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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
(Mark One)
[X] ANNUAL  REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE ACT OF
    1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1998

                                       OR

[ ] TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
    OF 1934 [NO FEE REQUIRED]

For the transition period from             to 
                              ------------    ----------

Commission file number 0-14659
                       -------

                                 TECHDYNE, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

           FLORIDA                                         59-1709103      
(State or other jurisdiction of                        (I.R.S. Employer
 incorporation or organization)                        Identification No.)

2230 W. 77TH STREET, HIALEAH, FLORIDA                                  33016  
--------------------------------------------------------------------------------
(Address of principal executive offices)                             (Zip Code)

                  Registrant's telephone number (305) 556-9210
                                                --------------

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

                       Securities registered under Section
                               12(g) of the Act:

                               Title of each class
                          Common Stock, $.01 par value
                         Common Stock Purchase Warrants

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

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

         The aggregate  market value of the voting stock held by  non-affiliates
of the registrant  computed by reference to the closing price at which the stock
was sold on March 11, 1999 was approximately $5,600,000.

         As of March 11, 1999 the Company had  5,250,167  outstanding  shares of
its common stock.

                       DOCUMENTS INCORPORATED BY REFERENCE
         Part III  incorporates  information by reference  from the  Information
Statement in connection with the Registrant's  Annual Meeting of Shareholders to
be held on June 9, 1999.

         Registrant's  Registration  Statement on Form SB-2 dated July 26, 1995,
as amended August 21, 1995 and September 1, 1995,  Registration  No.  33-94998-A
Part II, Item 27, Exhibits.

         Registrant's  Registration  Statement  on Form S-3 dated  December  11,
1996, Registration No. 333-15371, Part II, Item 16, Exhibits.

         Annual  Report,  Form 10-K,  for the years ended  December 31, 1995 and
1997, Part IV, Exhibits.

         Annual Reports for Registrant's Parent,  Medicore, Inc., Forms 10-K for
the year ended December 31, 1994, Part IV, Exhibits.
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<PAGE>


                                 TECHDYNE, INC.

                       Index to Annual Report on Form 10-K
                          Year Ended December 31, 1998
<TABLE>
<CAPTION>
                                                                                                Page
                                                                                                ----

                                               PART I
<S>      <C>                                                                                     <C>
         Item 1.  Business....................................................................... 1

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

         Item 3.  Legal Proceedings............................................................. 13

         Item 4.  Submission of Matters to a Vote of Security Holders........................... 13

                                              PART II

         Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters......... 14

         Item 6.  Selected Financial Data....................................................... 14

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

         Item 7A. Quantitative and Qualitative Disclosure About Market Risk..................... 23

         Item 8.  Financial Statements and Supplementary Data................................... 23

         Item 9.  Changes in and Disagreements with Accountants on Accounting and
                    Financial Disclosure........................................................ 23

                                              PART III

         Item 10. Directors and Executive Officers of the Registrant............................ 24

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

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

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

                                              PART IV

         Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............... 25
</TABLE>

<PAGE>


                                     PART I

             CAUTIONARY NOTICE REGARDING FORWARD-LOOKING INFORMATION

         The  statements  contained in this Annual  Report on Form 10-K that are
not historical are forward-looking  statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities  Exchange Act of
the 1934.  The Private  Securities  Litigation  Reform Act of 1995 (the  "Reform
Act")  contains  certain  safe  harbors  regarding  forward-looking  statements.
Certain of the  forward-looking  statements include  management's  expectations,
intentions and beliefs with respect to the growth of Techdyne,  Inc., the nature
of the electronics industry in which it is engaged as a manufacturer,  Techdyne,
Inc.'s business  strategies and plans for future  operations,  needs for capital
expenditures,  capital resources,  liquidity and operating results,  and similar
expressions  concerning  matters  that  are not  historical  facts.  See Item 7,
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations."   Such   forward-looking   statements  are  subject  to  risks  and
uncertainties  that could cause actual  results to materially  differ from those
expressed in the statements,  including  general  economic,  market and business
conditions,  opportunities  taken or  abandoned,  competition  and other factors
discussed  periodically  in Techdyne,  Inc.'s  reports and filings.  Many of the
foregoing factors are beyond the control of Techdyne, Inc.

         All  forward-looking  statements included in this document are based on
information  available to Techdyne,  Inc. on the date hereof,  and it assumes no
obligation  to  update  any  such  forward-looking   statement.   The  following
cautionary  statements  are being made pursuant to the  provisions of the Reform
Act with the  intention of  Techdyne,  Inc.  obtaining  the benefits of the safe
harbor  provisions of the Reform Act.  Among the factors that could cause actual
results to differ  materially are the factors detailed in the risks discussed in
the "Risk Factors" section included in Techdyne, Inc.'s Registration Statements,
as filed with the Securities and Exchange  Commission  ("Commission")  Form SB-2
(effective  September 13, 1995), and Forms S-3,  effective November 11, 1996 and
November 4, 1997, respectively.  Accordingly, readers are cautioned not to place
undue reliance on such forward-looking statements.


ITEM 1.  BUSINESS

         Techdyne,  Inc. is an international contract manufacturer of electronic
and   electro-mechanical    products,   primarily   manufactured   to   customer
specifications  and designed for original equipment  manufacturers  ("OEMs") and
distributors in the data  processing,  telecommunications,  instrumentation  and
food  preparation  equipment  industries.   Custom-designed  products  primarily
include complex printed circuit boards ("PCBs"),  conventional and molded cables
and wire harnesses, and electro-mechanical  assemblies. In addition, the Company
also provides OEMs with value-added, turnkey contract manufacturing services and
total systems assembly and integration.  The Company also delivers manufacturing
and test  engineering  services  and  materials  management,  with  flexible and
service-oriented   manufacturing   and  assembly  services  for  its  customers'
high-tech and rapidly changing products.

         Approximately  90% of sales are  domestic  and 10% are  effected by the
Company's  wholly  owned  subsidiary,  Techdyne  (Scotland)  Limited  ("Techdyne
(Scotland)") in the European markets and to a limited extent in the Middle East.
The Company has another Scottish subsidiary, Techdyne Livingston Limited. Unless
otherwise noted, Techdyne and its subsidiaries shall be referred to collectively
as "Techdyne" or the "Company."

         Included  among  its  customers  are  several  Fortune  500  companies.
Services and products are marketed through an in-house  sales/marketing staff of
21 persons,  in conjunction with approximately  four independent  manufacturer's
sales representative firms with approximately 13 sales representatives.

<PAGE>


         The Company was incorporated in Florida in 1976,  acquired by Medicore,
Inc.  ("Medicore" or the "Parent") in 1982, and became a public company in 1985.
Medicore,  a Nasdaq  National  Market  company,  owns  approximately  62% of the
Company's common stock (approximately 70% with its convertible promissory note).
See  "Security  Ownership  of  Certain  Beneficial  Owners and  Management"  and
"Certain  Relations  and  Related  Transactions"  of the  Company's  Information
Statement  relating to the Annual Meeting of  Shareholders to be held on June 9,
1999, which is incorporated herein by reference.

         The Company's  executive  offices are located at 2230 West 77th Street,
Hialeah, Florida 33016. The Company's telephone number is (305) 556-9210 and its
internet address is www.tcdn.com.

ELECTRONIC MANUFACTURING INDUSTRY

         In recent years,  the electronic  contract  manufacturing  industry has
exhibited substantial growth. The Company believes this growth has resulted from
a vastly increased number of OEMs adopting an external manufacturing  philosophy
coupled  with  the  growth  of the  electronics  industry.  This  philosophy  is
motivated by the increased capital necessary to acquire modern, highly automated
manufacturing   equipment   for  the  OEMs  to  access   leading   manufacturing
technologies  and  capabilities,  to reduce  inventory,  and to realize the cost
benefits of the improved  purchasing  power,  labor  efficiency and overall cost
benefits of contract  manufacturers.  The Company  believes  that many OEMs view
contract  manufacturers  as an integral  part of their  manufacturing  strategy.
Using outsourcing for their manufacturing of electronic  assemblies also enables
OEMs to focus on  product  development,  reduce  working  capital  requirements,
improve  inventory  management  and  marketability.  OEMs  are  looking  more to
contract manufacturers, like Techdyne, to provide a broader scope of value-added
services,  including manufacturing,  engineering and test services. OEMs rely on
contract  manufacturers not only for partial  component  assemblies but complete
turnkey  manufacturing  of  entire  finished  products.   Techdyne  assists  its
customers from initial design and engineering through materials procurement,  to
manufacturing  of the complete  product and testing.  Greater  efficiencies  are
obtained  by  OEMs  through   "concurrent   engineering"  which  gives  contract
manufacturers greater impact in product design, component selection,  production
methods and the preparation of assembly drawings and test schematics.  This also
gives the customer the ability to draw upon Techdyne's  manufacturing  expertise
at the outset and minimize manufacturing bottlenecks.

         Another factor which leads OEMs to utilize  contract  manufacturers  is
reduced time-to-market.  Due to intense competition in the electronics industry,
OEMs are faced with  increasingly  shorter product  life-cycles  which pressures
OEMs to reduce time  constraints  in  bringing a product to market.  This can be
accomplished  by  using  a  contract  manufacturer's  established  manufacturing
expertise   with  its   sophisticated,   technically   advanced  and   automated
manufacturing  processes.  This, coupled with the elements discussed above, such
as reduced production costs through economies of scale in materials procurement,
improved inventory management, access to the Company's manufacturing technology,
engineering,  testing  and  related  expertise,  motivates  OEMs  to  work  with
electronic contract manufacturers.

BUSINESS STRATEGY

         In  response  to  industry  trends  for OEMs to rely  more on  contract
manufacturers  in order to  reduce  capital  investment,  and  focus on  product
development  and  marketing,  the  Company's  objective  is to become a stronger
competitive force and provider of electronic contract manufacturing services for
OEM  customers,  particularly  in  view of  constantly  changing  and  improving
technology and therefore, shorter product life cycles. The Company will continue
to seek  to  develop  strong,  long-term  alliances  with  major-growth  OEMs of
complex,  market  leading  products.  The Company  believes  that  creating  and

                                        2

<PAGE>


maintaining  long-term  relationships  with  customers  requires  providing high
quality,  cost-effective  manufacturing  services  marked  by a high  degree  of
customer responsiveness and flexibility.

         Management is seeking to concentrate on high  value-added  products and
services  for leading  OEMs.  The Company  focuses on leading  manufacturers  of
advanced  electronic  products  that  generally  require  custom-designed,  more
complex interconnect products and short lead-time manufacturing services.

         The   Company   plans  to  build   on  its   integrated   manufacturing
capabilities,  final system  assemblies  and testing.  In addition to PCBs,  the
Company's   custom  cable   assembly   capabilities   provide  it  with  further
opportunities to leverage its vertical  integration and to provide greater value
added  services and be more competitive.  In addition, vertical integration pro-
vides it with greater control over quality, delivery and cost.

         Management believes it develops closer and more economically beneficial
relationships   with  its   customers   through   its   geographically   diverse
manufacturing  and assembly  operations,  presently  located in Florida,  Texas,
Massachusetts,  Ohio and Scotland.  The Company's  diverse  locations  also help
satisfy costs, timely deliveries and local market requirements of its customers.
Management  continues to pursue  expansion in different  markets to better serve
existing  customers and to obtain  additional new customers.  In 1997,  Techdyne
acquired Lytton Incorporated  ("Lytton"),  a private Ohio company engaged in the
manufacture,  assembly and sale of complex PCBs and other  electronic  products.
The Lytton acquisition  complemented the Company's  operations and continued the
business strategy of the Company by expanding its customer base,  broadening its
product  line,  entering a new  geographic  area,  enhancing  its  manufacturing
capabilities,  and enabling  the Company to better  serve the combined  existing
customer  base with  enhanced  product  choices  with  opportunities  to further
attract new customers.  Management  continues to seek  acquisitions  of contract
manufacturing businesses complimentary to the Company's operations.

         The Company will be competing with much larger electronic manufacturing
entities for such expansion  opportunities.  Further,  any such transactions may
result in potentially dilutive issuance of equity securities,  the incurrence of
debt and amortization  expenses related to goodwill and other intangible assets,
and other costs and expenses, all of which could materially adversely affect the
Company's  financial  results.  Such transactions also involve numerous business
risks, including  difficulties in successfully  integrating acquired operations,
technologies  and  products  or  formalizing  anticipated  synergies,   and  the
diversion of management's  attention from other business concerns.  In the event
that any such  transaction  does  occur,  there  can be no  assurance  as to the
beneficial effect on the Company's business and financial results.

         To  further  satisfy  customer  needs,  the  Company  seeks to  develop
long-term  customer  relationships by using its  state-of-the-art  technology to
provide timely and quick-turnaround  manufacturing and comprehensive support for
materials  purchases and inventory  control.  Through its EDI  (electronic  data
interchange),  the customer is able to convey its inventory and product needs on
a weekly basis based on a rolling quantity forecast.

         More  emphasis  is  placed  on  value-added  turnkey  business  for the
manufacture of complete finished assemblies.  This is accomplished with extended
technology,  continuous  improvement of its processes,  and the Company's  early
involvement  in the  design  process  using its  computer-aided  design  ("CAD")
system.

                                        3

<PAGE>


         The Company is improving its material acquisition process in an attempt
to better its  purchasing  power by identifying  materials used across  customer
lines.  In 1998,  the Company began updating its  enterprise  resource  planning
("ERP") system utilizing Visual Manufacturing software. The Visual Manufacturing
software  should also solve the "Year 2000" issues for the Company.  See Item 7,
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations."  Management is also  attempting to  consolidate  vendors to achieve
better purchasing power. The Company believes these efforts will provide it with
better  leverage  in  material  pricing  and  permit  the  Company  to  be  more
competitive  when  bidding  for  manufacturing  work and turnkey  business.  The
Company is also attempting to better track actual costs against  customer quotes
which will  better  allow it to  control  costs and more  accurately  manage its
operating margins.

PRODUCTS AND SERVICES

         Approximately  850  products,   including   complete  turnkey  finished
products,   sub-assemblies,   molded  and  non-molded  cable  assemblies,   wire
harnesses,   PCBs,  injection  molded  and  electronic  assembly  products,  are
manufactured by the Company for over 100 OEM customers.

         PRINTED CIRCUIT BOARDS

         PCB assemblies are electronic  assemblies consisting of a basic printed
circuit  laminate  with  electronic  components  including  diodes,   resistors,
capacitors and transistors,  inserted and wave soldered. PCBs may be used either
internally within the customer's products or in peripheral devices.  The variety
of PCBs produced by the Company include pin-through-hole ("PTH") assemblies, low
and  medium  volume  surface  mount  technology  ("SMT")  assemblies,  and mixed
technology PCBs, which include multilayer PCBs.

         PTH assembly  involves  inserting  electronic  components  with pins or
leads  through  pre-drilled  holes  in a PCB  and  soldering  the  pins  to  the
electrical circuit.

         In SMT  production,  electronic  components  are  attached and soldered
directly onto the surface of a circuit board rather than inserted through holes.
SMT components are smaller,  can be spaced more closely together and, unlike PTH
components,  can be placed  on both  sides of a PCB.  This  allows  for  product
miniaturization,  while enhancing the electronic  properties of the circuit. SMT
manufacturing  requires  substantial capital investment in expensive,  automated
production  equipment  which  requires  high usage.  Techdyne  has  computerized
testing for  substantially  all of its PCBs to verify that  components have been
installed  properly and meet certain functional  standards,  that the electrical
circuits  have been properly  completed,  and that the PCB assembly will perform
its intended functions.

         Techdyne also produces  multilayer PCBs. These PCBs consist of three or
more layers of a PCB laminated  together and  interconnected  by  plated-through
holes.   Multilayer  PCBs  consist  of  metallic   interconnecting  paths  on  a
non-conductive  material,  typically laminated epoxy glass. Holes drilled in the
laminate  and  plated  through  with  conductive  material  from one  surface to
another, called plated-through holes, are used to receive component leads and to
interconnect the circuit layers.  Multilayer boards increase  packaging density,
improve  power and  ground  distribution,  and  permit  the use of higher  speed
circuitry. The development of electronic components with increased speed, higher
performance  and smaller size has  stimulated a demand for  multilayer  PCBs, as
they provide increased reliability,  density and complexity. Since even the most
sophisticated  two-sided  PCB cannot meet the  requirements  of today's  circuit
designers for packaging density,  an increasing number of designs use multilayer
technology.

                                        4
<PAGE>


         Fiscal 1996 reflected sales revenues of  approximately  8% derived from
PCBs. In 1997, the Company acquired Lytton, whose operations, with six automated
lines, are more focused on PCB manufacturing, primarily for the food preparation
equipment industry.  Techdyne also established a 5,500 square foot manufacturing
facility in  Massachusetts  in 1997,  in addition to Lytton's  Ohio  operations.
These  1997   expansions   resulted  in  PCB   manufacturing   to  have  yielded
approximately 48% of the Company's sales revenues in 1998.

         CABLE AND HARNESS ASSEMBLIES

         A cable is an assembly of  electrical  conductors  insulated  from each
other and twisted  around a central core and  jacketed.  Cables may be molded or
non-molded.

         Techdyne offers a wide range of custom  manufactured  cable and harness
assemblies  for molded and mechanical  applications.  These  assemblies  include
multiconductor,  ribbon,  co-axial cable  assemblies,  and discrete wire harness
assemblies.   The  Company  uses  advanced  manufacturing   processes,   in-line
inspection  and computer  testing.  Techdyne  tests all of its cable and harness
assemblies with computerized automated test equipment.

         The  Company  maintains  a large  assortment  of  standard  tooling for
D-Subminiature  ("D-Subs"),  DIN  connectors  and phono  connectors.  D-Subs are
connectors  which are  over-molded  with the imprint of the customer's  name and
part number. DIN connectors are circular  connectors with from two to four pairs
of  wires  used for  computer  keyboards.  Today's  computers  are  multi-media,
providing audio as well as video,  such as the CD-ROM. In 1997, the Company also
tooled the now popular SCSI III and .8mm SCSI over-molds.

         Flat  ribbon  cable or ribbon  cable  assemblies  are cables with wires
(conductors)  on the same plane with  connectors at each end. Flat ribbon cables
are used in computer assemblies and instrumentation.

         Discrete  cable  assemblies  are wires with  contacts  and  connectors.
Harnesses are  prefabricated  wiring with  insulation and terminals  ready to be
attached to connectors.  The cable sales of the Company comprised  approximately
42% of the total sales revenue for 1998.

         CONTRACT MANUFACTURING

         Contract  manufacturing  involves the manufacture of complete  finished
assemblies with all sheet metal, power supplies,  fans, PCBs as well as complete
sub-assemblies for integration into an OEM's finished products,  such as speaker
and lock-key  assemblies and diode  assemblies that consist of wire,  connectors
and diodes that are over-molded,  packaged and bar coded for distribution. These
products can be totally designed and manufactured by the Company through its CAD
system,  engineering and supply  procurement.  Techdyne  develops  manufacturing
processes and tooling and test sequences for new products of its  customers.  It
also  provides  design and  engineering  services in the early stages of product
development  thereby  assuring  mechanical  and  electrical  considerations  are
integrated  with  a  total  system.  Alternatively,  the  customer  may  provide
specifications  and the  Company  will assist in the design and  engineering  or
manufacture to the customer's  specifications.  Contract  manufacturing products
include rack  assemblies  for data  processing and video editing and custom disk
drive enclosures for OEMs.

                                        5
<PAGE>


         REWORKING AND REFURBISHING

         Customers  provide  the  Company  with  materials  and   sub-assemblies
acquired from other sources which the customer has determined  requires modified
design or engineering changes. The Company redesigns,  reworks,  refurbishes and
repairs these materials and sub-assemblies.

         Contract   manufacturing,   medical   product   sales,   reworking  and
refurbishing   together  amounted  to  approximately  10%  of  sales  for  1998.
Management  believes that PCB sales and contract  manufacturing will provide the
Company with substantial increases in revenues in the next few years.

