UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549




Form 10-Q


(Mark
One)


þ
            
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
the quarterly period ended March 31, 2009


or


o
            
            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.
      Employerincorporation
      or organization)
              Identification
      No.)





11311
Reeder Road


Dallas,
Texas 75229


(972) 484-3662


(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.


YESþ NO ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):




Large
      accelerated filer  ̈
              Accelerated
      filer  ̈Non-accelerated
      filer  ̈
              Smaller
      reporting company  þ


(Do not
check if a smaller reporting company)





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


YESo NOþ





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of May 12, 2009:





Class
              
              OutstandingCommon
      stock, $.01 par value per share
              
              9,833,635








TABLE OF
CONTENTS





Page No.PART
      I.
                                          FINANCIAL
      INFORMATIONItem
      1.
                                          Consolidated
      Financial Statements.Consolidated
      Balance Sheets as of March 31, 2009 and December 31, 2008
                                          1Consolidated
      Statements of Operations for the three months ended March 31, 2009 and
      2008
                                          2Consolidated
      Statements of Cash Flows for the three months ended March 31, 2009 and
      2008
                                          3Notes
      to Consolidated Financial Statements
                                          4Item
      2.
                                          Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.
                                          9Item
      3.
                                          Quantitative
      and Qualitative Disclosures About Market Risk.
                                          14Item
      4.
                                          Controls
      and Procedures.
                                          14PART
      II.
                                          OTHER
      INFORMATIONItem
      3.
                                          Legal
      Proceedings.
                                          15Item
      5.
                                          Other
      Information.
                                          15Item
      6.
                                          Exhibits.
                                          15SIGNATURES


i


DGSE
Companies, Inc. and Subsidiaries





PART
I.   FINANCIAL INFORMATION





Item
1. Consolidated Financial Statements.





CONSOLIDATED
BALANCE SHEETS





March 31,
                            2009
                          
                          
                          December 31,
                            2008UnauditedASSETSCurrent
      Assets:Cash
      and cash equivalents
                          
                          $
                          919,313
                          
                          
                          $
                          244,429Trade
      receivables
                          
                          
                          1,805,638
                          
                          
                          
                          2,326,337Inventories
                          
                          
                          16,697,062
                          
                          
                          
                          16,052,833Prepaid
      expenses
                          
                          
                          530,481
                          
                          
                          
                          533,318Prepaid
      federal income tax
                          
                          
                          639,372
                          
                          
                          
                          639,372Current
      assets of discontinued operations
                          
                          
                          506,283
                          
                          
                          
                          900,306Total
      current assets
                          
                          
                          21,098,149
                          
                          
                          
                          20,696,595Property
      and equipment, net
                          
                          
                          4,913,704
                          
                          
                          
                          4,868,306Deferred
      income taxes
                          
                          
                          1,857,901
                          
                          
                          
                          1,908,032Goodwill
                          
                          
                          837,117
                          
                          
                          
                          837,117Intangible
      assets
                          
                          
                          2,464,006
                          
                          
                          
                          2,492,673Other
      assets
                          
                          
                          186,684
                          
                          
                          
                          235,917Non-current
      assets of discontinued operations
                          
                          
                          305,275
                          
                          
                          
                          305,275$
                          31,662,836
                          
                          
                          $
                          31,343,915LIABILITIESCurrent
      Liabilities:Notes
      payable
                          
                          $
                          57,471
                          
                          
                          $
                          191,078Current
      maturities of long-term debt
                          
                          
                          399,992
                          
                          
                          
                          599,972Line
      of credit
                          
                          
                          3,595,000
                          
                          
                          
                          3,595,000Accounts
      payable – trade
                          
                          
                          413,128
                          
                          
                          
                          734,906Accrued
      expenses
                          
                          
                          491,069
                          
                          
                          
                          647,536Customer
      deposits
                          
                          
                          2,017,638
                          
                          
                          
                          1,230,991Current
      liabilities of discontinued operations
                          
                          
                          67,354
                          
                          
                          
                          33,144Total
      current liabilities
                          
                          
                          7,041,652
                          
                          
                          
                          7,032,627Long-term
      debt, less current maturities
                          
                          
                          11,796,147
                          
                          
                          
                          11,715,76518,837,799
                          
                          
                          
                          18,748,392STOCKHOLDERS’
      EQUITYCommon
      stock, $.01 par value; 30,000,000 shares authorized; 9,833,635 and
      9,833,635 shares issued and outstanding at the end of each period in 2009
      and 2008, respectively
                          
                          
                          98,337
                          
                          
                          
                          98,337Additional
      paid-in capital
                          
                          
                          18,541,662
                          
                          
                          
                          18,541,662Retained
      deficit
                          
                          
                          (5,814,962
                          )
                          
                          
                          (6,044,476
                          )12,825,037
                          
                          
                          
                          12,595,523$
                          31,662,836
                          
                          
                          $
                          31,343,915





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


1





DGSE
Companies, Inc. and Subsidiaries





CONSOLIDATED
STATEMENTS OF OPERATIONS





Three months ended March 31,2009
                    
                    
                    2008UnauditedRevenueSales
                    
                    $
                    25,740,439
                    
                    
                    $
                    32,049,884Consumer
      loan service charges
                    
                    
                    159,049
                    
                    
                    
                    124,32025,899,488
                    
                    
                    
                    32,174,204Costs
      and expensesCost
      of goods sold
                    
                    
                    22,462,329
                    
                    
                    
                    28,420,016Selling,
      general and administrative expenses
                    
                    
                    2,533,767
                    
                    
                    
                    2,635,212Depreciation
      and amortization
                    
                    
                    59,351
                    
                    
                    
                    96,03325,055,447
                    
                    
                    
                    31,151,261Operating
      income
                    
                    
                    844,041
                    
                    
                    
                    1,022,943Other
      expense (income)Other
      income
                    
                    
                    —
                    
                    
                    
                    (2
                    )Interest
      expense
                    
                    
                    147,084
                    
                    
                    
                    170,439Earnings
      before income taxes
                    
                    
                    696,957
                    
                    
                    
                    852,506Income
      tax expense
                    
                    
                    61,119
                    
                    
                    
                    303,563Net
      earnings from continuing operations
                    
                    
                    635,838
                    
                    
                    
                    548,943Discontinued
      operations:Loss
      from discontinued operations (less applicable income tax benefit of
      $39,271 and $36,930, respectively)
                    
