U.S. Securities and Exchange Commission
                            Washington, D.C. 20549
                                Form 10-K

(Mark One)
           [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
                 For the fiscal  year ended  December  31,  1997 
           [ ]  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 0-27510

                           TMCI Electronics, Inc.
            (Exact name of registrant as specified in its charter)

            Delaware                           77-0413814
(State or other jurisdiction of incorporation or organization
(I.R.S. Employer Identification No.)

                    1875 Dobbins Drive,  San Jose CA 95133 (Address of principal
executive  offices)  (Zip Code)  Registrant's  telephone  number (408)  272-5700
Securities registered under Section 12(b) of the Exchange Act:

         Title of each class         Name of each exchange on which registered






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

                                     Units
                                    (Title of Class)

                                 Common Stock
                                    (Title of Class)

                               Class A Warrants
                                    (Title of class)

      Indicate  by check  mark  whether  the  Registrant  has (1) has  filed all
reports  required to be filed by Section 13 or 15(d) of the  Exchange Act during
the past 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 |_| No |X|

      Indicate by check mark if disclosure  of delinquent  filers in response to
Item 405 of Regulation S-K is not contained in this form,  and  disclosure  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. |_|

      State the  aggregate  market value of voting and non voting  common equity
held by non affiliates of the  Registrant.  The aggregate  market value shall be
computed by reference to the price at which the common  equity was sold,  or the
average of the bid and asked price of such common equity, as of a date specified
within 60 days prior to the date of the filing (See  definition  of affiliate in
Rule 405 17 C.F.R. 405): $16,898,604.28 as of March 16, 1998.

Note: If a determination of whether a person or entity is an affiliate cannot be
made without  unreasonable effort or expense,  the aggregate market value of the
common  equity  held  by  non-affiliates  may  be  calculated  on the  basis  of
reasonable assumptions under the circumstances provided that the assumptions are
set forth in this Form.

                        (ISSUERS INVOLVED IN BANKRUPTCY
                    PROCEEDING DURING THE PAST FIVE YEARS)

      Indicate by check mark whether the  registrant has filed all documents and
reports  required  to be  filed by  Section  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court. Yes |_| No |_|

                  (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

      State the number of shares  outstanding of each issuer's classes of common
equity, as of the latest practicable date. 4,057,758 as of March 16, 1998.

                      DOCUMENTS INCORPORATED BY REFERENCE
   None



<PAGE>




   PART I

      This Form 10-K contains  forward-looking  statements within the meaning of
Section 27A of the  Securities  Act of 1933, as amended,  and Section 21E of the
Securities  Exchange Act of 1934, as amended.  Actual  results and the timing of
certain   events  could   differ   materially   from  those   projected  in  the
forward-looking  statements as a result of difficulties in product  development,
sales,  competition,  changes in the economy and other unforeseen events. In the
event that this annual report is used in  connection  with an investment in TMCI
Electronics,   Inc.,   prospective   investors  should  carefully  consider  the
possibility  that   forward-looking   statements  discussed  herein  may  differ
materially from the actual operating results.

   Item 1.  Business

   Overview, Formation, and Acquisitions

    TMCI  Electronics,   Inc.   ("TMCI")   provides  custom   manufacturing  and
value-added  services to original equipment  manufacturers  ("OEMs") through its
four  subsidiaries:   Touche  Manufacturing  Company,  Inc.  ("Touche"),  Touche
Electronics,  Inc.,  ("TEI"),  Enterprise  Industries,  Inc. ("EII") and Trinity
Electronics,  Inc.  ("Trinity,"  collectively,  with  Touche,  TEI and EII,  the
"Subsidiaries" and the Subsidiaries, collectively with TMCI, the "Company"). The
customers of the Company are concentrated into four (4) different segments:  (1)
mini  and   mainframe   computers;   (2)   telecommunications   equipment;   (3)
semiconductor  manufacturing test equipment; and (4) medical test equipment. The
Company  manufactures   products  pursuant  to  customer   specifications  after
receiving  orders  from  customers.  The principal  executive  offices of the 
Company are located in San Jose, California.

   TMCI was  incorporated  in the State of  Delaware on December 7, 1995 for the
purpose of  acquiring  the  businesses  of Touche and TEI in  anticipation  of a
public  offering.  Touche and TEI were  principally  owned by Rolando Loera, the
President  and Chief  Executive  Officer of the TMCI.  TMCI  acquired all of the
issued  and  outstanding  shares of common  stock of Touche and TEI on March 11,
1996  from Mr.  Loera and all of the  minority  shareholders  of Touche  and TEI
pursuant to the terms of certain Stock  Purchase  Agreements  dated December 28,
1995 (the "Stock Purchase  Agreements").  Following the exchange of common stock
of Touche and TEI contemplated by the Stock Purchase  Agreements,  the Company's
business  became that of Touche and TEI.  The  Company now derives its  revenues
from the  operation of Touche and TEI and its other  wholly  owned  subsidiaries
described below.

      The  Company  actively  seeks to  enhance  its  growth  through  strategic
acquisitions  and has made three  acquisitions  following its formation.  Future
acquisitions, if any, will be made only if the Company can find candidates which
fit into its strategic goals and corporate structure.

     Pen  Interconnect,  Inc. On November 1, 1996, the Company and TEI purchased
the  net  assets  of  the  San  Jose  Division  of  Pen  Interconnect,  Inc.,  a
manufacturer of wire cable and harness assemblies, for a total purchase price of
three million  three hundred  thousand  dollars  ($3,300,000)  consisting of two
million dollars  ($2,000,000 ) in cash, nine hundred thousand dollars ($900,000)
in two promissory notes and fifty three thousand six hundred sixty nine (53,669)
shares of common  stock of TMCI  valued at $7.4532 per share  determined  as the
average of the last reported  sales price of the common stock of TMCI for the 20
trading days prior to November 1, 1996. In addition,  the Company  agreed to pay
an additional six hundred  thousand  dollars  ($600,000) in eighty thousand five
hundred three (80,503) shares of common stock of TMCI valued at $7.45 per share,
subject to the performance of the acquired division in accordance with the terms
of an earn out agreement.  Following the closing of the  transaction,  a dispute
arose  regarding  the value of  certain  inventory  which  resulted  in  certain
adjustments to the foregoing purchase price. See Item 3 Legal Proceedings.

      Enterprise Industries,  Inc. On January 24, 1997, the Company acquired all
of the issued and outstanding  shares of common stock of Enterprise  Industries,
Inc., a metal stamping and  manufacturing  company,  in exchange for one million
five hundred  thousand  dollars  ($1,500,000)  consisting of one million dollars
($1,000,000)  in cash and ninety six thousand five hundred sixty (96,560) shares
of common stock of TMCI valued at $5.18 per share  determined  as the average of
the  closing  prices  for TMCI  common  stock for the 10  trading  days prior to
January 1, 1997.

   Trinity Electronics, Inc. On December 22, 1997, Trinity Electronics,  Inc., a
distributor  of board level  electronic  component  parts,  merged with and into
TMCI/Trinity  Acquisition  Corp., a wholly owned subsidiary of TMCI. The parties
negotiated  October 1, 1997 as the effective date for accounting  purposes.  The
sole  shareholder of Trinity received a total of four million two hundred ninety
thousand dollars ($4,290,000)  consisting of one million dollars ($1,000,000) in
cash,  one million two  hundred  ninety  thousand  dollars  ($1,290,000)  in two
promissory notes and four hundred four thousand five hundred  thirty-nine shares
(404,539)  of TMCI  common  stock  valued at $4.94 per share  determined  as the
average  closing price of common stock of TMCI for the ten trading days prior to
September  4, 1997.  The notes pay  interest in the amount of 9% per annum.  The
$290,000  note is due April 15, 1998.  The  $1,000,000  note was  personally
guaranteed by Rolando Loera, the Chief Executive Officer of the Company, was due
March 9, 1998 and was paid without penalty.  The shares are being held in escrow
pursuant to the terms of an escrow agreement as security for the representations
of Trinity and its sole  shareholder  made in the merger agreement and are being
released from escrow in the amount of 25% one year  following  the closing,  25%
two years  following the closing,  35% three years following the closing and 15%
four years following the closing.  In connection  with this merger,  the Company
received  approximately  $3,583,000 in goodwill which is being amortized over 15
years. Following the merger, TMCI /Trinity Acquisition Corp. changed its name to
Trinity Electronics, Inc.


      Financial Information About Product Lines.
                                         1995           1996          1997
Sales to
Unaffiliated
Customers
                      Manufacturing   $18,952,842    $17,823,148   $23,264,194
                      Wire and Cable            0        866,334     9,173,355
                      Turnkey           9,146,077      7,450,346     5,607,052
                                     ===========================================
Total                                  28,098,919     26,139,828    38,044,601
Sales to
Affiliates
                      Manufacturing   $ 4,649,012     $3,712,554    $2,077,246
                      Wire and Cable            0              0     1,062,571
                      Turnkey                   0              0             0
                                     ===========================================
Total                                   4,649,012      3,712,554     3,139,817
Operating Profit
(loss)
                      Manufacturing
                                      $ 1,680,311     $451,988      $801,740
                      Wire and Cable            0      144,848       846,273
                      Turnkey              42,013      (71,886)      397,476
                                     ===========================================
Total                                   1,722,234      524,950     2,045,489
Identifiable
Assets
                      Manufacturing   $ 8,452,937   $8,914,649   $16,999,053
                      Turnkey           3,959,230    2,536,886     3,526,700
                      Cable                     0    4,030,092     6,933,093
                                     ===========================================
Total                                  12,412,167   15,481,627    27,458,846
                                                     

            Description of Business.
      .
                   General Market for Contract Manufacturing Services.

   The Company  focuses on selling  products and services to OEMs  interested in
utilizing  custom  manufacturers.  OEMs have been increasing their use of custom
manufacturers in order to reduce their investment and focus their resources.

   Reduce  Investment.   Advances  in  technology  of  electronic  products  and
increases  in unit  volumes  require  OEMs to invest  more  heavily in  internal
manufacturing  through  increased  working capital,  capital  equipment,  labor,
systems and  infrastructure.  Use of contract  manufacturers such as the Company
allows OEMs to maintain  advanced  manufacturing  capabilities  while minimizing
overall resource requirements.

   Focus  Resources.  With the increased  level of  competition  and the pace of
product change in the electronics industry,  use of contract  manufacturers such
as the Company enables OEMs to focus more sharply on their own core competencies
where they add the greatest value such as product development and marketing.


<PAGE>



         Target Market for the Company

   The  Company  provides  its custom  manufactured  products to a wide range of
companies   that   manufacture:   (1)  mini   and   mainframe   computers;   (2)
telecommunications  equipment; (3) semiconductor test equipment; and (4) medical
test equipment, primarily in the Silicon Valley area.

   Computer Systems. The Company's manufacturing and assembly businesses provide
a  full  complement  of  manufacturing   capabilities  for  mini  and  mainframe
computers.  As the  industry  is  being  reshaped  by  evolutionary  changes  in
semiconductor  design and memory  capacity,  OEMs are outsourcing  more of their
manufacturing  of their metal  cabinets  and  enclosures.  The  Company  focuses
primarily on commercial markets.

   Telecommunications  Equipment.  Based on the changing  conditions  within the
telecommunications   industry,   the   Company   believes   that  the  need  for
telecommunications  equipment  will continue to grow at an above average  annual
rate.  The Company  actively  markets itself to this industry and believes that,
with its present and future manufacturing and service  capabilities,  it is well
positioned  to service  this  growing  industry.  Marketing  activities  in this
segment are directly in line with the Company's  acquisition  of facilities  for
the production of specific types of wire and cable contained in products used by
the telecommunications equipment industry.

   Semiconductor Test Equipment.  The Company markets its product  manufacturing
and service  capabilities in the semiconductor  test equipment market areas. The
Company targets principally large and medium-sized  corporations that specialize
in the design and  development of scientific  measurement  and  production  test
devices that may be used by major  producers in the  semiconductor  industry who
design and  manufacture  wafers that produce  computer  chips and the like.  The
Company will continue to explore and expand new opportunities  with its customer
base and look to refine the  diversification  of its production  capabilities in
designing and manufacturing products used within this market segment.

   Medical  Test  Equipment.  The Company  markets its  manufacturing  and cable
harness  assembly  services to existing  and  prospective  OEMs of medical  test
equipment.  The  Company  targets  customers  with strong  track  records in the
design,  development  and  production of  sophisticated  medical  diagnostic and
analysis equipment, such as MRI equipment, which is used in hospital and medical
clinics  by  medical  doctors  to  assist  in their  diagnoses  of  serious  and
complicated  patient medical  problems.  The Company believes that this industry
will grow, offering increased opportunities to companies which are positioned to
provide  cost-effective  manufacturing  and value added  services at competitive
prices.


<PAGE>



         Operations of the Company

            Business Conducted by Subsidiaries

   The Company provides its  manufacturing  services through Touche and EII, its
turnkey  and cable and  harness  assembly  services  through  TEI with a limited
portion provided by Trinity, and its distribution services through Trinity.

Manufacturing.   The  manufacture  and  fabrication  of  custom-designed   metal
enclosures  cannot  be  homogenized  into a single  operation  or  manufacturing
approach for its entire  production line. With each custom order received from a
customer  comes a  different  list of  requirements  for  manufacturing  design,
process and finish. In addition,  the manufacturing  environment  allows for the
manufacture  of both  prototype and  production of the various types of customer
products. To support its manufacturing operations,  the Company maintains a wide
variety of  sophisticated  automated  machinery and shop equipment,  tools,  and
supplies.

   Touche  Manufacturing  Company,  Inc.  Touche  manufactures  custom  designed
fabricated  metal  cabinets and  enclosures  for OEMs to house  various types of
electronic  components.  As a  full  service  manufacturing  facility,  Touche's
engineering  and design  personnel work closely with each customer to design and
build an initial prototype of the specified cabinet or enclosure. Based upon the
development   of  the   prototype,   the  Company   develops  a  cost  effective
manufacturing  process.  Touche provides all of the  manufacturing  processes in
house, which includes metal shearing,  punching, bending and welding, as well as
machining,  detailing,  zinc  plating,  painting  and  final  assembly.  All raw
materials used to manufacture these products are readily available from numerous
suppliers  at  competitive  prices.  By  controlling  the various  manufacturing
processes in-house, Touche provides its customers with custom manufactured metal
cabinets or enclosures in a timely and  cost-effective  manner,  giving Touche a
competitive advantage over other manufacturers that have to sub-contract for one
or more of the various  manufacturing  processes.  Approximately 75% of Touche's
manufacturing  is performed  on a volume production basis for metal  cabinets or
enclosures,  while the  remaining 25% is in  developing  prototype  products for
future use by its customers.

   Enterprise Industries, Inc. EII provides production metal stamping, precision
machining and electrical discharge  manufacturing  services to OEMs. Because EII
has tool and die capability,  use of its services generally requires a higher up
front costs for the production of the tools with correspondingly  lower per unit
production  costs than the  processes  used by Touche.  EII services  clients in
automotive,  furniture,  hardware, audio components, and aerospace industries in
addition to servicing clients in the core industries serviced by the Company and
is focusing its marketing efforts on the target market of the Company. Recently,
EII moved from a 25,000 square foot facility into a 126,000 square foot facility
to accommodate anticipated growth.

      Cable and Harness Assembly.

   Touche  Electronics,  Inc.  In late  1992,  a number  of  Touche's  customers
expressed an interest in identifying methods of reducing their own manufacturing
costs. Accordingly,  Touche examined its existing manufacturing capabilities and
considered  other types of services  that could be offered to its  customers  in
conjunction with its manufacturing of custom designed  fabricated metal cabinets
and  enclosures.  In early 1993, TEI was formed as a sister company to Touche to
provide value added services. In November,  1996, TEI assumed responsibility for
operating  acquired  assets of the San Jose Division of Pen  Interconnect,  Inc.
Accordingly, TEI currently operates two divisions.

   Turnkey  Division.  TEI  provides  value  added  turnkey  services to many of
Touche's OEM customers.  These services are primarily the  installation of cable
and harness  assemblies  into the products  manufactured by Touche and also into
enclosure products  manufactured by other custom  manufacturers and OEMs that do
not have the in-house  capability to provide such  services.  In 1996, TEI added
clean room  assembly at the request of its  customers as part of its strategy to
expand its value added services.  All of TEI's value-added  turnkey services are
provided pursuant to contracts or purchase orders with its customers.

   Cable and Harness  Division.  To obtain  better prices for the  cable and
harness material installed by the Turnkey Division,  TEI acquired the net assets
(accounts  receivable,  inventory  and capital  equipment) of the San Jose based
division of Pen  Interconnect,  Inc. The acquired  division  produces  different
types of wire cable and harnesses  installed by TEI and other companies in metal
cabinets and enclosures.  The cable and harness division both produces cable for
use by TEI in the Turnkey  Division  and sells cable to OEMs and other  contract
manufacturers.

      Distribution

   Trinity  Electronics,   Inc.  Trinity  is  primarily  a  passive  electronics
distributor of board level electronic components including capacitors, 
resistors, board to board  interconnects,  back plane  interconnects and D-subs 
to OEMs and contract manufacturers.  Trinity primarily sells to instrumentation 
industry accounts.  Trinity provides  just-in-time,  bin  stocking,  and KanBan
inventory  services  to its distribution customers. In addition, Trinity 
provides cable assembly services to its customers at competitive prices using 
franchise lines for assemblies.  Sales of electronic  parts to OEMs are  
approximately  55% of the revenues of Trinity. Sales  of  assembled  cable  both
to  OEMs  and  contract   manufacturers   are approximately  30% of the  
revenues of  Trinity.  Sales of  electronic  parts to contract  manufacturers  
are  approximately  15% of the revenues of Trinity.  In addition to  revenues  
generated  from the  operations  of Trinity,  the Company expects to see 
additional  benefits through better pricing on connectors used by
the cable and harness  division of TEI and  introductions  to OEM  customers  of
Trinity that may be interested in utilizing the contract  manufacturing services
of the Company.

   New Product Service Lines of Business

   In 1996,  TEI added clean room assembly  internally as well as cable and 
harness  assembly  through  its  acquisition  of the San  Jose  Division  of Pen
Interconnect, Inc.

   In 1997, the Company added metal stamping and tool and die capability through
its  acquisition  of EII as well  as  distribution  of  board  level  electronic
components through the acquisition of Trinity.


      Marketing and Sales

   The  marketing  strategy  of the  Company  focuses  on  developing  long-term
relationships  with OEMs in its target market of  computers,  telecommunications
equipment,  semiconductor test equipment and medical test equipment. The Company
intends to focus its marketing  efforts on a greater number of  manufacturers of
telecommunications  equipment,  provided, however, that the marketing efforts of
the  Company  will  continue  to reflect the  evolution  of OEMs from  different
segments of the technology industry to use contract manufacturers.

   Touche  and TEI will  continue  to focus and  concentrate  on major  existing
customers and to pursue new business from other potential  customers in evolving
segments of its core industry focus. EII will focus its efforts on expanding its
business in the core  industry  segments  of Touche and TEI.  The ability of the
Company to  maintain  relationships  with  major  existing  customers  remains a
significant  factor in  determining  future  growth of the Company.  The Company
intends to achieve growth through competitive  pricing strategies,  expansion of
existing  turnkey   capabilities  and  more  aggressive   direct  sales  efforts
supplemented by sales representatives in geographic areas where the Company does
not have a physical  presence.  As a result of the limited  and  focused  target
market, the marketing efforts of the Company will rely primarily on direct sales
efforts,  which  will  emphasize  its  design-engineering  and  quality  control
manufacturing capabilities.

