SecProbe.io

<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>1
<FILENAME>filename1.txt
<TEXT>

                              DGSE COMPANIES, INC.
                                2817 FOREST LANE
                               DALLAS, TEXAS 75234
                                  800-527-5307

July 28, 2005

Mr. George F. Ohsiek, Jr. Branch Chief
United States Securities and Exchange Commission
Mail Stop 3561
Washington, D.C. 20549

RE:      Your Comment letter dated July 13, 2005
         DGSE Companies, Inc.
         File No. 001-11048

Dear Mr. Ohsiek:

In  response  to your  letter  dated  July 13,  2005,  please be  advised of the
following:

Form 10K for Fiscal Year Ended December 31, 2004
------------------------------------------------

Item 7. Management's Discussion and Analysis, page 8
----------------------------------------------------

Results of Operations, page 9
-----------------------------

     1.   We have  revised as requested  and will amend our filing.  The revised
          disclosures will read as follows:

Marketable  equity  securities  are  comprised  of  investments  in three  small
companies with thinly traded securities and low market prices. These investments
have been  categorized  as  available-for-sale  and are  carried at fair  value.
Unrealized gains and losses for available-for-sale  securities are included as a
component of shareholders' equity net of tax until realized.  Realized gains and
losses  on the  sale of  securities  are  based on the  specific  identification
method.  During 2003 management  determined that the decline in the market value
of its investments in these securities was other than temporary, and as a result
these  investments  were  written-down  to their  fair  value.  This  write-down
resulted in a charge to 2003 earnings in the amount of $1,134,950, net of income
tax benefits.  This  determination  was based on the length of time during which

<PAGE>

the trading range of these  securities  was below their cost.  During 2004 these
securities  traded at prices  which were both  higher and lower than the closing
market prices at December 31, 2004. As a result,  management determined that the
decline in value as of December 31, 2004 was temporary.  This  determination was
based on the conclusion  that the quoted market price provides the most reliable
measure of their respective values.

     2.   We have  revised as requested  and will amend our filing.  The revised
          Disclosures will read as follows:

Revenues  increased by $ 3,216,670  (12.7%) in 2004. This increase was primarily
the  result  of a  $834,293  (12.6%)  increase  in the sale of  precious  metals
products,  a $1,422,537  (10.8%)  increase in retail  jewelry sales, a $ 233,410
(5.5%) increase in wholesale  jewelry sales and a $ 559,268 (55.1%)  increase in
the sale of rare coin products. These increases were the result of a nation-wide
improvement  in the retail  environment,  a 4.8% price increase in gold products
and a 5% price  increase in diamonds and other  jewelry  products.  Pawn service
fees increased by $ 74,619 in 2004 due to an increase in pawn loans  outstanding
during the year.  Cost of goods as a percentage of sales increased from 79.4% in
2003 to 80.1% in 2004 and gross margins decreased from 20.6% in 2003 to 19.9% in
2004. These changes were due to the increase in the precious metals sales volume
as a percentage of total sales and the increase in the cost of gold products.

Selling,  general and  administrative  expenses  increased by $671,000 or 15.9%.
This  increase  was  primarily  due to an increase in staff  ($301,000),  higher
advertising cost ($97,000), higher property taxes ($50,000) and higher legal and
professional costs ($24,000).  The increase in staff was necessary to maintain a
high level of customer service as sales  increased.  The increase in advertising
was  necessary  in order to attract  new  customers  in our local  markets.  The
property  tax  increase  was due to higher  local tax rates and an  increase  in
taxable  assets.  The  increase in legal and  professional  costs was due to new
regulatory  requirements.  Depreciation  and  amortization  decreased by $37,000
during 2004 due to certain assets becoming fully  depreciated.  Interest expense
declined $21,000 due to a reduction in debt outstanding during the year.

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 the Company operates.  It is expected that due
to the  commodity  nature of these  products,  future price changes for precious
metals will  continue to be indicative  of the  Company's  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.

