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, 1999 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
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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
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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
$ .01 par value
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, 1999, total revenues were $ 21,305,415.
As of March 9, 2000, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $ 16,044,780.
As of March 9, 2000, 4,425,157 shares of Common Stock were outstanding.
Documents incorporated by reference: Portions of the proxy statement for the
annual shareholders' meeting to be held June 12, 2000, are incorporated by
reference into Part III.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Dallas Gold and Silver Exchange, Inc. (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
and internet related businesses. 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 sites
dgse.com; FirstJewelryAuctions.com; and USBullionExchange.com.
The Company also 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.
The Company has a World Wide Web Site on the Internet called the Computer
Jewelry Exchange. Customers and the Company 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. The Company also offers customers
current quotations for precious metals prices on its internet site
USBullionExchange.com. In September 1999, the Company launched its third
internet site FirstJewelryAuctions.com. This new site significantly expanded the
Company's offerings on the internet and provides a forum for business to
business auctions for the jewelry industry. By December 31, 1999, over 500 items
were available for sale including $ 9,000,000 in diamonds. The Company offers
these internet services through its facility in Dallas, Texas.
During 1998, the Company continued the development of its internet software and
in February 1999, announced the release of Virtual Auctioneer v2.0, an
electronic commerce product that allows users to easily build online auction
sites. The Company began marketing its internet software product in late 1999.
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 are being continued under
National Jewelry Exchange. The Company has focused its operations on sales and
pawn loans of jewelry products.
In August 1999 the Company purchased substantially all assets of The Silverman
Group ("Silverman") located in Mt. Pleasant, South Carolina. Silverman's primary
business is conducting liquidation, consolidation, promotional or other
large-scale retail sales for jewelry stores and other types of retailers. The
purchase price of $ 3,115,000 consisted of the issuance of 200,000 shares of the
Company's newly issued restricted common stock and the assumption by the Company
of a $ 2,500,000 obligation to a bank. The purchase price has been allocated as
follows: inventory ($ 2,500,000); property and equipment ($ 131,000); and
goodwill ($ 484,000). The results of Silverman have been included in the
consolidated financial statements since August 1999.
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Products and Services
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, 1999, 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 41.3% of
total sales for 1999 and 44.3% in 1998. (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 1999 or 1998.
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 has focused these operations on sales and pawn loans of jewelry
products.
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.
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Products and Services (continued...)
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During 1999 and 1998, the Company sold in the open market a portion of these
equity securities and realized gains in the amount of $ 83,116 and $ 118,451,
respectively. In addition, during 1999 and 1998 the Company had unrealized gains
on trading securities in the amount of $ 109,771 and $ 482,071, respectively. As
of December 31, 1999 the Company's investment in these enterprises totaled $
3,101,728. These realized and unrealized gains are reflected in the statement of
income.
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 and is called USBullionExchange.Com.
During 1997 management made a decision to significantly expand the Company's
internet activities. With over 1 million 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. In September 1999, the Company
launched its third internet site FirstJewelryAuctions.com. This new site
significantly expanded the Company's offerings on the internet and provides a
forum for business to business auctions for the jewelry industry. By December
31, 1999, over 5000 items were available for sale including over $ 9,000,000 in
diamonds. Internet related sales were 10.9 percent of consolidated sales during
1999.
During 1998, management decided to continue the development of its internet
software and in February 1999 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. In March 1999 the Company began offering
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Products and Services (continued...)
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items for bidding on Amazon.com as one of their charter merchants. The Company
has completed over 10,000 successful auctions on Amazon.com and will continue to
conduct over 200 auctions per week on Amazon.com. In May 1999 the Company opened
a free internet site, usbullionexchange.com. This site was developed because of
the growing interest in precious metals by those concerned about potential
unfavorable events caused by the Y2K problems. In September 1999 the Company
launched FirstJewelryAuction.com an integrated Business-to-Business and
Business-to-Consumer auction site for the jewelry industry. The Company plans to
launch three or four new internet auction sites during 2000.