   Sales  activities  of Company are handled by a  combination  of direct  sales
personnel and limited use of independent sales  representatives.  Because of the
complexity and analysis involved in the customer's design and purchase decision,
management  emphasizes  active  interaction  between the direct sales staff, its
independent  sales  representatives  and the buyer or  engineer  throughout  the
selling process.

      Customer Service and Support

   The Company  handles all customer  service-related  inquiries  or  complaints
through  the sales  staff who have been  assigned  to handle and manage  account
relationships.  This requirement  enables the salesperson to monitor and control
the quality of  production  during the entire  manufacturing  process,  which is
designed  to  help  prevent  production  problems  before  shipment  is  made to
customers.  Such efforts are  supported  by the  engineering  department  of the
appropriate  Subsidiary which is directly involved in the development process of
the products.

   To ensure that adequate  support is given to customers,  each salesperson has
formal sales training  augmented by direct  participation  in the  manufacturing
process at the appropriate facility.

      Working Capital Practices

   Because the Company produces custom designed products, it orders inventory to
fulfill existing orders resulting in minimal financial exposure.

      Sources of Supply, Major Suppliers and Backlog

   The largest  supplier of the Company is  Teredyne  Connection  Systems,  Inc.
Purchases  from this vendor  accounted  for  approximately  7.6% of the combined
purchases of the Company in calender 1997.

   The  raw  materials,  such as  sheet  metal, wire and cable, and electronic
components  used in the  development  and  manufacture of customer  products are
generally available from domestic suppliers at competitive  prices;  fabrication
of certain major components may be subcontracted for on an as-needed basis. With
the exception of other material requirements, sheet metal may be purchased on an
as-needed basis under a consignment arrangement with suppliers. The Company does
not have any material long term contracts for new materials. The Company has not
experienced any significant difficulty in obtaining adequate supplies to perform
under its contracts.

   Touche  and  TEI  have  established   operating  policies  that  require  the
development and  maintenance of a second vendor source for purchasing  materials
and supplies that are needed to perform under contract for their customers. This
purchasing  requirement  focuses on the  prevention  of potential  problems that
might otherwise  originate from a single supplier's  financial  condition.  Such
policies allow greater  flexibility in keeping purchasing costs down and greater
assurance that raw material is available in order to meet customer  contract and
delivery requirements.

     At  December  31,  1997,  the Company had a firm  backlog  approximately  $
18,000,000.  The Company does not believe that its combined  rolling  backlog at
any  particular  time  is  necessarily  indicative  of its  future  business  or
performance.

      Major Customers

     Touche  and TEI's  major  customers  include  various  technology  industry
related companies,  such as Hewlett Packard Company,  Lam Research  Corporation,
Tandem Computers Inc.,  Applied  Materials,  Inc., KLA  Instruments,  and Varian
Associates, Inc. For the year ended December 31, 1997, revenues derived from two
customers (Lam Research Corporation and Tandem Computers  Incorporated) amounted
to  approximately  12%  and  14%  respectively,   of  total  revenue,  excluding
intercompany  sales. Due to the growth in sales to other customers,  reliance on
major  customers  represents a substantial  shift from 1996 when the Company had
three  customers each accounting for over 10% of its business  individually  and
65% of its  business  in the  aggregate.  As the sales  arrangements  with these
customers are  terminable  upon short notice,  the loss of any one of them would
have a material adverse impact on the revenues and profits of the Company, given
the significant  percentage of revenues derived from these  customers.  Although
the Company cannot control the needs of these  customers,  the Company  believes
that  expansion  of  services   offered  by  the  Company  will  strengthen  its
relationship with these customers.

      Patent, Trademark, Copyright and Proprietary Rights

   The  Company  does not have any  patent or  copyright  applications  pending,
because the Company does not offer or provide any  original  design work that is
not otherwise proprietary to the product  design-engineering of their customers.
The  Company  owns  trademark  rights  to  its  "Touche"    trademark  and
servicemark.

      Competition

   Manufacturing  of enclosures for  electronic equipment is highly competitive,
fragmented,  and involves  rapid change.  Competitors  of the Company range from
small firms able to provide only a few of the  services  provided by the Company
to substantially  bigger, better financed competitors able to provide more value
added  services.  Competition is generally based on several  factors,  including
services provided, quality of work, reputation, price and marketing approach.

   The Company is established in the industry and maintains a strong competitive
presence  by  delivering  high-quality  work  in a  timely  fashion  within  the
customer's  budget  constraints  with  enhanced  ability to deliver  value added
services.

   Because   of  the   continuing   change   by  OEMs  from   manufacturers   to
design-engineering,   electronics  value  added,  and  marketing  organizations,
contract  manufacturers  are  receiving  a much  greater  share  of the  overall
manufacturing  task of  products  that are  designed  for  manufacture  by their
customers.  The process itself removes more and more of the  subcontracting  and
replaces it with a prime contractor  status  gradually  eliminating the need for
submitting  joint  subcontracting  work  proposals.  By  reducing  the number of
subcontractors,  the customers benefit from the reduction in the turnaround time
and the  maintenance  of more  efficient  and quality based  manufacturers.  The
Company  believes  that  the  creation  and  maintenance  of a  "one-stop  shop"
manufacturing environment makes it an effective competitor in the industry.

      Government Regulation

   Substantial  environmental  laws have been  enacted in the United  States and
California in response to public concern over environmental deterioration. These
laws and the  implementing  regulations  affect nearly every activity of Touche,
TEI and EII.  The  principal  federal and state  legislation  which has the most
significant  effect  on the  Company's  business  includes  the  following:  The
Comprehensive  Environmental  Response;  Compensation  and  Liability  Act;  The
Resource  Conservation  and Recovery  Act; The Clean Air Act; The Safe  Drinking
Water Act; The  Emergency  Planning and Community  Right-to-Know  Act; The Clean
Water Act; and The Toxic Substance Control Act. Failure by the Company to comply
with applicable federal and state environmental  regulations could result in the
Company  incurring  substantial  fines and penalties  and/or having  restraining
orders issued against it.

      Employees

   As of December  31, 1997,  the Company  employed  approximately  585 persons,
including the officers of the Company,  all of whom are full-time  employees and
none of whom are subject to collective bargaining agreements. Of these full-time
employees,  114 are engaged in administration and finance, 457 in manufacturing,
engineering and production, and 14 in marketing and sales. Many employees of the
Company have overlapping responsibilities in these job descriptions. The Company
has  never   experienced  a  work  stoppage.   The  Company  believes  that  its
relationships with its employees are good.

      Item 2.     Description of Property

     Touche leases  approximately  224,000 square feet of factory  manufacturing
space in three adjacent buildings which are equipped with state-of-the-art metal
fabrication  equipment.  Touche leases approximately 123,000 square feet at 1875
Dobbins Drive, San Jose, California 95133, which consists of 113,000 square feet
in manufacturing space and approximately  10,000 square feet of office space. In
addition,  TEI leases approximately 78,000 square feet of manufacturing space at
1881-1899 Dobbins Drive, San Jose, California 95133. Touche leases approximately
22,000  square feet of  manufacturing  space at 1565-C  Mabury  Road,  San Jose,
California  95133.  EII leases  approximately  126,000  square  feet of combined
office and  manufacturing  space in a light  industrial  building at 7500 Tyrone
Avenue, Van Nuys,  California.  The Company negotiates all lease agreements on a
triple net basis with landlords.

      Item 3.  Legal Proceedings

   Subsequent to the closing of the  acquisition of the San Jose Division of Pen
Interconnect,  Inc.  ("PII"),  a dispute arose regarding  various aspects of the
transaction.  On February 14, 1997,  the Company filed a Demand for  Arbitration
against  PII,  seeking  a  substantial  purchase  price  reduction,  or,  in the
alternative,  other  remedies and damages as provided by law. The Company sought
such remedies based upon  overstatement  of the value of inventory in connection
with the  acquisition,  a  substantial  change in the  operation of the division
prior to the acquisition and failure to disclose certain accounts payable to the
Company.

   On December 5, 1997, the Company and PII entered into a settlement  agreement
pursuant to which PII agreed to cancel the earn out agreement  which  eliminated
the ability of PII to receive up to an additional six hundred  thousand  dollars
($600,000) in the form of eighty  thousand five hundred three (80,503) shares of
the  common  stock of the  Company.  In  addition,  EII  agreed  to  cancel  two
promissory worth nine hundred  thousand dollars  ($900,000) and accrued interest
as well as release Rolando Loera from his personal  guaranty thereon in exchange
for one hundred  thirty two  thousand  twenty three  (132,023)  shares of common
stock of the Company.  The Company  delivered an additional  five thousand three
hundred sixty seven (5,367)  shares of its common stock in  satisfaction  of its
obligation to issue  additional  common stock for collection of certain accounts
receivable of PII pursuant to the Asset Purchase Agreement. Further, the Company
released  fifty three  thousand six hundred  sixty nine  (53,669)  shares of its
common  stock  owned  by PII  and  being  held in  escrow  as  security  for the
obligations  of PII under the  Asset  Purchase  Agreement.  The  Company  waived
certain additional claims against PII in the amount $77,000. Finally, PII agreed
to cooperate with the Company in obtaining an audit of the acquired  division so
that  the  Company  could  file  the  necessary  financial  statements  with the
Securities and Exchange Commission.

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

   The Company held its annual shareholder  meeting on December 22, 1997 for the
purpose of approving  an amendment to the bylaws to permit a staggered  board of
directors;  electing  directors;  approving an amendment to the  certificate  of
incorporation  authorizing ten million  (10,000,000)  shares of preferred stock;
approving  the 1997 Stock  Option  Plan (the "1997  Plan");  approving  the 1997
Employee  Stock  Purchase Plan (the "ESPP");  and ratifying the  appointment  of
Moore Stephens, PC as the independent auditors of the Company.

   A total of  3,341,981  shares of common  stock  were  present in person or by
proxy at the meeting.  For the amendment to the bylaws for the staggered  board,
of the shares present and able to vote at the meeting, 1,421,327 shares voted in
favor of the  amendment,  166,930  shares voted  against the  amendment,  29,300
shares  abstained  from  voting,  and  1,624,424  shares  did not vote.  For the
election of  directors,  of the shares  present and able to vote at the meeting,
3,184,151 shares voted in favor of each and every nominee,  157,830 shares voted
against each and every nominee,  no shares abstained and no shares went unvoted.
For the amendment to the articles of incorporation to authorize preferred stock,
of the shares present and able to vote at the meeting, 1,384,077 shares voted in
favor of the  amendment,  250,280  shares voted  against the  amendment,  33,200
shares  abstained from voting,  and 1,624,424  shares did not vote. For the 1997
Plan, of the shares present and able to vote at the meeting,  1,392,977,  shares
voted in favor of the 1997 Plan,  244,980  shares  voted  against the 1997 Plan,
29,600 shares abstained from voting,  and 1,624,424 shares did not vote. For the
ESPP, of the shares  present and able to vote at the meeting,  1,452,977  shares
voted in favor of the ESPP, 191,180 shares voted against the ESPP, 23,400 shares
abstained from voting,  and 1,624,424 shares did not vote. For approval of Moore
Stephens as the independent  auditors of the Company,  of the shares present and
able to vote at the meeting,  3,300,511 shares voted in favor of approving Moore
Stephens, P.C. as the  independent  auditors,  11,020 shares voted  against  
ratifying Moore  Stephens, P.C. as the  independent  auditor,  and 30,450 shares
abstained from voting.


<PAGE>



      Item 5. Market for Common Equity and Related Stockholder Matters

   The  Company's  Common  Stock is quoted on the NASDAQ  SmallCap  market.  The
following  table  sets forth the  reported  high and low bid  quotation  for the
Common Stock of the Company for the periods  indicated.  Such quotations reflect
inter dealer prices, without retail mark up, mark down or commission and may not
necessarily reflect actual transactions.

                                                 Common Stock
                              High                 Low
      1996
      First Quarter           $8.375               $6.50
      Second Quarter          $9.50                $8.375
      Third Quarter           $9.50                $6.50
      Fourth Quarter          $7.00                $4.75

      1997
      First Quarter           $6.75                $4.50
      Second Quarter          $7.00                $4.50
      Third Quarter           $6.25                $4.50
      Fourth Quarter          $6.19                $4.00

    On March 16, 1998,  the closing bid price of the  Company's  Common Stock as
reported on the NASDAQ  SmallCap  Market system was $5.66. As of March 12, 1998,
there were approximately 38 holders of record of the Company's Common Stock. The
Company has not paid any  dividends  on its common stock in the past three years
and anticipates  retaining future earnings, if any, to finance the growth of the
Company.

   On February 10, 1998, the Company raised $3.3 million through the sale of its
5%,  $275,000  principal  amount,  Convertible  Subordinated  Debentures.   Such
securities  were issued in reliance of Rule 506 of Regulation D  promulgated  by
the U.S.  Securities and Exchange Commission pursuant to its authority under the
Securities Act of 1933, as amended,  in as much as all investors were accredited
investors as defined in Regulation  D. See Item 7  Management's  Discussion  and
Analysis of Financial Condition and Results of Operations; Subsequent Events.


<PAGE>



      Item 6. Selected Financial Data

     The following selected historical  financial  information of the Company is
qualified by reference to and should be read in  conjunction  with the financial
statements and notes thereto included  elsewhere herein.  The selected financial
information set forth below for each of the fiscal years ended December 31, 1997
and  December 31, 1996 is derived from  financial  statements  contained in this
Form 10-K. The selected  financial  information  for the years December 31, 1995
and  December  31,  1994 is derived  from  financial  statements  of the Company
audited by Moore Stephens, P.C., independent public accounts, which are included
in the prospectus for the public  offering of the Company  completed on March 5,
1996.  The  selected  financial  data for the year ended  December  31,  1993 is
derived  from  unaudited  financial  statements  of the  Company  which  are not
included in documents filed with the Securities and Exchange Commission.

             Selected Financial Data (in thousands except for per share data)
                                       Years Ended
                                       December 31

                          1997         1996      1995(1)     1994(1)     1993(1)
-------------------------------------------------------------------------------

      Statement of Operations
       Data

      Net Sales          38,947      26,140      28,099      20,869      14,391

      Net Income          1,136         148         473         420         248
      
      Net Income per
      Common Share
      from Operations (2) 0.31         0.05        0.25        0.22        0.08

      Balance Sheet Data

      Total Assets      28,543       15,482      12,412       9,332       6,982

      Total Long Term
      Obligation         4,168        2,501       2,757       2,682       2,576

      Shareholders' 
      Equity            13,299        8,639       2,180         957         257

      (1) For  comparative  purposes,  the  amounts  have been  combined to give
      retroactive  effect to the  acquisition by TMCI of all of the  outstanding
      common stock of Touche and TEI.

      (2) See Note 3 to the financial statements for an explanation of the basis
      used to calculate net income per share and weighted average common shares 
      and share equivalents. 
      
      Item 7.  Management's  Discussion  and  Analysis of  Financial  Condition 
               and Results  of Operations
      Overview

   On March 5, 1996,  the Company  acquired  Touche and TEI  pursuant to certain
Stock Purchase Agreements executed on December 28, 1995. Prior to that time, the
Company's  operations  consisted  of  forming  the  Company,  preparing  for the
acquisition  of Touche and TEI,  as well as  preparing  for the  initial  public
offering of its securities discussed below.

   The Company's  strategy has been to expand its core and value added  business
by  increasing  its product  offerings to satisfy the needs of its customers and
their growing demand for more outsourcing of contract manufacturing services. On
November 1, 1996, TEI acquired the San Jose cable and harness manufacturing 
division of Pen  Interconnect,  Inc. On January 1, 1997, the Company acquired 
Enterprise Industries,  Inc., a metal  stamping  business.  Effective  
October 1, 1997, the Company  acquired  the  operations  of  Trinity  
Electronics,  Inc., a passive distributor of board level electronic components; 
Trinity formally merged with a wholly owned subsidiary of the Company on 
December 22, 1997.
<PAGE>

                                          Year Ended
                                          December 31,

                                    1997        1996        1995
                                    ----        ----        ----
                    

  Sales                             100%        100%        100%
  Costs of Goods Sold                73.8        77.4        77.2
                               ------------------------------------
              Gross Profit           26.2        22.6        22.8

  Operating Expenses                 20.9        20.6        16.7
                               ------------------------------------
  Income From Operations
                                      5.3         2.0         6.1

  Net Other Expenses                  0.6         1.4         2.5
  Income Before  Provision for        4.7         0.6         3.6
  Income Taxes                                              
  Provision for Income Taxes          1.8         0.0         1.9
                               ====================================
  Net Income                          2.9         0.6         1.7
     
 All figures rounded to the nearest one tenth of one percent.
      


      Results of  Operations  - For the Fiscal  Year Ended  December  31, 1997
      Compared with the Fiscal Year Ended December 31, 1996

   The results of operations  utilizes the consolidated  results of the Company.
The discussion below should be read in conjunction with the financial statements
and the notes thereto, that appear elsewhere in this report.

      Net Sales

   The  Company's  net  sales  increased  approximately  $12,806,838  or  49% to
$38,946,666  from  $26,139,828  in the fiscal year ended  December 31, 1997,  as
compared with the fiscal year ended December 31, 1996. Sales growth was due to a
significant  increase  in sales  volume  through  both  existing  as well as new
customer orders,  and significant  growth and continued  diversity of operations
through the acquisition of the cable and harness and metal stamping 
manufacturing businesses  at the end of 1996  and  beginning  of  1997,  
respectively,  as new product services continue to be introduced and added to 
consolidated operations.  In addition, the acquisition of Trinity Electronics,  
Inc., effective October 1, 1997 for accounting purposes, impacted positively on 
the fourth quarter.

   Inasmuch as the Company's two largest  customers  accounted for approximately
26% of revenues for the fiscal year ended  December  31, 1997,  with the largest
accounting  for 14% of such  revenues,  the  disruption or loss of a significant
amount of  business  of either one could have a material  adverse  impact on the
total revenues of the Company.  The Company has reduced  dependency of the major
customers  substantially;  in 1996,  the three largest  customers of the Company
accounted for 65% of total revenues of the Company.

      Gross Profit

   The  Company's  gross profit  increased  approximately  $4,288,536  or 73% to
$10,190,618  from  $5,902,082  in the fiscal year ended  December 31,  1997,  as
compared with the fiscal year ended December 31, 1996. As a percentage of sales,
the Company's gross profit  increased 3.6% to 26.2% from 22.6 in the fiscal year
ended  December 31, 1997,  as compared  with the fiscal year ended  December 31,
1996.  The increase in gross profit is primarily due to increased  sales and the
acquisition  and  successful  integration  of  the cable and harness and metal 
stamping businesses.  The Company's gross profit margin may be materially 
impacted by the diversity of its operations  which are constantly  modified in 
order to meet the changing demands of the competitive market bidding processes 
with its customers.

      Operating Expenses

   General and administrative expenses increased approximately $2,760,982 or 51%
to  $8,138,114  from  $5,337,132 in the fiscal year ended  December 31, 1997, as
compared with the fiscal year ended December 31, 1996. As a percentage of sales,
general and  administrative  expenses remained constant at approximately 21% for
the fiscal year ended  December 31, 1997, as compared with the fiscal year ended
December 31, 1996. The dollar  increase in general and  administrative  expenses
resulted primarily from increased overhead and transaction costs associated with
the acquisitions.


<PAGE>



      Other Income [Expense]

   The  Company's  other  expenses  decreased  approximately  $127,060 or 36% to
$230,554 from  $357,614 in the fiscal year ended  December 31, 1997, as compared
with the fiscal year ended December 31, 1996. The decrease was primarily due to 
the elimination of a one time non-cash finance charge in the amount of $462,122 
on certain bridge loans incurred by the Company in 1996 and an increase of  
$102,121 in other income, offset by an increase of $274,697 in interest  expense
used to finance  increases in  inventory,  the  nonreocurrence of $69,742 in 
interest income and a reduction of $138,224 in gains from the sale of equipment.