MANUFACTURING

         Components  and  products  are custom  designed  and  developed  to fit
specific customer requirements and specifications.  Techdyne attempts to develop
a  "partnership"  relationship  with  many  of  its  customers  by  providing  a
responsive,   flexible,  total  manufacturing  service.  Such  service  includes
computer  integrated  manufacturing and engineering  services,  quick-turnaround
manufacturing  and  prototype  development,   materials  procurement,  inventory
management,  developing manufacturing processes for that particular customer and
its needs,  tooling and test  sequences  for new products  from product  designs
received from its customers or developed by Techdyne from customer requirements.
The Company's  industrial,  electrical  and  mechanical  engineers work in close
liaison with its  customers'  engineering  departments  from  inception  through
design,  prototypes,  production  and  packaging.  Techdyne  evaluates  customer
designs and if appropriate,  recommends design changes to improve quality of the
finished  product,   reduce   manufacturing  costs  or  other  necessary  design
modifications.  Upon completion of engineering,  Techdyne produces  prototype or
preproduction samples.  Materials procurement includes planning,  purchasing and
warehousing  electronic  components  and materials  used in the  assemblies  and
finished products.

         The  Company's  engineering  staff reviews and  structures  the bill of
materials for purchasing, coordinates manufacturing instructions and operations,
and reviews  inspection  criteria  with the quality  assurance  department.  The
engineering  staff also determines any special capital  equipment  requirements,
tooling and dies, which must be acquired.

         The Company's PCB assembly  operations are geared toward  advanced SMT.
Its Lytton subsidiary  provides  Techdyne with increased PCB production  through
state-of-the-art  manufacturing equipment and processes and a highly trained and
experienced engineering and manufacturing  workforce.  The manufacturing of PCBs
involves   several  steps   including  the  attachment  of  various   electronic
components,  such  as  integrated  circuits,  capacitors,   microprocessors  and
resistors.

         The  Company  offers a wide  range of custom  manufactured  cables  and
harnesses  for molded and  mechanical  applications.  The Company uses  advanced
manufacturing  processes,  in-line  inspection  and  testing to focus on process
efficiencies and quality. The cable and harness assembly process is accomplished
with automated and semi-automated preparation and insertion equipment and manual
assembly techniques.

         The Company  maintains a large  assortment  of  standard  tooling.  New
manufacturing  jobs may  require  new  tooling  and dies,  but most  presses and
related equipment are standard.

         The Company maintains modern  state-of-the-art  equipment at all of its
facilities for crimping,  stripping,  terminating,  soldering, sonic welding and
sonic  cleaning  which permits the Company to produce  conventional  and complex
molded cables.

                                        6
<PAGE>


         Over the last five years the Company  became more  involved in contract
manufacturing of moderate to high volume turnkey assemblies and  sub-assemblies,
including  injection molded and electronic  assembly  products.  See "Business -
Products" above.  Finished turnkey assemblies  include the entire  manufacturing
process from design and  engineering to purchasing raw materials,  manufacturing
and assembly of the  component  parts,  testing,  packaging  and delivery of the
finished product to the customer.  By contracting assembly production,  OEMs are
able  to keep  pace  with  continuous  and  complex  technological  changes  and
improvements  by making rapid  modifications  to their  products  without costly
retooling  and  without any  extensive  capital  investments  for new or altered
equipment.

         The Scottish manufacturing facility,  located in Livingston,  Scotland,
focuses mainly on the electronics  industry producing  primarily wire harnesses,
electro-mechanical  assemblies,  and molded cables,  incorporating  multifaceted
design and production capabilities.

         The Company also has "supplier  partnerships" to meet customers' needs.
This involves the Company accomplishing the in-house manufacturing  requirements
of the customer.  Through EDI, the customer  conveys its needs on a weekly basis
based on a rolling quarterly forecast.

SUPPLIES AND MATERIALS MANAGEMENT

         Materials  used  in  the  Company's   operations   consist  of  metals,
electronic components such as cable, wire, resistors,  capacitors,  diodes, PCBs
and plastic resins. These materials are readily available from a large number of
suppliers and  manufacturers.  The Company has not  experienced  any significant
disruptions  from shortages of materials or delivery delays of its suppliers and
believes that its present sources and the availability of its required materials
are adequate.  The Company has a  computerized  system of material  requirements
planning,  purchasing,  sales and marketing functions. The Company will continue
to  make  its  materials   acquisition  processes  more  efficient  through  the
installation  and  upgrading  of the  Visual  Manufacturing  software  which  it
completed in three of its  facilities  in 1998 with the balance of the Company's
facilities  to be upgraded in 1999.  This new software not only has improved its
material  acquisition  process  but  also  satisfies  the  Company's  Year  2000
challenges.  See "Business Strategy" above and Item 7, "Management's  Discussion
and Analysis of Financial Condition and Results of Operations."

         The Company  procures  components  from a select group of vendors which
meet its standards for timely delivery, high quality and cost effectiveness.  In
order  to  control  inventory   investment  and  avoid  material   obsolescence,
components  are  generally  ordered  when the  Company  has a purchase  order or
commitment  from its  customer for the  completed  assembly.  Techdyne  uses ERP
management  technologies  and manages its material  pipelines and vendor base to
allow  its  customers  to  increase  or  decrease  volume   requirements  within
established frameworks.

         Operational  improvements  implemented  several years ago have improved
the overall  efficiency of manufacturing,  particularly in the area of inventory
management,  including  purchasing which is geared more closely to current needs
resulting in reduced obsolescence problems. See Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

QUALITY AND PROCESS CONTROL

         In March, 1995 for its Hialeah,  Florida facility, the Company received
from Underwriter's Laboratories,  an independent quality assurance organization,
the ISO 9002 quality assurance designation,  which is the international standard
of quality with respect to all systems of operations,  including,  among others,
purchasing,  engineering,  manufacturing,  sales, inventory control and quality.
Techdyne (Scotland)  received its BS 5750 quality assurance  designation in 1991
from  British  Standards  Institute.   Lytton  

                                        7
<PAGE>


received its ISO 9002 quality designation in 1995 from Eagle Registrations, Inc.
These quality  assurance  designations are only provided to those  manufacturers
which exhibit stringent  quality and process control  assurances after extensive
evaluation and auditing by these independent quality assurance organizations.

         Quality  control  is  essential  to  the  Company's   operations  since
customers  demand  strict  compliance  with design and  product  specifications,
low-cost and high quality production are primary  competitive  standards and are
vital  to  the  services  of  the  Company.  See  "Competition"  below.  Product
components,  assemblies  and  sub-assemblies  manufactured  by the  Company  are
thoroughly  inspected  visually and  electronically to assure all components are
made to strict  specifications and are functional and safe.  Management believes
it is one of the  manufacturers  of choice for the major Fortune 500  companies,
certain of which are its customers,  based upon its excellent  record of quality
production.

         Strict process controls are also standard operating procedure.  Process
controls deal with the controls  relating to the entire  manufacturing  process.
The  Company  strives  for a CPK of two,  i.e.,  twice as  critical  as customer
tolerances.

         During the course of initial  qualification and production  cycles, new
and existing  customers  inspect the Company and its operations.  Over the years
the Company's product and manufacturing quality have received excellent ratings.

         Total   quality,   timely   delivery  and  customer   satisfaction   is
management's  philosophy.  High  levels of quality  in every area of  Techdyne's
operations are essential.  Quality standards are established for each operation,
performance  tracked  against those  standards,  and  identifying  work flow and
implementing  necessary  changes to deliver higher quality  levels.  The Company
maintains  regular  contact with its  customers to assure  adequate  information
exchange and other activities  necessary to assure customer  satisfaction and to
support its high level of quality and on-time  delivery.  Any adverse  change in
the Company's  excellent quality and process controls could adversely affect its
relationships with customers and ultimately its revenues and profitability.


CUSTOMERS

         Techdyne  serves  a wide  range  of  businesses  from  emerging  growth
companies  to  multinational  OEMs  involved  in a variety of markets  including
computer networking systems,  computer  workstations,  telecommunications,  mass
data storage systems, instrumentation and food preparation equipment industries.
The Company's revenue was distributed over the following industry segments:

                                           Year Ended December 31,       
                                 --------------------------------------
                                   1998           1997             1996
                                   ----           ----             ----
Data processing                     29%            40%              74%
Telecommunications                  20%             7%               9%
Instrumentation                     17%            16%               8%
Food preparation equipment (1)      18%            19%              --%
---------------

(1)      Accomplished through Lytton, acquired in July, 1997.

         The Company seeks to serve a sufficiently  large number of customers to
avoid dependence on any one customer or industry.  Nevertheless,  historically a
substantial  percentage  of the  Company's  net  sales  have  been  to  multiple
locations of a small number of  customers.  Significant  reductions or delays in
sales to 

                                        8
<PAGE>


any of those  major  customers  would  have a  material  adverse  effect  on the
Company's results of operations.  In the past, certain customers have terminated
their manufacturing  relationship with the Company,  or otherwise  significantly
reduced their product orders.  There can be no insurance that any major customer
may not  terminate  or  otherwise  significantly  reduce or delay  manufacturing
orders, any of which such terminations or changes in manufacturing  orders could
have a material  adverse  effect on the  Company's  results of  operations.  The
Company  is  dependent  upon  the  continued  growth,  viability  and  financial
stability of its  customers,  which are in turn  substantially  dependent on the
growth of the  personal  computer,  computer  peripherals,  the  communications,
instrumentation, data processing and food preparation equipment industries. Most
of these industries have been characterized by rapid technological change, short
product  life cycles,  pricing and margin  pressures.  In addition,  many of the
Company's  customers  in these  industries  are  affected  by  general  economic
conditions.  The factors  affecting  these  industries  in  general,  and/or the
Company's  customers in particular,  could have a material adverse effect on the
Company's results of operations.  In addition, the Company generates significant
accounts receivable in connection with providing  manufacturing  services to its
customers. If one or more of the Company's customers were to become insolvent or
otherwise  were  unable to pay for the  manufacturing  services  provided by the
Company,  the  Company's  operating  results and  financial  condition  would be
adversely  affected.  In 1998, 50% of the Company's  sales were made to numerous
locations of five major  customers.  See Item 7,  "Management's  Discussion  and
Analysis of Financial Condition and Results of Operations."

         The table below sets forth the respective  portion of net sales for the
applicable period  attributable to customers and related suppliers who accounted
for more than 10% of net sales in any respective period.

                            Percentage of Net Revenue

                                               1998           1997        1996
                                               ----           ----        ----
PMI Food Equipment Group ("PMI") (1)            18%              *           *
Compaq Computer Corporation ("Compaq")            *              *         35%
International Business Machines ("IBM")           *            19%         18%
EMC                                               *            10%         12%
Motorola, Inc ("Motorola")                      10%              *           *

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

*        less than 10% for that year

(1)      PMI is a customer of Lytton acquired July 31, 1997.

         Techdyne sells  to  approximately 100 additional other companies, which
comprise  the  remaining  50%  of  sales  for  1998.  Lytton,  acquired in 1997,
focuses  primarily in PCB  production,  had  approximately  41% of its sales for
fiscal 1998 to PMI.  Techdyne  (Scotland) had a substantial  portion of its 1998
sales,  approximately 26%, to Compaq.  During the last three years,  bidding for
Compaq  orders  became more  competitive  due to Far Eastern  competitors  which
resulted in  substantially  reduced  sales to that  customer  with lower  profit
margins on remaining sales. During the fourth quarter of 1998, sales of Techdyne
(Scotland) to Compaq  decreased to 13% of its sales.  See Item 7,  "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

MARKETING AND SALES

         Techdyne  continues  to pursue  expansion  and  diversification  of its
customer  base  and it is  targeting  emerging  OEMs  in  high  growth  industry
segments.  The Company's  principal sources of new business are 

                                        9
<PAGE>


the  expansion  in the  volume  and  scope  of  services  provided  to  existing
customers,  referrals  from  customers and  suppliers,  direct sales through its
sales  managers  and  executive  staff,   and  through  its  independent   sales
representatives.  Sales managers, directed and supported by the executive staff,
identify  and attempt to develop  relationships  with  potential  customers  who
exemplify  financial  stability,  a need for electronic  and  electro-mechanical
component assembly and manufacturing,  anticipated unit volume, and a history of
establishing long-term relationships.

         Domestic sales are generated by six regional  sales  managers  covering
the Northeast, Southeast, West and Southwest regions of the United States. There
are also 11 in-house  sales/marketing  personnel,  including  Barry Pardon,  the
President of the Company.  The regional  sales  managers  have four  independent
manufacturer   representative   agencies  who  employ   approximately  13  sales
representatives.  Sales are also  generated  through  catalogues,  brochures and
trade shows.

         The manufacturer sales representatives,  primarily marketing electronic
and  similar  high-technology  products,  are  retained  under  exclusive  sales
representative  agreements for specific territories and are paid on a commission
basis.  The sales  representatives  cannot represent any other person engaged in
the business of  manufacturing  services  similar to those of the  Company,  nor
represent any person who may be in competition with the Company.  The agreements
further  prohibit the sales  representative  from  disclosing  trade  secrets or
calling on  customers of the Company for a period of six months to one year from
termination of their agreement.

         Techdyne  (Scotland) has four in-house  sales  personnel who market its
products,  primarily ribbon,  harness and cable  assemblies,  electro-mechanical
products,  and molded cable assemblies,  as well as its reworked and refurbished
products  (see  "Business - Products -  Reworking  and  Refurbishing"  above) to
customers in Scotland, England, Ireland, Germany and the Middle East.

         Substantially  all of the  Company's  sales and  reorders  are effected
through competitive bidding. Most sales are accomplished through purchase orders
with specific quantity,  price and delivery terms. Some production,  such as its
supplier  partnerships,   are  accomplished  under  open  purchase  orders  with
components released against customer requests.

BACKLOG

         At December  31,  1998,  the  Company's  backlog of orders  amounted to
approximately $11,817,000, of which approximately $8,354,000 (approximately 71%)
was  represented  by the orders  from its Lytton  operations  and  approximately
$673,000  (approximately  6%) was represented by orders for Techdyne  (Scotland)
operations.  Last  year  the  backlog  was  approximately  $14,029,000  of which
approximately  $7,300,000 was derived from Lytton  operations and  approximately
$2,054,000  was  represented  by  orders  of  Techdyne  (Scotland)   operations.
Management  believes,  based  on past  experience  and  relationships  with  its
customers and knowledge of its manufacturing  capabilities,  that  substantially
all of its backlog  orders are firm and should be filled within six months. Most
of the purchase  orders  within  which  the  Company  performs  do  not  provide
for cancellation.  Over the last several years  cancellations  have been minimal
and management  does not believe that any  significant  amount  of  the  backlog
orders will be canceled.  However, based upon  relationships with its customers,
the  Company  occasionally  allows  cancellations and frequently rescheduling of
deliveries. The variations in the size and delivery schedules of purchase orders
received by the Company may result in substantial  fluctuations  in backlog from
period to period.  Since orders and commitments may be rescheduled or cancelled,
and customers'  lead times may vary,  backlog does not  necessarily  reflect the
timing or amount of future sales.

                                       10
<PAGE>


PATENTS AND TRADEMARKS

         The Company does not have nor does it rely on patents or  trademarks to
establish or protect its market  position.  Dependency is placed more on design,
engineering,  manufacturing  cost  containment,  quality and marketing skills to
establish or maintain market position.

COMPETITION

         Techdyne experiences  substantial competition from many areas including
divisions  of  large  electronic  and  high-technology  firms,  as  well as from
numerous smaller,  specialized companies.  Competitive price advantages may also
be  available  to  competitors   with  less  expensive   off-shore   operations,
particularly  from  the Far  East.  The  Company  also  competes  with  in-house
manufacturing  operations  of current  and  potential  customers.  Although  the
Company has been  expanding in the Northeast,  Midwest,  Southeast and Southwest
areas of the United States,  certain of the Company's  competitors  have broader
geographic  coverage to serve their customers and attract  additional  business.
Many  of  such  competitors  are  more  established  in the  industry  and  have
substantially greater financial,  manufacturing and marketability resources than
the  Company.  Techdyne  may be  operating  at a cost  disadvantage  compared to
manufacturers  who have greater direct buying power with component  suppliers or
who have lower cost structures.  During  downtimes in the electronics  industry,
OEMs become more price sensitive.  In the PCB area major competitors include ACT
Manufacturing, Inc., Vickers Electronic Systems, Diversified Systems, Inc., Epic
Technologies,  Inc.  and  others.  Major  competitors  in the cable and  harness
assembly  market  include  Volex  Interconnect   Systems,   Inc.,  Foxconn,  ACT
Manufacturing,  Inc.,  Escod  Industries and others.  See Item 7,  "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

         Management  believes  the  primary  competitive  factors  to be  price,
quality of production, manufacturing capability, prompt customer service, timely
delivery,  engineering  expertise,  and technical  assistance to customers.  The
Company believes it competes favorably in these areas.  Management also believes
its  competitive  position is  internationally  enhanced  through  its  European
manufacturing  and  marketing  operations  through  Techdyne   (Scotland).   See
"Manufacturing" and "Foreign Operations" under "Business" above.

         Due to the number and variety of competitors, reliable data relative to
the Company's  competitive  position in the  electronic  components and assembly
industry is difficult to develop and is not known.

GOVERNMENTAL REGULATION

         The  Company's  operations  are subject to certain  federal,  state and
local regulatory  requirements  relating to  environmental  waste management and
health and safety matters.  Management  believes that the Company  complies with
applicable  regulations pertaining to health and safety in the workplace and the
use,  storage,  discharge  and disposal of chemicals  used in its  manufacturing
processes.  The Company  periodically  generates and temporarily handles limited
amounts of materials that are considered  hazardous waste under  applicable law.
The current costs of compliance  are not material to the Company.  Nevertheless,
no assurances can be given that additional or modified  requirements will not be
imposed in the  future,  and if so  imposed,  will not  subject  the  Company to
difficulties  in  compliance,  the failure of which could subject the Company to
future  liabilities,   restriction  on  expansion  or  existing  production,  or
otherwise  involve  substantial  additional  expenditures by the Company.  These
regulations  provide  for  civil  and  criminal  fines,  injunctions  and  other
sanctions  and,  in certain  instances,  allow  third  parties to sue to enforce
compliance.

                                       11
<PAGE>


EMPLOYEES

         The  Company  currently  employs  approximately  415  full-time  people
domestically.  Of these approximately 326 are engaged in manufacturing,  quality
assurance and related  operations,  20 in material handling and procurement,  17
are employed in marketing,  including its President,  22 in engineering,  and 30
are engaged in administrative,  accounting,  warehousing and support activities.
Its  Scottish  subsidiary  employs  approximately  88  people of which 52 are in
production and engineering and the balance in administrative,  sales, accounting
and support activities.

         In  addition,  to its  full-time  employees,  the Company  domestically
regularly  utilizes the services of temporary  workers  retained  through  local
agencies.  Presently  there are  approximately  70 such  workers.  Many of these
temporary  workers,  upon  fulfilling in excess of 320 hours of service,  may be
employed on a full time basis as needed.

         The  Company  has no unions and  believes  its  relationship  with  its
employees is good.


ITEM 2.  PROPERTIES

         The following chart summarizes the properties leased by the Company.

