<DOCUMENT>
<TYPE>10KSB
<SEQUENCE>1
<FILENAME>dgse10ksb123102.txt
<TEXT>

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

                                   FORM 10-KSB
(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, 2002 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 of                   (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, 2002, total revenues were $ 22,019,804.

As of March 3, 2003,  the  aggregate  market  value of the voting  stock held by
non-affiliates of the registrant was $ 5,650,284

As of March 3, 2003, 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 16,  2003,  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.  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;  USBullionExchange.com;  FairchildWatches.com;and
SilvermanLiquidations.com.

The Company also provides consulting  services through two operating  companies,
DLS Financial Services Inc. ("DLS") and Silverman Consultants,  Inc.("SCI"). DLS
provides   services  to  companies   contemplating  or  currently   involved  in
proceedings under Chapter 11 of the United States Bankruptcy Code. DLS typically
serves as an advisor to companies and\or court approved retained professional by
debtors-in-  possession.  Services  provided  by DLS include  plan  development,
external  capital  transactions,  insolvency  related  merger  and  acquisitions
services and general  advice on financial  matters.  SCI's  primary  business is
conducting liquidation,  consolidation,  promotional or other large-scale retail
sales for jewelry  stores and other types of  retailers.  DLS and SCI operate as
separate businesses but frequently provide services to the same clients.

The Company operates four 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.  The  Company  also  offers
customers  current  quotations  for precious  metals prices on its internet site
USBullionExchange.com.   FairchildWatches.com  provides  wholesale  customers  a
virtual  catalog of the  Company's  fine watch  inventory.  Over 7,500 items are
available for sale on the  Company's  internet  sites  including $ 10,000,000 in
diamonds. SilvermanLiquidations.com is an information site for SCI.

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.


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.

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.


                                       2
<PAGE>

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

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 19.2% of
total  revenues  for 2002 and 18.5% in 2001  (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 2002 or 2001.

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

The Company  makes pawn loans through its  headquarter  facility and through its
National Jewelry Exchange, Inc. subsidiary. 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.
Revenues  from  the  Company's  pawn  loans  have  grown  at each  location  and
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  offers for sale its own inventory.  The internet  store  functions as a
CyberCashTM   authorized  site  which  allows  customers  to  purchase  products
automatically  and securely on line.  Auctions close a least five times per week
and trading floor  transactions can occur  twenty-four  hours per day. This site
also includes a virtual store of the Company's jewelry products.

The    Company's    internet    activities    also    includes   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.

Additional  sites  operated  by the  Company  include  Fairchildwatches.com  and
Silvermanliquidations.com.  FairchildWatches.com  provides wholesale customers a
virtual catalog of the Company's fine watch inventory. SilvermanLiquidations.com
is an information site for SCI.

CONSULTING SERVICES
-------------------

The Company's consulting activities are offered through two units, SCI and DLS.

SCI's  primary  business  is  conducting   liquidation,   promotional  or  other
large-scale  retail sales for jewelry  stores and other types of retailers.  The
business  of SCI has a  history  extending  over 55 years  providing  consulting
services to over 4,500  retailers.  SCI typically  earns either a commission for


                                       3
<PAGE>

its services,  a participation in the sales activities or a combination of these
forms of compensation. In addition, SCI often supplies inventory to retailers in
order to  facilitate  sales.  SCI also  provides  appraisals  for  creditors and
merchant banking  services.  During 2002 SCI conducted  transactions for over 20
retailers and other parties.

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.
Since the acquisition of SCI, DLS has dedicated most of its efforts to providing
services to existing SCI clients and to continuing  services to prior insolvency
clients.

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, 2002,
the Company's investment in these enterprises totaled $ 176,908.

It is the intention of the Company to further  integrate  the  activities of SCI
and DLS in the  future,  providing  potential  clients  with a broader  array of
services dealing with corporate distress.

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

All Company  activities  other than  consulting  services  rely heavily on local
television  advertising.  Marketing activities emphasize the Company's broad and
unusual array of products and services and the attractiveness of its pricing and
service.  The Company relies on professional  contacts of the Company's Chairman
and other officers and employees 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, 2002 or 2001.  Company backlogs for fabricated jewelry
products were also not significant as of December 31, 2002 and 2001.

Consulting  services  provided by SCI are marketed  directly through  referrals,
print advertising and direct marketing efforts.


Seasonality
-----------

The retail and  wholesale  jewelry  business  and the  liquidation  business  is
seasonal. The Company realized 33.2% and 33.8% of its annual sales in the fourth

                                       4
<PAGE>

quarters of 2002 and 2001, 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.

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 all of its  activities  by  offering  high
quality  products and services at prices  below that of its  competitors  and by
maintaining a staff of highly qualified employees.


Employees
---------

As of December 31, 2002, the Company  employed 42 individuals,  41 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,  consumer  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 $ 535,000
as of December 31, 2002.

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  current monthly payments of $ 9,000. In November 1995, the Company
closed this store.  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,  2007 and
requires monthly lease payments in the amount of $ 1,456.

SCI 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.


                                       5
<PAGE>

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.


                                     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 bid  quotations  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.

The following  quotations reflect  inter-dealer  prices without retail mark-ups,
mark-downs or commissions and may not reflect actual transactions.  High and low
bid quotations for the last two years were:

                                2002                   2001

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

     First Quarter        3.650     1.800        9.875     3.500

     Second Quarter       2.550     1.500        9.500     4.750

     Third Quarter        1.650      .750        7.750     1.950

     Fourth Quarter       1.300      .910        5.050     1.830



On March 3, 2003,  the closing sales price for the Company's  common stock was $
1.150 and there were 703 shareholders of record.


                                       6
<PAGE>

Securities authorized for issuance under equity compensation plans.

The Company has granted options to certain officers, directors and key employees
to purchase shares of the Company's common stock. Each option vests according to
a schedule  designed by the board of  directors  of the  Company,  not to exceed
three years.  Each option  expires 180 days from the date of  termination of the
employee or director.  The exercise  price of each option is equal to the market
value of the  Company's  common stock on the date of grant.  These option grants
have not been approved by security holders.

