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<SEC-DOCUMENT>0001010549-02-000310.txt : 20020516
<SEC-HEADER>0001010549-02-000310.hdr.sgml : 20020516
<ACCEPTANCE-DATETIME>20020516150409
ACCESSION NUMBER:		0001010549-02-000310
CONFORMED SUBMISSION TYPE:	10KSB/A
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20011231
FILED AS OF DATE:		20020516

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			DALLAS GOLD & SILVER EXCHANGE INC /NV/
		CENTRAL INDEX KEY:			0000701719
		STANDARD INDUSTRIAL CLASSIFICATION:	RETAIL-JEWELRY STORES [5944]
		IRS NUMBER:				880097334
		STATE OF INCORPORATION:			NV
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10KSB/A
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-11048
		FILM NUMBER:		02654820

	BUSINESS ADDRESS:	
		STREET 1:		2817 FOREST L
		STREET 2:		STE 202
		CITY:			DALLAS
		STATE:			TX
		ZIP:			75234
		BUSINESS PHONE:		9724843662

	MAIL ADDRESS:	
		STREET 1:		2817 FOREST LN
		CITY:			DALLAS
		STATE:			TX
		ZIP:			75234

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	CANYON STATE CORP
		DATE OF NAME CHANGE:	19860819

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	AMERICAN PACIFIC MINT INC
		DATE OF NAME CHANGE:	19920703
</SEC-HEADER>
<DOCUMENT>
<TYPE>10KSB/A
<SEQUENCE>1
<FILENAME>dgse10ksba123101.txt
<TEXT>

                    U. S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                  FORM 10-KSB/A
(Mark One)
 (X)   Annual Report pursuant to Section 13 or 15 (d) of the Securities Exchange
       Act of 1934

For the Fiscal year ended December 31, 2001 or
                          -----------------

 ( )   Transition  Report  under Section 13 or 15 (d) of the Securities Exchange
       Act of 1934 (No Fee Required)

For the transition period from                  to
                               ----------------    ----------------
Commission file number 1-11048
                       -------

                              DGSE Companies, Inc.
                 (formerly Dallas Gold & Silver Exchange, Inc.)
                 ----------------------------------------------
                         (Name of small business issuer)

            NEVADA                                           88-0097334
- -----------------------------                     ------------------------------
(State or other jurisdiction                      (I.R.S.Employer Identification
incorporation or organization)                     Number)

2817 Forest Lane, Dallas, Texas                       75234
- ----------------------------------------          -------------
(Address of Principal Executive Offices)            (Zip Code)

Issuer's telephone number, including area code (972) 484-3662
                                               --------------

Securities registered under Section 12(b) of the Exchange Act:

Title of each class                    Name of each exchange on which registered
- -------------------                    -----------------------------------------
       None                                             None

Securities registered pursuant to Section 12 (g) of the Exchange Act:

Common Stock,  $ .01 par value
- ------------------------------
      (Title of Class)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15 (d) of the  Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirement for the past 90 days. Yes x  No
                                                            ---   ---

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  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-KSB
or any amendment to this Form 10-KSB. [X]
                                      ---

During fiscal year ended December 31, 2001, total revenues were $ 21,116,809.

As of March 11,  2002,  the  aggregate  market value of the voting stock held by
non-affiliates of the registrant was $ 6,804,467

As of March 11, 2002, 4,913,290 shares of Common Stock were outstanding.

Documents  incorporated  by reference:  Portions of the proxy  statement for the
annual  shareholders'  meeting to be held June 14,  2002,  are  incorporated  by
reference into Part III.

<PAGE>


                                     PART I

ITEM 1.   DESCRIPTION OF BUSINESS

DGSE  Companies,  Inc  (formerly  Dallas  Gold and Silver  Exchange,  Inc.) (the
"Company")  sells  jewelry  and bullion  products  to both retail and  wholesale
customers  throughout  the  United  States  and  makes  collateralized  loans to
individuals.  During the last three  years the  Company  has focused its efforts
toward expanding its retail jewelry operations and internet related  businesses.
Management  expects  this trend to  continue  until such time that  interest  in
precious metals results in significantly  higher gross profit margins on bullion
related products.  The Company's products are marketed through its facilities in
Dallas and  Carrollton,  Texas and Mt.  Pleasant  South Carolina and through its
internet web sites  dgse.com;  FirstJewelryAuctions.com;  USBullionExchange.com;
FirstCoinAuction.com;   FairchildWatches.com;   SilvermanLiquidations.com;   and
jewelrywatchesdiamonds.com.

The Company also provides  consulting  services  involving the reorganization of
other business enterprises (primarily enterprises that are or have been involved
in proceedings  under Chapter 11 of the United States  Bankruptcy  Code).  These
services are provided through the Company's  subsidiary DLS Financial  Services,
Inc. ("DLS").

The  Company  operates  seven  internet  sites on the World  Wide  Web.  Through
dgse.com  the Company  operates a virtual  store and a real-time  auction of its
jewelry  products.  Customers  and the Company buy and sell items of jewelry and
are   free   to   set   their   own   prices   in   an    interactive    market.
FirstJewelryAuctions.com  provides a forum for business to business and business
to consumer  auctions  for the jewelry  industry.  For its  services the Company
receives a fee from the  seller.  The  Company  also  offers  customers  current
quotations    for    precious    metals    prices   on   its    internet    site
USBullionExchange.com.  FirstCoinAuctions.com provides auctions of the Company's
rare coin products.  FairchildWatches.com provides wholesale customers a virtual
catalog of the  Company's  fine watch  inventory  and  SilvermanLiquidations.com
provides a real-time auction of closeout jewelry products.  Over 7,500 items are
available for sale on the  Company's  internet  sites  including $ 10,000,000 in
diamonds. The Company recently launched a consolidating portal through which all
of its web sites can be accessed, jewelrywatchesdiamonds.com.

The Company has developed internet software called Virtual Auctioneer v2.0 which
is an  electronic  commerce  product  that allows  users to easily  build online
auction sites.  The Company  markets its internet  software  product through its
subsidiary eye media, inc. ("eye media").

The Company's wholly-owned  subsidiary,  National Jewelry Exchange, Inc. ("NJE")
operates  a pawn  shop  in  Carrollton,  Texas.  The  Company  has  focused  the
operations of NJE on sales and pawn loans of jewelry products.

On  March  2,  2000,   the  Company   acquired   certain   assets  of  Fairchild
International,  Inc. ("Fairchild") located in Dallas, Texas. Fairchild's primary
business is the  wholesaling of fine watches.  The purchase  price  consisted of
$350,000  in cash,  a  promissory  note for  $450,000  and 62,745  newly  issued
restricted  shares of the  Company's  common  stock.  The  acquisition  has been
accounted for as a purchase.  Accordingly,  a portion of the purchase  price has
been  allocated to net tangible and  intangible  assets  acquired based on their

<PAGE>

DESCRIPTION OF BUSINESS (continued...)
- -----------------------

estimated  fairvalues.  The  results  of  Fairchild  have been  included  in the
consolidated financial statements since the date of acquisition.

In August 1999 the Company  purchased  substantially all assets of The Silverman
Group ("Silverman") located in Mt. Pleasant, South Carolina. Silverman's primary
business  is  conducting  liquidation,   consolidation,   promotional  or  other
large-scale  retail sales for jewelry  stores and other types of retailers.  The
purchase price of $ 3,115,000 consisted of the issuance of 200,000 shares of the
Company's newly issued restricted common stock and the assumption by the Company
of a $ 2,500,000  obligation to a bank. The purchase price has been allocated as
follows:  inventory  ($  2,500,000);  property and  equipment  ($ 131,000);  and
goodwill  ($  484,000).  The  results of  Silverman  have been  included  in the
consolidated financial statements since the date of acquisition.

Products and Services
- ---------------------

JEWELRY
- -------
The Company's  jewelry  operations  include  sales to both  wholesale and retail
customers.  The Company sells finished jewelry,  gem stones,  and findings (gold
jewelry  components)  and makes custom  jewelry to order.  Jewelry  inventory is
readily  available from wholesalers  throughout the United States.  In addition,
the Company purchases inventory from pawn shops and individuals. During the last
three years  management  has focused its  efforts  toward  expanding  its retail
jewelry  business.  Additional  resources have been invested in advertising  and
additional staff have been added in jewelry sales and jewelry and watch repair.

The  Company's  bullion  trading  operations  buy and sell all forms of precious
metals products including United States and other government coins,  medallions,
art bars and trade unit bars.

Bullion  products are  purchased  and sold based on current  market  price.  The
availability  of precious metal products is a function of price as virtually all
bullion items are actively  traded.  Precious  metals sales amounted to 18.5% of
total sales for 2001 and 15.9% in 2000 (For further details,  see Item 6 below).
The Company did not have any customer or supplier  that  accounted for more than
10% of total sales or purchases during 2001 or 2000.

