Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
¨
Yes
x
No
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.
x
Yes
¨
No
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
x
Yes
¨
No
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K.
¨
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer or smaller reporting company. See definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act).
¨
Yes
x
No
As of June 30, 2015, which is the last business day of the registrant’s
most recently completed second fiscal quarter, the aggregate market value of voting and non-voting common equity held by non-affiliates
computed by reference to the closing sales price at which the common equity was last sold on the NYSE MKT Exchange (the “Exchange”)
was $2,780,992.
As of the close of business on March 25, 2016, there were 12,298,446
shares of DGSE Companies, Inc. common stock issued and outstanding.
DGSE Companies, Inc. (the “Company” or “DGSE”)
is filing this Amendment No. 1 to its Annual Report on Form 10-K for the year ended December 31, 2015, as originally
filed with the Securities and Exchange Commission (“SEC”) on March 30, 2016 (the “Original Form 10-K”),
to add information required in Part III of its Annual Report on Form 10-K because a definitive proxy statement containing such
information may not be filed within 120 days after the end of the fiscal year covered by the Form 10-K. The reference on the cover
of the Original Form 10-K to the incorporation by reference to portions of its definitive proxy statement into Part III of the
Original Form 10-K is hereby deleted. In addition, Item 15(b) of Part IV is being amended solely to add as exhibits certain new
certifications in accordance with Rule 13a-14(a) promulgated by the SEC under the Securities Exchange Act of 1934.
Except as described above, no other changes have been made to
the Original Form 10-K. This Amendment No. 1 continues to speak as of the date of the Original Form 10-K and the Company has
not updated the disclosure herein to reflect any events that occurred at a later date other than as expressly stated herein. Accordingly,
this Amendment No. 1 should be read in conjunction with the Original Form 10-K and with the Company’s filings made with
the SEC subsequent to the filing of the Original Form 10-K.
Unless the context requires otherwise,
references to “we,” “us,” and “our” refer specifically to DGSE Companies, Inc.
PART III
|
ITEM 10.
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Board of Directors
The following table lists the name and age of each member of
the Board, each executive officer and each other significant employee, their respective terms of office and the position(s) he
currently holds as of the date of the filing of this Amendment No. 1 to the annual report on Form 10-K for the year ended December 31,
2015 (“Fiscal 2015”).
Name
|
|
Age
|
|
Director Since
|
|
Position
|
|
|
|
|
|
|
|
Matthew M. Peakes
|
|
37
|
|
2015
|
|
Chairman of the Board, Chief Executive Officer and President
|
|
|
|
|
|
|
|
Nabil J. Lopez
|
|
46
|
|
2015
|
|
Director, Chief Financial Officer and Secretary
|
|
|
|
|
|
|
|
Douglas J. Lattner (1)
|
|
65
|
|
2015
|
|
Director and Chairman of the Compensation Committee
|
|
|
|
|
|
|
|
J. Marcus Scrudder (1)
|
|
48
|
|
2015
|
|
Lead Independent Director and Chairman of the Audit Committee
|
|
|
|
|
|
|
|
Michael J. Noel (1)
|
|
51
|
|
2016
|
|
Director and Chairman of the Compliance, Governance and Nominating Committee
|
|
(1)
|
Member of the Audit Committee, Compensation Committee, and Compliance, Governance and Nominating Committee.
|
The following paragraphs summarize each nominee’s principal
occupation, business affiliations and other information.
Matthew M. Peakes
was appointed Chief Executive Officer
and elected as Chairman of the Board on September 15, 2015. Mr. Peakes was elected to the Board because of his
experience
in the precious metals and diamond industries, background in implementing operational improvements, and financial expertise. From
2012 to 2015, Mr. Peakes was employed by Elemetal, LLC (“Elemetal”), our largest shareholder, as the Director of Corporate
Development. Prior to joining Elemetal, Mr. Peakes was with JPMorgan from 2007 to 2012 as Vice President. Mr. Peakes holds
both a
Master of Business Administration
and B.B.A in Finance from Southern Methodist University.
Nabil J. Lopez
was appointed as our Chief Financial Officer,
Principal Financial Officer and Chief Accounting Officer, Secretary and member of the Board of Directors on November 4, 2015. The
Board chose Mr. Lopez for these positions because of Mr. Lopez’s previous experience with the Company as the Senior Vice
President and Controller since September 2012. In addition, Mr. Lopez has extensive years of experience in accounting, regulatory
compliance and corporate governance. From 2009 to 2012, Mr. Lopez was employed at Zale Corporation (“Zale”) as Director
of Financial Reporting. Prior to joining Zale, Mr. Lopez served as a Senior Manager in the accounting and auditing services division
of KPMG, LLP, a big four public accounting firm from 2007 through 2009.
Mr. Lopez holds a B.B.A. in
Accounting from the University of Texas at Arlington, from which he graduated cum laude. Mr. Lopez is a Certified Public Accountant
in the state of Texas.
Douglas J. Lattner
has served as a director and as Chairman
of our Compensation Committee since 2015. Mr. Lattner retired in June 2013 after a 38-year career with Deloitte Consulting, LLP
where he served as Chairman and Chief Executive Officer and Vice Chairman of Deloitte & Touche LLP, a big four public accounting
firm. Mr. Lattner holds a B.B.A in Marketing from the University of Oklahoma and a Master of Business Administration from the University
of Dallas. Mr. Lattner was elected to the Board because of his extensive consulting and business experience in various industries.
J. Marcus Scrudder
has served as a director and as Chairman
of our Audit Committee since 2015. Mr. Scrudder is currently the President/Owner of Heartland Cabinetry and Furniture, Inc., a
leading manufacturer of custom residential and commercial cabinetry in North Texas. From 2005 to 2012, Mr. Scrudder was Chief Financial
Officer and subsequently Chief Executive Officer of Craftmade International, Inc. (NASDAQ: CRFT), a national manufacturer and supplier
of ceiling fans, decorative lighting and luxury outdoor furniture, where Mr. Scudder led negotiations of the sale of Craftmade
to a strategic buyer in late 2011. Mr. Scrudder holds a B.B.A in Finance from University of Central Oklahoma and a Master of Business
Administration from Southern Methodist University. Mr. Scrudder was elected to serve as a Director to the Board based on his extensive
business and financial management experience, including the numerous senior management and Chief Financial Officer roles he has
held.
