DGSE Reports Financial Results for Third Quarter of 2012

DGSE Companies, Inc. (NYSE MKT: DGSE) today announced the filing of its Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2012. On October 31, 2012 DGSE filed its restated Consolidated Financial Statements for the fiscal year ended December 31, 2010 and its Consolidated Financial Statements for the fiscal year ended December 31, 2011, and its Forms 10-Q for the fiscal quarters ended March 31, 2012 and June 30, 2012, respectively. With today's filing and the October 31, 2012 filings, DGSE is current in its public company reporting obligations under the Securities Exchange Act of 1934, as amended. DGSE believes it is fully in compliance with the listing requirements of NYSE MKT, LLC.

"We are pleased to have the restatement process firmly behind us," said James Vierling, Chairman, Chief Executive Officer and President of DGSE Companies, Inc. "While DGSE would have been profitable without the one-time restatement expenses presented in this filing, it is clear that we now need to turn our focus to expanding revenues and margins while reducing costs wherever possible."

Mr. Vierling continued, "We believe that with the filing of our results for the fiscal quarter ended September 30, 2012, DGSE's new management has further demonstrated its commitment to timely, accurate reporting for our shareholders. The Company believes it is fully compliant with its listing requirements, and looks forward to the resumption of trading of its common shares on NYSE MKT in the very near future."

Third Quarter 2012 Results

In the quarter ended September 30, 2012, sales decreased by $15.0 million or 34%, to $29.0 million, as compared to $44.0 million during the same period in 2011. The decrease was primarily driven by significantly lower sales of bullion, with moderate decreases across other categories. These decreases were partially offset by the acquisition of SBT, Inc. ("SBT") in September of 2011, which added revenues of $7.8 million during the three months ended September 30, 2012, an increase of $4.5 million over the same period in 2011.

For the quarter, cost of sales decreased by $17.0 million, or 43% to $22.8 million, as compared to $39.8 million during the same period in 2011, primarily driven by lower sales. Cost of sales as a percentage of revenue decreased from 90.4% in 2011 to 78.6% in 2012 primarily due to higher margins on the SBT business, as well as reduced sales of bullion which carry significantly lower margins than other categories.

Selling, General & Administrative ("SG&A") expenses increased by $3.3 million, or 107% to $6.4 million for the quarter, as compared to $3.1 million during the same period in 2011. $1.6 million of this increase is due to the addition of the SBT stores, while the opening of four new non-SBT stores added $870,000 in the current period, related to increased advertising, salaries, payroll taxes, building rent and other costs. $1.4 million of the $3.3 million SG&A increase were one-time expenses related to professional fees associated with the restatement of our financial statements, and the related Securities and Exchange Commission ("SEC") investigation. These additional expenses were partially offset by cost reduction efforts in the Company's legacy operations.

In March 2012, current management decided to discontinue the operations of the Company's Superior Galleries subsidiary due to the lack of profitability and our belief that it was unlikely that profitability would be reached in the foreseeable future. The Company officially discontinued operations in June of 2012 but recognized losses beginning in the first quarter of 2012 as discontinued operations. In the third quarter of 2012, the discontinued operations of Superior Galleries generated a net loss of $108,000. As of the third quarter of 2012 the Company believes that it has recognized all material losses related to the discontinued operations of Superior Galleries.

In the third quarter of 2011 the Company had a loss on settlement of debt with a related party of $1.7 million which decreased to $0 in the third quarter of the current year. The prior year loss was incurred in connection with the issuance of 400,000 shares of our common stock to NTR Metals, LLC, our majority stockholder ("NTR"), in exchange for $2,000,000 in debt forgiveness.

Prior to the charge to discontinued operations, the Company had a loss from continuing operations of $428,000 for the third quarter of 2012. Net loss after discontinued operations for the quarter was $536,000.

Excluding discontinued operations and one-time expenses associated with the restatement of our financial statements the Company would have generated a profit of $1.0 million for the quarter.

Year to Date 2012 Results

For the nine months ended September 30, 2012 sales decreased by $7.2 million, or 7.4%, to $90.4 million, as compared to $97.6 million during the same period in 2011. The decrease was primarily driven by significantly lower sales of bullion, with moderate decreases across other segments. These decreases were partially offset by the acquisition of SBT in September of 2011, which added revenues of $22.3 million during the nine months ended September 30, 2012, an increase of $19.0 million over the same period in 2011.

For the nine months ended September 30, 2012, cost of sales decreased by $14.3 million, or 16.3%, to $73.4 million, as compared to $87.7 million during the same period in 2011. Cost of sales as a percentage of revenue decreased from 89.9% in 2011 to 81.2% in 2012 primarily due to higher margins on the SBT business, as well as reduced sales of bullion, which carry significantly lower margins than other categories.

SG&A expenses increased by $10.3 million, or 134%, to $18.0 million, as compared to $7.7 million during the same period in 2011. $5.4 million of this increase is due to the addition of the SBT stores, while the opening of four new non-SBT stores added $2.2 million in the current year, due to increased advertising, salaries, payroll taxes, building rent and other costs. Year to date, the Company has incurred $2.7 million in professional fees associated with the restatement of our financial statements, and the related SEC investigation.

For the nine months, the Company recognized losses from the discontinued operations of Superior Galleries of $768,000. As of the third quarter of 2012 the Company believes that it has recognized all material losses related to the discontinued operations of Superior Galleries.

As noted earlier, in 2011 the Company had a loss on settlement of debt with a related party of $1.7 million which decreased to $0 in the current year. The prior year loss was incurred in connection with the issuance of 400,000 shares of our common stock to NTR, our majority stockholder, in exchange for $2,000,000 in debt forgiveness.

