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 December 31, 1998

                                       OR

     [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
            For the transition period from __________ to ___________

                         Commission File Number 0-18050

                         EAGLE PACIFIC INDUSTRIES, INC.
             (Exact name of registrant as specified in its Charter)

      MINNESOTA                                         41-1642846
(State of incorporation)                   (I.R.S. Employer Identification No.)

                            333 South Seventh Street
                            2430 Metropolitan Centre
                          Minneapolis, Minnesota 55402
                    (Address of principal executive offices)

       Registrant's telephone number, including area code: (612) 305-0339

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, 
                                                            $.01 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 voting stock held by non-affiliates of
the registrant as of February 26, 1999 was approximately $11,612,000 (based on
closing sale price of $1.75 per share as reported on the Nasdaq Small-Cap
Market).

         The number of shares of the registrant's Common Stock, $.01 par value
per share, outstanding as of February 26, 1999 was 6,635,222 (this number is
less than number of shares outstanding on 12/31/98).

                       DOCUMENTS INCORPORATED BY REFERENCE

None                                                                        


<PAGE>

                                     PART I

ITEM 1.  BUSINESS

General

         Eagle Pacific Industries, Inc., a Minnesota corporation (the "Company")
manufactures and distributes polyvinyl chloride ("PVC") pipe and polyethylene
("PE") pipe and tubing products used for turf and water irrigation, natural gas,
water wells, fiber optic lines, electronic and telephone lines, and commercial
and industrial plumbing. The Company distributes its products primarily in the
Upper Midwest and Plains states and the Mountain and Pacific Northwest regions
of the United States.

         The Company's principal offices are located in Minneapolis, Minnesota.
The Company has production facilities in Hastings, Nebraska, Hillsboro, Oregon,
and West Jordan, Utah. The Company also has a distribution facility in Baker
City, Oregon.

Recent Developments

         On December 11, 1998, the Company entered into an agreement to acquire
the polyvinyl chloride (PVC) pipe business of the Lamson & Sessions Co. of
Cleveland, Ohio. The Company will pay $45 million in cash (adjusted for changes
in working capital) and issue $6 million of its notes and 785,000 shares of its
common stock to the Lamson & Sessions Co. for the PVC pipe business. The asset
purchase will be accounted for by the purchase method of accounting and is
contingent upon the consummation of the merger agreement described below. Bank
borrowings are expected to be used to finance the cash portion of the purchase
price. The Company has also signed a merger agreement pursuant to which a PVC
resin manufacturing facility owned and operated by CONDEA Vista Company, which
is wholly-owned by RWE-DEA AG of Hamburg, Germany, will be merged into the
Company. CONDEA Vista will transfer the PVC resin manufacturing facility to its
wholly-owned subsidiary, Eagle Pacific Holdings, Inc. ("Holdings") in
consideration for approximately 9.8 million shares of Holding's common stock and
will have one representative on the Board of Directors of Holdings. The Company
will become a wholly-owned subsidiary of Holdings and the Company's shareholders
will receive Holdings' stock in a one-for-one exchange for the Company's stock.
Immediately following the merger, the Company common stockholders will own
approximately 38.5%, and CONDEA Vista will own approximately 57% of the
outstanding Holdings' common stock. However, pursuant to a Stockholders
Agreement with CONDEA Vista, four of the Company's directors will serve on
Holdings' five member board of directors and will be able to control the affairs
of Holdings for up to five years. The merger is subject to shareholder approval
and the closing is anticipated to occur during the Company's second quarter of
fiscal 1999. The merger will be accounted for as a reverse acquisition using the
purchase method of accounting and is contingent upon the consummation of the
asset purchase agreement described above. Lamson and Session's PVC pipe business
and CONDEA Vista's resin manufacturing facility sales for their fiscal 1998 were
approximately $139 million and $88 million, respectively.

Products

         The Company's products consist of 1/2-inch to 15-inch PVC pipe and
1/2-inch to 6-inch PE pipe and tubing for applications in the building and
construction industry, turf and water irrigation, natural gas, water wells,
fiber optic lines, and electronic and telephone lines. Although the manufacture
and sale of PVC pipe and PE pipe and tubing is generally viewed as a commodity
business (i.e. price being the only purchasing consideration), the Company
believes it has created brand name recognition for its products while remaining

<PAGE>

competitive on price. To help support the brand name recognition, the Company
seeks to offer the highest quality PVC pipe and PE pipe and tubing available.
The Company also looks for niche markets to enter, such as PE pipe and tubing
for turf irrigation, when it believes there is an opportunity to establish
itself as the market leader and command higher profit margins. The Company also
adds features such as quick connect gaskets and longer pipe lengths that allow
for easier installation, as well as proprietary marking for brand
identification.

PVC Pipe

         PVC pipe is widely accepted in the building and construction industry.
A number of factors have contributed to its popularity including its low cost,
easy installation, and its lower weight and longer life than metal pipe. As a
result, PVC pipe is replacing metal pipe in many construction situations. Below
are descriptions of the Company's primary PVC pipe products, broken down between
pressure and non-pressure rated products.

         A major use of PVC pipe is transporting water under pressure. The
Company manufactures and distributes several PVC pressure pipe products for use
at various points in a water distribution system.

         PVC(R) Well Casing. The Company offers a light-weight PVC pipe to be
used as casing in water wells. The well casing pipe is manufactured out of what
Company management considers to be the highest quality PVC and complies with the
American Society for Testing and Materials ("ASTM") and National Sanitation
Foundation International ("NSFI") standards. As a companion to its well casing
pipe, the Company also offers a threaded drop pipe for hanging submersible
pumps. These heavy duty pipes are made from schedule 80 PVC and weigh
approximately one-seventh of an equivalent metal pipe.

         Pressure Pipe. Pressure pipe is used in water service lines, turf
irrigation, agricultural irrigation, water wells, and for transporting crude oil
and salt water. It comes in diameters from 1/2-inch to 15-inches and in lengths
up to 40 feet.

         White and Grey Schedule 80. The Company offers this strong PVC pipe for
demanding industrial applications. Its thick, strong walls stand up to most
chemicals, giving it distinct advantages over conventional metal pipe.

         Gasket Joint Pipe. Gasket joint pipe has a Reiber gasket to assure
leak-proof water mains and sewer pipe. Steel reinforced Reiber gaskets are
pre-stressed and molded in place to offer a tight and dependable seal. The
Company was one of the first in the industry to develop the capability to mold
the Reiber gasket in place in its PVC pipe, which produces the distinctive bell
end on a Gasket Joint Pipe.

         The Company also manufactures a line of non-pressure rated PVC pipe
products. Although these products are considered lower grade than pressure pipe,
the Company applies the same quality standards that it incorporates into all its
products.

         Drain, Waste and Vent Pipe. Drain, waste and vent pipe is used inside
the home in non-pressurized applications. It carries the NSFI approval and,
therefore, has appeal for use as waste drains and vents in the home.

         Sewer Drain Pipe. Sewer drain pipe is used for the exterior
transportation and storage of waste water. When waste water leaves the home or
industrial building, it moves through sewer drain pipe into a municipal sewer
system or other reclamation system. The thick-walled sewer drain pipe is
building code approved. For rural and non-building code applications, a
thin-walled variety of sewer drain pipe is available.

         Coex Cellular Core. Coex cellular core is a lighter weight drain, waste
and vent pipe for non-pressure applications. Coex cellular core is a co-extruded
pipe, with air-injected PVC sandwiched between two thin layers of solid PVC. Its
lighter weight makes coex cellular core easier to handle and more affordable
than heavier, solid PVC drain, waste and vent pipe. Its insulating
characteristics make coex cellular core pipe desirable for public buildings.

<PAGE>

         Electric and telephone duct. Electric and telephone duct are used by
utility companies. Electric duct is used for power lines, as well as electrical
wiring, both inside buildings and underground. Telephone duct is used by
communications companies for insulating their telephone communication lines.

PE Pipe and Tubing

         The applications and markets for PE pipe and tubing is expanding
because of its flexibility and strength. The Company offers a wide selection of
PE pipe and tubing products for home, farm, telecommunication, municipal and
industrial use. The Company backs its PE pipe and tubing with warranties. Below
are descriptions of the Company's primary PE product lines:

         Pure Core(R). Pure Core(R) is the Company's highest quality PE pipe and
tubing. The walls of this premium pipe are 25 percent thicker than called for by
both ASTM and NSFI standards, and the pipe comes with a 50-year warranty. Its
primary markets and uses include municipal and domestic water service for homes
and office, and transporting potable liquids for the chemical and food
processing industries.

         Eagle 3408 and Poly Flo. Eagle 3408 and Poly Flo Pipe are all-black PE
pipe and tubing products which meet the quality standards set by ASTM and NSFI,
yet are offered at a lower price than Pure Core(R) pipe. Eagle 3408 and Poly Flo
Pipe are made from high-density 3408 and medium-density 2406 polyethylene,
respectively. The primary use for this product line is transporting potable
water, with limited applications for foods and chemicals. The Eagle 3408 Pipe is
also used for slab heating systems and closed-loop, ground coupled heat pump
systems.

         Green-striped Eagle-Tough Turf Pipe(R). Green-striped Eagle-Tough Turf
Pipe(R) is a popular PE pipe in the lawn irrigation industry. It is co-extruded
with two green stripes to permanently identify it as Tough Turf Pipe. This
distinct, recognizable marking is unique to Tough Turf Pipe. One of its features
is the Tough Lifetime Guarantee against defects in materials and workmanship
covering the replacement cost of the pipe and the related labor cost. The
Company also serves its customers by providing pipe sizing other than the
traditional 1-inch diameter, all with the Tough Lifetime Guarantee, which is
valid as long as the original purchaser owns the property where Tough Turf Pipe
was originally installed.

         Poly-Flex. Utility-grade Poly-Flex is an economically priced
utility-grade PE pipe and tubing. This product carries a one-year warranty and
is suitable for transporting potable water and for pressure installations.
Primary markets and uses of this product include farm water systems, including
transporting water to outlying areas for livestock, plumbing/waste water and
drainage applications, and irrigation, primarily in home and other low pressure
applications.

         Natural Gas Pipe. Eagle Tri-Stripe(R) Natural Gas Pipe is marked with
yellow stripes for quick identification and is available in diameters up to 4
inches. Eagle Tri-Stripe(R) is an excellent alternative to steel pipe for
natural gas distribution and propane service due to its light weight, ease of
installation, and maintenance-free nature. The Company has concentrated on
marketing Natural Gas Pipe to the after-market side of the business, serving
installers and contractors, instead of marketing directly to utility companies.

         Fiber Optic Pipe. Fiber optic pipe is used for protecting underground
fiber optic cables. The Company sells this product mainly to large
communications companies such as AT&T, Sprint and MCI, and to railroad companies
such as Southern Pacific, which lay the pipe alongside their railroad tracks and
then lease space on their own fiber optic lines to the communications companies.

<PAGE>

Marketing and Customers

         The Company markets its products through a combination of independent
sales representatives, factory salespersons, and inside sales/customer service
representatives. Independent sales representatives are primarily assigned to
geographic territories. Factory salespersons are primarily assigned to specific
product lines and customers. The Company's core geographic market areas are the
Upper Midwest and Plains states and the Mountain and Pacific Northwest regions
of the United States.

         The Company's marketing strategy focuses on the brand name recognition
that its products have attained, particularly its PE pipe and tubing. To
complement its products, the Company strives to provide quality customer service
and short delivery times.

         The Company offers a wide variety of warranty programs on its products.
These warranties cover failures in pipe or tubing due to defects in material or
workmanship. Generally, warranties are for one year. However, the Pure Core(R)
product has a fifty-year warranty and Eagle Tough Turf Pipe(R) has its own
unique lifetime warranty, which is valid as long as the original purchaser owns
the property where Eagle Tough Turf Pipe(R) was originally installed. These
warranties extend in scope from replacement of the defective pipe to payment of
all costs of replacing the defective pipe, including labor costs. The Company
maintains product liability insurance to cover such warranty claims, and to
date, warranty reserves have been sufficient to cover warranty claims.

         In addition to the warranty programs, the Company offers many of the
industry-standard promotional sales programs, such as volume rebates and
discounts.

         The Company's customers consist primarily of wholesalers and
distributors. The Company has a broad and diverse group of customers. No
customer accounted for more than 10% of total net sales in 1998, 1997, or 1996.

Competition

         The plastic pipe industry is highly competitive due to the large number
of producers and the commodity nature of the industry. According to Plastics
News, the plastic pipe market is approximately $4.0 billion in annual sales. The
Company is the 17th largest extruder of plastic pipe, according to Plastic News.
However, many of the pipe manufacturers that ranked higher than the Company
produce types of pipe which the Company does not produce. Within its primary
markets, the Company believes it is one of the largest producers of PVC pipe and
PE pipe and tubing. Because of shipping costs, competition is usually regional,
instead of national, in scope. Finally, although the Company believes it has
reduced the commodity nature of its business through its high quality and brand
names, pricing pressure will continue to affect the Company's margins in the
future.

Manufacturing and Sources of Supplies

         All of the Company's manufacturing is performed at its facilities in
Hastings, Nebraska, Hillsboro, Oregon and West Jordan, Utah. The Company
believes it uses high quality raw materials and manufacturing techniques and
machinery that incorporate many of the newest extrusion technologies.

         All three of the Company's manufacturing facilities have compound
centers for PVC resin where the PVC resin is precisely mixed with various waxes,
colorants, UV protectants and lubricants to create the appropriate compound
resin for each extrusion application. By performing its own PVC compounding, the
Company has been able to reduce its raw material costs. PE material used by the
Company is purchased in compounded form, ready for direct use in the extruder.
Because of the different properties of PE plastic, it is not cost-effective to
acquire the technology to perform the Company's own PE compounding. Compounded
PVC resin and PE resin are automatically transported from storage silos to the
extrusion equipment by a vacuum feeding system.

