FORM 10-KSB

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 

         For the Fiscal Year ended:  January 31, 1997

[  ]     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 1-14244


                        GLAS-AIRE INDUSTRIES GROUP LTD.
                  -------------------------------------------
                 (Name of small business issuer in its charter)

              Nevada                                      84-1072256
 ---------------------------------                     ------------------
   (State or Other Jurisdiction                        (I.R.S. Employer
 of Incorporation or Organization)                     Identification No.)

                             3137 Grandview Highway
                         Vancouver, B.C. V5M 2E9 Canada
                 ---------------------------------------------
                (Mailing Address of principal executive offices)

Registrant's telephone number, including area code   (604) 435-8801

Securities registered pursuant to Section 12(b) of the Act:
      Title of each class              Name of each exchange on which registered
 Common Stock, $0.01 par value                    Pacific Stock Exchange
 ------------------------------        -----------------------------------------

Securities registered pursuant to Section 12(g) of the Act:      None
                                                            --------------------
                                                             (Title of class)

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

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the best of issuer's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-K. Yes      No  X
                    ---     ---

The issuer's revenue for its most recent fiscal year was: $4,316,372

The aggregate  market value of the issuer's  voting stock held as of January 31,
1997, by nonaffiliates of the issuer was $1,787,289.

As of  January  31,  1997,  issuer had  1,612,421  shares of its $0.01 par value
common stock outstanding.

Transitional Small Business Disclosure Format.   Yes        No 
                                                     ---        ---



<PAGE>


                                TABLE OF CONTENTS

PART I                                                                PAGE

      Item 1.     Business .....................................
      Item 2.     Properties ...................................
      Item 3.     Legal Proceedings ............................
      Item 4.     Submission of Matters to a Vote
                  of Security Holders ..........................


PART II

      Item 5.     Market for Registrant's Common Equity
                  and Related Stockholder Matters ..............
      Item 6.     Selected Financial Data ......................
      Item 7.     Management's Discussion and Analysis of
                  Financial Condition and
                  Results of Operations ........................
      Item 8.     Financial Statements and Supplementary Data
                  --Independent Auditor's Report ...............
      Item 9.     Changes in and Disagreements With Accountants
                  onAccounting and Financial Disclosure ........


PART III

      Item 10.    Directors and Executive Officers
                  of the Registrant .............................
      Item 11.    Executive Compensation ........................
      Item 12.    Security Ownership of Certain Beneficial
                  Owners and Management .........................
      Item 13.    Certain Relationships and
                  Related Transactions ...........................


PART IV

      Item 14.    Exhibits, Financial Statement Schedules,
                  and Reports on Form 8-K ........................

SIGNATURES




                                       -i-


<PAGE>


                                     PART I

Item 1 - Business
-----------------

General

     The  Company  designs,  develops,   manufactures  and  sells  sunroof  wind
deflectors,  hood protectors and rear air deflectors for cars,  light trucks and
vans. It uses plastics and  thermoforming  technology to produce these products.
The Company is currently in the research and development stage for manufacturing
door visors.

     During the fiscal year ended  January 31,  1997,  approximately  96% of the
Company's sales were to automobile  manufacturers.  The Company's  clients/joint
product  development  partners  include BMW Canada Inc.,  Chrysler  Corporation,
General Motors Corporation,  General Motors of Canada Ltd., Honda Access America
Inc.,  Honda  Access Corp.  (Japan),  IMI Inc.,  Jaguar Cars Inc.,  Mazda (North
America) Inc., Mac Neil Automotive Products Limited,  Nissan Canada Inc., Nissan
Motor Co. Ltd. (Japan),  Nissan Motor Corporation in the U.S., Subaru of America
Inc.,  Subaru Canada Inc.,  Toyota Canada Inc.,  Toyota Motor Corp.  (Japan) and
Uniparts  Group Ltd.  (UK).  The  Company  manufactures  products  according  to
specifications  either developed jointly with or provided by its clients, who in
turn market the products, on a retail basis, under their own brand names through
their dealership and distribution networks. Management believes that the Company
offers its customers high quality product design and development capabilities.

     In 1989, the Company  received the "British  Columbia  Export Award" and in
1992 and 1993, it was one of six companies out of  approximately  500 to receive
the  "Nissan  Superior  Performance  Award"  granted  to  outstanding  parts and
accessories suppliers.  In 1995, the Company was awarded the " Nissan First Team
Supplier  Award" for 1994 in  recognition  of its  performance  as a supplier to
Nissan. In 1997, the Company received the Business  Management  Excellence award
in export  category  from the ETHNO  Business  Council  of British  Columbia  in
conjunction with the Business Development Bank of Canada.

     The Company sells its products in the United States,  Japan, Canada and the
United  Kingdom.  Net export sales to customers by geographic  area consisted of
the following for each of the three years ended January 31, 1995, 1996 and 1997.
<TABLE>
<CAPTION>

                                                Year ended January 31,
                           ---------------------------------------------------------------
                                 1995                    1996                      1997
                           ----------------         -------------              ------------
                                     (Stated in thousands of United States dollars)
<S>                        <C>        <C>           <C>       <C>              <C>      <C>
United States              $3,342     82.4%         $3,420    82%              $3,121   72%
Canada                        487     12.0%            503    12%                 620   14%
Japan                         146      3.6%            198     5%                 491   12%
Other                          82      2.0%             71     1%                  84    2%
</TABLE>

Industry Overview

     The Company operates in a diverse,  expanding automotive components market.
The  Specialty  Equipment  Market  Association's   ("SEMA")  1993  market  study
indicated that this market segment (which includes all after-market accessories,
dealer installed accessories,  car care products,  utility accessories and those
products that, while not fitting the absolute definition of a specialty product,
were  purchased by consumers for the purpose of improving  their vehicle and not
for routine  maintenance)  grew from $2.35  billion in 1985 to $4.58  billion in
1992.  The 1995-96  SEMA Market  Study  estimates  this market  segment at $5.47
billion   in   1994.    According   to   the   1995-96   SEMA   Market    Study,
accessory/appearance  products  accounted for the largest share of 1994 sales in
the  specialty   equipment  market  48.9%  or  approximately  $2.68  billion  at
manufacturer price.  Management  considers the Company's products to fall within
the accessory/appearance products category.

                                      -1-

<PAGE>


     The 1995-96  SEMA Market Study  indicates  that the 1994 light truck market
for specialty equipment products totaled $1.53 billion at manufacturer price, or
28.0% of the total $5.47 billion 1994 specialty equipment product purchases. The
light  truck  market  includes  all  discretionary  products  purchased  for the
modification of light trucks. SEMA found that the largest portion (51.3%) of the
1994 light truck market was  comprised  of  accessory/appearance  products.  The
Company's light truck accessory  products  include its sunroof wind  deflectors,
hood  protectors  and rear air  deflectors.  Management  intends to utilize  its
relationships  with  Chrysler,  General  Motors,  Mac Neil  Automotive  Products
Limited,  Nissan,  Subaru  and  Toyota to  promote  these  light  truck  related
products.  According  to Trucking  Times,  vol. 8, issue 1, total light  vehicle
sales for the 1996 calendar year ended at 15.1 million,  up 2.7% from 1995.  For
the year  overall,  43.5% of all vehicles  sold in US were  trucks.  Total truck
sales were nearly 8% higher than the total for 1995.

     According  to the  Automotive  News,  February  3,  1997,  Japan's  vehicle
production edged up 1.5% in 1996 to 10,345,786 units, this particular industry's
first increase since 1990.

     According  to Lang  Marketing  Resources,  Inc.  ("Lang"),  in 1994,  6% of
domestic vehicles had a factory installed  sunroof,  with more than one-third of
import cars so  equipped.  Furthermore,  Lang states that the sunroof  market is
much larger than these numbers  indicate,  since many units are installed  after
cars are  received by the  dealerships,  and that  sunroof  installation  is not
limited to passenger cars, with a growing number of applications  being designed
for light trucks, vans and limos.

     According  to  SEMA,  in  1992,  5%  of  vehicle  owners   purchased  their
appearance/  accessory products from car dealerships - the network through which
the Company's  products are sold to the ultimate  consumer - while the remainder
purchased these products  directly from the manufacturer or from various sources
in the after-market distribution network. Management of the Company is exploring
the  possibility of expanding the Company's  methods of  distribution to include
non-dealership  retail  outlets.  See  "--Business  Strategy--New   Distribution
Channel."

Business Strategy

     Management's strategies for future expansion are as follows:

     Increasing  production  capacity/efficiency.  During the past year, one CNC
(computer   numeric   control)  router  has  been  purchased  and   successfully
commissioned.  Another  identical  machine is now on order and expected to be in
production  in May 1997.  These 2 new CNC  routers  will  alleviate  the present
capacity  restriction for the machining  operations and facilitate  research and
development  (R&D)  activities  related to prototyping as well as development of
tools for  thermoforming.  The efficiency of thermoforming  will be increased by
converting the oven of the existing MAAC machine from electricity to gas radiant
type. Another MAAC (a semi-automatic,  rotary thermoforming machine considered a
key capital resource for the Company's production) machine will be considered if
and when justified by the increased business.  Work-in-Progress ("WIP") movement
will be handled by a customized conveyor system improving the overall efficiency
of material  handling on the factory floor. A CNC mill is planned to address the
fabrication  of  large  aluminum  moulds  required  to  facilitate  the  surface
requirements of the Company's products for the Japanese market. At present, such
moulds are being out-sourced at premium costs. The purchase of a 1,000 plus tons
molding  machine is planned  to enable  the door visor  manufacturing  for Isuzu
initially,  then for other  Japanese  clients/prospects.  Also the  Company  may
purchase  another  machine  (-200  tons) to  manufacture  parts of its  existing
products  which are being  out-sourced.  The Company may  continue  out-sourcing
semi-finished  door visors from an injection molding supplier in order to reduce
the risks related to new technology and business.  In addition,  the machine may
allow  the  Company  to  cultivate  door  visor  demand  in the U.S.  under  its
distribution agreement with Mac Neil Automotive Products Limited.

                                      -2-

<PAGE>


     Increasing  sales to  automobile  manufacturers.  Approximately  96% of the
Company's  sales are to  automobile  manufacturers.  Management  of the  Company
believes that increased sales to automobile manufacturers can be accomplished in
two ways: (i) through  increased  sales of existing and new products to existing
customers; and (ii) through the addition of new customers.

     The Company  markets  itself and its products to  automobile  manufacturers
primarily  through personal contact by management and by sales  representatives,
the distribution of written and computerized  information  about the Company and
its products,  incentive  programs and attendance at trade shows.  These efforts
are  aimed  at  increasing  sales  of  existing  products  as well as  obtaining
contracts  for the  development  and sale of new  products to  existing  and new
customers.  Management is attempting to increase the Company's  customer base by
personally  contacting new prospects,  employing more effective marketing tools,
utilizing sales  representatives  and utilizing its existing  relationships with
domestic and import automobile manufacturers.  The Company has been working with
a representative  based in Japan to increase both its customer base and sales to
existing  customers  in Japan.  The  efforts  of this group are  augmented  by a
full-time Japanese employee based at the Company's engineering  department,  who
performs  the  technical   liaison   function   with  the  Japanese   automobile
manufacturers.  Marketing  efforts in North America are supported by B/T Western
Corporation  of  California  and  Patteri  Sales  Inc.  of  Michigan,  both well
established and highly respected companies in the automotive business.

     Frequently,   an  increase  in  sales  to   automobile   manufacturers   is
accomplished  through the  development and  introduction  of new products.  Last
year,  the  Company  was  awarded a  contract  by Toyota  (Japan)  and the first
associated  shipment was made in late 1996.  Since then,  the Company  initiated
five more joint design/development  projects with Toyota (Japan). The door visor
contract with Isuzu (Japan) has been signed. In addition, Toyota (Japan) is also
evaluating  door visor test samples,  and  management is hopeful that a contract
for door visors will result.  The Company perceives the door visor project as an
effective  vehicle to facilitate  its entry into the Japanese door visor market.
The door visors will be manufactured using plastic injection molding technology,
which will represent a new manufacturing  technique for the Company.  Management
is  discussing  the   feasibility   of  developing   door  visors  for  vehicles
manufactured by Honda,  Nissan, and Toyota. The Company has allocated $30,000 to
research and  development and an additional  $162,000 to purchasing  tooling and
equipment for producing prototypes of new door visor designs.

     New  distribution  channel.  Traditionally,  a  majority  of the  Company's
products were channeled to parts distribution centers of major car manufacturers
who,  in  turn,   private  labeled  the  parts  via  their  dealer  networks  as
accessories/options for automobile buyers. The Company is attempting to create a
new distribution channel into the aftermarket through a distribution arrangement
with Mac Neil  Automotive  Products  Limited ("Mac Neil").  Although Mac Neil is
well  established  in the  automobile  accessory  aftermarket,  there  can be no
assurance  that the Company will  succeed in  developing  this new  distribution
channel. The Company will continue to explore similar distribution opportunities
in Japan and elsewhere; however, there can be no assurance that the Company will
be successful in developing any new distribution channels.