Michael J. Noel
has served as a director, and Chairman
of our Compliance, Governance and Nominating Committee, since 2016. Mr. Noel is currently the Chief Investment Officer and Chief
Operations Officer of Taylor Stephens, Inc., a Dallas based investment advisory firm offering discretionary portfolio management
services, of which Mr. Noel and another partner each acquired fifty percent ownership in 2013. In 2003, Mr. Noel was one of the
cofounders of Braymen, Lambert & Noel Securities (“BLNS”), an investment advisory and brokerage firm that specialized
in fixed income securities. At the end of 2015, Wells Nelson & Associates (“Wells Nelson”) acquired the fixed income
brokerage business of BLNS. Mr. Noel now manages the Texas fixed income sales and trading operations for Wells Nelson. Mr. Noel
holds a B.S. in Economics with Financial Applications from Southern Methodist University. Mr. Noel also holds several industry
licenses. Mr. Noel was elected to the Board based on his extensive operational and business experience.
None of the individuals listed above have been involved in a
legal proceeding as defined by Item 401(f) of Regulation S-K.
Family Relationships
There are no family relationships among our directors, our executive
officers or our key employees.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors and
officers and persons who beneficially own more than ten percent of our common stock to file with the SEC reports of beneficial
ownership on Forms 3 and changes in beneficial ownership of our common stock and other equity securities on Forms 4 or Forms 5.
SEC regulations require all officers, directors and greater than 10% stockholders to furnish us with copies of all Section 16(a)
forms they file.
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to us during, and Forms 5 and amendments thereto furnished to us with respect to, Fiscal 2015, and any written representations
from reporting persons that no Form 5 is required, the following table sets forth information regarding each person who, at any
time during Fiscal 2015, was a director, officer or beneficial owner of more than 10% of our common stock who failed to file on
a timely basis, as disclosed in the above forms, reports required by Section 16(a) of the Exchange Act during Fiscal 2015:
Name
|
|
Number of Late Reports
|
|
Number of Transactions Not Reported On a Timely Basis
|
|
Known Failures to File a Required Form
|
James D. Clem
|
|
1
|
|
0
|
|
0
|
C. Brett Burford
|
|
1
|
|
0
|
|
0
|
Matthew M. Peakes
|
|
1
|
|
0
|
|
0
|
J. Marcus Scrudder
|
|
1
|
|
0
|
|
0
|
Douglas J. Lattner
|
|
1
|
|
0
|
|
0
|
Board Composition
During 2015, two executive officers resigned from their respective
roles. James D. Clem tendered his resignation as Chairman of the Board, President and Chief Executive Officer effective on September
15, 2015. On the same day, Matthew M. Peakes was elected to the position of the Chairman of the Board, President and Chief Executive
Officer. Nabil J. Lopez was elected to the Board and to the role of the Company’s Chief Financial Officer and Secretary upon
the resignation of C. Brett Burford from these positions on November 4, 2015. Prior to this election, Nabil J. Lopez served as
the Company’s Senior Vice President and Controller.
All three of our independent directors elected at our last annual
stockholders meeting held on June 10, 2015 resigned. On August 4, 2015, Bruce A. Quinnell tendered his resignation as Lead
Independent Director and Chairman of the Compliance, Governance and Nominating Committee to the Board of Directors of DGSE and
the other committees of the Board on which he served. On August 6, 2015, Dennis A. McGill tendered his resignation as a member
of the Board of Directors of DGSE and Chairman of the Audit Committee to the Board of Directors of DGSE and the other committees
of the Board on which he served. On September 4, 2015, David S. Rector tendered his resignation as a member of the Board and
Chairman of the Compensation Committee to the Board and the other committees of the Board on which he served. The resignation of
all three of our independent directors caused us to be temporarily out of compliance with the continued listing requirements of
the NYSE MKT, which require that 50% of the members of the Board are independent and that the audit committee of the Board be comprised
of at least two members, all of whom are independent. On October 9, 2015 and October 14, 2015, we elected J. Marcus Scrudder and
Douglas J. Lattner, respectively, to the Board. The NYSE MKT sent us letter on October 15, 2015 confirming that, based on
the addition of two new independent directors, we had resolved the continued listing deficiencies and were then in compliance with
the NYSE MKT’s continued listing standards. On January 6, 2016, we elected Michael J. Noel to serve as a member of the
Board.
Our Board is currently composed of five directors. Our Board
has determined that current board members Douglas J. Lattner, J. Marcus Scrudder and Michael J. Noel are “independent”
under the standards of the SEC and the NYSE MKT. Under applicable SEC and NYSE MKT rules, the existence of certain “related
person” transactions above certain thresholds between a director and us are required to be disclosed and preclude a finding
by our Board that the director is independent. In addition to transactions required to be disclosed under SEC rules, our Board
considered certain other relationships in making its independence determinations, and determined in each case that such other relationships
did not impair the director’s ability to exercise independent judgment on our behalf.
Our directors are elected at an annual meeting of our shareholders
by the holders of shares entitled to vote in the election of directors, except in the case of vacancy, which can be filled by an
affirmative vote of a majority of the remaining directors. Each director is elected to serve until the annual meeting of shareholders
following his election or until he chooses to resign from his position.
Board Meetings
Our Board meets as often as necessary to perform its duties
and responsibilities. During Fiscal 2015, the Board met ten times in person or telephonically. All members of our Board were present
at and participated in all meetings. In addition, our Board acted by written consent one time. Management also regularly conferred
with directors between meetings regarding our affairs.
Audit Committee
The Audit Committee, established in accordance with Section
3(a)(58)(A) of the Exchange Act, consisting of all three independent directors of our Board, is chaired by J. Marcus Scrudder,
who is also an “audit committee financial expert,” as that term is defined in Item 407(d)(5)(ii) of Regulation S-K,
promulgated under the Securities Act. Mr. Scrudder is “independent,” as defined by the listing standards of the Exchange.
The other members of the Audit Committee are Douglas J. Lattner and Michael J. Noel. The Audit Committee is primarily tasked with
overseeing our financial reporting process, evaluation of independent auditors and, where appropriate, exercising its duty to replace
our independent auditors. Management is responsible for preparing our financial statements, and the independent auditors are responsible
for auditing those financial statements. During Fiscal 2015, the Audit Committee met five times in person or telephonically.
In addition to their regular activities, the Audit Committee
is available to meet with the independent auditors, the Chief Executive Officer or the Chief Financial Officer whenever a special
situation arises and meets as often as necessary to perform its duties and responsibilities. The charter for the Audit Committee
is available under the “Investors” menu of our corporate website at www.DGSECompanies.com. We certify that we have
adopted a formal written audit committee charter and that the Audit Committee reviews and reassesses the adequacy of the charter
annually.
Audit Committee Report
The Audit Committee has reviewed and discussed the audited financial
statements with management and Whitley Penn LLP (“Whitley Penn”), our independent registered accounting firm, and all
matters required to be discussed by the American Institute of Certified Public Accountants, Professional Standards, Vol. 1, AU
Section 380, as adopted by the Public Company Accounting Oversight Board (“PCAOB”) in Rule 3200T.
