims  ownership of the
     Common Stock owned by his wife.

                                      -14-
(2)  Includes  250,000 warrants to purchase common stock of the Company owned by
     Mr. Ting. Does not include 365,163 shares held by an entity of which Edward
     Ting and Clement Cheung are officers and directors.

     There are no  arrangements  known to the Company the operation of which may
at a subsequent date result in a change in control of the Company.

Item 5.   NATURE OF TRADING MARKET

     The   Company's   Common  Stock  is  traded  only  in  the  United   States
over-the-counter  market.  The  Common  Stock has been  quoted  on the  National
Association of Securities  Dealers,  Inc. Automated  Quotation System ("NASDAQ")
under the trading symbol "EPLTF."

     The table set forth below presents the range, on a quarterly basis, of high
and low sale prices per share of Common Stock as reported by NASDAQ for the last
two  fiscal  years and for the first two  quarters  of the  fiscal  year  ending
December 31, 1998. The quotations  represent  prices between  dealers and do not
include retail markup, markdown or commissions and may not necessarily represent
actual transactions.

      Quarter Ended                     High                      Low
      -------------                     ----                      ---

Fiscal 1997
     March 31, 1997                    $2.0625                    $1.00
     June 30, 1997                     $1.1875                    $0.50
     September 30, 1997                $1.75                      $0.625
     December 31, 1997                 $1.9375                    $0.75

Fiscal 1998
     March 31, 1998                    $2.0625                    $1.00
     June 30, 1998                     $1.125                     $0.59375
     September 30, 1998                $0.56                      $0.28
     December 31, 1998                 $0.38                      $0.19

Fiscal 1999
     March 31, 1999                    $0.38                      $0.13
     June 30, 1999                     $1.47                      $0.16

     Transfer  Agent.  The  transfer  agent  for  the  Company's  securities  is
Corporate Stock Transfer, Inc., Denver, Colorado.

Item 6.  EXCHANGE CONTROLS AND OTHER LIMITATIONS
         AFFECTING SECURITY HOLDERS

     There are no exchange control  restrictions on payments of dividends on the
Company's Common Stock or on the conduct of the Company's  operations  either in
Hong Kong, where the Company's  principal  executive offices are located, or the
British Virgin Islands,  where the Company is incorporated.  Other jurisdictions
in which the Company  conducts  operations may have various  exchange  controls.
Taxation and  repatriation of profits  regarding the Company's China  operations
are regulated by Chinese laws and regulations.  To date, these controls have not
had and are not expected to have a material  impact on the  Company's  financial
results.  There are no material British Virgin Islands laws which impose foreign
exchange  controls  on the  Company  or that  affect the  payment of  dividends,
interest or other payments to nonresident  holders of the Company's  securities.
British  Virgin  Islands  law and  the  Company's  Memorandum  and  Articles  of
Association  impose no limitations on the right of nonresident or foreign owners
to hold or vote the Company's securities.

                                      -15-
Item 7.   TAXATION

     No reciprocal tax treaty  regarding  withholding  exists between the United
States and the British Virgin Islands. Under current British Virgin Islands law,
dividends,  interest or  royalties  paid by the Company to  individuals  are not
subject to tax as long as the recipient is not a resident of the British  Virgin
Islands. If the Company were to pay a dividend,  the Company would not be liable
to withhold any tax, but  shareholders  would receive gross  dividends,  if any,
irrespective of their residential or national status.

     Dividends,   if  any,  paid  to  any  United  States  resident  or  citizen
shareholder would be treated as dividend income for United States federal income
tax   purposes.   Such   dividends   would   not  be   eligible   for   the  70%
dividends-received  deduction allowed to United States corporations on dividends
from a domestic  corporation  under  Section 243 of the United  States  Internal
Revenue Code of 1986 (the "Internal  Revenue Code").  Various  Internal  Revenue
Code  provisions  impose  special taxes in certain  circumstances  on non-United
States  corporations  and their  shareholders.  Shareholders  of the Company are
urged to consult their tax advisors with regard to such  possibilities and their
own tax situation.

     In addition to United States federal income  taxation,  shareholders may be
subject to state and local taxes upon their receipt of dividends.

Item 8.   SELECTED FINANCIAL DATA

     The  selected  financial  information  set forth below is derived  from the
audited Consolidated  Financial Statements of the Company, which are prepared in
accordance with generally accepted accounting principles in the United States of
America  ("U.S.  GAAP") and stated in United States  dollars.  The  Consolidated
Financial  Statements  at December  31,  1997 and 1998 and for the fiscal  years
ended December 31, 1996, 1997 and 1998 have been audited by independent auditors
and appear elsewhere herein. The Consolidated  Financial  Statements at December
31,  1994,  1995 and 1996 and for the fiscal  years ended  December 31, 1994 and
1995 also have been  audited by  independent  auditors but do not appear in this
Annual Report. The selected  consolidated  financial data are qualified in their
entirety  by  reference  to,  and  should  be  read  in  conjunction  with,  the
Consolidated  Financial  Statements,  related  Notes  and Item 9,  "Management's
Discussion  and  Analysis of  Financial  Condition  and  Results of  Operations"
included elsewhere in this Annual Report.

     The Company  prepares  its  financial  statements  in U.S.  dollars for the
following  reasons:  (i) the  Company  is  incorporated  in the  British  Virgin
Islands,  whose  currency  is the U.S.  dollar;  (ii) the Company  conducts  the
majority of its business  transactions in U.S.  dollars;  and (iii) the exchange
rate between the Hong Kong dollar and the United States dollar has been fixed at
7.80 Hong Kong  dollars  to $1.00 U.S.  since  1983.  Accordingly,  there are no
material  adjustments  on the  translation of Hong Kong dollar amounts into U.S.
dollar amounts.

                                      -16-
Selected Financial Data
                                         (Stated in United States dollars)

                           Year Ended           Year Ended          Year Ended          Year Ended           Year Ended
                          Dec. 31, 1994        Dec. 31, 1995       Dec. 31, 1996       Dec. 31, 1997       Dec. 31, 1998
                          -------------        -------------       -------------       -------------       -------------
Statement of
Operations Data(1)
-----------------
Net Sales                  32,739,471           45,094,812          53,510,211          29,086,564           22,338,588

Gross Profit on Sales       2,175,917            4,666,282           3,431,425           3,274,858           3,750,792

Operating Expenses          2,306,037            3,227,311           3,563,450           3,502,226           4,003,868

Income (Loss)
from Operations              (130,120)           1,438,971            (132,025)           (227,368)           (253,076)

Other Income - Net             47,571              373,892              83,903             151,115              37,845

Income (Loss) from
Continuing
Operations
before Income
Taxes                        (281,504)           1,672,647            (153,865)           (345,805)           (649,399)

Provision (Credit) for
Income Taxes                   57,094              261,865            (106,086)             21,041               23,906

Net Income (Loss)
before Minority
Interest                     (338,598)           1,410,782             (47,779)           (366,846)           (673,305)

Minority Interest              (2,195)             (32,211)               --                  --                   --

Net Income (Loss)            (340,793)           1,378,571             (47,779)           (366,846)           (673,305)

Net Income (Loss)
per Common Share
and Common Share
Equivalent (2)                (0.0520)              0.2095             (0.0073)             (0.054)             (0.091)
-17-
Selected Financial Data
                                         (Stated in United States dollars)

                             Year Ended          Year Ended          Year Ended          Year Ended           Year Ended
                           Dec. 31, 1994        Dec. 31, 1995       Dec. 31, 1996       Dec. 31, 1997       Dec. 31, 1998
                           -------------        -------------       -------------       -------------       -------------
Balance Sheet
Data (1)
------------------

Accounts Receivable-
Net                           3,677,746            4,101,452           4,791,683           5,738,649           4,366,540

Inventories                   2,672,388            3,498,279           4,444,163           3,394,900           2,425,248

Total Current
Assets                       10,452,960           11,869,356          13,464,919          13,165,590          11,287,450

Fixed Assets-Net                352,453            1,138,983           1,100,213           1,004,794             670,251

Total Assets                 10,907,946           13,266,160          14,827,854          14,393,400          12,468,763

Total Current
Liabilities                  10,348,474           11,147,000          12,913,878          11,860,603          10,307,547

Non-Current
Liabilities                      44,179              168,679              11,274              25,148              45,472

Stockholders'
Equity                          487,023            1,950,481           1,902,702           2,507,649           2,115,744
----------------------

(1)  Assets and  liabilities are translated into United States dollars using the
     approximate  rate of exchange ruling at the balance sheet date.  Income and
     expenses are  translated  at the average rate in effect  during the period.
     The  exchange  rate has  remained  fixed at 7.80 Hong Kong dollars to $1.00
     U.S. since 1983.

(2)  Based on 7,370,009  shares for the year ended December 31, 1998,  6,780,844
     shares for the year ended December 31, 1997,  6,624,211 shares for the year
     ended December 31, 1996,  6,579,082  shares for the year ended December 31,
     1995 and 6,553,211 shares for the year ended December 31, 1994.

     The Company has no set dividend policy, and future dividends,  if any, will
depend on the Company's net income, financial position and capital requirements,
economic  and  market   conditions,   industry   standards  and  other  factors.
Accordingly, there is no assurance that future dividends will be paid.

                                      -18-
Item 9.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS

     The following  discussion and analysis  should be read in conjunction  with
Item 8, "Selected Financial Data" and the Consolidated  Financial Statements and
Notes thereto appearing elsewhere in this Annual Report.

Overview

     During 1998,  the Company  derived its revenues from two primary  facets of
operations,  namely  distribution  and sales of computer  chips in Hong Kong and
China and distribution and sales of turf and irrigation equipment in China, Hong
Kong and Macau.

