DEBT

12 Months Ended

Sep. 30, 2015

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

NOTE 4: DEBT

Debt includes convertible debentures and notes payable (including capitalized lease obligations).

Convertible Debentures

Convertible debentures consist of the following:

	September 30, 2015		September 30,  2014
New Sigma Note	$	1,583,000	$	-
Sigma Note 1 (excluding portion in notes payable)		-		395,000
Sigma Note 2		-		551,741
Sigma Notes (excluding portion in notes payable)		1,583,000		946,741
Rockridge Note		400,000		400,000
Fuse Note (excluding portion in notes payable)		200,000		200,000
Intella2 Investor Notes (excluding portion in notes payable)		200,000		200,000
Total convertible debentures		2,383,000		1,746,741
Less: discount on convertible debentures		(58,176)		(113,789)
Convertible debentures, net of discount		2,324,824		1,632,952
Less: current portion, net of discount		(1,167,899)		-
Convertible debentures, net of current portion and discount	$	1,156,925	$	1,632,952

New Sigma Note and Sigma Note 1

On March 21, 2013 (the “Sigma Closing”) we closed a transaction with Sigma Opportunity Fund II, LLC (“Sigma”), under which Sigma remitted $600,000 (net of fees and expenses discussed below) pursuant to a senior secured note (“Sigma Note 1”) issued to Sigma and collateralized by all of our assets, subordinated only to security interests already held in connection with outstanding financings with Thermo Credit and Rockridge. On June 14, 2013, Sigma Note 1 was amended to provide that we would receive immediate additional funding of $345,000, repayable as a balloon payment due on December 18, 2014, which when added to the previous balloon payment of $50,000 resulted in a total amended balloon payment of $395,000. Such amended balloon payment would be convertible into restricted common shares, at Sigma’s option, using a conversion rate of $1.00 per share.  After the amendment the total gross proceeds received under Sigma Note 1 was $945,000. Interest, computed at 17% per annum on the outstanding principal balance, was payable in monthly installments commencing April 30, 2013 and principal was payable in monthly installments commencing June 30, 2013. The required payments were made through November 30, 2013.

On February 28, 2014, the terms of Sigma Note 1 were amended so that principal and interest payments otherwise due on Sigma Note 1, starting with the December 31, 2013 payment and ending with the September 30, 2014 payment, were eliminated and replaced with monthly principal and interest payments on the last day of October and November 2014 plus a final principal and interest payment on the December 18, 2014 maturity date of Sigma Note 1. As part of a September 15, 2014 agreement with Sigma, this payment schedule was replaced by our agreement to pay Sigma all principal plus accrued interest on December 31, 2014. On December 31, 2014, we entered into an agreement with Sigma whereby we paid Sigma all accrued interest due on Sigma Notes 1 and 2 through that date, which were then cancelled and replaced with a new note payable to Sigma in the principal amount of $1,358,000 (the “New Sigma Note”) and having a maturity date of June 30, 2015. Interest on the New Sigma Note, payable in cash monthly, was initially 21% per annum, reduced to 17% per annum in December 2015, in connection with an amendment to the note and other related agreements discussed in more detail below.

On April 30, 2015, prior to the issuance of our September 30, 2014 financial statements, we entered into an agreement with Sigma extending the maturity date of the New Sigma Note to October 15, 2015 and as a result Sigma Notes 1 and 2 are classified as non-current on our September 30, 2014 balance sheet.

On September 21, 2015, Sigma loaned us an additional $225,000, which resulted in $192,500 cash proceeds net of certain fees and expenses charged by Sigma. The net proceeds were used to pay the approximately $173,000 of outstanding principal balance on one of the Working Capital Notes plus approximately $20,000 of the accrued interest on that note. Accordingly, the outstanding balance of the New Sigma Note increased to $1,583,000 and the maturity date was extended to April 15, 2016, which extension resulted in our obligation to pay Sigma Capital Advisors, LLC (“Sigma Capital”) up to $250,000 in additional fees (plus monthly interest and penalties for late SEC filings, as applicable).

On December 17, 2015, we made a $1.0 million payment to Sigma against the outstanding principal balance of the New Sigma Note, reducing the remaining outstanding principal balance on the Note to $583,000. On December 22, 2015, we entered into certain agreements with Sigma and Sigma Capital, which included an amendment to the New Sigma Note. As a result of these agreements, the outstanding balance of the New Sigma Note was increased to $600,000, to reflect a one-time administrative fee of $17,000, and we also reimbursed $3,500 of Sigma’s legal expenses related to the transactions. The maturity date of the remaining balance due under the New Sigma Note was extended from April 15, 2016 to December 31, 2016 and as a result $583,000 of the New Sigma Note is classified as non-current on our September 30, 2015 balance sheet, with the remaining amount classified as current.

As part of the December 22, 2015 agreements, the interest rate on the New Sigma Note was reduced from 21% to 17% per annum, the monthly advisory fee payable to Sigma Capital was reduced from $12,500 to $10,000 and the following obligations to Sigma Capital were eliminated – (i) future monthly damages payable for late SEC filings which were initiated as part of an April 30, 2015 agreement with Sigma and Sigma Capital and (ii) the third and final installment of the fee incurred by us as a result of a previous extension of the maturity date of the New Sigma Note to April 15, 2016, and which would have been $50,000 payable on December 15, 2015. We have agreed, regardless of the early repayment of the New Sigma Note, to pay a minimum aggregate amount of $100,000 of monthly advisory fee payments to Sigma Capital as scheduled, starting with the January 15, 2016 payment of $10,000. 

Sigma has the right to convert the New Sigma Note (including the accrued interest thereon) to common stock at a rate of $0.30 per share (reduced from $1.00 per share for Sigma Notes 1 and 2), which right Sigma may exercise after the maturity date, in its entirety or partially, at its option or it may exercise before the maturity date, but only if we are in default on the New Sigma Note or upon the sale of all or substantially all of our business, assets or capital stock.

The collateral and payment priority for the New Sigma Note are unchanged from Sigma Notes 1 and 2. Upon our receipt of funds as a result of (i) the sale of any portion of our business, however structured, including, without limitation, sale of assets, subsidiaries, revenues or business units, and/or (ii) the issuance of additional equity, debt or convertible debt capital, and/or (iii) our consolidation or merger with or into another entity, all outstanding principal and interest with respect to the New Sigma Note will be due, but not to exceed the net proceeds of such funds received by us in any such transaction(s). However, this early repayment requirement did not apply to the $1.0 million proceeds we received in March 2015 from the sale of certain of Infinite’s audio conferencing customer accounts to Partners – see note 6 - and does not apply to up to $800,000 in proceeds should we elect to exercise our rights under the Funding Letter - see note 1. Also, the December 22, 2015 transactions with Sigma and Sigma Capital include (i) their agreement to limit to $1.0 million the required principal repayment against the New Sigma Note arising from the $2.1 million proceeds we received in December 2015 from the sale of certain of Infinite’s audio conferencing customer accounts to Partners, and which $1.0 million we paid Sigma on December 17, 2015 and (ii) their consent to our receipt of future proceeds of up to an additional $772,500 from Revenue Sales without requiring further principal repayments against the New Sigma Note. Revenue Sales are defined in our agreements with Sigma as “financing from a private placement structured in a separate legal entity collateralized by a portion of our Infinite operations”.

In connection with the initial March 2013 financing, we issued 300,000 restricted common shares to Sigma and agreed to reimburse up to $30,000 of Sigma’s legal and other expenses related to that financing, $27,500 of which was paid by us at the Sigma Closing. We also issued 60,000 restricted common shares to Sigma Capital Advisors, LLC (“Sigma Capital”) and paid them a $75,000 advisory fee, in connection with an Advisory Services Agreement we entered into with Sigma Capital effective March 18, 2013. We also paid finders and other fees to other third parties in connection with that transaction, which totaled 60,000 restricted common shares and $12,000 cash.

In connection with the June 2013 amendment, we issued 325,000 restricted common shares to Sigma and made payments aggregating $45,000 to Sigma and Sigma Capital, representing an administrative fee plus reimbursement of Sigma’s other cost and expenses related to that financing. We also issued 125,000 restricted common shares to Sigma Capital.

The value of the common stock issued, plus the amount of cash paid for related financing fees and expenses, in connection with the initial March 2013 financing and the June 2013 amendment, was reflected as a $511,188 discount against Sigma Note 1 (as well as a corresponding increase in additional paid-in capital for the shares) and that amount was amortized as interest expense over the term of the note, resulting in an effective interest rate of approximately 56% per annum through February 28, 2014 (which was 60% per annum for the period prior to the June 2013 amendment).

Effective February 28, 2014, a portion of the value of the common shares issued and the fees paid in connection with Sigma Note 2, aggregating $124,655, was allocated to Sigma Note 1 and that amount was amortized as interest over the remaining term of Sigma Note 1. When the amortization of the allocated portion of the common shares issued and the fees paid in connection with the February 28, 2014 Sigma Note 2 agreement were combined with the amortization of the remaining unamortized discount arising from the initial March 2013 Sigma Note 1 financing and the June 2013 amendment, the resulting effective interest rate of Sigma Note 1 as of February 28, 2014 was approximately 66% per annum.

In connection with the September 15, 2014 agreement we issued 53,000 restricted common shares to Sigma and 22,000 restricted common shares to Sigma Capital and we also paid Sigma Capital a $15,000 cash fee and paid Sigma $4,000 as reimbursement of legal expenses. A portion of the value of the common shares issued and the fees paid in connection with the September 15, 2014 agreement with Sigma, aggregating $12,355, was allocated to Sigma Note 1 and that amount was amortized as interest over the remaining term of Sigma Note 1. When the amortization of the common shares issued and the fees paid in connection with the September 15, 2014 Sigma agreement were combined with the amortization of the remaining unamortized discount arising from the initial March 2013 Sigma Note 1 financing, the June 2013 amendment and the February 2014 amendment, the resulting effective interest rate of Sigma Note 1 as of September 15, 2014 was approximately 63% per annum. 

In connection with an Advisory Services Agreement dated December 31, 2014, entered into by us with Sigma Capital in connection with the issuance of the New Sigma Note, we agreed to (i) pay Sigma Capital an initial advisory fee of $100,000, (ii) issue 70,000 restricted common shares to Sigma and 30,000 restricted common shares to Sigma Capital, such shares having an aggregate fair value of approximately $20,000, (iii) pay Sigma approximately $20,000 as reimbursement of legal expenses and (iv) make additional advisory fee payments to Sigma Capital totaling $160,000 in monthly installments through June 30, 2015. There was no remaining unamortized discount from previous Sigma transactions as of December 31, 2014. The value of the common shares issued plus the fees and expenses we agreed to pay in connection with the December 31, 2014 Sigma agreement, aggregating $299,578, were amortized as interest based on the initial six month term of the New Sigma Note, resulting in an effective interest rate of approximately 65% per annum for the period from January 1, 2015 through April 30, 2015.

