1 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, 1996 ------------------------------------------------- ( ) Transition Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to ------------------------ --------------------- Commission File Number 1-11048 -------------------------------------------------------- Dallas Gold and Silver Exchange, Inc. - -------------------------------------------------------------------------------- (Name of small business issuer) <TABLE> <S> <C> Nevada 88-0097334 - ----------------------------- ----------------------------------- (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 2817 Forest Lane, Dallas, Texas 75234 - --------------------------------------------- ------------------ (Address of principal executive offices) (Zip Code) </TABLE> (Issuer's telephone number, including area code) (214) 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. <TABLE> <S> <C> Class Outstanding at April 26, 1996 - ---------------------------- --------------------------------- Common Stock, $.01 per value 5,820,849 </TABLE>
2 PART I. FINANCIAL INFORMATION - ------------------------------- DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) <TABLE> <CAPTION> March 31, December 31, ASSETS 1996 1995 ----------- ------------- <S> <C> <C> Current assets: Cash $ 79,257 $ 417,076 Marketable securities - trading 482,861 481,950 Trade receivables 110,961 149,656 Loans 33,152 31,152 Other receivables Inventory 1,009,339 892,203 Prepaid expenses 54,447 18,876 --------- ---------- Total current assets 1,770,017 1,990,913 Investments in marketable securities 749,372 748,744 Property and equipment 1,160,618 1,151,094 Other assets 34,721 35,388 --------- ---------- Total assets $3,714,728 $3,926,139 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable $ 500,654 $ 266,210 Accounts payable 245,643 254,233 Accrued expenses 113,122 212,291 Customer deposits 50,566 38,814 Current maturities of long-term debt and lease obligations 41,730 40,780 --------- --------- Total current liabilities 951,715 812,328 Long-term debt and capital lease obligations, less current maturities 1,047,569 1,339,341 --------- --------- Total liabilities 1,999,284 2,151,669 --------- --------- Shareholders' equity: Common stock, $.01 par value; authorized 10,000,000 shares; issued and outstanding 5,820,849 shares at March 31, 1996 and December 31, 1995 58,209 58,209 Additional paid-in capital 5,192,400 5,192,400 Accumulated deficit (3,478,325) (3,419,299) --------- --------- 1,772,284 1,831,310 Unrealized gain (loss) on securities (56,840) ( 56,840) --------- --------- Total shareholders' equity 1,715,444 1,774,470 --------- --------- Total liabilities and shareholders' equity $3,714,728 $3,926,139 ========= ========= </TABLE> 2
3 DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) <TABLE> <CAPTION> Three Months Ended March 31, 1996 1995 ------------------------- <S> <C> <C> Revenues: Sales $2,656,995 $2,468,581 Pawn service fees 10,120 14,766 Travel agency income 343,938 283,986 Consulting service income -0- 217,102 Interest income -0- -0- Realized gain on marketable securities 1,641 63,516 Unrealized gain on trading securities -0- 36,280 Other income 24,974 -0- --------- --------- 3,037,668 3,084,231 Costs and expenses: Cost of sales (exclusive of items shown separately below) 2,281,685 2,024,323 Travel agency costs 332,744 275,448 Consulting service costs 15,495 59,917 General and administrative expenses 405,969 446,515 Depreciation and amortization 20,351 19,495 Interest expense 40,450 39,900 --------- --------- Total costs and expenses 3,096,694 2,865,598 --------- --------- Net income (loss) (59,026) 218,633 ========= ========== Income (loss) per share of common stock $ (.01) $ .04 ========= ========= </TABLE> 3
4 DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) <TABLE> <CAPTION> Three Months Ended March 31, 1996 1995 -------------------- <S> <C> <C> Cash used for operating activities $ (243,559) $ (311,367) Cash flows from investing activities: (Increase) Decrease in loans, net (2,000) 2,854 Purchase of property, plant and equipment (29,875) (39,865) Sale of marketable securities 1,641 126,792 Purchase of marketable securities (4,648) (23,800) ---------- ---------- Net cash provided by (used for investing activities (34,882) 65,981 ---------- ---------- Cash flows from financing activities: Purchase of common stock Principal payments on notes payable (5,979) Principal payments on long-term debt and capital lease obligations (59,378) (54,120) ---------- ---------- Net cash used for financing activities (59,378) (60,099) ---------- ---------- Decrease in cash and cash equivalents $ (337,819) $ (305,485) ========== ========== </TABLE> 4
5 DALLAS GOLD AND SILVER EXCHANGE, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT March 31, 1996 (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, Dallas Global Travel, Inc. and DLS Financial Services, 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, 1996, are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. 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, 1995. 5
6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Results of Operations Quarter ended March 31, 1996 vs 1995: Sales for the first quarter of 1996 increased $188,414 or 7.6% when compared to the corresponding quarter of 1995. The increase was primarily the result of an increase in precious metals sales in the amount of $124,457. Travel agency income increased by $59,952 or 21.1% due to an increase in business related travel. Consulting service income decreased by $217,102 due to a $225,000 consulting fee earned during 1995 relating to the recapitalization of an existing client. During the first quarter of 1995 the Company sold $126,792 of marketable securities realizing a gain of $63,516. Unrealized gains on trading securities in the amount of $36,516 in 1995 was the result of an increase in the market value of the Company's investment in Naturade, Inc. Other income in the amount of $24,974 during 1996 was the result of lease income received. Cost of sales increased by $257,362 primarily due to the increase in sales. Travel agency costs increased by $57,296 due to the 21.1% increase in income. Consulting service cost decreased by $44,442 during the first quarter of 1996 due to the decrease in revenues from consulting activities. General and administration expenses decreased by $40,546 primarily due to cost savings resulting from the closure of the Company's second jewelry store in November 1995. Liquidity and Capital Resources Due to the somewhat seasonal nature of the Company's jewelry business, inventory and trade receivables are at their lowest levels on December 31 of each year. During the first half of each year jewelry inventory is replenished and trade receivables begin to increase. During the first quarter of 1996, cash and cash equivalents decreased by $337,819 primarily as a result of increases in inventory ($117,136), a decrease in accrued expenses ($99,169) and principal payments on long-term debt ($59,378). During, 1995 and 1994, the Company borrowed a net $331,221 primarily from individuals. The proceeds from these loans were used to purchase additional inventory to hold for sale to retail customers and to met other working capital requirements. In addition, in December 1995, the Company issued a convertible promissory note in the amount of $ 150,000. The proceeds from the note will be used to carry inventory and for other working capital requirements. 6
7 Management of the Company expects capital expenditures to total approximately $50,000 during 1996. It is anticipated that these expenditures will be funded from the Company's current working capital position. From time to time, management has adjusted the Company's inventory levels to meet seasonal demand or in order to meet working capital requirements. Management is of the opinion that if additional working capital is required by the Company, additional loans can be obtained from individuals or from commercial banks. If necessary, inventory levels may be adjusted or a portion of the Company's investments in marketable securities may be liquidated in order to meet unforseen working capital requirement. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibits - None Reports on Form 8-K - None 7
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 10, 1996 ------------------------- 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 10, 1996 ------------------------- L. S. Smith Chairman of the Board, Chief Executive Officer and Secretary By: /s/ W. H. Oyster Dated: May 10, 1996 ------------------------- W. H. Oyster Director, President and Chief Operating Officer By: /s/ John Benson Dated: May 10, 1996 ------------------------- John Benson Chief Financial Officer (Principal Accounting Officer) 8
9 EXHIBIT INDEX ----- EXHIBIT NUMBER DESCRIPTION - ------ ----------- 27 Financial Data Schedule