<PAGE>

         Extrusion is a common manufacturing process used in the production of
plastic products. During production, PVC compounded resin or PE resin is placed
in an extrusion machine, where the PVC or PE material is heated into molten
plastic and pulled through a sizing apparatus to produce pipe or tubing of the
desired diameter. The newly extruded pipe or tubing is moved through a water
cooling trough, marked to indicate the identity of the pipe or tubing and cut to
length. Multiple warehousing and outdoor storage facilities are used to store
finished product. Inventory is shipped from storage to customers by common
carrier or by the Company's vehicles for orders close to a manufacturing
facility.

         At each phase of the manufacturing process, the Company pays great
attention to quality and production of a consistent product. Every PVC and PE
product is thoroughly examined for compliance with ASTM standards. The Company
has a quality control department which has its own testing lab for both resin
and finished goods quality assurance.

         The Company acquires its PVC and PE resins in bulk, mainly by rail car.
The Company acquires raw materials from various sources. During the years ended
December 31, 1998, 1997 and 1996, purchases of raw materials from two vendors
totaled 54%, 64% and 62% of total material purchases, respectively. The Company
maintains strong relationships with its key raw material vendors to ensure the
quality and availability of raw material.

Business Seasonality

         Due to general weather constraints in the geographic markets in which
the Company operates, the demand for its products tends to be seasonal. In an
effort to reduce the fluctuations in operating results caused by the seasonality
of the Company's products, the Company offers extended terms to its customers
during the winter months in order to stabilize production. Notwithstanding
extended terms, the Company experiences fluctuations in sales, accounts
receivable and inventory levels during the year.

Backlog

         The Company strives to keep delivery lead times to a minimum in order
to meet customer needs. However, due to the seasonality of the business, lead
times can occasionally approach 30 days. The Company's backlog on February 26,
1999, was 11,825,000 pounds of plastic pipe compared to 7,340,000 pounds on
February 27, 1998.

Employees

         The Company currently employs 384 employees, of which 24 are in
administration, 46 in sales and shipping and 314 in manufacturing. None of the
Company's employees are represented by a labor union and the Company has never
experienced any work stoppages.

ITEM 2.  PROPERTIES

         The Company's executive offices are located in leased office space in
Minneapolis, Minnesota, which is adequate for the operation of the Company's
business. The Company's manufacturing and warehouse facilities are located in
Hastings, Nebraska, Hillsboro, Oregon, West Jordan, Utah, and Baker City,
Oregon. The Company both owns and leases portions of its facilities in Hastings,
Nebraska. The facilities in Hillsboro, Oregon, West Jordan, Utah and Baker City,
Oregon are owned.

         The Company believes that the production capacity of its facilities is
sufficient to meet its current and future needs. The manufacturing facilities,
as currently equipped, are operating at approximately 85% of capacity.

<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

         The Company is not aware of any material legal proceedings against it.

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

         No matters were submitted to a vote of security holders during the
fourth quarter of fiscal year 1998.

                                     PART II

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

         The Company's Common Stock is currently traded on the Nasdaq SmallCap
Market under the symbol "EPII." The Company's Series A Preferred Stock and 8%
Convertible Preferred Stock do not trade on any exchange or Nasdaq. The
following table sets forth the high and low bid prices of a share of Common
Stock for each fiscal quarter in 1998 and 1997.

                                          High                  Low
Year ended December 31, 1998:
   First quarter                         $2-1/2               $ 1-5/8
   Second quarter                         2-1/8                 1-3/8
   Third quarter                          2-3/8                 1-3/8
   Fourth quarter                         2-1/2                 1-1/2


Year ended December 31, 1997:
   First quarter                         $4                   $ 2-5/8
   Second quarter                         3-13/16               2-5/8
   Third quarter                          3                     2-1/2
   Fourth quarter                         3-1/32                2-1/4

         The bid quotations represent inter-dealer prices and do not include
retail mark-ups, mark-downs, or commissions and may not necessarily represent
actual transactions. At February 26, 1999, the Company had approximately 1,970
shareholders of record and approximately 1,600 shareholders owning shares in
street name.

         The Company has never paid a cash dividend on its Common Stock. Payment
of Common Stock dividends is at the discretion of the board of directors,
subject to the Company's lending arrangements. The board of directors plans to
retain earnings, if any, for operations and does not intend to pay Common Stock
dividends in the near future. However, dividends are paid by the Company on its
Series A 7% Convertible Preferred Stock and 8% Convertible Preferred Stock.

             SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who own more than 10
percent of the Company's Common Stock, to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Officers, directors and
greater than 10% shareholders ("Insiders") are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.

         To the Company's knowledge, based upon a review of the copies of such
reports furnished to the Company, during the fiscal year ended December 31, 1998
all Section 16(a) filing requirements applicable to Insiders were complied with.



<PAGE>

<TABLE>
<CAPTION>

ITEM 6.  SELECTED FINANCIAL DATA

Years ended December 31,                   1998               1997               1996             1995(1)             1994
--------------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>                <C>                <C>                <C>               <C>    
SUMMARY OF OPERATIONS:
  Net sales                              $74,006,623        $71,685,080        $65,280,138        $51,330,127       $34,076,224
  Gross profit                            16,318,313         14,233,460         15,173,356          9,391,883         9,608,859
  Operating expenses                      12,110,103         10,877,964         10,044,450          7,680,038         5,702,515
  Operating income                         4,208,210          3,355,496          5,128,906          1,711,845         3,906,344
  Interest expense                         2,349,914          2,636,862          2,637,341          2,932,563         2,242,757
  Other income                                83,569             40,810             46,533            136,597            22,504
  Income (loss) before income taxes                                                                            
    and extraordinary loss                 1,941,865            759,444          2,469,628         (1,028,824)        1,400,434
  Extraordinary loss on debt                                                                                   
     prepayments                            (656,419)                 -         (1,728,353)                 -                 -
  Net income (loss)                        1,131,446            930,765          1,750,960           (864,824)        1,400,434
  Net income (loss) applicable
     to common stock                         328,821            410,362          1,660,169         (1,058,513)        1,207,145

  Basic earnings (loss) per 
    common share:
    Income (loss) before
       extraordinary loss                $       .15        $       .06        $       .62        $      (.27)      $       .34
    Extraordinary loss                          (.10)                 -               (.31)  
                                         -----------        -----------        -----------        -----------       -----------
    Net income (loss)                    $       .05        $       .06        $       .31        $      (.27)      $       .34
                                         ===========        ===========        ===========        ===========       ===========
  Diluted earnings (loss) per 
    common share:
    Income (loss) before
       extraordinary loss                $       .14        $       .06        $       .49         $    (.27)       $       .24
    Extraordinary loss                          (.09)                 -               (.24)                -                  -
                                         -----------        -----------        -----------         ---------        -----------
    Net income (loss)                    $       .05        $       .06        $       .25         $    (.27)       $       .24
                                         ===========        ===========        ===========         =========        ===========
  Average number of common 
    shares outstanding:
    Basic                                  6,669,784          6,503,426          5,444,683         3,899,587          3,570,233
    Diluted                                7,165,225          7,426,521          7,120,112         3,899,587          5,788,320

December 31,                               1998                1997               1996               1995              1994
--------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION:
  Working capital                        $(1,964,126)       $ 4,080,324        $ 1,126,244         $  450,932       $ 3,975,553
  Total assets                            49,618,798         43,828,971         35,426,564         31,917,782        19,181,172
  Long-term and subordinated
    debt                                  10,582,585          9,672,470         11,008,012         11,743,512         9,426,460
  Deferred liabilities                             -                  -             72,384            263,595           806,705
  Redeemable preferred stock              10,000,000         10,000,000                  -                  -                 -
  Stockholders' equity                     7,802,986          7,699,147          8,024,004          4,575,075         4,030,373

(1) Includes operations of Pacific Plastics, Inc., a former subsidiary of the Company, from July 1995, the date of acquisition.

</TABLE>

<PAGE>


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

Results of Operations. The following table sets forth items from the Company's
Statements of Operations as percentages of net sales:


                                            1998     1997      1996
                                            ----     ----      ----
Net sales                                  100.0%   100.0%    100.0%
Cost of goods sold                          78.0     80.1      76.8
Gross profit                                22.0     19.9      23.2
Operating expenses                          16.3     15.2      15.4
Operating income                             5.7      4.7       7.9
Other expenses                               3.1      3.6       4.1
Income before income taxes and
    extraordinary loss                       2.6      1.1       3.8
Income tax (expense) benefit                (0.2)     0.2       1.5
Income before extraordinary loss             2.4      1.3       5.3
Extraordinary loss on debt prepayments       0.9        -       2.6
Net income                                   1.5%     1.3%      2.7%


         The Company posted record net sales in 1998, rising 3% from 1997 to
1998 and 10% from 1996 to 1997. Higher volumes of pipe sold, primarily due to
increased demand and production capacities, were responsible for the 1998 and
1997 growth in revenues. Pounds sold rose by 13% from 1997 to 1998 and by 13%
from 1996 to 1997. These higher volumes were partially offset by lower selling
prices, which decreased 9% from 1997 to 1998 and 3% from 1996 to 1997. The lower
selling prices were caused by increased competition and lower PVC resin prices.

         The increase in gross profit, as a percentage of net sales, from 1997
to 1998 is primarily due to a combination of strong demand and falling resin
prices in 1998. PVC resin prices decreased due to an oversupply of resin caused
by depressed Asian markets. Strong demand allowed the Company to retain a
portion of the raw material price decreases. The decrease in gross profit as a
percentage of net sales from 1996 to 1997 is primarily due to a combination of
higher resin prices during the first half of 1997 and lower selling prices
during 1997. PVC resin prices were approximately 3% higher from 1996 to 1997.
Much of the PVC resin price increases were driven by a tight supply of resin
during the first quarter of 1997, caused by various operational problems within
many of the resin producers, not by an increase in demand. Therefore, the
Company was unable to pass all of the raw material price increases on to its
customers during the first half of 1997. The lower selling prices were due to
PVC resin prices peaking earlier than usual in 1997. Resin prices peaked in May
1997, compared to the more traditional fall/winter price descent in September of
1996. To maintain its market share, the Company was required to lower its prices
at the same rate that raw material prices declined. As higher priced inventory
was sold at lower market prices, gross profits decreased significantly.

         The increase in operating expenses, as a percentage of net sales, from
1997 to 1998 is primarily due to additional freight costs from increased sales
volume combined with lower selling prices. Operating expenses as a percentage of
net sales decreased from 1996 to 1997 primarily due to administrative
efficiencies within the Company which were partially offset by higher freight
costs resulting from expanded geographic markets.

         The decrease in other expenses for 1998 and 1997, which consists
principally of interest expense, is primarily due to the issuance of $10.0
million of the 8% Convertible Preferred Stock in May of 1997. The proceeds from
the preferred stock were used to pay down the Company's revolving credit line.

<PAGE>

         In 1998, income tax expense of $154,000 was recognized, which primarily
relates to state income taxes, as the state credit carryforwards were
substantially utilized in 1997. Due to future expected profits, income tax
benefits of $250,000 and $1,000,000 were recorded in 1997 and 1996,
respectively, representing NOL carryforwards expected to be utilized in the
future.

Financial Condition. The Company had negative working capital of $1,964,000 on
December 31, 1998. The negative working capital is due to the use of short-term
financing during the construction of the new manufacturing facility in Utah. The
Company currently has a short-term bridge loan through the revolving credit
loan, which will be replaced by permanent long-term financing in conjunction
with the closing of the pending asset purchase and merger as described in Note 2
to the financial statements. At December 31, 1998, the Company did not comply
with the capital expenditures and net cash flow covenants of the revolving
credit loan and accordingly, received a waiver from its lender.

         Cash generated from operating activities was $5.7 million in 1998,
compared to $820,000 and $5.8 million in 1997 and 1996, respectively. Profits
and depreciation and amortization were the primary sources of net cash provided
by operating activities.

         The Company used $10.6 million, $7.9 million, and $3.5 million for
investing activities in 1998, 1997, and 1996, respectively. The primary uses of
cash were capital expenditures in 1998, 1997 and 1996. Capital expenditures
increased substantially in 1998 and 1997 due to the addition and replacement of
manufacturing equipment and the construction of the new manufacturing facility
in Utah.

         Cash provided by financing activities of $5.0 million in 1998 consists
of borrowing under notes payable and long-term debt, partially offset by
repayments of long-term debt. Cash provided by financing activities of $7.1
million in 1997 primarily consisted of cash from the issuance of the 8%
convertible Preferred Stock during the second quarter of 1997, partially offset
by payments under the note payable and long-term debt. Cash used for financing
activities of $2.6 million in 1996 was primarily from repayments of long-term
debt and the revolving credit loan.

         The Company had commitments for capital expenditures of $162,000 at
December 31, 1998, which will be funded from borrowings under the revolving
credit loan. Additional sources of liquidity, if needed, may include the
Company's revolving credit line, additional long-term debt financing, and the
sale of Company equity securities under either a private or public offering. The
Company believes that it has the financial resources needed to meet its current
and future business requirements, including capital expenditures for expanding
manufacturing capacity and working capital requirements.

Outlook. The statements contained in this Outlook are based on current
expectations. These statements are forward-looking, and actual results may
differ materially from those anticipated by some of the statements made herein.

         The Company expects the demand for plastic pipe to grow as acceptance
of plastic pipe over metal pipe continues and the overall economy continues to
grow. Industry growth projections call for annual sales growth rates for plastic
pipe of three percent or greater per year through 2003. The Company has
historically been able to, and expects in the future to be able to, grow at
rates substantially in excess of the industry averages due to its emphasis on
customer satisfaction, product quality and differentiation and innovative
promotional programs. The Company's strategy has been, and continues to be, to
concentrate growth initiatives in higher profit products and geographic regions.

         The Company's gross margin percentage is a sensitive function of PVC
and PE raw material resin prices and capacity levels in the industry. In a
rising or stable resin market, margins and sales volume have historically been
higher and conversely, in falling resin markets, sales volumes and margins have
historically been lower. Gross margins also suffer when capacity increases
outpace demand due to increased competition to utilize capacity. The Company
believes that supply and demand in the plastic pipe industry is currently
balanced. Due to the commodity nature of PVC and PE resin and the dynamic supply
and demand factors worldwide, it is very difficult to predict gross margin
percentages or assume that historical trends will continue.

