UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For
the quarterly period ended | |
| OR | |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from __________to____________ | |
Commission
File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(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 | ||
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.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | 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 par value per share, as of September 09, 2021 was .
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
STREAMLINE HEALTH SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(rounded to the nearest thousand dollars, except share and per share information)
| As of | ||||||||
31-Jul-21 (Unaudited) | 31-Jan-21
| |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $ | ||||||||
| Contract receivables | ||||||||
| Assets held in escrow | ||||||||
| Prepaid and other current assets | ||||||||
| Current assets of discontinued operations | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Property and equipment, net of accumulated depreciation of $ | ||||||||
| Right-of use asset for operating lease | ||||||||
| Capitalized software development costs, net of accumulated amortization of $ | ||||||||
| Intangible assets, net of accumulated amortization of $ | ||||||||
| Goodwill | ||||||||
| Other | ||||||||
| Long-term assets of discontinued operations | ||||||||
| Total non-current assets | ||||||||
| Total assets | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
| 2 |
STREAMLINE HEALTH SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(rounded to the nearest thousand dollars, except share and per share information)
| As of | ||||||||
31-Jul-21 (Unaudited) | 31-Jan-21
| |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Current portion of term loan, less deferred financing cost | ||||||||
| Deferred revenue | ||||||||
| Current portion of operating lease obligation | ||||||||
| Current liabilities of discontinued operations | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities: | ||||||||
| Term loan, less current portion | ||||||||
| Deferred revenue, less current portion | ||||||||
| Operating lease obligation, less current portion | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock, $ par value per share, shares authorized; and shares issued and outstanding, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| $ | $ | |||||||
See accompanying notes to condensed consolidated financial statements.
| 3 |
STREAMLINE HEALTH SOLUTIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(rounded to the nearest thousand dollars, except share and per share information)
Three-Months Ended July 31, | Six Months Ended July 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue: | ||||||||||||||||
| Software licenses | $ | $ | $ | $ | ||||||||||||
| Professional services | ||||||||||||||||
| Audit services | ||||||||||||||||
| Maintenance and support | ||||||||||||||||
| Software as a service | ||||||||||||||||
| Total revenue | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Cost of software licenses | ||||||||||||||||
| Cost of professional services | ||||||||||||||||
| Cost of audit services | ||||||||||||||||
| Cost of maintenance and support | ||||||||||||||||
| Cost of software as a service | ||||||||||||||||
| Selling, general and administrative expense | ||||||||||||||||
| Research and development | ||||||||||||||||
| Non-routine costs | ||||||||||||||||
| Loss on exit from membership agreement | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other | ( | ) | ( | ) | ( | ) | ||||||||||
| Forgiveness of PPP loan and accrued interest | ||||||||||||||||
| Loss from continuing operations before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax benefit (expense) | ( | ) | ||||||||||||||
| Loss from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income from discontinued operations: | ||||||||||||||||
| Gain on sale of discontinued operations | ||||||||||||||||
| Income from discontinued operations | ||||||||||||||||
| Income tax expense | ( | ) | ( | ) | ||||||||||||
| Income from discontinued operations, net of tax | ||||||||||||||||
| Net (loss) income | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| Basic Earnings Per Share: | ||||||||||||||||
| Continuing operations | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Discontinued operations | ||||||||||||||||
| Net (loss) income per share | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
| Weighted average number of common shares – basic | ||||||||||||||||
| Diluted Earnings Per Share: | ||||||||||||||||
| Continuing operations | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Discontinued operations | ||||||||||||||||
| Net (loss) income per share | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
| Weighted average number of common shares – diluted | ||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 4 |
STREAMLINE HEALTH SOLUTIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(rounded to the nearest thousand dollars, except share information)
| Common stock shares | Common Stock | Additional paid in capital | Accumulated deficit | Total stockholders’ equity | ||||||||||||||||
| Balance at January 31, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Restricted stock issued | ( | ) | ||||||||||||||||||
| Surrender of shares | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Share-based compensation | — | |||||||||||||||||||
| Issuance of Common Stock | ||||||||||||||||||||
| Offering Expenses | — | ( | ) | ( | ) | |||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance at April 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Restricted stock issued | ( | ) | ||||||||||||||||||
| Restricted stock forfeited | ( | ) | ||||||||||||||||||
| Surrender of shares | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Share-based compensation | — | |||||||||||||||||||
| Offering Expenses | — | ( | ) | ( | ) | |||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance at July 31, 2021 | ( | ) | ||||||||||||||||||
| Balance at January 31, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Restricted stock issued | ( | ) | ||||||||||||||||||
| Restricted stock forfeited | ( | ) | ||||||||||||||||||
| Surrender of shares | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Share-based compensation | — | |||||||||||||||||||
| Net income | — | |||||||||||||||||||
| Balance at April 30, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Restricted stock issued | ( | ) | ||||||||||||||||||
| Restricted stock forfeited | ( | ) | ( | ) | ||||||||||||||||
| Surrender of shares | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Share-based compensation | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance at July 31, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 5 |
STREAMLINE HEALTH SOLUTIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(rounded to the nearest thousand dollars)
| Six months Ended July 31, | ||||||||
| 2021 | 2020 | |||||||
| Net (Loss) Income | ( | ) | ||||||
| Income from discontinued operations, net of tax | ( | ) | ( | ) | ||||
| Loss from continuing operations, net of tax | ( | ) | ( | ) | ||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of capitalized software development costs | ||||||||
| Amortization of intangible assets | ||||||||
| Amortization of other deferred costs | ||||||||
| Valuation adjustments | ||||||||
| Benefit for income taxes | ( | ) | ||||||
| Loss on exit from membership agreement | ||||||||
| Share-based compensation expense | ||||||||
| Benefit for accounts receivable allowance | ( | ) | ( | ) | ||||
| Forgiveness of PPP loan and accrued interest | ( | ) | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts and contract receivables | ||||||||
| Other assets | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses and other liabilities | ( | ) | ||||||
| Deferred revenue | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Net cash from (used in) operating activities – discontinued operations | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Proceeds from sale of ECM Assets | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Capitalization of software development costs | ( | ) | ( | ) | ||||
| Net cash provided by investing activities | ||||||||
| Cash flows from financing activities: | ||||||||
| Repayment of bank term loan | ( | ) | ||||||
| Proceeds from issuance of term loan | ||||||||
| Proceeds from issuance of common stock | ||||||||
| Payments for costs directly attributable to the issuance of common stock | ( | ) | ||||||
| Payments related to settlement of employee share-based awards | ( | ) | ||||||
| Payment for deferred financing costs | ( | ) | ||||||
| Other | ( | ) | ( | ) | ||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | |||||||
See accompanying notes to condensed consolidated financial statements.
| 6 |
STREAMLINE HEALTH SOLUTIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2021
NOTE 1 — BASIS OF PRESENTATION
Streamline Health Solutions, Inc. and each of its wholly-owned subsidiaries, Streamline Health, LLC, Streamline Pay & Benefits, LLC, Streamline Consulting Solutions, LLC and Avelead Consulting, LLC (collectively, unless the context requires otherwise, “we,” “us,” “our,” “Streamline,” or the “Company”), operate in one segment as a provider of healthcare information technology solutions and associated services. The Company provides these capabilities through the licensing of its Coding & CDI, eValuator Coding Analysis Platform, Financial Management and Patient Care solutions and other workflow software applications and the use of such applications by software as a service (“SaaS”). The Company also provides audit and coding services to help customers optimize their internal clinical documentation and coding functions, as well as implementation and consulting services to complement its software solutions. The Company’s software and services enable hospitals and integrated healthcare delivery systems in the United States and Canada to capture, store, manage, route, retrieve and process patient clinical, financial and other healthcare provider information related to the patient revenue cycle.
The accompanying unaudited condensed consolidated financial statements have been prepared by us pursuant to the rules and regulations applicable to quarterly reports on Form 10-Q of the U.S. Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading. The condensed consolidated financial statements include the accounts of Streamline Health Solutions, Inc. and each of its wholly-owned subsidiaries. In the opinion of the Company’s management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the condensed consolidated financial statements have been included. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s most recent annual report on Form 10-K, Commission File Number 000-28132. Operating results for the six months ended July 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2022.
The
Company determined that it has
On February 24, 2020, the Company sold a portion of its business (the “ECM Assets”). The Company signed the definitive agreement with respect to the sale of the ECM Assets in December 2019 and prepared and filed a proxy statement to obtain stockholder approval of the transaction. We applied Accounting Standards Codification (“ASC”) 205-20-1 (“ASC 205-20-1”) to determine the timing to begin reporting the discontinued operations. Based on ASC 205-20-1, the Company determined that it did not have the authority to sell the assets until the date of the stockholder approval, which was February 21, 2020. On February 21, 2020, the Company having the authority and ability to consummate the sale of the ECM Assets, met the criteria to present discontinued operations as described in ASC 205-20-1. Accordingly, the Company is reporting the results of operations and cash flows, and related balance sheet items associated with the ECM Assets in discontinued operations in the accompanying condensed consolidated statements of operations, cash flows and balance sheets for the current and comparative prior periods. Refer to Note 8 – Discontinued Operations for details of the Company’s discontinued operations.
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.
| 7 |
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company’s significant accounting policies are presented in “Note 2 – Significant Accounting Policies” in the fiscal year 2020 Annual Report on Form 10-K. Users of financial information for interim periods are encouraged to refer to the footnotes to the consolidated financial statements contained in the Annual Report on Form 10-K when reviewing interim financial results.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates and judgments, including those related to the recognition of revenue, share-based compensation, capitalization of software development costs, intangible assets, the allowance for doubtful accounts, and income taxes. Actual results could differ from those estimates.
