CAPITAL STOCK

9 Months Ended

Jun. 30, 2013

Stockholders' Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

NOTE 6:  CAPITAL STOCK

Common Stock

During the nine months ended June 30, 2013 we issued 538,943 unregistered common shares for financial consulting and advisory services valued at approximately $178,000, which are being recognized as professional fees expense over various service periods of up to twelve months. None of these shares were issued to our directors or officers, except for 82,000 of these shares, valued at approximately $27,000 and issued to J&C Resources, Inc. (“J&C”). Mr. Charles Johnston, who was one of our directors at the time of the transaction, is the president of J&C.

Professional fee expenses arising from these and prior issuances of shares and options for financial consulting and advisory services were approximately $190,000 and $540,000 for the nine months ended June 30, 2013 and 2012, respectively. As a result of previously issued shares and options for financial consulting and advisory services, we have recorded approximately $44,000 in deferred equity compensation expense at June 30, 2013, to be amortized over the remaining periods of service of up to eight months. The deferred equity compensation expense is included in the balance sheet caption prepaid expenses.

During the nine months ended June 30, 2013, we issued 1,920,000 common shares for interest and financing fees, which were valued at approximately $728,000 and are being recognized as interest expense over various financing periods of up to twenty-four months. See summary below and note 4 for details.

	Number of Shares	Approximate Value
Sigma Note – origination and finders fees	870,000	$         344,000
Fuse Note – origination and finders fees	120,000	52,000
Equipment Notes - renegotiation and extension	140,000	49,000
Subordinated Notes - renegotiation and extension	35,000	13,000
Subordinated Notes – origination fees	170,000	58,000
Intella2 Investor Notes – origination and finders fees	280,000	101,000
Investor Notes – origination and finders fees	275,000	100,000
Other short-term financing fees	30,000	11,000
	1,920,000	$         728,000

During the nine months ended June 30, 2013 we issued 583,334 common shares valued at $175,000 as partial payment of the Equipment Notes – see note 4.

During the nine months ended June 30, 2013 we issued 8,750 unregistered common shares for Series A-13 dividends for calendar 2012, as discussed in more detail below. During December 2012 we issued 437,500 common shares as a result of the conversion of Series A-13, as discussed in more detail below. During November and December 2012 we issued an aggregate of 160,000 common shares as a result of the conversion of Series A-14, as discussed in more detail below.

In May 2013 we issued the Executives an aggregate of 2,250,000 fully restricted ONSM common shares (the “Executive Incentive Shares”), in connection with meeting certain financial objectives related to fiscal 2011 and fiscal 2012 as well as earned compensation for past service and in recognition that all options previously held by, or promised to, the Executives have been cancelled. As of August 9, 2013 it was conclusively determined that the Executives were entitled to an aggregate of 250,000 Executive Incentive Shares related to achievement of one of the financial objectives related to fiscal 2013. Since this objective was met based on financial results through June 30, 2013, the issuance was reflected in our financial statements as of and for the periods ended June 30, 2013. The shares are expected to be issued on or before September 30, 2013. See note 5.

We (as authorized by our Board of Directors) agreed, effective January 22, 2013, to issue the Executives an aggregate of 1,700,000 fully vested ONSM common shares (the “Executive Shares”), in connection with the satisfaction of unpaid salary due to the Executives under their employment agreements as well as other liabilities to certain of the Executives. As of August 9, 2013, the Executive Shares have not been issued, due to certain administrative and documentation requirements. However, since these shares were committed to be issued by the January 22, 2013 actions of the Board, the issuance was reflected in our financial statements as of and for the periods ended June 30, 2013. See note 5.

On September 17, 2010, we entered into a Purchase Agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“LPC”), whereby LPC agreed to an initial purchase of 300,000 shares of our common stock and 420,000 shares of our Series A-14 Preferred Stock (“Series A-14”), together with a warrant (“LPC Warrant 1”). In accordance with the Purchase Agreement, LPC also received 50,000 shares of our common stock as a one-time commitment fee and a cash payment of $26,250 as a one-time structuring fee. On September 24, 2010, we received $824,045 net proceeds (after deducting fees and legal, accounting and other out-of-pocket costs incurred by us) related to our issuance under that Purchase Agreement of the equivalent of 770,000 common shares (including those issuable upon conversion of the preferred shares). See notes 6 and 8 for further details with respect to the Series A-14 and LPC Warrant 1.

