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 December 08, 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-Oct-21 | 31-Jan-21 | |||||||
| (Unaudited) | ||||||||
| 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-Oct-21 | 31-Jan-21 | |||||||
| (Unaudited) | ||||||||
| 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 | ||||||||
| Acquisition earnout liability | ||||||||
| Operating lease obligation, less current portion | ||||||||
| Other Non-Current Liabilities | ||||||||
| 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 October 31, | Nine Months Ended October 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 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on Extinguishment of Debt | ( | ) | ( | ) | ||||||||||||
| 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 | ( | ) | ||||||||||||||||||
| Exercise of Stock Options | ||||||||||||||||||||
| Restricted stock issued | ( | ) | ||||||||||||||||||
| Restricted stock forfeited | ( | ) | ||||||||||||||||||
| Surrender of shares | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Share-based compensation | — | |||||||||||||||||||
| Issuance of Common Stock | ||||||||||||||||||||
| Offering Expenses | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance at October 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 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Restricted stock issued | ||||||||||||||||||||
| Restricted stock forfeited | ( | ) | ||||||||||||||||||
| Surrender of shares | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Share-based compensation | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance at October 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)
| Nine months Ended October 31, | ||||||||
| 2021 | 2020 | |||||||
| Net (Loss) Income | ( | ) | ||||||
| LESS: 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 early extinguishment of debt | ||||||||
| Loss on exit from membership agreement | ||||||||
| Share-based compensation expense | ||||||||
| Provision (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: | ||||||||
| Investment in Avelead, Net of Cash | ( | ) | ||||||
| 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 | ( | ) | ||||||
| Payment on royalty liability | ( | ) | ||||||
| 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
October 31, 2021
NOTE 1 — BASIS OF PRESENTATION
Streamline Health Solutions, Inc. and each of its wholly-owned subsidiaries, Streamline Health, LLC, Avelead Consulting, LLC, Streamline Consulting Solutions, LLC and Streamline Pay & Benefits, LLC, (collectively, unless the context requires otherwise, “we,” “us,” “our,” “Streamline,” or the “Company”), operate in one segment as a provider of healthcare information technology solutions and associated services. The Company provides these capabilities through the licensing of its Coding & CDI, 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. Operating results for the nine months ended October 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2022.
Refer to Note – 3 Business Combination and Divestiture. Under ASC 280-10-50-11, two or more operating segments may be aggregated into a single operating segment if they are considered to be similar. Operating segments are considered to be similar if they can be expected to have essentially the same economic characteristics and future prospects. Using the aggregation guidance, the Company determined that it has one operating segment due to the similar economic characteristics of the Company’s products, product development, distribution, regulatory environment and customer base as a provider of computer software-based solutions and services for acute-care healthcare providers. The Company has two reporting units for evaluation of intangible assets. These two reporting units are the legacy Streamline products and Avelead Consulting, LLC.
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.
The
Company wrote-off fully depreciated fixed assets during the first nine months of fiscal 2021 of $
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 nine months ended October 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. The WSJ prime interest rate did not go below the “Floor” rate as described in the loan agreement. Accordingly, the interest rates charged were market 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 nine months ended October 31, 2021 and 2020.
The table below provides information on the fair value of our liabilities:
| Quoted Prices in | Significant Other | Significant Unobservable | ||||||||||||||
| Total Fair | Active Markets | Observable Inputs | Inputs | |||||||||||||
| Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| At October 31, 2021 | ||||||||||||||||
| Acquisition earnout liability (1) | $ | $ | $ | $ | ||||||||||||
| At January, 31, 2021 | ||||||||||||||||
| PPP Loan (2) | $ | $ | $ | $ | ||||||||||||
| (1) | |
| (2) |
| 8 |
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 for software licenses. 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, consulting, 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. Avelead’s SaaS-based contracts have implementation services that are a distinct performance obligation, and, accordingly, are recognized separately as professional services. Consideration payable under these agreements is either on a fixed fee or 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, support, and other services which represent a single promise to provide continuous access to its software solutions. Additionally, implementation for the Company’s eValuator product is included as part of the single promise for its respective contracts. The Company recognizes revenue for implementation of the eValuator product over the contract term as it is determined that the implementation on eValuator is not a distinct performance obligation.
| 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:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| October 31, 2021 | October 31, 2020 | October 31, 2021 | October 31, 2020 | |||||||||||||
| Recurring revenue | $ | $ | $ | $ | ||||||||||||
| Non-recurring revenue | ||||||||||||||||
| Total revenue: | $ | $ | $ | $ | ||||||||||||
The Company includes revenue categories of (i) maintenance and support and (ii) software as a service as recurring revenue for the three and nine months ended October 31, 2021 and 2020. The Company includes revenue categories of (i) software licenses, (ii) professional services, and (iii) audit services as non-recurring revenue for the three and nine months ended October 31, 2021 and 2020.
Business Combinations
Acquisitions have been accounted for as business combinations, using the acquisition method and, accordingly, the results of operations of the acquired businesses have been included in the condensed consolidated financial statements since their dates of acquisition. The assets and liabilities assumed of these businesses were recorded in the financial statements at their respective estimated fair values as of the acquisition date. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions as a part of the purchase price allocation process to accurately value the assets acquired, including intangible assets, and the liabilities assumed at the acquisition date, the Company’s estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair values of the assets acquired and the liabilities assumed, with a corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or the liabilities assumed, whichever comes first, any subsequent adjustments are reflected in our consolidated statements of operations.
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 nine months ended October 31, 2021, the Company recognized approximately $
Deferred costs (costs to fulfill a contract and contract acquisition costs)
The
Company defers the direct costs, which include salaries and benefits, for professional services related to SaaS contracts as a cost to
fulfill a contract. These deferred costs will be amortized on a straight-line basis over the period of expected benefit which is the
contractual term. As of October 31, 2021 and January 31, 2021, the Company 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, the Company expenses sales commissions as incurred when the amortization period of related deferred commission costs is expected to be one year or less.
As
of October 31, 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 October 31, 2021 and 2020, respectively, and $ and $ in the nine months ended October 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 6 – Income Taxes for further details.
