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, 1999
----------------------------------
( ) 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
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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 May 12, 1999
- ---------------------------- -----------------------------------
Common Stock, $.01 per value 4,178,912
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
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DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
ASSETS 1999 1998
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<S> <C> <C>
Current assets:
Cash $ 92,813 $ 1,004,836
Marketable securities - trading 2,362,404 3,010,462
Trade receivables 96,218 166,929
Notes receivable - officers 3,200 4,001
Inventory 1,615,785 1,354,686
Prepaid expenses 60,557 27,844
------------ ------------
Total current assets 4,230,977 5,568,758
Marketable securities - available
for sale 18,000 18,000
Property and equipment 1,144,597 1,104,091
Other assets 54,169 64,220
------------ ------------
Total assets $ 5,447,743 $ 6,755,069
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 321,904 $ 350,713
Accounts payable - trade 229,586 457,003
Accrued expenses 143,190 596,231
Customer deposits 189,372 174,600
Federal income taxes payable 26,298 11,658
Current maturities of long-term
debt and lease obligations 48,227 148,072
Deferred income taxes 376,322 591,452
------------ ------------
Total current liabilities 1,334,899 2,329,729
Long-term debt and capital lease
obligations, less current
maturities 1,629,501 1,560,602
Shareholders' equity:
Common stock, $.01 par value;
authorized 10,000,000 shares;
issued and outstanding 4,178,912
shares at March 31, 1999 and
4,144,912 at December 31, 1998 41,789 41,449
Additional paid-in capital 3,348,839 3,341,387
Accumulated other comprehensive
income (4,950) (4,950)
Accumulated deficit (902,335) (531,148)
------------ ------------
Total shareholders' equity 2,483,343 2,864,738
Total liabilities and shareholders'
equity $ 5,447,743 $ 6,755,069
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</TABLE>
2
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DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
1999 1998
--------------------------
Revenues:
Sales $ 4,629,461 $ 2,887,708
Pawn service fees 13,475 10,762
Consulting service income
Gain (loss) on sale of marketable
securities - trading 36,477 (2,291)
Unrealized gain on marketable
securities - trading (632,734) 370,745
Other income 355 31,567
----------- ------------
4,047,034 3,298,491
----------- ------------
Costs and expenses:
Cost of sales (exclusive of
items shown separately below) 3,981,379 2,375,332
Consulting service costs 52,455 48,623
Selling, general and administrative
expenses 518,585 441,941
Depreciation and amortization 29,572 23,716
Interest expense 54,720 54,780
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Total costs and expenses 4,636,711 2,944,392
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Income (loss) before income taxes (589,677) 354,099
Income taxes expense (benefit) (200,490) 120,399
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Net income (loss) $ (389,187) $ 233,700
=========== ============
Earnings(loss) per common share:
Basic $ (.09) $ .06
Diluted $ (.08) $ .05
Weighted average number of common shares:
Basic 4,178,912 4,160,128
Diluted 4,566,395 4,572,378
3
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DALLAS GOLD AND SILVER EXCHANGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1999 1998
-----------------------
Reconciliation of net income to net
cash provided by operating activities
Net income (loss) $ (389,187) $ 233,700
Adjustments to reconcile net income to
cash provided by operating activities
Depreciation and amortization 29,572 23,716
Unrealized (gain) loss on securities 632,734 (370,745)
Deferred taxes (215,130) 104,043
(Increase) decrease in operating
assets and liabilities
Net change in marketable securities 15,324 (8,430)
Trade receivables 70,711 (15,329)
Inventories (261,099) (174,649)
Prepaid expenses and other assets (22,622) (19,641)
Accounts payable (227,417) (194,429)
Accrued expenses (453,041) (239,792)
Customer deposits 14,772 26,334
Income taxes payable 14,640
----------- ------------
Net cash used in operating
activities (790,783) (635,222)
Cash flows from investing activities
Decrease in notes receivable - officers 801
Capital expenditures (70,078) (21,283)
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Net cash used in financing
activities (69,277) (18,679)
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Cash flows from financing activities
Net change in notes payable (28,809)
Net change in long-term debt and
capital lease obligations (30,946) (15,694)
Common stock issued on conversion of debt 18,750
Common stock issued for services rendered 25,000
Purchase and retirement of common stock (35,958) (63,148)
----------- ------------
Net cash used in financing
activities (51,963) (78,842)
----------- ------------
Decrease in cash (912,023) (732,743)
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Cash at beginning of period 1,004,836 1,258,254
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Cash at end of period $ 92,813 $ 525,511
=========== ============
4
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DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT
March 31, 1999
(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, DLS Financial Services,
Inc., National Jewelry Exchange, 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 three month period ended March
31, 1999, 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, 1998.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
- ---------------------
Quarter ended March 31, 1999 vs 1998:
Sales for the first quarter of 1999 increased $1,741,753 or 60.3% when compared
to the corresponding quarter of 1998. The increase was the result of an increase
in jewelry sales in the amount of $209,019 or 12.7% and an increase in precious
metals sales in the amount of $1,532,734 or 123.9%. Management believes that the
Company's Internet related activities had a significant impact on this sales
growth. During the first quarter of 1999 Internet sales increased by 341.6%.
Pawn service fees increased by 25.2% due to the acquisition of National Jewelry
Exchange, Inc. (formerly Beltline Pawn) in December 1998. During the first
quarter of 1998 the Company sold $51,801 of marketable securities realizing a
gain of $36,477. Unrealized gains (losses) on trading securities in the amount
of ($632,734) in 1999 and $370,745 in 1998 was the result of changes in the
market value of the Company's investment in marketable securities. Cost of sales
increased by $1,606,047 primarily due to the increase in sales.
General and administration expenses increased by $76,644 primarily due to the
acquisition of Beltline Pawn and payroll and related cost and higher advertising
cost. Depreciation expense increased by $5,856 due to depreciation on assets
placed in service during 1998.
Income tax expense and benefit are provided at the corporate rate of 34% for
both 1999 and 1998.
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 1999, cash and cash
equivalents decreased by $912,023 primarily as a result of decreases in accounts
payable ($227,417), a decrease in accrued expenses ($453,041), and an increase
in inventory ($261,099).
Management of the Company expects capital expenditures to total approximately
$100,000 during 1999. 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
6
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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: May 14, 1999
-------------------------
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: May 14, 1999
-------------------------
L. S. Smith
Chairman of the Board,
Chief Executive Officer and
Secretary
By: /s/ W. H. Oyster Dated: May 14, 1999
-------------------------
W. H. Oyster
Director, President and
Chief Operating Officer
By: /s/ John Benson Dated: May 14, 1999
-------------------------
John Benson
Chief Financial Officer
(Principal Accounting Officer)
7
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<NAME> DALLAS GOLD AND SILVER EXCHANGE,INC.
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