Going Concern and Financial Condition
|3 Months Ended|
Mar. 31, 2022
|Going Concern and Financial Condition|
|Note 3 - Going Concern and Financial Condition||
Note 3 – Going Concern and Financial Condition
Under ASC 205-40, Presentation of Financial Statements—Going Concern, the Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about its ability to meet its future financial obligations as they become due within one year after the date that the financial statements are issued. As required by ASC 205-40, this evaluation shall initially not take into consideration the potential mitigating effects of plans that have not been fully implemented as of the date the financial statements are issued. Management has assessed the Company’s ability to continue as a going concern in accordance with the requirement of ASC 205-40.
The accompanying condensed consolidated financial statements as of March 31, 2022 have been prepared assuming the Company will continue as a going concern. As reflected in the condensed consolidated financial statements, the Company had approximately $377,000 in cash at March 31, 2022, and cash used in operating activities of $1.0 million for the three months ended March 31, 2022. Further, the Company had a working capital deficit of $12.4 million, an accumulated deficit of $68.3 million at March 31, 2022, and had a net loss in the amount of approximately $1,148,000 for the three months ended March 31, 2022. In addition, all existing secured and unsecured debt held by its principal lender in the principal amount of $13.4 million matures on August 25, 2022, other than the profit share liability, which is within four months from the issuance of these condensed consolidated financial statements.
These factors raise substantial doubt about the Company’s ability to continue as a going concern for the next twelve months from the issuance of these condensed consolidated financial statements. The Company has taken steps to alleviate the doubt raised by the application of ASC 205-40. During 2021, the Company eliminated $4,440,000 of convertible notes through conversions to shares of common stock and repaid $10,000 of convertible notes, leaving no convertible notes outstanding as of March 31, 2022. In addition, in June 2021, the Company announced that it had entered into a Debt Repayment and Exchange Agreement with its principal lender which, subject to various closing conditions, including but not limited to the completion of an offering of equity securities resulting in net proceeds of at least $12.0 million by June 30, 2022, will repay all existing secured and unsecured debt obligations held by such lender. Although the Company anticipates continued significant revenues in its business operations, no assurances can be given that the Company can obtain sufficient working capital through its business operations or that it will be able to raise the funds necessary to complete the transaction contemplated by the Debt Repayment Agreement by June 30, 2022, or at all, in order to sustain ongoing operations.
The accompanying condensed consolidated financial statements do not include adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.
The entire disclosure when substantial doubt is raised about the ability to continue as a going concern. Includes, but is not limited to, principal conditions or events that raised substantial doubt about the ability to continue as a going concern, management's evaluation of the significance of those conditions or events in relation to the ability to meet its obligations, and management's plans that alleviated or are intended to mitigate the conditions or events that raise substantial doubt about the ability to continue as a going concern.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef