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, 1998

[ ]      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: $6,409,954

The aggregate  market value of the issuer's  voting stock held as of January 31,
1998, by nonaffiliates of the issuer was $2,809,752.

As of  January  31,  1998,  issuer had  1,587,504  shares of its $0.01 par value
common stock outstanding.

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




<PAGE>
                                                                    


                                TABLE OF CONTENTS
                                -----------------

PART I                                                               PAGE

      Item 1.     Business                                             1
      Item 2.     Properties                                          12
      Item 3.     Legal Proceedings                                   12
      Item 4.     Submission of Matters to a
                  Vote of Security Holders                            12


PART II

      Item 5.     Market for Registrant's Common Equity
                  and Related Stockholder Matters                     13
      Item 6.     Selected Financial Data                             13
      Item 7.     Management's Discussion and Analysis
                  of Financial Condition and Results
                  of Operations                                       14
      Item 8.     Financial Statements and Supplementary Data--
                  Independent  Auditor's Report                       19
      Item 9.     Changes in and Disagreements With Accountants
                  on Accounting and Financial Disclosure              19


PART III

      Item 10.    Directors and Executive Officers of the
                  Registrant                                          19
      Item 11.    Executive Compensation                              21
      Item 12.    Security Ownership of Certain Beneficial
                  Owners and Management                               23
      Item 13.    Certain Relationships and Related Transactions      24


PART IV

      Item 14.    Exhibits, Financial Statement Schedules,
                  and Reports on Form 8-K                             26

SIGNATURES                                                            27




                                     


<PAGE>






                                     PART I
                                     ------
                                   

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

     Except  for  historical   information   contained  herein,   the  following
discussion   contains   forward-looking   statements   that  involve  risks  and
uncertainties.  Such forward-looking statements include, but are not limited to,
statements regarding future events and the Company's plans and expectations. The
Company's  actual results could differ  materially from those discussed  herein.
Factors that could cause or contribute to such differences  include, but are not
limited  to,  those  discussed  below  under  "Factors  That May  Affect  Future
Results," as well as those discussed elsewhere in this Form 10-KSB.

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.

     During the fiscal year ended  January 31,  1998,  approximately  95% 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
American Operations,  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, 1996, 1997 and 1998.

                                            Year ended January 31,
                           ----------------------------------------------------
                                1996                1997              1998
                                ----                ----              ----
                                      thousands of United States dollars)

United States              $3,420   82%        $3,121    72%       5,153    80%
Canada                        503   12%           620    14%         551     9%
Japan                         198    5%           491    12%         585     9%
Other                          71    1%            84     2%         121     2%

Industry Overview

     The Company operates in a diverse,  expanding  automotive  products market.
The  Specialty  Equipment  Market  Association's  ("SEMA")  '1997 Market  Study'
indicated that in 1996,  this market segment ( the typical  industry  definition
states that automotive  specialty equipment is all products and services used to
modify the performance,  appearance,  and/or handling of vehicles) reached $6.32
billion at the  manufacturing  level and retail  sales were $17.65  billion,  an
increase of 45.2 percent from 1990's sales of $4.35 billion. In comparison,  the
total  number of cars and light trucks  registered  in the U.S.  increased  10.6
percent, going from 179 million in 1990 to 198 million in 1996.

                                       1

<PAGE>


     The market segment, Specialty Accessories and Appearance Products accounted
for  the  largest  share  of  1996  sales  in  the  specialty  equipment  market
representing  approximately  51.1% or $3.23 billion at the manufacturing  level.
The other two segments: Racing and Performance; and Wheels, Tires and Suspension
Components  had  an  estimated  24.1%  and  24.8%  market  share,  respectively.
Management  considers  the Company's  products:  sunroof wind  deflectors,  hood
protectors/deflectors  and rear air  deflectors  to fall  within  the  Specialty
Accessories and Appearance  Product category.  Management intends to utilize its
relationships with the parts & accessories  department of various auto makers to
promote these appearance products.

     During 1996 U.S.  manufacturers  sales of light-truck  specialty  equipment
products reached an estimated $1.80 billion, and retail sales were approximately
$5.03  billion,  representing  28.5 percent of the overall  specialty  equipment
market.  Truck sales continued their six year rise capturing 43.7 percent of new
vehicle  (i.e.,  vehicles with a gross vehicle weight of 10,000 pounds or less )
unit sales for calendar year 1996.  According to Keith Crain of Automotive News,
March 23, 1998:  "the hot segment in the next couple of years is going to be the
all-wheel-drive  four-door  station wagon." Sales of the Company's  products for
light  trucks  and  station  wagons  include  its hood  protectors  and rear air
deflectors had also increased  steadily in recent years and the Company  intends
to continue to promote these products in the U.S.

     According to Automotive News,  January 19, 1998, Japan's new vehicle sales,
snapped a four-year  streak of increases  and fell 5 percent from 1996,  to 6.73
million units.  The year started strong as buyers rushed to beat an April 1 rise
in sales tax.  Management  believes that a foundering  Japanese economy combined
with several major corporate  bankruptcies  caused sales to fall for the rest of
the year.  Industry  executives  are hoping for a rebound in the second  half of
1998 on  expectations  that the Japanese  government  will complete the economic
stimulus  package.  Sales of the Company's  most popular  product,  sunroof wind
deflectors  managed to increase  slightly contrary to the decline in new vehicle
sales.

     According  to  SEMA,  in 1996,  14.1% of  vehicle  owners  purchased  their
accessories/appearance  products from  new-vehicle  dealers  (i.e.,  the network
through which the  Company's  products are sold to the ultimate  consumers)  and
38.8%  purchased  these products  directly  through mail order and the remaining
47.1% from various sources in the after-market distribution network.  Management
of the Company is exploring the possibility of expanding the Company's method of
distribution  to  include   non-dealership  retail  outlets.  See  "  --Business
Strategy--New Distribution Channel."

Business Strategy

     Management's strategies for future operations and expansion are as follows:

     Increasing production capacity/efficiency.  During the past year, the third
CNC (Computer  Numeric Control) router has been added,  increasing the machining
capacity  and  R&D/Engineering  capability.  Further,  a CNC mill has also  been
purchased   and   successfully   commissioned   to  improve  the  lead  time  of
prototype/production tooling for thermoforming.  In the past, the Company had to
depend   upon   subcontractors   for  milling  of  large   aluminum   tools  for
thermoforming.  The  limited  number  of  such  subcontractors  in  the  Pacific
Northwest with mills suitable for this kind of work,  limited the Company's lead
time enhancement  efforts.  Management  believes that this mill will provide the
surface  requirements  for the Company's  products to a demanding market segment
more cost effectively than in the past.  Management also intends to increase the
efficiency of thermoforming by utilizing multi-task tools. The use of multi-task
tools has already started. Another MAAC (a semi-automatic,  rotary thermoforming
machine considered a key capital resource for the Company's  production) machine
will be


                                       2

<PAGE>


considered if and when justified by the increased business.  Management believes
that Work-in-Progress ("WIP") will be significantly reduced through the use of a
powerful  production  planning program  (developed by the Company and integrated
into the  computerized  business  systems),  which  should  improve  the overall
efficiency of material  handling on the factory floor.  If WIP is reduced,  this
will also free-up scarce factory floor space and have a favorable  impact on the
inventory  carrying costs. This particular  strategy of WIP reduction avoids the
purchase of  expensive  material  handling  equipment  (e.g.  conveyor  system).
Management  also  intends  to focus  its  efforts  upon  improving  the sales to
overhead ratio and increase the Company's  gross margin by  reorganization,  the
use of more effective tools and better utilization of resources.

