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<SEC-DOCUMENT>0001010549-03-000138.txt : 20030326
<SEC-HEADER>0001010549-03-000138.hdr.sgml : 20030325
<ACCEPTANCE-DATETIME>20030326150433
ACCESSION NUMBER:		0001010549-03-000138
CONFORMED SUBMISSION TYPE:	10KSB
PUBLIC DOCUMENT COUNT:		4
CONFORMED PERIOD OF REPORT:	20021231
FILED AS OF DATE:		20030326

FILER:

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

	FILING VALUES:
		FORM TYPE:		10KSB
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-11048
		FILM NUMBER:		03618095

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

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

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

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	AMERICAN PACIFIC MINT INC
		DATE OF NAME CHANGE:	19920703
</SEC-HEADER>
<DOCUMENT>
<TYPE>10KSB
<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



                                       38


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>3
<FILENAME>dgse10ksbex101123102.txt
<DESCRIPTION>LOAN AND SECURITY AGREEMENT
<TEXT>

                                                                    EXHIBIT 10.1
                           LOAN AND SECURITY AGREEMENT

         This Loan and Security  Agreement (this "Agreement") is executed by and
between First  American  Bank,  SSB, a state savings bank  ("Lender"),  and DGSE
Companies,  Inc., a Nevada  corporation  ("Borrower"),  as of November 22, 2002.
Lender and Borrower hereby agree as follows:

                            ARTICLE I - DEFINITIONS

         Section 1.1 Definitions.  When used in this Agreement,  the capitalized
terms set forth below shall have the definitions assigned to such terms below:

         "Account Debtor" means a Person who is obligated on an account.

         "Affiliate"  of any Person  means any other Person  which,  directly or
indirectly,  controls,  is controlled by, or is under common control with,  such
Person.  For  the  purposes  of  this  definition,  "control"  (including,  with
correlative  meanings,  the terms  "controlled  by" and  "under  common  control
with"),  as used with respect to any Person,  means the possession,  directly or
indirectly,  of the power to direct or cause the direction of the management and
policies  of a  Person,  whether  through  ownership  of  voting  securities  or
partnership or other interests, by contract or otherwise.

         "Borrowing  Base" means, as of any date, an amount equal to the sum of:
(a) 60.0% of  Eligible  Accounts  on such  date,  plus (b) 45.0% of the value of
Eligible   Inventory   (based   upon   the   lower  of  cost   (computed   on  a
first-in-first-out  basis),  fair market value or orderly  liquidation  value as
determined by Lender.

         "Borrowing Base Certificate" means a certificate in the form of Exhibit
A attached hereto.

         "Capitalized  Lease"  means a lease that is required to be  capitalized
for financial reporting purposes in accordance with GAAP.

         "Capitalized  Lease  Obligation"  means  Indebtedness   represented  by
obligations under a Capitalized Lease, and the amount of such Indebtedness shall
be the  capitalized  amount of such  obligations  determined in accordance  with
GAAP.

         "Code" means the Internal Revenue Code of 1986, as amended from time to
time.

         "Collateral"  means  and  includes  all  of  Borrower's  now  owned  or
hereafter acquired assets consisting of personal  property,  whether tangible or
intangible,  including  without  limitation all of Borrower's  right,  title and
interest  in and to each of the  following,  wherever  located  and  whether now
existing or hereafter  arising:  (a) all accounts,  (b) all  inventory,  (c) all
equipment,  (d) all  contract  rights,  (e) all general  intangibles,  including


LOAN AND SECURITY AGREEMENT - Page 1
- ---------------------------

<PAGE>

without  limitation  payment  intangibles  and  software,  (f) all  Intellectual
Property,  (g) all  deposit  accounts,  (h)  all  investment  property,  (i) all
instruments,  (j) all chattel paper,  including without  limitation,  electronic
chattel paper, (k) all goods and all accessions thereto, (l) all documents,  (m)
all insurance and  certificates of insurance  pertaining to any and all items of
Collateral, (n) all books and records, (o) all files,  correspondence,  computer
programs,  tapes,  disks and related  data  processing  software  which  contain
information  identifying  or pertaining to any of the  Collateral or any Account
Debtor or showing the amounts thereof or payments thereon or otherwise necessary
or helpful in the realization  thereon or the collection  thereof,  (p) all cash
deposited  with  Lender,  and (q) any and all  products  and cash  and  non-cash
proceeds  of the  foregoing  (including,  but not  limited to, any claims to any
items  referred to in this  definition  and any claims against third parties for
loss  of,  damage  to or  destruction  of any or  all of the  Collateral  or for
proceeds  payable  under or  unearned  premiums  with  respect  to  policies  of
insurance) in whatever form.

         "Committed   Sum",   with  respect  to  the   Revolving   Loan,   means
$3,000,000.00.

         "Contract  Rate" means the sum of the Prime Rate in effect from time to
time plus one and one-half  percent  (1.50%).  Any change in the  Contract  Rate
resulting from a change in the Prime Rate shall become  effective on the date of
such change in the Prime Rate as published in the Wall Street Journal.

         "Corporate Guarantors" means DGSE Corp.,  Silverman Consultants,  Inc.,
Charleston Gold and Diamond  Exchange,  Inc., DLS Financial  Services,  Inc. and
National  Jewelry  Exchange,  Inc. and  "Corporate  Guarantor"  means any of the
foregoing.

         "Debt Service Coverage Ratio" means,  for any period,  the ratio of (i)
consolidated Net Income of Borrower before interest expense and depreciation and
amortization  expenses for such period, to (ii) required  principal  payments on
Indebtedness for Money Borrowed for such period (but excluding  payments made on
the  Revolving  Loan),  plus  interest  expense  for  such  period  deducted  in
calculating Net Income.

         "Default" means any of the events specified in Section 10.1 which, with
the passage of time or giving of notice or both,  would  constitute  an Event of
Default.

         "Default Rate" means the Contract Rate plus five percent (5.0%)

         "Eligible  Accounts"  means all accounts of Borrower that are deemed by
Lender in the  exercise of its sole and absolute  discretion  to be eligible for
inclusion in the  calculation of the Borrowing Base net of any and all interest,
finance charges, sales tax, fees, returns, discounts,  claims, credits, charges,
contra accounts,  exchange contracts or other allowances,  offsets and rights of
offset,  deductions,  counterclaims,  disputes,  rejections,  shortages or other
defenses  and all credits  owed or allowed by Borrower  upon any of its accounts
and  further  reduced  by the  aggregate  amount  of all  reserves,  limits  and
deductions  provided for in this  definition  and  elsewhere in this  Agreement.
Eligible Accounts shall not include the following:


LOAN AND SECURITY AGREEMENT - Page 2
- ---------------------------

<PAGE>

         (a) accounts  which remain  unpaid more than sixty (60) days past their
invoice dates;

         (b)  accounts  which are not due and  payable  within  thirty (30) days
after their invoice dates;

         (c) accounts  owing by a single  Account Debtor if twenty percent (20%)
or more of the  aggregate  balance  owing by said Account  Debtor is  ineligible
pursuant to clauses (a) or (b) above;

         (d) accounts  with respect to which the Account  Debtor is an Affiliate
of Borrower;

         (e)  accounts  with respect to which the  obligation  of payment by the
Account Debtor is or may be  conditional  for any reason  whatsoever  including,
without  limitation,  accounts  arising  with respect to goods that were (i) not
sold on an absolute basis,  (ii) sold on a bill and hold sale basis,  (iii) sold
on a consignment sale basis, (iv) sold on a guaranteed sale basis, (v) sold on a
sale  or  return  basis,  or  (vi)  sold  on  the  basis  of any  other  similar
understanding;

         (f) accounts with respect to which the Account Debtor is not a resident
or citizen  of, or  otherwise  located  in,  the  continental  United  States of
America,  or with respect to which the Account  Debtor is not subject to service
of process in the continental United States of America, unless such accounts are
backed  in full by  irrevocable  letters  of  credit  or  insurance  in form and
substance  satisfactory  to Lender issued or confirmed by a domestic  commercial
bank acceptable to Lender;

         (g)  accounts  with  respect to which the Account  Debtor is the United
States of America or any other  federal  governmental  body unless such accounts
are duly  assigned  to Lender in  compliance  with all  applicable  governmental
requirements  (including,  without limitation,  the Federal Assignment of Claims
Act of 1940, as amended, if applicable);

         (h) accounts with respect to which  Borrower is or may be liable to the
Account Debtor for goods sold or services  rendered by such Account Debtor,  but
only to the extent of such liability to such Account Debtor;

         (i)  accounts  with respect to which the goods giving rise thereto have
not been shipped and delivered to and accepted as satisfactory by the applicable
Account  Debtor or with  respect to which the  services  performed  giving  rise
thereto  have not been  completed  and accepted as  satisfactory  by the Account
Debtor thereon;

         (j) accounts  which are not invoiced  within thirty (30) days after the
shipment and  delivery to and  acceptance  by said  Account  Debtor of the goods
giving rise thereto or the performance of the services giving rise thereto;

         (k)  accounts  which  are not  subject  to a first  priority  perfected
security interest in favor of Lender;


LOAN AND SECURITY AGREEMENT - Page 3
- ---------------------------

<PAGE>

         (1) that portion of an account  balance owed by a single Account Debtor
which exceeds fifteen percent (15%) of total accounts  otherwise deemed eligible
hereunder;

         (m) accounts with respect to which the Account Debtor is located in any
state requiring the filing of a Notice of Business  Activities Report or similar
report in order to permit Borrower to seek judicial enforcement in such state of
payment of such  account,  unless  Borrower has qualified to do business in such
state or has filed a Notice of Business  Activities  Report or equivalent report
for the then current year; and

         (n) accounts that Lender, in its sole discretion,  has determined to be
ineligible.

