<PAGE> 1
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 (Fee Required)
For the Fiscal year ended December 31, 1995 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 (214) 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, 1995, total revenues were $ 13,238,516.
As of March 7, 1996, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $ 3,199,719.
As of March 7, 1996, 5,820,849 shares of Common Stock were outstanding.
Documents incorporated by reference: Portions of the proxy statement for the
annual shareholders' meeting to be held June 17, 1996, are incorporated by
reference into Part III.
<PAGE> 2
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.
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 provides travel planning and related
services to both business and pleasure travelers. The travel agency operates in
the Company's principal executive office facility in Dallas, Texas.
During 1995 the Company develpoed 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 will also offer customers
current quotations for precious metals prices on the internet. The Company
offers these services through its facility in Dallas, Texas.
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.
2
<PAGE> 3
PRODUCTS AND SERVICES (CONTINUED...)
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. The availability of precious
metal products is a function of price as virtually all bullion items are
actively traded. Precious metals sales amounted to 45.3% of total revenues for
1995, 41.7% in 1994 and 50.1% in 1993. The decrease from 1993 to 1994 reflects
the Company's decision to concentrate its activities in its jewelry operations
because of the higher current gross margins in this portion of the Company's
business. The increase from 1994 to 1995 was a result a decline in jewelry
sales. (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 1995, 1994 or 1993.
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.
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 of client companies to the
stockholders of the Company as dividends subject to compliance with state and
federal securities law.
3
<PAGE> 4
PRODUCTS AND SERVICES (CONTINUED...)
During 1995 and 1994, the Company provided consulting advice and participated
in five such reorganizations. As a result, the Company received consulting
revenues in the amount of $ 271,414 in 1995 and $ 87,463 in 1994 and became a
stockholder in three of the enterprises with which it had a consulting
relationship.
During 1995, the Company sold a portion of these securities and realized gains
the amount of $ 61,687. In addition, during 1995 the Company had unrealized
gains on trading securities in the amount of $ 49,998. As of December 31, 1995
the Company's investment in these enterprises totaled $ 1,230,694. Also, the
Company adopted Statement of Financial Accounting Standards No. 115 (SFAS No.
115"), "Accounting for Certain Investments in Debt and Equity Securities",
effective January 1, 1994. The cumulative effect of this accounting change as
the beginning of fiscal 1994 was to increase net income by $ 39,032. In
addition, the effect of the accounting change during 1994 was to increase net
income $ 85,246. (For further details, see Note C of Notes To Consolidated
Financial Statements).
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 is operated in the Company's principal executive office in
Dallas, Texas. As a result, it is uniquely positioned to capitalize on the
Company's customer base providing services which are entirely compatible with
the Company's other business activities.
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. Since
this activity was launched in October 1995 more than 50,000 visitors have
accessed the site. In response to customer interest in its web site, in January
1996 The Company began the development of an additional web site. This new site
will allow paid subscribers unlimited access to current quotations for prices
on approximately 200 precious metals, coins and other bullion related products.
The new site will be integrated with The Computer Jewelry Exchange and will be
located on the Company's server at http://www.dgse.com. The Company expects to
launch this new service in late March 1996.
4
<PAGE> 5
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.
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, 1995, 1994 or 1993. Company backlogs for fabricated jewelry
products were also insignificant as of December 31, 1995, 1994 and 1993.
SEASONALITY
The retail jewelry business is seasonal. The Company realized 33.7%, 34.5% and
34.1% of its annual jewelry sales in the fourth quarters of 1995, 1994 and
1993, 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,
travel, and consumer loan activities of the Company compete with numerous other
retail jewelers, travel agencies 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.
5
<PAGE> 6
COMPETITION (CONTINUED...)
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 travel, consumer lending, bullion trading and consulting
activities are dominated by larger companies.
EMPLOYEES
As of December 31, 1995, the Company employed 26 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
$ 691,844 as of December 31, 1995.
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.
The Company also maintains a business office at 23161 Ventura Boulevard,
Woodland Hills. California 91364. The facility is approximately 1,000 square
feet and is rented on a month-to-month basis from an unrelated third party at a
monthly rental of $ 1,183. 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.
6
<PAGE> 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.
High and low stock prices for the last two years were:
<TABLE>
<CAPTION>
1995 1994
---------------- -----------------
High Low High Low
------ ----- ------ -----
<S> <C> <C> <C> <C>
First Quarter 1 9/16 2 3/8 3 3/16 2 3/8
Second Quarter 2 1 1/2 2 3/4 2 1/8
Third Quarter 1 7/8 1 1/4 2 1/2 1 7/8
Fourth Quarter 1 5/8 1 2 1/2 1 7/8
</TABLE>
On March 7, 1996, the closing sales price for the Company's common stock was $
1.75 and there were 650 shareholders of record.
7
<PAGE> 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 effecting
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.
During the last three years management of the Company has focused its efforts
toward expanding its retail jewelry business because of the higher gross profit
margins on these products. The Company has increased advertising and added
staff in jewelry sales and jewelry and watch repairs. In August 1994, the
Company opened a second retail jewelry store in Dallas, Texas. This store
operated at a small loss during 1994. During 1995, the operating results of the
second store did not improve. As a result, this store was closed in November
1995 and the facility was subleased to another company for a term of six
months.
The Company's retail jewelry store in Dallas, Texas attracts more than 20,000
customers per year. In an effort to provide other revenue generating services
to this customer base, the Company founded DGT in late 1992. During 1994 and
1993 DGT operated at a loss of approximately $ 25,000 per year on revenues of $
955,894 in 1994 and $ 874,931 in 1993. However, in January 1995, the Company
replaced DGT's manager and took certain other actions that have reduced DGT's
operating cost by approximately $ 27,000 per year. During January 1995 most
domestic airlines enacted a plan that reduced the amount of commissions they
pay to travel agents. In an effort to offset the impact of this action by the
airlines, DGT added additional outside sales agents during 1995 and was able to
increase revenues to $ 1,422,706 and improve operating results to a loss of
only $ 1,859.
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. During 1995, 1994 and 1993, the Company
provided consulting advice and participated in five such reorganizations. As a
result, the Company received consulting revenues in the amount of $ 271,414 in
1995 and $ 87,463 in 1994 and became a stockholder in three of the enterprises
with which it had a consulting relationship. (For further details, see Note C
of Notes To Consolidated Financial Statements).
8
<PAGE> 9
RESULTS OF OPERATIONS
Bullion and jewelry sales decreased by $ 599,296 (5.0%) in 1995. This decrease
was the result of a $ 337,430 reduction in the sale of bullion related products
and of a $ 261,866 reduction in the sale of jewelry products. During 1995, the
demand for precious metal products declined due to low inflation and other
factors. The decrease in the sale of jewelry related products was the result of
a weak retail climate throughout most of 1995. Pawn service charges decreased
by $ 8,100 (13.4%) in 1995 due to lower loan volume. Travel agency income
increased $ 466,812 (48.8%). This increase was the result of the Company adding
two new outside sales agents during the year. Consulting service income
increased $ 183,951 in 1995 due to the fees earned on a refinancing of an
existing client. The unrealized gain on trading securities was the result of an
increase in market value of the Company's investments in trading securities.
During 1995 the Company sold marketable securities and realized a gain in the
amount of $ 61,687. Other income during 1994 and 1995 was the result of rental
income received from the sublease of the facility which had been the Company's
second store. Gross profit margins increased from 15.7% in 1994 to 18.0% in
1995 due to a price increase on jewelry related products.