Reclassification
ASC
606-10-25-19(a) provides guidance on the presentation of revenue as it relates to identifying distinct performance obligations in contracts
containing multiple deliverables. As the Company has begun to shift to a primarily SaaS solution, the professional services revenue related
to implementation of SaaS contracts has grown. With this growth, and expected continued growth, of professional services which are not
determined to be a distinct performance obligation for the Company’s SaaS contracts, we have reclassified SaaS professional services
from professional services revenue and cost of sales on the consolidated statement of operations to Software as a Service revenue and
cost of sales. For the three and six months ended July 31, 2020, the reclassification of revenue was $
Fair Value of Financial Instruments
The Financial Accounting Standards Board’s (“FASB”) authoritative guidance on fair value measurements establishes a framework for measuring fair value. This guidance enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. Under this guidance, assets and liabilities carried at fair value must be classified and disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value based on the short-term maturity of these instruments. Cash and cash equivalents are classified as Level 1. The carrying amount of the Company’s long-term debt approximates fair value since the variable interest rates being paid on the amounts approximate the market interest rate. Long-term debt is classified as Level 2. There were no transfers of assets or liabilities between Levels 1, 2, or 3 during the six months ended July 31, 2021 and 2020.
| 8 |
The
fair value of the PPP loan was determined based on discounting the loan amount as of January 31, 2021. The fair value using market rates
the Company believes would be available for similar types of financial instruments would have resulted in a lower fair value of $
Revenue Recognition
We derive revenue from the sale of internally-developed software, either by licensing for local installation or by a SaaS delivery model, through the Company’s direct sales force or through third-party resellers. Licensed, locally-installed customers on a perpetual model utilize the Company’s support and maintenance services for a separate fee, whereas term-based locally installed license fees and SaaS fees include support and maintenance. We also derive revenue from professional services that support the implementation, configuration, training and optimization of the applications, as well as audit services provided to help customers review their internal coding audit processes.
We recognize revenue in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”), under the core principle of recognizing revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
We recognize revenue (Step 5 below) in accordance with that core principle after applying the following steps:
| ● | Step 1: Identify the contract(s) with a customer | |
| ● | Step 2: Identify the performance obligations in the contract | |
| ● | Step 3: Determine the transaction price | |
| ● | Step 4: Allocate the transaction price to the performance obligations in the contract | |
| ● | Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation |
Contracts may contain more than one performance obligation. Performance obligations are the unit of accounting for revenue recognition and represent the distinct goods or services that are promised to the customer. Revenue is recognized net of any taxes collected from customers and subsequently remitted to governmental authorities.
If we determine that we have not satisfied a performance obligation, we defer recognition of the revenue until the performance obligation is satisfied. Maintenance and support and SaaS agreements are generally non-cancelable or contain significant penalties for early cancellation, although customers typically have the right to terminate their contracts for cause if we fail to perform material obligations. However, if non-standard acceptance periods, non-standard performance criteria, or cancellation or a right of refund terms exist, revenue may not be recognized until the satisfaction of such criteria.
| 9 |
The transaction price is allocated to the unit of account based on the standalone selling price of the performance obligations in the contract. Significant judgment is required to determine the standalone selling price (“SSP”) for each performance obligation and whether the amount allocated to each performance obligation depicts the amount that the Company expects to receive in exchange for the related product and/or service. As the selling prices of the Company’s software licenses are highly variable, the Company estimates the SSP of its software licenses using the residual approach when the software license is sold with other services and observable SSPs exist for the other services. The Company estimates the SSP for maintenance, professional services, and audit services based on observable standalone sales.
Contract Combination
The Company may execute more than one contract or agreement with a single customer. The Company evaluates whether the agreements should be combined and treated as a single contract by evaluating whether they were negotiated as a package with a single objective, whether the amount of consideration to be paid in one agreement depends on the price and/or performance of another agreement, or whether the goods or services promised in the agreements represent a single performance obligation. The conclusions reached can impact the allocation of the transaction price to each performance obligation and the timing of revenue recognition related to those arrangements.
Software Licenses
The Company’s software license agreements provide the customer with the right to use functional intellectual property. Implementation, support, and other services are typically considered distinct performance obligations when sold with a software license unless these services are determined to significantly modify the software. Revenue for software licenses is recognized at a point in time, typically, when the software is made available for electronic download.
Maintenance and Support Services
The Company’s maintenance and support obligations include multiple performance obligations, with the two largest being rights to unspecified product upgrades or enhancements, and technical support. We believe that the multiple performance obligations within the Company’s overall maintenance and support services can be viewed as a single performance obligation since both the unspecified upgrades and technical support are comprised of promises to stand ready to fulfill the various underlying activities during the contract term. Maintenance and support agreements entitle customers to technology support, version upgrades, bug fixes and service packs. We recognize maintenance and support revenue ratably over the contract term.
Professional Services
The Company provides various professional services to customers with software licenses. These include project management, software implementation and software modification services. Revenue from agreements to provide professional services are generally distinct from the other promises in the contract and are recognized as the related services are performed. Consideration payable under these agreements is either fixed fee or on a time-and-materials basis, and is recognized over time as the services are performed.
Software as a Service
SaaS-based contracts include a right to use the Company’s platform, implementation, support and other services which represent a single promise to provide continuous access to its software solutions. The Company recognizes revenue over the contract term.
| 10 |
Audit Services
The Company provides technology-enabled coding audit services to help customers review and optimize their internal clinical documentation and coding functions across the applicable segment of the client’s enterprise. Audit services are a separate performance obligation. We recognize revenue as the services are performed.
Disaggregation of Revenue
The following table provides information about disaggregated revenue by type and nature of revenue stream:
| Six Months Ended July 31, 2021 | ||||||||||||
| Recurring Revenue | Non- recurring Revenue | Total | ||||||||||
| Software licenses | $ | $ | $ | |||||||||
| Professional services | ||||||||||||
| Audit services | ||||||||||||
| Maintenance and support | ||||||||||||
| Software as a service | ||||||||||||
| Total revenue: | $ | $ | $ | |||||||||
Contract Receivables and Deferred Revenues
The
Company receives payments from customers based upon contractual billing schedules. Contract receivables include amounts related to the
Company’s contractual right to consideration for completed performance obligations not yet invoiced. Deferred revenue includes
payments received in advance of performance under the contract. The Company’s contract receivables and deferred revenue are reported
on an individual contract basis at the end of each reporting period. Contract receivables are classified as current or noncurrent based
on the timing of when we expect to bill the customer. Deferred revenue is classified as current or noncurrent based on the timing of
when we expect to recognize revenue. In the six months ended July 31, 2021, we recognized approximately $
Deferred costs (costs to fulfill a contract and contract acquisition costs)
We
defer the direct costs, which include salaries and benefits, for professional services related to SaaS contracts as a cost to fulfill
a contract. These deferred costs will be amortized on a straight-line basis over the period of expected benefit which is the contractual
term. As of July 31, 2021 and January 31, 2021, we had deferred costs of $
Contract acquisition costs, which consist of sales commissions paid or payable, is considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions for initial and renewal contracts are deferred and then amortized on a straight-line basis over the contract term. As a practical expedient, we expense sales commissions as incurred when the amortization period of related deferred commission costs is expected to be one year or less.
As
of July 31, 2021 and January 31, 2021, deferred commission costs paid and payable, which are included on the consolidated balance sheets
within other non-current assets totaled $
| 11 |
Equity Awards
The Company accounts for share-based payments based on the grant-date fair value of the awards with compensation cost recognized as expense over the requisite service period. For awards to non-employees, the Company recognizes compensation expense in the same manner as if the entity had paid cash for the goods or services. The Company incurred total compensation expense related to share-based awards of $ and $ for the three months ended July 31, 2021 and 2020, respectively, and $ and $ in the six months ended July 31, 2021 and 2020, respectively.
The fair value of the stock options granted was estimated at the date of grant using a Black-Scholes option pricing model. Option pricing model input assumptions such as expected term, expected volatility and risk-free interest rate impact the fair value estimate. 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, expected term and forfeiture rates). Future grants of equity awards accounted for as share-based compensation could have a material impact on reported expenses depending upon the number, value and vesting period of future awards.
The Company issues restricted stock awards in the form of Company common stock. The fair value of these awards is based on the market close price per share on the grant date. The Company expenses the compensation cost of these awards as the restriction period lapses, which is typically a one- to four-year service period.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for tax credit and loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. In assessing net deferred tax assets, the Company considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. The Company establishes a valuation allowance when it is more likely than not that all or a portion of deferred tax assets will not be realized. Refer to Note 5 - Income Taxes for further details.
The Company provides for uncertain tax positions and the related interest and penalties based upon management’s assessment of whether certain tax positions are more likely than not to be sustained upon examination by tax authorities. At July 31, 2021, the Company believes it has appropriately accounted for any uncertain tax positions.
The Company presents basic and diluted earnings per share (“EPS”) data for the Company’s common stock.
