vu1.htm

Vu1 CORPORATION

INDEX TO QUARTERLY REPORT ON FORM 10-Q


	Page Number
PART I Financial Information

ITEM 1. Condensed Consolidated Financial Statements (unaudited)
Balance Sheets as of March 31, 2015 and December 31, 2014	1
Statements of Operations for the Three Months Ended March 31, 2015 and 2014	2
Statements of Cash Flows for the Three Months Ended March 31, 2015 and 2014	3
Notes to Condensed Consolidated Financial Statements	4

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
ITEM 4. Controls and Procedures	15

PART II Other Information

ITEM 1. Legal Proceedings	15
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	16
ITEM 6. Exhibits	16

Signatures	17

EXPLANATORY NOTE

Unless otherwise indicated or the context otherwise requires, all references in this Report to “we,” “us,” “our,” and the “Company” are to Vu1 Corporation, Sendio, s.r.o., our Czech subsidiary, and Telisar Corporation, our inactive subsidiary.

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

Forward Looking Statements

We are including the following cautionary statement in this Quarterly Report on Form 10-Q to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements. All statements other than statements of historical fact, including statements concerning plans, objectives, goals, strategies, future events or performance and underlying assumptions, future results of operations or financial position, made in this Report are forward looking. In particular, the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” “will,” variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements and their absence does not mean that the statement is not forward-looking.

The forward-looking statements contained in this Report involve risks and uncertainties which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Our expectations, beliefs and projections are expressed in good faith and are believed by management to have a reasonable basis, including without limitation, management’s examination of historical operating trends, data contained in our records and other data available from third parties; however, management’s expectations, beliefs and projections may not be achieved or accomplished. In addition to other factors and matters discussed elsewhere in this Report, the following are important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements:

· our lack of working capital and lack of revenues;

· the availability of capital to us, in the amount and time needed, to fund our development programs and operations, and the terms and dilutive effect of any such financings;

· our ability to be successful in our product development and testing efforts;

· our ability to obtain commercial development for our planned products;

· our ability to obtain manufacturing for our planned products in a cost-effective manner and at the times and in the volumes required, while maintaining quality assurance;

market demand for and acceptance of our planned products, and other factors affecting market conditions;

· technological advances and competitive pressure by our competitors;

· governmental regulations imposed on us in the United States and European Union; and

· the loss of any of our key employees or consultants.

For additional factors that can affect these forward-looking statements, see the “Risk Factors” section in our Annual Report on Form 10-K for the year ended December 31, 2014. The forward-looking statements contained in this Report speak only as of the date hereof. We caution readers not to place undue reliance on any such forward-looking statements. Except as required by U.S. federal securities laws, we disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof.

Vu1 CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

	March 31,			December 31,
ASSETS	2015			2014
Current assets
Cash	$	2,432		$	1,903
Accounts receivable		8,715			-
Inventory		8,000			-
Prepaid expenses		18,251			37,774

Total current assets		37,398			39,677

Non-current assets
Equipment, net of accumulated depreciation of $32,433 and $22,880		158,634			168,187
Total assets	$	196,032		$	207,864


LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	1,505,938		$	1,441,178
Accrued payroll		192,725			192,725
Accrued interest		176,983			500,815
Judgment payable		1,295,920			1,295,920
Loan payable		-			100,000
Convertible debentures		2,788,300			2,788,300
Liabilities of Sendio		555,454			555,454
Total current liabilities		6,515,320			6,874,392

Total liabilities		6,515,320			6,874,392

Stockholders' deficit
Vu1 Corporation's stockholders' deficit
Preferred stock, $1.00 par value; 10,000,000 shares
authorized; no shares issued and outstanding		-			-
Common stock, no par value; 90,000,000 shares authorized;
13,973,093 and 12,950,384 shares issued and outstanding, respectively		86,115,847			84,846,235
Accumulated deficit		(92,339,080	)		(91,416,708	)
Total Vu1 Corporation's stockholders' deficit		(6,223,233	)		(6,570,473	)
Non-controlling interest		(96,055	)		(96,055	)
Total stockholders' deficit		(6,319,288	)		(6,666,528	)
Total liabilities and stockholders' deficit	$	196,032		$	207,864

The accompanying notes are an integral part of these condensed consolidated financial statements.

Vu1 CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	Three months ended March 31,
	2015			2014
Revenue	$	8,715		$	-
Cost of revenue		17,553			-
Gross loss		(8,838	)		-
Operating expenses
Research and development		60,881			289,497
General and administrative		167,256			295,354
Marketing		1,497			67,101
Total operating expenses		229,634			651,952

Loss from operations		(238,472	)		(651,952	)

Other income (expense)
Interest expense		(103,200	)		(150,875	)
Loss on conversion of debt		(580,700	)		-

		(683,900	)		(150,875	)

Loss before provision for income taxes		(922,372	)		(802,827	)

Provision for income taxes		-			-

Net loss	$	(922,372	)	$	(802,827	)

Loss per share
Basic	$	(0.07	)	$	(0.08	)
Diluted	$	(0.07	)	$	(0.08	)
Weighted average shares outstanding
Basic		13,635,824			10,346,5880
Diluted		13,635,824			10,346,588

The accompanying notes are an integral part of these condensed consolidated financial statements.

