SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION POLICY AND HISTORY OF BUSINESS

 The consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiaries, Fuse Science, Inc. (“FSR&D”), a Delaware Corporation, FSJV, LLC, a Florida limited liability company, FS Consumer Products Group, Inc., a Florida corporation [and its 60% owned subsidiary, Ultimate Social Network, Inc. (“USN”)]. All significant intercompany balances and transactions have been eliminated in consolidation.

BASIS OF PRESENTATION

 The unaudited condensed consolidated financial statements included herein have been prepared by the Company, without audit, according to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United Stated of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The information set forth in these interim condensed consolidated financial statements for the three and nine months ended June 30, 2014 and 2013, is unaudited and reflects all adjustments, which include only normal recurring adjustments and which in the opinion of management are necessary to make the interim condensed consolidated financial statements not misleading. The September 30, 2013 year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The Report of Independent Registered Public Accounting Firm on the September 30, 2013 consolidated financial statements contained an explanatory paragraph expressing substantial doubt about the Company’s ability to continue as a going concern. It is suggested that these condensed consolidated financial statements be read in conjunction with these financial statements and the notes thereto included in the Company’s latest annual report on Form 10-K which were prepared assuming the Company will continue as a going concern.

USE OF ESTIMATES

 The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. Although these estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future, actual results could differ from these estimates.

REVENUE RECOGNITION

 The Company records revenue net of discounts and allowances from the sale of Enerjel™, Powerfuse™ and Electrofuse™, when all of the following have occurred: (1) persuasive evidence of an arrangement exists, (2) product has been shipped or delivered, (3) the sales price to the customer is fixed or determinable, and (4) collectability is reasonably assured. The Company’s customers may return ordered items for a refund. The Company also provides customers incentives to purchase products at a discount. For the three months ended June 30, 2014, we have recorded sales discounts, credits, coupons, and return and allowances of $59,145. For the nine months ended June 30, 2014, we have recorded sales discounts, credits, coupons and returns and allowances of $311,840, which is netted against sales.

CASH CONCENTRATIONS

 From time to time, the Company maintains cash with financial institutions in excess of federally insured limits.

SHIPPING AND HANDLING

 Shipping and handling billed to customers is included in net sales and shipping and handling costs are recorded as a component of cost of sales.

FAIR VALUE MEASUREMENTS

 Fair value is defined as the price that the Company would receive to sell an investment or pay to transfer a liability in a timely transaction with an independent counter-party in the principal market or in the absence of a principal market, the most advantageous market for the investment or liability.  A three-tier hierarchy is established to distinguish between (1) inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs); and establishes a classification of fair value measurements for disclosure purposes.

 The hierarchy is summarized in the three broad levels listed below:

 Level  1  -  quoted prices in active markets for identical assets and liabilities

 Level  2  -  other significant observable inputs (including quoted prices for similar assets and liabilities, interest rates, credit risk, etc.)

 Level  3  -  significant unobservable inputs (including the Company’s own assumptions in determining the fair value of assets and liabilities).

 In accordance with Accounting Standards Codification (“ASC”) 815, the Company’s warrant derivative liability is measured at fair value on a recurring basis, and is a level 3 measurement in the three-tier fair value hierarchy.

 There were no transfers between the levels of the fair value hierarchy during the nine months ended June 30, 2014 and 2013.

FAIR VALUE OF FINANCIAL INSTRUMENTS

 The following methods and assumptions were used by the Company in estimating the fair values of each class of financial instruments disclosed herein:

 Warrant Derivative Liability - These financial instruments are carried at fair value.

 Notes Payable - Based upon the interest rates, current economic conditions, risk characteristics, collateral and other factors, the carrying amount of these financial instruments approximate market value (level 2 measurement).

DERIVATIVE LIABILITY

 The Company issued warrants to purchase the Company’s common stock in connection with the issuance of convertible debt, which contain certain ratchet provisions that reduce the exercise price of the warrants in certain circumstances. The Company determined that the warrants did not qualify for a scope exception under ASC 815 as they were determined not to be indexed to the Company’s stock and accordingly are accounted for as derivatives and are recorded on the balance sheet at fair value with the changes in the fair value recognized in the consolidated statement of operations. Fair values are measured using a Black-Scholes valuation model, which approximates a binomial lattice valuation methodology utilizing Level 3 inputs.