The Audit Committee has received written disclosures and the
letter from Whitley Penn required by applicable rules of the PCAOB regarding Whitley Penn’s communications with the Audit
Committee concerning independence, and the Audit Committee has discussed with Whitley Penn its independence.
Based on the review and discussions noted in the preceding two
paragraphs, the Audit Committee recommended to the Board that the audited financial statements for the year ended December 31,
2015 and 2014 be included in our annual report on Form 10-K with the SEC.
The Audit Committee acts pursuant to our Audit Committee Charter.
Each of the members of the Audit Committee qualifies as an independent director under the current listing standards of the Exchange.
Compensation Committee
On August 31, 2012, the Board approved the creation of a Compensation
Committee comprised of our independent directors. The Compensation Committee is chaired by Douglas J. Lattner and is primarily
concerned with reviewing, approving and determining the compensation of our executive officers to ensure that we employ ethical
compensation standards and that our executive officers are fairly compensated based upon their performance and contribution to
us. The Compensation Committee meets as often as necessary to perform its duties and responsibilities. During Fiscal 2015, the
Compensation Committee met two times in person or telephonically. We have adopted a formal written Compensation Committee Charter,
and the Audit Committee reviews and reassesses the adequacy of the charter annually. The charter for the Compensation Committee
is available under the “Investors” menu of our corporate website at www.DGSECompanies.com.
Compliance, Governance, and Nominating Committee
On January 17, 2013, the Board approved the creation of a Nominating
and Corporate Governance Committee comprised of our independent directors, and on February 20, 2015, the Board approved a resolution
which changed the name of this committee to the Compliance, Governance, and Nominating Committee, and also delegated certain additional
responsibilities to the committee. The Compliance, Governance, and Nominating Committee is chaired by Michael J. Noel and is primarily
concerned with matters relating to the Company’s director nominations process and procedures, developing and maintaining
the Company’s corporate governance policies, monitoring the Company’s compliance with its code of conduct and ethics,
and any related matters required by the federal securities laws. The Compliance, Governance, and Nominating Committee meets as
often as necessary to perform its duties and responsibilities. During Fiscal 2015, the Compliance, Governance, and Nominating Committee
met once. We have adopted a formal written Compliance, Governance, and Nominating Committee Charter, and the Compliance, Governance,
and Nominating Committee reviews and reassesses the adequacy of the charter annually. The charter for the Compliance, Governance
and Nominating Committee is available under the “Investors” menu on our corporate website at www.DGSECompanies.com.
Leadership
Pursuant to our bylaws, the Chairman of our Board shall be and
is our Chief Executive Officer. On June 11, 2014, the Board passed a resolution to create the role of Lead Independent Director.
The independent directors elected J. Marcus Scrudder to fill that role. The Lead Independent Director consults with the Chairman
in setting the schedule and agenda for Board meetings, coordinates and moderates executive sessions of the independent directors,
acts as a liaison between the independent directors and the Chairman, and assists the Board and officers in providing oversight
for the Company’s governance guidelines and policies. As noted above, Mr. Scrudder also serves as chairman of the Audit Committee.
Pursuant to our bylaws, the Chairman of our Board and Chief
Executive Officer presides, when present, at all meetings of the shareholders and at all meetings of our Board. The Chairman of
our Board and Chief Executive Officer generally supervises over our affairs, has general and active control of all of our business
and sees that all orders and resolutions of our Board and our shareholders are carried into effect. We have determined this leadership
structure appropriate given the need for a centralized model of oversight.
Risk Oversight
Like other companies, we face a variety of risks, including
investment risk, liquidity risk, and operational risk. Our Board believes an effective risk management system should: (i) timely
identify the material risks that we face; (ii) communicate necessary information with respect to material risks to senior
executives and, as appropriate, to the Board or the relevant committee of our Board of Directors; (iii) implement appropriate and
responsive risk management strategies consistent with our risk profile; and, (iv) integrate risk management into decision-making.
Our Board is tasked with overseeing risk oversight, and periodically meets with management and advisors regarding the adequacy
and effectiveness of our risk management processes and to analyze the most likely areas of future risk for us. In addition to the
formal compliance program, our Board encourages management to promote a corporate culture that incorporates risk management into
our corporate strategy and day-to-day business operations.
Code of Business Conduct & Ethics and Related Party Transaction
Policy
We have adopted a Code of Business Conduct and Ethics that applies
to our directors, officers and employees, as well as a Related Person Transaction Policy, that applies to our directors (and director
nominees), executive officers (or persons performing similar functions), and certain of our family members, affiliates, associates
and/or related persons, as well as stockholders owning at least 5% of our Common Stock. The latest copies of our Code of Business
Conduct and Ethics, and Related Person Transaction Policy are available under the “Investors” menu on our corporate
website at www.DGSECompanies.com. Any transactions between us and our officers, directors, principal shareholders, or other affiliates
have been on terms no less favorable to us than the Board believes could be obtained from unaffiliated third parties on an arms-length
basis. We intend to disclose future amendments to these policies, or waivers of such provisions, at the same location on our website
and also in public filings.
Shareholder Communication
Shareholders may send communications to our Board, individual
directors or officers through our Investor Relations Department, Attn: Mr. Nabil J. Lopez, Chief Financial Officer and Secretary,
c/o DGSE Companies, Inc., 15850 Dallas Parkway, Suite 140, Dallas, TX 75248, by phone at 972-587-4021, or via email at investorrelations@dgse.com.
Mr. Lopez will forward all shareholder communications that, in his judgment, are appropriate for consideration by members of our
Board. Comments or questions regarding our accounting, internal controls or auditing matters will be referred to members of the
Audit Committee. Comments or questions regarding the nomination of directors and other corporate governance matters will be referred
to our Compliance, Governance, and Nominating Committee.
|
ITEM 11.
|
EXECUTIVE COMPENSATION
|
Our Board is responsible for establishing
and administering our executive compensation and employee benefit programs in the context of our overall goals and objectives.
This Board duty has been delegated to the Compensation Committee of our Board of Directors (the “Compensation Committee”)
in accordance with the Compensation Committee’s Charter. The Compensation Committee reviews the executive compensation program
at least annually and approves appropriate modifications to executive officer compensation, including specific amounts and types
of compensation. The Compensation Committee is responsible for establishing the compensation of the CEO and CFO. The Compensation
Committee establishes the annual compensation of the non-employee directors and oversees our equity compensation plans, including
the administration of our stock-based compensation plans.
The objectives of our compensation
program are to: (i) provide a competitive, comprehensive compensation package to attract, retain and motivate highly talented personnel
at all levels of our organization; and, (ii) provide incentives and rewards for implementing and accomplishing our short-term and
long-term strategic and operational goals and objectives. Therefore, we strive to structure compensation packages that are competitive
within the industry, while maintaining and promoting our interests, as well as the interests of our shareholders.
