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, $0.01 par value per share, as of December 12, 2022 was .
TABLE OF CONTENTS
| 2 |
PART I. FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
STREAMLINE HEALTH SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(rounded to the nearest thousand dollars, except share and per share information)
| October 31, 2022 | January 31, 2022 | |||||||
| (Unaudited) | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Contract receivables | ||||||||
| Prepaid and other current assets | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Property and equipment, net | ||||||||
| Right of use asset for operating lease | ||||||||
| Capitalized software development costs, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Other | ||||||||
| Total non-current assets | ||||||||
| Total assets | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
| 3 |
STREAMLINE HEALTH SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(rounded to the nearest thousand dollars, except share and per share information)
| October 31, 2022 | January 31, 2022 | |||||||
| (Unaudited) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Current portion of term loan | ||||||||
| Deferred revenues | ||||||||
| Current portion of lease obligation | ||||||||
| Acquisition earnout liability | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities: | ||||||||
| Term loan, net of current portion and deferred financing costs | ||||||||
| Deferred revenues, less current portion | ||||||||
| Lease obligations, less current portion | ||||||||
| Acquisition earnout liability, less current portion | ||||||||
| Other non-current liabilities | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 8) | ||||||||
| Stockholders’ equity: | ||||||||
| Common Stock, $ par value, shares authorized; and shares issued and outstanding, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
| 4 |
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, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| 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 | ||||||||||||||||
| Acquisition-related costs | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on Extinguishment of Debt | ( | ) | ( | ) | ||||||||||||
| Acquisition earnout valuation adjustments | ( | ) | ( | ) | ||||||||||||
| Other | ( | ) | ( | ) | ||||||||||||
| Forgiveness of PPP loan and accrued interest | ||||||||||||||||
| Loss from continuing operations before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income from discontinued operations: | ||||||||||||||||
| Income from discontinued operations, net of tax | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic Earnings Per Share: | ||||||||||||||||
| Continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Discontinued operations | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of common shares - basic | ||||||||||||||||
| Diluted Earnings Per Share: | ||||||||||||||||
| Continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Discontinued operations | $ | |||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of common shares - diluted | ||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 5 |
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, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Restricted stock issued | ( | ) | ||||||||||||||||||
| Restricted stock forfeited | ( | ) | ||||||||||||||||||
| Surrender of shares | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Share-based compensation | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance at April 30, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Exercise of Stock Options | ||||||||||||||||||||
| Restricted stock issued | ( | ) | ||||||||||||||||||
| Restricted stock forfeited | ( | ) | ||||||||||||||||||
| Share-based compensation | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance at July 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Restricted stock issued | ( | ) | ||||||||||||||||||
| Restricted stock forfeited | ( | ) | ( | ) | ||||||||||||||||
| Surrender of shares | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Share-based compensation | — | |||||||||||||||||||
| Issuance of Common Stock | ||||||||||||||||||||
| Offering Expenses | — | ( | ) | ( | ) | |||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance at October 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
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 | ( | ) | ||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 6 |
STREAMLINE HEALTH SOLUTIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(rounded to the nearest thousand dollars)
| Nine months Ended October 31, | ||||||||
| 2022 | 2021 | |||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| LESS: Income from discontinued operations, net of tax | ||||||||
| Loss from continuing operations, net of tax | ( | ) | ( | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of capitalized software development costs | ||||||||
| Amortization of intangible assets | ||||||||
| Amortization of other deferred costs | ||||||||
| Change in fair value of acquisition earnout liability | ( | ) | ||||||
| Loss on early extinguishment of debt | ||||||||
| Amortization of deferred financing costs | ||||||||
| Share-based compensation expense | ||||||||
| Provision 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 provided by 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 used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Repayment of bank term loan | ( | ) | ||||||
| Proceeds from issuance of term loan | ||||||||
| Proceeds from issuance of common stock | ||||||||
| Payments for costs directly attributable to the issuance of common stock | ( | ) | ( | ) | ||||
| Payments related to settlement of employee share-based awards | ( | ) | ( | ) | ||||
| Payment for deferred financing costs | ( | ) | ||||||
| Other | ( | ) | ||||||
| Net cash provided by 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.
| 7 |
STREAMLINE HEALTH SOLUTIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2022
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, RevID, and other workflow software applications and the use of such applications by software as a service (“SaaS”). The Company also provides audit and coding services to help customers 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, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2023.
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. Refer to “Note 3 – Business Combination and Divestiture”.
All amounts in the condensed consolidated financial statements, notes and tables have been rounded to the nearest thousand dollars, except share and per share amounts, unless otherwise indicated. All references to a fiscal year refer to the fiscal year commencing February 1 in that calendar year and ending on January 31 of the following calendar year.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Our significant accounting policies are presented in “Note 2 – Significant Accounting Policies” in the fiscal year 2021 Annual Report on Form 10-K. Users of financial information for interim periods are encouraged to refer to the notes to the consolidated financial statements contained in the Annual Report on Form 10-K when reviewing interim financial results.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates and judgments, including those related to the recognition of revenue, share-based compensation, capitalization of software development costs, intangible assets, the allowance for doubtful accounts, contingent consideration, and income taxes. Actual results could differ from those estimates.
| 8 |
Fair Value of Financial Instruments
The Financial Accounting Standards Board’s (“FASB”) authoritative guidance on fair value measurements establishes a framework for measuring fair value. This guidance enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. Under this guidance, assets and liabilities carried at fair value must be classified and disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value based on the short-term maturity of these instruments. Cash and cash equivalents are classified as Level 1. There were no transfers of assets or liabilities between Levels 1, 2, or 3 during the nine months ended October 31, 2022 and 2021.
The table below provides information on the fair value of our liabilities:
| Total Fair | Quoted Prices in Active Markets | Significant Other Observable Inputs |
Significant | |||||||||||||
| Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| At January 31, 2022 | ||||||||||||||||
| Acquisition earnout liability (1) | $ | $ | $ | $ | ||||||||||||
| At October 31, 2022 | ||||||||||||||||
| Acquisition earnout liability (1) | $ | $ | $ | $ | ||||||||||||
| (1) |
The
fair value of the Company’s term loan under its Second Amended and Restated Loan and Security Agreement was determined through
an analysis of the interest rate spread from the date of closing the loan (August 2021) to the date of the most recent balance sheets,
October 31, 2022 and January 31, 2022.
Revenue Recognition
We derive revenue from the sale of internally-developed software, either by licensing for local installation or by a SaaS delivery model, through the Company’s direct sales force or through third-party resellers. Licensed, locally-installed customers on a perpetual model utilize the Company’s support and maintenance services for a separate fee, whereas term-based locally installed license fees and SaaS fees include support and maintenance. We also derive revenue from professional services that support the implementation, configuration, training and optimization of the applications, as well as audit services and consulting services.
| 9 |
We recognize revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, under the core principle of recognizing revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
We recognize revenue (Step 5 below) in accordance with that core principle after applying the following steps:
| ● | Step 1: Identify the contract(s) with a customer | |
| ● | Step 2: Identify the performance obligations in the contract | |
| ● | Step 3: Determine the transaction price | |
| ● | Step 4: Allocate the transaction price to the performance obligations in the contract | |
| ● | Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation |
Contracts may contain more than one performance obligation. Performance obligations are the unit of accounting for revenue recognition and generally represent the distinct goods or services that are promised to the customer. Revenue is recognized net of any taxes collected from customers and subsequently remitted to governmental authorities.
If we determine that we have not satisfied a performance obligation, we defer recognition of the revenue until the performance obligation is satisfied. Maintenance and support and SaaS agreements are generally non-cancelable or contain significant penalties for early cancellation, although customers typically have the right to terminate their contracts for cause if we fail to perform material obligations. However, if non-standard acceptance periods, non-standard performance criteria, or cancellation or a right of refund terms exist, revenue may not be recognized until the satisfaction of such criteria.
The determined transaction price is allocated based on the standalone selling price of the performance obligations in the contract. Significant judgment is required to determine the standalone selling price (“SSP”) for each performance obligation, the amount allocated to each performance obligation and whether it depicts the amount that the Company expects to receive in exchange for the related product and/or service. The Company recognizes revenue for implementation for certain of its eValuator SaaS solution over the contract term, as it has been determined that those implementation services are not a distinct performance obligation. Services for other SaaS and Software solutions such as CDI, RevID and Compare, have been determined as a distinct performance obligation. For these agreements, the Company estimates SSP of its software licenses using the residual approach when the software license is sold with other services and observable SSPs exist for the other services. The Company estimates the SSP for maintenance, professional services, software as a service and audit services based on observable standalone sales.
Contract Combination
The Company may execute more than one contract or agreement with a single customer. The Company evaluates whether the agreements were negotiated as a package with a single objective, whether the amount of consideration to be paid in one agreement depends on the price and/or performance of another agreement, or whether the goods or services promised in the agreements represent a single performance obligation. The conclusions reached can impact the allocation of the transaction price to each performance obligation and the timing of revenue recognition related to those arrangements.