     Computer Chip Business.  The Company is currently an agent and  distributor
for a number of well-known  suppliers of computer chips through EPL. In 1998, as
in previous years,  the Company  purchased the majority of its chips from TI HK.
(See Item 1, "Description of  Business--Computer  Chip Distribution  Business.")
The   Company's   distribution   and   representation   agreements   with  these
manufacturers are typically non-exclusive and for a period of one year, at which
time they are renewable.  These agreements authorize the Company to represent or
carry the product lines of these chip  manufacturers in Hong Kong and China. The
Company  now sells to over 780 small and  medium-size  Hong Kong  customers  and
approximately  280 small and medium-size  Chinese  customers.  Net sales in 1998
from this business segment were approximately $16,698,983.

     Turf and Irrigation Equipment Business.  The Company commenced its business
of distributing and selling turf and irrigation  equipment in China in 1993. The
products  include Rain Bird irrigation  systems and John Deere and Club Car golf
cart and utility vehicles.  The Company supplies Rain Bird irrigation systems to
golf courses in Hong Kong and Macau,  and sells golf and turf  equipment to over
60 golf  courses  in Hong  Kong,  China and  Macau.  Net sales in 1998 from this
business were approximately $5,639,605.

Results of Operations

     The following  table sets forth selected income data as a percentage of net
sales for the fiscal years indicated.

                                          Year ended December 31,
                                    -------------------------------------
Income Statement Data               1996             1997            1998
                                    ----             ----            ----

Net sales                          100.0%           100.0%          100.0%
Cost of sales                      (93.6)           (88.7)          (83.2)
Gross profit                         6.4             11.3            16.8
Operating expenses                  (6.7)           (12.0)          (17.9)
Operating (loss)                    (0.2)            (0.7)           (1.1)
Other income (expense), net         (0.4)            (0.4)           (1.8)
(Loss) before income tax            (0.3)            (1.2)           (2.9)
Income tax (expense)/benefit        (0.2)            (0.1)            0.1
Net(loss)                           (0.1)            (1.3)           (3.0)

                                      -19-
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

     Net Sales. Net sales from different industry segments were as follows:

                                    1997            1998              % Change
                                    ----            ----              --------

Semiconductor Business            $23,151,881        $16,698,983       (27.9)%
Turf and Irrigation
  Equipment Business                5,934,683          5,639,605        (5.0)%
                                -------------      -------------      -------
                                  $29,086,564        $22,338,588       (23.2)%

     Total  revenues  from  the chip  distribution  business  for the year  were
$16,698,983,  a decrease of approximately  28%, due primarily to lower prices in
DRAMs and,  to a lesser  extent,  to a near  collapse  in the global  market for
memory chips This had an impact on the Company's  financial  performance.  It is
not the first time the memory market has  experienced  such  volatility,  and it
probably  will not be the last.  This is the reason the Company has been working
to reduce its exposure to this  commodity-type  business for a number of years -
investing instead in differentiated products being manufactured by other reputed
chip makers such as Zilog, TDK and Linfinity.

     Net sales from the turf and irrigation  equipment  business decreased by 5%
due primarily to the loss of JR Simplot distributorship, and to a lesser extent,
to the sluggishness in the industry following the economic crisis in Asia.

     Gross Profits.  Gross profits from the different  industry segments were as
follows:

                                     1997             1998        % Change
                                     ----             ----        --------

Semiconductor business           $2,219,479       $2,074,036       (6.6)%
Turf and irrigation equipment
   business                      $1,055,379       $1,676,756       58.9%
                                 ----------       ----------       -----
                                 $3,274,858       $3,750,792       14.5%

     The decline of 7% in gross profit in the semiconductor  business was due to
the reasons explained above. The overall  improvement in gross profit and margin
was  attributable  to a tremendous  increase in the gross profit in the turf and
irrigation  equipment business.  Several long-term projects that the Company had
committed last year yielded good returns.

     Operating Expenses.  Operating expenses were $4,003,868 in 1998 compared to
$3,502,226 in 1997, representing a 14% increase. This increase was primarily due
to  provisions  created for bad and doubtful  accounts  ($135,774)  and obsolete
inventory  ($113,515)  in the  Company's  core  subsidiaries,  as well as  stock
warrant expenses ($75,000).

                                      -20-
Other Income  (Expenses),  Net. The details of other expenses,  net, are as
follows: Year Ended December 31, 1997 1998

Interest income                                   $229,252         $224,438
Interest expense                                  (461,329)        (537,310)
                                                     --
Share of losses of an affiliated company           (37,475)        (121,296)
Others, net                                        151,115           37,845
                                                 ---------        ---------
                                                 ($118,437)       ($396,323)
                                                 =========        =========

     Interest  expenses  increased because the Company had to borrow from one of
its  directors  on a  short-term  basis.  The  Company's  share of losses in CEL
increased  substantially  because CEL  discontinued  its operations in the later
part of 1998 following substantial losses from its operations.

     The  Company's  future  operating  results  may be  affected by a number of
factors,  including,  but not limited to,  sales  price  erosion,  uncertainties
relative to Asian  economic  conditions,  its ability to  effectively  integrate
acquired products and operations in China, its ability to successfully  maintain
or  increase  market  share and its  ability  to  effectively  manage  fixed and
variable expense growth relative to revenue growth.

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

     Net Sales. Net sales from different industry segments were as follows:

                                       1996           1997        % Change
                                       ----           ----        --------

Semiconductor Business             $47,679,740     $23,151,881    (51.44)%
Turf and Irrigation
  Equipment Business                 5,830,471       5,934,683      1.79 %
                                 -------------   -------------   ---------
                                   $53,510,211     $29,086,564    (45.64)%

     Net sales from the chip business decreased  approximately 51% due primarily
to the Company's strategic decision to drop the DRAM product line supplied by TI
HK to avoid  its  exposure  to  volatile  prices  and other  high  risk  factors
associated  with that product.  As a result,  the Company bought only 47% of its
chips from TI HK in 1997,  compared to 87% in 1996. The Company has since signed
agreements with TDK  Semiconductor  Corporation and other well-known  vendors to
sustain its revenues and increase its gross margin.

     Net  sales  from the  turf  and  irrigation  equipment  business  increased
modestly by 1.8% due to the  volatility  in the region  following  the  economic
crisis in Asia.

     Gross Margins. Gross margins were as follows:

                  1996              1997             % Change
                  ----              ----             --------

               $3,431,425         3,274,858          (4.56)%

     The slight decline in gross profit was due to the reasons  explained above.
Despite the  significant  decline in  revenues,  the Company was  successful  in
obtaining  new  distributorships  in Hong Kong and China.  The new product lines
improved  the gross  margin and enabled the Company to preserve its gross profit
dollars.

                                      -21-
Selling  Administrative and General Expenses.  Selling,  administrative and
general  expenses  were  $3,502,226  in 1997  compared  to  $3,563,450  in 1996,
representing  a 1.7%  decrease.  This  decrease  was due to  austerity  measures
established by all the companies in the group.

     Other Income (Expenses),  Net. The details of other income (expenses), net,
are as follows:

                                 Year Ended December 31,
                             1996                      1997
                             ----                      ----

Exchange gain              $ 37,418                  $  64,668
Others                       46,485                     86,447
                          ---------                  ---------
                           $ 83,903                   $151,115

     Other income increased from $46,485 in 1996 to $86,447 in 1997, an increase
of approximately  85.96%.  This increase was primarily the result of higher bank
interest income and the write-back of certain unclaimed customer deposits.

     The  Company's  future  operating  results  may be  affected by a number of
factors,  including,  but not limited  to,  sales  price  erosion  uncertainties
relative to Asian  economic  conditions,  its ability to  effectively  integrate
acquired products and operations in China, its ability to successfully  maintain
or  increase  market  share and its  ability  to  effectively  manage  fixed and
variable expense growth relative to revenue growth.

Liquidity and Capital Resources

     Over the last three years,  the Company lost $157,387 in operations  before
depreciation,  amortization  and other  non-cash  items,  and used  $974,131  in
additional  working  capital  resulting  in  $1,131,518  of cash  flows  used in
operations.  In  addition,  the Company  generated  $215,842  from other  normal
business  operations  including  the  sale  of  property,  plant  and  equipment
($357,060),  cash acquired from purchase of a business  ($100,557),  purchase of
property, plant and equipment ($222,544) and investment in an affiliated company
($19,231).  The Company also used  $293,948 for  repayments  of its  obligations
under  capital lease and increased  its  restricted  cash by $804,874.  This was
financed by short-term  borrowings  of $733,202,  a loan from a related party of
$500,000 and advances from a director aggregating  $134,991.  This resulted in a
net decrease in cash of $646,305.

     In 1998,  the Company  lost  $199,885 in  operations  before  depreciation,
amortization  and other non-cash items,  and used $49,283 in additional  working
capital resulting in a use of $249,168 in operating activities. In addition, the
Company used funds for the purchase of property,  plant and equipment  amounting
to $68,050. The Company also used $12,713 for repayment of its obligations under
capital leases, $285,023 for repayment of short-term borrowings and $127,639 for
repayment of advances  from a director,  and increased  its  restricted  cash by
$242,011.  This was financed by advances from a director aggregating $134,991, a
loan from a related  party of $500,000,  proceeds from the disposal of property,
plant and  equipment  of  $334,214  and cash  acquired  from the  purchase  of a
business of $100,557. This resulted in a net increase in cash of $89,158.

     At June 30, 1999, the Company had approximately  $15,000 in commitments for
capital expenditures. This will be funded principally by retained earnings.

     The Company is not aware of any commitments, contingencies or events within
its control which may  significantly  change its ability to generate  sufficient
cash from internal or external sources to meet its needs.

