U.S. Securities and Exchange Commission
                             Washington, D.C. 20549

                                   FORM 10-KSB

           [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                EXCHANGE ACT OF 1934
                For the fiscal year ended September 28, 1997, or

           [  ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
                EXCHANGE ACT OF 1934
                For the transition period from              to             
                                               ------------    ------------

                         Commission file number 0-25866

                        PHOENIX GOLD INTERNATIONAL, INC.
                  Name of small business issuer in its charter

        OREGON                                             93-1066325
--------------------------------------------------------------------------------
(State or jurisdiction of                                (I.R.S. Employer
 incorporation or organization)                           Identification Number)

9300 NORTH DECATUR STREET, PORTLAND, OREGON                97203
--------------------------------------------------------------------------------
(Address of principal executive offices)                  (Zip code)

                                 (503) 288-2008
                            Issuer's telephone number

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

Securities registered under Section 12(g) of the Exchange Act: Common Stock, no 
par value

Check  whether the issuer (1) 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 [ X ] No [ ]

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will 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-KSB or any
amendment to this Form 10-KSB. [ X ]

Issuer's   revenues  for  the  fiscal  year  ending   September  28,  1997  were
$27,798,728.

The aggregate market value of the voting common stock held by  non-affiliates of
the issuer was $5,919,463 as of November 21, 1997.

There were  3,464,745  shares of the  issuer's  common stock  outstanding  as of
November 21, 1997.

Transitional Small Business Disclosure Format:  Yes  [   ]  No  [ X ]

Parts of Registrant's proxy statement dated on or about January 5, 1998 prepared
in connection with the Annual Meeting of shareholders to be held on February 17,
1998 are incorporated by reference into Part III of this Report.


<PAGE>
                                     PART I

ITEM 1.DESCRIPTION OF BUSINESS

      Phoenix Gold  International,  Inc. (the  "Company")  designs,  markets and
sells innovative, high quality, high performance electronics and accessories for
the domestic and international  car audio  aftermarket,  the professional  sound
market and the custom  audio/video  and home theater  markets.  The Company also
designs,  markets and sells innovative,  high quality, high performance speakers
for the car audio aftermarket. The Company manufactures substantially all of its
electronics  and a portion of its  accessories  and  speakers at its facility in
Portland, Oregon. The Company was incorporated in 1991 in Oregon.

      The  Company's  car  audio  products  encompass  substantially  all of the
components  used in car audio  systems  (other than "head units" such as radios,
tape  decks  and CD  players).  The  Company's  car  audio  electronics  include
amplifiers,  equalizers,  crossovers  and line drivers.  The Company's car audio
accessories include audio cables, speaker and power cables, connectors,  clamps,
capacitors and fuseblocks.  The Company's  speaker products include  subwoofers,
midranges and tweeters.

      As the Company  expanded its car audio  product line from  accessories  to
electronics  and  speakers,  it  initially  targeted car audio  enthusiasts  and
audiophiles with products that offer value by combining performance  advantages,
such as sonic excellence,  system flexibility and reliability,  with distinctive
appearance and superior  craftsmanship.  The Company subsequently  broadened its
car audio product line to offer  similar  performance  characteristics  at lower
price points.  The  Company's  primary  target market is car audio  enthusiasts,
typically  18 to 34 year old males who desire  high  quality,  high  performance
systems.  The Company  also sells to other  consumers  who seek to increase  the
quality of their car audio systems  either by upgrading  existing  components or
installing new systems.

      In November 1995, the Company acquired  substantially all of the assets of
the professional sound division of Carver Corporation.  The Company, as licensee
of the name  "Carver  Professional",  designs,  manufactures,  markets and sells
electronic  amplifiers  and  accessories  for  the  domestic  and  international
professional sound market, including OEM customers.


PRODUCTS

The Company has three product lines:  electronics, accessories and speakers.

       ELECTRONICS.  The  Company's  amplifiers,  signal  processors  and  other
electronics  are designed to deliver sonic  excellence,  system  flexibility and
reliable  performance.  The Company  sells car audio  electronics  designed  for
audiophiles, serious audio enthusiasts and sound competitors.

      AMPLIFIERS.  The Company  sells a total of 18 car audio  amplifiers in the
ZPA, ZX, XS, QX and Sapphire series at retail prices ranging from  approximately
$200 to  $1,150.  Amplifiers  in the ZPA  series,  introduced  in 1996,  are the
Company's  reference  amplifiers,  designed to deliver  maximum  performance  in
expensive, high end systems capable of driving multiple speakers. The ZX series,
also  introduced  in  1996,  includes  multi-channel  amplifiers  with  built-in
crossovers  and offers the  performance  and sonic  excellence  of the reference
series  amplifiers  except  in the most  demanding  applications.  The XS and QX
<PAGE>
series,  both introduced in 1997, and the Sapphire  series,  introduced in 1994,
are designed to provide high  performance  at lower prices.  The QX amplifier is
the first of the Company's electronics products to be designed and engineered by
the Company and manufactured by a third party vendor. Due to the introduction of
the XS and QX series in 1997, the Company does not expect the Sapphire series to
provide meaningful revenue in the future.

      Additionally,  the Company has  periodically  introduced  limited  edition
theme  amplifiers,  such as "Frank  Amp'n  Stein,"  "Son of Frank Amp'n  Stein,"
"Route 66,"  "Outlaw  1845" and "Bandit  1895",  at retail  prices  ranging from
approximately $500 to $2,400.

      The Company sells a total of 15 Carver  Professional  amplifiers at retail
prices ranging from approximately $500 to $2,400. The PM series was designed for
multiple purposes,  including instrument amplification,  fixed installations and
touring  applications.  The PT series was designed  specifically for the touring
sound  industry for ease of  transportability  and use in a variety of settings.
The CA series  amplifiers  were  designed for fixed  installation  applications,
including  churches,  warehouses and auditoriums.  The PX series,  introduced in
1997 and the  first  series  designed  by the  Company,  includes  entry  level,
multi-application  models that offer increased features and power at lower price
points.

      SIGNAL  PROCESSORS.  The  Company  sells a total  of 18 car  audio  signal
processors,   including  equalizers,   line  drivers,  and  active  and  passive
crossovers.  Signal processors, which are sold both as upgrade components and as
parts of complete systems,  are used to increase the flexibility and performance
of audio systems.  Retail prices of signal  processors range from  approximately
$130 to $600.

      ACCESSORIES.  The Company manufacturers and distributes  innovative,  high
quality accessories. The Company sells approximately 1,000 accessories,  many of
which are manufactured to the Company's design specifications, for use primarily
in car audio  aftermarket  applications.  Car audio  accessories  include  audio
cables,  speaker and power cables,  connectors,  clamps,  adapters,  capacitors,
fuseblocks,  distribution blocks,  alternators,  carpet, textiles and adhesives.
The Company  continually  improves its existing  accessories line and introduces
new and replacement  accessories.  The Company is a single source from which its
dealers and  distributors  can  purchase  all of the  accessories  necessary  to
install the full range of car audio systems. Accessories are available either as
individual items or in complete installation kits.

      The  Company's  accessories  for  use in  professional  sound  and  custom
audio/video  and home  theater  applications  include  crossovers,  attenuators,
transformers, speaker selectors, audio and video cables, connectors, wall plates
and volume controls.  The Company manufactures Smart Audio Management panels for
the custom home  audio/video  market that provide for speaker  distribution  and
impedance matching.

      SPEAKERS. The Company began selling speakers in 1994. The Company offers a
total of 30 speakers in the ZEROpoint,  XMAX, XS and Sapphire series,  including
tweeters,  midranges,  subwoofers  and  coaxials.  The  ZEROpoint  series is the
Company's  reference speaker series and is designed to achieve  audiophile level
sound  quality,  transparency  and enhanced  imaging in either the "on" or "off"
axis  listening  position.  The XMAX  series  features  reproduction  of  tight,
accurate  bass  in  a  small  enclosure.  The  XS  series  features  exceptional
musicality, excursion and versatility at lower price points. The Sapphire series
is the Company's lower price point speaker line. Retail prices of speakers range
from approximately $50 to $400.
<PAGE>

      The Company has an exclusive  license to utilize  patented  technology  to
produce a speaker  known as the  "Cyclone"  for the car and home audio  markets.
This  technology  uses a  moving  magnet  rotary  motor  and a  composite  vane,
replacing  the  conventional  motor  magnet  and cone of a typical  loudspeaker.
Compared to a typical high performance 12-inch subwoofer,  the Cyclone car audio
subwoofer  can produce up to  approximately  three times the amount of bass in a
similar  sized  enclosure  and offers  improved  sound quality and greater power
handling capacity. The retail price of the Cyclone is approximately $850.