The Company has utilized the portfolio approach as the practical expedient. We have applied the revenue model to a portfolio of contracts with similar characteristics where we expected that the financial statements would not differ materially from applying it to the individual contracts within that portfolio.
Software Licenses
The Company’s software license arrangements provide the customer with the right to use functional intellectual property. Implementation, support, and other services are typically considered distinct performance obligations when sold with a software license unless these services are determined to significantly modify the software. Revenue is recognized at a point in time. Typically, this is upon shipment of components or electronic download of software.
| 10 |
Maintenance and Support Services
Our maintenance and support obligations include multiple discrete performance obligations, with the two largest being unspecified product upgrades or enhancements, and technical support, which can be offered at various points during a contract period. We believe that the multiple discrete performance obligations within our overall maintenance and support obligations can be viewed as a single performance obligation since both the unspecified upgrades and technical support are activities to fulfill the maintenance performance obligation and are rendered concurrently. Maintenance and support agreements entitle customers to technology support, version upgrades, bug fixes and service packs. We recognize maintenance and support revenue over the contract term.
Software-Based Solution Professional Services
The Company provides various professional services to customers with software licenses. These include project management, software implementation and software modification services. Revenues from arrangements to provide professional services are generally distinct from the other promises in the contract and are recognized as the related services are performed. Consideration payable under these arrangements is either fixed fee or on a time-and-materials basis and is recognized over time as the services are performed.
Software as a Service
SaaS-based contracts include a right to use of the Company’s platform and support which represent a single promise to provide continuous access to its software solutions. Implementation services for the Company’s eValuator product are included as part of the single promise for its respective contracts. The Company recognizes revenue for implementation of the eValuator product over the contract term as it is determined that the implementation on eValuator is not a distinct performance obligation. Implementation services for other SaaS products are deemed to be separate performance obligations.
Audit Services
The Company provides technology-enabled coding audit services to help customers review and optimize their internal clinical documentation and coding functions across the applicable segment of the client’s enterprise. Audit services are a separate performance obligation. We recognize revenue as the services are performed.
Disaggregation of Revenue
The following table provides information about disaggregated revenue by type and nature of revenue stream:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| October 31, 2022 | October 31, 2021 | October 31, 2022 | October 31, 2021 | |||||||||||||
| 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. The Company includes revenue categories of (i) software licenses, (ii) professional services, and (iii) audit services as non-recurring revenue.
| 11 |
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, 2022, 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, 2022 and January 31, 2022, 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, 2022 and January 31, 2022, deferred commission costs paid and payable, which are included on the consolidated balance
sheets within other non-current assets totaled $
Equity Awards
The Company accounts for share-based payments based on the grant-date fair value of the awards with compensation cost recognized as expense over the requisite service period, and forfeitures are recognized as incurred. For awards to non-employees, the Company recognizes compensation expense in the same manner as if the entity had paid cash for the goods or services. The Company incurred total compensation expense related to share-based awards of $ and $ for the three months ended October 31, 2022 and 2021, respectively, and $ and $ in the nine months ended October 31, 2022 and 2021, respectively.
| 12 |
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. 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, 2022, 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. Diluted EPS for the Company’s common stock is computed using the treasury stock method.
| 13 |
| Three Months Ended | Nine Months Ended | |||||||||||||||
October 31, 2022 | October 31, 2021 | October 31, 2022 | October 31, 2021 | |||||||||||||
| Basic earnings (loss) per share: | ||||||||||||||||
| Continuing operations | ||||||||||||||||
| Loss from continuing operations, net of tax | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| 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 | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average shares outstanding - Basic (1) | ||||||||||||||||
| Effect of dilutive securities - Stock options and Restricted stock (2) | ||||||||||||||||
| Weighted average shares outstanding – Diluted | ||||||||||||||||
| Basic net loss per share of common stock | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Diluted net loss per share of common stock | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| (1) | |
| (2) |
| 14 |
Other Operating Costs
Acquisition-related Costs
| Three Months ended | Nine Months ended | |||||||||||||||
| October 31, 2022 | October 31, 2021 | October 31, 2022 | October 31, 2021 | |||||||||||||
| Separation agreement expense | $ | $ | $ | $ | ||||||||||||
| Broker fees | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Executive bonuses | ||||||||||||||||
| Loss on exit from operating lease | ||||||||||||||||
| Other | ( | ) | ( | ) | ||||||||||||
| Total acquisition-related costs | $ | $ | $ | $ | ||||||||||||
For
the three and nine months ended October 31, 2022 the Company incurred certain acquisition-related costs related to the acquisition
of Avelead totaling $
Non-Cash Items
For
the three and nine months ended October 31, 2021, the Company recorded the forgiveness of the PPP loan and accrued interest, totaling
$
Accounting Pronouncements Recently Adopted
In July 2021, the FASB issued ASU 2021-05, Lessors - Certain Leases with Variable Lease Payments to ASC Topic 842, Leases (“ASC 842”) (“ASU 2021-05”). ASU 2021-05 provides additional ASC 842 classification guidance as it relates to a lessor’s accounting for certain leases with variable lease payments. ASU 2021-05 requires a lessor to classify a lease with variable payments that do not depend on an index or rate as an operating lease if either a sales-type lease or direct financing lease classification would trigger a day-one loss. ASU 2021-05 became effective for the Company on February 1, 2022. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements or disclosures.
Recent Accounting Pronouncements Not Yet Adopted
In November 2019, the FASB issued 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 equity interests of Avelead Consulting, LLC (“Avelead”) as part of the Company’s strategic expansion into the acute-care health care revenue cycle management industry on August 16, 2021 (the “Transaction”). The acquisition was completed on August 16, 2021.
The
aggregate consideration for the purchase of Avelead was approximately $
| 15 |
The
Company acquired all of the equity interests of Avelead, effective August 16, 2021, pursuant to a Unit Purchase Agreement (hereafter
referred to as the “UPA”). The UPA stated that the purchase price for Avelead at closing included a cash payment of $
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:
See Note 11 – Subsequent Events for a description of the company’s cash payment and restricted common stock issued in conjunction with the first year earnout.
| ● | The
SaaS Contingent Consideration is calculated based upon Avelead’s recurring SaaS revenue recognized during the first and second
year following the acquisition. The Company will pay the SaaS Contingent Consideration as follows: (i) |
| ● | |
| ● |
| ● |
| 1 |
| 16 |
The components of the total consideration as of the acquisition date are as follows:
| (in thousands) | ||||
| Components of total consideration, net of cash acquired: | ||||
| Cash | $ | |||
| Cash, seller expenses | ||||
| Cash, estimated net working capital adjustment | ||||
| Restricted Common Stock | ||||
| Acquisition earnout liabilities | (a) | |||
| Total consideration | $ |
| (a) |
The
acquisition earnout liability is re-measured at fair value on a recurring basis and the change
to the liability is recorded as a valuation adjustment recorded through “other expenses
or income” in the accompanying condensed consolidated statements of operations. The
change in the fair value recorded for the nine months ended October 31, 2022 was ($
See Note 11 – Subsequent Events, for information regarding the cash payment and restricted common stock issued in conjunction with the first year earnout. |
The allocation of the total consideration to net tangible and intangible assets as of the date of the closing of Avelead was as follows:
| (in thousands) | ||||
| Net tangible assets (liabilities): | ||||
| Accounts receivable | $ | |||
| Unbilled revenue | ||||
| Prepaid expenses | ||||
| Fixed assets | ||||
| Accounts payable | ( | ) | ||
| Accrued expenses | ( | ) | ||
| Deferred revenues | ( | ) | ||
| Net tangible assets (liabilities) | ( | ) | ||
| 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 | Indefinite | |
| Customer Relationships (SaaS) | ||
| Customer Relationships (Consulting) | ||
| Internally Developed Software | ||
| Trademarks and Tradenames |
The Company’s pro forma revenues and loss from continuing operations for the three and nine months ended October 31, 2021, assuming Avelead was acquired on February 1, 2021, are as follows. The unaudited pro forma information is not necessarily indicative of the results of operations that the Company would have reported had the acquisition occurred at the beginning of these periods nor is it indicative of future results. The unaudited pro forma financial information does not reflect the impact of future events that may occur after the acquisition, including, but not limited to, anticipated costs savings from synergies or other operational improvements.
Three Months ended October 31, 2021 | Nine Months ended October 31, 2021 | |||||||||||||||
| Actual | Pro Forma | Actual | Pro Forma | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Loss from continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| 17 |
Included
in the accompanying unaudited pro forma statement of operations for the three months ended October 31, 2021 are $
The Company entered into one employment agreement and one separation agreement with the two Sellers. Included in the transaction costs related to the Avelead acquisition is the cost of a two-year separation agreement with one Seller, fully expensed at the closing of the transaction. See Note 2 – Summary of Significant Accounting Policies. The employment agreement is a two-year employment agreement that entitles the Seller to a six-month separation pay in the case of termination without cause. The expense for the employment agreement is recognized ratably over the service period customary with other employment agreements within selling, general, and administrative expense.
The Company granted options to purchase 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 options were not exercised prior to their expiration date of November 15, 2021. The 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 restricted stock awards (RSAs) to certain Avelead employees as of the closing date.