On  March  2,  2000  the  Company   purchased   certain   assets  of   Fairchild
International,  Inc. ("Fairchild") located in Dallas, Texas. Fairchild's primary
business is the  wholesale  of fine  watches and other  jewelry  products.  Four
former  Fairchild  key  employees  have become  employees  of the  Company.  The
business is being conducted from the Company's facility in Dallas, Texas.

During December 2000 the Company opened a new jewelry super store located in Mt.
Pleasant, South Carolina. The store operates through a newly formed wholly owned
subsidiary,  Charleston Gold and Diamond Exchange, Inc. ("CGDE"). A newly leased
facility  located in Mt.  Pleasant,  South Carolina now houses the operations of
CGDE and SCI.

<PAGE>

Products and Services (continued...)
- ---------------------

PAWN
- ----
Pawn loans  ("loans")  are made on the  pledge of  tangible  personal  property,
primarily jewelry,  for one month with an automatic  sixty-day  extension period
("loan term").  Pawn service charges are recorded on a constant yield basis over
the loan term.  If the loan is not  repaid,  the  principal  amount  loaned plus
accrued  pawn  service  charges  become  the  carrying  value  of the  forfeited
collateral  and  are  transferred  to  inventory.  Although  revenues  from  the
Company's  pawn  loans  have  not been  significant,  management  believes  this
activity  to be a good source of jewelry  inventory  and  provides an  excellent
return on investment.

The  Company  has  developed  a World Wide Web Site on the  Internet  located at
dgse.com.  This web site is a fully  integrated  live trading  market in jewelry
items on the internet.  Customers can buy and sell items of jewelry and are free
to set their own prices in an interactive market. For its services,  the Company
collects a listing fee and a sales commission from the seller. In addition,  the
Company may offer for sale its own inventory.  This site also includes a virtual
store of the Company's jewelry products.

The  Company  also  operates  a web site,  USBullionExchange.com,  which  allows
customers unlimited access to current quotations for prices on approximately 200
precious metals, coins and other bullion related products.

The Company also  operates a live real time trading  floor in jewelry,  diamonds
and fine watches. Our internet store functions as a CyberCashTM  authorized site
which allows customers to purchase products automatically, securely and on line.
Auctions close at least five times per week and trading floor  transactions  can
occur twenty-four hours per day.

Additional   sites  operated  by  the  Company   include   FirstCoinAuction.com,
FirstJewelryAuctions.com,  FairchildWatches.com  and  Silvermanliquidations.com.
The Company  recently  launched a consolidating  portal through all of its sites
can be accessed, jewelrywatchesdiamonds.com.

CONSULTING SERVICES
- -------------------
DLS provides insolvency advisory services primarily to business enterprises that
are or have been involved in  proceedings  under Chapter 11 of the United States
Bankruptcy Code. Services provided by DLS include assistance in developing plans
of  reorganization,  negotiations with creditors and general  management advice.
During  2001 DLS did not  engage  any new  consulting  clients  or  receive  any
revenues for services.

DLS earns a cash fee and or equity  participation in the  organizations to which
it provides services. DLS expects to accept only a limited number of assignments
each year which meet the criteria of having  significant  fee and or substantial
growth  potential.  Where  equity  participation  is  involved,  as  the  client
enterprises  mature, DLS plans to sell its equity interest subject to compliance
with state and  federal  securities  law in order to provide  liquidity  for the
expansion of the Company's other business  activities.  As of December 31, 2001,
the Company's investment in these enterprises totaled $ 426,414.

<PAGE>

Products and Services (continued...)

SOFTWARE
- --------
The Company  has  developed  internet  software,  Virtual  Auctioneer  v2.0,  an
electronic  commerce  product that allows  users to easily build online  auction
sites. Virtual Auctioneer is built around an eye media developed bidding engine,
which was created utilizing the Allaire  ColdFusiontm  development  environment.
Virtual Auctioneer allows clients  unparalleled  flexibility,  customization and
power,  placing it in its own market space,  by offering a complete,  integrated
online product.

LIQUIDATION
- -----------
On August 13,  1999 the  Company  purchased  substantially  all of the assets of
Silverman located in Mt. Pleasant, South Carolina.  Silverman's primary business
is  conducting  liquidation,  consolidation,  promotional  or other  large-scale
retail  sales for jewelry  stores and other types of  retailers.  The Company is
conducting  the  business  of  Silverman  through a newly  formed  wholly  owned
subsidiary,  Silverman Consultants,  Inc. ("SCI"). All senior management and key
employees of the Silverman have become employees of the SCI.



Sales and Marketing
- -------------------

All Company  activities  other than  consulting  services  rely heavily on local
television,  print media,  the  internet,  pamphlets,  and  brochures to attract
retail  customers.  Solicitations of wholesale  customers are made through local
print media, direct mailings, and direct contact. Marketing activities emphasize
what the  Company  perceives  to be the  attractiveness  of its  pricing and its
customer service.  The Company relies on professional  contacts of the Company's
Chairman in order to attract new consulting clients.

The Company  markets its  bullion  trading  services  through a  combination  of
advertising in national coin  publications,  local print media, coin and bullion
wire  services  and its internet web site.  Trades are  primarily  with coin and
bullion  dealers on a "cash on  confirmation"  basis which is  prevalent  in the
industry.  Cash on  confirmation  means that once credit is  approved  the buyer
remits  funds by mail or wire  concurrently  with the  mailing  of the  precious
metals.  Customer  orders for bullion trades are  customarily  delivered  within
three days of the order or upon  clearance of funds  depending on the customer's
credit  standing.  Consequently,  there was no  significant  backlog for bullion
orders as of December 31, 2001 or 2000.  Company backlogs for fabricated jewelry
products were also not significant as of December 31, 2001 and 2000.


Seasonality
- -----------
The retail and  wholesale  jewelry  business  and the  liquidation  business  is
seasonal. The Company realized 33.8% and 32.5% of its annual sales in the fourth
quarters of 2001 and 2000, respectively.

While the Company's bullion business is not seasonal,  management believes it is
directly  impacted  by  the  perception  of  inflation   trends.   Historically,
anticipation  of  increases  in the rate of  inflation  have  resulted in higher
levels of interest in precious  metals as well as higher prices for such metals.
Other Company business activities are not seasonal.

<PAGE>

Competition
- -----------

The Company operates in a highly competitive industry where competition is based
on a combination of price, service and product quality. The jewelry and consumer
loan  activities of the Company  compete with numerous other retail jewelers and
consumer  lenders in Dallas,  Texas and Mt.  Pleasant,  South  Carolina  and the
surrounding areas.

The bullion industry in which the Company competes is dominated by substantially
larger enterprises which wholesale bullion and other


precious metal products.  Likewise,  the consulting and liquidation  industry in
which the Company competes is dominated by large investment banking, accounting,
consulting and liquidation firms.

The Company attempts to compete in these industries by offering quality products
and services at prices below that of its  competitors and by maintaining a staff
of highly qualified  employees to provide  customers  services such as watch and
jewelry repairs and custom jewelry design.


Employees
- ---------

As of December 31, 2001, the Company  employed 40 individuals,  38 of which were
full time employees.



ITEM 2. DESCRIPTION OF PROPERTY

The Company  owns a 6,000  square foot  building in Dallas,  Texas which  houses
retail jewelry,  pawn lending and bullion  trading  operations and its principal
executive  offices.  The land and building are subject to a mortgage maturing in
January  2014,  with a balance  outstanding  of  approximately  $ 564,000  as of
December 31, 2001.

The Company leases a 5,000 square foot building in Dallas,  Texas which housed a
retail jewelry store.  The lease has a term of ten years  beginning July 1, 1994
and  requires  monthly  payments of $ 7,500 for the first five years and $ 9,000
thereafter. In November 1995, the Company closed this store and during 1999, the
Company moved its internet  activities into this facility.  During July 2000 the
Company  subleased this facility for a term ending on June 30, 2004 and receives
monthly rental payments in the amount of $ 7,500.

The Company  leases a 2,400  square foot  facility  in  Carrollton,  Texas which
houses  National  Jewelry  Exchange.  The  lease  expires  on July 31,  2002 and
requires monthly lease payments in the amount of $ 1,088.

<PAGE>

Silverman  and CGDE are housed in a leased  11,000  square foot  facility in Mt.
Pleasant,  South Carolina. The lease expires in August 2005 and requires monthly
lease payments in the amount of $ 14,421.

The Company  also  maintains a resident  agent office in Nevada at the office of
its Nevada counsel,  McDonald,  Carano, Wilson, McClure, Bergin, Frankovitch and
Hicks, 241 Ridge Street, Reno, Nevada 89505.



