Note 7. Stock-based Compensation

3 Months Ended

Nov. 30, 2013

Notes

Note 7. Stock-based Compensation

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 2013 Annual Report on Form 10-K.  As of November 30, 2013, we had approximately 1,860,000 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 November 30,
	2013	2012
Cost of sales	$        15,650	$        16,023
Research and development	46,448	50,285
Selling, general and administrative	154,131	223,604
Total	$      216,229	$      289,912

During the three months ended November 30, 2013, we granted employees a total of 20,000 stock options at exercise prices ranging from $1.30 to $1.34 per share, generally 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 $0.69, and our weighted average assumptions used in the Black-Scholes valuation model to determine this estimated fair value are as follows:

Expected volatility                               64.41%

Expected dividends                             0%

Expected term                                      7.35 years

Risk-free interest rate                           2.02%

Unrecognized stock-based compensation expense expected to be recognized over the estimated weighted-average amortization period of 1.08 years is approximately $1,371,000 as of November 30, 2013.

A summary of the time-based stock option awards as of November 30, 2013, and changes during the three months then ended, is as follows:

	Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Contract Term (Years)	Aggregate Intrinsic Value
Outstanding at August 31, 2013	4,212,573		2.85
Granted	20,000		1.33
Exercised	-		-
Forfeited or expired	(230,334)		3.12
Outstanding at November 30, 2013	4,002,239	$	2.83	6.73	$	65,801
Exercisable at November 30, 2013	2,053,597	$	3.72	4.78	$	37,301

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on our closing stock price of $1.39 as of November 30, 2013, which would have been received by the holders of in-the-money options had the option holders exercised their options as of that date.