UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-Q

(Mark One)

|X|  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 For the quarterly period ended September 30, 2006 or

|_|  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934 For the transition period from ___ to ___

                         Commission File Number 1-11048

                              DGSE Companies, Inc.
             (Exact name of registrant as specified in its charter)

            Nevada                                               88-0097334
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)

                                2817 Forest Lane
                               Dallas, Texas 75234
                                 (972) 848-3662
                   (Address, including zip code, and telephone
                  number, including area code, of registrant's
                          principal executive offices)

                                      NONE
                     (Former name, former address and former
                   fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                 YES |X| NO |_|

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer or a  non-accelerated  filer.  See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.

  Large accelerated filer |_|  Accelerated filer |_|  Non-accelerated filer |X|

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).

                                 YES |_| NO |X|

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of October 27, 2006:

                Class                                    Outstanding
--------------------------------------    --------------------------------------
Common stock, $.01 par value per share                    4,913,290

<PAGE>

                                TABLE OF CONTENTS
                                -----------------


PART I.   FINANCIAL INFORMATION                                         Page No.
          ---------------------                                         --------

Item 1.   Consolidated Financial Statements.
------
          Consolidated Balance Sheets as of September 30, 2006 and
              December 31, 2005                                                1

          Consolidated Statements of Operations for the three months           2
              ended September 30, 2006 and 2005

          Consolidated Statements of Operations for the nine months            3
              ended September 30, 2006 and 2005

          Consolidated Statements of Cash Flows for the nine months            4
              ended September 30, 2006 and 2005

          Notes to Consolidated Financial Statements                           5

Item 2.   Management's Discussion and Analysis of Financial Condition          9
------
              and Results of Operations.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk.         11
------

Item 4.   Controls and Procedures.                                            12
------

PART II.  OTHER INFORMATION
          -----------------

Item 3.   Legal Proceedings.                                                  12
------

Item 5.   Other Information.                                                  12
------

Item 6.   Exhibits.                                                           12
------

SIGNATURES











                                        i
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<CAPTION>

                      DGSE Companies, Inc. and Subsidiaries

PART I.   FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements.

                           CONSOLIDATED BALANCE SHEETS

                                                                               September 30,    December 31,
                                                                                    2006             2005
                                                                               -------------    -------------
<S>                                                                            <C>              <C>
                                                                                 Unaudited

                                     ASSETS
Current Assets:
    Cash and cash equivalents ..............................................   $     217,282    $   1,042,834
    Trade receivables ......................................................         947,897          688,810
    Inventories ............................................................       8,451,224        7,570,120
    Prepaid expenses .......................................................         208,356          215,560
                                                                               -------------    -------------
                Total current assets .......................................       9,824,759        9,517,324

Marketable securities - available for sale .................................          74,929           65,444
Property and equipment, net ................................................       1,026,838        1,121,662
Deferred income taxes ......................................................            --                779
Goodwill ...................................................................         837,117          837,117
Other assets ...............................................................         632,662          287,790
                                                                               -------------    -------------
                                                                               $  12,396,305    $  11,830,116
                                                                               =============    =============

                                   LIABILITIES
Current Liabilities:
    Notes payable ..........................................................   $     194,183    $     594,183
    Current maturities of long-term debt ...................................         259,273          259,152
    Accounts payable - trade ...............................................         326,834          789,724
    Accrued expenses .......................................................         419,757          580,823
    Customer deposits ......................................................         382,346          206,320
    Federal income taxes payable ...........................................         210,584           13,920
                                                                               -------------    -------------
                 Total current liablilites .................................       1,792,977        2,444,122

Long-term debt, less current maturities ....................................       3,996,128        3,314,886
Deferred income taxes ......................................................           2,446             --
                                                                               -------------    -------------
                                                                                   5,791,551        5,759,008

                              STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 10,000,000 shares authorized; 4,913,290 shares
   issued and outstanding at the end of each
   period in 2006 and 2005 .................................................          49,133           49,133
Additional paid-in capital .................................................       5,708,760        5,708,760
Accumulated other comprehensive loss........................................        (120,992)        (127,252)
Retained earnings ..........................................................         967,853          440,467
                                                                               -------------    -------------
                                                                                   6,604,754        6,071,108
                                                                               -------------    -------------

                                                                               $  12,396,305    $  11,830,116
                                                                               =============    =============
</TABLE>


                 The accompanying notes are an integral part of
                    these consolidated financial statements


                                       1
<PAGE>
<TABLE>
<CAPTION>

                      DGSE Companies, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF OPERATIONS



                                                   Three months ended September 30,
                                                   --------------------------------
                                                        2006              2005
                                                   --------------    --------------
<S>                                                <C>               <C>
                                                               Unaudited
Revenue
     Sales .....................................   $    9,497,528    $    7,129,321
     Consumer loan service charges .............          111,422            85,536
                                                   --------------    --------------
                                                        9,608,950         7,214,857

Costs and expenses
    Cost of goods sold .........................        8,085,866         5,837,846
    Selling, general and administrative expenses        1,251,108         1,124,435
    Depreciation and amortization ..............           29,548            46,219
                                                   --------------    --------------
                                                        9,366,522         7,008,500

