PART
III
|
ITEM
10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Board
of Directors and Executive Officers
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 or she 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, 2018 (“Fiscal 2018”).
|
Name
|
|
Age
|
|
Director
or
Officer Since
|
|
Position
|
|
John
R. Loftus
|
|
50
|
|
2016
|
|
Chairman
of the Board, Chief Executive Officer
and President
|
|
|
|
|
|
|
|
|
|
Bret
A. Pedersen
|
|
58
|
|
2017
|
|
Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
Joel
S. Friedman (1)
|
|
51
|
|
2017
|
|
Lead
Independent Director and Chairman of the
Compensation Committee
|
|
|
|
|
|
|
|
|
|
Alexandra
C. Griffin (1)
|
|
30
|
|
2017
|
|
Director
and Chairman of the Audit Committee
|
|
|
|
|
|
|
|
|
|
Jim
R. Ruth (1)
|
|
55
|
|
2017
|
|
Director
and Chairman of the Compliance, Governance
and Nominating Committee
|
|
|
|
|
|
|
|
|
|
Allison
M. DeStefano
|
|
35
|
|
2018
|
|
Director
|
|
|
(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.
John
R. Loftus
has served as Chief Executive Officer and President and Chairman of the Board since December 12, 2016. Under his
guidance, the company posted its second consecutive annual profit in 2018. Mr. Loftus holds an M.B.A. from the SMU Cox School
of Business.
Bret
A. Pedersen
was appointed Chief Financial Officer on January 17, 2017. Mr. Pedersen has a Bachelor’s degree in Accounting
from Southwest Texas State University. Having been a CPA for over twenty years, he has extensive experience in reporting, analyzing,
and financially controlling companies. He has been serving in the capacity as a Financial Controller for the past twenty years.
Two years prior to being employed by DGSE, Mr. Pedersen was the Financial Controller, from 2014 to 2016, for Payson Petroleum,
Inc. which is the parent company of Payson Operating, LLC. Prior to Payson Petroleum, Mr. Pedersen was the Financial Controller,
from 2009 to 2014, for Iron Creek Ventures, Inc.
Joel
S. Friedman
has served as Lead Independent Director and Chairman of the Compensation Committee since January 18, 2017. Mr.
Friedman has his undergraduate degree from the University of North Texas and holds a Masters of Business Administration from the
SMU Cox School of Business. Mr. Friedman brings a wealth of Operations and Technology experience. Along with 20+ years of Senior
Leadership in the Financial Services space, he has also held CIO and COO positions for companies in the Payment Processing Space-
Century Payments and SaaS space- OppMetrix.
Alexandra
C. Griffin
has served as a director and as Chairman of the Audit Committee since January 17, 2017. Ms. Griffin has a Bachelor
of Science Degree in Accounting from the University of Texas at Arlington. She has been with PrimeLending since December 2014
and is currently an Accounting Supervisor. Prior to PrimeLending, Ms. Griffin worked as a Senior Accountant for NTR Metals, LLC
from 2012 to 2014. Ms. Griffin is a CPA skilled in financial analysis and financial statement reporting in accordance with GAAP.
Jim
R. Ruth
has served as a director and as Chairman of the Compliance and Nominating Committee since January 17, 2017. Mr. Ruth
is currently the President and Chief Executive Officer of OppMetrix. From 2010 to 2015 he was the Executive Vice President-Sales
and Marketing, Strategic Planning of OppMetrix. He obtained his Bachelor of Science Degree from the University of Michigan and
holds a Masters of Business Administration from the SMU Cox School of Business.
Allison
M. DeStefano
has served as a director since March 19, 2018. Ms. DeStefano
is the national sales
director for Echo Environmental, LLC, a data security and de-manufacturer/refurbishment processor of electronics in the aftermarket
supply chain. She is responsible for management of client services, firm marketing and communications, investment analysis, structuring
and execution, and internal operations of the company. Ms. DeStefano started her career as a sales consultant and spent years
as a senior sales executive with prior working relationships and with National Pawnbrokers Association Board and numerous members
thereof. She studied art at the State University of New York and is a native of Buffalo, New York.
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 or our executive officers.