                    
                    406,322
                    
                    
                    
                    71,688Net
      earnings
                    
                    $
                    229,516
                    
                    
                    $
                    477,255Earnings
      per common share – basic and dilutedFrom
      continuing operations
                    
                    $
                    0.06
                    
                    
                    $
                    0.06From
      discontinued operations
                    
                    $
                    (0.04
                    )
                    
                    $
                    (0.01
                    )Net
      earnings per common share
                    
                    $
                    0.02
                    
                    
                    $
                    0.05Weighted
      average number of common sharesBasic
                    
                    
                    9,833,635
                    
                    
                    
                    9,498,729Diluted
                    
                    
                    9,833,635
                    
                    
                    
                    10,344,363





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


2




DGSE
COMPANIES, Inc. and Subsidiaries





CONSOLIDATED
STATEMENTS OF CASH FLOWS





Three months ended March 31,2009
                            
                            
                            2008UnauditedCash
      flows from operating activitiesNet
      earnings
                            
                            $
                            229,516
                            
                            
                            $
                            477,255Adjustments
      to reconcile net earnings to net cash provided by operating
      activitiesDepreciation
      and amortization
                            
                            
                            59,351
                            
                            
                            
                            109,836Deferred
      income taxes
                            
                            
                            50,131
                            
                            
                            
                            43,289Gain
      on marketable securities
                            
                            
                            —
                            
                            
                            
                            (15,300
                            )(Increase)
      decrease in operating assets and liabilitiesTrade
      receivables
                            
                            
                            924,861
                            
                            
                            
                            1,266,568Inventories
                            
                            
                            (644,229
                            )
                            
                            
                            (2,608,389
                            )Prepaid
      expenses and other current assets
                            
                            
                            2,837
                            
                            
                            
                            (198,117
                            )Accounts
      payable and accrued expenses
                            
                            
                            (548,977
                            )
                            
                            
                            (628,160
                            )Customer
      deposits
                            
                            
                            786,647
                            
                            
                            
                            1,643,247Federal
      income taxes payable
                            
                            
                            —
                            
                            
                            
                            228,546Other
      assets
                            
                            
                            49,233
                            
                            
                            
                            17,822Net
      cash provided by operating activities
                            
                            
                            909,370
                            
                            
                            
                            336,597Cash
      flows from investing activitiesPawn
      loans made
                            
                            
                            (348,699
                            )
                            
                            
                            (317,580
                            )Pawn
      loans repaid
                            
                            
                            189,649
                            
                            
                            
                            160,906Recovery
      of pawn loan principal through sale of forfeited
collateral
                            
                            
                            148,911
                            
                            
                            
                            168,888Purchase
      of property and equipment
                            
                            
                            (104,749
                            )
                            
                            
                            (285,888
                            )Net
      cash used in investing activities
                            
                            
                            (114,888
                            )
                            
                            
                            (273,674
                            )Cash
      flows from financing activitiesProceeds
      from line of credit
                            
                            
                            —
                            
                            
                            
                            750,000Payments
      of capital lease
                            
                            
                            —
                            
                            
                            
                            (1,986
                            )Repayments
      of notes payable
                            
                            
                            (119,598
                            )
                            
                            
                            (635,210
                            )Net
      cash provided by (used in) financing activities
                            
                            
                            (119,598
                            )
                            
                            
                            112,804NET
      INCREASE IN CASH AND
    CASH    EQUIVALENTS
                            
                            
                            674,884
                            
                            
                            
                            175,727Cash
      and cash equivalents at beginning of period
                            
                            
                            244,429
                            
                            
                            
                            536,548Cash
      and cash equivalents at end of period
                            
                            $
                            919,313
                            
                            
                            $
                            712,275





Supplemental
disclosures:





Interest
paid for the three months ended March 31, 2009 and 2008 was $147,084 and
$174,449, respectively.


Income
taxes paid for the three months ended March 31, 2009 and 2008 was $0 and $0,
respectively.





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


3




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., Superior
Galleries, Inc. Superior Precious Metals, Inc., American Gold and Diamond
Exchange, Inc, and Superior Estate Buyers, 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, 2008.  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.





In
December  2008, we decided to discontinue the live auction segment of
our business activities.  This decision was based on the substantial
losses being incurred by this operating segment during 2008.  As a
result, certain sections of the Consolidated Financial Statements and related
notes have been reclassified to present the results of the auction segment
activities as discontinued operations.





(2)   Inventory.





A summary
of inventories is as follows:





March 31, 2009
                  
                  
                  December 31, 2008Jewelry
                  
                  $
                  9,419,846
                  
                  
                  $
                  10,925,247Rare
      coins
                  
                  
                  2,278,368
                  
                  
                  
                  1,827,294Bullion
                  
                  
                  3,686,379
                  
                  
                  
                  1,931,925Scrap
      gold
                  
                  
                  849,891
                  
                  
                  
                  636,843Other
                  
                  
                  462,578
                  
                  
                  
                  731,524Total
                  
                  $
                  16,697,062
                  
                  
                  $
                  16,052,833





(3)   Trade
Receivables.





Pawn
loans receivable in the amount of $316,109 and $306,620 as of March 31, 2009 and
December 31, 2008, respectively, are included in the Consolidated Balance Sheets
caption trade receivables as of these respective dates. The related pawn service
charges receivable in the amount of $100,935 and $89,235 as of March 31, 2009
and December 31, 2008, respectively, are also included in the Consolidated
Balance Sheets caption trade receivables as of these respective
dates.





(4)  Goodwill.





During
the fourth quarter of 2008, we reflected $8,185,443 of goodwill relating to the
acquisition of Superior Galleries. Inc. in May 2007. Under SFAS No. 142, we are
required to undertake an annual impairment test at our year end or when there is
a triggering event. In addition to the annual impairment review, there were a
number of triggering events in the fourth quarter due to the significant
operating losses of Superior and the impact of the economic downturn on
Superior’s operations and the decline in the Company’s share price resulting in
a substantial discount of the market capitalization to tangible net asset value.
An evaluation of the recorded goodwill was undertaken, which considered two
methodologies to determine the fair-value of the entity:





·     A
market capitalization approach, which measure market capitalization at the
measurement date.


