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. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
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, 2015,2022, 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 20162023 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, client 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 clients 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; |
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| ● | 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; | |
| ● | 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”). |
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 optimizing data and coding for every patient encounter prior to bill submission. By performing these activities before billing, providers can drive net revenue through reduced revenue leakage, overbilling, and 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. Hospitals and certain hospital owned and operated 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 clients 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 (“Avelead”) on August 16, 2021 on a cash- and debt-free basis. After the third fiscal quarter of 2022, the Company announced a restructuring in order to fully integrate the Avelead business with its other solutions by the end of fiscal 2022. As of that date, the Company’s management was combined under one leader, and the functions of sales and marketing, innovation, support, client success and implementation services were combined under common management.
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 clients in all areasrevenue cycle management including its two flagship technologies RevID™ and eValuatorTM. RevID offers automated, 24-hour reconciliation of clinical activity to patient billing records prior to billing. eValuator provides 100% automated coding analysis prior to billing. In addition, the patient care lifecycleCompany offers an array of professional services, including Patient Engagement, Patient Care, Health Information Management (HIM), Codingsystem implementation. The Company’s solutions and Clinical Documentation Improvement (CDI), and Financial Management. Each suite of solutions isservices are designed to improve the flow of critical patientcoding information throughout the enterprise. Each of the Company’sThe solutions helpsand services help to transform andthe structure of 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.
RevID Automated Revenue Reconciliation – RevID is a cloud-based SaaS automated, 24-hour 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 billing.
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eValuator Coding Analysis Platform - This technology is a cloud-based SaaS 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 billing. 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.
Data Comparison Engine (“DCE” or accessed securely through SaaS.
Coding & CDI
SolutionsFinancial Management
SolutionsProfessional Services
Audit and prescriptive reporting, whichCoding Services — The Company provides technology-enabled audit and coding services to help to simplify, facilitateclients review and optimize overall revenue cycle performancetheir internal clinical documentation and coding functions across the applicable segment of the healthcareclient’s enterprise. The financial management suiteCompany provides these services using experienced coders and auditors through use of solutions is usedits eValuator proprietary software to improve the qualitytargeting of records with the highest likelihood of requiring an audit. The audit services are provided for inpatient diagnostic-related group (DRG) code auditing, outpatient ambulatory payment classification (APC) auditing, hierarchical condition categories (HCC) auditing and accuracyPhysician/Pro-Fee services coding and auditing. The Company has attracted new clients on eValuator utilizing its coding and auditing services as a technology enabled service.
Software Services – Software services relates to implementation of our core software modules, including data collection, configuration of the data captured via our Patient Engagement solutions during patient admission, registrationsoftware based on the clients’ needs, training and scheduling. These solutions are also usedsupport. Support services include non-specified upgrades to increase the completion and accuracy of patient charts and related coding, improve accounts receivable collections, reduce and manage denials, and improve audit outcomes.
Professional Services
Discontinued 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. The ECM Assets were sold on February 24, 2020 to Hyland Software in a transaction accounted for as few as one person or multiple staff members.
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Clients 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. Clients 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, no2022, two individual clients accounted for 10% or more of our continuing operations revenue and represented approximately $7.9 million of total continuing operations revenue. During fiscal 2021, one individual client accounted for 10% or more of our continuing operations revenue and represented approximately $2.6 million of total revenues. Twocontinuing operations revenue. Four clients represented 13%, 12%, 12% and 12%10%, respectively, of totalcontinuing operations accounts receivable as of January 31, 2016.
For more information regarding our major clients, please see “Risks Relating to Our Business - Our sales have been concentrated in a small number of clients” in Part 1, Item 1A, Risk Factors.“Risk Factors” herein.
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. 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 its fiscal 2019 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”.
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Business Segments
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 client base as a provider of computer software-based solutions and services for acute-care healthcare organizations.
For fiscal years 2022 and 2021, the Company had two reporting units for evaluation of goodwill; Streamline Solutions and Avelead Solutions. The Company has determined that effective January 1, 2023, it has one single business segment.reporting unit for purposes of evaluation of goodwill. At the end of fiscal 2022, the Company consolidated and combined its operations for Streamline Solutions and Avelead Solutions. For our total assets at January 31, 20162023 and 20152022 and total revenue and net loss for the fiscal years ended January 31, 20162023 and 2015,2022, 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 clients 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 clients purchasing software to be installed locally or provided on a SaaS model, these are multi-element arrangementsmultiple performance obligations that include either a perpetual or term license and right to access the applicable software functionality (whether installed locally at the client site (oror the right to use the Company’s solutions as a part of SaaS services), terms regarding maintenance and an initial maintenance termsupport services, and any third-party components including hardware and software (included with SaaS services), as well as professional services for implementation, integration, process engineering, optimization and training.training, as well as fees and payment terms for each of the foregoing. If the client purchases solutions via SaaS,on a perpetual license model, the client 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 client purchases solutions on a term-based model, the client is billed periodically a combined access fee for a specified term, typically from one to seven years in length. The SaaSaccess fee includes the access rights along with all maintenance and support services.
The Company also generally provides software and SaaS clients professional services for implementation, integration, process engineering, optimization and training. These services and the associated fees are separate from the license, maintenance and access fees. Professional services are typicallyprovided on either a fixed-fee or hourly arrangements billable to clients 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.
Coding and audit services are provided through a stand-alone services agreement or services addendum to an existing master services agreement with the client. 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. Revenue is generally recognized when the chart is reviewed (i.e, service is completed).
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The commencement of revenue recognition on software solutions varies depending on the size and complexity of the system and/or services involved, the implementation or performance schedule requested by the client and usage by clients of SaaS.SaaS for software-based components. The Company’s agreements are generally non-cancellable but provide that the client may terminate its agreement upon a material breach by the Company and/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 RevID product has competition in charge reconciliation, generally. The Company believes RevID’s automated charge reconciliation technique is unique in the industry as it specifically interacts with desperate clinical systems identifying unbilled services. 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 eValuator product has numerous competitors in the auditing software industry. The Company believes eValuator is unique in that it is designed and has the requisite workflow to perform audits on a pre-bill basis. 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 clients 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. Client processes dictates that correcting errors prior to billing is 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 to gain market share prior to direct competition is critical to the Company’s success.
The Compare product has little direct competition outside of manual (Microsoft excel) based reconciliations. The Company believes that few systems exist that can accurately compare the various software systems used by hospitals. Examples of potential competitors include Vitalware, Craneware and nThrive’s Chargemaster toolkit. The Company believes Compare is unique in that it can be easily fine-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.
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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 client 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.
Regarding our Audit Services, there are numerous companies and independent consultants who offer these services. Barriers to entry to this market include creating and utilizing a well-established client 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 client recommendations and references, company reputation, system reliability, system features and functionality (including ease of use), technological advancements, client 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 its Streamline Health® and other key trademarks used in selling its products. These marks are currently active, with registrations being valid for a period of three years each. The Company actively renews these marks at the end of each registration period.
Regulation
Our clients derive a substantial portion of their revenue from third-party private and governmental payors, including through Medicare, Medicaid and other government-sponsored programs. Our clients 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 clients 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.
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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.
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, and we have historically derived a substantial percentage of our total revenuescontinuing operations revenue from a few clients. For the fiscal years ended
Over the last several years, we have completed acquisitions, 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.
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Over the last several years, we have completed acquisitions of businesses through asset and stock purchases. 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; | |
| ● | 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, clients or partners of an acquired business; | |
| ● | delays in client 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 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.
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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 clients purchase significant amounts of our SaaS services, we may have to expend a significant amount of initial setup costs and time before those new clients 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 clients that would not be offset by revenue until new SaaS clients 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 software solutions. 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 client’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 clients) 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.
Clients 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 client’s agreement except at the end of the agreed upon term or for cause. However, certain of the Company’s client contracts provide that the client 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 clients, especially for new products and services. Furthermore, there can be no assurance that a client 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 client 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 clients is not an assurance that we will continue to provide services for our clients through the entire term of their respective agreements. If clients 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, client contract terminations could harm our reputation within the industry, especially any termination for cause, which could negatively impact our ability to obtain new clients.
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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 clients adequately, our clients 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 clients 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 client 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 clients 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. The healthcare industry is highly regulated and is subject to changing political, economic and regulatory influences. Factors such as
Our clients 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 clients adequately, our clients may suffer adverse financial consequences, which in turn, may reduce the demand for and ability to purchase our solutions or services.
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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 client recommendations and references, company reputation, system reliability, system features and functionality (including ease of use), technological advancements, client 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 client 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.accuracy and completeness of our financial statements.
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 integrate past and future acquisitions into our businessimplement required new or improved controls could have a material adverse effect on us.
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 clients 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 clients by limiting the warranties on our solutions in our agreements with our clients (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, including the storage of critical patient, financial and administrative data. In addition, we provide support services to clients through our client 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 client support facilities could cause a temporary disruption in operations and adversely affect clients who depend on the application hosting services. Any interruption in operations at our data center or client support facility could cause us to lose existing clients, impede our ability to obtain new clients, result in revenue loss, cause potential liability to our clients, 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, 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 clients, 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, clients, 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.
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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’ 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’ 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.
Unstable market and economic conditions and 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.
In addition, the global credit and financial markets have recently experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, inflationary pressure and interest rate changes and uncertainty about economic stability. More recently, the closures of Silicon Valley Bank and Signature Bank and their placement into receivership with the Federal Deposit Insurance Corporation (FDIC) created bank-specific and broader financial institution liquidity risk and concerns. Although the Department of the Treasury, the Federal Reserve, and the FDIC jointly released a statement that depositors at Silicon Valley Bank and Signature Bank would have access to their funds, even those in excess of the standard FDIC insurance limits, under a systemic risk exception, future adverse developments with respect to specific financial institutions or the broader financial services industry may lead to market-wide liquidity shortages, impair the ability of companies to access near-term working capital needs, and create additional market and economic uncertainty. There can be no assurance that future credit and financial market instability and a deterioration in confidence in economic conditions will not occur. Our general business strategy may be adversely affected by any such economic downturn, liquidity shortages, volatile business environment or continued unpredictable and unstable market conditions. If the equity and credit markets deteriorate, or if adverse developments are experienced by financial institutions, it may cause short-term liquidity risk and also make any necessary debt or equity financing more difficult, more costly and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon clinical development plans. In addition, there is a risk that one or more of our current service providers, financial institutions, manufacturers and other partners may be adversely affected by the foregoing risks, which could directly affect our ability to attain our operating goals on schedule and on budget.
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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 November 2014, we entered into29, 2022, the Company executed a CreditSecond Modification to the Second Amended and Restated Loan Agreement (the “Credit“Second Modification Debt Agreement”) with Wells Fargo Bank, N.A., as administrative agent, and other lender parties thereto. Pursuant. The Second Modification Debt Agreement includes an expansion of the Company’s total borrowing to the Credit Agreement, the lenders agreed to provideinclude a $10,000,000 senior term loan and a $5,000,000$2,000,000 revolving line of credit. The revolving line of credit will be co-terminus with the term loan and matures on August 26, 2026. There are no requirements to our primary operating subsidiary.draw on the line of credit. Amounts outstanding under the line of credit portion of the Second Amended and Restated Loan 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%. The Second Modification Debt Agreement amended the covenants of the Second Amended and Restated Loan and Security Agreement. Refer to Note 5 – Debt for information regarding the second Modification Debt Agreement. At closing,January 31, 2023, there was no outstanding balance on the revolving line of credit.