Vu1 CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Three months ended March 31,
	2015			2014
Cash flows from operating activities:

Net loss	$	(922,372	)	$	(802,827	)
Adjustments to reconcile net loss to
net cash flows from operating activities:
Depreciation		9,553			3,402
Share-based compensation		1,881			129,601
Loss on extinguishment of debt		580,700			-
Changes in assets and liabilities:
Accounts receivable		(8,715	)		-
Inventory		(8,000	)		-
Prepaid expenses		19,523			113,602
Accounts payable		64,760			88,295
Accrued interest		103,199			150,875
Net cash flows from operating activities		(159,471	)		(317,052	)

Net cash flows from investing activities		-			-

Cash flows from financing activities:
Net proceeds from sales of common stock and warrants		160,000			275,000
Net cash flows from financing activities		160,000			275,000

Net change in cash		529			(42,052	)
Cash, beginning of period		1,903			92,795

Cash, end of period	$	2,432		$	50,743

Supplemental Cash Flow Information:
Cash paid for interest	$	-		$	-

Supplemental Noncash Investing and Financing Activities:
Conversion of loan and interest to stock and warrants	$	1,107,731		$	-

The accompanying notes are an integral part of these condensed consolidated financial statements.

Vu1 CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BUSINESS AND ORGANIZATION

General

All references in these consolidated financial statements to “we,” “us,” “our,” and the “Company” are to Vu1 Corporation, Sendio, s.r.o., our former Czech subsidiary, and Telisar Corporation, our inactive subsidiary unless otherwise noted or indicated by its context.

We are focused on developing, manufacturing and selling a line of mercury free, energy efficient light bulbs based on our proprietary light-emitting technology. For the past several years, we have primarily focused on research and development efforts for our technology products and the related manufacturing processes.

We have one inactive subsidiary, Telisar Corporation, a California corporation and 66.67% majority-owned subsidiary.

NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated unaudited financial statements included in this Form 10-Q have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, these financial statements do not include all of the disclosures required by U.S. generally accepted accounting principles for complete financial statements. These consolidated unaudited interim financial statements should be read in conjunction with the audited financial statements for the fiscal year ended December 31, 2014 in our Annual Report on Form 10-K. The financial information furnished herein reflects all adjustments consisting of normal, recurring adjustments which, in the opinion of management, are necessary for a fair presentation of our financial position, the results of operations and cash flows for the periods presented. Operating results for the quarterly period ended March 31, 2015 are not necessarily indicative of results for future quarters or periods in the fiscal year ending December 31, 2015.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and all of its wholly-owned and controlled subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

For purposes of the statements of cash flows, we consider all investments purchased with original maturities of three months or less to be cash equivalents. At March 31, 2015 and December 31, 2014 we had no cash in excess of federal insurance limits.

Equipment

Equipment is comprised of equipment used in the manufacturing process for our lighting products and is stated at cost. We provide for depreciation using the straight-line method over the estimated useful lives of three to five years. Expenditures for maintenance and repairs are charged to operations as incurred while renewals and betterments are capitalized. Gains or losses on the sale of equipment are reflected in the statements of operations.

Long-Lived Assets

Long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. Recoverability of assets to be held and used is measured by comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount that the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Income Taxes

We recognize the amount of income taxes payable or refundable for the current year and recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement amounts of certain assets and liabilities and their respective tax bases. Deferred tax assets and deferred tax liabilities are measured using enacted tax rates expected to apply to taxable income in the years those temporary differences are expected to be recovered or settled. A valuation allowance is required when it is more likely than not that we will not be able to realize all or a portion of our deferred tax assets.

We recognize the impact of an uncertain tax position in the consolidated financial statements of a tax position, if that position is more likely than not of being sustained upon examination, based on the technical merits of the position. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company has elected to classify interest and penalties related to unrecognized tax benefits, if and when required, as part of income tax expense in the consolidated statements of operations.

Fair Value of Financial Instruments

Financial instruments consist of loans payable, judgment payable and convertible debentures. The fair value of our loans payable and judgment payable are carried at historical cost; their respective estimated fair values approximate their carrying values due to the short term nature of these items. We use level 3 inputs under the fair value hierarchy to estimate the fair value of these instruments. It is not practical to determine the fair value of our convertible debentures due to the unique terms and embedded financial instruments.

Derivative financial instruments, as defined in ASC 815 “Accounting for Derivative Financial Instruments and Hedging Activities” consist of financial instruments or other contracts that contain a notional amount and one or more underlying (e.g., interest rate, security price or other variable), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. We generally do not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks.

