(2)	LIQUIDITY AND FINANCIAL RESOURCES UPDATE

The Company has historically operated with negative working capital and has been able to meet its current obligations as a result of strong operating cash flows and availability on its revolving lines of credit. Recent decreases in operating cash flows have led the Company to take certain actions.

On July 21, 2017, the Company received notice of events of default and acceleration (the “Notice Letter”) from counsel to Guaranty Bank and Trust Company (the “Bank”) in connection with the Loan and Security Agreement, dated as of March 29, 2016, as amended by four amendments (collectively, the “Loan Agreement” or the “Credit Facility”), including the Fourth Amendment to Loan and Security Agreement and Forbearance Agreement dated March 30, 2017 (the “Forbearance Agreement”). The Notice Letter asserted events of default resulting from the Company’s failure to produce EBITDA of at least $870,000 for the second quarter of 2017 and to reduce the dollar amount of the outstanding reducing revolving loan by at least $500,000 on June 30, 2017. The Notice Letter further asserted that, as a result of these events of default, the following earlier events of default to which the Forbearance Agreement applied again existed: (i) the Company’s failure to maintain a Maximum Total Cash Flow Leverage Ratio of not more than 3.15x as of December 31, 2016; (ii) the Company’s failure to maintain a Fixed Charge Coverage Ratio of at least 1.35 to 1.00 as of December 31, 2016; and (iii) the Company’s failure to produce EBITDA of at least $650,000 for the fourth quarter of 2016.

The Notice Letter further asserted that the Forbearance Period (as defined in the Forbearance Agreement) has terminated and that the Bank declared its commitments to the Company to be terminated and would charge interest on all obligations of the Company at the default rate effective as of December 31, 2016. In the Notice Letter, the Bank also declared all obligations of the Company to be immediately due and payable and demanded payment in full of all obligations by no later than July 31, 2017. The Notice Letter further stated that, although the Bank was not presently exercising its other rights and remedies available upon an event of default, it reserved its right to do so at any time in its sole discretion.

The Company failed to reduce the dollar amount of the outstanding reducing revolver by at least $500,000 on September 30, 2017. The Company’s revolving line of credit with the Bank was reduced from $1.4 million to $1.1 million on October 1, 2017 as required by the Forbearance Agreement. Due to these facts, all Bank debt totaling $8.8 million is classified as a current liability on the balance sheet as of September 30, 2017. Under the Credit Facility and related pledge and security agreements, the Bank has liens and security interests on substantially all of the assets of the Company. The Company continues to have discussions with the Bank regarding a resolution of this matter. The failure to resolve this matter could have a material adverse effect on the Company, as the Bank could exercise its remedies under the Loan Agreement including foreclosure on the Company’s assets or take other actions.

Due to the above issues, there is substantial doubt about the Company’s ability to continue as a going concern if no additional action takes place. The Company believes that any resolution with the Bank would involve financing to raise funds to pay down the outstanding principal on the Credit Facility or to refinance the Credit Facility. The Company has had discussions with several potential investors and lenders and has explored several funding options, including the issuance of additional equity or debt and the sale of certain dental practices. The Company has signed a term sheet with a prospective investor and is currently negotiating definitive agreements with that party on an exclusive basis and with the Bank for amendments to the Credit Facility. The Company therefore believes it will be successful in achieving a resolution with the Bank. However, there can be no assurance that the Company will be successful in completing the necessary financing or other transactions necessary to resolve this matter.