Sales decreased by $ 1,667,521 (12.2%) in 1994. This decrease was the result of
a $ 2,092,763 reduction in the sale of bullion related products. During 1994,
the demand for precious metal products declined due to low inflation and other
factors. During 1994 the sale of jewelry related products increased by $
425,242 due to $ 607,983 in sales from the Company's new store which opened in
August 1994. Pawn service charges increased by $ 16,200 (37.5%) in 1994 due to
higher service charges allowed by the state and due to higher loan volume.
Consulting service income decreased by $ 130,037 in 1994 due to the fact
that DLS accepted only one new client during the year. DLS's efforts were
directed toward existing clients in which the Company has an equity ownership
interest. The unrealized gain on trading securities was the result of adoption
of Financial Accounting Standards No. 115. Gross profit margins increased form
11.7% in 1993 to 15.7% in 1994 due to the increase in jewelry sales and the
decrease in bullion sales.
Cost of goods sold decreased by $ 762,736 (7.6%) in 1995 due to the decrease
sales volume. Cost of goods sold decreased by $ 1,921,234 (16.0%) in 1994
primarily due to the decrease in bullion in sales. Travel agency costs
increased 50.4% in 1995 due to the 48.8% increase in travel related sales. Cost
attributable to consulting service increased by $ 88,620 due to travel and
other costs associated with work related to the refinancing of one of DLS's
existing clients .The decrease in consulting service cost in 1994 was the
result of less consulting activity during that year.
Selling, general and administrative expenses increased in 1995 due to costs
associated with the Company's second jewelry store. This second store was open
for a total of ten months during 1995 compared to only three and one half
months during 1994. Selling, general and administrative expenses increased in
1994 by $ 206,940, net of cost allocated to DLS. This increase was the result
of the new jewelry store opened by the Company in August, 1994.
9
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RESULTS OF OPERATIONS (CONTINUED...)
Depreciation and amortization expense increased by $ 31,751 in 1995
due to amortization of organization costs in the amount of $ 17,740 relating to
of the Company's second store and due to depreciation on new assets placed in
service during 1995 and 1994.
Interest expense increased by $ 13,134 and $ 52,693 in 1995 and 1994,
respectively, due to interest paid on new working capital loans issued to fund
the working capital requirements of the new jewelry store.
Liquidity and Capital Resources
During 1995 and 1994 the Company borrowed a net $ 154,204 and $ 177,017,
respectively, from individuals. The proceeds from these loans were used to
purchase additional inventory to hold for sale to retail customers. In December
1995, the Company issued a convertible promissory note in the amount of $
150,000. The note bears interest at 9%, matures on December 5, 1998 and is
convertible into 300,000 shares of the Company's common stock. The proceeds
from the note will be used to carry inventory and for other working capital
requirements.
Management believes that additional working capital loans may be required to
maintain inventory levels. The Company will attempt to obtain this financing
from commercial banks and individuals. However, their can be no assurance that
additional financing will be received.
In addition, the Company expects capital expenditures to total approximately $
50,000 during 1996. If additional financing is not obtained, the Company will
adjust its inventory levels accordingly.
ITEM 7. FINANCIAL STATEMENTS
(a) Financial Statements (see pages 14 - 27 of this report).
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
10
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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.
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.
11
<PAGE> 12
ITEM 13. EXHIBITS REPORTS ON FORM 8-K
(a) Exhibits:
10.1 - 9% Convertible Promissory Note dated December 5,
1995, by and among Dallas Gold And Silver, Inc.
and A-Mark Precious Metals, Inc.
21 - List of subsidiaries
DGSE Corporation
Dallas Global Travel, Inc.
DLS Financial Services, 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
12
<PAGE> 13
SIGNATURES
In accordance with Section 13 and 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 18, 1996
-------------------------
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 18, 1996
-------------------------
L. S. Smith
Chairman of the Board,
Chief Executive Officer and
Secretary
By: /s/ W. H. Oyster Dated: March 18, 1996
-------------------------
W. H. Oyster
Director, President and
Chief Operating Officer
By: /s/ John Benson Dated: March 18, 1996
-------------------------
John Benson
Director and Chief Financial
Officer
(Principal Accounting Officer)
13
<PAGE> 14
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, 1995, 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, 1995, 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 9, 1996
14
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DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1995
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 417,076
Marketable securities - trading 481,950
Trade receivables 149,656
Loans 31,152
Inventories 892,203
Prepaid expenses 18,876
----------
TOTAL CURRENT ASSETS 1,990,913
MARKETABLE SECURITIES - AVAILABLE-FOR-SALE 748,744
PROPERTY AND EQUIPMENT - AT COST, NET 1,151,094
OTHER ASSETS 35,388
----------
$3,926,139
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 266,210
Accounts payable - trade 254,233
Accrued expenses 212,291
Customer deposits 38,814
Current maturities of long-term debt and capital lease obligations 40,780
-----------
TOTAL CURRENT LIABILITIES 812,328
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS,
LESS CURRENT MATURITIES 1,339,341
-----------
TOTAL LIABILITIES 2,151,669
COMMITMENTS AND CONTINGENCIES -
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; authorized 10,000,000
shares; issued and outstanding 5,820,849 shares 58,209
Additional paid-in capital 5,192,400
Accumulated deficit (3,419,299)
----------
1,831,310
Less unrealized loss on marketable securities (56,840)
----------
TOTAL SHAREHOLDERS' EQUITY 1,774,470
----------
$3,926,139
==========
</TABLE>
The accompanying notes are an integral part of this statement.
15
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DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
REVENUE
Sales $11,370,151 $11,969,447
Pawn service charges 52,490 60,590
Travel agency income 1,422,706 955,894
Consulting income 271,414 87,463
Gain on sale of marketable securities 61,687 -
Unrealized gains on marketable securities 49,998 85,246
Other income 10,070 20,458
-------------- --------------
13,238,516 13,179,098
COSTS AND EXPENSES
Cost of goods sold 9,325,897 10,088,633
Travel agency costs 1,388,256 923,133
Consulting service costs 182,801 94,181
Selling, general and administrative expenses 2,022,207 1,640,826
Depreciation and amortization 106,740 74,989
Interest expense 170,462 157,328
-------------- --------------
13,196,363 12,979,090
-------------- --------------
NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 42,153 200,008
Cumulative effect of change in accounting principle - 39,032
-------------- --------------
NET INCOME $ 42,153 $ 239,040
============== ==============
EARNINGS PER COMMON SHARE
Income before cumulative effect of change in accounting principle $.01 $.03
Cumulative effect of change in accounting for marketable securities - .01
---- ----
NET INCOME $.01 $.04
==== ====
</TABLE>
The accompanying notes are an integral part of these statements.
