United States
                       Securities and Exchange Commission
                             Washington, D.C. 20549

                                    Form 10-K

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
            SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended
                               September 27, 1998
                                       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.
             (Exact name of registrant as specified in its charter)

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

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

                                 (503) 288-2008
              (Registrant's telephone number, including area code)

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

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

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

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

The aggregate market value of the common stock held by non-affiliates of
the registrant was $1,455,780 as of November 30, 1998.

There were 3,464,745 shares of the registrant's  common stock  outstanding as of
November 30, 1998.

                       DOCUMENTS INCORPORATED BY REFERENCE

Parts of registrant's proxy statement dated on or about January 6, 1999 prepared
in connection with the Annual Meeting of shareholders to be held on February 16,
1999 are incorporated by reference into Part III of this Report.


<PAGE>


                                     PART I

Item 1.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  at its  facility  in  Portland,
Oregon. The Company was incorporated in Oregon in 1991.

      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, tweeters, coaxials and speaker component systems.

      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.
<PAGE>

      Amplifiers.  The Company  sells a total of 24 car audio  amplifiers in the
ZPA, ZX, XS, QX and Sapphire series at retail prices ranging from  approximately
$180 to  $1,650.  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
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".  The  "Reactor" was  introduced in
1998. Retail prices range from approximately $500 to $2,500.

      The Company sells a total of 19 Carver Professional  amplifiers in the PM,
PT, CA, PX and PXm series at retail prices  ranging from  approximately  $530 to
$2,800. 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 multi-application models that offer increased features and
power at lower price points.  The PXm series,  introduced in 1998 and the second
series designed by the Company,  expands the PX series and addresses entry level
price points and greater ease of transportability.

      Signal  Processors.  The  Company  sells a total  of 14 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
$110 to $630.

      Accessories.  The Company manufacturers and distributes  innovative,  high
quality accessories.  The Company sells over 900 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 combined in pre-packaged 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.
<PAGE>

      Speakers. The Company began selling speakers in 1994. The Company offers a
total of 44 car audio  speakers  in the  ZEROpoint,  XMAX,  XS, QX and  Sapphire
series,  including  tweeters,  midranges,   subwoofers,   coaxials  and  speaker
component  systems.  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 QX series,  introduced in 1998, is the Company's lowest
price point speaker line.  With the  introduction  of the QX series in 1998, the
Company does not expect the Sapphire series to provide meaningful revenue in the
future. Retail prices of speakers range from approximately $40 to $340.

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.  In the United  States,  the Company sells its car audio,  professional
sound and home audio products  through  independent  sales  representatives  and
distributors  and  sells  certain  of its car audio  accessories  through a mass
merchandising  chain of stores.  The Company sells its products  internationally
through  distributors  serving  approximately 50 countries.  International sales
accounted for 32.4%, 39.2% and 39.2% of net sales in fiscal years 1998, 1997 and
1996, 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 1998, 1997 or 1996. As of September 30, 1998, one customer  accounted for
15.5% of total  accounts  receivable and 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"),  MTX Corporation  ("MTX"),  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, 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 160 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.  The  Company's  speakers  are  manufactured  by third
parties in the United  States and Asia  according to acoustical  and  electrical
design  specifications  developed  by the  Company.  Speakers  are  subjected to
quality control procedures performed by the Company.
<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. 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  Union  regulations  regarding  electromagnetic  standards  and product
safety on  substantially  all of its electronics sold in the European Union. The
Company  believes that additional  similar  regulations will be imposed in 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,  1998,  the Company had 241  full-time  employees,
including 197 in  manufacturing,  engineering and  warehousing,  29 in sales and
marketing  and  15 in  administration.  Subsequent  to  year  end,  the  Company
completed its plan of  restructuring  which  involved the  separation of certain
employees.  At November  30,  1998,  the Company  had 212  full-time  employees,
including 176 in  manufacturing,  engineering and  warehousing,  22 in sales and
marketing and 14 in administration. The Company considers its employee relations
to be good.
<PAGE>

Item 2.    Properties

      The Company's  executive offices and manufacturing  operations are located
at 9300 North Decatur Street, Portland, Oregon. The Company leases approximately
12,500 square feet of office space and 100,000 square feet of manufacturing  and
warehouse space of a 155,000 square foot building. Annual rent for the Company's
facilities  is  approximately  $230,000.  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 building for $3.1 million  effective  June 30, 1999.  The
Company is currently  evaluating the alternatives  with respect to the five-year
lease renewal option or the purchase  option.  Additionally,  in connection with
the restructuring  plan implemented during fiscal 1998, the Company terminated a
lease on an adjacent  building  prior to its  expiration.  This  resulted in the
write-off  of certain  leasehold  improvements.  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
                                     PART II

Item 5.    Market for Registrant's 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".  On October 5, 1998,  trading in the
Company's  Common  Stock was  transferred  to the  NASDAQ  SmallCap  Market.  As
reported  by NASDAQ,  the  following  table sets forth the range of high and low
closing bid prices per share for the Company's Common Stock.

