DROP Fuse Science Inc (PK)

Notes to Unaudited Condensed Consolidated Financial Statements

December 31, 2015

NOTE 1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements presented herein have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and note disclosures required by accounting principles generally accepted in the United States. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Form 10-K for the fiscal year ended September 30, 2014 originally filed with the Securities and Exchange Commission (the “SEC”) on January 13, 2015 and Form 10-K/A filed with the SEC on January 16, 2015. In the opinion of management, this interim information includes all material adjustments, which are of a normal and recurring nature, necessary for fair presentation.

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 reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates that are particularly susceptible to change include assumptions used in determining the fair value of securities owned or issued and non-readily marketable securities.

The results of operations for the three and nine months ended December 31, 2015 are not necessarily indicative of the results to be expected for the entire year or for any other period.

We adopted early application of Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements effective June 30, 2014, therefore, inception-to-date information and other remaining disclosure requirements of Topic 915 is not presented or disclosed.

NOTE 2. BUSINESS DESCRIPTION AND GOING CONCERN

Organization and Business Description

Fuse Science, Inc. (“Fuse”, “our”, “us”, “we” or the “Company”) was incorporated in Nevada on September 21, 1988. Prior to 2002, the Company’s activities included developing and marketing data communications and networking infrastructure solutions for business, government and education. From 2007 to 2009, the Company was a “business development company” under the Investment Company Act of 1940. From April 2011 through October 1, 2014, the Company’s business involved developing and marketing nutraceutical products.

Since October 1, 2014, Fuse, through its 51% owned subsidiary, Spiral Energy Tech, Inc. (“Spiral”) has focused on developing and commercializing its proprietary SkyPorts drone support and Energy Demand Network (“EDEN”) technology. This technology seeks to permit a drone to operate predictably many miles outside of a “home range” limitation, defined by the drone’s finite battery power, by allowing for a flight path of numerous stops (or waypoints) at recharging stations along the way, thus extending the limit of the drone’s useful range. Currently, we do not plan to build or design any drones or autonomous vehicles; rather we intend to employ our technology in non-military drones manufactured by third party commercial manufacturers.

We have filed patents for technology related to SkyPorts and EDEN technology as follows:

Also, through Spiral, we are engaged in developing and commercializing our XTRAX® remote monitoring system, designed to measure the production of solar and other renewable energy systems and to enable transmission of the data via the cellular and radio frequency network (and potentially via microwave transmission network or satellite). On April 25, 2013, we purchased the patents and trademarks relating to the XTRAX® remote monitoring system from Carbon 612 Corporation and one of its creditors. On May 13, 2013, we entered into an agreement with a patent assertion entity, pursuant to which we sold Endeavor the XTRAX® patents and obtained a perpetual, royalty-free, irrevocable, non-exclusive and worldwide license to develop, distribute and sell the products and services covered by the patents and to a portion of the revenues generated by patent enforcement activities. Our principal revenue during the period covered by this report has been amounts paid related to settlement of patent enforcement actions.

As of December 31, 2015, we had no products available for sale. There can be no assurance that our technology will be commercially successful. In addition, we operate in an environment of rapid change in technology and are dependent upon the continued services of our current employees, consultants and subcontractors.

These unaudited condensed consolidated financial statements are presented on the basis that we will continue as a going concern. The going concern concept contemplates the realization of assets and satisfaction of liabilities in the normal course of business. No adjustment has been made to the carrying amount and classification of our assets and the carrying amount of our liabilities based on the going concern uncertainty. We have considered ASU 2014-15 in consideration of reporting requirements of the going concern financial statements.

Our headquarters are located at 5510 Merrick Road, Massapequa, New York 11758. The elected year end is September 30.

NOTE 3. AGREEMENT AND PLAN OF REORGANIZATION WITH SPIRAL

On October 1, 2014, Fuse entered into an Agreement and Plan of Reorganization (the “Merger Agreement”) with Spiral, a Nevada corporation, and Spiral Acquisition Sub, Inc., a newly formed, wholly-owned Nevada subsidiary (“Acquisition Sub”). Upon closing of the transactions contemplated under the Merger Agreement (the “Merger”) which occurred concurrently with entering into the Merger Agreement, Acquisition Sub merged with and into Spiral, and Spiral, as the surviving entity, became a 51% majority-owned subsidiary of Fuse.