        Operating income .......................          242,428           206,357
                                                   --------------    --------------

Other (income) expense
    Other income ...............................             --              (3,895)
    Interest expense ...........................           78,646            71,533
                                                   --------------    --------------

        Earnings before income taxes ...........          163,782           138,719

Income tax expense .............................           55,686            47,165
                                                   --------------    --------------

        Net earnings ...........................   $      108,096    $       91,554
                                                   ==============    ==============

Earnings per common share - basic and diluted ..   $         0.02    $         0.02
                                                   ==============    ==============

Weighted average number of common shares:
     Basic .....................................        4,913,290         4,913,290
     Diluted ...................................        5,056,133         5,040,148
</TABLE>












                 The accompanying notes are an integral part of
                     these consolidated financial statements


                                       2
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<TABLE>
<CAPTION>

                      DGSE Companies, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF OPERATIONS



                                                   Nine months ended September 30,
                                                   -------------------------------
                                                        2006             2005
                                                   --------------   --------------
<S>                                                <C>              <C>
                                                              Unaudited
Revenue
     Sales .....................................   $   31,570,446   $   20,475,598
     Consumer loan service charges .............          305,554          257,481
                                                   --------------   --------------
                                                       31,876,000       20,733,079

Costs and expenses
    Cost of goods sold .........................       27,014,402       16,608,461
    Selling, general and administrative expenses        3,724,797        3,288,686
    Depreciation and amortization ..............          108,563          138,090
                                                   --------------   --------------
                                                       30,847,762       20,035,237

        Operating income .......................        1,028,238          697,842
                                                   --------------   --------------

Other (income) expense
    Other income ...............................             --             (3,895)
    Interest expense ...........................          229,227          214,696
                                                   --------------   --------------

        Earnings before income taxes ...........          799,011          487,041

Income tax expense .............................          271,664          165,594
                                                   --------------   --------------

        Net earnings ...........................   $      527,347   $      321,447
                                                   ==============   ==============

Earnings per common share - basic and diluted ..   $         0.11   $         0.06
                                                   ==============   ==============

Weighted average number of common shares:
     Basic .....................................        4,913,290        4,913,290
     Diluted ...................................        4,989,065        5,059,709
</TABLE>












                 The accompanying notes are an integral part of
                    these consolidated financial statements


                                       3
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<TABLE>
<CAPTION>

                      DGSE COMPANIES, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                  Nine months ended September 30,
                                                                  -------------------------------
                                                                       2006              2005
                                                                  -------------     -------------
<S>                                                               <C>               <C>
                                                                             Unaudited
Cash flows from operating activities

 Net earnings .................................................   $     527,347     $     321,447
 Adjustments to reconcile net earnings to net cash provided
       by operating activities
      Depreciation and amortization ...........................         108,563           138,090
      Realized gain on sale of marketable securities ..........            --              (3,895)
 (Increase) decrease in operating assets and liabilities
      Trade receivables .......................................        (197,173)           52,935
      Inventories .............................................        (881,104)         (594,535)
      Prepaid expenses and other current assets ...............           7,204          (133,001)
      Accounts payable and accrued expenses ...................        (623,956)         (575,112)
      Customer deposits .......................................         176,026           105,548
      Federal income taxes payable ............................         196,664           (66,258)
      Other assets ............................................        (344,872)           27,111
                                                                  -------------     -------------
        Net cash used in operating activities .................      (1,031,301)         (727,670)

Cash flows from investing activities

      Pawn loans made .........................................        (387,966)         (469,839)
      Pawn loans repaid .......................................         319,203           338,069
      Recovery of pawn loan principal through sale of forfeited
       collateral .............................................          67,503           220,356
      Pay day loans made ......................................        (207,428)         (100,871)
      Pay day loans repaid ....................................         146,813            64,270
      Purchase of property and equipment ......................         (13,739)         (210,709)
      Proceeds from sale of marketable securities .............            --               4,277
                                                                  -------------     -------------
        Net cash used in investing activities .................         (75,614)         (154,447)

Cash flows from financing activities

   Proceeds from notes issued .................................         840,000         3,481,365
   Repayments of notes payable ................................        (558,637)       (2,603,519)
                                                                  -------------     -------------
            Net cash provided by financing activities .........         281,363           877,846


        NET DECREASE IN CASH AND CASH EQUIVALENTS .............        (825,552)           (4,271)
Cash and cash equivalents at beginning of period ..............       1,042,834           314,897

                                                                  -------------     -------------
Cash and cash equivalents at end of period ....................   $     217,282     $     310,626
                                                                  =============     =============
</TABLE>

Supplemental disclosures:

Interest paid for the nine months ended September 30, 2006 and 2005 was $229,227
and  $214,696,  respectively.  Income  taxes  paid  for the  nine  months  ended
September 30, 2006 and 2005 was $75,000 and $225,000,  respectively.  Pawn loans
forfeited  and  transferred  to  inventory  amounted  to $67,503  and  $220,356,
respectively, for the nine months ended September 30, 2006 and 2005.

