UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
| ☒ | |
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended January 31 2016
OR
| ☐ | |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
Commission File Number: 000-28132
STREAMLINE HEALTH SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 31-1455414 | |
(State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
2400 Old Milton Pkwy., Box 1353
Alpharetta, GA 30309
(Address of principal executive offices) (Zip Code)
(888)997-8732
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
| Common Stock, $0.01 par value per share | STRM | Nasdaq Capital Market |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer ☒ | Smaller reporting company ☒ | |||
| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant, computed using the closing price as reported by The NASDAQ Stock Market, Inc. for the Registrant’s Common Stock on July 31, 2015,2021, the last business day of the Registrant’s most recently completed second fiscal quarter, was $45,488,878.
The number of shares outstanding of the Registrant’s Common Stock, $.01 par value per share, as of April 15, 2016: 19,361,549.
Documents incorporated by reference:
Information required by Part III is incorporated by reference from the Registrant’s Proxy Statement for its 20162022 annual meeting of stockholders or an amendment to this Annual MeetingReport on Form 10-K, which will be filed with the Securities and Exchange Commission within 120 days after the end of Stockholders are incorporated by reference into Part III.
FORWARD-LOOKING STATEMENTS
We make forward-looking statements in this Annual Report on Form 10-K (the “Report”) and in other materials we file with the Securities and Exchange Commission (“SEC”) or otherwise make public. These statements about future events and expectations are “forward-looking” within the meaning of Sections 27A of the Securities Act of 1933, as amended, and 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In this Report, both Part I, Item 1, “Business,” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contain forward-looking statements. In addition, our senior management makes forward-looking statements to analysts, investors, the media, and others. Statements with respect to expected revenue, income, receivables, backlog, clientcustomer attrition, acquisitions and other growth opportunities, sources of funding operations and acquisitions, the integration of our solutions, the performance of our channel partner relationships, the sufficiency of available liquidity, research and development, and other statements of our plans, beliefs or expectations are forward-looking statements. These and other statements using words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would” and similar expressions also are forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement. The forward-looking statements we make are not guarantees of future performance, and we have based these statements on our assumptions and analyses in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. Forward-looking statements by their nature involve substantial risks and uncertainties that could significantly affect expected results, and actual future results could differ materially from those described in such statements. Management cautions against putting undue reliance on forward-looking statements or projecting any future results based on such statements or present or historical earnings levels.
Among the factors that could cause actual future results to differ materially from our expectations are the risks and uncertainties described under “Risk Factors” set forth in Part I, Item 1A, “Risk Factors” herein, and the other cautionary statements in other documents we file with the SEC, including the following:
| ● | competitive products and pricing; | |
| ● | product demand and market acceptance; | |
| ● | entry into new markets; | |
| ● | the extent to which health epidemics and other outbreaks of communicable diseases, including the ongoing coronavirus, or COVID-19, pandemic and the efforts to mitigate it, could disrupt our operations and/or materially and adversely affect our business and financial conditions; | |
| ● | the possibility that any of the anticipated benefits of the acquisition of Avelead Consulting, LLC (“Avelead”) will not be realized or will not be realized within the expected time period, the businesses of the Company and the Avelead segment may not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected, or revenues following the Avelead acquisition may be lower than expected; | |
| ● | new product and services development and commercialization; | |
| ● | key strategic alliances with vendors and channel partners that resell our products; | |
| ● | uncertainty in continued relationships with customers due to termination rights; | |
| ● | our ability to control costs; | |
| ● | availability, quality and security of products produced and services provided by third-party vendors; | |
| ● | the healthcare regulatory environment; | |
| ● | potential changes in legislation, regulation and government funding affecting the healthcare industry; | |
| ● | healthcare information systems budgets; | |
| ● | availability of healthcare information systems trained personnel for implementation of new systems, as well as maintenance of legacy systems; | |
| ● | the success of our relationships with channel partners; |
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| ● | fluctuations in operating results; | |
| ● | our future cash needs; | |
| ● | the consummation of resources in researching acquisitions, business opportunities or financings and capital market transactions; | |
| ● | the failure to adequately integrate past and future acquisitions into our business; | |
| ● | critical accounting policies and judgments; | |
| ● | changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other standard-setting organizations; | |
| ● | changes in economic, business and market conditions impacting the healthcare industry and the markets in which we operate; | |
| ● | our ability to maintain compliance with the terms of our credit facilities; and | |
| ● | our ability to maintain compliance with the continued listing standards of the Nasdaq Capital Market (“Nasdaq”). |
Some of these factors and risks have been, and may further be, exacerbated by the Financial Accounting Standards Board or other standard-setting organization;
Most of these factors are beyond our ability to predict or control. Any of these factors, or a combination of these factors, could materially affect our future financial condition or results of operations and the ultimate accuracy of our forward-looking statements. There also are other factors that we may not describe (generally because we currently do not perceive them to be material) that could cause actual results to differ materially from our expectations.
We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
PART I
Item 1.
BusinessCompany Overview
Incorporated in 1989, the CompanyStreamline Health Solutions, Inc. is a leading provider of transformational data-driven solutions and services in the middle of the revenue cycle for healthcare organizations. providers throughout the United States and Canada. Streamline Health’s technology helps hospitals improve their financial performance by moving later revenue cycle interventions earlier in the process to optimize their coding accuracy for every patient encounter prior to bill submission. By improving coding accuracy before billing, providers can reduce revenue leakage, mitigate the risk of overbilling, and reduce days in accounts receivable. This enables providers to achieve more predictable revenue streams using technology rather than manual intervention.
The Company provides computer software-based solutions, through its Looking Glass® platform. Looking Glass® captures, aggregatesprofessional consulting and translatesauditing and coding services, which capture, aggregate, and translate structured and unstructured data to deliver intelligently organized, easily accessible predictive insights to its clients.customers. Hospitals and physician groups use the knowledge generated by the Looking Glass® platformStreamline Health to help them reduce exposure to risk, improve clinical,their financial and operational performance and improve patient care.
The Company’s software solutions are delivered to clientscustomers either by purchased fixed-term or perpetual license, where such software is installed locally in the client’s data center, or by access to the Company’s data center systems through a secure connection in a software as a service (SaaS)(“SaaS”) delivery method.
The Company operates exclusively in one segment as a provider of health information technology solutions and associated services that improve healthcare processes and information flows within a healthcare facility. The Company sells its solutions and services in North America to hospitals and health systems including physician practices, through its direct sales force and its reseller partnerships.
As part of the Company’s strategic expansion into the revenue cycle management, acute-care healthcare space, the Company acquired all of the equity interests of Avelead Consulting, LLC on August 16, 2021 on a cash- and debt-free basis.
Unless the context requires otherwise, references to “Streamline Health,” the “Company,” “we,” “us” and “our” in this Report are intended to mean Streamline Health Solutions, Inc. and its wholly-owned subsidiaries. All references to a fiscal year refer to the fiscal year commencing February 1 in that calendar year and ending on January 31 of the following calendar year.
Solutions
The Company offers solutions and services to assist its clientscustomers in all areasrevenue cycle management including its two flagship technologies eValuatorTM and Avelead Rev ID™. eValuator provides 100% automated coding analysis prior to billing. Rev ID offers reconciliation of clinical activity to patient billing records prior to billing. In addition, the patient care lifecycleCompany offers an array of professional services, including Patient Engagement, Patient Care, Health Information Management (HIM),system implementation and coding audit solutions and other software solutions such as Coding and Clinical Documentation Improvement (CDI), Avelead Compare and Financial Management. Each suite ofThe Company’s solutions isand services are designed to improve the flow of critical patient information throughout the enterprise. Each of the Company’sThe solutions helpsand services help to transform and structure information between disparate information technology systems into actionable data, giving the end user comprehensive access to clinical and business intelligence to enable betterenhance billing accuracy and decision-making. All solutionsSolutions can be accessed securely through SaaS or delivered either by a perpetual license or by a fixed-term license installed locallylocally.
eValuator Coding Analysis Platform - This technology is a cloud-based SaaS analytics solution that delivers the capability of fully automated analysis on 100% of billing codes entered by a healthcare provider’s coding team. This is done on a pre-bill basis, enabling providers to identify and address their highest-impact cases prior to bill drop. Rule sets are enabled for inpatient, outpatient and pro-fee cases. With eValuator, providers can add an audit function on a pre-bill basis to all cases, allowing the provider to better optimize reimbursements and mitigate risk on its billing practices.
Avelead RevID Automated Revenue Reconciliation – RevID is a cloud-based SaaS automated charge reconciliation tool. RevID identifies discrepancies between a provider’s clinical and billing departments and ensures that every medical service is tracked, accounted for, and ultimately accurately billed thereby reducing revenue leakage. RevID functions on a pre-bill basis, allowing providers to catch mistakes and discrepancies prior to bill-drop.
Avelead Data Comparison Engine (“DCE”, “Avelead Compare”) – Avelead Compare is a cloud-based SaaS system synchronization module that compares different software hospitals use within their daily operations. Avelead Compare operates continuously and automates the comparison of multiple software systems to identify any discrepancies or accessed securely through SaaS.
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Coding & CDI
Solutions - These solutions provide an integratedFinancial Management
Solutions - These solutions enable financial staff across the healthcare enterprise to drill down quickly and deeply into actionable and real-time financial data and key performance indicators to improve revenue realization and staff efficiency. This suite of solutions includes individual workflows such as accounts receivable management, denials management, claims processing, spend management and audit management.Patient Care Solution – Outside the Company’s primary focus of solutions provide dashboards,in the middle of the revenue cycle for healthcare providers, the Company’s Clinical Analytics solution enables customers to improve their patient care via cohort building and data mining toolsvisualization, fostering an open, continuous learning culture inside a healthcare organization. Providers using Clinical Analytics are empowered with real-time, on-demand predicative insight for improved patient outcomes. The last customer on this product did not renew in June 2020, and prescriptive reporting, whichaccordingly, the Company has no revenue or cost associated with Patient Care Solutions since that date.
Services
Audit and Coding Services — The Company provides technology-enabled audit and coding services to help to simplify, facilitatecustomers review and optimize overall revenue cycle performancetheir internal clinical documentation and coding functions across the applicable segment of the healthcarecustomer’s enterprise. The financial management suite of solutions is usedCompany provides these services using experienced auditors and its eValuator proprietary software to improve the qualitytargeting of records with the highest likelihood of requiring an audit. The audit services are provided for inpatient DRG coding auditing, outpatient APC auditing, HCC auditing and accuracyPhysician/Pro-Fee services coding and auditing.
Software Services – Software services relates to implementation of our core software modules, including data collection, configuration of the software based on the customers’ needs, training and support. Support services include non-specified upgrades to the software.
Professional Services – The Company’s professional services are typically associated with hospital revenue cycle assistance and include troubleshooting, staff augmentation and “adhoc” services. Services may include, but are not limited to, review of workflow processes, development and optimization of new workflows, optimization of interfaces, performance of audits and reconciliations, interim resources and project management of system implementations or conversions
Cerner Command Language (CCL) Reporting – CCL writers provide reports that offer visibility into the revenue cycle from patient access through collections. CCL is a programming language that is designed to streamline the query process in Cerner databases utilized by healthcare systems. CCL reports provide data captured via our Patient Engagement solutions during patient admission, registrationnecessary for compliance and scheduling. These solutions are also used to increase the completion and accuracy of patient charts and related coding, improve accounts receivable collections, reduce and manage denials, and improve audit outcomes.
Custom Integration Services
for CDI/Abstracting — The Company’s professional services team works withDiscontinued Operations
Enterprise Content Management (“ECM Assets”) – This legacy technology product has existed since the inception of the Company. This product assists hospitals with workflow on electronic health records. Historically, this has been one of the largest products, in terms of revenue, for the Company. This ECM Assets were sold on February 24, 2020 to help clients quickly learn to use our solutionsHyland Software in the most efficient manner possible. Training sessions are available on-site or offa transaction accounted for as fewa sale of assets. See Note 13 – Discontinued Operations to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data”. For purposes of the financial information that is contained herein, this business is accounted for as one person or multiple staff members.
Custom Integration Services, Electronic Image Conversion
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Customers and Strategic Partners
The Company continues to provide transformational data-driven solutions to some of the finest, most well respectedwell-respected healthcare enterprises in the United States and Canada. ClientsCustomers are geographically dispersed throughout North America,America. The Company provides these solutions through a combination of direct sales and relationships with heaviest concentration in the New York metropolitan area, Philadelphia, Texas, Southern California and the west coast of Florida.
During fiscal year 2015, no2021, one individual clientcustomer accounted for 10% or more of our total revenues. Two clientscontinuing operations revenue and represented 13% and 12%, respectively,approximately $2.6 million of total accounts receivable as of January 31, 2016.
For more information regarding our major clients,customers, please see “Risks Relating to Our Business - Our sales have been concentrated in a small number of clients”customers” in Part 1, Item 1A, Risk Factors.
Acquisitions and Divestitures
The Company regularly evaluates opportunities for acquisitions and divestitures for portions of the Company that may not align with current growth strategies.
The Company acquired all of the equity interests of Avelead as part of the Company’s strategic expansion into the revenue cycle management, acute-care healthcare space. The acquisition was completed on August 16, 2021. The aggregate consideration for the purchase of Avelead was approximately $29.7 million (at fair value) consisting of (i) $12.5 million in cash, net of cash acquired, (ii) $6.5 million in common stock, and (iii) approximately $10.7 million in contingent consideration. The Company issued 5,021,972 shares of its restricted common stock to Avelead equity holders in connection with the acquisition. See Note 3 - Business Combination and Divestiture to our consolidated financial statements included in Part II Item 8, “Financial Statements and Supplementary Data” for additional information regarding the acquisition.
The Company divested its legacy ECM Assets, effective February 24, 2020, in a transaction accounted for as a sale of assets. This sale of assets is consistent with the Company’s efforts to offer and invest in products that serve the middle of the revenue cycle, primarily for acute care healthcare organizations. The Company signed the definitive agreement with respect to the sale of the ECM Assets in December 2019 and prepared and filed a proxy statement to obtain stockholder approval of the transaction. We applied the standard of ASC 205-20-1 to ascertain the timing of accounting for the discontinued operations. Based on ASC 205-20-1, the Company determined that it did not have the authority to sell the assets until the date of the stockholder approval which was February 21, 2020. Accordingly, the Company did not present the ECM Assets as held for sale in previously filed financial statements. On February 21, 2020, the Company having the authority and ability to consummate the sale of the ECM Assets, met the criteria to present discontinued operations as described in ASC 205-20-1. Accordingly, the Company is reporting the results of operations and cash flows, and related balance sheet items associated with the ECM Assets in discontinued operations in the accompanying consolidated statements of operations, cash flows and balance sheets for the current and comparative prior periods. See Note 13 – Discontinued Operations to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data”.
Business Segments
We manage our business as one single business segment. Under ASC 280-10-50-11, two or more operating segments may be aggregated into a single operating segment if they are considered to be similar. Operating segments are considered to be similar if they can be expected to have essentially the same economic characteristics and future prospects. Using the aggregation guidance, the Company determined that it has one operating segment due to the similar economic characteristics of the Company’s products, product development, distribution, regulatory environment and customer base as a provider of computer software-based solutions and services for acute-care healthcare providers. The Company has two reporting units for evaluation of intangible assets, Streamline Solutions and Avelead Solutions. For our total assets at January 31, 20162022 and 20152021 and total revenue and net loss for the fiscal years ended January 31, 20162022 and 2015,2021, see our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” herein.
Contracts,
The Company enters into master agreements with its clientscustomers that specify the scope of the system to be installed andand/or services to be provided by the Company, as well as the agreed-upon aggregate pricepricing, applicable term duration and the timetable for the associated licenses and services. Typically
For customers purchasing software to be installed locally or provided on a SaaS model, these are multi-element arrangements that include either a perpetual or term license and right to access the applicable software functionality (whether installed locally at the clientcustomer site (oror the right to use the Company’s solutions as a part of SaaS services), terms regarding maintenance and support services, and professional services for implementation, integration, process engineering, optimization and training, as well as fees and payment terms for each of the foregoing. If the customer purchases solutions on a perpetual license model, the customer is billed the license fee up front. Maintenance and support is provided on a term basis for separate fees, with an initial term typically from one to five years in length. The maintenance and support fee is charged annually in advance, commencing either upon contract execution or deployment of the solution in live production. If the customer purchases solutions on a term-based model, the customer is billed periodically a combined access fee for a specified term, typically from one to seven years in length. The access fee includes the access rights along with all maintenance and any third-party components including hardwaresupport services.
The Company also generally provides software and software (included with SaaS services), as well ascustomers professional services for implementation, integration, process engineering, optimization and training. IfThese services and the client purchases solutions via SaaS,associated fees are separate from the client is billed periodically for a specified term from one to seven years in length. The SaaS fee includes alllicense, maintenance and support services. The Company also generally provides SaaS clients professional services for implementation, integration, process engineering, optimization and training.access fees. Professional services are typicallyprovided on either a fixed-fee or hourly arrangements billable to clientscustomers based on agreed-to payment milestones (fixed fee) or monthly.monthly payment structure on hours incurred (hourly). These services can either be included at the time the related locally installed software or SaaS solution is licensed as part of the initial purchase agreement or added as an addendum to the existing agreement for services required after the initial implementation. The Company recognizes revenue for implementation for certain of its eValuator SaaS solution over the contract term, as it has been determined that those implementation services are not a distinct performance obligation, whereas for other SaaS and Software solutions such as CDI, RevID and Compare, it has been determined that its implementation services are a distinct performance obligation and, accordingly, are recognized separately as professional services.
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For coding audit services customers, these review services are provided either through a stand-alone services agreement or services addendum to an existing master agreement with the customer. These review services are available as either a one-time service or recurring monthly, quarterly or annual review structure. These services are typically provided on a per reviewed account/chart basis. Monthly minimums are required where material discounts have been offered. Payment typically occurs upon completion of the applicable review project.
The commencement of revenue recognition varies depending on the size and complexity of the system and/or services involved, the implementation or performance schedule requested by the clientcustomer and usage by clientscustomers of SaaS.SaaS for software-based components. The Company’s agreements are generally non-cancellable but provide that the customer may terminate its agreement upon a material breach by the Company and/or or may delay certain aspects of the installation or associated payments in such events. The Company does allow for termination for convenience in certain situations. Therefore, it is difficult for the Company to accurately predict the revenue it expects to achieve in any particular period. The Company’s master agreements generally provide that the client may terminate its agreement uponperiod, and a material breach by the Company or may delay certain aspects of the installation. A termination or installation delay of one or more phases of an agreement, or the failure of the Company to procure additional agreements, could have a material adverse effect on the Company’s business, financial condition, and results of operations.operations, as further discussed in Part 1, Item 1A, “Risk Factors” herein. Historically, the Company has not experienced a material amount of contract cancellations; however, the Company sometimes experiences delays in the course of contract performance and the Company accounts for them accordingly.
Third-Party License fees
The Company incorporates software licensed from various third-party vendors into its proprietary software. In addition, third-party, stand-alone software is required to operate the Company’s proprietary software. The Company licenses these software products and pays the required license fees when such software is delivered to clients. For information regarding royalty agreements, see Note 3 to our consolidated financial statements included in Part II, Item 8 herein.
Associates
As of
January 31,For more information on contracts, backlog, acquisitions and research and development, see also Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
Competition
The eValuator product has little direct competition. The Company believes it is an industry leader in pre-bill auditing technology. We have seen competition on similar products that are being utilized by customers as a pre-bill auditing tool, such as PwC Smart and 3M, however, these similar products are intended to be utilized for post-bill auditing which is a different workflow than what is necessary for pre-bill auditing. We expect to have competition in the pre-bill technology industry. Customer processes dictates that correcting errors prior to billing is much more efficient and effective than having an audit after billing. There will be larger and more sophisticated competitors than our Company. Accordingly, using the time we have without direct competition is critical to the Company’s success.
The RevID product has little direct competition. The Company believes RevID’s automated charge reconciliation technique, and the frequency of charge reconciliation RevID enables are unique in the industry. There are products that purport to provide similar services, including nThrive’s Charge Capture Audit Tool and CloudMed’s ReVint Tool set. The Company anticipates that additional competition may develop as pre-bill, daily charge reconciliation becomes a standard within the industry.
The Avelead DCE product has little direct competition. The Company believes that few engines exist that can accurately compare the various software systems used by hospitals, examples of other products include Vitalware, Craneware and nThrive’s Chargemaster toolkit. DCE is unique in that it can be easily tuned to work with a wide array of hospital systems to create a bespoke offering for specific clients, easing transitions to new platforms or as an ongoing maintenance check tool.
Regarding our Coding and CDI Solutions, eValuator Coding Analysis Platform, and Financial Management Solutions, several companies historically have dominated the clinical information system software market and several of these companies have either acquired, developed or are developing their own document management and workflow technologies.market. The industry is undergoing consolidation and realignment as companies position themselves to compete more effectively. Strategic alliances between vendors offering HIM workflow and document management technologies and vendors of other healthcare systems are increasing. Barriers to entry to this market include technological and application sophistication, the ability to offer a proven product, creating and utilizing a well-established clientcustomer base and distribution channels, brand recognition, the ability to operate on a variety of operating systems and hardware platforms, the ability to integrate with pre-existing systems and capital for sustained development and marketing activities. The Company believes that these obstacles taken together represent a moderate to high-level barrier to entry. The Company has many competitors including clinical information system vendors that are larger, more established and have substantially more resources than the Company.
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Regarding our Audit Services, there are numerous medium and small companies and independent consultants who offer these services. Barriers to entry to this market include creating and utilizing a well-established customer base and distribution channels, brand recognition, establishing differentiators for our services and capital for sustained development and marketing activities.
The Company believes that these obstacles taken together represent a moderate to high-level barrier to entry. The Company believes that the principal competitive factors in its market are clientcustomer recommendations and references, company reputation, system reliability, system features and functionality (including ease of use), technological advancements, clientcustomer service and support, breadth and quality of the systems, the potential for enhancements and future compatible products, the effectiveness of marketing and sales efforts, price, and the size and perceived financial stability of the vendor. In addition, the Company believes that the speed with which companies in its market can anticipate the evolving healthcare industry structure and identify unmet needs are important competitive factors.
Additional Intellectual Property Rights
In addition to the software licenses described in other sections of this Item 1, “Business”, the Company also holds registered trademarks for Documents
Regulation
Our customers derive a substantial portion of their revenue from third-party private and governmental payors, including through Medicare, Medicaid and other government-sponsored programs. Our customers also have express handling and retention obligations under information-based laws such as the Health Insurance Portability and Accountability Act of 1996. There are no material regulatory proposals of which the Company is aware that we believe currently have a high likelihood of passage that we anticipate would have a material impact on the operation or demand of the Company’s products and services. However, the Company acknowledges there is currently great uncertainty in the U.S. healthcare market, generally, from a regulatory perspective. In addition, there is regulatory uncertainty in the data and technology sectors as it relates to information security regulations. Material changes could have unanticipated impact on demand or usability of the Company’s solutions, require the Company to incur additional development and/or operating costs (on a one-time or recurring basis) or cause customers to terminate their agreements or otherwise be unable to pay amounts owed to the Company, as further discussed in Part 1, Item 1A, “Risk Factors” herein.
Environmental Matters
We believe we are compliant in all material aspects with all applicable environmental laws. We do not anticipate that such compliance will have a material effect on capital expenditures, earnings or the competitive position of our operations.
Code of Business Conduct and Ethics
We have a Code of Business Conduct and Ethics that guides and binds each of our employees, officers and directors which is available on the “Investor Relations” page of our website, www.streamlinehealth.net, under the “Corporate Governance” tab. We use an anonymous compliance hotline for employees and outside parties to report potential instances of noncompliance.
Available Information
Copies of documents filed by the Company with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and all amendments to those reports and statements, if any, can be found at the web sitewebsite http://investor.streamlinehealth.net as soon as practicable after such material is electronically filed with, or
Item 1A.
Risk FactorsAn investment in our common stock or other securities involves a number of risks. You should carefully consider each of the risks described below before deciding to invest in our common stock or other securities. If any of the following risks develops into actual events, our business, financial condition or results of operations could be negatively affected, the market price of our common stock or other securities could decline, and you may lose all or part of your investment.
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Risks Relating to Our Business
Our sales have been concentrated in a small number of clients.
Our revenues have been concentrated in a relatively small number of large clients,customers, and we have historically derived a substantial percentage of our total revenuescontinuing operations revenue from a few clients.customers. For the fiscal years ended
The ongoing COVID-19 pandemic and resulting adverse economic conditions has had and will likely continue to have an adverse effect on our business, results of operations and financial condition.
The global outbreak of the coronavirus disease (COVID-19), which the World Health Organization characterized as a “pandemic” in March 2020, has resulted in a crisis affecting economies and financial markets worldwide. The pandemic, and its attendant economic damage, has had an adverse impact on our revenue and may continue to adversely affect our business, results of operations and financial condition. The ultimate extent of its impact on us will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and actions taken to contain COVID-19 or treat its impact, among others. These and other potential impacts of COVID-19 could therefore continue to materially and adversely affect our business, results of operations and financial condition.
Prolonged unfavorable economic conditions which arose in response to COVID-19, by local, state and federal and numerous non-U.S. governmental authorities imposing, among other restrictions, travel bans, business closures and other quarantine measures to practice social distancing, and other factors such as recession or slowed economic growth, may continue to result in considerable uncertainty regarding the impact the pandemic will have on our workforce and continued operations.
We have adjusted our business practices to combat the effects of COVID-19 by closing the Company’s primary corporate office, restricting employee travel, implementing social distancing and additional sanitary measures. These actions are being taken in response to recommendations issued by local, state and national government authorities. There has been no further reduction in the Company’s workforce as a result of the COVID-19 pandemic since these initial adjustments, but we are not certain as to whether any additional reductions may be necessary in order to combat the effects of COVID-19-related closures or economic downturns. We continue to closely monitor the events and impacts relating to the on-going COVID-19 pandemic, which has impacted and could further adversely impact the Company’s business, results of operations and financial condition.
Over the last several years, we have completed acquisitions, including the acquisition of Avelead in the third quarter of 2021, and may undertake additional acquisitions in the future. Any failure to adequately integrate past and future acquisitions into our business could have a material adverse effect on us.
Acquisitions will require that we integrate into our existing operations separate companies that historically operated independently or as part of another, larger organization, and had different systems, processes and cultures. Acquisitions may require integration of finance and administrative organizations and involve exposure to different legal and regulatory regimes in jurisdictions in which we have not previously operated.
Over the last several years, we have completed acquisitions of businesses through asset and stock purchases, including the acquisition of Avelead in the third quarter of 2021. We expect that we will make additional acquisitions in the future.
Acquisitions involve a number of risks, including, but not limited to:
| ● | the potential failure to achieve the expected benefits of the acquisition, including the inability to generate sufficient revenue to offset acquisition costs, or the inability to achieve expected synergies or cost savings; | |
| ● | unanticipated expenses related to acquired businesses or technologies and their integration into our existing businesses or technology; | |
| ● | the diversion of financial, managerial and other resources from existing operations; |
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| ● | the risks of entering into new markets in which we have little or no experience or where competitors may have stronger positions; | |
| ● | potential write-offs or amortization of acquired assets or investments; | |
| ● | the potential loss of key employees, customers or partners of an acquired business; | |
| ● | delays in customer purchases due to uncertainty related to any acquisition; | |
| ● | potential unknown liabilities associated with an acquisition; and | |
| ● | the tax effects of any such acquisitions. |
If we fail to successfully integrate Avelead or any other acquired businesses or fail to implement our business strategies with respect to acquisitions, we may not be able to achieve projected results or support the amount of consideration paid for such acquired businesses, which could have an adverse effect on our business and financial condition.
Finally, if we finance acquisitions by issuing equity or convertible or other debt securities, our existing stockholders may be diluted, or we could face constraints related to the terms of and repayment obligations related to the incurrence of indebtedness. This could adversely affect the market price of our securities.
We could consume resources in researching acquisitions, business opportunities or financings and capital market transactions that are not ultimately consummated, which could materially adversely affect our financial condition and subsequent attempts to locate and acquire or invest in another business.
We anticipate that the investigation of each specific acquisition or business opportunity and the negotiation, drafting, and execution of relevant agreements, disclosure documents, and other instruments with respect to such transaction will require substantial management time and attention and substantial costs for financial advisors, accountants, attorneys and other advisors. If a decision is made not to consummate a specific acquisition, business opportunity or financing and capital market transaction, the costs incurred up to that point for the proposed transaction likely would not be recoverable. Furthermore, even if an agreement is reached relating to a specific acquisition, investment target or financing, we may fail to consummate the investment or acquisition for any number of reasons, including those beyond our control. Any such event could consume significant management time and result in a loss to us of the related costs incurred, which could adversely affect our financial position and our ability to consummate other acquisitions and investments.
A significant increase in new software as a service (“SaaS”)SaaS contracts could reduce near-term profitability and require a significant cash outlay, which could adversely affect near term cash flow and financial flexibility.
If new or existing clientscustomers purchase significant amounts of our SaaS services, we may have to expend a significant amount of initial setup costs and time before those new clientscustomers are able to begin using such services, and we cannot begin to recognize revenues from those SaaS agreements until the commencement of such services. Accordingly, we anticipate that our near-term cash flow, revenue and profitability may be adversely affected by significant incremental setup costs from new SaaS clientscustomers that would not be offset by revenue until new SaaS clientscustomers go into production. While we anticipate long-term growth in profitability through increases in recurring SaaS subscription fees and significantly improved profit visibility, any inability to adequately finance setup costs for new SaaS solutions could result in the failure to put new SaaS solutions into production and could have a material adverse effect on our liquidity, financial position and results of operations. In addition, this near-term cash flow demand could adversely impact our financial flexibility and cause us to forego otherwise attractive business opportunities or investments.
We may not see the anticipated market interest or growth in our eValuator platform. In addition, coding audit services and associated software and technologies represent a new market for the Company, and we may not see the anticipated market interest or growth due to being a new player in the industry.
The Company is currently investing in the eValuator platform as well as new software-based technologies relating to high automation and machine-based analytics regarding a customer’s coding audit process. The return on this investment requires that the product developments continue to be defined and completed in a timely and cost-effective manner, there remains general interest in the marketplace (for both existing and future customers) for this technology, the demand for the product generates sufficient revenue in light of the development costs and that the Company is able to execute a successful product launch for these technologies. If the Company is unable to meet these requirements when launching these technologies, or if there is a delay in the launch process, the Company may not see an increase in revenue to offset the current development costs or otherwise translate to added growth and revenue for the Company.
Customers may exercise termination rights within their contracts, which may cause uncertainty in anticipated and future revenue streams.
The Company generally does not allow for termination of a customer’s agreement except at the end of the agreed upon term or for cause. However, certain of the Company’s customer contracts provide that the customer may terminate the contract without cause prior to the end of the term of the agreement by providing written notice, sometimes with relatively short notice periods. The Company also provides trial or evaluation periods for certain customers, especially for new products and services. Furthermore, there can be no assurance that a customer will not cancel all or any portion of an agreement, even without an express early termination right, and the Company may face additional costs or hardships collecting on amounts owed if a customer terminates an agreement without such a right. Whether resulting from termination for cause or the limited termination for convenience rights discussed above, the existence of contractual relationships with these customers is not an assurance that we will continue to provide services for our customers through the entire term of their respective agreements. If customers representing a significant portion of our revenue terminated their agreements unexpectedly, we may not, in the short-term, be able to replace the revenue and income from such contracts and this would have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows. In addition, customer contract terminations could harm our reputation within the industry, especially any termination for cause, which could negatively impact our ability to obtain new customers.
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Changes in healthcare regulations impacting coding, payers and other aspects of the healthcare regulatory cycle could have substantial impact on our financial performance, growth and operating costs.