The Company’s unvested restricted stock awards are considered non-participating securities because holders are not entitled to non-forfeitable rights to dividends or dividend equivalents during the vesting term. In accordance with ASC 260, securities are deemed not to be participating in losses if there is no obligation to fund such losses. Diluted EPS for the Company’s common stock is computed using the treasury stock method.
| 12 |
| Three-Months Ended | Six-Months Ended | |||||||||||||||
| July 31, 2021 | July 31, 2020 | July 31, 2021 | July 31, 2020 | |||||||||||||
| Basic earnings (loss) per share: | ||||||||||||||||
| Continuing operations | ||||||||||||||||
| Loss from continuing operations, net of tax | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic net loss per share of common stock from continuing operations | $ | $ | ( | ) | ( | ) | ( | ) | ||||||||
| Discontinued operations | ||||||||||||||||
| Income available to common stockholders from discontinued operations | $ | $ | ||||||||||||||
| Basic net earnings per share of common stock from discontinued operations | $ | $ | $ | $ | ||||||||||||
| Diluted earnings (loss) per share: | ||||||||||||||||
| Continuing operations | ||||||||||||||||
| Loss available to common stockholders from continuing operations | $ | ( | ) | $ | ( | ) | ( | ) | ( | ) | ||||||
| Diluted net loss per share of common stock from continuing operations | $ | $ | ( | ) | ( | ) | ( | ) | ||||||||
| Discontinued operations | ||||||||||||||||
| Income available to common stockholders from discontinued operations | $ | $ | ||||||||||||||
| Diluted net earnings per share of common stock from discontinued operations | $ | $ | $ | $ | ||||||||||||
| Net (loss) earnings | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| Weighted average shares outstanding - Basic (1) | ||||||||||||||||
| Effect of dilutive securities - Stock options and Restricted stock (2) | ||||||||||||||||
| Weighted average shares outstanding – Diluted | ||||||||||||||||
| Basic net (loss) earnings per share of common stock | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
| Diluted net (loss) earnings per share of common stock | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
| (1) |
| |
| (2) |
Other Operating Costs
Non-routine Costs
For
the three-months ended July 31, 2021, the Company incurred certain non-routine costs of approximately $
Loss on Exit from Membership Agreement
As of July 31, 2020, minimum fees due under the Company’s former shared office arrangement totaled approximately $. The Company recorded an expense for the minimum future commitment under the agreement and accrued the cost to the accompanying consolidated balance sheet in the six months ended July 31, 2020 to reflect the liability at the time it abandoned the space. Refer to Note 3 – Operating Leases.
Non-Cash Items
The Company had the following items that were non-cash items related to the condensed consolidated statements of cash flows:
| July 31, | ||||||||
| 2021 | 2020 | |||||||
| Forgiveness of PPP loan and accrued interest | $ | |||||||
| Escrowed funds from sale of ECM Assets | $ | |||||||
| Right-of Use Assets from operating lease | ||||||||
| Capitalized software purchased with stock (Note 7) | ||||||||
| 13 |
Accounting Pronouncements Recently Adopted
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). This ASU is intended to simplify various aspects related to accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifying certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective for annual periods beginning after December 15, 2020 and interim periods within those annual periods, with early adoption permitted. An entity that elects early adoption must adopt all the amendments in the same period. Most amendments within this ASU are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The standard became effective for us on February 1, 2021. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements or disclosures.
Recent Accounting Pronouncements Not Yet Adopted
In November 2019, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which improves guidance around accounting for financial losses on accounts receivable. For smaller reporting entities, ASU 2016-13 is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. We do not anticipate that the adoption of this ASU will have a material impact on the Company’s consolidated financial statements.
NOTE 3 — OPERATING LEASES
We determine whether an arrangement is a lease at inception. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the expected lease term. Since our lease arrangements do not provide an implicit rate, we use our incremental borrowing rate for the expected remaining lease term at commencement date for new leases and for existing leases, in determining the present value of future lease payments. Operating lease expense is recognized on a straight-line basis over the lease term. The Company has made the accounting policy election for building leases to not separate non-leases components.
The
Company entered into a new lease for office space in Alpharetta, Georgia, on March 1, 2020. The lease terminates on
| 14 |
Maturities of operating lease liabilities associated with the Company’s operating lease as of July 31, 2021 are as follows for the fiscal years ended January 31:
| 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| Total lease payments | ||||
| Less present value adjustment | ( | ) | ||
| Present value of lease liabilities | $ |
Upon
signing the new lease in March 2020, the Company abandoned its shared office space in Atlanta and recorded an expense and related liability
of $
NOTE 4 — DEBT
Term Loan and Revolving Credit Facility with Bridge Bank
On
December 11, 2019, the Company entered into a Loan and Security Agreement (the “Loan and Security Agreement”) with Bridge
Bank, a division of Western Alliance Bank (“Bridge Bank”), consisting of a $
On
March 2, 2021, the Company entered into an Amended and Restated Loan and Security Agreement, which replaced and superseded the Loan and
Security Agreement, consisting of a $
On August 26, 2021 the Company, Streamline Health, Inc., Streamline Pay & Benefits, LLC, Streamline Consulting Solutions, LLC, and Avelead Consulting, LLC, each a wholly-owned subsidiary of the Company, entered into a Second Amended and Restated Loan and Security Agreement (the “Second Amended Loan and Security Agreement”) with Bridge Bank. Refer to Note 10 – Subsequent Events for additional information concerning the agreement.
Term Loan related to “The Coronavirus Aid, Relief, and Economic Security Act”
The
Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, was signed into law on March 17, 2020. Among other things,
the CARES Act provided for a business loan program known as the Paycheck Protection Program (“PPP”). Qualifying companies
were able to borrow, through the U.S. Small Business Administration (“SBA”), up to two months of payroll expenses. On April
21, 2020, the Company received approximately $
The
PPP loan carried an interest rate of
During
the quarter ended July 31, 2021, the Company was notified that the full $
Outstanding principal balances on debt consisted of the following at:
| July 31, 2021 | January 31, 2021 | |||||||
| Term loan | $ | $ | ||||||
| Deferred financing cost | ||||||||
| Total | ||||||||
| Less: Current portion | ( | ) | ||||||
| Non-current portion of debt | $ | $ | ||||||
| 15 |
NOTE 5 — INCOME TAXES
Income taxes consist of the following:
| July 31, | ||||||||
| 2021 | 2020 | |||||||
| Current tax benefit (expense): | ||||||||
| Federal | $ | $ | ||||||
| State | ( | ) | ||||||
| Total current provision | $ | ( | ) | $ | ||||
| 16 |
The Company adopted ASU 2019-12. ASU 2019-12 removes the exception to the basic intraperiod model in ASC 740-20-45-7. The benefit from income taxes from continuing operations, reported in the six-month period ended July 31, 2020, are off-set by taxes on the gain on sale and taxes from operations of discontinued operations.
At
January 31, 2021, the Company had U.S. federal net operating loss carry forwards of $
The
effective income tax rate on continuing operations of approximately (
The
Company has recorded $
The Company and its subsidiaries are subject to U.S. federal income tax as well as income taxes in multiple state and local jurisdictions. The Company has concluded all U.S. federal tax matters for years through January 31, 2017. All material state and local income tax matters have been concluded for years through January 31, 2016. The Company is no longer subject to IRS examination for periods prior to the tax year ended January 31, 2017; however, carryforward losses that were generated prior to the tax year ended January 31, 2017 may still be adjusted by the IRS if they are used in a future period.
NOTE 6 — EQUITY
Capital Raise
On
February 25, 2021, the Company entered into an underwriting agreement with Craig-Hallum Capital Group LLC, as the sole managing underwriter,
relating to the underwritten public offering of an aggregate of shares of the Company’s common stock, par value $
per share, which included shares of common stock sold pursuant to the underwriter’s exercise of an option to purchase
additional shares of common stock to cover over-allotments (the “Offering”). The price to the public in the Offering was
$ per share of common stock. The gross proceeds to the Company from the Offering were approximately $
Registration of Shares Issued to 180 Consulting
On May 3, 2021, the Company filed a Registration Statement on Form S-3 (Registration No. 333-255723), which was subsequently amended on June 23, 2021, for purposes of registering for resale shares of common stock issued to 180 Consulting, LLC (“180 Consulting”). The Registration Statement was declared effective by the SEC on July 14, 2021.
Authorized Shares Increase
On May 24, 2021, the Company amended its Certificate of Incorporation, as amended, to increase the total number of authorized shares of the Company’s common stock from shares to shares (the “Charter Amendment”). The Charter Amendment was previously approved by the board of directors of the Company, subject to stockholder approval, , approved by the Company’s stockholders at the 2021 Annual Meeting of Stockholders of the Company, held on May 20, 2021 (the “Annual Meeting”), and ratified by the Company’s stockholders on July 29, 2021 at the Special Meeting (as defined and described in further detail below).
At the Annual Meeting, the Company’s stockholders approved an amendment to the Streamline Health Solutions, Inc. Third Amended and Restated 2013 Stock Incentive Plan to increase the number of shares of the Company’s common stock authorized for issuance thereunder by shares, from shares to shares (the “Third Amended 2013 Plan Amendment”).
As described in the Company’s definitive proxy statement on Schedule 14A filed with the SEC on July 6, 2021, because there may have been uncertainty regarding the validity or effectiveness of the prior approval of the Charter Amendment, the authorized shares increase effected thereby and the Third Amended 2013 Plan Amendment at the Annual Meeting, the board of directors of the Company asked the Company’s stockholders to ratify the approval, filing and effectiveness of the Charter Amendment and the approval and effectiveness of the Third Amended 2013 Plan Amendment at a special meeting of the stockholders held on July 29, 2021 in order to eliminate such uncertainty (the “Special Meeting”). At the Special Meeting, the Company’s stockholders ratified the approval, filing and effectiveness of the Charter Amendment and the approval and effectiveness of the Third Amended 2013 Plan Amendment.
| 17 |
NOTE 7 — COMMITMENTS AND CONTINGENCIES
Royalty Liability
On
October 25, 2013, we entered into a Software License and Royalty Agreement (the “Royalty Agreement”) with Montefiore Medical
Center (“Montefiore”) pursuant to which Montefiore granted us an exclusive, worldwide
On
October 1, 2020, the Company agreed with Montefiore that it would pay, in cash, (i) $
Consulting Agreement with 180 Consulting
On
March 19, 2020 the Company entered into a Master Services Agreement (the “MSA”) with 180 Consulting, pursuant to which 180
Consulting has provided and will continue to provide a variety of consulting services including product management, operational consulting,
staff augmentation, internal systems platform integration and software engineering services, among others, through separate executed
statements of work (“SOWs”). The Company has entered into ten SOWs under the MSA. Some of the SOWs include the ability to
earn stock at a conversion rate to be calculated 20 days after the execution of the related SOW. 180 Consulting earned a cumulative number
of shares through July 31, 2021 totaling ,
and for the six-month period ended July 31, 2021.
