TECH ELECTRO INDUSTRIES INC/TX, 10KSB, 1999-04-15

TECH ELECTRO INDUSTRIES INC/TX
10KSB, 1999-04-15
ELECTRONIC PARTS & EQUIPMENT, NEC

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB

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

For the Fiscal Year Ended December 31, 1998

[ ] TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)

Commission File No. 0-27210

Tech Electro Industries, Inc.
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(Name of Small Business Issuer in its Charter)

Texas 75-2408297
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State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.

477 Madison Avenue, 24th Floor, New York, New York 10022
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Address of principal executive office Zip Code

Issuer's telephone number: (212) 583 0900

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT

Common Stock, $0.01 Par Value
-----------------------------
(Title of Class)

Class A Preferred Stock, $1.00 Par Value
----------------------------------------
(Title of Class)

Units, consisting of one (1) share of Common
Stock and one (1) share of Class A Preferred Stock
--------------------------------------------------
(Title of Class)

Redeemable Class A Warrants
---------------------------
(Title of Class)

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Check whether the issuer has (i) filed all reports required by Section 13 or
15(d) of the Exchange ACT during the past 12 months, and (ii) been subject to
such filing requirements for the past ninety (90) days. Yes [X] No [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-KSB
or any amendment to this Form 10-KSB. [X]

The Company's revenue for Fiscal Year ended December 31, 1998 was $24,931,031.

As of February 11, 1999, 4,691,977 shares of Common Stock were outstanding and
the aggregate market value of the Common Stock (based on the latest price of
known transactions on the Nasdaq Small Cap Issues Market) held by non-affiliates
(1,392,499 shares) was approximately $3,307,185.

DOCUMENTS INCORPORATED BY REFERENCE

None.

Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]

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THIS DOCUMENT IS PREPARED AND FILED UNDER THE REQUIREMENTS OF REGULATION S-B OF
THE SECURITIES AND EXCHANGE COMMISSION, EFFECTIVE JULY 31, 1992.

Part I

Item 1. Description of Business

General Business

Tech Electro Industries, Inc. ("TEI" or the "Company") was
incorporated under the laws of the State of Texas on January 10, 1992, for the
purpose of acquiring 100% of the capital stock of Computer Components
Corporation ("CCC"), its direct, wholly-owned subsidiary. The business carried
on by CCC consists of the business begun in 1963 under the name Dunbar
Associates, Inc. ("Dunbar"), and the business carried on by CCC since its
inception in 1968. Dunbar initially operated as an "engineering representative"
organization and in 1974 expanded into importing electronic components. Dunbar
terminated over 90% of its "representative" activities in 1984. CCC has, since
its inception, operated as a distributor of electronic components and, in 1980,
expanded into the battery assembly business. In 1991, Dunbar was merged into
CCC.

In June, 1996 the Company acquired 100% of the issued and outstanding
shares of capital stock of Very Brite Technologies, Inc., ("VBT") a Texas
corporation engaged in designing and engineering specialized products
incorporating recent advances in technologies related to light emitting diodes
("LED"), a lighting device used in industrial and commercial products.

On October 29, 1996 the Company incorporated Universal Battery
Corporation ("UBC"), a Texas corporation, for the purpose of expanding into new
markets for batteries and battery products. TEI initially owned 67% of the
issued and outstanding capital shares of UBC with the balance owned by Randy
Hardin, a director and officer of UBC. In February 1997, the Company's interest
in UBC was transferred to CCC in accordance with the internal reorganization of
the Company described below.

In February, 1997 TEI, in an internal reorganization, transferred to
CCC all of its shares of VBT and UBC, as a result of which all present
operations of the Company are carried on by CCC and through, VBT, as a
wholly-owned subsidiary, and UBC, as a majority-owned subsidiary. The purpose of
the internal reorganization was to move all operations to subsidiaries and
enabled TEI to operate more expediently as a parent/holding company.

Recent Developments

On March 19, 1998, the Company completed the acquisition of a
controlling interest in US Computer Group, Inc., a computer maintenance, systems
solution and information technology partner headquartered in Farmingdale, New
York with annual revenues in excess of $20 million. US Computer Group, Inc. and
its wholly-owned subsidiaries (collectively, "USCG") provide a broad range of
information technology ("IT") services, products and solutions to companies
located primarily in the metropolitan markets of New York and Philadelphia and

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surrounding areas. USCG offers its clients a single source for a wide variety of
IT services which include maintenance and repair, new and used equipment sales,
short-term equipment rentals, network integration, software support, relocation
services, contingency planning, business recovery services, and training. USCG's
clients include Fortune 1000 companies as well as a variety of middle market
clients.

On January 19, 1999, USCG announced that its founder and Chief
Executive Officer, Stephen Davies left the company to pursue other interests.
Mr. Davies was succeeded by Alan Andrus, who has served as USCG's Chief
Operating Officer since November, 1998.

On February 25, 1999, Telstar Entertainment ("Telstar"), the second
largest shareholder of USCG, agreed to contribute additional capital to USCG
through the purchase of additional shares. The purchase was consummated on March
12, 1999 making Telstar the largest shareholder of USCG. Effective February 25,
1999 the Company will cease reporting USCG's financial results in its
consolidated financial statements, and use the equity method to account for its
minority interest in the subsidiary.

On April 7, 1999, the Company was informed by Nasdaq that its
securities will be delisted effectively April 7, 1999, for failure to file a
timely annual report on Form 10-KSB. The Company believes that it meets or
exceeds all requirements for continued listing on the Nasdaq Stock Market. The
Company has appealed the decision, and is currently trading on OTC Bulletin
Board, on The Nasdaq Stock Market. The Company cannot predict what impact, if
any, this action will have on the Company or trading in the Company's
securities.

References to the Company refer to the combined operations of TEI,
USCG, CCC, VBT and UBC and their subsidiaries, except where otherwise indicated.

Business of the Company and its Subsidiaries

Computer Components Corporation

CCC's operations have historically consisted of three operations: (i)
Sale of battery and battery assembly systems for use as "stand-by" power for
electronic and/or electrical systems that may encounter a loss of alternating
current ("AC") power from a cognizant utility; (ii) Stocking and sale of passive
and active electronic components, AC magnetic components and batteries from Asia
to original equipment manufacturers ("OEMs") and distributors in the United
States, Mexico and other countries; (iii) Stocking and sales of products, such
as AC transformers, ceramic sound sources, batteries and battery chargers,
utilized by "Security" market installers and distributors.

CCC is engaged in the business of importing, distributing and selling
electronic components used in the manufacture and sale of high-technology
products, such as computers, oil field equipment, medical instrumentation and
uninterruptable power supply ("UPS") systems, among others. CCC is an authorized
distributor, on a non-exclusive basis, for two product groupings of Panasonic,
USA ("Panasonic"), Varta, USA ("Varta") and Duracell, USA. Varta, based in
Germany, is a manufacturer of battery products. Panasonic is a subsidiary of

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Matsushita Electric Corp. of Japan. CCC also operates under noncontractual,
long-term relationships (many exceeding 10 years) with other vendors located in
Taiwan, Hong Kong, China, Korea and Japan from whom it imports non-proprietary
electronic components and batteries marketed under its registered trademark,
"NIKKO","UBC", "Tech Electro Industries" and, occasionally, under the name of
the Asian vendor. CCC has also added, within the last two years, vendors of
electro magnetic devices, battery charging and electro mechanical devices from
The People's Republic of China. Whereas CCC and its subsidiaries have developed
new sources of supply for some of the products they sell in order to improve
costs and open up new market opportunities, the arrangements with these
suppliers do not include classical "distributorship" contracts.

The UBC division intends to sell batteries and battery products under
the name of Universal Battery Corporation in addition to the foregoing names.

Management has made the decision to cut back on the overall
operations of VBT due to losses during the past two years. As of December 31,
1998, VBT has one full time employee who is being retained to support the
current level of business. The purpose of this reorganization is to cut back on
non-efficient operations and focus on the Company's key strengths.

CCC's subsidiary, UBC contributed $4,138,880 in revenues, from
significantly increased sales in fiscal 1998. CCC is now concentrating on
further expanding its battery sales, as the electronic components portion of its
business has declined.

Operations

Electronic Components

CCC imports and sells to OEM's and distributors the following
electronic components for use in the manufacture, repair and
modification of electronic equipment:

RESISTORS. Carbon film, metal film and metal oxide resistors in both
leaded and chip (surface mount) configurations.

CAPACITORS. Polyester, polypropylene and polycarbonate metalized
film, film and foil (inductive and non-inductive),aluminum
electrolytic and ceramic capacitors (leaded and chip).

RELAYS. AC and direct current ("DC") relays, usually for
operations at less than 20 amperes contact rating and 50 volts
DC coil operation.

SOUND SOURCES. Piezo and inductive drive "sounders" for the
production of alarm signals in security systems.

TRANSFORMERS. 120-volt AC household and business wall plug
transformers for reduction of power line voltage to low voltage (12
to 24 volts AC) applications as utilized by household and business
electrical devices.

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Batteries

CCC sells and distributes, under agreements with Panasonic and Varta,
a broad line of industrial (as opposed to consumer-retail) batteries. The
batteries sold and distributed by CCC include sealed lead-acid, nickel-cadmium,
lithium, carbon-zinc, nickel metal hydride and alkaline batteries. CCC also
imports a line of sealed lead-acid batteries for sale under the brand name of
"NIKKO" and "Tech Electro Industries, Inc.," which batteries are manufactured in
Taiwan under a technology agreement between the manufacturer and a Japanese
battery company. In addition to the sales of individual batteries, CCC sells
"battery packs" consisting of assembled groups of batteries combined physically
and electrically into a single unit. CCC is a Panasonic authorized MOD center
("Modification Center") and, in that capacity, creates custom-designed battery
packs meeting specifications of individual customers. In addition to providing
the services necessary to produce battery packs, such as welding and assembly,
CCC supplies materials such as wiring, connectors, buss bars and casings. CCC
utilizes brands of batteries other than Panasonic and Varta (such as Saft(R) and
Eveready(R)) as requested by customers. Completed battery packs are assembled to
order in nearly all instances and CCC maintains little or no inventory of
completed packs, although components for assembly of packs are maintained. CCC
also offers customers battery packs assembled in China to the customers'
specifications. CCC maintains a broad inventory of various sizes of batteries
and components utilized in battery package production to serve customer needs
for immediate pack design and assembly.

On October 29, 1996 the Company incorporated UBC to expand the
Company's operations into new markets for batteries and battery products. CCC
will continue to service its present battery customers and UBC will develop new
markets in the Cable Television ("CATV") industry, motorcycle battery
distributors, marine and electronics as well as other OEM customers. UBC will
also supply Panasonic products as well as battery packs manufactured by CCC.

Commencing in February 1997, CCC was appointed as a distributor of
Panasonic-brand retail consumer batteries. CCC distributes retail batteries to a
variety of retail merchants and outlets.

Contract Manufacturing and Kitting Operations

For the past several years CCC has sold various types of electronic
components to United States-based customers with these goods being delivered to
the customer's facility in Mexico located on the Texas/Mexico border for transit
into Mexico, where local Mexican facilities acting as sub-contractors to the
United States-based customers insert these components into parted circuit ("PC")
boards to customer specifications. After such assembly, these parts are
assembled into the PC boards and shipped back to the United States. The
customers own or lease these Mexican facilities which are utilized for the
manufacturing of parts or subparts which are generally subsequently shipped back
to the United States for assembly into the customer's final product. The Mexican
manufacturing process normally consists of the attachment and electrical testing
of various electronic components to PC boards in accordance with detailed
engineering specifications.

The Company accepts orders to purchase, store, collate and ship
electronic components and materials needed to manufacture certain electronic

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devices. This kitting program is intended to consolidate the shipping of
materials, furnished by many different vendors, to the manufacturing facility so
as to enable the manufacturer to have all required materials on hand at the same
time.

The materials and components listed in the customer's
bill-of-materials, as well as the approved suppliers thereof, are typically
supplied to the Company by the customer. Upon purchasing the required materials
for the project, collecting, assembling and delivering the same to the
pre-selected common carrier for the transit of the products to Mexico, the
Company submits appropriate invoicing to the customer for the cost of all
products purchased from various vendors, plus a mark-up on the cost of the
goods. In those situations where the Company was the vendor, as opposed to an
"outside vendor," that mark-up may be reduced.

The Company is currently pursuing a number of projects and believes
that kitting operations represent an opportunity for it to reach new customers.

U.S. Customs

The Company's computer is "modem" coupled to the U.S. Customs'
computers in Virginia via Automatic Broker Interface ("ABI"), which allows the
Company now to handle import and export customs functions that, in the past,
required employment of a local independent Customer Broker. The Company's
offices and buildings are physically adjacent to Addison Airport, Addison,
Texas, which is designated a "Port of Entry" by the U.S. Customs. A U.S.
Custom's Port Director is now stationed on Addison Airport in close proximity to
the Company's offices.

The Company's interface with U.S. Customs and its proximity to
Addison Airport allow the Company to realize savings in transit time of
shipments of foreign goods to the United States by five days to a week, as well
as significant reductions in preparation of paperwork for outbound shipments.
The Company believes these advantages assist the Company's in competing for
customers who are sensitive to time delays in shipments.

Marketing

The Company relies primarily on sales personnel and representatives,
and has undertaken only minimal advertising in trade publications. At December
31, 1998, the Company employed a direct sales force of five outside salesmen and
six inside "customer service" representatives. In addition to Company personnel,
the Company in 1998 utilized sales engineering representatives, numbering three
at year-end 1998.

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Machinery and Equipment

The Company, through CCC, VBT and UBC, owns the majority of the
equipment utilized in its design, manufacturing and assembly operations with the
remaining equipment leased by CCC, VBT and UBC. This includes specialized
equipment such as small electric welders, a sonic welder, computer aided design
("CAD") computer programs, computer driven battery analyzers, battery chargers,
heat-shrink ovens, strip-chart recorders, timers, multimeters and hand tools
utilized in operations.

Additional manufacturing equipment, capable of automated epoxy
dispensing and automated "connector to wire" attachment, is also owned by the
Company. The Company's computer hardware (DEC Mainframe and multiple PC's and
terminals hardwired thereto) and software, required for its accounting, sales,
inventory and management controls is Company owned. Office furniture and
equipment, as necessary to operate the business, are also listed among Company
assets.

The Company's machinery and equipment consists of readily available
items and can be replaced without significant cost or disruption to business
activities.

Customers

CCC's customer base is relatively broad. CCC sold goods to more than
six hundred and fifty (650) different customers during the year ended December
31, 1998. CCC maintains a computer database of over one thousand active and
potentially active customers, all of whom are believed to be potential customers
for CCC's products. The Company believes, however, that the loss of a major
customer or group of related customers may have a materially adverse effect on
its operations.

As reported in May 1998, CCC was advised by a major customer, Sunbeam
Corporation, that it had experienced a change in management and would no longer
require CCC's goods or services. The significant drop in CCC revenues was a
direct result of losing the Sunbeam Corporation, (who relocated their facilities
to Asia), as a customer. However, management at CCC has taken appropriate
measures as a result of the loss of the Sunbeam account. In July of 1998, CCC
began to increase operational efficiencies by eliminating positions, reducing
current salaries and reducing overhead.

Employees

In an effort to reduce S, G, & A expenses, management initiated a
personnel reduction program during the fourth quarter of 1998. As of December
31, 1998, CCC had reduced personnel at CCC and its subsidiaries UBC and VBT from
34 to 22 full time employees. This reduction in personnel has resulted in a
decreasing S,G, & A expenses by approximately $22,000 per month as compared to
the first nine months of fiscal 1998.

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Technology

CCC's electronic products are all relatively "low" technology. The
Company believes these products are not subject to sudden obsolescence since
they represent basic elements common to a wide variety of existing electronic
circuit designs. At the same time, there can be no assurance that advances and
changes in technology, manufacturing processes and other factors will not affect
the market for the Company's products. The Company is a Panasonic certified
modification center.

CCC and UBC sell and distribute, under agreements with Panasonic,
Varta and Duracell, a broad line of industrial and consumer batteries. The types
of batteries sold distributed by CCC and UBC include sealed lead-acid,
nickel-cadmium, lithium, carbon-zinc, nickel metal hydride and alkaline
batteries. The Company also imports a line of sealed lead-acid, alkaline, carbon
zinc, nickel metal hydride, lithium and nickel-cadmium batteries for sale under
the brand name of "NIKKO" and "UBC". These batteries are manufactured in Asia,
typically under technology agreements with local manufacturers. The Company also
assembles "battery packs" consisting of assembled groups of batteries combined
physically and electrically into a single unit.

VBT's products are highly technical and involve both specialty design
engineering and techniques developed by VBT to construct LED modules which
maximize and customize the light output of LEDs at a reasonable price to the
customer.

Competition

CCC and its subsidiaries compete in sales of its batteries and
battery packs with many companies located in the United States, Mexico and Asia.
In sales of its electronic components, CCC faces competition from many large
electronic distributors as well as from factory direct sale outlets throughout
the United States as well as other importers and exporters in Asia. Many
competitors of CCC are substantially larger and have greater resources than CCC.
CCC does not consider itself a significant factor in the electronic component
and battery business.

Environmental Matters

CCC believes it is in material compliance with all relevant federal,
state, and local environmental regulations and does not expect to incur any
significant costs to maintain compliance with such regulations in the
foreseeable future.

Patents and Trademarks

Although CCC is the owner in Texas of the trademark "NIKKO" for
batteries and electronic components, that trademark is not regarded as essential
or necessary for the marketing of the Company's products. CCC does depend, in
part, on the patents and trademarks of its vendors and suppliers, over which it
has little control. It is possible that the loss of these marks, or the
deregulation of their value, could have an adverse effect on CCC's business.

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Sources and Availability of Materials

With the exception of battery products and certain electronic
components described below, CCC purchases its raw materials, such as wire,
metals and packaging materials, from a number of local sources and is not
dependent on any single source for raw materials. Except as noted below, CCC
believes that the loss of any single supplier would not adversely affect CCC's
business. All raw materials utilized by CCC are readily available from many
sources.

CCC enjoys a close and beneficial non-exclusive relationship with a
single supplier of a substantial portion of its battery products, the Panasonic
Battery Sales Group of Matsushita Electric Corp. of America ("Panasonic"). CCC
is a certified Panasonic Modification Center for the production of battery
packs. Although the Company has established relationships with other battery
manufacturers and sells their products, the loss of this relationship with
Panasonic could have a material adverse effect on the Company.

In addition to CCC's relationship with Panasonic, Nippon Electric
Corporation is the Company's largest supplier of electronic component parts. The
loss of this supplier could have a material adverse effect on CCC. CCC believes
this supplier also sells component parts to CCC's competitors.

Research and Development

During each of the last two Fiscal Years CCC did not expend in excess
of Ten Thousand Dollars ($10,000.00) on research and development of products.

Governmental Matters

Except for usual and customary business and tax licenses and permits,
and the licenses and permits described elsewhere herein, no governmental
approval is required for the principal products/services of Company, nor does
Company know of any existing or probable governmental regulations affecting
Company's activities.

Impact of Year 2000 Issue

CCC believes that it has addressed the year 2000 issue in its
entirety and will not face an operational problem. In 1997, CCC hired a Director
of MIS to address these issues. Specifically, CCC has upgraded all computer
hardware with a year 2000 hardware. On April 1, 1999, CCC converted to a new
software package, which is fully year 2000 compliant. CCC believes that it will
be fully compliant well before the beginning of the year 2000. CCC's business is
dependent on its relationship with its vendors and manufacturers. There is no
assurance that CCC's suppliers and manufacturers will be year 2000 compliant.
This may have a material adverse effect on CCC unless CCC is able to arrange for
alternate suppliers if such an event were to occur.

