XML 42 R8.htm IDEA: XBRL DOCUMENT v2.4.0.8
Liquidity
12 Months Ended
Dec. 31, 2013
Liquidity [Abstract]  
Liquidity
Liquidity

The Company’s primary sources of liquidity are cash and cash equivalents and the 2013 Loan and Security Agreement. At December 31, 2013, the Company had $4.0 million cash and cash equivalents, $8.6 million of working capital and no outstanding debt.    

For the three years ended December 31, 2013, 2012 and 2011, the Company incurred losses from continuing operations of $10.3 million, $7.1 million and $7.8 million, respectively. Restructuring charges of continuing operations were $0.8 million, $0.6 million and $0.03 million, respectively, for the years ended December 31, 2013, 2012 and 2011, respectively. The Company’s net cash used in operating activities for the year ended December 31, 2013 was $7.0 million, and includes offsetting positive cash flow impacts of changes in accounts receivable, accounts payable and accrued expenses most of which were related to the Portamedic service line that were retained subsequent to the sale of Portamedic. The Company believes that a significant portion of the net cash flow inflows provided by changes in working capital during the fourth quarter of 2013 is a result of the run off of the Portamedic working capital. The Company has managed its liquidity through the sale of Portamedic and a series of cost reduction and accounts receivable collection initiatives.

Holdback Related to the Sale of Portamedic

On September 30, 2013, the Company completed the sale of Portamedic. Approximately $2.0 million (“Holdback Amount”) of the purchase price was held back by the acquirer as security for the Company’s obligations under the agreements between the Company and the acquirer. (Refer to Note 5). The Holdback Amount includes two components of $1.0 million each. Subsequent to December 31, 2013, the Company received $0.8 million of the first Holdback Amount but the final amount to be collected has not yet been finalized as of the date of this Report. As of December 31, 2013, the Company has recorded the receivable at the amount it believes will be collected. There cannot be any assurance that the remaining Holdback Amounts will be collected by the Company. The Company anticipates finalization and collection on the second Holdback Amount in the second quarter of 2015.

2013 Loan and Security Agreement
    
In the first quarter of 2013, the Company entered into a three year 2013 Loan and Security Agreement, as amended on March 28, 2013 by the First Amendment, (collectively, the “2013 Loan and Security Agreement”), with Keltic Financial Partners II, LP (“Keltic Financial”) (see Note 9). Borrowings under the 2013 Loan and Security Agreement are to be used for working capital purposes and capital expenditures. The amount available for borrowing may be less than the $10 million under this facility at any given time due to the manner in which the maximum available amount is calculated.  The Company has an available borrowing base subject to reserves established at the lender's discretion of 85% of Eligible Receivables (as defined in the 2013 Loan and Security Agreement) up to $10 million under this facility.   Eligible Receivables do not include Heritage Labs receivables, certain Hooper Holmes Services receivables, and other receivables deemed ineligible by the lender. Eligible Receivables include only billed receivables and concentration limits such that borrowing capacity may be affected by the Company's billing and revenue cycles. As of December 31, 2013, the lender applied a discretionary reserve of $1.5 million. Available borrowing capacity, net of this discretionary reserve was $2.0 million based on Eligible Receivables as of December 31, 2013. As of December 31, 2013, there were no borrowings outstanding under the 2013 Loan and Security Agreement.

The sale of the discontinued Portamedic operations, which accounted for approximately 60-75% of Eligible Receivables prior to the sale date of September 30, 2013, resulted in a decrease in the Company's borrowing capacity. As such, the Company worked with Keltic Financial to reduce the reserve on eligible borrowings of $1.5 million to $0.5 million effective February 21, 2014.

The Company is also working with Keltic Financial to modify the financial covenants of the 2013 Loan and Security Agreement in an effort to be more in-line with the Company's operations and strategy going forward. If the Company is not able to successfully execute favorable amendments to the existing credit facility, the Company's borrowing capacity may be limited.

The 2013 Loan and Security Agreement contains various covenants, including financial covenants which required the Company to achieve a minimum EBITDA amount (earnings before interest expense, income taxes, depreciation and amortization) beginning with the twelve months ending June 30, 2014 as the first measurement date. The lender recently waived the minimum EBITDA covenants for the 2014 fiscal period. The Company continues to have limitations on the maximum amount of unfunded capital expenditures for each fiscal year.

Restructuring Initiatives

Certain costs presented in the financial statements, notably selling, general and administrative costs, may not be indicative of costs going forward because those costs have historically been shared among all service lines. For the year ended December 31, 2013, $10.0 million of such selling, general and administrative costs were allocated to discontinued operations. While the Company is attempting to reduce these costs for its continuing operations, there is no guarantee that costs allocated to discontinued operations will be eliminated or reduced in future periods.

Since the Company historically has not tracked accounts receivable, accounts payable and other accounts by service line, its service lines had customers and suppliers in common, and its continuing and discontinued operations shared certain selling, general and administrative services, the Company does not have reliable information for the historical impact of the discontinued Portamedic operations on the Company’s cash flows. However, the Company feels that without the discontinued Portamedic operations and with selling, general and administrative cost reductions, cash flow from operations will improve.

While the corporate headquarters are located in Basking Ridge, New Jersey as of December 31, 2013, the Company began relocating the headquarters to Olathe, Kansas, where the Health and Wellness facilities are located, in the fourth quarter of 2013. This relocation has been substantially completed in the first quarter of 2014. The Company also listed its Basking Ridge real estate for sale during the fourth quarter of 2013. Establishing a new team and transitioning functions to Kansas will take months and transition costs may be higher than expected. In addition, the sale of the Basking Ridge real estate may not occur when expected or for the amount expected, although the sale would provide additional liquidity not factored into management's assessment of liquidity. The Company has received purchase offers on the real estate, but has not reached an agreement with a potential buyer. Keltic Financial has consented to the sale of the real estate.

Other Considerations

The Company's Heritage Labs segment shared some customers with the discontinued Portamedic operations. While not all Heritage Labs life insurance samples originated from Portamedic exams, the sale of the Portamedic service line may have an adverse impact on life insurance related lab testing and kit sale volumes.

The Company's Health and Wellness business sells through wellness, disease management and insurance companies who ultimately have the relationship with the end customer. The Company's current services are aggregated with its partners' offerings to provide a total solution. As such, the Company's success is largely dependent on that of its partners.

Through the increased focus on the Health and Wellness sector, the Company believes it will be able to capitalize on the opportunities that exist in the Health and Wellness sector given the macro-economic focus on health care costs and improving the efficiency of health care delivery in the United States to grow revenue. 
    
If the Company is not able to realize the benefits from the consolidation in Kansas and control the costs of transition, reduce its selling, general and administrative costs as it seeks to streamline operations and improve efficiency, grow the Health and Wellness revenue and improve its gross profit through increased revenue and cost reduction initiatives, the Company may not have sufficient Eligible Receivables and the lender may increase reserves such that the Company may not be able to borrow under the 2013 Loan and Security Agreement. These and other factors could adversely affect liquidity and the Company's ability to generate cash flow in the future.

Based on the Company's anticipated level of future revenues and gross profit, collection of the first of the two Holdback Amounts, restructuring initiatives, and the Company's existing cash, cash equivalents, working capital and credit facility, the Company believes it has sufficient funds to meet its cash needs to fund operating expenses and capital expenditures for the twelve months following December 31, 2013.