Our sales and profitability depend, in part, on the extent to which coverage of and reimbursement for medical care provided is available from governmental health programs, private health insurers, managed care plans and other third-party payors. Unanticipated regulatory changes could materially impact the need for and/or value of our solutions. For example, if governmental or other third-party payors materially reduce reimbursement rates or fail to reimburse our customers adequately, our customers may suffer adverse financial consequences. Changes in regulations affecting the healthcare industry, such as any increased regulation by governmental agencies of the purchase and sale of medical products, or restrictions on permissible discounts and other financial arrangements, could also directly impact the capabilities our solutions and services provide and the pricing arrangements we are required to offer to be competitive in the market. Similarly, the U.S. Congress may adopt legislation that may change, override, conflict with or pre-empt the currently existing regulations and which could restrict the ability of customers to obtain, use or disseminate patient health information and/or impact the value of the functionality our products and services provide.
These situations would, in turn, reduce the demand for our solutions or services and/or the ability for a customer to purchase our solutions or services. This could have a material impact on our financial performance. In addition, the speed with which the Company can respond to and address any such changes when compared with the response of other companies in the same market (especially companies who may accurately anticipate the evolving healthcare industry structure and identify unmet needs) are important competitive factors. If the Company is not able to address the modifications in a timely manner compared with our competition, that may further reduce demand for our solutions and services.
The potential impact on us of new or changes in existing federal, state and local regulations governing healthcare information could be substantial.
Healthcare regulations issued to date have not had a material adverse effect on our business. However, we cannot predict the potential impact of new or revised regulations that have not yet been released or made final, or any other regulations that might be adopted. The U.S. Congress may adopt legislation that may change, override, conflict with or preemptpre-empt the currently existing regulations and which could restrict the ability of clientscustomers to obtain, use or disseminate patient health information. Although the features and architecture of our existing solutions can be modified, it may be difficult to address the changing regulation of healthcare information.
The healthcare industry is highly regulated. Any material changes in the political, economic or regulatory healthcare environment that affect the group purchasing business or the purchasing practices and operations of healthcare organizations, or that lead to consolidation in the healthcare industry, could require us to modify our services or reduce the funds available to providers to purchase our solutions and services.
Our business, financial condition and results of operations depend upon conditions affecting the healthcare industry generally and hospitals and health systems particularly. Our ability to grow will depend upon the economic environment of the healthcare industry, generally, as well as our ability to increase the number of solutions that we sell to our clients.customers. The healthcare industry is highly regulated and is subject to changing political, economic and regulatory influences. Factors such as
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Our clientscustomers derive a substantial portion of their revenue from third-party private and governmental payors, including through Medicare, Medicaid and other government-sponsored programs. Our sales and profitability depend, in part, on the extent to which coverage of and reimbursement for medical care provided is available from governmental health programs, private health insurers, managed care plans and other third-party payors. If governmental or other third-party payors materially reduce reimbursement rates or fail to reimburse our clientscustomers adequately, our clientscustomers may suffer adverse financial consequences, which in turn, may reduce the demand for and ability to purchase our solutions or services.
We face significant competition, including from companies with significantly greater resources.
We currently compete with many other companies for the licensing of similar software solutions and related services. Several companies historically have dominated the clinical information systems software market and several of these companies have either acquired, developed, or are developing their own content management, analytics and coding/clinical documentation improvement solutions, as well as the resultant workflow technologies. The industry is undergoing consolidation and realignment as companies position themselves to compete more effectively. Many of these companies are larger than us and have significantly more resources to invest in their businesses.business. In addition, information and document management companies serving other industries may enter the market. Suppliers and companies with whom we may establish strategic alliances also may compete with us. Such companies and vendors may either individually, or by forming alliances excluding us, place bids for large agreements in competition with us. A decision on the part of any of these competitors to focus additional resources in any one of our three solutions stacks (content management,(coding audit solutions, analytics and coding/clinical documentation improvement), workflow technologies orand other markets addressed by us could have a material adverse effect on us.
The healthcare industry is evolving rapidly, which may make it more difficult for us to be competitive in the future.
The U.S. healthcare system is under intense pressure to improve in many areas, including modernization, universal access and controlling skyrocketing costs of care. We believe that the principal competitive factors in our market are clientcustomer recommendations and references, company reputation, system reliability, system features and functionality (including ease of use), technological advancements, clientcustomer service and support, breadth and quality of the systems, the potential for enhancements and future compatible solutions, the effectiveness of marketing and sales efforts, price and the size and perceived financial stability of the vendor. In addition, we believe that the speed with which companies in our market can anticipate the evolving healthcare industry structure and identify unmet needs areis an important competitive factors.factor. If we are unable to keep pace with changing conditions and new developments, we will not be able to compete successfully in the future against existing or potential competitors.
Rapid technology changes and short product life cycles could harm our business.
The market for our solutions and services is characterized by rapidly changing technologies, regulatory requirements, evolving industry standards and new product introductions and enhancements that may render existing solutions obsolete or less competitive. As a result, our position in the healthcare information technology market could change rapidly due to unforeseen changes in the features and functions of competing products, as well as the pricing models for such products. Our future success will depend, in part, upon our ability to enhance our existing solutions and services and to develop and introduce new solutions and services to meet changing requirements. Moreover, competitors may develop competitive products that could adversely affect our operating results. We need to maintain an ongoing research and development program to continue to develop new solutions and apply new technologies to our existing solutions but may not have sufficient funds with which to undertake such required research and development. If we are not able to foresee changes or to react in a timely manner to such developments, we may experience a material, adverse impact on our business, operating results and financial condition.
Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our solutions and services.
Our intellectual property, which represents an important asset to us, has some protection against infringement through copyright and trademark law. We generally have little patent protection on our software. We rely upon license agreements, employment agreements, confidentiality agreements, nondisclosure agreements and similar agreements to maintain the confidentiality of our proprietary information and trade secrets. Notwithstanding these precautions, others may copy, reverse
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Due to the rapid pace of technological change, we believe our future success is likely to depend upon continued innovation, technical expertise, marketing skills and clientcustomer support and services rather than on legal protection of our intellectual property rights. However, we have in the past aggressively asserted our intellectual property rights when necessary and intend to do so in the future.
We could be subjected to claims of intellectual property infringement that could be expensive to defend.
While we do not believe that our solutions and services infringe upon the intellectual property rights of third parties, the potential for intellectual property infringement claims continually increases as the number of software patents and copyrighted and trademarked materials continues to rapidly expand. Any claim for intellectual property right infringement, even if not meritorious, could be expensive to defend. If we were held liable for infringing third party intellectual property rights, we could incur substantial damage awards, and potentially be required to cease using the technology, produce non-infringing technology or obtain a license to use such technology. Such potential liabilities or increased costs could be material to us.
If we have completed a number of acquisitions andare unable to maintain effective internal control over financial reporting, we may undertake additional acquisitionsfail to prevent or detect material misstatements in our financial statements, in which case investors may lose confidence in the future. Any failure to adequately integrate pastaccuracy and future acquisitions intocompleteness of our business could have a material adverse effect on us.
We expect that we will make additional acquisitionsare in the future.
Third party products are essential to our software.
Our software incorporates software licensed from various vendors into our proprietary software. In addition, third-party, stand-alone software is required to operate some of our proprietary software modules. The loss of the ability to use these third-party products, or ability to obtain substitute third-party software at comparable prices, could have a material adverse effect on our ability to license our software.
Our solutions may not be error-free and could result in claims of breach of contract and liabilities.
Our solutions are very complex and may not be error-free, especially when first released. Although we perform extensive testing, failure of any solution to operate in accordance with its specifications and documentation could constitute a breach of the license agreement and require us to correct the deficiency. If such deficiency is not corrected within the agreed-upon contractual limitations on liability and cannot be corrected in a timely manner, it could constitute a material breach of a contract allowing the termination thereof and possibly subjecting us to liability. Also, we sometimes indemnify our clientscustomers against third-party infringement claims. If such claims are made, even if they are without merit, they could be expensive to defend. Our license and SaaS agreements generally limit our liability arising from these types of claims, but such limits may not be enforceable in some jurisdictions or under some circumstances. A significant uninsured or under-insured judgment against us could have a material adverse impact on us.
We could be liable to third parties from the use of our solutions.
Our solutions provide access to patient information used by physicians and other medical personnel in providing medical care. The medical care provided by physicians and other medical personnel are subject to numerous medical malpractice and other claims. We attempt to limit any potential liability of ours to clientscustomers by limiting the warranties on our solutions in our agreements with our clientscustomers (i.e., healthcare providers). However, such agreements do not protect us from third-party claims by patients who may seek damages from any or all persons or entities connected to the process of delivering patient care. We maintain insurance, which provides limited protection from such claims, if such claims result in liability to us. Although no such claims have been brought against us to date regarding injuries related to the use of our solutions, such claims may be made in the future. A significant uninsured or under-insured judgment against us could have a material adverse impact on us.
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Our SaaS and support services could experience interruptions.
We provide SaaS for many clients,customers, including the storage of critical patient, financial and administrative data. In addition, we provide support services to clientscustomers through our clientcustomer support organization. We have redundancies, such as backup generators, redundant telecommunications lines and backup facilities built into our operations to prevent disruptions. However, complete failure of all generators, or impairment of all telecommunications lines or severe casualty damage to the primary building or equipment inside the primary building housing our hosting center or clientcustomer support facilities could cause a temporary disruption in operations and adversely affect clientscustomers who depend on the application hosting services. Any interruption in operations at our data center or clientcustomer support facility could cause us to lose existing clients,customers, impede our ability to obtain new clients,customers, result in revenue loss, cause potential liability to our clientscustomers, and increase our operating costs.
Our business and operations would suffer in the event of computer system failures, cyber-attacks or a deficiency in our cybersecurity. Our SaaS solutions are provided over an internet connection. Anyconnection and any breach of security or confidentiality of protected health information could expose us to significant expense and harm our reputation.
Despite the implementation of security measures, our internal computer systems, and those of third parties on which we rely, are vulnerable to damage from a variety of causes, including computer viruses, malware, intentional or accidental mistakes or errors by users with authorized access to our computer systems, natural disasters, terrorism, war, telecommunication and electrical failures, cyber-attacks or cyber-intrusions over the Internet, or attachments to emails. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusions, including by computer hackers, non-U.S. governments, extra-state actors and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased.
We provide remote SaaS solutions for clients,customers, including the storage of critical patient, financial and administrative data. We have security measures in place to prevent or detect misappropriation of protected health information. We must maintain facility and systems security measures to preserve the confidentiality of data belonging to clientscustomers, as well as their patients, that resides on computer equipment in our data center, which we handle via application hosting services, or that is otherwise in our possession. Notwithstanding efforts undertaken to protect data, it can be vulnerable to infiltration as well as unintentional lapse. If any disruption or security breach was to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, is compromised, we could face claims for contract breach, penalties and other liabilities for violation of applicable laws or regulations, significant costs for remediation and re-engineering to prevent future occurrences and serious harm to our reputation.
In the current environment, there are numerous and evolving risks to cybersecurity and privacy, including criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage, employee malfeasance and human or technological error. High-profile security breaches at other companies and in government agencies have increased in recent years, and security industry experts and government officials have warned about the risks of hackers and cyber-attacks targeting businesses such as ours. Computer hackers and others routinely attempt to breach the security of technology products, services and systems, and to fraudulently induce employees, customers, or others to disclose information or unwittingly provide access to systems or data. We can provide no assurance that our current IT systems, software, or third-party services, or any updates or upgrades thereto will be fully protected against third-party intrusions, viruses, hacker attacks, information or data theft or other similar threats.
Legislative or regulatory action in these areas is also evolving, and we may be unable to adapt our IT systems to accommodate these changes. We have experienced and expect to continue to experience sophisticated attempted cyber-attacks of our IT networks. Although none of these attempted cyber-attacks has had a material adverse impact on our operations or financial condition, we cannot guarantee that any such incidents will not have such an impact in the future.
The loss of key personnel could adversely affect our business.
Our success depends, to a significant degree, on our management, sales force and technical personnel. We must recruit, motivate and retain highly skilled managers, sales, consulting and technical personnel, including solution programmers, database specialists, consultants and system architects who have the requisite expertise in the technical environments in which our solutions operate. Competition for such technical expertise is intense. Our failure to attract and retain qualified personnel could have a material adverse effect on us.
Our future success depends upon our ability to grow, and if we are unable to manage our growth effectively, we may incur unexpected expenses and be unable to meet our clients’customers’ requirements.
We will need to expand our operations if we successfully achieve greater demand for our products and services. We cannot be certain that our systems, procedures, controls and human resources will be adequate to support expansion of our operations. Our future operating results will depend on the ability of our officers and employees to manage changing business conditions and to implement and improve our technical, administrative, financial control and reporting systems. We may not be able to expand and upgrade our systems and infrastructure to accommodate these increases. Difficulties in managing any future growth, including as a result of integrating any prior or future acquisition with our existing businesses, could cause us to incur unexpected expenses or render us unable to meet our clients’customers’ requirements, and consequently have a significant negative impact on our business, financial condition and operating results.
We may not have access to sufficient or cost-efficient capital to support our growth, execute our business plans and remain competitive in our markets.
As our operations grow and as we implement our business strategies, we expect to use both internal and external sources of capital. In addition to cash flow from normal operations, we may need additional capital in the form of debt or equity to operate and to support our growth, execute our business plans and remain competitive in our markets. We may have no or limited availability to such external capital, in which case our future prospects may be materially impaired. Furthermore, we may not be able to access external sources of capital on reasonable or favorable terms. Our business operations could be subject to both financial and operational covenants that may limit the activities we may undertake, even if we believe they would benefit our company.the Company.
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Potential disruptions in the credit markets may adversely affect our business, including the availability and cost of short-term funds for liquidity requirements and our ability to meet long-term commitments, which could adversely affect our results of operations, cash flows and financial condition.
If internally generated funds are not available from operations, we may be required to rely on the banking and credit markets to meet our financial commitments and short-term liquidity needs. Our access to funds under our revolving credit facility or pursuant to arrangements with other financial institutions is dependent on the financial institution'sinstitution’s ability to meet funding commitments. Financial institutions may not be able to meet their funding commitments if they experience shortages of capital and liquidity or if they experience high volumes of borrowing requests from other borrowers within a short period of time.
We must maintain compliance with the terms of our existing credit facilities.facilities or receive a waiver for any non-compliance. The failure to do somaintain compliance could have a material adverse effect on our ability to finance our ongoing operations and we may not be able to find an alternative lending source if a default occurs.
On August 26, 2021, the Company and its subsidiaries entered into a Creditthe Second Amended and Restated Loan and Security Agreement (the “Credit Agreement”) with Wells Fargo Bank, N.A., as administrative agent, and other lender parties thereto.Bridge Bank. Pursuant to the CreditSecond Amended and Restated Loan and Security Agreement, the lendersBridge Bank agreed to provide the Company and its subsidiaries with a $10,000,000 seniornew term loan facility in the maximum principal amount of $10,000,000. Amounts outstanding under the term loan of the Second Amended and Restated Loan and Security Agreement bear interest at a $5,000,000 revolving lineper annum rate equal to the Prime Rate (as published in The Wall Street Journal) plus 1.5%, with a Prime “floor” rate of credit3.25%. Pursuant to our primary operating subsidiary. At closing,the Second Amended and Restated Loan and Security Agreement, the Company repaid indebtedness under its prior credit facility using approximately $7,400,000 ofdiscontinued the proceeds provided by the term loan. The priorexisting $3,000,000 revolving credit facility with Fifth Third Bank was terminated concurrent withBridge Bank. At the entrytime of the Credit Agreement. discontinuance, there was no outstanding balance on the revolving credit facility.
The CreditSecond Amended and Restated Loan and Security Agreement includes customary financial covenants, includinghas a five-year term, and the requirements thatmaximum principal amount was advanced in a single-cash advance on or about the closing date. Interest accrued under the Second Amended and Restated Loan and Security Agreement is due monthly, and the Company maintain certain minimum liquidity and achieve certain minimum EBITDA levels.
If we do not maintain compliance with all of the continuing covenants and other terms and conditions of theour existing credit facilityfacilities or secure a waiver for any non-compliance, we could be required to repay outstanding borrowings on an accelerated
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Economic conditions in the United StatesU.S. and globally may have significant effects on our clientscustomers and suppliers that could result in material adverse effects on our business, operating results and stock price.
Economic conditions in the United StatesU.S. and globally could deteriorate and the concern thatcause the worldwide economy mayto enter into a prolonged stagnant period that could materially adversely affect our clients'customers’ access to capital or willingness to spend capital on our solutions and services or their levels of cash liquidity with which to pay for solutions that they will order or have already ordered from us. Continued challengingIn addition, the ongoing conflict between Russia and Ukraine could lead to disruption, instability and volatility in global markets and industries that could negatively impact our operations. The U.S. government, and other governments in jurisdictions in which we operate, have imposed severe sanctions and export controls against Russia and Russian interests and threatened additional sanctions and controls. The impact of these measures, as well as potential responses to them by Russia, is currently unknown and they could adversely affect our business, partners or customers. Challenging economic conditions also would likely negatively impact our business, which could result in: (1) reduced demand for our solutions and services; (2) increased price competition for our solutions and services; (3) increased risk of collectability of cash from our clients;customers; (4) increased risk in potential reserves for doubtful accounts and write-offs of accounts receivable; (5) reduced revenues; and (6) higher operating costs as a percentage of revenues.
All of the foregoing potential consequences of the currenta deterioration of economic conditions are difficult to forecast and mitigate. As a consequence, our operating results for a particular period are difficult to predict, and, therefore, prior results are not necessarily indicative of future results. Any of the foregoing effects could have a material adverse effect on our business, results of operations, and financial condition and could adversely affect the market price of our common stock and other securities.
The variability of our quarterly operating results can be significant.
Our operating results have fluctuated from quarter-to-quarter in the past, and we may experience continued fluctuations in the future. Future revenues and operating results may vary significantly from quarter-to-quarter as a result of a number of factors, many of which are outside of our control. These factors include: the relatively large size of clientcustomer agreements; unpredictability in the number and timing of system salessoftware licenses and sales of application hosting services; length of the sales cycle; delays in installations; changes in client'scustomers’ financial conditionconditions or budgets; increased competition; the development and introduction of new products and services; the loss of significant clientscustomers or remarketing partners; changes in government regulations, particularly as they relate to the healthcare industry; the size and growth of the overall healthcare information technology markets; any liability and other claims that may be asserted against us; our ability to attract and retain qualified personnel; national and local general economic and market conditions; and other factors discussed in this reportReport and our other filings with the SEC.
The preparation of our financial statements requires the use of estimates that may vary from actual results.
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make significant estimates that affect the financial statements. One of our most critical estimates is the capitalization of software development costs. Due to the inherent nature of these estimates, we may be required to significantly increase or decrease such estimates upon determination of the actual results. Any required adjustments could have a material adverse effect on us and on theour results of operations, and could result in the restatement of our prior period financial statements.operations.
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Failure to improve and maintain the quality of internal control over financial reporting and disclosure controls and procedures or other lapses in compliance could materially and adversely affect our ability to provide timely and accurate financial information about us or subject us to potential liability.
In connection with the preparation of the consolidated financial statements for each of our fiscal years, our management conducts a review of our internal control over financial reporting. We are also required to maintain effective disclosure controls and procedures. Any failure to maintain adequate controls or to adequately implement required new or improved controls could harm operating results, or cause failure to meet reporting obligations in a timely and accurate manner.
Risks Relating to an Investment in Our Securities
The market price of our common stock is likely to be highly volatile as the stock market in general can be highly volatile.
The public trading of our common stock is based on many factors that could cause fluctuation in the price of our common stock. These factors may include, but are not limited to:
| ● | General economic and market conditions; | |
| ● | Actual or anticipated variations in annual or quarterly operating results; | |
| ● | Lack of or negative research coverage by securities analysts; | |
| ● | Conditions or trends in the healthcare information technology industry; | |
| ● | Changes in the market valuations of other companies in our industry; | |
| ● | Announcements by us or our competitors of significant acquisitions, strategic partnerships, divestitures, joint ventures or other strategic initiatives; | |
| ● | Announced or anticipated capital commitments; | |
| ● | Ability to maintain listing of our common stock on Nasdaq; | |
| ● | Additions or departures of key personnel; and | |
| ● | Sales and repurchases of our common stock by us, our officers and directors or our significant stockholders, if any. |
Most of these factors are beyond our control. Further, as a result of our relatively small public float, our common stock may be less liquid, and the trading price for our common stock may be more affected by relatively small volumes of trading than is the case for the common stock of companies with a broader public ownership. These factors may cause the market price of our common stock to decline, regardless of our operating performance or financial condition.
If equity research analysts do not publish research reports about our business or if they issue unfavorable commentary or downgrade our common stock, the price of our common stock could decline.
The trading market for our common stock may rely in part on the research and reports that equity research analysts publish about our business and us. We do not control the opinions of these analysts. The price of our stock could decline if one or more equity analysts downgrade our stock or if those analysts issue other unfavorable commentary or cease publishing reports about our business or us. Furthermore, if no equity research analysts conduct research or publish reports about our business and us, the market price of our common stock could decline.
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All of our debt obligations our existing preferred stock and any preferred stock that we may issue in the future will have priority over our common stock with respect to payment in the event of a bankruptcy, liquidation, dissolution or winding up.
In any bankruptcy, liquidation, dissolution or winding up of the Company, our shares of common stock would rank in right of payment or distribution below all debt claims against us and all of our outstanding shares of preferred stock, if any. As a result, holders of our shares of common stock will not be entitled to receive any payment or other distribution of assets in the event of a bankruptcy or upon a liquidation or dissolution until after all of our obligations to our debt holders and holders of preferred stock have been satisfied. Accordingly, holders of our common stock may lose their entire investment in the event of a bankruptcy, liquidation, dissolution or winding up of our company.the Company. Similarly, holders of our preferred stock would rank junior to our debt holders and creditors in the event of a bankruptcy, liquidation, dissolution or winding up of the Company.
There may be future sales or other dilution of our equity, which may adversely affect the market price of our common stock.
We are generally not restricted from issuing in public or private offerings additional shares of common stock or preferred stock, (except for certain restrictions under the terms of our outstanding preferred stock), and other securities that are convertible into or exchangeable for, or that represent a right to receive, common stock or preferred stock or any substantially similar securities. Such offerings represent the potential for a significant increase in the number of outstanding shares of our common stock. The market price of our common stock could decline as a result of sales of common stock, or preferred stock or similar securities in the market made after an offering or the perception that such sales could occur.
The issuance of an additional series of preferred stock could adversely affect holders of shares of our common stock, which may negatively impact your investment.
Our Board of Directors is authorized to issue classes or series of preferred stock without any action on the part of the stockholders. The Board of Directors also has the power, without stockholder approval, to set the terms of any such classes or series of preferred stock that may be issued, including rights and preferences over the shares of common stock with respect to dividends or upon our dissolution, winding-up andor liquidation, and other terms. If we issue preferred stock in the future that has a preference over the shares of our common stock with respect to the payment of dividends or upon our dissolution, winding up andor liquidation, or if we issue preferred stock with voting rights that dilute the voting power of the shares of our common stock, the rights of the holders of shares of our common stock or the market price of our common stock could be adversely affected.
As of January 31, 2016,2022, we had 2,949,995no shares of preferred stock outstanding. For additional information regarding the terms, rights and preferences of such stock, see Note 14 to our consolidated financial statements included in Part II, Item 8 herein and our other SEC filings.
We do not currently intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend solely on appreciation in the price of our common stock.
We have never declared or paid any cash dividends on our common stock and do not currently intend to do so for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth. Therefore, you are not likely to receive any dividends on your common stock for the foreseeable future and the success of an investment in shares of our common stock will depend upon any future appreciation in its value. The trading price of our common stock could decline and you could lose all or part of your investment.
Sales of shares of our common stock or securities convertible into our common stock in the public market may cause the market price of our common stock to fall.
The issuance of shares of our common stock or securities convertible into our common stock in an offering from time to time could have the effect of depressing the market price for shares of our common stock. In addition, because our common stock is thinly traded, resales of shares of our common stock by our largest stockholders or insiders could have the effect of depressing market prices for our common stock.
| 18 |
If we are unable to maintain compliance with Nasdaq listing requirements, our stock could be delisted, and the trading price, volume and marketability of our stock could be adversely affected.
Our common stock is listed on Nasdaq. We cannot assure you that we will be able to maintain compliance with Nasdaq’s current listing standards, or that Nasdaq will not implement additional listing standards with which we will be unable to comply. Failure to maintain compliance with Nasdaq listing requirements could result in the delisting of our shares from Nasdaq, which could have a material adverse effect on the trading price, volume and marketability of our common stock. Furthermore, a delisting could adversely affect our ability to issue additional securities and obtain additional financing in the future or result in a loss of confidence by investors or employees.
Note Regarding Risk Factors
The risk factors presented above are all of the ones that we currently consider material. However, they are not the only ones facing our company.the Company. Additional risks not presently known to us, or which we currently consider immaterial, may also adversely affect us. There may be risks that a particular investor views differently from us, and our analysis might be wrong. If any of the risks that we face actually occur, our business, financial condition and operating results could be materially adversely affected and could differ materially from any possible results suggested by any forward-looking statements that we have made or might make. In such case, the market price of our common stock or other securities could decline and you could lose all or part of your investment.
Item 1B.
Unresolved Staff CommentsNone.
Item 2.
PropertiesIn March 2020, the Company moved its principal offices are locatedto a subleased office space at 1230 Peachtree Street, NE,11800 Amber Park Drive, Suite 600, Atlanta, GA 30309.125, Alpharetta, Georgia 30009. The Company leases all of its properties. For fiscal 2015,office space totals 7,409 square feet and the aggregate rental expensesublease expires on March 31, 2023. In October 2021, we subleased this space to a third party for the Company's leased propertiesremaining lease period.
On August 16, 2021, contemporaneous with the acquisition of Avelead, the Company assumed a lease of office space at 1172 Satellite Boulevard NW, Office Suite 100, Suwannee, Georgia 30024. The lease expires on February 28, 2022. The lease was $1,220,000.renewed in February 2022 for one year at substantially the same terms. The following table provides information regarding each property currently leasedtenant of the lease is an entity controlled by the Company.
Prior to occupying the subleased office space located in Alpharetta, Georgia, the Company occupied shared office space under a membership agreement which provides for membership fees based on the number of contracted seats.
The Company believes that its facilities arespace is adequate for its current needs and that suitable alternative space is available to accommodate expansion of the Company’s operations.
Item 3.
Legal ProceedingsWe are, from time to time, a party to various legal proceedings and claims, which arise in the ordinary course of business. Other than the matter described under Note 13 to our consolidated financial statements included in Part II, Item 8 herein, weWe are not aware of any legal matters that could have a material adverse effect on our consolidated results of operations, financial position or cash flows.
Item 4.
Mine Safety DisclosuresNot applicable.
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PART II
Item 5.
Market For Registrant’s Common Equity, Related Stockholder MattersThe Company’s common stock trades on Thethe NASDAQ StockCapital Market (“NASDAQ”) under the symbol STRM. The table below sets forth the high and low sales prices for the Company’s common stock for each of the quarters in fiscal years 2015 and 2014, as reported by NASDAQ. The closing price of the Company’s common stock on April 15, 2016 was $1.42 per share as reported by NASDAQ.
| Fiscal Year 2015 | High | Low | |||||
4th Quarter (November 1, 2015 through January 31, 2016) | $ | 2.28 | $ | 1.12 | |||
3rd Quarter (August 1, 2015 through October 31, 2015) | 3.50 | 1.91 | |||||
2nd Quarter (May 1, 2015 through July 31, 2015) | 2.98 | 1.02 | |||||
1st Quarter (February 1, 2015 through April 30, 2015) | 4.25 | 2.08 | |||||
| Fiscal Year 2014 | High | Low | |||||
4th Quarter (November 1, 2014 through January 31, 2015) | $ | 4.38 | $ | 3.25 | |||
3rd Quarter (August 1, 2014 through October 31, 2014) | 5.01 | 3.22 | |||||
2nd Quarter (May 1, 2014 through July 31, 2014) | 5.77 | 4.17 | |||||
1st Quarter (February 1, 2014 through April 30, 2014) | 6.75 | 4.70 | |||||
According to the Company’s stock transfer agent’s records, the Company had 217228 stockholders of record as of April 15, 2016.18, 2022. Because brokers and other institutions on behalf of stockholders hold many of such shares, the Company is unable to determine with complete accuracy the current total number of stockholders represented by these record holders. The Company estimates that it has approximately 3,200249 stockholders, based on information provided by the Company’s stock transfer agent from its search of individual participants in security position listings.
The Company has notnever declared or paid any cash dividends on its common stock sinceand does not currently intend to do so for the foreseeable future. The Company currently intends to invest its inceptionfuture earnings, if any, to fund its growth.
For the fiscal year ended January 31, 2022, we issued an aggregate of 205,374 shares of common stock to 180 Consulting (as defined below) as compensation for services provided pursuant to the Master Services Agreement, effective March 19, 2020, by and dividend payments are prohibited or restricted under financing agreements. For more informationbetween the Company and 180 Consulting and related statements of work. The shares were issued in a series of private placements in reliance on the restrictionsexemption from registration available under Section 4(a)(2) of the Securities Act, including Regulation D promulgated thereunder and the certificates representing such shares have a legend imprinted on dividends, see also “Liquiditythem stating that the shares have not been registered under the Securities Act and Capital Resources” in Part II, Item 7, “Management’s Discussioncannot be transferred until properly registered under the Securities Act or pursuant to an exemption from such registration.
180 Consulting has earned, cumulatively, through the Master Services Agreement, 521,077 shares of common stock through January 31, 2022. 78,031 shares of common stock were earned but not issued as of the end of our fiscal year ended January 31, 2022. In May 2021, the Company filed a Registration Statement on Form S-3 to register 248,424 shares of stock that were previously issued to 180 Consulting pursuant to Rule 416 of the Securities Act of 1933. See Note 12 – Commitments and Analysis of Financial Condition and Results of Operations”, and Note 6Contingencies to our consolidated financial statements included in Part II, Item 8, herein.
The following table sets forth information with respect to our repurchases of common stock during the three months ended January 31, 2016, we did not repurchase any shares of the Company’s common stock.
| Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs | |||||||||||||
| November 1 - November 30 | — | — | — | — | ||||||||||||
| December 1 - December 31 | 39,016 | $ | 1.49 | — | — | |||||||||||
| January 1 - January 31 | 20,891 | 1.37 | — | — | ||||||||||||
| Total | 59,907 | $ | 1.45 | — | — | |||||||||||
| (1) | Amount represents shares surrendered by employees to satisfy tax withholding obligations resulting from restricted stock that vested during the three months ended January 31, 2022. |
Item 6. S
.
Item 10 of Regulation S-K, the Company is not required to provide this information.
Executive Overview
The Company has determined it could best assist healthcare providers in improving their revenue cycle management by providing solutions and services in the middle portion of the revenue cycle, that is, the revenue cycle operations from initial charge capture to bill drop. We continue to make decisions supporting our focus in the middle of the revenue cycle. Our healthcare provider customers are acute-care hospitals and related clinics.
In late fiscal 2015, management focused internally on2017, the Company introduced a numbernew product for the middle of key areas that we believe will have a positive effect on our future performance, and externally on broadening our reachthe revenue cycle, eValuator. This product has significant implications to the market. Sometiming and accuracy of these initiatives were communicatedour customers’ invoicing through rules that are created to review the accuracy of invoicing prior to the physical invoices being released. This is a notable change to existing processes of our customers. The development activities continued through the end of fiscal 2018. There are continued development efforts planned for eValuator in fiscal 2022, generally, in the Company’s three primary objectivessame levels as fiscal 2021.
In August 2021, the Company acquired Avelead, a national provider of consulting services and software solutions focused on the middle of the revenue cycle. Avelead’s flagship RevID software solution is a unique automated charge reconciliation tool that identifies discrepancies between a provider’s clinical and billing departments, ensuring that every medical service is tracked, accounted for, fiscal 2015 which were: grow sales, both inside and outside our existing client base; complete the links between ourultimately accurately billed, thereby reducing revenue leakage. RevID’s 24-hour charge reconciliation is a significant improvement over legacy charge reconciliation methods in use today. There are significant development activities planned for RevID, and other Avelead solutions in fiscal 2022.
