Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. HOOPER HOLMES INC (741815) 10-Q published on Aug 14, 2018 at 4:57 pm
Reporting Period: Jun 29, 2018
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 CNH Finance Fund I, L.P., f/k/a SCM Specialty Finance Opportunities Fund, L.P. ("CNH"), as amended. If the Company needs to borrow in the future under its 2016 Credit and Security Agreement, as amended, which is solely at the lender's discretion, the amount available for borrowing may be less than the $15.0 million under this facility at any given time due to the manner in which the maximum available amount is calculated. The Company has an available borrowing base subject to reserves established at the lender's discretion of 85% of Eligible Receivables up to $15.0 million under this facility. At June 30, 2018, the Company had $5.8 million of outstanding borrowings under the 2016 Credit and Security Agreement, with no available borrowing capacity due to the balance of the Company’s receivables. In addition, the Company entered into an Amended and Restated Credit Agreement dated as of May 11, 2017 (the “A&R Credit Agreement”) with SWK Funding, LLC (“SWK”), as amended, which provided for an increase in the principal balance under the previous term loan to $6.5 million (the "Term Loan") and provided for an additional $2.0 million term loan (the “August 2017 Term Loan”). 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 was not in compliance with as of June 30, 2018. On February 2, 2018, the Company entered into a Third Amendment to the A&R Credit Agreement which extended the August 2017 Term Loan’s maturity date to April 30, 2018. The Company has repaid $250,000 of the principal balance thereon as part of this Third Amendment. Under this Third Amendment, there was a second payment of $250,000 due in March 2018, with the balance of the August 2017 Term Loan due April 30, 2018, neither of which was repaid in accordance with the amendment. On May 10, 2018, the Company signed a Fourth Amendment to the A&R Credit Agreement (the "Fourth Amendment"), which provided a forbearance period that ran through June 1, 2018 with respect to the Company’s outstanding payment and covenant defaults under the A&R Credit Agreement. Under this agreement SWK has also agreed to lend an additional $1.5 million (the “May 2018 Term Loan”). On May 31, 2018, the Company entered into a Forbearance Agreement (the “Forbearance Agreement”) with CNH pursuant to which CNH agreed to forbear from enforcing its rights with respect to all outstanding covenant violations under the 2016 Credit and Security Agreement until August 31, 2018. 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. On June 1, 2018, the Company signed a Fifth Amendment to the A&R Credit Agreement (the "Fifth Amendment" which provided the Company a forbearance period that runs through August 31, 2018. Under the Fifth Amendment, SWK has agreed to lend an additional $5.0 million (the "Fifth Amendment Term Loan") with all principal and accrued interest on the Fifth Amendment Term Loan, the August 2017 Term Loan with a principal balance of $1.75 million, and the May 2018 Term Loan with a principal balance of $1.5 million due and payable on September 4, 2018. Pursuant to the Sixth Amendment to Amended and Restated Credit Agreement dated as of August 9, 2018 (the “Sixth Amendment”), SWK agreed to lend an additional $0.8 million (the “Sixth Amendment Term Loan”) to the Company under the same payment terms and subject to the same conditions as the Fifth Amendment.
On June 21, 2018, the Company adopted a Key Employee Retention Incentive Plan (the “Plan”) to provide incentives for key management personnel to make extraordinary efforts to execute the strategic objectives of the Company in connection with its previously announced plan to seek a significant equity investment or a transaction involving the merger or sale of the Company (a “Transaction”). The Plan provides an opportunity for key management personnel, including the Company’s executive officers among others, to earn a one-time cash bonus on closing of a Transaction on the condition that the participant affirmatively and continuously assists the Company in and through the successful completion of a Transaction. The maximum authorized size of the aggregate bonus pool under the Plan cannot exceed a cap of five percent of Gross Enterprise Value (as defined in the Plan), and the Company’s current expectation is that the actual aggregate bonuses to be awarded will total less than four percent of Gross Enterprise Value.
The Company is, in the normal course of business, a party to various claims and other legal proceedings. If management believes that a material loss not covered by insurance arising from these actions is probable and can reasonably be estimated, the Company may record the amount of the estimated loss or, if a loss cannot be estimated but the minimum liability may be estimated using a range and no point is more probable than another, the Company may record the minimum estimated liability. As additional information becomes available, any potential liability related to these actions is assessed and the estimates are revised, if necessary. The Company is not involved in any pending legal proceeding that, in the opinion of management after taking into account our loss reserves and insurance coverage, is likely to have a material adverse effect on our financial position or results of operations, with one exception. On June 21, 2018, Cantor Fitzgerald & Co. filed a complaint against the Company with the Supreme Court of the State of New York seeking $4.0 million in damages under a commercial contract for allegedly earned and unpaid investment banking fees. The Company intends to vigorously defend itself against the claim but the lawsuit, if successful, could have a material adverse effect on the Company’s financial position and results of operations. Litigation and claims are subject to inherent uncertainties and unfavorable outcomes can occur that exceed any amounts reserved for such losses. If an unfavorable outcome were to occur, there exists the possibility of a material adverse impact on the results of operations in the period in which the outcome occurs or in future periods.
For our stock to continue to be quoted on the OTCQX U.S. tier, we must have a minimum bid price of at least $0.10 per share for at least one of 30 consecutive calendar days, a market capitalization of at least $5 million, and at least two market makers within 90 days of joining the OTCQX. OTC Markets Group notified us on May 31, 2018 that we were not in compliance with the $0.10 trading price or $5 million market capitalization requirements over the preceding 30 calendar days. If we do not achieve compliance with both standards for 10 consecutive trading days by November 27, 2018, we must either choose to be traded on the OTCQB Venture Market or be moved to the OTC Pink marketplace.
The Company entered into a Sixth Amendment dated as of August 9, 2018 (the “Sixth Amendment”) to the Amended and Restated Credit Agreement dated as of May 11, 2017 (the “A&R Credit Agreement”) by and between the Company and SWK Funding LLC (“SWK”). Pursuant to the Sixth Amendment, SWK agreed to lend the Company $0.8 million in addition to $11.9 million previously outstanding collectively under the Fifth Amendment, the August 2017 Term Loan, the May 2018 Term Loan (collectively, with the Sixth Amendment, the “Term Loan Amendments”), and the A&R Credit Agreement. All principal and interest outstanding under the Term Loan Amendments will be due and payable on September 4, 2018. The other terms and conditions of the Sixth Amendment are the same as those applicable to the primary term loan advanced by SWK to the Company under the A&R Credit Agreement.