SALES, MARKETING AND DISTRIBUTION

      The Company sells its products through car audio and specialty  retailers,
principally in North America,  Europe, Japan,  Southeast Asia, Australia and New
Zealand.  The Company also sells certain of its car audio accessories  through a
mass  merchandising  chain of stores in the United States. The Company sells its
car audio,  professional  sound and home products in the United  States  through
independent  sales  representatives  and  distributors.  The  Company  sells its
products   internationally   through  distributors   serving   approximately  50
countries. International sales accounted for 39.2%, 39.2% and 40.6% of net sales
in fiscal  years  1997,  1996 and 1995,  respectively.  International  sales are
denominated  in United  States  dollars and are  generally  shipped  f.o.b.  the
Company's facility in Portland, Oregon.

      No customer  accounted  for 10% or more of the  Company's net sales during
fiscal 1997 or 1996. As of September 30, 1997, two customers accounted for 11.4%
and 10.8%, respectively, of total accounts receivable.

      The Company offers its dealers and  distributors  complete  product lines,
excellent service and support,  and high  performance,  reliable  products.  The
Company believes these efforts enable it to attract and retain qualified dealers
and  distributors.  The Company  recruits  on a selective  basis new dealers and
distributors for each of its product lines in specific geographic areas. Dealers
and distributors are chosen based on location,  financial  stability,  technical
expertise, sales history,  integrity, and installation and service capabilities.
The Company generally does not have written  agreements with its car audio sales
representatives, dealers or distributors or its professional sound distributors.
The Company's written agreements with its professional sound representatives and
dealers are generally terminable upon no more than 30 days notice.

      The Company  markets its car audio products by  participating  in consumer
electronics  trade  shows  and  enthusiast  events  and  by  promoting  its  own
demonstration  vehicles.  The Company  offers  incentives to "Team Phoenix Gold"
competitors  in  regional,  national  and  international  car  audio  shows  and
competitions  and  provides  technical  assistance,  training  and support  from
Company  engineers  and  technicians  at "Tweek N Tune"  workshops.  The Company
advertises in car audio  consumer  magazines and its products have been reviewed
and profiled in national and international publications. The Company markets its
professional   sound,   custom   audio/video   and  home  theater   products  by
participating  in trade shows,  advertising  in trade journals and magazines and
providing dealer support.
<PAGE>


COMPETITION

      The markets for the  Company's  products  are highly  competitive  and are
served by many United States and international  manufacturers  that market their
own lines of electronics,  accessories  and speakers  through  specialty  dealer
networks and mass  merchandise  retail stores,  as well as companies that market
generic products through the same distribution channels. The Company's principal
accessories competitors include Monster Cable Products, Inc., Esoteric Audio USA
Group  of  Companies  and  Recoton  Corp.  The  Company's  principal  car  audio
electronics  competitors  include Rockford Fosgate, a division of Rockford Corp.
("Rockford"),  Orion  Industries,  Inc. and Precision Power,  Inc. The Company's
principal professional sound competitors include Crown International,  Inc., QSC
Audio  Products,  Inc. and Crest Audio,  Inc. The  Company's  principal  speaker
competitors  include  Rockford,  MTX Corporation,  Stillwater  Design and Audio,
Inc., JL Audio, Inc., MB Quart Electronics USA, Inc. and Boston Acoustics,  Inc.
Many competitors have greater financial and other resources than the Company.

     The Company  competes  principally on the basis of  innovation,  breadth of
product  line,   quality  and   reliability  of  products,   name   recognition,
merchandising and distribution organization,  and price. The Company believes it
competes favorably with respect to each of these factors.


MANUFACTURING AND ASSEMBLY

      MANUFACTURED PRODUCTS.  The Company manufactures  substantially all of its
electronics  products  and a  portion  of its  accessories  at its  facility  in
Portland,  Oregon.  Manufacturing  processes  include  laser-cutting,   computer
controlled metal fabrication,  powder coating, automated insertion of components
into and wave soldering of circuit  boards,  toroid winding,  plastic  injection
molding,  silk-screening  graphics and quality control  testing.  For use in its
manufacturing activities,  the Company also purchases components manufactured by
third parties according to design  specifications  developed by the Company. The
Company  purchases  substantially  all  of its  raw  materials,  components  and
subassemblies  from  approximately 185 suppliers located primarily in the United
States  and  the  Pacific  Rim.  Certain  of  these  materials,  components  and
subassemblies  are  obtained  from a single  supplier  or a  limited  number  of
suppliers.  The  Company's  principal  supplier  is Team  Phoenix Co.  Ltd.,  an
unaffiliated company.

      DISTRIBUTED  ACCESSORIES.  The Company  distributes  accessories,  many of
which  are  manufactured  to  its  design   specifications   by  third  parties.
Substantially  all  distributed  accessories  are  subjected to quality  control
procedures at the Company's  facility and are marketed under the PHOENIX GOLD or
CARVER PROFESSIONAL tradenames.

     DESIGNED  SPEAKERS.  Other than the  Cyclone,  the  Company's  speakers are
manufactured by third parties in the United States and the Pacific Rim according
to acoustical and  electrical  design  specifications  developed by the Company.
Speakers are subjected to quality control procedures by the Company. The Company
manufactures the Cyclone.
<PAGE>


CUSTOMER SERVICE

      The Company  believes two of the most  important  elements in its business
are understanding  consumers and their preferences,  and providing high quality,
reliable  products.  The Company  strives to understand  the evolving  needs and
preferences of consumers by communicating with its representatives,  dealers and
distributors,  sponsoring  "Team  Phoenix  Gold" members and attending car audio
competitions and car audio,  professional  sound and custom audio/video and home
theater trade shows.  Company  representatives  regularly seek  suggestions from
dealers for improved design and performance of the Company's products.

      Proper  installation is critical to achieving  optimum  performance of car
audio  systems.  The Company  offers an 18-month  limited  warranty on car audio
electronics  installed by an  authorized  dealer or installer  and increases the
warranty period to 36 months if the warranty card accompanying the product and a
copy of the original  sales receipt are returned to the Company.  If the product
is not installed by an  authorized  dealer or  installer,  the Company  offers a
30-day  limited  warranty.  The Company offers a five-year  limited  warranty on
professional sound electronics and a one-year limited warranty on speakers.


INTELLECTUAL PROPERTY

      PHOENIX GOLD(R), CARVER PROFESSIONAL(TM),  POWERFLOW(TM), QUICKSILVER(TM),
SAPPHIRE(TM) and ZEROPOINT(TM) are the principal  trademarks of the Company. The
Company  believes  that PHOENIX GOLD and CARVER  PROFESSIONAL  have strong brand
name recognition,  an important  competitive factor in its markets.  The Company
has no patents,  but is a licensee of patented  technology  with  respect to the
Cyclone.  The Company has an exclusive,  paid-up  license to use the name CARVER
PROFESSIONAL through November 2000.


GOVERNMENTAL APPROVAL OF PRODUCTS

      The Company is subject to and  believes it is in  compliance  with certain
European Community  standards  regarding  electromagnetic  standards and product
safety on substantially  all of its electronics sold in the European  Community.
The Company  believes that  additional  similar  regulations  will be imposed in
Europe and other areas. Any inability by the Company to comply with such similar
regulations  on a timely  basis  could  have a  material  adverse  effect on the
Company.


EMPLOYEES

         As of  September  30,  1997 the Company  had 231  full-time  employees,
including 187 in  manufacturing,  engineering,  warehousing and shipping,  25 in
sales and marketing and 19 in administration. The Company considers its employee
relations to be good.
<PAGE>

ITEM 2.    DESCRIPTION OF PROPERTY

      The Company's  executive offices and manufacturing  operations are located
at 9300 North Decatur Street, Portland,  Oregon in two adjacent leased buildings
consisting  of a total of  approximately  15,000 square feet of office space and
130,000 square feet of manufacturing  and warehouse  space.  Annual rent for the
Company's facilities is approximately $370,000. The lease expires June 30, 1999.
The Company has an option to extend the lease for one five-year term and has the
option to purchase the main building for $3.1 million and the adjacent  building
for $1.3 million effective June 30, 1999. The Company believes that its existing
facilities are adequate to meet its needs for the  foreseeable  future and that,
if  needed,  suitable  additional  or  alternative  space will be  available  on
commercially reasonable terms.


ITEM 3.    LEGAL PROCEEDINGS

           None


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

           None

<PAGE>

                                     PART II

ITEM 5.    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

      The  Company's  Common  Stock  began  trading on May 4, 1995 in the NASDAQ
National  Market under the symbol "PGLD".  As reported by NASDAQ,  the following
table sets forth the range of high and low  trading  price  information  for the
Company's Common Stock.


                              Fiscal year ended             Fiscal year ended
                              September 30, 1997            September 30, 1996
                           --------------------------    -----------------------

    Common Stock (PGLD)       High          Low           High          Low
    --------------------   -----------  -----------    -----------  -----------

      First Quarter        $   8.25      $  4.625        $ 10.75     $   8.50
      Second Quarter           6.50         4.625          13.50         9.00
      Third Quarter            7.00         4.25           13.25         8.50
      Fourth Quarter           7.00         4.25            9.25         6.75


      At November  21, 1997,  the closing  price of the Common Stock was $4.375,
and the approximate number of holders of record of Common Stock was 110.

