Principal conditions or events that require management's consideration
Following are conditions and events which require management's consideration:
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We had a working capital deficit of $9.3 million with $1.9 million of cash and cash equivalents at December 31, 2016. We had $5.7 million of payables at December 31, 2016, that were past due date terms. We are working with our vendors to facilitate revised payment terms; however, we have 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 we weren’t able to find alternative sources of supply, this could have a material adverse impact on our business.
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Our net cash used in operating activities during the year ended December 31, 2016 was $4.4 million, and without giving consideration to the Merger mentioned below, current projections indicate that we will have continued negative cash flows for the foreseeable future.
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We incurred a loss from continuing operations of $9.9 million for the year ended December 31, 2016, and without giving consideration to the Merger mentioned below, current projections indicate that we will have continued recurring losses for the foreseeable future.
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We had $3.6 million of outstanding borrowings under the 2016 Credit and Security Agreement with SCM, with unused borrowing capacity of $0.1 million at December 31, 2016. As of February 28, 2017, we had $3.1 million of outstanding borrowings with unused borrowing capacity of $0.2 million. Any borrowings on the unused borrowing capacity are at the discretion of SCM.
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We owed approximately $3.7 million at December 31, 2016 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.
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Each of these debt agreements described above contain certain financial covenants, including various affirmative and negative covenants including minimum aggregate revenue, adjusted EBITDA, and consolidated unencumbered liquid assets requirements. While we were able to comply with the debt covenants as of December 31, 2016, we were unable to meet our debt covenants for both the six month period ended June 30, 2016, and the nine month period ended September 30, 2016, and current projections indicate that we will not be able to meet the current March 31, 2017, debt covenants outlined in Note 9 to the consolidated financial statements. However, in conjunction with the Merger Agreement (defined below), the covenants going forward will be revised and we do anticipate meeting the revised covenants. Noncompliance with these covenants constitutes an event of default. If we are unable to comply with financial covenants in the future and in the event that we were unable to 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 both lenders 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 our business. Additionally, the negative covenants set forth in these debt agreements with SCM and SWK prohibit us from incurring additional debt of any kind. For additional information regarding the 2016 Credit and Security Agreement, the Credit Agreement, and the related covenants, refer to Note 9 to the consolidated financial statements.
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We have contractual obligations related to operating leases and employment contracts which could adversely affect liquidity. As of December 31, 2016, we were in default on three real estate leases for spaces that we no longer need. Two of the leases were assigned to us through the Acquisition, and the third, which is partially subleased, relates to the discontinued Hooper Holmes Services business. We are working with the landlords to terminate these leases on mutually acceptable terms.
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