The following table summarizes options outstanding as of December 31, 2002:

Plan         Number of            Weighted average    Number of securities
Category     securities to be     exercise price of   remaining available
             issued upon          outstanding  for    future issuance
             exercise of options  options, warrants   under equity compensation
             warrants & rights    warrants & rights   plans
-----------  -------------------  -----------------   -------------------------
Equity
Compensation
Plans Approved
By Security
Holders          None                 None                   None

Equity
Compensation
Plans Not
Approved By
Security
Holders         1,420,634              $ 2.09                None
            -------------------   -----------------   -------------------------
Total           1,420,634              $ 2.09                None
            ===================   =================   =========================


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.

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.


                                       7
<PAGE>

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

2002 vs 2001
------------

Sales increased by $ 867,393 (4.1%) in 2002. This increase was the result of a $
1,981,955  increase in sales from the jewelry segment and a $ 1,078,960 decrease
in sales from the consulting and liquidation segment. The decrease in sales from
the consulting and liquidations segment was the result of a nation wide softness
in the  liquidation  sales  industry.  The  increase  in sales from the  jewelry
segment was the result of a $ 945,399  increase in precious  metals sales.  Pawn
service  fees  increase  by $ 35,602  (29.5%) in 2002 due to an increase in pawn
loans  outstanding  during the year. Cost of goods increased by $ 590,913 during
2002  primarily due to the increase in sales  volume.  Gross margins were almost
unchanged (23.6% in 2001 vs. 23.9% in 2002.



Selling expenses decreased by $ 47,059 or 8.0% due to a reduction in print media
advertising.  Depreciation and amortization decreased by $ 224,690 primarily due
to goodwill not being amortized in 2002 with the adoption of SFAS No. 142. Other
income  during 2002 in the amount of $ 401,853 was the result of  retirement  of
debt  at a  discount.  Interest  expense  decreased  by $  197,840  due  to  the
forgiveness  of $ 107,069 in accrued  interest and due to the retirement of high
interest bearing debt.




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

The Company's  short-term debt,  including current  maturities of long-term debt
totaled $ 863,886 as of December  31,  2002.  During  November  2002 the Company
re-financed $ 2,700,000 of its  outstanding  bank debt. This new credit facility
in the amount of $ 3,000,000 allowed the Company to retire a portion of its debt
at a discount of $ 401,853, extend the maturity of its bank debt to January 2004
and provided the Company with additional working capital.

Management of the Company  expects capital  expenditures to total  approximately
$100,000 during 2003. 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.


                                       8
<PAGE>

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
unforeseen 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:

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.


Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards  (SFAS) No. 141,  Business  Combinations,  SFAS No. 142,  Goodwill and
Intangible  Assets,  and SFAS No. 144,  Accounting for Impairment or Disposal of
Long-Lived Assets.

SFAS No. 141, SFAS No. 142 and SFAS No. 144

Major provisions of these statements and their effective dates are as follows: o
intangible assets acquired in a business combination must be recorded separately
from  goodwill  if they arise from  contractual  or other  legal  rights and are
separable  from the  acquired  entity  and can be sold,  transferred,  licensed,
rented or exchanged, either individually or as part of a related contract, asset
or liability;

o        effective  January 1, 2002,  all  previously  recognized  goodwill  and
intangible   assets  with  indefinite   lives  will  no  longer  be  subject  to
amortization;


                                       9
<PAGE>

o        effective  January  1,  2002,   goodwill  and  intangible  assets  with
indefinite lives will be tested for impairment  annually or whenever there is an
impairment indicator; and

o        all acquired  goodwill must be assigned to reporting units for purposes
of impairment testing and segment reporting

The Company  amortized  goodwill and intangible assets acquired prior to July 1,
2001 until December 31, 2001.  Beginning  January 1, 2002,  quarterly and annual
goodwill  amortization  is no longer  recognized.  The Company  completed a fair
value based  impairment test of goodwill as of December 31, 2002. In the opinion
of management  this test indicated that the goodwill and  intangibles  assets of
the Company are not impaired.

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.

Goodwill consists of the following:

                                                 Consulting and
                                    Jewelry       Liquidation
                                    Segment         Segment            Total
                                --------------   --------------   --------------



Goodwill                        $      837,117   $      314,003   $    1,151,120
                                ==============   ==============   ==============




Net income  (loss) and income  (loss) per share for the year ended  December 31,
2002 and 2001, adjusted to exclude amortization expense, is as follows:



                                                      Year ended December 31,
                                                    ---------------------------

                                                        2002            2001
                                                    -----------     -----------
Net income (loss)
      Reported net income (loss)                    $   429,311     $  (324,563)
      Goodwill amortization net of income
        tax effect of $ 34,160 in 2001                     --           158,523
                                                    -----------     -----------
      Pro forma Income (loss)                       $   429,311     $  (166,523)
                                                    ===========     ===========

                                       10
<PAGE>

Basic and diluted income (loss) per share
      Reported basic and diluted income
        (loss) per share                            $       .09     $      (.07)
      Goodwill amortization                                --               .03
                                                    -----------     -----------
      Pro forma basic and diluted income
        (loss) per share                            $       .09     $      (.04)
                                                    ===========     ===========


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  $176,908 as of December  31,
2002. Gross unrealized losses were $1,728,130 at December 31, 2002.


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 18 - 38 of this report).






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

         On December 16, 2002, the Registrant engaged Cheshier & Fuller,  L.L.P.
as its principal  auditors.  The services for which the  Registrant  has engaged
Cheshier & Fuller,  L.L.P.  include the audit of the  Registrant's  consolidated
balance sheet and the related consolidated statement of operations, consolidated
statement of shareholder'  equity and  consolidated  statement of cash flows for
the year ending  December 31,  2002.  In addition,  the  Registrant  has engaged
Cheshier & Fuller,  L.L.P.  to  provide  quarterly  reviews of the  Registrant's
interim  financial  statements  on Form 10-QSB for the periods  ending March 31,
2003, June 30, 2003 and September 30, 2003.