      Income Tax Expense

   Income tax expense increased  $666,765 to 685,764 from $18,999 as a result  
of a  substantial  increase  in  income  from  operations  and the  full
utilization of net operating loss carry forwards in the prior year.


      Net Income

   Net  income  before  taxes  increased  approximately  $1,654,614 to  
$1,821,950 from $167,336 in the fiscal year ended December 31, 1997, as compared
with the fiscal year ended December 31, 1996. The increase in net income was due
primarily  to: (1) a net  increase in income from  operations  of  approximately
$1,654,614  resulting  from  increased  sales and sales from  recently  acquired
companies, and (2) a net decrease in other expenses of approximately $127,060.

   Net income after taxes increased approximately $987,849 to $1,136,186 from 
$148,387 for the fiscal year ended December 31, 1997 compared to the fiscal year
ended December 31, 1996 .


<PAGE>



      Results of  Operations  - For the  Fiscal  Year ended  December  31,  1996
      compared with the Fiscal Year Ended December 31, 1995

   The Results of Operations  discussion  utilizes the  consolidated  results in
1996 compared to the combined  results in 1995 from the  operating  subsidiaries
(Touche  and  TEI)  prior  to  their  acquisition  by the  Company,  eliminating
inter-company transactions.

            Net Sales

   Net  sales  decreased  approximately  $1,950,100  or 7% to  $26,139,828  from
$28,089,919  for the fiscal year ended  December 31, 1996,  as compared with the
fiscal year ended  December 31, 1995. The decline in net sales was due primarily
to significant  order  cancellations  and  rescheduling  of orders by one of the
Company's  major  customers,  which  resulted  from (1) a change in local market
conditions,  and  (2) a  general  slowdown  in the  semiconductor  manufacturing
marketplace. This general slowdown impacted the industry as a whole.

            Gross Profit

     Gross profit  decreased  approximately  $499,702 or 8% to  $5,902,082  from
$6,401,784  for the fiscal  year ended  December  31,  1996,  as compared to the
fiscal year ended  December 31, 1995.  As a  percentage  of sales,  gross profit
remained  constant  during the period the fiscal  year  ended.  The  decrease is
primarily due to the corresponding reduction in sales.

            Operating Expenses

       Operating expenses increased  approximately $697,672 or 14% to $5,377,132
from  $4,679,460 for the fiscal year ended December 31, 1996, as compared to the
fiscal year ended  December 31, 1995.  This  increase  was  primarily  due to an
investment  in  infrastructure  to support  planned  growth,  including  two new
operating  divisions,  plus  the  acquisition  of the San Jose  Division  of Pen
Interconnect,  Inc., which included additional  personnel,  building rent costs,
repairs,  professional  fees,  promotions  of certain  engineers  to  management
positions and other related items.

            Other Income [Expense]

     Interest expense decreased  approximately  $292,202 or 47% to $323,679 from
$615,881 for the fiscal year ended  December 31, 1996, as compared to the fiscal
year ended December 31, 1995.  Interest expense decreased during the fiscal year
ended December 31, 1996 due to a substantial  reduction in outstanding long term
debt,  capital lease obligations,  and bank borrowings,  as compared to December
31, 1995.

            Income Tax Expense

        Income tax expense  declined  primarily  due to the  decrease in taxable
income as well as the utilization of net operating loss carry forwards. Proforma
income tax expense for the year ended December 31, 1996 gives effect to the loss
of the S corporation on a combined basis prior to March 5, 1996.

            Net Income

        Income before income taxes  decreased  approximately  $840,300 or 83% to
$167,336  from  $1,007,616  for the fiscal  year ended  December  31,  1996,  as
compared  with the fiscal year ended  December 31,  1995.  The decline in income
before  taxes was  primarily  due to: (1) an  increase in  financing  charges of
$174,244  on certain  bridge  loans that were made by the  Company in the fourth
quarter of 1995 to help fund its  initial  public  offering,  and (2)  increased
operating  expenses  incurred to fund two new divisions  which produced  nominal
income during the fiscal year ended December 31, 1996.

     Net Income  after  taxes  decreased  by  approximately  $325,100  or 69% to
$148,337 from $473,416 for the fiscal year ended  December 31, 1996, as compared
to the fiscal year ended December 31, 1995.

      Liquidity and Capital Resources

   The Company  renewed and  increased its  long-term  revolving  line of credit
("Revolving Line") with  Manufacturers Bank ("Mfrs.").  The Revolving Line bears
interest  at Mfrs.'  base rate plus 1/4%.  This  facility  allows the Company to
borrow  up to  $5,750,000  based on a  stipulated  percentage  of  contractually
defined  eligible  trade  accounts  receivable.  The Company  had  approximately
$3,856,268  in  outstanding  borrowings  under the  Revolving  Line and  nothing
available  (based on the eligible  trade  accounts) as of December 31, 1997.  In
addition,  the Company and Mfrs.  have agreed to a line of credit facility of up
to $2,000,000 available for equipment  purchases,  which bears interest at Mfrs.
base fixed rate of 8.75% per annum  (the  "Equipment  Line").  The  Company  had
approximately $1,214,814 outstanding and $785,186 available under the Equipment 
Line as of December 31, 1997.

   The  Company's  working  capital  decreased by  approximately  $922,745  from
$4,036,532 to $3,113,787 in the fiscal year ended  December 31, 1997 as compared
to the fiscal year ended December 31, 1996. The decrease resulted primarily from
an increase in amounts  outstanding  under the line of credit of $3,271,268,  an
increase in the current  portion notes payable of $2,571,882  and an increase in
accounts payable of $1,121,683  offset by an increase in accounts  receivable of
approximately  $1,423,525, an increase in inventory of approximately $4,550,389,
and an increase in cash of $166,837.  The high level of accounts  receivable  at
December  31, 1997 as  compared to December  31,  1996,  is due  primarily  to a
significant  increase in sales. The significant increase in inventory during the
same  period is due to both an  increase in sales and a change in product mix to
products coupled with an increased use of raw materials and longer production 
cycles.

   The net cash required to fund operating  activities  increased by $398,944 or
55% to $1,129,241  from $730,297 in the fiscal year ended  December 31, 1997, as
compared  to the fiscal  year ended  December  31,  1996.  The change  primarily
represents an increase of $613,333 in depreciation and amortization  expense, an
increase of $2,876,872 in accounts receivable, an increase of $2,864,028 in 
accounts payable,  and an increase of $2,606,601 in  inventory, offset primarily
by the elimination  of a  $462,122  one time non cash  finance  charge in 1996, 
and an increase of $736,318 in income taxes payable.  

  Cash used in investing activities remained relatively constant at $2,942,319
in the fiscal year ended December 31, 1997 as compared  with $3,064,495  in the 
fiscal year ended  December 31, 1996. Fluctuations  in cash used in  investing  
activities  included  an  increase  of $179,276 for repayment of advances by  
stockholders  and a reduction of $450,224 in the amount spent for the  purchase 
of  equipment  offset by an increase in of $258,312  for the  purchase of other 
assets,  a reduction  of $193,650  for the proceeds from the sale of equipment 
and an increase of $147,996 in cash used for the purchase of businesses.  

   Cash  generated from financing  activities increased $999,432 or 31% to 
$4,238,397 from $3,238,965 in the fiscal year ended December 31, 1997 compared  
to the fiscal year ended December 31, 1996. The change resulted from an increase
of $1,987,990 in amounts outstanding under the line of credit,  an increase of 
$2,341,328 of proceeds from notes payable,  the non  recurrence  of a  one time 
charge of $1,000,000 in 1996 for the repayment of certain  bridge  notes and the
elimination  $734,742 of  obligations  under the Company's  capital  lease  
obligations,  offset  by the one  time  impact  of $6,036,798 from the  proceeds
of the public  offering in 1996,  and an increase of $1,317,551  in repayment of
notes payable.

   During the fiscal year ended  December 31, 1997 and  December  31, 1996,  the
Company spent approximately $2,496,925 and $643,451,  respectively,  to purchase
capital equipment which was financed through equipment contracts.
Additionally,   management   expects  the  Company's  level  of  future  capital
expenditures  to  increase  at a level  that is  consistent  with the  Company's
projected growth and operations.  Management has projected  capital  expenditure
requirements of  approximately  $1,800,000 for the calendar year ending December
31, 1998.  This  increase  will be supported by increased  bank  borrowings  and
internal operations.

   The Company  experienced tighter cash flow in the fourth quarter of 1997 as a
result of increasing inventory and receivables from increased sales and a change
of product mix.  Accordingly,  management believes that it will need new sources
of funding either  through  increased  equity  investment or an expanded line of
credit facility in order to meet the Company's  anticipated  operating needs and
projected  capital  expenditure  requirements  through  the fiscal  year  ending
December 31, 1998, excluding acquisition related expenses.  See following 
discussion on sale of debentures and new Fleet Capital Line of Credit.

            Subsequent Events

   Sale of Debentures. On February 10, 1998, the Company closed an offering of 3
Units,  each  Unit  consisting  of  4  of  its  5%,  $275,000  principal  amount
Convertible Subordinated Debentures due February 10, 2001 (the "Debentures") and
100,000  Class  B  Warrants  to  purchase  common  stock  of  the  Company  (the
"Warrants")  for a total of $3.3  million.  Interest on the  Debentures  accrues
quarterly and is payable annually.  From the sale of the Debentures were used to
repay the $1,000,000 note issued in connection with the Trinity acquisition; the
remainder of the proceeds went to working capital.

   The Debentures are convertible  into common stock at the option of the holder
at a variable  conversion  price ranging from $3.00 to $5.50 per share depending
on the market value of the common stock of the Company at the time of the notice
of  conversion.  Accordingly,  the Company may be required to issue no less than
600,000 shares nor more than 1,110,000 shares of common stock upon conversion of
the Debentures.

   In addition,  the Company is issuing  25,000  Warrants per Debenture for each
Debenture  outstanding as of the earlier to occur of the one year anniversary of
the  closing  date of the  sale  of the  Debentures  or the  date  three  months
following  the  registration  of the common stock usable upon  conversion of the
Debentures and upon the exercise of the Warrants.  The Warrants have an exercise
price of $5.50 per share,  subject to  adjustment  for dilutive  issuances.  The
Company is obligated to register the common stock  underlying the Debentures and
the Warrants with the Securities and Exchange Commission.

   In connection with the foregoing issuance, the Company paid a finder's fee to
M.J. Segal and Associates in the amount of $176,000 in cash pursuant to terms of
a Non  Circumvention  and Finder's Fee Agreement (the "Agreement") and a $66,000
credit toward the purchase of one quarter of one Debenture.  The Agreement calls
for (1) the issuance of the number of shares of common  stock to M.J.  Segal and
Associates equal to 5% of the principal amount of the securities sold divided by
the  greater of (a) any stated  conversion  price in the  Debenture  and (b) the
average of the closing bid and asked  prices of the common  stock of the Company
for the five  trading  days prior to the closing and, (2) in this case, a number
of warrants  equal to 10% of the number of shares  issuable  based on the Stated
Conversion  Price as defined in the Agreement,  to be determined  between 60,000
and 110,000. The warrants are to be issued at 125% of the average of the closing
of the bid and asked  prices of the  common  stock of the  Company  for the five
trading days preceding their  issuance,  are non callable and expire three years
from their date of issuance.

   The Agreement also provides that upon exercise of any Warrants  issued in the
offering,  M.J. Segal and Associates shall receive a cash fee equal to 4% of the
amount  received upon exercise of the Warrants;  common stock equal to 5% of the
number of shares  issued upon such  exercise;  and warrants  equal to 10% of the
number of shares issued upon such exercise (excluding warrants exercised by M.J.
Segal and  Associates or its  affiliates).  The warrants  shall have an exercise
price of 125% of the average of the bid and asked  prices for the Company on the
five trading dates preceding the transaction,  shall be non callable,  and shall
expire three years from the date of issuance.

   Fleet Capital Line of Credit.  On March 2, 1998,  the Company  entered into a
Loan and Security  Agreement with Fleet Capital  Corporation  (the "Fleet 
Facility") providing  for  borrowings  of up  to  $25,000,000  based  on  
certain  formulas contained  within the Loan and Security  Agreement.  The 
Company paid a finder's fee of $250,000 and a loan fee of $250,000 in connection
with the transaction.  As of March 10,  1998,  the Company was  eligible to 
borrow up to  $17,222,691 under the Fleet Facility and had borrowed $10,347,841.
Borrowings were in the form  of two Term Loans ("Term Loan A" and "Term Loan B,"
respectively),  an equipment loan (the  Equipment  Loan, together with the Term 
Loans, the "Fixed Loans") and revolving credit loans (the "Revolving  Credit 
Loans").  Term  Loan A is in the principal  amount  of $4.7 million and accrues 
interest at the rate of prime  plus 0.5%.  Term Loan B is in the principal  
amount of $2.0 million and accrues  interest at the rate of prime plus 1.5%. Th
Equipment Loan is in the  principal amount of $4.0 million and accrues interest 
at the rate of prime plus 0.5%.

   The Revolving  Credit Loans are in such amount as the Company  elects,  up to
the  borrowing  base  permitted  by the Loan and Security  Agreement  and accrue
interest at the rate of 0.25% plus prime.  As of March 10, 1998, the Company had
$3,647,841  available  for  borrowing.  The Fixed  Loans are  payable in monthly
installments  of principal and interest with principal  amortizing  over a seven
year period and the balance due on March 2, 2003; interest only on the Revolving
Credit Loans is payable  monthly with the principal due upon  termination of the
Loan and Security  Agreement.  Interest on the Fixed Loans and Revolving  Credit
Loans is adjusted daily. Interest on the Fixed Loans may be adjusted downward by
0.25% each year for two years if the Company meets certain performance  criteria
as  reflected  in its audited  financial  statements  for the fiscal years ended
December 31, 1998 and December 31, 1999, respectively. Interest on the Revolving
Credit Loan may be adjusted downward by 0.25% only once if the Company meets the
performance  criteria as reflected in its audited  financial  statements for the
fiscal year ended  December 31,  1998.  In  addition,  if the Company  meets the
conditions  specified  for December 31,  1998,  it may, at its option,  have the
interest rate on (1) the Revolving  Credit Loan  converted into LIBOR plus 2.5%;
(2) Term Loan A and the Equipment Loan converted into LIBOR plus 2.75%;  and (3)
Term Loan B converted into LIBOR plus 3.75%.


<PAGE>


      New Authoritative Accounting Pronouncements

   The Financial  Accounting  Standards Board ("FASB") has issued Statement of
Financial  Accounting  Standards  ("SFAS") No. 130,  "Reporting  Comprehensive
Income." SFAS No. 130 is effective for fiscal years  beginning  after December
15, 1997.  Earlier  application  is permitted.  Reclassification  of financial
statements  for  earlier  periods   provided  for   comparative   purposes  is
required.  SFAS no.  130 is not  expected  to have a  material  impact  on the
Company.

   The  FASB  has  issued  SFAS  No.  131,  "Disclosures  About  Segments  of an
Enterprise and Related Information." SFAS No. 131 changes how operating segments
are  reported in annual  financial  statements  and  requires  the  reporting of
selected  financial  information  about operating  segments in interim financial
reports  issued to  shareholders.  SFAS 131 is effective  for periods  beginning
after December 15, 1997, and comparative  information for earlier years is to be
restated.  SFAS No. 131 need not be applied to interim  financial  statements in
the  initial  year of its  application.  SFAS No. 131 is not  expected to have a
material impact on the Company.

      Inflation

   The Company  continues to experience the benefits of a low inflation  economy
locally,  regionally  and  nationally.  However,  the Company enters into mostly
short-term  fixed price  contracts  and a large  portion of these  contracts are
labor intensive.  Accordingly,  the short-term contracts are less susceptible to
inflationary pressures.

      Item 7A. Quantitative and Qualitative Disclosure About Market Risk

Not Applicable

      Item 8. Financial Statements

The  financial  statements  are attached as an Exhibit  hereto and  incorporated
herein by reference.

      Item 9. Changes In and  Disagreements  With Accountants on Accounting and
      Financial Disclosure

Not applicable.


<PAGE>



                                         PART III

      Item 10.    Directors,  Executive  Officers,  Promoters  and Control  
        Persons: Compliance with Section 16(a) of the Exchange Act.


                  The current  directors and  executive  officers of the Company
      are as follows:

      Name                         Age    Position
      -----------------------------------------------------


      Rolando Loera                 44    Chairman, President and Chief
                                          Executive Officer; Director

      Livino D. Ribaya, Jr.         49    Vice President-Manufacturing

      Frank Ramirez III             42    Vice President-Engineering

      Charles E. Shaw               53    Vice President-Chief Financial 
                                          Officer; Director

      Robert Loera                  31    Controller and Secretary; Director

      Thomas F. Chaffin             40    Director

      Robert Fink                   62    Director

      Boris Lipkin                  50    Director

      Dominic A. Polimeni           51    Director

   Mssrs. Shaw and Polimeni  serve until the next annual meeting of shareholders
or until their  successors are elected and qualified.  Mssrs.  Fink,  Lipkin and
Robert Loera serve until the 1999 annual  meeting or until their  successors are
elected and  qualified.  Mssrs.  Chaffin and Rolando  Loera serve until the 2000
annual meeting or until their successors are elected and qualified.  At present,
the Company's bylaws provide for not less than one director nor more than nine 
directors. Currently, there are seven directors of the Company. The bylaws 
permit the Board of  Directors  to fill any  vacancy and such  director  may 
serve until the next annual meeting of shareholders or until such director's 
successor is elected and qualified. Officers serve at the discretion of the 
Board of Directors. There are no family  relationships  among any officers or 
directors of the Company  except that Robert Loera and Rolando Loera are 
brothers.

   The principal  occupation and business  experience for each executive officer
and director of the Company for at least the last five years are as follows:

   Rolando  Loera.  Mr.  Rolando  Loera has been  Chairman,  President,  Chief
Executive  Officer and a Director of the Company  since  December 1995 and has
held similar  positions with Touche since September 1992. Prior to that he was
Chief Financial  Officer of a predecessor of Touche for eight years. Mr. Loera
holds  a B.A.  degree  in  Business  Administration  from  the  University  of
Washington.

   Livino D. Ribaya, Jr. Mr. Ribaya has been Vice  President-Manufacturing  of
the Company  since  December  1995 and has held the same  position with Touche
since  September  1992.  Prior to that he was  employed  by a  predecessor  to
Touche  since  1978 in a  variety  of  positions.  Mr.  Ribaya  has a B.S.  in
Mechanical  Engineering  from  the  Mauja  Institute  of  Technology,  Manila,
Philippines.

   Frank Ramirez III. Mr. Ramirez has been Vice  President-Engineering  of the
Company  since  December 1995 and has held the same position with Touche since
1978.  Prior to that he was employed by a predecessor  to Touche since 1978 in
a variety of positions.  Mr. Ramirez has an A.A. degree in Mechanical Drafting
from San Jose City College.

   Charles  E.  Shaw.  Mr.  Shaw  has been  Vice  President,  Chief  Financial
Officer,  and a Director of the Company  since  December 1995 and has held the
same  positions  with Touche since 1993.  Prior to that he was  President  and
Chief  Executive  Officer of Compro Business  Solutions,  Inc., a business and
management  consulting  firm  established  by Mr.  Shaw in 1992.  During  1988
through  1992,  he served as Vice  President  and Chief  Financial  Officer of
Douglas  Broadcasting,  Inc. a $51 million radio broadcast  network.  Mr. Shaw
has a B.S. in Business  Administration from the City University of New York, a
Masters of Business  Administration  from New York University and a LL.B. from
LaSalle Law School.