     Increasing  sales to  automobile  manufacturers.  Approximately  95% 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
Thyssen Nippon Co. Ltd. (a  representative  based in Japan) to increase both its
customer base and sales to existing clients in Japan. Marketing efforts in North
America are supported by B/T Western  Corporation of California and Illinois 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.  During
the last year, the Company  established a  relationship  with Daihatsu Motor Co.
Ltd.  (Japan) for the  manufacture of products.  Management is very pleased with
the  development  of this  relationship  because the Company's  products will be
utilized as production parts (not  accessories).  The first associated  shipment
was made in April 1998. Management believes that the addition of Daihatsu to the
Company's  client list will enhance the Company's  reputation in the  automotive
industry,  and intends to use this  success in its efforts to  penetrate  deeper
into the Japanese automotive market.

     New  distribution  channel.  Traditionally,  a  majority  of the  Company's
products are 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 joint venture with two
reputable  marketing/sales   professionals  in  California,   under  Distinctive
Motoring  Inc.  (DMI).  DMI is scheduled to start test  marketing in April 1998.
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. Last
year, the Company  carried 3% of its products into the  aftermarket  through Mac
Neil  Automotive  Products  Limited,  however,  this  channel  proved  less than
effective due to incompatibility of two companies' marketing strategies.

     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

                                       3

<PAGE>


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.

     Door  visors.  In 1996,  the Company  worked on a "door visor  project" for
Isuzu Car Life Company Limited of Japan ("ICL").  This project was  successfully
brought  to  prototype  stage  but  canceled  before  it could be  carried  into
production  due  to   manufacturing   delays   attributable   to  the  Company's
subcontractor for injection moulded products,  and difficulties with procurement
of raw material  acceptable to ICL.  Although,  at this time, the revival of the
project with ICL is remote, the Company will seek other opportunities to utilize
the  technology  it has  developed.  At  present,  management  believes  that no
injection moulded door visors are being manufactured in North America due to the
lack of  technology  related  to  moulding  of such large  parts  with  exacting
requirements.  In Japan,  the door visor  business is  estimated at $100 million
dollars  per  year at the  factory  level.  Management  believes  that  the U.S.
represents a significant potential market for door visors. Although there can be
no assurance,  management is optimistic  that the Company will be able to obtain
Canadian Government's funding for its marketing activities of door visors in the
United States.

     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 viable  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, 1996, 1997 and 1998.



                                        4


<PAGE>


                                                   Fiscal year ended
                                                       January 31,
                                             ----------------------------
         Product Line                        1996         1997       1998
         ------------                        ----         ----       ----
Sunroof wind deflectors                       66%          54%        52%
Hood protectors                               21%          31%        22%
Rear air deflectors                           13%          15%        26%

     New Products.  The Company  intends to maintain its generic  product groups
(i.e.  sunroof  wind  deflectors,  hood  protectors  and rear  air  deflectors),
however,  it plans to upgrade  its  product  offerings  in all 3  categories  to
address its  clients'/prospects'  new, more stringent  requirements  in terms of
surface finish, complex shapes,  alternate attachment mechanisms and dimensional
accuracy.  This strategy is expected to increase the  Company's  competitiveness
and help expand its target market, especially in Japan.

     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
original equipment manufacturers ("OEMs"), 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. The Company will
attempt to counteract  this with improved lead times,  as a result of using more
efficient design software and milling its own prototype tools for thermoforming.
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, 1998,  sales in the United  States  accounted for  approximately  81% of the
Company's  sales  (including  sales to United  States  subsidiaries  of  foreign
automobile manufacturers). Canada accounted for 9% and Japan accounted for 9% of
the Company's sales during the fiscal year ended January 31, 1998.

     As reflected  below,  the Company has three major customers who account for
9% or more of the Company's sales:


<TABLE>
<CAPTION>

                                                                           Percent of Company's Sales
                                                                                Fiscal year ended
                                                                                  January 31,
                                                                          ------------------------------
         Customer                            Products                     1996        1997          1998
         --------                            --------                     ----        ----          ----

<S>                                     <C>                              <C>          <C>           <C>
Nissan Motor Corporation               Sunroof wind deflectors,            35%         31%           34%
(in U.S.A)                             hood protectors and rear
                                       air deflectors

Honda Access America Inc.(1)           Sunroof wind deflectors             25%         25%           21%
                                       and rear air deflectors

Subaru of America Inc.                 Sunroof wind deflectors                         11%            9%
                                       and rear air deflectors

</TABLE>

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

     During the fiscal  year ended  January  31,  1998,  approximately  11 other
customers accounted for 36% of the Company's sales.


                                       5

<PAGE>


     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,  Subaru of America Inc.,
General Motors  Corporation in the USA,  Toyota Tususho America Inc. 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 the majority of its customers 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.

Manufacturing

     The Company currently  manufactures and assembles its products at its plant
in Vancouver,  B.C., Canada. The Company's current line of products are produced
primarily from acrylic based raw materials,  using thermoforming.  Thermoforming
involves  heating a sheet of acrylic to soften it and then  molding the softened
acrylic  into the  desired  shape.  The  Company  is able to meet the  stringent
Japanese surface requirements by using an enhanced  thermoforming process it has
developed,  using milled aluminum tools,  in a clean-air  facility.  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,  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. Last year, the
Company  completed the installation of an extensive dust containment  system and
implemented  complimentary operations to meet the more stringent requirements of
some of its customers.

     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 all  products  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 emphasizes that quality is the responsibility of
every  employee.  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.  In  September  1997,  the Company
appointed  a  professional  as the QS9000  Coordinator,  prepared/published  its
QS-9000 Quality Manuals,  trained its employees and had a "pre-assessment"  done
by QMI (Quality  Management  Institute) in December 1997: the Company intends to
complete   the   implementation   process   by  fall  of  1998  then  apply  for
certification.  It must be noted that substantial  effort/expense is required to
implement  all of the  practices  mandated by QS-9000.  Management is optimistic
that the Company will receive its certification before the end of calendar 1999.
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  two  sales  representatives  in the  United  States,  who  have
established relationships with large automobile manufacturers and a distribution
arrangement  with a  Company  in Japan.  The  Company  intends  to  augment  its
marketing/sales  efforts in Japan by establishing an office there and moving its
Japanese  Technical  Liaison  Officer from  Vancouver  B.C. to Japan.  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 as well as other promotional
matter will be  reviewed/updated  to include new  products and  processes,  when
necessary. A new brochure was published in April 1997 also new display materials
were created for trade shows etc.


                                       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 prospects 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.

     Door visors.  The Company will seek opportunities to utilize the technology
it has developed related to injection  moulded door visors.  Management does not
believe  that  injection  moulded  door visors are being  manufactured  in North
America  due to the lack of  technology  related to moulding of such large parts
with exacting  requirements.  In Japan,  the door visor business is estimated at
$100 million dollars per year at the factory level. Management believes that the
U.S. represents a significant  potential market for door visors.  Although there
can be no assurance,  management is optimistic  that the company will be able to
obtain Canadian  government funding for its marketing  activities of door visors
in the United States.

     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. The Company
is attempting to create a new distribution  channel into the aftermarket through
a joint venture with two reputable marketing/sales  professionals in California,
under Distinctive  Motoring Inc. (DMI). DMI is scheduled to start test marketing
in April 1998.