                                      -22-
Foreign Currency Exchange

     Uncertainty  in  world  economies  and the  expectations  for  higher  U.S.
interest  rates caused a gradual  strengthening  of the U.S.  dollar  during the
period.  Most of the Company's total revenue was derived from sales in Asia. The
net income effect of foreign currency exchange rate fluctuations versus the U.S.
dollar on the Company's Asian operations was minimal.

Item 10.  DIRECTORS AND OFFICERS OF REGISTRANT

     The directors  and  executive  officers of the Company at December 31, 1998
are  identified  below.  The  directors  are  elected at the  annual  meeting of
shareholders  and each  serves  until his  successor  takes  office or until his
earlier death, resignation or removal. The officers serve at the pleasure of the
Board of Directors of the Company.

Name                      Age         Position with the Company
----                      ---         -------------------------

Edward Y. F. Ting         52          President, Chief Executive Officer,
                                      Chief Operating Officer, Chief Financial
                                      Officer, Chairman of the Board and
                                      Director

Clement W. Cheung         43          Secretary, Treasurer and Director

Viola Ting                55          Director

James Mak                 44          Director

Chris G. Mendrop          47          Director

     EDWARD Y. F. TING has served as Chief  Executive  Officer,  Chief Financial
Officer,  Chairman of the Board,  President  and a director of the Company since
its  inception.  He has served as the Company's  Chief  Operating  Officer since
April 1994. He has also served as Managing Director of EPL since March 1980, and
served as an officer and director of several other entities during the time that
they were subsidiaries of the Company.

     CLEMENT  CHEUNG was elected a director  of the Company in October  1992 and
appointed  Secretary and Treasurer in August 1996. Mr. Cheung joined EPL in 1990
as an accounting and  administrative  manager.  Prior to joining EPL, Mr. Cheung
was the  controller  for Econ  Electronics  Limited,  which was  acquired by the
Company in 1990.

     VIOLA TING was elected a director of the  Company in 1995.  Mrs.  Ting is a
homemaker.

     JAMES MAK was appointed a director of the Company in March 1998. Mr. Mak is
a manager  of the  Australian  Consulate  General  where he is  responsible  for
information  technology  and  financial  control  functions.  He was employed as
general  manager of EPL and as vice president,  group  operations of the Company
from  1994  until  1996.  Prior to  joining  EPL,  Mr.  Mak was the  manager  of
management information systems of the Province of Nova Scotia in Canada. Mr. Mak
received a Bachelor of Science degree, with honors, in Computer Science from the
University of Manitoba in 1977 and a Masters of Business  Administration  degree
from Dalhousie University in Canada in 1983.

                                      -23-
CHRIS G. MENDROP was appointed a director of the Company in March 1998. Mr.
Mendrop is the Chief  Executive  Officer of Blake Street Group LLC, Blake Street
Securities  LLC and Blake Street  Advisors LLC  (collectively  the "Blake Street
Group").  He has served as the Chief Executive  Officer of each of the companies
included in the Blake Street Group since those companies were formed in January,
March and July 1998.  From July 1992 until January 1998,  Mr.  Mendrop was Chief
Executive Officer of Corporate Development Capital, Inc., an investment advisory
and financial consulting firm located in Denver,  Colorado.  Mr. Mendrop holds a
Masters of Business  Administration  degree in Finance  from the  University  of
Colorado.

     Except for Edward Ting and Viola Ting,  who are husband and wife, no family
relationship  exists among any of the named  directors and  executive  officers.
Except as described herein,  no arrangement or understanding  exists between any
such director or officer and any other persons pursuant to which any director or
executive officer was elected as a director or executive officer of the Company.

Item 11.  COMPENSATION OF DIRECTORS AND OFFICERS

     The  following  table  sets  forth  certain  information  as to each of the
Company's  executive  officers and directors  whose cash  compensation  exceeded
$60,000 and for all  executive  officers as a group for the year ended  December
31, 1998:
Cash               Non-Cash
Name of Individual                   Capacities in Which Served               Compensation         Compensation
------------------                   --------------------------               ------------          -----------
Edward Y.F. Ting             President, Chief Executive Officer,
                             Chief Financial Officer, Chairman
                             of the Board and Director                           $ 146,000           $ 67,346(1)
Clement W. Cheung            Secretary, Treasurer and Director                   $  37,657           $ 33,691
All directors and
officers as a group (5 persons)                                                  $ 189,657           $101,037
---------------------

(1)  Includes the value of housing provided to Mr. Ting valued at $24,000 during
     fiscal   1998.   (See  Item  13,   "Interest  of   Management   in  Certain
     Transactions.")

     In 1996,  the Company  instituted a defined  contribution  retirement  plan
which  covers  the   employees  of  Bothgreat  and  EPL.  The  Company  and  its
subsidiaries  set aside  $26,037  pursuant to the plan for the fiscal year ended
December  31, 1998,  and $33,319  pursuant to the plan for the fiscal year ended
December 31, 1997.

Item 12.  OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR
          SUBSIDIARIES

     There are no options to purchase  securities of the Company  outstanding as
of the date of this  Annual  Report.  Mr.  Edward  Ting,  the  President  of the
Company, holds the right to be issued a warrant exercisable for a period of five
years from March 25, 1998 to purchase  250,000  shares of the  Company's  Common
Stock at an exercise  price of $1.00 per share during the first year,  $1.10 per
share during the second year,  $1.20 per share during the third year,  $1.50 per
share during the fourth year and $1.75 per share during the fifth year. See Item
13, "Interest of Management in Certain Transactions," below.

Item 13.  INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS

     Since 1992,  the Company has provided a director,  Mr. Edward Ting,  with a
leased  accommodation  in Hong  Kong  for his use.  This  property,  located  on
Broadcast Street in Hong Kong,  consists of approximately 1,000 square feet, and
the rental rate is  approximately  $2,000 per month. The property is leased on a
monthly basis under an oral arrangement.

     The Company leases a commercial property in Bellview Tower, Lo Hu District,
Shenzhen  City,  China,  from Edward Ting,  the  President  of the Company.  The
Company pays a monthly  rent of  approximately  $2,821  pursuant to a three-year
lease  which  expires on May 31,  2000.  Rent paid by the  Company  to Mr.  Ting
amounted to $33,846 in each of 1998, 1997 and 1996.

     During 1997,  the Board of Directors  granted stock bonuses to employees of
the Company in an aggregate  amount of 70,000 shares.  Clement  Cheung  received
20,000 of those shares.

     During 1997,  a director  advanced  short-term  loans to the Company in the
amount of $127,639. The loans bear interest at the rate of 10% per annum and are
repayable within one year.

     In March 1998, Bothgreat obtained a standby letter of credit for one of its
suppliers  from a bank.  The letter of credit was  collateralized  by a security
interest  in a  $500,000  deposit  owned  by  Glas-Aire  Industries  Group  Ltd.
("Glas-Aire").  At that  time,  Mr.  Edward  Ting was Chief  Executive  Officer,
Chairman of the Board of Directors and a principal  shareholder of Glas-Aire and
Chris  G.  Mendrop  and  Clement   Cheung  were   directors  of  Glas-Aire.   As
consideration  for Glas-Aire  agreeing to provide the security for the letter of
credit,  the  Company  agreed as  follows:  (i) to issue to  Glas-Aire a warrant
exercisable  for a period of five years from March 25, 1998 to purchase  250,000
shares of the  Company's  Common  Stock at an exercise  price of $1.00 per share
during the first year,  $1.10 per share during the second year,  $1.20 per share
during the third  year,  $1.50 per share  during  the fourth  year and $1.75 per
share during the fifth year;  (ii) to pay Glas-Aire a fee in the amount of 1% of
the collateral, or $5,000, payable in advance for the six month period beginning
on the date the letter of credit was issued by the bank and an additional fee of

                                      -24-
1%, also payable in advance, for the six-month period immediately  following the
initial  six-month  period,  if the collateral  continued to be utilized for the
letter of  credit,  with the  understanding  that the  collateral  would be made
available by Glas-Aire to collateralize the letter of credit for a period not to
exceed one year;  and (iii) the pledge to Glas-Aire by Mr. Ting of all shares of
Glas-Aire common stock owned by him, his wife or under his control.  In November
1998,  the  Company  defaulted  on the  letter of  credit  and  $250,000  of the
collateral  was seized,  resulting in the Company being indebted to Glas-Aire in
the amount of $250,000.  In December 1998,  Glas-Aire made a loan to the Company
in the  principal  amount of $500,000 and $250,000 of the loan proceeds was used
to repay Glas-Aire for the seized collateral for the letter of credit. This loan
was evidenced by a promissory  note, bore interest at the rate of 10% per annum,
unless a default occurred in which case the interest rate would increase to 12%,
and was  payable on demand.  The loan was  secured by a first  priority  lien on
212,331  shares of Glas-Aire  common stock owned by Mr. Edward Ting and a second
priority lien on the remaining 301,584 shares of Glas-Aire common stock owned by
Edward and Viola Ting which had previously  been pledged to secure the letter of
credit arrangement. In April 1999, Mr. Edward Ting purchased the promissory note
from  Glas-Aire in order to enable him to sell his  Glas-Aire  shares which were
encumbered by the debt. As a result,  the Company is now indebted to Mr. Ting in
the amount of $500,000,  plus interest.  In addition,  Glas-Aire transferred the
warrant to Mr. Ting.

     During  1998,  there  were no  other  material  transactions,  and none are
presently proposed, to which the Company or any of its subsidiaries was or is to
be a party, in which either (i) any director or officer of the Company,  or (ii)
any  corporation  or  foreign  corporation  directly  or  indirectly  owning  or
controlling the Company or (iii) any relative or spouse of any of the foregoing,
or any relative of such spouse, who has the same home as such person or who is a
director or officer of any  subsidiary of the Company had or is to have a direct
or indirect material interest.

                                      -25-
PART II

Item 14.  DESCRIPTION OF SECURITIES TO BE REGISTERED

     Not Applicable.

