Note 2 – Liquidity and Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. During the nine months ended September 30, 2015, the Company experienced a decline in sales, a reduction in working capital, reported a loss from operations and net cash used in operating activities in conjunction with liquidity constraints. Furthermore, the Company’s Revolver and Term Loan will by their terms on February 1, 2016, unless extended. The above factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

In response to lower than expected sales due to a slowdown in market activities experienced during the first half of the fiscal year, the Company implemented a two-phase cost-reduction program which is expected to reduce annualized expenses by approximately $2,100, including a temporary reduction in certain executive salaries, a decrease in workforce and a decrease in engineering consulting expenses. In September 2015, the Company then developed and implemented a third phase cost reduction plan, which is expected to further reduce annualized expenses by approximately $750.

The Company’s primary sources of liquidity are its existing cash balances, cash generated from operations and amounts available under the Santander Financing (as defined in Note 6 below). As of September 30, 2015, the Company had approximately $2,539 outstanding under the Revolver (as defined in Note 6 below) and $483 of additional availability for borrowing under the Revolver. The Company expects to either obtain an extension of the maturity date or refinance all or part of the Santander indebtedness prior to February 1, 2016. If anticipated operating results are not achieved, and or sufficient funds are not obtained, from the Company’s expected refinancing, further reductions in operating expenses may be needed and could have a material adverse effect on the Company’s ability to achieve its intended business objectives.

The Company cannot provide any assurance that it will be able to refinance its current debt obligations. If the Company is unable to refinance, it may be required to take additional measures to reduce costs in order to conserve its cash in amounts sufficient to sustain operations and meet its obligations.