DGSE Companies, Inc. Reports Fourth Quarter and 2012 Full Year Results
DGSE Companies, Inc. (NYSE MKT: DGSE) (the “Company”) announced today
the filing of its Consolidated Financial Statements for the quarter and
year ended December 31, 2012.
James Vierling, Chief Executive Officer and Chairman of the Board
stated, “2012 was an important year for DGSE Companies, Inc., where we
executed on several key initiatives to regain integrity in our financial
disclosures and refocus our efforts on our operational objectives and
growth opportunities. We are pleased to announce that income from
continuing operations, net of one-time expenses, in the fourth quarter
of 2012 was $763,716. This means that in the second half of the year our
income from continuing operations, net of one-time expenses, exceeded
$1.7 million. During 2012, particular emphasis was placed on improving
our financial controls, processes and procedures and I am extremely
pleased with the work our new CFO, Brett Burford, and his team have
done. We are now confident in our ability to accurately and credibly
report our financial condition to current and prospective shareholders.”
Vierling continued, “With most of the distractions and expenses of last
year behind us, our expectation is that profitability in 2013 will be
significantly improved versus 2012.”
Income from continuing operations, net of one-time expenses, is
considered a Non-GAAP Measure, and is reconciled to income from
continuing operations in the accompanying table.
2012 Summary
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Income from continuing operations in second half of year, net of
one-time expenses exceeded $1.7 million
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Restructured entire senior management and accounting group
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Completed major restatement of the Company’s historical financials
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Significantly improved the Company’s financial controls, processes and
procedures
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Engaged new independent auditors
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Regained active trading status with the NYSE MKT exchange
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Integrated the Southern Bullion Trading (“SBT”) entity into the Company
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Restructured and increased the Company’s credit line
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Opened 8 new retail locations while closing 3 historically
underperforming locations
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Converted SBT locations from focusing only on scrap buying activity,
to focusing on buying and selling of all DGSE product lines
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Introduced DGSE manufactured jewelry line, enabling us to better
utilize the Company’s diamond inventory while increasing margins on
jewelry sales
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Continued to strengthen the relationship with majority shareholder
NTR, now part of Elemetal, LLC
Year End 2012 Results
Revenues decreased by $11,282,376 or 8% in Fiscal 2012, to $127,876,610,
compared to $139,158,986 in the prior year. This decrease was primarily
the result of an industry-wide reduction in bullion demand, which
significantly affected our bullion sales, driving a $7,913,158 or 11%
decrease in bullion sales. This decrease was partially offset by
additional sales related to the acquisition of SBT stores, which
occurred in September of 2011.
According to the World Gold Council (“WGC”), the demand for gold bullion
in the United States dropped by 32% on a dollar basis in 2012. Scrap
purchases were impacted negatively as well, as the WGC also notes that
the worldwide supply of recycled gold, excluding India, dropped by 6% in
2012. There was also much less volatility in gold pricing in 2012, which
drove less press coverage and had a direct negative impact on retail
level transactions.
Gross margin increased in Fiscal 2012 by $4,169,318, to $24,284,053 or
19.0% of revenue, compared to $20,114,735 or 14.5% of revenue in the
prior year. This increase is due to margin increases in jewelry and
scrap sales, as well as a shift in our sales mix away from the low
margin bullion business.
Selling, general and administrative expenses increased $11,597,981 or
88% in Fiscal 2012, to $24,802,391 compared to $13,204,410 in the prior
year. This increase was entirely driven by one-time costs, the
acquisition of SBT in September of 2011, and the opening of additional
non-SBT stores. $5,263,573 was incremental expense related to including
SBT stores for a full year in 2012, versus a partial year in 2011
results, while $3,495,637 related to the addition of new non-SBT stores
in Fiscal 2012. Additionally, the Company spent $3,176,884 in Fiscal
2012 in relation to the recent restatement and related legal matters.
Excluding these expenses, the Company would have seen a slight decrease
in its overall expenses for Fiscal 2012.
Depreciation and amortization increased by $390,697 or 128% in Fiscal
2012, to $696,477 compared to $305,780 in the prior year. $170,644 of
this increase was driven by recognizing a full year of amortization
related to the SBT intangible asset, versus a partial year in 2011. This
remaining increase was driven by new assets related to store openings
being placed into service, and amortization of deferred financing costs
associated with the renewal of our credit facility.
