Stock-Based Compensation

3 Months Ended

May 31, 2012

Compensation Related Costs, Share Based Payments

Disclosure of Compensation Related Costs, Share-based Payments

Note 7.  Stock-Based Compensation

We have both an employee and director stock incentive plan, which are described more fully in Note 10 in our 2011 Annual Report on Form 10-K.  As of May 31, 2012, we had approximately 2,689,000 shares of common stock reserved for future issuance under the stock incentive plans.

Stock-based compensation cost is measured at the grant date based on the value of the award granted using the Black-Scholes option pricing model, and recognized over the period in which the award vests.  For stock awards no longer expected to vest, any previously recognized stock compensation expense is reversed in the period of termination.  The stock-based compensation expense has been allocated to the various categories of operating costs and expenses in a manner similar to the allocation of payroll expense as follows:

	Three Months Ended May 31,				Nine Months Ended May 31,
	2012		2011		2012		2011
Cost of sales	$	16,021	$	16,442	$	48,067	$	21,062
Research and development		44,956		64,571		154,725		120,834
Selling, general and administrative		249,567		251,358		688,262		586,801
Total	$	310,544	$	332,371	$	891,054	$	728,697

During the nine months ended May 31, 2012, we granted employees 373,000 stock options at exercise prices ranging from $2.04 to $2.58 per share and with one third vesting each year for the next three years.  The estimated weighted average grant date fair value per share of these stock options was $1.31, and our weighted average assumptions used in the Black-Scholes valuation model to determine this estimated fair value are as follows:

Expected volatility	69.93%
Expected dividends	0%
Expected term	7.30 years
Risk-free interest rate	1.34%

Unrecognized stock-based compensation expense expected to be recognized over the estimated weighted-average amortization period of 1.34 years is approximately $2,144,000 as of May 31, 2012.

A summary of the time-based stock option awards as of May 31, 2012, and changes during the nine months then ended, is as follows:

	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contract Term (Years)		Aggregate Intrinsic Value
Outstanding at August 31, 2011		2,852,239		$	3.74
Granted		373,000			2.24
Exercised		-			-			$	-
Forfeited or expired		(52,000	)		4.08
Outstanding at May 31, 2012		3,173,239		$	3.56		6.62	$	80,491
Exercisable at May 31, 2012		1,508,800		$	4.00		5.63	$	80,491

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on our closing stock price of $1.61 as of May 31, 2012, which would have been received by the holders of in-the-money options had the option holders exercised their options as of that date.