U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
(Mark One)
( X ) Annual Report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the Fiscal year ended December 31, 1998 or
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( ) Transition Report under Section 13 or 15 (d) of the
Securities Exchange Act of 1934 (No Fee Required)
For the transition period from to
Commission file number 1-11048
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Dallas Gold and Silver Exchange, Inc.
(formerly The American Pacific Mint, Inc.)
(Name of small business issuer)
NEVADA 88-0097334
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(State or other jurisdiction (I.R.S. Employer Identification
incorporation or organization) Number)
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
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
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COMMON STOCK AMERICAN STOCK EXCHANGE
$ .01 par value EMERGING COMPANIES
Securities registered pursuant to Section 12 (g) of the Exchange Act:
NONE
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirement for the past 90 days. Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
During fiscal year ended December 31, 1998, total revenues were $ 16,472,917.
As of March 11, 1999, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $ 5,382,102.
As of March 11, 1999, 4,194,912 shares of Common Stock were outstanding.
Documents incorporated by reference: Portions of the proxy statement for the
annual shareholders' meeting to be held June 7, 1999, are incorporated by
reference into Part III.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Dallas Gold and Silver Exchange, Inc. (the "Company") (formerly The American
Pacific Mint, Inc.) was incorporated in Nevada in September 1965.
Through its wholly-owned subsidiary, DGSE Corporation, the Company sells jewelry
and bullion products to both retail and wholesale customers throughout the
United States and makes collateralized loans to individuals. During the last
three years the Company has focused its efforts toward expanding its retail
jewelry operations. Management expects this trend to continue until such time
that interest in precious metals results in significantly higher gross profit
margins on bullion related products. The Company's products are marketed through
its facility in Dallas, Texas and through its internet web site dgse.com.
During 1993 the Company founded DLS Financial Services, Inc. ("DLS") as a
wholly-owned subsidiary corporation which provides consulting services involving
the reorganization of other business enterprises (primarily enterprises that are
or have been involved in proceedings under Chapter 11 of the United States
Bankruptcy Code). The Company offers these services through its facility in
Dallas, Texas.
During 1992 the Company founded Dallas Global Travel, Inc.("DGT") as a
wholly-owned subsidiary corporation which provided travel planning and related
services to both business and pleasure travelers. Since its inception, DGT has
operated at a small loss. As a result, during October 1997 the Company
discontinued the operations of DGT. During 1998 the Company changed the name of
Dallas Global Travel to International Jewelry Exchange, Inc.
During 1995 the Company developed a World Wide Web Site on the Internet called
the Computer Jewelry Exchange. Customers can buy and sell items of jewelry and
are free to set their own prices in an interactive market. For its services the
Company receives a fee from the seller. In addition, the Company may offer for
sale its own inventory. During 1996 the Company also offered customers current
quotations for precious metals prices on the internet. The Company offers these
services through its facility in Dallas, Texas.
In January 1997, the Company formed a new wholly-owned subsidiary, eye media,
inc. On January 28, 1997, eye media, inc. purchased certain assets owned by
National Media Mail, Inc. and hired nine former employees of National Media
Mail, Inc. eye media, inc. was an internet/intranet web site development company
and sold advertising on its web site, the Gathering. Revenues for eye media did
not meet expectations and, as a result, the operations of eye media, inc. were
discontinued in May 1997. During 1998, management decided to continue the
development of its Internet software through eye media, inc. The Company
transferred 20% of the common stock and granted an option to purchase an
additional 20% of the
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DESCRIPTION OF BUSINESS (CONTINUED...)
common stock of eye media, inc. to an unrelated third party at fair market value
who is developing the Company's internet auction software. In February 1999, eye
media, inc. announced the release of Virtual Auctioneer v2.0, an electronic
commerce product that allows users to easily build online auction sites. The
Company is marketing this software product through eye media, inc. The
operations of eye media and the transfer and option on its common stock were not
material to the December 31, 1998 financial statements.
In December 1998, the Company acquired the assets including inventory, pawn
loans, equipment and pawn license of Belt Line Pawn Shop located in Carrollton,
Texas. The Company formed a new wholly-owned subsidiary in February 1999,
National Jewelry Exchange, Inc. and transferred these assets to this new
subsidiary. The operations of Belt Line Pawn Shop will be continued under
National Jewelry Exchange and the Company plans to focus its operations on sales
and pawn loans of jewelry products. This transaction and the operations were not
material the Company's December 31, 1998 financial statements.
Products and Services
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The Company's jewelry operations include sales to both wholesale and retail
customers. The Company sells finished jewelry, gem stones, and findings (gold
jewelry components) and makes custom jewelry to order. Jewelry inventory is
readily available from wholesalers throughout the United States. In addition,
the Company purchases inventory from pawn shops and individuals. During the last
three years management has focused its efforts toward expanding its retail
jewelry business. Additional resources have been invested in advertising and
additional staff has been added in jewelry sales and jewelry and watch repair.
The Company's bullion trading operations buy and sell all forms of precious
metals products including United States and other government coins, medallions,
art bars and trade unit bars.
Bullion products, which are purchased and sold based on current market pricing
and sales commitments, are often sold prior to the purchase of the product. The
Company protects itself from gains or losses in its inventory position,
including purchase and sale commitments, by hedging its net position in the
precious metals futures markets when necessary. During the three years ended
December 31, 1998, the Company did not engage in any hedging transactions. The
availability of precious metal products is a function of price as virtually all
bullion items are actively traded. Precious metals sales amounted to 44.3% of
total sales for 1998 and 44.4% in 1997. (For further details, see Item 6 below).
The Company did not have any customer or supplier that accounted for more than
10% of total sales or purchases during 1998 or 1997.
3
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Products and Services (continued...)
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Pawn loans ("loans") are made on the pledge of tangible personal property,
primarily jewelry, for one month with an automatic sixty-day extension period
("loan term"). Pawn service charges are recorded on a constant yield basis over
the loan term. If the loan is not repaid, the principal amount loaned plus
accrued pawn service charges become the carrying value of the forfeited
collateral and is transferred to inventory which is recovered through sale.