ITEM 3. LEGAL PROCEEDINGS

The Company is not a party to any material pending legal  proceedings  which are
expected  to have a  material  adverse  effect  on the  Company  and none of its
property is the subject of any material pending legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

<PAGE>

                                     PART II



ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

On June 29, 1999 the  Company's  Common Stock began  trading on the NASDAQ Small
CAP Market under the symbol "DGSE".  Previously,  the Company's Common Stock was
traded  on the  American  Stock  Exchange  ("ASE")  pursuant  to  its  "Emerging
Companies"  listing program under the symbol "DLS.EC".  The following table sets
forth  for the  period  indicated,  the per  share  high and low sale  prices as
reported by NASDAQ for the common stock.  During the past two years, the Company
has not declared any  dividends  with respect to its common  stock.  The Company
intends to retain all earnings to finance future growth;  accordingly, it is not
anticipated  that cash  dividends will be paid to holders of common stock in the
foreseeable future.



High and low stock prices for the last two years were:

                                  2001                     2000

                            High        Low          High        Low
                            ----        ---          ----        ---

      First Quarter        9  7/8      3  1/2       7  5/8      4  1/2

      Second Quarter       9  1/2      4  3/4       9  1/8      5

     Third Quarter         7  3/4      1.95         8  5/8      6  3/4

     Fourth Quarter        5.05        1.83         10 1/8      7  1/8





On March 11, 2002, the closing sales price for the Company's  common stock was $
2.20 and there were 698 shareholders of record.

<PAGE>

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.


GENERAL
- -------

The  Company's  bullion  trading  operation  has the  ability  to  significantly
increase or decrease  sales by adjusting  the  "spread" or gross  profit  margin
added to bullion products.  In addition,  economic factors such as inflation and
interest rates as well as political uncertainty are major factors affecting both
bullion  sales volume and gross profit  margins.  Historically,  the Company has
earned  gross  profit  margins  of from  2.0% to  3.0%  on its  bullion  trading
operations  compared  to 29.0% to 32.0% on the sale of  jewelry  products.  As a
result, the Company emphasizes the more profitable jewelry products.  Management
expects this trend to continue until such time that interest in precious  metals
results in higher gross margins on bullion products.

The Company  Operates DLS, a wholly-owned  subsidiary,  in an effort to generate
additional  revenue  and  enhance  shareholder  value  by  capitalizing  on  the
experience and  professional  contacts of the Company's  Chairman.  DLS provides
insolvency  advisory  services to  businesses  that are or have been involved in
proceedings under Chapter 11 of the United States Bankruptcy Code.

Marketable equity securities have been categorized as available-for-sale and are
carried  at fair  value.  Unrealized  gains and  losses  for  available-for-sale
securities are included as a component of shareholders'  equity net of tax until
realized.  Realized  gains and losses on the sale of securities are based on the
specific identification method.

Results of Operations
- ---------------------

2001 vs 2000
- ------------
Sales decreased by $ 3,973,347  (15.9%) in 2001. This decrease was the result of
a $ 2,477,247  decrease in sales from the  liquidations  segment,  a $ 1,269,339
decrease in sales from the jewelry segment and a $ 201,790  decrease in the sale
of internet  software  products.  The  decrease  in sales from the  liquidations
segment was the result of the strong  retail  environment  during 2000 and early
2001. Although nation wide retail sales slowed  significantly  during the second
half of 2001,  the Company was not able to generate  new  liquidations  sales in
time to recover from the slow first half. The decrease in sales from the jewelry
segment  was the result of a nation  wide  softness  in the retail  environment.
Software  sales declined due to continued  softness in the web site  development
market.  Consulting  services revenue during 2000 was the result of one project.
The Company  booked no new  consulting  contracts  during 2001. The Company sold
marketable trading securities during 2000 which realized gains of $ 266,714.

Cost of goods  decreased by $ 2,795,031  during 2001  primarily due to the lower
sales volume.  Gross margins declined from 24.6% in 2000 to 23.6% in 2001 due to
a slight  decline in the sale of high-end  jewelry  products  which tend to have
higher margins.

<PAGE>

Selling, general and administrative expenses decreased by $ 881,958 due to staff
reductions and salary cuts. Depreciation and amortization increased by 10.2%
during 2001 due to the acquisition of Fairchild in March 2000.


Liquidity and Capital Resources
- -------------------------------

The Company's  short-term debt,  including current  maturities of long-term debt
totaled $ 4,027,172  as of December 31,  2001.  During  January 2002 the Company
retired $ 575,000 of this debt and renewed or extended $1,800,000.

The Company  did not pay its federal  income  taxes  during 2000 and  negotiated
payment terms with the Internal Revenue Service.  It is anticipated  these taxes
will be paid in fiscal 2002.

Management of the Company  expects capital  expenditures to total  approximately
$100,000 during 2002. It is anticipated that these  expenditures  will be funded
from working capital.

The ability of the company to finance its operations  and working  capital needs
are dependent upon management's ability to negotiate extended terms or refinance
its short term debt. The Company has historically renewed,  extended or replaced
short-term  debt as it matures and  management  believes that it will be able to
continue to do so in the near future.

From time to time,  management  has adjusted the Company's  inventory  levels to
meet  seasonal  demand  or  in  order  to  meet  working  capital  requirements.
Management  is of the opinion that if  additional  working  capital is required,
additional loans can be obtained from  individuals or from commercial  banks. If
necessary,  inventory  levels  may be  adjusted  or a portion  of the  Company's
investments  in  marketable  securities  may be  liquidated  in  order  to  meet
unforseen working capital requirements.

This  report  contains  forward-looking  statements  which  reflect  the view of
Company's management with respect to future events. Although management believes
that  the  expectations   reflected  in  such  forward-looking   statements  are
reasonable,  it can give no assurance that such  expectations will prove to have
been  correct.  Important  factors  that could  cause  actual  results to differ
materially from such  expectations  are a down turn in the current strong retail
climate and the  potential  for  fluctuations  in precious  metals  prices.  The
forward-looking  statements  contained  herein  reflect the current views of the
Company's  management  and the  Company  assumes  no  obligation  to update  the
forward-looking  statements or to update the reasons actual results could differ
from those contemplated by such forward-looking statements.

Critical Accounting Policies
- ----------------------------

Our  reported  results are  impacted by the  application  of certain  accounting
policies that require us to make subjective  estimates or judgments.  Changes in
estimates and judgments  could  significantly  affect our results of operations,
financial  condition  and cash  flows  in  future  years.  We  believe  that the
following critical accounting policies are affected by significant judgments and
estimates used in the preparation of its consolidated financial statements:

<PAGE>

Critical Accounting Policies   (continued...)
- ----------------------------

Impairment of  Investment  Securities  results in a charge to operations  when a
market decline below cost is other than temporary.  Management regularly reviews
each  investment  security  for  impairment  based on criteria  that include the
extent to which cost exceeds  market value,  the duration of that market decline
and the financial health of and specific prospects for the issuer. The Company's
investment  securities  amounted to  approximately  $426,000 as of December  31,
2001.   Gross   unrealized  gains  and  losses  were  $115,000  and  $1,613,000,
respectively, at December 31, 2001.

Goodwill was  accounted for in  accordance  with APB 16 "Business  Combinations"
(ABP 16) for  acquisitions  and SFAS No. 121  "Accounting  for the Impairment of
Long-Lived  Assets and for Long Lived  Assets to be Disposed  Of" (SFAS 121) for
the periodic evaluation of goodwill impairment.  Purchase accounting required by
APB 16 involved  judgment with respect to the  valuation of the acquired  assets
and  liabilities in order to determine the final amount of goodwill.  Management
believes that the estimates that it has used to record prior  acquisitions  were
reasonable and in accordance with APB 16.

The Company  performs an annual  evaluation  for the  impairment  of  Long-Lived
Assets,  including goodwill, based on expectations of non-discounted future cash
flows compared to the carrying value of the subsidiary.  The Company's cash flow
estimates are based on historical cash flows,  as well as future  projected cash
flows.  Management believes that its procedures for estimating gross future cash
flows are reasonable and consistent with current market conditions.

Subsequent to December 31, 2001, the Company will account for acquired  goodwill
and goodwill  impairment in accordance with the new standards outlined in Note A
of the Consolidated  Financial  Statements.  These new pronouncements  will also
require considerable judgment and may require that the Company use third parties
to provide  pertinent  information to assist in  management's  evaluation of any
future goodwill impairment.  The Company has approximately $840,000 and $311,000
of goodwill related to its jewelry and liquidation segments, respectively.

Inventory Obsolescence Accruals may be required based on management's estimation
of obsolescence or unmarketable  inventory,  in order to write-down inventory to
its estimated net realizable  value based upon  assumptions  about future demand
and market conditions. If actual market conditions are less favorable than those
projected by management, inventory write-downs may be required.



ITEM 7. FINANCIAL STATEMENTS

(a)  Financial Statements (see pages 15 - 33 of this report).



ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE

None.