     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  as  well as  process  development
capabilities are important to the future success of the Company's business.  The
Company has three 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, 1996,  1997 and
1998,  the  Company  spent  approximately   $264,856,   $395,099  and  $393,182,
respectively,  towards  research and  development.  The increase in research and
development  costs  from  1996 to 1998  resulted  from  increased  research  and
development   activities   associated  with  development  of  new  products  and
improvements to existing products. Research and Development activities have been
directed  towards  refinement of a convenient hood protector  attachment  system

                                       8

<PAGE>


using adhesion, research into various materials used for thermoforming tools and
development  of  sophisticated  software  to  facilitate  complex  machining  of
deflector blades.  Management  expects that this trend of increased  spending on
research and development activities will continue with emphasis upon procurement
of an advanced  CAD/CAM  (Computer Aided  Design/Computer  Aided  Manufacturing)
software and related  hardware.  This strategy is expected to reduce the typical
design  time by 30%.  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
current  cycle  time for  product  development  ranges  3-6  months.  The use of
advanced  CAD/CAM  combined  with  in-house  milling of  thermoforming  tools is
projected to shrink this cycle time to 2-4 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, in this case,
tooling costs  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 is  Plastic  Form (a
subsidiary  of  Mascotech  of the  U.S.).  In the  hood  protector  and rear air
deflector  market,  its major  competitor  is still  Autotron (a  subsidiary  of
Deflecta-Shield).

     Management  believes  that the  principal  competitive  factors  in the OEM
automobile accessories industry, in order of importance,  are quality,  customer
service  and price.  Management  of the  Company  believes  that the Company can
effectively  compete  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,  1998,  the Company  employed 52  production  workers,  7
research  and  development  personnel,  2  clerical/administrative  staff  and 3
management  staff  members.  In  addition,  the  Company  has a contract  with a
research and  development  company with 4 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.

                                       9

<PAGE>


Factors That May Affect Future Results

     Major Customers. The Company has three customers which, together, accounted
for 64% of its sales during the fiscal year ended January 31, 1998. There can be
no  assurance  that these  customers  will  continue to purchase  the  Company's
products  at these  levels  in the  future.  The loss of any one of these  major
customers, or a significant reduction in their purchases from the Company, would
have a material adverse effect upon the Company and its operations.

     Dependence  Upon  Automobile  Industry.   The  Company's  products  consist
exclusively of automobile  accessories,  specifically  sunroof wind  deflectors,
hood  protectors and rear air deflectors,  which are sold to OEMs.  Accordingly,
the market for the Company's  products is tied to the success of the  automobile
industry, and the success of the Company is dependent upon that single industry.
A significant  decline in the automobile  industry,  in general,  over which the
Company  would  have no  control,  could  have a serious  adverse  effect on the
Company and its business.  In addition,  economic  factors  adversely  affecting
automobile production and discretionary  consumer spending could have a material
adverse effect on the Company's results of operations.

     Dependence Upon Japanese Automobile Manufacturers. A significant percentage
of the  Company's  sales were to  Japanese  automobile  manufacturers  or United
States or  Canadian  subsidiaries  of  Japanese  automobile  manufacturers.  The
passage of protectionist  legislation,  including  increased import tariffs,  or
public sentiment against imports could result in a decrease in sales of Japanese
automobiles which would have a direct negative impact on the Company's sales. In
addition,  the significant  economic  problems being  experienced in Japan could
have a material and adverse affect upon the Company's Japanese customers,  which
could materially and adversely affect the Company.  Although  management expects
that  the  Company's  sales  will  be  influenced  by the  unfavorable  economic
situation in Japan, management believes that the Company will be able to address
sales  declines  from that segment of its market by sales of new products to the
Company's North American customers. Further, the devaluation of the Japanese Yen
could result in Japanese automobile  manufacturers looking to Japanese suppliers
of automobile accessories which also could have a serious negative impact on the
Company's sales.

     Dependence Upon Key Personnel. The Company's future performance will depend
to a  significant  extent upon the efforts and  abilities of certain  members of
senior  management as well as upon the  Company's  ability to attract and retain
qualified engineering, technical, design, marketing and production personnel. In
particular, the Company is dependent upon the experience and abilities of Edward
Ting,  the Company's  Chief  Executive  Officer and the Chairman of its Board of
Directors,  Alex Ding, the Chief Operating Officer and President of the Company,
and Omer Esen the General  Manager and Chief  Financial  Officer of the Company.
Accordingly,  the loss of the services of Mr. Ting,  Mr. Ding, Mr. Esen or other
key personnel could have a material adverse effect on the Company and its future
operations.  If Mr. Ting, Mr. Ding, or Mr. Esen were to be  unavailable  for any
reason,  there can be no  assurance  that the Company  would be able to employ a
qualified person or persons on terms suitable to the Company.

     Competition.  The Company's sales and profitability should be considered in
light  of the  competitive  environment  in  which  the  Company  operates.  The
Company's  business is in an industry which is highly  competitive,  and many of
its  competitors,  both  local and  international,  have  substantially  greater
technical,  financial and marketing  resources  than the Company.  The principal
factors which  determine the Company's  competitive  position  include  quality,
customer  service  and  price.   Management   believes  that  its  research  and
development capabilities, concentration on increased production efficiencies and
commitment to customer service and product innovation will enable the Company to
continue to compete  effectively.  However,  there can be no assurance  that the
Company's  products  will be  competitive  in the face of  advances  in  product
technology developed by the Company's competitors or by automobile manufacturers
themselves. In addition, there are no significant technological or manufacturing
barriers to entry into the automobile  accessories business in which the Company
operates.

                                       10

<PAGE>


     Currency  Fluctuation.  The Company's sales are  principally  transacted in
United States dollars,  whereas its labor, overhead and some component costs are
paid in Canadian dollars.  Fluctuations in the value of the United States dollar
versus other  currencies  (primarily the Canadian  dollar and the Japanese yen),
and fluctuations in the relative values of those currencies,  may have an impact
on the Company's financial  performance.  The Company does not engage in hedging
activities with respect to currency fluctuations. Although, to date, the Company
has avoided  significant  losses  from  currency  fluctuations,  there can be no
assurance  that the  Company  will be able to avoid such  losses  from  currency
fluctuations in the future.

     Dependence on Component and Raw Materials Suppliers.  The Company purchases
raw  materials,  primarily  acrylic,  and  certain  component  parts used in the
manufacture  of its products from various  suppliers.  The Company does not have
long-term supply agreements with any of its suppliers. Although the Company does
not anticipate  significant delays or disruption in the manufacture and delivery
of its raw  materials or  components,  there can be no assurance  that delays or
disruptions will not occur. The loss or breakdown of the Company's relationships
with its  suppliers  could  subject the Company to delays in the delivery of its
product to customers and loss of customers.  In addition,  increased  prices for
raw  materials or component  parts could have a material  adverse  effect on the
Company's profitability.

     Manufacturing Risks. The Company's business is subject to many of the risks
inherent  in  the  manufacturing  business,   including  risks  associated  with
production  equipment failure,  fluctuating costs of raw materials and component
parts, shortages of raw materials,  changes in governmental  regulations,  labor
shortages,  work  stoppages  and  other  labor  difficulties.   Any  significant
interruption of manufacturing activities could have a material adverse effect on
the Company's operations.

     Product  Obsolescence and 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.

     Dependence on a Limited Number of Products.  The Company  manufactures  and
sells sunroof wind deflectors, hood protectors and rear air deflectors for cars,
light  trucks  and  vans.  The  Company's  sales of each of these  products  are
dependent on the  popularity of the type of vehicle or the vehicle  accessory to
which the product  relates.  For example,  a decline in  popularity  of sunroofs
would result in decreased  sales of sunroof wind  deflectors  while a decline in
popularity of light trucks  (which  includes  sport-utility  vehicles as well as
pickup trucks) and mini-vans  would result in decreased sales of hood protectors
and rear air deflectors.  Although not  anticipated in the  foreseeable  future,
such events could have a material adverse effect on the Company's business.