<PAGE>

         The NOLs are available through 2012; however, the majority expire by
2000. The amount of available NOLs actually used will be dependent on future
profits. The Company does not expect to utilize all of its NOLs before they
expire.

         The foregoing statements contained in this outlook section and those
specifically relating to the Company's expectation of the plastic pipe and
tubing market and the Company's performance in relation to such growth, the
Company's ability to utilize NOLs in the future and its belief that it has the
necessary resources for future success are all forward looking statements that
involve a number of risks and uncertainties. Some of the factors that could
cause actual results to differ materially include, but are not limited to, raw
material cost fluctuations, general economic conditions, competition,
availability of working capital and weather conditions.

         The Company has received a commitment letter from Fleet Capital
Corporation ("Fleet") whereby Fleet has agreed to act as agent and underwrite
$40.0 million of a $85.0 million senior credit facility. The senior credit
facility will be used to finance the Company's ongoing operations. The $85.0
million senior credit facility will consist of a $35.0 million revolving credit
facility and a $50.0 million term loan facility. The term of the senior credit
facility is expected to be three years and the interest rate is expected to be
based on a variable rate (prime rate or LIBOR, at the Company's option), plus a
margin based on the Company's interest coverage ratio. See "The Company's
Business--Recent Developments."

Year 2000 (Y2K) Compliance. As with other organizations, the Company's computer
hardware and software were originally designed to recognize calendar years by
their last two digits. Calculations performed using these truncated fields would
not work properly with dates from the year 2000 and beyond.

         The Company has completed an assessment of its information systems
programs and completed changes on the majority of these programs to make them
Y2K compliant. The remaining programs are expected to be corrected by the end of
the first quarter of 1999. The Company is currently assessing, with the
assistance of its vendors, whether any Y2K problems exist in its office and
production equipment. This assessment project along with the remediation of any
problems is expected to be completed by the end of the second quarter of 1999.
In addition, the Company has inquired of its major customers and suppliers as to
their readiness to the Y2K issue to determine the extent to which the Company is
indirectly vulnerable to any third-party Y2K issues. Many of the Company's
customers and suppliers have responded that they believe they are or will be Y2K
compliant. However, there can be no guarantee that the systems of other
companies on which the Company's systems rely will be timely converted, or that
a failure to convert by another company would not have a material adverse effect
on the Company.

         The total cost associated with the modifications to be Y2K compliant
are expected to be below $25,000, of which approximately $10,000 have been
expensed as of December 31, 1998.

         The failure to correct a material Y2K problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could have an adverse effect on the Company's
operations. Due to the general uncertainty inherent in the Y2K problem,
resulting in part from the uncertainty of the Y2K readiness of the Company's
third-party suppliers and customers, the Company is unable to determine at this
time whether the consequences of Y2K failures will have a material impact on the
Company's operations. The Company believes that the assessment and remediation
steps it is taking will significantly reduce its exposure to the Y2K problem.

<PAGE>

         At this time, the Company believes it has addressed all Y2K issues that
may arise; therefore, no contingency plan has been developed. If problems are
detected during the Company's in-house testing, or if information is received
from an outside source that they would be unable to be Y2K compliant, the
Company will then develop an appropriate contingency plan to address Y2K
problems that may arise.

Accounting Pronouncement. In June 1998, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
requires companies to record derivatives on the balance sheet as assets and
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. SFAS No. 133 is
effective for fiscal years beginning after June 15, 1999, with earlier adoption
encouraged. Management has not yet determined what effect, if any, SFAS No. 133
will have on its financial position or the results of its operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Not applicable.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Financial Statements

Independent Auditors' Report                 
Statements of Operations                     
Balance Sheets                               
Statements of Stockholders' Equity           
Statements of Cash Flow                      
Notes to Financial Statements                



<PAGE>








INDEPENDENT AUDITORS' REPORT


Board of Directors and Stockholders of Eagle Pacific Industries, Inc.


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

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

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




      /s/Deloitte & Touche LLP              
         Deloitte & Touche LLP






Minneapolis, Minnesota
March 9, 1999



<PAGE>

<TABLE>
<CAPTION>


EAGLE PACIFIC INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
-----------------------------------------------------------------------------------------------------
                                                     1998              1997              1996
<S>                                              <C>               <C>               <C>    
NET SALES                                        $74,006,623       $71,685,080       $65,280,138

COST OF GOODS SOLD                                57,688,310        57,451,620        50,106,782
                                                 -----------       -----------       -----------
  Gross profit                                    16,318,313        14,233,460        15,173,356
                                                 -----------       -----------       -----------
OPERATING EXPENSES:
  Selling expenses                                 9,331,378         8,157,000         7,113,184
  General and administrative expenses              2,778,725         2,720,964         2,931,266
                                                 -----------       -----------       -----------
                                                  12,110,103        10,877,964        10,044,450
                                                 -----------       -----------       -----------
OPERATING INCOME                                   4,208,210         3,355,496         5,128,906
                                                 -----------       -----------       -----------
OTHER (EXPENSE) INCOME:
  Interest expense                                (2,349,914)       (2,636,862)       (2,637,341)
  Minority interest                                        -                 -           (68,470)
  Other income                                        83,569            40,810            46,533
                                                 -----------       -----------       ----------- 
                                                  (2,266,345)       (2,596,052)       (2,659,278)
INCOME BEFORE INCOME TAXES
  AND EXTRAORDINARY LOSS                           1,941,865           759,444         2,469,628

INCOME TAX (EXPENSE) BENEFIT  (Note 10)             (154,000)          171,321         1,009,685
                                                 -----------       -----------       -----------
INCOME BEFORE EXTRAORDINARY LOSS                   1,787,865           930,765         3,479,313

EXTRAORDINARY LOSS ON DEBT PREPAYMENTS, less
  income tax benefit of $31,000 and $80,500,                                
  respectively (Note 5)                              656,419                 -         1,728,353
                                                 -----------       -----------       -----------
NET INCOME                                         1,131,446           930,765         1,750,960

PREFERRED STOCK DIVIDENDS                           (802,625)         (520,403)          (90,791)
                                                 -----------       -----------       -----------
NET INCOME APPLICABLE TO COMMON STOCK            $   328,821       $   410,362       $ 1,660,169
                                                 ===========       ===========       ===========
BASIC EARNINGS PER COMMON SHARE:
  Income before extraordinary loss               $       .15       $       .06       $       .62
  Extraordinary loss on debt prepayments                (.10)                -              (.31)
                                                 -----------       -----------       -----------
  Net income                                     $       .05       $       .06       $       .31
                                                 ===========       ===========       ===========
DILUTED EARNINGS PER COMMON SHARE:
  Income before extraordinary loss               $       .14       $       .06       $       .49
  Extraordinary loss on debt prepayments                (.09)                -              (.24)
                                                 -----------       -----------       -----------
  Net income                                     $       .05       $       .06       $       .25
                                                 ===========       ===========       ===========
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
  Basic                                            6,669,784         6,503,426         5,444,683
  Diluted                                          7,165,225         7,426,521         7,120,112

See notes to financial statements.

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

EAGLE PACIFIC INDUSTRIES, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
-------------------------------------------------------------------------------------------------------------
ASSETS                                                                              1998           1997
<S>                                                                             <C>              <C>   
CURRENT ASSETS:
  Cash and cash equivalents                                                     $           -    $         -
  Accounts receivable, less allowance for doubtful accounts and
    sales discounts of $199,000 and $203,500, respectively                          6,310,049      6,528,296
  Inventories (Note 3)                                                             12,249,959     13,269,560
  Deferred income taxes (Note 10)                                                     425,000        425,000
  Other                                                                                       
                                                                                      284,093        314,822
          Total current assets                                                  -------------     ----------
                                                                                   19,269,101     20,537,678

PROPERTY AND EQUIPMENT, NET (Note 4)                                               22,634,614     15,787,771
OTHER ASSETS:
  Prepaid interest (Note 5)                                                                 -        836,998
  Land held for sale                                                                2,490,965      1,066,676
  Goodwill, less accumulated amortization of $482,000 and $370,000,                
    respectively                                                                    3,985,960      4,097,652
  Deferred income taxes (Note 10)                                                     825,000        825,000
  Other                                                                               413,158        677,196
                                                                                -------------    -----------
                                                                                    7,715,083      7,503,522
                                                                                -------------    -----------
                                                                                $  49,618,798    $43,828,971
LIABILITIES AND STOCKHOLDERS' EQUITY                                            =============    ===========
CURRENT LIABILITIES:
  Note payable (Note 5)                                                         $   9,632,105    $ 4,405,976
  Accounts payable                                                                  8,013,067      8,892,015
  Accrued liabilities                                                               1,738,427      1,276,481
  Current maturities of long-term debt (Note 5)                                     1,849,628      1,882,882
                                                                                -------------    -----------
          Total current liabilities                                                21,233,227     16,457,354

LONG-TERM DEBT, less current maturities (Note 5)                                   10,582,585      5,489,900
SUBORDINATED DEBT (Note 5)                                                                  -      4,182,570
COMMITMENTS AND CONTINGENCIES (Note 7)                                                      -              -
    REDEEMABLE PREFERRED STOCK, 8% cumulative dividend; convertible; $1,000
    liquidation preference; $.01 par value; authorized, issued and
    outstanding 10,000 shares (Note 8)                                             10,000,000     10,000,000
STOCKHOLDERS' EQUITY (Note 9):
  Series A preferred stock, 7% cumulative dividend; convertible; $2 liquidation
    preference; no par value; authorized 2,000,000 shares;
    issued and outstanding 18,750 shares                                               37,500         37,500
  Undesignated stock, $.01 per share; authorized 14,490,000 shares;
    none issued and outstanding                                                             -              -
  Common stock, par value $.01 per share; authorized 30,000,000 shares;
    issued and outstanding 6,635,035 and 6,506,174 shares, respectively                66,350         65,062
  Class B Common stock, par value $.01 per share; authorized 3,500,000
    shares; none issued and outstanding                                                     -              -
  Additional paid-in capital                                                       36,480,930     36,707,200
  Notes receivable from officers and employees on common stock purchases             (434,206)      (434,206)
  Accumulated deficit                                                             (28,347,588)   (28,676,409)
                                                                                -------------    -----------
          Total stockholders' equity                                                7,802,986      7,699,147
                                                                                -------------    -----------
                                                                                $  49,618,798    $43,828,971
                                                                                =============    ===========
See notes to financial statements.
</TABLE>


<PAGE>

EAGLE PACIFIC INDUSTRIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 
1996                                   
<TABLE>
<CAPTION>

 
                                                                                                    Notes
                                                                                                 Receivable
                                                                                                   from                      
                                                                                                  Officers
                                                                                                    and
                                                                                                  Employees
                                                                                                     on   
                                    Series A                             Additional  Unearned      Common
                                Preferred Stock         Common Stock      Paid-in  Compensation on  Stock   Accumulated
                                Shares       Amount    Shares    Amount    Capital   Stock Options purchases  Deficit        Total
                            --------------------------------------------------------------------------------------------------------
<S>                             <C>       <C>         <C>       <C>      <C>         <C>         <C>       <C>           <C>
BALANCE AT 12/31/1995           1,383,500 $2,767,000  4,152,940 $41,529  $32,757,381 $(204,232)  $      -  $(30,786,603) $4,575,075
                                                                                                                                  
Net income                              -          -          -       -            -         -          -     1,750,960   1,750,960

Dividends on preferred stock            -          -          -       -            -         -          -       (90,791)    (90,791)

Issuance of common stock (Note 9)       -          -    730,547   7,305    1,604,807         -          -             -   1,612,112

Conversion of preferred stock  (1,364,750)(2,729,500) 1,559,750  15,598    2,713,902         -          -             -           -

Common stock options vested 
(Note 9)                                -          -          -       -            -   107,991          -             -     107,991

Warrant issued in debt refinancing      -          -          -       -      135,000         -          -             -     135,000

Common stock purchases (Note 9)         -          -          -       -            -         -    (66,343)            -     (66,343)
                                ---------  ---------  ---------  ------   ----------  --------   --------   -----------  ----------
BALANCE AT 12/31/1996              18,750     37,500  6,443,237  64,432   37,211,090   (96,241)   (66,343)  (29,126,434)  8,024,004

Net income                              -          -          -       -            -         -          -       930,765     930,765

Dividends on preferred stock            -          -          -       -            -         -          -      (520,403)   (520,403)

Issuance of common stock (Note 9)       -          -     80,237     803       81,718         -          -             -      82,521

Common stock options vested 
(Note 9)                                -          -          -       -            -    96,241          -             -      96,241

Preferred stock issuance costs          -          -          -       -     (583,029)        -          -             -    (583,029)

Purchase of minority interest           -          -          -       -       41,536         -          -        39,663      81,199

Common stock acquired and retired 
(Note 9)                                -          -    (17,300)   (173)     (44,115)        -          -             -     (44,288)

Common stock purchases (Note 9)         -          -          -       -            -         -   (367,863)            -    (367,863)
                                ---------  ---------  ---------  ------   ----------  --------   --------   -----------   ---------
BALANCE AT 12/31/1997              18,750     37,500  6,506,174  65,062   36,707,200         -   (434,206)  (28,676,409)  7,699,147

Net income                              -          -          -       -            -         -          -     1,131,446   1,131,446

Dividends on preferred stock            -          -          -       -            -         -          -      (802,625)   (802,625)

Issuance of common stock 
(Note 9)                                -          -    352,552   3,525      206,598         -          -             -     210,123

Common stock acquired and retired 
(Note 9)                                -          -   (223,691) (2,237)    (432,868)        -          -             -    (435,105)
                                ---------  ---------  ---------  ------   ----------  --------   --------   -----------   ---------
BALANCE AT 12/31/1998              18,750 $   37,500  6,635,035 $66,350  $36,480,930 $       -  $(434,206) $(28,347,588) $7,802,986
                                =========  =========  =========  ======   ==========  ========   ========   ===========   =========

See notes to financial statements.