     Acrylic  manufacturing.  Acrylic is the single most  expensive raw material
used in  manufacturing  the  Company's  products.  The cost of  purchasing  this
material  represents  approximately  30% of the selling  price of the  Company's
products. In view of this fact, management of the Company has been investigating
manufacturing  acrylic for the  Company's  own use. To this end, the Company has
been  trying to locate a  reputable  technology  partner  and  investigated  the
availability of re-conditioned production equipment for acrylic. So far, neither
a technology partner nor suitable equipment have been identified.  However,  the
Company  will  continue  to  investigate  this  opportunity  because  management
believes that the large potential cost savings related to this strategy could be
of  significant  benefit to the Company.  Investors are cautioned  that: (i) the
Company  has  no  experience  or  expertise  in  producing  acrylic;   (ii)  the
possibility of manufacturing  acrylic is in the  investigative  stage; and (iii)
management  may or may not proceed  with the  purchase of acrylic  manufacturing
equipment following the completion of its investigation.

                                      -3-

<PAGE>


     Possible  Merger/Acquisition.  Throughout  the past year, the Management of
the Company  actively  investigated  several  merger/acquisition  opportunities;
however,   none  of  those  investigations   resulted  in  a  merger/acquisition
opportunity  for the  Company.  Management  of the Company will  continue  their
efforts to identify suitable  merger/acquisition  opportunities.  If a merger or
acquisition were to occur, it could involve the issuance of additional shares of
Common Stock of the Company  which could dilute the  ownership of the  Company's
shareholders.

Products

     The Company manufactures sunroof wind deflectors,  hood protectors and rear
air deflectors for cars,  light trucks and vans.  The Company  manufactures  its
products primarily from acrylic based raw materials.

     Sunroof wind deflectors.  Sunroof wind deflectors  reduce the noise and ear
discomfort  resulting  from air  turbulence  from  open  sunroofs.  The  Company
manufactures sunroof wind deflectors for passenger cars,  sport-utility vehicles
and mini-vans  equipped with electric sliding sunroofs.  The Company markets its
sunroof  wind  deflectors  in the United  States,  Canada,  Japan and the United
Kingdom.

     Hood  protectors.   Hood  protectors  are  designed  both  to  enhance  the
appearance  of a vehicle and to protect the  windshield  and hood from  insects,
stones and other road  debris.  The Company  manufactures  hood  protectors  for
sport-utility  vehicles,  light-duty  pickup trucks and  mini-vans.  The Company
markets its hood protectors in the United States, Canada and Japan.

     Rear air  deflectors.  Rear air  deflectors  are  mounted  on the roof of a
sport-utility  vehicle or mini-van over the rear hatchback door. This product is
designed  to reduce  dust and  grime  buildup  on the rear  window  and  improve
visibility.  The Company  manufactures  rear wind  deflectors for  sport-utility
vehicles  and  mini-vans.  The Company  markets its rear air  deflectors  in the
United States and Canada.

     The following  table sets forth the  percentage of net sales of each of the
Company's product lines for the years ended January 31, 1995, 1996 and 1997.

                                               Fiscal year ended
                                                    January 31,
                                         --------------------------------
     Product Line                        1995          1996          1997
     ------------                        ----          ----          ----

Sunroof wind deflectors                   60%           66%           54%
Hood protectors                           24%           21%           31%
Rear air deflectors                       16%           13%           15%

     New   Products.   Past   marketing   efforts  in  Japan   resulted  in  the
identification  by management  of a potential new product for the Company:  door
visors.  These  are  accessories  which  allow the use of open  windows  for air
circulation  by keeping out rain and other  elements.  Management of the Company
believes  that there is a  significant  market not only in Japan but also in the
U.S..  Last year, the Company signed an agreement with Isuzu of Japan to develop
and supply a door visor for Isuzu's heavy trucks,  and  management is optimistic
that door visors will become a significant  product for the Company.  Management
also has initiated  dialogues with Dahiatsu,  Honda,  Nissan,  Toyota and Suzuki
regarding the feasibility of developing door visors for their vehicles.

                                      -4-

<PAGE>


     Product  Obsolescence/Design  Changes.  Due to automobile design changes by
automobile  manufacturers,  the Company's  products will become  obsolete and/or
require  modification.  Continued  utilization of the Company's  products by the
OEMs is  substantially  dependent  upon the  Company's  ability to  quickly  and
reliably adjust the design of its products to conform with design changes by the
automobile  manufacturers.  Design changes and product obsolescence could have a
material adverse effect on the Company's profitability.

Major Customers

     The Company sells  principally  to automobile  manufacturers  in the United
States,  Japan,  Canada and the United Kingdom. In the fiscal year ended January
31, 1997,  sales in the United  States  accounted for  approximately  72% of the
Company's  sales  (including  sales to United  States  subsidiaries  of  foreign
automobile  manufacturers).  Canada  accounted  for 15% and Japan  accounted for
11.0% of the Company's sales during the fiscal year ended January 31, 1997.

     As reflected below, the Company has four customers which account for 10% or
more of the Company's sales:
<TABLE>
<CAPTION>

                                                                      Percent of Company's Sales
                                                                           Fiscal year ended
                                                                              January 31,
                                                                     ------------------------------
         Customer                       Products                     1995        1996          1997
         --------                       --------                     ----        ----          ----

<S>                               <C>                                <C>          <C>           <C>
Nissan Motor Corporation          Sunroof wind deflectors,           32%          35%           31%
   in the U.S.                    hood protectors and rear
                                  air deflectors

Honda Access Corp (Japan)         Sunroof wind deflectors             7%           8%           11%

General Motors Canada             Hood protectors and rear            6%           6%           10%
                                  air deflectors

Honda Access America Inc.(1)      Sunroof wind deflectors            25%          25%           19%
</TABLE>

------------
(1)  Prior to December 1994, the customer was American Honda Motor Co., Ltd.

     During the fiscal year ended  January 31, 1997,  ten  additional  customers
accounted for approximately 29% of the Company's sales.

     The Company believes that it has a stable  relationship with its customers,
as  evidenced by the fact that its four  largest  customers  have dealt with the
Company for more than three years. If, however,  the Company were to lose Nissan
Motor  Corporation in the U.S., Honda Access America,  General Motors Canada, or
Honda Access Corp in Japan or if these  customers were to  significantly  reduce
their purchases from the Company, the Company's revenues, earnings and financial
position would be materially adversely affected.

     The Company  manufactures  accessories for Nissan Motor  Corporation in the
U.S.,  Honda  Access  America  Inc.  and General  Motors of Canada on a purchase
order/invoice  basis.  For General Motors in the U.S., the Company has a virtual
just-in-time  drop  shipment  program  utilizing  its  warehouse  facilities  in
Bellingham,  WA.  The  Company  warrants  its  products  to  coincide  with  the
automobile warranty provided by the automobile  manufacturer to the consumer, or
in the case of replacement parts and accessories, for the balance of the life of
the new  vehicle  warranty  or a minimum of 12 months or 12,000  miles after the
date of  installation  on the  vehicle,  whichever  is  greater.  The Company is
obligated to reimburse  its OEM  customers for all  legitimate  quality  related
warranty claims paid by them.

                                      -5-
<PAGE>

Manufacturing

     The Company currently  manufactures and assembles its products at its plant
in Vancouver,  B.C.,  Canada. The Company's current line of products is produced
primarily from acrylic based raw  materials,  using  conventional  thermoforming
techniques.  Thermoforming  involves heating a sheet of acrylic to soften it and
then molding the softened acrylic into the desired shape.  Recently, the Company
developed  an enhanced  vacuum  thermoforming  process to address  the  Japanese
demand.  Most of the product  developments which the Company will undertake will
use existing technology.

     The Company's manufacturing operation consists of four major functions: (i)
cutting;  (ii) molding;  (iii)  machining;  and (iv) finishing.  Cutting entails
cutting the acrylic,  which is purchased in large sheets, to an appropriate size
for  the  product  being  manufactured.  Molding  is one of  the  most  critical
operations  demanding accurate control of many parameters - tooling,  feed rate,
timing,  heating and cooling.  The Company currently  utilizes one three-station
rotary   thermoformer   which  performs   three   functions   simultaneously   -
loading/unloading,  heating and forming. The three stations rotate so that after
the  machine  operator  loads the  acrylic it passes  automatically  through the
heating  station  followed by the forming  station and finally to the  unloading
station without further human  intervention.  Next, the molded pieces of acrylic
are  machined  to form  the  blades  of the wind  deflector.  This  function  is
performed  primarily with computer  numeric control ("CNC")  routers.  Finishing
consists of (i) flame polishing  whereby the edges of the blades are polished by
use  of  a  flame;  (ii)  stamping  identifying  marks  on  the  product;  (iii)
application of gasket/extrusion;  (iv) labeling;  (v) cleaning; and (vi) boxing.
Recently,  the Company upgraded its plant/facilities by  installing/implementing
dust containment equipment and complimentary  operations to address the Japanese
demand and improve its competitive position elsewhere.

     Management  intends to manufacture  the Company's door visors using plastic
injection  molding  techniques.  Although the Company has limited  experience or
expertise  in plastic  injection  molding,  management  is  optimistic  that the
Company  will  be  able  to  successfully   perform  plastic  injection  molding
activities.  The plastic injection molding process consists of three phases: (i)
mold design and production;  (ii) plastic injection; and (iii) finishing.  Great
care must be taken in the mold design  process and in the selection of materials
to  produce  the mold in  order  to  create  a high  quality  appearance  of the
completed product by reducing or eliminating potential flaws such as the sinkage
of materials  and  irregularities  in the knit line of joints.  The  mold-making
process takes from two to eight months,  depending on the size and complexity of
the mold. Mold-making requires specialized machines and is capital intensive. It
is customary in the industry for the customer to bear the cost of producing  the
molds and to own them. The completed mold is then mounted onto injection molding
machines,  which are  classified  according to clamping  force (the pressure per
square  inch  required  to hold a mold in place  during  the  injection  molding
process). After injection molding, products are finished.  Finishing consists of
smoothing  and   polishing,   stamping   identifying   marks,   application   of
gasket/extrusion, labeling, cleaning and boxing the product.

     Raw  Materials  and  Suppliers.  Acrylic is the single most  expensive  raw
material used in manufacturing  the Company's  products.  The Company  currently
purchases its acrylic from Acrylco  Manufacturing  Ltd. (a Canadian  distributor
for Mitsubishi  Canada Limited) and Aristech Chemical  International  Limited in
Florence,  Kentucky.  The Company does not have a long-term contract with either
of these  suppliers.  If the Company  were to lose either of these  suppliers of
acrylic,  management  is confident  that an alternate  supplier  could be found,
although the number of acrylic suppliers is limited. The absence of an alternate
supplier  of  acrylic  would  have a  serious  adverse  effect  on the  Company.
Management of the Company  intends to continue  investigating  manufacturing  of
acrylic  for the  Company's  own  use,  and to  purchase  reconditioned  acrylic
manufacturing  equipment  if  management  determines  that  it  is in  the  best
interests  of the  Company  to do so.  See  "Use of  Proceeds"  and  "--Business
Strategy--Acrylic Manufacturing."

                                      -6-

<PAGE>


     The  principal  components  purchased by the Company are  extrusions  (long
plastic strips used in mounting the protectors to vehicles), gaskets for sealing
deflectors  on to  vehicles'  roofs,  and  corrugated  boxes.  Supplies of these
components are readily available from various suppliers.

     Quality Assurance. Management maintains strict quality assurance procedures
for every  product  manufactured  by the Company  throughout  the  manufacturing
process.  The Company's  acrylic suppliers provide a certificate with each batch
of acrylic showing that it has been sampled for heat and other tests relative to
its  production.   Other  incoming  components  are  manufactured  according  to
specifications  provided by the Company and are  checked  upon  receipt  against
these specifications by the Company's incoming inspection personnel.  During the
production  stage,  the  Company's  quality  assurance  personnel  monitor  each
operation  in the  manufacturing  process.  All work in process is also  checked
during the fabrication and assembly processes using operator statistical process
control  procedures.  The  Company's  culture  emphasizes  that  quality  is the
responsibility of every employee;  thus, every line worker is also encouraged to
be a quality assurance inspector. After packing and before shipment, the quality
assurance  personnel  randomly check goods according to product  specifications.
Historically,   the  Company's  level  of  defective   products  has  been  low,
representing  approximately  1% of annual  net  sales.  Generally,  the  Company
warrants its products to coincide with the automobile  warranty  provided by the
automobile  manufacturer  to the  consumer,  and is obligated  to reimburse  the
automobile  manufacturer for all legitimate quality related warranty claims paid
by it. To date, the Company's warranty expenses have been insignificant.