SPACE                     PROPERTY                           TERM
-----                     --------                           ----
16,000 sq. ft.            2230 W 77th St.           5 yrs. to March 31, 2000
(exec. offs., mfg.)       Hialeah, FL(1)

12,000 sq. ft.            2200 W 77th St.           5 yrs. to March 31, 2000
(warehouse)               Hialeah, FL(1)

15,000 sq. ft.            7110 Brittmore            5 yrs. to August 31, 2002,
(mfg., offs. &            Houston, TX               one five year renewal
warehouse)

5,500 sq. ft.             Rte. 495 Commerce Park    5 yrs. to March 31, 2002,
(mfg. & offs.)            Milford, MA               one five year renewal

18,225 sq. ft.            800 Paloma Dr.            5 yrs. to May 31, 2002,
(mfg., offs. &            Round Rock (Austin),      one five year renewal
warehouse)                TX(2)

77,800 sq. ft.            1784 Stanley Ave.         5 yrs. to July 31, 2002,
(mfg., offs. &            Dayton, Ohio(3)           two five year renewals
warehouse)

----------

(1)      THE LANDLORD IS THE COMPANY'S PARENT.  THE LEASE IS AS FAVORABLE AS MAY
         BE OBTAINED FROM UNAFFILIATED THIRD PARTIES, WITH WHOM ALL OTHER LEASES
         ARE MADE, EXCEPT FOR THE LYTTON LEASE. SEE NOTE (3) HEREIN.
(2)      THE  COMPANY  HAS SUBLET  860 SQUARE  FEET OF SPACE ON A MONTH TO MONTH
         BASIS TO AN UNAFFILIATED PARTY.
(3)      THE  LANDLORD IS OWNED BY THE FORMER  PRESIDENT,  NOW  ASSISTANT TO THE
         PRESIDENT, OF LYTTON, ACQUIRED BY THE COMPANY IN JULY, 1997. HE IS ALSO
         A NOMINEE FOR DIRECTOR OF THE COMPANY.  SEE "CERTAIN  RELATIONSHIPS AND
         RELATED  TRANSACTIONS" OF THE COMPANY'S  INFORMATION STATEMENT RELATING
         TO THE  ANNUAL  MEETING  OF  SHAREHOLDERS  TO BE HELD ON JUNE 9,  1999,
         INCORPORATED  HEREIN BY  REFERENCE.  THE  COMPANY  HAS A RIGHT OF FIRST
         REFUSAL  AND AN  OPTION  TO  PURCHASE  THESE  PREMISES.  THIS  LEASE IS
         GUARANTEED BY THE COMPANY.

                                       12
<PAGE>


         Techdyne  (Scotland) owns an approximately  31,000 square foot facility
in Livingston, Scotland. The property is subject to a 15-year mortgage due July,
2009 which had a U.S. dollar  equivalency of approximately  $545,000 at December
31, 1998. See Item 1, "Business - Foreign  Operations" and Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

         The Company maintains state-of-the-art manufacturing,  quality control,
testing and  packaging  equipment  at all of its  facilities  in Florida,  Ohio,
Massachusetts, Texas and Scotland.

         The Company believes that its equipment and facilities are adequate for
its current operations.

         The  Company  is  subject  to a variety  of  environmental  regulations
relating to its manufacturing processes and facilities.  See Item 1, "Business -
Government Regulations."


ITEM 3.  LEGAL PROCEEDINGS

         The Company is not a party to any material pending litigation.

         In the first  quarter of 1996 a  temporary  worker  was  injured at the
Company.  The extent of his injuries or related costs are not known. The injured
party is  insured  through  the  temporary  agency.  The  Company  believes  its
insurance  is adequate to cover any  potential  claims.  See Note 6 to "Notes to
Consolidated Financial Statements."


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

         No matter was  submitted  during the  fourth  quarter of the  Company's
fiscal year to a vote of security holders through the solicitation of proxies or
otherwise.

                                       13
<PAGE>


                                     PART II

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

         On November 6, 1996,  the  Company's  common  stock and  Warrants  were
listed and traded on the  Nasdaq  National  Market  under the  symbols  TCDN and
TCDNW, respectively,  and ceased trading on the Boston Stock Exchange. The table
below reflects for the periods indicated,  the high and low closing sales prices
for the common stock as reported by the Nasdaq National Market.

         1997
         ----
                                                 High         Low
                                                 ----         ---
         1st Quarter.....................       $8.13        $5.50
         2nd Quarter.....................        7.88         3.25
         3rd Quarter......................       4.13         2.50
         4th Quarter......................       4.75         3.00

         1998
         ----
                                                 High         Low
                                                 ----         ---
         1st Quarter......................      $4.81        $4.13
         2nd Quarter.....................        5.00         3.88
         3rd Quarter......................       4.75         3.50
         4th Quarter......................       3.50         1.88

         At March 11,  1999,  the closing  sales  price of the common  stock was
$3.00.

         At March 11, 1999, the Company had 72  shareholders of record and based
upon data obtained from its transfer agent it has  approximately  820 beneficial
owners of its common stock.

         The  Company has not paid,  nor does it have any  present  plans to pay
cash dividends on its common stock in the immediate future.


ITEM 6.  SELECTED FINANCIAL DATA

         The following  selected  financial  data should be read in  conjunction
with the consolidated  financial  statements,  related notes and other financial
information included herein.

                             CONSOLIDATED STATEMENTS OF OPERATIONS DATA
                              (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                       Years Ended December 31,                                 
                                  -----------------------------------------------------------------
                                   1998           1997(1)          1996          1995        1994
                                  -------        --------        --------      --------    --------
<S>                               <C>            <C>             <C>           <C>         <C>     
Revenues                          $44,927        $ 33,169        $ 24,434      $ 30,424    $ 20,536
Net income                            798           1,426             743         1,315         719
Earnings per share:
    Basic                         $   .15        $    .32        $    .18      $    .40    $    .24
    Diluted                       $   .13        $    .24        $    .14      $    .27    $    .24
</TABLE>

                                                 14
<PAGE>


                             CONSOLIDATED BALANCE SHEET DATA
                                      (IN THOUSANDS)
                                        December 31,           
                       -----------------------------------------------
                        1998     1997(1)    1996       1995      1994
                       -------   -------   -------   -------   -------
Working capital        $ 9,321   $ 9,547   $ 6,597   $ 4,921   $ 2,988
Total assets            23,818    24,625    13,224    12,879     8,741
Long-term debt (2)       7,581     6,926     3,842     3,415     5,823
Total liabilities       14,357    15,116     8,056     9,216     9,685
Shareholders'
    equity               9,461     9,509     5,168     3,663       944

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

(1)      Reflects  the five  month  operations  of  Lytton,  as well as  assets,
         liabilities and  shareholders'  equity at December 31, 1997. Lytton was
         acquired on July 31, 1997. See Item 1,  "Business - Business  Strategy"
         and  Item  7,  "Management's   Discussion  and  Analysis  of  Financial
         Condition and Results of Operations."

(2)      Includes advances from Parent.


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

GENERAL

         The Company has  continued to depend upon a relatively  small number of
customers  for  a  significant  percentage  of  its  net  revenue.   Significant
reductions  in  sales  to any of the  Company's  large  customers  would  have a
material  adverse effect on the Company's  results of operations.  The level and
timing of orders  placed by a customer  vary due to the  customer's  attempts to
balance  its   inventory,   design   modifications,   changes  in  a  customer's
manufacturing strategy,  acquisitions of or consolidations among customers,  and
variation  in demand for a  customer's  products  due to,  among  other  things,
product life cycles, competitive conditions and general economic conditions. Any
terminations of manufacturing  relationships or changes, reductions or delays in
orders could have an adverse  effect on the  Company's  results of operations or
financial  condition.  The Company's results also depend to a substantial extent
on the success of its OEM customers in marketing their products.  The Company is
always  seeking to diversify its customer base to reduce its reliance on its few
major  customers.   See  "Business  Strategy"  and  "Customers"  under  Item  1,
"Business."

         The  industry  segments  served  by the  Company  and  the  electronics
industry  as a whole,  are  subject to rapid  technological  change and  product
obsolescence.  Discontinuance or modification of products containing  components
manufactured  by the Company could  adversely  affect the  Company's  results of
operations.  The electronics industry is also subject to economic cycles and has
in the past experienced, and is likely in the future to experience, recessionary
periods.  A general recession in the electronics  industry could have a material
adverse  effect on  Techdyne's  business,  financial  condition  and  results of
operations.  The Company  typically does not obtain  long-term  volume  purchase
contracts  from its customers but rather  attempts to work with its customers to
anticipate future volumes of orders.  Based upon such anticipated future orders,
the Company will make  commitments  regarding the level of business it wants and
can  accomplish,  the  timing  of  production  schedules  and the  levels of and
utilization of facilities and personnel. Occasionally, the Company will purchase
raw  materials  without a customer  order or  commitment.  

                                       15
<PAGE>


Customers may cancel,  delay or reduce orders,  usually without  penalty,  for a
variety of reasons, whether relating to the customer or the industry in general,
which orders were already made or  anticipated by the Company.  Any  significant
cancellations,  reductions or order delays could adversely affect the results of
operations.

         The Company uses ERP techniques through its Visual Manufacturing system
(see Item 1, "Business - Business  Strategy" and "Year 2000 Readiness" below) in
its efforts to  continuously  develop  accurate  forecasts  of  customer  volume
requirements.  The  Company  is  dependent  on the timely  availability  of many
components.  Component  shortages  could  result in  manufacturing  and shipping
delays or increased  component prices which could have a material adverse effect
on the Company's  results of  operations.  It is important for the Company,  and
there are significant risks involved,  to efficiently  manage inventory,  proper
timing of expenditures  and  allocations of physical and personnel  resources in
anticipation  of future  sales,  the  evaluation  of economic  conditions in the
electronics  industry and the mix of products,  whether  PCBs,  wire  harnesses,
cables,  or turnkey  products,  for manufacture.  See "Electronic  Manufacturing
Industry" and "Supplies and Materials Management" under Item 1, "Business."

         Techdyne must continuously develop improved manufacturing procedures to
accommodate its customers' needs for increasingly complex products.  To continue
to grow and be a successful competitor, the Company must be able to maintain and
enhance  its  technological  capabilities,   develop  and  market  manufacturing
services  which meet  changing  customer  needs and  successfully  anticipate or
respond to technological changes in manufacturing  processes on a cost-effective
and timely basis.  Although  management  believes that the Company's  operations
utilize the assembly and testing  technologies and equipment  currently required
by the Company's customers, there can be no assurance that the Company's process
development   efforts  will  be   successful   or  that  the  emergence  of  new
technologies,  industry  standards or customer  requirements will not render the
Company's  technology,  equipment or  processes  obsolete or  uncompetitive.  In
addition,  to the extent  that the  Company  determines  that new  assembly  and
testing  technologies  and  equipment  are required to remain  competitive,  the
acquisition and  implementation of such technologies and equipment are likely to
require significant capital investment.

         During periods of recession in the electronics industry,  the Company's
competitive  advantages  in the  areas  of  quick-turnaround  manufacturing  and
responsive customer service may be of reduced importance to electronic OEMs, who
may become more price sensitive.

         The Company's results of operations are also affected by other factors,
including  price   competition,   the  level  and  timing  of  customer  orders,
fluctuations  in  material  costs,  the  overhead  efficiencies  achieved by the
Company in managing the costs of its  operations,  the  Company's  experience in
manufacturing a particular  product,  the timing of expenditures in anticipation
of  increased  orders,  and  selling,   general  and  administrative   expenses.
Accordingly,  gross margins and operating income margins have generally improved
during periods of high volume and high capacity utilization.  Techdyne generally
has idle capacity and reduced  operating  margins during periods of lower-volume
production.

RESULTS OF OPERATIONS

1998 COMPARED TO 1997

         Consolidated revenues increased approximately $11,758,000 (35%) for the
year  December  31, 1998  compared  to the  preceding  year.  The  increase  was
attributable  principally to the inclusion of sales of Lytton for which sales of
$20,062,000  were included  during the current year compared to  $7,170,000  for
the preceding year commencing with the Company's  acquisition of Lytton  on July
31, 1997.  There was an overall increase in domestic sales of $13,771,000 (52%),
including Lytton, and a decrease in 

                                       16

<PAGE>

European sales of $2,125,000 (31%) compared to the preceding year.  Interest and
other income increased by approximately $111,000 compared to the preceding year.

         The  decline  in  European-based  sales was  mainly  attributable  to a
decrease  of  approximately  $1,656,000  (58%) in sales to  Compaq  (Europe)  by
Techdyne  (Scotland)  which was  partially  offset by sales to new customers and
increased sales to existing customers.  Revenues of Techdyne (Scotland) continue
to be highly dependent on sales to Compaq, which accounted for approximately 26%
of sales for the current year compared to 42% in the preceding year. The bidding
for Compaq orders has become more  competitive  which has continued to result in
substantial  reductions  in Compaq sales and lower  profit  margins on remaining
Compaq sales.  Techdyne (Scotland) is pursuing new business  development and has
offset some of the lost Compaq business with sales to other  customers;  however
there can be no assurance as to the success of such efforts.

         Approximately  50%  of  the Company's  consolidated sales for 1998 were
made  to  five  customers.  Customers  generating at least 10% of sales included
Motorola  (10%)  and  PMI Food Equipment Group (18%).  Approximately  $8,183,000
(41%) of Lytton's sales for 1998 were to its major customer, PMI  Food Equipment
Group.  The loss of,  or  substantially  reduced  sales to  any  major customer,
as  occurred  with  Avid domestically in 1996 and Compaq in Europe commencing in
1996, would have an adverse effect on the Company's  operations  if  such  sales
are not replaced. See Item 1, "Business - Customers."

         Cost of goods sold as a percentage of sales remained  relatively stable
amounting to 88% for the year ended  December  31, 1998  compared to 87% for the
preceding year.

         Selling, general and administrative expenses increased by approximately
$927,000 for the year ended  December 31, 1998 compared to the  preceding  year.
The increase  resulted  principally  from inclusion of the selling,  general and
administrative expenses of Lytton commencing August 1, 1997.

         Interest  expense  increased  $206,000 for the year ended  December 31,
1998 compared to the preceding year. The increase reflects increases in interest
of approximately  $122,000  associated with the financing the Lytton acquisition
and  increases  in  interest  on  Lytton's  debt  and  financing  agreements  of
approximately $81,000. The prime rate was 7.75% at December 31, 1998 and 8.5% at
December 31, 1997.

         During  the  year ended December 31, 1998, the Company  recorded an ad-
justment to the valuation allowance  relating  to  its  deferred  tax  assets of
approximately $400,000, which was  recorded  in  the  fourth  quarter  of  1998,
resulting  in  a  1998 tax provision of approximately $130,000.  During the year
ended  December  31,  1997  the  Company recorded an adjustment to the valuation
allowance relating to its deferred  tax assets of approximately $900,000 related
to domestic operations  in  the  fourth quarter of 1997 resulting in  a 1997 tax
credit of approximately $560,000 including approximately $100,000 of tax credits
on foreign  operations.

1997 COMPARED TO 1996

         Consolidated revenues increased approximately  $8,734,000 (36%) for the
year ended  December 31, 1997 compared to the preceding  year.  The increase was
attributable principally to the inclusion of sales of Lytton totaling $7,170,000
since  August 1, 1997.  There was an increase in domestic  sales of  $12,184,000
(87%)  that was offset by a  decrease  in  European  sales of  $3,281,000  (33%)
compared to the same period of the  preceding  year.  Interest  and other income
decreased by approximately  $169,000 in 1997 compared  to  the  preceding  year,
which included  a  $140,000 litigation settlement and 1997 having lower interest
income than 1996 as a result of a decrease in funds invested.

                                       17

<PAGE>

         The  decline  in  European-based  sales was  mainly  attributable  to a
decrease  of  approximately  $5,580,000  (66%) in sales to  Compaq  (Europe)  by
Techdyne  (Scotland)  which was  partially  offset by sales to new customers and
increased sales to existing customers.  Revenues of Techdyne (Scotland) continue
to be highly dependent on sales to Compaq, which accounted for approximately 42%
of sales for the current year compared to 84% in the preceding year. The bidding
for Compaq orders has become more competitive which has resulted in substantial-
ly reduced Compaq sales and lower  profit  margins  on  remaining  Compaq sales.
Techdyne (Scotland) is pursuing new business development, has offset some of the
lost Compaq business with sales to other customers and is continuing cost reduc-
tion efforts to remain competitive for Compaq  business.  There can be no assur-
ance as to the success of such efforts.

         Approximately  63% of the  Company's  consolidated  sales  for the year
December 31, 1997 were made to six customers.  Customers generating at least 10%
of  sales  included  IBM  (19%)  and  EMC  and  its  related   suppliers  (10%).
Approximately  $2,727,000  (38%) of Lytton's sales since its  acquisition by the
Company on July 31, 1997 were to its major customer,  PMI Food Equipment  Group.
The loss of, or substantially  reduced sales to any major customer,  as occurred
with Avid  domestically in 1996 and Compaq in Europe  commencing in 1996,  would
have an  adverse  effect  on the  Company's  operations  if such  sales  are not
replaced.

         Cost of goods sold as a percentage of sales remained  relatively stable
increasing  to 87% for the year ended  December 31, 1997 compared to 86% for the
preceding year.

         Selling, general and administrative expenses increased $730,000 for the
year ended  December  31, 1997  compared to the  preceding  year.  The  increase
reflects the selling,  general and administrative  expenses of Lytton commencing
August  1,  1997,  as well as the  increased  costs  involved  in  substantially
increased  operations  of the  Company's  Round  Rock,  Texas  facility  and the
Company's new Massachusetts facility.

         Interest  expense  increased  $185,000 for the year ended  December 31,
1997  compared  to  the  preceding  year.  The  increase  reflects  interest  of
approximately  $100,000  associated  with financing the Lytton  acquisition  and
interest on Lytton's debt and financing agreements of approximately $71,000. The
prime rate was 8.5% at December 31, 1997 and 8.25% at December 31, 1996.

         The Company recorded an adjustment to the valuation  allowance relating
to its deferred tax  assets of approximately $900,000 related to domestic opera-
tions in the fourth quarter of 1997 resulting  in  a 1997 tax credit of approxi-
mately  $560,000  including  approximately  $100,000 of tax credits  on  foreign
operations with the prior year tax expense of approximately $270,000  consisting
mostly of taxes on foreign operations.

         For fiscal  1998,  the Company will adopt the  provisions  of Financial
Accounting Standards Board Statements No. 130, "Reporting  Comprehensive Income"
and  No.  131,   "Disclosure   About  Segments  of  an  Enterprise  and  Related
Information,"  which it is  anticipated  will not have a material  effect on its
consolidated  financial statements or significantly change its segment reporting
disclosures. See Note 1 to "Notes to Consolidated Financial Statements."

LIQUIDITY AND CAPITAL RESOURCES

         The Company had working  capital of  $9,321,000 at December 31, 1998, a
decrease of  $226,000  (2%)  during  1998.  This  decrease  includes  changes in
components of working capital resulting from overall increased sales levels.

                                       18
<PAGE>

         Included  in the  changes  in  components  of  working  capital  was an
increase of  $208,000  in cash and cash  equivalents,  which  included  net cash
provided by  operating  activities  of  $1,544,000,  net cash used in  investing
activities of  $2,258,000  (including  $823,000  from  additions to property and
equipment, 154,000 from additional consideration regarding  the  Lytton acquisi-
tion and $1,278,000 advanced against the Lytton  acquisition stock price guaran-
tee)  and  net  cash  provided  by  financing  activities  of $922,000 including
Lytton's  net  borrowings  on  its  line  of  credit  of $414,000, a drawdown of
$600,000 on Techdyne's  line  of  credit, payments on long-term debt of $916,000
and  a  net  increase  in  advances  from  the parent of $823,000, with both the
Techdyne line of credit borrowing and advances  from  Parent used principally to
fund the advance on the Lytton acquisition stock price guarantee).

         The Company has a five-year $1,500,000 ("notional amount under interest
rate swap agreement")  commercial term loan with monthly  principal  payments of
$25,000 plus interest at 8.60%,  which had an outstanding  balance of $1,200,000
at  December  31, 1998 and  $1,500,000  at  December 31, 1997; and a  $1,600,000
commercial revolving line of credit with interest at prime which was fully drawn
down as of December 31, 1998 with an  outstanding  balance of  $1,000,000  as of
December 31, 1997.  The commercial  term loan matures  December 15, 2002 and the
commercial  line of credit,  no longer a demand line,  matures May 1, 2000.  See
Note 2 to "Notes to Consolidated Financial Statements."