Although revenues from the Company's pawn loans have not been significant,
management believes this activity to be a good source of jewelry inventory and
provides an excellent return on investment. In December 1998 the Company
acquired the assets of Belt Line Pawn Shop located in Carrollton, Texas. The
Company will focus these operations on sales and pawn loans of jewelry products.
Through its wholly-owned subsidiary, DLS, the Company provides insolvency
advisory services primarily to business enterprises that are or have been
involved in proceedings under Chapter 11 of the United States Bankruptcy Code.
Services provided by the Company include assistance in developing plans of
reorganization, negotiations with creditors and general management advice.
The Company earns a cash fee and or equity participation in the organizations to
which it provides services. The Company expects to accept only a limited number
of assignments each year which meet the criteria of having significant fee and
or substantial growth potential. Where equity participation is involved, as the
client enterprises mature, the Company plans to sell its equity interest subject
to compliance with state and federal securities law in order to provide
non-dilutive resources for the expansion of the Company's other business
activities or will distribute the equity or cash from the sale of such equity of
client companies to the stockholders of the Company as dividends subject to
compliance with state and federal securities law.
During 1998 and 1997, the Company provided consulting advice and participated in
four such reorganizations. As a result, the Company received consulting revenues
in the amount of $ 466,566 in 1997 and became a stockholder in each of these
enterprises. The Company's largest ownership interest in any of these
enterprises is approximately 7.5%.
During 1998 and 1997, the Company sold in the open market a portion of these
trading securities and realized gains in the amount of $ 118,451 and $
1,051,742, respectively. In addition, during 1998 and 1997 the Company had
unrealized gains on trading securities in the amount of $ 482,071 and $ 211,295,
respectively. As of December 31, 1998 the Company's investment in these
enterprises totaled $ 3,028,462. These realized and unrealized gains are
reflected in the statement of income.
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Products and Services (continued...)
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During 1992, the Company began offering a full range of business and pleasure
travel planning and related services through its wholly-owned subsidiary, DGT.
The travel agency was operated in the Company's principal executive office in
Dallas, Texas. Since its inception, DGT has operated at a small loss. As a
result, in October 1997 the Company discontinued the operations of DGT. During
1999 the Company changed the name of Dallas Global Travel to National Jewelry
Exchange.
During 1995 the Company developed a World Wide Web Site on the Internet called
The Computer Jewelry Exchange. This web site is a fully integrated live trading
market in jewelry items on the internet. Customers can buy and sell items of
jewelry and are free to set their own prices in an interactive market. For its
services, the Company collects a listing fee and a sales commission from the
seller. In addition, the Company may offer for sale its own inventory.
In April 1996 the Company began operating an additional web site. This site
allows customers unlimited access to current quotations for prices on
approximately 200 precious metals, coins and other bullion related products. The
site is integrated with The Computer Jewelry Exchange and is located on the
Company's server at http://www.dgse.com.
During 1997 management made a decision to significantly expand our internet
activities. With over 1,000,000 page views since inception, it has become
apparent that the Internet has become a viable mechanism to sell products and
introduce customers from around the world to the business of the Company. Our
web site was one of the first to utilize the auction format to sell jewelry and
related products. In addition, our introduction of a live real time trading
floor in jewelry, diamonds and fine watches has allowed our commercial site to
attract wide participation. During 1997, our auction and trading site were
expanded to include a high level of automation and during the first quarter of
1998 our internet store began functioning as a CyberCashTM authorized site which
allows customers to purchase products automatically, securely and on line.
Auctions now close at least five times per week and the trading floor
transactions can occur twenty-four hours per day. Internet related sales
increased 743 percent from 1997 to 1998 and management believes that this
activity will represent nearly 10 percent of consolidated sales in 1999.
In an effort to expand its internet activities, in January 1997 the Company
formed a new wholly-owned subsidiary, eye media, inc. On January 28, 1997, eye
media, inc. purchased certain assets owned by National Media Mail, Inc. and
hired nine former employees of National Media Mail, Inc. The assets purchased
include rights, title and interest in a patent pending and a registered service
mark for ("The Gathering"), one of the largest college web sites on the
internet. eye media, inc. was an internet/intranet web site development company
and sells advertising on The Gathering. Revenues for eye media, inc. did not
meet expectations and, as a result, the Company discontinued its operations in
May 1977.
5
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Products and Services (continued...)
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During 1998, management decided to continue the development of its internet
software through eye media, inc. The Company transferred 20% of the outstanding
common stock and granted an option to purchase an additional 20% of the common
stock of eye media, inc. to an unrelated third party at fair market value who is
developing the Company's internet auction software. In February 1998, eye media,
inc. announced the release of Virtual Auctioneer v2.0, an electronic commerce
product that allows users to easily build online auction sites. Virtual
Auctioneer is built around an eye media, inc. developed bidding engine, which
was created utilizing the Allaire ColdFusiontm development environment. Virtual
Auctioneer allows clients unparalleled flexibility, customization and power,
placing it in its own market space, by offering a complete, integrated online
product. The Company plans to launch several new internet auction sites during
1999.
Sales and Marketing
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All Company activities other than DLS rely heavily on local television, print
media, the internet, pamphlets, and brochures to attract retail customers.
Solicitations of wholesale customers are made through local print media, direct
mailings, and direct contact. Marketing activities emphasize what the Company
perceives to be the attractiveness of its pricing and its customer service. DLS
relies on professional contacts of the Company's Chairman in order to attract
new clients.
The Company markets its bullion trading services through a combination of
advertising in national coin publications, local print media,coin and bullion
wire services and its internet web site. Trades are primarily with coin and
bullion dealers on a "cash on confirmation" basis which is prevalent in the
industry. Cash on confirmation simply means that once credit is approved the
buyer remits funds by mail or wire concurrently with the mailing of the precious
metals. Customer orders for bullion trades are customarily delivered within
three days of the order or upon clearance of funds depending on the customer's
credit standing. Consequently, there was no significant backlog for bullion
orders as of December 31, 1998 or 1997. Company backlogs for fabricated jewelry
products were also insignificant as of December 31, 1998 and 1997.