     Management  of  the  Company   intends  to  register  for  QS-9000  quality
standards.  These  standards  were  developed  by  Chrysler/Ford/General  Motors
Supplier  Quality  Requirements  Task  Force.   Recently,   the  North  American
automobile manufacturers shifted their supplier quality requirements to QS-9000.
In the Fall of 1996, the Company was informed about this shift by General Motors
(Canada  and the U.S.) and  responded  by  changing  its focus  from ISO 9000 to
QS-9000. Since then, the Company prepared,  published its QS-9000 Quality Policy
Manual and  submitted  to General  Motors  (Canada),  as the first step  towards
certification.  It  must  be  noted  that  substantial  effort  is  required  to
formulate,  publish  and  implement  all of the  practices  mandated by QS-9000.
Management is optimistic that the Company will receive its certification  before
the end of calendar 1998. However,  investors are cautioned that there can be no
assurance that the Company will, in fact, be granted QS  certification  or that,
once granted, it will retain such certification.

Marketing and Distribution

     Marketing.  The Company markets itself primarily  through personal contact,
the distribution of written and computerized  information  about the Company and
its products,  incentive programs and attendance at trade shows. These functions
are primarily performed by management of the Company;  however,  the Company has
contracts with three sales representatives - two in the United States and one in
Japan - who have established  relationships with large automobile manufacturers.
The sales  representatives  handle  the  day-to-day  customer  contacts.  As the
Company's  sales  increase,  the Company may hire  additional  personnel  or may
contract with additional sales representatives if additional marketing personnel
are needed.

     Management  believes  that the Company  should  attempt to  strengthen  its
customer  base by  increasing  both the  number of  customers  and the number of
products sold to each customer,  by expanding into additional geographic markets
and through establishing new channels of distribution. (See " Business--Business
Strategy.")  In  that  regard,  management  intends  to  utilize  the  following
promotional strategies:

     - The Company's  existing corporate  brochure will be  reviewed/updated  to
include new products and processes, when necessary. A new brochure was published
in April 1997.

                                      -7-

<PAGE>


     - A corporate  and product  profile is available on digital  medium  (i.e.,
computer  disks and CD ROM).  This will enable the Company to present itself and
its products more  effectively  using both  digitized  information  available on
disks and CD ROMS, and on digital networks for rapid  information  transfer over
telephone  lines anywhere on the globe, as well as  demonstrating  the Company's
innovative  spirit.  Management also intends to provide access to information on
the Company and its products through the INTERNET. The Company's web page may be
accessed at www.glasaire.com.

     - Representatives of the Company will continue  traveling to Japan,  China,
Europe etc. to present the Company and its  products to  potential  customers as
well as new  distributors  or other  contacts for  entering  the  non-dealership
after-market segment.

     - The Company will continue  increasing  its  participation  in major trade
shows associated with its products.

     Distribution.  The  Company's  products are supplied to parts  distribution
centers of major car  manufacturers  who, in turn,  private  label the parts via
their dealer networks as  accessories/options  for automobile buyers.  Recently,
the  Company  started   distribution  into  the  U.S.   aftermarket   through  a
distribution arrangement with Mac Neil.

     The Company  generally  sells and ships its products  "F.O.B.  factory" and
most of its  customers  are  responsible  for  the  transportation  of  finished
products  from the  Company's  factory  or  warehouse  facility  to their  final
destination and bear the risk of loss during transportation.

     With respect to most customers  located in North  America,  the Company has
Electronic Data  Interchange  ("EDI")  capability which  facilitates  receipt of
orders from customers and transmission of invoices to customers  electronically.
After receipt of purchase orders from customers,  wherever located,  the Company
generally  bulk-ships  the ordered parts to the  customers'  parts  distribution
centers within a mutually acceptable lead time, usually 30 days.

Research and Development and Product Design

     Management believes that its product development capabilities are important
to the future success of the Company's business.  The Company has four permanent
employees  engaged in research and  development  at its Vancouver  facility.  In
addition,  the Company  contracts  out the  Company's  research and  development
function to a research and  development  company  which  employs four  permanent
research  and  development  professionals  who work on the  Company's  projects.
During the fiscal years ended January 31, 1995, 1996 and 1997, the Company spent
approximately $83,775, $264,856 and $395,099, respectively, towards research and
development.  The increase in research and  development  costs from 1995 to 1997
resulted from  increased  research and  development  activities  asociated  with
development of new products and  improvements to existing  products.  Management
expects  that this trend of  increased  spending  on  research  and  development
activities  will continue.  In addition,  management has allocated funds for the
purchase of computer  aided  design  software  and related  hardware  which will
facilitate  the electronic  transfer of technical data and drawings  between the
Company  and  engineering  departments  of the  Company's  OEM  customers.  This
software is expected to increase the  efficiency of the  Company's  research and
development  function and to simplify the engineering  process. As the Company's
customers are principally automobile manufacturers,  the major responsibility of
the product design personnel is to produce designs to the satisfaction of and in
accordance with the specifications  developed with or provided by the automobile
manufacturers.  The Company's  cycle time for product  development is relatively
short, ranging from three to six months.

     When the design of a vehicle model changes configuration,  the Company must
retool its  products to insure  proper fit of its  products.  Although  frequent
model or configuration changes would increase the Company's costs, tooling costs


                                      -8-

<PAGE>

generally are not  substantial  and frequently may be passed on to the customer,
often over a two year period.  However,  investors are cautioned  that continued
utilization of the Company's  products by the OEMs as well as the aftermarket is
substantially  dependent  upon the  Company's  ability to quickly  and  reliably
adjust  the  design of its  products  to  conform  with  design  changes  by the
automobile  manufacturers and that design changes and product obsolescence could
have a material adverse effect on the Company's profitability.

Competition

     The  Company  has  several  competitors  which have  substantially  greater
technical,  financial and marketing  resources  than the Company.  The Company's
major  competitor in the sunroof wind deflector market remain to be Mascotech of
the  U.S.  In  the  hood  protector  market,   its  major  competitor  is  still
Deflecta-Shield and in the rear air deflector market it is Jac Products.

     Management   believes  that  the  principal   competitive  factors  in  the
automobile accessories industry, in order of importance,  are quality,  customer
service  and price.  Management  of the  Company  believes  that the Company can
effectively  compete  with its  competitors  because of the high  quality of the
Company's   products  and  its  commitment  to  customer   service  and  product
innovation.

Seasonality

     The Company's products are not subject to significant  seasonal  variation.
The  Company's  backlog as of any given date is not a meaningful  measure of the
Company's  future business  because the Company's  customers  generally  require
rapid shipment of orders.

Employees

     As of January 31, 1997, the Company  employed 37 production  workers,  four
research and development personnel,  two  clerical/administrative  staff and six
management  staff  members.  In  addition,  the  Company  has a contract  with a
research and development  company which four engineers and technologists for the
Company's projects.

     The Company attempts to maintain amiable and  communicative  relations with
its employees.  The Company is not a party to any labor  contracts or collective
bargaining agreements.  The Company has experienced no labor stoppages in recent
years  and   management   believes  that   relations   with  its  employees  are
satisfactory. The Company believes there is an adequate supply of suitable labor
available.


Item 2 - Properties

     The Company currently  sub-leases 15,744 square feet of factory,  warehouse
and office space located at 3137 Grandview Highway,  Vancouver, B.C., Canada V5M
2E9 and  leases an  additional  6,033  square  feet  located  at 3147  Grandview
Highway,  both from  unaffiliated  parties.  The lease and  sub-lease  for those
facilities  provide for an aggregate  base rent in the amount of  CDN$9,325  per
month  through  September  30, 1996 and CDN$9,779 per month from October 1, 1996
through September 30, 1997. The lease and sub-lease both expire on September 30,
1997. The lease and the sub-lease are both triple net leases, and the Company is
responsible for its share of common area expenses and  maintenance.  The Company
has an option to renew both the lease and the  sub-lease  for  further  two-year
terms through September 30, 1999.

     The Company also rents 5,000 square feet of warehouse  space in Bellingham,
Washington,  at a rental of US$1,800 per month.  This facility is used primarily
for warehousing products for distribution to certain US customers.  The lease on
the  property  expired on March 31,  1994 and the  property is  currently  being

                                      -9-

<PAGE>


rented on a month-to-month basis, without a written rental agreement.  Effective
April 1, 1997, the Company entered into a sublease arrangement with Mac Neil for
twenty-five   percent  (25%)  of  the  space  in  this  warehouse  for  products
manufactured for Mac Neil by third parties. Part of this sublease arrangement is
handling of these third party products by the Company.

     These facilities are adequate for the Company's  present level of business;
however,  in order to accommodate  the full projected  increase in the Company's
sales, management anticipates acquiring additional manufacturing space either by
leasing  additional  space in the  current  facilities  or by moving to a larger
facility within the next 2 years.

Patents, Trademarks, Licenses, Franchises, Concessions or Royalty Agreements

     The Company does not hold any patents on any of its  products,  nor does it
have any licenses, trademarks, franchises, concessions or royalty agreements.

Government/Environmental Regulation

     The  Company  is  subject  to  various   federal,   provincial   and  local
environmental  laws and  regulations.  Management  believes  that the  company's
operations  currently  comply in all material  respects with applicable laws and
regulations.  Management of the Company believes that the trend in environmental
litigation and regulation is toward stricter standards,  and that these stricter
standards may result in higher costs for the Company and its  competitors.  Such
changes in the law and  regulations  may require the company to make  additional
capital  expenditures which, while not presently  estimable with certainty,  are
not presently  expected to be material to the Company.  Costs for  environmental
compliance and waste disposal have not been material to the Company in the past.

Item 3 - Legal Proceedings
--------------------------

     The Company is not aware of any material  pending  litigation  to which the
Company is or may be a party,  nor is it aware of any  pending  or  contemplated
proceedings  against it by  governmental  authorities.  The Company  knows of no
legal  proceedings  pending or threatened,  or judgments  entered  against,  any
director or officer of the Company,  or legal  proceeding to which any director,
officer  or  security  holder of the  Company  is a party  adverse  to, or has a
material interest adverse to, the Company.


Item 4 - Submission of Matters To a Vote of Security Holders
------------------------------------------------------------

         No matters  were  submitted  by the Company to a vote of the  Company's
shareholders through the substitution of proxies or otherwise, during the fourth
quarter of the fiscal year covered by this report.


                                     PART II
                                     -------

Item 5 - Market For Registrant's Common Equity and Related Stockholder Matters
------------------------------------------------------------------------------

     The Company's Common Stock is traded in the over-the-counter  market on the
NASDAQ SmallCap Market under the symbol "GLAR" and on the Pacific Stock Exchange
under the Symbol GLA.

     The table set forth below presents the range, on a quarterly basis, of high
and low bid  prices  per  share of  Common  Stock as  reported  by the  National
Quotation Bureau, Inc.




                                      -10-


<PAGE>

    Quarter Ended                             High Bid         Low Bid
    -------------                             --------         -------
    Fiscal 1997
    May 2 thru July 31, 1996                    $5.00           $2.875
    August 1 thru October 31, 1996               3.25            2.375
    November 1 thru January 31, 1997             2.875           1.50

     The  closing  bid price of the Common  Stock as of January  31,  1997,  was
$1.625 per share.  As of January 31,  1997,  the Company  had  approximately  30
shareholders  of record and  estimates  that its Common  Stock was  beneficially
owned by in excess of 610 shareholders based upon ownership in " street name."

     Holders  of common  stock  are  entitled  to  receive  dividends  as may be
declared by the Board of Directors out of funds legally available therefore.  No
dividends  have  been  declared  to date by the  Company,  nor does the  Company
anticipate declaring and paying cash dividends in the foreseeable future.

Item 6 - Selected Financial Data
--------------------------------

     The  selected  financial  information  set forth below is derived  from the
audited consolidated  financial statements of the Company, which are prepared in
accordance with generally accepted accounting principles in the United States of
America  and  stated  in  United  States  dollars.  The  consolidated  financial
statements  at January 31, 1996 and 1997 and for the fiscal years ended  January
31,  1995,  1996  and  1997  have  been  audited  by  BDO  Dunwoody,   Chartered
Accountants,  and appear elsewhere herein. The selected  consolidated  financial
data is  qualified  in its  entirety  by  reference  to,  and  should be read in
conjunction  with,  the  Consolidated  Financial  Statements,  related Notes and
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations."