Fair Value Measurements

ASC 820 “Fair Value Measurements” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This hierarchy prioritizes the inputs into three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. Significant fair value measurements resulted from the application of ASC 815 to our convertible promissory note and warrant financing arrangements and ASC 718-10 for our share-based payment arrangements.

Non-Controlling Interest

Non-controlling interest represents the equity of the 33.3% non-controlling shareholders of Telisar Corporation. The subsidiary had no operations for all periods presented.

Revenue Recognition

Revenues are recognized when (a) persuasive evidence of an arrangement exists, (b) delivery has occurred and no significant obligations regarding acceptance of the bulbs remain, (c) the price of the bulbs is fixed or determinable and (d) collection is determined to be probable.

Research and Development Costs

For financial reporting purposes, all costs of research and development activities performed internally or on a contract basis are expensed as incurred. For the three months ended March 31, 2015 and 2014, research and development expenses were comprised primarily of technical consulting expenses, travel, materials and operational costs related to the development of the production line.

Share-Based Payments

We account for share-based compensation expense to reflect the fair value of share-based awards measured at the grant date. This expense is recognized over the requisite service period and is adjusted each period for anticipated forfeitures. We estimate the fair value of each share-based award on the date of grant using the Black-Scholes option valuation model. The Black-Scholes option valuation model incorporates assumptions as to stock price volatility, the expected life of options, a risk-free interest rate and dividend yield.

Loss Per Share

We calculate basic loss per share by dividing loss available to common stockholders by the weighted-average number of shares of common stock outstanding, excluding unvested stock. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if the potential common shares, including unvested stock, had been issued and if the additional common shares were dilutive.

The following potentially dilutive shares of common stock are excluded from the computation of diluted net loss per share for all periods presented because the effect is anti-dilutive:

	Three months ended March 31,
	2015		2014
Warrants		6,548,363		5,047,228
Convertible debt		1,277,892		1,152,223
Stock options		829,936		455,524
Unvested stock		-		70,677
Total potentially dilutive securities		8,656,191		6,725,652

Recently Issued Accounting Guidance

In May 2014, the FASB issued changes to the recognition of revenue from contracts with customers. These changes created a comprehensive framework for all entities in all industries to apply in the determination of when to recognize revenue, and, therefore, supersede virtually all existing revenue recognition requirements and guidance. This framework is expected to result in less complex guidance in application while providing a consistent and comparable methodology for revenue recognition. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract(s), (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract(s), and (v) recognize revenue when, or as, the entity satisfies a performance obligation. These changes become effective on January 1, 2017.

NOTE 3 - GOING CONCERN MATTERS

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles which contemplate our continuation as a going concern. During the three months ended March 31, 2015 we had limited revenues, incurred a net loss of $0.92 million, and had negative cash flows from operations of $0.16 million. In addition, we had an accumulated deficit of $92.3 million at March 31, 2015. In addition, we are in default on approximately $0.24 million of our convertible debentures and notes payable plus related accrued interest and have judgments payable related to the convertible debentures of approximately $1.3 million. In addition, in April, 2015 certain judgment holders placed a levy on all of our intellectual property, demanding that we turn over our patents, trade secrets, manufacturing methods and other intellectual property as discussed in Note 4. These factors raise substantial doubt about our ability to continue as a going concern.

Recovery of our assets is dependent upon future events, the outcome of which is indeterminable. Our attainment of profitable operations is dependent upon our obtaining adequate debt or equity financing, developing products for commercial sale, and achieving a level of sales adequate to support our cost structure. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should we be unable to continue in existence.

Our efforts to raise additional funds will continue during fiscal 2015 to fund our planned operations and research and development activities, through one or more debt or equity financings. Subsequent to March 31, 2015, we raised gross proceeds of $150,000 in a private placement of our common stock and warrants to accredited investors. See Note 8.

NOTE 4 - COMMITMENTS AND CONTINGENCIES

Judgments Payable

On June 11, 2014, four holders of our Convertible Debentures totaling $705,900 in principal plus accrued interest of $218,215 as of September 30, 2014 filed a motion seeking summary judgment with the Supreme Court of the State of New York. The case was heard on July 31, 2014 and the court granted their request and on August 20, 2014 issued a judgment in their favor for the full amount of principal and interest, plus certain expenses. We are working with their attorney to attempt to find a settlement agreeable to both parties, but no agreement has been reached. The judgment holders have the right to levy the judgment on our bank accounts, and other assets at any time. In addition, in April, 2015 these judgment holders placed a levy on all of our intellectual property, demanding that we turn over our patents, trade secrets, manufacturing methods and other intellectual property.

On December 22, 2014, one of the holders of our Convertible Debentures totaling $294,125 plus accrued interest and costs of $77,680 obtained a judgment in their favor for the full amount of principal, interest and costs.

The principal, accrued interest and costs described above are classified as Judgment payable on the accompanying balance sheet at March 31, 2015 and December 31, 2014. We have not reached any settlement with the judgment holders as of the date of this report on Form 10-Q.