ECM Assets Divestiture
On February 24, 2020, the Company sold a portion of its business (the “ECM Assets”). The Company is reporting the results of operations and cash flows, and related balance sheet items associated with the ECM Assets in discontinued operations in the accompanying condensed consolidated statements of operations, cash flows and balance sheets for the current and comparative prior periods. Refer to Note 9 – Discontinued Operations for details of the Company’s discontinued operations.
NOTE 4 — OPERATING LEASES
We determine whether an arrangement is a lease at inception. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the expected lease term. Since our lease arrangements do not provide an implicit rate, we use our incremental borrowing rate for the expected remaining lease term at commencement date for new and existing leases in determining the present value of future lease payments. Operating lease expense is recognized on a straight-line basis over the lease term.
Alpharetta Office Lease
On
October 1, 2021, the Company entered into an agreement with a third-party to sublease its office space in Alpharetta, Georgia, (the “Sublease
Agreement”). The sublease term is for
| 18 |
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 $
Maturities of operating lease liabilities associated with the Company’s operating lease as of October 31, 2022 are as follows for payments due based upon the Company’s fiscal year:
| 2022 | $ | |||
| 2023 | ||||
| Total lease payments | ||||
| Less present value adjustment | ( | ) | ||
| Present value of lease liabilities | $ |
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 lessor is an entity controlled by one of the Sellers that is employed
by the Company. The 36-month term lease commenced March 1, 2019 and expired on
NOTE 5 — DEBT
Term Loan Agreement
On
August 26, 2021, the Company and its subsidiaries entered into the Second Amended and Restated Loan and Security Agreement with
Bridge Bank, a division of Western Alliance Bank (the “Second Amended and Restated Loan and Security Agreement”). Pursuant to the Second Amended and Restated Loan and Security Agreement, Bridge
Bank agreed to provide the Company and its subsidiaries with a new term loan facility in the maximum principal amount of $
The
Second Amended and Restated Loan and Security Agreement has a five-year term, and the maximum principal amount was advanced in a single-cash
advance on or about the closing date. Interest accrued under the Second Amended Loan and Security Agreement is due monthly, and the Company
shall make monthly interest-only payments through the one-year anniversary of the closing date. From the first anniversary of the closing
date through the maturity date, the Company shall make monthly payments of principal and interest that increase over the term of the
agreement. The Second Amended and Restated Loan and Security Agreement requires principal repayments on the anniversary date of the closing
of the debt agreement of $
The
Company recorded $
| 19 |
The Second Amended and Restated 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 |
The Second Amended and Restated Loan and Security Agreement also includes customary negative covenants, subject to exceptions, which limit transfers, capital expenditures, indebtedness, certain liens, investments, acquisitions, dispositions of assets, restricted payments and the business activities of the Company, as well as customary representations and warranties, affirmative covenants and events of default, including cross defaults and a change of control default. The line of credit also is subject to customary prepayment requirements. For the period ended October 31, 2022, the Company has a debt to ARR ratio of 0.55 to 1 and, therefore, was not in compliance with the maximum debt to ARR ratio covenant under the Second Amended and Restated Loan and Security Agreement. Subsequent to the period ended October 31, 2022, the Company entered into a Second Modification Debt Agreement whereby the existing debt to ARR ratio, among other covenants, was modified. As a result, the Company was in compliance with all modified debt covenants at October 31, 2022.
See Note 11 – Subsequent Events for a description of the Second
Modification Debt Agreement. On November 29, 2022, the Company entered into a Second Modification Debt Agreement with Bridge Bank to add
a $
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 $
| 20 |
Outstanding principal balances on debt related to the new term loan agreement that the Company entered into on August 16, 2021 with Bridge Bank consisted of the following at:
| October 31, 2022 | January 31, 2022 | |||||||
| Term loan | $ | $ | ||||||
| Financing cost payable | ||||||||
| Deferred financing cost | ( | ) | ( | ) | ||||
| Total | ||||||||
| Less: Current portion | ( | ) | ( | ) | ||||
| Non-current portion of debt | $ | $ | ||||||
NOTE 6 — INCOME TAXES
Income taxes consist of the following:
| Three months ended | ||||||||
| October 31, 2022 | October 31, 2021 | |||||||
| Current tax expense: | ||||||||
| Federal | $ | ( | ) | $ | ||||
| State | ( | ) | ( | ) | ||||
| Total current tax provision | $ | ( | ) | $ | ( | ) | ||
| Nine months ended | ||||||||
| October 31, 2022 | October 31, 2021 | |||||||
| Current tax expense: | ||||||||
| Federal | $ | ( | ) | $ | ||||
| State | ( | ) | ( | ) | ||||
| Total current tax provision | $ | ( | ) | $ | ( | ) | ||
At
January 31, 2022, 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 $
NOTE 7 — EQUITY
Capital Raise
On
October 24, 2022, the Company entered into purchase agreements with certain investors pursuant to which the Company agreed to issue and
sell in a registered direct offering (the “2022 Offering”) an aggregate of shares of common stock, par value $
per share, at a purchase price of $ per share. The gross proceeds to the Company from the 2022 Offering were approximately $
On
February 25, 2021, the Company entered into an underwriting agreement with Craig-Hallum Capital Group LLC, as the sole managing underwriter,
relating to the underwritten public offering of an aggregate of shares of the Company’s common stock, par value $
per share, which included shares of common stock sold pursuant to the underwriter’s exercise of an option to purchase
additional shares of common stock to cover over-allotments (the “2021 Offering”). The price to the public in the 2021 Offering
was $ per share of common stock. The gross proceeds to the Company from the 2021 Offering were approximately $
| 21 |
Registration of Shares Issued to 180 Consulting
On May 3, 2021, the Company filed a Registration Statement on Form S-3 (Registration No. 333-255723), which was subsequently amended on June 23, 2021, for purposes of registering for resale shares of common stock issued to 180 Consulting, LLC (“180 Consulting”). The Registration Statement was declared effective by the SEC on July 14, 2021.
On June 22, 2022, the Company filed a Registration Statement on Form S-3 (Registration No. 333-265773) for purposes of registering for resale shares of common stock issued to 180 Consulting, LLC. The Registration Statement was declared effective by the SEC on July 1, 2022.
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 (the “Board”) of the Company, subsequently approved by the Company’s stockholders at the 2021 Annual Meeting of Stockholders of the Company, held on May 20, 2021 (the “2021 Annual Meeting”), and ratified by the Company’s stockholders on July 29, 2021 at the Special Meeting (as defined and described in further detail below).
At the 2021 Annual Meeting, the Company’s stockholders approved an amendment to the Streamline Health Solutions, Inc. Third Amended and Restated 2013 Stock Incentive Plan to increase the number of shares of the Company’s common stock authorized for issuance thereunder by 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 2021 Annual Meeting, the board of directors of the Company asked the Company’s stockholders to ratify the approval, filing and effectiveness of the Charter Amendment and the approval and effectiveness of the Third Amended 2013 Plan Amendment at a special meeting of the stockholders held on July 29, 2021 (the “Special Meeting”) in order to eliminate such uncertainty . At the Special Meeting, the Company’s stockholders ratified the approval, filing and effectiveness of the Charter Amendment and the approval and effectiveness of the Third Amended 2013 Plan Amendment.
At the Annual Meeting of Stockholders held on June 7, 2022, the Company’s stockholders approved an amendment to the Streamline Health Solutions, Inc. Third Amended and Restated 2013 Stock Incentive Plan to increase the number of shares of the Company’s common stock authorized for issuance thereunder by shares, from shares to shares. The Company’s stockholders also approved an amendment to the Company’s Certificate of Incorporation, as amended, to increase the total number of authorized shares of the Company’s common stock from shares to shares.
NOTE 8 — COMMITMENTS AND CONTINGENCIES
Consulting Agreement with 180 Consulting
On
March 19, 2020, the Company entered into a Master Services Agreement (the “MSA”) with 180 Consulting, pursuant to which
180 Consulting has provided and will continue to provide a variety of consulting services in support of eValuator products including
product management, operational consulting, staff augmentation, internal systems platform integration and software engineering
services, among others, through separate executed statements of work (“SOWs”). On September 20, 2021, the Company
entered into a separate MSA in support of Avelead products. The Company has entered into separate SOWs under the MSA. Some of the
SOWs include the ability of 180 Consulting to earn stock at a conversion rate to be calculated 20 days after the execution of the
related SOW. The MSA includes a termination clause upon a 90-day written notice. While no related party has a direct or indirect
material interest in this MSA or the related SOWs, individuals providing services to us under the MSA and the SOWs may share
workspace and administrative costs with 121G Consulting (as defined and further discussed in Note 14 – Related Party
Transactions in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2022). 180 Consulting earned a
cumulative number of shares through October 31, 2022 totaling .
For the three and nine months ended October 31, 2022, 180 Consulting earned a total of
and
shares, respectively. The Company paid fees of $
| 22 |
NOTE 9 – DISCONTINUED OPERATIONS
On February 24, 2020, the Company consummated the sale of the Company’s legacy Enterprise Content Management business (the “ECM Assets”).