16
<PAGE> 17
DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
Unrealized
Common stock Additional gain (loss) Total
-------------------- paid-in Accumulated on marketable shareholders'
Shares Amount capital deficit securities equity
--------- ------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1994 5,872,951 $58,730 $5,268,340 $(3,700,492) $ - $1,626,578
Purchase and retirement of
common shares (34,600) (346) (79,357) - - (79,703)
Shares issued to purchase
Harrier, Inc. stock 45,000 450 102,362 - - 102,812
Unrealized loss on marketable
securities - - - - (133,657) (133,657)
Net income - - - 239,040 - 239,040
--------- ------- ---------- ----------- ----------- ----------
Balances at December 31, 1994 5,883,351 58,834 5,291,345 (3,461,452) (133,657) 1,755,070
Purchase and retirement of
common shares (62,502) (625) (98,945) - - (99,570)
Unrealized gain on marketable
securities - - - - 76,817 76,817
Net income - - - 42,153 - 42,153
--------- ------- ---------- ----------- ----------- ----------
Balances at December 31, 1995 5,820,849 $58,209 $5,192,400 $(3,419,299) $ (56,840) $1,774,470
========= ======= ========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
17
<PAGE> 18
DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
<TABLE>
<CAPTION>
1995 1994
--------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 13,003,801 $ 12,994,908
Cash paid to suppliers and employees (12,980,597) (12,673,235)
Interest paid (157,328) (170,462)
------------- -------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (147,258) 164,345
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in loans, net 10,217 (9,625)
Capital expenditures (84,859) (66,308)
Proceeds from sale of property and equipment 30,131 5,000
Organization costs - (18,561)
Purchase of marketable securities - trading (23,800) (64,401)
Purchase of marketable securities - available-for-sale - (1,065)
Proceeds from sale of marketable securities - trading 120,085 -
Proceeds from sale of marketable securities - available-for-sale 19,013 -
------------- -------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 70,787 (154,960)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes issued 325,704 230,782
Payment of short-term notes (21,500) (53,765)
Purchase and retirement of common stock (99,570) (79,703)
Principal payments on long-term debt (81,970) (31,408)
Principal payments under capital lease obligations (61,830) (28,623)
Deferred financing cost - (22,565)
------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 60,834 14,718
------------- -------------
Net increase (decrease) in cash and cash equivalents (15,637) 24,103
Cash and cash equivalents at beginning of year 432,713 408,610
------------- -------------
Cash and cash equivalents at end of year $ 417,076 $ 432,713
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
18
<PAGE> 19
DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31,
<TABLE>
<CAPTION>
1995 1994
---------------- -----------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES
Net income $ 42,153 $ 239,040
Adjustments to reconcile net income to cash provided by
(used in) operating activities
Depreciation and amortization 106,740 74,989
Unrealized gain on trading securities (49,998) (85,246)
Cumulative effect of change in accounting principle - (39,032)
Gain on sale of marketable securities (61,687) -
Gain on sale of property and equipment (691) (4,744)
Marketable securities received in lieu of cash (155,750) (19,956)
(Increase) decrease in assets
Trade receivables (7,902) (68,237)
Other receivables 40,475 (1,263)
Inventories (143,600) (47,216)
Prepaid expenses 4,552 4,839
Other assets 384 344
Increase (decrease) in liabilities
Accounts payable (12,849) 120,706
Accrued expenses 78,383 (978)
Customer deposits 12,532 (8,901)
---------------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ (147,258) $ 164,345
================ ===========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH OPERATING, INVESTING AND FINANCING ACTIVITIES:
Year ended December 31, 1995:
The Company received 155,750 shares of CardioDynamics International Corp.'s
common stock in lieu of payment of $155,750 of consulting fees.
The Company acquired property and equipment in the amount of $111,593 by
entering into capital lease agreements.
Year ended December 31, 1994:
The Company received 70,095 shares of Harrier, Inc.'s common stock in lieu
of payment of $19,956 of consulting fees.
The Company purchased 235,000 shares of common stock of Harrier, Inc. in
exchange for 45,000 common shares of the Company.
The Company acquired property and equipment in the amount of $67,441 by
entering into capital lease agreements.
The accompanying notes are an integral part of these statements.
19
<PAGE> 20
DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995 and 1994
NOTE A - SUMMARY OF ACCOUNTING POLICIES
Nature of Operations
The Company sells jewelry and bullion products to both retail and wholesale
customers throughout the United States and makes collateralized loans to
individuals. The Company's products are marketed through its facility in
Dallas, Texas.
DLS Financial Services, Inc. (DLS) 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). DLS is also engaged in the business of buying and
selling marketable securities.
Dallas Global Travel, Inc. (DGT) provides travel planning and related
services to both business and pleasure travelers.
Principles of Consolidation
The consolidated financial statements of the Dallas Gold and Silver
Exchange, Inc. and Subsidiaries (the Company) include the financial
statements of the Dallas Gold and Silver Exchange (formerly The American
Pacific Mint, Inc.) and its wholly-owned subsidiaries, DGSE Corporation
(DGSE), Dallas Global Travel, Inc. and DLS Financial Services, Inc. All
material intercompany transactions and balances have been eliminated.
Certain reclassifications have been made to the prior year financial
statements to conform with the current year presentation.
Inventory
Bullion inventory is valued at lower-of-cost-or-market (average cost).
Jewelry and other inventory is valued at lower-of-cost-or-market (specific
identification).
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
its useful life.
20
<PAGE> 21
DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1995 and 1994
NOTE A - SUMMARY OF ACCOUNTING POLICIES - CONTINUED
Earnings Per Share
The computation of earnings per share is based upon the weighted average
number of outstanding common shares during the period plus, when their
effect is dilutive, common stock equivalents consisting of shares subject to
stock options. On a fully-diluted basis, both net earnings and shares
outstanding are adjusted to assume the conversion of the convertible note
payable, if dilutive. The weighted average number of shares used to
calculate earnings per share during the years ended December 31, 1995 and
1994 were 5,855,098 and 5,885,887, respectively.
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.
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 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 sheets 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.
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.
21
<PAGE> 22
DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1995 and 1994
NOTE B - INVENTORIES
A summary of inventories at December 31, 1995 is as follows:
Jewelry $ 754,541
Bullion 15,317
Other 122,345
-------
$ 892,203
=======
NOTE C - INVESTMENTS IN MARKETABLE SECURITIES
Investments in marketable securities at December 31, 1995 consist of:
<TABLE>
<CAPTION>
Unrealized
Cost Market gain (loss)
-------- -------- -----------
<S> <C> <C> <C>
Marketable equity securities
Trading securities
Naturade, Inc. common stock $164,610 $274,354 $109,744
Harrier, Inc. common stock 143,038 207,596 64,558
-------- -------- --------
$307,648 $481,950 $174,302
======= ======== ========
Available for sale securities
CardioDynamics International Corp. common stock $805,584 $748,744 $(56,840)
======== ======== ========
</TABLE>
On January 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115 (SFAS No. 115), "Accounting for Certain Investments in
Debt and Equity Securities". The cumulative effect of this accounting
change as of the beginning of 1994 was an increase in net income of $39,032.
NOTE D - PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31, 1995 is as follows:
Land $ 551,300
Buildings and improvements 504,293
Machinery and equipment 513,419
Furniture and fixtures 71,174
-----------
1,640,186
Less accumulated depreciation and amortization (489,092)
-----------
$ 1,151,094
===========
22
<PAGE> 23
DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1995 and 1994
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, 1995 is as follows:
<TABLE>
<S> <C>
Notes payable
-------------
Various demand notes to individuals with interest at 14% $ 266,210
==========
Long-term debt and capital leases
---------------------------------
Mortgage payable, due in monthly installments of $6,308, including interest based
on 30 year US Treasury notes plus 2-1/2% (rate at December 31, 1995 was
8.55%); balance due and payable in January 2014 $ 691,844
Note payable to an individual due January 2, 1997. Interest is payable monthly at 14% 150,000
Note payable to an individual, due January 3, 1997. Interest is payable monthly at
the lesser of 10% or a rate determined monthly based on gross profits and
inventory turns, as defined 171,071
Note payable to an individual, due January 10, 1997. Interest is payable monthly
at the lesser of 8% or a rate determined monthly based on gross profits and
inventory turns, as defined 65,638
Note payable to an individual, due January 15, 1997. Interest is payable monthly
at the lesser of 10% or a rate determined monthly based on gross profits and
inventory turns, as defined 16,464
Convertible note, due December 5, 1998. Interest is payable quarterly at a rate of 9% 150,000
Capital lease obligations (property and equipment includes $142,887 in machinery and
equipment and accumulated amortization includes $7,783 as of December 31, 1995) 135,104
----------
1,380,121
Less current maturities 40,780
----------
$1,339,341
==========
</TABLE>
23
<PAGE> 24
DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1995 and 1994
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:
<TABLE>
<CAPTION>
Obligations
under
Long-term capital
debt leases
------------ -----------
<S> <C> <C>
1996 $ 16,194 $ 42,829
1997 420,931 43,943
1998 169,358 38,265
1999 21,109 29,700
2000 22,860 29,700
Thereafter 594,565 2,475
------------ ---------
Total 1,245,017 186,912
Amounts representing interest (interest rates ranging from
10.8% to 23.3%) - (51,808)
----------- ---------
1,245,017 135,104
Less current portion 16,194 24,586
----------- ---------
$ 1,228,823 $ 110,518
=========== =========
</TABLE>
Convertible Note
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.
