DGSE Companies Inc. Reports Operating Results (10-Q)
Dgse Companies Inc. has a market cap of $26.06 million; its shares were traded at around $2.65 with a P/E ratio of 26.5 and P/S ratio of 0.31. Dgse Companies Inc. had an annual average earning growth of 3.5% over the past 10 years.
Highlight of Business Operations:Sales decreased by $7,641,429or 30.6%, during the three months ended March 31, 2010 as compared to 2009. This decrease was primarily the result of a $1,520,000, or 36.7%, decrease in rare coin sales, a $5,234,000, or 38.2%, decrease in the sale of precious metal products, and $612,000, or 10.0%, decrease in our jewelry sales during the first quarter of 2010 as compared to 2009. The decreases in precious metals and rare coin were due to a less volatile market . The decrease in jewelry sales was due to the sluggish retail environment. Cost of goods as a percentage of sales decreased from 87.9% in 2009 to 86.0% in 2010. This decrease was due to the decrease in rare coin and precious metals revenue as a percentage of total sales.
During the three months ended March 31, 2009 and 2010 cash flows from operating activities totaled $909,370 and ($350,411), respectively. Cash flows from operating activities during 2009 were primarily the result of a increase in inventory ($644,229), a decrease in accounts payable and accrued expenses ($548,977), a increase in customer deposits $786,647 and a decrease in trade receivables $924,861. The increase in inventory and customer deposits was due to a late first quarter increase in demand for precious metal products. The decrease in trade receivables was a result of a decrease in the sales of wholesale jewelry products. During 2010 the negative cash flows from operating activities were primarily due to a reduction trade payables and accrued $(934,785) and a reduction in customer deposits ($433,162).
During the three months ended March 31, 2009 and 2010 cash flows from investing activities totaled ($114,888) and ($ 87,762), respectively. During 2009 the primary use of cash from investing activities was the result of cash used to purchase property and equipment ($104,749) and the increase in pawn loans made net of pawn loans paid ($10,139). During 2010 the Company invested $87,762 in property and equipment.
During the three months ended March 31, 2009 and 2010 cash flows from financing activities totaled ($119,598) and ($65,563), respectively. The use of cash during both years was the result of repayment of loans to Texas Capital Bank and the mortgage on our facility.
Upon the consummation of our acquisition of Superior, and after the exchange by Stanford of $8.4 million of Superior debt for shares of Superior common stock, Superior amended and restated its credit facility with Stanford. The amended and restated commercial loan and security agreement, which we refer to as the loan agreement, decreased the available credit line from $19.89 million to $11.5 million, reflecting the $8.4 million debt exchange. Interest on the outstanding principal balance will continue to accrue at the prime rate, as reported in the Wall Street Journal or, during an event of default, at a rate 5% greater than the prime rate as so reported.
In December 2005, we entered into a revolving credit facility with Texas Capital Bank, N.A., which currently permits borrowings up to a maximum principal amount of $4,300,000 and has a maturity date of June 22, 2010. Borrowings under the revolving credit facility are collateralized by a general security interest in substantially all of our assets (other than the assets of Superior). As of March 31, 2010, approximately $4,300,000 was outstanding under the term loan and revolving credit facility. If we were to default under the terms and conditions of the revolving credit facility, Texas Capital Bank would have the right to accelerate any indebtedness outstanding and foreclose on our assets in order to satisfy our indebtedness. Such a foreclosure could have a material adverse effect on our business, liquidity, results of operations and financial position.
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