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 2018, and any written representations from reporting persons that no Form 5 is required, we are
not aware of any person who, at any time during Fiscal 2018, 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 2018.
|
Name
|
|
Number of
Late Reports
|
|
|
Number of
Transactions Not
Reported On a
Timely Basis
|
|
|
Known Failures
to File a Required
Form
|
|
|
John R. Loftus
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
Bret A. Pedersen
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
Joel S. Friedman
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
Alexandra C. Griffin
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
Jim R. Ruth
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
Allison M. DeStefano
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Board
Composition
Our
Board is currently composed of five directors. John R. Loftus is the Company’s Chairman of the Board, Chief Executive Officer
and President since December 2016. Our most recent board member, Allison M. DeStefano, was elected to the board on March 19, 2018.
Our Board has determined that current board members Joel S. Friedman, Alexandra C. Griffin, and Jim R. Ruth are “independent”
under the standards of the SEC and the NYSE AMERICAN. Under applicable SEC and NYSE AMERICAN 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 their election or until he or she chooses to resign from
his position.
Board
Meetings
Our
Board meets as often as necessary to perform its duties and responsibilities. During Fiscal 2018, the Board met four times in
person or telephonically. All members of our Board were present at and participated in all meetings. 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, was chaired by Alexandra C. Griffin during Fiscal 2018, 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. Ms. Griffin is “independent,”
as defined by the listing standards of the Exchange during Fiscal 2018. The other members of the Audit Committee during Fiscal
2018 were Joel S. Friedman and Jim R. Ruth. 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 2018, the Audit Committee met four 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, 2018 and 2017 be included in our annual report on Form 10-K with the SEC.
All
three independent directors, Joel S. Friedman, Alexander C. Griffin and Jim R. Ruth, are members of the Audit Committee. 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 currently chaired by Joel S. Friedman 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 2018, the Compensation Committee met one time in person or telephonically. We have adopted
a formal written Compensation Committee Charter, and the Compensation 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 currently chaired by Jim R. Ruth 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 2018, the Compliance, Governance, and Nominating Committee met one time. 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 Joel S. Friedman 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.
Friedman also serves as chairman of the Compensation 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. Bret
A. Pedersen, Chief Financial Officer, c/o DGSE Companies, Inc., 13022 Preston Road, Dallas, TX 75240, by phone at 972-587-4049,
or via email at investorrelations@dgse.com. Mr. Pedersen 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’s 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
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,
in 2016, the 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 these packages, as compared
to executives holding similar positions as similar-sized companies and/or labor market peers in related industries.
Summary
Compensation Table
The following tables and discussion
sets forth the compensation paid to our Chief Executive Officer and Chief Financial Officer for all services rendered to us by
these individuals in all capacities for Fiscal 2018 and Fiscal 2017.
|
Name and
|
|
Fiscal
|
|
|
Salary
|
|
|
Bonus
|
|
|
Stock
|
|
|
Other
|
|
|
Total
|
|
|
Principal Position
|
|
Year
|
|
|
($)
|
|
|
($)
(3)
|
|
|
Awards
($)
|
|
|
Compensation
|
|
|
Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John R. Loftus
|
|
|
2017
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
Chief Executive Officer (1)
|
|
|
2018
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bret A. Pedersen
|
|
|
2017
|
|
|
|
150,000
|
|
|
|
37,203
|
|
|
|
|
|
|
|
|
|
|
|
187,203
|
|
|
Chief Financial Officer (2)
|
|
|
2018
|
|
|
|
150,000
|
|
|
|
25,527
|
|
|
|
|
|
|
|
|
|
|
|
175,527
|
|
|
|
(1)
|
John
R. Loftus was elected as the Company’s Chief Executive Officer, Chairman of the Board, and President on December 12,
2016 upon the resignation of Matthew M. Peakes on December 10, 2016. Mr. Loftus has chosen not to receive a salary
at this time.
|
|
|
|
|
|
|
(2)
|
Bret
A. Pedersen was elected as the Company’s Chief Financial Officer on January 14, 2017 after the resignation of Steven
R. Patterson on January 12, 2017.
|
|
|
|
|
|
|
(3)
|
A
quarterly bonus program was established for the company managers during Fiscal 2017 and the first two quarters of Fiscal 2018.
