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, 1996 or
----------------------------------
( ) Transition Report under Section 13 or 15 (d) of the
Securities Exchange Act of 1934 (No Fee Required)
For the transition period from_________________to______________
Commission file number 1-11048
---------------
Dallas Gold and Silver Exchange, Inc.
(formerly The American Pacific Mint, Inc.)
--------------------------------------------
(Name of small business issuer)
NEVADA 88-0097334
- ----------------------------- ----------------------------
(State or other jurisdiction (I.R.S.Employer Identification
incorporation or organization) Number)
2817 Forest Lane, Dallas, Texas 75234
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code (972) 484-3662 Securities
registered under Section 12(b) of the Exchange Act: ---------------
Title of each class Name of each exchange on which registered
- ---------------------- -------------------------------------------
COMMON STOCK AMERICAN STOCK EXCHANGE
$ .01 par value EMERGING COMPANIES
Securities registered pursuant to Section 12 (g) of the Exchange Act:
NONE
- ---------------------------------------------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirement for the past 90 days. Yes x No
-- --
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
---
During fiscal year ended December 31, 1996, total revenues were $ 13,949,126.
As of March 3, 1997, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $ 3,297,573.
As of March 3, 1997, 4,420,232 shares of Common Stock were outstanding.
Documents incorporated by reference: Portions of the proxy statement for the
annual shareholders' meeting to be held June 9, 1997, are incorporated by
reference into Part III.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Dallas Gold and Silver Exchange, Inc. (the "Company") (formerly The American
Pacific Mint, Inc.) was incorporated in Nevada in September 1965.
Through its wholly-owned subsidiary, DGSE Corporation, the Company sells jewelry
and bullion products to both retail and wholesale customers throughout the
United States and makes collateralized loans to individuals. During the last
three years the Company has focused its efforts toward expanding its retail
jewelry operations. Management expects this trend to continue until such time
that interest in precious metals results in significantly higher gross profit
margins on bullion related products. The Company's products are marketed through
its facility in Dallas, Texas.
During 1993 the Company founded DLS Financial Services, Inc. ("DLS") as a
wholly-owned subsidiary corporation which provides consulting services involving
the reorganization of other business enterprises (primarily enterprises that are
or have been involved in proceedings under Chapter 11 of the United States
Bankruptcy Code). The Company offers these services through its facility in
Dallas, Texas.
During 1992 the Company founded Dallas Global Travel, Inc.("DGT") as a
wholly-owned subsidiary corporation which 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 developed a World Wide Web Site on the Internet called
the Computer Jewelry Exchange. Customers can buy and sell items of jewelry and
are free to set their own prices in an interactive market. For its services the
Company receives a fee from the seller. In addition, the Company may offer for
sale its own inventory. During 1996 the Company also offered customers current
quotations for precious metals prices on the internet. The Company offers these
services through its facility in Dallas, Texas.
In January 1997, the Company formed a new wholly-owned subsidiary, Eye Media,
Inc. On January 28, 1997, Eye Media, Inc. purchased certain assets owned by
National Media Mail, Inc. and hired nine former employees of National Media
Mail, Inc. The assets purchased include rights, title and interest in a patent
pending and a registered service mark for ("The Gathering"), one of the largest
college web sites on the internet. Eye Media, Inc. is an internet/intranet web
site development company and sells advertising on The Gathering. Eye Media, Inc.
operates in a leased facility in Newport Beach, California.
2
<PAGE>
Products and Services
- ---------------------
The Company's jewelry operations include sales to both wholesale and retail
customers. The Company sells finished jewelry, gem stones, and findings (gold
jewelry components) and makes custom jewelry to order. Jewelry inventory is
readily available from wholesalers throughout the United States. In addition,
the Company purchases inventory from pawn shops and individuals. During the last
three years management has focused its efforts toward expanding its retail
jewelry business. Additional resources have been invested in advertising and
additional staff has been added in jewelry sales and jewelry and watch repair.
The Company's bullion trading operations buy and sell all forms of precious
metals products including United States and other government coins, medallions,
art bars and trade unit bars.
Bullion products, which are purchased and sold based on current market pricing
and sales commitments, are often sold prior to the purchase of the product. The
Company protects itself from gains or losses in its inventory position,
including purchase and sale commitments, by hedging its net position in the
precious metals futures markets when necessary. During the three years ended
December 31, 1996, the Company did not engaged in any hedging transactions. The
availability of precious metal products is a function of price as virtually all
bullion items are actively traded. Precious metals sales amounted to 39.6% of
total sales for 1996, 45.3% in 1995 and 41.7% in 1994. The decrease from 1995 to
1996 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 of 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 1996, 1995 or 1994. 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.
3
<PAGE>
Products and Services (continued...)
The Company earns a cash fee and or equity participation in the organizations to
which it provides services. The Company expects to accept only a limited number
of assignments each year which meet the criteria of having significant fee and
or substantial growth potential. Where equity participation is involved, as the
client enterprises mature, the Company plans to sell its equity interest subject
to compliance with state and federal securities law in order to provide
non-dilutive resources for the expansion of the Company's other business
activities or will distribute the equity or cash from the sale of such equity of
client companies to the stockholders of the Company as dividends subject to
compliance with state and federal securities law.
During 1996, 1995 and 1994, the Company provided consulting advice and
participated in seven such reorganizations. As a result, the Company received
consulting revenues in the amount of $ 40,000 in 1996, $ 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 1996 and 1995, the Company sold in the open market a portion of these
securities and realized gains the amount of $ 639,684 and $ 61,687,
respectively. In addition, during 1996 and 1995 the Company had unrealized gains
on trading securities in the amount of $871,865 and $ 49,998, respectively. As
of December 31, 1996 the Company's investment in these enterprises totaled $
1,913,656. 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.
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.
4
<PAGE>
Products and Services (continued...)