As part of the April 30, 2015 agreement with Sigma we (i) paid Sigma Capital a $25,000 transaction fee, (ii) paid Sigma $14,000 as reimbursement of legal expenses and (iii) agreed to make additional advisory fee payments to Sigma Capital aggregating $40,000 in monthly installments from July 15, 2015 through October 15, 2015. The April 30, 2015 agreement also required us to pay liquidated damages for late SEC filings and in accordance with that requirement we paid Sigma Capital an aggregate of $42,500 for such damages from April 30, 2015 through September 30, 2015 and another $25,000 for such damages after that date through November 27, 2015, the last payment date before the agreement to pay such damages was cancelled. When the amortization of the fees and expenses we agreed to pay in connection with the April 30, 2015 Sigma agreement, including the anticipated liquidated damages for late SEC filings, such items aggregating $121,500, were combined with the amortization of the remaining unamortized discount arising from the December 31, 2014 financing, the resulting effective interest rate of the New Sigma Note was approximately 57% per annum for the period from May 1, 2015 through September 30, 2015. Although this effective rate would be impacted by the September 21, 2015 transaction discussed below, we will not reflect that impact until October 1, 2015 and have determined that the impact of this delayed implementation is immaterial. This effective interest rate does not include the impact if an early repayment was required, as discussed above.

As part of the September 21, 2015 agreement with Sigma we (i) paid Sigma Capital a $25,000 fee (added to the loan principal balance), (ii) paid Sigma $7,500 as reimbursement of legal expenses, (iii) agreed to make an additional advisory fee payment to Sigma Capital of $2,500 on October 15, 2015, and (iv) agreed, in consideration of the loan maturity date extension from October 15, 2015 to April 15, 2016, to pay fees to Sigma Capital aggregating $175,000 in three monthly installments from October 15, 2015 through December 15, 2015 (of which we paid $125,000, with the remaining $50,000 obligation cancelled as part of the December 22, 2015 agreement with Sigma as discussed above) and to make additional advisory fee payments to Sigma Capital aggregating $75,000 in monthly installments from November 15, 2015 through April 15, 2016 (of which we paid $25,000, with the remaining $50,000 obligation cancelled and replaced with a new advisory fee obligation as part of the December 22, 2015 agreement with Sigma as discussed above).

The unamortized portion of the debt discount recorded against the New Sigma Note was $42,623 as of September 30, 2015. The unamortized portion of the debt discount recorded against Sigma Note 1 was $98,494 (including $53,150 related to the portion of that debt classified as a note payable) as of September 30, 2014.

We concluded that there was less than a 10% difference between the present value of the cash flows of Sigma Note 1 after its February 2014 and September 2014 modifications (including an allocation of a portion of the common shares issued and fees paid in connection with the February 2014 Sigma Note 2 transaction) versus the present value of the cash flows before the modifications, which 10% is the threshold over which extinguishment accounting is required under the provisions of ASC 470-50-40, and accordingly, accounting for those modifications as extinguishments of debt was not required.

We concluded that there was less than a 10% difference between the present value of the cash flows of Sigma Note 1 after its December 2014 modification (via cancellation and replacement with the New Sigma Note) versus the present value of the cash flows under the payment terms in place one year earlier. The comparison of the present value of cash flows under the modified terms is normally done using the present value of cash flows under the terms existing immediately before the modification. However, under the provisions of ASC 470-50-40, if a modification was done less than a year ago that was not considered substantially different, then the comparison of current terms should be to the terms existing one year prior to the current modification, which in this case would be the terms in place as of June 14, 2013 (with respect to the portion of the New Sigma Note issued to cancel Sigma Note 1) and February 28, 2014 (with respect to the portion of the New Sigma Note issued to cancel Sigma Note 2, and in which case the inception date of Sigma Note 2 was used). ASC 470-50-40 also provides that if a substantive conversion feature is added to an instrument, the modified terms are considered substantially different and extinguishment accounting is required. However, since the conversion right as modified effective December 31, 2014 is not exercisable prior to the maturity date of the New Sigma Note unless we are in default on the New Sigma Note or upon the sale of all or substantially all of our business, assets or capital stock, and since the ONSM closing price of $0.21 per share at the time of the modification of the conversion rights was significantly less than the $0.30 per share modified conversion price, we determined that it was not reasonably possible that the modified conversion feature would be exercised and thus determined the conversion feature to not be substantive. Accordingly, accounting for this modification as an extinguishment of debt was not required.

We concluded that there was less than a 10% difference between the present value of the cash flows of the New Sigma Note after its April 2015 modification versus the present value of the cash flows under the payment terms in place one year earlier. Since the provisions of ASC 470-50-40 require that if a modification was done less than a year ago that was not considered substantially different, then the comparison of current terms should be to the terms existing one year prior to the current modification, which in this case was as of February 28, 2014 for Sigma Notes 1 and 2, the predecessor indebtedness to the New Sigma Note, as discussed above. ASC 470-50-40 also provides that if a substantive conversion feature is added to an instrument, the modified terms are considered substantially different and extinguishment accounting is required. However, since the conversion right deemed to be modified as part of the April 2015 transaction is not exercisable prior to the maturity date of the New Sigma Note unless we are in default on the New Sigma Note or upon the sale of all or substantially all of our business, assets or capital stock, and since the ONSM closing price of $0.14 per share at the time of the deemed modification of the conversion rights was significantly less than the $0.30 per share modified conversion price, we determined that it was not reasonably possible that the modified conversion feature would be exercised and thus determined the conversion feature to not be substantive. Accordingly, accounting for this modification as an extinguishment of debt was not required.

We concluded that there was less than a 10% difference between the present value of the cash flows of the New Sigma Note after its September 2015 modification versus the present value of the cash flows under the payment terms in place one year earlier. Since the provisions of ASC 470-50-40 require that if a modification was done less than a year ago that was not considered substantially different, then the comparison of current terms should be to the terms existing one year prior to the current modification, which in this case was as of September 15, 2014 for Sigma Notes 1 and 2, the predecessor indebtedness to the New Sigma Note, as discussed above. ASC 470-50-40 also provides that if a substantive conversion feature is added to an instrument, the modified terms are considered substantially different and extinguishment accounting is required. However, since the conversion right deemed to be modified as part of the September 2015 transaction is not exercisable prior to the maturity date of the New Sigma Note unless we are in default on the New Sigma Note or upon the sale of all or substantially all of our business, assets or capital stock, and since the ONSM closing price of $0.23 per share at the time of the deemed modification of the conversion rights (and the $0.18 per share the following day) was significantly less than the $0.30 per share modified conversion price, we determined that it was not reasonably possible that the modified conversion feature would be exercised and thus determined the conversion feature to not be substantive. Accordingly, accounting for this modification as an extinguishment of debt was not required.

In connection with the above financing, an agreement is in place between Sigma and Rockridge, which includes Rockridge’s agreement (along with our agreement) that Sigma has the right, but not the obligation, to repay the Rockridge Note at face value in case of our default on the New Sigma Note or the Rockridge Note. Such repayment amount would be added to the principal of the New Sigma Note, with the principal being payable and accruing interest under the terms of the New Sigma Note. Furthermore, the fees payable to Sigma in the event of such repayment would be $25,000 cash payable upon such early repayment plus $4,000 per month starting from the one-month anniversary of such repayment date through the date that all amounts we owe Sigma are repaid.

Sigma Note 2

In addition to the February 28, 2014 amendment to Sigma Note 1 as discussed above, we completed a second transaction with Sigma on that date, under which we borrowed $500,000 (from which were deducted certain fees and we repaid certain debt as discussed below) pursuant to a senior secured note (“Sigma Note 2”) issued to Sigma and collateralized by all of our assets, subordinated only to security interests already held in connection with outstanding financings with Rockridge and Thermo Credit LLC. The $500,000 principal, plus $59,447 interest (based on 17% per annum compounding monthly), was due on October 31, 2014 and the principal (including the accrued interest thereon) would be convertible into restricted common shares, at Sigma’s option, using a conversion rate of $1.00 per share. As part of a September 15, 2014 agreement with Sigma, this payment schedule was replaced by our agreement to pay Sigma all principal plus accrued interest on December 31, 2014. On December 31, 2014, we entered into an agreement with Sigma whereby we paid Sigma all accrued interest due on Sigma Notes 1 and 2 through that date, which were then cancelled and replaced the New Sigma Note. On April 30, 2015 we entered into an agreement with Sigma extending the maturity date of the New Sigma Note to October 15, 2015 and as a result Sigma Notes 1 and 2 are classified as non-current on our September 30, 2014 balance sheet. The terms of the New Sigma Note and the April 30, 2015 agreement with Sigma are discussed under “New Sigma Note and Sigma Note 1” above.

In connection with the February 28, 2014 closing and funding of Sigma Note 2, we issued 350,000 restricted common shares to Sigma as well as reimbursed $11,354 of Sigma’s legal and other expenses related to this financing. In connection with a February 28, 2014 Advisory Services Agreement, we also issued 450,000 restricted common shares to Sigma Capital Advisors, LLC (“Sigma Capital”) and paid them a $267,857 advisory fee.  The value of the common stock issued, plus the amount of cash paid for related financing fees and expenses, was reflected as a $124,655 discount against Sigma Note 1 and a $329,556 discount against Sigma Note 2 (as well as a corresponding increase in additional paid-in capital for the shares) and that amount was amortized as interest expense over the term of the note, resulting in an effective interest rate of approximately 115% per annum.

A portion of the value of the common shares issued and the fees paid in connection with the September 15, 2014 agreement with Sigma, aggregating $21,645, was allocated to Sigma Note 2 and that amount was amortized as interest over the remaining term of Sigma Note 2. When the allocated portion of the common shares issued and the fees paid in connection with the September 15, 2014 Sigma agreement were combined with the amortization of the remaining unamortized discount arising from the initial February 2014 Sigma Note 2 financing, the resulting effective interest rate of Sigma Note 2 as of September 15, 2014 was approximately 66% per annum.

The aggregate unamortized portion of the debt discount recorded against Sigma Note 2 was $61,999 as of September 30, 2014.

We concluded that there was less than a 10% difference between the present value of the cash flows of Sigma Note 2 after its September 2014 modification (including an allocation of a portion of the common shares issued and fees paid in connection with the September 15, 2014 agreement with Sigma) versus the present value of the cash flows before the modification, and accordingly, accounting for that modification as an extinguishment of debt was not required.

