Going Concern

6 Months Ended

Jun. 30, 2017

3.	GOING CONCERN

As shown in the accompanying consolidated financial statements, the Company has generated a net loss of $1,437,702 and an accumulated deficit of $6,634,493 as of June 30, 2017.

On November 2, 2016, the Company and certain of the Company’s subsidiaries entered into a Loan and Security Agreement (the “Loan Agreement”) with GACP Finance Co. LLC (“GACP”) as administrative agent (“Agent”) and the other lenders as from time to time party thereto. The Loan Agreement has a three-year term and provides for term loan commitments of up to $25,000,000 consisting of an Initial Term Loan in the amount of $13,500,000 and a Delayed Draw Term Loan in the amount of $11,500,000 (each a “Loan” or together “Loans”). The Loan Agreement contains customary events of default, non-payment of principal or other amounts under the Loan Agreement, breach of covenants and other bankruptcy events. The Loan Agreement also contains certain financial covenants including maintenance of certain EBITDA levels and minimum liquidity. If any event of default occurs and is continuing, the Lender may declare all amounts owed to be due (except for a bankruptcy event of default), in which case such amounts will automatically become due and payable. On May 5, 2017, the Company received a written notice from GACP that it was in default under the terms of the Loan Agreement for a breach of covenants. As a result of the default, the Lender increased the cash interest payable on the loan from 13% per annum to 16% per annum (the “Default Rate”). In addition, as of April 30, 2017, the principal due under the Loan Agreement was $13,783,602. The April 30, 2017 loan balance was in excess of the borrowing base as calculated under the Loan Agreement and the Company made a principal payment on May 8, 2017 of $512,583 to reduce the loan balance to be within the borrowing base as defined in the Loan Agreement. The Lender also terminated its commitment to lend or extend credit under the Loan Agreement. As such, the note is classified as current on the accompanying consolidated balance sheets in accordance with ASC 470-10-45.

In accordance with ASU 205-40, the classification of the debt as current, continuing losses, and accumulated deficit raises substantial doubt about the Company’s ability to continue as a going concern. The Company is discussing a resolution of the default with the Lender and working towards a forbearance agreement. The Company believes that, if required by the Lender, it would be able to refinance the Loan with a different lender. The Company also has identified potential transactions and acquisitions which, if completed, would be expected to improve income from operations and the ability to service debt. In addition, the Company could also sell a portion of its residual portfolio and use the proceeds to pay down all or a portion of the Loan. Although the Company believes that it will be able to resolve the default with the Lender or if it is unable to do so, either refinance the Loan or sell a portion of its residual portfolio to repay the Loan or some combination of all of these options., there can be no assurance that the Company will be able to resolve the matter with the Lender or execute on any applicable contingency plans in the event it is unable to resolve the matter with the Lender. As of August 11, 2017, the Lender has not accelerated the remaining principal balance. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company plans to improve its financial condition through its strategy which includes raising equity and acquisitions of residual portfolios.

Excel Corp 10-Q