UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 31, ~~2022~~2023

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to ____________

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

incorporation or organization)

(I.R.S. Employer

Identification No.)

2400 Old Milton Pkwy., Box 1353

Alpharetta, GA 30009

(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(s)		Name of each exchange on which registered
Common Stock, $0.01 par value per share		STRM		Nasdaq Capital Market

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of the Registrant’s Common Stock, $0.01 par value per share, as of December ~~12, 2022~~11 , 2023 was ~~57,416,372~~58,829,461.

TABLE OF CONTENTS

		Page
Part I.	FINANCIAL INFORMATION	3
Item 1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	3
	Condensed Consolidated Balance Sheets at October 31, ~~2022~~2023 (unaudited) and January 31, ~~2022~~2023	3
	Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended October 31, ~~2022~~2023 and ~~2021~~2022	5
	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended October 31, ~~2022~~2023 and ~~2021~~2022	6
	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended October 31, ~~2022~~2023 and ~~2021~~2022	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2520
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3731
Item 4.	Controls and Procedures	3731
Part II.	OTHER INFORMATION	3732
Item 1A.	Risk Factors	3732
Item 2.	Unregistered Sales of Equity Securities, ~~and~~ Use of Proceeds, and Issuer Purchases of Equity Securities	3732
Item 6.	Exhibits	3834
	Signatures	3935

PART I. FINANCIAL INFORMATION

Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

STREAMLINE HEALTH SOLUTIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(rounded to the nearest thousand dollars, except share and per share information)

	October 31, 2022		January 31, 2022		October 31, 2023		January 31, 2023
	(Unaudited)				(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	11,699,000	$	9,885,000	$	2,557,000	$	6,598,000
Accounts receivable, net		3,322,000		3,823,000
Accounts receivable, net of allowance for credit losses of $94,000 and $132,000, respectively						3,653,000		7,719,000
Contract receivables		831,000		843,000		763,000		960,000
Prepaid and other current assets		946,000		568,000		742,000		710,000
Total current assets		16,798,000		15,119,000		7,715,000		15,987,000

Non-current assets:
Property and equipment, net		93,000		123,000
Right of use asset for operating lease		80,000		218,000
Capitalized software development costs, net		5,697,000		5,555,000
Intangible assets, net		15,244,000		16,763,000
Property and equipment, net of accumulated amortization of $278,000 and $246,000 respectively						94,000		79,000
Right-of use asset for operating lease						—		32,000
Capitalized software development costs, net of accumulated amortization of $7,560,000 and $6,224,000, respectively						6,248,000		5,846,000
Intangible assets, net of accumulated amortization of $3,978,000 and $2,627,000, respectively						12,479,000		14,793,000
Goodwill		23,089,000		23,089,000		13,276,000		23,089,000
Other		1,216,000		948,000		1,293,000		1,695,000
Total non-current assets		45,419,000		46,696,000		33,390,000		45,534,000
Total assets	$	62,217,000	$	61,815,000	$	41,105,000	$	61,521,000

See accompanying notes to condensed consolidated financial statements.

STREAMLINE HEALTH SOLUTIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

(rounded to the nearest thousand dollars, except share and per share information)

	October 31, 2022			January 31, 2022			October 31, 2023			January 31, 2023
	(Unaudited)							(Unaudited)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	405,000		$	778,000		$	736,000		$	626,000
Accrued expenses		3,289,000			1,803,000			2,883,000			3,265,000
Current portion of term loan		625,000			250,000			1,250,000			750,000
Deferred revenues		5,531,000			5,794,000			5,983,000			8,361,000
Current portion of lease obligation		87,000			204,000
Current portion of operating lease obligation								—			35,000
Acquisition earnout liability		8,645,000			4,672,000			1,833,000			3,738,000
Total current liabilities		18,582,000			13,501,000			12,685,000			16,775,000
Non-current liabilities:
Term loan, net of current portion and deferred financing costs		9,214,000			9,654,000			8,042,000			8,964,000
Line of credit								500,000			—
Deferred revenues, less current portion		148,000			136,000			127,000			167,000
Lease obligations, less current portion		—			33,000
Acquisition earnout liability, less current portion		—			4,161,000
Other non-current liabilities		109,000			286,000			—			104,000
Total non-current liabilities		9,471,000			14,270,000			8,669,000			9,235,000
Total liabilities		28,053,000			27,771,000			21,354,000			26,010,000
Commitments and contingencies (Note 8)		-			-
Commitments and contingencies – Note 8								-			-
Stockholders’ equity:
Common Stock, $0.01 par value, 85,000,000 shares authorized; 55,130,334 and 47,840,950 shares issued and outstanding, respectively		551,000			478,000
Common stock, $0.01 par value per share, 85,000,000 shares authorized; 58,793,990 and 57,567,210 shares issued and outstanding, respectively								588,000			576,000
Additional paid in capital		128,469,000			119,225,000			133,492,000			131,973,000
Accumulated deficit		(94,856,000	)		(85,659,000	)		(114,329,000	)		(97,038,000	)
Total stockholders’ equity		34,164,000			34,044,000			19,751,000			35,511,000
Total liabilities and stockholders’ equity	$	62,217,000		$	61,815,000		$	41,105,000		$	61,521,000

See accompanying notes to condensed consolidated financial statements.

STREAMLINE HEALTH SOLUTIONS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(rounded to the nearest thousand dollars, except share and per share information)

2022 2021 2022 2021

Three Months Ended
October 31,

Nine Months Ended
October 31,

2022 2021 2022 2021
Revenue:
Software Licenses $ — $ 150,000 $ 123,000 $ 285,000
Professional Services 1,270,000 944,000 3,552,000 1,052,000
Audit Services 618,000 513,000 1,964,000 1,460,000
Maintenance and Support 1,120,000 1,082,000 3,348,000 3,226,000
Software as a Service 3,209,000 2,825,000 9,157,000 5,310,000
Total Revenue 6,217,000 5,514,000 18,144,000 11,333,000
Operating expenses:
Cost of software licenses 85,000 133,000 278,000 412,000
Cost of professional services 1,128,000 936,000 3,288,000 1,411,000
Cost of audit services 531,000 409,000 1,426,000 1,174,000
Cost of maintenance and support 84,000 57,000 220,000 223,000
Cost of software as a service 1,742,000 1,088,000 4,771,000 2,276,000
Selling, general and administrative expense 4,053,000 3,439,000 12,488,000 8,507,000
Research and development 1,754,000 1,339,000 4,527,000 3,280,000
Acquisition-related costs 2,000 1,933,000 141,000 2,710,000
Total operating expenses 9,379,000 9,334,000 27,139,000 19,993,000
Operating loss (3,162,000 ) (3,820,000 ) (8,995,000 ) (8,660,000 )
Other income (expense):
Interest expense (198,000 ) (85,000 ) (519,000 ) (107,000 )
Loss on Extinguishment of Debt — (43,000 ) — (43,000 )
Acquisition earnout valuation adjustments 163,000 (417,000 ) 188,000 (417,000 )
Other 68,000 (10,000 ) 151,000 (4,000 )
Forgiveness of PPP loan and accrued interest — — — 2,327,000
Loss from continuing operations before income taxes (3,129,000 ) (4,375,000 ) (9,175,000 ) (6,904,000 )
Income tax expense (9,000 ) (4,000 ) (22,000 ) (9,000 )
Loss from continuing operations (3,138,000 ) (4,379,000 ) (9,197,000 ) (6,913,000 )
Income from discontinued operations:
Income from discontinued operations, net of tax — 69,000 — 401,000
Net loss $ (3,138,000 ) $ (4,310,000 ) $ (9,197,000 ) $ (6,512,000 )
Basic Earnings Per Share:
Continuing operations $ (0.07 ) $ (0.10 ) $ (0.19 ) $ (0.17 )
Discontinued operations — 0.00 — 0.01
Net loss $ (0.07 ) $ (0.10 ) $ (0.19 ) $ (0.16 )
Weighted average number of common shares - basic 47,730,009 45,709,952 47,329,923 41,498,873
Diluted Earnings Per Share:
Continuing operations $ (0.07 ) $ (0.10 ) $ (0.19 ) $ (0.17 )
Discontinued operations — 0.00 — $ 0.01
Net loss $ (0.07 ) $ (0.10 ) $ (0.19 ) $ (0.16 )
Weighted average number of common shares - diluted 48,143,819 46,063,803 47,613,577 41,995,266

	2023			2022			2023			2022
	Three Months Ended October 31,						Nine Months Ended October 31,
	2023			2022			2023			2022
Revenues:
Software as a service	$	3,924,000		$	3,209,000		$	10,630,000		$	9,157,000
Maintenance and support		1,070,000			1,120,000			3,327,000			3,348,000
Professional fees and licenses		1,139,000			1,888,000			3,278,000			5,639,000
Total revenues		6,133,000			6,217,000			17,235,000			18,144,000
Operating expenses:
Cost of software as a service		1,677,000			1,742,000			5,159,000			4,771,000
Cost of maintenance and support		129,000			84,000			250,000			220,000
Cost of professional fees and licenses		1,072,000			1,744,000			3,202,000			4,992,000
Cost of goods and services		1,072,000			1,744,000			3,202,000			4,992,000
Selling, general and administrative expense		4,122,000			4,055,000			12,079,000			12,629,000
Research and development		1,304,000			1,754,000			4,310,000			4,527,000
Impairment of goodwill		9,813,000			—			9,813,000			—
Impairment of long-lived assets		963,000			—			963,000			—
Total operating expenses		19,080,000			9,379,000			35,776,000			27,139,000
Operating loss		(12,947,000	)		(3,162,000	)		(18,541,000	)		(8,995,000	)
Other (expense) income:
Interest expense		(266,000	)		(198,000	)		(781,000	)		(519,000	)
Acquisition earnout valuation adjustments		1,182,000			163,000			1,905,000			188,000
Other		—			68,000			31,000			151,000
Loss before income taxes		(12,031,000	)		(3,129,000	)		(17,386,000	)		(9,175,000	)
Income tax benefit (expense)		120,000			(9,000	)		59,000			(22,000	)
Net loss	$	(11,911,000	)	$	(3,138,000	)	$	(17,327,000	)	$	(9,197,000	)
Basic and Diluted Earnings Per Share:
Net loss per common share – basic and diluted	$	(0.21	)	$	(0.07	)	$	(0.31	)	$	(0.19	)
Weighted average number of common shares – basic and diluted		56,710,335			47,730,009			56,346,300			47,329,923

See accompanying notes to condensed consolidated financial statements.

STREAMLINE HEALTH SOLUTIONS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(rounded to the nearest thousand dollars, except share information)


	Common stock shares			Common Stock			Additional paid in capital			Accumulated deficit			Total stockholders’ equity			Common stock (Shares)			Common stock (Amount)			Additional paid in capital			Accumulated deficit			Total stockholders’ equity

Balance at January 31, 2022		47,840,950		$	478,000		$	119,225,000		$	(86,659,000	)	$	34,044,000
Balance at January 31, 2023																	57,567,210		$	576,000		$	131,973,000		$	(97,038,000	)	$	35,511,000
Restricted stock issued																	1,185,927			12,000			(12,000	)		—			—
Restricted stock forfeited																	(28,400	)		(1,000	)		1,000			—			—
Surrender of shares																	(88,326	)		(1,000	)		(178,000	)		—			(179,000	)
Share-based compensation																	—			—			595,000			—			595,000
Adoption of ASU 2016-13																	—			—			—			36,000			36,000
Net loss																	—			—			—			(2,901,000	)		(2,901,000	)
Balance at April 30, 2023																	58,636,411			586,000			132,379,000			(99,903,000	)		33,062,000

Restricted stock issued		408,031			4,000			(4,000	)		—			—			385,720			4,000			(4,000	)		—			—
Restricted stock forfeited		(63,900	)		—			—			—			—			(77,000	)		(1,000	)		1,000			—			—
Surrender of shares		(95,701	)		(1,000	)		(140,000	)		—			(141,000	)		(50,060	)		—			(73,000	)		—			(73,000	)
Share-based compensation		—			—			326,000			—			326,000			—			—			630,000			—			630,000
Net loss		—			—			—			(2,787,000	)		(2,787,000	)		—			—			—			(2,515,000	)		(2,515,000	)
Balance at April 30, 2022		48,089,380		$	481,000		$	119,407,000		$	(88,446,000	)	$	31,442,000
Exercise of Stock Options		5,000			—			6,000			—			6,000
Restricted stock issued		726,801			7,000			(7,000	)		—			—
Restricted stock forfeited		(20,000	)		—			—			—			—
Share-based compensation		—			—			331,000			—			331,000
Net loss		—			—			—			(3,272,000	)		(3,272,000	)
Balance at July 31, 2022		48,801,181		$	488,000		$	119,737,000		$	(91,718,000	)	$	28,507,000
Balance at July 31, 2023																	58,895,071		$	589,000		$	132,933,000		$	(102,418,000	)	$	31,104,000

Restricted stock issued		118,836			1,000			(1,000	)		—			—			176,054			2,000			(2,000	)		—			—
Restricted stock forfeited		(75,200	)		(1,000	)		1,000			—			—			(239,100	)		(2,000	)		2,000			—			—
Surrender of shares		(14,472	)		—			(24,000	)		—			(24,000	)		(38,035	)		(1,000	)		(18,000	)		—			(19,000	)
Share-based compensation		—			—			555,000			—			555,000			—			—			577,000			—			577,000
Issuance of Common Stock		6,299,989			63,000			8,253,000			—			8,316,000
Offering Expenses		—			—			(52,000	)		—			(52,000	)
Net loss		—			—			—			(3,138,000	)		(3,138,000	)		—			—			—			(11,911,000	)		(11,911,000	)
Balance at October 31, 2022		55,130,334		$	551,000		$	128,469,000		$	(94,856,000	)	$	34,164,000
Balance at October 31, 2023																	58,793,990		$	588,000		$	133,492,000		$	(114,329,000	)	$	19,751,000

	Common stock shares			Common Stock			Additional paid in capital			Accumulated deficit			Total stockholders’ equity			Common stock (Shares)			Common stock (Amount)			Additional paid in capital			Accumulated deficit			Total stockholders’ equity

Balance at January 31, 2021		31,597,975		$	316,000		$	96,290,000		$	(79,117,000	)	$	17,489,000
Restricted stock issued		740,752			7,000			(7,000	)		—			—
Surrender of shares		(78,562	)		(1,000	)		(160,000	)		—			(161,000	)
Share-based compensation		—			—			565,000			—			565,000
Issuance of Common Stock		10,062,500			101,000			15,999,000			—			16,100,000
Offering Expenses		—			—			(1,293,000	)		—			(1,293,000	)
Net loss		—			—			—			(2,142,000	)		(2,142,000	)
Balance at April 30, 2021		42,322,665		$	423,000		$	111,394,000		$	(81,259,000	)	$	30,558,000
Balance at January 31, 2022																	47,840,950		$	478,000		$	119,225,000		$	(85,659,000	)	$	34,044,000
Restricted stock issued		112,500			1,000			(1,000	)		—			—			408,031			4,000			(4,000	)		—			—
Restricted stock forfeited		(10,000	)		—			—			—			—			(63,900	)		—			—			—			—
Surrender of shares		(69,289	)		—			(130,000	)		—			(130,000	)		(95,701	)		(1,000	)		(140,000	)		—			(141,000	)
Share-based compensation		—			—			557,000			—			557,000			—			—			326,000			—			326,000
Offering Expenses		—			—			(25,000	)		—			(25,000	)
Net loss		—			—			—			(60,000	)		(60,000	)		—			—			—			(2,787,000	)		(2,787,000	)
Balance at July 31, 2021		42,355,876		$	424,000		$	111,795,000		$	(81,319,000	)	$	30,900,000
Beginning balance, value		42,355,876		$	424,000		$	111,795,000		$	(81,319,000	)	$	30,900,000
Exercise of Stock Options		3,300			—			4,000			—			4,000
Balance at April 30, 2022																	48,089,380			481,000			119,407,000			(88,446,000	)		31,442,000

Exercise of stock options																	5,000			—			6,000			—			6,000
Restricted stock issued																	726,801			7,000			(7,000	)		—			—
Restricted stock forfeited																	(20,000	)		—			—			—			—
Share-based compensation																	—			—			331,000			—			331,000
Net loss																	—			—			—			(3,272,000	)		(3,272,000	)
Balance at July 31, 2022																	48,801,181		$	488,000		$	119,737,000		$	(91,718,000	)	$	28,507,000
Balance																	48,801,181		$	488,000		$	119,737,000		$	(91,718,000	)	$	28,507,000

Restricted stock issued		348,415			3,000			(3,000	)		—			—			118,836			1,000			(1,000	)		—			—
Restricted stock forfeited		(40,100	)		—			—			—			—			(75,200	)		(1,000	)		1,000			—			—
Surrender of shares		(49,813	)		(1,000	)		(88,000	)		—			(89,000	)		(14,472	)		—			(24,000	)		—			(24,000	)
Share-based compensation		—			—			537,000			—			537,000			—			—			555,000			—			555,000
Issuance of Common Stock		5,021,972			50,000			6,504,000			—			6,554,000
Offering Expenses		—			—			5,000			—			5,000
Issuance of common stock																	6,299,989			63,000			8,253,000			—			8,316,000
Offering expenses																	—			—			(52,000	)		—			(52,000	)
Net loss		—			—			—			(4,310,000	)		(4,310,000	)		—			—			—			(3,138,000	)		(3,138,000	)
Balance at October 31, 2021		47,639,650			476,000			118,754,000			(85,629,000	)		33,601,000
Ending balance, value		47,639,650			476,000			118,754,000			(85,629,000	)		33,601,000
Balance at October 31, 2022																	55,130,334		$	551,000		$	128,469,000		$	(94,856,000	)	$	34,164,000
Balance																	55,130,334		$	551,000		$	128,469,000		$	(94,856,000	)	$	34,164,000

See accompanying notes to condensed consolidated financial statements.

STREAMLINE HEALTH SOLUTIONS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(rounded to the nearest thousand dollars)

	2022			2021			2023			2022
	Nine months Ended October 31,						Nine months Ended October 31,
	2022			2021			2023			2022
Net loss	$	(9,197,000	)	$	(6,512,000	)	$	(17,327,000	)	$	(9,197,000	)
LESS: Income from discontinued operations, net of tax		—			401,000
Loss from continuing operations, net of tax		(9,197,000	)		(6,913,000	)

Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		40,000			53,000
Amortization of capitalized software development costs		1,293,000			1,430,000
Amortization of intangible assets		1,519,000			721,000
Amortization of other deferred costs		360,000			369,000
Change in fair value of acquisition earnout liability		(188,000	)		417,000
Loss on early extinguishment of debt		—			43,000
Amortization of deferred financing costs		60,000			—
Depreciation and amortization								3,264,000			3,272,000
Acquisition earnout valuation adjustments								(1,905,000	)		(188,000	)
Benefit for deferred income taxes								(104,000	)		—
Share-based compensation expense		1,212,000			1,659,000			1,626,000			1,212,000
Provision for accounts receivable allowance		21,000			14,000
Forgiveness of PPP loan and accrued interest		—			(2,327,000	)
Impairment of goodwill								9,813,000			—
Impairment of long-lived assets								963,000			—
Provision for credit losses								—			21,000
Changes in assets and liabilities:
Accounts and contract receivables		492,000			666,000			4,299,000			492,000
Other assets		(868,000	)		(551,000	)		(65,000	)		(868,000	)
Accounts payable		(373,000	)		(72,000	)		109,000			(373,000	)
Accrued expenses and other liabilities		1,159,000			774,000			(417,000	)		1,159,000
Deferred revenue		(251,000	)		(305,000	)		(2,417,000	)		(251,000	)
Net cash used in operating activities		(4,721,000	)		(4,022,000	)		(2,161,000	)		(4,721,000	)
Net cash provided by operating activities – discontinued operations		—			406,000
Cash flows from investing activities:
Investment in Avelead, Net of Cash		—			(12,354,000	)
Proceeds from sale of ECM Assets		—			800,000
Purchases of property and equipment		(10,000	)		(18,000	)		(47,000	)		(10,000	)
Capitalization of software development costs		(1,435,000	)		(1,048,000	)		(1,562,000	)		(1,435,000	)
Net cash used in investing activities		(1,445,000	)		(12,620,000	)		(1,609,000	)		(1,445,000	)
Cash flows from financing activities:
Repayment of bank term loan		(125,000	)		—			(500,000	)		(125,000	)
Proceeds from issuance of term loan		—			10,000,000
Proceeds from line of credit								500,000			—
Proceeds from issuance of common stock		8,316,000			16,100,000			—			8,316,000
Payments for costs directly attributable to the issuance of common stock		(52,000	)		(1,313,000	)		—			(52,000	)
Payments related to settlement of employee share-based awards		(165,000	)		(380,000	)		(271,000	)		(165,000	)
Payment for deferred financing costs		—			(168,000	)
Other		6,000			(3,000	)		—			6,000
Net cash provided by financing activities		7,980,000			24,236,000
Net increase in cash and cash equivalents		1,814,000			8,000,000
Net cash (used in) provided by financing activities								(271,000	)		7,980,000
Net (decrease) increase in cash and cash equivalents								(4,041,000	)		1,814,000
Cash and cash equivalents at beginning of period		9,885,000			2,409,000			6,598,000			9,885,000
Cash and cash equivalents at end of period	$	11,699,000		$	10,409,000		$	2,557,000		$	11,699,000

See accompanying notes to condensed consolidated financial statements.

