SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Mark One)
(X) Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1997
---------------------------
( ) Transition Report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
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Commission File Number 1-11048
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Dallas Gold and Silver Exchange, Inc.
- --------------------------------------------------------------------------------
(Name of small business issuer)
Nevada 88-0097334
- ----------------------------- ----------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or
organization)
2817 Forest Lane, Dallas, Texas 75234
- --------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
(Issuer's telephone number, including area code) (972) 484-3662
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 15, 1997
- ----------------------------- -------------------------------
Common Stock, $.01 per value 4,337,627
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<S> <C>
September 30, December 31,
ASSETS 1997 1996
------------ -----------
Current assets:
Cash $ 461,960 $ 949,586
Marketable securities - trading 2,235,452 1,913,656
Trade receivables 183,709 147,503
Inventory 1,187,350 1,111,485
Prepaid expenses 18,423 31,637
----------- -----------
Total current assets 4,086,894 4,143,154
Investments in marketable securities 429,915
Property and equipment 1,108,285 1,123,948
Other assets 37,326 31,637
----------- -----------
Total assets $ 5,662,420 $ 5,298,739
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 493,888 $ 548,012
Deferred income taxes 200,378
Accounts payable 170,909 498,181
Accrued expenses 145,487 256,645
Customer deposits 61,887 57,770
Current maturities of long-term
debt and lease obligations 48,191 45,864
----------- -----------
Total current liabilities 1,120,740 1,406,472
Long-term debt and capital lease
obligations, less current
maturities 1,733,044 1,766,342
Deferred Income Taxes 81,889
Shareholders' equity:
Common stock, $.01 par value,
authorized 10,000,000 shares;
issued and outstanding 4,348,127
shares at September 30, 1997 and
4,618,193 at December 31, 1996 43,481 46,182
Additional paid-in capital 3,865,517 4,126,451
Accumulated deficit (1,341,211) (2,046,708)
Unrealized gain on available for sale
securities, net of income taxes
of $ 81,889 158,960
----------- -----------
Total shareholders' equity 2,726,747 2,125,925
Total liabilities and shareholders' ----------- -----------
equity $ 5,662,420 $ 5,298,739
=========== ===========
</TABLE>
2
<PAGE>
DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
1997 1996
-----------------------
Revenues:
Sales $2,916,869 $2,436,379
Pawn service fees 7,455 11,550
Travel agency income 17,680 245,871
Consulting service income 28,500 25,000
Interest income 5,932 89
Realized gain on marketable securities 103,101 226,820
Unrealized gain on trading securities 171,474 75,916
Other income 26,651 24,026
---------- ----------
3,277,662 3,045,651
Costs and expenses:
Cost of sales (exclusive of
items shown separately below) 2,455,079 2,050,548
Travel agency costs 16,680 235,599
Consulting service costs 42,867 44,590
General and administrative
expenses 383,805 357,565
Depreciation and amortization 23,478 18,954
Interest expense 57,000 40,425
---------- ----------
Total costs and expenses 2,978,909 2,747,681
---------- ----------
Income before income taxes 298,753 297,970
Deferred income tax expense 101,576
---------- ----------
Net income $ 197,177 $ 297,970
========== ==========
Income per share of common stock $ .04 $ .05
========== ==========
3
<PAGE>
DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended
September 30,
1997 1996
-----------------------
Revenues:
Sales $8,042,488 $7,952,280
Pawn service fees 21,795 34,350
Travel agency income 82,018 941,885
Consulting service income 199,066 25,000
Interest income 17,324 89
Realized gain on marketable securities 535,567 459,519
Unrealized gain on trading securities 490,419 57,513
Other income 79,418 73,048
---------- ----------
9,468,095 9,543,684
Costs and expenses:
Cost of sales (exclusive of
items shown separately below) 6,825,821 6,794,977
Travel agency costs 80,216 910,754
Consulting service costs 162,483 83,418
General and administrative
expenses 1,251,197 1,183,295
Depreciation and amortization 71,654 60,056
Interest expense 170,850 121,300
---------- ----------
Total costs and expenses 8,562,221 9,153,800