<PAGE>

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(a) OF THE EXCHANGE ACT

The  information  contained  in Dallas Gold and Silver  Exchange,  Inc.'s  Proxy
Statement to be filed  pursuant to Regulation  14A within 120 days after the end
of the fiscal year  covered by this Form 10-KSB with  respect to  directors  and
executive  officers of the Company,  is incorporated by reference in response to
this item.


ITEM 10. EXECUTIVE COMPENSATION

The  information  contained  in Dallas Gold and Silver  Exchange,  Inc.'s  Proxy
Statement to be filed  pursuant to Regulation  14A within 120 days after the end
of the  fiscal  year  covered by this Form  10-KSB,  with  respect to  executive
compensation and transactions,  is incorporated by reference in response to this
item.


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information  contained in the Company's Proxy Statement to be filed pursuant
to  Regulation  14A within 120 days after the end of the fiscal year  covered by
this Form 10-KSB with respect to security ownership of certain beneficial owners
and management, is incorporated by reference in response to this item.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information  contained in the Company's Proxy Statement to be filed pursuant
to  Regulation  14A within 120 days after the end of the fiscal year  covered by
this  Form   10-KSB,   with  respect  to  certain   relationships   and  related
transactions, is incorporated by reference in response to this item.



ITEM 13. EXHIBITS REPORTS ON FORM 8-K

(a)      Exhibits:

         21 -  List of subsidiaries
               DGSE Corporation
               International Jewelry Exchange, Inc.
               (formerly Dallas Global Travel, Inc.)
               DLS Financial Services, Inc.
               eye media, inc.
               National Jewelry Exchange, Inc.
               Silverman Consultants, Inc.
               Charleston Gold And Diamond Exchange, Inc.

<PAGE>



The  following  exhibits are  incorporated  by reference to the  Company's  Form
10-KSB dated March 21, 2001:

         10.1     EXHIBIT  10.1 - LEASE  AGREEMENT  dated  JUNE  2,  2000 by and
                  between  SND  PROPERTIES  and  CHARLESTON   GOLD  AND  DIAMOND
                  EXCHAMGE, INC.

The  following  exhibits are  incorporated  by reference to the  Company's  Form
10-QSB dated May 14, 2000:

         10.2     EXHIBIT 10.1 - BILL OF SALE AND ASSET PURCHASE AGREEMENT dated
                  March 2, 2000 by and among  Dallas  Gold AND Silver  Exchange,
                  INC., FAIRCHILD INTERNATIONAL, INC. and MACK H. HOSKINS.


The following  exhibits are  incorporated by reference to the Company's Form 8-K
dated August 26, 1999:

         10.3     EXHIBIT 1.0 AGREEMENT AND PLAN OF MERGER dated AUGUST 13, 1999
                  by and among Dallas Gold and Silver Exchange Silver  Exchange,
                  Inc.,  SILVERMAN  ACQUISITION,  INC.,  JEWEL CASH,  INC.  (the
                  "COMPANY") and the COMPANY'S SHAREHOLDERS.

         10.4     EXHIBIT 2.0 ASSIGNMENT AGREEMENT DATED AUGUST 13, 1999 between
                  SILVERMAN JEWELRY CONSULTANTS, INC., FIRST UNION NATIONAL BANK
                  OF SOUTH CAROLINA, and DALLAS GOLD & SILVER EXCHANGE, INC.

         10.5     EXHIBIT 3.0  PROMISSORY  NOTE DATED  AUGUST 13, 1999 BY DALLAS
                  GOLD & SILVER  EXCHANGE,  INC. PAYABLE TO FIRST UNION NATIONAL
                  BANK.

         10.6     EXHIBIT 4.0 SECURITY AGREEMENT DATED AUGUST 13, 1999 BY DALLAS
                  GOLD & SILVER EXCHANGE, INC. and FIRST UNION NATIONAL BANK.

         10.7     EXHIBIT 5.0 BILL OF SALE DATED  AUGUST 13, 1999 BY AND BETWEEN
                  FIRST  UNION  NATIONAL  BANK,  SILVERMAN  RETAIL  CONSULTANTS,
                  SILVERMAN  JEWELRY   CONSULTANTS  AND  DALLAS  GOLD  &  SILVER
                  EXCHANGE, INC.

The  following  exhibits are  incorporated  by reference to the  Company's  Form
10-KSB for the year ended December 31, 1998:

         10.8     EXHIBIT  10.1  Renewal of  Shopping  Center  Lease dated as of
                  August 1, 1997 by and between Beltline Pawn Shop and Belt Line
                  - Denton Road Associates.

<PAGE>

The  following  exhibits are  incorporated  by reference to the  Company's  Form
10-KSB for the year ended December 31, 1996:

         10.9     EXHIBIT  10.1  Agreement  For Purchase And Sale Of Stock dated
                  December  30,  1996  by  and  among  Dallas  Gold  And  Silver
                  Exchange, Inc. and Henry Hirschman.

The  following  exhibits are  incorporated  by reference to the  Company's  Form
10-KSB for the year ended December 31, 1995:

         10.10    EXHIBIT 10.1 9% Convertible  Promissory Note dated December 5,
                  1995, by and among Dallas Gold And Silver  Exchange,  Inc. and
                  A-Mark Precious Metals, Inc.

The  following  exhibits are  incorporated  by reference to the  Company's  Form
10-KSB for the year ended December 31, 1994:

         10.11    EXHIBIT 10.1 Lease  Agreement  dated February 11, 1994, by and
                  among Dallas Gold And Silver Exchange, Inc. and Stanley Kline.

         10.12    EXHIBIT 10.2 renewal, extension,  modification agreement dated
                  January 28, 1994 by and among DGSE  Corporation And Michael E.
                  Hall and Marion Hall.

(b)      Reports on Form 8-K - None

<PAGE>

                                   SIGNATURES




         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
Registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.

Dallas Gold and Silver Exchange, Inc.


By:      /s/ L. S. Smith                    Dated: March 28, 2002
         -------------------------
         L. S. Smith
         Chairman of the Board,
         Chief Executive Officer and
         Secretary


         In accordance  with the Exchange Act, this report has been signed below
by the following  persons on behalf of the  Registrant and in the capacities and
on the date indicated.


By:      /s/ L. S. Smith                    Dated: March 28, 2002
         -------------------------
         L.S Smith
         Chairman of the Board,
         Chief Executive Officer and
         Secretary


By:      /s/ W. H. Oyster                   Dated: March 28, 2002
         -------------------------
         W. H. Oyster
         Director, President and
         Chief Operating Officer


By:      /s/ John Benson                    Dated: March 28, 2002
         -------------------------
         John Benson
         Director and Chief Financial
         Officer
         (Principal Accounting Officer)


BY:      /s/ William P. Cordeiro            Dated: March 28, 2002
         -------------------------
         Director

By:      /s/ James Walsh                    Dated: March 28, 2002
         -------------------------
         Director

<PAGE>




Financial Statements and Report of Independent Certified Public Accountants

DGSE Companies, Inc.

December 31, 2001 and 2000

<PAGE>

               Report of Independent Certified Public Accountants



Board of Directors and Shareholders
DGSE Companies, Inc.


We have audited the accompanying  consolidated balance sheets of DGSE Companies,
Inc.  and  Subsidiaries  as of  December  31,  2001 and  2000,  and the  related
consolidated statements of operations,  shareholders' equity, and cash flows for
each of the years then ended. These financial  statements are the responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates made by management.  We believe that our audits provide a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the consolidated  financial position of DGSE Companies,
Inc. and  Subsidiaries  as of December 31, 2001 and 2000,  and the  consolidated
results of their  operations  and their cash flows for the years then ended,  in
conformity with accounting principles generally accepted in the United States of
America.



GRANT THORNTON LLP


Dallas, Texas
February 15, 2002

<PAGE>
<TABLE>
<CAPTION>

                     DGSE Companies, Inc. and Subsidiaries

                          CONSOLIDATED BALANCE SHEETS

                                  December 31,



                      ASSETS                                   2001             2000
                                                          ------------    ------------
<S>                                                       <C>             <C>
CURRENT ASSETS
    Cash and cash equivalents                             $  1,063,060    $  1,362,219
    Trade receivables                                          646,583         935,002
    Inventories                                              6,297,320       7,087,265
    Prepaid expenses                                           128,213         142,291
                                                          ------------    ------------

                 Total current assets                        8,135,176       9,526,777

MARKETABLE SECURITIES - available for sale                     426,414         856,081

PROPERTY AND EQUIPMENT - at cost, net                        1,327,822       1,366,213

DEFERRED INCOME TAX ASSETS                                     206,141         171,432

GOODWILL, net of accumulated amortization
    of $402,386 and $209,702, respectively                   1,151,120       1,343,804

OTHER ASSETS                                                   153,688         148,936
                                                          ------------    ------------

                                                          $ 11,400,361    $ 13,413,243
                                                          ============    ============

    LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
    Notes payable                                          $ 3,161,487    $  2,899,918
    Current maturities of long-term debt                       865,685         830,561
    Accounts payable - trade                                 1,007,311       2,176,834
    Accrued expenses                                           587,392         458,191
    Accrued compensation                                        47,482         322,539
    Customer deposits                                           90,696         127,144
    Federal income taxes payable                               320,681         656,604
    Deferred income taxes                                       86,093            --
                                                          ------------    ------------

                 Total current liabilities                   6,166,827       7,471,791

LONG-TERM DEBT, less current maturities                        764,102         949,838

SHAREHOLDERS' EQUITY
    Common stock, $.01 par value; authorized 10,000,000
       shares; issued and outstanding 4,913,290 and
       4,907,990 shares, respectively                           49,133          49,080
    Additional paid-in capital                               5,708,301       5,609,445
    Accumulated other comprehensive loss                      (987,277)       (690,749)
    Retained earnings (accumulated deficit)                   (300,725)         23,838
                                                          ------------    ------------

                 Total shareholders' equity                  4,469,432       4,991,614
                                                          ------------    ------------

                                                          $ 11,400,361    $ 13,413,243
                                                          ============    ============
</TABLE>

        The accompanying notes are an integral part of these statements.

