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 SCM Specialty Finance Opportunities Fund, L.P. ("SCM"), as amended through the Omnibus Joinder to Loan Documents and Third Amendment to Credit and Security Agreement and Limited Waiver dated as of May 11, 2017 (the “Third Amendment”). In addition, the Amended and Restated Credit Agreement dated as of May 11, 2017 (the “A&R Credit Agreement”) between the Company and SWK Funding, LLC (“SWK”) provides both a term loan of $6.5 million (the “Term Loan”) and a $2.0 million revolving credit facility (the “Seasonal Facility”) that the Company can use between June 1 and November 30, for both 2017 and 2018.

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 screenings, the Company must expend cash to deliver the equipment and supplies required for the screenings. The Company must also expend cash to pay the health professionals and site management conducting the screenings. 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 the Company's operations, management expects to continue using a revolving credit facility in 2017 and beyond.

Going Concern

In accordance with ASC 205-40, the following information reflects the results of management’s assessment of the Company's 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 $13.0 million with $1.3 million in cash and cash equivalents at June 30, 2017. The Company had $7.4 million of payables at June 30, 2017, that were past due-date terms. The Company is working with its vendors to facilitate revised payment terms; however, the Company has had certain vendors who have threatened to terminate services due to aged outstanding payables and in order to accelerate invoice payments. If services were terminated and the Company wasn’t able to find alternative sources of supply, this could have a material adverse impact on the Company’s business.


•	The Company's net cash used in operating activities during the six month period ended June 30, 2017, was $6.6 million, and current projections indicate that the Company will have continued negative cash flows for the foreseeable future.


•	The Company incurred a loss from continuing operations of $8.5 million for the six month period ended June 30, 2017; however, this includes $1.8 million of one-time transaction costs related to the Merger. Current projections indicate that the Company will have continued recurring losses for the foreseeable future.


•	The Company had $4.5 million of outstanding borrowings under the 2016 Credit and Security Agreement with SCM, borrowing the maximum available amount under the borrowing capacity. As of August 10, 2017, the Company had $3.4 million of outstanding borrowings and $0.9 million of unused borrowing capacity. Any borrowings on the unused borrowing capacity are at the discretion of SCM.


•	The Company owed $6.5 million at June 30, 2017, under the Term Loan with SWK, which was used to fund the Merger. In addition, the Company owed $2.0 million to SWK for the Seasonal Facility and $2.1 million to Century (as defined in Note 8 to the condensed consolidated financial statements) for the Subordinated Promissory Note issued in connection with the Merger.

•

On August 8, 2017, the Company entered into a First Amendment to the A&R Credit Agreement (the “First Amendment”) that provides for an additional $2.0 million term loan (the “August 2017 Term Loan”) to provide additional liquidity to strengthen the Company's entrance into busy season. The Company is required to repay the August 2017 Term Loan by February 1, 2018, but plans to repay it by November 30, 2017. In consideration for the First Amendment, the Company issued a new warrant (the “August Warrant”) for SWK to purchase up to 450,000 shares of the Company’s common stock for a strike price of $0.80 per share, paid a fee of $0.03 million, and will pay an exit fee of $0.14 million if the August 2017 Term Loan is repaid by November 30, 2017, or $0.28 million if it is repaid later.

•

The debt agreements with SCM 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 comply with as of June 30, 2017. Current projections indicate that the Company will continue to be able to meet the revised debt covenants outlined in Note 8 to the condensed consolidated financial statements. Noncompliance with these covenants would constitute an event of default. If the Company is unable to comply with financial covenants in the future and cannot modify the covenants, find new or additional lenders, or raise additional equity, SCM reserves the right to terminate access to the unused borrowing capacity under the 2016 Credit and Security Agreement, while SCM and SWK reserve the right 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. Additionally, the negative covenants set forth in the debt agreements with SCM and SWK prohibit the Company from incurring additional debt of any kind without prior approval from the lenders. 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 Company has contractual obligations related to operating leases for the Company's two major 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:

•

On May 11, 2017, the Company closed the Merger with Provant pursuant to the Merger Agreement. In conjunction with the Merger, new debt agreements were signed which reset all of the debt covenants, and the Company met the covenants as of June 30, 2017, and anticipates being able to meet the revised covenants in the future. The Company expects the Merger to increase the scale of the Company, improving gross margins due to combined revenues and combined operations which will produce operational synergies by reducing fixed costs. While the Company expects its financial condition to improve after the Merger, Provant has a history of operating losses as well, and the Company has incurred significant costs and additional debt for the transaction and will continue to incur transition costs to integrate the two companies.


•	The Company will continue to seek additional equity investments. During the six month period ended June 30, 2017, the Company was able to raise $3.4 million of additional equity through the issuance of common stock and warrants, net of issuance costs.


•	As discussed in Note 9 to the condensed consolidated financial statements, the Company reached settlement agreements for the remaining lease obligations owed under three operating leases for spaces the Company no longer utilizes. The terms of the three lease settlements reduce the Company's obligation by approximately $0.7 million compared to the original stated lease terms.

•

The Company has been able to obtain more favorable payment terms with some of its vendors and will continue to pursue revised terms, based on the new consolidated company model after the Merger. The Company and Provant had several of the same vendors and have been able to work with them on a combined basis to come up with more favorable terms for the Company going forward which will improve liquidity.


•	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 analyze and implement further cost reduction initiatives and efficiency improvements (see Note 9 to the condensed consolidated financial statements).

Management's assessment and conclusion

In light of 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 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 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.