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

                                   FORM 10-K

[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 PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934
        For the transition period from               to
                                      ---------------  --------------

                         Commission file Number: 0-4563

                             THE ENCORE GROUP, INC.
                                  PO Box 69536
                             Portland, Oregon 97201

               I.R.S. Employer Identification Number: 93-0580867
                      Incorporated in the State of Oregon
                        Telephone number: (503) 221-4255


         Securities registered under Section 12(g) of the Exchange Act:

                         Common Stock, without par value
                                (Title of class)

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

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not 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-K or any
amendment of this Form 10-K. [ ]

        State issuer's revenues for its most recent fiscal year:  $0

        State  the   aggregate   market  value  of  the  voting  stock  held  by
nonaffiliates computed by reference to the price at which the stock was sold, or
the average bid and asked prices of such stock, as of a specified date within 60
days  prior to the  date of  filing:     nil      aggregate  market  value as of
December 31, 1996, based on the fact that no stock was traded.    

        Indicate  the  number  of  shares  outstanding  of each of the  issuer's
classes of common equity,  as of the latest  practicable  date: 17,011 shares of
Common Stock, without par value, on June 23, 1998

                                   ----------

The total number of pages contained in this Form 10-K is 29.
The Exhibit Index is located at sequentially numbered page 15.
<PAGE>
                               INDEX TO FORM 10-K

                      For the year ended December 31, 1996



                                     PART I                          Page
                                                                     ----

Item 1.     Business                                                   3

Item 2.     Properties                                                 4

Item 3.     Legal Proceedings                                          4

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


                                 PART II

Item 5.     Market for Registrant's Common Equity and Related
            Stockholder Matters                                        5

Item 6.     Selected Financial Data                                    6

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

Item 8.     Financial Statements and Supplementary Data                7

Item 9.     Changes in and Disagreements with Accountants on
            Accounting and Financial Disclosure                        7


                                PART III

Item 10.    Directors and Executive Officers of the Registrant         8

Item 11.    Executive Compensation                                     9

Item 12.    Security Ownership of Certain Beneficial Owners and
            Management                                                10

Item 13.    Certain Relationships and Related Transactions            10


                                 PART IV

Item 14.    Exhibits, Financial Statement Schedules and Reports
            on Form 8-K                                               11

Index to Exhibits                                                     13
Financial Statements                                                  14 
<PAGE>
PART I

ITEM 1.   DESCRIPTION OF BUSINESS

Company Overview
----------------
     
         Registrant's  only operating  subsidiary,  VDO-Pak,  Inc., Port Orange,
Florida,  ceased  operations  in August 1996.  Registrant  ceased  operations in
November  1996.  Subsequently,  on February 28, 1997,  Encore vacated its leased
premises at 4800 SW  Macadam,  Suite 100,  Portland,  Oregon.  Encore  currently
utilizes a post  office box and a  telephone  voice  messaging  service  for its
communications. Management currently is attempting to complete the resolution of
various  creditor  disputes in order to create a stable going-concern  basis for
the  Company.  In March of 1998 the  Company  acquired  an  operating  activity,
Parsons Industries,  Inc. ("Parsons") of Ashland, Oregon. Parsons is a secondary
wood products  manufacturer  doing  business under the trade style Parsons Pine.
Parsons is currently operating at a modest loss.

         Encore is the  successor  corporation  of American  Guaranty  Financial
corporation   (formerly  American  Guaranty  Life  Insurance   Company),   which
originally  experienced financial  difficulties beginning in the late 1970's due
to  extremely  unprofitable  investments  in  ill-chosen  development  projects.
Although  the  Registrant  was  once  a  company  of  sizable  proportions,  the
unprofitable  investments were disastrous.  In 1989 the net worth of the company
was  essentially  depleted.  In  addition  to the  losses,  the company was also
involved in substantial litigation regarding failed operations.

         In 1989  approximately  one-third  of  Registrant's  common  stock  was
acquired by Bruce L. Engel. New management was installed and efforts were set in
motion to resolve the  litigation and rebuild the company.  Registrant  acquired
VDO-Pak,  Inc., Port Orange,  Florida,  a supplier of power packs,  rechargeable
batteries and accessories for cellular telephones.  A bank loan of approximately
$1,200,000 was arranged,  secured by VDO-Pak's assets,  accounts  receivable and
inventory. The loan, from the Bank of California, now known as the Union Bank of
California, was guaranteed by registrant's controlling shareholder.