With the Looking Glass® platform; and improve our professional services. Some, such as reduce operating costs, generate incremental cash flow, reduce our levelfocus on the middle of bank debt and change audit firms were not communicated as explicitly but were important areas of achievement for our Company nonetheless.
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By narrowing our focus to the front-endmiddle of patient engagementthe revenue cycle, we believe there is a distinct and compelling value proposition that can help us attract more customers. By innovating new technologies, we have been able to be more proactiveexpand our target markets beyond just hospitals and into outpatient centers, clinics and physician practices. Our revenue cycle solutions like eValuator, CDI, Abstracting, RevID, and Avelead Compare are competitive in managing their patient population. They wantthe market and enabled us to lower their patientengage eight significant new customers in fiscal 2021. These eight new customers are some of the largest names in healthcare as we have focused our salesforce on industry-leading customers whose processes are often duplicated by smaller facilities.
Acquisitions and Divestitures:
The Company divested its ECM Assets on February 24, 2020. As discussed above, such divestiture is consistent with the Company’s efforts to focus on the middle of the revenue cycle and its pre-bill technology, eValuator. Management believes that the revenue cycle technology platforms have higher growth opportunities than its legacy products, including the ECM Assets. The Company accounted for the sale of the ECM Assets as a sale of assets. See Note 13 – Discontinued Operations to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data”.
On August 16, 2021, the Company completed an acquisition of Avelead, a recognized leader in providing solutions and services expenses and to improve financial clearance and point of sale collection execution before a patient receives care. Our Patient Engagement solutions enable us to deepen our front-end patient access offerings that are critically important to the process of assisting our clients in managing the risk inherent in their Accountable Care Organization relationships.
Macro-Economic Conditions:
Regardless of quality variation. Clients can also use Looking Glass® Clinical Analytics to predictively model the population level impactsstate of a change in clinical practice.
Near the end of the Company’s fiscal year ended January 31, 2020, the COVID-19 pandemic emerged globally, and it continued through the Company’s fiscal year ended January 31, 2022. The pandemic, and its attendant economic damage, has had an adverse impact on our revenue and may continue to adversely affect our business, results of operations and financial condition. The ultimate extent of its impact on us will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and actions taken to contain COVID-19 or treat its impact among others. These and other potential impacts of COVID-19 could therefore continue to materially and adversely affect our business, results of operations and financial condition.
In addition, the U.S. government, and other governments in jurisdictions in which we operate, have imposed severe sanctions and export controls against Russia and Russian interests and threatened additional sanctions and controls. The impact of these measures, as well as potential responses to them by Russia, is currently unknown and they could adversely affect our business, partners or customers.
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Results of Operations
Statements of Operations for the fiscal years ended January 31 (in thousands):
| 2016 | 2015 | $ Change | % Change | |||||||||||
| System sales | $ | 2,946 | $ | 1,215 | $ | 1,731 | 142 | % | ||||||
| Professional services | 2,212 | 2,580 | (368 | ) | (14 | )% | ||||||||
| Maintenance and support | 15,145 | 16,157 | (1,012 | ) | (6 | )% | ||||||||
| Software as a service | 8,011 | 7,673 | 338 | 4 | % | |||||||||
| Total revenues | 28,314 | 27,625 | 689 | 2 | % | |||||||||
| Cost of sales | 11,401 | 13,004 | (1,603 | ) | (12 | )% | ||||||||
| Selling, general and administrative | 13,443 | 16,226 | (2,783 | ) | (17 | )% | ||||||||
| Product research and development | 9,093 | 9,756 | (663 | ) | (7 | )% | ||||||||
| Impairment of intangible assets | — | 1,952 | (1,952 | ) | (100 | )% | ||||||||
| Total operating expenses | 33,937 | 40,938 | (7,001 | ) | (17 | )% | ||||||||
| Operating loss | (5,623 | ) | (13,313 | ) | 7,690 | (58 | )% | |||||||
| Other income (expense), net | 1,340 | 415 | 925 | 223 | % | |||||||||
| Income tax benefit | (8 | ) | 887 | (895 | ) | (101 | )% | |||||||
| Net loss | $ | (4,290 | ) | $ | (12,011 | ) | $ | 7,721 | (64 | )% | ||||
| Adjusted EBITDA(1) | $ | 2,761 | $ | (987 | ) | $ | 3,748 | 380 | % | |||||
| 2022 (2) | 2021 | $ Change | % Change | |||||||||||||
| Software licenses | $ | 1,057 | $ | 590 | 467 | 79 | % | |||||||||
| Professional services | 2,026 | 618 | 1,408 | 228 | % | |||||||||||
| Audit services | 1,896 | 1,891 | 5 | 0 | % | |||||||||||
| Maintenance and support | 4,323 | 4,586 | (263 | ) | (6 | )% | ||||||||||
| Software as a service | 8,077 | 3,661 | 4,416 | 121 | % | |||||||||||
| Total revenues | 17,379 | 11,346 | 6,033 | 53 | % | |||||||||||
| Cost of sales | 8,577 | 5,689 | 2,888 | 51 | % | |||||||||||
| Selling, general and administrative | 11,931 | 8,565 | 3,366 | 39 | % | |||||||||||
| Research and development | 4,782 | 2,933 | 1,849 | 63 | % | |||||||||||
| Non-routine costs | 2,856 | — | 2,856 | 100 | % | |||||||||||
| Loss on exit of operating lease | — | 105 | (105 | ) | (100 | )% | ||||||||||
| Total operating expenses | 28,146 | 17,292 | 10,854 | 63 | % | |||||||||||
| Operating loss | (10,767 | ) | (5,946 | ) | (4,821 | ) | 81 | % | ||||||||
| Other income (expense), net | 3,959 | (113 | ) | 4,072 | (3,604 | )% | ||||||||||
| Income tax (expense) benefit | (109 | ) | 1,260 | (1,369 | ) | (109 | )% | |||||||||
| Loss from continuing operations | $ | (6,917 | ) | $ | (4,799 | ) | (2,118 | ) | 44 | % | ||||||
| Adjusted EBITDA(1) | $ | (2,037 | ) | $ | (1,893 | ) | (143 | ) | 8 | % | ||||||
| (1) | |
| Non-GAAP measure meaning net earnings (loss) before net interest expense, tax expense (benefit), depreciation, amortization, stock-based compensation expense, transactional and other expenses that do not relate to our core operations. See “Use of Non-GAAP Financial Measures” below for additional information and reconciliation. |
| (2) | We acquired all of the equity interests of Avelead on August 16, 2021. All of the revenue and expenses associated with Avelead are included from that date to the end of the Company’s fiscal year ended January 31, 2022. |
The following table sets forth, for each fiscal year indicated, certain operating data as percentages of total revenues:
Statements of Operations(1)
| Fiscal Year | |||||
| 2015 | 2014 | ||||
| System sales | 10.4 | % | 4.4 | % | |
| Professional services | 7.8 | 9.3 | |||
| Maintenance and support | 53.5 | 58.5 | |||
| Software as a service | 28.3 | 27.8 | |||
| Total revenues | 100.0 | % | 100.0 | % | |
| Cost of sales | 40.3 | 47.1 | |||
| Selling, general and administrative | 47.5 | 58.7 | |||
| Product research and development | 32.1 | 35.3 | |||
| Impairment of intangible assets | — | 7.1 | |||
| Total operating expenses | 119.9 | 148.2 | |||
| Operating loss | (19.9 | ) | (48.2 | ) | |
| Other income (expense), net | 4.7 | 1.5 | |||
| Income tax benefit | — | 3.2 | |||
| Net loss | (15.2 | )% | (43.5 | )% | |
| Cost of Sales to Revenues ratio, by revenue stream: | |||||
| Systems sales | 94.3 | % | 291.1 | % | |
| Services, maintenance and support | 35.6 | % | 34.9 | % | |
| Software as a service | 30.5 | % | 38.1 | % | |
| Fiscal Year | ||||||||
| 2021 | 2020 | |||||||
| Software licenses | 6.1 | % | 5.2 | % | ||||
| Professional services | 11.7 | 5.4 | ||||||
| Audit services | 10.9 | 16.7 | ||||||
| Maintenance and support | 24.9 | 40.4 | ||||||
| Software as a service | 46.5 | 32.3 | ||||||
| Total revenues | 100.0 | % | 100.0 | % | ||||
| Cost of sales | 49.4 | % | 50.1 | % | ||||
| Selling, general and administrative | 68.7 | 75.5 | ||||||
| Research and development | 27.5 | 25.9 | ||||||
| Non-Routine costs | 16.4 | — | ||||||
| Loss on exit of operating lease | — | 0.9 | ||||||
| Total operating expenses | 162.0 | % | 152.4 | % | ||||
| Operating loss | (62.0 | )% | (52.4 | )% | ||||
| Other expense, net | 22.8 | (1.0 | ) | |||||
| Income tax (expense) benefit | (0.6 | ) | 11.1 | |||||
| Loss from continuing operations | (39.8 | )% | (42.3 | )% | ||||
| Cost of Sales to Revenues ratio, by revenue stream: | ||||||||
| Software licenses | 45.9 | % | 84.9 | % | ||||
| Services, maintenance and support | 56.7 | % | 46.3 | % | ||||
| Software as a service | 42.3 | % | 52.1 | % | ||||
| (1) | |
| Because a significant percentage of the operating costs are incurred at levels that are not necessarily correlated with revenue levels, a variation in the timing of |
| Fiscal Year | 2015 to 2014 Change | |||||||||||||
| (in thousands): | 2015 | 2014 | $ | % | ||||||||||
| System Sales: | ||||||||||||||
| Proprietary software | $ | 2,927 | $ | 1,164 | $ | 1,763 | 151 | % | ||||||
| Hardware and third-party software | 19 | 51 | (32 | ) | (63 | )% | ||||||||
| Professional services | 2,212 | 2,580 | (368 | ) | (14 | )% | ||||||||
| Maintenance and support | 15,145 | 16,157 | (1,012 | ) | (6 | )% | ||||||||
| Software as a service | 8,011 | 7,673 | 338 | 4 | % | |||||||||
| Total Revenues | $ | 28,314 | $ | 27,625 | $ | 689 | 2 | % | ||||||
| 22 |
Comparison of Fiscal 2021 with 2020
Revenues
| Fiscal Year | 2021 to 2020 Change | |||||||||||||||
| (in thousands): | 2021 | 2020 | $ | % | ||||||||||||
| Software licenses: | ||||||||||||||||
| Proprietary software - perpetual license | $ | 582 | $ | 437 | $ | 145 | 33 | % | ||||||||
| Term license | 475 | 153 | 322 | 210 | % | |||||||||||
| Professional services | 2,026 | 618 | 1,408 | 228 | % | |||||||||||
| Audit services | 1,896 | 1,891 | 5 | 0 | % | |||||||||||
| Maintenance and support | 4,323 | 4,586 | (263 | ) | (6 | )% | ||||||||||
| Software as a service | 8,077 | 3,661 | 4,416 | 121 | % | |||||||||||
| Total Revenues | $ | 17,379 | $ | 11,346 | $ | 6,033 | 53 | % | ||||||||
Proprietary software includes revenue from perpetual and term software license sales.licenses — Proprietary software revenues recognized in fiscal
Professional services
— Revenues from professional services in fiscalAudit services — Audit services revenue for fiscal 2021, as compared to fiscal 2020 revenue, remained flat. Looking ahead to fiscal 2022, the functionality ofCompany continues to see demand for on-shore, technically proficient auditors in the software,marketplace. The Company believes it has a competitive advantage utilizing eValuator for which revenues are deferred and recognized ratably over the term of the customer relationship. In addition, fluctuations over periods result from the nature of recognizingthese professional services. The Company expects modest growth for its audit services revenues once certain milestones are met.
Maintenance and support
— Revenues from maintenance and support in fiscal| 23 |
Software as a service (SaaS) — Revenues from SaaS in fiscal 20152021 were $8,011,000,$8,077,000, as compared to $7,673,000$3,661,000 in fiscal 2014. 2020. The year-to-yearincreases in SaaS revenue in fiscal 2021 include $2,790,000 of Avelead SaaS revenue recorded since the date of acquisition. The remaining increase in fiscal 2021 revenue was primarily attributable to go-livesgrowth associated with the Company’s eValuator product. The Company’s eValuator product had five significant sales during fiscal 2020 that occurred during the 2015resulted in full year revenue for fiscal 2021 compared to partial year which initiated revenue recognition.
Cost of Sales
| Fiscal Year | 2015 to 2014 Change | |||||||||||||
| (in thousands): | 2015 | 2014 | $ | % | ||||||||||
| Cost of system sales | $ | 2,778 | $ | 3,536 | $ | (758 | ) | (21 | )% | |||||
| Cost of professional services | 3,144 | 3,459 | (315 | ) | (9 | )% | ||||||||
| Cost of maintenance and support | 3,037 | 3,088 | (51 | ) | (2 | )% | ||||||||
| Cost of software as a service | 2,442 | 2,920 | (478 | ) | (16 | )% | ||||||||
| Total cost of sales | $ | 11,401 | $ | 13,003 | $ | (1,602 | ) | (12 | )% | |||||
| Fiscal Year | 2021 to 2020 Change | |||||||||||||||
| (in thousands): | 2021 | 2020 | $ | % | ||||||||||||
| Cost of software licenses | $ | 485 | $ | 501 | $ | (16 | ) | (3 | )% | |||||||
| Cost of professional services | 2,782 | 1,040 | 1,742 | 168 | % | |||||||||||
| Cost of audit services | 1,559 | 1,558 | 1 | 0 | % | |||||||||||
| Cost of maintenance and support | 334 | 684 | (350 | ) | (51 | )% | ||||||||||
| Cost of software as a service | 3,417 | 1,906 | 1,511 | 79 | % | |||||||||||
| Total cost of sales | $ | 8,577 | $ | 5,689 | $ | 2,888 | 51 | % | ||||||||
Total cost of system sales includes personnel directly affiliated with earning the revenue, amortization and impairment of capitalized software expenditures, and royalties on third-party licensing of products used by the Company to deliver its solutions and theservices. The increase in total cost of third-party hardwaresales includes $2,563,000 of Avelead cost of sales recorded since the date of acquisition. We incurred total amortization expense on internally developed software of $2,173,000 and software. $1,662,000 in fiscal 2021 and fiscal 2020, respectively.
Cost of system sales, as a percentagesoftware licenses consists of system sales, variescosts associated with amortization of capitalized software costs for our CDI & Abstracting Solutions. The change from period-to-period depending on hardware and software configurations of the systems sold. The decrease in expense in fiscal 2015 was primarily2020 to fiscal 2021 remained relatively flat due to a reduction inlower capitalization rates for these software amortization expense. We incurred $2,748,000 and $3,352,000 in overall software amortization expense in fiscal
The cost of professional services includes compensation and benefits for personnel and related expenses. The decreaseincrease in cost of professional services for fiscal 2021 includes $1,517,000 related to Avelead Consulting since the date of acquisition. The remaining increase is attributable to an increase in employee costs related to compensation and benefits.
The cost of audit services includes compensation and benefits for audit services personnel, and related expenses. These costs remained consistent, similar to revenue, from fiscal 20142020 to 2015 was primarily due to the reduction in independent contractors and personnel expenses, as well as the increase in professional services components that are essential to the functionality of the software, for which direct costs are deferred and recognized ratably over the associated revenue recognition term.
The cost of maintenance and support includes compensation and benefits for clientcustomer support personnel and thepersonnel. Total cost of third-party maintenance contracts.and support for fiscal 2021 includes $40,000 related to Avelead since the date of acquisition. The addition of expense from the Avelead acquisition was offset by a decrease in cost of maintenance and support from fiscal 20142020 to 2015fiscal 2021 resulting from a reduction of salary and salary related expenses for employees that were terminated or reassigned to other products. The Company was primarily dueable to the reduction in support personnel.
The cost of SaaS is relatively fixed but subjectsolutions consists of costs (i) associated with amortization of capitalized software costs for our eValuator, Financial Management, Avelead RevID and Avelead Compare Solutions, (ii) royalties payable to some fluctuationthird-parties for use of their coding related content, and (iii) personnel and network related expenses to provision the goods and services it requires.application for each customer. The decrease was primarilyincrease in cost of SaaS for fiscal 2021 includes $1,006,000 related to reduced personnel and rent expense dueAvelead since the date of acquisition. The number of eValuator projects placed into service in fiscal 2021 compared to fiscal 2020, in addition to the closureincreased investment in eValuator during fiscal 2021, resulted in an increase in related amortization expense of our Cincinnati, OH office.$195,000. The royalty and network related agreements are becoming variable as the cost is derived by attributes of the customer’s accessing the system. The royalties payable to third parties increased by $247,000 for fiscal 2021 compared to fiscal 2020. The growth in royalties payable is directly attributable to new customers beginning to use the system and triggering fees owed to the third-party coding content providers. The remaining year over year increase was driven by personnel related and infrastructure related expenses. The Company invested in additional personnel to support SaaS solutions as the customer base has been expanding. The Company anticipates the costs in these categories will continue to rise in fiscal 2022 as the Company continues to invest in eValuator and as new customers begin to use the system.
| 24 |
Selling, General and Administrative Expense
| Fiscal Year | 2015 to 2014 Change | |||||||||||||
| (in thousands): | 2015 | 2014 | $ | % | ||||||||||
| General and administrative expenses | $ | 9,011 | $ | 11,799 | $ | (2,788 | ) | (24 | )% | |||||
| Sales and marketing expenses | 4,432 | 4,283 | 149 | 3 | % | |||||||||
| Total selling, general, and administrative | $ | 13,443 | $ | 16,082 | $ | (2,639 | ) | (16 | )% | |||||
| Fiscal Year | 2021 to 2020 Change | |||||||||||||||
| (in thousands): | 2021 | 2020 | $ | % | ||||||||||||
| General and administrative expenses | $ | 7,896 | $ | 5,550 | $ | 2,346 | 42 | % | ||||||||
| Sales and marketing expenses | 4,035 | 3,015 | 1,020 | 34 | % | |||||||||||
| Total selling, general, and administrative expense | $ | 11,931 | $ | 8,565 | $ | 3,366 | 39 | % | ||||||||
General and administrative expenses consist primarily of compensation and related benefits, and reimbursable travel and livingentertainment expenses related to the Company’sour executive and administrative staff, general corporate expenses, amortization of
Sales and marketing expenses consist primarily of compensation and related benefits and reimbursable travel and livingentertainment expenses related to the Company’sour sales and marketing staff, as well as advertising and marketing expenses, including trade shows and similar salesshows. Sales and marketing expenses.expenses for fiscal 2021 increased by approximately $647,000, as compared to fiscal 2020, due to the Avelead acquisition. The increase in sales and marketing expense in fiscal 2015 over 2014 reflectsremaining increases are primarily due to an increase in total compensation forsalaries and benefits associated with the Company’s expansion and upgrade of its direct and indirect sales staff.
Research and Development
| Fiscal Year | 2015 to 2014 Change | |||||||||||||
| (in thousands): | 2015 | 2014 | $ | % | ||||||||||
| Research and development expense | $ | 9,093 | $ | 9,756 | $ | (663 | ) | (7 | )% | |||||
| Capitalized software development cost | — | 620 | (620 | ) | (100 | )% | ||||||||
| Total research and development cost | $ | 9,093 | $ | 10,376 | $ | (1,283 | ) | (12 | )% | |||||
| Fiscal Year | 2021 to 2020 Change | |||||||||||||||
| (in thousands): | 2021 | 2020 | $ | % | ||||||||||||
| Research and development expense | $ | 4,782 | $ | 2,933 | $ | 1,849 | 63 | % | ||||||||
| Plus: Capitalized research and development cost | 1,431 | 1,825 | (394 | ) | (22 | )% | ||||||||||
| Total research and development cost | $ | 6,213 | $ | 4,758 | $ | 1,455 | 31 | % | ||||||||
Research and development expenses consist primarily of compensation and related benefits, the use of independent contractors for specific near-term development projects and an allocated portion of general overhead costs, including occupancy.occupancy costs, if material. Total research and development costs for fiscal 2021 include $865,000 related to Avelead since the date of acquisition. The decreaseremaining increase was related to increased spend with our development partner. The Company continues to focus on and be more efficient in research and development activities on those products with its highest growth prospects, primarily eValuator. The Company expects fiscal 2022 total research and development cost fromspend to continue at approximately the same level as fiscal 2014 to 2015 was primarily due to a reduction in development staffing. Our development efforts shifted to solutions involving development costs that are not capitalized due to rapid release cycles. Research and development expenses in2021. For fiscal 2015 and 2014,2021, as a percentage of revenues,revenue, total research and development costs were 32%36%. In fiscal 2021, the Company was awarded $39,000 from the State of Georgia for its annual research and 35%, respectively.development tax credit. At the end of fiscal 2021, the cumulative balance of unused research and development credits was $125,000. These research and development tax credits can be applied to current Georgia payroll taxes due. The fiscal 2022 and future research and development tax credits are expected to be higher than fiscal 2021 due to the acquisition of Avelead.
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Non-Routine Costs
| Fiscal Year | 2021 to 2020 Change | |||||||||||||||
| (in thousands): | 2021 | 2020 | $ | % | ||||||||||||
| Non-routine costs | $ | 2,856 | $ | — | $ | 2,856 | 100 | % | ||||||||
Refer to Note 2 – Summary of intangible assets
| Fiscal Year | 2015 to 2014 Change | |||||||||||||
| (in thousands): | 2015 | 2014 | $ | % | ||||||||||
| Impairment of intangible assets | $ | — | $ | 1,952 | $ | (1,952 | ) | (100 | )% | |||||
Loss on Exit of Operating Lease
| Fiscal Year | 2021 to 2020 Change | |||||||||||||||
| (in thousands): | 2021 | 2020 | $ | % | ||||||||||||
| Loss on exit of operating lease | $ | — | $ | 105 | $ | (105 | ) | (100 | )% | |||||||
Refer to rebrandNote 4 – Operating Leases in our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” for further details with respect to the Company’s solutions under a single, harmonized Looking Glass® marketing platform moving forward, eroded,former shared office arrangement in total, the value of the Meta Trade name. As a result,Atlanta. In fiscal 2020, we recorded $105,000 in cost related to the remaining payments required under the agreement with the landlord on shared office space in Atlanta that was abandoned when the Company entered a $1,952,000 loss on impairment of intangible assetnew lease for office space in fiscal 2014.
Other Income (Expense)
| Fiscal Year | 2015 to 2014 Change | |||||||||||||
| (in thousands): | 2015 | 2014 | $ | % | ||||||||||
| Interest expense | $ | (884 | ) | $ | (749 | ) | $ | (135 | ) | 18 | % | |||
| Loss on early extinguishment of debt | — | (430 | ) | 430 | (100 | )% | ||||||||
| Miscellaneous income | 2,224 | 1,592 | 632 | 40 | % | |||||||||
| Total other income | $ | 1,340 | $ | 413 | $ | 927 | 224 | % | ||||||
| Fiscal Year | 2021 to 2020 Change | |||||||||||||||
| (in thousands): | 2021 | 2020 | $ | % | ||||||||||||
| Interest expense | $ | (236 | ) | $ | (51 | ) | $ | (185 | ) | (363 | )% | |||||
| Loss on early extinguishment of debt | (43 | ) | — | (43 | ) | (100 | )% | |||||||||
| Other | 1,911 | (62 | ) | 1,973 | 3,182 | % | ||||||||||
| PPP Loan Forgiveness | 2,327 | — | 2,327 | 100 | % | |||||||||||
| Total other income (expense) | $ | 3,959 | $ | (113 | ) | $ | 4,072 | 3604 | % | |||||||
Interest expense consists of interest and commitment fees on the line of credit, interest onassociated with the term loans, and interest on the 2013 note payable, and is inclusive ofloan, deferred financing costcosts, and debt discount amortization. Amortizationless interest related to capitalization of deferred financing cost and debt discount were $71,000 in both fiscal 2015 and 2014.software. Interest expense was higher inincreased for fiscal 2015 primarily as a result of higher principal outstanding and interest rate.
On March 2, 2021, the Company entered into an Amended and Restated Loan and Security Agreement, which replaced and superseded the Loan and Security Agreement. This revolving credit facility was replaced with the Second Amended and Restated Loan and Security Agreement that was put in place on August 26, 2021. Accordingly, the Company wrote off $43,000 of deferred financing costs from this loan as a loss on extinguishment of debt
Other income totaled $1,629,000 and $2,283,000, respectively. Infor fiscal 2014, the income fromyear includes a valuation adjustment of warrants liability was partially offset by a $181,000 loss on disposals of fixed assets, a
PPP Loan Forgiveness for fiscal 2021 reflects the financial impact of the $2,301,000 PPP loan along with the accrued interest of $26,000 being forgiven.
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Provision for Income Taxes
For continuing operations for the fiscal 2021 and 2020, we recorded income tax expense of $109,000 and income tax benefit of $1,260,000, respectively, which is comprised of estimated federal, state, and local income tax provisions. The income tax benefit from continuing operations was netted with the income tax provision on current and deferreddiscontinued operations as disclosed in prior filings resulting in $0 federal tax (expense) benefitexpense in fiscal 2020. The Company has a substantial amount of net operating losses for federal and state income taxes.
| 2015 | 2014 | ||||||
| Company proprietary software | $ | 21,586,000 | $ | 20,888,000 | |||
| Third-party hardware and software | 200,000 | 244,000 | |||||
| Professional services | 5,803,000 | 7,485,000 | |||||
| Maintenance and support | 23,292,000 | 21,304,000 | |||||
| Software as a service | 16,264,000 | 22,574,000 | |||||
| Total | $ | 67,145,000 | $ | 72,495,000 | |||
| (in thousands): | SaaS Backlog at January 31, 2016 | Average Remaining Months in Term | |||
| 7-year term | $ | 1,010 | 32 | ||
| 6-year term | 459 | 30 | |||
| 5-year term | 9,943 | 22 | |||
| 4-year term | 210 | 21 | |||
| 3-year term | 4,269 | 18 | |||
| Less than 3-year term | 373 | 12 | |||
| Total SaaS backlog | $ | 16,264 | |||
Use of Non-GAAP Financial Measures
In order to provide investors with greater insight and allow for a more comprehensive understanding of the information used by management and the boardBoard of directorsDirectors in its financial and operational decision-making, the Company has supplemented the Consolidated Financial Statements presented on a GAAP basis in this annual report on Form 10-KReport with the following non-GAAP financial measures: EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EBITDA per diluted share.
These non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of Company results as reported under GAAP. The Company compensates for such limitations by relying primarily on our GAAP results and using non-GAAP financial measures only as supplemental data. We also provide a reconciliation of non-GAAP to GAAP measures used. Investors are encouraged to carefully review this reconciliation. In addition, because these non-GAAP measures are not measures of financial performance under GAAP and are susceptible to varying calculations, these measures, as defined by the Company,us, may differ from and may not be comparable to similarly titled measures used by other companies.
EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted EBITDA per diluted share
We define: (i) EBITDA as net earnings (loss) before net interest expense, income tax expense (benefit), depreciation and amortization; (ii) Adjusted EBITDA as net earnings (loss) before net interest expense, income tax expense (benefit), depreciation, amortization, stock-basedshare-based compensation expense, transaction related expenses, and other expenses that do not relate to our core operations;operations such as severance and impairment charges; (iii) Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of GAAP net revenue; and (iv) Adjusted EBITDA per diluted share as Adjusted EBITDA divided by adjusted diluted shares outstanding. EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EBITDA per diluted share are used to facilitate a comparison of our operating performance on a consistent basis from period to period and provide for a more complete understanding of factors and trends affecting our business than GAAP measures alone. These measures assist management and the board and may be useful to investors in comparing our operating performance consistently over time as they remove the impact of our capital structure (primarily interest charges), asset base (primarily depreciation and amortization), items outside the control of the management team (taxes), and expenses that do not relate to our core operations including: transaction-related expenses (such as professional and advisory services), corporate restructuring expenses (such as severances), and other operating costs that are expected to be non-recurring.non-recurring in nature. Adjusted EBITDA removes the impact of share-based compensation expense, which is another non-cash item. Adjusted EBITDA per diluted share includes incremental shares in the share count that are considered anti-dilutive in a GAAP net loss position.
The boardBoard of directorsDirectors and management also use these measures (i) as (i) one of the primary methods for planning and forecasting overall expectations and for evaluating, on at least a quarterly and annual basis, actual results against such expectations; and (ii) as a performance evaluation metric in determining achievement of certain executive and associate incentive compensation programs.
Our lender uses a measurement that is similar to the Adjusted EBITDA measurement described herein to assess our operating performance. The lender under our credit agreementSecond Amended and Restated Loan and Security Agreement requires delivery of compliance reports certifying compliance with financial covenants, certain of which are based on thisa measurement that is similar to the Adjusted EBITDA measurement reviewed by our management and boardBoard of directors.Directors.
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EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are not measures of liquidity under GAAP or otherwise and are not alternatives to cash flow from continuing operating activities, despite the advantages regarding the use and analysis of these measures as mentioned above. EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted EBITDA per diluted share, as disclosed in this annual report on Form 10-K,Report have limitations as analytical tools, and you should not consider these measures in isolation or as a substitute for analysis of our results as reported under GAAP; nor are these measures intended to be measures of liquidity or free cash flow for our discretionary use. Some of the limitations of EBITDA and its variations are:
| ● | EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; | |
| ● | EBITDA does not reflect changes in, or cash requirements for, our working capital needs; | |
| ● | EBITDA does not reflect the interest expense, or the cash requirements to service interest or principal payments under our Second Amended and Restated Loan and Security Agreement; | |
| ● | EBITDA does not reflect income tax payments that we may be required to make; and | |
| ● | Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements. |
Adjusted EBITDA has all the inherent limitations of EBITDA. To properly and prudently evaluate our business, the Company encourages readers to review the GAAP financial statements included elsewhere in this annual report on Form 10-K,Report, and not rely on any single financial measure to evaluate our business. We also strongly urge readers to review the reconciliation of these non-GAAP financial measures to the most comparable GAAP measure in this section, along with the Consolidated Financialconsolidated financial statements included in Part II, Item 8, “Financial Statements included elsewhere in this annual report on Form 10-K.
