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 June 30, 1998
-------------------------------------------------
( ) 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
Dallas Gold and Silver Exchange, Inc.
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(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
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(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 July 14, 1998
- ---------------------------- ------------------------------
Common Stock, $.01 per value 4,171,114
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PART I. FINANCIAL INFORMATION
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<TABLE>
<CAPTION>
DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
ASSETS 1998 1997
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<S> <C> <C>
Current assets:
Cash $ 441,312 $ 1,258,254
Marketable securities - trading 3,485,186 1,826,552
Trade receivables 154,110 134,089
Notes receivable - officers 5,000 82,625
Inventory 1,300,117 1,033,803
Prepaid expenses 78,012 24,064
------------ ------------
Total current assets 5,463,737 4,359,387
Marketable securities - available
for sale 15,000 1,275,300
Property and equipment 1,094,937 1,112,414
Other assets 32,389 27,798
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Total assets $ 6,606,063 $ 6,774,899
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 350,228 $ 560,228
Deferred income taxes 739,743 411,500
Accounts payable 284,094 290,968
Accrued expenses 237,882 391,880
Customer deposits 107,291 113,776
Current maturities of long-term
debt and lease obligations 187,203 199,144
------------ ------------
Total current liabilities 1,906,441 1,967,496
Long-term debt and capital lease
obligations, less current
maturities 1,541,340 1,567,199
Deferred income taxes 229,200
Shareholders' equity:
Common stock, $.01 par value;
authorized 10,000,000 shares;
issued and outstanding 4,171,114
shares at June 30, 1998 and
4,172,931 at December 31, 1997 41,711 41,729
Additional paid-in capital 3,390,948 3,455,633
Unrealized gain on available for
sale securities, net of income
taxes (8,909) 444,923
Accumulated deficit (265,468) (931,281)
------------ ------------
Total shareholders' equity 3,158,282 3,011,004
Total liabilities and shareholders'
equity $ 6,606,063 $ 6,774,899
============ ============
</TABLE>
2
<PAGE>
DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
June 30,
1998 1997
-------------------------
Revenues:
Sales $ 3,538,189 $ 2,383,770
Pawn service fees 8,855 6,930
Consulting service income
Gain (loss) on sale of marketable
securities - trading 76,706 (64,697)
Unrealized gain on marketable
securities - trading 638,738 575,726
Other income 4,355 32,948
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4,266,843 2,934,677
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Costs and expenses:
Cost of sales (exclusive of
items shown separately below) 2,951,178 2,004,189
Consulting service costs 50,224 93,934
Selling, general and administrative
expenses 531,003 387,738
Depreciation and amortization 24,185 16,752
Interest expense 55,440 57,750
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Total costs and expenses 3,612,030 2,560,363
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Income from continuing operations
before income taxes 654,813 374,314
Deferred income taxes 222,701 147,802
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Income from continuing 432,112 226,512
Discontinued operations
Tax benefit -- 14,300
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Net income $ 432,112 $ 240,812
=========== ===========
Basic earnings(loss) per common share
Continuing operations $ .10 $ .06
Discontinued operations -- --
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Earnings per common share $ .10 $ .06
=========== ===========
Diluted earnings(loss) per common share
Continuing operations $ .09 $ .05
Discontinued operations --
----------- -----------
Earnings per common share $ .09 $ .05
=========== ===========
Weighted average number of common shares
Basic 4,160,128 4,366,544
Diluted 4,572,378 4,768,345
3
<PAGE>
DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended
June 30,
1998 1997
-------------------------
Revenues:
Sales $ 6,425,897 $ 5,099,500
Pawn service fees 19,617 14,340
Consulting service income 170,566
Gain (loss) on sale of marketable
securities - trading 74,415 (27,539)
Unrealized gain on marketable
securities - trading 1,009,483 778,950
Other income 35,922 64,159
----------- -----------
7,565,334 6,099,976
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Costs and expenses:
Cost of sales (exclusive of
items shown separately below) 5,326,510 4,301,661
Consulting service costs 98,847 119,616
Selling, general and administrative
expenses 972,944 768,063
Depreciation and amortization 47,901 47,144
Interest expense 110,220 113,850
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Total costs and expenses 6,556,422 5,350,334
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Income from continuing operations
before income taxes 1,008,912 749,642
Deferred income taxes 343,100 147,802
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Income from continuing 665,812 601,840
Discontinued operations
Loss from operations, net of tax -- (93,521)
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Net income $ 665,812 $ 508,319
=========== ===========
Basic earnings(loss) per common share
Continuing operations $ .16 $ .14
Discontinued operations -- (.02)
----------- -----------
Earnings per common share $ .16 $ .12
=========== ===========
Diluted earnings(loss) per common share
Continuing operations $ .15 $ .13
Discontinued operations -- (.02)
----------- -----------
Earnings per common share $ .15 $ .11
=========== ===========
Weighted average number of common shares
Basic 4,160,128 4,366,544
Diluted 4,572,378 4,768,345
4
<PAGE>
DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
1998 1997
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Cash used for operating activities $(527,025) $(739,983)
Cash flows from investing activities:
Purchase of property, plant and
equipment (30,424) (29,199)
Sale of marketable securities 267,068 750,040
Purchase of marketable securities (217,658) (174,901)
Net cash provided by (used
for investing activities 18,986 545,940
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Cash flows from financing activities:
Purchase of common stock (77,203) (230,645)
Issuance of common stock for debt 12,500
Principal payments on notes payable (221,941) (29,532)
Principal payments on long-term
debt and capital lease obligations (25,859) (21,239)
--------- ---------
Net cash used for financing
activities (312,503) (281,416)
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Decrease in cash and cash equivalents $(820,542) $(475,459)
========= =========
5
<PAGE>
DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT
June 30, 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 periods ended June 30, 1998,
are not necessarily indicative of the results that may be expected for
the year ended December 31, 1998. 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.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
- ---------------------
Quarter ended June 30, 1998 vs 1997:
Sales for the second quarter of 1998 increased $ 1,154,419 or 48.4% when
compared to the corresponding quarter of 1997. The increase was the result of an
increase in jewelry sales in the amount of $ 520,141 and an increase in precious
metals sales in the amount of $ 634,278. Management believes that the Company's
Internet related activities had a significant impact on this sales growth. Pawn
service fees increased by 27.8% due to an increase in pawn loans outstanding.