For services rendered by 180 Consulting during the six-months ended July 31, 2021, the Company incurred fees of $
NOTE 8 – DISCONTINUED OPERATIONS
On February 24, 2020, the Company consummated the previously announced sale of the Company’s legacy Enterprise Content Management business (the “ECM Assets”) pursuant to that certain Asset Purchase Agreement, dated December 17, 2019, as amended (the “Asset Purchase Agreement”), to Hyland Software, Inc. (the “Purchaser”).
Pursuant
to the Asset Purchase Agreement, the Purchaser has acquired the ECM Assets and assumed certain liabilities of the Company for a purchase
price of $
At
closing, the Company realized approximately $
| Net Proceeds, including escrowed funds | $ | |||
| Net tangible assets sold: | ||||
| Accounts Receivable | ( | ) | ||
| Prepaid Expenses | ( | ) | ||
| Deferred Revenue | ||||
| Net tangible assets sold | ||||
| Capitalized software development costs | ( | ) | ||
| Goodwill | ( | ) | ||
| Transaction cost | ( | ) | ||
| Gain on sale of discontinued operations | $ |
| 18 |
The
transaction costs were primarily broker cost and cost of legal and accounting to affect the transaction. The Company allocated $
The Company recorded the following as discontinued operations on the accompanying condensed consolidated balance sheets as of July 31, 2021 and January 31, 2021:
| As of | ||||||||
| July 31, 2021 | January 31, 2021 | |||||||
| Current assets of discontinued operations: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Current assets of discontinued operations | $ | $ | ||||||
| Long-term assets of discontinued operations: | ||||||||
| Property and equipment, net | $ | $ | ||||||
| Long-term assets of discontinued operations | $ | $ | ||||||
| Current liabilities of discontinued operations: | ||||||||
| Accounts Payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Deferred revenues | ||||||||
| Current liabilities of discontinued operations | $ | $ | ||||||
For the three and six months ended July 31, 2021 and 2020, the Company recorded the following into discontinued operations in the accompanying condensed consolidated statements of operations:
| Three Months Ended | Six Months Ended | |||||||||||||||
| July 31, 2021 | July 31, 2020 | July 31, 2021 | July 31, 2020 | |||||||||||||
| Revenues: | ||||||||||||||||
| Maintenance and support | ||||||||||||||||
| Software as a service | ||||||||||||||||
| Transition service fees | ||||||||||||||||
| Total revenues | $ | $ | $ | $ | ||||||||||||
| Expenses: | ||||||||||||||||
| Cost of Sales | ||||||||||||||||
| Transition service cost | ||||||||||||||||
| Deferred financing cost | ||||||||||||||||
| Total expenses | ||||||||||||||||
| Income from discontinued operations | $ | $ | $ | $ | ||||||||||||
| 19 |
The Company entered into an agreement with the Purchaser of the ECM Assets to maintain the current data center through a transition period. The transition services do not have a finite ending date, however, the goal of both the Purchaser and the Company is to complete the transition of customer data as quickly as possible, with a current goal of ending this portion of the agreement in September 2021. The Company continues to pay the rent and maintain the servers within the data center during the transition services period and these amounts will continue to be presented as discontinued operations in future periods throughout fiscal year 2021. In consideration of these transition services, the Company maintained rights to certain customer contracts that provides a revenue stream. The cost to maintain the data center can be eliminated upon the completion of the transition services as described in the Asset Purchase Agreement. Our on-going cost to maintain the data center includes rent, cost of the servers, certain third-party software arrangements, and depreciation of the servers. The property and equipment on the Company’s balance sheet in discontinued operations is the net book value for the related servers in the data center.
NOTE 9 - RELATED PARTY TRANSACTIONS
In the second quarter of fiscal year 2019, in connection with the appointment of Wyche T. “Tee” Green, III, Chairman of the Board of the Company and Managing Member of 121G, LLC (“121G”), as interim President and Chief Executive Officer of the Company, we entered into a consulting agreement with 121G Consulting, LLC (“121G Consulting”), to provide an assessment of the Company’s innovation and growth teams and strategies and to develop a set of prioritized recommendations to be consolidated into a strategic plan for the Company’s leadership team. Mr. Green is a “member” of 121G Consulting, and, accordingly, has a financial interest in that entity. In October 2019, Mr. Green was appointed as President and Chief Executive Officer of the Company on a full-time basis. Subsequent to Mr. Green joining the Company on a full-time basis, the Company’s relationship with 121G Consulting was terminated.
For
the three and six months ended July 31, 2020, 121G Consulting fees totaled $
NOTE 10 — SUBSEQUENT EVENTS
We have evaluated subsequent events occurring after July 31, 2021, and based on our evaluation, except as set forth below, we did not identify any events that would have required recognition or disclosure in these condensed consolidated financial statements.
Acquisition of Avelead Consulting, LLC
On August 16, 2021 (the “Closing Date”), the Company entered into a Unit Purchase Agreement (the “Purchase Agreement”) with Avelead, and Jawad Shaikh and Badar Shaikh (together, the “Sellers”), pursuant to which the Company purchased all of the issued and outstanding units of membership interest of Avelead from the Sellers (the “Acquisition”). The aggregate purchase price payable to the Sellers consists of a combination of cash, shares of the Company’s common stock, and certain contingent consideration based upon the post-acquisition performance of the acquired business.
On the Closing Date, the Company provided the following consideration to the Sellers:
| ● | approximately
$ | |
| ● | an aggregate of shares of the Company’s common stock, and | |
| ● | approximately
$ |
The Sellers will be entitled to certain contingent consideration in the form of a performance-based earnout of a combination of cash and shares of the Company’s common stock based on recurring SaaS revenues generated by Avelead’s software solutions over the 24-month period following closing. The Sellers are also entitled to certain contingent consideration in the form of shares of the Company’s common stock based on certain levels of customer retention. The customer retention consideration will be measured on the first and second anniversary of the Closing Date. Finally, the Sellers have customary protections in the event of a change in control of the Company prior to the last earnout payment. Please refer to the Purchase Agreement for a description of such change in control provisions.
In connection with the Acquisition, on August 16, 2021, Avelead entered into an employment agreement with Jawad Shaikh for Mr. Jawad Shaikh to serve as President and Chief Executive Officer of Avelead (the “Employment Agreement”). The Employment Agreement has an initial term continuing until August 16, 2023 and will automatically renew for additional one-year periods thereafter, unless either Avelead or Mr. Jawad Shaikh provides 60 days’ prior notice of its or his intent not to renew or unless sooner terminated in accordance with the terms thereof.
In
connection with the Acquisition, on August 17, 2021, Avelead entered into a Confidential Separation Agreement and General Release of
Claims with Badar Shaikh (the “Separation Agreement”). Mr. Badar Shaikh’s employment with Avelead ended effective
as of August 17, 2021. Upon execution of the Separation Agreement, Mr. Shaikh is entitled to separation payments in the gross
amount of $
Avelead
provides consulting and technology solutions to improve Revenue Integrity for acute-care healthcare providers nationwide. The
Company believes Avelead’s solutions will complement and extend the value the Company can deliver to its customers. The
Company is currently in the process of accounting for this transaction and expects to complete its preliminary measurement of
the fair value of the purchase consideration transferred to the Sellers as well as the fair value of the assets acquired, and
liabilities assumed, in the Acquisition when the Company files its Quarterly Report on Form 10-Q for the period ending October 31,
2021. The Company has incurred normal and customary expenses related to the Avelead Acquisition. These expenses include, but are
not limited to, costs of financial advisers, legal counsel, separation agreements (described above), and one-time cash bonus
payments in the aggregate amount of $
Term Loan Agreement and Discontinuance of Revolving Credit Facility
On
August 26, 2021, the Company and its subsidiaries entered into the Second Amended Loan and Security Agreement with Bridge Bank. Pursuant
to the Second Amended Loan and Security Agreement, Bridge Bank agreed to provide the Company and its subsidiaries with a new term loan
facility in the maximum principal amount of $
The
Second Amended Loan and Security Agreement has a five-year term, and the maximum principal amount was advanced in a single-cash advance
on or about the closing date. Interest accrued under the Second Amended Loan and Security Agreement is due monthly, and the Company shall
make monthly interest-only payments through the one-year anniversary of the closing date. From the first anniversary of the closing date
through the maturity date, the Company shall make monthly payments of principal and interest that increase over the term of the agreement.