·     A
discounted cash flow approach, which entails determining fair value using a
discounted cash flow methodology.  This method requires significant
judgment to estimate the future cash flow and to determine the appropriate
discount rates, growth rates, and other assumptions.


4




DGSE
COMPANIES, Inc. and Subsidiaries





Each of
these methodologies we believe has merit, and resulted in the determination that
goodwill was impaired. Accordingly, to reflect the impairment, we recorded a
non-cash charge of $8,185,443, which eliminated the value of the goodwill
related to Superior.





(5)  Earnings
per share.





A
reconciliation of the earnings and shares of the basic earnings per common share
and diluted earnings per common share for the periods ended March 31, 2009 and
2008 is as follows:





2009
                          
                          
                          2008Three months ended March 31,
                          
                          
                          Three months ended March 31,Net Earnings
                          
                          
                          Shares
                          
                          
                          Per share
                          
                          
                          Net Earnings
                          
                          
                          Shares
                          
                          
                          Per shareBasic
      earnings per common share
                          
                          $
                          229,516
                          
                          
                          
                          9,833,635
                          
                          
                          $
                          0.02
                          
                          
                          $
                          477,255
                          
                          
                          
                          9,498,729
                          
                          
                          $
                          0.05Effect
      of dilutive stock options
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          845,634
                          
                          
                          
                          —Diluted
      earnings per common share
                          
                          $
                          229,516
                          
                          
                          
                          9,833,635
                          
                          
                          $
                          0.02
                          
                          
                          $
                          477,255
                          
                          
                          
                          10,344,363
                          
                          
                          $
                          0.05Earnings
      per common share from continuing operations:
                          
                          2009
                          
                          
                          2008Three
      months ended March 31,
                          
                          
                          Three
      months ended March 31,Net
      Earnings
                          
                          
                          Shares
                          
                          
                          Per
      share
                          
                          
                          Net
      Earnings
                          
                          
                          Shares
                          
                          
                          Per
      shareBasic
      earnings per common share
                          
                          $
                          635,838
                          
                          
                          
                          9,833,635
                          
                          
                          $
                          0.06
                          
                          
                          $
                          548,943
                          
                          
                          
                          9,498,729
                          
                          
                          $
                          0.06Effect
      of dilutive stock options
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          845,634
                          
                          
                          
                          —Diluted
      earnings per common share
                          
                          $
                          635,838
                          
                          
                          
                          9,833,635
                          
                          
                          $
                          0.06
                          
                          
                          $
                          548,943
                          
                          
                          
                          10,344,363
                          
                          
                          $
                          0.06


5




DGSE
COMPANIES, Inc. and Subsidiaries





(6)   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 three months ended
March 31 were as follows:





(In thousands)
                        
                        Retail
                          Jewelry
                        
                        
                        Wholesale
                          Jewelry
                        
                        
                        Precious
                          Metals
                        
                        
                        Rare
                          Coins
                        
                        
                        Discontinued
                          Operations
                        
                        
                        Corporate
                          and Other
                        
                        
                        ConsolidatedRevenues2009
                        
                        $
                        6,550
                        
                        
                        $
                        953
                        
                        
                        $
                        13,694
                        
                        
                        $
                        4,142
                        
                        
                        $
                        —
                        
                        
                        $
                        560
                        
                        
                        $
                        25,8992008
                        
                        
                        6,514
                        
                        
                        
                        1,358
                        
                        
                        
                        16,434
                        
                        
                        
                        7,306
                        
                        
                        
                        —
                        
                        
                        
                        562
                        
                        
                        
                        32,174Net
      earnings (loss)2009
                        
                        
                        161
                        
                        
                        
                        (51
                        )
                        
                        
                        340
                        
                        
                        
                        166
                        
                        
                        
                        (406
                        )
                        
                        
                        20
                        
                        
                        
                        2302008
                        
                        
                        208
                        
                        
                        
                        33
                        
                        
                        
                        404
                        
                        
                        
                        (70
                        )
                        
                        
                        (70
                        )
                        
                        
                        (28
                        )
                        
                        
                        477Identifiable
      assets2009
                        
                        
                        20,880
                        
                        
                        
                        1,719
                        
                        
                        
                        3,710
                        
                        
                        
                        2,278
                        
                        
                        
                        812
                        
                        
                        
                        2,264
                        
                        
                        
                        31,6632008
                        
                        
                        21,056
                        
                        
                        
                        2,074
                        
                        
                        
                        1,383
                        
                        
                        
                        4,544
                        
                        
                        
                        1,147
                        
                        
                        
                        8,430
                        
                        
                        
                        38,634Goodwill2009
                        
                        
                        —
                        
                        
                        
                        837
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        8372008
                        
                        
                        —
                        
                        
                        
                        837
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        8,115
                        
                        
                        
                        8,952Capital
      Expenditures2009
                        
                        
                        105
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        1052008
                        
                        
                        272
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        14
                        
                        
                        
                        —
                        
                        
                        
                        286Depreciation
      and amortization2009
                        
                        
                        26
                        
                        
                        
                        —
                        
                        
                        
                        12
                        
                        
                        
                        12
                        
                        
                        
                        —
                        
                        
                        
                        9
                        
                        
                        
                        592008
                        
                        
                        38
                        
                        
                        
                        —
                        
                        
                        
                        14
                        
                        
                        
                        14
                        
                        
                        
                        —
                        
                        
                        
                        30
                        
                        
                        
                        96


6




DGSE
COMPANIES, Inc. and Subsidiaries





(7)  Stock-based
Compensation.





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.  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).





Stock-based
compensation expense under SFAS No. 123(R) for the months ended March 31, 2009
and 2008, respectively, was $0 and $15,200, relating to employee and director
stock options and our employee stock purchase plan.





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.





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.





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 of March 31, 2009, we have not recorded the tax effects of
employee stock-based compensation and have made no adjustments to the APIC
pool.





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 March 31, 2009.





(8)   Discontinued
Operations.





In
November 2008 we decided to discontinue the live auction segment of the
Company’s business activities. This decision was based on the substantial losses
being incurred by this operating segment during 2008. As a result, the operating
results of the auction segment have been reclassified to discontinued operations
for both 2008 and 2009.  During the first quarter of 2009 and 2008 the
auction segment incurred pretax losses of $445,593 and $108,618,
respectively.