The Company provides for uncertain tax positions and the related interest and penalties based upon management’s assessment of whether certain tax positions are more likely than not to be sustained upon examination by tax authorities. At October 31, 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 | Nine Months Ended | |||||||||||||||
| October 31, 2021 | October 31, 2020 | October 31, 2021 | October 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
Three Months ended October 31, 2021 | Nine Months ended October 31, 2021 | |||||||
| Separation agreement expense | $ | $ | ||||||
| Broker Fees | ||||||||
| Professional Fees | ||||||||
| Executive bonuses | ||||||||
| Loss on exit from operating lease | ||||||||
| Other | ( | ) | ( | ) | ||||
| Total non-routine costs | $ | $ | ||||||
For
the three and nine months ended October 31, 2021, the Company incurred certain non-routine costs totaling $
Loss on Exit from Membership Agreement
As of October 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 nine months ended October 31, 2020 to reflect the liability at the time it abandoned the space. Refer to Note 4 – Operating Leases.
| 13 |
Non-Cash Items
The Company had the following items that were non-cash items related to the condensed consolidated statements of cash flows:
| October 31, | ||||||||
| 2021 | 2020 | |||||||
| Forgiveness of PPP loan and accrued interest | $ | $ | ||||||
| Working capital accrual | ||||||||
| Escrowed funds from sale of ECM Assets | ||||||||
| Right-of Use Assets from operating lease | ||||||||
| Capitalized software purchased with stock (Note 8 – Commitments and Contingencies) | ||||||||
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.
In
October 2021, the FASB issued ASU No. 2021-08, Accounting for Contract Assets and Contract Liabilities From Contracts With Customers
(“ASU 2021-08”), which amends the accounting for contract assets acquired and contract liabilities assumed from contracts
with customers in business combinations (“acquired contract balances”). The amendment results in a shift from previous guidance
which required similar assets and liabilities to be accounted for at fair value at the acquisition date. The amendments in the Update
require that an entity (acquirer) recognize, and measure acquired contract balances in accordance with ASC Topic 606. For instance, at
the acquisition date, the acquirer would account for the related revenue contracts acquired under ASC 606, as if it had originated the
contracts. The Company has elected to early adopt ASU 2021-08 in the quarter ended October 31, 2021 (which includes retroactive adoption
for any acquisitions in the current fiscal year). The impact of adopting the new standard is that it eliminated the need to discount
deferred revenue acquired from Avelead of $
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. The Company does not anticipate that the adoption of this ASU will have a material impact on the Company’s consolidated financial statements.
NOTE 3 — BUSINESS COMBINATION AND DIVESTITURE
Avelead Acquisition
The Company acquired all of the units of Avelead as part of the Company’s strategic expansion into the revenue cycle management, acute-care healthcare space on August 16, 2021 (the “Transaction”). The acquisition was completed on August 16, 2021.
The
aggregate consideration for the purchase of Avelead was approximately $
| 14 |
The
Company acquired all of the outstanding units of Avelead, effective August 16, 2021, under a Unit Purchase Agreement (hereafter referred
to as the “UPA”). The UPA stated that the purchase price for Avelead at closing included a cash payment of $
The Company acquired Avelead on a cash-free and debt-free basis. The Transaction was structured as a purchase of units (equity), however, Avelead was taxed as a partnership. Accordingly, the Company realized a step-up in the tax basis of the assets acquired and the goodwill is tax deductible. The gross deferred tax assets and liabilities will be consolidated, and the gross deferred tax assets have a full valuation allowance.
The contingent consideration is comprised of “SaaS Contingent Consideration” and “Renewal Contingent Consideration” which are described in more detail as follows:
| ● | The
SaaS Contingent Consideration is calculated based upon Avelead’s recurring SaaS revenue recognized during the first and second
year following the acquisition. The Company will pay the SaaS Contingent Consideration as follows: (i) |
| ● | ||
| ● |
| 1 |
| ● | The
Renewal Contingent Consideration is tied directly to a successful renewal of a specific customer of Avelead. To meet the definition
of a renewal, Avelead must achieve a minimum threshold of contracted revenue in an updated, annual, renewed contract with the specified
customer. |
The components of the total consideration are as follows:
| (in thousands) | ||||
| Components of total consideration, net of cash acquired: | ||||
| Cash | $ | |||
| Cash, seller expenses | ||||
| Cash, estimated net working capital adjustment | ||||
| Payable, holdback and final working capital adjustment | ||||
| Restricted Common Stock | ||||
| Acquisition earnout liabilities | (a) | |||
| Total consideration | $ | |||
| (a) |
| The
acquisition earnout liability is re-measured on a quarterly basis and the change to the liability is recorded as a valuation adjustment
recorded through “other expenses” in the accompanying condensed consolidated statements of operations. The valuation
adjustment recorded for the three months ended October 31, 2021 was $ |
| 15 |
The Company is presenting the allocation of the total consideration to net tangible and intangible assets as of the date of the closing of Avelead as follows.:
| (in thousands) | ||||
| Net tangible assets: | ||||
| Accounts receivable | $ | |||
| Unbilled revenue | ||||
| Prepaid expenses | ||||
| Fixed assets | ||||
| Accounts payable | ( | ) | ||
| Accrued expenses | ( | ) | ||
| Deferred revenues | ( | ) | ||
| Net tangible assets | ( | ) | ||
| Goodwill | ||||
| Customer Relationships (SaaS) | ||||
| Customer Relationships (Consulting) | ||||
| Internally Developed Software | ||||
| Trademarks and Tradenames | ||||
| Net assets acquired and liabilities assumed | $ | |||
The intangible assets recorded as a result of the Avelead acquisition, and their related estimated useful lives are as follows:
Estimated Useful Lives | ||
| Goodwill | ||
| Customer Relationships (SaaS) | ||
| Customer Relationships (Consulting) | ||
| Internally Developed Software | ||
| Trademarks and Tradenames |
The Company’s pro forma revenues and loss from continuing operations, assuming Avelead was acquired on February 1, 2020, are as follows. The unaudited pro forma information is not necessarily indicative of the results of operations that the Company would have reported had the acquisition actually occurred at the beginning of these periods nor is it necessarily indicative of future results. The unaudited pro forma financial information does not reflect the impact of future events that may occur after the acquisition, including, but not limited to, anticipated costs savings from synergies or other operational improvements. The nature and amount of any material, nonrecurring pro forma adjustments directly attributable to the business combination are included in the pro forma revenue and net loss reflected below:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| October 31, 2021 | October 31, 2020 | October 31, 2021 | October 31, 2020 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Operating expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Non-routine costs | ( | ) | ( | ) | ||||||||||||
| Loss on exit from membership agreement | ( | ) | ||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| PPP loan forgiveness | ||||||||||||||||
| Income tax (expense) benefit | ( | ) | ( | ) | ||||||||||||
| Loss from continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| 16 |
Non-routine
costs are primarily costs associated with the acquisition. Included in the pro forma schedule (above) for the three and nine months ended
October 31, 2021 are $
Included
in the accompanying condensed consolidated statement of operations for the three and nine months ended October 31, 2021 (since the closing
of the Avelead acquisition) are $
Refer to Note 2 – Summary of Significant Accounting Policies – Other operating costs -Non-routine costs. Costs related to the acquisition of Avelead are expensed as incurred.
