SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
( X ) Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2000
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( ) 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
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(State or other jurisdiction (I.R.S. Employer Identification
of 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
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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
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 12, 2000
---------------------------- ----------------------------
Common Stock, $.01 per value 4,728,004
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
June 30, 2000 December 31, 1999
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<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 266,405 $ 1,263,716
Marketable securities - trading -- 3,086,728
Trade receivables 909,303 735,778
Inventories 6,434,861 5,510,097
Prepaid expenses 210,110 65,983
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Total current assets 7,820,679 10,662,302
MARKETABLE SECURITIES - AVAILABLE FOR SALE 1,511,644 15,000
PROPERTY AND EQUIPMENT - AT COST, NET 1,293,264 1,232,409
GOODWILL, NET OF ACCUMULATED AMORTIZATION 1,438,709 498,431
OTHER ASSETS 84,252 57,213
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$ 12,148,548 $ 12,465,355
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 3,853,211 $ 4,507,110
Current maturities of long-term debt 40,521 250,047
Accounts payable - trade 975,031 943,879
Accrued expenses 100,223 401,340
Accrued compensation 102,000 370,641
Customer deposits 94,175 90,193
Federal income taxes payable 200,000 116,578
Deferred income taxes 498,935 620,844
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Total current liabilities 5,864,096 7,300,632
LONG-TERM DEBT, less current maturities 1,690,553 1,387,889
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; authorized 10,000,000
shares; issued and outstanding 4,728,004 shares at
June 30, 2000 and 4,367,9125 shares at December 31, 1999 47,280 43,679
Additional paid-in capital 4,591,789 3,967,931
Accumulated other comprehensive loss (212,615) (6,930)
Retained earnings (deficit) 167,445 (227,846)
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Total shareholders' equity 4,593,899 3,776,834
$ 12,148,548 $ 12,465,355
============ ============
</TABLE>
2
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Dallas Gold and Silver Exchange, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
June 30, 2000 June 30, 1999
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Revenue
Sales $5,529,300 $3,988,719
Pawn services charges 22,240 12,195
Consulting services 418,000 --
Gain on marketable securities - trading -- 110,662
Other Income 3,475 51
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5,973,015 4,111,627
Costs and expenses
Cost of goods sold 4,221,066 3,183,015
Consulting service costs 16,138 45,725
Selling, general and administrative expenses 1,112,065 634,820
Depreciation and amortization 105,849 28,434
Interest expense 96,692 55,440
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5,551,810 3,947,434
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Income before income taxes 421,205 164,193
Income tax expense 140,000 55,825
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Net income $ 281,205 $ 108,368
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Earnings per common share
Basic $.06 $.03
Diluted $.06 $.02
Weighted average number of common shares
Basic 4,447,644 4,178,912
Diluted 4,812,428 4,566,395
3
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<TABLE>
<CAPTION>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended
June 30, 2000 June 30, 1999
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<S> <C> <C>
Revenue
Sales $11,104,901 $ 8,618,180
Pawn services charges 42,000 25,670
Consulting services 418,000 --
Gain (loss) on marketable securities - trading 269,363 (485,595)
Other Income 5,875 406
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11,840,139 8,158,661
Costs and expenses
Cost of goods sold 8,495,653 7,164,394
Consulting service costs 44,601 98,180
Selling, general and administrative expenses 2,328,660 1,153,405
Depreciation and amortization 170,870 58,006
Interest expense 205,064 110,160
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11,244,848 8,584,145
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Income (loss) before income taxes 595,291 (425,484)
Income tax expense (benefit) 200,000 (144,665)
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Net income (loss) $ 395,291 $ (280,819)
=========== ===========
Earnings per common share