                                    PART III

Item 15.  DEFAULTS UPON SENIOR SECURITIES

     Not Applicable.

Item 16.  CHANGES  IN SECURITIES AND CHANGES IN SECURITY FOR
          REGISTERED SECURITIES

     There have been no material  modifications  in the constituent  instruments
defining  the  rights of the  holders of any class of the  Company's  registered
securities or any material  limitations in the rights  evidenced by any class of
the Company's registered securities.

                                     PART IV

Item 17.  FINANCIAL STATEMENTS

     Not Applicable.

Item 18.  FINANCIAL STATEMENTS

     Reference  is made to Item  19(a)  for a list of all  financial  statements
filed as part of this Annual Report on Form 20-F, which are hereby  incorporated
by this reference and made a part hereof.

                                      -26-
Item 19.  FINANCIAL STATEMENTS AND EXHIBITS

     (a) The  following  Financial  Statements  are filed as part of this Annual
Report: Page

Report of Independent Auditors on the                                  F-1
Consolidated Financial Statements for Years Ended
December 31, 1998 and 1997

Report of Independent Auditors on the                                  F-2
Consolidated Financial Statements for Year Ended
December 31, 1996

Consolidated Balance Sheets at December 31, 1998 and 1997              F-3

Consolidated Statements of Operations for the Years
   Ended December 31, 1998, 1997 and 1996                              F-5

Consolidated Statements of Stockholders' Equity for
   the Years Ended December 31, 1998, 1997 and 1996                    F-6

Consolidated Statements of Cash Flows for the Years
   Ended December 31, 1998, 1997 and 1996                              F-7

Notes to Consolidated Financial Statements                             F-9

     (b) Financial Statements schedules.

          All schedules are omitted as they are not applicable.

     (c) There  are no  exhibits  filed  with this Form 20-F for the year  ended
December 31, 1998.

                                      -27-
SIGNATURES

     Pursuant to the  requirements  of Section 12 of the Securities and Exchange
Act of 1934, the registrant  certifies  that it meets all the  requirements  for
filing on Form 20-F and has duly caused  this annual  report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                     ELECTROCON INTERNATIONAL INC.

Date: July 31, 1999                  By: /s/ Edward Ting
                                        ----------------------------------------
                                         Edward Ting, President, Chief Executive
                                         Officer, Chief Operating Officer,
                                         Chief Financial Officer and
                                         Chairman of the Board
ELECTROCON INTERNATIONAL INC.

                        Consolidated Financial Statements
              For the years ended December 31, 1998, 1997 and 1996
ELECTROCON INTERNATIONAL INC.

CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS                                                                PAGE(S)

Independent Auditors' Report on the Consolidated Financial Statements
  for the years ended December 31, 1998 and 1997                              1

Independent Auditors' Report on the Consolidated
  Financial Statements for the year ended December 31, 1996                   2

Consolidated Balance Sheets at December 31, 1998 and 1997                 3 & 4

Consolidated Statements of Operations for the years
  ended December 31, 1998, 1997 and 1996                                      5

Consolidated Statements of Stockholders' Equity for the
  years ended December 31, 1998, 1997 and 1996                                6

Consolidated Statements of Cash Flows for the years
  ended December 31, 1998, 1997 and 1996                                  7 & 8

Notes to Consolidated Financial Statements                               9 - 22
INDEPENDENT AUDITORS' REPORT

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF ELECTROCON INTERNATIONAL INC.

We have  audited the  accompanying  consolidated  balance  sheets of  Electrocon
International Inc. and its subsidiaries as of December 31, 1998 and 1997 and the
related  consolidated  statements of operations,  stockholders'  equity and cash
flows for the two years in the period ended December 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 auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material respects,  the financial position of Electrocon  International Inc. and
its  subsidiaries  at  December  31,  1998  and 1997  and the  results  of their
operations  and their cash flows for the two years in the period ended  December
31, 1998 in conformity  with  accounting  principles  generally  accepted in the
United States of America.

/s/ Deloitte Touche Tohmatsu
DELOITTE TOUCHE TOHMATSU
Hong Kong
June 15, 1999, except for note 19 as to which is dated July 1, 1999

                                      F-1
INDEPENDENT AUDITORS' REPORT

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
ELECTROCON INTERNATIONAL INC.

We  have  audited  the  accompanying   consolidated  statements  of  operations,
stockholders'  equity and cash flows of  Electrocon  International  Inc. and its
subsidiaries  for the year ended December 31, 1996.  These financial  statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material respects,  the consolidated results of the operations and cash flows of
Electrocon  International  Inc. and its subsidiaries for the year ended December
31, 1996 in conformity  with  accounting  principles  generally  accepted in the
United States of America.

/s/ BDO Binder
BDO Binder
Hong Kong
July 14, 1997

                                      F-2
ELECTROCON INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(Amounts stated in United States Dollars)

                                                                                                    December 31,
                                                                                             1998                  1997
ASSETS                                                                                       ----                  ----
Current assets
Cash and cash equivalents                                                               $     303,990         $     214,832
Restricted cash (Note 8)                                                                    3,956,385             3,714,374
Accounts receivable:
  - Trade, less allowance for doubtful accounts of
      $233,162 (1997: $180,193)                                                             3,866,119             5,153,691
  - Affiliated company, less allowance for doubtful accounts
      of $82,805 (1997: Nil)                                                                  280,146               428,903
  - Others                                                                                    220,275               156,055
Inventories (Note 3)                                                                        2,425,248             3,394,900
Costs in excess of billings on construction contracts (Note 4)                                153,808                  -
Prepaid expenses and deposits                                                                  81,479                61,624
Prepaid income taxes                                                                             -                   41,311
                                                                                          -----------           -----------

Total current assets                                                                       11,287,450            13,165,690

Property and equipment, net (Note 6)                                                          670,251             1,004,794

Investment in an affiliated company                                                             2,234               123,530

Investments in Golf Club memberships, at cost                                                 410,055                99,386

Intangible asset (Note 7)                                                                      98,773                  -
                                                                                          -----------           -----------

Total assets                                                                              $12,468,763           $14,393,400
                                                                                          -----------           -----------
See notes to consolidated financial statements.

                                      F-3
ELECTROCON INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(Amounts stated in United States Dollars)

                                                                                                    December 31,
                                                                                             1998                  1997
LIABILITIES AND STOCKHOLDERS' EQUITY                                                         ----                  ----
Current liabilities
Short-term borrowings (Note 8)                                                            $ 5,481,296           $ 5,766,319
Current portion of obligation under capital leases (Note 9)                                     9,744                 7,167
Loan from related party (Note 10)                                                             500,000                  -
Accounts payable and accrued expenses
  - Trade                                                                                   3,769,818             5,676,670
  - Others                                                                                    337,467               132,747
Billings in excess of costs on construction contracts (Note 5)                                 74,231               150,061
Amount due to director (Note 13)                                                              134,991               127,639
                                                                                          -----------           -----------

Total current liabilities                                                                  10,307,547            11,860,603

Obligations under capital leases, net of current portion (Note 9)                                -                    3,582

Deferred income taxes (Note 12)                                                                45,472                21,566
                                                                                          -----------           -----------

Total liabilities                                                                          10,353,019            11,885,751
                                                                                          -----------           -----------

Commitments and contingencies (Note 14)

Stockholders' equity
Common stock, par value $0.0001 per share;
  authorized 20,000,000 shares;
  issued and outstanding 1998: 7,460,420 shares
  and 1997: 7,160,420 shares                                                                      746                   716
Additional paid-in capital                                                                  6,223,997             5,942,627
Accumulated deficit                                                                        (4,071,655)           (3,398,350)
Foreign currency translation adjustment                                                       (37,344)              (37,344)
                                                                                          -----------           -----------

Total stockholders' equity                                                                  2,115,744             2,507,649
                                                                                          -----------           -----------

Total liabilities and stockholders' equity                                                $12,468,763           $14,393,400
                                                                                          -----------           -----------
See notes to consolidated financial statements.

                                      F-4
ELECTROCON INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts stated in United States Dollars)

                                                                                        Year ended December 31,
                                                                                1998             1997              1996
                                                                                ----             ----              ----
Net revenue                                                                  $22,338,588       $29,086,564      $53,510,211
Cost of sales                                                                 18,587,796        25,811,706       50,078,786
                                                                             -----------       -----------      -----------

Gross profit                                                                   3,750,792         3,274,858        3,431,425
Selling, administrative and general expenses                                   4,003,868         3,502,226        3,563,450
                                                                             -----------       -----------      -----------

Loss from operations                                                            (253,076)         (227,368)        (132,025)
Interest income                                                                  224,438           229,252          214,212
Interest expense                                                                (537,310)         (461,329)        (307,956)
Equity in loss of an affiliated company                                         (121,296)          (37,475)         (11,999)
Other income (Note 11)                                                            37,845           151,115           83,903
                                                                             -----------       -----------      -----------

Loss before income taxes                                                        (649,399)         (345,805)        (153,865)
Provision (credit) for income taxes (Note 12)                                     23,906            21,041         (106,086)
                                                                             -----------       -----------      -----------

Net loss                                                                    $   (673,305)     $   (366,846)    $    (47,779)
                                                                            ------------       -----------      -----------

Loss per share - basic                                                     $      (0.091)    $      (0.054)    $   (0.0073)
                                                                            ------------       -----------      -----------

Weighted average number of shares outstanding                                  7,370,009         6,780,844        6,624,211
                                                                            ------------       -----------      -----------
See notes to consolidated financial statements.

