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

(  )  Transition Report under Section 13 or 15 (d) of the
      Securities Exchange Act of 1934 (No Fee Required)
For the transition period from            to
                               ----------    ----------

Commission file number     1-11048
                      --------------------------

                      Dallas Gold and Silver Exchange, Inc.
                   (formerly The American Pacific Mint, Inc.)
--------------------------------------------------------------------------------
                         (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
----------------------------------------         -------------------------------
(Address of Principal Executive Offices)                  (Zip Code)

Issuer's  telephone  number,  including  area  code  (972)  484-3662 
                                                     ---------------
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
--------------------------------------------------------------------------------
                                (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.


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

Products and Services --------------------- 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

Products and Services (continued...) --------------------- 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

Products and Services (continued...) --------------------- 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 ------------------- 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

Sales and Marketing (continued...) ----------------------------------- 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 ----------- 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 ----------- 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

Employees --------- 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

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

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. GENERAL ------- 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 --------------------- 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

Results of Operations (continued...) ---------------------- 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

Liquidity and Capital Resources ------------------------------- 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

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

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

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

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

<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

<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

<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

<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

<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

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

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

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

<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

<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

<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

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

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

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

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<S>                                  <C>
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<FISCAL-YEAR-END>                                 DEC-31-1997
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<PERIOD-END>                                      DEC-31-1997
<CASH>                                                  1,258
<SECURITIES>                                            1,827
<RECEIVABLES>                                             217
<ALLOWANCES>                                                0
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<TOTAL-LIABILITY-AND-EQUITY>                            6,775
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<TOTAL-REVENUES>                                       14,313
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