<PAGE>

Liquidity and Capital Resources, page 10
----------------------------------------

     3.   We have  revised as requested  and will amend our filing.  The revised
          Disclosures will read as follows:

The Company's  short-term debt,  including current  maturities of long-term debt
totaled $ 624,265  as of  December  31,  2004.  During  March  2005 the  Company
re-financed its outstanding bank debt. This new credit facility in the amount of
$3,500,000 extended the maturity of its bank debt to March 31, 2006 and provided
the Company with an additional $ 700,000 of unused liquidity.

Management of the Company  expects capital  expenditures to total  approximately
$100,000 during 2005. It is anticipated that these  expenditures  will be funded
from working capital and its new credit facility.  As of December 31, 2004 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 the Company extended payment terms to finance
the need for jewelry  inventory  growth and  management of the Company  believes
that they will  continue to do so in the  future.  Any  significant  increase in
wholesale  accounts  receivable will be financed under the Company's bank credit
facility.

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

From time to time,  management  has adjusted the Company's  inventory  levels to
meet  seasonal  demand  or  in  order  to  meet  working  capital  requirements.
Management  is of the opinion that if  additional  working  capital is required,
additional loans can be obtained from  individuals or from commercial  banks. If
necessary,  inventory  levels  may be  adjusted  or a portion  of the  Company's
investments  in  marketable  securities  may be  liquidated  in  order  to  meet
unforeseen working capital requirements.

Critical Accounting Policies, page 11
-------------------------------------

     4.   We have  revised as requested  and will amend our filing.  The revised
          Disclosures will read as follows:

The Company assesses the impairment of investments and long-lived assets,  which
includes goodwill and property, plant and equipment,  whenever events or changes
in  circumstances  indicate  that the  carrying  value  may not be  recoverable.
Factors  considered  important which could trigger an impairment review include:
(i)  underperformance  relative  to  expected  historical  or  projected  future
operating  results  (ii)  changes  in the  manner  of use of the  assets  or the
strategy  for our  overall  business  and (iii)  negative  industry  or economic
trends.

<PAGE>

When the Company  determines  that the carrying value of goodwill and long-lived
assets may not be recoverable,  an impairment charge is recorded.  Impairment is
generally  measured  based on a projected  discounted  cash flow method  using a
discount rate  determined by our  management  to be  commensurate  with the risk
inherent in our current business model or prevailing  market rates of investment
securities, if available.

The Company  performs a goodwill  impairment  test at the  reporting  unit level
annually or more frequently if events occur which indicate a potential reduction
in the fair value of a reporting  unit's net assets below its carrying value. To
perform  the  impairment  test  the  Company  estimated  the  fair  value of the
reporting  unit using the expected  present value of  corresponding  future cash
flows.  Impairment is deemed to exist if the net book value of a reporting  unit
exceeds its estimated fair value. As of December 31, 2004, the Company performed
its  annual  review  for  impairment  of  goodwill   related  to  its  Fairchild
acquisition.  The Company  concluded  that there was no  evidence of  impairment
related to the Goodwill for this reporting unit.

Item 9A. Controls and Procedures, page 16
-----------------------------------------

     5.   We have  revised as requested  and will amend our filing.  The revised
          Disclosures will read as follows:

Under the supervision and with the  participation  of the Company's  management,
including its Chief Executive Officer and Chief Financial  Officer,  the Company
has evaluated the effectiveness of its disclosure controls and procedures, as of
the end of the period  covered by this  report.  Based on that  evaluation,  the
Chief Executive  Officer and Chief  Financial  Officer have concluded that these
disclosure  controls  and  procedures  are  effective in enabling the Company to
record, process, summarize and report information required to be included in its
periodic SEC filings  within the required time period.  There has been no change
in the Company's internal control over financial  reporting that occurred during
the  Company's  most recent  fiscal  year that has  materially  affected,  or is
reasonably  likely to materially  affect,  the Company's  internal  control over
financial reporting.