Lease Agreement

On January 28, 2014 we entered into a lease agreement for approximately 4,600 square feet of office and light industrial space located in Berkeley, California in the United States. We utilize the facility for our research and development activities and as our corporate headquarters.

The lease term is for two years effective from February 1, 2014 and terminates on January 31, 2016. Our remaining lease obligations are $45,000 and $5,000 for the years ended December 31, 2015 and 2016, respectively. The Company is also responsible for certain insurance, utilities, maintenance and other costs as described in the lease.

Liabilities of Sendio

In September 2007, we formed Sendio, s.r.o. (“Sendio”) in the Czech Republic as a wholly-owned subsidiary for the purpose of operating a research and development and pilot manufacturing facility. On February 13, 2012, Sendio filed a petition of insolvency with the Regional Court in Olomouc, Czech Republic. In March, 2012 the court determined that Sendio was insolvent, and control of the legal entity passed to a court appointed trustee. The trustee will oversee the orderly sale of the assets and use any proceeds to satisfy the liabilities of Sendio. These liabilities have been recorded as a current liability on our balance sheet as of March 31, 2015 and December 31, 2014 under the caption “Liabilities of Sendio.”

NOTE 5 – CONVERTIBLE DEBENTURES

On June 22, 2011, pursuant to a Securities Purchase Agreement, dated as of June 16, 2011, with several institutional investors, we completed a private placement of our original issue discount convertible debentures (referred to as the convertible debentures), receiving gross proceeds of $3,500,000. Each convertible debenture was issued at a price equal to 85% of its principal amount. The convertible debentures matured on June 22, 2013, two years after the date of their issuance and did not bear regularly scheduled interest. Investors may convert their convertible debentures into shares of our common stock at any time and from time to time on or before the maturity date, at a conversion price of $11.00 per share.

The convertible debentures will mandatorily convert at our option into shares of our common stock at the conversion price, if the closing bid price for the common stock exceeds $30.00 per share for a period of 10 consecutive trading days, provided that such underlying shares have been fully registered for resale with the U.S. Securities and Exchange Commission (SEC).

The convertible debentures are unsecured, general obligations of our company, and rank pari passu with our other unsecured and unsubordinated liabilities. The convertible debentures are not redeemable or subject to voluntary prepayment by us prior to maturity. The convertible debentures were identical for all of the investors except for principal amount.

The investors agreed not to convert their convertible debentures or exercise their warrants, and we will not be permitted to require a mandatory conversion, to the extent such conversion, exercise or issuance would result in beneficial ownership of more than 4.99% of our outstanding shares at such time.

Events of default under the convertible debentures include:

• failure to pay principal or any liquidated damages on any convertible debenture when due;

•	failure to perform other covenants under the convertible debentures that is not cured five trading days after notice by holders;

•	default under the other financing documents, subject to any grace or cure period provided in the applicable agreement, document or instrument;

•	certain events of bankruptcy or insolvency of our company or any significant subsidiary. The lender has waived this event of default with respect to the insolvency of Sendio.

•	any default by our company or any subsidiary under any instrument in excess of $150,000 that results in such obligation becoming due and payable prior to maturity;

• we become party to a change of control transaction, or dispose of greater than 50% of our assets; and

•	failure to deliver common stock certificates to a holder prior to the tenth trading day after a convertible debenture conversion date.

Upon an event of default, the outstanding principal amount of the convertible debentures, plus a default premium, shall become immediately due and payable to the holders of the convertible debentures.

The convertible debentures contain various covenants that limit our ability to:

• incur additional indebtedness, other than permitted indebtedness as defined in the convertible debenture;

• incur specified liens, other than permitted liens as defined in the convertible debenture;

• amend our certificate of incorporation or by-laws in a material adverse manner to the holders; and

• repay or repurchase more than a de minimus number of shares of our common stock.

As part of the financing, we also agreed not to undertake a reverse or forward stock split or reclassification of our common stock until the one-year anniversary of the closing date, except with the consent of a majority in interest of the holders or in connection with an up-listing of our common stock onto a trading market other than the OTC Bulletin Board.

We also issued to the investors five-year warrants to purchase up to 187,175 shares of our common stock at an exercise price of $13.00 per share. The warrants may be exercised on a cashless basis at any time after the earlier of (i) one year after the date of their issuance or (ii) the completion of the applicable holding period required by Rule 144 in the event the underlying shares have not been fully registered for resale with the SEC. The warrants are not callable. Neither the warrants nor the convertible debentures contain a provision for anti-dilution adjustments in the event of a subsequent equity financing at a price less than the respective warrant exercise price or convertible debenture conversion price.