<TABLE>
                                      Fiscal year ended       Fiscal year ended
                                     September 30, 1998      September 30, 1997
                                    ___________________      __________________
   
Common Stock (PGLD)                   High       Low          High     Low
---------------------------------   ------   ---------        ---------   ------
<S>                                   <C>    <C>              <C>      <C>    

  First Quarter ................. $    6.50  $    3.75        $  7.25   $ 4.625
  Second Quarter ................      3.938      2.75           5.984    4.625
  Third Quarter ...............        3.813      2.438          6.25     4.25
  Fourth Quarter ....................  2.563      1.75           6.875    4.25
</TABLE>

      At November 30, 1998, the approximate  number of shareholders of record of
Common Stock was 111.

      The Company has never  declared or paid any cash  dividends  on its Common
Stock.  The Company's  existing  credit  agreements  do not  expressly  limit or
prohibit the Company's ability to declare and pay dividends,  although covenants
contained in such  agreements  related to a minimum  level of tangible net worth
and minimum  ratios of current  assets to current  liabilities  and debt service
coverage  may have such effect.  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.

<PAGE>


Item 6.    Selected Financial Data
<TABLE>

                    As of or for the year ended September 30,
                                                                                                                

                                    1998           1997           1996          1995          1994
<S>                         <C>            <C>            <C>            <C>          <C>    
Operating data:
Net sales ................  $ 26,484,715   $ 27,798,728   $ 26,563,142   $20,173,822  $ 16,222,183
Net earnings (loss)(1)          (772,374)       410,095     (1,269,142)    1,881,277     1,303,940
                                                                                          
Earnings (loss) per share
    Basic ................  $    (0.22)    $     0.12     $    (0.37)    $    0.70    $    0.60                       
    Diluted                      (0.22)          0.12          (0.37)         0.67         0.57
                                   
Average shares outstanding
    Basic ................     3,464,698      3,456,278      3,449,068     2,672,129     2,180,000
    Diluted ..............     3,464,698      3,535,288      3,449,068     2,798,877     2,270,207

Balance Sheet data:
Working capital ..........  $  8,020,615   $  7,278,373   $  6,033,190   $ 8,821,267  $  1,858,727
Total assets .............    15,208,128     17,455,149     19,832,527    14,509,249     9,400,070
Notes payable ............       900,000      3,147,936      4,278,983           --      1,885,762
Long-term obligations....        938,233        494,927        171,995       286,189     1,456,937
Total shareholders' equity    10,497,602     11,243,019     10,788,998    12,013,188     2,898,924

Book value per share        $       3.03   $       3.25   $       3.12   $      3.49  $       1.33
</TABLE>

(1) See Note 3 to Financial Statements describing non-recurring charges.


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

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;   business
conditions  in  international   markets;  the  timing  and  size  of  orders  by
distributors and OEM customers;  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 1998 to Fiscal 1997

      Net Sales. Net sales decreased $1.3 million, or 4.7%, to $26.5 million for
fiscal  1998  compared to $27.8  million for fiscal  1997,  due  principally  to
decreased  international sales.  Domestic sales increased $1.0 million, or 6.0%,
to $17.9  million for fiscal 1998  compared  to $16.9  million for fiscal  1997.
International sales decreased $2.3 million, or 21.3%, to $8.6 million for fiscal
1998 compared to $10.9 million for fiscal 1997.  International  sales  accounted
for 32.4% and 39.2% of net sales in fiscal 1998 and fiscal  1997,  respectively.
Sales of electronics,  speakers and accessories  decreased 2.0%, 10.9% and 5.3%,
respectively,  in fiscal 1998  compared  to fiscal  1997.  The  Company  expects
international  sales for fiscal 1999 to remain at levels lower than historically
achieved.

     Gross Profit.  Gross profit  increased to 24.7% of net sales in fiscal 1998
from 24.5% in fiscal  1997.  The  increase  was  primarily  due to an  increased
percentage of domestic versus international sales.

      Operating  Expenses.  Operating expenses increased $1.8 million, or 31.6%,
to $7.4  million  in fiscal  1998  compared  to $5.7  million  in  fiscal  1997.
Operating  expenses  were 28.1% and 20.4% of net sales in fiscal 1998 and fiscal
1997, respectively.

      Selling expenses increased  $700,000,  or 21.0%, to $4.0 million in fiscal
1998  compared to $3.3 million in fiscal 1997.  Selling  expenses were 15.2% and
12.0% of net sales in fiscal 1998 and fiscal  1997,  respectively.  The increase
was primarily due to increased promotional,  advertising and trade show expenses
to support sales of existing products and the introduction of new products,  and
increased domestic sales incentive programs reflecting  increased domestic sales
volume.

      General and administrative  expenses increased $200,000,  or 9.0%, to $2.5
million in fiscal 1998  compared  to $2.3  million in fiscal  1997.  General and
administrative  expenses  were  9.6% and 8.4% of net  sales in  fiscal  1998 and
fiscal 1997,  respectively.  The increase was due  principally  to increased bad
debt  expense,   higher  legal  expense  and  increased   engineering   expense.
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 1998, the Company took one-time,  non-recurring  charges of $1.1
million related to the implementation of a restructuring plan which included the
phase-out of a product line and actions to reduce future  operating  costs.  The
Company  determined  that an impairment of tooling and royalty costs  associated
with the product  line  resulted  from the  phase-out  of the product  line.  In
addition,  the impairment of the product line required a $233,000  write-down of
inventories,  which is included in cost of sales.  The  restructuring  plan also
included the write-off of leasehold  improvements  in connection  with the early
termination  of a lease on an adjacent  building and the  separation  of certain
employees. Future cash payments are not expected to be material and will be paid
by the end of the first quarter of fiscal 1999. The $900,000  charge included in
operating expenses was equal to 3.3% of net sales in fiscal 1998.
<PAGE>


      Other Expenses.  Other expenses, net of other income,  decreased $159,000,
or 33.7%, to $314,000 in fiscal 1998 from $473,000 in fiscal 1997,  primarily as
a result of lower average debt levels during fiscal 1998 due to the reduction of
debt and lower interest rates on the outstanding borrowings.