For the three and nine months ended October 31, 2021, the Company recorded the following into discontinued operations in the accompanying condensed consolidated statements of operations:
Three Months Ended October 31, 2021 | Nine Months Ended October 31, 2021 | |||||||
| Revenues: | ||||||||
| Transition service fees | $ | $ | ||||||
| Total revenues | ||||||||
| Expenses: | ||||||||
| Cost of Sales | ||||||||
| Transition service cost | ||||||||
| Total expenses | ||||||||
| Income from discontinued operations | $ | $ | ||||||
The Company entered into an agreement with the Purchaser of the ECM Assets to maintain the current data center through a transition period. The transition services did not have a finite ending date at the signing of the agreement. However, the transition services were completed in the third quarter of fiscal 2021.
NOTE 10 - RELATED PARTY TRANSACTIONS
Refer
to Note 3 – Business Combination and Divestiture. The Company acquired Avelead on August 16, 2021. In addition, the Company assumed
a consulting agreement with AscendTek, LLC (“AscendTek”), a software development and system design company. AscendTek is
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. For the three and nine months ended October 31, 2022, the Company incurred approximately $
NOTE 11 — SUBSEQUENT EVENTS
We have evaluated subsequent events occurring after October 31, 2022, and based on our evaluation, except as set forth below, we did not identify any events that would have required recognition or disclosure in these condensed consolidated financial statements.
Debt Modification
On
November 29, 2022, the Company executed a Second Modification to the Second Amended and Restated Loan Agreement (the “Second
Modification Debt Agreement”). The Second Modification Debt Agreement includes an expansion of the Company’s total
borrowing to include a $
| ● | Minimum
Cash. |
| 23 |
| ● | Maximum Debt to ARR Ratio. Borrowers’ Maximum Debt to ARR Ratio, measured on a quarterly basis as of the last day of each fiscal quarter, shall not be greater than the amount set forth under the heading “Maximum Debt to ARR Ratio” as of, and for each of the dates appearing adjacent to such “Maximum Debt to ARR Ratio”. |
| Quarter Ending | Maximum Debt to ARR Ratio | |
| October 31, 2022 | ||
| January 31, 2023 | ||
| April 30, 2023 | ||
| July 31, 2023 | ||
| October 31, 2023 | ||
| January 30, 2024 |
| ● | Maximum Debt to Adjusted EBITDA Ratio. Commencing with the quarter ending April 30, 2024, Borrowers’ Maximum Debt to Adjusted EBITDA Ratio, measured on a quarterly basis as of the last day of each fiscal quarter for the trailing four (4) quarter period then ended, shall not be greater than the amount set forth under the heading “Maximum Debt to Adjusted EBITDA Ratio” as of, and for each of the dates appearing adjacent to such “Maximum Debt to Adjusted EBITDA Ratio”. |
| Quarter Ending | Maximum Debt to Adjusted EBITDA Ratio | |
| April 30, 2024 | ||
| July 31, 2024 and on the last day of each quarter thereafter |
| ● | Fixed
Charge Coverage Ratio. Commencing with the quarter ending April 30, 2024, Borrowers shall maintain a Fixed Charge Coverage
Ratio of not less than |
With the changes to the covenants through the Second Modification Debt Agreement, the Company was in compliance with all debt covenants as of October 31, 2022.
First Year Earnout Payment for Avelead
On
November 22, 2022, the Company made the first year earnout payment and issued shares of common stock, par value $ per share,
subject to certain restrictions, to the selling shareholders of Avelead in accordance with the Unit Purchase Agreement See Item 1,
Note 3 – Business Acquisition and Divestiture. In connection with the first year earnout payment, the Company made cash
payments of $
| 24 |
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, 2022 and in our subsequent filings with the SEC, and include among others, the following:
| ● | competitive products and pricing; | |
| ● | product demand and market acceptance; | |
| ● | entry into new markets; | |
| ● | the extent to which health epidemics and other outbreaks of communicable diseases, including the ongoing coronavirus, or COVID-19, pandemic and the efforts to mitigate it, could disrupt our operations and/or materially and adversely affect our business and financial conditions; | |
| ● | the possibility that any of the anticipated benefits of the acquisition of Avelead Consulting, LLC (“Avelead”) will not be realized or will not be realized within the expected time period, the businesses of the Company and the Avelead segment may not be integrated successfully, or such integration may be more difficult, time-consuming or costly than expected, or revenues following the Avelead acquisition may be lower than expected; | |
| ● | new product and services development and commercialization; | |
| ● | key strategic alliances with vendors and channel partners that resell our products; | |
| ● | uncertainty in continued relationships with customers due to termination rights; | |
| ● | our ability to control costs; | |
| ● | availability, quality and security of products produced, and services provided by third-party vendors; | |
| ● | the healthcare regulatory environment; | |
| ● | potential changes in legislation, regulation and government funding affecting the healthcare industry; | |
| ● | healthcare information systems budgets; |
| 25 |
| ● | availability of healthcare information systems trained personnel for implementation of new systems, as well as maintenance of legacy systems; | |
| ● | the success of our relationships with channel partners; | |
| ● | fluctuations in operating results; | |
| ● | our future cash needs; | |
| ● | the consummation of resources in researching acquisitions, business opportunities or financings and capital market transactions; | |
| ● | the failure to adequately integrate past and future acquisitions into our business; | |
| ● | critical accounting policies and judgments; | |
| ● | changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other standard-setting organizations; | |
| ● | changes in economic, business and market conditions impacting the healthcare industry and the markets in which we operate; | |
| ● | our ability to maintain compliance with the terms of our credit facilities; and | |
| ● | our ability to maintain compliance with the continued listing standards of the Nasdaq Capital Market (“Nasdaq”). |
Some of these factors and risks have been, and may further be, exacerbated by the ongoing COVID-19 pandemic.
Most of these risk factors are beyond our ability to predict or control. Any of these factors, or a combination of these factors, could materially affect our future financial condition or results of operations and the ultimate accuracy of our forward-looking statements. There also are other factors that we may not describe (generally because we currently do not perceive them to be material) that could cause actual results to differ materially from our expectations. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
On August 16, 2021, the Company entered into a 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. Operations for Avelead are included in the Company’s consolidated financial information from the acquisition date. Refer to Note 3 – Business Combination and Divestiture in our unaudited condensed consolidated financial statements included in Part I, Item I, “Financial Statements” for further information on the Avelead acquisition.
During the third quarter ended October 31, 2022, the Company strengthened its balance sheet through a capital raise. On October 24, 2022, the Company entered into purchase agreements with certain investors (the “2022 Offering”). Under these purchase agreements, the Company agreed to issue and sell, in a registered direct offering, an aggregate of 6,299,989 shares of common stock, par value $0.01 per share, at a purchase price of $1.32 per share. The gross proceeds to the Company from the 2022 Offering were approximately $8.3 million. The Company intends to use the proceeds of the 2022 Offering for general corporate purposes. The 2022 Offering closed on October 26, 2022.
In addition, we expanded our relationship with Bridge Bank in the fourth quarter of 2022. On November 29, 2022, the Company executed a Second Modification to the Second Amended and Restated Loan Agreement (“Second Modification Debt Agreement”). The Second Modification Debt Agreement includes an expansion of the Company’s total borrowing to include a $2,000,000 non-formula revolving line of credit. The revolving line of credit will be co-terminus with the term loan, which matures on August 26, 2026. The Second Modification Debt Agreement also includes new covenants through the term of the Second Amended and Restated Loan and Security Agreement. See Item 1, Note 11 - Subsequent Events, for more discussion on the Second Modification Debt Agreement.
| 26 |
Results of Operations
Revenues
| Three Months Ended | ||||||||||||||||
| October 31, 2022 | October 31, 2021 | Change | % Change | |||||||||||||
| Software licenses | - | 150,000 | (150,000 | ) | -100 | % | ||||||||||
| Professional services | 1,270,000 | 944,000 | 326,000 | 35 | % | |||||||||||
| Audit services | 618,000 | 513,000 | 105,000 | 20 | % | |||||||||||
| Maintenance and support | 1,120,000 | 1,082,000 | 38,000 | 4 | % | |||||||||||
| Software as a service | 3,209,000 | 2,825,000 | 384,000 | 14 | % | |||||||||||
| Total Revenues | 6,217,000 | 5,514,000 | 703,000 | 13 | % | |||||||||||
| Nine Months Ended | ||||||||||||||||
| October 31, 2022 | October 31, 2021 | Change | % Change | |||||||||||||
| Software licenses | 123,000 | 285,000 | (162,000 | ) | -57 | % | ||||||||||
| Professional services | 3,552,000 | 1,052,000 | 2,500,000 | 238 | % | |||||||||||
| Audit services | 1,964,000 | 1,460,000 | 504,000 | 35 | % | |||||||||||
| Maintenance and support | 3,348,000 | 3,226,000 | 122,000 | 4 | % | |||||||||||
| Software as a service | 9,157,000 | 5,310,000 | 3,847,000 | 72 | % | |||||||||||
| Total Revenues | 18,144,000 | 11,333,000 | 6,811,000 | 60 | % | |||||||||||
Software licenses —For the three and nine months ended October 31, 2022, revenue from software licenses decreased by $150,000 and $162,000, respectively, compared to the prior year periods. The Company has shifted its business from perpetual software licenses to a software as a service (SaaS) model. The software license sales come solely from our channel partners; therefore, the periodic amounts are less predictable and consistent than recurring revenues.