Grant  Thornton,  L.L.P.,  the  Registrant's  former  principal  auditors,  were
notified of their  dismissal on December  17,  2002.  During the two most recent
fiscal years and the subsequent  interim periods preceding the dismissal,  there
were no  disagreements  with the former  accountants on any matter of accounting
principles or practices,  financial statement  disclosure,  or auditing scope or
procedure,  which  disagreements,  if not  resolved to the  satisfaction  of the


                                       11
<PAGE>

former accountants, would have caused it to make reference to the subject matter
or the  disagreement in connection  with its reports.  During either of the past
two  years  the  reports  issued  by Grant  Thornton,  L.L.P.  on the  financial
statements  of the Company did not contain an adverse  opinion or  disclaimer of
opinion,  or  was  modified  as  to  uncertainty,  audit  scope,  or  accounting
principles.

The decision to change principal auditors was recommended by the Company's audit
committee and approved by the Company's board of directors.




                                    PART III

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

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  directors  and  executive  officers  of the
Company, is incorporated by reference in response to this item.


ITEM 10. EXECUTIVE COMPENSATION

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 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.



                                       12
<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits:

         10.1 Loan and Security Agreement dated November 22, 2002 by and between
         First American Bank, SSB and DGSE Companies, Inc.


        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.

       99.1 - Certification of Chief Executive Officer.

       99.2 - Certification of Chief Financial Officer.

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.


                                       13
<PAGE>

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.

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, 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



ITEM 14. Controls and Procedures

Under the supervision and with the  participation  of our management,  including
our  principal  executive  officer  and  principal  financial  officer,  we have
evaluated  the  effectiveness  of the design  and  operation  of our  disclosure
controls and procedures within 90 days of the filing date of this annual report,
and, based on their  evaluation,  our principal  executive officer and principal
financial  officer  have  concluded  that  these  controls  and  procedures  are
effective.  There are no significant  changes in our internal  controls or other
factors that could significantly affect these controls subsequent to the date of
their evaluation.  Disclosure controls and procedures are our controls and other
procedures that are designed to ensure that information required to be disclosed
by us in the reports  that we file or submit under the Exchange Act is recorded,
processed,  summarized  and  reported,  within the time period  specified in the
Securities and Exchange  Commission's rules and forms.  Disclosure  controls and


                                       14
<PAGE>

procedures  include,  without  limitation,  controls and procedures  designed to
ensure that  information  required to be  disclosed by us in the reports that we
file under the Exchange Act is accumulated  and  communicated to our management,
including our principal  executive officer and principal  financial officer,  as
appropriate to allow timely decisions regarding required disclosure.

                                   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.

DGSE Companies, Inc.


By: /s/ L. S. Smith                             Dated: March 24, 2003
   ---------------------------
   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 24, 2003
   ---------------------------
   L.S Smith
   Chairman of the Board,
   Chief Executive Officer and
   Secretary


By: /s/ W. H. Oyster                            Dated: March 24, 2003
   ---------------------------
   W. H. Oyster
   Director, President and
   Chief Operating Officer


By: /s/ John Benson                              Dated: March 24, 2003
   ---------------------------
   John Benson
   Director and Chief Financial
   Officer
   (Principal Accounting Officer)


BY: /s/ William P. Cordeiro                     Dated: March 24, 2003
   ---------------------------
   Director

By: /s/ James Walsh                             Dated: March 24, 2003
   ---------------------------
  Director






                                       15
<PAGE>

Certifications:
I, L.S. Smith, Certify that:
1.       I have reviewed  this annual  report on Form 10-KSB of DGSE  Companies,
         Inc.;
2.       Based on my  knowledge,  this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances  under which
         such  statements  were made, not misleading  with respect to the period
         covered by this annual report;
3.       Based on my knowledge,  the financial  statements,  and other financial
         information  included  in this  annual  report,  fairly  present in all
         material  respects the financial  condition,  results of operations and
         cash flows of the Company as of, and for, the periods presented in this
         annual report;
4.       The  Company's  other  certifying  officers and I are  responsible  for
         establishing  and  maintaining  disclosure  controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and we
         have:
         a)       designed  such  disclosure  controls and  procedures to ensure
                  that material information  relating to the Company,  including
                  its consolidated  subsidiaries,  is made known to us by others
                  within those entities, particularly during the period in which
                  this annual report is being prepared;
         b)       Evaluated  the  effectiveness  of  the  Company's   disclosure
                  controls and  procedures  as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and
         c)       Presented  in this  annual  report our  conclusions  about the
                  effectiveness of the disclosure  controls and procedures based
                  on our evaluation as of the Evaluation Date;
5.       The Company's other certifying officers and I have disclosed,  based on
         our most recent  evaluation,  to the  Company's  auditors and the audit
         committee of the Company's  board of directors  (or persons  performing
         the equivalent functions):
         a)       all  significant  deficiencies  in the design or  operation of
                  internal  controls which could adversely  affect the Company's
                  ability to record,  process,  summarize  and report  financial
                  data  and  have  identified  for the  Company's  auditors  any
                  material weakness in internal controls; and
         b)       any fraud,  whether or not material,  that involves management
                  or  other  employees  who  have  a  significant  role  in  the
                  Company's internal controls; and

6.       The Company's  other  certifying  officers and I have indicated in this
         annual report whether or not there were significant changes in internal
         controls or in other factors that could  significantly  affect internal
         controls  subsequent  to  the  date  of  our  most  recent  evaluation,
         including any corrective action with regard to significant deficiencies
         and material weaknesses.