                 The accompanying notes are an integral part of
                    these consolidated financial statements.


                                       4
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<CAPTION>

                      DGSE COMPANIES, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  Basis of Presentation.

     The accompanying  unaudited condensed  consolidated financial statements of
     DGSE Companies,  Inc. and Subsidiaries  include the financial statements of
     DGSE Companies, Inc. and its wholly-owned  subsidiaries,  DGSE Corporation,
     National Jewelry Exchange, Inc., Charleston Gold and Diamond Exchange, Inc.
     and  American  Pay Day  Centers,  Inc.  In the opinion of  management,  all
     adjustments  consisting of normal recurring accruals  considered  necessary
     for a fair presentation have been included.

     The interim  financial  statements of DGSE Companies,  Inc. included herein
     have been  prepared  by us  pursuant  to the rules and  regulations  of the
     Securities  and  Exchange  Commission.  Certain  information  and  footnote
     disclosures   normally  included  in  financial   statements   prepared  in
     accordance  with  accounting  principles  generally  accepted in the United
     States  of  America  have  been  condensed  or  omitted   pursuant  to  the
     Commission's   rules  and   regulations,   although  we  believe  that  the
     disclosures are adequate to make the information  presented not misleading.
     We suggest that these financial  statements be read in conjunction with the
     financial  statements  and notes included in our Annual Report on Form 10-K
     for the year ended December 31, 2005, and our Quarterly report on Form 10-Q
     for the three months ended March 31, 2006 and our Quarterly  report on Form
     10-Q  for  the  six  months  ended  June  30,  2006.  In our  opinion,  the
     accompanying   unaudited   interim   financial   statements   contain   all
     adjustments,  consisting  only  of  those  of a  normal  recurring  nature,
     necessary to present  fairly its results of  operations  and cash flows for
     the periods presented.  The results of operations for the periods presented
     are not  necessarily  indicative of the results to be expected for the full
     year. Certain  reclassifications were made to the prior year's consolidated
     financial statements to conform to the current year presentation.

(2)  Trade Receivables

     Pawn  loans  receivable  in the  amount  of  $112,042  and  $142,611  as of
     September 30, 2006 and 2005, respectively, are included in the Consolidated
     Balance Sheets caption trade receivables.  The related pawn service charges
     receivable  in the amount of $37,509 and $50,433 as of  September  30, 2006
     and 2005,  respectively,  are also  included  in the  Consolidated  Balance
     Sheets caption trade receivables. Pay day loans receivable in the amount of
     $77,273 as of  September  30, 2006 and $27,614 as of  September  30,  2005,
     respectively,  are also included in the Consolidated Balance Sheets caption
     trade receivables.

(3)  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 periods ended September
     30, 2006 and 2005 is as follows:

                                                          2006                                         2005
                                             Nine months ended September 30,              Nine months ended September 30,
                                       Net Earnings      Shares       Per share     Net Earnings      Shares       Per share
                                       ------------   ------------   ------------   ------------   ------------   ------------
<S>                                    <C>            <C>            <C>            <C>            <C>            <C>
Basic earnings per common share.....   $    527,347      4,913,290   $       0.11        321,447      4,913,290   $       0.06

Effect of dilutive stock options....           --           75,775           --             --          146,419           --
                                       ------------   ------------   ------------   ------------   ------------   ------------

Diluted earnings per common share...   $    527,347      4,989,065   $       0.11        321,447      5,059,709   $       0.06
                                       ============   ============   ============   ============   ============   ============

                                                          2006                                         2005
                                            Three months ended September 30,             Three months ended September 30,
                                       Net Earnings      Shares       Per share     Net Earnings      Shares       Per share
                                       ------------   ------------   ------------   ------------   ------------   ------------

Basic earnings per common share.....        108,096      4,913,290   $       0.02         91,554      4,913,290   $       0.02

Effect of dilutive stock options....           --          142,843           --             --          126,858           --
                                       ------------   ------------   ------------   ------------   ------------   ------------

Diluted earnings per common share...        108,096      5,056,133   $       0.02         91,554      5,040,148   $       0.02
                                       ============   ============   ============   ============   ============   ============
</TABLE>


                                       5
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<TABLE>
<CAPTION>

                      DGSE COMPANIES, Inc. and Subsidiaries

(4)  Business segment information.

     Management  identifies  reportable  segments by product or service offered.
     Each segment is managed  separately.  Corporate and other includes  certain
     general and  administrative  expenses  not  allocated  to segments and pawn
     operations.  Our operations by segment for the nine months ended  September
     30 were as follows:

     (In thousands)                     Retail        Wholesale                       Rare         Corporate
                                        Jewelry        Jewelry        Bullion         Coins        and Other     Consolidated
                                     ------------   ------------   ------------   ------------   ------------    ------------
<S>                                  <C>            <C>            <C>            <C>            <C>             <C>
     Revenues
       2006                          $     10,885   $      3,775   $     13,117   $      3,659   $        440    $     31,876
       2005                                 9,790          2,962          5,536          1,895            550          20,733

     Net income (loss)
       2006                                   171            113            181            204           (142)            527
       2005                                   204            144             27            145           (199)            321