      The Company has never  declared or paid any cash  dividends  on its Common
Stock.  The  Company's  existing  credit  agreements  prohibit  the Company from
declaring and paying  dividends.  The Company intends to retain all earnings for
use in its business and therefore does not anticipate  paying any cash dividends
in the foreseeable future.


ITEM 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

FORWARD-LOOKING STATEMENTS

      All  statements  in this  Report  that are not  statements  of  historical
results should be considered "forward-looking  statements" within the meaning of
the  Private  Securities  Litigation  Reform  Act of  1995,  including,  without
limitation,  statements  as  to  expectations,   beliefs  and  future  financial
performance,  and are based on current  expectations  and are subject to certain
risks,  trends and  uncertainties  that could cause actual  results to vary from
those  projected,  which  variances  may have a material  adverse  effect on the
Company.  Among the factors that could cause actual results to differ materially
are the following: business conditions and growth in the car audio, professional
sound and custom  audio/video and home theater markets and the general  economy;
competitive  factors such as rival products and price pressures;  the failure of
new products to compete  successfully in existing or new markets; the failure to
achieve  timely  improvement  in the  manufacturing  ramp  with  respect  to new
products;  changes  in  product  mix;  availability  and  price  of  components,
subassemblies and products supplied by third-party  vendors;  and cost and yield
issues associated with production at the Company's factory.

<PAGE>

COMPARISON OF FISCAL 1997 TO FISCAL 1996

      NET SALES. Net sales increased $1.2 million, or 4.7%, to $27.8 million for
fiscal 1997  compared to $26.6  million for fiscal  1996.  Sales of speakers and
accessories increased 46.9% and 18.1%, respectively,  in fiscal 1997 compared to
fiscal 1996. The increases in speaker and accessories  sales resulted  primarily
from higher unit sales of existing and new products. Electronics sales decreased
2.7%  from  fiscal  1996 due to  lower  sales of  professional  sound  products.
International  sales  increased  $500,000,  or 4.8%, to $10.9 million for fiscal
1997 compared to $10.4 million for fiscal 1996.  International  sales  accounted
for 39.2% of net sales in each of fiscal 1997 and fiscal 1996.

      GROSS PROFIT.  Gross profit increased to 24.5% of net sales in fiscal 1997
from 23.1% in fiscal 1996. Gross profit is fiscal 1996 was impacted by increased
reserves for  potentially  obsolete raw materials and slow moving finished goods
inventories.

      OPERATING  EXPENSES.  Operating expenses decreased $2.3 million, or 28.6%,
to $5.7  million  in fiscal  1997  compared  to $7.9  million  in  fiscal  1996.
Operating  expenses  were 20.4% and 29.8% of net sales in fiscal 1997 and fiscal
1996, respectively.

      Selling expenses decreased  $429,000,  or 11.4%, to $3.3 million in fiscal
1997  compared to $3.8 million in fiscal 1996.  Selling  expenses were 12.0% and
14.1% of net sales in fiscal 1997 and fiscal  1996,  respectively.  The decrease
was primarily due to lower promotional,  advertising and trade show expenses and
continuing cost control programs.

      General and administrative  expenses decreased $717,000, or 23.5%, to $2.3
million in fiscal 1997  compared  to $3.0  million in fiscal  1996.  General and
administrative  expenses  were 8.4% and  11.5% of net  sales in fiscal  1997 and
fiscal 1996,  respectively.  The decrease in general and administrative expenses
occurred principally because of lower bad debt expense,  lower professional fees
and continuing cost control programs.

      In fiscal 1996 the Company took a one-time  pretax  charge of $1.1 million
related  to  in-process  research  and  development  costs  associated  with the
purchase in November 1995 of Carver  Corporation's  professional sound division.
This charge was equal to 4.2% of net sales in fiscal 1996.

      OTHER EXPENSES.  Other expenses, net of other income,  increased $233,000,
or 96.6%, to $473,000 in fiscal 1997 from $241,000 in fiscal 1996, primarily due
to higher interest rates on larger borrowings.

      NET EARNINGS (LOSS). The foregoing factors  contributed to net earnings in
fiscal  1997 of  $410,000,  or $0.12 per share,  compared  to a net loss of $1.3
million in fiscal 1996, or $0.37 per share. Net loss for fiscal 1996, before the
one-time  pretax charge of $1.1 million related to the acquisition of the Carver
professional sound division, was $571,000, or $0.17 per share.

<PAGE>

COMPARISON OF FISCAL 1996 TO FISCAL 1995

      NET SALES.  Net sales  increased $6.4 million,  or 31.7%, to $26.6 million
for fiscal 1996 compared to $20.2 million for fiscal 1995,  due  principally  to
the  acquisition of the Company's  professional  sound division in November 1995
and increased unit sales of existing and newly introduced car audio electronics,
accessories  and  speakers.  Sales  of  electronics,  speakers  and  accessories
increased 50.4%, 27.8% and 7.6%, respectively, in fiscal 1996 compared to fiscal
1995. International sales increased $2.2 million, or 27.0%, to $10.4 million for
fiscal  1996  compared  to $8.2  million for fiscal  1995.  International  sales
accounted  for 39.2% and 40.6% of net  sales in  fiscal  1996 and  fiscal  1995,
respectively.

      GROSS PROFIT.  Gross profit decreased to 23.1% of net sales in fiscal 1996
from  35.4% in  fiscal  1995,  due  principally  to higher  materials  costs and
decreased  labor  productivity  relating to the  Company's  ZPA and ZX car audio
amplifiers  introduced  in fiscal  1996,  lower  margins on  professional  sound
products the Company began  selling in December 1995 and increased  reserves for
potentially obsolete raw materials and slow moving finished goods inventories.

      OPERATING EXPENSES.  Operating expenses increased $4.1 million, or 107.1%,
to $7.9  million  in fiscal  1996  compared  to $3.8  million  in  fiscal  1995.
Operating  expenses  were 29.8% and 19.0% of net sales in fiscal 1996 and fiscal
1995, respectively.

      Selling  expenses  increased  $1.6 million,  or 74.6%,  to $3.8 million in
fiscal 1996 compared to $2.2 million in fiscal 1995. Selling expenses were 14.1%
and  10.7% of net  sales in  fiscal  1996 and  fiscal  1995,  respectively.  The
increase in dollar amount was primarily due to increased  promotional  and trade
show expenses to support sales of existing  products and the introduction of new
products,  including the Company's  professional sound products, the addition of
sales and marketing  personnel and increased  salary  expense for existing sales
and marketing  personnel,  and increased  commissions  to sales  representatives
reflecting increased sales volume.

      General and administrative  expenses increased $1.4 million,  or 82.0%, to
$3.0 million in fiscal 1996 compared to $1.7 million in fiscal 1995. General and
administrative  expenses  were  11.5% and 8.3% of net  sales in fiscal  1996 and
fiscal 1995, respectively. The increases in dollar amount and as a percentage of
net sales were due  principally  to increased bad debt  expenses,  higher legal,
accounting  and  investor   relations  costs  and  increased   personnel  costs.
Historically,  the Company has built  infrastructure  and added  personnel on an
as-needed basis, resulting in occasional increases in general and administrative
expenses that are  disproportionate  to increases in net sales.  This policy has
resulted  in  and  may  continue  to  result  in   variations   in  general  and
administrative expenses as a percentage of sales from period to period.

      In fiscal 1996 the Company took a one-time  pretax  charge of $1.1 million
related  to  in-process  research  and  development  costs  associated  with the
purchase in November 1995 of Carver  Corporation's  professional sound division.
This charge was equal to 4.2% of net sales in fiscal 1996.

      OTHER EXPENSES. Other expenses, net of other income, decreased $22,000, or
8.5%,  to $241,000 in fiscal 1996 from  $263,000 in fiscal 1995,  primarily as a
result of lower  average debt levels  during fiscal 1996 due to the reduction of
debt subsequent to the Company's initial public offering in May 1995.
<PAGE>

      NET EARNINGS (LOSS).  The foregoing  factors  contributed to a net loss in
fiscal 1996 of $1.3 million,  or $0.37 per share (based on 3.45 million shares),
compared to net  earnings  of $1.9  million in fiscal  1995,  or $0.67 per share
(based on 2.80 million  shares).  Net loss for fiscal 1996,  before the one-time
pretax  charge  of  $1.1  million  related  to the  acquisition  of  the  Carver
professional sound division, was $571,000, or $0.17 per share.


LIQUIDITY AND CAPITAL RESOURCES

      The Company's  principal needs for funds are for working capital and, to a
lesser extent, for capital expenditures.  The Company financed its operations in
fiscal 1997 principally from funds generated from operations and borrowings. Net
cash  generated by operating  activities in fiscal 1997 was $945,000 as compared
to net cash used in operating activities of $2.8 million in fiscal 1996.