In April 1996 the Company began operating an additional web site. This site
allows paid subscribers unlimited access to current quotations for prices on
approximately 200 precious metals, coins and other bullion related products. The
site is integrated with The Computer Jewelry Exchange and is located on the
Company's server at http://www.dgse.com.
In an effort to expand its internet activities, in January 1997 the Company
formed a new wholly-owned subsidiary, Eye Media, Inc. On January 28, 1997, Eye
Media, Inc. purchased certain assets owned by National Media Mail, Inc. and
hired nine former employees of National Media Mail, Inc. The assets purchased
include rights, title and interest in a patent pending and a registered service
mark for ("The Gathering"), one of the largest college web sites on the
internet. Eye Media, Inc. is an internet/intranet web site development company
and sells advertising on The Gathering. The Company plans for Eye Media, Inc. to
significantly upgrade The Computer Jewelry Exchange web site during the first
quarter of 1997 and to aggressively pursue other web site development contracts.
Eye Media, Inc. operates in a leased facility in Newport Beach, California. The
assets purchased and the purchase price were not material to the financial
statements of the Company.
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, 1996, 1995 or 1994. Company backlogs for fabricated jewelry products were
also insignificant as of December 31, 1996, 1995 and 1994.
5
<PAGE>
Seasonality
- -----------
The retail jewelry business is seasonal. The Company realized 34.6% and 33.7% of
its annual jewelry sales in the fourth quarters of 1996 and 1995, 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.
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, 1996, the Company employed 19 individuals, all of which were
full time employees.
6
<PAGE>
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 $
675,290 as of December 31, 1996.
In February 1994, the Company entered into a lease agreement covering a 5,000
square foot building in Dallas, Texas which housed its second retail jewelry
store. The lease has a term of ten years beginning July 1, 1994 and requires
monthly payments of $ 7,500 for the first five years and $ 9,000 thereafter. In
November 1995, the Company closed this store and subleased this facility to
another retail jewelry company for a term of six months and receives monthly
payments of $ 9,050. In May 1996, this sublease was renewed for the remaining
term of the prime lease.
Eye Media, Inc. rents on a month to month basis a 900 square foot facility in an
office complex located in Newport Beach, California for which it pays a monthly
rental in the amount of $ 684.
The Company also maintains a resident agent office in Nevada at the office of
its Nevada counsel, McDonald, Carano, Wilson, McClure, Bergin, Frankovitch and
Hicks, 241 Ridge Street, Reno, Nevada 89505.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings which are
expected to have a material adverse effect on the Company and none of its
property is the subject of any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
7
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on the American Stock Exchange ("ASE")
pursuant to its "Emerging Companies" listing program under the symbol "DLS.EC".
The following table sets forth for the period indicated, the per share high and
low sale prices as reported by the ASE for the common stock. During the past two
years, the Company has not declared any dividends with respect to its common
stock. The Company intends to retain all earnings to finance future growth;
accordingly, it is not anticipated that cash dividends will be paid to holders
of common stock in the foreseeable future.
On June 18, 1996 the Company sold 500 shares of its Common Stock to an employee
for $ 625 in cash. These shares were unregistered and the Company relied on
Section 4(2) of The Securities Exchange Act of 1933 for exemption covering this
transaction.
High and low stock prices for the last two years were:
1996 1995
---------------- ----------
High Low High Low
---- --- ---- ---
First Quarter 1 7/8 1 1/8 2 3/8 1 9/16
Second Quarter 2 1 1/4 2 1 1/2
Third Quarter 1 1/2 1 1/16 1 7/8 1 1/4
Fourth Quarter 1 1/2 7/8 1 5/8 1
On March 3, 1997, the closing sales price for the Company's common stock was $
1.375 and there were 650 shareholders of record.
8
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
GENERAL
- -------
The Company's bullion trading operation has the ability to significantly
increase or decrease sales by adjusting the "spread" or gross profit margin
added to bullion products. In addition, economic factors such as inflation and
interest rates as well as political uncertainty are major factors affecting both
bullion sales volume and gross profit margins. Historically, the Company has
earned gross profit margins of from 2.0% to 3.0% on its bullion trading
operations compared to 29.0% to 32.0% on the sale of jewelry products. As a
result, since the year ended December 31, 1991, the Company has emphasized the
more profitable jewelry products. Management expects this trend to continue
until such time that interest in precious metals results in higher gross margins
on bullion products.
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 the remaining term of the lease.
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 September 1996, DGT's most productive outside sales agent retired
and, as a result, 1996 revenues decreased to $ 970,694 and DGT incurred a loss
of $ 7,091. The Company has reduced DGT's operating cost by an additional $
24,000 per year and expects near break-even operating results on lower revenues
in 1997.
9
<PAGE>
GENERAL (continued...)
- -------
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 1996, 1995, 1994 and 1993, the Company
provided consulting advice and participated in seven such reorganizations. As a
result, the Company received consulting revenues in the amount of $ 40,000 in
1996 and $ 271,414 in 1995. 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).
Results of Operations
- ---------------------
Sales decreased by $ 78,461 (0.7%) in 1996. This decrease was the result of a $
575,018 reduction in the sale of bullion related products and an $ 496,558
increase in the sale of jewelry products. During 1996, the demand for bullion
products continued soft due to low inflation and other factors. The increase in
the sale of jewelry related products was the result of a stronger retail climate
during 1996 and due to the Company maintaining a higher level of jewelry
inventory. Pawn service charges decreased by $ 18,721 (35.7%) in 1996 due to
lower loan volume. Travel agency income decreased $ 452,012 (31.8%) in 1996 due
to the retirement of the Company's most productive outside sales agent.
Consulting service income decreased by $ 231,414 due to fees earned during 1995
on a refinancing of an existing client. The unrealized gains on trading
securities in the amounts of $ 871,865 and $ 49,998 in 1996 and 1995,
respecitvely, was the result of an increase in market value of the Company's
investments in trading securities. During 1996 the Company sold in open market
transactions marketable securities and realized gains in the amount of $
639,684. Other income during 1996 and 1995 was the result of rental income
received from the sublease of the facility which had been the Company's second
store.
