-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EB5VbHIOzzNAT6/pe75DMwqb2upWlkVjLPgAYvfM51m+qqUT5pdE5Qy17IwVtm7p ESISPvXrma5KU8F0YeFdNA== 0001010549-02-000286.txt : 20020515 0001010549-02-000286.hdr.sgml : 20020515 ACCESSION NUMBER: 0001010549-02-000286 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DALLAS GOLD & SILVER EXCHANGE INC /NV/ CENTRAL INDEX KEY: 0000701719 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-JEWELRY STORES [5944] IRS NUMBER: 880097334 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-11048 FILM NUMBER: 02648045 BUSINESS ADDRESS: STREET 1: 2817 FOREST L STREET 2: STE 202 CITY: DALLAS STATE: TX ZIP: 75234 BUSINESS PHONE: 9724843662 MAIL ADDRESS: STREET 1: 2817 FOREST LN CITY: DALLAS STATE: TX ZIP: 75234 FORMER COMPANY: FORMER CONFORMED NAME: CANYON STATE CORP DATE OF NAME CHANGE: 19860819 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN PACIFIC MINT INC DATE OF NAME CHANGE: 19920703 10QSB 1 dgse10qsb033102.txt 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 March 31, 2002 ------------------------------ ( ) 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 --------------------------- DGSE Companies, 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 May 11, 2001 - ---------------------------- --------------------------- Common Stock, $.01 per value 4,913,790
PART I. FINANCIAL INFORMATION DGSE Companies, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS ASSETS (Unaudited) March 31, 2002 December 31, 2001 ----------------- ----------------- CURRENT ASSETS Cash and cash equivalents $ 104,254 $ 1,063,060 Trade receivables 576,984 646,583 Inventories 6,297,202 6,297,320 Prepaid expenses 132,349 128,213 ----------------- ----------------- Total current assets 7,110,789 8,135,176 MARKETABLE SECURITIES - AVAILABLE FOR SALE 237,338 426,414 PROPERTY AND EQUIPMENT - AT COST, NET 1,277,751 1,327,822 DEFERRED TAX ASSET 270,427 206,141 GOODWILL 1,151,120 1,151,120 OTHER ASSETS 153,099 153,688 ----------------- ----------------- $ 10,200,524 $ 11,400,361 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 2,886,444 $ 3,161,487 Current maturities of long-term debt 483,173 865,685 Accounts payable - trade 701,994 1,007,311 Accrued expenses 255,572 634,874 Customer deposits 111,058 90,696 Federal income taxes payable 283,557 320,681 Deferred income taxes 86,093 86,093 ----------------- ----------------- Total current liabilities 4,807,891 6,166,827 LONG-TERM DEBT, less current maturities 1,118,981 764,102 SHAREHOLDERS' EQUITY Common stock, $.01 par value; authorized 10,000,000 shares; issued and outstanding 4,913,790 shares at March 31, 2002 and 4,913,290 shares at December 31, 2001 49,138 49,133 Additional paid-in capital 5,709,370 5,708,301 Accumulated other comprehensive loss (1,112,067) (987,277) Accumulated deficit (372,789) (300,725) ----------------- ----------------- Total shareholders' equity 4,273,652 4,469,432 $ 10,200,524 $ 11,400,361 ================= =================
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DGSE Companies, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS Three months ended (Unaudited) March 31, 2002 March 31, 2001 -------------- -------------- Revenue Sales $ 4,502,108 $ 4,343,831 Pawn services charges 33,748 27,015 -------------- -------------- 4,535,856 4,370,846 Costs and expenses Cost of goods sold 3,436,074 3,279,246 Consulting service costs 16,073 12,862 Selling, general and administrative expenses 1,044,573 1,367,970 Depreciation and amortization 52,628 100,155 -------------- -------------- 4,549,348 4,760,233 Other income (expense) Interest expense (95,696) (107,421) Other Income -- 2,517 -------------- -------------- Total other income (expense) (95,696) (104,904) Loss before income taxes (109,188) (494,291) Income tax benefit (37,124) (151,622) -------------- -------------- Net loss $ (72,064) $ (342,669) ============== ============== Earnings per common share Basic and diluted ($ .01) ($ .07) Weighted average number of common shares Basic and diluted 4,913,790 4,919,546
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DGSE COMPANIES, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, 2002 2001 ----------- ----------- Reconciliation of net loss to net cash used in operating activities Net loss $ (72,064) $ (342,669) Common stock issued for services 1,074 -- Depreciation and amortization 52,628 100,155 Deferred taxes (151,622) (Increase) decrease in operating assets and liabilities Trade receivables 69,599 303,215 Inventories 118 272,925 Prepaid expenses and other current assets (4,136) 2,980 Accounts payable and accrued expenses (684,619) (1,483,149) Customer deposits 20,362 63,273 Federal income taxes payable (37,124) -- Other 589 -- ----------- ----------- Total net cash used in operating activities (653,573) (1,234,892) Cash flows from investing activities Purchase of marketable securities -- (14,901) Purchase of property and equipment (2,557) (63,972) ----------- ----------- Net cash used in investing activities (2,557) (78,873) Cash flows from financing activities Proceeds from notes issued 310,555 279,135 Payments on notes payable (613,231) (52,923) ----------- ----------- Net cash (used in) provided by financing activities (302,676) 226,212 ----------- ----------- Net decrease in cash and cash equivalents (958,806) (1,087,553) Cash and cash equivalents at beginning of year 1,063,060 1,362,219 ----------- ----------- Cash and cash equivalents at end of period $ 104,254 $ 274,666 =========== ===========