Seasonality
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The retail jewelry business is seasonal. The Company realized 38.3% of its
annual jewelry sales in the fourth quarters of both 1998 and 1997.
While the Company's bullion business is not seasonal, management believes it is
directly impacted by the perception of inflation trends. Historically,
anticipation of increases in the rate of inflation have resulted in higher
levels of interest in precious metals as well as higher prices for such metals.
Other Company business activities are not seasonal.
6
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Competition
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The Company operates in a highly competitive industry where competition is based
on a combination of price, service and product quality. The jewelry and consumer
loan activities of the Company compete with numerous other retail jewelers and
consumer lenders in Dallas, Texas and the surrounding area.
The bullion industry in which the Company competes is dominated by substantially
larger enterprises which wholesale bullion and other precious metal products.
Likewise, the consulting industry in which the Company competes is dominated by
large investment banking, accounting and consulting firms.
The Company attempts to compete in these industries by offering quality products
and services at prices below that of its competitors and by maintaining a staff
of highly qualified employees to provide customers services such as watch and
jewelry repairs and custom jewelry design.
Management is of the opinion that the Company is a factor in the local jewelry
trade. However, its consumer lending, bullion trading and consulting activities
are dominated by larger companies.
Employees
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As of December 31, 1998, the Company employed 25 individuals, all of which were
full time employees.
ITEM 2. DESCRIPTION OF PROPERTY
In December 1987, through its wholly-owned subsidiary DGSE Corporation the
Company acquired a 6,000 square foot building in Dallas, Texas which houses
retail jewelry, consumer lending and bullion trading operations and its
principal executive offices. The land and building are subject to a 20 year
mortgage maturing in January 2014, with a balance outstanding of approximately $
637,923 as of December 31, 1998.
In February 1994, the Company entered into a lease agreement covering a 5,000
square foot building in Dallas, Texas which housed its second retail jewelry
store. The lease has a term of ten years beginning July 1, 1994 and requires
monthly payments of $ 7,500 for the first five years and $ 9,000 thereafter. In
November 1995, the Company closed this store and subleased this facility to
another retail jewelry company for a term of six months and receives monthly
payments of $ 9,050. In May 1996, this sublease was renewed for the remaining
term of the prime lease. In May 1998 the sublessee went out of business. The
Company is currently seeking a new tenant for this property.
Eye Media, Inc. rented on a month to month basis a 900 square foot
facility in an office complex located in Newport Beach, California
for which it paid a monthly rental in the amount of $ 684. This
lease was terminated in May 1997.
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DESCRIPTION OF PROPERTY (continued...)
In December 1998 the Company leased a 2,400 square foot facility in Carrollton,
Texas which houses National Jewelry Exchange. The lease expires on July 31, 2002
and requires monthly lease payments in the amount of $ 1,088.
The Company also maintains a resident agent office in Nevada at the office of
its Nevada counsel, McDonald, Carano, Wilson, McClure, Bergin, Frankovitch and
Hicks, 241 Ridge Street, Reno, Nevada 89505.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings which are
expected to have a material adverse effect on the Company and none of its
property is the subject of any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
8
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock trades on the American Stock Exchange ("ASE")
pursuant to its "Emerging Companies" listing program under the symbol "DLS.EC".
The following table sets forth for the period indicated, the per share high and
low sale prices as reported by the ASE for the common stock. During the past two
years, the Company has not declared any dividends with respect to its common
stock. The Company intends to retain all earnings to finance future growth;
accordingly, it is not anticipated that cash dividends will be paid to holders
of common stock in the foreseeable future.
High and low stock prices for the last two years were:
1998 1997
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High Low High Low
First Quarter 3 1/4 2 1/4 1 3/4 7/8
Second Quarter 2 7/8 2 1/4 1 7/8 1 1/8
Third Quarter 3 1/8 2 1/4 2 3/8 1 5/8
Fourth Quarter 3 7/8 1 3/4 2 7/8 1 7/8
On March 11, 1999, the closing sales price for the Company's common stock was $
2.375 and there were 625 shareholders of record.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION.
GENERAL
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The Company's bullion trading operation has the ability to significantly
increase or decrease sales by adjusting the "spread" or gross profit margin
added to bullion products. In addition, economic factors such as inflation and
interest rates as well as political uncertainty are major factors affecting both
bullion sales volume and gross profit margins. Historically, the Company has
earned gross profit margins of from 2.0% to 3.0% on its bullion trading
operations compared to 29.0% to 32.0% on the sale of jewelry products. As a
result, since the year ended December 31, 1991, the Company has emphasized the
more profitable jewelry products. Management expects this trend to continue
until such time that interest in precious metals results in higher gross margins
on bullion products.
In 1993 the Company founded DLS in an effort to generate additional revenue and
enhance shareholder value by capitalizing on the experience and professional
contacts of the Company's Chairman. DLS provides insolvency advisory services to
businesses that are or have been involved in proceedings under Chapter 11 of the
United States Bankruptcy Code. During 1998 and 1997 DLS has provided consulting
advice and participated in four such reorganizations. As a result, the Company
received consulting revenues in the amount of $ 466,566 in 1997 and became a
stockholder in each of these enterprises.
Results of Operations
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Sales increased by $ 3,390,772 (27.3%) in 1998. This increase was the result of
a $ 1,440,954 (22.4%) increase in the sale of bullion related products and a $
1,949,818 (32.5%) increase in the sale of jewelry products. Management believes
that the Company's Internet related activities have had a significant impact on
all sectors of its business. In addition, public concerns related to Y2K issues
have resulted in an increased demand for bullion products. Consulting service
fees in the amount of $ 426,566 during 1997 were due to fees received from three
new clients. During 1998 DLS concentrated it efforts on existing clients. The
Company sold marketable trading securities during 1998 and 1997 and realized
gains of $ 118,451 and $ 1,051,742, respectively. The unrealized gains on
trading securities during 1998 and 1997 in the amounts of $ 482,071 and $
211,295 was the result of an increase in market value of the Company's
investment in trading securities. These realized and unrealized gains on trading
securities are reflected in the statement of income. Other income in the amount
of $ 123,472 during 1997 was the result of $ 108,000 in rental income received
from the sublease of the facility which had been the Company's second store and
interest income in the amount of $ 15,472 from investments in money market
accounts. During 1998 the sublessee went out of business and as a result other
income decreased to $ 19,011 which was primarily composed of interest earned
from
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Results of Operations (continued...)