We believe that specific levels of
executive compensation should reflect the responsibilities of each position within our Company, the relative value of the position
and the competition for quality, key personnel in our industry. Our executive compensation program includes three primary components:
|
·
|
Base salary
. Base salary is the guaranteed element of an executive’s
annual cash compensation. The level of base salary reflects the Compensation Committee’s assessment of the employee’s
long-term performance, his or her skill set and the market value of that skill set.
|
|
·
|
Annual cash bonus opportunities
. Performance-based incentive
cash bonuses are intended to reward executives for achieving specific financial and operational goals both at a corporate and an
individual level.
|
|
·
|
Long-term incentive awards
. Long-term incentives are provided
through grants of stock options and restricted stock units intended to encourage our executives to take steps that they believe
are necessary to ensure our long-term success, and to align their interests with our other shareholders.
|
Advice of Compensation Consultant
In 2012, prior to the formation of
our Compensation Committee, our Board, performing the function of a compensation committee, retained an independent compensation
consultant, Paradox Compensation Advisors (“Paradox”), to analyze our executive compensation program as compared to
our peers. Paradox also advised the Compensation Committee regarding appropriate elements of a competitive executive compensation
structure, including fixed and at-risk elements, short-term and long-term incentives, and cash and equity components. Paradox reported
the results of its analysis of our total executive compensation packages for positions held by members of our executive leadership
team, as well as specific components of those packages, as compared to executives holding similar positions at similarly-sized
companies and/or labor market peers in related industries.
In February 2015, as part of a set of corporate governance reforms
that the Board implemented, the Compensation Committee recommended and the Board approved an Executive Compensation Policy. As
part of this policy the Compensation Committee is required to retain an independent compensation consultant at least once every
three years to review the Company’s compensation philosophy and plan to ensure that the criteria, factors, and policies and
procedures for determining compensation comport with current best practices. Such consultant shall make recommendations to the
Compensation Committee and/or the entire Board regarding any appropriate actions to better align executive and director compensation
with shareholder interests and long-term value creation. Accordingly, the Compensation Committee engaged a consultant to review
the policy in 2016.
Summary Compensation Table
The following tables and discussion sets forth the compensation
paid or accrued to our Chief Executive Officer (or person acting in a similar capacity), and our two most highly compensated executive
officers other than our Chief Executive Officer (“Named Executive Officers”), for all services rendered to us by these
individuals in all capacities for Fiscal 2015 and the year ended December 31, 2014 (“Fiscal 2014”).
Name and
Principal Position
|
|
Fiscal Year
|
|
Salary ($)
|
|
|
Bonus ($)
|
|
|
Stock Awards
|
|
|
Other Compensation (5)
|
|
|
Total Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Matthew M. Peakes
|
|
2015
|
|
|
82,385
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
82,385
|
|
Chief Executive Officer (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James D. Clem
|
|
2014
|
|
|
325,000
|
|
|
|
-
|
|
|
|
99,688
|
|
|
|
-
|
|
|
|
424,688
|
|
Former Chief Executive Officer (2)
|
|
2015
|
|
|
240,000
|
|
|
|
-
|
|
|
|
9,688
|
|
|
|
92,931
|
|
|
|
342,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nabil J. Lopez
|
|
2014
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Chief Financial Officer (3)
|
|
2015
|
|
|
177,662
|
|
|
|
12,360
|
|
|
|
775
|
|
|
|
-
|
|
|
|
190,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C. Brett Burford
|
|
2014
|
|
|
300,000
|
|
|
|
37,500
|
|
|
|
13,438
|
|
|
|
-
|
|
|
|
350,938
|
|
Former Chief Financial Officer (4)
|
|
2015
|
|
|
263,077
|
|
|
|
-
|
|
|
|
9,688
|
|
|
|
-
|
|
|
|
272,765
|
|
|
(1)
|
Matthew
M. Peakes was elected as the Company’s Chairman of the Board, Chief Executive Officer
and President upon the resignation of James D. Clem on September 15, 2015.
|
|
(2)
|
James
D. Clem resigned from his position as Chairman of the Board and Chief Executive Officer
on September 15, 2015.
|
|
(3)
|
Nabil
J. Lopez was elected as Chief Financial Officer and member of the Board on November 4,
2015. Prior to this election, Mr. Lopez served as the Company’s Senior Vice
President and Controller.
|
|
(4)
|
C.
Brett Burford resigned as a member of the Board and as Chief Financial Officer on November
4, 2015.
|
|
(5)
|
On
September 4, 2015, the Company entered into a Consulting, Separation and Release of Claims
Agreement (the “Consulting Agreement”) with James D. Clem, who served as
the President, Chief Executive Officer and Chairman of the Board of Directors of the
Company until September 15, 2015 (the “Separation Date”). Effective upon
the Separation Date, Mr. Clem’s prior employment agreement with the Company terminated
and the Consulting Agreement became effective. Pursuant to the Consulting Agreement,
Mr. Clem received certain benefits, including reimbursement of premiums paid to continue
coverage under DGSE’s group health plan pursuant to the Consolidated Omnibus Budget
Reconciliation Act of 1985 (“COBRA”) during his consulting term. In exchange
for the consideration provided in the Consulting Agreement, Mr. Clem released the Company
(as defined in the Consulting Agreement) from certain Claims (as defined in the Consulting
Agreement). Mr. Clem provided advisory and consulting services for the Company from the
Separation Date through December 31, 2015 in return for consulting payments of $25,000
per month. Pursuant to the Consulting Agreement, the Company sent a certified letter
on January 8, 2016 providing Mr. Clem two weeks’ notice of election to terminate
his advisory and consulting services effective January 21, 2016.
|
Employment Agreements
Matthew M. Peakes.
Pursuant to a written offer letter,
and in consideration for Mr. Peakes’s service, DGSE: (i) shall pay Mr. Peakes a salary of $315,000 per year; (ii) may pay
Mr. Peakes a performance bonus of up to 25% of his annual gross salary; and (iii) shall participate in any equity compensation
grants, commensurate or exceeding those granted to other senior-level management. Mr. Peakes is an at-will employee of DGSE, and
we may reassign Mr. Peakes, terminate Mr. Peakes’s employment or change Mr. Peakes’s compensation at any time with
or without cause.
Nabil J. Lopez.
Pursuant to a written offer letter, and
in consideration for Mr. Lopez’s service, DGSE: (i) shall pay Mr. Lopez a salary of $225,000 per year; (ii) may pay Mr. Lopez
a performance bonus of up to 25% of his annual gross salary; and (iii) shall participate in any equity compensation grants, commensurate
or exceeding those granted to other senior-level management. Mr. Lopez is an at-will employee of DGSE, and we may reassign Mr.