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US Computer Group

Information Technology Industry Background

Many organizations have become increasingly dependent on the use of
IT as a competitive tool in today's business environment. With increased
competition, globalization, deregulation and rapid technological advances,
organizations are being forced to make fundamental changes to their business by
improving their products and services, strengthening client relationships and
reducing costs. There is a need to access and distribute data on a real-time
basis throughout an organization and between organizations. This has led to the
rapid growth in network computing infrastructures, which connect numerous and
geographically dispersed end-users via local and wide area networks. This growth
has been driven by the emergence of industry standard hardware, software and
communications tools as well as the significant improvement in performance
capacity and utility of such network-based equipment and applications.

Since information processing is the backbone of many businesses,
there is a growing market for IT service providers that can provide competitive
product and value added services to ensure that the complex technology
infrastructure performs reliably. Furthermore, the ability to integrate and
deploy new information technologies in a cost-effective manner is critical for
businesses to compete successfully in today's rapidly changing business
environment. Internal computer departments often cannot keep up with rapid
technological change and companies, therefore, increasingly seek outside
sources, such as USCG, for assistance. The Company believes that the trend
towards the outsourcing of IT management functions is driven by the significant
costs associated with hiring, training and maintaining a full service internal
MIS staff.

Business Strategy

On March 19, 1998, the Company completed the acquisition of a
controlling interest in USCG, which provides a broad range of information
technology services, products and solutions to companies located primarily in
the metropolitan markets of New York and Philadelphia and surrounding areas. The
Company's business objective is to take advantage of the rapid growth in the IT
industry and expand USCG's relationship with its customers by providing
additional services.

On January 19, 1999, USCG announced that its founder and Chief
Executive Officer, Stephen Davies left the company to pursue other interests.
The Board of Directors of USCG appointed Mr. Alan R. Andrus to succeed Mr.
Davies as CEO. Mr. Andrus joined USCG in November of 1998 as Chief Operating
Officer. He brings thirty years of experience in the computer service industry.
Starting at Grumman, he became President of Grumman Systems Support Corporation,
an independent nationwide computer service organization. After Grumman, he
became Senior Vice President at Computerland/Vanstar followed by Technology
Service Solutions, a joint venture between IBM and Kodak.

On January 19, 1999, Mr. Andrus headed negotiations with certain USCG
major general unsecured creditors (the Unofficial Committee of Unsecured
Creditors composed of accepting creditors). USCG participated in these

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discussions for purposes of analyzing its financial condition. A
composition/extension agreement was entered into to resolve financial
difficulties concerning the unpaid major general unsecured obligations. Each
accepting creditor is entitled to receive its share of the payments due with an
initial cash distribution made on June 15, 1999 for 25% of its allowed claim and
second cash distribution as soon as practicable after March 15, 2000 of up to
15% of its allowed claim. Based on this agreement, USCG will be paying accepting
creditors 40% of the outstanding debt owed. Upon payment by USCG, the debt
obligations with the accepting creditors will be settled in full. Each accepting
creditor will also receive warrants exercisable through and including September
30, 2000 in the event that USCG is the subject of an Initial Public Offering or
obtains additional financing in excess of $1,000,000. If the preceding events
occur before or on April 30, 2000, the accepting creditors shall be entitled to
receive their pro rata share of 60% of the amount raised by USCG in excess of $1
million up to the original aggregate debts.

Information Technology Services

USCG began its operations as a rapidly growing provider of computer
maintenance services. Over the years, USCG has evolved from strictly a
"break/fix" maintenance organization to a provider of a variety of value added
services including network design, consulting and integration, disaster recovery
and training. USCG's relationship as an authorized service provider for hardware
and software manufacturers is not material to the Company. These authorizations
are the result of providing the manufacturer with proof of the Company's
competence, capabilities and resources and, in most cases, required training and
certification of members of the Company's technical staff. The status of
Manufacturer Authorized can be used to differentiate the Company from smaller or
less capable organizations that are not able to attain authorized provider
status.

To more effectively operate its diverse service offerings, USCG's services are
divided into three separate service groups:

o Computer Maintenance represents USCG's core business of
providing computer repair services to companies under
contractual arrangements.

o Computer Products concerns the sale of new and used computer
hardware. USCG acts as a reseller of such equipment but,
through its relationships with established aggregators and
resellers, USCG is able to avoid the inventory costs
associated with typical resellers or aggregators.

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o Computer Solutions represents USCG's network integration
services. These services comprise configuration, delivery and
installation of local and wide area networks, and the ongoing
support and monitoring of network operating systems.

Computer Maintenance Services

Maintenance and Warranty Programs. USCG's computer maintenance
services remain its core business. USCG provides warranty and maintenance
services on minicomputers, PCs, and peripherals. USCG's experience in this area
encompasses a wide array of systems platforms, from Digital Equipment
Corporation and IBM midrange computers to Sun Microsystems and IBM workstations
to a range of PC products. This cross-platform experience has honed USCG's
capabilities in supporting cross-platform applications, connectivity,
inter-operability, and multi-protocols.

USCG services both new and used equipment. As a service provider to
mid-sized clients with high standards for performance and service, USCG gained
the necessary skills and experience for mission-critical operations. This
experience, plus authorizations from major PC product manufacturers such as
Dell, Compaq, and Hewlett Packard, enable USCG to provide on-site and carry-in
service on most brand-name computer systems.

As part of its general maintenance services, USCG offers warranty and
post warranty maintenance, warranty upgrades and extension to manufacturers'
warranty offerings. USCG's premium services in the maintenance area includes 24
hour a day, seven days a week coverage with two-hour on-site response.

Several of the key elements of USCG's relationship with each of its
customers are guarantees, which include:

Guaranteed response times
Guaranteed repair or equipment replacement
Guaranteed up-time.

The guarantees are based on the customers' requirements for service
and support. USCG attempts to provide flexible maintenance agreements to meet
customers' needs, including time and material contracts, fixed-price repair,
equipment relocations, installations, de-installation, and loaner options.

Parts Management. USCG maintains at its four locations inventories of
current serviceable spare parts, full systems, and peripherals. These readily
available parts enable USCG to provide expedited parts service. If a part is
unavailable, USCG can provide a full loaner system to eliminate downtime. USCG
augments its supply through an array of parts providers throughout the United
States. Manufacturers' online parts management and information systems are used
to streamline parts ordering and tracking processes.

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Relocation Support Services. To further facilitate its customers'
online applications, USCG provides relocations support services. In general,
USCG will provide a dedicated relocation coordinator who will:

Survey and evaluate a new site
Handle all de-installation and re-installation
activities, such as verification of equipment
operations prior to de-installation
Disconnect all cables, buses, and cabinets
Supervise all equipment packing and unpacking
Perform diagnostic system verification
Run diagnostics after re-installation to ensure
proper operations

USCG's relocation support services also include logistical assistance
such as the selection and qualification of moving contractors, arrangement of
temporary storage, and insurance administration.

New and Used Equipment Sales

USCG provides various new and used equipment, ranging from name-brand
personal computers to midrange computer systems and peripherals. USCG is
authorized to resell AST, Apple, Compaq, Dell, Epson, Hewlett-Packard, IBM,
Lexmark, and Toshiba equipment. All used equipment must meet quality control
standards before it can be resold to customers. For all equipment sales, USCG
offers its customers delivery, setup, and installation options, as well as
warranty upgrades.

Most VARs and systems integrators establish buying relationships with
distributors such as Tech Data, Micro Age, etc. Many manufacturers such as
Digital Equipment, IBM, Intel, Cisco, etc., sell to VARs and integrators via the
distribution channel. By establishing a buying relationship with these
distributors, USCG can obtain competitive prices, quick delivery, technical
support, and eliminate the need to stock inventory since most distributors ship
on the day the order is received.

Computer Products. USCG acts as a reseller of such equipment but,
through its relationships with established aggregators and resellers, USCG is
able to avoid the inventory costs associated with typical resellers or
aggregators. USCG believes that by acting as a provider of hardware as well as
maintenance services, USCG is better able to maintain relationships with clients
as their computer systems become obsolete and are replaced.

Network Integration and System Solutions

Business Analysis and Strategic Solutions. The core component of
USCG's network integration and systems solutions group is its business analysis
and strategic planning capabilities. The goal of this service is to identify and
evaluate business needs and recommend the optimum solution. USCG's business
analysis and strategic solutions services include:

Needs analysis - to identify information systems solutions,
hardware, and software

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Development of functional specifications - to show clients
what custom systems will look like prior to actual development

Re-engineering services - to take the results of an
operational review and make changes to the operation prior to
system implementation

USCG has eight senior network engineers and ten network engineers.

Office Automation and General Applications. These services offer
assistance to clients regarding their use of general software applications.
Recognizing that office automation is becoming a core aspect of corporate
culture, USCG's consultants assist clients in understanding the implementation
and benefits of various software applications. The consultants are able to take
off-the-shelf products and apply them for maximum customized results.

Network Integration. USCG maintains a team of network engineers
providing a range of network design and implementation services. Because of
USCG's roots as a maintenance provider on midrange systems, it has developed
expertise in multi-platform connectivity and communications. USCG is able to
address the needs of many environments, from standalone PCs to local area
networks to multiple offices connected over a WAN. Networking services include:

- Local area network implementation

- Wide area network implementation

- Multi-platform connectivity

- Multi-vendor solutions

- Network topology design and documentation

- Network troubleshooting and performance tuning

- Network operations reviews

Business Recovery Services. USCG's prime goal in providing
disaster/business recovery services is protecting network operations in the
event of a natural or man-made disaster, power outage, or other contingency.
USCG handles all aspects of disaster support and system backup, from
reloading the operating system and application software to restoring the
system to its original log-in state.

USCG offers three business recovery services designed to complement
one another:

Business recovery facilities in Manhattan, Long Island, New Jersey,
and Pennsylvania - Each facility is designed as a temporary site for
companies to relocate their key personnel in the case of a disaster. Each
site offers access to computers, hardware, software, and support for IBM,
Digital, Sun, and client/server environments, as well as for all LAN
environments.

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Replace program - For an annual subscription fee, USCG guarantees
replacement of damaged computer equipment within 72 hours. This includes
installation and integration support.

Off-site data storage - USCG provides secure off-site magnetic media
storage, which provides clients critical backup for all their computer files.
USCG offers media pickup and delivery 24 hours a day, every day of the year.

Sales and Marketing

USCG's sales and marketing efforts focus on middle market and larger
organizations that have extensive IT needs. Targeted markets include financial
services, law firms, technology and other IT intensive organizations.

A comprehensive marketing program to support the launching of new
capabilities and services is being developed. Traditionally, USCG's marketing
efforts focused on telemarketing (done by a dedicated telemarketer) as well as
mailings and occasional trade show and association event participation. USCG's
telemarketing function will be integrated with the restructured sales force and
will focus on new accounts and sales of new services and capabilities to the
existing base. Mailings and broadcast fax will be used to support both the
account recruitment and business development efforts. Regional trade shows and
associations are being identified and participation in events such as Technology
for Education seminars, school district technology events, regional and local
business association, etc. will be utilized as part of USCG's marketing program.
USCG's public relations, coordinated by an outside consultant, will be linked to
the marketing program. Major strategic alliances, acquisitions, etc. will be
part of the public relations efforts and will increase name recognition of USCG.
An aggressive program is being launched to market the existing base. This
includes VIP account programs to increase loyalty and provide recognition for
our top revenue providing customers. A customer newsletter, a VIP newsletter,
technology white papers, product introductions, etc. will all be used as means
of creating and maintaining a constant flow of communications between the
Company and its customer base.

As of December 31, 1998, USCG had approximately 17 sales and
marketing personnel.

Clients

USCG has a diverse client base consisting of over 1,400 customers
with no customer accounting for more than 5% of total revenues. USCG's clients
include Fortune 1000 companies as well as a variety of middle market clients.

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Competition

The markets for USCG's services are characterized by intense
competition and there are little or no barriers to entry. USCG's competitors
vary in size and in the scope of services offered. Primary competitors generally
include service groups of computer equipment manufacturers or resellers,
consulting and systems integrators, applications development firms, temporary
staffing firms and other IT service providers. Traditionally, the largest
service providers have principally focused on providing full-service solutions
to Fortune 500 companies. However, a number of IT service companies such as
Perot Systems Corporation, Technology Solutions Corp., Cambridge Technology
Partners, and Condor Technology Group have expanded or begun to expand into the
broader markets in which USCG typically has operated.

USCG believes that the primary competitive factors for the provision
of IT services include price, customer service, technical expertise and quality,
breadth of service offerings, reliability and security, adherence to industry
standards, reputation, product availability, and geographic coverage. USCG's
success will depend heavily upon its ability to provide high quality services on
a timely basis. Other factors that will affect USCG's success in this market
include USCG's continued ability to attract additional experienced technical,
marketing, sales, and management talent, and the expansion of worldwide support,
training and service capabilities. Increased competition may result in greater
pricing pressure, which could adversely affect USCG's gross margins, results of
operations and cash flow.

Many of USCG's current and potential competitors have longer
operating histories and financial, sales, marketing, technical and other
resources substantially greater than those of USCG. As a result, such
competitors may be able to adapt more quickly to changes in customer needs or to
devote greater resources than USCG to the sales of IT products and services.
Such competitors also could attempt to increase their presence in USCG's markets
by forming strategic alliances with other competitors or increasing their
efforts to gain and retain market share through competitive pricing. As the
market for IT services has matured, competition for quality technical personnel
has continued to intensify, resulting in increased personnel costs for many IT
service providers. Such competition may adversely affect USCG's gross profits,
margins, results of operations and financial condition. There can be no
assurance that USCG will be able to continue to compete successfully with
existing or new competitors.

Impact of the Year 2000 Issue

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package is not on line by November 1999, accounting functions can be temporarily
duplicated in an off the shelf accounting package or managed manually. USCG's
service software will be replaced with year 2000 software in the second quarter
of 1999. Finally, some internet software packages may have to be upgraded.
However, USCG will not incur charges for these internet software package
upgrades.

The Company has also reviewed non-information technology systems.
Minor upgrades have been completed for the Long Island and New Jersey office
telephone systems, costing less than $5,000. The telephone systems in New York
City and Philadelphia are already year 2000 compliant. The New York City
facility is presently being reviewed to determine if their HVAC and elevator
equipment is compliant.

USCG's risk of not being ready by the year 2000 is considered to be
very low. The company has generated a time line to ensure that all systems are
year 2000 ready. In the case where certain issues arise which were not uncovered
during the assessment phase, the appropriate personnel will be allocated to
remediate the issue. Accordingly, USCG plans to devote the necessary resources
to resolve all year 2000 issues in a time conscious manner. USCG plans to have
changes to critical systems completed by the fourth quarter of 1999. This
assessment is based on information currently available from USCG's internal
assessment of modifications that can be made and conversions, which are not
available. The company believes that the likelihood of a material adverse impact
to the company as a result of internal year 2000 problems is remote. While USCG
believes that it will complete upgrades of its operating and application
software systems prior to the year 2000, competition for goods and services,
relating to such upgrades, including computer equipment and installation
expertise, may cause delays in implementation.

The estimated cost to remediate the year 2000 issues will be less
than $400,000, which will be funded from improved cash flow during fiscal 1999.
This expense is not anticipated to be material to the Company's financial
position or future results of operations, although there can be no assurance
that presently unforeseen computer programming difficulties will arise.

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Item 2. Description of Property

CCC, VBT and UBC occupy an industrial office building complex and
parking facility owned by La Taste Enterprises, a partnership of Craig D. La
Taste, former director and former President of the Company and leased to the
Company. The Company utilizes the entire property, which includes approximately
16,000 square feet of office and warehouse building and 15,000 square feet of
open fenced and paved parking and storage areas. CCC has entered into a lease to
expand its use of these premises on adjacent land, which lease terminates on
December 31, 2001, at a base rental of $5,600 per month.

The building space includes approximately 4,000 square feet of office
space, 4,000 square feet of manufacturing and assembly space used in the CCC's
battery pack business, with the balance of the space dedicated to warehousing,
storage, shipping and receiving operations.

CCC is considering leasing additional warehouse space that is
adjacent to its present warehouse in order to provide for the anticipated growth
in sales of its battery products. Should this agreement be consummated, the base
rental would increase from $5,600 to approximately $6,700 per month.

USCG leases approximately 21,600 square feet of space at its
Farmingdale, New York headquarters. The lease provides for monthly payments of
approximately $17,000 and calls for additional annual payments for taxes and
other pass-through expenses. The current lease term expires on December 31,
1998. It is USCG's intention to renew the lease upon expiration of the term of
the lease.

In addition, USCG has opened three satellite offices in order to more
effectively service the territories in which USCG operates. These offices
consist of (i) an 8,500 square foot office in New York City, New York which
expires in January 2008 and provides for current monthly rental payments of
$12,750 with schedule increases in rent to approximately $16,300 per month in
February 2003, plus certain pass through expenses (ii) a 6,500 square foot
facility in Carlsdadt, New Jersey, which expires in August 1999, is subject to a
four year renewal option, and provides for monthly payments of $3,556 subject to
annual inflation adjustments, and (iii) a 5,428 square foot facility in Fort
Washington, Pennsylvania which expires in January 2001 (subject to USCG's right
to extend for an additional two year term) and provides for monthly rent of
approximately $4,100, subject to annual inflation adjustments, plus certain pass
through expenses. In addition, USCG also has a lease for a 5,000 square foot
office in New York City which expires in June 2002 and provides for current
monthly rental payments of approximately $18,000 with scheduled adjustments in
rent to approximately $9,600 and $10,400 per month in July 1999 and November
2000, respectively, plus certain pass through expenses. USCG is currently
subletting such lease pursuant to which USCG is recovering monthly $9,400
through April 2000 and $10,212 through June 2002 from the sublease.

On August 1, 1998, the TEI leased a 1,500 square feet office in New
York City. This office serves as the Company's Corporate Headquarters and is
being leased for $4,625 monthly. The lease expires July 31, 1999.

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Item 3. Legal Proceedings

As noted above, Mr. Stephen Davies, former President of USCG,
terminated his employment on January 19, 1999. Since that date, Mr. Davies has
claimed damages from USCG based on, among other things, his employment agreement
with USCG. No legal proceeding has been commenced, and the Company cannot
predict whether Mr. Davies will undertake any proceeding, or the amount of any
recovery if he prevails in a proceeding.

Martin Frank, a former employee of CCC, has informed CCC that he
believes he has claims against CCC for breach of his employment agreement. Mr.
Frank has not commenced any legal proceeding, and the Company cannot predict
whether Mr. Davies will undertake any proceeding, or the amount of any recovery
if he prevails in a proceeding.

Item 4. Submission of Matters to a Vote of Security Holders

None

Part II

Item 5. Market for Company's Common Equity and Related Stock Matters

The Common Stock, Units, Class A Preferred Stock and Warrants of the
Company are traded on the NASDAQ Small Cap Market under the symbols TELE, TELEU,
TELEP and TELEW, respectively. On December 31, 1998, the last sales price of the
Company's Common Stock, Units and Warrants was $1 13/16, $5 1/2, and $3/4,
respectively. The Class A Preferred Stock has been traded with the Units and has
not been separately quoted.

During 1998, the Company sold 331,250 shares of Common Stock
through private placement for gross proceeds of $662,500. The sale was made to
accredited unrelated investors.

No dividends have been declared or paid on the Common Stock.

The Company has paid all dividends, which have accrued on the Class A
and Class B Preferred Stock. Dividends accrue at an annual rate of $36.75 and
are payable in quarterly arrears on the last day of March, June, October, and
December of each year. At the option of the Company, dividends are payable
either in cash or shares of Common Stock.

As of February 11, 1999, there were approximately 4,691,977
shares of Common Stock issued and outstanding held by 581 beneficial holders of
the Common Stock of the Company.

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On April 7, 1999, the Company was informed by NASDAQ that its
securities will be delisted effectively April 7, 1999, for failure to file a
timely annual report on Form 10-KSB. The Company believes that it meets or
exceeds all requirements for continued listing on the NASDAQ Stock Market. The
Company has appealed the decision and is currently trading on OTC Bulletin
Board, on The NASDAQ Stock Market. The Company cannot predict what impact, if
any, this action will have on the Company or trading in the Company's
securities.

The following table sets forth the high and low prices of the
Company's Common Stock on a quarterly basis for the calendar years 1996, 1997,
1998.