At the closing of the Merger, 51% of the outstanding shares of Spiral (the “Spiral Shares”) were acquired by the Company for an aggregate of 15 million newly issued shares of Common Stock, par value $ 0.001 per share, of Fuse (the “Fuse Common Stock”) or, at the election of any holder of the Spiral Shares, shares of Series C Convertible Preferred Stock, par value $0.001 per share (the “Series C Preferred Stock”) if as a result of receiving Fuse Common Stock in connection with the Merger, such holder would hold in excess of 5% of the issued and outstanding shares of Fuse. At the closing of the Merger, Fuse issued 3,269,808 shares of Fuse Common stock and 3,500,000 shares of Series C Preferred Stock to the former Spiral shareholders. The Series C Preferred Stock is convertible into 11,730,192 common shares, subject to adjustment.

At the closing of the Merger, Fuse sold an aggregate of 3,200,000 shares of Series B Preferred Stock, $0.001 par value per share (the “Series B Preferred Stock”) in a private placement (the “Private Placement”) to accredited investors (the “Investors”) at a per share price of $0.50, for gross proceeds of $1,600,000. Each share of Series B Preferred Stock has a stated value of $0.50 and is convertible into shares of Fuse common stock equal to the stated value (and all accrued but unpaid dividends) divided by a conversion price equal to the lower of (i) $2.50 and (ii) during the period commencing on the initial issuance date and ending on the first trading day following the six month anniversary of the initial issuance date that there is traded a minimum of 3,000,000 shares at a price of $0.50 or greater, twenty percent (20%) of the lowest VWAP of Fuse common stock on the trading day during the twenty (20) consecutive trading days ending on the trading day immediately preceding the conversion date (subject to adjustment). The Company is prohibited from effecting the conversion of the Series B Preferred Stock to the extent that as a result of such conversion, the holder beneficially owns more than 2.49%, in the aggregate, of the issued and outstanding shares of the Company’s common stock calculated immediately after giving effect to the issuance of shares of common stock upon the conversion of the Series B Preferred Stock.

Assets acquired and liabilities assumed. Per ASC 805-20, we measured Spirals’ assets and liabilities at fair value as of the acquisition date. The fair value of the assets acquired, consisting of cash, accounts receivable, investments, and fixed assets, were $86,193, $1,278, $1,125 and $24,967, respectively. Liabilities assumed were accounts payable and accrued expenses of $37,382 and $1,500, respectively. The net fair value of the acquired assets was $74,681.

Goodwill and Intangibles. Per ASC 805-30, we recorded goodwill of $21,633,882 and a non-controlling interest in a subsidiary of approximately $10 million. During the quarter ended December 31, 2014, we performed a goodwill impairment analysis and determined that the fair market value of the acquired goodwill was zero. We wrote off the entire amount of acquired goodwill in the quarter ended December 31, 2014.

NOTE 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation. The unaudited condensed consolidated financial statements include the accounts of our wholly owned subsidiaries, Fuse Science, Inc., a Delaware Corporation, and FS Consumer Products Group, Inc., a Florida corporation; our 60% owned subsidiary, Ultimate Social Network, Inc. (“USN”) and our 51% owned subsidiary, Spiral. All significant intercompany balances and transactions have been eliminated in consolidation.

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.

Cash and Cash Equivalents. We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The carrying value of those investments approximates their fair market value due to their short maturity and liquidity. Cash and cash equivalents include cash on hand and amounts on deposit with financial institutions, which amounts may at times exceed federally insured limits. We have not experienced any losses on such accounts and we do not believe we are exposed to any significant credit risk.

Fair Value Measurements. The Company’s balance sheet includes certain financial instruments. The carrying amounts of current assets and current liabilities approximate their fair value because of the relatively short period of time between the origination of these instruments and their expected realization.

ASC 820, “Fair Value Measurements and Disclosures,” defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

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 December 31, 2015 and year ended September 30, 2014.

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2015. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments.

Marketable Securities. The Company’s marketable equity securities have been classified and accounted for as available-for- sale. Management determines the appropriate classification of its investments at the time of purchase and re evaluates the designations at each balance sheet date. We classify our marketable equity securities as either short-term or long-term based on the nature of each security and its availability for use in current operations. Our marketable equity securities are carried at fair value, with the unrealized gains or losses reported as a component of shareholder’s equity.