On August 13, 1999 the Company purchased substantially all assets of The
Silverman Group located in Mt. Pleasant, South Carolina. Silverman's primary
business is conducting liquidation, consolidation, promotional or other
large-scale retail sales for jewelry stores and other types of retailers. The
Company is conducting the business of the former Silverman Group through a newly
formed wholly owned subsidiary, Silverman Consultants, Inc. ("Silverman"). All
senior management and key employees of the former Silverman Group have become
employees of the Company. The business is being conducted from a leased facility
located in Mt. Pleasant, South Carolina. During the period from August 13, 1999
through December 31, 1999 Silverman completed thirteen liquidation sales and
realized $ 2,212,060 in revenues. The results of Silverman have been included in
the consolidated financial statements since August 13, 1999.
On March 2, 2000 the Company purchased certain assets of Fairchild
International, Inc. ("Fairchild") located in Dallas, Texas. 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 will be accounted for as a
purchase. Accordingly, a portion of the purchase price will be allocated to net
tangible and intangible assets acquired based on their estimated fair values.
Fairchild's primary business is the wholesale of watches and other jewelry
products. Four former Fairchild key employees have become employees of the
Company. The business is being conducted from the Company's facility in Dallas,
Texas.
Sales and Marketing
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All Company activities other than consulting services 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. The Company relies on professional contacts of the Company's
Chairman in order to attract new consulting 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
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Sales and Marketing (continued...)
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credit standing. Consequently, there was no significant backlog for bullion
orders as of December 31, 1999 or 1998. Company backlogs for fabricated jewelry
products were also insignificant as of December 31, 1999 and 1998.
Seasonality
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The retail jewelry business is seasonal. The Company realized 42.2% and 38.3% of
its annual jewelry sales in the fourth quarters of 1999 and 1998, respectively.
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.
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 and liquidation industry in
which the Company competes is dominated by large investment banking, accounting,
consulting and liquidation 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 Dallas
area jewelry market. However, its consumer lending, bullion trading and
consulting and liquidation activities are dominated by larger companies.
Employees
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As of December 31, 1999, the Company employed 45 individuals, all of which were
full time employees.
ITEM 2. DESCRIPTION OF PROPERTY
In December 1987, 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 mortgage
maturing in January 2014, with a balance outstanding of approximately $ 614,000
as of December 31, 1999.
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
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DESCRIPTION OF PROPERTY (continued...)
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 during 1999, the Company moved
its internet activities into this facility.
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.
Silverman Consultants, Inc. leases a 15,000 square foot facility in Mt.
Pleasant, South Carolina. The lease expires in October 2003 and requires monthly
lease payments in the amount of $ 24,954.
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.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
On June 29, 1999 the Company's Common Stock began trading on the NASDAQ Small
CAP Market under the symbol "DGSE". Previously, the Company's Common Stock was
traded 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 NASDAQ or the ASE, as the case may be, 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:
1999 1998
High Low High Low
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First Quarter 4 17/32 2 3 1/4 2 1/4
Second Quarter 4 1/8 2 3/4 2 7/8 2 1/4
Third Quarter 4 1/8 3 17/32 3 1/8 2 1/4
Fourth Quarter 6 3 1/8 3 7/8 1 3/4
On March 9, 2000, the closing sales price for the Company's common stock was $
6.4375 and there were 650 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.
Results of Operations
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Sales increased by $ 5,487,640 (34.7%) in 1999. This increase was the result of
$ 2,212,060 in sales from Silverman Consultants, Inc., $ 1,329,226 (15.1%)
increase in the sale of jewelry products $ 1,786,354 (25.5%) increase in the
sale of bullion related products, and $ 160,000 in sales of internet software
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. Pawn service fees increased $ 136,950 (384.6%) in 1999 as a
result of the acquisition of Belt Line Pawn in December 1999. The Company sold
marketable trading securities during 1999 and 1998 and realized gains of $
83,116 and $ 118,451, respectively. The unrealized gains on trading securities
during 1999 and 1998 in the amounts of $ 109,771 and $ 482,071 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 $ 1,744 during 1999 and $
19,011 during 1998 interest earned from money market accounts.
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 had a significant impact on this
sector of its business. In addition, public concerns related to Y2K issues have
resulted in an increased demand for bullion products. During 1998 and 1999 DLS
concentrated its efforts on existing clients. The Company sold marketable
trading securities during 1998 realized gains in the amount of $ 118,451. The
unrealized gains on trading securities during 1998 in the amount of $ 482,071
was the result of an increase in market value of the Company's investment in
trading securities.