STREAMLINE HEALTH SOLUTIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

October 31, ~~2022~~2023

NOTE 1 — BASIS OF PRESENTATION

Streamline Health Solutions, Inc. and each of its wholly-owned subsidiaries, Streamline Health, LLC, Avelead Consulting, LLC, Streamline Consulting Solutions, LLC and Streamline Pay & Benefits, LLC, (collectively, unless the context requires otherwise, “we,” “us,” “our,” “Streamline,” or the “Company”), operate in one segment as a provider of healthcare information technology solutions and associated services. The Company provides these capabilities through the licensing of its Coding & ~~CDI,~~Clinical Documentation Improvement (CDI) solutions, eValuator coding analysis platform, RevID, and other workflow software applications and the use of such applications by software as a service (“SaaS”). The Company also provides audit ~~and coding~~ services to help ~~customers~~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 patient clinical, financial and other healthcare provider information related to the patient revenue cycle.

The accompanying unaudited condensed consolidated financial statements have been prepared by us pursuant to the rules and regulations applicable to quarterly reports on Form 10-Q of the U.S. Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading. The condensed consolidated financial statements include the accounts of Streamline Health Solutions, Inc. and each of its wholly-owned subsidiaries. In the opinion of the Company’s management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the condensed consolidated financial statements have been included. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s most recent annual report on Form 10-K. Operating results for the three and nine months ended October 31, ~~2022~~2023 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, ~~2023.~~2024.

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, theThe Company ~~determined that it~~ has one operating segment and one reporting unit due to the ~~similar economic characteristics~~singular nature of ~~the Company’s~~our products, product development and distribution ~~regulatory environment~~process, and ~~customer~~client base as a provider of computer software-based solutions and services for acute-care healthcare providers. The Company has two reporting units for evaluation of intangible assets. These two reporting units are the legacy Streamline products and Avelead Consulting, LLC. Refer to “Note 3 – Business Combination and Divestiture”.

All amounts in the condensed consolidated financial statements, notes and tables have been rounded to the nearest thousand dollars, except share and per share amounts, unless otherwise indicated. 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.

Going Concern

The Company’s financial statements are prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of obligations in the normal course of business. To date, the Company has not generated sufficient revenues to allow it to generate cash flow from operations. The Company has historically accumulated losses and used cash from its financing activities to supplement its operations. Further, the Company’s current forecast projects the Company will not be able to maintain compliance with certain of its financial covenants under its current credit agreement in the next twelve months. These conditions raise substantial doubt about the ability of the Company to continue as a going concern within one year after the date that the financial statements are issued.

In view of these matters, continuation as a going concern is dependent upon the Company’s ability to achieve cash from operations and raise additional debt or equity capital to fund its ongoing operations. The Company expects to generate positive operating cash flow in the next two fiscal quarters based upon executed contracts which it expects to be fully implemented.

As of October 31, 2023, the Company had approximately $9.75 million of total outstanding debt associated with its term loan and revolver, $1.25 million of which is classified as a current liability. The Company is engaged in ongoing discussions with its current banking partner, Western Alliance Bank, with whom it maintains a good working relationship; however, the Company does not have written or executed agreements as of the issuance of this Form 10-Q. The Company’s ability to refinance its existing debt is based upon credit markets and economic forces that are outside of its control. There can be no assurance that the Company will be successful in raising additional capital or that such capital, if available, will be on terms that are acceptable to the Company.

The financial statements do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should the Company not continue as a going concern.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Our significant accounting policies are presented in “Note 2 – Significant Accounting Policies” in the fiscal year ~~2021~~2022 Annual Report on Form 10-K. Users of financial information for interim periods are encouraged to refer to the notes to the consolidated financial statements contained in the Annual Report on Form 10-K when reviewing interim financial results.

Use of Estimates

The preparation of financial statements in conformity with 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, share-based compensation, capitalization of software development costs, intangible assets, the allowance for ~~doubtful accounts,~~credit losses, contingent consideration, and income taxes. Actual results could differ from those estimates.

Reclassification

Certain amounts for the three and nine months ended October 31, 2022 were reclassified to conform to the current period classification. For the three and nine months ended October 31, 2023, the Company incurred certain acquisition-related costs related to the acquisition of Avelead totaling $0 and $44,000, respectively, consisting primarily of professional service fees. For the three and nine months ended October 31, 2022, the Company incurred acquisition-related costs totaling $2,000 and $141,000, respectively, consisting primarily of professional service fees. The aforementioned acquisition-related costs for the three and nine months ended October 31, 2022 were previously presented in a separate, single caption and are now included in selling, general, and administrative expense in the accompanying condensed consolidated statements of operations, which is consistent with the presentation for the current period.

Fair Value of Financial Instruments

The Financial Accounting Standards Board’s (“FASB”) authoritative guidance on fair value measurements establishes a framework for measuring fair value. 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-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. There were no transfers of assets or liabilities between Levels 1, 2, or 3 during the nine months ended October 31, ~~2022~~2023 and ~~2021.~~2022.

The table below provides information on the fair value of our liabilities:

SCHEDULE OF FAIR VALUE ~~ASSETS AND~~OF LIABILITIES ~~MEASURED ON RECURRING BASIS~~

	Total Fair		Quoted Prices in Active Markets		Significant Other Observable Inputs		Significant Unobservable Inputs		Total Fair		Quoted Prices in Active Markets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Value		(Level 1)		(Level 2)		(Level 3)		Value		(Level 1)		(Level 2)		(Level 3)
At January 31, 2022
At January 31, 2023
Acquisition earnout liability (1)	$	8,833,000	$	–	$	–	$	8,833,000	$	3,738,000	$	—	$	—	$	3,738,000
At October 31, 2022
At October 31, 2023
Acquisition earnout liability (1)	$	8,645,000	$	–	$	–	$	8,645,000	$	1,833,000	$	—	$	—	$	1,833,333

(1)

The fair value of the acquisition earnout liability is based upon a probability-weighted discounted cash flow that was completed at the date of acquisition and updated as of October 31, ~~2022.~~2023. The change in the fair value of the acquisition earnout liability decreased $~~163,000~~1,182,000 and $1,905,000 for the three ~~months ended October, 31, 2022,~~ and ~~decreased $188,000~~ ~~for the~~ nine months ended October 31, ~~2022.~~2023, respectively. The change in the fair value is recognized in “Acquisition earnout valuation adjustments” in the accompanying condensed consolidated statement of operations.

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. 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 significant inputs include recorded Avelead SaaS revenue, the probabilities associated with each of (i) a change in control or (ii) a certain client termination, as well as other normal and customary inputs to financial models, including but not limited to, risk factors and interest rates.

The fair value of the Company’s term loan and outstanding balance of the revolving line of credit under its Second Amended and Restated Loan and Security Agreement (as amended and modified, the “Second Amended and Restated Loan 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, October 31, ~~2022~~2023 and January 31, ~~2022.~~2023. 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%~~1.5%, with a Prime “floor” rate of ~~3.25%~~3.25%. The prime rate is variable and, thus accommodates changes in the market interest rate. However, the interest rate spread (the ~~1.5%~~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,~~published “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%~~0.5% from (i) the date we entered the ~~debt agreement~~Second Amended and Restated Loan Agreement for the term loan or (ii) the date of each draw on the revolving line of credit to the end of the fiscal third quarter, October 31, ~~2022~~2023, and end of the fiscal year, January 31, ~~2022.~~2023. The ~~discount to the~~fair value of the debt as of October 31, ~~2022~~2023 and January 31, ~~2022~~2023 was estimated to be $~~9,674,000~~9,054,000 and $~~9,798,000~~9,550,000, respectively, or a discount to book value of $~~201,000~~196,000 and $200,000, respectively. The fair value of the line of credit as of October 31, 2023 and January 31, 2023 was estimated to be $488,000 and $~~202,000~~0, respectively, or a discount to book value of $12,000 and $0, respectively. Long-term debt is classified as Level 2.

Revenue Recognition

We derive revenue from the sale of internally-developed software, either by licensing for local installation or by a SaaS delivery model, through the Company’s direct sales force or through third-party resellers. Licensed, locally-installed customers on a perpetual model utilize the Company’s support and maintenance services for a separate fee, whereas term-based locally installed license fees and SaaS fees include support and maintenance. We also derive revenue from professional services that support the implementation, configuration, training and optimization of the applications, as well as audit services and consulting services.

We recognize revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, under the core principle of recognizing revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

~~We recognize revenue (Step 5 below) in accordance with that core principle after applying the following steps:~~

	●	~~Step 1: Identify the contract(s) with a customer~~

	●	~~Step 2: Identify the performance obligations in the contract~~

	●	~~Step 3: Determine the transaction price~~

	●	~~Step 4: Allocate the transaction price to the performance obligations in the contract~~

	●	~~Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation~~

Contracts may contain more than one performance obligation. Performance obligations are the unit of accounting for revenue recognition and generally represent the distinct goods or services that are promised to the customer. Revenue is recognized net of any taxes collected from customers and subsequently remitted to governmental authorities.

If we determine that we have not satisfied a performance obligation, we defer recognition of the revenue until the performance obligation is satisfied. Maintenance and support and SaaS agreements are generally non-cancelable or contain significant penalties for early cancellation, although customers typically have the right to terminate their contracts for cause if we fail to perform material obligations. However, if non-standard acceptance periods, non-standard performance criteria, or cancellation or a right of refund terms exist, revenue may not be recognized until the satisfaction of such criteria.

The determined transaction price is allocated based on the standalone selling price of the performance obligations in the contract. Significant judgment is required to determine the standalone selling price (“SSP”) for each performance obligation, the amount allocated to each performance obligation and whether it depicts the amount that the Company expects to receive in exchange for the related product and/or service. 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. Services for other SaaS and Software solutions such as CDI, RevID and Compare, have been determined as a distinct performance obligation. For these agreements, the Company estimates SSP of its software licenses using the residual approach when the software license is sold with other services and observable SSPs exist for the other services. The Company estimates the SSP for maintenance, professional services, software as a service and audit services based on observable standalone sales.

~~Contract Combination~~

The Company may execute more than one contract or agreement with a single customer. The Company evaluates whether the agreements were negotiated as a package with a single objective, whether the amount of consideration to be paid in one agreement depends on the price and/or performance of another agreement, or whether the goods or services promised in the agreements represent a single performance obligation. The conclusions reached can impact the allocation of the transaction price to each performance obligation and the timing of revenue recognition related to those arrangements.

The Company has utilized the portfolio approach as the practical expedient. We have applied the revenue model to a portfolio of contracts with similar characteristics where we expected that the financial statements would not differ materially from applying it to the individual contracts within that portfolio.

~~Software Licenses~~

The Company’s software license arrangements provide the customer with the right to use functional intellectual property. Implementation, support, and other services are typically considered distinct performance obligations when sold with a software license unless these services are determined to significantly modify the software. Revenue is recognized at a point in time. Typically, this is upon shipment of components or electronic download of software.

~~Maintenance and Support Services~~

Our maintenance and support obligations include multiple discrete performance obligations, with the two 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 multiple discrete performance obligations within our overall maintenance and support obligations can be viewed as a single performance obligation since both the unspecified upgrades and technical support are activities to fulfill the maintenance performance obligation and are rendered concurrently. Maintenance and support agreements entitle customers to technology support, version upgrades, bug fixes and service packs. We recognize maintenance and support revenue over the contract term.

~~Software-Based Solution Professional Services~~

The Company provides various professional services to customers with software licenses. These include project management, software implementation and software modification services. Revenues from arrangements to provide professional services are generally distinct from the other promises in the contract and are recognized as the related services are performed. Consideration payable under these arrangements is either fixed fee or on a time-and-materials basis and is recognized over time as the services are performed.

~~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 customers 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 as the services are performed.

Disaggregation of Revenue

The following table provides information about disaggregated revenue by type and nature of revenue stream:

SCHEDULE OF DISAGGREGATION OF REVENUE

1 2 3 4
Three Months Ended Nine Months Ended
October 31, 2022 October 31, 2021 October 31, 2022 October 31, 2021
Recurring revenue $ 4,329,000 $ 3,907,000 $ 12,505,000 $ 8,536,000
Non-recurring revenue 1,888,000 1,607,000 5,639,000 2,797,000
Total revenue: $ 6,217,000 $ 5,514,000 $ 18,144,000 $ 11,333,000

	October 31, 2023		October 31, 2022		October 31, 2023		October 31, 2022
	Three Months Ended				Nine Months Ended
	October 31, 2023		October 31, 2022		October 31, 2023		October 31, 2022
Over time revenue	$	6,133,000	$	6,217,000	$	17,161,000	$	18,021,000
Point in time revenue		—		—		74,000		123,000
Total revenue	$	6,133,000	$	6,217,000	$	17,235,000	$	18,144,000

The Company includes revenue categories of (i) ~~maintenance and support~~over time and (ii) ~~software as a service as recurring~~point in time revenue. The Company includes revenue categories of (i) ~~software licenses,~~SaaS, (ii) maintenance and support, (iii) professional services, and ~~(iii)~~(iv) audit services as ~~non-recurring~~over time revenue.

~~Business Combinations~~

~~Acquisitions have been accounted for as business combinations, using~~ For point in time revenue, the acquisition method and, accordingly, the results of operations of the acquired businesses have been included in the condensed consolidated financial statements since their dates of acquisition. The assets and liabilities assumed of these businesses were recorded in the financial statements at their respective estimated fair values as of the acquisition date. Goodwill as of the acquisition dateperformance obligation is ~~measured~~recognized as the ~~excess of consideration transferred over~~point in time when the ~~net of the acquisition date fair values of the assets acquired and the liabilities assumed. While the~~obligation is fully satisfied. The Company ~~uses its best estimates and assumptions~~includes (i) software licenses as a part of the purchase price allocation process to accurately value the assets acquired, including intangible assets, and the liabilities assumed at the acquisition date, the Company’s estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair values of the assets acquired and the liabilities assumed, with a corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or the liabilities assumed, whichever comes first, any subsequent adjustments are reflectedpoint in ~~our consolidated statements of operations.~~time revenue.

Contract Receivables and Deferred Revenues

The Company receives payments from customers based upon contractual billing schedules. Contract receivables include amounts related to the Company’s contractual right to consideration for completed performance obligations not yet invoiced. Deferred revenue includes payments received in advance of performance under the contract. The Company’s contract receivables and deferred revenue are reported on an individual contract basis at the end of each reporting period. Contract receivables are classified as current or noncurrent based on the timing of when we expect to bill the customer. Deferred revenue is classified as current or noncurrent based on the timing of when we expect to recognize revenue. InDuring the nine months ended October 31, ~~2022,~~2023, the Company recognized approximately $~~4,918,000~~6,772,000 in revenue from deferred revenues outstanding as of January 31, ~~2022.~~2023. Revenue allocated to remaining performance obligations was $~~20,917,000~~23,045,000 as of October 31, ~~2022,~~2023, of which the Company expects to recognize approximately ~~63%~~56% over the next 12 months and the remainder thereafter.

Deferred costs (costs to fulfill a contract and contract acquisition costs)

The Company defers the direct costs, which include salaries and benefits, for professional services related to SaaS contracts as a cost to fulfill a contract. These deferred costs will be amortized on a straight-line basis over the period of expected benefit which is the contractual term. As of October 31, ~~2022~~2023 and January 31, ~~2022,~~2023, the Company had deferred costs of $~~103,000~~98,000 and $~~125,000~~94,000, respectively, net of accumulated amortization of $~~155,000~~235,000 and $~~93,000~~176,000, respectively. Amortization expense of these costs was $24,000 and $22,000 for ~~both~~ the three months ended October 31, 2023 and 2022, respectively, and ~~2021,~~$59,000 and $62,000 ~~and $90,000~~for the nine months ended October~~October~~ 31, 2023 and 2022, ~~and 2021,~~ respectively, and is included in ~~various costs~~cost of ~~revenue~~SaaS in the condensed consolidated statements of operations.

Contract acquisition costs, which consist of sales commissions paid or payable, isare considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions for initial and renewal contracts are deferred and then amortized on a straight-line basis over the contract term. As a practical expedient, the Company expenses sales commissions as incurred when the amortization period of related deferred commission costs is expected to be one year or less.

As of October 31, ~~2022~~2023 and January 31, ~~2022,~~2023, deferred commission costs paid and payable, which are included on the consolidated balance sheets within other non-current assets totaled $~~1,092,000~~1,195,000 and $~~806,000~~1,534,000, respectively, net of accumulated amortization ofand impairment totaling $~~707,000~~1,238,000 and $~~408,000~~820,000, respectively. ~~For the three months ended October 31, 2022 and 2021, $110,000~~ ~~and $88,000, respectively,~~ ~~and for the nine months ended October 31, 2022 and 2021, $298,000~~ ~~and $248,000, respectively, in amortization~~Amortization expense associated with deferred sales commissions, ~~was~~which is included in selling, general and administrative ~~expenses~~expense in the condensed consolidated statements of ~~operations.~~operations, was $129,000 and $110,000 for the three months ended October 31, 2023 and 2022, respectively. Amortization expense for the nine months ended October 31, 2023 and 2022 was $383,000 and $298,000, respectively. For the three and nine months ended October 31, 2023, the Company recorded an impairment of $35,000 for deferred commission costs related to the client termination notification received in October 2023. There were no impairment ~~losses~~charges recorded for ~~these capitalized costs for these periods.~~the three and nine months ended October 31, 2022.

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 service period, and forfeitures are recognized as incurred. 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 compensation expense related to share-based awards for the three and nine months ended October 31, 2023 of $517,000 and $1,626,000, respectively, which includes $60,000 and $176,000, respectively, of capitalized non-employee stock compensation, compared to share-based compensation expense of $555,000 and $~~537,000~~1,212,000, respectively, for the three ~~months ended October 31, 2022~~ and ~~2021, respectively, and $1,212,000~~ ~~and $1,659,000~~ ~~in the~~ nine months ended October 31, ~~2022~~2022. During third quarter of fiscal year 2023, the Company accelerated the vesting of approximately 260,000 previously outstanding and ~~2021, respectively.~~unvested shares of restricted common stock of the Company.