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, demand for bullion
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. Gross
profit margins increased from 15.7% in 1994 to 18.0% in 1995 due to a price
increase on jewelry related products.
10
<PAGE>
Results of Operations (continued...)
- ---------------------
Cost of goods sold decreased by $ 41,179 (.5%) in 1996 and $ 762,736 (7.6%) in
1995 due to the decrease in sales volume. Travel agency costs decreased 31.9% in
1996 and increased by 50.4% in 1995 due to the changes in travel related sales.
Cost attributable to consulting services decreased by $ 55,476 in 1996 due to
travel and other costs incurred in 1995 associated with work related to the
refinancing of one of DLS's existing clients.
Selling, general and administrative expenses decreased by $ 67,873 in 1996 due
to the closure of the Company's second jewelry store. 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.
Depreciation and amortization expense decreased in 1996 by $ 16,728 due to
certain assets becoming fully depreciated during the year. Depreciation and
amortization expense increased by $ 31,751 in 1995 due to amortization of
organization costs in the amount of $ 17,740 relating to the Company's second
store and due to depreciation on new assets placed in service during 1995 and
1994.
Interest expense increased by $ 4,908 and $ 13,134 in 1996 and 1995,
respectively, due to interest paid on new working capital loans issued to fund
the increase in inventory.
Liquidity and Capital Resources
- -------------------------------
During 1996 the Company sold $ 983,180 of marketable securities, borrowed $
70,410 from individuals and generated $ 60,940 from operations. Theses resources
were used to fund capital expenditures in the amount of $ 62,867, purchases of
marketable securities in the amount of $ 84,654, purchase and retire common
stock of the Company in the net amount of $ 203,601 and to pay short and
long-term notes and capital lease obligations in the amount of $ 231,523. As a
result, cash and cash equivalents increased by $ 532,510 during the year.
Management of the Company expects capital expenditures to total approximately $
75,000 during 1997. It is anticipated that these expenditures will be funded
from the Company's current working capital position.
From time to time, management has adjusted the Company's inventory levels to
meet seasonal demand or in order to meet working capital requirements.
Management is of the opinion that if additional working capital is required,
additional loans can be obtained from individuals or from commercial banks. If
necessary, inventory levels may be adjusted or a portion of the Company's
investments in marketable securities may be liquidated in order to meet
unforseen working capital requirements.
11
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
(a) Financial Statements (see pages 15 - 28 of this report).
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
The information contained in Dallas Gold and Silver Exchange, Inc.'s Proxy
Statement to be filed pursuant to Regulation 14A within 120 days after the end
of the fiscal year covered by this Form 10-KSB with respect to directors and
executive officers of the Company, is incorporated by reference in response to
this item.
ITEM 10. EXECUTIVE COMPENSATION
The information contained in Dallas Gold and Silver Exchange, Inc.'s Proxy
Statement to be filed pursuant to Regulation 14A within 120 days after the end
of the fiscal year covered by this Form 10-KSB, with respect to executive
compensation and transactions, is incorporated by reference in response to this
item.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained in the Dallas Gold and Silver Exchange, Inc.'s Proxy
Statement to be filed pursuant to Regulation 14A within 120 days after the end
of the fiscal year covered by this Form 10-KSB with respect to security
ownership of certain beneficial owners and management, is incorporated by
reference in response to this item.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in Dallas Gold and Silver Exchange, Inc.'s Proxy
Statement to be filed pursuant to Regulation 14A within 120 days after the end
of the fiscal year covered by this Form 10-KSB, with respect to certain
relationships and related transactions, is incorporated by reference in response
to this item.
12
<PAGE>
ITEM 13. EXHIBITS REPORTS ON FORM 8-K
(a) Exhibits:
10.1 - Agreement For Purchase And Sale Of Stock dated as of December 30,
1996 by and among Dallas Gold And Silver Exchange, Inc. and Henry
Hirschman.
10.2 - First Amendment To Sublease Agreement effective
July 3, 1996 by and between Dallas Gold And Silver
Exchange, Inc. and Fuller's Jewelry, Inc.
21 - List of subsidiaries
DGSE Corporation
Dallas Global Travel, Inc.
DLS Financial Services, Inc.
Eye Media, Inc.
The following exhibits are incorporated by reference to the Company's Form
10-KSB for the year ended December 31, 1995:
10.1 - 9% Convertible Promissory Note dated December 5, 1995, by and
among Dallas Gold And Silver Exchange, Inc. and A-Mark Precious
Metals, Inc.
The following exhibits are incorporated by reference to the Company's Form
10-KSB for the year ended December 31, 1994:
10.1 - Lease Agreement dated February 11, 1994, by and
among Dallas Gold And Silver Exchange, Inc. and
Stanley N. Kline.
10.2 - Renewal, Extension And Modification Agreement dated January 28,
1994, by and among DGSE Corporation and Michael E. Hall And
Marian E. Hall.
10.3 - Note Payable dated December 31, 1993, by and among
Dallas Gold And Silver Exchange, Inc. and Dimitri
Krstava.
10.4 - Profit Participation Agreement dated December 11, 1993, by and
among Dallas Gold And Silver Exchange, Inc. and Craig Alan-Lee.
(b) Reports on Form 8-K -- None
13
<PAGE>
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 6, 1997
-------------------------
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 6, 1997
-------------------------
L. S. Smith
Chairman of the Board,
Chief Executive Officer and
Secretary
By: /s/ W. H. Oyster Dated: March 6, 1997
-------------------------
W. H. Oyster
Director, President and
Chief Operating Officer
By: /s/ John Benson Dated: March 6, 1997
-------------------------
John Benson
Director and Chief Financial
Officer
(Principal Accounting Officer)
<PAGE>
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
DALLAS GOLD AND SILVER EXCHANGE, INC.