      During fiscal 1997,  accounts payable decreased $2.0 million,  inventories
decreased $1.8 million and notes payable  decreased $1.1 million,  leading to an
increase in working capital of $1.2 million.

      Capital  expenditures  were  $483,000,  $1.4  million and $1.5  million in
fiscal  years 1997,  1996 and 1995,  respectively.  These  expenditures  related
primarily  to the  automation  and the  commencement  of  certain  manufacturing
processes in house, leasehold improvements to the Company's new facility and the
acquisition  of equipment for use by the Company's  administration,  engineering
and marketing  departments.  The Company does not expect capital expenditures to
exceed $500,000 in fiscal 1998.

      As of September 30, 1997,  the Company had a $5.5 million  revolving  bank
operating line of credit available  through December 31, 1997.  Borrowings under
the line of credit are limited to eligible  accounts  receivable  and inventory,
and are subject to certain additional  limits.  Interest on borrowings under the
line of credit  equaled the bank's prime  lending  rate (8.5% at  September  30,
1997),  plus an  additional  percentage  based upon the  Company's  tangible net
worth.  At September 30, 1997, the additional  percentage  above prime was 1.5%.
Borrowings  under the line of credit  are  secured by  substantially  all of the
assets of the Company.  The line of credit  contains  covenants  which require a
minimum level of tangible net worth, a maximum level of inventories  and minimum
ratios of current assets to current  liabilities and debt service coverage.  The
line of credit  prohibits  dividends.  As of September 30, 1997, the Company was
eligible to borrow $5.1 million  under the line of credit and  borrowings  under
the line of credit as of that date were $3.1  million.  The  Company  expects to
renew the  revolving  bank  operating  line of credit on similar  terms prior to
December 31, 1997.

      In March 1997 the  Company  completed  a secured  loan with a third  party
lender for  $800,000.  The loan bears  interest at 11.1% per annum and is due in
monthly  installments  until  maturity on March 1, 2000.  The loan is secured by
certain of the Company's machinery and equipment.

       A $350,000 note payable to Carver Corporation  related to the acquisition
of the Carver  professional  sound division was paid in full in fiscal 1997. The
note bore interest at a rate of 6% per annum.
<PAGE>

      Due to seasonally  lower sales levels in the first two fiscal quarters and
the maintenance of inventory levels in anticipation of higher sales in the third
and fourth fiscal quarters,  the Company's cash requirements are usually greater
during the first two fiscal quarters.

      The Company's total inventories  decreased $1.8 million, or 20.0%, to $7.2
million as of September  30, 1997  compared to $9.0 million as of September  30,
1996. The decrease was in work-in-process and raw materials.

      As of September 30, 1997, the Company's capital lease obligations  totaled
$161,000,  including a current  portion of $133,000,  at annual  interest  rates
ranging from 5.0% to 10.3%.


ITEM 7.    FINANCIAL STATEMENTS

           See pages 17 through 32.


ITEM 8.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
           ON ACCOUNTING AND FINANCIAL DISCLOSURE

           None

<PAGE>

                                    PART III

ITEM 9.    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; 
           COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

      This is hereby  incorporated  by  reference to the  information  under the
captions  "Proposal 1:  Election of  Directors"  and "Section  16(a)  Beneficial
Ownership Reporting  Compliance" of the Company's  definitive Proxy Statement to
be filed pursuant to Regulation  14A, which Proxy Statement is anticipated to be
filed with the Securities and Exchange  Commission within 120 days after the end
of Registrant's fiscal year ended September 28, 1997.


ITEM 10.   EXECUTIVE COMPENSATION

      This is hereby  incorporated  by  reference to the  information  under the
caption  "Proposal 1: Election of Directors" of the Company's  definitive  Proxy
Statement  to be filed  pursuant to  Regulation  14A,  which Proxy  Statement is
anticipated to be filed with the Securities and Exchange  Commission  within 120
days after the end of Registrant's fiscal year ended September 28, 1997.


ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      This is hereby  incorporated  by  reference to the  information  under the
caption  "Proposal 1: Election of Directors" of the Company's  definitive  Proxy
Statement  to be filed  pursuant to  Regulation  14A,  which Proxy  Statement is
anticipated to be filed with the Securities and Exchange  Commission  within 120
days after the end of Registrant's fiscal year ended September 28, 1997.


ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      This is hereby  incorporated  by  reference to the  information  under the
caption  "Proposal 1: Election of Directors" of the Company's  definitive  Proxy
Statement  to be filed  pursuant to  Regulation  14A,  which Proxy  Statement is
anticipated to be filed with the Securities and Exchange  Commission  within 120
days after the end of Registrant's fiscal year ended September 28, 1997.


ITEM 13.   EXHIBITS AND REPORTS ON FORM 8-K

      (a)  Exhibits

           Articles of Incorporation and Bylaws
           ------------------------------------

           3(i)     1995  Restated  Articles of  Incorporation  and  Articles of
                    Amendment  (incorporated  by  reference  to Exhibit  3(i) to
                    Registration  Statement on Form SB-2  effective  May 3, 1995
                    (Registration No. 93-90588))
<PAGE>

           3(i)(a)  Articles of Amendment filed April 7, 1995  (incorporated  by
                    reference to Exhibit 3(i) (a) to  Registration  Statement on
                    Form SB-2 effective May 3, 1995 (Registration No. 93-90588))

           3(ii)    Restated Bylaws  (incorporated by reference to Exhibit 3(ii)
                    to Registration Statement on Form SB-2 effective May 3, 1995
                    (Registration No. 93-90588))

           Instruments Defining Rights of Security Holders
           -----------------------------------------------

           4        Articles 2, 5 and 6 of Exhibit 3(i) and Article 6 of Exhibit
                    3(ii) are incorporated herein by reference

           Material Contracts
           ------------------

           10.1     Amended and Restated 1995 Stock Option Plan (incorporated by
                    reference to Appendix A to the  Company's  definitive  proxy
                    statement filed with the Securities and Exchange  Commission
                    on January 15, 1997) (1)

           10.1     Form of Incentive Stock Option  Agreement  (incorporated  by
                    reference to Exhibit  10.1(a) to  Registration  Statement on
                    Form SB-2 effective May 3, 1995 (Registration No. 93-90588))
                    (1)

           10.2     Form of Nonstatutory Stock Option Agreement (incorporated by
                    reference to Exhibit  10.1(b) to  Registration  Statement on
                    Form SB-2 effective May 3, 1995 (Registration No. 93-90588))
                    (1)

           10.3     Lease  Agreement  between the  Company and BB&S  Development
                    Company dated February 2, 1994 (incorporated by reference to
                    Exhibit  10.2  to   Registration   Statement  on  Form  SB-2
                    effective May 3, 1995 (Registration No. 93-90588))

           10.4     Amendment dated January 12, 1996 to Lease Agreement  between
                    the Company and BB&S  Development  Company dated February 2,
                    1994  (incorporated  by  reference  to Exhibit  10.1 to Form
                    10-QSB filed with the Securities and Exchange Commission for
                    the quarterly period ended December 31, 1995)

           10.5     License Agreement between the Company and Carver Corporation
                    dated as of November 20, 1995  (incorporated by reference to
                    Exhibit  2.3 to Form  8-K  filed  with  the  Securities  and
                    Exchange Commission on December 1, 1995)

           10.6     License  Agreement  dated  September  30,  1993  between the
                    Company  and   Intersonics   Technology   Corporation,   and
                    amendments  (incorporated  by  reference  to Exhibit 10.2 to
                    Form 10-QSB/A  (Amendment  No. 1) filed with the  Securities
                    and  Exchange  Commission  for the  quarterly  period  ended
                    December 31, 1995) (2)


<PAGE>


           10.7     Third  Amendment  dated as of January 15,  1996  between the
                    Company and Intersonics Technology Corporation (incorporated
                    by  reference  to Exhibit 10.3 to Form 10-QSB filed with the
                    Securities and Exchange  Commission for the quarterly period
                    ended March 31, 1997) (2)

           10.8     Loan  Agreement   between  the  Company  and  United  States
                    National  Bank of Oregon  ("USNB")  dated  February  4, 1997
                    (incorporated  by  reference  to Exhibit 10.1 to Form 10-QSB
                    filed with the  Securities  and Exchange  Commission for the
                    quarterly period ended December 31,1996)

           10.9     Amendment dated April 18, 1997 to Loan Agreement between the
                    Company  and USNB dated  February 4, 1997  (incorporated  by
                    reference  to  Exhibit  10.1 to Form  10-QSB  filed with the
                    Securities and Exchange  Commission for the quarterly period
                    ended March 31, 1997)

           10.10    First  Amendment  dated  June  27,  1997 to  Loan  Agreement
                    between  the  Company  and  USNB  dated   February  4,  1997
                    (incorporated  by  reference  to Exhibit 10.1 to Form 10-QSB
                    filed with the  Securities  and Exchange  Commission for the
                    quarterly period ended June 30, 1997)