         Also in 1989, Registrant acquired Vidcom Manufacturing,  Inc., Livonia,
Michigan, a fabricator of nickel-cadmium  batteries for cellular phones. In 1991
Vidcom Manufacturing, Inc. was closed due to the lack of a customer base.

         Registrant changed its name to The Encore Group, Inc. in 1990.

         From 1992 through 1995 Registrant conducted a series of activities
devoted to clearing up unresolved legal matters and attempting to strengthen the
company. In 1995, Encore approached the bank and offered to satisfy the loan on
a reduced and modified basis. Throughout the calendar year 1996 the bank gave
continuing assurances that the settlement proposal would be accepted. Based upon
these statements, Encore continued operating VDO-Pak and prepared to attract new
capital by securing shareholder approval of a 1 for 500 reverse stock split. In
the second half of 1996 the bank reneged on its acceptance of the restructuring
proposal.

                                       3

<PAGE>
         On  December  6, 1996,  the bank  reversed  itself  again and granted a
settlement.  However, by this time both VDO-Pak,  Inc. and Encore were shut down
and insolvent.

Efforts to Revive the Business.
------------------------------

         Open claims with the Internal  Revenue  Service and the Pension Benefit
Guarantee  Corporation have been resolved.  Certain  creditors of VDO-Pak,  Inc,
have settled their claims against the Company.  Discussions  are continuing with
other  creditors.  Management is  attempting  at this time to secure  sufficient
working capital to support the continuing activities of the Company.

         The operation of Parsons is expected to provide some working capital at
such time that the subsidiary is profitable.

         There is no assurance that adequate working capital will be available.


ITEM 2. DESCRIPTION OF PROPERTIES

         The company has no facilities or premises.


ITEM 3. LEGAL PROCEEDINGS

         The Company is not currently subject to any material litigation nor, to
the  Company's  knowledge,  is any material  litigation  threatened  against the
Company.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        None
                                       4

<PAGE>
PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Price Range of Common Stock:
                                   1997                1996
                              ---------------     --------------- 
                               High      Low       High      Low
                              -----     -----     -----     ----- 
          First Quarter          Not traded       $0.05     $0.05
          Second Quarter         Not traded          Not traded
          Third Quarter          Not traded          Not traded
          Fourth Quarter         Not traded          Not traded


        
         No dividends have been paid since a 1983 stock dividend, and no cash or
other dividends are contemplated for the foreseeable future.

         As of June 23, 1997,  there were 211 record holders of the Registrant's
common stock holding 17,011 shares.

                                       5

<PAGE>
ITEM 6. SELECTED FINANCIAL DATA

             (In thousands, except shares and per share amounts)
<TABLE>
<CAPTION>
                          1997        1996        1995        1994        1993        1992     
                        --------    --------    --------    --------    --------    --------
<S>                     <C>         <C>         <C>          <C>          <C>       <C>
Sales                   $     0     $   749     $ 2,015     $ 3,113     $ 2,919     $ 3,590    
                        ========    ========    ========    ========    ========    ========

Net income (loss)           (50)    $   693     $  (384)    $    55     $  (193)    $   134 (1)
                        ========    ========    ========    ========    ========    ========  

Net income (loss) per
  common share: (1)     $ (5.09)    $ 70.57     $(39.10)    $  5.60     $(19.65)    $ 13.65    
                        ========    ========    ========    ========    ========    ========

Common shares(pro forma)  9,820       9,820       9,820       9,820       9,820       9,802
                        ========    ========    ========    ========    ========    ========

Cash                          2     $    10     $     8     $    31     $    30     $    36    
Fixed assets, net             0          15           8          19          42          59    
Other assets                  0           9       1,036       1,304       1,391       1,630    
                        --------    --------    --------    --------    --------    --------

   Total assets               2     $    34     $ 1,052     $ 1,354     $ 1,463     $ 1,725    
                        ========    ========    ========    ========    ========    ========

Current liabilities         322     $   294     $ 1,709     $ 1,645     $ 1,849     $ 1,918    
Pension liability             0         267         248         176         105         105    
                        --------    --------    --------    --------    --------    --------

    Total liabilities       322     $   561     $ 1,957     $ 1,821     $ 1,954     $ 2,023    
                        ========    ========    ========    ========    ========    ========
Total
  stockholders deficit     (320)    $  (527)    $  (905)    $  (467)    $  (491)    $  (298)   
                        ========    ========    ========    ========    ========    ========

Cash dividends per common
  share                 $  -        $  -        $  -        $  -        $  -        $   -      
                        ========    ========    ========    ========    ========    ========
</TABLE>


--------
(1)  In 1991, the Company ceased  operations and liquidated the remaining assets
of Vidcom Manufacturing, Inc. (Vidcom),  a wholly  owned  subsidiary  located in
Livonia,  Michigan.  Vidcom's  liquidation resulted in a restructuring charge of
$323 in the year ended December 31, 1991.  During 1992, Vidcom was dissolved and
its remaining obligations were discharged,  resulting in a restructuring gain of
$217 in the year ended December 31, 1992.