         "Eligible  Inventory"  means,  as at any  date  of  determination,  all
inventory  owned by and in the  possession of Borrower and located in the United
States of America that Lender, in its sole and absolute discretion,  deems to be
eligible  for  borrowing  purposes.  Without  limiting  the  generality  of  the
foregoing,  unless  otherwise  agreed by Lender,  the  following is not Eligible
Inventory:

         (a) work-in-process;

         (b) finished goods which do not meet the specifications of the purchase
order for such goods;

         (c)  inventory  which  Lender  determines,  in its  sole  and  absolute
discretion, to be unacceptable for borrowing purposes;

         (d) inventory with respect to which Lender does not have a valid, first
priority and fully perfected security interest;

         (e)  inventory  with respect to which there exists any Lien in favor of
any Person other than Lender;

         (f) packaging and shipping materials, products and labels;

         (g) inventory that is obsolete or returned or repossessed or used goods
taken in trade;

         (h) inventory produced in violation of the Fair Labor Standards Act, in
particular provisions contained in Title 29 U.S.C. 215 (a)(i);

         (i)  inventory  located at a location  for which Lender does not have a
valid  landlord's  or  warehouseman's  waiver  or  subordination  on  terms  and
conditions  acceptable to Lender in its sole discretion and inventory located at
any location other than those listed on Schedule 5.1(q).

LOAN AND SECURITY AGREEMENT - Page 4
- ---------------------------

<PAGE>

         "Environmental  Laws" means all federal,  state, local and foreign laws
now  or  hereafter  in  effect  relating  to  pollution  or  protection  of  the
environment,  including  laws  relating to  emissions,  discharges,  releases or
threatened releases of pollutants,  contaminants, chemicals or industrial, toxic
or  hazardous  substances  or wastes into the  environment  (including,  without
limitation,  ambient  air,  surface  water,  ground  water or land) or otherwise
relating to the manufacture,  processing, distribution, use, treatment, storage,
disposal, removal, transport or handling of pollutants,  contaminants, chemicals
or  industrial,  toxic  or  hazardous  substances  or  wastes,  and  any and all
regulations,  notices or demand letters issued, entered, promulgated or approved
thereunder.

         "Event of Default" means any of the events specified in Section 10.1.

         "Funded  Indebtedness"  means, as of any date, the sum of the following
(without duplication):  (i) the aggregate of all Indebtedness for Money Borrowed
of  Borrower  as  of  such  date,  other  than  current  liabilities,  (ii)  all
indebtedness  which would be classified as "funded  indebtedness"  or "long-term
indebtedness" (or other similar  classification) on a consolidated balance sheet
of  Borrower  prepared  as of such  date in  accordance  with  GAAP,  (iii)  the
aggregate of all indebtedness of Borrower outstanding under any revolving credit
or similar  agreement  providing  for  borrowing  (and  renewals and  extensions
thereof) over a period of more than one year,  notwithstanding the fact that any
such  indebtedness  is  created  within  one  year  of the  expiration  of  such
agreement, and (iv) the amount of all Capitalized Lease Obligations.

         "GAAP" means  generally  accepted  accounting  principles and practices
consistently applied.

         "Guarantors"  mean Dr. L. S. Smith and the  Corporate  Guarantors;  and
"Guarantor" means any of the Guarantors.

         "Indebtedness"   means  with   respect   to  any  Person  and   without
duplication,  (a) all Liabilities, (b) all obligations for money borrowed or for
the  deferred   purchase  price  of  property  or  services  or  in  respect  of
reimbursement   obligations  under  letters  of  credit,   (c)  all  obligations
represented  by bonds,  debentures,  notes and  accepted  drafts that  represent
extensions of credit,  (d) Capitalized  Lease  Obligations,  (e) all obligations
(including, during the noncancellable term of any lease in the nature of a title
retention agreement,  all future payment obligations under such lease discounted
to their present value in accordance with GAAP) secured by any Lien to which any
property or asset  owned or held by such  Person is subject,  whether or not the
obligation  secured  thereby  shall have been  assumed by such  Person,  (f) all
obligations of other Persons which such Person has  guaranteed,  including,  but
not limited to, all obligations of such Person consisting of recourse  liability
with respect to accounts sold or otherwise  disposed of by such Person,  and (g)
in the case of Borrower, the Revolving Loan (without duplication).

         "Intellectual  Property" means, as to any Person,  all of such Person's
then owned and existing and future acquired or arising  patents,  patent rights,
copyrights,  works  which are the  subject of  copyrights,  trademarks,  service

LOAN AND SECURITY AGREEMENT - Page 5
- ---------------------------

<PAGE>

marks,   trade  names,  trade  styles,   patent,   trademark  and  service  mark
applications,  and all licenses and rights related to any of the foregoing,  and
all  rights to sue for past,  present  and  future  infringements  of any of the
foregoing.

         "Investment" means any investment,  whether by means of share purchase,
loan, advance, purchase of debt instrument,  extension of credit (other than (i)
accounts  receivable  arising from the sale of goods or services in the ordinary
course of business, and (ii) notes, accepted in the ordinary course of business,
evidencing  overdue  accounts  receivable  arising  in the  ordinary  course  of
business),  capital contribution or otherwise, in or to any Person, the guaranty
of any Indebtedness of any Person or the  subordination of any claim against any
Person to other indebtedness of such Person.

         "Lender's  Office"  means the office of Lender  located at One  Lincoln
Park,  8401 North Central  Expressway,  Suite 500,  Dallas,  Texas 75225 or such
other office as Lender may designate from time to time.

         "Liabilities"   means  all  liabilities  of  a  Person   determined  in
accordance with GAAP.

         "Lien",  with  respect  to any  Person,  means any  security  interest,
chattel mortgage,  charge,  mortgage,  deed to secure debt, deed of trust, lien,
pledge,  Capitalized Lease, conditional sale or other title retention agreement,
or other security interest or encumbrance of any kind in respect of any property
of such Person or upon the income or profits therefrom.

         "Loan  Documents"  means,  this  Agreement,  the Revolving  Note,  each
writing now or  hereafter  executed  and  delivered by any Person to evidence or
secure the Obligations and each other instrument,  agreement and document now or
hereafter executed and delivered in connection with this Agreement.

         "Maximum  Rate"  shall have the  meaning  assigned  to such term in the
Revolving Note.

         "Material Adverse Change" means any act, omission, event or undertaking
which would,  singly or in the aggregate,  have a materially adverse effect upon
(a) the  business,  assets,  properties,  liabilities,  condition  (financial or
otherwise),  results of operations  or business  prospects of Borrower or any of
its subsidiaries, (b) upon the ability of Borrower or any of its subsidiaries to
perform any obligations under this Agreement or any other Loan Document to which
it is a party, or (c) the legality, validity, binding effect,  enforceability or
admissibility  into  evidence  of any Loan  Document or the ability of Lender to
enforce any rights or remedies under or in connection with any Loan Document.

         "Money  Borrowed" means  Indebtedness  (i) that is represented by notes
payable,  drafts  accepted,   bonds,  debentures  or  similar  instruments  that
represent extensions of credit, (ii) upon which interest charges are customarily
paid (other than trade  Indebtedness),  (iii) that was issued or assumed as full
or partial payment for property, (iv) that is evidenced by a guarantee (but only
if the obligations guaranteed would otherwise qualify as Money Borrowed), or (v)
that constitutes a Capitalized Lease Obligation.


LOAN AND SECURITY AGREEMENT - Page 6
- ---------------------------

<PAGE>

         "Net Income" means, with respect to any Person,  the net income of such
Person for the period in question (after provision for income taxes)  determined
in accordance with GAAP,  provided that the impact of any  extraordinary  gains,
determined in accordance with GAAP, shall be excluded from the  determination of
"Net Income".

         "Net  Worth"  of  any  Person  means  the  total  shareholders'  equity
(including  capital stock,  additional  paid-in  capital and retained  earnings,
after deducting treasury stock) which would appear as such on a balance sheet of
such Person prepared in accordance with GAAP.