Date: March 24, 2003

 /s/ L.S. Smith
---------------
Chairman and Chief Executive Officer


                                       16
<PAGE>

Certifications:
I, John Benson, Certify that:
1.       I have reviewed  this annual  report on Form 10-KSB of DGSE  Companies,
         Inc.;
2.       Based on my  knowledge,  this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances  under which
         such  statements  were made, not misleading  with respect to the period
         covered by this annual report;
3.       Based on my knowledge,  the financial  statements,  and other financial
         information  included  in this  annual  report,  fairly  present in all
         material  respects the financial  condition,  results of operations and
         cash flows of the Company as of, and for, the periods presented in this
         annual report;
4.       The  Company's  other  certifying  officers and I are  responsible  for
         establishing  and  maintaining  disclosure  controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and we
         have:
         a.       designed  such  disclosure  controls and  procedures to ensure
                  that material information  relating to the Company,  including
                  its consolidated  subsidiaries,  is made known to us by others
                  within those entities, particularly during the period in which
                  this annual report is being prepared;
         b.       Evaluated  the  effectiveness  of  the  Company's   disclosure
                  controls and  procedures  as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and
         c.       Presented  in this  annual  report our  conclusions  about the
                  effectiveness of the disclosure  controls and procedures based
                  on our evaluation as of the Evaluation Date;
5.       The Company's other certifying officers and I have disclosed,  based on
         our most recent  evaluation,  to the  Company's  auditors and the audit
         committee of the Company's  board of directors  (or persons  performing
         the equivalent functions):
         a.       all  significant  deficiencies  in the design or  operation of
                  internal  controls which could adversely  affect the Company's
                  ability to record,  process,  summarize  and report  financial
                  data  and  have  identified  for the  Company's  auditors  any
                  material weakness in internal controls; and
         b.       any fraud,  whether or not material,  that involves management
                  or  other  employees  who  have  a  significant  role  in  the
                  Company's internal controls; and
6.       The Company's  other  certifying  officers and I have indicated in this
         annual report whether or not there were significant changes in internal
         controls or in other factors that could  significantly  affect internal
         controls  subsequent  to  the  date  of  our  most  recent  evaluation,
         including any corrective action with regard to significant deficiencies
         and material weaknesses.


Date: March 24, 2003

  /s/ John Benson
-----------------
Chief Financial Officer


                                       17
<PAGE>
               Report of Independent Certified Public Accountants


Board of Directors and Shareholders
DGSE Companies, Inc. and Subsidiaries

We have audited the accompanying  consolidated balance sheets of DGSE Companies,
Inc. and  Subsidiaries  as of December 31,  2002,  and the related  consolidated
statements of operations, shareholders' equity, and cash flows for the year 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  audit.  The  consolidated  statements  of  operations,
shareholders'  equity, and cash flows of DGSE Company, Inc. and Subsidiaries for
the year ended  December 31, 2001,  were audited by other  auditors whose report
dated February 15, 2002, expressed an unqualified opinion on those statements.

We conducted our audit 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 audit provides 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, 2002, and the  consolidated  results of
its  operations and its cash flows for the year then ended,  in conformity  with
accounting principles generally accepted in the United States of America.


                                                   /S/ Cheshier & Fuller, L.L.P.
                                                  ------------------------------
                                                  CHESHIER & FULLER, L.L.P.
Dallas, Texas
February 12, 2003



                                       18
<PAGE>

                      DGSE COMPANIES, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheet
                                December 31, 2002

                                     ASSETS
                                     ------
Current assets:
Cash and cash equivalents                                          $    498,408
Trade receivables                                                       792,590
Inventories                                                           6,335,742
Prepaid expenses                                                        152,854
                                                                   ------------
Total current assets                                                  7,779,594

Marketable securities - available for sale                              176,908
Property and equipment                                                1,157,225
Deferred income tax assets                                              120,433
Goodwill                                                              1,151,120
Other assets                                                            160,109
                                                                   ------------

                                                                   $ 10,545,389
                                                                   ============

                      LIABILITIES AND SHAREHOLDERS' EQUITY
                      ------------------------------------
Current liabilities:
Notes payable                                                      $    689,641
Current maturities of long-term debt                                    174,245
Accounts payable - trade                                                591,479
Accrued expenses                                                        661,667
Accrued compensation                                                     15,437
Customer deposits                                                       106,314
Accrued income taxes                                                    485,453
                                                                   ------------
Total current liabilities                                             2,724,236

Long-term debt, less current maturities                               3,066,797
Deferred income taxes - long-term                                         2,827
                                                                   ------------

Total liabilities                                                     5,793,860
                                                                   ------------

Shareholders' equity:
Common stock, $.01 par value; authorized 10,000,000
shares; issued and outstanding 4,913,290                                 49,133
Additional paid-in capital                                            5,708,760
Accumulated other comprehensive loss                                 (1,134,950)
Retained earnings                                                       128,586
                                                                   ------------
Total shareholders' equity                                            4,751,529
                                                                   ------------

                                                                   $ 10,545,389
                                                                   ============

The  accompanying  notes are an intergral  partof these  consolidated  financial
statements.

                                       19
<PAGE>

                      DGSE COMPANIES, INC. AND SUBSIDIARIES
                      Consolidated Statements of Operations
                            Years Ended December 31,

                                                       2002            2001
                                                   ------------    ------------
Revenues
Sales revenue                                      $ 21,863,513    $ 20,996,120
Pawn service fees                                       156,291         120,689
                                                   ------------    ------------
                                                     22,019,804      21,116,809
                                                   ------------    ------------

Costs and expenses:
Cost of goods sold                                   16,630,571      16,039,658
Selling, general and administrative expenses          4,645,978       4,640,769
Depreciation and amortization                           202,986         427,676
                                                   ------------    ------------

                                                     21,479,535      21,108,103
                                                   ------------    ------------

Operating income                                        540,269           8,706
                                                   ------------    ------------

Other income (expenses):
Other income                                            401,853          18,626
Other expense                                           (14,206)           --
Interest expense                                       (270,025)       (467,685)
                                                   ------------    ------------

Total other income (expense)                            117,622        (449,059)
                                                   ------------    ------------

Income (loss) before income taxes                       657,891        (440,353)
Income tax expense (benefit)                            228,580        (115,790)
                                                   ------------    ------------

Net income (loss)                                  $    429,311    $   (324,563)
                                                   ============    ============

Earnings (loss) per common share:
Basic                                              $       0.09    $      (0.07)
Diluted                                            $       0.09    $      (0.07)

Weighted average number of common shares:
Basic                                                 4,913,628       4,924,665
Diluted                                               4,916,878       4,924,665


The  accompanying  notes are an intergral  partof these  consolidated  financial
statements.