         The Company had  obtained in 1996 two other term loans from its Florida
bank. One is a $712,500 term loan,  which had a remaining  principal  balance of
$636,000 at December 31, 1998 and $663,000 at December 31, 1997,  and is secured
by two  buildings  and land  owned  by the  Parent.  The  second  term  loan for
$200,000,  which had a remaining  principal  balance of $87,000 at December  31,
1998 and  $127,000 at December 31, 1997,  is secured by the  Company's  tangible
personal property,  goods and equipment. The financing under the 1996 term loans
provided  cash  proceeds  to the Company of $215,000  which was  reflected  as a
reduction in the intercompany advances due to the Parent which represent noncash
financing activities which is a supplemental  disclosure required by FAS 95. The
Parent  has  guaranteed  the  revolving  line  and  the  three  term  loans  and
subordinated  the intercompany  indebtedness  due it from the Company,  provided
that the Company may make payments to the Parent on this  subordinated debt from
additional  equity that is injected into the Company and from earnings,  so long
as the Company is otherwise in compliance with the loan agreements.  The Company
was in default of certain financial reporting requirements regarding these loans
as of December  31, 1996 for which the bank  granted  waivers as of December 31.
1996  and  extended  through  December  31,  1997.  See  Note  2  to  "Notes  to
Consolidated Financial Statements."

         The Company has  outstanding  borrowings  of $145,000 from a local bank
with  interest  payable  monthly with the note,  which was renewed  during 1997,
maturing  April 2000.  Techdyne  (Scotland) had a line of credit with a Scottish
bank, with a U.S. dollar  equivalency of approximately  $330,000 at December 31,
1997 that was secured by assets of Techdyne  (Scotland)  and  guaranteed  by the
Company.  This  line  of  credit was not renewed.  No amounts were drawn on this
line of credit.   In  July, 1994  Techdyne  (Scotland)  purchased  the  facility
housing its operations for approximately  $730,000, obtaining a 15-year mortgage
which  had  a  U.S. dollar equivalency of approximately $545,000 at December 31,
1998  and  $569,000  at  December 31, 1997, based on exchange rates in effect at
each of these dates. See Note 2 to "Notes to Consolidated Financial Statements."

         The Company has  established a new  manufacturing  facility in Milford,
Massachusetts  with the facility having an initial five-year lease term with the
Company's  occupancy  commencing  in April  1997.  This  facility is intended to
assist in meeting increased  customer demand in the Northeastern  United States,
as well as to increase  service levels to  customers  in  the  Northeast  and to
penetrate new markets.  The Company has increased its manufacturing  capacity at
its Texas facilities to meet increased customer

                                       19
<PAGE>

demand  in  the Southwestern United  States. Most of the expenditures related to
its  new  facilities, including leasehold  improvements, equipment and furniture
and fixtures, and the costs  of  expansion of existing  facilities were provided
from the proceeds from the Company's 1995 security offering.

         On July 31, 1997, the Company acquired Lytton,  which is engaged in the
manufacture  and assembly of PCBs and other  electronic  products for commercial
customers.  This acquisition  required  $2,500,000 cash,  funded by the modified
bank line of credit,  as well as 300,000  shares of the  Company's  common stock
which had a fair value of approximately $1,031,000 based on the closing price of
the Company's  common stock on the date of acquisition.  The Company  guaranteed
$2,400,000  minimum  proceeds from the sale of these  securities based on Lytton
having achieved certain earnings  objectives.  The Stock Purchase Agreement also
provides for incentive  consideration to be paid in cash based on specific sales
levels of Lytton for each of three  successive  specified  years,  resulting  in
additional  consideration of approximately  $154,000 for the first year of sales
levels  paid  in  April 1998.  The Lytton acquisition has expanded the Company's
customer  base,   broadened  its  product  line,   enhanced  its   manufacturing
capabilities  and provided a new  geographic  area to better serve the Company's
existing customer base with opportunities to attract new customers.  See Note 10
to "Notes to Consolidated Financial Statements."

         The  Guaranty  in the Stock  Purchase  Agreement  was  modified  by the
Company and the seller.  The Company  advanced  approximately  $1,278,000 to the
seller.  In addition to the seller  having  sold 5,000  shares of the  Company's
common  stock in July  1998,  the seller is to sell  sufficient  shares to yield
aggregate proceeds of no more than $1,300,000 toward the Modified Guaranty. Upon
the sale of seller's  remaining  shares  up to 195,000 shares, seller will repay
the advance. The Company funded the advance  to  the  seller  largely  through a
drawdown of the previously unused $600,000  of  its  line of credit and advances
from its Parent.  To the extent that seller does  not  have  150,000  shares re-
maining the Company would make up the  difference.  If the sale of shares is in-
sufficient to repay the advance, the balance would be forgiven.  Pursuant to the
Extended Guaranty, sale  of  the remaining shares is guaranteed to yield no less
than $1,100,000  if sold on  or prior to July 1, 1999  or  else the Company will
make  up  the difference in either cash or additional common stock or a combina-
tion of both. See Note 10 to "Notes to Consolidated Financial Statements."

         Lytton has a $1,500,000 revolving bank line of credit requiring monthly
interest  payments  at prime  plus  1/2%  which  matured  August 1, 1998 and was
renewed on the same terms and  conditions.  There was an outstanding  balance on
this loan of $962,000 as of December 31, 1998 with $549,000 outstanding December
31, 1997.  Lytton has a $1,000,000  installment loan with the same bank maturing
August 1, 2002, at an annual rate of 9% until July 1999,  with monthly  payments
of $16,667  plus  interest,  at which time Lytton will have an option to convert
the  note  to a  variable  rate.  The  balance  outstanding  on  this  loan  was
approximately  $733,000 at December  31,  1998 and  $933,000 as of December  31,
1997.  Lytton also has a $500,000  equipment  loan  agreement with the same bank
payable through August 1, 2003 with interest at prime rate plus 1%. There was no
outstanding  balance on this loan as of December 31, 1998  or December 31, 1997.
All these bank loans are secured by the business assets of Lytton. See Note 2 to
"Notes to Consolidated Financial Statements."

         Lytton  conducts a portion of its operations  with  equipment  acquired
under  equipment  financing  obligations  which  extend  through  July 1999 with
interest  rates ranging from 8.55% to 10.09%.  The remaining  principal  balance
under these financing  obligations amounted to $112,000 at December 31, 1998 and
$390,000  at  December  31,  1997.  Lytton  has an  equipment  loan at an annual
interest rate of 5.5% maturing in April 2002 with monthly  payments of principal
and  interest of $4,298.  This loan has a balance of  approximately  $157,000 at
December 31, 1998 and $198,000 at December 31, 1997 and is secured by equipment.
See Note 2 to"Notes to Consolidated Financial Statements."

                                       20
<PAGE>

         A significant  customer of the Company, which accounted for 9% of sales
for  1998 and 8% for the previous  year, has been slow in paying  amounts due to
the Company.  The Company had a receivable  of  approximately $879,000 from this
customer, and  held  inventory  of  approximately  $1,160,000 to fulfill a sales
contract  relating  to  this  customer,  which  represents  15%  and  14% of the
Company's accounts receivable and inventory balances, respectively, as of Decem-
ber 31, 1998. The Company anticipates an ongoing business relationship with this
customer  and  believes  that  the  receivables  and  inventory  relating to the
customer are recoverable.  If any significant amount of receivables or inventory
were not recoverable, this could have a material adverse effect on the Company's
results of operations and financial position.  See Note 11 to "Notes to Consoli-
dated Financial Statements."

         The  Company  is seeking to  further  expand  its  operations  possibly
through  acquisitions  of  companies in similar  businesses,  as with the Lytton
acquisition. There can be no assurance that the Company would be able to finance
such acquisitions from its own capital or be able to obtain sufficient  external
financing.

         The Company  anticipates  that  current  levels of working  capital and
working capital from operations,  including those of Lytton, will be adequate to
successfully  meet  liquidity  demands  for at  least  the next  twelve  months,
including the financing obligations incurred in the acquisition of Lytton.

YEAR 2000 READINESS

         The Year 2000 computer information processing challenge associated with
the upcoming millennium change concerns the ability of computerized  information
systems  to  properly  recognize  date  sensitive  information, with  which many
companies,  public and private,  are faced to ensure continued proper operations
and  reporting  of financial  condition.  Failure to correct and comply with the
Year 2000  change  may cause  systems  that  cannot  recognize  the new date and
millenium  information  to  generate  erroneous  data  or to  fail  to  operate.
Management is fully  aware of the Year 2000 issues, has made its assessments and
has evaluated its computerized systems and equipment, and communicated  with its
major vendors, and has substantially  made the operations  of  the  Company year
2000 compliant.

         In 1997 the Company commenced upgrading its operations software program
by acquiring a new Visual Manufacturing software package. To a lesser extent its
Parent also acquired certain  hardware and software of the Visual  Manufacturing
system. It has been and will be integrating this new software system into all of
its  facilities.  The  Company  is in  the  process  of  installing  the  Visual
Manufacturing software system into Lytton's and Techdyne (Scotland)'s operations
which should be completed  sometime prior to June 30, 1999.  This new system has
greatly  enhanced the Company's ERP system,  essential to bids for new business,
production   scheduling,   inventory  and  information  technology  and  overall
operations. Management believes this new system is providing it with leverage in
material pricing,  production,  timely-delivery and thereby enabling the Company
to  be  more  competitive  in  bidding  for manufacturing business.  This Visual
Manufacturing  system  also  enables  the  Company  to better track actual costs
against its quotes, thereby allowing the Company  to  more  effectively  control
costs  and  manage  operating  margins.  The cost of this  new  software program
for the Florida, Texas and Massachusetts operations was approximately  $366,000;
and for Ohio and Scotland  the cost is estimated to be  approximately  $220,000.
Its Parent's  cost for the  hardware  and software  was  approximately  $58,000.
The Visual  Manufacturing system has been pre-tested and guaranteed by the manu-
facturer to be Year 2000 compliant.  The  Company and its Parent have an ongoing
consulting, training  and  servicing  arrangement with the system's manufacturer
for  $25,000  per annum.  The  Visual  Manufacturing  system  also  provides the
bookkeeping,  accounting and financial  recording and  information functions for
the Company, its Parent and Dialysis Corporation of America,  a 68% owned public
subsidiary of the Parent.

                                       21
<PAGE>

         With respect to  non-information  technology  systems  which  typically
include embedded technology such as  microcontrollers,  the major equipment used
in the Company's  manufacturing  operations is not date sensitive and should not
pose any threat of system  breakdown.  The quality control "Cirrus testers" have
recently been tested and are Year 2000 compliant. The personal computer hardware
and software  systems have been checked and have been determined to be Year 2000
compliant.  One computer was replaced with a newer Year 2000 compliant system at
no cost.  Any upgrading and  replacements  would cost  approximately  $1,500 per
unit.

         The Company has communicated with its key vendors,  customers and other
third  parties  with whom its  operations  are  essential  to  inquire  of their
assessment  of their Year 2000 issues and actions  being taken to resolve  those
issues. The Company has received  approximately 90% responses of which half have
given  written  assurance  that they are Year 2000  compliant,  with the balance
assuring the Company they will  be  Year  2000  compliant  before  the millenium
change.  To the extent such third parties are potentially  adversely affected by
the Year 2000 issues, and  such is not  timely  and  properly  resolved  by such
persons, this could disrupt  the  Company's  operations  to  the extent that the
Company will have to find alternative  vendors or customers  that  have resolved
their  Year  2000  issues.  No  assurance  can  be  given that the Company's new
Visual  Manufacturing  software  program  will  be successful in its anticipated
operational benefits  as  assessed  above or that  the Company's key vendors and
customers will have successful  conversion programs, and that any such failures,
whether relating to the manufacturing  operational efficiencies or the Year 2000
issue,  will  not  have  a  material  adverse  effect on the Company's business,
results of operations or financial condition.

Other Matters

         The Company is exposed to market  risks  from  changes in interest rate
and foreign currency exchange rates.

         The Company's  principal  exposure on interest  rates is on debt agree-
ments with variable interest  rates  of  which  the  Company  had  approximately
$2,400,000 of such debt at December 31, 1998.   The Company has exposure to both
rising  and  falling  interest  rates.  A 1% increase  in  rates on its year-end
variable rate debt would result in a negative impact of approximately $15,000 on
the Company's results of operations.

         The Company utilizes interest rate swap and other agreements on some of
its debt  obligations to manage sensitivity of results of operations to interest
rate  risk  by  converting  variable rate obligations to fixed rate obligations.
These agreements, which  totaled  approximately  $1,933,000  as  of December 31,
1998, contain  provisions  which  can  either  result in a gain or a cost to the
Company for early settlement of the related debt depending on whether rates have
increased or decreased  since the agreements  were  negotiated.  At December 31,
1998, early settlement  of  these  debt  obligations  would  have had a negative
impact of approximately $28,000 on the Company's results of operations.

         The Company's exposure to market risks  from  foreign currency exchange
rates relates to its Scottish subsidiary whose results of operations when trans-
lated into U.S. dollars are impacted by changes in foreign exchange rates. A 10%
strengthening of the U.S. dollar against the local Scottish currency, the pound,
would  have  negatively  impacted  1998  earnings by approximately $14,000.  The
Company has not incurred  any  significant  realized losses on exchange transac-
tions and does not utilize  foreign exchange contracts to hedge foreign currency
fluctuations.  If realized losses on foreign transactions were to become signif-
icant, the Company would evaluate appropriate strategies, including the possible
use of foreign exchange contracts, to reduce such losses.

                                       22
<PAGE>

NEW ACCOUNTING PRONOUNCEMENTS

         In June, 1998, the Financial Accounting Standards  Board  issued Finan-
cial Accounting  Standards  Board Statement No. 133,  "Accounting For Derivative
Instruments and Hedging Activities" (FAS 133).   FAS 133 is effective for fiscal
quarters  of  fiscal  years  beginning after June 15, 1999.  FAS 133 establishes
accounting  and reporting  standards for derivative  instruments and for hedging
activities and requires, among  other things, that all derivatives be recognized
as either assets or liabilities in the statement of financial  position and that
these  instruments be measured at fair value.  The  Company is in the process of
determining  the  impact  that the adoption of FAS 133 will have on its consoli-
dated financial statements.

INFLATION

         Inflationary factors have not had a significant effect on the Company's
operations.  The Company  attempts to pass on  increased  costs and  expenses by
increasing  selling prices when and where  possible and by developing  different
improved products for its customers that can be sold at targeted profit margins.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         This discussion is presented under the heading, "Other Matters" with
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations," and incorporated herein by reference.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The response to this item is  submitted  as a separate  section to this
report.

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

         None

                                       23
<PAGE>

                                    PART III

ITEM  10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Information  on directors of the Company is included  under the caption
"Election of Directors" of the Company's  Information  Statement relating to the
Annual Meeting of Shareholders to be held on June 9, 1999, which is incorporated
herein by reference.

         The  executive  officers  of the  Company  are  elected by the board of
directors at its first meeting  following the Annual Meeting of  Shareholders to
serve during the ensuing year and until their respective  successors are elected
and qualified..  There are no family relationships  between any of the executive
officers of the Company.  The following  information  indicates the position and
age of each executive  officer at March 15, 1999, and their business  experience
during the prior five years.

<TABLE>
<CAPTION>
   Name             Age      Position with the Company            Position Held Since
   ----             ---      -------------------------            -------------------
<S>                  <C>     <C>                                          <C> 
Thomas K. Langbein   53      Chairman of the Board and                    1982
                             Chief Executive Officer                      1990

Barry Pardon         47      President                                    1991
                             and Director                                 1990

Joseph Verga         47      Senior Vice President,                       1988
                             Treasurer                                    1985
                             Director                                     1984

Daniel R. Ouzts      52      Vice President - Finance Controller          1986
</TABLE>

         THOMAS K.  LANGBEIN was financial  consultant  to Medicore  until 1980,
when he became Chairman of the Board of Directors,  Chief Executive  Officer and
President.  Mr.  Langbein is also an officer and director of most of  Medicore's
subsidiaries.  He is  Chairman  of the  Board  and Chief  Executive  Officer  of
Dialysis Corporation of America ("DCA"),  another public subsidiary of Medicore.
Mr. Langbein is also a director of Lytton and Techdyne (Scotland).  In 1971, Mr.
Langbein  organized and currently is the  President,  sole director and owner of
Todd & Company,  Inc. ("Todd"),  a broker-dealer  registered with the Commission
and the  NASD.  Mr.  Langbein  devotes  most of his time to the  affairs  of the
Company,  Medicore and DCA. See "Certain Relationships and Related Transactions"
of the  Company's  Information  Statement  relating  to the  Annual  Meeting  of
Shareholders to be held on June 9, 1999, incorporated herein by reference.

         BARRY  PARDON  joined the Company in November,  1980 as national  sales
manager and initiated the independent manufacturer  representatives sales force.
Mr.  Pardon  became Vice  President  of  Marketing  in 1981,  and was  appointed
Executive  Vice President  (Marketing)  in 1988, and was appointed  President in
November,  1991. Mr. Pardon is Chairman of the Board of Lytton and a director of
Techdyne (Scotland).

         JOSEPH VERGA joined the Company in 1979 as purchasing  agent.  In 1980,
he became production control manager and Vice President,  in 1981 the operations
manager,  and in 1984 was  elected a director  and  appointed  Secretary  of the
Company.  In 1985 he was  appointed  Treasurer  and in 1988 was made Senior Vice
President of Operations.

                                       24
<PAGE>

         DANIEL R. OUZTS  joined  Medicore in 1980 as  Controller  of its plasma
division,  and in 1983 became  Controller  of  Medicore  and DCA. He became Vice
President  of Finance of the Company and Medicore in 1986.  He was  appointed as
Vice-President  and  Treasurer  of DCA in June,  1996.  Mr. Ouzts is a certified
public accountant.  See "Certain  Relationships and Related Transactions" of the
Company's  Information  Statement relating to the Annual Meeting of Shareholders
to be held on June 9, 1999, incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

         Information  on executive  compensation  is included  under the caption
"Executive  Compensation" of the Company's Information Statement relating to the
Annual Meeting of Shareholders to be held on June 9, 1999, which is incorporated
herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Information on beneficial  ownership of the Company's voting securities
by each director and all officers and directors as a group,  and for each of the
named  executive  officers  disclosed  in the  Summary  Compensation  Table (see
"Executive  Compensation" of the Company's Information Statement relating to the
Annual Meeting of Shareholders to be held on June 9, 1999, which is incorporated
herein by reference), and by any person known to the Company to beneficially own
more than 5% of any class of voting  security of the Company,  is included under
the caption "Security  Ownership of Certain Beneficial Owners and Management" of
the  Company's   Information   Statement  relating  to  the  Annual  Meeting  of
Shareholders  to be held on  June 9,  1999,  which  is  incorporated  herein  by
reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Information  on  certain  relationships  and  related  transactions  is
included under the caption "Certain  Relationships and Related  Transactions" of
the  Company's   Information   Statement  relating  to  the  Annual  Meeting  of
Shareholders  to be held on  June 9,  1999,  which  is  incorporated  herein  by
reference.

                                     PART IV

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

(a)      The following is a list of documents filed as part of this report.

         1. All  financial  statements  - See  Index to  Consolidated  Financial
            Statements.

         2. Financial statement schedules - See Index to Consolidated  Financial
            Statements.

(b)      Current Reports on Form 8-K filed during the fourth quarter.

