SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
( X ) Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1998
-------------------------------------------------
( ) Transition Report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
--------------- ---------------
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 April 9, 1998
- ---------------------------- -------------------------------
Common Stock, $.01 per value 4,151,114
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
ASSETS 1998 1997
------------ ------------
<S> <C>
Current assets:
Cash $ 525,511 $ 1,258,254
Marketable securities - trading 2,367,349 1,826,552
Trade receivables 149,418 134,089
Notes receivable - officers 80,021 82,625
Inventory 1,208,452 1,033,803
Prepaid expenses 32,935 24,064
------------ ------------
Total current assets 4,363,686 4,359,387
Marketable securities - available
for sale 1,135,835 1,275,300
Property and equipment 1,109,981 1,112,414
Other assets 38,568 27,798
------------ ------------
Total assets $ 6,648,070 $ 6,774,899
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 560,228 $ 560,228
Deferred income taxes 515,543 411,500
Accounts payable 96,539 290,968
Accrued expenses 152,088 391,880
Customer deposits 140,110 113,776
Current maturities of long-term
debt and lease obligations 199,252 199,144
------------ ------------
Total current liabilities 1,663,760 1,967,496
Long-term debt and capital lease
obligations, less current
maturities 1,551,397 1,567,199
Deferred income taxes 236,735 229,200
Shareholders' equity:
Common stock, $.01 par value;
authorized 10,000,000 shares;
issued and outstanding 4,151,114
shares at March 31, 1998 and
4,172,931 at December 31, 1997 41,511 41,729
Additional paid-in capital 3,392,703 3,455,633
Unrealized gain on available for
sale securities, net of income
taxes of $ 236,735 459,545 444,923
Accumulated deficit (697,581) (931,281)
------------ ------------
Total shareholders' equity 3,196,178 3,011,004
Total liabilities and shareholders' ------------ ------------
equity $ 6,648,070 $ 6,774,899
============ ============
</TABLE>
2
<PAGE>
DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
1998 1997
---------------------
Revenues:
Sales $ 2,887,708 $ 2,715,730
Pawn service fees 10,762 7,410
Consulting service income 170,566
Gain (loss) on sale of marketable
securities - trading (2,291) 37,158
Unrealized gain on marketable
securities - trading 370,745 203,224
Other income 31,567 31,211
----------- -----------
3,298,491 3,165,299
----------- -----------
Costs and expenses:
Cost of sales (exclusive of
items shown separately below) 2,375,332 2,297,472
Consulting service costs 48,623 25,682
Selling, general and administrative
expenses 441,941 380,325
Depreciation and amortization 23,716 30,392
Interest expense 54,780 56,100
----------- -----------
Total costs and expenses 2,944,392 2,789,971
----------- -----------
Income from continuing operations
before income taxes 354,099 375,328
Deferred income taxes 120,399 --
----------- -----------
Income from continuing 233,700 375,328
Discontinued operations
Loss from operations -- (107,821)
----------- -----------
Net income $ 233,700 $ 267,507
=========== ===========
Basic earnings(loss) per common share
Continuing operations $ .06 $ .08
Discontinued operations -- (.02)
----------- -----------
Earnings per common share $ .06 $ .06
=========== ===========
Diluted earnings(loss) per common share
Continuing operations $ .05 $ .08
Discontinued operations -- (.02)
----------- -----------
Earnings per common share $ .05 $ .06
=========== ===========
Weighted average number of common shares
Basic 4,160,128 4,521,872
Diluted 4,572,378 4,932,378
3
<PAGE>
DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1998 1997
----------------------
Cash used for operating activities $(621,875) $(488,697)
Cash flows from investing activities:
Purchase of property, plant and
equipment (21,283) (33,545)
Sale of marketable securities 29,978 534,159
Purchase of marketable securities (40,712) (6,516)
--------- ---------
Net cash provided by (used
for investing activities (32,026) 494,098
--------- ---------
Cash flows from financing activities:
Purchase of common stock (63,148) (148,472)
Principal payments on notes payable (16,433)
Principal payments on long-term
debt and capital lease obligations (15,694) (8,058)
