U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
(Mark One)
( x ) Annual Report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the Fiscal year ended December 31, 1997 or
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( ) Transition Report under Section 13 or 15 (d) of the
Securities Exchange Act of 1934 (No Fee Required)
For the transition period from to
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Commission file number 1-11048
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Dallas Gold and Silver Exchange, Inc.
(formerly The American Pacific Mint, Inc.)
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(Name of small business issuer)
NEVADA 88-0097334
- ------------------------------ -------------------------------
(State or other jurisdiction (I.R.S. Employer Identification
incorporation or organization) Number)
2817 Forest Lane, Dallas, Texas 75234
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(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code (972) 484-3662
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Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
- ------------------------ -----------------------------------------
COMMON STOCK AMERICAN STOCK EXCHANGE
$ .01 par value EMERGING COMPANIES
Securities registered pursuant to Section 12 (g) of the Exchange
Act:
NONE
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirement for the past 90 days. Yes x No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B 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 this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
During fiscal year ended December 31, 1997, total revenues were $ 14,313,040.
As of March 9, 1998, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $ 6,111,457.
As of March 9, 1997, 4,151,112 shares of Common Stock were outstanding.
Documents incorporated by reference: Portions of the proxy statement for the
annual shareholders' meeting to be held June 8, 1998, are incorporated by
reference into Part III.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Dallas Gold and Silver Exchange, Inc. (the "Company") (formerly The American
Pacific Mint, Inc.) was incorporated in Nevada in September 1965.
Through its wholly-owned subsidiary, DGSE Corporation, the Company sells jewelry
and bullion products to both retail and wholesale customers throughout the
United States and makes collateralized loans to individuals. During the last
three years the Company has focused its efforts toward expanding its retail
jewelry operations. Management expects this trend to continue until such time
that interest in precious metals results in significantly higher gross profit
margins on bullion related products. The Company's products are marketed through
its facility in Dallas, Texas.
During 1993 the Company founded DLS Financial Services, Inc. ("DLS") as a
wholly-owned subsidiary corporation which provides consulting services involving
the reorganization of other business enterprises (primarily enterprises that are
or have been involved in proceedings under Chapter 11 of the United States
Bankruptcy Code). The Company offers these services through its facility in
Dallas, Texas.
During 1992 the Company founded Dallas Global Travel, Inc.("DGT") as a
wholly-owned subsidiary corporation which provided travel planning and related
services to both business and pleasure travelers. Since its inception, DGT has
operated at a small loss. As a result, during October 1997 the Company
discontinued the operations of DGT.
During 1995 the Company developed a World Wide Web Site on the Internet called
the Computer Jewelry Exchange. Customers can buy and sell items of jewelry and
are free to set their own prices in an interactive market. For its services the
Company receives a fee from the seller. In addition, the Company may offer for
sale its own inventory. During 1996 the Company also offered customers current
quotations for precious metals prices on the internet. The Company offers these
services through its facility in Dallas, Texas.
In January 1997, the Company formed a new wholly-owned subsidiary, Eye Media,
Inc. On January 28, 1997, Eye Media, Inc. purchased certain assets owned by
National Media Mail, Inc. and hired nine former employees of National Media
Mail, Inc. Eye Media, Inc. was an internet/intranet web site development company
and sold advertising on its web site, the Gathering. Revenues for Eye Media did
not meet expectations and, as a result, the operations of Eye Media, Inc. were
discontinued in May 1997.
2
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Products and Services
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The Company's jewelry operations include sales to both wholesale and retail
customers. The Company sells finished jewelry, gem stones, and findings (gold
jewelry components) and makes custom jewelry to order. Jewelry inventory is
readily available from wholesalers throughout the United States. In addition,
the Company purchases inventory from pawn shops and individuals. During the last
three years management has focused its efforts toward expanding its retail
jewelry business. Additional resources have been invested in advertising and
additional staff has been added in jewelry sales and jewelry and watch repair.
The Company's bullion trading operations buy and sell all forms of precious
metals products including United States and other government coins, medallions,
art bars and trade unit bars.
Bullion products, which are purchased and sold based on current market pricing
and sales commitments, are often sold prior to the purchase of the product. The
Company protects itself from gains or losses in its inventory position,
including purchase and sale commitments, by hedging its net position in the
precious metals futures markets when necessary. During the three years ended
December 31, 1997, the Company did not engage in any hedging transactions. The
availability of precious metal products is a function of price as virtually all
bullion items are actively traded. Precious metals sales amounted to 44.4% of
total sales for 1997 and 39.6% in 1996. The increase from 1996 to 1997 was the
result of increased interest in precious metals products by retail clientele.
Management believes that the Company's internet related activities have had a
significant impact on this sector of the Company's business. (For further
details, see Item 6 below). The Company did not have any customer or supplier
that accounted for more than 10% of total sales or purchases during 1997, 1996
or 1995.
Pawn loans ("loans") are made on the pledge of tangible personal property,
primarily jewelry, for one month with an automatic sixty-day extension period
("loan term"). Pawn service charges are recorded on a constant yield basis over
the loan term. If the loan is not repaid, the principal amount loaned plus
accrued pawn service charges become the carrying value of the forfeited
collateral and is transferred to inventory which is recovered through sale.
Although revenues from the Company's pawn loans are not significant, management
believes this activity to be a good source of jewelry inventory and provides an
excellent return on investment.
3
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Products and Services (continued...)
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Through its wholly-owned subsidiary, DLS, the Company provides insolvency
advisory services primarily to business enterprises that are or have been
involved in proceedings under Chapter 11 of the United States Bankruptcy Code.