We concluded that there was less than a 10% difference between the present value of the cash flows of Sigma Note 2 after its December 2014 modification (via cancellation and replacement with the New Sigma Note) versus the present value of the cash flows under the payment terms in place upon the original issuance of Sigma Note 2. The comparison of the present value of cash flows under the modified terms is normally done using the present value of cash flows under the terms existing immediately before the modification. However, under the provisions of ASC 470-50-40, if a modification was done less than a year ago that was not considered substantially different, then the comparison of current terms should be to the terms existing one year prior to the current modification, or in the case of a note issued less than one year prior, existing as of the original note issuance date. ASC 470-50-40 also provides that if a substantive conversion feature is added to an instrument, the modified terms are considered substantially different and extinguishment accounting is required. However, since the conversion right as modified effective December 31, 2014 is not exercisable prior to the maturity date of the New Sigma Note unless we are in default on the New Sigma Note or we are sold, and since the ONSM closing price of $0.21 per share at the time of the modification of the conversion rights was significantly less than the $0.30 per share modified conversion price, we determined that it was not reasonably possible that the modified conversion feature would be exercised and thus determined the conversion feature to not be substantive. Accordingly, accounting for this modification as an extinguishment of debt was not required.

Rockridge Note

In April and June 2009 we borrowed $1.0 million from Rockridge Capital Holdings, LLC (“Rockridge”), an entity controlled by one of our larger shareholders, in accordance with the terms of a Note and Stock Purchase Agreement (the “Rockridge Agreement”) between Rockridge and us. In September 2009, we borrowed an additional $1.0 million from Rockridge, resulting in cumulative borrowings by us under the Rockridge Agreement, as amended, of $2.0 million. In connection with this transaction, we issued a note (the “Rockridge Note”) bearing interest at 12% per annum (which is currently being paid on a monthly basis) and collateralized by a first priority lien on all of our assets, such lien subordinated only to the extent higher priority liens on assets, primarily accounts receivable and certain designated software and equipment, are held by other lenders. We also entered into a Security Agreement with Rockridge containing covenants and restrictions with respect to the collateral.

We made subsequent principal and interest payments, primarily on a monthly basis, which reduced the outstanding balance of the Rockridge Note to $400,000 as of September 30, 2015 and 2014. This remaining balance, per our latest agreement with Rockridge dated December 16, 2015, has a Maturity Date of December 31, 2016 and as a result is classified as non-current on our September 30, 2015 balance sheet. On April 30, 2015, prior to the issuance of our September 30, 2014 financial statements, we entered into an agreement with Rockridge whereby the Maturity Date of the Rockridge Note was extended to October 15, 2015 and as a result the Rockridge Note is classified as non-current on our September 30, 2014 balance sheet. The Rockridge Note also provides that we will pay the outstanding principal plus any accrued interest upon our receipt of proceeds in excess of $5 million related to the sale of any of our business units or subsidiaries.

The Rockridge Agreement, as amended through December 31, 2014, provided that (i) Rockridge may receive an origination fee upon not less than sixty-one (61) days written notice to us, payable by our issuance of 666,667 restricted shares of our common stock (the “Shares”) and (ii) on the Maturity Date we shall pay Rockridge up to a maximum of $75,000 valuation adjustment (the “Shortfall Payment”) related to the Shares. The Shortfall Payment would be calculated as the sum of (i) the cash difference between the per share value of $1.20 (the “Minimum Per Share Value”) and the average sale price for all previously sold Shares (whether such number is positive or negative) multiplied by the number of sold Shares and (ii) for the Shares which were not previously sold by Rockridge, the cash difference between the Minimum Per Share Value and the market value of the Shares at the Maturity Date (whether such number is positive or negative) multiplied by the number of unsold Shares, up to a maximum of $75,000 in the aggregate.

Our December 31, 2014 agreement with Rockridge, in exchange for an extension of the Maturity Date, increased the origination fee by 50,000 Shares (to the 666,667 Shares as discussed above). This increase had a fair market value of approximately $10,500, which we determined to be immaterial for recording as additional discount and subsequent periodic amortization and thus we recorded as interest expense (as well as a corresponding increase in additional paid-in capital) for the year ended September 30, 2015 . Since there was no remaining unamortized discount with respect to the Rockridge Note as of December 31, 2014, we also concluded that no further evaluation of this modification with respect to loan extinguishment accounting would be required.

Our April 30, 2015 agreement with Rockridge, in exchange for an extension of the Maturity Date to October 15, 2015, increased the origination fee by 30,000 Shares, for an aggregate adjusted total of 696,667 Shares. Our August 18, 2015 agreement with Rockridge, in exchange for an extension of the Maturity Date to April 15, 2016 increased the origination fee by 50,000 Shares, for an aggregate adjusted total of 746,667 Shares. Our December 16, 2015 agreement with Rockridge, in exchange for the most recent extension of the Maturity Date to December 31, 2016, increased the origination fee by 70,000 Shares, for an aggregate adjusted total of 816,667 Shares.

As of October 1, 2012, we determined that our share price had remained below $1.20 per share for a sufficient period that accrual of a liability for the Shortfall Payment was appropriate.  Therefore, we recorded the $32,000 present value of this obligation as a liability as of October 1, 2012, which increased to $61,000 as of September 30, 2013, as a result of the accretion of $29,000 as interest expense for the year then ended and increased further to the maximum obligation of $75,000 as of September 30, 2014, as a result of the accretion of $14,000 as interest expense for the year then ended. The carrying amount of this liability, classified as part of the caption “Accrued liabilities” on our balance sheet, was also $75,000 as of September 30, 2015. Although as a result of the latest extension of the Maturity Date discussed above, the Shortfall Payment is not due until December 31, 2016, the difference between the present value of that obligation and the carrying amount is considered to be immaterial to our financial statements taken as a whole and so no adjustment to that carrying amount was made. If the closing ONSM share price of $0.18 per share on October 7, 2016 was used as a basis of calculation, the required Shortfall Payment would be $75,000.

The fair market value of the first 366,667 Shares, determined to be approximately $626,000 at the date of the Rockridge Agreement under which Rockridge became entitled to such shares, plus legal fees of $55,337 we paid in connection with the Rockridge Agreement, were reflected as the initial $681,337 discount against the Rockridge Note and amortized as interest expense over the term of the Rockridge Note through the date of the December 2012 Allonge. The fair market value of the second tranche of 225,000 origination fee Shares arising from the December 2012 Allonge was recorded as additional discount of approximately $79,000 and, along with the unamortized portion of the initial discount, was amortized as interest expense over the remaining term of the Rockridge Note, commencing in January 2013. The $32,000 present value of the anticipated Shortfall Payment was recorded as additional discount and, along with the other components of discount discussed above, was amortized as interest expense over the remaining term of the Rockridge Note, commencing in October 2012 and ending when the remaining unamortized discount of $43,620 was written off as a debt extinguishment loss in February 2014. The fair market value of the third tranche of 25,000 origination fee Shares arising from the September 2014 Allonge was not recorded as additional discount due to immateriality but rather was recognized as interest expense of $5,250 during the year ended September 30, 2014. The fair market value of the fourth and fifth tranches aggregating 80,000 origination fee Shares arising from the December 2014 and April 2015 Allonges was not recorded as additional discount due to immateriality but rather was recognized as interest expense of $14,700 during the year ended September 30, 2015. Corresponding increases in additional paid-in capital were also recorded for the value of the Shares.

The fair market value of the sixth tranche of 50,000 origination fee Shares arising from the August 2015 Allonge was inadvertently not recorded as of September 30, 2015. We have concluded that this omission is immaterial for adjustment to those financial statements and therefore, the issuance will be recognized as interest expense of $9,500 during the three months ended December 31, 2015.

The initial effective interest rate of the Rockridge Note was approximately 44.3% per annum, until the September 2009 amendment, which reduced it to approximately 28.0% per annum, the October 2012 Shortfall Payment accrual, which increased it to approximately 31.1% per annum and the December 2012 Allonge, which decreased it to approximately 29.1% per annum. As a result of the February 2014 debt extinguishment loss, discussed above, the effective interest rate was reduced to 12% per annum and, because of the expensing of the value of all subsequent increases in the number of origination fee Shares on the basis of immateriality, it is deemed to have remained at that level to date. These rates do not give effect to any difference between the sum of the value of the Shares at the time of issuance plus the Shortfall Payment, as compared to the recorded value of the Shares on our books, nor do they give effect to any variance between the conversion price versus market prices if principal is satisfied with common shares issued upon conversion instead of cash.

Upon notice from Rockridge at any time and from time to time prior to the Maturity Date the outstanding principal balance may be converted into a number of restricted shares of our common stock. These conversions are subject to a minimum of one month between conversion notices (unless such conversion amount exceeds $25,000) and will use a conversion price of eighty percent (80%) of the fair market value of the average closing bid price for our common stock for the twenty (20) days of trading on The NASDAQ Capital Market (or such other exchange or market on which our common shares are trading) prior to such Rockridge notice, but such conversion price will not be less than $2.40 per share.  We will not effect any conversion of the Rockridge Note, to the extent Rockridge and Frederick Deluca (who died on September 14, 2015), after giving effect to such conversion, would beneficially own in excess of 9.9% of our outstanding common stock, although such limitation may be waived by Rockridge upon not less than sixty-one (61) days prior written notice to us and provided such waiver would not result in a violation of the NASDAQ shareholder approval rules.

Furthermore, in the event of any conversions of principal to ONSM shares by Rockridge (i) they will first be applied to reduce monthly payments starting with the latest and (ii) the interest portion of the monthly payments under the Rockridge Note for the remaining months after any such conversion will be adjusted to reflect the outstanding principal being immediately reduced for amount of the conversion. We may prepay the Rockridge Note at any time. The outstanding principal is due on demand in the event a payment default is uncured ten (10) business days after Rockridge’s written notice to us.

Fuse Note

Effective March 19, 2013 we issued an unsecured subordinated note to Fuse Capital LLC (“Fuse”) in the amount of $200,000 (the “Fuse Note”) in consideration of $100,000 of additional cash proceeds to us plus the cancellation of a previously issued note with a still outstanding balance of $100,000. The Fuse Note, which is convertible into restricted common shares at Fuse’s option using a rate of $0.50 per share, was initially payable as follows: interest only (at 12% per annum) during the first year, approximately 30% of the principal plus interest during the second year and the remaining principal balance at the end of the second year.