Net  Earnings  (Loss).  The  decrease  in  international  sales and  increase in
operating expenses,  including the non-recurring  charges,  contributed to a net
loss in fiscal 1998 of $772,000,  or $0.22 per share - basic and diluted  (based
on 3.46 million shares), compared to net earnings in fiscal 1997 of $410,000, or
$0.12 per share - basic and diluted (based on 3.54 million shares).

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.

<PAGE>

      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. The 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  primary  needs for funds are for working  capital and, to a
lesser extent, for capital expenditures.  The Company financed its operations in
fiscal 1998 principally from funds generated from operating activities. Net cash
provided by operating  activities in fiscal 1998 was $2.3 million as compared to
$945,000 in fiscal 1997, which allowed the Company to repay  approximately  $2.0
million in  current  and  long-term  financing.  When cash flow from  operations
exceeds  current  needs,  the Company pays down in part the balance owing on its
operating  line of credit rather than  accumulating  and investing  excess cash,
resulting in low reported cash balances.

      During fiscal 1998,  accounts receivable  decreased $899,000,  inventories
decreased  $292,000,  accounts  payable  increased  $223,000  and  note  payable
decreased $2.2 million,  leading to an increase in working  capital of $742,000.
The decreases in accounts  receivable and  inventories  and increase in accounts
payable is a result of management  efforts to increase cash flow from operations
in order to reduce short and long-term borrowings.

      Capital  expenditures  were $343,000,  $483,000 and $1.4 million in fiscal
years 1998, 1997 and 1996, respectively. These expenditures related primarily to
manufacturing automation and the commencement of certain manufacturing processes
in-house,  leasehold  improvements  to the  Company's  leased  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  $400,000 in fiscal 1999. The Board of Directors has also  authorized the
Company to purchase up to $1.0 million of Company common stock.  On December 10,
1998,  the  Company  entered  into an  agreement  with a third party to purchase
216,000  shares of  Company  common  stock  for  approximately  $351,000.  These
anticipated  expenditures  will be financed from proceeds of short-term debt and
lease financing, and cash provided from operations.

      A $5.5 million  revolving  operating  line of credit is available  through
December  31,  1998.  Interest on the  borrowings  is equal to the bank's  prime
lending  rate  (8.5%  at  September  30,  1998)  or  LIBOR  plus  an  additional
percentage.  At  September  30, 1998,  the  borrowings  bore  interest at 7.94%.
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 accounts  receivable,  inventories and certain
other  assets.  The line of credit  contains  covenants  which require a minimum
level of  tangible  net worth and  minimum  ratios of current  assets to current
liabilities and debt service coverage. As of September 30, 1998, the Company was
eligible to borrow $4.6 million under the line of credit.  Borrowings  under the
line of credit were $900,000 as of that date.  The Company  expects to renew the
revolving operating line of credit on similar terms prior to December 31, 1998.
<PAGE>

      In July 1998, the Company completed a $1,125,000 five-year lease financing
at an interest  rate of 8.25%.  The  proceeds  were used to repay  approximately
$500,000 of long-term financing which had interest rates of 10.3% and 11.1%. The
remaining  proceeds  of  approximately  $625,000  were used to pay down the bank
operating line of credit.  Additionally,  the financing agreement provides up to
$200,000 for future  equipment  term  financing.  The  agreement  also  contains
covenants which require a minimum level of net worth and a minimum ratio of debt
service coverage.

     As of September 30, 1998, the Company's capital lease  obligations  totaled
$1,128,000,  including a current  portion of $209,000,  at annual interest rates
ranging from 5.0% to 8.25%.

Year 2000 Conversion

      The  Company  has begun a process  to prepare  its  computer  systems  and
applications for the Year 2000 date conversion. The process includes a review of
information  systems used in the Company's internal business as well as by third
party  vendors,  manufacturers  and  suppliers.  The Company  has  substantially
completed its internal  assessment  of Year 2000  conversion  requirements.  The
Company's products do not include embedded technology, such as microcontrollers,
the  Company's  third  party  interfaces,  such as those  with its  vendors  and
customers,  are not computerized,  and the Company's information systems utilize
standard,  ready available business software.  As a result, the Company believes
the effect of the Year 2000 conversion on its business will not be material.

      Information systems that are determined not to be Year 2000 compliant will
be modified, upgraded or replaced through acquisition and implementation of "off
the shelf" upgrades to existing  information  system software.  A portion of the
upgrades has already been  acquired  from third party  vendors at a cost of less
than  $10,000,  and the  balance  of the  upgrades  is  believed  to be  readily
available.  The Company plans to implement such upgrades  during fiscal 1999 and
believes the aggregate cost of all such upgrades will not be material.