The following table sets forth a reconciliation ofreconciles EBITDA and Adjusted EBITDA to net loss a comparable GAAP-based measure, as well asfrom continuing operations, and Adjusted EBITDA per diluted share to loss per diluted share.share for the fiscal years ended January 31, 2022 and 2021 (amounts in thousands, except for share data). All of the items included in the reconciliation from EBITDA and Adjusted EBITDA to net loss from continuing operations and the related per share calculations are either recurring non-cash items, or items that management does not consider in assessing our on-going operating performance. In the case of the non-cash items, management believes that investors may find it useful to assess the Company’s comparative operating performance because the measures without such items are less susceptible to variances in actual performance resulting from depreciation, amortization and other expenses that do not relate to our core operations and are more reflective of other factors that affect operating performance. In the case of items that do not relate to our core operations, management believes that investors may find it useful to assess our operating performance if the measures are presented without these items because their financial impact does not reflect ongoing operating performance.
| Fiscal Year | |||||||
| Adjusted EBITDA Reconciliation | 2015 | 2014 | |||||
| Net loss | $ | (4,290 | ) | $ | (12,011 | ) | |
| Interest expense | 884 | 749 | |||||
| Tax expense (benefit) | 8 | (887 | ) | ||||
| Depreciation | 1,245 | 1,005 | |||||
| Amortization of capitalized software development costs (1) | 3,073 | 3,678 | |||||
| Amortization of intangible assets | 1,345 | 1,396 | |||||
| Amortization of other costs | 136 | 166 | |||||
| EBITDA | 2,402 | (5,904 | ) | ||||
| Stock-based compensation expense | 2,386 | 1,934 | |||||
| Loss on impairment of intangible assets | — | 1,952 | |||||
| Loss on early extinguishment of debt | — | 430 | |||||
| Loss on disposal of fixed assets | 92 | 181 | |||||
| Non-cash valuation adjustments to assets and liabilities (2) | (1,669 | ) | (2,154 | ) | |||
| Transaction related professional fees, advisory fees, and other internal direct costs | 93 | 182 | |||||
| Associate severances and other costs relating to transactions or corporate restructuring | 206 | 901 | |||||
| Other non-recurring operating expenses (income) (3) | (750 | ) | 1,491 | ||||
| Adjusted EBITDA | $ | 2,761 | $ | (987 | ) | ||
| Adjusted EBITDA Margin (4) | 10 | % | (4 | )% | |||
| Adjusted EBITDA per diluted share | 2015 | 2014 | |||||
| Loss per share — diluted | $ | (0.30 | ) | $ | (0.71 | ) | |
| Adjusted EBITDA per adjusted diluted share (5) | $ | 0.15 | $ | (0.05 | ) | ||
| Diluted weighted average shares | 18,689,854 | 18,261,800 | |||||
| Includable incremental shares — adjusted EBITDA (6) | — | — | |||||
| Adjusted diluted shares | 18,689,854 | 18,261,800 | |||||
| Fiscal Year | ||||||||
| In thousands, except per share data | 2021 | 2020 | ||||||
| Adjusted EBITDA Reconciliation | ||||||||
| Loss from continuing operations | $ | (6,917 | ) | $ | (4,799 | ) | ||
| Interest expense | 236 | 51 | ||||||
| Income tax expense (benefit) | 109 | (1,260 | ) | |||||
| Depreciation | 68 | 64 | ||||||
| Amortization of capitalized software development costs | 1,848 | 1,662 | ||||||
| Amortization of intangible assets | 1,281 | 491 | ||||||
| Amortization of other costs | 449 | 359 | ||||||
| EBITDA | (2,926 | ) | (3,432 | ) | ||||
| Share-based compensation expense | 2,216 | 1,403 | ||||||
| Non-cash valuation adjustments to assets and liabilities | (1,851 | ) | 31 | |||||
| Non-routine Costs | 2,856 | — | ||||||
| Forgiveness of PPP Loan and accrued interest | (2,327 | ) | — | |||||
| Other non-recurring expenses | (48 | ) | — | |||||
| Loss on early extinguishment of debt | 43 | — | ||||||
| Loss on exit of operating lease | — | 105 | ||||||
| Adjusted EBITDA | $ | (2,037 | ) | $ | (1,893 | ) | ||
| Adjusted EBITDA margin (1) | (12 | )% | (17 | )% | ||||
| Adjusted EBITDA per Diluted Share Reconciliation | ||||||||
| Loss from continuing operations per common share — diluted | $ | (0.16 | ) | $ | (0.16 | ) | ||
| Net (loss) income per common share — diluted (3) | $ | (0.15 | ) | $ | 0.01 | |||
| Adjusted EBITDA per adjusted diluted share (2) | $ | (0.05 | ) | $ | (0.06 | ) | ||
| Diluted weighted average shares (3) | 42,815,239 | 30,152,383 | ||||||
| Includable incremental shares — adjusted EBITDA (4) | 458,335 | 488,359 | ||||||
| Adjusted diluted shares | 43,273,574 | 30,640,742 | ||||||
| (1) | |
| Adjusted EBITDA as a percentage of GAAP net revenues. |
| (2) | Adjusted EBITDA per adjusted diluted share for the |
| (3) | Diluted weighted average shares and diluted EPS for our common stock method was computed using the treasury stock method. |
| (4) | The number of incremental shares that would be dilutive under |
Application of Critical Accounting Policies
The following is a summary of the Company’s most critical accounting policies. SeeRefer to Note 2 - Significant Accounting Policies to our Consolidated Financial Statementsconsolidated financial statements included in Part II, Item 8, herein“Financial Statements and Supplementary Data” for a complete discussion of the significant accounting policies and methods used in the preparation of our Consolidated Financial Statements.consolidated financial statements.
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Revenue Recognition
The Company derives revenue from the sale of internally developed software, either by licensing for local installation or by a SaaS delivery model, through our direct sales force or through third-party resellers. Licensed, locally installed customers on a perpetual model utilize our support and maintenance services for a separate fee, whereas term-based locally installed license fees and SaaS fees include support and maintenance. The Company also derives revenue from professional services that support the implementation, configuration, training and optimization of the applications, as well as audit services and consulting services The Company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for perpetual and term licenses in accordance with ASC 985-605,
Performance obligations are the unit of accounting for revenue recognition whenand generally represent the following criteria all have been met:
Refer to Note 2 - Significant Accounting Policies to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” for additional information regarding our revenue recognition of multiple deliverable revenue arrangements (meaning the delivery or performance of multiple products, services and/or rights to use assets) to determine whether such arrangements contain more than one unit of accounting. To qualify as a separate unit of accounting, the delivered item must have value to the client on a stand-alone basis (meaning the item can be sold separately by any vendor or the client could resell the item on a stand-alone basis). Additionally, if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered items must be considered probable and substantially in the control of the vendor.
Allowance for Doubtful Accounts
Accounts and contract receivables are comprised of amounts owed the Company for solutions and services provided. Contracts with individual clientscustomers and resellers determine when receivables are due and payable. In determining the allowances for doubtful accounts, the unpaid receivables are reviewed monthlyperiodically to determine the payment status based upon the most currently available information as to the status of the receivables.information. During these monthlyperiodic reviews, the Company determines the required allowances for doubtful accounts for estimated losses resulting fromto reduce total receivables reported to reflect only the unwillingness or inability of its clients or resellersamounts expected to make required payments.
Capitalized Software Development Costs
Software development costs for software to be sold, leased, or marketed are accounted for in accordance with either ASCAccounting Standards Codification (“ASC”) 985-20,
Internal-use software development costs are accounted for in accordance with ASC 350-40, Internal-Use Software. The costs incurred in the preliminary stages of development are expensed as research and development costs as incurred. Once an application has reached the development stage, internal and external costs incurred to develop internal-use software are capitalized and amortized on a straight-line basis over the estimated useful life of the software (typically three to four years). Maintenance and enhancement costs, including those costs in the post-implementation stages, are typically expensed as incurred, unless such costs relate to substantial upgrades and enhancements to the software that result in added functionality, in which case the costs are capitalized and amortized on a straight-line basis over the estimated useful life of the software. The Company reviews on an on-going basis, the carrying value of itsfor impairment whenever facts and circumstances exist that would suggest that assets might be impaired or that the useful lives should be modified. Amortization expense related to capitalized internal-use software development expenditures, netcosts is included in Cost of accumulated amortization.
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Goodwill and Intangible Assets
Goodwill and other intangible assets were recognized in conjunction with the acquisitions of Interpoint Partners, LLC (“Interpoint”), Meta Health Technology, Inc. (“Meta”), Clinical Looking Glass,Glass® (“CLG”), Opportune IT, Unibased Systems Architecture, Inc. (“Unibased”), and Unibased acquisitions.Avelead. Identifiable intangible assets include purchased intangible assets with finite lives, which primarily consist of internally-developed software, clientcustomer relationships, supplier agreements, non-compete agreements customer contracts, and license agreements. Finite-lived purchased intangible assets are amortized over their expected period of benefit, which generally ranges from one month to 15 years, using the straight-line and undiscounted expected future cash flows methods. The indefinite-lived intangible asset related to the Meta trade name, which was not amortized, but tested for impairment on at least an annual basis. In fiscal 2014, the Meta trade name was deemed impaired and its corresponding balance was fully written off (see Note 7 - Goodwill and Intangible Assets to our consolidated financial statements included in Part II, Item 8 herein).
We assess the useful lives and possible impairment of existing recognized goodwill on at least an annual basis, and goodwill and intangible assets when an event occurs that may trigger such a review. Factors considered important which could trigger a review include:
| ● | significant under-performance relative to historical or projected future operating results; | |
| ● | significant changes in the manner of use of the acquired assets or the strategy for the overall business; | |
| ● | identification of other impaired assets within a reporting unit; | |
| ● | disposition of a significant portion of an operating segment; | |
| ● | significant negative industry or economic trends; | |
| ● | significant decline in the Company’s stock price for a sustained period; and | |
| ● | a decline in the market capitalization relative to the net book value. |
Determining whether a triggering event has occurred involves significant judgment by the Company.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for tax creditcredits and loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. In assessing net deferred tax assets, we consider whether it is more likely than not that some or all of the deferred tax assets will not be realized. We establish a valuation allowance when it is more likely than not that all or a portion of deferred tax assets will not be realized. SeeRefer to Note 87 - Income Taxes to our consolidated financial statements included in Part II, Item 8, herein“Financial Statements and Supplementary Data” for further details.
| Payments Due by Period | |||||||||||||||||||
| (in thousands) | Less than 1 year | 1-3 Years | 3-5 Years | More than 5 years | Total | ||||||||||||||
| Long-term debt obligations | $ | 674 | $ | 1,797 | $ | 6,064 | $ | — | $ | 8,535 | |||||||||
| Interest expense on long-term debt | 550 | 933 | 308 | — | 1,791 | ||||||||||||||
| Capital lease obligations (1) | 618 | 93 | — | — | 711 | ||||||||||||||
| Operating lease obligations | 971 | 2,046 | 1,471 | 964 | 5,452 | ||||||||||||||
| Total contractual obligations | $ | 2,813 | $ | 4,869 | $ | 7,843 | $ | 964 | $ | 16,489 | |||||||||
Liquidity and Capital Resources
The Company’s liquidity is dependent upon numerous factors including: (i) the timing and amount of revenues and collection of contractual amounts from clients,customers, (ii) amounts invested in research and development and capital expenditures, and (iii) the level of operating expenses, all of which can vary significantly from quarter-to-quarter. The Company’s primary cash requirements include regular payment of payroll and other business expenses, principal and interest payments on debt and minor amounts of capital expenditures. Capital expenditures generally include computer hardware and computer software to support internal development efforts or infrastructure in the SaaS data center.center infrastructure. Operations are funded with cash generated by operations and borrowings under the bank credit facilities. The Company believes that cash flows from operations and available credit facilities are adequate to fund current obligations for twelve months from the next twelve months.date of issuance of the audit report on the Company’s consolidated financial statements. Cash and cash equivalent balances at
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Capital Raise
On February 25, 2021, the Company entered into an underwriting agreement with Craig-Hallum Capital Group LLC, as the sole managing underwriter, relating to the underwritten public offering of an aggregate of 10,062,500 shares of the Company’s common stock, par value $0.01 per share, which included 1,312,500 shares of common stock sold pursuant to the underwriter’s exercise of an option to purchase additional shares of common stock to cover over-allotments (the “Offering”). The price to the public in the Offering was $1.60 per share of common stock. The gross proceeds to the Company from the Offering were approximately $16.1 million, before deducting underwriting discounts, commissions, and estimated offering expenses. The Offering closed on March 2, 2021. The Company believes that cash flows from operations, the cash from the Offering and available credit facilities are adequate to fund current obligations for the next twelve months from issuance of the financial statements included in this report. Continued expansion may require the Company to take on additional debt or raise capital through issuance of equities, or a combination of both. There can be no assurance the Company will be able to raise the capital required to fund further expansion.
Authorized Shares Amendment
On May 24, 2021, the Company amended its Certificate of Incorporation, as amended, to increase the total number of authorized shares of the Company’s common stock from 45,000,000 shares to 65,000,000 shares (the “Charter Amendment”). The Charter Amendment was initially approved by the board of directors of the Company, subject to stockholder approval, approved by the Company’s stockholders at the 2021 Annual Meeting of Stockholders of the Company, held on May 20, 2021 (the “2021 Annual Meeting”), and ratified by the Company’s stockholders on July 29, 2021 at the Special Meeting (as defined and described in further detail below).
Also, at the 2021 Annual Meeting, the Company’s stockholders approved an amendment to the Streamline Health Solutions, Inc. Third Amended and Restated 2013 Stock Incentive Plan to increase the number of shares of the Company’s common stock authorized for issuance thereunder by 2,000,000 shares, from 6,223,246 shares to 8,223,246 shares (the “Third Amended 2013 Plan Amendment”).
As described in the Company’s definitive proxy statement on Schedule 14A filed with the SEC on July 6, 2021, because there may have been uncertainty regarding the validity or effectiveness of the prior approval of the Charter Amendment, the authorized shares increase effected thereby and the Third Amended 2013 Plan Amendment at the Annual Meeting, the board of directors of the Company asked the Company’s stockholders to ratify the approval, filing and effectiveness of the Charter Amendment and the approval and effectiveness of the Third Amended 2013 Plan Amendment at a special meeting of the stockholders held on July 29, 2021 in order to eliminate such uncertainty (the “Special Meeting”). At the Special Meeting, the Company’s stockholders ratified the approval, filing and effectiveness of the Charter Amendment and the approval and effectiveness of the Third Amended 2013 Plan Amendment.
Credit Facility
The Company has additional liquidity through the CreditSecond Amended and Restated Loan and Security Agreement described in more detail in Note 6 to5 – Debt in our consolidated financial statements included in Part II, Item 8, herein.“Financial Statements and Supplementary Data”. The Company’s primary operating subsidiaryCompany has a $5,000,000new term loan facility with an initial, maximum, principal amount of $10,000,000. Amounts outstanding under the Second Amended and Restated Loan and Security Agreement bear interest at a per annum rate equal to the Prime Rate (as published in The Wall Street Journal) plus 1.5%, with a Prime “floor” rate of 3.25%. Pursuant to the Second Amended and Restated Loan and Security Agreement, the Company’s prior $3,000,000 revolving credit facility with Bridge Bank was terminated. At the time of the discontinuance, there was no outstanding balance on the revolving credit facility.
The Second Amended and Restated Loan and Security Agreement includes customary financial covenants as follows:
| a. | Minimum Cash. Borrowers shall, at all times, maintain unrestricted cash in an amount not less than (i) on the Closing Date and for the first eleven (11) months immediately following the Closing Date, Five Million Dollars ($5,000,000) and (ii) at all times thereafter, Three Million Dollars ($3,000,000). | |
| b. | Maximum Debt to ARR Ratio. Borrowers’ Maximum Debt to ARR Ratio, measured on a quarterly basis as of the last day of each fiscal quarter, shall not be greater than the amount set forth under the heading “Maximum Debt to ARR Ratio” as of, and for each of the dates appearing adjacent to such “Maximum Debt to ARR Ratio”. |
| Quarter Ending | Maximum Debt to ARR Ratio | |
| October 31, 2021 | 0.80 to 1.00 | |
| January 31, 2022 | 0.75 to 1.00 | |
| April 30, 2022 | 0.65 to 1.00 | |
| July 31, 2022 | 0.55 to 1.00 | |
| October 31, 2022 | 0.50 to 1.00 | |
| January 31, 2023 | 0.45 to 1.00 |
| c. | Maximum Debt to Adjusted EBITDA Ratio. Commencing with the quarter ending April 30, 2023, Borrowers’ Maximum Debt to Adjusted EBITDA Ratio, measured on a quarterly basis as of the last day of each fiscal quarter for the trailing four (4) quarter period then ended, shall not be greater than the amount set forth under the heading “Maximum Debt to Adjusted EBITDA Ratio” as of, and for each of the dates appearing adjacent to such “Maximum Debt to Adjusted EBITDA Ratio”. |
| Quarter Ending | Maximum Debt to Adjusted EBITDA Ratio | |
| April 30, 2023 | 11.30 to 1.00 | |
| July 31, 2023 | 4.15 to 1.00 | |
| October 31, 2023 | 2.50 to 1.00 | |
| January 31, 2024 and on the last day of each quarter thereafter | 2.00 to 1.00 |
| d. | Fixed Charge Coverage Ratio. Commencing with the quarter ending April 30, 2023, Borrowers shall maintain a Fixed Charge Coverage Ratio of not less than 1.20 to 1.00, measured on a quarterly basis as of the last day of each fiscal quarter for the trailing four (4) quarter period then ended. |
The Second Amended and Restated Loan and Security Agreement also includes customary negative covenants, subject to exceptions, which limit transfers, capital expenditures, indebtedness, certain liens, investments, acquisitions, dispositions of assets, restricted payments, and the business activities of the Company, as well as customary representations and warranties, affirmative covenants and events of default, including cross defaults and a change of control default. The line of credit that has not been drawn upon as of the date of this report. In orderalso is subject to draw upon the revolving line of credit, the Company’s primary operating subsidiary must comply with customary financial covenants, including the requirement that the Company maintain minimum liquidity of at least $7,500,000. Pursuant to the Credit Agreement’s definition, the liquidity of the Company’s primary operating subsidiary as of January 31, 2016 was $14,882,000, which satisfies the minimum liquidity financial covenant in the Credit Agreement.
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PPP Loan
The Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, was signed into law on March 17, 2020. Among other things, the CARES Act provided for a business loan program known as the Paycheck Protection Program (“PPP”). Qualifying companies were able to borrow, through the full amountU.S. Small Business Administration (“SBA”), up to two months of the $5,000,000 revolving line of credit.
Significant cash obligations
| (in thousands) | Fiscal Year | ||||||
| 2015 | 2014 | ||||||
| Term loans | $ | 8,535 | $ | 10,000 | |||
| Capital lease | 686 | 1,365 | |||||
| Royalty liability | 2,292 | 2,386 | |||||
| As of January, 31 | ||||||||
| (in thousands) | 2022 | 2021 | ||||||
| Term loan (1) | $ | 9,904 | $ | 2,301 | ||||
| (1) | Term loan balance is reported net of deferred financing costs of $96,000 and $0 as of January 31, 2022 and 2021, respectively. Refer to Note 5 - Debt to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” for additional information. The term loan balance as of January 31, 2022 was bank term debt under the Second Amended and Restated Loan and Security Agreement. The term loan payable as of January 31, 2021 is the Company’s PPP loan. |
Operating cash flow activities
| (in thousands) | Fiscal Year | ||||||
| 2015 | 2014 | ||||||
| Net loss | $ | (4,290 | ) | $ | (12,011 | ) | |
| Non-cash adjustments to net loss | 6,763 | 8,499 | |||||
| Cash impact of changes in assets and liabilities | 3,408 | 500 | |||||
| Annual operating cash flow | $ | 5,881 | $ | (3,012 | ) | ||
| Fiscal Year | ||||||||
| (in thousands) | 2021 | 2020 | ||||||
| Loss from continuing operations | $ | (6,917 | ) | $ | (4,799 | ) | ||
| Non-cash adjustments to net loss | 1,884 | 2,810 | ||||||
| Cash impact of changes in assets and liabilities | 1,149 | (1,504 | ) | |||||
| Net cash used in operating activities | $ | (3,884 | ) | $ | (3,493 | ) | ||
The increase in netuse of cash provided byfrom operating activities was relatively consistent between fiscal 2021 and 2020. The Company had a higher net loss from operations and lower impact of changes in assets and liabilities in fiscal 2015 is primarily due2021 compared to a reductionfiscal 2020. Within non-cash adjustments to net loss, the Company excluded the PPP loan and related interest of $2,327,000 that was forgiven in loss, aidedfiscal 2021 as well as the valuation adjustment of $1,851,000 on the acquisition earnout liability. Net cash used in operating activities was adversely impacted by the Company’s effort to decrease expenses, and the collection of accounts receivable, due to the Company’s efforts to resolve issuescertain severance cost in 2019 that were delaying payments.
The Company’s clients typically have beencustomers are well-established hospitals, or medical facilities or major health information system companies that resell the Company’s solutions, which have good credit histories, and payments have been received within normal time frames for the industry. However, some healthcare organizations have experienced significant operating losses as a result of limits on third-party reimbursements from insurance companies and governmental entities. Agreements with clients often involve significant amounts and contract terms typically require clientscustomers to make progress payments. Adverse economic events, as well as uncertainty in the credit markets, may adversely affect the liquidity for some of our clients.
| 33 |
Investing cash flow activities
| (in thousands) | Fiscal Year | ||||||
| 2015 | 2014 | ||||||
| Purchases of property and equipment | $ | (518 | ) | $ | (2,125 | ) | |
| Capitalized software development costs | — | (620 | ) | ||||
| Payment for acquisitions, net of cash acquired | — | (6,058 | ) | ||||
| Annual investing cash flow | $ | (518 | ) | $ | (8,803 | ) | |
| Fiscal Year | ||||||||
| (in thousands) | 2021 | 2020 | ||||||
| Investment in Avelead, net of cash | $ | (12,470 | ) | $ | — | |||
| Purchases of property and equipment | (41 | ) | (44 | ) | ||||
| Proceeds from sale of ECM Assets | 800 | 11,288 | ||||||
| Capitalized software development costs | (1,458 | ) | (1,784 | ) | ||||
| Net cash (used in) provided by investing activities | $ | (13,169 | ) | $ | 9,460 | |||
The decrease in cash used forin investing activities isfor fiscal 2021 included the cash used to acquire Avelead, capitalized software development costs, off-set by the release of escrowed funds in fiscal 2021 from the sale of the ECM Assets. Refer to Note 3 – Business Combination and Divestiture to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” for further details on Avelead and the sale of the ECM Assets. The proceeds from the sale of the ECM Assets in fiscal 2020 are net of direct transaction expenses. Refer to Note 13 – Discontinued Operations to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” for further details on the sale of the ECM Assets. Operationally, the Company has a focused effort on the spend for software development projects that will result in in increasing its revenue. See discussion and analysis in “Research and development costs” above.
Financing cash flow activities
| Fiscal Year | ||||||||
| (in thousands) | 2021 | 2020 | ||||||
| Proceeds from issuance of common stock | $ | 16,100 | $ | — | ||||
| Payments for costs directly attributable to the issuance of common stock | (1,313 | ) | — | |||||
| Repayment of bank term loan | — | (4,000 | ) | |||||
| Proceeds from term loan payable | 10,000 | 2,301 | ||||||
| Payments related to settlement of employee shared-based awards | (464 | ) | (256 | ) | ||||
| Payment of deferred financing costs | (168 | ) | — | |||||
| Payment on royalty liability | — | (1,000 | ) | |||||
| Other | (6 | ) | 12 | |||||
| Net cash provided by (used in) financing activities | $ | 24,149 | $ | (2,943 | ) | |||
The cash provided by financing activities for fiscal 2021 was primarily from the public Offering of the Company’s common stock, which closed on March 2, 2021. Refer to Note 8 – Equity to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” for further details. Additionally, the Company received proceeds of $10,000,000 as a result of the cash expendedSecond Amended and Restated Loan and Security Agreement entered into on August 26, 2021. Refer to acquire the Unibased business, as well as asset purchases related to the expansion of our Atlanta office and the new Atlanta data center in the prior year. In addition, our development efforts shifted to solutions involving development costs that are not capitalized due to rapid release cycles.
| (in thousands) | Fiscal Year | ||||||
| 2015 | 2014 | ||||||
| Proceeds from term loans | $ | — | $ | 10,000 | |||
| Principal repayments on term loans | (1,465 | ) | (8,298 | ) | |||
| Principal repayments on note payable | — | (900 | ) | ||||
| Payment of deferred financing costs | 2 | (573 | ) | ||||
| Other | (540 | ) | 184 | ||||
| Annual financing cash flow | $ | (2,003 | ) | $ | 413 | ||
Item 7A.
Quantitative and Qualitative Disclosures About Market RiskAs a “smaller reporting company,” as defined by Item 10 of Regulation S-K, we are not required to provide this information.
| 34 |
Item 8.
Financial StatementsINDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE COVERED BY REPORTREPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
| 36 | |
| 38 | |
| 40 | |
| 41 | |
| 42 | |
| 43 | |
| 69 |
All other financial statement schedules are omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto.
| 35 |
Report of Independent Registered Public Accounting Firm
Stockholders and Board of Directors and Shareholders
Streamline Health Solutions, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheetsheets of Streamline Health Solutions, Inc. and subsidiaryits subsidiaries (the “Company”) as of January 31, 2016,2022 and 2021 and the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity, and cash flows for each of the year then ended. Our audit also includedtwo years in the period ended January 31, 2022, and the related notes and financial statement schedule II (collectively, the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company listedas of January 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in Schedule II. the period ended January 31, 2022, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesethe Company’s financial statements and schedules based on our audit.
We conducted our auditaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included considerationAs part of our audits we are required to obtain an understanding of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audit providesaudits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Streamline Health Solutions, Inc. and subsidiary as of January 31, 2016 and the results of their operations and their cash flows for the year ended January 31, 2016, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements, taken as a whole, presents fairlyand we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Capitalized Software Development Costs
As described in all material respectsNote 2 to the information set forth therein.
Internal-use software development costs are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audit.
Development costs for software to be sold, leased, or marketed are accounted for in accordance with Topic 985. Costs associated with the planning and design phase of software development are classified as research and development costs and expensed as incurred. Once technological feasibility has been established, a portion of the costs incurred in development, including coding, testing and quality assurance, are capitalized until available for general release to clients, and subsequently reported at the lower of unamortized cost or net realizable value.
We identified capitalized software development costs as a critical audit matter. Our principal considerations for this determination were the high degree of auditor judgment and subjectivity required in evaluating management’s determination of the activities and costs that qualify for capitalization and the relevant software development guidance to be applied under the applicable accounting standards.
| 36 |
The primary procedures we planperformed to address this critical audit matter included:
| ● | We obtained an understanding of the Company’s process for determining the activities and costs that qualify for capitalization and the relevant software development guidance to be applied under the applicable accounting standards. | |
| ● | We tested the mathematical accuracy of the roll forward of capitalized software and related amortization expense. We also tested the completeness and accuracy of applicable system-generated reports, including reconcilements of details to associated sub-ledgers. | |
| ● | For a sample of capitalized costs, we evaluated the relevance of the software development guidance applied, by performing the following: |
| ○ | We inspected underlying documentation and assessed the eligibility of costs for capitalization, to the application of the correct guidance, and whether during the application development stage or after the attainment of technological feasibility, as applicable. | |
| ○ | We recalculated the capitalized amount based on hours incurred and direct payroll related costs or associated vendor contracts and invoices for work performed by third parties. | |
| ○ | We evaluated the software implementation timelines and related underlying documentation supporting the capitalization periods for implementation and development amounts as well as the date the costs were placed in service. | |
| ○ | We inquired of project managers for significant projects to assess the nature of the costs, the time devoted to capitalizable activities and the underlying documentation. |
| ● | For eligible costs within the scope of Topic 985, we assessed whether amortization was the greater of amortization derived from either a straight-line basis or the ratio of current revenues to total current and anticipated revenues. |
Valuation of Contingent Consideration and perform the auditAcquired Intangible Assets
As described in Note 3 to obtain reasonable assurance about whether the financial statements, are free of material misstatement. An audit includes examining, on a test basis, evidence supportingAugust 16, 2021, the amountsCompany acquired Avelead Consulting, LLC, which included contingent consideration and disclosuresacquired intangible assets. The contingent consideration was recorded at fair value on the acquisition date and is revalued each reporting period until final settlement with changes in the financial statements. Anfair value recognized within the consolidated statement of operations.
The Company estimated the fair value of the customer relationship intangible assets using the multi-period excess earnings method, which required management to make significant estimates and assumptions related to forecasted revenue and earnings, attrition rates, and the selection of discount rates. The Company estimated the fair value of the trade name and developed software technology intangible assets using the relief from royalty method, which required management to make significant estimates and assumptions related to forecasted revenue and earnings, the obsolescence rate, and the selection of discount rates. The Company estimated the fair value of the contingent consideration using a Monte Carlo simulation. The method required management to make significant estimates and assumptions related to forecasted revenue, discount rates and revenue volatility.
We identified the valuation of contingent consideration and acquired intangible assets as a critical audit also includes assessingmatter. Our principal consideration for this determination included the accounting principles usedhigh degree of auditor judgement and subjectivity in evaluating management’s valuation methodologies, particularly as it related to evaluating the inputs and significant estimates madeassumptions used to develop the fair value measurements.
The primary procedures we performed to address this critical audit matter included:
| ● | We obtained an understanding of management’s process for determining the fair value measurements of the contingent consideration and acquired intangible assets. |
| ● | We evaluated forward-looking assumptions, such as forecasted revenue and earnings and attrition rates used by management by performing procedures that included, but not limited to, comparisons to industry and historical performance data, and sensitivity analysis to assess their reasonableness. |
| ● | Utilizing a valuation specialist, we evaluated the significant assumptions and methods utilized in developing the fair value of the contingent consideration and acquired intangible assets, including: |
| ○ | We evaluated the reasonableness of the Company’s third-party valuation models and methodologies, expected cash flow calculations, and reviewed significant assumptions. | |
| ○ | We developed an independent calculation of the discount rates used and compared our rates to those used by management. | |
| ○ | We prepared an independent calculation of the fair value of the contingent consideration and the intangible assets to test the accuracy of management’s valuation models. |
/s/ Dixon Hughes Goodman LLP
We have served as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.Company’s auditor since 2019.
Atlanta, GA
April 28, 2022
| 37 |
STREAMLINE HEALTH SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
| January 31 | |||||||
| 2016 | 2015 | ||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 9,882,136 | $ | 6,522,600 | |||
| Accounts receivable, net of allowance for doubtful accounts of $155,407 and $665,962, respectively | 4,199,315 | 6,935,270 | |||||
| Contract receivables | 119,697 | 191,465 | |||||
| Prepaid hardware and third party software for future delivery | 5,858 | 55,173 | |||||
| Prepaid client maintenance contracts | 956,913 | 935,858 | |||||
| Other prepaid assets | 941,532 | 1,437,680 | |||||
| Deferred income taxes | — | 220,004 | |||||
| Other current assets | 97,986 | 207,673 | |||||
| Total current assets | 16,203,437 | 16,505,723 | |||||
| Non-current assets: | |||||||
| Property and equipment: | |||||||
| Computer equipment | 2,647,135 | 2,381,923 | |||||
| Computer software | 801,895 | 964,857 | |||||
| Office furniture, fixtures and equipment | 683,443 | 683,443 | |||||
| Leasehold improvements | 729,348 | 724,015 | |||||
| 4,861,821 | 4,754,238 | ||||||
| Accumulated depreciation and amortization | (2,407,746 | ) | (1,617,423 | ) | |||
| Property and equipment, net | 2,454,075 | 3,136,815 | |||||
| Contract receivables, less current portion | 8,711 | 43,553 | |||||
| Capitalized software development costs, net of accumulated amortization of $14,919,948 and $11,846,468, respectively | 6,123,638 | 9,197,118 | |||||
| Intangible assets, net | 8,155,325 | 9,500,317 | |||||
| Deferred financing costs, net of accumulated amortization of $84,531 and $13,677, respectively | 270,147 | 387,199 | |||||
| Goodwill | 16,184,667 | 16,184,667 | |||||
| Other non-current assets | 746,018 | 823,723 | |||||
| Total non-current assets | 33,942,581 | 39,273,392 | |||||
| $ | 50,146,018 | $ | 55,779,115 | ||||
(rounded to the nearest thousand dollars, except share and per share information)
| January 31, | ||||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 9,885,000 | $ | 2,409,000 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $76,000 and $65,000, respectively | 3,823,000 | 2,929,000 | ||||||
| Contract receivables | 843,000 | 174,000 | ||||||
| Assets held in escrow | — | 800,000 | ||||||
| Prepaid and other current assets | 568,000 | 416,000 | ||||||
| Current assets of discontinued operations | — | 587,000 | ||||||
| Total current assets | 15,119,000 | 7,315,000 | ||||||
| Non-current assets: | ||||||||
| Property and equipment, net of accumulated amortization of $192,000 and $452,000 respectively | 123,000 | 104,000 | ||||||
| Right-of use asset for operating lease | 218,000 | 391,000 | ||||||
| Capitalized software development costs, net of accumulated amortization of $5,202,000 and $3,507,000, respectively | 5,555,000 | 5,945,000 | ||||||
| Intangible assets, net of accumulated amortization of $5,121,000 and $4,773,000, respectively | 16,763,000 | 624,000 | ||||||
| Goodwill | 23,089,000 | 10,712,000 | ||||||
| Other | 948,000 | 873,000 | ||||||
| Long-term assets of discontinued operations | — | 13,000 | ||||||
| Total non-current assets | 46,696,000 | 18,662,000 | ||||||
| Total assets | $ | 61,815,000 | $ | 25,977,000 | ||||
See accompanying notes to consolidated financial statements.