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Results of Operations (continued...)
Cost of goods sold increased by $ 3,987,148 (30.5%) during 1999 and $ 2,721,831
( 26.3%) in 1998 due to the changes in sales volume. Cost attributable to
consulting services decreased by $ 132,091 during 1999. This decrease was the
result of lower travel and other related costs. Consulting service costs
increased by $ 85,782 in 1998 due to cost associated with DLS's three new
clients.
Selling, general and administrative expenses increased by $ 1,403,875 in 1999
due to the acquisitions of Silverman Consultants, Inc. and Belt Line Pawn Shop.
Selling, general and administration expenses increased by $ 408,902 in 19987 due
to an increase in payroll and related costs and higher advertising cost.
Depreciation and amortization increased by $ 108,949 during 1999 primarily due
to the acquisitions of Silverman Consultants, Inc. and Beltline Pawn Shop.
Interest expense increased by $ 9,627 during 1999 due to interest assumed in the
Silverman acquisition. During 1998 interest expenses decreased by $ 25,705 due
the $ 254,684 reduction in interest bearing debt.
Liquidity and Capital Resources
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During 1999 the Company used $ 1,078,274 in operating activities and $ 168,279
in investing activities while financing activities provided $ 1,505,433. As a
result, cash and cash equivalents increased by $ 258,880.
Management of the Company expects capital expenditures to total approximately $
150,000 during 2000. It is anticipated that these expenditures will be funded
from working capital.
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.
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ITEM 7. FINANCIAL STATEMENTS
(a) Financial Statements (see pages 14 - 29 of this report).
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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:
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.
Silverman Consultants, Inc.
The following exhibits are incorporated by reference to the Company's Form
8-K dated August 26, 1999:
10.1 AGREEMENT AND PLAN OF MERGER DATED AUGUST 13, 1999
10.2 ASSIGNMENT AGREEMENT DATED AUGUST 13, 1999
10.3 PROMISSORY NOTE DATED AUGUST 13, 1999
10.4 SECURITY AGREEMENT DATED AUGUST 13, 1999
10.5 BILL OF SALE DATED AUGUST 13, 1999
The following exhibits are incorporated by reference to the Company's Form
10-KSB for the year ended December 31, 1998:
10.6 - Renewal of Shopping Center Lease dated as of August 1,
1997 by and between Beltline Pawn Shop and Belt Line -
Denton Road Associates.
The following exhibits are incorporated by reference to the Company's Form
10-KSB for the year ended December 31, 1996:
10.7 - Agreement For Purchase And Sale Of Stock dated December
30, 1996 byand among Dallas Gold And Silver Exchange, Inc.
and Henry Hirschman.
The following exhibits are incorporated by reference to the Company's Form
10-KSB for the year ended December 31, 1995:
10.8 - 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:
10.9 - Lease Agreement dated February 11, 1994, by and among
Dallas Gold And Silver Exchange, Inc. and
10.10 - Renewal, extension and modification agreement dated
January 28, 1994 by and among DGSE Corporation And Michael
E. Hall and Marion Hall.
10.11 - Profit Participation Agreement dated December 31, 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 21, 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: March 21, 2000
----------------------------
L.S Smith
Chairman of the Board,
Chief Executive Officer and
Secretary
By: /s/ W. H. Oyster Dated: March 21, 2000
----------------------------
W. H. Oyster
Director, President and
Chief Operating Officer
By: /s/ John Benson Dated: March 21, 2000
----------------------------
John Benson
Director and Chief Financial
Officer
(Principal Accounting Officer)
BY: /s/ William P. Cordeiro Dated: March 21, 2000
----------------------------
Director
By: /s/ James Walsh Dated: March 21, 2000
----------------------------
Director
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FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
DALLAS GOLD AND SILVER EXCHANGE, INC.
December 31, 1999
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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, 1999, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the two years ended December 31, 1999 and 1998. 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, 1999, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1999 and 1998 in conformity with generally accepted
accounting principles.
