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, 2017
OR
☐ | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
__________ toCommission 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 30309
(Address of principal executive offices) (Zip Code)
(888)997-8732
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(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
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, 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. (Check one):
Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer ☒ | Smaller reporting company ☒ | |||
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares outstanding of the Registrant’s Common Stock, $.01$0.01 par value per share, as of November 30, 2017:
TABLE OF CONTENTS
2 |
PART I. FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
STREAMLINE HEALTH SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of | |||||||
October 31, 2017 | January 31, 2017 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 1,892,182 | $ | 5,654,093 | |||
Accounts receivable, net of allowance for doubtful accounts of $301,773 and $198,449, respectively | 2,532,941 | 4,489,789 | |||||
Contract receivables | 283,973 | 466,423 | |||||
Prepaid hardware and third-party software for future delivery | 5,858 | 5,858 | |||||
Prepaid client maintenance contracts | 587,960 | 595,633 | |||||
Other prepaid assets | 837,649 | 732,496 | |||||
Other current assets | 392,449 | 439 | |||||
Total current assets | 6,533,012 | 11,944,731 | |||||
Non-current assets: | |||||||
Property and equipment: | |||||||
Computer equipment | 2,971,361 | 3,110,274 | |||||
Computer software | 725,700 | 827,642 | |||||
Office furniture, fixtures and equipment | 683,443 | 683,443 | |||||
Leasehold improvements | 729,348 | 729,348 | |||||
5,109,852 | 5,350,707 | ||||||
Accumulated depreciation and amortization | (3,762,821 | ) | (3,447,198 | ) | |||
Property and equipment, net | 1,347,031 | 1,903,509 | |||||
Capitalized software development costs, net of accumulated amortization of $18,119,290 and $16,544,797, respectively | 4,346,694 | 4,584,245 | |||||
Intangible assets, net of accumulated amortization of $6,729,799 and $5,807,338, respectively | 6,074,137 | 6,996,599 | |||||
Goodwill | 15,537,281 | 15,537,281 | |||||
Other | 677,319 | 672,133 | |||||
Total non-current assets | 27,982,462 | 29,693,767 | |||||
$ | 34,515,474 | $ | 41,638,498 |
(rounded to the nearest thousand dollars, except share and per share information)
October 31, 2023 | January 31, 2023 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 2,557,000 | $ | 6,598,000 | ||||
Accounts receivable, net of allowance for credit losses of $94,000 and $132,000, respectively | 3,653,000 | 7,719,000 | ||||||
Contract receivables | 763,000 | 960,000 | ||||||
Prepaid and other current assets | 742,000 | 710,000 | ||||||
Total current assets | 7,715,000 | 15,987,000 | ||||||
Non-current assets: | ||||||||
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 | 13,276,000 | 23,089,000 | ||||||
Other | 1,293,000 | 1,695,000 | ||||||
Total non-current assets | 33,390,000 | 45,534,000 | ||||||
Total assets | $ | 41,105,000 | $ | 61,521,000 |
See accompanying notes to condensed consolidated financial statements.
3 |
STREAMLINE HEALTH SOLUTIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) | |||||||
As of | |||||||
October 31, 2017 | January 31, 2017 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 807,778 | $ | 1,116,525 | |||
Accrued compensation | 593,510 | 496,706 | |||||
Accrued other expenses | 587,209 | 484,391 | |||||
Current portion of term loan | 596,984 | 655,804 | |||||
Deferred revenues | 6,130,259 | 9,916,454 | |||||
Current portion of capital lease obligations | — | 91,337 | |||||
Total current liabilities | 8,715,740 | 12,761,217 | |||||
Non-current liabilities: | |||||||
Term loan, net of deferred financing cost of $146,009 and $199,211, respectively | 4,032,865 | 4,883,286 | |||||
Warrants liability | 150,857 | 46,191 | |||||
Royalty liability | 2,456,233 | 2,350,754 | |||||
Lease incentive liability | 293,322 | 339,676 | |||||
Deferred revenues, less current portion | 487,832 | 568,515 | |||||
Total non-current liabilities | 7,421,109 | 8,188,422 | |||||
Total liabilities | 16,136,849 | 20,949,639 | |||||
Series A 0% Convertible Redeemable Preferred Stock, $.01 par value per share, $8,849,985 redemption value, 4,000,000 shares authorized, 2,949,995 shares issued and outstanding, net of unamortized preferred stock discount of $0 | 8,849,985 | 8,849,985 | |||||
Stockholders’ equity: | |||||||
Common stock, $.01 par value per share, 45,000,000 shares authorized; 19,984,743 and 19,695,391 shares issued and outstanding, respectively | 199,847 | 196,954 | |||||
Additional paid in capital | 81,491,728 | 80,667,771 | |||||
Accumulated deficit | (72,162,935 | ) | (69,025,851 | ) | |||
Total stockholders’ equity | 9,528,640 | 11,838,874 | |||||
$ | 34,515,474 | $ | 41,638,498 |
October 31, 2023 | January 31, 2023 | |||||||
(Unaudited) | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 736,000 | $ | 626,000 | ||||
Accrued expenses | 2,883,000 | 3,265,000 | ||||||
Current portion of term loan | 1,250,000 | 750,000 | ||||||
Deferred revenues | 5,983,000 | 8,361,000 | ||||||
Current portion of operating lease obligation | — | 35,000 | ||||||
Acquisition earnout liability | 1,833,000 | 3,738,000 | ||||||
Total current liabilities | 12,685,000 | 16,775,000 | ||||||
Non-current liabilities: | ||||||||
Term loan, net of current portion and deferred financing costs | 8,042,000 | 8,964,000 | ||||||
Line of credit | 500,000 | — | ||||||
Deferred revenues, less current portion | 127,000 | 167,000 | ||||||
Other non-current liabilities | — | 104,000 | ||||||
Total non-current liabilities | 8,669,000 | 9,235,000 | ||||||
Total liabilities | 21,354,000 | 26,010,000 | ||||||
Commitments and contingencies – Note 8 | - | - | ||||||
Stockholders’ equity: | ||||||||
Common stock, $ | par value per share, shares authorized; and shares issued and outstanding, respectively588,000 | 576,000 | ||||||
Additional paid in capital | 133,492,000 | 131,973,000 | ||||||
Accumulated deficit | (114,329,000 | ) | (97,038,000 | ) | ||||
Total stockholders’ equity | 19,751,000 | 35,511,000 | ||||||
Total liabilities and stockholders’ equity | $ | 41,105,000 | $ | 61,521,000 |
See accompanying notes to condensed consolidated financial statements.
4 |
STREAMLINE HEALTH SOLUTIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended October 31 | Nine Months Ended October 31 | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenues: | |||||||||||||||
Systems sales | $ | 348,526 | $ | 314,218 | $ | 1,055,941 | $ | 2,190,256 | |||||||
Professional services | 801,771 | 630,961 | 1,793,618 | 1,869,656 | |||||||||||
Audit services | 280,025 | 234,347 | 919,485 | 234,347 | |||||||||||
Maintenance and support | 3,250,229 | 3,749,596 | 9,883,563 | 11,237,637 | |||||||||||
Software as a service | 1,718,748 | 1,706,366 | 4,586,532 | 5,144,876 | |||||||||||
Total revenues | 6,399,299 | 6,635,488 | 18,239,139 | 20,676,772 | |||||||||||
Operating expenses: | |||||||||||||||
Cost of systems sales | 434,138 | 663,148 | 1,596,988 | 2,080,263 | |||||||||||
Cost of professional services | 555,815 | 723,358 | 1,814,236 | 1,891,146 | |||||||||||
Cost of audit services | 404,280 | 595,575 | 1,236,358 | 595,575 | |||||||||||
Cost of maintenance and support | 667,307 | 790,291 | 2,241,969 | 2,483,462 | |||||||||||
Cost of software as a service | 289,503 | 450,695 | 914,711 | 1,390,308 | |||||||||||
Selling, general and administrative | 2,819,549 | 3,212,350 | 8,983,248 | 10,153,140 | |||||||||||
Research and development | 932,251 | 1,969,415 | 3,985,161 | 5,800,169 | |||||||||||
Total operating expenses | 6,102,843 | 8,404,832 | 20,772,671 | 24,394,063 | |||||||||||
Operating income (loss) | 296,456 | (1,769,344 | ) | (2,533,532 | ) | (3,717,291 | ) | ||||||||
Other expense: | |||||||||||||||
Interest expense | (113,078 | ) | (98,871 | ) | (360,723 | ) | (380,897 | ) | |||||||
Miscellaneous expense | (177,282 | ) | (60,555 | ) | (235,007 | ) | (39,089 | ) | |||||||
Earnings (loss) before income taxes | 6,096 | (1,928,770 | ) | (3,129,262 | ) | (4,137,277 | ) | ||||||||
Income tax expense | (2,607 | ) | (1,702 | ) | (7,822 | ) | (5,104 | ) | |||||||
Net earnings (loss) | $ | 3,489 | $ | (1,930,472 | ) | $ | (3,137,084 | ) | $ | (4,142,381 | ) | ||||
Less: deemed dividends on Series A Preferred Shares | — | (72,710 | ) | — | (875,935 | ) | |||||||||
Net earnings (loss) attributable to common stockholders | $ | 3,489 | $ | (2,003,182 | ) | $ | (3,137,084 | ) | $ | (5,018,316 | ) | ||||
Basic net earnings (loss) per common share | $ | — | $ | (0.10 | ) | $ | (0.16 | ) | $ | (0.26 | ) | ||||
Number of shares used in basic per common share computation | 19,985,822 | 19,645,521 | 19,838,691 | 19,477,538 | |||||||||||
Diluted net earnings (loss) per common share | $ | — | $ | (0.10 | ) | $ | (0.16 | ) | $ | (0.26 | ) | ||||
Number of shares used in diluted per common share computation | 23,068,423 | 19,645,521 | 19,838,691 | 19,477,538 |
(rounded to the nearest thousand dollars, except share and per share information)
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 | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
Weighted average number of common shares – basic and diluted |
See accompanying notes to condensed consolidated financial statements.
