MSLP files 10q today
Here is what they reported about Fuse in the report;
Note 6: Debt Securities
On November 7, 2013, the Company purchased, for an aggregate $200,000, a senior secured convertible promissory note from Fuse Science Inc. (“Fuse”) (OTC:DROP) that matures 90 days from the date of issuance, and certain derivative instruments (Note 7), the value of which was recorded as a discount to the note to be accreted over the note’s term. The promissory note bears interest at a rate of 10% per annum and is convertible at any time prior to the maturity date into 3,076,923 shares of Fuse common stock at the conversion rate of $0.065 per share. The Company’s ability to convert into Fuse common stock is restricted by a beneficial ownership limitation of 9.99% of the number of the common stock outstanding after giving effect to the issuance of common stock issuable upon conversion. On December 11, 2013, the Company amended the Fuse note and funded an additional $75,000 under the original terms of the note.
On January 3, 2014, the Company renewed the combined $275,000 senior secured convertible promissory note from Fuse with a new maturity date of January 3, 2019 and convertible into 13,750,000 shares at a conversion rate $0.02 per share.
The Company has classified this note as a Level 2 trading security and has used a Black-Scholes valuation model to determine the value of the conversion option and detachable derivative instrument. Changes in the reported value of the note will be included as a component of net income. Values of $206,855 and $174,574 attributable to the conversion option and derivative instruments, respectively, have been recorded as a discount to be accreted as interest income over the stated maturity of the note. As of March 31, 2014, the entire discount has been accreted to interest income. See Note 18 for subsequent events related to the Fuse convertible note.
The following table summarizes the Company’s debt securities activity for the three months ended March 31, 2014:
Fuse Note
Balance – December 31, 2013 $ 259,715
Redemption of note (275,000 )
Renewal of note 275,000
Discount for value of conversion option (206,855 )
Accretion of net discount 222,140
Unrealized loss on debt security (60,000 )
Balance – March 31, 2014 $ 215,000
Note 7: Derivative Instruments
In conjunction with the purchase of the Fuse convertible promissory note as amended and discussed in Note 6, the Company received callable warrants to purchase up to 9,165,750 shares of Fuse at an exercise price of $0.065 per share with expiration dates of 5 years from the date of issuance. The initial value of the warrants was $174,574 and was recorded as a discount against the note. Upon renewal of the convertible note as discussed in Note 6, the Company recognized the conversion option of the convertible note as a derivative instrument with an initial value of $206,855, which was recorded as a discount against the note.
