NOTES PAYABLE

9 Months Ended

Jun. 30, 2015

Notes to Financial Statements

NOTES PAYABLE

We had the following notes payable at June 30, 2015 and September 30, 2014.

	June 30,		September 30,
	2015		2014
Note payable (“July 2014 Note”)	$	-	$	20,000
	$	-	$	20,000

	June 30,		September 30,
	2015		2014
Current	$	-	$	20,000
Long term		-		-
Total	$	-	$	20,000

 In October 2014, we repaid the $20,000 due under the July 2014 Note:

January 2014 Notes

On January 3, 2014, we entered into a securities 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 “January 2014 Notes”) and warrants to purchase up to 467,243 (including 26,250 to the placement agent) shares of our common stock (the “January 2014 Warrants”). The Notes bear interest at 12% per year, payable together with principal on January 2, 2019. The Notes may be converted, at the option of the holder, into Fuse’s common stock, at any time following issuance, at an initial conversion price of $4.00 per share, subject to adjustment (the “Fixed Conversion Price”). From and after the six month anniversary of the issuance of the Notes, the conversion price of the Notes is 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 January 2014 Notes (the “Alternative Conversion Price”, and together with the Fixed Conversion Price, the “Conversion Price”). The Conversion Price is subject to anti-dilution adjustments. The January 2014 Notes are secured by a first lien on substantially all of Fuse’s assets pursuant to a pledge and security agreement among the parties.

The January 2014 Warrants are exercisable for a period of five years from issuance at a price of $5.18 per share, subject to adjustment. As of June 30, 2015, the exercise price of the January 2014 Warrants was reduced to $0.0006 per share. We have accounted for the January 2014 Warrants as derivatives (See Note 8).

We recorded debt discount for the full face value of the January 2014 Notes and a derivative liability at fair value for the January 2014 Warrants and the debt conversion feature of January 2014 Notes totaling $1,617,629, resulting in an expense of $604,504. Debt discount is amortized over the life of the January 2014 Notes using the effective interest method.

We determined the fair value on the issue date of the January 2014 Warrants and the debt conversion feature of the January 2014 Notes using the Black-Scholes valuation model with the following assumptions:

Expected term	18 months – 5 years
Expected average volatility	117.00 – 140.00%
Expected dividend yield	0%
Risk-free interest rate	0.28%

We paid the placement agent a fee of $43,400 and issued to the placement agent and their respective designees warrants to purchase 7% of the number of shares of common stock that are issuable pursuant to the January 2014 Notes and Warrants.

On August 27, 2014, holders of the January 2014 Notes converted all amounts due under the Notes into shares of Series A Convertible Preferred Stock (“Series A Prefs”) (See Note 8).