Effective April 1, 2014 the Fuse Note was amended to provide that the $200,000 principal balance would not be payable until the March 19, 2015 maturity date, although interest would continue to be payable on a monthly basis.  Effective February 28, 2015, prior to the issuance of our September 30, 2014 financial statements, the Fuse Note was further amended, extending the maturity date to March 1, 2016 and as a result the Fuse Note is classified as non-current on our September 30, 2014 balance sheet. This amendment provided that interest would be paid quarterly, commencing June 30, 2015 and also increased the outstanding principal balance to $220,000, for the effect of a $20,000 due diligence fee earned by the noteholder in connection with the amendment, although the portion of the principal balance convertible to common shares remained at $200,000. This amendment also provided that in the event we receive funds in excess of $5 million as a result of the sale of our assets, that the outstanding principal and interest will be repaid within thirty days of the receipt of the proceeds from the asset sale.

Effective October 15, 2015 the Fuse Note was further amended, extending the maturity date to July 15, 2016. Effective December 16, 2015 a $100,000 principal payment was made and the Fuse Note was further amended to extend the maturity date to December 31, 2016. Effective June 6, 2016 the Fuse Note was further amended, extending the maturity date to January 15, 2017. Accordingly, the amount repaid in December 2015 is classified as current on our September 30, 2015 balance sheet and the remaining $120,000 balance is classified as non-current.

In connection with the original issuance of the Fuse Note, we issued Fuse 80,000 restricted common shares (the “Fuse Common Stock”), which we agreed to buy back, to the extent permitted by law, at $0.40 per share, if the fair market value of the Fuse Common Stock was not equal to at least $0.40 per share as of March 19, 2015 (two years after issuance). As of June 30, 2013 we determined that our share price had remained below $0.40 per share for a sufficient period that it was appropriate to record a liability for this repurchase commitment. Therefore, we recorded the $20,000 present value of this obligation as a liability on our financial statements as of June 30, 2013 (under the caption “Accrued liabilities” on our balance sheet) which increased to $22,000 as of September 30, 2013, as a result of the accretion of $2,000 as interest expense for the year then ended, increased again to $28,000 as of September 30, 2014 as a result of the accretion of $6,000 as interest expense for the year then ended and increased again to $32,000 as of September 30, 2015 as a result of the accretion of $4,000 as interest expense for the year then ended.

The closing ONSM share price was $0.16 per share as of March 19, 2015, which would trigger the above repurchase obligation, which would be $32,000 based on 80,000 shares at $0.40 per share. This only applies to the extent the Fuse Common Stock was still held by Fuse at the applicable date. Furthermore, as part of the February 28, 2015 amendment discussed above, it was agreed that Fuse would not request any payments from us under this commitment prior to the maturity date of the Fuse Note, which is currently January 15, 2017.

In connection with the original issuance of the Fuse Note, we also issued 40,000 restricted common shares to another third party for finder and other fees. The value of the Fuse Common Stock plus the value of the common stock issued for related financing fees was approximately $52,000, which was reflected as an increase in additional paid-in capital, with one half included in a debt extinguishment loss recognized in fiscal 2013 and the other half recorded as a discount against the Fuse Note. The discount portion of approximately $26,000 was amortized as interest expense over the original term of the note, resulting in an effective interest rate of approximately 19% per annum through March 19, 2015.

The $20,000 due diligence fee earned by the noteholder in connection with the February 28, 2015 amendment was recorded as a discount against the Fuse Note and is being amortized as interest expense over the approximately one year extension period, resulting in an effective interest rate of approximately 21% per annum.

The aggregate unamortized portion of the debt discount recorded against the Fuse Note was $8,775 (of which $798 relates to the $20,000 portion of the Fuse Note included in the “Notes and Leases Payable” section below) and $6,446 as of September 30, 2015 and 2014, respectively.

We concluded that there was less than a 10% difference between the present value of the cash flows of the Fuse Note after its February 28, 2015 modification versus the present value of the cash flows under the payment terms in place one year earlier, which 10% is the threshold over which extinguishment accounting is required under the provisions of ASC 470-50-40. Accordingly, accounting for this modification as an extinguishment of debt was not required. The comparison of the present value of cash flows under the modified terms is normally done using the present value of cash flows under the terms existing immediately before the modification. However, under the provisions of ASC 470-50-40, if a modification was done less than a year ago that was not considered substantially different, then the comparison of current terms should be to the terms existing one year prior to the current modification. Since the April 2014 modification of this note was not considered to be an extinguishment, we utilized the terms in the original March 19, 2013 note.

In connection with the October 15, 2015 agreement extending the maturity date of the Fuse Note to July 15, 2016, we issued 75,000 restricted common shares to Fuse, such shares having a fair value of approximately $14,000.

Intella2 Investor Notes

In connection with the issuance of the Fuse Note as discussed above, we modified the terms on another note issued to Fuse on November 30, 2012, to allow conversion of the principal balance into restricted common shares at Fuse’s option using a rate of $0.50 per share. This other note, with an original principal balance of $200,000 which increased to $220,000 as a result of a February 28, 2015 amendment, although still only $200,000 is convertible, is discussed in more detail under “Intella2 Investor Notes” in the “Notes and Leases Payable” section below.

Equipment Notes

In June and July 2008 we received an aggregate of $1.0 million from seven accredited individuals and other entities (the “Investors”), under a software and equipment financing arrangement (the “Equipment Notes”). The principal balance outstanding under the Equipment Notes was eventually reduced to $350,000 and effective October 2011, the Equipment Notes were assigned by the applicable Investors to three accredited entities (the “Noteholders”). These Equipment Notes were repaid with cash payments to the Noteholders in March 2013 aggregating $175,000, as well as the issuance of an aggregate of 583,334 restricted common shares (“Equipment Note Shares”) to the Noteholders during the period from December 2012 to March 2013, credited upon issuance as a reduction of the outstanding Equipment Notes balance using a price of $0.30 per share. However, the terms of the Equipment Notes provided that on the maturity dates of the Equipment Notes, the Recognized Value of the Equipment Note Shares would be calculated as the sum of the following two items – (i) the gross proceeds to the Investors from the sales of the 583,334 Equipment Note Shares plus (ii) the value of those Equipment Note Shares issued and still held by the Noteholders and not sold, using the average ONSM closing bid price per share for the ten (10) trading days prior to the applicable maturity date. If the Recognized Value exceeded the Credited Value, then we would receive 50% (fifty percent) of such excess, although the amount received by us shall not exceed $175,000. If the Credited Value exceeded the Recognized Value, then we would be obligated to pay such excess to the Noteholders. With respect to Equipment Note Shares held by one of the three Noteholders, the Credited Value exceeded the Recognized Value for 166,667 common shares by approximately $16,000 as of the respective November 15, 2013 maturity date, which excess we recorded as interest expense in fiscal 2014 and is included under the caption “Accrued liabilities” on our September 30, 2015 and 2014 balance sheets.

In connection with financing obtained by us in October and November 2013 from the other two Noteholders (see “Working Capital Notes” below), the above terms with respect to settlement of differences between the Credited Value and the Recognized Value were replaced with our agreement to buy back the 416,667 Equipment Note Shares issued to those Noteholders, to the extent permitted by law, at $0.30 per share, if the fair market value of the Equipment Note Shares was not equal to at least $0.30 per share on the maturity dates of the October and November 2013 financings, which were April 24 and May 4, 2015, respectively. Furthermore, we agreed that in the event we receive funds in excess of $5 million as a result of a single transaction for the sale of all or a part of our operations or assets, that those funds will be available to satisfy the above buyback obligation, such availability subject only to prior satisfaction of any claims held by Thermo Credit LLC, Rockridge Capital Holdings LLC, Sigma Opportunity Fund II, LLC, USAC, and certain capital leases (HP Financial and Tamco), or any assignees or successors thereto and pari passu with up to $775,000 of total indebtedness and related obligations raised and incurred by us during the first quarter of fiscal 2014.

As of September 30, 2013, we determined that our share price had remained below $0.30 per share for a sufficient period that it was appropriate to record a liability for this repurchase commitment. Therefore, we recorded the $80,000 present value of this obligation as a liability on our financial statements as of that date (under the caption “Accrued liabilities” on our balance sheet), which increased to approximately $108,000 as of September 30, 2014 as a result of the accretion of approximately $28,000 as interest expense for the year then ended and which increased to approximately $125,000 as of September 30, 2015 as a result of the accretion of approximately $17,000 as interest expense for the year then ended.

The closing ONSM share price was $0.14 and $0.16 per share on April 24 and May 4, 2015, respectively, which would trigger the above repurchase obligation in the gross amount of $125,000, based on 416,667 Equipment Note Shares at $0.30 per share. However, this repurchase obligation is subject to the Equipment Note Shares being still held by the Noteholder(s) at such date and the Noteholder giving us notice and delivering the shares within fifteen days after such date, as well as any other legal restrictions with respect to our repurchase of shares. It is possible that some or all of this repurchase obligation could be avoided by us due to the failure of the Noteholder or Noteholders to formally present the shares to us and/or provide notice by the specified date, or as a result of legal restrictions with respect to our repurchase of shares. However, because of our ongoing discussions with certain of these Noteholders, including past discussions with respect to debt principal and/or interest payments in arrears to them and our communications to them at the time that we would not be in a position to honor this repurchase obligation for some of the same reasons we were in arrears on debt principal and/or interest payments, it is possible those Noteholders could assert mitigating circumstances under which we might honor all or part of this repurchase obligation. Therefore, pending our further evaluation of our position with respect to this repurchase obligation, we are leaving the accrued liability on our financial statements as of September 30, 2015.

In addition, we agreed that to the extent the number of outstanding shares of our common stock exceeds 22 million shares, we would issue the Noteholders additional shares of common stock in aggregate equal to approximately 1.9% of the excess over 22 million, times the percentage of the original 416,667 common shares still held by the Noteholders on the six and twelve month anniversary dates of the October and November 2013 financings, as well as the eighteen month maturity date. For clarity, additional issuances based on any particular increase in the number of our outstanding shares over the stated limit will only be made once and so additional issuances on the second and third dates will be limited and related to increases since the first and second dates, respectively. The number of outstanding shares was less than 22 million as of September 30, 2014, and thus we had no potential liability under the above provision as of that date. Furthermore, the number of outstanding shares as of April 24, 2015 and May 4, 2015 (the eighteen month maturity dates) was approximately 22.5 million, resulting in a liability under the above provision as of that date to issue approximately 10,300 additional common shares, which is considered immaterial.