Common Stock Price

Calendar Period High Low

1996:
First Quarter.......$4.00 $2.125
Second Quarter......$1.875 $0.625
Third Quarter.......$1.50 $0.75
Fourth Quarter......$2.25 $1.375

1997:
First Quarter.......$3.25 $1.625
Second Quarter......$2.75 $1.50
Third Quarter.......$4.375 $1.625

1998:
First Quarter.......$3.938 $2.375
Second Quarter......$3.50 $2.375
Third Quarter.......$2.813 $1.375
Fourth Quarter......$4.25 $0.875

Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations

The following discussion and analysis should be read in conjunction
with the Company's Consolidated Financial Statements and notes thereto included
elsewhere in this Form 10-KSB. Except for the historical information contained
herein, the discussion in this Form 10-KSB contains certain forward looking
statements that involve risks and uncertainties, such as statements of the
Company's plans, objectives, expectations and intentions. The cautionary
statements made in this Form 10-KSB should be read as being applicable to all
related forward-looking statements wherever they appear in this Form 10-KSB.
These statements include, without limitation, statements concerning the
potential operations and results of the Company and information relating to Year
2000 matters, described below. The Company's actual results could differ
materially from those discussed here. Factors that could cause or contribute to
such differences include, without limitation, those factors discussed.

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<PAGE>

Recent Developments

The financial results of the Company for the twelve month period
ended December 31, 1998 were significantly impacted by the acquisition of a
majority interest in US Computer Group, Inc., (USCG), which was consummated on
March 19, 1998. The acquisition was accounted for as a purchase and is included
in the results of operations of the Company from the purchase date.

During the period ended December 31, 1998, a number of other
developments occurred which had a significant impact on the operations and
results of the Company, including the following:

On January 19, 1999, US Computer Group negotiated with certain of its
major general unsecured creditors (the Unofficial Committee of Unsecured
Creditors composed of accepting creditors). USCG entered into these discussions
for purposes of analyzing its financial condition and entered into a
composition/extension agreement to resolve its financial difficulties concerning
its unpaid general unsecured obligations. Each accepting creditor shall be
entitled to receive its share of the payments due, submitted to the committee as
an allowed claim. USCG will make an initial cash distribution on June 15, 1999
for 25% of its allowed claim and a second cash distribution will be made as soon
as practicable after March 15, 2000 of up to 15% of its allowed claim. Based on
this agreement, USCG will be paying accepting creditors 40% of the outstanding
debt owed. Upon payment by USCG, the debt obligations with the Accepting
Creditors will be settled in full. Each accepting creditor will also receive
warrants exercisable through and including September 30, 2000 in the event that
USCG is the subject of an Initial Public Offering or obtains additional
financing in excess of $1,000,000. If the preceding events occur before or on
April 30, 2000, the accepting creditors shall be entitled to receive their pro
rata share of 60% of the amount raised by USCG in excess of $1 million up to the
aggregate debts of the accepting creditors.

On February 25, 1999, Telstar Entertainment ("Telstar"), the second
largest shareholder of USCG, agreed to contribute additional capital to USCG
through the purchase of additional shares. The purchase was consummated on March
12, 1999 making Telstar the largest shareholder of USCG. Effective February 25,
1999, the Company will cease reporting USCG's financial results in its
consolidated financial statements, and use the equity method to account for its
minority interest in the subsidiary.

The unaudited proforma summary consolidated balance sheet as of
February 28, 1999 excluding USCG balances is as follows:

Current assets 3,767,491
Fixed assets, net 321,609
Other assets 12,518
Current liabilities (1,050,476)
Stockholders' equity 3,051,141

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<PAGE>

On April 7, 1999, the Company was informed by NASDAQ that its
securities will be delisted effectively April 7, 1999, for failure to file a
timely annual report on Form 10-KSB. The Company believes that it meets or
exceeds all requirements for continued listing on the NASDAQ Stock Market. The
Company has appealed the decision. The Company is currently trading on the OTC
Bulletin Board, on The NASDAQ Stock Market. The Company cannot predict what
impact, if any, this action will have on the Company or trading in the Company's
Securities.

Results of Operations

FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997. The Company's results
of operations for the year ended December 31, 1998 versus the year ended
December 31, 1997 were significantly impacted by both the acquisition of US
Computer Group, which was consummated on March 19, 1998, and a significant
increase in sales at Computer Components Corporation subsidiary, Universal
Battery Corporation.

Revenues

For the year ended December 31, 1998, the Company had sales of
$24,913,031, an increase of $18,246,194 (273.69%), compared to sales of
$6,666,837 during the same period in 1997. The significant increase in revenues
was due to sales contributed by USCG and its subsidiaries, which together
contributed sales of $16,906,496 to the Company's revenues during the nine month
period in which USCG was consolidated with Tech Electro Industries. Neither
USCG, nor its subsidiaries, had sales contributing to the Company's revenues in
the comparable period in 1997. CCC's subsidiary, UBC contributed $4,138,880 in
revenues. Sales revenues at UBC increased dramatically due to management's
decision to shift their focus from computer components at CCC to increasing
sales efforts on battery and battery related products through its UBC
subsidiary.

The Company recognized a loss from operations of $4,490,961 for the
year ended December 31, 1998, compared to a loss of $1,413,350 during the same
period in the prior year, an increase in net losses of $3,077,611 (217.75%). The
Company's increased loss was due to escalations in both cost of goods sold and
general and administrative expenses from both USCG and CCC and its subsidiaries.
The cost of goods sold and direct servicing costs rose to $17,588,858 in the
year ended December 31, 1998 from $4,905,755 during the same period during 1997,
an increase of $12,683,103 (258.53%). The Company's general and administrative
expenses rose to $10,564,336 for the year ended December 31, 1998, from
$2,886,132 for the same period in 1997, an increase of $7,678,204 (266.04%). The
increase in both cost of goods sold and general and administrative expenses can
be attributed to the consolidation of USCG and its subsidiaries, which
contributed cost of goods sold and direct servicing costs of $11,467,074 and
general and administrative expenses of $6,710,177 during the nine month period
in which USCG was consolidated with Tech Electro, with no contribution during
the same period in 1997.

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<PAGE>

CCC and its subsidiaries recorded revenues for the year ended
December 31, 1998 of $8,006,535, compared to $6,666,837 for the same period in
1997, an increase of $1,339,698 (20.0%). This increase in revenues was primarily
due to the increased battery sales at CCC's subsidiary UBC, which has been their
prime area of growth. Battery sales at UBC have increased by $2,647,313 (177.4%)
to $4,138,880, compared to sales of $1,491,567 during the same period in 1997.
In contrast, sales at VBT, dropped $185,829 (50.43%) to $182,649 during the year
ended December 31, 1998, compared to $368,478 during the same period ending
December 31, 1997. Sales at CCC decreased by $1,121,786 (23.34%) to $3,685,006
for the twelve months ended December 31, 1998 compared to $4,806,792 during the
same period ending December 31, 1997. This significant decrease of sales at CCC
stemmed from the loss of a CCC customer, Sunbeam, as well as a major decrease in
orders at CCC subsidiary VBT.

As a result of the history of losses for VBT during the past two
years, the management has made the decision to cut back on the overall
operations of VBT. As of December 31, 1998, VBT has only one full time employee
who is being retained to support the current level of business. The purpose of
this reorganization was to cut back on non-efficient operations and focus on the
company's key strengths. This reorganization enables CCC to concentrate on its
expanding battery sales operations through UBC, which contributed $4,138,880 in
revenues in fiscal 1998 due to sharply increased sales.

Cost of Goods Sold and Direct Servicing Costs

The Company's cost of goods sold and direct servicing costs,
consisting primarily of inventory, rose to $17,588,858 for the year ended
December 31, 1998 compared to $4,905,755 for the year ended December 31, 1997,
an increase of $12,683,103 (258.54%). The increase was due to the impact of USCG
and its subsidiaries, which contributed $11,467,074 to the cost of goods sold
for the 9 month period ending December 31, 1998, with no contribution in the
comparable period in 1997.

Cost of goods as a percentage of sales decreased to 70.6% in the year
ended December 31, 1998, from 73.58% during the same period in 1997. This
decrease is largely attributable to USCG and its subsidiaries, for which the
cost of goods as a percentage of sales was 67.83% in the consolidated period of
1998.

On a consolidated basis (CCC and its subsidiaries), the costs of
goods sold increased by $1,216,029, to $6,121,784 for the year ended December
31, 1998, compared to $4,905,755 for the same period in 1997.

Selling, General and Administrative Expenses

The Company's selling, general and administrative expenses (or "S,G
&A"), consisting primarily of wages, benefits and related expenses, rose to
$10,564,336 for the year ended December 31, 1998, compared to $2,886,132 for the
year ended December 31, 1997, an increase of $7,678,204 (266.04%). The increase
in selling, general and administrative expenses was due to costs associated with
operations of USCG and its subsidiaries, which contributed general and
administrative expenses of $6,710,177 for the year ended December 31, 1998, with
no contribution during the same period in 1997.

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<PAGE>

CCC's and its subsidiaries' selling, general and administrative
expenses increased by $151,902 (7.27%), to $2,242,411 for the year ended
December 31, 1998, compared to $2,090,509 during the same period ended December
31, 1997.

Inventory

CCC monitors potential inventory adjustments on an ongoing basis and
increased its inventory allowance periodically throughout Fiscal 1998. During
Fiscal 1998, the Company set aside $1,250,798 as a reserve for inventory
allowance, compared to $288,300 in Fiscal 1997. Over $200,000 of the reserve
taken against inventory during Fiscal 1998 was attributable to the unexpected
loss of Sunbeam, a major customer of CCC, for which CCC was carrying inventory
based on previous sales history and forecasts. CCC continually reviews its
inventory allowance procedures and policies and will make adjustments as
necessary.

Interest Expense

The Company incurred $684,120 in interest expense for the year ended
December 31, 1998, compared to $30,072 during the same period in 1997, an
increase of $654,048 (2174.94%). The significant increase in interest expense is
attributable to USCG and its subsidiaries, which incurred $647,452 in interest
expense for the consolidated nine month period ended December 31, 1998, with no
contribution during the same period in 1997.

Reorganization Expense

The Company's US Computer Group subsidiary incurred $46,618 of
reorganization expenses during the fourth quarter of 1998 directly associated
with the September 15, 1998 reorganization in which USCG made extensive cuts in
overhead. These reorganization expenses incurred primarily consisted of
severance packages to terminated employees.

Acquisition Expense

The Company incurred expenses of $187,190, which were associated with
the potential acquisition of DenAmerica Corporation ("Den"). As earlier
reported, the Company entered into an agreement on July 10, 1998 for the
acquisition of Den, the largest franchisee of Denny's restaurants and the owner
of the Black-eyed Pea chain of restaurants. On October 27, 1998, Tech Electro
Industries, Inc. announced the termination of the proposed Den acquisition
citing failure of certain financial contingencies.

Income Tax Expense

The expected income tax benefit for 1998 and 1997 resulting from the
net loss has a 100% valuation allowance recorded against it for both periods.

Liquidity

As of December 31, 1998, the Company had cash and cash equivalents of
$1,399,060. By comparison on December 31, 1997, the Company had approximately
$2,014,667 in cash and cash equivalents, marketable securities and certificates

25
<PAGE>

of deposits. The change in the Company's investment in cash, certificates of
deposit, and securities reflects not only the cash and cash equivalents of USCG,
but also the liquidation of marketable securities (bonds) to fund the cash needs
of the Company, as well as the sale of all marketable securities. The proceeds
from this sale were $120,363. The Company used these proceeds to pay down
various lines of credit for the existing operations of CCC, UBC and VBT.

On September 9, 1997, USCG entered into a loan agreement with Coast
Business Credit, subsequently amended on February 24, 1998 and March 19, 1998,
which provides for a revolving loan with the maximum borrowings allowable equal
to the lesser of $10,000,000 outstanding at any one time or the sum of 80
percent of the amount of the Company's eligible receivables, as defined in the
loan agreement, other than maintenance contract receivables, plus 4.25 times the
average total monthly computer maintenance contract collections to be calculated
on a trailing twelve month moving average, plus a term loan in the principal
amount of $500,000. Borrowings under the loan agreement are secured by an
interest in all of USCG's owned accounts receivable, inventory, equipment,
investment property and general intangibles. The revolving loan matures on
September 30, 2000, subject to renewal terms of one year each. The interest on
the Term Loan is payable beginning on October 31, 1998 in equal monthly
installments of $14,000 plus a payment of the unpaid principal balance on
September 30, 2000. As of December 31, 1998, $944,000 was outstanding under a
bridge term loan extended to USCG shortly after its acquisition by the Company,
in addition to $6,418,654 for a total of $7,362,654 outstanding. USCG obtained a
waiver of default from Coast Business Credit on June 11, 1998 for failing to: i)
comply with Coast Business Credit's Tangible Net Worth covenant and ii) provide
Coast with the annual audited financial statements for the fiscal year ending
February 28, 1998 before May 31, 1998. This waiver of default expires on May 31,
1999. USCG is currently applying for and believes that it will be granted an
extension on the waiver of default.

In addition, the USCG has a "floorplan" credit line arrangement with
a finance corporation that provides for financing of up to $350,000 to support
inventory purchases from a specific vendor. The floorplan credit line agreement
does not provide for interest terms as amounts outstanding and are required to
be paid in approximately thirty days. As collateral security for the payments
under the loan agreement, the Company granted the finance corporation a security
interest in the assets of the Company. The balance outstanding under this
arrangement at December 31, 1998 totaled $333,975.

On January 19, 1999, US Computer Group negotiated with certain of its
major general unsecured creditors, (the Unofficial Committee of Unsecured
Creditors composed of accepting creditors). USCG entered into these discussions
for purposes of analyzing its financial condition and entered into a
composition/extension agreement to resolve its financial difficulties concerning
its unpaid general unsecured obligations. Each accepting creditor shall be
entitled to receive its share of the payments due, submitted to the committee as
an allowed claim. USCG will make an initial cash distribution on June 15, 1999
for 25% of its allowed claim and a second cash distribution will be made as soon
as practicable after March 15, 2000 of up to 15% of its allowed claim. Based on
this agreement, USCG will be paying accepting creditors 40% of the outstanding
debt owed. Upon payment by USCG, the debt obligations with the accepting
creditors will be settled in full. Each accepting creditor will also receive
warrants exercisable through and including September 30, 2000 in the event that
USCG is the subject of an Initial Public Offering or obtains additional
financing in excess of $1,000,000. If the preceding events occur before or on

26
<PAGE>
April 30, 2000, the accepting creditors shall be entitled to receive its pro
rata share of 60% of the amount raised by USCG in excess of $1 million up to the
aggregate debts of accepting creditors.

On April 8, 1998, Tech Electro Industries commenced a private
placement of 375,000 shares of Company common stock for $750,000. Gross proceeds
raised to date are $662,500. The funds have been used for general working
capital.

The Company has used significant cash in operations for 1998 and 1997
amounting to $1,833,921 and $1,627,283 respectively. As discussed previously the
Company is streamlining operations and will only support USCG's operations to
the extent that it has the financial resources to do so.

The Company expects to fund future cash needs through operations, its
lines of credit and raising additional capital as necessary.

Inflation

The Company has not been materially effected by inflation. While the
Company does not anticipate inflation affecting the Company's operations,
increases in labor and supplies could impact the Company's ability to compete.

Risks Relating to Year 2000: USCG

As has been widely reported, there is worldwide concern that year
2000 technology problems may materially and adversely impact a variety of
businesses, local, national and global economies. USCG, in response to this
effort, has commenced a process of identifying operating and application
software systems that will be impacted by the year 2000. USCG's preliminary
analysis indicates that it will require enhancements of software in older
systems, as well as updating and enhancing various accounting and other systems.
The most significant year 2000 upgrade will be USCG's accounting software
package, which must be upgraded to become compliant. USCG plans to have the
accounting package in place and operational by the fourth quarter of 1999. If
USCG's accounting software package is not on line by November 1999, accounting
functions can be temporarily duplicated in an off the shelf accounting package
or managed manually. In addition, USCG's operating systems server software has
to be upgraded to a compliant version. Some of USCG's server hardware may also
have to be upgraded to become compliant. Finally, some internet software
packages may have to be upgraded. However, USCG will not incur charges for these
internet software package upgrades.

USCG has also reviewed non-information technology systems. Minor
upgrades are required for the Long Island and New Jersey office telephone
systems, costing less than $5,000. The telephone systems in New York City and
Philadelphia are already year 2000 compliant. The New York City facility is
presently being reviewed to determine if their HVAC and elevator equipment is
compliant.

USCG has generated a time line to ensure that all systems are year
2000 compliant. In the case where certain issues arise which were not uncovered
during the assessment phase, the appropriate personnel will be allocated to
remediate the issue. Accordingly, USCG plans to devote the necessary resources
to resolve all year 2000 issues in a time conscious manner. USCG plans to have
changes to critical systems completed by the fourth quarter of 1999. This
assessment is based on information currently available from USCG's internal

27
<PAGE>

assessment of modifications that can be made and conversions that are not
available. USCG believes that the likelihood of a material adverse impact to the
company as a result of internal year 2000 problems is remote. While USCG
believes that it will complete upgrades of its operating and application
software systems prior to the year 2000, competition for goods and services,
relating to such upgrades, including computer equipment and installation
expertise, may cause delays in implementation.

The estimated cost to remediate all year 2000 issues will be around
$400,000. USCG management anticipates paying for these upgrades from improved
cash flow during fiscal 1999. This expense is not anticipated to be material to
the Company's financial position or future results of operations, although there
can be no assurance that presently unforeseen computer programming difficulties
will arise.

Risk Relating to Year 2000: Customers and Vendors

USCG has not conducted a systematic evaluation of the year 2000
compliance of its customers and vendors. As a result, it is possible that the
USCG's future performance may be adversely impacted by payment and financial
difficulties experienced by customers and by shipping, fulfillment and
accounting difficulties experienced by vendors. USCG believes that it has
sufficient resources, including cash reserves and inventory supplies, to
maintain operations during delays in payments or supply of inventories. However,
the company is aware that extended difficulties by larger vendors or customers
may have a significant impact; however, it is unable, at this time, to
anticipate the extent of any such impact, were it to occur.

Since USCG has a large base of customers with equipment and software
that may be prompted to upgrade their systems in anticipation of the year 2000
change, USCG's maintenance operations may be adversely affected by the year 2000
problem. However, the Company believes that any upgrades by USCG's clients could
positively impact USCG's resale and computer solutions operations.

Risks Relating to Year 2000: CCC

CCC believes that it has addressed the year 2000 issue in its
entirety and will not face an operational problem. In 1997, they hired a
Director of MIS to address these issues. CCC has upgraded all computer hardware
and software to year 2000 compliance. CCC believes that it will be fully
compliant well before the beginning of the year 2000. CCC's business is
dependent on its relationship with its vendors and manufacturers. There is no
assurance that CCC's suppliers and manufacturers will be year 2000 compliant.
This may have a material adverse effect on CCC unless CCC is able to arrange for
alternate suppliers and manufacturers if such an event were to occur.

Results of Operations

FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996. The Company's sales for
the year ended December 31, 1997 (Fiscal 1997) were $6,666,837, an increase of
73.6% from sales of $3,840,075 in the year ended December 31, 1996 (Fiscal
1996). The increase in sales was attributable primarily to increased sales of
the Company's import products of approximately 27.5%, from $2,335,047 in Fiscal
1996 compared to $2,975,618 in Fiscal 1997, which was due, in part, to an

28
<PAGE>

increase in sales from the Company's batteries and battery assembly line of
approximately 27.7%, from $1,410,842 in Fiscal 1996 compared to $1,801,740 in
Fiscal 1997.

Management of the Company believes that the decrease in battery and
battery assembly sales in Fiscal 1997 was due to a decline in usage by existing
customers, and by failure of the Company to attract new customers to replace
those sales. During Fiscal 1997, the Company took several steps to enhance
marketing and sales of battery assembly products; however, it is not yet clear
whether those steps will result in significant improvement of sales of batteries
and battery assemblies.