Services provided by the Company include assistance in developing plans of
reorganization, negotiations with creditors and general management advice.
The Company earns a cash fee and or equity participation in the organizations to
which it provides services. The Company expects to accept only a limited number
of assignments each year which meet the criteria of having significant fee and
or substantial growth potential. Where equity participation is involved, as the
client enterprises mature, the Company plans to sell its equity interest subject
to compliance with state and federal securities law in order to provide
non-dilutive resources for the expansion of the Company's other business
activities or will distribute the equity or cash from the sale of such equity of
client companies to the stockholders of the Company as dividends subject to
compliance with state and federal securities law.
During 1997 and 1996, the Company provided consulting advice and participated in
four such reorganizations. As a result, the Company received consulting revenues
in the amount of $ 466,566 in 1997 and $ 40,000 in 1996 and became a stockholder
in six of the enterprises with which it had a consulting relationship. The
Company's largest ownership interest in any of these enterprises is
approximately 7.5%.
During 1997 and 1996, the Company sold in the open market a portion of these
securities and realized gains in the amount of $1,051,742 and $ 639,684,
respectively. In addition, during 1997 and 1996 the Company had unrealized gains
on trading securities in the amount of $ 211,295 and $ 871,865, respectively. As
of December 31, 1997 the Company's investment in these enterprises totaled
$ 3,101,852.
During 1992, the Company began offering a full range of business and pleasure
travel planning and related services through its wholly-owned subsidiary, DGT.
The travel agency was operated in the Company's principal executive office in
Dallas, Texas. Since its inception, DGT has operated at a small loss. As a
result, in October 1997 the Company discontinued the operations of DGT.
During 1995 the Company developed a World Wide Web Site on the Internet called
The Computer Jewelry Exchange. This web site is a fully integrated live trading
market in jewelry items on the internet. Customers can buy and sell items of
jewelry and are free to set their own prices in an interactive market. For its
services, the Company collects a listing fee and a sales commission from the
seller. In addition, the Company may offer for sale its own inventory.
4
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Products and Services (continued...)
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In April 1996 the Company began operating an additional web site. This site
allows paid subscribers unlimited access to current quotations for prices on
approximately 200 precious metals, coins and other bullion related products. The
site is integrated with The Computer Jewelry Exchange and is located on the
Company's server at http://www.dgse.com.
During 1997 management made a decision to significantly expand our internet
activities. With over 1,000,000 page views since inception, it has become
apparent that the Internet has become a viable mechanism to sell products and
introduce customers from around the world to the business of the Company. Our
web site was one of the first to utilize the auction format to sell jewelry and
related products. In addition, our introduction of a live real time trading
floor in jewelry, diamonds and fine watches has allowed our commercial site to
attract wide participation. During 1997, our auction and trading site were
expanded to include a high level of automation and during the first quarter of
1998 our internet store began functioning as a CyberCashTM authorized site. Our
customers can now purchase products automatically, securely and on line.
Auctions now close at least two times per week and the trading floor
transactions can occur twenty-four hours per day.
In an effort to expand its internet activities, in January 1997 the Company
formed a new wholly-owned subsidiary, Eye Media, Inc. On January 28, 1997, Eye
Media, Inc. purchased certain assets owned by National Media Mail, Inc. and
hired nine former employees of National Media Mail, Inc. The assets purchased
include rights, title and interest in a patent pending and a registered service
mark for ("The Gathering"), one of the largest college web sites on the
internet. Eye Media, Inc. is an internet/intranet web site development company
and sells advertising on The Gathering. Revenues for Eye Media, Inc. did not
meet expectations and, as a result, the Company discontinued the operations of
Eye Media, Inc. in May 1997.
Sales and Marketing
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All Company activities other than DLS rely heavily on local television, print
media, pamphlets, and brochures to attract retail customers. Solicitations of
wholesale customers are made through local print media, direct mailings, and
direct contact. Marketing activities emphasize what the Company perceives to be
the attractiveness of its pricing and its customer service. DLS relies on
professional contacts of the Company's Chairman in order to attract new clients.
5
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Sales and Marketing (continued...)
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The Company markets its bullion trading services through a combination of
advertising in national coin publications, local print media, and coin and
bullion wire services. Trades are primarily with coin and bullion dealers on a
"cash on confirmation" basis which is prevalent in the industry. Cash on
confirmation simply means that once credit is approved the buyer remits funds by
mail or wire concurrently with the mailing of the precious metals. Customer
orders for bullion trades are customarily delivered within three days of the
order or upon clearance of funds depending on the customer's credit standing.
Consequently, there was no significant backlog for bullion orders as of December
31, 1997 or 1996. Company backlogs for fabricated jewelry products were also
insignificant as of December 31, 1997 and 1996.
Seasonality
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The retail jewelry business is seasonal. The Company realized 38.3% and 34.6% of
its annual jewelry sales in the fourth quarters of 1997 and 1996, respectively.
While the Company's bullion business is not seasonal, management believes it is
directly impacted by the perception of inflation trends. Historically,
anticipation of increases in the rate of inflation have resulted in higher
levels of interest in precious metals as well as higher prices for such metals.
Other Company business activities are not seasonal.
Competition
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The Company operates in a highly competitive industry where competition is based
on a combination of price, service and product quality. The jewelry and consumer
loan activities of the Company compete with numerous other retail jewelers and
consumer lenders in Dallas, Texas and the surrounding area.
The bullion industry in which the Company competes is dominated by substantially
larger enterprises which wholesale bullion and other precious metal products.
Likewise, the consulting industry in which the Company competes is dominated by
large investment banking, accounting and consulting firms.