The Company recorded a loss from continuing operations of $1,621,655 in
Fiscal 2012, compared to income from continuing operations of $1,600,949
in Fiscal 2011, a reduction of $3,222,604. Excluding $3,176,884 in
one-time expenses related to the recent restatement and related legal
matters, the Company would have recorded income from continuing
operations of $1,555,229 in Fiscal 2012.
Net loss in Fiscal 2012 was $2,311,168 compared to net income of
$1,013,535 in Fiscal 2011, a reduction of $3,324,703. The net loss
includes $689,513 and $587,414 in 2012 and 2011 respectively related to
the discontinued operations of our Superior Galleries subsidiary.
Fourth Quarter 2012 Results
Revenues decreased by $4,029,067 or 10% in the quarter ending December
31, 2012, to $37,502,187, compared to $41,531,254 in the in the quarter
ending December 31, 2011. This decrease was primarily the result of an
industry-wide reduction in bullion demand.
Gross Margin decreased in the quarter ending December 31, 2012 by
$2,870,645, to $7,356,772 or 19.6% of revenue, compared to $10,227,417
or 24.6% of revenue in the prior year quarter.
Selling, general and administrative expenses increased $1,279,541 or 23%
in the quarter ending December 31, 2012, to $6,771,623 compared to
$5,492,082 in the prior year quarter. This increase was partially driven
by one-time expenses of $628,712 related to the recent restatement and
related legal matters, as well as expenses related to new store openings.
Depreciation and amortization increased by $108,430 or 78% in the
quarter ending December 31, 2012, to $248,217 compared to $139,787 in
the prior year quarter. This increase was driven primarily by new assets
related to store openings being placed into service.
The Company recorded a gain from continuing operations of $135,004 in
the quarter ending December 31, 2012, compared to income from continuing
operation of $1,748,096 in the prior year quarter, a reduction of
$1,613,092. Excluding $628,712 in one-time expenses related to the
recent restatement and related legal matters, the Company would have
recorded income from continuing operations of $763,716 in the quarter
ending December 31, 2012.
Net income in the quarter ending December 31, 2012 was $135,004 compared
to net income of $1,464,307 in the quarter ending December 31, 2011, a
reduction of $1,329,303. The net loss includes $0 and $283,789 in the
fourth quarters of 2012 and 2011 respectively related to the
discontinued operations of our Superior Galleries subsidiary.
Outlook for 2013
Mr. Vierling commented, “With the significant one-time expenses and
management distractions associated with the restatement behind us, the
Company expects 2013 to show a net profit while funding expansion out of
internal cash flow. We have already signed leases and have begun
construction on new branches in Texas, South Carolina and Georgia and
are excited to provide significant shareholder value in the coming year
and beyond.”
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Expansion plans and updates
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8-12 organic store openings funded through internal cash flow in
existing markets
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Three leases have been executed in Dallas, Atlanta and Charleston
markets. Estimated openings in Second Quarter 2013.
-
Evaluation of immediately accretive acquisition opportunities
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Complete the reorganization of accounting, back office and management
functionality to support future growth, capable of supporting 150 to
200 stores in the future.
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Continue to leverage strategic relationship with Elemetal
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Expanded offering of Elemetal bullion products in all DGSE
locations
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Consolidation of SBT and DGSE corporate functions at Elemetal
headquarters in Dallas
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Continue to explore additional strategic business opportunities
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Utilization of deferred tax asset related to net operating losses
(currently fully reserved on balance sheet at $9 million)
Mr. Vierling concluded, “Since 2011, through self-funded organic store
openings and through the acquisition of SBT, we have grown from 4 stores
in 3 states, to 34 stores in 8 states. Remarkably, we did this without
increasing our debt. We believe that over the next several years,
through additional self-funded growth, the acquisition of accretive
businesses using our stock as currency, and by leveraging our strategic
relationships, we have the potential to expand to 150-200 locations
nationwide with revenues exceeding $500 million. We understand that 2012
was a difficult year for our shareholders, and we would like to thank
them for supporting this new management team, and ensure them that our
focus in 2013 is on creating shareholder value through profitable
expansion.”
Non-GAAP Financial Measures
The Company reports information in accordance with U.S. Generally
Accepted Accounting Principles ("GAAP"). The Company has also disclosed
its performance on a non-GAAP basis that eliminates the effect of
certain one-time expenses related to its recent restatement and related
legal matters. Management believes this income measure provides a more
representative assessment of performance and provides better
comparability between reporting periods.