The Second Amended Loan and Security Agreement requires principal repayments of $
The Second Amended Loan and Security Agreement includes customary financial covenants, including the requirements that the Company achieve certain EBITDA levels and fixed coverage ratios and maintain certain cash balances and certain recurring revenue levels. The Second Amended Loan and Security Agreement also includes 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.
| 20 |
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
We make forward-looking statements in this Quarterly Report on Form 10-Q (this “Report”) and in other materials we file with the SEC or otherwise make public. This Report, therefore, contains statements about future events and expectations which are forward-looking statements within the meaning of Sections 27A of the Securities Act, as amended, and 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). In addition, our senior management makes forward-looking statements to analysts, investors, the media and others. Statements with respect to expected revenue, income, receivables, backlog, client attrition, acquisitions and other growth opportunities, sources of funding operations and acquisitions, the integration of our solutions, the performance of our channel partner relationships, the sufficiency of available liquidity, research and development, and other statements of our plans, beliefs or expectations are forward-looking statements. These and other statements using words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would” and similar expressions also are forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement. The forward-looking statements we make are not guarantees of future performance, and we have based these statements on our assumptions and analyses in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. Forward-looking statements by their nature involve substantial risks and uncertainties that could significantly affect expected results, and actual future results could differ materially from those described in such statements. Management cautions against putting undue reliance on forward-looking statements or projecting any future results based on such statements or present or historical earnings levels.
Among the factors that could cause actual future results to differ materially from our expectations are the risks and uncertainties described under “Risk Factors” and elsewhere in our Annual Report on Form 10-K for the fiscal year ended January 31, 2021 and in our subsequent filings with the SEC, and include among others, the following:
| ● | competitive products and pricing; | |
| ● | product demand and market acceptance; | |
| ● | entry into new markets; | |
| ● | 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; |
| 21 |
| ● | potential changes in legislation, regulation and government funding affecting the healthcare industry; | |
| ● | healthcare information systems budgets; | |
| ● | availability of healthcare information systems trained personnel for implementation of new systems, as well as maintenance of legacy systems; | |
| ● | the success of our relationships with channel partners; | |
| ● | fluctuations in operating results; | |
| ● | our future cash needs; | |
| ● | the consummation of resources in researching acquisitions, business opportunities or financings and capital market transactions; | |
| ● | the failure to adequately integrate past and future acquisitions into our business; | |
| ● | critical accounting policies and judgments; | |
| ● | changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other standard-setting organizations; | |
| ● | changes in economic, business and market conditions impacting the healthcare industry and the markets in which we operate; | |
| ● | our ability to maintain compliance with the terms of our credit facilities; and | |
| ● | our ability to maintain compliance with the continued listing standards of the Nasdaq Capital Market (“Nasdaq”). |
Some of these factors and risks have been, and may further be, exacerbated by the COVID-19 pandemic.
Most of these factors are beyond our ability to predict or control. Any of these factors, or a combination of these factors, could materially affect our future financial condition or results of operations and the ultimate accuracy of our forward-looking statements. There also are other factors that we may not describe (generally because we currently do not perceive them to be material) that could cause actual results to differ materially from our expectations.
On August 16, 2021, the Company entered into a Purchase Agreement 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. The Company’s Quarterly Report on Form 10-Q for the period ending October 31, 2021 will include the financial results of Avelead. Refer to Note 10 – Subsequent Events in our unaudited condensed consolidated financial statements included in Part I, Item I, “Financial Statements” for further information on the Avelead acquisition.
We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Results of Operations
Revenues
| Three Months Ended | % | |||||||||||||||
| ($ in thousands): | July 31, 2021 | July 31, 2020 | Change | Change | ||||||||||||
| Software licenses | $ | — | $ | 215 | (215 | ) | (100 | )% | ||||||||
| Professional services | 30 | 160 | (130 | ) | (81 | )% | ||||||||||
| Audit services | 443 | 463 | (20 | ) | (4 | )% | ||||||||||
| Maintenance and support | 1,087 | 1,228 | (141 | ) | (11 | )% | ||||||||||
| Software as a service | 1,308 | 821 | 487 | 59 | % | |||||||||||
| Total Revenues | $ | 2,868 | $ | 2,887 | (19 | ) | (1 | )% | ||||||||
| Six Months Ended | % | |||||||||||||||
| ($ in thousands): | July 31, 2021 | July 31, 2020 | Change | Change | ||||||||||||
| Software licenses | $ | 135 | $ | 215 | (80 | ) | (37 | )% | ||||||||
| Professional services | 108 | 312 | (204 | ) | (65 | )% | ||||||||||
| Audit services | 947 | 1,007 | (60 | ) | (6 | )% | ||||||||||
| Maintenance and support | 2,144 | 2,486 | (342 | ) | (14 | )% | ||||||||||
| Software as a service | 2,485 | 1,711 | 774 | 45 | % | |||||||||||
| Total Revenues | $ | 5,819 | $ | 5,731 | 88 | 2 | % | |||||||||
| 22 |
Software licenses — Proprietary software revenue recognized for the three- and six-month periods ended July 31, 2021 decreased by $215,000 and $80,000 from the prior comparable period. The Company is experiencing a shift in business from perpetual software licenses to software as a service. This shift has been exacerbated by the impact of COVID-19 on our channel partners that sell our products along with their larger electronic health record systems. The Company has the ability to influence sales of these products; however, the timing is difficult to manage as sales are primarily the result of our channel partners. Certain delays in contracting for systems sales are a result of COVID-19. The Company continues to be unable to estimate the timing or extent of the impact of COVD-19 on the Company’s ongoing performance relative to perpetual software sales.
Professional services — For the three- and six- month period ended July 31, 2021, revenue from professional services decreased by $130,000 and $204,000 from the prior comparable period. The decrease in revenue from professional services was largely due to the decrease in software sales. Historically, these professional services have been directly related to the software license sales. Additionally, the shift to a software as a service (“SaaS”) model and away from software licensing also affects the Company’s professional service revenue as the related implementation services are included as part of the software as a service revenue reported for the eValuator product over the term. The Company continues to be unable to estimate the timing or extent of the impact of COVD-19 on the Company’s ongoing performance relative to professional services.
Audit services — Audit services revenue for the three- and six- months ended July 31, 2021 decreased by $20,000 and $60,000 from the prior comparable period. The decrease in revenue was primarily due to one-time audits that occurred during fiscal year 2020. The Company’s expertise, demonstrated and supported by eValuator, and the fact that our professional staff is onshore is believed to be a competitive advantage with regard to the audit services. The Company has a reasonable backlog of new customers in audit services and ongoing customer audits. The Company expects the volume in audit services will improve by the end of fiscal year 2021.
Maintenance and support — Revenue from maintenance and support for the three- and six- months ended July 31, 2021 decreased over the prior comparable period by $141,000 and $342,000, respectively. The decrease is attributable to the sunset of our legacy product, clinical analytics, that was recognized until the last customers revenue ended in June 2020. There was no further revenue recognized from clinical analytics after June 2020.
Software as a Service (SaaS) — Revenue from SaaS for the three- and six- months ended July 31, 2021 increased by $487,000 and $774,000 from the prior comparable period. The increase resulted from new customers of our growth product, eValuator. The Company’s legacy product, Financial Management Systems, has been relatively consistent. The eValuator SaaS revenue base should continue to grow in fiscal year 2021 as we experience go-lives on sold eValuator customers, and sales of new eValuator customers that will go-live later in fiscal year 2021. We have experienced slower first contact to contracting timelines as a result of COVID-19. While we have seen some positive activity, we continue to be unable to estimate the impact of COVID-19 on future contracting processes with our customers.
Cost of Sales
| Three Months Ended | % | |||||||||||||||
| (in thousands): | July 31, 2021 | July 31, 2020 | Change | Change | ||||||||||||
| Cost of software licenses | $ | 143 | $ | 125 | $ | 18 | 14 | % | ||||||||
| Cost of professional services | 261 | 269 | (8 | ) | (3 | )% | ||||||||||
| Cost of audit services | 376 | 373 | 3 | 1 | % | |||||||||||
| Cost of maintenance and support | 80 | 182 | (102 | ) | (56 | )% | ||||||||||
| Cost of software as a service | 578 | 403 | 175 | 43 | % | |||||||||||
| Total cost of sales | $ | 1,438 | $ | 1,352 | $ | 86 | 6 | % | ||||||||
| Six Months Ended | % | |||||||||||||||
| (in thousands): | July 31, 2021 | July 31, 2020 | Change | Change | ||||||||||||
| Cost of software licenses | $ | 279 | $ | 202 | $ | 77 | 38 | % | ||||||||
| Cost of professional services | 475 | 510 | (35 | ) | (7 | )% | ||||||||||
| Cost of audit services | 765 | 733 | 32 | 4 | % | |||||||||||
| Cost of maintenance and support | 166 | 368 | (202 | ) | (55 | )% | ||||||||||
| Cost of software as a service | 1,188 | 808 | 380 | 47 | % | |||||||||||
| Total cost of sales | $ | 2,873 | $ | 2,621 | $ | 252 | 10 | % | ||||||||
The increase in overall cost of sales for the three- and six- months ended July 31, 2021 from the comparable prior period is primarily due to a mix of increases in amortization of software development and variable costs associated with obligations to third-party content providers offset by decreases in salary and salary related costs. The Company placed larger amounts of software development into service in the third and fourth quarter of fiscal year 2020 which is resulting in higher rates of amortization for fiscal year 2021. The Company’s growth in Software as a Service revenue results in increases in the amounts owed to the third-party content providers.
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Cost of software licenses reflect amortization of capitalized software expenditures. The increase in expense for the three- and six- month period ended July 31, 2021 from the comparable prior period was due to the increase in amortization of capitalized software costs for developed functionality placed in service throughout the second-half of fiscal year 2020 and the first half of fiscal year 2021.
The cost of professional services includes compensation and benefits for personnel and related expenses. These costs remained consistent for the three- and six- month period ended July 31, 2021, and the respective comparable periods.