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| January 31, | |||||||
| 2016 | 2015 | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
| Current liabilities: | |||||||
| Accounts payable | $ | 1,136,779 | $ | 2,298,851 | |||
| Accrued compensation | 935,324 | 865,865 | |||||
| Accrued other expenses | 328,551 | 563,838 | |||||
| Current portion of term loan | 673,807 | 500,000 | |||||
| Deferred revenues | 10,447,280 | 9,289,076 | |||||
| Current portion of capital lease obligation | 592,642 | 781,961 | |||||
| Total current liabilities | 14,114,383 | 14,299,591 | |||||
| Non-current liabilities: | |||||||
| Term loan | 7,861,084 | 9,500,000 | |||||
| Warrants liability | 205,113 | 1,834,380 | |||||
| Royalty liability | 2,291,888 | 2,385,826 | |||||
| Lease incentive liability, less current portion | 369,406 | 342,129 | |||||
| Capital lease obligation | 93,257 | 582,911 | |||||
| Deferred revenues, less current portion | 1,212,709 | 964,933 | |||||
| Deferred income tax liabilities | — | 229,579 | |||||
| Total non-current liabilities | 12,033,457 | 15,839,758 | |||||
| Total liabilities | 26,147,840 | 30,139,349 | |||||
| Series A 0% Convertible Redeemable Preferred Stock, $.01 par value per share, $8,849,985 redemption and liquidation value, 4,000,000 shares authorized, 2,949,995 issued and outstanding, net of unamortized preferred stock discount of $875,935 and $2,212,007, respectively | 7,974,050 | 6,637,978 | |||||
| Stockholders’ equity: | |||||||
| Common stock, $.01 par value per share, 45,000,000 shares authorized; 18,783,540 and 18,553,389 shares issued and outstanding, respectively | 187,836 | 185,534 | |||||
| Additional paid in capital | 79,700,577 | 78,390,424 | |||||
| Accumulated deficit | (63,864,285 | ) | (59,574,170 | ) | |||
| Total stockholders’ equity | 16,024,128 | 19,001,788 | |||||
| $ | 50,146,018 | $ | 55,779,115 | ||||
| January 31, | ||||||||
| 2022 | 2021 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 778,000 | $ | 272,000 | ||||
| Accrued expenses | 1,803,000 | 908,000 | ||||||
| Current portion of term loan, net of deferred financing costs | 250,000 | 1,534,000 | ||||||
| Deferred revenues | 5,794,000 | 3,862,000 | ||||||
| Current portion of operating lease obligation | 204,000 | 198,000 | ||||||
| Current portion of acquisition earnout liability | 4,672,000 | — | ||||||
| Current liabilities of discontinued operations | — | 595,000 | ||||||
| Total current liabilities | 13,501,000 | 7,369,000 | ||||||
| Non-current liabilities: | ||||||||
| Term loan, net of current portion and deferred financing costs | 9,654,000 | 767,000 | ||||||
| Deferred revenues, less current portion | 136,000 | 130,000 | ||||||
| Operating lease obligations, less current portion | 33,000 | 222,000 | ||||||
| Acquisition earnout liability, less current portion | 4,161,000 | — | ||||||
| Other non-current liabilities | 286,000 | — | ||||||
| Total non-current liabilities | 14,270,000 | 1,119,000 | ||||||
| Total liabilities | 27,771,000 | 8,488,000 | ||||||
| Stockholders’ equity: | ||||||||
| Common stock, $ par value per share, shares authorized; and shares issued and outstanding, respectively | 478,000 | 316,000 | ||||||
| Additional paid in capital | 119,225,000 | 96,290,000 | ||||||
| Accumulated deficit | (85,659,000 | ) | (79,117,000 | ) | ||||
| Total stockholders’ equity | 34,044,000 | 17,489,000 | ||||||
| Total liabilities and stockholders’ equity | $ | 61,815,000 | $ | 25,977,000 | ||||
See accompanying notes to consolidated financial statements.
| 39 |
STREAMLINE HEALTH SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
| Fiscal Year | |||||||
| 2015 | 2014 | ||||||
| Revenues: | |||||||
| Systems sales | $ | 2,946,304 | $ | 1,214,879 | |||
| Professional services | 2,212,002 | 2,580,167 | |||||
| Maintenance and support | 15,145,480 | 16,157,371 | |||||
| Software as a service | 8,010,672 | 7,672,990 | |||||
| Total revenues | 28,314,458 | 27,625,407 | |||||
| Operating expenses: | |||||||
| Cost of systems sales | 2,778,041 | 3,536,495 | |||||
| Cost of professional services | 3,143,881 | 3,458,984 | |||||
| Cost of maintenance and support | 3,036,550 | 3,087,842 | |||||
| Cost of software as a service | 2,442,143 | 2,920,403 | |||||
| Selling, general and administrative | 13,442,799 | 16,225,574 | |||||
| Research and development | 9,093,353 | 9,756,206 | |||||
| Impairment of intangible assets | — | 1,952,000 | |||||
| Total operating expenses | 33,936,767 | 40,937,504 | |||||
| Operating loss | (5,622,309 | ) | (13,312,097 | ) | |||
| Other income (expense): | |||||||
| Interest expense | (884,226 | ) | (748,969 | ) | |||
| Loss on early extinguishment of debt | — | (429,849 | ) | ||||
| Miscellaneous income | 2,224,423 | 1,592,449 | |||||
| Loss before income taxes | (4,282,112 | ) | (12,898,466 | ) | |||
| Income tax (expense) benefit | (8,003 | ) | 887,009 | ||||
| Net loss | (4,290,115 | ) | (12,011,457 | ) | |||
| Less: deemed dividends on Series A Preferred Shares | (1,336,072 | ) | (1,038,310 | ) | |||
| Net loss attributable to common shareholders | $ | (5,626,187 | ) | $ | (13,049,767 | ) | |
| Basic net loss per common share | $ | (0.30 | ) | $ | (0.71 | ) | |
| Number of shares used in basic per common share computation | 18,689,854 | 18,261,800 | |||||
| Diluted net loss per common share | $ | (0.30 | ) | $ | (0.71 | ) | |
| Number of shares used in diluted per common share computation | 18,689,854 | 18,261,800 | |||||
(rounded to the nearest thousand dollars, except share and per share information)
| Fiscal Year | ||||||||
| 2021 | 2020 | |||||||
| Revenues: | ||||||||
| Software licenses | $ | 1,057,000 | $ | 590,000 | ||||
| Professional services | 2,026,000 | 618,000 | ||||||
| Audit services | 1,896,000 | 1,891,000 | ||||||
| Maintenance and support | 4,323,000 | 4,586,000 | ||||||
| Software as a service | 8,077,000 | 3,661,000 | ||||||
| Total revenues | 17,379,000 | 11,346,000 | ||||||
| Operating expenses: | ||||||||
| Cost of software licenses | 485,000 | 501,000 | ||||||
| Cost of professional services | 2,782,000 | 1,040,000 | ||||||
| Cost of audit services | 1,559,000 | 1,558,000 | ||||||
| Cost of maintenance and support | 334,000 | 684,000 | ||||||
| Cost of software as a service | 3,417,000 | 1,906,000 | ||||||
| Selling, general and administrative expense | 11,931,000 | 8,565,000 | ||||||
| Research and development | 4,782,000 | 2,933,000 | ||||||
| Non-routine costs | 2,856,000 | — | ||||||
| Loss on exit of membership agreement | — | 105,000 | ||||||
| Total operating expenses | 28,146,000 | 17,292,000 | ||||||
| Operating loss | (10,767,000 | ) | (5,946,000 | ) | ||||
| Other expense: | ||||||||
| Interest expense | (236,000 | ) | (51,000 | ) | ||||
| Loss on early extinguishment of debt | (43,000 | ) | — | |||||
| Other | 1,911,000 | (62,000 | ) | |||||
| PPP Loan Forgiveness | 2,327,000 | — | ||||||
| Loss from continuing operations before income taxes | (6,808,000 | ) | (6,059,000 | ) | ||||
| Income tax (expense) benefit | (109,000 | ) | 1,260,000 | |||||
| Loss from continuing operations | (6,917,000 | ) | (4,799,000 | ) | ||||
| Income from discontinued operations: | ||||||||
| Gain on sale of discontinued operations | — | 6,013,000 | ||||||
| Income from discontinued operations | 401,000 | 356,000 | ||||||
| Income tax expense | (26,000 | ) | (1,274,000 | ) | ||||
| Income from discontinued operations, net of tax | 375,000 | 5,095,000 | ||||||
| Net income (loss) | $ | (6,542,000 | ) | $ | 296,000 | |||
| Basic Earnings Per Share: | ||||||||
| Continuing operations | $ | (0.16 | ) | $ | (0.16 | ) | ||
| Discontinued operations | 0.01 | 0.17 | ||||||
| Net income | $ | (0.15 | ) | $ | 0.01 | |||
| Weighted average number of common shares - basic | 42,815,239 | 30,152,383 | ||||||
| Diluted Earnings Per Share: | ||||||||
| Continuing operations | $ | (0.16 | ) | $ | (0.16 | ) | ||
| Discontinued operations | 0.01 | 0.17 | ||||||
| Net income (loss) per common share - diluted | $ | (0.15 | ) | $ | 0.01 | |||
| Weighted average number of common shares - diluted | 43,273,574 | 30,640,742 | ||||||
See accompanying notes to consolidated financial statements.
| 40 |
STREAMLINE HEALTH SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
| Fiscal Year | |||||||
| 2015 | 2014 | ||||||
| Net loss | $ | (4,290,115 | ) | $ | (12,011,457 | ) | |
| Other comprehensive gain (loss), net of tax: | |||||||
| Fair value of interest rate swap liability | — | (3,436 | ) | ||||
| Reclassification adjustment for loss on settlement of interest rate swap liability realized in net loss | — | 114,522 | |||||
| Other comprehensive income | $ | — | $ | 111,086 | |||
| Comprehensive loss | $ | (4,290,115 | ) | $ | (11,900,371 | ) | |
(rounded to the nearest thousand dollars, except share information)
| Common | Additional | Total | ||||||||||||||||||
| stock | Common | paid in | Accumulated | stockholders’ | ||||||||||||||||
| shares | stock | capital | deficit | equity | ||||||||||||||||
| Balance at January 31, 2020 | 30,530,643 | $ | 305,000 | $ | 95,113,000 | $ | (79,413,000 | ) | $ | 16,005,000 | ||||||||||
| Restricted stock issued | 1,395,917 | 14,000 | (14,000 | ) | — | — | ||||||||||||||
| Restricted stock forfeited | (166,490 | ) | (2,000 | ) | 2,000 | — | — | |||||||||||||
| Surrender of stock | (162,095 | ) | (1,000 | ) | (255,000 | ) | — | (256,000 | ) | |||||||||||
| Share-based compensation expense | — | — | 1,444,000 | — | 1,444,000 | |||||||||||||||
| Net income | — | — | — | 296,000 | 296,000 | |||||||||||||||
| Balance at January 31, 2021 | 31,597,975 | 316,000 | 96,290,000 | (79,117,000 | ) | 17,489,000 | ||||||||||||||
| Balance | 31,597,975 | 316,000 | 96,290,000 | (79,117,000 | ) | 17,489,000 | ||||||||||||||
| Exercise of Stock Options | 3,300 | — | 4,000 | — | 4,000 | |||||||||||||||
| Restricted stock issued | 1,462,874 | 14,000 | (14,000 | ) | — | — | ||||||||||||||
| Issuance of Common Stock | 15,084,472 | 151,000 | 22,503,000 | — | 22,654,000 | |||||||||||||||
| Offering Expenses | (1,313,000 | ) | — | (1,313,000 | ) | |||||||||||||||
| Restricted stock forfeited | (50,100 | ) | — | — | — | — | ||||||||||||||
| Surrender of stock | (257,571 | ) | (3,000 | ) | (461,000 | ) | — | (464,000 | ) | |||||||||||
| Share-based compensation expense | — | — | 2,216,000 | — | 2,216,000 | |||||||||||||||
| Net loss | — | — | — | (6,542,000 | ) | (6,542,000 | ) | |||||||||||||
| Net income (loss) | — | — | — | (6,542,000 | ) | (6,542,000 | ) | |||||||||||||
| Balance at January 31, 2022 | 47,840,950 | $ | 478,000 | $ | 119,225,000 | $ | (85,659,000 | ) | $ | 34,044,000 | ||||||||||
| Balance | 47,840,950 | $ | 478,000 | $ | 119,225,000 | $ | (85,659,000 | ) | $ | 34,044,000 | ||||||||||
See accompanying notes to consolidated financial statements.
| 41 |
STREAMLINE HEALTH SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
| Common stock shares | Common stock | Additional paid in capital | Accumulated deficit | Accumulated other comprehensive loss | Total stockholders’ equity | |||||||||||||||||
| Balance at January 31, 2014 | 18,175,787 | $ | 181,758 | $ | 76,983,088 | $ | (47,562,713 | ) | $ | (111,086 | ) | $ | 29,491,047 | |||||||||
| Stock issued pursuant to Employee Stock Purchase Plan and exercise of stock options | 257,296 | 2,573 | 512,551 | — | — | 515,124 | ||||||||||||||||
| Restricted stock issued | 120,306 | 1,203 | (1,203 | ) | — | — | — | |||||||||||||||
| Interest rate swap | — | — | — | — | 111,086 | 111,086 | ||||||||||||||||
| Share-based compensation expense | — | — | 1,934,298 | — | — | 1,934,298 | ||||||||||||||||
| Deemed dividends on Series A Preferred Stock | — | — | (1,038,310 | ) | — | — | (1,038,310 | ) | ||||||||||||||
| Net loss | — | — | — | (12,011,457 | ) | — | (12,011,457 | ) | ||||||||||||||
| Balance at January 31, 2015 | 18,553,389 | $ | 185,534 | $ | 78,390,424 | $ | (59,574,170 | ) | $ | — | $ | 19,001,788 | ||||||||||
| Stock issued pursuant to Employee Stock Purchase Plan and exercise of stock options | 111,971 | 1,120 | 260,918 | — | — | 262,038 | ||||||||||||||||
| Restricted stock issued | 118,180 | 1,182 | (1,182 | ) | — | — | — | |||||||||||||||
| Share-based compensation expense | — | — | 2,386,489 | — | — | 2,386,489 | ||||||||||||||||
| Deemed dividends on Series A Preferred Stock | — | — | (1,336,072 | ) | — | — | (1,336,072 | ) | ||||||||||||||
| Net loss | — | — | — | (4,290,115 | ) | — | (4,290,115 | ) | ||||||||||||||
| Balance at January 31, 2016 | 18,783,540 | $ | 187,836 | $ | 79,700,577 | $ | (63,864,285 | ) | $ | — | $ | 16,024,128 | ||||||||||
(rounded to the nearest thousand dollars, except share information)
| 2021 | 2020 | |||||||
| Fiscal Year | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | (6,542,000 | ) | $ | 296,000 | |||
| LESS: Income from discontinued operations, net of tax | 375,000 | 5,095,000 | ||||||
| Loss from continuing operations, net of tax | (6,917,000 | ) | (4,799,000 | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 68,000 | 64,000 | ||||||
| Amortization of capitalized software development costs | 1,848,000 | 1,662,000 | ||||||
| Amortization of intangible assets | 1,281,000 | 491,000 | ||||||
| Amortization of other deferred costs | 449,000 | 359,000 | ||||||
| Amortization of Deferred Financing Costs | 51,000 | — | ||||||
| Valuation adjustments | (1,851,000 | ) | 31,000 | |||||
| Loss on early extinguishment of debt | 43,000 | — | ||||||
| Provision (benefit) for income taxes | 95,000 | (1,274,000 | ) | |||||
| Loss on exit of operating lease | — | 105,000 | ||||||
| Share-based compensation expense | 2,216,000 | 1,403,000 | ||||||
| Provision (benefit) for accounts receivable allowance | 11,000 | (31,000 | ) | |||||
| Forgiveness of PPP Loan | (2,327,000 | ) | — | |||||
| Changes in assets and liabilities: | ||||||||
| Accounts and contract receivables | (129,000 | ) | (253,000 | ) | ||||
| Other assets | (346,000 | ) | (519,000 | ) | ||||
| Accounts payable | 17,000 | (484,000 | ) | |||||
| Accrued expenses and other liabilities | 533,000 | (592,000 | ) | |||||
| Deferred revenues | 1,074,000 | 344,000 | ||||||
| Net cash used in operating activities – continuing operations | (3,884,000 | ) | (3,493,000 | ) | ||||
| Net cash provided by (used in) operating activities – discontinued operations | 380,000 | (2,264,000 | ) | |||||
| Cash flows from investing activities: | ||||||||
| Investment in Avelead, net of cash acquired | (12,470,000 | ) | — | |||||
| Purchases of property and equipment | (41,000 | ) | (44,000 | ) | ||||
| Proceeds from sale of ECM assets | 800,000 | 11,288,000 | ||||||
| Capitalization of software development costs | (1,458,000 | ) | (1,784,000 | ) | ||||
| Net cash (used in) provided by investing activities – continuing operations | (13,169,000 | ) | 9,460,000 | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of common stock | 16,100,000 | — | ||||||
| Payments for costs directly attributable to the issuance of common stock | (1,313,000 | ) | — | |||||
| Repayment of bank term loan | — | (4,000,000 | ) | |||||
| Proceeds from term loan payable | 10,000,000 | 2,301,000 | ||||||
| Payments related to settlement of employee shared-based awards | (464,000 | ) | (256,000 | ) | ||||
| Payment of deferred financing costs | (168,000 | ) | — | |||||
| Payment on royalty liability | — | (1,000,000 | ) | |||||
| Other | (6,000 | ) | 12,000 | |||||
| Net cash provided by (used in) financing activities – continuing operations | 24,149,000 | (2,943,000 | ) | |||||
| Net increase in cash and cash equivalents | 7,476,000 | 760,000 | ||||||
| Cash and cash equivalents at beginning of period | 2,409,000 | 1,649,000 | ||||||
| Cash and cash equivalents at end of period | $ | 9,885,000 | $ | 2,409,000 | ||||
| Supplemental cash flow disclosures: | ||||||||
| Interest paid, net of amounts capitalized | $ | 153,000 | $ | 17,000 | ||||
| Income taxes paid | $ | 21,000 | $ | — | ||||
See accompanying notes to consolidated financial statements.
| 42 |
STREAMLINE HEALTH SOLUTIONS, INC. AND SUBSIDIARY
| Fiscal Year | |||||||
| 2015 | 2014 | ||||||
| Operating activities: | |||||||
| Net loss | $ | (4,290,115 | ) | $ | (12,011,457 | ) | |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities, net of effect of acquisitions: | |||||||
| Depreciation | 1,245,400 | 1,005,283 | |||||
| Amortization of capitalized software development costs | 3,073,479 | 3,677,991 | |||||
| Amortization of intangible assets | 1,344,992 | 1,396,317 | |||||
| Amortization of other deferred costs | 206,881 | 189,107 | |||||
| Amortization of debt discount | — | 47,552 | |||||
| Valuation adjustment for warrants liability | (1,629,267 | ) | (2,283,345 | ) | |||
| Deferred tax expense (benefit) | (9,575 | ) | (720,582 | ) | |||
| Other valuation adjustments | (39,299 | ) | 128,855 | ||||
| Gain from early extinguishment of lease liability | (33,059 | ) | — | ||||
| Loss on impairment of intangible assets | — | 1,952,000 | |||||
| Loss from early extinguishment of debt | — | 315,327 | |||||
| Loss on disposal of fixed assets | 92,448 | 180,793 | |||||
| Loss on exit of operating lease | — | 234,823 | |||||
| Share-based compensation expense | 2,386,490 | 1,934,298 | |||||
| Provision for accounts receivable | 124,235 | 440,771 | |||||
| Changes in assets and liabilities, net of assets acquired: | |||||||
| Accounts and contract receivables | 2,718,330 | 2,157,977 | |||||
| Other assets | 575,774 | (637,348 | ) | ||||
| Accounts payable | (1,117,986 | ) | 600,263 | ||||
| Accrued expenses | (174,133 | ) | (1,422,571 | ) | |||
| Deferred revenues | 1,405,980 | (197,698 | ) | ||||
| Net cash provided by (used in) operating activities | 5,880,575 | (3,011,644 | ) | ||||
| Investing activities: | |||||||
| Purchases of property and equipment | (518,254 | ) | (2,125,240 | ) | |||
| Capitalization of software development costs | — | (619,752 | ) | ||||
| Payment for acquisition, net of cash acquired | — | (6,058,225 | ) | ||||
| Net cash used in investing activities | (518,254 | ) | (8,803,217 | ) | |||
| Financing activities: | |||||||
| Proceeds from term loan | — | 10,000,000 | |||||
| Principal repayments on term loans | (1,465,109 | ) | (8,297,620 | ) | |||
| Principal repayments on note payable | — | (900,000 | ) | ||||
| Principal payments on capital lease obligation | (815,826 | ) | (368,386 | ) | |||
| Recovery (payment) of deferred financing costs | 2,111 | (573,002 | ) | ||||
| Proceeds from exercise of stock options and stock purchase plan | 276,039 | 551,583 | |||||
| Net cash (used in) provided by financing activities | (2,002,785 | ) | 412,575 | ||||
| Increase (decrease) in cash and cash equivalents | 3,359,536 | (11,402,286 | ) | ||||
| Cash and cash equivalents at beginning of year | 6,522,600 | 17,924,886 | |||||
| Cash and cash equivalents at end of year | $ | 9,882,136 | $ | 6,522,600 | |||
| Fiscal Year | |||||||
| 2015 | 2014 | ||||||
| Supplemental cash flow disclosures: | |||||||
| Interest paid | $ | 917,212 | $ | 518,919 | |||
| Income taxes paid (received) | $ | (35,861 | ) | $ | (80,467 | ) | |
| Supplemental disclosure of non-cash financing activities: | |||||||
| Deemed dividends on Series A Preferred Stock | $ | 1,336,072 | $ | 1,038,310 | |||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 20162022 and 2015
NOTE 1 — ORGANIZATION AND DESCRIPTION OF BUSINESS
Streamline Health Solutions, Inc. and subsidiary (“we”each of its wholly-owned subsidiaries, Streamline Health, LLC, Avelead Consulting, LLC, Streamline Consulting, LLC and Streamline Pay & Benefits, LLC, (collectively, unless the context requires otherwise, “we”, “us”, “our”, “Streamline”, or the “Company”) operates in one1 segment as a provider of healthcare information technology solutions and associated services. The Company provides these capabilities through the licensing of its Electronic Health Information Management, Patient Financial Services, Coding and Clinical Documentation Improvement& CDI, eValuator coding analysis platform, RevID, and other Workflowworkflow software applications and the use of such applications by software as a service.service (“SaaS”). The Company also provides audit services to help customers optimize their internal clinical documentation and coding functions, as well as implementation and consulting services to complement its software solutions. The Company’s software and services enable hospitals and integrated healthcare delivery systems in the United States and Canada to capture, store, manage, route, retrieve and process vast amounts of patient clinical, financial and other healthcare provider information.
Fiscal Year
All references to a fiscal year refer to the fiscal year commencing February 1 in that calendar year and ending on
January 31 of the following calendar year.NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Streamline Health Solutions, Inc. and its wholly-owned subsidiary,subsidiaries, Streamline Health, Inc.LLC, Avelead Consulting, LLC, Streamline Consulting Solutions, LLC and Streamline Pay & Benefits, LLC. All significant intercompany transactions and balances are eliminated in consolidation.
Refer to Note – 3 Business Combination and Divestiture. Under ASC 280-10-50-11, two or more operating segments may be aggregated into a single operating segment if they are considered to be similar. Operating segments are considered to be similar if they can be expected to have essentially the same economic characteristics and future prospects. Using the aggregation guidance, the Company determined that it has one operating segment due to the similar economic characteristics of the Company’s products, product development, distribution, regulatory environment and customer base as a provider of computer software-based solutions and services for acute-care healthcare providers. The Company has two reporting units for evaluation of intangible assets. These two reporting units are the legacy Streamline business and Avelead.
On February 24, 2020, the Company sold a portion of its business (the ECM Assets). We applied the standard of ASC 205-20-1 to ascertain the timing of accounting for the discontinued operations. Based on ASC 205-20-1, the Company determined that upon receiving stockholder approval, which occurred February 21, 2020, it was authorized to sell the ECM assets. By the Company having the authority and ability to consummate the sale of the ECM Assets, it met the criteria to present discontinued operations as described in ASC 205-20-1. Accordingly, the Company is reporting the results of operations and cash flows, and related balance sheet items associated with the ECM Assets in discontinued operations in the accompanying consolidated statements of operations, cash flows and balance sheets for the current and comparative prior periods. Refer to Note 13 – Discontinued Operations for further details.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates and judgments, including those related to the recognition of revenue, stock-based compensation, capitalization of software development costs, intangible assets, the allowance for doubtful accounts, contingent consideration and income taxes. Actual results could differ from those estimates.
Cash and Cash Equivalents
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash demand deposits. Cash deposits are placed in Federal Deposit Insurance Corporation (“FDIC”) insured financial institutions. Cash deposits may exceed FDIC insured levels from time to time. For purposes of the Consolidated Balance Sheetsconsolidated balance sheets and Consolidated Statementsconsolidated statements of Cash Flows,cash flows, the Company considers all highly liquidhighly-liquid investments purchased with an original maturity of three months or less to be cash equivalents.
| 43 |
Non-Cash Items
The Company had the following items that were non-cash items related to the consolidated statements of cash flows:
SCHEDULE OF NON-CASH ITEMS RELATED TO CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Fiscal Year | ||||||||
| 2021 | 2020 | |||||||
| Forgiveness of PPP loan and accrued interest | $ | 2,327,000 | $ | — | ||||
| Escrowed funds from sale of ECM Assets | — | 800,000 | ||||||
| Right-of Use Assets from operating lease | — | 540,000 | ||||||
| Capitalized software purchased with stock (Note 12) | — | 41,000 | ||||||
Receivables
Accounts and contract receivables are comprised of amounts owed to the Company for licensed software, professional services, including coding audit services, consulting services, maintenance services, and software as a service and are presented net of the allowance for doubtful accounts. The timing of revenue recognition may not coincide with the billing terms of the clientcustomer contract, resulting in unbilled receivables or deferred revenues; therefore, certain contract receivables represent revenues recognized prior to clientcustomer billings. Individual contract terms with clientscustomers or resellers determine when receivables are due. Accounts receivable represent amounts that the entity has an unconditional right to consideration. For billings where the criteria for revenue recognition have not been met, deferred revenue is recorded until all revenue recognition criteria have been met.
Allowance for Doubtful Accounts
The Company adjusts accounts receivable down to net realizable value with its allowance methodology. In determining the allowance for doubtful accounts, aged receivables are analyzed monthlyanalysed periodically by management. Each identified receivable is reviewed based upon the most recent information available including client comments, if any, and the status of any open or unresolved issues with the clientcustomer preventing the payment thereof. Corrective action, if necessary, is taken by the Company to resolve open issues related to unpaid receivables. During these monthlyperiodic reviews, the Company determines the required allowances for doubtful accounts for estimated losses resulting from the unwillingness or inability of its clientscustomers or resellers to make required payments. The allowance for doubtful accounts was approximately $155,000$76,000 and $666,000$65,000 at
Bad debt (benefit) expense for fiscal years 20152021 and 20142020 was as follows:
| 2015 | 2014 | ||||||
| Bad debt expense | $ | 124,000 | $ | 441,000 | |||
SCHEDULE OF BAD DEBT EXPENSES
| 2021 | 2020 | |||||||
| Bad debt expense (benefit) | $ | 11,000 | $ | (31,000 | ) | |||
Concessions Accrual
In determining the concessionconcessions accrual, the Company evaluates historical concessions granted relative to revenue. The Company records a provision, reducing revenue, each period for the estimated amount of concessions incurred on the revenue recorded. The Company evaluates the amount of the provision and the concession accrual each period. The concession accrual included in accrued other expenses on the Company'sCompany’s consolidated balance sheetsheets was $54,000$152,000 and $58,000$99,000 as of
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the straight-line method, over the estimated useful lives of the related assets. Estimated useful lives are as follows:
SCHEDULE OF ESTIMATED USEFUL LIFE OF PROPERTY AND EQUIPMENT
| Computer equipment and software | 3-4 years | |
| Office equipment | 5 years | |
| Office furniture and fixtures | 5-7 years | |
| Leasehold improvements | Term of lease or estimated useful life, whichever is shorter |
Depreciation expense for property and equipment in fiscal
Normal repairrepairs and maintenance isare expensed as incurred. Replacements are capitalized and the property and equipment accounts are relieved of the items being replaced or disposed of, if no longer of value. The related cost and accumulated depreciation of the disposed assets are eliminated and any gain or loss on disposition is included in the results of operations in the year of disposal.
The Company wrote-off fully depreciated fixed assets during fiscal 2021 of $198,000. There was no impact to the consolidated statements of operations as this eliminated the asset and accumulated depreciation of the fully depreciated fixed assets.
| 44 |
Leases
We determine whether an arrangement is a lease at inception. Right-of-use assets represent our right to use an underlying asset for the Company entered into an amended lease term, and lease liabilities represent our obligation to make lease
Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of office space at 1230 Peachtree St. NE in Atlanta, Georgia. The lease commenced upon taking possession ofpayments over the space and would have ended
Debt Issuance Costs
For fiscal 2021, costs of $130,000 related to the issuance of the premises,Second Amended and Restated Loan and Security Agreement were capitalized as a reduction to the rent abatement and the unamortized balancecarrying value of deferred rent associated with the previously leased premises were aggregated with the total expected rental payments,debt and are being amortized on a straight-line basisaccreted to interest expense over the term of the new lease.
Cost related to the issuance of debt arethe Loan and Security Agreement and Second Amended and Restated Loan and Security Agreement were capitalized and amortized to interest expense on a straight-line basis, which is not materially different from the effective interest method, over the term of the related debt.
Impairment of Long-Lived Assets
The Company reviews the carrying value of long-lived assets for impairment whenever facts and circumstances exist that would suggest that assets might be impaired or that the useful lives should be modified. Among the factors the Company considers in making the evaluation are changes in market position and profitability. If facts and circumstances are present which may indicate impairment is probable,that the carrying amount of the assets may not be recoverable, the Company will prepare a projection of the undiscounted cash flows of the specific asset or asset group and determine if the long-lived assets are recoverable based on these undiscounted cash flows. If impairment is indicated, an adjustment will be made to reduce the carrying amount of these assets to their fair value.
Capitalized Software Development Costs
Software development costs for software to be sold, leased, or marketed are accounted for in accordance with ASC 985-20, Software — Costs of Software to be Sold, Leased or Marketed. Costs associated with the planning and designingdesign phase of software development including coding and testing activities necessary to establish technological feasibility, are classified as research and development costs and are expensed as incurred. Once technological feasibility has been determined,established, a portion of the costs incurred in development, including coding, testing and quality assurance, are capitalized until available for general release to customers, and subsequently reported at the lower of unamortized cost or net realizable value. The Company capitalized such costs, including interest, of $0 and $620,000 in fiscal
Internal-use software development costs are accounted for in accordance with ASC 350-40, Internal-Use Software. The costs incurred in the preliminary stages of development are expensed as research and development costs as incurred. Once an application has reached the development stage, internal and external costs incurred to develop internal-use software are capitalized and amortized on a straight-line basis over the estimated useful life of the software (typically three to four years). Maintenance and enhancement costs, including those costs in the post-implementation stages, are typically expensed as incurred, unless such costs relate to substantial upgrades and enhancements to the software that result in added functionality, in which case the costs are capitalized and amortized on a straight-line basis over the estimated useful life of the software. The Company reviews the carrying value for impairment whenever facts and circumstances exist that would suggest that assets might be impaired or that the useful lives should be modified. Amortization expense related to capitalized internal-use software development costs is availableincluded in Cost of software as a service on the consolidated statements of operations. Capitalized software development costs for general releaseinternal-use software, net of accumulated amortization, totaled $4,709,000 and $4,842,000 as of January 31, 2022 and 2021, respectively.
| 45 |
The estimated useful lives of software (including software to clients. Acquired internally developedbe sold and internal-use software) are reviewed frequently and adjusted as appropriate to reflect upcoming development activities that may include significant upgrades and/or enhancements to the existing functionality. The Company reviews, on an on-going basis, the carrying value of its capitalized software from the Interpoint, Meta, and Unibased acquisitions is amortized using the straight-line method.