                                      -11-


<PAGE>
<TABLE>
<CAPTION>

                                                                As of January 31,
                                                 ---------------------------------------------
Balance Sheet Data                                   1996                             1997
                                                     ----                             ----
                                        (In thousands of United States dollars, except share data)
<S>                                              <C>                                  <C>     
Working capital                                  $     900                            $  3,059
Total assets                                         2,625                               4,865
Long-term debt                                         ---                                 ---
Obligation under capital lease                          64                                   0
Deferred income taxes                                  131                                 188
Shareholders' equity                                 1,464                               4,092
                                                              Year ended January 31,
                                                 ---------------------------------------------
Income Statement Data                                1995             1996            1997
                                                     ----             ----            ----

Sales                                             $  4,057         $  4,192           $  4,316
Cost of sales                                        2,407            2,742              3,028
                                                    ------            -----              -----
Gross profit                                         1,650            1,450              1,288
Research and development                                84              265                395
Selling and distribution                               175              326                282
General and administrative                             511              503                414
Provision for profit sharing                            83               32                 23
Interest                                                52               16                (62)
                                                   -------          -------            --------
Income before income taxes                             745              308                236
Income taxes                                           271              123                126
                                                    ------           ------             ------
Net income per share                              $   0.25         $   0.20           $   0.80
                                                  ========         ========           ========
Net income                                        $    474         $    185           $    110
                                                  ========         ========           ========
Weighted average number of
   shares outstanding                            913,095(1)         921,890          1,426,038

</TABLE>

-----------
(1)  Adjusted to  retroactively  reflect the  0.65-share and  0.493-share  stock
     dividends  declared  by the Company on  September  26, 1995 and October 27,
     1995,   respectively.   Not   adjusted   to   retroactively   reflect   the
     re-acquisition  by the  Company of 4,192  shares of Common  Stock in August
     1995.


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

Overview

     The Company  derives its revenues from the sale of  automotive  accessories
manufactured by it. The Company's sales increased from $4,057,205 for the fiscal
year ended January 31, 1995, to $4,191,581 for the fiscal year ended January 31,
1996, to $4,316,372  for the fiscal year ended January 31, 1997. The Company had
net  income of  $473,903  in the fiscal  year ended  January  31,  1995,  with a
decrease to $184,584 in net income for the fiscal year ended  January 31,  1996,
and a decrease to  $109,800 in net income for the fiscal year ended  January 31,
1997. Gross profit margins  decreased by 6.1 percentage  points,  from 40.7% for
the fiscal  year ended  January  31,  1995,  to 34.6% for the fiscal  year ended
January 31, 1996,  and to 29.8% for the fiscal year ended January 31, 1997,  due
to increased  expenses;  however,  management  believes  that it will be able to
increase  gross  profit  and net  income in future  periods  by  increasing  the
Company's  production capacity and production  efficiency.  Increased revenue in
future  periods will depend on the Company's  ability to strengthen its customer
base through the development of new products, increasing the number of customers
and expanding into  additional  geographic  markets and  distribution  channels,
while  maintaining  or  increasing  sales of its  existing  products  to current
customers.  Management  intends to increase  production  capacity and production

                                      -12-

<PAGE>

efficiency   through  the  purchase  of  additional   equipment  and  machinery.
Management of the Company intends to investigate  manufacturing  acrylic for the
Company's own use, and to purchase acrylic manufacturing equipment if management
determines that it is in the best interests of the Company to do so.  Management
believes that it may be able to significantly  reduce its raw materials costs by
manufacturing  its own acrylic.  Investors are cautioned that the possibility of
manufacturing  acrylic is in the  investigative  stage and management may or may
not proceed with the purchase of acrylic  manufacturing  equipment following the
completion of its investigation.  Investors are further cautioned that there can
be no  assurance  that gross profit and net income  will,  in fact,  increase in
future periods. See "Use of Proceeds" and "Business--Business Strategy."

Results of Operations

     The following  table sets forth selected income data as a percentage of net
sales for the periods indicated.

                                             Year ended January 31,
                                    ----------------------------------------
                                     1995             1996             1997
                                     ----             ----             ----

Net sales                           100.0%           100.0%            100.0%
Cost of sales                        59.3             65.4              70.2
                                    -----           ------            ------
Gross profit                         40.7             34.6              29.8
Research and development              2.1              6.3               9.2
Selling and distribution              4.3              7.8               6.5
General and administrative           12.6             12.0               9.6
Provision for profit sharing          2.0              0.8               0.5
Interest                              1.3              0.4              (1.4)
                                    -----            -----             -----
Income before income taxes           18.4              7.3               5.5
Income taxes                          6.7              2.9               2.9
                                    -----            -----             -----

Net income                           11.7              4.4               2.5
                                     ====            =====             =====

Year Ended January 31, 1997 Compared to Year Ended January 31, 1996

     Sales.  The Company's  sales  increased by 3% from  $4,191,581 for the year
ended January 31, 1996, to $4,316,372 for the year ended January 31, 1997.  This
increase  resulted  primarily from the addition of new customers.  Revenues from
the  Company's  four major  customers  accounted  for  approximately  71% of the
Company's sales during the year ended January 31, 1997.

     Gross  Profit.  Gross profit  margins,  expressed as a percentage of sales,
decreased  from 34.6% for the year ended January 31, 1996, to 29.8% for the year
ended  January 31,  1997.  This net  decrease of 4.8% was due  primarily  to (1)
increase in material  cost of 1.8%,  and (2) increase in labor cost of 3% due to
the  unproductive   labor  hours  consumed,   in  implementing  the  new  vacuum
thermoforming plus CNC trimming technologies on the factory floor.

     Research and Development.  Expenses for research and development  increased
by 49% from  $264,856 for the year ended  January 31, 1996,  to $395,099 for the
year ended  January 31,  1997.  This  increase  was  primarily  due to increased
utilization of the Company's Engineering department for R&D activities.

     Selling and Distribution.  Selling and distribution  expenses  decreased by
13.7%,  from  $326,490 for the year ended  January 31, 1996, to $281,669 for the
year ended January 31, 1997. This decrease was primarily due to decreased travel
expenses, decreased advertising and promotion, and decreased freight charges.

                                      -13-

<PAGE>


     General and Administrative.  General and administrative  expenses decreased
by 17.7% from  $503,030 for the year ended January 31, 1996, to $414,174 for the
year ended  January 31,  1997,  primarily as a result of the  implementation  of
customized  business and accounting  computer  systems for purchasing  inventory
control,  work order  administration,  and for  accounting  applications,  which
facilitated  the  mechanization  of  certain  management   activities   allowing
organizational  downsizing.  Management also believes that the decrease was also
due to effective training of employees for the use of those systems.

     Provision for Profit  Sharing.  Provision for profit  sharing  decreased by
27.7% from $32,516 for the year ended  January 31, 1996, to $23,498 for the year
ended January 31, 1997. This lower profit was a result of lower profitability of
the Company.

     Interest.   Interest  income  (net  of  interest  expense)  increased  from
($15,732)  for the year ended  January 31,  1996,  to $61,354 for the year ended
January 31,  1997,  primarily  as a result of interest  earned on cash  deposits
obtained from the public offering.

     Income  before Income Taxes.  Before  income  taxes,  the Company's  income
decreased from $307,557 for the year ended January 31, 1996, to $235,318 for the
year ended January 31, 1997.

     Income  Taxes.  The Company  provided  for income taxes of $122,973 for the
year ended  January 31, 1996,  and $125,518 for the year ended January 31, 1997.
The Company's effective tax rate in 1997 was 53% as a result of additional taxes
paid during 1997 related to Revenue Canada's  reassessment of the Company's 1994
and 1995 income taxes.  The  additional  tax expensed by the Company in 1997 was
$21,500. The reassessments resulted in certain income tax credits related to the
Company's research and development  expenditure being disallowed.  Management is
contesting this reassessment  because management believes that the credits taken
were appropriate.  In the meantime, the additional taxes have been paid in order
to stop the accrual of interest and penalties as this matter is being  contested
by the Company.

     Net Income.  Net income  decreased from $184,584 for the year ended January
31, 1996, to $109,800 for the year ended January 31, 1997.

Year Ended January 31, 1996 Compared to Year Ended January 31, 1995

     Sales.  The Company's sales increased by 3.31% from $4,057,205 for the year
ended January 31, 1995, to $4,191,581 for the year ended January 31, 1996.  This
increase  resulted  primarily from a special  promotional  program by one of the
Company's  customers  which  increased the Company's sales in spite of a general
slowdown  experienced by the automobile industry in the first part of 1995 and a
trade dispute between the United States and Japanese governments.  Revenues from
the  Company's two major  customers  accounted  for  approximately  60.5% of the
Company's sales during the year ended January 31, 1996.

     Gross  Profit.  Gross profit  margins,  expressed as a percentage of sales,
decreased  from 40.7% for the year ended January 31, 1995, to 34.6% for the year
ended January 31, 1996 due to an increase in value of the Canadian  dollar which
diminished the exchange rate benefit reflected in the gross profit margin of the
Company for the prior fiscal year and due to the higher cost of raw materials.

     Research and Development.  Expenses for research and development  increased
by 216% from $83,775 for the year ended  January 31,  1995,  to $264,856 for the
year ended  January 31, 1996  primarily  as a result of the  recognition  by the
Company  during the fiscal  year ended  January 31,  1995 of an  investment  tax
credit  related to  research  and  development  and an increase in the number of
research and development projects and in the complexity of those projects.

                                      -14-

<PAGE>


     Selling and Distribution.  Selling and distribution  expenses  increased by
86%, from $175,361 for the year ended January 31, 1995, to $326,490 for the year
ended  January  31,  1996.  This  increase  was  primarily  due  to  new  market
development costs and the hiring of additional sales representatives.

     General and Administrative.  General and administrative  expenses decreased
by 1.6% from  $511,182 for the year ended  January 31, 1995, to $503,030 for the
year ended January 31, 1996, primarily as a result of additional  management and
rental income received.

     Provision for Profit Sharing. Provision for profit sharing decreased by 61%
from $82,968 for the year ended  January 31, 1995, to $32,516 for the year ended
January 31, 1996 due to lower income in fiscal year 1996.

     Interest. Interest expense decreased by 70% from $52,450 for the year ended
January 31,  1995 to $15,732 for the year ended  January 31, 1996 as a result of
the reduction of bank indebtedness.

     Income  before Income Taxes.  Before  income  taxes,  the Company's  income
decreased from $744,671 for the year ended January 31, 1995, to $307,557 for the
year ended January 31, 1996. This decrease in income resulted primarily from the
lower  profit  margin  and higher  research  and  development  and  selling  and
distribution expenses.

     Income  Taxes.  The Company  provided  for income taxes of $270,768 for the
year ended  January 31, 1995,  and $122,973 for the year ended January 31, 1996.
The reduction in income taxes reflected the lower taxable income.

     Net Income.  Net income  decreased from $473,903 for the year ended January
31, 1995, to $184,584 for the year ended January 31, 1996  primarily as a result
of the lower profit margin and higher  research and  development and selling and
distribution expenses.

Liquidity and Capital Resources

     The Company has  traditionally  relied on  internally  generated  funds and
short-term  bank  borrowings to finance its operations  and expansion,  although
capital  expenditures  have been partly  financed by long-term debt. The Company
received net proceeds  from a public  offering  amounting to  $2,773,000  in May
1996.

     The  Company  has in  place  a  demand  revolving  credit  facility  in the
principal amount of CDN$1,000,000  with a financial  institution.  As of January
31, 1997,  the Company owed  $110,100 on its credit  facility.  Interest on this
indebtedness  equals the Canadian prime rate plus 1/2%.  The credit  facility is
secured by accounts receivable,  inventories, certain equipment and other assets
of the Company and an  unlimited  guarantee  by the Company and its  subsidiary,
Glas-Aire Industries Ltd. The credit facility was renewed in December 1996 for a
one-year period. During the fiscal year ended January 31, 1997, the Company paid
a total of  $7,384  in  interest.  The  amount  of total  short-term  borrowings
outstanding   at  January  31,  1997  and  1996  was  $110,100   and   $255,926,
respectively.

     Working capital was $3,059,351 at January 31, 1997. The increase in working
capital was the result of  completion of the  Company's  public  offering in May
1996. For the year ended January 31, 1997, net cash used in operating activities
totaled $884,363 including net income of $109,800, depreciation of $110,480, and
a net change in non-cash working capital of $1,162,587.  Term deposits increased
by $1,000,000 and accounts receivable  increased by $64,916 primarily due to the
increase in sales at the end of January 1997.  Inventories  decreased by $61,435
due to lower purchases prior to year end.  Accounts payable decreased by $51,268
because of lower  purchases  just  prior to year end.  Net cash  generated  from
operations  total  $84,684 for the year ended  January 31, 1996,  including  net

                                      -15-

<PAGE>

income of $184,584 and a depreciation of $87,470.  Accounts receivable decreased
by $151,106  primarily  due to improved  collections.  Inventories  increased by
$320,149  as a result of the buildup of raw  materials  just prior to the period
end in  anticipation  of future  sales.  Accounts  payable  increased by $47,702
because of higher purchases just prior to year end.