                                       6

<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS

         The Company  has been  inoperative  since  November  1996.  To date the
Company's  major  shareholder  has  attempted  to revive the Company by settling
outstanding  claims and seeking  opportunities  for  working  capital and viable
business activities.  Outstanding claims by the Internal Revenue Service and the
Pension Benefit Guarantee Corporation have been settled and creditor settlements
are in process.  In March 1998 Parsons  Industries,  Inc. was aquired for common
stock of the  Registrant  and is expected to contribute  cash flow to the parent
organization.

         In June 1998 the  Company  leased a small  office  location  in Tigard,
Oregon.

 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The financial  statements and supplementary  data required by this Item
are included on pages F-1 to F-16 of this Annual Report.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
        FINANCIAL DISCLOSURE

         None




                                       7

<PAGE>
PART III

 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The Registrant's  Restated Articles of Incorporation and Bylaws provide
for a Board of Directors  consisting  of not less than three nor more than seven
directors, with the exact number within this range to be determined from time to
time only by the Board of Directors. The current number of directors is six. All
directors  stand for  election  annually.  Officers are elected to a term of one
year or less, serve at the pleasure of the Board of Directors,  and are entitled
only to such compensation as is fixed by the Board.

         The Directors and Executive  Officers of the  Registrant as of December
31, 1995, are as follows:

                      Director  Officer    Positions and/or
Name                  Since     Since      Offices Held                     Age

Bruce L. Engel        1988      1991       Director; President and           58
                                           Chief Executive

Teri E. Engel         1989      1989       Director; Corporate Secretary     49

Robert G. Fligg       1988        -        Director                          49

Fred J. Kupel         1995      1998       Director; Vice President of       69
                                           Finance and Chief Financial
                                           Officer, Assistant Secretary

Robert J. Gardiner    1998        -        Director                          58

Michael J. Rasmussen  1998        -        Director                          37


         The following family relationships exist among the directors or
executive officers: Bruce L. Engel and Teri E. Engel are husband and wife; Mr.
Fligg's spouse is a niece of Mr. Engel.

         Mr. Engel was elected President and Chief Executive Officer on March
19, 1991. Mr. Engel's principal employment was as President and Chief Executive
Officer of WTD Industries, Inc., Portland, Oregon, from its inception in 1983
until his retirement in 1998.

         Ms. Engel has been a director and Secretary of the Company since 1989.

         Mr. Fligg was employed by Dee Forest Products, Inc. from March 1991 to
July 1997 as Chief Financial Officer. Subsequently, Mr. Fligg has served
Advanced Navigation & Positioning Corporation as Chief Financial Officer. Both
firms are in Hood River, Oregon. He was employed as an officer of Registrant
from 1988 to 1991.

         Mr. Gardiner is the 1958 founder and subsequent President of MRK
Investments, which specializes in residential and commercial real estate and
property management.  He was employed by WTD Industries, Inc. from 1985 to 1998
as Corporate Pilot. Mr. Gardiner is a licensed Commercial Pilot holding an
Airline Transport Pilot's rating in fixed wing and rotorcraft.

         Mr. Kupel has been an independent management consultant for over ten
years. Prior to 1989 he served as Chief Financial Officer and Corporate
Development Officer for various public and private corporations. He has served
the Company as a consultant since 1993.

                                       8

<PAGE>
         Mr. Rasmussen is the President of Parsons Industries, Inc., a secondary
wood products company located in Ashland, Oregon. Parsons Industries, Inc. is a
wholy-owned subsidiary of Registrant. Prior to his position with Parsons
Industries, Inc. Mr. Rasmussen served for one year as a Business Development
Executive with GE Capital specializing in small business. For the 14 prior years
Mr. Rasmussen worked in lending and management positions with Bank of America
and U.S.National Bank of Oregon.

ITEM 11.  EXECUTIVE COMPENSATION

Summary Compensation Table
--------------------------

         The following table shows the cash and non-cash compensation paid
during 1997 to the company's Chief Executive Officer. Directors received no
compensation for their services in 1997.

<TABLE>
<CAPTION>
                                                                        Long Term 
                                                                       Compensation
                                                                          Awards
                                       Annual Compensation(1)      --------------------         
                                   ------------------------------  Number of Securities
    Name and Principal Position     Year    Salary($)   Bonus($)    Underlying Options
  -------------------------------  ------  ----------  ----------  --------------------
<S>                                <C>     <C>         <C>         <C>
Bruce L. Engel                     1997      0           0           0  
  President and                    1996      0           0           0
  Chief Executive Officer          1995      0           0           0
</TABLE>

No executive officer received cash compensation in 1997 in excess of $100,00.


Option Grants in Last Fiscal Year
---------------------------------

a).  No options were granted in 1997.


                        Options      Percent of    Exercise   Expiration
      Name              Granted     Total Options    Price       Date
     -----            -----------   -------------  --------   ----------
b.)  Option Plan Grants in 1998 (remainder of grants under old Plan):

Bruce L. Engel           1,000           8.7       $10.00      4/20/2008
Teri E. Engel               80            .7       $10.00      4/20/2008
Robert G. Fligg             80            .7       $10.00      4/20/2008
Robert J.Gardiner           80            .7       $10.00      4/20/2008
Fred J. Kupel               80            .7       $10.00      4/20/2008
Michael J. Rasmussen        80            .7       $10.00      4/20/2008

c.)  Options granted in connection with the March 31, 1988, acquisition of 
Parsons Industries, Inc.:

Bruce L. Engel &
  Teri E. Engel            500           4.4       $10.00      4/20/2008
Robert J.Gardiner &
  Brenda J.Gardiner      4,750          41.7       $10.00      4/20/2008
Michael J. Rasmussen     4,750          41.7       $10.00      4/20/2008
                      -----------   -------------  --------   ----------   
                        11,400         100.0       $10.00 
 
                                        9

<PAGE>
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table shows beneficial ownership as of June 23, 1998 of
the Company's Common Stock by (i) each director, (ii) each beneficial owner of
more than 5 percent of the Common Stock, (iii) the Named Executive Officers and
(iv) all directors and officers as a group. Except as otherwise specifically
noted, each person noted below has sole investment and voting power with respect
to shares indicated.

                            Amount and Nature
 Beneficial Owner       of Beneficial Ownership(1)    Percent of Class
--------------------    --------------------------    ----------------
Bruce L.Engel                  3,367 (2)                    19.8%
Teri E.Engel                   3,017 (2)                    19.8
Robert G. Fligg                  500                         2.9
Robert J. Gardiner               762                         4.5
Fred J. Kupel                    640                         3.8
Michael J. Rasmussen             750                         4.4

All Directors and
officers as a group
(6 persons)                    5,669                        35.4


Union Bank of California       1,005 (3)                     5.9%

(1) Beneficial Ownership includes sole voting and investment power as to the
shares.
(2) Includes shares held individually by Mr.Engel and shares held jointly with
spouse.
(3) As a consequence of the December 6, 1996, Settlement Agreement between the
Company, Bruce and Teri Engel, and the Union Bank of California, said Bank
received 1,005 shares of common stock previously held by the Engels.  The said 
Bank is using Cede and Co. as a nominee to hold these shares, to the best of
the company's knowledge.  The Company is unaware of any reports of ownership
having been filed by the Union Bank of California.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Fred J. Kupel served the Company as an outside consultant during 1997
and received compensation of $6,000 in the form of 600 shares of common stock.
This amount is less than the minimum required for disclosure purposes. The
shares were not issued until 1998.


Section 16(a) Beneficial Ownership Reporting Compliance
-------------------------------------------------------

         Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires that the Company's officers, directors and persons who own more than 10
percent of the Common Stock file with the SEC initial reports of beneficial
ownership on Form 3 and reports of changes in beneficial ownership of Common
Stock and other equity securities of the Company on Forms 4 and 5. Officers,
directors, and greater than 10 percent shareholders of the Company are required
by SEC regulations to furnish to the Company copies of all Section 16(a) reports
that they file. To the Company's knowledge, based solely on reviews of such
reports furnished to the Company and written representations that no other
reports are required, all Section 16(a) filing requirements applicable to its
officers, directors and greater than 10 percent beneficial owners were complied
with during the fiscal year ended December 31, 1997.

                                       10

<PAGE>
PART IV

ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K

(a)(1)   Financial Statements.