   Robert  Loera.  Mr.  Robert  Loera  has been  Controller,  Secretary  and a
Director of the Company since December 1995 and has been  Controller of Touche
since June,  1992.  Mr. Robert Loera is Rolando  Loera's  brother.  Mr. Robert
Loera has a B.S. in Business Administration from the University of Washington.

   Thomas F.  Chaffin.  Mr.  Chaffin  has been a Director  of the  Company and a
member of the Audit  Committee of the Board of Directors  since January 1997. He
has been a partner in the law firm of Rosenblum  Parish & Isaacs,  San Jose,  CA
since January 1995.  During the period  1988-1995,  Mr. Chaffin was a partner in
the law firm of Berliner,  Cohen, San Jose, CA. He holds a bachelor's  degree in
accounting  from the University of  California,  Santa Barbara and earned a J.D.
with honors from the University of San Francisco  School of Law. He also holds a
L.L.M. in Taxation from the New York University School of Law and is a certified
specialist  in  Taxation  Law by the  State  Bar of  California  Board  of Legal
Specialization.

   Robert C. Fink.  Mr. Fink has been a Director of the Company since November
1997. From 1993 until his retirement in December, 1997, Mr. Fink has been Senior
Vice President of Corporate  Support and Chief  Operating  Officer of Lam 
Research  Corporation,  a manufacturer of semiconductor  processing equipment.  
From 1988 to 1993 he served as President of Drytek, Inc., a former subsidiary of
General Signal Corporation.  From 1984 to  1988,  he was a  Director  of  VLSI  
Operation  (North  America)  for  ITT Corporation's  Semiconductor  Division.  
Prior to 1984, Mr. Fink served for 12 years  as  Director  of  World  Wide   
Manufacturing   Resources  for  General Instrument  Corporation's  
Microelectronics  Division.  Mr.  Fink  has  been a Director of Uniphase  
Corporation  since April 1995,  a Director of Consilium, Inc. since January 1996
and a Director of CVC, Inc. since 1997.

      Boris  Lipkin.  Mr.  Lipkin has been a  Director  of the  Company  since
November  1997.  Mr.  Lipkin  has been  President  of the Track  Division  and
Corporate Vice  President of Silicon Valley Group,  Inc., a San Jose, CA based
medical  test  equipment  company,  since 1995.  From 1992 to 1995 he was Vice
President and General Manager of Varian Associates,  a semiconductor equipment
company.  From 1978 to 1992 he served in various  management  and  engineering
positions at IBM's Fishkill,  New York facility.  Mr. Lipkin received a Master
of  Science  Degree in electro  mechanical  engineering  at the  Polytechnical
Institute in Kharkov, Russia.

     Dominic A. Polimeni.  Mr. Polimeni has been a Director of the Company since
March,  1996.  Since  September,  1997,  Mr.  Polimeni has been a Director of Nu
Horizons,  Inc., a publicly held company based in Melville, New York, which is a
distributor  of electronic  components.  Mr.  Polimeni has been the Chairman and
Chief Executive  Officer of Quest  Electronic  Hardware,  Inc., a distributor of
fasteners and  electronic  hardware sold to electronic  equipment  manufacturers
since  February  1996.  Mr.  Polimeni  has also  been the  President  and  Chief
Operating Officer of Questron Technology,  Inc., a publicly traded company which
owns Quest,  since March 31, 1995 and  Chairman and Chief  Executive  Officer of
Questron  since  February,  1996.  He has  also  been  a  Managing  Director  of
Gulfstream  Financial Group, Inc., a financial consulting and investment banking
firm,  since  1990.  He held the  position of Chief  Financial  Officer of Arrow
Electronics,  Inc., an international  electronics distribution company traded on
the New York Stock  Exchange,  for four  years  from 1986 to 1990.  He also held
several other positions, including general management positions, with Arrow over
an  eight-year  period  from  1981 to 1990.  He has held the  position  of Chief
Operating  Officer of Fugazy  Express,  Inc.,  a New York  based  transportation
company,  in its  start-up  phase,  and was a Partner in the New York  office of
Arthur Young & Company. He holds a BBA degree from Hofstra University.



<PAGE>


      Item 10.    Executive Compensation

   Below the following table sets forth  remuneration paid by the Company during
fiscal years 1995,  1996 and 1997, to the named  officers and directors of TMCI.
For the periods shown,  no other  executive  officer  received  remuneration  in
excess of $100,000 per annum.
<TABLE>

                           Summary Compensation Table

            Annual
Name of Individual or                                     Compensation      Securities Underlying
Number of Persons in 
Group                   Position with Company              Year   Salary   Options/SARs(#)

<S>                                                        <C>    <C>      <C>    
Rolando Loera           Chairman,                          1997   225,000  200,000
                        President and CEO                  1996   225,000  100,000
                                                           1995   150,000
</TABLE>
<TABLE>

                        Option SAR in Last Fiscal Year
                              Individual Grants

                                                                                                 Potential Realizable
                                                                                                 Value at Assumed Annual
                                                                                                 Rates of Stock Price
                                                                                                 Appreciation for Option
                                                                                                 Term
      (a)                  (b)                    (c)                (d)             (e)         (f)          (g)
     Name       Number of Securities      % of Total           Exercise Price   Expiration       5%           10%
                Underlying/Options        Options/SARs         or Base Price    Date
                SARS Granted (1)          Granted to           per Share
                                          Employees            
                                          in Fiscal Year
                                          ($/sh)
<S>             <C>                       <C>                  <C>              <C>           <C>         <C>         
Rolando Loera   200,000                   60%                  $5.3625          7/08/07       $674,489.48 $1,709,288.78

</TABLE>


<PAGE>

<TABLE>

Aggregated Options/SAR Exercised in Last Fiscal Year and FY-End Option/SAR Values
                                                    Number of Securities               Value of Unexercised
                                                   Underlying Unexercised                  In-the-Money
                        Shares                        Options/SARs at                    Options/SARs at
                      Acquired on     Value              FY-End(#)                            FY-End($)

Name                  Exercise(#)   Realized($)   Exercisable/Unexercisable        Exercisable/Unexercisable

<S>                         <C>      <C>              <C>     <C>                      <C>     <C> 
Rolando Loera              -0-      -0-               100,000/200,000                  $25,000/0(1)

(1) The closing  price for the common  stock of the Company on December 31, 1997
was $4.00 per share.
</TABLE>

Employment Agreement

   The Company has entered into an employment  agreement  ("Agreement") dated as
of December 28, 1995 with Rolando  Loera.  The term of  employment  commenced on
March 11,  1996 and will  expire on the fifth  anniversary  thereof.  The annual
salary  under  the  Agreement  is  $225,000.  The  term  of  employment  will be
automatically extended for an additional five year term in the absence of notice
from either party. This salary may be increased to reflect annual cost of living
increases and may be supplemented by discretionary and performance  increases as
may be determined  by the Board of Directors  except that during the first three
years  following the Effective  Date,  his salary may not exceed  $225,000.  Mr.
Loera is also eligible to receive an annual bonus of up to $100,000,  payable in
four  quarterly  installments.  The  Agreement  provides that during the initial
three  years of the term of  employment,  an annual  bonus of  $100,000  will be
awarded to Mr.  Loera and that such bonus  awards  will be used by Mr.  Loera to
repay the $303,325 loan TEI to Touche  Properties,  Inc.  referred to in Item 12
below.  Mr. Loera relinquished his bonuses in 1996 and 1997.  Bonuses during the
remainder of the term of  employment  will be at the discretion  of  the  Board 
of  Directors.   No  objective  criteria  have  been established for determining
the amount of any bonuses for subsequent years.

   The Agreement provides, among other things, for participation in an equitable
manner in any  profit-sharing or retirement plan for employees or executives and
for  participation  in other  employee  benefits  applicable  to  employees  and
executives  of the Company.  The  Agreement  further  provides for the use of an
automobile  and  other  fringe  benefits   commensurate   with  his  duties  and
responsibilities.  The  Agreement  also  provides  for  benefits in the event of
disability.  Under the  Agreement,  the Company is also obligated to procure and
pay the  premiums  for a $1 million  term life  policy  and, in the event of Mr.
Loera's death, to use the death benefit under such policy to purchase from Mr.
Loera's estate shares of the Company's Common Stock at its fair market value.

      Pursuant to the  Agreement,  employment  may be  terminated by the Company
with cause or by the executive  with or without good reason.  Termination by the
Company  without cause,  or by the executive for good reason,  would subject the
Company to liability for liquidated damages in an amount equal to the terminated
executive's current salary ($225,000) and a pro rata portion of his prior year's
bonus  (up to  $100,000)  annually,  for the  remaining  term of the  Agreement,
payable in equal  monthly  installments,  without any  set-off for  compensation
received from any new employment. In addition, the terminated executive would be
entitled to continue to  participate  in and accrue  benefits under all employee
benefit  plans  and to  receive  supplemental  retirement  benefits  to  replace
benefits under any qualified plan for the remaining term of the Agreement to the
extent permitted by law.

Stock Plans

      The Company  adopted its 1995 Stock  Option Plan,  effective  December 22,
1995 (the  "1995  Plan").  Under such  plan,  key  employees  and  officers  and
consultants  of the  Company may be granted  options to  purchase  shares of the
Company's Common Stock at their fair market value on the date of grant. The plan
provides for an aggregate of 500,000 options. Options to purchase 100,000 shares
at $3.75 per share were granted to Rolando Loera effective December 22, 1995 and
options to purchase  200,000  shares at 5.3625 were granted to Rolando  Loera on
July 7,  1997.  The 1995  grant  vested on  December  21,  1997 and will  expire
December  2005.  The 1997 grant vests  monthly over a three year period and will
expire on July 9, 1997, 2007.

   The  Board of  Directors  adopted  the  Company's  1997  Stock  Option  Plan,
effective  December 1, 1997 (the "1997 Plan"),  approved by the  stockholders on
December 22, 1997.  Under such plan, key employees and officers and  consultants
of the Company may be granted options to purchase shares of the Company's Common
Stock at their fair market value on the date of grant.  The plan provides for an
aggregate of 1,000,000 options.

    Any  future  awards  will be  determined  by the  Board  of  Directors  or a
Committee established by the Board.

    The Board of Directors  adopted the Company's  1997 Employee  Stock Purchase
Plan  effective  December 1, 1997 approved by the  stockholders  on December 22,
1997. Under such plan,  employees of the Company,  including  executive officers
may defer up to 20% of their  annual  compensation  for the  purchase  of common
stock of the  Company at a price of 85% of the fair  market  value of the common
stock on the date of  issuance.  The plan  provides  for the  issuance  of up to
250,000 shares.

Compliance with Section 16(a) of the Exchange Act

   Based solely on a review of the Forms 3 and 4 and  amendments  thereto  filed
during the recently  completed  fiscal year and forms 5 and  amendments  thereto
with  respect  to  the  most  recently  completed  fiscal  year,  the  following
individuals  failed to file reports  required  pursuant to Section  16(a) of the
Securities Exchange Act of 1934, as amended, on a timely basis.

   Rolando Loera, Charles Shaw, Livino Ribaya, Frank Ramirez,  Robert Loera, Tom
Chaffin, and Dominic Polimeni each failed to file one report on a timely basis
representing one transaction.

   Robert  Fink and  Boris  Lipkin  each  failed  to  report  on a timely  basis
representing their election to the Board of Directors and no transactions.


<PAGE>



Item 11. Security Ownership of Certain Beneficial Owners and Management

   The following  table sets forth certain  information  regarding the Company's
Common Stock owned on the date of March 16, 1998 by (i) each person who is known
by the Company to own beneficially  more than five percent (5%) of the Company's
common  stock;  (ii)  each of the  Company's  executive  officers  named  in the
compensation  table and  directors;  and (iii) all officers  and  directors as a
group:
<TABLE>

Name and              Position                                Number              Percentage
Address(1)            With Company                            Of Shares           of Shares(2)
--------------------  ------------------------------------------------------------------------
<S>                                                           <C>                 <C>     
Rolando Loera         Chairman,  President  and  Chief        805,889(3)          19%     
                      Executive Officer; Director        
Patrick McQuade       President,  Trinity Electronics,        404,539             10
                      Inc.                                             
Thomas Chaffin        Director                                 10,000(4)          *
Robert Loera          Director; Controller                     10,000(4)          *
Charles Shaw          Director, Chief Financial Officer        10,000(4)          *
Dominic A. Polimeni   Director                                 10,000(4)          *
Robert Fink           Director                                      0
Boris Lipkin          Director                                      0

Rolando Loera         Trustee   for  Touche   Employee                      
                      Stock Ownership Plan                     27,280(5)          *

All   Officers   and                                        1,084,429             26%
Directors    as    a
Group (9 persons)                                       
</TABLE>

*  Less than 1%
(1) Unless otherwise noted, c/o TMCI Electronics,  Inc., 1875 Dobbins Drive, San
    Jose,  CA 95133.  
(2) Does not include the exercise of up to  1,492,000  Class A
    Warrants  outstanding  as of March 11, 1996.  
(3) Includes  options to purchase 138,889 shares of Common Stock subject to 
    outstanding options which have vested.
(4) All shares are subject to options which have vested.
(5) Mr. Loera shares voting power with respect to these shares
(6) Includes 224,040 shares and options to purchase 14,500 shares owned by 
    certain  additional  executive officers of the Company.

Item 12. Certain Relationships and Related Transactions

   TEI leases  approximately  78,000  square feet of space  located at 1881-1899
Dobbins Drive, San Jose,  California from Touche  Properties,  Inc.  ("TPI"),  a
company wholly owned by Rolando Loera,  Chairman,  President and Chief Executive
Officer of the Company, pursuant to a lease agreement dated November 1, 1993. In
addition, TEI leases space to Touche is one subtenant.  Rent expense amounted to
approximately $576,144 in 1997.

     In connection with its acquisition of 1881-1899 Dobbins Drive, TPI borrowed
$1,000,000 from the Small Business Administration which was guaranteed by Touche
and TEI. The loan was repaid in full in March, 1998.

    TPI also borrowed  $303,325 from Touche in December,  1993.  This loan bears
interest  at 10% per annum,  and  principal  and  interest  are payable in equal
monthly  installments  until  satisfied.  The  principal  balance  on  the  loan
increased  as a result of  certain  expenses  of TPI  advanced  by  Touche. In 
1997, TPI paid $67,743 toward the retirement of this loan. The outstanding 
balance of the loan as of December 31, 1997 was $469,878.

   In  addition,  in  1993  Touche  made  loans  to  Rolando  Loera  aggregating
$87,190.39.  This loan bears interest at 10% per annum and is payable in monthly
installments of $1,000.  Certain  additions were made to the principal amount of
the loan in fiscal 1995 to account for payments of certain personal  expenses of
Rolando Loera by Touche.  Accordingly,  the outstanding principal balance on the
loan was $111,984 at December 31, 1997.  In 1997, Mr. Loera paid $150,000 toward
the retirement of these loans.

   During  1996,  the  Company  advanced  $95,986  to Frank  Ramirez  III at 10%
interest  amortizing over a 10 year period. As of December 31, 1997, Mr. Ramirez
owed  the  Company  $106,037.   

   During  1997,  the  Company  sold  approximately $5,821,576  in products  and
services to Lam Research  Corporation.  Mr.  Robert Fink, a director of the 
Company,  retired as Senior Vice President of Corporate  Support and Chief 
Operating Officer of Lam Research Corporation in December 1997.

During 1997,  the Company sold  approximately  $2,038,749  worth of products and
services  to Silicon  Valley  Group Inc.  Mr.  Boris  Lipkin,  a director of the
Company is  president  of the Track  Divison and  Corporate  Vice  President  of
Silicon Valley Group Inc.  The Company sold products to Silicon Valley 
Group, Inc. for many years prior to Mr. Lipkin joining the board.


Item  13.   Exhibits and Reports on Form 8-K.

            (a)   Financial Statements

Report of Independent Auditors                                        F-1

Consolidated Balance Sheets as of December 31, 1997 and 1996          F-2 - F-3

Statements of Operations for the
  Years Ended December 31, 1997, 1996, and 1995                       F-4

Combined Statements of Stockholder's Equity for the                   F-5
Years Ended  December 31, 1997, 1996, and 1995

Combined Statements of Cash Flows for the
  Years Ended December 31, 1997, 1996 and 1995                        F-6 and
                                                                      F-7

Notes to Combined Financial Statements                                F-8 - F-24

            (b)   Exhibits

The following is a list of Exhibits filed herewith or  incorporated by reference
herein as noted below.

3.0   Certificate  of  Incorporation,  filed with Delaware Secretary of State on
       December 7, 1995.(a) 
3.1   By-laws.(c) 
3.2   Certificate of Secretary for amendment to By-laws dated April 6, 1996.(j)
3.3   Certificate of Secretary for mmendment to By-laws dated 
       December 22, 1997.(j)
4.0   Specimen Copy of Common Stock Certificate.(a)
4.1   Form of Class A Warrant Certificate.(a)
4.2   [Intentionally omitted.]
4.3   Form of Underwriters'  Purchase  Option,  as amended.(b) 
4.4   Form of Warrant Agreement,  as amended.(b)  
10.0  Employment  Agreement,  Rolando  Loera,  dated December 28, 1995.(a)  
10.1  Lease Agreement  dated January 1, 1993 relating to 1875 Dobbins Drive, San
       Jose,  CA.(a) 
10.2  Lease Agreement dated October 25, 1993 relating to 1881-1899 Dobbins Drive
       San Jose CA.(a) 
10.3  Lease  Agreement  dated June 21, 1995 relating to 1565-C Mabury Road,San 
       Jose,  CA.(a) 
10.4  Touche  Manufacturing Company,  Inc.  Employee  Stock  Ownership  Plan.(a)
10.5  Form of 5% 275,000 in principal amount Secured  Convertible  Promissory  
       Debenture 
10.6  Asset Purchase Agreement  dated November 1, 1996 by and among Pen  
       Interconnect, Inc., Touche Electronics,Inc. and TMCI Electronics, Inc.(d)
10.7  Stock Purchase  Agreement dated  effective as of January 1, 1997 by and 
       among TMCI  Electronics,  Inc. and the  Shareholders of Enterprise  
       Industries, Inc.(e) 
10.8  Merger Agreement and Plan of Reorganization by and among TMCI Electronics,
       Inc., TMCI/Trinity Acquisition Corp., Trinity Electronics, Inc. and 
       Patrick McQuade, dated December 22, 1997.(f)
10.9  Loan and Security Agreement with Fleet Capital Corporation
10.10 Lease Agreement dated  relating to 7500 Tyrone Avenue, Van Nuys 
       California (j)
10.11 1995 Stock Option Plan.(a)
10.12 1997 Employee Stock Option Plan(h)
10.13 1997 Employee Stock Purchase Plan (i)
21.0  Subsidiaries of the Registrant.
23.1  Consent of Moore Stephens, P.C.(d)
   
a.  Incorporated by reference to the Registration Statement on Form SB-2 
    (No. 33-80973) as originally filed with the  Securities and Exchange 
    Commission (the "SEC") on December 29, 1995 (the "Registration Statement").
b.  Incorporated by reference to Amendment No. 1 to the Registration Statement, 
    as filed with the SEC on February 14, 1996.
c.  Incorporated by reference to Amendment No. 2 to the Registration Statement, 
    as filed with the SEC on March 4, 1996.
d.  Incorporated  by  reference  to Exhibit 1.0 to the  Registrant's  Form 8-K
    filed with the Securities and Exchange Commission on November 27, 1996.
e.  Incorporated  by reference to Exhibit 2.0 the Registrant's  Form 8-K filed
    with the Securities and Exchange Commission on February 7, 1997.
f.  Incorporated  by  reference  to Exhibit 2.0 to the  Registrant's  Form 8-K
    filed with the Securities and Exchange Commission on January 6, 1998.
h.  Incorporated by reference to Appendix C to the Definitive Proxy Statement
    as filed with the SEC on December 3, 1997.
i.  Incorporated by reference to Appendix D to the Definitive Proxy Statement
    as filed with the SEC on December 3, 1997
j.  Available form the Company upon request
<PAGE>



                                SIGNATURE PAGE

   In accordance with Section 13(a) or 15(d) of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned,  thereunto
duly authorized.