     Identifiable assets
       2006                                 9,102          1,987            300            266            741          12,396
       2005                                 8,041          1,742            236            145            810          10,974

     Capital Expenditures
       2006                                   137             --             --             --             --             137
       2005                                   169             --             --             --             42             211

     Depreciation and amortization
       2006                                    67             --             --             --             42             109
       2005                                    85             16             --             --             37             138


     Our  operations by segment for the three months ended  September 30 were as
     follows:

     (In thousands)                     Retail        Wholesale                       Rare         Corporate
                                        Jewelry        Jewelry        Bullion         Coins        and Other     Consolidated
                                     ------------   ------------   ------------   ------------   ------------    ------------
     Revenues
       2006                          $      3,325   $      1,472   $      3,526   $      1,141   $        145    $      9,609
       2005                                 3,362          1,015          1,964            732            142           7,215


     Net income (loss)
       2006                                    18             56             31             38            (35)            108
       2005                                    44             45             12             58            (68)             91

     Identifiable assets
       2006                                 8,633          1,944            172            372            694          11,815
       2005                                 8,041          1,742            236            145            810          10,974


     Capital Expenditures
       2006                                   132             --             --             --             --             132
       2005                                    18             --             --             --             26              44

     Depreciation and amortization
       2006                                    19             --             --             --             11              30
       2005                                    29              5             --             --             12              46
</TABLE>


                                       6
<PAGE>
<TABLE>
<CAPTION>

                      DGSE COMPANIES, Inc. and Subsidiaries

(5)  Other Comprehensive income.

     Other comprehensive income is as follows:

                                                  Before Tax     Tax (Expense)      Net-of-Tax
                                                    Amount          Benefit           Amount
                                                -------------    -------------    -------------
<S>                                             <C>              <C>              <C>
     Other comprehensive loss at
       December 31, 2005 ....................   $    (162,071)   $      34,819    $    (127,252)
     Unrealized gains during the period ended
       March 31, 2006 .......................           4,385           (1,491)           2,894
                                                -------------    -------------    -------------
     Other comprehensive loss at
       March  31, 2006 ......................        (157,686)          33,328         (124,358)
     Unrealized gains during the period ended
        June 30, and September 30, 2006 .....           5,100           (1,734)           3,366
                                                -------------    -------------    -------------
     Other comprehensive loss at
       September 30, 2006 ...................   $    (152,586)   $      31,594    $    (120,992)
                                                =============    =============    =============
</TABLE>

(6)  Stock-based Compensation.

     Prior to January 1, 2006, we elected to follow Accounting  Principles Board
     Opinion (APB) NO.25, Accounting for Stock Issued to Employees,  and related
     interpretations to account for our employee and director stock options,  as
     permitted by Statement of Financial  Accounting  Standards  (SFAS) No. 123,
     Accounting  for  Stock-Based  Compensation.  Effective  January 1, 2006, we
     adopted  the fair value  recognition  provision  of SFAS No.  123  (revised
     2004),  Share-Based Payments,  (SFAS No. 123(R) for all share-based payment
     awards to employees and directors  including  employee  stock  options.  In
     addition,  we have applied the provisions of Staff Accounting  Bulletin No.
     107 (SAB No. 107), issued by the Securities and Exchange Commission, in our
     adoption of SFAS No. 123(R).

     We  adopted  SFAS  No.  123(R)  using  the  modified-prospective-transition
     method.  Under this transition  method,  stock-based  compensation  expense
     recognized after the effective date includes: (1) compensation cost for all
     share-based  payments granted prior to, but not yet vested as of January 1,
     2006,  based on the grant date fair value  estimate in accordance  with the
     original  provisions  of SFAS No. 123,  and (2)  compensation  cost for all
     share-based  payments  granted  subsequent to January 1, 2006, based on the
     grant-date fair value estimate in accordance with the provision of SFAS No.
     123.  Results from prior  periods have not been restated and do not include
     the impact of SFAS No. 123(R).  Stock-based compensation expense under SFAS
     No.  123(R) for the first nine months of 2006 was $0,  relating to employee
     and  director   stock  options  and  our  employee   stock  purchase  plan.
     Stock-based  compensation expense under the provision of APB No. 25 for the
     nine months of 2006 was insignificant.

     Stock-based  compensation  expense  recognized  each period is based on the
     value of the  portion of  share-based  payment  awards  that is  ultimately
     expected to vest during the period. SFAS No. 123(R) requires forfeitures to
     be estimated at the time of grant and revised, if necessary,  in subsequent
     periods if actual forfeitures differ from those estimates. In our pro forma
     disclosures  required  under SFAS No.  123 for  periods  prior to 2006,  we
     accounted for forfeitures as they occurred.

     Upon   adoption   of   SFAS   No.   123(R),   we   elected   to   use   the
     Black-Scholes-Merton  option-pricing  formula to value share-based payments
     granted to employees subsequent to January 1, 2006 and elected to attribute
     the value of stock-based  compensation  to expense using the  straight-line
     single option method.  These methods were previously used for our pro forma
     information required under SFAS No. 123.