December 31, 1996
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, 1996, 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, 1996, 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.
GRANT THORNTON LLP
Dallas, Texas
February 14, 1997
14
<PAGE>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
December 31, 1996
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 949,586
Marketable securities - trading 1,913,656
Trade receivables 147,503
Inventories 1,111,485
Prepaid expenses 20,924
---------
Total current assets 4,143,154
PROPERTY AND EQUIPMENT - AT COST, NET 1,123,948
OTHER ASSETS 31,637
---------
$ 5,298,739
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 548,012
Accounts payable - trade 404,028
Accrued expenses 103,391
Accrued payroll 153,254
Accrued payable consignment 94,153
Customer deposits 57,770
Current maturities of long-term debt and capital lease
obligations 45,864
-------
Total current liabilities 1,406,472
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS,
less current maturities 1,766,342
---------
Total liabilities 3,172,814
COMMITMENTS AND CONTINGENCIES -
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; authorized 10,000,000
shares; issued and outstanding 4,618,193 shares 46,182
Additional paid-in capital 4,126,451
Accumulated deficit (2,046,708)
-----------
Total shareholders' equity 2,125,925
-----------
$ 5,298,739
===========
The accompanying notes are an integral part of this statement.
16
<PAGE>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
------------ -----------
Revenue
Sales $ 11,291,690 $11,370,151
Pawn service charges 33,768 52,490
Travel agency income 970,694 1,422,706
Consulting income 40,000 271,414
Gain on sale of marketable securities - trading 639,684 61,687
Unrealized gains on marketable securities - trading 871,865 49,998
Other income 101,425 10,070
---------- ----------
13,949,126 13,238,516
Costs and expenses
Cost of goods sold 9,472,246 9,513,425
Travel agency costs 944,776 1,388,256
Consulting service costs 127,325 182,801
Selling, general and administrative expenses 1,766,806 1,834,679
Depreciation and amortization 90,012 106,740
Interest expense 175,370 170,462
---------- ----------
12,576,535 13,196,363
---------- ----------
NET INCOME $1,372,591 $ 42,153
========== ==========
Earnings per common share $.24 $.01
=== ===
</TABLE>
The accompanying notes are an integral part of this statement.
17
<PAGE>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Unrealized
Additional gain (loss) Total
Common stock paid-in Accumulated on marketable shareholders'
------------
Shares Amount capital deficit securities equity
------ ------ ------- ------- ---------- ------
Balances at January 1, 1995 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 - available for sale - - - - 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
Purchase and retirement of
common shares (1,203,156) (12,032) (1,066,569) - - (1,078,601)
Sale of common stock 500 5 620 - - 625
Unrealized gain on marketable
securities - available for sale - - - - 56,840 56,840
Net income - - - 1,372,591 - 1,372,591
--------- -------- --------- ---------- ------- ---------
Balances at December 31, 1996 4,618,193 $ 46,182 $4,126,451 $(2,046,708) $ - $ 2,125,925
</TABLE>
The accompanying notes are an integral part of these statements.
18
<PAGE>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
---- ----
Cash flows from operating activities
Cash received from customers $ 12,369,457 $ 13,003,801
Cash paid to suppliers and employees (12,133,147) (12,980,597)
Interest paid (175,370) (170,462)
-------- --------
Net cash provided by (used in) operating activities 60,940 (147,258)
------ --------
Cash flows from investing activities
Decrease in loans, net - 10,217
------ ------
Capital expenditures (62,867) (84,859)
Proceeds from sale of property and equipment - 30,131
Purchase of marketable securities - trading (84,654) (23,800)
Proceeds from sale of marketable securities - trading 983,180 120,085
Proceeds from sale of marketable securities - available-for-sale - 19,013
------- ------
Net cash provided by investing activities 835,659 70,787
------- ------
Cash flows from financing activities
Proceeds from notes issued 70,410 325,704
Payment of short-term notes (197,802) (21,500)
Purchase and retirement of common stock (203,601) (99,570)
Principal payments on long-term debt (16,554) (81,970)
Principal payments under capital lease obligations (17,167) (61,830)
Sale of common stock 625 -
-------- -------
Net cash provided by (used in) financing activities (364,089) 60,834
-------- ------
Net increase (decrease) in cash and cash equivalents 532,510 (15,637)
Cash and cash equivalents at beginning of year 417,076 432,713
------- -------
Cash and cash equivalents at end of year $ 949,586 $ 417,076
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
19
<PAGE>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31,
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
---- ----
Reconciliation of net income to net cash provided by
(used in) operating activities
Net income $ 1,372,591 $ 42,153
Adjustments to reconcile net income to cash provided by
(used in) operating activities
Depreciation and amortization 90,012 106,740
Unrealized gains on marketable securities - trading (871,865) (49,998)
Gain on sale of marketable securities - trading (639,684) (61,687)
Gain on sale of property and equipment - (691)
Marketable securities received in lieu of cash - (155,750)
(Increase) decrease in operating assets
Trade receivables 33,305 32,573
Inventories (219,282) (143,600)
Prepaid expenses (2,048) 4,552
Other assets 3,752 384
Increase (decrease) in liabilities
Accounts payable 149,795 (12,849)
Accrued expenses 125,408 78,383
Customer deposits 18,956 12,532
------ ------
Net cash provided by (used in) operating activities $ 60,940 $ (147,258)
======== ==========
</TABLE>
Supplemental schedule of noncash operating, investing and financing activities:
Year ended December 31, 1996:
-----------------------------
The Company issued a long-term note payable to an individual in the amount of
$875,000 for the repurchase of 1,119,056 shares of common stock, which were
retired.
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.
The accompanying notes are an integral part of these statements.