The fair value of ~~the~~ stock options granted ~~was~~are estimated at the date of grant using a Black-Scholes option pricing model. Option pricing model input assumptions such as expected term, expected volatility and risk-free interest rate impact the fair value estimate. These assumptions are subjective and are generally derived from external (such as, risk-free rate of interest) and historical data (such as, volatility factor and expected ~~term and forfeiture rates)~~term). Future grants of equity awards accounted for as share-based compensation could have a material impact on reported expenses depending upon the number, value and vesting period of future awards.

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~~closing price per share on the grant date. For the three and nine months ended October 31, 2023, the Company issued 45,000 and 1,130,000 shares of restricted common stock to employees, respectively, compared to 65,000 and 865,000 shares of restricted common stock for the three and nine months ended October 31, 2022, respectively. The Company expenses the compensation cost of these awards as the restriction period lapses, which is typically a ~~one-~~three-year period. For the three and nine months ended October 31, 2023, the Company issued 0 and 258,621 shares of restricted common stock to ~~four-year service period.~~the Board of Directors, respectively, compared to 0 and 200,731 shares of restricted common stock for the three and nine months ended October 31, 2022, respectively. For the three and nine months ended October 31, 2023, the Company issued 131,054 and 359,080 shares of restricted common stock to consultants, respectively, compared to 53,836 and 187,937 shares of restricted common stock for the three and nine months ended October 31, 2022, respectively.

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. Refer to Note 6 – Income Taxes for further details.

The Company provides for uncertain tax positions and the related interest and penalties based upon management’s assessment of whether certain tax positions are more likely than not to be sustained upon examination by tax authorities. ~~At October 31, 2022, the~~The Company believes it has appropriately accounted for any uncertain tax ~~positions.~~positions as of October 31, 2023.

Net Loss Per Common Share

The Company presents basic and diluted earnings per share (“EPS”) data for the Company’s common stock.

The Company’s unvested restricted stock awards are considered non-participating securities because holders are not entitled to non-forfeitable rights to dividends or dividend equivalents during the vesting term. Diluted EPS for the Company’s common stock is computed using the treasury stock method.

1312

The following is the calculation of the basic and diluted net ~~earnings (loss)~~loss per share of common stock for the three and nine months ended October 31, ~~2022~~2023 and ~~2021:~~2022:

SCHEDULE OF BASIC AND DILUTED NET LOSS PER SHARE OF COMMON STOCK

1 2 3 4
Three Months Ended Nine Months Ended

October 31,
2022

October 31,
2021

October 31,
2022

October 31,
2021

Basic earnings (loss) per share:
Continuing operations
Loss from continuing operations, net of tax $ (3,138,000 ) $ (4,379,000 ) $ (9,197,000 ) $ (6,913,000 )
Basic net loss per share of common stock from continuing operations $ (0.07 ) $ (0.10 ) (0.19 ) (0.17 )

Discontinued operations
Income available to common stockholders from discontinued operations $ — $ 69,000 — 401,000
Basic net earnings per share of common stock from discontinued operations $ — $ — $ — $ 0.01

Diluted earnings (loss) per share:
Continuing operations
Loss available to common stockholders from continuing operations $ (3,138,000 ) $ (4,379,000 ) (9,197,000 ) (6,913,000 )
Diluted net loss per share of common stock from continuing operations $ (0.07 ) $ (0.10 ) (0.19 ) (0.17 )

Discontinued operations
Income available to common stockholders from discontinued operations $ — $ 69,000 — 401,000
Diluted net earnings per share of common stock from discontinued operations $ — $ — $ — $ 0.01

Net loss $ (3,138,000 ) $ (4,310,000 ) $ (9,197,000 ) $ (6,512,000 )
Weighted average shares outstanding - Basic (1) 47,730,009 45,709,952 47,329,923 41,498,873
Effect of dilutive securities - Stock options and Restricted stock (2) 413,810 353,851 283,654 496,393
Weighted average shares outstanding – Diluted 48,143,819 46,063,803 47,613,577 41,995,266
Basic net loss per share of common stock $ (0.07 ) $ (0.10 ) $ (0.19 ) $ (0.16 )
Diluted net loss per share of common stock $ (0.07 ) $ (0.10 ) $ (0.19 ) $ (0.16 )

	October 31, 2023			October 31, 2022			October 31, 2023			October 31, 2022
	Three Months Ended						Nine Months Ended
	October 31, 2023			October 31, 2022			October 31, 2023			October 31, 2022
Basic and diluted loss per share:
Net loss	$	(11,911,000	)	$	(3,138,000	)	$	(17,327,000	)	$	(9,197,000	)
Basic and diluted net loss per share of common stock from operations	$	(0.21	)	$	(0.07	)	$	(0.31	)	$	(0.19	)
Weighted average shares outstanding – basic and diluted (1)(2)		56,710,335			47,730,009			56,346,300			47,329,923
Weighted average shares outstanding - basic		56,710,335			47,730,009			56,346,300			47,329,923

(1)	Includes the effect of vested and excludes the effect of unvested restricted shares of common stock, which are considered non-participating securities. As of October 31, ~~2022~~2023 and ~~2021,~~2022, there were ~~1,501,031~~1,980,471 and ~~1,030,600~~1,501,031 unvested restricted shares of common stock outstanding, respectively.

(2)	Diluted net loss per share excludes the effect of shares that are anti-dilutive. For the three and nine months ended October 31, ~~2022,~~2023, diluted earnings per share excludes ~~628,958~~418,836 outstanding stock options and ~~1,501,031~~1,980,471 unvested restricted shares of common stock. For the three and nine months ended October 31, ~~2021,~~2022, diluted earnings per share excludes ~~1,146,963~~628,958 outstanding stock options and ~~1,030,600~~1,501,031 unvested restricted shares of common stock.

Restructuring

~~Other Operating Costs~~

~~Acquisition-related Costs~~On October 16, 2023, the Company announced it was executing a strategic restructuring designed to reduce expenses while maintaining the Company’s ability to expand its SaaS business. The strategic restructuring initiatives included a reduction in force, resulting in the termination of 26employees, approximately 24% of the Company’s workforce. To execute the strategic restructuring, the Company estimates the one-time restructuring costs associated with the workforce reduction to be approximately $900,000, and the Company expects the expenses associated with the strategic restructuring to be substantially recognized by the end of fiscal year 2023. The estimated costs pertain to severance and other employee termination-related costs and various professional fees the Company may require to assist with execution of the strategic restructuring. The following is a reconciliation of the strategic restructuring liability that is reflected on the Company’s condensed consolidated balance sheet under “Accrued expenses”.

SCHEDULE OF ~~ACQUISITION RELATED COSTS~~RECONCILIATION OF THE RESTRUCTURING LIABILITY

1 2 3 4
Three Months ended Nine Months ended
October 31, 2022 October 31, 2021 October 31, 2022 October 31, 2021
Separation agreement expense $ — $ 706,000 $ — $ 706,000
Broker fees — 508,000 — 553,000
Professional fees 2,000 358,000 141,000 740,000
Executive bonuses — 355,000 — 705,000
Loss on exit from operating lease — 22,000 — 22,000
Other — (16,000 ) — (16,000 )
Total acquisition-related costs $ 2,000 $ 1,933,000 $ 141,000 $ 2,710,000

	(in thousands)
									As of October 31, 2023
	Accrued Balance as of January 31, 2023		2023 Expenses to Date		2023 Cash Payments		Accrued Balance as of October 31, 2023		Total Costs Incurred to Date		Total Expected Costs
Severance expense
Cost of sales	$	—	$	154	$	—	$	154	$	154	$	154
Selling, general, and administrative		—		350		—		350		350		350
Research and development		—		227		—		227		227		227
Total severance expense	$	—	$	731	$	—	$	731	$	731	$	731
Professional fees		—		18		—		18		18	$	169
Total	$	—	$	749	$	—	$	749	$	749		900

~~For the three and nine months ended October 31, 2022 the Company incurred certain acquisition-related costs related to the acquisition of Avelead totaling $2,000~~ ~~and $141,000~~, respectively, consisting primarily of professional service fees. For the three and nine months ended October 31, 2021, the Company incurred acquisition-related costs related to the acquisition of Avelead totaling $~~1,933,000~~ ~~and $2,710,000, respectively. Of the total costs related to the acquisition of Avelead, $355,000~~ ~~and $705,000~~ ~~was from bonuses paid to certain executives in executing priorities, primarily the acquisition, for the three and nine months ended October 31, 2021, respectively.~~

Non-Cash Items

For the three and nine months ended October 31, ~~2021,~~2023, the Company recorded ~~the forgiveness of the PPP loan and accrued interest,~~capitalized software purchased with stock, totaling $60,000 and $~~2,327,000~~176,000, respectively, as non-cash items ~~related~~as it relates to non-cash investing activities in the condensed consolidated statements of cash flow.

Accounting Pronouncements Recently Adopted

~~In July 2021, the FASB issued ASU 2021-05,~~ ~~Lessors - Certain Leases with Variable Lease Payments~~ ~~to ASC Topic 842,~~ ~~Leases~~ (“ASC 842”) (“ASU 2021-05”). ASU 2021-05 provides additional ASC 842 classification guidance as it relates to a lessor’s accounting for certain leases with variable lease payments. ASU 2021-05 requires a lessor to classify a lease with variable payments that do not depend on an index or rate as an operating lease if either a sales-type lease or direct financing lease classification would trigger a day-one loss. ASU 2021-05 became effective forOn February 1, 2023, the Company ~~on February 1, 2022. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements or disclosures.~~

~~Recent Accounting Pronouncements Not Yet Adopted~~

~~In November 2019, the FASB issued~~adopted ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), ~~which improves guidance around accounting for financial losses on accounts receivable. For smaller reporting entities,~~as amended. ASU 2016-13 ~~is effective~~requires an allowance for ~~annual periods beginning after December 15, 2022, including interim periods within those fiscal years.~~ expected credit losses to be applied to financial assets at inception and reflect the risk of credit loss over the life of the asset. The Company estimated current expected credit losses based on historical credit loss rates and applied an increase to account for future economic conditions. The Company’s allowance for doubtful accounts as of January 31, 2023, prior to the adoption of ASU 216-13, was $132,000. The Company estimated the current expected credit loss related to accounts receivable as of the adoption date of February 1, 2023 to be $96,000. The Company recorded the adjustment in accounting policy change of $36,000 to the opening accumulated deficit balance for the year of adoption.

SCHEDULE OF ACCOUNTING PRONOUNCEMENTS RECENTLY ADOPTED

		January 31, 2023				CECL Adoption				Provision adjustments				Write-offs & Recoveries				October 31, 2023
Allowance for credit losses		$	(132,000	)		$	36,000				—				—			$	(96,000	)

For the period ended October 31, 2023, the Company estimated the current expected credit loss related to accounts receivable using historical credit loss rates and applied an adjustment to account for future economic conditions in accordance with ASU 2016-13. The Company had no further impact on the allowance for credit losses during the nine-month period ended October 31, 2023.

Recent Accounting Pronouncements Not Yet Adopted

The Company does not ~~anticipate~~believe there are any other new accounting pronouncements that ~~the adoption of this ASU will~~have been issued that might have a material impact on ~~the Company’s consolidated~~its financial ~~statements.~~position or results of operations.

NOTE 3 — BUSINESS COMBINATION ~~AND DIVESTITURE~~

Avelead Acquisition

The Company acquired all of the equity interests of Avelead Consulting, LLC (“Avelead”) as part of the Company’s strategic expansion into the acute-care health care revenue cycle management industry ~~on August 16, 2021~~ (the “Transaction”). The ~~acquisition~~Transaction was completed on August 16, 2021.

~~The aggregate consideration for~~On November 21, 2022, the ~~purchase~~Company made cash payments of ~~Avelead was approximately~~ $~~29.7~~2,012,000 ~~million (at fair value) consisting of (i) $12.4 million in cash, net of cash acquired, (ii) $0.1~~ ~~million in holdback, which was paid to the sellers during the fourth quarter of fiscal 2021, (iii) $6.5~~ ~~million in common stock,~~ and ~~(iv) approximately $10.7~~ ~~million in contingent consideration (see below). The Company~~ issued ~~5,021,972~~1,871,037 ~~shares~~unregistered securities in the form of ~~its~~ restricted common stock, ~~(the “Acquisition Restricted Common Stock”) at closing. The Acquisition Restricted Common Stock has a fair~~par value ~~as of the closing date of the acquisition of~~ $~~6.5~~0.01 ~~million.~~ ~~Additionally, the Company contracted two types of contingent consideration;~~per share, with respect to the first ~~is referred to herein as “SaaS Contingent Consideration” and the second is referred to herein as “Renewal Contingent Consideration.”~~year earnout consideration. The ~~SaaS Contingent Consideration and Renewal Contingent Consideration had an~~estimated aggregate value of ~~approximately $10.7 million as~~the first year earnout payment was $5,000,000. The second (and final) year earnout payment is expected to be paid during the quarter ending January 31, 2024 and consists of ~~the date~~$1,214,000 of ~~closing.~~cash payments and 1,589,342 ~~The owners of Avelead are also referred to herein as “Sellers” and are enumerated~~unregistered securities in the ~~UPA (as defined below).~~

~~The Company acquired all~~form of restricted common stock, par value $0.01 per share. These liabilities are reflected at the equity interests of Avelead, effective August 16, 2021, pursuant to a Unit Purchase Agreement (hereafter referred to as the “UPA”). The UPA stated that the purchase price for Avelead at closing included a cash payment of $~~11.9~~ ~~million. Additionally, the Company paid $285,000~~ ~~of the Sellers’ closing costs, and $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~~estimated fair value of ~~approximately $6.5~~ ~~million, based~~the future commitment on ~~a 30-day average of the closing price of~~ the Company’s common stock prior to the closing date. The SaaS Contingent Consideration and the Renewal Contingent Consideration described in more detail below were included in the UPA as potential future consideration for the Transaction. These are reflected on the Company’scondensed consolidated balance sheet as “Acquisition ~~earnout liability.”~~

~~The Company acquired Avelead on a cash-free~~Earnout Liability” 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 will be consolidated, and the gross deferred tax assets have a full valuation allowance.totaled $1,833,000

~~The contingent consideration is comprised of “SaaS Contingent Consideration” and “Renewal Contingent Consideration” which are described in more detail as follows:~~

~~See Note 11 – Subsequent Events for a description of the company’s cash payment and restricted common stock issued in conjunction with the first year earnout~~.

●

The SaaS Contingent Consideration is calculated based upon Avelead’s recurring SaaS revenue recognized during the first and second year following the acquisition. The Company will pay the SaaS Contingent Consideration as follows: (i) ~~50%~~ ~~in cash and (ii)~~ ~~50%~~ ~~in shares of Company common stock valued at the time the earnout is paid subject to a collar, as described below.~~

●	The first year of SaaS Contingent Consideration is calculated as 75% of Avelead’s recognized SaaS revenue from September 1, 2021 to August 31, 2022. The first-year payment is subject to a deduction of $665,000 spread equally between the cash and common stock portion of the earnout consideration. The first year earnout will be paid on or about October 15, 2022, subject to a dispute and resolution period. Assuming that Avelead is within 80% of its forecasted SaaS revenue in the first year earnout¹, the Company agreed to a floor and ceiling on the value of the Company’s restricted common stock issued as consideration for the earnout. That collar has a floor of $3.50 per share and a ceiling of $5.50 per share for the first year earnout.

●	The second year of SaaS Contingent Consideration is calculated as 40% of Avelead’s recognized SaaS revenue from September 1, 2022 to August 31, 2023. The second year earnout will be paid on or about October 15, 2023, subject to a dispute and resolution period. Assuming that Avelead is within 80% of its forecasted SaaS revenue in the second year earnout¹, the Company agreed to a floor and ceiling on the Company’s restricted common stock issued as consideration for the earnout. That collar has a floor of $4.50 per share and a ceiling of $6.50 per share for the second year earnout.

●

The Renewal Contingent Consideration is tied directly to a successful renewal of a specific customer of Avelead. To meet the definition of a renewal, Avelead must achieve a minimum threshold of contracted revenue in an updated, annual, renewed contract with the specified customer. The renewal occurs on or about June 1, 2022 and June 1, 2023. The Company will remit the Renewal Contingent Consideration on or about each of October 15, 2022 and 2023, respectively. The Renewal Contingent Consideration is payable in shares of Company restricted common stock valued as of the date of Closing. Accordingly, upon achieving the Renewal Contingent Consideration, the Company will issue 627,747 shares of restricted common stock on or about each of October 15, 2022 and October 15, 2023, subject to a dispute and resolution period. The Renewal Contingent Consideration is either earned or not earned based upon the renewal of the specified customer at the minimum amount of contracted revenue. There is no pro-ration of the underlying Renewal Contingent Consideration.

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.~~

~~The components of the total consideration~~ as of ~~the acquisition date are as follows:~~

~~SCHEDULE OF COMPONENTS OF TOTAL CONSIDERATION~~

(in thousands)
Components of total consideration, net of cash acquired:
Cash $ 11,900
Cash, seller expenses 285
Cash, estimated net working capital adjustment 285
Restricted Common Stock 6,554
Acquisition earnout liabilities 10,684 (a)
Total consideration $ 29,708

~~(a)~~

Acquisition earnout liabilities represents the net present value and risk adjusted probability of the required future payments underlying the Company’s SaaS Contingent Consideration and Renewal Contingent Consideration as described above. Due to the dates that the Company is required to measure, report and agree on the calculations, $~~8,645,000~~ ~~is shown as a short-term liability as of October 31, 2022.~~

The acquisition earnout liability is re-measured at fair value on a recurring basis and the change to the liability is recorded as a valuation adjustment recorded through “other expenses or income” in the accompanying condensed consolidated statements of operations. The change in the fair value recorded for the nine months ended October 31, 2022 was ~~($188,000). 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.~~

~~See Note 11 – Subsequent Events, for information regarding the cash payment and restricted common stock issued in conjunction with the first year earnout.~~

~~The allocation of the total consideration to net tangible and intangible assets as of the date of the closing of Avelead was as follows:~~

~~SCHEDULE OF ALLOCATION OF THE TOTAL CONSIDERATION~~

(in thousands)
Net tangible assets (liabilities):
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 (liabilities) (89 )
Goodwill 12,377
Customer Relationships (SaaS) 8,370
Customer Relationships (Consulting) 1,330
Internally Developed Software 6,380
Trademarks and Tradenames 1,340
Net assets acquired and liabilities assumed $ 29,708

~~The intangible assets recorded as a result of the Avelead acquisition, and their related estimated useful lives are as follows:~~

~~SCHEDULE OF INTANGIBLE ASSETS ESTIMATED USEFUL LIVES~~

		~~Estimated~~ ~~Useful Lives~~
~~Goodwill~~		~~Indefinite~~
~~Customer Relationships (SaaS)~~		10 ~~years~~
~~Customer Relationships (Consulting)~~		8 ~~years~~
~~Internally Developed Software~~		9 ~~years~~
~~Trademarks and Tradenames~~		15 ~~years~~

~~The Company’s pro forma revenues and loss from continuing operations for the three and nine months ended~~ October 31, 2021, assuming Avelead was acquired on February 1, 2021, 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 occurred at the beginning of these periods nor is it indicative of future results. The unaudited pro forma financial information does not reflect the impact of future events that may occur after the acquisition, including, but not limited to, anticipated costs savings from synergies or other operational improvements.