                                       20
<PAGE>
<TABLE>
<CAPTION>

                      DGSE COMPANIES, INC. AND SUBSIDIARIES
                 Consolidated Statement of Shareholders' Equity
                     Years Ended December 31, 2002 and 2001
                                                                                           Retained
                                                                                             Total
                                                    Common Stock            Additional     Earnings           Other
                                             --------------------------      Paid-In     (Accumulated   Comprehensive  Shareholders'
                                                Shares         Amount        Capital       Deficit)         Loss           Equity
                                             -----------    -----------    -----------    -----------    -----------    -----------
<S>                                          <C>            <C>            <C>            <C>            <C>            <C>
Balances at January 1, 2001                    4,907,990    $    49,080    $ 5,609,445    $    23,838    $  (690,749)   $ 4,991,614

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

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

Net income (loss)                                   --             --             --          429,311           --          429,311

Other comprehensive income (loss):
Loss on marketable securities arising
during the year, net of tax                         --             --             --             --         (161,878)      (161,878)
Reclassification adjustment                         --             --             --             --           14,205         14,205
                                                                                                         -----------    -----------
Unrealized loss on marketable securities,
 net of tax                                         --             --             --             --         (147,673)      (147,673)
                                                                                                         -----------    -----------

Purchase and retirement of common shares            (500)            (5)          (606)          --             --             (611)

Common stock issued                                  500              5          1,065           --             --            1,070
                                             -----------    -----------    -----------    -----------    -----------    -----------

Balances at December 31, 2002                  4,913,290    $    49,133    $ 5,708,760    $   128,586    $(1,134,950)   $ 4,751,529
                                             ===========    ===========    ===========    ===========    ===========    ===========
</TABLE>







The  accompanying  notes are an intergral  partof these  consolidated  financial
statements.

                                       21
<PAGE>
<TABLE>
<CAPTION>

                      DGSE COMPANIES, INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                            Years Ended December 31,

                                                           2002           2001
                                                       -----------    -----------
<S>                                                    <C>            <C>
Cash flows from operating activities:
Net income (loss)                                      $   429,311    $  (324,563)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities
Depreciation and amortization                              202,986        427,675
Deferred income taxes                                       80,815        198,524
Accretion of debt discount                                  12,132         26,793
Loss on sale of assets                                      14,205           --
Change in operating assets and liabilities
Trade receivable                                          (148,257)       288,419
Prepaid assets                                             (27,456)        (3,419)
Inventories                                                (38,423)       784,052
Accounts payable and accrued expenses                     (344,300)    (1,076,771)
Income taxes payable                                       164,772       (335,923)
Accrued compensation                                       (14,810)      (275,057)
                                                       -----------    -----------
Net cash provided (used) by operating activities           330,975       (290,270)
                                                       -----------    -----------
Cash flows from investing activities:
Proceeds from disposal of assets                             4,794           --
Purchase of marketable securities                             --          (15,750)
Purchases of property and equipment                        (25,024)       (31,230)
Additions to deposits                                      (15,264)          --
                                                       -----------    -----------
Net cash provided (used) by investing activities           (35,494)       (46,980)
                                                       -----------    -----------

Cash flows from financing activities:
Issuance of common stock                                     1,070
Proceeds from indebtedness                               2,460,555      1,143,176
Repayment of indebtedness                               (3,321,147)    (1,073,994)
Purchase and retirement of common stock                       (611)       (31,091)
                                                       -----------    -----------
Net cash provided (used) by financing activities          (860,133)        38,091
                                                       -----------    -----------

Net increase (decrease) in cash and cash equivalents      (564,652)      (299,159)
Cash and cash equivalents at beginning of year           1,063,060      1,362,219
                                                       -----------    -----------

Cash and cash equivalents at end of year               $   498,408    $ 1,063,060
                                                       ===========    ===========
</TABLE>

The  accompanying  notes are an intergral  partof these  consolidated  financial
statements.


                                       22
<PAGE>

                      DGSE COMPANIES, INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                            Years Ended December 31,

                                                            2002         2001
                                                         ----------   ----------
Supplemental Disclosures

Cash paid during the year for:
Interest                                                 $  328,732   $  365,170
                                                         ==========   ==========

Income taxes                                             $     --     $   17,901
                                                         ==========   ==========


During 2001, debt amounting to $130,000 was converted to common stock.
































The  accompanying  notes are an intergral  partof these  consolidated  financial
statements.

                                       23
<PAGE>

                      DGSE COMPANIES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                December 31, 2002

Note 1 - 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 values 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.

         Inventory

         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).




                                       24
<PAGE>

                      DGSE COMPANIES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                December 31, 2002

Note 1 - Summary of Significant Accounting Policies, continued
         -------------------------------------------

         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  thirty  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.

         Goodwill

         During 2001,  goodwill was being amortized over periods  expected to be
         benefited using the straight-line  method with period ranging from five
         to ten years.

         Effective  January 1, 2002, the Company adopted  Statement of Financial
         Accounting  Standards No. 142,  Goodwill and Other  Intangible  Assets.
         Under  that  pronouncement,  goodwill  is not  being  amortized  but is
         subject to periodic  tests to determine  the amount of  impairment,  if
         any, to be reflected during the period.

         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.

         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 $541,079 and
         $588,138 for 2002 and 2001.



                                       25
<PAGE>

                      DGSE COMPANIES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                December 31, 2002

Note 1 - Summary of Significant Accounting Policies, continued
         -------------------------------------------

         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, bad debts, 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.

         As of December 31, 2002, based on subsequent  collections and operating
         history, management estimated no allowance for discounts,  returns, bad
         debts and other adjustments.