     Net cash  from  financing  activities  was  $2,234,846  for the year  ended
January 31,  1997,  primarily  due to the  completion  of the  Company's  public
offering which yielded net proceeds of $2,652,699, decrease in bank indebtedness
of $145,827,  the repayment of long term debt of $27,304,  capital lease buy out
of $97,246, and repurchase of tshares for $147,476.

     Net cash used in  investing  activities  amounted to $573,861  for the year
ended January 31, 1997,  was primarily due to the purchase of fixed assets.  Net
cash used in  investing  activities  amounted to $137,226  and  $234,530 for the
years ended January 31, 1996 and 1995, respectively. Capital expenditures during
the year ended January 31, 1997 totaled $586,305 and were financed  primarily by
the funds received from the public  offering.  Capital  expenditures  during the
years  ended   January  31,  1996  and  1995  totaled   $188,197  and  $256,194,
respectively, and were financed primarily by the bank line of credit.

     The Company expects that working capital requirements and capital additions
will continue to be funded  through a combination  of the proceeds of the public
offering  completed in May 1996,  internally  generated funds, and existing bank
facilities and capital leases.  The Company's  working capital  requirements are
expected to increase in line with the growth of the Company's  business,  and it
either has or will  generate  sufficient  working  capital to meet the Company's
requirements during this fiscal year.

Impact of Inflation

     The Company  believes that  inflation has not had a material  effect on its
business.  Although the cost to the Company of certain raw materials used in the
manufacture of its products,  primarily acrylic, has increased over the past few
years,  the  Company  has been  able to  increase  the  prices  of its  products
accordingly.

Exchange Rates

     The Company  sells most of its  products to  international  customers.  The
Company's  principal  markets are the United States and Japan. The Company sells
most of its  products  in  United  States  dollars,  but pays  for its  material
components  and labor  principally  in Canadian  dollars.  The Company has never
engaged in exchange rate hedging activities and management does not believe that
such  activities are necessary.  Management will continue to evaluate this issue
and, if  management  deems it necessary  in the future,  it may  implement  some
hedging techniques to minimize the Company's foreign exchange exposure.

     Exchange rates between the United States and Canadian dollar for the fiscal
years ended January 31,  19945,  1996 and 1997,  including the average  exchange
rate for the period, are as follows:

 Fiscal year ended                                       Average Exchange Rate
    January 31,               Exchange Rate                  for Period
 -----------------            -------------              ---------------------

       1997                1.U.S.$:1.3470 Cdn.$          1 U.S.$:1.3625 Cdn.$
       1996                1 U.S.$:1.3734 Cdn.$          1 U.S.$:1.3685 Cdn.$
       1995                1 U.S.$:1.4022 Cdn.$          1 U.S.$:1.3736 Cdn.$


                                      -16-

<PAGE>


Item 8 - Financial Statements and Supplementary Data
----------------------------------------------------

     Included at pages F-1.

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

     The Company has not had any  reported  or  material  disagreement  with its
accountants  on any matter of  accounting  principles,  practices  or  financial
statement disclosure.


                                    PART III

Item 10 - Directors and Executive Officers of the Registrant
------------------------------------------------------------

     The  directors,  executive  officers,  and  one of  the  key  employees  of
Glas-Aire Industries Group Ltd. are as follows:




                                      -17-

<PAGE>


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

Edward Ting                 49          Chief Executive Officer and Chairman
                                        of the Board of Directors

Alex Yie Wie Ding           37          President, Chief Opera;ting Officer
                                        and Treasurer and Director

Omer Esen                   54          General Manager, Chief Financial Officer

Linda Kwan                  51          Financial Controller

Chris G. Mendrop            45          Director

Robert J. Patteri           57          Director


     Edward Ting. Mr. Ting has served as Chief Executive Officer and Chairman of
the Board of Directors of the Company since  inception.  From  September 1992 to
February  1995,  Mr. Ting also served as President  of the Company.  Since March
1988,  Mr.  Ting also has served as  President,  Chief  Executive  Officer and a
director of Electrocon  International  Inc., a publicly traded,  Hong Kong-based
holding  company  that  conducts  operations  through  its  subsidiaries  in two
separate  business  segments  -  the  distribution  of  semi-conductor  products
(primarily  computer chips) to small and medium-sized  manufacturers  located in
Hong Kong and the  People's  Republic  of China,  and the  distribution  of golf
carts,  irrigation  products and systems,  fertilizer and turf equipment to golf
clubs in Hong Kong,  Macao and the People's  Republic of China. As President and
Chief Executive  Officer of Electrocon,  Mr. Ting is responsible for the overall
management,  strategy and direction of that company.  Mr. Ting is the brother of
Alex Yie Wie Ding.  Mr. Ting  intends to devote an average of 20 hours per month
to the Company's business.

     Alex Yie Wie Ding.  Mr.  Ding has  served  as the  General  Manager,  Chief
Operating  Officer and a director of the Company since  inception and has served
as President of the Company since  February 1995. As of November 1, 1996 he also
assumed the  responsibility  of Chief  Operating  Officer and  Treasurer.  He is
responsible  for the overall  management,  strategy and direction of the Company
and its  subsidiaries  and  supervises  all senior  officers and managers of the
Company who report directly to him. Mr. Ding's responsibilities include advising
senior staff, as well as manufacturer  representative  agencies, on a variety of
management procedures, methods and techniques; research, analysis and evaluation
of major projects and programs;  planning and directing operations;  supervising
senior  staff  in  personnel  administration,  production  schedules,  inventory
control, quality assurance and customer and warranty services to OEMs; assisting
with financial  analysis and  preparation  of budgets and  forecasts;  attending
trade shows;  serving as liaison  with OEM  customers;  and sales and  marketing
functions.  Mr. Ding also serves on the boards of Better  Business Bureau of the
lower mainland of British Columbia as well as Sunbrite Business Association.

     From September 1988 to June 1991, Mr. Ding was General  Manager of Hing Wor
Inc.,  a  clothing  manufacturer.  Mr.  Ding  has a  Bachelors  degree  in Civil
Engineering and a  post-graduate  diploma in management (MBA Level 1), both from
McGill University. Mr. Ding is the brother of Edward Ting.

     Omer Esen.  Mr. Esen has served as Vice  President  of  Operations  for the
Company since February 1995,  assumed the position of Chief Financial Officer on
November 1, 1996,  and recently was  appointed as the General  Manager.  In that
position,  Mr.  Esen  plans,  organizes,  directs and  controls  all  operations
including    production,    research   and   development,    customer   service,
purchasing/inventory control,  shipping/receiving and quality assurance. He also
develops and installs  computerized  business systems and interacts with various

                                      -18-

<PAGE>

government  agencies to procure  funding for export and other  activities.  From
June 1992 until  February  1995,  Mr.  Esen was  employed as Vice  President  of
Operations for West Bay Sonship  Yachts Ltd. In that position,  he developed and
installed  various  computerized  business  control  systems and interfaced with
various  levels of  government  to procure  funding for the  acquisition  of new
capital resources.

     From  January  1988 until June 1992,  Mr. Esen was  employed as Director of
Operations for DBA Communication  Systems Inc. Mr. Esen holds a Bachelors degree
in Electrical Engineering from Faraday House Engineering College,  University of
London,  in London,  England and a diploma in Business  Administration  from the
University of British Columbia.

     Linda Kwan.  Ms Kwan has served as the  Company's  Accounting  Manager from
March 1995 until  November 1996 at which time she was appointed as the Financial
Controller.  Ms. Kwan is a member of the  Certified  Management  Accountants  of
Canada. From October 1992 to March 1995, Ms. Kwan provided accounting consulting
services to a number of businesses and individuals. From May 1983 to March 1992,
Ms. Kwan was employed by York-Hannover  Developments,  Ltd. ("York-Hannover") in
various  positions.  Her last position with York-Hannover was as its Controller.
Ms.  Kwan is a graduate  of Hong Kong  Technical  College and holds a Diploma in
Commercial Business and Accounting from that institution.

     Chris G. Mendrop.  Mr. Mendrop has been a director of the Company since its
inception. He has been Chief Executive Officer of Corporate Development Capital,
Inc., an investment  advisory and financial  consulting  firm located in Denver,
Colorado,  since July 1992.  From December 1990 until its sale in December 1992,
Mr.  Mendrop was a principal  of Asset  Income  Securities,  Inc., a NASD member
broker-dealer  which provided financial  consulting and placement agent services
to alternate credit companies seeking asset securitization to access the capital
markets. From May 1990 to July 1992, he served as Corporate Secretary to Western
Acceptance  Corporation,  in which  position he guided that company in financial
policy  and  assisted  in  capital  raising,  in the  development  of the  first
insurance premium  securitized  financing in the country and other  asset-backed
financings.  Mr.  Mendrop holds a Bachelor of Science  degree in Economics  from
Colorado  State  University and a Masters of Business  Administration  degree in
Finance from the University of Colorado.

     Robert J.  Patteri.  Mr.  Patteri  was  appointed  a member of the Board of
Directors in April 1996. Mr.  Patteri is currently  serving on the SEMA Board of
Directors as Chairman of the SEMA Educational Services Committee and he also has
served on the SEMA Long  Range  Strategic  Planning  Committee.  For the past 15
years he has been the owner of R. J. Patteri &  Associates,  Inc., an automobile
industry aftermarket  representation agency and consulting firm. Mr. Patteri has
sold his ownership interest in this company to several employees of R.J. Patteri
& Associates,  Inc.;  however, he is continuing to consult with that company. In
addition, Mr. Patteri is the owner of Patteri Sales, Inc., an OEM representation
agency, and he devotes a substantial portion of his time to that business.  Over
the years Mr.  Patteri has directed the sales and marketing of three  automotive
aftermarket  manufacturers,  an  industrial  distribution  company and an import
company and has managed a regional  financial  services  office.  Mr.  Patteri's
seminars on  motivation,  enthusiasm  and sales have been  presented to numerous
automotive  companies such as NAPA,  General Motors,  Auto Value,  and Northwood
University.  Mr. Patteri  attended  Northwestern  University,  the University of
Chicago and holds a degree in Business from Western Illinois University.

     The  directors  of the Company are elected  annually  and serve until their
successors  take  office or until  their  death,  resignation  or  removal.  The
executive officers serve at the pleasure of the Board of Directors.

     Pursuant  to  the  Underwriting  Agreement  between  the  Company  and  the
Representative,  the Representative may, in its discretion, designate one person
to either  serve on the Board of  Directors of the Company or to attend Board of
Directors  meetings as an observer.  The  Representative  has not yet designated
such person.

                                      -19-

<PAGE>


Item 11 - Executive Compensation
--------------------------------

     The following table summarizes all compensation paid to the Chief Executive
Officer and the  President of the Company for  services  rendered to the Company
during the last three fiscal years.
<TABLE>
<CAPTION>

                                                                             Annual Compensation
       Name                                                  -------------------------------------------------
        and                                   Fiscal year                                           Other
     principal                                   ended                                              annual
     position                                 January 31,      Salary            Bonus            compensation
     --------                                 -----------      ------            -----            ------------

<S>                                              <C>         <C>                <C>               <C>         
Edward Ting                                      1997        $      0           $   6,801         $  48,000(1)
  Chief Executive Officer,                       1996        $      0           $  30,350         $  40,000(1)
  Chairman of the Board                          1995        $      0           $       0         $  44,691(1)


Alex Y.W. Ding                                   1997        $ 49,357           $   6,801                 0
  President, Chief Operating Officer             1996        $ 45,600           $  25,263                 0
                                                 1995        $  3,700(2)        $       0         $  33,500(2)
Chris G. Mendrop
   Director                                      1997        $      0           $       0         $  12,000(3)

</TABLE>

-------------
(1)  Represents  consulting  fees paid by the  Company to Mr.  Ting.  During the
     fiscal year ended January 31, 1997,  Mr. Ting was paid a consulting  fee of
     $4,000 per month for ten months and the amount of $30,350  pursuant  to the
     Company's profit sharing program described below.
(2)  Represents consulting fees paid by the Company to Mr. Ding prior to January
     1995.
(3)  Represents  consulting  fees paid by the  Company to Mr.  Chris G.  Mendrop
     during the fiscal year ended January 31, 1997.