~~SCHEDULE OF PRO FORMA REVENUE AND NET EARNINGS~~

Three Months ended
October 31, 2021

Nine Months ended
October 31, 2021

Actual Pro Forma Actual Pro Forma
Revenues $ 5,514 $ 6,064 $ 11,333 $ 16,585
Loss from continuing operations $ (4,379 ) $ (4,763 ) $ (6,913 ) $ (8,665 )

~~Included in the accompanying unaudited pro forma statement of operations for the three months ended October 31, 2021 are $2,595,000~~ ~~of Avelead revenue and $(1,359,000)~~ ~~of loss from continuing operations. For the nine months ended October 31, 2021, $7,297,000~~ ~~of Avelead revenue and $(2,727,000)~~ ~~of loss from continuing operations were included in the unaudited pro forma statement of operations. For the three months ended October 31, 2022, Avelead contributed $2,788,000~~ ~~to the Company’s consolidated revenue and $(553,000)~~ ~~to the Company’s consolidated loss from continuing operations. For the nine months ended October 31, 2022, Avelead contributed $7,827,000~~ ~~to the Company’s consolidated revenue and $(1,847,000)~~ ~~to the Company’s consolidated loss from continuing operations.~~

The Company entered into one employment agreement and one separation agreement with the two Sellers. Included in the transaction costs related to the Avelead acquisition is the cost of a two-year separation agreement with one Seller, fully expensed at the closing of the transaction. See Note 2 – Summary of Significant Accounting Policies. The employment agreement is a two-year employment agreement that entitles the Seller to a six-month separation pay in the case of termination without cause. The expense for the employment agreement is recognized ratably over the service period customary with other employment agreements within selling, general, and administrative expense.

~~The Company granted options to purchase~~ ~~583,333~~ ~~shares of the Company’s common stock to the Sellers at the closing of the Transaction. These options have a strike price of $1.53~~ ~~per share, the closing stock price on the trading date immediately preceding the closing.~~ ~~500,000~~ ~~options were awarded to one Seller that will vest, monthly, over a three (~~3~~) year service period. The remaining~~ ~~83,333~~ ~~options were awarded to another Seller and vested immediately upon issuance. The Company utilized the Black-Scholes method to determine the grant-date fair value of these options. The~~ ~~83,333~~ ~~options were not exercised prior to their expiration date of November 15, 2021. The~~ ~~500,000~~ ~~options have a grant-date fair value of approximately $395,000~~ ~~and are expensed over the vesting period within selling, general, and administrative expense.~~

~~Additionally, the Company granted~~ ~~100,000~~ ~~restricted stock awards (RSAs) to certain Avelead employees as of the closing date.~~

~~ECM Assets Divestiture~~

On February 24, 2020, the Company sold a portion of its business (the “ECM Assets”). 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 condensed consolidated statements of operations, cash flows and balance sheets for the current and comparative prior periods. Refer to Note 9 – Discontinued Operations for details of the Company’s discontinued operations.2023.

NOTE 4 — OPERATING LEASES

We determine whether an arrangement is a lease at inception. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the expected lease term. Since our lease arrangements do not provide an implicit rate, we use our incremental borrowing rate for the expected remaining lease term at commencement date for new and existing leases in determining the present value of future lease payments. Operating lease expense is recognized on a straight-line basis over the lease term.

Alpharetta Office Lease

On October 1, 2021, the Company entered into an agreement with a third-party to sublease its office space in Alpharetta, ~~Georgia, (the “Sublease Agreement”).~~Georgia. The sublease term iswas for 18 months, which ~~coincides~~coincided with the Company’s underlying lease (see below). The Company ~~expects to receive~~received $292,000 from the sublessee over the term of the sublease. The sublease did not relieve the Company of its original obligation under the lease, and therefore the Company did not adjust the operating lease right-of-use asset and related liability. The sublease terminated on March 31, 2023. For the three and nine months ended October 31, 2023, the Company recorded $0 and $32,000, respectively, as other income related to the sublease. For the three and nine months ended October 31, 2022, the Company recorded $49,000 and $145,000, respectively, as other income related to the sublease.

The Company entered into a lease for office space in Alpharetta, Georgia, on March 1, 2020. The lease ~~terminates~~terminated 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 October 31, 2022, operating lease right-of use assets totaled $80,000, and the associated lease liability is included in current liabilities of $87,000~~. The Company used a discount rate of ~~6.5%~~6.5% to ~~the~~ determine the lease liability. For the three and nine months ended October 31, ~~2022~~2023, the Company had lease operating costs of approximately $0 and ~~2021,~~$32,000, respectively. For the three and nine months ended October 31, 2022, the Company had lease operating costs of approximately $48,000 and $145,000, ~~respectively, for each period.~~respectively.

~~Maturities of operating lease liabilities associated with the Company’s operating lease as of October 31, 2022 are as follows for payments due based upon the Company’s fiscal year:~~

~~SCHEDULE OF MATURITIES OF OPERATING LEASE LIABILITIES~~

2022 $ 53,000
2023 36,000
Total lease payments 89,000
Less present value adjustment (2,000 )
Present value of lease liabilities $ 87,000

Suwanee Office Lease

Upon acquiring Avelead on August 16, 2021 (refer to Note 3 – Business ~~Combination and Divestiture)~~Combination), the Company assumed an operating lease agreement for the corporate office space of Avelead. The lessor is an entity controlled by one of the ~~Sellers~~sellers of Avelead and that seller is ~~employed by~~a former employee of the Company. The initial 36-month term lease commenced March 1, 2019 and expired on February 28, 2022. ~~In February 2022, the~~The Company previously renewed the lease for ~~twelve~~an additional 12-month term which expired February 28, 2023 and was not renewed. For the three and nine months ~~with monthly payments totaling~~ended October 31, 2023, the Company recorded rent expense of $~~71,984~~0 ~~over the term of the lease. There is no renewal clause contained in the current lease.~~and $6,000, respectively. For the three and nine months ended October 31, 2022, the Company recorded rent expense of $18,000 and $55,000, respectively.

NOTE 5 — DEBT

Outstanding principal balances consisted of the following at:

SCHEDULE OF OUTSTANDING PRINCIPAL BALANCES

	October 31, 2023			January 31, 2023
Term loan	$	9,250,000		$	9,750,000
Financing cost payable		120,000			69,000
Deferred financing cost		(78,000	)		(105,000	)
Total		9,292,000			9,714,000
Less: Current portion of term loan		(1,250,000	)		(750,000	)
Non-current portion of term loan		8,042,000			8,964,000
Non-current portion of line of credit		500,000			—
Total non-current portion of debt	$	8,542,000		$	8,964,000

Term Loan ~~Agreement~~and Revolving Line of Credit

On ~~August 26, 2021,~~November 29, 2022, the Company ~~and its subsidiaries entered into the~~executed a Second Modification to Second Amended and Restated Loan ~~and Security~~ Agreement ~~with Bridge Bank, a division of Western Alliance Bank~~ (the “Second ~~Amended and Restated Loan and Security Agreement”~~Modification”). ~~Pursuant~~The Second Modification includes an expansion of the Company’s total borrowing to ~~the Second Amended and Restated Loan and Security Agreement, Bridge Bank agreed to provide the Company and its subsidiaries~~include a $2,000,000 non-formula revolving line of credit. The revolving line of credit will be co-terminus with ~~a new~~the term loan ~~facility in~~and matures on August 26, 2026. There are no requirements to draw on the ~~maximum principal amount~~line of $~~10,000,000~~.credit. Amounts outstanding under the ~~term loan~~line of credit portion of the Second Amended and Restated Loan ~~and Security~~ Agreement bear interest at a per annum rate equal to the Prime Rate (as published in The Wall Street Journal) plus ~~1.5%~~1.5%, with a Prime “floor” rate of ~~3.25%~~3.25%. ~~Pursuant to~~The Second Modification amended certain financial covenants in the Second Amended and Restated Loan Agreement. At January 31, 2023 and ~~Security Agreement, the Company discontinued the existing $3,000,000~~October ~~revolving credit facility with Bridge Bank. At the time of the discontinuance,~~31, 2023, there was no$0 and $500,000 outstanding ~~balance~~ on the revolving line of credit, ~~facility.~~respectively.

Under the Second Amended and Restated Loan Agreement, the Company has a term loan facility with an initial maximum principal amount of $10,000,000. Amounts outstanding under 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 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 original closing ~~date.~~date (August 2021). Interest ~~accrued under the Second Amended Loan and Security Agreement~~ is due monthly, and the Company shall make monthly interest-only payments through the one-year anniversary of the original closing date. ~~From~~Under 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~~are required 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. ~~The Second Amended and Restated Loan and Security Agreement is secured by substantially all of the assets of the Company, its subsidiaries, and certain of its affiliates.~~

~~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.~~

The Second Amended and Restated Loan ~~and Security~~ Agreement includes customary financial covenants as follows:

	a.●	Minimum ~~Cash.~~Cash. Borrowers shall, at all times, maintain unrestricted cash of Borrowers at Bank in an amount not less than ~~(i) on the Closing Date and for the first eleven (11) months immediately following the Closing Date, Five~~Two Million Dollars ($~~5,000,000) and (ii) at all times thereafter, Three Million Dollars ($3,000,000)~~2,000,000).

	b.●	Maximum Debt to ARR ~~Ratio.~~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~~ Debt to ARR Ratio
October 31, ~~2021~~2022		0.80 to 1.00
January 31, ~~2022~~2023			~~0.75~~0.70 to 1.00
April 30, ~~2022~~2023		0.65 to 1.00
July 31, 2023	0.60 to 1.00
~~July~~October 31, ~~2022~~2023		0.55 to 1.00
~~October~~January 31, ~~2022~~2024		0.50 to 1.00
~~January 31, 2023~~		~~0.45~~ to ~~1.00~~

c.●

Maximum Debt to Adjusted EBITDA ~~Ratio.~~Ratio. Commencing with the quarter ending April 30, ~~2023,~~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”.

SCHEDULE OF MAXIMUM DEBT TO ADJUSTED EBITDA RATIO

Quarter Ending	Maximum ~~Debt~~ Debt to Adjusted EBITDA Ratio
April 30, ~~2023~~2024		~~11.30~~3.50 to 1.00
July ~~31, 2023~~	~~4.15~~ to ~~1.00~~
~~October 31, 2023~~	~~2.50~~ to ~~1.00~~
~~January~~ 31, 2024 and on the last day of each quarter thereafter	2.00 to 1.00

d.●

Fixed Charge Coverage Ratio. Commencing with the quarter ending April 30, ~~2023,~~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 Amended and Restated Loan ~~and Security~~ Agreement also includes customary negative covenants, subject to exceptions, which limit transfers, capital expenditures, indebtedness, certain liens, investments, acquisitions, dispositions of assets, restricted payments, and the business activities of the Company, as well as customary representations and warranties, affirmative covenants and events of default, including cross defaults and a change of control default. The line of credit also is subject to customary prepayment requirements. Substantially all the assets of the Company are collateralized by the Second Amended and Restated Loan Agreement. For the ~~period~~periods ended January 31, 2023 and October 31, ~~2022,~~2023, the Company ~~has a debt to ARR ratio of 0.55 to 1 and, therefore,~~ was ~~not~~ in compliance with the ~~maximum debt~~Second Amended and Restated Loan Agreement covenants. However, the Company’s current forecast projects the Company may not be able to ~~ARR ratio covenant~~maintain compliance with certain of its financial covenants under the Second Amended and Restated Loan ~~and Security Agreement. Subsequent~~Agreement in the future. The Company is forecasted to miss certain future covenants. See Note 1 – Basis of Presentation for detail regarding the ~~period ended October 31, 2022, the Company entered into~~Company’s assessment as a Second Modification Debt Agreement whereby the existing debt to ARR ratio, among other covenants, was modified. As a result, the Company was in compliance with all modified debt covenants at October 31, 2022.going concern.

~~See Note 11 – Subsequent Events for a description~~The Company records costs related to the maintenance of ~~the Second Modification Debt Agreement. On November 29, 2022, the Company entered into a Second Modification Debt Agreement with Bridge Bank to add a $2,000,000~~ ~~non-formula revolving line of credit and amend its existing covenants.~~

~~Term Loan and Revolving Credit Facility with Bridge Bank~~

~~On March 2, 2021, the Company entered into an Amended and Restated Loan and Security Agreement, which replaced and superseded the Loan and Security Agreement, consisting of a $3,000,000~~ ~~revolving credit facility (the “Amended Loan and Security Agreement”). This revolving credit facility was replaced with~~ the Second Amended and Restated ~~Security~~Loan Agreement ~~(above) that was put in place on August 26, 2021. Accordingly, the Company wrote-off $43,000~~ ofas deferred financing costs, ~~from this~~net of the term loan. These deferred financing costs are being amortized over the remaining term of the loan. The Company has incurred $250,000 in financing costs which becomes payable at the earlier of the term date of the loan, ~~as a loss on extinguishment of debt in the accompanying condensed consolidated statement of operations.~~

~~Outstanding principal balances on debt related~~or pre-payment. These costs are being accreted, through interest expense, to the ~~new term loan agreement that the Company entered into on August 16, 2021 with Bridge Bank consisted~~full value of the ~~following at:~~$250,000 over the remaining term of the loan.

~~SCHEDULE OF OUTSTANDING DEBT, OTHER THAN PPP LOAN~~

October 31, 2022 January 31, 2022
Term loan $ 9,875,000 $ 10,000,000
Financing cost payable 57,000 21,000
Deferred financing cost (93,000 ) (117,000 )
Total 9,839,000 9,904,000
Less: Current portion (625,000 ) (250,000 )
Non-current portion of debt $ 9,214,000 $ 9,654,000

NOTE 6 — INCOME TAXES

Income ~~taxes consist~~tax benefit increased to $59,000for the nine months ended October 31, 2023 compared to expense of $22,000in the ~~following:~~prior year comparable period.

~~SCHEDULE OF INCOME TAXES~~

October 31, 2022 October 31, 2021
Three months ended
October 31, 2022 October 31, 2021
Current tax expense:
Federal $ (6,000 ) $ —
State (3,000 ) (4,000 )
Total current tax provision $ (9,000 ) $ (4,000 )

1 2
Nine months ended
October 31, 2022 October 31, 2021
Current tax expense:
Federal $ (11,000 ) $ —
State (11,000 ) (9,000 )
Total current tax provision $ (22,000 ) $ (9,000 )

~~At January 31, 2022, the Company had U.S. federal net operating loss carry forwards of $46,250,000. The Company also had state net operating loss carry forwards of $21,318,000~~ ~~and Federal R&D credit carry forwards of $1,575,000~~ ~~and Georgia R&D credit carry forwards of $94,000, all of which expire through fiscal 2041.~~

The effective income tax rate on continuing operations of approximately (-~~0.24)~~0-% differs from our combined federal and state statutory rate of ~~25.15%~~25% primarily due to the full valuation allowance the Company currently maintains on its net deferred tax asset.

The Company has recorded $~~318,000~~340,000 and $~~315,000~~333,000 in reserves for uncertain tax positions as of October 31, ~~2022~~2023 and January 31, ~~2022,~~2023, respectively.

The Company and its subsidiaries 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, ~~2018.~~2019. All material state and local income tax matters have been concluded for years through January 31, ~~2017.~~2018. The Company is no longer subject to IRS examination for periods prior to the tax year ended January 31, ~~2018;~~2019; however, carryforward losses that were generated prior to the tax year ended January 31, ~~2018~~2019 may still be adjusted by the IRS if they are used in a future period.

NOTE 7 — EQUITY

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~~used 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.~~

Registration of Shares Issued to 180 Consulting

On ~~May 3, 2021,~~June 22, 2022, the Company filed a Registration Statement on Form S-3 (Registration No. ~~333-255723), which was subsequently amended on June 23, 2021,~~333-265773) for ~~purposes~~the purpose of registering for resale ~~248,424~~272,653 shares of common stock issued to 180 Consulting, LLC (“180 Consulting”). The Registration Statement was declared effective by the SEC on July ~~14, 2021.~~1, 2022.

On June ~~22, 2022,~~28, 2023, the Company filed a Registration Statement on Form S-3 (Registration No. ~~333-265773)~~333-272993) for ~~purposes~~purpose of registering for resale ~~272,653~~394,127 shares of common stock issued to 180 Consulting, ~~LLC.~~LLC (“180 Consulting”). The Registration Statement was declared effective by the SEC on July ~~1, 2022.~~10, 2023.

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~~ ~~45,000,000~~ ~~shares to~~ ~~65,000,000~~ shares (the “Charter Amendment”). The Charter Amendment was previously approved by the board of directors (the “Board”) of the Company, subsequently approved by the Company’s stockholders at the 2021 Annual Meeting of Stockholders of the Company, held on May 20, 2021 (the “2021 Annual Meeting”), and ratified by the Company’s stockholders on July 29, 2021 at the Special Meeting (as defined and described in further detail below).

At the 2021 Annual Meeting, the Company’s stockholders approved an amendment to the Streamline Health Solutions, Inc. Third Amended and Restated 2013 Stock Incentive Plan to increase the number of shares of the Company’s common stock authorized for issuance thereunder by ~~2,000,000~~ ~~shares, from~~ ~~6,223,246~~ ~~shares to~~ ~~8,223,246~~ ~~shares (the “Third Amended 2013 Plan Amendment”).~~

As described in the Company’s definitive proxy statement on Schedule 14A filed with the SEC on July 6, 2021, because there may have been uncertainty regarding the validity or effectiveness of the prior approval of the Charter Amendment, the authorized shares increase effected thereby and the Third Amended 2013 Plan Amendment at the 2021 Annual Meeting, the board of directors of the Company asked the Company’s stockholders to ratify the approval, filing and effectiveness of the Charter Amendment and the approval and effectiveness of the Third Amended 2013 Plan Amendment at a special meeting of the stockholders held on July 29, 2021 (the “Special Meeting”) in order to eliminate such uncertainty . At the Special Meeting, the Company’s stockholders ratified the approval, filing and effectiveness of the Charter Amendment and the approval and effectiveness of the Third Amended 2013 Plan Amendment.

At the Annual Meeting of Stockholders held on June 7, 2022, the Company’s stockholders approved an amendment to the Streamline Health Solutions, Inc. Third Amended and Restated 2013 Stock Incentive Plan to increase the number of shares of the Company’s common stock authorized for issuance thereunder by 2,000,000 shares, from 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.

At the Annual Meeting of Stockholders held on June 15, 2023, the Company’s stockholders approved an amendment to the Streamline Health Solutions, Inc. Third Amended and Restated 2013 Stock Incentive Plan to increase the available number of shares of the Company’s common stock authorized for issuance thereunder by 1,000,000 shares, from 10,223,246 shares to 11,223,246 shares.

NOTE 8 — COMMITMENTS AND CONTINGENCIES

Consulting Agreement with 180 Consulting, LLC

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 separate SOWs under the MSA. Some~~Certain of the SOWs include the ability of 180 Consulting to earn common stock of the company 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 usthe Company under the MSA and the SOWs may share workspace and administrative costs with 121G Consulting, ~~(as defined~~LLC (“121G”). Mr. Green is a “member” of 121G, and, ~~further discussed~~accordingly, has a financial interest in ~~Note 14 – Related Party Transactions in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2022).~~that entity. 180 Consulting earned ~~a cumulative number~~100,037 and 358,190 shares for the three and nine months ended October 31, 2023, respectively, and has earned an aggregate of 1,273,394shares of the Company’s common stock through October 31, ~~2022 totaling~~2023. 180 Consulting earned ~~814,267~~183,284~~. For~~ and 293,190 shares for the three and nine months ended October 31, 2022, respectively. For services rendered by 180 Consulting ~~earned a total~~during the three and nine months ended October 31, 2023, the Company incurred fees of $~~183,284~~639,000 and $~~293,190~~2,558,000, respectively, and capitalized non-employee stock compensation of $60,000 ~~shares,~~and $176,000, respectively. The Company paid fees of $751,000 and $1,781,000~~, respectively,~~ for services rendered by 180 Consulting during the three and nine months ended October 31, 2022.

Inclusive of the MSA executed with 180 Consulting are SOWs that provide for the Company to sublicense 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 ~~fees of~~approximately $~~376,000~~87,000 and $~~1,092,000~~468,000~~, respectively,~~ for ~~services rendered by 180 Consulting during~~the SOWs that include the sublicense agreement for the three and nine months ended October 31, ~~2021. On September 16, 2022,~~2023, respectively, which are included in the aforementioned totals above.