         Earnings (Loss) Per Share

         Basic  earnings  per common  share is based upon the  weighted  average
         number of shares of common  stock  outstanding.  Diluted  earnings  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.

         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.



                                       26
<PAGE>

                      DGSE COMPANIES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                December 31, 2002

Note 1 - Summary of Significant Accounting Policies, continued
         -------------------------------------------

         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.

         The following  table  illustrates the effect on net income and earnings
         per  share  if the  Company  had  applied  the fair  value  recognition
         provisions  of FASB  Statement  No.  123,  Accounting  for  Stock-Based
         Compensation, to stock-based employee compensation.

                                                      Year Ended December 31,
                                                   ----------------------------
                                                       2002             2001
                                                   -----------    -------------

         Net income (loss), as reported            $   429,311    $    (324,563)

         Deduct: Total stock-based employee
         compensation expense determined under
         fair value based method for all awards,
         net of related tax effects                   (236,611)      (1,318,829)
                                                   -----------    -------------

         Pro forma net income (loss)               $   192,700    $  (1,643,392)
                                                   ===========    =============

         Earnings per share:
             Basic - as reported                           .09             (.07)
             Basic - pro forma                             .04             (.33)
             Diluted - as reported                         .09             (.07)
             Diluted - pro forma                           .04             (.33)

         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 96%,  risk-free  rate of 3.9 to 6.6%, no dividend
         yield and expected life of 5 to 8 years.

         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


                                       27
<PAGE>

                      DGSE COMPANIES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                December 31, 2002

Note 1 - Summary of Significant Accounting Policies, continued
         -------------------------------------------

         Use of Estimates, continued

         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 April,  2002,  the Financial  Accounting  Standards  Board  ("FASB:)
         issued Statement of Financial  Accounting Standards No. 145, Rescission
         of FASB Statements No. 4, 44, and 64 Amendment of FASB Statement No. 13
         and Technical  Corrections.  This statement rescinds FASB Statement No.
         4,  Reporting  Gains and Losses  from  Extinguishment  of Debt,  and an
         amendment of that Statement,  FASB Statement No. 64, Extinguishments of
         Debt Made to Satisfy  Sinking-Fund  Requirements.  This  Statement also
         rescinds FASB Statement No. 44,  Accounting  for  Intangible  Assets of
         Motor Carriers. This statement amends FASB Statement No. 13, Accounting
         for  Leases,  to  eliminate  an  inconsistency   between  the  required
         accounting for sale-leaseback  transactions and the required accounting
         for certain lease  modifications  that have  economic  effects that are
         similar to  sale-leaseback  transactions.  This  statement  also amends
         other existing  authoritative  pronouncements to make various technical
         corrections,  clarify meanings,  or describe their  applicability under
         changed conditions.

         The Company  extinguished  debt during 2002,  accounting for the income
         thus realized as other income in the amount of approximately  $400,000,
         in  compliance  with the  provisions  of APB Opinion No. 30 as required
         under FASB Statement No. 145.

         In June,  2002,  the FASB  issued  Statement  of  Financial  Accounting
         Standards  No.  146,  Accounting  for  Costs  Associated  with  Exit or
         Disposal Activities.  This statement addresses financial accounting and
         reporting for costs  associated  with exit or disposal  activities  and
         nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,  "Liability
         Recognition for Certain Employee  Termination  Benefits and Other Costs
         to  Exit  an  Activity   (including   Certain   Costs   Incurred  in  a


                                       28
<PAGE>

                      DGSE COMPANIES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                December 31, 2002

Note 1 - Summary of Significant Accounting Policies, continued
         -------------------------------------------

         Restructuring)."  The Company  plans to adopt this  statement as of its
         effective  date and does not  expect  that  the  adoption  will  have a
         material impact on its consolidated  results of operations or financial
         position.


         In December,  2002, the FASB issued  Statement of Financial  Accounting
         Standards No. 148, Accounting for Stock-Based Compensation - Transition
         and Disclosure - an Amendment of FASB Statement No. 123. This statement
         amends FASB Statement No. 123, Accounting for Stock-Based Compensation,
         to provide  alternative methods of transition for a voluntary change to
         the fair value based  method of  accounting  for  stock-based  employee
         compensation.   In  addition,  this  statement  amends  the  disclosure
         requirements of Statement 123 to require prominent  disclosures in both
         annual and interim financial  statements about the method of accounting
         for stock-based  employee  compensation and the effect of the method on
         reported results. The Company has adopted the disclosure  provisions of
         this statement.

Note 2 - Concentration of Credit Risk
         ----------------------------

         The Company maintains cash balances in financial institutions in excess
         of federally insured limits.

Note 3 - Inventories
         -----------
         A summary of inventories at December 31, 2002, is as follows:

         Jewelry                                                      $6,077,369
         Scrap gold                                                      155,601
         Bullion                                                          21,697
         Other                                                            81,075
                                                                      ----------

                                                                      $6,335,742
                                                                      ==========
Note 4 - Investments in Marketable Securities

         Marketable  securities have been classified in the consolidated balance
         sheet  according  to  management's   intent.  The  carrying  amount  of
         available-for-sale  securities  and their fair values at  December  31,
         2002 follows:



                                       29
<PAGE>

                      DGSE COMPANIES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                December 31, 2002

Note 4 - Investments in Marketable Securities, continued

                                                            Gross
                                                         Unrealized      Fair
                                               Cost        Losses       Value
                                            ----------   ----------   ----------

         Equity securities                  $1,905,038   $1,728,130   $  176,908
                                            ==========   ==========   ==========

Note 5 - Property and Equipment

         A summary of  property  and  equipment  at  December  31,  2002,  is as
         follows:

         Buildings and improvements                                   $  717,176
         Machinery and equipment                                         786,861
         Furniture and fixtures                                          204,743
                                                                      ----------
                                                                       1,708,780
         Less accumulated depreciation
             and amortization                                          1,102,855
                                                                      ----------
                                                                         605,925
         Land                                                            551,300
                                                                      ----------

                                                                      $1,157,225
                                                                      ==========

         Property and equipment  under capital leases is $202,450 as of December
         31, 2002.  Accumulated  depreciation for these assets was $76,972 as of
         December 31, 2002.