<PAGE>
<TABLE>
<CAPTION>


                      DGSE Companies, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                            Years ended December 31,


                                                          2001            2000
                                                     ------------    ------------
<S>                                                  <C>             <C>
Revenue
   Sales                                             $ 20,996,120    $ 24,969,467
   Pawn service fees                                      120,689          95,718
   Consulting services                                       --           456,000
                                                     ------------    ------------
                                                       21,116,809      25,521,185

Costs and expenses
   Cost of goods sold                                  16,039,658      18,834,689
   Consulting service costs                                55,462         115,053
   Selling, general and administrative expenses         4,585,307       5,467,265
   Depreciation and amortization                          427,676         387,963
                                                     ------------    ------------
                                                       21,108,103      24,804,970

Other income (expense)
   Interest expense                                      (467,685)       (497,004)
   Other income                                            18,626          12,019
   Gain on sale of marketable securities                     --           266,714
                                                     ------------    ------------

                 Total other income (expense)            (449,059)       (218,271)
                                                     ------------    ------------

                 (Loss) income before income taxes       (440,353)        497,944

   Income tax (benefit) expense                          (115,790)        246,260
                                                     ------------    ------------

                 Net (Loss) Income                   $   (324,563)   $    251,684
                                                     ============    ============

Earnings (loss) per common share
   Basic                                             $       (.07)   $        .05
   Diluted                                           $       (.07)   $        .05

Weighted average number of common shares
   Basic                                                4,924,665       4,682,375
   Diluted                                              4,924,665       5,043,103

</TABLE>

The accompanying notes are an integral part of these statements.

<PAGE>
<TABLE>
<CAPTION>


                      DGSE Companies, Inc. and Subsidiaries

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

                     Years ended December 31, 2001 and 2000



                                                                                        Retained                         Total
                                             Common stock              Additional       earnings         other        Accumulated
                                     -----------------------------      paid-in      (Accumulated)   comprehensive   shareholders'
                                         Shares          Amount         capital        (deficit)          loss           equity
                                     -------------   -------------   -------------   -------------   -------------   -------------
<S>                                  <C>             <C>             <C>             <C>             <C>             <C>
Balances at January 1, 2000              4,367,912   $      43,679   $   3,967,931   $    (227,846)  $      (6,930)  $   3,776,834
Net income                                    --              --              --           251,684            --           251,684
Other comprehensive income:
    Unrealized loss on marketable
       securities, net of tax                 --              --              --              --          (683,819)       (683,819)
                                                                                                                     -------------

                Comprehensive loss                                                                                        (432,135)
                                                                                                                     -------------

Purchase and retirement of
    common shares                          (24,500)           (245)       (148,618)           --              --          (148,863)
Issuance of warrants in
    connection with debt                      --              --            53,584            --              --            53,584
Common stock issued on
    conversion of debt                     498,333           4,983       1,403,002            --              --         1,407,985
Common stock issued for services             3,500              35          14,173            --              --            14,208
Common stock issued for
    acquisition                             62,745             628         319,373            --              --           320,001
                                     -------------   -------------   -------------   -------------   -------------   -------------

Balances at December 31, 2000            4,907,990          49,080       5,609,445          23,838        (690,749)      4,991,614

Net loss                                      --              --              --          (324,563)           --          (324,563)
Other comprehensive income:
    Unrealized loss on marketable
       securities, net of tax                 --              --              --              --          (296,528)       (296,528)
                                                                                                                     -------------

                Comprehensive loss                                                                                        (621,091)
                                                                                                                     -------------

Purchase and retirement of
    common shares                          (14,700)           (147)        (30,944)           --              --           (31,091)
Common stock issued on
    conversion of debt                      20,000             200         129,800            --              --           130,000
                                     -------------   -------------   -------------   -------------   -------------   -------------

Balances at December 31, 2001            4,913,290   $      49,133   $   5,708,301   $    (300,725)  $    (987,277)  $   4,469,432
                                     =============   =============   =============   =============   =============   =============
</TABLE>



         The accompanying notes are an integral part of this statement.

<PAGE>
<TABLE>
<CAPTION>

                      DGSE Companies, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                            Years ended December 31,


                                                                                 2001           2000
                                                                             -----------    -----------
<S>                                                                          <C>            <C>
Cash flows from operating activities
       Net (loss) income                                                     $  (324,563)   $   251,684
       Adjustments to reconcile net (loss) income to cash (used in)
          provided by operating activities
              Common stock issued for services                                      --           14,208
              Marketable securities received for consulting services                --         (456,000)
              Depreciation and amortization                                      427,675        387,963
              Realized gain on marketable securities - trading                      --         (266,714)
              Accretion of debt discount                                          26,793         56,792
              Deferred taxes                                                     198,524       (438,136)
              Change in operating assets and liabilities
                Net change in marketable securities - trading                       --        1,966,902
                Trade receivables                                                288,419       (199,224)
                Inventories                                                      784,052     (1,174,784)
                Prepaid expenses and other assets                                 (3,419)      (142,626)
                Accounts payable and accrued expenses                         (1,040,323)     1,289,807
                Accrued compensation                                            (275,057)       (48,102)
                Customer deposits                                                (36,448)        36,950
                Federal income taxes payable                                    (335,923)       540,026
                                                                             -----------    -----------

                 Total net cash (used in) provided by operating activities      (290,270)     1,818,746

Cash flows from investing activities
   Purchase of marketable securities                                             (15,750)       (36,500)
   Purchases of property and equipment                                           (31,230)      (147,174)
   Acquisition of Fairchild assets                                                  --         (369,933)
                                                                             -----------    -----------

                 Net cash used in investing activities                           (46,980)      (553,607)
                                                                             -----------    -----------
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                      DGSE Companies, Inc. and Subsidiaries

                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

                            Years ended December 31,

                                                                           2001           2000
                                                                       -----------    -----------
<S>                                                                    <C>            <C>
Cash flows from financing activities
   Proceeds from indebtness                                            $ 1,143,176    $ 1,001,136
   Repayment of indebtness                                              (1,073,994)    (2,018,909)
   Purchase and retirement of common stock                                 (31,091)      (148,863)
                                                                       -----------    -----------

                 Net cash provided by (used in) financing activities        38,091     (1,166,636)
                                                                       -----------    -----------

Net (decrease) increase in cash and cash equivalents                      (299,159)        98,503

Cash and cash equivalents at beginning of year                           1,362,219      1,263,716
                                                                       -----------    -----------

Cash and cash equivalents at end of year                               $ 1,063,060    $ 1,362,219
                                                                       ===========    ===========
</TABLE>

Supplemental cash flow information:

         Interest  paid during 2001 and 2000  amounted to $365,170 and $457,518,
         respectively.

         Income  taxes  paid  during  2001  and 2000  amounted  to  $17,901  and
         $165,153.

Supplemental schedule of noncash, investing and financing activities:

         During  2001 and 2000,  debt  amounting  to  $130,000  and  $1,006,863,
         respectively, was converted to common stock. In addition, equipment was
         acquired by capital lease in the amount of $150,876 in 2001.

         As more fully  described in Note L, in  connection  with the  Company's
         acquisition of Fairchild International,  Inc. in 2000, 62,745 shares of
         common  stock  were  issued  with a value  of  $320,001  as part of the
         purchase price which included $350,000 in cash and a promissory note in
         the amount of $450,000.

        The accompanying notes are an integral part of these statements.

<PAGE>

                      DGSE Companies, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2001 and 2000




NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Nature of Operations
         --------------------

         DGSE Companies,  Inc. and its subsidiaries (the Company),  sell jewelry
         and bullion products to both retail and wholesale customers  throughout
         the United States through its facility in Dallas, Texas and through its
         internet sites. In addition,  the Company provides  consulting services
         related  to   reorganization   of  other   business   enterprises   and
         liquidations of jewelry retailers.