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

EAGLE PACIFIC INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
---------------------------------------------------------------------------------------------------------------------------
                                                                           1998                 1997               1996
<S>                                                                   <C>                  <C>                 <C>   
CASH FLOWS FROM OPERATING ACTIVITIES:                                      
  Net income                                                          $  1,131,446         $   930,765         $ 1,750,960
  Adjustments to reconcile net income to net cash 
    provided by operating activities:
    Extraordinary loss on debt prepayments                                 656,419                   -           1,728,353
    Minority interest                                                            -                   -              68,470
    Gain on disposal of fixed assets                                       (40,162)             (4,000)            (10,401)
    Depreciation and amortization                                        2,313,568           1,679,278           1,564,684
    Loan discount amortization                                             419,930             551,834             329,724
    Prepaid interest amortization                                          295,410             551,690             435,160
    Deferred income taxes                                                        -            (250,000)         (1,000,000)
  Change in assets and liabilities:
    Accounts receivable                                                    218,247            (927,453)            (51,607)
    Inventories                                                          1,019,601          (2,990,391)         (2,104,212)
    Other current assets                                                    30,729             654,811             (43,364)
    Accounts payable                                                      (878,948)            871,647           2,767,685
    Accrued liabilities                                                    492,946            (165,699)            313,359
    Other                                                                        -             (82,599)              8,622
                                                                      ------------         -----------         -----------
         Net cash provided by operating activities                       5,659,186             819,883           5,757,433
                                                                      ------------         -----------         -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment                                   (8,995,715)         (5,697,754)         (3,451,076)
  Purchases of and improvements to land held for sale                   (1,424,289)         (1,066,676)                  -
  Purchases of minority interest                                                 -            (748,734)           (519,749)
  Proceeds from restricted cash                                                  -                   -             500,000
  Proceeds from property and equipment disposals                            40,162               4,000              40,150
  Deferred acquisition costs                                              (237,297)                  -                   -
  Notes receivable from officers and employees
     on common stock purchases                                                   -            (367,863)            (66,343)
                                                                      ------------         -----------         -----------
         Net cash used in investing activities                         (10,617,139)         (7,877,027)         (3,497,018)
                                                                      ------------         -----------         -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings under note payable                                         84,215,027          87,076,262          63,277,663
  Payments under note payable                                          (78,988,898)        (87,319,388)        (64,150,066)
  Proceeds from long-term debt                                           6,477,800             260,000           8,029,950
  Repayment of long-term debt                                           (5,718,369)         (1,874,531)        (10,478,521)
  Payment of debt issuance costs                                                 -             (20,000)           (598,256)
  Issuance of common stock                                                 210,123              82,521           1,446,563
  Payment and retirement of common stock                                  (435,105)            (44,288)                  -
  Issuance of preferred stock, net of offering costs                             -           9,416,971                   -
  Payment of preferred stock dividend                                     (802,625)           (520,403)            (90,791)
                                                                      ------------         -----------         -----------
         Net cash provided by (used in) financing activities             4,957,953           7,057,144          (2,563,458)
                                                                      ------------         -----------         -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS                                        -                   -            (303,043)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                   -                   -             303,043
                                                                      ------------         -----------         -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR                              $          -         $         -         $         -
                                                                      ============         ===========         ===========
See notes to financial statements.
</TABLE>


<PAGE>

EAGLE PACIFIC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
--------------------------------------------------------------------------------

1.       SIGNIFICANT ACCOUNTING POLICIES

         Basis of Financial Statement Presentation - Prior to December 31, 1997,
the financial statements include the accounts of Eagle Pacific Industries, Inc.
and its wholly-owned subsidiaries (the Company), Pacific Plastics, Inc. and its
wholly-owned subsidiary, Arrow Pacific Plastics, Inc. (Pacific), and Eagle
Plastics, Inc. (Eagle). All significant inter-company accounts and transactions
have been eliminated. Effective December 31, 1997, the subsidiaries were merged
into the Company.

         Inventories - Inventories are stated at the lower of cost, determined
by the first-in, first-out (FIFO) method, or market.

         Land held for sale - In conjunction with the development of the West
Jordan, Utah manufacturing facility, the Company was required to purchase and
develop land for an entire industrial park. The Company is currently in the
process of the selling the excess land. Land held for sale is stated at the
lower of cost or net realizable value.

         Property and Equipment - Property and equipment are stated at cost and
are depreciated over the estimated useful life of each asset using the
straight-line method. Leasehold improvements are depreciated over the shorter of
the lease term or the estimated useful lives of the improvements. The carrying
value is evaluated for impairment on a regular basis based on historical and
projected undiscounted cash flows.

         Goodwill - Goodwill has been recorded for the excess of the purchase
price over the fair value of the net assets acquired in acquisitions and is
being amortized using the straight-line method over 40 years. The carrying value
is evaluated for impairment based on historical and projected undiscounted cash
flows.

         Deferred Financing Costs - Deferred financing costs are amortized over
the term of the related indebtedness using the effective interest method.

         Fair Value of Financial Instruments - In accordance with the
requirements of Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments", management estimates
that the carrying value of long-term debt approximates fair value. The estimated
fair value amounts have been determined through the use of discounted cash flow
analysis using interest rates currently available to the Company for issuance of
debt with similar terms and remaining maturities. All other financial
instruments approximate fair value because of the short-term nature of these
instruments.

         Product Warranty - The Company's products are generally under warranty
against defects in material and workmanship for a period of one year; however,
one of the Company's products has a 50-year warranty and another has a lifetime
warranty for as long as the original purchaser owns the property where this
product was originally installed. The Company has established an accrual for
these anticipated future warranty costs.

         Sales - Sales are recorded at the time of shipment of the product.

         Income Taxes - The Company utilizes the asset and liability method of
accounting for income taxes as set forth in Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes". Deferred income tax
assets and liabilities are computed annually for differences between the

<PAGE>


financial statement and income tax basis of assets and liabilities that will
result in taxable or deductible amounts in the future based on enacted tax laws
and rates applicable to the periods in which the differences are expected to
affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities.

         Earnings Per Share - Basic earnings per share (EPS) excludes dilution
and is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. The
difference between average common shares and average common and common
equivalent shares is the result of outstanding stock options and preferred
stock, if dilutive.

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

         Significant Vendors - The Company acquires raw materials from various
sources. During the years ended December 31, 1998, 1997 and 1996, purchases of
such raw materials from two vendors totaled 54%, 64% and 62%, respectively, of
total material purchases.

         Reclassifications - Certain reclassifications have been made to the
1997 financial statements to conform to the 1998 presentation. Such
reclassifications had no effect on net income or stockholders' equity as
previously reported.

         New Accounting Pronouncement - In June 1998, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 requires companies to record derivatives on the balance sheet as assets
and liabilities, measured at fair value. Gains or losses resulting from changes
in the values of those derivatives would be accounted for depending on the use
of the derivative and whether it qualifies for hedge accounting. SFAS No. 133 is
effective for fiscal years beginning after June 15, 1999, with earlier adoption
encouraged. Management has not yet determined what effect, if any, SFAS No. 133
will have on its financial position or the results of its operations.

2.       PENDING ASSET PURCHASE AND MERGER

         On December 11, 1998, the Company entered into an agreement to acquire
the polyvinyl chloride (PVC) pipe business of the Lamson & Sessions Co. of
Cleveland, Ohio. The Company will pay $45 million in cash (adjusted for changes
in working capital) and issue $6 million of its notes and 785,000 shares of its
common stock to the Lamson & Sessions Co. for the PVC pipe business. The asset
purchase will be accounted for by the purchase method of accounting and is
contingent upon the consummation of the merger agreement described below. Bank
borrowings are expected to be used to finance the cash portion of the purchase
price. The Company has also signed a merger agreement pursuant to which a PVC
resin manufacturing facility owned and operated by CONDEA Vista Company, which
is wholly-owned by RWE-DEA AG of Hamburg, Germany, will be merged into the
Company. CONDEA Vista will transfer the PVC resin manufacturing facility to its
wholly-owned subsidiary, Eagle Pacific Holdings, Inc. ("Holdings") in
consideration for approximately 9.8 million shares of Holding's common stock and
will have one representative on the Board of Directors of Holdings. The Company
will become a wholly-owned subsidiary of Holdings and the Company's shareholders
will receive Holdings' stock in a one-for-one exchange for the Company's stock.

<PAGE>

Immediately following the merger, the Company common stockholders will own
approximately 38.5%, and CONDEA Vista will own approximately 57% of the
outstanding Holdings' common stock. However, pursuant to a Stockholders
Agreement with CONDEA Vista, four of the Company's directors will serve on
Holdings' five member board of directors and will be able to control the affairs
of Holdings for up to five years. The merger is subject to shareholder approval
and the closing is anticipated to occur during the Company's second quarter of
fiscal 1999. The merger will be accounted for as a reverse acquisition using the
purchase method of accounting and is contingent upon the consummation of the
asset purchase agreement described above. Lamson and Session's PVC pipe business
and CONDEA Vista's resin manufacturing facility sales for their fiscal 1998 were
approximately $139 million and $88 million, respectively.

<TABLE>
<CAPTION>



3.       INVENTORIES                                          1998                        1997
-----------------------------------------------------------------------------------------------------------
<S>                                                            <C>                         <C>    
Raw materials....................................              $     4,519,991             $     5,033,398
Finished goods...................................                    7,729,968                   8,236,162
                                                               ---------------             ---------------
                                                               $    12,249,959             $    13,269,560
                                                               ===============             ===============

4.         PROPERTY AND EQUIPMENT                               1998                        1997
-----------------------------------------------------------------------------------------------------------

Land.............................................              $     1,080,509             $     1,038,998
Buildings and leasehold improvements.............                    8,192,062                   2,874,347
Machinery and equipment..........................                   18,429,485                  14,738,163
Transportation equipment.........................                      554,488                     443,254
Furniture and fixtures...........................                      520,235                     449,742
Construction-in-progress.........................                            -                     424,346
                                                               ---------------             ---------------
                                                                    28,776,779                  19,968,850
Less accumulated depreciation....................                    6,142,165                   4,181,079
                                                               ---------------             ---------------
                                                               $    22,634,614             $    15,787,771
                                                               ===============             ===============

</TABLE>

<PAGE>
        
5.       DEBT

         At December 31, 1998, the Company had outstanding borrowings of
$9,623,105 under the revolving credit loan agreement of $16,500,000, subject to
borrowing base restrictions. The Company may borrow up to 85% of "eligible"
accounts receivable and 55% of "eligible" inventory. At December 31, 1998, the
Company had additional borrowings available of approximately $2,500,000, which
is based on available collateral. The revolving credit loan expires May 9, 2002.
Interest is payable monthly at the bank's national base rate, plus .25% (8.0% at
December 31, 1998). The agreement also includes a commitment fee of .5% of the
unused portion of the credit loan, payable monthly. At December 31, 1997, the
Company had outstanding borrowings of $3,345,645. The revolving credit loan is
secured by substantially all assets of the Company. Until all obligations of the
revolving credit loan and term promissory note A (see below) are paid in full,
the Company must comply with certain covenants outlined in the loan agreement,
including capital expenditures, tangible net worth, net cash flow and senior
interest coverage ratio. At December 31, 1998, the Company did not comply with
the capital expenditures and net cash flow covenants and accordingly, received a
waiver from its lender. The weighted average interest rate on all short-term
borrowings for the years ended December 31, 1998 and 1997, was 8.5% and 8.7%,
respectively.

         In July 1998, the Company repaid $4.3 million of its subordinated debt,
which generated an extraordinary loss of $656,419, net of income taxes. This
loss consisted of unamortized prepaid interest of $542,000 and deferred
financing costs of $145,000, net of tax benefit of $31,000. In conjunction with
the repayment, the Company obtained an additional $6.5 million of term notes.

         In May 1996, the Company repaid $3.0 million of its subordinated debt,
which generated an extraordinary loss of $1,728,353, net of income taxes. This
loss consisted of unamortized prepaid interest of $1.5 million and deferred
financing costs of $228,000. The Company issued a 22-month warrant to purchase
215,000 shares of the Company's Common Stock in connection with the subordinated
debt repayment. The $135,000 value assigned to the warrant was amortized to
interest expense over the term of the refinanced debt. In conjunction with the
repurchase, the Company obtained $1.5 million of new common equity and an
additional $3.4 million of term notes, and the Company repurchased approximately
one-half of the remaining Eagle minority interest. The additional term notes
were obtained through a bank refinancing that consolidated previously
outstanding term notes and revolving credit loans into a $8.0 million term note
and a $16.5 million revolving credit loan.

<TABLE>
<CAPTION>


Long-term debt at December 31 consisted of the following:
--------------------------------------------------------------------------
                                                              1998                1997
                                                       -------------------------------------
<S>                                                           <C>               <C>    
Term promissory note (A).............................         $11,523,500       $ 6,189,300
Subordinated promissory note (B).....................                   -         4,182,570
Various installment notes payable (C)................             908,713         1,183,482
                                                              -----------       -----------
                                                               12,432,213        11,555,352
Less current maturities .............................           1,849,628         1,882,882
                                                              -----------       -----------
                                                              $10,582,585       $ 9,672,470
                                                              ===========       ===========
</TABLE>

<PAGE>

(A)      Payable $95,300 monthly, plus interest at the bank's national base
         rate, plus .25% (8.0% at December 31, 1998), with remaining principal
         due May 9, 2002. Secured by substantially all assets of the Company and
         subject to the terms and covenants of the revolving credit loan
         agreement outlined above.

(B)      Paid in full on July 6, 1998.

(C)      Due dates ranging from April 1999 through March 2004, initially payable
         $26,467 monthly, including interest at 4.25% to 9.38%. Secured by land
         and equipment.