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
--------------------
Dallas Gold and Silver Exchange, Inc. and its wholly-owned subsidiaries (the
Company), sell jewelry and bullion products to both retail and wholesale
customers throughout the United States through its facility in Dallas,
Texas; provide consulting services related to reorganization of other
business enterprises; and provide travel planning to both business and
pleasure travelers.
Principles of Consolidation
---------------------------
The consolidated financial statements of the Company include the financial
statements of Dallas Gold and Silver Exchange, DGSE Corporation, Dallas
Global Travel, Inc. and DLS Financial Services, Inc.
All material intercompany transactions and balances have been eliminated.
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
their useful lives.
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 notes
payable, if dilutive. The weighted average number of shares used to
calculate earnings per share during the years ended December 31, 1996 and
1995 were 5,791,969 and 5,885,098, 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.
21
<PAGE>
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Investments in Marketable Securities
------------------------------------
Marketable equity securities have been categorized as either
available-for-sale or trading and carried at fair value. Unrealized gains
and losses for available-for-sale securities are included as a component of
shareholders' equity until realized, while unrealized gains and losses for
trading securities are included in the statement of income. Realized gains
and losses on the sale of securities are based on the specific
identification method.
Financial Instruments
---------------------
The carrying amounts reported in the consolidated balance sheet for cash and
cash equivalents, accounts receivable, marketable securities, short-term
debt, accounts payable and accrued expenses approximate fair value because
of the immediate or short-term maturity of these financial instruments. The
carrying amount reported for long-term debt approximates fair value because
substantially all of the underlying instruments have variable interest rates
which reprice frequently or the interest rates approximate current market
rates.
Stock Options
-------------
The Company's employee stock option plan is accounted for under APB Opinion
25, Accounting for Stock Issued to Employees, and related interpretations.
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.
NOTE B - INVENTORIES
A summary of inventories at December 31, 1996 is as follows:
Jewelry $ 975,473
Scrap gold 104,067
Bullion 10,714
Other 21,231
------
$1,111,485
==========
22
<PAGE>
NOTE C - INVESTMENTS IN MARKETABLE SECURITIES
During 1996, the Company transferred marketable securities from available
for sale to trading, recognizing an unrealized gain of $979,766 in current
earnings.
NOTE D - PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31, 1996 is as follows:
Land $ 551,300
Buildings and improvements 516,914
Machinery and equipment 563,665
Furniture and fixtures 71,174
------
1,703,053
Less accumulated depreciation and amortization (579,105)
--------
$1,123,948
==========
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, 1996 follows:
<TABLE>
<CAPTION>
<S> <C>
Notes payable
Various demand notes to individuals with interest rates from 8% to 14% $ 548,012
= == =========
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, 1996 was
9.375%); balance due and payable in January 2014 $ 675,290
Convertible note, due December 5, 1998. Interest is payable quarterly at a rate
of 9% 150,000
Convertible note, due December 31, 2001. Interest is payable quarterly at a rate
of 8% 875,000
Capital lease obligations (property and equipment includes machinery and
equipment of $107,797, net of accumulated amortization of $35,679 at December
31, 1996) 111,916
- --- ---- -------
1,812,206
Less current maturities 45,864
------
$1,766,342
==========
</TABLE>
23
<PAGE>
NOTE E - NOTES PAYABLE, LONG-TERM DEBT AND CAPITAL LEASES - Continued
Convertible Notes
In December 1995, the Company issued a long-term convertible note in the
amount of $150,000 to a supplier. The note bears interest at 9% payable
quarterly and matures in December 1998. At any time prior to full payment of
the note, the lender may exercise its right to convert the outstanding
indebtedness into shares of common stock at a conversion rate of $.50 per
share.
In December 1996, the Company issued a long-term convertible note in the
amount of $875,000 to an individual. The note bears interest at 8% payable
quarterly. The principal matures in installments of $100,000 at December 31,
1999, $100,000 at December 31, 2000, and $675,000 at December 31, 2001. At
any time prior to full payment of the note, the holder may convert $100,000
of this note into common stock at a conversion rate of $1.00 per share.
The following table summarizes the aggregate maturities of long-term debt
and payments on the capital lease obligations:
<TABLE>
<CAPTION>
<S> <C> <C>
Obligations
under
Long-term capital
debt leases
---- ------
1997 $ 17,567 $ 44,294
1998 169,490 38,134
1999 121,109 29,700
2000 122,860 29,700
2001 699,935 2,475
Thereafter 569,329 -
--------- -------
Total 1,700,290 144,303
Amounts representing interest (interest rates ranging from
10.8% to 23.3%) - (32,387)
------- ------
111,916 1,700,290
Less current portion (17,567) (28,297)
------- -------
$1,682,723 $ 83,619
========== ========
</TABLE>
24
<PAGE>
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.
The Company has adopted only the disclosure provisions of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation" (FAS
123). It applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations in accounting for its plans and does
not recognize compensation expense for its stock-based compensation.
The following table summarizes the activity in common shares subject to
options for the two years ended December 31, 1996:
Weighted
Range of Average
Shares Exercise Price Exercise Price
------ -------------- --------------
January 1, 1995 390,000 $1.63 - $2.25 $2.12
Granted - - -
------- ------------ -------
December 31, 1995 390,000 1.63 - 2.25 -
Forfeited 10,000 2.125 - 2.25 2.1875
------- ------------ ------
December 31, 1996 380,000 $1.63 - $2.25 $2.12
======= ============= =====
As of December 31, 1996, all options were exercisable and expire six months
after termination of employment.
NOTE G - INCOME TAXES
The income tax provision reconciled to the tax computed at the statutory
Federal rate follows:
1996 1995
---- ----
Tax expense at statutory rate $ 466,682 $ 14,332
Change in valuation allowance (467,377) (14,721)
Nondeductible expenses 695 389
-------- -------
Tax expense $ - $ -
======== ========
The change in the valuation allowance resulted from use of net operating loss
carryforwards.