GRANT THORNTON LLP
Dallas, Texas
February 4, 2000 (except for Note N, as to which
the date is March 2, 2000)
14
<PAGE>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
December 31, 1999
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,263,716
Marketable securities - trading 3,086,728
Trade receivables 735,778
Inventories 5,510,097
Prepaid expenses 65,983
------------
Total current assets 10,662,302
MARKETABLE SECURITIES - AVAILABLE FOR SALE 15,000
PROPERTY AND EQUIPMENT - AT COST, NET 1,232,409
GOODWILL, NET OF ACCUMULATED AMORTIZATION OF $35,143 498,431
OTHER ASSETS 57,213
------------
$ 12,465,355
============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable$ 4,507,110
Current maturities of long-term debt 250,047
Accounts payable - trade 943,879
Accrued expenses 401,340
Accrued compensation 370,641
Customer deposits 90,193
Federal income taxes payable 116,578
Deferred income taxes 620,844
------------
Total current liabilities 7,300,632
LONG-TERM DEBT, less current maturities 1,387,889
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; authorized 10,000,000
shares; issued and outstanding 4,367,912 shares 43,679
Additional paid-in capital 3,967,931
Accumulated other comprehensive loss (6,930)
Accumulated deficit (227,846)
------------
Total shareholders' equity 3,776,834
------------
$ 12,465,355
============
The accompanying notes are an integral part of these statements.
15
<PAGE>
<TABLE>
<CAPTION>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
1999 1998
------ ------
<S> <C> <C>
Revenue
Sales $21,305,415 $15,817,775
Pawn service charges 172,559 35,609
Gain on sale of marketable securities - trading 83,116 118,451
Unrealized gains on marketable securities - trading 109,771 482,071
Other income 1,744 19,011
----------- -----------
21,672,605 16,472,917
Costs and expenses
Cost of goods sold 17,075,332 13,088,184
Consulting service costs 114,670 246,761
Selling, general and administrative expenses 3,605,233 2,201,358
Depreciation and amortization 210,105 101,156
Interest expense 213,985 204,358
----------- -----------
21,219,325 15,841,817
----------- -----------
Income before income taxes 453,280 631,100
Income tax expense 167,978 212,967
----------- -----------
Net Income $ 285,302 $ 418,133
=========== ===========
Earnings per common share
Basic $.07 $.10
Diluted $.06 $.09
Weighted average number of common shares
Basic 4,256,920 4,156,705
Diluted 4,612,245 4,569,188
</TABLE>
The accompanying notes are an integral part of this statement.
16
<PAGE>
<TABLE>
<CAPTION>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Years ended December 31, 1999 and 1998
Accumulated
Common stock Additional other Total
-------------------------- paid-in Accumulated comprehensive shareholders'
Shares Amount capital deficit income (loss) equity
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1998 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 loss on marketable
securities, net of tax and
reclassification adjustment -- -- -- -- (449,873) (449,873)
-----------
Comprehensive 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
Net income -- -- -- 285,302 -- 285,302
Other comprehensive income:
Unrealized loss on marketable
securities, net of tax -- -- -- -- (1,980) (1,980)
-----------
Comprehensive income -- -- -- -- -- 283,322
-----------
Purchase and retirement of
common shares (39,500) (395) (128,581) -- -- (128,976)
Issuance of warrants in connection
with debt -- -- 30,000 -- -- 30,000
Common stock issued on
conversion of debt 25,000 250 18,500 -- -- 18,750
Common stock issued for
services 37,500 375 93,625 -- -- 94,000
Common stock issued for
acquisition 200,000 2,000 613,000 -- -- 615,000
----------- ----------- ----------- ----------- ----------- -----------
Balances at December 31, 1999 4,367,912 $ 43,679 $ 3,967,931 $ (227,846) $ (6,930) $ 3,776,834
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
17
<PAGE>
<TABLE>
<CAPTION>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
1999 1998
----------- -----------
<S> <C> <C>
Reconciliation of net income to net cash provided by
(used in) operating activities
Net income $ 285,302 $ 418,133
Adjustments to reconcile net income to cash provided by
operating activities
Common stock issued for services 94,000 --
Depreciation and amortization 210,105 101,156
Unrealized gain on marketable securities - trading (109,771) (482,071)
Reclassification adjustment for other comprehensive income -- 449,873
Deferred taxes 30,412 (46,698)
(Increase) decrease in operating assets and liabilities
Net change in marketable securities - trading 33,505 --
Trade receivables (568,849) (32,840)
Inventories (1,655,411) (320,883)
Prepaid expenses and other assets (80,707) (37,652)
Accounts payable and accrued expenses 656,712 225,802
Accrued compensation 5,914 155,595
Customer deposits (84,406) 60,824