     Employment Agreements. Effective February 1, 1996, the Company entered into
employment  agreements with Edward Ting, Alex Ding and Omer Esen. The agreements
are for two year terms. Under those employment  agreements,  Messrs.  Ting, Ding
and Esen are entitled to base annual  compensation of  $48,000(US),  $47,877(US)
and  $46,036(US),  respectively.  Messrs.  Ding and  Esen  are paid in  Canadian
dollars  and the US dollar  figures  in the  preceding  sentence  are based upon
conversion at the average  exchange  rate during the year. In addition,  Messrs.
Ting, Ding and Esen were paid bonuses of $6,801(US),  $6,801(US) and $4,250(US),
respectively,  for the fiscal year ended January 31, 1997. Messrs. Ding and Esen
will be paid in Canadian  dollars,  and the  exchange  rate has been  calculated
based upon the exchange rate referred to above. In addition to base compensation
and the minimum  bonuses as provided in the agreements,  Messrs.  Ting, Ding and
Esen will be entitled to  participate in the profit  sharing  program  described
below.

     Directors.  Directors are not  compensated for their services as directors;
however,  they are reimbursed for all reasonable expenses incurred in connection
therewith.

     Profit Sharing  Program.  Rather than paying its executives  high salaries,
management  believes it desirable to provide incentives through a profit sharing
program.  Accordingly,  in 1994, the Company  adopted a profit  sharing  program
which provides that an amount equal to 10% of the Company's income before income
taxes and  provision  for profit  sharing may be  distributed  to  officers  and
employees  of the  Company.  The  first  distributions  pursuant  to  the  plan,
aggregating  approximately  $83,000,  were made in April 1995,  based on the net
income of the Company for the fiscal year ended  January 31, 1995.  The Board of
Directors of the Company has adopted an amendment to the profit sharing  program

                                      -20-

<PAGE>

under which the maximum amount that can be distributed  under the program in any
one fiscal year is  $100,000.  Distributions  under the plan for the fiscal year
ended January 31, 1997, aggregated approximately $23,498.

     Option  Plans.  The  Board of  Directors  of the  Company  has  adopted  an
Incentive Stock Option Plan (the "Qualified  Plan") which provides for the grant
of options to  purchase  an  aggregate  of not more than  160,000  shares of the
Company's  Common Stock.  The purpose of the  Qualified  Plan is to make options
available to  management  and  employees of the Company in order to provide them
with a more direct stake in the future of the Company and to  encourage  them to
remain  with the  Company.  The  Qualified  Plan  provides  for the  granting to
management  and employees of  "incentive  stock  options"  within the meaning of
Section 422 of the Internal Revenue Code of 1986 (the "Code").

     The Board of  Directors  of the Company has adopted a  Non-Qualified  Stock
Option Plan (the  "Non-Qualified  Plan") which provides for the grant of options
to purchase an aggregate of not more than 160,000 shares of the Company's Common
Stock.  The  purpose  of  the  Non-Qualified  Plan  is to  provide  certain  key
employees,  independent  contractors,  technical  advisors and  directors of the
Company with options in order to provide  additional  rewards and incentives for
contributing  to the success of the  Company.  These  options are not  incentive
stock options within the meaning of Section 422 of the Code.

     The Qualified  Plan and the  Non-Qualified  Plan (the "Stock Option Plans")
will be administered by a committee (the "Committee")  appointed by the Board of
Directors  which  determines  the persons to be granted  options under the Stock
Option Plans and the number of shares subject to each option. No options granted
under the Stock Option Plans will be  transferable by the optionee other than by
will  or  the  laws  of  descent  and  distribution  and  each  option  will  be
exercisable,  during the lifetime of the optionee,  only by such  optionee.  Any
options  granted  to an  employee  will  terminate  upon  his  ceasing  to be an
employee, except in limited circumstances,  including death of the employee, and
where  the  Committee  deems it to be in the  Company's  best  interests  not to
terminate the options.

     The  exercise  price of all  incentive  stock  options  granted  under  the
Qualified Plan must be equal to the fair market value of such shares on the date
of grant as determined by the  Committee,  based on guidelines  set forth in the
Qualified Plan. The exercise price may be paid in cash or (if the Qualified Plan
shall meet the  requirements of rules adopted under the Securities  Exchange Act
of 1934) in Common Stock or a combination of cash and Common Stock.  The term of
each option and the manner in which it may be exercised  will be  determined  by
the Committee, subject to the requirement that no option may be exercisable more
than 10 years after the date of grant. With respect to an incentive stock option
granted  to a  participant  who owns more than 10% of the  voting  rights of the
Company's  outstanding capital stock on the date of grant, the exercise price of
the option must be at least  equal to 110% of the fair market  value on the date
of grant and the option may not be  exercisable  more than five years  after the
date of  grant.  The  exercise  price of all  stock  options  granted  under the
Non-Qualified  Plan  must be equal to at least 80% of the fair  market  value of
such  shares  on the date of  grant as  determined  by the  Committee,  based on
guidelines set forth in the Non-Qualified Plan.

Compliance with Section 16(a) of the Exchange Act

     The Company has received representations from each other person that served
during  fiscal 1996 as an officer or director  of the  Company  confirming  that
there were no transactions that occurred during the Company's most recent fiscal
year end which required the filing of a Form 5.

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

                                      -21-

<PAGE>


     The  following  table sets forth as of January  31,  1997,  the  beneficial
ownership of the  Company's  Common Stock by each person known to the Company to
own beneficially  more than 5% of the Company's Common Stock and by the officers
and  directors of the Company,  individually  and as a group.  Unless  otherwise
stated below, each such person has sole voting and investment power with respect
to all such shares of Common Stock.
<TABLE>
<CAPTION>

                                              Amount and
  Name and Address of                          Nature of
   Beneficial Owner                       Beneficial Ownership              Percent of Class(1)
   ----------------                       --------------------              -------------------
<S>                                         <C>                                 <C>   
Alex Ding
3137 Grandview Highway
Vancouver, B.C.,
Canada V5M 2E9                                   295,808(2)                        18.3%

397568 B.C. Ltd.
3137 Grandview Highway
Vancouver, B.C.,
Canada V5M 2E9                                   283,108                           17.6%

Edward Ting
21045 Comer Drive
Saratoga, California 95070                       191,584(3)                        11.88%

Viola Ting
21045 Comer Drive
Saratoga, California 95070                       138,729                            8.6%

Chris G. Mendrop
1860 Blake Street
Denver, Colorado  80202                           24,917(5)                         1.5%

Omer Esen
3137 Grandview Highway
Vancouver, B.C.
Canada V5M 2E9                                       247                            0.0%(6)

Directors and executive officers
as a group (7 persons)                           512,551(2)(3)                     38.8%

</TABLE>

-------------
(Footnotes on following page)

(1)  Excludes (i) 102,000  shares of Common Stock  issuable upon exercise of the
     Representative's over-allotment option issued in connection with the public
     offering completed in May 1996; (ii) 30,794 shares of Common Stock issuable
     upon exercise of the Prior Underwriter's  Warrants;  (iii) 68,000 shares of
     Common Stock issuable upon exercise of the Representative's  Warrants to be
     issued in conjunction with this offering; and (iv) 320,000 shares of Common
     Stock  reserved for issuance  under the Company's  Stock Option Plans.  See
     "Market for Common  Equity and Related  Stockholder  Matters--Common  Stock
     Outstanding  or  Reserved  for  Issuance,"  "Concurrent  Sales  by  Selling
     Warrantholder," "Description of Securities--Prior  Underwriter's Warrants,"
     "Underwriting--Representative's    Warrants"   and   "Management--Executive
     Compensation--Option Plans."

                                      -22-

<PAGE>


(2)  Includes  283,108  shares  owned of record by 397568 B.C.  Ltd.,  a company
     which is owned by Mr. Ding.
(3)  Includes  138,729  shares owned of record by Viola Ting, the wife of Edward
     Ting.
(4)  Includes  32,155 shares owned of record by Dr.  Bajaj's wife,  which shares
     may be deemed to be beneficially owned by Dr. Bajaj.
(5)  Includes  9,519 shares owned of record by  Corporate  Development  Capital,
     Inc., a company  controlled by Mr.  Mendrop and one other  individual.
(6)  Represents less than 1%.

Item 13 - Certain Relationships and Related Transactions
--------------------------------------------------------

Certain Transactions

     In May 1991, a company  owned by Alex Yie Wie Ding  acquired  48.97% of the
outstanding  shares of  Multicorp  from an  unaffiliated  party and  incurred an
installment purchase obligation in the amount of CDN$375,000 with respect to the
purchase.  Multicorp has made advances to Mr. Ding's company which correspond to
the company's payment  obligations under the installment  purchase.  In December
1992,  prior to the exchange of the  Company's  stock with the  stockholders  of
Multicorp under which the Company acquired 100% of the outstanding capital stock
of  Multicorp,  Multicorp  declared a dividend on the shares owned by Mr. Ding's
company  in the  amount of  CDN$375,000.  Mr.  Ding's  company  then  repaid the
advances  previously  paid to it in the amount of CDN$75,000  and made a loan to
the Company in the amount of CDN$300,000.  The repayment schedule under the loan
corresponds to the repayment schedule under the installment  purchase obligation
incurred  by Mr.  Ding's  company to the former  stockholder  of  Multicorp.  In
essence,   the  Company  has  assumed  the  payment  obligation  to  the  former
stockholder  of Multicorp.  The loan from Mr. Ding's  company was repaid in full
(including $26,745 of principal) during the year ended January 31, 1997.

     In May 1994, the Company made a loan in the principal amount of $300,000 to
a company  controlled by Edward Ting, the Chairman of the Board of Directors and
Chief Executive Officer of the Company.  The loan was not evidenced by a written
agreement or promissory note, but bore interest at the rate of 9% per annum. The
loan was paid in full prior to January 31, 1995. In November  1994, the Board of
Directors  adopted a policy  resolution  prohibiting the Company from making any
loan or advance of money or property  to a director of the Company and  limiting
the Company's  ability to make such loans or advances to officers of the Company
or its  subsidiaries  unless a majority  of  independent  disinterested  outside
directors  determine  that such loan or advance  may  reasonably  be expected to
benefit the Company.  Further, all future loans and advances, if approved,  will
be made on terms that are no less  favorable  to the Company than those that are
generally available from unaffiliated third parties.

     In November 1993, Mr. Alex Ding, the President of the Company,  made a loan
to the Company in the principal amount of CDN$80,000. The loan was not evidenced
by a written  agreement or promissory note, but bore interest at the rate of 10%
per annum. The loan was paid in full prior to January 31, 1995.

     In late 1994, a company  controlled by a former officer of the Company made
a loan to the Company in the principal amount of $100,000.  The loan, which bore
interest  at the rate of 10% per annum,  was repaid in full prior to January 31,
1996.

     Effective February 1, 1996, the Company entered into a Consulting Agreement
with  Corporate  Development  Capital,  Inc.  ("CDC"),  a corporation  owned and
controlled by Chris G. Mendrop, a director of the Company, pursuant to which CDC
has agreed to assist the Company in the  development  of a  long-term  strategic
plan,  including  but not  limited  to the areas of  management,  marketing  and
finance,  and to  perform  such other  management  consulting  services  for the
Company as shall be requested from time to time by the President of the Company.
As compensation for these services, CDC was entitled to be paid $16,000 on or by

                                      -23-

<PAGE>



the date of  closing  of the  public  offering  and  $4,000 per month for the 12
months  thereafter.  In addition,  Mr.  Mendrop was issued  12,800 shares of the
Company's  Common Stock  pursuant to the Consulting  Agreement.  All amounts due
under this agreement have been paid.

                                     PART IV

Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K
--------------------------------------------------------------------------

(a) and (d)  Financial Statements and Schedules

     The  financial  statements  listed by the  Registrant  on the  accompanying
Financial  Statements  (see  pages F-1  through  F-10) are filed as part of this
Annual Report.

(b)  Reports on Form 8-K:  The Company has not filed a report on Form 8-K.

(c)  Exhibits:

     1.1    Contract with Isuzu (Japan) for door visors;






                                      -24-


<PAGE>


Signatures

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


                                          GLAS-AIRE INDUSTRIES GROUP LTD.



Date:  April 28, 1997                     By:    /s/ Alex Yie Wie Ding
       --------------                           --------------------------------
                                                 Alex Yie Wie Ding, President


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


Date:  April 28, 1997                     /s/  Edward Ting
       --------------                     --------------------------------------
                                          Edward Ting, Secretary, Chief
                                          Executive Officer and Chairman
                                          of the Board


Date:  April 28, 1997                     By:     /s/ Alex Yie Wie Ding
       --------------                          --------------------------------
                                                  Alex Yie Wie Ding, Chief
                                                  Operating Officer,  Treasurer
                                                  and Director


Date:  April 28, 1997                      /s/ Omer Esen
       --------------                     --------------------------------------
                                          Omer Esen, Vice President of
                                          Operations and Chief Financial Officer


Date:  April 28, 1997                     /s/ Chris G. Mendrop
       --------------                    ---------------------------------------
                                         Chris G. Mendrop, Director


Date:  April 28, 1997                    /s/ Robert J. Patteri
       --------------                    ---------------------------------------
                                        Robert J. Patteri, Director




                                      -25-




<PAGE>


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

                                                                AUDITORS' REPORT

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


To the Shareholders of
Glas-Aire Industries Group Ltd.