A substantial portion of the increase in sales by the Company in the
year ended December 31, 1997 compared to the year ended December 31, 1996 were
the result of the first full year of operations of UBC, which recorded sales of
$1,491,567 during the year ended December 31, 1997. UBC had negligible sales in
the year ended December 31, 1996. In addition, CCC recorded sales of $4,806,792
during the year ended December 31, 1997 compared to approximately $3,840,000
during the year ended December 31, 1996, primarily from expanded marketing
activities.

The Company's gross profit margin in Fiscal 1997 decreased to 26.5%
from 29.1% in Fiscal 1996. The decrease in gross profit margin was due largely
to the Company's assumption of the distributorship of Panasonic battery products
in February 1997, the operations of which are conducted primarily by UBC. Under
its agreement to become a distributor of these products, the Company was
obligated to provide discounts and rebates at rates in excess of those normally
offered by the Company. The Company determined to accept these terms in order to
expand UBC's market penetration and to give UBC access to new opportunities.
However, UBC is no longer is obligated to provide these incentives and is
revising its product prices and terms; however, there can be no assurance that
UBC will be able to effect price increases and adjust terms without reducing its
customer base and impacting sales.

The Company monitors potential inventory adjustments on an ongoing
basis and increased its inventory allowance periodically throughout Fiscal 1997.
During Fiscal 1997, the Company increased its reserve for obsolete and
slow-moving inventory to $470,600, from $182,300 at December 31, 1996. A
substantial portion of this increased allowance was provided for in the last
three months of Fiscal 1997, and reflects the Company's decision to analyze its
inventory allowance on the basis of sales in recent periods. The Company
continually reviews its inventory allowance procedures and policies and will
continue to adjust allowances as appropriate.

VBT, a wholly owned subsidiary of the CCC, is engaged in design and
engineering specialized products incorporating recent advances in technologies
related to LED's, a lighting device used in industrial and commercial products.
During Fiscal 1997, VBT focused on developing new products and seeking new
market opportunities. For the year ended December 31, 1997, VBT contributed
sales of approximately $368,500 to the sales of the Company. Although there can
be no assurance that VBT will realize substantial sales in the foreseeable
future, the Company believes that VBT will have opportunity to effect sales in
1998 and subsequent years based on its development activities in Fiscal 1997.
VBT generated a loss of approximately $107,800 during the year ended December
31, 1997.

29
<PAGE>

On October 26, 1996, the Company formed a subsidiary corporation, UBC,
for the purpose of expanding into new markets for batteries and battery
products. During Fiscal 1997, UBC recorded substantial development and startup
costs, including substantial payroll expenses and purchases of inventory, as it
established personnel and systems to support anticipated sales. UBC generated a
loss of approximately $144,600 in Fiscal 1997.

On March 19, 1998, Tech Electro Industries, Inc. (the "Company")
consummated the acquisition of newly issued shares of common stock equaling,
after issuance, 51% of the issued and outstanding common stock of US Computer
Group, Inc. ("USCG"). USCG, is a computer maintenance, systems solution and
information technology partner headquartered in Farmingdale, NY with annual
revenues in excess of $20 million. The transaction was originally announced on
December 19, 1997, at which time the Company had agreed to purchase a 62%
interest in US Computer Group from Telstar Holdings Ltd. Since the date of that
announcement, the Company, USCG and Telstar Holdings have entered into an
Amended and Restated Stock Purchase Agreement, which was executed and
consummated on March 19, 1998. The purchase consideration for the interest in
USCG was $1 million, paid in cash. In connection with the acquisition, USCG
issued to Telstar Holdings shares of its newly authorized Series E Preferred
Stock with a stated value of $2,000,000 in consideration for the conversion of
loans made by Telstar Holdings to USCG. The Company obtained the funds for the
acquisition through a private placement of shares pursuant to Regulation S of
the Securities Act of 1933, as amended, which was previously reported on Form
8-K.

General and administrative expenses for Fiscal 1997 increased to
$2,886,132 from $1,308,176 in Fiscal 1996, due primarily to increased salaries
and legal costs, some of which are associated with expansion of the Company's
operations, including the acquisition of US Computer Group, Inc., which was
consummated in March, 1998. Salaries paid by the Company increased to
approximately $1,186,000 in the year ended December 31, 1997 compared to
$566,800 in the year ended December 31, 1996, an increase of approximately 109%.
In addition, the Company paid $462,250 in non-cash compensation in the form of
restricted stock grants to certain of its senior execution. See Item 10. --
Execution of Compensation. Almost all of the increase in salaries is associated
with office employees, including additional sales and clerical staff. Legal fees
during the period ending December 31, 1997 were approximately $157,800, an
increase of 170% from legal expenses of approximately $59,400 in the year ended
December 31, 1996. The increase in legal fees was due primarily to increased
administrative and regulatory burdens.

The Company generated additional interest income in Fiscal 1997
compared to Fiscal 1996 as a result of investments of funds received in the
Company's public offering. See, "Market for the Company's Common Equity and
Related Stockholders Matters."

Forward-Looking Statements

In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company wishes to caution readers
that the following important factors could cause the Company's actual results to
differ materially from those projected in forward-looking statements made by, or
on behalf of, the Company:

30
<PAGE>

-- Factors related to increased competition from existing and new
competitors, including price reductions and increased spending on marketing and
product development; and limitations on the Company's opportunities to enter
into and/or renew agreements with vendors and customers.

-- The Company's inability to manage its growth and to adapt its
administrative, operational and financial control systems to the needs of the
expanded entity; and the failure of management to anticipate, respond to and
manage changing business conditions.

-- The failure of the Company or its partners to successfully utilize
international markets; and risks inherent in doing business on an international
level, such as laws governing content that differ greatly from those in the
U.S., unexpected changes in regulatory requirements, political risks, export
restrictions, export controls relating to technology, tariffs and other trade
barriers, fluctuations in currency exchange rates, issues regarding intellectual
property and potentially adverse tax consequences.

-- The amount and rate of growth in the Company's marketing and general
and administrative expenses; the implementation of additional pricing programs;
and the impact of unusual items resulting from the Company's ongoing evaluation
of its business strategies, asset valuations and organizational structures.

-- Difficulties or delays in the development, production, testing and
marketing of products, including, but not limited to, a failure to ship new
products and technologies when anticipated.

-- The acquisition of businesses, fixed assets and other assets and
acquisition related risks, including successful integration and management of
acquired technology, operations and personnel, the loss of key employees of the
acquired companies, and diversion of management attention from other ongoing
business concerns; the making or incurring of any expenditures and expenses; and
any revaluation of assets or related expenses.

-- The ability of the Company to diversify its sources of revenue
through the introduction of new products and services and through the
development of new revenue sources.

Item 7. Financial Statements

Information required by this item appears in the Consolidated
Financial Statements and Report of Independent Certified Accountants of Tech
Electro Industries, Inc. and Subsidiaries contained herein.

31
<PAGE>

Item 8. Change in and Disagreement with Accountants on Accounting and Financial
Disclosure

As reported on Form 8-K, on February 13, 1998, the Company retained
King Griffin & Adamson P.C.as its independent public accountants. The
engagement of King Griffin & Adamson P.C. was approved by the Company's Board of
Directors. The Company had announced on Form 8-K filed on June 27, 1997, that it
had engaged Deloitte & Touche LLP in anticipation of their accepting the Company
as a new client; however, Deloitte & Touche LLP had not completed its new client
acceptance procedures and did not reach an agreement with the Company
regarding fee arrangements and timing of audit services. As of February 13,
1998, Deloitte & Touche LLP had not audited any financial statements nor
reviewed any interim financial information of the Company or any subsidiary of
the Company, nor had the Company consulted with Deloitte & Touche LLP as to
any accounting principles or practices, financial statements or disclosures,
or auditing scope or procedure, except for a brief consultation ($3,400) in
coordination with King Griffin & Adamson P.C. regarding financial statement
disclosure. Deloitte & Touche LLP's services were limited to reading a draft of
the Company's Form 10-KSB for the year ended December 31, 1996 and
discussing the format of such report with the Company's auditors and
attorneys. Deloitte & Touche LLP did not provide a written summary in connection
with the consultation. King Griffin & Adamson P.C.was consulted concerning the
format of the report, and expressed no views on such consultation. The Company
had no disagreements with Deloitte & Touche LLP during the period from June 27,
1997 through February 13, 1998 on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure.

In December 1997, the Company engaged Deloitte & Touche LLP to conduct
due diligence procedures with respect to the Company's acquisition of a majority
interest in US Computer Group, Inc., and in March 1998, the Company engaged
Deloitte & Touche LLP to audit the financial statements of that Company for the
year ended February 28, 1998 to be included in the Company's amended report on
Form 8-K relating to such acquisition. Such services did not include a review or
audit of any other financial statements or information, or any consultation as
to any accounting principles or practices regarding the Company or any
subsidiary of the Company other than US Computer Group, Inc.

As previously disclosed, King Griffin & Adamson P.C., and its
predecessor, King, Burns & Company, P.C. audited the Company's financial
statements for the fiscal years ended December 31, 1996 and 1995. For the
Company's fiscal years ended December 31, 1996 and 1995, the financial
statements did not contain an adverse opinion or a disclaimer of opinion, nor
were they qualified or modified as to uncertainty, audit scope, or accounting
principles by King Griffin & Adamson P.C., or its predecessor King, Burns &
Company, P.C.

King Griffin & Adamson P.C. has reviewed this Report and been given an
opportunity to furnish the Company with a letter addressed to the Commission
regarding the subject of this Report and has declined to do so.

32
<PAGE>

Part III

Item 9. Directors, Executive Officers, Promoters and Control Persons

(a) At March 31, 1999, the following persons served as
directors and executive officers of TEI:

Name and Age Position with Company Since

William Kim Wah Tan (56) Chairman of the Board, 1997
President, Chief Executive
Officer and Director

Sadasuke Gomi (28) Director (1) 1997

Kim Yeow Tan (54) Director 1997

Steven E. Scott (50) Executive Vice President 1997
and Director

Ian Colin Edmonds (27) Director 1997
Vice President 1999

Donna Gilbert (44) Interim Chief Financial Officer 1999

Mee Mee Tan (25) Corporate Secretary 1998

(1) Mr. Gomi served as a Vice President and Corporate Secretary of TEI until
his resignation in February 1998.

All directors of the Company are elected at the annual shareholder
meeting and serve as such directors until the next annual meeting of
shareholders. Directors may be re-elected at such succeeding annual meeting so
as to succeed themselves. All employees of the Company who are also directors do
not receive compensation for serving as such directors. Outside (non-employee)
directors receive Five Hundred Dollars ($500.00) compensation for attendance at
director meetings.

(b) Executive Officers of the Company:

William Tan Kim Wah was elected Chairman of the Board, President, Chief
Executive Officer and Director of the Company on February 11, 1997.

Kim Yeow Tan was elected Director and Vice-President of the Company on
February 11, 1997. Mr. Kim Yeow Tan resigned as Vice-President of the Company in
July 1997.

33
<PAGE>

Sadasuke Gomi was elected Director and Secretary of the Company in May
1997. Mr. Gomi resigned as Vice-President and Secretary of the Company on
February 16, 1998. Mr. Gomi was appointed to the Independent Audit Committee on
March, 1999.

Steven Scott was appointed Executive Vice President of the Company in
May 1997. He was elected a director of the Company in July 1997.

Ian Edmonds was elected a director of the Company in July 1997 and was
appointed to the Independent Audit Committee on February 18, 1998. Mr. Edmonds
resigned from the Committee in February 1999 and was concurrently appointed
Vice-President of the Company.

Donna Gilbert has served as an independent consultant to the Company
since July 1997. Ms. Gilbert was appointed Interim Chief Financial Officer in
January 1999.

MeeMee Tan was appointed Corporate Secretary of the Company on February
16, 1998.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16 of the Exchange Act requires the Company's directors and
executive officers and persons who own more than 10% of a registered class of
the Company's equity securities to file various reports with the Securities and
Exchange Commission and the National Association of Securities Dealers
concerning their holdings of, and transactions in, securities of the Company.
Copies of these filings must be furnished to the Company.

Based on a review of the copies of such forms furnished to the Company and
written representations from the Company's executive officers and directors, the
Company believes that during the 1998 fiscal year its officers, directors and
greater than 10% stockholders complied with all applicable Section 16(a) filing
requirements.

David Arnold (63) President of CCC as of January 14, 1999

Randy Hardin (39) Chief Executive Officer of CCC as of January 14,
1999

Julie A. Sansom-Reese (36) Chief Financial Officer of CCC

Alan Andrus (55) President, Chief Executive Officer and Director of
USCG as of January 19, 1999

Alexander Voda, Jr. (43) Senior Vice President, Chief Financial
Officer, Treasurer and Secretary of USCG.

34
<PAGE>

(d) Business Experience:

WILLIAM KIM WAH TAN, Chairman of the Board, Chief Executive
Officer, President and Director. Mr. Tan was elected to these offices on
February 11, 1997. For the past twenty years, Mr. William Kim Wah Tan has been
active as an entrepreneur in the fields of finance, general insurance,
property development and management. Mr. William Kim Wah Tan has held senior
management positions in a number of financing, insurance, textile, property
development and related businesses. He is the brother of Mr. Kim Yeow Tan.

KIM YEOW TAN, Director. Mr. Kim Yeow Tan was elected director and
Vice-President of TEI on February 11, 1997, and resigned as Vice President
on February 16, 1998. Mr. Kim Yeow Tan is a graduate of the Malayan Teachers
Training College and holds a Bachelor of Science Degree in Business
Administration from Century University, United States. For the past
fifteen years, Mr. Kim Yeow Tan has been active as an entrepreneur in the fields
of finance, general insurance, property development and management. Mr. Kim
Yeow Tan has held senior management positions in finance companies, insurance
companies, textile and property development and related businesses. He is the
brother of Mr. William Kim Wah Tan.

SADASUKE GOMI, Director. He has served as director since
February 11, 1997. Mr. Gomi is a graduate of Mejii University in Japan,
where he received a bachelor's degree in commerce. Mr. Gomi served as Vice
President and Corporate Secretary of the Company from February 11, 1997 until
February 1998. Mr. Gomi was appointed to the Independent Audit Committee on
March 1999.

STEVEN SCOTT, Executive Vice President and a director of the Company.
Prior to joining the Company, Mr. Scott was a Senior Vice President for Sales at
Dean Witter Reynolds Incorporated, a broker-dealer and investment banker from
November 1995 through March 1997. Prior to that position, he served as a Senior
Vice President - Sales at Prudential Securities from June 1994 to November 1997,
and as a Senior Vice President - Sales for H.J. Meyers & Co., Inc. prior to June
1994. Mr. Scott was appointed Executive Vice President in May 1997 and was
elected a director of the Company in July 1997.

IAN COLIN EDMONDS, Vice President and director of the Company.
Mr. Edmonds is a graduate of the University of Denver, where he received a
bachelors degree in Marketing and minor in Statistics in June 1996. Following
graduation and through December 1997, he was Assistant Product Manager at
Information Handling Services, a private information-technology firm, in
Denver, Colorado. Mr. Edmonds has served as a director of the Company since
July 1997. Mr. Edmonds was appointed as Vice President in February 1999.

DONNA GILBERT, Interim Chief Financial Officer. Ms. Gilbert began
serving as an independent consultant for the Company in June of 1997. The
Company hired her as a part time controller in April of 1998. On January 1,
1998, Ms. Gilbert was appointed Interim CFO. Ms. Gilbert is a graduate of
Eastern Michigan University with a Bachelors of Science. As an independent
CPA, she has practiced before the Internal Revenue Service, California
Franchise Tax Board, Nevada Gaming Control Board, and California State Board of
Equalization.

35
<PAGE>

MEEMEE TAN, Corporate Secretary. Ms.Tan holds a BS in Marketing and a
minor in Statistics from University of Denver, Colorado. Prior to joining TEI,
Ms. Tan was an intern at Prudential Securities in Denver, Colorado. She is the
daughter of Mr. William Kim Wah Tan.

DAVID ARNOLD, President and Director of CCC. Since January 1987,
Mr. Arnold has served as Vice President of Dunbar Associates, Inc., now merged
into Computer Components Corporation. On January 12, 1999, Mr. Arnold was
appointed Vice President of CCC. In addition to serving in his new position, Mr.
Arnold will continue to oversee the battery assembly operation, as well as,
purchasing and inventory control functions. Mr. Arnold was born in
Portsmouth, Ohio, and received a public school education there. Mr.
Arnold earned a BA degree from Ohio Wesleyan University, Delaware, Ohio, and a
BSEE degree from Case Institute of Technology, Cleveland, Ohio.

RANDY HARDIN, President and Director of CCC. On January 12, 1999, Mr.
Hardin was appointed CEO of CCC and UBC. Mr. Hardin is in charge of the day to
day operations, all marketing and sales activities of the newly consolidated
company. He graduated from Texas A&M in 1982 with a BA degree in Marketing. From
1982 to 1992 he was employed by Interstate Batteries as National Sales Manager
of specialty products. From 1992 to 1996 he served in the same position with MK
Battery company, presently a division of East Penn Battery Company. In October
1996 he joined UBC.

JULIE A. SANSOM-REESE, Treasurer of CCC. Ms. Sansom-Reese was
born in Midland, Texas, and earned a BA degree in Business from Texas Tech
University, Lubbock, Texas. Since August 1986, Ms. Sansom-Reese has served
as Comptroller and Treasurer of Computer Components Corporation, the Company's
subsidiary.

ALAN ANDRUS, President and Director of USCG. Mr. Andrus joined USCG
in October 1998, bringing nearly thirty years of experience in the computer
service industry. At Grumman Corporation, he became President of Grumman Systems
Support Corporation, an independent service organization servicing businesses
nationwide. After Grumman he became Senior Vice President of Services and
Integrated Solutions at Computerland/Vanstar and then Senior Vice President at
Technology Service Solutions, a joint venture between IBM and Kodak. Mr. Andrus
holds a BS from Fordham University and has done Summa Cum Laude level
postgraduate Masters work at University of Southern California.

ALEXANDER VODA, JR. joined USCG as its Chief Financial Officer in
December 1996 after four years as controller of Ikon Office Solutions, a New
York based office technology provider. From 1981 to 1992, Mr. Voda served as
Director of Finance and Controller at Ferranti Venus, Inc., a designer and
manufacturer of custom power supplies primarily for military applications. Mr.
Voda holds a BS in Accounting from St. John's University and is a certified
public accountant.

No family relationship exist among any of the executive officers or
directors of the Company or chosen to become directors or executive officers,
except that Messrs. Kim Yeow Tan and William Kim Wah Tan are brothers, and Mee
Mee Tan is the daughter of Mr. William Kim Wah Tan.

36
<PAGE>

Item 10. Executive Compensation

The following table sets forth the aggregate cash compensation paid
by the Company during its year ended December 31, 1998, 1997, and 1996 to the
CEO of the Company and each of the Company's executive officers whose total cash
compensation from the Company exceeded $100,000, and to all executive officers
as a group.

SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------

Annual Compensation Long-Term Compensation
------------------------ ---------------------------------
Awards Payouts
- ---------- --------- ------ ----- ----------- ---------- ------------ --------
Name and Fiscal Salary Bonus Other Restricted Securities LTIP
Principal Year ($) ($) Annual stock Underlying Payouts
Position Ended Compensation award(s) Options/ ($)
December ($) (1) ($) SARs (#)
31
- ---------- --------- ------ ----- ----------- ---------- ------------ --------
William 1998 0 0 0 $244,620 0 0
Tan Kim
Wah,
Chairman 1997 0 0 0 $393,750 100,000 0
of the (2b) (2b)
Board,
President 1996 N/A N/A N/A N/A N/A N/A
and CEO
of TEI
- ---------- -------- ------- ----- ----------- ---------- ------------ --------
1998 $ 77,423 0 $1,391 0 0 0
Craig D.
La Taste
President 1997 $ 75,000 $50,000 $1,391 0 0 $99,651
of CCC*
1996 $ 60,000 0 $4,649 0 35,000 0
- ---------- -------- ------- ----- ----------- ---------- ------------ --------
Alan 1998 $ 29,167 0 0 0 0 0
Andrus
Chief
Executive 1997 N/A N/A N/A N/A N/A N/A
Officer of
USCG 1996 N/A N/A N/A N/A N/A N/A
- ---------- -------- ------- ----- ----------- ---------- ------------ --------

37
<PAGE>

- ---------- -------- ------- ----- ----------- ---------- ------------ --------
Stephen 1998 $237,523 0 0 0 0 0
Davies (5)
President
& CEO of 1997 0 0 0 0 0
USCG $202,190
until Jan, (5)
1999 1996 N/A N/A N/A N/A N/A N/A

$209,138*
(5)
- ---------- -------- ------- ----- ----------- ---------- ------------ --------
Steven 1998 $190,000 0 0 $ 15,900 0 0
Scott, (4)
Executive
Vice 1997 $ 75,000 0 0 $112,500 50,000 (2) 0
President
of TEI 1996 N/A N/A N/A N/A N/A N/A
- ---------- -------- ------- ----- ----------- ---------- ------------ --------

- --------------------------
*Mr. La Taste served as Chairman of the Board, President and Chief
Executive Officer of TEI until February 11, 1997 when he was replaced by Mr.
William Tan Kim Wah. Mr. La Taste resigned as President and CEO of CCC, and on
January 12, 1999, was subsequently replaced by David Arnold and Randy Hardin, as
President and CEO respectively.

(1) Represents non-cash compensation in the form of use of a car and related
expenses and life insurance.

(2a) On November 18, 1998, the Company agreed on an annual compensation of
$360,000 including expenses, effective February 1998, for Mr. Tan's services. On
December 15, 1998, the Company issued to Mr. Tan 300,000 shares of Common Stock,
in lieu of payment of Mr.
Tan's 1998 accrued salary in consideration for services provided by Mr. Tan.

(2b) On February 1998, the Company agreed to pay Mr. Tan $10,000 per month for
services rendered in 1997 as the Company's Chairman of the Board, President and
Chief Executive Officer. On February 20, 1998, the Company issued to Mr. Tan
100,000 shares of Common Stock, valued at $2.25 per share, in lieu of payment of
Mr. Tan's 1997 accrued salary, and an additional 75,000 shares of Common Stock
in repayment of expenses and advances incurred by Mr. Tan on behalf of the
Company. Concurrently with the issuance of the foregoing shares, the Company
granted to Mr. Tan options to acquire 100,000 shares of Common Stock, which
options are exercisable over a period of two years from the date of issuance, at
an exercise price of $5.00 per share.

(3) On February 20, 1998, the Company issued to Mr. Steven Scott, Executive Vice
President of the Company, 50,000 shares of Common Stock, valued at $2.25 per
share, as consideration for services rendered to the Company in 1997.
Concurrently with the issuance of the foregoing shares, the Company granted to
Mr. Scott options to acquire an additional 50,000 shares of Common Stock,
exercisable over a period of two years from the date of issuance, at an exercise
price of $5.00.

38
<PAGE>

(4) Mr. Steven Scott accepted 19,500 shares of Common Stock in lieu of his
November, 1998 $20,000 salary. Mr. Scott was issued the shares on December
15, 1998.

(5) Salary includes taxable fringe benefits.

On January 12, 1999, Craig D. La Taste resigned as President and CEO
of Computer Components Corporation and was replaced by David Arnold and Randy
Hardin as President and CEO, respectively.

Deferred Compensation

In 1981, Dunbar Associates, Inc. established a non-qualified deferred
compensation plan for the benefit of its corporate officers. Computer Components
Corporation assumed such liability upon the merger with Dunbar Associates, Inc.
The accrued benefits under such plan were payable to Craig D. La Taste, the
Company's Chairman of the Board, President and Chief Executive Officer through
Fiscal 1996. The amount accrued under such plan at December 31, 1995 was
$99,651. Such amount was paid to Mr. La Taste on December 10, 1996. There were
no contributions to the plan during the years ended December 31, 1997 and
December 31, 1998.

Incentive Stock Option Plans

1995 Incentive Stock Option Plan. On August 16, 1995, shareholders of
the Company adopted the 1995 Incentive Stock Option Plan (the "Plan") covering
125,000 shares of Common Stock of the Company. Under the Plan, the Board of
Directors may grant to officers and key employees of the Company "incentive
Stock Options" (intended to qualify as such under the provisions of Section 422
of the Internal Revenue Code of 1986, as amended) to purchase the number of
shares of Common Stock covered by such options through December 31, 1996. During
Fiscal 1996, 119,000 options were granted under the Plan. No options were
granted under the Plan in Fiscal 1997.

1997 Incentive Stock Option Plan. On July 12, 1996 the Company's
Board of Directors approved and adopted the 1997 Incentive Stock Option Plan for
an aggregate of 250,000 shares of Common Stock. The 1997 Incentive Stock Option
Plan was adopted by the Shareholders of the Company at its annual meeting on
July 18, 1997. No options have been granted under the 1997 Plan. The 1997 Plan
is substantially identical to the 1995 Plan except as to the number of options
(250,000) and the expiration date of granting of options under the 1997 Plan is
December 31, 1999. The 1997 Plan was ratified at the Company's annual meeting of
shareholders in July 1997.

The Board of Directors will administer the Plans and have the power
to determine eligibility to receive options, the terms of any options including
the exercise price, the number of shares subject to the options, the vesting
schedule and the term of any such options. The exercise price of all options
granted under the Plan must be at least equal to the fair market value of the

39
<PAGE>

shares of Common Stock on the date of grant. For those holders of Common Stock
possessing more than 10% of the voting power of the Company's outstanding Common
Stock, the exercise price of any option granted must equal at least 110% of the
fair market value on the grant date and the maximum term of the option must not
exceed five years. The terms of all other options granted under the Plan may not
exceed 10 years.

The Company has not adopted any other deferred compensation or
retirement program for its employees. It may in the future adopt a pension plan,
profit sharing plan, employee stock ownership plan, stock bonus or some other
deferred compensation and/or retirement program.

Option Grants in 1997. The Company did not grant any options under either the
1997 Plan or the 1995 Plan in fiscal 1997.

Option Exercises in 1997 and Current Option Values. No options were exercised by
the Named Executives during the last fiscal year. The following table provides
certain information concerning unexercised options held as of December 31, 1997,
by the Named Executives who held options at the end of 1997:

1998 Incentive Stock Option Plan The 1997 Stock Option Plan was
approved by the shareholders at the last Annual General Meeting. Pursuant to the
Stock Option Plan, the Corporation was authorized to issue 250,000 shares of
Common Stock of the Corporation to employees of the Corporation. On November 18,
1998, the Company's Board of Directors approved the 1998 Incentive Stock Option
Plan for an aggregate of 250,000 Shares of Common Stock upon a successful
acquisition of an e-commerce or internet related company by May 31, 1998.

Option Grants in 1998. The Company did not grant any options under the 1997 Plan
or the 1998 Plan in fiscal 1998.

40
<PAGE>

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END VALUES

(d) (e)
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Options at
December 31, 1997(#) December 31,
1997($)(1)

(a) (b) (c) Exercisable/Unexercisable Exercisable/Unexercisable

Shares Value
Name Acquired Realized($)
Upon
Exercise

William
Kim Wah -0- -0- -0- -0- -0- -0-
Tan

Craig D. - 0- -0- 17,500 17,500 37,187.50 37,187.50
La Taste

Steven -0- -0- -0- -0- -0- -0-
Scott

(1) The value of the "in-the-money" options represents the difference
between $1.00, the exercise price of such options, and $3.125, the closing sale
price of the Common Stock on December 31, 1997.

Item 11. Security Ownership of Certain Beneficial Owners and Management

(a) The following table sets forth, as of August 10, 1998, the
only persons known to the Company to be the beneficial owners of more than 5% of
the Company's Common Stock and Series A Stock:

41
<PAGE>

- ------------------ ------------ --------- ------------ --------- --------
Common Series A
Stock Stock
------ --------
Amount Amount
and and
Nature of Nature of % of
Beneficial % of Beneficial % of Voting
Name and Address Ownership(1) Class(2) Ownership(1) Class(2) Power(3)
- ------------------ ------------ --------- ------------ --------- --------

William Kim 780,000 16.64% 5,000 2.70% 12.37%
Wah Tan Direct (through
No. 18 Jalan Sri and Indirect ownership of
Semantan 1 (4) 5,000 units)
Damansara Heights
50490
Kuala Lumpur
Malaysia
- ------------------ ------------ --------- ------------ --------- --------

Craig D. La Taste 476,649 10.17% 0 0 9.6 %
4300 Wiley Post Rd. Direct(5)
Dallas, TX 75244
USA
- ------------------ ------------ --------- ------------ --------- --------

Synergy System 385,000 8.21% 0 0 4.37%
Limited Direct(6)
3A Lauderdale Road
Maida Vale
London W9 1LT
United Kingdom
- ------------------ ------------ --------- ------------ --------- --------

385,000 8.21% 0 0 4.37%
Block 126 #19-372 Indirect(6)
Bukit Merah View
Singapore 151126
- ------------------ ------------ --------- ------------ --------- --------

Fleet Security 385,000 8.21% 0 0 4.37%
Investment Ltd. Indirect(6)
P.O. Box 901
Road Town
British Virgin Islands
- ------------------ ------------ --------- ------------ --------- --------

Asean Broker Limited 385,000 8.21% 0 0 4.37%
Flat 1, 51 Queens Indirect(6)
Gate Terrace
London, SW7 5PL
United Kingdom
- ------------------ ------------ --------- ------------ --------- --------

42
<PAGE>

Eurasia Securities, 385,000 8.21% 0 0 4.37%
Ltd. Indirect(6)
No. 11 Jalan Medang
Bukit Bandaraya
59100 Kuala Lumpur
Malaysia
- ------------------ ------------ --------- ------------ --------- --------

Jason Tan Highway 668,000(7) 14.25% 0 0 7.21%
Wisma Cosway #12-02, Direct
Jln.
Raja Chulan
50200 Kuala Lumpur
Malaysia

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

Wooi Hou Tan 666,000(8) 14.21% 0 0 7.10%
First Floor Flat Direct
53 Gloucester Road
London, England SW74QN
United Kingdom
- ------------------ ------------ --------- ------------ --------- --------

Mutsuko Gomi 666,000(8) 14.21% 0 0 7.10%
1367-31 Kawana
Ito-Shi
Japan 414
- ------------------ ------------ --------- ------------ --------- --------

(1) Except as otherwise indicated and subject to applicable community
property and similar laws, the Company assumes that each named person
has the sole voting and investment power with respect to his or her
shares (other than shares subject to options).

(2) Percent of class is based on the number of shares outstanding as of
January 4, 1999. In addition, shares which a person had the right to
acquire within 60 days are also deemed outstanding in calculating the
percentage ownership of the person but not deemed outstanding as to
any other person. Does not include shares issuable upon exercise of
any warrants, options or other convertible rights issued by the
Company which are not exercisable within 60 days from the date hereof.

(3) In order to reflect the voting rights of the Common Stock and Series A
Stock as of January 4, 1999 based on shares which a holder has the
right to acquire within 60 days, if such right has not been exercised
as of January 4, 1999. However, all shares which a holder has the
right to acquire within 60 days, are accounted for in the percentage
of class calculations for each of the individual type of securities
accounted for in this table. See footnote 2 above.

(4) Includes (i) 485,000 shares directly held by Mr. Tan, (ii) options to
acquire 100,000 shares of common stock exercisable within 60 days of

43
<PAGE>

January 4, 1999. (iii) options held by Placement & Acceptance, Inc., a
company of which Mr. Tan is a director and officer, to acquire 100,000
shares of common stock which are exercisable within 60 days of January
4, 1999. (iv) 80,000 shares held by Placement & Acceptance, Inc., and
(v) 5,000 Units, with each Unit convertible within 60 days of January
4, 1999, into one share of common stock and one share of Preferred
Stock, of which one share of Preferred Stock is convertible into two
shares of common stock.

(5) Mr. La Taste has direct ownership of 433,732 shares of Common Stock,
and as of March 1, 1995, as a partner of La Taste Enterprises (with
his two children), he is owner of 16,667 shares of Common Stock which
shares have been included in the percent of shares shown herein. In
addition, Mr. La Taste has been issued 35,000 options, each to acquire
one share of Common Stock. 26,250 of such options are exercisable
within 60 days of January 4, 1999, and are included in the percent of
shares shown herein. Mr. La Taste's wife, Jacqueline Green La Taste,
is the owner of 24,213 shares of Common Stock which she received in
1994 as an inheritance. Mr. La Taste disclaims any beneficial interest
in these shares. Mr. La Taste's children are beneficiaries of the La
Taste Children's Trust, which owns 46,317 shares of Common Stock of
the Company. Mr. La Taste also disclaims any beneficial interest in
these shares.

(6) Includes, in each case, options to acquire 180,000 shares of Common
Stock, which are currently exercisable.

(7) Includes options to acquire 334,000 shares of common stock exercisable
within 60 days of January 4, 1999.

(8) Includes options to acquire 333,000 shares of common stock exercisable
within 60 days of January 4, 1999.

44
<PAGE>

(b) The following table sets forth the number of shares of
Common Stock of the Company owned by each director and by all directors and
officers as a group as of January 4, 1999:

William Kim 780,000 16.64% 5,000 2.7% 12.37%
Wah Tan Direct (through
No. 18 Jalan Sri and Indirect ownership of
Semantan 1 (4) 5,000 units)
Damansara Heights
50490
Kuala Lumpur
Malaysia
- ------------------ ------------ --------- ------------ --------- --------

Sadasuke Gomi 387,150 8.26% 0 0 4.42%
477 Madison Ave, Direct
24th Floor and Indirect(5)
New York, NY 10022
- ------------------ ------------ --------- ------------ --------- --------

Kim Yeow Tan 385,000(6) 8.21% 0 0 4.37%
477 Madison Ave,
24th Floor
New York, NY 10022
- ------------------ ------------ --------- ------------ --------- --------

Steven E. Scott 119,500(7) 2.55% 0 0 1.5%
477 Madison Ave,
24th Floor
New York, NY 10022
- ------------------ ------------ --------- ------------ --------- --------

Ian Colin Edmonds 0 0 0 0 0
477 Madison Ave,
24th Floor
New York, NY 10022
- ------------------ ------------ --------- ------------ --------- --------

Mee Mee Tan 385,000(8) 8.21% 0 0 4.37%
477 Madison Ave, Indirect
24th Floor
New York, NY 10022

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

45
<PAGE>

- ------------------ ------------ --------- ------------ --------- --------
All Directors 2,056,650 43.87% 5,000 2.70% 27%
and Executive
Officers as a Group
(6 persons)
- ------------------ ------------ --------- ------------ --------- --------

Except as otherwise indicated and subject to applicable community
property and similar laws, the Company assumes that each named person has the
sole voting and investment power with respect to his or her shares (other than
shares subject to options).

(1) Percent of class is based on the number of shares outstanding as of
January 4, 1999. In addition, shares, which a person had the right to
acquire within 60 days, are also deemed outstanding in calculating the
percentage ownership of the person but not deemed outstanding as to
any other person. Does not include shares issuable upon exercise of
any warrants, options or other convertible rights issued by the
Company which are not exercisable within 60 days from the date hereof.

(2) In order to reflect the voting rights of the Common Stock and Series A
Stock as of January 4, 1999, the above percentage is not based on
shares which a holder has the right to acquire within 60 days, if such
right has not been exercised as of January 4, 1999. However, all
shares, which a holder has the right to acquire within 60 days, are
accounted for in the percentage of class calculations for each of the
individual type of securities accounted for in this table. See
footnote 2 above.

(3) Includes (i) 485,000 shares directly held by Mr. Tan, (ii) options to
acquire 100,000 shares of common stock exercisable within 60 days of
January 4, 1999, (iii) options held by Placement & Acceptance, Inc., a
company of which Mr. Tan is a director and officer, to acquire 100,000
shares of common stock which are exercisable within 60 days of January
4, 1999, (iv) 80,000 shares held by Placement & Acceptance, Inc., and
(v) 5,000 Units, with each Unit convertible within 60 days of January
4, 1999, into one share of common stock and one share of Preferred
Stock, of which one share of Preferred Stock is convertible into two
shares of common stock.

(4) Includes: (i)385,000 shares held by Mr. Gomi are attributed to him
through Fleet Security Investments, Inc., of which Mr. Gomi is a
director. This sum also includes options to acquire 180,000 shares of
common stock exercisable within 60 days of January 4, 1999. (ii) 2,150
shares are directly held by Mr.Gomi.

(5) All shares held by Mr. Kim Yeow Tan are attributed to him through
Eurasia Securities, Inc., of which Mr. Kim Yeow Tan is a director.
This sum also includes options to acquire 180,000 shares of common
stock exercisable within 60 days of January 4, 1999.

(6) Includes: (i) 69,500 shares directly held by Mr.Scott. (ii) Options to
acquire 50,000 shares of common stock exercisable within 60 days of
January 4, 1999.

46
<PAGE>

(7) All shares held by Ms. Tan are attributed to her through Equator
Holdings, Inc., a company of which Ms.Tan is a director and officer.
This sum includes options to acquire 180,000 shares of common stock
exercisable within 60 days of January 4, 1999.

Item 12. Certain Relationships and Related Transactions

The Company leases its office and warehouse premises from La Taste
Enterprises, a partnership comprised of Mr. La Taste and members of his family.
The current lease is for a term ending December 31, 2001 and provides for an
annual base rent of $67,200. The company does not currently plan to lease the
additional space from LaTaste Enterprises.

The Company engaged Placement & Acceptance, Inc. ("PAI"), a British
Virgin Islands corporation, to effect a private placement of securities, which
was consummated in December 1997. PAI received fees of $112,000, inclusive of
expenses, for acting as sales agent in the placement. PAI is controlled by Mr.
William Kim Wah Tan, the Company's Chairman of the Board, President and Chief
Executive Officer.

Item 13. Exhibits and Reports on Form 8-K

(a) Exhibits

The following exhibits pursuant to Rule 601 of Regulation SB are
incorporated by reference to Company's Registration Statement on Form SB-2,
Commission File No. 33-98662, filed on October 30, 1995, and amended on January
5, 1996 and January 23, 1996.

3.1 Articles of Incorporation, as amended (incorporated by
reference to the Company's Registration Statement on Form SB-2, Commission File
No. 33-98662, filed on October 30, 1995 and amended on January 5, 1996 and
January 23, 1996).

3.2 Certificate of Designation (incorporated by reference to the
Company's Registration Statement on Form SB-2, Commission File No. 33-98662,
filed on October 30, 1995 and amended on January 5, 1996 and January 23, 1996).

3.2A Amended Certificate of Designation (incorporated by
reference to the Company's Registration Statement on Form SB-2, Commission File
No. 33-98662, filed on October 30, 1995 and amended on January 5, 1996 and
January 23, 1996).

3.3 Bylaws (incorporated by reference to the Company's
Registration Statement on Form SB-2, Commission File No. 33-98662, filed on
October 30, 1995 and amended on January 5, 1996 and January 23, 1996).

4.4 Warrant Agreement (incorporated by reference to the
Company's Registration Statement on Form SB-2, Commission File No. 33-98662,
filed on October 30, 1995 and amended on January 5, 1996 and January 23, 1996).

47
<PAGE>

10.1 Sales Agent Agreement between the Company and Placement &
Acceptance, Inc., dated February 10, 1997 (incorporated by reference to the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1996).

10.2 Subscription Agreement between the Company and Placement &
Acceptance, Inc., dated February 10, 1997 (incorporated by reference to the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1996).

10.3 Subscription Agreement between the Company and Synergy
System Limited, dated February 10, 1997, with option to purchase shares of
Company common stock (incorporated by reference to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1996).

10.4 Subscription Agreement between the Company and Equator
Holdings Inc., dated February 10, 1997, with option to purchase shares of
Company common stock (incorporated by reference to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1996).