                                      F-5
ELECTROCON INTERNATIONAL INC.
CONSOLIDATED STATEMENTS  OF STOCKHOLDERS' EQUITY
(Amounts stated in United States Dollars)

                                                                                                     Foreign       Total
                                                 Common stock        Additional                     currency      stock-
                                             Shares                    paid-in      Accumulated    translation    holders'
                                           outstanding     Amount      capital        deficit      adjustment     equity
Balance at January 1, 1996                  6,624,211       $662      $4,970,888    $(2,983,725)    $(37,344)    $1,950,481

Loss for the year                                -          -               -           (47,779)        -           (47,779)
                                            ---------    -------       ---------     ----------      -------      ---------

Balance at December 31, 1996                6,624,211        662       4,970,888     (3,031,504)     (37,344)     1,902,702

Issuance of stock bonus
  to employees (Note 1)                        70,000          7          39,368           -            -            39,375

Stock issued in settlement
  of payable (Note 1)                         466,209         47         932,371           -            -           932,418

Loss for the year                                -          -               -          (366,846)        -          (366,846)
                                            ---------    -------       ---------     ----------      -------      ---------

Balance at December 31, 1997                7,160,420        716       5,942,627     (3,398,350)     (37,344)     2,507,649

Stock issued on purchase of
  business (Note 1)                           300,000         30         206,370           -            -           206,400

Issuance of warrant (Note 10)                    -          -             75,000           -            -            75,000

Loss for the year                                -          -               -          (673,305)        -          (673,305)
                                            ---------    -------       ---------     ----------      -------      ---------

Balance at December 31, 1998                7,460,420       $746      $6,223,997    $(4,071,655)    $(37,344)    $2,115,744
                                            ---------    -------       ---------     ----------      -------      ---------
See notes to consolidated financial statements.

                                      F-6
ELECTROCON INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts stated in United States Dollars)

                                                                                        Year ended December 31,
                                                                                1998             1997              1996
                                                                                ----             ----              ----
Cash flows from operating activities:
Net loss                                                                   $    (673,305)      $  (366,846)      $  (47,779)
Adjustments to reconcile net loss
  to net cash provided by operating activities:
    Share of loss of an affiliated company                                       121,296            37,475           11,999
    Issuance of stock bonus to employees                                            -               39,375             -
    Issuance of warrant (Note 10)                                                 75,000              -                -
    Depreciation and amortization                                                149,230           142,852          161,350
    Gain on disposal of property and equipment                                   (31,786)             -              (5,959)
    Provision for doubtful debts                                                 135,774            28,039           86,333
    Deferred income taxes                                                         23,906            21,041          (65,382)
  Changes in assets and liabilities:
    Accounts receivable                                                          954,564          (975,005)        (776,564)
    Inventories                                                                  969,652         1,049,263         (945,884)
    Costs in excess of billings of construction contracts                       (153,808)          145,010          (92,171)
    Prepaid expenses and deposits                                                (19,496)           57,878           (4,522)
    Prepaid income taxes                                                          41,311            49,084          (90,395)
    Accounts payable and accrued expenses                                     (1,765,676)       (1,108,570)       1,870,002
    Billings in excess of costs on construction contracts                        (75,830)          150,061             -
    Income taxes payable                                                            -                 -            (253,035)
                                                                              ----------        ----------       ----------

Net cash used in operating activities                                           (249,168)         (730,343)        (152,007)
                                                                              ----------        ----------       ----------
Cash flows from investing activities:
  Purchase of business, net of cash acquired                                     100,557              -                -
  Proceeds from disposal of property and equipment                               338,214              -              18,846
  Additions to property and equipment                                            (68,050)          (45,102)        (109,392)
  Investment in affiliated company                                                  -                 -             (19,231)
                                                                              ----------        ----------       ----------

Net cash provided by (used in) investing activities                              370,721           (45,102)        (109,777)
                                                                              ----------        ----------       ----------

Balance carried forward                                                     $    121,553       $  (775,445)       $(261,784)
                                                                              ----------        ----------       ----------

                                                                                                           - 7 -

                                      F-7
ELECTROCON INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
(Amounts stated in United States Dollars)

                                                                                        Year ended December 31,
                                                                                1998             1997              1996
                                                                                ----             ----              ----
Balance carried forward                                                      $   121,553         $(775,445)       $(261,784)
                                                                              ----------        ----------       ----------

Cash flows from financing activities:
Payment of obligations under capital leases                                      (12,713)         (109,939)        (171,296)
(Decrease) increase in short-term borrowings                                    (285,023)          812,785          205,440
Increase in restricted cash                                                     (242,011)         (220,865)        (341,998)
Advances from director                                                           134,991           127,639             -
Repayment of advances from director                                             (127,639)             -                -
Loan from related party                                                          500,000              -                -
                                                                              ----------        ----------       ----------

Net cash (used in) provided by financing activities                              (32,395)          609,620         (307,854)
                                                                              ----------        ----------       ----------

Net increase (decrease) in cash and cash equivalents                              89,158          (165,825)        (569,638)
Cash and cash equivalents at beginning of year                                   214,832           380,657          950,295
                                                                              ----------        ----------       ----------

Cash and cash equivalents at end of year                                     $   303,990         $ 214,832        $ 380,657
                                                                              ----------        ----------       ----------

Supplemental disclosure of cash flow information
Cash paid during the year for:
  Interest paid                                                              $   556,014        $  451,464        $ 310,132
  Income taxes (refund)                                                          (41,311)          (49,084)         302,727

Non cash transactions:
  Stock issued in settlement of payable                                      $      -           $  932,418        $    -
  Stock issued for purchase of business                                          206,400              -                -
  Property acquired under capital leases                                            -                 -              23,744
  Golf Club memberships acquired in lieu of settlement
     of account receivable                                                       313,000              -                -

Purchase of business:
  Fair value of assets acquired                                               $  121,037        $     -           $    -
  Stock issued                                                                  (206,400)             -                -
  Cash received                                                                   44,411              -                -
  Goodwill on purchase                                                           116,204              -                -
                                                                              ----------        ----------       ----------

  Liabilities assumed                                                         $   75,252        $     -          $     -
                                                                              ----------        ----------       ----------
See notes to consolidated financial statements.

                                      F-8
ELECTROCON INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in United States Dollars)

         1.       ORGANIZATION AND ACTIVITIES

                  Electrocon  International Inc. ("the Company") is incorporated
         with limited liability in the British Virgin Islands.

                  The Company is a diversified,  Hong Kong-based holding company
         that conducts  operations  through its subsidiaries,  all wholly-owned,
         primarily  in two  separate  business  segments - the  distribution  of
         semiconductor   products   (primarily  computer  chips)  to  small  and
         medium-sized   manufacturers   located   in  the  Hong   Kong   Special
         Administrative  Region ("Hong Kong") of the People's  Republic of China
         ("PRC") and in other  regions of the PRC and the  distribution  of golf
         carts,  irrigation products and systems,  fertilizer and turf equipment
         to golf clubs in Hong Kong,  Macau and the PRC.  In 1995,  the  Company
         also  entered  into the  business  of  distributing  personal  computer
         related  products  through  its  50%  held  affiliated  company,  China
         Electrocon  Limited,  and, in 1996, began  distribution of non-personal
         computer related products.  China Electrocon  Limited became dormant in
         1998. China Electrocon Limited became dormant in 1998.

                  On June 10,  1997,  the Company  issued  70,000  shares of its
         common stock as bonuses to its  employees.  These shares were valued at
         $39,375 for the purpose of calculating stock  compensation to employees
         based on the  quoted  market  price of the  Company's  common  stock of
         $0.5625 on the date of issuance.

                  On September 30, 1997,  the Company  issued  466,209 shares of
         its  common  stock to a  creditor  at a price of $2 per  share  for the
         settlement of debt amounting to $932,148.

                  On April 10, 1998, the Company acquired the entire interest in
         Flownet Irrigation Service Company, an unincorporated  business in Hong
         Kong, for a total consideration of $161,989, which was satisfied by the
         issue of 300,000 shares of common stock less a cash adjustment received
         from the vendor of $44,411. The major activity of the acquired business
         is the provision of irrigation  engineering  services.  The acquisition
         has been  accounted for as a purchase and  accordingly,  the assets and
         liabilities  of the  acquired  business  have  been  recorded  at their
         estimated fair value at the date of acquisition. The excess of purchase
         price over the estimated fair value of the net assets acquired,  in the
         amount of $116,204, has been recorded as goodwill and is amortized over
         5 years.

                  The pro  forma  results  for  1997  and  1998,  assuming  this
         acquisition  had  been  made at the  beginning  of 1997,  would  not be
         materially different from the reported results for these years.

                  The consolidated  financial  statements of the Company and its
         subsidiaries  have been prepared in accordance with generally  accepted
         accounting  principles  in the United States of America  ("U.S.  GAAP")
         which differ from those used in the  statutory  accounts of most of its
         subsidiaries.  There are no material  differences between the U.S. GAAP
         amounts  and  the  amounts  used  in  the  statutory  accounts  of  the
         subsidiaries.

                                      F-9
ELECTROCON INTERNATIONAL INC.

(Amounts stated in United States Dollars)

         2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

                  Principles of  consolidation  -  The  consolidated   financial
         statements  include  the accounts of the Company and its  subsidiaries.
         Intercompany    balances   and    transactions    are   eliminated   on
         consolidation.

                  Investments   in    affiliated  companies, owned  20%  to  50%
         inclusive, are accounted for using the equity method.

                  Cash and cash equivalents - Cash and cash equivalents  include
         cash on hand, cash accounts, interest bearing savings accounts and time
         certificate  of deposit  accounts  with an  original  maturity of three
         months or less.

                  Inventories   -   Inventories,   which   comprise   electronic
         components and spare parts held for resale,  are stated at the lower of
         cost  or  market  value.   Cost,  which  comprises  direct   materials,
         sub-contracting   charges  and  freight,   is   calculated   using  the
         weighted-average method.