NOTE F - 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.
24
<PAGE> 25
DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1995 and 1994
NOTE F - STOCK OPTIONS - CONTINUED
The following table summarizes the activity in common shares subject to
options for the two years ended December 31, 1995:
<TABLE>
<CAPTION>
Shares Exercise price
-------- --------------
<S> <C> <C>
January 1, 1994 240,000 $1.63 - $2.25
Granted 150,000 2.13
-------- --------------
December 31, 1994 390,000 1.63 - 2.25
Granted - -
-------- --------------
December 31, 1995 390,000 $1.63 - $2.25
======== ==============
</TABLE>
As of December 31, 1995, options covering 342,500 shares at $1.63 to $2.25
per share were exercisable.
NOTE G - INCOME TAXES
The income tax provision reconciled to the tax computed at the statutory
Federal rate is as follows:
<TABLE>
<CAPTION>
1995 1994
------------ -------------
<S> <C> <C>
Tax expense at statutory rate $ 14,332 $ 81,300
Change in valuation reserve (14,721) (81,300)
Nondeductible expenses 389 -
------------- -------------
Tax expense on net income $ - $ -
============= =============
Deferred tax assets (liabilities) are comprised of the following:
1995
----------
Deferred tax assets
Net operating loss carryforwards $ 634,530
Deferred tax liabilities
Unrealized gain on securities (59,257)
Other (8,626)
----------
(67,883)
----------
Net deferred tax assets 566,647
Valuation allowance (566,647)
----------
Net deferred tax assets $ -
==========
</TABLE>
25
<PAGE> 26
DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1995 and 1994
NOTE G - INCOME TAXES - CONTINUED
Net operating loss carryforwards for federal income tax purposes expire as
follows:
<TABLE>
<CAPTION>
Year of
expiration Amount
---------- ----------
<S> <C>
1998 $ 13,400
1999 74,400
2000 57,200
2001 179,300
2002 316,600
2003 616,000
2004 219,200
2005 3,600
2006 172,070
2007 214,500
----------
$1,866,270
==========
</TABLE>
NOTE H - OPERATING LEASE
The Company leases certain of its facilities under operating leases. The
minimum rental commitments under noncancellable operating leases are as
follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1996 $ 93,450
1997 90,000
1998 99,000
1999 108,000
2000 108,000
Thereafter 378,000
---------
876,450
Less amounts representing sublease income 37,500
---------
$ 838,950
=========
</TABLE>
Rent expense for the years ended December 31, 1995 and 1994 was
approximately $90,000 and $45,000, respectively, and was offset by sublease
income of approximately $9,000 and $15,000, respectively.
26
<PAGE> 27
DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1995 and 1994
NOTE H - OPERATING LEASE - CONTINUED
The Company entered into an operating lease on July 1, 1994 which requires
monthly payments of $7,500 for the first five years and $9,000 for the
remaining five years. During November 1995, the Company entered into an
agreement to sublease the premises to a retailer for six months at $7,500
per month. The sublease agreement also provides a one year renewal option
to the sublessee. Management intends to continue to sublease the premises
or open another retail operation in this location. If the Company is unable
to sublease this location or does not use the location for another retail
operation, a loss for the remaining lease rentals would be accrued by a
charge to income.
NOTE I - BONUS PLAN
The Company has a bonus plan covering the DGSE's employees and the
corporate officers which provides that 20% of the consolidated pre-tax
income of DGSE and the Company be distributed to all eligible employees
based on a formula which takes into account annual compensation and
longevity with the Company. Compensation expense incurred under this bonus
plan was $88,762 and $89,700 in 1995 and 1994, respectively.
NOTE J - BUSINESS SEGMENT INFORMATION
The company operations by business segment were as follows:
<TABLE>
<CAPTION>
Travel Financial
Jewelry Agency Services Corporate Consolidated
------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenues
1995 $11,432,711 $1,422,706 $ 271,414 $ 111,685 $13,238,516
1994 12,050,495 955,894 87,463 85,246 13,179,098
Operating income (loss)
1995 $ (158,112) $ (1,859) $ 185,218 $ 16,906 $ 42,153
1994 220,751 (25,963) (6,718) 11,938 200,008
Identifiable assets
1995 $ 2,401,776 $ 42,215 $ 222,849 $ 1,259,299 $ 3,926,139
1994 2,413,435 24,431 68,205 1,050,605 3,556,676
Capital expenditures
1995 $ 78,958 $ - $ 5,425 $ 476 $ 84,859
1994 52,649 - - 13,659 66,308
Depreciation
1995 $ 79,733 $ - $ 632 $ 6,540 $ 86,905
1994 68,979 - - 6,010 74,989
</TABLE>
27
<PAGE> 28
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.1 9% Convertible Promissory Note dated December 5, 1995, by and
among Dallas Gold and Silver, Inc. and A-Mark Precious
Metals, Inc.
11 Computation of Fully Diluted Earnings per Common Share
27 Financial Data Schedule
<PAGE> 1
EXHIBIT - 10.1
THE RIGHTS OF THE HOLDER OF THIS NOTE WITH RESPECT TO THE SALE, TRANSFER,
ASSIGNMENT, PLEDGE OR OTHER ENCUMBRANCE OR DISPOSITION OF THIS NOTE OR OF THE
"COMMON STOCK" OF THE COMPANY (AS DEFINED HEREIN) ISSUABLE UPON CONVERSION
HEREOF ARE SUBJECT TO THE RESTRICTIONS SET FORTH IN SECTION 5 OF THIS NOTE.
9% CONVERTIBLE PROMISSORY NOTE
$150,000. Dec. 5, 1995
THIS 9% CONVERTIBLE PROMISSORY NOTE is made as of Dec. 5, 1995 by
Dallas Gold & Silver Exchange, Inc., a Nevada corporation (the "Company").
SECTION 1. Payment Obligation.
Subject to the terms and conditions hereinafter set forth, for value
received the Company promises to pay to A-Mark Precious Metals, Inc., or
registered assigns ("Holder"), on Dec. 5, 1998 the principal sum of One Hundred
Fifty Thousand Dollars ($150,000). The Company further promises to pay interest
on the outstanding principal balance hereof from the date hereof until paid or
converted in accordance with Section 2 hereof at the rate of nine percent (9%)
per annum calculated on the basis of a 360-day year. Accrued interest hereunder
shall be payable quarterly in arrears on the first day of each calendar quarter
or, if such day is not a Business Day, the next succeeding Business Day. Each
date on which an installment of interest is payable pursuant to the terms of
this Note is referred to herein as an "Interest Payment Date". Payment of
principal and interest on this Note shall he made at the principal executive
office of the Holder at 100 Wilshire Boulevard, Third Floor, Santa Monica,
California 90401, or at such other address as the Holder shall designate in
writing in accordance with Section 8.3, in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts; provided, however, that the Company may pay principal
and interest by check payable in such money.
SECTION 2. Conversion of the Note.
2.1 Conversion Privilege. Subject to and upon compliance with the
provisions of this Section 2, the Holder, at the Holder's option at any time
prior to payment in full of this Note, may convert all or any part of the
unpaid principal amount of this Note into shares of Common Stock of the
Company, par value $.0l per share (the "Common Stock"), at the Conversion Price
in effect at the Conversion Date.
