NOTES PAYABLE

9 Months Ended

Jun. 30, 2014

Debt Disclosure [Abstract]

NOTES PAYABLE

The Company had the following notes payable at June 30, 2014 and September 30, 2013.

	June 30,		September,30
	2014		2013
Convertible notes payable with interest at 12% (the “January 2014 Notes”)	$	1,000,000	$	-
Convertible notes payable with interest at 10% ( the “November 2013 Notes”)		527,500		-
Convertible notes payable with interest at 12% (the “March 2013 Notes”)		5,000		5,000
5%  Six month secured promissory note due October 9, 2013		112,086		174,395
	$	1,644,586	$	179,395

	June 30,		September 30,
	2014		2013
Current	$	644,586	$	179,395
Long term		1,000,000		-
Total	$	1,644,586	$	179,395

January 2014 Notes

 On January 3, 2014, we entered into a securities purchase agreement (the “Purchase Agreement”) with two investors  pursuant to which we issued and sold 12% senior secured convertible notes in the aggregate original principal amount of $1,000,000 (the “Notes”) and warrants to purchase up to 375,000 shares of our common stock (the “Warrants”). The indebtedness evidenced by the Notes bears interest at 12% per year, and accrues and is payable together with principal on January 2, 2019. The Notes may be converted, at the option of the holder, into the Company’s common stock, at any time following issuance at an initial conversion price (the “Fixed Conversion Price”) of $4.00 per share (subject to adjustment as provided in the Note). From and after the sixth month anniversary of the issuance of the Notes, the conversion price of the Notes will be equal to the lower of (i) the Fixed Conversion Price and (ii) sixty percent of the lowest weighted average price our common stock on any trading day for the sixty trading days immediately preceding any conversion of the Senior Notes (the “Alternative conversion Price,” and together with the Fixed Conversion Price, the “Conversion Price”).  The Conversion Price is also subject to anti-dilution adjustments as provided for the Senior Notes. The Notes are secured by a first lien on substantially all of Fuse’s assets pursuant to a pledge and security agreement (the “Security Agreement”) among the parties.

 Under the terms of the Warrants, the Holders are entitled to exercise the Warrants for a period of five (5) years from issuance at a price of $5.18 per share (subject to adjustment as provided in the Warrant).

 In recording the transaction, the Company recorded a discount for the full face value of the Notes and recorded a derivative liability at fair value for the warrants and the debt conversion feature of $1,617,629, resulting in an expense of $604,504 upon recording the derivative liability. The discount is amortized over the life of the notes using the interest method.

 The fair value of the warrants and the debt conversion feature on the issue date was estimated using the Black-Scholes valuation model with the following assumptions:

Expected term	18 months		- 5 years
Expected average volatility	117.00	% - 121.00%
Expected dividend yield	0		%
Risk-free interest rate	.23		%

The securities were issued pursuant to the exemption from registration afforded by Section 4(a)(2) of the Securities Act and Regulation D thereunder. In connection with these transactions, Fuse paid a placement agent fee of $43,400 and issued to the placement agent and their respective designees, placement agent warrants to purchase 7% of the number of shares of common stock that are issuable pursuant to the Notes and Warrants.

November 2013 Notes

 On November 7, 2013, we entered into a securities purchase agreement (the “Purchase Agreement”) with a group of investors pursuant to which Fuse issued and sold 10% senior secured convertible notes in the aggregate original principal amount of $775,000 (the “Notes”) and warrants to purchase up to 129,154  shares of Fuse’s common stock (the “Warrants”). The investor group included among others, Brian Tuffin, our Chief Executive Officer.

 The indebtedness evidenced by the Notes bears interest at 10% per year, and accrues and is payable together with principal on the 60th day after Closing. The Notes may be converted, at the option of the holder, (i) into the Company’s common stock, at any time following issuance at a conversion price of $13.00 per share (subject to adjustment as provided in the Note) or (ii) if the Company consummates a subsequent financing generating gross proceeds of not less than $4,000,000 (a “Subsequent Financing”), into the securities sold in the Subsequent Financing at a specified discount from the offering price of such securities. The Notes are secured by a first lien on substantially all of Fuse’s assets pursuant to a pledge and security agreement (the “Security Agreement”) among the parties.

 Under the terms of the Warrants, the Holders are entitled to exercise the Warrants for a period of five (5) years following Closing at a price of $13.00 per share (subject to adjustment as provided in the Warrant). The Company recorded a debt discount of $275,309 and recorded the warrant derivative liability at fair value. The discount is amortized over the life of the notes using the interest method

 The fair value of the warrants on the due date was estimated using the Black-Scholes valuation model with the following assumptions:

Expected term	1 year
Expected average volatility	106.00	%
Expected dividend yield	0	%
Risk-free interest rate	.12	%

 In connection with the financing, Fuse granted piggy-back page registration rights to the Holders with respect to the shares of common stock issuable upon conversion of the Notes and exercise of the Warrants.

 The securities were issued pursuant to the exemption from registration afforded by Section 4(a)(2) of the Securities Act and Regulation D thereunder. In connection with these transactions, we paid a placement agent fee of $43,400 to Dawson James Securities and issued to the placement agent and their respective designees, placement agent warrants to purchase 7% of the number of shares of common stock that are issuable pursuant to the Notes and Warrants.