      There can be no assurance,  however,  because of the existence of numerous
systems and related  components  within the Company and the  interdependency  of
these systems,  that certain systems at the Company, or systems at entities that
provide  services or goods for the Company,  will operate in the Year 2000.  The
Company is continuing to evaluate the risks to the Company of failure to be Year
2000 compliant and to develop a contingency  plan.  Although it is not currently
anticipated,  the inability to complete the Company's Year 2000  conversion on a
timely  basis or the  failure of a system at the  Company  or at an entity  that
provides  services  and goods to the Company is not  expected to have a material
impact on future operating results, financial condition or cash flows.
<PAGE>

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

      The Company has assessed  its  exposure to market risks for its  financial
instruments  and  has  determined  that  its  exposures  to such  risks  are not
material.

Item 8.    Financial Statements

      See pages 17 through 32.

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

      None

                                    PART III

Item 10.   Directors and Executive Officers of the Registrant

      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 27, 1998.


Item 11.   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 27, 1998.


Item 12.   Security Ownership of Certain Beneficial Owners and Management

      This is hereby  incorporated  by  reference to the  information  under the
caption "Security  Ownership of Certain Beneficial Owners and Management" 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 27, 1998.


Item 13.   Certain Relationships and Related Transactions

      None

<PAGE>

Item 14.   Exhibits, Financial Statement Schedules, 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))

     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)

     10.1a 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  (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, 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)
<PAGE>

     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  (incorporated by reference to Exhibit 10.16 to
Form 10-KSB filed with the  Securities  and Exchange  Commission  for the fiscal
year ended September 30, 1997)(1)

     10.17  Nonstatutory  Stock Option Agreement dated February 18, 1997 between
the Company and Matthew W. Chapman  (incorporated  by reference to Exhibit 10.17
to Form 10-KSB filed with the Securities and Exchange  Commission for the fiscal
year ended September 30, 1997)(1)

     10.18  Master  Equipment  Lease  Agreement  dated July 15, 1998 between the
Company and First Security Leasing Company (incorporated by reference to Exhibit
10.18 to Form 10-Q filed with the  Securities  and Exchange  Commission  for the
quarterly period ended June 30, 1998)

     10.19 Lease Schedule to Master  Equipment  Lease  Agreement  dated July 15,
1998 between the Company and First Security  Leasing  Company  (incorporated  by
reference to Exhibit 10.19 to Form 10-Q filed with the  Securities  and Exchange
Commission for the quarterly period ended June 30, 1998)

     23.1Consent 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

Independent Auditors' Report                           18

Balance Sheets at September 30, 1998 and 1997          19

Statements of Operations
      for the Three Years Ended September 30, 1998     20

Statements of Shareholders' Equity
      for the Three Years Ended September 30, 1998     21

Statements of Cash Flows
      for the Three Years Ended September 30, 1998     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,  1998  and  1997,  and  the  related  statements  of
operations,  shareholders'  equity and cash flows for each of the three years in
the  period  ended  September  30,  1998.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  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,  1998 and 1997,  and the results of its  operations  and its cash
flows for each of the three years in the period ended  September  30,  1998,  in
conformity with generally accepted accounting principles.



DELOITTE & TOUCHE LLP

Portland, Oregon
December 10, 1998

<PAGE>

                        PHOENIX GOLD INTERNATIONAL, INC.
                                 BALANCE SHEETS

<TABLE>
                                                   September 30,
                                                   -------------
                                                   1998         1997
                                               --------  -----------
ASSETS
<S>                                         <C>          <C>    

Current assets:
    Cash and cash equivalents ............  $     2,602  $     2,603
    Accounts receivable, net .............    4,287,965    5,186,630
    Inventories ..........................    6,886,720    7,178,820
    Prepaid expenses ....................       169,621      247,523
    Deferred taxes ........................     446,000      380,000
                                               --------  -----------
        Total current assets .............   11,792,908   12,995,576

Property and equipment, net ............ .    2,522,005    3,478,827
Goodwill, net ...........................       217,702      257,324
Deferred taxes ...........................      567,000      231,000
Other assets ..............................     108,513      492,422
                                            -----------  -----------

        Total assets ...................... $15,208,128  $17,455,149
                                            ===========  ===========


LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
    Accounts payable .....................  $ 1,781,341  $ 1,558,749
    Note payable ....................... .      900,000    3,147,936
    Accrued payroll and benefits .........      420,209      373,512
    Other accrued expenses ..............       448,214      241,337
    Current portion of long-term obligations    222,529      395,669
                                              ---------  -----------
        Total current liabilities ..........  3,772,293    5,717,203

Long-term obligations ....................      938,233      494,927

Shareholders' equity:
    Preferred stock;
        Authorized - 5,000,000 shares; none outstanding
                                                                              
    Common stock, no par value;
        Authorized - 20,000,000 shares
        Issued and outstanding - 
        3,464,745 and 3,458,985 shares ...... 7,548,822    7,521,865
    Retained earnings ....................    2,948,780    3,721,154
                                            -----------  -----------
        Total shareholders' equity ........  10,497,602   11,243,019
                                            -----------  -----------

        Total liabilities and 
        shareholders' equity .............  $15,208,128  $17,455,149
                                            ===========  ===========
</TABLE>



                        See Notes to Financial Statements
<PAGE>

                        PHOENIX GOLD INTERNATIONAL, INC.
                            STATEMENTS OF OPERATIONS


<TABLE>
                                         Year Ended September 30,
                                       --------------------------
                                   1998           1997           1996
                                  -----           -----         -----
<S>                          <C>            <C>            <C>    