The Company's management does not, nor does it suggest that investors
should, consider such non-GAAP financial measures in isolation from, or
as a substitute for, financial information prepared in accordance with
GAAP. The Company presents such non-GAAP financial measures in reporting
its financial results to provide investors with an additional tool to
evaluate the Company's operating results. The following table reconciles
the GAAP (loss) income from continuing operations to the non-GAAP income
from continuing operations excluding one-time expenses, versus the
previous year:
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For the Year Ended
December 31,
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For the Three Months Ended
December 31,
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For the Six Months Ended
December 31,
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2012
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2011
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2012
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2011
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2012
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2011
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(Loss) income from continuing operations
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$
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(1,621,655
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)
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$
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1,600,949
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$
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135,004
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$
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1,748,096
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$
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(293,217
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)
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$
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965,415
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One-time expenses*
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3,176,884
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-
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628,712
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-
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2,035,840
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-
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Income from continuing operations ex one-time expenses
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$
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1,555,229
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$
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1,600,949
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$
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763,716
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$
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1,748,096
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$
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1,742,623
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$
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965,415
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*In Fiscal 2012, one-time expenses related to the restatement of the
Fiscal 2009 and Fiscal 2010 consolidated financial statements, and
related legal matters
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Shareholder Relations
If you would like to schedule an individual meeting with DGSE management
please call 972-481-3820 or email investorrelations@dgse.com
with your meeting request.
Conference Call
DGSE will hold a conference call this afternoon at 2:00 p.m. Central
Time (3:00 p.m. Eastern Time) to discuss the Company’s year-end 2012
financial results. To participate in the teleconference, please call in
a few minutes before the start time: +877-317-6789 for U.S. callers,
+866-605-3852 for Canadian callers and +412-317-6789 for international
callers and reference the DGSE conference call (confirmation code
10026741) when prompted. A replay will be available one hour after
completion of the call through April 29, 2013 at 8:00 a.m. CT. To access
the replay, please dial +877-344-7529 (U.S. callers) or +412-317-0088
(international callers) and reference passcode 10026741. The webcast and
archived replay can also be accessed on the Company’s website at www.dgse.com.
About DGSE Companies
DGSE Companies, Inc. wholesales and retails jewelry, diamonds, fine
watches, and precious metal bullion and rare coin products through its
Bullion Express, Charleston Gold & Diamond Exchange, Dallas Gold &
Silver Exchange, and Southern Bullion Coin & Jewelry operations. DGSE
also owns Fairchild International, Inc., one of the largest vintage
watch wholesalers in the country. In addition to its retail facilities
in Alabama, Florida, Georgia, Illinois, North Carolina, South Carolina,
Tennessee and Texas, the Company operates internet websites which can be
accessed at www.bullionexpress.com, www.dgse.com, www.cgdeinc.com,
and www.sbcoin.com.
Real-time price quotations and real-time order execution in precious
metals are provided on another DGSE website at www.USBullionExchange.com.
Wholesale customers can access the full vintage watch inventory through
the restricted site at www.FairchildWatches.com.
The Company is headquartered in Dallas, Texas and its common stock
trades on the NYSE MKT exchange under the symbol "DGSE."
This press release includes statements which may constitute
"forward-looking" statements, usually containing the words "believe,"
"estimate," "project," "expect" or similar expressions. These statements
are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements
inherently involve risks and uncertainties that could cause actual
results to differ materially from the forward-looking statements.
Factors that would cause or contribute to such differences include, but
are not limited to, continued acceptance of the Company's products and
services in the marketplace, competitive factors, dependence upon
third-party vendors, and other risks detailed in the Company's periodic
report filings with the Securities and Exchange Commission. By making
these forward-looking statements, the Company undertakes no obligation
to update these statements for revisions or changes after the date of
this release.