10.5 Subscription Agreement between the Company and Fleet
Security Investment Ltd., dated February 10, 1997, with option to purchase
shares of Company common stock (incorporated by reference to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1996).

10.6 Subscription Agreement between the Company and Asian Brokers
Limited, dated February 10, 1997, with option to purchase shares of Company
common stock (incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1996).

10.7 Subscription Agreement between the Company and Eurasia
Securities Ltd., dated February 10, 1997, with option to purchase shares of
Company common stock (incorporated by reference to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1996).

10.8 Employment Agreement between Computer Components Corporation
and Craig D. La Taste, entered into February 11, 1997 (incorporated by reference
to the Company's Annual Report on Form 10-KSB for the year ended December 31,
1996).

10.9 Sales Agent Agreement between the Company and Placement &
Acceptance, Inc., dated October 16, 1997 (incorporated by reference to the
Company's Current Report on Form 8-K, dated January 5, 1998).

10.10 Amended and Restated Stock Purchase Agreement among Tech
Electro Industries, Inc., US Computer Group, Inc. and Telstar Holding Limited
(incorporated by reference to the Company's Current Report on Form 8-K, dated
March 19, 1998).

21 Subsidiaries of Issuer

27.1 Financial Data Schedule

48
<PAGE>

(b) Reports on Form 8-K

On October 23, 1998, the Company filed a report on Form 8-K
reporting that, on October 15, 1998, the Company had received a
letter from the NASDAQ Stock Market ("NASDAQ") informing the Company of
NASDAQ's decision to delist the Company from The NASDAQ SmallCap Market,
effective with the close of business on Wednesday, October 21, 1998,
based on purported non-compliance with the NASDAQ net tangible asset
requirement of $2,000,000.

The Company indicated that it believed that it is and has been
in compliance with all NASDAQ listing requirements, and on October 19,
1998, the Company submitted to NASDAQ a request for an oral hearing to
contest the delisting decision. NASDAQ's decision to delist the Company has
been stayed, pending the oral hearing.

On December 24, 1998, the Company filed a report on Form 8-K reporting that
on December 8, 1998, the Company had entered into an agreement regarding
the sale of 141,000 common shares of USCG. That sale was later rescinded.

49
<PAGE>

INDEX TO FINANCIAL STATEMENTS
FILED ON FORM 10-KSB

TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES

YEARS ENDED DECEMBER 31, 1998 AND 1997

Page

Report of Independent Certified Public Accountants F-3

Financial Statements

Consolidated Balance Sheets as of December 31, 1998 and 1997 F-4

Consolidated Statements of Operations
for the years ended December 31, 1998 and 1997 F-6

Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1998 and 1997 F-7

Consolidated Statements of Cash Flows
for the years ended December 31, 1998 and 1997 F-9

Notes to Consolidated Financial Statements F-11

<PAGE>

CONSOLIDATED FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES

DECEMBER 31, 1998 AND 1997

F-1

<PAGE>

TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES

CONTENTS

Page

Report of Independent Certified Public Accountants F-3

Financial Statements

Consolidated Balance Sheets as of December 31, 1998 and 1997 F-4

Consolidated Statements of Operations
for the years ended December 31, 1998 and 1997 F-6

Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1998 and 1997 F-7

Consolidated Statements of Cash Flows
for the years ended December 31, 1998 and 1997 F-9

Notes to Consolidated Financial Statements F-11

F-2
<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Stockholders and Board of Directors
Tech Electro Industries, Inc. and Subsidiaries

We have audited the consolidated balance sheets of Tech Electro Industries, Inc.
and Subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tech Electro
Industries, Inc. and Subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.

As further discussed in Notes A and T, the operations of U.S. Computer Group
("USCG"), a 51% subsidiary, are consolidated in the financial statements of the
Company since its purchase on March 19, 1998. On February 25, 1999, Telstar
Entertainment acquired a controlling interest in USCG and, therefore, the
operations of USCG will not be consolidated from that date forward.

KING GRIFFIN & ADAMSON P.C.

March 15, 1999, except as to note V which is as of April 7, 1999
Dallas, Texas

F-3
<PAGE>
TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997

ASSETS

1998 1997
----------- ----------
CURRENT ASSETS
Cash and cash equivalents $ 1,399,060 $ 1,918,604
Marketable securities - 96,063
Accounts and notes receivable
Trade, net of allowance for doubtful
accounts of $305,077 and $16,000 in
1998 and 1997, respectively 2,879,528 974,604
Notes 305,659 362,153
Other 13,489 34,942
Inventories, net 3,356,539 1,801,034
Prepaid expenses and other 331,893 211,351
----------- ----------

Total current assets 8,286,168 5,398,751
----------- ----------
PROPERTY AND EQUIPMENT
Machinery and equipment 1,305,001 412,941
Furniture and fixtures 458,897 178,735
Vehicles 216,201 21,943
Leasehold improvements 327,810 32,534
----------- ----------
2,307,909 646,153
Less accumulated depreciation and
amortization (1,410,085) (337,269)
----------- ----------

Net property and equipment 897,824 308,884
----------- ----------

OTHER ASSETS
Notes receivable 7,031 49,997
Contract rights, net 4,608,349 -
Deferred financing costs, net 199,193 -
Deposit on future acquisition - 500,000
Other 182,029 290
----------- ----------

Total other assets 4,996,602 550,287
----------- ----------

TOTAL ASSETS $14,180,594 $6,257,922
=========== ==========

The accompanying footnotes are an integral part of these
consolidated financial statements.

- Continued -

F-4
<PAGE>

TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - Continued
December 31, 1998 and 1997

LIABILITIES AND STOCKHOLDERS' EQUITY

1998 1997
------------- -----------
CURRENT LIABILITIES
Current portion of credit facility
obligations $ 8,198,654 $ 425,000
Current portion of long-term debt 215,300 -
Trade accounts payable 3,349,682 467,822
Accrued liabilities 1,354,335 548,273
Deferred service liability 1,646,949 -
Dividends payable - 28,432
Other liabilities 333,975 -
----------- ----------
Total current liabilities 15,098,895 1,469,527
----------- ----------

LONG-TERM DEBT 53,204 -
----------- ----------
Total liabilities 15,152,099 1,469,527

MINORITY INTEREST IN SUBSIDIARY 2,054,633 29,202

COMMITMENTS AND CONTINGENCIES (Notes S and T)

STOCKHOLDERS' EQUITY
Preferred stock - $1.00 par value; 1,000,000
shares authorized; 65,000 Class B issued and
outstanding in 1997; 177,488 and 254,934
Class A issued and outstanding in 1998 and
1997, respectively; liquidation preference of
$931,812 and $1,338,404 in 1998 and 1997,
respectively 177,488 319,934
Common stock - $0.01 par value; 10,000,000
shares authorized, 4,799,177 and 3,498,407
shares issued and outstanding during 1998
and 1997, respectively 47,992 34,985
Additional paid-in capital 3,165,843 5,713,866
Receivable from shareholder (25,000) -
Accumulated deficit (6,392,461) (1,334,216)
Net unrealized gain, marketable securities - 24,624
----------- ----------
(3,026,138) 4,759,193
----------- ----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $14,180,594 $6,257,922
=========== ==========

The accompanying footnotes are an integral part of these
consolidated financial statements.

F-5
<PAGE>
TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1998 and 1997

1998 1997
----------- -----------
REVENUES
Sales $11,541,122 $6,666,837
Service Revenue 13,371,909 -
----------- -----------
24,913,031 6,666,837
COST OF REVENUES
Cost of goods sold 11,327,817 4,905,755
Direct servicing costs 6,261,041 -
----------- -----------
17,588,858 4,905,755

GROSS PROFIT 7,324,173 1,761,082

OPERATING EXPENSES
Selling, general and administrative 10,564,336 2,886,132
Provision for slow moving inventory 1,250,798 288,300
----------- -----------
11,815,134 3,174,432

LOSS FROM OPERATIONS (4,490,961) (1,413,350)

OTHER INCOME (EXPENSES)
Interest income 98,529 99,862
Interest expense (684,120) (30,072)
Realized gain (loss) on sale of
marketable securities 71,439 (31,667)
Gain on foreign exchange - 9,668
Other - 18,247
----------- -----------
(514,152) 66,038

MINORITY INTEREST SHARE OF LOSS OF SUBSIDIARY 29,202 47,731
----------- -----------
LOSS BEFORE INCOME TAXES (4,975,911) (1,299,581)

INCOME TAX EXPENSE - -
----------- -----------
NET LOSS $(4,975,911) $(1,299,581)
----------- -----------
Net loss attributable to common shareholders $(5,058,245) $(1,405,419)
=========== ===========
Basic and diluted net loss per share
attributable to common shareholders $ (1.26) $ (0.59)
=========== ===========
Number of weighted-average shares
of common stock outstanding
(basic and diluted) 4,012,377 2,382,814
=========== ===========

The accompanying footnotes are an integral part of these
consolidated financial statements.

F-6
<PAGE>

TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 1998 and 1997

(Accumulated
Preferred Stock Common Stock Additional Deficit)
Number of Number of paid-in Shareholder Retained Marketable
Shares Amount Shares Amount Capital Receivable Earnings Securities Total
--------- -------- --------- ------- ---------- ------------ --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
January 1, 1997 365,000 $365,000 1,308,275 $13,083 $2,350,202 - $66,049 $(75,204) $2,719,130

Issuance of common
stock for cash
and receivable - - 2,100,000 21,000 3,319,500 - - - 3,340,500

Conversions of
preferred stock
into common stock (45,066) (45,066) 90,132 902 44,164 - - - -

Dividends paid - - - - - - (100,684) - (100,684)

Comprehensive income:

Net loss for 1997 - - - - - - (1,299,581) - -

Net unrealized gain
on marketable
securities - - - - - - - 99,828

Total comprehensive
income - - - - - - - - (1,199,753)
-------- --------- --------- ------- ---------- ------- ----------- -------- -----------

Balances at
December 31, 1997 319,934 319,934 3,498,407 34,985 5,713,866 - (1,334,216) 24,624 4,759,193

Issuance of common
stock for cash and
receivable - - 331,250 3,312 659,188 - - - 662,500

Conversions of
preferred stock
into common stock (142,446) (142,446) 284,892 2,849 139,597 - - - -

</TABLE>

The accompanying footnotes are an integral part of these
consolidated financial statements.

F-7
<PAGE>

TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 1997 and 1996

<TABLE>
<CAPTION>
(Accumulated
Preferred Stock Common Stock Additional Deficit)
Number of Number of paid-in Shareholder Retained Marketable
Shares Amount Shares Amount Capital Receivable Earnings Securities Total
--------- ------ --------- --------- ---------- ------------ ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Repayment of
shareholder loan - $ - 100,000 $1,000 $99,000 $(25,000) $ - $ - $ 75,000

Stock issued for
compensation - - 551,650 5,516 765,257 - - - 770,773

Dividends paid by
issuance of common
stock - - 32,978 330 82,004 - (82,334) - -

Minority shareholder
portion of share-
holders deficit
in connection with
acquisition of U.S.
Computer Group - - - - (4,293,069) - - - (4,293,069)

Comprehensive income:

Net loss for 1998 - - - - - - (4,975,911) -

Net unrealized loss
on marketable
securities - - - - - - - (24,624)

Total comprehensive
income (5,000,535)
--------- -------- --------- ------- ---------- -------- ----------- -------- -----------
Balances at
December 31, 1998 177,488 $177,488 4,799,177 $47,992 $3,165,843 $(25,000) $(6,392,461) $ - $(3,026,138)
========= ======== ========= ======= ========== ======== =========== ======== ===========

</TABLE>

The accompanying footnotes are an integral part of these
consolidated financial statements.

F-8
<PAGE>
TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1998 and 1997

1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES ----------- -----------
Net loss $(4,975,911) $(1,299,581)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 1,116,353 43,387
Provision for bad debts 289,077 11,500
Provision for slow moving inventory 1,250,798 288,300
Minority interest share of
loss of subsidiary (29,202) (47,731)
Stock issued for compensation 308,523 -
Amortization of deferred financing costs 52,470 -
Change in, net of effects of USCG acquisition:
Accounts receivable - trade (373,562) (628,430)
Accounts receivable - other 21,453 (12,733)
Inventory (1,045,849) (596,202)
Prepaid expenses and other 118,364 (130,408)
Other assets 52,711 2,138
Trade accounts payable 1,061,772 200,697
Accrued liabilities 84,595 526,807
Dividends payable (28,432) 14,973
Deferred service liability 262,919 -
----------- -----------
Net cash used by operating activities (1,833,921) (1,627,283)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (177,939) (160,119)
Cash paid for acquired subsidiary,
net of cash in subsidiary (188,613) -
Advances on notes receivable - (320,000)
Payments received on note receivable
to shareholder 99,460 36,388
Maturity of certificates of deposit - 464,336
Net sale (purchase) of marketable securities 71,439 691,265
Deposit on future acquisition - (500,000)
----------- -----------
Net cash provided (used) by investing activities (195,653) 211,870
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net activity on bank line of credit 752,591 425,000
Payments on loans from other banks (178,072) (347,772)
Advances on loans from affiliates 411,000 (245,000)
Proceeds from stockholder loans 75,000 -
Payments on redeemed preferred stock of USCG (212,989) -
Net proceeds on sale of common and
preferred shares 662,500 3,340,500
Dividends paid in cash - (100,684)
---------- ----------
Net cash provided by financing activities 1,510,030 3,072,044
---------- ----------
- Continued -

The accompanying footnotes are an integral part of these
consolidated financial statements.
F-9
<PAGE>

TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
Years ended December 31, 1998 and 1997

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

NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS $(519,544) $1,656,631

Cash and cash equivalents at beginning
of year 1,918,604 261,973
----------- ----------

Cash and cash equivalents at end of year $1,399,060 $1,918,604
=========== ==========

SUPPLEMENTAL DISCLOSURES OF
INTEREST AND INCOME TAXES PAID

Interest paid on borrowings
(including $623,669
related to line of credit in 1998) $ 680,110 $30,072
=========== ==========

SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES

Preferred stock conversions
into common stock $142,446 $45,066
=========== ==========

Issuance of common stock for
settlement of note payable $100,000 $ -
=========== ==========

Dividends paid through issuance
of common stock $82,334 $ -
=========== ==========

Receivable from shareholder $25,000 $ -
=========== ==========

F-10

The accompanying footnotes are an integral part of these
consolidated financial statements.

<PAGE>

TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - ORGANIZATION

Tech Electro Industries, Inc. ("TEI") was formed on January 10, 1992 as a Texas
corporation. On January 31, 1992, TEI acquired 100% of the outstanding common
stock of Computer Components Corporation ("CCC"). In February, 1996, TEI filed a
Form SB-2 Registration Statement and completed a public offering. In June 1996,
TEI acquired all of the outstanding common shares of Vary Brite Technologies,
Inc. ("VBT"). In October 1996, TEI incorporated Universal Battery Corporation
("UBC") as a 67% owned subsidiary. On March 19, 1998, TEI acquired 51% of the
common stock of U.S. Computer Group ("USCG"). The acquisition was accounted for
as a purchase and accordingly the consolidated statement of operations includes
the operations of USCG from the acquisition date. As further discussed in Note
U, on February 25, 1999, Telstar Entertainment contributed additional capital to
USCG through the purchase of additional shares resulting in Telstar becoming the
largest shareholder of USCG. Accordingly, subsequent to that date, USCG will be
accounted for under the equity method in the consolidated financial statements
of TEI.

Through its subsidiaries, CCC, VBT and UBC, the Company stocks and sells
electronic components. A significant portion of the Company's business is
involved in the stocking and sale of batteries. Within the battery sales
activity there is significant value added to the batteries in the assembly of
batteries into "packs". The Company's electronic components sales are generated
by in-house sales staff and sales representatives to customers throughout the
United States. Through its subsidiary, USCG, the Company provides maintenance
services for midrange equipment manufactured by Digital Equipment Corporation,
IBM, Sun Microsystems, Inc. and many leading brand personal computers, the sale
of new and used computer equipment, network integration and design services,
disaster recovery, business relocation services and internet-based training
services. USCG's computer maintenance and sales customers are located primarily
in New York, New Jersey and Pennsylvania.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of TEI,
USCG, CCC, VBT and UBC. All significant intercompany transactions and balances
have been eliminated in consolidation. The consolidated group is referred to as
the "Company".

Cash and Cash Equivalents

The Company considers all unrestricted cash on hand and in banks, certificates
of deposit and other highly-liquid investments with maturities of three months
or less, when purchased, to be cash and cash equivalents for purposes of the
Statements of Cash Flows.

F-11
<PAGE>

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Marketable Securities

Marketable debt and equity securities are carried at market, based upon quoted
market prices. Unrealized gains and losses on trading securities are recognized
in income currently. Unrealized gains and losses on available-for-sale
securities are accumulated in the marketable securities adjustment component of
stockholder's equity. Realized gains and losses are based upon the specific
identification of the securities sold and are recognized in income currently.

Inventories

Inventories consist primarily of electronic components, materials used in the
assembly of batteries into "packs" and computer systems and hardware which
support the Company's computer maintenance service contracts. All items are
stated at the lower of cost or market. Cost related to electronic components and
battery packing inventory is determined by the average cost method by specific
part. Cost related to inventory used in computer maintenance is determined using
the first-in, first-out method. Reserves are established for slow moving items.

Property and Equipment

Property and equipment are carried at cost. Depreciation and amortization of
property and equipment is provided using the straight line method over the
estimated useful lives of the assets ranging from three to ten years. Assets
held under capital leases and leasehold improvements are amortized on a
straight-line basis over the shorter of the lease term or the estimated useful
life of the related asset. Depreciation and amortization expense recognized
during 1998 and 1997, amounted to $256,406 and $43,387, respectively.

Expenditures for major renewals and betterments that extend the useful lives of
property and equipment are capitalized. Expenditures for maintenance and repairs
are charged to expense as incurred.

Property and equipment at December 31, 1998 includes $405,259 of assets held
under capital leases and accumulated amortization of $254,463.

Contract Rights

Contract rights represent the value assigned to maintenance and servicing
contracts acquired in connection with the acquisition of USCG. Contract rights
acquired of $5,468,296 are being amortized on a straight-line basis over their
estimated average life of 5 years. Amortization of contract rights through
December 31, 1998 amounted to $859,947. On an ongoing basis, management reviews
the recoverability, the valuation and amortization of contract rights. At
December 31, 1998, the valuation of the contract rights was reviewed by applying
the same formula used in connection with the appraised valuation to determine
the value of the contract rights at the acquisition date.

Deferred Financing Costs

Deferred financing costs are being amortized on a straight-line basis over the
original term of the financing agreement of three years. Amortization was
$52,470 for the period ended December 31, 1998.

F-12
<PAGE>

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Income Taxes

The Company utilizes the asset and liability approach to financial accounting
and reporting for income taxes. Deferred income tax assets and liabilities are
computed annually for differences between the financial statement and tax bases
of assets and liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense or benefit is the tax payable
or refundable for the period plus or minus the change during the period in
deferred tax assets and liabilities.

Revenue Recognition

Service revenues generated under service maintenance contracts are recognized on
a straight-line basis over the contract period, which is in proportion to the
costs expected to be incurred in performing services under the contract.
Estimated losses on contracts, if any, are charged against earnings in the
period in which such losses are identified. Service revenues that are not under
contract are recognized as the service is performed. Revenue from hardware sales
including computer equipment and electronic components is recognized upon
shipment.

Stock-Based Compensation

The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees," and complies with the disclosure
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Under APB
Opinion No. 25, compensation expense is based on the difference, if any, on the
date of grant, between the fair value of TEI's stock and the exercise price.

The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force
("EITF") Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services." All transactions in which goods or services are the consideration
received for the issuance of equity instruments are accounted for based on the
fair value of the consideration received or the fair value of the equity
instrument issued, whichever is more reliably measurable. The measurement date
of the fair value of the equity instrument issued is the earlier of the date on
which the counterparty's performance is complete or the date on which it is
probable that performance will occur.

