Envela Corp — Interim / Quarterly Report 2000

Nov 8, 2000

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 September 30, 2000 ------------------ ( ) 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) Nevada 88-0097334 - ---------------------------------- ---------------------------------- (State or other jurisdiction (I.R.S. Employer Identification of incorporation or organization) Number) 2817 Forest Lane, Dallas, Texas 75234 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (Issuer's telephone number, including area code) (972) 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. Class Outstanding at October 12, 2000 - ---------------------------- ------------------------------- Common Stock, $.01 per value 4,908,004

2 Dallas Gold and Silver Exchange, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended September 30, 2000 1999 ---------- ---------- Revenue Sales $5,773,779 $4,544,527 Pawn services fees 27,630 17,114 Consulting services 38,000 -- Gain on marketable securities - trading -- 216,974 Other Income -- 175 ---------- ---------- 5,839,409 4,778,790 Costs and expenses Cost of goods sold 4,248,277 3,875,976 Consulting services 23,086 53,386 Selling, general and administrative 1,289,410 719,628 Depreciation and amortization 105,144 34,935 Interest 108,395 73,795 ---------- ---------- 5,774,312 4,757,720 ---------- ---------- Income before income taxes 65,097 20,895 Income tax expense 23,770 7,105 ---------- ---------- Net income $ 41,327 $ 13,790 ========== ========== Earnings per common share Basic $ .01 -- Diluted $ .01 -- Weighted average number of common shares Basic 4,725,888 4,278,912 Diluted 4,932,076 4,666,395 3 Dallas Gold and Silver Exchange, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Nine Months Ended September 30, 2000 1999 ------------ ------------ Revenue Sales $ 16,878,680 $ 13,162,707 Pawn services fees 69,630 42,784 Consulting services 456,000 -- Gain (loss) on marketable securities - trading 269,363 (268,621) Other Income 5,875 581 ------------ ------------ 17,679,548 12,937,451 Costs and expenses Cost of goods sold 12,743,930 11,040,370 Consulting services 67,687 151,741 Selling, general and administrative 3,618,070 1,873,033 Depreciation and amortization 276,014 92,941 Interest 313,459 183,955 ------------ ------------ 17,019,160 13,342,040 ------------ ------------ Income (loss) before income taxes 660,388 (404,589) Income tax expense (benefit) 223,770 (137,560) ------------ ------------ Net income (loss) $ 436,618 $ (267,029) ============ ============ Earnings per common share Basic $ .10 ($ .06) Diluted $ .09 ($ .06) Weighted average number of common shares Basic 4,548,318 4,212,912 Diluted 4,932,076 4,599,395 4

Supplemental schedule of non-cash, investing and financing activities: During 2000, debt amounting to $ 863,778 was converted to common stock. In connection with the Company's acquisition of Fairchild International, Inc., 62,745 shares of common stock were issued with a value of $320,000 and a note payable was issued for $450,000. In connection with the Company's acquisition of Silverman Consultants in August 1999, 200,000 shares of common stock were issued with a value of $615,000 and a $2,500,000 note payable was assumed for $2,500,000 of inventory and $131,000 of furniture and fixtures. 5