Lopez, terminate Mr. Lopez’s employment or change Mr. Lopez’s compensation at any time with or without cause.
Outstanding Equity Awards at Fiscal Year End
In January 2014, the Compensation Committee granted 112,000
RSUs to the Company’s officers and certain key employees. Each RSU is convertible into one share of Common Stock, par value
$0.01, of the Company without additional payment pursuant to the terms of the Restricted Stock Unit Award Agreement, dated January
23, 2014, between the Issuer and each recipient (the “RSU Award Agreement”). One-fourth (or 28,000) of the RSUs vested
and were exercisable as of the date of the grant, and an additional one-fourth of the RSUs (calculated using the total number of
RSUs at the time of grant) vest and will be exercisable on each subsequent anniversary of the date of grant until 100 percent of
the RSUs have vested, subject to the each recipients continued status as an employee on each such date and other terms and conditions
of set forth in the RSU Award Agreement. Upon termination of service of the recipient to the Company, other than by reason of death
or disability, any RSUs that have not vested will be forfeited and the award of such units shall terminate.
The following table sets forth information concerning outstanding
RSUs that have not vested for each name executive officer as of the end of Fiscal 2015:
Name and
Principal Position
|
|
Number of Securities Underlying Unvested RSUs (#)
|
|
Market Value of Securities Underlying Unvested RSUs as of December 31, 2015
|
|
RSU Exercise Price ($)
|
|
RSU Vesting Date
|
|
|
|
|
|
|
|
|
|
Nabil J. Lopez
|
|
500
|
|
$ 165
|
|
(1)
|
|
(2)
|
Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
(1)
|
All stock issued pursuant to RSUs
will be granted at no cost to the recipient. The Company will recognize stock compensation
expense based on the market price of the stock on the date that it issues, pursuant to
the RSUs.
|
|
(2)
|
RSUs granted to management in
January 2014 vested 25% at that time, and continue to vest 25% each year on the anniversary
of issuance, until fully vested in January 2017. Accordingly, subsequent to December
31, 2015, in January 2016, an additional 25% of these management RSUs vested and the
underlying shares were issued, leaving Mr. Lopez with 500 unvested shares as of the record
date. All unvested RSUs will be forfeited should the recipient leave the employment of
the Company.
|
Compensation of Directors
From January 1, 2015 through the final resignation of the former
independent directors, the directors were paid cash compensation of $20,000 per year, payable in $5,000 quarterly increments due
on the day of each quarterly board meeting.
Beginning in January 2016, the Compensation Committee recommended
that independent directors be paid cash compensation of $28,000 per year, to be paid in $7,000 quarterly increments due on the
last day of each quarter. In addition, the Compensation Committee recommended that independent directors be issued 40,680 RSUs
per annum in equity awards that vest ratably over a one year period at the end of each quarter. Similar to the RSUs granted to
management and certain employees, if the independent directors terminate their service with the Company, other than by death or
disability, any RSUs that have not vested will be forfeited and the award will terminate. The full Board subsequently approved
these recommendations.
Our directors receive Board meeting fees of $3,000 per year
and committee fees of $5,000 per year, to be paid in $2,000 quarterly increments due on the last day of each quarter. In addition
to the quarterly payments, we reimburse our directors for their reasonable expenses incurred while attending meetings of our Board
and its Committees or conducting other company business. We do not provide any health insurance, retirement or other benefit programs
to our independent directors.
Our employee directors receive no separate compensation for
their services as directors.
The following table sets forth the total compensation paid to
our directors (other than directors who are Named Executive Officers and whose compensation is described above under the heading
Summary Compensation Table) for their service on our Board and committees of the Board during Fiscal 2015.
Name
|
|
Director Fees Paid in Cash ($)
|
|
|
Stock Awards
|
|
|
All Other Compensation
|
|
|
Total ($)
|
|
J. Marcus Scrudder (1)
|
|
|
-
|
|
|
|
-
|
(7)
|
|
|
-
|
|
|
|
-
|
|
Douglas J. Lattner (2)
|
|
|
-
|
|
|
|
-
|
(7)
|
|
|
-
|
|
|
|
-
|
|
Michael J. Noel (3)
|
|
|
-
|
|
|
|
-
|
(7)
|
|
|
-
|
|
|
|
-
|
|
Bruce A. Quinnell (4)
|
|
|
10,000
|
|
|
|
13,632
|
|
|
|
-
|
|
|
|
23,632
|
|
Dennis A. McGill (5)
|
|
|
10,000
|
|
|
|
13,632
|
|
|
|
-
|
|
|
|
23,632
|
|
David S. Rector (6)
|
|
|
15,000
|
|
|
|
13,632
|
|
|
|
-
|
|
|
|
28,632
|
|
|
(1)
|
J. Marcus Scrudder was elected
as independent director on October 9, 2015.
|
|
(2)
|
Douglas J. Lattner was elected
as independent director on October 14, 2015.
|
|
(3)
|
Michael J. Noel was elected
as independent director on January 6, 2016.
|
|
(4)
|
Bruce A. Quinnell served as
a member of the Board and Chairman of the Compliance, Governance and Nominating Committee
to the Board of Directors and the other committees of the Board until his resignation
effective August 4, 2015.
|
|
(5)
|
Dennis A. McGill served as a
member of the Board and Chairman of the Audit Committee to the Board of Directors and
the other committees of the Board until his resignation effective September 4, 2015.
|
|
(6)
|
David S. Rector served as a
member of the Board and Chairman of the Compensation Committee to the Board of Directors
and the other committees of the Board until his resignation effective September 4, 2015.
|
|
(7)
|
Mr. Scrudder, Mr. Lattner and
Mr. Noel each received a grant of 40,680 RSUs on March 24, 2016. These RSUs will vest
ratably and will be exercisable at the end of every quarter during the year ending December
31, 2016. These RSUs have no value until vesting, but the value of the underlying shares
as of the date of issuance was $0.55 per share, or $22,374 for each grant of 40,680 shares.
|
|
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
Equity Compensation Plan Information
On June 21, 2004, our shareholders approved the adoption of
the 2004 Stock Option Plan (the “2004 Plan”) which reserved 1,700,000 shares of our Common Stock for issuance
upon exercise of options to purchase our Common Stock. We granted options to purchase an aggregate of 1,459,634
shares of
our Common Stock under the 2004 Plan to certain of our officers, directors, key employees and certain other individuals who provided
us with goods and services. Each option vested on either January 1, 2004 or immediately upon issuance thereafter. The exercise
price of each option issued pursuant to the 2004 Plan is equal to the market value of our Common Stock on the date of grant, as
determined by the closing bid price for our Common Stock on the Exchange on the date of grant or, if no trading occurred on the
date of grant, on the last day prior to the date of grant on which our securities were listed and traded on the Exchange. Of the
options issued under the 2004 Plan, as of December 31, 2015, 845,634 have been exercised, 599,000 have expired, and 15,000
remain outstanding. No further issuances can be made pursuant to the 2004 Plan.