--------- ---------
Net cash used for financing
activities (78,842) (172,963)
--------- ---------
Decrease in cash and cash equivalents $(732,743) $(167,562)
========= =========
4
<PAGE>
DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT
March 31, 1998
(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 and DLS Financial Services,
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 three month period ended March
31, 1998, 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.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
- ---------------------
Quarter ended March 31, 1998 vs 1997:
Sales for the first quarter of 1998 increased $171,978 or 6.3% when compared to
the corresponding quarter of 1997. The increase was primarily the result of an
increase in jewelry sales in the amount of $237,692. Management believes that
the Company's Internet related activities had a significant impact on this sales
growth. Pawn service fees increased by 45.2% due to an increase in pawn loans
outstanding. Consulting service income in the amount of $170,566 in 1997 was due
to a fee earned relating to the recapitalization of an new client. During the
first quarter of 1997 the Company sold $534,159 of marketable securities
realizing a gain of $37,158. Unrealized gains on trading securities in the
amount of $ 370,745 in 1998 and $203,224 in 1997 was the result of an increase
in the market value of the Company's investment in marketable securities. Cost
of sales increased by $77,860 primarily due to the increase in sales. Consulting
service cost increased by $19,941 during the first quarter of 1998 due to an
increase in travel cost.
General and administration expenses increased by $61,616 primarily due higher
health insurance and advertising cost. Depreciation expense decreased by $6,676
due to certain assets becoming fully depreciated.
During the second quarter of 1997 the Company used the remaining balance of its
net operating loss carryforwards and, as a result, the Company recorded deferred
income taxes of $120,711 during the first quarter of 1998.
During 1997 the Company discontinued the operations of Dallas
Global Travel, Inc. and Eye Media, Inc. The operating results of
these discontinued operations were a net loss of $107,821 in 1997.
6
<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 quarter of 1998, cash and cash
equivalents decreased by $732,743 primarily as a result of decreases in accounts
payable ($194,429), a decrease in accrued expenses ($239,792), an increase in
inventory ($174,649), and purchases of common treasury stock ($63,148).
Management of the Company expects capital expenditures to total approximately
$85,000 during 1998. It is anticipated that these expenditures will be funded
from the Company's current working capital position.
From time to time, management has adjusted the Company's inventory levels to
meet seasonal demand or in order to meet working capital requirements.
Management is of the opinion that if additional working capital is required 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
7
<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: April 27 1998
-------------------------
L. S. Smith
Chairman of the Board,
Chief Executive Officer and
Secretary
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the date indicated.
By: /s/ L. S. Smith Dated: April 27, 1998
-------------------------
L. S. Smith
Chairman of the Board,
Chief Executive Officer and
Secretary
By: /s/ W. H. Oyster Dated: April 27, 1998
-------------------------
W. H. Oyster
Director, President and
Chief Operating Officer
By: /s/ John Benson Dated: April 27, 1998
-------------------------
John Benson
Chief Financial Officer
(Principal Accounting Officer)
8
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 526
<SECURITIES> 2,367
<RECEIVABLES> 229
<ALLOWANCES> 0
<INVENTORY> 1,208
<CURRENT-ASSETS> 4,364
<PP&E> 1,805
<DEPRECIATION> 695
<TOTAL-ASSETS> 6,648
<CURRENT-LIABILITIES> 1,664
<BONDS> 1,551
<COMMON> 42
0
0
<OTHER-SE> 3,154
<TOTAL-LIABILITY-AND-EQUITY> 6,648
<SALES> 2,888
<TOTAL-REVENUES> 3,298
<CGS> 2,375
<TOTAL-COSTS> 2,889
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55
<INCOME-PRETAX> 354
<INCOME-TAX> 120
<INCOME-CONTINUING> 234
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 234
<EPS-PRIMARY> .06
<EPS-DILUTED> .05
</TABLE>