The Company attempts to compete in these industries by offering quality products
and services at prices below that of its competitors and by maintaining a staff
of highly qualified employees to provide customers services such as watch and
jewelry repairs and custom jewelry design.
Management is of the opinion that the Company is a factor in the local jewelry
trade. However, its consumer lending, bullion trading and consulting activities
are dominated by larger companies.
6
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Employees
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As of December 31, 1997, the Company employed 20 individuals, all of which were
full time employees.
ITEM 2. DESCRIPTION OF PROPERTY
In December 1987, through its wholly-owned subsidiary DGSE Corporation the
Company acquired a 6,000 square foot building in Dallas, Texas which houses
retail jewelry, travel, consumer lending and bullion trading operations and its
principal executive offices. The land and building are subject to a 20 year
mortgage maturing in January 2014, with a balance outstanding of approximately
$ 657,723 as of December 31, 1997.
In February 1994, the Company entered into a lease agreement covering a 5,000
square foot building in Dallas, Texas which housed its second retail jewelry
store. The lease has a term of ten years beginning July 1, 1994 and requires
monthly payments of $ 7,500 for the first five years and $ 9,000 thereafter. In
November 1995, the Company closed this store and subleased this facility to
another retail jewelry company for a term of six months and receives monthly
payments of $ 9,050. In May 1996, this sublease was renewed for the remaining
term of the prime lease.
Eye Media, Inc. rented on a month to month basis a 900 square foot facility in
an office complex located in Newport Beach, California for which it paid a
monthly rental in the amount of $684. This lease was terminated in May 1997.
The Company also maintains a resident agent office in Nevada at the office of
its Nevada counsel, McDonald, Carano, Wilson, McClure, Bergin, Frankovitch and
Hicks, 241 Ridge Street, Reno, Nevada 89505.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings which are
expected to have a material adverse effect on the Company and none of its
property is the subject of any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
7
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on the American Stock Exchange ("ASE")
pursuant to its "Emerging Companies" listing program under the symbol "DLS.EC".
The following table sets forth for the period indicated, the per share high and
low sale prices as reported by the ASE for the common stock. During the past two
years, the Company has not declared any dividends with respect to its common
stock. The Company intends to retain all earnings to finance future growth;
accordingly, it is not anticipated that cash dividends will be paid to holders
of common stock in the foreseeable future.
On June 18, 1996 the Company sold 500 shares of its Common Stock to an employee
for $ 625 in cash. These shares were unregistered and the Company relied on
Section 4(2) of The Securities Exchange Act of 1933 for exemption covering this
transaction.
High and low stock prices for the last two years were:
1997 1996
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High Low High Low
---- --- ---- ---
First Quarter 1 3/4 7/8 1 7/8 1 1/8
Second Quarter 1 7/8 1 1/8 2 1 1/4
Third Quarter 2 3/8 1 5/8 1 1/2 1 1/16
Fourth Quarter 2 7/8 1 7/8 1 1/2 7/8
On March 9, 1998, the closing sales price for the Company's common stock was
$2.75 and there were 625 shareholders of record.
8
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
GENERAL
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The Company's bullion trading operation has the ability to significantly
increase or decrease sales by adjusting the "spread" or gross profit margin
added to bullion products. In addition, economic factors such as inflation and
interest rates as well as political uncertainty are major factors affecting both
bullion sales volume and gross profit margins. Historically, the Company has
earned gross profit margins of from 2.0% to 3.0% on its bullion trading
operations compared to 29.0% to 32.0% on the sale of jewelry products. As a
result, since the year ended December 31, 1991, the Company has emphasized the
more profitable jewelry products. Management expects this trend to continue
until such time that interest in precious metals results in higher gross margins
on bullion products.
In 1993 the Company founded DLS in an effort to generate additional revenue and
enhance shareholder value by capitalizing on the experience and professional
contacts of the Company's Chairman. DLS provides insolvency advisory services to
business that are or have been involved in proceedings under Chapter 11 of the
United States Bankruptcy Code. Since its inception DLS has provided consulting
advice and participated in ten such reorganizations. As a result, the Company
received consulting revenues in the amount of $ 466,566 in 1997 and $ 40,000 in
1996, and became a stockholder in six of the enterprises with which it had a
consulting relationship. (For further details, see Note C of Notes To
Consolidated Financial Statements).
Results of Operations
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Sales increased by $ 1,135,313 (10.1%) in 1997. This increase was the result of
a $ 580,409 increase in the sale of bullion related products and a $ 514,442
increase in the sale of jewelry products. The increase in bullion sales was the
result of increased interest in precious metals products by retail clientele.
Management believes that the Company's Internet related activities have had a
significant impact on this sector of its business. The increase in the sale of
jewelry related products was the result of a strong retail climate and the
Company's Internet related activities. Consulting service fees increased by
$ 426,566 during 1997 due to fees received from three new clients. During 1997
the Company sold marketable trading securities in the amount of $ 1,350,141 and
realized gains of $ 1,051,742 on these sales. The unrealized gains on trading
securities during 1997 in the amount of $ 211,295 was the result of an increase
in market value of the Company's investment in trading securities. Other income
in the amount of $ 123,472 during 1997 was the result of $ 108,000 in rental
income received from the sublease of the facility which had been the Company's
second store and interest income in the amount of $ 15,472 from investments in
money market accounts.
9
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Results of Operations (continued...)