Professional services — For the three and nine months ended October 31, 2022, revenue from professional services increased by $326,000 and $2,500,000, respectively, compared to the prior year periods. The increase in professional services includes $314,000 and $2,228,000, respectively, of Avelead professional services revenue increases as compared to the prior year periods. The Company is primarily focused on SaaS growth, and, accordingly, is not expecting growth in professional services.
Audit services — For the three and nine months ended October 31, 2022, revenue from audit services increased $105,000 and $504,000, respectively, compared to the prior year periods. The increases for both comparable periods include revenue from new audit service agreements. The Company is primarily focused on utilizing audit services to support its technology, eValuator. Accordingly, the Company expects modest revenue growth in the future in audit services.
Maintenance and support — For the three and nine months ended October 31, 2022, revenue from maintenance and support increased $38,000 and $122,000, respectively, compared to the prior year periods. The increase is due to new maintenance subscriptions on previously licensed software. The Company does not anticipate maintenance and support growth due to the Company’s shift to its growth products that are classified as SaaS.
Software as a Service (SaaS) — For the three and nine months ended October 31, 2022, revenue from SaaS increased $384,000 and $3,847,000, respectively, compared to the prior year periods. The increases include $430,000 and $3,554,000, respectively, of SaaS revenue increases from Avelead. The remaining increase in SaaS revenue for the three month period ended October 31,2022 is due to new customers on the Company’s eValuator product offset by a customer termination. The remaining increase in SaaS revenue for the nine months ended October 31,2022 is due to new customers on the Company’s eValuator product. The Company expects continued growth in its SaaS business.
We have approximately $4.5 million in annualized contract value of contracts to be implemented as of November 30, 2022. The industry has been impacted post COVID by hospital personnel shortages and a backlog of hospital IT projects. This has resulted in slower contract to implementation timelines, which is delaying revenue recognition for such contracts. It is uncertain how long these headwinds will impact our implementation timelines. However, strong growth in SaaS is expected to continue as these contracts are implemented. The Company expects to see double-digit percentage growth, sequentially, and year-over-year, in Fiscal 2023 from its sales booking activity in Fiscal 2022.
| 27 |
Cost of Sales
| Three Months Ended | ||||||||||||||||
| October 31, 2022 | October 31, 2021 | Change | % Change | |||||||||||||
| Cost of software licenses | 85,000 | 133,000 | (48,000 | ) | (36 | )% | ||||||||||
| Cost of professional services | 1,128,000 | 936,000 | 192,000 | 21 | % | |||||||||||
| Cost of audit services | 531,000 | 409,000 | 122,000 | 30 | % | |||||||||||
| Cost of maintenance and support | 84,000 | 57,000 | 27,000 | 47 | % | |||||||||||
| Cost of software as a service | 1,742,000 | 1,088,000 | 654,000 | 60 | % | |||||||||||
| Total Cost of Sales | 3,570,000 | 2,623,000 | 947,000 | 36 | % | |||||||||||
| Nine Months Ended | ||||||||||||||||
| October 31, 2022 | October 31, 2021 | Change | % Change | |||||||||||||
| Cost of software licenses | 278,000 | 412,000 | (134,000 | ) | (33 | )% | ||||||||||
| Cost of professional services | 3,288,000 | 1,411,000 | 1,877,000 | 133 | % | |||||||||||
| Cost of audit services | 1,426,000 | 1,174,000 | 252,000 | 21 | % | |||||||||||
| Cost of maintenance and support | 220,000 | 223,000 | (3,000 | ) | (1 | )% | ||||||||||
| Cost of software as a service | 4,771,000 | 2,276,000 | 2,495,000 | 110 | % | |||||||||||
| Total Cost of Sales | 9,983,000 | 5,496,000 | 4,487,000 | 82 | % | |||||||||||
The increase in overall cost of sales for the three and nine months ended October 31, 2022 from the comparable prior year periods are primarily due to Avelead, which represents $582,000 and $3,857,000 of the increase, respectively, as compared to prior year periods. The incremental increase in cost of goods sold for Avelead was driven by additional personnel and third-party content providers related to the Company’s SaaS solutions.
The cost of software licenses reflects amortization of capitalized software expenditures. The amounts for the three and nine months ended October 31, 2022 decreased compared to the respective prior year periods due to a reduction in research and development investments for the Company’s CDI/Abstracting products, resulting in lower capitalized software amortization expense.
The cost of professional services includes compensation and benefits for personnel and related expenses. For the three and nine months ended October 31, 2022, Avelead comprises $216,000 and $1,932,000 of the increase as compared to the respective prior year periods.
The cost of audit services includes compensation and benefits for audit services personnel, and related expenses. These costs for the three and nine months ended October 31, 2022 increased compared to the respective prior year periods due to an increase in employee related expenses that are tied to increased audit service fees.
The cost of maintenance and support includes compensation and benefits for client support personnel and the cost of third-party content provider contracts. The costs for the three and nine months ended October 31, 2022 remained consistent with the comparable prior year periods.
The cost of SaaS solutions is comprised of salaries, amortization of capitalized software development, and third-party content provider costs. For the three and nine months ended October 31, 2022, Avelead comprised $366,000 and $1,925,000 of the increase as compared to the respective prior year periods. The remaining increases were driven by personnel and third-party expenses driven by increased volume offset by a decrease in amortization of capitalized software.
Certain costs in SaaS solutions are tied to volumes, such as number of users. These costs include coding tools supporting eValuator and a third-party system that is intended to help move data from the hospital system to our systems. Included in cost of SaaS solutions are non-cash expenditures of $1,547,000 including the amortization of capitalized software which impacts margin by 17%. Excluding these non-cash items for the nine months ended October 31, 2022, the remaining cost of SaaS solutions was $3,224,000, or 35% of sales. Current margins are lower than we expect in the future for SaaS solutions as we are implementing a large number of new customers. Certain costs, such as labor and third-party content providers, impact the gross margin before a customer is fully implemented and revenue is recognized.
| 28 |
Selling, General and Administrative Expense
| Three Months Ended | ||||||||||||||||
| October 31, 2022 | October 31, 2021 | Change | % Change | |||||||||||||
| General and administrative expenses | 2,690,000 | 2,218,000 | 472,000 | 21 | % | |||||||||||
| Sales and marketing expenses | 1,363,000 | 1,221,000 | 142,000 | 12 | % | |||||||||||
| Total selling, general, and administrative expense | 4,053,000 | 3,439,000 | 614,000 | 18 | % | |||||||||||
| Nine Months Ended | ||||||||||||||||
| October 31, 2022 | October 31, 2021 | Change | % Change | |||||||||||||
| General and administrative expenses | 8,112,000 | 5,669,000 | 2,443,000 | 43 | % | |||||||||||
| Sales and marketing expenses | 4,376,000 | 2,838,000 | 1,538,000 | 54 | % | |||||||||||
| Total selling, general, and administrative expense | 12,488,000 | 8,507,000 | 3,981,000 | 47 | % | |||||||||||
General and administrative expenses consist primarily of compensation and related benefits, reimbursable travel and entertainment expenses related to our executive and administrative staff, general corporate expenses, amortization of intangible assets, and occupancy costs. For the three and nine months ended October 31, 2022, Avelead comprised $59,000 and $1,282,000 of the increase as compared to the respective prior year periods. For the three and nine months ended October 31, 2022, increases of $436,000 and $1,127,000, respectively, were driven by employee related expenses, such as salaries, performance bonuses, and severance expense, as part of the Company’s strategic plan to simplify the Company’s business in order to drive sustainable growth and improved profitability and cash flows. The Company previously announced an “alignment” bringing the Avelead business together with its eValuator business. The resulting severance expense is included in each of General and administrative expenses and Sales and marketing expense.
Sales and marketing expenses consist primarily of compensation and related benefits and travel and entertainment expenses related to our sales and marketing staff, as well as advertising and marketing expenses, including trade shows. For the three and nine months ended October 31, 2022, Avelead comprised $240,000 and $1,181,000 of the increase as compared to the respective prior periods. For the three and nine months ended October 31, 2022, increases of $175,000 and $1,143,000, respectively, were primarily driven by an increase in salaries, benefits, and accrued severance associated with the Company’s previously announced alignment, and expansion and upgrade of its direct and indirect sales personnel. The Company has seen an increase in travel to customer sites, as well as industry trade shows, resulting in greater travel expense. The Company expects that face-to-face meetings with hospital systems will result in higher sales bookings.