The
following summarizes the carrying amount of assets and liabilities of the
auction segment as of March 31, 2009:





AssetsAccounts
      receivable
                  
                  $
                  506,283Current
      assets
                  
                  $
                  506,283Long-term
      receivable
                  
                  $
                  305,275Total
      assets
                  
                  $
                  811,558LiabilitiesAuctions
      payable
                  
                  $
                  67,354





As a
result, operating results from the auction segment have been reclassified to
discontinued operations for all periods presented.  As of March 31,
2009, there were no operating assets to be disposed of or liabilities to be paid
in completing the disposition of these operations.


7




DGSE
COMPANIES, Inc. and Subsidiaries





(9)  New
Accounting Pronouncements.





In
December 2007, the FASB issued SFAS No. 141 (revised 2007),“Business Combinations”
(“SFAS No. 141(R)”), which establishes principles for how the acquirer
recognizes and measures in the financial statements the identifiable assets
acquired, the liabilities assumed, and any non-controlling interest in the
acquiree. This statement also provides guidance for recognizing and measuring
the goodwill acquired in the business combination and determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. Effective
January 1, 2009, we adopted SFAS No. 141(R).  No
business combinations were completed in the first quarter of 2009. However, to
the extent that future business combinations are material, our adoption of
SFAS No. 141(R) will significantly impact our accounting and reporting
for future acquisitions, principally as a result of (i) expanded
requirements to value acquired assets, liabilities and contingencies at their
fair values; and (ii) the requirement that acquisition-related transaction
and restructuring costs be expensed as incurred rather than capitalized as a
part of the cost of the acquisition.





In April
2008, the FASB issued FASB Staff Position No. 142-3, “Determination of the
Useful Life of Intangible Assets” (“FSP No. 142-3”), which amends the factors
that should be considered when developing renewal or extension assumptions used
to determine the useful life of an intangible asset under Statement of Financial
Accounting Standards No. 142 (“SFAS No. 142”), “Goodwill and Other Intangible
Assets”, in order to improve consistency between SFAS No. 142 and the period of
expected cash flows to measure the fair value of the asset under Statement of
Financial Accounting Standards No. 141 (revised 2007), “Business Combinations”
and other U.S. generally accepted accounting practices.  Effective
January 1, 2009, we adopted FSP No. 142-3. The adoption of FSP No. 142-3 has not
had and is not expected to have a material impact our results of operations
and financial position.





In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS 162”). This statement identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in accordance with GAAP.  With the issuance of this statement,
the FASB concluded that the GAAP hierarchy should be directed toward the entity
and not its auditor, and reside in the accounting literature established by the
FASB as opposed to the American Institute of Certified Public Accountants
(AICPA) Statement on Auditing Standards No. 69, “The Meaning of Present
Fairly in Conformity With Generally Accepted Accounting Principles.” This
statement is effective 60 days following the SEC’s approval of the Public
Company Accounting Oversight Board amendments to AU Section 411, “The
Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles.” The Company has evaluated the new statement and has determined that
it will not have a significant impact on the determination or reporting of its
financial results.


8




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:





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





·       our
ability to manage inventory fluctuations and sales;





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





·       the
results of any unfavorable litigation;





·       interest
rates;





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





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





·       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, 2008.  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 buy
and sell jewelry, bullion products and rare coins.  Our customers
include individual consumer, dealers and institutions throughout the United
States.  In addition, we make collateralized loans to individuals in
the State of Texas.  Our products and services are marketed through
our facilities in Dallas and Euless, Texas; Mt. Pleasant, South Carolina;
Woodland Hills, California and through our internet web sites DGSE.com;
CGDEinc.com; SGBH.com; SuperiorPreciousMetals.com; SuperiorEstateBuyers.com;
USBullionExchange.com; Americangoldandsilverexchange.com; and
FairchildWatches.com.





We
operate eight primary internet sites and over 900 related landing sites on the
World Wide Web.  Through the various sites we operate a virtual store,
real-time auction of rare coin and jewelry products, free quotations of current
prices on all commonly traded precious metal and related products, trading in
precious metals, a mechanism for selling unwanted jewelry, rare coins and
precious metals and wholesale prices and information exclusively for dealers on
pre-owned fine watches. Over 7,500 items are available for sale on our internet
sites including $2,000,000 in diamonds.




Our
wholly-owned subsidiary, National Jewelry Exchange, Inc, (dba National Pawn),
operates two pawn shops in Dallas, Texas. We have focused the subsidiary’s
operations on sales and pawn loans of jewelry products.




In June
2008, we moved Superior Galleries’ operations from Beverly Hills to Woodland
Hills, California.  Superior’s principal line of business is the sale
of rare coins on a retail and wholesale basis. Superior’s retail and wholesale
operations are conducted in virtually every state in the United
States.  Superior also conducted live and internet auctions for
customers seeking to sell their own coins prior to management’s decision to
discontinue the live auction operations.  Superior markets its
services nationwide through broadcast and print media and independent sales
agents, as well as on the internet through third party websites, and through its
own website at SGBH.com.


9




DGSE
COMPANIES, Inc. and Subsidiaries





Americangoldandsilverexchange.com,
the over 900 proprietary Internet sites related to the home page of
Americangoldandsilverexchange.com along with our existing locations in Texas,
California and South Carolina, provide customers from all over the United States
with a seamless and secure way to value and sell gold, silver, rare coins,
jewelry, diamonds and watches.




Superior
Estate Buyers brings our unique expertise in the purchase of gold, silver,
diamonds, rare coins and other collectibles to local markets with a team of
traveling professionals for short-term buying events. During 2008 Superior
Estate Buyers held approximately 24 such buying events.  It is our
expectation that, over time, this activity will be expanded significantly with
the objective of having teams conducting events on a continuous
basis.




Superior
Precious Metals is the retail precious metals arm of DGSE. Professional account
managers provide a convenient way for individuals and companies to buy and sell
precious metals and rare coins. This activity is supported by the internally
developed account management and trading platform created as part of DGSE’s
USBullionExchange.com precious metals system.





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 receivablesare 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.  The Company generates revenue from wholesale and
retail sales of rare coins, precious metals bullion and second-hand jewelry. The
recognition of revenue varies for wholesale and retail transactions and is, in
large part, dependent on the type of payment arrangements made between the
parties. We recognize sales on an F.O.B. shipping point basis.