The Company entered into one employment agreement and one separation agreement with each of the two Sellers. Included in the transaction costs of Avelead is the cost of a two-year separation agreement with one Seller. This separation agreement was expensed at the closing of the transaction as there were no material future obligations of the Seller to the Company within Non-routine costs. See Note 2 – Summary of Significant Accounting Policies. The employment agreement is a two-year employment agreement that entitles the Seller to a six-month separation pay in the case of termination without cause. The expense for the employment agreement is recognized ratably over the service period customary with other employment agreements within selling, general, and administrative expense.
The Company granted options to purchase shares of the Company’s common stock to the Sellers at the closing of the Transaction. These options have a strike price of $per share, the closing stock price on the trading date immediately preceding the closing. options were awarded to one Seller that will vest, monthly, over a three () year service period. The remaining options were awarded to another Seller and vested immediately upon issuance. The Company utilized the Black-Scholes method to determine the grant-date fair value of these options. The 83,333 options have a grant-date fair value of approximately $and are recorded in Non-routine cost in the accompanying condensed consolidated statement of operations. The 500,000 options have a grant-date fair value of approximately $and are expensed over the vesting period within selling, general, and administrative expense.
Additionally, the Company granted 100,000 restricted stock awards (RSAs) to certain Avelead employees as of the closing date.
ECM Assets Divestiture
On February 24, 2020, the Company sold a portion of its business (the “ECM Assets”). 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 9 – Discontinued Operations for details of the Company’s discontinued operations.
NOTE 4 — OPERATING LEASES
Alpharetta Office Lease
On
October 1, 2021, the Company entered into an agreement with a third-party to sublease its office space in Alpharetta, Georgia, (the “Sublease
Agreement”). The sublease term is for
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 lease for office space in Alpharetta, Georgia, on March 1, 2020. The lease terminates on March 31, 2023. At inception,
the Company recorded a right-of use asset of $
| 17 |
Maturities of operating lease liabilities associated with the Company’s operating lease as of October 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 $
Suwanee Office Lease
Upon
acquiring Avelead on August 16, 2021 (refer to Note 3 – Business Combination and Divestiture), the Company assumed an operating
lease agreement for the corporate office space of Avelead. The term of the lease expires on
NOTE 5 — DEBT
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 $
| 18 |
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
Company recorded $
The Second Amended Loan and Security Agreement includes customary financial covenants as follows:
| a. | Minimum
Cash. | |
| b. | Maximum Debt to ARR Ratio. Borrowers’ Maximum Debt to ARR Ratio, measured on a quarterly basis as of the last day of each fiscal quarter, shall not be greater than the amount set forth under the heading “Maximum Debt to ARR Ratio” as of, and for each of the dates appearing adjacent to such “Maximum Debt to ARR Ratio”. |
| Quarter Ending | Maximum Debt to ARR Ratio | |
| October 31, 2021 | ||
| January 31, 2022 | ||
| April 30, 2022 | ||
| July 31, 2022 | ||
| October 31, 2022 | ||
| January 31, 2023 |
| c. | Maximum Debt to Adjusted EBITDA Ratio. Commencing with the quarter ending April 30, 2023, Borrowers’ Maximum Debt to Adjusted EBITDA Ratio, measured on a quarterly basis as of the last day of each fiscal quarter for the trailing four (4) quarter period then ended, shall not be greater than the amount set forth under the heading “Maximum Debt to Adjusted EBITDA Ratio” as of, and for each of the dates appearing adjacent to such “Maximum Debt to Adjusted EBITDA Ratio”. |
| Quarter Ending | Maximum Debt to Adjusted EBITDA Ratio | |
| April 30, 2023 | ||
| July 31, 2023 | ||
| October 31, 2023 | ||
| January 31, 2024 and on the last day of each quarter thereafter |
| d. | Fixed
Charge Coverage Ratio. Commencing with the quarter ending April 30, 2023, Borrowers shall
maintain a Fixed Charge Coverage Ratio of not less than |
| 19 |
The Second Amended Loan and Security Agreement also includes customary negative covenants, subject to exceptions, which limit transfers, capital expenditures, indebtedness, certain liens, investments, acquisitions, dispositions of assets, restricted payments and the business activities of the Company, as well as customary representations and warranties, affirmative covenants and events of default, including cross defaults and a change of control default. The line of credit also is subject to customary prepayment requirements. For the period ended October 31, 2021, the Company was in compliance with the Second Amended Loan and Security Agreement covenants.