On August 26, 2021, the Company repaid indebtednessand its subsidiaries entered into the Second Amended and Restated Loan and Security Agreement with Bridge Bank. Pursuant to the Second Amended and Restated Loan and Security Agreement, Bridge Bank agreed to provide the Company and its subsidiaries with a new term loan facility in the maximum principal amount of $10,000,000. Amounts outstanding under its prior credit facility using approximately $7,400,000the term loan of the proceeds provided bySecond Amended and Restated Loan and Security Agreement bear interest at a per annum rate equal to the term loan.Prime Rate (as published in The priorWall 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 discontinued the existing $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 clients 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'clients’ 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 clients. 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; (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 client 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'sclients’ financial conditionconditions or budgets; increased competition; the development and introduction of new products and services; the loss of significant clients 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.
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The 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 COVID-19 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. These and other potential impacts of COVID-19 could therefore continue to materially and adversely affect our business, results of operations and financial condition. Even after the COVID-19 pandemic has subsided, we may experience adverse impacts to our business as a result of any economic recession or depression that has occurred or may occur in the future. For instance, changes in the behavior of customers, businesses and their employees as a result of the COVID-19 pandemic, including social distancing practices, even after formal restrictions have been lifted, are unknown. Furthermore, the financial condition of our customers and vendors may be adversely impacted, which may result in a decrease in the demand for our products, the inability and our franchisees’ ability to operate store locations or a disruption to our supply chain. Any of these events may, in turn, have a material adverse impact our business, results of operations and financial condition.
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.
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.
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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.
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.
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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, 2016,2023, 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.
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.
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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 areto a subleased office space at 11800 Amber Park Drive, Suite 125, Alpharetta, Georgia 30009. The office space totals 7,409 square feet and the sublease expired on March 31, 2023. In October 2021, we subleased this space to a third party for the remaining 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 expired on February 28, 2022. The lease was renewed in February 2022 for one year on substantially the same terms. The tenant of the lease is an entity controlled by the former owner of Avelead and current Chief Strategy Officer of the Company. The lease expired on February 28, 2023 and was not renewed.
Prior to occupying the subleased office space located at 1230 Peachtree Street, NE, Suite 600, Atlanta, GA 30309. 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 leases all of its properties. For fiscal 2015,has moved to a virtual office model and does not have a physical office space. Our mailing address is 2400 Old Milton Pkwy, Box 1353, Alpharetta, GA 30009. We believe the aggregate rental expensevirtual environment is adequate for the Company's leased properties was $1,220,000. The following table provides information regarding each property currently leased by the Company.
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 21775 stockholders of record as of April 15, 2016.20, 2023. 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 3,200300 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, 2023, we issued an aggregate of 371,231 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, 915,204 shares of common stock through January 31, 2023. 100,927 shares of common stock were earned but not issued as of the end of our fiscal year ended January 31, 2023. In June 2022, the Company filed a Registration Statement on Form S-3 to register 272,653 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.2023:
| 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 | 17,256 | $ | 1.81 | — | — | |||||||||||
| January 1 - January 31 | — | — | — | — | ||||||||||||
| Total | 17,256 | $ | 1.81 | — | — | |||||||||||
| (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, 2023. |
Item 6. [Reserved]
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Item 10 of Regulation S-K, the Company is not required to provide this information.
Executive Overview
The Company has determined it can best assist healthcare providers in improving their revenue cycle management focused internally on a number of key areas that we believe will have a positive effect on our future performance,by providing solutions and externally on broadening our reach to the market. Some of these initiatives were communicatedservices in the Company’s three primary objectives for fiscal 2015 which were: grow sales, both inside and outsidemiddle 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 existing client base; complete the links between our solutionsfocus in the Looking Glass® platform;middle of the revenue cycle. Our healthcare provider clients are acute-care hospitals and improve our professional services. Some, such as reduce operating costs, generate incremental cash flow, reduce our level of bank debt and change audit firms were not communicated as explicitly but were important areas of achievement for ourrelated clinics.
The Company nonetheless.
With the focus on the middle of the revenue cycle, optimizationthe Company is perfectly matchedcommitted to the market. This value statement can be summed up in our new tag line:
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 clients. By innovating and acquiring 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, RevID, and Compare are competitive in managing their patient population. They wantthe market and enabled us to lower their patientengage thirteen significant new clients in fiscal 2022. These new clients are some of the most recognizable names in healthcare as we have focused our salesforce on industry-leading clients 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 disposal 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.
The COVID-19 pandemic, and its attendant economic damage, has had an adverse impact on our revenue.
The Company believes the lingering effects of the COVID-19 pandemic may continue to impact our acute care healthcare clients including (i) lower margins in hospitals primarily due to increased cost of personnel and materials, (ii) higher than normal personnel turnover in clinical and administrative departments as the labor force looks outside the acute care healthcare space, and (iii) a backlog of IT projects that were deferred during COVID-19 that places pressure on the hospital system to manage new projects. As events continue to change, the Company is unable to accurately predict the ultimate impact that the COVID-19 pandemic will have on the results of operations due to uncertainties including, but not limited to, the severity of the disease, the impact of new subvariants and the public’s response to the outbreak; however, the Company is actively managing the business to respond to the impact.
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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 clients.
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 | % | |||||
| 2023 | 2022 (2) | $ Change | % Change | |||||||||||||
| Software as a Service | $ | 12,326 | $ | 8,077 | $ | 4,249 | 53 | % | ||||||||
| Maintenance and Support | 4,483 | 4,323 | 160 | 4 | % | |||||||||||
| Professional fees and licenses | 8,080 | 4,979 | 3,101 | 62 | % | |||||||||||
| Total revenues | 24,889 | 17,379 | 7,510 | 43 | % | |||||||||||
| Cost of sales | 13,395 | 8,577 | 4,818 | 56 | % | |||||||||||
| Selling, general and administrative | 16,134 | 11,931 | 4,203 | 35 | % | |||||||||||
| Research and development | 6,042 | 4,782 | 1,260 | 26 | % | |||||||||||
| Acquisition-related costs | 149 | 2,856 | (2,707 | ) | (95 | )% | ||||||||||
| Total operating expenses | 35,720 | 28,146 | 7,574 | 27 | % | |||||||||||
| Operating loss | (10,831 | ) | (10,767 | ) | (64 | ) | (1 | )% | ||||||||
| Other (expense) income, net | (477 | ) | 3,959 | (4,436 | ) | (112 | )% | |||||||||
| Income tax expense | (71 | ) | (109 | ) | 38 | (35 | )% | |||||||||
| Loss from continuing operations | $ | (11,379 | ) | $ | (6,917 | ) | $ | (4,462 | ) | (65 | )% | |||||
| Adjusted EBITDA(1) | $ | (3,757 | ) | $ | (2,037 | ) | $ | (1,720 | ) | (84 | )% | |||||
| (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, 2023. |
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 | ||||||||
| 2022 | 2021 | |||||||
| Software as a service | 49.5 | % | 46.5 | % | ||||
| Maintenance and support | 18.0 | 24.9 | ||||||
| Professional fees and licenses | 32.5 | 28.6 | ||||||
| Total revenues | 100.0 | % | 100.0 | % | ||||
| Cost of sales | 53.8 | % | 49.4 | % | ||||
| Selling, general and administrative | 64.8 | 68.7 | ||||||
| Research and development | 24.3 | 27.5 | ||||||
| Acquisition-related costs | 0.6 | 16.4 | ||||||
| Total operating expenses | 143.5 | % | 162.0 | % | ||||
| Operating loss | (43.5 | )% | (62.0 | )% | ||||
| Other (expense) income, net | (1.9 | ) | 22.8 | |||||
| Income tax expense | (0.3 | ) | (0.6 | ) | ||||
| Loss from continuing operations | (45.7 | )% | (39.8 | )% | ||||
| Cost of Sales to Revenues ratio, by revenue stream: | ||||||||
| Software as a service | 51.6 | % | 42.3 | % | ||||
| Maintenance and support | 9.5 | % | 7.7 | % | ||||
| Professional fees and licenses | 81.8 | % | 96.9 | % | ||||
| (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 |
Comparison of Fiscal 2022 with 2021
Revenues
| Fiscal Year | 2022 to 2021 Change | |||||||||||||||
| (in thousands): | 2022 | 2021 | $ | % | ||||||||||||
| Software as a service | $ | 12,326 | $ | 8,077 | $ | 4,249 | 53 | % | ||||||||
| Maintenance and support | 4,483 | 4,323 | 160 | 4 | % | |||||||||||
| Professional fees and licenses | 8,080 | 4,979 | 3,101 | 62 | % | |||||||||||
| Total Revenues | $ | 24,889 | $ | 17,379 | $ | 7,510 | 43 | % | ||||||||
Software as a service (SaaS) — Revenues from SaaS are primarily comprised of the Company’s flagship products; eValuator, RevID and Compare. Revenues from SaaS in fiscal 2022 were $12,326,000, as compared to $8,077,000 in fiscal 2021. The increase in SaaS revenue in fiscal 2022 includes $3,441,000 from Avelead products, primarily due to a full twelve months of revenue recognition compared to partial year
| 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 | % | ||||||
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Maintenance and term software license sales. Proprietary software revenues recognized in fiscal 2015 were $2,927,000, as compared to $1,164,000 in fiscal 2014. The increased fiscal 2015 revenues as compared to 2014 revenues is primarily attributable to $1,600,000in Coding and CDI perpetual license fees recognized for one sale during fiscal 2015.
Professional fees and licenses — Revenues from SaaSprofessional fees and licenses include proprietary software, term license, professional services and audit and coding services revenues. Total professional fees and licenses revenues in fiscal 20152022 were $8,011,000,$8,080,000 compared to $4,979,000 in fiscal 2021 for a total increase of $3,101,000.
Software license revenues recognized in fiscal 2022 were $663,000, as compared to $7,673,000$582,000 in fiscal 2014. 2021. The year-to-year increase was attributablesoftware license sales come primarily from our channel partners. The Company has the ability to go-lives that occurredinfluence sales of these products; however, the timing is difficult to manage as sales are essentially the result of these channel partners. Term license revenue for fiscal 2022 increased $81,000 from fiscal 2021, to $556,000 as one client’s multi-year term license renewed during the 2015 fiscal year, which initiated revenue recognition.
| 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 | )% | |||||
Audit and coding services revenues recognized in fiscal 2022 were $2,542,000, as compared to $1,896,000 in fiscal 2021. Looking ahead to fiscal 2023, the Company continues to see demand for on-shore, technically proficient coders and auditors in the marketplace. The Company believes it has a competitive advantage utilizing eValuator for these audit and coding services. The Company expects the audit and coding services business to remain stable during fiscal 2023 as it may be sold with our eValuator solution as a technology enabled service.
Cost of Revenue
| Fiscal Year | 2022 to 2021 Change | |||||||||||||||
| (in thousands): | 2022 | 2021 | $ | % | ||||||||||||
| Cost of software as a service | $ | 6,358 | $ | 3,417 | $ | 2,941 | 86 | % | ||||||||
| Cost of maintenance and support | 427 | 334 | 93 | 28 | % | |||||||||||
| Cost of professional fees and licenses | 6,610 | 4,826 | 1,784 | 37 | % | |||||||||||
| Total cost of sales | $ | 13,395 | $ | 8,577 | $ | 4,818 | 56 | % | ||||||||
Cost of software as a service (SaaS) - The cost of SaaS solutions consists of costs associated with (i) amortization of capitalized software, (ii) royalties payable to third-parties for use of their coding related content, and (iii) personnel and network related expenses to provision the application for each client. The increase in cost of SaaS included $2,149,000 related to Avelead. Avelead was acquired on August 16, 2021 resulting in a partial year of results in fiscal 2021 compared to a full year of results in fiscal 2022. The royalty and network related agreements are becoming variable as the cost is derived by attributes of the client’s accessing the system. The remaining year-over-year increase was driven by personnel expenses. The Company continued to invest in additional personnel to support SaaS solutions as the client base has been expanding. The Company expects the costs in these categories will continue to rise, in line with revenue, in fiscal 2023 as the Company continues to invest in RevID, Compare and eValuator.