We have audited the  consolidated  balance sheets of Glas-Aire  Industries Group
Ltd.  and  subsidiaries  as at  January  31,  1997  and  1996  and  the  related
consolidated  statements  of income,  changes in  shareholders'  equity and cash
flows for each of the years in the three year period  ended  January  31,  1997.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audits.

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

In our opinion,  the consolidated  financial  statements described above present
fairly, in all material respects,  the financial position of the Company and its
subsidiaries as at January 31, 1997 and 1996 and the results of their operations
and cash flows for each of the years in the three year period ended  January 31,
1997, in conformity with generally accepted accounting  principles in the United
States.









Chartered Accountants

Langley, British Columbia
March 18, 1997


                                                                             F-1


<PAGE>
<TABLE>
<CAPTION>

                              Glas Aire Industries Group Ltd.
                                Consolidated Balance Sheets
                                 (Stated in U.S. Dollars)
-------------------------------------------------------------------------------------------------------
                                                                    January 31,              January 31,
                                                                       1997                     1996
                                                                    -----------              ----------
<S>                                                                 <C>                      <C>       
Assets (Note 4)                                             
Current
     Cash and equivalents                                           $ 1,119,932              $   330,107
     Term deposit (Note 1)                                            1,000,000                     --
     Accounts receivable                                                737,587                  672,671
     Inventories (note 2)                                               628,423                  689,858
     Prepaid expenses                                                   158,509                   14,049
     Deferred offering costs                                                  0                  159,817
                                                                    -----------              -----------
                                                                      3,644,451                1,866,502
Fixed assets, net (Note 3)                                            1,220,531                  758,166
                                                                    -----------              -----------
                                                                    $ 4,864,982              $ 2,624,668
                                                                    ===========              ===========
Liabilities and Shareholders' Equity
Current
     Bank indebtedness                                                  110,100              $   255,926
     Accounts payable and accrued liabilities                           459,738                  511,006
     Incomes taxes payable                                               15,262                  138,457
     Current portion of long term debt (Note 5)                            --                     27,304
     Current portion of obligation under capital lease                     --                     33,616
                                                                    -----------              -----------
                                                                        585,100                  966,309
Obligation under capital lease                                             --                     63,630
Deferred income taxes (Note 7)                                          187,498                  130,571
                                                                    -----------              -----------
                                                                        772,598                1,160,510
                                                                    -----------              -----------
Commitments, (Note 8)
Shareholders' Equity
     Share capital (Notes 6(a) and (c))                                  16,124                    9,238
     Contributed surplus                                              3,539,951                  911,148
     Treasury stock (Note 6(b)                                         (147,476)                 (17,010)
     Retained earnings                                                  699,634                  589,834
     Cumulative translation adjustment                                  (15,849)                 (29,052)
                                                                    -----------              -----------
                                                                      4,092,384                1,464,158
                                                                    -----------              -----------
                                                                    $ 4,864,982              $ 2,624,668
                                                                    ===========              ===========

The  accompanying  summary of significant  accounting  policies and notes are an integral part of these
financial statements.


                                                                                                      F-2

</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                          Glas Aire Industries Group Ltd.
                                         Consolidated Statements of Income
                                             (Stated in U.S. Dollars)
----------------------------------------------------------------------------------------------------------------------

                                                                             Years ended January 31,
                                                                  1997                  1996                  1995
                                                              -----------            -----------           -----------

<S>                                                           <C>                    <C>                   <C>        
Sales (Note 9)                                                $ 4,316,372            $ 4,191,581           $ 4,057,205
Cost of sales                                                   3,027,968              2,741,400             2,406,798
                                                              -----------            -----------           -----------
Gross Profit                                                    1,288,404              1,450,181             1,650,407
                                                              -----------            -----------           -----------
Expenses
     Research and development                                     395,099                264,856                83,775
     Selling and distribution                                     281,669                326,490               175,361
     General and administrative                                   414,174                503,030               511,182
     Provision for profit sharing                                  23,498                 32,516                82,968
     Interest                                                     (61,354)                15,732                52,450
                                                              -----------            -----------           -----------
                                                                1,053,086              1,142,624               905,736
                                                              -----------            -----------           -----------
Income before income taxes                                        235,318                307,557               744,671
Income taxes (Note 7)                                             125,518                122,973               270,768
                                                              -----------            -----------           -----------
Net Income  for the year (Note 7)                             $   109,800            $   184,584           $   473,903
                                                              ===========            ===========           ===========
Net income per share                                          $      0.08            $      0.20           $      0.52
                                                              ===========            ===========           ===========
Weight average number of shares outstanding                     1,426,038                921,890               913,095
                                                              ===========            ===========           ===========










The  accompanying  summary of significant  accounting  policies and notes are anintegral part of these financial statements.


                                                                                                                          F-3

</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                                                                                                   GLAS-AIRE INDUSTRIES GROUP LTD.
                                                                       Consolidated Statements of Changes in Shareholders' Equity
                                                                                                          (Stated in U.S. Dollars)
----------------------------------------------------------------------------------------------------------------------------------

                                                            Additional                                 Cumulative        Total
                                   Common Stock              Paid-in        Retained     Treasury      Translation    Shareholders'
                               Shares         Amount         Capital        Earnings       Stock        Adjustment       Equity
                            ---------------------------      -------        -------      --------       ----------    ------------ 

<S>                          <C>           <C>            <C>            <C>            <C>            <C>            <C>
Balance -
  January 31, 1994              832,975    $     8,330    $   656,524    $   (68,653)   $      --      $   (26,035)   $   570,166
Net income                                                                   473,903                                      473,903
Shares issued                    90,838            908        254,624                                                     255,532
Change in cumulative
  translation adjustment                                                                                   (12,220)       (12,220)
                            -----------    -----------    -----------    -----------    -----------    -----------    -----------
Balance -
  January 31, 1995              923,813    $     9,238    $   911,148    $   405,250    $      --      $   (38,255)   $ 1,287,381
Net income                                                                   184,584                                      184,584
Shares repurchased
  (Note 8(b))                                                                               (17,010)                      (17,010)
Change in cumulative
  translation adjustment                                                                                     9,203          9,203
                            -----------    -----------    -----------    -----------    -----------    -----------    -----------
Balance -
  January 31, 1996              923,813    $     9,238    $   911,148    $   589,834    $   (17,010)   $   (29,052)   $ 1,464,158
Net income                      109,800        109,800
Shares issued (Note 6(a))       692,800          6,928      2,645,771      2,652,699
Shares repurchased
  (Note 6(b))                                                                              (147,476)                     (147,476)
Shares retired                   (4,192)           (42)       (16,968)                       17,010                            --

Change in cumulative
  translation adjustment                                                                                    13,203         13,203
                            -----------    -----------    -----------    -----------    -----------    -----------    -----------
Balance -
January 31, 1997              1,612,421    $    16,124    $ 3,539,951    $   699,634    $  (147,476)   $   (15,859)   $ 4,092,384
                            ===========    ===========    ===========    ===========    ===========    ===========    ===========


The  accompanying  summary of significant  accounting  policies and notes are an integral part of these financial statements.


                                                                                                                              F-4
</TABLE>


<PAGE>
<TABLE>
<CAPTION>

                                 Glas Aire Industries Group Ltd.
                             Consolidated Statements of Cash Flows
                                   (Stated in U.S. Dollars)
--------------------------------------------------------------------------------------------

                                                             Years ended January 31,
                                                       1997          1996           1995 
                                                   -----------    -----------    -----------
<S>                                                <C>            <C>            <C>   
Increase (decrease) in cash
Cash Flows from:
Operating Activities
     Net income for the year                       $   109,800    $   184,584    $   473,903
     Depreciation                                      110,480         87,470         90,041
     Deferred Income Taxes                              56,927         22,246         27,914
     (Gain) loss on sale of capital assets               1,017         (3,343)         3,013
     Net change in non-cash working capital         (1,162,587)      (206,273)      (109,551)
                                                   -----------    -----------    -----------
     Net cash (used in) provided by
         operating activities                         (884,363)        84,684        485,320
                                                   -----------    -----------    -----------

Financing Activities
     Repayment of obligation under capital lease       (97,246)       (27,639)       (34,939)
     Repayment of long-term debt                       (27,304)       (67,338)       (66,252)
     Advances to shareholder                              --             --          (59,108)
     Issuance of shares                              2,652,699           --          255,532
     Repurchase of shares                             (147,476)       (17,010)          --
     Deferred offering costs                              --         (159,817)          --
     Increase (decrease) in bank indebtedness         (145,827)       255,926       (600,815)
                                                   -----------    -----------    -----------
     Net cash provided by (used in)
          financing activities                       2,234,846        (15,878)      (505,582)
                                                   -----------    -----------    -----------

Investing Activities
     Proceeds from sale of fixed assets                 12,444         50,971         21,664
     Purchase of fixed assets                         (586,305)      (188,197)      (256,194)
                                                   -----------    -----------    -----------

     Net cash used in investing activities            (573,861)      (137,226)      (234,530)
                                                   -----------    -----------    -----------
Foreign currency translation adjustment                 13,203          9,203        (12,220)
                                                   -----------    -----------    -----------

(Decrease) increase in cash during the year            789,825        (59,217)      (267,012)

Cash and equivalents, beginning of year                330,107        389,324        656,336
                                                   -----------    -----------    -----------

Cash and equivalents, end of year                  $ 1,119,932    $   330,107    $   389,324
                                                   ===========    ===========    ===========







The  accompanying  summary of significant  accounting  policies and notes are an integral part
of these financial statements.


                                                                                           F-5

</TABLE>

<PAGE>
<TABLE>
<CAPTION>



                                Glas Aire Industries Group Ltd.
                       Consolidated Statements of Cash Flows (continued)
                                    (Stated in U.S. Dollars)
---------------------------------------------------------------------------------------------

                                                             Years ended January 31,
                                                       1997           1996           1995
                                                    -----------    -----------    -----------
Changes in non-cash working capital

<S>                                                 <C>            <C>            <C>        
     Term deposit                                   $(1,000,000)   $         0    $         0
     Accounts receivable                                (64,916)       150,106       (272,588)
     Inventories                                         61,435       (320,149)        (4,735)
     Prepaid expenses                                    15,357        (13,446)         1,718
     Accounts payable and accrued liabilities           (51,268)        47,702         (4,026)
     Income taxes payable                              (123,195)       (70,486)       170,080
                                                    -----------    -----------    -----------
                                                    $(1,162,587)   $  (206,273)   $  (109,551)
                                                    ===========    ===========    ===========


Supplemental disclosure of cash flow
 relating to:

     Interest                                       $   (74,591)   $    15,732    $    52,450
     Income taxes                                       217,894        173,414         72,774
















The  accompanying  summary of significant  accounting  policies and notes are an integral part
of these financial statements.


                                                                                           F-6

</TABLE>


<PAGE>

                                                 GLAS-AIRE INDUSTRIES GROUP LTD.
                                      Summary of Significant Accounting Policies
                                                        (Stated in U.S. Dollars)

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

Nature of Business         The   Company  is  a  Nevada   corporation   and  was
                           incorporated  on  September  29,  1992.  The  Company
                           manufactures and distributes wind deflector  products
                           to  automobile  manufacturers  in the United  States,
                           Canada and Japan.

Basis of Consolidation     These  financial  statements  include the accounts of
                           the  Company  and  its   wholly-owned   subsidiaries,
                           Multicorp Holdings,  Inc., Glas-Aire Industries Ltd.,
                           Glas-Aire  Industries  Inc., and 326362 B.C. Ltd. All
                           inter-company    transactions    and   accounts   are
                           eliminated.

                           These  financial  statements  have been  prepared  in
                           accordance  with  accounting   principles   generally
                           accepted in the United States.

Comparative Figures        Certain  comparative figures from the prior year have
                           been  reclassified to conform with the current year's
                           presentation.

Inventories                Inventories  are recorded at the lower of cost,  on a
                           first-in,  first-out  basis, or market value.  Market
                           value for raw  materials  is defined  as  replacement
                           cost and for  work-in-progress  and finished goods as
                           net realizable value.