The bonus was discretionarily calculated quarterly on net profits above $125,000 in which the Chief Financial Officer participated.
|
Employment
Agreements
There
are no Employment Agreements as of December 31, 2018.
Outstanding
Equity Awards at Fiscal Year End
There
are no Outstanding Equity Awards as of December 31, 2018.
Compensation
of Directors
Beginning
in January 2017 and extended through Fiscal 2018, the Compensation Committee recommended that independent directors be paid cash
compensation of $10,000 per year, to be paid in $2,500 quarterly increments due on the day of each quarterly board meeting. No
other compensation is to be paid. The full Board subsequently approved these recommendations.
Our
employee directors receive no separate compensation for their services as directors.
The
following table sets forth the total compensation paid to our directors serving in Fiscal 2018 (other than directors who are Named
Executive Officers and whose compensation is described above under the heading Summary Compensation Table) for their service on
our Board and committees of the Board during Fiscal 2018.
|
Name
|
|
Director
Fees Paid in
Cash ($)
|
|
|
Stock
Awards ($)
|
|
|
All Other
Compensation
|
|
|
Total ($)
|
|
|
Joel S. Friedman
|
|
|
10,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,000
|
|
|
Alexandra C. Griffin
|
|
|
10,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,000
|
|
|
Jim R. Ruth
|
|
|
10,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,000
|
|
|
|
(1)
|
Joel
S. Friedman was elected as independent director on January 18, 2017.
|
|
|
(2)
|
Alexandra
C. Griffin was elected as independent director on January 17, 2017.
|
|
|
(3)
|
Jim
R. Ruth was elected as independent director on January 17, 2017.
|
|
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, 2018, 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 and the
remaining 50,000 have expired as of December 31, 2018.
On
March 24, 2016, the Board awarded the three independent directors on the Board at that time 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 vested
ratably and were exercisable at the end of every quarter (June 30, September 30, and December 31, 2016). Each vested RSU converted
into one share of our Common Stock, par value $0.01, without additional consideration, on the applicable vesting date.
On
April 27, 2016, the Board awarded Matthew Peakes, the Company’s former Chief Executive Officer, and Nabil J. Lopez, the
Company’s former Chief Financial Officer, a total of 75,000 and 50,000 RSUs, respectively, as compensation for their service
as executives of the Company. For Mr. Peakes, one-fourth (or 18,750), and for Mr. Lopez, one-fourth (or 12,500) of the RSUs were
to vest ratably in equal annual installments over a four year period beginning on April 27, 2017, subject to a continued status
as an employee on each such date and other terms and conditions set forth in the RSU Award Agreement, dated April 27, 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 employee, other than by death or disability, any RSUs that have not vested will be forfeited and the award of
such units shall terminate. As a result of his resignation effective August 15, 2016, 50,000 RSUs awarded to Mr. Lopez were forfeited.
As a result of the continued employment of Matthew Peakes on April 27, 2017, his first annual installment (or 18,750) RSUs became
vested. As a result of Matthew Peake’s resignation effective June 30, 2017, all further service RSUs awarded to Mr. Peakes
were forfeited. In addition to the RSU grant above for Matthew Peakes and Nabil Lopez, the compensation committee granted an additional
75,000 and 50,000, respectively, performance based RSUs to the executives that were to vest ratably over a four year period beginning
April 27, 2017 if certain financial performance criteria are achieved. As a result of his resignation effective August 15, 2016,
50,000 RSUs awarded to Mr. Lopez were forfeited. As a result of the financial performance being below the minimum level, no RSUs
were vested on the first annual installment. As a result of Matthew Peake’s resignation effective June 30, 2017, all performance
RSUs awarded to Mr. Peakes were forfeited.
Subsequent
to such grants, the 2006 Plan expired, as a result, no further issuances can be made pursuant to the 2006 Plan.
On
December 7, 2016, our shareholders approved the adoption of the 2016 Equity Incentive Plan (the “2016 Plan”), which
reserved 1,100,000 shares for issuance pursuant to awards issued thereunder. As of December 31, 2018, no awards had been made
under the 2016 Plan.