25
<PAGE>
NOTE G - INCOME TAXES - Continued
Deferred tax assets (liabilities) are comprised of the following as of
December 31, 1996:
Deferred tax assets
Net operating loss carryforwards $ 463,583
Deferred tax liabilities
Unrealized gain on securities (355,691)
Other (8,626)
------
Total deferred tax liabilities (364,317)
--------
Net deferred tax assets 99,266
Valuation allowance (99,266)
-------
Net deferred tax assets $ -
========
Net operating loss carryforwards for federal income tax purposes expire as
follows:
Year of
expiration Amount
---------- ------
2002 $ 138,000
2003 616,000
2004 219,200
2005 3,600
2006 172,070
2007 214,500
---------
$1,363,370
==========
26
<PAGE>
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:
Year ending December 31,
1997 $ 90,000
1998 99,000
1999 108,000
2000 108,000
2001 108,000
Thereafter 270,000
-------
783,000
Less amounts representing sublease income 783,000
-------
$ -
=======
Rent expense for the years ended December 31, 1996 and 1995 was approximately
$126,000 and $90,000, respectively, and was offset by sublease income of
approximately $97,000 and $9,000, respectively.
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 $161,810 and $88,762
in 1996 and 1995, respectively.
27
<PAGE>
NOTE J - BUSINESS SEGMENT INFORMATION
The company operations by business segment were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Travel Financial
Jewelry Agency Services Corporate Consolidated
------- ------ -------- --------- ------------
Revenues
1996 $11,426,883 $ 970,694 $ 40,000 $1,511,549 $13,949,126
1995 11,432,711 1,422,706 271,414 111,685 13,238,516
Operating income (loss)
1996 $ 54,890 $ (7,091) $ (20,174) $1,344,966 $1,372,591
1995 (158,112) (1,859) 185,218 16,906 42,153
Identifiable assets
1996 $ 2,796,927 $ 9,845 $ 573,915 $1,918,052 $5,298,739
1995 2,401,776 42,215 222,849 1,259,299 3,926,139
Capital expenditures
1996 $ 40,857 $ - $ 22,008 $ - $ 62,867
1995 78,958 - 5,425 476 84,859
Depreciation
1996 $ 80,047 $ - $ 9,965 $ - $ 90,012
1995 79,733 - 632 6,540 86,905
</TABLE>
28
<PAGE>
EXHIBIT
<PAGE>
Exhibit 11.0
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
COMPUTATION OF FULLY DILUTED EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
<S> <C> <C>
Year ended December 31,
-----------------------
1996 1995
---- ----
Weighted average number of common shares outstanding 5,791,969 5,855,098
Shares issuable assuming exercise of convertible note payable 75,273 5,342
Shares issuable assuming exercise of outstanding options (A) (A)
--------- ---------
Weighted average number of common shares outstanding,
assuming full dilution 5,867,242 5,860,440
========= =========
Net earnings for the year $1,372,591 $ 42,153
Add: Reduction of interest from assumed payment or
conversion of debt 13,500 962
--------- ---------
Earnings on a fully diluted basis $1,386,091 $ 43,115
========== ========
Fully diluted earnings per share $.24 $.01
==== ====
</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 1995 and 1996.
29
<PAGE>
Exhibit 10.1
AGREEMENT
FOR
PURCHASE AND SALE
OF
STOCK
THIS AGREEMENT FOR PURCHASE AND SALE OF STOCK ( Agreement") is made and
entered into as of this 30 day of December, 1996, aby and between Dallas Gold &
Silver Exchange, Inc., A Nevada Corporation, (the Company") and Henry Hirschman,
an individual ( Hirschman").
RECITALS
A. WHEREAS, Hirschman is the owner of record of 1,119,056 shares (the
shares") of the issued and outstanding common stock of the Company
B. WHEREAS, the Company desires to purchase from Hirschman and Hirschman
desires to sell said shares in consideration for cash and a promissory
note as set forth below.
NOW, THEREFORE, in consideration of the mutual agreements,
representations and warranties contained herein, the parties agree as
follows:
SECTION1: PURCHASE PRICE. The purchase price to be paid by the Company to
---------------
Hirschman is entirely composed of the sum of $125,000 and the promissory note
attached hereto as Exhibit 1.
SECTION 2: TRANSFER OF THE SHARES. Subject to the terms and conditions set
----------------------
forth in thisagreement, Hirschman shall sell, assign, transfer, convey and
deliver 1,119,056 Shares of the Company's common stock, and the Company shall
purchase and accept the shares from the Hirschman.
<PAGE>
SECTION 3: DELIVERY.
--------
(a) On the Closing Date (as herein defined), Hirschman shall deliver to
the Company certificates representing ownership of the Shares together
with executed stock assignments or stock powers attached. Such Stock
powers or assignments shall have appropriate signature guaranties.
(b) On the Closing Date, the Company shall deliver to Hirschman it check
in the amount of $125,000 and a fully executed promissory note in the
form attached as Exhibit 1.
SECTION 4: CLOSING. The Closing Date shall occur on December 30, 1996 and shall
-------
take place at the principal office of the Company or at such other place as may
be mutually agreed upon by the parties.
SECTION 5: PREPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
---------------------------------------------------
represents and warrants to Hirschman as follows:
(a) Organization of Corporation. The Company is a general corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the
State of Nevada, having all necessary corporate powers to own its
properties and to carry on its business now owned and operated.
(b) Authority and Effect. The Company has the right, power, legal capacity
--------------------
and authority to enter into, and perform its obligations under this
Agreement which, shall constitute the valid and binding obligation of
American, enforceable in accordance with its terms.
(c) No Breach of Statute or Contract. To the best of the Company's
-------------------------------------
knowledge, the execution, delivery and performance of this Agreement
does not and will not breach any statute or regulations of any
governmental authority and will not, on the Closing Date, conflict
with or result in a breach of, or default under any of the terms,
conditions or provisions of any order, writ, injunction, decree,
agreement or instrument to which American is a party or by which the
Company is or may be bound.