F-13
<PAGE>

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Loss per Share

The Company adopted SFAS No. 128, "Earnings Per Share", in 1997, which requires
the disclosure of basic and diluted net income (loss) per share. Basic net
income (loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding for the period. Diluted net
income (loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares and common stock equivalents
outstanding for the period. The Company's common stock equivalents are not
included in the diluted loss per share for 1998 and 1997 as they are
antidilutive. Therefore, diluted and primary loss per share is identical. Net
loss per share has been increased for dividends on preferred stock totaling
$82,334 and $105,838 for 1998 and 1997, respectively.

Use of Estimates and Assumptions

Management uses estimates and assumptions in preparing financial statements in
accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results could vary from the estimates that were
used.

Included in the accompanying consolidated balance sheet are inventories of
electronic components and material used in the assembly of battery packs at a
carrying value of $1,767,129 at December 31, 1998, net of an estimated reserve
for slow moving items of $783,000. Should demand for the electrical components
prove to be significantly less than anticipated, the ultimate realizable value
of the inventory could be less than the net amount shown in the balance sheet.
Included in the accompanying consolidated balance sheet are inventories of
computer related components of $1,589,410, net of an estimated reserve of
$938,398, which are used in connection with the Company's maintenance
agreements. The Company's maintenance contracts include maintenance of older
computer systems. Should the Company lose certain contracts and be unable to
replace these contracts with other similar business, then the ultimate net
realizable value of its inventory could be less than the net amount reflected in
the consolidated balance sheet.

F-14
<PAGE>

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Recent Accounting Pronouncements

Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." Under SFAS 130 changes in net assets of an entity
resulting from transactions and other events and circumstances from non-owner
sources are reported in a financial statement for the period in which they are
recognized. Such other changes were not significant to the Company's net loss.

The Company adopted Statement of Financial Accounting Standards No.
131,"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131") in the fiscal year ended December 31, 1998. SFAS 131 establishes standards
for reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS 131 also establishes
standards for related disclosures about products and services and geographic
areas. Operating segments are identified as components of an enterprise about
which separate discrete financial information is available for evaluation by the
chief operating decision maker, or decision making group, in making decisions
about how to allocate resources and assess performance.

In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, "Accounting for Costs of Computer Software
Developed or Obtained for Internal Use." This SOP requires capitalization of
certain costs of computer software developed or obtained for internal use and is
effective for fiscal years beginning after December 15, 1998. The Company
currently does not incur these types of costs and accordingly does not expect
the adoption of this statement to impact its operations and disclosures.

In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position No. 98-5,
"Reporting on the Costs of Start-up Activities" (SOP 98-5). SOP 98-5 will be
effective for all transactions entered into by the Company subsequent to
December 31, 1998. The Company does not currently expect this standard to impact
disclosures.

In June 1998, the Financial Accounting Standards Board issued Standard No. 133
"Accounting for Derivative Instruments and Hedging Activities". The Standard
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. The new
Standard is effective for all fiscal quarters of all fiscal years beginning
after June 15, 1999. The Company does not expect the adoption of the new
Standard to have a material impact on its financial position or results of
operations.

NOTE C - ABILITY TO CONTINUE AS A GOING CONCERN

The Company incurred a net loss of $4,975,911 and $1,299,581 during the years
ended December 31, 1998 and 1997, respectively. During the same periods, the

F-15
<PAGE>

NOTE C - ABILITY TO CONTINUE AS A GOING CONCERN - Continued

Company used cash in operating activities totaling $1,833,921 and $1,627,283. At
December 31, 1998, the Company's total liabilities including minority interest
in subsidiary exceed its assets by $3,026,138.

Management believes that the Company has the ability to continue as a going
concern. This belief is based on, but not limited to, the following items:

1. A significant portion of the loss for the year ended December 31, 1998,
$2,845,082, resulted from the operations of USCG. A significant portion
of the total liabilities, $13,446,703, are liabilities of USCG. As
further described at Note U, after the sale of additional USCG common
stock to another shareholder, USCG will not be consolidated into TEI.
TEI has not guaranteed any of the liabilities of USCG and accordingly
will only support the operations of USCG based on its financial ability
to do so.

2. Management expects CCC to generate positive cash flows from operations
for the year ended December 31, 1999 as a result of personnel and other
expense reductions implemented in late 1998.

3. Management has decided to cut back on the operations of VBT which have
been resulting in losses.

4. Management may raise additional capital through the issuance of common
or preferred stock.

5. Management is in the process of pursuing an acquisition. Should an
acquisition be consummated, management believes this entity would
contribute significant cash flows from operations.

F-16
<PAGE>

NOTE D - ACQUISITION

On March 19, 1998, the Company completed the acquisition of 51% of the issued
and outstanding common stock of U.S. Computer Group Inc. ("USCG") (being new
stock issued by USCG). The purchase consideration for the interest was
$1,000,000 paid in cash. The acquisition has been accounted for as a purchase.
Negative equity related to the minority interest shareholders at the date of
purchase of $4,293,068 has been recorded as a contra to additional paid-in
capital.

The summary of the fair value of assets acquired and liabilities assumed is as
follows:
Current assets $ 4,131,186
Fixed assets 667,408
Contract rights 5,468,296
Other assets 486,113
Current liabilities (5,000,983)
Long-term liabilities (6,777,466)
Minority interest in preferred stock (2,267,622)
Purchased deficit 4,293,068
-------------
$ 1,000,000
=============

Acquisition costs net of cash acquired in USCG amounted to $188,613.

The following unaudited pro forma consolidated results for the years ended
December 31, 1998 and 1997 assumes the USCG acquisition occurred as of January
1, 1997:
Years Ended
----------------------------
Dec 31, 1998 Dec 31, 1997
------------ ------------
Revenues (unaudited) $30,005,656 $30,924,089
Net loss (unaudited) (5,731,981) (5,047,481)
Loss per share (unaudited)
(Basic and diluted) $(1.43) $(2.12)

NOTE E - INVENTORIES

Inventories at December 31, 1998 and 1997, consist of the following:

1998 1997
------------ ------------
Computer components for
maintenance contracts $ 2,527,808 $ -
Electronic components 2,487,317 2,211,732
Pack materials 62,812 59,902
Reserve for slow moving inventory (1,721,398) (470,600)
------------ ------------
$ 3,356,539 $ 1,801,034
============ ============
F-17
<PAGE>

NOTE F - NOTES RECEIVABLE

Notes receivable consists of the following at December 31, 1998 and 1997:

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

Notes receivable from a minority shareholder;
interest at 6%, unpaid interest accrues
monthly and adds to principal. One note is
payable in full ($30,000) in August 1999. The
second note is payable in monthly payments of
$3,500 including interest through February,
2000. Secured by 1,250 shares of TEI common
stock and all future TEI dividends paid on the
common stock, if any, are to be applied to
principal and interest by the Company on the
debtor's behalf. These notes are now the
subject of a dispute and related settlement
(See Note S). $ 81,909 $ 77,150

Note receivable from a preferred stock
shareholder, due March 31, 1999 and extended
month-to-month thereafter, bearing interest at
10.5%, interest payments due quarterly,
secured by other common stock.(a)
220,000 320,000

Notes receivable, jointly and severally from
two minority shareholders with interest at 6%,
payable monthly at $312.50 plus interest,
matures November 2001, unsecured. 10,781 15,000

-------- --------
312,690 412,150
Less current maturities (305,659) (362,153)
-------- --------
Long-term portion $ 7,031 $ 49,997
======== ========

(a) The equity securities held as collateral by the Company for a note
receivable at December 31, 1998 are shares of E> which is a company related to
TEI through common shareholders.

NOTE G - MARKETABLE SECURITIES

At December 31, 1997, the Company had invested a portion of its cash in various
equity securities and in various certificates of deposit and treasury
securities. These marketable securities are considered available-for-sale
securities.
F-18
<PAGE>

NOTE G - MARKETABLE SECURITIES - Continued

During 1997, the Company received proceeds amounting to $1,261,451 from the sale
of securities available for sale. The Company realized losses on these sales
totaling $31,667.

For the year ended December 31, 1997, total unrealized gains amounted to
$99,828, and are included as a separate component of stockholders equity.

Amortized cost and fair value of the available-for-sale securities at December
31, 1997 are as follows:

1997
---------------------------------------
Amortized Fair Unrealized
Cost Value Gain
----------- ---------- ----------

Certificates of deposit $1,695,287 $1,695,287 $ -
Equity securities 71,439 96,063 24,624
----------- ---------- ----------
1,766,726 1,791,350 24,624
Amounts classified as
cash equivalents (1,695,287) (1,695,287) -
----------- ---------- ----------
$ 71,439 $ 96,063 $ 24,624
=========== ========== ==========

At December 31, 1998 the Company only has cash and cash equivalents. Realized
gains on marketable securities during the year ended December 31, 1998 totaled
$71,439.

NOTE H - OTHER LIABILITIES

USCG has a "floor plan" credit line agreement with a finance corporation under
which $333,975 is due at December 31, 1998. USCG is in default under the terms
of the agreement, and has signed a letter agreement agreeing to make nine
payments approximating $37,100 starting on January 25, 1999 and ending on
September 15, 1999, in order to pay off this amount.

F-19
<PAGE>

NOTE I - CREDIT FACILITY OBLIGATIONS AND LONG-TERM DEBT

Credit facility obligations at December 31, 1998 and 1997, consist of the
following:

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

$10,000,000 line of credit with bank,
bearing interest at prime plus 2%,
maturing September 30, 2001 and secured by
accounts receivable, inventory and
equipment (See note below concerning
classification as current.)
$7,362,654 $ -

$1,000,000 line of credit with bank
payable on demand with interest at prime
plus 1/2%, maturing June 30, 1999, and
secured by accounts receivable, inventory
and equipment. 836,000 425,000
--------- --------
8,198,654 425,000
--------- --------

Less current portion (8,198,654) (425,000)
--------- --------
Long-term portion $ - $ -
========= ========

On July 7, 1998, the Company extended its $1,000,000 line of credit with a
financial institution to mature on June 30, 1999. The line of credit is payable
on demand, bears interest at the prime rate plus .5 percent per year (8.25% at
December 31, 1998) and is secured by inventory and equipment of CCC. As of
December 31, 1998, $836,000 was outstanding under the line of credit.

On March 18, 1998, USCG amended certain terms of its loan agreement (the
"Agreement") with a financial institution. The Agreement provides for a
revolving loan with maximum borrowings allowable equal to the lesser of
$10,000,000 outstanding at any one time or the sum of 80 percent of the amount
of USCG's eligible receivables, as defined in the Agreement, other than
maintenance contract receivables, plus 4.25 times the average total monthly
computer maintenance contract collections to be calculated on a trailing twelve
month moving average, plus a term loan in the principal amount of $500,000 (the
"Term Loan"), plus a temporary bridge loan in the principal amount of $500,000
(the "Bridge Loan"). Borrowings under the Agreement are secured by an interest
in all of USCG's owned accounts receivable, inventory, equipment, investment
property and general intangibles.

Borrowings under the Agreement, excluding the Bridge Loan, bear interest at a
rate equal to the prime rate plus 2 percent per year (9.75% at December 31,
1998), and borrowings under the Bridge Loan bear interest at a rate equal to the
prime rate plus 3.5 percent per year (11.25% at December 31, 1998), but in no

F-20
<PAGE>

NOTE I - CREDIT FACILITY OBLIGATIONS AND LONG-TERM DEBT - Continued

event shall either rate be less than 9 percent per year. The revolving loan
matures on September 30, 2001, subject to automatic renewal terms of one year
each. As of December 31, 1998, $6,418,654 was outstanding under the revolving
loan.

The interest on the Term Loan is payable in equal monthly installments of
$14,000, and the principal balance is payable on September 30, 2001. As of
December 31, 1998, $444,000 was outstanding under the Term Loan.

The interest on the Bridge Loan is payable monthly with the entire unpaid
principal balance, together with accrued and unpaid interest, payable on the
earlier of August 31, 2001 or the ultimate maturity date of the revolving loan.
As of December 31, 1998, $500,000 was outstanding under the Bridge Loan.

The terms of the Agreement provide for minimum monthly interest charges, an
anniversary fee of .5 percent of the maximum dollar amount and a quarterly
facility fee of $5,000. USCG may terminate the Agreement at any time by paying
an early termination fee. Certain financial and nonfinancial covenants are
required to be met. At February 28, 1998, certain covenants were in default;
however, on June 11, 1998, the financial institution provided waivers of such
covenants through May 31, 1999, in exchange for additional compensation, an
increase in the early termination fee, and extension of the Agreement for one
year.

The $7,362,654 due under the revolving loan, bridge loan and term loan have been
reflected as a current liability in the accompanying consolidated balance sheet
because the waiver for noncompliance with certain covenants expires May 31,
1999, and the Company is uncertain as to whether it will be in compliance with
all covenants at that point or whether it will be able to obtain an extension of
the waiver.

As of December 31, 1998, long-term debt consists of the following:

Note payable to former employee (a) $ 49,225
Capital lease obligations (b) 167,865
Automobile loans (c) 51,414
----------
268,504

Less current installments of long-term debt (215,300)
----------
$ 53,204
==========

F-21
<PAGE>

NOTE I - CREDIT FACILITY OBLIGATIONS AND LONG-TERM DEBT - Continued

(a) The note payable to a former employee bears interest at 8
percent per year, is payable in twenty-four equal monthly
installments, including principal and interest, and matures on
September 15, 1999. This note had an original balance of
$125,000.

(b) The Company has various capital lease obligations payable in
monthly installments through July 2000. The monthly lease
payments, including interest, range from $4,427 to $8,017. The
capital lease obligations are secured by the related
underlying equipment and furniture.

(c) The Company has various automobile loans with annual interest
rates ranging from 9.9 to 11.5 percent payable in monthly
installments through February 2001. The monthly loan payments,
including interest, range from $324 to $522. The automobile
loans are secured by the related automobiles.

Maturities on long-term debt are as follows:

Year Ended
December 31,
------------
1999 $ 215,300
2000 53,204
----------
$ 268,504
==========

NOTE J - RELATED PARTY TRANSACTIONS

Lease Agreements

The Company leases its Texas office and warehouse space, approximately 16,000
square feet, from a partnership consisting of members of the family of a
significant shareholder. Rent paid to the partnership for the building lease was
$67,200 and $63,200 for the years ended December 31, 1998 and 1997,
respectively.

At December 31, 1998, future minimum rental commitments for facilities under the
non-cancelable operating lease agreement were as follows:

1999 $ 67,200
2000 67,200
2001 67,200
----------
Total $ 201,600
==========

In connection with the private sale of common stock in 1997, a fee of $112,000
was paid to an entity controlled by the Company's Chairman of the Board,
President and Chief Executive Officer.

F-22
<PAGE>

NOTE K - MINORITY INTEREST

Minority interest of $2,054,633 represents the minority interest in USCG's
series D and series E redeemable preferred stock which remains outstanding at
December 31, 1998. The Series E preferred stock arose as a requirement of a
shareholder to convert a loan due from USCG to preferred stock prior to the
acquisition of 51% of the common stock of USCG by TEI.

USCG's series D preferred stock outstanding of $54,633 are cumulative,
non-voting shares that were originally issued in connection with a business
acquisition. This amount is being redeemed in accordance with the redemption
agreement and expect to be fully redeemed during 1999. Cumulative dividends of 8
percent are paid on the outstanding balance.

In connection with the acquisition of USCG by the Company, USCG also issued
2,000 shares of series E redeemable preferred stock with a par value of $1,000
per share in exchange for debt. Cumulative dividends are payable on the stock
annually beginning December 31, 1998, in cash at a rate of 7 percent per share
or 12 percent, if paid in additional shares of series E preferred stock. The
series E preferred stock is redeemable by the Company at any time. The
liquidation preference of the preferred stock is equal to the remaining
redemption price of $2,000,000.

NOTE L - STOCKHOLDERS' EQUITY

Class A and Class B preferred stock rank equally and are identical in all
respects. The preferred stock bears cumulative dividends of 36 3/4 cents per
share payable annually and has a liquidation preference of $5.25 per share.
Through December 31, 1998 the Company has paid all dividends which have accrued
on the Class A and Class B preferred stock. The voting rights are equal to
common shares, other than with respect to certain matters; generally amending
the rights or powers of the preferred stock. The preferred stock is convertible
at the option of the holder into two shares of common stock subject to
adjustment (the "Conversion Rate") (as more fully described in the Certificate
of Designation) at any time after one year from the date of issue. The Company
may compel conversion at the Conversion Rate at any time after one year from the
date of issue if the closing market price of the common stock is $5.25 or higher
for 30 consecutive trading days. During 1998, 77,446 shares of Class A and all
the Class B preferred stock were converted.

During November 1995, through a private placement with certain Selling Security
Holders, 1,000,000 warrants were issued at $.10 per share for $100,000. Each
warrant represented one common share at an exercise price of $3.50 per share. In
addition, in 1996, the Company sold at $0.10 per warrant an additional 600,000
warrants to purchase 600,000 common shares at an exercise price of $3.50 per
share for total cash proceeds of $60,000. The Company completed a Form SB-2
Registration Statement ("SB2") in February 1996 to issue 300,000 units, each
unit comprising 1 common share and 1 class A preferred share. The offering price
was $8.25 per unit resulting in an aggregate offering price of $2,475,000 before
underwriting fees and other costs of $465,024 (excluding underwriters'
over-allotment option of 45,000 units). Included in the underwriter's
compensation were options to purchase up to 30,000 units and 30,000 warrants,

F-23
<PAGE>

NOTE L - STOCKHOLDERS' EQUITY - Continued

exercisable for a four-year period commencing one year from the date of the
Registration Statement at exercise prices of $10.725 per unit and $0.13 per
warrant, respectively. In connection with the offering, 300,000 warrants
(excluding underwriters' over-allotment option) were also separately offered at
$0.10 per warrant exercisable at $3.50 per share. In March 1996, the
underwriters purchased the 45,000 over-allotment warrants. The Company received
a total of $33,915 from the sale of warrants.

Effective December 12, 1997, the Company adjusted the terms of the warrants
outstanding pursuant to the original warrant agreement. The exercise price was
reduced from $3.50 to $3.30 per warrant. Each warrant was also adjusted to
entitle the holder the purchase of 1.06 shares of the Company's common stock.
Total warrants outstanding at December 31, 1998 were 1,949,500. The warrants
expire January 26, 2000 and may be redeemed at $0.10 per warrant on 30 days
written notice if the average price of the common stock exceeds $5.25 per share
for 30 consecutive trading days prior to the notice.

Effective February 12, 1997, the Company sold 1,100,000 shares of common stock
and options to acquire 1,000,000 shares of common stock for $1,870,000, (a
combined price of $1.70 net to the Company), pursuant to Regulations as
promulgated by the Securities and Exchange Commission ("SEC"). The options had
an exercise price per share of $2.15. Each option originally expired thirteen
months from the date of issuance. As of December 31, 1997, none of the options
had been exercised. On March 1, 1998, the Company and the option holders agreed
to amend the original option agreement. The amendment adjusted the exercise
price to $2.50 per share, and extended the exercise period to March 10, 1999. On
February 11, 1999, the Company agreed to extend the exercise period to March 10,
2000 at the same exercise price of $2.50 per share.

Effective December 12, 1997, the Company sold 1,000,000 shares of common stock
and options to acquire 1,000,000 shares of common stock for net proceeds of
$1,470,500, (a combined price of $1.47 net to the Company), pursuant to
Regulations as promulgated by the SEC. The options have an exercise price of
$1.75 and expire twelve months from the date of issuance. On November 12, 1998,
the Company agreed to extend the exercise period to December 12, 1999 at the
same exercise price of $1.75 per share.

On April 8, 1998, the Company commenced a private placement offering of 375,000
shares of common stock at a price of $2 per share. Gross proceeds raised as of
December 31, 1998 are $662,500.

During 1998, several employees of the Company agreed to accept shares of the
Company's common stock in lieu of cash compensation. Accordingly, the Company
issued a total of 551,650 common shares to these employees at the fair value of
the stock on the grant date. Total compensation expense of $308,523 related to
the issuance of the shares is included in the statement of operations for the
year ended December 31, 1998. Additionally during 1998, the Company received a
short-term loan from a shareholder and President of the Company to fund general
working capital requirements. The shareholder agreed to accept 100,000 shares of
the Company's common stock as repayment, valued at the fair value of the stock
on the date of issuance.