     On November 10,  2005,  the  Financial  Accounting  Standards  Board (FASB)
     issued FASB Staff Position No. FAS 123(R)-3,  "Transition  Election Related
     to  Accounting  for Tax  Effects  of  Share-Based  Payment  Awards",  which
     detailed an alternative  transition  method for calculating the tax effects
     of stock-based  compensation  pursuant to SFAS No. 123(R). This alternative
     transition  method included  simplified  methods to establish the beginning
     balance of the additional  paid-in  capital pool (APIC pool) related to the
     tax effects of  employee  stock-based  compensation  and to  determine  the
     subsequent impact on the APIC pool and Consolidated Statement of Cash Flows
     of the tax effects of  employee  stock-based  compensation  awards that are
     outstanding  upon adoption of SFAS No. 123(R).  As all options  outstanding
     have vested  prior to  December  31,  2005,  we have not  recorded  the tax
     effects of employee  stock-based  compensation and have made no adjustments
     to the APIC pool.


                                       7
<PAGE>
<TABLE>
<CAPTION>

                      DGSE COMPANIES, Inc. and Subsidiaries

     Prior to the  adoption  of SFAS  No.  123(R)  tax  benefits  of  deductions
     resulting  from the exercise of stock options were required to be presented
     as operating cash flows in the Consolidated  Statement of Cash Flows.  SFAS
     No.  123(R)  requires  the  cash  flows  resulting  from  the tax  benefits
     resulting from tax deductions in excess of the compensation cost recognized
     for those options  (excess tax benefits) to be classified as financing cash
     flows. As there have been no stock options exercised,  we have not reported
     these excess tax benefits as of September 30, 2006.

     Effective January 1, 2006, we adopted the fair value recognition provisions
     of SFAS No.  123(R) for all share based  payment  awards to  employees  and
     directors including employee stock options granted under our employee stock
     option plan. As all options  outstanding  have vested prior to December 31,
     2005, no stock based compensation expense has been recorded as of September
     30, 2006.

     The  following  table  presents the effect on net income and net income per
     share compared with pro forma information as if we had adopted SFAS No. 123
     for the periods ended September 30,

                                                                   Three Months Ended September 30,
                                                                        2006              2005
                                                                   --------------    --------------
<S>                                                                <C>               <C>
     Net earnings as reported ..................................   $      108,096    $       91,554
     Less stock-based compensation under the fair value method .             --                --
                                                                   --------------    --------------
     Pro forma net earnings ....................................   $      108,096    $       91,554

     Earnings per share:
        Basic and diluted earnings per common share, as reported   $         0.02    $         0.02
        Basic and diluted earnings per common share, pro forma .   $         0.02    $         0.02

                                                                   Nine Months Ended September 30,
                                                                        2006              2005
                                                                   --------------    --------------

     Net earnings as reported ..................................   $      527,347    $      321,447
     Less stock-based compensation under the fair value method .             --                --
                                                                   --------------    --------------
     Pro forma net earnings ....................................   $      527,347    $      321,447

     Earnings per share:
        Basic and diluted earnings per common share, as reported   $         0.11    $         0.06
        Basic and diluted earnings per common share, pro forma .   $         0.11    $         0.06
</TABLE>

(7)  New Accounting Pronouncements

     On July 13, 2006, the FASB issued FASB  Interpretation  48,  Accounting for
     Uncertainty in Income Taxes:  an  interpretation  of FASB Statement No. 109
     (FIN 48). FIN 48 clarifies  Statement 109,  Accounting for Income Taxes, to
     indicate the criteria  that an individual  tax position  would have to meet
     for some or all of the  benefit of that  position  to be  recognized  in an
     entity's  financial  statements.  FIN  48 is  effective  for  fiscal  years
     beginning after December 15, 2006. The Company is currently  evaluating the
     requirements  under FIN 48 and the effect, if any, that the adoption of FIN
     48 will have on our consolidated  financial  statements,  statement of cash
     flows or earnings per share.

     In September 2006, the FASB issued SFAS 157 Fair Value Measurements,  which
     defines fair value,  establishes a framework for measuring fair value,  and
     expands disclosures about fair value  measurements.  The provisions of SFAS
     157 are  effective  as of the  beginning  of our 2008 fiscal  year.  We are
     currently  evaluating  the  impact of  adopting  SFAS 157 on our  financial
     statements.

(8)  Recent Developments

     On July 17, 2006, we announced that we had executed a definitive  agreement
     to acquire all of the issued and outstanding  stock of Superior  Galleries,
     Inc. in a transaction  valued at $ 14,000,000.  For additional  information
     regarding this transaction  reference is made to our Form 8-K filed on July
     17, 2006. As of September  30, 2006 we have incurred  $265,000 in legal and
     other  cost  related  to this  acquisition.  This cost is  included  in the
     balance sheet caption "Other assets".  In the event this  transaction  does
     not  close,   this  and  any  additional  cost  incurred  related  to  this
     transaction will be expensed and charged against  operating  results during
     the period in which the transaction is terminated.