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Sales decreased by $ 78,461 (0.7%) in 1996. This decrease was the result of a
$ 575,018 reduction in the sale of bullion related products and a $ 496,558
increase in the sale of jewelry products. During 1996, the demand for bullion
products continued soft due to low inflation and other factors. The increase in
the sale of jewelry related products was the result of a stronger retail climate
during 1996 and due to the Company maintaining a higher level of jewelry
inventory. Pawn service charges decreased by $ 18,721 (35.7%) in 1996 due to
lower loan volume. Consulting service income decreased by $ 231,414 due to fees
earned during 1995 on a refinancing of an existing client. The unrealized gains
on trading securities in the amounts of $ 871,865 during 1996, was the result of
an increase in market value of the Company's investments in trading securities.
During 1996 the Company sold in open market transactions marketable securities
and realized gains in the amount of $ 639,684. Other income during 1996 was the
result of rental income received from the sublease of the facility which had
been the Company's second store.
Cost of goods sold increased by $ 894,107 (9.4%) in 1997 and decreased by
$ 41,179 (.5%) in 1996 due to the changes in sales volume. Cost attributable to
consulting services increased by $ 33,654 in 1997 due to cost associated with
DLS's three new clients. During 1996 consulting service cost decreased $ 55,476
due to travel and other costs incurred in 1995 associated with work related to
the refinancing of one of DLS's existing clients.
Selling, general and administrative expenses increased by $ 58,665 in 1997 due
to an increase in payroll and related costs. Selling, general and administrative
expenses decreased by $ 67,873 in 1996 due to the closure of the Company's
second jewelry store.
Depreciation and amortization expense decreased in 1996 by $ 16,728 due to
certain assets becoming fully depreciated during the year.
Interest expense increased by $ 54,693 in 1997 due to interest paid on the
$ 875,000 convertible note issued in December 1996.
During 1997 the Company used the remaining balance of its net operating loss
carryforwards and, as a result, the Company recorded deferred income taxes of
$ 640,700. Of this amount $ 411,500 is reflected as deferred tax expense and
$ 229,200 as a reduction of the unrealized gain on available for sale marketable
securities.
During 1997 the Company discontinued the operations of Dallas Global Travel,
Inc. and Eye Media, Inc. The operating results of these discontinued operations
were net losses of $ 95,010 in 1997 and $ 7,097 in 1996.
10
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Liquidity and Capital Resources
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During 1997 the Company generated $ 1,180,930 from operating activities. These
resources were used to fund investing activities in the amount of $ 163,344 and
financing activities in the amount of $ 708,918. As a result, cash and cash
equivalents increased by $ 308,668 during the year.
Management of the Company expects capital expenditures to total approximately
$ 85,000 during 1998. It is anticipated that these expenditures will be funded
from the Company's current working capital position.
From time to time, management has adjusted the Company's inventory levels to
meet seasonal demand or in order to meet working capital requirements.
Management is of the opinion that if additional working capital is required,
additional loans can be obtained from individuals or from commercial banks. If
necessary, inventory levels may be adjusted or a portion of the Company's
investments in marketable securities may be liquidated in order to meet
unforseen working capital requirements.
ITEM 7. FINANCIAL STATEMENTS
(a) Financial Statements (see pages 15 - 29 of this report).
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT
The information contained in Dallas Gold and Silver Exchange, Inc.'s Proxy
Statement to be filed pursuant to Regulation 14A within 120 days after the end
of the fiscal year covered by this Form 10-KSB with respect to directors and
executive officers of the Company, is incorporated by reference in response to
this item.
ITEM 10. EXECUTIVE COMPENSATION
The information contained in Dallas Gold and Silver Exchange, Inc.'s Proxy
Statement to be filed pursuant to Regulation 14A within 120 days after the end
of the fiscal year covered by this Form 10-KSB, with respect to executive
compensation and transactions, is incorporated by reference in response to this
item.
11
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information contained in the Dallas Gold and Silver Exchange, Inc.'s Proxy
Statement to be filed pursuant to Regulation 14A within 120 days after the end
of the fiscal year covered by this Form 10-KSB with respect to security
ownership of certain beneficial owners and management, is incorporated by
reference in response to this item.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in Dallas Gold and Silver Exchange, Inc.'s Proxy
Statement to be filed pursuant to Regulation 14A within 120 days after the end
of the fiscal year covered by this Form 10-KSB, with respect to certain
relationships and related transactions, is incorporated by reference in response
to this item.
12
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ITEM 13. EXHIBITS REPORTS ON FORM 8-K
(a) Exhibits:
21 - List of subsidiaries
DGSE Corporation
Dallas Global Travel, Inc.
DLS Financial Services, Inc.
Eye Media, Inc.
The following exhibits are incorporated by reference to the Company's Form
10-KSB for the year ended December 31, 1996:
10.1 - Agreement For Purchase And Sale Of Stock dated as of
December 30, 1996 by and among Dallas Gold And
Silver Exchange, Inc. and Henry Hirschman.
10.2 - First Amendment To Sublease Agreement effective
July 3, 1996 by and between Dallas Gold And Silver
Exchange, Inc. and Fuller's Jewelry, Inc.
The following exhibits are incorporated by reference to the Company's Form
10-KSB for the year ended December 31, 1995:
10.1 - 9% Convertible Promissory Note dated December 5,
1995, by and among Dallas Gold And Silver Exchange,
Inc. and A-Mark Precious Metals, Inc.
The following exhibits are incorporated by reference to the Company's Form
10-KSB for the year ended December 31, 1994:
10.1 - Lease Agreement dated February 11, 1994, by and
among Dallas Gold And Silver Exchange, Inc. and
Stanley N. Kline.
10.2 - Renewal, Extension And Modification Agreement
dated January 28, 1994, by and among DGSE
Corporation and Michael E. Hall And Marian E. Hall.
10.3 - Note Payable dated December 31, 1993, by and among
Dallas Gold And Silver Exchange, Inc. and Dimitri
Krstava.
