2. Liquidity, Financial Condition and Management’s Plans

 

At September 30, 2016, the Company’s principal sources of liquidity were its cash and cash equivalents, the net proceeds from its 2015 public offering and the Master Credit Facility (as defined in Note 6) with White Winston, as described in Note 6. As discussed in Note 14, in November 2016, the Company received net proceeds from the closing of the CFL Transaction (as defined in Note 8) and terminated the Master Credit Facility.

 

The Company had an accumulated deficit of approximately $46,869,000 at September 30, 2016. During the nine months ended September 30, 2016, the Company generated a net loss of approximately $3,519,000, used cash in operations of approximately $2,489,000, and the Company expects that it will continue to generate operating losses for the foreseeable future. At September 30, 2016, the Company had a cash balance of approximately $516,000. Total revenues were approximately $6,360,000 and $9,221,000 for the three months ended September 30, 2016 and 2015, respectively, and approximately $20,554,000 and $30,012,000 for the nine months ended September 30, 2016 and 2015, respectively. The Company had a working capital deficit of approximately $10,597,000 and $9,199,000 at September 30, 2016 and December 31, 2015, respectively.

The Company is closely monitoring operating costs and capital requirements and has developed an operating plan for 2016. The Company is making cost reductions in the areas of its staffing levels and operating budgets. In addition, on March 30, 2016, the Company entered into a Master Credit Facility pursuant to which it was granted a revolving credit facility in the principal amount up to the lesser of $5,000,000 or 75% of the outstanding balance of eligible customer receivables, or, if requested, the lender may approve discretionary drawdowns under the facility. On June 30, 2016, the Company closed the Master Credit Facility and received an initial disbursement of $1,572,576 (before reduction of related fees and expenses) (see Note 6). During the three months ended September 30, 2016, the Company received additional advances in the aggregate amount of $370,050. As of September 30, 2016, the Company had drawn approximately $791,000 more than its availability under the Master Credit Facility. As described in Note 14, on November 7, 2016, in connection with the Share Issuance described below, the Company repaid all outstanding obligations under the Master Credit Facility and terminated the Master Credit Facility.

 

On November 7, 2016, the Company consummated the issuance and sale of 1,777,417 shares of the Company’s common stock to Cosmic Forward Limited at a price of $9.60 per share (“Share Issuance”) (see Note 14). In addition, on November 7, 2016, the Company completed the purchase of 312,500 shares of its common stock at a price of $9.60 per share (“Tender Offer”) (see Note 14). The Company received total gross proceeds of $17,100,000 from the Share Issuance, or $14,100,000 after giving effect to the payment for the 312,500 shares of common stock from the Tender Offer. The Company received approximately $9,000,000 in net proceeds from the Share Issuance, after repayment of all amounts outstanding under the Master Credit Facility and the payment of transaction-related expenses.

Management believes that its available funds and cash flow from operations will be sufficient to meet its working capital requirements for the next twelve months from the date of this filing. However, there can be no assurances that the plans and actions proposed by management will be successful, that the Company will generate anticipated revenues, or that unforeseen circumstances will not require additional funding sources in the future or effectuate plans to conserve liquidity. Future efforts to raise additional funds may not be successful or they may not be available on acceptable terms, if at all.