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investments in money market accounts.
Sales increased by $ 1,135,313 (10.1%) in 1997. This increase was the result of
a $ 580,409 increase in the sale of bullion related products and a $ 514,442
increase in the sale of jewelry products. The increase in bullion sales was the
result of increased interest in precious metals products by retail clientele.
Management believes that the Company's Internet related activities had a
significant impact on this sector of its business. The increase in the sale of
jewelry related products was the result of a strong retail climate and the
Company's Internet related activities. Consulting service fees increased by $
426,566 during 1997 due to fees received from three new clients. During 1997 the
Company sold marketable trading securities in the amount of $ 1,350,141 and
realized gains of $ 1,051,742 on these sales. The unrealized gains on trading
securities during 1997 in the amount of $ 211,295 was the result of an increase
in market value of the Company's investment in trading securities. Other income
of $ 123,472 was the result of $ 108,000 in rental income received from the
sublease of the facility which had been the Company's second store and interest
income in the amount of $ 15,472 from investments in money market accounts.
Cost of goods sold increased by $ 2,721,831 ( 26.3%) in 1998 and $ 894,107
(9.4%) in 1997 due to the changes in sales volume. Cost attributable to
consulting services increased by $ 85,782 in 1998 and $ 33,654 in 1997 due to
cost associated with DLS's three new clients.
Selling, general and administrative expenses increased by $ 408,902 in 1998 and
$ 58,665 in 1997 due to an increase in payroll and related costs and higher
advertising cost.
Interest expense decreased by $ 25,705 in 1998 due the $ 254,684 reduction in
interest bearing debt. Interest expense increased by $ 54,693 in 1997 due to
interest paid on the $ 875,000 convertible note issued in December 1996.
During 1997 the Company used the remaining balance of its net operating loss
carryforwards and, as a result, the Company recorded deferred income taxes of $
640,700. Of this amount $ 411,500 is reflected as deferred tax expense and $
229,200 as a reduction of the unrealized gain on available for sale 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 were net losses of $ 95,010 in 1997.
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Liquidity and Capital Resources
During 1998 the Company generated $ 502,897 from operating activities. These
resources were used to fund investing activities in the amount of $ 374,605 and
financing activities in the amount of $ 381,710. As a result, cash and cash
equivalents decreased by $ 253,418 during the year.
Management of the Company expects capital expenditures to total approximately $
95,000 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,
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 requirements.
This report contains forward-looking statements which reflect the view of
Company's management with respect to future events. Although management believes
that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. Important factors that could cause actual results to differ
materially from such expectations are a down turn in the current strong retail
climate and the potential for fluctuations in precious metals prices. The
forward-looking statements contained herein reflect the current views of the
Company's management and the Company assumes no obligation to update the
forward-looking statements or to update the reasons actual results could differ
from those contemplated by such forward-looking statements.
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.
ITEM 7. FINANCIAL STATEMENTS
(a) Financial Statements (see pages 16 - 29 of this report).
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
12
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT
The information contained in Dallas Gold and Silver Exchange, Inc.'s Proxy
Statement to be filed pursuant to Regulation 14A within 120 days after the end
of the fiscal year covered by this Form 10-KSB with respect to directors and
executive officers of the Company, is incorporated by reference in response to
this item.
ITEM 10. EXECUTIVE COMPENSATION
The information contained in Dallas Gold and Silver Exchange, Inc.'s Proxy
Statement to be filed pursuant to Regulation 14A within 120 days after the end
of the fiscal year covered by this Form 10-KSB, with respect to executive
compensation and transactions, is incorporated by reference in response to this
item.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information contained in the Dallas Gold and Silver Exchange, Inc.'s Proxy
Statement to be filed pursuant to Regulation 14A within 120 days after the end
of the fiscal year covered by this Form 10-KSB with respect to security
ownership of certain beneficial owners and management, is incorporated by
reference in response to this item.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in Dallas Gold and Silver Exchange, Inc.'s Proxy
Statement to be filed pursuant to Regulation 14A within 120 days after the end
of the fiscal year covered by this Form 10-KSB, with respect to certain
relationships and related transactions, is incorporated by reference in response
to this item.
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ITEM 13. EXHIBITS REPORTS ON FORM 8-K
(a) Exhibits:
10.1 - Renewal of Shopping Center Lease dated as of August 1, 1997 by
and between Beltline Pawn Shop and Belt Line - Denton Road
Associates.
21 - List of subsidiaries
DGSE Corporation
International Jewelry Exchange, Inc.
(formerly Dallas Global Travel, Inc.)
DLS Financial Services, Inc.
Eye Media, Inc.
National Jewelry Exchange, Inc.
The following exhibits are incorporated by reference to the Company's Form
10-KSB for the year ended December 31, 1996:
10.1 - Agreement For Purchase And Sale Of Stock dated as of
December 30, 1996 by and among Dallas Gold And
Silver Exchange, Inc. and Henry Hirschman.
10.2 - First Amendment To Sublease Agreement effective
July 3, 1996 by and between Dallas Gold And Silver
Exchange, Inc. and Fuller's Jewelry, Inc.
The following exhibits are incorporated by reference to the Company's Form
10-KSB for the year ended December 31, 1995:
10.1 - 9% Convertible Promissory Note dated December 5,
1995, by and among Dallas Gold And Silver Exchange,
Inc. and A-Mark Precious Metals, Inc.
The following exhibits are incorporated by reference to the Company's Form
10-KSB for the year ended December 31, 1994:
10.1 - Lease Agreement dated February 11, 1994, by and
among Dallas Gold And Silver Exchange, Inc. and
Stanley N. Kline.
