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 September 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
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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
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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 26, 1998
- ---------------------------- -------------------------------
Common Stock, $.01 per value 4,159,914
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
ASSETS 1998 1997
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<S> <C> <C>
Current assets:
Cash $ 181,327 $ 1,258,254
Marketable securities - trading 2,703,539 1,826,552
Trade receivables 139,068 134,089
Notes receivable - officers 4,000 82,625
Inventory 1,567,153 1,033,803
Prepaid expenses 59,575 24,064
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Total current assets 4,654,662 4,359,387
Marketable securities - available
for sale 15,000 1,275,300
Property and equipment 1,097,925 1,112,414
Other assets 27,798 27,798
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Total assets $ 5,795,385 $ 6,774,899
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 282,228 $ 560,228
Deferred income taxes 471,227 411,500
Accounts payable 277,359 290,968
Accrued expenses 235,466 391,880
Customer deposits 169,915 113,776
Current maturities of long-term
debt and lease obligations 186,945 199,144
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Total current liabilities 1,623,140 1,967,496
Long-term debt and capital lease
obligations, less current
maturities 1,529,933 1,567,199
Deferred income taxes 229,200
Shareholders' equity: Common stock, $.01 par value;
authorized 10,000,000 shares;
issued and outstanding 4,159,914
shares at September 30, 1998 and
4,172,931 at December 31, 1997 41,599 41,729
Additional paid-in capital 3,364,812 3,455,633
Unrealized gain on available for
sale securities, net of income
taxes (8,909) 444,923
Accumulated deficit (755,190) (931,281)
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Total shareholders' equity 2,642,312 3,011,004
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Total liabilities and shareholders'
equity $ 5,795,385 $ 6,774,899
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</TABLE>
2
<PAGE>
DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
1998 1997
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Revenues:
Sales $ 4,025,296 $ 2,916,869
Pawn service fees 8,855 7,455
Consulting service income 28,500
Gain (loss) on sale of marketable
securities - trading 49,142 103,101
Unrealized gain on marketable
securities - trading (815,153) 171,474
Other income 1,675 32,583
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3,269,815 3,259,982
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Costs and expenses:
Cost of sales (exclusive of
items shown separately below) 3,443,536 2,455,079
Consulting service costs 54,534 42,867
Selling, general and administrative
expenses 446,067 381,155
Depreciation and amortization 23,885 23,478
Interest expense 55,440 57,000
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Total costs and expenses 4,023,462 2,959,579
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Income (loss) from continuing operations
before income taxes (753,647) 300,403
Deferred income taxes (credits) (263,925) 102,137
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Income (loss) from continuing operations (489,722) 198,266
Discontinued operations,
net of tax benefit -- (1,089)
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Net income (loss) $ (489,722) $ 197,177
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Basic earnings(loss) per common share
Continuing operations $ (.12) $ .04
Discontinued operations -- --
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Earnings per common share $ (.12) $ .04
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Diluted earnings(loss) per common share
Continuing operations $ (.11) $ .04
Discontinued operations --
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Earnings per common share $ (.11) $ .04
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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)
Nine Months Ended
September 30,
1998 1997
-------------------
Revenues:
Sales $10,451,193 $ 8,016,369
Pawn service fees 28,472 21,795
Consulting service income 199,066
Gain (loss) on sale of marketable
securities - trading 123,557 535,567
Unrealized gain on marketable
securities - trading 194,330 490,419
Other income 37,597 96,742
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10,835,149 9,359,958
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Costs and expenses:
Cost of sales (exclusive of
items shown separately below) 8,770,046 6,756,740
Consulting service costs 153,381 162,483
Selling, general and administrative
expenses 1,419,011 1,149,218
Depreciation and amortization 71,786 70,622
Interest expense 165,660 170,850
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Total costs and expenses 10,579,884 8,309,913
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Income from continuing operations
before income taxes 255,265 1,050,045
Deferred income taxes 79,175 249,396
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Income from continuing 176,090 800,649
Discontinued operations
Loss from operations, net of tax -- (95,153)
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Net income $ 176,090 $ 705,496
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Basic earnings(loss) per common share
Continuing operations $ .04 $ .18
Discontinued operations -- (.02)
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Earnings per common share $ .04 $ .16
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Diluted earnings(loss) per common share
Continuing operations $ .04 $ .17
Discontinued operations -- (.02)
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Earnings per common share $ .04 $ .15
=========== ===========
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)
Nine Months Ended
September 30,
1998 1997
Cash used for operating activities $ (678,759) $ (765,783)
Cash flows from investing activities:
Purchase of property, plant and
equipment (57,297) (55,991)
Sale of marketable securities 332,453 888,606
Purchase of marketable securities (267,407) (203,401)
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Net cash provided by (used
for investing activities 7,749 629,214
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Cash flows from financing activities:
Purchase of common stock (103,452) (263,635)
Issuance of common stock for debt 12,500
Principal payments on notes payable (277,699) (54,124)
Principal payments on long-term
debt and capital lease obligations (37,266) (33,298)
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Net cash used for financing
activities (405,917) (351,057)
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Decrease in cash and cash equivalents $(1,076,927) $ (487,626)
=========== ===========
5
<PAGE>
DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT
September 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 September 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.
