DGSE Companies, Inc (formerly Dallas Gold and Silver Exchange, Inc.) (the "Company") sells jewelry and bullion products to both retail and wholesale customers throughout the United States and makes collateralized loans to individuals. The Company's products are marketed through its facilities in Dallas and Carrollton, Texas and Mt. Pleasant South Carolina and through its internet web sites dgse.com; USBullionExchange.com; FairchildWatches.com;and SilvermanLiquidations.com.

The Company also provides consulting and liquidation services through its wholly-owned subsidiary, Silverman Consultants, Inc.("SCI"). SCI's primary business is conducting liquidation, consolidation, promotional or other large-scale retail sales for jewelry stores and other types of retailers.

The Company operates four internet sites on the World Wide Web. Through dgse.com the Company operates a virtual store and a real-time auction of its jewelry products. Customers and the Company buy and sell items of jewelry and are free to set their own prices in an interactive market. The Company also offers customers current quotations for precious metals prices on its internet site USBullionExchange.com. FairchildWatches.com provides wholesale customers a virtual catalog of the Company's fine watch inventory. Over 7,500 items are available for sale on the Company's internet sites including $ 10,000,000 in diamonds. SilvermanLiquidations.com is an information site for SCI.

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

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

Jewelry ------- The Company's jewelry operations include sales to both wholesale and retail customers. The Company sells finished jewelry, gem stones, and findings (gold jewelry components) and makes custom jewelry to order. Jewelry inventory is readily available from wholesalers throughout the United States. In addition, the Company purchases inventory from pawn shops and individuals.

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

Bullion products are purchased and sold based on current market price. The availability of precious metal products is a function of price as virtually all bullion items are actively traded. Precious metals sales amounted to 25.4% of total revenues for 2003 and 19.2% in 2002 (For further details, see Item 6 below). The Company did not have any customer or supplier that accounted for more than 10% of total sales or purchases during 2003 or 2002.

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

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

The Company makes pawn loans through its headquarter facility and through its National Jewelry Exchange, Inc. subsidiary. Pawn loans ("loans") are made on the pledge of tangible personal property, primarily jewelry, for one month with an automatic sixty-day extension period ("loan term"). Pawn service charges are recorded on a constant yield basis over the loan term. If the loan is not repaid, the principal amount loaned plus accrued pawn service charges become the carrying value of the forfeited collateral and are transferred to inventory. Revenues from the Company's pawn loans have grown at each location and management believes this activity to be a good source of jewelry inventory and provides an excellent return on investment.

The Company'S primary presence on the Internet is through its website dgse.com. This web site serves as a Corporate information site, a retail store where the Company sells its products and an auction site for jewelry and other products. The Internet store functions as a CyberCashTM authorized site which allows customers to purchase products automatically and securely on line. Auctions close a least five times per week.

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

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

Liquidation Services --------------------

The Company's consulting activities are offered through its wholly-owned subsidiary, SCI.

SCI's primary business is conducting liquidation, promotional or other large-scale retail sales for jewelry stores and other types of retailers. The business of SCI has a history extending over 55 years providing consulting services to over 4,500 retailers. SCI typically earns either a commission for its services, a participation in the sales activities or a combination of these forms of compensation. In addition, SCI often supplies inventory to retailers in order to facilitate sales. SCI also provides appraisals for creditors and merchant banking services. During 2003 SCI conducted transactions for over 20 retailers and other parties.

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

All Company activities rely heavily on local television, radio and print media advertising. Marketing activities emphasize the Company's broad and unusual array of products and services and the attractiveness of its pricing and service.

The Company markets its bullion trading services through a combination of advertising in national coin publications, local print media, coin and bullion wire services and its internet web site. Trades are primarily with coin and bullion dealers on a "cash on confirmation" basis which is prevalent in the industry. Cash on confirmation means that once credit is approved the buyer remits funds by mail or wire concurrently with the mailing of the precious metals. Customer orders for bullion trades are customarily delivered within three days of the order or upon clearance of funds depending on the customer's credit standing. Consequently, there was no significant backlog for bullion orders as of December 31, 2003 or 2002. Company backlogs for fabricated jewelry products were also not significant as of December 31, 2003 and 2002.

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

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

The retail and wholesale jewelry business and the consulting business are seasonal. The Company realized 36.4% and 33.2% of its annual sales in the fourth quarters of 2003 and 2002, respectively.

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

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

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

The bullion industry in which the Company competes is dominated by substantially larger enterprises which wholesale bullion and other precious metal products. Likewise, the consulting and liquidation industry in which the Company competes is dominated by large investment banking, accounting, consulting and liquidation firms.

The Company attempts to compete in all of its activities by offering high quality products and services at prices below that of its competitors and by maintaining a staff of highly qualified employees.

Employees ---------

As of December 31, 2003, the Company employed 43 individuals, all of which were full time employees.