5 |
STREAMLINE HEALTH SOLUTIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended October 31 | |||||||
2017 | 2016 | ||||||
Operating activities: | |||||||
Net loss | $ | (3,137,084 | ) | $ | (4,142,381 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||
Depreciation | 595,866 | 895,438 | |||||
Amortization of capitalized software development costs | 1,574,493 | 2,146,374 | |||||
Amortization of intangible assets | 922,462 | 976,338 | |||||
Amortization of other deferred costs | 229,780 | 192,947 | |||||
Valuation adjustment for warrants liability | 104,666 | (36,875 | ) | ||||
Share-based compensation expense | 844,960 | 1,342,513 | |||||
Other valuation adjustments | 124,423 | 120,912 | |||||
(Gain) loss on disposal of property and equipment | (14,871 | ) | 567 | ||||
Provision for accounts receivable | 181,859 | 136,693 | |||||
Changes in assets and liabilities, net of effects of acquisitions: | |||||||
Accounts and contract receivables | 1,957,439 | 1,679,810 | |||||
Other assets | (671,254 | ) | 130,875 | ||||
Accounts payable | (308,747 | ) | (78,320 | ) | |||
Accrued expenses | 134,324 | (814,707 | ) | ||||
Deferred revenues | (3,866,878 | ) | (3,793,603 | ) | |||
Net cash used in operating activities | (1,328,562 | ) | (1,243,419 | ) | |||
Investing activities: | |||||||
Purchases of property and equipment | (24,517 | ) | (501,148 | ) | |||
Capitalization of software development costs | (1,336,942 | ) | (1,420,678 | ) | |||
Payment for acquisition, net of cash received | — | (1,400,000 | ) | ||||
Net cash used in investing activities | (1,361,459 | ) | (3,321,826 | ) | |||
Financing activities: | |||||||
Principal repayments on term loan | (962,443 | ) | (2,243,624 | ) | |||
Principal payments on capital lease obligation | (91,337 | ) | (535,896 | ) | |||
Proceeds from exercise of stock options and stock purchase plan | 23,703 | 14,793 | |||||
Payments related to settlement of employee shared-based awards | (41,813 | ) | (11,702 | ) | |||
Net cash used in financing activities | (1,071,890 | ) | (2,776,429 | ) | |||
Net decrease in cash and cash equivalents | (3,761,911 | ) | (7,341,674 | ) | |||
Cash and cash equivalents at beginning of period | 5,654,093 | 9,882,136 | |||||
Cash and cash equivalents at end of period | $ | 1,892,182 | $ | 2,540,462 |
(rounded to the nearest thousand dollars, except share information)
Common stock (Shares) | Common stock (Amount) | Additional paid in capital | Accumulated deficit | Total stockholders’ equity | ||||||||||||||||
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 | 385,720 | 4,000 | (4,000 | ) | — | — | ||||||||||||||
Restricted stock forfeited | (77,000 | ) | (1,000 | ) | 1,000 | — | — | |||||||||||||
Surrender of shares | (50,060 | ) | — | (73,000 | ) | — | (73,000 | ) | ||||||||||||
Share-based compensation | — | — | 630,000 | — | 630,000 | |||||||||||||||
Net loss | — | — | — | (2,515,000 | ) | (2,515,000 | ) | |||||||||||||
Balance at July 31, 2023 | 58,895,071 | $ | 589,000 | $ | 132,933,000 | $ | (102,418,000 | ) | $ | 31,104,000 | ||||||||||
Restricted stock issued | 176,054 | 2,000 | (2,000 | ) | — | — | ||||||||||||||
Restricted stock forfeited | (239,100 | ) | (2,000 | ) | 2,000 | — | — | |||||||||||||
Surrender of shares | (38,035 | ) | (1,000 | ) | (18,000 | ) | — | (19,000 | ) | |||||||||||
Share-based compensation | — | — | 577,000 | — | 577,000 | |||||||||||||||
Net loss | — | — | — | (11,911,000 | ) | (11,911,000 | ) | |||||||||||||
Balance at October 31, 2023 | 58,793,990 | $ | 588,000 | $ | 133,492,000 | $ | (114,329,000 | ) | $ | 19,751,000 |
Common stock (Shares) | Common stock (Amount) | Additional paid in capital | Accumulated deficit | Total stockholders’ equity | ||||||||||||||||
Balance at January 31, 2022 | 47,840,950 | $ | 478,000 | $ | 119,225,000 | $ | (85,659,000 | ) | $ | 34,044,000 | ||||||||||
Restricted stock issued | 408,031 | 4,000 | (4,000 | ) | — | — | ||||||||||||||
Restricted stock forfeited | (63,900 | ) | — | — | — | — | ||||||||||||||
Surrender of shares | (95,701 | ) | (1,000 | ) | (140,000 | ) | — | (141,000 | ) | |||||||||||
Share-based compensation | — | — | 326,000 | — | 326,000 | |||||||||||||||
Net loss | — | — | — | (2,787,000 | ) | (2,787,000 | ) | |||||||||||||
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 | 118,836 | 1,000 | (1,000 | ) | — | — | ||||||||||||||
Restricted stock forfeited | (75,200 | ) | (1,000 | ) | 1,000 | — | — | |||||||||||||
Surrender of shares | (14,472 | ) | — | (24,000 | ) | — | (24,000 | ) | ||||||||||||
Share-based compensation | — | — | 555,000 | — | 555,000 | |||||||||||||||
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 | ) | |||||||||||||
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)
2023 | 2022 | |||||||
Nine months Ended October 31, | ||||||||
2023 | 2022 | |||||||
Net loss | $ | (17,327,000 | ) | $ | (9,197,000 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
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 | 1,626,000 | 1,212,000 | ||||||
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 | 4,299,000 | 492,000 | ||||||
Other assets | (65,000 | ) | (868,000 | ) | ||||
Accounts payable | 109,000 | (373,000 | ) | |||||
Accrued expenses and other liabilities | (417,000 | ) | 1,159,000 | |||||
Deferred revenue | (2,417,000 | ) | (251,000 | ) | ||||
Net cash used in operating activities | (2,161,000 | ) | (4,721,000 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (47,000 | ) | (10,000 | ) | ||||
Capitalization of software development costs | (1,562,000 | ) | (1,435,000 | ) | ||||
Net cash used in investing activities | (1,609,000 | ) | (1,445,000 | ) | ||||
Cash flows from financing activities: | ||||||||
Repayment of bank term loan | (500,000 | ) | (125,000 | ) | ||||
Proceeds from line of credit | 500,000 | — | ||||||
Proceeds from issuance of common stock | — | 8,316,000 | ||||||
Payments for costs directly attributable to the issuance of common stock | — | (52,000 | ) | |||||
Payments related to settlement of employee share-based awards | (271,000 | ) | (165,000 | ) | ||||
Other | — | 6,000 | ||||||
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 | 6,598,000 | 9,885,000 | ||||||
Cash and cash equivalents at end of period | $ | 2,557,000 | $ | 11,699,000 |
See accompanying notes to condensed consolidated financial statements.
7 |
STREAMLINE HEALTH SOLUTIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2017
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 & 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 services to help clients optimize their internal clinical documentation and coding functions, as well as implementation and consulting services to complement its software solutions. The Company’s software and services enable hospitals and integrated healthcare delivery systems in the United States and Canada to capture, store, manage, route, retrieve and process patient clinical, financial and other healthcare provider information related to the patient revenue cycle.
The accompanying unaudited Condensed Consolidated Financial Statementscondensed consolidated financial statements have been prepared by Streamline Health Solutions, Inc. (“we”, “us”, “our”, “Streamline”, or the “Company”),us pursuant to the rules and regulations applicable to quarterly reports on Form 10-Q of the U.S. Securities and Exchange Commission.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 ourthe Company’s management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Condensed Consolidated Financial Statementscondensed consolidated financial statements have been included. These Condensed Consolidated Financial Statementscondensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in ourthe Company’s most recent annual report on Form 10-K, Commission File Number 0-28132.10-K. Operating results for the three and nine months ended
The Company has one operating segment and one reporting unit due to the singular nature of our products, product development and distribution process, and client base as a provider of computer software-based solutions and services for acute-care healthcare providers.