10.2 - Renewal, Extension And Modification Agreement
dated January 28, 1994, by and among DGSE
Corporation and Michael E. Hall And Marian E. Hall.
10.3 - Note Payable dated December 31, 1993, by and among
Dallas Gold And Silver Exchange, Inc. and Dimitri
Krstava.
10.4 - Profit Participation Agreement dated December 11,
1993, by and among Dallas Gold And Silver Exchange,
Inc. and Craig Alan-Lee.
(b) Reports on Form 8-K -- None
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SIGNATURES
In accordance with Section 13 or 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: March 26, 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: March 26, 1999
-------------------------
L. S. Smith
Chairman of the Board,
Chief Executive Officer and
Secretary
By: /s/ W. H. Oyster Dated: March 26, 1999
-------------------------
W. H. Oyster
Director, President and
Chief Operating Officer
By: /s/ John Benson Dated: March 26, 1999
-------------------------
John Benson
Director and Chief Financial
Officer
(Principal Accounting Officer)
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Accountants and
Mamagement Consultants Grant Thornton [Graphic omitted]
Grant Thornton LLP
The US Member Firm of
Grant Thornton International
Report of Independent Certified Public Accountants
Board of Directors and Shareholders
Dallas Gold and Silver Exchange, Inc.
We have audited the accompanying consolidated balance sheet of Dallas Gold and
Silver Exchange, Inc. and Subsidiaries as of December 31, 1998, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the two years in the period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Dallas Gold and
Silver Exchange, Inc. and Subsidiaries as of December 31, 1998, and the
consolidated results of their operations and their cash flows for each of the
two years in the period then ended in conformity with generally accepted
accounting principles.
/s/ Grant Thornton LLP
- ------------------------
GRANT THORNTON LLP
Dallas, Texas
February 20, 1999
16
<PAGE>
<TABLE>
<CAPTION>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
December 31, 1998
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,004,836
Marketable securities - trading 3,010,462
Trade receivables 166,929
Notes receivable - officers 4,001
Inventories 1,354,686
Prepaid expenses 27,844
-----------
Total current assets 5,568,758
MARKETABLE SECURITIES - AVAILABLE FOR SALE 18,000
PROPERTY AND EQUIPMENT - AT COST, NET 1,104,091
OTHER ASSETS 64,220
-----------
$ 6,755,069
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 350,713
Accounts payable - trade 457,003
Accrued expenses 231,504
Accrued compensation 364,727
Customer deposits 174,600
Federal income taxes payable 11,658
Current maturities of long-term debt and capital lease obligations 148,072
Deferred income taxes 591,452
-----------
Total current liabilities 2,329,729
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS,
less current maturities 1,560,602
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; authorized 10,000,000
shares; issued and outstanding 4,144,912 shares 41,449
Additional paid-in capital 3,341,387
Accumulated other comprehensive income (4,950)
Accumulated deficit (513,148)
-----------
Total shareholders' equity 2,864,738
-----------
$ 6,755,069
===========
</TABLE>
The accompanying notes are an integral part of this statement.
17
<PAGE>
<TABLE>
<CAPTION>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
1998 1997
----------- ------------
<S> <C> <C>
Revenue
Sales $ 15,817,775 $ 12,427,003
Consulting income -- 466,566
Pawn service charges 35,609 32,962
Gain on sale of marketable securities - trading 118,451 1,051,742
Unrealized gains on marketable securities - trading 482,071 211,295
Other income 19,011 123,472
------------ ------------
16,472,917 14,313,040
Costs and expenses
Cost of goods sold 13,088,184 10,366,353
Consulting service costs 246,761 160,979
Selling, general and administrative expenses 2,201,358 1,792,456
Depreciation and amortization 101,156 92,252
Interest expense 204,358 230,063
------------ ------------
15,841,817 12,642,103
------------ ------------
Income from continuing operations before income taxes 631,100 1,670,937
Income tax expense 212,967 460,500
------------ ------------
Income from continuing operations 418,133 1,210,437
Discontinued operations
Loss from operations, net of deferred tax benefit of $49,000 -- (95,010)
------------ ------------
Net income $ 418,133 $ 1,115,427
============ ============
Basic earnings (loss) per common share
Continuing operations $.10 $ .27
Discontinued operations -- (.02)
---- -----
Earnings per common share $.10 $ .25
==== =====
Diluted earnings (loss) per common share
Continuing operations $.09 $ .25
Discontinued operations -- (.02)
---- -----
Earnings per common share $.09 $ .23
==== =====
Weighted average number of common shares
Basic 4,156,705 4,397,266
Diluted 4,569,188 4,809,644
</TABLE>
The accompanying notes are an integral part of these statements.