<PAGE> 2
2.2 Manner of Exercise of Conversion Privilege. In order to
exercise the conversion privilege of this Note, the Holder shall deliver
written notice in substantially the form attached to this Note as Exhibit 1 to
the Company during regular business hours at its principal executive office
(which currently is located at 519 Interstate 30, Suite 243, Rockwall, Texas
75087). Conversion shall be deemed to have been effected on the date when such
notice is delivered to the Company (the "Conversion Date") and at that time the
rights of the Holder as such shall cease, except with respect to the payment of
accrued interest in accordance with Section 2.4 below. An election to convert
this Note in whole or in part shall be irrevocable once made.
2.3 Issuance of Certificates. As promptly after the Conversion
Date as practicable, the Company shall instruct its transfer agent to issue and
deliver to the Holder at the address of the Holder set forth on the Company's
records, without any charge to the Holder, a certificate or certificates
(issued in the name of the Holder or, subject to the provisions of Section 5.2
hereof, in such name as the Holder may designate) for the number of full shares
of Common Stock of the Company issuable upon the conversion of this Note. In
case the Note is surrendered for a partial conversion, the Company shall
execute and deliver to the Holder a new Note in an aggregate principal amount
equal to the unconverted portion of the principal amount of the surrendered
Note.
2.4 Interest on Conversion. On conversion of this Note, interest
shall cease to accrue as of the Conversion Date on the principal amount
converted, but interest accrued to the Conversion Date shall be payable on or
before the third (3rd) business day following the Conversion Date. No payment
or adjustment shall be made on conversion of this Note for any dividends on
Common Stock issued upon conversion that were declared before the Conversion
Date. Upon such conversion the Holder shall be deemed to have become the
stockholder of record on the Conversion Date (unless the transfer books of the
Company are closed on that date, in which event the Holder shall be deemed to
have become the stockholder of record on the next succeeding day on which the
transfer books are open and the conversion shall be at the rate in effect on
such date).
2.5 Taxes Upon Conversion. The Company shall pay any and all taxes
that may be payable in respect of the issuance or delivery of any shares of
Common Stock on conversion of this Note or any portion thereof. The Company
shall not, however, be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of shares of Common Stock
in a name other than that of the Holder, and the Company shall not be required
to issue or deliver such shares of Common Stock unless or until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of any such tax or shall have established to the satisfaction of the
Company that such taxes have been paid.
- 2 -
<PAGE> 3
2. 6 Elimination of Fractional Interests. No fractional shares of
Common Stock shall be issued upon conversion of this Note, nor shall the
Company be required to pay cash in lieu of fractional interests, it being the
intent of the parties that all fractional interests shall be eliminated.
2.7 Conversion Price. The initial Conversion Price of this Note
shall be Fifty Cents ($0.50) per share of Common Stock. The Conversion Price
shall be adjusted from time to time as follows:
(a) If the Company shall at any time after the date
hereof (i) issue any shares of Common Stock, or securities convertible
into or exchangeable for shares of Common Stock, by way of a dividend
or other distribution on any stock of the Company or without
consideration, or (ii) subdivide or combine its outstanding shares of
Common Stock, the Conversion Price shall be adjusted (to the
nearest full cent) by multiplying (x) the Conversion Price in effect
immediately prior to the adjustment by (y) a fraction, the numerator
of which is the total number of shares of Common Stock outstanding
immediately before such event, and the denominator of which is the
total number of shares of Common Stock outstanding immediately after
such event. For the purposes of any computation to be made in
accordance with this Section 2.7, shares of Common Stock issuable upon
conversion or exchange of other securities shall be deemed to be
outstanding as soon as such other securities are issued, and shares of
Common Stock or other securities issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following
the record date for the determination of stockholders entitled to
receive such dividend or other distribution.
(b) If the Company shall sell or issue Common Stock
(other than pursuant to transactions described in paragraph (a)
above), or rights, options, warrants or convertible securities
containing the right to subscribe for or purchase shares of Common
Stock or Common Stock Equivalents (as defined in Section 8.1), without
consideration or for a consideration per share (determined, in the
case of rights, options, warrants and convertible securities, by
dividing (i) the total amount received or receivable by the Company in
consideration of the sale or issuance of the rights, options, warrants
and convertible securities plus the total consideration payable to
the Company upon conversion, exchange or exercise thereof (including
the exercise, exchange or conversion of any rights, options, warrants
or convertible securities into which such securities may be
convertible or for which they may be exchangeable or exercisable), by
(ii) the total number of shares of Common Stock covered by such
rights, options, warrants and convertible securities) less than the
Conversion Price per share of the Common Stock in
- 3 -
<PAGE> 4
effect immediately prior to such sale or issuance, the Conversion
Price shall be adjusted so that the Conversion Price shall equal the
price determined by multiplying the Conversion Price in effect
immediately prior to such sale or issuance (which, in the event of a
distribution to stockholders, shall be deemed to be the record date
set by the Company to determine stockholders entitled to participate
in such distribution) by a fraction, the numerator of which shall be
(x) the number of shares of Common Stock outstanding immediately prior
to such sale or issuance, plus (y) the number of additional shares of
Common Stock which the aggregate consideration received by the Company
upon such sale or issuance (plus the aggregate of any additional
amount to be received by the Company upon the exercise or conversion
of all such rights, options, warrants or convertible securities) would
purchase at the Conversion Price in effect immediately prior to such
sale or issuance, and the denominator of which shall be (x) the number
of shares of Common Stock outstanding immediately prior to such sale
or issuance, plus (y) the number of additional shares of Common Stock
offered or sold (or for which the rights, options, warrants or
convertible securities so offered or sold are convertible,
exchangeable or exercisable). Such adjustments shall be made
successively whenever any such Common Stock or rights, options,
warrants or convertible securities are issued. To the extent that
shares of Common Stock are not delivered (or Common Stock Equivalents
are not delivered) after the expiration of any such rights, options,
warrants or the conversion period of any convertible securities, the
Conversion Price shall be readjusted to the Conversion Price which
would then be in effect had the adjustments made upon the issuance of
such rights, options, warrants or convertible securities been made
upon the basis of delivery of only the number of shares of Common
Stock (or Common Stock Equivalents) actually delivered. The provisions
of this paragraph (b) shall not apply, and no adjustment to the
Conversion Price shall be made, in the case of the issuance of Common
Stock under the following circumstances: (i) pursuant to the Company's
existing qualified stock incentive or stock purchase plans or pursuant
to any such plans subsequently approved by the Company's stockholders;
(ii) subject to Section 2.10 hereof, in connection with a business
combination or acquisition by way of merger, consolidation, stock or
asset acquisition or otherwise, provided that such business
combination or acquisition shall be at fair value as reasonably
determined by the Company's Board of Directors; or (iii) pursuant to
any rights, options or warrants to purchase Common Stock outstanding
on the date hereof.
