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, 1999
-----------------------------------
( ) 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
of incorporation or Number)
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
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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 November 10, 1999
- ---------------------------- --------------------------------
Common Stock, $.01 per value 4,373,212
<PAGE>
PART I. FINANCIAL INFORMATION
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DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
ASSETS 1999 1998
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Current assets:
Cash $ 24,964 $ 1,004,836
Marketable securities - trading 2,625,220 3,010,462
Trade receivables 187,963 166,929
Notes receivable - officers 1,200 4,001
Inventory 4,613,785 1,354,686
Prepaid expenses 122,403 27,844
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Total current assets 7,575,535 5,568,758
Marketable securities - available
for sale 18,000 18,000
Property and equipment 1,243,401 1,104,091
Other assets 522,743 64,220
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Total assets $ 9,359,679 $ 6,755,069
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 3,067,649 $ 350,713
Accounts payable - trade 555,880 457,003
Accrued expenses 295,643 596,231
Customer deposits 149,881 174,600
Federal income taxes payable 11,658
Current maturities of long-term
debt and lease obligations 48,227 148,072
Deferred income taxes 522,743 64,220
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Total current liabilities 4,571,172 2,329,729
Long-term debt and capital lease
obligations, less current
maturities 1,604,428 1,560,602
Shareholders' equity:
Common stock, $.01 par value;
authorized 10,000,000 shares;
issued and outstanding 4,373,212
shares at September 30, 1999 and
4,144,912 at December 31, 1998 43,732 41,449
Additional paid-in capital 3,925,473 3,341,387
Accumulated other comprehensive
Income (4,950) (4,950)
Accumulated deficit (780,176) (513,148)
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Total shareholders' equity 3,184,079 2,864,738
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Total liabilities and
And shareholders' equity $ 9,359,679 $ 6,755,069
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2
<PAGE>
DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
1999 1998
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Revenues:
Sales $ 4,544,527 $ 4,025,296
Pawn service fees 17,114 8,855
Consulting service fees
Gain (loss) on sales of
Marketable securities - trading 39,724 49,142
Unrealized gain (loss) on
Marketable securities - trading 177,250 (815,153)
Other income 175 1,675
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4,788,790 3,269,815
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Costs and expenses:
Cost of sales (exclusive of
Items shown separately below) 3,875,976 3,443,536
Consulting service cost 53,561 54,534
Selling, general and
Administrative cost 719,625 446,067
Depreciation and amortization 34,935 23,885
Interest expense 73,795 55,440
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Total cost and expenses 4,757,895 4,023,462
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Income (loss) before income taxes 20,895 (753,647)
Income tax expense (benefit) 7,105 (263,925)
----------- -----------
Net income (loss) $ 13,790 $ (489,722)
=========== ===========
Earnings (loss) per common share:
Basic $ -- $ (.12)
Diluted $ -- $ (.11)
Weighted average number of common
Shares outstanding:
Basic 4,278,912 4,160,128
Diluted 4,666,395 4,457,378
3
<PAGE>
DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended
September 30,
1999 1998
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Revenues:
Sales $13,162,707 $10,451,193
Pawn service fees 42,784 28,472
Consulting service fees
Gain (loss) on sales of
Marketable securities - trading 82,327 123,557
Unrealized gain (loss) on
Marketable securities - trading (350,948) 194,330
Other income 581 37,597
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12,937,451 10,835,149
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Costs and expenses:
Cost of sales (exclusive of
Items shown separately below) 11,040,370 8,770,046
Consulting service cost 151,741 153,381
Selling, general and
Administrative cost 1,873,033 1,419,011
Depreciation and amortization 92,941 71,786
Interest expense 183,955 162,660
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Total cost and expenses 13,342,040 10,579,884
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Income (loss) before income taxes (404,589) 255,265
Income tax expense (benefit) (137,560 79,175
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Net income (loss) $ (267,029) $ 176,090
=========== ============
Earnings (loss) per common share:
Basic $ (.06) $ .04
Diluted $ (.06) $ .04
Weighted average number of common
Shares outstanding:
Basic 4,212,912 4,160,128
Diluted 4,599,395 4,572,378
4
<PAGE>
DALLAS GOLD AND SILVER EXCHANGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1999 1998
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Reconciliation of net income to net
cash provided by operating activities
Net income (loss) $ (267,029) $ 176,090
Adjustments to reconcile net income
(loss)to cash provided (used) by
operating activities
Depreciation and amortization 92,941 71,175
Common stock issued for services 25,000
Unrealized (gain) loss on securities 350,948 (194,330)
Deferred taxes (137,560) 79,175
(Increase) decrease in operating
assets and liabilities
Net change in marketable securities 34,295 45,249
Net receivables (21,034) (4,979)
Inventories (759,099) (533,350)
Prepaid expenses and other assets (94,559) (35,511)
Accounts payable 98,877 (13,609)
Accrued expenses (300,588) (156,414)
Customer deposits (24,719) 56,139
Income taxes payable (11,658) (169,473)
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Net cash used in operating
activities (1,014,185) (679,838)
Cash flows from investing activities
Decrease in notes receivable - officers 2,801 78,625
Capital expenditures (90,774) (57,297)
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Net cash used (provided)
in investing activities (87,973) 21,328
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Cash flows from financing activities
Net change in notes payable 216,936 (278,000)
Net change in long-term debt and
capital lease obligations (56,019) (49,465)
Common stock issued on conversion of debt 18,750 12,500
Purchase and retirement of common stock (57,381) (103,452)
Net cash (used) provided in
financing activities 122,286 (418,417)
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Decrease in cash (979,872) (1,076,927)
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Cash at beginning of period 1,004,836 1,258,254
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Cash at end of period $ 24,964 $ 181,327
=========== ===========
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 187,344 $ 170,099
Taxes - -
5
<PAGE>
DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT
September 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., eye media, inc. and Silverman Consultants, Inc. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
On August 13, 1999 the Company purchased substantially all of the assets of
the Silverman Group ("Silverman") located in Mt. Pleasant, South Carolina.