Research and Development
| Three Months Ended | ||||||||||||||||
| October 31, 2022 | October 31, 2021 | Change | % Change | |||||||||||||
| Research and development expense | 1,754,000 | 1,339,000 | 415,000 | 31 | % | |||||||||||
| Plus: Capitalized research and development cost | 563,000 | 342,000 | 221,000 | 65 | % | |||||||||||
| Total research and development cost | 2,317,000 | 1,681,000 | 636,000 | 38 | % | |||||||||||
| Nine Months Ended | ||||||||||||||||
| October 31, 2022 | October 31, 2021 | Change | % Change | |||||||||||||
| Research and development expense | 4,527,000 | 3,280,000 | 1,247,000 | 38 | % | |||||||||||
| Plus: Capitalized research and development cost | 1,450,000 | 1,048,000 | 402,000 | 38 | % | |||||||||||
| Total research and development cost | 5,977,000 | 4,328,000 | 1,649,000 | 38 | % | |||||||||||
Research and development expense consists primarily of compensation and related benefits and the use of independent contractors for specific near-term development projects. Research and development expenses for the three and nine months ended October 31, 2022 increased by approximately $415,000 and $1,247,000, respectively, compared to the prior year periods. The increase of $415,000 for the three months ended October 31, 2022 is primarily driven by a $182,000 increase in expenses related to Avelead. The increase of $1,247,000 in research and development expenses for the nine months ended October 31, 2022 from the comparable prior year period includes a $1,073,000 increase in expenses related to Avelead. The Company has previously announced that both research and development expense and capitalized research and development cost will be higher in the third and fourth quarters of fiscal year 2022 due to an emphasis on improving the architecture and data management inside Avelead’s technology stack. The Company expects to invest approximately $450,000 in these enhancements in the second half of fiscal 2022.
| 29 |
Capitalized research and development costs for the three and nine months ended October 31, 2022 increased by approximately $212,000 and $402,000, respectively, compared to the prior year periods. The increase of $212,000 for the three months ended October 31, 2022 included an increase of $231,000 related to Avelead. The increase of $402,000 for the nine months ended October 31, 2022 includes an increase of $559,000 related to Avelead. These increases are primarily related to the improvements for the architecture and data management on the Avelead technology.
We expect total research and development costs (primarily research and development expense) will continue at their third quarter levels through the first quarter of Fiscal 2023. As the Company completes its investment in the architecture of the Avelead technology, the Company plans to replace this effort with a project for Artificial Intelligence (AI). This AI project will be focused on the best use of AI within the eValuator product. For all of fiscal 2023, the Company expects to have investments in its technology to be between 10% and 15% higher than that which was experienced in fiscal 2022.
Acquisition-related Costs
| Three Months Ended | ||||||||||||||||
| October 31, 2022 | October 31, 2021 | Change | % Change | |||||||||||||
| Acquisition-related Costs | 2,000 | 1,933,000 | (1,931,000 | ) | (100 | )% | ||||||||||
| Nine Months Ended | ||||||||||||||||
| October 31, 2022 | October 31, 2021 | Change | % Change | |||||||||||||
| Acquisition-related Costs | 141,000 | 2,710,000 | (2,569,000 | ) | (95 | )% | ||||||||||
Refer to Note 2 – Summary of Significant Accounting Policies – Other Operating Costs – Acquisition-related costs – in the unaudited condensed consolidated financial statements included in Part I, Item I, “Financial Statements” for further details with respect to acquisition-related costs. For the three and nine months ended October 31, 2022 the Company incurred certain acquisition-related costs related to the acquisition of Avelead totaling $2,000 and $141,000, respectively, consisting primarily of fees for professional service. For the three and nine months ended October 31, 2021, the Company incurred acquisition-related costs related to the acquisition of Avelead totaling $1,933,000 and $2,710,000, respectively. Of the total costs related to the acquisition of Avelead, $355,000 and $705,000 was related to bonuses paid to certain executives in executing priorities, primarily the acquisition.
Other Income (Expense)
| Three Months Ended | ||||||||||||||||
| October 31, 2022 | October 31, 2021 | Change | % Change | |||||||||||||
| Interest expense | (198,000 | ) | (85,000 | ) | (113,000 | ) | 133 | % | ||||||||
| Loss on Extinguishment of Debt | — | (43,000 | ) | 43,000 | (100 | )% | ||||||||||
| Acquisition earnout valuation adjustments | 163,000 | (417,000 | ) | 580,000 | (139 | )% | ||||||||||
| Miscellaneous income (expense) | 68,000 | (10,000 | ) | 658,000 | (780 | )% | ||||||||||
| Total other (expense) income | 33,000 | (555,000 | ) | 588,000 | (106 | )% | ||||||||||
| Nine Months Ended | ||||||||||||||||
| October 31, 2022 | October 31, 2021 | Change | % Change | |||||||||||||
| Interest expense | (519,000 | ) | (107,000 | ) | (412,000 | ) | 385 | % | ||||||||
| Loss on Extinguishment of Debt | — | (43,000 | ) | 43,000 | (100 | )% | ||||||||||
| Acquisition earnout valuation adjustments | 188,000 | (417,000 | ) | 605,000 | (145 | )% | ||||||||||
| Miscellaneous income (expense) | 151,000 | (4,000 | ) | 155,000 | (3,875 | )% | ||||||||||
| Forgiveness of PPP loan and accrued interest | — | 2,327,000 | (2,327,000 | ) | (100 | )% | ||||||||||
| Total other (expense) income | (180,000 | ) | 1,756,000 | (1,936,000 | ) | (110 | )% | |||||||||
Interest expense consists of interest associated with the term loan, deferred financing costs, less interest related to capitalization of software. Interest expense increased for the three and nine months ended October 31, 2022 from the comparable prior year period primarily due to the $10,000,000 term loan with Bridge Bank (See Note 5 – Debt) and increased interest rates. Further, interest rates have increased at an accelerated pace in Fiscal 2022. The Federal Reserve has been reacting to inflation through interest rate increases. This is expected to continue at a slower pace than that experienced in Fiscal 2022. The interest rate increases that have been put into effect to date, are expected to continue to increase interest expense (year over year) into Fiscal 2023.
| 30 |
Acquisition earnout valuation adjustments for the three and nine months ended October 31, 2022 includes a valuation adjustment of $163,000 and $188,000, respectively, compared to expense of $417,000 for the prior year three and nine-month period. The valuation adjustment is related to the acquisition earnout liabilities associated with the Avelead acquisition (Refer to Note 3 – Business Combination and Divestiture of the unaudited condensed consolidated financial statements included in Part I, Item I, “Financial Statements”).
Other income for the three and nine months ended October 31, 2022 includes $49,000 and $145,000, respectively, related to the sublease of the Alpharetta location (Refer to Note 4 – Operating Leases of the unaudited condensed consolidated financial statements included in Part I, Item I, “Financial Statements”). Forgiveness of PPP loan and accrued interest for the three and nine months ended October 31, 2021 reflects the financial impact of the $2,301,000 PPP loan being forgiven, along with the accrued interest of $26,000 also being forgiven.
Provision for Income Taxes
We recorded income tax expense of $9,000 and $4,000 for the three months ended October 31, 2022 and 2021, respectively, and income tax expense of $22,000 and $9,000 for the nine months ended October 31, 2022 and 2021, respectively, which is comprised of estimated federal, state and local income tax provisions. The Company has a substantial amount of net operating losses for federal and state income tax purposes.
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.
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.
| 31 |
Our lender uses a measurement that is similar to the Adjusted EBITDA measurement described herein to assess our operating performance. The lender under our Second Amended and Restated Loan and Security Agreement requires delivery of compliance reports certifying compliance with financial covenants, certain of which are based on a measurement that is similar to the Adjusted EBITDA measurement reviewed by our management and Board of Directors.
EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin are not measures of liquidity under GAAP or otherwise and are not alternatives to cash flow from continuing operating activities, despite the advantages 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 Second Amended and Restated Loan and Security Agreement; | |
| ● | EBITDA does not reflect income tax payments that we may be required to make; and | |
| ● | Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements. |
Adjusted EBITDA has all the inherent limitations of EBITDA. To properly and prudently evaluate our business, the Company encourages readers to review the GAAP financial statements included elsewhere in this Report, and not rely on any single financial measure to evaluate our business. We also strongly urge readers to review the reconciliation of these non-GAAP financial measures to the most comparable GAAP measure in this section, along with the condensed consolidated financial statements included above.
