Note 9 - Stock Based Compensation

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 exercise and employee termination 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 zero 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 of options to purchase shares in Xcede’s common stock to officers, directors, employees and consultants. The options granted generally vest over a three 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.

Stock compensation expense for the three months ended December 31, 2017 and 2016 is as follows:

	Three Months Ended		Three Months Ended
Stock Compensation Expense	December 31, 2017		December 31, 2016
Stock grants	$	39,000	$	39,000
Restricted stock grants		13,000		13,000
Option grants		12,000		12,000
Employee stock purchase plan		1,000		1,000
Subsidiary option grants		28,000		24,000
Total	$	93,000	$	89,000

At December 31, 2017, there was approximately $75,000 in unrecognized stock compensation cost for Dynasil, which is expected to be recognized over a weighted average period of approximately eight months.

Restricted Stock Grants

A summary of restricted stock activity for the three months ended December 31, 2017 is presented below:

Restricted Stock Activity for the Three Months ended December 31, 2017	Shares		Weighted-Average Grant-Date Fair Value
Nonvested at September 30, 2017		70,000	$	1.73

Granted		-
Vested		(10,000)	$	1.70
Cancelled		-		-
Nonvested and expected to vest at December 31, 2017		60,000	$	1.73

Stock Option Grants

During the three months ended December 31, 2017, no Dynasil stock options were granted. A summary of stock option activity for the three months ended December 31, 2017 is presented below:

	Options Outstanding		Weighted Average Exercise Price per Share		Weighted Average Remain Contractual Term (in Years)
Balance at September 30, 2017		196,769	$	1.98		1.64
Outstanding and exercisable at September 30, 2017		196,769	$	1.98		1.64
Granted		-		-
Exercised		-		-
Cancelled		-		-
Balance at December 31, 2017		196,769	$	1.98		1.39
Outstanding and exercisable at December 31, 2017		196,769	$	1.98		1.39

Subsidiary Stock Option Grants

During the three months ended December 31, 2017, no Xcede stock options were granted. A summary of Xcede stock option activity for the three months ended December 31, 2017 is presented below:

	Options Outstanding		Weighted Average Exercise Price per Share		Weighted Average Remain Contractual Term (in Years)
Balance at September 30, 2017		1,375,956	$	1.00		8.70
Outstanding and exercisable at September 30, 2017		923,617		1.00		8.30
Granted		-		-
Exercised		-		-
Cancelled		-		-
Balance at December 31, 2017		1,375,956		1.00		8.44
Outstanding and exercisable at December 31, 2017		1,020,078	$	1.00		8.11

At December 31, 2017, the Company’s Xcede joint venture had approximately $125,000 of unrecognized stock compensation expense associated with stock options expected to be recognized over a weighted average period of nine months.