         "Obligations"  shall mean (i) the Revolving  Loan or all other advances
made by Lender to Borrower  pursuant to this  Agreement or  otherwise,  (ii) all
future  advances or other value, of whatever class or for whatever  purpose,  at
any time  hereafter  made or given by Lender  to  Borrower,  whether  or not the
advances or value are given pursuant to a commitment and whether or not Borrower
is  indebted  to  Lender  at the time of such  advance;  (iii) any and all other
debts, liabilities and duties of every kind and character of Borrower to Lender,
whether now or hereafter  existing,  and  regardless  of whether such present or
future  debts,  liabilities  or  duties  are  direct  or  indirect,  primary  or
secondary,  joint,  several,  or joint and  several,  fixed or  contingent,  and
regardless of whether such present or future debts,  liabilities  or duties may,
prior to their  acquisition by Lender, be or have been payable to, or be or have
been in favor  of,  some  other  Person  or have  been  acquired  by Lender in a
transaction with one other than Borrower (it being  contemplated that Lender may
make such acquisitions from others),  howsoever such Indebtedness shall arise or
be incurred or  evidenced;  (iv) interest on all of the debts,  liabilities  and
duties set forth above; (v) all costs,  fees and expenses payable by Borrower to
Lender  pursuant to any of the Loan  Documents,  and (vi) any and all  renewals,
extensions, modifications and increases of the debts, liabilities and duties set
forth above, or any part thereof.

         "Permitted  Indebtedness"  means the Indebtedness of Borrower described
on Schedule 5.1(h).

         "Permitted   Investments"   means   Investments  of  Borrower  in:  (a)
negotiable  certificates  of  deposit  issued  by  Lender,  and (b)  any  direct
obligation  of the United  States of  America  or any agency or  instrumentality
thereof which has a remaining  maturity at the time of purchase of not more than
one year and repurchase agreements relating to the same.

         "Permitted  Liens" means:  (a) Liens securing  taxes,  assessments  and
other  governmental  charges or levies or the claims of materialmen,  mechanics,
carriers,  warehousemen or landlords for labor,  materials,  supplies or rentals
incurred  in the  ordinary  course of  business,  but (i) in all cases,  only if
payment shall not at the time be required to be made in accordance  with Section
7.4, and (ii) in the case of  warehousemen  or landlords  controlling  locations
where inventory is located,  only if such liens have been waived or subordinated
to the security interest of Lender in a manner  satisfactory to Lender;  and (b)
Liens in favor of Lender.

         "Person" means an individual,  corporation,  limited liability company,
partnership, joint venture, association, trust or unincorporated organization or


LOAN AND SECURITY AGREEMENT - Page 7
- ---------------------------

<PAGE>

a government or any agency or political subdivision thereof.

         "Prime Rate" means a rate per annum equal to the prime rate of interest
published from time to time in the Wall Street Journal (which is not necessarily
the lowest rate  charged to any customer of Lender),  changing  when and as said
prime rate changes.

         "Prohibited  Distribution"  by any  Person  means  (a) the  retirement,
redemption,  purchase,  or other  acquisition  for value of any capital stock or
other equity securities or partnership  interests issued by such Person, (b) the
declaration or payment of any dividend or distribution on or with respect to any
such securities  (excluding  distributions made solely in shares of stock of the
same class) or partnership interests, (c) any loan or advance by such Person to,
or other  investment  by such  Person  in, any other  Person,  and (d) any other
payment by such Person in respect of such securities or partnership interests.

         "Prohibited Payment" means (a) any redemption, repurchase or prepayment
or other  retirement,  prior to the stated maturity  thereof or prior to the due
date of any regularly scheduled installment or amortization payment with respect
thereto, of any Indebtedness of a Person (other than the Obligations,  Permitted
Indebtedness,  and  trade  debt),  and  (b) the  payment  by any  Person  of the
principal  amount of or  interest  on any  Indebtedness  (other  than  Permitted
Indebtedness or trade debt) owing to an Affiliate of such Person.

         "Revolving  Loan"  means the  advances  made to  Borrower  pursuant  to
Section 2.1.

         "Revolving  Note"  means  the  Promissory  Note  executed  by  Borrower
evidencing  the  Revolving  Loan  (and  any  renewal,  extension,  increase,  or
modification thereof).

         "Schedule of Accounts" means a schedule delivered by Borrower to Lender
pursuant to the provisions of Section 8.3(a).

         "Schedule  of  Inventory"  means a schedule  delivered  by  Borrower to
Lender pursuant to the provisions of Section 8.3(b).

         "Tangible Net Worth" means, as applied to any Person,  the Net Worth of
such Person at the time in question, after deducting therefrom the amount of all
intangible  items,  amounts due from Affiliates,  employees and shareholders and
all other items which should  properly be treated as  intangibles  in accordance
with GAAP.

         "Termination  Date" means,  with respect to the Revolving  Loan and the
Revolving Note, January 10, 2004.

         "UCC" means the Uniform  Commercial Code as in effect from time to time
in the State of Texas,  including  without  limitation,  any amendments  thereto
which are effective after the date hereof.


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<PAGE>

         Section  1.2 UCC  Terms.  Terms  defined  in the UCC (such as,  but not
limited  to,  accounts,   chattel  paper,  contract  rights,   deposit  account,
documents, equipment, financial assets, general intangibles, goods, instruments,
investment  property,  inventory and proceeds),  as and when used (without being
capitalized)  in this Agreement or the Loan  Documents,  shall have the meanings
given to such terms in the UCC.

         Section  1.3  Accounting  Terms and  Determinations.  Unless  otherwise
specified  herein,  all accounting  terms used herein shall be interpreted,  all
determinations  with respect to accounting  matters hereunder shall be made, and
all financial  statements and certificates  and reports as to financial  matters
required  to be  furnished  to  the  Lender  hereunder  shall  be  prepared,  in
accordance with GAAP,  applied on a basis consistent with the audited  financial
statements of the Borrower referenced in Section 5.1(k).

                     ARTICLE II - REVOLVING CREDIT FACILITY

         Section 2.1 Revolving Loan. Subject to the terms and conditions of this
Agreement,  prior to the Termination Date Lender shall make advances to Borrower
under the Revolving Loan in an amount not to exceed  outstanding at any time the
lesser of (a) the Committed Sum, or (b) the Borrowing Base. Borrower may borrow,
repay and reborrow the  principal of the Revolving  Loan in accordance  with the
terms of this Agreement.

         Section 2.2 Advances Under the Revolving Loan. A request for an advance
under the  Revolving  Loan shall be made,  or shall be deemed to be made, in the
following manner:

                  (i) Borrower may request an advance under the  Revolving  Loan
         by  notifying  the Lender (a "Notice of  Borrowing"),  before 1:00 p.m.
         (Central time) on the proposed borrowing date, of Borrower's  intention
         to borrow and specifying the effective date and amount of the requested
         advance. Any Notice of Borrowing may be made by telephone and confirmed
         in writing (including facsimile),  provided that the failure to provide
         written  confirmation shall not invalidate any telephonic notice and if
         such written  confirmation differs in any respect from the action taken
         by the Lender,  the records of the Lender shall control absent manifest
         error.

                  (ii)  Unless  payment  is  otherwise  made  by  Borrower,  the
         becoming due of any amount  required to be paid under any Loan Document
         or of any  Obligation  shall be deemed to be a request  for an  advance
         under the Revolving Loan on the due date in the amount  required to pay
         such amount, and such request shall be irrevocable.

         Section 2.3 Repayment of the Revolving  Loan.  The Revolving Loan shall
be repaid as follows:  (a) the outstanding  principal amount of, and all accrued
and unpaid interest on, the Revolving Loan is due and payable on the Termination
Date; (b) if at any time the principal of, and interest upon, the Revolving Loan
exceeds  the  lesser  of (i) the  Committed  Sum,  or (ii) the  Borrowing  Base,
Borrower shall repay the Revolving Loan in the amount of such excess.


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<PAGE>

         Section 2.4 Disbursement of Revolving Loan. Borrower hereby irrevocably
authorizes  Lender to disburse the proceeds of the Revolving Loan requested,  or
deemed to be requested,  pursuant to this Article II to such account of Borrower
maintained with Lender as may be agreed upon by Borrower and Lender from time to
time;  provided,  however,  that the  proceeds of each advance  requested  under
Section 2.2(ii) shall be disbursed by the Lender by way of direct payment of the
relevant Obligation.

            ARTICLE III - GENERAL LOAN PROVISIONS; FEES AND EXPENSES

         Section 3.1 Interest.

         (a) Revolving Loan. Borrower shall pay interest on the unpaid principal
amount of the Revolving Loan at the rates per annum,  and in accordance with the
terms of, the Revolving Note.

         (b) Default Rate. From and after the occurrence of an Event of Default,
at the option of Lender exercised by notice to Borrower,  the Borrower shall pay
interest on the unpaid  principal  amount of the Obligations  until paid in full
(or,  if  earlier,  until such Event of Default is cured or waived in writing by
Lender) at a rate per annum equal to the lesser of (A) the Maximum  Rate, or (B)
the Default Rate, payable on demand.

         Section 3.2 Commitment  Fee. On the date hereof,  Borrower shall pay to
Lender a  commitment  fee in the  amount  of  $15,000.00  in  consideration  for
Lender's  agreement to make the Revolving  Loan in accordance  with the terms of
this Agreement and in order to compensate  Lender for the costs  associated with
the  Revolving  Loan.  Such fee is in addition to the expenses that the Borrower
has agreed to pay elsewhere in this Agreement. Such fee shall in all respects be
limited so that interest on the  Obligations  is at all times less than interest
calculated  at the  Maximum  Rate.  Lender  acknowledges  the prior  receipt  of
one-half  (1/2) of such fee  ($7,500)  paid by Borrower  upon its  execution  of
Lender's proposal letter dated August 30, 2002.

         Section 3.3 Charging Accounts.  Borrower hereby irrevocably  authorizes
Lender to charge any  account  of  Borrower  maintained  with  Lender  with such
amounts as may be necessary from time to time to pay any  Obligations  which are
not paid when due.

         Section 3.4 Termination of Agreement.  On the Termination Date and upon
any early  termination of this  Agreement,  Borrower shall pay to Lender (i) the
principal of, and accrued and unpaid interest on, the Revolving Loan outstanding
on such date,  (ii) all fees  accrued and unpaid,  (iii) any amounts  payable to
Lender  pursuant to the other  provisions  of this  Agreement,  (iv) any and all
other Obligations then outstanding.

                         ARTICLE IV CONDITIONS PRECEDENT


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<PAGE>

         Section 4.1 Conditions Precedent.  The obligation of Lender to make the
initial advance under the Revolving Loan is subject to (i) the receipt by Lender
of  each  of the  items  described  on  Schedule  4.1,  all  of  which  must  be
satisfactory  in form and  substance  to Lender  and its  counsel,  and (ii) the
fulfillment of the conditions precedent described in Section 4.2.

         Section 4.2 Conditions to Subsequent Advances. The obligation of Lender
to make each  advance  under the  Revolving  Loan after the  initial  advance is
subject to the following conditions precedent:

                  (a)  Conditions  to  First  Advance.  All  of  the  conditions
         precedent set forth in Section 4.1 were  satisfied  prior to the making
         of the initial advance.

                  (b)  Borrowing  Base  Certificate.  Lender shall have received
         from  Borrower  a  Borrowing  Base  Certificate  executed  by  Borrower
         prepared as of a date not more than thirty (30)  business days prior to
         the date of the requested advance.

                  (c)  Representations  and  Warranties.  As of the  date of the
         requested advance, the representations and warranties contained in each
         of the Loan Documents  shall be true in all material  respects with the
         same force and effect as though made on and as of such date.

                  (d)  Defaults  and Events of  Default.  No Default or Event of
         Default shall have occurred and be continuing.

                  (e) Adverse  Change.  No Material  Adverse Change (or event or
         condition that could reasonably be expected to cause or have a Material
         Adverse Change) has occurred since the date of the financial statements
         referenced in Section 5.1(k).

             ARTICLE V - REPRESENTATIONS AND WARRANTIES OF BORROWER

         Section 5.1  Representations  and Warranties.  Borrower  represents and
warrants to Lender as follows:

                  (a)  Organization;   Power;   Qualification.   Borrower  is  a
         corporation duly organized, validly existing and in good standing under
         the laws of the State of Nevada and is  authorized  to do  business  in
         each  other  state  in  which  the  nature  of  its  properties  or its
         activities requires such  authorization.  Each Corporate Guarantor is a
         corporation duly organized, validly existing and in good standing under
         the laws of the state of its formation and is authorized to do business
         in each  other  state in which  the  nature  of its  properties  or its
         activities requires such authorization.

                  (b) Authorization;  Enforceability. Borrower has the corporate
         power and authority to, and is duly  authorized to, execute and deliver
         the  Loan  Documents  to be  executed  by  Borrower.  All of  the  Loan
         Documents to which Borrower is a party, constitute the legal, valid and


LOAN AND SECURITY AGREEMENT - Page 11
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<PAGE>

         binding  obligations of Borrower,  enforceable in accordance with their
         terms,  except as limited by bankruptcy,  insolvency or similar laws of
         general  application  relating to the enforcement of creditors'  rights
         generally.  Each  Corporate  Guarantor  has  the  corporate  power  and
         authority to, and is duly  authorized  to, execute and deliver the Loan
         Documents  to be executed by it. All of the Loan  Documents  to which a
         Corporate Guarantor is a party, constitute the legal, valid and binding
         obligations of such Corporate Guarantor, enforceable in accordance with
         their terms,  except as limited by  bankruptcy,  insolvency  or similar
         laws of general  application  relating to the enforcement of creditors'
         rights generally.

                  (c) Subsidiaries;  Ownership. Except as shown Schedule 5.1(c),
         Borrower  does not  have any  subsidiaries.  The  outstanding  stock of
         Borrower  has  been  duly and  validly  issued  and is  fully  paid and
         nonassessable and the number and owners of such shares of capital stock
         are set forth on Schedule 5.1(c).

                  (d) Conflicts.  Neither the execution and delivery of the Loan
         Documents,   nor  consummation  of  any  of  the  transactions  therein
         contemplated nor compliance with the terms and provisions thereof, will
         contravene any provision of law or any judgment, decree, license, order
         or permit  applicable to Borrower or will conflict with, or will result
         in any breach of any agreement to which Borrower is a party or by which
         Borrower  may be bound or  subject,  or violate  any  provision  of the
         Articles of Incorporation or bylaws of Borrower.

                  (e) Consents,  Governmental  Approvals,  Etc. No  governmental
         approval  nor any consent or approval of any third  Person  (other than
         those which have been obtained prior to the date hereof) is required in
         connection with the execution,  delivery and performance by Borrower of
         the Loan  Documents.  Borrower  is in  compliance  with all  applicable
         governmental approvals and all applicable laws.

                  (f) Business. Borrower is engaged principally in the wholesale
         and retail jewelry business.

                  (g) Title;  Liens.  Except  for items  described  in  Schedule
         5.1(g) and for Permitted  Liens,  all of the  properties  and assets of
         Borrower  are free and clear of all Liens,  and  Borrower  has good and
         marketable title to such properties and assets.  Except as disclosed on
         Schedule  5.1(g),  each Lien  granted,  or intended  to be granted,  to
         Lender  pursuant  to  the  Loan  Documents  is  a  valid,  enforceable,
         perfected, first priority Lien and security interest.

                  (h) Indebtedness and Guaranties.  Set forth on Schedule 5.1(h)
         is a complete and correct listing of all of Borrower's (i) Indebtedness
         for  Money  Borrowed,   and  (ii)   guaranties  and  other   contingent
         obligations.

                  (i) Suits,  Actions,  Etc. Except as disclosed on Schedule 5.1


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<PAGE>

         (i), there are no actions,  suits,  or  proceedings  pending or, to the
         knowledge of Borrower,  threatened against or affecting Borrower or any
         of the Collateral.

                  (j) Tax Returns and Payments.  All tax returns  required to be
         filed by  Borrower  in any  jurisdiction  have been filed and all taxes
         (including  property  taxes) have been paid prior to the time that such
         taxes could give rise to a lien thereon, except for any such nonpayment
         which is at the time permitted under Section 7.4.

                  (k)  Financial  Condition.  Borrower  has  delivered to Lender
         copies of (i) the consolidated balance sheet of Borrower for its fiscal
         year ending,  December 31, 2001,  and the related  statements of income
         and  retained  earnings  for the year  ended on such  date,  audited by
         independent public accountants, and (ii) its unaudited balance sheet as
         of June 30, 2002, and the related statement of income and cash flow for
         the monthly period then ended. Such financial statements fairly present
         the  financial  condition  of  Borrower  as of such  date and have been
         prepared in accordance with GAAP.  There is no Indebtedness of Borrower
         which are not reflected in such  financial  statements  and no event or
         circumstance  has occurred since the date of such financial  statements
         which has had or could have or result in a Material Adverse Change.

                  (l) Defaults.  No Default or Event of Default has occurred and
         is continuing.

                  (m)  Borrowing  Base  Reports.   All  accounts  and  inventory
         included in any Borrowing Base Certificate constitute Eligible Accounts
         or Eligible  Inventory,  as  appropriate,  except as  disclosed in such
         Borrowing Base Certificate.

                  (n) Location of Inventory. Set forth on Schedule 5.1(n) is (i)
         the location and address  where all  inventory is located,  and (ii) if
         the  facility  is leased or is a third  party  warehouse  or  processor
         location,  the name of the landlord or such third party warehouseman or
         processor.

                  (o) Place of  Business.  The place of business of Borrower (or
         if Borrower  has more than one place of business,  its chief  executive
         office) is at the address or  addresses  set forth on Schedule  5.1 (o)
         and the books and records  relating to the  accounts are located at the
         address or addresses set forth on Schedule 5.1(o).

                  (p) Corporate and  Fictitious  Names;  Trade Names.  Except as
         disclosed on Schedule  5.1(p),  Borrower has not,  during the preceding
         three  (3)  years,  (i)  been  known as or used  any  other  corporate,
         fictitious  or trade names,  (ii) been the surviving  corporation  of a
         merger or consolidation,  or (iii) acquired all or substantially all of
         the assets of any Person.