         None

                                       25
<PAGE>

(c)      Exhibits

                    (3)(i)   Articles   of   Incorporation    (incorporated   by
                             reference to the Company's  Registration  Statement
                             on Form SB-2 dated July 26, 1995, as amended August
                             21, 1995 and  September 1, 1995,  Registration  No.
                             33-94998-A ("Form SB-2"),  Part II, Item 27, 3(a)).
                             *

                      (ii)   By-Laws (incorporated by reference to the Company's
                             Form SB-2, Part II, Item 27, 3(b)). *

                      4(i)   Form of Common Stock  Certificate  (incorporated by
                             reference to the Company's Form SB-2, Part II, Item
                             27, 4(a)). *

                      (ii)   Form of Redeemable  Common Stock  Purchase  Warrant
                             (incorporated  by reference to the  Company's  Form
                             SB-2, Part II, Item 27, 4(b)). *

                     (iii)   Form  of  Underwriter's  Warrant  (incorporated  by
                             reference to the Company's Form SB-2, Part II, Item
                             27, 4(c)). *

                      (iv)   Form of  Warrant  Agreement  between  the  Company,
                             Continental  Stock Transfer & Trust Co., and Joseph
                             Dillon & Co.,  Inc.  (incorporated  by reference to
                             the Company's Form SB-2, Part II, Item 27, 4(d)). *

                       (v)   1994 Stock Option Plan of the Company (incorporated
                             by reference to Medicore,  Inc.'s(1)  Annual Report
                             on Form 10-K for the year ended  December  31, 1994
                             ("Medicore's 1994 Form 10-K"), Part IV, Item 14 (a)
                             3 (10)(lxv)). *

                      (vi)   Form of Stock Option  Certificate  under 1994 Stock
                             Option   Plan   (incorporated   by   reference   to
                             Medicore's(1)1994 Form 10-K, Part IV, Item 14 (a) 3
                             (10)(lxvi)). *

                     (vii)   Form   of   1995    Non-Qualified    Stock   Option
                             (incorporated  by reference to  Medicore's(1)  1994
                             Form 10-K, Part IV, Item 14 (a) 3 (10)(lxvii)). *

                    (viii)   Form of 1997 Stock  Option  Plan  (incorporated  by
                             reference to the Company's  Current  Report on Form
                             8-K dated June 24, 1997 ("June 24, 1997 Form 8-K"),
                             Item 7(c)(4)(i)). *

                      (ix)   Form of 1997 Incentive  Stock Option  (incorporated
                             by  reference to the  Company's  June 24, 1997 Form
                             8-K, Item 7(c)(4)(ii)). *

                       (x)   Form   of   1997    Non-Qualified    Stock   Option
                             (incorporated  by reference to the  Company's  June
                             24, 1997 Form 8-K, Item 7(c)(4)(iii)). *

                   (10)(i)   Lease  Agreement  between the Company and Medicore,
                             Inc.(1)  dated  July  17,  1990   (incorporated  by
                             reference to the  Company's  Annual  Report on Form
                             10-K for the year ended  December  31,  1997 ("1997
                             Form 10-K"), Part IV, Item 14(c)(10)(i)).*

                                       26
<PAGE>

                      (ii)   Lease Renewal  Letter from the Company to Medicore,
                             Inc.(1) dated  December 19, 1994  (incorporated  by
                             reference to the Company's Form SB-2, Part II, Item
                             27, 10(b)). *

                     (iii)   Form of Exclusive  Sales  Representative  Agreement
                             (incorporated  by reference to Medicore,  Inc.'s(1)
                             1994 Form 10-K, Part IV, Item 14 (a) 3 (10)(lxiv)).
                             *

                      (iv)   Employment  Agreement between the Company and Barry
                             Pardon  dated  March  13,  1996   (incorporated  by
                             reference to the  Company's  Annual  Report on Form
                             10-K for the year ended December 31, 1995; Part IV,
                             Item 14(a)(10)(viii).*

                       (v)   Employment  Agreement  between Techdyne  (Scotland)
                             Ltd.(3) and John Clark  Grieve dated March 11, 1988
                             (incorporated  by reference to the  Company's  1997
                             Form 10-K, Part IV, Item 14(c)(10)(v)).*

                      (vi)   Guarantee  of Techdyne  (Scotland)  Ltd.(3) Line of
                             Credit with Royal Bank of Scotland  Plc dated March
                             3, 1989 (incorporated by reference to the Company's
                             1997 Form 10-K, Part IV, Item 14(c)(10)(vi)).

                     (vii)   Mortgage  by  Techdyne  (Scotland)  Ltd.(3)  to the
                             Royal  Bank  of  Scotland   dated  August  8,  1994
                             (incorporated  by reference to Medicore,  Inc.'s(1)
                             Quarterly Report on Form 10-Q for the quarter ended
                             June 30, 1994  ("Medicore  June,  1994 Form 10-Q"),
                             Part II, Item 6(a)(28)(vi)). *

                    (viii)   Promissory  Note to Medicore,  Inc.(1)  dated April
                             10,  1995   (incorporated   by   reference  to  the
                             Company's Form SB-2,  Part II, Item 27, 10 (a)(a)).
                             *

                      (ix)   Loan and Security Agreement between the Company and
                             Barnett  Bank  of  South  Florida,  N.A.  ("Barnett
                             Bank")  for  $2,000,000   dated  February  8,  1996
                             (incorporated by reference to the Company's Current
                             Report  on  Form  8-K,   dated  February  23,  1996
                             ("February 1996 Form 8-K"), Item 7(c)(99)(i)). *

                       (x)   Loan Agreement for $712,500 between the Company and
                             Barnett Bank dated  February 8, 1996  (incorporated
                             by  reference  to  February  1996  Form  8-K,  Item
                             7(c)(99)(v)). *

                      (xi)   Promissory  Note for  $712,500  from the Company to
                             Barnett Bank, dated February 8, 1996  (incorporated
                             by  reference  to  February  1996  Form  8-K,  Item
                             7(c)(99)(vi)).*

                     (xii)   Mortgage and Security  Agreement  between Medicore,
                             Inc.(1)  and  Barnett  Bank dated  February 8, 1996
                             (incorporated  by reference  to February  1996 Form
                             8-K, Item 7(c)(99)(vii)). *

                    (xiii)   Assignment   of  Leases,   Rents  and   Profits  by
                             Medicore,  Inc.(1) in favor of  Barnett  Bank dated
                             February  8, 1996  (incorporated  by  reference  to
                             February 1996 Form 8-K, Item 7(c)(99)(viii)). *

                                       27
<PAGE>

                     (xiv)   Promissory  Note for  $200,000  from the Company to
                             Barnett Bank dated  February 8, 1996  (incorporated
                             by  reference  to  February  1996  Form  8-K,  Item
                             7(c)(99)(ix)).*

                      (xv)   Security  Agreement between the Company and Barnett
                             Bank  dated  February  8,  1996   (incorporated  by
                             reference   to   February   1996  Form  8-K,   Item
                             7(c)(99)(x)).*

                     (xvi)   Service Agreement between the Company and Medicore,
                             Inc.(1)  dated  October 25, 1996  (incorporated  by
                             reference to the Company's  Registration  Statement
                             on Form S-3,  Registration No. 333-15371,  Part II,
                             Item 16, Exhibit 10(a)).*

                    (xvii)   First  Amendment  to Loan and  Security  Agreement,
                             Loan Agreement and Security  Agreement  between the
                             Company and Barnett Bank,  N.A. dated July 31, 1997
                             (incorporated by reference to the Company's Current
                             Report on Form 8-K dated  August 12, 1997  ("August
                             12, 1997 Form 8-K"), Item 7(c)(99)(i)).*

                   (xviii)   Revolving  Demand  Promissory Note from the Company
                             to  Barnett   Bank,   N.A.   dated  July  31,  1997
                             (incorporated  by reference to the Company's August
                             12, 1997 Form 8-K, Item 7(c)(99)(ii)).*

                     (xix)   Unconditional  and Continuing  Guaranty of Payments
                             and  Performance  by Medicore,  Inc.(1) in favor of
                             Barnett   Bank,    N.A.   dated   July   31,   1997
                             (incorporated  by reference to the Company's August
                             12, 1997 Form 8-K, Item 7(c)(99)(iii)).*

                      (xx)   Subordination Agreement among the Company,  Barnett
                             Bank,  N.A. and  Medicore,  Inc.(1)  dated July 31,
                             1997  (incorporated  by reference to the  Company's
                             August 12, 1997 Form 8-K, Item 7(c)(99)(iv)).*

                     (xxi)   Second  Amendment  to Loan and  Security  Agreement
                             between the Company and Barnett Bank, N.A. dated as
                             of December 29, 1997  (incorporated by reference to
                             the  Company's  Form 8-K  dated  January  20,  1998
                             ("January, 1998 Form 8-K"), Item 7(c)(99)(i)).*

                    (xxii)   Revolving  Promissory  Note  form  the  Company  to
                             Barnett  Bank,  N.A.  for  $1,600,000  dated  as of
                             December 29, 1997 (incorporated by reference to the
                             Company's    January,    1998   Form   8-K,    Item
                             7(c)(99)(ii)).*

                   (xxiii)   Unconditional  and  Continuing  Guaranty of Payment
                             and Performance(3) by Medicore, Inc.(1) in favor of
                             Barnett  Bank,  N.A.  dated as of December 29, 1997
                             (incorporated   by  reference   to  the   Company's
                             January, 1998 Form 8-K, Item 7(c)(99)(iii)).*

                    (xxiv)   Subordination   Agreements(4)  among  the  Company,
                             Barnett   Bank,   N.A.   and   Medicore,    Inc.(1)
                             (incorporated   by  reference   to  the   Company's
                             January, 1998 Form 8-K, Item 7(c)(99)(iv)).*

                     (xxv)   Loan Agreement for  $1,500,000  between the Company
                             and Barnett  Bank,  N.A.  dated as of December  29,
                             1997  (incorporated  by reference to the  Company's
                             January, 1998 Form 8-K, Item 7(c)(99)(v)).*

                                       28
<PAGE>

                    (xxvi)   Promissory  Note from the Company to Barnett  Bank,
                             N.A. for  $1,500,000  dated as of December 29, 1997
                             (incorporated   by  reference   to  the   Company's
                             January, 1998 Form 8-K, Item 7(c)(99)(vi)).*

                   (xxvii)   Commercial  Security  Agreement between the Company
                             and Barnett  Bank,  N.A.  dated as of December  29,
                             1997  (incorporated  by reference to the  Company's
                             January, 1998 Form 8-K, Item 7(c)(99)(vii)).*

                  (xxviii)   International Swap Dealers Association, Inc. Master
                             Agreement  between the  Company  and Barnett  Bank,
                             N.A. dated as of December 22, 1997 (incorporated by
                             reference to the Company's January,  1998 Form 8-K,
                             Item 7(c)(99)(viii)).*

                    (xxix)   Lease  Agreement  between the Company and Route 495
                             Commerce Park Limited  Partnership  dated March 25,
                             1997  (incorporated  by reference to the  Company's
                             Quarterly Report on Form 10-Q for the first quarter
                             of 1997, Item 6(a), Part II(10)).*

                     (xxx)   Lease  Agreement  between  the  Company and PruCrow
                             Industrial  Properties,  L.P.  dated April 30, 1997
                             (incorporated by reference to the Company's Current
                             Report on Form 8-K dated June 4, 1997 ("June,  1997
                             Form 8-K"), Item 7(c)(10)(i)).*

                    (xxxi)   Lease Agreement between the Company and EGP Houston
                             Partners Ltd. dated April 29, 1997 (incorporated by
                             reference  to the  Company's  June,  1997 Form 8-K,
                             Item 7(c)(10)(ii)).*

                   (xxxii)   Stock  Purchase   Agreement   between  Patricia  A.
                             Crossley,  Lytton  Incorporated(2)  and the Company
                             dated July 31, 1997  (incorporated  by reference to
                             the  Company's  August  12,  1997  Form  8-K,  Item
                             7(c)(2)(i)).*

                  (xxxiii)   Form of  Stock  Option  to The  Investor  Relations
                             Group,  Inc.  (incorporated  by  reference  to  the
                             Company's  Current Report on Form 8-K dated May 28,
                             1998, Item 7(c)(10)(i)).*

                   (xxxiv)   Amendment to Stock Purchase  Agreement  between the
                             Company and Patricia  Crossley  dated June 29, 1998
                             (incorporated by reference to the Company's Current
                             Report  on  Form  8-K  dated  July  6,  1998,  Item
                             7(c)(99)(i)).*

                    (xxxv)   Supplement  to  Prospectus   dated  July  13,  1998
                             (incorporated by reference to the Company's Current
                             Report  on Form  8-K  dated  July  13,  1998,  Item
                             7(c)(99)(i)).*

                   (21)      Subsidiaries of the registrant.

                   (23)      Consents of experts and counsel.

                             (i) Consent of Independent Certified Public Accoun-
                                 tants.

                   (27)      Financial Data Schedule (for SEC use only).

                                       29
<PAGE>

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

*        Documents incorporated by reference not included in Exhibit Volume.

(1)      PARENT OF THE COMPANY  OWNING 62% OF THE COMPANY'S  OUTSTANDING  SHARES
         (70% IF INCLUDE CONVERTIBLE PROMISSORY NOTE).

(2)      WHOLLY-OWNED SUBSIDIARY.

(3)      EACH OF THE $1,600,000  REVOLVING LOAN AND THE $1,500,000 TERM LOAN HAS
         BEEN  UNCONDITIONALLY  GUARANTEED BY MEDICORE,  INC.(1),  AND EACH SUCH
         UNCONDITIONAL  GUARANTY  AGREEMENT  IS  SUBSTANTIALLY  SIMILAR  TO  THE
         EXHIBIT FILED FOR THE REVOLVING LOAN.

(4)      MEDICORE,  INC.(1)  HAS  SUBORDINATED  INDEBTEDNESS  DUE TO IT FROM THE
         COMPANY  TO THE  REVOLVING  AND TERM  LOANS,  EACH  SUCH  SUBORDINATION
         AGREEMENT  IS  SUBSTANTIALLY  SIMILAR  TO THE  EXHIBIT  FILED  FOR  THE
         REVOLVING LOAN.

                                       30
<PAGE>


(d)  Schedule II - Valuation and Qualifying Accounts
     Techdyne, Inc. and Subsidiaries
     December 31, 1998

<TABLE>
<CAPTION>
------------------------------------------   ---------  -----------------------   ------------   -----------
COL. A                                        COL. B            COL. C               COL. D        COL. E
------------------------------------------   ---------  -----------------------   ------------   -----------
                                                          Additions
                                                        (Deductions) Additions       Other
                                                          Charged     Charged       Changes
                                             Balance at  (Credited)   to Other        Add          Balance
                                             Beginning  to Cost and   Accounts      (Deduct)      at End of
Classification                               of Period    Expenses    Describe      Describe       Period
------------------------------------------   ----------  -----------------------  ------------   -----------
<S>                                          <C>          <C>                      <C>           <C>
YEAR ENDED DECEMBER 31, 1998:
Reserves and allowances deducted
 from asset accounts:
  Allowance for uncollectable accounts       $   54,000   $   2,000               $  (9,000)(1)   $   47,000
  Reserve for inventory obsolescence            223,000     437,000                (116,000)(2)      544,000
  Valuation allowance for deferred tax asset    850,465    (402,465)                    ---          448,000
                                             ----------   ---------   ---------   ---------       ----------
                                             $1,127,465   $  36,535   $       0   $(125,000)      $1,039,000
                                             ==========   =========   =========   =========       ==========

YEAR ENDED DECEMBER 31, 1997:
Reserves and allowances deducted
 from asset accounts:
  Allowance for uncollectable accounts       $   83,000   $   1,000               $ (30,000)(1)   $   54,000
  Reserve for inventory obsolescence            134,000     153,000                 (64,000)(2)      223,000
  Valuation allowance for deferred tax asset  1,798,000    (947,535)                    ---          850,465
                                             ----------   ---------   ---------   ---------       ----------
                                             $2,015,000   $(793,535)  $       0   $ (94,000)      $1,127,465
                                             ==========   =========   =========   =========       ==========

YEAR ENDED DECEMBER 31, 1996:
Reserves and allowances deducted
 from asset accounts:
  Allowance for uncollectable accounts       $  103,000   $   9,380               $ (29,380)(1)   $   83,000
  Reserve for inventory obsolescence            309,000      56,913                (231,913)(2)      134,000
  Valuation allowance for deferred tax asset  1,857,000     (59,000)                    ---        1,798,000
                                             ----------   ---------   ---------   ---------       ----------
                                             $2,269,000   $   7,293   $       0   $(261,293)      $2,015,000
                                             ==========   =========   =========   =========       ==========

(1) Uncollectable accounts written off, net of recoveries.
(2) Net write-offs against inventory reserves.

<PAGE>

                                   SIGNATURES

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

                          TECHDYNE, INC.


                          By  /s/ THOMAS K. LANGBEIN                      
                              --------------------------------------------------
                                  Thomas K. Langbein, Chairman of the
                                  Board of Directors and Chief Executive Officer

March 29, 1999

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

Name                                 Title                            Date
----                                 -----                            ----

/s/ THOMAS K. LANGBEIN       Chairman of the Board
-----------------------      of Directors, Chief
    Thomas K. Langbein       Executive Officer                   March 29, 1999

/s/ BARRY PARDON             President and Director              March 26, 1999
-----------------------
    Barry  Pardon

/s/ JOSEPH VERGA             Senior Vice President,
-----------------------      Treasurer and Director              March 26, 1999
    Joseph Verga             

/s/ DANIEL R. OUZTS          Vice President and Controller       March 26, 1999
-----------------------
    Daniel R. Ouzts                                              

/s/ PETER D. FISCHBEIN       Director                            March 29, 1999
-----------------------
    Peter D. Fischbein

/s/ ANTHONY C. D'AMORE       Director                            March 29, 1999
-----------------------
    Anthony C. D'Amore

                                       
<PAGE>


                           ANNUAL REPORT ON FORM 10-K

                  ITEM 8, ITEM 14 (a) (1) and (2), (c) and (d)

         LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

                   FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

                                CERTAIN EXHIBITS

                         FINANCIAL STATEMENTS SCHEDULES

                          YEAR ENDED DECEMBER 31, 1998

                                 TECHDYNE, INC.

                                HIALEAH, FLORIDA

<PAGE>


                        FORM 10-K--ITEM 14(A)(1) AND (2)

                         TECHDYNE, INC. AND SUBSIDIARIES

                          LIST OF FINANCIAL STATEMENTS



The  following   consolidated   financial  statements  of  Techdyne,   Inc.  and
subsidiaries are included in Item 8:


</TABLE>
<TABLE>
<CAPTION>
                                                                                   Page
                                                                                   ----

<S>                                                                                <C>
    Consolidated Balance Sheets - December 31, 1998 and 1997.                      F-3

    Consolidated Statements of Income - Years ended December 31, 1998,
      1997, and 1996.                                                              F-4

    Consolidated Statements of Stockholders' Equity - Years ended
      December 31, 1998, 1997 and 1996.                                            F-5

    Consolidated Statements of Cash Flows - Years ended December 31, 1998,
      1997, and 1996.                                                              F-6

    Notes to Consolidated Financial Statements - December 31, 1998.                F-7
</TABLE>

    The  following   financial   statement   schedule  of  Techdyne,   Inc.  and
subsidiaries is included in Item 14(d):

    Schedule II - Valuation and qualifying accounts.

    All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange  Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.

                                      F-1

<PAGE>


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Shareholders and Board of Directors
Techdyne, Inc.

We have audited the accompanying  consolidated balance sheets of Techdyne,  Inc.
and subsidiaries as of December 31, 1998 and 1997, and the related  consolidated
statements of income,  stockholders' equity and cash flows for each of the three
years in the period  ended  December  31,  1998.  Our audits also  included  the
financial  statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management.  Our
responsibility  is to  express  an opinion  on these  financial  statements  and
schedule based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Techdyne,  Inc.  and  subsidiaries  at  December  31,  1998  and  1997,  and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity  with generally
accepted  accounting  principles.  Also, in our opinion,  the related  financial
statement  schedule,   when  considered  in  relation  to  the  basic  financial
statements  taken as a whole,  presents  fairly  in all  material  respects  the
information set forth therein.