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.
8 |
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 20162022 Annual Report on Form 10-K. Users of financial information for interim periods are encouraged to refer to the footnotesnotes 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 U.S. generally accepted accounting principles (“GAAP”)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 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, and expands disclosure about fair value measurements.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 basedmarket-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value based on the short-term maturity of these instruments. Cash and cash equivalents are classified as Level 1. There were no transfers of assets or liabilities between Levels 1, 2, or 3 during the nine months ended October 31, 2023 and 2022.
9 |
The carrying amounttable below provides information on the fair value of our long-term debt approximatesliabilities:
SCHEDULE OF FAIR VALUE OF LIABILITIES
Total Fair | Quoted Prices in Active Markets | Significant Other Observable Inputs | Significant Inputs | |||||||||||||
Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
At January 31, 2023 | ||||||||||||||||
Acquisition earnout liability (1) | $ | 3,738,000 | $ | — | $ | — | $ | 3,738,000 | ||||||||
At October 31, 2023 | ||||||||||||||||
Acquisition earnout liability (1) | $ | 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, 2023. The change in the fair value of the acquisition earnout liability decreased $1,182,000 and $1,905,000 for the three and nine months ended October 31, 2023, respectively. The change in the fair value is recognized in “Acquisition earnout valuation adjustments” in the accompanying condensed consolidated statement of operations. |
The fair value sinceof 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, 2023 and January 31, 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%, with a Prime “floor” rate of 3.25%. The prime rate is variable interest rates being paid on the amounts approximateand, thus accommodates changes in the market interest rate. However, the interest rate spread (the 1.5% added to the Prime Rate) is fixed. We estimated the impact of the changes in the interest rate spread by analogizing the effect of the change in the 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% from (i) the date we entered the 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, 2023, and end of the fiscal year, January 31, 2023. The fair value of the debt as of October 31, 2023 and January 31, 2023 was estimated to be $9,054,000 and $9,550,000, respectively, or a discount to book value of $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 $0, respectively, or a discount to book value of $12,000 and $0, respectively. Long-term debt is classified as Level 2.
Total Fair Value | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
At October 31, 2017 | |||||||||||||||
Warrants liability (1) | $ | 151,000 | $ | — | $ | — | $ | 151,000 | |||||||
Royalty liability (2) | 2,456,000 | — | — | 2,456,000 | |||||||||||
At January 31, 2017 | |||||||||||||||
Warrants liability (1) | $ | 46,000 | $ | — | $ | — | $ | 46,000 | |||||||
Royalty liability (2) | 2,351,000 | — | — | 2,351,000 |
Revenue Recognition
We derive revenue from the sale of internally-developed software, either by licensing for local installation or by software as a service (“SaaS”)SaaS delivery model, through ourthe Company’s direct sales force or through third-party resellers. Licensed, locally-installed clientscustomers on a perpetual model utilize ourthe 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 provided to help clients review their internal coding audit processes. Additional revenues are also derived from reselling third-party software and hardware components.
We recognize revenue in accordance with Accounting Standards Codification (ASC) 985-605,
10 |
Disaggregation of Revenue
The arrangement fees are fixed or determinable,following table provides information about disaggregated revenue by type and
SCHEDULE OF DISAGGREGATION OF REVENUE
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 the(i) over time and (ii) point in time revenue. The Company includes revenue until all the criteria have been met. Maintenance and support andcategories of (i) SaaS, agreements are generally non-cancelable or contain significant penalties for early cancellation, although clients 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 right of refund terms are required, revenue is recognized upon the satisfaction of such criteria, as applicable.
Contract Receivables and Deferred Revenues
The Company receives payments from customers based upon contractual billing schedules. Contract receivables include amounts related to the undelivered elements basedCompany’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 their VSOE and allocatean individual contract basis at the remainder to the proprietary perpetual software license fees.
Deferred costs (costs to fulfill a contract term. Typically, revenue recognition commences onceand contract acquisition costs)
The Company defers the client goes live on the system. Similar to proprietary license sales, pricing decisions rely on the relative size of the client purchasing the solution. The software portion of our Streamline Health® Coding & CDI
Contract acquisition costs, which consist of sales commissions paid or payable, are essential to the functionalityconsidered incremental and recoverable costs of perpetually licensed softwareobtaining a contract with a customer. Sales commissions for initial and renewal contracts are not considereddeferred and then amortized on a separate unit of accounting are recognized using the percentage-of-completion methodstraight-line basis over the professional service period.
As of October 31, 2023 and January 31, 2023, deferred commission costs paid and payable, which are sold with perpetually licensed software, we use VSOE of fair value basedincluded on the hourly rate charged when services are sold separately to determine fair valueconsolidated balance sheets within other non-current assets totaled $1,195,000 and $1,534,000, respectively, net of professional services. We typically sell professional services on an hourly or fixed fee basis. We monitor projects to assure thataccumulated amortization and impairment totaling $1,238,000 and $820,000, respectively. Amortization expense associated with deferred sales commissions, which is included in selling, general and administrative expense in the expectedcondensed consolidated statements of operations, was $129,000 and historical rate earned remains within a reasonable range to the established selling price.
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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 vesting period. Weservice 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 stock-basedshare-based awards of $290,000 and $432,000 for the three months ended October 31, 2017 and 2016, respectively, and $845,000 and $1,343,000 for the nine months ended October 31, 2023 of $ and $ , respectively, which includes $ and $ , respectively, of capitalized non-employee stock compensation, compared to share-based compensation expense of $ and $ , respectively, for the three and nine months ended October 31, 20172022. During third quarter of fiscal year 2023, the Company accelerated the vesting of approximately previously outstanding and 2016, respectively.
The fair value of the stock options granted isare estimated at the date of grant using a Black-Scholes option pricing model. The optionOption pricing model inputs (suchinput assumptions such as expected term, expected volatility and risk-free interest rate)rate impact the fair value estimate. Further, the forfeiture rate impacts the amount of aggregate compensation. 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) data.term). Future grants of equity awards accounted for as stock-basedshare-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 ourCompany common stock. The fair value of these awards is based on the market closing price per share on the dategrant date. For the three and nine months ended October 31, 2023, the Company issued and shares of grant. We expenserestricted common stock to employees, respectively, compared to and 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-year service period tothree-year period. For the Company. In thethree and nine months ended October 31, 2017, 32,033 2023, the Company issued and shares of restricted common stock were surrendered to the CompanyBoard of Directors, respectively, compared to satisfy tax withholding obligations totaling $42,000 in connection with the vestingand shares of restricted common stock awards. Shares surrendered byfor the restricted stock award recipients in accordance with the applicable plan are deemed canceled,three and therefore are not available to be reissued. In the nine months ended October 31, 2022, respectively. For the three and nine months ended October 31, 2017,2023, the Company awarded 220,337 issued and shares of restricted common stock to directorsconsultants, respectively, compared to and shares of restricted common stock for the Company.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basisbases 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, we considerthe Company considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. We establishThe 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.
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. We believe we haveThe Company believes it has appropriately accounted for any uncertain tax positions. The Company has recorded $262,000 and $263,000 in reserves for uncertain tax positions and corresponding interest and penalties as of October 31, 2017 and January 31, 2017, respectively.
The Company presents basic and diluted earnings per share (“EPS”) data for ourthe Company’s common stock. Basic EPS is calculated by dividing the net earnings (loss) attributable to common stockholders of the Company by the weighted average number of shares of common stock outstanding during the period. Diluted EPS is calculated based on the profit or loss attributable to common stockholders and the weighted average number of shares of common stock outstanding, adjusted for the effects of all potential dilutive common stock issuances related to options, unvested restricted stock, warrants and convertible preferred stock. Potential common stock dilution related to outstanding stock options, unvested restricted stock and warrants is determined using the treasury stock method, while potential common stock dilution related to Series A Convertible Preferred Stock is determined using the “if converted” method.
The Company’s unvested restricted stock awards are considered participatingnon-participating securities because they entitle holders are not entitled to non-forfeitable rights to dividends or dividend equivalents during the vesting term. The holders of the Series A Convertible Preferred Stock would be entitled to share in dividends, on an as-converted basis, if the holders of common stock were to receive dividends, other than dividends in the form of common stock. In accordance with ASC 260, a company is required to use the two-class method when computing EPS when a company has a security that qualifies as a “participating security.” The two-class method is an earnings allocation formula that determines EPS for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. In determining the amount of net earnings to allocate to common stockholders, earnings are allocated to both common and participating securities based on their respective weighted-average shares outstanding for the period. Diluted EPS for ourthe Company’s common stock is computed using the more dilutive of the two-class method or the if-convertedtreasury stock method.