Pursuant to a Registration Rights Agreement, dated as of June 16, 2011, with the investors, we agreed to file a shelf registration statement covering the resale of the shares of common stock issuable upon the conversion of the convertible debentures and exercise of the warrants within 30 days after the closing, use our best efforts to cause the shelf registration statement to be declared effective within 90 days after the closing (or 120 days in the event of a “full review” by the SEC), and keep the shelf registration statement effective until the underlying shares have been sold or may be sold without volume or manner of sale restrictions pursuant to 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 July 15, 2011 and it was declared effective on July 26, 2011. We evaluated any liability under the registration rights agreement at March 31, 2015 and determined no accrual was necessary.

Effective June 22, 2013, we entered into a letter agreement with holders of $2,553,000 in principal amount of the Debentures. The maturity date of these Debentures was extended to June 23, 2014 and the conversion price was reduced from $11.00 to $2.50 per share. In addition, these Debentures will bear interest at an annual rate of 10% per annum, payable in equal installments on the six month and one year anniversary of the letter agreement. On June 23, 2014 we did not make the required payment of principal payment to the holders of these amended Debentures. As a result, an additional principal amount of $200,000 plus accrued interest is in default as of that date.

On June 20, 2014, we entered into a letter agreement with a Debenture holder of the original principal sum of $2,353,000. Pursuant to the letter agreement, the Company and the holder agreed to extend the maturity date of the Debenture to June 22, 2015 and reduce the conversion price under the Debenture to $2.00 per share from the current $2.50 per share. Additionally, we issued 125,160 shares of our common stock to the holder in payment of accrued, unpaid interest of $117,650 under the Debenture for the period from December 23, 2013 to June 22, 2014, which shares were valued at the closing price of $0.94 per share on the date of the agreement. We evaluated the amended debenture to determine if there was an extinguishment of debt or beneficial conversion feature arising as a result of the amendment and determined there was none.

On October 24, 2014, we entered into a letter agreement with a Debenture holder of the original principal sum of $200,000. Pursuant to the letter agreement, the Company and the holder agreed to extend the maturity date of the Debenture to June 22, 2015 and reduce the conversion price under the Debenture to $2.00 per share from the current $2.50 per share. Additionally, we issued 14,286 shares of our common stock to the holder in payment of accrued, unpaid interest of $10,000 under the Debenture for the period from December 23, 2013 to June 22, 2014, which shares were valued at the closing price of $0.70 per share on the date of the agreement.

We evaluated the amended debentures above to determine if there was an extinguishment of debt or beneficial conversion feature arising as a result of the amendments and determined there was none.

On June 22, 2013, we did not make the required payment on the remaining principal amount of the Debentures of described above, which constituted an event of default under the terms of the remaining original Debentures. The Company is also liable for all other amounts, costs, expenses and liquidated damages due in respect of those Debentures. Additionally, the remaining original Debentures will bear default interest at a rate of 18% per annum. As a result of the Debentures being past due, the investors may at any time exercise their remedies under the terms of the Debentures. On June 11, 2014, four holders of our Convertible Debentures totaling $705,900 obtained a judgment against us as discussed in Note 4.

The carrying value at March 31, 2015 and December 31, 2014 of the convertible debentures is as follows:

	March 31, 2015		December 31, 2014
Debentures Due June 22, 2013, in default, interest at 18%	$	235,300	$	235,300
Debentures Due June 22, 2015, interest at 10%		2,553,000		2,553,000
Carrying value	$	2,788,300	$	2,788,300

Interest expense related to the convertible debentures was $74,268 and $123,875 for the three months ended March 31, 2015 and 2014, respectively.

NOTE 6 – 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. 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. We recognized $28,931 and $27,000 of interest expense for the three months ended March 31, 2015 and 2014, respectively.

Effective January 20, 2015 the holders of the Notes under the Loan Agreement dated December 20, 2012 as discussed in Note 8 converted $100,000 of principal and $427,031 of accrued interest under the Notes into Units of common stock and warrants priced at $0.75 per unit. We issued an aggregate of 702,709 shares of common stock and three year warrants to purchase 702,709 shares of common stock at an exercise price of $1.00 per share. The fair value of the common stock was $702,709 based on the market price of our common stock on the date of conversion of $1.00 per share. The fair value of the warrants to purchase shares of our common stock was $405,022. We recognized a loss on debt conversion for the three months ended March 31, 2015 in the amount of $580,700.

The fair value of the warrants issued upon conversion was computed using the Black Scholes Option Pricing model using the following assumptions – expected life – 3 years, risk free interest rate – 0.85%, volatility – 91.3%, and an expected dividend rate of 0%.

NOTE 7 – 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

2015 Unit Offerings

During the three months ended March 31, 2015 we received gross proceeds of $160,000 from accredited investors at a price of $0.50 per unit and issued 320,000 shares of common stock and five-year warrants to purchase 320,000 shares of common stock at an exercise price of $0.75 per share.

The net proceeds of $160,000 were allocated based on the relative fair values of the common stock and the warrants on the dates of issuance. The amount allocated to the fair value of the warrants was $67,843 and the balance of the proceeds of $92,157 was allocated to the common stock. The fair value of the warrants issued was computed using the Black Scholes Option Pricing model using the following assumptions – expected life – 5 years, risk free interest rate – 1.37% to 1.62%, volatility – 81.6% to 144.9%, and an expected dividend rate of 0%.