Net sales .................. $ 26,484,715   $ 27,798,728   $ 26,563,142

Cost of sales .............    19,950,805     20,981,845     20,432,478

                             ------------   ------------   ------------
    Gross profit .........      6,533,910      6,816,883      6,130,664


Operating expenses:
    Selling .................   4,029,059      3,329,339      3,757,981
    General and administrative  2,540,064      2,331,128      3,048,573
    Non-recurring charges .....   878,147           --        1,120,500
                               ----------    -----------   ------------   

   Total operating expenses ... 7,447,270      5,660,467      7,927,054
                             ------------   ------------   ------------

Income (loss) from operations    (913,360)     1,156,416     (1,796,390)
                                                                             

Other income (expense):
    Interest expense ......      (323,530)      (499,818)      (260,233)
    Other income, net               9,516         26,497         19,495
                             ------------   ------------   ------------

    Total other income
      (expense) ............     (314,014)      (473,321)      (240,738)
                              ------------   ------------   ------------
Earnings (loss) 
   before income taxes ....    (1,227,374)       683,095     (2,037,128)

Income tax benefit (expense)      455,000       (273,000)       767,986
                             ------------   ------------   ------------

Net earnings (loss) ......  $   (772,374)  $    410,095   $ (1,269,142)
                             ============   ============   ============

Earnings (loss) per share - 
     basic and diluted .....       (0.22)          0.12          (0.37)
                             ============   ============   ============

Average shares outstanding 
     - basic ...............    3,464,698      3,456,278      3,449,068
                             ============   ============   ============

Average shares outstanding 
     - diluted ............     3,464,698      3,535,288      3,449,068
                             ============   ============   ============
</TABLE>




                        See Notes to Financial Statements
<PAGE>

                        PHOENIX GOLD INTERNATIONAL, INC.
                       STATEMENTS OF SHAREHOLDERS' EQUITY



<TABLE>

                                                 Common Stock           Retained
                                              Shares       Amount       Earnings         Total
                                             ----------   -----------   ----------  ------------
<S>                                          <C>         <C>           <C>         <C>    


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

Issuance of stock upon
    exercise of options                          5,760        26,957         --          26,957

Net loss .................                         --            --      (772,374)     (772,374)
                                             ----------   -----------   ----------  ------------

Balance at September 30, 1998 .............   3,464,745   $ 7,548,822   $2,948,780  $ 10,497,602
                                             ==========   ===========   ==========  ============
</TABLE>














                        See Notes to Financial Statements
<PAGE>

                        PHOENIX GOLD INTERNATIONAL, INC.
                            STATEMENTS OF CASH FLOWS

<TABLE>

                                                                 Year Ended September 30,
                                                                -------------------------
                                                          1998          1997          1996
                                                      -----------   -----------   -----------
<S>                                                   <C>           <C>           <C>
Cash flows from operating activities:
    Net earnings (loss)                              $   (772,374) $    410,095   $(1,269,142)
    Adjustments  to reconcile net earnings (loss)
      to net cash provided by (used
    in) operating activities:
        Depreciation and amortization                   1,036,627       985,401       850,696
        Deferred taxes                                   (402,000)      144,761      (942,147)
        Non-recurring charges                             878,147            --     1,120,500
        Changes in operating assets and liabilities:
            Accounts receivable                           898,665       (67,270)   (1,293,887)
            Inventories                                   292,100     1,792,740    (3,709,016)
            Prepaid expenses                              (24,936)       38,254        42,270
            Other assets                                  (13,953)      (69,964)     (223,612)
            Accounts payable                              222,592    (1,970,701)    2,207,367
            Accrued expenses                              178,574      (215,562)      326,415
            Income taxes payable                             --        (102,356)       72,363
                                                      -----------   -----------   -----------

    Net cash provided by (used in)
     operating activities                               2,293,442       945,398    (2,818,193)

Cash flows from investing activities:
    Capital expenditures, net                            (342,630)     (446,540)   (1,348,286)
    Acquisition of Carver
     professional sound division                             --            --      (1,792,616)
                                                       -----------   -----------   -----------
    Net cash used in investing activities                (342,630)     (446,540)   (3,140,902)

Cash flows from financing activities:
    Notes payable, net                                 (2,247,936)   (1,131,047)    3,928,983
    Proceeds from long-term obligations                 1,125,000       800,000          --
    Repayment of long-term obligations                   (854,834)     (211,733)     (113,804)
    Proceeds from exercise of stock options                26,957        43,926        44,952
                                                      -----------   -----------   -----------
   Net cash provided by (used in)
      financing activities                             (1,950,813)     (498,854)    3,860,131
                                                      -----------   -----------   -----------

Increase (decrease) in cash and cash equivalents               (1)            4    (2,098,964)

Cash and cash equivalents, beginning of period              2,603         2,599     2,101,563
                                                      -----------   -----------   -----------
Cash and cash equivalents,
     end of period                                    $     2,602   $     2,603   $     2,599
                                                      ===========   ===========   ===========
Supplemental disclosures:
    Cash paid for interest                            $   334,000   $   513,000   $   215,280
    Cash paid for income taxes                             44,000       222,000       102,000
    Equipment financed by long-term obligations              --          36,168        16,145
    Note payable issued for Carver acquisition               --            --         350,000
</TABLE>




                        See Notes to Financial Statements
<PAGE>

                        PHOENIX GOLD INTERNATIONAL, INC.
                          NOTES TO FINANCIAL STATEMENTS
                      Three Years Ended September 30, 1998


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  1998 and 1997 were 52 weeks and
fiscal 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
$157,000 and $117,000 as of September 30, 1998 and 1997.