<PAGE>
SECTION 6: REPRESENTATIONS AND WARRANTIES OF HIRSCHMAN
-------------------------------------------
(a) General Representations and Warranties. Hirschman represents and
-----------------------------------------
warrants to the Company as follows:
(i) Hirschman has good and marketable title to the Company shares
beneficially owned by him, free and clear of all liens, claims,
encumbrances, charges or restricitons against transfer;
(ii) Authority and Effect. Hirschman has the right, power, legal
----------------------
capacity and authority to enter into, and perform his obligations
under this Agreement which, shall constitute his valid and
binding obligation, enforceable in accordance with its terms.
(iii)No Breach of Statute or Contract. To the best of Hirschman's
-----------------------------------
knowledge, the executio, delivery and performance of this
Agreement does not and will not breach any statute or regulations
of any governmental authority and will not, on the Closing Date,
conflict with or result in a breach of or default under any of
the terms, conditions or provisions of any order, writ,
injunction, decree, agrement or instrument to which the Hirschman
is a party or by which he is or may be bound.
SECTION 7: NOTICES. All notices or communications required under this Agreement
-------
shall be in writing and delivered personally or sent by United States registered
or certified mail, postage prepaid, and properly addressed as follows:
The Company: Dallas Gold & Silver Exchange, Inc.
Attention: Dr. L.S. Smith
519 Interstate 30, Suite 243
Rockwall, Texas 75087.
<PAGE>
Hirschman: 155 East 29th Street, Apt, 32A
New York, New York 10016
SECTION 8: BINDING EFFECT OF AGREEMENT. Except as expressly provided herein to
---------------------------
the contrary, this Agreement shall be binding on all the heirs, executors,
administrators, successors and assigns of each of the parties hereto.
SECTION 9: GOVERNING LAW. This Agreement shall in all respects be interpreted,
- --------- -------------
enforced and governed by and under the laws of the State Nevada.
SECTION 10: HEADINGS. The headings in the sections and paragraphs of this
- ---------- --------
Agreement are inserted for convenience of reference only and shall not
constitute a part hereof.
SECTION 11: GENDER. the neurter gender includes the feminine and masculine, the
- ---------- ------
masculine includes the feminine and neuter, and the feminine includes the
masculine and neuter, and each includes corporation, partnership or other
legal entity when the context so requires.
SECTION 12: SINGULAR AND PLURAL. The singular number includes the plural
- ---------- ---------------------
whenever the context so requires.
SECTION 13: ADDITIONAL DOCUMENTS. The parties hereto each agree after the
- ---------- ---------------------
Closing Date to executed, acknowledge and delver any additional documents
and instruments, and to take any other action consistent with the terms of
this Agreement that may reasonably be requested by the other party to give
effect to the provisions hereof.
<PAGE>
SECTION 14: COUNTERPARTS. This Agreement may be executed in counterparts, each
- ---------- ------------
of which shall be deemed an original and all of which together shall
constitute one and the same instrument.
SECTION 15: AMENDMENT. No supplement, modification, or amendment of this
- ---------- ---------
Agreement shall be valid except through written document executed by each
of the parties hereto.
EXECUTED as of the date first above written.
Dallas Gold & Silver Exchange
By:/s/ Dr. L.S. Smith
----------------------------------
Its Chairman
/s/ Henry Hirschman
----------------------------------
Henry Hirschman
<PAGE>
8% UNSECURED PROMISSORY NOTE
$875,000
December 31, 1996
THIS 8% UNSECURED PROMISSORY NOTE is made as of December 31, 1996 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 Henry Hirschman, or registered assigns (
Holder"), on December 31, 2001 the principal sum of Eight Hundred Seventy Five
Thousand Dollars ($875,000) less any prepayments or required principal
reductions. The Company further promises to pay interest on the outstanding
principal balance hereof from the date hereof until paid at the rate of nine
percent 8 per cent per annum calculated on the basis of a 365-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 Apayment Date".
Payment of principal and interest on this Note shall be made at 155 East 29th
Street, Apt 32A New York, New York 10016, or at such other address as the Holder
shall designate in writing in accordance with Section 8.2, in such coin or
currency of the United States of Americ as at the time of payment is legl tender
for payment of public and privte debts; provided, however, that the Company may
pay principal and interest by check payable in such money. On both December 31,
1999 and on December 31, 2000 the Company shall pay the sum of $100,000 as a
principal reduction on this note and the remaining balance shall be reduced
accordingly.
SECTION 2. Conversion of the Note.
----------------------
2.1 Coversion Privilege. Subject 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 $100,000 of this Note into shares of Common
Stock of the Company, par value $.01 per share (the Common Stock"), at the Price
of $1.00 per share. The holder must convert the full allowable amount in order
for this revision to be in full force and effect.
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 received
by the Company (the Conversion Date") and at that time the rights of the Holder
as such shall cease, except with respect to the pyment of accrued interest in
accordance with Section 2.4 below. An election to convert this the allowable
portion of the note shall be irrevocable once made.
<PAGE>
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 100,000 shares of Common Stock of the
Company issuable upon the coversion of this Note. The Holder must surrender the
original note for a conversion and 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 due at the point of
conversion.
2.4 Interest on Conversion. On exercise of the conversion privilege of
----------------------
this Note, interest shall cease to accrue as of the Conversion Date on the
principal amount converted, but interest Conversion Date. No payment or
adjustment shall be made on conversion of this Note for any dividends on Common
Stock issued 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.
2.6 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 Conversion Price of this Note shall be $1.00
-----------------
($1.00) per share of Common Stock. The Conversion Price shall be not be adjusted
for any reason and shall be limited to the extent of $100,000 in principal
amount.
2.8 Rights of Holder. 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.
2
<PAGE>
2.9 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 herewith shall be 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 ofthis 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. It is the intenet of the parties that this note be retained by
the Holder until maturity and therefore the note may not be transferred,
assigned or sold to any third party without the written consent of the Comapny.
