NOTE 2 – GOING CONCERN

The accompanying unaudited condensed consolidated financial statements were prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the realization of assets and the satisfaction of liabilities in the normal course of operations. As reflected in the accompanying financial statements, the Company had a net operating loss for the nine months ended September 30, 2012 of $815,048. The total accumulated deficit as of September 30, 2012 was $4,326,248. The ability of the Company to continue as a going concern is dependent on the Company’s ability to further implement its business plan and raise additional capital. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

On February 24, 2012 the Company received $62,500 in exchange for convertible notes amounting to $68,750 and warrants to purchase 1,250,000 shares of the Company’s common stock. On May 11, 2012 the Company received an additional $12,500 in exchange for convertible notes amounting to $13,750 with warrants to purchase 275,000 shares of the Company’s common stock. On August 15, 2012, the Company received a further $60,000 in exchange for a 1 year convertible note amounting to $66,000 with warrants to purchase 1,250,000 shares of the Company’s common stock. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Also, during the current reporting period, the Company reached an agreement with a holder of a convertible note and warrants in the amount of $137,500 to replace that note with a secured note in the amount of $165,000 consisting of the principal amount of $137,500 and two years prepaid interest of $27,500. In exchange for securing this new note with the Company’s patent, the investor agreed to forgo any convertibility of the note into common stock and forfeited the associated warrants. Further the Company arranged for lines of credit from a private individual and an entity based on purchase orders received for the Company’s products in the amounts of $25,000 and $100,000 respectively. These arrangements are similar to existing factoring arrangements and facilitate working capital during implementation of projects.