         Principles of Consolidation
         ---------------------------

         The consolidated  financial statements have been prepared in accordance
         with accounting  principles  generally accepted in the United States of
         America and include the  accounts of the Company and its  subsidiaries.
         All  material   intercompany   transactions   and  balances  have  been
         eliminated.

         Cash and Cash Equivalents
         -------------------------

         For purposes of the statements of cash flows, the Company considers all
         highly  liquid  debt  instruments  purchased  with a maturity  of three
         months or less to be cash equivalents.

         Investments in Marketable Securities
         ------------------------------------

         Marketable    equity    securities    have    been    categorized    as
         available-for-sale  and  carried at fair  value.  Unrealized  gains and
         losses for available-for-sale securities are included as a component of
         shareholders'  equity  net of tax until  realized.  Realized  gains and
         losses  on  the  sale  of   securities   are  based  on  the   specific
         identification  method. The Company continually reviews its investments
         to  determine  whether a decline in fair value  below the cost basis is
         other than temporary.  If the decline in the fair value is judged to be
         other than temporary, the cost basis of the security is written down to
         fair  value  and  the  amount  of the  write-down  is  included  in the
         consolidated statement of operations.

         Inventories
         -----------

         Jewelry  and  other  inventory  is  valued  at  lower-of-cost-or-market
         (specific    identification).    Bullion   inventory   is   valued   at
         lower-of-cost-or-market (average cost).

         Property and Equipment
         ----------------------

         Property and equipment are stated at cost less accumulated depreciation
         and  amortization.  Depreciation and amortization are being provided on
         the  straight-line  method  over  periods  of  five  to ten  years  for
         machinery   and   equipment,   furniture   and  fixtures  and  building
         improvements.  Buildings are depreciated  over 30 years.  Machinery and
         equipment under capital lease are amortized on the straight-line method
         over the life of the lease.  Expenditures  for repairs and  maintenance
         are charged to expense as incurred.

         Impairment of Long-lived Assets
         -------------------------------

         The  Company  assesses  the  recoverability  of its  long-lived  assets
         (including  tangible  assets)  based on their  current and  anticipated
         future  undiscounted  cash flows.  An  impairment  occurs when the cash
         flows  (excluding  interest) do not exceed the  carrying  amount of the
         asset. The amount of the impairment loss is the difference  between the
         carrying amount of the asset and its estimated fair value.

<PAGE>

                      DGSE Companies, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2001 and 2000


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

         Goodwill
         --------

         Goodwill was amortized over periods  expected to be benefited using the
         straight-line method with periods ranging from five to ten years.

         Financial Instruments
         ---------------------

         The carrying amounts  reported in the  consolidated  balance sheets for
         cash and cash equivalents,  accounts receivable, marketable securities,
         short-term debt, accounts payable and accrued expenses approximate fair
         value  because  of  the  immediate  or  short-term  maturity  of  these
         financial instruments.  The carrying amount reported for long-term debt
         approximates  fair value because  substantially  all of the  underlying
         instruments  have variable  interest rates which reprice  frequently or
         the interest rates approximate current market rates.

         Advertising Costs
         -----------------

         Advertising costs are expensed as incurred and amounted to $588,138 and
         $439,300 for 2001 and 2000.

         Income Taxes
         ------------

         Deferred tax  liabilities  and assets are  recognized  for the expected
         future  tax  consequences  of events  that have  been  included  in the
         financial  statements or tax returns.  Under this method,  deferred tax
         liabilities and assets are determined  based on the difference  between
         the financial statement and tax basis of assets and liabilities.

         Revenue Recognition
         -------------------

         Sales  revenue  consists of direct sales to  customers  for jewelry and
         software. Sales are recognized when product is shipped for software and
         when title and risk of loss have  passed to the  customer,  which is at
         point-of-sale  for jewelry.  Provisions  for  discounts  and rebates to
         customers and returns and other  adjustments are provided in the period
         the related sales are  recorded.  Liquidation  service  revenue is also
         included in sales and is  recognized  as  inventory  is sold during the
         respective  liquidation sale.  Consulting service revenue is recognized
         when the services are performed.

         Pawn loans ("loans") are made with the collateral of tangible  personal
         property for one month with an automatic 60-day extension period.  Pawn
         service  charges are recorded at the time of  redemption at the greater
         of $15 or the  actual  interest  accrued  to  date.  If the loan is not
         repaid,  the  principal  amount  loaned  (or  the  fair  value  of  the
         collateral,  if lower)  becomes  the  carrying  value of the  forfeited
         collateral   ("inventories")   which  is  recovered   through  sale  to
         customers.

         Earnings (Loss) Per Share
         -------------------------

         Basic  earnings  (loss)  per common  share is based  upon the  weighted
         average number of shares of common stock outstanding.  Diluted earnings
         (loss) per share is based upon the  weighted  average  number of common
         stock outstanding and, when dilutive,  common shares issuable for stock
         options, warrants and convertible securities.

<PAGE>

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

         Comprehensive Income
         --------------------

         The  Company  reports  all  changes  in  comprehensive  income  in  the
         Consolidated   Statements  of  Changes  in  Shareholders'   Equity,  in
         accordance  with the  provisions  of Statement of Financial  Accounting
         Standards No. 130, Reporting Comprehensive Income. Comprehensive income
         includes  net  income  (loss)  and  unrealized   gains  and  losses  on
         securities available for sale, net of tax.

         Stock-based Compensation
         ------------------------

         The Company  accounts for  stock-based  compensation to employees using
         the intrinsic value method.  Accordingly,  compensation  cost for stock
         options to employees  is measured as the excess,  if any, of the quoted
         market  price of the  Company's  common  stock at the date of the grant
         over the amount an employee must pay to acquire the stock.

         Use of Estimates
         ----------------

         The  preparation of financial  statements in conformity with accounting
         principles  generally accepted in the United States of America requires
         management to make estimates and  assumptions  that affect the reported
         amounts of assets and liabilities  and disclosure of contingent  assets
         and  liabilities  at the  date  of the  financial  statements  and  the
         reported amounts of revenues, and expenses during the reporting period.
         Actual results could differ from those estimates.

         Reclassifications
         -----------------

         Certain  reclassifications  were made to the prior year's  consolidated
         financial statements to conform to the current year presentation.

         New Accounting Pronouncements
         -----------------------------

         In July 2001, the Financial  Accounting Standards Board ("FASB") issued
         Statement  of  Financial   Accounting   Standards  No.  141,   Business
         Combinations  ("SFAS  141"),  and  Statement  of  Financial  Accounting
         Standards No. 142,  Goodwill and Other Intangible  Assets ("SFAS 142").
         SFAS 141 requires all business  combinations  initiated  after June 30,
         2001 be accounted for under the purchase  method.  SFAS 141  supercedes
         APB Opinion No. 16, Business  Combinations,  and Statement of Financial
         Accounting    Standards   No.   38,   Accounting   for   Preacquisition
         Contingencies  of  Purchased  Enterprises,  and is  effective  for  all
         business combinations initiated after June 30, 2001. SFAS 142 addresses
         the financial  accounting and reporting for acquired goodwill and other
         intangible assets. Under the new rules, a company is no longer required
         to amortize goodwill and other intangible assets with indefinite lives,
         but will be  subject  to  periodic  testing  for  impairment.  SFAS 142
         supercedes  APB  Opinion  No. 17,  Intangible  Assets and is  effective
         January 1, 2002.

         In September  2001, the FASB issued  Statement of Financial  Accounting
         Standards  No.  144,  Accounting  for the  Impairment  or  Disposal  of
         Long-Lived   Assets  ("SFAS  144").   SFAS  144  established  a  single
         accounting  model for the impairment or disposal of long-lived  assets,
         including  discontinued  operations.  The Company  plans to adopt these
         statements  as of their  effective  dates and does not expect  that the
         adoption  will have a material  impact on its  consolidated  results of
         operations or financial position.

<PAGE>
<TABLE>
<CAPTION>

NOTE B - INVENTORIES

         A summary of inventories at December 31 is as follows:

                                                            2001         2000
                                                         ----------   ----------

         Jewelry                                         $6,000,372   $6,741,572
         Scrap gold                                         192,276      188,045
         Bullion                                              6,585       44,632
         Other                                               98,087      113,016
                                                         ----------   ----------

                                                         $6,297,320   $7,087,265
                                                         ==========   ==========


NOTE C - INVESTMENTS IN MARKETABLE SECURITIES

         Marketable  securities have been classified in the consolidated balance
         sheet according to management's intent. The cost of  available-for-sale
         securities and their fair values at December 31 follows:

                                                     Gross        Gross
                                                  unrealized   unrealized      Fair
                                        Cost         gains       losses        value
                                     ----------   ----------   ----------   ----------
         <S>                         <C>          <C>          <C>          <C>
         Equity securities at 2000   $1,908,288   $  115,200   $1,167,407   $  856,081
                                     ==========   ==========   ==========   ==========

         Equity securities at 2001   $1,924,038   $  115,200   $1,612,824   $  426,414
                                     ==========   ==========   ==========   ==========
</TABLE>


NOTE D - PROPERTY AND EQUIPMENT

         A summary of property and equipment at December 31 is as follows:

                                                            2001         2000
                                                         ----------   ----------

         Buildings and improvements                      $  700,212   $  682,253
         Machinery and equipment                            750,294      728,529
         Furniture and fixtures                             233,252      202,742
                                                         ----------   ----------
                                                          1,683,758    1,613,524
         Less accumulated depreciation
         and amortization                                   907,236      798,611
                                                         ----------   ----------
                                                            776,522      814,913
         Land                                               551,300      551,300
                                                         ----------   ----------
                                                         $1,327,822   $1,366,213
                                                         ==========   ==========

         Property and equipment under capital leases is $202,469 and $158,000 as
         of December 31, 2001 and 2000,  respectively.  Accumulated depreciation
         for these  assets was $56,564 and  $113,200 as of December 31, 2001 and
         2000, respectively.


<PAGE>
<TABLE>
<CAPTION>


NOTE E - NOTES PAYABLE

         A summary of notes payable at December 31 follows:

                                                                                   2001         2000
                                                                                ----------   ----------
<S>                                                                             <C>          <C>
        Note payable to bank, due in variable weekly installments based
           on 90% of sales of the collateral inventory of which
           approximately $1,236,039 remained  at December 31, 2001
           The note bears interest at 10.75% and is due June 30, 2002           $1,413,342   $1,582,117

        Line of credit payable to bank with interest at 7.25%, collateralized
           by inventories and accounts receivable, due December 31, 2002
           Maximum borrowings under  the line of credit are $1,200,000
           Guaranteed by Chairman and CEO of the Company.                        1,100,000         --

        Line of credit payable to bank with interest at prime plus 1%,
        collateralized by inventory and accounts receivable and due
        November 1, 2001.  Maximum borrowings under the line of
           credit are $600,000                                                        --        500,000

        Note payable to limited partnership with interest at 10%,
           collateralized by marketable securities and due on demand,
            net of discount of $-0- and $26,792, respectively                      100,000      248,208

        Various demand notes to individuals with interest rates
        from 10% to 12%                                                            548,145      569,593
                                                                                ----------   ----------

                                                                                $3,161,487   $2,899,918
                                                                                ==========   ==========
</TABLE>

         In  connection  with note payable to limited  partnership,  the Company
         issued warrants for 27,500 shares of common stock expiring December 31,
         2001.  The warrants have an exercise  price of $6.20 and were valued at
         $66,550 at the date of grant. The warrants were not exercised.

<PAGE>
<TABLE>
<CAPTION>

NOTE F - LONG-TERM DEBT

         A summary of long-term debt at December 31 follows:

                                                                                   2001           2000
                                                                               -----------    -----------
         <S>                                                                   <C>            <C>
         Mortgage payable, due in monthly installments of $6,452, including
            interest based on 30 year US Treasury note rate plus 2-1/2%
            (8.04% at December 31, 2001); balance due in January 2014          $   564,260    $   590,764

         Note payable, due March 2, 2005.  Interest is payable quarterly at
            8% per annum                                                           199,349        415,850

         Note payable, due October 2002.  Interest is payable quarterly at
            8% per annum                                                           675,000        675,000

         Capital lease obligations, due in monthly installments ranging from
            $58 to $2,405, due from November 2003 through January 2006             191,178         98,785
                                                                               -----------    -----------
                                                                                 1,629,787      1,780,399
            Less current maturities                                               (865,685)      (830,561)
                                                                               -----------    -----------

                                                                               $   764,102    $   949,838
                                                                               ===========    ===========
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

         The following  table  summarizes the aggregate  maturities of long-term
         debt and payments on the capital lease obligations:


                                                                                      Obligations
                                                         Long-term       capital         under
                                                            debt         leases          Totals
                                                        -----------    -----------    -----------
         <S>                                            <C>            <C>            <C>
         2002                                           $   790,740    $    86,423    $   877,163
         2003                                               124,606         77,649        202,255
         2004                                                51,377         32,694         84,071
         2005                                                36,136         21,196         57,332
         2006                                                39,365          2,646         42,012
         Thereafter                                         396,385           --          396,385
                                                        -----------    -----------    -----------

         Total                                            1,438,609        220,608      1,659,218

         Amounts representing interest (interest rates
         ranging from 10.8% to 23.3%)                            --          (29,430)       (29,430)
                                                        -----------    -----------    -----------
                                                          1,438,609        191,178      1,629,787
        Less current portion                               (790,740)       (74,945)      (865,685)
                                                        -----------    -----------    -----------

                                                        $   647,869    $   116,233    $   764,102
                                                        ===========    ===========    ===========
</TABLE>


<PAGE>
<TABLE>
<CAPTION>

NOTE F - LONG-TERM DEBT - Continued

         In December 1996, the Company  issued a long-term  convertible  note in
         the  amount  of  $875,000.  The  note  bears  interest  at  8%  payable
         quarterly.  During 2000,  $100,000 of the note was converted to 100,000
         shares  of  common  stock.  Of the  remaining  principal  of  $675,000,
         $225,000 was paid in January of 2002 with the  remaining  balance to be
         paid $50,000 per month until due in October 2002.

         Also during 2000,  approximately  $907,000 of debt was  converted  into
         398,333 shares of common stock, and in 2001,  approximately $130,000 of
         debt was converted into 20,000 shares of common stock.

         In the first quarter of 2002,  the Company paid an additional  $350,000
         of notes payable.  Management believes that the Company has the ability
         to satisfy the remainder of its  short-term  debt through a combination
         of cash flows from operations and/or refinancing the obligations.


NOTE G - EARNINGS (LOSS) PER SHARE

         A reconciliation  of the income (loss) and shares of the basic earnings
         (loss) per common  share and diluted  earnings  (loss) per common share
         for the years ended December 31, 2001 and 2000 is as follows:

                                                                       2001
                                                       ----------------------------------
                                                         Income                 Per-share
                                                         (loss)       Shares     amount
                                                       ---------    ---------   ---------
<S>                                                    <C>          <C>         <C>
         Basic earnings (loss) per common share
            Loss from operations allocable to common
                stockholders                           $(324,563)   4,924,665     (.07)
                                                                                =========

         Effect of dilutive securities
            Stock options and warrants                      --           --
            Convertible debt                                --           --
                                                       ---------    ---------

         Diluted loss per common share
            Loss from operations available to common
               stockholders                            $(324,563)   4,924,665        (.07)
                                                       =========    =========   =========
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

NOTE G - EARNINGS (LOSS) PER SHARE - Continued

                                                                       2000
                                                         ---------------------------------
                                                                                 Per-share
                                                          Income      Shares      amount
                                                         ---------   ---------   ---------
<S>                                                      <C>         <C>         <C>
         Basic earnings per common share
            Income from operations allocable to common
               stockholders                              $ 251,684   4,682,375         .05
                                                                                 =========

         Effect of dilutive securities
            Stock options and warrants                        --       204,872
            Convertible debt                                11,360     155,856
                                                         ---------   ---------   ---------

         Diluted earnings per common share
            Income from operations available to common
               stockholders plus assumed conversions     $ 263,044   5,043,103         .05
                                                         =========   =========   =========
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


NOTE H - STOCK OPTIONS

         The Company  has granted  stock  options to key  employees  to purchase
         shares  of  the  Company's  common  stock.  Each  option  issued  vests
         according to schedules  designated  by the Board of  Directors,  not to
         exceed three years.  Options  expire six months  after  termination  of
         employment.  The exercise price is based upon the estimated fair market
         value  of the  Company's  common  stock at the  date of  grant,  and is
         payable when the option is exercised.

         The Company has adopted  only the  disclosure  provisions  of Financial
         Accounting  Standard No. 123,  Accounting for Stock-Based  Compensation
         (FAS 123). It applies APB Opinion No. 25,  Accounting  for Stock Issued
         to Employees,  and related  Interpretations in accounting for its plans
         and  does  not  recognize  compensation  expense  for  its  stock-based
         compensation.

