Note 2 – Liquidity and Going Concern

The Company’s primary sources of liquidity are cash and cash equivalents as well as availability under the Credit Agreement with BMO Harris. The Company has historically used availability under this revolving credit facility to fund operations.

For the six months ended June 30, 2017, the Company generated net cash from operating activities in the amount of $3,202,237, although the Company did incur a loss for the quarter ended June 30, 2017 of $526,000 and for the six months ended June 30, 2017 of $468,000.

Assuming a continuation of the revolving credit under the Credit Agreement, the Company has forecast a profit for the second half of the year, which is expected to generate sufficient cash flow for the Company to meet its current obligations.

As of June 30, 2017, the Company had total borrowings outstanding under the Credit Agreement including $9,172,000 on the revolving credit loan and $1,664,000 on the mortgage facility. As of June 30, 2017, the Company had cash balances of $456,000.

Also, the Company owes $5 million on its outstanding subordinated loan with BMO Equity, which matures on January 17, 2018.

As of June 30, 2017, we met the debt covenants of the BMO Harris loan and the BMO Equity loan.

The obligations of the Credit Agreement (revolving credit loan and mortgage) were to mature on July 17, 2017 under the terms. By amendment to the Credit Agreement, BMO Harris has agreed to extend the maturity of these obligations to October 18, 2017. BMO Equity consented to this extension in exchange for a fee and for the right to exercise at any time its put of warrants issued under the Note and Warrant Agreement, with payment deferred to the maturity date of the BMO Equity loan.

The extension provides for the retention by the Company of a consultant to advise as to financial planning, forecasting, cost management and financing.

Management’s plans include

(1)

Acting to reduce operating expense to achieve a higher level of profitability,

(2)

Working with our consultant to reduce operating expenses, negotiate financing terms, identify financing sources,

(3)

Contacts and negotiations with our current lenders and with additional financing sources to extend our present loan facilities or to provide alternative sources for one or both of our current lenders, and

(4)

Maintaining active contact and a loan process with several potential lenders, as well as our current lenders, and receipt of non-binding proposals for our financing.

Management Assessment

Based upon our historical ability to obtain necessary financing and our current expectations, we believe that we are likely to obtain necessary financing to continue operating as a going concern. However, we do not have firm commitments at this time for alternative financing or loan extensions.