Going Concern and Management's Liquidity Plans

3 Months Ended

Jun. 30, 2012

Notes to Financial Statements

Going Concern and Management's Liquidity Plans

2.    Going Concern and Management’s Liquidity Plans

Since inception, the Company has financed its operations primarily through product sales to customers, debt and equity financing agreements, and advances from stock holders. As of June 30, 2012 and December 31, 2011, the Company had negligible cash and working capital deficiency of $5,724,914 and $2,404,464, respectively.  For the six months ended June 30, 2012, cash flows included net cash used in operating activities of $581,948, net cash provided by investing activities of $138,241 and net cash provided by financing activities of $443,846. Additionally, all of the Company’s outstanding convertible notes payable mature at the end of December 2012 and outstanding notes payable mature in January 2013. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

During the six months ended June 30, 2012, the Company received advances of $605,000 from certain stockholders and repaid $283,812 of such advances. Such advances are due on demand and are non-interest bearing. In addition, the Company received $175,000 in cash for common stock and $26,662 in cash in connection with the exercise of common stock options, which has been included on the condensed consolidated balance sheet at June 30, 2012. Subsequent to June 30, 2012, the Company received proceeds from the sale of common stock in the amount of $350,004 and advances from members of management in the amount of approximately $168,000.  The Company recognizes it will need to raise additional capital in order to reduce its debt, potentially renegotiate debt terms and execute its business plan. There is no assurance that additional financing will be available when needed or that management will be able to obtain financing on terms acceptable to the Company and whether the Company will become profitable and generate positive operating cash flow. If the Company is unable to raise sufficient additional funds, it will have to develop and implement a plan to further extend payables and reduce overhead until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful.

Accordingly, the accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern and the realization of assets and the satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the condensed consolidated financial statements do not necessarily represent realizable or settlement values. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.