Following are conditions and events which require management's consideration:
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The Company had a working capital deficit of $31.5 million with $0.5 million in cash and cash equivalents at March 31, 2018. The Company had $13.6 million of payables at March 31, 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 certain 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 March 31, 2018, over 60% 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.
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The Company’s net cash provided by operating activities during the three months ended March 31, 2018, was $5.1 million. The Company’s current forecast does not indicate positive 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.
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The Company incurred a loss from continuing operations before income tax expense of $5.2 million for the three months ended March 31, 2018.
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The Company had $4.9 million of outstanding borrowings under the 2016 Credit and Security Agreement with CNH, with unused borrowing capacity of $0.2 million, as of March 31, 2018. As of April 30, 2018, the Company had $5.6 million of outstanding borrowings and $0.3 million of unused borrowing capacity. Any borrowings on the unused borrowing capacity are at the discretion of CNH.
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The Company owed $8.3 million at March 31, 2018, under the Term Loans with SWK, which was used to fund the Merger and working capital. In addition, the Company owed $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.
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The maturity date of the August 2017 Term Loan, which comprised $1.8 million of the $8.3 million balance owed under the Term Loan with SWK, was extended to April 30, 2018. As required by the Third Amendment, which provided for the April 30, 2018 extension, and on February 1, 2018, the Company repaid $250,000 of the principal balance on the August 2017 Term Loan. The extension also required a second payment of $250,000 in March and the remaining balance due on April 30, 2018, neither of which was repaid. As a result of missing these payments, the Company was in default of that agreement. Due to the cross-default clause with CNH, the Company was also in default on its 2016 Credit and Security Agreement. On May 10, 2018, the Company signed the Fourth Amendment, which provided a forbearance period that runs through June 1, 2018 with respect to the Company’s outstanding payment and covenant defaults under the A&R Credit Agreement. This Amendment includes new covenants with which the Company must comply. Under this Fourth Amendment, SWK has agreed to lend an additional $1.5 million (the “May 2018 Term Loan”). All principal and accrued interest on the May 2018 Term Loan and the August 2017 Term Loan will be due and payable on June 1, 2018. As a result of the cross-default, the Company also entered into the Forbearance Agreement through June 1, 2018 with CNH with respect to defaults under the 2016 Credit and Security Agreement. If the Company is unable to negotiate forbearance agreements beyond June 1, 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.
10
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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 March 31, 2018 but which are subject to the forbearance under the Fourth Amendment and the Forbearance Agreement. The Fourth Amendment with SWK contains additional covenants with which the Company must comply.
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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.
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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 with the assistance of our CRO and investment banker.
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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.
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