On June 27, 2006, our shareholders approved the adoption of
the 2006 Equity Incentive Plan (the “2006 Plan”), which reserved 750,000 shares for issuance upon exercise of options
to purchase our Common Stock or other stock awards. We subsequently granted options to purchase 150,000 shares of our Common Stock
pursuant to the 2006 Plan, of which 100,000 have been exercised, 40,000 have expired, and 10,000 remain outstanding as of December 31,
2015. Subsequent to December 31, 2015, the remaining 10,000 options to purchase our Common Stock has expired.
In January 2014, we granted 112,000 Restricted Stock Units (“RSUs”)
to management and key employees, subject to the 2006 Plan. Under the terms of the RSU Award Agreements from January 2014, 25% of
these RSUs vested immediately, with the remaining 75% to vest ratably over the next three years, pending each recipient’s
continued employment by DGSE. On September 24, 2014, the Board awarded the three independent directors a total of 42,600 RSUs as
compensation for their Board service. 100% of these RSUs will vest as of the earlier of the one year anniversary of their award,
or on the day prior to DGSE’s 2015 Annual Meeting of Stockholders. The Company issued 42,600 shares of DGSE’s common
stock to the independent directors on June 9, 2015 related to the September 2014 grant. On December 10, 2014, the Board
awarded DGSE’s former Chief Executive Officer, James D. Clem, 75,000 RSUs as part of his compensation package. 100% of these
RSUs vested immediately, and pursuant to this vesting, 75,000 shares of DGSE common stock were issued to Mr. Clem on December 18,
2014. On February 18, 2015, the Company issued 15,000 shares of DGSE’s common stock to management and key employees pursuant
to the RSU Award Agreement.
As a result of these grants, as of December 31, 2015, there
were 475,400 shares available for future grants under the 2006 Plan.
The following table summarizes options to purchase shares of
Common Stock, and RSUs, outstanding as of December 31, 2015:
Plan Category
|
|
Number of securities to be issued upon exercise of options
|
|
|
Weighted average exercise price of outstanding options
|
|
|
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
|
|
Equity compensation plans approved by security holders
|
|
|
29,000
|
(1)
|
|
|
3.70
|
(2)
|
|
|
475,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved by security holders
|
|
|
None
|
|
|
|
-
|
|
|
|
None
|
|
|
|
|
29,000
|
|
|
|
3.70
|
|
|
|
475,400
|
|
|
(1)
|
Includes 4,000 RSUs that were
not vested as of December 31, 2015.
|
|
(2)
|
Weighted average exercise price
does not include 4,000 RSUs issued to employees, management and directors of DGSE as
incentive compensation for their continued services. Pursuant to the terms of individual
Restricted Stock Unit Award Agreements, such RSUs will vest over time, contingent upon
the continued service to DGSE by the recipient. Each vested RSU may be converted into
one share of common stock, par value $0.01, of DGSE without additional consideration
(other than such conversion and reduction in the number of RSUs held).
|
On March 24, 2016, the Board awarded the three independent directors
a total of 122,040 RSUs as compensation for their Board service. One-fourth (or 30,510) of the RSUs vested and were issued on March
31, 2016. The remaining RSUs will vest ratably and will be exercisable at the end of every quarter (June 30, September 30 and December
31) during the year ending December 31, 2016, subject to the continued status as a director on each such date and other terms and
conditions of set forth in the RSU Award Agreement, dated March 24, 2016. Each vested RSU is convertible into one share of our
Common Stock, par value $0.01, without additional consideration. Upon termination of service of the independent director, other
than by reason of death or disability, any RSUs that have not vested will be forfeited and the award of such units shall terminate.
The following table sets forth the beneficial ownership each
stockholder known by us to own beneficially more than five (5) percent of our outstanding shares of Common Stock. Common Stock
beneficially owned and percentage ownership as of April 15, 2016 was based on 12,328,956 shares outstanding.
Title of
class
|
|
Name and
address of
beneficial
owner
|
|
Amount
and nature
of beneficial
ownership
|
|
|
Percent
of class
|
|
|
Sole
Voting
Power
|
|
|
Shared
Voting
Power
|
|
|
Sole
Investment
Power
|
|
|
Shared
Investment
Power
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
Elemetal, LLC (1)
15850 Dallas
Parkway
Dallas, TX 75248
|
|
|
9,695,042
|
|
|
|
55.9
|
%
|
|
|
9,695,042
|
|
|
|
-
|
|
|
|
9,695,042
|
|
|
|
-
|
|
Common
Stock
|
|
Dr. L. S. Smith (2)
519 I-30, Suite 243
Rockwall, TX 75087
|
|
|
1,211,797
|
|
|
|
9.8
|
%
|
|
|
1,211,797
|
|
|
|
-
|
|
|
|
1,211,797
|
|
|
|
-
|
|
(1)
|
Based
solely on information disclosed in the Schedule 13D/A, filed with the SEC on April 20, 2016 by Elemetal, LLC (“Elemetal”)
and its affiliate NTR Metals, LLC (“NTR”). Elemetal also holds an option to purchase up to 5,000,000
shares of our Common Stock at an exercise price of $15 per share. The option is vested and exercisable.
|
|
|
(2)
|
Based solely
on information disclosed in the Schedule 13D/A, filed with the SEC on November 21, 2014 by Dr. L.S. Smith.
|
The following table sets forth information with respect to beneficial
ownership of our Common Stock by our principal executive officers, by each of our directors, and by all executive officers and
directors as a group as of April 25, 2016. Except as otherwise noted, the address of each of the following beneficial owners is
c/o DGSE Companies, Inc., 15850 Dallas Parkway, Suite 140, Dallas, TX 75248.