                  Construction  contracts - Construction contracts are stated at
         cost plus estimated profit,  less provision for any foreseeable  losses
         and progress billings. Cost includes direct materials, direct labor and
         allocated  overhead  expenses.  Where  construction costs incurred plus
         aggregate estimated profits less foreseeable losses exceed the progress
         billings,  the  excess  is shown in the  balance  sheet  under  current
         assets. For contracts where progress billings exceed construction costs
         incurred plus aggregate  estimated profits less foreseeable losses, the
         excess amount is shown in the balance sheet under current liabilities.

                  Property and  equipment - Property and  equipment is stated at
         cost less accumulated depreciation. The costs of major improvements are
         capitalized  whereas the costs of maintenance  and repairs are expensed
         in the year incurred. Depreciation and amortization are provided on the
         declining  balance  method  except for  leasehold  land in the PRC held
         under long lease,  which is amortized on a straight-line  basis, at the
         following rates per annum:

               Leasehold land in the PRC held under long lease             2%
               Buildings erected thereon                                   2%
               Furniture, fixtures and office equipment             15% - 25%
               Motor vehicles                                             25%
               Motor vessels                                              15%
               Leasehold improvements                                     15%

                  Long lease is  defined  as a lease  having 50 or more years to
         run.

                  Valuation  of  long-lived  assets - The  Company  periodically
         evaluates the carrying value of long-lived  assets to be held and used,
         including  goodwill  and  other  intangible  assets,  when  events  and
         circumstances warrant such a review. The carrying value of a long-lived
         asset is considered  impaired when the  anticipated  undiscounted  cash
         flow from such asset is  separately  identifiable  and is less than its
         carrying value. In that event, a loss is recognized based on the amount
         by which  the  carrying  value  exceeds  the fair  market  value of the
         long-lived asset.  Fair market value is determined  primarily using the
         anticipated cash flows discounted at a rate  commensurate with the risk
         involved. Losses on long-lived assets to be  disposed of are determined

                                      F-10
ELECTROCON INTERNATIONAL INC.

         in a similar manner, except that fair market values are reduced for the
         costs to dispose.

(Amounts stated in United States Dollars)

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

                  Loss per share - Loss per share is  calculated  based upon the
         weighted  average number of common shares and common share  equivalents
         outstanding.  The dilutive  effect of share options and warrants  which
         are common share  equivalents  is calculated  using the treasury  stock
         method.  On March 3, 1997,  the Financial  Accounting  Standards  Board
         ("FASB") issued Statement of Financial  Accounting  Standards  ("SFAS")
         No. 128,  "Earnings  Per Share".  This  pronouncement  provides for the
         calculation  of basic and diluted  earnings per share.  The adoption of
         this new  standard  had no impact on the  Company.  The effect of stock
         options and  warrants on loss per share would be  anti-dilutive  and no
         diluted loss per share is disclosed.  The stock options  expired during
         the year ended December 31, 1998.

                  Revenue  recognition - The Company recognizes revenue from the
         sale of goods and  services at the time when  shipments of products and
         services  rendered are made to customers  and provides an allowance for
         estimated  costs  associated with returns of  non-conforming  products.
         Profits from construction contracts which are expected to last for over
         one year are  recognized  under  the  percentage-of-completion  method,
         using progress  billings in relation to estimated  total revenue of the
         contracts  to  measure  the stage of  completion.  Estimated  profit is
         recognized  only  when a  contract  is more than 20%  completed  at the
         balance sheet date.

                  Income taxes - Deferred income  taxes are  provided at enacted
         statutory  rates for temporary  differences resulting from  differences
         between the book and tax bases of assets and liabilities  in accordance
         with SFAS No. 109 "Accounting for Income Taxes".

                  Foreign  currency  translation  - Assets  and  liabilities  of
         foreign  subsidiaries are translated at year end exchange rates,  while
         revenues and expenses are translated at average currency exchange rates
         during  the  year.   Adjustments  resulting  from  translating  foreign
         currency  financial  statements are reported as a separate component of
         stockholders'   equity.   Gains  or  losses   from   foreign   currency
         transactions are included in the statement of operations.

                  Post-retirement  and  post-employment  benefits - The  Company
         does not provide  post-retirement  benefits,  other than pensions,  and
         post-employment benefits, if any, are not significant.

                  Stock-based  compensation  - The FASB  issued  SFAS  No.  123,
         "Accounting  for  Stock-Based  Compensation"  in October 1995. SFAS 123
         encourages  companies to adopt a fair value  approach to accounting for
         stock  options that would  require  compensation  cost to be recognized
         based on the fair  value of stock  options  granted.  The  Company  has
         elected,  as  permitted  by the  standard,  to  continue  to follow the
         intrinsic  value based method of accounting for stock options issued to
         employees consistent with Accounting  Principles Board (APB) Option No.
         25,  "Accounting  for Stock Issued to  Employees."  Under the intrinsic
         method,  compensation cost for stock options is measured as the excess,
         if any,  of the  quoted  market  price  of the  Company's  stock at the
         measurement date over the exercise price.

                                      F-11
ELECTROCON INTERNATIONAL INC.

(Amounts stated in United States Dollars)

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

                  Concentration  of credit risk - The Company sells to customers
         located in Hong Kong and other  regions of the PRC. The Company  grants
         credit to all  qualified  customers on an unsecured  basis but does not
         believe it is exposed to any undue  concentration of credit risk to any
         significant degree.

                  New  accounting  standards  adopted  - In  1999,  the  Company
         adopted  SFAS No. 130  "Reporting  comprehensive  Income",  SFAS No.131
         "Disclosures  about Segments of an Enterprise  and Related  Information
         and SFAS No. 132 "Employers'  Disclosures  about Pensions and the other
         Post-retirement Benefits".

                  SFAS No. 130, "Reporting  Comprehensive  Income",  establishes
         standards  for  reporting  and  display of  comprehensive  income,  its
         components and accumulated balances. Comprehensive income is defined to
         include all changes in equity except those  resulting from  investments
         by owners and distributions to owners.  Among other  disclosures,  SFAS
         No. 130  requires  that all items that are  required  to be  recognized
         under  current  accounting  standards as  components  of  comprehensive
         income be reported in a financial  statement that is displayed with the
         same  prominence as other financial  statements.  Since the Company did
         not have any items of other comprehensive income in the years reported,
         the net loss reported in the  consolidated  statements of operations is
         equivalent to total comprehensive loss.

                  SFAS No. 131, "Disclosures about Segments of an Enterprise and
         Related   Information",   which  supersedes  SFAS  No.  14,  "Financial
         Reporting for Segments of a Business Enterprise", establishes standards
         for the way that public  enterprises report information about operating
         segments in interim financial  statements issued to the public. It also
         establishes  standards for disclosures regarding products and services,
         geographic  areas and major customers.  SFAS No. 131 defines  operating
         segments as components of an enterprise about which separate  financial
         information  is  available  that is  evaluated  regularly  by the chief
         operating  decision maker in deciding how to allocate  resources and in
         assessing performance.  The adoption of SFAS No. 131 had no significant
         effect on disclosure.

                  SFAS No. 132, "Employers' Disclosures about Pensions and Other
         Post-retirement  Benefits",  amends  the  disclosure  requirements  for
         pensions and other post-retirement benefits.  Adoption of this standard
         did not change the Company's financial statement disclosures.

                  New  accounting  standard  not  yet  adopted  - The  Financial
         Accounting  Standards  Board  has  issued a new  standard  SFAS  No.133
         "Derivative Instruments and Hedging Activities". Management has not yet
         completed the analysis of the impact this would have on the financial
         statements of the Company.

                  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 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.

                                      F-12
ELECTROCON INTERNATIONAL INC.

(Amounts stated in United States Dollars)

         3.       INVENTORIES

                  The components of inventories were as follows:

                                                   December 31,
                                            1998                  1997
                                            ----                  ----

         Finished goods                   $2,176,867            $2,501,729
         Raw materials and spare parts       248,381               893,171
                                          ----------            ----------

                                          $2,425,248            $3,394,900
                                          ----------            ----------

         4.       COSTS IN EXCESS OF BILLINGS ON CONSTRUCTION CONTRACTS

                  Costs in excess of billings on construction contracts included
the following:

                                                 December 31,
                                          1998                  1997
                                          ----                  ----

         Costs incurred                  $652,769             $   2,517
         Add: Estimated profit            265,864                13,637
                                         --------              --------

                                          918,633                16,154

         Less: Progress billings         (764,825)              (16,154)
                                         --------              --------

                                         $153,808             $    -
                                         --------              --------

                                      F-13
ELECTROCON INTERNATIONAL INC.

(Amounts stated in United States Dollars)

         5.       BILLINGS IN EXCESS OF COSTS ON CONSTRUCTION CONTRACTS

                  Billings in excess of costs on construction contracts included
the following:
December 31,
                                                                   1998                  1997
                                                                   ----                  ----
Costs incurred                                          $  59,614             $  10,730
         Add: Estimated profit                                      61,732                  -
                                                                  --------              --------

                                                                   121,346                10,730
         Less: Progress billings                                   195,577               160,791
                                                                  --------              --------
                                                                 $  74,231              $150,061
                                                                  --------              --------
6.       PROPERTY AND EQUIPMENT, NET
December 31,
                                                                  1998                  1997
                                                                  ----                  ----
Cost
         Land and buildings held under long lease               $     -              $   314,920
         Furniture, fixtures and office equipment                  561,317               529,724
         Motor vessels                                             477,148               477,148
         Motor vehicles                                            254,425               185,952
         Leasehold improvements                                    115,714               128,535
                                                                 ---------             ---------

         Total                                                   1,408,604             1,636,279
         Less: Accumulated depreciation and amortization           738,353               631,485
                                                                 ---------            ----------

                                                                $  670,251            $1,004,794
                                                                 ---------            ----------
Included in property and equipment are the following  assets  acquired under
capital leases:

                                                             December 31,
                                                      1998              1997
                                                      ----              ----
         Cost
         Motor vehicles                               $54,282          $23,744
         Less: Accumulated amortization                15,938           10,447
                                                      -------          -------

                                                      $38,344          $13,297
                                                      -------          -------

                                      F-14
ELECTROCON INTERNATIONAL INC.