The
Company sells rare coins to other wholesalers/dealers within its industry on
credit, generally for terms of 14 to 60 days, but in no event greater than one
year. The Company grants credit to new dealers based on extensive credit
evaluations and for existing dealers based on established business relationships
and payment histories. The Company generally does not obtain collateral with
which to secure its accounts receivable when the sale is made to a dealer. The
Company maintains reserves for potential credit losses based on an evaluation of
specific receivables and the Company’s historical experience related to credit
losses.




Revenues
for monetary transactions (i.e., cash and receivables) with dealers are
recognized when the merchandise is shipped to the related dealer.




The
Company also sells rare coins to retail customers on credit, generally for terms
of 30 to 60 days, but in no event greater than one year. The Company grants
credit to retail customers based on extensive credit evaluations and for
existing retail customers based on established business relationships and
payment histories. When a retail customer is granted credit, the Company
generally collects a payment of 25% of the sales price, establishes a payment
schedule for the remaining balance and holds the merchandise as collateral as
security against the customer’s receivable until all amounts due under the
credit arrangement are paid in full. If the customer defaults in the payment of
any amount when due, the Company may declare the customer’s obligation in
default, liquidate the collateral in a commercially reasonable manner using such
proceeds to extinguish the remaining balance and disburse any amount in excess
of the remaining balance to the customer.





Under
this retail arrangement, revenues are recognized when the customer agrees to the
terms of the credit and makes the initial payment. The Company has a
limited-in-duration money back guaranty policy (as discussed
below).




In
limited circumstances, the Company exchanges merchandise for similar merchandise
and/or monetary consideration with both dealers and retail customers, for which
the Company recognizes revenue in accordance with SFAS 153, “Exchanges of Nonmonetary Assets – An
Amendment of APB Opinion No. 29.” When the Company exchanges merchandise
for similar merchandise and there is no monetary component to the exchange, the
Company does not recognize any revenue. Instead, the basis of the merchandise
relinquished becomes the basis of the merchandise received, less any indicated
impairment of value of the merchandise relinquished. When the Company exchanges
merchandise for similar merchandise and there is a monetary component to the
exchange, the Company recognizes revenue to the extent of monetary assets
received and determines the cost of sale based on the ratio of monetary assets
received to monetary and non-monetary assets received multiplied by the cost of
the assets surrendered.


10




DGSE
COMPANIES, Inc. and Subsidiaries




The
Company has a return policy (money-back guarantee). The policy covers retail
transactions involving graded rare coins only. Customers may return graded rare
coins purchased within 7 days of the receipt of the rare coins for a full refund
as long as the rare coins are returned in exactly the same condition as they
were delivered. In the case of rare coin sales on account, customers may cancel
the sale within 7 days of making a commitment to purchase the rare coins. The
receipt of a deposit and a signed purchase order evidences the commitment. Any
customer may return a coin if they can demonstrate that the coin is not
authentic, or there was an error in the description of a graded
coin.




Revenues
from the sale of consigned goods are recognized as commission income on such
sale if the Company is acting as an agent for the consignor. If in the process
of selling consigned goods, the Company makes an irrevocable payment to a
consignor for the full amount due on the consignment and the corresponding
receivable from the buyer(s) has not been collected by the Company at that
payment date, the Company records that payment as a purchase and the sale of the
consigned good(s) to the buyer as revenue as the Company has assumed all
collection risk.




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.





Fair Value Measures.In September
2006, the FASB issued SFAS No. 157, “Fair Value Measures” (“SFAS No. 157”). SFAS
No. 157 defines fair value, establishes a framework for measuring fair value and
enhances disclosures about fair value measures required under other accounting
pronouncements, but does not change existing guidance as to whether or not an
instrument is carried at fair value. SFAS No. 157 is effective for fiscal years
beginning after  November 15, 2007.  Effective January 1,
2008, the Company has adopted the provisions of SFAS 157.




SFAS No.
157 emphasizes that fair value is a market-based measurement, not an
entity-specific measurement. Therefore, a fair value measurement should be
determined based on the assumptions that market participants would use in
pricing the asset or liability. As a basis for considering market participant
assumptions in fair value measurements, SFAS No. 157 establishes a fair value
hierarchy that distinguishes between market participant assumptions based on
market data obtained from sources independent of the reporting entity
(observable inputs that are classified within Levels 1 and 2 of the hierarchy)
and the reporting entity's own assumptions about market participant assumptions
(unobservable inputs classified within Level 3 of the hierarchy).




Level 1
inputs utilize quoted prices (unadjusted) in active markets for identical assets
or liabilities that we have the ability to access. Level 2 inputs are inputs
other than quoted prices included in Level 1 that are observable for the asset
or liability, either directly or indirectly. Level 2 inputs may include quoted
prices for similar assets and liabilities in active markets, as well as inputs
that are observable for the asset or liability (other than quoted prices), such
as interest rates, foreign exchange rates, and yield curves that are observable
at commonly quoted intervals. Level 3 inputs are unobservable inputs for the
asset or liability, which are typically based on an entity's own assumptions, as
there is little, if any, related market activity. In instances where the
determination of the fair value measurement is based on inputs from different
levels of the fair value hierarchy, the level in the fair value hierarchy within
which the entire fair value measurement falls is based on the lowest level input
that is significant to the fair value measurement in its entirety. Our
assessment of the significance of a particular input to the fair value
measurement in its entirety requires judgment, and considers factors specific to
the asset or liability. The adoption did not have any financial impact on the
Company’s results of operations and financial position.


11




DGSE
COMPANIES, Inc. and Subsidiaries





Results
of Operations





Three
Months Ended March 31, 2009 compared to Three Months Ended March 31,
2008





Sales
decreased by $6,275,000 or 19.5%, during the three months ended March 31, 2009
as compared to 2008.  This decrease was primarily the result of a
$3,164,000, or 43.3%, decrease in rare coin sales, a $2,740,000, or 16.7%,
decrease in the sale of precious metal products, and $405,000, or 29.8%,
decrease in our wholesale jewelry sales during the first quarter of 2009 as
compared to 2008.  The decreases in precious metals, rare coin and
jewelry sales were due to a less volatile market and lower gold prices. The
decrease in wholesale jewelry sales was due to the sluggish retail
environment.  Consumer loan service fees increased $35,000, or 27.9%,
in the first quarter of 2009 as compared to the first quarter of
2008.  This increase is primarily attributable to the second pawn
location we opened in November 2007 as well as increased loan activity in our
initial location.  Cost of goods as a percentage of sales decreased
from 88.7% in 2008 to 87.3% in 2009.  This decrease was due to the
decrease in rare coin and precious metals revenue as a percentage of total
sales.