           10.11    Second  Amendment dated September 26, 1997 to Loan Agreement
                    between the Company and USNB dated February 4, 1997

           10.12    Commercial  Security  Agreement between the Company and USNB
                    dated as of January 1, 1997  (incorporated  by  reference to
                    Exhibit 10.11 to Form 10-KSB filed with the  Securities  and
                    Exchange  Commission for the fiscal year ended September 30,
                    1996)

           10.13    Promissory  Note dated  February 3, 1997 made by the Company
                    in favor of USNB  (incorporated by reference to Exhibit 10.1
                    to Form  10-QSB  filed  with  the  Securities  and  Exchange
                    Commission for the quarterly period ended December 31, 1996)

           10.14    Amendment to Promissory  Note dated February 3, 1997 made by
                    the Company in favor of USNB  (incorporated  by reference to
                    Exhibit  10.2 to Form 10-QSB filed with the  Securities  and
                    Exchange  Commission for the quarterly period ended June 30,
                    1997)

           10.15    Form of Indemnity  Agreement (incorporated  by reference to
                    Exhibit  10.6  to   Registration   Statement  on  Form  SB-2
                    effective May 3, 1995 (Registration No. 93-90588))

           10.16    Nonstatutory  Stock Option Agreement dated February 18, 1997
                    between the Company and Frank G. Magdlen (1)

           10.17    Nonstatutory  Stock Option Agreement dated February 18, 1997
                    between the Company and Matthew W. Chapman (1)

<PAGE>
           23.1     Consent of Deloitte & Touche LLP, Independent Auditors

           27       Financial Data Schedule


      (b)  Reports on Form 8-K

           None


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

           (1)  Management contract or compensatory plan or arrangement.

           (2)  Certain material  contained in this exhibit has been omitted and
                filed  separately  with the Securities  and Exchange  Commission
                pursuant to an application for confidential treatment under Rule
                24b-2 promulgated under the Securities Exchange Act of 1934, as 
                amended.

<PAGE>

                          INDEX TO FINANCIAL STATEMENTS



                                                                          Page
                                                                          ----

Independent Auditors' Report                                               18

Balance Sheets at September 30, 1997 and 1996                              19

Statements of Operations
      for the Three Years Ended September 30, 1997                         20

Statements of Shareholders' Equity
      for the Three Years Ended September 30, 1997                         21

Statements of Cash Flows
      for the Three Years Ended September 30, 1997                         22

Notes to Financial Statements                                              23

<PAGE>
                          INDEPENDENT AUDITORS' REPORT






The Board of Directors and Shareholders
Phoenix Gold International, Inc.


We have audited the accompanying  balance sheets of Phoenix Gold  International,
Inc.  as of  September  30,  1997  and  1996,  and  the  related  statements  of
operations,  shareholders'  equity and cash flows for each of the three years in
the  period  ended  September  30,  1997.  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,  such  financial  statements  present  fairly,  in all material
respects,  the  financial  position of Phoenix  Gold  International,  Inc. as of
September  30,  1997 and 1996,  and the results of its  operations  and its cash
flows for each of the three years in the period ended  September  30,  1997,  in
conformity with generally accepted accounting principles.



DELOITTE & TOUCHE LLP

Portland, Oregon
November 3, 1997

<PAGE>


                                        PHOENIX GOLD INTERNATIONAL, INC.
                                                 BALANCE SHEETS
<TABLE>
<CAPTION>


                                                                                       SEPTEMBER 30,
                                                                          ----------------------------------------
                                                                                1997                  1996
                                                                          ------------------    ------------------
<S>                                                                       <C>                   <C>               
ASSETS

Current assets:
    Cash and cash equivalents                                              $        2,603        $        2,599
    Accounts receivable, net                                                    5,186,630             5,119,360
    Inventories                                                                 7,178,820             8,971,560
    Prepaid expenses                                                              247,523               285,777
    Deferred taxes                                                                380,000               525,428
                                                                          ------------------    ------------------
        Total current assets                                                   12,995,576            14,904,724

Property and equipment, net                                                     3,478,827             3,938,790
Goodwill, net                                                                     257,324               296,946
Deferred taxes                                                                    231,000               230,333
Other assets                                                                      492,422               461,734
                                                                          ------------------    ------------------

        Total assets                                                       $   17,455,149        $   19,832,527
                                                                          ==================    ==================


LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
    Accounts payable                                                       $    1,558,749        $    3,529,450
    Notes payable                                                               3,147,936             4,278,983
    Accrued payroll and benefits                                                  373,512               381,530
    Other accrued expenses                                                        241,337               448,881
    Income taxes payable                                                                -               102,356
    Current portion of long-term obligations                                      395,669               130,334
                                                                          ------------------    ------------------
        Total current liabilities                                               5,717,203             8,871,534

Long-term obligations                                                             494,927               171,995

Shareholders' equity:
    Preferred stock;
        Authorized - 5,000,000 shares; none outstanding                                 -                     -
    Common stock, no par value;
        Authorized - 20,000,000 shares
        Issued and outstanding - 3,458,985 and 3,454,605 shares                 7,521,865             7,477,939
    Retained earnings                                                           3,721,154             3,311,059
                                                                          ------------------    ------------------
        Total shareholders' equity                                             11,243,019            10,788,998
                                                                          ------------------    ------------------

        Total liabilities and shareholders' equity                         $   17,455,149         $  19,832,527
                                                                          ==================    ==================


                                         SEE NOTES TO FINANCIAL STATEMENTS

</TABLE>
<PAGE>

                                        PHOENIX GOLD INTERNATIONAL, INC.
                                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                                      YEAR ENDED SEPTEMBER 30,
                                                    --------------------------------------------------------------
                                                          1997                  1996                  1995
                                                    ------------------    ------------------    ------------------
<S>                                                 <C>                   <C>                   <C>               

Net sales                                            $  27,798,728         $  26,563,142         $  20,173,822

Cost of sales                                           20,981,845            20,432,478            13,039,022
                                                    ------------------    ------------------    ------------------

    Gross profit                                         6,816,883             6,130,664             7,134,800


Operating expenses:
    Selling                                              3,329,339             3,757,981             2,152,931
    General and administrative                           2,331,128             3,048,573             1,674,587
    In-process research and development                          -             1,120,500                     -   
                                                    ------------------    ------------------    ------------------

        Total operating expenses                         5,660,467             7,927,054             3,827,518
                                                    ------------------    ------------------    ------------------

Income (loss) from operations                            1,156,416            (1,796,390)            3,307,282

Other income (expense):
    Interest expense                                      (499,818)             (260,233)             (300,526)
    Other income, net                                       26,497                19,495                37,423
                                                    ------------------    ------------------    ------------------

        Total other income (expense)                      (473,321)             (240,738)             (263,103)
                                                    ------------------    ------------------    ------------------

Earnings (loss) before income taxes                        683,095            (2,037,128)            3,044,179

Income tax benefit (expense)                              (273,000)              767,986            (1,162,902)
                                                    ------------------    ------------------    ------------------

Net earnings (loss)                                  $     410,095        $   (1,269,142)       $    1,881,277
                                                    ==================    ==================    ==================

Net earnings (loss) per share                        $        0.12        $        (0.37)       $         0.67
                                                    ==================    ==================    ==================

Shares used in per share calculation                     3,535,288             3,449,068             2,798,877
                                                    ==================    ==================    ==================



                                         SEE NOTES TO FINANCIAL STATEMENTS
</TABLE>
<PAGE>

                                         PHOENIX GOLD INTERNATIONAL, INC.
                                         STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                      COMMON STOCK                      
                                          -------------------------------------         RETAINED
                                              SHARES               AMOUNT               EARNINGS                TOTAL
                                          ----------------    -----------------     -----------------     -------------------

<S>                                         <C>               <C>                   <C>                  <C> 
Balance at September 30, 1994                2,180,000         $     200,000         $  2,698,924          $    2,898,924

Issuance of stock for
    initial public offering                  1,265,000             7,232,987                    -               7,232,987

Net earnings                                         -                     -            1,881,277               1,881,277
                                          ----------------    -----------------     -----------------     -------------------

Balance at September 30, 1995                3,445,000             7,432,987            4,580,201              12,013,188

Issuance of stock upon
  exercise of options                            9,605                44,952                    -                  44,952

Net loss                                             -                     -           (1,269,142)             (1,269,142)
                                          ----------------    -----------------     -----------------     -------------------

Balance at September 30, 1996                3,454,605             7,477,939             3,311,059             10,788,998

Issuance of stock upon
    exercise of options                          4,380                20,498                     -                 20,498

Tax benefit of stock options                         -                23,428                     -                 23,428

Net earnings                                         -                     -               410,095                410,095
                                          ----------------    -----------------     -----------------     -------------------

Balance at September 30, 1997                3,458,985        $    7,521,865          $  3,721,154          $  11,243,019
                                          ================    =================     =================     ===================




