Note 10 – Stockholders’ Equity

Stock Based Compensation

The Company adopted Stock Incentive Plans in 1996, 1999 and 2010 (the “Plans”) which provide for, among other incentives, the granting to officers, directors, employees and consultants options to purchase shares of the Company’s common stock. The Plans also allow eligible persons to be issued shares of the Company’s common stock either through the purchase of such shares or as a bonus for services rendered to the Company. Shares are generally issued at the fair market value on the date of issuance. The maximum number of shares of common stock which may be issued under the 2010 Stock Incentive Plan is 6,000,000, of which 3,372,881 and 3,646,924 shares of common stock are available for future purchases under the plan, at September 30, 2017 and 2016, respectively. Options are generally exercisable at the fair market value or higher on the date of grant over a three to five year period currently expiring through 2020.

The fair value of the stock options granted is estimated at the date of grant using the Black-Scholes option pricing model. The expected volatility was determined with reference to the historical volatility of the Company's stock. The Company uses historical data to estimate option exercises and employee terminations within the valuation model. The expected term of options granted represents the period of time that the options granted are expected to be outstanding. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury rate in effect at the time of grant. The dividend yield is expected to be 0.0% because historically the Company has not paid dividends on common stock.

The Company’s Xcede joint venture adopted an Equity Incentive Plan in 2013 which provides for, among other incentives, the granting to officers, directors, employees and consultants options to purchase shares in Xcede’s common stock. The options granted generally vest over a 3 year period. The fair value of the stock options granted is estimated at the date of grant using the Black-Scholes option pricing model using assumptions generally consistent with those used for Company stock options. Because Xcede is not publicly traded, the expected volatility is estimated with reference to the average historical volatility of a group of publicly traded companies that are believed to have similar characteristics to Xcede. As of September 30, 2017, 1,624,044 options remained in this plan.

Stock compensation expense is recorded in general and administrative operating expenses and is presented below for the years ended September 30, 2017 and 2016:

	2017		2016
Stock Grants	$	241,000	$	322,000
Restricted Stock Grants		52,000		45,000
Option Grants		50,000		42,000
Employee Stock Purchase Plan		3,000		3,000
Subsidiary Stock Grants		-		210,000
Subsidiary Option Grants		110,000		76,000
Total	$	456,000	$	698,000

At September 30, 2017 there was approximately $100,000 in unrecognized stock compensation cost for Dynasil, which is expected to be recognized over a weighted average period of eight months. At September

30, 2017, the Company’s Xcede joint venture had $153,000 of unrecognized stock compensation expense associated with stock options expected to be recognized over a weighted average period of ten months.

Restricted Stock Grants

A summary of restricted stock activity for the year ended September 30, 2017 and 2016 is presented below:

Restricted Stock Activity for the Year ended September 30, 2017	Shares			Weighted-Average Grant-Date Fair Value
Nonvested at September 30, 2016		100,000		$	1.73

Granted		-			-
Vested		(30,000	)	$	1.73
Cancelled		-			-
Nonvested and expected to vest at September 30, 2017		70,000		$	1.73

Restricted Stock Activity for the Year ended September 30, 2016	Shares			Weighted-Average Grant-Date Fair Value
Nonvested at September 30, 2015		27,000		$	1.04

Granted		100,000		$	1.73
Vested		(27,000	)	$	1.04
Cancelled		-			-
Nonvested and expected to vest at September 30, 2016		100,000		$	1.73

Stock Option Grants

A summary of stock option activity for the years ended September 30, 2017 and 2016 is presented below:

	Options Outstanding			Weighted Average Exercise Price per Share ($)		Weighted Average Remaining Contractual Term (in Years)
Balance at September 30, 2015		58,212			2.28		1.96
Outstanding and exercisable at September 30, 2015		58,212			2.28		1.96
Granted		64,935			2.33
Exercised		-			-
Cancelled		-			-
Balance at September 30, 2016		123,147			2.30		1.69
Outstanding and exercisable at September 30, 2016		123,147			2.30		1.69
Granted		95,602			1.80
Exercised		-			-
Cancelled		(21,980	)		3.03
Balance at September 30, 2017		196,769			1.98		1.64
Outstanding and exercisable at September 30, 2017		196,769			1.98		1.64

Stock options outstanding at September 30, 2017 are described as follows:

Outstanding Stock Options at September 30, 2017
Range of Exercise Prices		Options Outstanding		Weighted Average Contractual Life (years)		Weighted Average Exercise Price		Options Exercisable		Weighted Average Exercise Price
$	1.80 - 1.99		131,834		1.79	$	1.81		131,834	$	1.81
	2.00 - 2.33		64,935		1.34		2.33		64,935		2.33
$	1.80 - 2.33		196,769		1.64	$	1.98		196,769	$	1.98

During the year ended September 30, 2017 95,602 stock options were granted with a grant date fair value of $1.35 and an exercise price of $1.80. During the year ended September 30, 2016, 64,935 stock options were granted with a grant date fair value of $1.75 and an exercise price of $2.33. All options vested on the grant dates and no stock options were exercised.

Subsidiary Stock Option Grants

A summary of Xcede stock option activity for the years ended September 30, 2017 and 2016 is presented below:

	Options Outstanding			Weighted Average Exercise Price per Share ($)		Weighted Average Remaining Contractual Term (in Years)
Balance, expected to vest, at September 30, 2015		780,258			1.00		8.85
Outstanding and exercisable at September 30, 2015		180,293			1.00		8.50
Granted		148,419			1.00
Exercised		-			-
Cancelled		(315,024	)		1.00
Balance, expected to vest, at September 30, 2016		613,653			1.00		8.35
Outstanding and exercisable at September 30, 2016		320,586			1.00		8.01
Granted		810,500			1.00
Exercised		-			-
Cancelled		(48,197	)		1.00
Balance, expected to vest, at September 30, 2017		1,375,956			1.00		8.70
Outstanding and exercisable at September 30, 2017		923,617			1.00		8.30

Employee Stock Purchase Plan

On September 28, 2010, the Company adopted an Amended and Restated Employee Stock Purchase Plan. The existing plan was amended to extend the termination date to September 28, 2020. The Employee Stock Purchase Plan permits substantially all employees to purchase common stock at a purchase price of 85% of the fair market value of the shares. Under the Plan, a total of 450,000 shares have been reserved for issuance of which 334,855 and 318,797 shares have been issued as of September 30, 2017 and 2016, respectively.

On December 16, 2011, the Company amended the Amended and Restated Employee Stock Purchase Plan to change the maximum dollar amount of stock able to be purchased through the Plan by any employee per calendar year from $5,000 to $20,000 per calendar year. During the years ended September 30, 2017 and 2016, 16,058 shares and 13,742 shares of common stock were issued under the Plan for aggregate purchase prices of $17,118 and $15,676, respectively.