TMCI Electronics, Inc.



By (Signature and Title)  /s/Rolando Loera
                         ------------------------------
                         ROLANDO LOERA
                         Chairman,
                         President and
                         Chief Executive Officer

Date: March 31, 1998


<PAGE>


   In accordance with the Exchange Act, 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                                                Date

By: /s/ Rolando Loera                               March 31, 1998
    ------------------------------------
     ROLANDO LOERA, Chairman, President
     and Chief Executive Officer


By: /s/Charles E. Shaw                              March 31, 1998
    -------------------------------------
     CHARLES E. SHAW, Vice President
     Chief Financial Officer, Director


By: /s/Robert Loera                                 March 31, 1998
    ------------------------------------- 
     ROBERT LOERA, Controller, Secretary
     and Director

By: /s/ Thomas F. Chaffin                           March 30, 1998
    -------------------------------------
    THOMAS CHAFFIN, Director


By: 
    -------------------------------------
     ROBERT C. FINK Director


By: 
    -------------------------------------
     BORIS LIPKIN, Director


By: 
    -------------------------------------
     DOMINIC POLIMENI, Director



<PAGE>


                              Exhibit Index

The following is a list of Exhibits filed herewith or  incorporated by reference
herein as noted below.

3.0   Certificate  of  Incorporation,  filed with Delaware Secretary of State on
       December 7, 1995.(a) 
3.1   By-laws.(c) 
3.2   Certificate of Secretary for amendment to Bylaws dated April 6, 1996.(j)
3.3   Ammendment to the bylaws dated December 22, 1997.(j)
4.0   Specimen Copy of Common Stock Certificate.(a)
4.1   Form of Class A Warrant Certificate.(a)
4.2   [Intentionally omitted.]
4.3   Form of Underwriters'  Purchase  Option,  as amended.(b) 
4.4   Form of Warrant Agreement,  as amended.(b)  
10.0  Employment  Agreement,  Rolando  Loera,  dated December 28, 1995.(a)  
10.1  Lease Agreement  dated January 1, 1993 relating to 1875 Dobbins Drive, San
       Jose,  CA.(a) 
10.2  Lease Agreement dated October 25, 1993 relating to 1881-1899 Dobbins Drive
       San Jose CA.(a) 
10.3  Lease  Agreement  dated June 21, 1995 relating to 1565-C Mabury Road,San 
       Jose,  CA.(a) 
10.4  Touche  Manufacturing Company,  Inc.  Employee  Stock  Ownership  Plan.(a)
10.5  Form of 5% 275,000 in principal amount Secured  Convertible  Promissory  
       Debenture 
10.6  Asset Purchase Agreement  dated November 1, 1996 by and among Pen  
       Interconnect, Inc., Touche Electronics,Inc. and TMCI Electronics, Inc.(d)
10.7  Stock Purchase  Agreement dated  effective as of January 1, 1997 by and 
       among TMCI  Electronics,  Inc. and the  Shareholders of Enterprise  
       Industries, Inc.(e) 
10.8  Merger Agreement and Plan of Reorganization by and among TMCI Electronics,
       Inc., TMCI/Trinity Acquisition Corp., Trinity Electronics, Inc. and 
       Patrick McQuade, dated December 22, 1997.(f)
10.9  Loan and Security Agreement with Fleet Capital Corporation
10.10 Lease Agreement dated  relating to 7500 Tyrone Avenue, Van Nuys 
       California (j)
10.11 1995 Stock Option Plan.(a)
10.12 1997 Employee Stock Option Plan(h)
10.13 1997 Employee Stock Purchase Plan (i)
21.0  Subsidiaries of the Registrant.
23.1  Consent of Moore Stephens, P.C.(d)
   
a.  Incorporated by reference to the Registration Statement on Form SB-2 
    (No. 33-80973) as originally filed with the  Securities and Exchange 
    Commission (the "SEC") on December 29, 1995 (the "Registration Statement").
b.  Incorporated by reference to Amendment No. 1 to the Registration Statement, 
    as filed with the SEC on February 14, 1996.
c.  Incorporated by reference to Amendment No. 2 to the Registration Statement, 
    as filed with the SEC on March 4, 1996.
d.  Incorporated  by  reference  to Exhibit 1.0 to the  Registrant's  Form 8-K
    filed with the Securities and Exchange Commission on November 27, 1996.
e.  Incorporated  by reference to Exhibit 2.0 the Registrant's  Form 8-K filed
    with the Securities and Exchange Commission on February 7, 1997.
f.  Incorporated  by  reference  to Exhibit 2.0 to the  Registrant's  Form 8-K
    filed with the Securities and Exchange Commission on January 6, 1998.
h.  Incorporated by reference to Appendix C to the Definitive Proxy Statement
    as filed with the SEC on December 3, 1997.
i.  Incorporated by reference to Appendix D to the Definitive Proxy Statement
    as filed with the SEC on December 3, 1997
j.  Available form the Company upon request



<PAGE>

TMCI ELECTRONICS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
------------------------------------------------------------------------------



Report of Independent Auditors..................................    F-1

Consolidated Balance Sheets as of December 31, 1997 and 1996....    F-2 - F-3

Statements of Operations for the Years Ended December 31, 1997,
1996 and 1995...................................................    F-4

Statements of Stockholders' Equity for the Years Ended December 31,
1997, 1996 and 1995.............................................    F-5

Statements of Cash Flows for the Years Ended December 31, 1997,
1996 and 1995 ..................................................    F-6 - F-7

Notes to Financial Statements...................................    F-8 - F-25



                    .   .   .   .   .   .   .   .   .   .   .


<PAGE>



                         REPORT OF INDEPENDENT AUDITORS


To the Board of Directors and Stockholders of
  TMCI Electronics, Inc.
  San Jose, California


            We have audited the accompanying consolidated balance sheets of TMCI
Electronics, Inc. and its subsidiaries as of December 31, 1997 and 1996, and the
related consolidated  statements of operations,  stockholders'  equity, and cash
flows for each of the two years in the period ended  December 31, 1997.  We have
also audited the combined  statements of operations,  stockholders'  equity, and
cash flows for the year ended December 31, 1995. These financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

            In our opinion,  the financial  statements referred to above present
fairly, in all material  respects,  the financial  position of TMCI Electronics,
Inc. and its  subsidiaries  as of December 31, 1997 and 1996, and the results of
their  operations and their cash flows for each of the three years in the period
ended  December 31, 1997,  in  conformity  with  generally  accepted  accounting
principles.








                                          MOORE STEPHENS, P. C.
                                          Certified Public Accountants.

New York, New York
February 20, 1998



                                       F-1

<PAGE>



TMCI  ELECTRONICS, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


CONSOLIDATED BALANCE SHEETS
------------------------------------------------------------------------------
<TABLE>


                                                                  December 31,
                                                              1 9 9 7      1 9 9 6
Assets:
Current Assets:
<S>                                                        <C>          <C>        
  Cash                                                     $  312,682   $   145,845
  Accounts Receivable - Net                                 3,950,341     2,526,816
  Inventory                                                 9,721,050     5,170,661
  Prepaid Expenses and Other Current Assets                   182,968       272,587
  Deferred Income Taxes                                       183,376       187,991
  Other Receivables                                                --        63,669
  Notes Receivable - Stockholders                              39,312        10,706
                                                           ----------   -----------

  Total Current Assets                                     14,389,729     8,378,275
                                                           ----------   -----------

Property and Equipment - Net                                6,583,260     3,638,300
                                                           ----------   -----------

Other Assets:
  Notes Receivable - Stockholders                             144,292       155,520
  Due from Stockholder                                        111,984       238,167
  Due from Related Party                                      469,878       473,952
  Other Assets                                                277,439        48,152
  Goodwill                                                  6,766,564     2,549,261
                                                           ----------   -----------

  Total Other Assets                                        7,770,157     3,465,052
                                                           ----------   -----------

  Total Assets                                             $28,743,146  $15,481,627
                                                           ===========  ===========


</TABLE>

See Notes to Financial Statements.


                                        F-2

<PAGE>



TMCI  ELECTRONICS, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


CONSOLIDATED BALANCE SHEETS
------------------------------------------------------------------------------

<TABLE>

                                                                  December 31,
                                                              1 9 9 7      1 9 9 6
Liabilities and Stockholders' Equity:
Current Liabilities:
<S>                                                        <C>          <C>        
  Accounts Payable and Accrued Expenses                    $4,050,925   $ 2,929,242
  Due to Affiliate                                                 --        30,634
  Line of Credit                                            3,856,268       585,000
  Notes Payable                                             2,055,256       796,867
  Promissory Notes to a Stockholder                         1,313,493            --
                                                           ----------   -----------

  Total Current Liabilities                                11,275,942     4,341,743
                                                           ----------   -----------

Long-Term Liabilities:
  Notes Payable - Net of Current Portion                    3,607,877     2,064,273
  Deferred Income Taxes                                       560,180       436,781
                                                           ----------   -----------

  Total Long-Term Liabilities                               4,168,057     2,501,054
                                                           ----------   -----------

  Total Liabilities                                        15,443,999     6,842,797
                                                           ----------   -----------

Commitments and Contingencies                                      --            --
                                                           ----------   -----------

Stockholders' Equity:
  Common Stock,  $.001 Par Value,  25,000,000 Shares  
   Authorized,  4,057,758 and 3,499,772 Issued and 
   Outstanding as of December 31, 1997 and 1996, 
   Respectively                                                 4,057         3,500

  Additional Paid-in Capital                               10,890,233     7,366,659

  Retained Earnings                                         2,404,857     1,268,671
                                                           ----------   -----------

  Total Stockholders' Equity                               13,299,147     8,638,830
                                                           ----------   -----------

  Total Liabilities and Stockholders' Equity               $28,743,146  $15,481,627
                                                           ===========  ===========

</TABLE>


See Notes to Financial Statements.



                                        F-3

<PAGE>



TMCI  ELECTRONICS, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


STATEMENTS OF OPERATIONS
------------------------------------------------------------------------------
<TABLE>


                                                             Years ended
                                                            December 31,
                                                   1 9 9 7     1 9 9 6     1 9 9 5
                                                   -------     -------     -------
                                                      [Consolidated]     [Combined]

<S>                                             <C>         <C>         <C>        
Sales - Net                                     $38,946,666 $26,139,828 $28,098,919

Cost of Goods Sold                               28,756,048  20,237,746  21,697,135
                                                ----------- ----------- -----------

  Gross Profit                                   10,190,618   5,902,082   6,401,784

Operating Expenses                                8,138,114   5,377,132   4,679,460
                                                ----------- ----------- -----------

  Income from Operations                          2,052,504     524,950   1,722,324
                                                ----------- ----------- -----------

Other Income [Expense]:
  Other Income                                      291,825     189,704      40,394
  Interest Income                                        --      69,742       9,726
  Interest Income - Related Party                    74,756      29,276      29,276
  Interest Expense                                 (598,376)   (323,679)   (615,881)
  Non-Cash Finance Charge                                --    (462,122)   (287,878)
  Gain on Sale of Equipment                           1,241     139,465     109,655
                                                ----------- ----------- -----------

  Total Other [Expense]                            (230,554)   (357,614)   (714,708)
                                                ----------- ----------- -----------

  Income Before Provision for Income Taxes        1,821,950     167,336   1,007,616

Provision for Income Taxes                          685,764      18,999     534,200
                                                ----------- ----------- -----------

  Net Income                                    $ 1,136,186 $   148,337 $   473,416
                                                =========== =========== ===========

Basic Earnings Per Share                        $       .31 $       .05 $       .25
                                                =========== =========== ===========

Weighted Average Number of Shares                 3,627,582   2,865,445   1,893,600
                                                ----------- ----------- -----------

Diluted Earnings Per Share:
  Incremental Shares from Assumed Conversion of
   Options and Warrants                             387,362     332,154          --
                                                ----------- ----------- -----------

Adjusted Weighted Average Shares                  4,014,944   3,197,599   1,893,600
                                                =========== =========== ===========

Diluted Earnings Per Share                      $       .28 $       .05 $       .25
                                                =========== =========== ===========


</TABLE>



See Notes to Financial Statements.



                                        F-4

<PAGE>



TMCI  ELECTRONICS, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


STATEMENTS OF STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------
<TABLE>


                                         Common Stock      Additional                   Total
                                      Number of              Paid-in     Retained   Stockholders'
                                        Shares    Amount     Capital     Earnings       Equity
                                      --------   --------   ----------   ---------   -----------
Balance - December 31, 1994
<S>                                    <C>       <C>        <C>          <C>         <C>       
  [Combined]                           600,000   $    600   $  279,829   $ 676,610   $  957,039

  Finance Charge Incurred on Bridge
   Notes Payable                            --         --      750,000          --      750,000

  Net Income for the Year Ended
   December 31, 1995                        --         --           --     473,416      473,416
                                      --------   --------   ----------   ---------   ----------

  Balance - December 31, 1995
   [Combined]                          600,000        600    1,029,829   1,150,026    2,180,455

  Issuance of Common Stock in
   Connection with Exchange of
   Shares under Common Control         594,880        595         (595)         --           --

  Issuance of Common Stock to
   Former Convertible Debt Holders     298,720        299      165,927          --      166,226

  Issuance of Common Stock to
   Bridge Lenders                      400,000        400         (400)         --           --

  Transfer of Subchapter S Retained
   Earnings of Acquired Company to
   Additional Paid-in Capital               --         --       29,692     (29,692)          --

  Net Proceeds from Initial Public
   Offering and Issuance of Common
   Stock                             1,472,000      1,472    5,742,340          --    5,743,812

  Issuance of Common Stock in
   Connection with Acquisition         134,172        134      399,866          --      400,000

  Net Income for the Year Ended
   December 31, 1996                        --         --           --     148,337      148,337
                                      --------   --------   ----------   ---------   ----------

  Balance - December 31, 1996
   [Consolidated]                    3,499,772      3,500    7,366,659   1,268,671    8,638,830

  Issuance of Common Stock in
   Connection with Acquisitions        501,099        501    2,499,499          --    2,500,000

  Issuance of Common Stock in
   Connection with Settlement          137,390        137    1,023,994          --    1,024,131

  Cancellation of Common Stock in
   Connection with Settlement          (80,503)       (81)          81          --           --

  Net Income for the Year Ended
   December 31, 1997                        --         --           --   1,136,186    1,136,186
                                      --------   --------   ----------   ---------   ----------

  Balance - December 31, 1997
   [Consolidated]                    4,057,758   $  4,057  $10,890,233  $2,404,857   $13,299,147
                                     =========   ========  ===========  ==========   ===========
</TABLE>

See Notes to Financial Statements.

                                        F-5

<PAGE>



TMCI  ELECTRONICS, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------
<TABLE>


                                                                            Years ended
                                                                            December 31,
                                                                 1 9 9 7      1 9 9 6     1 9 9 5
                                                                 -------      -------     -------
                                                                    [Consolidated]     [Combined]
Operating Activities:                                               --------------     ----------
<S>                                                            <C>         <C>         <C>        
  Net Income                                                   $ 1,136,186 $   148,337 $   473,416
                                                               ----------- ----------- -----------
  Adjustments to Reconcile Net Income to
   Net Cash [Used for] Provided by Operations:
   Depreciation and Amortization                                 1,453,057     839,724     702,056
   Deferred Income Taxes                                           128,014     (15,465)    201,272
   [Gain] on Sale of Equipment                                      (1,241)   (139,465)         --
   Amortization of Deferred Loan Fees                                   --      28,500     114,000
   Non-Cash Finance Charge                                              --     462,122     287,878
   Provision for Bad Debts                                          67,077      85,000          --

  Changes in Assets and Liabilities:
   [Increase] Decrease in:
     Accounts Receivable                                          (885,329)  1,991,543  (1,855,640)
     Inventory                                                  (3,881,696) (1,275,095)   (800,439)
     Prepaid Expenses                                              (48,812)   (130,027)   (104,192)
     Other Receivables                                                  --     (63,669)         --
     Interest Income on Notes Receivable - Stockholder             (41,195)     (6,134)         --

   Increase [Decrease] in:
     Accounts Payable and Accrued Expenses                         466,548  (2,397,500)  2,087,105
     Income Taxes Payable                                          478,150    (258,168)    179,145
                                                               ----------- ----------- -----------

   Total Adjustments                                            (2,265,427)   (878,634)    811,185
                                                               ----------- ----------- -----------

  Net Cash - Operating Activities - Forward                     (1,129,241)   (730,297)  1,284,601
                                                               ----------- ----------- -----------

Investing Activities:
  Repayments from and [Advances] to Stockholder                    150,000     (29,276)         --
  Purchase of Other Assets                                        (277,034)    (18,722)         --
  Advances Note Receivable - Stockholders                               --    (128,794)   (170,370)
  Incorporation Fees                                                    --          --         354
  Purchase of Equipment                                           (664,740) (1,114,964)   (343,956)
  Proceeds from Sale of Equipment                                    4,000     197,650          --
  Purchase of Businesses - Net of Cash Acquired                 (2,222,288) (2,074,292)         --
  Advance Under Note Receivable                                         --      98,989       8,698
  Repayments from Related Party                                     67,743       4,914          --
                                                               ----------- ----------- -----------

  Net Cash - Investing Activities - Forward                    $(2,942,319)$(3,064,495)$  (505,274)



</TABLE>

See Notes to Financial Statements.

                                        F-6

<PAGE>



TMCI  ELECTRONICS, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------
<TABLE>

                                                             Years ended
                                                            December 31,
                                                   1 9 9 7     1 9 9 6     1 9 9 5
                                                   -------     -------     -------
                                                      [Consolidated]     [Combined]

<S>                                             <C>         <C>         <C>        
  Net Cash - Operating Activities - Forwarded   $(1,129,241)$  (730,297)$ 1,284,601
                                                ----------- ----------- -----------

  Net Cash - Investing Activities - Forwarded    (2,942,319) (3,064,495)   (505,274)
                                                ----------- ----------- -----------

Financing Activities:
  Proceeds from Public Offering                          --   6,036,798          --
  Advances Under Line of Credit                   4,672,732   2,684,742      51,513
  Repayments of Line of Credit                   (1,454,597) (3,744,318)         --
  Proceeds of Notes Payable                       4,359,518   2,018,190     137,085
  Repayment of Bridge Loans                              --  (1,000,000)         --
  Repayment of Note Payable                      (3,339,256) (2,021,705)   (625,827)
  Repayment of Capital Lease Obligations                 --    (734,742)   (251,886)
  Payments of Deferred Offering Costs                    --          --    (292,986)
  Proceeds from Bridge Loans                             --          --   1,000,000
  Advance from Affiliates                                --          --    (100,182)
  Other                                                  --          --     (11,288)
                                                ----------- ----------- -----------

  Net Cash - Financing Activities                 4,238,397   3,238,965     (93,571)
                                                ----------- ----------- -----------

  Net [Decrease] Increase in Cash                   166,837    (555,827)    685,756

Cash - Beginning of Years                           145,845     701,672      15,916
                                                ----------- ----------- -----------

  Cash - End of Years                           $   312,682 $   145,845 $   701,672
                                                =========== =========== ===========

Supplemental Disclosure of Cash Flow Information:
  Cash paid during the years for:
   Interest                                     $   563,658 $   316,567 $   578,492
   Income Taxes                                 $   159,920 $   468,419 $   156,707

Supplemental Schedule of Non-Cash Investing and 
Financing Activities:
  The  following  table sets  forth  property  
  and  equipment  costs  which were completely 
  financed through equipment contracts:

                                                $ 2,496,925 $   643,451 $   124,035
</TABLE>

  See Note 4 with respect to the purchase of businesses.