Notes and Leases Payable

Notes and leases payable consist of the following:

	September 30, 2015		September 30,  2014
Line of Credit Arrangement	$	1,650,829	$	1,650,829
Sigma Note 1 (excluding portion in convertible debentures)		-		592,599
Working Capital Notes		465,000		592,727
Subordinated Notes		192,500		250,000
Intella2 Investor Notes (excluding portion in convertible debentures)		215,000		250,000
Fuse Note (excluding portion in convertible debentures)		20,000		-
Investor Notes		-		175,000
USAC Note		187,650		56,229
Equipment lease		9,333		25,523
Total notes and leases payable		2,740,312		3,592,907
Less: discount on notes payable		(32,054)		(125,847)
Notes and leases payable, net of discount		2,708,258		3,467,060
Less: current portion, net of discount		(2,032,183)		(2,451,681)
Notes and leases payable, net of current portion and discount	$	676,075	$	1,015,379

Line of Credit Arrangement

In December 2007, we entered into a line of credit arrangement (the “Line”) with a financial institution (the “Lender”). The Lender was Thermo Credit LLC through February 10, 2016 and as a result of an assignment, Thermo Communications Funding LLC, an affiliated company, subsequent to that date. Mr. Leon Nowalsky, a member of our Board, is an investor and board member in both entities.

The Line has been renewed and modified from time to time, and under which we may presently borrow up to an aggregate of $2.0 million for working capital, collateralized by our accounts receivable and certain other related assets and the amount of such borrowing being further subject to the amount, aging and concentration of such receivables. Although the Line expired on December 27, 2013, we continued after that date to negotiate renewal terms with the Lender and to maintain an outstanding borrowing balance under the Line and on February 10, 2016 (the “Effective Date”), we entered into a Loan Modification Agreement (“Modification”) which extended the term of the Line through December 31, 2017 (the “Maturity Date”). Notwithstanding this renewal for a period ending more than one year after our September 30, 2015 balance sheet, since the outstanding balance at that date could, in the absence of continuing revenues generating eligible receivables with a sufficient dollar value, be fully repayable within one year, it is classified as a current liability on that balance sheet, as well as our September 30, 2014 balance sheet.

The Modification also provides that, if no Default or Event of Default, as defined in the Modification, shall have occurred and be continuing as of the Maturity Date, and upon our notice and request to Lender sent per the timing and other requirements in the Modification, Lender shall (in good faith) engage in, and conclude as quickly as commercially reasonable, negotiations with us to extend the Maturity Date by up to an additional twelve months (i.e., through December 31, 2018). The Modification also changed a number of the other terms of the Line, as discussed below.

Prior to the Effective Date, the outstanding balance bears interest at 12.0% per annum, adjustable based on changes in prime after December 28, 2009, payable monthly in arrears. The Modification provides that as of the Effective Date the interest rate will be the prime rate plus seven and one-half percent (7.5%) per annum, but no less than eleven percent (11.0%) per annum or any higher rate that might be allowed by the terms of the Line, including the Modification, arising from certain events such as default. Accordingly, as of the Effective Date, the outstanding balance bears interest at 11.0% per annum.

Under the terms of the Line, we also incur a monitoring fee and a commitment fee, which fees were unchanged by the Modification. The monitoring fee is one twentieth of a percent (0.05%) of the borrowing limit per week, payable monthly in arrears, and the commitment fee is one percent (1%) per year of the maximum allowable borrowing amount, payable annually in advance.

The terms of the Line prior to the Effective Date required that all funds remitted by our customers in payment of receivables be deposited directly to a bank account owned by the Lender (the “Lockbox Account”), although this was never implemented. This requirement continues after the Effective Date, including the provision that such funds received in the Lockbox Account shall be immediately applied to any balance outstanding under the Line, or returned to us one day following clearance by the receiving bank, to the extent there is no balance outstanding under the Line. The Modification provides that we shall be responsible for the additional expenses related to the Lender-owned bank account, which we expect to be in the range of $12,000 to $18,000 per year.

The Modification provides that our failure to comply with these provisions shall be an immediate Event of Default, and although as of July 8, 2016 (the extended deadline granted by the Lender on June 8, 2016) these provisions had not been fully implemented, we were in substantial compliance with such provisions since August 1, 2016 and through October 28, 2016 and we have not received any notification from the Lender as to any Event of Default under these provisions as of October 28, 2016. In a letter dated October 26, 2016, the Lender agreed that there was no default by us with respect to such lockbox provisions up to and including October 31, 2016, although this does not constitute authorization for any non-compliance with these provisions after October 31, 2016.

The Line is subject to us maintaining an adequate level of receivables, based on certain formulas. However, due to the lack of a formal renewal of the Line, in June 2014 the Lender determined that there would be no further advances under the Line, although no further repayments have been required either, and as a result the outstanding principal balance of the Line did not change from that time through June 24, 2016, regardless of weekly changes in the calculated borrowing availability based on the applicable formulas applied to our receivable levels. Effective June 24, 2016, the first deposit was made to the Lockbox Account and applied against the balance outstanding under the Line.

The Modification allows our receivable from any single party, including Partners, to be considered an Eligible Receivable to the extent that (i) the aggregate of all accounts receivable from such party and its affiliates does not exceed thirty percent (30%) of all Eligible Receivables (all Eligible Receivables for this purpose including the portion of the our accounts receivable from such party that is ultimately considered to be an Eligible Receivable) then owed by all of our account debtors and (ii) it meets all of the other requirements for eligibility as set forth in the Line.

As of the Effective Date, although the outstanding balance under the Line exceeded the maximum allowable borrowing amount under the Line (the “Borrowing Base”), the Modification provided that notwithstanding any other provisions of the Line or the Modification, such condition would not be considered a Default or an Event of Default, and Lender would agree to make advances to us thereunder based on the Borrowing Base plus an overadvance amount determined by a schedule which started at $300,000 through February 27, 2016 but declined to zero as of July 31, 2016 and thereafter. As of October 24, 2016, the outstanding balance under the Line was approximately $1,576,000, which exceeded the Borrowing Base by approximately $248,000. Although there is no formal obligation to do so, as of October 24, 2016 the Lender is allowing such overadvance condition to continue, under their expectation that we are seeking alternative funding to replace that overadvance. In a letter dated October 26, 2016, the Lender agreed that there was no default by us with respect to such overadvances up to and including October 31, 2016, although this does not constitute authorization for any non-compliance with these provisions after October 31, 2016.

The Line is also subject to our compliance with a quarterly debt service coverage covenant (the “Covenant”). Prior to the Modification, the Covenant requires that the sum of (i) our net income or loss, adjusted to remove all non-cash expenses as well as cash interest expense and (ii) contributions to capital (less cash distributions and/or cash dividends paid during such period) and proceeds from subordinated unsecured debt, be equal to or greater than the sum of cash payments for interest and debt principal payments. The Lender waived the requirement to comply with the Covenant for the quarter ended September 30, 2015. We have complied with the Covenant for all applicable quarters through June 30, 2016.

The Modification provides that effective January 1, 2016 and thereafter, the Covenant will require that our net income or loss, adjusted to (i) add back all non-cash expenses as well as cash interest expense and (ii) subtract cash distributions and/or cash dividends paid during such period, be equal to or greater than 1.2 times the sum of cash payments for interest and debt principal payments. The Modification also provides that we will not declare or pay any dividends or distributions on any equity interest, if before or after such event an Event of Default or Default, as defined in the Modification, would exist. Both before and after the Modification, the terms of the Line allow us to achieve compliance with the Covenant by (i) including any excess of adjusted net income over the amount of adjusted net income required to comply with the Covenant in the preceding two quarters or (ii) adding to adjusted net income the proceeds from subordinated debt or equity sales meeting defined conditions, and received within certain time frames extending prior to, and in some cases subsequent to, the relevant date of determination, all as set forth in the Line and the Modification.

The Modification also explicitly allows, subject to Lender’s prior consent, proceeds from our sales of revenues/customer accounts to a separate legal entity and received within a time frames extending six months prior to, and one month subsequent to, the relevant date of determination, to be added to adjusted net income for purposes of the Covenant. In a letter dated October 26, 2016, the Lender consented to the inclusion of proceeds from our December 2015 and June 2016 sales of revenue/customer accounts to Partners, as well as the proceeds from such sale in process that we expect to be effective during November 2016, and extended the carryback period for those proceeds from one month to three months.

The outstanding principal is due on demand in the event a payment default is uncured one (1) day after written notice. The Modification provides that, without limiting any other rights and remedies provided by the terms of the Line or otherwise available to the Lender, the Lender may exercise one or more of certain rights and remedies, as listed in the Amendment, during the existence of any uncured Default (upon not less than five days prior written notice by Lender) or Event of Default which has not been waived in writing by Lender. Lender’s rights to exercise such rights and remedies will end if and when all of Debtors’ obligations to Lender in connection with the Line have been satisfied. The rights and remedies listed in the Modification include, but are not limited to: (i) verify the validity and amount of, or any other matter relating to, the accounts by mail, telephone, telegraph or otherwise, (ii) notify all account debtors that the accounts have been assigned to Lender and that Lender has a security interest in the accounts, (iii) direct all account debtors to make payment of all accounts directly to Lender or the Lockbox Account (iv) in any case and for any reason, notify the United States Postal Service to change the addresses for delivery of mail addressed to us to such address as Lender may designate, as well as receive, open and dispose of all such mail, provided that Lender shall promptly forward to us any such items not related to the accounts, (v) exercise all of our rights and remedies with respect to the collection of accounts, (vi) settle, adjust, compromise, extend, renew, discharge or release accounts, for amounts and upon terms which Lender considers advisable and (vii) sell or assign accounts on such terms, for such amounts and at such times as Lender deems advisable.

The Lender must approve any additional debt incurred by us, other than debt subordinated to the Line and debt incurred in the ordinary course of business (which includes equipment financing). The Lender approved the Equipment Notes, the Rockridge Note, the USAC Note, USAC Note 2, Sigma Note 1, Sigma Note 2 and the New Sigma Note. All other debt entered into by us subsequent to the December 2007 inception of the Line has been appropriately approved by the Lender and/or was allowable under one of the exceptions noted above.

Sigma Note 1

Sigma Note 1, of which $395,000 was convertible into common stock as of September 30, 2014, is discussed in the “Convertible Debentures” section above.

Working Capital Notes

During October and November 2013 we obtained aggregate net financing proceeds of approximately $246,000 from the issuance of partially secured promissory notes to three investors (the “Working Capital Notes”), with an initial aggregate outstanding balance of $620,000 bearing interest at 15% per annum. The proceeds of the three Working Capital Notes were used to repay (i) $126,000 outstanding principal and interest due on the CCJ Note issued by us on December 31, 2012, (ii) $71,812 outstanding principal and interest due on a Subordinated Note issued by us on June 1, 2012 and (iii) $26,000 outstanding principal and interest due on an Investor Note issued by us on January 2, 2013. In addition, $125,000 in origination fees and $25,000 for a funding commitment letter were deducted from the proceeds of the Working Capital Notes.