NOTE 9 — GOODWILL AND INTANGIBLE ASSETS

Goodwill represents the excess cost over fair value of the net assets of acquired businesses and is not amortized. The Company ~~issued~~ ~~53,836~~ ~~shares as compensation for services previously rendered~~performs an impairment assessment of goodwill annually during the ~~three months ended July 31, 2022. Such shares were issued in~~fourth quarter of its fiscal year with a ~~private placement in reliance on the exemption from registration available under Section 4(a)(2)~~valuation date of ~~the Securities Act, including Regulation D promulgated thereunder. The MSA is terminable by the Company~~November 1, or ~~180 Consulting upon 90-days advanced written notice to the other party.~~more frequently if a triggering event occurs.

The Company’s intangible assets consist of client relationships, acquired and developed technology, and trade names. These assets are recorded at cost, less accumulated amortization and impairment, if any. All the Company’s intangible assets are definite lived and amortized on a straight-line basis over their estimated useful lives. Subsequent testing of intangible assets is conducted when a triggering event occurs that would indicate impairment may exist.

In October 2023, the Company was notified by a legacy client of its intent to not renew its contract as of its end date on December 31, 2023. At that time, the Company elected to accelerate the execution of a planned strategic restructuring that was designed to reduce costs while maintaining the Company’s ability to expand its SaaS business. Both the client termination and the execution of the strategic restructuring were announced on October 16, 2023. Following these announcements, the Company’s share price declined significantly. Based on these events (collectively, the “Triggering Events”), the Company identified indicators of possible impairment and initiated testing using a valuation date of October 31, 2023. The impairment tests were conducted under guidance of ASC Topic 360, Impairment and Disposal of Long-Lived Assets (“ASC 360”) for certain long-lived assets, including capitalized contract costs, developed technology, client relationships and trade names, and in accordance with ASC Topic 350, Intangibles – Goodwill and Other (“ASC 350”) with respect to the reporting unit’s goodwill.

Goodwill

The changes in the carrying amount of goodwill were as follows:

SCHEDULE OF CARRYING AMOUNT OF GOODWILL

	Nine Months Ended
	October 31, 2023
Balance as of January 31, 2023	$	23,089,000
Impairment		(9,813,000	)
Balance as of October 31, 2023	$	13,276,000

The Company determined that effective January 31, 2023, it had one reporting unit for purposes of evaluation of goodwill. Based on the Triggering Events and in conjunction with its preparation of its financial statements for the three and nine months ended October 31, 2023, the Company tested the reporting unit’s goodwill for possible impairment as of October 31, 2023. The testing for impairment was performed under the guidance of ASC 360. The testing utilized a discounted debt-free net cash flow (“DCF”) method under the income approach and the market capitalization method (“MCM”) under the market approach. The sum of the weighted values of each method was used to derive the fair value of the Company’s equity.

The MCM calculates the aggregate market value of the Company based on the total number of shares outstanding and the current market price of the shares as of the valuation date. Data on similar mergers and acquisitions within healthcare technology are observed to determine control premium that represents a stock premium percentage offered by an acquirer to a public company. The control premium applied to the aggregate market value represents MCM calculated fair value.

The DCF incorporates the use of projected financial information and a discount rate using a weighted average cost of capital with cost of equity estimated based on the capital asset pricing model. The cash-flow projections are based on financial forecasts developed by management that include forecasts of future operating results based on internal budgets and strategic plans to invest in working capital to support anticipated revenue growth. External factors and business conditions are considered by management when setting the long-term growth rates. The selected discount rate considers the risk and nature of the reporting unit’s cash flows and the rates of return market participants would require to invest their capital in the Company.

2218

The Company concluded that its goodwill was impaired based on the weighted combination of the DCF and MCM value estimates which resulted in a calculated fair value lower than the equity carrying value. The Company recorded an impairment of goodwill in the amount of $9,813,000 reported as “Goodwill Impairment” on its Condensed Consolidated Statement of Operations for the period ended October 31, 2023.

~~NOTE 9 –~~ ~~DISCONTINUED OPERATIONS~~Intangible Assets

~~On February 24, 2020,~~The changes in the ~~Company consummated the sale~~carrying amounts of the Company’s ~~legacy Enterprise Content Management business (the “ECM Assets”).~~finite-lived assets were as follows:

SCHEDULE OF FINITE-LIVED INTANGIBLE ASSETS

		October 31, 2023
	Estimated Useful Life	Gross Assets		Accumulated Amortization		Impairment		Net Assets
Finite-lived assets:
Client relationships	8-10 years	$	9,700,000	$	2,216,000	$	963,000	$	6,521,000
Internally developed software	9 years		6,380,000		1,565,000		—	$	4,815,000
Trademarks and tradenames	15 years		1,340,000		197,000		—	$	1,143,000
Total		$	17,420,000	$	3,978,000		963,000	$	12,479,000

~~For~~ASC 360 defines a multi-step process to test long-lived assets, including intangible assets, for recoverability that if failed would indicate impairment. First, the Company must consider whether indicators of impairment of long-lived assets are present, which the Company determined the Triggering Events in conjunction with preparation of its financial statements for the three and nine months ended October 31, ~~2021,~~2023 provided such indication.

Next, the Company ~~recorded~~must review the ~~following into discontinued operations in~~long-lived assets to define asset group(s) that would reflect the ~~accompanying condensed consolidated statements~~lowest level of ~~operations:~~assets to which discrete cash flows are identifiable. In performing this review, the Company identified that the long-lived asset “client relationships” related to Avelead should be classified as abandoned (the “Abandoned Asset”) with the Company determining that it no longer has plans to provide the corresponding consulting service. The Abandoned Asset’s carrying value would need to be set to its salvage value which would be zero given no future cash flows.

~~SCHEDULE OF DISCONTINUED OPERATIONS OF CONSOLIDATED STATEMENTS OF OPERATIONS~~

Three Months Ended
October 31, 2021

Nine Months Ended
October 31, 2021

Revenues:
Transition service fees $ 102,000 $ 498,000
Total revenues 102,000 498,000

Expenses:
Cost of Sales 1,000 5,000
Transition service cost 32,000 92,000
Total expenses 33,000 97,000

Income from discontinued operations $ 69,000 $ 401,000

The Company ~~entered into an agreement with~~determined the ~~Purchaser~~lowest level of discrete cash flows is at the reporting unit level, and all remaining long-lived assets (excluding the Abandoned Asset) and goodwill would represent its only asset group. Recoverability is assessed by comparing that the sum of the ~~ECM Assets to maintain~~discrete undiscounted cash flows exceeds the ~~current data center through a transition period. The transition services did not have a finite ending date at the signing~~carrying value of the ~~agreement. However,~~asset group. The undiscounted cash flow projections are based on 8-year (representing the ~~transition services were completed~~useful life of the primary asset in the ~~third quarter~~asset group) financial forecasts developed by management that include forecasts of ~~fiscal 2021.~~future operating results based on internal budgets and strategic plans to investment in working capital to support anticipated revenue growth.

The undiscounted cash flows for the long-lived assets were above the carrying amounts indicating that the long-lived asset group is recoverable and no further impairment to long-lived assets exists as of October 31, 2023. For the three-month period ended October 31, 2023, the Company recorded $963,000 as “Impairment of long-lived assets” on its Condensed Consolidated Statement of Operations to adjust the Abandoned Asset to its salvage value of zero.

NOTE 10 - RELATED PARTY TRANSACTIONS

Refer to Note 3 – Business ~~Combination and Divestiture.~~Combination. The Company acquired Avelead on August 16, 2021. ~~In addition,~~Accordingly, the Company assumed a ~~consulting agreement with AscendTek, LLC (“AscendTek”),~~lease for corporate office space from a ~~software development and system design company. AscendTek~~selling equity-holder of Avelead that is ~~owned by one~~a former employee of the ~~Sellers of Avelead. The Company entered into a separation agreement with this Seller of Avelead on closing of the Avelead acquisition.~~Company. This lease term ended February 2023. For the three and nine months ended October 31, ~~2022,~~2023, the Company ~~incurred approximately~~recorded rent expense of $0 and $~~32,000~~6,000, respectively, in research and development services provided by AscendTek. Additionally, we assumed a lease for corporate office space from a Seller that is now employed by the Company. This lease term ended February 2022 but was renewed for a term of 12 months. respectively. For the three and nine months ended October 31, 2022, the Company recorded rent expense of $18,000 and $55,000, respectively (refer to Note 4 – Operating Leases).

~~NOTE 11 —~~ ~~SUBSEQUENT EVENTS~~

We have evaluated subsequent events occurring after October 31, 2022, and based on our evaluation, except as set forth below, we did not identify any events that would have required recognition or disclosure in these condensed consolidated financial statements.

~~Debt Modification~~

On November 29, 2022, the Company executed a Second Modification to the Second Amended and Restated Loan Agreement (the “Second Modification Debt Agreement”). The Second Modification Debt Agreement includes an expansion of the Company’s total borrowing to include a $2 million 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 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 Company paid $20,000~~ ~~in fees at the closing of the Second Modification Debt Agreement, and added an additional $50,000~~ ~~to the deferred closing cost that is due upon the early repayment or term of the loan. The aggregate amount of the deferred costs due upon early repayment or term of the loan is $250,000. The Second Modification Debt Agreement is secured by substantially all of our assets. The covenants are amended as follows, including a change to our third quarter, 2022:~~

●

~~Minimum Cash~~. ~~Borrowers shall, at all times, maintain unrestricted cash of Borrowers at Bank in an amount not less than Two Million Dollars ($2,000,000).~~

2319

●

~~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 MODIFICATION TO ARR RATIOS~~

~~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 30, 2024~~		~~0.50~~ to ~~1.00~~

●

~~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”.

~~SCHEDULE OF MAXIMUM DEBT MODIFICATION 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~~

●

~~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.~~

~~With the changes to the covenants through the Second Modification Debt Agreement, the Company was in compliance with all debt covenants as of October 31, 2022.~~

~~First Year Earnout Payment for Avelead~~

~~On November 22, 2022, the Company made the first year earnout payment and issued shares of common stock, par value $0.01~~ per share, subject to certain restrictions, to the selling shareholders of Avelead in accordance with the Unit Purchase Agreement See Item 1, Note 3 – Business Acquisition and Divestiture. In connection with the first year earnout payment, the Company made cash payments of $~~2,012,000~~ ~~and issued~~ ~~1,243,291~~ ~~unregistered securities in the form of restricted common stock, par value $0.01~~ ~~per share, for the SaaS Contingent Consideration and~~ ~~627,746~~ ~~unregistered securities in the form of restricted common stock, par value $0.01~~ ~~per share,~~ ~~for the Renewal Contingent Consideration. The estimated aggregate value of the first year earnout payment is $4,000,000~~ ~~for the SaaS Contingent Consideration and $1,000,000~~ for the Renewal Contingent Consideration. The Company has a second earnout under the Unit Purchase Agreement that will be payable on or about October 2023. These liabilities are reflected at the fair value of the future commitment on the Company’s balance sheet, as Acquisition Earnout Liability.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

We make forward-looking statements in this Quarterly Report on Form 10-Q (this “Report”) and in other materials we file with the SEC or otherwise make public. This Report, therefore, contains statements about future events and expectations which are forward-looking statements within the meaning of Sections 27A of the Securities Act of 1933, as amended (the “Securities Act”), and 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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” and elsewhere in our Annual Report on Form 10-K for the fiscal year ended January 31, ~~2022~~2023 and in our subsequent filings with the SEC, and include among others, the following:

	●	competitive products and pricing;

	●	product demand and market acceptance;

	●	entry into new markets;

	●	the extent to which health epidemics and other outbreaks of communicable diseases, including the ongoing coronavirus, or COVID-19, pandemic and the efforts to mitigate it, could disrupt our operations and/or materially and adversely affect our business and financial ~~conditions;~~

	●	the possibility that any of the anticipated benefits of the acquisition of Avelead Consulting, LLC (“Avelead”) will not be realized or will not be realized within the expected time period, the businesses of the Company and the Avelead segment may not be integrated successfully, or such integration may be more difficult, time-consuming or costly than expected, or revenues following the Avelead acquisition may be lower than expected;

	●	new product and services development and commercialization;

	●	key strategic alliances with vendors and channel partners that resell our products;

	●	uncertainty in continued relationships with customers due to termination rights;

	●	our ability to control costs;

	●	availability, quality and security of products produced, and services provided by third-party vendors;

	●	the healthcare regulatory environment;

	●	potential changes in legislation, regulation and government funding affecting the healthcare industry;

	●	healthcare information systems budgets;

2520

	●	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;

	●	impairment of our goodwill and other intangible assets;

	●	the extent to which health epidemics and other outbreaks of communicable diseases could disrupt our operations and/or materially and adversely affect our business and financial conditions;

	●	our ability to maintain compliance with the terms of our credit facilities; and

	●	our ability to maintain compliance with the continued listing standards of the Nasdaq Capital Market (“Nasdaq”).

~~Some of these factors and risks have been, and may further be, exacerbated by the ongoing COVID-19 pandemic.~~

Most of these risk 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.

On August 16, 2021, the Company entered into a Unit Purchase Agreement (“UPA”) to acquire Avelead, a recognized leader in providing solutions and services to improve ~~Revenue Integrity~~revenue integrity for healthcare providers nationwide. The Company believes Avelead’s solutions will complement and extend the value the Company can deliver to its customers. Operations for Avelead are included in the Company’s consolidated financial information from the acquisition date. Refer to Note 3 – Business Combination ~~and Divestiture~~ in our unaudited condensed consolidated financial statements included in Part I, Item I, “Financial Statements” for further information on the Avelead acquisition.

During the fiscal third quarter ended October 31, 2022, the Company strengthened its balance sheet through a capital raise. On October 24, 2022, the Company entered into purchase agreements with certain investors ~~(the “2022 Offering”). Under these purchase agreements,~~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 $8.3 million. The ~~Company intends to use the proceeds of the 2022 Offering for general corporate purposes. The~~ 2022 Offering closed on October 26, 2022.

~~In addition, we~~The Company expanded ~~our~~its existing relationship with ~~Bridge~~its debt partner, Western Alliance Bank, in the fourth quarter of 2022. On November 29, 2022, the Company executed a Second Modification to the Second Amended and Restated Loan Agreement (“Second ~~Modification Debt Agreement”~~Modification”). The Second Modification ~~Debt Agreement~~ includes an expansion of the Company’s total borrowing to include a $2,000,000 non-formula revolving line of credit. The revolving line of credit ~~will be~~is co-terminus with the term loan, which matures on August 26, 2026. The Second Modification ~~Debt Agreement also~~ includes ~~new~~modified covenants through the term of the Second Amended and Restated Loan ~~and Security~~ Agreement. See Item 1, Note 115 - ~~Subsequent Events,~~Debt, for ~~more~~ discussion onof the Second ~~Modification Debt Agreement.~~Modification.

On October 16, 2023, the Company announced it was executing a strategic restructuring designed to reduce expenses while maintaining the Company’s ability to expand its SaaS business. The strategic restructuring initiatives included a reduction in force, resulting in the termination of 26 employees, or approximately 24% of the Company’s workforce. To execute the strategic restructuring, the Company estimates the one-time restructuring costs associated with the workforce reduction to be approximately $900,000, and the Company expects the expenses associated with the strategic restructuring to be substantially recognized by the end of fiscal year 2023. The Company recorded $749,000 of the estimated expenses in the three months ending October 31, 2023, which consisted of approximately $730,000 in severance and other employee termination-related expenses and approximately $19,000 in incurred legal fees. The remaining estimated cost pertains to various professional fees the Company may require to assist with execution of the strategic restructuring. The Company expects to realize approximately $5,800,000 in annualized cost savings as a result of the strategic restructuring. Approximately 60% of the expected savings are related to the reduction in force and will be realized beginning in the fourth quarter of fiscal year 2023. The remaining expected savings are vendor related expenses which are expected to result in cost savings beginning in the first quarter of fiscal year 2024.

2621

Results of Operations

Revenues

	Three Months Ended										Three Months Ended
($ in thousands):											October 31, 2023		October 31, 2022		Change			% Change
	October 31, 2022		October 31, 2021		Change			% Change
Software licenses		-		150,000		(150,000	)		-100	%
Professional services		1,270,000		944,000		326,000			35	%
Audit services		618,000		513,000		105,000			20	%
Software as a service											$	3,924	$	3,209	$	715			22	%
Maintenance and support		1,120,000		1,082,000		38,000			4	%		1,070		1,120		(50	)		(4	)%
Software as a service		3,209,000		2,825,000		384,000			14	%
Professional fees and licenses												1,139		1,888		(749	)		(40	)%
Total Revenues		6,217,000		5,514,000		703,000			13	%	$	6,133	$	6,217	$	(84	)		(1	)%

	Nine Months Ended										Nine Months Ended
($ in thousands):											October 31, 2023		October 31, 2022		Change			% Change
	October 31, 2022		October 31, 2021		Change			% Change
Software licenses		123,000		285,000		(162,000	)		-57	%
Professional services		3,552,000		1,052,000		2,500,000			238	%
Audit services		1,964,000		1,460,000		504,000			35	%
Software as a service											$	10,630	$	9,157	$	1,473			16	%
Maintenance and support		3,348,000		3,226,000		122,000			4	%		3,327		3,348		(21	)		(1	)%
Software as a service		9,157,000		5,310,000		3,847,000			72	%
Professional fees and licenses												3,278		5,639		(2,361	)		(42	)%
Total Revenues		18,144,000		11,333,000		6,811,000			60	%	$	17,235	$	18,144	$	(909	)		(5	)%

Software ~~licenses~~as a Service (SaaS) ~~—For~~— Revenue from SaaS for the three- and nine-month periods ended October 31, 2023 increased by $715,000 and $1,473,000, respectively, compared to the prior year periods. The increase in SaaS revenue for the three and ~~nine months~~nine-month period ended October 31, ~~2022,~~2023 is primarily due to new clients on the Company’s eValuator, RevID and Compare products offset by non-renewals of certain clients. Beginning in the first quarter of fiscal 2024, we anticipate lower SaaS revenue for the short term due primarily to a large client non-renewal of RevID and Compare.

We have approximately $2.7 million of annualized contract value of SaaS contracts to be implemented as of October 31, 2023. The industry has been impacted by hospital personnel shortages and a backlog of hospital IT projects. This has resulted in slower contract-to-implementation timelines, which is delaying revenue recognition for such contracts. It is uncertain how long these headwinds will impact our implementation timelines.

Maintenance and support — For both the three- and nine-month periods ended October 31, 2023, revenue from maintenance and support remained relatively consistent compared to the prior year periods. The Company does not anticipate maintenance and support growth due to the Company’s shift to its growth products that are classified as software ~~licenses decreased by $150,000~~as a service.

Professional fees and ~~$162,000, respectively,~~licenses — Proprietary software revenue for the three- and nine-month periods ended October 31, 2023 remained consistent compared to the prior year periods. The Company has primarily shifted ~~its~~the business from perpetual software licenses to a ~~software as a service (SaaS)~~SaaS model. ~~The software~~Software license sales come solely from our channel partners; therefore, the periodic amounts are less predictable and consistent than recurring revenues.

~~Professional~~For the three- and nine-month periods ended October 31, 2023, revenue from professional services — ~~For~~decreased by $749,000 and $2,110,000, respectively, compared to the prior year periods. The decrease in professional fees is primarily driven by the termination of client consulting agreements at the close of fiscal year 2022 that did not align with the Company’s long-term strategy. These terminations resulted in a decrease in professional services revenue for the three and nine months ended October 31, ~~2022, revenue from professional services increased by $326,000~~2023 of $884,000 and ~~$2,500,000,~~$2,572,000, respectively, ~~compared to the prior year periods. The increase in professional services includes $314,000 and $2,228,000, respectively, of Avelead professional services revenue increases as~~ compared to the prior year periods. The Company is primarily focused on growth of its SaaS ~~growth,~~products, and, accordingly, is not expecting growth in professional ~~services.~~services for the remainder of the fiscal year.

