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v2.3.0.15
STOCKHOLDERS' EQUITY
9 Months Ended
Sep. 30, 2011
Stockholders Equity Note [Abstract] 
Stockholders' Equity Note Disclosure [Text Block]
NOTE 10 – STOCKHOLDERS’ EQUITY
 
Preferred Stock
 
Our Amended and Restated Articles of Incorporation allow us to issue up to 10,000,000 shares of preferred stock without further stockholder approval and upon such terms and conditions, and having such rights, preferences, privileges, and restrictions as the Board of Directors may determine.  No preferred shares are currently issued and outstanding.

Common Stock
 
Unit Offering
 
From January 12 to February 4, 2011, we sold 401,500 units at a subscription price of $1.00 per unit for net proceeds of $401,500 in our unit private placement.  Each unit consisted of two shares of common stock and a two-year warrant to purchase one share of common stock at an exercise price of $1.00 per share.  A total of 803,000 shares of common stock and warrants to purchase 401,500 shares of common stock at an exercise price of $1.00 were issued.  Included in these amounts are 133,000 shares of our common stock and 66,500 warrants issued upon the conversion of $66,500 in accounts payable to R. Gale Sellers, our former Chief Executive Officer and board member.
 
The net proceeds were allocated based on the relative fair values of the common stock and the warrants on the dates of issuance.  The allocated fair value of the warrants was $67,776 and the balance of the proceeds of $333,724 was allocated to the common stock.  
 
The fair value of the warrants issued in our unit private placement was calculated using the Black-Scholes option valuation model with the following assumptions:
 
Closing market price of common stock
 
$0.50 to $0.56
Estimated volatility
 
105.5% to 108.7%
Risk free interest rate
 
0.54% to 0.77%
Expected dividend rate
 
-
Expected life
 
2 years
 
Private Placement
 
On February 8, 2011, we completed a private placement to eight institutional accredited investors of 4,911,112 shares of our common stock, at a purchase price of $0.45 per share, for gross proceeds of $2,210,000.  As part of the private placement, the investors were issued five-year warrants to purchase 4,911,112 shares of our common stock, at an initial exercise price of $0.60 per share.  As discussed in Note 7, the exercise price was reduced on June 22, 2011 to $0.55 per share as a result of the issuance of the convertible debentures as described in Note 6.
 
These warrants contain a full ratchet provision which reduces the exercise price of the warrant in the event we issue common stock or common stock equivalents at a price lower than the exercise price of the warrants.  The exercise price cannot be reduced below $0.45 per share. As such, the warrants have been treated as a derivative warrant liability as discussed in Note 7.
 
For each of the warrants, the holder will be able to exercise the warrant on a so-called cashless basis at any time following the one-year anniversary of the closing of the private placement in which a registration statement covering the shares of our common stock underlying such warrants is not effective.
 
The net proceeds from the private placement totaling $2,001,901, following the payment of offering-related expenses of $208,099, were used by us for our capital expenditure requirements and for working capital and other general corporate purposes.  At the closing of the private placement, we paid Rodman & Renshaw LLC, the placement agent for the private placement, cash compensation of 7% of the gross proceeds of the private placement and a five-year warrant to purchase up to 343,778 shares of our common stock, at an initial exercise price of $0.60 per share. As discussed in Note 7, the exercise price was reduced on June 22, 2011 to $0.55 per share as a result of the issuance of the convertible debentures as described in Note 6.
 
We agreed, pursuant to the terms of a registration rights agreement with the investors, to file a shelf registration statement with respect to the resale of the shares of our common stock sold to the investors and shares of our common stock issuable upon exercise of the warrants with the SEC on or before April 10, 2011; and to use our best efforts to have the shelf registration statement declared effective by the SEC as soon as possible after the initial filing, and in any event no later than 90 days after the closing date (or 150 days in the event of a review of the shelf registration statement by the SEC). We also agreed to keep the shelf registration statement effective until all registrable securities may be sold under Rule 144 under the Securities Act of 1933 and if we are unable to comply with this covenant, we will be required to pay liquidated damages to the investors in the amount of 1.5% of the investors’ purchase price per month during such non-compliance (capped at a maximum of 10% of the purchase price), with such liquidated damages payable in cash.  We filed the registration statement on April 10, 2011 and it was declared effective on April 18, 2011.  We evaluated any liability under the registration rights agreement at September 30, 2011 and determined no accrual was necessary.

The investors agreed, pursuant to the securities purchase agreement, not to engage in any short sales (as defined in the agreement) until the earlier of the effective date of the shelf registration statement referred to above or the date when the shares of our common stock sold to the investors and shares of our common stock issuable upon exercise of the warrants are eligible for sale under Rule 144 under the Securities Act of 1933.  We also granted the investors the right to participate in future equity financing transactions within the 12 months following the closing of the private placement and agreed to certain restrictions on our ability to sell our equity securities until 60 days after the effective date of the shelf registration statement.
 
Issuances of Common Stock
 
On June 22, 2011, we issued 300,000 shares of common stock with a fair value of $135,000 based on the closing market price as of that date of $0.45 per share to Milan Gottwald pursuant to the Sendio facilities purchase agreement as described in Note 5.
 
Stock and Stock Options issued and exercised pursuant to the 2007 Stock Incentive Plan
 
Stock issuances
 
On March 17, 2011, we issued 100,000 shares of common stock from the 2007 Stock Incentive Plan with a fair value of $51,000 based on the closing market price as of that date of $0.51 per share pursuant to the settlement of a dispute with a former consultant and employee to the Company.
 
On June 15, 2011, we issued 250,000 shares of common stock with a fair value of $112,500 based on the closing market price as of that date of $0.45 per share for services to Integrated Sales Solutions, a company controlled by our President and Chief Operating Officer, Billy K. Hamlin.
 