  See Note 14 for information on related party transactions.

  In November 1995, the Company  incurred a non-cash  finance charge of $750,000
in connection with bridge financing,  of which $462,122 and $287,878 was charged
to operations at December 31, 1996 and 1995, respectively [See Note 13].

  See Note 2 for information about the exchange of shares.

See Notes to Financial Statements.

                                        F-7

<PAGE>



TMCI  ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
------------------------------------------------------------------------------




[1] Financial Statement Presentation, Organization and Nature of Operations

The financial statements presented include the results of operations of the 
parent company, TMCI Electronics, Inc. ["TMCI"], and its wholly-owned
subsidiaries, Touche Manufacturing, Inc. ["Touche"], Touche Electronics, Inc. 
["TEI"], Enterprise Industries, Inc.  ["Enterprise" or "EII"] and Trinity 
Electronics, Inc. ["Trinity"] [collectively, the "Company"].  The Company's 
revenues are predominately generated from the manufacture and sale of custom-
fabricated metal enclosures for manufacturers of computers, telecommunications 
equipment, semiconductor manufacturing test equipment and medical test 
equipment.  The Company also assembles and installs wire cable harnesses used in
custom-fabricated metal enclosures for manufacturers of computers, 
telecommunications test equipment and medical test equipment.  The Company sells
to original equipment manufacturers primarily located in the Silicon Valley, 
California area.

All  significant  intercompany  amounts  have been  eliminated  for all  periods
presented.

[2] Basis of Presentation

The combined  financial  statements  for the period ended December 31, 1995 give
retroactive  effect to the acquisition by TMCI of all of the outstanding  common
stock of TEI [an S  corporation]  and  Touche on March 5,  1996.  The  financial
statements of the Company are presented on a consolidated basis commencing as of
such date. The separate results of TEI and Touche have been combined on an as-if
pooling basis consistent with that of consolidated  financial  statements giving
retroactive  effect to the  issuance of 27,280  shares of the  Company's  common
stock to the  stockholders  of TEI, and 567,600  shares of the Company's  common
stock to the  stockholders  of Touche.  Additionally,  the S corporation  equity
section  of  TEI  has  been  reclassified  to  additional  paid-in  capital.  No
adjustment  of assets to "fair  value" had been  recorded  and all  intercompany
balances and transactions were eliminated.  The accompanying  combined financial
statements for 1995 became the historical  financial statements upon issuance of
financial statements subsequent to March 5, 1996.

[3] Summary of Significant Accounting Policies

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

Cash  Equivalents  - Cash  equivalents  are  comprised of certain  highly liquid
investments with a maturity of three months or less when purchased.  At December
31, 1997 and 1996, there were no cash equivalents.

Inventory - Inventory  is recorded at the lower of cost or market.  Cost,  which
includes  materials,  labor and  overhead,  is  determined  using the  first-in,
first-out method. The Company reviews inventory items and charges earnings if it
is determined  that such inventory has become  obsolete.  During the years ended
December 31, 1997, 1996 and 1995, the Company charged $78,000, $40,000 and $-0-,
respectively.

Property and  Equipment and  Depreciation  - Property and equipment is stated at
cost.  Depreciation  is computed  utilizing  the  straight-line  method over the
estimated useful lives of the assets which range from 5 to 7 years.



                                       F-8

<PAGE>



TMCI  ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #2
------------------------------------------------------------------------------



[3] Summary of Significant Accounting Policies [Continued]

Goodwill Amortization - Goodwill is amortized utilizing the straight-line method
over a period of 15 years. Total accumulated amortization as of December 31,1997
and 1996 was $275,198 and $27,593, respectively.

Deferred Loan Costs - Deferred loan costs have been  amortized  over the term of
the loan using the straight-line method which approximates the interest method.

Earnings  Per  Share - The  Financial  Accounting  Standards  Board  has  issued
Statement of Financial  Accounting  Standards  ["SFAS"] No. 128,  "Earnings  per
Share";  which is effective for financial  statements  issued for periods ending
after December 15, 1997.  Accordingly,  earnings per share data in the financial
statements  for the year  ended  December  31,  1997,  have been  calculated  in
accordance  with SFAS No. 128.  Prior periods  earnings per share data have been
recalculated as necessary to conform prior years data to SFAS No. 128.

SFAS No. 128 supersedes  Accounting  Principles  Board Opinion No. 15, "Earnings
per  Share,"  and  replaces  its  primary  earnings  per share  with a new basic
earnings per share  representing the amount of earnings for the period available
to each share of common stock outstanding during the reporting period.  SFAS No.
128 also requires a dual presentation of basic and diluted earnings per share on
the face of the statement of operations for all companies  with complex  capital
structures.  Diluted  earnings per share reflects the amount of earnings for the
period available to each share of common stock outstanding  during the reporting
period,  while giving effect to all dilutive  potential  common shares that were
outstanding during the period,  such as common shares that could result from the
potential exercise or conversion of securities into common stock.

The  computation  of diluted  earnings  per share  does not  assume  conversion,
exercise,  or contingent  issuance of securities that would have an antidilutive
effect on earnings  per share [i.e.,  increasing  earnings per share or reducing
loss per share].  The dilutive  effect of  outstanding  options and warrants and
their   equivalents  are  reflected  in  dilutive  earnings  per  share  by  the
application  of the treasury  stock method which  recognizes the use of proceeds
that could be  obtained  upon  exercise of options  and  warrants  in  computing
diluted  earnings  per share.  It  assumes  that any  proceeds  would be used to
purchase common stock at the average market price during the period. Options and
warrants will have a dilutive  effect only when the average  market price of the
common  stock  during the period  exceeds the  exercise  price of the options or
warrants.

The 1995  weighted  average  number of shares gives  retroactive  effect for the
shares issued in the business combination [See Note 2].

Securities  that could  potentially  dilute earnings per share in the future are
disclosed in Note 22.

Advertising  -  The  Company  expenses  advertising  costs  as  incurred.  Total
advertising  costs charged to expense  amounted to $15,613,  $18,316 and $11,874
for the years ended December 31, 1997, 1996 and 1995, respectively.

Stock Options - The Company accounts for employee stock-based compensation under
the intrinsic  value based method as prescribed by Accounting  Principles  Board
["APB"]  Opinion No. 25. The Company  applies the  provisions  of  Statement  of
Financial  Accounting  Standards  ["SFAS"] No. 123 to  non-employee  stock-based
compensation  and the pro  forma  disclosure  provisions  of that  statement  to
employee stock-based compensation.



                                       F-9

<PAGE>



TMCI  ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #3
------------------------------------------------------------------------------



[3] Summary of Significant Accounting Policies [Continued]

Impairment - Certain  long-term assets of the Company,  including goodwill, are
reviewed  when changes in  circumstances  warrant as to whether  their  carrying
value has become  impaired,  pursuant to guidance  established  in  Statement of
Financial  Accounting Standards ["SFAS"] No. 121, "Accounting for the Impairment
of Long-Lived  Assets and for Long-Lived  Assets to be Disposed of."  Management
considers  assets to be  impaired  if the  carrying  value  exceeds  the  future
projected cash flows from related operations  [undiscounted and without interest
charges].  If impairment is deemed to exist,  the assets will be written down to
fair value.

Risk Concentrations - Financial instruments that potentially subject the Company
to  concentrations of credit risk include cash and accounts  receivable  arising
from its  normal  business  activities.  The  Company  places its cash with high
credit quality financial institutions located in the western United States.

The Company periodically has money in financial  institutions that is subject to
normal credit risk beyond insured  amounts.  This credit risk,  representing the
excess of the bank's deposit  liabilities  reported by the bank over the amounts
that would have been  covered by federal  insurance,  amounted to  approximately
$490,000 and $191,000 at December 31, 1997 and 1996, respectively.

The Company's extension of credit to its customers,  which are primarily located
in the Silicon Valley,  California,  results in accounts receivable arising from
its normal business activities. The Company does not require collateral from its
customers, but routinely assesses the financial strength of its customers. Based
upon factors  surrounding  the credit risk of its  customers  and the  Company's
historical  collection  experience,  an  allowance  for  uncollectible  accounts
amounting to $160,356 and $93,279 has been  established at December 31, 1997 and
1996,  respectively.  The Company believes that its accounts  receivable  credit
risk exposure  beyond such allowance is limited.  Such assessment may be subject
to change in the near term.

The  Company  had sales to two  unrelated  customers  in the  computer  industry
approximating $5,494,000,  $4,548,000 representing 14% and 12%, respectively, of
the Company's  total net sales for the year ended December 31, 1997. The Company
had sales to three unrelated  customers in the computer  industry  approximating
$7,404,000,   $6,285,000   and  $3,487,600   representing   28%,  24%  and  13%,
respectively,  of the Company's  total net sales for the year ended December 31,
1996.  For the year ended  December  31,  1995,  sales to these three  unrelated
customers approximated  $9,273,000,  $5,058,000 and $5,339,000 representing 33%,
18% and 19%, respectively. The loss of one or more of these customers may have a
severe impact on the Company in the near term.

Reclassifications  - Previously,  the Company  classified as operating  expenses
certain overhead items relating to inventory and cost of goods sold.  Commencing
in 1997, the Company is classifying all overhead items into costs of goods sold,
and prior year cost of sales  amounts  have been  reclassified  to reflect  this
change.  As a result of this  reclassification,  cost of goods sold increased in
the approximate amount of $3,146,000 and $1,705,000 for the years ended 1996 and
1995, respectively.  Such change had no effect on previously reported net income
or  earnings  per  share.  Certain  other  items in the 1996 and 1995  financial
statements have been reclassified to conform to the 1997 presentation.



                                      F-10

<PAGE>



TMCI  ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #4
------------------------------------------------------------------------------



[4] Business Acquisitions

[A] Trinity Electronics,  Inc. - On December 22, 1997, the Company completed the
merger of Trinity Electronics,  Inc., a California corporation  ["Trinity"] with
and into  TMCI/Trinity  Acquisition  Corp.,  a wholly  owned  subsidiary  of the
Company [the "Merger"].The  merger agreement is effective as of October 1, 1997.
The Company paid a total  consideration  of $4,290,000  in  connection  with the
Merger,  including $1,000,000 in cash, $1,000,000 in a promissory note due March
9, 1998,  $290,000 in a promissory  note due January 4, 1998 and  $2,000,000  in
common stock of the Company  resulting in the issuance of 404,539  shares of the
common stock of the Company.  The common  stock  issued in  connection  with the
Merger  is  being  held  in  escrow  as  security  for the  representations  and
warranties  of Trinity and the sole  shareholder  of Trinity and as security for
the performance of the sole  shareholder of Trinity of his obligations  pursuant
to the Employment  Agreement  [See Note 16] entered into in connection  with the
Merger.  The  Company  acquired  assets of  approximately  $962,000  and assumed
certain liabilities of approximately $255,000. The acquisition was accounted for
utilizing  the  purchase  method  and the  operations  of the new  division  are
included in the Company's  results of operations from October 1, 1997.  Goodwill
of  approximately  $3,583,000  was recorded in connection  with the  transaction
which is being amortized utilizing the straight-line  method over a period of 15
years.  Amortization  expense  of $61,749  was  recorded  for the  period  ended
December 31, 1997 and accumulated  amortization  amounted to $61,749 at December
31, 1997.

[B] Enterprise Industries, Inc. - On January 24, 1997, the Company acquired 100%
of the  outstanding  shares of  capital  stock of  Enterprise  Industries,  Inc.
["Enterprise"], a North Hollywood, California based metal stamping manufacturing
business for a total purchase  price of $1,500,000,  consisting of $1,000,000 in
cash and the issuance of 96,560 shares of the Company's common stock. The common
stock issued in connection  with the  acquisition  is being held in escrow for a
period of two years  pending any final  adjustments  and  unrecorded  items with
respect to the book value of  Enterprise's  assets  and  liabilities  as well as
certain  representations  and  warranties  made by the  seller as defined in the
agreement. Any final adjustments would be recorded against goodwill. The Company
utilized the purchase method and acquired assets of approximately $1,623,000 and
assumed   liabilities  of  approximately   $323,000  resulting  in  goodwill  of
approximately   $274,000.   The  goodwill  is  being  amortized   utilizing  the
straight-line method over a period of 15 years.  Amortization expense of $18,267
was recorded for the period ended December 31, 1997 and accumulated amortization
amounted to $18,267 at December 31, 1997. At the same time, the Company  entered
into an employment contract with the President of Enterprise [See Note 16].

     [C] Pen  Interconnect,  Inc. -  Effective  November  1, 1996,  the  Company
acquired  substantially all of the assets and assumed certain liabilities of Pen
Interconnect,  Inc.'s San Jose Division [a manufacturer of wire cable harnesses]
for a purchase price of $3,300,000. The Company acquired assets of approximately
$1,309,000 and assumed certain  liabilities of $372,000.  The consideration paid
consisted of $2,000,000 in cash, $900,000 in promissory notes and 134,172 shares
of TMCI common  stock with an  agreed-upon  guaranteed  value of $400,000 at the
date of  acquisition  of which 80,503 shares were held in escrow  subject to the
outcome of an earn out  agreement  entered  into  between  the  Company  and Pen
Interconnect,  Inc.  The  promissory  notes  in  the  amount  of  $900,000  were
subsequently  exchanged  for 132,023  shares of the  Company's  common  stock in
connection with the settlement.  See following discussion on the exchange of the
promissory  notes for common stock and  cancellation of common shares below. The
acquisition  was accounted for utilizing the purchase  method and the operations
of the new division are included in the  Company's  results of  operations  from
November 1, 1996.  Goodwill of approximately  $2,577,000 [of which approximately
$214,000 was for legal and accounting costs directly related to the acquisition]
was  recorded  in  connection  with the  transaction  which  is being  amortized
utilizing  the  straight-line  method  over a period of 15 years.  In  addition,
during  December  1997,  $142,412 was recorded as an adjustment to goodwill as a
result of the settlement  discussed below.  Amortization expense of $167,589 and
$27,593 was  recorded  for the period  ended  December  31,  1997 and 1996,  and
accumulated  amortization  amounted to $195,182 and $27,593 at December 31, 1997
and 1996, respectively.



                                      F-11

<PAGE>



TMCI  ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #5
------------------------------------------------------------------------------




[4] Business Acquisitions [Continued]

[C] Pen  Interconnect,  Inc.  [Continued]  - On  December  5, 1997,  the Company
settled its outstanding litigation with Pen Interconnect,  Inc. ["Pen"] relating
to  the  asset  purchase  agreement  entered  into  on  November  1,  1996  [the
"Agreement"]  pursuant to which the Company  purchased  certain assets from Pen.
The  litigation  involved a claim by the Company  that the  inventory  purchased
pursuant to the  Agreement  had a value of $716,249  rather than the  $1,596,905
value given to the inventory in the Agreement.  As consideration  for release of
the claim by the Company,  Pen cancelled  its earn out agreement  [the "Earn Out
Agreement"] that the Company entered into on November 1, 1996 in connection with
the  Agreement.  Among  other  things,  cancellation  of the Earn Out  Agreement
resulted in the cancellation of 80,503 shares of the common stock of the Company
issued  to Pen and in the  cancellation  of the  ability  of Pen to  receive  an
additional  $600,000 in  consideration  based on the performance of the division
sold to the Company  pursuant  to the  Agreement.  In  addition,  Pen  cancelled
approximately  $900,000 in principal amount and approximately $85,000 in accrued
interest on two notes [the  "Notes"]  issued in connection  with the  Agreement.
Further,  Pen released Rolando Loera, the Chief Executive Officer of the Company
from the personal  guaranty  that he gave on the Notes and  terminated an action
that it filed in the Superior Court of Santa Clara County  California to enforce
said guaranty. Finally, Pen agreed to cooperate with the Company in obtaining an
audit of the division of Pen  acquired by the Company so that the Company  could
file the  necessary  financial  statements  with  the  Securities  and  Exchange
Commission.

In connection with the settlement of its claim,  the Company  delivered  132,023
shares of its common stock in exchange  for the  cancellation  of the Notes.  In
addition,  the  Company  released  from  escrow  53,669  shares that it had been
holding as security for the  representations  and warranties  made by Pen in the
Agreement.  Further,  the Company delivered to Pen an additional 5,367 shares of
its common stock in  satisfaction of its obligation to issue  additional  common
stock for the collection of the accounts  receivable in the Agreement.  Finally,
the Company  waived  certain  additional  claims with  respect to  approximately
$77,000 in other undisclosed liabilities.

     The following pro forma unaudited  information  presents the results of the
combined operations of TMCI Electronics,  Inc., Enterprise, Trinity and San Jose
Division of Pen Interconnect, Inc., treating all as if they were a subsidiary of
TMCI  Electronics,  Inc. for the entire  years ended  December 31, 1997 and 1996
with pro forma  adjustments as if the acquisition had been consummated as of the
beginning of 1996. This pro forma  information does not purport to be indicative
of what would have occurred had the acquisitions been made as of January 1, 1996
and 1997 or results which may occur in the future.

                                                Year ended
                                                December 31,
                                             1 9 9 7    1 9 9 6

Total Revenues                           $ 42,292,876 $38,534,769
Net Income                               $  1,371,614 $   634,049
Net Income Per Share - Basic             $        .35 $       .16
Net Income Per Share - Diluted           $        .32 $       .16



                                      F-12

<PAGE>



TMCI  ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #6
------------------------------------------------------------------------------



[5] Inventory

Inventory consisted of the following:
                                                      December 31,
                                                   1 9 9 7     1 9 9 6

Raw Materials                                   $ 6,231,925 $ 3,015,968
Work-in Process                                   2,409,901   1,465,951
Finished Goods                                    1,079,224     688,742
                                                ----------- -----------

  Totals                                        $ 9,721,050 $ 5,170,661
  ------                                        =========== ===========

[6] Notes Receivable - Stockholders

During 1996,  the Company had advanced  $166,226 to three  stockholders  bearing
interest at 10% with a 10 year amortization  period commencing December 1, 1997.
During the year  ended  December  31,  1997,  the  Company  recorded  $17,378 in
interest income and the total advances increased to $183,604.

[7] Property and Equipment and Depreciation 

Property and equipment is comprised of the following:

                                                      December 31,
                                                   1 9 9 7     1 9 9 6

Machinery and Equipment                         $ 8,341,241 $ 5,036,652
Furniture and Fixtures                              992,909     620,838
Transportation Equipment                            268,525     223,397
Leasehold Improvements                              451,608     117,699
                                                ----------- -----------

Totals                                           10,054,283   5,998,586
Less:  Accumulated Depreciation                   3,471,023   2,360,286

  Totals                                        $ 6,583,260 $ 3,638,300
  ------                                        =========== ===========

     Depreciation expense amounted to $1,205,452,  $812,131 and $702,056 for the
years ended December 31, 1997, 1996 and 1995, respectively.

[8] Due from Related Party

     The  Company-  has amounts due from an entity  controlled  by the  majority
stockholder of the Company with interest to 10% per annum.  At December 31, 1997
and 1996,  the  balance  due the Company  amounted  to  $469,878  and  $473,952,
respectively.  Interest income on these amounts approximated $35,000 for each of
the years ended December 31, 1997, 1996 and 1995.

[9] Due from Stockholder - Noncurrent

The December 31, 1997 and 1996 balance due from  stockholder is comprised of two
unsecured promissory notes due on demand from the Company's  president.  Each of
the notes call for interest  payable at 10% per annum.  Interest income on these
amounts approximated $20,000 for each of the years ended December 31, 1997, 1996
and 1995.  The  cumulative  balance  outstanding of these notes was $111,984 and
$238,167 at December 31, 1997 and 1996, respectively.