Basic $.09 ($.07)
Diluted $.08 ($.06)
Weighted average number of common shares
Basic 4,447,644 4,178,912
Diluted 4,812,428 4,566,395
</TABLE>
4
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<TABLE>
<CAPTION>
Dallas Gold and Silver Exchange, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
2000 1999
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<S> <C> <C>
Reconciliation of net income to net cash provided by
(used in) operating activities
Net income (loss) $ 395,291 $ (280,819)
Common stock issued for services 14,208 25,000
Depreciation and amortization 170,870 58,006
Deferred taxes (121,909) (179,587)
(Increase) decrease in operating assets and liabilities
Net change in marketable securities 1,590,084 527,856
Trade receivables (173,525) 9,482
Inventories (924,764) (460,708)
Prepaid expenses and other assets (191,097) (48,451)
Accounts payable and accrued expenses (538,606) (502,858)
Customer deposits 3,982 (41,498)
Federal income taxes payable 83,422 34,922
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Total net cash provided by (used in) operating activities 307,956 (858,655)
Cash flows from investing activities
Decrease in notes receivable officers - 2,001
Purchase of Fairchild International, Inc. (230,000)
. Purchase of property and equipment (152,072) (94,692)
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Net cash provided by (used in) investing activities (382,072) (92,691)
Cash flows from financing activities
Net change in indebtedness (730,648) 260,028
Purchase and retirement of common stock (192,547) (39,206)
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Net cash provided by (used in) financing activities (923,195) 220,822
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Net decrease in cash and cash equivalents (997,311) (730,524)
Cash and cash equivalents at beginning of year 1,263,716 1,004,836
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Cash and cash equivalents at end of period $ 266,405 $ 274,312
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</TABLE>
Supplemental schedule of non-cash, investing and financing activities:
During 2000, debt amounting to $ 415,522 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.
5
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<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 the six month period ended June 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 periods ended June 30.
2000 is as follows:
2000
-----------------------------------------
Per-share
Income Shares amount
----------- ----------- -----------
<S> <C> <C> <C>
Basic earnings per common share
Income from operations allocable to
common stockholders $ 395,291 4,447,644 $.09
====
Effect of dilutive securities
Stock options and warrants - 188,438
Convertible debt 3,795 176,346
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Diluted earnings per common share
Income from operations available to common
stockholders plus assumed conversions $ 399,086 4,812,428 $.08
=========== =========== ====
</TABLE>
No reconciliation for 1999 is provided because the effect is not dilutive.
<TABLE>
(3) - Business segment information
The Company's operations by business segment for the six months ended June 30
were as follows:
Consulting Corporate
Software Liquidations Jewelry Services & other Consolidated
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues
2000 $ 67,595 $ 2,142,307 $ 8,945,552 $ 684,685 $ - $11,840,139
1999 - - 8,643,867 (485,206) - 8,158,661
Operating income (loss)
2000 $ 17,441 $ (282,151) $ 234,827 $ 649,887 $ (24,713) $ 595,291
1999 - - 162,645 (563,129) (25,000) (425,484)
Identifiable assets
2000 $ 84,324 $ 4,544,225 $ 5,846,579 $ 1,673,420 $ - $12,148,548
1999 - - 3,472,061 2,558,991 - 6,031,052
6
<PAGE>
(3) - Business segment information, continued
Capital expenditures
2000 $ 23,252 $ - $ 128,820 $ - $ - $ 152,072
1999 - - 94,692 - - 94,692
Depreciation and
amortization
2000 $ 3,000 $ 71,722 $ 87,765 $ 8,383 $ - $ 170,870
1999- - - 49,606 8,400 - 58,006
The Company's operations by business segment for the three months ended June 30
were as follows:
Consulting Corporate
Software Liquidations Jewelry Services & other Consolidated
----------- ----------- ----------- ----------- ----------- -----------
Revenues
2000 $ 21,000 $ 845,977 $ 4,693,082 $ 412,956 $ - $ 5,973,015
1999 - - 4,000,914 110,713 - 4,111,627
Operating income (loss)
2000 $ 1,378 $ (133,302) $ 130,448 $ 413,631 $ 9,050 $ 421,205
1999 - - 92,123 72,070 - 164,193
Identifiable assets
2000 $ 84,324 $ 4,544,225 $ 5,846,579 $ 1,673,420 $ - $12,148,548
1999 - - 3,472,061 2,558,991 - 6,031,052
Capital expenditures
2000 $ - $ - $ 1,382 $ - $ - $ 1,382
1999 - - 24,614 - - 24,614