During the year ended September 30, 2011, we sold LPC an additional 1,530,000 shares of our common stock under that Purchase Agreement for net proceeds of approximately $1.4 million. LPC remains committed to purchase, at our sole discretion, up to an additional 1.8 million (which quantity is after giving effect to the terms of an April 28, 2011 amendment to the Purchase Agreement) shares of our common stock in installments over the remaining term of the Purchase Agreement, generally at prevailing market prices, but subject to the specific restrictions and conditions in the Purchase Agreement. There is no upper limit to the price LPC may pay to purchase these additional shares. The purchase of our shares by LPC will occur on dates determined solely by us and the purchase price of the shares will be fixed on the purchase date and will be equal to the lesser of (i) the lowest sale price of our common stock on the purchase date or (ii) the average of the three (3) lowest closing sale prices of our common stock during the twelve (12) consecutive business days prior to the date of a purchase by LPC.  LPC shall not have the right or the obligation to purchase any shares of our common stock from us at a price below $0.75 per share. Our most recent sale of shares to LPC under the Purchase Agreement was on August 30, 2011. The closing ONSM share price has been less than $0.75 per share for most of the trading days since that date and the closing market price was $0.31 per share on August 9, 2013. Accordingly, we are not currently able to sell additional common shares to LPC under that Purchase Agreement.

The Purchase Agreement expires on September 17, 2013, but it may be terminated by us at any time at our discretion without any cost to us and may be terminated by us at any time in the event LPC does not purchase shares as directed by us in accordance with the Purchase Agreement. LPC may terminate the Purchase Agreement upon certain events of default, including but not limited to the occurrence of a material adverse effect, delisting of our common stock and the lack of immediate relisting on one of the specified alternate markets and the lapse of the effectiveness of the applicable registration statement for more than the specified number of days. As a result of the October 22, 2012 transfer of our common share listing from NASDAQ to OTCQB, discussed in note 1, and the resulting loss of our S-3 eligibility, the applicable registration statement is no longer effective. However, in November 2012 LPC provided us with a letter stating that the lapse of the effectiveness of the applicable registration statement was not considered an event of default under the Purchase Agreement, although LPC would not be required to purchase shares under the Purchase Agreement until the effectiveness of the applicable registration statement is restored or a replacement registration statement is filed. The Purchase Agreement restricts our use of variable priced financings for the greater of one year or the term of the Purchase Agreement and, in the event of future financings by us, allows LPC the right to participate under conditions specified in the Purchase Agreement.

Preferred Stock

The following issuances were outstanding on September 30, 2012 but not on June 30, 2013.

Series A-13 Convertible Preferred Stock

Effective December 17, 2009, our Board of Directors authorized the sale and issuance of up to 170,000 shares of Series A-13 Convertible Preferred Stock (“Series A-13”). On December 23, 2009, we filed a Certificate of Designation, Preferences and Rights for the Series A-13 (the “A-13 Designation”) with the Florida Secretary of State, with a coupon of 8% per annum, an assigned value of $10.00 per preferred share and a con version rate of $3.00 per common share (based on the assigned value). After a March 2, 2011 modification, the conversion rate was reduced to $2.00. After a January 20, 2012 modification, the conversion rate was reduced to $1.72. After a December 21, 2012 modification, the conversion rate was reduced to $0.40.

As of September 30, 2011, the only holder of Series A-13 was CCJ, which owned 35,000 shares it obtained in December 2009 for a stated value of $350,000. In January 2012, as part of a transaction under which J&C Resources issued us a funding commitment letter, we agreed to reimburse CCJ in cash the shortfall, as compared to minimum guaranteed net proceeds of $139,000, from their resale of 101,744 common shares CCJ was to receive upon their conversion of 17,500 shares of Series A-13 and after effecting our agreement as part of the same transaction to reduce the conversion rate on the remaining 17,500 Series A-13 shares owned by CCJ from $2.00 per common share to $1.72 per common share. During March 2012, CCJ effected such conversion and we recorded the shortfall liability of $85,279 as a prepaid expense, which we amortized to interest expense as a cost of the funding commitment letter over its one-year term ending December 31, 2012. We paid $42,000 against the shortfall liability and the remaining balance of $43,279 was included in the CCJ Note dated December 31, 2012 – see note 4. Based on the shortfall plus (i) the increased value of the underlying common stock related to this tranche as well as the second tranche of 17,500 shares of Series A-13 owned by CCJ and (ii) the Black-Scholes value of adjustments to warrants held by LPC arising from anti-dilution provisions, the total economic cost of this funding commitment letter was approximately $130,000.