(Amounts stated in United States Dollars)

                  Motor  vessels with net book values  amounting to $268,518 and
         $315,903 as of December 31, 1998 and 1997, respectively, are registered
         in the name of a third party as trustee for the Company.

         7.       INTANGIBLE ASSET
                                                            December 31,
                                                       1998             1997
                                                       ----             ----

         Goodwill on purchase of business (note 1)    $ 116,204       $     -
         Less: Amortization                              17,431             -
                                                      ---------        ---------

                                                      $  98,773       $     -
                                                      ---------        ---------

         8.       SHORT-TERM BORROWINGS

                  The  outstanding  amounts at the balance sheet dates represent
         overdrafts,  letters of credit and trust  receipts  loan  balances with
         various banks.  The facilities and the amounts  utilized at the balance
         sheet dates are as follows:
December 31,
                                                              1998                  1997
                                                              ----                  ----
Credit facilities granted                          $6,089,744            $6,243,590
                                                             ---------             ---------

         Utilized                                           $5,481,296            $5,766,319
                                                             ---------             ---------

         Weighted average interest rate on borrowings
           at end of year                                        10.8%                  9.8%
                                                             ---------             ---------
The Company  maintains  short-term  bank credit  lines in Hong
         Kong for use in its  operations  in Hong Kong and other  regions of the
         PRC.  Interest  rates are  generally  based on the banks' prime lending
         rates,  and cost of funds and the credit lines are normally  subject to
         annual review.  At December 31, 1998 the above banking  facilities were
         secured by bank deposits of approximately $3.9 million. In addition, at
         December 31, 1998 a director has pledged  personal  bank  deposits to a
         bank as collateral for facilities of approximately  $2,948,718 provided
         to the Company of which  approximately  $2,660,689  was utilized at the
         balance  sheet  date.  No  charges  have  been made in  respect  of the
         provision of the collateral.

                                      F-15
ELECTROCON INTERNATIONAL INC.

(Amounts stated in United States Dollars)

         9.       OBLIGATIONS UNDER CAPITAL LEASES

                  Obligations under capital leases consist of the following:
December 31,
                                                                               1998                  1997
                                                                               ----                  ----
Capital leases at 7.25% per annum, due in
           installments to June 1999                                         $   3,582                10,749
         Capital lease at 12.75% per annum, due in
           installments to October 1999                                          6,162                  -
                                                                              --------              --------

                                                                                 9,744                10,749
         Less: Current portion of obligations under capital leases               9,744                 7,167
                                                                              --------              --------

                                                                             $    -                 $  3,582
                                                                              --------              --------
10.      LOAN FROM RELATED PARTY

                  In March 1998, a subsidiary  of the Compay  obtained a standby
         letter of credit for one of its  suppliers  from a bank.  The letter of
         credit was  collateralized by a security interest in a $500,000 deposit
         owned by Glas-Aire Industries Group Ltd.  ("Glas-Aire").  At that time,
         Mr. Edward Ting was Chief Executive  Officer,  Chairman of the Board of
         Directors and a principal shareholder of Glas-Aire and Chris G. Mendrop
         and Clement Cheung were directors of Glas-Aire.  As  consideration  for
         Glas-Aire  agreeing to provide the  security  for the letter of credit,
         the  Company  agreed  as  follows:  (i)  issue to  Glas-Aire  a warrant
         exercisable  for a period of five years from March 25, 1998 to purchase
         250,000  shares of the Company's  Common Stock at an exercise  price of
         $1.00 per share  during  the first  year,  $1.10 per share  during  the
         second  year,  $1.20 per share  during the third year,  $1.50 per share
         during the fourth year and $1.75 per share during the fifth year;  (ii)
         to pay  Glas-Aire  a fee  in the  amount  of 1% of the  collateral,  or
         $5,000,  payable in advance for the six month  period  beginning on the
         date the letter of credit was issued by the bank and an additional  fee
         of 1%, also payable in advance,  for the six-month  period  immediately
         following the initial six-month period, if the collateral  continued to
         be utilized for the letter of credit,  with the understanding  that the
         collateral  would be made available by Glas-Aire to  collateralize  the
         letter of credit  for a period  not to exceed  one year;  and (iii) the
         pledge to Glas-Aire by Mr. Ting of all shares of Glas-Aire common stock
         owned by him, his wife or under his control. The Company has recognized
         expense of $75,000 in 1998 in respect of the warrant. In November 1998,
         the  Company  defaulted  on the  letter of credit and  $250,000  of the
         collateral  was  seized,  resulting  in the Company  being  indebted to
         Glas-Aire in the amount of $250,000. In December 1998, Glas-Aire made a
         loan to the Company in the principal amount of $500,000 and $250,000 of
         the loan proceeds was used to repay Glas-Aire for the seized collateral
         for the letter of credit. This loan was evidenced by a promissory note,
         bore interest at the rate of 10% per annum,  unless a default  occurred
         in which case the interest  rate would  increase to 12% and was payable
         on demand.  The loan was  secured by a first  priority  lien on 212,331
         shares of Glas-Aire  common stock owned by Mr. Edward Ting and a second
         priority lien on the remaining 301,584 shares of Glas-Aire common stock
         owned by Edward  and Viola Ting which had  previously  been  pledged to
         secure the letter of credit arrangement. In April 1999, Mr. Edward Ting
         purchased the promissory  note from Glas-Aire in order to enable him to
         sell his  Glas-Aire  shares  which were  encumbered  by the debt.  As a
         result,  the  Company  is now  indebted  to Mr.  Ting in the  amount of
         $500,000, plus interest. In addition, Glas-Aire transferred the warrant
         to Mr. Ting.

                                      F-16
ELECTROCON INTERNATIONAL INC.

         11.      OTHER INCOME
                                               Years ended December 31,
                                        1998           1997            1996
                                        ----           ----            ----
         Foreign exchange gain         $   -          $  64,668        $37,418
         Other                           37,845          86,447         46,485
                                       --------        --------       --------

                                       $ 37,845        $151,115        $83,903
                                       --------        --------       --------

         12.      INCOME TAXES

                  Under  current  law,  the  Company's  income is not subject to
         taxation in the British  Virgin  Islands.  The Hong Kong  subsidiaries'
         income tax  provision  has been  calculated  by applying  the Hong Kong
         statutory  income tax rates of 16%, 16.5% and 16.5% for the years ended
         December 31, 1998, 1997 and 1996 to the subsidiaries' estimated taxable
         income  which was  earned in or  derived  from  Hong  Kong  during  the
         respective years. Each company in Hong Kong files a separate tax return
         and tax  losses are  available  only  against  that  company's  taxable
         income.  The Company is not  subject to income tax in other  regions of
         the PRC.

                  The  provision for  income taxes represents Hong Kong taxation
         as follows:
Years ended December 31,
                                                     1998             1997              1996
                                                     ----             ----              ----
Current year provision                     $   -             $   -           $    -
        Overprovision in prior years                   -                 -             (40,704)
                                                    --------          --------         --------
                                                        -                 -             (40,704)
        Deferred tax provision (credit)               23,906            21,041          (65,382)
                                                    --------          --------         --------
        Provision (credit) for income taxes         $ 23,906          $ 21,041        $(106,086)
                                                    --------          --------         --------
A  reconciliation  of income  tax  provision  (credit)  to the
         amount computed by applying the Hong Kong statutory income tax rates to
         (loss)  income before  income taxes in the  consolidated  statements of
         operations is as follows:
Years ended December 31,
                                                                        1998             1997              1996
                                                                        ----             ----              ----
Hong Kong statutory tax rate                                       16%             16.5%            16.5%

         Income tax at Hong Kong statutory
           rate on pre-tax loss                                        $(72,237)         $(71,080)      $  (22,252)
         Over-provision of tax in prior year                               -                 -             (40,703)
         Operating loss (profit) not subject to income tax               96,143            92,121          (40,325)
         Other                                                             -                 -              (2,806)
                                                                       --------          --------         --------
                                                                       $ 23,906          $ 21,041        $(106,086)
                                                                       --------          --------         --------
F-17
ELECTROCON INTERNATIONAL INC.

(Amounts stated in United States Dollars)

     At  the balance sheet date,  the major  components  of deferred  income tax
         liabilities are as follows:
                                                     December 31,
                                              1998                  1997
                                              ----                  ----

         Tax loss carry forwards            $ 245,092              $151,489
         Depreciation                         (64,681)              (89,110)
         Valuation allowances                (225,883)              (83,945)
                                             --------              --------

         Deferred income tax liability       $(45,472)             $(21,566)
                                             --------              --------

                At December  31,  1998 the Company had tax losses of  $1,531,822
        which are available for carry forward indefinitely.

         13.      RELATED PARTY TRANSACTIONS

                Related  party  transactions  not  described  elsewhere in these
        financial statements are as follows:

                  a)  The   Company   has   provided  a  director   with  leased
                  accommodation  on a monthly  basis for his use since 1992 at a
                  monthly rental of approximately $2,000.

                  b)  The  Company  leases  residential   accommodation  from  a
                  director at a monthly rental of  approximately  $2,821 under a
                  lease which is renewable on an annual basis.  Rental  expenses
                  amounted  to $33,846,  $33,846  and $33,846 in 1998,  1997 and
                  1996, respectively.

                  c) In 1997,  the Company  issued  70,000  shares of its common
                  stock as bonus to its employees and a director received 20,000
                  of those shares.

                  d) In 1997,  a  director  advanced  $127,639,  to the  Company
                  bearing  interest at 10% per annum.  The advance was repaid in
                  1998.

                  e) In 1998,  another director advanced $134,991 to the Company
                  interest-free without repayment terms.

                  f)  At  December  31,  1998,  a  director  has  also  provided
                  collateral for banking  facilities  provided to the Company as
                  detailed in Note 8.

                  g) Sales by the  Company to China  Electrocon  Limited,  a 50%
                  held  affiliate,  totalled  $Nil in 1998,  $81,000  in 1997and
                  $950,416 in 1996.