                  (q)  Intellectual  Property.  Borrower  owns or possesses  all
         Intellectual  Property  required  to conduct  its  business  as now and
         presently planned to be conducted without,  to its knowledge,  conflict
         with the rights of others.


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<PAGE>

                  (r) Payroll Taxes.  Borrower has made all payroll tax deposits
         for all of its  employees on or before the date when due.  Each advance
         for payroll was for the gross  payroll and  included  the amount of all
         necessary or appropriate tax deposits.

         Section  5.2  Survival  of  Representations.  All  representations  and
warranties  by  Borrower  herein  shall be  deemed to have been made on the date
hereof and the date of each advance.

             ARTICLE VI - SECURITY INTEREST AND COLLATERAL COVENANTS

         Section 6.1 Security Interest. To secure the payment and performance of
the Obligations,  Borrower hereby mortgages,  pledges and assigns to Lender, all
of the  Collateral,  and  grants to Lender a security  interest  and Lien in and
upon, all of the Collateral.

         Section 6.2 Verification and Notification.  Lender shall have the right
at any time at Borrower's  expense to verify the  validity,  amount or any other
matter relating to any accounts.

         Section 6.3  Ownership;  Defense of Title.  Borrower  shall  defend its
title in and to the Collateral and shall defend the security  interest of Lender
in the Collateral against the claims and demands of all Persons.

         Section  6.4  Location of Offices and  Collateral.  Borrower  shall not
change the location of its place of business  (or, if it has more than one place
of business,  its chief executive  office) or the place where it keeps its books
and records relating to the Collateral or change its name, identity or corporate
structure  without giving Lender at least thirty (30) days' prior written notice
thereof.  All  inventory,  other than inventory in transit to any such location,
and all  equipment,  other  than motor  vehicles,  shall at all times be kept by
Borrower at one of the locations set forth in Schedules 5.1(n) and (o).

         Section 6.5  Inspection.  Lender (by any of its officers,  employees or
agents)  shall  have the right at any time or times to visit the  properties  of
Borrower,  inspect the  Collateral  and the other assets of Borrower and inspect
and make extracts from the books and records of Borrower,  all during  customary
business hours

         Section 6.6 Power of Attorney.  Borrower  hereby appoints Lender as its
attorney,  with power,  after the occurrence and during the  continuation  of an
Event of Default  (a) to endorse  the name of  Borrower  on any  checks,  notes,
acceptances, money orders, drafts or other forms of payment or security that may
come  into  Lender's  possession,  and (b) to sign the name of  Borrower  on any
invoice  or  bill  of  lading  relating  to any  accounts,  inventory  or  other
Collateral.

         Section 6.7 Financing  Statements.  Borrower  authorizes Lender to file
financing statements,  without Borrower's signature,  covering all or any of the
Collateral in such jurisdictions as Lender shall determine to be advisable.


LOAN AND SECURITY AGREEMENT - Page 14
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<PAGE>

                       ARTICLE VII - AFFIRMATIVE COVENANTS

         So long as this Agreement  shall be in effect or any of the Obligations
shall be outstanding, Borrower covenants and agrees as follows:

         Section 7.1  Preservation of Corporate  Existence and Similar  Matters.
Borrower  shall  preserve and maintain its  corporate  existence and qualify and
remain qualified as a foreign  corporation and authorized to do business in each
jurisdiction  in which the  character  of its  properties  or the  nature of its
business requires such qualification or authorization.

         Section 7.2 Compliance with Applicable Law.  Borrower shall comply with
all applicable laws.

         Section  7.3  Conduct  of  Business.  Borrower  shall  engage  only  in
substantially the same businesses conducted by Borrower on the date hereof.

         Section  7.4  Payment  of  Taxes  and  Claims.  Borrower  shall  pay or
discharge when due (a) all taxes,  assessments and governmental  charges imposed
upon it or its  properties,  and (b) all lawful claims which,  if unpaid,  might
become a Lien on any properties of Borrower,  except that this Section 7.4 shall
not require the payment or discharge of any such tax,  assessment,  charge, levy
or claim which is being  contested in good faith by appropriate  proceedings and
for which adequate  reserves have been  established on the appropriate  books of
Borrower.

         Section 7.5 Accounting  Methods and Financial  Records.  Borrower shall
maintain a system of  accounting,  and keep such  books,  records  and  accounts
(which shall be true and complete), as may be required or as may be necessary to
permit  the  preparation  of  financial   statements  in  accordance  with  GAAP
consistently applied.

         Section 7.6 Use of Proceeds. Borrower shall (a) use the proceeds of (i)
the first  advance  under the  Revolving  Loan to pay the amounts  indicated  in
Schedule 7.6 to the Persons indicated therein,  and (ii) all subsequent advances
under the Revolving Loan only for working capital and general business purposes,
and (b) not use any part of such proceeds to purchase or carry,  or to reduce or
retire or refinance any credit  incurred to purchase or carry,  any margin stock
(within the meaning of  Regulation  U of the Board of  Governors  of the Federal
Reserve System) or for any other purpose which would involve a violation of such
Regulation  U or  Regulation  T or X of such Board of Governors or for any other
purpose prohibited by law or by the terms and conditions of this Agreement.

         Section 7.7 Hazardous Waste and Substances; Environmental Requirements.
Borrower  shall  comply  with  all  occupational  health  and  safety  laws  and
Environmental Laws.

         Section 7.8 Accuracy of Information. All written information,  reports,
statements  and other papers and data  furnished to Lender by Borrower shall be,
at the time the same is so  furnished,  complete  and  correct  in all  material
respects.


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<PAGE>

         Section  7.9  Revisions  or  Updates  to  Schedules.  Should any of the
information  or  disclosures  provided on any of the Schedules  attached  hereto
become  outdated or incorrect in any material  respect,  Borrower  shall provide
promptly  to Lender  such  revisions  or updates to such  Schedule(s)  as may be
necessary  or  appropriate  to update or correct  and update  such  Schedule(s).
Notwithstanding  the  foregoing,  the delivery to Lender of a revised or updated
schedule  shall not  constitute a waiver of, or consent to, any Default or Event
of  Default  arising  as a result  of any  erroneous  or  incorrect  information
provided in any schedule previously delivered to Lender.

         Section  7.10  Insurance.  Borrower  shall  keep  or  cause  to be kept
adequately  insured  by  financially  sound and  reputable  insurers  all of its
property  usually insured by persons or entities  engaged in the same or similar
businesses  including,  without limitation,  insurance on Borrower's  inventory.
Without  limiting the foregoing,  Borrower  shall insure the Collateral  against
loss or damage by fire, theft, burglary,  pilferage,  loss in transit,  business
interruption  and such other  hazards as are usual and  customary in  Borrower's
industry  or as Lender may  specify in amounts  and under  policies  by insurers
acceptable  to Lender,  and all premiums  thereon  shall be paid by Borrower and
copies of the policies  delivered to Lender.  If Borrower fails to do so, Lender
may procure  such  insurance  and charge the cost to  Borrower's  account.  Each
policy of insurance covering the Collateral shall provide that at least ten (10)
days prior written  notice of  cancellation  or notice of lapse must be given to
Lender by the insurer.  All insurance  policies required under this Section 7.10
shall name Lender as an additional  named insured and shall contain loss payable
endorsements in a form acceptable to Lender.  Any proceeds of insurance referred
to in this  Section  7.10  which are paid to Lender  shall be, at the  option of
Lender in its sole discretion, either (i) applied to rebuild, restore or replace
the damaged or destroyed property,  or (ii) applied to the payment or prepayment
of the Obligations.

         Section  7.11  Notice of Certain  Matters.  Borrower  shall  provide to
Lender prompt notice of (a) the commencement, to the extent Borrower is aware of
the same, of all actions and proceedings in any court against Borrower or any of
the Collateral, (b) any amendment of the articles of incorporation or by-laws of
Borrower, (c) any material negative change in the business, financial condition,
results of  operations  or business  prospects of Borrower and any change in the
executive officers of Borrower,  and (d) any (i) Default or Event of Default, or
(ii) event that would constitute a default or event of default by Borrower under
any material agreement (other than this Agreement) to which Borrower is a party.

         Section  7.12  Mandatory   Periodic  $0  Balance.   During  the  period
commencing on the date hereof and ending on the first  anniversary of such date,
and during each twelve month period thereafter, Borrower shall pay the Revolving
Loan  to down to $0 and  maintain  such $0  balance  for at  least  thirty  (30)
consecutive days.

                ARTICLE VIII - FINANCIAL AND COLLATERAL REPORTING

         So long as this Agreement  shall be in effect or any of the Obligations
shall be outstanding, Borrower covenants and agrees as follows:


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<PAGE>

         Section 8.1 Financial Statements.

                  (a) Audited Year-End Statements.  As soon as available, but in
         any event within  ninety (90) days after the end of each fiscal year of
         Borrower,  Borrower  shall  furnish  to Lender  copies  of the  audited
         consolidated  balance  sheet of  Borrower  as of the end of such fiscal
         year  and  the  related  audited  consolidated  statements  of  income,
         shareholders'  equity and cash flow for such fiscal year,  in each case
         setting forth in comparative  form the figures for the previous year of
         Borrower and  certified by  independent  certified  public  accountants
         selected by Borrower  and  acceptable  to Lender.  In  addition,  on or
         before  such date  Borrower  shall  provide  Lender  with copies of all
         management reports received from its certified public accountants.