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 reasonalby
satisfactory to it, (ii) the Company is reimbursed for all reasonable expenses
incidental to such replacement, and (iii) this Note is surrendered and
cancelled, if mutilated.
SECTION 4. Prepayment
----------
The principal amount of this Note may be prepaid, in whole or in part,
at any time without restriction.
SECTION 5. Acquistion 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.
3
<PAGE>
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 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 othe 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 THS 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
NOT BE SOLD OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES OR THE COMPMPANY 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 sucrities laws, as the
case may be.
4
<PAGE>
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 pwoer 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:
-----------------
(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 fifteen (15)
days;
(c) 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.
SECTION 7. Representations and Warranties.
------------------------------
The Company represents and warrants that:
(a) The execution ad 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
5
<PAGE>
(c) No consent or approval of, or notification to or filing with, any
governmental authority, stock exchange, 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.
The Holder represents and warrants:
(a) That he has accepted this note based on his own independent
investigation of the affairs of the company and that he has exercised his own
independent judgement in connection with all decisions related thereto.
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 Nevada or New York are
authorized by law to remain closed.
8.2 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 Henry Hirschman
155 East 29th Street, Apt. 32A
New York, New York 10016
(b) If to the Company, to Dallas Gold & Silver Exchange, Inc.,
519 Interstate 30, Suite 243, Rockwall, Texas 75087, faxt no. (214)772-3093, or
to such other address as the Company may give notice of to the Holder from time
to time.
6
<PAGE>
8.3 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.
8.4 Law governing. This Note is delivered in the State of Nevada and
--------------
shall be construed and enforced in accordance with, and governed by, the
internal laws of the State of Nevada without application of the conflict of laws
provisions hereof.
8.5 Headings. The Section headings in this Note are inserted for purposes
--------
of convenience only and shall have no substanative effect.
8.6 Expenses. Each party to this agreement shall bear his own expenses in
--------
connection with this note.
8.7 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 by 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 interst an amount
that exceeds the highest lawful rate, the amount that would be excessive interst
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
7
<PAGE>
Exhibit 1
To
The undersigned owner of this Note hereby irrevocably exercises the option to
convert $100,000 principal amount of this Note into shares of 100,000 shares of
Common Stock of in accordance with the terms of this Note, and directs that the
shares issuable and deliverable upon conversion be issued and delivered to the
registered holder hereof.
Dated:
Signature
8
<PAGE>
Exhibit 10.2
FIRST AMENDMENT TO SUBLEASE AGREEMENT
-------------------------------------
THIS FIRST AMENDMENT TO SUBLEASE AGREEMENT( Amendment"), is made effective
as of July 3, 1996, by and between DALLAS GOLD & SILVER EXCHANGE, INC. (
Sublessor"), and FULLER'S JEWELRY, INC. ( Sublessee").
RECITALS:
---------
A. Sublessor and Sublessee have previously entered into that certain Sublease
Agreement, dated effective as of November 10, 1995 ( Sublease"). terms
defined in the Sublease and delineated herein by initial captial letters
shall have the same respective meanings specified in the Sublease.
B. Sublessor and Sublessess have agreed to extend the Sublease Term as
provided in this Amendment.
NOW, THEREFORE, for and in consideration of the premises and themutual
covenants and obligations of each party under the Sublease, the Sublease is
hereby amended as follows:
1. Sublease Term. The Sublease Term is hereby extended until the earlier to
occur of (a) for a term of ten (10) years (b) ther termination of the Prime
Lease for any reason or cause. (c) Rent, years 1-5...$7500. per month Rent,
years 6-10...$9000. per month (d) Tax Escrow. Starting with the first month of
this lease Tenant will escrow with the Landlord on a monthly basis payments for
1/12th of the estimated taxes on the property. The amount of tax escrow payments
shall be adjusted annually to reflect any changes in property taxes. (e):
Financing Documents. During the term of this lease and upon receipt of written
request from the tenant Landlord agrees to execute documents necessary to allow
the tenant to secure third party financing for equipment and inventory. (f)
Insurance payments. Landlord is required to pay Insurance in one annual payment.
Tenant will be billed on time per year for insurance. Tenant will immediately
reimburse Landlord for the cost of Insurance in accordance with Section 9 of the
lease agreement. This extension is upon the same terms and conditions specified
in the Sublease. Sublessee has exercised its optio nto extend the Sublease Term
and has no further rights to further extend the Sublease Term.
2. Effect of Amendment. except as specifically amended by the by the
provisions of this Amendment, the terms and provisions in the Sublease shall
continue to govern the rights and obligations of the parties thereunder. This
Amendment and the Sublease shall be construed as one instrument.
EXECUTED as of the day and year first above written.
SUBLESSOR:
DALLAS GOLD & SILVER EXCHANGE, INC.
By: /s/ W.H. Oyster
-----------------
Name: W.H. Oyster
---------------
Its: President
----------------
SUBLESSEE:
FULLER'S JEWELRY, INC.
By: /s/ Jim Fuller
-----------------
Name: Jim Fuller
---------------
Its:
---------------
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 950
<SECURITIES> 1,914
<RECEIVABLES> 148
<ALLOWANCES> 0
<INVENTORY> 1,111
<CURRENT-ASSETS> 4,143
<PP&E> 1,703
<DEPRECIATION> 579
<TOTAL-ASSETS> 5,230
<CURRENT-LIABILITIES> 1,406
<BONDS> 1,766
46
0
<COMMON> 0
<OTHER-SE> 2,080
<TOTAL-LIABILITY-AND-EQUITY> 5,230
<SALES> 11,292
<TOTAL-REVENUES> 13,949
<CGS> 9,472
<TOTAL-COSTS> 12,401
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 175
<INCOME-PRETAX> 1,373
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,373
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,373
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