Accounts Receivable. Accounts receivable are uncollateralized customer obligations due under normal trade terms. The carrying amount of accounts receivable may be reduced by an allowance that reflects management's best estimate of the amounts that will not be collected. Management reviews all accounts receivable balances and estimates the portion, if any, of the balance that will not be collected based on assessment of current credit worthiness. All accounts or portions thereof determined to be uncollectible are written off to the allowance for doubtful accounts.

Long-Lived Assets Including Other Acquired Intangible Assets. Property and equipment is stated at cost. Depreciation is computed by the straight-line method over estimated useful lives, which is between 3 years for computer equipment and 5-20 years for production equipment. Intellectual property is amortized on a straight-line basis over its estimated economic life of 15 years and evaluated for impairment whenever events or changes in business circumstances indicated that the carrying value of the intellectual property may not be recoverable. The carrying amount of all long-lived assets is evaluated periodically to determine if adjustment to the depreciation and amortization period or the unamortized balance is warranted.

Long-lived assets such as property, equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that the carrying value may not be recoverable. When required impairment losses on assets to be held and used are recognized based on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset. When fair values are not available, we estimate fair value by using the expected future cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets.

Fair Value of Financial Instruments. We used the following methods and assumptions in estimating the fair values of each class of financial instruments disclosed herein:

Derivative Liability. We issued warrants to purchase our common stock in connection with the issuance of convertible debt. The warrants contain certain price protection provisions that reduce the exercise price of the warrants in certain circumstances. Also, we issued Series A and Series B Convertible Preferred Stock, which contain price protection provisions that reduce the conversion price of the preferred stock in certain circumstances. We determined that the warrants and preferred stock did not qualify for a scope exception under ASC 815 as they were determined not to be indexed to our common stock. Accordingly, we accounted for the warrants and Series A and Series B Convertible Preferred Stock as derivatives, recorded on the balance sheet at fair value, with the changes in fair value recognized in the consolidated statement of operations.

Revenue Recognition. We record revenue, net of discounts and allowances, when all of the following have occurred: persuasive evidence of an arrangement exists; the product has been shipped or delivered; the sales price to the customer is fixed or determinable; and collectability is reasonably assured.

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 unaudited condensed consolidated statements of operations.

Research and Development Expenses. We follow ASC 730-10, “ Research and Development” and expense research and development costs when incurred. Third-party research and development costs incurred, including designing, prototyping and testing of product, are expensed when the contracted work has been performed or milestone results have been achieved. Indirect costs are allocated based on percentage usage allocated to the research and development.

Stock-Based Compensation Expenses. ASC 718, “Compensation – Stock Compensation prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments, such as employee stock ownership plans and stock appreciation rights. Share- based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. The expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).

We accounts for stock options granted to employees and directors using the accounting guidance in ASC 718 “ Stock Compensation ” (“ASC 718”). 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.

We account for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, “Equity–Based Payments to Non-Employees.” Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: the goods or services received; or the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of the performance commitment date or performance completion date.

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.

Restricted Stock. We issue restricted stock to consultants for various services. Cost for these transactions are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is measurable more reliably measurable. The value of the common stock is measured at the earlier of the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached or the date at which the counterparty's performance is complete.

Related Parties. We follow ASC 850, “Related Party Disclosures” for the identification of related parties and disclosure of related party transactions.

Income Taxes. We account 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 the deferred tax asset considered realizable could change in the near term if estimates of future taxable income are modified.

We assess our 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, we are no longer subject to income tax examinations by major taxing authorities for years before September 30, 2011.

We assess our tax positions and determine whether we have any material unrecognized liabilities for uncertain tax positions. We record these liabilities to the extent we deem 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.

We believe that we do not have any significant uncertain tax positions requiring recognition or measurement in the accompanying consolidated financial statements.

Non-Controlling Interest. Non-controlling interest in the Company’s unaudited condensed consolidated financial statements represents the 40% interest not owned by Fuse in USN, and the 49% interest not owned by Fuse in Spiral. USN had no operations during the twelve months ended September 30, 2014 and the nine months ended December 31, 2015.

Concentration of Credit Risk. One customer accounted for approximately 96% of the Company's net sales for the year ended September 30, 2014, which was in connection with Fuse’s legacy business of developing and marketing nutraceutical products , .

Net Income (Loss) Per Share. The Company’s net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding. Diluted loss 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. Outstanding options and warrants are not included in the calculation of diluted loss per share as their effect would be antidilutive.