         The following  financial  statements of the Registrant are contained in
this report:


         INDEPENDENT AUDITOR'S REPORT                            14


         FINANCIAL STATEMENTS

         Balance sheets                                          15
         Statements of operations                                16
         Statements of retained deficit                          17
         Statements of cash flow                                 18
         Notes to financial statements                           19



(a)(2)   Exhibits:

Exhibit  Description

           27          Financial Data Schedule(1)

(b)        Reports on Form 8-K.  A current  report on Form 8-K,  describing  the
           acquisition  of  Parsons  Industries,  Inc.  and a  Board  Resolution
           approving a  quasi-reorganization  of the Company was filed April 20,
           1998.
----------
           (1)  This  schedule  has  been  submitted  in  the  electronic   form
           prescribed by EDGAR.



















                                       11

<PAGE>
                                   SIGNATURES


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

                            THE ENCORE GROUP, INC.



Date:  7/17/98              /s/ Bruce L. Engel
                            Bruce L. Engel
                            President, Principal Executive Officer and Director



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

             
Date:  7/17/98              Kenneth L. Wright
                            Executive Vice President and Chief Financial Officer
                            Mr. Wright resigned as an Officer and Director as 
                            of December 15, 1997


Date:  7/17/98              /s/ Bruce L. Engel
                            --------------------
                            Bruce L. Engel
                            Director


Date:  7/17/98              /s/ Fred J. Kupel
                            --------------------
                            Fred J. Kupel
                            Director


Date:  7/17/98              /s/ Robert G. Fligg
                            --------------------
                            Robert G. Fligg
                            Director


Date:  7/17/98              /s/ Teri E. Engel
                            --------------------
                            Teri E. Engel
                            Secretary and Director


                                       12

<PAGE>
                             THE ENCORE GROUP, INC.

                               INDEX TO EXHIBITS

27  Financial Data Schedule

    This schedule has been submitted in the electronic form prescribed by EDGAR.

























                                       13

<PAGE>
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To the Board of Directors
The Encore Group, Inc.


We have audited the accompanying  balance sheet of The Encore Group,  Inc. as of
December  31,  1997.  This  financial  statement  is the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an  opinion on this
financial statement based on our audit.

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

Because  we were not  engaged  to audit the  statement  of income  and  retained
earnings, and cash flows, we did not extend our auditing procedures to enable us
to express an opinion on results of operations and cash flows for the year ended
December 31, 1997. Accordingly, we express no opinion on them.

In our opinion,  the combined  balance sheet  presents  fairly,  in all material
respects,  the financial  position of The Encore Group,  Inc. as of December 31,
1997.

The accompanying  balance sheet has been prepared assuming that the Company will
continue as a going concern. As discussed in Note 1 to the financial statements,
under existing  circumstances,  there is substantial  doubt about the ability of
The Encore  Group,  Inc. to continue as a going  concern at December  31,  1997.
Management's  plans in regard to that matter are also  described  in Note 1. The
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.


                                                  /s/Moss Adams LLP
                                                  -----------------
                                                  MOSS ADAMS


Beaverton, Oregon
February 19, 1998


                                       14

<PAGE>
                      THE ENCORE GROUP, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)



                                                        DECEMBER 31,
                                                  1997             1996
                                               -----------       ----------
                                                (Audited)        (Unaudited)
ASSETS

CURRENT ASSETS
     Cash                                      $        2        $       10
     Accounts receivable, net                           0                (1)
     Inventory                                          0                 0
     Prepaid expenses                                   0                10
                                               -----------       ----------

                  Total current assets                  2                19
                                               -----------       ----------

NON-CURRENT ASSETS
     Land held for sale                                 0                15
     Fixed assets, net                                  0                 0 
     Goodwill, net                                      0                 0
                                               -----------       ----------

                                                        0                15
                                               -----------       ----------

     Total assets                              $        2        $       34
                                               ===========       ==========


LIABILITIES AND STOCKHOLDERS' DEFICIT          

CURRENT LIABILITIES
     Accounts payable                          $      269        $      275
     Accrued liabilities                               41                19
     Note payable                                      12                 0
                                               -----------       ----------

                  Total current liabilities           322               294

PENSION LIABILITIES                                     0               267
                                               -----------       ----------

                  Total liabilities                   322               561
                                               -----------       ----------

STOCKHOLDERS' DEFICIT
     Common stock  without  par  value,  
       50,000 authorized,
       9,802 outstanding                            6,113             6,113
     Series B Preferred stock $100 par value
       5,000 authorized, 1,000 outstanding            100
     Additional paid-in capital                    20,975            20,975
     Retained deficit                             (27,508)          (27,458)
     Pension liability adjustment                     -                (157)
                                               -----------       -----------

