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, 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
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 July 19, 1999
- ---------------------------- ----------------------------
Common Stock, $.01 per value 4,177,912
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
- -------------------------------
DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
ASSETS 1999 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash $ 274,312 $ 1,004,836
Marketable securities - trading 2,482,607 3,010,462
Trade receivables 157,447 166,929
Notes receivable - officers 2,000 4,001
Inventory 1,815,394 1,354,686
Prepaid expenses 86,345 27,844
------------ ------------
Total current assets 4,818,105 5,568,758
Marketable securities - available
for sale 18,000 18,000
Property and equipment 1,140,777 1,104,091
Other assets 54,170 64,220
------------ ------------
Total assets $ 6,031,052 $ 6,755,069
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 757,480 $ 350,713
Accounts payable - trade 321,896 457,003
Accrued expenses 228,480 596,231
Customer deposits 133,102 174,600
Federal income taxes payable 46,580 11,658
Current maturities of long-term
debt and lease obligations 48,227 148,072
Deferred income taxes 411,865 591,452
------------ ------------
Total current liabilities 1,947,630 2,329,729
Long-term debt and capital lease
obligations, less current
maturities 1,494,958 1,560,602
Shareholders' equity:
Common stock, $.01 par value;
authorized 10,000,000 shares;
issued and outstanding 4,177,912
shares at June 30, 1999 and
4,144,912 at December 31, 1998 41,779 41,449
Additional paid-in capital 3,345,601 3,341,387
Accumulated other comprehensive
income (4,950) (4,950)
Accumulated deficit (793,966) (531,148)
------------ ------------
Total shareholders' equity 2,588,464 2,864,738
------------ ------------
Total liabilities and shareholders'
equity $ 6,031,052 $ 6,755,069
============ ============
</TABLE>
2
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DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
June 30,
1999 1998
---------- ----------
Revenues:
Sales $3,988,719 $3,538,189
Pawn service fees 12,195 8,855
Consulting service income
Gain (loss) on sale of marketable
securities - trading 6,126 76,706
Unrealized gain on marketable
securities - trading 104,536 638,738
Other income 51 4,355
---------- ----------
4,111,627 4,266,843
---------- ----------
Costs and expenses:
Cost of sales (exclusive of
items shown separately below) 3,183,015 2,951,178
Consulting service costs 45,725 50,224
Selling, general and administrative
expenses 634,820 531,003
Depreciation and amortization 28,434 24,185
Interest expense 55,440 55,440
---------- ----------
Total costs and expenses 3,947,434 3,612,030
---------- ----------
Income (loss) before income taxes 164,193 654,813
Income taxes expense (benefit) 55,825 222,701
---------- ----------
Net income (loss) $ 108,368 $ 432,112
========== ==========
Earnings(loss) per common share:
Basic $ .03 $ .10
Diluted $ .02 $ .09
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. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended
June 30,
1999 1998
----------- -----------
Revenues:
Sales $ 8,618,180 $ 6,425,897
Pawn service fees 25,670 19,617
Consulting service income
Gain (loss) on sale of marketable
securities - trading 42,603 74,415
Unrealized gain on marketable
securities - trading (528,198) 1,009,483
Other income 406 35,922
----------- -----------
8,158,661 7,565,334
----------- -----------
Costs and expenses:
Cost of sales (exclusive of
items shown separately below) 7,164,394 5,326,510
Consulting service costs 98,180 98,847
Selling, general and administrative
expenses 1,153,405 972,944
Depreciation and amortization 58,006 47,901
Interest expense 110,160 110,220
----------- -----------
Total costs and expenses 8,584,145 6,556,422
----------- -----------
Income (loss) before income taxes (425,484) 1,008,912
Income taxes expense (benefit) (144,665) 343,100
----------- -----------
Net income (loss) $ (280,819) $ 665,812
=========== ===========
Earnings(loss) per common share:
Basic $ (.07) $ .16
Diluted $ (.06) $ .15
Weighted average number of common shares:
Basic 4,178,912 4,160,128
Diluted 4,566,395 4,572,378
4
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DALLAS GOLD AND SILVER EXCHANGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
1999 1998
----------- -----------
Reconciliation of net income to net
cash provided by operating activities
Net income (loss) $ (280,819) $ 665,812
Adjustments to reconcile net income to
cash provided by operating activities
Depreciation and amortization 58,006 47,901
Unrealized (gain) loss on securities 528,198 (1,009,483)
Deferred taxes (179,587) 343,100
(Increase) decrease in operating
assets and liabilities
Net change in marketable securities (342) (414,982)
Net receivables 9,482 (20,021)
Inventories (460,708) (266,314)
Prepaid expenses and other assets (48,451) (58,539)
Accounts payable (135,107) (6,874)
Accrued expenses (367,751) (153,998)
Customer deposits (41,498) (6,485)
Income taxes payable 34,922 328,243
----------- -----------
Net cash used in operating
activities (883,655) (551,640)
Cash flows from investing activities