During the second quarter of 1998 the Company sold $ 237,090 of marketable
securities realizing a gain of $ 76,706. Unrealized gains on trading securities
in the amount of $ 638,738 in 1998 and $ 575,726 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 $ 946,989 due to the increase in sales.
Consulting service cost decreased by $ 43,710 during the second quarter of 1998
due to lower travel cost and related.
General and administration expenses increased by $ 143,265 primarily due higher
health insurance, advertising and payroll cost. Depreciation expense increased
by $ 7,433 due to depreciation on assets placed in service during 1997 and 1998.
During 1997 the Company discontinued the operations of Dallas Global Travel,
Inc. and Eye Media, Inc. The operating results of these discontinued operations
during the second quarter of 1997 were a net loss of $ 34,700 which was offset
by a tax benefit in the amount of $ 49,000.
Six months ended June 30, 1998 vs 1997:
Sales increased by $ 1,326,397 or 26.0 % during the six months ended June 30,
1998 compared to the corresponding period of 1997. This increase was the result
of an $ 805,083 increase in jewelry sales and a $ 521,314 increase in precious
metals sales. Management believes that the Company's Internet related activities
had a significant impact on this sales growth. Pawn service fees increased by
36.8% due to an increase in pawn loans outstanding. During the first half of
1998 the Company sold $ 267,068 of marketable securities realizing a gain of $
74,415. Unrealized gains on trading securities in the amount of $ 1,009,483 in
1998 and $ 778,950 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 $
1,024,849 due to the increase in sales. Consulting service cost decreased by $
20,769 during the first half of 1998 due to lower travel cost and related.
7
<PAGE>
Results of Operations, continued...
- -----------------------------------
General and administration expenses increased by $ 204,881 during the first half
of 1998 due to higher health insurance, advertising and payroll cost.
During 1997 the Company discontinued the operations of Dallas Global Travel,
Inc. and Eye Media, Inc.. The operating results of these discontinued operations
during the first half of 1997 were a net loss in the amount of $ 93,521, net of
a $ 49,000 tax benefit.
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 half of 1998, cash and cash
equivalents decreased by $ 820,542 primarily as a result of decreases in notes
payable ($ 210,000), a decrease in accrued expenses ($ 153,998), an increase in
inventory ($ 266,314), and purchases of common treasury stock ($ 77,203).
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
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits - None
Reports on Form 8-K - None
8
<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: July 20, 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: July 20, 1998
-------------------------
L. S. Smith
Chairman of the Board,
Chief Executive Officer and
Secretary
By: /s/ W. H. Oyster Dated: July 20, 1998
-------------------------
W. H. Oyster
Director, President and
Chief Operating Officer
By: /s/ John Benson Dated: July 20, 1998
-------------------------
John Benson
Chief Financial Officer
(Principal Accounting Officer)
9
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 441
<SECURITIES> 3,485
<RECEIVABLES> 159
<ALLOWANCES> 0
<INVENTORY> 1,300
<CURRENT-ASSETS> 5,464
<PP&E> 1,814
<DEPRECIATION> 719
<TOTAL-ASSETS> 6,606
<CURRENT-LIABILITIES> 1,906
<BONDS> 1,541
<COMMON> 42
0
0
<OTHER-SE> 3,116
<TOTAL-LIABILITY-AND-EQUITY> 6,606
<SALES> 3,538
<TOTAL-REVENUES> 4,267
<CGS> 5,327
<TOTAL-COSTS> 3,557
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55
<INCOME-PRETAX> 655
<INCOME-TAX> 223
<INCOME-CONTINUING> 432
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 432
<EPS-PRIMARY> .10
<EPS-DILUTED> .09
</TABLE>
