2. Liquidity

The Company previously adopted FASB Accounting Standard Codification (“ASC”) Topic 205-40, Presentation of Financial Statements – Going Concern, which requires that management evaluate whether there are relevant conditions and events that, in the aggregate, raise substantial doubt about the entity’s ability to continue as a going concern and to meet its obligations as they become due within one year after the date that the financial statements are issued.

As part of the evaluation, management considered that as of March 31, 2017, the Company had approximately $1.2 million of cash, and had fully utilized its line of credit with Opus Bank (“Opus”). Net cash used in operating activities was approximately $867,000 for the three months ended March 31, 2017. At March 31, 2017, the Company had a working capital deficit of approximately $9.6 million. The loss before income taxes was $2.6 million for the three months ended March 31, 2017, of which $1.5 million represents non-cash depreciation and amortization expenses.

On March 31, 2017 the Company owed $5 million out of the total purchase price of $7 million for the MediGain acquisition. On March 29, 2017 the Company received a letter from Prudential Insurance Company of America and Prudential Retirement Insurance and Annuity Company (together “Prudential”) that demanded immediate payment of $3 million of the outstanding consideration, together with accrued interest, and expressing Prudential’s intention to collect on said amounts. The balance of $2 million is due on May 15, 2017 upon which date this amount will also be due and owing since we have not yet obtained necessary financing to support the payment of our financial obligations to Prudential. The Company is currently negotiating a mutually agreeable payment plan which will ultimately be subject to the approval of our senior secured lender.

The Company’s available cash will not be sufficient to meet its current and anticipated cash requirements without additional financing. Accordingly, these factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management has taken various steps to mitigate this condition as detailed below. Management embarked on extensive expense reductions following the acquisition of MediGain in October, 2016. The cost cutting included closing certain domestic and foreign facilities, eliminating the reliance on subcontractors, and the reduction of non-essential personnel, where work could be performed by offshore employees more cost-effectively. While management expects that this will reduce operating losses, there can be no assurance that the Company will generate positive income before taxes, excluding non-cash expenses in the near future.

The Company has a credit facility with Opus established in the third quarter of 2015, which provides additional liquidity. The credit facility includes term loans, plus a line of credit that have a combined borrowing limit of $10 million, net of contractual repayments, all of which were fully utilized as of March 31, 2017. The line of credit expires September 1, 2018 and the term loans expire September 1, 2019. The Company relies on the term loans and line of credit for working capital purposes. (See Note 8). The Company has recently revised its covenants with Opus to more favorable terms, and while compliance remains a challenge, the changes improve the likelihood that it will stay in compliance.

The Company believes that it will be necessary to raise additional funding, which might be in the form of sale of additional shares of its Series A Preferred Stock, its common stock, or some other instrument. The Company may in the future seek additional capital from public or private offerings of its capital stock or it may elect to borrow additional amounts under new credit lines or from other sources. If the Company issues equity or debt securities to raise additional funds, its existing stockholders may experience dilution, it may incur significant financing costs, and the new equity or debt securities may have rights, preferences and privileges senior to those of its existing stockholders. The Company’s ability to continue as a going concern is dependent on its ability to raise additional capital, of which there can be no assurance. If the Company cannot generate sufficient cash flow from its operation or secure additional financing on acceptable terms, our ability to continue to support the operation or growth of our business could be significantly impaired and our operating results may be harmed.

The condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared on a basis that assumes that the Company will continue as a going concern, and do not include any adjustments that may result from the outcome of this uncertainty. This basis of accounting contemplates the satisfaction of the Company’s liabilities and commitments in the normal course of business and does not include any adjustments to reflect the possible future effects of the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.