INCOME TAXES

 The Company accounts for income taxes under the liability method whereby deferred tax assets and liabilities are provided for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

 Deferred tax assets, net of a valuation allowance, are recorded when management believes it is more likely than not that the tax benefits will be realized.  Realization of the deferred tax assets is dependent upon generating sufficient taxable income in the future.  The amount of deferred tax asset considered realizable could change in the near term if estimates of future taxable income are modified.

 The Company assesses its tax positions in accordance with "Accounting for Uncertainties in Income Taxes" as prescribed by the Accounting Standards Codification, which provides guidance for financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in a tax return for open tax years (generally a period of three years from the later of each return's due date or the date filed) that remain subject to examination by the Company's major tax jurisdictions.  Generally, the Company is no longer subject to income tax examinations by major taxing authorities for years before September 30, 2010.

 The Company assesses its tax positions and determines whether it has any material unrecognized liabilities for uncertain tax positions.  The Company records these liabilities to the extent it deems them more likely than not to be incurred.  Interest and penalties related to uncertain tax positions, if any, would be classified as a component of income tax expense in the accompanying consolidated statements of income.

 The Company believes that it does not have any significant uncertain tax positions requiring recognition or measurement in the accompanying consolidated financial statements.

MARKETING, ADVERTISING AND PROMOTION COSTS

 Marketing, advertising and promotion costs are charged to operations as incurred and are included in sales and marketing expenses in the accompanying consolidated statements of operations.  The amount charged for the three months ended June 30, 2014 and 2013 were approximately $258,000 and $ 462,000, respectively. The amounts charged for the nine months ended June 30, 2014 and 2013 were approximately $1,148,000 and $2,448,000, respectively.

NON-CONTROLLING INTEREST

Non-controlling interest in the Company’s consolidated financial statements represents the 40% interest not owned by the Company in USN. USN had no operations during the three and nine months ended June 30, 2014.

STOCK-BASED COMPENSATION

 The Company accounts for stock options granted to employees and directors using the accounting guidance in ASC 718 “Stock Compensation” (“ASC 718”) and for stock options granted to consultants and endorsers using the accounting guidance included in ASC 505-50 “Equity-Based Payments to Non-Employees” (“ASC 505-50”). In accordance with ASC 718, we estimate the fair value of service based options and performance based options on the date of grant, using the Black-Scholes pricing model.  In accordance with ASC 505-50, we estimate the fair value of service based options and performance based options at each reporting period until a measurement date is reached using the Black-Scholes pricing model.

 The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s options would have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models may not necessarily provide a reliable single measure of the fair value of the Company’s options, although they provide the best estimate currently.

LOSS PER SHARE

 The Company’s loss per share is computed by dividing net loss by the weighted average number of common shares outstanding. Diluted losses per share reflects the potential dilution that could occur if stock options and or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the losses of the Company. All outstanding options and warrants are not included in the calculation of diluted loss per share as their effect would be antidilutive.

 As described in Note 7 –Payable, the Company had convertible notes and warrants outstanding during the three and nine months ended June 30, 2014. The convertible notes are reflected in the calculation of diluted earnings per share for the corresponding periods by application of the “if converted” method to the extent their effect is dilutive.

 The following is a reconciliation of the numerator and denominator used for the computation of basic and diluted net loss per common shares:

	For the Three months ended June 30,
	2014		2013 Restated
Numerator:
Net loss available to stockholders	$	(448,054)	$	(2,568,290)
Denominator:
Weighted average number of common shares – Basic		2,170,378		1,208,295
Weighted average number of common shares – Diluted		2,170,378		1,208,295
Net loss per common share:
Basic	$	(0.21)	$	(2.13)
Diluted	$	(0.21)	$	(2.13)

	For the Nine Months ended June 30,
	2014		2013 Restated
Numerator:
Net loss available to stockholders	$	(8,502,410)	$	(20,266,534)
Denominator:
Weighted average number of common shares – Basic		2,056,510		1,171,252
Weighted average number of common shares – Diluted		2,056,510		1,171,252
Net loss per common share:
Basic	$	(4.13)	$	(17.3)
Diluted	$	(4.13)	$	(17.3)