18
<PAGE>
<TABLE>
<CAPTION>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Years ended December 31, 1998 and 1997
Accumulated
Common stock Additional other Total
-------------------------- paid-in Accumulated comprehensive shareholders'
Shares Amount capital deficit income equity
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1997 4,618,193 $ 46,182 $ 4,126,451 $(2,046,708) $ -- $ 2,125,925
Net income -- -- -- 1,115,427 -- 1,115,427
Other comprehensive income:
Unrealized gain on
marketable securities,
net of tax -- -- -- -- 444,923 444,923
-----------
Comprehensive income 1,560,350
-----------
Purchase and retirement of
common shares (445,264) (4,453) (670,818) -- -- (675,271)
----------- ----------- ----------- ----------- ----------- -----------
Balances at December 31, 1997 4,172,929 41,729 3,455,633 (931,281) 444,923 3,011,004
Net income -- -- -- 418,133 -- 418,133
Other comprehensive income:
Unrealized gain on
marketable securities, net
of tax and reclassification
adjustment -- -- -- -- (449,873) (449,873)
-----------
Comprehensive income (loss) (31,740)
-----------
Purchase and retirement of
common shares (53,017) (530) (126,496) -- -- (127,026)
Common stock issued on
conversion of debt 25,000 250 12,250 -- -- 12,500
----------- ----------- ----------- ----------- ----------- -----------
Balances at December 31, 1998 4,144,912 $ 41,449 $ 3,341,387 $ (513,148) $ (4,950) $ 2,864,738
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
19
<PAGE>
<TABLE>
<CAPTION>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
1998 1997
----------- -----------
<S> <C> <C>
Reconciliation of net income to net cash provided by
operating activities
Net income $ 418,133 $ 1,115,427
Adjustments to reconcile net income to cash provided by
operating activities
Depreciation and amortization 101,156 92,252
Unrealized gain on marketable securities - trading (482,071) (211,295)
Reclassification adjustment for other comprehensive income 449,873 --
Deferred taxes (46,698) 460,500
Marketable securities received in payment of consulting fees -- (439,066)
(Increase) decrease in operating assets and liabilities
Net change in marketable securities - trading -- 298,399
Trade receivables (32,840) 13,475
Inventories (320,883) 77,682
Prepaid expenses and other assets (37,652) (2,013)
Accounts payable 177,046 (202,971)
Accrued expenses 48,756 52,626
Accrued compensation 155,595 37,055
Customer deposits 60,824 56,006
Income taxes payable 11,658 --
----------- -----------
Net cash provided by continuing operating activities 502,897 1,348,077
Net cash provided by (used in) discontinued operating
activities -- (5,036)
----------- -----------
Total net cash provided by operating activities 502,897 1,343,041
Cash flows from investing activities
Cash paid for purchases of marketable securities available-for-sale (203,148) (162,111)
Decrease in notes receivable - officers (78,624) (82,625)
Capital expenditures (92,833) (80,719)
----------- -----------
Net cash used in investing activities (374,605) (325,455)
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
20
<PAGE>
<TABLE>
<CAPTION>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31,
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from financing activities
Proceeds from notes issued $ 100,980 $ 212,713
Payment of short-term notes (297,995) (200,497)
Purchase and retirement of common stock (127,026) (675,271)
Principal payments on long-term debt (32,290) (17,567)
Principal payments under capital lease obligations (25,379) (28,296)
----------- -----------
Net cash used in financing activities (381,710) (708,918)
----------- -----------
Net increase in cash and cash equivalents (253,418) 308,668
Cash and cash equivalents at beginning of year 1,258,254 949,586
----------- -----------
Cash and cash equivalents at end of year $ 1,004,836 $ 1,258,254
=========== ===========
</TABLE>
Supplemental schedule of noncash, investing and financing activities:
Interest paid during the year amounted to $211,796
During 1998, debt amounting to $12,500 was converted to common stock
The accompanying notes are an integral part of these statements.
21
<PAGE>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
--------------------
Dallas Gold and Silver Exchange, Inc. and its wholly-owned subsidiaries
(the Company), sell jewelry and bullion products to both retail and
wholesale customers throughout the United States through its facility in
Dallas, Texas and provide consulting services related to reorganization of
other business enterprises. The operations of the Company's subsidiaries,
Dallas Global Travel, Inc. and Eye Media, Inc. are reflected as
discontinued operations in the accompanying financial statements.
Principles of Consolidation
---------------------------
The consolidated financial statements of the Company include the financial
statements of Dallas Gold and Silver Exchange, DGSE Corporation and DLS
Financial Services, Inc.
All material intercompany transactions and balances have been eliminated.
Inventory
---------
Jewelry and other inventory is valued at lower-of-cost-or-market (specific
identification). Bullion inventory is valued at lower-of-cost-or-market
(average cost).
Property and Equipment
----------------------
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are being provided on the
straight-line method over periods of five to thirty years. Machinery and
equipment under capital lease are amortized on the straight-line method
over their useful lives.
Earnings Per Share
------------------
Basic earnings per common share is based upon the weighted average number
of shares of common stock outstanding. Diluted earnings per share is based
upon the weighted average number of common stock outstanding and, when
dilutive, common shares issuable for stock options, warrants and
convertible securities.
Cash and Cash Equivalents
-------------------------
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
22
<PAGE>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Investments in Marketable Securities
------------------------------------
Marketable equity securities have been categorized as either
available-for-sale or trading and carried at fair value. Unrealized gains
and losses for available-for-sale securities are included as a component of
shareholders' equity net of tax until realized, while unrealized gains and
losses for trading securities are included in the statement of income.
Realized gains and losses on the sale of securities are based on the
specific identification method.
Financial Instruments
---------------------
The carrying amounts reported in the consolidated balance sheet for cash
and cash equivalents, accounts receivable, marketable securities,
short-term debt, accounts payable and accrued expenses approximate fair
value because of the immediate or short-term maturity of these financial
instruments. The carrying amount reported for long-term debt approximates
fair value because substantially all of the underlying instruments have
variable interest rates which reprice frequently or the interest rates
approximate current market rates.
Stock Options
-------------
The Company's employee stock option plan is accounted for under APB Opinion
25, "Accounting for Stock Issued to Employees", and related
interpretations.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues, and expenses
during the reporting period. Actual results could differ from those
estimates.
Comprehensive Income
--------------------
The Company adopted SFAS No. 130, "Reporting Comprehensive Income," as of
January 1, 1998. Accounting principles generally require that recognized
revenue, expenses, gains and losses be included in net income. Although
certain changes in assets and liabilities, such as unrealized gains and
losses on available-for-sale securities, are reported as a separate
component of the equity section of the balance sheet, such items, along
with net income, are components of comprehensive income.