F-24
<PAGE>

NOTE M - INCOME TAXES

Deferred tax assets and liabilities at December 31, 1998 and 1997 consist of the
following:

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

Current deferred tax asset $ 749,188 $ 179,896
Current deferred tax liability - -
Valuation allowance (749,188) (179,896)
------------ -----------
Net current deferred tax asset $ - $ -
============ ===========

Non-current deferred tax asset $ 1,979,549 $ 470,385
Non-current deferred tax liability (1,741,498) (27,405)
Valuation allowance (238,051) (442,980)
------------ -----------
Net non-current deferred tax asset $ - $ -
============ ===========

The current deferred tax asset results primarily from the provision for slow
moving inventories and doubtful accounts which are not currently deductible for
federal income tax purposes. The non-current deferred tax asset results
primarily from the net operating loss carryforward. The net operating loss
available at December 31, 1998 amounts to $1,979,549 and begins to expire in
2011. A portion of the NOL's are limited subject to section 382. The non-current
deferred tax liability arises from the accelerated methods of depreciation of
assets for federal income tax purposes including the remaining balance of
contract rights established in connection with the acquisition of USCG. The
current and net non-current deferred tax assets have a 100% valuation allowance
due to the uncertainty of generating future taxable income.

The Company's income tax expense for the years ended December 31, 1998 and 1997
differed from the statutory federal rate of 34 percent as follows:

1998 1997
----------- ---------
Statutory rate applied to loss
before income taxes $(1,691,810) $(441,858)
Increase (decrease) in income taxes
resulting from:
Amounts not deductible for federal
income tax purposes, and other 6,877 11,821
State income taxes, net of federal
income tax effect (146,509) (37,493)
Increase in valuation allowance 364,363 467,530
Net liability purchased 1,467,079 -
----------- ---------
Income tax expense $ - $ -
=========== =========

F-25
<PAGE>

NOTE N - BUSINESS AND CREDIT CONCENTRATIONS AND SIGNIFICANT CUSTOMERS

Electronic Components

Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of accounts and notes receivable.

The Company recognizes revenue upon shipment of goods and billing to a customer
and does not maintain any set policy regarding the customer's right of return.
Customer requests to return products for refund or credit are handled on an
individual basis at the discretion of management. The refunds or credits in 1998
and 1997 were not significant.

In the normal course of business, the Company extends unsecured credit to
virtually all of its customers. The Company has a broad base of customers
located throughout the United States, which reduces its credit risk. Because of
the credit risk involved, management has provided an allowance for doubtful
accounts which reflects its opinion of amounts which will eventually become
uncollectible. In the event of complete non-performance by the Company's
customers, the maximum exposure to the Company is the outstanding accounts
receivable balance at the date of non-performance. At December 31, 1998, one
accounts receivable account comprised approximately 34% of the total trade
accounts receivable balance. Through the date of this report, substantially all
of this amount had been collected. During the year ended December 31, 1998 no
single customer accounted for in excess of 10% of revenues, while for the year
ended December 31, 1997 two of the Company's customers accounted for
approximately 21% of total sales. Additionally, CCC has certain significant
suppliers of its battery products and electronic components. The loss of any of
these relationships could have a material adverse effect on the Company.

Cash deposits are at risk to the extent that they exceed Federal Deposit
Insurance Corporation insured amounts. At December 31, 1998, such uninsured
amounts totaled approximately $553,736. To minimize this risk, the Company
places its cash and cash equivalents and other short-term investments with high
quality financial institutions.

Computer Maintenance and Sales

Financial instruments, which potentially subject the Company to concentrations
of credit risk consist primarily of cash and cash equivalents and trade
receivables. The Company's customers are dispersed across many industries and
are located principally in New York, New Jersey and Pennsylvania. The Company
estimates an allowance for doubtful accounts based on the creditworthiness of
its customers, as well as general economic conditions. Consequently, an adverse
change in those factors could affect the Company's estimate of its bad debts.
The Company, as a policy, does not require collateral from its customers.

Cash deposits are at risk to the extent that they exceed Federal Deposit
Insurance Corporation insured amounts. At December 31, 1998, such uninsured
amounts totaled approximately $791,659. To minimize this risk, the Company
places its cash and cash equivalents and other short-term investments with high
quality financial institutions.

F-26
<PAGE>

NOTE O - FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107 "Disclosure About Fair Value
of Financial Instruments", requires disclosure about the fair value of all
financial assets and liabilities for which it is practicable to estimate. At
December 31, 1998 the carrying value all of the Company's accounts receivable,
accounts payable and accrued liabilities approximate fair value because of their
short term nature.

Credit facility obligations and long term debt carrying values approximate fair
values based on the borrowing rates currently available to the Company for loans
with similar terms.

NOTE P - STOCK OPTION PLANS

Effective July 19, 1995, the Board of Directors, with subsequent approval of the
shareholders on August 16, 1995, adopted the Company's Incentive Stock Option
Plan ("1995 Plan"). In accordance with the 1995 Plan, 125,000 common shares were
reserved and no grants were to be made under the Plan after December 31, 1996.
The options were granted at fair market value and are exercisable at 25% on the
date of grant, 50% one year later, 75% two years later and 100% three years
later and, unless otherwise provided for, may be exercised during a period of
ten years from the date of grant. During 1996, 119,000 options were granted
under the 1995 Plan.

On July 12, 1996, the Company implemented an Incentive Stock Option Plan ("1997
Plan") in terms of which 250,000 shares of common stock may be issued through
December 31, 1999. During 1997, the 1997 Plan was approved by the shareholders
of the Company. At December 31, 1997, there were no options outstanding under
the 1997 Plan. During 1998, 150,000 options were granted under the 1997 Plan.

On November 18, 1998, the Board of Directors approved the 1998 Incentive Stock
Plan ("1998 Plan") in terms of which 250,000 shares of common stock may be
issued through May 31, 1999. No options have been issued pursuant to the 1998
Plan.

The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," in accounting for its Plans. All options are granted at fair value,
and accordingly, no compensation cost has been recognized for its stock options
in the consolidated financial statements. Had compensation cost for the
Company's stock based compensation Plans been determined consistent with FASB
statement No. 123, "Accounting for Stock Based Compensation," the Company's net
loss and loss per share would have been increased to the pro forma amounts
indicated below:

F-27
<PAGE>

NOTE P - STOCK OPTION PLANS - Continued

Years ended December 31,

1998 1997
----------- -----------
Net loss attributable to
common shareholders As reported $(5,058,245) $(1,405,419)
Pro forma $(5,184,628) $(1,435,171)
Net loss per share attributable
to common shareholders As reported $(1.26) $(0.59)
Pro forma $(1.30) $(0.61)

During 1998, USCG issued 375,000 options to Company employees. In accordance
with their Plan, 250,000 of these options issued expire in 7 years and vest 20%
immediately and 20% per year over the next 4 years. The remaining 125,000
options expire in 7 years and vest 33 1/3% over the next 2 years. The fair value
of these options has been included in pro-forma expense amounts disclosed above.

The fair value of each option grant for USCG stock is estimated on the date of
grant using the Black-Scholes option pricing model with the following
assumptions used for grants in 1998: dividend yield of 0 percent, risk free
interest of 6%; and an expected life of 3 years. Because USCG is not a publicly
traded company, it is permitted under SFAS 123 to use the "minimum value"
method, which excludes the volatility factor from the option-pricing model.

The fair value of each option grant for TEI stock is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions used for grants in 1998: dividend yield of 0 percent; expected
volatility of 112%; risk free interest rate of 6%; and an expected life of 2
years. No grants occurred in 1997.

A summary of the status of the Company's compensatory stock option plans as of
December 31, 1998 and 1997 and changes during the years ended December 31, 1998
and 1997 are as follows:

Weighted
Average Range of
Shares Exercise Price Exercise Price
------ -------------- ---------------
Outstanding at December 31, 1996 119,000 1.18 1.00 - 1.75
Granted - - - - -
Forfeitures (1,250)
Outstanding at December 31, 1997 117,750 1.18 1.00 - 1.75
-------
Granted 150,000 5.00 5.00
Forfeitures - - - - -
--------
Outstanding at December 31, 1998 267,750 3.32 1.00 - 5.00
=======

F-28
<PAGE>

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Range of Number Remaining Weighted Avg. Number Weighted Avg.
Exercise Prices Outstanding Contractual Exercise Price Exercisable Exercise Price

<C> <C> <C> <C> <C> <C> <C> <C>
1998: $ 1.00 - $ 5.00 267,750 3.4 years $ 3.32 111,250 $ 3.25
1997: $ 1.00 - $ 1.75 117,750 3.2 years $ 1.18 58,875 $ 1.18

</TABLE>

The weighted average remaining contractual life of options outstanding at
December 31, 1997 is 4 years.

The weighted average fair value of options granted during 1998 amounted to
$172,481.

F-29
<PAGE>

NOTE Q - SEGMENTS

The Company's service maintenance segment represents operations of the Company's
New York subsidiary, which provides computer system maintenance services to
customers in New York, New Jersey and Pennsylvania. The electronics sales
segment represents the operations of the Company's three Texas subsidiaries,
which includes the stocking and sales of electronic components and batteries.
These segments were identified based on the different nature of the services,
location, and, in general, the type of customers for those services.

A summary of the segment financial information reported to the chief operating
decision maker is as follows:

<TABLE>
<CAPTION>
Year Ended December 31, 1998
-----------------------------------------------------------------
Service Electronics
Maintenance Sales Adjustment Consolidated
------------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
Revenue $ 16,906,496 $ 8,006,535 $ - $ 24,913,031
Depreciation and Amortization 1,052,523 62,908 922 1,116,353
Segment profit (loss) (2,845,082) (568,609) (1,562,220) (4,975,911)
Segment Assets 9,363,185 4,668,788 148,621 14,180,594
Capital expenditures by segment 80,338 86,069 11,532 177,939

Year Ended December 31, 1997
-----------------------------------------------------------------
Service Electronics
Maintenance Sales Adjustment Consolidated
------------- ----------- ------------ --------------
Revenue $ - $ 6,666,837 $ - $ 6,666,837
Depreciation and Amortization - 43,387 - 43,387
Segment profit (loss) - (448,664) (850,917) (1,299,581)
Segment Assets - 4,586,692 1,671,230 6,257,922
Capital expenditures by segment - 160,119 - 160,119

</TABLE>

The adjustments represent depreciation and amortization related to corporate
assets, corporate losses, and corporate capital expenditures to reconcile
segment balances to consolidated balances. None of the other adjustments are
significant.

NOTE R - EMPLOYEE BENEFIT PLAN

USCG has a 401(k) Savings Plan (the "Plan"). Participants in the Plan may
contribute up to 15 percent of compensation, but not in excess of the maximum
allowed under the Internal Revenue Code. The Plan provides for matching
contributions equal to a percentage of the participants' contributions as
determined each year by USCG. In fiscal 1998, USCG did not make any matching
contributions.

F-30
<PAGE>

NOTE R - EMPLOYEE BENEFIT PLAN - Continued

Certain participants in the Plan hold as an investment in the Plan shares of
USCG's common stock. Terminated employees have the option to require USCG to
purchase the shares at the most recent fair value of USCG's common stock as
determined as a result of an independent valuation. The valuation at December
31, 1997 was $2.13 per share. The valuation for December 31, 1998 has not been
completed. During the year ended December 31, 1998 2,244 shares were redeemed by
USCG at a redemption value of $4,780, or $2.13 per share. At December 31, 1998
there are no additional outstanding redemptions.

NOTE S - COMMITMENTS AND CONTINGENCIES

Litigation

Various collection actions are pending against USCG. A Creditor's Committee has
been formed to facilitate the payoff of USCG's obligations to certain unsecured
creditors. The Company has not guaranteed or committed to pay any of the
liabilities of USCG.

Additionally, in the normal course of its business, the Company is subject to
litigation. Management of the Company, based on discussions with its outside
legal counsel, does not believe any claims, individually or in the aggregate,
will have a material adverse impact on the Company's financial position, results
of operations or cash flows.

Operating Leases

The Company is obligated under various non-cancelable operating leases relating
to warehouse, office facilities and certain equipment. The Company received
certain lease incentives, including a rent holiday, under its lease agreements
for office facilities in its two Manhattan locations. The Company also entered
into two sublease agreements for a portion of each of these office facilities
and provided certain lease incentives. The net of these incentives and other
rent escalation clauses is being amortized over the life of the respective lease
terms on a straight-line basis. Minimum future payments on leases having
remaining terms in excess of one year as of December 31, 1998 are as follows:

Years Ending TEI, CCC,
December 31, UBC and VBT USCG Total
----------- ---------- ----------
1999 $ 67,200 $ 527,610 $ 594,810
2000 67,200 435,142 502,342
2001 67,200 325,857 393,057
2002 - 217,860 217,860
2003 and thereafter - 1,169,458 1,169,458
----------- ---------- ----------
$ 201,600 $2,675,927 $2,877,527
Less minimum rentals due under
noncancellable subleases - (417,251) (417,251)
----------- ---------- ----------
Net minimum annual rentals $ 201,600 $2,258,676 $2,460,276
=========== ========== ==========
<PAGE>

NOTE S - COMMITMENTS AND CONTINGENCIES - Continued

Rent expense for the years ended December 31, 1998 and 1997 amounted to
approximately $737,000, net of approximately $142,000 in sublease income, and
$95,000, including rent paid to a related party of approximately $67,200 and
$63,200, respectively. (Note J.)

Employment Agreements

The Company has entered into employment agreements with several key employees.
The agreements generally provide for an annual base salary, incentive
compensation and termination provisions. The minimum commitments under the
agreements are set forth in the following table:

Year Ending
December 31, Commitments
----------- -----------
1999 283,000
2000 283,000
2001 137,167
2002 108,000
2003 13,500

Other
- -----

During 1997, the Company entered into an employment agreement with a key
employee which provided for minimum compensation of $70,000 for the year ending
December 31, 1998 and rising gradually to 100,000 through the year ended
December 31, 2001. Under the employment agreement, in the event that the
employee is terminated without cause, he will be entitled to receive the amount
remaining unpaid for the full term of the agreement, plus an amount equal to
twice that sum. As of December 31, 1998, the employee is no longer employed by
the Company. The reasons for dismissal are currently in dispute, and as a
result, an arbitration notice has been filed. The outcome of the proceeding is
undetermined at this time and the Company is unable to estimate the financial
outcome of this proceeding.

In a prior year, the Company loaned this employee $105,000, bearing interest at
6 percent, and requiring payments of $3,500 per month. As of December 31, 1998,
a balance of 81,909 is still outstanding and is included in notes receivable on
the accompanying balance sheet. The amount due the Company is to be settled in
conjunction with the arbitration proceedings.

Additionally during 1997, the Company entered into an employment agreement with
another key employee which provided for minimum compensation of $80,000 for the
year ended December 31, 1998 and rising gradually to $120,000 through the year
ended December 31, 2001. Effective December 31, 1998, the Company signed a
Separation Agreement with the employee which terminated the 1997 employment
agreement. The new agreement calls for 84 consecutive monthly payments to the
employee of $3,500 beginning January 1999 with final payment to be made December
2005.

In January 1999, a key employee of USCG left the Company. Settlement of this
employee's employment contract is currently in negotiations, and at this time
management is unable to estimate the amount to be paid, if any.

F-32
<PAGE>

NOTE T - YEAR 2000

TEI, CCC, UBC and VBT have completed an assessment of the impact of year 2000
issues on their internal systems, and have upgraded their computer hardware and
software to be year 2000 compliant. Management believes that the cost for any
additional modifications or replacements will be immaterial, and will be
completed by the fourth quarter of 1999. Management is also aware that, due to
its dependence on its suppliers, should suppliers and manufacturers be
unsuccessful in their own year 2000 compliance efforts, this may have a material
adverse effect on the Company should arrangements with alternate sources not be
available.

USCG has completed a preliminary analysis of the impact of Year 2000 issues on
its internal systems, and has determined that software in older systems as well
as various accounting and other systems will require updates and enhancements.
The most significant of these relates to the upgrade of USCG's accounting
software package, which is scheduled to be in use by the fourth quarter of 1999.
Should this deadline not be met, accounting functions may be temporarily
duplicated in an off the shelf accounting package or managed manually.

Should USCG encounter setbacks in its established timeline, the Company will
allocate the appropriate personnel and any other necessary resources to resolve
the year 2000 issues in a time conscious manner. USCG believes that the
likelihood of a material adverse impact to the Company as a result of internal
year 2000 problems is remote. While USCG believes that it will complete the
necessary software upgrades and modifications of systems prior to the year 2000,
competition for goods and services relating to such modifications may cause
delays in implementation. The estimated cost to remediate all of USCG's year
2000 issues is estimated at $400,000. USCG has initiated communications with all
of its significant suppliers and customers to determine the extent to which USCG
is vulnerable should those third parties experience failure. The Company is
aware that extended difficulties by large vendors or customers may have a
significant impact, however it is unable at this time to evaluate the extent of
such an impact, should it occur.

F-33
<PAGE>

NOTE U - SUBSEQUENT EVENTS

On February 25, 1999, Telstar Entertainment, the second largest shareholder of
USCG, contributed additional capital to USCG through the purchase of additional
shares. As a result of this transaction, Telstar became the largest shareholder
of USCG. Therefore, effective January 25, 1999, the Company will no longer
consolidate the financial results of USCG in its consolidated financial
statements, and will use the equity method to account for its interest going
forward.

The proforma summary consolidated balance sheet as of December 31, 1998
excluding USCG balances is as follows:

Current assets $ 4,470,365
Fixed assets, net 339,555
Other assets 7,489
Current liabilities (1,705,396)
Stockholders' equity 3,112,013

NOTE V - ADDITIONAL SUBSEQUENT EVENT

On April 7, 1999, the Company was informed by Nasdaq that its securities will be
delisted effective April 7, 1999, for failure to file a timely annual report on
Form 10-KSB. The Company believes that it meets or exceeds all requirements for
continued listing on the Nasdaq Stock Market. The Company timely filed Form
12b-25 extension and expects to file its Form 10-KSB with the Securities
Exchange Commission by April 15, 1999. The Company has appealed the decision.
The Company is currently trading on OTC Bulletin Board, on The Nasdaq Stock
Market.

<PAGE>

Signatures

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

Date: April 15, 1999

TECH ELECTRO INDUSTRIES, INC.

By: _________________________
William Kim Wah Tan
President and CEO

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

Signature Capacity Date

__________________________ Director, Chairman of the Board, April___,1999
William Kim Wah Tan President and Chief Executive
Officer (principal executive officer)

__________________________ Director April___,1999
Kim Yeow Tan

__________________________ Executive Vice President April___,1999
Steven Scott and Director

__________________________ Vice President and Director April___,1999
Ian Edmonds

__________________________ Director April___,1999
Sadasuke Gomi

__________________________ Interim Chief Financial Officer April___,1999
Donna Gilbert

50
<PAGE>

Exhibit
Subsidiaries of Issuer

Computer Components Corporation, wholly-owned by Tech Electro Industries, Inc.

Very Brite Technologies, Inc., wholly-owned by Computer Components Corporation

Universal Battery Corporation, wholly-owned by Tech Electro Industries, Inc.

USCG, 51% owned by Tech Electro Industries, Inc. until February 25, 1999 when
Telstar became the largest shareholder after purchasing additional shares in
USCG. TEI now owns approximately 42% of USCG.

51
<PAGE>

Exhibit

Financial Data Schedule

Tech Electro Industries, Inc.
Financial Statements Data - Form 10KSB

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Dec-31-1998
<CASH> 1,399,060
<SECURITIES> 0
<RECEIVABLES> 3,503,753
<ALLOWANCES> (305,077)
<INVENTORY> 3,356,539
<CURRENT-ASSETS> 331,893
<PP&E> 2,307,909
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0
177,488
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