     Important  Factors  related to  Forward-Looking  Statements  and Associated
Risks.  This  Report  contains  certain  forward-looking  statements  within the
meaning of Section  27A of the  Securities  Act of 1933 and  Section  21E of the
Securities   Exchange   Act  of  1934,   and  the  Company   intends  that  such
forward-looking statements be subject to the safe harbors created thereby. These
forward-looking  statements  include the plans and  objectives of management for
future operations,  including plans and objectives  relating to the products and
future  economic  performance  of the Company.  The  forward-looking  statements
included herein are based on current expectations that involve a number of risks
and  uncertainties.  These  forward-looking  statements are based on assumptions
that the Company will continue to develop,  market and ship products on a timely
basis,  that  competitive  conditions  within the  automotive  industry will not
change  materially  or adversely,  that demand for the  Company's  products will
remain  strong,  that  the  Company  will  retain  existing  customers  and  key
management  personnel,  that the Company's forecasts will accurately  anticipate
market demand and that there will be no material adverse change in the Company's
operations or business.  Assumptions relating to the foregoing involve judgments
with respect to, among other things,  future  economic,  competitive  and market
conditions  and  future  business  decisions,  all of  which  are  difficult  or
impossible to predict accurately and many of which are beyond the control of the
Company.  Although the Company  believes  that the  assumptions  underlying  the
forward-looking  statements are reasonable,  any of the assumptions  could prove
inaccurate  and,  therefore,   there  can  be  no  assurance  that  the  results
contemplated in forward-looking  information will be realized. In addition,  the
business  and  operation of the Company are subject to  substantial  risks which
increase the uncertainty inherent in such forward-looking  statements.  In light
of the significant  uncertainties  inherent in the  forward-looking  information
included herein,  the inclusion of such information  should not be regarded as a
representation  by the Company or any other person that the  objectives or plans
of the Company will be achieved.

                                       11

<PAGE>


Item 2 - Properties
-------------------

     The Company currently rents on a month-to-month basis 21,777 square feet of
factory,   warehouse  and  office  space  located  at  3137  Grandview  Highway,
Vancouver, B.C., Canada V5M 2E9 from two unaffiliated parties. The current total
rent is CDN$9,779 per month.  The Company is responsible for its share of common
area expenses and maintenance.

     The  Company  also rents on a  month-to-month  basis  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.

     Although these  facilities are adequate for the Company's  present level of
business, the configuration of the factory space limits the Company's ability to
make  improvements  to  productivity  through  the use of  manufacturing  cells.
Management  believes  that  a cost  effective  solution  to  permit  the  use of
manufacturing  cells,  involves  building a mezzanine to raise the offices above
the factory floor,  which should allow expansion of the effective  factory floor
by  10%.  Further  space  requirements  would  necessitate  moving  to a  larger
premises.

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.




                                       12


<PAGE>





                                     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.

    Quarter Ended                            High Bid             Low Bid
    -------------                            --------             -------
    Fiscal 1998
    May 1 thru July 31, 1997                   $2.125             $1.625
    August 1 thru October 31, 1997             $3                 $2
    November 1 thru January 31, 1998           $3.25              $2.50

     The closing bid price of the Common Stock as of April 24,  1998,  was $2.50
per share. As of January 31, 1998, the Company had approximately 30 shareholders
of record and  estimates  that its  Common  Stock was  beneficially  owned by in
excess of 500 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, 1997 and 1998 and for the fiscal years ended  January
31,  1996,  1997  and  1998  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."



                                       13


<PAGE>
<TABLE>
<CAPTION>




                                                                As of January 31,
                                                  --------------------------------------------
Balance Sheet Data                                   1997                             1998
                                           (In thousands of United States dollars, except share data)
<S>                                               <C>                                  <C>    
Working capital                                   $  3,059                             $ 3,086
Total assets                                         4,865                               5,047
Long-term debt                                         ---                                 ---
Obligation under capital lease                           0
Deferred income taxes                                  187                                 281
Shareholders' equity                                 4,092                               4,213

                                                              Year ended January 31,
                                                  --------------------------------------------
Income Statement Data                                1996             1997            1998
                                                     ----             ----            ----

Sales                                             $  4,192         $  4,316             $6,410
Cost of sales                                        2,742            3,028              4,506
                                                 ---------        ---------             ------
Gross profit                                         1,450            1,288              1,904
                                                 ---------        ---------             ------
Research and development                               265              395                393
Selling and distribution                               326              282                386
General and administrative                             503              414                528
Provision for profit sharing                            32               23                 68
Interest                                                16              (61)               (74)
                                                 ---------        ---------             ------
Total expenses                                       1,142            1,053              1,301
                                                 ---------        ---------             ------
Income before income taxes                             308              235                603

Income taxes                                           123              126                257
                                                 ---------        ---------             ------
Net income                                        $    185         $    110               $346
                                                 =========        =========             ======
Earnings per share                               $    0.20        $    0.08             $ 0.23
                                                 =========        =========             ======
Weighted average number of
   shares outstanding                              921,890        1,426,038          1,519,405

</TABLE>

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 $4,191,581 for the fiscal
year ended January 31, 1996, to $4,316,372 for the fiscal year ended January 31,
1997 and to $6,409,954  for the fiscal year ended January 31, 1998.  The Company
had net income of  $184,584 in the fiscal year ended  January 31,  1996,  with a
decrease to $109,800 in net income for the fiscal year ended  January 31,  1997,
and an increase to $346,328 in net income for the fiscal year ended  January 31,
1998. Gross profit margins  decreased to 34.6% for the fiscal year ended January
31, 1996,  and to 29.8% for the fiscal year ended January 31, 1997, and to 29.7%
for the fiscal year ended January 31, 1998 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 efficiency through the purchase of additional

                                       14

<PAGE>


equipment and machinery.  Further,  management also intends to focus its efforts
upon  improving  the sales to overhead  ratio and increase the  Company's  gross
margin by reorganization, the use of more effective tools and better utilization
of resources.  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,
                                     -------------------------------------------
                                      1996               1997              1998
                                     -------------------------------------------
Net sales                            100.0%             100.0%            100.0%
Cost of sales                         65.4               70.2              70.3
                                     -----              -----             -----
Gross profit                          34.6               29.8              29.7
                                     -----              -----             -----
Research and development               6.3                9.2               6.1
Selling and distribution               7.8                6.5               6.0
General and administrative            12.0                9.6               8.2
Provision for profit sharing           0.8                0.5               1.1
Interest                               0.4               (1.4)             (1.1)
                                     -----              -----             -----
Income before income taxes             7.3                5.4               9.4
Income taxes                           2.9                2.9               4.0
                                     -----              -----             -----

Net income                             4.4                2.5               5.4
                                     =====              =====             =====

Year Ended January 31, 1998 Compared to Year Ended January 31, 1997

     Sales.  The Company's sales increased by 48.5% from $4,316,372 for the year
ended January 31, 1997, to $6,409,954 for the year ended January 31, 1998.  This
increase resulted primarily (1) from the addition of new customers, (2) sales of
new parts, and (3) additional orders from existing customers.  Revenues from the
Company's three major customers accounted for approximately 64% of the Company's
sales during the year ended January 31, 1998.

     Gross  Profit.  Gross profit  margins,  expressed as a percentage of sales,
decreased  slightly  from 29.8% for the year  ended  January  31,  1997 to 29.7%
$1,904,065  for the year ended January 31, 1998.  This net decrease of 0.14% was
due  primarily  to (1) an  increase  in  the  value  of  Canadian  dollar  which
diminished the exchange rate benefit reflected in the gross profit margin of the
Company for the prior fiscal year,  (2) an increase in  depreciation  due to the
placement  new  equipment  service,  and (3) an  increase  in  direct  labor and
overhead cost.

     Research and Development.  Expenses for research and development  decreased
slightly by 0.48% from $395,099 for the year ended January 31, 1997, to $393,182
for the year  ended  January  31,  1998.  This  decrease  was  primarily  due to
increased   utilization  of  the  Company's   Engineering   department  for  R&D
activities.