The cost of audit services includes compensation and benefits for audit services personnel, and related expenses. These costs remained consistent for the three- and six- month period ended July 31, 2021, and the respective comparable periods.
The cost of maintenance and support includes compensation and benefits for client support personnel and the cost of third-party content provider contracts. The decrease in expense for the three- and six- month period ended July 31, 2021 from the comparable period in the prior year was primarily due to a reduction of salary and salary related expenses for employees that departed the organization. The Company was able to redeploy existing resources to mitigate costs to backfill the vacated positions.
The cost of SaaS solutions is comprised of salaries, amortization of capitalized software development, and third-party content provider costs. The primary driver of the increase in expense for the three- and six- month period ended July 31, 2021 from the comparable periods in the prior year was the increase in amortization of capitalized software development costs for developed functionality placed in service subsequent to the second quarter of fiscal year 2020. Amortization of capitalized software development costs for the three- and six- month periods ended July 31, 2021 were $333,000 and $699,000, respectively, as compared to $234,000 and $443,000 for the respective comparable prior periods. A secondary driver of the increase in expense for the three- and six- month period ended July 31, 2021 from the comparable period in the prior year was an increase in the variable costs associated with obligations to certain third-party content providers.
Selling, General and Administrative Expense
| Three Months Ended | % | |||||||||||||||
| ($ in thousands): | July 31, 2021 | July 31, 2020 | Change | Change | ||||||||||||
| General and administrative expenses | $ | 1,716 | $ | 1,596 | $ | 120 | 8 | % | ||||||||
| Sales and marketing expenses | 799 | 688 | 111 | 16 | % | |||||||||||
| Total selling, general, and administrative expense | $ | 2,515 | $ | 2,284 | $ | 231 | 10 | % | ||||||||
| Six Months Ended | % | |||||||||||||||
| ($ in thousands): | July 31, 2021 | July 31, 2020 | Change | Change | ||||||||||||
| General and administrative expenses | $ | 3,451 | $ | 3,052 | $ | 399 | 13 | % | ||||||||
| Sales and marketing expenses | 1,617 | 1,524 | 93 | 6 | % | |||||||||||
| Total selling, general, and administrative expense | $ | 5,068 | $ | 4,576 | $ | 492 | 11 | % | ||||||||
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 increase in general and administrative expenses for the six months ended July 31, 2021 from the comparable prior period is primarily attributed to an increase in stock compensation expense and professional fees associated with the Company’s Special Meeting. Stock compensation expense for the three- and six- month periods ended July 31, 2021 was $289,000 and $559,000, respectively, as compared to $138,000 and $325,000 for the respective comparable prior periods. The Company has previously announced accelerated equity awards for its executives in lieu of cash bonuses. These accelerated equity awards are causing a near-term (12 month) increase in amortization of stock compensation for fiscal year 2021.
Sales and marketing expenses consist primarily of compensation and related benefits and reimbursable travel and entertainment expenses related to our sales and marketing staff, as well as advertising and marketing expenses, including trade shows. Sales and marketing expense for the six months ended July 31, 2021 increased slightly from the comparable prior period. An increase in salaries, benefits, and commission expense was primarily offset by lower professional fees in the current reporting period as compared to the same period a year ago. The Company has continued to limit travel until its employees’ safety can be more assured. There is no anticipated date to re-institute travel for its sales, and other personnel. The Company has been productive using web-based meeting media to continue its sales and customer service processes.
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Research and Development
| Three Months Ended | % | |||||||||||||||
| ($ in thousands): | July 31, 2021 | July 31, 2020 | Change | Change | ||||||||||||
| Research and development expense | $ | 964 | $ | 509 | $ | 455 | 89 | % | ||||||||
| Plus: Capitalized research and development cost | 328 | 653 | (325 | ) | (50 | )% | ||||||||||
| Total research and development cost | $ | 1,292 | $ | 1,162 | $ | 130 | 11 | % | ||||||||
| Six Months Ended | % | |||||||||||||||
| ($ in thousands): | July 31, 2021 | July 31, 2020 | Change | Change | ||||||||||||
| Research and development expense | $ | 1,941 | $ | 1,193 | $ | 748 | 63 | % | ||||||||
| Plus: Capitalized research and development cost | 706 | 1,132 | (426 | ) | (38 | )% | ||||||||||
| Total research and development cost | $ | 2,647 | $ | 2,325 | $ | 322 | 14 | % | ||||||||
Research and development cost consists primarily of compensation and related benefits, the use of independent contractors for specific near-term development projects, and allocated occupancy expense. Research and development expense for the three-month period ended July 31, 2021 was higher than that from the prior comparable period. The overall increase in cost is related to extending work with the Company’s development partners to create user interfaces to improve our velocity with the eValuator product. The additional cost related to development partners includes stock compensation expense of $108,000 and $251,000 for the three- and six- month periods ended July 31, 2021 as compared to $69,000 and $69,000 for the respective comparable prior periods. The Company continues to be more efficient in research and development with primary focus on the eValuator product.
The capitalized research and development cost for the three-month period ended July 31, 2021 is lower than that from the prior comparable period as the Company had several significant releases during the first half of fiscal year 2020 that consumed more capitalized time. The Company expects total research and development expenses will continue to increase slightly throughout fiscal year 2021, primarily from the expansion of work with development partners. The Company has included in certain development partner agreements a combination of equity awards and cash as compensation. These additional equity awards are causing a near-term (12 month) increase in amortization of stock compensation for fiscal year 2021. For the six months ended July 31, 2021 and 2020, as a percentage of revenues, total research and development costs were 45% and 41%, respectively.
Non-routine Costs
| Three Months Ended | ||||||||||||||||
| ($ in thousands): | July 31, 2021 | July 31, 2020 | Change | % Change | ||||||||||||
| Non-routine costs | $ | 336 | $ | — | $ | 336 | 100 | % | ||||||||
| Six Months Ended | ||||||||||||||||
| ($ in thousands): | July 31, 2021 | July 31, 2020 | Change | % Change | ||||||||||||
| Non-routine costs | $ | 777 | $ | — | $ | 777 | 100 | % | ||||||||
For the three months ended July 31, 2021, the Company incurred approximately $336,000 in connection with the Avelead acquisition that was completed on August 16, 2021. Refer to Note 10 – Subsequent Events in our unaudited condensed consolidated financial statements included in Part I, Item I, “Financial Statements” for further information on the Avelead acquisition. For the six months ended July 31, 2021, the Company also incurred a one-time bonus of approximately $350,000 to certain key executives for managing the successful closing of the Offering, and costs of approximately $427,000 in connection with the Avelead acquisition.
Loss on Exit from Membership Agreement
| Six Months Ended | ||||||||||||||||
| ($ in thousands): | July 31, 2021 | July 31, 2020 | Change | % Change | ||||||||||||
| Loss on exit from membership agreement | $ | — | $ | 105 | $ | (105 | ) | (100 | )% | |||||||
Refer to Note 3 – Operating Leases in our unaudited condensed consolidated financial statements included in Part I, Item I, “Financial Statements” for further details with respect to the Company’s former shared office arrangement in Atlanta. In the six months ended July 31, 2020, we recorded $105,000 in cost related to the remaining payments required under the agreement with the landlord on shared office space in Atlanta that was abandoned when the Company entered a new lease for office space in Alpharetta, Georgia.
Other Income (Expense)
| Three Months Ended | ||||||||||||||||
| ($ in thousands): | July 31, 2021 | July 31, 2020 | Change | % Change | ||||||||||||
| Interest expense | $ | (9 | ) | $ | (13 | ) | $ | 4 | (31 | )% | ||||||
| Other | (8 | ) | (64 | ) | 56 | (88 | )% | |||||||||
| Forgiveness of PPP loan and accrued interest | 2,327 | — | 2,327 | 100 | % | |||||||||||
| Total other income (expense) | $ | 2,310 | $ | (77 | ) | $ | 2,387 | (3100 | )% | |||||||
| Six Months Ended | ||||||||||||||||
| ($ in thousands): | July 31, 2021 | July 31, 2020 | Change | % Change | ||||||||||||
| Interest expense | $ | (22 | ) | $ | (27 | ) | $ | 5 | (19 | )% | ||||||
| Other | 6 | (82 | ) | 88 | (107 | )% | ||||||||||
| Forgiveness of PPP loan and accrued interest | 2,327 | — | 2,327 | 100 | % | |||||||||||
| Total other income (expense) | $ | 2,311 | $ | (109 | ) | $ | 2,420 | (2200 | )% | |||||||
Interest expense is primarily related to the amortization of deferred financing costs of the Company’s revolving line of credit facility with Bridge Bank. A minimal amount of interest expense for the six months ended July 31, 2020 was related to the Company’s term loan that was repaid from the proceeds of the Asset Purchase Agreement for the ECM Assets. Other expense for the three-month month period ended July 31, 2021 reflects any currency transaction. Other expense for the six-month period ended July 31, 2020 includes each of (i) a $50,000 impact for currency transaction revaluation, and (ii) $31,000 for Montefiore valuation adjustment. Forgiveness of PPP loan and accrued interest for the three- and six-month period ended July 31, 2021 reflects the financial impact of the $2,301,000 PPP loan being forgiven, along with the accrued interest of $26,000 being forgiven.