Certain costs in SaaS solutions are tied to volumes. These costs include coding tools supporting eValuator and a third-party system that is intended to help move data from the hospital system to our systems. Included in the cost of SaaS solutions are non-cash amounts of $2,068,000, including the amortization of capitalized software, which directimpacts margin by 17%. Current margins are lower than we expect in the future for SaaS solutions as we are implementing several new clients. Certain costs, are deferredsuch as labor and recognized ratably over the associatedthird-party content providers, negatively impact gross margin before a client is fully implemented and revenue recognition term.is recognized.
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Cost of maintenance and support – The cost of maintenance and support includes compensation and benefits for client support personnelpersonnel. The cost of maintenance in fiscal 2022, compared to fiscal 2021, remained flat and in line with the change in maintenance and support revenue. We expect to see the cost of third-party maintenance contracts.and support for fiscal 2023 to remain relatively consistent as our maintenance and support teams focus on serving our SaaS solutions.
Cost of professional fees and licenses – Cost of revenue, professional fees and licenses, includes cost of software licenses, cost of professional services and cost of audit and coding services. The decrease total cost of sales, professional fees and licenses was $6,610,000 and $4,826,000 for fiscal year 2022 and fiscal year 2021 respectively. The increase in cost of professional fees and licenses includes $1,611,000 from fiscal 2014 to 2015 waslegacy Avelead professional services, primarily due to the reductiona full twelve months of expenses compared to a partial year of expenses in support personnel.
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 | 2022 to 2021 Change | |||||||||||||||
| (in thousands): | 2022 | 2021 | $ | % | ||||||||||||
| General and administrative expenses | $ | 10,569 | $ | 7,896 | $ | 2,673 | 34 | % | ||||||||
| Sales and marketing expenses | 5,565 | 4,035 | 1,530 | 38 | % | |||||||||||
| Total selling, general, and administrative expense | $ | 16,134 | $ | 11,931 | $ | 4,203 | 35 | % | ||||||||
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 sales and marketing expenses. Theshows. For fiscal 2022, Avelead comprised $1,101,000 of the increase in sales and marketing expenseexpenses as compared to fiscal 2021, as Avelead was acquired on August 16, 2021, resulting in a partial year of operations for fiscal 2015 over 2014 reflects2021 as compared to a full year of operations for fiscal 2022. The Company has also seen an increase in total compensation fortravel to client sites, as well as industry trade shows, resulting in greater travel expenses. The Company expects that face-to-face meetings with hospital systems will result in higher sales staff.
Research and Development
| Fiscal Year | 2022 to 2021 Change | |||||||||||||||
| (in thousands): | 2022 | 2021 | $ | % | ||||||||||||
| Research and development expense | $ | 6,042 | $ | 4,782 | $ | 1,260 | 26 | % | ||||||||
| Capitalized research and development cost | 2,019 | 1,431 | 588 | 41 | % | |||||||||||
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| 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 | )% | |||||
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 costs in each of research and development expense and capitalized research and development cost for fiscal 2022 include $2,612,000 related to Avelead compared to fiscal 2021 which included $978,000 related to Avelead. Avelead was acquired on August 16, 2021, resulting in a partial year of results for fiscal 2021 as compared with a full year of results for fiscal 2022. The decrease inremaining fiscal 2022 increased spend was with our development partner (see Commitments and Contingencies). The Company continues to focus on research and development activities on those products with its highest growth prospects, primarily eValuator, RevID and Compare. The Company expects fiscal 2023 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 in2022. For fiscal 2015 and 2014,2022, as a percentage of revenues,revenue, total research and development costs were 32% and 35%, respectively.
| Fiscal Year | 2015 to 2014 Change | |||||||||||||
| (in thousands): | 2015 | 2014 | $ | % | ||||||||||
| Impairment of intangible assets | $ | — | $ | 1,952 | $ | (1,952 | ) | (100 | )% | |||||
| 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 | % | ||||||
Acquisition-related Costs
| Fiscal Year | 2022 to 2021 Change | |||||||||||||||
| (in thousands): | 2022 | 2021 | $ | % | ||||||||||||
| Acquisition-related costs | $ | 149 | $ | 2,856 | $ | (2,707 | ) | (95 | )% | |||||||
Refer to Note 8 - “Income Taxes” to our2 – Summary of Significant Accounting Policies – Other Operating Costs – Acquisition-related costs – in the consolidated financial statements included in Part II, Item 8, herein“Financial Statements and Supplementary Data” for further details on currentwith respect to acquisition-related costs. For fiscal 2022, the Company incurred certain acquisition-related costs related to the acquisition of Avelead totaling $149,000, consisting primarily of fees for professional services. For fiscal 2021, the Company incurred acquisition-related costs related to the acquisition of Avelead totaling $2,856,000. Of the total costs related to the acquisition of Avelead in fiscal 2021, $705,000 was related to bonuses paid to certain executives in executing priorities, primarily the acquisition.
Other (Expense) income
| Fiscal Year | 2022 to 2021 Change | |||||||||||||||
| (in thousands): | 2022 | 2021 | $ | % | ||||||||||||
| Interest expense | $ | (749 | ) | $ | (236 | ) | $ | (513 | ) | 217 | % | |||||
| Loss on early extinguishment of debt | - | (43 | ) | 43 | (100 | )% | ||||||||||
| Acquisition earnout valuation adjustments | 71 | 1,851 | (1,780 | ) | (96 | )% | ||||||||||
| Miscellaneous income | 201 | 60 | 141 | 235 | % | |||||||||||
| PPP Loan Forgiveness | - | 2,327 | (2,327 | ) | (100 | )% | ||||||||||
| Total other (expense) income | $ | (477 | ) | $ | 3,959 | $ | (4,436 | ) | (112 | )% | ||||||
Interest expense consists of interest associated with the term loan, deferred financing costs, less interest related to capitalization of software. Interest expense increased for fiscal 2022 from the prior year period primarily due to the $10,000,000 term loan with Bridge Bank (See Note 5 – Debt) and deferredhigher interest rates. Further, interest rates have increased at an accelerated pace in fiscal 2022. Federal Reserve has been reacting to inflation through interest rate increases. Recent interest rate increases are expected to continue at a slower pace than that experienced in fiscal 2022. The interest rate increases that have been put into effect to date, are expected to continue to increase interest expense (year-over-year) into fiscal 2023.
Acquisition earnout valuation adjustments for fiscal 2022 include a valuation adjustment of $71,000 compared to an adjustment of $1,851,000 for fiscal 2021. The valuation adjustment is related to the acquisition earnout liabilities associated with the Avelead acquisition (Refer to Note 3 – Business Combination and Divestiture of the consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data”).
Miscellaneous income for fiscal 2022 and fiscal 2021 primarily includes income related to the sublease of the Alpharetta location (Refer to Note 4 – Operating Leases).
PPP loan forgiveness for fiscal 2021 reflects the financial impact of the forgiveness of the Company’s $2,301,000 PPP loan along with the accrued interest of $26,000.
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Provision for Income Taxes
For continuing operations fiscal 2022 and fiscal 2021, we recorded income tax (expense) benefitexpense of $71,000 and $109,000, respectively, which is comprised of estimated federal, state, and local income tax provisions. 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 or benefits that do not relate to our core operations;operations such as severance and impairment charges and debt forgiveness; and (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.revenue. EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EBITDA per diluted shareMargin 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 shareMargin, 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 as Adjusted EBITDA per diluted share to loss per diluted share.from continuing operations for the fiscal years ended January 31, 2023 and 2022 (amounts in thousands). All of the items included in the reconciliation from EBITDA and Adjusted EBITDA to net loss and the related per share calculationsfrom continuing operations 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) | 2022 | 2021 | ||||||
| Adjusted EBITDA Reconciliation | ||||||||
| Loss from continuing operations | $ | (11,379 | ) | $ | (6,917 | ) | ||
| Interest expense | 749 | 236 | ||||||
| Income tax expense | 71 | 109 | ||||||
| Depreciation and amortization | 4,233 | 3,646 | ||||||
| EBITDA | (6,326 | ) | (2,926 | ) | ||||
| Share-based compensation expense | 1,680 | 2,216 | ||||||
| Non-cash valuation adjustments | (71 | ) | (1,851 | ) | ||||
| Acquisition-related costs, severance, and transaction-related bonuses | 1,149 | 2,856 | ||||||
| Forgiveness of PPP Loan and accrued interest | — | (2,327 | ) | |||||
| Other non-recurring expenses | (189 | ) | (48 | ) | ||||
| Loss on early extinguishment of debt | — | 43 | ||||||
| Adjusted EBITDA | $ | (3,757 | ) | $ | (2,037 | ) | ||
| Adjusted EBITDA margin (1) | (15 | )% | (12 | )% | ||||
| (1) | |
| Adjusted EBITDA as a percentage of GAAP net revenues. |
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.
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 clients 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 and consulting services The Company recognizes revenue to depict the transfer of promised goods or services to clients 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,
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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 clients 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, client 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, (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
Capital Raise
On October 24, 2022, the Company entered into purchase agreements with certain investors pursuant to which the Company agreed to issue and sell in a registered direct offering (the “2022 Offering”) an aggregate of 6,299,989 shares of common stock, par value $0.01 per share, at a purchase price of $1.32 per share. The gross proceeds to the Company from the 2022 Offering were approximately $8,316,000. The Company intends to use the proceeds of the 2022 Offering for general corporate purposes. The 2022 Offering closed on October 26, 2022.
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 “2021 Offering”). The price to the public in the 2021 Offering was $1.60 per share of common stock. The gross proceeds to the Company from the 2021 Offering were approximately $16,100,000, before deducting underwriting discounts, commissions, and estimated offering expenses. The 2021 Offering closed on March 2, 2021.
The Company believes that cash flows from operations, the cash from the 2022 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 at a special meeting of stockholders held on July 29, 2021 (the “2021 Special Meeting).
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 (the “2013 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”). The Company’s stockholders ratified the approval and effectiveness of the Third Amended 2023 Plan Amendment at the 2021 Special Meeting.
At the 2022 Annual Meeting of Stockholders (the “2022 Annual Meeting”) held on June 7, 2022, the Company’s stockholders approved an amendment to the 2013 Plan to increase the number of shares of the Company’s common stock authorized for issuance thereunder by 2,000,000 shares, from 8,223,246 shares to 10,223,246 shares. The Company’s stockholders also approved an amendment to the Company’s Certificate of Incorporation, as amended, to increase the total number of authorized shares of the Company’s common stock from 65,000,000 shares to 85,000,000 shares.
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Credit Facility
The Company has additional liquidity through the CreditSecond Modification to the Second Amended and Restated Loan Agreement described in more detail in Note 6(the “Second Modification Debt Agreement”). On November 29, 2022, the Company executed the Second Modification Debt Agreement. The Second Modification Debt Agreement includes an expansion of the Company’s total borrowing to our consolidated financial statements included in Part II, Item 8 herein.include a $2,000,000 revolving line of credit. The Company’s primary operating subsidiary has a $5,000,000 revolving line of credit that has not been drawn upon aswill be co-terminus with the term loan and matures on August 26, 2026. There are no requirements to draw on the line of credit. Amounts outstanding under the line of credit portion of the dateSecond Amended and Restated Loan 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 this report. In order3.25%. The Second Modification Debt Agreement amended the covenants of the Second Amended and Restated Loan and Security Agreement. Refer to draw uponNote 5 – Debt for information regarding the Second Modification Debt Agreement. At January 31, 2023, there was no outstanding balance on the revolving line of credit,credit.