                                       8
<PAGE>

                      DGSE COMPANIES, Inc. and Subsidiaries

Item 2.   Management's  Discussion  and  Analysis  of  Financial  Condition  and
          Results of Operations.

Forward-Looking Statements

The  statements,  other than  statements of historical  facts,  included in this
report are forward-looking statements.  Forward-looking statements generally can
be identified by the use of  forward-looking  terminology such as "may," "will,"
"would," "expect,"  "intend,"  "could,"  "estimate,"  "should,"  "anticipate" or
"believe." We believe that the  expectations  reflected in such  forward-looking
statements are accurate.  However,  we cannot assure you that these expectations
will occur.  Our actual future  performance  could differ  materially  from such
statements. Factors that could cause or contribute to these differences include,
but are not limited to:

o    uncertainties  regarding price  fluctuations in the price of gold and other
     precious metals;

o    our ability to manage inventory fluctuations and sales;

o    changes in governmental  rules and regulations  applicable to the specialty
     financial services industry;

o    the results of any unfavorable litigation;

o    interest rates;

o    economic  pressures  affecting  the  disposable  income  available  to  our
     customers;

o    our ability to maintain an effective system of internal controls;

o    the other risks detailed from time to time in our SEC reports.

Additional  important  factors  that could  cause our  actual  results to differ
materially  from our  expectations  are  discussed  under "Risk  Factors" in our
Annual  Report on Form 10-K for our fiscal year ended  December  31,  2005.  You
should not unduly rely on these forward-looking statements,  which speak only as
of the date of this report.  Except as required by law, we are not  obligated to
publicly  release any revisions to these  forward-looking  statements to reflect
events or  circumstances  occurring  after the date of this report or to reflect
the occurrence of unanticipated events.

Our Business

We sell  jewelry,  bullion  products and rare coins to both retail and wholesale
customers  throughout  the  United  States  and  makes  collateralized  loans to
individuals.  Our  products are marketed  through our  facilities  in Dallas and
Carrollton,  Texas and Mt. Pleasant, South Carolina and through our internet web
sites dgse.com; USBullionExchange.com; and, FairchildWatches.com.

We operate  three  internet  sites on the World Wide Web.  Through  dgse.com  we
operate a virtual store and a real-time auction of our jewelry products.  We and
our customers buy and sell items of jewelry and are free to set their own prices
in an  interactive  market.  We also offer  customers the key unlimited  trading
power to buy and sell  precious  metal  assets.  Customers  have  access  to our
competitive  two-way markets in all of the most popularly  traded precious metal
products  as well as  current  quotations  for  precious  metals  prices  on our
internet site  USBullionExchange.com.  FairchildWatches.com  provides  wholesale
customers a virtual  catalog of our fine watch  inventory.  Over 7,500 items are
available for sale on our internet sites including $10,000,000 in diamonds.

Our wholly-owned subsidiary,  National Jewelry Exchange, Inc. ("NJE") operates a
pawn shop in Carrollton,  Texas.  We have focused the operations of NJE on sales
and pawn loans of jewelry products.

In January 2005 we began  offering  unsecured  payday  loans  through our wholly
owned subsidiary  American Pay Day Centers,  Inc. which operates three locations
in New Mexico.

Recent Developments

On July 17, 2006,  we announced  that we had executed a definitive  agreement to
acquire all of the issued and outstanding stock of Superior Galleries, Inc. in a
transaction valued at $ 14,000,000.  For additional  information  regarding this
transaction  reference  is made to our Form 8-K  filed on July 17,  2006.  As of
September 30, 2006 we have incurred  $265,000 in legal and other cost related to
this  acquisition.  This cost is included in the balance  sheet  caption  "Other
assets".  In the event this transaction does not close,  this and any additional
cost incurred  related to this  transaction will be expensed and charged against
operating  results  during the period in which the  transaction  is  terminated.


                                       9
<PAGE>

                      DGSE COMPANIES, Inc. and Subsidiaries

Significant Accounting Policies

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).

Accounts Receivable.  We record trade receivables when revenue is recognized. No
product has been consigned to customers.  Our allowance for doubtful accounts is
primarily  determined by review of specific  trade  receivables.  Those accounts
that are doubtful of collection are included in the allowance.  These provisions
are reviewed to determine the adequacy of the  allowance for doubtful  accounts.
Trade  receivables  are  charged off when there is  certainty  as to their being
uncollectible.  Trade receivables are considered delinquent when payment has not
been made within contract terms.

Revenue  Recognition.  Sales  revenue  consists of direct sales to customers for
jewelry,  rare coins and bullion.  Sales are  recognized  when title and risk of
loss have  passed to the  customer,  which is  generally  at the  point-of-sale.
Provisions  for discounts and rebates to customers and returns,  bad debts,  and
other adjustments are provided in the period the related sales are recorded.

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
plus accrued  interest (or the fair value of the  collateral,  if lower) becomes
the  carrying  value  of  the  forfeited  collateral  ("inventories")  which  is
recovered through sales to customers.