Federal income taxes payable 104,920 11,658
----------- -----------
Total net cash provided by (used in) operating activities (1,078,274) 502,897
Cash flows from investing activities
Purchase of marketable securities -- (203,148)
Decrease in notes receivable - officers 4,001 (78,624)
Purchases of property and equipment (172,280) (92,833)
----------- -----------
Net cash used in investing activities (168,279) (374,605)
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
18
<PAGE>
<TABLE>
<CAPTION>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31,
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from financing activities
Proceeds from indebtness $ 3,524,079 $ 100,980
Repayment of indebtness (1,889,670) (355,664)
Purchase and retirement of common stock (128,976) (127,026)
----------- -----------
Net cash provided by (used in) financing activities 1,505,433 (381,710)
----------- -----------
Net increase (decrease) in cash and cash equivalents 258,880 (253,418)
Cash and cash equivalents at beginning of year 1,004,836 1,258,254
----------- -----------
Cash and cash equivalents at end of year $ 1,263,716 $ 1,004,836
=========== ===========
</TABLE>
Supplemental schedule of noncash, investing and financing activities:
Interest paid during 1999 and 1998 amounted to $211,189 and $211,796,
respectively.
During 1999 and 1998, debt amounting to $18,750 and $12,500, respectively,
was converted to common stock.
As more fully described in Note L, in connection with the Company's
acquisition of Silverman Consultants, Inc., 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.
The accompanying notes are an integral part of these statements.
19
<PAGE>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
--------------------
Dallas Gold and Silver Exchange, Inc. and its 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
through its internet sites. In addition, the Company provides consulting
services related to reorganization of other business enterprises and
liquidations of jewelry retailers.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All material intercompany transactions and balances
have been eliminated.
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.
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.
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.
20
<PAGE>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Intangible Assets
-----------------
Goodwill of $498,431 at December 31, 1999, resulted from the acquisition of
the Silverman Group and is being amortized using the straight-line method
over five years. Amortization expense for goodwill for the year ended
December 31, 1999 was $35,143.
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.
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.
Stock-based Compensation
------------------------
The Company accounts for stock-based compensation to employees using the
intrinsic value method. Accordingly, compensation cost for stock options to
employees is measured as the excess, if any, of the quoted market price of
the Company's common stock at the date of the grant over the amount an
employee must pay to acquire the stock.
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.
21
<PAGE>
<TABLE>
<CAPTION>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE B - INVENTORIES
A summary of inventories at December 31, 1999 is as follows:
<S> <C> <C>
Jewelry $5,198,806
Scrap gold 206,144
Bullion 42,376
Other 62,771
----------
$5,510,097
==========
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, 1999 follows:
Gross Gross
unrealized unrealized Fair
Cost gains losses value
------ ---------- ---------- -------
Equity securities $25,500 $ - $10,500 $15,000
====== === ====== ======
NOTE D - PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31, 1999 is as follows:
Land $ 551,300
Buildings and improvements 666,682
Machinery and equipment 781,605
Furniture and fixtures 142,405
---------
2,141,992
Less accumulated depreciation and amortization (909,583)
---------
$1,232,409
=========
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE E - NOTES PAYABLE
A summary of notes payable at December 31, 1999 follows:
<S> <C>
Note payable to bank, due in variable weekly installments based on 90% of
sales price of inventory collateral approximating $2,500,000. The note
bears interest at 9.25% and is due June 24, 2000 $2,230,695
Note payable to limited partnership with interest at 10%, collateralized
by marketable securities and due April 22, 2000 245,000
Various demand notes to individuals with interest rates from 8% to 14% 2,031,415
---------
$4,507,110
=========
In connection with notes payable to limited partnership, the Company issued
warrants for 27,500 shares of common stock expiring December 31, 2001. The
warrants have an exercise price of $3.49 and a value of $30,000.