Prior to the charge to discontinued operations, the Company had a loss from continuing operations of $1.7 million for the nine months ended September 30, 2012. Net loss after discontinued operations for the period was $2.4 million.

Excluding discontinued operations and one-time expenses associated with the restatement of our financial statements the Company would have generated a profit of $1.1 million for the three quarters ended September 30, 2012.

Summary

"While the overall market for precious metals has been much softer in 2012 compared to the record setting 2011, where gold hit an all-time high, DGSE was able to largely mitigate the impact of revenue losses through significant margin improvements and the addition of SBT's stores, which have added over $22 million in revenue in the first three quarters of 2012," stated Mr. Vierling. "Although the Company's continuing operations lost $1.7 million year to date, we have incurred $2.7 million in one-time costs associated with the restatement of our financial statements. Excluding these one-time expenses and the Company's discontinued operations, the Company would have earned over $1 million year to date."

"The restatement effort has been a significant drag on both the Company's expenses and new management's attention this year. With the restatement behind us, DGSE is highly focused on opening new stores, growing its existing business and reducing costs wherever possible," stated Mr. Vierling. "We also look forward to the resumption of trading for our stock. While we have greatly appreciated the expression of support from many of our key stockholders, especially our majority stockholder NTR, we know that the trading halt has been difficult and frustrating. We are absolutely committed to ensuring transparency and liquidity for our shareholders in the future," concluded Mr. Vierling.

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.

About DGSE Companies, Inc.

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.comwww.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 atwww.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.

 

 

DGSE COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

           
      September 30,   December 31,
        2012       2011  
      (Unaudited)    
ASSETS        
Current Assets:        
  Cash and cash equivalents   $ 2,775,962     $ 5,976,928  
  Trade receivables     1,439,394       1,578,892  
  Inventories     11,692,290       10,717,291  
  Prepaid expenses     225,068       84,971  
  Current assets related to continuing operations     16,132,714       18,358,082  
           
  Assets related to discontinued operations     64,678       1,311,929  
           
  Total current assets     16,197,392       19,670,011  
           
Property and equipment, net     4,856,470       4,420,704  
Intangible assets, net     3,226,722       3,397,367  
Other assets     208,049       160,491  
           
  Total assets   $ 24,488,633     $ 27,648,573  
           
LIABILITIES        
Current Liabilities:        
  Line of credit   $ -     $ 2,999,887  
  Current maturities of long-term debt     180,920       451,674  
  Current maturities of capital leases     27,094       21,184  
  Accounts payable-trade     2,612,258       1,497,492  
  Accrued expenses     787,244       3,017,394  
  Customer deposits and other liabilities     2,455,493       1,836,748  
           
  Current liabilities related to continuing operations     6,063,009       9,824,379  
           
  Liabilities related to discontinued operations     12,222       54,454  
           
  Total current liabilities     6,075,231       9,878,833  
           
Line of credit, related party     3,583,358       -  
Long-term debt, less current maturities     1,874,000       2,447,336  
Capital leases, less current maturities     7,534       30,914  
Total liabilities     11,540,123       12,357,083  
           
Commitments and contingencies        
           
STOCKHOLDERS' EQUITY        
Common stock     121,755       121,639  
Additional paid-in capital     34,045,654       33,942,579  
Accumulated deficit     (21,218,899 )     (18,772,728 )
  Total stockholders' equity     12,948,510       15,291,490  
           
  Total liabilities and stockholders' equity   $ 24,488,633     $ 27,648,573  

 

                 
DGSE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
                     
        Three Months Ended

September 30,

 

Nine Months Ended

September 30,

          2012       2011       2012       2011  
            As Restated       As Restated
Revenue:                
  Sales   $ 28,975,063     $ 44,014,649     $ 90,374,423     $ 97,627,732  
                     
Costs and expenses:                
  Cost of goods sold     22,787,722       39,795,575       73,447,142       87,740,414  
  Selling, general and administrative expenses     6,431,750       3,101,560       18,030,768       7,712,328  
  Depreciation and amortization     152,337       5,899       448,260       165,993  
          29,371,809       42,903,034       91,926,170       95,618,735  
                     
    Operating (loss) income     (396,746 )     1,111,615       (1,551,747 )     2,008,997  
                     
Other expense (income) :                
  Loss on settlement of debt with related party     -       1,720,000       -       1,720,000  
  Other income, net     (41,202 )     -       (127,596 )     (1,745 )
  Interest expense     72,677       174,296       253,796       437,889  
          31,475       1,894,296       126,200       2,156,144  
                     
    Loss from continuing operations before income taxes     (428,221 )     (782,681 )     (1,677,947 )     (147,147 )
                     
Income tax expense     -       -       -       -  
                     
Loss from continuing operations     (428,221 )     (782,681 )     (1,677,947 )     (147,147 )
                     
Discontinued operations:                
  Loss from discontinued operations, net of taxes of $0     (107,669 )     (101,366 )     (768,225 )     (303,625 )
                     
    Net loss   $ (535,890 )   $ (884,047 )   $ (2,446,172 )   $ (450,772 )
                     
Basic and diluted net loss per common share:                
  Loss from continuing operations   $ (0.04 )   $ (0.07 )   $ (0.14 )   $ (0.01 )
  Loss from discontinued operations     -       (0.01 )     (0.06 )     (0.03 )
  Net loss per share   $ (0.04 )   $ (0.08 )   $ (0.20 )   $ (0.04 )
                     
Weighted-average number of common shares                
  Basic     12,175,287       10,441,418       12,175,287       10,441,418  
  Diluted     12,175,287       10,441,418       12,175,287       10,441,418  

 

DGSE Companies, Inc.
C. Brett Burford, 972-484-3662
Chief Financial Officer

 


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