     Selling and Distribution.  Selling and distribution  expenses  increased by
37%, from $281,669 for the year ended January 31, 1997, to $386,098 for the year
ended  January 31, 1998.  This increase was primarily due to (1) the increase of
$19,548 travel & promotion expenses relating to the Company's marketing efforts,
(2) the  increase  of  $72,670  commission  expenses  from the  addition  of new
customers and volume increase in sales order from existing customers, and (3) an
increase of 1996 warranty claims of $12,202.

                                       15

<PAGE>


     General and administrative.  General and administrative  expenses increased
by 27.4% from  $414,174 for the year ended January 31, 1997, to $527,552 for the
year ended January 31, 1998, as a result of (1) increased administration cost of
$12,435  relating to the  preparation of annual  reports to all  investors,  (2)
additional  consulting fees of $15,019  relating to the QS9000 (Quality  Control
Certification)  process  and  Project  Teamwork  Assessment,  (3) an increase of
$22,800 in consulting, legal, and annual fees relating to the Company becoming a
fully  reporting  public  company,  (4) a loss of  $18,415  on the sale of fixed
assets,  (5) a loss on foreign  exchange  of $34,875,  and (6)  increase in cash
discount, bad debt and other administration cost of $9,834.

     Provision for Profit  Sharing.  Provision for profit  sharing  increased by
191.5% from  $23,498 for the year ended  January 31, 1997 and to $68,504 for the
year  ended  January  31,  1998.  This  increase  was a  result  of  the  higher
profitability of the Company.

     Interest.  Interest income (net of interest expense) increased from $61,354
for the year ended  January 31, 1997,  to $74,256 for the year ended January 31,
1998,  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
increased from $235,318 for the year ended January 31, 1997, to $602,985 for the
year ended January 31, 1998.

     Income  Taxes.  The Company  provided  for income taxes of $256,657 for the
year ended January 31, 1998. The Company's effective tax rate in 1998 was 42.5%.

     Net Income.  Net income  increased from $109,800 for the year ended January
31, 1997, to $346,328 for the year ended January 1998.

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.

     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.


                                       16

<PAGE>


     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 decrease was a result of the 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.

     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.

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. In May 1996
the  Company  received  net  proceeds  from  a  public  offering   amounting  to
$2,773,000.

     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, 1998, the Company had not utilized any of 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  1997 for a one-year  period.  During the fiscal year ended January 31,
1998,  the Company paid a total of $10,667 in  interest.  There was no amount of
total  short-term  borrowings  outstanding  at January 31, 1998,  as compared to
$110,100 outstanding at January 31, 1997.

     Working  capital was  $3,085,135  at January 31,  1998.  For the year ended
January 31, 1998, net cash generated  from  operations was $1,227,242  including
net income of  $346,328,  depreciation  of  $159,310,  deferred  income taxes of
$93,829, and a net change in non-cash working capital of $610,337. Term deposits
decreased by $1,000,000 and accounts receivable  increased by $462,864 primarily
due to the increase in sales at the end of January 1998.  Inventories  increased
by $144,357 as a result of the buildup of raw materials  just prior to year end.
Prepaid expenses decreased by $139,414 and accounts payable increased by $942.


                                       17

<PAGE>


     Net cash used in  financing  activities  amounted to $276,653  for the year
ended  January 31,  1998,  primarily  due to decrease  in bank  indebtedness  of
$110,100, and repurchase of shares for $166,553.

     Net cash used in  investing  activities  amounted to $365,033  for the year
ended January 31, 1998,  was primarily due to the purchase of fixed assets.  Net
cash used in  investing  activities  amounted to $573,861  and  $137,226 for the
years ended January 31, 1997 and 1996, respectively. Capital expenditures during
the year ended January 31, 1998 totaled $442,921 and were financed  primarily by
the  funds  received  during  fiscal  1997  from the  public  offering.  Capital
expenditures  during the years ended January 31, 1997 and 1996 totaled  $586,305
and $188,197, respectively.

     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.  During the current  fiscal  year,  the
Company anticipates making total capital expenditures of approximately  $650,000
as follows:  (1) $160,000 for the leasing of a CNC Milling Machine  Centre,  (2)
$230,000 for a MAAC Machine,  (3) $70,000 for computer aided design software and
related hardware, (4) $150,000 for leasehold  improvements,  and (5) $40,000 for
the QS9000 (Quality Control Certification) process.

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, 1998, 1997 and 1996, including the average exchange rate
for the period, are as follows:

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

           1998               1.U.S.$:1.4556 Cdn.$        1 U.S.$:1.3844 Cdn.$
           1997               1.U.S.$:1.3470 Cdn.$        1 U.S.$:1.3625 Cdn.$
           1996               1 U.S.$:1.3734 Cdn.$        1 U.S.$:1.3685 Cdn.$




                                       18


<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:

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

Edward Ting                 50         Chief Executive Officer and Chairman
                                       of the Board of Directors

Alex Yie Wie Ding           38         President, Chief Operating Officer
                                       and Treasurer and Director

Omer Esen                   55         General Manager, Chief Financial Officer

Linda Kwan                  52         Financial Controller

Chris G. Mendrop            46         Director

Clement Cheung              43         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

                                       19

<PAGE>


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
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 September
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
financing.  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.

     Clement  Cheung has been a director  of the Company  since March 1998.  Mr.
Cheung is an officer and  director of Electron  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.
Mr. Cheung joined EPL in 1990 as an accounting and administrative manager. Prior
to joining EPL, Mr. Cheung was the controller for Econ Electronics Limited.


                                       20

<PAGE>


     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 Global
Financial Group, Inc. ("Global"),  Global 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.  Global has not yet designated such
person.

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.

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

Edward Ting                      1998      $      0     $   5,140    $ 48,000(1)
  Chief Executive Officer,       1997      $      0     $   6,801    $ 48,000(1)
  Chairman of the Board,         1996      $      0     $  30,350    $ 48,000(1)


Alex Y.W. Ding                   1998      $ 51,097     $   5,140           0
  President, Chief Operating     1997      $ 49,357     $   6,801           0
  Officer                        1996      $ 45,600     $  25,263           0

Chris G. Mendrop                 1998
   Director                      1997      $      0     $       0    $ 12,000(2)
                                           $      0     $       0    $ 12,000(2)


(1)  Represents  consulting  fees paid by the  Company to Mr.  Ting.  During the
     fiscal  years ended  January 31, 1998,  1997 and 1996.  Mr. Ting was paid a
     consulting  fee of $4,000 per month for ten months  during the fiscal  year
     ended  January 31,  1996,  and a bonus of $30,350.  During the fiscal years
     ended  January 31, 1997 and January 31, 1998,  Mr. Ting was paid $6,801 and
     $5,140 pursuant to the Company's profit sharing program described below.

(2)  Represents  consulting  fees paid by the  Company to Mr.  Chris G.  Mendrop
     during the fiscal year ended January 31, 1998

     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),  $45,925(US)
and  $48,363(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 $5,140(US),  $5,140(US) and $3,305(US),
respectively,  for the fiscal year ended January 31, 1998. 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.

                                       21

<PAGE>


     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
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, 1998, aggregated approximately $68,504

     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  ,639employee  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.


                                       22

<PAGE>


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

     The  following  table sets forth as of January  31,  1998,  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.