12 |
Three Months Ended | |||||||
October 31, 2017 | October 31, 2016 | ||||||
Net earnings (loss) | $ | 3,489 | $ | (1,930,472 | ) | ||
Less: deemed dividends on Series A Preferred Stock | — | (72,710 | ) | ||||
Net earnings (loss) attributable to common stockholders | $ | 3,489 | $ | (2,003,182 | ) | ||
Weighted average shares outstanding used in basic per common share computations | 19,985,822 | 19,645,521 | |||||
Restricted stock and Series A Convertible Preferred Stock | 3,082,601 | — | |||||
Number of shares used in diluted per common share computation | 23,068,423 | 19,645,521 | |||||
Basic net earnings (loss) per share of common stock | $ | 0.00 | $ | (0.10 | ) | ||
Diluted net earnings (loss) per share of common stock | $ | 0.00 | $ | (0.10 | ) |
Nine Months Ended | |||||||
October 31, 2017 | October 31, 2016 | ||||||
Net loss | $ | (3,137,084 | ) | $ | (4,142,381 | ) | |
Less: deemed dividends on Series A Preferred Stock | — | (875,935 | ) | ||||
Net loss attributable to common stockholders | $ | (3,137,084 | ) | $ | (5,018,316 | ) | |
Weighted average shares outstanding used in basic per common share computations | 19,838,691 | 19,477,538 | |||||
Restricted stock and Series A Convertible Preferred Stock | — | — | |||||
Number of shares used in diluted per common share computation | 19,838,691 | 19,477,538 | |||||
Basic net loss per share of common stock | $ | (0.16 | ) | $ | (0.26 | ) | |
Diluted net loss per share of common stock | $ | (0.16 | ) | $ | (0.26 | ) |
SCHEDULE OF BASIC AND DILUTED NET LOSS PER SHARE OF COMMON STOCK
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 | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
Weighted average shares outstanding – basic and diluted (1)(2) | ||||||||||||||||
Weighted average shares outstanding - basic |
(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, 2023 and 2022, there were and 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, 2023, diluted earnings per share excludes unvested restricted shares of common stock. outstanding stock options and unvested restricted shares of common stock. For the three and nine months ended October 31, 2022, diluted earnings per share excludes outstanding stock options and |
Restructuring
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 inclusionstrategic restructuring initiatives included a reduction in force, resulting in the termination of these stock options would have been anti-dilutive. 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 RECONCILIATION OF THE RESTRUCTURING LIABILITY
(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 |
Non-Cash Items
For the three and nine months ended October 31, 20172023, the Company recorded capitalized software purchased with stock, totaling $60,000 and 2016, the warrants$176,000, respectively, as non-cash items as it relates to purchase
Accounting Pronouncements
On February 1, 2018. Early adoption2023, the Company adopted ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of the update is permitted. The guidance isCredit Losses on Financial Instruments (“ASU 2016-13”), as amended. ASU 2016-13 requires an allowance for expected credit losses to be applied using oneto financial assets at inception and reflect the risk of two retrospective application methods. We are incredit loss over the process of applying the five-step modellife of the new standardasset. The Company estimated current expected credit losses based on historical credit loss rates and applied an increase to customer contracts and will compareaccount for future economic conditions. The Company’s allowance for doubtful accounts as of January 31, 2023, prior to the results to ouradoption of ASU 216-13, was $132,000. The Company estimated the current accounting practices. We plan to adopt ASU 2014-09, as well as other clarifications and technical guidance issued by the FASBexpected credit loss related to this new revenue standard, on February 1, 2018. We elected the modified retrospective transition method, which would result in an adjustment to retained earnings for the cumulative effect, if any, of applying the standard to contracts in processaccounts receivable as of the adoption date. Under this method, we woulddate 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 | ) |
13 |
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 restatebelieve there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 3 — BUSINESS COMBINATION
Avelead Acquisition
The Company acquired all the prior financial statements presented. Therefore, the new standard requires additional disclosuresequity interests of Avelead Consulting, LLC (“Avelead”) as part of the amount by which each financial statement line item is affectedCompany’s strategic expansion into the acute-care health care revenue cycle management industry (the “Transaction”). The Transaction was completed on August 16, 2021.
On November 21, 2022, the Company made cash payments of $2,012,000 and issued unregistered securities in the fiscalform of restricted common stock, par value $ per share, with respect to the first year 2018 reporting period. We are currentlyearnout consideration. The estimated aggregate value of 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 $1,214,000 of cash payments and unregistered securities in the processform of assessingrestricted common stock, par value $ per share. These liabilities are reflected at the impactestimated fair value of the new standardfuture commitment on the Company’s condensed consolidated balance sheet as “Acquisition Earnout Liability” and have not yet determinedtotaled $1,833,000 as of October 31, 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 effect of the standard on our consolidated financial statements.
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 term was $2,456,000 and $2,351,000, respectively.
Balance at September 8, 2016 | |||
Assets purchased: | |||
Accounts and contracts receivable | 792,000 | ||
Other assets | 32,000 | ||
Internally-developed software | 350,000 | ||
Intangible assets | 650,000 | ||
Total assets purchased | 1,824,000 | ||
Liabilities assumed: | |||
Accounts payable and accrued liabilities | 424,000 | ||
Net assets acquired | $ | 1,400,000 | |
Cash paid | $ | 1,400,000 |
Facilities | Equipment | Fiscal Year Totals | |||||||||
2017 (three months remaining) | $ | 256,000 | $ | 3,000 | $ | 259,000 | |||||
2018 | 1,039,000 | 11,000 | 1,050,000 | ||||||||
2019 | 967,000 | 11,000 | 978,000 | ||||||||
2020 | 504,000 | 11,000 | 515,000 | ||||||||
2021 | 519,000 | 2,000 | 521,000 | ||||||||
Thereafter | 445,000 | — | 445,000 | ||||||||
Total | $ | 3,730,000 | $ | 38,000 | $ | 3,768,000 |
The Company entered into a lease for office space in Alpharetta, Georgia, on March 1, 2020. The lease 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. The Company used a discount rate of 6.5% to determine the lease liability. For the three and nine months ended October 31, 2023, the Company had lease operating costs of approximately $0 and $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.
Suwanee Office Lease
Upon acquiring Avelead on August 16, 2021 (refer to Note 3 – Business 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 of Avelead and that seller is a former employee of the Company. The initial 36-month term lease commenced March 1, 2019 and expired on February 28, 2022. The Company previously renewed the lease for an additional 12-month term which expired February 28, 2023 and was not renewed. For the three and nine months ended October 31, 2023, the Company recorded rent expense of $0 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.
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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 and Revolving Line of Credit
On November 29, 2022, the Company executed a Second Modification to Second Amended and Restated Loan Agreement (the “Second Modification”). The Second Modification 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 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 Second Modification amended certain financial covenants in the Second Amended and Restated Loan Agreement. At January 31, 2023 and October 31, 2023, there was $0 and $500,000 outstanding on the revolving line of credit, 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 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 (August 2021). Interest is due monthly, and the Company shall make monthly interest-only payments through the one-year anniversary of the original closing date. Under the Second Amended and Restated Loan Agreement, principal repayments 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 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 Agreement may also require early repayments if certain conditions are met.
The Second Amended and Restated Loan Agreement includes customary financial covenants as follows:
● | 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). | |
● | 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”. |
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SCHEDULE OF MAXIMUM DEBT TO ARR RATIO
Quarter Ending | Maximum Debt to ARR Ratio | |
October 31, 2022 | 0.80 to 1.00 | |
January 31, 2023 | 0.70 to 1.00 | |
April 30, 2023 | 0.65 to 1.00 | |
July 31, 2023 | 0.60 to 1.00 | |
October 31, 2023 | 0.55 to 1.00 | |
January 31, 2024 | 0.50 to 1.00 |
● | 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 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. |
The Second Amended and Restated Loan 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 periods ended January 31, 2023 and October 31, 2023, the Company was in compliance with the Second Amended and Restated Loan Agreement covenants. However, the Company’s current forecast projects the Company may not be able to maintain compliance with certain of its financial covenants under the Second Amended and Restated Loan Agreement in the future. 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.
The Company records costs related to the maintenance of the Second Amended and Restated Loan Agreement as deferred financing costs, 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, or pre-payment. These costs are being accreted, through interest expense, to the full value of the $250,000 over the remaining term of the loan.
NOTE 6 — INCOME TAXES
Income tax benefit increased to $59,000for the nine months ended October 31, 20172023 compared to expense of $22,000in the prior year comparable period. The effective income tax rate on continuing operations of approximately -0-% differs from our combined federal and 2016, respectively.state statutory rate of 25% primarily due to the full valuation allowance the Company currently maintains on its net deferred tax asset.
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The Company had capital leaseshas recorded $340,000 and $333,000 in reserves for uncertain tax positions as of October 31, 2023 and January 31, 2023, respectively.