---------- ----------
Income before income taxes 905,874 389,884
Deferred income tax expense 200,378
---------- ----------
Net income $ 705,496 $ 389,884
========== ==========
Income per share of common stock $ .16 $ .07
========== ==========
4
<PAGE>
DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1997 1996
----------------------
Cash used for operating activities $(765,783) $(461,114)
Cash flows from investing activities:
Purchase of property, plant and
equipment (55,991) (60,497)
Sale of marketable securities 888,606 724,319
Purchase of marketable securities (203,401) (76,704)
Net cash provided by (used
for investing activities 629,214 587,118
--------- ---------
Cash flows from financing activities:
Purchase of common stock (263,635) (21,753)
Increase (decrease) in notes payable (54,124) 211,140
Increase (decrease) in long-term
debt and capital lease obligations (33,298) (374,141)
--------- ---------
Net cash used for financing
activities (351,057) (184,754)
--------- ---------
Decrease in cash and cash equivalents $(487,626) $ (58,750)
========= =========
5
<PAGE>
DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT
September 30, 1997
(1) Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements of
Dallas Gold and Silver Exchange, Inc. and Subsidiaries include the
financial statements of Dallas Gold and Silver Exchange, Inc. and its
wholly-owned subsidiaries, DGSE Corporation, Dallas Global Travel, Inc.,
DLS Financial Services, Inc. and Eye Media, Inc.. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
The Company's operating results for the periods ended September 30, 1997,
are not necessarily indicative of the results that may be expected for the
year ended December 31, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-KSB for the year ended December 31,
1997.
(2) New Accounting Pronouncement:
The FASB has issued Statement of Financial Accounting Standards No. 128,
Earnings Per Share, which is effective for financial statements issued
after December 15, 1997. Early adoption of the new standard is not
permitted. The new standard eliminates primary and fully diluted earnings
per share and requires presentation of basic and diluted earnings per share
together with disclosure of how the per share amounts were computed. The
adoption of this new standard is not expected to have a material impact on
the disclosure of earnings per share in the financial statements.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
- ---------------------
Quarter ended September 30, 1997 vs 1996:
Sales increased by $ 480,490 (19.7%) during the three months ended September 30,
1997 due to a $ 479,039 increase in bullion sales. The increase in bullion sales
was the result of increased interest in precious metals products by retail
clientele. Management believes that the Company's Internet related activities
had a significant impact on this sector of its business. Pawn service fees
decreased by $ 4,095 (35.5%) during the third quarter of 1997 due to a decline
in loans outstanding during the period. Management is attempting to increase
pawn loan volume by directing additional advertising toward this activity and by
extending larger loans on higher value merchandise. Travel agency income
decreased by $ 228,191 due to a management decision to decrease the amount of
low margin business generated by outside sales agents. Interest income was the
result of interest earned on money market accounts during the quarter. Realized
gains on marketable securities were the result of securities sold during the
quarters. Unrealized gains on trading securities during the quarters were the
result of changes in the market value of the Company's portfolio.
The Company's Internet related activities have continued to produce encouraging
results. All categories of this activity have enjoyed increases including
visitations, bidders on the trading floor and auction, and items sold. As a
result, the Company expects to complete a major upgrade of its site
(www.dgse.com) in the 4th quarter of 1997.
Cost of sales increased by $ 404,531 (19.7%) due to the increase in sales
volume. Travel agency costs decreased by $ 218,919 due to the decrease in
volume. Interest expense increased $ 16,575 primarily as a result of the $
875,000 note issued in December 1996.
During the third quarter of 1997 the Company recorded deferred income tax
expense of $ 101,576 due to utilization of net operating loss carryforwards.