These amounts are shown in the balance sheets under the following captions at
December 31:

<TABLE>
<CAPTION>

                                                       1998               1997
                                                --------------------------------------
<S>                                                    <C>                <C>   
Current maturities of long-term debt.........          $ 1,849,628        $ 1,882,882
Long-term debt, less current maturities......           10,582,585          5,489,900
Subordinated debt............................                    -          4,182,570
                                                       -----------        -----------
                                                       $12,432,213        $11,555,352
                                                       ===========        ===========
</TABLE>


Aggregate annual maturities of long-term debt at December 31, 1998, are:

1999..........................................           $ 1,849,628
2000..........................................             1,202,218
2001..........................................             1,195,539
2002..........................................             8,132,562
2003..........................................                41,589
Thereafter....................................                10,677
                                                         -----------
                                                         $12,432,213
                                                         ===========
6.       DEFERRED COMPENSATION

         The Company previously adopted a plan of deferred compensation for a
former officer of the Company. Under this plan, the officer will receive $50,000
per year for three years, commencing when the Company's annual net income per
share equals or exceeds $1.00.

         The Company also has an unfunded deferred compensation agreement which
provides approximately $75,000 upon retirement. During the year ended December
31, 1997, the officer retired and the compensation will be paid in 1999 at his
request.

<PAGE>

7.       COMMITMENTS AND CONTINGENCIES

         Litigation - The Company is periodically involved in various legal
actions arising in the normal course of business. At December 31, 1998, the
Company was not aware of any material legal proceedings against it.

         Leases - The Company has non-cancelable operating leases for certain
operating facilities which expire in 2010. The operating facility leases contain
provisions for increasing the monthly rent for changes in the Consumer Price
Index (CPI).

         Future minimum lease payments at December 31, 1998, excluding the CPI
increases, were:

1999.................................         $  123,336
2000.................................            123,336
2001.................................            123,336
2002.................................            123,336
2003.................................            123,336
Thereafter...........................            801,684
                                             -----------
                                             $ 1,418,364
                                             ===========

         Rent expense under all operating leases was $305,000, $363,000 and
$285,000 for the years ended December 31, 1998, 1997 and 1996, respectively.

8.       REDEEMABLE PREFERRED STOCK

         During 1997, the Company issued 10,000 shares of redeemable 8%
convertible preferred stock at $1,000 per share. The stock is convertible at the
holder's option at $4.26 per share and has a mandatory redemption at the
liquidation preference of $1,000 per share on May 9, 2004. After two years from
issuance, the Company can cause a mandatory conversion if the common stock
trades above $7.45 per share for 30 consecutive days.

9.       STOCKHOLDERS' EQUITY

         During 1998, the Company issued 352,552 shares of common stock for the
exercise of stock options and purchased and retired 223,691 shares of common
stock. During 1997, the Company issued 80,237 shares of common stock for the
exercise of stock options and purchased and retired 17,300 shares of common
stock. During 1996, the Company issued 600,000, 60,547, 1,559,750, and 70,000
shares of common stock for a new private equity offering, the acquisition of
additional shares of minority ownership of Eagle, the conversion of 1,364,750
shares of preferred stock, and the exercise of stock options, respectively.

         The Company issued 1,383,500 shares of Series A convertible preferred
stock at $2.00 per share during the year ended December 31, 1994. During 1996,
1,364,750 shares of preferred stock were converted to common stock. The
preferred stock is convertible, at the option of the holder, to common stock at
a current conversion ratio of one share of common stock for each share of
preferred stock. The Company may force conversion of the preferred stock at any
time after the Company's common stock trades in the public market for 20
consecutive days at an average bid and asked price greater than $4.00 per share.
The preferred stock has voting rights based on the number of shares of common
stock into which the preferred stock is then convertible and has a liquidation
preference to common stock.

         The Company has previously granted options to purchase 600,000 shares
of its common stock at $.75 per share, which was $.75 below market value at
grant time. The difference between the exercise price and the market value was
amortized as compensation expense over the vesting period of the options, which
was December 1994 through December 1997.

<PAGE>

         In 1996, the Company established a leverage equity purchase program
(LEPP). The LEPP provides loans to board members and various members of
management to purchase common stock of the Company. The loans are represented by
five-year promissory notes, bear interest at a rate equal to the average annual
rate on the Company's revolver loan (8.5% for 1998), and are collateralized by
the pledge of the purchased shares of common stock of the Company.

10.      INCOME TAXES

         Deferred tax assets and liabilities represent temporary differences
between the basis of assets and liabilities for financial reporting purposes and
tax purposes. Deferred tax assets are primarily comprised of reserves which have
been deducted for financial statement purposes, but have not been deducted for
income tax purposes and the tax effect of net operating loss carryforwards. The
Company annually estimates the amount of deferred tax assets which it expects to
realize based on historical averages of taxable income and estimates of future
taxable income. The Company has recorded a valuation allowance to reduce
recorded deferred tax assets to the amount of deferred tax benefit expected to
be realized.

         Deferred taxes as of December 31, 1998 and 1997, are summarized as
follows:

<TABLE>
<CAPTION>


                                                          1998              1997
----------------------------------------------------------------------------------------
<S>                                                         <C>             <C>  
Current deferred taxes:
Warranty reserve..................................          $  16,000        $   13,000
Allowance for doubtful accounts...................             72,000            79,000
Accrued expenses..................................            224,000           207,800
Inventory cost capitalization.....................             18,000            14,000
Federal net operating loss carryforwards.........             425,000           425,000
Less valuation allowance..........................           (330,000)         (313,800)
                                                            ---------        ----------
Total.............................................          $ 425,000        $  425,000
                                                            =========        ==========

Long-term deferred taxes:
LIFO inventory recapture..........................          $(248,000)       $ (396,000)
Deferred compensation.............................             31,000            31,000
Excess of tax over book depreciation..............           (485,000)         (729,000)
Non-compete agreement.............................            180,000           190,000
Federal net operating loss carryforwards.........           9,291,000        11,339,000
Tax credit carryforwards..........................            451,000           634,000
AMT credit carryforwards..........................             78,000            78,000
Contribution carryforwards........................              6,000            22,000
Less valuation allowance..........................         (8,479,000)      (10,344,000)
                                                           ----------       -----------
Total.............................................         $  825,000        $  825,000
                                                           ==========       ===========

</TABLE>


<PAGE>

         Income tax expense for the years ended December 31, 1998, 1997 and
1996, consists of the following:

<TABLE>
<CAPTION>

                                                                                 1998          1997            1996
------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>           <C>             <C>   
Current - primarily state..............................................       $ 154,000     $  78,679       $    68,315
Deferred - primarily federal...........................................               -      (250,000)       (1,078,000)
                                                                              ---------     ---------       -----------
Income tax expense (benefit) before extraordinary loss.................         154,000      (171,321)       (1,009,685)
Income tax benefit from extraordinary loss on debt prepayments.........         (31,000)            -           (80,500)
                                                                              ---------     ---------       -----------
Income tax expense (benefit)...........................................       $ 123,000     $(171,321)      $(1,090,185)
                                                                              =========     =========       ===========
</TABLE>


         A reconciliation of the expected federal income taxes, using the
effective statutory federal rate of 35%, with the provision (benefit) for income
taxes is as follows:
<TABLE>
<CAPTION>

                                                                         1998              1997              1996
---------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>               <C>               <C>   
Expected federal expense....................................         $   680,000       $   266,000       $   864,000
State taxes, net of federal benefit and tax credit..........              88,000            56,000            46,000
Expiration of capital loss carry forward....................                   -                 -           366,000
Expiration of net operating loss carryforward...............           1,195,000         2,366,000                 -
Change in valuation allowance...............................          (1,848,800)       (2,805,600)       (2,413,000)
Other.......................................................              39,800           (53,721)          127,315
                                                                     -----------       -----------       -----------
                                                                     $   154,000       $  (171,321)      $(1,009,685)
                                                                     ===========       ===========       ===========

</TABLE>


         As of December 31, 1998, the Company had net operating loss
carryforwards for federal tax purposes of approximately $28,577,000. Under the
Tax Reform Act of 1986, certain future changes in ownership resulting from the
sale or issuance of stock may limit the amount of net operating loss
carryforwards which can be utilized on an annual basis. These carryforwards
expire if not utilized to reduce future taxable income as follows:

   1999................................................   $  11,622,000
   2000................................................      11,380,000
   2001................................................         299,000
   2002................................................         523,000
   2003................................................         502,000
   2004................................................         706,000
   2005................................................       1,607,000
   2007................................................         296,000
   2008................................................         907,000
   2009................................................          14,000
   2010................................................         703,000
   2012................................................          18,000

11.      EARNINGS PER COMMON SHARE

         Basic earnings per common share are computed by dividing net income
applicable to common stock by the weighted average number of common shares
outstanding. Diluted earnings per common share assumes conversion of convertible
preferred stock as of the beginning of the year and the exercise of stock
options and warrants using the treasury stock method, if dilutive. The following
table reflects the calculation of basic and diluted earnings per share:

<PAGE>

<TABLE>
<CAPTION>

                                                                       Year Ended December 31, 1998
                                                                       ----------------------------
                                                                                                      Per Share
                                                            Income                Shares               Amount
                                                     --------------------- --------------------- --------------------

<S>                                                            <C>                   <C>               <C>    
Income before extraordinary item.................              $1,787,865
Preferred stock dividends........................                (802,625)
                                                               ----------

Basic EPS
Income available to common stockholders..........                 985,240             6,669,784         $ .15
                                                                                                        =====

Effect of dilutive securities
Options..........................................                       -               495,441
                                                               ----------             ---------

Diluted EPS
Income available to common stockholders..........              $  985,240             7,165,225         $ .14
                                                               ==========             =========         =====

</TABLE>



         Options to purchase 317,355 shares of common stock were outstanding at
December 31, 1998, but were not included in the computation of diluted EPS
because the exercise prices were greater than the average market price of the
common shares. Conversion of the 7% convertible preferred stock and the 8%
redeemable convertible preferred stock was not assumed since the conversion
would have an antidilutive effect on the diluted EPS calculation.

<TABLE>
<CAPTION>

                                                                       Year Ended December 31, 1997
                                                                       ----------------------------
                                                                                                     Per Share
                                                            Income                Shares               Amount
                                                     --------------------- --------------------- --------------------
<S>                                                             <C>                  <C>               <C>    
Net income.......................................               $ 930,765
Preferred stock dividends........................                (520,403)
                                                                ---------

Basic EPS
Income available to common stockholders..........                 410,362             6,503,426         $ .06
                                                                                                        =====

Effect of dilutive securities
Warrants and options.............................                       -               923,095
                                                                ---------             ---------

Diluted EPS
Income available to common stockholders..........               $ 410,362             7,426,521         $ .06
                                                                =========             =========         =====

</TABLE>


         Options to purchase 30,411 shares of common stock were outstanding at
December 31, 1997, but were not included in the computation of diluted EPS
because the exercise prices were greater than the average market price of the
common shares. Conversion of the 7% convertible preferred stock and the 8%
redeemable convertible preferred stock was not assumed since the conversion
would have an antidilutive effect on the diluted EPS calculation.

<PAGE>


<TABLE>
<CAPTION>

                                                                         Year Ended December 31, 1996
                                                                         ----------------------------
                                                                                                      Per Share
                                                            Income                Shares               Amount
                                                     --------------------- --------------------- --------------------

<S>                                                            <C>                   <C>               <C>    
Income before extraordinary item.................              $3,479,313
Preferred stock dividends........................                 (90,791)
                                                               ----------

Basic EPS before extraordinary item
Income available to common stockholders..........               3,388,522             5,444,683         $ .62
                                                                                                        =====

Effect of dilutive securities
Warrants and options.............................                                       950,503
7% convertible preferred stock...................                  90,791               724,926
                                                               ----------             ---------
Diluted EPS before extraordinary item
Income available to common stockholders..........              $3,479,313             7,120,112         $ .49
                                                               ==========             =========         =====

</TABLE>


         Options to purchase 61,848 shares of common stock were outstanding at
December 31, 1996, but were not included in the computation of diluted EPS
because the options exercise prices were greater than the average market price
of the common shares.

12.      RETIREMENT PLAN

         The Company has a 401(k) plan covering substantially all employees. The
Company's discretionary contributions to the plan are determined annually by the
board of directors. The Company is also committed to matching a portion of
employees' voluntary contributions. Participants are 100% vested in their own
contributions and the Company's matching contribution immediately and in the
Company's discretionary contribution at the end of three years. Total amounts
contributed by the Company were $302,546, $235,251 and $243,191 for the years
ended December 31, 1998, 1997 and 1996, respectively.

13.      STOCK-BASED COMPENSATION PLANS

         The Company's 1991 and 1997 stock option plans (the Plans) provide for
the granting of incentive or non-qualified stock options to key employees.
Generally, options outstanding under the Company's Plans: (i) are granted at
prices equal to the market value of the stock on the date of grant, (ii) vest
ratably over a three- or four-year vesting period, and (iii) expire over a
period not greater than ten years from the date of grant. In addition, the
Company has outstanding stock options issued outside the Company's Plans. The
options issued outside of the Company's Plans contain terms and conditions
similar to those described above.