On February 10, 2015 we amended our unit offering to extend the $0.75 warrants issued in conjunction with the units sold to five years. In addition, the investors in the offering were granted a down-round protection right to receive additional shares of common stock if any issuance under an offering for the next two years is made by the Company at less than $0.50 per share. In the event of this occurring, the investors will be issued additional shares of common stock at a price equivalent to the offering made at that time. Management has reviewed the down round provisions of the offering that requires the Company to potentially settle the obligation in a variable number of shares in accordance with ASC 815, and determined that the amendment terms does not meet the criteria for bifurcation and recording as a liability. Accordingly, no liability or expense has been recorded for this amendment.

Issuances of common stock

On January 20, 2015 we issued 702,709 shares to the Note holders upon the conversion of a Promissory Note as discussed in Note 6.

During the three months ended March 31, 2015 we issued 320,000 shares of common stock in our unit offering described above.

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

On August 26, 2013 the board of directors increased the number of shares authorized for issuance under the 2007 Stock Incentive Plan (the “Plan”) by 1,500,000 shares to a total of 2,500,000 shares. The increase in shares is subject to shareholder approval of the amendment to the Plan.

Stock issuances

There were no issuances of stock from the Plan for the three months ended March 31, 2015.

We recognized a total of $0 and $101,582 of compensation expense related to restricted stock issuances as general and administrative and research and development expenses for the three months ended March 31, 2015 and 2014, respectively.

At March 31, 2015 there is no unrecognized compensation expense related to stock issued from the Plan.

Stock Option issuances

There were no issuances of stock options from the Plan for the three months ended March 31, 2015.

We recognized compensation expense of $1,881 and $28,019 related to the vested portion of 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 three months ended March 31, 2015 and 2014, respectively.

At March 31, 2015 there is no unrecognized compensation expense related to stock options issued from the Plan.

Warrants

During the three months ended March 31, 2015 we issued three-year warrants to purchase 702,709 shares of common stock at an exercise price of $1.00 per share upon conversion of notes payable, as described above in Note 6.

During the three months ended March 31, 2015 we issued five-year warrants to purchase 320,000 shares of common stock at an exercise price of $0.75 per share in our unit offering described above.

During the three months ended March 31, 2015, a total of 1,096,574 warrants with a weighted average exercise price of $1.78 per share expired unexercised.

A summary of our outstanding warrants at March 31, 2015 is as follows:

		Weighted-Average
Exercise	Warrants	Remaining Contractual	Number
Price	Outstanding	Life (Years)	Exercisable
$0.75	1,490,000	4.6	1,490,000
$1.00	702,709	2.8	702,709
$1.25	1,330,000	0.8	1,330,000
$1.50	1,845,643	0.6	1,845,643
$2.00	580,667	1.2	580,667
$9.00	262,750	0.9	262,750
$11.00	123,214	0.8	123,214
$13.00	213,380	1.2	213,380
	6,548,363	1.8	6,548,363

NOTE 8 – SUBSEQUENT EVENTS

From April 1 to May 12, 2015 we received gross proceeds of $150,000 from accredited investors at a price of $0.50 per unit and issued 300,000 shares of common stock and five-year warrants to purchase 300,000 shares of common stock at an exercise price of $0.75 per share.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto appearing elsewhere in this Report.

Overview

We are focused on designing, developing and selling a line of mercury-free, energy efficient lighting products based on our proprietary light-emitting technology. For the past several years, we have primarily focused our efforts on research and product development of our Electron Stimulated Luminescence™ (ESL) technology. In 2007, we formed Sendio s.r.o. in the Czech Republic as a wholly-owned subsidiary for continued development of our lighting products, and to design the manufacturing processes required for commercialization and manufacturing. During 2010, we continued our development work on the technology to refine the prototype with the miniaturization of the electronics and improvements to the efficiency of the products and the design and implementation of the processes required to manufacture our lights. During the second quarter of 2010, we submitted our initial light for safety certification to Underwriters Laboratories (UL®) and, in October 2010, we received that certification.

We are also developing an R40 flood light for the United States commercial market and a smaller R63 light for the European market to be used in currently-installed recessed lighting fixtures. In addition, we are currently developing our version of the standard Edisonian A19 screw-in light (and its European equivalent, the A60), the most common general purpose electric light in the world. We submitted this light in June 2011 for safety certification to UL and, in August 2011, we received certification.

Our efforts are presently focused on this initial product, the R30 size light for recessed fixtures. We are currently supporting initial production of this light and are continuing to enhance our manufacturing capabilities through an manufacturing outsourcing arrangement in China. The commercial viability of our ESL technology will largely depend on these results, the ability to manufacture our products on a large scale commercial basis, market acceptance of the products and other factors. During the three months ended March 31, 2015 we had limited revenues.