23
<PAGE>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE B - INVENTORIES
A summary of inventories at December 31, 1998 is as follows:
Jewelry $1,162,076
Scrap gold 129,160
Bullion 21,034
Other 42,416
----------
$1,354,686
==========
NOTE C - INVESTMENTS IN MARKETABLE SECURITIES
Marketable securities have been classified in the consolidated balance sheet
according to management's intent. The carrying amount of available-for-sale
securities and their fair values at December 31, 1998 follows:
Gross Gross
unrealized unrealized Fair
Cost gains losses value
------- ------- ------- -------
Equity securities $25,500 $ - $7,500 $18,000
====== === ===== ======
NOTE D - PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31, 1998 is as follows:
Land $ 551,300
Buildings and improvements 560,818
Machinery and equipment 674,282
Furniture and fixtures 90,205
----------
1,876,605
Less accumulated depreciation and amortization (772,514)
----------
$1,104,091
==========
24
<PAGE>
<TABLE>
<CAPTION>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE E - NOTES PAYABLE, LONG-TERM DEBT AND CAPITAL LEASES
A summary of notes payable and long-term debt and capital leases at December
31, 1998 follows:
Notes payable
-------------
<S> <C>
Various demand notes to individuals with interest rates from 8% to 14% $ 350,713
=========
Long-term debt and capital leases
---------------------------------
Mortgage payable, due in monthly installments of $6,452, including
interest based on 30 year US Treasury notes plus 2-1/2% (rate at
December 31, 1998 was 7.8%; balance due and payable in January 2014 $ 637,923
Convertible note, due December 1, 2001. Interest is payable quarterly at
a rate of 9% 137,500
Convertible note, due December 31, 2001. Interest is payable quarterly at
a rate of 8% 875,000
Capital lease obligations (property and equipment includes machinery and
equipment of $53,605, net of accumulated amortization of $89,972 at
December 31, 1998) 58,251
----------
1,708,674
Less current maturities 148,072
----------
$1,560,602
==========
</TABLE>
Convertible Notes
-----------------
In December 1995, the Company issued a long-term convertible note in the
amount of $150,000 to a supplier. The note bore interest at 8% payable
quarterly and matured in December 1998. At any time prior to full payment of
the note, the lender may exercise its right to convert the outstanding
indebtedness into shares of common stock at a conversion rate of $.50 per
share. During 1998, $12,500 of the note was converted into common stock at
$.50 per share. In addition, the due date was extended to December, 2001
with interest at 9% and the conversion rate was changed to $.75 per share.
In December 1996, the Company issued a long-term convertible note in the
amount of $875,000 to an individual. The note bears interest at 8% payable
quarterly. The principal matures in installments of $100,000 at December 31,
1999, $100,000 at December 31, 2000, and $675,000 at December 31, 2001. At
any time prior to full payment of the note, the holder may convert $100,000
of this note into common stock at a conversion rate of $1.00 per share.
25
<PAGE>
<TABLE>
<CAPTION>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE E - NOTES PAYABLE, LONG-TERM DEBT AND CAPITAL LEASES - Continued
The following table summarizes the aggregate maturities of long-term debt
and payments on the capital lease obligations:
Obligations
under
Long-term capital
debt leases Total
--------- --------- ---------
<S> <C> <C> <C>
1999 $ 121,622 $ 32,732 $ 154,354
2000 123,544 29,700 153,244
2001 838,159 2,475 840,634
2002 27,952 - 27,952
2003 30,450 - 30,450
Thereafter 508,696 - 508,696
--------- -------- ---------
Total 1,650,423 64,907 1,715,330
Amounts representing interest (interest rates
ranging from 10.8% to 23.3%) - (6,656) (6,656)
--------- -------- ---------
1,650,423 58,251 1,708,674
Less current portion (121,622) (26,450) (148,072)
--------- -------- ---------
$1,528,801 $ 31,801 $1,560,602
========= ======== ==========
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE F - EARNINGS PER SHARE
A reconciliation of the income and shares of the basic earnings per common
share and diluted earnings per common share for the years ended December
31, 1998 and 1997 is as follows:
1998
-------------------------------
Per-share
Income Shares amount
--------- --------- ---------
<S> <C>
Basic earnings per common share
Income from continuing operations $ 418,133 4,156,705 $ .10
Effect of dilutive securities
Stock options -- 33,396
Convertible debt 14,000 379,087
--------- ---------
Diluted earnings per common share
Income available to common stockholders plus
assumed conversions $ 432,133 4,569,188 $ .09
========= ========= ======
1997
-------------------------------
Per-share
Income Shares amount
---------- --------- ---------
Basic earnings per common share
Income from continuing operations allocable to
common stockholders $1,210,437 4,397,266 $ .27
====
Effect of dilutive securities
Stock options -- 12,378
Convertible debt 14,200 400,000
---------- ---------
Diluted earnings per common share
Income from continuing operations
available to common stockholders plus
assumed conversions $1,224,637 4,809,644 $ .25
========== ========= ====
</TABLE>
27
<PAGE>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE G - STOCK OPTIONS
The Company has granted stock options to key employees to purchase shares of
the Company's common stock. Each option issued vests according to schedules
then designated by the Board of Directors, not to exceed three years. The
exercise price is based upon the estimated fair market value of the
Company's common stock at the date of grant, and is payable when the option
is exercised.
The Company has adopted only the disclosure provisions of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation" (FAS
123). It applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations in accounting for its plans and does
not recognize compensation expense for its stock-based compensation.
The following table summarizes the activity in common shares subject to
options for the two years ended December 31, 1998:
<TABLE>
Weighted
Range of Average
Shares Exercise Price Exercise Price
------- -------------- --------------
<S> <C> <C> <C>
January 1, 1997 380,000 $1.63 - $2.25 $2.12
Forfeited 40,000 2.125 - 2.25 2.19
------- ------------- -----
December 31, 1997 340,000 1.63 - 2.25 2.12
Granted -- -- --
------- ------------- -----
December 31, 1998 340,000 $1.63 - $2.25 $2.12
======= ============= =====
</TABLE>
As of December 31, 1998 and 1997, all options were exercisable and expire
six months after termination of employment.