         A summary of the status of the Company's stock options as of December
31, 1998, 1997 and 1996, and changes during the year ended on those dates is
presented below (shares in thousands):

<PAGE>

<TABLE>
<CAPTION>


                                                  1998                      1997                    1996
                                       ----------------------------------------------------------------------------
                                                     Wgted Avg                 Wgted Avg               Wgted Avg
                                          Shares     Exer Price      Shares    Exer Price    Shares    Exer Price
                                          ------     ----------      ------    ----------    ------    ----------

<S>                                         <C>         <C>           <C>        <C>         <C>         <C>
Outstanding at beginning of year....        2,040       $1.66         2,126      $1.41       2,169       $1.57
Granted..............................         532        1.55             -          -          30        2.75
Exercised............................        (465)       1.03           (80)       .82         (70)        .34
Canceled.............................         (40)       2.00            (6)       .99          (3)       1.75
                                            -----                     -----                  -----         
Outstanding at end of year...........       2,067        1.76         2,040       1.66       2,126        1.41
                                            =====                     =====                  ======

Options exercisable at year end......       1,510        1.82         1,881       1.60       1,773        1.62
                                            =====                     =====                  =====

Options available for future grant...         438                       970                    970
                                            =====                     =====                  =====

Weighted average fair value of
options granted during the year......                   $1.10                    $   -                   $1.49
                                                        =====                     ====                   =====

</TABLE>


         The Company applies Accounting Principles Board ("APB") Opinion No. 25
and related Interpretations in accounting for options issued to employees under
the plans. No compensation cost has been recognized for options issued under the
plans when the exercise price of the options granted are at least equal to the
fair value of this common stock on the date of grant. Had compensation cost for
the Company's stock option plans been determined based on the fair value at the
grant date for awards in 1998 and 1996, consistent with the provisions of SFAS
No. 123, the Company's net income would have changed to the pro forma amounts
indicated below:

<TABLE>
<CAPTION>

                                                                        1998             1997            1996
--------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>             <C>            <C>   
Net income applicable to common stock, as reported..............     $328,821        $410,362       $1,660,169
Net income applicable to common stock, pro forma................      277,795         361,362        1,633,169

Basic earnings per common share
  As reported...................................................         $.05            $.06             $.31
  Pro forma.....................................................          .04             .06              .30
Diluted earnings per common share
  As reported...................................................         $.05            $.06             $.25
  Pro forma.....................................................          .04             .05              .24

</TABLE>

         The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions and
results:

                                                     1998             1996
-------------------------------------------- ----------------- ----------------
Dividend yield.............................            -                -
Expected volatility........................           56%              25%
Expected life of option....................        120 months       120 months
Risk free interest rate....................          4.94%            6.66%
Fair value of options on grant date........         $586,000         $45,000


<PAGE>



         The following table summarizes information about stock options
outstanding at December 31, 1998 (shares in thousands):

<TABLE>
<CAPTION>

                                      Options Outstanding                        Options Exercisable
                      ------------------------------------------------        --------------------------
     Range of                              Wgtd Avg           Wgtd Avg                           Wgtd Avg
     Exercise           Number            Remaining           Exercise          Number           Exercise
      Prices          Outstanding      Contractual Life         Price         Exercisable          Price
     --------         -----------      ----------------         -----         -----------          -----
   <S>                     <C>               <C>                <C>                <C>             <C>    
    .64 to .75             620               1.9                0.75               620             0.75
   1.50 to 2.50            966               6.5                1.78               427             2.05
   2.75 to 3.13            481               1.7                3.04               463             3.04
                           ---                                                     ---
                         2,067                                  1.76             1,510             1.82
                         =====                                                   =====

</TABLE>


14.      ADDITIONAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>

                                                                    1998           1997           1996
------------------------------------------------------------------------------------------------------------

<S>                                                                <C>              <C>          <C> 
Additional Cash Flow Information:

Interest paid, including capitalized interest and prepaid
  interest to extinguish contingent interest.................      $1,844,305       $816,308     $1,839,443
Income taxes paid............................................          79,158         29,538         38,656

</TABLE>


<PAGE>


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

         Not applicable.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The names, ages and positions of the executive officers and directors
of the Company are as follows:

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

Harry W. Spell           75       Chairman of the Board
William H. Spell         42       Chief Executive Officer and Director
Bruce A. Richard         69       Vice Chairman of the Board
G. Peter Konen           49       President and Director
Patrick M. Mertens       35       Chief Financial Officer and Treasurer
David P. Schnase         38       Senior Vice President - Sales and Marketing
George R. Long           69       Director
Richard W. Perkins       68       Director
Larry D. Schnase         67       Director

         Harry W. Spell has been chairman of the board since January 1992. He
also served as chief executive officer of the Company from January 1992 to
January 1997. In addition, Mr. Spell is the chief financial manager and chairman
of the board of Spell Capital Partners, LLC, a private investment equity firm
which focuses on leveraged acquisitions of established businesses in the Upper
Midwest. Mr. Spell has been involved in private equity investing since 1988. He
was employed by Northern States Power, a Fortune 500 company, from 1949 until
August 1988, where he served as senior vice president, finance and chief
financial officer. Mr. Spell currently serves as a director of Appliance
Recycling Centers of America, Inc., as well as several private organizations.

         William H. Spell has been a director of the Company since January 1992
and chief executive officer since January 1997, and served as the Company's
president from January 1992 to January 1997. In addition, Mr. Spell is the
president of Spell Capital Partners, LLC, a private investment equity firm which
focuses on leveraged acquisitions of established businesses in the Upper
Midwest. Mr. Spell has been involved in private equity investing since 1988.
From 1981 through 1988, Mr. Spell was vice president and director of corporate
finance at John G. Kinnard & Co., a regional investment banking firm located in
Minneapolis, Minnesota. Mr. Spell has a B.S. and an M.B.A. degree from the
University of Minnesota.

         Bruce A. Richard has been a director of the Company since March of 1992
and vice chairman since February 1996. He also served as secretary of the
Company from mid-1993 to August 1998, as chief financial officer from mid-1993
to February 1996 and treasurer from mid-1993 to March 1998. In addition, Mr.
Richard is affiliated with Spell Capital Partners, LLC, a private investment
equity firm which focuses on leveraged acquisitions of established businesses in
the Upper Midwest. Mr. Richard has been involved in private equity investing
since 1988. He retired as president and chief operating officer of Northern
States Power Company, a Fortune 500 company, in July of 1986. He is a former
member of the Board of Regents of St. John's University, and is actively
involved in other philanthropic organizations.

<PAGE>

         G. Peter Konen has been a director of the Company since December 1993
and president of the Company since January 1997. In addition, he served as
President of the Company's former subsidiary, Eagle Plastics, Inc. ("Eagle
Plastics") from February 1996 until December 1997, when it was merged into the
Company. He was executive vice president and chief operating officer of Eagle
Plastics from 1984 to February 1996. Prior to 1984, he was plant manager with
Western Plastics, a PVC pipe and PE pipe and tubing manufacturer. Mr. Konen has
more than 30 years of experience in the manufacturing and sales of plastic pipe.

         Patrick M. Mertens who joined the Company in May 1995 as controller,
was promoted to chief financial officer in February 1996 and treasurer in March
1998. From 1986 to May 1991, he was a senior auditor, specializing in
manufacturing clients, for Baird, Kurtz & Dobson, CPA's. During his tenure at
Baird, Kurtz & Dobson, Mr. Mertens was in charge of the annual audit for Eagle
Plastics, Inc. for three years. From 1991 to May of 1995 he was assistant
controller of ISCO, Inc., a public company that manufactures scientific and
environmental instruments. Mr. Mertens has a B.S. degree from Peru, Nebraska
State College and an M.B.A. degree from the University of Nebraska.

         David P. Schnase was elected senior vice president - sales and
marketing of the Company in January 1998. He joined the Company's former
subsidiary, Eagle Plastics, Inc., in April 1985 and served as senior vice
president - sales and marketing of Eagle Plastics, Inc. and of the Company's
other subsidiaries from February 1996 until December 1997, when such
subsidiaries were merged into the Company.

         George R. Long has been a director of the Company since 1986. He has
served as Chairman of the Board of Directors of the Mayfield Corporation, a
financial advisory firm, since 1973. For over five years, he has been a private
investor. Mr. Long also is a director of the IAI Series of Mutual Funds,
Minneapolis, Minnesota.

         Richard W. Perkins has been a director of the Company since January
1992. Mr. Perkins has been President of Perkins Capital Management, Inc., a
registered investment adviser, since 1984 and has had over 40 years experience
in the investment business. Prior to establishing Perkins Capital Management,
Inc., Mr. Perkins was a Senior Vice President at Piper Jaffray Inc. where he was
involved in corporate finance and venture capital activities, as well as
rendering investment advice to domestic and international investment managers.
Mr. Perkins is also affiliated with Spell Capital Partners, LLC, which is a
private investment equity firm which focuses on leveraged acquisitions of
established businesses in the Upper Midwest. Mr. Perkins is a director of
various public companies, including: Bio-Vascular, Inc., Lifecore Biomedical,
Inc., Children's Broadcasting Corporation, CNS, Inc., Quantech Ltd., Nortech
Systems, Inc., Vital Images, Inc. and Harmony Holdings, Inc.

         Larry D. Schnase has been a director of the Company since December
1993. He was Chief Executive Officer of Eagle Plastics from its inception in
1984 until his retirement in January 1997, and served as President of Eagle
Plastics from 1984 to February 1996. Prior to founding Eagle Plastics, Mr.
Schnase served as Vice President of Sales for Western Plastics, a PVC pipe and
PE tubing manufacturer. Mr. Schnase has over 35 years of experience in the
business of manufacturing and sales of plastic pipe.

         Harry W. Spell is William H. Spell's father, and Larry D. Schnase is
David P. Schnase's father.

ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

         COMPENSATION COMMITTEE'S RESPONSIBILITY. The Compensation Committee of
the Board of Directors is currently composed of directors Richard A. Perkins,
who is the Chairman of the Committee, Bruce A. Richard and Harry W. Spell. Harry

<PAGE>

W. Spell was Chairman of the Board of the Company during 1998. Bruce Richard was
Vice Chairman of the Board during 1998. The Committee is responsible for
developing and making recommendations to the Board with respect to compensation
of the executive officers of the Company and its three subsidiaries.

         COMPENSATION PHILOSOPHY. The Company is concerned with finding and
retaining top quality people. The Committee looks at industry averages and
surveys, and considers location as well in setting salaries.

         The executive compensation plan is comprised of base salaries, annual
EBITDA performance bonuses, long-term incentive compensation in the form of
stock option awards and Company loans to purchase stock, and various benefits in
which all qualified employees of the Company participate. In addition, the
Compensation Committee from time to time may award special cash bonuses or stock
options related to non-recurring, extraordinary performance.

         BASE SALARY. Base salaries for executive officers are reviewed by the
Committee on an annual basis. Each year the Committee assesses the executive
employee's level of responsibility, experience, and external market practices.
For the year ended 1998, salaries increased slightly, and larger bonuses were
awarded pursuant to the Company's Bonus Plan. Each year the Committee reviews
the Company's performance and recommends to the full Board the salaries for the
coming year.

         ANNUAL INCENTIVES. In 1996, the Company adopted an EBITDA (earnings
before interest, taxes, depreciation and amortization) Bonus Plan (the "Bonus
Plan"). Generally, executives receive a percentage, up to 100%, of potential
bonuses based upon the Company's performance relative to EBITDA goals as well as
subjective goals. Under the Bonus Plan, the Board of Directors establishes the
Company's EBITDA goals and identifies other factors that will be considered in
awarding bonuses. The Compensation Committee presents recommendations to the
Board for executives' potential bonuses for the Board's approval.

         LONG TERM INCENTIVES. The Company may grant some executive level
employees long-term awards, including stock options pursuant to the Company's
1997 Stock Option Plan. Prior to 1997 the Company had a 1991 Stock Plan; however
beginning in 1997, awards under the 1991 Stock Plan will no longer be made. The
Company adopted a Leverage Equity Purchase Plan (the "LEPP") in 1996 under which
the Company loans 90% of the cost of purchasing shares of the Company's common
stock to selected employees. The purpose of the LEPP is to more closely align
the goals and motivation of management with those of other shareholders and to
provide key personnel with a long-term capital accumulation opportunity. No
grants were made under the LEPP during fiscal 1998.

         OTHER COMPENSATION PLANS. The Company has adopted certain broad-based
employee benefit plans in which all employees, including the named executives,
are permitted to participate on the same terms and conditions relating to
eligibility and generally subject to the same limitation on the amounts that may
be contributed or the benefits payable under those plans. The Company
maintain(s) plan(s) qualified under I.R.C. Section 401(k), and the Company made
aggregate contributions to such plan(s) of $200,000 for the year ended 1998,
and a contribution of $150,000 for the year ended 1997.

         CHIEF EXECUTIVE OFFICER COMPENSATION. William H. Spell served as the
Company's Chief Executive Officer in 1998. Mr. William Spell received
compensation of $173,200 in 1998. The Compensation Committee has established a
base salary of $115,000 for Mr. William Spell for 1999 and he is eligible for a
cash bonus of up to $51,000.

                            Richard W. Perkins
                            Harry W. Spell
                            Bruce A. Richard
                                       Members of the Compensation Committee

<PAGE>


         Summary Compensation Table

         The following table sets forth all cash compensation paid or to be paid
by the Company and its former subsidiary, Eagle Plastics, as well as certain
other compensation paid or accrued, during the last three fiscal years to the
Chief Executive Officer of the Company and the executive officers of the Company
who received more than $100,000 during fiscal 1998:

<TABLE>
<CAPTION>

                                                                                     Long Term
                                              Annual Compensation                  Compensation
                                 ----------------------------------------------    ------------
        Name and          Fiscal                                 Other Annual   Securities Underlying    All Other
   Principal Position     Year        Salary          Bonus      Compensation    Options and SARs     Compensation(1)
   ------------------     ----        ------          -----      ------------    ----------------     ------------   
<S>                        <C>       <C>            <C>            <C>               <C>                    <C>
William H. Spell           1998      $115,000(2)    $51,000        $7,200(2)         120,000                $5,072
   Chief Executive         1997      $108,000       $12,750        $7,200            100,000                $3,236
   Officer                 1996      $ 89,188       $55,000        $7,200                ---                $5,364

G. Peter Konen,            1998      $182,000(3)    $81,000        $7,200(3)          75,000                $5,072
   President               1997      $175,000       $20,250        $7,200             80,000                $3,469
                           1996      $145,000       $75,000        $6,000                ---                $5,364

David P. Schnase,          1998      $130,000(4)    $35,000        $6,000(4)             ---                $5,072
   Sr. Vice President      1997      $125,000       $ 8,750        $6,000             44,500                $3,469
                           1996      $ 87,500       $12,500        $  ---                ---                $5,364

Patrick M. Mertens,        1998      $ 94,000(5)    $21,000        $  ---             56,000                $3,673
   Chief Financial         1997      $ 90,000       $ 5,250        $  ---                ---                $2,774
     Officer               1996      $ 68,000       $24,000        $  ---                ---                $2,251
_________________

</TABLE>

(1)      Amounts reflect Company contributions to the 401(k) Plan.
(2)      William H. Spell, Chief Executive Officer of the Company, entered into
         a restated employment contract with Eagle for a three year term
         beginning January 1, 1997. Under such contract, Mr. Spell will receive
         an annual base salary (currently $115,000) and a $600 per month car
         allowance. Along with this base salary, he can receive a bonus up to
         $51,000 per year if Eagle meets certain operating profit levels. Such
         employment agreement has a confidentiality provision, a two year
         noncompetition clause and provides for a severance payment equal to Mr.
         Spell's base salary in the event of his termination other than for
         cause. 
(3)      G. Peter Konen, President, entered into a restated employment contract
         for a three year term beginning January 1, 1997. Under such contract,
         Mr. Konen will receive an annual base salary (currently $182,000) and a
         $600 per month car allowance. Along with his base salary, Mr. Konen can
         receive an annual bonus up to $81,000 if Eagle meets certain operating
         profit levels. Such employment agreement has a confidentiality
         provision, a two year noncompetition clause and provides for a
         severance payment equal to Mr. Konen's base salary in the event of his
         termination other than for cause.
(4)      David P. Schnase, Senior Vice President Sales, entered into an
         employment contract for a three year term beginning January 1, 1997.
         Under such contract, Mr. Schnase will receive an annual base salary
         (currently $135,000). Along with his base salary, Mr. Schnase can
         receive an annual bonus up to $35,000 if Eagle meets certain operating
         profit levels. Such employment agreement has a confidentiality
         provision, a two-year noncompetition clause and provides for a
         severance payment equal to his then annual base salary in the event of
         his termination other than for cause. The final 1996 salary figure
         shown for Mr. Schnase includes commissions of $50,297. Amounts shown in
         Other Annual Compensation reflect monthly car allowance.
(5)      Patrick M. Mertens, Chief Financial Officer, entered into an employment
         contract for a three year term beginning January 1, 1997. Under such
         contract, Mr. Mertens will receive an annual base salary (currently
         $94,000). Along with his base salary, Mr. Mertens can receive an annual
         bonus up to $21,000 if Eagle meets certain operating profit levels.
         Such employment agreement has a confidentiality provision, a one-year
         noncompetition clause and provides for a severance payment equal to his
         then annual base salary in the event of his termination other than for
         cause.