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

share:

Recent Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs . The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The amendments are effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The amendments are to be applied on a retrospective basis, wherein the balance sheet of each individual period presented is adjusted to reflect the period-specific effects of applying the new guidance. We do not expect the adoption of ASU 2015-03 to have a material effect on our financial position, results of operations or cash flows.

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which is intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). The ASU focuses on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. In addition to reducing the number of consolidation models from four to two, the new standard simplifies the FASB Accounting Standards Codification and improves current U.S. GAAP by placing more emphasis on risk of loss when determining a controlling financial interest, reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity (“VIE”), and changing consolidation conclusions for companies in several industries that typically make use of limited partnerships or VIEs. The ASU will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. We do not expect the adoption of ASU 2015-02 to have a material effect on our financial position, results of operations or cash flows.

In January 2015, the FASB issued ASU No. 2015-01, “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” This ASU eliminates from U.S. GAAP the concept of extraordinary items. ASU 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. We do not expect the adoption of ASU 2015-01 to have a material effect on our financial position, results of operations or cash flows.

In November 2014, the FASB issued ASU No. 2014-17, “Business Combinations (Topic 805): Pushdown Accounting.” This ASU provides an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. An acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change-in-control event occurs. If pushdown accounting is applied to an individual change-in-control event, that election is irrevocable. ASU 2014-17 was effective on November 18, 2014. The adoption of ASU 2014-17 did not have any effect on our financial position, results of operations or cash flows.

In November 2014, the FASB issued ASU 2014-16, “Derivatives and Hedging (Topic 815).” ASU 2014-16 addresses whether the host contract in a hybrid financial instrument issued in the form of a share should be accounted for as debt or equity. ASU 2014-16 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Currently, we do not have any outstanding hybrid financial instruments, nor are we investors in any such instruments. Accordingly, we do not expect the adoption of ASU 2014-16 to have any effect on our financial position, results of operations or cash flows.

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40)”. ASU 2014-15 provides guidance related to management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosure. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and for interim and annual periods thereafter. Early application is permitted. We do not expect the adoption of ASU 2014-15 to have a material effect on our financial position, results of operations or cash flows.

In June 2014, the FASB issued ASU No. 2014-12, “Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period.” This ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. ASU 2014-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. We do not expect the adoption of ASU 2014-12 to have a material effect on our financial position, results of operations or cash flows.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 affects any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). ASU 2014-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. We are still evaluating the effect of the adoption of ASU 2014-09. On April 1, 2015, the FASB voted to propose to defer the effective date of the new revenue recognition standard by one year.

In April 2014, the FASB issued ASU No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) and Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU 2014-08 amends the definition for what types of asset disposals are to be considered discontinued operations, as well as amending the required disclosures for discontinued operations and assets held for sale. ASU 2014-08 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2014. The adoption of ASU 2014-08 did not have any effect on our financial position, results of operations or cash flows.

Recent accounting pronouncements issued by the FASB and the SEC did not or are not believed by management to have a material impact on our present or future unaudited condensed consolidated financial statements.

NOTE 5. MARKETABLE SECURITIES

Not applicable

NOTE 7. NOTES PAYABLE

Not applicable

NOTE 8. FAIR VALUE ASSUMPTIONS USED IN ACCOUNTING FOR WARRANT DERIVATIVE LIABILITIES 

Not Applicable

NOTE 9. CONVERTIBLE DEBT EXCHANGE

Not applicable

NOTE 10. INCOME TAXES

Not applicable.

NOTE 11. STOCKHOLDERS’ EQUITY (DEFICIT)

Not applicable

NOTE 12. INCENTIVE STOCK PLANS

Not applicable

NOTE 13. COMMITMENTS AND CONTINGENCIES

Insufficient Capital: As of the date of the filing of this Form 10-Q, the Company had no remaining authorized and unissued shares of its common stock. So long as the Company has no common stock available for issuance, under the terms of the Series A Certificate of Designation, in the event Series A holders tender Series A shares for conversion, the Company would owe such holders an amount equal to the product of (a) the undeliverable shares of common stock and (b) the closing price per share of the common stock on the day preceding the delivery of the conversion notice. Based on the number of Series A shares presently outstanding, such amount could be substantial. The Company intends to take action to increase the shares of common stock available for issuance under its Articles of Incorporation.