STOCKHOLDERS' EQUITY

12 Months Ended

Sep. 30, 2011

NOTE 11 - STOCKHOLDERS’ EQUITY

Preferred Stock

The Company is authorized to issue up to 1,000,000 shares of preferred stock, $.01 par value per share. The preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the Board of Directors and may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights and sinking fund provisions. No shares of preferred stock are issued or outstanding at September 30, 2011 or 2010.

Accumulated Other Comprehensive Loss

Accumulated other comprehensive income (loss) consists solely of foreign currency translation adjustments totaling $20,587 of loss and $17,914 of income at September 30, 2011 and 2010, respectively.

Stock Options

On February 27, 2001, the shareholders voted to approve the 2001 Stock Option Plan. The 2001 Stock Option Plan provides for the grant of incentive and nonqualified stock options for the purchase of an aggregate of 1,000,000 shares of the Company's common stock by employees, directors and consultants of the Company. The 2001 Stock Option Plan expired in February of 2011. No additional options will be issued under this plan.

On April 25, 2007, the shareholders voted to approve the 2007 Stock Incentive Plan. Under this plan, the Board has reserved a maximum of 1,500,000 shares for issuance pursuant to stock options, stock appreciation rights, restricted stock awards, restricted stock units and stock awards.

On April 30, 2009, the shareholders voted to amend the 2007 Stock Incentive Plan to increase the number of shares authorized to be issued under the plan from 1,500,000 to 3,000,000.

The Compensation Committee of the Board of Directors is responsible for the administration of both Plans. The Compensation Committee determines the term of each option, the number of shares for which each option is granted and the rate at which each option is exercisable.

The Company recorded in selling, general and administrative expenses, $45,999 and 25,957 of stock compensation expense for the years ended September 30, 2011 and 2010, respectively.

The following are the assumptions made in computing the fair value of the share-based awards:

	2011	2010
Dividend yield	--	--
Expected volatility	129.73% - 137.95%	125.86%
Risk-free interest rate	1.47% - 3.48%	3.34%
Expected life in years	5 - 10	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 evaluation model. The risk-free rate for periods within the contractual life of the option is based on the U.S Treasury yield curve in effect at the time of the grant.

A summary of the stock option activity for the year ended September 30, 2011 and related information is shown below:

	Shares	Weighted-Average Exercise Price	Weighted- Average Life in years

Balance, October 1, 2009	1,007,208	$0.24	7.21
Granted	1,955,000	0.11	9.66
Exercised	-	-	-
Cancelled or expired	(30,000)	0.32	1.64

Balance, September 30, 2010	2,932,208	$0.15	7.56
Granted	230,000	0.10	5.26
Exercised	-	-	-
Cancelled or expired	(20,000)	$0.17	1.78

Balance, September 30, 2011	3,142,208	$0.14	7.43

Exercisable, September 30, 2011	1,709,375	$0.17	6.87

Exercise prices for options outstanding as of September 30, 2011 ranged from $0.04 to $0.97 as follows:
	Options Outstanding
		Range of Exercise Prices	Number Outstanding at September 30, 2011	Weighted-Average Remaining Contractual Life (years)	Weighted Average Exercise Price

		0.04 – 0.14	2,255,000	8.3	0.11
		0.15 – 0.24	737,208	5.6	0.19
		0.25 – 0.34	55,000	3.3	0.28
		0.35 – 0.59	50,000	6.6	0.35
		0.60 – 0.70	25,000	2.4	0.70
		0.71 – 0.97	20,000	0.4	0.97
		0.04 – 0.97	3,142,208	7.3	0.14

The weighted-average grant date fair value of options granted during 2011 and 2010 was $10,158 and $130,177, respectively.

Assuming that no additional share-based payments are granted after September 30, 2011, $79,823 of compensation expense will be recognized in the consolidated statement of operations over a weighted-average period of five years. The options outstanding and exercisable as of September 30, 2011 have no intrinsic value.

Warrants

On February 7, 2011 TiFunding LLC, a Delaware limited liability company owned by William P. Hales , the Company’s Chief Executive Office and President, and his father purchased the senior secured credit line facility from Bay Bank, FSB for approximately $360,000. In connection with the facility, the Company issued to TiFunding warrants to purchase $1,000,000 in shares of the Company’s common stock at an exercise price of $0.20 per share. These warrants are exercisable at any time until February 7, 2016 and have certain demand registration rights. The expense related to these warrants is being amortized over the life of the warrants and is included as interest expense in the accompanying financial statements.

The following table summarizes the Company’s warrant activity for the twelve months ended September 30, 2011:

	Warrants		Average Weighted Exercise Price	Weighted Average Life (in years)
Warrants Outstanding – October 1, 2010	--		--	--
Granted	5,000,000	$	.20	4.36
Exercised	--		--	--
Forfeited, cancelled or expired	--		--	--
Warrants outstanding – September 30, 2011	5,000,000	$	.20	4.36

Warrants exercisable – September 30, 2011	5,000,000	$	.20	4.36

The weighted-average grant date fair value of the warrants issued during 2011 was $239,091. As of September 30, 2011 there was $207,212 of unamortized interest expense associated with these warrants. This expense will be fully amortized within five years.