 During the three months ended June 30, 2013, $247,500 principal amount of notes and $4,772 interest on the notes were converted into 245,150 common shares.

March 2013 Notes

 On March 7, 2013, we sold (i) $2,050,000 in combined principal amount of senior convertible and senior subordinated convertible notes (the “March 2013 Notes”) and (ii) warrants (the “March 2013 Warrants”), consisting of (a) series A warrants to purchase an aggregate of 60,294 (prior to conversion rate adjustment) shares of common stock (the “Series A Warrants”) and (b) series B warrants to purchase an aggregate of 60,294 (prior to conversion rate adjustment) shares of common stock (the “Series B Warrants”) at a purchase price of $2,050,000, in a private placement to a group of institutional and accredited investors pursuant to a Securities Purchase Agreement, dated as of March 4, 2013. Prior to remeasurement, the March 2013 Notes are convertible into shares of the Company’s common stock at a conversion rate of $34.00, and are entitled to earn interest which may be paid in cash or in shares of common stock. The March 2013 Warrants are exercisable into shares of common stock and have been accounted for as derivatives (See Note 6).

 The March 2013 Notes are one (1) year senior convertible notes with an aggregate principal amount of $1,500,000 (“Series A Notes”) and one (1) year senior subordinated convertible notes with an aggregate principal amount of $550,000 (the “Series B Notes”). The March 2013 Notes will accrue interest at a rate of five percent (5%) per annum. The interest accrued is payable in interest shares, although the Company may, at its option and upon written notice to each note holder of the March 2013 Notes, make such interest payments in cash or in a combination of cash and interest shares.

 The Series A Warrants have a term of five (5) years from the Closing Date and the Series B Warrants have a term of seven (7) months from the Closing Date. Each of the Series A Warrants and the Series B Warrants is immediately exercisable upon issuance into an aggregate of 60,294 (prior to remeasurement of the conversion rate) fully paid and non-assessable shares at an initial exercise price of $42.00 per share in the case of the Class A Warrants and $34.00 per share in the case of the Class B Warrants.

 Any holder of the March 2013 Notes is entitled to convert the notes into shares of common stock at any time by delivery of a notice of conversion to the Company. On or before the third trading day after receipt of the conversion notice, the Company must deliver to the note holder such number of conversion shares to which the note holder is entitled pursuant to the conversion. The number of shares of common stock the note holder will receive upon conversion of the Notes will be determined by dividing the amount of principal being converted plus any accrued and unpaid interest by the conversion price effective at the time of the conversion. The March 2013 Notes have an initial conversion price of $34.00 however it is subject to reset after a measurement period commencing upon effectiveness of a registration statement (Registration No. 333-187491) covering the shares underlying such securities. The registration statement was declared effective on May 22, 2013. As a result, this triggered an adjustment to the conversion rate if the stock price falls below the initial conversion rate of $34.00 on the tenth (10th) consecutive trading day following the registration statement and 80% of the average of the volume-weighted average prices for each of the preceding ten (10) complete consecutive trading days.

 On June 6, 2013, the Company adjusted the conversion rate based on the 80% of the Company’s stock trading value for the 10 preceding days. As a result of the revision, the conversion rate was reduced to $18.80. The exercise price of the Series A Warrants and Series B Warrants was also adjusted to $29.80 and $18.80, respectively. The adjusted conversion rate and exercise price increased the shares available for conversion to 109,043.

 The Company received net proceeds in the amount of approximately $1,794,000 after offering costs of $256,000. In recording the transaction, the Company recorded a debt discount for the full face value of the Notes, and recorded the Series A and B Warrants as Derivative Liabilities at fair market value. The discount associated with the warrants is amortized over the life of the March 2013 Notes using the interest method. The value of the warrants was calculated using the Black-Scholes valuation model and totaled $3,333,103 at issuance, resulting in a $1,283,103 loss upon recording the warrant derivative liability.

 During the quarter ending June 30, 2013, the noteholders of the March 2013 Notes converted substantially all the outstanding March 2013 Notes, reducing the Company debt associated with such convertible notes from $2,105,000 to $5,000 in exchange for 112,374 shares.

 With respect to the March 2013 financing, the Company paid the co-placement agents a placement fee of $164,000 and issued to the co-placement agents and their designees, five-year warrants to purchase an aggregate of 6,331 shares of common stock at an exercise price of $42.00 per share and seven-month warrants to purchase an aggregate of 6,331 shares of common stock at an exercise price of $34.00 per share. The total fair value of warrants and shares issued was approximately $368,000. The conversion rate adjustment increased the shares issued to the Placement Agent. The series A Warrants increased to 9,091 and the series B Warrant increased to 11,499. 

 The fair value of each warrant on the date issued was estimated using the Black-Scholes valuation model. The following assumptions were used for the calculation of the warrants granted in March 2013.

	(Series A Warrants)			(Series B Warrants)
Expected term		1 year		7 months
Expected average volatility		120.00	%	120.00	%
Expected dividend yield		0	%	0	%
Risk-free interest rate		.80	%	.12	%