Title of class
|
Name and address of beneficial owner
|
Amount and nature of beneficial ownership
|
Percent of class
|
Sole Voting Power
|
Shared Voting Power
|
Sole Investment Power
|
Shared Investment Power
|
|
|
|
|
|
|
|
|
Common Stock
|
Matthew M. Peakes (1)
|
-
|
0.00%
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
Common Stock
|
Nabil J. Lopez (2)
|
1,500
|
0.01%
|
1,500
|
-
|
1,500
|
-
|
|
|
|
|
|
|
|
|
Common Stock
|
J. Marcus Scrudder (3)
|
10,170
|
0.08%
|
10,170
|
-
|
10,170
|
-
|
|
|
|
|
|
|
|
|
Common Stock
|
Douglas J. Lattner (4)
|
10,170
|
0.08%
|
10,170
|
-
|
10,170
|
-
|
|
|
|
|
|
|
|
|
Common Stock
|
Michael J. Noel (5)
|
10,170
|
0.08%
|
10,170
|
-
|
10,170
|
-
|
|
|
|
|
|
|
|
|
Common Stock
|
C. Brett Burford (6)
|
20,500
|
0.17%
|
20,500
|
-
|
20,500
|
-
|
|
|
|
|
|
|
|
|
Common Stock
|
James D. Clem (7)
|
135,425
|
1.10%
|
135,425
|
-
|
135,425
|
-
|
|
|
|
|
|
|
|
|
Common Stock
|
Dennis A. McGill (8)
|
-
|
0.00%
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
Common Stock
|
Bruce A. Quinnell (9)
|
14,200
|
0.12%
|
14,200
|
-
|
14,200
|
-
|
|
|
|
|
|
|
|
|
Common Stock
|
David S. Rector (10)
|
18,350
|
0.15%
|
18,350
|
-
|
18,350
|
-
|
|
|
|
|
|
|
|
|
Common Stock
|
All Directors and Executive Officers
|
220,485
|
1.79%
|
220,485
|
-
|
220,485
|
-
|
|
(1)
|
Matthew M. Peakes
was elected as the Company’s Chairman of the Board, Chief Executive Officer and
President upon the resignation of James D. Clem on September 15, 2015.
|
|
(2)
|
Nabil J. Lopez was
elected as Chief Financial Officer and member of the Board on November 4, 2015. Prior
to this election, Mr. Lopez served as the Company’s Senior Vice President
and Controller.
|
|
(3)
|
J. Marcus Scrudder
was elected as independent director on October 9, 2015.
|
|
(4)
|
Douglas J. Lattner
was elected as independent director on October 14, 2015.
|
|
(5)
|
Michael J. Noel was
elected as independent director on January 6, 2016.
|
|
(6)
|
C. Brett Burford
served as the Chief Financial Officer, Secretary and director until his resignation effective
November 4, 2015.
|
|
(7)
|
James D. Clem served
as the Chairman of the Board, Chief Executive Officer and President until his resignation
effective September 15, 2015.
|
|
(8)
|
Dennis A. McGill
served as a member of the Board and Chairman of the Audit Committee to the Board of Directors
and the other committees of the Board until his resignation effective September 4, 2015.
|
|
(9)
|
Bruce A. Quinnell
served as a member of the Board and Chairman of the Compliance, Governance and Nominating
Committee to the Board of Directors and the other committees of the Board until his resignation
effective August 4, 2015.
|
|
(10)
|
David S. Rector
served as a member of the Board and Chairman of the Compensation Committee to the Board
of Directors and the other committees of the Board until his resignation effective September
4, 2015.
|
|
ITEM 13.
|
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
|
From time to time, we engage in business transactions with our
controlling shareholder, NTR and other related parties. Set forth below in the section entitled “Related Party Transactions”
is a summary of such transactions.
Relationship with Elemetal, LLC.
Elemetal is a global precious metals conglomerate based in Dallas,
Texas. Its principal holdings include: Elemetal Refining, LLC (formerly known as OPM Metals or OPM), the Ohio-based, largest American-owned
refiner of “good delivery” gold and silver; Elemetal Direct, a Texas-based wholesale dealer of precious metals; Elemetal
Capital, LLC, a leading market maker in the bullion and precious metals industries; Provident Precious Metals LLC, an online retailer
of bullion and precious metal products; and Elemetal Recycling, LLC (formerly known as Echo Environmental), a Texas-based firm
focusing on electronic waste recycling and precious metal recovery.
Through a series of transactions beginning in 2010, NTR Metals,
LLC (“NTR”) became the largest shareholder of our Common Stock. In April 2012, NTR announced its merger with OPM, the
largest American-owned refiner of “good delivery” gold and silver. The combined company was originally called Global
Metals Holdings, LLC, and has since been rechristened as Elemetal. In January 2013, NTR announced it would contribute 4,393,142
of its shares of our Common Stock to Elemetal, in exchange for ownership units in Elemetal. NTR also agreed to contribute its option
to buy 5,000,000 additional shares of DGSE.
In addition to being our largest shareholder, Elemetal is our
primary supplier for bullion products and is our primary refiner of recyclable precious metal.
Related Party Transactions
DGSE has a corporate policy governing the identification, review,
consideration and approval or ratification of transactions with related persons, as that term is defined in the Instructions to
Item 404(a) of Regulation S-K, promulgated under the Securities Act (“Related Party”). Under this policy, all Related
Party transactions are identified and approved prior to consummation of the transaction to ensure they are consistent with DGSE’s
best interests and the best interests of its stockholders. Among other factors, DGSE’s Board considers the size and duration
of the transaction, the nature and interest of the of the Related Party in the transaction, whether the transaction may involve
a conflict of interest and if the transaction is on terms that are at least as favorable to DGSE as would be available in a comparable
transaction with an unaffiliated third party. DGSE’s Board reviews all Related Party transactions at least annually to determine
if it is in DGSE’s best interests and the best interests of DGSE’s stockholders to continue, modify, or terminate any
of the Related Party transactions. DGSE’s Related Person Transaction Policy is available for review in its entirety under
the “Investors” menu of the Company’s corporate relations website at www.DGSECompanies.com.
Elemetal is DGSE’s largest shareholder. Elemetal and its
affiliates are also DGSE’s primary refiner and bullion trading partner. In Fiscal 2015, 24% of sales and 26% of purchases
were transactions with Elemetal, and in the same period of Fiscal 2014, these transactions represented 23% of DGSE’s sales
and 26% of DGSE’s purchases. As of December 31, 2015, the Company was obligated to pay $4,176,037 to Elemetal as a trade
payable, and had a $169,136 receivable from Elemetal. As of December 31, 2014, the Company was obligated to pay $3,721,144
to Elemetal as a trade payable, and had a $34,343 receivable from Elemetal. For the year ended December 31, 2015 and 2014,
the Company paid Elemetal $187,888 and $182,723, respectively, in interest on the Company’s outstanding payable.
On July 19, 2012, the Company entered into the Loan Agreement
with NTR, pursuant to which NTR agreed to provide the Company with a guidance line of revolving credit in an amount up to $7,500,000.