10.4 - Profit Participation Agreement dated December 11,
1993, by and among Dallas Gold And Silver Exchange,
Inc. and Craig Alan-Lee.
(b) Reports on Form 8-K -- None
13
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dallas Gold and Silver Exchange, Inc.
By: /s/ L. S. Smith Dated: March 10, 1998
-------------------------
L. S. Smith
Chairman of the Board,
Chief Executive Officer and
Secretary
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the date indicated.
By: /s/ L. S. Smith Dated: March 10, 1998
-------------------------
L. S. Smith
Chairman of the Board,
Chief Executive Officer and
Secretary
By: /s/ W. H. Oyster Dated: March 10, 1998
-------------------------
W. H. Oyster
Director, President and
Chief Operating Officer
By: /s/ John Benson Dated: March 10, 1998
-------------------------
John Benson
Director and Chief Financial
Officer
(Principal Accounting Officer)
14
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Suite 3600
1445 Ross Avenue
Dallas, TX 75202-2774
214 855-7300 FAX 214 855-7370
Grant Thornton [graphic omitted]
Grant Thornton LLP Accountants and
Management Consultants
The U.S. member Firm of
Grant Thornton International
Report of Independent Certified Public Accountants
Board of Directors and Shareholders
Dallas Gold and Silver Exchange, Inc.
We have audited the accompanying consolidated balance sheet of Dallas Gold and
Silver Exchange, Inc. and Subsidiaries as of December 31, 1997, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the two years in the period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Dallas Gold and
Silver Exchange, Inc. and Subsidiaries as of December 31, 1997, and the
consolidated results of their operations and their cash flows for each of the
two years in the period then ended in conformity with generally accepted
accounting principles.
/s/ Grant Thornton LLP
- -----------------------
GRANT THORNTON LLP
Dallas, Texas
February 20, 1998
<PAGE>
<TABLE>
<CAPTION>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
December 31, 1997
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $1,258,254
Marketable securities - trading 1,826,552
Trade receivables 134,089
Notes receivable - officers 82,625
Inventories 1,033,803
Prepaid expenses 24,064
---------
Total current assets 4,359,387
MARKETABLE SECURITIES - AVAILABLE FOR SALE 1,275,300
PROPERTY AND EQUIPMENT - AT COST, NET 1,112,414
OTHER ASSETS 27,798
---------
$6,774,899
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 560,228
Deferred income taxes 411,500
Accounts payable - trade 290,968
Accrued expenses 182,748
Accrued payroll 209,132
Customer deposits 113,776
Current maturities of long-term debt and capital lease obligations 199,144
---------
Total current liabilities 1,967,496
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS,
less current maturities 1,567,199
DEFERRED INCOME TAXES 229,200
COMMITMENTS AND CONTINGENCIES --
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; authorized 10,000,000
shares; issued and outstanding 4,172,931 shares 41,729
Additional paid-in capital 3,455,633
Unrealized gain on available for sale securities, net of income tax of
$229,200 444,923
Accumulated deficit (931,281)
---------
Total shareholders' equity 3,011,004
---------
$6,774,899
=========
</TABLE>
The accompanying notes are an integral part of these statements.
16
<PAGE>
<TABLE>
<CAPTION>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
1997 1996
------------ ------------
<S> <C> <C>
Revenue
Sales $ 12,427,003 $ 11,291,690
Consulting income 466,566 40,000
Pawn service charges 32,962 33,768
Gain on sale of marketable securities - trading 1,051,742 639,684
Unrealized gains on marketable securities - trading 211,295 871,865
Other income 123,472 101,425
------------ ------------
14,313,040 12,978,432
Costs and expenses
Cost of goods sold 10,366,353 9,472,246
Consulting service costs 160,979 127,325
Selling, general and administrative expenses 1,792,456 1,733,791
Depreciation and amortization 92,252 90,012
Interest expense 230,063 175,370
------------ ------------
12,642,103 11,598,744
------------ ------------
Income from continuing operations before income taxes 1,670,937 1,379,688
Deferred income tax expense 460,500 --
------------ ------------
Income from continuing operations 1,210,437 1,379,688
Discontinued operations
Loss from operations, net of deferred tax benefit of $49,000 (95,010) (7,097)
------------ ------------
Net income $ 1,115,427 $ 1,372,591
============ ============
Basic earnings (loss) per common share
Continuing operations $ .27 $ .24
Discontinued operations (.02) --
----- -----
Earnings per common share $ .25 $ .24
===== =====
Diluted earnings (loss) per common share
Continuing operations $ .25 $ .23
Discontinued operations (.02) --
----- -----
Earnings per common share $ .23 $ .23
===== =====
Weighted average number of common shares
Basic 4,397,266 5,791,969
Diluted 4,809,644 6,191,969
</TABLE>
The accompanying notes are an integral part of this statement.