                  Total stockholders' deficit        (320)             (527)
                                               -----------       -----------

     Total liabilities and 
          stockholders' deficit                $        2        $       34
                                               ===========       ==========

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

                                       15

<PAGE>
<TABLE>
<CAPTION>
                      THE ENCORE GROUP, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 (In thousands, except share and per share data)





                                                                        YEAR ENDED DECEMBER 31,
                                                                 1997             1996             1995  
                                                              (Audited)       (Unaudited)       (Audited)
<S>                                                          <C>              <C>              <C>       
SALES                                                        $     -          $     749        $   2,015 
                                                                                                         
LESS COST OF SALES                                                 -                756            1,283 
                                                             ----------       ----------       ----------
                                                                                                         
GROSS PROFIT                                                       -                 (7)             732 
                                                             ----------       ----------       ----------
                                                                                                         
SELLING, GENERAL & ADMINISTRATIVE EXPENSES                          65              339              808 
                                                             ----------       ----------       ----------
                                                                                                         
         Operating income (loss)                                   (65)            (346)             (76)
                                                             ----------       ----------       ----------
                                                                                                         
NON-OPERATING REVENUES & EXPENSES                                                                        
     Gain on pension settlement                                     12
     Other income                                                    3               -                -  
     Write-down of real estate investment                          -                 -               (45)
     Settlement of note payable and adjustments                                   1,049                  
     Other expense                                                 -                 -              (112)
     Interest expense                                              -                (10)           (151) 
                                                             ----------       ----------       ----------
         Total non-operating revenues & expenses                    15            1,039             (308)
                                                             ----------       ----------       ----------
                                                                                                         
NET INCOME (LOSS)                                           $      (50)       $     693        $     (384
                                                             ==========       ==========       ==========
                                                                                                         
PER SHARE                                                                                                
     Net income (loss) per share                             $   (5.09)       $   70.57        $  (39.10)
                                                             ==========       ==========       ==========
                                                                                                         
     Average common shares outstanding                           9,820            9,820            9,820 (1)
                                                             ==========       ==========       ==========
</TABLE>
(1) Pro forma after 1:500 reverse stock split.


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

                                       16

<PAGE>
<TABLE>
<CAPTION>
                      THE ENCORE GROUP, INC. AND SUBSIDIARY
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
                   YEAR ENDED DECEMBER 31, 1996, 1995 AND 1994
                       (In thousands, except share amount)





                                         COMMON STOCK         PREFERRED STOCK     ADDITIONAL                 PENSION
                                    OUTSTANDING            OUTSTANDING             PAID-IN     RETAINED     LIABILITY
                                      SHARES      AMOUNT     SHARES     AMOUNT     CAPITAL      DEFICIT     ADJUSTMENT      TOTAL
                                                                                   
<S>                                <C>          <C>        <C>         <C>        <C>         <C>           <C>          <C>
Balance, December 31, 1993          6,112,848   $  6,113         -           -        20,975     (27,507)         (72)       (491)
                                                                                  
    Net income for 1994                    -          -          -           -            -           55           -           55
                                                                                  
    Pension liability adjustment           -          -          -           -            -           -           (31)        (31)
                                   -----------  ---------  ----------  ---------  ----------- -----------   ----------   ---------
                                                                                  
Balance, December 31, 1994          6,112,848   $  6,113         -           -        20,975     (27,452)        (103)       (467)
                                                                                  
    Net loss for 1995                      -          -          -           -            -         (384)          -         (384)
                                                                                  
    Pension liability adjustment           -          -          -           -            -           -           (54)        (54)
                                   -----------  ---------  ----------  ---------  ----------- -----------   ----------   ---------
                                                                                  
Balance, December 31, 1995          6,112,848   $  6,113         -           -    $  20,975   $  (27,836)   $    (157)   $   (905)
                                                                                  
    Net gain for 1996                      -          -          -           -            -          378           -          378 
                                   -----------  ---------  ----------  ---------  ----------- -----------   ----------   ---------
                                                                                  
Balance, December 31, 1996 (1)          9,820   $  6,113         -           -    $  20,975   $  (27,458)   $    (157)   $   (527)
                                                                                  
    Net loss for 1997                      -          -     100,100    $    100          -           (50)         157         207 
                                   -----------  ---------  ----------  ---------  ----------- -----------   ----------   ---------
                                                                                  
Balance, December 31, 1997 (1)          9,820   $  6,113    100,000    $    100   $  20,975    $ (27,508)   $      -     $   (320)
                                   ===========  =========  ==========  =========  ==========  ===========   ==========   =========
                                                                                  
</TABLE>                                                 
----------
(1)  Number of shares after reverse stock split.