Term Loan and Revolving Credit Facility with Bridge Bank
On
March 2, 2021, the Company entered into an Amended and Restated Loan and Security Agreement, which replaced and superseded the Loan and
Security Agreement, consisting of a $
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 $
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
In
June 2021, the Company was notified that the full $
| 20 |
Outstanding principal balances on debt consisted of the following at:
| October 31, 2021(a) | January 31, 2021(b) | |||||||
| Term loan | $ | $ | ||||||
| Deferred financing cost | ( | ) | ||||||
| Total | ||||||||
| Less: Current portion | ( | ) | ( | ) | ||||
| Non-current portion of debt | $ | $ | ||||||
| (a) | |
| (b) |
NOTE 6 — INCOME TAXES
Income taxes consist of the following:
| October 31, | ||||||||
| 2021 | 2020 | |||||||
| Current tax benefit (expense): | ||||||||
| Federal | $ | $ | ||||||
| State | ( | ) | ||||||
| Total current provision | $ | ( | ) | $ | ||||
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 nine month period ended October 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.
| 21 |
NOTE 7 — 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 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.
| 22 |
NOTE 8 — 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 October 31, 2021 totaling , and for the three and nine month period ended October 31, 2021, and
shares, respectively. For services rendered by 180 Consulting during the nine months ended October 31, 2021, the Company incurred fees
of $
On
September 20, 2021, the Company entered into an additional Master Services Agreement with 180 Consulting to provide a variety of consulting
services including product management, operational consulting, staff augmentation, internal systems platform integration and software
engineering services, among others, to the Company in support of the Avelead products acquired through separate executed SOW’s.
As of October 31, 2021, the Company has entered into one SOW under the Avelead MSA. For services rendered by 180 Consulting during the
three and nine month periods ending October 31, 2021, the Company incurred fees totaling $
| 23 |
NOTE 9 – 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 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 | $ |
| 24 |
The
transaction costs were primarily broker cost and cost of legal and accounting to effect the transaction. The Company allocated $
The Company recorded the following as discontinued operations on the accompanying condensed consolidated balance sheets as of October 31, 2021 and January 31, 2021:
| As of | ||||||||
| October 31, 2021 | January 31,2021 | |||||||
| Current assets of discontinued operations: | ||||||||
| 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: | ||||||||
| Accrued expenses | $ | $ | ||||||
| Deferred revenues | ||||||||
| Current liabilities of discontinued operations | $ | $ | ||||||
For the three and nine months ended October 31, 2021 and 2020, the Company recorded the following into discontinued operations in the accompanying condensed consolidated statements of operations:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| October 31, 2021 | October 31, 2020 | October 31, 2021 | October 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 | $ | $ | $ | $ | ||||||||||||
| 25 |
The Company entered into an agreement with the Purchaser of the ECM Assets to maintain the current data center through a transition period. The transition services did not have a finite ending date at the signing of the agreement. However, the transition services were completed in the third quarter ended October 31, 2021.
NOTE 10 - 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.
Refer
to Note 3 – Business Combination and Divestiture. The Company acquired Avelead on August 16, 2021. In addition to the related party
lease agreement (refer to Note 4 – Operating Leases), the Company assumed a consulting agreement with AscendTek, LLC (“AscendTek”),
a software development and system design company. AscendTek is owned by one of the Sellers of Avelead. The Company entered into a separation
agreement with this Seller of Avelead on closing of the Avelead acquisition. From the acquisition date to the period ended October 31,
2021, the Company incurred approximately $
NOTE 11 — SUBSEQUENT EVENTS
We have evaluated subsequent events occurring after October 31, 2021 and based on our evaluation we did not identify any events that would have required recognition or disclosure in these condensed consolidated financial statements.
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
We make forward-looking statements in this Quarterly Report on Form 10-Q (this “Report”) and in other materials we file with the 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; | |
| ● | 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; |
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| ● | 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 ongoing COVID-19 pandemic.
Most of these risk factors are beyond our ability to predict or control. Any of these factors, or a combination of these factors, could materially affect our future financial condition or results of operations and the ultimate accuracy of our forward-looking statements. There also are other factors that we may not describe (generally because we currently do not perceive them to be material) that could cause actual results to differ materially from our expectations.
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. Refer to Note 3 – Business Combination and Divestiture in our unaudited condensed consolidated financial statements included in Part I, Item I, “Financial Statements” for further information on the Avelead acquisition.
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): | October 31, 2021 | October 31, 2020 | Change | % Change | ||||||||||||
| Software licenses | $ | 150 | $ | 19 | $ | 131 | 689 | % | ||||||||
| Professional services | 944 | 161 | 783 | 486 | % | |||||||||||
| Audit services | 513 | 491 | 22 | 4 | % | |||||||||||
| Maintenance and support | 1,082 | 1,070 | 12 | 1 | % | |||||||||||
| Software as a service | 2,825 | 900 | 1,925 | 214 | % | |||||||||||
| Total Revenues | $ | 5,514 | $ | 2,641 | $ | 2,873 | 109 | % | ||||||||
| Nine Months Ended | ||||||||||||||||
| ($ in thousands): | October 31, 2021 | October 31, 2020 | Change | % Change | ||||||||||||
| Software licenses | $ | 285 | $ | 234 | $ | 51 | 22 | % | ||||||||
| Professional services | 1,052 | 473 | 579 | 122 | % | |||||||||||
| Audit services | 1,460 | 1,498 | (38 | ) | (3 | )% | ||||||||||
| Maintenance and support | 3,226 | 3,556 | (330 | ) | (9 | )% | ||||||||||
| Software as a service | 5,310 | 2,611 | 2,699 | 103 | % | |||||||||||
| Total Revenues | $ | 11,333 | $ | 8,372 | $ | 2,961 | 35 | % | ||||||||
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Software licenses — Proprietary software license revenue recognized for the three and nine month periods ended October 31, 2021 increased by $131,000 and $51,000 from their respective prior comparable periods. The Company is experiencing a shift in business from perpetual software licenses to software as a service. The software license sales come primarily from our channel partners. 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 these channel partners. 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 licenses.
Professional services — For the three and nine month period ended October 31, 2021, revenue from professional services increased by $783,000 and $579,000 from their respective prior comparable periods. The increases in professional services include $814,000 of Avelead professional services revenue recorded since the date of acquisition (August 16, 2021). 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 nine months ended October 31, 2021 remained relatively consistent
Maintenance and support — Revenue from maintenance and support for the three month period ended October 31, 2021 increased over the prior comparable period by $12,000. The increase is related to the maintenance of the new software licenses sold. Revenue from maintenance and support for the nine month period ended October 31, 2021 decreased by $330,000. This 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 has been no further revenue recognized from clinical analytics after June 2020. Refer to Note 8 – Commitments and Contingencies “Royalty Liability” included in Part I, Item I, “Financial Statements” for further information on the clinical analytics product.