NOTE F - LONG-TERM DEBT
A summary of long-term debt at December 31, 1999 follows:
Mortgage payable, due in monthly installments of $6,452, including
interest based on 30 year US Treasury note rate plus 2-1/2% (7.8% at
December 31, 1999);
balance due in January 2014 $ 614,498
Convertible note, due December 1, 2001. Interest is payable quarterly at
a rate of 9% 118,751
Convertible note, due December 31, 2001. Interest is payable quarterly at
a rate of 8% 875,000
Capital lease obligations 29,687
-------
1,637,936
Less current maturities 250,047
--------
$1,387,889
=========
</TABLE>
Convertible Notes
-----------------
In December 1995, the Company issued a long-term convertible note in the
amount of $150,000. 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 1999,
$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.
23
<PAGE>
<TABLE>
<CAPTION>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE F - LONG-TERM DEBT - Continued
In December 1996, the Company issued a long-term convertible note in the
amount of $875,000. The note bears interest at 8% payable quarterly. The
principal matures in installments of $100,000 in February 2000, $100,000 in
December, 2000, and $675,000 in December, 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.
Aggregate maturities of long-term debt is as follows lease obligations:
<S> <C> <C> <C>
2000 $ 250,047
2001 819,409
2002 27,952
2003 30,450
2004 33,171
Thereafter 473,700
---------
Total $1,634,729
=========
NOTE G - 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, 1999 and 1998 is as follows:
1999
-------------------------------------------
Per-share
Income Shares amount
------------ ---------- --------
Basic earnings per common share
Income from operations allocable to
common stockholders $285,302 4,256,920 $.07
===
Effect of dilutive securities
Stock options and warrants - 95,006
Convertible debt 11,629 260,319
------- --------
Diluted earnings per common share
Income from operations available to common
stockholders plus assumed conversions $296,931 4,612,245 $.06
======= ========= ===
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE G - EARNINGS PER SHARE - Continued
1998
---------------------------------------
<S> <C> <C> <C>
Per-share
Income Shares amount
-------- ---------- --------
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
======= ========= ====
NOTE H - 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
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, 1999:
1999 1998
------------------------------ -----------------------------
Weighted Weighted
average average
Options exercise price Options exercise price
--------- -------------- --------- --------------
Outstanding at beginning of year 340,000 $2.12 340,000 $2.12
Granted 94,000 4.13 - -
------- ---- --- ---
Outstanding at end of year 434,000 $2.55 340,000 $2.12
======= ==== ======= ====
Exercisable at end of year 395,000 $2.45 340,000 $2.12
======= ==== ======= ====
Weighted average fair
value of options granted
during the year $3.39 $ -
==== ===
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE H - STOCK OPTIONS - Continued
Stock options outstanding at December 31, 1999:
Options Outstanding Options Exercisable
----------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Weighted
average Weighted Weighted
Range of remaining average average
exercise price Options contractual life exercise price Options exercise price
-------------- --------- ---------------- -------------- ---------- --------------
$1.63 to $2.25 340,000 Six months after $2.12 340,000 $2.12
termination of
employment
$3.63 to $4.19 59,000 Six months after $3.69 20,000 $3.83
termination of
employment
$4.875 35,000 5 years $4.875 35,000 $4.875
------- -------
434,000 395,000
======= =======
Had compensation costs for stock-based compensation plans been determined
consistent with the fair value method of SFAS 123, the Company's net
earnings and net earnings per common and diluted share for 1999 would have
been:
Net earnings
As reported $285,302
Pro forma 155,106
Basic earnings per common share
As reported .07
Pro forma .04
Diluted earnings per common share
As reported .06
Pro forma .03
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future disclosures because they do not take into effect pro
forma compensation expense related to grants made before fiscal 1996. The
fair value of these options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants after 1998, expected volatility of 70% to 86%,
risk-free rate of 6.3 to 6.6%, no dividend yield and expected life of 8
years.