Note 6 - Goodwill

         At  December  31,  2002,  goodwill  was  reflected  for  the  following
         reporting units:

         Wholesale watch sales                                        $  837,117
         Consulting and liquidation                                      314,003
                                                                      ----------

                                                                      $1,151,120
                                                                      ==========

         No impairment was reflected during 2002.

         During 2001, the Company  amortized this goodwill over periods expected
         to be benefited at the time. Had that  amortization  not been reflected
         net income would have been as follows:



                                       30
<PAGE>

                      DGSE COMPANIES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                December 31, 2002

Note 6 - Goodwill, continued

         Reported net income (loss)                                   $(324,563)

         Amortization expense, net of income
           tax effect of $34,160                                        158,523
                                                                      ---------

         Pro forma net income (loss)                                  $(166,040)
                                                                      =========

         Basic and diluted earnings per share:

         Reported net income (loss)                                   $   (0.07)
         Goodwill amortization                                              .03
                                                                      ---------

         Pro forma net income (loss)                                  $   (0.04)
                                                                      =========


Note 7 - Notes Payable

         At December 31, 2002, the Company was obligated to various  individuals
         under  unsecured,  demand notes bearing annual  interest rates of 8% to
         10% totaling $689,642.

         One  of  the  notes  in  the  amount  of  $190,000  was  payable  to  a
         stockholder.  During 2002,  $23,069 was expensed as interest expense on
         this note.

Note 8 - Long-Term Debt

         A summary of long-term debt at December 31, 2002, follows:

         Note  payable to bank,  due  January 10, 2004,
         secured by all accounts receivable, inventory
         property and  equipment and intangible assets
         Interest  rate of prime plus 1-1/2% per annum
         (5.75% at December 31, 2002) is due monthly                  $2,150,000

         Mortgage  payable, due in monthly installments
         of $6,452, including interest based on 30 year
         U.S. Treasury note rate plus 2-1/2% (8.04% at
         December 31, 2002); balance due in January 2014                 535,507

         Note payable, due March 2, 2005. Interest is
         payable quarterly at a rate of 8%                               122,317

         Note payable, due January 2, 2005. Interest is
         payable monthly at a rate of 8%                                 310,556

         Capital lease obligations                                       122,661
                                                                       ---------
                                                                       3,241,041


                                       31
<PAGE>
<TABLE>
<CAPTION>

                      DGSE COMPANIES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                December 31, 2002

Note 8 - Long-Term Debt, continued

         Less current maturities                                       (174,245)
                                                                   ------------

                                                                   $  3,066,796

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

                                                                          Obligations
                                                                              Under
                                                            Long-term        Capital
             December 31,                      Debt          Leases          Totals
                                            -----------    -----------    -----------
             <S>                            <C>            <C>            <C>

                2003                        $   102,955    $    77,649    $   180,604
                2004                          2,218,228         32,694      2,250,922
                2005                            366,406         21,196        387,602
                2006                             40,431          2,646         43,077
                2007                             43,531           --           43,531
             Thereafter                         346,829           --          346,829
                                            -----------    -----------    -----------

                                              3,118,380        134,185      3,252,565
         Amounts representing interest
             (interest rates ranging from
             10.8% to 23.3%)                       --          (11,524)       (11,524)
                                            -----------    -----------    -----------

                                              3,118,380        122,661      3,241,041
         Less current portion                  (102,955)       (71,290)      (174,245)
                                            -----------    -----------    -----------

                                            $ 3,015,425    $    51,371    $ 3,066,796
                                            ===========    ===========    ===========
</TABLE>

Note 9 -  Earnings Per Share

         A  reconciliation  of the income and shares of the basic  earnings  per
         common share and diluted  earnings per common share for the years ended
         December 31, 2002 and 2001 is as follows:

                                                        December 31, 2002
                                              ---------------------------------
                                                                      Per-Share
                                                Income      Shares      Amount
                                              ----------  ----------  ---------
         Basic earnings per common share
             Income from operations allocable
               to common stockholders         $  429,311   4,913,628  $     .09
                                                                      =========



                                       32
<PAGE>

                      DGSE COMPANIES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                December 31, 2002

Note 9 - Earnings Per Share, continued
                                                      December 31, 2002
                                              ---------------------------------
                                                                      Per-Share
                                                Income      Shares      Amount
                                              ----------  ----------  ---------
         Effect of dilutive securities
             Stock options                          --         3,250
                                              ----------  ----------

         Diluted earnings per common share
             Income from operations available
               to common stockholders plus
               assumed conversions            $  429,311    4,916,878  $    .09
                                              ==========   ==========  ========

                                                       December 31, 2001
                                              ---------------------------------
                                                                      Per-Share
                                                Income      Shares      Amount
                                              ----------  ----------  ---------
         Basic earnings per common share
             Income from operations allocable
               to common stockholders         $ (324,563)  4,924,665  $    (.07)
                                                                      =========

         Effect of dilutive securities
             Stock options                          --          --
                                              ----------  ----------

         Diluted earnings per common share
             Income from operations available
               to common stockholders plus
               assumed conversions            $ (324,563)  4,924,665  $    (.07)
                                              ==========  ==========  =========
Note 10 - 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. 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  as all options  granted under those plans had an exercise
         price equal to the market value of the  underlying  common stock on the
         date of grant.