      Financial  Instruments and Fair Values.  The carrying  amounts reported in
the balance  sheet for cash,  accounts  receivable,  accounts  payable,  accrued
expenses and note 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. Deferred tax assets are reduced by a
valuation  allowance  when it is more likely  than not that some  portion of the
deferred tax assets will not be realized.

     Earnings  (Loss) Per Share.  In February  1997,  the  Financial  Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No.  128,  Earnings  Per  Share.  SFAS No. 128  established  new  standards  for
computing and  presenting  earnings per share and superseded APB Opinion No. 15,
Earnings Per Share.  SFAS No. 128 was adopted on October 1, 1997. Basic earnings
(loss) per share is based on the  average  number of common  shares  outstanding
during each period.  Diluted  earnings per share  reflects the potential  shares
issuable  upon assumed  exercise of the  outstanding  stock options and warrants
based on the treasury stock method. Earnings (loss) per share under SFAS No. 128
for the years ended September 30, 1997 and 1996 did not differ from the earnings
(loss) per share previously reported.

      Prospective Accounting Change. 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.  Phoenix Gold operates in a single industry  segment as described
in Note 13. Adoption of SFAS No. 131 may result in additional disclosures in the
notes  to  financial  statements,  but  will  have no  impact  on the  financial
statements.

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 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.
<TABLE>

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


Net sales ....  $ 26,991,519
Net loss            (657,791)
                    
Loss per share         (0.19)
                       
</TABLE>
<PAGE>

     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 - NON-RECURRING CHARGES

      Non-recurring charges consist of the following:
<TABLE>

                                                          1998         1997               1996
<S>                                                    <C>            <C>            <C>    
                                                       ----------     ----------     ----------

Impairment of product line                            $  913,147      $       --     $        --
Restructuring of operations                              198,000              --              --
In-process research & development                             --              --       1,120,500
                                                       ---------       ----------     ----------
   Total non-recurring charges .... ................   1,111,147              --       1,120,500
                                                                           
Less inventory write-down included in
    cost of sales
                                                       (233,000)              --              --
                                                       --------       ----------     -----------
  Total non-recurring charges                         $  878,147      $      --      $ 1,120,500
                                                                            
                                                       ==========    ===========      ===========
</TABLE>

      In  the  fourth  quarter  of  1998,  the  Company  began  to  implement  a
restructuring plan which included the phase-out of a product line and actions to
reduce future operating costs. A pre-tax  provision of $1.1 million was recorded
for  these  actions.  With  the  phase-out  of the  product  line,  the  Company
determined  that an impairment of tooling and royalty costs  associated with the
product line existed. In addition, the impairment of the product line required a
write-down of  inventories,  which is included in cost of sales in the Statement
of  Operations  for  the  year  ended  September  30,  1998.  Additionally,  the
restructuring   plan  included  the  write-off  of  leasehold   improvements  in
connection with the early termination of a lease on an adjacent building and the
separation of certain employees.
<PAGE>

Note 4 - ACCOUNTS RECEIVABLE

      Accounts receivable consist of the following:
<TABLE>

                                                               1998          1997
<S>                                                    <C>            <C>    
                                                        -----------   -----------

      Accounts receivable ............................  $ 4,587,965   $ 5,446,630
      Allowance for doubtful accounts ................     (300,000)     (260,000)
                                                        -----------   -----------
          Total accounts receivable, net .............  $ 4,287,965   $ 5,186,630
                                                        ===========   ===========
Note 5 - INVENTORIES

      Inventories consist of the following:
                                                               1998          1997
                                                        -----------   -----------

      Raw materials ..................................  $ 2,732,112   $ 2,818,409
      Work-in-process                                         8,527        11,867             
      Finished goods .................................    4,058,828     4,204,428
      Supplies .......................................       87,253       144,116                                                 
                                                        ===========   ===========
          Total inventories ..........................  $ 6,886,720   $ 7,178,820
                                                        ===========   ===========


Note 6 - PROPERTY AND EQUIPMENT

      Property and equipment consist of the following:

                                                               1998          1997
                                                        -----------   -----------

      Machinery, equipment, and vehicles .............  $ 4,526,903   $ 4,434,003
      Leasehold improvements .........................    1,527,834     1,590,012
      Construction in progress .......................       46,835       155,052                                         
                                                          6,101,572     6,179,067
      Less accumulated depreciation
        and amortization .............................   (3,579,567)   (2,700,240)
                                                        ===========   ===========
          Total property and equipment, net ..........  $ 2,522,005   $ 3,478,827
                                                        ===========   ===========
</TABLE>
<PAGE>

Note 7 - NOTE PAYABLE

      A $5.5 million  revolving  operating  line of credit is available  through
December  31,  1998.  Interest on the  borrowings  is equal to the bank's  prime
lending  rate  (8.5%  at  September  30,  1998)  or  LIBOR  plus  an  additional
percentage.  At  September  30, 1998,  the  borrowings  bore  interest at 7.94%.
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 accounts  receivable,  inventories and certain
other  assets.  The line of credit  contains  covenants  which require a minimum
level of  tangible  net worth and  minimum  ratios of current  assets to current
liabilities and debt service coverage. As of September 30, 1998, the Company was
eligible to borrow $4.6 million under the line of credit.  Borrowings  under the
line of credit were  $900,000 as of that date.  Borrowings  as of September  30,
1997 were $3.1 million and bore interest at 10.00%.