~~Audit services~~ — For the ~~three and nine months~~three-month period ended October 31, ~~2022,~~2023, revenue from audit services ~~increased $105,000 and $504,000, respectively,~~remained consistent compared to the prior year ~~periods. The increases~~period. For the nine-month period ended October 31,2023, audit services revenue overall decreased by $201,000 compared to the prior year period. This decrease included $938,000 of revenue in the prior year nine-month period for ~~both comparable periods include revenue~~agreements not renewed by clients that was offset by $611,000 from new audit service ~~agreements.~~agreements plus $126,000 of additional revenue from amended agreements with increased scope. The ~~Company~~company is primarily focused on utilizing audit services to support its ~~technology, eValuator.~~eValuator product. Accordingly, the Company ~~expects modest~~does not expect revenue growth in the future in audit services.

~~Maintenance and support~~ — For the three and nine months ended October 31, 2022, revenue from maintenance and support increased $38,000 and $122,000, respectively, compared to the prior year periods. The increase is due to new maintenance subscriptions on previously licensed software. The Company does not anticipate maintenance and support growth due to the Company’s shift to its growth products that are classified as SaaS.

~~Software as a Service (SaaS)~~ — For the three and nine months ended October 31, 2022, revenue from SaaS increased $384,000 and $3,847,000, respectively, compared to the prior year periods. The increases include $430,000 and $3,554,000, respectively, of SaaS revenue increases from Avelead. The remaining increase in SaaS revenue for the three month period ended October 31,2022 is due to new customers on the Company’s eValuator product offset by a customer termination. The remaining increase in SaaS revenue for the nine months ended October 31,2022 is due to new customers on the Company’s eValuator product. The Company expects continued growth in its SaaS business.

We have approximately $4.5 million in annualized contract value of contracts to be implemented as of November 30, 2022. The industry has been impacted post COVID by hospital personnel shortages and a backlog of hospital IT projects. This has resulted in slower contract to implementation timelines, which is delaying revenue recognition for such contracts. It is uncertain how long these headwinds will impact our implementation timelines. However, strong growth in SaaS is expected to continue as these contracts are implemented. The Company expects to see double-digit percentage growth, sequentially, and year-over-year, in Fiscal 2023 from its sales booking activity in Fiscal 2022.

Cost of Sales

Three Months Ended
October 31, 2022 October 31, 2021 Change % Change
Cost of software licenses 85,000 133,000 (48,000 ) (36 )%
Cost of professional services 1,128,000 936,000 192,000 21 %
Cost of audit services 531,000 409,000 122,000 30 %
Cost of maintenance and support 84,000 57,000 27,000 47 %
Cost of software as a service 1,742,000 1,088,000 654,000 60 %
Total Cost of Sales 3,570,000 2,623,000 947,000 36 %

Nine Months Ended
October 31, 2022 October 31, 2021 Change % Change
Cost of software licenses 278,000 412,000 (134,000 ) (33 )%
Cost of professional services 3,288,000 1,411,000 1,877,000 133 %
Cost of audit services 1,426,000 1,174,000 252,000 21 %
Cost of maintenance and support 220,000 223,000 (3,000 ) (1 )%
Cost of software as a service 4,771,000 2,276,000 2,495,000 110 %
Total Cost of Sales 9,983,000 5,496,000 4,487,000 82 %

	Three Months Ended
(in thousands):	October 31, 2023		October 31, 2022		Change			% Change
Cost of software as a service	$	1,677	$	1,742	$	(65	)		(4	)%
Cost of maintenance and support		129		84		45			54	%
Cost of professional fees and licenses		1,072		1,744		(672	)		(39	)%
Total cost of sales	$	2,878	$	3,570	$	(692	)		(19	)%

	Nine Months Ended
(in thousands):	October 31, 2023		October 31, 2022		Change			% Change
Cost of software as a service	$	5,159	$	4,771	$	388			8	%
Cost of maintenance and support		250		220		30			14	%
Cost of professional fees and licenses		3,202		4,992		(1,790	)		(36	)%
Total cost of sales	$	8,611	$	9,983	$	(1,372	)		(14	)%

Cost of software as a service (SaaS) - The cost of SaaS solutions is comprised of salaries, amortization of capitalized software development and third-party content provider costs. Certain costs in SaaS solutions are tied to volumes, such as number of users. These costs include coding tools supporting eValuator and a third-party system that enable the Company’s products to ingest data from the hospital system. For the three months ended October 31, 2023, the cost of SaaS solutions decreased $65,000 compared to the prior year period. The decrease is driven by lower personnel costs of $216,000 offset by an increase in ~~overall cost~~amortization of ~~sales~~capitalized assets for RevID and Compare of $69,000 compared to the ~~three and~~prior year three-month period. For the nine months ended October ~~31, 2022 from~~31,2023 the ~~comparable~~cost of software as a service increased $388,000 compared to the prior year ~~periods are primarily due to Avelead, which represents $582,000 and $3,857,000 of the~~period. The increase ~~respectively, as compared to prior year periods. The incremental increase in cost of goods sold for Avelead~~ was driven by ~~additional~~an increase in vendor costs of $1,008,000 offset by lower personnel ~~and third-party content providers related~~costs of $690,000 compared to the ~~Company’s~~prior year nine-month period. The Company expects the cost of SaaS ~~solutions.~~solutions will continue to increase as revenue increases.

The cost of software licenses reflects amortization of capitalized software expenditures. The amounts for the three and nine months ended October 31, 2022 decreased compared to the respective prior year periods due to a reduction in research and development investments for the Company’s CDI/Abstracting products, resulting in lower capitalized software amortization expense.

~~The cost of professional services includes compensation and benefits for personnel and related expenses.~~ For the three and nine months ended October 31, ~~2022, Avelead comprises $216,000~~2023, the cost of SaaS solutions includes non-cash charges of $572,000 and ~~$1,932,000 of the increase as compared~~$1,692,000, respectively, related to the ~~respective prior year periods.~~amortization of capitalized software, which impacts SaaS margin by 15% and 16%, respectively. The Company expects margins related to SaaS solutions to increase in the future for clients currently in the process of implementation. Certain costs, such as labor and third-party content providers, impact the gross margin before a customer is fully implemented and revenue is recognized.

~~The cost~~Cost of ~~audit services includes compensation~~maintenance and benefits for audit services personnel, and related expenses. These costs for the three and nine months ended October 31, 2022 increased compared to the respective prior year periods due to an increase in employee related expenses that are tied to increased audit service fees.support

- The cost of maintenance and support includes compensation and benefits for client support personnel and the cost of third-party content provider contracts. The costs for the three and nine months ended October 31, ~~2022~~2023 remained consistent with the comparable prior year periods.

Cost of professional fees and licenses – The cost of ~~SaaS solutions is comprised~~professional fees and licenses include each of ~~salaries, amortization~~professional services, audit and coding services and software licenses. The overall change for cost of ~~capitalized software development,~~professional fees and ~~third-party content provider costs.~~licenses for the three and nine months ended October 31, 2023 decreased $672,000 and $1,790,000, respectively, compared to the prior year periods.

The cost of professional fees includes compensation and benefits for personnel and related expenses. For the three and nine months ended October 31, ~~2022, Avelead comprised $366,000~~2023, professional services costs decreased by $659,000 and ~~$1,925,000 of the increase as~~$1,847,000, respectively, compared to the ~~respective~~ prior year periods. ~~The remaining increases~~These decreases were driven by a large customer contract cancellation at the end of fiscal year 2022 resulting in lower personnel and third-party ~~expenses driven by increased volume offset by a decrease in amortization~~contractor costs. This lower cost of ~~capitalized software.~~professional fees is expected to continue, when compared with the prior year, throughout fiscal year 2023.

Certain costs in SaaS solutions are tied to volumes, such as number of users. 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 expenditures~~audit services includes compensation and benefits for audit services personnel, and related expenses. The costs for the three months ended October 31, 2023 remained consistent compared to the prior year period with a slight increase of ~~$1,547,000 including the amortization of capitalized software which impacts margin by 17%. Excluding these non-cash items~~$13,000. The costs for the nine months ended October 31, ~~2022,~~2023 increased, compared to the ~~remaining cost of SaaS solutions was $3,224,000, or 35% of sales. Current margins are lower than we expect~~corresponding prior year period, by $159,000 due to an increase in the future for SaaS solutions as we are implementing a large number of new customers. Certain costs, such as labor and third-party content providers, impact the gross margin before a customer is fully implemented and revenue is recognized.employee related expenses.

The cost of software licenses for the three and nine months ended October 31, 2023 decreased by $27,000 and $102,000, respectively, compared to the prior year periods due to lower amortization of development costs related to the Company’s coding/CDI product. The Company expects software license costs to continue to decrease due to the maturity of the non-SaaS software products.

Selling, General and Administrative Expense

Three Months Ended
October 31, 2022 October 31, 2021 Change % Change
General and administrative expenses 2,690,000 2,218,000 472,000 21 %
Sales and marketing expenses 1,363,000 1,221,000 142,000 12 %
Total selling, general, and administrative expense 4,053,000 3,439,000 614,000 18 %

	Nine Months Ended									Three Months Ended
	October 31, 2022		October 31, 2021		Change		% Change
($ in thousands):										October 31, 2023		October 31, 2022		Change			% Change
General and administrative expenses		8,112,000		5,669,000		2,443,000		43	%	$	2,798	$	2,692	$	106			4	%
Sales and marketing expenses		4,376,000		2,838,000		1,538,000		54	%		1,324		1,363		(39	)		(3	)%
Total selling, general, and administrative expense		12,488,000		8,507,000		3,981,000		47	%	$	4,122	$	4,055	$	67			2	%

	Nine Months Ended
($ in thousands):	October 31, 2023		October 31, 2022		Change			% Change
General and administrative expenses	$	8,220	$	8,253	$	(33	)		(0	)%
Sales and marketing expenses		3,859		4,376		(517	)		(12	)%
Total selling, general, and administrative expense	$	12,079	$	12,629	$	(550	)		(4	)%

General and administrative expenses consist primarily of compensation and related benefits, reimbursable travel and entertainment expenses related to our executive and administrative staff, general corporate expenses, amortization of intangible assets, and occupancy costs. For the three months ended October 31, 2023, the increase in general and administrative expenses of $106,000 was driven primarily by an increase in stock compensation expense of $207,000 due to accelerated vesting of grants, as well as an increase of severance expense of $278,000, offset by decreased employee salaries, bonuses, and benefits of $208,000. The Company also saw a decrease in rent expense of $57,000 and a decrease of $77,000 related to computer equipment and software. For the nine months ended October 31, ~~2022, Avelead comprised $59,000~~2023, the general and ~~$1,282,000 of the increase as~~administrative expenses remained generally consistent compared to the ~~respective~~ prior year periods. For the three and nine months ended October 31, 2022, increases of $436,000 and $1,127,000, respectively, were driven by employee related expenses, such as salaries, performance bonuses, and severance expense, as part of the Company’s strategic plan to simplify the Company’s business in order to drive sustainable growth and improved profitability and cash flows. The Company previously announced an “alignment” bringing the Avelead business together with its eValuator business. The resulting severance expense is included in each of General and administrative expenses and Sales and marketing expense.period.

Sales and marketing expenses consist primarily of compensation and related benefits and travel and entertainment expenses related to our sales and marketing staff, as well as advertising and marketing expenses, including trade shows. For the three months ended October 31, 2023, sales and marketing expenses remained consistent compared to the prior year period. For the nine months ended October 31, ~~2022, Avelead comprised $240,000~~2023, the decrease of $517,000 was primarily driven by a decrease in professional services and ~~$1,181,000~~marketing expenses of ~~the increase as compared to the respective prior periods. For the three~~$446,000, severance expense of $105,000, and ~~nine months ended October 31, 2022, increases~~travel-related expenses of ~~$175,000 and $1,143,000, respectively, were primarily driven~~$60,000, offset by an increase in salaries, bonuses, commissions, and benefits ~~and accrued severance associated with~~of $77,000, compared to the Company’s previously announced alignment, and expansion and upgrade of its direct and indirect sales personnel. The Company has seen an increase in travel to customer sites, as well as industry trade shows, resulting in greater travel expense. The Company expects that face-to-face meetings with hospital systems will result in higher sales bookings.prior year period.

Research and Development

Three Months Ended
October 31, 2022 October 31, 2021 Change % Change
Research and development expense 1,754,000 1,339,000 415,000 31 %
Plus: Capitalized research and development cost 563,000 342,000 221,000 65 %
Total research and development cost 2,317,000 1,681,000 636,000 38 %

	Three Months Ended
($ in thousands):	October 31, 2023		October 31, 2022		Change			% Change
Research and development expense	$	1,304	$	1,754	$	(450	)		(26	)%
Capitalized research and development cost		535		563		(28	)		(5	)%

Nine Months Ended
October 31, 2022 October 31, 2021 Change % Change
Research and development expense 4,527,000 3,280,000 1,247,000 38 %
Plus: Capitalized research and development cost 1,450,000 1,048,000 402,000 38 %
Total research and development cost 5,977,000 4,328,000 1,649,000 38 %

	Nine Months Ended
($ in thousands):	October 31, 2023		October 31, 2022		Change			% Change
Research and development expense	$	4,310	$	4,527	$	(217	)		(5	)%
Capitalized research and development cost		1,556		1,450		106			7	%

Research and development expense consists primarily of compensation and related benefits and the use of independent contractors for specific near-term development projects. Research and development expenses for the three and nine months ended October 31, ~~2022 increased~~2023 decreased by ~~approximately $415,000~~$450,000 and ~~$1,247,000,~~$217,000, respectively, compared to the prior year periods. The increase of $415,000 for the three months ended October 31, 2022 is primarily driven by a $182,000 increase in expenses related to Avelead. The increase of $1,247,000 in research and development expenses for the nine months ended October 31, 2022 from the comparable prior year ~~period includes a $1,073,000 increase in expenses related to Avelead.~~comparable periods included additional one-time non-capitalizable projects completed by our third-party partner plus higher headcount from operating separate product innovation teams. The ~~Company has previously announced that both~~consolidation of the teams and completion of the one-time projects reduced the overall research and development expense ~~and capitalized research and development cost will be higher in the third and fourth quarters of~~for fiscal year 2022 due to an emphasis on improving the architecture and data management inside Avelead’s technology stack. The Company expects to invest approximately $450,000 in these enhancements in the second half of fiscal 2022.2023.

Capitalized research and development costs for the three ~~and nine~~ months ended October 31, ~~2022 increased by approximately $212,000 and $402,000, respectively, compared to~~2023 remained consistent with the prior year ~~periods. The increase of $212,000 for the three months ended October 31, 2022 included an increase of $231,000 related to Avelead. The increase of $402,000~~period. Capitalized research and development costs for the nine months ended October 31, ~~2022 includes an increase of $559,000 related to Avelead. These increases are primarily related~~2023 increased by approximately $106,000 compared to the ~~improvements~~prior year period due to additional projects being capitalized for the ~~architecture and data management on~~products. With the ~~Avelead technology.~~recent strategic restructuring, the Company expects capitalization rates will decrease.

Impairment of Goodwill

We expect total research and development costs (primarily research and development expense) will continue at their third quarter levels through the first quarter of Fiscal 2023. As the Company completes its investment in the architecture of the Avelead technology, the Company plans to replace this effort with a project for Artificial Intelligence (AI). This AI project will be focused

	Three Months Ended
($ in thousands):	October 31, 2023		October 31, 2022		Change		% Change
Impairment of Goodwill	$	9,813	$	—	$	9,813		100	%

	Nine Months Ended
($ in thousands):	October 31, 2023		October 31, 2022		Change		% Change
Impairment of Goodwill	$	9,813	$	—	$	9,813		100	%

Based on the ~~best use~~Triggering Events and in conjunction with its preparation of ~~AI within~~its financial statements for the ~~eValuator product. For all of fiscal~~three and nine months ended October 31, 2023, the Company ~~expects to have investments in its technology to be between 10% and 15% higher than that which was experienced in fiscal 2022.~~

~~Acquisition-related Costs~~

Three Months Ended
October 31, 2022 October 31, 2021 Change % Change
Acquisition-related Costs 2,000 1,933,000 (1,931,000 ) (100 )%

Nine Months Ended
October 31, 2022 October 31, 2021 Change % Change
Acquisition-related Costs 141,000 2,710,000 (2,569,000 ) (95 )%

tested the reporting unit’s goodwill for possible impairment as of October 31, 2023. Refer to the Goodwill section of Note ~~2 – Summary~~9 — Goodwill and Intangible Assets of ~~Significant Accounting Policies – Other Operating Costs – Acquisition-related costs – in~~ the unaudited condensed consolidated financial statements included in Part I, Item I, “Financial Statements” for ~~further details~~more information on the goodwill impairment testing.

The Company concluded that goodwill was impaired based on the weighted combination of the DCF and MCM value estimates which resulted in a calculated fair value lower than its carrying value. The Company recorded an impairment of goodwill in the amount of $9,813,000 for the three- and nine-month periods ended October 31, 2023, with ~~respect to acquisition-related costs. For~~no goodwill impairments reported in the prior year comparable periods.

Impairment of long-lived assets

	Three Months Ended
($ in thousands):	October 31, 2023		October 31, 2022		Change		% Change
Impairment of long-lived assets	$	963	$	—	$	963		100	%

	Nine Months Ended
($ in thousands):	October 31, 2023		October 31, 2022		Change		% Change
Impairment of long-lived assets	$	963	$	—	$	963		100	%

Based on the Triggering Events and in conjunction with its preparation of its financial statements for the three and nine months ended October 31, ~~2022~~2023, the Company ~~incurred~~ ~~certain acquisition-related costs~~tested long-lived assets, including intangible assets, for recoverability that, if failed, would indicate impairment. The Company, in reviewing long-lived assets to define asset group(s), identified an abandoned asset. A separate long-lived asset for “client relationships” related to Avelead was no longer going to be used following the ~~acquisition~~Company’s determination that these services were not part of ~~Avelead totaling $2,000~~its core offerings going forward. The Company adjusted the abandoned asset’s carrying value to its salvage value which would be zero given no future cash flows.

Refer to the Intangible Assets section of Note 9 — Goodwill and ~~$141,000, respectively, consisting primarily~~Intangible Assets of ~~fees~~the unaudited condensed consolidated financial statements included in Part I, Item I, “Financial Statements” for ~~professional service~~more information on the long-lived asset impairment testing.

For the ~~three~~three- and ~~nine months~~nine-month periods ended October 31, ~~2021,~~2023, the Company ~~incurred acquisition-related costs related to~~recorded $963,000 representing the ~~acquisition~~impairment of ~~Avelead totaling $1,933,000 and $2,710,000, respectively. Of~~ the ~~total costs related to~~Abandoned Asset with no other long-lived impairments reported in the ~~acquisition of Avelead, $355,000 and $705,000 was related to bonuses paid to certain executives in executing priorities, primarily the acquisition.~~prior year comparable periods.