7
<PAGE>
Nine months ended September 30, 1997 vs 1996:
Sales increased by $ 90,082 (1.1%) during the nine months ended June 30, 1997
due to a $ 188,675 increase in bullion sales and a $ 98,593 decline in jewelry
sales. The increase in bullion sales was the result of increased interest in
precious metals products by retail clientele. Management believes that the
Company's Internet related activities had a significant impact on this sector of
its business. The decline in jewelry sales was the result of a management
decision to concentrate on higher margin higher priced jewelry. As a result,
gross margins increased from 14.6% in 1996 to 15.1% in 1997. Pawn service fees
decreased by $ 12,555 (36.6%) during the 1997 period due to a decline in loans
outstanding. Management is attempting to increase pawn loan volume by directing
additional advertising toward this activity and by extending larger loans on
higher value merchandise. Travel agency income decreased by $ 859,687 due to a
management decision to decrease the amount of low margin business generated by
outside sales agents. Consulting service income increased by $ 174,066 due to a
fee earned relating to the recapitalization of a new client. Interest income was
the result of interest earned on money market accounts during the period.
Realized gains on marketable securities were the result of securities sold
during the periods.
The Company's Internet related activities have continued to produce encouraging
results. All categories of this activity have enjoyed increases including
visitations, bidders on the trading floor and auction, and items sold. As a
result, the Company expects to complete a major upgrade of its site
(www.dgse.com) in the 4th quarter of 1997.
Cost of sales increased by $ 30,844 due to the increase in sales volume. Travel
agency costs decreased by $ 830,538 (91.2%) due to the decrease in volume.
Consulting service cost increased by $ 79,065 during the first nine months of
1997 due to cost associated with the acquisition and subsequent sale of
Performance Nutrition, Inc.. Interest expense increased $ 49,550 primarily as a
result of the $ 875,000 note issued in December 1996.
During the first nine months of 1997 the Company recorded deferred income taxes
of $ 282,267 due to utilization of net operating loss carryforwards. Of this
amount $ 200,378 is shown as deferred tax expense and $ 81,889 as a reduction of
the unrealized gain on available for sale marketable securities.
8
<PAGE>
Liquidity and Capital Resources
- -------------------------------
Due to the somewhat seasonal nature of the Company's jewelry business, inventory
and trade receivables are at their lowest levels on December 31 of each year.
During the first half of each year jewelry inventory is replenished and trade
receivables begin to increase. During the first nine months of 1997, cash and
cash equivalents decreased by $ 487,626 primarily as a result of increases in
inventory ($ 75,865), a decrease in accounts payable and accrued expenses ($
438,430) and principal payments on long-term debt and notes payable ($ 87,422).
During the first nine months of 1997, the Company sold $ 888,606 of marketable
securities. These resources were used to purchase and retire common stock of the
Company in the amount of $ 263,635, purchase additional marketable securities in
the amount of $ 203,401 and for general corporate working capital.
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 by
the Company, 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 requirement.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits - None
Reports on Form 8-K - None
9
<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: October 15, 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: October 15, 1997
-------------------------
L. S. Smith
Chairman of the Board,
Chief Executive Officer and
Secretary
By: /s/ W. H. Oyster Dated: October 15, 1997
-------------------------
W. H. Oyster
Director, President and
Chief Operating Officer
By: /s/ John Benson Dated: October 15, 1997
-------------------------
John Benson
Chief Financial Officer
(Principal Accounting Officer)
10
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 462
<SECURITIES> 2,235
<RECEIVABLES> 184
<ALLOWANCES> 0
<INVENTORY> 1,187
<CURRENT-ASSETS> 4,087
<PP&E> 1,759
<DEPRECIATION> 651
<TOTAL-ASSETS> 5,662
<CURRENT-LIABILITIES> 1,121
<BONDS> 1,733
<COMMON> 43
0
0
<OTHER-SE> 2,683
<TOTAL-LIABILITY-AND-EQUITY> 5,662
<SALES> 2,917
<TOTAL-REVENUES> 3,278
<CGS> 2,455
<TOTAL-COSTS> 2,922
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<INCOME-PRETAX> 299
<INCOME-TAX> 102
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<EXTRAORDINARY> 0
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<NET-INCOME> 197
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