Stockholder Rights Agreement

In April 2010, the Company's Board of Directors approved a Stockholder Rights Agreement (the "Agreement"). Under the Agreement the Company declared a dividend of one common stock purchase right (a "Right") for each share of the Company's outstanding common stock as of April 29, 2010. Each Right entitles the holder to purchase from the Company one share of Common Stock of the Company at a cash exercise price of $0.15 per share (the "Exercise Price"), subject to adjustment, under certain conditions provided in the Agreement.

The Rights become exercisable only if a person or group, as defined in Section 13(d)(3) of Securities Exchange Act of 1934, as amended, acquires beneficial ownership of 10 percent or more of the Company's outstanding common stock or announces a tender offer that would result in beneficial ownership of 10 percent or more of the Company's outstanding common stock.

William P. Hales, the Company's Chief Executive Officer, who is a stockholder and a debt holder of the Company, is exempt under the Agreement. The Rights, which are scheduled to Expire on April 29, 2020, are redeemable in whole at the Company's option at $0.0000001 per Right at the times and under the circumstances set forth in the Agreement. No Rights have yet been exercised or have redeemed under the Agreement.

- 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.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef

-Publisher SEC

-Name Regulation S-X (SX)

-Number 210

-Section 04

-Article 3

Reference 2: http://www.xbrl.org/2003/role/presentationRef

-Publisher SEC

-Name Regulation S-X (SX)

-Number 210

-Section 02

-Paragraph 29, 30, 31

-Article 5

Reference 3: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 310

-SubTopic 10

-Section S99

-Paragraph 2

-Subparagraph (SAB TOPIC 4.E)

-URI http://asc.fasb.org/extlink&oid=6228006&loc=d3e74512-122707

Reference 4: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 505

-SubTopic 10

-Section 50

-Paragraph 4

-URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21484-112644

Reference 5: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 505

-SubTopic 10

-Section S99

-Paragraph 4

-Subparagraph (SAB TOPIC 4.C)

-URI http://asc.fasb.org/extlink&oid=6959260&loc=d3e187143-122770

Reference 6: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 129

-Paragraph 2, 3, 4, 5, 6, 7, 8

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 7: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Glossary Preferred Stock

-URI http://asc.fasb.org/extlink&oid=6521494

Reference 8: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 5

-Paragraph 15

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 9: http://www.xbrl.org/2003/role/presentationRef

-Publisher SEC

-Name Regulation S-X (SX)

-Number 210

-Section 08

-Article 4

Reference 10: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 505

-SubTopic 10

-Section S99

-Paragraph 1

-Subparagraph (SX 210.3-04)

-URI http://asc.fasb.org/extlink&oid=6959260&loc=d3e187085-122770

Reference 11: http://www.xbrl.org/2003/role/presentationRef

-Publisher SEC

-Name Staff Accounting Bulletin (SAB)

-Number Topic 4

-Section C

Reference 12: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 505

-SubTopic 10

-Section 50

-Paragraph 5

-URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21488-112644

Reference 13: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 210

-SubTopic 10

-Section S99

-Paragraph 1

-Subparagraph (SX 210.5-02.29-31)

-URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682

Reference 14: http://www.xbrl.org/2003/role/presentationRef

-Publisher SEC

-Name Regulation S-X (SX)

-Number 210

-Article 4

-Section 08

-Paragraph d

Reference 15: http://www.xbrl.org/2003/role/presentationRef

-Publisher SEC

-Name Staff Accounting Bulletin (SAB)

-Number Topic 4

-Section E

Reference 16: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 505

-SubTopic 30

-Section 50

-Paragraph 2

-URI http://asc.fasb.org/extlink&oid=6405834&loc=d3e23285-112656

Reference 17: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 505

-SubTopic 10

-Section 50

-Paragraph 3

-URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21475-112644

Reference 18: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 235

-SubTopic 10

-Section S99

-Paragraph 1

-Subparagraph (SX 210.4-08.(d),(e))

-URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690

Reference 19: http://www.xbrl.org/2003/role/presentationRef

-Publisher AICPA

-Name Accounting Research Bulletin (ARB)

-Number 43

-Chapter 1

-Section B

-Paragraph 7, 11A

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 20: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 505

-SubTopic 10

-Section 50

-Paragraph 2

-URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21463-112644

Reference 21: http://www.xbrl.org/2003/role/presentationRef

-Publisher AICPA

-Name Accounting Principles Board Opinion (APB)

-Number 12

-Paragraph 10

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 22: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 505

-SubTopic 10

-Section 50

-Paragraph 6

-URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21506-112644

Reference 23: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 505

-SubTopic 10

-Section 50

-Paragraph 11

-URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21564-112644

+ Details

HEMAGEN DIAGNOSTICS INC 10-K