Selling,
general and administrative expenses decreased by $101,000, or 3.8%, during the
three months ended March 31, 2009 as compared to 2008. This decrease was
primarily due to the discontinued auction operations of Superior Galleries that
occurred during the fourth quarter of 2008.  Depreciation and
amortization decreased by $36,682, or 38.2%, during the first quarter of 2009
due to certain assets reaching full depreciation during 2008. The decrease in
interest expense was due to a lower prime rate.





Income
taxes are provided at the rate of 34.00 % and 35.61% for 2009 and 2008,
respectively.





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 $200,000 during the next twelve
months.  It is anticipated that these expenditures will be funded from
working capital and our credit facility.  As of March 31, 2008 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
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.





In
December 2005, we entered into a revolving credit facility with Texas
Capital Bank, N.A., which currently permits borrowings up to a maximum principal
amount of $4,300,000 and has a maturity date of June 22, 2009.  Borrowings
under the revolving credit facility are collateralized by a general security
interest in substantially all of our assets (other than the assets of Superior).
As of March 31, 2009, approximately $4,300,000 was outstanding under the
term loan and revolving credit facility.  If we were to default under the
terms and conditions of the revolving credit facility, Texas Capital Bank would
have the right to accelerate any indebtedness outstanding and foreclose on our
assets in order to satisfy our indebtedness. Such a foreclosure could have a
material adverse effect on our business, liquidity, results of operations and
financial position.


12




DGSE
COMPANIES, Inc. and Subsidiaries





The
covenants associated with our credit facility with Texas Capital Bank, N.A.
exclude Superior Galleries  are as follows:





As of March 31, 2009
                  
                  Requirement
                  
                  Actual calculationMinimum
      tangible net worth
                  
                  6,500,000
                  
                  12,052,694Maximum
      total liabilities to tangible net worth
                  
                  Not
      to exceed 1.50
                  
                  .62Minimum
      debt service coverage
                  
                  Must
      be greater than 1.35
                  
                  2.30





Upon the
consummation of our acquisition of Superior, and after the exchange by Stanford
of $8.4 million of Superior debt for shares of Superior common stock, Superior
amended and restated its credit facility with Stanford. The amended and restated
commercial loan and security agreement, which we refer to as the loan agreement,
decreased the available credit line from $19.89 million to $11.5 million,
reflecting the $8.4 million debt exchange. Interest on the outstanding principal
balance will continue to accrue at the prime rate, as reported in the Wall
Street Journal or, during an event of default, at a rate 5% greater than the
prime rate as so reported.





Loan
proceeds can only be used for customer loans inventory purchases and receivables
consistent with specified loan policies and procedures and for permitted
inter-company transactions. Permitted inter-company transactions are loans or
dividends paid to us or our other subsidiaries. We guaranteed the repayment of
these permitted inter-company transactions pursuant to a secured subordinated
guaranty in favor of Stanford.  In connection with the secured
guarantee, Stanford and Texas Capital Bank, N.A., our primary lender, entered
into an intercreditor agreement with us, and we entered into a subordination
agreement with Superior, both of which subordinate Stanford's security interests
and repayment rights to those of Texas Capital Bank.  As of March 31,
2009, approximately $9.2 million was outstanding under this credit facility
and there were no intercompany transactions outstanding.





This
credit facility matures on May 1, 2011, provided that in case any of several
customary events of default occurs, Stanford may declare the entire principal
amount of both loans due immediately and take possession and dispose of the
collateral described below. An event of default includes, among others, the
following events: failure to make a payment when due under the loan agreement;
breach of a covenant in the loan agreement or any related agreement; a
representation or warranty made in the loan agreement or related agreements is
materially incorrect; a default in repayment of borrowed money to any person; a
material breach or default under any material contract; certain bankruptcy or
insolvency events; and a default under a third-party loan.  Superior
is obligated to repay the first revolving loan from the proceeds of the
inventory or other collateral purchased with the proceeds of the
loan.





The loans
are secured by a first priority security interest in substantially all of
Superior’s assets, including inventory, accounts receivable, promissory notes,
books and records and insurance policies, and the proceeds of the
foregoing.  In addition, pursuant to the limited secured guaranty and
intercreditor arrangements described above, Stanford would have a second-order
security interest in all of our accounts and inventory to the extent of
intercompany transactions.




The loan
agreement includes a number of customary covenants applicable to Superior,
including, among others: punctual payments of principal and interest under the
credit facility; prompt payment of taxes, leases and other indebtedness;
maintenance of corporate existence, qualifications, licenses, intellectual
property rights, property and assets; maintenance of satisfactory insurance;
preparation and delivery of financial statements for us and separately for
Superior in accordance with generally accepted accounting principles, tax
returns and other financial information; inspection of offices and collateral;
notice of certain events and changes; use of proceeds; notice of governmental
orders which may have a material adverse effect, SEC filings and stockholder
communications; maintenance of property and collateral; and payment of Stanford
expenses.




In
addition, Superior has agreed to a number of negative covenants in the loan
agreement, including, among others, covenants not to: create or suffer a lien or
other encumbrance on any collateral, subject to customary exceptions; incur,
guarantee or otherwise become liable for any indebtedness, subject to customary
exceptions; acquire indebtedness of another person, subject to customary
exceptions and permitted inter-company transactions; issue or acquire any shares
of its capital stock; pay dividends other than permitted inter-company
transactions or specified quarterly dividends, or directors’ fees; sell or
abandon any collateral except in the ordinary course of business or consolidate
or merge with another entity; enter into affiliate transactions other than in
the ordinary course of business on fair terms or permitted inter-company
transactions; create or participate in any partnership or joint venture; engage
in a new line of business; pay principal or interest on subordinate debt except
as authorized by the credit facility; or make capital expenditures in excess of
$100,000 per fiscal year


13




DGSE
COMPANIES, Inc. and Subsidiaries




We have
been informed that on February 19, 2009, a US district court placed SIBL under
the supervision of a receiver and that the court enjoined SIBL's creditors and
other persons from taking certain actions related to SIBL or its assets. 
In addition, on the same date, Antiguan Financial Services Regulatory Commission
appointed a Receiver for Stanford International Bank Ltd. This action was
subsequently ratified by the High Court of Justice in Antigua and
Barbuda.  As a result of SIBL's current status, we do not believe that
Superior will be able to borrow additional  funds under either revolving
loan, including any amounts Superior is obligated to repay to SIBL pursuant to
the repayment provisions applicable to the first revolving
note.   We believe that certain terms of agreements entered into
by us, Superior and/or SIBL and its affiliates in connection with our
acquisition of Superior have been breached by SIBL or its affiliates, and we are
evaluating available remedies, including but not limited to damages from
responsible parties. While Superior does not currently require additional funds
under the SIBL credit facility, should the need arise and Superior is unable to
replace this credit facility the operations and performance of Superior could be
materially adversely affected.