      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%.


Note 8 - LONG-TERM OBLIGATIONS

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

                                                            1998        1997
<S>                                                  <C>           <C>    
                                                     -----------   ---------

Capital lease obligations, secured by equipment ...  $ 1,127,775   $ 161,210

Term note, due April 2002, payable in monthly
  installments, including interest at 5.9%,
  secured by equipment ............................       27,586      34,709

Term note, due August 1999, payable in monthly
  installments, including interest at 9.0%,
  secured by equipment
                                                           5,401      10,809

Term note, payable in monthly installments,
  including interest at 11.1%, paid in full                 ----     684,498
                                                     -----------   ---------
                                                       1,160,762     890,596
Less current portion ..............................     (222,529)   (395,669)
                                                     -----------   ---------
    Total long-term obligations ...................  $   938,233   $ 494,927
                                                     ===========   =========
</TABLE>


Maturities on long-term obligations are as follows:
<TABLE>

   September 30,
   <S>              <C>    

   1999             $ 222,529
   2000               216,040
   2001               234,377
   2002               245,985
   2003               241,831
                     --------
   Total          $ 1,160,762
                    =========
</TABLE>

      During July 1998,  the  Company  completed a  $1,125,000  five-year  lease
financing at an interest rate of 8.25%. The financing  agreement  provides up to
$200,000  of future  equipment  term  financing.  The  agreement  also  contains
covenants  which  require a minimum  level of  tangible  net worth and a minimum
ratio of debt service coverage.
<PAGE>

Note 9 - 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.

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

                                                                     Capital               Operating
                                                                     Leases                   Leases
<S>                                                                <C>                      <C>   
                                                                    -----------             --------
September 30,
1999                                                               $   293,664              $172,350
2000                                                                   275,349
2001                                                                   275,349
2002                                                                   275,349
2003                                                                   252,404
                                                                      --------            ----------
                                                                     1,372,115              $172,350
                                                                                            ========
Less amount representing interest ..............................      (244,340)
                                                                      --------
    Present value of minimum lease payments ...................... $ 1,127,775
                                                                      ========
</TABLE>

     Rent expense under operating leases for the three years ended September 30,
1998, 1997 and 1996 was $365,000, $333,000 and $348,000.

      On December 10, 1998,  the Company  entered into an agreement with a third
party to  purchase  216,000  shares of Company  common  stock for  approximately
$351,000.

Note 10 - TAXES

      Income tax benefit (expense):
<TABLE>

                         1998        1997        1996
<S>                 <C>         <C>         <C>
                    ---------   ---------   ---------
Current:
  Federal ........  $  47,000   $(112,000)  $(155,831)
  State                 6,000     (16,239)    (18,330)
                    ---------   ---------   ---------
    Total current      53,000    (128,239)   (174,161)

Deferred:
  Federal ........    368,000    (127,000)    842,974
  State ..........     34,000     (17,761)     99,173
                    ---------   ---------   ---------
    Total deferred    402,000    (144,761)    942,147
                    =========   =========   =========
      Total ......  $ 455,000   $(273,000)  $ 767,986
                    =========   =========   =========
</TABLE>

      Effective income tax rates are as follows:
<TABLE>

                                                        1998    1997      1996
<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                                              (1.3)     (1.6)  (0.7)
                                                       -----     -----   -----
    Total
                                                        37.1%    (40.0%) 37.7%
                                                       ======    =====   =====
</TABLE>
<PAGE>



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

                                           1998           1997
                                     -------------    ---------
<S>                                    <C>           <C>    

Deferred tax liability - depreciation  $   (72,000)  $(179,000)

Deferred tax assets:
  Accrued expenses ..................      286,000     154,000
  Goodwill and other intangibles ....      550,000     410,000
  Inventory valuation ...............      249,000     226,000
                                       -----------   ---------
    Total deferred tax assets .......    1,085,000     790,000
                                       ===========   =========
      Net deferred taxes ............  $ 1,013,000   $ 611,000
                                       ===========   =========

Current deferred tax asset ..........  $   446,000   $ 380,000
Long-term deferred tax asset ........      567,000     231,000
                                       -----------   ---------
      Net deferred taxes ............  $ 1,013,000   $ 611,000
                                       ===========   =========
</TABLE>

Note 11 - 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.  The  matching  contribution  expense  was $77,000 and
$10,000 for the years ended September 30, 1998 and 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 years ended  September 30, 1998
and 1997.