                                      F-13

<PAGE>



TMCI  ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #7
------------------------------------------------------------------------------



[10] Lines of Credit

     In June 1997, the Company renewed and  re-negotiated a new credit agreement
with its bank. The new credit agreement  increased the Company's lines of credit
to $5,500,000, increased its term debt by $2,000,000, and allowed the Company to
refinance its existing  long-term debt  obligations  based on a reduced interest
rate. The new and existing credit facilities bear interest at rates ranging from
prime plus .50% to prime plus .25%, are  collateralized  by all corporate assets
and  have  been  used to pay off  the  former  line of  credit  and  other  debt
aggregating  approximately  $3,200,000.  The  available  portion  of the line of
credit was $-0- [based upon eligible accounts  receivable] at December 31, 1997.
This new credit agreement requires the Company,  among other things, to maintain
minimum  levels of earnings,  tangible net worth and certain  minimum  financial
ratios.  Effective  December 31, 1997,  the Company was not in  compliance  with
certain covenants with its bank and subsequently cured such defaults as a result
of the  Company's  refinancing  of the line [See  Note  23].  The line of credit
contained negative  covenants among other provisions,  requiring the consent for
the  disposition of assets,  acquisition or merger of any business,  guaranty of
any third party  obligations,  capital  restructure,  and any  distributions  or
payment of any dividends in cash or in stock. The weighted average interest rate
on short-term borrowings at December 31, 1997 and 1996 was 9.24 percent and 11.3
percent, respectively.

[11] Notes Payable

Notes payable consist of the following:
<TABLE>
                                                                                       December 31,
                                                                                   1 9 9 7      1 9 9 6
<S>                                                                               <C>          <C>
Notes  payable  to  financial  institution  with  monthly  payments  of  $55,168
  including  principal  and interest at .25% above prime,  maturing  November 1,
  2001, collateralized by all corporate assets                                    $1,914,815   $1,691,747

Promissory notes to a stockholder [the former owner of Trinity] in the amount of
 $1,313,493  bearing interest at 9% per annum; maturing in April 1998 and March
 1998; unsecured.                                                                  1,313,493           --

Bridge loan to financial  institution;  bears  interest at 10.5%;  refinanced  in
  February 1998; collateralized by equipment; [See Note 22].                       1,000,000           --

Notes  payable  to  financial  institution  with  monthly  payments  of  $20,061
  principal and interest bearing interest at prime plus .25%;  maturing November
  2001; collateralized by machinery and equipment.                                   696,593           --

Notes payable to  financial  institution  with  monthly  payments of $4,675 with
  interest only at 8.75% until January 1998 convertible into term debt; maturing
  August 2002; collateralized by machinery and equipment.                            620,520           --

Note payable to financial  institution with monthly payments of $12,381 interest
  only;  bearing  interest  at prime  plus .25%;  convertible  into term debt in
  January 1998; maturing August 2002, collateralized by machinery.                   594,294           --
                                                                                  ----------   ----------
Totals - Forward                                                                  $6,139,715   $1,691,747

</TABLE>


                                      F-14

<PAGE>



TMCI  ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #8
------------------------------------------------------------------------------

<TABLE>


[11] Notes Payable [Continued]
                                                                                         December 31,
                                                                                    1 9 9 7      1 9 9 6

<S>                                                                               <C>          <C>       
Totals - Forwarded                                                                $6,139,715   $1,691,747

Note payable to financing company with monthly payments of $12,435
  principal and interest; bearing interest at 8.7%; maturing May 2002;
  collateralized by machinery.                                                       540,326           --

Note payable to a financing company with monthly payments of $5,461;
  bearing interest at 11.2%; maturing February 2001; collateralized by
  equipment.                                                                         168,209           --

Note payable to financial institution with monthly payments of $4,181
  principal and interest bearing interest at 9.5% per annum; maturing
  May 2001; collateralized by machinery and equipment.                               128,376           --

Note payable to financial  institution with monthly payments of $6,293 including
  principal and interest at 8.35% per annum; matures March 2001;  collateralized
  by machinery and equipment                                                              --      269,393

Promissory  notes in the amounts of $500,000 and $400,000  issued in  connection
  with the  acquisition  of the cable  company,  bears interest at the prime rate
  plus .5% with monthly  payments of $33,276,  exchanged for common stock of the
  Company in November 1997 [See Note 4C]                                                  --      900,000

Totals                                                                             6,976,626    2,861,140
Less: Current Portion including Prommissory Note to a Stockholder                  3,368,749      796,867
                                                                                  ----------   ----------

  Noncurrent Portion                                                              $3,607,877   $2,064,273
  ------------------                                                              ==========   ==========
</TABLE>

The prime rate was 8.50% at December 31, 1997.

Current maturities on long-term debt at December 31, 1997 are as follows:

December 31,
   1998                             $ 3,368,749
   1999                               1,129,854
   2000                               1,147,843
   2001                               1,033,239
   2002                                 296,941
   Thereafter                                --
                                    -----------

   Total                            $ 6,976,626
   -----                            ===========



                                      F-15

<PAGE>



TMCI  ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #9
------------------------------------------------------------------------------


[12] Bridge Notes Payable

     In November  and  December  1995,  the Company  borrowed  an  aggregate  of
$1,000,000 in bridge loans,  as evidenced by four  promissory  notes of $250,000
each bearing a rate of eight percent [8%] simple interest.  The loans matured on
the  consummation of the public  offering of the Company's  securities [See Note
17C].  As  additional  consideration,  solely for making the loans,  the Company
granted  the  lenders  the  right to  receive  an  aggregate  of  200,000  units
["Bridgeholder's Units"]. Each Bridgeholder's Unit consists of (i) two shares of
Common Stock, (ii) two Class A Redeemable Common Stock Purchase Warrants ["Class
A Warrants"]  and (iii) two Class B Redeemable  Common Stock  Purchase  Warrants
["Class B  Warrants"].  The Company  valued these units at $3.75 per unit taking
into consideration restrictions imposed on the holders of the Bridge Units as to
the salability of the units issued. The Company accounted for the $750,000 value
of the  Bridgeholder's  Units as debt issue  costs which were  amortized  by the
straight-line method which approximates the interest method over the life of the
promissory notes. For the year ended December 31, 1996 and 1995, amortization of
$462,122  and  $287,878,  respectively,  of  such  costs  are  reflected  in the
statements of operations.

[13] Income Taxes

Commencing  March 5, 1996,  the Company filed its tax returns on a  consolidated
basis  with all of its  subsidiaries.  Prior to March 5,  1996,  TMCI and Touche
filed separate  Subchapter C corporation tax returns and TEI was taxed under the
provisions of Subchapter S of the Internal Revenue Code.

Deferred  income  taxes  reflect  the  tax   consequences  on  future  years  of
differences  between the tax bases of assets and liabilities and their financial
reporting amounts.

The components of the provision for income taxes are as follows:

                                                        December 31,
                                            ------------------------
                                               1 9 9 7     1 9 9 6     1 9 9 5
                                               -------     -------     -------
Current Tax Expense:
  Federal                                   $  554,581  $  126,644  $  354,200
  State                                          3,200      10,120      66,900
                                            ----------  ----------  ----------

  Totals                                       557,781     136,764     421,100
  Less: Benefit of Net Operating Loss Carryforward  --    (102,300)    (86,100)
                                            ----------  ----------  ----------

  Total Current Provision                      557,781      34,464     335,000
                                            ----------  ----------  ----------

Deferred:
  Federal                                       93,748      40,658     203,800
  State                                         34,235     (56,123)     (4,600)
                                            ----------  ----------  ----------

  Total Deferred Provision                     127,983     (15,465)    199,200
                                            ----------  ----------  ----------

  Total Provision for Taxes                 $  685,764  $   18,999  $  534,200
  -------------------------                 ==========  ==========  ==========



                                      F-16

<PAGE>



TMCI  ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #10
------------------------------------------------------------------------------



[13] Income Taxes [Continued]

The components of the deferred tax liability are as follows:

                                                             December 31,
                                                          1 9 9 7      1 9 9 6
Deferred Tax Asset:
  Alternative Minimum Tax Credits                       $   29,626  $   59,717
  Bad Debt Allowance                                        63,876      37,441
  Inventory Capitalization                                  30,746      21,230
  Unused State Tax Credit                                   59,128      69,603
                                                        ----------  ----------

  Deferred Tax Asset - Current                             183,376     187,991

Deferred Tax Liabilities:
  Excess Tax Over Book Accumulated Depreciation - 
  Non-Current                                             (560,180)   (436,781)

  Net Deferred Tax Liabilities                          $ (376,804) $ (248,790)
  ----------------------------                          ==========  ==========

A reconciliation between the Company's effective tax rate and the U.S. statutory
rate follows:

                                             1 9 9 7    1 9 9 6     1 9 9 5
                                             -------    -------     -------

U.S. Statutory Rate Applied to Pretax Income    34%        34%          34%
State Tax Provision - Net of Federal Tax Benefit 5          6            6
Effect of S Corporation Operations              --         13            2
Net Operating Loss Carryforward                 --        (42)          --
Other                                           (1)        --           11
                                             -----      -----       ------

  Total Effective Tax Rate                      38%        11%          53%
  ------------------------                   =====      =====       ======

As of December 31, 1996, the Company  utilized the remaining  balance of its net
operating  loss  carryforward  as an offset to its federal and state  income tax
expense.

[14] Related Party Transactions

In 1995,  Touche owed Textron  Financial  approximately  $401,700  which Antonio
Zertuche, Touche's landlord, agreed to repay in exchange for Touche's promissory
note to make monthly installments of approximately $6,322, including interest at
11.5% per annum, maturing December 1996. In January 1996, the Company refinanced
the  note,  and  issued  a new  note  for  approximately  $291,000  which is the
difference between the Company's original note payable of approximately $401,700
and its  cancellation  of an outstanding  note  receivable  from the landlord of
approximately $99,000, plus approximately $11,600 in the overpayment of property
taxes on leased property located at 1875 Dobbin Drive, San Jose, California. The
new note payable was  satisfied in March 1996,  from the proceeds of the initial
public offering.

In addition to acting as Chairman,  President and Chief Executive Officer of the
Company,  Rolando  Loera is also  the sole  owner  of  Touche  Properties,  Inc.
["TPI"],  a real estate company which owns and leases the real property  located
at 1881-1899 Dobbin Drive [the  "Property"] to TEI and Touche,  two wholly-owned
subsidiaries  of the Company.  The rent  payments  made by TEI and Touche to TPI
amounted to  approximately  $576,144,  $576,144 and $477,640 for the years ended
1997, 1996 and 1995, respectively. 



                                      F-17

<PAGE>



TMCI  ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #11
------------------------------------------------------------------------------


[15] Employee Stock Purchase Plan, Employees' Stock Ownership Plan and 
Employees' Defined Contribution Plan

The Board of Directors  adopted the Company's  1997 Employee Stock Purchase Plan
effective  December 1, 1997 approved by the  stockholders  on December 22, 1997.
Under such plan,  employees of the  Company,  including  executive  officers may
defer up to 20% of their annual compensation for the purchase of common stock of
the  Company at a price of 85% of the fair market  value of the common  stock on
the date of  issuance.  The plan  provides  for the  issuance  of up to  250,000
shares.

TMCI has a Noncontributory Employees' Stock Ownership Plan ["the Plan"] covering
all full-time employees who have met certain service  requirements.  It provides
for discretionary  contributions by TMCI as determined annually by the directors
and stockholders. As of December 31, 1997 and 1996, the Plan owned approximately
 .7% and .8%, respectively, of TMCI's outstanding shares.

The Company has a voluntary 401(k) savings plan covering all eligible employees.
The Company matches up to 5% of all  contributions on a discretionary  basis and
each employee vests 100% over 7 years.  The Company's  contributions  which were
charged to expense for the years ended  December  31,  1997,  1996 and 1995 were
$4,026, $5,036 and $1,945, respectively.

[16] Commitments and Contingencies

Construction Contract - In December 1997, Enterprise entered into a construction
contract in the amount of $488,532 to demolish  and remove an existing  building
and to construct  an addition to its primary  facility.  Enterprise  anticipates
that the contract will be paid with cash generated from operations.

Operating  Leases  -  The  Company  leases  its  production  and  administrative
facilities.  This obligation extends through April 2013. Annual rental increases
on each  January 1st shall be adjusted  per the average  annual  Consumer  Price
Index - San  Francisco/Oakland/San  Jose Metropolitan Area.  Beginning on May 1,
2003 and continuing  through the remaining lease term, the base rent will be the
prevailing market rate.

A portion of the Company's  production and administrative  facilities are leased
from an affiliate, Touche' Properties, Inc. which is 100% owned by the Company's
sole  stockholder.  The leases  commenced in November 1993 and November 1996 and
expire in November 2013. In addition,  the Company's newly acquired wholly-owned
subsidiary,  Trinity  will be entering  into a new lease  agreement  with Touche
Properties,  Inc. The agreement has not been drafted nor executed as of February
20, 1998 and accordingly, the below future minimum lease payments do not include
such payments in the related party leases.

Minimum lease payments for the next five years and thereafter [not including the
CPI increases] are:

                             Related Party  Third Party
                                Leases        Leases

1998                        $   576,144    $ 1,125,227
1999                            576,144      1,104,045
2000                            576,144      1,104,045
2001                            576,144        950,160
2002                            576,144        950,160
Thereafter                    6,289,572      8,766,840
                            -----------    -----------

  Totals                    $ 9,170,292    $14,000,477
  ------                    ===========    ===========

Total rent expense amounted to $1,901,356, $1,038,626 and $730,417 for the years
ended December 31, 1997, 1996 and 1995, respectively.

The Company  has  minimum  future  sublease  rental  income due in the amount of
$45,000 in 1998.

                                      F-18

<PAGE>



TMCI  ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #12
------------------------------------------------------------------------------




[16] Commitments and Contingencies [Continued]

Employment  Agreements - In connection  with the merger of Trinity  Electronics,
Inc.  with and into a  wholly  owned  subsidiary  of the  Company,  TMCI/Trinity
Acquisition Corp. ["New Trinity"] entered into an employment  agreement with the
President of Trinity Electronics,  Inc. and New Trinity [the "Trinity Employment
Agreement"].  The Trinity  Employment  Agreement  calls for the president of New
Trinity to serve in that capacity for five years at an annual salary of $150,000
per year with an annual bonus  [payable in quarterly  installments]  of not less
than $25,000 per year. In addition to other  benefits  offered to all employees,
the  president  of New Trinity  shall  receive an auto  allowance  of $1,450 per
month. In the event of voluntary  termination by the president of New Trinity or
termination  for cause or malfeasance  as defined in the  employment  agreement,
then the  president of New Trinity is subject to a covenant  not to compete,  as
more fully  detailed  in the  employment  agreement,  for the shorter of (i) two
years from the date of  termination  of  employment  or (ii) five years from the
effective date of the employment agreement.

In  connection  with  the  acquisition  of  all  of the  outstanding  shares  of
Enterprise,  a California  corporation,  the Company  entered into an employment
agreement  with the chief  executive  officer  of  Enterprise  [the  "Enterprise
Employment Agreement"].  The Enterprise Employment Agreement calls for the chief
executive  officer of  Enterprise  to serve in that  capacity for a term of five
years  starting at an annual  salary of $50,000 and  increasing in increments to
$105,000 by the year 2001 with an annual bonus of 1% of sales of Enterprise  and
a 10%  earn  out  provision  as  defined  in the  agreement.  The  agreement  is
terminable at the will of either party. In addition,  to other benefits  offered
to all employees,  the chief  executive  officer of Enterprise  shall receive an
auto  allowance of $550 per month.  In the event of  termination  other than for
cause or  malfeasance,  as defined,  by the  Company,  then the chief  executive
officer shall receive $100,000 if termination  occurs in the first year, $75,000
if termination  occurs in the second year, and $50,000 if termination  occurs in
the third, fourth or fifth years.

The Company has entered into an employment  agreement  ["Agreement]  dated as of
December 28, 1995 with its president.  The term of employment commenced on March
5, 1996, the effective date of the public  offering and will expire on the fifth
anniversary thereof. The annual salary under the Agreement is $225,000. The term
of employment will be automatically extended for an additional five year term in
the absence of notice from either party. This salary may be increased to reflect
annual cost of living  increases and may be  supplemented by  discretionary  and
performance increases as may be determined by the Board of Directors except that
during the first three years  following the effective  date,  his salary may not
exceed $225,000.  The Agreement  provides that during the initial three years of
the term of  employment,  an annual  bonus of  $100,000  will be  awarded to the
president.  The 1997 and 1996 bonus was  relinquished by the President.  Bonuses
during the remainder of the term of employment  will be at the discretion of the
Board of Directors.

The Agreement  provides,  among other things,  for participation in an equitable
manner in any  profit-sharing or retirement plan for employees or executives and
for  participation  in other  employee  benefits  applicable  to  employees  and
executives  of the Company.  The  Agreement  further  provides for the use of an
automobile  and  other  fringe  benefits   commensurate   with  his  duties  and
responsibilities.  The  Agreement  also  provides  for  benefits in the event of
disability.

If employment by the Company of Mr. Loera terminates or Mr. Loera becomes unable
to perform his duties, the Company may be adversely affected.






                                      F-19

<PAGE>



TMCI  ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #13
------------------------------------------------------------------------------




[17] Stockholders' Equity

[A]  Description  of  Securities - The  authorized  capital stock of the Company
consists of 25,000,000  shares of common stock,  $.001 par value per share.  All
shares of common stock are entitled to share  equally in dividends  from sources
legally  available  therefor  when, as and if declared by the Board of Directors
and,  upon  liquidation  or  dissolution  of the Company,  whether  voluntary or
involuntary,  to share  equally  in the  assets  of the  Company  available  for
distribution to stockholders. All outstanding shares of common stock are validly
authorized and issued, fully paid and nonassessable.

[B] Issuance of Common Stock - On November 6, 1995,  the Company  issued 600,000
shares of its common stock to its then sole  stockholder in exchange for $1,000,
which is reflected retroactively in the statement of stockholders' equity.

[C] Public  Offering - On March 11, 1996,  the Company closed the initial public
offering  of  its  securities  resulting  in net  proceeds  to  the  Company  of
approximately  $5,700,000.  The Company sold 1,472,000  Units  consisting of one
share of common stock,  $0.001 par value per share,  and one redeemable  Class A
warrant at a price of $5.00 per Unit.  Each Class A warrant  entitles the holder
to purchase one share of common stock at a price of $5.50 per share for a period
of four  years  beginning  March 5,  1997.  The  Company  may redeem the Class A
warrants any time after March 5, 1997, upon thirty days written  notice,  if the
average  closing  price or bid price of the common  stock,  as  reported  by the
principal  market on which the  common  stock is  quoted  or  traded,  equals or
exceeds $8.75 per share, for any 20 consecutive  trading days ending within five
days prior to the date of the notice of  redemption.  The Company used a portion
of the proceeds  from the  offering to repay the bridge notes  described in Note
12.

Effective  with the  offering,  the Company  sold the  underwriter  an option to
purchase up to an aggregate  of 128,000  units.  Each unit shall be  exercisable
during the  four-year  period  commencing  one year after  March 11,  1996.  The
exercise  price of the units issuable upon exercise of the  underwriter's  units
during the period of exercisability shall be $8.25.

[D] Conversion of Debt-to-Equity - Immediately prior to the public offering, the
holders of the convertible  promissory  notes exercised the conversion  right of
the notes and exchanged them for 298,720 shares of TMCI.

[E] Stock Purchase  Agreements - On December 28, 1995, the Company  entered into
Stock Purchase Agreements [the "Agreements"] with the stockholders of Touche and
TEI to  acquire  all of the  issued  and  outstanding  stock of Touche  and TEI.
Immediately  prior to the public offering,  the Company  exchanged its shares of
Touche and TEI for 567,600 and 27,280 shares, respectively, of TMCI.