Other Income (Expense)

Three Months Ended
October 31, 2022 October 31, 2021 Change % Change
Interest expense (198,000 ) (85,000 ) (113,000 ) 133 %
Loss on Extinguishment of Debt — (43,000 ) 43,000 (100 )%
Acquisition earnout valuation adjustments 163,000 (417,000 ) 580,000 (139 )%
Miscellaneous income (expense) 68,000 (10,000 ) 658,000 (780 )%
Total other (expense) income 33,000 (555,000 ) 588,000 (106 )%

	Three Months Ended
($ in thousands):	October 31, 2023			October 31, 2022			Change			% Change
Interest expense	$	(266	)	$	(198	)	$	(68	)		34	%
Acquisition earnout valuation adjustments		1,182			163			1,019			625	%
Miscellaneous income		—			68			(68	)		(100	)%
Total other income	$	916		$	33		$	883			2,676	%

Nine Months Ended
October 31, 2022 October 31, 2021 Change % Change
Interest expense (519,000 ) (107,000 ) (412,000 ) 385 %
Loss on Extinguishment of Debt — (43,000 ) 43,000 (100 )%
Acquisition earnout valuation adjustments 188,000 (417,000 ) 605,000 (145 )%
Miscellaneous income (expense) 151,000 (4,000 ) 155,000 (3,875 )%
Forgiveness of PPP loan and accrued interest — 2,327,000 (2,327,000 ) (100 )%
Total other (expense) income (180,000 ) 1,756,000 (1,936,000 ) (110 )%

	Nine Months Ended
($ in thousands):	October 31, 2023			October 31, 2022			Change			% Change
Interest expense	$	(781	)	$	(519	)	$	(262	)		50	%
Acquisition earnout valuation adjustments		1,905			188			1,717			913	%
Miscellaneous income		31			151			(120	)		(79	)%
Total other (expense) income	$	1,155		$	(180	)	$	1,335			(742	)%

Interest expense consists of interest associated with the term loan, deferred financing costs, and line of credit, less interest related to capitalization of software. Interest expense increased for the three and nine months ended October 31, ~~2022~~2023 from the comparable prior year ~~period~~periods primarily due to the $10,000,000 term loan and $500,000 outstanding line or credit with ~~Bridge~~Western Alliance Bank (See Note 5 – Debt) and the associated increased interest ~~rates. Further, interest rates have increased at an accelerated pace in Fiscal 2022. The Federal Reserve has been reacting to inflation through interest~~ rate ~~increases. This is expected to continue at a slower pace than~~on that ~~experienced in Fiscal 2022. The interest~~debt. Interest rate increases ~~that have been put into effect to date,~~ are expected to continue to increase interest expense ~~(year over year) into Fiscal~~(year-over-year) through the remainder of fiscal year 2023.

~~Acquisition~~The acquisition earnout valuation adjustments for the three and nine months ended October 31, 2022 includes a valuation adjustment of $163,000 and $188,000, respectively, compared to expense of $417,000 for the prior year three and nine-month period. 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 unaudited condensed consolidated financial statements included in Part I, Item I, “Financial Statements”).

~~Other income for~~ For the three and nine months ended October 31, ~~2022 includes $49,000~~2023, the Company recorded a valuation income adjustment of $1,182,000 and ~~$145,000,~~$1,905,000, respectively, ~~related~~compared to $163,000 and $188,000, respectively, for the comparable prior year periods. The valuation adjustment is caused by the decrease in the value of the stock to be transferred under the arrangement.

Miscellaneous income is primarily from the sublease of the Alpharetta location (Refer to Note 4 – Operating Leases of the unaudited condensed consolidated financial statements included in Part I, Item I, “Financial Statements”).Forgiveness of PPP loan and accrued interest for the three and nine months ended October 31, 2021 reflects the financial impact of the $2,301,000 PPP loan being forgiven, along with the accrued interest of $26,000 also being forgiven.

Provision for Income Taxes

We recorded an income tax benefit of $120,000 and income tax expense of $9,000 ~~and $4,000~~ for the three months ended October 31, 2023 and 2022, respectively, and ~~2021, respectively,~~income tax benefit of $59,000 and income tax expense of $22,000 ~~and $9,000~~ for the nine months ended October 31, ~~2022~~2023 and ~~2021,~~2022, 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 tax purposes. The effective income tax rate on continuing operations of approximately 0% differs from our combined federal and state statutory rate of 25% primarily due to the full valuation allowance the Company currently maintains on its net deferred tax asset.

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 Board of Directors in its financial and operational decision-making, the Company has supplemented the condensed consolidated financial statements presented on a GAAP basis in this Report with the following non-GAAP financial measures: EBITDA, Adjusted EBITDA ~~Adjusted EBITDA Margin~~ and Adjusted EBITDA ~~per diluted share.~~Margin.

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 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~~Margin

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, share-based compensation expense, transaction related expenses and other expenses that do not relate to our core operations such as severances and impairment charges; 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 share~~Margin are used to facilitate a comparison of our operating performance on a consistent basis from period to period and provide for a ~~more complete~~supplemental understanding of factors and trends affecting our business than GAAP measures alone. These measures assist management and the ~~board~~Board of Directors, 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. 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 Board of Directors and management also use these measures (i) as 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 Second Amended and Restated Loan ~~and Security~~ Agreement requires delivery of compliance reports certifying compliance with financial covenants, certain of which are based on a measurement that is similar to the Adjusted EBITDA measurement reviewed by our management and Board of Directors.

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~~supplemental information provided by these measures regarding the use and analysis of these measures as mentioned above. EBITDA, Adjusted EBITDA, ~~Adjusted EBITDA Margin,~~ and Adjusted EBITDA ~~per diluted share,~~Margin, as disclosed in this 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 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 condensed consolidated financial statements included above.

The following table reconciles EBITDA and Adjusted EBITDA to net loss from continuing operations ~~and Adjusted EBITDA per diluted share to loss per diluted share~~ for the three and nine months ended October 31, ~~2022~~2023 (amounts in ~~thousands, except per share data)~~thousands). All of the items included in the reconciliation from EBITDA and Adjusted EBITDA to net loss ~~and the related per share calculations~~ are either recurring non-cash items, or items that management does not consider in assessing our on-going operating performance. In the case of the non-cash items, management believes that investors may find it useful to assess the Company’s comparative operating performance because the measures without such items are less susceptible to variances in actual performance resulting from depreciation, amortization and other expenses that do not relate to our core operations and are more reflective of other factors that affect operating performance. In the case of items that do not relate to our core operations, management believes that investors may find it useful to assess our operating performance if the measures are presented without these items because their financial impact does not reflect ongoing operating performance.

Three Months Ended Nine Months Ended
In thousands, except per share data
October 31,
2022

October 31,
2021

October 31,
2022

October 31,
2021

Adjusted EBITDA Reconciliation
Loss from continuing operations $ (3,138 ) $ (4,379 ) $ (9,197 ) $ (6,913 )
Interest expense 198 85 519 107
Income tax expense 9 4 22 9
Depreciation 13 16 40 53
Amortization of capitalized software development costs 446 446 1,293 1,430
Amortization of intangible assets 463 490 1,519 721
Amortization of other costs 131 110 360 338
EBITDA $ (1,878 ) $ (3,228 ) $ (5,444 ) $ (4,255 )
Share-based compensation expense 555 537 1,212 1,659
Non-cash valuation adjustments (163 ) 417 (188 ) 417
Acquisition-related cost, severance, and transaction-related bonuses 387 1,953 1,010 2,730
Forgiveness of PPP loan and accrued interest — — — (2,327 )
Other non-recurring charges (73 ) — (140 ) 16
Loss on early extinguishment of debt — 43 — 43
Adjusted EBITDA $ (1,172 ) $ (278 ) $ (3,550 ) $ (1,717 )
Loss from continuing operations margin (1)
(50
)%
(79
)% (51 )%
(61
)%
Adjusted EBITDA margin (2) (19 )% (5 )% (20 )% (15 )%

Adjusted EBITDA per Diluted Share Reconciliation
Loss from continuing operations per common share — diluted $ (0.07 ) $ (0.10 ) $ (0.19 ) $ (0.17 )
Net loss per common share — diluted (3) $ (0.07 ) $ (0.10 ) $ (0.19 ) $ (0.16 )
Adjusted EBITDA per adjusted diluted share (4) $ (0.02 ) $ (0.01 ) $ (0.08 ) $ (0.04 )

Basic weighted average shares 47,730,009 45,709,952 47,329,923 41,498,873
Includable incremental shares — adjusted EBITDA (5) 413,810 353,851 283,654 496,393
Adjusted diluted shares 48,143,819 46,063,803 47,613,577 41,995,266

	Three Months Ended						Nine Months Ended
In thousands, except per share data	October 31, 2023			October 31, 2022			October 31, 2023			October 31, 2022
Adjusted EBITDA Reconciliation
Net Loss	$	(11,911	)	$	(3,138	)	$	(17,327	)	$	(9,197	)
Interest expense		266			198			781			519
Income tax (benefit) expense		(120	)		9			(59	)		22
Depreciation and amortization		1,105			1,053			3,186			3,212
EBITDA	$	(10,660	)	$	(1,878	)	$	(13,419	)	$	(5,444	)
Share-based compensation expense		517			555			1,626			1,212
Impairment of goodwill		9,813			—			9,813			—
Impairment of long-lived assets		963			—			963			—
Non-cash valuation adjustments		(1,182	)		(163	)		(1,905	)		(188	)
Acquisition-related costs, severance, and transaction-related bonuses		213			387			389			1,010
Restructuring charges		749			—			749			—
Other non-recurring charges		—			(73	)		(33	)		(140	)
Adjusted EBITDA	$	413		$	(1,172	)	$	(1,817	)	$	(3,550	)
Adjusted EBITDA margin (1)		7	%		(19	)%		(11	)%		(20	)%

(1)	~~Loss from continuing operations as a percentage of GAAP net revenue.~~

~~(2)~~	Adjusted EBITDA as a percentage of GAAP net revenue.


~~(3)~~	Since the Company was in a loss position for the periods presented, diluted net loss per common share is the same as basic net loss per common share as the inclusion of all potential common shares outstanding would have been anti-dilutive.

~~(4)~~	~~Adjusted EBITDA per adjusted diluted share for the Company’s common stock is computed using the treasury stock method.~~ Since the Company was in a loss position for the periods presented, adjusted EBITDA per adjusted diluted share is the same as adjusted EBITDA per adjusted share as the inclusion of all potential common shares outstanding would have been anti-dilutive.

~~(5)~~	The number of incremental shares that would be dilutive under an assumption that the Company is profitable during the reported period, which is only applicable for a period in which the Company reports profit.28

Application of Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reporting period. Management considers an accounting policy to be critical if the accounting policy requires management to make particularly difficult, subjective, or complex judgments about matters that are inherently uncertain. A summary of our critical accounting policies is included in Note 2 to our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended January 31, ~~2022. There~~2023. Except as discussed below, there have been no material changes to the critical accounting policies disclosed in our Annual Report on Form 10-K for the fiscal year ended January 31, 2023.

Goodwill and Intangible Assets

The Company completed its annual goodwill assessment during the fourth quarter of fiscal year 2022. We determined, as of January 31, 2023, the Company has one reporting unit for purposes of evaluation of goodwill as a result of the Company’s consolidation of operations of Streamline and Avelead at the end of fiscal year 2022. We used a weighted sum of income and market approaches to determine the fair value of the Company’s goodwill. Under the income approach, the fair value was based on the present value of the estimated debt-free, discounted cash flows that the reporting unit is expected to generate. Cash flow projections were based on management’s estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate was based on the weighted average cost of capital appropriate for the Company.

In the third quarter of 2023, the Company received a notice from a significant SaaS client of its intent not to renew its contract following the expiration of the current term on December 31, 2023. The Company also announced it was accelerating a planned strategic restructuring to allow it to reduce costs while continuing to focus on expanding its SaaS operations. These announcements triggered a significant decrease in the Company’s share price. Based on these factors, we determined there were indicators that the goodwill may be impaired, and accordingly, performed an interim goodwill impairment test as of October 31, 2023. The results of the impairment test showed that the fair value of the reporting unit was lower than the carrying value, resulting in a $9.8 million goodwill impairment charge. As of October 31, 2023, the remaining goodwill balance of the Company after recording the goodwill impairment charge was $13 million.

Also, during the third quarter of 2023, due to the factors discussed above, we assessed whether the carrying amounts of the Company’s long-lived assets may not be recoverable and, therefore, impaired. Our assessment resulted in an impairment charge of $1 million, primarily related to client relationships related to a subset of consulting related services the Company expects to not be a core part of its business going forward. The charge was calculated using the asset’s salvage value as it was considered no longer held for use.

The fair value of our reporting unit and intangible assets is subjective in nature and involves the use of significant estimates and assumptions, particularly related to future operating results and cash flows. These estimates and assumptions include, but are not limited to, revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, and future economic and market conditions. If we do not achieve our forecasts or the Company’s share price declines further, it is possible the goodwill of the Company could be deemed to be impaired again in a future period.

The risks and potential impacts on the fair value of our goodwill and long-lived assets are included in our risk factor disclosures referenced under “Item 1A. Risk Factors” in the Company’s Quarterly Report on Form 10-Q for the quarter ended October 31, 2023.

Liquidity, ~~and~~ Capital Resources, and Going Concern

The Company’s liquidity is dependent upon numerous factors including: (i) the timing and amount of revenue and collection of contractual amounts from customers, (ii) amounts invested in research and development and capital expenditures, and (iii) the level of operating expenses, all of which can vary significantly from quarter to quarter. The Company’s primary cash requirements include regular payment of payroll and other business expenses, principal and interest payments on debt and capital ~~expenditures. Capital~~ expenditures, which generally include computer ~~hardware and computer software to support internal development efforts or SaaS data center infrastructure.~~hardware. Operations are funded with cash generated by operations and borrowings under credit facilities. Information concerning the Company’s assessment as a going concern is included in Note 1 – Basis of Presentation in our unaudited condensed consolidated financial statements included in Part I, Item I, “Financial Statements”. Cash and cash equivalent balances at October 31, 2023 and January 31, 2023 were approximately $2,557,000 and $6,598,000, respectively.

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 ~~(the “2022 Offering”)~~ $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 $8.3 million. 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.

On May 24, 2021, the Company amended its Certificate of Incorporation, as amended, to increase the total number of authorized shares of the Company’s common stock from 45,000,000 shares to 65,000,000 shares (the “Charter Amendment”). The Charter Amendment was initially approved by the board of directors of the Company, subject to stockholder approval, approved by the Company’s stockholders at the 2021 Annual Meeting of Stockholders of the Company, held on May 20, 2021 (the “2021 Annual Meeting”), and ratified by the Company’s stockholders on July 29, 2021 at the Special Meeting (as defined and described in further detail below).

Also, at the 2021 Annual Meeting, the Company’s stockholders approved an amendment to the Streamline Health Solutions, Inc. Third Amended and Restated 2013 Stock Incentive Plan to increase the number of shares of the Company’s common stock authorized for issuance thereunder by 2,000,000 shares, from 6,223,246 shares to 8,223,246 shares (the “Third Amended 2013 Plan Amendment”).

As described in the Company’s definitive proxy statement on Schedule 14A filed with the SEC on July 6, 2021, because there may have been uncertainty regarding the validity or effectiveness of the prior approval of the Charter Amendment, the authorized shares increase effected thereby and the Third Amended 2013 Plan Amendment at the Annual Meeting, the board of directors of the Company asked the Company’s stockholders to ratify the approval, filing and effectiveness of the Charter Amendment and the approval and effectiveness of the Third Amended 2013 Plan Amendment at a special meeting of the stockholders held on July 29, 2021 in order to eliminate such uncertainty (the “Special Meeting”). At the Special Meeting, the Company’s stockholders ratified the approval, filing and effectiveness of the Charter Amendment and the approval and effectiveness of the Third Amended 2013 Plan Amendment.

On October 24, 2022, the Company entered into purchase agreements (collectively, the “Purchase Agreements”) with purchasers named therein (the “Purchasers”), pursuant to which the Company agreed to issue and sell in a registered direct 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 “2022 Offering”). The gross proceeds to the Company from the 2022 Offering were approximately $8.3 million. The Company intends to use the proceeds of the Offering for general corporate purposes. The 2022 Offering closed on October 26, 2022.

The Company has liquidity through the Second Amended and Restated Loan ~~and Security~~ Agreement described in more detail in Note 5 – Debt in our unaudited condensed consolidated financial statements included in Part I, Item I, “Financial Statements”. The Company has a term loan facility with an initial, maximum, principal amount of $10,000,000. Amounts outstanding under the Second Amended and Restated Loan ~~and Security~~ Agreement bear interest at a per annum rate equal to the Prime Rate (as published in The Wall Street Journal) plus 1.5%, with a Prime “floor” rate of 3.25%. ~~Pursuant to~~The Second Modification amended the covenants of the Second Amended and Restated Loan ~~and Security Agreement,~~Agreement. Refer to Note 5 – Debt for information regarding the ~~Company’s prior $3,000,000 revolving credit facility with Bridge Bank was terminated.~~Second Modification. At ~~the time of the discontinuance,~~October 31, 2023, there was no$500,000 outstanding ~~balance~~ on the revolving ~~credit facility.~~line of credit.

The Second Amended and Restated Loan ~~and Security~~ Agreement includes customary financial covenants, including the requirements that the Company achieve certain EBITDA levels and fixed coverage ratios and maintain certain cash balances and certain recurring revenue levels. The Second Amended and Restated Loan ~~and Security~~ Agreement also includes customary negative covenants, subject to exceptions, which limit transfers, capital expenditures, indebtedness, certain liens, investments, acquisitions, dispositions of assets, restricted payments, and the business activities of the Company, as well as customary representations and warranties, affirmative covenants and events of default, including cross defaults and a change of control default. As of October 31, ~~2022,~~2023, the Company was in compliance with all debt covenants under the Second Amended and Restated Loan ~~and Security~~ Agreement. The Company is forecasted to miss certain future covenants. See Note 1 – Basis of Presentation for detail regarding the Company’s assessment as a Going Concern.

On November 29, 2022, we executed a Second Modification to the Second Amended and Restated Loan Agreement (“Second Modification Debt Agreement”). The Second Modification Debt Agreement includes an expansion of the Company’s total borrowing to include a $2 million revolving line of credit. This is a committed revolving line that can be drawn at anytime as long as we are not in breach of the debt agreement. The revolving line of credit is co-terminus with the term loan, August 26, 2026. The Second Modification Debt Agreement also includes new covenants through the term. See Item 1, Note 11 - Subsequent Events, for more discussion on the Second Modification Debt Agreement. The Second Modification Debt Agreement increases the borrowing capacity of the Company through a non-formula revolving line of credit of $2,000,000.

On November 22, 2022, we paid the first year earnout payment to the selling shareholders of Avelead in accordance with the Unit Purchase Agreement See Item 1, Note 3 – Business Acquisition and Divestiture. The Company issued cash payments of $2,012,000 and restricted common stock, $0.01 par value, of 1,243,291 for the SaaS Contingent Consideration and 627,746 for the Renewal Contingent Consideration. The estimated aggregate value of the first year earnout is $4,000,000 for the SaaS Contingent Consideration and $1,000,000 for the Renewal Contingent Consideration. The Company has a second earnout due under the Unit Purchase Agreement due on or about October 2023. These liabilities are reflected at the net present value of the future commitment on the Company’s balance sheet, as Acquisition Earnout Liability.

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 these financial statements. Cash and cash equivalent balances at October 31, 2022 and January 31, 2022 were approximately $11,699,000 and $9,885,000 respectively. Continued expansion may require the Company to take on additional debt or raise capital through the issuance of additional equity securities, or a combination of both. There can be no assurance the Company will be able to obtain the capital required to fund further expansion.

The Company has cash on its balance sheet of $11,699,000 at October 31, 2022. The Company believes that its cash on-hand, along with the term debt and new revolving credit line is sufficient to support its operations until it is able to generate cash from operations.

Significant cash obligations

(in thousands)	October 31, 2022		January 31, 2022		October 31, 2023		January 31, 2023
Term loan (1)	$	9,839	$	9,904	$	9,292	$	9,714
Acquisition earnout liability (2)						1,833		3,738
Restructuring severance (3)						731		—
Line of credit (4)						500		—

(1)	Term loan balance is reported net of deferred financing costs of ~~$93,000~~$78,000 and ~~$117,000~~$105,000 as of October 31, ~~2022,~~2023 and January 31, ~~2022,~~2023, respectively, and financing cost payable of ~~$57,000~~$120,000 and ~~$21,000~~$69,000 as of October 31, ~~2022~~2023 and January 31, 2022, respectively. Refer to Note 5 -– Debt for additional information. The term loan payable as of October 31, ~~2022~~2023 and January 31, ~~2022~~2023 was bank term debt under the Second Amended and Restated Loan Agreement.

