Basis of Presentation

Hooper Holmes, Inc. (“Hooper Holmes” or the "Company”) provides on-site health screenings, laboratory testing, risk assessment and sample collection services to individual employees through health and care management companies, including broker and wellness companies, disease management organizations, reward administrators, third party administrators, clinical research organizations and, health plans as part of comprehensive health and wellness programs offered through corporate and government employers. Hooper Holmes provides these services through a national network of health professionals.

As a provider of services within the health and health insurance industries, the Company's business is subject to seasonality, with the second quarter sales typically dropping below the other quarters due to a decline in activity during the summer months and fourth quarter sales typically the strongest quarter due to annual benefit renewal cycles.

The unaudited interim consolidated financial statements of the Company have been prepared in accordance with instructions for Form 10-Q and the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's 2013 Annual Report on Form 10-K, filed with the SEC on March 31, 2014.

Financial statements prepared in accordance with U.S. GAAP require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and other disclosures. The financial information included herein is unaudited; however, such information reflects all adjustments that are, in the opinion of the Company's management, necessary for a fair statement of results for the interim periods presented.

The results of operations for the three and six month periods ended June 30, 2014 and 2013 are not necessarily indicative of the results to be expected for any other interim period or the full year. See “Management's Discussion and Analysis of Financial Condition and Results of Operations” for additional information.

On September 30, 2013, the Company completed the sale of certain assets comprising its Portamedic service line. The Portamedic service line is accounted for as a discontinued operation in this Report. Accordingly, the operating results of Portamedic are segregated and reported as discontinued operations in the accompanying consolidated statements of operations for all periods presented. For further discussion, refer to Note 6.

Sale of Assets - Heritage Labs and Hooper Holmes Services

On April 16, 2014, the Company entered into a Strategic Alliance Agreement (the “Alliance Agreement”) with Clinical Reference Laboratory, Inc. (“CRL”) pursuant to which, among other things, the Company has agreed to sell certain assets comprising the Company’s Heritage Labs and Hooper Holmes Services business units (the “Business”) to CRL. Under the terms of the Alliance Agreement, CRL has agreed to pay $3.7 million in cash for certain assets of the Business, which such assets exclude, among others, all accounts receivable, and to assume specified liabilities related to the Business. The net book value of assets to be sold was approximately $1.1 million as of June 30, 2014, consisting primarily of inventory and property, plant and equipment. The transaction is expected to close in the third quarter of 2014.

The assets to be sold to CRL qualified as assets held for sale in April 2014, and the sale of the Business to CRL is accounted for as discontinued operations in this Report. The sale of Heritage Labs and Hooper Holmes Services to CRL represents a strategic shift in the Company's ongoing operations. Accordingly, the operating results of Heritage Labs and Hooper Holmes Services are segregated and reported as discontinued operations in the accompanying consolidated statements of operations for all periods presented. For further discussion, refer to Note 6.

Prior to this Report, but subsequent to the sale of Portamedic on September 30, 2013, the Company has previously reported its financial results in three segments: Health and Wellness, Heritage Labs and Hooper Holmes Services. Pursuant to the Alliance Agreement with CRL, among other things, the Company has agreed to sell certain assets comprising the Company’s Heritage Labs and Hooper Holmes Services business units, which represent the Heritage Labs and Hooper Holmes Services reportable segments. As the Heritage Labs and Hooper Holmes Services reportable segments have been reported as discontinued operations in this Report, segment information is no longer provided for Heritage Labs and Hooper Holmes Services. The Company has also reassessed its segment reporting following the Alliance Agreement with CRL to align with the information that is regularly reviewed. Subsequent to the closing of the Alliance Agreement with CRL, the Company expects to have one segment, consisting of the Health and Wellness operations.

Sale of Basking Ridge Real Estate

On May 13, 2014, the Company entered into a Purchase and Sale Agreement (the “Purchase and Sale Agreement”) for the sale to McElroy Deutsch Mulvaney & Carpenter, LLP (the “MDMC”) of the buildings, land, certain personal property and other interests comprising the Company’s Basking Ridge, New Jersey property for an aggregate purchase price of $3.05 million. On July 18, 2014, the Company and MDMC entered into an amendment to the Purchase and Sale Agreement that provides for the Company to deposit into an escrow account at closing an aggregate of $0.3 million of the purchase price to satisfy amounts paid by MDMC in connection with certain repairs and other expenses identified in the course of the property inspection. The sale closed on August 7, 2014 resulting in cash proceeds of $2.54 million, which is net of customary closing costs and broker fees. The Basking Ridge real estate was classified as assets held for sale as of June 30, 2014.

Subsequent Event - Amendment to the 2013 Loan and Security Agreement

On July 9, 2014, the Company entered into the Second Amendment to the 2013 Loan and Security Agreement (the "Second Amendment") with ACF FinCo I LP ("ACF"), the assignee of Keltic Financial Partners II, LP ("Keltic Financial"). The Second Amendment amends the terms and conditions of the 2013 Loan and Security Agreement dated as of February 28, 2013, and as amended on March 28, 2013 (as amended, the "2013 Loan and Security Agreement"). The following summarizes certain terms of the Second Amendment:


•	The negative covenant regarding the Company's EBITDA has been amended and restated in its entirety to provide that the Company agrees that EBITDA, as of and for each twelve consecutive calendar month period ending on the last day of each fiscal quarter, commencing with the fiscal quarter ending March 31, 2015, shall not be less than $100,000.

•

The Borrowing Base (as defined in the 2013 Loan and Security Agreement) has been amended to include an amount of Unbilled Eligible Receivables (as defined in the 2013 Loan and Security Agreement) not to exceed the least of (i) fifty percent of the aggregate amount of Unbilled Eligible Receivables; (ii) $2,500,000; and (iii) fifty percent of the Borrowing Base as most recently previously calculated. Inclusion of Unbilled Eligible Receivables is expected to increase the Company's borrowing capacity.


•	The definition of EBITDA has been amended and will (i) be calculated as net income before interest expense, taxes, depreciation and amortization, and (ii) include any gains or losses resulting from the sale of any owned real estate or from the sale of all or substantially all of the assets constituting the Company's Heritage Labs and Hooper Holmes Services businesses.

New Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014- 08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity" to change the criteria for reporting discontinued operations. Under the new guidance, only disposals of components of an entity that represent strategic shifts that have, or will have, a major effect on an entity’s operations should be reported as discontinued operations in the financial statements. Additionally, the new guidance removes the condition that an entity may not have any significant continuing involvement in the operations of the component after the disposal transaction. The new guidance requires expanded disclosures for discontinued operations, as well as disclosures about the financial effects of significant disposals that do not qualify for discontinued operations. The Company early adopted the guidance as of January 1, 2014 and has applied the guidance in ASU 2014-08 to the accounting for the sale of Heritage Labs and Hooper Holmes Services to CRL and presentation of discontinued operations.

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers", which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. This new guidance is effective for the Company in the first quarter of 2017, with no early adoption permitted. The Company is currently evaluating the effect that ASU 2014-09 will have on the consolidated financial statements and related disclosures.