Liquidity

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and discharge of liabilities in the normal course of business for the foreseeable future. The uncertainty regarding the Company's ability to generate sufficient cash flows and liquidity to fund operations raises substantial doubt about its ability to continue as a going concern. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Already in 2016, the Company has taken the following actions toward alleviating the substantial doubt that exists with regard to the Company's ability to continue as a going concern:


•	On January 25, 2016, the Company completed a rights offering to current shareholders, in which it raised $3.5 million that is being used to fund working capital;


•	On March 28, 2016, the Company received $1.2 million in additional equity by issuing 10,000,000 shares of its common stock, $0.04 par value, to 200 NNH, LLC, which will be used to fund working capital;


•	On March 28, 2016, the Company renegotiated its financial covenants in the 2013 Loan and Security Agreement (as defined below) and the Credit Agreement (as defined below) to requirements based on its forecast models; and

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On April 29, 2016, the Company entered into a new Credit and Security Agreement with SCM Specialty Finance Opportunities Fund, L.P. replacing the 2013 Loan and Security Agreement (as defined below) eliminating the requirement of the Company to issue the additional warrant for the purchase of common stock valued at $1.25 million to SWK (as defined below), the holder of the Company’s Credit Agreement (as defined below). Refer to Note 14 to the condensed consolidated financial statements for additional discussion.

The Company expects to continue to monitor its liquidity carefully, work to reduce this uncertainty, and address its cash needs through a combination of one or more of the following actions:


•	The Company will continue to implement further cost actions and efficiency improvements;


•	The Company will continue to aggressively seek new and return business from its existing customers and expand its presence in the Health and Wellness marketplace;


•	The Company expects to continue to carefully manage receipts and disbursements, including amounts and timing, focusing on reducing days receivables outstanding and managing days payables outstanding.

The Company's primary sources of liquidity are cash and cash equivalents as well as availability under the 2013 Loan and Security Agreement, as amended on March 28, 2013, July 9, 2014, April 17, 2015, August 10, 2015, November 10, 2015, and March 28, 2016, (the "2013 Loan and Security Agreement") with ACF FinCo I LP (“Ares”), as assignee of Keltic Financial Partners II, LP. At March 31, 2016, the Company had $2.0 million in cash and cash equivalents and had $2.6 million outstanding under the 2013 Loan and Security Agreement, with available borrowing capacity of $0.3 million. As of May 11, 2016, we had $3.1 million outstanding under the SCM Agreement (refer to note 14 of the condensed consolidated financial statements), with estimated available borrowing capacity of $1.1 million. The Company also entered into the Credit Agreement on April 17, 2015, as amended on February 25, 2016, and March 28, 2016, (the "Credit Agreement") with SWK Funding LLC ("SWK") for a $5.0 million term loan ("the Term Loan"), which provided funding for the cash component of the Acquisition. As of March 31, 2016, the Company owed approximately $4.5 million under the Credit Agreement. Each of these agreements contain certain financial covenants, including various affirmative and negative covenants including minimum aggregate revenue, EBITDA, and consolidated unencumbered liquid assets requirements. The Company was in compliance with these covenants as of March 31, 2016. For additional information regarding the 2013 Loan and Security Agreement, Credit Agreement, and the related covenants, see Note 9 to the condensed consolidated financial statements.

The Company incurred a loss from continuing operations of $3.3 million during the three month period ended March 31, 2016. The Company’s net cash used in operating activities for the three month period ended March 31, 2016, was $3.4 million. The Company has managed its liquidity through availability under a revolving credit facility, raising additional equity, and a series of cost reduction initiatives.

The Company has historically used availability under a revolving credit facility to fund operations. The Company experiences a timing difference between the operating expenses and cash collection of the associated revenue based on Health and Wellness customer payment terms. To conduct successful screenings, the Company must expend cash to deliver equipment and supplies required for the screenings as well as pay its health professionals and site management, which is in advance of the customer invoicing process and ultimate cash receipts for services performed. Given the seasonal nature of the Company's operations, which are largely dependent on second half volumes, management expects to continue using a revolving credit facility in 2016 and beyond.

Other Considerations

The Health and Wellness business sells services directly to end customers and also through wellness, disease management, benefit brokers, and insurance companies (referred to as channel partners) who ultimately have the relationship with the end customer. Sales to direct customers offer the full suite of our services while sales of our screenings through channel partners are often aggregated with other offerings from these channel partners to provide a total solution to the end-user. As such, the Company's success is largely dependent on that of its partners.

Additionally, the Acquisition provides new offerings including the wellness portal and telephonic coaching, along with new staff, new systems, and new customers. During the three month period ended March 31, 2016, the Company incurred $0.1 million of costs associated with the ongoing integration of AHS, which are recorded in selling, general and administrative expenses. These costs relate primarily to transition services purchased from AHS and the ongoing transition of information technology infrastructure. The Company does not expect to continue to incur material transition costs going forward.

In addition, the Company has contractual obligations related to operating leases and employment contracts which could adversely affect liquidity.

The Company’s ability to satisfy its liquidity needs and meet future covenants is dependent on growing revenues, improving profitability, and raising additional equity. These profitability improvements primarily include the successful integration of AHS and expansion of the Company’s presence in the Health and Wellness marketplace. The Company must increase screening, telephonic health coaching, and wellness portal volumes in order to cover its fixed cost structure and improve gross profits. These improvements may be outside of management’s control. The integration of AHS and marketplace expansion may require additional costs to grow and operate the newly integrated entity, which the Company must recover through expanded revenues. If the Company is unable to increase volumes or control integration or operating costs, liquidity may adversely be affected.

There can be no assurance that cash flows from operations, combined with any additional borrowings available to the Company, will be obtainable in an amount sufficient to enable the Company to repay its indebtedness, or to fund other liquidity needs. If the Company is unable to comply with financial covenants in 2016 and in the event that the Company were unable to modify the covenants, find new or additional lenders, or raise additional equity, the Company would be considered in default, which would then enable the lenders to accelerate the repayment of all amounts outstanding and exercise remedies with respect to collateral, which would have a material adverse impact on the Company's business.