The Company and its subsidiaries are subject to finance office equipment purchasesU.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, 2019. All material state and local income tax matters have been concluded for years through January 31, 2018. The Company is no longer subject to IRS examination for periods prior to the tax year ended January 31, 2019; however, carryforward losses that continuedwere generated prior to the tax year ended January 31, 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 third quarterCompany agreed to issue and sell in a registered direct offering (the “2022 Offering”) an aggregate of fiscal 2017. shares of common stock, par value $ per share, at a purchase price of $ per share. The amortization expensegross proceeds to the Company from the 2022 Offering were approximately $8,316,000. The Company used the proceeds of the leased equipment was included in depreciation expense. As2022 Offering for general corporate purposes. The 2022 Offering closed on October 26, 2022.
Registration of October 31, 2017,Shares Issued to 180 Consulting
On June 22, 2022, the Company had no capital lease obligations outstanding.filed a Registration Statement on Form S-3 (Registration No. 333-265773) for the purpose of registering for resale shares of common stock issued to 180 Consulting, LLC (“180 Consulting”). The Registration Statement was declared effective by the SEC on July 1, 2022.
On June 28, 2023, the Company filed a Registration Statement on Form S-3 (Registration No. 333-272993) for purpose of registering for resale shares of common stock issued to 180 Consulting, LLC (“180 Consulting”). The Registration Statement was declared effective by the SEC on July 10, 2023.
Authorized Shares Increase
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 shares, from shares to shares. The Company’s stockholders also approved an amendment to the Company’s Certificate of Incorporation, as amended, to increase the total number of authorized shares of the Company’s common stock from shares to shares.
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 shares, from shares to shares.
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NOTE 58 — DEBT
Consulting Agreement with 180 Consulting, LLC
On November 21, 2014, weMarch 19, 2020, the Company entered into a CreditMaster Services Agreement (the “Credit Agreement”“MSA”) with Wells Fargo Bank, N.A., as administrative agent,180 Consulting, pursuant to which 180 Consulting has provided and other lender parties thereto. Pursuant to the Credit Agreement, the lenders agreedwill continue to provide a $10,000,000 senior term loanvariety 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 $5,000,000 revolving lineseparate MSA in support of creditAvelead products. Certain of the SOWs include the ability of 180 Consulting to our primary operating subsidiary. Amounts outstandingearn 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 the Company under the Credit Agreement bear interest at either LIBOR or the base rate, as elected by the Company, plus an applicable margin. Subject to the Company’s leverage ratio, under the terms of the original Credit Agreement, the applicable LIBOR rate margin varied from 4.25% to 5.25%,MSA and the applicable base rate margin varied from 3.25% to 4.25%SOWs may share workspace and administrative costs with 121G Consulting, LLC (“121G”). Pursuant to the termsMr. Green is a “member” of the amendment to the Credit Agreement entered into as of April 15, 2015, the applicable LIBOR rate margin was amended to vary from 4.25% to 6.25%,121G, and, the applicable base rate margin was amended to vary from 3.25% to 5.25%. The term loan and line of credit mature on November 21, 2019 and provide support for working capital, capital expenditures and other general corporate purposes, including permitted acquisitions. The outstanding senior term loan is secured by substantially all of our assets. The senior term loan principal balance is payable in quarterly installments, which started in March 2015 and
For the four-quarter period ending | Minimum EBITDA | |||
July 31, 2017 | $ | (1,250,000 | ) | |
October 31, 2017 | (1,000,000 | ) | ||
January 31, 2018 | (700,000 | ) | ||
April 30, 2018 | (35,869 | ) | ||
July 31, 2018 | 414,953 | |||
October 31, 2018 | 1,080,126 | |||
January 31, 2019 | 1,634,130 | |||
April 30, 2019 | 1,842,610 | |||
July 31, 2019 | 2,657,362 | |||
October 31, 2019 and each fiscal quarter thereafter | 3,613,810 |
October 31, 2017 | January 31, 2017 | ||||||
Senior term loan | $ | 4,630,000 | $ | 5,539,000 | |||
Capital lease | — | 91,000 | |||||
Total | 4,630,000 | 5,630,000 | |||||
Less: Current portion | (597,000 | ) | (747,000 | ) | |||
Non-current portion of debt | $ | 4,033,000 | $ | 4,883,000 |
Senior Term Loan (1) | ||||
2017 | $ | 149,000 | ||
2018 | 597,000 | |||
2019 | 4,030,000 | |||
Total repayments | $ | 4,776,000 |
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 approximately $87,000 and $468,000 for the SOWs that include the sublicense agreement for the three and nine months ended October 31, 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 performs an impairment assessment of goodwill annually during the fourth quarter of its fiscal year with a valuation date of November 1, or 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 stateat cost, less accumulated amortization and local taximpairment, 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.
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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.
Intangible Assets
The changes in the carrying amounts of the Company’s 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 |
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, 2023 provided such indication.
Next, the Company must review the long-lived assets to define asset group(s) that would reflect the lowest level of 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.
The Company determined the 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 discrete undiscounted cash flows exceeds the carrying value of the asset group. The undiscounted cash flow projections are based on 8-year (representing the useful life of the primary asset in the asset group) financial forecasts developed by management that include forecasts of 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. The Company acquired Avelead on August 16, 2021. Accordingly, the Company assumed a lease for corporate office space from a selling equity-holder of Avelead that is a former employee of the Company. This lease term ended February 2023. For the three and nine months ended October 31, 2023, the Company recorded rent expense of $8,000$0 and $5,000,$6,000, respectively.
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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 Securities and Exchange Commission (“SEC”)SEC or otherwise make public. In thisThis Report, Part I, Item 2, “Management’s Discussiontherefore, contains statements about future events and Analysisexpectations which are forward-looking statements within the meaning of Financial ConditionSections 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Results21E of Operations,” contains forward-looking statements.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” set forthand elsewhere in Part II, Item 1A,our Annual Report on Form 10-K for the fiscal year ended January 31, 2023 and the other cautionary statements in other documents we fileour subsequent filings with the SEC, includingand include among others, the following:
● | competitive products and pricing; | |
● | product demand and market acceptance; | |
● | entry into new markets; | |
● | 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; |
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● | 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”). |
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.
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 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 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 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 2022 Offering closed on October 26, 2022.
The Company expanded its existing relationship with 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”). The Second Modification 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 is co-terminus with the term loan, which matures on August 26, 2026. The Second Modification includes modified covenants through the term of the Second Amended and Restated Loan Agreement. See Item 1, Note 5 - Debt, for discussion of the Second 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.
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Results of Operations
Revenues
Three Months Ended | ||||||||||||||
(in thousands): | October 31, 2017 | October 31, 2016 | Change | % Change | ||||||||||
Systems Sales: | ||||||||||||||
Proprietary software - perpetual license | $ | 79 | $ | 20 | $ | 59 | 295 | % | ||||||
Term license | 257 | 269 | (12 | ) | (4 | )% | ||||||||
Hardware and third-party software | 13 | 25 | (12 | ) | (48 | )% | ||||||||
Professional services | 802 | 631 | 171 | 27 | % | |||||||||
Audit Services | 280 | 234 | 46 | 20 | % | |||||||||
Maintenance and support | 3,250 | 3,750 | (500 | ) | (13 | )% | ||||||||
Software as a service | 1,718 | 1,706 | 12 | 1 | % | |||||||||
Total Revenues | $ | 6,399 | $ | 6,635 | $ | (236 | ) | (4 | )% |
Nine Months Ended | ||||||||||||||
(in thousands): | October 31, 2017 | October 31, 2016 | Change | % Change | ||||||||||
System Sales: | ||||||||||||||
Proprietary software - perpetual license | $ | 249 | $ | 1,040 | $ | (791 | ) | (76 | )% | |||||
Term license | 736 | 905 | (169 | ) | (19 | )% | ||||||||
Hardware and third-party software | 71 | 245 | (174 | ) | (71 | )% | ||||||||
Professional services | 1,794 | 1,870 | (76 | ) | (4 | )% | ||||||||
Audit Services | 919 | 234 | 685 | 293 | % | |||||||||
Maintenance and support | 9,884 | 11,238 | (1,354 | ) | (12 | )% | ||||||||
Software as a service | 4,586 | 5,145 | (559 | ) | (11 | )% | ||||||||
Total Revenues | $ | 18,239 | $ | 20,677 | $ | (2,438 | ) | (12 | )% |
Three Months Ended | ||||||||||||||||
($ in thousands): | October 31, 2023 | October 31, 2022 | Change | % Change | ||||||||||||
Software as a service | $ | 3,924 | $ | 3,209 | $ | 715 | 22 | % | ||||||||
Maintenance and support | 1,070 | 1,120 | (50 | ) | (4 | )% | ||||||||||
Professional fees and licenses | 1,139 | 1,888 | (749 | ) | (40 | )% | ||||||||||
Total Revenues | $ | 6,133 | $ | 6,217 | $ | (84 | ) | (1 | )% |
Nine Months Ended | ||||||||||||||||
($ in thousands): | October 31, 2023 | October 31, 2022 | Change | % Change | ||||||||||||
Software as a service | $ | 10,630 | $ | 9,157 | $ | 1,473 | 16 | % | ||||||||
Maintenance and support | 3,327 | 3,348 | (21 | ) | (1 | )% | ||||||||||
Professional fees and licenses | 3,278 | 5,639 | (2,361 | ) | (42 | )% | ||||||||||
Total Revenues | $ | 17,235 | $ | 18,144 | $ | (909 | ) | (5 | )% |
Software as a Service (SaaS) — 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-month period ended October 31, 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 as a service.