Depreciation and
amortization
2000 $ 2,031 $ 35,710 $ 64,132 $ 3,976 $ - $ 105,849
1999- - - 24,234 4,200 - 28,434
</TABLE>
(4) - Other comprehensive income
<TABLE>
Other comprehensive income is as follows:
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
----------- ----------- -----------
<S> <C> <C> <C>
Other comprehensive income (loss) at $ (10,500) $ 3,570 $ (6,930)
December 31, 1999
Unrealized holding losses arising during 1st Qtr (70,806) 24,075 (46,732)
----------- ----------- -----------
Other comprehensive income (loss) at $ (81,306) $ 27,644 $ (53,662)
March 31, 2000
Unrealized holding losses arising during 2nd Qtr (240,838) 81,885 (158,953)
----------- ----------- -----------
Other comprehensive income (loss) at
June 30, 2000 $ (322,144) $ 109,529 $ (212,615)
=========== =========== ===========
</TABLE>
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
---------------------
Three months ended June 30, 2000 vs 1999:
Sales for the three months ended June 30, 2000 increased $1,540,581 or 38.6%
when compared to the corresponding quarter of 1999. The increase was the result
of software sales in the amount of $21,000, sales in the amount of $845,976 from
the liquidation business which the Company acquired in August 1999 and an
increase in sales in the amount of $390,483 from the jewelry segment. The
increase in sales from the jewelry segment was due to the acquisition of
Fairchild International, Inc. in March 2000. Pawn service fees increased by
88.2% due to the acquisition of National Jewelry Exchange, Inc. (formerly
Beltline Pawn) in December 1998. Gain on marketable securities - trading during
1999 was the result of realized and unrealized gains and losses on trading
securities. Consulting services revenue in 2000 amounting to $418,000 was the
result of the completion of a major consulting contract during the quarter. Cost
of sales increased by $1,038,051 primarily due to the increase in sales volume.
General and administration expenses increased by $477,245 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
$40,867 due to the debt assumed in the Silverman and Fairchild acquisitions.
Depreciation and amortization expense increased by $77,415 due to the Silverman
and Fairchild acquisitions.
Income tax expense are provided at the corporate rate of 34% for both 2000 and
1999.
Six months ended June 30, 2000 vs 1999:
Sales for the six months ended June 30, 2000 increased $2,486,721 or 28.9% when
compared to the corresponding period of 1999. The increase was the result of
software sales in the amount of $67,595, sales in the amount of $2,142,307 from
the liquidation business which the Company acquired in August 1999 and an
increase in sales in the amount of $276,819 from the jewelry segment. The
increase in sales from the jewelry segment was due to the acquisition of
Fairchild International, Inc. in March 2000. Pawn service fees increased by
63.6% due to the acquisition of National Jewelry Exchange, Inc. (formerly
Beltline Pawn) in December 1998. Gain (loss) on marketable securities - trading
are the result of realized and unrealized gains and losses on trading
securities.
Consulting services revenue during 2000 amounting to $418,000 was the result of
the completion of a major consulting contract during the period. Cost of sales
increased by $1,331,259 primarily due to the increase in sales volume.
General and administration expenses increased by $1,175,255 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
$94,904 due to the debt assumed in the Silverman and Fairchild acquisitions.
Depreciation and amortization expense increased by $112,864 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 first quarter of 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 $
720,398 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. In addition, during the first half of
2000, the Company reduced accounts payable and accrued expenses by $ 538,606,
paid federal income taxes in the amount of $ 115,000 and increased inventory by
$ 924,764.
Management of the Company expects capital expenditures to total approximately
$100,000 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
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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: July 19, 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: July 19, 2000
-------------------------
L. S. Smith
Chairman of the Board,
Chief Executive Officer and
Secretary
By: /s/ W. H. Oyster Dated: July 19, 2000
-------------------------
W. H. Oyster
Director, President and
Chief Operating Officer
By: /s/ John Benson Dated: July 19, 2000
-------------------------
John Benson
Chief Financial Officer
(Principal Accounting Officer)
10