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.





Payments due by periodContractual Cash Obligations
                    
                    Total
                    
                    
                    2009
                    
                    
                    
                    2010 - 2011
                    
                    
                    
                    2012 – 2013
                    
                    
                    ThereafterNotes
      payable
                    
                    $
                    57,471
                    
                    
                    $
                    57,471
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    —Long-term
      debt and capital leases
                    
                    
                    15,791,139
                    
                    
                    
                    3,994,992
                    
                    
                    
                    9,403,271
                    
                    
                    
                    469,381
                    
                    
                    
                    1,923,495Operating
      Leases
                    
                    
                    2,492,978
                    
                    
                    
                    498,736
                    
                    
                    
                    1,237,026
                    
                    
                    
                    757,216
                    
                    
                    
                    —Total
                    
                    $
                    18,341,588
                    
                    
                    $
                    4,551,199
                    
                    
                    $
                    10,640,297
                    
                    
                    $
                    1,226,597
                    
                    
                    $
                    1,923,495





In
addition, we estimate that we will pay approximately $950,000 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 pawn loans.  We do not use derivative financial
instruments.





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 March 31, 2009, 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.


14




DGSE
COMPANIES, Inc. and Subsidiaries





PART
II- OTHER INFORMATION





Item
3. Legal Proceedings





We may,
from time to time, be involved in various claims, lawsuits, disputes with third
parties, actions involving allegations of discrimination, or breach of contract
actions incidental to the operation of its business.  Except as set
forth above, we are not currently involved in any such litigation which we
believe could have a material adverse effect on our financial condition or
results of operations, liquidity or cash flows.





Item
5. Other Information.





None.





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





Exhibits:





Exhibit
                                  
                                  
                                  
                                  Filed
                                  
                                  Incorporated
                                  
                                  
                                  
                                  Date Filed
                                  
                                  ExhibitNo.
                                  
                                  Description
                                  
                                  Herein
                                  
                                  by Reference
                                  
                                  Form
                                  
                                  with SEC
                                  
                                  No.2.1
                                  
                                  Amended
      and Restated Agreement and Plan of Merger and Reorganization, dated as of
      January 6, 2007
                                  
                                  
                                  
                                  ×
                                  
                                  8-K
                                  
                                  January 9,
      2007
                                  
                                  2.12.2
                                  
                                  Limited
      Joinder Agreement, dated as of January 6, 2007
                                  
                                  
                                  
                                  ×
                                  
                                  8-K
                                  
                                  January 9,
      2007
                                  
                                  2.93.1
                                  
                                  Articles
      of Incorporation dated September 17, 1965
                                  
                                  
                                  
                                  ×
                                  
                                  8-A12G
                                  
                                  June 23,
      1999
                                  
                                  3.13.2
                                  
                                  Certificate
      of Amendment to Articles of Incorporation, dated October 14,
      1981
                                  
                                  
                                  
                                  ×
                                  
                                  8-A12G
                                  
                                  June 23,
      1999
                                  
                                  3.23.3
                                  
                                  Certificate
      of Resolution, dated October 14, 1981
                                  
                                  
                                  
                                  ×
                                  
                                  8-A12G
                                  
                                  June 23,
      1999
                                  
                                  3.33.4
                                  
                                  Certificate
      of Amendment to Articles of Incorporation , dated July 15,
      1986
                                  
                                  
                                  
                                  ×
                                  
                                  8-A12G
                                  
                                  June 23,
      1999
                                  
                                  3.43.5
                                  
                                  Certificate
      of Amendment to Articles of Incorporation, dated August 23,
      1998
                                  
                                  
                                  
                                  ×
                                  
                                  8-A12G
                                  
                                  June 23,
      1999
                                  
                                  3.53.6
                                  
                                  Certificate
      of Amendment to Articles of Incorporation, dated June 26,
      1992
                                  
                                  
                                  
                                  ×
                                  
                                  8-A12G
                                  
                                  June 23,
      1999
                                  
                                  3.6


15




DGSE
COMPANIES, Inc. and Subsidiaries





3.7
                  
                  Certificate
      of Amendment to Articles of Incorporation, dated June 26,
      2001
                  
                  
                  
                  ×
                  
                  8-K
                  
                  July 3,
      2001
                  
                  1.03.8
                  
                  Certificate
      of Amendment to Articles of Incorporation, dated May 22,
    2007
                  
                  
                  
                  x
                  
                  8-K
                  
                  May
      31, 2007
                  
                  3.13.9
                  
                  By-laws,
      dated March 2, 1992
                  
                  
                  
                  ×
                  
                  8-A12G
                  
                  June 23,
      1999
                  
                  3.74.1
                  
                  Specimen
      Common Stock Certificate
                  
                  
                  
                  ×
                  
                  S-4
                  
                  January 6,
      2007
                  
                  4.110.1
                  
                  Renewal,
      Extension And Modification Agreement dated January 28, 1994, by and among
      DGSE Corporation and Michael E. Hall And Marian E. Hall
                  
                  
                  
                  ×
                  
                  10-KSB
                  
                  March
      1995
                  
                  10.210.2
                  
                  Lease
      Agreement dated June 2, 2000 by and between SND Properties and
      Charleston Gold and Diamond Exchange, Inc.
                  