Results of Operations

Nine Months Ended September 30, 2006 compared to Nine Months Ended September 30,
2005

Sales increased by $11,094,848, or 54.2%, during the nine months ended September
30,  2006 as compared  to 2005.  This  increase  was  primarily  the result of a
$7,581,000,  or 136.9%,  increase  in bullion  sales,  a  $1,095,000,  or 11.2%,
increase in retail jewelry sales,  a $813,000,  or 27.4%,  increase in wholesale
jewelry  sales and a  $1,764,000,  or 93.1%,  increase  in the sale of rare coin
products.  The increase in both retail and  wholesale  jewelry sales were due to
higher gold prices and improved  activity  from our  customers.  The increase in
rare coin and  bullion  sales were the  result of an  increase  in gold  prices,
increased  volatility in the bullion market and the Company's increased focus on
these segments of our business. Consumer loan service fees increased $48,073, or
18.7%,  in 2006 due to an  increase  in pay day  loans  outstanding  during  the
period.  Cost of goods as a percentage of sales  increased from 81.1% in 2005 to
85.6 % in 2006.  This  increase was due to the increase in rare coin and bullion
revenue as a percentage of total sales.

Selling,  general and administrative  expenses increased by $436,111,  or 13.3%,
during the nine months  ended  September  30,  2006 as  compared  to 2005.  This
increase was primarily  due to an increase in staff and payroll  related cost of
$256,000, higher advertising cost of $105,000 and $75,000 in cost related to the
new pay day loan stores.  The increase in staff was necessary to maintain a high
level of customer  service as sales  increased  and the opening of three pay day
loan stores.  The increase in advertising  was necessary in order to attract new
customers  in our local  markets.  Depreciation  and  amortization  decreased by
$29,527, or 21.4%, during 2006 due to certain assets becoming fully depreciated.

Income taxes are provided at the corporate rate of 34% for both 2006 and 2005.

Three Months Ended  September 30, 2006 compared to Three Months Ended  September
30, 2005

Sales increased by $2,368,207, or 33.2%, during the three months ended September
30,  2006 as compared  to 2005.  This  increase  was  primarily  the result of a
$1,563,000,  or 79.5%, increase in bullion sales, a $457,000, or 45.0%, increase
in wholesale  jewelry  sales and a $409,000,  or 55.9%,  increase in the sale of
rare coin products  during the three months ended September 30, 2006 as compared
to 2005. The overall increase in jewelry sales was due to higher gold prices and
improved  activity  from our  customers.  The  increase in rare coin and bullion
sales were the result of an increase in gold prices, increased volatility in the
bullion  market  and the  Company's  increased  focus on these  segments  of our
business. Consumer loan service fees increased $25,886, or 30.3%, in 2006 due to
an increase in pay day loans outstanding  during the period.  Cost of goods as a
percentage of sales increased from 81.9% in 2005 to 85.1% in 2006. This increase
was due to the  increase in rare coin and  bullion  revenue as a  percentage  of
total sales.

Selling,  general and administrative  expenses increased by $126,673,  or 11.3%,
during the three  months  ended  September  30, 2006 as  compared to 2005.  This
increase was primarily  due to an increase in staff and payroll  related cost of
$42,000,  higher  advertising cost of $42,000 and $13,000 in cost related to the
new pay day loan stores.  The increase in staff was necessary to maintain a high
level of customer  service as sales  increased  and the opening of three pay day
loan stores.  The increase in advertising  was necessary in order to attract new


                                       10
<PAGE>
<TABLE>
<CAPTION>

                      DGSE COMPANIES, Inc. and Subsidiaries

customers  in our local  markets.  Depreciation  and  amortization  decreased by
$16,671,  or 36.1%, during the three months ended September 30, 2006 as compared
to 2005, due to certain assets becoming fully depreciated.

Income taxes are provided at the corporate rate of 34% for both 2006 and 2005.

Historically,  changes  in the  market  prices  of  precious  metals  have had a
significant  impact  on both  revenues  and cost of  sales in the rare  coin and
precious  metals  segments in which we operate.  It is expected  that due to the
commodity  nature of these  products,  future price changes for precious  metals
will continue to be indicative of our  performance in these  business  segments.
Changes in sales and cost of sales in the retail and wholesale  jewelry segments
are primarily  influenced by the national economic  environment.  It is expected
that this trend will continue in the future due to the nature of these product.

Liquidity and Capital Resources

We expect capital  expenditures to total approximately  $100,000 during the next
twelve months.  It is anticipated  that these  expenditures  will be funded from
working capital and its credit facility.  As of September 30, 2006 there were no
commitments outstanding for capital expenditures.

In the event of significant growth in retail and or wholesale jewelry sales, the
demand for additional working capital will expand due to a related need to stock
additional  jewelry  inventory and increases in wholesale  accounts  receivable.
Historically, vendors have offered us extended payment terms to finance the need
for jewelry  inventory growth and our management  believes that we will continue
to  do so  in  the  future.  Any  significant  increase  in  wholesale  accounts
receivable will be financed under our bank credit facility.

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

From time to time, we have adjusted our 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 our  investments  in  marketable  securities  may be
liquidated in order to meet unforeseen working capital requirements.

