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Related Party Transactions
6 Months Ended
Jun. 30, 2014
Related Party Transactions [Abstract]  
Related Party Transactions

(8) Related Party Transactions.

 

DGSE has a corporate policy governing the identification, review, consideration and approval or ratification of transactions with related persons, as that term is defined in the Instructions to Item 404(a) of Regulation S-K, promulgated under the Securities Act (“Related Party”). Under this policy, all Related Party transactions are identified and approved prior to consummation of the transaction to ensure they are consistent with DGSE's best interests and the best interests of its stockholders. Among other factors, the Board considers the size and duration of the transaction, the nature and interest of the Related Party in the transaction, whether the transaction may involve a conflict of interest and if the transaction is on terms that are at least as favorable to DGSE as would be available in a comparable transaction with an unaffiliated third party. DGSE's Board reviews all Related Party transactions at least annually to determine if it is in DGSE's best interests and the best interests of our stockholders to continue, modify, or terminate the Related Party transactions. DGSE's Related Party Transaction Policy is available for review in its entirety under the “Investor Relations” menu of our corporate website at www.DGSECompanies.com.

 

Elemetal is DGSE's largest stockholder. Elemetal, through its affiliates NTR and Elemetal Capital, is also DGSE's primary refiner and bullion trading partner. For the six months ended June 30, 2014, 26% of sales and 27% of purchases were transactions with Elemetal, and in the same period in 2013, these transactions represented 25% of DGSE's sales and 39% of our purchases. As of June 30, 2014 and December 31, 2013, we were obligated to pay $3,557,379 and $3,332,858, respectively, to Elemetal as a trade payable. DGSE also paid Elemetal and its affiliates $117,526 in interest for the six months ended June 30, 2014, including 5% annual interest on DGSE's trade payable with Elemetal. A portion of the interest expense related to Southern Bullion's trade payable with Elemetal has been reclassified to discontinued operations for the three and six months ended June 30, 2014. In the same period in 2013, DGSE recognized $35,539 in interest expense related to Elemetal and its affiliates.

 

On July 19, 2012, DGSE entered into the Loan Agreement with NTR, an affiliate of DGSE's majority stockholder Elemetal, pursuant to which NTR, agreed to provide the Company a guidance line of revolving credit in an amount up to $7,500,000. The Loan Agreement anticipated termination–at which point all amounts outstanding thereunder would be due and payable (such amounts, the “Obligations”)–upon the earlier of: (i) August 1, 2014; (ii) the date that is twelve months after the Company receives notice from NTR demanding the repayment of the Obligations; (iii) the date the Obligations are accelerated in accordance with the terms of the Loan Agreement; or (iv) the date on which the commitment terminates under the Loan Agreement. In connection with the Loan Agreement, the Company granted a security interest in the respective personal property of each of its subsidiaries. The loan carries an interest rate of two percent (2%) per annum for all funds borrowed pursuant to the Loan Agreement. Proceeds received by the Company pursuant to the terms of the Loan Agreement were used for repayment of all outstanding financial obligations incurred in connection with that certain Loan Agreement, dated as of December 22, 2005, between the Company and Texas Capital Bank, and additional proceeds are expected to be used as working capital in the ordinary course of business. The Company incurred debt issuance costs associated with the Loan Agreement totaling $56,150. The debt issuance costs are included in other assets in the accompanying consolidated balance sheet and are being amortized to interest expense on a straight-line basis over two years. On February 25, 2014, the Company and NTR entered into a one-year extension of the Loan Agreement, extending the termination date to August 1, 2015. All other terms of the agreement remain the same. As of June 30, 2014 and December 31, 2013, the Company had outstanding balances of $2,303,359 and $2,383,359, respectively, drawn on the NTR credit facility.

 

Estate Gold and Silver, LLC, a Texas limited liability company (“Estate Gold”) was 25% owned by an entity owned by James Vierling, DGSE's former Chief Executive Officer and Chairman, and operated five stores in Oklahoma, primarily focused on buying gold, but also engaging in retail sales of jewelry and bullion. In July of 2013, Estate Gold ceased all operations. The Company previously had an agreement with Estate Gold to provide operations management services, consisting of: (i) the receipt, inventorying, and re-sale of Estate Gold purchases; (ii) the management of Estate Gold's payroll, insurance, accounts payable and receivable; (iii) the maintenance of and updates to Estate Gold's business software; (iv) maintenance of the Estate Gold website; and (v) financial reporting of Estate Gold to its owners. The Company also periodically engaged in the purchase or sale of jewelry, bullion and diamonds to Estate Gold, from time to time in the normal course of business. DGSE had no transactions with Estate Gold in the six months ended June 30, 2014. During the six months ended June 30, 2013, the Company received $46,213 in fees for services, sold $55,602 in products, and purchased $42,917 in products in transactions with Estate Gold. All Estate Gold transactions were conducted through the Company's Southern Bullion operations, and have been reclassified as discontinued operations in the consolidated statements of operations for the three and six months ended June 30, 2013.