Software as a Service (SaaS) — Revenue from SaaS for the three and nine months ended October 31, 2021 increased by $1,925,000 and $2,699,000 from the prior comparable period. These increases include $1,231,000 of SaaS revenue from Avelead recorded since the date of acquisition. The remaining increase in SaaS revenue is due to new customers on the Company’s eValuator product plus approximately $230,000 related to a customer that did not renew. The non-renewal related to a customer that ended their contract early but paid the fees through the end of their contract. Because there were no future performance obligations, the Company recognized all the contracted fees in the period. The Company’s legacy product, Financial Management Systems, has been relatively consistent. We have experienced slower first contact to contracting timelines as a result of COVID-19. The customer non-renewal as well as slower contracting is expected to result in lower SaaS revenues in the fourth quarter, on a sequential basis. While we have seen some recent 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): | October 31, 2021 | October 31, 2020 | Change | % Change | ||||||||||||
| Cost of software licenses | $ | 133 | $ | 183 | $ | (50 | ) | (27 | )% | |||||||
| Cost of professional services | 936 | 268 | 668 | 249 | % | |||||||||||
| Cost of audit services | 409 | 425 | (16 | ) | (4 | )% | ||||||||||
| Cost of maintenance and support | 57 | 160 | (103 | ) | (64 | )% | ||||||||||
| Cost of software as a service | 1,088 | 443 | 645 | 146 | % | |||||||||||
| Total cost of sales | $ | 2,623 | $ | 1,479 | $ | 1,144 | 77 | % | ||||||||
| Nine Months Ended | ||||||||||||||||
| (in thousands): | October 31, 2021 | October 31, 2020 | Change | % Change | ||||||||||||
| Cost of software licenses | $ | 412 | $ | 385 | $ | 27 | 7 | % | ||||||||
| Cost of professional services | 1,411 | 779 | 632 | 81 | % | |||||||||||
| Cost of audit services | 1,174 | 1,158 | 16 | 1 | % | |||||||||||
| Cost of maintenance and support | 223 | 528 | (305 | ) | (58 | )% | ||||||||||
| Cost of software as a service | 2,276 | 1,250 | 1,026 | 82 | % | |||||||||||
| Total cost of sales | $ | 5,496 | $ | 4,100 | $ | 1,396 | 34 | % | ||||||||
The increase in overall cost of sales for the three and nine months ended October 31, 2021 from the comparable prior period is primarily due to Avelead which was $1,117,000 of the increase for both comparable periods.
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Cost of software licenses reflect amortization of capitalized software expenditures. The amounts for each of the three and nine month periods ended October 31, 2021 are generally consistent.
The cost of professional services includes compensation and benefits for personnel and related expenses. Avelead comprises $636,000 of the increase for each of the three and nine months ended October 31, 2021.
The cost of audit services includes compensation and benefits for audit services personnel, and related expenses. These costs remained consistent for the three and nine month period ended October 31, 2021 as compared to 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 nine month period ended October 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 were reassigned to other products. The Company was able to redeploy existing resources to mitigate costs on certain legacy products.
The cost of SaaS solutions is comprised of salaries, amortization of capitalized software development, and third-party content provider costs. Avelead comprises $481,000 of the increase for both comparable periods. The primary driver of the remaining increase in expense for the three and nine month period ended October 31, 2021 from the comparable prior year periods is an increase in amortization of capitalized software development costs Amortization of capitalized software development costs for the three and nine month periods ended October 31, 2021 were $333,000 and $1,032,000, respectively, as compared to $290,000 and $733,000 for the respective comparable prior periods.
Selling, General and Administrative Expense
| Three Months Ended | ||||||||||||||||
| ($ in thousands): | October 31, 2021 | October 31, 2020 | Change | % Change | ||||||||||||
| General and administrative expenses | $ | 2,218 | $ | 1,557 | $ | 661 | 42 | % | ||||||||
| Sales and marketing expenses | 1,221 | 726 | 495 | 68 | % | |||||||||||
| Total selling, general, and administrative expense | $ | 3,439 | $ | 2,283 | $ | 1,156 | 51 | % | ||||||||
| Nine Months Ended | ||||||||||||||||
| ($ in thousands): | October 31, 2021 | October 31, 2020 | Change | % Change | ||||||||||||
| General and administrative expenses | $ | 5,669 | $ | 4,609 | $ | 1,060 | 23 | % | ||||||||
| Sales and marketing expenses | 2,838 | 2,250 | 588 | 26 | % | |||||||||||
| Total selling, general, and administrative expense | $ | 8,507 | $ | 6,859 | $ | 1,648 | 24 | % | ||||||||
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 three and nine months ended October 31, 2021 from the comparable prior period is primarily attributed to the Avelead acquisition, resulting in an additional $553,000 in expenses for each period. Further, share- based compensation was approximately $324,000 higher in the nine months ended October 31, 2021 as compared to the same period of the prior year. 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 increase in amortization of share-based 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 three and nine months ended October 31, 2021 increased by approximately $267,000 due to the Avelead acquisition. The remaining increases are primarily due to an increase in salaries and benefits associated with the Company’s previously announced expansion and upgrade of its direct and indirect sales personnel. The increase in sales and marketing expenses related to this expansion and upgrade of its direct and indirect sales personnel is expected to be higher in the fourth quarter. The Company has had limited travel as a result of the COVID-19 virus. The Company has been productive using web-based meeting media to continue its sales and customer service processes. As hospitals open themselves up to visitors, the Company looks forward to resuming travel and meeting its customers and prospects face-to-face.