Our independent registered public accounting firm has issued a “going concern” modification to its report on our financial statements for the year ended December 31, 2014, stating that we had a net loss and negative cash flows from operations in fiscal 2014. In addition, the Company has judgments against it in the amount of $1.3 million and the judgment holders have placed a levy on all of the Company's intellectual property. Accordingly, those conditions raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result from this going-concern uncertainty.

We need to raise additional capital through one or more debt or equity financings to continue our operations. If we are unable to obtain additional financing, we will be unable to continue our operations.

Factors Affecting Financial Results

Our anticipated expenditures related to our current operations will primarily depend on personnel costs and additional material and equipment needs for continued development and manufacturing of our line of lighting products. In addition, we anticipate we will incur substantial costs related to continuing the strategic business relationship with our product manufacturer, as well as for sales, marketing and distribution-related costs, and increased administrative costs. An overall estimate of our capital expenditures is primarily dependent upon the success of our development and the commercial manufacturing results for our lighting products, and as such cannot be presently estimated.

Our anticipated costs in 2015 for the continued development of our line of ESL lighting products cannot be reasonably estimated due to the inherent uncertainty of the research and feasibility of the manufacturing processes. There can be no assurance that this development process will be successful or, if successful, that the technology will find a market and achieve sales that can sustain our operations without additional funding.

Our emphasis on the development of our planned products, the additional manufacturing processes required by our product manufacturer, the distribution, marketing and branding of products and the development of sales channels relating to our lighting products will command management’s primary attention during the next 12 months. It will also comprise the primary use of our financial resources. In 2015, our success will depend on our ability to secure additional funding, reach commercial manufacturing levels for our R30, R40 and A19 lights, generate market awareness and acceptance of our current and planned lighting products, protect our technology through patents and trade secrets, and develop our planned products to meet industry standards. If we are unable for technological, financial, competitive or other reasons to successfully take these steps, our business and operations will be adversely affected.

Our cash as of March 31, 2015 is not sufficient to support our operations through fiscal 2015 and it will be necessary for us to seek additional financing. See “Liquidity and Capital Resources” below.

Results of Operations

Comparison of Results for the Three Months Ended March 31, 2015 and 2014

Revenue

We recognized approximately $9,000 in revenue from the sales of our R30 light bulb for the three months ended March 31, 2015. There was no comparable amount for the three months ended March 31, 2014.

Cost of revenue

Cost of revenues was $18,000 for the three months ended March 31, 2015. Cost of revenues includes the cost of product purchased from our outsourced manufacturer, as well as depreciation for the related manufacturing equipment. There was no comparable amount for the three months ended March 31, 2014.

Research and Development Expenses

For the three months ended March 31, 2015 and 2014, we were involved in a single project to develop and commercialize our proprietary technology in our R30 sized light bulbs. Research and development expenditures for the three months ended March 31, 2015 and 2014 were comprised of technical consulting expenses, stock option compensation, product line development fees, materials and travel. Research and development expenses decreased approximately $228,000 to $61,000 for the three months ended March 31, 2015 compared to $289,000 for the three months ended March 31, 2014. The decrease was primarily related to decreases in technical consulting expenses and decreases in materials and travel expenses in the three months ended March 31, 2015.

General and Administrative Expenses

General and administrative expenses for the three months ended March 31, 2015 and 2014 were comprised of share-based compensation expenses, professional and legal fees, consulting expenses, insurance, travel and general corporate related overheads and office expenses. General and administrative expenses decreased by approximately $128,000 to $167,000 for the three months ended March 31, 2015 compared to $295,000 for the three months ended March 31, 2014. The decrease was primarily due to decreases in non-cash charges related to share-based compensation expenses as well as decreases in professional expenses.

Marketing Expenses

Marketing expenses for the three months ended March 31, 2015 and 2014 were comprised of consulting fees for sales and public relations. Marketing expenses decreased by approximately $67,000 to $1,000 for the three months ended March 31, 2014 compared to $68,000 for the three months ended March 31, 2014. The decrease was primarily related to decreases in consulting expenses.

Other Income and Expense

Other income and expense for the three months ended March 31, 2015 and 2014 was comprised of interest expense and loss on conversion of debt. Interest expense for the three months ended March 31, 2015 decreased $48,000 to $103,000 compared to $151,000 for the three months ended March 31, 2014. The decrease in interest expense is primarily due to principal payments and conversions of debt to reduce overall debt levels.

Liquidity and Capital Resources

We had cash of $2,432 and $2.8 million of short-term debt as of March 31, 2015. A total principal amount of $235,300 plus accrued interest on this amount is presently in default with the lenders. Five former holders of our Convertible Debentures hold judgments related to the principal, interest and related costs totaling $1,295,920 as of March 31, 2015 have obtained judgments against. Certain of these judgment holders have demanded we turn over all of our intellectual property to them as discussed in Note 4.