Supplemental schedule of noncash, investing and financing activities: Interest paid for the three months ended March 31, 2002 and 2001 was $ 106,633 and $ 98,385, respectively. No income taxes were paid during the three months ended March 31, 2002 or 2001. During the quarter ended March 31, 2001 debt amounting to $ 130,000 was converted into common stock. 4 (1) Basis of Presentation: The accompanying unaudited condensed consolidated financial statements of DGSE Companies, Inc. and Subsidiaries include the financial statements of DGSE Companies, Inc. and its wholly-owned subsidiaries, DGSE Corporation, DLS Financial Services, Inc., National Jewelry Exchange, Inc., Silverman Consultants, Inc., Charleston Gold And Diamond Exchange, 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 three month period ended March 31, 2002, are not necessarily indicative of the results that may be expected for the year ended December 31, 2002. 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, 2001. (2) New Accounting Pronouncements: Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations, SFAS No. 142, Goodwill and Intangible Assets, and SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets. SFAS No. 141 and SFAS No. 142 Major provisions of these statements and their effective dates are as follows: o intangible assets acquired in a business combination must be recorded separately from goodwill if they arise from contractual or other legal rights and are separable from the acquired entity and can be sold, transferred, licensed, rented or exchanged, either individually or as part of a related contract, asset or liability; o effective January 1, 2002, all previously recognized goodwill and intangible assets with indefinite lives will no longer be subject to amortization; o effective January 1, 2002, goodwill and intangible assets with indefinite lives will be tested for impairment annually or whenever there is an impairment indicator; and o all acquired goodwill must be assigned to reporting units for purposes of impairment testing and segment reporting The Company amortized goodwill and intangible assets acquired prior to July 1, 2001 until December 31, 2001. Beginning January 1, 2002, quarterly and annual goodwill amortization is no longer recognized. The Company will complete a transitional fair value based impairment test of goodwill as of January 1, 2002 by June 30, 2002. Impairment losses, if any, resulting from the transitional testing will be recognized as a cumulative effect of a change in accounting principle. 5
Goodwill consists of the following: Jewelry Liquidation Segment Segment Total ----------- ----------- ----------- Goodwill $ 837,117 $ 314,003 $ 1,151,120 =========== =========== =========== Net loss and loss per share for the three months ended March 31, 2002 and 2001, adjusted to exclude amortization expense, is as follows: Three months ended March 31, 2002 2001 ----------- ------------ Net loss Reported net loss $ (72,064) $ (342,669) Goodwill amortization -- 48,170 ----------- ------------ Adjusted net loss $ (72,064) $ (294,499) =========== ============ Basic and diluted loss per share Reported basic and diluted loss per share $ (0.01) $ (0.07) Goodwill amortization -- 0.01 ----------- ------------ Adjusted basic loss per share $ (0.01) $ (0.06) =========== ============ SFAS No. 144 SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The implementation of this standard did not have an effect on the Company's financial position, results of operations, or cash flows. (3) - Earnings per share No reconciliation is provided for the periods ended March 31, 2002 and 2001 because the effect is not dilutive. (4) - Business segment information The Company's operations by business segment were as follows: Consulting Corporate Software Liquidations Jewelry Services & other Consolidated ------------ ------------ ------------ ------------ ------------ ------------ Revenues 2002 $ -- $ 111,811 $ 4,424,045 $ -- $ 4,535,856 2001 $ 3,577 $ 535,072 $ 3,831,816 $ 381 -- $ 4,370,846 Operating income (loss) 2002 $ (5,356) $ (186,886) $ 105,056 $ (18,093) $ (3,909) $ (109,188) 2001 $ (30,867) $ (406,248) $ (35,898) $ (16,581) $ (4,697) $ (494,291) 6 Identifiable assets 2002 $ 65,615 $ 1,810,118 $ 7,785,519 $ 539,272 $ -- $ 10,200,524 2001 $ 119,582 $ 3,528,747 $ 7,187,051 $ 930,648 $ -- $ 11,766,028 Capital expenditures 2002 $ -- $ -- $ 2,557 $ -- $ -- $ 2,557 2001 $ -- $ -- $ 63,972 $ -- $ -- $ 63,972 Depreciation and amortization 2002 $ 5,356 $ 15,845 $ 29,407 $ 2,020 $ -- $ 52,628 2001 $ 5,105 $ 35,711 $ 55,239 $ 4,100 $ -- $ 100,155