                  
                  
                  ×
                  
                  10-KSB
                  
                  March 29,
      2001
                  
                  10.110.3
                  
                  Lease
      agreement dated October 5, 2004 by and between Beltline Denton Road
      Associates and Dallas Gold & Silver Exchange
                  
                  
                  
                  ×
                  
                  10-K
                  
                  April 15,
      2005
                  
                  10.210.4
                  
                  Lease
      agreement dated December 1, 2004 by and between Stone Lewis Properties and
      Dallas Gold & Silver Exchange
                  
                  
                  
                  ×
                  
                  10-K
                  
                  April 15,
      2005
                  
                  10.310.5
                  
                  Lease
      agreement dated November 18, 2004 by and between Hinkle Income Properties
      LLC and American Pay Day Centers, Inc.
                  
                  
                  
                  ×
                  
                  10-K
                  
                  April 15,
      2005
                  
                  10.410.6
                  
                  Lease
      Agreement dated January 17, 2005 by and between Belle-Hall Development
      Phase III Limited Partnership and DGSE Companies, Inc.
                  
                  
                  
                  ×
                  
                  S-4
                  
                  January 6,
      2007
                  
                  10.610.7
                  
                  Sale
      agreement dated executed July 5, 2007 by and between DGSE Companies,
      Inc. and Texas Department of Transportation
                  
                  
                  
                  ×
                  
                  8-K
                  
                  July
      11, 2007
                  
                  10.1


16




DGSE
COMPANIES, Inc. and Subsidiaries





10.8
                  
                  Purchase
      agreement dated July 5, 2007 by and between DGSE Companies, Inc. and
      11311 Reeder Road Holdings, LP
                  
                  
                  
                  ×
                  
                  8-K
                  
                  July
      11, 2007
                  
                  10.210.9
                  
                  Loan
      Agreement, dated as of December 22, 2005, between DGSE Companies,
      Inc. and Texas Capital Bank, N.A.
                  
                  
                  
                  ×
                  
                  8-K/A
                  
                  August 17,
      2006
                  
                  10.110.10
                  
                  Third
      Amendment to Loan Agreement, dated as of May 10, 2007, by and between DGSE
      Companies, Inc. and Texas Capital Bank, N.A.
                  
                  
                  
                  ×
                  
                  8-K
                  
                  May
      9, 2007
                  
                  3.010.11
                  
                  Support
      Agreement, DGSE stockholders, dated as of January 6,
    2007
                  
                  
                  
                  ×
                  
                  8-K
                  
                  January 9,
      2007
                  
                  99.110.12
                  
                  Securities
      Exchange Agreement, dated as of January 6, 2007
                  
                  
                  
                  ×
                  
                  8-K
                  
                  January 9,
      2007
                  
                  99.210.13
                  
                  Warrant
      to DiGenova, issued January 6, 2007
                  
                  
                  
                  ×
                  
                  8-K
                  
                  January 9,
      2007
                  
                  99.310.14
                  
                  Support
      Agreement, Superior stockholders, dated as of January 6,
      2007
                  
                  
                  
                  ×
                  
                  8-K
                  
                  January 9,
      2007
                  
                  99.510.15
                  
                  Asset
      purchase agreement, dated May 9, 2007, by  and between DGSE
      Companies, Inc. and Euless Gold & Silver, Inc.
                  
                  
                  
                  ×
                  
                  8-K
                  
                  May
      9, 2007
                  
                  1.010.16
                  
                  Subordinated
      Promissory Note dated May 9, 2007
                  
                  
                  
                  ×
                  
                  8-K
                  
                  May
      9, 2007
                  
                  2.010.17
                  
                  Registration
      Rights Agreement with Stanford International Bank Ltd., dated as of May
      30, 2007
                  
                  
                  
                  ×
                  
                  8-K
                  
                  May
      31, 2007
                  
                  99.110.18
                  
                  Corporate
      Governance Agreement with Dr. L.S. Smith and Stanford International Bank
      Ltd., dated as of May 30, 2007
                  
                  
                  
                  ×
                  
                  8-K
                  
                  May
      31, 2007
                  
                  99.2


17




DGSE
COMPANIES, Inc. and Subsidiaries





10.19
                  
                  Escrow
      Agreement with American Stock Transfer & Trust Company and Stanford
      International Bank Ltd., as stockholder agent, dated as of May 30,
      2007
                  
                  
                  
                  ×
                  
                  8-K
                  
                  May
      31, 2007
                  
                  99.310.20
                  
                  Form
      of Warrants
                  
                  
                  
                  ×
                  
                  8-K
                  
                  May
      31, 2007
                  
                  99.410.21
                  
                  Amended
      and Restated Commercial Loan and Security Agreement, by and between
      Superior Galleries Inc. and Stanford International Bank Ltd., dated as of
      May 30, 2007
                  
                  
                  
                  ×
                  
                  8-K
                  
                  May
      31, 2007
                  
                  99.510.22
                  
                  Employment
      Agreement with L.S. Smith, dated as of May 30, 2007
                  
                  
                  
                  ×
                  
                  8-K
                  
                  May
      31, 2007
                  
                  99.610.23
                  
                  Employment
      Agreement with William H. Oyster, dated as of May 30, 2007
                  
                  
                  
                  ×
                  
                  8-K
                  
                  May
      31, 2007
                  
                  99.710.24
                  
                  Employment
      Agreement with John Benson, dated as of May 30, 2007
                  
                  
                  
                  ×
                  
                  8-K
                  
                  May
      31, 2007
                  
                  99.831.1
                  
                  Certification
      pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
      implementing Section 302 of the Sarbanes-Oxley Act of 2002 by Dr.
      L.S. Smith
                  
                  ×31.2
                  
                  Certification
      pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
      implementing Section 302 of the Sarbanes-Oxley Act of 2002 by John
      Benson
                  
                  ×32.1
                  
                  Certification
      pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002 by Dr. L.S.
      Smith
                  
                  ×32.2
                  
                  Certification
      pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002 by John
      Benson
                  
                  ×




Reports on Form 8-K :





None.


18





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:
      May 14, 2009L.
      S. SmithChairman
      of the Board,Chief
      Executive Officer andSecretary





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:
      May 14, 2009L.
      S. SmithChairman
      of the Board,Chief
      Executive Officer andSecretary





By:
              /s/ W. H. Oyster
              
              Dated:
      May 14, 2009W.
      H. OysterDirector,
      President andChief
      Operating Officer





By:
              /s/ John Benson
              
              Dated:
      May 14, 2009John
      BensonChief
      Financial Officer(Principal
      Accounting Officer)