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DGSE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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December 31,
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2012
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2011
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ASSETS
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Current Assets:
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Cash and cash equivalents
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$
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4,911,087
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$
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5,976,928
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Trade receivables, net of allowances
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718,501
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1,578,892
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Inventories
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11,932,729
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10,717,291
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Prepaid expenses
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321,709
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84,971
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Current assets related to continuing operations
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17,884,026
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18,358,082
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Assets related to discontinued operations
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-
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1,253,676
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Total current assets
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17,884,026
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19,611,758
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Property and equipment, net
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4,849,937
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4,478,957
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Intangible assets, net
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3,169,840
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3,397,367
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Other assets
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211,069
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160,491
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Total assets
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$
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26,114,872
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$
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27,648,573
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LIABILITIES
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Current Liabilities:
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Line of credit
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$
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-
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$
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2,999,887
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Current maturities of long-term debt
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146,949
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451,674
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Current maturities of capital leases
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28,285
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21,184
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Accounts payable-trade
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3,561,794
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1,497,492
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Accrued expenses
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1,250,319
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3,017,394
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Customer deposits and other liabilities
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2,617,592
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1,836,748
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Current liabilities related to continuing operations
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7,604,939
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9,824,379
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Liabilities related to discontinued operations
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-
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54,454
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Total current liabilities
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7,604,939
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9,878,833
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Line of credit, related party
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3,583,358
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-
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Long-term debt, less current maturities
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1,843,062
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2,447,336
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Capital leases, less current maturities
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-
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30,914
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Total liabilities
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13,031,359
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12,357,083
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Commitments and contingencies
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STOCKHOLDERS' EQUITY
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Common stock, $0.01 par value; 30,000,000 shares authorized;
12,175,584 and 12,163,943 shares issued and outstanding
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121,755
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121,639
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Additional paid-in capital
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34,045,654
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33,942,579
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Accumulated deficit
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(21,083,896
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(18,772,728
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Total stockholders' equity
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13,083,513
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15,291,490
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Total liabilities and stockholders' equity
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$
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26,114,872
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$
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27,648,573
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DGSE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
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For the Year Ended
December 31,
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For the Three Months Ended
December 31,
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2012
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2011
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2012
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2011
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Revenue:
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Sales
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$
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127,876,610
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$
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139,158,986
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$
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37,502,187
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$
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41,531,254
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Cost of goods sold
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103,592,557
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119,044,251
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30,145,415
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31,303,837
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Gross margin
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24,284,053
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20,114,735
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7,356,772
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10,227,417
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Expenses:
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Selling, general and administrative expenses
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24,802,391
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13,204,410
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6,771,623
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5,492,082
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Depreciation and amortization
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696,477
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305,780
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248,217
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139,787
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25,498,868
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13,510,190
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7,019,840
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5,631,869
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Operating (loss) income
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(1,214,815
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)
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6,604,545
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336,932
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4,595,548
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Other expense (income) :
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Loss on settlement of debt with related party
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-
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4,360,713
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-
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2,640,713
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Other (income) expense, net
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(60,093
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)
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29,315
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(11,209
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)
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31,060
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Interest expense
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306,450
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573,215
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52,654
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135,326
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246,357
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4,963,243
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41,445
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2,807,099
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(Loss) income from continuing operations before income taxes
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(1,461,172
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)
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1,641,302
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295,487
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1,788,449
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|
|
|
|
Income tax expense
|
|
|
|
160,483
|
|
|
|
|
40,353
|
|
|
|
|
160,483
|
|
|
|
|
40,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
|
(1,621,655
|
)
|
|
|
|
1,600,949
|
|
|
|
|
135,004
|
|
|
|
|
1,748,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes of $0
|
|
|
|
(689,513
|
)
|
|
|
|
(587,414
|
)
|
|
|
|
-
|
|
|
|
|
(283,789
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
$
|
(2,311,168
|
)
|
|
|
$
|
1,013,535
|
|
|
|
$
|
135,004
|
|
|
|
$
|
1,464,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
$
|
(0.13
|
)
|
|
|
$
|
0.14
|
|
|
|
$
|
0.01
|
|
|
|
$
|
0.16
|
|
Loss from discontinued operations
|
|
|
|
(0.06
|
)
|
|
|
|
(0.05
|
)
|
|
|
|
-
|
|
|
|
|
(0.02
|
)
|
Net (loss) income per share
|
|
|
$
|
(0.19
|
)
|
|
|
$
|
0.09
|
|
|
|
$
|
0.01
|
|
|
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
$
|
(0.13
|
)
|
|
|
$
|
0.14
|
|
|
|
$
|
0.01
|
|
|
|
$
|
0.16
|
|
Loss from discontinued operations
|
|
|
|
(0.06
|
)
|
|
|
|
(0.05
|
)
|
|
|
|
-
|
|
|
|
|
(0.03
|
)
|
Net (loss) income per share
|
|
|
$
|
(0.19
|
)
|
|
|
$
|
0.09
|
|
|
|
$
|
0.01
|
|
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
12,175,361
|
|
|
|
|
10,831,971
|
|
|
|
|
12,175,584
|
|
|
|
|
11,997,108
|
|
Diluted
|
|
|
|
12,175,361
|
|
|
|
|
11,201,196
|
|
|
|
|
12,350,754
|
|
|
|
|
12,366,333
|
|