Note 12 - 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>

                                  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, 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

Granted                     (11,550)      11,550      4.00
Exercised                                 (5,760)     4.68
Canceled                    128,575   (  128,575)     5.74
                         ----------    ---------

September 30, 1998          125,940      369,315   $  4.85          258,383             $4.86
                         ==========     ========           
</TABLE>

      The following table summarizes information about stock options outstanding
under the Stock Option Plan at September 30, 1998:
<TABLE>
 

                          Outstanding                                 Exercisable
            ----------------------------------                    -----------------------
                          Weighted
                           Average .  Weighted                                  Weighted
Range of                 Remaining    Average                                   Average
Exercise      Number     ontractual   Exercise                      Number      Exercise
Prices      of Shares    Life          Price                       of Shares   Price
-----------  --------  ----------    ----------                    --------    ----------
<S>           <C>             <C>       <C>                        <C>            <C>   
$4.00-$4.75   277,915         6.2       $  4.67                    190,850        $    4.69
$5.15-$5.50    90,000         4.5          5.31                     66,600             5.25
     $11.75     1,400         2.3         11.75                        933            11.75
            ----------    -------        ------                    --------        --------
              369,315         5.7       $  4.85                    258,383        $    4.86
              ========  ==========      =======                     =======        =========
</TABLE>

<PAGE>




     At September 30, 1998 and 1997, 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, 1998, a  nonqualified  option to purchase 5,000 shares of
common stock was outstanding at $4.63 per share. Such option becomes exercisable
ratably over a three- year period and expires 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, 1998 and 1997 using the  Black-Scholes  option pricing model.  The
weighted  average  estimated fair value of options  granted during 1998 and 1997
was $2.45 and $4.52 per share. The weighted  average  assumptions used for stock
option  grants  during the years ended  September  30, 1998 and 1997 were a risk
free interest rate of 5.75% and 6.25%, an expected  dividend yield of 0% and 0%,
an expected life of 5.0 years and 7.1 years and an expected  volatility of 67.8%
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:

<TABLE>

                                                 1998       1997
                                     ----------------   --------
<S>                                  <C>                <C> 
Pro forma net earnings (loss) .....  $       (781,301)  $306,039
Pro forma earnings (loss) per share             (0.23)      0.09
                                                
</TABLE>


      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 13 - 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>

                                1998         1997         1996
                         -----------  -----------  -----------
<S>                      <C>          <C>          <C> 
United States .........  $17,903,217  $16,894,741  $16,161,385
International:
  Europe ..............    4,624,273    5,565,352    5,578,371
  Asia ................      945,600    2,245,232    2,054,498
  Other ...............    3,011,625    3,093,403    2,768,888
                         -----------  -----------  -----------
    Total international    8,581,498   10,903,987   10,401,757
                         ===========  ===========  ===========
    Net sales .........  $26,484,715  $27,798,728  $26,563,142
                         ===========  ===========  ===========
</TABLE>

      No customer  accounted  for 10% or more of the  Company's net sales during
the years ended  September 30, 1998, 1997 or 1996. As of September 30, 1998, one
customer accounted for approximately  15.5% of total accounts  receivable and as
of September 30, 1997, two customers accounted for approximately 11.4% and 10.8%
of total accounts receivable.

Note 14 - QUARTERLY FINANCIAL DATA (UNAUDITED)

     The  following is a summary of  operating  results by quarter for the years
ended September 30, 1998 and 1997:
<TABLE>

1998 quarter ended ......  December 31   March 31      June 30   September 30         Total
                           ----------  ----------  -----------   -----------   ------------
<S>                        <C>         <C>         <C>           <C>            <C>    

Net sales ...............  $6,058,001  $6,613,495  $ 7,687,304   $ 6,125,915   $ 26,484,715
Gross profit ............   1,414,797   1,787,877    2,297,119     1,034,117      6,533,910
Net earnings (loss) (1) .       3,002      67,995      269,535    (1,112,906)      (772,374)
Earnings (loss) per share        0.00        0.02         0.08         (0.32)         (0.22)
                                 
</TABLE>
<TABLE>

   
1997 quarter ended
<S>                        <C>           <C>         <C>         <C>         <C>    
Net sales ...............  $ 5,572,276   $6,263,430  $8,263,509  $7,699,513  $ 27,798,728
Gross profit ............      977,129    1,498,048   2,482,196   1,859,510     6,816,883
Net earnings (loss) .....     (312,503)     (25,054)    585,933     161,719       410,095                                        
Earnings (loss) per share        (0.09)       (0.01)       0.17        0.05          0.12
                                
</TABLE>

(1) See Note 3 to Financial Statements describing non-recurring charges.

<PAGE>


                                   SIGNATURES

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


                                                PHOENIX GOLD INTERNATIONAL, INC.


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

                                                          Date:December 15, 1998


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

<TABLE>
<S>                                                                       <C>                             <C>    

      Signature                                                           Capacity                        Date


/s/ Keith A. Peterson
------------------------------------                                      Chairman, President and         December 15, 1998       
Keith A. Peterson                                                         Chief Executive Officer
                                                                         (Principal Executive Officer)


/s/ Timothy G. Johnson
-------------------------------------                                     Executive Vice President,       December 15, 1998
Timothy G. Johnson                                                        Chief Operating Officer and
                                                                          Director


/s/ Joseph K. O'Brien 
------------------------------------                                      Chief Financial Officer and     December 15, 1998
Joseph K. O'Brien                                                         Secretary (Principal Financial
                                                                          and Accounting Officer)

/s/ Robert A. Brown 
------------------------------------                                      Director                        December 15, 1998      
Robert A. Brown



/s/ Edward A. Foehl 
 ...................................                                       Director                        December 15, 1998
                                                                                                          
Edward A. Foehl



/s/ Frank G. Magdlen
 .................................                                        Director                        December 15, 1998 
Frank G. Magdlen

                                                                                                          
</TABLE>

<PAGE>





                                  EXHIBIT INDEX


 


Exhibit   Description ..........................................  Page

  23.1    Consent of Deloitte & Touche LLP, Independent Auditors  35

  27      Financial Data Schedule ..............................  36