Professional fees and term licenses
For the nine monthsthree- and nine-month periods ended October 31, 20172023, revenue from professional services decreased by $791,000 over$749,000 and $2,110,000, respectively, compared to the prior comparable period. Thisyear periods. The decrease in professional fees is attributable to a larger perpetual license saleprimarily driven by the termination of our Streamline Health® Abstracting™ solution inclient consulting agreements at the second quarterclose of fiscal 2016. The $169,000year 2022 that did not align with the Company’s long-term strategy. These terminations resulted in a decrease in term licenseprofessional services revenue for the nine months ended October 31, 2017 over the prior comparable period is primarily due to the expiration of one Clinical Analytics contract and the reduction of license fees on a separate Clinical Analytics contract.
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For the three-month period ended October 31, 2017, revenues2023, revenue from professionalaudit services increased by $171,000 fromremained consistent compared to the prior comparableyear period. This increase is primarily due to a software version upgrade by a customer of our Streamline Health® Enterprise Content Management™ (“ECM”) solution and partially offsets the decrease in revenues forFor the nine-month period ended October 31, 2017, which resulted31,2023, 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 agreements not renewed by clients that was offset by $611,000 from new audit service agreements plus $126,000 of additional revenue from amended agreements with increased scope. The company is primarily focused on utilizing audit services to support its eValuator product. Accordingly, the Company does not expect revenue growth in the future in audit services.
Cost of Sales
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 salehospital system. For the three months ended October 31, 2023, the cost of our Patient Engagement suiteSaaS 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 amortization of capitalized assets for RevID and Compare of $69,000 compared to the prior year three-month period. For the nine months ended October 31,2023 the cost of software as a service increased $388,000 compared to the prior year period. The increase was driven by an increase in vendor costs of $1,008,000 offset by lower personnel costs of $690,000 compared to the prior year nine-month period. The Company expects the cost of SaaS solutions in the fourth quarter of fiscal 2016,will continue to increase as well as cancellations by two customers of our Streamline Health® Financial Management™ solution (“Financial Management”).
For the three and nine months ended October 31, 2017 increased by $46,000 and $685,000, respectively, over2023, the prior comparable periods. The Company began offering audit services in September 2016, following the acquisition of Opportune IT.
Three Months Ended | ||||||||||||||
(in thousands): | October 31, 2017 | October 31, 2016 | Change | % Change | ||||||||||
Cost of systems sales | $ | 434 | $ | 663 | $ | (229 | ) | (35 | )% | |||||
Cost of professional services | 556 | 723 | (167 | ) | (23 | )% | ||||||||
Cost of audit services | 404 | 596 | (192 | ) | (32 | )% | ||||||||
Cost of maintenance and support | 667 | 790 | (123 | ) | (16 | )% | ||||||||
Cost of software as a service | 290 | 451 | (161 | ) | (36 | )% | ||||||||
Total cost of sales | $ | 2,351 | $ | 3,223 | $ | (872 | ) | (27 | )% |
Nine Months Ended | ||||||||||||||
(in thousands): | October 31, 2017 | October 31, 2016 | Change | % Change | ||||||||||
Cost of systems sales | $ | 1,597 | $ | 2,080 | $ | (483 | ) | (23 | )% | |||||
Cost of professional services | 1,814 | 1,891 | (77 | ) | (4 | )% | ||||||||
Cost of audit services | 1,236 | 596 | 640 | 107 | % | |||||||||
Cost of maintenance and support | 2,242 | 2,483 | (241 | ) | (10 | )% | ||||||||
Cost of software as a service | 915 | 1,390 | (475 | ) | (34 | )% | ||||||||
Total cost of sales | $ | 7,804 | $ | 8,440 | $ | (636 | ) | (8 | )% |
Cost of Opportune IT. The decrease in expense for the three-month period ended October 31, 2017 is attributed to the reduction in associatemaintenance and contractor costs from synergies resulting from the full integration of the acquired business.
Cost of professional fees and support revenue.
The cost of professional fees includes compensation and benefits for personnel and related expenses. For the three and nine months ended October 31, 2023, professional services costs decreased by $659,000 and $1,847,000, respectively, compared to the prior year periods. These decreases were driven by a reduction in personnel costs, as
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The cost of 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 $13,000. The costs for the nine months ended October 31, 2023 increased, compared to the corresponding prior year period, by $159,000 due to an increase in 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 | ||||||||||||||
(in thousands): | October 31, 2017 | October 31, 2016 | Change | % Change | ||||||||||
General and administrative expenses | $ | 1,681 | $ | 1,980 | $ | (299 | ) | (15 | )% | |||||
Sales and marketing expenses | 1,139 | 1,232 | (93 | ) | (8 | )% | ||||||||
Total selling, general, and administrative expense | $ | 2,820 | $ | 3,212 | $ | (392 | ) | (12 | )% |
Nine Months Ended | ||||||||||||||
(in thousands): | October 31, 2017 | October 31, 2016 | Change | % Change | ||||||||||
General and administrative expenses | $ | 5,673 | $ | 6,668 | $ | (995 | ) | (15 | )% | |||||
Sales and marketing expenses | 3,310 | 3,485 | (175 | ) | (5 | )% | ||||||||
Total selling, general, and administrative expense | $ | 8,983 | $ | 10,153 | $ | (1,170 | ) | (12 | )% |
Three Months Ended | ||||||||||||||||
($ in thousands): | October 31, 2023 | October 31, 2022 | Change | % Change | ||||||||||||
General and administrative expenses | $ | 2,798 | $ | 2,692 | $ | 106 | 4 | % | ||||||||
Sales and marketing expenses | 1,324 | 1,363 | (39 | ) | (3 | )% | ||||||||||
Total selling, general, and administrative expense | $ | 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. The decreaseFor the three months ended October 31, 2023, the increase in general and administrative expenses forof $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 three and nine months ended October 31, 2017 from2023, the comparablegeneral and administrative expenses remained generally consistent compared to the prior periods was primarily due to a reduction in personnel costs, stock compensation and severance expense, as well as a reduction in professional fees for accounting and legal services.
Sales and marketing expenses consist primarily of compensation and related benefits and reimbursable travel and entertainment expenses related to our sales and marketing staff, as well as advertising and marketing expenses, including trade shows. The decrease inFor 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, 2023, the decrease of $517,000 was primarily driven by a decrease in professional services and marketing expenses of $446,000, severance expense of $105,000, and travel-related expenses of $60,000, offset by an increase in salaries, bonuses, commissions, and benefits of $77,000, compared to the prior year period.
Research and Development
Three Months Ended | ||||||||||||||||
($ 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 | ||||||||||||||||
($ 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 | % |
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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, 20172023 decreased by $450,000 and $217,000, respectively, compared to the prior year periods. The prior year 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 consolidation of the comparable prior periods was primarily due to a reduction in stock compensationteams and severance expense.
Three Months Ended | ||||||||||||||
(in thousands): | October 31, 2017 | October 31, 2016 | Change | % Change | ||||||||||
Research and development expense | $ | 932 | $ | 1,969 | $ | (1,037 | ) | (53 | )% | |||||
Plus: Capitalized research and development cost | 493 | 484 | 9 | 2 | % | |||||||||
Total research and development cost | $ | 1,425 | $ | 2,453 | $ | (1,028 | ) | (42 | )% |
Nine Months Ended | ||||||||||||||
(in thousands): | October 31, 2017 | October 31, 2016 | Change | % Change | ||||||||||
Research and development expense | $ | 3,985 | $ | 5,800 | $ | (1,815 | ) | (31 | )% | |||||
Plus: Capitalized research and development cost | 1,337 | 1,421 | (84 | ) | (6 | )% | ||||||||
Total research and development cost | $ | 5,322 | $ | 7,221 | $ | (1,899 | ) | (26 | )% |
Capitalized research and development costcosts for the three months ended October 31, 2023 remained consistent with the prior year period. Capitalized research and development costs for the nine months ended October 31, 2023 increased by approximately $106,000 compared to the prior year period due to additional projects being capitalized for the products. With the recent strategic restructuring, the Company expects capitalization rates will decrease.
Impairment of Goodwill
Three Months Ended | ||||||||||||||||
($ 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 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. Refer to the Goodwill section of Note 9 — Goodwill and Intangible Assets of the unaudited condensed consolidated financial statements included in Part I, Item I, “Financial Statements” for 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 $9,813,000 for the three- and nine-month periods ended October 31, 2017 from2023, with no goodwill impairments reported in the prior year comparable periods is primarily due to a reductionperiods.