Provision for Income Taxes
We recorded an income tax benefit of $4,000 and $172,000 for the three months ended July 31, 2021 and 2020 respectively, and income tax expense of $5,000 and income tax benefit of $733,000 for the six months ended July 31, 2021 and 2020, respectively, which is comprised of estimated federal, state and local income tax provisions. The income tax benefit for the six months ended July 31, 2020 is partially off-set by an income tax from discontinued operations. The Company has a substantial amount of net operating losses for federal and state income tax purposes. For the six months ended July 31, 2021, the net income tax expense is reported under continuing operations. Refer to Note 5 – Income Taxes for more information on the Company’s adoption of ASU 2019-12.
Use of Non-GAAP Financial Measures
In order to provide investors with greater insight and allow for a more comprehensive understanding of the information used by management and the Board of Directors in its financial and operational decision-making, the Company has supplemented the condensed consolidated financial statements presented on a GAAP basis in this Report with the following non-GAAP financial measures: EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EBITDA per diluted share.
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.
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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, share-based compensation expense, transaction related expenses and other expenses that do not relate to our core operations such as severances and impairment charges; (iii) Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of GAAP net revenue; and (iv) Adjusted EBITDA per diluted share as Adjusted EBITDA divided by adjusted diluted shares outstanding. EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EBITDA per diluted share are used to facilitate a comparison of our operating performance on a consistent basis from period to period and provide for a more complete understanding of factors and trends affecting our business than GAAP measures alone. These measures assist management and the board and may be useful to investors in comparing our operating performance consistently over time as they remove the impact of our capital structure (primarily interest charges), asset base (primarily depreciation and amortization), items outside the control of the management team (taxes) and expenses that do not relate to our core operations including: transaction-related expenses (such as professional and advisory services), corporate restructuring expenses (such as severances) and other operating costs that are expected to be non-recurring. Adjusted EBITDA removes the impact of share-based compensation expense, which is another non-cash item. Adjusted EBITDA per diluted share includes incremental shares in the share count that are considered anti-dilutive in a GAAP net loss position.
The Board of Directors and management also use these measures (i) as one of the primary methods for planning and forecasting overall expectations and for evaluating, on at least a quarterly and annual basis, actual results against such expectations; and (ii) as a performance evaluation metric in determining achievement of certain executive and associate incentive compensation programs.
Our lender uses a measurement that is similar to the Adjusted EBITDA measurement described herein to assess our operating performance. The lender under our Amended Security Agreement requires delivery of compliance reports certifying compliance with financial covenants, certain of which are based on a measurement that is similar to the Adjusted EBITDA measurement reviewed by our management and Board of Directors.
EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are not measures of liquidity under GAAP or otherwise, and are not alternatives to cash flow from continuing operating activities, despite the advantages regarding the use and analysis of these measures as mentioned above. EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted EBITDA per diluted share, as disclosed in this 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 Amended Security Agreement ; | |
| ● | EBITDA does not reflect income tax payments that we may be required to make; and | |
| ● | Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements. |
Adjusted EBITDA has all the inherent limitations of EBITDA. To properly and prudently evaluate our business, the Company encourages readers to review the GAAP financial statements included elsewhere in this Report, and not rely on any single financial measure to evaluate our business. We also strongly urge readers to review the reconciliation of these non-GAAP financial measures to the most comparable GAAP measure in this section, along with the condensed consolidated financial statements included above.
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The following table reconciles EBITDA and Adjusted EBITDA to net loss from continuing operations, and Adjusted EBITDA per diluted share to loss per diluted share for the three-months ended July 31, 2021 and 2020 (amounts in thousands, except per share data). All of the items included in the reconciliation from EBITDA and Adjusted EBITDA to net loss and the related per share calculations are either recurring non-cash items, or items that management does not consider in assessing our on-going operating performance. In the case of the non-cash items, management believes that investors may find it useful to assess the Company’s comparative operating performance because the measures without such items are less susceptible to variances in actual performance resulting from depreciation, amortization and other expenses that do not relate to our core operations and are more reflective of other factors that affect operating performance. In the case of items that do not relate to our core operations, management believes that investors may find it useful to assess our operating performance if the measures are presented without these items because their financial impact does not reflect ongoing operating performance.
| Three-Months Ended | Six Months Ended | |||||||||||||||
| In thousands, except per share data | July 31, 2021 | July 31, 2020 | July 31, 2021 | July 31, 2020 | ||||||||||||
| Adjusted EBITDA Reconciliation | ||||||||||||||||
| Loss from continuing operations | $ | (71 | ) | $ | (1,163 | ) | $ | (2,534 | ) | $ | (2,140 | ) | ||||
| Interest expense | 9 | 13 | 22 | 27 | ||||||||||||
| Income tax (benefit)/ expense | (4 | ) | (172 | ) | 5 | (733 | ) | |||||||||
| Depreciation | 16 | 17 | 37 | 31 | ||||||||||||
| Amortization of capitalized software development costs | 478 | 362 | 984 | 651 | ||||||||||||
| Amortization of intangible assets | 116 | 124 | 231 | 247 | ||||||||||||
| Amortization of other costs | 126 | 78 | 242 | 153 | ||||||||||||
| EBITDA | $ | 670 | $ | (741 | ) | $ | (1,013 | ) | $ | (1,764 | ) | |||||
| Share-based compensation expense | 557 | 349 | 1,122 | 613 | ||||||||||||
| Non-cash valuation adjustments | — | 14 | — | 31 | ||||||||||||
| Loss on exit of operating lease | — | — | — | 105 | ||||||||||||
| Non-routine costs | 336 | — | 777 | — | ||||||||||||
| Forgiveness of PPP loan and accrued interest | (2,327 | ) | — | (2,327 | ) | — | ||||||||||
| Other non-recurring charges | — | — | 16 | — | ||||||||||||
| Adjusted EBITDA | $ | (764 | ) | $ | (378 | ) | $ | (1,425 | ) | $ | (1,015 | ) | ||||
| Adjusted EBITDA margin (1) | (27 | )% | (13 | )% | (24 | )% | (18 | )% | ||||||||
| Adjusted EBITDA per Diluted Share Reconciliation | ||||||||||||||||
| Loss from continuing operations per common share — diluted | $ | — | $ | (0.04 | ) | $ | (0.06 | ) | $ | (0.07 | ) | |||||
| Net (loss) income per common share — diluted | $ | — | $ | (0.04 | ) | $ | (0.05 | ) | $ | 0.08 | ||||||
| Adjusted EBITDA per adjusted diluted share (2) | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.04 | ) | $ | (0.03 | ) | ||||
| Diluted weighted average shares (3) | 41,288,709 | 30,026,658 | 39,393,333 | 29,897,236 | ||||||||||||
| Includable incremental shares — adjusted EBITDA (4) | 448,522 | 394,815 | 567,665 | 332,359 | ||||||||||||
| Adjusted diluted shares | 41,737,231 | 30,421,473 | 39,960,998 | 30,229,595 | ||||||||||||
| (1) | Adjusted EBITDA as a percentage of GAAP net revenue. |
| (2) | Adjusted EBITDA per adjusted diluted share for our common stock is computed using the treasury stock method. |
| (3) | Diluted EPS for our common stock was computed using the treasury stock method. |
| (4) | The number of incremental shares that would be dilutive under an assumption that the Company is profitable during the reported period, which is only applicable for a period in which the Company reports a GAAP net loss. If a GAAP profit is earned in the reported periods, no additional incremental shares are assumed. |
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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, 2021. During the period ended July 31, 2021, the Company adopted ASU 2019-12. Refer to Note 5 – Income Taxes for more information. 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, 2021.
Liquidity and Capital Resources
The Company’s liquidity is dependent upon numerous factors including: (i) the timing and amount of revenue and collection of contractual amounts from customers, (ii) amounts invested in research and development and capital expenditures, and (iii) the level of operating expenses, all of which can vary significantly from quarter to quarter. The Company’s primary cash requirements include regular payment of payroll and other business expenses, principal and interest payments on debt and capital expenditures. Capital expenditures generally include computer hardware and computer software to support internal development efforts or SaaS data center infrastructure. Operations are funded with cash generated by operations and borrowings under credit facilities.
On February 25, 2021, the Company entered into an underwriting agreement with Craig-Hallum Capital Group LLC, as the sole managing underwriter, relating to the underwritten public offering of an aggregate of 10,062,500 shares of the Company’s common stock, par value $0.01 per share, which included 1,312,500 shares of common stock sold pursuant to the underwriter’s exercise of an option to purchase additional shares of common stock to cover over-allotments (the “Offering”). The price to the public in the Offering was $1.60 per share of common stock. The gross proceeds to the Company from the Offering were approximately $16.1 million, before deducting underwriting discounts, commissions and estimated offering expenses. The Offering closed on March 2, 2021. The Company believes that cash flows from operations, the cash from the Offering and available credit facilities are adequate to fund current obligations for the next twelve months from issuance of these financial statements. Cash and cash equivalent balances at July 31, 2021 and January 31, 2021 were approximately $15,847,000 and $2,409,000, respectively. Continued expansion may require the Company to take on additional debt or raise capital through issuance of equities, or a combination of both. There can be no assurance the Company will be able to raise the capital required to fund further expansion.
The Company has liquidity through the Second Amended Loan and Security Agreement described in more detail in Note 10 – Subsequent Events in our unaudited condensed consolidated financial statements included in Part I, Item I, “Financial Statements”. The Company has a new term loan facility in the maximum principal amount of $10,000,000. Amounts outstanding under the Second Amended Loan and Security Agreement bear interest at a per annum rate equal to the Prime Rate (as published in The Wall Street Journal) plus 1.5%, with a Prime “floor” rate of 3.25%. Pursuant to the Second Amended Loan and Security Agreement, the Company’s existing $3,000,000 revolving credit facility with Bridge Bank was terminated. At the time of the discontinuance, there was no outstanding balance on the revolving credit facility. The Company will also be required to pay customary fees and expenses.