17
<PAGE>
<TABLE>
<CAPTION>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Years ended December 31, 1997 and 1996
<S> <C> <C> <C> <C>
Unrealized
Additional gain (loss) Total
Common stock paid-in Accumulated on marketable shareholders'
Shares Amount capital deficit securities equity
------------------------ ----------- ----------- ------------- -------------
Balances at January 1, 1996 5,820,849 $ 58,209 $ 5,192,400 $(3,419,299) $ (56,840) $ 1,774,470
Purchase and retirement of
common shares (1,203,156) (12,032) (1,066,569) -- -- (1,078,601)
Sale of common stock 500 5 620 -- -- 625
Unrealized gain on marketable
securities - available for sale,
net of tax -- -- -- -- 56,840 56,840
Net income -- -- -- 1,372,591 -- 1,372,591
----------- ----------- ----------- ----------- ----------- -----------
Balances at December 31, 1996 4,618,193 46,182 4,126,451 (2,046,708) -- 2,125,925
Purchase and retirements of
common shares (445,264) (4,453) (670,818) -- -- (675,271)
Unrealized gain on marketable
Securities - available for sale,
net of tax -- -- -- -- 444,923 444,923
Net income -- -- -- 1,115,427 -- 1,115,427
----------- ----------- ----------- ----------- ----------- -----------
Balances at December 31, 1997 4,172,929 $ 41,729 $ 3,455,633 $ (931,281) $ 444,923 $ 3,011,004
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
18
<PAGE>
<TABLE>
<CAPTION>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
1997 1996
------------ ------------
<S> <C>
Cash flows from operating activities
Cash received from customers $ 12,584,750 $ 12,369,457
Cash paid to suppliers and employees (12,403,389) (12,133,147)
Cash received from sales of marketable securities -
trading 1,350,141 898,526
Cash paid for purchases of marketable securities
available-for-sale (162,111) --
Interest paid (188,461) (175,370)
------------ ------------
Net cash provided by operating activities 1,180,930 959,466
------------ ------------
Cash flows from investing activities
Increase in notes receivable - officers (82,625) --
Capital expenditures (80,719) (62,867)
------------ ------------
Net cash used in investing activities (163,344) (62,867)
------------ ------------
Cash flows from financing activities
Proceeds from notes issued 212,713 70,410
Payment of short-term notes (200,497) (197,802)
Purchase and retirement of common stock (675,271) (203,601)
Principal payments on long-term debt (17,567) (16,554)
Principal payments under capital lease obligations (28,296) (17,167)
Sale of common stock -- 625
------------ ------------
Net cash used in financing activities (708,918) (364,089)
------------ ------------
Net increase in cash and cash equivalents 308,668 532,510
Cash and cash equivalents at beginning of year 949,586 417,076
------------ ------------
Cash and cash equivalents at end of year $ 1,258,254 $ 949,586
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
19
<PAGE>
<TABLE>
<CAPTION>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31,
1997 1996
----------- -----------
<S> <C> <C>
Reconciliation of net income to net cash provided by
operating activities
Net income $ 1,115,427 $ 1,372,591
Adjustments to reconcile net income to cash provided by
operating activities
Depreciation and amortization 92,252 90,012
Unrealized gain on marketable securities - trading (211,295) (871,865)
Deferred taxes 460,500 --
Marketable securities received in payment of consulting fees (439,066) --
(Increase) decrease in operating assets
Net change in marketable securities - trading 298,399 258,842
Net change in marketable securities - available-for-sale (162,111) --
Trade receivables 13,475 8,957
Inventories 77,682 (219,282)
Prepaid expenses and other assets (2,013) (48,872)
Increase (decrease) in liabilities
Accounts payable (202,971) 243,958
Accrued expenses 52,626 (25,291)
Accrued payroll 37,055 88,906
Customer deposits 56,006 18,956
----------- -----------
Net cash provided by continuing operating activities 1,185,966 916,912
Net cash provided by (used in) discontinued operating
activities (5,036) 42,554
----------- -----------
Total net cash provided by operating activities $ 1,180,930 $ 959,466
=========== ===========
</TABLE>
Supplemental schedule of noncash, investing and financing activities:
Year ended December 31, 1996:
----------------------------
The Company issued a long-term note payable to an individual in the amount
of $875,000 for the repurchase of 1,119,056 shares of common stock, which
were retired.
The accompanying notes are an integral part of these statements.
20
<PAGE>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
--------------------
Dallas Gold and Silver Exchange, Inc. and its wholly-owned subsidiaries
(the Company), sell jewelry and bullion products to both retail and
wholesale customers throughout the United States through its facility in
Dallas, Texas and provide consulting services related to reorganization of
other business enterprises. The operations of the Company's subsidiaries,
Dallas Global Travel, Inc. and Eye Media, Inc. are reflected as
discontinued operations in the accompanying financial statements.
Principles of Consolidation
---------------------------
The consolidated financial statements of the Company include the financial
statements of Dallas Gold and Silver Exchange, DGSE Corporation and DLS
Financial Services, Inc.
All material intercompany transactions and balances have been eliminated.
Inventory
---------
Jewelry and other inventory is valued at lower-of-cost-or-market (specific
identification). Bullion inventory is valued at lower-of-cost-or-market
(average cost).
Property and Equipment
----------------------
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are being provided on the
straight-line method over periods of five to thirty years. Machinery and
equipment under capital lease are amortized on the straight-line method
over their useful lives.
Earnings Per Share
------------------
For the year ended December 31, 1997, the Company adopted Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share."
Under SFAS 128, basic earnings per common share is based upon the weighted
average number of shares of common stock outstanding. Diluted earnings per
share is based upon the weighted average number of common stock outstanding
and, when dilutive, common shares issuable for stock options, warrants and
convertible securities. Earnings per share data for 1996 has been restated
to conform to the provisions of SFAS 128.
Cash and Cash Equivalents
-------------------------
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
21
<PAGE>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
December 31, 1997 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Investments in Marketable Securities
------------------------------------
Marketable equity securities have been categorized as either
available-for-sale or trading and carried at fair value. Unrealized gains
and losses for available-for-sale securities are included as a component of
shareholders' equity net of tax until realized, while unrealized gains and
losses for trading securities are included in the statement of income.
Realized gains and losses on the sale of securities are based on the
specific identification method.
