Note 11 - Stock Options

In March 2004, the Company's Board and the stockholders approved the 2004 Stock Option Plan that provided for incentive stock options and nonqualified stock options to be granted to key employee and certain directors. The Company's Board or designated committee established the terms of each option granted under the 2004 Stock Option Plan. The stock options granted under the plan vested over 1 to 5 years. At December 31, 2011 the Company had no options available for grant and 517,500 options granted and outstanding under the 2004 Stock Option Plan.

In May 2007, the Board and the stockholders approved the 2006 Equity Inventive Plan that provided for incentive stock options and nonqualified stock options to be granted to key employee and certain directors. The Board of Directors or designated committee established the terms of each option granted under the 2006 Equity Incentive Plan. The stock options granted under the plan generally vest over 1 to 5 years and have a maximum contractual life of 10 years. At December 31, 2011 we had 600,000 options available for grant and 30,000 options granted and outstanding under the 2006 Equity Incentive Plan.

On October 25, 2011, the Company entered into a debt cancellation agreement with NTR, whereby NTR agreed to forgive $2,500,000 of payables owed to NTR by the Company. In consideration for this debt forgiveness, NTR was granted options to purchase 5,000,000 shares of the common stock of DGSE, par value $0.01 per share, at an exercise price of fifteen dollars ($15) per share (the "NTR Options"). These options were not issued pursuant to either of the shareholder-approved employee stock option plans. The NTR Options vested immediately upon grant, and expire on the fifth anniversary of the date of grant. The Company estimated the fair value of the NTR Options using the Black-Scholes Option Pricing Model, which estimated a value of $5,140,713 for these options. Accordingly the Company took a non-cash charge of $2,640,713 to stock compensation expense in Fiscal 2011.

The following table summarizes the activity in common shares subject to options for the years ended December 31, 2011 and 2010:

	At December 31,
	2011					2010
	Shares			Weighted average exercise price		Shares			Weighted average exercise price

Outstanding at beginning of year		1,503,134		$	2.01		1,523,134		$	2.02
Granted		5,000,000			15.00		0			0.00
Exercised		(945,634	)		1.77		0			0.00
Forfeited		(10,000	)		2.19		(20,000	)		2.97

Outstanding at end of year		5,547,500		$	13.76		1,503,134		$	2.01

Options exercisable at end of year		5,541,500		$	13.77		1,491,134		$	1.98

Information about Equity Incentive Plan stock options outstanding at December 31, 2011 is summarized as follows:

	Options outstanding
Range of exercise prices	Number outstanding		Weighted average remaining contractual life*		Weighted average exercise price		Aggregate Intrinsic Value
$1.13 to $2.25		480,000		NA	$	2.16	$	2,549,975
$2.26 to $2.82		30,000		NA		2.56		147,300
$2.83 to $4.19		7,500		NA		4.06		25,550
$6.00		30,000		NA		6.00		44,100
$15.00		5,000,000		4.8		15.00		-
		5,547,500					$	2,766,925

* Options issued pursuant to the Company's 2004 Employee Stock Option Plan have no expiration date.

	Options exercisable
Range of exercise prices	Number outstanding		Weighted average remaining contractual life*		Weighted average exercise price		Aggregate Intrinsic Value
$1.13 to $2.25	480,000		NA		$	2.16	$	2,549,975
$2.26 to $2.82		30,000		NA		2.56		147,300
$2.83 to $4.19		7,500		NA		4.06		25,550
$6.00		24,000		NA		6.00		35,280
$15.00		5,000,000		4.8		15.00		-
		5,541,500					$	2,758,105

* Options issued pursuant to the Company's 2004 Employee Stock Option Plan have no expiration date.

The aggregate intrinsic values in the above table were based on the closing price of our common stock of $7.47 as of December 31, 2011.

During 2011 and 2010 the Company recognized $34,208 and $35,768, respectively, of stock-based compensation expense which was recorded in selling, general, and administrative expenses. At December 31, 2011, the balance of unearned stock-based compensation to be expensed in future periods related to unvested stock-based awards is approximately $36,000. The weighted average period over which the unearned stock-based compensation was expected to be recognized was approximately one year.