                                       33
<PAGE>

                      DGSE COMPANIES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                December 31, 2002

Note 10 - Stock Options, continued

         The following table summarizes the activity in common shares subject to
         options for the two years ended December 31, 2002 and 2001:
<TABLE>
<CAPTION>

                                            December 31, 2002                  December 31, 2001
                                       --------------------------------   --------------------------------
                                                            Weighted                           Weighted
                                                            Average                            Average
                                          Options        Exercise Price      Options        Exercise Price
                                       --------------    --------------   --------------    --------------
         <S>                           <C>               <C>              <C>               <C>
         Outstanding at beginning
             of year                        1,164,777    $         2.33          434,000    $         2.55
         Granted                              267,857              1.12          757,777              2.55
         Forfeited                            (12,000)             3.63          (27,000)             3.63
                                       --------------                     --------------

         Outstanding at end of year         1,420,634    $         2.09        1,164,777    $         2.33
                                       ==============    ==============   ==============    ==============

         Exercisable at end of year         1,420,634    $         2.09        1,160,777    $         2.33
                                       ==============    ==============   ==============    ==============

         Weighted average fair value
             of options granted
             during year                                 $         0.85                     $         1.70
                                                         ==============                     ==============
</TABLE>


         Stock options outstanding at December 31, 2002:
<TABLE>
<CAPTION>

                                    Options Outstanding                     Options Exercisable
                          -------------------------------------------   ----------------------------
            Range of                     Weighted        Weighted                       Weighted
            Exercise                      Average        Average                         Average
             Price          Options    Expected Life   Exercise Price     Options     Exercise Price
         --------------   ----------   -------------   --------------   -----------   --------------
         <S>              <C>          <C>             <C>              <C>           <C>
         $1.12               267,857      8 Years          $1.12           267,857        $1.12
         $1.63 to $2.25    1,097,777      8 Years          $2.21         1,097,777        $2.21
         $3.63 to $4.19       20,000      8 Years          $3.81            20,000        $3.83
         $4.88                35,000      5 Years          $4.88            35,000        $4.88
                          ----------                                    ----------

                           1,420,634                                     1,420,634
                          ==========                                    ==========
</TABLE>



                                       34
<PAGE>

                      DGSE COMPANIES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                December 31, 2002

Note 11 - Comprehensive Income

         Comprehensive income at December 31, 2002 and 2001 is as follows:
<TABLE>
<CAPTION>

                                                 Before-Tax        Tax        Net-of-Tax
                                                   Amount        Benefit        Amount
                                                -----------    -----------   -----------
         <S>                                    <C>            <C>           <C>
         Accumulated comprehensive
           income (loss) at January 1, 2001     $(1,052,207)   $   361,458   $  (690,749)

         Unrealized holding losses
           arising during 2001                     (443,667)       147,139      (296,528)
                                                -----------    -----------   -----------

         Accumulated comprehensive
           income (loss) at December 31, 2001    (1,495,874)       508,597      (987,277)

         Unrealized holding losses
           arising during 2002                     (232,256)        84,583      (147,673)
                                                -----------    -----------   -----------

         Accumulated comprehensive
           income (loss) at December 31, 2002   $(1,728,130)   $   593,180   $(1,134,950)
                                                ===========    ===========   ===========
</TABLE>

Note 12 - Income Taxes

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

                                                            2002          2001
                                                         ---------    ----------

         Tax (benefit) expense at statutory rate         $ 223,684    $(149,720)
         Non deductible goodwill                              --         31,353
         Other                                               4,900        2,577
                                                         ---------    ---------

             Tax expense                                 $ 228,584    $(115,790)
                                                         =========    =========

         Current                                         $ 141,558    $ (67,641)
         Deferred                                           87,022      (48,149)
                                                         ---------    ---------

                                                         $ 228,580    $(115,790)
                                                         =========    =========

         Deferred  income taxes are  comprised of the  following at December 31,
         2002


                                       35
<PAGE>

                      DGSE COMPANIES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                December 31, 2002

Note 12 - Income Taxes, continued

         Deferred tax assets (liabilities)

         Unrealized loss on available for sale securities             $ 458,534
         Property and equipment                                          15,254
         Valuation reserve                                             (353,355)
                                                                      ---------

                                                                      $ 120,433

         Goodwill                                                     $  (2,827)
                                                                      =========

Note 13 - Operating Leases

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

         Year Ending                      Lease        Sub-Lease
         December 31,                  Obligations    Receivables       Total
                                       -----------    -----------    -----------

            2003                       $   327,624    $   (90,000)   $   237,624
            2004                           294,093        (60,000)       234,093
            2005                           148,205           --          148,205
            2006                            18,886           --           18,886
            2007                            11,366           --           11,366
                                       -----------    -----------    -----------

                                       $   800,174    $  (150,000)   $   650,174
                                       ===========    ===========    ===========

         Rent  expense  for the  years  ended  December  31,  2002  and 2001 was
         approximately $291,878 and $307,000, respectively, and was decreased by
         sublease income of approximately $90,000 and $90,000, respectively.

Note 14 -  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 and
         liquidation  services segment includes  consulting  services related to
         insolvency advisory services primarily to business enterprises that are
         involved in or have been  involved in  proceedings  under Chapter 11 of
         the U.S.


                                       36
<PAGE>
<TABLE>
<CAPTION>

                      DGSE COMPANIES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                December 31, 2002

Note 14 -     Segment Information, continued

         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.  Corporation
         and other  includes  certain  general and  administrative  expenses not
         allocated  to segments.  The  Company's  operations  by segment were as
         follows:

                                                        Consulting &     Corporate
                                           Jewelry      Liquidation       & Other       Consolidated
                                        ------------    ------------    ------------    ------------
         <S>                            <C>             <C>             <C>             <C>

         Revenues
           2002                           21,239,461         780,343            --        22,019,804
           2001                           19,257,506       1,859,303                      21,116,809

         Net income (loss)
           2002                              447,873         125,195        (143,757)        429,311
           2001                              263,225        (547,420)        (40,368)       (324,563)

         Identifiable assets
           2002                            9,778,499         763,890           3,000      10,545,389
           2001                            7,844,333       3,556,028            --        11,400,361

         Capital expenditures
           2002                               25,074            --              --            25,074
           2001                              174,977           7,129                         182,106

         Depreciation and amortization
           2002                              169,427          33,559            --           202,986
           2001                              255,934         171,742                         427,676
</TABLE>





                                       37

<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



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