The three Working Capital Notes originally called for payments of interest only during the first six months (in two quarterly payments), approximately 50% of the principal in equal monthly payments plus interest during the next eleven months and the remaining 50% of the principal balance due eighteen months after the Working Capital Note issuance date. They also provided that in the event that we receive funds in excess of $5 million as a result of a single transaction for the sale of all or a part of our operations or assets, the Working Capital Notes are payable in full within ten (10) days of our receipt of such funds, along with any interest due at that time.

Effective February 28, 2015, prior to the issuance of our September 30, 2014 financial statements, one of the Working Capital Notes with an original outstanding principal balance of $250,000 was amended, extending the maturity date to March 1, 2016 and as a result this Working Capital Note is classified as non-current on our September 30, 2014 balance sheet. This amendment provided that interest would be paid quarterly, commencing June 30, 2015 and also increased the outstanding principal balance to $275,000, for the effect of a $25,000 due diligence fee earned by the noteholder in connection with the amendment. This amendment also provided that in the event we receive funds in excess of $5 million as a result of the sale of our assets, that the outstanding principal and interest will be repaid within thirty days of the receipt of the proceeds from the asset sale. Although this Working Capital Note was further amended, effective October 15, 2015, to extend the maturity date to July 15, 2016, it was paid in full on December 30, 2015. Such repayment, in accordance with our December 29, 2015 agreement with J&C Resources, Inc. (“J&C”), was made in consideration of our receipt of $157,000 from J&C on December 30, 2015 for our issuance of an unsecured, subordinated note with a December 31, 2016 maturity date. Accordingly $157,000 of this Working Capital Note, the amount replaced by the proceeds of the J&C financing, is classified as non-current on our September 30, 2015 balance sheet and the remaining $118,000 balance is classified as current.

The remaining outstanding principal balance of the other two Working Capital Notes, aggregating $342,727, was due in full as of May 4, 2015, as well as accrued but unpaid interest of approximately $46,000 through that date. We did not make these principal or interest payments when due on May 4, 2015, but we continued to accrue interest expense after that point on the outstanding note balances at the stated interest rate through September 30, 2015.

One of the other two Working Capital Notes having an outstanding principal balance of approximately $172,727 was repaid in September 2015. As discussed in more detail above, Sigma loaned us $225,000 in September 2015, which was the primary funding source to make this payment plus related interest and legal fees aggregating approximately $33,000. Although this additional loan had an April 15, 2016 maturity date, the loan was made after the issuance of our September 30, 2014 financial statements, and therefore this Working Capital Note is classified as current on our September 30, 2014 balance sheet.

Effective September 16, 2015 the other of these two Working Capital Notes, which had a remaining outstanding principal balance of $170,000, was amended to extend the maturity date to April 16, 2016. This amendment provided that interest accrued but unpaid as of the date of the amendment of approximately $36,000, plus interest from the date of the amendment, would be paid on the amended maturity date and also increased the outstanding principal balance to $190,000, for the effect of a $20,000 loan extension fee earned by the noteholder in connection with the amendment. Since this extension was not negotiated until after the issuance of our September 30, 2014 financial statements, this Working Capital Note is classified as current on our September 30, 2014 balance sheet. Effective October 15, 2015 this Working Capital Note was further amended, extending the maturity date to July 15, 2016 and effective June 6, 2016 this Working Capital Note was further amended, extending the maturity date to January 15, 2017. Accordingly this Working Capital Note is classified as non-current on our September 30, 2015 balance sheet.

The Working Capital Notes are expressly subordinated to the following notes issued by us and outstanding at the time of the issuance of the Working Capital Notes: Thermo Credit LLC, Rockridge Capital Holdings LLC, Sigma Opportunity Fund II, LLC, USAC, and certain capital leases, or any assignees or successors thereto, subject to a cumulative maximum outstanding balance of $3.9 million. The Working Capital Notes are secured by a limited claim to our assets, pari passu with up to $775,000 of total indebtedness and related obligations raised and incurred by us during the first quarter of fiscal 2014, subject to all prior liens of the foregoing entities and limited to the extent such a lien is allowable by the terms of the loan documents executed between us and the foregoing entities. The Working Capital Note with an amended principal balance of $190,000 provides that we will be bound to a limit of $3.9 million in total debt senior to that Working Capital Note while that note is outstanding.

In connection with the above financing, we issued to the holders of Working Capital Notes an aggregate of 358,334 restricted common shares (the “Working Capital Shares”), which we have agreed to buy back, to the extent permitted by law, from the holder at $0.30 per share on the maturity dates of the Working Capital Notes, if the fair market value is less than that on that date. The above only applies to the extent the Working Capital Shares are still held by the noteholder on the applicable date and the buyback obligation only applies if the noteholder gives us notice and delivers the shares within fifteen days after the applicable maturity dates. As of March 31, 2014, we determined that our share price had remained below $0.30 per share for a sufficient period that it was appropriate to record a liability for this repurchase commitment. Therefore, we recorded the approximately $74,000 present value of this obligation as a liability on our financial statements as of that date (under the caption “Accrued liabilities” on our balance sheet), which increased to approximately $88,000 as of September 30, 2014 as a result of the accretion of approximately $14,000 as interest expense for the year then ended and increased to approximately $108,000 as of September 30, 2015 as a result of the accretion of approximately $20,000 as interest expense for the year then ended.

312,500 of the 358,334 Working Capital Shares were issued in connection with the Working Capital Note having an adjusted principal balance prior to its repayment on December 30, 2015 of $275,000. However since the terms of the buyback obligation reference the maturity date, and not the repayment date, we have determined that our buyback obligation with respect to those shares would be determined with reference to the July 15, 2016 maturity date. The present value of this obligation is included as a liability of approximately $94,000 on our September 30, 2015 balance sheet. If the closing ONSM share price of $0.18 per share on October 7, 2016 was used as a basis of calculation, a stock repurchase payment of $93,750 would be required.

The remaining 45,834 of the 358,334 Working Capital Shares were issued in connection with the Working Capital Note having an adjusted principal balance of $190,000 and a maturity date of January 15, 2017, which as discussed above would be the date based on which our buyback obligation with respect to those shares would be determined. The present value of this obligation is included as a liability of approximately $14,000 on our September 30, 2015 balance sheet. If the closing ONSM share price of $0.18 per share on October 7, 2016 was used as a basis of calculation, a stock repurchase payment of $13,750 would be required.

In addition, we agreed that to the extent the number of outstanding shares of our common stock exceeds 22 million shares, we would issue to the holder of one of the Working Capital Notes additional shares of common stock in aggregate equal to approximately 0.21% of the excess over 22 million, times the percentage of the 45,834 common shares originally issued to the noteholder (part of the 358,334 shares discussed above), and still held by the noteholder on the six, twelve and eighteen month anniversary dates of the October 2013 financing. For clarity, additional issuances based on any particular increase in the number of our outstanding shares over the stated limit will only be made once and so additional issuances on the second and third dates will be limited and related to increases since the first and second dates, respectively. The number of outstanding shares was less than 22 million as of September 30, 2014, and thus we had no potential liability under the above provision as of that date. Furthermore, the number of outstanding shares as of April 24, 2015 (the eighteen month maturity date) was approximately 22.5 million, resulting in a liability under the above provision as of that date to issue approximately 1,100 additional common shares, which is considered immaterial.

The fair market value at the time of issuance of the Working Capital Shares plus another 100,000 restricted common shares in connection with a finders agreement related to this financing, plus the cash deducted from the proceeds for related origination fees, was $258,260. $88,807 of this amount was reflected as a non-cash debt extinguishment loss (as well as a corresponding increase in additional paid-in capital for the shares) for the year ended September 30, 2014, in connection with the use of a portion of the proceeds to repay previously outstanding debt, as discussed above. The remainder of $169,453 was reflected as a discount against the Working Capital Notes (as well as a corresponding increase in additional paid-in capital for the shares) and that amount was amortized as interest expense over the initial term of the Working Capital Notes, resulting in a weighted average effective interest rate of approximately 33.2% per annum.

The $25,000 due diligence fee earned in connection with the February 28, 2015 amendment of the Working Capital Note with an amended principal balance of $275,000 was recorded as a discount. This amount, combined with the remaining unamortized discount arising from the initial November 2013 financing and related to this Working Capital Note, is being amortized as interest expense over the approximately one year extension period, resulting in an effective interest rate of approximately 22% per annum.

We concluded that there was less than a 10% difference between the present value of the cash flows of the Working Capital Note after its February 28, 2015 modification versus the present value of the cash flows under the terms existing immediately before the modification, which 10% is the threshold over which extinguishment accounting is required under the provisions of ASC 470-50-40. Accordingly, accounting for this modification as an extinguishment of debt was not required.

Since no additional consideration was paid from the end of their initial terms in April and May 2015, until they were repaid and/or renegotiated in September 2015, the effective interest rate on the other two Working Capital Notes during that period was the stated interest rate of 15.0% per annum.

We concluded that there was less than a 10% difference between the present value of the cash flows of one of the other two Working Capital Notes after its September 16, 2015 modification versus the present value of the cash flows under the terms existing immediately before the modification, which 10% is the threshold over which extinguishment accounting is required under the provisions of ASC 470-50-40. Accordingly, accounting for this modification as an extinguishment of debt was not required.

The aggregate unamortized portion of the debt discount recorded against the Working Capital Notes was $30,499 and $50,624 as of September 30, 2015 and 2014, respectively.

In connection with the October 15, 2015 agreements extending the maturity date of two of the Working Capital Notes with amended principal balances aggregating $465,000 to July 15, 2016, we agreed to issue an aggregate of 55,000 restricted common shares to the noteholders, such shares having a fair value of approximately $10,000. 30,000 of those shares have not been recorded on our books or issued as of October 28, 2016.

