COMMON STOCK EQUIVALENTS

6 Months Ended

Mar. 31, 2012

COMMON STOCK EQUIVALENTS

COMMON STOCK EQUIVALENTS

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,
	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.