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Research and Development
| Three Months Ended | ||||||||||||||||
| ($ in thousands): | October 31, 2021 | October 31, 2020 | Change | % Change | ||||||||||||
| Research and development expense | $ | 1,339 | $ | 753 | $ | 586 | 78 | % | ||||||||
| Plus: Capitalized research and development cost | 342 | 414 | (72 | ) | (17 | )% | ||||||||||
| Total research and development cost | $ | 1,681 | $ | 1,167 | $ | 514 | 44 | % | ||||||||
| Nine Months Ended | ||||||||||||||||
| ($ in thousands): | October 31, 2021 | October 31, 2020 | Change | % Change | ||||||||||||
| Research and development expense | $ | 3,280 | $ | 1,946 | $ | 1,334 | 69 | % | ||||||||
| Plus: Capitalized research and development cost | 1,048 | 1,545 | (497 | ) | (32 | )% | ||||||||||
| Total research and development cost | $ | 4,328 | $ | 3,491 | $ | 837 | 24 | % | ||||||||
Research and development cost consists primarily of compensation and related benefits and the use of independent contractors for specific near-term development projects. The increase in research and development expenses for the three and nine months ended October 31, 2021 from the comparable prior period includes $345,000 in expenses for each period related to the Avelead acquisition. The overall increase in cost is related to extending work with the Company’s development partners to create user interfaces to improve our development velocity with the eValuator product. The additional cost related to development partners includes stock compensation expense of $113,000 and $364,000 for the three and nine month periods ended October 31, 2021 as compared to $116,000 and $223,000 for the respective comparable prior periods.
The capitalized research and development cost for the three month period ended October 31, 2021 is lower than that from the prior comparable period as the Company had several significant releases during the first half of fiscal year 2021 that consumed more capitalized time. The Company expects total research and development expenses will continue to increase, primarily from increased capitalizable projects for Avelead plus ongoing expansion of work with development partners on eValuator. For the nine months ended October 31, 2021 and 2020, as a percentage of revenues, total research and development costs were 38% and 42%, respectively. This percentage is expected to normalize back to historical levels as Avelead development resources are ramped up to enhance its products.
Non-routine Costs
| Three Months Ended | ||||||||||||||||
| ($ in thousands): | October 31, 2021 | October 31, 2020 | Change | % Change | ||||||||||||
| Non-routine costs | $ | 1,933 | $ | — | $ | 1,933 | 100 | % | ||||||||
| Nine Months Ended | ||||||||||||||||
| ($ in thousands): | October 31, 2021 | October 31, 2020 | Change | % Change | ||||||||||||
| Non-routine costs | $ | 2,710 | $ | — | $ | 2,710 | 100 | % | ||||||||
Refer to Note 2 – Summary of Significant Accounting Policies - Other Operating Costs – Non-routine costs – in the unaudited condensed consolidated financial statements included in Part I, Item I, “Financial Statements” for further details with respect to Non-routine costs. The Non-routine costs for the three and nine months ended October 31, 2021 are primarily related to the transaction costs of Avelead acquisition and executive bonuses that were transactional in nature.
Loss on Exit from Membership Agreement
| Nine Months Ended | ||||||||||||||||
| ($ in thousands): | October 31, 2021 | October 31, 2020 | Change | % Change | ||||||||||||
| Loss on exit from membership agreement | $ | — | $ | 105 | $ | (105 | ) | (100 | )% | |||||||
Refer to Note 4 – 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 nine months ended October 31, 2020, we recorded $105,000 in costs related to the remaining payments required under the agreement with the landlord on shared office space in Atlanta that was abandoned when the Company entered a new lease for office space in Alpharetta, Georgia.
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Other Income (Expense)
| Three Months Ended | ||||||||||||||||
| ($ in thousands): | October 31, 2021 | October 31, 2020 | Change | % Change | ||||||||||||
| Interest expense | $ | (85 | ) | $ | (12 | ) | $ | (73 | ) | 608 | % | |||||
| Loss on Extinguishment of Debt | (43 | ) | — | (43 | ) | 100 | % | |||||||||
| Other | (427 | ) | 14 | (441 | ) | (3,150 | )% | |||||||||
| Total other income (expense) | $ | (555 | ) | $ | 2 | $ | (557 | ) | (27,850 | )% | ||||||
| Nine Months Ended | ||||||||||||||||
| ($ in thousands): | October 31, 2021 | October 31, 2020 | Change | % Change | ||||||||||||
| Interest expense | $ | (107 | ) | $ | (39 | ) | $ | (68 | ) | 174 | % | |||||
| Loss on Extinguishment of Debt | (43 | ) | — | (43 | ) | 100 | % | |||||||||
| Other | (421 | ) | (68 | ) | (353 | ) | 519 | % | ||||||||
| Forgiveness of PPP loan and accrued interest | 2,327 | — | 2,327 | 100 | % | |||||||||||
| Total other income (expense) | $ | 1,756 | $ | (107 | ) | $ | 1,863 | (1,741 | )% | |||||||
Interest expense consists of interest associated with the term loan, deferred financing costs, and less interest related to capitalization of software. Interest expense increased for the three and nine months ended October 31, 2021 from the prior comparable period primarily due to the $10,000,000 term loan with Bridge Bank (See Note 5 – Debt).
Other expense for the three and nine month periods ended October 31, 2021 reflects a valuation adjustment of $417,000 related to the acquisition earnout liabilities associated with the Avelead acquisition (Refer to Note 3 – Business Combination and Divestiture of the unaudited condensed consolidated financial statements included in Part I, Item I, “Financial Statements”). Other expense for the nine month period ended October 31, 2020 includes each of (i) a $37,000 impact for currency transaction revaluation, and (ii) $31,000 for Montefiore valuation adjustment. Forgiveness of PPP loan and accrued interest for the nine month period ended October 31, 2021 reflects the financial impact of the $2,301,000 PPP loan along with the accrued interest of $26,000 being forgiven.