<PAGE>

Option/SAR Grants During 1998 Fiscal Year

<TABLE>
<CAPTION>


                                                                                         Potential Realizable Value
                                                                                          at Assumed Annual Rates
                                                                                        of Stock Price Appreciation
                                             Individual Grants                                for Option Term
                      ----------------------------------------------------------------  ---------------------------
                                         Percent of
                         Number of         Total
                        Securities      Options/SARs
                        Underlying       Granted to      Exercise or
                       Options/SARs     Employees in      Base Price      Expiration
Name                    Granted (#)      Fiscal Year       ($/Sh)           Date           5% ($)         10% ($)
----                   -------------    ------------    ------------     ----------        ------         -------
<S>                     <C>                  <C>            <C>            <C>           <C>              <C>
William H. Spell..      $120,000(1)          43.0%          $1.50          08/31/08      $113,201         $286,874

G. Peter Konen....        75,000(1)          26.9%          $1.50          08/31/08      $ 70,751         $179,296

David P. Schnase..             0              0              --               --              ---              ---

Patrick M. Mertens         5,000(2)           1.8%          $2.375         01/06/08      $  7,468         $ 18,926
__________                51,000(1)          18.3%          $1.50          08/31/08      $ 48,110         $121,921

</TABLE>


(1)      Option was granted on September 1, 1998 and vests at a rate of 34% on
         March 2, 1999 and 33% on September 1, 2000 and September 1, 2001.

(2)      Option was granted on January 7, 1998 and vests at a rate of 25% on
         July 8, 1998 and on each January 7 thereafter.

<PAGE>

Option/SAR Exercises in 1998 Fiscal Year and Fiscal Year End Option Values

         The following table sets forth information as to individual exercises
of options, number of options and value of options at December 31, 1998 with
respect to the named executive officers:

<TABLE>
<CAPTION>

                                                                                 Number of
                                                                                Unexercised            Value of
                                                                                 Securities           Unexercised
                                                                                 Underlying          In-the-Money
                                                                              Options/SARs at       Options/SARs at
                                                                                FY-End(#)(2)         FY-End($)(1)
                                         Shares Acquired                        Exercisable/         Exercisable/
                 Name                      on Exercise      Value Realized     Unexercisable         Unexercisable
                 ----                    ---------------    --------------     -------------         -------------
<S>                                          <C>             <C>             <C>                   <C>    
William H. Spell...................          140,000          $ 211,851      210,000/120,000       $125,000/60,000
G. Peter Konen.....................           45,000          $  28,125       165,000/75,000       $100,000/37,500
David P. Schnase...................           45,000          $  28,125             74,500/0       $      51,125/0
Patrick M. Mertens.................                0                N/A        16,250/59,750       $      0/25,500

</TABLE>


(1)      Based on the difference between the closing price of Eagle's Common
         Stock as reported by Nasdaq at fiscal year end and the option exercise
         price.

Directors' Compensation

         In 1998, Harry W. Spell, Chairman of the Board, and Bruce A. Richard,
Vice Chairman of the Board, were each compensated for their services in such
capacities at the annual rate of $30,000. George R. Long and Richard W. Perkins
received fees of $12,000 and $21,000, respectively, for their roles as
non-employee directors. In addition, during 1998 nonemployee directors received
ten-year options under Eagle's 1997 Stock Option Plan as follows: On March 27,
1998 Bruce Richard received an option to purchase 10,000 shares at $2.13 per
share, vesting at the rate of 25% per year commencing September 27, 1998; and on
September 1, 1998 Messrs. George Long, Larry Schnase and Richard Perkins each
received an option to purchase 21,000 shares and Messrs. Harry Spell and Bruce
Richard each received an option to purchase 84,000 shares at $1.50 per share,
vesting at the rate of 34% on March 2, 1999, 33% on September 1, 2000 and 33% on
September 1, 2001.


<PAGE>

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table provides information as of December 31, 1998,
concerning the beneficial ownership of the Company's voting securities by
persons who are known to own five percent or more of a class of voting stock of
the Company, by each executive officer named in the Summary Compensation Table,
by each director, and by all directors and executive officers (including the
named individuals) of the Company as a group. Unless otherwise noted, the person
listed as the beneficial owner of the shares has sole voting and investment
power over the shares.
<TABLE>
<CAPTION>
                                           Common Stock                   Series A Preferred Stock
                              ----------------------------------------    ------------------------       Percent of
                                                                                                        Common Stock
                                                                                                        and Series A
                                      Shares                               Shares                        Preferred
      Name and Address             Beneficially         Percent of      Beneficially     Percent of        Stock
    of Beneficial Owner               Owned              Class (1)         Owned         Class (1)        Combined
    -------------------            -----------         -------------    -----------    -------------    ------------ 
<S>                                <C>                     <C>               <C>            <C>                <C>    
George Kosmides..........          ---                     --                12,500         66.7%              *
   7103 Amundson Avenue
   Edina, MN 55439
Kathryn A. Schuster......          ---                     --                 6,250         33.3%              *
   1748 James Road
   Mendota Heights, MN 55118
William Blair Mezzanine..          435,000                  6.4%              --               --               6.4%
   Capital Fund, L.P.
   222 West Adams Street
   Chicago, IL 60606
Okabena Partnership K....          410,000                  6.2%              --               --               6.4%
   5140 Norwest Center
   Minneapolis, MN 55402
William H. Spell.........          527,963(2)(3)(4)         7.4%              --               --               7.4%
   2430 Metropolitan Centre
   Minneapolis, MN 55402
Harry W. Spell...........          357,332(3)(4)(5)         5.3%              --               --               5.3%
   2430 Metropolitan Centre
   Minneapolis, MN 55402
Perkins Capital Management,        335,099                  5.1%              --               --               5.0%
Inc......................
   730 East Lake Street
   Wayzata, MN 55391
Richard W. Perkins.......          151,942(4)(6)            2.3%              --               --               2.3%
   730 East Lake Street
   Wayzata, MN 55391
George R. Long...........          236,807(7)               3.4%              --               --               3.4%
   29 Las Brisas Way
   Naples, FL 33963
Larry D. Schnase.........          590,153(8)               8.4%              --               --               8.4%
   146 North Maple
   Hastings, NE 68901
G. Peter Konen...........          243,309(9)               4.1%              --               --               4.1%
   146 North Maple
   Hastings, NE 68901
Bruce A. Richard.........          149,097(4)(10)           2.1%              --               --               2.1%
   2458 Farrington Circle
   Roseville, MN 55113
David P. Schnase.........          102,262(11)              1.9%              --               --               1.9%
   146 North Maple
   Hastings, NE 68901
Patrick M. Mertens.......           30,550(12)               *                --               --               *
   146 North Maple
   Hastings, NE 68901
All Directors and Officers       2,358,915(13)             31.2%              --               --              31.2%
as a Group (9 persons)
----------
</TABLE>
*        Less than 1%
(1)      Shares not outstanding but deemed beneficially owned by virtue of the
         right of a person to acquire them as of December 31, 1998 or within
         sixty days of such date are treated as outstanding only when
         determining the percent owned by such individual and when determining
         the percent owned by the group.
<PAGE>

(2)      Includes 210,000 shares which may be purchased upon exercise of
         currently exercisable options and 21,429 shares held by Mr. Spell's
         wife.
(3)      Includes 30,500 shares held by the Spell Family Foundation. Messrs.
         Harry Spell and William Spell share voting and dispositive power over
         such shares.
(4)      Messrs. William Spell, Harry Spell, Richard Perkins and Bruce Richard
         have individually acquired securities of the Company from the Company
         and in open market transactions and each of them individually
         anticipates that he will acquire additional securities of the Company
         in the future. Such persons have entered into an agreement which
         requires that a majority of them approve any sale of securities of the
         Company by any of them. This agreement is designed to keep all of such
         persons interested and focused on the long-term success of the Company
         and recognizes that each of such persons contributes specific expertise
         to the Company through their positions as directors and/or officers.
         The agreement does not require that such persons vote their shares in
         any specific manner or act in concert in connection with any purchase
         or sale of securities of the Company.
(5)      Includes 45,000 shares which may be purchased upon exercise of
         currently exercisable options.
(6)      Includes 25,000 shares which may be purchased upon exercise of
         currently exercisable options and 11,429 shares held by a Profit
         Sharing Trust for Mr. Perkins' benefit. Does not include 335,099 shares
         held by Perkins Capital Management, Inc. as to which Mr. Perkins has no
         voting or investment power.
(7)      Includes 30,000 shares which may be purchased upon exercise of
         currently exercisable options.
(8)      Includes 565,000 shares which may be purchased upon exercise of
         currently exercisable options.
(9)      Includes 165,000 shares which may be purchased upon exercise of
         currently exercisable options.
(10)     Includes 27,500 shares which may be purchased upon exercise of
         currently exercisable options.
(11)     Includes 74,500 shares which may be purchased upon exercise of
         currently exercisable options.
(12)     Includes 16,250 shares which may be purchased upon exercise of
         currently exercisable options.
(13)     Includes 1,158,250 shares which may be purchased upon exercise of
         currently exercisable options.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Office Sharing. The Company has an office sharing arrangement with
Spell Capital Partners, LLC pursuant to which the Company pays $10,500 per month
for space and administrative support. William H. Spell and Harry W. Spell are
both members of Spell Capital Partners, LLC.

         Employment and Consulting Agreements. The Company has entered into
Employment Agreements with William H. Spell, G. Peter Konen, David P. Schnase
and Patrick M. Mertens, all as more specifically described herein in the notes
to the Summary Compensation Table.

         Effective January 1, 1997, Larry Schnase former Chief Executive Officer
of Eagle Plastics, entered into a two year Consulting Agreement and Release with
the Company. Under such agreement, Mr. Schnase resigned as an officer and
employee of Eagle and its subsidiaries. Mr. Schnase received monthly
compensation of $8,333 per month during 1998, and was assigned the Company's
interest in two insurance policies of his life. Along with this compensation,
Mr. Schnase was entitled to receive an annual bonus of up to $30,000, if Eagle
met certain operating profit levels. Such consulting agreement has a
confidentiality provision and a five-year noncompetition clause. The Consulting
Agreement has terminated.

                                     PART IV

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

(a)      1.       Financial Statements

                  See Part II, Item 8 hereof.

         2.       Financial Statement Schedule


<PAGE>



                           Title                                       Schedule

                  Valuation and Qualifying Account.........................II

         All schedules omitted are inapplicable or the information required is
shown in the Financial Statements or notes thereto.