                                             SEE NOTES TO FINANCIAL STATEMENTS
</TABLE>
<PAGE>

                                              PHOENIX GOLD INTERNATIONAL, INC.
                                                  STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                YEAR ENDED SEPTEMBER 30,
                                                                ----------------------------------------------------------
                                                                      1997                1996                 1995
                                                                -----------------   ------------------   -----------------
<S>                                                            <C>                  <C>                   <C>  
Cash flows from operating activities:
    Net earnings (loss)                                         $     410,095        $    (1,269,142)       $  1,881,277
    Adjustments  to reconcile net earnings  (loss) to
    net cash provided by (used in) operating activities:
        Depreciation and amortization                                 985,401                850,696             603,938
        Deferred taxes                                                144,761               (942,147)             68,386
        In-process research and development                                 -              1,120,500                   -
        Changes in operating assets and liabilities:
            Accounts receivable                                       (67,270)            (1,293,887)         (1,363,296)
            Inventories                                             1,792,740             (3,709,016)           (496,283)
            Prepaid expenses                                           38,254                 42,270             (83,485)
            Other assets                                              (69,964)              (223,612)           (130,000)
            Accounts payable                                       (1,970,701)             2,207,367            (136,734)
            Accrued expenses                                         (215,562)               326,415              99,429
            Income taxes payable                                     (102,356)                72,363            (398,485)
                                                                -----------------   ------------------   -----------------

    Net cash provided by (used in) operating activities               945,398             (2,818,193)             44,747

Cash flows from investing activities:
    Capital expenditures, net                                        (446,540)            (1,348,286)         (1,520,399)
    Acquisition of Carver professional sound division                       -             (1,792,616)                  - 
                                                                -----------------   ------------------   -----------------

    Net cash used in investing activities                            (446,540)            (3,140,902)         (1,520,399)

Cash flows from financing activities:
    Notes payable, net                                             (1,131,047)             3,928,983          (1,885,762)
    Proceeds from long-term obligations                               800,000                      -           2,092,563
    Repayment of long-term obligations                               (211,733)              (113,804)         (3,780,611)
    Proceeds from notes payable to shareholders                             -                      -              37,431
    Repayment of notes payable to shareholders                              -                      -            (137,431)
    Proceeds from exercise of stock options                            43,926                 44,952                   -
    Proceeds from initial public offering                                   -                      -           7,232,987
                                                                -----------------   ------------------   -----------------

    Net cash provided by (used in) financing activities              (498,854)             3,860,131           3,559,177
                                                                -----------------   ------------------   -----------------

Increase (decrease) in cash and cash equivalents                            4             (2,098,964)          2,083,525

Cash and cash equivalents, beginning of period                          2,599              2,101,563              18,038
                                                                -----------------   ------------------   -----------------

Cash and cash equivalents, end of period                         $      2,603       $          2,599      $    2,101,563
                                                                =================   ==================   =================

Supplemental disclosures:
    Cash paid for interest                                       $    513,000       $         215,280     $      320,508
    Cash paid for income taxes                                        222,000                 102,000          1,493,000
    Equipment financed by capital leases                               36,168                  16,145                  -
    Note payable issued for Carver acquisition                              -                 350,000                  -


                                         SEE NOTES TO FINANCIAL STATEMENTS
</TABLE>
<PAGE>

                        PHOENIX GOLD INTERNATIONAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                      Three Years Ended September 30, 1997


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      NATURE OF BUSINESS.  Phoenix Gold  International,  Inc. ("Phoenix Gold" or
the "Company")  designs and sells  electronics  and accessories for the domestic
and  international  car audio  aftermarket,  the  professional  sound market and
custom audio/video and home theater markets. Phoenix Gold also designs and sells
speakers  for  the  car  audio   aftermarket   and  the  home  theater   market.
Substantially all of the electronics and certain accessories are manufactured in
Portland, Oregon.

      REPORTING PERIODS.  The Company's fiscal year is the 52 or 53 weeks ending
the last  Sunday  in  September.  Fiscal  years  1997 and 1995 were 52 weeks and
fiscal year 1996 was 53 weeks. For presentation convenience,  these periods have
been presented in these financial statements as years ended September 30.

      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 reported  amounts of revenues and expenses  during the reporting
period. Actual results could differ from those estimates.

      CASH AND CASH  EQUIVALENTS.  Cash and cash equivalents  include all highly
liquid investments with original maturities of three months or less.

      INVENTORIES.  Inventories are stated at the lower of cost or market.  Cost
is determined by the average cost method.  Raw materials  inventories  generally
consist of  component  parts.  Finished  goods and  work-in-process  inventories
include materials, labor and manufacturing overhead.

      PROPERTY  AND  EQUIPMENT.  Property  and  equipment  are recorded at cost.
Depreciation  is provided  using the  straight-line  method  over the  estimated
useful  lives  (generally  3 to 10  years)  of  the  related  assets.  Leasehold
improvements and equipment under capital leases are amortized over the estimated
useful lives of the assets or the terms of the lease, whichever is shorter.

      GOODWILL.  Goodwill arising at the Company's  inception is amortized using
the  straight-line  method over a period of twenty years.  Goodwill arising from
the acquisition of the Carver professional sound division is amortized using the
straight-line method over a period of five years.  Accumulated  amortization was
$117,394 and $77,772 as of September 30, 1997 and 1996.

      FINANCIAL  INSTRUMENTS AND FAIR VALUES.  The carrying  amounts reported in
the balance  sheet for cash,  accounts  receivable,  accounts  payable,  accrued
expenses and notes  payable  approximate  fair value because of the immediate or
short-term  maturity of these  financial  instruments.  The carrying  amount for
long-term debt  approximates  its fair value because the related  interest rates
are  comparable  to rates  currently  available  for debt with similar terms and
maturities.
<PAGE>

      REVENUE RECOGNITION. Revenue is recognized upon shipment of the product.

      STOCK  OPTIONS.   Accounting   Principles  Board  (APB)  Opinion  No.  25,
ACCOUNTING  FOR STOCK  ISSUED TO  EMPLOYEES,  is  followed  to account for stock
options. No compensation cost is recognized because the option exercise price is
equal to or greater than the market price of the underlying stock on the date of
grant.

      INCOME TAXES.  Certain items of income and expense are not reported in tax
returns and financial  statements in the same year. The tax effects of temporary
differences are reported as deferred taxes.

      NET EARNINGS  (LOSS) PER SHARE.  Net earnings (loss) per share is computed
on the basis of the  weighted  average  number of common and  common  equivalent
shares  outstanding.  When  dilutive,  outstanding  options for common stock are
included in the calculation of common and common equivalent  shares  outstanding
using the treasury stock method. Also in accordance with the accounting rules of
the Securities and Exchange Commission,  shares issued or options granted within
one year  prior  to the  initial  public  offering  have  been  included  in the
calculation of common and common  equivalent  shares as if they were outstanding
for 1995 using the treasury stock method.

      PROSPECTIVE ACCOUNTING CHANGES. In February 1997, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No.  128,  EARNINGS  PER  SHARE.  SFAS No. 128  establishes  new  standards  for
computing and  presenting  earnings per share and supersedes APB Opinion No. 15,
EARNINGS PER SHARE.  SFAS No. 128 will be adopted in the year beginning  October
1, 1997. Earlier adoption is not permitted.  Pro forma earnings (loss) per share
under SFAS No. 128 for the years  ended  September  30,  1997 and 1996 would not
differ materially from the earnings (loss) per share presently reported.

      In June  1997,  the FASB  issued  SFAS No.  130,  REPORTING  COMPREHENSIVE
INCOME.  SFAS No. 130 establishes  requirements  for disclosure of comprehensive
income  and  becomes   effective  for  the  year  ending   September  30,  1999.
Reclassification  of earlier  financial  statements for comparative  purposes is
required.

      In June 1997, the FASB issued SFAS No. 131,  DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED  INFORMATION.  SFAS No. 131 establishes  standards for
disclosure about operating segments in annual financial  statements and selected
information in interim  financial  reports.  It also  establishes  standards for
related  disclosures  about  products and services,  geographic  areas and major
customers.  This  statement  supersedes  SFAS No. 14,  FINANCIAL  REPORTING  FOR
SEGMENTS OF A BUSINESS  ENTERPRISE.  SFAS No. 131 will be effective for the year
ending September 30, 1999 and requires that comparative information from earlier
years be restated to conform to the requirements of this standard.

<PAGE>

NOTE 2 - ACQUISITION

      Effective  November  20,  1995,  substantially  all of the  assets  of the
professional  sound division of Carver  Corporation were acquired.  The purchase
price was $2.1 million  consisting  of $1.8 million in cash and a $350,000  note
payable.  The Company accounted for the acquisition under the purchase method of
accounting and recorded  in-process  research and  development  expenses of $1.1
million,  finished goods of $780,000, other intangibles of $110,000 and goodwill
of $132,000.