Subordinated Notes

Since April 30, 2012, we have received funding from various lenders, of which $192,500 and $250,000 was outstanding as of September 30, 2015 and 2014, respectively, in exchange for our issuance of unsecured subordinated promissory notes (“Subordinated Notes”), fully subordinated to the Line and the Rockridge Note or assignees or successors thereto. Details of the notes making up these totals are as follows:

On April 30, 2012 we received $100,000 for an unsecured subordinated note bearing interest at 15% per annum, with the principal payable in equal monthly installments of $8,333 starting November 30, 2012 plus $58,333 balance payable on April 30, 2013, although we made none of these payments. Effective November 1, 2012 this note was amended to reduce the interest rate from 15% to 12% per annum and to modify the principal payment schedule to a single payment of $100,000 due on October 31, 2014, in exchange for our issuance of an additional 35,000 common shares to the noteholder. The $12,600 value of these common shares was reflected as a discount against this note (as well as a corresponding increase in additional paid-in capital for the value of the shares on the date of issuance) and that amount, as well as the unamortized portion of previously recorded discount, was amortized as interest expense over two years (the remaining term of the note, as modified), resulting in an effective interest rate of approximately 21% per annum through October 31, 2014, at which point it reduced to 12% per annum.

Interest for the first six months was paid on October 31, 2012, with subsequent interest payments due every three months thereafter through October 31, 2014.  We did not make the principal payment when it was due on October 31, 2014, but we continued to accrue interest expense after that point on the outstanding balance at the stated interest rate. This note was amended effective February 28, 2015 to extend the maturity date to March 1, 2016 and as a result this note is classified as non-current on our September 30, 2014 balance sheet.

The February 28, 2015 amendment also provided that interest would be paid quarterly, commencing June 30, 2015 and also increased the outstanding principal balance to $110,000, for the effect of a $10,000 due diligence fee earned by the noteholder in connection with the amendment. We determined this fee to be immaterial for recording as additional discount and subsequent periodic amortization and thus we expensed as interest as of the date of the amendment. Since there was no remaining unamortized discount with respect to this note as of February 28, 2015, we also concluded that no further evaluation of this modification with respect to loan extinguishment accounting would be required.

This note was further amended, effective October 15, 2015, to extend the maturity date to July 15, 2016, but since it was paid in full on December 16, 2015, it is classified as current on our September 30, 2015 balance sheet. In connection with the October 15, 2015 amendment, we issued 20,000 restricted common shares to the noteholder, such shares having a fair value of approximately $4,000.

During January 2013 we received an aggregate of $150,000 pursuant to our issuance of two unsecured subordinated notes, bearing interest at 20% per annum. In January 2014 the maturity date of these notes, as well as the due date of the aggregate of $15,000 earned but unpaid interest, was extended to October 2014. An aggregate of 240,000 restricted ONSM common shares with a fair market value at issuance of approximately $60,000 was issued to the lenders as an extension fee. This amount was reflected as a discount and amortized as interest expense over approximately nine and one half months, resulting in an effective interest rate of approximately 71% per annum through October 31, 2014, at which point it reduced to 20% per annum.

We concluded that there was less than a 10% difference between the present value of the cash flows of these notes after the January 2014 modification versus the present value of the cash flows under the payment terms in place one year earlier, under the provisions of ASC 470-50-40, the modified terms were not considered substantially different and therefore accounting for these modifications as extinguishment of debt was not required. The comparison of the present value of cash flows under the modified terms is normally done using the present value of cash flows under the terms existing immediately before the modification. However, under the provisions of ASC 470-50-40, since a modification was done less than a year ago that was not considered substantially different, then the comparison of current terms was to the terms existing one year prior to the current modification.

We did not make the principal payments when due in October 2014, but we continued to accrue interest expense after that point on the outstanding balance at the stated interest rate. Effective February 28, 2015, prior to the issuance of our September 30, 2014 financial statements,  we entered into an agreement with the noteholders whereby (i) we paid all accrued interest, late fees aggregating $6,300 and principal payments aggregating $75,000 and (ii) the notes were amended to extend the maturity date of the remaining principal to March 1, 2016. As a result such remaining principal is classified as non-current on our September 30, 2014 balance sheet. The amendments increased the aggregate outstanding principal balance to $82,500, for the effect of due diligence fees aggregating $7,500 earned by the noteholders in connection with the amendments. We determined these fees to be immaterial for recording as additional discount and subsequent periodic amortization and thus we expensed as interest as of the date of the amendments. Since there was no remaining unamortized discount with respect to these notes as of February 28, 2015, we also concluded that no further evaluation of this modification with respect to loan extinguishment accounting would be required.

The February 28, 2015 amendments also reduced the interest rate to 18% per annum, provide us with a one-time credit to make the change effective with the inception of the note and establish that future interest would be paid quarterly, at 12% per annum, commencing June 30, 2015. The amendments further provided that in the event we receive funds in excess of $5 million as a result of the sale of our assets, that the outstanding principal and interest will be repaid within thirty days of the receipt of the proceeds from the asset sale.

These notes were further amended, effective October 15, 2015, to extend the maturity date to July 15, 2016, but an aggregate of $52,500 was paid against the outstanding balances on December 16, 2015. Effective December 16, 2015, the one note with a remaining outstanding balance was further amended to extend the maturity date on the remaining outstanding balance to December 31, 2016. Accordingly $52,500 of these note balances, the amount repaid in December 2015, is classified as current on our September 30, 2015 balance sheet and the remaining $30,000 balance is classified as non-current.  In connection with the October 15, 2015 amendments, we issued an aggregate of 22,500 restricted common shares to the noteholders, such shares having a fair value of approximately $4,000.

The aggregate unamortized portion of the debt discount recorded against the Subordinated Notes was none and $4,166 as of September 30, 2015 and 2014, respectively.

Intella2 Investor Notes

On November 30, 2012 we issued unsecured promissory notes to five investors (the “Intella2 Investor Notes”), with an initial aggregate outstanding balance of $450,000 bearing interest at 12% per annum and which are fully subordinated to the Line and the Rockridge Note or any assignees or successors thereto. These notes were issued in exchange for $350,000 cash proceeds plus the satisfaction of the $100,000 outstanding principal balance due on a previously issued subordinated note. Note payments were to be interest only during the first year, approximately 30% of the principal plus interest during the second year and the remaining principal balance at the end of the second year. In connection with the issuance of the Fuse Note on March 19, 2013 (discussed in more detail above), we modified the terms on one of the Intella2 Investor Notes, held by Fuse and having a $200,000 outstanding principal balance (the “Intella2 Fuse Note”), to allow conversion of the principal balance into restricted common shares at Fuse’s option using a rate of $0.50 per share.

During April and May 2014, the Intella2 Fuse Note and the Intella2 Investor Notes held by two of the other four investors were further amended to provide that the principal balances aggregating $290,000 would not be payable until the November 30, 2014 maturity date, although interest would continue to be payable on a monthly basis. In exchange for this amendment, we issued an aggregate of 29,000 common shares having a fair market value of approximately $6,100, which we determined to be immaterial for recording as additional discount and subsequent periodic amortization and thus we expensed as interest at that time. We also determined that the remaining unamortized discount as of June 30, 2014 was immaterial for purposes of evaluating these modifications as to whether loan extinguishment accounting would be required.

We did not make the principal payments on the Intella2 Investor Notes when due on November 30, 2014, but we continued to accrue interest expense after that point on the outstanding balance at the stated interest rate. Effective February 28, 2015, prior to the issuance of our September 30, 2014 financial statements, we entered into an agreement with certain of the noteholders whereby (i) we paid all accrued interest through that date plus the aggregate outstanding principal of $60,000 on two of the Intella2 Investor Notes and (ii) we paid all accrued interest through that date related to the Intella2 Fuse Note and one of the two other Intella2 Investor Notes remaining unpaid. These two notes, representing aggregate outstanding principal of $250,000, were also amended at that time to extend the maturity date to March 1, 2016 and to increase the aggregate outstanding principal balance to $275,000, for the effect of due diligence fees aggregating $25,000 earned by the noteholders in connection with the amendments although the portion of the Intella2 Fuse Note convertible to common shares remained at $200,000. Accordingly, that increased principal balance is classified as non-current on our September 30, 2014 balance sheet.

The February 28, 2015 amendments also provided that future interest would be paid quarterly, commencing June 30, 2015, and further provided that in the event we received funds in excess of $5 million as a result of the sale of our assets, the outstanding principal and interest would be repaid within thirty days of the receipt of such proceeds.

Effective October 15, 2015 the Intella2 Fuse Note, having an outstanding principal balance of $220,000, was further amended, extending the maturity date to July 15, 2016. Effective December 16, 2015 a $100,000 principal payment was made and the Intella2 Fuse Note was further amended to extend the maturity date to December 31, 2016. Effective June 6, 2016 the Intella2 Fuse Note was further amended, extending the maturity date to January 15, 2017.  Accordingly $100,000 of the Intella2 Fuse Note balance, the amount repaid in December 2015, is classified as current on our September 30, 2015 balance sheet and the remaining $120,000 balance is classified as non-current. 

Effective June 6, 2016, one of the two other Intella2 Investor Notes remaining unpaid, with an outstanding principal balance of $55,000 was further amended, extending the maturity date to January 15, 2017. Accordingly this balance is classified as non-current on our September 30, 2015 balance sheet. 

Effective June 1, 2016, the fifth Intella2 Investor Note, with an outstanding principal balance of $140,000, was amended, extending the maturity date to January 15, 2017. Accordingly this balance is classified as non-current on our September 30, 2015 balance sheet. This note had previously been due in full as of November 30, 2014, plus accrued but unpaid interest of approximately $27,000 through that date, none of which was paid prior to the June 1, 2016 amendment. We had continued to accrue interest expense after the maturity date through September 30, 2015 on the outstanding balance at the stated interest rate and as part of the June 1, 2016 amendment, we paid $25,200 of the $50,400 of interest accrued through the date of that amendment and agreed to pay the balance as follows: $10,000 on or before June 30, 2016, $7,600 on or before September 1, 2016 and $7,600 on or before December 1, 2016.

In connection with the initial issuance of the Intella2 Investor Notes, we issued to the holders an aggregate of 180,000 restricted common shares (the “Intella2 Common Stock”), which we agreed to buy back, to the extent permitted by law, at $0.40 per share, if the fair market value of the Intella2 Common Stock was not equal to at least $0.40 per share as of November 30, 2014 (two years after issuance). As of June 30, 2013 we determined that our share price had remained below $0.40 per share for a sufficient period that it was appropriate to record a liability for this repurchase commitment. Therefore, we recorded the $48,000 present value of this obligation as a liability on our financial statements as of June 30, 2013 (under the caption “Accrued liabilities” on our balance sheet) which increased to $52,000 as of September 30, 2013, as a result of the accretion of $4,000 as interest expense for the year then ended, increased again to approximately $63,000 as of September 30, 2014 as a result of the accretion of approximately $11,000 as interest expense for the year then ended and increased again to approximately $66,000 as of September 30, 2015 as a result of the accretion of approximately $3,000 as interest expense for the year then ended. This approximately $66,000 liability is equal to the potential repurchase of 164,000 shares at $0.40 per share, since we satisfied our obligation with respect to 16,000 shares by our reimbursement of the shortfall upon a single holder’s resale of those shares in the market, which payment we recorded as interest expense in fiscal 2014.