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

                                       17

<PAGE>
<TABLE>
<CAPTION>
                      THE ENCORE GROUP, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)




                                                              YEAR ENDED DECEMBER 31,
                                                               1997    1996    1995     
                                                              ------  ------  ------
<S>                                                           <C>     <C>        <C>       
CASH FLOWS RELATED TO OPERATING ACTIVITIES                         
  Net income (loss)                                           $ (50)  $ 693   $(384)    
  Adjustments to reconcile net income (loss) to net cash           
    provided by operating activities:
      Gain on settlement of pension liability                   (11)
      Gain on disposal of land                                   (3)
      Depreciation                                                        6      13     
      Allowance for stockholder receivable                                -      75     
      Amortization of goodwill                                            -      25     
      Pension liability adjustment                                        -     (54)    
      Loss (gain) on disposal or writedown of assets                      -      45     
      Accounts receivable                                        (1)    292      64     
      Inventory                                                         200     105     
      Prepaid expenses and other                                  4      13      29     
      Accounts payable                                           (6)    (96)     97     
      Pension liability                                                  19      72     
      Accrued liabilities                                        29     (81)     (3)    
                                                              ------  ------  ------
                                                                   
         Net cash provided by operating activities              (38)  1,046      84     
                                                              ------  ------  ------
                                                                   
CASH FLOWS RELATED TO INVESTING ACTIVITIES                         
  Loan to stockholder                                                     -     (75)    
  Proceeds from sale of fixed assets                             18      (8)      -     
  Purchases of fixed assets                                               -      (2)    
  Closure of facilities, net                                            202                   
                                                              ------  ------  ------
                                                                   
         Net cash provided by (used in) investing activities     18     194     (77)     
                                                              ------  ------  ------
                                                                   
CASH FLOWS RELATED TO FINANCING ACTIVITIES                         
  Settlement of note payable                                         (1,238)
  Principal payments on notes payable                                     -     (30)    
  Proceeds from short-term notes payable                         12
                                                              ------  ------  ------
                                                                   
         Net cash used in financing activities                   12  (1,238)    (30)    
                                                              ------  ------  ------
                                                                   
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS             (8)      2     (23)    
                                                                   
CASH AND CASH EQUIVALENTS, beginning of year                     10       8      31
                                                                   
CASH AND CASH EQUIVALENTS, end of year                        $   2   $  10   $   8     
                                                              ======  ======  ======
                                                                   
INTEREST PAID                                                 $   -   $  10   $ 151     
                                                              ======  ======  ======    
</TABLE>                                                     


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

                                       18

<PAGE>
NOTE 1    -       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Business and  organization - The Company has not operated since August,
         1996,  at which time the Company  ceased  operations of its only wholly
         owned subsidiary,  VDO-Pak,  Inc. Subsequent to the closure of VDO-Pak,
         Inc., the Company has been involved in various  creditor  disputes,  as
         described below. As shown on the accompanying balance sheet the Company
         has minimal assets and a net deficit in equity of $320,540.  During the
         year ended March 31, 1997 and  subsequent  to year-end,  the  Company's
         management  has  developed  a plan to improve the  Company's  financial
         position.   The  plan  includes  efforts  to  resolve  creditor  issues
         associated  with  the  Company's  pension  plan  and the  creditors  of
         VDO-Pak. A discussion of the steps taken regarding the pension plan and
         the VDO-Pak creditors is included in notes two and three, respectively.
         Additionally,  as  described  below  in note  three,  the  Company  has
         acquired  Parsons  Pine in  March  of  1998.  Parsons  Pine is a lumber
         remanufacturing  operation  which is  currently  operating  at a modest
         loss.

         The ability of the Company to continue as a going  concern is dependent
         upon the  achievement  of  management's  plan and an improvement in the
         profitability  of the Parsons Pine facility.  No adjustments  have been
         made to the  financial  statements  should  the  Company  be  unable to
         continue as a going concern.


         Cash and cash  equivalents  - The Company  considers  all highly liquid
         investments  with a  maturity  date of three  months or less to be cash
         equivalents.  The Company  maintains its cash and cash  equivalents  in
         bank deposit  accounts which, at times,  may exceed  federally  insured
         limits.  The Company has not  experienced  any losses in such accounts.
         The Company  believes it is not exposed to any significant  credit risk
         associated with its cash and cash equivalents.