Name and Address of                Amount and Nature of 
Beneficial Owner                   Beneficial Ownership     Percent of Class(1)
----------------                   --------------------     -------------------

Alex Ding                       
3137 Grandview Highway
Vancouver, B.C.,
Canada V5M 2E9                        295,808(2),(5)               18.6%

397568 B.C. Ltd.
3137 Grandview Highway
Vancouver, B.C.,
Canada V5M 2E9                          283,108(5)                 17.8%

Edward Ting
21045 Comer Drive
Saratoga, California 95070            301,584(3),(5)               18.9%

Viola Ting
21045 Comer Drive
Saratoga, California 95070              138,729(5)                  8.6%

Chris G. Mendrop
1860 Blake Street
Denver, Colorado  80202                 Nil (4,(5)

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

Clement Cheung

Directors and executive officers
as a group (6 persons)                 597,639(2),(3)              37.6%

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

(Footnotes on following page)


                                       23

<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."
(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)  On January 1, 1998, the Company  repurchased  and retired the 24,917 shares
     owned by Chris G. Mendrop. Does not include 513,915 shares of the Company's
     common stock,  which are the subject of an option granted to Mr. Mendrop as
     more fully  described  in footnote 5, and below under  "Possible  Change of
     Control."
(5)  Edward Ting,  Viola Ting,  and 397568 B.C.  Ltd.  have  granted  options to
     acquire an aggregate of 513,915 shares of the Company's common stock to Mr.
     Chris G. Mendrop,  as more fully described below under "Possible  Change of
     Control."
(6)  Represents less than 1%.

Possible Change of Control

     Edward  Ting,  Viola  Ting,  and 397568  B.C.  Ltd.  (a  Company  owned and
controlled by Alex Ding) have granted Mr. Chris G. Mendrop options to acquire an
aggregate of 513,915 shares of the Company's common stock. The options expire on
June 30, 1998,  unless extended until August 31, 1998, upon the  satisfaction of
certain  conditions  by Mr.  Mendrop.  The  options  are  assignable  and may be
transferred,  and contain  provisions  providing for  adjustments  under certain
circumstances.  Mr.  Mendrop  has  advised  that he  intends  to raise the funds
necessary to exercise the options from private sources,  and that he anticipates
that the shares will be held in a limited liability  company  capitalized by Mr.
Mendrop and his  investors.  There can be no  assurance  that Mr.  Mendrop  will
successfully fund the exercise of the options;  however,  if he is successful in
doing so and in exercising the options, then control of the Company will pass to
Mr. Mendrop and his investment group.

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.


                                       24

<PAGE>


     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 paid $16,000 on or by 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.  CDC is also  paid  $1,000  per month for  assisting
Company with its investor relation's program.

     In March,  1998,  the  Company  granted  a bank a  security  interest  in a
$500,000  deposit as collateral  for the issuance of a standby  letter of credit
(the "LC") to one of the  suppliers to a  wholly-owned  subsidiary of Electrocon
International Inc. ("EII").  Mr. Edward Ting, the Chairman of the Board, and Mr.
Clement Cheung,  a member of the Board of Directors,  are officers and directors
of EII. As  consideration  for the Company  agreeing to provide the security for
the LC, EII agreed as follows:  (i) to issue the  Company a warrant  exercisable
for a period of five (5) years from March 25, 1998, to purchase  250,000  shares
of common stock of EII at an exercise  price of $1.00 per share during the first
year,  $1.10 per share during the second year,  $1.20 per share during the third
year,  $1.50 per share  during  the fourth  year and $1.75 per share  during the
fifth year; (ii) to pay the Company a fee in the amount of 1% of the collateral,
or  $5,000,  payable to the  Corporation  in advance  for the  six-month  period
beginning on the date the LC is issued by the Bank, and an additional fee of 1%,
also payable in advance,  for the  six-month  period  immediately  following the
initial six-month period, if the Company's  collateral  continues to be utilized
for the LC, with the  understanding  that the collateral shall be made available
by the Company to collateralize  the LC for a period not to exceed one year; and
(iii) the pledge to the Company by Edward Ting of all shares of common  stock of
the Company currently held by him, his wife, or under his control.



                                       25


<PAGE>



                                     PART IV
                                     -------

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

(a) Documents filed as part of this Form 10-K:

     1.   Financial Statements 

          The financial  statements listed by the Registrant on the accompanying
          Financial Statements (see pages F-1 through F-16) are filed as part of
          this Annual Report.

     2.   Exhibit 10.1 Master Equipment Lease and attachments thereto.
          Exhibit 10.2 Credit Facility with Hongkong Bank of Canada.

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



                                       26


<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, 1998                     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, 1998                         /s/  Edward Ting
       --------------                         ----------------------------------
                                              Edward Ting, Secretary, Chief
                                              Executive Officer and Chairman of
                                              the Board


Date:  April 28, 1998                         By: /s/ Alex Yie Wie Ding
       --------------                             ------------------------------
                                                  Alex Yie Wie Ding, Chief
                                                  Operating Officer, Treasurer
                                                  and Director


Date:  April 28, 1998                         /s/ Omer Esen
       --------------                         ----------------------------------
                                              Omer Esen, Vice President of
                                              Operations and Chief Financial
                                              Officer


Date:  April 28, 1998                         /s/ Chris G. Mendrop
       --------------                         ----------------------------------
                                              Chris G. Mendrop, Director


Date:  April 28, 1998                         /s/ Clement Cheung
       --------------                         ----------------------------------
                                              Clement Cheung, Director






                                       27


<PAGE>


                                                 Glas-Aire Industries Group Ltd.
                                               Consolidated Financial Statements
                                             For the year ended January 31, 1998



                                                                        Contents
================================================================================


Auditors' Report                                                          F-2


Consolidated Financial Statements

    Balance Sheets                                                        F-3

    Statements of Income                                                  F-4

    Statements of Changes in Shareholders' Equity                         F-5

    Statements of Cash Flows                                              F-6

    Summary of Significant Accounting Policies                            F-9

    Notes to Consolidated Financial Statements                           F-12


                                                                             F-1

<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,  1998  and  1997  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,  1998.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing standards
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, 1998 and 1997 and the results of their operations
and cash flows for each of the years in the three year period ended  January 31,
1998, in conformity with generally accepted accounting  principles in the United
States.





/s/  BDO Dunwoody
---------------------------

Chartered Accountants

Langley, British Columbia
March 20, 1998

                                                                             F-2

<PAGE>




================================================================================

                                                 Glas-Aire Industries Group Ltd.
                                                     Consolidated Balance Sheets
                                                        (Stated in U.S. Dollars)

January 31                                             1998             1997
--------------------------------------------------------------------------------

Assets (Note 4)

Current
    Cash and equivalents                            $ 1,645,953     $ 1,119,932
    Term deposit (Note 1)                                  --         1,000,000
    Accounts receivable, net of allowance
       for doubtful accounts                          1,200,451         737,587
    Inventories (Note 2)                                772,780         628,423
    Prepaid expenses                                     19,095         158,509
                                                    ----------------------------
                                                      3,638,279       3,644,451
Fixed assets, net (Note 3)                            1,408,816       1,220,531
                                                    ----------------------------

                                                    $ 5,047,095     $ 4,864,982
================================================================================

Liabilities and Shareholders' Equity

Current
    Bank indebtedness (Note 4)                      $      --       $   110,100
    Accounts payable and accrued liabilities            460,680         459,738
    Income taxes payable                                 92,464          15,262
                                                    ----------------------------
                                                        553,144         585,100

Deferred income taxes (Note 6)                          281,327         187,498
                                                    ----------------------------

                                                        834,471         772,598
                                                    ----------------------------

Shareholders' equity
    Common stock (Note 5(a))                             15,875          16,124
    Additional paid-in capital                        3,462,334       3,539,951
    Retained earnings                                 1,045,962         699,634
    Treasury stock (Note 5(b))                         (236,163)       (147,476)
    Cumulative translation adjustment                   (75,384)        (15,849)
                                                    ----------------------------

