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RAPAPORT... DGSE Companies Inc. restated its consolidated financial statements for the fiscal years that ended on December 31, 2010 and 2011, along with its 10-Q for the quarterly periods that ended on March 31, 2012 and June 30. With these filing requirements met, the company expects to regain compliance with the Securities and Exchange Commission (SEC) so that its shares may trade again on the New York Stock Exchange. While the refiling process was a ''long and arduous undertaking,'' said the company's newly appointed chief executive, James Vierling, the company expects to refocus on improving the business now. ''We believe we have assembled a strong management team that embodies the expertise and vision we need to greatly improve the company’s financial reporting and internal controls, to provide consistent and transparent shareholder communications and to execute on our growth strategies to provide enhanced shareholder value,'' he said. DGSE discovered accounting irregularities pertaining to financial statements filed by prior management that were caused by three main factors: (1) Inadequacies in DGSE’s internal processes and controls, including decisions made by prior management which current management does not believe to be in accordance with Generally Accepted Accounting Principles (GAAP); (2) Inappropriate set-up and implementation of DGSE’s AccountMate Enterprise Resource Planning system and (3) Adjustments and other journal entries made to the general ledger by prior management, which lacked adequate support. The new management team removed all individuals who served in executive positions prior to December 20, 2011, including the chairman of the board, the chief executive, the president, the chief operating officer, the chief financial officer, the controller and the vice president of finance. Adjustments related to 2009 and prior years resulted in a $24.2 million reduction of retained earnings as of December 31, 2009. The restatement of fiscal 2010 resulted in an improvement of $5.9 million in earnings before income taxes for the year 2010, compared with previously reported results. However, revenue was indeed strong in 2011, jumping 81 percent year on year to $150 million. This increase was primarily the result of the acquisition of Southern Bullion Trading (SBT) in September of 2011 and a $33.4 million, or 78 percent, increase in bullion sales. Nonetheless, due to a one-time non-cash loss on settlement and debt, DGSE recorded net income of $1 million, or 9 cents per diluted share in fiscal 2011 compared with an income of $10.7 million, or 96 cents per diluted share in 2010. For the first quarter of the current fiscal year, sales reflected a gain of 43 percent year on year to $32.8 million as of March 30, primarily due to the addition of $7.8 million in sales from SBT. Net income after discontinued operations for the quarter was $497,000. In the second quarter that ended on June 30, DGSE reported a revenue decline of 7 percent year on year to $28.6 million. The net loss, after discontinued operations and certain expenses, during the second quarter jumped to $2.4 million. ''In summary, for the first half of 2012 sales were up $7.8 million over the first half of 2011, including the addition of SBT sales,'' said Vierling. ''The net loss for the period was $1.9 million but shareholders should note that this amount includes $2 million in discontinued operations, and one-time expenses associated with the restatement of our financial statements. ''DGSE’s retail footprint has grown significantly in the last 18 months through both acquisition and the opening of additional locations. In the coming year, DGSE will continue to evaluate opportunities to expand its number of retail stores. I expect that the bulk of our growth in 2013 will come from the addition of locations in metro areas in which we already have a strong retail presence. We are actively looking at expansion opportunities in Atlanta, Charleston, Chicago and Dallas that meet our qualifications as a premiere retail location,'' he said.
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