(5) Other Comprehensive income: Other comprehensive income is as follows: Before Tax (Expense) Net-of-Tax Amount Benefit Amount ----------- ----------- ----------- Other comprehensive income (loss) at December 31, 2001 $(1,495,874) $ 508,597 $ (987,277) Unrealized holding losses arising during 2002 (189,076) 64,286 (124,790) ----------- ----------- ----------- Other comprehensive income (loss) at March 31, 2002 $(1,684,950) $ 572,883 $(1,112,067) =========== =========== =========== MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Results of Operations - --------------------- Quarter ended March 31, 2002 vs 2001: Sales for the first quarter of 2002 increased $ 158,277 or 3.6% when compared to the corresponding quarter of 2001. This was primarily the result of a increase in sales in the jewelry segment in the amount of $592,229 and a decrease in sales from the liquidation segment in the amount of $423,261. Jewelry segment revenues were higher due an improvement in the precious metals market with precious metal sales increasing by $235,934. Liquidation sales were lower due to no significant new liquidation sales being booked during the first two months of the quarter. Cost of sales increased by $156,828 primarily due to the increase in sales. Gross margins declined from 24.5% in 2001 to 23.7% in 2002 due to the increase in sales of precious metals which have a lower margin than jewelry. General and administration expenses decreased by $323,397 due staff reductions and salary cuts. Depreciation and amortization expense decreased by $47,527 due to goodwill not being amortized in 2002 with the adoption of SAFS No. 142. Income taxes are provided at the corporate rate of 34% for both 2002 and 2001, net of non-deductible goodwill amortization expense in 2001. 7
Liquidity and Capital Resources - ------------------------------- The Company's short-term debt, including current maturities of long-term debt totaled $ 4,027,172 as of December 31, 2001. During the first quarter of 2002 the Company retired $ 613,231 of this debt and renewed or extended $1,800,000. The Company has not paid its federal income taxes owed for fiscal year 2000 and negotiated payment terms with the Internal Revenue Service. It is anticipated these taxes will be paid in fiscal 2002. Management of the Company expects capital expenditures to total approximately $100,000 during 2002. It is anticipated that these expenditures will be funded from working capital. The ability of the Company to finance its operations and working capital needs are dependent upon management's ability to negotiate extended terms or refinance its short-term debt. The Company has historically renewed, extended or replaced short-term debt as it matures and management believes that it will be able to continue to do so in the near future. 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. Contractual Cash Obligations Payments due by year end - ---------------------------- -------------------------------------------------------------- Total 2002 2003 2004 2005 2006 Thereafter ---------- ---------- ---------- ---------- ---------- ---------- ---------- Notes payable $2,886,444 $2,886,444 -- -- -- -- -- Long-term debt and capital leases 1,602,154 954,285 $ 124,606 $ 51,377 $ 36,136 $ 39,365 $ 396,385 Federal income taxes 320,681 320,681 -- -- -- -- -- Operating leases 920,361 232,642 293,899 263,476 130,344 -- -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- $5,729,640 $4,394,052 $ 418,505 $ 314,853 $ 166,480 $ 39,365 $ 396,385 ========== ========== ========== ========== ========== ========== ==========
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. PART II. OTHER INFORMATION - -------------------------- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibits - 27 Financial Data Schedule Reports on Form 8-K - None 8 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: May 14, 2002 ------------------------- 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: May 14, 2002 ------------------------- L. S. Smith Chairman of the Board, Chief Executive Officer and Secretary By: /s/ W. H. Oyster Dated: May 14, 2002 ------------------------- W. H. Oyster Director, President and Chief Operating Officer By: /s/ John Benson Dated: May 14, 2002 ------------------------- John Benson Chief Financial Officer (Principal Accounting Officer) 9 -----END PRIVACY-ENHANCED MESSAGE-----