(c) In case the Company shall hereafter fix a record date
for making a distribution to the holders of Common Stock of assets or
evidences of its indebtedness (excluding regular, periodic cash
dividends out of earnings and dividends or distributions referred to
in paragraph (a) of this Section
- 4 -
<PAGE> 5
2.7 or convertible indebtedness referred to in paragraph (b) of this
Section 2.7) or Common Stock subscription rights, options or warrants
to acquire Common Stock or Common Stock Equivalents (excluding those
referred to in paragraph (b) of this Section 2.7), then in each such
case the Conversion Price in effect after such record date shall be
adjusted to the price determined by multiplying the Conversion Price
in effect immediately prior thereto by a fraction, the numerator of
which shall be the Market Value (as defined in Section 8.l) per share
of Common Stock, less the fair market value (as reasonably determined
by the Company's Board of Directors) of said assets or evidences of
indebtedness so distributed or of such Common Stock subscription
rights, options and warrants or of such Common Stock Equivalents
applicable to one share of Common Stock, and the denominator of which
shall be such Market Value per share of Common Stock; provided,
however, that in no event shall the Conversion Price be adjusted
pursuant to the provisions of this paragraph (c) solely on account of
distributions of assets or evidences of the Company's indebtedness to
a price that is less than 60% of the initial Conversion Price adjusted
in accordance with all the provisions of this Section 2.7 other than
adjustments pursuant to this paragraph (c) of Section 2.7 on account
of distributions of assets or evidences of the Company's indebtedness.
Such adjustment shall be made successively whenever the record date
for such distribution is fixed and shall become effective immediately
after such record date.
(d) If any event occurs as to which the other provisions
of this Section are not strictly applicable but the lack of any
adjustment of the Conversion Price would not fairly protect the rights
of the Holder in accordance with the basic intent and principles of
such provisions, or if strictly applicable would not fairly protect
the rights of the Holder in accordance with the basic intent and
principles of such provisions, then the Conversion Price shall be
adjusted, on a basis consistent with the basic intent and principles
established in the other provisions of this Section, as necessary to
preserve, without dilution, the conversion rights of the Holder.
2.8 Effect of Reclassification, Consolidation, Merger,
etc. In case of the reclassification or change of outstanding shares of Common
Stock (other than a change in par value, or from no par value to par value or
vice versa, or as a result of a subdivision or combination), or in the case of
any consolidation or merger of the Company with or into a corporation (other
than a consolidation or merger in which the Company is the surviving
corporation which does not result in any reclassification or change of
outstanding shares of Common Stock except a change as a result of a subdivision
or combination of such shares or a change in par value as described above and
in which the stockholders of the Company immediately prior to such
consolidation or merger constitute at least 50% of the stockholders following
consummation
- 5 -
<PAGE> 6
thereof), or in the case of a sale or conveyance to another corporation of all
or substantially all of the assets of the Company, the Holder thereafter shall
have the right to convert this Note into the kind and number of shares of stock
and/or other securities or property receivable upon such reclassification,
change, consolidation, merger, sale or conveyance by a holder of the number of
shares of Common Stock of the Company into which this Note might have been
converted immediately before the time of determination of the stockholders of
the Company entitled to receive such shares of stock and/or other securities or
property. The Company shall be obligated to retain and set aside, or otherwise
make fair provision for exercise of the right of the Holder to receive, the
shares or stock and/or other securities or property provided for in this
Section 2.8.
2.9 Certificate Concerning Adjusted Conversion Price. Whenever the
Conversion Price is adjusted pursuant to this Section 2, the Company promptly
shall: (i) place on file at its principal executive office an officer's
certificate signed by the chief financial officer or controller of the Company
showing in appropriate detail the facts requiring such adjustment, the
computation thereof, and the adjusted Conversion Price, and shall exhibit the
certificate from time to time to the Holder of this Note if the Holder desires
to inspect the same; and (ii) mail or cause to be mailed to the Holder, in the
manner provided for giving notice pursuant to this Note, a notice stating that
such adjustment has been made and setting forth the adjusted Conversion Price.
2.10 Notice of Certain Corporate Actions. Nothing contained in this
Note shall be construed as conferring upon the Holder the right to vote or to
consent or to receive notice on account of the shares of Common Stock into
which the Note is convertible, or as having any rights whatsoever as a
stockholder of the Company with respect to such shares. If, however, any of
the following events shall occur:
(a) the Company shall establish a record date for the
purpose of entitling the holders of its Common Stock to receive a
dividend or distribution in cash (excluding regular, periodic cash
dividends) or otherwise;
(b) the Company shall offer to the holders of its Common
Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital
stock of the Company, or any right, option or warrant to subscribe for
or purchase the same;
(c) the Company shall authorize the distribution to all
holders of its Common Stock of evidences of its indebtedness or
assets;
(d) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or merger) or a
sale of all or substantially all of the Company's
- 6 -
<PAGE> 7
property, assets and business as an entirety shall be approved by the
Company's Board of Directors; or
(e) a merger or consolidation of the Company with or into
any other corporation which shall be approved by the Company's Board
of Directors;
then, in any one or more of such events, the Company shall give written notice
of such event to the Holder at least thirty (30) days before the date fixed as
a record date or the date of closing the transfer books for the determination
of the stockholders entitled to such distribution, additional shares,
convertible or exchangeable securities or subscription or purchase rights,
options or warrants or entitled to vote on such proposed dissolution,
liquidation, winding up, sale, merger or consolidation. Such notice shall
specify such record date or the date of closing the transfer books, as the case
may be.
2.11 Reservation and Listing of Shares for Issuance. The Company
shall at all times reserve and keep available out of its authorized and
unissued shares of Common Stock, for the purpose of effecting the conversion of
this Note, such number of its duly authorized shares as shall from time to time
be sufficient to effect the conversion of this Note. The Company covenants that
all shares of Common Stock issued upon conversion of this Note in compliance
with the terms hereof will he duly and validly issued and fully paid and
non-assessable. As long as this Note shall be outstanding, the Company shall
use its best efforts to cause all shares of Common Stock issuable upon
conversion of this Note to be listed (subject to official notice of issuance)
on all securities exchanges on which the Common Stock is then listed.
SECTION 3. Transfer, Exchange and Replacement of Note.
This Note shall be transferable only on the note register of the
Company maintained at the office of the Company's transfer agent, upon delivery
thereof duly endorsed by, or accompanied (if required by the Company) by proper
evidence of succession, assignment or authority to transfer executed by, the
Holder, in each case accompanied by any necessary transfer tax imposed upon
transfer or evidence thereof. In addition, prior to such transfer the Holder
(and, if applicable, the proposed transferee) shall comply with the terms of
Section 5.2. Upon any registration of transfer, the Company shall execute a new
Note to the person entitled thereto. The Company may deem and treat the person
in whose name this Note is registered as the absolute, true and lawful owner of
this Note for all purposes. Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Note,
the Company shall make and deliver a new Note of like tenor, in lieu of this
Note, if (i) in case of loss, theft or destruction, the Company receives
indemnity or security reasonably satisfactory to it, (ii) the Company is
reimbursed for all reasonable expenses incidental to such
- 7 -
<PAGE> 8
replacement, and (iii) this Note is surrendered and cancelled, if mutilated.
SECTION 4. Prepayment.
The principal amount of this Note may not be prepaid, in whole or in
part, without the written consent of the Holder.
SECTION 5. Acquisition for Investment and Restrictions On Transfer.
5.1 Investment Intent.
(a) The Holder, by acceptance of this Note, represents
that this Note and any shares of Common Stock issuable upon conversion
of this Note will be acquired for the Holder's own account for
investment and not with a view to, or for resale in connection with,
the distribution thereof, and that the Holder has no present intention
of distributing or reselling the Note or any such shares of Common
Stock.
(b) Holder, by acceptance of this Note, further
represents that it has not offered or sold this Note, or any shares of
Company Stock into which this Note is convertible, directly or
indirectly to any other "Person" (as defined in Section 8.1 below) and
that the Holder is not acquiring the Note or any such shares for the
account of any other Person.