On July 17, 2006 we announced  that we had  executed a  definitive  agreement to
acquire all of the issued and outstanding stock of Superior Galleries, Inc. in a
transaction  valued at $  14,000,000.  As of September 30, 2006 we have incurred
$265,000  in legal and other  costs  related to this  acquisition.  We expect to
incur  an  additional  $150,000  in  legal  and  other  costs  related  to  this
transaction before closing. For additional information on liquidity see our Form
8-K filed on July 17, 2006.

                                                            Payments due by period
Contractual Cash Obligations             Total         2006       2007 - 2008   2009 - 2010   Thereafter
----------------------------          -----------   -----------   -----------   -----------   -----------
<S>                                   <C>           <C>           <C>           <C>           <C>
  Notes payable ...................   $   194,183   $   194,183   $      --     $      --     $      --
  Long-term debt and capital leases     4,255,401        74,037     3,845,922       145,257       190,185
  Federal income taxes ............       210,584       210,584          --            --            --
  Operating Leases ................       354,259        42,648       238,412        73,199          --
                                      -----------   -----------   -----------   -----------   -----------
  Total ...........................   $ 5,014,427   $   521,452   $ 4,084,334   $   218,456   $   190,185
</TABLE>

In addition,  we estimate  that we will pay  approximately  $320,000 in interest
during the next twelve months.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk.

The   following   discussion   about  our  market  risk   disclosures   involves
forward-looking  statements.  Actual results could differ  materially from those
projected  in the  forward-looking  statements.  We are  exposed to market  risk
related to changes in interest  rates and gold  values.  We are also  exposed to
regulatory  risk in  relation  to its  payday  loans.  We do not use  derivative
financial instruments.


                                       11
<PAGE>

                      DGSE COMPANIES, Inc. and Subsidiaries

Our  earnings and  financial  position may be affected by changes in gold values
and the  resulting  impact on pawn  lending and jewelry  sales.  The proceeds of
scrap  sales  and our  ability  to  liquidate  excess  jewelry  inventory  at an
acceptable  margin are dependent  upon gold values.  The impact on our financial
position  and  results of  operations  of a  hypothetical  change in gold values
cannot be reasonably estimated.

Item 4.   Controls and Procedures.

Evaluation of disclosure  controls and  procedures.  An evaluation was performed
under the supervision and with the  participation  of our management,  including
our Chief Executive Officer and Chief Financial Officer, of the effectiveness of
the design and operation of our  disclosure  controls and procedures (as defined
in Rule 13a-15(e)  under the  Securities  Exchange Act of 1934) as of the end of
the  period  covered by this  quarterly  report.  Our  disclosure  controls  and
procedures are designed to ensure that  information  required to be disclosed by
us in the reports we file or submit under the  Securities  Exchange Act of 1934,
as amended, is (1) recorded, processed,  summarized and reported within the time
periods  specified in the Securities and Exchange  Commission's  rules and forms
and (2)  accumulated and  communicated  to our  management,  including our Chief
Executive  Officer,  to allow timely decisions  regarding  required  disclosure.
Based on that evaluation, our management,  including our Chief Executive Officer
and our Chief  Financial  Officer,  concluded that our  disclosure  controls and
procedures were effective.

Changes in internal  controls.  For the quarter ended September 30, 2006,  there
have been no  changes in our  internal  control  over  financial  reporting  (as
defined in Rule 13a-15(f)  under the Securities  Exchange Act of 1934) that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

PART II- OTHER INFORMATION

Item 3.   Legal Proceedings

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

Item 5.   Other Information.

On July 17,  2006,  we  announced  that we executed a  definitive  agreement  to
acquire all of the issued and outstanding stock of Superior Galleries, Inc. in a
transaction valued at $ 14,000,000.  For additional  information  regarding this
transaction reference is made in our Form 8-K filed on July 17, 2006.

Item 6.   Exhibits and Reports on Form 8-K.

Exhibits:

  31.1    Certificate   of  L.S.   Smith   pursuant   to  Section   302  of  the
          Sarbanes-Oxley Act of 2002, Chief Executive Officer.

  31.2    Certificate   of  John   Benson   pursuant   to  Section  302  of  the
          Sarbanes-Oxley Act of 2002, Chief Financial Officer .

  32.1    Certificate   of  L.S.   Smith   pursuant   to  Section   906  of  the
          Sarbanes-Oxley Act of 2002, Chief Executive Officer.

  32.2    Certificate   of  John   Benson   pursuant   to  Section  906  of  the
          Sarbanes-Oxley Act of 2002, Chief Financial Officer.

Reports on Form 8-K :

          None


                                       12
<PAGE>

                                   SIGNATURES


     In accordance with Section 13 and 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: October 27, 2006
   -------------------------
   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: October 27, 2006
   -------------------------
   L. S. Smith
   Chairman of the Board,
   Chief Executive Officer and
   Secretary


By:/s/ W. H. Oyster                                 Dated: October 27, 2006
   -------------------------
   W. H. Oyster
   Director, President and
   Chief Operating Officer


By:/s/ John Benson                                  Dated: October 27, 2006
   -------------------------
   John Benson
   Chief Financial Officer
   (Principal Accounting Officer)