Amortization expense on all internally developedcapitalized software development cost was $3,073,000$2,173,000 and $3,678,000$1,662,000 in fiscal
The Company uses the “carry-over” method for amortizing capitalized software development costs. Under the “carry-over” method, the costs of the enhancements are added to the unamortized costs of the previous version of the product and the combined amount is amortized over the remaining useful life of the product. Including unamortized cost of the original product with the cost of the enhancement for purposes of applying the net realizable value test and amortization provisions is consistent with accounting guidance for software companies that improve their software and discontinue selling or marketing the older versions.
SCHEDULE OF AMORTIZATION EXPENSE FOR INTERNALLY DEVELOPED SOFTWARE
| Fiscal Year | ||||||||
| 2021 | 2020 | |||||||
| Amortization expense on internally-developed software included in: | ||||||||
| Cost of software licenses | $ | 485,000 | $ | 501,000 | ||||
| Cost of audit services | 13,000 | 13,000 | ||||||
| Cost of software as a service | 1,675,000 | 1,148,000 | ||||||
| Total amortization expense on internally-developed software | $ | 2,173,000 | $ | 1,662,000 | ||||
Interest capitalized to software development cost in fiscal 2021 and 2020 was $27,000 and $13,000, respectively, and was includedrespectively. The interest capitalized to software development cost reduces the Company’s interest expense recognized in the consolidated statements of operations as follows:
| Fiscal Year | |||||||
| Amortization expense on internally developed software included in: | 2015 | 2014 | |||||
| Cost of systems sales | $ | 2,747,000 | $ | 3,352,000 | |||
| Cost of software as a service | 326,000 | 326,000 | |||||
| Total amortization expense on internally developed software | $ | 3,073,000 | $ | 3,678,000 | |||
Research and development expense net of capitalized amounts, was $9,093,000$4,782,000 and $9,756,000$2,933,000 in fiscal
Fair Value of Financial Instruments
The FASB’s authoritative guidance on fair value measurements establishes a framework for measuring fair value, and expands disclosure about fair value measurements. This guidance enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. Under this guidance, assets and liabilities carried at fair value must be classified and disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market basedmarket-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value based on the short-term maturity of these instruments. Cash and cash equivalents are classified as Level 1. The carrying amountFor fiscal years 2021 and 2020, there were no transfers of the Company’s long-term debt approximates fair value since the variable interest rates being paid on the amounts approximate the market interest rate. Long-term debt is classified as Level 2.assets or liabilities between Levels 1, 2, or 3.
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The table below provides information on our liabilities that are measured at fair value on a recurring basis:
| Total Fair Value | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
| At January 31, 2016 | |||||||||||||||
| Warrants liability (1) | $ | 205,000 | $ | — | $ | — | $ | 205,000 | |||||||
| Royalty liability (2) | 2,292,000 | — | — | 2,292,000 | |||||||||||
| At January 31, 2015 | |||||||||||||||
| Warrants liability (3) | $ | 1,834,000 | $ | — | $ | — | $ | 1,834,000 | |||||||
| Royalty liability (2) | 2,386,000 | — | — | 2,386,000 | |||||||||||
SCHEDULE OF FAIR VALUE ASSETS AND LIABILITIES MEASURED ON RECURRING BASIS
Quoted Prices in | Significant Other | Significant | ||||||||||||||
| Total Fair | Active Markets | Observable Inputs | Unobservable Inputs | |||||||||||||
| Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| At January 31, 2022 | ||||||||||||||||
| Acquisition earnout liability (1) | $ | 8,833,000 | $ | – | $ | – | $ | 8,833,000 | ||||||||
| (1) | |
The fair value of the Company’s term loan under its Second Amended and Restated Loan and Security Agreement was determined through an analysis of the interest rate spread from the date of closing the loan (August 2022) to the date of the most recent balance sheet, January 31, 2022. The term loan bears interest at a per annum rate equal to the Prime Rate (as published in The Wall Street Journal) plus 1.5%, with a Prime “floor” rate of 3.25%. The prime rate is variable and, thus accommodates changes in the market interest rate. However, the interest rate spread (the 1.5% added to the Prime Rate) is fixed. We estimated the impact of the changes in the interest rate spread by analogizing the effect of the change in the Corporate bond rates, reduced for any changes in the market interest rate. This provided us with an estimated change to the interest rate spread of approximately 0.5% from the date we entered the debt agreement to the end of the fiscal year, January 31, 2022. The discount to the value of the debt as of January 31, 2022 was estimated to be $9,798,000, or a discount to book value $202,000. Long-term debt is classified as Level 2.
The fair value of the PPP loan was determined based on discounting the loan amount as of January 31, 2021. The fair value using market rates the Company believes would be available for similar types of financial instruments would have resulted in a lower fair value of $2,231,000 as compared to the book value of $2,301,000, a reduction of $70,000.
Revenue Recognition
We derive revenue from the sale of internally developedinternally-developed software, either by licensing for local installation or by software as a service (SaaS),SaaS delivery model, through theour direct sales force or through third-party resellers. Licensed, locally-installed clientscustomers on a perpetual model utilize the Company’sour support and maintenance services for a separate fee, whereas term-based locally installed license fees and SaaS fees include support and maintenance. The CompanyWe also derivesderive revenue from professional services that support the implementation, configuration, training and optimization of the applications. Additional revenues are also derived from reselling third-party softwareapplications, as well as audit services and hardware components.
We recognize revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers (“ASC 985-605,
We commence revenue recognition when(Step 5 below) in accordance with that core principle after applying the following criteria all have been met:
| ● | Step 1: Identify the contract(s) with a customer | |
| ● | Step 2: Identify the performance obligations in the contract | |
| ● | Step 3: Determine the transaction price | |
| ● | Step 4: Allocate the transaction price to the performance obligations in the contract | |
| ● | Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation |
Often contracts contain more than one performance obligation. Performance obligations are the unit of an arrangement exists,
If we determine that any of the above criteriawe have not been met,satisfied a performance obligation, we will defer recognition of the revenue until all the criteria have been met.performance obligation is satisfied. Maintenance and support and SaaS agreements entered into are generally non-cancelable,non-cancellable or contain significant penalties for early cancellation, although clientscustomers typically have the right to terminate their contracts for cause if the Company failswe fail to perform material obligations. However, if non-standard acceptance periods, or non-standard performance criteria, or cancellation or right of refund terms are required, revenue is recognized upon the satisfaction of such criteria, as applicable.criteria.
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The Company appliesdetermined transaction price is allocated based on the provisions of Accounting Standards Update No. 2009-13, Revenue Recognition (Topic 605),
Contract Combination
The Company may execute more than one contract or agreement with a single customer. The Company evaluates whether the agreements were negotiated as a package with a single objective, whether the amount of consideration to be paid in one agreement depends on the price and/or performance of another agreement, or whether the goods or services promised in the agreements represent a single performance obligation. The conclusions reached can impact the allocation of the transaction price to each performance obligation and the timing of revenue recognition related to those arrangements.
The Company has utilized the portfolio approach as the Company cannot establish VSOEpractical expedient. We have applied the revenue model to a portfolio of contracts with similar characteristics where we expected that the financial statements would not differ materially from applying it to the individual contracts within that portfolio.
Software Licenses
The Company’s software license arrangements provide the customer with the right to use functional intellectual property. Implementation, support, and TPE is notother services are typically considered distinct performance obligations when sold with a practical alternative due to differences in functionality from the Company's competitors. Similar to proprietarysoftware license sales, pricing decisions rely on the relative size of the client purchasing the solution, and include calculating the equivalent value of maintenance and support on a present value basis over the term of the initial agreement period. Typically revenue recognition commences upon client go-live on the system, and is recognized ratably over the contract term.
Maintenance and Support Services
Our maintenance and support components are not essential toobligations include multiple discrete performance obligations, with the functionality oftwo largest being unspecified product upgrades or enhancements, and technical support, which can be offered at various points during a contract period. We believe that the software and clients renew maintenance contracts separately from software purchases at renewal rates materially similar to the initial rate charged for maintenance on the initial purchase of software. The Company uses VSOE of fair value to determine fair value ofmultiple discrete performance obligations within our overall maintenance and support services. Generally, maintenance and support is calculatedobligations can be viewed as a percentage ofsingle performance obligation since both the list price ofunspecified upgrades and technical support are activities to fulfill the proprietary license being purchased by a client. Clients have the option of purchasing additional annual maintenance service renewals each year for which ratesperformance obligation and are not materially different from the initial rate, but typically include a nominal rate increase based on the consumer price index. Annual maintenancerendered concurrently. Maintenance and support agreements entitle clientscustomers to technology support, version upgrades, bug fixes and service packs.
Software-Based Solution Professional Services
The Company provides various professional services to proprietary license sales, pricing decisions rely on the relative size of the client purchasing the solution. Thecustomers with software portion of our codinglicenses. These include project management, software implementation and clinical documentation improvement solutions generally does not require materialsoftware modification services. Revenues from arrangements to achieve their contracted function.
Software as a Service
SaaS-based contracts include a right to use of the Company’s platform and support which represent a single promise to provide continuous access to its software solutions. Implementation services for the Company’s eValuator product are included as part of the single promise for its respective contracts. The Company recognizes revenue for implementation of the eValuator product over the contract term as it is determined that the implementation on eValuator is not a distinct performance obligation. Implementation services for other SaaS products are deemed to be separate performance obligations.
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Audit Services
The Company provides technology-enabled coding audit services to help customers review and optimize their internal clinical documentation and coding functions across the applicable segment of the customer’s enterprise. Audit services are a separate performance obligation. We recognize revenue over time as the services are performed.
Disaggregation of Revenue
The following table provides information about disaggregated revenue by type and nature of revenue stream:
SCHEDULE OF DISAGGREGATION OF REVENUE
| Fiscal Year | ||||||||
| 2021 | 2020 | |||||||
| Recurring Revenue | $ | 12,400,000 | $ | 8,247,000 | ||||
| Non-Recurring Revenue | 4,979,000 | 3,099,000 | ||||||
| Total revenue | $ | 17,379,000 | $ | 11,346,000 | ||||
The Company includes revenue categories of (i) maintenance and support and (ii) software as a service as recurring revenue for fiscal years ended January 31, 2021 and January 31, 2020. The Company includes revenue categories of (i) software licenses, (ii) professional services, and (iii) audit services as non-recurring revenue for the fiscal years ended January 31, 2021 and January 31, 2020. Avelead makes up $2,790,000 of the Recurring Revenue for fiscal 2021 and $1,735,000 of the Non-Recurring Revenue for fiscal 2021.
Contract Receivables and Deferred Revenues
The Company receives payments from customers based upon a proportional performance methodology.
Deferred costs (costs to fulfill a contract and contract acquisition costs)
We defer the duration of the initial contract term. The Company defers the associated direct costs, forwhich include salaries and benefits, expense for professional services contracts.related to SaaS contracts as a cost to fulfill a contract. These deferred costs will be amortized on a straight-line basis over the identical term as the associated SaaS revenues.contractual term. As of
Contract acquisition costs, which consist of fair value basedsales commissions paid or payable, is considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions for initial and renewal contracts are deferred and then amortized on a straight-line basis over the contract term. As a practical expedient, we expense sales commissions as incurred when the amortization period of related deferred commission costs would have been one year or less.
Deferred commissions costs paid and payable, which are included on the hourly rate charged when services are sold separately, to determine fair valueconsolidated balance sheets within other non-current assets totalled $806,000 and $666,000, respectively, as of professional services. The Company typically sells professional servicesJanuary 31, 2022 and 2021. In fiscal 2021 and 2020, $339,000 and $206,000, respectively, in amortization expense associated with deferred sales commissions was included in selling, general and administrative expenses on an hourly-fee basis. The Company monitors projects to assure that the expectedconsolidated statements of operations. There were no impairment losses for these capitalized costs for fiscal years 2021 and historical rate earned remains within a reasonable range to the established selling price.2020.
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Concentrations
Financial instruments, which potentially expose the Company to concentrations of credit risk, consist primarily of accounts receivable. The Company’s accounts receivable are concentrated in the healthcare industry. However, the Company’s clientscustomers typically are well-established hospitals, medical facilities or major health information systems companies with good credit histories that resell the Company’s solutions that have good credit histories.solutions. Payments from clientscustomers have been received within normal time frames for the industry. However, some hospitals and medical facilities have experienced significant operating losses as a result of limits on third-party reimbursements from insurance companies and governmental entities and extended payment of receivables from these entities is not uncommon.
To date, the Company has relied on a limited number of clientscustomers and remarketing partners for a substantial portion of its total revenues. The Company expects that a significant portion of its future revenues will continue to be generated by a limited number of clientscustomers and its remarketing partners.
Goodwill and Intangible Assets
Goodwill and other intangible assets were recognized in conjunction with the Avelead Consulting, Interpoint, Meta, CLG and Opportune IT acquisitions, as well as the Unibased acquisitions.acquisition (prior to divestiture of such assets). Identifiable intangible assets include purchased intangible assets with finite lives, which primarily consist of internally developedinternally-developed software client relationships, supplier agreements, non-compete agreements,and customer contracts, and license agreements.relationships. Finite-lived purchased intangible assets are amortized over their expected period of benefit, which generally ranges from one to 15 years, using the straight-line and undiscounted expected future cash flows methods. The indefinite-lived intangible asset related to the Meta trade name was not amortized, but was tested for impairment on at least an annual basis. In fiscal 2014, the Meta trade name was deemed impaired and its corresponding balance was fully written off (see Note 7 - Goodwill and Intangible Assets).
The Company assesses the useful lives and possible impairment of existing recognized goodwill and intangible assets when an event occurs that may trigger such a review. Factors considered important which could trigger a review include:
| ● | significant underperformance relative to historical or projected future operating results; | |
| ● | significant changes in the manner of use of the acquired assets or the strategy for the overall business; | |
| ● | identification of other impaired assets within a reporting unit; | |
| ● | disposition of a significant portion of an operating segment; | |
| ● | significant negative industry or economic trends; | |
| ● | significant decline in the Company’s stock price for a sustained period; and | |
| ● | a decline in the market capitalization relative to the net book value. |
Determining whether a triggering event has occurred involves significant judgment by the Company.
The Company assesses goodwill annually (as of November 1), or more frequently when events and circumstances, such as the ones mentioned above, occur indicating that the recorded goodwill may be impaired. TheDuring the years ended January 31, 2022 and 2021, the Company did not note any of the above qualitative factors, which would be considered a triggering event for goodwill impairment. In assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company assesses relevant events and circumstances that may impact the fair value and the carrying amount of a reporting unit. The identification of relevant events and circumstances and how these may impact a reporting unit'sunit’s fair value or carrying amount involve significant judgments by management. These judgments include the consideration of macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, events which are specific to the Company and trends in the market price of the Company'sCompany’s common stock. Each factor is assessed to determine whether it impacts the impairment test positively or negatively, and the magnitude of any such impact.
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Reporting units are determined based on the organizational structure the entity has in place at the date of the impairment test. A reporting unit is an operating segment or component business unit with the following characteristics: (a) it has discrete financial information, (b) segment management regularly reviews its operating results (generally an operating segment has a segment manager who is directly accountable to and maintains regular contact with the chief operating decision maker to discuss operating activities, financial results, forecasts or plans for the segment), and (c) its economic characteristics are dissimilar from other units (this contemplates the nature of the products and services, the nature of the production process, the type or class of customer for the products and services and the methods used to distribute the products and services).
The Company estimates the fair value of its reporting unit using the income approach, via discounted cash flow valuation models which include, but are not limited to, assumptions such as a “risk-free” rate of return on an investment, the weighted average cost of capital of a market participant and future revenue, operating margin, working capital and capital expenditure trends. Determining the fair valuesvalue of reporting units and goodwill includes significant judgment by management, and different judgments could yield different results.
The Company performed its annual assessment of goodwill during the fourth quarter of fiscal 2015,2021, using the two-step approach described above. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. Based on the analysis performed, for step one, the fair value of the reporting unitunits exceeded the carrying amount of the reporting unit, including goodwill, and, therefore, ana goodwill impairment loss was not recognized. As the Company passed step one of the analysis, step two was not required.
Equity Awards
The Company accounts for share-based payments based on the grant-date fair value of the awards with compensation cost recognized as expense over the requisite vestingservice period. For awards to non-employees, the Company recognizes compensation expense in the same manner as if the entity had paid cash for the goods or services. The Company incurred total annual compensation expense related to stock-based awards of $2,386,000 and $1,934,000$ in fiscal
The fair value of the stock options granted in fiscal
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The Company issues restricted stock awards in the form of Company common stock. The fair value of these awards is based on the market close price per share on the day of grant.grant date. The Company expenses the compensation cost of these awards as the restriction period lapses, which is typically a one-yearone- to four-year service period to the Company.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for tax credit and loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. In assessing net deferred tax assets, the Company considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. The Company establishes a valuation allowance when it is more likely than not that all or a portion of deferred tax assets will not be realized. See Note 87 - Income Taxes for further details.
The Company provides for uncertain tax positions and the related interest and penalties based upon management’s assessment of whether certain tax positions are more likely than not to be sustained upon examination by tax authorities. At
January 31,The Company presents basic and diluted earnings per share (“EPS”) data for itsour common stock. Basic EPS is calculated by dividing the net loss attributable to shareholders of the Company by the weighted average number of shares of common stock outstanding during the period. Diluted EPS is calculated based on the profit or loss attributable to shareholders and the weighted average number of shares of common stock outstanding adjusted for the effects of all potential dilutive common stock issuances related to options, unvested restricted stock, warrants and convertible preferred stock. Potential common stock dilution related to outstanding stock options, unvested restricted stock and warrants is determined using the treasury stock method, while potential common stock dilution related to Series A Convertible Preferred Stock is determined using the “if converted” method.
Our unvested restricted stock awards are considered participatingnon-participating securities because they entitle holders are not entitled to non-forfeitable rights to dividends or dividend equivalents during the vesting term. The holders of the Series A Preferred Stock would be entitled to share in dividends, on an as-converted basis, if the holders of common stock were to receive dividends, other than dividends in the form of common stock. In accordance with ASC 260, a company is required to use the two-class method when computing EPS when a company has a security that qualifies as a “participating security.” The two-class method is an earnings allocation formula that determines EPS for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. In determining the amount of net earnings to allocate to common stock holders, earnings are allocated to both common and participating securities based on their respective weighted-average shares outstanding for the period. Diluted EPS for the Company's common stock is computed using the more dilutive of the two-class method or the if-converted method.
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| Fiscal Year | |||||||
| 2015 | 2014 | ||||||
| Net loss | $ | (4,290,115 | ) | $ | (12,011,457 | ) | |
| Less: deemed dividends on Series A Preferred Stock | (1,336,072 | ) | (1,038,310 | ) | |||
| Net loss attributable to common shareholders | $ | (5,626,187 | ) | $ | (13,049,767 | ) | |
| Weighted average shares outstanding used in basic per common share computations | 18,689,854 | 18,261,800 | |||||
| Stock options and restricted stock | — | — | |||||
| Number of average shares used in diluted per common share computation | 18,689,854 | 18,261,800 | |||||
| Basic net loss per share of common stock | $ | (0.30 | ) | $ | (0.71 | ) | |
| Diluted net loss per share of common stock | $ | (0.30 | ) | $ | (0.71 | ) | |
SCHEDULE OF BASIC AND DILUTED NET LOSS PER SHARE OF COMMON STOCK
| 2021 | 2020 | |||||||
| Fiscal Year | ||||||||
| 2021 | 2020 | |||||||
| Basic earnings (loss) per share: | ||||||||
| Continuing operations | ||||||||
| Loss from continuing operations, net of tax | $ | (6,917,000 | ) | $ | (4,799,000 | ) | ||
| Basic net loss per share of common stock from continuing operations | $ | (0.16 | ) | $ | (0.16 | ) | ||
| Discontinued operations | ||||||||
| Income available to common stockholders from discontinued operations | $ | 375,000 | $ | 5,095,000 | ||||
| Basic net earnings per share of common stock from discontinued operations | $ | 0.01 | $ | 0.17 | ||||
| Diluted earnings (loss) per share (1): | ||||||||
| Continuing operations | ||||||||
| Loss available to common stockholders from continuing operations (1) | $ | (6,917,000 | ) | $ | (4,799,000 | ) | ||
| Diluted net loss per share of common stock from continuing operations (1) | $ | (0.16 | ) | $ | (0.16 | ) | ||
| Discontinued operations | ||||||||
| Income available to common stockholders from discontinued operations | $ | 375,000 | $ | 5,095,000 | ||||
| Diluted net earnings per share of common stock from discontinued operations | $ | 0.01 | $ | 0.17 | ||||
| Net (loss) income | $ | (6,542,000 | ) | $ | 296,000 | |||
| Weighted average shares outstanding - Basic (1) (1) | 42,815,239 | 30,152,383 | ||||||
| Effect of dilutive securities - Stock options and Restricted stock (2) (2) | 458,335 | 488,359 | ||||||
| Weighted average shares outstanding – Diluted | 43,273,574 | 30,640,742 | ||||||
| Basic net (loss) income per share of common stock | $ | (0.15 | ) | $ | 0.01 | |||
| Diluted net (loss) income per share of common stock | $ | (0.15 | ) | $ | 0.01 | |||
| (1) | Excludes the effect of unvested restricted shares of common stock, which are considered non-participating securities. As of January 31, 2022 and 2021, there were and unvested restricted shares of common stock, respectively. | |
| (2) | Diluted net loss per share excludes the effect of shares that are anti-dilutive. As of January 31, 2022, there were outstanding stock options and unvested restricted shares of common stock. As of January 31, 2021, there were outstanding stock options and unvested restricted shares of common stock. |
Other Operating Costs
Non-routine Costs
SCHEDULE OF NON ROUTINE COSTS
| Fiscal Year 2021 | ||||
| Separation agreement expense | $ | 706,000 | ||
| Broker Fees | 553,000 | |||
| Professional Fees | 850,000 | |||
| Executive Bonuses | 705,000 | |||
| Loss on exit from operating lease | 42,000 | |||
| Total | $ | 2,856,000 | ||
For fiscal 2021, the Company incurred certain non-routine costs totalling $2,856,000. The Company incurred transaction costs related to the acquisition of Avelead consisting of a separation agreement, broker fees and professional services. The Company paid certain executive bonuses for the successful capital raise and closing of the Avelead acquisition. Finally, the Company subleased its Alpharetta office to a third-party effective October 1, 2021. The Company retains certain obligations, and accordingly, will continue to report the Right of Use Asset (see Note 4 – Operating Leases). The Company incurred certain fees and expenses associated with the sublease.
Loss on Exit of Membership Agreement
For fiscal 2020, minimum fees due under the Company’s former shared office arrangement totaled approximately $. The Company recorded an expense for the minimum future commitment under the agreement and accrued the cost to the accompanying consolidated balance sheet in fiscal
Loss Contingencies
We are subject to the possibility of various loss contingencies arising in the normal course of business. We consider the likelihood of the loss or impairment of an asset or the incurrence of a liability as well as our ability to reasonably estimate the amount of loss in determining loss contingencies. An estimated loss contingency is accrued when it is probable that a liability has been incurred or an asset has been impaired, and the amount of loss can be reasonably estimated. We regularly evaluate current information available to us to determine whether to accrue for a loss contingency and adjust any previous accrual.
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Accounting Pronouncements
In August 2014, the FASB issued an accounting standard update relating to disclosures of uncertainties about an entity’s ability to continue as a going concern. The update provides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures in the event that there is such substantial doubt. The update will be effective for us on February 1, 2017.
In October 2021, the FASB issued ASU No. 2021-08, Accounting for Contract Assets and Contract Liabilities From Contracts With Customers (“ASU 2021-08”), which amends the accounting for contract assets acquired and contract liabilities assumed from contracts with customers in business combinations (“acquired contract balances”). The amendment results in a shift from previous guidance which required similar assets and liabilities to be accounted for at fair value at the acquisition date. The amendments in the Update require that an entity (acquirer) recognize, and measure acquired contract balances in accordance with ASC Topic 606. For instance, at the acquisition date, the acquirer would account for the related revenue contracts acquired under ASC 606, as if it had originated the contracts. The Company elected to early adopt ASU 2015-17 prospectively2021-08 in the fourth quarter ended October 31, 2021 (which includes retroactive adoption for any acquisitions in the current fiscal year). The impact of fiscal 2015.adopting the new standard is that it eliminated the need to discount deferred revenue acquired from Avelead of $236,000. As a result, all deferred tax assets and liabilities will be presented as noncurrent on the consolidated balance sheet as of January 31, 2016. There was no impact on our results of operations as a result of the adoptionCompany not discounting deferred revenue upon acquiring Avelead, revenues are higher and net loss is lower in the post-acquisition period of ASU 2015-17.
Recent Accounting Pronouncements Not Yet Adopted
In February 2016,November 2019, the FASB issued ASU No. 2016-02, Leases2016-13, Financial Instruments—Credit Losses (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities326): Measurement of Credit Losses on the balance sheet and disclosing key information about leasing arrangements. TheFinancial Instruments, which improves guidance around accounting for financial losses on accounts receivable. For smaller reporting entities, ASU 2016-13 is effective for annual periods beginning after December 15, 2018,2022, including interim periods within those fiscal years. The update will be effective for us on February 1, 2019. Early adoption of the update is permitted. The Company is evaluating the impact ofWe do not anticipate that the adoption of this updateASU will have a material impact on our consolidated financial statements.
In July 2021, the FASB issued ASU 2021-05, Lessors - Certain Leases with Variable Lease Payments to ASC Topic 842, Leases (“ASC 842”)(“ASU 2021-05”). ASU 2021-05 provides additional ASC 842 classification guidance as it relates to a lessor’s accounting for certain leases with variable lease payments. ASU 2021-05 requires a lessor to classify a lease with variable payments that do not depend on an index or rate as an operating lease if either a sales-type lease or direct financing lease classification would trigger a day-one loss. ASU 2021-05 is effective for reporting periods beginning after December 15, 2021, with early adoption permitted. We do not anticipate that the adoption of this ASU will have a material impact on our consolidated financial statements.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832):Disclosures by Business Entities about Government Assistance (“ASU 2021-10”), which aims to provide increased transparency by requiring business entities to disclose information about certain types of government assistance they receive in the notes to the financial statements. Entities are required to provide the new disclosures prospectively for all transactions with a government entity that are accounted for under either a grant or a contribution accounting model and are reflected in the financial statements at the date of initially applying the new amendments, and related disclosures.to new transactions entered into after that date. Retrospective application of the guidance is permitted. The guidance in ASU 2021-10 is effective for financial statements of all entities, including private companies, for annual periods beginning after December 15, 2021, with early application permitted. We do not anticipate that the adoption of this ASU will have a material impact on our consolidated financial statements.
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NOTE 3 — ACQUISITIONS
Avelead Acquisition
The total purchase price for Unibased was $6,500,000, subject to net working capital and other customary adjustments. A portion of the total purchase price was withheld in escrow as described in the Merger Agreement for certain transaction and indemnification of claimed damages. In April 2015, the Company received $750,000 from the cash withheld in escrow, which is included in miscellaneous income.
The aggregate consideration for the purchase of Avelead was approximately $29.7 million (at fair value) consisting of (i) $12.4 million in cash, net of cash acquired, (ii) $0.1 million in holdback, which was paid to sellers during the fourth fiscal quarter of 2021 (iii) $6.5 million in common stock, and (iv) approximately $10.7 million in contingent consideration (see below). The Company issued shares of Unibased, and Unibased becameits restricted common stock (the “Acquisition Restricted Common Stock”). The Acquisition Restricted Common Stock has a wholly-owned subsidiary of Streamline. Under the termsfair value as of the Mergerclosing date of acquisition of $6.5 million. Additionally, the Company contracted two types of contingent consideration; the first is referred to herein as “SaaS Contingent Consideration” and the second is referred to herein as “Renewal Contingent Consideration.” The SaaS Contingent Consideration and Renewal Contingent Consideration have an aggregate value of approximately $10.7 million as of the date of closing. The owners of Avelead are also referred to herein as “Sellers” and are enumerated in the UPA (as defined below).
The Company acquired all of the equity interests of Avelead, effective August 16, 2021, pursuant to a Unit Purchase Agreement Unibased stockholders received(hereafter referred to as the “UPA”). The UPA stated that the purchase price for Avelead at closing included a cash for each sharepayment of Unibased$11.9 million. Additionally, the Company paid $285,000 of the Sellers’ closing costs, $285,000 related to the working capital adjustment as defined in the UPA. Finally, at closing, the Company issued the Acquisition Restricted Common Stock with a fair value of approximately $6.5 million, based on a 30-day average of the closing price of the Company’s common stock held.prior to the closing date. The preliminarySaaS Contingent Consideration and the Renewal Contingent Consideration described in more detail below were included in the UPA as potential future consideration for the Transaction. These are reflected on the Company’s balance sheet as “Acquisition earnout liability.”
The Company acquired Avelead on a cash-free and debt-free basis. The Transaction was structured as a purchase priceof units (equity), however, Avelead was allocatedtaxed as a partnership. Accordingly, the Company realized a step-up in the tax basis of the assets acquired and the goodwill is tax deductible. The gross deferred tax assets and liabilities will be consolidated, and the gross deferred tax assets have a full valuation allowance.