                                                           /s/ ERNST & YOUNG LLP

March 22, 1999
Miami, Florida

                                      F-2

<PAGE>


                                        TECHDYNE, INC. AND SUBSIDIARIES

                                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                   DECEMBER 31,    DECEMBER 31,
                                                                                      1998             1997
                                                                                   ------------    ------------
                            ASSETS
<S>                                                                                <C>             <C>         
Current assets:
  Cash and cash equivalents                                                        $  1,659,737    $  1,451,564
  Accounts receivable, less allowances of $47,000 at December 31, 1998
    and $54,000 at December 31, 1997                                                  5,769,868       5,707,471
  Inventories, less allowances for obsolescence of $544,000 at
    December 31, 1998 and $223,000 at December 31, 1997                               7,874,500       8,325,309
  Prepaid expenses and other current assets                                             165,925         574,250
  Deferred tax asset                                                                    466,259       1,010,558
                                                                                   ------------    ------------
             Total current assets                                                    15,936,289      17,069,152

Property and equipment:
  Land and improvements                                                                 199,200         198,000
  Buildings and building improvements                                                   769,204         764,571
  Machinery and equipment                                                             6,846,863       6,176,733
  Tools and dies                                                                        844,988         844,132
  Leasehold improvements                                                                308,074         241,934
                                                                                   ------------    ------------
                                                                                      8,968,329       8,225,370
  Less accumulated depreciation and amortization                                      3,892,293       2,984,825
                                                                                   ------------    ------------
                                                                                      5,076,036       5,240,545
Deferred expenses and other assets                                                      122,578          79,707
Costs in excess of net tangible assets acquired, less accumulated
     amortization of $192,000 at December 31, 1998
     and $85,000 at December 31, 1997                                                 2,682,938       2,235,743
                                                                                   ------------    ------------
                                                                                   $ 23,817,841    $ 24,625,147
                                                                                   ============    ============
                            LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Short-term bank borrowings                                                       $    962,407    $    548,698
  Accounts payable                                                                    3,233,202       4,214,639
  Accrued expenses                                                                    1,534,785       1,745,926
  Current portion of long-term debt                                                     764,550         909,080
  Income taxes payable                                                                  120,027         103,559
                                                                                   ------------    ------------
          Total current liabilities                                                   6,614,971       7,521,902
Deferred gain on sale of real estate                                                    161,047         161,047
Deferred income taxes                                                                        --         507,003
Long-term debt, less current portion                                                  4,450,578       4,619,066
Advances from parent                                                                  3,130,588       2,307,221

Commitments and contingencies

Stockholders' equity:
  Common stock, $.01 par value, authorized 10,000,000 shares; issued and
    outstanding 5,250,167 shares in 1998 and 5,135,167 shares in 1997                    52,501          51,351
  Capital in excess of par value                                                     11,139,291      10,612,691
  Accumulated deficit                                                                  (307,936)     (1,105,648)
  Accumulated other comprehensive loss                                                  (31,638)        (49,486)
  Notes receivable from options exercised                                              (113,850)             --
  Advance on subsidiary acquisition price guarantee                                  (1,277,711)             --
                                                                                   ------------    ------------
             Total stockholders' equity                                               9,460,657       9,508,908
                                                                                   ------------    ------------
                                                                                   $ 23,817,841    $ 24,625,147
                                                                                   ============    ============
</TABLE>

                                See notes to consolidated financial statements.

                                                      F-3
<PAGE>


                               TECHDYNE, INC. AND SUBSIDIARIES

                              CONSOLIDATED STATEMENTS OF INCOME


<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                                 -------------------------------------------
                                                     1998           1997            1996
                                                 ------------   ------------    ------------
<S>                                              <C>            <C>             <C>         
Revenues:
  Sales                                          $ 44,665,925   $ 33,019,331    $ 24,116,018
  Interest and other income                           260,806        149,449         318,162
                                                 ------------   ------------    ------------
                                                   44,926,731     33,168,780      24,434,180
Cost and expenses:
  Cost of goods sold                               39,277,746     28,716,910      20,747,534
  Selling, general and administrative expenses      4,061,205      3,134,001       2,404,456
  Interest expense                                    662,856        456,621         271,736
                                                 ------------   ------------    ------------
                                                   44,001,807     32,307,532      23,423,726
                                                 ------------   ------------    ------------

Income before income taxes                            924,924        861,248       1,010,454

Income tax provision (benefit)                        127,212       (564,271)        267,746
                                                 ------------   ------------    ------------

            Net income                           $    797,712   $  1,425,519    $    742,708
                                                 ============   ============    ============

Earnings per share:
  Basic                                          $        .15   $        .32    $        .18
                                                 ============   ============    ============
  Diluted                                        $        .13   $        .24    $        .14
                                                 ============   ============    ============
</TABLE>

                       See notes to consolidated financial statements.

                                            F-4


<PAGE>

                         TECHDYNE, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                                  ACCUMULATED       NOTES     ADVANCE
                                           CAPITAL IN                  ACCUMU-      OTHER       RECEIVABLE  SUBSIDIARY
                                  COMMON    EXCESS OF  COMPREHENSIVE    LATED    COMPREHENSIVE      STOCK      PRICE
                                   STOCK    PAR VALUE     INCOME       DEFICIT   INCOME (LOSS)    OPTIONS    GUARANTEE     TOTAL
                                 ---------  ---------- ------------- ----------- -------------   ----------  ---------- -----------

<S>                              <C>        <C>         <C>          <C>          <C>            <C>         <C>        <C>        
Balance at January 1, 1996       $  40,433  $7,153,581               $(3,273,875) $ (257,262)                           $ 3,662,877
Comprehensive income:
   Net income                           --          --  $  742,708       742,708          --
   Other comprehensive income:
   Foreign currency 
     translations adjustments                              362,026                   362,026
                                                        ----------

       Comprehensive income                             $1,104,734                                                        1,104,734
                                                        ==========
   Note conversion by Medicore 
     (200,000 shares)                2,000     348,000                        --          --                                350,000

   Exercise of stock options           507      50,193                        --          --                                 50,700
                                 ---------  ----------                        --  ----------                            -----------
Balance at December 31, 1996        42,940   7,551,774                (2,531,167)    104,764                              5,168,311
Comprehensive income:
   Net income                           --         --   $1,425,519     1,425,519          --
   Other comprehensive income:
   Foreign currency translation
     adjustments                                          (154,250)                 (154,250)
                                                        ----------

       Comprehensive income                             $1,271,269                                                        1,271,269
                                                        ==========
   Note conversion by Medicore
     (500,000 shares)                5,000     870,000                        --          --                                875,000

   Shares issued in subsidiary
     acquisition (300,000 shares)    3,000   1,997,000                        --          --                              2,000,000
   Exercise of stock options 
     and warrants                      411     193,917                        --          --                                194,328
                                 ---------  ----------                ----------  ----------                            -----------
Balance at December 31, 1997        51,351  10,612,691                (1,105,648)    (49,486)                             9,508,908
Comprehensive income:
   Net income                                           $  797,712       797,712
   Other comprehensive income:
   Foreign currency translation
     adjustments                                            17,848                    17,848
                                                        ----------

       Comprehensive income                             $  815,560                                                          815,560
                                                        ==========
Exercise of stock options 
  and warrants                       1,150     113,850                                           (113,850)                    1,150
Consultant stock options                        12,750                                                                       12,750
Subsidiary acquisition 
  price adjustment                             400,000                                                                      400,000
Advance on subsidiary
  acquisition price guarantee                                                                                (1,277,711) (1,277,711)
                                 --------- -----------                ----------  ----------  -----------  ------------ -----------
Balance at December 31, 1998     $  52,501 $11,139,291                $ (307,936) $  (31,638) $  (113,850) $ (1,277,711)$ 9,460,657
                                 ========= ===========                ==========  ==========  ===========  ============ ===========
</TABLE>

                                        F-5
<PAGE>


                                       TECHDYNE, INC. AND SUBSIDIARIES

                                    CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31,
                                                                   -----------------------------------------
                                                                      1998           1997           1996
                                                                   -----------    -----------    -----------
<S>                                                                <C>            <C>            <C>        
Operating activities:
  Net income                                                       $   797,712    $ 1,425,519    $   742,708
  Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
      Depreciation                                                     996,919        616,663        368,618
      Amortization                                                     118,104         52,576         15,430
      Bad debt expense                                                   2,179          1,282          9,380
      Provision for inventory obsolescence                             437,095        153,011         56,913
      Deferred income taxes (benefit)                                  (10,295)      (503,555)         3,266
      Consultant stock option expense                                   12,750
      Increase (decrease) relating To operating activities from:
        Accounts receivable                                            (55,293)    (1,420,709)       110,804
        Inventories                                                     22,274     (2,797,742)       584,248
        Prepaid expenses and other
         current assets                                                410,884       (137,786)       228,554
        Accounts payable                                              (987,521)       474,334       (698,395)
        Accrued expenses                                              (213,984)       (91,805)      (480,917)
        Income taxes payable                                            13,362       (276,463)      (215,143)
                                                                   -----------    -----------    -----------
          Net cash provided by (used in) operating activities        1,544,186     (2,504,675)       725,466

Investing activities:
  Subsidiary acquisition payments                                     (153,818)    (2,166,010)            --
  Advance on subsidiary acquisition price guarantee                 (1,277,711)            --             --
  Additions to property and equipment,
    net of minor disposals                                            (823,419)    (1,449,077)      (479,815)
  Deferred expenses and other assets                                    (3,520)        44,386         (6,808)
                                                                   -----------    -----------    -----------
          Net cash used in investing activities                     (2,258,468)    (3,570,701)      (486,623)

Financing activities:
  Borrowings to finance subsidiary acquisition                         600,000      2,500,000             --
  Short-term line of credit borrowings                                 413,709        548,698             --
  Exercise of stock options and warrants                                 1,150        194,328         50,700
  Proceeds from long-term borrowings                                        --             --        181,476
  Payments on long-term borrowings                                    (916,470)      (273,437)      (140,443)
  Increase (decrease)in advances from parent                           823,367        724,651        336,483
  Deferred financing costs                                                  --         (2,657)       (14,438)
                                                                   -----------    -----------    -----------
          Net cash provided by financing activities                    921,756      3,691,583        413,778

Effect of exchange rate fluctuations on cash                               699       (118,690)       142,085
                                                                   -----------    -----------    -----------
Increase (decrease) in cash and cash equivalents                       208,173     (2,502,483)       794,706
Cash and cash equivalents at beginning of year                       1,451,564      3,954,047      3,159,341
                                                                   -----------    -----------    -----------
Cash and cash equivalents at end of year                           $ 1,659,737    $ 1,451,564    $ 3,954,047
                                                                   ===========    ===========    ===========
</TABLE>

                               See notes to consolidated financial statements.

                                                    F-6
<PAGE>

                         TECHDYNE, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS

         The Company is in one business  segment,  the manufacture of electronic
and    electro-mechanical    products   primarily   manufactured   to   customer
specifications in the data processing,  telecommunication,  instrumentation  and
food preparation equipment industries.

CONSOLIDATION

         The consolidated financial statements include the accounts of Techdyne,
Inc.   ("Techdyne")  and  its   subsidiaries,   including  Lytton   Incorporated
("Lytton"),  Techdyne (Scotland) Limited ("Techdyne  (Scotland)"),  and Techdyne
(Livingston) Limited which is a subsidiary of Techdyne (Scotland),  collectively
referred  to  as  the   "Company."  All  material   intercompany   accounts  and
transactions have been eliminated in consolidation. The Company is a 61.5% owned
subsidiary of Medicore, Inc. (the "Parent").

MAJOR CUSTOMERS

         A majority of the Company's sales are to certain major  customers.  The
loss of or  substantially  reduced sales to any of these customers would have an
adverse effect on the Company's operations if such sales were not replaced.

INVENTORIES

         Inventories,  which  consist  primarily  of raw  materials  used in the
production of electronic components,  are valued at the lower of cost (first-in,
first-out  method)  or  market  value.  The cost of  finished  goods and work in
process consists of direct materials, direct labor and an appropriate portion of
fixed  and  variable  manufacturing  overhead.   Inventories  are  comprised  of
following:

                                      DECEMBER 31,             DECEMBER 31,
                                          1998                     1997
                                      ------------             ------------
Finished goods                         $  794,297               $  554,903
Work in process                         1,845,954                1,772,724
Raw materials and supplies              5,234,249                5,997,682
                                       ----------               ----------
                                       $7,874,500               $8,325,309
                                       ==========               ==========

PROPERTY AND EQUIPMENT

         Property and equipment is stated on the basis of cost.  Depreciation is
computed by the  straight-line  method over the  estimated  useful  lives of the
assets, which are generally 25 years  for  buildings  and  improvements; 3 to 10
years for machinery, computer and office  equipment; 3 to 10 years for tools and
dies; and 5 to 15 years for leasehold improvements. Replacements and betterments
that  extend the lives of assets are capitalized.  Maintenance  and  repairs are
expensed as incurred. Upon the sale or retirement of assets the related cost and
accumulated  depreciation  are removed and any gain or loss is recognized.

LONG-LIVED ASSET IMPAIRMENT

         Pursuant to Financial  Accounting  Standards  Board  Statement  No. 121
"Accounting  for  the  Impairment  of  Long-Lived  Assets  to be  Disposed  of,"
impairment of long-lived assets,  including  intangibles related to such assets,
is  recognized  whenever  events or changes in  circumstances  indicate that the
carrying  amount of the  asset,  or related  groups of assets,  may not be fully
recoverable  from estimated  future cash flows and the fair value of the related
assets  is less  than  their  carrying  value.  The  Company,  based on  current
circumstances, does not believe any indicators of impairment are present.

                                      F-7
<PAGE>


                         TECHDYNE, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                                DECEMBER 31, 1998

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED

DEFERRED EXPENSES

         Deferred expenses, except for deferred loan costs, are amortized on the
straight-line  method, over their estimated benefit period ranging to 60 months.
Deferred loan costs are amortized over the lives of the respective loans.

COST IN EXCESS OF NET TANGIBLE ASSETS ACQUIRED

         Cost in excess of net tangible  assets acquired is being amortized on a
straight-line  basis  over 25  years.  If,  in the  opinion  of  management,  an
impairment  of value occurs,  based on the  undiscounted  cash flow method,  any
writedowns will be charged to expense.

FOREIGN OPERATIONS

         The financial statements of the foreign subsidiary have been translated
into U.S.  dollars in accordance  with FASB  Statement No. 52. All balance sheet
accounts have been  translated  using the current  exchange rates at the balance
sheet date.  Income  statement  accounts have been translated  using the average
exchange rate for the period.  The  translation  adjustments  resulting from the
change in exchange rates from period to period have been reported  separately as
a component of accumulated other comprehensive  income included in stockholders'
equity.  Foreign currency  transaction gains and losses, which are not material,
are included in the results of  operations.  These gains and losses  result from
exchange rate changes  between the time  transactions  are recorded and settled,
and for  unsettled  transactions,  exchange  rate  changes  between the time the
transactions are recorded and the balance sheet date.

CUSTOMER PAYMENT TERMS

         The majority of the  Company's  sales are made at payment  terms of net
amount due in 30-45 days, and do not require collateral.

INCOME TAXES

         Deferred  income  taxes at the end of each  period  are  determined  by
applying  enacted tax rates  applicable to future periods in which the taxes are
expected to be paid or recovered to differences between the financial accounting
and tax basis of assets and liabilities.

STOCK-BASED COMPENSATION

         The  Company  follows  Accounting  Principles  Board  Opinion  No.  25,
"Accounting for Stock Issued to Employees" (APB 25) and related  Interpretations
in accounting  for its employee stock options.  Financial  Accounting  Standards
Board Statement No. 123,  "Accounting for Stock-Based  Compensation"  (FAS 123),
permits a company to elect to follow the accounting  provisions of APB 25 rather
than the alternative fair value  accounting  provided under FAS 123 but requires
pro forma net income and earnings per share disclosures as well as various other
disclosures not required under APB 25 for companies following APB 25.

EARNINGS PER SHARE

         Diluted earnings per share gives effect to potential common shares that
were  dilutive  and  outstanding  during the period,  such as stock  options and
warrants  using the  treasury  stock  method and average  market  price,  shares
assumed to be  converted  relating  to the  convertible  promissory  note to the
Company's  Parent (with earnings  adjusted for interest  expense  related to the
convertible  promissory  note which is assumed to be converted)  and  contingent
shares for the stock price guarantee for the acquisition of Lytton.

                                      F-8
<PAGE>


                         TECHDYNE, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                                DECEMBER 31, 1998

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED

Following  is a  reconciliation  of  amounts  used  in  the  basic  and  diluted
computations:

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                          ------------------------------------
                                                             1998         1997         1996
                                                          ----------   ----------   ----------
<S>                                                       <C>          <C>          <C>       
Net income - numerator basic computation                  $  797,712   $1,425,519   $  742,708
Effect of dilutive securities:
Interest adjustment on convertible note                      134,436      169,525      175,766
                                                          ----------   ----------   ----------
Net income, as adjusted for assumed conversion-
   numerator diluted computation                          $  932,148   $1,595,044   $  918,474
                                                          ==========   ==========   ==========

Weighted average shares - denominator basic computation    5,193,140    4,510,375    4,165,042
Effect of dilutive securities:
Warrants                                                          --       85,987      337,698
Stock options                                                238,033      247,886      296,019
Contingent stock - acquisition                               373,285       65,652           --
Convertible note                                           1,347,729    1,699,494    1,762,066
                                                          ----------   ----------   ----------
Weighted average shares, as adjusted - denominator         7,152,187    6,609,394    6,560,825
                                                          ==========   ==========   ==========

Earnings per share:
   Basic                                                  $      .15   $      .32   $      .18
                                                          ==========   ==========   ==========
   Diluted                                                $      .13   $      .24   $      .14
                                                          ==========   ==========   ==========
</TABLE>

         Neither the 1995 publicly offered warrants  exercisable  at  $4.00  per
share nor underwriter warrants to purchase 100,000 shares of common stock and/or
100,000 warrants exercisable at $6.60 per  share  and $.25 per warrant with each
warrant  exercisable  into  common  stock  at $8.25 per share have been included
since they were anti-dilutive.

CASH AND CASH EQUIVALENTS

         The Company considers all highly liquid  investments with a maturity of
three months or less when purchased to be cash equivalents. The carrying amounts
reported in the balance sheet for cash and cash  equivalents  approximate  their
fair  values.  The credit  risk  associated  with cash and cash  equivalents  is
considered  low due to the high quality of the financial  institutions  in which
the assets are invested.

PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets is comprised as follows:

                                                  DECEMBER 31,    DECEMBER 31,
                                                     1998            1997
                                                  -----------     ------------
             United Kingdom VAT tax receivable      $ 64,083        $283,106
             Other                                   101,842         291,144
                                                    --------        --------
                                                    $165,925        $574,250
                                                    ========        ========

                                      F-9



<PAGE>

                         TECHDYNE, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                                DECEMBER 31, 1998

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities is comprised as follows:

                                                  DECEMBER 31,   DECEMBER 31,
                                                     1998            1997
                                                  ------------   ------------
             United Kingdom VAT tax payable        $  142,310     $  342,112
             Accrued compensation                     400,680        493,660
             Other                                    991,795        910,154
                                                   ----------     ----------
                                                   $1,534,785     $1,745,926
                                                   ==========     ==========

ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

         The  carrying  value  of  cash,  accounts  receivable  and  debt in the
accompanying  financial  statements  approximate their fair value because of the
short-term  maturity of these  instruments,  or in the case of debt because such
instruments bear variable interest rates which approximate market.

USE OF ESTIMATES

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

RECLASSIFICATIONS

         Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform to the 1998 presentation.

COMPREHENSIVE INCOME

          In  1998  the  Company  adopted  Financial  Accounting Standards Board
Statement  No.  130, "Reporting Comprehensive Income" (FAS 130).  This statement
establishes rules for the reporting of comprehensive  income and its components.
Comprehensive income consists of net  income  and  foreign  currency translation
adjustments  and  is  presented  in  the Consolidated Statement of Shareholder's
Equity.  Prior year financial statements have  been reclassified to conform with
these requirements.

NEW PRONOUNCEMENTS

         In  June, 1998, the Financial Accounting  Standards Board issued Finan-
cial  Accounting  Standards  Board Statement No. 133, "Accounting for Derivative
Instruments and Hedging  Activities" (FAS 133).  FAS 133 is effective for fiscal
quarters  of  fiscal  years  beginning after June 15, 1999.  FAS 133 establishes
accounting and reporting  standards for derivative  instruments  and for hedging
activities and requires, among  other things, that all derivatives be recognized
as either  assets or liabilities in the statement of financial position and that
these  instruments be measured at fair value.   The Company is in the process of
determining  the  impact that the adoption of  FAS 133 will have on its consoli-
dated financial statements.