Fixed Assets               Fixed  assets are  recorded at cost less  accumulated
                           depreciation.  Depreciation  is calculated  using the
                           declining-balance   method,   except  for   leasehold
                           improvements where the straight-line  method is used,
                           at the following annual rates:

                           Office equipment                     - 10%
                           Manufacturing equipment              - 10%
                           Computer equipment and software      - 15% - 50%
                           Dies and molds                       - 10%
                           Automotive                           - 30%
                           Leasehold improvements               - 10%
                           Equipment under capital lease        - 10%

Income per Share           Income  per  share  is  calculated  by  dividing  the
                           weighted  average  number of  shares of common  stock
                           outstanding  each year into the  income for the year.
                           Warrants  outstanding  were  anti-dilutive.  Treasury
                           stock  held by the  Company  is not  included  in the
                           number of shares outstanding.

Cash Equivalents           Cash equivalents  consist of short term deposits with
                           maturity of ninety days or less.

Research and
  Development              Research  and  development   costs  are  expensed  as
                           incurred.

Income Taxes               The Company  accounts for income taxes in  accordance
                           with Statement of Financial  Accounting Standards No.
                           109, which requires the asset and liability method of
                           accounting for income taxes.  The asset and liability
                           method  requires  the  recognition  of  deferred  tax
                           assets   and   liabilities   for   the   future   tax
                           consequences  of  temporary  differences  between the
                           financial statement basis and the tax basis of assets
                           and liabilities.



                                                                             F-7


<PAGE>


                                          GLAS-AIRE    INDUSTRIES   GROUP   LTD.
                        Summary of Significant  Accounting Policies  (continued)
                                                       (Stated  in U.S. Dollars)
--------------------------------------------------------------------------------

Investment Tax
  Credits                  The Company is eligible for investment tax credits on
                           certain research and development costs. These credits
                           are  deducted  from  the  related  expenses  and  are
                           recognized in the year in which they are claimed.

Foreign Currently
  Translation              The functional currency of the companies'  operations
                           is the Canadian  dollar.  These financial  statements
                           have been  translated  into  United  States  currency
                           using  FAS No.  52.  Under  this  method  assets  and
                           liabilities are translated at the rate of exchange at
                           the balance  sheet date and revenues and expenses and
                           dividends  are  translated at the rate of exchange in
                           effect  when  those  items  are   recognized  in  the
                           financial  statements.  The resulting  exchange gains
                           and losses are  deferred  and are shown as a separate
                           component of shareholder' equity.

                           All figures are  reported in U.S.  dollars.  Exchange
                           rates  between the U.S. and Canadian  dollar for each
                           of the applicable  years reported in these  financial
                           statements,  with  bracketed  figures  reflecting the
                           average exchange rate for the year, are:

                       January 31, 1995 - 1 U.S. $:1.4022 Cdn. $ (1.3736 Cdn. $)
                       January 31, 1996 - 1 U.S. $:1.3734 Cdn. $ (1.3685 Cdn. $)
                       January 31, 1997 - 1 U.S. $:1.3470 Cdn. $ (1.3625 Cdn. $)

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

Fair Value of
  Financial Instruments    The carrying values of cash and equivalents, accounts
                           receivable and accounts  payable,  approximate  their
                           fair  values  because of the short  maturity of these
                           instruments.

New Accounting
  Standard                 Statement of Financial  Accounting Standards No. 121,
                           "Accounting  for the Impairment of Long-Lived  Assets
                           and for  Long-Lived  Assets to Be Disposed  of" (SFAS
                           No. 121) issued by the Financial Accounting Standards
                           Board (FASB) is effective  for  financial  statements
                           for fiscal years  beginning  after December 15, 1995.
                           The new  standard  establishes  guidelines  regarding
                           when impairment  losses on long-lived  assets,  which
                           include plant and equipment, and certain identifiable
                           intangible  assets,  should  be  recognized  and  how
                           impairment  losses should be measured.  The Company's
                           adoption of this pronouncement did not have an effect
                           on its financial position or results of operations.



                                                                             F-8


<PAGE>
<TABLE>
<CAPTION>

                                       Glas Aire Industries Group Ltd.
                                 Notes to Consolidated Financial Statements
                                          (Stated in U.S. Dollars)
--------------------------------------------------------------------------------------------------------------

<S>                                                                           <C>                 <C>  
1. Term Deposit

                                                                              January 31,          January 31,
                                                                                    1997                  1996
                                                                              ----------           -----------

   Deposit, interest at 5.6%, matures October 6, 1997                         $1,000,000           $         0
                                                                              ==========           ===========

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

2. Inventories

                                                                             January 31,           January 31,
                                                                                    1997                  1996

     Raw materials                                                           $   443,808           $   496,820
     Work-in-progress                                                            111,865               114,680
     Finished goods                                                               51,477                63,113
     Supplies                                                                     21,273                15,245
                                                                              ----------           -----------

                                                                             $   628,423           $   689,858
                                                                             ===========           ===========

--------------------------------------------------------------------------------------------------------------
3.   Fixed Assets

                                                          January 31, 1997                   January 31, 1996
                                                    ------------------------------    ---------------------------
                                                                      Accumulated                    Accumulated
                                                        Cost         Depreciation         Cost       Depreciation

     Office equipment                               $    106,827      $     39,296    $     64,448   $   33,364
     Manufacturing equipment                           1,087,479           368,688         573,909       253,806
     Computer equipment and software                     111,499            61,962          94,940        51,663
     Dies and molds                                      416,838           153,567         304,409       128,294
     Automotive                                           29,954             2,995          17,456           651
     Leasehold improvements                              111,327            16,885          56,446        11,495
     Equipment under capital lease                             -                 -         174,765        48,934
                                                    ------------      ------------       ---------     ---------

                                                    $  1,863,924      $    643,393     $ 1,286,373    $  528,207
                                                    ============      ============     ===========    ==========

     Net book value                                                    $ 1,220,531                    $  758,166
                                                                       ===========                    ==========












                                                                                                              F-9

</TABLE>


<PAGE>

                         Glas Aire Industries Group Ltd.
             Notes to Consolidated Financial Statements (continued)
                            (Stated in U.S. Dollars)
--------------------------------------------------------------------------------
4.   Bank Indebtedness

                                             January 31,           January 31,
                                                    1997                  1996
                                             -----------           -----------
     Revolving bank loan                     $   110,100           $   255,926
                                             ===========           ===========



     The revolving bank loan is a Cdn. $1,000,000  overdraft facility,  which is
     due on demand and bears  interest at Canadian bank prime rate (8% - January
     31,  1996;  4.75% - January  31,  1997) plus  1/2%.  This line of credit is
     renewable annually.

     The following have been provided as collateral for these loans:

     (a)  general assignments of accounts receivable and inventories.

     (b)  a Cdn.  $2,000,000 demand debenture  granting a first fixed changed on
          certain  equipment and a floating  charge over all other assets of the
          Company.

     (c)  an unlimited  guarantee by the Company and its  subsidiary,  Glas-Aire
          Industries Ltd.

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


5.   Long-term Debt
<TABLE>
<CAPTION>

                                                              January 31,           January 31,
                                                                     1997                  1996
                                                              -----------         -------------
     <S>                                                      <C>                 <C>                                  
     Loan from 397568 B.C. Ltd., a shareholder, bearing
     no interest, payable in quarterly installments of
     $13,941.  Installments may not exceed the net
     earnings in each year                                     $        -         $      27,304

     Less current portion                                               -                27,304
                                                                ---------          ------------

                                                               $        -         $           -
                                                               ==========         =============


                                                                                           F-10

</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                          Glas Aire Industries Group Ltd.
                              Notes to Consolidated Financial Statements (continued)
                                             (Stated in U.S. Dollars)
--------------------------------------------------------------------------------------------------------------
6.   Share Capital

     <S>   <C>              <C>                                             <C>                    <C>   
     (a)   Authorized
             3,000,000       Common shares with a par value
                             of $0.01 each
             1,000,000       Preferred shares with a par value
                             of $0.01 each
                                                                             January 31,           January 31,
                                                                                    1997                  1996
                                                                             -----------          ------------
           Issued
             1,612,421 Common shares (1996 - 923,813)                        $    16,124           $     9,238
                                                                             ===========           ===========
</TABLE>



     During the year,  692,800  shares  were sold at $5 per  share,  aggregating
     $3,464,000 less costs and expenses of $811,301,  yielding $2,652,699 to the
     Company.

     In connection  with public  offerings in 1993 and 1996,  the Company issued
     warrants to the underwriters to purchase shares as follows:

            Shares                    Price             Expiry Date
            ------                    -----             -----------

             30,794                    $ 4.55            June 1998
             68,000                    $ 6.00            April 2001

     (b)  During the year,  the company  repurchased  50,000 common  shares,  at
          share prices between $1.94 and $3.47 per share, amounting to $147,476.
          These shares are  accounted  for as treasury  stock until  reissued or
          retired. The purchase of the shares reduced shareholders' equity.

     (c)  On September 26, 1995, the Company declared a stock dividend  pursuant
          to which 0.65 shares of common stock were paid on each share of common
          stock  issued and  outstanding  as of October 9, 1995.  On October 27,
          1995, the Company declared a further stock dividend  pursuant to which
          0.493  shares of common  stock were paid on each share of common stock
          outstanding  on November 1, 1995. The financial  statements  have been
          retroactively restated to give effect to the stock dividends.


                                                                            F-11


<PAGE>
<TABLE>
<CAPTION>



                                          Glas Aire Industries Group Ltd.
                              Notes to Consolidated Financial Statements (continued)
                                             (Stated in U.S. Dollars)
--------------------------------------------------------------------------------------------------------------

7.   Income Taxes

     The  provision  for income taxes in the  consolidated  statements of income consists of:

                                                       January 31,           January 31,           January 31,
                                                              1997                  1996                  1995
                                                     -------------         -------------         -------------
<S>                                                  <C>                   <C>                   <C>          
     Current                                         $      71,741         $     102,928         $     242,854
     Deferred                                               53,777                20,045                27,914
                                                     -------------         -------------         -------------
                                                     $     125,518         $     122,973         $     270,768
                                                     =============         =============         =============


     The effective income tax rate on earnings consists of the following:

                                                       January 31,           January 31,        January 31,
                                                              1997                  1996               1995
                                                                 %                     %                 %
                                                       -----------           -----------       ------------   
     General combined federal and
       provincial rate                                    45.3                  45.3               45.3
     Manufacturing reduction                              (7.0)                 (7.0)              (7.0)
     Utilization of losses carried forward                   -                     -               (1.9)
     Underaccural of prior year taxes                     14.7                   1.7                  -
                                                          ----                  ----               -----

     Effective rate                                       53.0                  40.0                36.4
                                                          ====                  ====                ====


     The components of deferred taxes are as follows:

                                                            January 31,                    January 31,
                                                                   1997                           1996
                                                           ------------                    ------------
                                                                     Temporary                         Temporary
                                                     Difference     Tax Effect       Difference       Tax Effect

     Deferred tax liabilities
     Depreciation                                   $    489,551    $      187,498   $     340,917   $   130,571
                                                    ============    ==============   =============   ===========



                                                                                                            F-12

</TABLE>

<PAGE>


                         Glas Aire Industries Group Ltd.
             Notes to Consolidated Financial Statements (continued)
                            (Stated in U.S. Dollars)


8.   Commitments

     The Company is committed to the following  minimum payments under operating
leases for premises:

     Year ending January 31, 1998             $  89,550
                             1999                92,960
                             2000                61,975

     Rent expense was $121,252,  $98,207 and $92,040 for the years ended January
31, 1997, 1996 and 1995 respectively.


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


9.   Sales Information

     (a)   Sales figures include sales to the following countries:
<TABLE>
<CAPTION>

                                                       January 31,           January 31,           January 31,
                                                              1997                  1996                  1995
                                                      ------------           -----------          ------------
<S>                                                   <C>                    <C>                  <C>         
          United States                               $  3,121,000           $ 3,420,000          $  3,342,000
          Japan                                            491,000               198,000               146,000
          Canada and other                                 704,000               574,000               569,000


     (b)  Sales  to  customers  who  each  accounted  for  more  than 10% of the
Company's sales are as follows:

                                                       January 31,           January 31,           January 31,
                                                              1997                  1996                  1995
                                                      ------------           -----------           -----------
          Customer 1                                  $    828,000           $ 1,066,000           $   957,000
          Customer 2                                     1,341,000             1,470,000             1,237,000
          Customer 3                                       491,000                    --                    --


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

10.   Related Party Transactions

      The Company had the following transactions with related parties:

                                                       January 31,           January 31,           January 31,
                                                              1997                  1996                  1995
                                                       -----------           ------------          -----------
     (a)  Fees paid to
            directors/shareholders
            for ongoing consulting services            $    60,000           $    52,250           $    69,390

     (b)  In connection with the public offering in May 1996, a director was issued 12,800 shares valued at
          $64,000 and paid consulting fees of $44,000 (1996-$20,000).



                                                                                                            F-13
</TABLE>