COMMON STOCK EQUIVALENTS

6 Months Ended

Mar. 31, 2012

NOTE 4 – COMMON STOCK EQUIVALENTS

The following table summarizes the Company’s stock option activity for the six months ended March 31, 2012:

	Shares		Weighted average exercise price	Weighted average life

Options outstanding – October 1, 2011	3,142,208	$	0.14	7.43
Granted	25,000		0.10	9.67
Exercised	--		--	--
Forfeited, cancelled or expired	(30,000)		0.15	--
Options outstanding – March 31, 2012	3,137,208	$	0.14	6.99
Options exercisable – March 31, 2012	1,740,208	$	0.07	6.33

We use the Black-Scholes option pricing model to determine the fair value of our awards on the date of grant. The fair value of each option award is estimated on the date of grant using a Black-Scholes option-pricing formula that uses the assumptions noted in the table and discussion that follows:

	Three Months Ended March 31,		Six Months Ended March 31,
	Three Months Ended March 31,		Six Months Ended March 31,
	2012	2011	2012	2011
Dividend yield	--	--	--	--
Expected volatility	--	136.27% - 137.95%	131.48%	136.27% - 137.95%
Risk-free interest rate	--	2.02% - 3.48%	1.97%	1.47% - 3.48%
Expected life in years	--	5 -10	10	5 -10

Expected volatilities are based on the historical volatility of the Company’s Common Stock. The expected term of the options granted represents the period of time that options granted are expected to be outstanding. 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 options is based on the U.S. Treasury yield curve in effect at the time of the grant.

The Company incurs stock-based compensation expense over the requisite service period. We have estimated forfeitures and incur expense on shares we expect to vest.

As of March 31, 2012, there was $57,268 of unrecognized compensation cost related to share-based compensation arrangements that we expect to vest. This cost will be fully incurred within 5 years. The options exercisable as of March 31, 2012 have no intrinsic value.

The following table summarizes the Company’s warrant activity for the six months ended March 31, 2012:

	Shares		Weighted average exercise price	Weighted average life (in years)

Warrants outstanding – October 1, 2011	--	$	--	--
Granted	5,000,000		0.20	3.86
Exercised	--		--	--
Forfeited, cancelled or expired	--		--	--
Options outstanding – March 31, 2012	5,000,000	$	0.20	3.86
Options exercisable – March 31, 2012	5,000,000	$	0.20	3.86

As of March 31, 2012, there was $183,303 of unrecognized interest expense related to warrant compensation that we expect to vest. This cost will be fully incurred within 4 years. The warrants exercisable as of March 31, 2012 have no intrinsic value.

- Definition

The entire disclosure for shareholders' equity, comprised of portions attributable to the parent entity and noncontrolling interest, if any, including other comprehensive income (as applicable). Including, but not limited to: (1) balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings; (2) accumulated balance for each classification of other comprehensive income and total amount of comprehensive income; (3) amount and nature of changes in separate accounts, including the number of shares authorized and outstanding, number of shares issued upon exercise and conversion, and for other comprehensive income, the adjustments for reclassifications to net income; (4) rights and privileges of each class of stock authorized; (5) basis of treasury stock, if other than cost, and amounts paid and accounting treatment for treasury stock purchased significantly in excess of market; (6) dividends paid or payable per share and in the aggregate for each class of stock for each period presented; (7) dividend restrictions and accumulated preferred dividends in arrears (in aggregate and per share amount); (8) retained earnings appropriations or restrictions, such as dividend restrictions; (9) impact of change in accounting principle, initial adoption of new accounting principle and correction of an error in previously issued financial statements; (10) shares held in trust for Employee Stock Ownership Plan (ESOP); (11) deferred compensation related to issuance of capital stock; (12) note received for issuance of stock; (13) unamortized discount on shares; (14) description, terms, and number of warrants or rights outstanding; (15) shares under subscription and subscription receivables, effective date of new retained earnings after quasi-reorganization and deficit eliminated by quasi-reorganization and, for a period of at least ten years after the effective date, the point in time from which the new retained dates; and (16) retroactive effective of subsequent change in capital structure.

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+ Details

HEMAGEN DIAGNOSTICS INC 10-Q