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, 2000
------------------
( ) 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
of incorporation or organization) Number)
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 October 12, 2000
---------------------------- -------------------------------
Common Stock, $.01 per value 4,908,004
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS September 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 155,690 $ 1,263,716
Marketable securities - trading -- 3,086,728
Trade receivables 793,114 735,778
Inventories 7,200,240 5,510,097
Prepaid expenses 161,830 65,983
------------ ------------
Total current assets 8,310,874 10,662,302
MARKETABLE SECURITIES - AVAILABLE FOR SALE 1,282,343 15,000
PROPERTY AND EQUIPMENT - AT COST, NET 1,319,997 1,232,409
GOODWILL, NET OF ACCUMULATED AMORTIZATION 1,391,060 498,431
OTHER ASSETS 142,311 57,213
------------ ------------
$ 12,446,585 $ 12,465,355
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 2,160,617 $ 4,507,110
Current maturities of long-term debt 94,401 250,047
Accounts payable - trade 1,740,510 943,879
Accrued expenses 438,483 401,340
Accrued compensation 172,895 370,641
Customer deposits 104,483 90,193
Federal income taxes payable 223,770 116,578
Deferred income taxes 472,627 620,844
------------ ------------
Total current liabilities 5,407,786 7,300,632
LONG-TERM DEBT, less current maturities 1,682,242 1,387,889
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; authorized 10,000,000
shares; issued and outstanding 4,908,004 shares at
September 30, 2000 and 4,367,9125 shares at December 31, 1999 49,080 43,679
Additional paid-in capital 5,487,739 3,967,931
Accumulated other comprehensive loss (389,034) (6,930)
Retained earnings (deficit) 208,772 (227,846)
------------ ------------
Total shareholders' equity 5,356,557 3,776,834
$ 12,446,585 $ 12,465,355
============ ============
</TABLE>
2
<PAGE>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
2000 1999
---------- ----------
Revenue
Sales $5,773,779 $4,544,527
Pawn services fees 27,630 17,114
Consulting services 38,000 --
Gain on marketable securities - trading -- 216,974
Other Income -- 175
---------- ----------
5,839,409 4,778,790
Costs and expenses
Cost of goods sold 4,248,277 3,875,976
Consulting services 23,086 53,386
Selling, general and administrative 1,289,410 719,628
Depreciation and amortization 105,144 34,935
Interest 108,395 73,795
---------- ----------
5,774,312 4,757,720
---------- ----------
Income before income taxes 65,097 20,895
Income tax expense 23,770 7,105
---------- ----------
Net income $ 41,327 $ 13,790
========== ==========
Earnings per common share
Basic $ .01 --
Diluted $ .01 --
Weighted average number of common shares
Basic 4,725,888 4,278,912
Diluted 4,932,076 4,666,395
3
<PAGE>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended
September 30,
2000 1999
------------ ------------
Revenue
Sales $ 16,878,680 $ 13,162,707
Pawn services fees 69,630 42,784
Consulting services 456,000 --
Gain (loss) on marketable securities - trading 269,363 (268,621)
Other Income 5,875 581
------------ ------------
17,679,548 12,937,451
Costs and expenses
Cost of goods sold 12,743,930 11,040,370
Consulting services 67,687 151,741
Selling, general and administrative 3,618,070 1,873,033
Depreciation and amortization 276,014 92,941
Interest 313,459 183,955
------------ ------------
17,019,160 13,342,040
------------ ------------
Income (loss) before income taxes 660,388 (404,589)
Income tax expense (benefit) 223,770 (137,560)
------------ ------------
Net income (loss) $ 436,618 $ (267,029)
============ ============
Earnings per common share
Basic $ .10 ($ .06)
Diluted $ .09 ($ .06)
Weighted average number of common shares
Basic 4,548,318 4,212,912
Diluted 4,932,076 4,599,395
4
<PAGE>
<TABLE>
<CAPTION>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
2000 1999
----------- -----------
<S> <C> <C>
Reconciliation of net income to net cash provided by
(used in) operating activities
Net income (loss) $ 436,618 $ (267,029)
Common stock issued for services 14,208 25,000
Depreciation and amortization 276,014 92,941
Unrealized loss on marketable securities, trading -- 350,948
Deferred taxes (148,217) (137,560)
(Increase) decrease in operating assets and liabilities
Marketable securities - trading 1,819,385 34,295
Trade receivables (57,326) (21,034)
Inventories (1,690,143) (759,099)
Prepaid expenses and other assets (95,847) (94,559)
Accounts payable and accrued expenses 642,828 (201,711)
Customer deposits 14,290 (24,719)
Federal income taxes payable 107,192 (11,658)
----------- -----------
Total net cash provided by (used in) operating activities 1,319,002 (1,014,185)
Cash flows from investing activities
Decrease in notes receivable officers -- 2,801
Purchase assets of Fairchild International, Inc. (350,000) --
Purchase of property and equipment (112,822) (90,774)
----------- -----------
Net cash provided by (used in) investing activities (462,822) (87,973)
Cash flows from financing activities
Net change in indebtedness (1,771,659) 179,667
Purchase and retirement of common stock (192,547) (57,381)
----------- -----------
Net cash provided by (used in) financing activities (1,964,206) 122,286
----------- -----------
Net decrease in cash and cash equivalents (1,108,026) (979,872)
Cash and cash equivalents at beginning of year 1,263,716 1,004,836
----------- -----------
Cash and cash equivalents at end of period $ 155,690 $ 24,964
=========== ===========
</TABLE>
Supplemental schedule of non-cash, investing and financing activities:
During 2000, debt amounting to $ 863,778 was converted to common stock.