Effective January 20, 2015 the holders of the Notes under the Loan Agreement dated December 20, 2012 as discussed in Note 6 to the consolidated financial statements converted $100,000 of principal and $427,031 of accrued interest under the Notes into an aggregate of 702,709 shares of common stock and three year warrants to purchase 702,709 shares of common stock at an exercise price of $1.00 per share.

From April 1 to May 12, 2015 we received gross proceeds of $150,000 from accredited investors at a price of $0.50 per unit and issued 300,000 shares of common stock and two-year warrants to purchase 300,000 shares of common stock at an exercise price of $0.75 per share.

We do not anticipate that our existing cash and the additional proceeds from our unit offerings will be sufficient to fund our operations and anticipated capital expenditures for the next twelve months. We need additional financing in 2015 to fund our operations, research and product development and manufacturing activities, through one or more debt or equity financings. Our efforts to raise sufficient capital may not be successful, and even if we are able to obtain additional financing, the terms of any such financing may be unfavorable to us and may be highly dilutive to existing stockholders.

If we are unable to obtain sufficient cash to continue to fund operations or if we are unable to locate a strategic partner, we may be forced to further curtail or even cease our operations. Any inability to obtain additional cash as needed would have a material adverse effect on our financial position, results of operations and our ability to continue in existence. Our independent registered public accounting firm added an explanatory paragraph to its opinion on our 2014 financial statements stating that there was substantial doubt about our ability to continue as a going concern.

Contractual Obligations

We have contractual payment obligations for operating leases as of March 31, 2015 of $50,000 related to our California research and development and corporate headquarters lease.

Impact of Inflation

We expect to be able to pass inflationary increases for raw materials and other costs on to our customers through price increases, as required, and do not expect inflation to be a significant factor in our business.

Seasonality

Although our operating history is limited, we do not believe our products are seasonal.

Critical Accounting Estimates and Policies

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the use of estimates that affect the reported amounts of assets, liabilities and expenses. We evaluate our estimates on an ongoing basis and base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances at that time. The discussion below is intended as a brief discussion of some of the judgments and uncertainties that can impact the application of these policies and the dollar amounts reported on our financial statements. Actual results may differ from these estimates under different assumptions or conditions. We believe that the following critical accounting policies affect our more significant estimates used in the preparation of our financial statements and are important to the understanding of our results of operations. This is not a complete list of all of our accounting policies, and there may be other accounting policies that are significant to your understanding of our company. For a detailed discussion on the application of these and our other accounting policies, see Note 2 to our Consolidated Condensed Financial Statements included in this Report.

Share-Based Payments

Fair Value Measurements

ASC 820 “Fair Value Measurements” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This hierarchy prioritizes the inputs into three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. Significant fair value measurements resulted from our discount and beneficial conversion feature and warrant allocation on our convertible notes and our share-based payment arrangements.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

ITEM 4. CONTROLS AND PROCEDURES

As required by Rule 13a-15 under the Exchange Act, as of the end of the fiscal period covered by this report, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of management, including our chief executive officer and chief financial officer. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective at March 31, 2015.

There have been no changes in our internal controls over financial reporting in connection with this evaluation that occurred during the first quarter of fiscal 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information

required to be disclosed in our reports filed or submitted under the Exchange Act (a) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (b) is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We have not reached any settlement with the judgment holders as of the date of this report on Form 10-Q.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the period covered by this Report, we have issued unregistered securities to the persons as described below. None of these transactions involved any underwriters, underwriting discounts or commissions, except as specified below, or any public offering, and we believe that each transaction was exempt from the registration requirements of the Securities Act of 1933 by virtue of Section 4(2) thereof and/or Regulation D promulgated thereunder. All purchasers had adequate access to information about us.

During the three months ended March 31, 2015 we issued 320,000 shares of common stock in our unit offerings as described in Note 7, above.

On January 20, 2015 we issued 702,709 shares of common stock upon the conversion of a certain notes payable as discussed in Note 6.

ITEM 6. EXHIBITS

31.1	Rule 13a-14(a)/15d-14(a) Certification of William B. Smith, Chief Executive Officer

31.2	Rule 13a-14(a)/15d-14(a) Certification of Matthew DeVries, Chief Financial Officer

32.1	Certification of William B. Smith, Chief Executive Officer, and Matthew DeVries, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*

XBRL Instance Document

101.SCH*

XBRL Taxonomy Extension Schema Document

101.CAL*

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*

XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

XBRL Taxonomy Extension Presentation Linkbase Document

* Furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise not subject to liability under these sections.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

California	84-0672714
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1001 Camelia Street, Berkeley, CA	94710
(Address of principal executive offices)	(Zip Code)

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company x

	VU1 CORPORATION
	(Registrant)


	Dated: May 20, 2015


	By: /s/ William B. Smith
	William B. Smith
	Chief Executive Officer
	(Principal Executive Officer)



	By: /s/ Matthew DeVries
	Matthew DeVries
	Chief Financial Officer
	(Principal Financial and Accounting Officer)