         3.       Exhibits

Exhibit 
Number          Description

3.1      Articles of Incorporation of the Registrant, as amended to date
         (Incorporated by reference to Exhibit 3 to the Registrant's Quarterly
         Report on Form 10-Q for the quarter ended June 30, 1995 - File No.
         0-18050)

3.2      Bylaws of the Registrant (Incorporated by reference to Exhibit 3.2 to
         the Registrant's Registration Statement on Form S-4 - File No.
         33-29511)

3.3      Statement of Designation of Shares of Registrant dated May 8, 1997
         (Incorporated by reference to Exhibit 10.1 to Registrant's Form 8-K
         dated May 19,1997 - File No. 0-18050)

10.1     Registrant's 1991 Stock Plan (Incorporated by reference to Exhibit
         10.22 to the Registrant's Form 10-K for the year ended December 31,
         1992 - File No. 0-18050)*

10.2     Registrant's 1997 Stock Option Plan (Incorporated by reference to
         Exhibit 10.14 to the Registrant's Form 10-K for the year ended December
         31, 1996 - File No. 0-18050)*

10.3     Form of Agreement by and among the Registrant, Pacific Plastics, Inc.,
         Pacific Acquisition Corp., Loyal Sorensen and Jarred Thompson.
         (Incorporated by reference to Exhibit 10.2 to Registrant's Form 8-K
         dated July 10, 1995 - File No. 0-18050)

10.4     Form of Acknowledgment of Closing by and among the Registrant, Pacific
         Plastics, Inc., Loyal Sorensen and Jarred Thompson (Incorporated by
         reference to Exhibit 10.3 to Registrant's Form 8-K dated July 10, 1995
         - File No. 0-18050)

10.5     Promissory Note and Stock Pledge Agreement dated July 10, 1995 between
         Arrow Pacific Plastics, Inc., former shareholders, Registrant and
         Pacific Plastics, Inc. (Incorporated by reference to Exhibit 10.14 to
         Registrant's Form 8-K dated July 10, 1995 - File No. 0-18050)

10.6     Registration Rights Agreement dated July 10, 1995 between the
         Registrant and Loyal Sorensen, Zelda Sorensen, Jarred Thompson and
         Sharon Thompson (Incorporated by reference to Exhibit 10.15 to
         Registrant's Form 8-K dated July 10, 1995 - File No. 0-18050)

10.7     Plan of Recapitalization dated March 16, 1995 among Registrant, William
         Blair Mezzanine Capital Fund, L.P. ("Blair") and Eagle Plastics, Inc.
         ("Eagle") (Incorporated by reference to Exhibit 10.29 to the
         Registrant's Form 10-KSB for the year ended December 31, 1994 - File
         No. 0-18050)

10.8     Amended and Restated Loan and Security Agreement dated December 31,
         1997 between Registrant and Fleet Capital Corporation (Incorporated by
         reference to Exhibit 10.11 to the Registrant's Form 10-K for the years
         ended December 31, 1997-File No. 0-18050)

10.9     Amended and Restated Secured Promissory Note dated December 31, 1997 of
         the Registrant payable to Fleet Capital Corporation (Incorporated by
         reference to Exhibit 10.12 to the Registrant's Form 10-K for the years
         ended December 31, 1997-File No. 0-18050)

<PAGE>

10.10    Amendment Agreement regarding registration rights dated May 10, 1996
         between Registrant and Loyal Sorensen, Zelda Sorensen, Jarred Thompson
         and Sharon Thompson (Incorporated by reference to Exhibit 10.21 to the
         Registrant's Form 10-K for the year ended December 31, 1996 - File No.
         0-18050)

10.11    Preferred Stock Purchase Agreement by and between Registrant and
         Massachusetts Mutual Life Insurance Company (LTP), Massachusetts Mutual
         Life Insurance Company (IFM), MassMutual Corporate Investors,
         MassMutual Participation Investors and MassMutual Corporate Value
         Partners Limited dated May 1, 1997 (Incorporated by reference to
         Exhibit 10.1 to Registrant's Form 8-K dated May 19,1997 - File No.
         0-18050)

10.12    Rights Agreement by and between Registrant, Massachusetts Mutual Life
         Insurance Company, MassMutual Corporate Investors, MassMutual
         Participation Investors, MassMutual Corporate Value Partners Limited
         and Spell Group dated May 1, 1997 (Incorporated by reference to Exhibit
         10.1 to Registrant's Form 8-K dated May 19,1997 - File No. 0-18050)

10.13    Employment Agreement between William H. Spell and Registrant dated
         January 1, 1997 (Incorporated by reference to Exhibit 10.22 to the
         Registrant's Form 10-K for the year ended December 31, 1996 - File No.
         0-18050) *

10.14    Employment Agreement between G. Peter Konen and Registrant dated
         January 1, 1997 (Incorporated by reference to Exhibit 10.23 to the
         Registrant's Form 10-K for the year ended December 31, 1996 - File No.
         0-18050) *

10.15    Consulting Agreement and Release between Larry D. Schnase and
         Registrant dated January 1, 1997 (Incorporated by reference to Exhibit
         10.24 to the Registrant's Form 10-K for the year ended December 31,
         1996 - File No. 0-18050) *

10.16    Employment Agreement between Patrick Mertens and Registrant dated
         January 1, 1997 (Incorporated by reference to Exhibit 10.16 to the
         Registrant's Form 10-K for the year ended December 31, 1996 - File No.
         0-18050) *

10.17    Employment Agreement between David Schnase and Registrant dated January
         1, 1997 (Incorporated by reference to Exhibit 10.27 to the Registrant's
         Form 10-K for the year ended December 31, 1996 - File No. 0-18050)*

10.18    EBITDA Bonus Plan of Registrant (Incorporated by reference to Exhibit
         10.25 to the Registrant's Form 10-K for the year ended December 31,
         1996 - File No. 0-18050) *

10.19    Leveraged Equity Purchase Plan of Registrant (Incorporated by reference
         to Exhibit 10.26 to the Registrant's Form 10-K for the year ended
         December 31, 1996 - File No. 0-18050) *

10.20    First Amendment Agreement dated July 6, 1998 between Registrant and
         Fleet Capital (Incorporated by reference to Exhibit 10.1 to the
         Registrant's Quarterly Report on Form 10-Q for the quarter ended
         September 30, 1998 - File No. 0-18050)

23       Consent of Independent Auditors'

24       Power of Attorney from certain directors and officers - see
         "Signatures" on signature page of this Form 10-K

27       Financial Data Schedule

* compensatory plan or arrangement


<PAGE>



(b)      Reports on Form 8-K

         The Company filed a Report on Form 8-K dated December 11, 1998 in
         connection with its proposed acquisition of the PVC Pipe Asset of the
         Lamson & Sessions Co. and proposed merger with a subsidiary of Eagle
         Pacific Holdings, Inc.

(c)      Exhibits

         See Item 14(a)3 above.



<PAGE>


                                   SIGNATURES

         Pursuant to the Requirements of Section 13 of 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.

                                      EAGLE PACIFIC INDUSTRIES, INC.


Dated:  March 30, 1999                By: /s/ Harry W. Spell               
                                         Harry W. Spell, Chairman of the Board

                                Power of Attorney

         Each person whose signature appears below constitutes and appoints
Harry W. Spell and Patrick M. Mertens his true and lawful attorneys-in-fact and
agents, each acting alone, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments to this Annual Report on Form 10-K and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all said attorneys-in-fact and agents,
each acting alone, or his substitute or substitutes, may lawfully do or cause to
be done by virtue thereof.

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

    Signature                     Title                                Date

 /s/ Harry W. Spell      Chairman of the Board                   March 30, 1999
 Harry W. Spell          (Principal Executive Officer)

 /s/ Patrick M. Mertens  Chief Financial Officer                 March 30, 1999
 Patrick M. Mertens      (Principal Financial and Accounting
                         Officer)

 /s/ G. Peter Konen      Director                                March 30, 1999
 G. Peter Konen

 ____________________    Director                                March __, 1999
 George R. Long

 ____________________    Director                                March __, 1999
 Richard W. Perkins

 /s/ Bruce A. Richard    Director                                March 30, 1999
 Bruce A. Richard

 ____________________    Director                                March __, 1999
 Larry D. Schnase

 /s/ William H. Spell    Director                                March 30, 1999
 William H. Spell


<PAGE>


         Exhibit Index

Exhibit 
Number          Description

3.1      Articles of Incorporation of the Registrant, as amended to date
         (Incorporated by reference to Exhibit 3 to the Registrant's Quarterly
         Report on Form 10-Q for the quarter ended June 30, 1995 - File No.
         0-18050)

3.2      Bylaws of the Registrant (Incorporated by reference to Exhibit 3.2 to
         the Registrant's Registration Statement on Form S-4 - File No.
         33-29511)

3.3      Statement of Designation of Shares of Registrant dated May 8, 1997
         (Incorporated by reference to Exhibit 10.1 to Registrant's Form 8-K
         dated May 19,1997 - File No. 0-18050)

10.1     Registrant's 1991 Stock Plan (Incorporated by reference to Exhibit
         10.22 to the Registrant's Form 10-K for the year ended December 31,
         1992 - File No. 0-18050)*

10.2     Registrant's 1997 Stock Option Plan (Incorporated by reference to
         Exhibit 10.14 to the Registrant's Form 10-K for the year ended December
         31, 1996 - File No. 0-18050)*

10.3     Form of Agreement by and among the Registrant, Pacific Plastics, Inc.,
         Pacific Acquisition Corp., Loyal Sorensen and Jarred Thompson.
         (Incorporated by reference to Exhibit 10.2 to Registrant's Form 8-K
         dated July 10, 1995 - File No. 0-18050)

10.4     Form of Acknowledgment of Closing by and among the Registrant, Pacific
         Plastics, Inc., Loyal Sorensen and Jarred Thompson (Incorporated by
         reference to Exhibit 10.3 to Registrant's Form 8-K dated July 10, 1995
         - File No. 0-18050)

10.5     Promissory Note and Stock Pledge Agreement dated July 10, 1995 between
         Arrow Pacific Plastics, Inc., former shareholders, Registrant and
         Pacific Plastics, Inc. (Incorporated by reference to Exhibit 10.14 to
         Registrant's Form 8-K dated July 10, 1995 - File No. 0-18050)

10.6     Registration Rights Agreement dated July 10, 1995 between the
         Registrant and Loyal Sorensen, Zelda Sorensen, Jarred Thompson and
         Sharon Thompson (Incorporated by reference to Exhibit 10.15 to
         Registrant's Form 8-K dated July 10, 1995 - File No. 0-18050)

10.7     Plan of Recapitalization dated March 16, 1995 among Registrant, William
         Blair Mezzanine Capital Fund, L.P. ("Blair") and Eagle Plastics, Inc.
         ("Eagle") (Incorporated by reference to Exhibit 10.29 to the
         Registrant's Form 10-KSB for the year ended December 31, 1994 - File
         No. 0-18050)

10.8     Amended and Restated Loan and Security Agreement dated December 31,
         1997 between Registrant and Fleet Capital Corporation (Incorporated by
         reference to Exhibit 10.11 to the Registrant's Form 10-K for the years
         ended December 31, 1997-File No. 0-18050)

10.9     Amended and Restated Secured Promissory Note dated December 31, 1997 of
         the Registrant payable to Fleet Capital Corporation (Incorporated by
         reference to Exhibit 10.12 to the Registrant's Form 10-K for the years
         ended December 31, 1997-File No. 0-18050)

10.10    Amendment Agreement regarding registration rights dated May 10, 1996
         between Registrant and Loyal Sorensen, Zelda Sorensen, Jarred Thompson
         and Sharon Thompson (Incorporated by reference to Exhibit 10.21 to the
         Registrant's Form 10-K for the year ended December 31, 1996 - File No.
         0-18050)

10.11    Preferred Stock Purchase Agreement by and between Registrant and
         Massachusetts Mutual Life Insurance Company (LTP), Massachusetts Mutual
         Life Insurance Company (IFM), MassMutual Corporate Investors,
         MassMutual Participation Investors and MassMutual Corporate Value
         Partners Limited dated May 1, 1997 (Incorporated by reference to
         Exhibit 10.1 to Registrant's Form 8-K dated May 19,1997 - File No.
         0-18050)

<PAGE>

10.12    Rights Agreement by and between Registrant, Massachusetts Mutual Life
         Insurance Company, MassMutual Corporate Investors, MassMutual
         Participation Investors, MassMutual Corporate Value Partners Limited
         and Spell Group dated May 1, 1997 (Incorporated by reference to Exhibit
         10.1 to Registrant's Form 8-K dated May 19,1997 - File No. 0-18050)

10.13    Employment Agreement between William H. Spell and Registrant dated
         January 1, 1997 (Incorporated by reference to Exhibit 10.22 to the
         Registrant's Form 10-K for the year ended December 31, 1996 - File No.
         0-18050) *

10.14    Employment Agreement between G. Peter Konen and Registrant dated
         January 1, 1997 (Incorporated by reference to Exhibit 10.23 to the
         Registrant's Form 10-K for the year ended December 31, 1996 - File No.
         0-18050) *

10.15    Consulting Agreement and Release between Larry D. Schnase and
         Registrant dated January 1, 1997 (Incorporated by reference to Exhibit
         10.24 to the Registrant's Form 10-K for the year ended December 31,
         1996 - File No. 0-18050) *

10.16    Employment Agreement between Patrick Mertens and Registrant dated
         January 1, 1997 (Incorporated by reference to Exhibit 10.16 to the
         Registrant's Form 10-K for the year ended December 31, 1996 - File No.
         0-18050) *

10.17    Employment Agreement between David Schnase and Registrant dated January
         1, 1997 (Incorporated by reference to Exhibit 10.27 to the Registrant's
         Form 10-K for the year ended December 31, 1996 - File No. 0-18050)*

10.18    EBITDA Bonus Plan of Registrant (Incorporated by reference to Exhibit
         10.25 to the Registrant's Form 10-K for the year ended December 31,
         1996 - File No. 0-18050) *

10.19    Leveraged Equity Purchase Plan of Registrant (Incorporated by reference
         to Exhibit 10.26 to the Registrant's Form 10-K for the year ended
         December 31, 1996 - File No. 0-18050) *

10.20    First Amendment Agreement dated July 6, 1998 between Registrant and
         Fleet Capital (Incorporated by reference to Exhibit 10.1 to the
         Registrant's Quarterly Report on Form 10-Q for the quarter ended
         September 30, 1998 - File No. 0-18050)

23       Consent of Independent Auditors'

24       Power of Attorney from certain directors and officers - see
         "Signatures" on signature page of this Form 10-K

27       Financial Data Schedule

* compensatory plan or arrangement


<PAGE>


<TABLE>
<CAPTION>


SCHEDULE II

                                                   Valuation and Qualifying Accounts

                                                      Balance at                                      Balance at
                                                       Beginning      Additions-     Deductions-          End
                    Description                         of Year       Provisions      Write-offs        of Year
                    -----------                         -------       ----------      ----------        -------
<S>                                                     <C>             <C>            <C>             <C>   
Allowance for doubtful accounts and sales discounts

   Fiscal year ended December 31, 1998                     $203,500     14,528             19,028          $199,000
   Fiscal year ended December 31, 1997                     $195,100     43,688             35,288          $203,500
   Fiscal year ended December 31, 1996                     $157,900     67,846             30,647          $195,100


Valuation allowance for deferred taxes
   Fiscal year ended December 31, 1998                  $10,657,800       -             1,848,800        $8,809,000
   Fiscal year ended December 31, 1997                  $13,637,400       -             2,979,600       $10,657,800
   Fiscal year ended December 31, 1996                  $15,359,000       -             1,721,600       $13,637,400


</TABLE>