[F] 1997 Stock Option Plan -The Board of Directors  adopted the  Company's  1997
Stock Option Plan,  effective December 1, 1997,  approved by the stockholders on
December 22, 1997.  Under such plan, key employees and officers and  consultants
of the Company may be granted options to purchase shares of the Company's Common
Stock at their fair market value on the date of grant.  The plan provides for an
aggregate of 1,000,000 options. There were no options granted as of December 31,
1997.

Any future  awards will be  determined  by the Board of Directors or a Committee
established by the Board.

1995 Stock Option Plan - The Company has adopted a stock option plan,  effective
December 22, 1995.  Under such plan, key employees and officers and  consultants
of the  Company  will be granted  options to  purchase  shares of the  Company's
common stock at their fair market value on the date of grant.  The plan provides
for an  aggregate  of 500,000  options.  On December  22,  1995,  the  Company's
president  was granted  options to purchase  100,000  shares of common  stock at
$3.75 per  share.  The  options  vest two years  from the date of grant and will
expire in December 2005. The Plan also permits stock  appreciation  rights to be
granted in tandem with options.


                                      F-20

<PAGE>



TMCI  ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #14
------------------------------------------------------------------------------


[17] Stockholders' Equity [Continued]

[F] 1995 Stock Option Plan  [Continued]  - A summary of the  activity  under the
plan is as follows:
<TABLE>

                                                        Weighted Average
                                                            Remaining       Weighted-
                                                           Contractual       Average
                                                    Shares     Life       Exercise Price
                                                   --------    --------    ----------
Balance - December 31, 1994                            --

<S>                                                 <C>        <C>          <C>    
Granted                                             100,000    10 Years     $  3.75
Exercised                                                --
Forfeited/Expired                                        --
                                                  ---------

  Outstanding - December 31, 1995                   100,000    10 Years     $  3.75
  -------------------------------

Granted                                                  --
Exercised                                                --
Forfeited/Expired                                        --
                                                  ---------

  Outstanding - December 31, 1996                   100,000     9 Years     $  3.75
  -------------------------------

Granted                                             324,500    10 Years     $  4.88
Exercised                                                --
Forfeited/Expired                                        --
                                                  ---------

  Outstanding - December 31, 1997                   424,500    9.1 Years    $  4.61
  -------------------------------                 =========

  Exercisable - December 31, 1997                   391,166    9.2 Years    $  4.69
  -------------------------------                 =========
</TABLE>

The  weighted-average  fair  value of  options  granted  during  the year  ended
December 31, 1997 and 1996 was $2.79 and $2.77, respectively.

No compensation cost was recognized in the periods  presented.  Had compensation
cost for the Company's stock options issued to employees been  determined  based
per share upon the fair value at the grant date for stock  options  issued under
these plans pursuant to the methodology  prescribed under Statement of Financial
Accounting Standards ["SFAS"] No. 123, Accounting for Stock-Based  Compensation,
the Company's net income and basic earnings per share would have been decreased,
on a pro forma basis, by approximately  $344,900 or $.10 per share and $138,500,
or $.05 per share for the years ended December 31, 1997 and 1996,  respectively,
which is based upon the amortization of the 1997 and 1995 fair value. The effect
on 1995  earnings was  immaterial.  The fair value of stock  options  granted to
employees used in determining the pro forma amounts is estimated at $904,000 and
$277,000 during 1997 and 1995 using the Black-Scholes  option-pricing  model for
the pro forma amounts with the following weighted average assumptions:
                                                        December 31,
                                            ------------------------
                                               1 9 9 7     1 9 9 6     1 9 9 5
                                               -------     -------     -------

Risk-free Interest Rate                         6.00%        N/A        5.87%
Expected Life                                  6 Years       N/A       6 Years
Expected Volatility                            52.57%        N/A       82.07%
Expected Dividends                              None        None        None



                                      F-21

<PAGE>



TMCI  ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #15
------------------------------------------------------------------------------


[17] Stockholders' Equity [Continued]

[F] 1995 Stock Option Plan  [Continued]  - Net income and net earnings per share
as  reported,  and  on a pro  forma  basis  as if  compensation  cost  had  been
determined on the basis of fair value pursuant to SFAS No. 123 is as follows:

                                                      December 31,
                                                   1 9 9 7     1 9 9 6
Net Income:
  As Reported                                   $ 1,136,186 $   148,337
  Pro Forma                                     $   791,286 $     9,837

Basic Earnings Per Share:
  As Reported                                   $       .31 $       .05
  Pro Forma                                     $       .22 $        --

Diluted Earnings Per Share:
  As Reported                                   $       .28 $       .05
  Pro Forma                                     $       .20 $        --

The Company has agreed to sell to its underwriter,  or their  designees,  for an
aggregate  purchase  price of $128,  an  option  ["Underwriter's  Unit  Purchase
Option"] to purchase up to an aggregate of 128,000 Units. The Underwriter's Unit
Purchase Option shall be exercisable  during the four-year period commencing one
(1) year after the effective date of the Company's initial public offering.  The
Underwriter's  Unit Purchase  Option may not be assigned,  transferred,  sold or
hypothecated by the underwriter  after the Effective Date, except to officers or
partners of the underwriters or any of the underwriter and selling group members
in this offering.  Any profits  realized by the underwriter upon the sale of the
units issuable upon exercise of the  Underwriter's  Unit Purchase  Option may be
deemed to be additional  underwriting  compensation.  The exercise  price of the
units issuable upon exercise of the  Underwriter's  Unit Purchase  Option during
the  period  of  exercisability  shall  be  $8.25.  The  exercise  price  of the
Underwriter's  Unit Purchase Option and the number of shares covered thereby are
subject to adjustment in certain events to prevent dilution. For the life of the
Underwriter's  Unit Purchase Option, the holders thereof are given, at a nominal
cost, the opportunity to profit from a rise in the market price of the Company's
units,  common stock and warrants  with a resulting  dilution in the interest of
other stockholders.  The Company may find it more difficult to raise capital for
its  business if the need should  arise while the  Underwriter's  Unit  Purchase
Option is outstanding.  At any time when the holders of the  Underwriter's  Unit
Purchase  Option might be expected to exercise it, the Company would probably be
able to obtain additional capital on more favorable terms.

[18] Fair Value of Financial Instruments

Effective  December  31,  1995,  the  Company  adopted  Statement  of  Financial
Accounting  Standards  No.  107,  "Disclosure  About  Fair  Value  of  Financial
Instruments," which requires disclosing fair value to the extent practicable for
financial instruments which are recognized or unrecognized in the balance sheet.
The fair value of the financial  instruments disclosed herein is not necessarily
representative  of the amount that could be  realized  or settled,  nor does the
fair value amount  consider the tax  consequences  of realization or settlement.
The following table summarizes financial instruments by individual balance sheet
classifications:
<TABLE>
                                           December 31, 1997           December 31, 1996
                                         Carrying        Fair         Carrying        Fair
                                          Amount         Value         Amount         Value

<S>                                    <C>            <C>            <C>            <C>        
Due from Stockholder                   $    88,167    $    88,167    $   238,167    $   238,167
Note Receivable - Stockholders         $   144,292    $   144,292    $   166,226    $   166,226
Due from Related Party                 $   469,878    $   469,878    $   473,952    $   473,952
Notes Payable - Net of Current Portion $(3,570,985)   $(3,570,985)   $(2,064,273)   $(2,064,273)
</TABLE>

                                      F-22

<PAGE>



TMCI  ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #16
------------------------------------------------------------------------------



[18] Fair Value of Financial Instruments [Continued]

In  assessing  the fair value of these  financial  instruments,  the Company was
required to make assumptions, which were based on estimates of market conditions
and risks  existing  at that time.  For  certain  instruments,  including  cash,
accounts receivable, notes receivable, accounts payable, amounts due to and from
related parties and affiliates,  and short-term debt,  management estimates that
the  carrying  amount   approximated  fair  value  for  the  majority  of  these
instruments  because of their short  maturities.  Management  estimates that the
carrying amount of its long-term indebtedness  approximates fair value since the
interest rates  currently  offered to the Company for debt of the same remaining
maturities  approximates  the  average  interest  rates  which  the  Company  is
currently paying.

[19] New Authoritative Accounting Pronouncements

The Financial Accounting Standards Board ["FASB"] has issued Statement of 
Financial Accounting Standards ["SFAS"] No. 130, "Reporting Comprehensive 
Income."  SFAS No. 130 is effective for fiscal years beginning after December 
15, 1997.  Earlier application is permitted.  Reclassification of financial
statements for earlier periods provided for comparative purposes is required.  
SFAS No. 130 is not expected to have a material impact on the Company.

The FASB has issued SFAS No. 131, "Disclosures About Segments of an Enterprise 
and Related Information."  SFAS No. 131 changes how operating segments are 
reported in annual financial statements and requires the reporting of selected 
information about operating segments in interim financial reports issued to 
shareholders.  SFAS No. 131 is effective for periods beginning after December 
15, 1997, and comparative information for earlier years is to be restated.  
SFAS No. 131 need not be applied to interim financial statements in the initial 
year of its application.  SFAS No. 131 is not expected to have a material impact
on the Company.


[20] Quarterly Financial Data [Unaudited]

The  following  quarterly  financial  data is  unaudited,  but in the opinion of
management  includes all necessary  adjustments  for a fair  presentation of the
interim results.

                               March 31,  June 30,    September 30, December 31,

Fiscal 1997:
  Revenues                   $7,442,688  $9,601,706   $10,728,640   $11,173,632
  Gross Profit               $2,240,544  $2,574,789   $ 3,152,147   $2,223,139
  Net Income                 $  306,862  $  395,924   $   607,671   $ (174,271)
  Net Income Per Share - Basi$      .09  $      .11   $       .17   $     (.06)
  Net Income Per Share - Dilu$ed    .08  $      .10   $       .16   $     (.06)











                                      F-23

<PAGE>



TMCI  ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #17
------------------------------------------------------------------------------



[20] Quarterly Financial Data [Unaudited] [Continued]

                               March 31,  June 30,    September 30, December 31,

Fiscal 1996:
  Revenues                      $7,730,465  $7,519,668  $5,246,434   $5,643,261
  Gross Profit                  $1,403,476  $1,592,279  $1,536,535   $1,369,793
  Net Income                    $   20,345  $ 272,285   $  172,741   $(317,034)
  Net Income Per Share - Basic  $      .02  $     .08   $      .05   $    (.10)
  Net Income Per Share - Diluted$      .02  $     .08   $      .05   $    (.10)

Fiscal 1995:
  Revenues                      $7,177,975  $7,626,704  $7,295,213   $5,999,027
  Gross Profit                  $1,769,692  $1,630,678  $1,830,317   $1,171,096
  Net Income                    $  439,659  $ (15,779)  $  236,325   $(186,789)
  Net Income Per Share - Basic  $      .24  $    (.01)  $      .12   $    (.10)
  Net Income Per Share - Diluted$      .24  $    (.01)  $      .12   $    (.10)

[21] Litigation

On May 12, 1997, Electronics Manufacturing Systems, Inc., a Delaware corporation
with its principal place of business in the State of Colorado, filed a complaint
in the  Superior  Court for the  County of Santa  Clara,  action  No.  CV766138,
against Touche Electronics,  Inc. Electronic Manufacturing Systems, Inc. ["EMS"]
claims damages for breach of contract and common  counts,  under the theories of
an open book account,  money owed, and an account stated. Their claims arise out
of an alleged purchase order dated January 8, 1996 from Touche Electronics, Inc.
for the customized construction,  ordering, and delivery of parts and components
for custom  assemblies.  EMS claims that TEI cancelled the purchase  order on or
about July 22, 1996.  They further assert that they have not been  successful in
reselling many of the custom  assemblies and parts.  EMS seeks the principal sum
of  $236,691,  plus  interest  thereon  at the  legal  rate from the date of the
alleged  breach.  TEI has filed an  answer to the  complaint  and  currently  is
defending the action.  A non-binding  judicial  arbitration will be held on this
matter in mid April  1998.  The  company is  currently  defending  its  position
vigorously  and believes that the results of operations  and financial  position
will not be materially impacted.

[22] Subsequent Events - Convertible Debentures

On February 10, 1998,  the Company  closed an offering of three of its debenture
units for a total offering price of $3.3 million.  Each unit consists of four of
the Company's 5% $275,000 Convertible  Subordinated  Debentures due February 10,
2001 [the "Debentures"] and 100,000 Class B Warrants to purchase common stock of
the Company [the "Warrants"].  Interest on the Debentures  accrues quarterly and
is  payable   annually.   The  Debentures  are   subordinated  to  other  Senior
Indebtedness as such term is defined in the Debenture. A portion of the proceeds
were used to repay the bridge loan [See Note 11].

The  Debentures  are  convertible  at the  option of the  holder  at a  variable
conversion  price ranging from $3.00 to $5.50 per share  depending on the market
value  of the  common  stock  of  the  Company  at the  time  of the  notice  of
conversion.  Accordingly,  the  Company  may be  required  to issue no less than
600,000 shares nor more than 1,100,000  shares upon  conversion of the principal
amount of the Debentures.

In  addition,  the  Company is issuing  25,000  Class B Warrants  per  Debenture
[subject to adjustment for  reclassification,  capital  reorganization  or other
change  of the  outstanding  shares  of common  stock of the  Company]  for each
Debenture  outstanding as of the earlier to occur of the one year anniversary of
the closing or the date three months  following the  registration  of the common
stock  issuable upon  conversion of the  Debentures and upon the exercise of the
Warrants.  The  Warrants  have an exercise  price of $5.50 per share  subject to
adjustment for dilutive issuances.

                                      F-24

<PAGE>



TMCI  ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #18
------------------------------------------------------------------------------



[22] Subsequent Events - Convertible Debentures [Continued]

In connection  with the foregoing  issuance,  the Company paid a finder's fee to
M.J.  Segal and Associates in the amount of $176, 000 pursuant to the terms of a
Non  Circumvention and Finder's Fee Agreement between the Company and M.J. Segal
and Associates  [the  "Agreement"].  In addition,  the Company gave M.J. Segal a
$66,000  credit  toward the  purchase  of one  quarter of a  Debenture.  The Non
Circumvention and Finder's Fee Agreement calls for the issuance of the number of
shares of common stock to M.J. Segal and Associates equal to 5% of the principal
amount  of the  securities  sold  divided  by the  greater  of  (i)  any  stated
conversion  price in the debenture and (ii) average of the closing bid and asked
prices for the common  stock of the Company for the five  trading  days prior to
closing  and, in this case,  a number of warrants  equal to 10% of the number of
shares issuable based on the Stated  Conversion  Price [to be determined  60,000
and 110,000]. 

The Non  Circumvention  and  Finder's  Fee  Agreement  also  provides  that upon
exercise of any Warrants issued in the offering, M.J. Segal and Associates shall
receive a cash fee  equal to 4% of the  amount  received  upon  exercise  of the
Warrants;  common  stock  equal to 5% of the number or shares  issued  upon such
exercise; and warrants equal to 10% of the number of shares issued upon exercise
[excluding  warrants  exercised by M.J. Segal and Associates or its affiliates].
The warrants  shall have an exercise price of 125% of the average of the bid and
asked prices for the Company on the five trading days preceding the transaction,
shall be non callable and shall expire three years from the date of issuance.

[23]  Events Subsequent to the Date of the Report of Independent Auditors 
      (Unaudited)

New Line of  Credit - On March 2,  1998,  the  Company  entered  into a Loan and
Security  Agreement with Fleet Capital  Corporation [the "Fleet Line"] providing
for borrowings of up to $25,000,000  based on certain formulas  contained within
the Loan and Security Agreement.  As of March 10, 1998, the Company was eligible
to borrow up to $17,222,691  under the Fleet Line and had borrowed  $10,347,841.
In addition,  the former line of credit was repaid,  certain  notes payable were
satisfied and a promissory note to the stockholder [the former owner of Trinity]
was  repaid.  Borrowings  were in the form of two Term Loans  ["Term Loan A" and
"Term Loan B,"]  respectively,  an equipment loan [the Equipment Loan,  together
with the Term  Loans,  the  "Fixed  Loans"]  and  revolving  credit  loans  [the
"Revolving  Credit  Loans"].  Term  Loan A is in the  principal  amount  of $4.7
million and bears interest at the rate of prime plus 0.5%. Term Loan B is in the
principal  amount of $2.0  million and bears  interest at the rate of prime plus
1.5%.  The Equipment  Loan is in the principal  amount of $4.0 million and bears
interest at the rate of prime plus 0.5%. The Revolving  Credit Loans are in such
amount as the Company elects, up to the borrowing base permitted by the Loan and
Security  Agreement  and bear  interest at the rate of 0.25% plus  prime.  As of
March 10,  1998,  the Company had  $3,647,841  outstanding  under the  Revolving
Credit Loans.  The Fixed Loans are payable in monthly  installments of principal
and interest with principal  amortizing over a seven year period and the balance
due on March 2, 2003;  interest  only on the  Revolving  Credit Loans is payable
monthly  with the  principal  due  upon  termination  of the  Loan and  Security
Agreement.  Interest on the Fixed Loans and  Revolving  Credit Loans is adjusted
daily.  Interest on the Fixed Loans may be adjusted  downward by 0.25% each year
for two years if the Company meets certain performance  criteria as reflected in
its audited  financial  statements  for the fiscal years ended December 31, 1998
and December 31, 1999,  respectively.  Interest on the Revolving Credit Loan may
be adjusted  downward by 0.25% only once if the  Company  meets the  performance
criteria as reflected in its audited  financial  statements  for the fiscal year
ended  December  31,  1998.  In addition,  if the Company  meets the  conditions
specified for December 31, 1998,  it may, at its option,  have the interest rate
on (i) the Revolving  Credit Loan converted into LIBOR plus 2.5%; (ii) Term Loan
A and the Equipment Loan converted into LIBOR plus 2.75%;  and (iii) Term Loan B
converted into LIBOR plus 3.75%.


                .   .   .   .   .   .   .   .   .   .   .   .   .

                                      F-25

<PAGE>
                            INDEPENDENT AUDITOR'S REPORT

To the Board of Directors and Stockholders of
 TMCI Electronics, Inc.
 San Jose, California

Our report on the consolidated financial statements of TMCI Electronics, Inc. is
referenced on Page F-1 and included in this Form 10-K.  In  connection  with our
audits of such financial statements,  we have also audited the related financial
statement schedule listed on page F-27 of the Form 10-K.

In our  opinion,  the  financial  statement  schedule  referred  to above,  when
condidered  in  relation  to the basic  financial  statements  taken as a whole,
presents  fairly,  in all  material  aspects,  the  information  required  to be
included therein.         


                                       MOORE STEPHENS, P.C.
                                       Certified Public Accountants.

New York, New York
February 20, 1998



















                                      F-26
<PAGE>

TMCI ELECTRONICS, INC.
------------------------------------------------------------------------------


SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
------------------------------------------------------------------------------





        Column A              Column B    Column C      Column D     Column E
        --------              --------    --------      --------     --------

                             Balance at  Charged to
                              Beginning   Cost and                  Balance at
       Description            of Period   Expenses     Deductions  End of Period

Valuation Reserved Deducted in
  the Balance Sheet from the Asset
  to Which it Applies:

  1997 Allowance for Doubtful
   Accounts                 $  160,356    $  67,077   $        --  $     93,279
                            ==========    =========   ===========  ============

  1996 Allowance for Doubtful
   Accounts                 $   93,279    $  85,000   $        --  $      8,279
                            ==========    =========   ===========  ============

  1995 Allowance for Doubtful
   Accounts                 $    8,279    $      --   $        --  $      8,279
                            ==========    =========   ===========  ============



                                        F-27