                  (b) Monthly Financial Statements. As soon as available, but in
         any event within thirty (30) days after the end of each month, Borrower
         shall furnish to Lender copies of the  unaudited  consolidated  balance
         sheet of Borrower as of the end of such month and the related unaudited
         consolidated  income  statement  and statement of cash flow of Borrower
         for such  month and for the  portion  of the  fiscal  year of  Borrower
         through  such  month,  certified  by the  chief  financial  officer  of
         Borrower as presenting  fairly the  financial  condition and results of
         operations of Borrower as of the date thereof and for the periods ended
         on the last day of such month, subject to normal year end adjustments.

         All such  financial  statements  shall be  complete  and correct in all
material respects and prepared in accordance with GAAP (except,  with respect to
interim   financial   statements,   for  the  omission  of  footnotes)   applied
consistently  throughout  the  periods  reflected  therein.  Further,  all  such
financial statements shall be in a form acceptable to Lender.

         Section 8.2 10Q and Quarterly Compliance Certificates. As soon as
available, but in any event within forty-five (45) days after the end of each
fiscal quarter of Borrower, Borrower shall furnish to Lender (i) a certificate
of Borrower's president or chief financial officer in the form of Exhibit B for
such fiscal quarter, and (ii) a copy of Borrower's 10Q filed with the Securities
and Exchange Commission.

         Section 8.3 Collateral Information and Reports.

                  (a)  Schedules of Accounts.  Within thirty (30) days after the
         end of each  month,  Borrower  shall  furnish to Lender a  Schedule  of
         Accounts  listing all accounts of Borrower as of the last  business day
         of such  month  setting  forth  (A) the  name  of each  Account  Debtor
         together with account balances detailed by invoice number,  amount (and
         any applicable  rebate or discount),  invoice date and terms, (B) aging
         of all  accounts  setting  forth  accounts  thirty  (30)  days past the
         invoice date or less,  accounts  over thirty (30) days past the invoice
         date but less than sixty-one (61) days past the invoice date,  accounts


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<PAGE>

         over sixty  (60) days past the  invoice  date but less than  ninety-one
         (91) days past the invoice  date,  accounts  over ninety (90) days past
         the invoice date and less than one hundred  twenty-one  (121) days past
         the invoice date and accounts  over one hundred  twenty (120) days past
         the invoice date, and (C) a reconciliation  of the Schedule of Accounts
         to the Borrowing  Base  Certificate as of the most recent month end and
         Borrower's general ledger as of such month end.

                  (b) Schedule of  Inventory.  Within thirty (30) days after the
         end of each month,  Borrower shall furnish to Lender (A) (i) a Schedule
         of Inventory, based upon Borrower's perpetual inventory, as of the last
         business day of such month  itemizing and  describing  the kind,  type,
         quantity and location of all inventory of Borrower and the cost thereof
         with a summary of inventory by category,  (ii) a detailed  statement of
         all inventory that is not located on the premises described on Schedule
         5.1(n),  and (iii) an inventory  turnover report, in form and substance
         acceptable  to Lender,  and (B) a  reconciliation  of the  Schedule  of
         Inventory to the Borrowing Base Certificate as of the most recent month
         end and Borrower's general ledger as of such month end.

                  (c) Borrowing Base Certificate.  Within thirty (30) days after
         the end of each  month,  Borrower  shall  furnish to Lender a Borrowing
         Base  Certificate  prepared  as of the  close of  business  on the last
         business day of such month,  along with  supporting  documentation,  in
         form and substance satisfactory to Lender.

                  (d)  Certification.  Each of the  schedules  and  certificates
         delivered  to Lender by Borrower  pursuant to this Section 8.3 shall be
         in a form acceptable to Lender and shall be signed and certified by the
         president, chief financial officer or treasurer of Borrower to be true,
         correct and complete as of the date indicated thereon. In the event any
         of such  schedules or  certificates  are  delivered  electronically  or
         without signature,  such schedules and/or certificates shall, by virtue
         of their  delivery,  be deemed to have been signed and certified by the
         president  of Borrower to be true,  correct and complete as of the date
         indicated thereon.

                  (e) Other  Information.  Lender may,  in its sole  discretion,
         from  time to time  require  Borrower  to  deliver  the  schedules  and
         certificates  described  in  Section  8.3  more  or less  often  and on
         different schedules than specified in such Section. Borrower shall also
         furnish to Lender such other additional  information as Lender may from
         time to time request.

         Section 8.4 Guarantor  Financial  Statements;  Tax Returns.  As soon as
available,  but in any  event  within  ninety  (90)  days  after the end of each
calendar year, each Guarantor shall provide to Lender such Guarantor's financial
statement in such form as Lender may require.  Further, as soon as available but
in any event  within  sixty (60) days after such  returns  are  provided  to the
Internal  Revenue  Service,  each  Guarantor  shall  provide  Lender  with  such
Guarantor's tax return and all schedules thereto.


LOAN AND SECURITY AGREEMENT - Page 18
- ---------------------------

<PAGE>

                         ARTICLE IX - NEGATIVE COVENANTS

         So long as this Agreement  shall be in effect or any of the Obligations
shall be outstanding, Borrower covenants and agrees as follows:

         Section 9.1 Financial Covenants.

                  (a) Minimum Tangible Net Worth.  Borrower shall not permit the
         consolidated  Tangible Net Worth of Borrower at any fiscal  quarter end
         to be less than the sum of (i) $3,000,000.00.

                  (b) Maximum Liabilities to Tangible Net Worth.  Borrower shall
         not permit the ratio of Borrower's  total  Liabilities  to its Tangible
         Net Worth at any quarter end to be greater than 3.0 to 1.

                  (c) Minimum Debt Service Coverage.  Borrower shall not permit,
         as of the last day of any fiscal  quarter of Borrower,  the  Borrower's
         Debt Service  Coverage Ratio for the twelve  consecutive  months ending
         with such quarter end, to be less 1.25 to 1.0.

         Section 9.2 Prohibited  Distributions and Payments, Etc. Borrower shall
not,  directly or  indirectly  declare or make any  Prohibited  Distribution  or
Prohibited Payment.

         Section 9.3  Indebtedness.  Except as  disclosed  on  Schedule  5.1(h),
Borrower shall not, directly or indirectly  create,  assume, or otherwise become
or  remain  obligated  in  respect  of,  or  permit  or suffer to exist or to be
created,  assumed or incurred or to be outstanding any Indebtedness,  except for
Permitted Indebtedness.

         Section 9.4 Liens.  Borrower shall not, directly or indirectly  create,
assume or permit or suffer to exist or to be created or assumed  any Lien on any
of the  property or assets of  Borrower,  real,  personal or mixed,  tangible or
intangible,  except for  Permitted  Liens or the liens  identified  on  Schedule
5.1(g).

         Section  9.5  Merger,  Consolidation,  Sale  of  Assets,  Acquisitions.
Borrower shall not,  directly or indirectly  merge or consolidate with any other
Person or sell,  lease or  transfer  or  otherwise  dispose of any assets to any
Person  (other than sales of used and worn out  equipment and sales of inventory
in the ordinary course of business) or acquire all or  substantially  all of the
assets of any Person or the assets  constituting  the  business or a division or
operating unit of any Person.

         Section 9.6 Transactions with Affiliates.  Borrower shall not, directly
or  indirectly  effect  any  transaction  with  any  Affiliate  on a basis  less
favorable  to  Borrower  than  would  be the case if such  transaction  had been
effected with a Person not an Affiliate; provided, that Borrower shall not enter
into any lease with any Affiliate.


LOAN AND SECURITY AGREEMENT - Page 19
- ---------------------------

<PAGE>

         Section 9.7  Guaranties.  Borrower  shall not,  directly or  indirectly
become or remain  liable with respect to any guaranty of any  obligation  of any
other Person.

         Section  9.8 Sales and  Leasebacks.  Borrower  shall not,  directly  or
indirectly  enter into any arrangement with any Person providing for the leasing
from such Person of real or personal property which has been or is to be sold or
transferred, directly or indirectly, by Borrower to such Person.

         Section 9.9  Investments.  Borrower  shall not,  directly or indirectly
make or acquire any Investment;  provided,  however, Borrower may make Permitted
Investments.