                                      F-18
ELECTROCON INTERNATIONAL INC.

(Amounts stated in United States Dollars)

         14.      OPERATING LEASE COMMITMENTS

                  The Company leases  premises under  operating  leases expiring
         through  September  2001.  Rental  expense under  operating  leases was
         $170,788 in 1998, $219,679 in 1997 and $252,524 in 1996. As of December
         31, 1998, future minimum rental payments under operating leases were as
         follows:

               1999                      $159,006
               2000                       110,128
               2001                        58,686
                                         --------

         Total minimum lease payments    $327,820
                                         --------

         15.      STOCK OPTION PLANS

                  In  July  1995,  the  Company  granted  stock  options  to its
         employees to purchase up to 325,017  shares of common stock.  Under the
         plan, a maximum of 108,339  shares of common stock may be acquired at a
         price of $1 per share  within the period from July 28, 1995 to December
         31, 1996;  a maximum of 108,339  shares of common stock may be acquired
         at a price of $1.25 per  share  within  the  calendar  year  commencing
         January 1, 1997; and a maximum of 108,339 shares of common stock may be
         acquired  at a price  of $1.50  per  share  within  the  calendar  year
         commencing  January  1,  1998.  The right to  acquire  these  shares is
         cumulative and non-assignable. These options expire upon termination of
         employment  with the Company.  No stock  compensation  to employees was
         calculated  as the  exercise  price was in excess of the quoted  market
         price  for the  Company's  common  stock  ($0.3125)  on the date  these
         options were first granted.

                  In August 1995,  the Company also granted stock options to its
         shareholders,  some of whom are officers,  to purchase 1,900,000 shares
         of common  stock at a price of $1.50.  Under  the  plan,  a maximum  of
         633,334  shares of common stock may be acquired  within the period from
         August 22, 1995 to December 31,  1996,  a maximum of 633,333  shares of
         common  stock may be  acquired  within  the  calendar  year  commencing
         January 1, 1997; and a maximum of 633,333 shares of common stock may be
         acquired within the calendar year commencing January 1, 1998. The right
         to acquire the shares is cumulative and may be assigned.

                  The following summarizes the stock options outstanding:

                                      Number                Average
                                     of shares             exercise
                                                             price

         At January 1, 1996           2,225,017              $1.46
         Expired                       (741,673)              1.43
                                      ---------              -----

         December 31, 1996            1,483,344               1.48
         Expired                       (741,672)              1.46
                                      ---------              -----

         December 31, 1997              741,672              $1.50
         Expired                       (741,672)              1.50
                                      ---------              -----
         December 31, 1998                 -               $   -
                                      ---------              -----

                                      F-19
ELECTROCON INTERNATIONAL INC.

(Amounts stated in United States Dollars)

                  The  grant-date  fair value of the options  granted in 1995 is
         estimated to be $0.07 per share using the Black-Scholes  option pricing
         model with the  following  assumptions:  (a)  risk-free  interest  rate
         5.56%;  (b) expected  life - 2 years (c)  expected  volatility - 91.1%;
         expected dividend yield - Nil.

                  The  Company has  accounted  for the stock  options  using the
         intrinsic value method. As the effect on net income,  basic and diluted
         earnings per  share is  insignificant had the  Company adopted the fair
         value  based  method  of  accounting  for  stock  options,  no separate
         disclosure is noted.

         16.      EMPLOYEE BENEFIT PLAN

                  Commencing  January 1996 the employees of the entities located
         in Hong Kong are covered under a defined contribution plan covering all
         full-time  monthly-paid  permanent  staff under the  employment  of the
         entities   located  in  Hong  Kong.   The  plan   provides  for  annual
         contributions  by  the  Company  of  5%  of  eligible  compensation  of
         employees based on length of service.

                  The expense related  to the above  plan was  $26,037  in 1998,
         $33,319 in 1997 and $36,897 in 1996.

         17.      SUPPLEMENTARY INFORMATION

                  Movements on allowances for doubtful accounts are as follows:
Balance at            Charged to              Balance
                                                                      beginning             cost and               at end
                                                                       of year              expenses               of year
Year ended December 31, 1998                                   $180,193             $135,774              $315,967
                                                                        --------             --------              --------

         Year ended December 31, 1997                                   $152,154             $ 28,039              $180,193
                                                                        --------             --------              --------

         Year ended December 31, 1996                                  $  65,821             $ 86,333              $152,154
                                                                        --------             --------              --------
18.      FAIR VALUE OF FINANCIAL INSTRUMENTS

                  The  following  disclosure  of the  estimated  fair  value  of
         financial  instruments is made in accordance  with the  requirements of
         SFAS No. 107 "Disclosures  About Fair Value of Financial  Instruments".
         The estimated  fair value amounts have been  determined by the Company,
         using  available   market   information   and   appropriate   valuation
         methodologies.  The  estimates  presented  herein  are not  necessarily
         indicative  of the amounts that the Company  could realize in a current
         market  exchange.  The carrying  amounts of cash and cash  equivalents,
         inventories,  accounts  receivable,  accounts  payable  and  short-term
         borrowings are reasonable estimates of their fair value.

                                      F-20
ELECTROCON INTERNATIONAL INC.

(Amounts stated in United States Dollars)

         19.      SUBSEQUENT EVENT

                           In July  1999,  the  Company  entered  into a license
         agreement with an unaffiliated third party which grants it the right to
         manufacture,  use and sell certain  technology  in exchange for 250,000
         shares  of  the  Company's   common  stock.   Management  is  currently
         investigating the feasibility of pursuing this business opportunity.

         20.      SEGMENT INFORMATION

                  The  Company's   operations   comprise  the   distribution  of
         electronic  components  in  Hong  Kong  and  the  distribution  of golf
         equipment  and  installation  of golf course  irrigation  and  drainage
         systems in Hong Kong and in other regions of the PRC. The  geographical
         and  industrial  distribution  of sales,  operating  income  (loss) and
         assets,  major customers and suppliers for the years ended December 31,
         1998, 1997 and 1996 are shown as follows:

                  Geographical segments
Other
                                                                       regions of
                                                  Hong Kong              the PRC                Total
Year ended December 31, 1998:

         Net revenues                             $10,557,498          $11,781,090           $22,338,588
         Operating income (loss)                       93,676             (346,752)             (253,076)
         Total assets                               8,741,455            3,727,308            12,468,763
         Long-lived assets                            646,157              532,922             1,179,079
                                                  -----------          -----------           -----------
         Year ended December 31, 1997:

         Net revenues                             $16,438,529          $12,648,035           $29,086,564
         Operating income (loss)                       66,811             (294,179)             (227,368)
         Total assets                               8,864,269            5,529,131            14,393,400
         Long-lived assets                            921,216              182,964             1,104,180
                                                  -----------          -----------           -----------
         Year ended December 31, 1996:

         Net revenues                             $43,870,274           $9,639,937           $53,510,211
         Operating income (loss)                      815,173             (947,198)             (132,025)
         Total assets                              12,515,969            2,311,885            14,827,854
         Long-lived assets                          1,022,512              179,418             1,201,930
                                                  -----------          -----------           -----------
F-21
ELECTROCON INTERNATIONAL INC.

(Amounts stated in United States Dollars)

         20.      SEGMENT INFORMATION - continued

                  Business segments
Distribution          Distribution
                                               and sale of        and installation
                                             semi-conductors           of golf
                                             and electronic           equipment
                                               spare parts           and systems              Total
Year ended December 31, 1998:

         Net revenues                           $16,698,983           $5,639,605           $22,338,588
         Operating income (loss)                     91,266             (344,342)             (253,076)
         Total assets as of December 31           9,138,068            3,330,695            12,468,763
         Capital expenditure                         18,798               49,252                68,050
         Depreciation and amortization               97,453               51,777               149,230
                                                -----------          -----------           -----------

         Year ended December 31, 1997:

         Net revenues                                                $23,151,881           $5,934,683           $29,086,564
         Operating income (loss)                                          61,950             (289,318)             (227,368)
         Total assets as of December 31                               10,333,770            4,059,630            14,393,400
         Capital expenditure                                              22,263               22,839                45,102
         Depreciation                                                    115,232               25,289               140,521
                                                                     -----------          -----------           -----------

         Year ended December 31, 1996:

         Net revenues                                                $47,679,740           $5,830,471           $53,510,211
         Operating income (loss)                                        (446,329)             314,304              (132,025)
         Total assets as of December 31                               11,768,643            3,059,211            14,827,854
         Capital expenditure                                              80,521               52,615               133,136
         Depreciation                                                    133,562               25,457               159,019
                                                                     -----------          -----------           -----------
Major customers and suppliers

                  No single  customer  accounted  for 10% or more of total sales
         for the years ended  December 31, 1998,  1997 and 1996.  The  Company's
         principal suppliers are Texas Instruments Asia Limited,  Zilog Inc. and
         TDK Semiconductor Corporation which represented, respectively, 32%, 25%
         and 15% in 1998 and 47%,  13% and 12% in 1997 of total  purchases.  The
         Company's  principal  supplier is Texas  Instruments Asia Limited which
         represented 87% in
         1996 of total purchase.

                                      F-22