The contingent consideration is comprised of “SaaS Contingent Consideration” and “Renewal Contingent Consideration” which are described in more detail as follows:
| ● | The SaaS Contingent Consideration is calculated based upon Avelead’s recurring SaaS revenue recognized during the first and second year. The Company will pay the SaaS Contingent Consideration as follows: (i) 50% in cash and (ii) % in shares of Company common stock valued at the time the earnout is paid subject to a collar, as described below. |
| ● | The first year of SaaS Contingent Consideration is calculated as 75% of Avelead’s recognized SaaS revenue from September 1, 2021 to August 31, 2022. The first-year payment is subject to a deduction of $665,000 spread equally between the cash and common stock portion of the earnout consideration. The first year earnout will be paid on or about October 15, 2022, subject to a dispute and resolution period. Assuming that Avelead is within 80% of its forecasted SaaS revenue in the first year earnout, the Company agreed to a floor and ceiling on the value of the Company’s restricted common stock issued as consideration for the earnout. That collar has a floor of $3.50 per share and a ceiling of $5.50 per share for the first year earnout. | |
| ● | The second year of SaaS Contingent Consideration is calculated as 40% of Avelead’s recognized SaaS revenue from September 1, 2022 to August 31, 2023. The second year earnout will be paid on or about October 15, 2023, subject to a dispute and resolution period. Assuming that Avelead is within 80% of its forecasted SaaS revenue in the second year earnout, the Company agreed to a floor and ceiling on the Company’s restricted common stock issued as consideration for the earnout. That collar has a floor of $4.50 per share and a ceiling of $6.50 per share for the second year earnout. |
| 1 | If Avelead does not achieve 80% of its forecasted revenue, the price per share will revert back to the Company’s market price based upon a 30-day average. |
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| ● | The Renewal Contingent Consideration is tied directly to a successful renewal of a specific customer of Avelead. To meet the definition of a renewal, Avelead must achieve a minimum threshold of contracted revenue in an updated, annual, renewed contract with the specified customer. The renewal occurs on or about June 1, 2022 and June 1, 2023. The Company will remit the Renewal Contingent Consideration on or about each of October 15, 2022 and 2023, respectively. The Renewal Contingent Consideration is payable in shares of Company restricted common stock valued as of the date of closing. Accordingly, upon achieving the Renewal Contingent Consideration, the Company will issue 627,747 shares of restricted common stock on or about each of October 15, 2022 and October 15, 2023, subject to a dispute and resolution period. The Renewal Contingent Consideration is either earned or not earned based upon the renewal of the specified customer at the minimum amount of contracted revenue. There is no pro-ration of the underlying Renewal Contingent Consideration. |
The components of the total consideration are as follows:
COMPONENTS OF TOTAL CONSIDERATION
| (in thousands) | ||||
| Components of total consideration, net of cash acquired: | ||||
| Cash | $ | 11,900 | ||
| Cash, seller expenses | 285 | |||
| Cash, working capital adjustment | 285 | |||
| Restricted Common Stock | 6,554 | |||
| Acquisition earnout liabilities | 10,684 | (a) | ||
| Total consideration | $ | 29,708 |
| (a) | Acquisition earnout liabilities represent the net present value and risk adjusted probability of the required future payments underlying the Company’s SaaS Contingent Consideration and Renewal Contingent Consideration as described above. Due to the dates that the Company is required to measure, report and agree on the calculations, $4,672,000 of the acquisition earnout liability is shown as a short-term liability and $4,161,000 is shown as a long-term liability as of January 31, 2022. |
| The acquisition earnout liability is re-measured on a quarterly basis and the change to the liability is recorded as a valuation adjustment recorded through “other expenses” in the accompanying consolidated statements of operations. The valuation adjustment recorded for the period ended January 31, 2022, was $1,851,000. A range of possible outcomes is not available under the specific valuation method that was used in determining fair value of the acquisition earnout liability. |
The Company is presenting the allocation of the total consideration to net tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date of the closing of Avelead as follows:
| Balance at February 3, 2014 | |||
| Assets purchased: | |||
| Cash | $ | 59,000 | |
| Accounts receivable | 221,000 | ||
| Other assets | 61,000 | ||
| Internally-developed software | 2,017,000 | ||
| Client relationships | 647,000 | ||
| Trade name | 26,000 | ||
| Goodwill (1) | 4,251,000 | ||
| Total assets purchased | 7,282,000 | ||
| Liabilities assumed: | |||
| Accounts payable and accrued liabilities | 362,000 | ||
| Deferred revenue obligation, net | 793,000 | ||
| Deferred income taxes | 9,000 | ||
| Net assets acquired | $ | 6,118,000 | |
| Cash paid | $ | 6,118,000 | |
SCHEDULE OF ALLOCATION OF THE TOTAL CONSIDERATION
| (in thousands) | ||||
| Net tangible assets: | ||||
| Accounts receivable | $ | 1,246 | ||
| Unbilled revenue | 200 | |||
| Prepaid expenses | 178 | |||
| Fixed assets | 37 | |||
| Accounts payable | (490 | ) | ||
| Accrued expenses | (397 | ) | ||
| Deferred revenues | (863 | ) | ||
| Net tangible assets | (89 | ) | ||
| Goodwill | 12,377 | |||
| Customer Relationships (SaaS) | 8,370 | |||
| Customer Relationships (Consulting) | 1,330 | |||
| Internally Developed Software | 6,380 | |||
| Trademarks and Tradenames | 1,340 | |||
| Net assets acquired and liabilities assumed | $ | 29,708 |
The operating results of Unibased are not material for proforma disclosure.
SCHEDULE OF INTANGIBLE ASSETS ESTIMATED USEFUL LIVES
Estimated Useful Lives | ||
| Goodwill | Indefinite | |
| Customer Relationships (SaaS) | 10 years | |
| Customer Relationships (Consulting) | 8 years | |
| Internally Developed Software | 9 years | |
| Trademarks and Tradenames | 15 years |
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The Company’s unaudited pro forma revenues and (loss) income from continuing operations, assuming Avelead was acquired on February 1, 2020, are as follows. The unaudited pro forma information is not necessarily indicative of the results of operations that the Company would have reported had the acquisition actually occurred at the beginning of these periods nor is it necessarily indicative of future results. The unaudited pro forma financial information does not reflect the impact of future events that may occur after the acquisition, including, but not limited to, anticipated costs savings from synergies or other operational improvements. The nature and amount of any material, nonrecurring pro forma adjustments directly attributable to the business combination are included in the pro forma revenue and net earnings reflected below (unaudited):
SCHEDULE OF PRO FORMA REVENUE AND NET EARNINGS
| 2022 | 2021 | |||||||
| (UNAUDITED) | Year Ended January 31, | |||||||
| 2022 | 2021 | |||||||
| Revenues | $ | 22,631,000 | $ | 19,707,000 | ||||
| Operating expenses | (31,278,000 | ) | (25,164,000 | ) | ||||
| Non-routine costs | (4,284,000 | ) | — | |||||
| Loss on exit from membership agreement | — | (105,000 | ) | |||||
| Operating loss | (12,931,000 | ) | (5,562,000 | ) | ||||
| Other expenses | 1,312,000 | (710,000 | ) | |||||
| PPP loan forgiveness | 3,059,000 | 712,000 | ||||||
| Income tax (expense) benefit | (109,000 | ) | 1,370,000 | |||||
| Loss from continuing operations | $ | (8,669,000 | ) | $ | (4,190,000 | ) | ||
Non-routine costs are primarily costs associated with the acquisition. Included in the pro forma schedule (above) for the fiscal year ended January 31, 2022 are $1,428,000 of expenses paid by the Sellers in the transaction.
Included in the accompanying consolidated statement of operations for the year ended January 31, 2022 (since the closing of the Avelead acquisition) are $4,524,000 and $(1,506,000) of Avelead revenue and loss from continuing operations.
Refer to Note 2 – Summary of Significant Accounting Policies – Other operating costs -Non-routine costs. Costs related to the acquisition of Avelead are expensed as incurred.
The Company entered into one employment agreement and one separation agreement with each of the two Sellers. Included in the transaction costs of Avelead is the cost of a two-year separation agreement with one Seller. This separation agreement was expensed at the closing of the transaction as there were no material future obligations of the Seller to the Company within non-routine costs. The employment agreement is a two-year employment agreement that entitles the Seller to a six-month separation pay in the case of termination without cause. The expense for the employment agreement is recognized ratably over the service period customary with other employment agreements within selling, general, and administrative expense.
The Company granted options to purchase shares of the Company’s common stock to the Sellers at Closing. These options have a strike price of $per share, the closing stock price on the trading date immediately preceding the closing. options were awarded to one Seller that will vest, monthly, over a three () year service period. The remaining options were awarded to another Seller and vested immediately upon issuance. The Company utilized the Black-Scholes method to determine the grant-date fair value of these options. The 83,333 options have a grant-date fair value of approximately $and are recorded in non-routine cost in the warrantaccompanying consolidated statement of operations. The 500,000 options have a grant-date fair value of approximately $and are expensed over the vesting period within selling, general, and administrative expense.
Additionally, the Company granted 100,000 restricted stock awards (RSAs) to certain Avelead employees as of the closing date.
ECM Assets Divestiture
On February 24, 2020, the Company sold a portion of its business (the “ECM Assets”). Accordingly, the Company is reporting the results of operations and cash flows, and related balance sheet items associated with the ECM Assets in discontinued operations in the accompanying consolidated statements of operations, cash flows and balance sheets for the current and comparative prior periods. Refer to Note 13 – Discontinued Operations for details of the Company’s discontinued operations.
NOTE 4 — OPERATING LEASES
We determine whether an arrangement is a lease at inception. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the expected lease term. Since our lease arrangements do not provide an implicit rate, we use our incremental borrowing rate for the expected remaining lease term at commencement date for new and existing leases in determining the present value of future lease payments. Operating lease expense is recognized on a straight-line basis over the lease term.
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Alpharetta Office Lease
On October 1, 2021, the Company entered into an agreement with a third-party to sublease its office space in Alpharetta, Georgia, (the “Sublease Agreement”). The sublease term is for 18 months which coincides with the Company’s underlying lease (see below). The Company expects to receive $292,000 from the sublessee over the term of the sublease. The sublease did not relieve the Company of its original obligation under the lease, and therefore the Company did not adjust the operating lease right-of-use asset and related liability. The Company incurred an amount of fees and expenses to enter into the Sublease Agreement that were recorded as “non-routine” for fiscal 2021. As of January 31, 2022, the Company recorded $64,000 as other income related to the sublease.
The Company entered into a lease for office space in Alpharetta, Georgia, on March 1, 2020. The lease terminates on March 31, 2023. At inception, the Company recorded a right-of use asset of $540,000, and related current and long-term operating lease obligation in the accompanying consolidated balance sheet. As of January 31, 2022, operating lease right-of use assets totaled $218,000, and the associated lease liability is included in both current and long-term liabilities of $204,000 and $33,000, respectively. The Company used a discount rate of 6.5% to the determine the lease liability. As of January 31, 2022 and 2021, the Company had lease operating costs of approximately $194,000 and $178,000, respectively. The Company paid cash of approximately $203,000 and $132,000 for the lease in 2021 and 2020, respectively.
Maturities of operating lease liabilities associated with the Company’s operating lease as of January 31, 2016 was computed using2022 are as follows for payments due based upon the Black-Scholes option pricing model basedCompany’s fiscal year:
SCHEDULE OF MATURITIES OF OPERATING LEASE LIABILITIES
| 2022 | $ | 210,000 | ||
| 2023 | 35,000 | |||
| Total Lease Payments | 245,000 | |||
| Less present value adjustment | (8,000 | ) | ||
| Present value of lease liabilities | $ | 237,000 |
Upon signing the Alpharetta lease in March 2020, the Company abandoned its shared office space in Atlanta and recorded an expense and related liability of $105,000 for the minimum remaining payments required under the agreement with the landlord. The associated expense is recorded in “Loss on exit of membership agreement” in the following assumptions: annual volatilityaccompanying statements of 60.1%; risk-free rateoperations and is recorded in “accrued expenses” in the accompanying balance sheet. The membership agreement did not qualify as a lease as the owner had substantive substitution rights.
Suwanee Office Lease
Upon acquiring Avelead on August 16, 2021 (refer to Note 3 – Business Combination and Divestiture), the Company assumed an operating lease agreement for the corporate office space of 0.6%, dividend yield of 0.0%Avelead. The 36-month term lease commenced March 1, 2019 and expected life of two years. The estimated fair value of the warrant liabilities asexpires on February 28, 2022. As of January 31, 2015 was computed using Monte-Carlo simulations based on2022, the following assumptions: annual volatilityCompany recorded $40,000 in rent expense. The lessor is an entity controlled by one of 55%; risk-free ratethe Sellers that is employed by the Company. In February 2022, the Company renewed the lease for twelve months. The Company will make monthly lease payments of 0.8%, dividend yield$5,998.67 for a total of 0.0% and expected life$71,984 over the term of three years.
NOTE 5 — OPERATING LEASES
| Facilities | Equipment | Fiscal Year Totals | |||||||||
| 2016 | $ | 969,000 | $ | 2,000 | $ | 971,000 | |||||
| 2017 | 1,007,000 | — | 1,007,000 | ||||||||
| 2018 | 1,039,000 | — | 1,039,000 | ||||||||
| 2019 | 967,000 | — | 967,000 | ||||||||
| 2020 | 504,000 | — | 504,000 | ||||||||
| Thereafter | 964,000 | — | 964,000 | ||||||||
| Total | $ | 5,450,000 | $ | 2,000 | $ | 5,452,000 | |||||
Term Loan Agreement and LineDiscontinuance of Revolving Credit
On August 26, 2021, the Company and restated our previously outstanding senior credit agreementits subsidiaries entered into the Second Amended and amendedRestated Loan and Security Agreement with Bridge Bank. Pursuant to the subordinated credit agreementSecond Amended and Restated Loan and Security Agreement, Bridge Bank agreed to provide the Company and its subsidiaries with Fifth Third Bank to increase the seniora new term loan facility in the maximum principal amount of $10,000,000. Amounts outstanding under the term loan of the Second Amended and Restated Loan and Security Agreement bear interest at a per annum rate equal to $8,500,000, reduce the interest rates,Prime Rate (as published in The Wall Street Journal) plus 1.5%, with a Prime “floor” rate of 3.25%. Pursuant to the Second Amended and extendRestated Loan and Security Agreement, the Company discontinued the existing $3,000,000 revolving credit facility with Bridge Bank. At the time of the discontinuance, there was no outstanding balance on the revolving credit facility.
The Second Amended and Restated Loan and Security Agreement has a five-year term, and the maximum principal amount was advanced in a single-cash advance on or about the closing date. Interest accrued under the Second Amended and Restated Loan and Security Agreement is due monthly, and the Company shall make monthly interest-only payments through the one-year anniversary of the closing date. From the first anniversary of the closing date through the maturity date, the Company shall make monthly payments of principal and interest that increase over the term of the senior term loanagreement. The Second Amended and Restated Loan and Security Agreement requires principal repayments on the $5,000,000 revolving lineanniversary date of credit to December 1, 2018the closing of the debt agreement of $500,000 in the second year, $1,000,000 in the third year, $2,000,000 in the fourth year, and December 1, 2015, respectively. In January 2014, we paid$3,000,000 in the subordinated term loanfifth year, respectively, with the remaining outstanding principal balance and all accrued but unpaid interest due in full.full on the maturity date. The outstanding senior term loan wasSecond Amended and Restated Loan and Security Agreement may also require early repayments if certain conditions are met. The Second Amended and Restated Loan and Security Agreement is secured by substantially all of our assets. the assets of the Company, its subsidiaries, and certain of its affiliates.
The senior term loan principal balance was payableCompany recorded $130,000 in monthly installments of $101,000, which started in January 2014deferred financing costs related to the Second Amended and would have continued through the maturity date, with the full remaining unpaid principal balance due at maturity. Borrowings under the senior term loan bore interest at a rate of LIBOR plus 5.25%. However, as a result of our interest rate swap, the interest rate was fixed at 6.42% until October 27, 2014, when the interest rate swap agreement was terminated. AccruedRestated Loan and unpaid interest on the senior term loan was due monthly through maturity. We paid $116,000 in closing fees in connection with this senior term loan, which was recorded as a debt discount andSecurity Agreement. These deferred financing costs are being amortized to interest expense over the term of the loan. The Company will also incur $200,000 in financing costs at the earlier of the term date of the loan, usingor pre-payment. These costs are being accreted, through interest expense, to the effective interest method.full value of the $200,000 over the term of the loan.
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The Second Amended and Restated Loan and Security Agreement includes customary financial covenants as follows:
| a. | Minimum Cash. Borrowers shall, at all times, maintain unrestricted cash of Borrowers at Bank in an amount not less than (i) on the Closing Date and for the first eleven (11) months immediately following the Closing Date, Five Million Dollars ($5,000,000) and (ii) at all times thereafter, Three Million Dollars ($3,000,000). |
| b. | Maximum Debt to ARR Ratio. Borrowers’ Maximum Debt to ARR Ratio, measured on a quarterly basis as of the last day of each fiscal quarter, shall not be greater than the amount set forth under the heading “Maximum Debt to ARR Ratio” as of, and for each of the dates appearing adjacent to such “Maximum Debt to ARR Ratio”. |
SCHEDULE OF MAXIMUM DEBT TO ARR RATIO
| Maximum Debt to | ||
| Quarter Ending | ARR Ratio | |
| October 31, 2021 | 0.80 to 1.00 | |
| January 31, 2022 | 0.75 to 1.00 | |
| April 30, 2022 | 0.65 to 1.00 | |
| July 31, 2022 | 0.55 to 1.00 | |
| October 31, 2022 | 0.50 to 1.00 | |
| January 31, 2023 | 0.45 to 1.00 |
| c. | Maximum Debt to Adjusted EBITDA Ratio. Commencing with the quarter ending April 30, 2023, Borrowers’ Maximum Debt to Adjusted EBITDA Ratio, measured on a quarterly basis as of the last day of each fiscal quarter for the trailing four (4) quarter period then ended, shall not be greater than the amount set forth under the heading “Maximum Debt to Adjusted EBITDA Ratio” as of, and for each of the dates appearing adjacent to such “Maximum Debt to Adjusted EBITDA Ratio”. |
SCHEDULE OF MAXIMUM DEBT TO ADJUSTED EBITDA RATIO
| Maximum Debt to | ||
| Adjusted EBITDA | ||
| Quarter Ending | Ratio | |
| April 30, 2023 | 11.30 to 1.00 | |
| July 31, 2023 | 4.15 to 1.00 | |
| October 31, 2023 | 2.50 to 1.00 | |
| January 31, 2024 and on the last day of each quarter thereafter | 2.0 to 1.00 |
| d. | Fixed Charge Coverage Ratio. Commencing with the quarter ending April 30, 2023, Borrowers shall maintain a Fixed Charge Coverage Ratio of not less than 1.20 to 1.00, measured on a quarterly basis as of the last day of each fiscal quarter for the trailing four (4) quarter period then ended. |
The Second Amended and Restated Loan and Security Agreement also includes customary negative covenants, subject to exceptions, which limit transfers, capital expenditures, indebtedness, certain liens, investments, acquisitions, dispositions of assets, restricted payments and the revolvingbusiness activities of the Company, as well as customary representations and warranties, affirmative covenants and events of default, including cross defaults and a change of control default. The line of credit bore interest at a rate equalalso is subject to LIBOR plus 3.50%. We paid a commitment fee of 0.40% oncustomary prepayment requirements. For the unused revolving line of credit on a quarterly basis.
Term Loan and Revolving Credit Facility with Bridge Bank
On November 21, 2014, weMarch 2, 2021, the Company entered into an Amended and Restated Loan and Security Agreement, which replaced and superseded the Loan and Security Agreement, consisting of a Credit$3,000,000 revolving credit facility (the “Amended Loan and Security Agreement”). This revolving credit facility was replaced with the Second Amended and Restated Loan and Security Agreement (the “Credit Agreement”) with Wells Fargo Bank, N.A., as administrative agent, and other lender parties thereto. Pursuant to the Credit Agreement, the lenders agreed to provide a $10,000,000 senior term loan and a $5,000,000 revolving line of credit to our primary operating subsidiary. Amounts outstanding under the Credit Agreement bear interest at either LIBOR or the base rate, as elected by(above) that was put in place on August 26, 2021. Accordingly, the Company plus an applicable margin. Subject to the Company’s leverage ratio, the applicable LIBOR rate margin varies from 4.25% to 5.25%, and the applicable base rate margin varies from 3.25% to 4.25%. Pursuant to the termswrote-off $43,000 of the amendment to the Credit Agreement entered into as of April 15, 2015, going forward the applicable LIBOR rate margin varies from 4.25% to 6.25%, and the applicable base rate margin varies from 3.25% to 5.25%. The term loan and line of credit mature on November 21, 2019 and provide support for working capital, capital expenditures and other general corporate purposes, including permitted acquisitions. At closing, the Company repaid indebtedness under its prior credit facility using approximately $7,400,000 of the proceeds provided by the term loan. The prior credit facility with Fifth Third Bank was terminated concurrent with the entry of the Credit Agreement and unamortized debtdeferred financing costs and discount of $315,000 associated with the terminated debt was included infrom this loan as a loss on early extinguishment of debt. Financing costsdebt in the accompanying consolidated statement of $355,000 associated with the new credit facility are being amortized over itsoperations. The Amended Loan and Security Agreement had a two-year term on a straight-line basis, which is not materially different from the effective interest method.
| For the four-quarter period ended | Minimum EBITDA | |||
| April 30, 2015 | $ | (2,500,000 | ) | |
| July 31, 2015 | (1,750,000 | ) | ||
| October 31, 2015 | (750,000 | ) | ||
| January 31, 2016 | 500,000 | |||
On December 11, 2019, the Company entered into a Loan and Security Agreement (the “Loan and Security Agreement”) with Bridge Bank, a division of Western Alliance Bank (“Bridge Bank”), consisting of a $4,000,000 term loan and a $2,000,000 revolving credit facility. The proceeds from the term loan were due on November 1, 2014, 2015 and 2016. At closing ofused to repay all outstanding balances under the Credit AgreementCompany’s then existing term loan with Wells Fargo described above, weBank. In February 2020, the Company repaid our indebtedness under this note using approximately $600,000the $4,000,000 outstanding term loan with Bridge Bank in full, with proceeds from the sale of the proceedsECM Assets, as required under the Loan and Security Agreement.
The revolving credit facility had a maturity date of twenty-four months and advances bore interest at a per annum rate equal to the higher of (a) the Prime Rate (as published in The Wall Street Journal) plus 1.25% or (b) 6.25%. The revolving credit facility could be advanced based upon 80% of eligible accounts receivable, as defined in the Loan and Security Agreement.
Term Loan related to “The Coronavirus Aid, Relief, and Economic Security Act”
The Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, was signed into law on March 17, 2020. Among other things, the CARES Act provided for a business loan program known as the Paycheck Protection Program (“PPP”). Qualifying companies were able to borrow, through the U.S. Small Business Administration (“SBA”), up to two months of payroll expenses. On April 21, 2020, the Company received approximately $2,301,000 through the SBA under the PPP. These funds were utilized by the term loan.Company to fund payroll expenses and avoid further staffing reductions during the slowdown resulting from COVID-19.
The PPP loan carried an interest rate of 1.0% per annum. Principal and interest payments were due, beginning on the tenth month from the effective date, sufficient to satisfy the loan on the second anniversary date. However, under certain criteria, the loan could be forgiven.
In June 2021, the Company was notified that the full $2,301,000 of the PPP loan and accrued interest of $26,000 had been forgiven. The loan amount and accrued interest were recognized as an extinguishment of debt and has been recorded as other income on the consolidated statement of operations.
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Outstanding principal balances on debt consisted of the following at:
| January 31, 2016 | January 31, 2015 | |||||||
| Senior term loan | $ | 8,535,000 | $ | 10,000,000 | ||||
| Capital lease | 686,000 | 1,365,000 | ||||||
| Total | 9,221,000 | 11,365,000 | ||||||
| Less: Current portion | 1,266,000 | 1,282,000 | ||||||
| Non-current portion of long-term debt | $ | 7,955,000 | $ | 10,083,000 | ||||
| Senior Term Loan | Capital Lease (1) | Total | ||||||||||
| 2016 | $ | 674,000 | $ | 618,000 | $ | 1,292,000 | ||||||
| 2017 | 898,000 | 93,000 | 991,000 | |||||||||
| 2018 | 898,000 | — | 898,000 | |||||||||
| 2019 | 6,064,000 | — | 6,064,000 | |||||||||
| Total repayments | $ | 8,534,000 | $ | 711,000 | $ | 9,245,000 | ||||||
SCHEDULE OF OUTSTANDING DEBT, OTHER THAN PPP LOAN
| January 31, 2022(a) | January 31, 2021(b) | |||||||
| Term loan | $ | 10,000,000 | $ | 2,301,000 | ||||
| Deferred financing cost | (96,000 | ) | — | |||||
| Total | 9,904,000 | 2,301,000 | ||||||
| Less: Current portion | (250,000 | ) | (1,534,000 | ) | ||||
| Non-current portion of debt | $ | 9,654,000 | $ | 767,000 | ||||
| (a) | The term loan as of January 31, 2022 is related to the new term loan agreement that the Company entered into on August 26, 2021 with Bridge Bank (see description above). |
| (b) | The term loan as of January 21, 2021 is related to the Company’s PPP loan (see description above). The PPP loan was forgiven in June 2021. |
NOTE 76 — GOODWILL AND INTANGIBLE ASSETS
The goodwill activity is summarized as follows:
| Goodwill | |||
| Balance January 31, 2014 | $ | 11,934,000 | |
| Goodwill acquired during fiscal 2014 | 4,251,000 | ||
| Balance January 31, 2015 and January 31, 2016 | $ | 16,185,000 | |
SCHEDULE OF GOODWILL ACTIVITY
| Goodwill | |||
| Balance at January 31, 2021 | 10,712,000 | ||
| Acquisition of Avelead | 12,377,000 | ||
| Balance at January 31, 2022 | 23,089,000 | ||
Intangible assets net, consist of the following:
| January 31, 2016 | |||||||||||||
Estimated Useful Life | Gross Assets | Accumulated Amortization | Net Assets | ||||||||||
| Definite-lived assets: | |||||||||||||
| Trade name | 1 year | $ | 26,000 | $ | 26,000 | $ | — | ||||||
| Client relationships | 10-15 years | 5,932,000 | 2,220,000 | 3,712,000 | |||||||||
| Covenants not to compete | 0.5-15 years | 856,000 | 667,000 | 189,000 | |||||||||
| Supplier agreements | 5 years | 1,582,000 | 1,094,000 | 488,000 | |||||||||
| License agreement | 15 years | 4,431,000 | 665,000 | 3,766,000 | |||||||||
| Total | $ | 12,827,000 | $ | 4,672,000 | $ | 8,155,000 | |||||||
| January 31, 2015 | |||||||||||||
Estimated Useful Life | Gross Assets | Accumulated Amortization | Net Assets | ||||||||||
| Definite-lived assets: | |||||||||||||
| Trade name | 1 year | $ | 26,000 | $ | 26,000 | $ | — | ||||||
| Client relationships | 10-15 years | 5,932,000 | 1,548,000 | 4,384,000 | |||||||||
| Covenants not to compete | 0.5-15 years | 856,000 | 606,000 | 250,000 | |||||||||
| Supplier agreements | 5 years | 1,582,000 | 778,000 | 804,000 | |||||||||
| License agreement | 15 years | 4,431,000 | 369,000 | 4,062,000 | |||||||||
| Total | $ | 12,827,000 | $ | 3,327,000 | $ | 9,500,000 | |||||||
SCHEDULE OF INTANGIBLE ASSETS
| January 31, 2022 | ||||||||||||||
| Estimated | Accumulated | |||||||||||||
| Useful Life | Gross Assets | Amortization | Net Assets | |||||||||||
| Finite-lived assets: | ||||||||||||||
| Customer relationships | 8-10 years | $ | 14,164,000 | $ | 4,755,000 | $ | 9,409,000 | |||||||
| Internally Developed Software | 9 years | 6,380,000 | 325,000 | 6,055,000 | ||||||||||
| Trademarks and Tradenames | 15 years | 1,340,000 | 41,000 | 1,299,000 | ||||||||||
| Total | 21,884,000 | 5,121,000 | 16,763,000 | |||||||||||
| January 31, 2021 | ||||||||||||||
| Estimated | Accumulated | |||||||||||||
| Useful Life | Gross Assets | Amortization | Net Assets | |||||||||||
| Finite-lived assets: | ||||||||||||||
| Customer relationships | 5-10 years | $ | 5,397,000 | $ | 4,773,000 | $ | 624,000 | |||||||
The Company recorded a $1,952,000 loss, which is reflected in Impairment ofrecognized amortization expense on intangible assets on the Consolidated Statements of Operations.
Amortization over the next five fiscal years for intangible assets is estimated as follows:
SCHEDULE OF FUTURE AMORTIZATION EXPENSE FOR INTANGIBLE ASSETS
| Annual Amortization Expense | ||||
| 2022 | $ | 1,971,000 | ||
| 2023 | 1,801,000 | |||
| 2024 | 1,801,000 | |||
| 2025 | 1,801,000 | |||
| 2026 | 1,801,000 | |||
| Thereafter | 7,588,000 | |||
| Total | $ | 16,763,000 | ||
The Company wrote-off fully amortized intangible assets during fiscal 2021 of $933,000. There was no impact to the consolidated statements of operations as this eliminated the asset and accumulated amortization of the fully amortized intangible assets.
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| Annual Amortization Expense | |||
| 2016 | $ | 1,298,000 | |
| 2017 | 1,088,000 | ||
| 2018 | 863,000 | ||
| 2019 | 826,000 | ||
| 2020 | 791,000 | ||
| Thereafter | 3,289,000 | ||
| Total | $ | 8,155,000 | |
NOTE 87 — INCOME TAXES
For fiscal 2021 and 2020, income taxes for continuing operations consist of the following:
| Fiscal Year | |||||||
| 2015 | 2014 | ||||||
| Current tax (expense) benefit: | |||||||
| Federal | $ | — | $ | 131,816 | |||
| State | (17,578 | ) | 34,611 | ||||
| (17,578 | ) | 166,427 | |||||
| Deferred tax benefit: | |||||||
| Federal | 8,838 | 663,681 | |||||
| State | 737 | 56,901 | |||||
| 9,575 | 720,582 | ||||||
| Current and deferred tax (expense) benefit | $ | (8,003 | ) | $ | 887,009 | ||
SCHEDULE OF INCOME TAXES FOR CONTINUING OPERATION
| Fiscal Year | ||||||||
| 2021 | 2020 | |||||||
| Current tax (expense) benefit: | ||||||||
| Federal | $ | — | $ | — | ||||
| State | (14,000 | ) | (14,000 | ) | ||||
| Total current tax expense | $ | (14,000 | ) | $ | (14,000 | ) | ||
| Deferred tax (expense) benefit: | ||||||||
| Federal | $ | (80,000 | ) | $ | 1,274,000 | |||
| State | (15,000 | ) | — | |||||
| Total deferred tax (expense) benefit | $ | (95,000 | ) | $ | 1,274,000 | |||
| Total provision | $ | (109,000 | ) | $ | 1,260,000 | |||
The Company adopted ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 removes the exception to the basic intraperiod model in ASC 740-20-45-7. The benefit from income taxes from continuing operations, reported for fiscal year 2020, are offset by taxes on the gain on sale and taxes from operations of discontinued operations.
During fiscal year 2020, the Company had a loss from continuing operations and income from discontinued operations. The Company did not elect to early adopt ASU 2019-12 for the 2020 fiscal year; therefore, the income from discontinued operations was considered a source of taxable income to realize a partial tax benefit for the loss generated by continuing operations. As such, the financial statements for the 2020 fiscal year reflects tax expense in discontinued operations and a tax benefit in continuing operations. Applying the change on a prospective basis, this did not occur during the 2021 fiscal year and as such created a difference in the effective tax rate presentation for continuing operations between fiscal years 2020 and 2021.
