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.

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 received $3.4 million, net of issuance costs, in additional equity by issuing 2,601,789 shares of its common stock, $0.04 par value, through a rights offering to current shareholders which is being used to fund working capital;


•	On March 28, 2016, the Company received $1.2 million, net of issuance costs, in additional equity by issuing 666,667 shares of its common stock, $0.04 par value, to 200 NNH, LLC, which is being used to fund working capital;


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


•	On April 29, 2016, the Company entered into a new Credit and Security Agreement with SCM Specialty Finance Opportunities Fund, L.P. (as defined below) replacing the 2013 Loan and Security Agreement (as defined below). Refer to Note 9 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 aggressively seek new and return business from its existing customers and expand its presence in the Health and Wellness marketplace;


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


•	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 a Credit and Security Agreement (the "2016 Credit and Security Agreement") with SCM Specialty Finance Opportunities Fund, L.P. ("SCM"). At June 30, 2016, the Company had $0.1 million in cash and cash equivalents and had $3.3 million outstanding under the 2016 Credit and Security Agreement, with available borrowing capacity of $0.3 million. As of August 9, 2016, the Company had $2.4 million outstanding with estimated available borrowing capacity of $0.8 million. As of June 30, 2016, the Company also owed approximately $4.0 million under an existing term loan ("the Term Loan"), which is governed by the terms of a credit agreement ("the Credit Agreement") with SWK Funding LLC ("SWK") and was used to fund the cash component of the Acquisition. 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, which the Company did not comply with as of June 30, 2016. For additional information regarding the 2016 Credit 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 $5.6 million during the six month period ended June 30, 2016. The Company’s net cash used in operating activities for the six month period ended June 30, 2016, was $4.8 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 the equipment and supplies required for the screenings and pay its health professionals and site management, all of which is done 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 six month period ended June 30, 2016, the Company incurred under $0.1 million of costs associated with the ongoing integration of AHS, which are recorded in selling, general and administrative expenses. Transition costs incurred during the three month period ended June 30, 2016, were immaterial. 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 expansion of the Company’s presence in the Health and Wellness marketplace through new sales to direct customers, retaining existing customers, and capitalizing on the opportunities presented by its channel partners. 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. If the Company is unable to increase volumes or control operating costs, liquidity may be adversely 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.