                                                      4,212,624       4,092,384
                                                    ----------------------------

                                                    $ 5,047,095     $ 4,864,982
================================================================================

On behalf of the Board:
                                         Director
---------------------------------------
                                         Director
---------------------------------------
                                    

The  accompanying  summary of significant  accounting  policies and notes are an
integral part of these financial statements.
                                                                             F-3

<PAGE>
<TABLE>
<CAPTION>


===========================================================================================

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


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

                                                         Years ended January 31,
                                                1998              1997              1996
                                            -----------------------------------------------

<S>                                         <C>               <C>               <C>        
Sales (Note 8)                              $ 6,409,954       $ 4,316,372       $ 4,191,581
Cost of sales                                 4,505,889         3,027,968         2,741,400
                                            -----------------------------------------------

Gross profit                                  1,904,065         1,288,404         1,450,181
                                            -----------------------------------------------
Expenses
    Research and development                    393,182           395,099           264,856
    Selling and distribution                    386,098           281,669           326,490
    General and administrative                  527,552           414,174           503,030
    Provision for profit sharing                 68,504            23,498            32,516
    Interest (income) expense                   (74,256)          (61,354)           15,732
                                            -----------------------------------------------

                                              1,301,080         1,053,086         1,142,624
                                            -----------------------------------------------

Income before income taxes                      602,985           235,318           307,557

Income taxes (Note 6)                           256,657           125,618           122,973
                                            -----------------------------------------------

Net income for the year                     $   346,328       $   109,800       $   184,584
===========================================================================================



Earnings per share                          $      0.23       $      0.08       $      0.20
===========================================================================================


Weighted average number of
    shares outstanding                        1,519,405         1,426,038           921,890
===========================================================================================



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 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
                                 ---------------------------------------------------------------------------------------------------
Balance -
<S>                              <C>        <C>            <C>            <C>           <C>            <C>            <C>        
  January 31, 1995                 923,813    $     9,238    $   911,148    $   405,250   $      --      $   (38,255)   $ 1,287,381
Net income                                                                      184,584                                     184,584
Shares repurchased                                                                            (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                      692,800          6,928      2,645,771                                                  2,652,699
Shares repurchased (Note 5(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)       (15,849)     4,092,384
Net income                                                                      346,328                                     346,328
Shares repurchased (Note 5(b))                                                               (166,553)                     (166,553)
Shares retired (Note 5(b))         (24,917)          (249)       (77,617)                      77,866                           --
Change in cumulative
  translation adjustment                                                                                     (59,535)       (59,535)
                                 ---------------------------------------------------------------------------------------------------

Balance -
  January 31, 1998               1,587,504    $    15,875    $ 3,462,334    $ 1,045,962   $  (236,163)   $   (75,384)   $ 4,212,624
====================================================================================================================================
                                                                                                                       


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
                                                                          (Stated in U.S. Dollars)


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

                                                                 Years ended January 31,
                                                        1998             1997               1996
                                                   -----------------------------------------------
Increase (decrease) in cash
Cash flows from:
Operating activities
<S>                                                <C>               <C>               <C>        
    Net income for the year                        $   346,328       $   109,800       $   184,584
    Depreciation                                       159,310           110,480            87,470
    Deferred income taxes                               93,829            56,927            22,246
    Loss (gain) on sale of fixed assets                 17,438             1,017            (3,343)
    Net change in non-cash working capital             610,337        (1,162,587)         (206,273)
                                                   ------------------------------------------------
    Net cash (used in) provided by
       operating activities                          1,227,242          (884,363)           84,684
                                                   ------------------------------------------------

Financing activities
    Repayment of obligation
       under capital lease                                --             (97,246)          (27,639)
    Repayment of long-term debt                           --             (27,304)          (67,338)
    Issuance of shares                                    --           2,652,699              --
    Repurchase of shares                              (166,553)         (147,476)          (17,010)
    Deferred offering costs                               --                --            (159,817)
    Increase (decrease) in bank
       indebtedness                                   (110,100)         (145,827)          255,926
                                                    -----------------------------------------------
    Net cash provided by (used in)
       financing activities                           (276,653)        2,234,846           (15,878)
                                                    -----------------------------------------------

Investing activities
    Proceeds from sale of fixed assets                  77,888            12,444            50,971
    Purchase of fixed assets                          (442,921)         (586,305)         (188,197)
                                                    -----------------------------------------------

    Net cash used in investing activities             (365,033)         (573,861)         (137,226)
                                                    -----------------------------------------------

Foreign currency translation adjustment                (59,535)           13,203             9,203
                                                    -----------------------------------------------

Increase (decrease) in cash during the year            526,021           789,825           (59,217)

Cash and equivalents, beginning of year              1,119,932           330,107           389,324
                                                    -----------------------------------------------

Cash and equivalents, end of year                  $ 1,645,953       $ 1,119,932       $   330,107
===================================================================================================
                                                                                                    



The  accompanying  summary of significant  accounting  policies and notes are an
integral part of these financial statements.
                                                                                               F-6
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


====================================================================================================

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


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

                                                                 Years ended January 31,
                                                         1998             1997              1996
                                                     -----------------------------------------------
Changes in non-cash working capital

<S>                                                  <C>              <C>               <C>      
    Term deposit                                     $ 1,000,000      $(1,000,000)      $      --
    Accounts receivable                                 (462,864)         (64,916)          150,106
    Inventories                                         (144,357)          61,435          (320,149)
    Prepaid expenses                                     139,414           15,357           (13,446)
    Accounts payable and accrued liabilities                 942          (51,268)           47,702
    Income taxes payable                                  77,202         (123,195)          (70,486)
                                                     -----------------------------------------------

                                                     $   610,337      $(1,162,587)      $  (206,273)
                                                     ===============================================      

Supplemental disclosure of cash flow
    relating to:
       Interest expense (income)                     $   (75,264)     $   (74,591)      $    15,732
       Income taxes                                       69,453          194,936           173,414
====================================================================================================



The  accompanying  summary of significant  accounting  policies and notes are an
integral part of these financial statements.
                                                                                                F-7
</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,  USA  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. The company's corporate office is located in
                         Vancouver, Canada.

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                          -  15%
                         Dies and molds                              -  10%
                         Automotive                                  -  30%
                         Leasehold improvements                      -  10%
                         Equipment under capital lease               -  10%


                                                                             F-8

<PAGE>



================================================================================

                                                 Glas-Aire Industries Group Ltd.
                          Summary of Significant Accounting Policies (continued)
                                                        (Stated in U.S. Dollars)


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


Per Share Information    In February  1997, the Financial  Accounting  Standards
                         Board ("FASB") issued Statement of Financial Accounting
                         Standards ("SFAS") No. 128, Earnings Per Share ("EPS").
                         SFAS No. 128 required  dual  presentation  of basic EPS
                         and  diluted  EPS on the face of all income  statements
                         issued after  December 15, 1997,  for all entities with
                         complex  capital  structures.  Basic EPS is computed as
                         net income  divided by the weighted  average  number of
                         shares of common stock  outstanding  during the period.
                         Diluted  EPS  reflects  potential  dilution  that could
                         occur if securities or other contracts,  which, for the
                         Company, consists of warrants to purchase 98,784 shares
                         of the Company's  common stock,  are  exercised.  These
                         warrants were  anti-dilutive in 1998, 1997 and 1996 and
                         as such, dilutive EPS amounts are the same as basic EPS
                         for all periods  presented.  Treasury stock held by the
                         Company  is  not  included  in  the  number  of  shares
                         outstanding.  No  prior  year  EPS  amounts  have  been
                         restated as a as a result of SFAS 128.

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.

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.



                                                                             F-9

<PAGE>



================================================================================

                                                 Glas-Aire Industries Group Ltd.
                                      Summary of Significant Accounting Policies
                                                        (Stated in U.S. Dollars)


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


Foreign Currency
  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  shareholders'
                         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, 1998 -1 U.S. $:1.4556 Cdn. $(1.3844 Cdn. $)
                         January 31, 1997 -1 U.S. $:1.3470 Cdn. $(1.3625 Cdn. $)
                         January 31, 1996 -1 U.S. $:1.3734 Cdn. $(1.3685 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.


                                                                            F-10

<PAGE>


================================================================================

                                                 Glas-Aire Industries Group Ltd.
                                      Summary of Significant Accounting Policies
                                                        (Stated in U.S. Dollars)


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


New Accounting
  Standards              Statement of Financial  Accounting  Standards  No. 129,
                         "Disclosure  of Information  about Capital  Structure",
                         (SFAS  129")  issued  by  the  FASB  is  effective  for
                         financial statements ended after December 15, 1997. The
                         new standard  reinstates various securities  disclosure
                         requirements  previously  in  effect  under  Accounting
                         Principles   Board  Opinion  No.  15,  which  has  been
                         superseded  by SFAS No.  128.  Adoption of SFAS No. 129
                         did  not  have an  impact  on the  Company's  financial
                         position or results of operations.

                         Statement of Financial  Accounting  Standards  No. 130,
                         "Reporting  Comprehensive Income",  ("SFAS 130") issued
                         by the FASB is effective for financial  statements with
                         fiscal years  beginning  after December 15, 1997.  SFAS
                         130 establishes  standards for reporting and displaying
                         of  comprehensive  income and its  components in a full
                         set  of  general  purpose  financial  statements.   The
                         company does not expect adoption of SFAS 130 to have an
                         impact  on  its   financial   position  or  results  of
                         operations  and any effect  will be limited to the form
                         and content of its disclosures.

                         Statements of Financial  Accounting  Standards No. 131,
                         "Disclosures   about  Segments  of  an  Enterprise  and
                         Related  Information",  ("SFAS 131") issued by the FASB
                         is effective for financial statements with fiscal years
                         beginning  after  December 15, 1997.  SFAS 131 requires
                         that public companies report certain  information about
                         operating    segments,    products,    services,    and
                         geographical  areas in which  they  operate  and  their
                         major  customers.  The Company does not expect adoption
                         of SFAS 131 to have an impact on its financial position
                         or results of operations.  The Company  believes it may
                         have expanded disclosures,  in the future, with respect
                         to certain of these items.

                                                                            F-11

<PAGE>



================================================================================

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


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


1. Term Deposit
                                                January 31,          January 31,
                                                       1998                 1997
                                                --------------------------------

   Deposit, interest at 5.6%,
        matured October 6, 1997                 $        --           $1,000,000
                                                ================================

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

2. Inventories
                                                 January 31,         January 31,
                                                        1998                1997
                                                --------------------------------

     Raw materials                                  $568,444            $443,808
     Work-in-progress                                 65,166             111,865
     Finished goods                                  120,217              51,477
     Supplies                                         18,953              21,273
                                                --------------------------------

                                                    $772,780            $628,423
                                                ================================

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

3. Fixed Assets
   
                                     January 31, 1998           January 31, 1997
                            ----------------------------------------------------
                                          Accumulated                Accumulated
                               Cost      Depreciation       Cost    Depreciation

     Office equipment       $  110,475    $   43,200    $  106,827    $   39,296
     Manufacturing
       equipment             1,134,426       414,376     1,087,479       368,688
     Computer equipment        111,874        67,073       111,499        61,962
     Dies and molds            635,756       182,278       416,838       153,567
     Automotive                 27,720        10,256        29,954         2,995
     Leasehold
       improvements            133,828        28,080       111,327        16,885
                            ----------------------------------------------------

                            $2,154,079    $  745,263    $1,863,924    $  643,393
                            ====================================================

     Net book value                       $1,408,816                  $1,220,531
                                          ==========                  ==========



                                                                            F-12

<PAGE>


================================================================================

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


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


4. Bank Indebtedness
                                                 January 31,         January 31,
                                                     1998                1997
                                                 -------------------------------

     Revolving bank loan                         $        --         $   110,100
                                                 ===============================



     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  (4.75% -
     January 31, 1997; 6.5 % - January 31, 1998) 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 charge 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. Share Capital

     (a) Authorized
           3,000,000  Common stock with a par value
                       of $0.01 each
           1,000,000  Preferred stock with a par value
                       of $0.01 each
                                                        January 31,  January 31,
                                                           1998         1997
                                                        ------------------------

         Issued
           1,587,504  Common stock (1997 - 1,612,421)   $  15,875    $  16,124
                                                        ========================



                                                                            F-13

<PAGE>



================================================================================

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


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


5.  Share Capital (continued)

     (a) Authorized (continued)

          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 ended January 31, 1998, the Company repurchased 78,317
          common  stock,  at share  prices  between  $1.56 and $3.12 per  share,
          amounting to $166,553.  In fiscal 1997, the Company repurchased 50,000
          common  stock 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.  During the year ended  January 31,  1998,  the
          Company  retired 24,917 common stock  amounting to $77,866.  In fiscal
          1997 the Company retired 4,192 common stock amounting to $17,010.

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


6.  Income Taxes

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

                                  January 31,      January 31,      January 31,
                                     1998             1997             1996
                                  ---------------------------------------------

     Current                       $146,655         $ 71,741         $102,928
     Deferred                       110,002           53,777           20,045
                                   ------------------------------------------

                                   $256,657         $125,518         $122,973
                                   ==========================================



                                                                            F-14

<PAGE>



================================================================================

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


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


6.  Income Taxes (continued)

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

                                            January 31,  January 31, January 31,
                                                   1998         1997        1996
                                                    %             %           %
                                            ------------------------------------

     General combined federal and
       provincial rate                             45.3        45.3        45.3
     Manufacturing reduction                       (7.0)       (7.0)       (7.0)
     Underaccrual of prior year taxes               4.2        14.7         1.7
                                            ------------------------------------

     Effective rate                                42.5        53.0        40.0
                                            ====================================



     The components of deferred taxes are as follows:

                                         January 31,                 January 31,
                                                1998                        1997
                              --------------------------------------------------

                                           Temporary                   Temporary
                              Difference  Tax Effect    Difference    Tax Effect

     Deferred tax
       liabilities
     Depreciation             $ 734,615    $ 281,327    $  489,551    $  187,498
                              ==================================================
                                                                 
--------------------------------------------------------------------------------


7.  Rent

     The Company  operates in its  facilities  on a month to month  basis.  Rent
     expense was $117,072,  $121,252 and $98,207 for the years ended January 31,
     1998, 1997 and 1996 respectively.



                                                                            F-15

<PAGE>


================================================================================

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


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


8.  Sales Information

     (a) Sales figures include sales to the following countries:


                                  January 31,      January 31,      January 31,
                                         1998             1997             1996
                                  ---------------------------------------------

     United States                 $4,915,000       $3,121,000       $3,420,000
     Japan                            586,000          491,000          198,000
     Canada and other                 908,000          704,000          574,000

     (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,
                                         1998             1997             1996
                                  ---------------------------------------------

     Customer 1                    $1,334,000       $  828,000       $1,066,000
     Customer 2                     2,128,000        1,341,000        1,470,000
     Customer 3                          --            491,000             --

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


9.  Related Party Transactions

     The Company had the following transactions with related parties:

                                        January 31,  January 31,   January 31,
                                               1998         1997          1996
                                        --------------------------------------

     Fees paid to
        directors/shareholders for
        ongoing consulting services       $  60,000    $  60,000     $  52,250


                                                                            F-16