The Loan Agreement anticipated termination–at which point all amounts outstanding thereunder would be due and payable–upon
the earlier of: (i) August 1, 2014; (ii) the date that is twelve months after DGSE receives notice from NTR demanding
the repayment of the Obligations; (iii) the date the Obligations are accelerated in accordance with the terms of the Loan
Agreement; or, (iv) the date on which the commitment terminates under the Loan Agreement. In connection with the Loan Agreement,
DGSE granted a security interest in the respective personal property of each of its subsidiaries. The loan carries an interest
rate of two percent (2%) per annum for all funds borrowed pursuant to the Loan Agreement. Proceeds received by DGSE pursuant to
the terms of the Loan Agreement were used for repayment of all outstanding financial obligations incurred in connection with that
certain Loan Agreement, dated as of December 22, 2005, between DGSE and Texas Capital Bank, N.A., and additional proceeds
are expected were used as working capital in the ordinary course of business. On February 25, 2014, we entered into a one-year
extension of the Loan Agreement with NTR, extending the termination date to August 1, 2015, and on February 4, 2015, we entered
into an additional two-year extension, extending the termination date to August 1, 2017, unless earlier terminated as described
above. All other terms of the agreement remain the same. As of December 31, 2015 and 2014, the outstanding balance of the
NTR loan was $2,303,359. In the year ended December 31, 2015 and 2014, the Company paid NTR $45,810 and $46,019, respectively,
in interest on the Company’s line of credit.
In April 2013, DGSE moved its principal corporate offices to
office space at 15850 Dallas Parkway, Suite 140, Dallas, Texas. This property is owned by an affiliate of Elemetal and also serves
as their headquarters. DGSE leases space in the building subject to a lease that expired in December 2015. The Company continues
to pay this lease on a month-to-month basis with no increase in the rent. For the year ended December 31, 2015 and 2014, the
Company recognized rent expense of $50,500 and $52,500, respectively, related to this lease.
In the fourth quarter of Fiscal 2013, the Company established
a wholly owned subsidiary named Carbon Fund One, LLC to act as the general partner (the “General Partner”) for Carbon
Fund One, LP (the “Fund”), which was established at the same time. The Fund was an investment fund specializing in
the buying and selling of gemstones. The General Partner receives a one percent ownership interest of the Fund, and is paid 2%
carried interest on assets under management by the Fund, and 20% of net earnings before distributions to the limited partners.
The Fund was intended to provide an investment vehicle for individuals interested in investment opportunities in diamonds and gemstones,
and provide incremental value to the Company’s shareholders by utilizing the Company’s expertise, infrastructure, and
retail and wholesale customer base, to generate additional profit through earnings from its role as General Partner. Ultimately
DGSE’s management made the decision to end its involvement in the Fund, and the General Partner has wound down the Fund’s
activities and liquidated all remaining inventory. The Fund transacted business with the Company from time to time, including buying
gemstones from and selling gemstones to the Company. In Fiscal 2015, the Company made no sales to the Fund, had purchases of $5,665
from the Fund, and owed the Fund nothing as of December 31, 2015 in trade payables. In Fiscal 2014, the Company made sales of $37,148
to the Fund, had purchases of $152,328 from the Fund, and owed the Fund $136,755 as of December 31, 2014 in trade payables. Additionally,
in Fiscal 2015, the General Partner generated net loss of $1,334 from its role with the Fund, while in the same period of 2014,
the General Partner generated net income of $35,190. The loss in the current year was driven by low activity within the Fund, combined
with expenses related to the shutdown of the Fund.
Our Audit Committee has reviewed these transactions and deemed
them to be on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances.
On April 15, 2016, the Company entered into a non-binding letter
of intent with Elemetal pursuant to which, in exchange for satisfaction of $3,500,000 of debt owed by DGSE to Elemetal as a result
of bullion-related transactions, DGSE would issue to Elemetal (a) shares of common stock at a stock price of $0.41 per share, which
based on an amount of debt exchanged of $3,500,000 would result in the issuance of 8,536,585 shares to Elemetal and (b) a one-year
option to purchase from DGSE 1,000,000 shares of common stock of DGSE at an exercise price of $0.65 per share.
DGSE also entered into a non-binding letter of intent with NTR
pursuant to which, in exchange for satisfaction of debt owed by DGSE to NTR that was incurred in connection with the certain Loan
Agreement (the balance of which as of April 13, 2016, including principal and interest, was $2,408,238.91), DGSE would issue
to NTR shares of common stock at a stock price of $0.41 per share, which based on the balance outstanding as of April 13, 2016,
would result in the issuance of 5,873,753 shares to NTR.
Both letters of intent are non-binding and are subject to numerous
conditions, including negotiation and execution of definitive agreements and shareholder approval. No assurance can be made that
DGSE will be able to negotiate mutually satisfactory definitive agreements with Elemetal and NTR or that it will receive the necessary
shareholder approval.
A Special Committee of our Board of Directors comprised of our
three independent directors authorized the Company to enter into the non-binding letters of intent with Elemetal and NTR.
Our Board has determined that J. Marcus Scudder, Douglas J.
Lattner and Michael J. Noel are “independent” under the standards of the SEC and the NYSE MKT.
|
ITEM 14.
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PRINCIPAL ACCOUNTANT FEES AND SERVICES
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The
firm of Whitley Penn LLP was the independent registered public accounting firm for the audit of the Company’s annual consolidated
financial statements included in the Company’s annual report on Form 10-K, the review of the consolidated financial statements
included in the Company’s quarterly reports on Forms 10-Q and for services that are normally provided by accountants in connection
with statutory and regulatory filings for the years ended December 31, 2015 and 2014.
The following table presents fees
paid to Whitley Penn LLP in Fiscal 2015 and Fiscal 2014.
Type of Fees
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Audit Fees
|
|
$
|
229,257
|
|
|
$
|
265,459
|
|
|
|
|
|
|
|
|
|
|
Tax Fees
|
|
|
31,450
|
|
|
|
31,365
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
260,707
|
|
|
$
|
296,824
|
|
The amounts for audit fees include generally the fees charged
for: (i) the audit of our annual consolidated financial statements included in the Company’s Form 10-K; and, (ii) the reviews
of our quarterly consolidated financial statements included in the Company’s Forms 10-Q. The tax fees were primarily for
tax return preparation and tax-related services, including the preparation of all applicable state tax returns.
All audit services were pre-approved by the Audit Committee,
which concluded that the provision of such services by Whitley Penn LLP was compatible with the maintenance of that firm’s
independence in the conduct of its auditing functions. The Audit Committee’s pre-approval policy: (i) identifies the guiding
principles that must be considered by the audit committee in approving services to ensure that Whitley Penn LLP’s independence
is not impaired; (b) describes the audit, and tax services that may be provided; and (c) sets forth pre-approval requirements for
all permitted services. Under the policy, all services to be provided by Whitley Penn LLP must be pre-approved by the Audit Committee.