(2)	The fair value of the acquisition earnout liability is based upon a probability-weighted discounted cash flow as of October 31, 2023 and ~~Security~~January 31, 2023, respectively. The second year earnout is expected to be paid during the quarterly period ending January 31, 2024, subject to a dispute and resolution process. Refer to Note 3 — Business Combination.

(3)	Refer to the “Restructuring” section of Note 2 – Summary of Significant Accounting Policies. The outstanding severance payable balance was related to the recent restructuring.

(4)	Refer to Note 5 – Debt for additional information. The outstanding balance of the line of credit as of October 31, 2023 was related to the Second Amended and Restated Loan Agreement. ~~The Company’s PPP loan was forgiven in June 2021.~~

Operating cash flow activities

	Nine months Ended						Nine months Ended
(in thousands)	October 31, 2022			October 31, 2021			October 31, 2023			October 31, 2022
Net loss from continuing operations	$	(9,197	)	$	(6,913	)	$	(17,327	)	$	(9,197	)
Non-cash adjustments to net loss		4,317			2,379			13,657			4,317
Cash impact of changes in assets and liabilities		159			512			1,509			159
Net cash used in operating activities	$	(4,721	)	$	(4,022	)	$	(2,161	)	$	(4,721	)

The net cash used in operating activities improved during the nine months ended October 31, 2023 compared with the prior year comparable period. This improvement was a higher ~~use~~cash impact of changes in operating assets and liabilities, driven by a decrease in accounts and contract receivables as a result of the timing of cash ~~from operating activities is due to~~payments received, and a decrease in both deferred revenue and accrued expense for the ~~higher~~period ended October 31, 2023. Both the net loss from continuing operations and the non-cash adjustments to net loss for the nine months ended October 31, ~~2022. The Company had a higher net loss from operations~~2023 include impairment of long-lived assets of $963,000 and ~~higher non-cash adjustments to net loss primarily due to higher rates~~impairment of ~~amortization associated with the Avelead acquisition. For the nine months ended October 31, 2021, a non-cash adjustment for forgiveness~~goodwill of ~~the PPP loan in the amount of $2,301,000 and accrued interest of $26,000 is included.~~$9,813,000.

Investing cash flow activities

	Nine months Ended						Nine months Ended
(in thousands)	October 31, 2022			October 31, 2021			October 31, 2023			October 31, 2022
Investment in Avelead, net of cash	$	—		$	(12,354	)
Purchases of property and equipment		(10	)		(18	)	$	(47	)	$	(10	)
Proceeds from sale of ECM Assets		—			800
Capitalized software development costs		(1,435	)		(1,048	)		(1,562	)		(1,435	)
Net cash used in investing activities	$	(1,445	)	$	(12,620	)	$	(1,609	)	$	(1,445	)

The cash used in investing activities for the nine months ended October 31, ~~2022~~2023 and October 31, ~~2021,~~2022, includes capitalized software development costs. ~~The Company expects increased capitalizable projects associated with the acquisition~~Capitalization of ~~Avelead, plus ongoing expansion of work with development partners on eValuator. Refer~~costs is expected to ~~Note 3 – Business Combination and Divestiture for more information on Avelead.~~ ~~The cash used in investing activities~~begin to decrease for the ~~nine months ended October 31, 2021 included the cash used to acquire Avelead and capitalized software development costs, off-set by the release~~remainder of ~~escrowed funds in~~ fiscal ~~2021 from the sale~~year 2023 as a result of the ~~ECM Assets. Refer to Note 9 – Discontinued Operations for more information on the sale of the ECM Assets.~~recently announced strategic restructuring. See discussion and analysis in “Research and development costs” above.

Financing cash flow activities

	Nine months Ended						Nine months Ended
(in thousands)	October 31, 2022			October 31, 2021			October 31, 2023			October 31, 2022
Repayment of term loan payable							$	(500	)	$	(125	)
Proceeds from line of credit								500			—
Proceeds from issuance of common stock	$	8,316		$	16,100			—			8,316
Payments for costs directly attributable to the issuance of common stock		(52	)		(1,313	)		—			(52	)
Proceeds of term loan payable		—			10,000
Repayment of term loan payable		(125	)		—
Payments related to settlement of employee shared based awards		(165	)		(380	)
Payment for deferred financing costs		—			(168	)
Payments related to settlement of employee share-based awards							$	(271	)	$	(165	)
Other		6			(3	)	$	—		$	6
Net cash provided by financing activities	$	7,980		$	24,236
Net cash (used in) provided by financing activities							$	(271	)	$	7,980

The cash used in financing activities in the nine months ended October 31, 2023, and October 31, 2022, includes principal payments on the term loan related to the Second Amended and Restated Loan Agreement and payments related to settlement of employee share-based awards. The Company received proceeds from the line of credit related to the Second Amended and Restated Loan Agreement for the nine months ended October 31, 2023. The cash provided by financing activities in the nine months ended October 31, 2022 was a result of the 2022 Offering of the Company’s common stock, which closed on October 26, 2022. Refer to Note 7 – Equity for additional information. The cash provided by financing activities in the nine months ended October 31, 2021, was received in the 2021 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 the Second Amended Loan and Security Agreement entered into on August 26, 2021. Refer to Note 5 – Debt for additional information.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, we are not required to provide this information.

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our President and Chief Executive Officer (who serves as our principal executive officer) and our ~~Senior Vice President and~~Interim Chief Financial Officer (who serves as our principal financial officer) have evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of October 31, ~~2022.~~2023. Based on that evaluation, our President and Chief Executive Officer and ~~Senior Vice President and~~our Interim Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of October 31, ~~2022.~~2023.

Changes in Internal Control over Financial Reporting

On August 16, 2021, the Company completed the acquisition of Avelead (Refer to Note 3 – Business Combination and Divestiture in our unaudited condensed consolidated financial statements included in Part I, Item I, “Financial Statements” for further information on the Avelead acquisition). In accordance with the general guidance issued by the staff of the SEC, Avelead was excluded from the scope of management’s report on internal control over financial reporting for the year ending January 31, 2022. As part of the ongoing integration of Avelead, we are in the process of incorporating the controls and related procedures. However, thereThere were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended October 31, ~~2022~~2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In connection with the acquisition, we have performed additional analyses and other procedures to enable management to conclude that our condensed consolidated financial statements included in this report fairly, in all material respects, our financial condition and results of operations as of and for the nine months ended October 31, 2022.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

We are, from time to time, a party to various legal proceedings and claims, which arise in the ordinary course of business. We 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 1A. RISK FACTORS

An investment in our common stock or other securities involves a number of risks. You should carefully consider each of the risks described in our Annual Report on Form 10-K for the fiscal year ended January 31, ~~2022~~2023 which Annual Report includes a detailed discussion of the Company’s risk factors. There have been no material changes to the risk factors as disclosed in our Annual Report. Nevertheless, many of the risk factors disclosed in Item 1A of our Annual Report have been, and we expect will continue to be aggravated by the impact of the ongoing COVID-19 pandemic. If any of the risks develop 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.

Except as described below, there have been no material changes to the risk factors disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 31, 2023.

We may not be able to generate sufficient cash flows or raise additional debt and equity capital to fund our ongoing operations. We will need to raise additional funding, which may not be available on acceptable terms, if at all. If we are unable to raise additional capital in amounts and on terms sufficient to fund our ongoing operations, our lack of additional capital and results of operations could limit our ability to continue operations.

Our ability to continue as a going concern is dependent upon generating sufficient cash flow from operations and obtaining additional debt and equity financing. If our ability to generate cash flow from operations is curtailed or delayed, our financial condition and results of operations could be materially impacted. We have been dependent on sales of our equity securities and debt financing to meet our ongoing cash requirements. There can be no assurances that we would be able to obtain debt or equity financing when needed, on terms acceptable to the Company, or at all, and our failure to raise additional capital in amounts and on terms sufficient to fund our operations could limit our ability to continue operations.

If we do not meet the continued listing standards of The Nasdaq Capital Market, our common stock could be delisted from trading, which could limit investors’ ability to make transactions in our common stock and subject us to additional trading restrictions.

Our common stock is currently listed on The Nasdaq Capital Market which imposes continued listing requirements with respect to listed shares. On October 24, 2023, we received a letter from the Listing Qualifications Department of Nasdaq, indicating that our common stock was subject to potential delisting from The Nasdaq Capital Market because, for a period of thirty (30) consecutive business days, the bid price of our common stock had closed below the minimum $1.00 per share requirement for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Requirement”). Nasdaq stated in its letter that in accordance with the Nasdaq Listing Rules, we have been provided an initial period of one hundred eighty (180) calendar days, or until April 22, 2024, to regain compliance with the Bid Price Requirement. The letter states that Nasdaq will provide written notification that we have achieved compliance with the Bid Price Requirement if at any time before April 22, 2024, the bid price of our common stock closes at $1.00 per share or more for a minimum of ten (10) consecutive business days.

If we fail to regain compliance by April 22, 2024, we may be eligible for an additional one hundred eighty (180) calendar day compliance period to demonstrate compliance with the Bid Price Requirement. To qualify for the additional one hundred eighty (180) day period, we will be required to meet the continued listing requirement for market value of publicly held shares set forth in Nasdaq Listing Rule 5550(a) and all other listing standards for The Nasdaq Capital Market set forth in Nasdaq Listing Rule 5505, with the exception of the Bid Price Requirement, and will need to provide written notice to Nasdaq to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary. If we do not qualify for the second compliance period or we fail to regain compliance during the second one hundred eighty (180)-day period, then Nasdaq will notify us of its determination to delist our common stock, at which we would have an opportunity to appeal the delisting determination to a Hearings Panel.

In the event that our common stock is delisted from The Nasdaq Capital Market and is not eligible for quotation or listing on another market or exchange, trading of our common stock could be conducted only in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. In such event, it could become more difficult to dispose of, or obtain accurate price quotations for, our common stock, and there would likely also be a reduction in our coverage by securities analysts and the news media, which could cause the price of our common stock to decline further. Also, it may be difficult for us to raise additional capital if we are not listed on a major exchange.

Such a delisting would also likely have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so. In the event of a delisting, we may take actions to restore our compliance with The Nasdaq Capital Market listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the Bid Price Requirement or prevent future non-compliance with The Nasdaq Capital Market listing requirements.

If our goodwill or other intangible assets become impaired, our results of operations and capitalization could be negatively impacted.

We have significant intangible assets, including goodwill and other long-lived assets, which are susceptible to valuation adjustments as a result of changes in various factors or conditions. Whenever events or changes in circumstances indicate that the carrying value may not be recoverable, we will be required to assess the potential impairment of goodwill and other intangible assets. Factors that could trigger an impairment of such assets include, but are not limited to, (i) changes in our organization or management reporting structure that could result in additional reporting units, which may require alternative methods of estimating fair values or greater disaggregation or aggregation in our analysis by reporting unit; (ii) under performance relative to historical or projected future operating results; (iii) changes in the strategy for our overall business; (iv) negative industry or economic trends; (v) decline in our stock price for a sustained period; and (vi) our market capitalization declining to below net book value.

For the fiscal quarter ended October 31, 2023, the Company recorded (i) a goodwill impairment charge of $9,813,000 as a result of the impairment analysis in connection with the significant decline in the Company’s share price that was in response to the Company announcing acceleration of a strategic restructure plus a significant SaaS client notice to terminate as of December 31, 2023 and (ii) an impairment on finite-lived assets of $963,000 due to the Company’s conclusion that its Customer Relationships (Consulting) asset was considered abandoned and therefore fully impaired under ASC 360 as of October 31, 2023. Future adverse changes in these or other unforeseeable factors could result in additional impairment charges that would negatively impact our results of operations and financial position in the reporting period identified.

Item 2. Unregistered Sales of Equity Securities, ~~and~~ Use of Proceeds, AND ISSUER PURCHASES OF EQUITY SECURITIES

During the three months ended October 31, ~~2022,~~2023, the Company issued to 180 Consulting an aggregate of ~~53,836~~131,054 shares of common stock as compensation for services previously rendered during the three months ended July 31, ~~2022.~~2023. Such shares were issued pursuant to the Master Services Agreement, effective March 19, 2020, by and between the Company and 180 Consulting and related statements of work. The 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 and the certificate representing such shares has a legend imprinted on it stating that the shares have not been registered under the Securities Act and cannot be transferred until properly registered under the Securities Act or pursuant to an exemption from such registration.

3732

The following table sets forth information with respect to our repurchases of common stock during the three months ended October 31, ~~2022:~~2023:

Total Maximum
Number of Number
Shares of Shares
Purchased that May
Total as Part of Yet Be
Number of Publicly Purchased
Shares Average Announced under the
Purchased Price Paid Plans or Plans or
(1) per Share Programs Programs
August 1 - August 31 14,472 $ 1.63 — —
September 1 - September 30 — — — —
October 1 - October 31 — — — —
Total 14,472 $ 1.63 — —

Total

Maximum

Number of

Number

of Shares

Purchased

that May

Total

as Part of

Yet Be

Number of

Publicly

Purchased

Average

Announced

under the

Purchased

Price Paid

Plans or

(1)

per Share

Programs

Aug 1 - Aug 31

—

Sep 1 - Sep 30

4,923

0.95

—

Oct 1 - Oct 31

33,112

0.43

—

Total

38,035

0.50

—

(1)	Amount represents shares surrendered by employees to satisfy tax withholding obligations resulting from restricted stock that vested during the three months ended October 31, ~~2022.~~2023.

Item 5. OTHER INFORMATION

During the three months ended October 31, 2023, none of our directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended) adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933).

Item 6. EXHIBITS

See Index to Exhibits.

INDEX TO EXHIBITS

Exhibit No.		Description of Exhibit
3.1		Certificate of Incorporation of Streamline Health Solutions, Inc. f/k/a LanVision Systems, Inc., as amended through August 19, 2014 (Incorporated by reference from Exhibit 3.1 of the Quarterly Report on Form 10-Q, filed September 15, 2014).
3.2		Certificate of Amendment of Certificate of Incorporation of Streamline Health Solutions, Inc. (Incorporated by reference from Exhibit 3.1 of the Current Report on Form 8-K, filed May 24, 2021).
3.3		Certificate of Amendment of Certificate of Incorporation of Streamline Health Solutions, Inc. (Incorporated by reference from Exhibit 3.1 of the Current Report on Form 8-K, filed June 8, 2022).
3.4		Bylaws of Streamline Health Solutions, Inc., as amended and restated through March 28, 2014 (Incorporated by reference from Exhibit 3.1 of the Current Report on Form 8-K, filed April 3, 2014).
10.1		~~Waiver of Second~~Amendment No. 3 to Streamline Health Solutions, Inc. Third Amended and Restated ~~Loan and Security Agreement,~~2013 Stock Incentive Plan, dated ~~August 26, 2022, by and among the Company, Streamline Health, LLC, Streamline Pay & Benefits, LLC, Avelead Consulting, LLC, Streamline Consulting Solutions, LLC and Western Alliance Bank~~June 15, 2023 (Incorporated by reference from ~~Exhibit 10.2~~Appendix B to the Company’s Definitive Proxy Statement, dated May 11, 2023, for the Company’s 2023 Annual Meeting of ~~the Quarterly Report on Form 10-Q, filed September 8, 2022)~~Stockholders).
10.2		~~Form of Common Stock Purchase~~Employment Agreement, dated as of October 24, 2022, by and among Streamline Health Solutions, Inc. and the purchasers thereto (Incorporated by reference from Exhibit 10.1 of the Current Report on Form 8-K, filed October 27, 2022).
~~10.3~~		~~Second Modification to Second Amended and Restated Loan and Security Agreement, dated November 29, 2022,~~December 4, 2023, by and between ~~Streamline Health Solutions, Inc.~~Company and ~~certain of its subsidiaries party thereto, and Western Alliance Bank (Incorporated by reference from Exhibit 10.1 of the Current Report on Form 8-K, filed December 5, 2022).~~Bryant James Reeves
31.1*		Certification by President and Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act.
31.2*		Certification by Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act.
32.1*		Certification by President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350.
32.2*		Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
101.INS*		INLINE XBRL INSTANCE DOCUMENT
101.SCH*		INLINE XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
101.CAL*		INLINE XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
101.DEF*		INLINE XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
101.LAB*		INLINE XBRL TAXONOMY EXTENSION LABELS LINKBASE
101.PRE*		INLINE XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE
104*		COVER PAGE INTERACTIVE DATA FILE (FORMATTED AS INLINE XBRL AND CONTAINED IN EXHIBIT 101)

*	Filed herewith.

Our SEC file number reference for documents filed with the SEC pursuant to the Securities Exchange Act of 1934, as amended, is 000-28132.

3834

SIGNATURES

Pursuant to the requirements 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.

DATE: December ~~15, 2022~~14, 2023	By:	/s/ ~~WYCHE T. “TEE” GREEN, III~~Benjamin L. Stilwill
		~~Wyche T. “Tee” Green, III~~Benjamin L. Stilwill President and Chief Executive Officer

DATE: December ~~15, 2022~~14, 2023	By:	/s/ ~~Thomas~~Bryant J. ~~Gibson~~Reeves III
		~~Thomas~~Bryant J. ~~Gibson~~Reeves III
		Interim Chief Financial Officer

3935

		1			2			3			4
	Three Months Ended						Nine Months Ended
	October 31, 2022			October 31, 2021			October 31, 2022			October 31, 2021
Basic earnings (loss) per share:
Continuing operations
Loss from continuing operations, net of tax	$	(3,138,000	)	$	(4,379,000	)	$	(9,197,000	)	$	(6,913,000	)
Basic net loss per share of common stock from continuing operations	$	(0.07	)	$	(0.10	)		(0.19	)		(0.17	)

Discontinued operations
Income available to common stockholders from discontinued operations	$	—		$	69,000			—			401,000
Basic net earnings per share of common stock from discontinued operations	$	—		$	—		$	—		$	0.01

Diluted earnings (loss) per share:
Continuing operations
Loss available to common stockholders from continuing operations	$	(3,138,000	)	$	(4,379,000	)		(9,197,000	)		(6,913,000	)
Diluted net loss per share of common stock from continuing operations	$	(0.07	)	$	(0.10	)		(0.19	)		(0.17	)

Discontinued operations
Income available to common stockholders from discontinued operations	$	—		$	69,000			—			401,000
Diluted net earnings per share of common stock from discontinued operations	$	—		$	—		$	—		$	0.01

Net loss	$	(3,138,000	)	$	(4,310,000	)	$	(9,197,000	)	$	(6,512,000	)
Weighted average shares outstanding - Basic (1)		47,730,009			45,709,952			47,329,923			41,498,873
Effect of dilutive securities - Stock options and Restricted stock (2)		413,810			353,851			283,654			496,393
Weighted average shares outstanding – Diluted		48,143,819			46,063,803			47,613,577			41,995,266
Basic net loss per share of common stock	$	(0.07	)	$	(0.10	)	$	(0.19	)	$	(0.16	)
Diluted net loss per share of common stock	$	(0.07	)	$	(0.10	)	$	(0.19	)	$	(0.16	)

(in thousands)
Components of total consideration, net of cash acquired:
Cash	$	11,900
Cash, seller expenses		285
Cash, estimated net working capital adjustment		285
Restricted Common Stock		6,554
Acquisition earnout liabilities		10,684	(a)
Total consideration	$	29,708

(in thousands)
Net tangible assets (liabilities):
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 (liabilities)		(89	)
Goodwill		12,377
Customer Relationships (SaaS)		8,370
Customer Relationships (Consulting)		1,330
Internally Developed Software		6,380
Trademarks and Tradenames		1,340
Net assets acquired and liabilities assumed	$	29,708

	Three Months ended October 31, 2021						Nine Months ended October 31, 2021
	Actual			Pro Forma			Actual			Pro Forma
Revenues	$	5,514		$	6,064		$	11,333		$	16,585
Loss from continuing operations	$	(4,379	)	$	(4,763	)	$	(6,913	)	$	(8,665	)