The
following table summarizes options to purchase shares of Common Stock, and RSUs, outstanding as of December 31, 2018:
|
Plan Category
|
|
Number of
securities to be
issued upon
exercise of options
|
|
|
Weighted average
exercise price of
outstanding options
|
|
|
Numbers of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans approved by security holders
|
|
|
15,250
|
|
|
|
2.17
|
|
|
|
1,100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved by security holders
|
|
|
None
|
|
|
|
|
|
|
|
None
|
|
|
|
|
|
15,250
|
|
|
|
|
|
|
|
1,100,000
|
|
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 29, 2019 was based
on 26,924,381 shares outstanding.
|
|
|
|
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
|
|
Amount
and
|
|
|
|
|
|
|
|
(5)
|
|
|
|
(6)
|
|
|
|
(7)
|
|
|
|
(8)
|
|
|
(1)
|
|
Name
and address
|
|
|
nature
of
|
|
|
|
(4)
|
|
|
|
Sole
|
|
|
|
Shared
|
|
|
|
Sole
|
|
|
|
Shared
|
|
|
Title
of
|
|
of
beneficial
|
|
|
beneficial
|
|
|
|
Percent
|
|
|
|
voting
|
|
|
|
voting
|
|
|
|
investment
|
|
|
|
investment
|
|
|
Class
|
|
owner
|
|
|
ownership
|
|
|
|
of
class
|
|
|
|
power
|
|
|
|
power
|
|
|
|
power
|
|
|
|
power
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Truscott Capital
15850 Dallas Parkway
Dallas, TX 75248
|
|
|
12,814,727
|
|
|
|
47.6
|
%
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Eduro Holdings,
LLC
38660 Sussex Hwy, #102
Delmar, DE 19940-3529
|
|
|
6,365,460
|
|
|
|
23.6
|
%
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
(1)
|
Based
on information disclosed in the Schedule 13D, jointly filed with the SEC on January 2, 2018 by Truscott Capital, LLC (“Truscott”)
and Elemetal, LLC (“Elemetal”). Truscott reported sole reporting and dispositive power with respect to 13,814,727
shares. A warrant to purchase 1,000,000 shares of common stock expired in December 2018 that was part of the consideration for
the cancellation and forgiveness of trade payables on December 9, 2016. With the expiration of the warrant the beneficial ownership
is 12,814,727 shares.
|
|
|
|
|
(2)
|
Based
solely on information disclosed in the Schedule 13D/A, jointly filed with the SEC on
January 2, 2018 by NTR Metals, LLC (“NTR”) and John R. Loftus. NTR reported
sole reporting and dispositive power with respect to 6,365,460 shares.
|
The
following table sets forth information with respect to beneficial ownership of our Common Stock by our Named Executive Officers,
by each of our directors, and by all executive officers and directors as a group as of April 29, 2019. Except as otherwise noted,
the address of each of the following beneficial owners is c/o DGSE Companies, Inc., 13022 Preston Road, Dallas, TX 75240.
|
Title
of Class
|
|
Name
and
Address of
beneificial owner
|
|
Amount
and
nature of
beneficial
ownership
|
|
|
Percent
of
class
|
|
|
Sole
voting
power
|
|
|
Shared
voting
power
|
|
|
Sole
investment
power
|
|
|
Shared
investment
power
|
|
|
Common Stock
|
|
John R.
Loftus (1)
|
|
|
6,365,460
|
|
|
|
23.60
|
%
|
|
|
-
|
|
|
|
6,365,460
|
|
|
|
-
|
|
|
|
6,365,460
|
|
|
Common Stock
|
|
Bret A. Pedersen (2)
|
|
|
37,129
|
|
|
|
0.14
|
%
|
|
|
37,129
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Common Stock
|
|
Alexandra C. Griffin
(3)
|
|
|
-
|
|
|
|
0
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Common Stock
|
|
Jim R. Ruth (4)
|
|
|
-
|
|
|
|
0
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Common Stock
|
|
Joel S. Friedman (5)
|
|
|
7,267
|
|
|
|
0.03
|
%
|
|
|
7,267
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Common Stock
|
|
Allison M. DeStefano
(6)
|
|
|
-
|
|
|
|
0
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Common Stock
|
|
All Directors and Executive Officers
|
|
|
6,409,856
|
|
|
|
23.77
|
%
|
|
|
44,396
|
|
|
|
6,365,460
|
|
|
|
-
|
|
|
|
6,365,460
|
|
|
|
(1)
|
John
R. Loftus was elected as the Company’s Chairman of the Board, Chief Executive Officer
and President upon the resignation of Matthew M. Peakes on December 10, 2016. Pursuant
to the Schedule 13D/A, jointly filed with the SEC on September 19, 2018 by Eduro Holdings,
LLC (“Eduro”), NTR Metals, LLC (“NTR”) and John R. Loftus, Mr.