         The following table summarizes the activity in common shares subject to
         options for the two years ended December 31, 2001:

                                                       2001                       2000
                                             ------------------------   ------------------------
                                                            Weighted                   Weighted
                                                            average                    average
                                                            exercise                   exercise
                                               Options       price       Options        price
                                             ----------    ----------   ----------    ----------
         <S>                                 <C>           <C>          <C>           <C>
         Outstanding at beginning of year       434,000    $     2.55      434,000    $     2.55
         Granted                                757,777          2.25        --             --
         Forfeited                              (27,000)         3.63        --             --
                                             ----------    ----------   ----------    ----------

         Outstanding at end of year           1,164,777    $     2.33      434,000   $     2.55
                                             ==========    ==========   ==========   ==========

         Exercisable at end of year           1,160,777    $     2.33      409,000   $     2.49
                                             ==========    ==========   ==========   ==========

         Weighted average fair value of
           options granted during the year                 $     1.70                      --
                                                           ==========                ==========
</TABLE>


<PAGE>


NOTE H - STOCK OPTIONS - Continued

    Stock options outstanding at December 31, 2001:

                                    Options Outstanding     Options Exercisable
                                   ---------------------   ---------------------
                                               Weighted                Weighted
                                               average                 average
             Range of                          exercise                exercise
         exercise price             Options      price      Options      price
         --------------            ---------   ---------   ---------   ---------

         $1.63 to $2.25            1,097,777   $    2.21   1,097,777   $    2.21

         $3.63 to $4.19               32,000   $    3.81      28,000   $    3.83

         $4.88                        35,000   $    4.88      35,000   $    4.88
                                   ---------   ---------   ---------   ---------

                                   1,164,777               1,160,777
                                   =========               =========

         Had  compensation   costs  for  stock-based   compensation  plans  been
         determined  consistent  with the fair  value  method of SFAS  123,  the
         Company's  net earnings  (loss) and net earnings  (loss) per common and
         diluted share would have been:

                                                          2001           2000
                                                    -------------    -----------

         Net (loss) earnings
           As reported                              $    (324,563)   $   251,684
           Pro forma                                   (1,643,392)       227,917
         Basic earnings (loss) per common share
           As reported                                       (.07)           .05
           Pro forma                                         (.33)           .05
         Diluted earnings (loss) per common share
           As reported                                       (.07)           .05
           Pro forma                                         (.33)           .05

         The fair  value of these  options  was  estimated  at the date of grant
         using  the  Black-Scholes   option-pricing  model  with  the  following
         weighted  average  assumptions  used for grants  after  1998,  expected
         volatility  of 70% to 86%,  risk-free  rate of 4.6 to 6.6%, no dividend
         yield and expected life of 8 years.


<PAGE>
<TABLE>
<CAPTION>

NOTE I - ACCUMULATED OTHER COMPREHENSIVE LOSS

         Accumulated other  comprehensive  loss at December 31, 2001 and 2000 is
as follows:

                                                 Before-Tax        Tax        Net-of-Tax
                                                   Amount        Benefit        Amount
                                                -----------    -----------   -----------
<S>                                             <C>            <C>           <C>
Accumulated other comprehensive loss
   at January 1, 2000                           $   (10,500)   $     3,570   $    (6,930)

Unrealized holding losses arising during 2000    (1,041,707)       357,888      (683,819)
                                                -----------    -----------   -----------

Accumulated other comprehensive loss
   at December 31, 2000                          (1,052,207)       361,458      (690,749)

Unrealized holding losses arising during 2001      (443,667)       147,140      (296,528)
                                                -----------    -----------   -----------

Accumulated other comprehensive loss
   at December 31, 2001                         $(1,495,874)   $   508,597   $  (987,277)
                                                ===========    ===========   ===========
</TABLE>

NOTE J - INCOME TAXES

         The  income  tax  provision  reconciled  to  the  tax  computed  at the
         statutory Federal rate follows:

                                                           2001         2000
                                                         ---------    ---------

         Tax (benefit) expense at statutory rate         $(149,720)   $ 169,301
         Nondeductible goodwill                             31,353       32,844
         Basis difference in acquired assets                  --         36,687
         Other                                               2,577        7,428
                                                         ---------    ---------

         Tax expense                                     $(115,790)   $ 246,260
                                                         =========    =========

         Current                                         $ (67,641)   $ 684,396
         Deferred                                          (48,149)    (438,136)
                                                         ---------    ---------

                                                         $(115,790)   $ 246,260
                                                         =========    =========

<PAGE>
<TABLE>
<CAPTION>


NOTE J - INCOME TAXES - Continued

         Deferred income taxes are comprised of the following at December 31:

         <S>                                                                   <C>          <C>
         Deferred tax assets:
            Unrealized loss on available for sale securities                   $ 508,597    $ 354,850
            Unrealized gain on available for sale securities with cost basis
               difference                                                       (134,640)        --
            Unrealized gain on trading securities before transfer to
               available for sale securities                                    (203,361)    (203,361)
                                                                               ---------    ---------
            Net unrealized loss on available for sale securities                 170,596      151,489
            Property and equipment                                                15,254       11,443
            Goodwill                                                              20,291        8,500
                                                                               ---------    ---------
                                                                               $ 206,141    $ 171,432
                                                                               =========    =========

         Deferred tax liability:
            Inventories                                                        $  86,093    $    --
                                                                               =========    =========
</TABLE>

         The Company has not paid its 2000 Federal income tax liability. Payment
         terms have been negotiated with the Internal  Revenue Service to pay in
         2002.


NOTE K - OPERATING LEASES

         The Company leases certain of its facilities  under  operating  leases.
         The minimum  commitments under  noncancellable  operating leases are as
         follows:

       Year ending           Lease         Sub-lease
       December 31,       obligations     receivables        Total
       ------------       -----------    ------------    ------------
          2002            $   310,190    $    (90,000)   $    220,190
          2003                293,898         (90,000)        203,898
          2004                263,476         (60,000)        203,476
          2005                130,344            --           130,344
                          -----------    ------------    ------------

                          $   997,908    $ (  240,000)   $    757,908
                          ===========    ============    ============

         Rent  expense  for the  years  ended  December  31,  2001  and 2000 was
         approximately $307,000 and $386,000, respectively, and was decreased by
         sublease income of approximately $90,000 and $23,000, respectively.


<PAGE>


NOTE L - ACQUISITION

         On March 2, 2000,  the Company  acquired  certain  assets of  Fairchild
         International,  Inc.  The  purchase  price of  $1,120,001  consisted of
         $350,000 in cash, a promissory note for $450,000,  and 62,745 shares of
         the Company's common stock valued at $320,001. The acquisition has been
         accounted  for as a purchase.  Accordingly,  a portion of the  purchase
         price has been allocated to net tangible and intangible assets acquired
         based on their  estimated  fair  values.  The  purchase  price has been
         allocated  to  furniture  and  fixtures in the amount of  $120,000  and
         goodwill in the amount of $1,000,000.  Goodwill is being amortized on a
         straight-line basis over ten years.

         The  following  unaudited pro forma  information  presents a summary of
         2000  consolidated  results of  operations  as if the  acquisition  had
         occurred on January 1, 2000:

         Revenue                                                  $   25,998,000
         Net income                                                      232,592
         Earnings per share
           Basic                                                             .05
           Diluted                                                           .05



<PAGE>
<TABLE>
<CAPTION>


NOTE M - SEGMENT INFORMATION

         Management   identifies  reportable  segments  by  product  or  service
         offered.  Each  segment  is managed  separately.  The  jewelry  segment
         consists of sales to both wholesale and retail customers.  This segment
         also  includes  pawn  operations  and  bullion  sales.  The  consulting
         services  segment  includes  consulting  services related to insolvency
         advisory services  primarily to business  enterprises that are involved
         in or have beeen involved in  proceedings  under Chapter 11 of the U.S.
         Bankruptcy  Code.  Liquidations  are  conducted  through the  Company's
         wholly-owned  subsidiary,   Silverman  Consultants,   Inc.  (SCI).  SCI
         conducts liquidation,  consolidation,  promotional or other large scale
         retail sales for jewelry stores and other types of stores. The software
         segment consists of sales of the Company's auction software that allows
         users to easily build on-line  auction  internet  sites.  Corporate and
         other  includes  certain  general  and   administrative   expenses  not
         allocated  to segments.  The  Company's  operations  by segment were as
         follows:

                                                                                 Consulting     Corporate
                                     Software     Liquidations     Jewelry        Services      and other     Consolidated
                                   ------------   ------------   ------------   ------------   ------------   ------------
<S>                                <C>            <C>            <C>            <C>            <C>            <C>
         Revenues
            2001                         3,578       1,859,303     19,253,928           --                      21,116,809
            2000                       205,368       4,336,550     20,523,267        456,000           --       25,521,185

         Net income (loss)
            2001                       (38,094)       (500,878)       301,319        (46,542)       (40,368)      (324,563)
            2000                        50,291        (347,276)       278,941        369,080        (99,352)       251,684

         Identifiable assets
            2001                        70,971       2,884,909      7,773,362        671,119           --       11,400,361
            2000                       134,241       3,765,941      8,627,016        886,045           --       13,413,243

         Capital expenditures
            2001                         3,461           7,129        171,516           --             --          182,106
            2000                        52,915          44,702        245,010          2,017           --          344,644

         Depreciation and
            amortization
            2001                        21,259         163,660        234,675          8,081                       427,675
            2000                        12,737         142,207        216,552         16,467           --          387,963

</TABLE>


</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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