Under the Company’s primary operating subsidiary must complySecond Modification Debt Agreement, the Company has a term loan facility with an initial, maximum, principal amount of $10,000,000. Amounts outstanding under the Second Modification Debt 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%.
The Second Modification Debt Agreement includes customary financial covenants includingas follows:
| a. | Minimum Cash. Borrowers shall, at all times, maintain unrestricted cash in an amount not less than Two Million Dollars ($2,000,000). | |
| 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, 2022 | 0.80 to 1.00 | |||
| January 31, 2023 | 0.70 to 1.00 | |||
| April 30, 2023 | 0.65 to 1.00 | |||
| July 31, 2023 | 0.60 to 1.00 | |||
| October 31, 2023 | 0.55 to 1.00 | |||
| January 31, 2024 | 0.50 to 1.00 |
| c. | Maximum Debt to Adjusted EBITDA Ratio. Commencing with the quarter ending April 30, 2024, 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, 2024 | 3.50 to 1.00 | |||
| July 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, 2024, 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. |
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The Second Modification Debt 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 requirement thatbusiness activities of the Company, maintain minimum liquidityas well as customary representations and warranties, affirmative covenants and events of at least $7,500,000. Pursuantdefault, including cross defaults and a change of control default. The line of credit also is subject 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.
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
| As of January, 31 | ||||||||
| (in thousands) | 2023 | 2022 | ||||||
| Term loan (1) | $ | 9,714 | $ | 9,904 | ||||
| (1) | Term loan balance is reported net of deferred financing costs of $36,000 and $96,000 as of January 31, 2023 and 2022, 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, 2023 and January 31, 2022 was bank term debt. |
Operating cash flow activities
| Fiscal Year | ||||||||
| (in thousands) | 2022 | 2021 | ||||||
| Loss from continuing operations | $ | (11,379 | ) | $ | (6,917 | ) | ||
| Non-cash adjustments to net loss | 6,120 | 1,884 | ||||||
| Cash impact of changes in assets and liabilities | (1,884 | ) | 1,149 | |||||
| Net cash used in operating activities | $ | (7,143 | ) | $ | (3,884 | ) | ||
The higher use of cash from operating activities for fiscal 2022 is due to the higher net loss from operations compared to fiscal 2021. The Company had a higher net loss from operations and higher non-cash adjustments to net loss primarily due to higher rates of amortization and lower gains than fiscal 2022 on the PPP loan forgiveness and acquisition earnouts associated with the Avelead acquisition. The Company’s accounts receivable was significantly higher in fiscal 2022 as compared with that of fiscal 2021 due to (i) timing of collection on certain annual invoices, (ii) higher term license due to a sinking fund obligation or otherwise (exceptmulti-year term renewal, and (iii) the timing of software license sales. Within non-cash adjustments to net loss for fiscal 2021, the Company reported forgiveness of the PPP loan of $2,301,000 and related interest of $26,000.
| 38 |
Investing cash flow activities
| Fiscal Year | ||||||||
| (in thousands) | 2022 | 2021 | ||||||
| Investment in Avelead, net of cash | $ | — | $ | (12,470 | ) | |||
| Purchases of property and equipment | (10 | ) | (41 | ) | ||||
| Proceeds from sale of ECM Assets | — | 800 | ||||||
| Capitalized software development costs | (1,924 | ) | (1,458 | ) | ||||
| Net cash used in investing activities | $ | (1,934 | ) | $ | (13,169 | ) | ||
The cash used in investing activities for fiscal 2022 and fiscal 2021 includes capitalized software development costs. The Company expects continued capitalizable projects associated with the Company’s flagship products. The increase in capitalized software development costs is primarily from the acquisition of Avelead in fiscal 2021. The Company experienced a full year of capitalization in fiscal 2022 compared with a partial year in fiscal 2021. Refer to Note 3 – Business Combination and Divestiture for more information on the acquisition of Avelead. The cash used in investing activities for fiscal 2021 included the cash used to acquire Avelead and capitalized software development costs, offset by the release of escrowed funds in fiscal 2021 from the sale of the ECM Assets. Refer to Note 13– Discontinued Operations for more information on the sale of the ECM Assets.
Financing cash flow activities
| Fiscal Year | ||||||||
| (in thousands) | 2022 | 2021 | ||||||
| Proceeds from issuance of common stock | $ | 8,316 | $ | 16,100 | ||||
| Payments of acquisition earnout liabilities | (2,012 | ) | — | |||||
| Payments for costs directly attributable to the issuance of common stock | (52 | ) | (1,313 | ) | ||||
| Repayment of bank term loan | (250 | ) | — | |||||
| Proceeds from term loan payable | — | 10,000 | ||||||
| Payments related to settlement of employee shared-based awards | (197 | ) | (464 | ) | ||||
| Payment of deferred financing costs | (20 | ) | (168 | ) | ||||
| Other | 6 | (6 | ) | |||||
| Net cash provided by financing activities | $ | 5,791 | $ | 24,149 | ||||
The cash provided by financing activities for fiscal 2022 was primarily attributable to the 2022 Offering of the Company’s common stock, which closed on October 26, 2022, offset by earnout payments related to the Avelead acquisition. Refer to Note 8 – Equity for additional information. 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. Additionally, the Company received proceeds of $10,000,000 as a result of a change of control or asset sale so long as any rights of the holders thereof upon the occurrence of a change of control or asset sale event shall be subject to the prior repayment in full of the loansSecond Amended and all other obligations that are accruedRestated Loan and payable upon the termination of the Credit Agreement), (b) are redeemable at the option of the holder thereof, in whole or in part, (c) provide for the scheduled payments of dividends in cash, or (d) are or become convertibleSecurity Agreement entered into or exchangeable for indebtedness or any other equity interests that would constitute disqualified equity interests pursuant to clauses (a) through (c) hereof, in each case, prior to the date that is 180 days after the maturity date of the Credit Agreement.
| (in thousands) | Fiscal Year | ||||||
| 2015 | 2014 | ||||||
| Term loans | $ | 8,535 | $ | 10,000 | |||
| Capital lease | 686 | 1,365 | |||||
| Royalty liability | 2,292 | 2,386 | |||||
Item 8 for additional information.
| (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 | ) | ||
| (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 | ) | |
| (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 | ||
As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, we are not required to provide this information.
| 39 |
Item 8.
Financial StatementsINDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE COVERED BY REPORTREPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
| 41 | |
| 44 | |
| 46 | |
| 47 | |
| 48 | |
| 49 | |
| 77 |
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.
| 40 |
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, 2016,2023 and 2022, 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 includedyears in the two-year period ended January 31, 2023, and the related notes and financial statement schedule II (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company listedas of January 31, 2023 and 2022, and the results of their operations and their cash flows for each of the years in Schedule II. the two-year period ended January 31, 2023, in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
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 include 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.
Critical Audit Matter - Capitalized Software Development Costs
As described in all material respectsNote 2 to the information set forth therein.
| 41 |
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 the software is available for general release to clients, and subsequently reported at the lower of unamortized cost or net realizable value. Capitalized amounts are amortized at the greater of amortization derived from either a straight-line basis or the ratio of current revenues to total current and anticipated revenues.
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.
The primary procedures we plan and perform theperformed 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: |
| o | We inspected underlying documentation and assessed the eligibility of costs for capitalization, in relation to applicable guidance, and whether such costs were incurred during the application development stage or after the attainment of technological feasibility, as applicable. | |
| o | We recalculated the capitalized amount based on hours incurred for direct payroll related costs or associated vendor contracts and invoices for work performed by third parties. | |
| o | We evaluated the software implementation timelines and related underlying documentation supporting the capitalization periods for implementation and development as well as the dates software was placed in service. | |
| o | We inquired of product 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. |
Critical Audit Matter - Valuation of Contingent Consideration
As described in Note 3 to obtain reasonable assurance about whether the financial statements, are free of material misstatement. An audit includes examining, on August 16, 2021, the Company acquired Avelead Consulting, LLC, which included a test basis, evidence supportingcontingent consideration arrangement. The contingent consideration was recorded at fair value on the amountsacquisition date and disclosuresis 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 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.
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We identified the valuation of contingent consideration 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. | |
| ● | We evaluated forward-looking assumptions, such as forecasted revenue used by management by performing procedures that included, but were not limited to, comparisons to historical performance data, 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, including: |
| o | We evaluated the reasonableness of the Company’s third-party valuation models and methodologies and reviewed significant assumptions. | |
| o | We developed an independent calculation of the discount rates used and compared our rates to those used by management. | |
| o | We performed independent simulations using a Monte Carlo technique to determine the fair value of the contingent consideration and test the accuracy of management’s valuation technique and application. |
/s/ FORVIS, LLP (Formerly, 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.
Atlanta, Georgia
April 27, 2023
| 43 |
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)
| 2023 | 2022 | |||||||
| January 31, | ||||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 6,598,000 | $ | 9,885,000 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $132,000 and $76,000, respectively | 7,719,000 | 3,823,000 | ||||||
| Contract receivables | 960,000 | 843,000 | ||||||
| Prepaid and other current assets | 710,000 | 568,000 | ||||||
| Total current assets | 15,987,000 | 15,119,000 | ||||||
| Non-current assets: | ||||||||
| Property and equipment, net of accumulated amortization of $246,000 and $192,000 respectively | 79,000 | 123,000 | ||||||
| Right-of use asset for operating lease | 32,000 | 218,000 | ||||||
| Capitalized software development costs, net of accumulated amortization of $6,224,000 and $5,202,000, respectively | 5,846,000 | 5,555,000 | ||||||
| Intangible assets, net of accumulated amortization of $2,627,000 and $5,121,000, respectively | 14,793,000 | 16,763,000 | ||||||
| Goodwill | 23,089,000 | 23,089,000 | ||||||
| Other | 1,695,000 | 948,000 | ||||||
| Total non-current assets | 45,534,000 | 46,696,000 | ||||||
| Total assets | $ | 61,521,000 | $ | 61,815,000 | ||||
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, | ||||||||
| 2023 | 2022 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 626,000 | $ | 778,000 | ||||
| Accrued expenses | 3,265,000 | 1,803,000 | ||||||
| Current portion of term loan | 750,000 | 250,000 | ||||||
| Deferred revenues | 8,361,000 | 5,794,000 | ||||||
| Current portion of operating lease obligation | 35,000 | 204,000 | ||||||
| Current portion of acquisition earnout liability | 3,738,000 | 4,672,000 | ||||||
| Total current liabilities | 16,775,000 | 13,501,000 | ||||||
| Non-current liabilities: | ||||||||
| Term loan, net of deferred financing costs | 8,964,000 | 9,654,000 | ||||||
| Deferred revenues, less current portion | 167,000 | 136,000 | ||||||
| Operating lease obligations, less current portion | — | 33,000 | ||||||
| Acquisition earnout liability, less current portion | — | 4,161,000 | ||||||
| Other non-current liabilities | 104,000 | 286,000 | ||||||
| Total non-current liabilities | 9,235,000 | 14,270,000 | ||||||
| Total liabilities | 26,010,000 | 27,771,000 | ||||||
| Commitments and contingencies – Note 12 | - | |||||||
| Stockholders’ equity | ||||||||
| Common stock, $ par value per share, and shares authorized, respectively; and shares issued and outstanding, respectively | 576,000 | 478,000 | ||||||
| Additional paid in capital | 131,973,000 | 119,225,000 | ||||||
| Accumulated deficit | (97,038,000 | ) | (85,659,000 | ) | ||||
| Total stockholders’ equity | 35,511,000 | 34,044,000 | ||||||
| Total liabilities and stockholders’ equity | $ | 61,521,000 | $ | 61,815,000 | ||||
See accompanying notes to consolidated financial statements.
