Note 8 - Stockholders' Equity

9 Months Ended

Sep. 30, 2012

Notes

Note 8 - Stockholders' Equity

NOTE 8 – 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 24 to September 30, 2012 we sold 467,489 units at a subscription price of $3.50 per unit for proceeds of $1,636,199 in our unit private placement.  Each unit consisted of one share of common stock and a three-year warrant to purchase one share of common stock at an exercise price of $3.75 per share.  A total of 467,489 shares of common stock and warrants to purchase 467,489 shares of common stock at an exercise price of $3.75 were issued.  Included in these amounts are 12,000 shares of our common stock and 12,000 warrants issued upon the conversion of $42,000 in accounts payable to a vendor and 55,267 shares of our common stock and 55,267 warrants issued upon the conversion of loans totaling $193,431 (including accrued interest and loan fees of $18,431).  Also included in these amounts is cash investment of $105,000 and $15,000 received from two of our board members.

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 $721,896 and the balance of the proceeds of $914,303 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	$2.10 to $6.00
Estimated volatility	81.0% to 307.9%
Risk free interest rate	0.28% to 0.56%
Expected dividend rate	-
Expected life	3 years

Issuances of common stock

During the nine months ended September 30, 2012 we issued 467,489 shares of common stock in our unit offering described above.

On September 11, 2012 we issued 12,500 shares of common stock with a fair value of $30,625 based on the closing market price as of that date to a vendor for services.  We recognized this as marketing expense in the accompanying statements of operations for the three and nine months ended September 30, 2012.

Effective July 24, 2012 we issued 59,000 shares of our restricted common stock valued at $142,780 based on the closing market price for our common stock of $2.42 per share pursuant to an agreement with a vendor for investor relations services.  Effective August 31, 2012, we terminated the contract pursuant to its terms and cancelled the issuance of 52,858 shares.  Accordingly, we recognized the fair value of the 6,142 shares of $14,864 as marketing expense in the accompanying statements of operations for the three and nine months ended September 30, 2012.

On August 31, 2012 we issued 5,230 shares of common stock with a fair value of $12,500 to SAM Advisors, LLC and on September 30, 2012 we issued 5,682 shares of common stock with a fair value of $12,500 to SAM Advisors, LLC. The issuances were based in the closing market prices as of the date of issuance pursuant to our agreement to convert their $12,500 monthly consulting fee to stock at the closing market price on the last business day of each month. SAM Advisors, Inc. is an entity controlled by William B. Smith, our chairman and chief executive officer.

Stock and Stock Options issued and exercised pursuant to the 2007 Stock Incentive Plan

Stock issuances

On June 1, 2012 we granted a total of 148,500 shares of restricted common stock to the six non-executive board members for service on the board of directors.  The shares had a fair value of $504,900 based on the closing market price of $3.40 on the date of grant.  The shares vest on June 1, 2013.    

On August 17, 2012 we granted 20,000 shares of restricted common stock to an officer for service.  The shares had a fair value of $44,800 based on the closing market price of $2.24 on the date of grant.  The shares vest on August 17, 2013.

We recognized a total of $132,665 and $172,780 of compensation expense as general and administrative expenses for the three and nine months ended September 30, 2012.

At September 30, 2012, there are 168,500 shares of unvested restricted stock representing $376,920 of unrecognized compensation expense of which we anticipate $138,556 will be recognized through December 31, 2012 and $238,364 will be recognized through the vesting dates in 2013, respectively.

On July 28, 2011, Bill K. Hamlin, then a 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 13,125 shares of our common stock at a conversion price of $8.00 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.  Mr. Hamlin resigned his position as President and Chief Operating Officer effective May 11, 2012.  We recognized a total of $0 and $37,869 of compensation expense relative to the 0 and 4,735 shares of common stock that vested for the three and nine months ended September 30, 2012.  A total of 2,795 shares of common stock were forfeited.

Option issuances

No options were issued during the nine months ended September 30, 2012.

We recognized compensation expense of $1,933, $351,499, $132,417 and $919,520 related to the vested portion of stock options based on their estimated grant date fair value as marketing expense, research and development expense or general and administrative expense based on the specific recipient of the award for the three and nine months ended September 30, 2012 and 2011, respectively.

At September 30, 2012, we have unrecognized compensation expense related to stock options of $15,460, of which we anticipate $1,932 will be recognized through December 31, 2012 and $7,730 and $5,798 will be recognized in 2013 and 2014, respectively.

Warrants

During the nine months ended September 30, 2012 we issued three year warrants at an exercise price of $3.75 per share to purchase 467,489 shares of common stock in our unit offering described above.

Also during the nine months ended September 30, 2012 we issued three year warrants at an exercise price of $11.00 per share to purchase 57,500 shares of common stock to three investors upon the conversion of a convertible bridge notes as described in Note 6.

On January 24, 2012, the exercise price of the warrants to purchase 262,750 shares of common stock issued in conjunction with our February 9, 2011 private placement was reduced from $11.00 per share to $9.00 per share as a result of the issuance of the common stock and warrants in our unit private placement describe above.

During the nine months ended September 30, 2012 warrants to purchase a total of 78,758 shares of common stock with an exercise price of $15.00 expired unexercised.

A summary of our outstanding warrants at September 30, 2012 is as follows:

		Weighted-Average
Exercise	Warrants	Remaining Contractual	Number
Price	Outstanding	Life (Years)	Exercisable
$3.75	465,403	2.5	465,403
$7.60	3,750	0.6	3,750
$9.00	262,750	3.4	262,750
$11.00	57,500	2.6	7,500
$13.00	213,380	3.7	213,380
$15.00	319,730	0.5	319,730
$20.00	43,595	0.2	43,595
	1,366,108	2.3	1,366,108