Financial Instruments
---------------------
The carrying amounts reported in the consolidated balance sheet for cash
and cash equivalents, accounts receivable, marketable securities,
short-term debt, accounts payable and accrued expenses approximate fair
value because of the immediate or short-term maturity of these financial
instruments. The carrying amount reported for long-term debt approximates
fair value because substantially all of the underlying instruments have
variable interest rates which reprice frequently or the interest rates
approximate current market rates.
Stock Options
-------------
The Company's employee stock option plan is accounted for under APB Opinion
25, "Accounting for Stock Issued to Employees", and related
interpretations.
Reclassifications
-----------------
Certain reclassifications have been made to the 1996 statements to conform
to the 1997 presentation.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues, and expenses
during the reporting period. Actual results could differ from those
estimates.
22
<PAGE>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
December 31, 1997 and 1996
NOTE B - INVENTORIES
A summary of inventories at December 31, 1997 is as follows:
Jewelry $ 886,054
Scrap gold 95,761
Bullion 17,113
Other 34,875
---------
$1,033,803
=========
NOTE C - INVESTMENTS IN MARKETABLE SECURITIES
Marketable securities have been classified in the consolidated balance
sheet according to management's intent. The carrying amount of
available-for-sale securities and their fair values at December 31, 1997
follows:
Gross Gross
Carrying unrealized unrealized Fair
value gains losses value
Equity securities $604,177 $672,623 $1,500 $1,275,300
======= ======= ===== =========
NOTE D - PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31, 1997 is as follows:
Land $ 551,300
Buildings and improvements 552,510
Machinery and equipment 608,790
Furniture and fixtures 71,172
---------
1,783,772
Less accumulated depreciation and amortization (671,358)
---------
$1,112,414
=========
23
<PAGE>
<TABLE>
<CAPTION>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
December 31, 1997 and 1996
<S> <C> <C>
NOTE E - NOTES PAYABLE, LONG-TERM DEBT AND CAPITAL LEASES
A summary of notes payable and long-term debt and capital leases at
December 31, 1997 follows:
Notes payable
-------------
Various demand notes to individuals with interest rates from 8% to 14% $ 560,228
=========
Long-term debt and capital leases
---------------------------------
Mortgage payable, due in monthly installments of $6,452, including
interest based on 30 year US Treasury notes plus 2-1/2% (rate at
December 31, 1997 was 8.68%); balance due and payable in January 2014 $657,723
Convertible note, due December 5, 1998. Interest is payable quarterly at a rate of 9% 150,000
Convertible note, due December 31, 2001. Interest is payable quarterly at a rate of 8% 875,000
Capital lease obligations (property and equipment includes machinery and equipment
of $75,923, net of accumulated amortization of $67,554 at December 31, 1997) 83,620
---------
1,766,343
Less current maturities 199,144
---------
$1,567,199
=========
</TABLE>
Convertible Notes
- -----------------
In December 1995, the Company issued a long-term convertible note in the
amount of $150,000 to a supplier. The note bears interest at 9% payable
quarterly and matures in December 1998. At any time prior to full payment
of the note, the lender may exercise its right to convert the outstanding
indebtedness into shares of common stock at a conversion rate of $.50 per
share.
In December 1996, the Company issued a long-term convertible note in the
amount of $875,000 to an individual. The note bears interest at 8% payable
quarterly. The principal matures in installments of $100,000 at December
31, 1999, $100,000 at December 31, 2000, and $675,000 at December 31, 2001.
At any time prior to full payment of the note, the holder may convert
$100,000 of this note into common stock at a conversion rate of $1.00 per
share.
24
<PAGE>
<TABLE>
<CAPTION>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
December 31, 1997 and 1996
<S> <C> <C> <C>
NOTE E - NOTES PAYABLE, LONG-TERM DEBT AND CAPITAL LEASES - Continued
The following table summarizes the aggregate maturities of long-term debt
and payments on the capital lease obligations:
Obligations
under
Long-term capital
debt leases Total
--------- ----------- ---------
1998 $ 169,789 $ 38,264 $ 208,053
1999 121,622 29,700 151,322
2000 123,544 29,700 153,244
2001 700,659 2,476 703,135
2002 27,952 - 27,952
Thereafter 539,157 - 539,157
--------- --------- ---------
Total 1,682,723 100,140 1,782,863
Amounts representing interest (interest rates
ranging from 10.8% to 23.3%) - (16,520) (16,520)
--------- --------- ---------
1,682,723 83,620 1,766,343
Less current portion (169,789) (29,355) (199,144)
--------- --------- ---------
$1,512,934 $ 54,265 $1,567,199
========= ======== =========
NOTE F - EARNINGS PER SHARE
A reconciliation of the income and shares of the basic earnings per common
share and diluted earnings per common share for the year ended December 31,
1997 is as follows:
1997
-----------------------------------------
Per-share
Income Shares amount
---------- --------- ---------
Basic earnings per common share
Income from continuing operations $1,210,437 4,397,266 $.28
===
Effect of dilutive securities
Stock options 1,262
Convertible debt 14,200 175,000
--------- ---------
Diluted earnings per common share
Income available to common stockholders plus
assumed conversions $1,224,637 4,573,528 $.27
========= ========= ===
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
December 31, 1997 and 1996
<S> <C> <C>
NOTE F - EARNINGS PER SHARE - Continued
1996
-----------------------------------
Per-share
Income Shares amount
Basic earnings per common share
Income from continuing operations allocable to
common stockholders $1,379,688 5,791,969 $.24
===
Effect of dilutive securities
Convertible debt 14,200 175,000
------- --------
Diluted earnings per common share
Income available to common stockholders plus
assumed conversions $1,393,888 5,966,969 $.23
========= ========= ===
</TABLE>
NOTE G - STOCK OPTIONS
The Company has granted stock options to key employees to purchase shares
of the Company's common stock. Each option issued vests according to
schedules then designated by the Board of Directors, not to exceed three
years. The exercise price is based upon the estimated fair market value of
the Company's common stock at the date of grant, and is payable when the
option is exercised.