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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)
| 2022 | 2021 | |||||||
| Fiscal Year | ||||||||
| 2022 | 2021 | |||||||
| Revenues: | ||||||||
| Software as a service | $ | 12,326,000 | $ | 8,077,000 | ||||
| Maintenance and support | 4,483,000 | 4,323,000 | ||||||
| Professional fees and licenses | 8,080,000 | 4,979,000 | ||||||
| Total revenues | 24,889,000 | 17,379,000 | ||||||
| Operating expenses: | ||||||||
| Cost of software as a service | 6,358,000 | 3,417,000 | ||||||
| Cost of maintenance and support | 427,000 | 334,000 | ||||||
| Cost of professional fees and licenses | 6,610,000 | 4,826,000 | ||||||
| Selling, general and administrative expense | 16,134,000 | 11,931,000 | ||||||
| Research and development | 6,042,000 | 4,782,000 | ||||||
| Acquisition-related costs | 149,000 | 2,856,000 | ||||||
| Total operating expenses | 35,720,000 | 28,146,000 | ||||||
| Operating loss | (10,831,000 | ) | (10,767,000 | ) | ||||
| Other expense: | ||||||||
| Interest expense | (749,000 | ) | (236,000 | ) | ||||
| Loss on early extinguishment of debt | — | (43,000 | ) | |||||
| Acquisition earnout valuation adjustments | 71,000 | 1,851,000 | ||||||
| Other | 201,000 | 60,000 | ||||||
| PPP loan forgiveness | — | 2,327,000 | ||||||
| Loss from continuing operations before income taxes | (11,308,000 | ) | (6,808,000 | ) | ||||
| Income tax expense | (71,000 | ) | (109,000 | ) | ||||
| Loss from continuing operations | (11,379,000 | ) | (6,917,000 | ) | ||||
| Income from discontinued operations: | ||||||||
| Income from discontinued operations | — | 401,000 | ||||||
| Income tax expense | — | (26,000 | ) | |||||
| Income from discontinued operations, net of tax | — | 375,000 | ||||||
| Net loss | $ | (11,379,000 | ) | $ | (6,542,000 | ) | ||
| Basic Earnings Per Share: | ||||||||
| Continuing operations | $ | (0.23 | ) | $ | (0.16 | ) | ||
| Discontinued operations | — | 0.01 | ||||||
| Net income | $ | (0.23 | ) | $ | (0.15 | ) | ||
| Weighted average number of common shares – basic | 49,324,858 | 42,815,239 | ||||||
| Diluted Earnings Per Share: | ||||||||
| Continuing operations | $ | (0.23 | ) | $ | (0.16 | ) | ||
| Discontinued operations | — | 0.01 | ||||||
| Net loss per common share – diluted | $ | (0.23 | ) | $ | (0.15 | ) | ||
| Weighted average number of common shares - diluted | 49,324,858 | 43,273,574 | ||||||
See accompanying notes to consolidated financial statements.
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, 2021 | 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 income | — | — | — | (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 | ||||||||||||||
| Exercise of Stock Options | 5,000 | — | 6,000 | — | 6,000 | |||||||||||||||
| Restricted stock issued | 1,876,962 | 19,000 | (19,000 | ) | — | — | ||||||||||||||
| Issuance of Common Stock | 8,171,027 | 82,000 | 11,246,000 | — | 11,328,000 | |||||||||||||||
| Offering Expenses | — | — | (52,000 | ) | — | (52,000 | ) | |||||||||||||
| Restricted stock forfeited | (199,300 | ) | (2,000 | ) | 2,000 | — | — | |||||||||||||
| Surrender of stock | (127,429 | ) | (1,000 | ) | (196,000 | ) | — | (197,000 | ) | |||||||||||
| Share-based compensation expense | — | — | 1,761,000 | — | 1,761,000 | |||||||||||||||
| Net loss | — | — | — | (11,379,000 | ) | (11,379,000 | ) | |||||||||||||
| Net income (loss) | — | — | — | (11,379,000 | ) | (11,379,000 | ) | |||||||||||||
| Balance at January 31, 2023 | 57,567,210 | $ | 576,000 | $ | 131,973,000 | $ | (97,038,000 | ) | $ | 35,511,000 | ||||||||||
| Balance | 57,567,210 | $ | 576,000 | $ | 131,973,000 | $ | (97,038,000 | ) | $ | 35,511,000 | ||||||||||
See accompanying notes to consolidated financial statements.
| 47 |
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)
| 2022 | 2021 | |||||||
| Fiscal Year | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (11,379,000 | ) | $ | (6,542,000 | ) | ||
| LESS: Income from discontinued operations, net of tax | — | (375,000 | ) | |||||
| Loss from continuing operations, net of tax | (11,379,000 | ) | (6,917,000 | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 4,313,000 | 3,697,000 | ||||||
| Acquisition earnout valuation adjustments | (71,000 | ) | (1,851,000 | ) | ||||
| Loss on early extinguishment of debt | — | 43,000 | ||||||
| Provision for deferred income taxes | 9,000 | 95,000 | ||||||
| Share-based compensation expense | 1,680,000 | 2,216,000 | ||||||
| Provision for accounts receivable allowance | 189,000 | 11,000 | ||||||
| Forgiveness of PPP loan | — | (2,327,000 | ) | |||||
| Changes in assets and liabilities: | ||||||||
| Accounts and contract receivables | (4,202,000 | ) | (129,000 | ) | ||||
| Other assets | (1,197,000 | ) | (346,000 | ) | ||||
| Accounts payable | (152,000 | ) | 17,000 | |||||
| Accrued expenses and other liabilities | 1,069,000 | 533,000 | ||||||
| Deferred revenues | 2,598,000 | 1,074,000 | ||||||
| Net cash used in operating activities – continuing operations | (7,143,000 | ) | (3,884,000 | ) | ||||
| Net cash provided by operating activities – discontinued operations | — | 380,000 | ||||||
| Cash flows from investing activities: | ||||||||
| Investment in Avelead, net of cash acquired | — | (12,470,000 | ) | |||||
| Purchases of property and equipment | (10,000 | ) | (41,000 | ) | ||||
| Proceeds from sale of ECM Assets | — | 800,000 | ||||||
| Capitalization of software development costs | (1,925,000 | ) | (1,458,000 | ) | ||||
| Net cash used in investing activities – continuing operations | (1,935,000 | ) | (13,169,000 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of common stock | 8,316,000 | 16,100,000 | ||||||
| Payment of acquisition earnout liabilities | (2,012,000 | ) | — | |||||
| Payments for costs directly attributable to the issuance of common stock | (52,000 | ) | (1,313,000 | ) | ||||
| Repayment of bank term loan | (250,000 | ) | — | |||||
| Proceeds from term loan payable | — | 10,000,000 | ||||||
| Payments related to settlement of employee shared-based awards | (197,000 | ) | (464,000 | ) | ||||
| Payment of deferred financing costs | (20,000 | ) | (168,000 | ) | ||||
| Other | 6,000 | (6,000 | ) | |||||
| Net cash provided by financing activities – continuing operations | 5,791,000 | 24,149,000 | ||||||
| Net (decrease) increase in cash and cash equivalents | (3,287,000 | ) | 7,476,000 | |||||
| Cash and cash equivalents at beginning of period | 9,885,000 | 2,409,000 | ||||||
| Cash and cash equivalents at end of period | $ | 6,598,000 | $ | 9,885,000 | ||||
| Supplemental cash flow disclosures: | ||||||||
| Interest paid, net of amounts capitalized | $ | 651,000 | $ | 153,000 | ||||
| Income taxes paid | $ | 23,000 | $ | 21,000 | ||||
See accompanying notes to consolidated financial statements.
| 48 |
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, 20162023 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 one 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 clients 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. All amounts in the consolidated financial statements, notes and tables have been rounded to the nearest thousand dollars, except share and per share amounts, unless otherwise indicated.
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 client base as a provider of computer software-based solutions and services for acute-care healthcare organizations. For fiscal years 2022 and 2021, the Company has two reporting units for evaluation of goodwill. 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). The results of operations, cash flows and related balance sheet items associated with the ECM Assets are reported in discontinued operations in the accompanying consolidated statements of operations and cash flows and the consolidated balance sheet for the comparative prior periods. Refer to Note 13 – Discontinued Operations for further details.
| 49 |
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.
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
| 2022 | 2021 | |||||||
| Fiscal Year | ||||||||
| 2022 | 2021 | |||||||
| Forgiveness of PPP loan and accrued interest | $ | — | $ | 2,327,000 | ||||
| Payment of acquisition earnout liabilities in restricted common stock | 3,012,000 | — | ||||||
| Capitalized software purchased with stock (Note 12) | 81,000 | — | ||||||
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 client contract, resulting in unbilled receivables or deferred revenues; therefore, certain contract receivables represent revenues recognized prior to client billings. Individual contract terms with clients 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 monthlyperiodically 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 client 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 clients or resellers to make required payments. The allowance for doubtful accounts was approximately $155,000 and $666,000 at
| 50 |
| 2015 | 2014 | ||||||
| Bad debt expense | $ | 124,000 | $ | 441,000 | |||
Accrued Expenses
Accrued expenses consisted of the following:
SCHEDULE OF ACCRUED EXPENSES
| 2023 | 2022 | |||||||
| January 31, | ||||||||
| 2023 | 2022 | |||||||
| Employee benefits and related compensation | $ | 2,079,000 | $ | 803,000 | ||||
| Professional fees and services | 294,000 | 283,000 | ||||||
| Third party licenses | 285,000 | 77,000 | ||||||
| Customer concessions | 226,000 | 152,000 | ||||||
| State income and sales taxes payable | 331,000 | 460,000 | ||||||
| Interest, primarily on Term Loan | 50,000 | 28,000 | ||||||
| Total accrued expenses | $ | 3,265,000 | $ | 1,803,000 | ||||
Concessions Accrual
The Company offers certain service line agreements within its client contracts such as uptime, support hours, and levels of support. Our contracts may include and we may offer credit to clients when these service line agreements are not met. The service line agreements are accounted for as variable consideration. As a result, we record an estimate of these concessions against our recorded revenue. In determining the concessionconcessions accrual, the Company evaluates historical concessions granted relative to revenue.revenue as well as future potential risk that these service line agreements will not be met. 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 concession accrual each period. Historically, concessions have not been significant. The concession accrual included in accrued other expenses on the Company'sCompany’s consolidated balance sheetsheets was $54,000$226,000 and $58,000$152,000 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 Company entered intoconsolidated statements of operations as this eliminated the asset and accumulated depreciation of the fully depreciated fixed assets.
Leases
We determine whether an amendedarrangement 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
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
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 clients, 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 $5,324,000 and $4,709,000 as of January 31, 2023 and 2022, respectively.
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 was $3,073,000$2,423,000 and $3,678,000$2,173,000 in fiscal
| 52 |
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
| 2022 | 2021 | |||||||
| Fiscal Year | ||||||||
| 2022 | 2021 | |||||||
| Amortization expense on internally-developed software included in: | ||||||||
| Cost of software as a service | $ | 2,068,000 | $ | 1,675,000 | ||||
| Cost of professional fees and licenses | 355,000 | 498.000 | ||||||
| Total amortization expense on internally-developed software | $ | 2,423,000 | $ | 2,173,000 | ||||
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$6,042,000 and $9,756,000$4,782,000 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 2022 and 2021, 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.