As provided in the A-13 Designation, any shares of Series A-13 still outstanding as of December 31, 2012 would automatically convert into our common shares. In December 2012, as part of a transaction under which J&C Resources issued us a Funding Letter (see note 1), we agreed to reimburse CCJ in cash the shortfall, payable on December 31, 2014, as compared to minimum guaranteed net proceeds of $175,000, from their resale of 437,500 common shares CCJ received on December 31, 2012 upon their conversion of 17,500 shares of Series A-13 and after effecting our agreement as part of the same transaction to reduce the conversion rate on all Series A-13 shares from $1.72 per common share to $0.40 per common share. We recorded an estimated shortfall liability of $43,750 as a prepaid expense, which we are amortizing to interest expense as a cost of the Funding Letter over its one-year term ending December 31, 2013. Based on the closing ONSM price of $0.31 per share on August 9, 2013, the gross proceeds would be approximately $136,000 and therefore no adjustment to the estimated shortfall liability is necessary at this time. Based on the estimated shortfall calculated based on the closing ONSM share price on the date of the agreement with J&C Resources, plus the increased value of the underlying common stock related to this tranche of Series A-13 shares owned by CCJ, the total economic cost of this Funding Letter was approximately $151,000.

In lieu of cash payments for Series A-13 dividends, we elected to issue the following unregistered common shares to the holder, using the minimum conversion rate of $2.00 per share, which shares were recorded based on the fair value of those shares on the issuance date.

Share issuance date	Number of unregistered common shares	Dividend period	Dividends if paid in cash	Fair value of shares at issuance
March 3, 2011	14,000	Jan - December 2010	$28,000	$15,820
May 24, 2011	3,500	Jan 2011 – March 2011	$ 7,000	$ 4,129
August 24, 2011	3,500	April 2011 – June 2011	$ 7,000	$ 2,868
November 21, 2011	3,500	July 2011 – Sept 2011	$ 7,000	$ 1,644
February 13, 2012	3,500	Oct 2011–December 2011	$ 7,000	$ 2,381
December 31, 2012	8,750	Jan – December 2012	$ 17,500	$ 2,712

Series A-14 Convertible Preferred Stock

Effective September 17, 2010, our Board of Directors authorized the sale and issuance of up to 420,000 shares of Series A-14 Preferred Stock (“Series A-14”). On September 22, 2010, we filed a Certificate of Designation, Preferences and Rights for the Series A-14 (the “Series A-14 Designation”) with the Florida Secretary of State and we issued 420,000 shares of Series A-14 to LPC on September 24, 2010. Series A-14 had a onetime 5% dividend payable in cash, which was satisfied by our $26,250 cash payment on September 20, 2011.

Series A-14 had a stated value of $1.25 per preferred share and a fixed conversion rate of $1.25 per common share. Although per the Series A-14 Designation any Series A-14 shares still outstanding on September 24, 2012 would automatically convert to common shares, the Series A-14 Designation also provided that the number of shares of ONSM common stock that could be issued upon the conversion of Series A-14 was limited to the extent necessary to ensure that following the conversion the total number of shares of ONSM common stock beneficially owned by the holder would not exceed 4.999% of our issued and outstanding common stock. Due to this restriction, LPC was only able to convert 260,000 shares of Series A-14 to 260,000 common shares as of September 30, 2012. LPC converted the remaining 160,000 shares of Series A-14 to 160,000 common shares during the nine months ended June 30, 2013.

The fair value of the warrant issued in connection with the Purchase Agreement (“LPC Warrant 1”) was calculated to be approximately $386,000 using the Black-Scholes model (with the assumptions including expected volatility of 105% and a risk free interest rate of 1.08%). The common shares issued as a one-time commitment fee in connection with the Purchase Agreement were valued at approximately $55,000, based on the quoted market value on the date of issuance. The aggregate of these two items, plus the cash out-of-pocket costs incurred by us in connection with the Purchase Agreement, was allocated on a pro-rata basis between the number of common shares sold and the common shares underlying the Series A-14. The amount allocated to the Series A-14, $298,639, was recorded on our balance sheet as a discount and was amortized as a dividend over the term of the Series A-14. The unamortized portion of the discount was zero at June 30, 2013 and September 30, 2012, respectively.