Liquidity and Going Concern Assessment

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 CNH Finance Fund I, L.P., f/k/a SCM Specialty Finance Opportunities Fund, L.P. ("CNH"), as amended. If the Company needs to borrow in the future under its 2016 Credit and Security Agreement, as amended, which is solely at the lender's discretion, the amount available for borrowing may be less than the $15.0 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 up to $15.0 million under this facility. At June 30, 2018, the Company had $5.8 million of outstanding borrowings under the 2016 Credit and Security Agreement, with no available borrowing capacity due to the balance of the Company’s receivables. In addition, the Company entered into an Amended and Restated Credit Agreement dated as of May 11, 2017 (the “A&R Credit Agreement”) with SWK Funding, LLC (“SWK”), as amended, which provided for an increase in the principal balance under the previous term loan to $6.5 million (the "Term Loan") and provided for an additional $2.0 million term loan (the “August 2017 Term Loan”). The debt agreements with CNH and SWK described above contain certain financial covenants, including various affirmative and negative covenants including minimum aggregate revenue, adjusted EBITDA, and consolidated unencumbered liquid assets requirements, which the Company was not in compliance with as of June 30, 2018. On February 2, 2018, the Company entered into a Third Amendment to the A&R Credit Agreement which extended the August 2017 Term Loan’s maturity date to April 30, 2018. The Company has repaid $250,000 of the principal balance thereon as part of this Third Amendment. Under this Third Amendment, there was a second payment of $250,000 due in March 2018, with the balance of the August 2017 Term Loan due April 30, 2018, neither of which was repaid in accordance with the amendment. On May 10, 2018, the Company signed a Fourth Amendment to the A&R Credit Agreement (the "Fourth Amendment"), which provided a forbearance period that ran through June 1, 2018 with respect to the Company’s outstanding payment and covenant defaults under the A&R Credit Agreement. Under this agreement SWK has also agreed to lend an additional $1.5 million (the “May 2018 Term Loan”). On May 31, 2018, the Company entered into a Forbearance Agreement (the “Forbearance Agreement”) with CNH pursuant to which CNH agreed to forbear from enforcing its rights with respect to all outstanding covenant violations under the 2016 Credit and Security Agreement until August 31, 2018. Pursuant to both the Fourth Amendment and the Forbearance Agreement, the Company must use reasonable best efforts to identify potential acquirers or investors and to effectuate a transaction that results in a sale, merger, acquisition, or similar material investment in the Company as imminently as reasonably possible (the “Transaction”) and is required to engage an investment banker acceptable to SWK to advise and represent the Company with respect to the Transaction. On May 10, 2018, the Company engaged Raymond James in fulfillment of the requirement to engage an acceptable investment banker. On June 1, 2018, the Company signed a Fifth Amendment to the A&R Credit Agreement (the "Fifth Amendment" which provided the Company a forbearance period that runs through August 31, 2018. Under the Fifth Amendment, SWK has agreed to lend an additional $5.0 million (the "Fifth Amendment Term Loan") with all principal and accrued interest on the Fifth Amendment Term Loan, the August 2017 Term Loan with a principal balance of $1.75 million, and the May 2018 Term Loan with a principal balance of $1.5 million due and payable on September 4, 2018. Pursuant to the Sixth Amendment to Amended and Restated Credit Agreement dated as of August 9, 2018 (the “Sixth Amendment”), SWK agreed to lend an additional $0.8 million (the “Sixth Amendment Term Loan”) to the Company under the same payment terms and subject to the same conditions as the Fifth Amendment.

The Company has historically used availability under a revolving credit facility to fund operations due to a lag between the payment of certain operating expenses and the subsequent billing and collection of the associated revenue based on customer payment terms. To illustrate, in order to conduct successful screening services, the Company must expend cash to deliver the equipment and supplies required for the screening services. The Company must also expend cash to pay the health professionals and site management conducting the screening services. All of these expenditures are incurred in advance of the customer invoicing process and ultimate cash receipts for services performed. Given the seasonal nature of our operations, management expects to need a revolving credit facility in 2018 and beyond.

Going Concern

In accordance with ASC 205-40, the following information reflects the results of management’s assessment of its ability to continue as a going concern.

Principal conditions or events that require management's consideration

Following are conditions and events which require management's consideration:

•

The Company had a working capital deficit of $36.0 million with $0.6 million in cash and cash equivalents at June 30, 2018. The Company had $15.0 million of payables at June 30, 2018, that were past due-date terms. The Company continues to work with its vendors to facilitate revised payment terms; however, the Company has had an increasing number of vendors who have terminated services, threatened to terminate services, filed legal action or threatened to file legal action due to aged outstanding payables and in order to accelerate invoice payments. At June 30, 2018, over 79% of the Company's outstanding payables were more than 90 days past due. If certain services were terminated and the Company was not able to find alternative sources of supply, it could have a material adverse impact on our business.

•

The Company’s net cash provided by operating activities during the six months ended June 30, 2018, was $0.7 million. The Company’s current forecast does not indicate positive operating cash flow in 2018, and our history of losses requires us to be cautious in our forecasting. The Company continues reviewing restructuring within our organization for additional cost savings and improved strategic market and customer services offerings.


•	The Company incurred a loss from continuing operations before income tax expense of $10.4 million for the six months ended June 30, 2018.


•	The Company had $5.8 million of outstanding borrowings under the 2016 Credit and Security Agreement with CNH, with no available borrowing capacity, as of June 30, 2018. As of July 31, 2018, the Company had $4.4 million of outstanding borrowings and $0.1 million of unused borrowing capacity. Any borrowings on the unused borrowing capacity are at the discretion of CNH.