                               ARTICLE X - DEFAULT

         Section  10.1 Events of Default.  Each of the  following  events  shall
constitute an Event of Default:

                  (a) The  failure or refusal of Borrower to make any payment of
         the Obligations when due;

                  (b) The failure of Borrower to properly  perform any  covenant
         in this Agreement or in any of the other Loan Documents;

                  (c) The  occurrence  of any default or event of default  under
         any of the other Loan Documents;

                  (d) Any  representation  contained  herein,  in any Compliance
         Certificate or Borrowing  Base  Certificate or in any of the other Loan
         Documents is false or misleading in any material respect;

                  (e) Borrower or any  Guarantor  shall (i) apply for or consent
         to the  appointment of a receiver,  trustee,  custodian,  intervenor or
         liquidator  of  such  Person  or of all or a  substantial  part of such
         Person's assets,  (ii) file a voluntary  petition in bankruptcy,  (iii)
         admit in writing that such Person is unable to pay such Person's  debts
         as they become due, (iv) make a general  assignment  for the benefit of
         creditors,  (v) file a petition or answer seeking  reorganization or an
         arrangement  with  creditors or to take  advantage of any bankruptcy or
         insolvency  proceeding,  or (vii) take corporate or partnership  action
         for the purpose of effecting any of the foregoing;

                  (f) An  involuntary  petition  or  complaint  shall  be  filed
         against Borrower or any Guarantor seeking  bankruptcy or reorganization
         of such Person or the  appointment of a receiver,  custodian,  trustee,
         intervenor or liquidator of such Person, or of all or substantially all
         of such Person's assets,  and such petition or complaint shall not have
         been  dismissed  within  sixty (60) days of the filing  thereof;  or an
         order,  order for relief,  judgment  or decree  shall be entered by any
         court of competent  jurisdiction or other competent authority approving


LOAN AND SECURITY AGREEMENT - Page 20
- ---------------------------

<PAGE>

         a  petition  or  complaint  seeking  reorganization  of such  Person or
         appointing an  intervenor  or  liquidator of such Person,  or of all or
         substantially all of such Person's assets;

                  (g) Any money  judgment is rendered  against  Borrower that is
         not paid within  thirty (30) days,  or the failure,  within a period of
         ten (10) days after the  commencement  thereof,  to have discharged any
         attachment,  sequestration,  or similar  proceedings against Borrower's
         assets;

                  (h) The  occurrence of a default or event of default under any
         other Indebtedness of Borrower which Indebtedness exceeds $10,000;

                  (i) Lender  shall cease to have a valid,  perfected  and first
         priority Lien on any of the Collateral,  except as otherwise  expressly
         permitted herein or consented to in writing by Lender;

                  (j) Dr. L. S. Smith  shall cease to own,  beneficially  and of
         record,  thirty percent (30%)of the outstanding voting capital stock of
         Borrower; or

                  (k) Any  guarantor  of the  Obligations,  or such  guarantor's
         heirs or personal representatives,  shall (i) repudiate his obligations
         under,  or commit an  anticipatory  breach of, his  unlimited  guaranty
         executed for the benefit of Lender or (ii)  attempt to  terminate  such
         guaranty or (iii)  commence any legal  proceeding  to terminate or hold
         invalid in any respect such guaranty.

         Section 10.2 Remedies.

                  (a) Automatic Acceleration and Termination of Facilities. Upon
         the occurrence of an Event of Default  specified in Section 10.1 (e) or
         (f), (i) the  principal of and the interest on the  Revolving  Loan and
         the Revolving Note at the time outstanding,  and all other amounts owed
         to Lender  under this  Agreement or any of the Loan  Documents  and all
         other  Obligations,  shall  thereupon  become due and  payable  without
         presentment, demand, protest, notice of protest and non-payment, notice
         of default, notice of acceleration or intention to accelerate, or other
         notice of any kind, all of which are expressly waived, anything in this
         Agreement or any of the Loan Documents to the contrary notwithstanding,
         and (ii) the  commitment  of Lender to make  advances  hereunder  shall
         immediately terminate.

                  (b) Other Remedies. Without limiting the terms of Section 10.2
         (a)  above,  if  any  Event  of  Default  shall  have  occurred  and be
         continuing,  Lender,  in its  sole  and  absolute  discretion,  may (i)
         declare the  principal  of and interest on the  Revolving  Loan and the
         Revolving Note at the time  outstanding,  and all other amounts owed to
         Lender under this  Agreement or any of the Loan Documents and all other
         Obligations,  to be forthwith due and payable, whereupon the same shall
         immediately  become  due  and  payable  without  presentment,   demand,
         protest,  notice of protest and non-payment,  notice of default, notice
         of  acceleration  or  intention to  accelerate,  or other notice of any


LOAN AND SECURITY AGREEMENT - Page 21
- ---------------------------

<PAGE>

         kind, all of which are expressly waived,  anything in this Agreement or
         the Loan Documents to the contrary notwithstanding;  (ii) terminate any
         commitment of Lender to make advances hereunder; and (iii) exercise any
         or all rights and remedies  available under the Loan Documents,  at law
         and/or in equity including, without limitation, the rights and remedies
         of a secured  party after default under the UCC (whether or not the UCC
         is  applicable).  Borrower  agrees that,  to the extent  notice of sale
         shall be required  by law, at least 10 days'  notice to Borrower of the
         time and place of any public  sale or the time after  which any private
         sale is to be made shall constitute reasonable notice, but notice given
         in any other  reasonable  manner or at any other  reasonable time shall
         also constitute reasonable notification.

         Section 10.3  Application of Proceeds.  All proceeds from each sale of,
or other realization upon, all or any part of the Collateral  following an Event
of Default  shall be applied to the payment of the  Obligations  (with  Borrower
remaining  liable for any  deficiency)  in any order which Lender may elect with
the balance (if any) paid to Borrower or to whomsoever is entitled thereto.

         Section 10.4 Rights Cumulative. The rights and remedies of Lender under
the Loan  Documents  shall be  cumulative  and not  exclusive  of any  rights or
remedies which it would  otherwise have. In exercising such rights and remedies,
Lender may be  selective  and no failure  or delay by Lender in  exercising  any
right  shall  operate  as a waiver of such right nor shall any single or partial
exercise  of any power or right  preclude  its other or further  exercise or the
exercise of any other power or right.

                           ARTICLE XI - MISCELLANEOUS

         Section 11.1 Notices. All notices and the communications  hereunder and
thereunder shall be in writing. Notices in writing shall be delivered personally
or sent by overnight courier service,  by certified or registered mail,  postage
pre-paid, or by facsimile transmission and shall be deemed received, in the case
of personal delivery,  when delivered, in the case of overnight courier service,
on the next business day after delivery to such service, in the case of mailing,
on the third day after mailing (or, if such day is a day on which  deliveries of
mail are not made, on the next  succeeding  day on which  deliveries of mail are
made) and, in the case of facsimile transmission,  upon transmittal.  Notices to
any party shall be sent to such party at the following  addresses,  or any other
address of which all the other parties are notified in writing.

         If to Borrower:       DGSE Companies, Inc.
                               2817 Forest Lane
                               Dallas, Texas 75234
                               Attention: John Benson
                               Facsimile No.: (972) 241-0646


LOAN AND SECURITY AGREEMENT - Page 22
- ---------------------------

<PAGE>

         If to Lender:         8401 North Central Expressway, Suite 500
                               Lockbox 36
                               Dallas, Texas 75225
                               Attention: Middle Market Lending
                               Facsimile No.:  (972) 419-3589

         Section 11.2 Expenses.  Within ten (10) days after  presentation  of an
invoice for such costs and expenses,  outlining such items in reasonable detail,
Borrower  agrees to pay or reimburse  all costs and expenses  incurred by Lender
arising out of or in  connection  with this  Agreement  and the  Revolving  Loan
including,  without  limitation,  (a) the reasonable  fees and expenses of legal
counsel  to Lender  arising in  connection  with the  negotiation,  preparation,
execution,  delivery,  enforcement and termination of this Agreement and each of
the  other  Loan  Documents  and  the  collection  of the  Obligations,  (b) the
out-of-pocket  costs and  expenses  of Lender  incurred in  connection  with the
administration of this Agreement and the other Loan Documents, (c) the costs and
expenses of  appraisals  of the  Collateral,  (d) the costs and expenses of lien
searches,  (e)  all  fees or  charges  related  to the  Collateral  and  charges
(including  and taxes) of filing  financing  statements and  continuations;  (f)
costs and expenses  related to the  preparation,  execution  and delivery of any
waiver, amendment, supplement or consent by Lender relating to this Agreement or
any of the Loan Documents;  (g) sums paid or obligations  incurred in connection
with the payment of any amount or taking any action  required of Borrower  under
the Loan  Documents  that  Borrower  fails to pay or take;  (h) costs of audits,
inspections and  verifications  of the Collateral (not to exceed four audits per
year)  and  Borrower's  operations  and books and  records,  including,  without
limitation,  a fee per diem per examiner at the rate  established by Lender from
time to time plus out of pocket  expenses for travel,  lodging,  and meals;  (i)
costs and expenses of  forwarding  loan  proceeds,  collecting  checks and other
items of payment,  and  establishing  and  maintaining  each account of Borrower
maintained with Lender;  (j) costs and expenses of preserving and protecting the
Collateral;  (k) costs and  expenses  paid or incurred to obtain  payment of the
Obligations,  enforce the security interest of Lender, sell or otherwise realize
upon the Collateral, and otherwise enforce the provisions of the Loan Documents,
or to  prosecute  or defend any claim in any way arising  out of,  related to or
connected  with,  this  Agreement or any of the Loan  Documents,  which expenses
shall include the reasonable  fees and  disbursements  of counsel and of experts
and other consultants  retained by Lender.  Borrower hereby authorizes Lender to
debit  Borrower's  loan  account  (by  increasing  the  principal  amount of the
Revolving Loan), or deduct from Borrower's  accounts maintained with Bank or any
Affiliate of Bank,  the amount of any costs,  fees and expenses owed by Borrower
when due.