      The following  unaudited pro forma combined results of operations accounts
for the  acquisition as if it had occurred at the beginning of fiscal 1995 or at
the beginning of fiscal 1996. The pro forma results give effect to cost of goods
sold,  amortization  of goodwill and the effects on interest  expense,  interest
income and taxes.  However,  a  one-time,  nonrecurring,  pretax  charge of $1.1
million  relating to the purchase  price  allocated to  in-process  research and
development expenses has not been included in the following pro forma results.


                                          1996                    1995
                                   -------------------    --------------------

    Net sales                        $   26,991,519         $   26,590,822
    Net earnings (loss)                    (657,791)             1,283,952
    Earnings (loss) per share                 (0.19)                  0.16

      The pro forma amounts may not be indicative of the results that would have
occurred if the  acquisition  had been effective on the date  indicated,  or the
results that may be obtained in the future.


NOTE 3 - ACCOUNTS RECEIVABLE

      Accounts receivable consist of the following:

                                                1997                 1996
                                          ------------------   ----------------

    Accounts receivable                    $   5,446,630         $   5,394,360
    Allowance for doubtful accounts             (260,000)             (275,000)
                                          ------------------   ----------------
        Total accounts receivable, net     $   5,186,630         $   5,119,360
                                          ==================   ================

<PAGE>

NOTE 4 - INVENTORIES

      Inventories consist of the following:
<TABLE>
<CAPTION>

                                                                1997                     1996
                                                        ---------------------    ---------------------

<S>                                                      <C>                     <C>    
       Raw materials                                      $     2,818,409          $     4,288,206
       Work-in-process                                             11,867                1,101,414
       Finished goods                                           4,204,428                3,411,342
       Supplies                                                   144,116                  170,598
                                                        =====================    =====================
           Total inventories                              $     7,178,820          $     8,971,560
                                                        =====================    =====================

</TABLE>

NOTE 5 - PROPERTY AND EQUIPMENT

      Property and equipment consist of the following:
<TABLE>
<CAPTION>

                                                                1997                     1996
                                                        ---------------------    ---------------------
<S>                                                      <C>                     <C>                  
       Machinery, equipment, and vehicles                 $     4,434,003          $     4,144,651
       Leasehold improvements                                   1,590,012                1,425,816
       Construction in progress                                   155,052                  193,685
                                                        ---------------------    ---------------------
                                                                6,179,067                5,764,152
       Less accumulated depreciation
         and amortization                                      (2,700,240)              (1,825,362)
                                                        =====================    =====================
           Total property and equipment, net              $     3,478,827          $     3,938,790
                                                        =====================    =====================
</TABLE>

NOTE 6 - NOTES PAYABLE

      A $5.5  million  revolving  bank  operating  line of credit  is  available
through  December 31, 1997.  Interest on the  borrowings  is equal to the bank's
prime lending rate (8.50% at September  30, 1997) plus an additional  percentage
based on tangible net worth.  At September 30, 1997, the  additional  percentage
above  prime was  1.50%.  Borrowings  under the line of credit  are  limited  to
eligible  accounts  receivable  and  inventories  and  are  subject  to  certain
additional  limits.   Borrowings  under  the  line  of  credit  are  secured  by
substantially  all of the  assets of the  Company.  The line of credit  contains
covenants  which require a minimum level of tangible net worth,  a maximum level
of inventories  and minimum ratios of current assets to current  liabilities and
debt service coverage.  The line of credit prohibits dividends.  As of September
30,  1997,  the Company was  eligible to borrow $5.1  million  under the line of
credit.  Borrowings  under the line of credit were $3.1 million as of that date.
Borrowings  as of  September  30, 1996 were $3.9  million  and bore  interest at
8.25%.

      A $350,000 note payable to Carver  Corporation  related to the acquisition
of the  professional  sound  division  was paid in full in 1997.  The note  bore
interest at a rate of 6%.

<PAGE>


NOTE 7 - LONG-TERM OBLIGATIONS

      Long-term obligations consist of the following:
<TABLE>
<CAPTION>

                                                                              1997                     1996
                                                                      ---------------------    ---------------------
<S>                                                                    <C>                       <C>                
       Term note, due March 2000, payable in monthly
         installments, including interest at 11.1%,
         secured by property and equipment                              $       684,498          $             -

       Term note, due April 2002, payable in monthly
         installments, including interest at 5.9%,
         secured by equipment                                                    34,079                        -

       Term note, due August 1999, payable in monthly
         installments, including interest at 9.0%,
         secured by equipment                                                    10,809                   16,145

       Capital lease obligations                                                161,210                  286,184
                                                                      ---------------------    ---------------------
                                                                                890,596                  302,329
       Less current portion                                                    (395,669)                (130,334)
                                                                      ---------------------    ---------------------
           Total long-term obligations                                  $       494,927          $       171,995
                                                                      =====================    =====================

</TABLE>

      Maturities on long-term obligations are as follows:

          September 30,

            1998                                            $       395,669
            1999                                                    321,760
            2000                                                    159,890
            2001                                                      7,807
            2002                                                      5,470
                                                            --------------------
              Total                                         $       890,596
                                                            ====================


NOTE 8 - LEASE COMMITMENTS

      The Company leases its office,  warehouse and manufacturing facility under
a five-year  operating lease agreement.  Terms of the lease include an option to
purchase  the  facility and an option to extend the length of the lease for five
additional years. The Company also leases manufacturing  equipment under capital
lease agreements.

<PAGE>

      Minimum future  rentals under capital and operating  leases having initial
or remaining terms of one year or more are as follows:

<TABLE>
<CAPTION>

                                                                           CAPITAL                 OPERATING
                                                                           LEASES                   LEASES
                                                                    ---------------------    ---------------------
<S>                                                                  <C>                      <C>

       September 30,
         1998                                                         $        141,188         $        367,500
         1999                                                                   29,195                  275,625
         Thereafter                                                                  -                        -
                                                                    ---------------------    ---------------------
                                                                               170,383         $        643,125
                                                                                             =====================
       Less amount representing interest                                        (9,173)
                                                                    ---------------------
           Present value of minimum lease payments                    $        161,210
                                                                    =====================

</TABLE>

      Rent expense under  operating  leases for the three years ended  September
30, 1997, 1996 and 1995 was $332,782, $348,147 and $228,913.


NOTE 9 - TAXES
<TABLE>
<CAPTION>

      Income tax expense (benefit):

                                                     1997                    1996                    1995
                                             ---------------------   ---------------------   ---------------------
<S>                                           <C>                     <C>                     <C>   
       Current:
         Federal                               $        112,000        $       155,831         $      906,000
         State                                           16,239                 18,330                188,516
                                             ---------------------   ---------------------   ---------------------
           Total current                                128,239                174,161              1,094,516

       Deferred:
         Federal                                        127,000               (842,974)                61,000
         State                                           17,761                (99,173)                 7,386
                                             ---------------------   ---------------------   ---------------------
           Total deferred                               144,761               (942,147)                68,386
                                             =====================   =====================   =====================
           Total expense (benefit)             $        273,000        $      (767,986)        $    1,162,902
                                             =====================   =====================   =====================
</TABLE>
<TABLE>
<CAPTION>


      Effective income tax rates are as follows:


                                                     1997                    1996                     1995
                                             ---------------------   ---------------------    ---------------------
<S>                                                 <C>                   <C>                        <C>   

       Taxes at statutory
          federal income tax rate                    34.0%                 (34.0%)                    34.0%
       State taxes, net of
         federal benefit                              4.4                    (4.4)                     4.4
       Other, net                                     1.6                     0.7                     (0.2)
                                             ---------------------   ---------------------    ---------------------
           Total                                     40.0%                  (37.7%)                   38.2%
                                             =====================   =====================    =====================
</TABLE>
<PAGE>


      The tax effects of temporary  differences  which give rise to deferred tax
assets and deferred tax liabilities are as follows:

<TABLE>
<CAPTION>

                                                                             1997                     1996
                                                                     ---------------------    ---------------------
<S>                                                                  <C>                       <C> 

       Deferred tax liability - depreciation                           $      (179,000)         $     (182,000)

       Deferred tax assets:
         Accrued expenses                                                      154,000                 139,000
         Goodwill and other intangibles                                        410,000                 412,333
         Inventory valuation                                                   226,000                 386,428
                                                                     --------------------    ---------------------
           Total deferred tax assets                                           790,000                 937,761
                                                                     =====================    =====================
             Net deferred taxes                                        $       611,000         $       755,761
                                                                     =====================    =====================

       Current deferred tax asset                                      $       380,000         $       525,428
       Long-term deferred tax asset                                            231,000                 230,333
                                                                     ---------------------    ---------------------
             Net deferred taxes                                        $       611,000         $       755,761
                                                                     =====================    =====================
</TABLE>


NOTE 10 - BENEFIT PLAN

      Phoenix Gold adopted a profit sharing and 401(k) savings plan in September
1997 which covers substantially all employees. Participating employees may defer
up to 15% of their compensation,  subject to certain regulatory limitations. The
Company matches 100% of employee  contributions up to $750 of each participating
employee's  compensation.  A  contribution  of $10,000  was accrued for the year
ended September 30, 1997.