5.2 Restrictions on Transfer. The Holder, by acceptance of this
Note, agrees that the Holder will not sell, transfer, assign, pledge,
hypothecate or otherwise dispose of this Note or any of the shares of Common
Stock issuable upon conversion of this Note unless: (i) a registration
statement under the Securities Act of 1933, as amended (the "Act"), covering
the sale or transfer of the Note or the shares of Common Stock issuable upon
conversion of the Note, as the case may be, is in effect; or (ii) the Holder
first provides the Company with an opinion of counsel (which may be counsel for
the Company) reasonably acceptable to the Company to the effect that such sale,
transfer, assignment, pledge, hypothecation or other disposition will be exempt
from the registration and the prospectus delivery requirements of the Act. Any
such sale, transfer, assignment, pledge, hypothecation or other disposition
shall also comply with applicable state securities or "blue sky" laws.
5.3 Legends. Certificates evidencing shares of Common Stock
issuable upon conversion of this Note shall bear the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND HAVE BEEN TAKEN FOR INVESTMENT
PURPOSES ONLY AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF, AND
SUCH SECURITIES MAY
- 8 -
<PAGE> 9
NOT BE SOLD OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES
OR THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE
COUNSEL FOR THE COMPANY) REASONABLY ACCEPTABLE TO THE COMPANY
STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH
ACT."
The certificates representing such shares of Common Stock, and each certificate
issued upon transfer thereof, shall also bear any legend required under any
applicable state securities law. The Holder consents to the Company's making a
notation on its records or giving instructions to any transfer agent of the
Common Stock in order to implement the restrictions on transfer of the Note and
shares of Common Stock issuable upon conversion hereof set forth herein. The
Company shall remove any legend endorsed on this Note or on a certificate
representing the shares of Common Stock issued upon conversion hereof, and any
stock transfer instructions and record notations with respect to the Note and
shares of Common Stock issuable upon conversion hereof, and shall issue a Note
or certificate without such legend to the Holder if: (i) this Note or any
Common Stock issuable upon conversion hereof is registered under the Act and
under any applicable state securities laws, as the case may be; or (ii) the
Holder provides the Company with an opinion of counsel (which may be counsel
for the Company) reasonably acceptable to the Company to the effect that a
public sale or transfer of this Note or such shares of Common Stock may be
made without registration under the Act or under any applicable state
securities laws, as the case may be.
SECTION 6. Default.
6.1 Rights Upon Default. Upon any Event of Default as defined in
Section 6.2, the Holder may, at its option, declare the entire amount of
principal and accrued interest on this Note immediately due and payable, by
written notice to the Company, in which event the Company shall immediately pay
to the Holder the entire unpaid principal balance of this Note together with
accrued interest thereon to the date of such payment. At any time within
fifteen (15) days after such declaration, the same may be rescinded and such
Event of Default may be waived by the Holder of this Note by written notice
from it to the Company. In the event the Company fails to make payment to the
Holder of this Note as provided in this Section 6.1, the Holder shall be
entitled to take such measures as may be appropriate to enforce the Company's
obligations under this Note, by judicial proceedings or otherwise. No delay or
omission of the Holder of this Note to exercise any right or power accruing
upon any Event of Default shall impair any such right or power or shall be
construed as a waiver of any such Event of Default or an acquiescence therein.
6.2 Events of Default. An "Event of Default" under this Note shall
occur if:
- 9 -
<PAGE> 10
(a) the Company defaults in the payment of principal
under this Note when due, either at maturity or by declaration as
authorized in this Note;
(b) the Company defaults in the payment of interest under
this Note when due and the default continues for a period of ten (10)
days;
(c) the Company makes a general assignment for the
benefit of creditors or admits in writing its inability to pay its
debts generally as they become due; any voluntary petition is filed by
or against the Company under the United States Bankruptcy Code or any
similar federal or state law for the purpose of adjudicating the
Company a bankrupt or insolvent, for extending the time for payment,
adjustment or satisfaction of the Company's liabilities, or for
reorganization, liquidation or arrangement on account of or to prevent
bankruptcy or insolvency; or the Company consents to the filing of any
such petition or consents to the appointment or a receiver, liquidator
or trustee in bankruptcy;
(d) a court of competent jurisdiction enters an order or
decree under the United States Bankruptcy Code or any similar federal
or state law for the appointment of a receiver, liquidator, trustee or
assignee in bankruptcy or insolvency of the Company, or of all or
substantially all of its property or for the winding up or liquidation
of its affairs, or adjudicating the Company a bankrupt or insolvent or
approving a petition seeking reorganization of the Company under any
bankruptcy law, and in any event, such order or decree has continued
in force undischarged and unstayed for a period of forty-five (45)
days;
(e) the Company and/or any "Subsidiary" (as defined in
Section 8.1) defaults in the performance or observance of any
agreements contained in the instruments creating or evidencing other
Indebtedness (as defined below), if the effect of such default is to
cause Indebtedness, in any individual case or in the aggregate, in
excess of $50,000 in principal amount to become due and payable prior
to maturity. As used herein, the term "Indebtedness" means (i) all
obligations of the Company or any of its Subsidiaries for money
borrowed or evidenced by bonds, debentures, notes or similar
instruments (including, without limitation obligations with respect
to letters of credit and bankers' acceptances), (ii) all obligations
of the Company or any of its Subsidiaries to pay the deferred price of
property or services, (iii) capitalized lease obligations of the
Company or any of its Subsidiaries, so classified in accordance with
generally accepted accounting principles, and (iv) all indebtedness
and obligations of others guaranteed by the Company or any of its
Subsidiaries or secured by a mortgage, pledge, lien, charge or
encumbrance on the assets of the Company or any of its Subsidiaries;
- 10 -
<PAGE> 11
(f) a final judgment or judgments for the payment of
money are entered by a court or courts of competent jurisdiction
against the Company and/or any of its Subsidiaries and such judgment
or judgments remain unstayed or undischarged for a period of thirty
(30) days, provided that the aggregate of all such judgments (not paid
or fully covered by insurance except for any reasonable deductible)
exceeds $50,000;
(g) any representation or warranty contained in this Note
shall be, when made, untrue in any material respect; or
(h) the Company shall default in the performance or
observance of any agreement, term, covenant or condition contained in
this Note (other than as specifically provided in this Section 6.2)
and such default is not remedied within fifteen (15) days after
receipt by the Company of written notice from the Holder of such
default.
The Company shall give the Holder prompt written notice of the occurrence of
any event specified in paragraph (c) or (d) hereof; any Event of Default
specified in paragraph (e) or (f) hereof; or any default specified in paragraph
(h) hereof.
SECTION 7. Representations and Warranties.
The Company represents and warrants that:
(a) The execution and delivery of this Note has been duly
and validly authorized by the Board of Directors of the Company and
that no other corporate proceedings on the part of the Company are
necessary to authorize this Note. This Note has been duly and validly
executed and delivered by the Company and constitutes the valid and
binding agreement of the Company enforceable against it in accordance
with its terms;
(b) The execution, delivery or performance by the Company
of this Note will not, with or without the giving of notice or the
passage of time, or both, conflict with, violate, result in a breach
of or default, right to accelerate or loss of rights under, or result
in the creation or imposition of any lien, charge or encumbrance upon
any of the material assets or properties of the Company or its
subsidiaries pursuant to any provision of the Company's Certificate of
Incorporation or Bylaws, or any agreement, law, rule, or regulation,
or any order, judgment or decree to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its
Subsidiaries, or their respective assets or properties is bound; and
(c) No consent or approval of, or notification to or
filing with, any governmental authority, stock exchange,
- 11 -
<PAGE> 12
interdealer quotation system or any other party is required in
connection with the execution, delivery and performance of this Note,
other than such as have been obtained.
SECTION 8. Miscellaneous.
8.1 Definitions. As used herein the following terms shall have the
following meanings:
"Person" shall mean any individual or entity, including
without limitation any corporation, partnership, joint venture or trust.
"Business Day" shall mean any day other than a Saturday,
Sunday or other day on which banks in the State of California or New York are
authorized by law to remain closed.