(4) - Other comprehensive income Other comprehensive income is as follows: Tax Before-Tax (Expense) Net-of-Tax Amount or Benefit Amount ---------- ---------- ---------- Other comprehensive income (loss) at December 31, 1999 $ (10,500) $ 3,570 $ (6,930) Unrealized holding losses arising during The six months ended June 30, 2000 (311,644) 105,960 (205,684) --------- -------- --------- Other comprehensive income (loss) at June 30, 2000 $(322,144) $109,530 $(212,614) Unrealized holding losses arising during 3rd Qtr. (258,305) 81,885 (176,420) --------- -------- --------- Other comprehensive income (loss) at September 30, 2000 $(580,449) $191,415 $(389,034) ========= ======== ========= 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Results of Operations - --------------------- Three months ended September 30, 2000 vs 1999: Sales for the three months ended September 30, 2000 increased $1,229,252 or 27.0% when compared to the corresponding quarter of 1999. The increase was the result of software sales in the amount of $89,440, an increase in sales in the liquidation segment in the amount of $778,980 which the Company acquired in August 1999 and an increase in sales in the amount of $371,309 from the jewelry segment. The increase in sales from the jewelry segment was due to the acquisition of the assets of Fairchild International, Inc. in March 2000. Consulting services revenue in the amount of $ 38,000 during the quarter ended September 30, 2000 were the result of additional fees received from a consulting contract completed during July 2000. Gain on marketable securities - trading during 1999 was the result of realized and unrealized gains and losses on trading securities and is included in consulting services revenue. Cost of goods sold increased by $372,301 primarily due to the increase in sales volume and the acquisition. Gross margins increased from 14.7% in 1999 to 26.4% in 2000 due to lower precious metal sales during the quarter ended September 30, 2000. Precious metal margins average approximately 1.5% to 2.0%. General and administration expenses increased by $569,782 primarily due to the acquisition of Silverman Consultants, Inc. in August 1999 and the acquisition of Fairchild International, Inc. in March 2000. Interest expense increased by $34,600 due to the debt assumed in the Silverman and Fairchild acquisitions. Depreciation and amortization expense increased by $70,209 due to the Silverman and Fairchild acquisitions. Income tax expense are provided at the corporate rate of 34% for both 2000 and 1999. Nine months ended September 30, 2000 vs 1999: Sales for the nine months ended September 30, 2000 increased $3,715,973 or 28.2% when compared to the corresponding period of 1999. The increase was the result of software sales in the amount of $157,035, an increase in sales in the amount of $2,921,287 from the liquidation business which the Company acquired in August 1999 and an increase in sales in the amount of $672,994 from the jewelry segment. The increase in sales from the jewelry segment was due to the acquisition of the assets of Fairchild International, Inc. in March 2000, Consulting service revenues during 2000 amounting to $456,000 was the result of the completion of a major consulting contract during the period. Gain (loss) on marketable securities - trading are the result of realized and unrealized gains and losses on trading securities and are included in consulting services revenue. Cost of sales increased by $1,703,560 primarily due to the increase in sales volume and the acquisition. Gross margins increased from 16.1% in 1999 to 24.5% in 2000 due to lower precious metal sales during the nine months ended September 30, 2000. Precious metal margins average approximately 1.5% to 2.0%. General and administration expenses increased by $1,745,037 primarily due to the acquisition of Silverman Consultants, Inc. in August 1999 and the acquisition of Fairchild International, Inc. in March 2000. Interest expense increased by $129,504 due to the debt assumed in the Silverman and Fairchild acquisitions. Depreciation and amortization expense increased by $183,073 due to the Silverman and Fairchild acquisitions. Income tax expense and benefit are provided at the corporate rate of 34% for both 2000 and 1999. 8 Liquidity and Capital Resources - ------------------------------- During the nine months ended September 30, 2000, the Company's sold $ 1,965,802 of marketable securities. A portion of these funds were used to retire debt in the amount of $ 907,881 and the purchase and retirement of common stock in the amount of $192,547. Also, during March 2000 the Company acquired certain assets of Fairchild International, Inc. A cash payment in the amount of $ 350,000 was required as part of the purchase price. Management of the Company expects capital expenditures to total approximately $50,000 during the balance of 2000. 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 - 27 Financial Data Schedule Reports on Form 8-K - None 9 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: November 6, 2000 --------------------------- 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: November 6, 2000 --------------------------- L. S. Smith Chairman of the Board, Chief Executive Officer and Secretary By: /s/ W. H. Oyster Dated: November 6, 2000 --------------------------- W. H. Oyster Director, President and Chief Operating Officer By: /s/ John Benson Dated: November 6, 2000 --------------------------- John Benson Chief Financial Officer (Principal Accounting Officer) 10