The closing ONSM share price was $0.17 per share as of November 30, 2014, which would trigger the above repurchase obligation. However, this repurchase obligation is subject to the Intella2 Common Stock being still held by the investor(s) at such date and the investor giving us notice and delivering the shares within fifteen days after such date, as well as any other legal restrictions with respect to our repurchase of shares. It is possible that some or all of this repurchase obligation could be avoided by us due to the failure of the investor or investors to formally present the shares to us and/or provide notice by the specified date, or as a result of legal restrictions with respect to our repurchase of shares. However, because of our ongoing discussions with certain of these investors, including past discussions with respect to debt principal and/or interest payments in arrears to them and our communications to them at the time that we would not be in a position to honor this repurchase obligation for some of the same reasons we were in arrears on debt principal and/or interest payments, it is possible those investors could assert mitigating circumstances under which we might honor all or part of this repurchase obligation. Therefore, pending our further evaluation of our position with respect to this repurchase obligation, we are leaving the accrued liability on our financial statements as of September 30, 2015.

We paid (i) financing fees in cash of $16,000 to a third-party agent, related to $200,000 of this financing, and (ii) a commission of 100,000 unrestricted common shares to another third-party agent, which is related to the entire $350,000 cash portion of the financing as well as to potential additional financing which may be raised under these terms. The value of the Intella2 Common Stock, plus the value of common stock issued and cash paid for related financing fees and commissions, was reflected as a $117,400 discount against the Intella2 Investor Notes (as well as a corresponding increase in additional paid-in capital for the shares) and that amount was partially amortized as interest expense over the term of the notes through June 30, 2013, resulting in an effective interest rate of approximately 26% per annum.

We wrote-off the remaining unamortized discount related to the Intella2 Fuse Note as a non-cash debt extinguishment loss as of March 31, 2013 and as a result, the effective interest rate of the Intella2 Fuse Note after that date was 12% per annum, with the effective interest rate for the other Intella2 Investor Notes remaining at approximately 26% per annum through November 30, 2014, at which point it also reduced to 12% per annum.

With respect to the Intella2 Investor Note held by Fuse, we concluded that there was less than a 10% difference between the present value of the cash flows of Intella2 Investor Note held by Fuse after its February 28, 2015 modification versus the present value of the cash flows under the payment terms in place one year earlier, which 10% is the threshold over which extinguishment accounting is required under the provisions of ASC 470-50-40. Accordingly, accounting for this modification as an extinguishment of debt was not required. The comparison of the present value of cash flows under the modified terms is normally done using the present value of cash flows under the terms existing immediately before the modification. However, under the provisions of ASC 470-50-40, if a modification was done less than a year ago that was not considered substantially different, then the comparison of current terms should be to the terms existing one year prior to the current modification. Since the April 2014 modification of this note was not considered to be an extinguishment, we utilized the terms established as a result of the March 2013 modification. With respect to the other Intella2 Investor Note, since there was no remaining unamortized discount with respect to this note as of February 28, 2015, we concluded that no further evaluation of the February 28, 2015 modification with respect to loan extinguishment accounting would be required.

With respect to the due diligence fees earned by the certain holders of Intella2 Investor Notes in connection with  February 28, 2015 amendments (i) we determined one of these due diligence fees for $5,000 to be immaterial for recording as additional discount and subsequent periodic amortization and thus we expensed as interest as of the date of the amendment and (ii) the other due diligence fee for $20,000 was recorded as a discount against the Intella2 Fuse Note and is being amortized as interest expense over the approximately one year extension period, resulting in an effective interest rate of approximately 21% per annum.

The aggregate unamortized portion of the debt discount recorded against the Intella2 Investor Notes was $8,333 and $5,415 as of September 30, 2015 and 2014, respectively. The portion of this unamortized discount which related to the portion of this debt classified as a convertible debenture was $7,576 and none as of September 30, 2015 and 2014, respectively.

In connection with the October 15, 2015 agreement extending the maturity date of the Intella2 Fuse Note to July 15, 2016, we issued 75,000 restricted common shares to Fuse, such shares having a fair value of approximately $14,000.

Investor Notes

On November 30, 2012 we received $175,000, and on January 2, 2013 we received $25,000, such amounts aggregating $200,000 pursuant to unsecured promissory notes issued to five investors (in aggregate, the “Investor Notes”), bearing interest at 12% per annum and which were fully subordinated to the Line and the Rockridge Note or any assignees or successors thereto. Note payments were to be interest only during the first year, approximately 30% of the principal plus interest during the second year and the remaining principal balance at the end of the twenty-fifth month. We did not make the principal payments on the Investor Notes when due on November 30, 2014, but we continued to accrue interest expense after that point on the outstanding balance at the stated interest rate through the date such notes were repaid, per the following. During November 2013 we paid the $25,000 outstanding principal on one of the Investor Notes plus all accrued interest through that date. During March 2015 we paid the $175,000 aggregate outstanding principal on the four remaining Investor Notes plus all accrued interest through that date.

In connection with the above financing, we issued to the holders of the Investor Notes an aggregate of 240,000 restricted common shares (the “Investor Common Stock”), of which we agreed to buy back, to the extent permitted by law, up to 40,000 shares if the fair market value of the Investor Common Stock was not equal to at least $0.80 per share as of November 30, 2014 (two years after issuance). As of November 30, 2012 we determined that our share price had remained below $0.80 per share for a sufficient period that it was appropriate to record a liability for this repurchase commitment. Therefore, we recorded the $16,000 present value of this obligation as a liability on our financial statements as of November 30, 2012 (under the caption “Accrued liabilities” on our balance sheet) which increased to $21,000 as of September 30, 2013, as a result of the accretion of $5,000 as interest expense for the year then ended.

This repurchase liability increased by approximately $6,000 to approximately $27,000 as of September 30, 2014, as a result of the following transactions recorded for the year then ended: (i) the accretion of $10,000 as net interest expense, including the reversal of previously accreted interest as a result of the shortfall reimbursement described in the following item and (ii) the reversal of approximately $4,000 of the obligation initially accrued on November 30, 2012 to repurchase 5,000 shares of the Investor Common Stock, such reversal resulting from our reimbursement of the shortfall upon the holder’s documentation of its resale of those shares in the market, which reimbursement we recorded as interest expense aggregating approximately $3,200 for the year ended September 30, 2014.

The repurchase liability decreased by approximately $19,000 to approximately $8,000 as of September 30, 2015, as a result of the following transactions recorded for the year then ended: (i) the net reduction of accreted interest expense by $8,000, primarily the reversal of previously accreted interest as a result of the shortfall reimbursement described in the following item and (ii) the reversal of approximately $11,000 of the obligation initially accrued on November 30, 2012 to repurchase 25,000 shares of the Investor Common Stock, such reversal resulting from our reimbursement of the shortfall upon the holders’ documentation of their resale of those shares in the market, which reimbursements we recorded as interest expense aggregating approximately $16,000 for the year ended September 30, 2015.

This approximately $8,000 liability is equal to the potential repurchase of the remaining 10,000 shares of Investor Common Stock at $0.80 per share. The closing ONSM share price was $0.17 per share as of November 30, 2014, which would trigger the above repurchase obligation. However, this repurchase obligation is subject to the Investor Common Stock being still held by the investor(s) at such date and the investor giving us notice and delivering the shares within fifteen days after such date, as well as any other legal restrictions with respect to our repurchase of shares. It is possible that some or all of this repurchase obligation could be avoided by us due to the failure of the investor or investors to formally present the shares to us and/or provide notice by the specified date, or as a result of legal restrictions with respect to our repurchase of shares. However, because of our ongoing discussions with certain of these investors, including past discussions with respect to debt principal and/or interest payments in arrears to them and our communications to them at the time that we would not be in a position to honor this repurchase obligation for some of the same reasons we were in arrears on debt principal and/or interest payments, it is possible those investors could assert mitigating circumstances under which we might honor all or part of this repurchase obligation. Therefore, pending our further evaluation of our position with respect to this repurchase obligation, we are leaving the accrued liability on our financial statements as of September 30, 2015.

We paid a third-party agent financing fees of $14,000 plus 35,000 unrestricted common shares related to this financing. The value of the Investor Common Stock, plus the value of common stock issued and cash paid for related financing fees, was reflected as a $113,700 discount against the Investor Notes (as well as a corresponding increase in additional paid-in capital for the shares) and that amount was amortized as interest expense over the term of the notes, resulting in an effective interest rate of approximately 43% per annum through November 30, 2014, at which point it reduced to 12% per annum until the notes were repaid in March 2015. The aggregate unamortized portion of the debt discount recorded against the Investor Notes was $12,492 as of September 30, 2014.

USAC Notes

On February 15, 2013 we executed a letter agreement promissory note with the Universal Service Administrative Company (“USAC”) for $372,453, payable in monthly installments of $19,075 (which include interest at 12.75% per annum) over twenty-two months starting March 15, 2013 through December 15, 2014 (the “USAC Note”). The final payment due in December 2014 was made in January 2015. This letter agreement promissory note is related to our liability for Universal Service Fund (USF) contribution payments previously reflected as an accrued liability on our balance sheet and therefore resulted in the February 2013 reclassification of a portion of that accrued liability to notes payable. USAC is a not-for-profit corporation designated by the Federal Communications Commission (“FCC”) as the administrator of the USF program. See notes 1 and 5.

On May 15, 2015 we executed a letter agreement promissory note with USAC for $220,616, payable in monthly installments of $10,463 (which include interest at 12.75% per annum) over twenty-four months starting June 15, 2015 through May 15, 2017 (“USAC Note 2”). This letter agreement promissory note is related to our liability for USF contribution payments previously reflected as an accrued liability on our balance sheet and therefore resulted in the May 2015 reclassification of a portion of that accrued liability to notes payable.

Minimum Cash Payments

The minimum cash payments required for the convertible debentures, notes payable and capitalized lease obligations listed above, before deducting unamortized discount and excluding interest, are as follows:

Year Ending September 30:
2016	$	3,248,340
2017		1,874,972
Total minimum debt payments	$	5,123,312

The Line is included in the table above as a $1,650,829 payment during the year ending September 30, 2016, based on its balance sheet classification as a current liability, although we have renewed the Line through December 31, 2017, with an option to extend it through December 31, 2018, as discussed in more detail under “Line of Credit Arrangement” above.