26
<PAGE>
<TABLE>
<CAPTION>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE I - OTHER COMPREHENSIVE INCOME
Other comprehensive income at December 31, 1999 and 1998 is as follows:
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
---------- ---------- ----------
<S> <C> <C> <C>
Unrealized holding gains at January 1, 1998 $ 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 (loss) at
December 31, 1998 $ (7,500) $ 2,550 $ (4,950)
Unrealized holding losses arising during 1999 (3,000) 1,020 (1,980)
----------- ----------- -----------
Other comprehensive income (loss) at
December 31, 1999 $ (10,500) $ 3,570 $ (6,930)
=========== =========== ===========
NOTE J - INCOME TAXES
The income tax provision reconciled to the tax computed at the statutory
Federal rate follows:
1999 1998
------ ------
Tax expense at statutory rate $154,115 $214,540
Nondeductible expenses and other 13,863 (1,573)
------- -------
Tax expense $167,978 $212,967
======= =======
Current $135,016 $ 33,015
Deferred 32,962 179,952
------- -------
$167,978 $212,967
======= =======
</TABLE>
27
<PAGE>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE J - INCOME TAXES - Continued
Deferred income taxes are comprised of the following at December 31, 1999:
Deferred tax assets:
Unrealized loss on available for sale securities $ 3,570
Depreciation 4,361
--------
7,931
Deferred tax liabilities:
Unrealized gain on trading securities (628,775)
--------
Net deferred tax liability $ (620,844)
========
NOTE K - 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,
2000 $ 385,872
2001 386,943
2002 386,760
2003 388,764
2004 259,176
--------
$1,807,515
==========
Rent expense for the years ended December 31, 1999 and 1998 was
approximately $221,000 and $117,000, respectively, and was decreased by
sublease income of approximately $18,000 and $108,000, respectively.
NOTE L - ACQUISITION
On August 13, 1999 the Company purchased substantially all assets of
Silverman Consultants, Inc. ("Silverman") located in Mt. Pleasant, South
Carolina. Silverman's primary business is 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
consisted of 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 a bank. The purchase price has been allocated as follows:
inventory ($2,500,000); property and equipment ($131,000); and goodwill
($469,000). The results of Silverman have been included in the consolidated
financial statements since August 13, 1999.
28
<PAGE>
<TABLE>
<CAPTION>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE L - ACQUISITION - Continued
The following unaudited pro forma information presents a summary of
consolidated results of operations and the acquired Silverman as if the
acquisition had occurred on January 1, 1998:
1999 1998
------------ -----------
<S> <C> <C> <C>
Revenue $23,010,525 $22,627,531
Net loss (442,217) (1,503,427)
Loss per share (.10) (.35)
NOTE M - BUSINESS SEGMENT INFORMATION
The Company's operations by business segment were as follows:
Consulting Corporate
Software Liquidations Jewelry Services & other Consolidated
-------- ------------ ---------- --------- ---------- ------------
Revenues
1999 $160,000 $2,212,060 $19,107,084 $ 193,461 $ - $21,672,605
1998 - - 15,817,775 600,522 54,620 16,472,917
Operating income (loss)
1999 $ 86,715 $ (48,371) $ 462,582 $ (45,150) $(170,474) $ 285,302
1998 - - 249,256 169,077 - 418,133
Identifiable assets
1999 $132,315 $3,682,549 $ 4,699,172 $3,951,319 $ - $12,465,355
1998 - - 3,559,273 3,106,879 88,917 6,755,069
Capital expenditures
1999 $ 19,375 $ 131,426 $ 104,764 $ 8,738 $ - $ 264,303
1998 - - 66,997 25,836 - 92,833
Depreciation and
amortization
1999 $ 4,045 $ 89,318 $ 99,115 $ 17,627 $ - $ 210,105
1998 - - 83,425 17,731 - 101,156
</TABLE>
29
<PAGE>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE N - SUBSEQUENT EVENT
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 will be accounted for as a purchase. Accordingly, a
portion of the purchase price will be allocated to net tangible and
intangible assets acquired based on their estimated fair values.
30
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,264
<SECURITIES> 3,087
<RECEIVABLES> 735
<ALLOWANCES> 0
<INVENTORY> 5,510
<CURRENT-ASSETS> 10,662
<PP&E> 2,142
<DEPRECIATION> 910
<TOTAL-ASSETS> 12,465
<CURRENT-LIABILITIES> 7,301
<BONDS> 1,388
<COMMON> 44
0
0
<OTHER-SE> 3,733
<TOTAL-LIABILITY-AND-EQUITY> 12,465
<SALES> 21,305
<TOTAL-REVENUES> 21,673
<CGS> 17,075
<TOTAL-COSTS> 21,005
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 214
<INCOME-PRETAX> 453
<INCOME-TAX> 168
<INCOME-CONTINUING> 285
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 285
<EPS-BASIC> .07
<EPS-DILUTED> .06
</TABLE>