Decrease in notes receivable - officers 2,001 77,625
Capital expenditures (94,692) (30,424)
----------- -----------
Net cash used in financing
activities (92,691) 47,201
----------- -----------
Cash flows from financing activities
Net change in notes payable 406,767 (221,941)
Net change in long-term debt and
capital lease obligations (165,489) (25,859)
Common stock issued on conversion of debt 18,750 12,500
Common stock issued for services rendered 25,000
Purchase and retirement of common stock (39,206) (77,203)
----------- -----------
Net cash (used) provided in
financing activities 245,822 (312,503)
----------- -----------
Decrease in cash (730,524) (816,942)
----------- -----------
Cash at beginning of period 1,004,836 1,258,254
----------- -----------
Cash at end of period $ 274,312 $ 441,312
=========== ===========
5
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DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT
June 30, 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 six month period ended June 30, 1999,
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1999. 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, 1999.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
- ---------------------
Quarter ended June 30, 1999 vs 1998:
Sales for the second quarter of 1999 increased $450,530 or 12.7% when compared
to the corresponding quarter of 1998. The increase was the result of an increase
in jewelry sales in the amount of $137,427 or 7.1% and an increase in precious
metals sales in the amount of $313,103 or 19.5%. Management believes that the
Company's Internet related activities had a significant impact on this sales
growth. During the second quarter of 1999 Internet sales increased by $513,897.
Pawn service fees increased by 37.7% due to the acquisition of National Jewelry
Exchange, Inc. (formerly Beltline Pawn) in December 1998. During the second
quarter of 1999 and 1998 the Company sold marketable securities realizing gains
of $6,126 and $76,706, respectively. Unrealized gains on trading securities in
the amount of $104,536 in 1999 and $638,738 in 1998 was the result of changes in
the market value of the Company's investment in marketable securities. Cost of
sales increased by $231,837 primarily due to the increase in sales.
General and administration expenses increased by $103,817 primarily due to the
acquisition of Beltline Pawn, payroll and related cost and higher advertising
cost. Depreciation expense increased by $4,249 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.
6
<PAGE>
Six nonths ended June 30, 1999 vs 1998:
Sales for the first six months of 1999 increased $2,192,283 or 34.1% when
compared to the corresponding period of 1998. The increase was the result of an
increase in jewelry sales in the amount of $346,451 or 9.7% and an increase in
precious metals sales in the amount of $1,845,832 or 64.9%. Management believes
that the Company's Internet related activities had a significant impact on this
sales growth. During the first six months of 1999 Internet sales increased by
$1,131,747. Pawn service fees increased by 30.9% due to the acquisition of
National Jewelry Exchange, Inc. (formerly Beltline Pawn) in December 1998.
During the first six months of 1999 and 1998 the Company sold marketable
securities realizing gains of $42,603 and $74,415, respectively. Unrealized
gains and (loss) on trading securities in the amount of $(528,198) in 1999 and
$1,009,483 in 1998 was the result of changes in the market value of the
Company's investment in marketable securities. Cost of sales increased by
$1,837,884 primarily due to the increase in sales.
General and administration expenses increased by $180,461 primarily due to the
acquisition of Beltline Pawn, payroll and related cost and higher advertising
cost. Depreciation expense increased by $10,105 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 half of 1999, cash and cash
equivalents decreased by $730,524 primarily as a result of decreases in accounts
payable ($135,107), a decrease in accrued expenses ($367,751), and an increase
in inventory ($460,708).
Management of the Company expects capital expenditures to total approximately
$125,000 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
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: July 21, 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: July 21, 1999
-------------------------
L. S. Smith
Chairman of the Board,
Chief Executive Officer and
Secretary
By: /s/ W. H. Oyster Dated: July 21, 1999
-------------------------
W. H. Oyster
Director, President and
Chief Operating Officer
By: /s/ John Benson Dated: July 21, 1999
-------------------------
John Benson
Chief Financial Officer
(Principal Accounting Officer)
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 274
<SECURITIES> 2,483
<RECEIVABLES> 159
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<INVENTORY> 1,815
<CURRENT-ASSETS> 4,818
<PP&E> 2,008
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<TOTAL-ASSETS> 6,031
<CURRENT-LIABILITIES> 1,948
<BONDS> 1,561
<COMMON> 41
0
0
<OTHER-SE> 2,547
<TOTAL-LIABILITY-AND-EQUITY> 6,031
<SALES> 3,989
<TOTAL-REVENUES> 4,112
<CGS> 3,183
<TOTAL-COSTS> 3,892
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