Note 8 - Loans Payable

12 Months Ended

Dec. 31, 2014

NOTE 8 – LOANS PAYABLE

On December 20, 2012, we received gross proceeds of $100,000 pursuant to the terms of a Loan Agreement dated December 20, 2012. The loan is secured by a deed of assignment for certain future inventory and proceeds from the sale of that inventory as described in the deed of assignment. The loan was payable on June 23, 2013, six months from the date of the agreement. We prepaid interest of $25,000 for the term of the loan and $15,000 for loan costs, which were amortized over the life of the note. We recognized $339,900 and $81,714 of interest expense and $0 and $23,514 for loan cost amortization within interest expense for the years ended December 31, 2014 and 2013, respectively.

On June 23, 2013 we did not repay the loan and it is in default. As a result of the default, the interest rate on the loan is 109.5% per annum from the date of default. The interest each month is accumulated and becomes part of the loan balance for the following month. Effective January 20, 2015 the holders of these notes converted the outstanding balance of principal and accrued interest into shares of our common stock and warrants to purchase common stock. See Note 12. «AGJPWCCD»

Total principal payments for future years for the Convertible Bridge Loans, the Convertible Debentures described in Note 6, the Convertible Bridge Loans described in Note 7 and the Loan Payable are as follows as of December 31, 2014:

		December 31, 2014
2015		2,888,300
		$ 2,888,300

On May 9, 2014 we issued an unsecured Convertible Promissory Note for cash to an accredited investor in the amount of $132,876. The note bears interest at an annual rate of 7% per year, payable on the six month and one year anniversary of the note. The interest is payable at the option of the Company in either cash or shares of common stock at the market price on the interest payment dates as defined in the note. The note is convertible at any time at the option of the holder at a rate of $0.50 per share into 265,751 shares of our common stock. We evaluated the Note and determined it had a beneficial conversion feature due to the conversion price being lower than the market price of our common stock of $0.86 per share on the date of issuance. Accordingly, we recognized a discount related to the beneficial conversion feature associated with the Note in the amount of $95,671 for the year ended December 31, 2014.

On June 30, 2014 the holder of the note converted the principal amount by its terms into 265,751 shares of common stock. In addition, the Company issued 1,440 shares of common stock related to the accrued interest of $1,325 based on the market price on the date of conversion of $0.92 per share.

We recognized interest expense, comprised of $1,325 related to the stated interest rate of the note and $95,671 related to the beneficial conversion feature for the year ended December 31, 2014.

On May 16, 2013 we received gross proceeds of $100,000 pursuant to a Loan Agreement as of that date. The term of the loan was for 30 days. Total interest for the 30 day term was $10,000, which was recognized as interest expense for the year ended December 31, 2013. On June 18, 2013 the holder of the loan converted $110,000 of principal and interest in our unit private placement as further described in Note 9 at a conversion price of $1.50 per share into 73,333 shares of common stock and three-year warrants to purchase common stock at an exercise price of $2.00 per share. The fair value of the common stock was $95,333 based on the market prices of our common stock on the date of conversion of $1.30 per share. The fair value of the three year warrants to purchase 73,333 shares of our common stock at an exercise price of $2.00 per share was $43,687. We recognized a loss on conversion of debt for the year ended December 31, 2013 in the amount of $29,020.

The fair value of the warrants issued upon the conversion was computed using the Black Scholes Option Pricing model using the following assumptions – expected life – 3 years, risk free interest rate – 0.42%, volatility – 91.4%, and an expected dividend rate of 0%.

Vu1 CORP 10-K