      The profit  sharing and 401(k)  savings  plan also  permits the Company to
make discretionary profit sharing contributions to all employees.  Discretionary
profit sharing  contributions are determined annually by the Board of Directors.
No profit sharing expense was approved for the year ended September 30, 1997.


NOTE 11 - STOCK OPTION PLAN

      Phoenix Gold's Board of Directors and shareholders  adopted and approved a
stock option plan (the "Stock Option Plan") on January 27, 1995. Under the Stock
Option Plan, the Board of Directors may grant incentive and nonqualified options
to employees,  directors  and  consultants  to purchase up to 315,000  shares of
common stock.  On July 16, 1996, the Stock Option Plan was amended to reserve an
additional 200,000 shares for issuance.

      In general,  options to purchase common stock shall not be granted at less
than  fair  market  value  at  the  date  of  grant.  Options  generally  become
exercisable  ratably  over a three to five year  period and  expire  five to ten
years after the date of grant.  The Stock Option Plan expires in 2005. The Stock
Option Plan can also be terminated by the Board of Directors at any time without
shareholder  approval  with  respect  to shares of common  stock not  subject to
outstanding options.
<PAGE>

      Information  relating to option  activity for the Stock Option Plan is set
forth below:
<TABLE>
<CAPTION>

                                                        Outstanding Options                  Exercisable
                                                   ------------------------------   ------------------------------
                                                                     Weighted                         Weighted
                                    Shares            Number          Average          Number          Average
                                   Available            of           Exercise            of           Exercise
                                  for Option          Shares           Price           Shares           Price
                                 --------------    --------------  --------------   --------------  --------------
<S>                                <C>              <C>             <C>               <C>            <C>    

       September 30, 1994                 -                 -                -               -               -

       Reserved                     315,000                 -                -
       Granted                     (297,675)          297,675        $    4.92
                                 --------------    --------------

       September 30, 1995            17,325           297,675             4.92         120,613        $   4.92

       Reserved                     200,000                 -                -
       Granted                      (10,295)           10,295             9.57
       Exercised                          -            (9,605)            4.68
       Canceled                       2,500            (2,500)            8.22
                                 --------------    --------------

       September 30, 1996           209,530           295,865             5.06         161,764            4.97

       Granted                     (239,545)          239,545             5.34
       Exercised                          -            (4,380)            4.68
       Canceled                      38,930           (38,930)            6.28
                                 --------------    --------------

        September 30, 1997            8,915           492,100        $    5.10         221,615        $   4.97
                                 ==============    ==============
</TABLE>


      The following table summarizes information about stock options outstanding
under the Stock Option Plan at September 30, 1997:
<TABLE>
<CAPTION>

                                                Outstanding                                     Exercisable
                            -----------------------------------------------------    -----------------------------------
                                                  Weighted
                                                  Average           Weighted                               Weighted
       Range of                                  Remaining           Average                               Average
       Exercise                  Number         Contractual         Exercise              Number           Exercise
        Prices                 of Shares            Life              Price             of Shares           Price
------------------------    ----------------- -----------------  ----------------    ----------------- -----------------
<S>                             <C>                      <C>      <C>                    <C>            <C>
$  4.63  -  $  4.75              343,525                  7.7      $       4.71           162,431        $       4.68
$  5.15  -  $  5.50               90,000                  5.5              5.31            44,400                5.22
$  6.75  -  $  7.89               55,775                  8.4              6.87            13,850                7.07
            $ 11.75                2,800                  3.3             11.75               934               11.75
                            ----------------- -----------------  ----------------    ----------------- -----------------

                                 492,100                  7.3      $       5.10           221,615        $       4.97
                            ================= =================  ================    ================= =================

</TABLE>
<PAGE>


      At  September  30,  1997 and 1996,  there  were  outstanding  warrants  to
purchase up to 110,000 shares of common stock at $8.10 per share.  Such warrants
became exercisable on May 4, 1996 and expire on May 3, 2000.

      At September 30, 1997,  nonqualified  options to purchase 10,000 shares of
common  stock  were  outstanding  at  $4.63  per  share.   Such  options  become
exercisable ratably over a three year period and expire in 2007.

      Phoenix  Gold has  elected  to  continue  to  account  for  stock  options
according  to APB  Opinion  No.  25.  However,  as  required  by SFAS  No.  123,
ACCOUNTING FOR STOCK-BASED COMPENSATION,  the Company has computed for pro forma
disclosure  purposes  the  value of  options  granted  during  the  years  ended
September 30, 1997 and 1996 using the  Black-Scholes  option pricing model.  The
weighted  average  estimated fair value of options  granted during 1997 and 1996
was $4.52 and $7.79 per share. The weighted  average  assumptions used for stock
option  grants  during the years ended  September  30, 1997 and 1996 were a risk
free interest rate of 6.25% and 6.25%, an expected  dividend yield of 0% and 0%,
an expected life of 7.1 years and 5.8 years and an expected  volatility of 94.6%
and 94.6%.

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

      For purposes of the pro forma disclosures, the estimated fair value of the
stock-based  awards is amortized over the vesting period. Pro forma net earnings
(loss) and earnings (loss) per share is as follows:


                                                1997                 1996
                                          -----------------    ----------------

   Pro forma net earnings (loss)           $    306,039          $  (1,277,931)
   Pro forma earnings (loss) per share             0.09                  (0.37)


      The effects of applying SFAS No. 123 for  providing  pro forma  disclosure
are not likely to represent  net earnings  (loss) and earnings  (loss) per share
for future years since SFAS No. 123 does not apply to grants prior to October 1,
1995,  options vest over several  years,  additional  awards are  anticipated in
future years and  assumptions  used for any additional  awards may vary from the
current assumptions.

<PAGE>

NOTE 12 - SALES  AND MAJOR CUSTOMERS

      Phoenix Gold operates in a single industry segment:  the manufacturing and
sales  of  electronics,  accessories  and  speaker  products  for use in car and
professional sound audio and custom home audio and video applications.
Net sales by geographic region are as follows:

<TABLE>
<CAPTION>

                                                     1997                    1996                     1995
                                             ---------------------   ---------------------    ---------------------
<S>                                          <C>                      <C>                      <C>   

       United States                           $   16,894,741          $   16,161,385           $   11,985,542
       International:
         Europe                                     5,565,352               5,578,371                3,899,981
         Asia                                       2,245,232               2,054,498                1,625,771
         Other                                      3,093,403               2,768,888                2,662,528
                                             ---------------------   ---------------------    ---------------------
           Total international                     10,903,987              10,401,757                 8,188,280
                                             =====================   =====================    =====================
           Net sales                           $   27,798,728          $   26,563,142           $    20,173,822
                                             =====================   =====================    =====================
</TABLE>


      No customer  accounted  for 10% or more of the  Company's net sales during
the years ended  September 30, 1997,  1996 or 1995. As of September 30, 1997 two
customers  accounted  for  approximately  11.4%  and  10.8%  of  total  accounts
receivable  and  as  of  September  30,  1996,   two  customers   accounted  for
approximately 12.1% and 10.4% of total accounts receivable.


<PAGE>

                                   SIGNATURES

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


                        PHOENIX GOLD INTERNATIONAL, INC.


                               By:       /s/ Keith A. Peterson
                                         ---------------------
                                          Keith A. Peterson
                                          Chairman, President, Chief Executive
                                          Officer and Director

                                        Date:December 2, 1997


      In accordance  with the Exchange Act, this report has been signed below by
the following persons and in the capacities and on the dates indicated.


    Signature                       Capacity                          Date
    ---------                       --------                          ----


/s/ Keith A. Peterson      Chairman, President, Chief           December 2, 1997
----------------------     Executive Officer and Director
Keith A. Peterson          (Principal Executive Officer)


/s/ Timothy G. Johnson     Executive Vice President,            December 2, 1997
----------------------     Chief Operating Officer and       
Timothy G. Johnson         Director


/s/ Joseph K. O'Brien      Chief Financial Officer and          December 2, 1997
----------------------     Secretary (Principal Financial
Joseph K. O'Brien          and Accounting Officer)


/s/ Frank G. Magdlen       Director                             December 2, 1997
----------------------
Frank G. Magdlen


<PAGE>
                                 EXHIBIT INDEX

Exhibit                            Description                       Page
-------                            -----------                       ----

10.11          Second Amendment dated September 26, 1997 to Loan      35
               Agreement between the Company and USNB dated
               February 4, 1997

10.16          Nonstatutory Stock Option Agreement dated              38
               February 18, 1997 between the Company and 
               Frank G. Magdlen

10.17          Nonstatutory Stock Option Agreement dated              41
               February 18, 1997 between the Company and    
               Matthew W. Chapman

23.1           Consent of Deloitte & Touche LLP,                      44
               Independent Auditors

27             Financial Data Schedule                                45