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DGSE Reports Financial Results For Third Quarter Of 2012

Stocks in this article: DGSE

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.

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