The Company has adopted only the disclosure provisions of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation" (FAS
123). It applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations in accounting for its plans and
does not recognize compensation expense for its stock-based compensation.
26
<PAGE>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
December 31, 1997 and 1996
NOTE G - STOCK OPTIONS - Continued
The following table summarizes the activity in common shares subject to
options for the two years ended December 31, 1997:
Weighted
Range of Average
Shares Exercise Price Exercise Price
------- -------------- --------------
January 1, 1996 380,000 $1.63 - $2.25 $2.12
Granted - - -
------- ------------ ----
December 31, 1996 380,000 1.63 - 2.25 2.12
Forfeited 40,000 2.125 - 2.25 2.1875
------- ------------ ------
December 31, 1997 340,000 $1.63 - $2.25 $2.12
======= ============ ====
As of December 31, 1997 and 1996, all options were exercisable and expire
six months after termination of employment.
NOTE H- INCOME TAXES
The income tax provision reconciled to the tax computed at the statutory
Federal rate follows:
1997 1996
------ ------
Tax expense at statutory rate $568,119 $ 466,682
Change in valuation allowance (99,266) (467,377)
Nondeductible expenses and other (8,353) 695
------- --------
Tax expense $460,500 $ -
======= ========
The change in the valuation allowance resulted from use of net operating
loss carryforwards.
27
<PAGE>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
December 31, 1997 and 1996
NOTE H - INCOME TAXES - Continued
Deferred income taxes are comprised of the following at December 31, 1997:
Deferred tax assets:
Net operating loss carryforwards $ 15,722
Deferred tax liabilities:
Unrealized gain on securities
Trading (427,222)
Available for sale (229,200)
--------
Gross deferred tax liability (656,422)
--------
Net deferred tax liability (640,700)
========
Net operating loss carryforwards for federal income tax purposes, amounting
to $46,200, expire in 2007.
NOTE I - OPERATING LEASE
The Company leases certain of its facilities under operating leases. The
minimum rental commitments under noncancellable operating leases are as
follows:
Year ending December 31,
1998 $ 101,000
1999 108,000
2000 108,000
2001 108,000
2002 108,000
Thereafter 162,000
---------
695,000
Less amounts representing sublease income 695,000
---------
$ -
Rent expense for the years ended December 31, 1997 and 1996 was
approximately $122,000 and $126,000, respectively, and was offset by
sublease income of approximately $108,000 and $97,000, respectively.
28
<PAGE>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
December 31, 1997 and 1996
NOTE J - DISCONTINUED OPERATIONS
During 1997, the Company discontinued the operations of Dallas Global
Travel, Inc. and Eye Media, Inc. Dallas Global Travel, Inc. operated a
travel agency while Eye Media, Inc. developed internet web sites. The
assets of both companies at December 31, 1997 were not significant. Summary
operating results of the discontinued operations for the years ended
December 31, 1997 and 1996 were as follows:
1997 1996
-------- --------
Revenues $110,700 $970,694
Costs and expenses 254,710 977,791
------- -------
Net loss before income tax benefit 144,010 7,097
Income tax benefit (49,000) -
------- -------
Net loss $ 95,010 $ 7,097
======= =======
NOTE K - BUSINESS SEGMENT INFORMATION
Corporate activities consist of gains on securities transactions and other
non-operating income. The Company's operations from continuing operations
by business segment were as follows:
<TABLE>
<S> <C> <C>
Consulting
Jewelry Services Corporate Consolidated
----------- ---------- ---------- ------------
Revenues
1997 $12,562,945 $487,058 $1,263,037 $14,313,040
1996 $11,426,883 $ 40,000 $1,511,549 $12,978,432
Operating income (loss)
1997 $ 173,362 $188,308 $ 848,767 $ 1,210,437
1996 $ 54,890 $(20,174) $1,344,972 $ 1,379,688
Identifiable assets
1997 $ 2,983,904 $683,747 $3,107,248 $ 6,774,899
1996 $ 2,796,927 $573,915 $1,918,052 $ 5,298,739
Capital expenditures
1997 $ 58,149 $ 22,570 $ - $ 80,719
1996 $ 40,859 $ 22,008 $ - $ 62,867
Depreciation
1997 $ 80,212 $ 12,040 $ - $ 92,252
1996 $ 80,047 $ 9,965 $ - $ 90,012
</TABLE>
29
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,258
<SECURITIES> 1,827
<RECEIVABLES> 217
<ALLOWANCES> 0
<INVENTORY> 1,034
<CURRENT-ASSETS> 4,359
<PP&E> 1,784
<DEPRECIATION> 671
<TOTAL-ASSETS> 6,775
<CURRENT-LIABILITIES> 1,967
<BONDS> 1,567
<COMMON> 42
0
0
<OTHER-SE> 2,969
<TOTAL-LIABILITY-AND-EQUITY> 6,775
<SALES> 12,427
<TOTAL-REVENUES> 14,313
<CGS> 10,366
<TOTAL-COSTS> 10,340
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 230
<INCOME-PRETAX> 1,671
<INCOME-TAX> 461
<INCOME-CONTINUING> 1,210
<DISCONTINUED> (95)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,115
<EPS-PRIMARY> .25
<EPS-DILUTED> .23
</TABLE>