Silverman's primary business has been conducting liquidation, consolidation,
promotional or other large-scale retail sales for jewelry stores and other
types of retailers. The purchase price of $ 3,100,000 involves the issuance
of 200,000 of the Company's newly issued unregistered common stock and the
assumption by the Company of a $2,500,000 obligation to First Union National
Bank. The purchase price has been allocated as follows: inventory
($2,500,000); furniture, fixtures, leasehold improvements, and office
equipment($131,000); trade/service marks and good will ($469,000). The
Company is conducting the business of the former Silverman Group through a
new wholly owned subsidiary, Silverman Consultants, Inc. The results of
Silverman Consultants, Inc. have been included in the consolidated financial
statements since August 13, 1999.
The Company's operating results for the nine month period ended September
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.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
---------------------
Quarter ended September 30, 1999 vs 1998:
Sales for the third quarter of 1999 increased $519,231 or 12.9% when
compared to the corresponding quarter of 1998. The increase was the result
of an increase in jewelry sales in the amount of $206,732 or 12.0%, an
increase in precious metals sales in the amount of $92,656 or 4.0%, and
sales from Silverman Consultants, Inc. and National Jewelry Exchange, Inc.
in the amount of $219,843. The Company's Internet related activities had a
significant impact on this sales growth. During the third quarter of 1999
Internet sales increased by $431,003. Pawn service fees increased by 93.3%
due to the acquisition of National Jewelry Exchange, Inc. (formerly Beltline
Pawn) in December 1998. During the third quarter of 1999 and 1998 the
Company sold marketable securities realizing gains of $39,724 and $49,142,
respectively. Unrealized gains (loss) on trading securities in the amount of
$177,250 in 1999 and ($815,153) in 1998 was the result of changes in the
market value of the Company's investment in marketable securities. Cost of
sales increased by $432,440 primarily due to the increase in sales.
General and administration expenses increased by $273,561 and depreciation
expense increased by $11,059 primarily due to the acquisition of Silverman
Consultants, Inc. and Beltline Pawn,. Interest expense increased $18,355 due
to interest on the debt assumed in the Silverman transaction.
Income tax expense and benefit are provided at the corporate rate of 34%
for both 1999 and 1998.
Nine months ended September 30, 1999 vs 1998:
Sales for the first nine months of 1999 increased $2,711,514 or 25.9% when
compared to the corresponding period of 1998. The increase was the result of
an increase in jewelry sales in the amount of $494,984 or 10.1%, an increase
in precious metals sales in the amount of $1,953,641 or 35.2% and sales from
Silverman Consultants, Inc and National Jewelry Exchange, Inc. in the amount
of $262,889. The Company's Internet related activities had a significant
impact on this sales growth. During the first nine months of 1999 Internet
sales increased by $1,516,016. Pawn service fees increased by 50.3% due to
the acquisition of National Jewelry Exchange, Inc. (formerly Beltline Pawn)
in December 1998. During the first nine months of 1999 and 1998 the Company
sold marketable securities realizing gains of $82,327 and $123,557,
respectively. Unrealized gains and (loss) on trading securities in the
amount of $(350,948) in 1999 and $194,330 in 1998 was the result of changes
in the market value of the Company's investment in marketable securities.
Cost of sales increased by $2,270,324 primarily due to the increase in
sales.
The increases in general and administration expenses, depreciation and
amortization, and interest expense was primarily due to the acquisitions of
National Jewelry Exchange, Inc. and Silverman Consultants, Inc. Income tax
expense and benefit are provided at the corporate rate of 34% for both 1999
and 1998.
7
<PAGE>
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 nine months
of 1999, cash and cash equivalents decreased by $979,872 primarily as a
result of decreases in accrued expenses ($300,588) and an increase in
inventory ($3,259,099, $2,500,000 of which was the result of the Silverman
transaction).
Management of the Company expects capital expenditures for the next twelve
months to total approximately $125,000. It is anticipated that these
expenditures will be funded from the Company's current working capital
position, bank loans and other private financing.
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
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: November 10, 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: November 10, 1999
------------------------------
L. S. Smith
Chairman of the Board,
Chief Executive Officer and
Secretary
By: /s/ W. H. Oyster Dated: November 10, 1999
------------------------------
W. H. Oyster
Director, President and
Chief Operating Officer
By: /s/ John Benson Dated: November 10, 1999
------------------------------
John Benson
Chief Financial Officer
(Principal Accounting Officer)
9
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<NAME> Dallas Gold & Silver Exchange, Inc.
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