Note 4 – Stock Options

The Company maintains the 2000 Stock Incentive Plan as amended ("the 2000 Plan") that has reserved 2,250,000 shares of the Company's common stock for issuance pursuant to stock options or restricted stock. Options issued under the Plan have a term ranging from five to seven years from the date of grant and have a vesting period ranging from immediately upon issuance to three years from the date of grant. The options are exercisable for a period of 90 days after termination. As of February 29, 2012 and November 30, 2011, there were 97,625 and 99,292 shares outstanding under the 2000 Plan, respectively. No further options will be issued under the 2000 Plan.

The Company also maintains the 2006 Stock Incentive Plan (the "2006 Plan"). The 2006 Plan has reserved 1,000,000 shares of the Company's common stock for issuance pursuant to stock options, restricted stock, stock-appreciation rights (commonly referred to as "SARs"), stock awards (i.e. performance shares and performance units). As of February 29, 2012 and November 30, 2011, there were 617,788 and 509,127 shares outstanding under the 2006 plan, respectively. As of February 29, 2012, there were 314,628 shares available for future issuance under the 2006 plan.

The Company also maintains the 2012 Equity Incentive Plan (the "2012 Plan") which became effective December 1, 2011 as approved by the Board of Directors and the Company expects to seek stockholder approval of the plan during the 2012 annual shareholder meeting in order to ensure ISO treatment. The 2012 Plan reserved 1,500,000 shares of the Company's common stock for issuance pursuant to stock options, restricted stock, stock-appreciation rights (commonly referred to as "SARs"), stock awards (i.e. performance shares and performance units). As of February 29, 2012, there were 1,500,000 shares granted under the 2012 plan.

Service condition options

The fair value of each option award is estimated on the date of the grant using the Black-Scholes valuation model that uses the assumptions noted in the following table. Expected volatility is based on the historical volatility of the Company's stock over the most recent period commensurate with the expected life of the Company's stock options. The Company uses historical data to estimate option exercise and employee termination within the valuation model. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The expected term of options granted is calculated, in accordance with the "simplified method" for "plain vanilla" stock options allowed under GAAP. Expected dividends is based on the historical trend of the Company not issuing dividends.

Variables used to determine the fair value of the options granted for the three months ended February 29, 2012 and February 28, 2011 are as follows:

The range of expected volatilities for options issued during the three months ended February 29, 2012 and February 28, 2011 are as follows:

Stock option activity for the three months ended February 29, 2012, was as follows:

The weighted average grant date fair value of options granted during the three months ended February 29, 2012 and February 28, 2011 was $1.47 and $0.88, respectively.

The aggregate intrinsic value represents the total value of the difference between the Company's closing stock price on the last trading day of the period and the exercise price of the options, multiplied by the number of in-the-money stock options that would have been received by the option holders had all option holders exercised their options either on February 28, 2011 or February 29, 2012, as applicable. The intrinsic value of the Company's stock options changes based on the closing price of the Company's stock.

There were no options exercised during the three months ended February 29, 2012 and February 28, 2011.

Significant option groups exercisable at February 29, 2012 and related price and contractual life information are as follows:

A summary of the status of the Company's non-vested shares as of February 29, 2012, and changes during the three months ended February 29, 2012, is presented below:

As of February 29, 2012 there was approximately $961,209 of total unrecognized compensation cost related to non-vested service-related-share-based compensation arrangements granted under the 2000 Plan, 2006 Plan and the 2012 Plan. The cost is expected to be recognized over a weighted-average period of 1.8 years as of February 29, 2012. The total fair value of shares vested during the three months ended February 29, 2012 was approximately $238,170.

Performance and market condition options

Variables used to determine the fair value of options with performance-based and market-based conditions vesting granted during the three months ended February 29, 2012 are as follows:

The range of expected volatilities for performance-based and market-condition options issued during the three months ended February 29, 2012 are as follows:

Stock option activity for options with performance-based and market-based conditions vesting for the three months ended February 29, 2012, was as follows:

The weighted average grant date fair value of performance and market condition options granted during the three months ended February 29, 2012 was $1.31.

During the quarter ended February 29, 2012, the Company granted 200,000 options that begin to vest based on the achievement of certain share prices of the Company's common stock at certain future dates. For market condition options, accounting principles do not require that the market condition be met in order for the compensation cost to be recognized. Compensation expense has been determined using a binomial model and is being recognized over the requisite service period, regardless if the market condition will be met. As of February 29, 2012 there was approximately $140,000 of total unrecognized compensation cost related to the non-vested market condition options.

The remaining 930,000 options issued to executives and consultants during the quarter ended February 29, 2012 require certain performance targets to be met before vesting can occur. Management has deemed these performance targets to be improbable as of February 29, 2012, and thus no compensation cost is recognized at this time. The Company will reevaluate the probability of achieving these targets on a quarterly basis, and adjust compensation expense accordingly. In addition, any compensation expense as a result of consultant options, will be remeasured on a quarterly basis, over the period the service is being provided to the Company. As of February 29, 2012 there was approximately $1,497,000 of total unrecognized compensation cost related to the non-vested performance condition options. If the performance conditions are not achieved by a certain date as specified in each option agreement, no compensation expense associated with these performance based options will be recognized. Total unrecognized compensation cost will fluctuate from quarter to quarter as performance based options issued to consultants are marked to market over the requisite service period.