NOTE 2--LONG-TERM DEBT

         On February 8, 1996,  the Company  refinanced its term loan by entering
into three loan  agreements  with a Florida  bank.  One  credit  facility  was a
$2,000,000  line of  credit  due on demand  secured  by the  Company's  accounts
receivable,  inventory,  furniture,  fixtures  and  intangible  assets  and bore
interest at the bank's prime rate plus 1.25%. In

                                      F-10


<PAGE>

                         TECHDYNE, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                                DECEMBER 31, 1998

NOTE 2--LONG-TERM DEBT--CONTINUED

conjunction with the Company's acquisition of Lytton on July 31, 1997, this line
of credit was modified and increased to $2,500,000 with  the  interest  rate re-
duced to prime plus .75% and various other  modifications.  The  line  was fully
drawn down in connection  with  this acquisition  with $2,500,000 remaining out-
standing, with  interest due at 9.25%, until the line was refinanced in December
1997.

         The  $2,500,000  line of credit  agreement was  refinanced and replaced
effective December 29, 1997 with a five-year $1,500,000 commercial term loan and
a $1,600,000  commercial revolving line of credit. The $1,600,000 line of credit
had an outstanding  balance of $1,600,000 at December 31, 1998 and $1,000,000 at
December  31, 1997.  This line  matures May 1, 2000 and has monthly  payments of
interest at prime.  Both credit  facilities are  collateralized by the corporate
assets of Techdyne. The new commercial term loan, with an outstanding balance of
$1,200,000  at December 31, 1998 and  $1,500,000  at December 31, 1997,  matures
December 15, 2002 with monthly principal  payments of $25,000 plus interest.  In
connection  with the term loan,  the Company  entered into an interest rate swap
agreement  with the bank to manage the Company's  exposure to interest  rates by
effectively converting a variable rate obligation with an interest rate of LIBOR
plus 2.25% to a fixed rate of 8.60%.  Early  termination of the swap  agreement,
either through prepayment or default on the term loan, may result in a cost or a
benefit to the Company.  The December 29, 1997 refinancing  represents a noncash
financing  activity  which is a  supplemental  disclosure  required by Financial
Accounting Standards Board Statement No. 95, "Statement of Cash Flows" (FAS 95).

         The bank also  extended  two  commercial  term loans to the  Company in
February  1996,  one for $712,500 for five years expiring on February 7, 2001 at
an annual rate of interest  equal to 8.28% with a monthly  payment of  principal
and interest of $6,925 based on a 15-year amortization  schedule with the unpaid
principal and accrued interest due on the expiration date. This term loan had an
outstanding balance of approximately  $636,000 at December 31, 1998 and $663,000
at  December  31, 1997 and is secured by a mortgage  on  properties  in Hialeah,
Florida owned by the Company's Parent, two of which properties are leased to the
Company and one parcel being vacant land used as a parking lot.  Under this term
loan the  Company  was  obligated  to  adhere to a variety  of  affirmative  and
negative covenants.

         The  second  commercial  term  loan  was for the  principal  amount  of
$200,000  for a period of five  years  bearing  interest  at a per annum rate of
1.25% over the bank's prime rate and requiring monthly  principal  payments with
accrued interest of $3,333 through expiration on February 7, 2001. This $200,000
term loan which had a balance of approximately  $87,000 at December 31, 1998 and
$127,000 at December 31, 1997 is secured by all of Techdyne's  tangible personal
property,  goods  and  equipment,  and all  cash  or  noncash  proceeds  of such
collateral.

         The February 1996 financing under the term loans provided cash proceeds
to the Company of approximately $181,000 and included payment of the balance due
under the Company's  previous term loan of $517,000 and payment of a mortgage of
the  Parent, including accrued interest, on a building leased to  the Company of
$215,000 which was reflected as a reduction in the intercompany advances due the
Parent,  representing  noncash  financing  activities which  is  a  supplemental
disclosure required by FAS 95.

         The Parent has  unconditionally  guaranteed the payment and performance
by the Company of the revolving loan and the three commercial term loans and has
subordinated the Company's intercompany indebtedness to the Parent to the bank's
position.  There are  cross  defaults between the revolving  line and term loans
exclusive of the $200,000 term loan.

         Lytton has a $1,500,000 revolving bank line of credit requiring monthly
interest  payments  at prime  plus  1/2%  which  matured  August 1, 1998 and was
renewed on the same terms and  conditions  through June 30,  1999.  There was an
outstanding balance on this loan of approximately  $962,000 at December 31, 1998
and $549,000 at December 31, 1997.  The interest  rate on this loan was 8.25% at
December  31,  1998  and  9% at  December  31,  1997.  Lytton  has a  $1,000,000
installment  loan with the same bank maturing  August 1, 2002, at an annual rate
of 9% until July 1999, with

                                      F-11

<PAGE>

                         TECHDYNE, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                                DECEMBER 31, 1998

NOTE 2--LONG-TERM DEBT--CONTINUED

monthly payments of $16,667 plus interest, at  which  time  Lytton  will have an
option to convert the note to a variable rate.  This  loan  is subject to a pre-
payment  penalty  during  the fixed  rate  period.  The  balance  outstanding on
this loan was approximately  $733,000 as  of  December 31, 1998 and  $933,000 as
December 31, 1997.   Lytton also has a $500,000  equipment  loan  agreement with
the same  bank payable through August 1, 2003 with  interest  at  prime plus 1%.
There was no outstanding  balance on this loan as of December 31, 1998 or Decem-
ber  31, 1997.   All  of  these bank loans are secured by the business assets of
Lytton.

<TABLE>
<CAPTION>
Long-term debt is as follows:                                                            DECEMBER 31,   
                                                                                   -------------------------
                                                                                      1998           1997
                                                                                   ----------     ----------
<S>                                                                                <C>            <C>       
Term loan secured by real  property of Parent with a carrying  value of $976,000
   at December 31, 1998. Monthly payments of principal and interest as described
   above                                                                           $  636,438     $  662,533

Term loan secured by tangible  personal  property,  goods and  equipment  with a
   carrying  value of  $6,190,000 at  December 31,  1998.  Monthly  payments  of
   principal and interest as described
   above.                                                                              86,763        126,764

Commercial term loan secured by corporate  assets of the Company with a carrying
   value of approximately  $14,762,000 at December 31, 1998. Monthly payments of
   principal and interest as
   described above.                                                                 1,200,000      1,500,000
Three year revolving line of credit agreement  maturing May 1, 2000.  Secured by
   corporate  assets  of the  Company  with a  carrying  value of  approximately
   $14,762,000 at December 31, 1998.  Monthly payments of interest as described
   above.                                                                           1,600,000      1,000,000

Mortgage note secured by land and building  with a net book value of $840,000 at
   December 31,  1998.  Quarterly  payments of  approximately  $20,000  based on
   exchange  rates at December  31, 1998 for 15 years  commencing  October  1994
   including interest at 2% above bank base rate.                                     544,528        569,431

Installment loan requiring  monthly payments of $16,667 plus interest at 9%. The
   loan is secured by all  business  assets of Lytton  with a carrying  value of
   approximately  $9,111,000 at December 31, 1998. Monthly payments of principal
   and interest as described above.                                                   733,333        933,333

Equipment loan requiring  monthly payments of $4,298 including  interest at 5.5%
   and maturing in April 2002. The loan is secured by equipment of Lytton with a
   carrying value of approximately $503,000 at December 31, 1998.                     156,746        198,445

Equipment financing  obligations  requiring combined monthly payments of $19,467
   as of  December  31, 1998 as  described  below,  including  interest at rates
   ranging from 8.55% to 10.09% and secured by the related assets of Lytton with
   a carrying value of approximately $341,000 at December 31, 1998.                   112,320        390,033

Other                                                                                 145,000        147,607
                                                                                   ----------     ----------
                                                                                   $5,215,128     $5,528,146
Less current portion                                                                  764,550        909,080
                                                                                   ----------     ----------
                                                                                   $4,450,578     $4,619,066
                                                                                   ==========     ==========
</TABLE>

         The  prime  rate was  7.75% as of  December  31,  1998 and  8.50% as of
December 31, 1997.

                                      F-12

<PAGE>

                         TECHDYNE, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                                DECEMBER 31, 1998

NOTE 2-LONG-TERM DEBT--CONTINUED

         Lytton  conducts a portion of its operations  with  equipment  acquired
under  equipment  financing  obligations  which extend  through  July 1999.  The
present value of annual future minimum  payments  required under these financing
obligations is included in the schedule of long-term debt above. Financing under
these  agreements  is a  noncash  financing  activity  which  is a  supplemental
disclosure required by FAS 95.

         Techdyne  (Scotland)  had a line of credit with a Scottish  bank with a
U.S. dollar equivalency of approximately $330,000 at December 31, 1997 which was
not  renewed.  No amounts  were drawn on this line of credit  during 1998 and no
amounts were outstanding as of December 31, 1997.

         Scheduled maturities of long-term debt outstanding at December 31, 1998
are  approximately  :  1999---$765,000;  2000---$2,403,000;   2001---$1,181,000;
2002---$500,000; 2003---$54,000; thereafter---$312,000. Interest payments on all
of the above debt amounted to approximately  $513,000,  $270,000 and $136,000 in
1998, 1997 and 1996, respectively.

         The Company's line of credit and term loan contain certain  restrictive
covenants that, among other things, restrict the payment of dividends,  restrict
additional indebtedness, and require maintenance of certain financial ratios.

NOTE 3--INCOME TAXES

         The Company  files  separate  federal and state income tax returns from
its Parent, with its income tax liability reflected on a separate return basis.

         The Company has a net  operating  loss  carryforward  of  approximately
$2,400,000 at December 31, 1998 and  $3,805,000  at December 31, 1997,  expiring
between 2003 and 2010. The Company's new subsidiary  Lytton,  is included in the
Company's  consolidated  federal  tax return  effective  August 1, 1997 with the
Company's net  operating  loss  carryforwards  able to be utilized to offset any
income taxable for federal tax return purposes generated by this subsidiary.

         Deferred   income  taxes  reflect  the  net  tax  effect  of  temporary
differences between the carrying amounts of assets and liabilities for financial
reporting  purposes and the amounts used for income tax purposes.  For financial
reporting  purposes a valuation  allowance  of $448,000 at December 31, 1998 and
$850,465 at December 31, 1997,  has been  recognized  to offset the deferred tax
assets.  Significant  components of the Company's  deferred tax  liabilities and
assets are as follows:

<TABLE>
<CAPTION>
                                                                           DECEMBER 31, 
                                                                    --------------------------
                                                                       1998            1997
                                                                    ----------      ----------
<S>                                                                   <C>             <C>     
         Deferred tax liabilities:
            Depreciation                                              $422,577        $399,000
            Accelerated capital allowances (Scotland)                       --          99,003
            Other                                                       14,952           9,000
                                                                    ----------      ----------
                  Total deferred tax liability                         437,529         507,003
         Deferred tax assets:
            Inventory obsolescence                                     321,982         212,023
            Cost capitalized in ending inventory                        59,292          63,000
            Accrued expenses                                            21,966          85,000
            Tax credits                                                 48,000             ---
            Other                                                       66,453          69,000
                                                                    ----------      ----------
               Sub-total                                               517,693         429,023
         Net operating loss carryforward                               884,792       1,432,000
                                                                    ----------      ----------
                     Total deferred tax assets                       1,402,485       1,861,023
         Valuation allowance for deferred tax assets                  (448,000)       (850,465)
                                                                    ----------      ----------
            Net deferred tax assets                                    954,485       1,010,558
                                                                    ----------      ----------
            Net deferred tax asset                                  $  516,956      $  503,555
                                                                    ==========      ==========

                                      F-13
<PAGE>

                         TECHDYNE, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                                DECEMBER 31, 1998

NOTE 3--INCOME TAXES--CONTINUED

         A valuation allowance has been  provided  that offsets a portion of the
deferred tax asset  recorded at December 31, 1998 as management believes that it
is  more  likely  than  not, based on the weight of the available evidence, this
portion of the deferred tax asset will not be realized.

Deferred  taxes in the  accompanying  balance  sheets  consist of the  following
components:

                                                                           DECEMBER 31, 
                                                                    --------------------------
                                                                       1998             1997
                                                                    ----------      ----------
<S>                                                                 <C>             <C>       
         Current deferred tax asset                                 $  481,211      $1,010,558
         Current deferred tax liability                                (14,952)             --
                                                                    ----------      ----------
         Net current deferred tax asset                                466,259       1,010,558
         Long-term deferred tax asset                                  473,274              --
         Long-term deferred tax liability                             (422,577)       (507,003)
                                                                    ----------      ----------
         Net long-term deferred tax asset (liability)                   50,697        (507,003)
                                                                    ----------      ----------

         Net deferred tax asset                                     $  516,956      $  503,555
                                                                    ==========      ==========
</TABLE>

For  financial  reporting  purposes,  income  before  income taxes  includes the
following components:

                                              YEAR ENDED DECEMBER 31,
                                ----------------------------------------------
                                    1998             1997              1996
                                ------------     ------------      -----------
         United States income    $ 1,462,390     $  1,150,804      $   227,813
         Foreign (loss) income      (537,466)        (289,556)         782,641
                                 -----------     ------------      -----------
                                 $   924,924     $    861,248      $ 1,010,454
                                 ===========     ============      ===========

Significant  components  of the  provision  (benefit)  for  income  taxes are as
follows:

<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER 31,
                                                                -----------------------------------
                                                                  1998         1997          1996
                                                                ---------    ---------    ---------
<S>                                                             <C>          <C>          <C>      
         Current:
            Federal                                             $  53,992    $  34,148    $   5,000
            Foreign                                                    --      (95,864)     259,270
            State                                                  83,515        1,000           --
                                                                ---------    ---------    ---------
                                                                  137,507      (60,716)     264,270
         Deferred:
            Federal                                                85,602     (503,555)          --
            Foreign                                               (95,897)          --        3,476
                                                                ---------    ---------    ---------
                                                                  (10,295)    (503,555)       3,476
                                                                ---------    ---------    ---------
                                                                $ 127,212    $(564,271)   $ 267,746
                                                                =========    =========    =========
</TABLE>

Techdyne (Scotland) files separate income tax returns in the United Kingdom.

         The  reconciliation  of income tax attributable to income before income
taxes  computed  at the U.S.  federal  statutory  rates to  income  tax  expense
(benefit) is:

                                      F-14
<PAGE>

                         TECHDYNE, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                                DECEMBER 31, 1998

NOTE 3-INCOME TAXES--CONTINUED

<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31,
                                                                -----------------------------------
                                                                  1998         1997          1996
                                                                ---------    ---------    ---------
<S>                                                             <C>          <C>          <C>      
         Statutory tax rate (34%) applied to income before
             income taxes                                       $ 314,474    $ 292,824    $ 343,554
         Increases (reduction) in taxes resulting from:
            State income taxes-net of federal income
             tax effect                                            74,628       31,263           --
            Benefit of net operating losses                            --     (893,000)     (73,000)
            Tax rate differential relating to tax benefit of
               foreign operating loss                              86,841           --           --
            Non deductible items                                   40,780       20,593           --
           Change in deferred tax valuation allowance            (402,465)          --           --
         Other                                                     12,954      (15,951)      (2,808)
                                                                ---------    ---------    ---------
                                                                $ 127,212    $(564,271)   $ 267,746
                                                                =========    =========    =========
</TABLE>

         Undistributed  earnings of the Company's foreign subsidiary amounted to
approximately  $2,294,000 at December 31, 1998 and $2,736,000 December 31, 1997.
Those earnings are considered to be indefinitely reinvested and, accordingly, no
provision  for U.S.  federal and state income taxes has been  provided  thereon.
Upon  distribution of those earnings in the form of dividends or otherwise,  the
Company would be subject to both U.S. income taxes (subject to an adjustment for
foreign tax  credits)  and  withholding  taxes  payable to the  various  foreign
countries.  Determination of the amount of unrecognized deferred U.S. income tax
liability is not  practicable  because of the  complexities  associated with its
hypothetical  calculation;  however,  foreign tax credits  may be  available  to
reduce some portion of the U.S.  liability.  Withholding  taxes of approximately
$115,000  and  $137,000  would be  payable  upon  remittance  of all  previously
unremitted earnings at December 31, 1998 and December 31, 1997, respectively.

         Income tax payments were approximately  $32,000,  $269,000 and $487,000
in 1998, 1997 and 1996, respectively.

NOTE 4--TRANSACTIONS WITH PARENT

         The Parent  provides  certain  administrative  services  to the Company
including office space and general accounting assistance. These expenses and all
other  central  operating  costs have been charged on the basis of direct usage,
when identifiable,  or on the basis of time spent. In the opinion of management,
this method of allocation is reasonable. Effective October 1, 1996, the services
provided to the Company by the Parent were formalized under a service  agreement
for $408,000 per year. The amount of expenses  allocated by the Parent and those
covered under the service  agreement  effective October 1, 1996 totaled $408,000
in 1998, 1997 and 1996.

         The  advances  from  Parent  were  made  under  a  demand   convertible
promissory  note and bear  interest at 5.7%.  The balance of the note  including
accrued  interest,  which  amounted  to  $2,427,000  at  December  31,  1998 and
$2,292,000  at December  31,  1997,  may be  converted  into common stock of the
Company at the option of the  Parent at a  conversion  price of $1.75 per share.
The Parent converted  $350,000 of this note into 200,000 shares of the Company's
common stock in June 1996,  increasing its ownership  interest in the Company at
that  time from  62.5% to 64.3%.  As a result  of the  Lytton  Acquisition,  the
Parent's  ownership was diluted to 58.9%. In November 1997, the Parent converted
$875,000  of this  note  into  500,000  shares  of the  Company's  common  stock
increasing  its  ownership  interest to 62.9%.  Advances  from the Parent on the
balance sheet includes the  convertible  note balance and an advance  payable to
the  Parent of  approximately  $704,000  at  December  31,  1998 and  $15,000 at
December 31, 1997 with interest at 5.7%.  Interest on the net advances  amounted
to $156,000, $152,000 and $140,000, in 1998, 1997 and 1996, respectively, and is
included in the net balance due the Parent.

                                      F-15
<PAGE>

                         TECHDYNE, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                                DECEMBER 31, 1998

NOTE 4-TRANSACTIONS WITH PARENT--CONTINUED

         The Company has deferred  the gain on the sale of real  property to its
Parent of approximately  $161,000. The premises are leased from the Parent under
a 5-year net lease  expiring  March 31, 2000 at an annual rental of $94,000 plus
applicable taxes.

         The Parent has agreed  not to  require  repayment  of the  intercompany
advances  prior to  January  1,  2000 and,  therefore,  the  advances  have been
classified as long-term at December 31, 1998.

         The Company  manufactures certain products for the Parent. Sales of the
products  were  $172,000,   $214,000  and  $278,000  in  1998,  1997  and  1996,
respectively.

NOTE 5--RELATED PARTY TRANSACTIONS

         For the years ended December 31, 1998, 1997 and 1996, respectively, the
Company paid premiums of  approximately  $348,000,  $325,000 and  $312,000,  for
insurance through a director and stockholder, and the relative of a director and
stockholder.

         For the years ended  December  31, 1998,  1997 and 1996,  respectively,
legal  fees of  $47,000,  $53,000  and  $32,000,  were paid to an officer of the
Parent who acts as general counsel for the Company and the Parent.

         Lytton has a deferred compensation agreement with its former President.
The agreement  calls for monthly  payments of $8,339 provided that Lytton's cash
flow is adequate to cover these  payments  with interest to be calculated on any
unpaid balance as of August 1, 1999. During the period ending December 31, 1998,
a total of $59,000 was paid under this agreement.  The balance outstanding under
this  agreement  amounted to  approximately  $108,000  at December  31, 1998 and
$167,000 at December 31, 1997.

