Quarterly report pursuant to Section 13 or 15(d)

Going Concern Uncertainty, Financial Condition and Management's Plans

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Going Concern Uncertainty, Financial Condition and Management's Plans
6 Months Ended
Jun. 30, 2017
Going Concern Uncertainty, Financial Condition and Management's Plans [Abstract]  
GOING CONCERN UNCERTAINTY, FINANCIAL CONDITION AND MANAGEMENT'S PLANS

2. GOING CONCERN UNCERTAINTY, FINANCIAL CONDITION AND MANAGEMENT’S PLANS

 

The Company’s management believes that there is substantial doubt about the Company’s ability to continue as a going concern. The Company’s management believes that its available cash balance as of the date of this filing will not be sufficient to fund its anticipated level of operations for at least the next 12 months. The Company’s ability to continue operations depends on its ability to sustain and grow revenue and results of operations as well as its ability to access capital markets when necessary to accomplish the Company’s strategic objectives. The Company’s management believes that the Company will continue to incur losses for the immediate future. For the three and six months ended June 30, 2017, the Company generated gross profits but was unable to achieve positive cash flow from operations. The Company’s management expects to meet its future cash needs from the results of operations and, depending on the results of operations, the Company will likely need additional equity or debt financing until the Company can achieve profitability and positive cash flows from operating activities, if ever. 

 

During the three and six months ended June 30, 2017 and the year ended December 31, 2016, the Company suffered recurring losses from operations. At June 30, 2017 and December 31, 2016, the Company had a stockholders’ deficit of $36,055 and $16,043, respectively. At June 30, 2017, the Company had a working capital deficit of approximately $48,826, as compared to a working capital deficit of approximately $39,702 at December 31, 2016. The decrease of $9,124 in the Company’s working capital from December 31, 2016 to June 30, 2017 was primarily the result of a decrease in accounts receivable of $5,493, a $1,383 decrease in cash, a $1,842 increase in deferred revenue, a $1,410 increase in current derivative financial instruments based on changes in fair value, and a combined $3,694 increase in the current portions of notes payable to related parties and term loans. The decrease was offset by a $1,937 increase in loans receivable and a $2,815 increase in other current assets.

 

Within the next 12 months, the Company has obligations relating to the payment of indebtedness on term loans of $32,083. The Company anticipates meeting its cash obligations on indebtedness that is payable on or prior to August 31, 2018 from earnings from operations, the sale of certain operating assets or businesses or from the proceeds of additional indebtedness or equity raises. If the Company is not successful in obtaining additional financing when required, the Company expects that it will be able to renegotiate and extend certain of its notes payable as required to enable it to meet its remaining debt obligations as they become due, although there can be no assurance that the Company will be able to do so.

 

The Company’s future capital requirements for its operations will depend on many factors, including the profitability of its businesses, the number and cash requirements of other acquisition candidates that the Company pursues, and the costs of operations. The Company’s management has taken several actions to ensure that it will have sufficient liquidity to meet its obligations, including the reduction of certain general and administrative expenses, consulting expenses and other professional services fees. Additionally, if the Company’s actual revenues are less than forecasted, the Company anticipates implementing headcount reductions to a level that more appropriately matches then-current revenue and expense levels. The Company is evaluating other measures to further improve its liquidity, including the sale of certain operating assets or businesses, the sale of equity or debt securities and entering into joint ventures with third parties. Lastly, in July 2017, the Company elected to reduce related-party debt by converting such debt into shares of the Company's Series J preferred stock (refer to Note 16, Subsequent Events, for further detail). The Company may elect to reduce certain third-party debt in the future by converting such debt into shares of the Company's common stock. The Company’s management believes that these actions will enable the Company to meet its liquidity requirements through the next 12 months. There is no assurance that the Company will be successful in any capital-raising efforts that it may undertake to fund operations over the next 12 months.

   

The Company plans to generate positive cash flow from its operating subsidiaries. However, to execute the Company’s business plan, service existing indebtedness and implement its business strategy, the Company anticipates that it will need to obtain additional financing from time to time and may choose to raise additional funds through public or private equity or debt financings, a bank line of credit, borrowings from affiliates or other arrangements. The Company cannot be sure that any additional funding, if needed, will be available on terms favorable to the Company or at all. Furthermore, any additional capital raised through the sale of equity or equity-linked securities may dilute the Company’s current stockholders’ ownership and could also result in a decrease in the market price of the Company’s common stock. The terms of any securities issued by the Company in future capital transactions may be more favorable to new investors and may include the issuance of warrants or other derivative securities, which may have a further dilutive effect. The Company also may be required to recognize non-cash expenses in connection with certain securities it issues, such as convertible notes and warrants, which may adversely impact the Company’s financial condition. Furthermore, any debt financing, if available, may subject the Company to restrictive covenants and significant interest costs. There can be no assurance that the Company will be able to raise additional capital, when needed, to continue operations in their current form.