Provision for Income Taxes
For the three months ended October 31, 2021 and 2020 we recorded income tax expense of $4,000 and income tax benefit of $803,000, respectively. For the nine months ended October 31, 2021 and 2020 we recorded income tax expense of $9,000 and income tax benefit of $1,536,000, respectively, which is comprised of estimated federal, state and local income tax provisions. The income tax benefit for the nine months ended October 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 nine months ended October 31, 2021, the net income tax expense is reported under continuing operations. Refer to Note 6 – 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 and nine months ended October 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 | Nine Months Ended | |||||||||||||||
| In thousands, except per share data | October 31, 2021 | October 31, 2020 | October 31, 2021 | October 31, 2020 | ||||||||||||
| Adjusted EBITDA Reconciliation | ||||||||||||||||
| Loss from continuing operations | $ | (4,379 | ) | $ | (1,069 | ) | $ | (6,913 | ) | $ | (3,209 | ) | ||||
| Interest expense | 85 | 12 | 107 | 39 | ||||||||||||
| Income tax (benefit)/ expense | 4 | (803 | ) | 9 | (1,536 | ) | ||||||||||
| Depreciation | 16 | 4 | 53 | 35 | ||||||||||||
| Amortization of capitalized software development costs | 446 | 477 | 1,430 | 1,128 | ||||||||||||
| Amortization of intangible assets | 490 | 123 | 721 | 370 | ||||||||||||
| Amortization of other costs | 110 | 89 | 338 | 242 | ||||||||||||
| EBITDA | $ | (3,228 | ) | $ | (1,167 | ) | $ | (4,255 | ) | $ | (2,931 | ) | ||||
| Share-based compensation expense | 537 | 442 | 1,659 | 1,054 | ||||||||||||
| Non-cash valuation adjustments | 417 | — | 417 | 31 | ||||||||||||
| Loss on exit of operating lease | — | — | — | 105 | ||||||||||||
| Non-routine costs | 1,933 | — | 2,710 | — | ||||||||||||
| Forgiveness of PPP loan and accrued interest | — | — | (2,327 | ) | — | |||||||||||
| Other | — | 16 | — | |||||||||||||
| Loss on early extinguishment of debt | 43 | — | 43 | |||||||||||||
| Adjusted EBITDA | $ | (298 | ) | $ | (725 | ) | $ | (1,737 | ) | $ | (1,741 | ) | ||||
| Adjusted EBITDA margin (1) | (5 | )% | (27 | )% | (15 | )% | (21 | )% | ||||||||
| Adjusted EBITDA per Diluted Share Reconciliation | ||||||||||||||||
| Loss from continuing operations per common share — diluted | $ | (0.10 | ) | $ | (0.04 | ) | $ | (0.17 | ) | $ | (0.11 | ) | ||||
| Net (loss) income per common share — diluted | $ | (0.10 | ) | $ | (0.04 | ) | $ | (0.16 | ) | $ | 0.04 | |||||
| Adjusted EBITDA per adjusted diluted share (2) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.04 | ) | $ | (0.06 | ) | ||||
| Diluted weighted average shares (3) | 45,709,952 | 30,286,197 | 41,498,873 | 30,026,890 | ||||||||||||
| Includable incremental shares — adjusted EBITDA (4) | 353,851 | 606,329 | 496,393 | 423,682 | ||||||||||||
| Adjusted diluted shares | 46,063,803 | 30,892,526 | 41,995,266 | 30,450,572 | ||||||||||||
| (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 October 31, 2021, the Company adopted ASU 2019-12. Refer to Note 6 – 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 October 31, 2021 and January 31, 2021 were approximately $10,409,000 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 5 – Debt in our unaudited condensed consolidated financial statements included in Part I, Item I, “Financial Statements”. The Company has a new term loan facility with an initial, 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 prior $3,000,000 revolving credit facility with Bridge Bank was terminated. At the time of the discontinuance, there was no outstanding balance on the revolving credit facility.
The Second Amended 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 customary negative covenants, subject to exceptions, which limit transfers, capital expenditures, indebtedness, certain liens, investments, acquisitions, dispositions of assets, restricted payments, and the business activities of the Company, as well as customary representations and warranties, affirmative covenants and events of default, including cross defaults and a change of control default. The line of credit also is subject to customary prepayment requirements. For the period ended October 31, 2021, the Company was in compliance with the Second Amended Loan and Security Agreement covenants.
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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.
In June 2021, the Company received notification that the PPP loan principal amount of $2,301,000 and accrued interest of $26,000 had been forgiven in full.
The Company has cash on its balance sheet of $10.4 million at October 31, 2021. The Company believes that its cash on-hand, along with the term debt is sufficient to support its operations until it is able to generate cash from operations.
Significant cash obligations
| (in thousands) | October 31, 2021 | January 31, 2021 | ||||||
| Term loan (1) | $ | 9,884 | $ | 2,301 | ||||
| (1) | Term loan balance is reported, net of deferred financing costs, of $116,000 and $0 as of October 31, 2021 and January 31, 2021, respectively. Refer to Note 5 - Debt for additional information. The term loan payable as of October 31, 2021 was bank term debt. The term loan balance at January 31, 2021 is the Company’s PPP loan which was forgiven in June 2021. |
Operating cash flow activities
| Nine months Ended | ||||||||
| (in thousands) | October 31, 2021 | October 31, 2020 | ||||||
| Net loss from continuing operations | $ | (6,913 | ) | $ | (3,209 | ) | ||
| Non-cash adjustments to net loss | 2,379 | 1,364 | ||||||
| Cash impact of changes in assets and liabilities | 512 | (1,838 | ) | |||||
| Net cash used in operating activities | $ | (4,022 | ) | $ | (3,683 | ) | ||
The use of cash from operating activities is relatively consistent between the nine months ended October 31, 2021 and 2020. The Company had a higher net loss from operations and lower impact of changes in assets and liabilities in the first nine months of fiscal 2021 compared to 2020. Within non-cash adjustments to net loss, the Company made an adjustment to exclude the PPP loan and related interest that was forgiven in the first nine months of fiscal 2021 as well as the valuation adjustment on the acquisition earnout liability. Net cash used in operating activities was adversely impacted by certain severance cost in 2019 that were paid in 2020 and certain non-routine costs paid in 2021 associated with the acquisition.