NOTE 6--COMMITMENTS AND CONTINGENCIES

COMMITMENTS

         Lytton leases its operating  facilities from an entity,  which is owned
by Lytton's  former  owner and former  President.  The  operating  lease,  which
expires July 31, 2002, requires monthly lease payments of approximately  $17,900
for the first year,  adjusted in subsequent  years for the Consumer Price Index,
and contains  renewal options for a period of five to ten years at the then fair
market rental value.  The Company  leases several  facilities  including that of
Lytton  and those  under  lease from its Parent  which  expire at various  dates
through  2002 with  renewal  options for a period of five years at the then fair
market rental value. The Company's  aggregate lease  commitments at December 31,
1998,  are  approximately:  1999---$645,000,  2000---$545,000,  2001---$519,000,
2002---$350,000  and  2003---$238,000.  Total  rent  expense  was  approximately
$817,000,  $656,000 and $491,000 for the years ended December 31, 1998, 1997 and
1996, respectively.

         Lytton sponsors a 401(k) Profit Sharing Plan covering substantially all
of its employees.  The Company has adopted this plan as a participating employer
effective July 1, 1998. The  discretionary  profit sharing and matching expense,
including  that of the Company and Lytton for the year ended  December  31, 1998
and December 31, 1997 amounted to approximately $48,000 and $50,000.

                                      F-16
<PAGE>

                         TECHDYNE, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                                DECEMBER 31, 1998

NOTE 6-COMMITMENTS AND CONTINGENCIES--CONTINUED

CONTINGENCIES

         In the  first  quarter  of  1996,  a  temporary  worker  provided  by a
temporary personnel agency was injured while working at the Company.  The worker
was insured through the temporary personnel agency. While the full extent of the
temporary  worker's  injuries  and the  ultimate  costs  associated  with  those
injuries are not presently known, the Company  anticipates that its insurance is
adequate to cover any potential claims which might arise.

NOTE 7--STOCK OPTIONS

         The Company has elected to follow  Accounting  Principles Board Opinion
No.  25,  "Accounting  for  Stock  Issued  to  Employees"  (APB 25) and  related
Interpretations  in accounting  for its employee  stock options  because,  as is
discussed  below,  Financial  Accounting  Standards  Board  Statement  No.  123,
"Accounting  for Stock Based  Compensation"  (FAS 123),  requires  use of option
valuation  models  that were not  developed  for use in valuing  employee  stock
options. Under APB 25, because the exercise price of the Company's stock options
equals  the  market  price of the  underlying  stock on the  date of  grant,  no
compensation expense was recognized.

         In May 1994, the Company  adopted a stock option plan for up to 250,000
options.  Pursuant to this plan,  in May 1994,  the board of  directors  granted
227,500  options to certain of its  officers,  directors  and  employees.  These
options are  exercisable for a period of five years at $1 per share. On June 30,
1998,  115,000  of these  options  were  exercised,  with a  balance  of  56,600
outstanding  as of December 31, 1998.  The Company  received cash payment of the
par value and the  balance  in three year  promissory  notes,  presented  in the
stockholders' equity section of the balance sheet with interest at 5.16%.

         On February 27, 1995 the Company granted  non-qualified  stock options,
not part of the 1994 Plan,  to  directors  of Techdyne  and its  subsidiary  for
142,500  shares  exercisable  at $1.75 per share for five years.  These  options
vested  immediately  and may be exercised for cash or subject to board approval,
in part by cash, (minimum par value for the shares purchased) and the balance by
a three-year recourse promissory note. Such notes would be secured by the shares
purchased  (to be held in escrow with no transfer  rights  pending full payment)
with  interest  based on the coupon rate yield of a 52-week U.S.  Treasury  bill
immediately  preceding the execution and issuance of the promissory  note,  with
voting rights for the underlying  shares  remaining with the  shareholder  until
default, if any, on the note. In April 1995, the Company granted a non-qualified
stock option for 10,000  shares which vested  immediately,  not part of the 1994
Plan,  to its  general  counsel  at the same  price and terms as the  directors'
options.

         In June 1997, the Company adopted a Stock Option Plan for up to 500,000
options,  and pursuant to the plan the board granted 375,000 options exercisable
for five years  through June 22, 2002 at $3.25 per share,  the closing  price of
the common stock on the grant date.

         In May, 1998, as part of the consideration pursuant to an agreement for
investor  relations  and  corporate communications services, the Company granted
options  for  25,000  shares  of  its  common  stock exercisable for three years
through  May  14, 2001  at  $4.25  per  share.   Options for 6,250 shares of the
Company's common stock vested during 1998 with no additional options to vest due
to  cancellation  of  this  agreement in August, 1998.  Pursuant to FAS 123, the
Company recorded $13,000 expense for options vesting under this agreement.

         Pro forma  information  regarding  net income and earnings per share is
required  by  Statement  123,  and has been  determined  as if the  Company  had
accounted  for its employee  stock  options  under the fair value method of that
Statement.  The fair value for these  options was estimated at the date of grant
using a Black-Scholes  option pricing 

                                      F-17
<PAGE>

                         TECHDYNE, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                                DECEMBER 31, 1998

NOTE 7--STOCK OPTIONS--CONTINUED

model with the following weighted-average assumptions  for  the  options  issued
during 1998 and 1997: risk-free interest rate of  5.55%  and  5.59%; no dividend
yield; volatility factor of the expected market price  of  the  Company's common
stock of .58 and .60; and an expected life of the options  of  3  years  for the
options issued during 1998 and 2.5 years for the options issued during 1997.

         The  Black-Scholes  options  valuation  model was  developed for use in
estimating the fair value of traded  options which have no vesting  restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly subjective input assumptions  including the expected stock price
volatility.  Because the Company's  employee stock options have  characteristics
significantly  different than those of traded options and because changes in the
subjective input assumptions can materially  affect the fair value estimate,  in
management's  opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employees stock options.

         For  purposes of pro forma  disclosures,  the  estimated  fair value of
options is  amortized to expense over the  options'  vesting  period.  Since the
options  vested  immediately,  the  Company's  pro forma  disclosure  recognizes
expense  upon  issuance  of the  options  which would have no effect on 1996 net
income. The Company's pro forma information for options issued is as follows:

                                                  1998              1997
                                                --------          --------
       Pro forma net income                     $790,000          $927,000
                                                ========          ========
       Pro forma earnings per share:
          Basic                                 $    .15          $    .21
                                                ========          ========
          Diluted                               $    .13          $    .17
                                                ========          ========

         A summary of the Company's stock option  activity,  for the years ended
December 31, follows:

<TABLE>
<CAPTION>
                                             1998                              1997                            1996
                                             ----                              ----                            ----
                                                WEIGHTED-AVERAGE                 WEIGHTED-AVERAGE                  WEIGHTED-AVERAGE
                                    OPTIONS      EXERCISE PRICE       OPTIONS     EXERCISE PRICE       OPTIONS      EXERCISE PRICE
                                    -------      --------------       -------     --------------       -------      --------------
<S>                                   <C>              <C>            <C>             <C>              <C>              <C>
Outstanding-beginning of year       699,100                           326,500                          378,400
Granted                               6,250            $4.25          375,000         $3.25                 --
Exercised                          (115,000)           $1.00             (300)         1.00            (50,700)         $1.00
Expired                                  --                            (2,100)         1.00             (1,200)          1.00
                                    -------                           -------                          -------
Outstanding-end of year:            590,350                           699,100                          326,500
                                    =======                           =======                          =======
Outstanding and exercisable
  at end of year:
May 1994 options                     56,600             1.00          171,600          1.00            174,000           1.00
February and April 1995 options     152,500             1.75          152,500          1.75            152,500           1.75
June 1997 options                   375,000             3.25          375,000          3.25                 --
May 1998 options                      6,250             4.25               --                               --
                                    -------                           -------                          -------
                                    590,350                           699,100                          326,500
                                    =======                           =======                          =======
Weighted-average fair value of
   options granted during the year  $  2.04                           $  1.33
                                    =======                           =======
</TABLE>

         The remaining  contractual  life at December 31, 1998 is 2.4 years, 3.5
years,  1.2 years and .4 years for the options  issued in 1998,  1997,  1995 and
1994, respectively.

                                                        F-18
<PAGE>

                         TECHDYNE, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                                DECEMBER 31, 1998

NOTE 8--COMMON STOCK

         The Company completed a public offering of common stock and warrants on
October 2, 1995  providing  it with net  proceeds of  approximately  $3,321,000.
Pursuant  to the  offering,  1,000,000  shares  of common  stock  and  1,000,000
redeemable common stock purchase warrants were issued.  The warrants provide for
the purchase of one common share each and had an initial exercise price of $5.00
which was reduced to $4.00 in February 1999 with the expiration date extended to
May  17,  1999.  During  1997,  approximately  41,000  warrants  were  exercised
resulting  in  proceeds  of  approximately  $194,000,  net of  commissions.  The
underwriter  received warrants to purchase 100,000 shares of common stock and/or
100,000 warrants  exercisable from September 13, 1996 through September 12, 2000
at $6.60 per  share of  common  stock  and $.25 per  warrant  with each  warrant
exercisable into common stock at $8.25 per share.

         The Parent may convert the balance of the  convertible  promissory note
from the Company at December  31, 1998 of  approximately  $2,427,000,  including
accrued interest,  at $1.75 per common share,  which would increase the Parent's
ownership to 69.5%.

         The  Company  has  3,136,079  shares  reserved  for future  issuance at
December 31, 1998, including: 959,152  shares  for  warrants; 56,600  shares for
1994 options; 152,500 shares for 1995 options; 375,000  shares for 1997 options;
200,000 shares for underwriter's  option; 1,386,577  shares for convertible note
payable to Parent; and 6,250 shares for consultant stock option.

NOTE 9--QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

         The following summarizes certain quarterly operating data:

<TABLE>
<CAPTION>
                                   YEAR ENDED DECEMBER 31, 1998                  YEAR ENDED DECEMBER 31, 1997        
                             -----------------------------------------    -----------------------------------------
                             MARCH 31    JUNE 30   SEPT. 30    DEC. 31    MARCH 31   JUNE 30    SEPT. 30   DEC. 31
                             --------    -------   --------   --------    --------   --------   --------   --------
                                                        (In thousands except per share data)
<S>                          <C>        <C>        <C>        <C>         <C>        <C>        <C>        <C>     
Net Sales                    $ 11,872   $ 11,614   $ 10,973   $ 10,207    $  6,343   $  6,642   $  8,978   $ 11,056
Gross profit                    1,711      1,507      1,412        758         988        990      1,080      1,244
Net income                        510        545        179       (436)        335        270        175        646
Earnings (loss) per share:
   Basic                     $    .10   $    .11   $    .03   $   (.08)   $    .08   $    .06   $    .04   $    .13
   Diluted                   $    .08   $    .08   $    .03   $   (.08)   $    .06   $    .05   $    .03   $    .10
</TABLE>

         Since the computation of earnings per share is made  independently  for
each  quarter  using the  treasury  stock  method,  the  total of four  quarters
earnings do not necessarily equal earnings per share for the year.

         The Company recorded an adjustment to the valuation  allowance relating
to its deferred tax asset of approximately $400,000 during the fourth quarter of
1998 and $900,000 during the fourth quarter of 1997.

NOTE 10--ACQUISITION

         On July 31, 1997, the Company acquired Lytton,  which  manufactures and
assembles printed circuit boards and other electronic  products,  for $2,500,000
cash,  paid at closing,  and issuance of 300,000 shares of the Company's  common
stock which have been registered for the seller. The Company has guaranteed that
the seller will realize a minimum of $2,400,000 from the sale of these shares of
common stock based on Lytton having achieved certain earnings objectives.  These
earning objectives were achieved in 1998 resulting in an increase of $400,000 to
the  valuation  of  $2,000,000  originally  recorded for these  securities.  The
difference (of $968,750)  between the fair value of 

                                      F-19
<PAGE>
                         TECHDYNE, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                                DECEMBER 31, 1998

NOTE 10--ACQUISITION--CONTINUED

the common stock at the  date of acquisition  and the guaranteed  value was con-
sidered  part of the cost  of  the  acquisition  and  is  reflected  as  paid-in
capital. Additional contingent consideration may be due if  Lytton  reaches pre-
defined sales levels.  Additional consideration of approximately  $154,000 based
on sales levels was paid in April 1998 with the Stock  Purchase  Agreement  pro-
viding for possible  additional sales level incentives,  over a two year period.
As the contingencies are resolved, if additional consideration is due, the  then
current fair value of the consideration  will be  recorded  as  goodwill,  which
will  be  amortized  over  the  remainder  of  the  initial  25 year life of the
goodwill.

         The  acquisition  was  accounted  for  under  the  purchase  method  of
accounting  and,  accordingly,  the  results of  operation  of Lytton  have been
included in the  accompanying  consolidated  statement of income since August 1,
1997.  The  total  purchase  price in  excess  of the fair  value of net  assets
acquired will be amortized over 25 years.  The net purchase price, including the
original $2,000,000 paid and the additional 1998 consideration, was allocated as
follows:

<TABLE>
<CAPTION>
                                                   ORIGINAL 1997  ADDITIONAL 1998    TOTAL
                                                   -------------  --------------- -----------
<S>                                                 <C>            <C>            <C>        
               Working capital, other than cash     $ 1,398,588    $        --    $ 1,398,588
               Property, plant and equipment          1,959,751             --      1,959,751
               Other assets                               3,000             --          3,000
               Goodwill                               2,230,103        553,818      2,783,921
               Other liabilities                     (1,335,432)            --     (1,335,432)
                                                    -----------    -----------    -----------
                                                    $ 4,256,010    $   553,818    $ 4,809,828
                                                    ===========    ===========    ===========

               Net cash portion of purchase price   $ 2,166,010    $   153,818    $ 2,319,828
               Estimated costs of acquisition            90,000             --         90,000
               Common stock issued                    2,000,000        400,000      2,400,000
                                                    -----------    -----------    -----------
                                                    $ 4,256,010    $   553,818    $ 4,809,828
                                                    ===========    ===========    ===========
</TABLE>

         The terms of the Guaranty in the Stock Purchase Agreement were modified
in June, 1998 by the Company and the seller ("Modified Guaranty").  The modified
terms  provide  that the seller  will sell an amount of common  stock which will
provide  $1,300,000 gross proceeds,  and the Company will guarantee that, to the
extent  that the seller has less than  150,000  shares of the  Company's  common
stock remaining, the Company will issue additional shares to the seller. In July
1998,  the Company  advanced  the seller  approximately  $1,278,000  ("Advance")
toward the $1,300,000 from the sale of the Company's common stock in addition to
the seller having sold 5,000 shares of common stock in July, 1998. Proceeds from
the  sale  of  the  Company's  common stock by the seller, up to 195,000 shares,
would repay the Advance and to the extent proceeds from the sale of these shares
were  insufficient  to pay the advance, the balance of the Advance would be for-
given. The Advance has been presented in the Stockholder's Equity section of the
balance sheet.  The Company has also guaranteed the seller aggregate proceeds of
no less than $1,100,000 from the sale of the  remaining  common stock if sold on
or prior to July 31, 1999 ("Extended Guaranty").

         The  following  summary  pro forma financial  information  reflects the
Lytton  acquisition  as  if  it  had occurred on January 1, 1996.  The pro forma
financial  information  does not purport to represent  what the Company's actual
results of operations would have been had the acquisition occurred as of January
1, 1996 and may not be indicative of operating results for any future periods.

                                                  F-20
<PAGE>

                                     TECHDYNE, INC. AND SUBSIDIARIES

                         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                                            DECEMBER 31, 1998

NOTE 10-ACQUISITION--CONTINUED

                          SUMMARY PRO FORMA INFORMATION

                                           YEAR ENDED DECEMBER 31,
                                      ---------------------------------
                                         1997                  1996
                                      -----------          ------------
         Total revenues               $43,867,000          $ 40,533,000
                                      ===========          ============

         Net income                   $ 1,840,000          $  1,110,000
                                      ===========          ============

         Earnings per share:
              Basic                   $       .39          $        .25
                                      ===========          ============
              Diluted                 $       .30          $        .19
                                      ===========          ============

NOTE 11--CAPITAL EXPENDITURES, GEOGRAPHIC AREA DATA AND MAJOR CUSTOMERS

         Summarized  financial  information  in accordance  with FAS 131 for the
Company's one reportable segment is shown in the following table.

<TABLE>
<CAPTION>
CAPITAL EXPENDITURES                                      1998                1997              1996
---------------------                                 ------------        ------------      ------------
<S>                                                   <C>                 <C>               <C>         
                                                      $    832,410        $  1,396,260      $    704,304
                                                      ============        ============      ============

GEOGRAPHIC AREA SALES                                     1998                1997              1996
---------------------                                 ------------        ------------      ------------
<S>                                                   <C>                 <C>               <C>         
United States                                         $ 40,019,478        $ 26,248,002      $ 14,063,727
Europe(1)                                                4,646,447           6,771,329        10,052,291
                                                      ------------        ------------      ------------
                                                      $ 44,665,925        $ 33,019,331      $ 24,116,018
                                                      ============        ============      ============
</TABLE>
(1) Techdyne (Scotland) sales are primarily to customers in the United Kingdom.
<TABLE>
<CAPTION>
GEOGRAPHIC AREA PROPERTY, PLANT AND EQUIPMENT (NET)       1998                1997              1996
---------------------------------------------------   ------------        ------------      ------------
<S>                                                   <C>                 <C>               <C>         
United States                                         $  3,689,894        $  3,757,065      $    877,795
Europe                                                   1,386,142           1,483,480         1,628,248
                                                      ------------        ------------      ------------
                                                      $  5,076,036        $  5,240,545      $  2,506,043
                                                      ============        ============      ============
</TABLE>

         Sales to major customers are as follows:
<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                                 --------------------------------------------
MAJOR CUSTOMERS                                      1998            1997            1996
---------------                                  ------------     -----------     -----------
<S>                                              <C>              <C>             <C>        
Motorola(2)(3)                                   $  4,488,000     $        --     $        --
PMI Food Equipment Group (2)                        8,183,000              --              --
Compaq Computer Corp. (1)(2)                                               --       8,497,000
IBM(1)                                                              6,438,000       4,275,000
EMC and its related suppliers(1)                                    3,201,000       2,807,000
</TABLE>

-------------------
(1)      Less than 10% of sales for 1998.
(2)      Less than 10% of sales for 1997.
(3)      Less than 10% of sales for 1996.

                                      F-21
<PAGE>

                                     TECHDYNE, INC. AND SUBSIDIARIES

                         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                                            DECEMBER 31, 1998

NOTE 11--CAPITAL EXPENDITURES, GEOGRAPHIC AREA DATA AND MAJOR CUSTOMERS--
         CONTINUED

         A majority of the Company's sales are to certain major  customers.  The
loss of or  substantially  reduced sales to any of these customers would have an
adverse affect on the Company's operations if such sales were not replaced.

         Sales to PMI Food Equipment Group by Lytton,  which was acquired by the
Company on July 31, 1997,  represented  approximately  41% of Lytton's sales and
18% of consolidated sales for the year ended December 31, 1998.

         Sales to Compaq  Computer  Corp.,  which has been a major  customer  of
Techdyne  (Scotland)  amounted to  $1,192,000  in 1998,  $2,847,000  in 1997 and
$8,427,000  in 1996  representing  26%,  42% and 84% of the  sales  of  Techdyne
(Scotland) for 1998,  1997 and 1996,  respectively.  Sales to this customer have
shown substantial  declines as a result of increased  competition in bidding for
Compaq  business  which has also resulted in reduced profit margins on remaining
Compaq  sales.  Sales by Techdyne  (Scotland)  to Compaq  amounted to 13% of its
sales for the fourth  quarter  of 1998  compared  to 35% for the same  period of
1997.

         A  significant  customer  of  Techdyne  (which  sales to this  customer
represented 9% of Techdyne's 1998 sales) has been slow in paying amounts owed to
the company at December 31, 1998, the company had a receivable of  approximately
$879,000 from this  customer,  and held inventory of approximately $1,160,000 to
fulfill a sales contract relating to this customer, which represents 15% and 14%
the Company's accounts receivable and inventory  balances, respectively, at that
date.   The  Company  anticipates an ongoing  business  relationship  with  this
customer and believes  the  receivables and inventories relating to the customer
are recoverable.  However, future  events  may occur which could have a material
adverse effect on Techdyne's results of operations and financial position.

                                       F-22