In connection with the Company's acquisition of Fairchild International, Inc.,
62,745 shares of common stock were issued with a value of $320,000 and a note
payable was issued for $450,000.
In connection with the Company's acquisition of Silverman Consultants in August
1999, 200,000 shares of common stock were issued with a value of $615,000 and a
$2,500,000 note payable was assumed for $2,500,000 of inventory and $131,000 of
furniture and fixtures.
5
<PAGE>
<TABLE>
<CAPTION>
(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., Silverman Consultants, 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 both the three and nine months ended
September 30, 2000, are not necessarily indicative of the results that may
be expected for the year ended December 31, 2000. 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.
On March 2, 2000, the Company acquired certain assets of Fairchild
International, Inc. The purchase price consisted of $350,000 in cash, a
promissory note for $450,000 and 62,745 shares of the Company's common
stock. The acquisition has been accounted for as a purchase. Accordingly, a
portion of the purchase price has been allocated to net tangible and
intangible assets acquired based on their estimated fair values.
(2) - 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 period ended September
30. 2000 is as follows:
Nine Months Three Months
----------- ------------
Per-share Per-share
Income Shares amount Income Shares amount
-------- --------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per common share
Income from operations allocable to
common stockholders $436,618 4,548,318 $.10 $ 41,237 4,725,800 $.01
==== ====
Effect of dilutive securities
Stock options and warrants -- 206,196 -- 206,196
Convertible debt 3,795 177,562 -- --
-------- --------- -------- ---------
Diluted earnings per common share
Income from operations available to common
stockholders plus assumed conversions $440,413 4,932,076 $.09 $ 41,237 4,932,076 $.01
======== ========= ==== ======== ========= ====
</TABLE>
<TABLE>
<CAPTION>
No reconciliation for 1999 is provided because the effect is not dilutive.
(3) - Business segment information
The Company's operations by business segment for the nine months ended
September 30 were as follows:
Consulting Corporate
Software Liquidations Jewelry Services & other Consolidated
-------- ------------ ----------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues
2000 $157,035 $3,114,031 $13,685,798 $ 722,684 - $ 17,679,548
1999 - 192,744 13,012,804 (268,097) - 12,937,451
Income (loss) before income taxes
2000 $ 69,900 $ (351,351) $ 326,259 $ 659,010 $( 43,430) $ 660,388
1999 - (199,540) 216,073 (396,122) ( 25,000) (404,589)
Identifiable assets
2000 $116,889 $4,640,526 $ 6,291,829 $1,397,341 $ - $ 12,446,585
1999 - 3,052,802 3,606,394 2,700,483 - 9,359,679
6
<PAGE>
(3) - Business segment information, continued
Capital expenditures
2000 $ 44,946 $ - $ 187,876 $ - $ - $ 232,822
1999 - 131,426 94,692 - - 226,118
Depreciation and
amortization
2000 $ 7,144 $ 106,969 $ 149,185 $ 12,716 $ - $ 276,014
1999 - 6,449 73,892 12,600 - 92,941
The Company's operations by business segment for the three months ended
September 30, were as follows:
Consulting Corporate
Software Liquidations Jewelry Services & other Consolidated
-------- ------------ ----------- ---------- --------- ------------
Revenues
2000 $ 89,440 $ 971,724 $ 4,740,246 $ 37,999 - $ 5,839,409
1999 - 192,744 4,368,937 217,109 - 4,778,790
Income (loss) before income taxes
2000 $ 52,459 $ ( 69,200) $ 91,432 $ 9,123 $ (18,717) $ 65,097
1999 - (199,540) 53,428 167,007 - 20,895
Identifiable assets
2000 $116,889 $ 4,640,526 $ 6,291,829 $1,397,341 $ - $ 12,446,585
1999 - 3,052,802 3,606,394 2,700,483 - 9,359,679
Capital expenditures
2000 $ 21,694 $ - $ 59,056 $ - $ - $ 80,750
1999 - 131,426 - - - 131,426
Depreciation and
amortization
2000 $ 4,144 $ 35,247 $ 61,420 $ 4,333 $ - $ 105,144
1999 - 6,449 24,286 4,200 - 34,935
</TABLE>
(4) - Other comprehensive income
Other comprehensive income is as follows:
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
---------- ---------- ----------
Other comprehensive income (loss) at
December 31, 1999 $ (10,500) $ 3,570 $ (6,930)
Unrealized holding losses arising during
The six months ended June 30, 2000 (311,644) 105,960 (205,684)
--------- -------- ---------
Other comprehensive income (loss) at
June 30, 2000 $(322,144) $109,530 $(212,614)
Unrealized holding losses arising during
3rd Qtr. (258,305) 81,885 (176,420)
--------- -------- ---------
Other comprehensive income (loss) at
September 30, 2000 $(580,449) $191,415 $(389,034)
========= ======== =========
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
---------------------
Three months ended September 30, 2000 vs 1999:
Sales for the three months ended September 30, 2000 increased $1,229,252 or
27.0% when compared to the corresponding quarter of 1999. The increase was the
result of software sales in the amount of $89,440, an increase in sales in the
liquidation segment in the amount of $778,980 which the Company acquired in
August 1999 and an increase in sales in the amount of $371,309 from the jewelry
segment. The increase in sales from the jewelry segment was due to the
acquisition of the assets of Fairchild International, Inc. in March 2000.