The following table reconciles EBITDA and Adjusted EBITDA to net loss from continuing operations, and Adjusted EBITDA per diluted share to loss per diluted share for the three and nine months ended October 31, 2022 (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.
| 32 |
| Three Months Ended | Nine Months Ended | |||||||||||||||
| In thousands, except per share data | October 31, 2022 | October 31, 2021 | October 31, 2022 | October 31, 2021 | ||||||||||||
| Adjusted EBITDA Reconciliation | ||||||||||||||||
| Loss from continuing operations | $ | (3,138 | ) | $ | (4,379 | ) | $ | (9,197 | ) | $ | (6,913 | ) | ||||
| Interest expense | 198 | 85 | 519 | 107 | ||||||||||||
| Income tax expense | 9 | 4 | 22 | 9 | ||||||||||||
| Depreciation | 13 | 16 | 40 | 53 | ||||||||||||
| Amortization of capitalized software development costs | 446 | 446 | 1,293 | 1,430 | ||||||||||||
| Amortization of intangible assets | 463 | 490 | 1,519 | 721 | ||||||||||||
| Amortization of other costs | 131 | 110 | 360 | 338 | ||||||||||||
| EBITDA | $ | (1,878 | ) | $ | (3,228 | ) | $ | (5,444 | ) | $ | (4,255 | ) | ||||
| Share-based compensation expense | 555 | 537 | 1,212 | 1,659 | ||||||||||||
| Non-cash valuation adjustments | (163 | ) | 417 | (188 | ) | 417 | ||||||||||
| Acquisition-related cost, severance, and transaction-related bonuses | 387 | 1,953 | 1,010 | 2,730 | ||||||||||||
| Forgiveness of PPP loan and accrued interest | — | — | — | (2,327 | ) | |||||||||||
| Other non-recurring charges | (73 | ) | — | (140 | ) | 16 | ||||||||||
| Loss on early extinguishment of debt | — | 43 | — | 43 | ||||||||||||
| Adjusted EBITDA | $ | (1,172 | ) | $ | (278 | ) | $ | (3,550 | ) | $ | (1,717 | ) | ||||
| Loss from continuing operations margin (1) | (50 | )% | (79 | )% | (51 | )% | (61 | )% | ||||||||
| Adjusted EBITDA margin (2) | (19 | )% | (5 | )% | (20 | )% | (15 | )% | ||||||||
| Adjusted EBITDA per Diluted Share Reconciliation | ||||||||||||||||
| Loss from continuing operations per common share — diluted | $ | (0.07 | ) | $ | (0.10 | ) | $ | (0.19 | ) | $ | (0.17 | ) | ||||
| Net loss per common share — diluted (3) | $ | (0.07 | ) | $ | (0.10 | ) | $ | (0.19 | ) | $ | (0.16 | ) | ||||
| Adjusted EBITDA per adjusted diluted share (4) | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.08 | ) | $ | (0.04 | ) | ||||
| Basic weighted average shares | 47,730,009 | 45,709,952 | 47,329,923 | 41,498,873 | ||||||||||||
| Includable incremental shares — adjusted EBITDA (5) | 413,810 | 353,851 | 283,654 | 496,393 | ||||||||||||
| Adjusted diluted shares | 48,143,819 | 46,063,803 | 47,613,577 | 41,995,266 | ||||||||||||
| (1) | Loss from continuing operations as a percentage of GAAP net revenue. |
(2) |
Adjusted EBITDA as a percentage of GAAP net revenue. |
| (3) | Since the Company was in a loss position for the periods presented, diluted net loss per common share is the same as basic net loss per common share as the inclusion of all potential common shares outstanding would have been anti-dilutive. |
| (4) | Adjusted EBITDA per adjusted diluted share for the Company’s common stock is computed using the treasury stock method. Since the Company was in a loss position for the periods presented, adjusted EBITDA per adjusted diluted share is the same as adjusted EBITDA per adjusted share as the inclusion of all potential common shares outstanding would have been anti-dilutive. |
| (5) | The number of incremental shares that would be dilutive under an assumption that the Company is profitable during the reported period, which is only applicable for a period in which the Company reports profit. |
Application of Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reporting period. Management considers an accounting policy to be critical if the accounting policy requires management to make particularly difficult, subjective, or complex judgments about matters that are inherently uncertain. A summary of our critical accounting policies is included in Note 2 to our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended January 31, 2022. There 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, 2022.
| 33 |
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 October 24, 2022, the Company entered into purchase agreements with certain investors pursuant to which the Company agreed to issue and sell in a registered direct offering an aggregate of 6,299,989 shares of common stock, par value (the “2022 Offering”) $0.01 per share at a purchase price of $1.32 per share. The gross proceeds to the Company from the 2022 Offering were approximately $8.3 million. The Company intends to use the proceeds of the 2022 Offering for general corporate purposes. The 2022 Offering closed on October 26, 2022.
On February 25, 2021, the Company entered into an underwriting agreement with Craig-Hallum Capital Group LLC, as the sole managing underwriter, relating to the underwritten public offering of an aggregate of 10,062,500 shares of the Company’s common stock, par value $0.01 per share, which included 1,312,500 shares of common stock sold pursuant to the underwriter’s exercise of an option to purchase additional shares of common stock to cover over-allotments (the “2021 Offering”). The price to the public in the 2021 Offering was $1.60 per share of common stock. The gross proceeds to the Company from the 2021 Offering were approximately $16,100,000, before deducting underwriting discounts, commissions, and estimated offering expenses. The 2021 Offering closed on March 2, 2021.
On May 24, 2021, the Company amended its Certificate of Incorporation, as amended, to increase the total number of authorized shares of the Company’s common stock from 45,000,000 shares to 65,000,000 shares (the “Charter Amendment”). The Charter Amendment was initially approved by the board of directors of the Company, subject to stockholder approval, approved by the Company’s stockholders at the 2021 Annual Meeting of Stockholders of the Company, held on May 20, 2021 (the “2021 Annual Meeting”), and ratified by the Company’s stockholders on July 29, 2021 at the Special Meeting (as defined and described in further detail below).
Also, at the 2021 Annual Meeting, the Company’s stockholders approved an amendment to the Streamline Health Solutions, Inc. Third Amended and Restated 2013 Stock Incentive Plan to increase the number of shares of the Company’s common stock authorized for issuance thereunder by 2,000,000 shares, from 6,223,246 shares to 8,223,246 shares (the “Third Amended 2013 Plan Amendment”).
As described in the Company’s definitive proxy statement on Schedule 14A filed with the SEC on July 6, 2021, because there may have been uncertainty regarding the validity or effectiveness of the prior approval of the Charter Amendment, the authorized shares increase effected thereby and the Third Amended 2013 Plan Amendment at the Annual Meeting, the board of directors of the Company asked the Company’s stockholders to ratify the approval, filing and effectiveness of the Charter Amendment and the approval and effectiveness of the Third Amended 2013 Plan Amendment at a special meeting of the stockholders held on July 29, 2021 in order to eliminate such uncertainty (the “Special Meeting”). At the Special Meeting, the Company’s stockholders ratified the approval, filing and effectiveness of the Charter Amendment and the approval and effectiveness of the Third Amended 2013 Plan Amendment.
At the Annual Meeting of Stockholders held on June 7, 2022, the Company’s stockholders approved an amendment to the Streamline Health Solutions, Inc. Third Amended and Restated 2013 Stock Incentive Plan to increase the number of shares of the Company’s common stock authorized for issuance thereunder by 2,000,000 shares, from 8,223,246 shares to 10,223,246 shares. The Company’s stockholders also approved an amendment to the Company’s Certificate of Incorporation, as amended, to increase the total number of authorized shares of the Company’s common stock from 65,000,000 shares to 85,000,000 shares.
On October 24, 2022, the Company entered into purchase agreements (collectively, the “Purchase Agreements”) with purchasers named therein (the “Purchasers”), pursuant to which the Company agreed to issue and sell in a registered direct offering an aggregate of 6,299,989 shares of common stock, par value $0.01 per share, at a purchase price of $1.32 per share (the “2022 Offering”). The gross proceeds to the Company from the 2022 Offering were approximately $8.3 million. The Company intends to use the proceeds of the Offering for general corporate purposes. The 2022 Offering closed on October 26, 2022.
| 34 |
The Company has liquidity through the Second Amended and Restated Loan and Security Agreement described in more detail in Note 5 – Debt in our unaudited condensed consolidated financial statements included in Part I, Item I, “Financial Statements”. The Company has a term loan facility with an initial, maximum, principal amount of $10,000,000. Amounts outstanding under the Second Amended and Restated Loan and Security Agreement bear interest at a per annum rate equal to the Prime Rate (as published in The Wall Street Journal) plus 1.5%, with a Prime “floor” rate of 3.25%. Pursuant to the Second 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 and Restated Loan and Security Agreement includes customary financial covenants, including the requirements that the Company achieve certain EBITDA levels and fixed coverage ratios and maintain certain cash balances and certain recurring revenue levels. The Second Amended and Restated Loan and Security Agreement also includes customary negative covenants, subject to exceptions, which limit transfers, capital expenditures, indebtedness, certain liens, investments, acquisitions, dispositions of assets, restricted payments, and the business activities of the Company, as well as customary representations and warranties, affirmative covenants and events of default, including cross defaults and a change of control default. As of October 31, 2022, the Company was in compliance with all debt covenants under the Second Amended and Restated Loan and Security Agreement.
On November 29, 2022, we executed a Second Modification to the Second Amended and Restated Loan Agreement (“Second Modification Debt Agreement”). The Second Modification Debt Agreement includes an expansion of the Company’s total borrowing to include a $2 million revolving line of credit. This is a committed revolving line that can be drawn at anytime as long as we are not in breach of the debt agreement. The revolving line of credit is co-terminus with the term loan, August 26, 2026. The Second Modification Debt Agreement also includes new covenants through the term. See Item 1, Note 11 - Subsequent Events, for more discussion on the Second Modification Debt Agreement. The Second Modification Debt Agreement increases the borrowing capacity of the Company through a non-formula revolving line of credit of $2,000,000.