         Use of  estimates - The  preparation  of the  financial  statements  in
         conformity  with  generally  accepted  accounting  principles  requires
         management to make  estimates and  assumptions  that affect the amounts
         reported in the financial  statements and  accompanying  notes.  Actual
         results may differ from these estimates.



                                       19
<PAGE>
NOTE 2    -       RETIREMENT PLAN

         The Company  has a  noncontributory  defined  benefit  retirement  plan
         covering certain former corporate  employees.  During 1990, the Company
         froze the  participation  in the plan with the  intention of eventually
         terminating  the plan. As of December 31, 1997,  the Company was unable
         to meet its obligations  under the retirement plan.  Additionally,  the
         Company was unable to pay excise taxes imposed by the Internal  Revenue
         Service (IRS) which were based on the accumulated funding deficiency of
         the plan. As such, the Company  sought relief from the Pension  Benefit
         Guaranty  Corporation  (PBGC)  and the  IRS.  Subsequent  to year end a
         settlement  was reached with the PBGC, by which the plan was terminated
         and the Company was relieved of its liability.  The settlement required
         the company to issue to the PBGC one thousand  shares of the  Company's
         Series B preferred stock, with a $100 par value, options to acquire one
         thousand  shares  of the  Company's  common  stock at $10 per share and
         warrants to acquire one  thousand  of the  Company's  stock at $100 per
         share.

         The Company also reached a settlement  with the IRS which  required the
         Company to pay ten percent of the excise  taxes  assessed  for the plan
         years ended December 31, 1993, 1994, 1995 and 1996. The final amount to
         be paid was $40,613.  The  settlements  with the PBGC and IRS have been
         treated as final as of December  31,  1997,  and the related  impact on
         shareholders'  equity,  accrued  liabilities  and net income  have been
         reflected on the December 31, 1997, balance sheet.



NOTE 3   -        SUBSEQUENT EVENTS

         Subsequent  to year end, the company  entered  into a  settlement  with
         certain  creditors  of  VDO-Pak,  Inc.,  a Florida  corporation.  Those
         creditors represent substantially all of the outstanding trade accounts
         payable of the Company at December 31, 1997. The creditors were offered
         a cash amount  equaling ten percent of the balance due, before interest
         and service charges,  and Series B preferred  shares,  with a par value
         $100 per share. The number of preferred shares issued was determined by
         dividing the remaining  debt,  after the ten percent cash  payment,  by
         $100.  The estimated  number of shares to be issued to all creditors is
         estimated to be 1,640.



                                       20
<PAGE>
NOTE 3   -        SUBSEQUENT EVENTS (continued)

         In April,  1998 the Company  finalized a stock for stock acquisition of
         all  the  outstanding  shares  of  Parsons  Industries,   Inc.  Parsons
         Industries,   Inc.  operates  a  facility  in  Southern  Oregon,  which
         remanufactures pine lumber. Parsons' primary assets consist of accounts
         receivable,  inventory  and fixed assets.  Based on unaudited  internal
         financial  statements,  assets and  liabilities  at March 31, 1998 were
         approximately $2,864,000 and $2,728,000,  respectively. Gross sales for
         the  year  ended   December  31,  1998  are  estimated  to  approximate
         $6,500,000. Management has estimated the results of Parsons' operations
         for the year ended December 31, 1998 to be at break-even.  The terms of
         the  acquisition  agreement  called for a  one-for-one  exchange of the
         Company's  common  stock for 6,500 of  Parsons  16,500  shares  and the
         issuance of options for 10,000 shares of the Company's  common stock in
         exchange for the remaining  10,000 shares of Parsons stock. The options
         issued have an exercise price of $10 per share.



NOTE 4   - INCOME TAXES

         Statement  of  Financial   Accounting   Standard   (SFAS)  Number  109,
         "Accounting  for Income  Taxes,"  mandates  the  assets  and  liability
         approach to determine  the income tax  provision  or benefit.  Deferred
         income  tax  assets  and   liabilities   are  recognized  for  the  tax
         consequences  of temporary  differences in the carrying value of assets
         and liabilities for financial reporting and income tax purposes.  There
         was no income tax benefit or provision recorded in the current period.

         As of March 31, 1997, the Company had a remaining federal net operating
         loss carryforward  (NOL) of approximately  14,200,000  expiring in 1998
         through 2011.  Management  has assessed the likelihood of utilizing the
         NOL as low,  and as such,  has  placed a  valuation  allowance  of 100%
         against the benefits associated with this NOL.














                                       21