•

The Company owes $11.9 million at June 30, 2018, under the Term Loan, the August 2017 Term Loan, the May 2018 Term Loan and the Fifth Amendment Term Loan with SWK (collectively, the “SWK Term Loans”), which was used to fund the Merger and working capital. In addition, at June 30, 2018, the Company owes $1.9 million to Century Equity Partners. See Note 8 to the condensed consolidated financial statements for the Subordinated Promissory Note issued in connection with the Merger.

•

All principal and accrued interest on the Sixth Amendment Term Loan with a principal balance of $0.8 million, the Fifth Amendment Term Loan with a principal balance of 5.0 million, the August 2017 Term Loan with a principal balance of $1.75 million, and the May 2018 Term Loan with a principal balance of $1.5 million will be due and payable on September 4, 2018. As a result of the cross-default clause with CNH, the Company also entered into the Forbearance Agreement through August 31, 2018 with CNH with respect to defaults under the 2016 Credit and Security Agreement. If the Company is unable to negotiate forbearance agreements beyond August 31, 2018, raise sufficient capital to repay the facilities, or replace the facilities with new debt facilities, the defaults could have a material adverse impact on our business. For additional information regarding the 2016 Credit and Security Agreement, the A&R Credit Agreement, and the related covenants, refer to Note 8 to the condensed consolidated financial statements.

•

The debt agreements with CNH and SWK described above contain certain financial covenants, including various affirmative and negative covenants including minimum aggregate revenue, adjusted EBITDA, and consolidated unencumbered liquid assets requirements, which the Company did not comply with as of June 30, 2018 but which are subject to the forbearance under the Fifth Amendment and the Forbearance Agreement. The Fifth Amendment with SWK contains additional covenants as disclosed in Note 8 which the Company is currently in compliance with.

•

Pursuant to both the Fifth Amendment and the Forbearance Agreement, the Company must use reasonable best efforts to identify potential acquirers or investors and to effectuate a transaction that results in a sale, merger, acquisition, or similar material investment in the Company as imminently as reasonably possible (the “Transaction”) and is required to engage an investment banker acceptable to SWK to advise and represent the Company with respect to the Transaction. On May 10, 2018, the Company engaged Raymond James in fulfillment of the requirement to engage an acceptable investment banker.


•	There is an increased risk of losing key managerial and operational personnel as we seek to remedy our going concern and liquidity problems and pursue a Transaction.


•	We have contractual obligations related to operating leases for our two locations in Olathe, KS, and East Greenwich, RI, capital leases obtained in the Merger and employment contracts which could adversely affect liquidity. Refer to Note 9 to the condensed consolidated financial statements.

Management's plans

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 appointed a Chief Restructuring Officer ("CRO"). Under the leadership of the CRO, the Company has established a working capital plan and plans to address the Company’s balance sheet surrounding both the secured and unsecured creditors, operating expense structure and overall strategies in an effort to resolve this going concern assessment. Under the restructuring plan, the Company will consider all available options for strengthening its balance sheet through acquisitions and divestitures, capital-raising activities, and restructuring existing obligations, while continuing to manage its past due payables. The initial plans developed by the CRO continue to evolve as the Transaction process and the Company’s business operations progress over time. During the CRO’s tenure, the executive officers will continue to report to the CRO.

•

The CRO is also working with the management team and Raymond James to seek to implement the Transaction required under the Fifth Amendment and Forbearance Agreement and to maximize the enterprise value of the Transaction as the Company continues its current operations. The form the Transaction might take, if a Transaction is successfully negotiated and consummated, has not yet been determined but could involve a merger, a stock sale, an asset sale, a sale under Article 9 of the Uniform Commercial Code, a sale under Section 363 of the Bankruptcy Code, or some variation or combination of the foregoing.


•	The Company is undertaking efforts, including providing additional incentive-based compensation, to retain its key personnel as it seeks a Transaction to satisfy the requirements of the Fifth Amendment and the Forbearance Agreement.


•	The Company executed forbearance agreements with both of its secured lenders through August 31, 2018 and will continue to work with its lenders in securing a longer period forbearance agreement, although to date nothing has been formally agreed upon and the Company may be unable to complete such an extended forbearance agreement.

•

Pursuant to the Fourth, Fifth and Sixth Amendments SWK has agreed to lend an additional $7.3 million to the Company. The lender will provide the Company advances under this agreement as long as the Company is in compliance with the additional covenants set forth in the Fifth Amendment (see Note 8). As of June 30, 2018, the Company has received advances totaling $3.6 million under these amendments. The Company may seek additional bridge financing as necessary to implement its business plan during the Transaction process.


•	The Company will continue to aggressively seek new and return business from our existing customers and expand our presence in the health and wellness marketplace. The Company will also evaluate the overall profitability of our existing customer contracts and attempt to address underperforming business through price increases, cost savings or termination of services or a combination thereof.


•	The Company will continue to analyze and implement further cost reduction initiatives and efficiency improvements (see Note 9 to the condensed consolidated financial statements). In March 2018, the Company reorganized several departments which resulted in headcount reductions and additional savings.

Management's assessment and conclusion

Considering the Company's recent history of liquidity challenges, the Company has evaluated its plans described above to determine the likelihood that they will be effectively implemented and, if so, the likelihood that they will alleviate or mitigate the conditions and events that raise substantial doubt about the Company's ability to continue as a going concern. Successful implementation of these plans involves both the Company's efforts and factors that are outside its control, such as its ability to effectuate a Transaction, attract and retain new and existing customers and to negotiate suitable terms with vendors and financing sources. As a result, the Company can give no assurance that its plans will be effectively implemented in such a way that they will sufficiently alleviate or mitigate the conditions and events noted above, which results in substantial doubt about the Company's ability to continue as a going concern within one year after the date that the unaudited condensed consolidated financial statements are issued.

The condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.