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
| Total Fair | Quoted Prices in Active Markets | Significant Other Observable Inputs | Significant Unobservable Inputs | |||||||||||||
| Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| At January 31, 2023 | ||||||||||||||||
| Acquisition earnout liability (1) | $ | 3,738,000 | $ | — | $ | — | $ | 3,738,000 | ||||||||
| At January 31, 2022 | ||||||||||||||||
| Acquisition earnout liability (1) | $ | 8,833,000 | $ | — | $ | — | $ | 8,833,000 | ||||||||
| (1) | |
The fair value of the |
| The probability-weighted discounted cash flow is calculated using a Monte Carlo valuation method. The valuation model provides numerous outcomes. The outcomes are averaged and discounted to present value, which provides the current value point estimate. The significant inputs include our forecast of Avelead SaaS revenue, the probabilities associated with |
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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 2021) to the date of the most recent balance sheets, January 31, 2023 and 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 January 31, 2023 and January 31, 2022. The fair value of the debt as of January 31, 2023 and January 31, 2022 was estimated to be $9,550,000 and $9,798,000, respectively, or a discount to book value of $200,000 and $202,000, respectively. Long-term debt is classified as Level 2.
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 clients 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 Clients (“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 client | |
| ● | 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 clients 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 client. 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 VSOE and TPE ispractical expedient. We have applied the revenue model to a portfolio of contracts with similar characteristics where we expected that the financial statements would not a practical alternative duediffer materially from applying it to differences in functionality from the Company's competitors. Similar to proprietaryindividual contracts within that portfolio.
Software Licenses
The Company’s software license sales, pricing decisions rely on the relative size ofarrangements provide the client purchasingwith the solution,right to use functional intellectual property. Implementation, support, and include calculating the equivalent value of maintenance and support onother services are typically considered distinct performance obligations when sold with 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 clients 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. Theclients 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.
Audit Services
The Company provides technology-enabled coding audit services to help clients review and optimize their internal clinical documentation and coding functions across the applicable segment of the client’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 DISAGGREGATON OF REVENUE
| 2022 | 2021 | |||||||
| Fiscal Year | ||||||||
| 2022 | 2021 | |||||||
| Over time revenue | $ | 16,809,000 | $ | 12,400,000 | ||||
| Point in time revenue | 8,080,000 | 4,979,000 | ||||||
| Total revenue | $ | 24,889,000 | $ | 17,379,000 | ||||
The Company disaggregates revenue into each of (i) over time and (ii) point in time revenue. For over time revenue, revenue is recognized incrementally, as each portion of the performance obligation is satisfied. The Company includes revenue categories of (i) SaaS and (ii) maintenance and support as over time revenue. For point in time revenue, the performance obligation is recognized at the point in time when the obligation is fully satisfied. The Company includes revenue categories of (i) software licenses, (ii) professional services, and (iii) audit services as point in time revenue. For fiscal years ended January 31, 2023 and January 31, 2022, Avelead accounts for $6,231,000 of the over time revenue and $3,590,000 of the point in time revenue, respectively.
Contract Assets and Deferred Revenues
The Company receives payments from clients 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 sales commissions paid or payable, is considered incremental and recoverable costs of obtaining a contract with a client. 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.
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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 totaled $1,534,000 and $806,000, respectively, as of professional services. The Company typically sells professional servicesJanuary 31, 2023 and 2022. In fiscal 2022 and 2021, amortization expense associated with deferred sales commissions was $411,000 and $339,000, respectively, and 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 2022 and historical rate earned remains within a reasonable range to the established selling price.
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 clients 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 clients 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 clients 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 clients and its remarketing partners.
Goodwill and Intangible Assets
Goodwill and other intangible assets were recognized in conjunction with the Interpoint, Meta, CLG,Avelead acquisition, and Unibased acquisitions.certain other acquisitions from fiscal years 2013 and prior (prior to divestiture of such assets). Identifiable intangible assets include purchased intangible assets with finite lives, which primarily consist of internally developedinternally-developed software and client relationships, supplier agreements, non-compete agreements, 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, 2023 and 2022, 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 customerclient 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, 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
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.
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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, 2016,2023, the Company believes it has appropriately accounted for any uncertain tax positions. As part of the Meta acquisition, the Company assumed a current liability for an uncertain tax position. The Company has recorded zero reserves for uncertain tax positions and corresponding interest and penalties as of both January 31, 2016 and January 31, 2015.
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.
SCHEDULE OF BASIC AND DILUTED NET LOSS PER SHARE OF COMMON STOCK
| 2022 | 2021 | |||||||
| Fiscal Year | ||||||||
| 2022 | 2021 | |||||||
| Basic earnings (loss) per share: | ||||||||
| Continuing operations | ||||||||
| Loss from continuing operations, net of tax | $ | (11,379,000 | ) | $ | (6,917,000 | ) | ||
| Basic net loss per share of common stock from continuing operations | $ | (0.23 | ) | $ | (0.16 | ) | ||
| Discontinued operations | ||||||||
| Income available to common stockholders from discontinued operations | $ | — | $ | 375,000 | ||||
| Basic net earnings per share of common stock from discontinued operations | $ | — | $ | 0.01 | ||||
| Diluted earnings (loss) per share (1): | ||||||||
| Continuing operations | ||||||||
| Loss available to common stockholders from continuing operations | $ | (11,379,000 | ) | $ | (6,917,000 | ) | ||
| Diluted net loss per share of common stock from continuing operations | $ | (0.23 | ) | $ | (0.16 | ) | ||
| Discontinued operations | ||||||||
| Income available to common stockholders from discontinued operations | $ | — | $ | 375,000 | ||||
| Diluted net earnings per share of common stock from discontinued operations | $ | — | $ | 0.01 | ||||
| Net loss | $ | (11,379,000 | ) | $ | (6,542,000 | ) | ||
| Weighted average shares outstanding - Basic (1)(1) | 49,324,858 | 42,815,239 | ||||||
| Effect of dilutive securities - Stock options and Restricted stock (2)(2) | — | 458,335 | ||||||
| Weighted average shares outstanding – Diluted | 49,324,858 | 43,273,574 | ||||||
| Basic net loss per share of common stock | $ | (0.23 | ) | $ | (0.15 | ) | ||
| Diluted net loss per share of common stock | $ | (0.23 | ) | $ | (0.15 | ) | ||
| (1) | Excludes the effect of unvested restricted shares of common stock, which are considered non-participating securities. As of January 31, 2023 and 2022, 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, 2023, there were outstanding stock options and unvested restricted shares of common stock. As of January 31, 2022, there were outstanding stock options and unvested restricted shares of common stock. |
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Other Operating Costs
Acquisition-related Costs
SCHEDULE OF NON ROUTINE COSTS
Fiscal Year 2022 | Fiscal Year 2021 | |||||||
| Separation agreement expense | $ | — | $ | 706,000 | ||||
| Broker fees | — | 553,000 | ||||||
| Professional fees | 149,000 | 850,000 | ||||||
| Executive bonuses | — | 705,000 | ||||||
| Loss on exit from operating lease | — | 42,000 | ||||||
| Total | $ | 149,000 | $ | 2,856,000 | ||||
For fiscal 2022 and 2021, the Company incurred certain acquisition-related costs relating to Financial Statements
| 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 | ) | |
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.
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.
Recent Accounting Pronouncements Not Yet Adopted
In November 2015,2019, the FASB issued ASU No. 2015-17,
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.
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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 (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 Unit Purchase Agreement Unibased stockholders received(hereafter referred to as 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. The preliminary purchase price was allocatedprior to the tangibleclosing date. The SaaS Contingent Consideration and intangiblethe 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 consolidated 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 of units (equity), however, Avelead was taxed 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 assumed based on their estimated fair values aswill be consolidated, and the gross deferred tax assets have a full valuation allowance.
The contingent consideration is comprised of the acquisition date“SaaS Contingent Consideration” and “Renewal Contingent Consideration” which are described in more detail 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 | |
| ● | 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 was calculated as 75% of Avelead’s recognized SaaS revenue from September 1, 2021 to August 31, 2022. The first-year payment was subject to a deduction of $665,000 spread equally between the cash and common stock portion of the earnout consideration. 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 had a floor of $3.50 per share and a ceiling of $5.50 per share for the first year earnout. This first year SaaS Contingent Consideration was paid on November 21, 2022 (see below). | |
| ● | 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 |
| 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 client 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 client. 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 client at the minimum amount of contracted revenue. There is no pro-ration of the underlying Renewal Contingent Consideration. This first year SaaS Contingent Consideration was paid on November 21, 2022 (see below). |
On November 21, 2022, the Company made the first year earnout payments and issued common stock warrants exercisable for up to
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The estimatedcomponents 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)(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. The first year earnout paid out on November 21, 2022, consisting of cash in the amount $2,012,000 and restricted shares of common stock. The acquisition second year earnout liability is shown as a short-term liability as of January 31, 2023. |
| 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 “acquisition earnout valuation adjustments” in the accompanying consolidated statements of operations. The valuation adjustment recorded for the period ended January 31, 2023, was $71,000. 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 as of the date of the closing of Avelead as follows:
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 | |||
| Client Relationships (SaaS) | 8,370 | |||
| Client Relationships (Consulting) | 1,330 | |||
| Internally Developed Software | 6,380 | |||
| Trademarks and Tradenames | 1,340 | |||
| Net assets acquired and liabilities assumed | $ | 29,708 |
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The Company determined the fair value of the warrant liabilities as of January 31, 2016 was computedclient relationship intangible assets and the trade name and developed software technology intangible assets using the Black-Scholes option pricing model based on the following assumptions: annual volatility of 60.1%; risk-free rate of 0.6%, dividend yield of 0.0% and expected life of two years. The estimated fair value of the warrant liabilities as of January 31, 2015 was computed using Monte-Carlo simulations based on the following assumptions: annual volatility of 55%; risk-free rate of 0.8%, dividend yield of 0.0% and expected life of three years.
| 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 | |||||
SCHEDULE OF INTANGIBLE ASSETS ESTIMATED USEFUL LIVES
Estimated Useful Lives | ||
| Goodwill | Indefinite | |
| Client Relationships (SaaS) | 10 years | |
| Client Relationships (Consulting) | 8 years | |
| Internally Developed Software | 9 years | |
| Trademarks and Tradenames | 15 years |
The Company’s unaudited pro forma revenues and (loss) income from continuing operations, assuming Avelead was fixedacquired 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 6.42% until October 27, 2014, when the interest rate swapbeginning of these periods nor is it necessarily indicative of future results. The unaudited pro forma financial information does not reflect the impact of events occurring after the acquisition. 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 | ||||
| Unaudited Pro forma | Year Ended January 31, 2022 | |||
| Revenues | $ | 22,631,000 | ||
| Operating expenses | (31,278,000 | ) | ||
| Acquisition-related costs | (4,284,000 | |||
| Operating loss | (12,931,000 | ) | ||
| Other (expense) income | 1,312,000 | |||
| PPP loan forgiveness | 3,059,000 | |||
| Income tax expense | (109,000 | ) | ||
| Loss from continuing operations | $ | (8,669,000 | ) | |
Included in the accompanying consolidated statement of operations for the year ended January 31, 2022 (following 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 -Acquisition-related 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 terminated. Accruedexpensed at the closing of the transaction as there were no material future obligations of the Seller to the Company within acquisition-related 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 unpaid interestadministrative expense.