28
<PAGE>
<TABLE>
<CAPTION>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE H - OTHER COMPREHENSIVE INCOME
Other comprehensive income at December 31, 1998 and 1997 is as follows:
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
----------- ---------- ----------
<S> <C> <C> <C>
Unrealized holding gains
arising during 1997 $ 674,123 $(229,200) $ 444,923
----------- --------- ---------
Unrealized holding gains
arising during 1998 347,137 (118,027) 229,110
Less reclassification adjustment
for gains realized in net income (1,028,760) 349,777 (678,983)
----------- --------- ---------
Net unrealized gains (681,623) 231,750 (449,873)
----------- --------- ---------
Other comprehensive income at
December 31, 1998 $ (7,500) $ 2,550 $ (4,950)
=========== ========= =========
NOTE I - INCOME TAXES
The income tax provision reconciled to the tax computed at the statutory
Federal rate follows:
1998 1997
--------- ---------
Tax expense at statutory rate $ 214,540 $ 568,119
Change in valuation allowance - (99,266)
Nondeductible expenses and other (1,573) (8,353)
--------- ---------
Tax expense $ 212,967 $ 460,500
========= =========
Current $ 33,015 $ -
Deferred 179,952 460,500
--------- ---------
$ 212,967 $ 460,500
========= =========
</TABLE>
29
<PAGE>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE I - INCOME TAXES - Continued
The change in the valuation allowance resulted from use of net operating
loss carryforwards.
Deferred income taxes are comprised of the following at December 31, 1998:
Deferred tax assets:
Unrealized loss on available for sale securities $ 2,550
Deferred tax liabilities:
Unrealized gain on trading securities (591,452)
Net deferred tax liability $(588,902)
NOTE J - OPERATING LEASE
The Company leases certain of its facilities under operating leases. The
minimum rental commitments under noncancellable operating leases are as
follows:
Year ending December 31,
1999 $121,734
2000 122,749
2001 123,810
2002 117,571
2003 108,000
Thereafter 54,000
--------
$647,864
========
Rent expense for the years ended December 31, 1998 and 1997 was
approximately $117,000 and $122,000, respectively, and was offset by
sublease income of approximately $17,000 and $108,000, respectively.
30
<PAGE>
<TABLE>
<CAPTION>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998 and 1997
NOTE K - DISCONTINUED OPERATIONS
During 1997, the Company discontinued the operations of Dallas Global
Travel, Inc. and Eye Media, Inc. Dallas Global Travel, Inc. operated a
travel agency while Eye Media, Inc. developed internet web sites. The
assets of both companies at December 31, 1997 were not significant. Summary
operating results of the discontinued operations for the years ended
December 31, 1997 were as follows:
<S> <C> <C>
Revenues $110,700
Costs and expenses 254,710
--------
Net loss before income tax benefit 144,010
Income tax benefit (49,000)
--------
Net loss $ 95,010
=======
NOTE L - BUSINESS SEGMENT INFORMATION
The Company's operations from continuing operations by business segment were
as follows:
Consulting Corporate
Jewelry Services & other Consolidated
----------- ---------- --------- ------------
Revenues
1997 $12,567,145 $1,741,695 $ 4,200 $14,313,040
1998 15,817,775 600,522 54,620 16,472,917
Operating income (loss)
1997 $ 123,561 $1,086,876 $ - $ 1,210,437
1998 249,256 169,077 - 418,133
Identifiable assets
1997 $ 2,982,744 $3,785,298 $ 6,857 $ 6,774,899
1998 3,559,273 3,106,879 88,917 6,755,069
Capital expenditures
1997 $ 58,149 $ 22,570 $ - $ 80,719
1998 66,997 25,836 - 92,833
Depreciation
1997 $ 80,212 $ 12,040 $ - $ 92,252
1998 83,425 17,731 - 101,156
</TABLE>
31
RENEWAL OF
SHOPPING CENTER LEASE
WHEREAS Belt Line - Denton Road Associates Joint Venture, a Texas
joint venture ("Landlord") and Kenneth A. and Euel Baldock ("Tenant") heretofore
entered into that certain lease dated May 27, 1992, (the lease covering
approximately square feet of space located at Belt Line Denton Shopping Center,
Carrollton, Texas and
WHEREAS the parties hereto are desirous of extending the lease term
for an additional period of sixty (60) months upon the terms and conditions set
forth here and below.
1. The Lease is hereby renewed for an additional period of sixty (60)
months beginning August 1, 1997, and ending July 31, 2002 (the
"Renewal Term").
2. The minimum guaranteed rental for the Renewal Term shall be as
follows, payable in advance in equal monthly installments as described
below on the first day of each month of the Renewal Term without
demand:
Months 01-12 $5.00 x 2,051 SF/12 = $854.58 per month
Months 13-24 $5.00 x 2,051 SF/12 = $940.04 per month
Months 25-36 $6.00 x 2.051 SF/12 = $1020.50 per month
Months 37-48 $6.50 x 2,051 SF/12 = $1110.96 per month
Months 49-60 $7.00 x 2,051 SF/12 = $1196.42 per month
3. In addition to the minimum guaranteed rental described above, Tenant
shall also pay during the Renewal Term all other charges described in
the Lease, including the cost of operation and maintenance of the
common area, taxes and other real estate charges and insurance
expenses.
4. Landlord and Tenant hereby acknowledge that Tenant has no further
option(s) to renew this Lease after the expiration of this Renewal
Term.
5. Landlord and Tenant hereby acknowledge that Tenant has previously
deposited with Landlord a sum in the amount of $571.53 to be held as a
Security Deposit under the terms and conditions described in the
Lease.
6. Except as herein modified all terms and provisions of the Lease shall
remain in full force and effect.
EXECUTED as of the latest date accompanying a signature by Landlord and Tenant
below
TENANT: Kenneth A. and Euel Baldock
By: /s/ Kenneth A. Baldock
----------------------
Tax ID#/SS#: omitted
Date of Signature:
TENANT'S NOTICE ADDRESS:
Ken Baldock
Beltine Pawn Shop
1001 Denton Drive
Carrollton, Texas 75080
LANDLORD: Belt Line - Denton Road Associates, a Texas joint venture
---------------------------------------------------------
by its agent Cancor Realty Services, Inc.
By:
---------------------------
Greg Marks
Landlord Representative
Date of Signature:
---------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,005
<SECURITIES> 3,010
<RECEIVABLES> 171
<ALLOWANCES> 0
<INVENTORY> 1,355
<CURRENT-ASSETS> 5,569
<PP&E> 1,877
<DEPRECIATION> 773
<TOTAL-ASSETS> 6,755
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0
0
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</TABLE>