(2) The Year 2000 (Y2K) Disclosure:
The Company's computerized information system has been tested and has met
the requirements of a certification for Year 2000 compliance. The Company
does not rely on any third parties who, if are unable to address this issue
in a timely manner, could result in a material financial risk to the
Company.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
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Quarter ended September 30, 1998 vs 1997:
Sales for the third quarter of 1998 increased $ 1,108,427 or 38.0% when compared
to the corresponding quarter of 1997. The increase was the result of an increase
in jewelry sales in the amount of $ 432,386 and an increase in precious metals
sales in the amount of $ 676,041. Management believes that the Company's
Internet related activities had a significant impact on this sales growth. Pawn
service fees increased by 18.8% due to an increase in pawn loans outstanding.
During the third quarter of 1998 the Company sold $ 65,385 of marketable
securities realizing a gain of $ 49,142. Unrealized losses on trading securities
in the amount of $ 815,153 in 1998 and gains of $ 575,726 in 1997 was the result
of changes in the market value of the Company's investment in marketable
securities. Cost of sales increased by $ 988,457 due to the increase in sales.
Consulting service cost increased by $ 11,667 during the third quarter of 1998
due to higher travel and related costs.
General and administration expenses increased by $ 64,912 primarily due higher
health insurance, advertising and payroll cost.
Deferred income tax expense and credits are a result of changes in the market
value of the Company's investment in marketable securities.
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 third quarter of 1997 were a net loss of $ 1,650 which was offset by
a tax benefit in the amount of $ 561.
Nine months ended September 30, 1998 vs 1997:
Sales increased by $ 2,434,824 or 30.4 % during the nine months ended September
30, 1998 compared to the corresponding period of 1997. This increase was the
result of an $ 1,237,466 increase in jewelry sales and a $ 1,197,358 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 30.6% due to an increase in pawn loans outstanding. During the
first nine months of 1998 the Company sold $ 332,453 of marketable securities
realizing a gain of $ 123,557. Unrealized gains on trading securities in the
amount of $ 194,330 in 1998 and $ 490,419 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 $ 2,013,306 due to the increase in sales. Consulting
service cost decreased by $ 9,102 during the period due to lower travel cost and
related.
7
<PAGE>
Results of Operations, continued...
- -----------------------------------
General and administration expenses increased by $ 269,793 during the period 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 nine months of 1997 were a net loss in the amount of $ 95,153,
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 nine months of each year jewelry inventory is replenished and trade
receivables begin to increase. During the first nine months of 1998, cash and
cash equivalents decreased by $ 1,076,927 primarily as a result of decreases in
notes payable ($ 278,000), a decrease in accrued expenses ($ 156,414), an
increase in inventory ($ 533,350), and purchases of common treasury stock ($
103,452).
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: October 30, 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: October 30, 1998
-------------------------
L. S. Smith
Chairman of the Board,
Chief Executive Officer and
Secretary
By: /s/ W. H. Oyster Dated: October 30, 1998
-------------------------
W. H. Oyster
Director, President and
Chief Operating Officer
By: /s/ John Benson Dated: October 30, 1998
-------------------------
John Benson
Chief Financial Officer
(Principal Accounting Officer)
9
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<CIK> 0000701719
<NAME> Dallas Gold and Silver Exchange, Inc.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 181
<SECURITIES> 2,704
<RECEIVABLES> 143
<ALLOWANCES> 0
<INVENTORY> 1,567
<CURRENT-ASSETS> 4,655
<PP&E> 1,841
<DEPRECIATION> 743
<TOTAL-ASSETS> 5,795
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<BONDS> 1,530
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<INCOME-PRETAX> (754)
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