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The Company granted options to purchase shares of the Company’s common stock to the Sellers at the closing of the Avelead acquisition. These options have a strike price of $ per share, the closing stock price on the seniortrading 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 options have a grant-date fair value of approximately $and are recorded in acquisition-related cost in the accompanying consolidated statement of operations. The options have a grant-date fair value of approximately $ and are expensed over the vesting period within selling, general, and administrative expenses.
Additionally, the Company granted restricted stock awards (RSAs) to certain Avelead employees as of the closing date.
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 loan was due monthly through maturity. We paid $116,000and 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 closing feesdetermining the present value of future lease payments. Operating lease expense is recognized on a straight-line basis over the lease term.
Alpharetta Office Lease
On October 1, 2021, the Company entered into an agreement with a third-party to sublease its office space in connectionAlpharetta, Georgia, (the “Sublease Agreement”). The sublease term is for 18 months which coincides with this senior term loan, which was recorded as a debt discount and amortizedthe Company’s underlying lease (see below). The Company expects to interest expensereceive $292,000 from the sublessee over the term of the loan usingsublease. The sublease did not relieve 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 | |||
The Company entered into a lease for office space in Alpharetta, Georgia, on March 1, 2020. The lease expired 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, 2023, operating lease right-of use assets totaled $32,000, and the associated lease liability of $35,000 is included in current liabilities. The Company used a discount rate of 6.5% to determine the lease liability. As of January 31, 2023 and 2022, the Company had no outstanding borrowings underlease operating costs of approximately $194,000 and $194,000, respectively. The Company paid cash of approximately $210,000 and $203,000 for the revolving linelease in fiscal 2022 and fiscal 2021, respectively.
Maturities of credit,operating lease liabilities associated with the Company’s operating lease as of January 31, 2023 are as follows for payments due based upon the Company’s fiscal year:
SCHEDULE OF MATURITIES OF OPERATING LEASE LIABILITIES
| 2023 | $ | 36,000 | ||
| Total lease payments | 36,000 | |||
| Less present value adjustment | (1,000 | ) | ||
| Present value of lease liabilities | $ | 35,000 |
Suwanee Office Lease
Upon acquiring Avelead on August 16, 2021 (refer to Note 3 – Business Combination and had accrued $2,000 Divestiture), the Company assumed an operating lease agreement for the corporate office space of Avelead. The 36-month term lease commenced March 1, 2019 and initially expired on February 28, 2022. As of January 31, 2023, the Company recorded $73,000 in unused balance commitment fees.
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NOTE 5 — DEBT
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 | ||||
SCHEDULE OF OUTSTANDING DEBT
| January 31, 2023 | January 31, 2022 | |||||||
| Term loan | $ | 9,750,000 | $ | 10,000,000 | ||||
| Deferred financing cost | (36,000 | ) | (96,000 | ) | ||||
| Total | 9,714,000 | 9,904,000 | ||||||
| Less: Current portion | (750,000 | ) | (250,000 | ) | ||||
| Non-current portion of debt | $ | 8,964,000 | $ | 9,654,000 | ||||
Debt Modification
On November 29, 2022, the Company executed the Second Modification to the Second Amended and Restated Debt Agreement (the “Second Modification Debt Agreement”). The Second Modification Debt Agreement includes an expansion of the followingCompany’s total borrowing to include a $2,000,000 revolving line of credit. The revolving line of credit is co-terminus with the term loan and matures on August 26, 2026. There are no requirements to draw on the line of credit. Amounts outstanding under the line of credit portion of the Second Modification Debt 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%. The Second Modification Debt Agreement amended the covenants. At January 31, 2016:
| 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 | ||||||
Under the Second Modification Debt Agreement, the Company has a term loan facility with an initial maximum principal amount of $10,000,000. Amounts outstanding under the Second Modification Debt 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%.
The Second Modification Debt Agreement includes customary financial covenants as follows:
| a. | Minimum Cash. Borrowers shall, at all times, maintain unrestricted cash in an amount not less than Two Million Dollars ($2,000,000). | |
| 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
| Quarter Ending | Maximum Debt to ARR Ratio | |
| October 31, 2022 | 0.80 to 1.00 | |
| January 31, 2023 | 0.70 to 1.00 | |
| April 30, 2023 | 0.65 to 1.00 | |
| July 31, 2023 | 0.60 to 1.00 | |
| October 31, 2023 | 0.55 to 1.00 | |
| January 31, 2024 | 0.50 to 1.00 |
| c. | Maximum Debt to Adjusted EBITDA Ratio. Commencing with the quarter ending April 30, 2024, 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”. |
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SCHEDULE OF MAXIMUM DEBT TO ADJUSTED EBITDA RATIO
| Quarter Ending | Maximum Debt to Adjusted EBITDA Ratio | |
| April 30, 2024 | 3.50 to 1.00 | |
| July 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, 2024, 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 Modification Debt 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 also is subject to customary prepayment requirements. For the period ended January 31, 2014,2023, the Company maintained one effective hedging relationship via one distinctwas in compliance with the Second Modification Debt Agreement covenants. Substantially all the assets of the Company are collateralized by the Second Modification Debt Agreement.
The Company recorded $20,000 in deferred financing costs related to the Second Modification Debt Agreement. These deferred financing costs are being amortized over the remaining term of the loan. The Company also incurred $50,000 in financing costs at the earlier of the term date of the loan, or pre-payment. These costs are being accreted, through interest expense, to the full value of the $250,000 over the remaining term of the loan. The full value of $250,000 includes the $200,000 costs incurred in connection with the Second Amended and Restated Loan Agreement (see below).
Term Loan Agreement
On August 26, 2021, the Company and its subsidiaries entered into the Second Amended and Restated Loan and Security Agreement with Bridge Bank. Pursuant to the Second Amended and Restated Loan and Security Agreement, Bridge Bank agreed to provide the Company and its subsidiaries with a 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 swapequal to the Prime Rate (as published in The Wall Street Journal) plus 1.5%, with a Prime “floor” rate of 3.25%.
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 agreement. The Second Amended and Restated Loan and Security Agreement requires principal repayments on the anniversary date of the closing of the debt agreement (maturing December 1, 2020)of $500,000 in the second year, $1,000,000 in the third year, $2,000,000 in the fourth year, and $3,000,000 in the fifth year, respectively, with the remaining outstanding principal balance and all accrued but unpaid interest due in full on the maturity date. The Second Amended and Restated Loan and Security Agreement may also require early repayments if certain conditions are met.
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The Company recorded $130,000 in deferred financing costs related to the Second Amended and Restated Loan and Security Agreement. These deferred financing costs are being amortized 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, or pre-payment. These costs are being accreted, through interest expense, to the full value of the $200,000 over the term of the loan.
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”), which requiredup 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 Company to payfund payroll expenses and avoid further staffing reductions during the slowdown resulting from COVID-19.
The PPP loan carried an interest at a fixed rate of 6.42%1.0% per annum. Principal and receive interest at a variable rate. This interest rate swap agreementpayments 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 designated to hedge $8,500,000 of a variable rate debt obligation. The one-month LIBOR rate on each reset date determinednotified that the variable portionfull $2,301,000 of the interest rate swap for the following month. The interest rate swap settled anyPPP loan and accrued interest for cashof $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 first dayconsolidated statement of each calendar month, until expiration. At such dates, the differences to be paid or received on the interest rate swap were included in interest expense. No premium or discount was incurred upon the Company entering into the interest rate swap, because the pay and receive rates on the interest rate swap represented prevailing rates for the counterparty at the time the interest rate swap was entered into.
NOTE 76 — GOODWILL AND INTANGIBLE ASSETS
| 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 | |
Intangible assets net, consist of the following:
SCHEDULE OF INTANGIBLE ASSETS
| January 31, 2023 | ||||||||||||||
| Estimated | Accumulated | |||||||||||||
| Useful Life | Gross Assets | Amortization | Net Assets | |||||||||||
| Finite-lived assets: | ||||||||||||||
| Client relationships | 8-10 years | $ | 9,700,000 | $ | 1,463,000 | $ | 8,237,000 | |||||||
| Internally Developed Software | 9 years | $ | 6,380,000 | $ | 1,034,000 | $ | 5,346,000 | |||||||
| Trademarks and Tradenames | 15 years | $ | 1,340,000 | $ | 130,000 | $ | 1,210,000 | |||||||
| Total | $ | 17,420,000 | $ | 2,627,000 | $ | 14,793,000 | ||||||||
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| 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 | |||||||
| January 31, 2022 | ||||||||||||||
| Estimated | Accumulated | |||||||||||||
| Useful Life | Gross Assets | Amortization | Net Assets | |||||||||||
| Finite-lived assets: | ||||||||||||||
| Client 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 | ||||||||
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:
| 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 2022 and 2021, income taxes for continuing operations consist of the following:
SCHEDULE OF INCOME TAXES FOR CONTINUING OPERATION
| 2022 | 2021 | |||||||
| Fiscal Year | ||||||||
| 2022 | 2021 | |||||||
| Current tax expense: | ||||||||
| Federal | $ | — | $ | — | ||||
| State | (62,000 | ) | (14,000 | ) | ||||
| Total current tax expense | $ | (62,000 | ) | $ | (14,000 | ) | ||
| Deferred tax expense: | ||||||||
| Federal | $ | (6,000 | ) | $ | (80,000 | ) | ||
| State | (3,000 | ) | (15,000 | ) | ||||
| Total deferred tax expense | $ | (9,000 | ) | $ | (95,000 | ) | ||
| Total provision | $ | (71,000 | ) | $ | (109,000 | ) | ||
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| 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 | ||
The income tax (expense) benefit for income taxesexpense differs from the amount computed using the federal statutory income tax raterates of 21% for fiscal 2022 and 2021 continuing operations as follows:
| 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 | ||
SCHEDULE OF EFFECTIVE INCOME TAX RATE RECONCILIATION
| 2022 | 2021 | |||||||
| Fiscal Year | ||||||||
| 2022 | 2021 | |||||||
| Federal tax benefit at statutory rate | $ | (2,390,000 | ) | $ | (1,430,000 | ) | ||
| State and local tax expense, net of federal | 52,000 | 26,000 | ||||||
| Increase in valuation allowance | 2,029,000 | 1,950,000 | ||||||
| Permanent items: | ||||||||
| PPP loan | — | (483,000 | ) | |||||
| Other | 20,000 | 3,000 | ||||||
| Reserve for uncertain tax position | 18,000 | (24,000 | ) | |||||
| Federal R&D tax credit | (91,000 | ) | (120,000 | ) | ||||
| Stock-based compensation | 289,000 | (45,000 | ) | |||||
| Other | 2,000 | (8,000 | ) | |||||
| Income tax expense | $ | (71,000 | ) | $ | (109,000 | ) | ||
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
| 2023 | 2022 | |||||||
| January 31, | ||||||||
| 2023 | 2022 | |||||||
| Deferred tax assets: | ||||||||
| Allowance for doubtful accounts | $ | 39,000 | $ | 24,000 | ||||
| Deferred revenue | 122,000 | 60,000 | ||||||
| Accruals | 232,000 | 168,000 | ||||||
| Net operating loss carryforwards | 11,242,000 | 10,908,000 | ||||||
| Stock compensation expense | 342,000 | 510,000 | ||||||
| Finite-lived intangible assets | 1,344,000 | — | ||||||
| R&D tax credit | 1,407,000 | 1,334,000 | ||||||
| Other | 2,000 | 23,000 | ||||||
| Total deferred tax assets | 14,730,000 | 13,027,000 | ||||||
| Valuation allowance | (14,347,000 | ) | (12,318,000 | ) | ||||
| Net deferred tax assets | 383,000 | 709,000 | ||||||
| Deferred tax liabilities: | ||||||||
| Property and equipment | (5,000 | ) | (6,000 | ) | ||||
| Finite-lived intangible liabilities | (482,000 | ) | (798,000 | ) | ||||
| Total deferred tax liabilities | (487,000 | ) | (804,000 | ) | ||||
| Net deferred tax liabilities | $ | (104,000 | ) | $ | (95,000 | ) | ||
At January 31, 2016,2023, the Company had U.S. federal net operating loss carry forwards of $44,347,000, which$49,884,000 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 $20,801,000 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,$24,095,000 and Federal R&D credit carry forwards of $1,666,000 and Georgia R&D credit carry forwards of $94,000, all of which expire on or beforeat various dates through fiscal 2035.2042.
