Note 4 – Stock Options

The Company maintains the 2000 Stock Incentive Plan ("the Plan") under which it has reserved 2,250,000 shares of the Company's common stock for issuance pursuant to stock options or restricted stock. During 2004, the Plan was amended to allow issuance of options to certain consultants of the Company. 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 August 31, 2011 and November 30, 2010, there were 279,701 and 341,387 options to purchase shares issued, but not yet exercised under the 2000 plan, respectively. No further options will be issued under the plan.

The Company also maintains the 2006 Stock Incentive Plan (the "2006 Plan") under which it 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 August 31, 2011 and November 30, 2010, there were 734,533 and 475,034 options to purchase shares issued, but not yet exercised under the 2006 plan, respectively. As of August 31, 2011, there were 113,421 shares available for future issuance under the 2006 plan.

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 and nine months ended August 31, 2011 and August 31, 2010 are as follows:

Stock option activity for the nine months ended August 31, 2011, was as follows:

The weighted average grant date fair value of options granted during the nine months ended August 31, 2011 and August 31, 2010 was $2.14 and $1.02, 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 on August 31, 2011. The intrinsic value of the Company's stock options changes based on the closing price of the Company's stock.

There were 11,751 options exercised during the nine months ended August 31, 2011. There were no options exercised during the nine months ended August 31, 2010.

Significant option groups outstanding and exercisable at August 31, 2011 and related price and contractual life information are as follows:

A summary of the status of the Company's non-vested shares as of August 31, 2011, and changes during the nine months ended August 31, 2011, is presented below:

As of August 31, 2011, there was approximately $555,783 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the 2000 and 2006 Stock Incentive Plans. The cost is expected to be recognized over a weighted-average period of 2.33 years as of August 31, 2011. The total fair value of shares vested during the nine months ended August 31, 2011 was approximately $431,000.

On August 24, 2011, the Board of Directors approved the acceleration of any unvested stock options and an extension of the exercise period for the board of directors and officers upon a change in control (see Note 8).

On August 31, 2011, the Board of Directors granted Mr. David Portnoy and Mr. Mark Portnoy, co-Chief Executive Officers, options to purchase 100,000 shares each of the Company's common stock with an exercise of $2.90 per share. The options vest in three tranches, with 33% of the options vesting immediately on the date of grant; 33% vesting on the one year anniversary of the date of grant; and 33% vesting on the two year anniversary of the date of grant. The issuance of the options resulted in an increase in stock compensation expense of approximately $159,000 for the three and nine months ended August 31, 2011, which is reflected in marketing, general and administrative expenses in the accompanying consolidated statements of operations.