Loftus may be deemed to beneficially own 6,365,460 shares held by Eduro.
|
|
|
|
|
|
|
(2)
|
Bret
A. Pedersen was elected as Chief Financial Officer upon the resignation of the Acting Chief Financial Officer, Steven Patterson,
on January 14, 2017.
|
|
|
|
|
|
|
(3)
|
Alexandra
C. Griffin was elected as independent director on January 17, 2017
|
|
|
|
|
|
|
(4)
|
Jim
R. Ruth was elected as independent director on January 17, 2017.
|
|
|
|
|
|
|
(5)
|
Joel
S. Friedman was elected as independent director on January 17, 2017.
|
|
|
|
|
|
|
(6)
|
Allison
M. DeStefano was elected as director on March 19, 2018.
|
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
|
From
time to time, we engage in business transactions with our shareholders, Elemetal and other related parties. Set forth below
in the section entitled “Related Party Transactions” is a summary of such transactions.
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
.
Through
a series of transactions beginning in 2010, Elemetal, NTR and Truscott (“Related Entities”) became the largest shareholders
of our Common Stock. NTR transferred all of its Common Stock to Eduro Holdings, LLC (“Eduro”) on August 29, 2018.
A certain Related Entity has been DGSE’s primary refiner and bullion trading partner. In Fiscal 2018, 11% of sales and 2%
of purchases were transactions with a certain Related Entity, and in the same period of Fiscal 2017, these transactions represented
17% of DGSE’s sales and 11% of DGSE’s purchases. On December 9, 2016, DGSE and a certain Related Entity closed the
transactions contemplated by the Debt Exchange Agreement whereby DGSE issued a certain Related Entity 8,536,585 shares of its
common stock and a warrant to purchase an additional 1,000,000 shares to be exercised within two years after December 9, 2016,
in exchange for the cancellation and forgiveness of $3,500,000 of trade payables owed to a certain Related Entity as a result
of bullion-related transactions. The warrant to purchase an additional 1,000,000 shares expired in December, 2018 and was not
exercised. As of December 31, 2018, the Company was obligated to pay $3,088,973 to the certain Related Entity as a trade payable,
and had a $0 receivable from the certain Related Entity. As of December 31, 2017, the Company was obligated to pay $3,902,293
to the certain Related Entity as a trade payable, and had a $39,215 receivable from the certain Related Entity. For the year ended
December 31, 2018 and 2017, the Company paid the Related Entities $149,540 and $199,243, respectively, in interest on the Company’s
outstanding payable.
On
July 19, 2012, the Company entered into the Loan Agreement with a certain Related Entity, pursuant to which the Related Entity
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 the certain Related Entity 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 carried 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 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 the certain
Related Entity, 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. On December 9, 2016, DGSE and the certain Related Entity closed the
transactions contemplated by the Debt Exchange Agreement whereby DGSE issued the certain Related Entity 5,948,560 shares of common
stock in exchange for the cancellation and forgiveness of the loan principal and accrued interest totaling $2,438,909.
|
ITEM
14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
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, 2018 and 2017. The following table presents
the contractual fees to Whitley Penn LLP for the Fiscal 2018 and Fiscal 2017 audits.
|
Type
of Fees
|
|
2018
|
|
|
2017
|
|
|
Audit
Fees
|
|
$
|
190,500
|
|
|
$
|
190,500
|
|
|
Tax
Fees
|
|
|
10,700
|
|
|
|
10,700
|
|
|
Total
|
|
|
201,200
|
|
|
$
|
201,200
|
|
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