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Impairment of long-lived assets
Three Months Ended | ||||||||||||||||
($ 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 development personnel headcount and consultant fees and $366,000 in research and development tax credits awarded by the Stateconjunction with its preparation of Georgia in fiscal 2017. Research and development expensesits financial statements for the three and nine months ended October 31, 20172023, the Company 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 Company’s determination that these services were not part of 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 2016, as a percentageIntangible Assets of revenues, were 22% and 28%, respectively.
Three Months Ended | ||||||||||||||
(in thousands): | October 31, 2017 | October 31, 2016 | Change | % Change | ||||||||||
Interest expense | $ | (113 | ) | $ | (99 | ) | $ | (14 | ) | 14 | % | |||
Miscellaneous expense | (177 | ) | (61 | ) | (116 | ) | 190 | % | ||||||
Total other expense | $ | (290 | ) | $ | (160 | ) | $ | (130 | ) | 81 | % |
Nine Months Ended | ||||||||||||||
(in thousands): | October 31, 2017 | October 31, 2016 | Change | % Change | ||||||||||
Interest expense | $ | (361 | ) | $ | (381 | ) | $ | 20 | (5 | )% | ||||
Miscellaneous expense | (235 | ) | (39 | ) | (196 | ) | 503 | % | ||||||
Total other expense | $ | (596 | ) | $ | (420 | ) | $ | (176 | ) | 42 | % |
For the three- and nine-month periods ended October 31, 20172023, the Company recorded $963,000 representing the impairment of the Abandoned Asset with no other long-lived impairments reported in the prior year comparable periods.
Other Income (Expense)
Three Months Ended | ||||||||||||||||
($ 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 | ||||||||||||||||
($ 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, 2023 from the comparable prior comparableyear periods is primarily due to revaluation adjustmentsthe $10,000,000 term loan and $500,000 outstanding line or credit with Western Alliance Bank (See Note 5 – Debt) and the associated increased interest rate on that debt. Interest rate increases are expected to our warrant liability, which were drivencontinue to increase interest expense (year-over-year) through the remainder of fiscal year 2023.
The acquisition earnout valuation is related to the liabilities associated with the Avelead acquisition (Refer to Note 3 – Business Combination of the unaudited condensed consolidated financial statements included in Part I, Item I, “Financial Statements”). For the three and nine months ended October 31, 2023, the Company recorded a valuation income adjustment of $1,182,000 and $1,905,000, respectively, compared to $163,000 and $188,000, respectively, for the comparable prior year periods. The valuation adjustment is caused by the fluctuationsdecrease in the Company’svalue of the stock price.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”).
26 |
Provision for Income Taxes
We recorded an income tax benefit of $120,000 and income tax expense of $3,000 and $2,000, respectively,$9,000 for the three months ended October 31, 20172023 and 2016,2022, respectively, and $8,000income tax benefit of $59,000 and $5,000, respectively,income tax expense of $22,000 for the nine months ended October 31, 20172023 and 2016,2022, respectively, which is comprised of estimated federal, state and local income tax provisions.
October 31, 2017 | October 31, 2016 | ||||||
Company proprietary software | $ | 10,892,000 | $ | 15,551,000 | |||
Third-party hardware and software | — | 200,000 | |||||
Professional services | 2,824,000 | 4,973,000 | |||||
Audit services | 1,454,000 | 1,849,000 | |||||
Maintenance and support | 18,256,000 | 19,413,000 | |||||
Software as a service | 14,242,000 | 12,929,000 | |||||
Total | $ | 47,668,000 | $ | 54,915,000 |
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 Statementscondensed consolidated financial statements presented on a GAAP basis in this quarterly report on Form 10-QReport with the following non-GAAP financial measures: EBITDA, Adjusted EBITDA Adjusted EBITDA Margin and Adjusted EBITDA per diluted share.
These non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of Company results as reported under GAAP. The Company compensates for such limitations by relying primarily on our GAAP results and using non-GAAP financial measures only as supplemental data. We also provide a reconciliation of non-GAAP to GAAP measures used. Investors are encouraged to carefully review this reconciliation. In addition, because these non-GAAP measures are not measures of financial performance under GAAP and are susceptible to varying calculations, these measures, as defined by us, may differ from and may not be comparable to similarly titled measures used by other companies.
EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted EBITDA per diluted share
We define: (i) EBITDA as net earnings (loss) before net interest expense, income tax expense (benefit), depreciation and amortization; (ii) Adjusted EBITDA as net earnings (loss) before net interest expense, income tax expense (benefit), depreciation, amortization, stock-basedshare-based compensation expense, transaction related expenses and other expenses that do not relate to our core operations;operations such as 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 shareMargin are used to facilitate a comparison of our operating performance on a consistent basis from period to period and provide for a more completesupplemental understanding of factors and trends affecting our business than GAAP measures alone. These measures assist management and the boardBoard 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 (i) one of the primary methods for planning and forecasting overall expectations and for evaluating, on at least a quarterly and annual basis, actual results against such expectations; and (ii) as a performance evaluation metric in determining achievement of certain executive and associate incentive compensation programs.
Our lender uses a measurement that is similar to the Adjusted EBITDA measurement described herein to assess our operating performance. The lender under our CreditSecond Amended and Restated Loan 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.
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EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin are not measures of liquidity under GAAP or otherwise and are not alternatives to cash flow from continuing operating activities, despite the advantagessupplemental 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 quarterly report on Form 10-Q,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 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, we encouragethe Company encourages readers to review the GAAP financial statements included elsewhere in this quarterly report on Form 10-Q,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 Statementscondensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q.
The following table sets forth a reconciliation ofreconciles EBITDA and Adjusted EBITDA to net loss a comparable GAAP-based measure, as well as Adjusted EBITDA per diluted share to loss per diluted share.from continuing operations for the three and nine months ended October 31, 2023 (amounts in 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 ourthe 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, 2017 | October 31, 2016 | October 31, 2017 | October 31, 2016 | |||||||||||
Net earnings (loss) | $ | 3 | $ | (1,930 | ) | $ | (3,137 | ) | $ | (4,142 | ) | ||||
Interest expense | 113 | 99 | 361 | 381 | |||||||||||
Income tax expense | 3 | 2 | 8 | 5 | |||||||||||
Depreciation | 193 | 265 | 596 | 895 | |||||||||||
Amortization of capitalized software development costs | 431 | 720 | 1,574 | 2,146 | |||||||||||
Amortization of intangible assets | 256 | 325 | 922 | 976 | |||||||||||
Amortization of other costs | 51 | 60 | 177 | 140 | |||||||||||
EBITDA | 1,050 | (459 | ) | 501 | 401 | ||||||||||
Share-based compensation expense | 290 | 433 | 845 | 1,343 | |||||||||||
(Gain) loss on disposal of fixed assets | (14 | ) | — | (15 | ) | 1 | |||||||||
Associate severance and other costs relating to transactions or corporate restructuring | — | 89 | — | 199 | |||||||||||
Non-cash valuation adjustments to assets and liabilities | 188 | 62 | 229 | 84 | |||||||||||
Transaction related professional fees, advisory fees, and other internal direct costs | — | 103 | — | 358 | |||||||||||
Adjusted EBITDA | $ | 1,514 | $ | 228 | $ | 1,560 | $ | 2,386 | |||||||
Adjusted EBITDA margin (1) | 24 | % | 3 | % | 9 | % | 12 | % | |||||||
Earnings (loss) per share — diluted | $ | — | $ | (0.10 | ) | $ | (0.16 | ) | $ | (0.26 | ) | ||||
Adjusted EBITDA per adjusted diluted share (2) | $ | 0.07 | $ | 0.01 | $ | 0.07 | $ | 0.10 | |||||||
Diluted weighted average shares | 23,068,423 | 19,645,521 | 19,838,691 | 19,477,538 | |||||||||||
Includable incremental shares — adjusted EBITDA (3) | — | 3,340,390 | 3,242,413 | 3,322,710 | |||||||||||
Adjusted diluted shares | 23,068,423 | 22,985,911 | 23,081,104 | 22,800,248 |
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) | |
Adjusted EBITDA as a percentage of GAAP net |
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, 2017. There2023. 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, 2017.
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,
The Company’s liquidity is dependent upon numerous factors including: (i) the timing and amount of revenuesrevenue and collection of contractual amounts from clients,customers, (ii) amounts invested in research and development and capital expenditures, and (iii) the level of operating expenses, all of which can vary significantly from quarter-to-quarter. Ourquarter 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 infrastructure in the SaaS data center.hardware. Operations are funded with cash generated by operations and borrowings under credit facilities. The Company believes that cash flows from operations and available credit facilities are adequate to fund current obligations forInformation concerning the next twelve months.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, 20172023 and January 31, 20172023 were $1,892,000approximately $2,557,000 and $5,654,000,$6,598,000, respectively. The decrease in cash during the current fiscal period was primarily the result of significant payments made towards our debt and interest thereon, as well as payroll and accounts payable. Continued expansion may require
On October 24, 2022, the Company entered into purchase agreements with certain investors pursuant to take on additional debt or raise capital through issuance of equities, or a combination of both. There can be no assurancewhich the Company will be ableagreed to raiseissue 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 capital requiredCompany from the 2022 Offering were approximately $8.3 million. The Company intends to fund further expansion.