Investing cash flow activities
| Nine months Ended | ||||||||
| (in thousands) | October 31, 2021 | October 31, 2020 | ||||||
| Investment in Avelead, net of cash | $ | (12,354 | ) | — | ||||
| Purchases of property and equipment | (18 | ) | $ | (42 | ) | |||
| Proceeds from sales of ECM Assets | 800 | 11,288 | ||||||
| Capitalized software development costs | (1,048 | ) | (1,495 | ) | ||||
| Net cash (used in) provided by investing activities | $ | (12,620 | ) | $ | 9,751 | |||
The cash used in investing activities for the nine months ended October 31, 2021 included the cash used to acquire Avelead, capitalized software development costs, off-set by the release of escrowed funds in fiscal 2021 from the sale of the ECM Assets. Refer to Note 3 – Business Combination and Divestiture for more information on Avelead and the sale of the ECM Assets. The proceeds from the sale of the ECM Assets in the nine months ended October 31, 2020 are net of direct transaction expenses. Refer to Note 9 – Discontinued Operations for more information on the sale of the ECM Assets. Operationally, the Company has a focused effort on the spend for software development projects that will result in in increasing its revenue. See discussion and analysis in “Research and development costs” above.
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Financing cash flow activities
| Nine months Ended | ||||||||
| (in thousands) | October 31, 2021 | October 31, 2020 | ||||||
| Proceeds from issuance of common stock | $ | 16,100 | $ | — | ||||
| Payments for costs directly attributable to the issuance of common stock | (1,313 | ) | — | |||||
| Proceeds of term loan payable | 10,000 | 2,301 | ||||||
| Payments related to settlement of employee shared based awards | (380 | ) | (168 | ) | ||||
| Payment for deferred financing costs | (168 | ) | — | |||||
| Principal repayments on term loan | — | (4,000 | ) | |||||
| Payment of royalty liability | — | (500 | ) | |||||
| Other | (3 | ) | — | |||||
| Net cash provided by (used in) financing activities | $ | 24,236 | $ | (2,367 | ) | |||
The cash provided by financing activities for the nine months ended October 31, 2021, was primarily from the public Offering of the Company’s common stock, which closed on March 2, 2021. Refer to Note 7 – Equity for additional information. Additionally, the Company received proceeds of $10,000,000 as a result of the Second Amended Loan and Security Agreement entered into on August 26, 2021. Refer to Note 5 – Debt for additional information. The cash used in financing activities for the nine months ended October 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.
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 October 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 October 31, 2021. Avelead, which was acquired on August 16, 2021, was excluded from the scope of the assessment of the effectiveness of our disclosure controls and procedures as of October 31, 2021.
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Changes in Internal Control over Financial Reporting
On August 16, 2021, the Company completed the acquisition of Avelead (Refer to Note 3 – Business Combination and Divestiture in our unaudited condensed consolidated financial statements included in Part I, Item I, “Financial Statements” for further information on the Avelead acquisition). In accordance with the general guidance issued by the staff of the SEC, Avelead will be excluded from the scope of management’s report on internal control over financial reporting for the year ending January 31, 2022. As part of the ongoing integration of Avelead, we are in the process of incorporating the controls and related procedures. Other than incorporating the Avelead controls, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended October 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
In connection with the acquisition, we have performed additional analyses and other procedures to enable management to conclude that our condensed consolidated financial statements included in this report fairly, in all material respects, our financial condition and results of operations as of and for the three and nine months ended October 31, 2021.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
We are, from time to time, a party to various legal proceedings and claims, which arise in the ordinary course of business. We are not aware of any legal matters that could have a material adverse effect on our consolidated results of operations, financial position, or cash flows.
Item 1A. RISK FACTORS –
An investment in our common stock or other securities involves a number of risks. You should carefully consider each of the risks described in our Annual Report on Form 10-K for the 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, other than as set forth below. Nevertheless, many of the risk factors disclosed in Item 1A of our Annual Report have been, and we expect will continue to be aggravated by the impact of the ongoing COVID-19 pandemic. If any of the risks develop into actual events, our business, financial condition, or results of operations could be negatively affected, the market price of our common stock or other securities could decline, and you may lose all or part of your investment.
One factor, that has arisen due to the Avelead acquisition,(Refer to Note 3 – Business Combination and Divestiture in our unaudited condensed consolidated financial statements included in Part I, Item I, “Financial Statements”) is our ability to maintain effective internal control over financial reporting, as follows:
If we are unable to maintain effective internal control over financial reporting, we may fail to prevent or detect material misstatements in our financial statements, in which case investors may lose confidence in the accuracy and completeness of our financial statements.
We are in the process of integrating our internal control over financial reporting and our other control environments with those of Avelead. In the course of integration, we may encounter difficulties and unanticipated issues combining our respective accounting systems due to the complexity of our financial reporting processes. We may also identify errors or misstatements that could require accounting adjustments. If we are unable to integrate and maintain effective internal control over financial reporting of the combined company, timely or at all, we may fail to prevent or detect material misstatements in our financial statements, in which case investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our securities may decline.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On October 8, 2021, the Company issued to 180 Consulting an aggregate of 128,415 shares of common stock as compensation for services previously 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 Company also issued 5,021,972 shares of its restricted common stock (the “Acquisition Restricted Common Stock”) as a portion of the aggregate consideration for the purchase of Avelead. The Acquisition Restricted Common Stock has a fair value as of the closing date of the acquisition of $6.5 million. 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 October 31, 2021:
Total | 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 | |||||||||||||
| August 1 - August 31 | — | $ | — | — | — | |||||||||||
| September 1 - September 30 | 49,813 | 1.77 | — | — | ||||||||||||
| October 1 - October 31 | — | — | — | — | ||||||||||||
| Total | 49,813 | $ | 1.77 | — | — | |||||||||||
| (1) | Amount represents shares surrendered by employees to satisfy tax withholding obligations resulting from restricted stock that vested during the three months ended October 31, 2021. |
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Item 6. EXHIBITS
See Index to Exhibits.
INDEX TO EXHIBITS
| * | Filed herewith. |
Our SEC file number reference for documents filed with the SEC pursuant to the Securities Exchange Act of 1934, as amended, is 000-28132.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| STREAMLINE HEALTH SOLUTIONS, INC. | ||
| DATE: December 14, 2021 | By: | /S/ WYCHE T. “TEE” GREEN, III |
Wyche T. “Tee” Green, III Chief Executive Officer | ||
| DATE: December 14, 2021 | By: | /S/ Thomas J. Gibson |
| Thomas J. Gibson | ||
| Chief Financial Officer | ||
| 41 |
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: December 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: December 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 October 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 | |
| December 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 October 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 | |
| December 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.