"Common Stock Equivalent" shall mean securities that are
convertible into or exchangeable or exercisable for shares of Common Stock.
"Market Value" per share of Common Stock at any date shall be
the average of the daily closing price for thirty (30) Business Days before such
date. The closing price for each day shall be the last sale price regular way
or, in case no such reported sales take place on such day, the average of the
last reported bid and ask price, regular way, in either case on the principal
national securities exchange or the NASDAQ/National Market System on which the
shares of Common Stock are admitted to trading or listed, or if not so admitted
or listed, the representative closing bid price as reported by NASDAQ or other
similar organization if NASDAQ is no longer reporting such information or, if no
so available, the fair market price as reasonably determined by the Board of
Directors of the Company.
"Subsidiary" shall mean any corporation or association of
which the Company or one or more of its Subsidiaries owns at least a majority
of the outstanding voting stock or other equity interest having by its terms
ordinary voting power to elect a majority of the board of directors of such
corporation or association.
8.2 Merger, Consolidation and Sale. Nothing contained in this Note
shall prevent any consolidation or merger of the Company with or into any other
corporation or corporations (whether or not affiliated with the Company) or
successive consolidations or mergers in which the Company or its successor or
successors shall be a party or parties, or shall prevent any sale or conveyance
of all or any substantial portion of the assets of the Company, to any other
corporation (whether or not affiliated with the Company) authorized to acquire
and operate the same; provided, however, and the Company hereby agrees, that at
the effective time of any such consolidation, merger, sale or conveyance, the
entire unconverted
- 12 -
<PAGE> 13
principal balance hereof (plus accrued, unpaid interest) shall be accelerated
and shall immediately become due and payable.
8.3 Notices. All notices and other communications made pursuant
to the provisions of or in connection with this Note shall be in writing and
shall be deemed to have been duly made when delivered personally or by express
mail or courier or when sent by facsimile transmission with confirmation
received (provided a writing evidencing such transmission is mailed by first
class mail, postage prepaid within two (2) Business Days):
(a) If to the Holder, to A-Mark Precious Metals, Inc.,
100 Wilshire Boulevard, Third Floor, Santa Monica, California 90401,
fax no. (310) 319-0310, or to such other address as the Holder may
give notice of to the Company from time to time; or
(b) If to the Company, to Dallas Gold & Silver Exchange,
Inc., 519 Interstate 30, Suite 243, Rockwall, Texas 75087, fax no.
(214) 772-3093, or to such other address as the Company may give
notice of to the Holder from time to time.
8.4 Successors. All the covenants, agreements, representations and
warranties contained in this Note shall bind the parties hereto and their
respective heirs, executors, administrators, distributees, successors and
assigns.
8.5 Law Governing. This Note is delivered in the State of
California and shall be construed and enforced in accordance with, and governed
by, the internal laws of the State of California without application of the
conflict of laws provisions thereof.
8.6 Headings. The Section headings in this Note are inserted for
purposes of convenience only and shall have no substantive effect.
8.7 Expenses of Holder. Upon execution of this Note, the Holder
shall present the Company with a statement, certified as correct by a duly
authorized officer or the certified public accountant of the Holder setting
forth the reasonable legal and accounting fees and expenses incurred by the
Holder in connection with the negotiation and preparation of this Note and the
Company shall pay, or shall reimburse to the Holder, the same; provided, that
in no event shall the Company be obligated to pay or reimburse any amount in
excess of Three Thousand Seven Hundred Fifty Dollars ($3,750) pursuant to this
Section 8.7.
8.8 Attorneys' Fees. If the Holder takes any action, whether or
not involving any suit or other legal action or proceeding, for the collection
of the principal of (whether at maturity or accelerated maturity) or interest
on this Note, the Holder shall be entitled to recover its reasonable attorneys'
fees
- 13 -
<PAGE> 14
and other costs incurred or paid by the Holder, in addition to any other relief
to which it may be entitled.
8.9 Usury. Notwithstanding any other provision of this Note to
the contrary, all agreements between the Company and the Holder are expressly
limited, so that in no event or contingency whatsoever, whether by reason of
the advancement of the proceeds of this Note, acceleration of maturity of the
unpaid principal balance, the addition of accrued interest to principal or
otherwise, shall the amount paid or agreed to be paid to the Holder for the
use, forbearance, or detention of the money to be advanced under this Note
exceed the highest lawful rate permissible under applicable usury laws. If,
under any circumstances whatsoever, fulfillment of any provision of this Note
or any other agreement pertaining to this Note, after timely performance of
such provision is due, shall involve transcending the limit of validity
prescribed by law which a court of competent jurisdiction deems applicable,
then the obligations to be fulfilled shall be reduced to the limit of such
validity, and if, under any circumstances whatsoever, the Holder shall ever
receive as interest an amount that exceeds the highest lawful rate, the amount
that would be excessive interest shall be applied to the reduction of the
unpaid principal balance under this Note and not to the payment of interest,
or, if such excessive interest exceeds the unpaid balance of principal under
this Note, such excess shall be refunded to the Company.
WITNESS the signature of the duly authorized officer of the Company.
DALLAS GOLD & SILVER
EXCHANGE, INC.,
a Nevada corporation
By /s/ DR. L.S. SMITH
--------------------
Name: Dr. L.S. Smith
---------------
Title: Chairman
--------------
-14 -
<PAGE> 15
Exhibit 1
To____________________________:
The undersigned owner of this Note hereby irrevocably
exercises the option to convert $ principal amount of this Note into
shares of [ ] Common Stock of in accordance with the terms of this
Note, and directs that the shares issuable and deliverable upon the conversion
be issued and delivered to the registered holder hereof unless a different name
has been indicated below. If shares are to be issued in the name of a person
other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto.
Dated:________________________
___________________________________
Signature
Fill in for registration of shares of Common Stock if to be issued otherwise
than to the registered holder.
- ------------------------------ Social Security or Other
(Name) Taxpayer Identifying Number
___________________________________
- ------------------------------ Principal Amount to be
(Name) Converted
-----------------------------------
- ------------------------------
Please print name and
address (including zip
code number)
- 15 -
<PAGE> 1
Exhibit 11.0
DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
COMPUTATION OF FULLY DILUTED EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Weighted average number of common shares outstanding 5,855,098 5,885,887
Shares issuable assuming exercise of convertible note payable 5,342 -
Shares issuable assuming exercise of outstanding options (A) (A)
------------ ------------
Weighted average number of common shares outstanding,
assuming full dilution 5,860,440 5,885,887
============ ============
Net earnings for the year $ 42,153 $ 239,040
Add: Reduction of interest from assumed payment or
conversion of debt 962 -
------------ ------------
Earnings on a fully diluted basis $ 43,115 $ 239,040
============ ============
Fully diluted earnings per share $.01 $.04
=== ===
</TABLE>
(A) No shares are shown as issuable from the exercise of options as the
market price of the stock was substantially below the exercise price for
all of 1994 and 1995.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 417
<SECURITIES> 482
<RECEIVABLES> 181
<ALLOWANCES> 0
<INVENTORY> 892
<CURRENT-ASSETS> 1,991
<PP&E> 1,640
<DEPRECIATION> 489
<TOTAL-ASSETS> 3,926
<CURRENT-LIABILITIES> 812
<BONDS> 1,339
<COMMON> 58
0
0
<OTHER-SE> 1,716
<TOTAL-LIABILITY-AND-EQUITY> 3,926
<SALES> 11,370
<TOTAL-REVENUES> 13,239
<CGS> 9,326
<TOTAL-COSTS> 13,027
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 170
<INCOME-PRETAX> 42
<INCOME-TAX> 0
<INCOME-CONTINUING> 42
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