         Section 11.3 Setoff. In addition to any rights now or hereafter granted
under applicable law, and not by way of limitation of any such rights, after the
occurrence and during the continuation of any Event of Default, Lender is hereby
authorized  by  Borrower  at any  time or from  time to  time,  with  notice  to
Borrower, to set off and apply any and all deposits (general or special, time or
demand, including, but not limited to, indebtedness evidenced by certificates of
deposit,  whether  matured or unmatured) and any other  indebtedness at any time
held or owing by Lender to or for the account of Borrower against and on account
of the Obligations.


LOAN AND SECURITY AGREEMENT - Page 23
- ---------------------------

<PAGE>

         Section 11.4 Amendments. Any term, covenant,  agreement or condition of
this  Agreement or any of the other Loan  Documents may be amended or waived and
any  departure  therefrom  may be consented to if, but only if, such  amendment,
waiver  or  consent  is in  writing  signed  by  Lender  and,  in the case of an
amendment, by Borrower.

         Section 11.5 Governing Law. This Agreement and the Revolving Note shall
be construed in accordance with and governed by the law of the State of Texas.

         Section 11.6 Counterparts. This Agreement may be executed in any number
of counterparts and by different parties hereto in separate  counterparts,  each
of which when so executed shall be deemed to be an original and shall be binding
upon all parties,  their successors and assigns, and all of which taken together
shall constitute one and the same agreement.

                THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL
          AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY






















LOAN AND SECURITY AGREEMENT - Page 24
- ---------------------------

<PAGE>

         EVIDENCE OF PRIOR,  CONTEMPORANEOUS,  OR SUBSEQUENT  ORAL AGREEMENTS OF
THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

                                    BORROWER:

                                    DGSE Companies, Inc.



                                    By:
                                       -----------------------------------------
                                       William Oyster, President

                                     LENDER:

                                     FIRST AMERICAN BANK, SSB



                                     By:
                                        ----------------------------------------
                                        Matthew J. Malone, Vice President

















LOAN AND SECURITY AGREEMENT - Page 25
- ---------------------------

<PAGE>

                             EXHIBITS AND SCHEDULES

EXHIBIT A               FORM OF BORROWING BASE CERTIFICATE
EXHIBIT B               FORM OF COMPLIANCE CERTIFICATE

SCHEDULE 4.2            Conditions precedent; items to be delivered
SCHEDULE 5.1 (c)        Capital Stock and Subsidiaries
SCHEDULE 5.1 (g)        Liens
SCHEDULE 5.1 (h)        Indebtedness for Money Borrowed and Guaranties
SCHEDULE 5.1(i)         Litigation
SCHEDULE 5.1 (n)        Locations of inventory
SCHEDULE 5.1 (o)        Location of Chief  Executive  Office
SCHEDULE 5.1 (p)        Corporate and Fictitious Names
SCHEDULE 7.6            Use of Proceeds




























LOAN AND SECURITY AGREEMENT - Page 26
- ---------------------------

<PAGE>

                                    Exhibit A
                           Borrowing Base Certificate































EXHIBIT A- Page 1

<PAGE>

                                    Exhibit B
                             Compliance Certificate


































EXHIBIT B- Page 1

<PAGE>

                                  Schedule 4.1
                              Conditions Precedent


(1)      This Agreement;

(2)      The Revolving Note;

(3)      A certified copy of the articles of  incorporation,  and all amendments
         thereto, of Borrower,  issued by the Secretary of State of the state of
         Borrower's  incorporation  together with a certificate of existence and
         good standing for Borrower issued by the such Secretary of State or the
         Comptroller of such State, as appropriate;

(4)      A copy of the bylaws, and all amendments thereto, of Borrower;

(5)      Certification of incumbency of all officers of Borrower, certifying the
         name and signature of each such officer;

(6)      Corporate  resolutions of Borrower duly adopted by Borrower's  Board of
         Directors;

(7)      Certification  by each  jurisdiction in which Borrower is qualified (or
         is  required  to be  qualified)  as a foreign  corporation  to transact
         business,  to the effect that Borrower is in good standing with respect
         to payment of franchise and similar taxes in such states;

(8)      All  financing   statements  required  by  Lender  in  connection  with
         perfection of Lender's  security  interests in the  Collateral  and all
         termination  statements  and other  amendments to financing  statements
         required by Lender to make Lender's security interest in the Collateral
         a first priority (and only) security interest therein subject, however,
         to the Permitted Liens;

(9)      Evidence of  insurance  in  compliance  with the  requirements  of this
         Agreement  and such loss  payable  endorsements  as may be  required by
         Lender  including,  without  limitation,  and endorsement to Borrower's
         inventory insurance naming Lender as loss payee;

(10)     Executed  landlord's  waivers and consents for each location  leased by
         Borrower and a mortgagee's waiver for each location owned by Borrower;

(11)     Evidence  that  Borrower  has  implemented   administrative  procedures
         reasonably  satisfactory  to Lender,  including,  but not  limited  to,
         matters relating to financial statements,  receivable agings, inventory
         summaries,  collections,  borrowing base  reporting,  projections,  and
         eligibility determination;

(12)     A Schedule of Inventory and a Schedule of Accounts, each prepared as of
         a recent date;

(13)     A  Borrowing  Base  Certificate  prepared  as of the date  hereof  duly
         executed and delivered by the chief financial officer of the Borrower;


SCHEDULE 4.2 - Page 1

<PAGE>

(14)     Copies of all the financial  statements  referred to in Section 5.1 (k)
         and meeting the requirements thereof;

(15)     A  signed  opinion  of  ___________________________,  counsel  for  the
         Borrower,  and such local counsel as the Lender shall deem necessary or
         desirable containing a waiver of any lack of privity between Lender and
         such counsel;

(16)     Each of the other Loan Documents duly executed by the parties thereto;

(17)     An unconditional  guarantee of each Guarantor;  provided,  however, the
         guarantee   executed   by  Dr.  L.  S.   Smith   shall  be  limited  to
         $1,500,000.00;

(18)     A  Subordination  Agreement  from  each of the  Persons  identified  on
         Schedule 5.1(h) excluding,  however, the holder of the mortgage note on
         Borrower's  owned facility located at 2817 Forest Lane,  Dallas,  Texas
         75234;

(19)     A security agreement executed by each Corporate  Guarantor securing its
         obligations  under the unconditional  guarantee  executed by it and the
         repayment of the Obligations;

(20)     An assignment  of  $1,000,000 in key-man life  insurance on the life of
         William Oyster, duly acknowledged and accepted by the insurance company
         that issued such insurance; and

(21)     Such  other  agreements,  documents,   instruments,   certificates  and
         financing statements as Lender may require.












SCHEDULE 4.2 - Page 2

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>4
<FILENAME>dgse10ksbex991123102.txt
<DESCRIPTION>CERTIFICATION OF CHIEF EXECUTIVE OFFICER
<TEXT>

                                                                    Exhibit 99.1



                    Certification of Chief Executive Officer

                            CERTIFICATION PURSUANT TO
                 SECTIONS 906 OF THE SARBANES-OXLEY ACT OF 2002
                                (18 U.S.C. 1350)



         In  connection  with the Annual  Report of DGSE  Companies,  Inc.  (the
"Company") on Form 10-KSB for the year ended December 31, 2002 as filed with the
Securities  and  Exchange  Commission  on the date  hereof (the  "Report"),  the
undersigned certifies pursuant to 18 U.S.C. 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

1)       The Report fully  complies  with the  requirements  of Section 13(a) or
         15(d) of the Securities Exchange Act of 1934, as amended; and
2)       The  information  contained  in  the  Report  fairly  presents,  in all
         material respects, the financial condition and results of operations of
         the Company.



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


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2
<SEQUENCE>5
<FILENAME>dgse10ksbex992123102.txt
<DESCRIPTION>CERTIFICATION OF CHIEF FINANCIAL OFFICER
<TEXT>

                                                                    Exhibit 99.2



                    Certification of Chief Financial Officer

                            CERTIFICATION PURSUANT TO
                 SECTIONS 906 OF THE SARBANES-OXLEY ACT OF 2002
                                (18 U.S.C. 1350)



         In  connection  with the Annual  Report of DGSE  Companies,  Inc.  (the
"Company") on Form 10-KSB for the year ended December 31, 2002 as filed with the
Securities  and  Exchange  Commission  on the date  hereof (the  "Report"),  the
undersigned certifies pursuant to 18 U.S.C. 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

1)       The Report fully  complies  with the  requirements  of Section 13(a) or
         15(d) of the Securities Exchange Act of 1934, as amended; and
2)       The  information  contained  in  the  Report  fairly  presents,  in all
         material respects, the financial condition and results of operations of
         the Company.



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


</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