Consulting services revenue in the amount of $ 38,000 during the quarter ended
September 30, 2000 were the result of additional fees received from a consulting
contract completed during July 2000. Gain on marketable securities - trading
during 1999 was the result of realized and unrealized gains and losses on
trading securities and is included in consulting services revenue. Cost of goods
sold increased by $372,301 primarily due to the increase in sales volume and the
acquisition. Gross margins increased from 14.7% in 1999 to 26.4% in 2000 due to
lower precious metal sales during the quarter ended September 30, 2000. Precious
metal margins average approximately 1.5% to 2.0%.
General and administration expenses increased by $569,782 primarily due to the
acquisition of Silverman Consultants, Inc. in August 1999 and the acquisition of
Fairchild International, Inc. in March 2000. Interest expense increased by
$34,600 due to the debt assumed in the Silverman and Fairchild acquisitions.
Depreciation and amortization expense increased by $70,209 due to the Silverman
and Fairchild acquisitions.
Income tax expense are provided at the corporate rate of 34% for both 2000 and
1999.
Nine months ended September 30, 2000 vs 1999:
Sales for the nine months ended September 30, 2000 increased $3,715,973 or 28.2%
when compared to the corresponding period of 1999. The increase was the result
of software sales in the amount of $157,035, an increase in sales in the amount
of $2,921,287 from the liquidation business which the Company acquired in August
1999 and an increase in sales in the amount of $672,994 from the jewelry
segment. The increase in sales from the jewelry segment was due to the
acquisition of the assets of Fairchild International, Inc. in March 2000,
Consulting service revenues during 2000 amounting to $456,000 was the result of
the completion of a major consulting contract during the period. Gain (loss) on
marketable securities - trading are the result of realized and unrealized gains
and losses on trading securities and are included in consulting services
revenue. Cost of sales increased by $1,703,560 primarily due to the increase in
sales volume and the acquisition. Gross margins increased from 16.1% in 1999 to
24.5% in 2000 due to lower precious metal sales during the nine months ended
September 30, 2000. Precious metal margins average approximately 1.5% to 2.0%.
General and administration expenses increased by $1,745,037 primarily due to the
acquisition of Silverman Consultants, Inc. in August 1999 and the acquisition of
Fairchild International, Inc. in March 2000. Interest expense increased by
$129,504 due to the debt assumed in the Silverman and Fairchild acquisitions.
Depreciation and amortization expense increased by $183,073 due to the Silverman
and Fairchild acquisitions.
Income tax expense and benefit are provided at the corporate rate of 34% for
both 2000 and 1999.
8
<PAGE>
Liquidity and Capital Resources
-------------------------------
During the nine months ended September 30, 2000, the Company's sold $ 1,965,802
of marketable securities. A portion of these funds were used to retire debt in
the amount of $ 907,881 and the purchase and retirement of common stock in the
amount of $192,547. Also, during March 2000 the Company acquired certain assets
of Fairchild International, Inc. A cash payment in the amount of $ 350,000 was
required as part of the purchase price.
Management of the Company expects capital expenditures to total approximately
$50,000 during the balance of 2000. 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 - 27 Financial Data Schedule
Reports on Form 8-K - None
9
<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 6, 2000
---------------------------
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 6, 2000
---------------------------
L. S. Smith
Chairman of the Board,
Chief Executive Officer and
Secretary
By: /s/ W. H. Oyster Dated: November 6, 2000
---------------------------
W. H. Oyster
Director, President and
Chief Operating Officer
By: /s/ John Benson Dated: November 6, 2000
---------------------------
John Benson
Chief Financial Officer
(Principal Accounting Officer)
10