The income tax (expense) benefit for income taxes differs from the amount computed using the federal statutory income tax raterates of 21% for fiscal 2021 and 2020 continuing operations as follows:
SCHEDULE OF EFFECTIVE INCOME TAX RATE RECONCILIATION
| Fiscal Year | ||||||||
| 2021 | 2020 | |||||||
| Federal tax benefit at statutory rate | $ | (1,430,000 | ) | $ | (1,272,000 | ) | ||
| State and local tax expense, net of federal | 26,000 | 11,000 | ||||||
| Increase in valuation allowance | 1,950,000 | 419,000 | ||||||
| Permanent items: | ||||||||
| PPP Loan | (483,000 | ) | — | |||||
| Other | 3,000 | 5,000 | ||||||
| Reserve for uncertain tax position | (24,000 | ) | 35,000 | |||||
| R&D Credit (Federal) | 120,000 | (174,000 | ) | |||||
| Expiring carryforwards | — | 5,000 | ||||||
| Stock-based compensation | (45,000 | ) | (305,000 | ) | ||||
| Other | (8,000 | ) | 16,000 | |||||
| Income tax expense | $ | 109,000 | $ | (1,260,000 | ) | |||
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| Fiscal Year | |||||||
| 2015 | 2014 | ||||||
| Federal tax benefit at statutory rate | $ | 1,455,816 | $ | 4,385,479 | |||
| State and local taxes, net of federal benefit (expense) | (267,997 | ) | 325,966 | ||||
| Change in valuation allowance | (1,629,786 | ) | (4,030,864 | ) | |||
| Permanent items: | |||||||
| Incentive stock options | (513,708 | ) | (421,366 | ) | |||
| Transaction costs | — | (5,291 | ) | ||||
| Escrow refund | 255,000 | — | |||||
| Change in fair value of warrants liability | 553,951 | 776,337 | |||||
| Other | (28,914 | ) | (44,719 | ) | |||
| Reserve for uncertain tax position | — | 164,127 | |||||
| Other | 167,635 | (262,660 | ) | ||||
| Income tax (expense) benefit | $ | (8,003 | ) | $ | 887,009 | ||
The Company provides deferred income taxes for temporary differences between assets and liabilities recognized for financial reporting and income tax purposes. The income tax effects of these temporary differences and credits are as follows:
| January 31, | |||||||
| 2016 | 2015 | ||||||
| Deferred tax assets: | |||||||
| Allowance for doubtful accounts | $ | 58,379 | $ | 245,252 | |||
| Deferred revenue | 244,163 | 372,275 | |||||
| Accruals | 203,291 | 174,658 | |||||
| Net operating loss carryforwards | 15,179,685 | 14,905,174 | |||||
| Stock compensation expense | 592,654 | 438,659 | |||||
| Property and equipment | 78,295 | — | |||||
| AMT credit | 102,144 | 102,144 | |||||
| Other | 17,794 | 8,912 | |||||
| Total deferred tax assets | 16,476,405 | 16,247,074 | |||||
| Valuation allowance | (14,184,030 | ) | (12,554,242 | ) | |||
| Net deferred tax assets | 2,292,375 | 3,692,832 | |||||
| Deferred tax liabilities: | |||||||
| Property and Equipment | — | (21,755 | ) | ||||
| Definite-lived intangible assets | (2,292,375 | ) | (3,671,077 | ) | |||
| Indefinite-lived intangibles | — | (9,575 | ) | ||||
| Total deferred tax liabilities | (2,292,375 | ) | (3,702,407 | ) | |||
| Net deferred tax liabilities | $ | — | $ | (9,575 | ) | ||
SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES
| January 31, | ||||||||
| 2022 | 2021 | |||||||
| Deferred tax assets: | ||||||||
| Allowance for doubtful accounts | $ | 24,000 | $ | 16,000 | ||||
| Deferred revenue | 60,000 | 12,000 | ||||||
| Accruals | 168,000 | 47,000 | ||||||
| Net operating loss carryforwards | 10,908,000 | 8,651,000 | ||||||
| Stock compensation expense | 510,000 | 367,000 | ||||||
| Property and equipment | (6,000 | ) | (5,000 | ) | ||||
| R&D credit | 1,334,000 | 1,431,000 | ||||||
| Other | 23,000 | 7,000 | ||||||
| Total deferred tax assets | 13,021,000 | 10,526,000 | ||||||
| Valuation allowance | (12,318,000 | ) | (9,992,000 | ) | ||||
| Net deferred tax assets | 703,000 | 534,000 | ||||||
| Deferred tax liabilities: | ||||||||
| Finite-lived intangible assets | (798,000 | ) | (534,000 | ) | ||||
| Total deferred tax liabilities | (798,000 | ) | (534,000 | ) | ||||
| Net deferred tax liabilities | $ | (95,000 | ) | $ | — | |||
At January 31, 2016,2022, the Company had U.S. federal net operating loss carry forwards of $44,347,000, which$46,250,000 and $29,083,000 of these net operating losses expire at various dates through fiscal 2035.2038. The Company also has an Alternative Minimum Taxremaining $17,167,000 of these net operating losslosses can be carried forward indefinitely under the provisions of the Tax Cuts and Jobs Act (TCJA). The TCJA also eliminated the ability to carry forward of $39,656,000, which has an unlimited carry forward period.back net operating losses. The Company also had state net operating loss carry forwards of $16,144,000,$21,318,000 and Federal R&D credit carry forwards of $1,575,000 and Georgia R&D credit carry forwards of $94,000, all of which expire on or beforeat various dates through fiscal 2035.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that all or some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. The Company established a valuation allowance of $14,184,000$12,318,000 and $12,554,000$9,992,000 at January 31, 20162022 and 2015,2021, respectively. The increase in the valuation allowance of $1,630,000$2,326,000 was driven primarily by losses incurred during the year ended January 31, 2016. Management believes it is more likely than not the Company will realize the remaining deferred tax assets, net of existing valuation allowances, in future years.
The Company and its subsidiarysubsidiaries are subject to U.S. federal income tax as well as income taxes in multiple state and local jurisdictions. The Company has concluded all U.S. federal tax matters for years through January 31, 2011.2018. All material state and local income tax matters have been concluded for years through January 31, 2010.
The Company has recorded a reserve, including interest and penalties, for uncertain tax positions of $315,000 and $339,000as of both January 31, 20162022 and 2015.2021, respectively. As of both January 31, 20162022 and 2015,2021, the Company had no0 accrued interest and penalties associated with unrecognized tax benefits.
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A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits (excluding interest and penalties) is as follows:
| 2015 | 2014 | ||||||
| Beginning of fiscal year | $ | — | $ | 121,000 | |||
| Additions for tax positions of prior years | — | — | |||||
| Reductions for tax positions of prior years | — | — | |||||
| Reductions attributable to lapse of statute of limitations | — | (121,000 | ) | ||||
| End of fiscal year | $ | — | $ | — | |||
Registration of Shares Issued to 180 Consulting
On May 3, 2021, the Company filed a Registration Statement on Form S-3 (Registration No. 333-255723), which was subsequently amended on June 23, 2021, for purposes of registering for resale shares of common stock issued to 180 Consulting, LLC (“180 Consulting”). The Registration Statement was declared effective by the SEC on July 14, 2021.
Authorized Shares Increase
On May 24, 2021, the Company amended its Certificate of Incorporation to increase the total number of authorized shares of the Company’s common stock from shares to shares (the “Charter Amendment”). The Charter Amendment was previously approved by the board of directors of the Company, subject to stockholder approval, approved by the Company’s stockholders at the 2021 Annual Meeting of Stockholders of the Company, held on May 20, 2021 (the “Annual Meeting”), and ratified by the Company’s stockholders on July 29, 2021 at the Special Meeting (as defined and described in further detail below).
At the Annual Meeting, the Company’s stockholders approved an amendment to the Streamline Health Solutions, Inc. Third Amended and Restated 2013 Stock Incentive Plan to increase the number of shares of the Company’s common stock authorized for issuance thereunder by shares, from shares to shares (the “Third Amended 2013 Plan Amendment”).
As described in the Company’s definitive proxy statement on Schedule 14A filed with the SEC on July 6, 2021, because there may have been uncertainty regarding the validity or effectiveness of the prior approval of the Charter Amendment, the authorized shares increase effected thereby and the Third Amended 2013 Plan Amendment at the Annual Meeting, the board of directors of the Company asked the Company’s stockholders to ratify the approval, filing and effectiveness of the Charter Amendment and the approval and effectiveness of the Third Amended 2013 Plan Amendment at a special meeting of the stockholders held on July 29, 2021 in order to eliminate such uncertainty (the “Special Meeting”). At the Special Meeting, the Company’s stockholders ratified the approval, filing and effectiveness of the Charter Amendment and the approval and effectiveness of the Third Amended 2013 Plan Amendment.
NOTE 9 — MAJOR CLIENTS
During fiscal year 2015, no2021, one individual clientcustomer accounted for 10% or more of our total revenues. Two clients represented 13% and 12%, respectively,continuing operations revenue.This customer accounted for 15% of total accounts receivable as of January 31, 2016.
NOTE 10 — EMPLOYEE RETIREMENT PLAN
The Company has established a 401(k) retirement plan that covers all associates. Company contributions to the plan may be made at the discretion of the board of directors. The Company matches 100%Company’s matched amount is 50% up to the first 4% of compensation deferred by each associate in the 401(k) plan.associate. The total compensation expense for this matching contribution was $499,000$188,000 and $440,000$164,000 in fiscal 20152021 and 2014,2020, respectively.
Stock Option Plans
The Company’s Third Amended and Restated 2013 Stock Incentive Plan (the “2013 Plan”) authorizesreplaced the 2005 Incentive Compensation Plan (the “2005 Plan”). The 2005 Plan expired based upon its terms. Accordingly, all the outstanding awards and any unallocated pool of un-issued options under the 2005 Plan were re-characterized to the 2013 Plan. Under these plans, the Company is authorized to issue up to 4,500,000 equity awards (stock options, stock appreciation rights or “SAR’s”“SARs”, and restricted stock) to directors and associates of the Company. TheUnder the 2013 Plan, replacedas amended, the 2005 Incentive Compensation Plan (the “2005 Plan”). Outstanding awards under the 2005 Plan continueCompany is authorized to be governed by the termsissue a number of the 2005 Plan until exercised, expired or otherwise terminated or canceled, but no further equity awards are allowedshares not to be granted under the 2005 Plan.exceed . The options granted under the 2013 Plan and 2005 Plan have terms of
| 63 |
Inducement grants wereare approved by the Company's Board of DirectorsCompany’s compensation committee pursuant to NASDAQ Marketplace Rule 5635(c)(4). The terms of the grants were nearly identical to the terms and conditions of the Company’s stock incentive plans in effect at the time of each inducement grant.
| Options | Weighted Average Exercise Price | Remaining Life in Years | Aggregate intrinsic value | |||||||||
| Outstanding as of February 1, 2015 | 2,437,323 | $ | 4.52 | |||||||||
| Granted | 1,011,828 | 3.02 | ||||||||||
| Exercised | (75,000 | ) | 2.15 | |||||||||
| Expired | (704,326 | ) | 3.67 | |||||||||
| Forfeited | (257,946 | ) | 4.97 | |||||||||
| Outstanding as of January 31, 2016 | 2,411,879 | $ | 4.16 | (1) | 8.09 | $ | 4,003,719 | |||||
| Exercisable as of January 31, 2016 | 1,000,037 | $ | 4.75 | (2) | 6.82 | $ | 1,660,061 | |||||
| Vested or expected to vest as of January 31, 2016 | 1,990,872 | $ | 4.25 | 7.90 | $ | 3,304,848 | ||||||
SCHEDULE OF STOCK OPTION ACTIVITY
| Weighted | ||||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Options | Exercise Price | Life in Years | intrinsic value | |||||||||||||
| Outstanding as of January 31, 2021 | 625,830 | $ | 3.45 | |||||||||||||
| Granted | 583,333 | 1.53 | ||||||||||||||
| Exercised | (3,300 | ) | �� | 1.35 | ||||||||||||
| Expired | (137,033 | ) | 1.65 | |||||||||||||
| Forfeited | (6,700 | ) | 1.35 | |||||||||||||
| Outstanding as of January 31, 2022 | 1,062,130 | $ | 2.65 | $ | 21,000 | |||||||||||
| Exercisable as of January 31, 2022 | 628,854 | $ | 3.42 | $ | 20,000 | |||||||||||
| Vested or expected to vest as of January 31, 2022 | 1,061,307 | $ | 2.65 | $ | 21,000 | |||||||||||
options were granted in fiscal
| 2015 | 2014 | ||||
| Expected life | 6 years | 6 years | |||
| Risk-free interest rate | 1.51 | % | 1.35 | % | |
| Weighted average volatility factor | 0.59 | 0.60 | |||
| Dividend yield | — | — | |||
| Forfeiture rate | 30 | % | 22 | % | |
SCHEDULE OF WEIGHTED AVERAGE ASSUMPTIONS
| 2021 | 2020 | |||||||
| Expected life | years | |||||||
| Risk-free interest rate | % | |||||||
| Weighted average volatility factor | ||||||||
| Dividend yield | ||||||||
| Forfeiture rate | ||||||||
At
January 31,The 2005 Plan and the 2013 Plan containcontains change in control provisions whereby any outstanding equity awards under the plans subject to vesting, which have not fully vested as of the date of the change in control, shall automatically vest and become immediately exercisable. One of the change in control provisions is deemed to occur if there is a change in beneficial ownership, or authority to vote, directly or indirectly, of securities representing
| 64 |
Restricted Stock
The Company is authorized to grant restricted stock awards to associates and directors under the 2013 Plan. The Company has also issued restricted stock as inducement grants to certain new employees. The restrictions on the shares granted generally lapse over a
| Non-vested Number of Shares | Weighted Average Grant Date Fair Value | |||||
| Non-vested balance at January 31, 2014 | 29,698 | $ | 6.01 | |||
| Granted | 120,306 | 4.31 | ||||
| Vested | (29,698 | ) | 6.65 | |||
| Forfeited/expired | — | — | ||||
| Non-vested balance at January 31, 2015 | 120,306 | $ | 4.31 | |||
| Granted | 118,180 | 2.62 | ||||
| Vested | (120,306 | ) | 4.31 | |||
| Forfeited/expired | (5,800 | ) | 4.31 | |||
| Non-vested balance at January 31, 2016 | 112,380 | $ | 2.62 | |||
| Weighted | ||||||||
| Non-vested | Average | |||||||
| Number of | Grant Date | |||||||
| Shares | Fair Value | |||||||
| Non-vested balance at January 31, 2020 | 803,498 | $ | ||||||
| Granted | 1,158,245 | |||||||
| Vested | (864,128 | ) | ||||||
| Forfeited | (166,490 | ) | ||||||
| Non-vested balance at January 31, 2021 | 931,125 | $ | ||||||
| Granted | 1,257,000 | |||||||
| Vested | (1,095,175 | ) | ||||||
| Forfeited | (50,100 | ) | ||||||
| Non-vested balance at January 31, 2022 | 1,043,000 | $ | ||||||
At
January 31,The expense associated with restricted stock awards for associates and directors was $582,000$ and $265,000,$, respectively, for fiscal 20152021 and 2014.2020.
| 65 |
NOTE 13 — 12— COMMITMENTS AND CONTINGENCIES
Royalty Liability
On October 25, 2013, we entered into a Software License and Royalty Agreement (the “Royalty Agreement”) with Montefiore Medical Center (“Montefiore”) pursuant to which Montefiore granted us an exclusive, worldwide 15-year license of Montefiore’s proprietary clinical analytics platform solution, Clinical Looking Glass® (“CLG”), now known as our Clinical Analytics solution. In addition, Montefiore assigned to us the existing license agreement with a customer using CLG. As consideration under the Royalty Agreement, we paid Montefiore a one-time initial base royalty fee of $3,000,000. Additionally, we originally committed that Montefiore would receive at least an additional $3,000,000 of on-going royalty payments related to future sublicensing of CLG by us within the first nine and one-half years of the license term. On July 1, 2018, we entered into a joint amendment to the Royalty Agreement and the existing Software License and Support Agreement with Montefiore to modify the payment obligations of the parties under both agreements. According to the modified provisions, our obligation to pay on-going royalties under the Royalty Agreement was replaced with the obligation to (i) provide maintenance services for 24 months and waive associated maintenance fees, and (ii) pay $1,000,000 in cash by October 31, 2020. As a result of the commitment to fulfill a portion of our obligation by providing maintenance services at no cost, the royalty liability was significantly reduced, with a corresponding increase to deferred revenues.
On October 1, 2020, the Company agreed with Montefiore that it would pay, in cash, (i) $500,000 upon signing a settlement and release agreement, and (ii) $490,000 on November 1, 2020. The difference between the $990,000 in cash payment and the $1,000,000 payment obligation was due to the settlement of outstanding costs made on behalf of the Company for Montefiore. The Company is,executed the settlement and release agreement shortly after October 1, 2020 and made the scheduled payments. The Company retains the exclusive licensing rights for the underlying software through the term of the original agreement (2028).
Consulting Agreement with 180 Consulting
On March 19, 2020 the Company entered into a Master Services Agreement (the “MSA”) with 180 Consulting, pursuant to which 180 Consulting has provided and will continue to provide a variety of consulting services including product management, operational consulting, staff augmentation, internal systems platform integration and software engineering services, among others, through separate executed statements of work (“SOWs”). The Company has entered into ten SOWs under the MSA. Some of the SOWs include the ability to earn stock at a conversion rate to be calculated 20 days after the execution of the related SOW. 180 Consulting earned a cumulative number of shares through January 31, 2022 totaling , and shares for the year ended January 31, 2022. For services rendered by 180 Consulting during fiscal 2021, the Company incurred fees of $1,439,000. In addition, on February 22, 2022, the Company issued to 180 Consulting an aggregate of shares as compensation for services previously rendered during the three-months ended January 31, 2022. Such shares were issued in a private placement in reliance on the exemption from registration available under Section 4(a)(2) of the Securities Act, including Regulation D promulgated thereunder. During fiscal 2020, the Company incurred fees to 180 Consulting totaling $701,000. Of those fees, approximately $75,000 was related to capitalized software development, and the remaining was operating cost. The MSA includes a termination clause upon a 90-day written notice. While no related party has a direct or indirect material interest in this MSA or the related SOWs, individuals providing services to us under the MSA and the SOWs may share workspace and administrative costs with 121G Consulting (as defined and further discussed in Note 14 – Related Party Transactions).
On September 20, 2021, the Company entered into an additional Master Services Agreement with 180 Consulting to provide a variety of consulting services including product management, operational consulting, staff augmentation, internal systems platform integration and software engineering services, among others, to the Company in support of the Avelead products acquired through separate executed SOW’s. As of January 31, 2022, the Company has entered into one SOW under the Avelead MSA. For services rendered by 180 Consulting during fiscal 2021, the Company incurred fees totaling $288,000.
Litigation
We are, from time to time, a party to various legal proceedings and claims, which arise in the ordinary course of business. Other than the matter described below, the Company isWe are not aware of any legal matters that could have a material adverse effect on the Company’s consolidated results of operations, financial position or cash flows.
NOTE 13 – DISCONTINUED OPERATIONS
On February 12, 2014,24, 2020, the Company entered into a strategic alliance agreement with CentraMed, Inc. (“CentraMed”). On May 6, 2014,consummated the Company signed an asset purchase agreement with CentraMed. This purchase agreement provided forpreviously announced sale of the Company’s purchase of substantially all of CentraMed’s assets relatedlegacy Enterprise Content Management business (the “ECM Assets”) pursuant to its business of providing healthcare analytics and consulting servicesthat certain Asset Purchase Agreement, dated December 17, 2019, as amended (the “Asset Purchase Agreement”), to hospitals, physicians, and other providers. The agreement provided the Company the right to terminate the agreement in a number of circumstances, including if the Company was not satisfied, in its sole and absolute discretion, with the results of its due diligence review; the Company’s senior lender did not consentHyland Software, Inc. (the “Purchaser”),
Pursuant to the transactions contemplated byAsset Purchase Agreement, the agreement; orPurchaser acquired the Company’s Board did not authorize the transactions contemplated by the agreement. On January 12, 2015, the Company terminated the purchase agreement in accordance with its termination rights.
At closing, the Company rejectedreceived approximately $5.4 million in net proceeds after (i) repaying the aforementioned claims Company’s $4.0 million term loan with Bridge Bank, (ii) adjusting for certain customer prepayments, (iii) recording the escrow funds of $800,000 and denied any liability to CentraMed.(iv) incurring certain transaction costs. The Company intends to contest vigorously any action instituted against it by CentraMed. Because of the many questions of fact and law that may arise, the outcome of this matter is uncertain at this point. Basedgain on the information available to us at present, we cannot reasonably estimate a rangesale of loss for this matter and, accordingly, we have not accrued any liability associated with this matter.
| Adjusted Fair Value at August 16, 2012 | Proceeds Allocation at August 16, 2012 | ||||||||
| Instruments: | |||||||||
| Series A Preferred Stock | $ | 9,907,820 | $ | 6,546,146 | (1) | ||||
| Convertible subordinated notes payable | 5,699,577 | 3,765,738 | (2) | ||||||
| Warrants | 2,856,000 | 1,688,116 | (3) | ||||||
| Total investment | $ | 18,463,397 | $ | 12,000,000 | |||||
SCHEDULE OF GAIN ON SALE OF ASSETS
The |
| Number of Shares | Series A Preferred Stock | |||||
| Series A Preferred Stock, January 31, 2014 | 2,949,995 | $ | 5,599,668 | |||
| Accretion of Preferred Stock discount | — | 1,038,310 | ||||
| Series A Preferred Stock, January 31, 2015 | 2,949,995 | 6,637,978 | ||||
| Accretion of Preferred Stock discount | — | 1,336,072 | ||||
| Series A Preferred Stock, January 31, 2016 | 2,949,995 | $ | 7,974,050 | |||
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The Company reclassified the following assets and liabilities for discontinued operations in the accompanying consolidated balance sheets:
SCHEDULE OF DISCONTINUED OPERATIONS OF CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS
| January 31, 2022 | January 31, 2021 | |||||||
| As of | ||||||||
| January 31, 2022 | January 31, 2021 | |||||||
| Current assets of discontinued operations: | ||||||||
| Accounts receivable | $ | — | $ | 587,000 | ||||
| Current assets of discontinued operations | $ | — | $ | 587,000 | ||||
| Long-term assets of discontinued operations: | ||||||||
| Property and equipment, net | $ | — | $ | 13,000 | ||||
| Long-term assets of discontinued operations | $ | — | $ | 13,000 | ||||
| Current liabilities of discontinued operations: | ||||||||
| Accrued expenses | $ | — | $ | 8,000 | ||||
| Deferred revenues | — | 587,000 | ||||||
| Current liabilities of discontinued operations | $ | — | $ | 595,000 | ||||
For fiscal 2021 and 2020, the Company recorded the following into discontinued operations in the accompanying consolidated statements of operations:
| Fiscal Year | ||||||||
| 2021 | 2020 | |||||||
| Revenues: | ||||||||
| Maintenance and support | $ | — | $ | 412,000 | ||||
| Software as a service | — | 138,000 | ||||||
| Transition service fees | 498,000 | 394,000 | ||||||
| Total revenues | $ | 498,000 | $ | 944,000 | ||||
| Expenses: | ||||||||
| Cost of Sales | 5,000 | 294,000 | ||||||
| Transition service cost | 92,000 | 166,000 | ||||||
| Deferred financing cost | — | 128,000 | ||||||
| Total expenses | $ | 97,000 | $ | 588,000 | ||||
| Income from discontinued operations | $ | 401,000 | $ | 356,000 | ||||
The Company entered into an agreement with the Purchaser of the ECM Assets to maintain the current data center through a transition period. The transition services rendereddid not have a finite ending date at the signing of the agreement. However, the transition services were completed in the third quarter of fiscal 2021.
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NOTE 14 - RELATED PARTY TRANSACTIONS
In the second quarter of fiscal year 2019, in connection with the private placement investment. The warrants are exercisable through April 30, 2018 atappointment of Wyche T. “Tee” Green, III, Chairman of the Board of the Company and Managing Member of 121G, LLC (“121G”), as interim President and Chief Executive Officer of the Company, we entered into a stated exercise priceconsulting agreement with 121G Consulting, LLC (“121G Consulting”), to provide an assessment of $4.06 per sharethe Company’s innovation and cangrowth teams and strategies and to develop a set of prioritized recommendations to be exercised in whole or in part. The warrants also includeconsolidated into a cashless exercise option that allows the holder to receive a number of shares of common stock based on an agreed upon formula in exchangestrategic plan for the warrants rather than paying cash to exercise. The warrants have no reset provisions. The warrants hadCompany’s leadership team. Mr. Green is a grant date fair valuemember of $754,000,121G Consulting, and, are classifiedaccordingly, has a financial interest in that entity. In October 2019, Mr. Green was appointed as equity on the consolidated balance sheet. The estimated fair valuePresident and Chief Executive Officer of the warrantsCompany on a full-time basis. Subsequent to Mr. Green joining the Company on a full-time basis, the Company’s relationship with 121G Consulting was determinedterminated.
No fees were incurred from 121G for fiscal 2021. For fiscal 2020, 121G Consulting fees totaled $107,000.
Refer to Note 3 – Business Combination and Divestiture. The Company acquired Avelead on August 16, 2021. In addition, the Company assumed a consulting agreement with AscendTek, LLC (“AscendTek”), a software development and system design company. AscendTek is owned by using Monte-Carlo simulations basedone of the Sellers of Avelead. The Company entered into a separation agreement with this Seller of Avelead on closing of the following assumptions: annual volatility of 75%; risk-free rate of 0.9%, dividend yield of 0.0% and expected life of five years.
| Number of Shares Issuable | Weighted Average Exercise Price | |||||
| Warrants - private placement | 1,200,000 | $ | 3.99 | |||
| Warrants - placement agent | 200,000 | 4.06 | ||||
| Total | 1,400,000 | $ | 4.00 | |||
NOTE 15 — SUBSEQUENT EVENTS
We have evaluated subsequent events through April 20, 2016 and have determined that there are no subsequent eventsoccurring after January 31, 20162021, and based on our evaluation we did not identify any events that would have required recognition or disclosure in these consolidated financial statements, except for which disclosurethe following:
Departure and Appointment of Certain Officers
We have previously disclosed by way of current reports on Form 8-K filed with the SEC that on February 14, 2022, William G. Garvis, the Company’s Senior Vice President and Chief Operating Officer, departed effective February 14, 2022. The Company also announced effective March 22, 2022, Randolph “Randy” Salisbury will depart effective April 15, 2022. Mr. Salisbury previously served as the Company’s Senior Vice President and Chief Sales and Marketing Officer. Mr. Salisbury is required.entitled to receive the severance accorded to him in his employment agreement for a separation without cause.
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Schedule II
Valuation and Qualifying Accounts and Reserves
Streamline Health Solutions, Inc.
For the two years ended
January 31,| Balance at Beginning | Charged to Costs and | (1) | Balance at End of | |||||||||||||
| Description | of Period | Expenses | Deductions | Period | ||||||||||||
| Year ended January 31, 2022: | ||||||||||||||||
| Allowance for doubtful accounts | $ | 65 | $ | 11 | $ | — | $ | 76 | ||||||||
| Year ended January 31, 2021: | ||||||||||||||||
| Allowance for doubtful accounts | $ | 96 | $ | (31 | ) | $ | — | $ | 65 | |||||||
| (1) | Uncollectible accounts written off, net of recoveries. |
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| Additions | |||||||||||||||||||
| Description | Balance at Beginning of Period | Charged to Costs and Expenses | Charged to Other Accounts | Deductions | Balance at End of Period | ||||||||||||||
| (in thousands) | |||||||||||||||||||
| Year ended January 31, 2016: | |||||||||||||||||||
| Allowance for doubtful accounts | $ | 666 | $ | 48 | $ | — | $ | (559 | ) | $ | 155 | ||||||||
| Year ended January 31, 2015: | |||||||||||||||||||
| Allowance for doubtful accounts | $ | 267 | $ | 441 | $ | 1 | $ | (43 | ) | $ | 666 | ||||||||
Item 9.
ChangesNone.
Item 9A.
ControlsEvaluation of Disclosure Controls and Procedures
Our President and procedures that are designed to ensure that there is reasonable assurance that the information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer (who serves as our principal executive officer) and our Senior Vice President and Chief Financial Officer (who serves as appropriate, to allow timely decisions regarding required disclosure based onour principal financial officer) have evaluated the definition of “disclosure controls and procedures” in Exchange Act Rules 13a-15(e) and 15d-15(e). In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, projections of any evaluation of effectiveness of our disclosure controls and procedures to future periods are subject to the risk that controls or procedures may become inadequate because of changes(as defined in conditions, or that the degree of compliance with the controls or procedures may deteriorate.
Management’s Report on Internal Control overOver Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in RulesRule 13a-15(f) and 15d-15(f) underof the Exchange Act. InternalOur internal control over financial reporting is a process designed by, and under the supervision of, our President and Chief Executive Officer and Senior Vice President and Chief Financial Officer and effected by our management and our Board of Directors to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Internal control over financial reporting includes those policies and procedures that:
An internal control material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the chiefconsolidated financial statements will not be prevented or detected.
Our management, including our principal executive officer and chiefprincipal financial officer, assessedconducted an evaluation of the effectiveness of the Company’sour internal control over financial reporting as of January 31, 2016, using2022, and concluded that our internal control over financial reporting was effective as of January 31, 2022. In making the assessment of internal control over financial reporting, management used the criteria established in
Changes in Internal Control Over Financial Reporting
On August 16, 2021, the Company completed the acquisition of Avelead (Refer to Note 3 – Business Combination and Divestiture in our consolidated financial statements included in Part II, Item 8, “Financial Statements” for further information on the Avelead acquisition). In accordance with the general guidance issued by the staff of the SEC, Avelead have been no changes inexcluded from the Company’sscope of management’s report on internal control over financial reporting duringfor the fourth fiscal quarteryear ended January 31, 20162022. As part of the ongoing integration of Avelead, we are in the process of incorporating the controls and related procedures. Other than incorporating the Avelead controls, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that hasoccurred during the year ended January 31, 2022 that have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.
Other InformationNone.
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PART III
Item 10.
Directors, Executive OfficersInformation regarding directors, executive officers and corporate governance will be set forth in the proxy statement for our 20162022 annual meeting of stockholders, which will be filed with the SEC within 120 days after the end of the fiscal year covered by this Report and is incorporated herein by reference.
Item 11.
Executive CompensationInformation regarding executive compensation will be set forth in the proxy statement for our 20162022 annual meeting of stockholders, which will be filed with the SEC within 120 days after the end of the fiscal year covered by this Report and is incorporated herein by reference.
Item 12.
Securities OwnershipInformation regarding security ownership of certain beneficial owners and management and related stockholder matters will be set forth in the proxy statement for our 20162022 annual meeting of stockholders, which will be filed with the SEC within 120 days after the end of the fiscal year covered by this Report and is incorporated herein by reference.
Item 13.
Certain Relationships and Related TransactionsInformation regarding certain relationships and related transactions and director independence will be set forth in the proxy statement for our 20162022 annual meeting of stockholders, which will be filed with the SEC within 120 days after the end of the fiscal year covered by this Report and is incorporated herein by reference.
Item 14.
Principal Accountant Fees and ServicesThe Independent Registered Public Accounting Fees And Services
PART IV
| (32) | Item 15. Exhibits and Financial Statement Schedulesa) See Index to Consolidated Financial Statements and Schedule Covered by Reports of Registered Public Accounting Firms included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Report. See Index to Exhibits contained in this Report. |
(b) Exhibits Financial Statement Schedules
See Index to Exhibits contained in this annual report on Report.
Item 16. Form 10-K.
None.
INDEX TO EXHIBITS
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| Employment Agreement dated February | ||
| Employment Agreement dated | ||
| 10.8# | Employment Agreement, dated as of August 16, 2021, by and between Avelead Consulting, LLC and Jawad Shaikh (Incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K, as filed with the SEC on August 18, 2021). | |
| 10.9# | Restricted Stock Agreement by and between Streamline Health Solutions, Inc. and Jawad Shaikh, dated as of August 16, 2021 (Incorporated by reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K, as filed with the SEC on August 18, 2021). | |
| 10.10# | Restricted Stock Agreement by and between Streamline Health Solutions, Inc. and Badar Shaikh, dated as of August 16, 2021 (Incorporated by reference from Exhibit 10.2 of the Company’s Current Report on Form | |
| Form of Indemnification Agreement for all directors and officers of Streamline Health Solutions, Inc. (Incorporated by reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K, as filed with the | ||
| Software License and Royalty Agreement dated October 25, 2013 between Streamline Health, Inc. and Montefiore Medical Center (Incorporated by reference from Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q, as filed with the | ||
| Joint Amendment dated July 1, 2018, to the Software License and Support Agreement and the Software License and Royalty Agreement by and between Streamline Health, Inc. and Montefiore Medical Center (Incorporated by reference from Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on September 12, 2018). | ||
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| Inline XBRL Instance Document | ||
| Inline XBRL Taxonomy Extension Schema Document | ||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| * | Filed herewith. |
| # | Management Contracts and Compensatory Arrangements. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| STREAMLINE HEALTH SOLUTIONS, INC. | ||
| By: | /S/ WYCHE T. “TEE” GREEN, III | |
| Wyche T. “Tee” Green, III | ||
| Chief Executive Officer |
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints Wyche T. “Tee” Green, III and Thomas J. Gibson, and each of them, his attorneys-in-fact, each with the power of substitution, for him and in his name, place and stead, in any and all capacities, to sign this annual report on Form 10-K and any and all amendments to this annual report on Form 10-K, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and all intents and purposes as amended, is 000-28132.he might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact and agents or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
DATE: April 28, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the date indicated.
| /S/ WYCHE T. “TEE” GREEN, III | Chief Executive Officer and Director | April 28, 2022 | ||
| Wyche T. “Tee” Green, III | (Principal Executive Officer) | |||
| /s/ JONATHAN R. PHILLIPS | Director | April 28, 2022 | ||
| Jonathan R. Phillips | ||||
| /s/ JUSTIN FERAYORNI | Director | April 28, 2022 | ||
| Justin Ferayorni | ||||
| /s/ JUDITH E. STARKEY | Director | April 28, 2022 | ||
| Judith E. Starkey | ||||
| /s/ KENAN H. LUCAS | Director | April 28, 2022 | ||
| Kenan H. Lucas | ||||
| /s/ THOMAS J. GIBSON | Chief Financial Officer | April 28, 2022 | ||
| Thomas J. Gibson | (Principal Financial Officer and Principal Accounting Officer) |
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