Consolidated Financial Statements
---------------------------------

Consolidated Balance Sheets, page 23
------------------------------------

     6.   The amount of pawn loans  receivable  outstanding  as of December  31,
          2004 and 2003 were $ 229,071 and $115,791, respectively. The amount of
          related pawn service  charges  receivable  as of December 31, 2004 and
          2003  were $ 86,671  and $ 42,953,  respectively.  These  amounts  are
          included  in the  balance  sheet  caption  "Trade  Receivables".  This
          information  will be added as a footnote  disclosure to the financials
          in our amended  filing.  There were no pay day loan  receivables as of
          December 31, 2004 or 2003.

<PAGE>

Consolidated Statements of Operations, page 24
----------------------------------------------

     7.   The cost of our pawn loan service  charge  revenue are included in the
          caption " Selling, general and administrative  expenses". This will be
          disclosed in our amended filing.

     8    In our  amended  filing  we will  disclose  the  amount of gain on the
          disposal  of  Silverman  Consultants,  Inc.  and  the  caption  in the
          statements of operations that include the gain in a footnote.

Consolidated Statements of Cash Flows, page 26
----------------------------------------------

     9.   During the two years ended  December 31, 2004 the Company did not make
          pay day loans.  Also, during the two years end December 31, 2004 total
          pawn service fee  amounted to less than one percent of total  revenues
          and the  proceeds  from the sale of forfeited  collateral  amounted to
          less  than 1/2 of one  percent  of  total  sales.  As a result  of the
          immaterial nature of the Company's pawn  transactions,  pawn issuances
          and  repayments are netted and the results are included in the caption
          "(Increase)  decrease  Trade  Receivables".   The  sale  of  forfeited
          collateral  is included in jewelry  sales and the cost of these sales,
          which  includes  service fees accrued as of the date of  forfeiture as
          well as the  amount  loaned,  are  included  in cost of  sales  in the
          statements of operations.

          In our amended  filings we have shown pawn and pay day loans issuances
          and cash  repayments  as  separate  line items  within  the  investing
          section of the statements of cash flows.  Also, we have shown the sale
          of forfeited collateral as a return of original investment.

     10   See 9 above.

          We have also added a non-cash  disclosure in a footnote to our amended
          statements of flows  indicating  the amount of our  investment in pawn
          loans  transferred  to  inventory  as a result  of loan  defaults  and
          collateral forfeiture.

<PAGE>

Notes to Consolidated Financial Statements, page 27
---------------------------------------------------

Note 4 - Investments in Marketable Securities, page 32
------------------------------------------------------

     11   The pro  forma  earnings  per share  will be  removed  in the  amended
          filing.

Note 6 Goodwill, page 33
------------------------

     12   The revised disclosure for historical periods will read as follows:

          Note 6 - Goodwill
                   --------

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

                                               2004         2003         2002
                                            ----------   ----------   ----------
          Wholesale watch sales             $  837,117   $  837,117   $  837,117
          Consulting and liquidation              --        314,003      314,003
                                            ----------   ----------   ----------
                                            $  837,117   $1,151,120   $1,151,120
                                            ==========   ==========   ==========

          No impairment  losses were recognized during 2004, 2003 or 2002 and no
          goodwill was acquired during 2004, 2003, or 2002.

          During 2004 the Company sold the goodwill  ($314,003),  and trade name
          of Silverman Consultants, Inc. The sale of this goodwill resulted in a
          gain on the disposal of this  reporting unit in the amount of $39,098.
          This  gain  is  included  in  the  caption   (Other   income)  in  the
          consolidated  statements of operations for the year ended December 31,
          2004.

Note 15 - Segment Information, page 41
--------------------------------------

     13   Although the Company has several product lines including bullion, rare
          coins,  jewelry  and pawn  loans  which  are  offered  to  retail  and
          wholesale  customers,  these  products and services are offered by the
          same  sales  and  support  staff  located  in each of our  facilities.
          However,  we have reassessed the criteria in SFAS 131, and now believe
          that more than one  reportable  segment exists and we have revised our
          financial statements accordingly in our amended filing.

<PAGE>

Section 302 Certifications
--------------------------

     14   We will amend our filings so that our  certifications  read exactly as
          set forth in Item  601(b)(31) of Regu