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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$14,347,000 and $12,554,000$12,318,000 at January 31, 20162023 and 2015,2022, respectively. The increase in the valuation allowance of $1,630,000$2,029,000 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, 2011.2019. 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 $333,000 and $315,000as of both January 31, 20162023 and 2015.2022, respectively. As of both January 31, 20162023 and 2015,2022, the Company had no accrued interest and penalties associated with unrecognized tax benefits.
A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits (excluding interest and penalties) is as follows:
SCHEDULE OF GROSS UNRECOGNIZED TAX BENEFITS
| 2022 | 2021 | |||||||
| Beginning of fiscal year | $ | 315,000 | $ | 339,000 | ||||
| Additions for tax positions for the current year | 11,000 | 4,000 | ||||||
| Additions for tax positions of prior years | 7,000 | — | ||||||
| Subtractions for tax positions of prior years | — | (28,000 | ) | |||||
| End of fiscal year | $ | 333,000 | $ | 315,000 | ||||
NOTE 8 — EQUITY
Capital Raise
On October 24, 2022, the Company entered into purchase agreements with certain investors pursuant to Financial Statements
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 shares of the Company’s common stock, par value $ per share, which included 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 “2021 Offering”). The price to the public in the 2021 Offering was $ per share of common stock. The gross proceeds to the Company from the 2021 Offering were approximately $16.1 million, before deducting underwriting discounts, commissions and estimated offering expenses. The 2021 Offering closed on March 2, 2021.
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.
On June 22, 2022, the Company filed a Registration Statement on Form S-3 (Registration No. 333-265773) 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 1, 2022.
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| 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 | $ | — | $ | — | |||
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 and ratified by the Company’s stockholders at the 2021 Special Meeting.
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 shares, from shares to shares (the “Third Amended 2013 Plan Amendment”). The Company’s stockholders ratified the approval and effectiveness of the Third Amended 2013 Plan Amendment at the 2021 Special Meeting.
At the 2022 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 Company’s stockholders also approved an amendment to the Company’s Certificate of Incorporation, as amended, to increase the total number of authorized shares of the Company’s common stock from shares to shares.
NOTE 9 — MAJOR CLIENTS
During fiscal year 2015, no2022, two individual clients accounted for 10% or more of our continuing operations revenue. These clients accounted for 20% and 12%, respectively, of total continuing operations revenue for fiscal 2022. During fiscal 2021, one individual client accounted for 10% or more of our continuing operations revenue. This client accounted for 15% of total revenues. Twocontinuing operations revenue for fiscal 2021. Four clients represented 13%13%, 12%, 12% and 12%10%, respectively, of totalcontinuing operations 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$258,000 and $440,000$188,000 in fiscal 20152022 and 2014,2021, 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
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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, 2022 | 1,062,130 | $ | 2.65 | $ | 21,000 | |||||||||||
| Granted | — | — | ||||||||||||||
| Exercised | (5,000 | ) | 1.18 | |||||||||||||
| Expired | (428,172 | ) | 3.68 | |||||||||||||
| Forfeited | — | — | ||||||||||||||
| Outstanding as of January 31, 2023 | 628,958 | $ | 1.95 | $ | 360,000 | |||||||||||
| Exercisable as of January 31, 2023 | 365,069 | $ | 3.36 | $ | 193,000 | |||||||||||
| Vested or expected to vest as of January 31, 2023 | 628,958 | $ | 1.95 | $ | 360,000 | |||||||||||
No 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
| 2022 | 2021 | |||||||
| 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
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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, 2021 | 931,125 | $ | ||||||
| Granted | 1,257,500 | |||||||
| Vested | (1,095,175 | ) | ||||||
| Forfeited | (50,100 | ) | ||||||
| Non-vested balance at January 31, 2022 | 1,043,350 | $ | ||||||
| Granted | 1,505,731 | |||||||
| Vested | (501,750 | ) | ||||||
| Forfeited | (199,300 | ) | ||||||
| Non-vested balance at January 31, 2023 | 1,848,031 | $ | ||||||
At
January 31,The expense associated with restricted stock awards for associates and directors was $582,000$ and $265,000,$, respectively, for fiscal 20152022 and 2014.2021.
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NOTE 13 — 12— COMMITMENTS AND CONTINGENCIES
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 in support of eValuator products including product management, operational consulting, staff augmentation, internal systems platform integration and software engineering services, among others, through separate executed statements of work (“SOWs”). On September 20, 2021, the Company entered into a separate MSA in support of Avelead products. The Company has entered into twelve SOWs under the eValuator MSA, and two under the Avelead 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. 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. 180 Consulting earned shares for the year ended January 31, 2023 and has earned an aggregate of shares through January 31, 2023. For services rendered by 180 Consulting during fiscal 2022, the Company incurred fees of $2,540,000, and $ of capitalized non-employee stock compensation. In addition, on March 8, 2023, the Company issued to 180 Consulting an aggregate of shares as compensation for services previously rendered during the three-months ended January 31, 2023. 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. For services rendered by 180 Consulting during fiscal 2021, the Company incurred fees of $1,439,000.
Inclusive of the MSA executed with 180 Consulting are SOWs that provide for the Company to sublicense a software through 180 Consulting that is owned by 121G. This is a services agreement for access to software that assists the Company in implementing and integrating with our clients’ technology. The license agreement is designed such that there is no material financial benefit that accrues to 121G. 180 Consulting licenses the software from 121G at cost. The Company paid approximately $301,000 and $227,000 for the SOWs that include the sublicense agreement in each of the fiscal years ended January 31, 2023 and 2022, respectively, which are included in the aforementioned totals above.
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 couldare reasonably possible to 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 claimsCompany’s $4.0 million term loan with Bridge Bank, (ii) adjusting for certain client 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.
SCHEDULE OF GAIN ON SALE OF ASSETS
| Net Proceeds, including escrowed funds | $ | 12,088,000 | ||
| Net tangible assets sold: | ||||
| Accounts Receivable | (1,130,000 | ) | ||
| Prepaid Expenses | (576,000 | ) | ||
| Deferred Revenues | 4,010,000 | |||
| Net tangible assets sold | 2,304,000 | |||
| Capitalized software development costs | (1,772,000 | ) | ||
| Goodwill | (4,825,000 | ) | ||
| Transaction cost | (1,782,000 | ) | ||
| Gain on sale of discontinued operations | $ | 6,013,000 |
| 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 | |||||
The |
For fiscal 2021, the Company recorded the following into discontinued operations in the accompanying consolidated statements of operations:
SCHEDULE OF DISCONTINUED OPERATIONS IN STATEMENTS OF OPERATIONS
| 2021 | ||||
| Revenues: | ||||
| Transition service fees | $ | 498,000 | ||
| Total revenues | $ | 498,000 | ||
| Expenses: | ||||
| Cost of Sales | $ | 5,000 | ||
| Transition service cost | 92,000 | |||
| Total expenses | $ | 97,000 | ||
| Income from discontinued operations | $ | 401,000 | ||
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 did 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.
NOTE 14 - RELATED PARTY TRANSACTIONS
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 being amortized fromowned by one of the dateSellers of issuanceAvelead. The Company entered into a separation agreement with this Seller of Avelead on closing of the Avelead acquisition. From the acquisition date to the earliest redemption date. For the yearsyear ended January 31, 2016 and 2015,2022, the Company recognized $1,336,000incurred approximately $64,000 in research and $1,038,000, respectively, of amortization ofdevelopment services provided by AscendTek. For the discount on Series A Preferred Stock as deemed dividends charged to additional paidfiscal year ended January 31, 2023, the Company incurred approximately $40,000 in capital, computed under the effective interest rate method. The value of the beneficial conversion feature is calculated as the difference between the effective conversion price of the Series A Preferred Stockresearch and the fair market value of the common stock into which the Series A Preferred Stock are convertible at the commitment date.
| 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 | |||
| 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, 20162023, 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 the following:
Silicon Valley Bank (“SVB”) and Signature Bank were closed on March 10, 2023 and March 12, 2023, respectively, by the California Department of Financial Protection and Innovation, which disclosure is required.appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. At the time of closing, the Company did not maintain any of its cash or cash equivalents with SVB or Signature Bank, and the Company has no current direct investment in or contractual relationships with SVB, Signature Bank or their respective holding companies. The Company does not believe it will be impacted by the closure of SVB or Signature Bank and will continue to monitor the situation as it evolves.
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Schedule II
Valuation and Qualifying Accounts and Reserves
Streamline Health Solutions, Inc.
For the two years ended
January 31,| 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 | ||||||||
(in thousands of dollars)
| Description | Balance at Beginning of Period | Charged to Costs and Expenses | (1) Deductions | Balance at End of Period | ||||||||||||
| Year ended January 31, 2023: | ||||||||||||||||
| Allowance for doubtful accounts | $ | 76 | $ | 189 | $ | (133 | ) | $ | 132 | |||||||
| Year ended January 31, 2022: | ||||||||||||||||
| Allowance for doubtful accounts | $ | 65 | $ | 11 | $ | — | $ | 76 | ||||||||
| (1) | Uncollectible accounts written off, net of recoveries. |
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:
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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, using2023, and concluded that our internal control over financial reporting was effective as of January 31, 2023. In making the assessment of internal control over financial reporting, management used the criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and concluded that the Company’s internal control over financial reporting was effective as of January 31, 2016.
Changes in Internal Control Over Financial Reporting
There have beenwere no changes in the Company’sour internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fourth fiscal quarteryear ended January 31, 20162023 that hashave 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 2016 annual meeting2023 Annual Meeting, which will be filed with the SEC within 120 days after the end of stockholdersthe 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 2016 annual meeting2023 Annual Meeting, which will be filed with the SEC within 120 days after the end of stockholdersthe 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 2016 annual meeting2023 Annual Meeting, which will be filed with the SEC within 120 days after the end of stockholdersthe 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 2016 annual meeting2023 Annual Meeting, which will be filed with the SEC within 120 days after the end of stockholdersthe 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
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PART IV
| (32) | Item 15. Exhibits and Financial Statement Schedules) 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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| 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 27, 2023
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 27,2023 | ||
| Wyche T. “Tee” Green, III | (Principal Executive Officer) | |||
| /s/ JONATHAN R. PHILLIPS | Director | April 27,2023 | ||
| Jonathan R. Phillips | ||||
| /s/ JUSTIN FERAYORNI | Director | April 27,2023 | ||
| Justin Ferayorni | ||||
| /s/ JUDITH E. STARKEY | Director | April 27,2023 | ||
| Judith E. Starkey | ||||
| /s/ KENAN H. LUCAS | Director | April 27,2023 | ||
| Kenan H. Lucas | ||||
| /s/ THOMAS J. GIBSON | Chief Financial Officer | April 27,2023 | ||
| Thomas J. Gibson | (Principal Financial Officer and Principal Accounting Officer) |
| 83 |