On July 28, 2011, Bill K. Hamlin, a current member of our board of directors, was appointed to the positions of President and Chief Operating Officer of Vu1.  As part of his employment agreement, Mr. Hamlin agreed to convert $105,000 of his annual salary into 262,500 shares of our common stock at a conversion price of $0.40 per share, based on the closing market price of our common stock on the first day of his employment.  These shares will vest in twelve equal monthly installments over the term of his employment agreement.  We recognized a total of $18,361 of compensation expense relative to the 45,902 shares that vested for the three and nine months ended September 30, 2011.
 
On October 4, 2010, we issued 470,588 shares of common stock to Phil Styles, our former Chief Executive Officer, at price of $0.51 per share based on the closing market price for our common stock as of that date.  The shares were issued pursuant to his employment agreement, which provides for the vesting of these shares as his annual salary of $240,000 is earned but unpaid.  During the nine months ended September 30, 2011, Mr. Styles converted $47,670 of his salary into 93,470 shares of common stock, and the remaining 253,661 unvested shares were forfeited.
 
Option issuances
 
On March 14, 2011, our board of directors increased the number of shares of our common stock that we are authorized to issue under the 2007 Stock Incentive Plan from 10,000,000 shares to 20,000,000 shares. A majority of our stockholders approved the amendment to the Stock Incentive Plan on October 10, 2011.
 
Also on March 14, 2011, our board of directors issued ten-year options to purchase a total of 625,000 shares of our common stock at an exercise price of $0.52 per share based on the closing market price as of that date to certain  of our directors and an officer. The fair value of the options granted of $285,032 was calculated using the Black-Scholes option valuation model.
 
On April 27, 2011, we issued five-year options to purchase 2,216,129 shares of our common stock at an exercise price of $0.391 per share based on the closing market price as of that date to Scott C. Blackstone, Ph.D., our Chief Executive Officer, in conjunction with his employment agreement as of that date.  The options vest monthly over three years from the date of issuance.  The fair value of the options granted of $616,084 was calculated using the Black-Scholes option valuation model.
On July 28, 2011, we issued stock options to purchase up to 1,400,000 shares of our common stock at an exercise price of $0.40 per share, the closing market price on Bill K. Hamlin’s first day of employment, from the Stock Incentive Plan.  A total of 600,000 options will vest over the term of his employment agreement, and the remaining 800,000 options will vest upon meeting certain performance criteria set by the Company.  The fair value of the options granted of $244,580 was calculated using the Black-Scholes option valuation model.
 
On August 22, 2011, we issued stock options to purchase 1,000,000 shares of our common stock at an exercise price of $0.39 per share, the closing market price on the date of issuance, to certain directors and an officer from the Stock Incentive Plan.  The options vest upon issuance.  The fair value of the options granted of $246,500 was calculated using the Black-Scholes option valuation model.
 
On September 12, 2011, we issued stock options to purchase 100,000 shares of our common stock at an exercise price of $0.39 per share, the closing market price on the date of issuance, to an employee from the Stock Incentive Plan.  The options vest ratably over five years.  The fair value of the options granted of $23,190 was calculated using the Black-Scholes option valuation model.
 
We used the following assumptions in the calculations of the Black Scholes option valuation model to calculate the fair value of options issued during the nine months ended September 30, 2011:
 
Closing market price of common stock
 
$0.391 - 0.52
Estimated volatility
 
92%
Risk free interest rate
 
2.06% - 3.36%
Expected dividend rate
 
 -
Expected life
 
5-10 years
 
We recognized compensation expense of $919,520 and $550,413 related to the vested portion of stock and stock options based on their estimated grant date fair value as research and development expense or general and administrative expense based on the specific recipient of the award for the nine months ended September 30, 2011 and 2010, respectively.
 
At September 30, 2011, there are 216,598 shares of unvested restricted stock issued in 2007 of which we anticipate $86,639 of unrecognized compensation expense will be recognized ratably through the vesting date of July 27, 2012.   At September 30, 2011, we have unrecognized compensation expense related to stock options of $777,834, of which we anticipate $79,996 will be recognized through December 31, 2011, $413,368, $212,904 and $71,566 will be recognized in fiscal year 2012, and 2013 and 2014, respectively.
 
Warrants
 
During the nine months ended September 30, 2011, we issued five-year warrants to purchase 4,911,112 shares of our common stock, at an initial exercise price of $0.60 per share in a private placement as described above. On June 22, 2011, the exercise price of the warrants was reduced from $0.60 per share to $0.55 per share as a result of the issuance of the convertible debentures at a conversion price of $0.55 per share as described in Note 6. We also issued two-year warrants to purchase 401,500 shares of common stock at an exercise price of $1.00 in our unit offering, described above.  In addition, we issued five-year warrants to purchase 4,267,486 shares of our common stock, at an exercise price of $0.65 per share as described in Note 6.
 
During the nine months ended September 30, 2011, warrants to purchase 139,750 shares of common stock with an exercise price of $0.60 per share expired unexercised.
 
A summary of our outstanding warrants at September 30, 2011 is as follows:

Weighted-Average
       
Exercise
 
Warrants
   
Remaining Contractual
   
Number
 
Price
 
Outstanding
   
Life (Years)
   
Exercisable
 
$0.38
    75,000       1.6       75,000  
$0.55
    5,254,890       4.4       5,254,890  
$0.65
    4,267,486       4.7       4,267,486  
$0.75
    7,969,333       1.4       7,894,333  
$1.00
    871,900       1.2       871,900  
      18,438,609       3.0       18,363,609