The Second Amended Loan and Security Agreement has a five-year term, and the maximum principal amount was advanced in a single-cash advance on or about the closing date. Interest accrued under the Second Amended Loan and Security Agreement is due monthly, and the Company shall make monthly interest-only payments through the one-year anniversary of the closing date. From the first anniversary of the closing date through the maturity date, the Company shall make monthly payments of principal and interest with the remaining outstanding principal balance and all accrued but unpaid interest due in full on the maturity date. Proceeds of the term loan will be used (i) to fund certain fees and expenses associated with the Second Amended Loan and Security Agreement, (ii) replenish the Company’s balance sheet for payments made in connection with the acquisition of Avelead (which such acquisition closed on August 16, 2021), and (iii) for ordinary working capital requirements and other general corporate needs. The term loan is secured by all, or substantially all, assets of the Company, its subsidiaries, and certain of its affiliates.
The Second Amended Loan and Security Agreement includes customary financial covenants, including the requirements that the Company achieve certain EBITDA levels and fixed coverage ratios and maintain certain cash balances and certain recurring revenue levels. The Second Amended Loan and Security Agreement also includes 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.
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The Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, was signed into law on March 17, 2020. Among other things, the Cares Act provided for a business loan program known as the Paycheck Protection Act (“PPP”). Companies are able to borrow, through the SBA, up to two months of payroll. The Company received approximately $2,301,000 through the SBA for the PPP loan program. These funds were utilized by the Company to fund payroll during the COVID-19 pandemic and avoid further staffing reductions during the slowdown. The loan required principal payments, beginning after the seventh monthly anniversary, and was required to be fully paid in two years. The PPP loan bore an interest rate of 1.0% per annum.
During the six months ended July 31, 2021, the Company received legal notification that the PPP loan principal amount of $2,301,000 and accrued interest of $26,000 had been forgiven in full.
Significant cash obligations
| (in thousands) | July 31, 2021 | January 31, 2021 | ||||||
| Term loan (1) | $ | — | $ | 2,301 | ||||
| (1) | The term loan balance at January 31, 2021 is the Company’s PPP loan. |
Operating cash flow activities
| Six months Ended | ||||||||
| (in thousands) | July 31, 2021 | July 31, 2020 | ||||||
| Net loss from continuing operations | $ | (2,534 | ) | $ | (2,140 | ) | ||
| Non-cash adjustments to net loss | 288 | 1,045 | ||||||
| Cash impact of changes in assets and liabilities | 709 | (876 | ) | |||||
| Net cash used in operating activities | $ | (1,537 | ) | $ | (1,971 | ) | ||
The use of cash from operating activities is due to the loss from operations for the three and six month periods ended July 31, 2021, offset with forgiveness of the PPP loan in the amount of $2,301,000 and accrued interest of $26,000, as well as certain non-recurring cost paid in the first quarter of fiscal year 2020. We had approximately $600,000 of non-recurring cost accrued at the end of fiscal year 2019, that were funded in the first quarter ended April 30, 2020. These were inclusive of approximately $300,000 of severance liabilities for an employee rationalization that occurred on January 31, 2020.
Investing cash flow activities
| Six months Ended | ||||||||
| (in thousands) | July 31, 2021 | July 31, 2020 | ||||||
| Purchases of property and equipment | $ | (3 | ) | $ | (34 | ) | ||
| Proceeds from sales of ECM Assets | 800 | 11,288 | ||||||
| Capitalized software development costs | (706 | ) | (1,094 | ) | ||||
| Net cash provided by investing activities | $ | 91 | $ | 10,160 | ||||
The decrease in the cash provided by investing activities in the six months ended July 31, 2021 over the prior comparable period is primarily due to the proceeds from our sale of the ECM Assets. During the three months ended July 31, 2021, escrowed funds of $800,000 associated with the sale of the ECM Assets were released to the Company. Refer to Note 8 – Discontinued Operations for more information on the sale of the ECM Assets. Operationally, the Company has a more focused effort on the spend for software development projects. See discussion and analysis in “Research and development costs” above. The proceeds from the sale of the ECM Assets are net of direct transaction expenses.
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Financing cash flow activities
| Six months Ended | ||||||||
| (in thousands) | July 31, 2021 | July 31, 2020 | ||||||
| Proceeds from issuance of common stock | $ | 16,100 | $ | — | ||||
| Payments for costs directly attributable to the issuance of common stock | (1,318 | ) | — | |||||
| Proceeds of term loan payable | — | 2,301 | ||||||
| Payments related to settlement of employee shared based awards | (291 | ) | — | |||||
| Payment for deferred financing costs | (38 | ) | — | |||||
| Principal repayments on term loan | — | (4,000 | ) | |||||
| Other | (5 | ) | (58 | ) | ||||
| Net cash provided by (used in) financing activities | $ | 14,448 | $ | (1,757 | ) | |||
The cash provided by financing activities in the six months ended July 31, 2021, was primarily from the public Offering of the Company’s common stock, which closed on March 2, 2021. Refer to Note 6 – Equity for additional information. The cash used in financing activities in the six months ended July 31, 2020 was primarily the result of the repayment of the Company’s term loan on February 24, 2020, upon the closing of the sale of the ECM Assets. The Company was required to repay the term loan at close and funding of the sale of the ECM Assets. Additionally, the Company filed for, and received, a PPP loan in the amount of $2,301,000. Refer to Note 4 – Debt.
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 (who serves as our principal executive officer) and our Chief Financial Officer (who serves as our principal financial officer) have evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of July 31, 2021. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of July 31, 2021.
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Changes in Internal Control over Financial Reporting
During the three and six months ended July 31, 2021, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by Exchange Act Rule 13a-15(d) that have materially affected, or are reasonably likely to materially affect, our internal control.
PART II. OTHER INFORMATION
Item 1A. RISK FACTORS –
An investment in our common stock or other securities involves a number of risks. You should carefully consider each of the risks described in our Annual Report on Form 10-K for the year ended January 31, 2021 which Annual Report includes a detailed discussion of the Company’s risk factors. There have been no material changes to the risk factors as disclosed in our Annual Report. Nevertheless, many of the risk factors disclosed in Item 1A of our Annual Report have been, and we expect will continue to be aggravated by the impact of the COVID-19 pandemic. If any of the risks develop into actual events, our business, financial condition or results of operations could be negatively affected, the market price of our common stock or other securities could decline, and you may lose all or part of your investment.
| 31 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On August 20, 2021, the Company issued to 180 Consulting an aggregate of 128,415 shares of common stock as compensation for services rendered during the six months ended July 31, 2021. Such shares were issued pursuant to the Master Services Agreement, effective March 19, 2020, by and between the Company and 180 Consulting and related statements of work. The shares were issued in a private placement in reliance on the exemption from registration available under Section 4(a)(2) of the Securities Act, including Regulation D promulgated thereunder and the certificate representing such shares has a legend imprinted on it stating that the shares have not been registered under the Securities Act and cannot be transferred until properly registered under the Securities Act or pursuant to an exemption from such registration.
The following table sets forth information with respect to our repurchases of common stock during the three months ended July 31, 2021:
Total Number of | Maximum Number | |||||||||||||||
| Shares Purchased | of Shares that May | |||||||||||||||
Total Number of | as Part of Publicly | Yet Be Purchased | ||||||||||||||
| Shares Purchased | Average Price Paid | Announced Plans or | under the Plans or | |||||||||||||
| (1) | per Share | Programs | Programs | |||||||||||||
| May 1 - May 31 | — | $ | — | — | — | |||||||||||
| June 1 - June 30 | 64,976 | 1.90 | — | — | ||||||||||||
| July 1 - July 31 | 4,313 | 1.58 | — | — | ||||||||||||
| Total | 69,289 | $ | 1.88 | — | — | |||||||||||
| (1) | Amount represents shares surrendered by employees to satisfy tax withholding obligations resulting from restricted stock that vested during the three months ended July 31, 2021. |
Item 6. EXHIBITS
See Index to Exhibits.
| 32 |
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.
| 33 |
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: September 14, 2021 | By: | /S/ WYCHE T. “TEE” GREEN, III |
Wyche T. “Tee” Green, III Chief Executive Officer | ||
| DATE: September 14, 2021 | By: | /S/ Thomas J. Gibson |
| Thomas J. Gibson | ||
| Chief Financial Officer | ||
| 34 |
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Wyche “Tee” Green, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Streamline Health Solutions, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: September 14, 2021 | /s/ Wyche “Tee” Green |
| Chairman of the Board of Directors, Chief Executive Officer and President |
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Thomas J. Gibson, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Streamline Health Solutions, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: September 14, 2021 | /s/ Thomas J. Gibson |
| Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Wyche “Tee” Green, Chairman of the Board of Directors, Chief Executive Officer and President of Streamline Health Solutions, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C Section 1350, that to my knowledge:
| (1) | The quarterly report on Form 10-Q of the Company for the quarter ended July 31, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition, and results of operations of the Company. |
| /s/ Wyche “Tee” Green | |
| Wyche “Tee” Green | |
| Chairman of the Board of Directors, Chief Executive Officer and President | |
| September 14, 2021 |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Thomas J. Gibson, Chief Financial Officer of Streamline Health Solutions, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C Section 1350, that to my knowledge:
| (1) | The quarterly report on Form 10-Q of the Company for the quarter ended July 31, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition, and results of operations of the Company. |
| /s/ Thomas J. Gibson | |
| Thomas J. Gibson | |
| Chief Financial Officer | |
| September 14, 2021 |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.