The Company has liquidity through the CreditSecond Amended and Restated Loan Agreement described in more detail in Note 5 to– Debt in our condensed consolidated financial statements included herein. The Company’s primary operating subsidiary has a $5,000,000 revolving line of credit that has not been drawn upon as of the date of this report. In order to draw upon the revolving line of credit, the Company’s primary operating subsidiary must comply with customary financial covenants, including the requirement that the Company maintain minimum liquidity of at least (i) $5,000,000 through January 31, 2018, (ii) $4,000,000 from February 1, 2018 through and including January 31, 2019, and (iii) $3,000,000 from February 1, 2019 through and including the maturity date of the credit facility. Pursuant to the Credit Agreement’s definition, the liquidity of the Company’s primary operating subsidiary as of October 31, 2017 was $6,892,000, which satisfies the minimum liquidity financial covenant in the Credit Agreement.
The Second Amended and Restated Loan 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 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, 2023, the Company was in compliance with all debt covenants under the applicable loan covenants at October 31, 2017. Based uponSecond Amended and Restated Loan Agreement. The Company is forecasted to miss certain future covenants. See Note 1 – Basis of Presentation for detail regarding the borrowing base formula set forth in the Credit Agreement, as of October 31, 2017, the Company had access to the full amount of the $5,000,000 revolving line of credit.
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Significant cash obligations
(in thousands) | October 31, 2017 | January 31, 2017 | |||||
Term loans (1) | $ | 4,630 | $ | 5,539 | |||
Capital leases (1) | — | 91 | |||||
Royalty liability (2) | 2,456 | 2,351 |
(in thousands) | October 31, 2023 | January 31, 2023 | ||||||
Term loan (1) | $ | 9,292 | $ | 9,714 | ||||
Acquisition earnout liability (2) | 1,833 | 3,738 | ||||||
Restructuring severance (3) | 731 | — | ||||||
Line of credit (4) | 500 | — |
(1) | |
The term loan payable as of October 31, 2023 and January 31, 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 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 |
(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. |
Operating cash flow activities
(in thousands) | Nine Months Ended | ||||||
October 31, 2017 | October 31, 2016 | ||||||
Net loss | $ | (3,137 | ) | $ | (4,142 | ) | |
Non-cash adjustments to net loss | 4,564 | 5,775 | |||||
Cash impact of changes in assets and liabilities | (2,755 | ) | (2,876 | ) | |||
Operating cash flow | $ | (1,328 | ) | $ | (1,243 | ) |
Nine months Ended | ||||||||
(in thousands) | October 31, 2023 | October 31, 2022 | ||||||
Net loss from continuing operations | $ | (17,327 | ) | $ | (9,197 | ) | ||
Non-cash adjustments to net loss | 13,657 | 4,317 | ||||||
Cash impact of changes in assets and liabilities | 1,509 | 159 | ||||||
Net cash used in operating activities | $ | (2,161 | ) | $ | (4,721 | ) |
The increase in net cash used byin operating activities is due to lower collections in the nine-month period ended October 31, 2017 over the prior comparable period, primarily attributable to a larger perpetual license sale of our abstracting solution in the second quarter of fiscal 2016.
(in thousands) | Nine Months Ended | ||||||
October 31, 2017 | October 31, 2016 | ||||||
Purchases of property and equipment | $ | (25 | ) | $ | (501 | ) | |
Capitalized software development costs | (1,337 | ) | (1,421 | ) | |||
Payments for acquisitions | — | (1,400 | ) | ||||
Investing cash flow | $ | (1,362 | ) | $ | (3,322 | ) |
Investing cash flow activities
Nine months Ended | ||||||||
(in thousands) | October 31, 2023 | October 31, 2022 | ||||||
Purchases of property and equipment | $ | (47 | ) | $ | (10 | ) | ||
Capitalized software development costs | (1,562 | ) | (1,435 | ) | ||||
Net cash used in investing activities | $ | (1,609 | ) | $ | (1,445 | ) |
The cash used in investing activities for the nine months ended October 31, 2023 and October 31, 2022, includes capitalized software development costs. Capitalization of costs is expected to begin to decrease for the remainder of fiscal year 2023 as a result of the recently announced strategic restructuring. See discussion and analysis in “Research and development costs” above.
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Financing cash flow activities
(in thousands) | Nine Months Ended | ||||||
October 31, 2017 | October 31, 2016 | ||||||
Principal repayments on term loan | $ | (962 | ) | $ | (2,244 | ) | |
Principal payments on capital lease obligations | (91 | ) | (536 | ) | |||
Return of shares of common stock in connection with the vesting or exercise of equity incentive awards | (42 | ) | (12 | ) | |||
Proceeds from the exercise of stock options and stock purchase plans | 24 | 15 | |||||
Financing cash flow | $ | (1,071 | ) | $ | (2,777 | ) |
Nine months Ended | ||||||||
(in thousands) | 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 | ||||||
Payments for costs directly attributable to the issuance of common stock | — | (52 | ) | |||||
Payments related to settlement of employee share-based awards | $ | (271 | ) | $ | (165 | ) | ||
Other | $ | — | $ | 6 | ||||
Net cash (used in) provided by financing activities | $ | (271 | ) | $ | 7,980 |
The decrease in cash used in financing activities in the nine months ended October 31, 2017 over2023, and October 31, 2022, includes principal payments on the prior year periodterm 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 primarily thea result of higher prepayments towards our term loan in fiscal 2016, as well as the termination2022 Offering of two capital leases, one during the third quarter of fiscal 2016 and another in the third quarter of fiscal 2017.
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 procedures that are designed to ensure that there is reasonable assurance that the information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer (who serves as our principal executive officer) and our Interim Chief Financial Officer (who serves as appropriate, to allow timely decisions regarding required disclosure based onour principal financial officer) have evaluated the definition of “disclosure controls and procedures” in Exchange Act Rules 13a-15(e) and 15d-15(e). In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, projections of any evaluation of effectiveness of our disclosure controls and procedures to future periods are subject to the risk(as defined in Exchange Act Rule 13a-15(e) as of October 31, 2023. Based on that controls or procedures may become inadequate because of changes in conditions, or that the degree of compliance with the controls or procedures may deteriorate.
Changes in Internal Control over Financial Reporting
There were no material 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 most recently completed fiscal quarter ended October 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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 the Company’sour 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 below before deciding to invest in our common stock or other securities.Annual Report on Form 10-K for the fiscal year ended January 31, 2023 which Annual Report includes a detailed discussion of the Company’s risk factors. If any of the following risks developsdevelop 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 concentrated in a small number of clients.
We may not be able to generate sufficient cash flows or raise additional debt and equity capital to fund our other SEC filings.
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 adversely affectbe 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 marketCompany, 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 and other securities.
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 likely to be highly volatile as the stockdelisted from The Nasdaq Capital Market and is not eligible for quotation or listing on another market in general can be highly volatile.
Such a delisting would also likely have a negative effect on the price of our common stock could decline.
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 paymentvaluation 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 eventstrategy 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 bankruptcy, liquidation, dissolutionstrategic 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 winding up.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, AND ISSUER PURCHASES OF EQUITY SECURITIES
During the three months ended October 31, 2023, the Company ourissued to 180 Consulting an aggregate of 131,054 shares of common stock would rankas compensation for services previously rendered during the three months ended July 31, 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 right of payment or distribution below all debt claims against us and all of our outstanding shares of preferred stock, if any. As a result, holders of our shares of common stock will not be entitled to receive any payment or other distribution of assetsprivate placement in reliance on the event of a bankruptcy or upon a liquidation or dissolution until after all of our obligations to our debt holders and holders of preferred stock have been satisfied. Accordingly, holders of our common stock may lose their entire investment in the event of a bankruptcy, liquidation, dissolution or winding up of our company. Similarly, holders of our preferred stock would rank junior to our debt holders and creditors in the event of a bankruptcy, liquidation, dissolution or winding upexemption from registration available under Section 4(a)(2) of the Company.
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The following table sets forth information with respect to our repurchases of common stock during the three months ended October 31, 2017:
Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs (1) | |||||||||
August 1 - August 31 | 3,977 | $ | 1.20 | — | — | |||||||
September 1 - September 30 | — | — | — | — | ||||||||
October 1 - October 31 | — | — | — | — | ||||||||
Total | 3,977 | $ | 1.20 | — | — |
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 | |||||||||||||
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 |
Item 5. OTHER INFORMATION
During the three months ended October 31, 2017.2023, 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).
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Item 6. EXHIBITS
See Index to Exhibits.
INDEX TO EXHIBITS
* | 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.
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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 | By: | / s/ Benjamin L. Stilwill | |
Benjamin L. Stilwill President and Chief Executive Officer | |||
DATE: December | By: | / s/ Bryant J. Reeves III | |
Bryant J. Reeves III | |||
Interim Chief Financial Officer |
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