On November 22, 2022, we paid the first year earnout payment to the selling shareholders of Avelead in accordance with the Unit Purchase Agreement See Item 1, Note 3 – Business Acquisition and Divestiture. The Company issued cash payments of $2,012,000 and restricted common stock, $0.01 par value, of 1,243,291 for the SaaS Contingent Consideration and 627,746 for the Renewal Contingent Consideration. The estimated aggregate value of the first year earnout is $4,000,000 for the SaaS Contingent Consideration and $1,000,000 for the Renewal Contingent Consideration. The Company has a second earnout due under the Unit Purchase Agreement due on or about October 2023. These liabilities are reflected at the net present value of the future commitment on the Company’s balance sheet, as Acquisition Earnout Liability.
The Company believes that cash flows from operations, the cash from the 2022 Offering and available credit facilities are adequate to fund current obligations for the next twelve months from issuance of these financial statements. Cash and cash equivalent balances at October 31, 2022 and January 31, 2022 were approximately $11,699,000 and $9,885,000 respectively. Continued expansion may require the Company to take on additional debt or raise capital through the issuance of additional equity securities, or a combination of both. There can be no assurance the Company will be able to obtain the capital required to fund further expansion.
The Company has cash on its balance sheet of $11,699,000 at October 31, 2022. The Company believes that its cash on-hand, along with the term debt and new revolving credit line is sufficient to support its operations until it is able to generate cash from operations.
Significant cash obligations
| (in thousands) | October 31, 2022 | January 31, 2022 | ||||||
| Term loan (1) | $ | 9,839 | $ | 9,904 | ||||
| (1) | Term loan balance is reported net of deferred financing costs of $93,000 and $117,000 as of October 31, 2022, and January 31, 2022, respectively, and financing cost payable of $57,000 and $21,000 as of October 31, 2022 and January 31, 2022, respectively. Refer to Note 5 - Debt for additional information. The term loan payable as of October 31, 2022 and January 31, 2022 was bank term debt under the Second Amended and Restated Loan and Security Agreement. The Company’s PPP loan was forgiven in June 2021. |
| 35 |
Operating cash flow activities
| Nine months Ended | ||||||||
| (in thousands) | October 31, 2022 | October 31, 2021 | ||||||
| Net loss from continuing operations | $ | (9,197 | ) | $ | (6,913 | ) | ||
| Non-cash adjustments to net loss | 4,317 | 2,379 | ||||||
| Cash impact of changes in assets and liabilities | 159 | 512 | ||||||
| Net cash used in operating activities | $ | (4,721 | ) | $ | (4,022 | ) | ||
The higher use of cash from operating activities is due to the higher net loss from operations for the nine months ended October 31, 2022. The Company had a higher net loss from operations and higher non-cash adjustments to net loss primarily due to higher rates of amortization associated with the Avelead acquisition. For the nine months ended October 31, 2021, a non-cash adjustment for forgiveness of the PPP loan in the amount of $2,301,000 and accrued interest of $26,000 is included.
Investing cash flow activities
| Nine months Ended | ||||||||
| (in thousands) | October 31, 2022 | October 31, 2021 | ||||||
| Investment in Avelead, net of cash | $ | — | $ | (12,354 | ) | |||
| Purchases of property and equipment | (10 | ) | (18 | ) | ||||
| Proceeds from sale of ECM Assets | — | 800 | ||||||
| Capitalized software development costs | (1,435 | ) | (1,048 | ) | ||||
| Net cash used in investing activities | $ | (1,445 | ) | $ | (12,620 | ) | ||
The cash used in investing activities for the nine months ended October 31, 2022 and October 31, 2021, includes capitalized software development costs. The Company expects increased capitalizable projects associated with the acquisition of Avelead, plus ongoing expansion of work with development partners on eValuator. Refer to Note 3 – Business Combination and Divestiture for more information on Avelead. The cash used in investing activities for the nine months ended October 31, 2021 included the cash used to acquire Avelead and capitalized software development costs, off-set by the release of escrowed funds in fiscal 2021 from the sale of the ECM Assets. Refer to Note 9 – Discontinued Operations for more information on the sale of the ECM Assets.
Financing cash flow activities
| Nine months Ended | ||||||||
| (in thousands) | October 31, 2022 | October 31, 2021 | ||||||
| Proceeds from issuance of common stock | $ | 8,316 | $ | 16,100 | ||||
| Payments for costs directly attributable to the issuance of common stock | (52 | ) | (1,313 | ) | ||||
| Proceeds of term loan payable | — | 10,000 | ||||||
| Repayment of term loan payable | (125 | ) | — | |||||
| Payments related to settlement of employee shared based awards | (165 | ) | (380 | ) | ||||
| Payment for deferred financing costs | — | (168 | ) | |||||
| Other | 6 | (3 | ) | |||||
| Net cash provided by financing activities | $ | 7,980 | $ | 24,236 | ||||
The cash provided by financing activities in the nine months ended October 31, 2022, was the 2022 Offering of the Company’s common stock, which closed on October 26, 2022. Refer to Note 7 – Equity for additional information. The cash provided by financing activities in the nine months ended October 31, 2021, was received in the 2021 Offering of the Company’s common stock, which closed on March 2, 2021.Additionally, the Company received proceeds of $10,000,000 as a result of the Second Amended Loan and Security Agreement entered into on August 26, 2021. Refer to Note 5 – Debt for additional information.
| 36 |
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, we are not required to provide this information.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our President and Chief Executive Officer (who serves as our principal executive officer) and our Senior Vice President and Chief Financial Officer (who serves as our principal financial officer) have evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of October 31, 2022. Based on that evaluation, our President and Chief Executive Officer and Senior Vice President and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of October 31, 2022.
Changes in Internal Control over Financial Reporting
On August 16, 2021, the Company completed the acquisition of Avelead (Refer to Note 3 – Business Combination and Divestiture in our unaudited condensed consolidated financial statements included in Part I, Item I, “Financial Statements” for further information on the Avelead acquisition). In accordance with the general guidance issued by the staff of the SEC, Avelead was excluded from the scope of management’s report on internal control over financial reporting for the year ending January 31, 2022. As part of the ongoing integration of Avelead, we are in the process of incorporating the controls and related procedures. However, 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, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
In connection with the acquisition, we have performed additional analyses and other procedures to enable management to conclude that our condensed consolidated financial statements included in this report fairly, in all material respects, our financial condition and results of operations as of and for the nine months ended October 31, 2022.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
We are, from time to time, a party to various legal proceedings and claims, which arise in the ordinary course of business. We are not aware of any legal matters that could have a material adverse effect on our consolidated results of operations, financial position, or cash flows.
Item 1A. RISK FACTORS
An investment in our common stock or other securities involves a number of risks. You should carefully consider each of the risks described in our Annual Report on Form 10-K for the year ended January 31, 2022 which Annual Report includes a detailed discussion of the Company’s risk factors. There have been no material changes to the risk factors as disclosed in our Annual Report. Nevertheless, many of the risk factors disclosed in Item 1A of our Annual Report have been, and we expect will continue to be aggravated by the impact of the ongoing COVID-19 pandemic. If any of the risks develop into actual events, our business, financial condition, or results of operations could be negatively affected, the market price of our common stock or other securities could decline, and you may lose all or part of your investment.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the three months ended October 31, 2022, the Company issued to 180 Consulting an aggregate of 53,836 shares of common stock as compensation for services previously rendered during the three months ended July 31, 2022. 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.
| 37 |
The following table sets forth information with respect to our repurchases of common stock during the three months ended October 31, 2022:
| Total | Maximum | |||||||||||||||
| Number of | Number | |||||||||||||||
| Shares | of Shares | |||||||||||||||
| Purchased | that May | |||||||||||||||
| Total | as Part of | Yet Be | ||||||||||||||
| Number of | Publicly | Purchased | ||||||||||||||
| Shares | Average | Announced | under the | |||||||||||||
| Purchased | Price Paid | Plans or | Plans or | |||||||||||||
| (1) | per Share | Programs | Programs | |||||||||||||
| August 1 - August 31 | 14,472 | $ | 1.63 | — | — | |||||||||||
| September 1 - September 30 | — | — | — | — | ||||||||||||
| October 1 - October 31 | — | — | — | — | ||||||||||||
| Total | 14,472 | $ | 1.63 | — | — | |||||||||||
| (1) | Amount represents shares surrendered by employees to satisfy tax withholding obligations resulting from restricted stock that vested during the three months ended October 31, 2022. |
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.
| 38 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| STREAMLINE HEALTH SOLUTIONS, INC. | ||
| DATE: December 15, 2022 | By: | /s/ WYCHE T. “TEE” GREEN, III |
Wyche T. “Tee” Green, III Chief Executive Officer | ||
| DATE: December 15, 2022 | By: | /s/ Thomas J. Gibson |
| Thomas J. Gibson | ||
| Chief Financial Officer | ||
| 39 |
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 15, 2022 | /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 15, 2022 | /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, 2022 (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 15, 2022 |
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, 2022 (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 15, 2022 |
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.