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 June 12, 2023 was .
TABLE OF CONTENTS
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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)
| April 30, 2023 | January 31, 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowance for credit losses of $ | ||||||||
| Contract receivables | ||||||||
| Prepaid and other current assets | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Property and equipment, net of accumulated amortization of $ | ||||||||
| Right-of use asset for operating lease | ||||||||
| Capitalized software development costs, net of accumulated amortization of $ | ||||||||
| Intangible assets, net of accumulated amortization of $ | ||||||||
| Goodwill | ||||||||
| Other | ||||||||
| 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)
| April 30, 2023 | January 31, 2023 | |||||||
| (Unaudited) | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Current portion of term loan | ||||||||
| Deferred revenues | ||||||||
| Current portion of operating lease obligation | ||||||||
| Current portion of acquisition earnout liability | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities: | ||||||||
| Term loan, net of current portion and deferred financing costs | ||||||||
| Deferred revenues, less current portion | ||||||||
| Other non-current liabilities | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock, $par value per share, shares authorized; and shares issued and outstanding, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| 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 April 30, | ||||||||
| 2023 | 2022 | |||||||
| Revenues: | ||||||||
| Software as a service | $ | $ | ||||||
| Maintenance and support | ||||||||
| Professional fees and licenses | ||||||||
| Total revenues | ||||||||
| Operating expenses: | ||||||||
| Cost of software as a service | ||||||||
| Cost of maintenance and support | ||||||||
| Cost of professional fees and licenses | ||||||||
| Selling, general and administrative expense | ||||||||
| Research and development | ||||||||
| Acquisition-related costs | ||||||||
| Total operating expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other (expense) income: | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Acquisition earnout valuation adjustments | ||||||||
| Other | ||||||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Income tax expense | ( | ) | ( | ) | ||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Basic and Diluted Earnings Per Share: | ||||||||
| Net loss per common share – basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of common shares – basic and diluted | ||||||||
See accompanying notes to condensed consolidated financial statements.
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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 (Amount) | Additional paid in capital | Accumulated deficit | Total stockholders’ equity | ||||||||||||||||
| Balance at January 31, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Restricted stock issued | ( | ) | ||||||||||||||||||
| Restricted stock forfeited | ( | ) | ( | ) | ||||||||||||||||
| Surrender of shares | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Share-based compensation | — | |||||||||||||||||||
| Adoption of ASU 2016-13 | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance at April 30, 2023 | ( | ) | ||||||||||||||||||
| Balance at January 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Restricted stock issued | ( | ) | ||||||||||||||||||
| Restricted stock forfeited | ( | ) | ||||||||||||||||||
| Surrender of shares | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Share-based compensation | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance at April 30, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
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)
| Three Months Ended April 30, | ||||||||
| 2023 | 2022 | |||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Acquisition earnout valuation adjustments | ( | ) | ( | ) | ||||
| Provision for deferred income taxes | ||||||||
| Share-based compensation expense | ||||||||
| Provision for credit losses | ||||||||
| Changes in assets and liabilities: | ||||||||
| Accounts and contract receivables | ( | ) | ||||||
| Other assets | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses and other liabilities | ( | ) | ||||||
| Deferred revenue | ( | ) | ||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| 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 | ( | ) | ||||||
| Payments related to settlement of employee share-based awards | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net decrease 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
April 30, 2023
NOTE 1 — BASIS OF PRESENTATION
Streamline Health Solutions, Inc. and each of its wholly-owned subsidiaries, Streamline Health, LLC, Avelead Consulting, LLC, Streamline Consulting Solutions, LLC and Streamline Pay & Benefits, LLC, (collectively, unless the context requires otherwise, “we,” “us,” “our,” “Streamline,” or the “Company”), operate in one segment as a provider of healthcare information technology solutions and associated services. The Company provides these capabilities through the licensing of its Coding & Clinical Documentation Improvement (CDI) solutions, eValuator coding analysis platform, RevID, and other workflow software applications and the use of such applications by software as a service (“SaaS”). The Company also provides audit services to help clients optimize their internal clinical documentation and coding functions, as well as implementation and consulting services to complement its software solutions. The Company’s software and services enable hospitals and integrated healthcare delivery systems in the United States and Canada to capture, store, manage, route, retrieve and process patient clinical, financial and other healthcare provider information related to the patient revenue cycle.
The accompanying unaudited condensed consolidated financial statements have been prepared by us pursuant to the rules and regulations applicable to quarterly reports on Form 10-Q of the U.S. Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading. The condensed consolidated financial statements include the accounts of Streamline Health Solutions, Inc. and each of its wholly-owned subsidiaries. In the opinion of the Company’s management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the condensed consolidated financial statements have been included. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s most recent annual report on Form 10-K. Operating results for the three months ended April 30, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2024.
The Company has one operating segment and one reporting unit due to the singular nature of our products, product development and distribution process, and client base as a provider of computer software-based solutions and services for healthcare providers.
All amounts in the condensed consolidated financial statements, notes and tables have been rounded to the nearest thousand dollars, except share and per share amounts, unless otherwise indicated. All references to a fiscal year refer to the fiscal year commencing February 1 in that calendar year and ending on January 31 of the following calendar year.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Our significant accounting policies are presented in “Note 2 – Significant Accounting Policies” in the fiscal year 2022 Annual Report on Form 10-K. Users of financial information for interim periods are encouraged to refer to the notes to the consolidated financial statements contained in the Annual Report on Form 10-K when reviewing interim financial results.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates and judgments, including those related to the recognition of revenue, share-based compensation, capitalization of software development costs, intangible assets, the allowance for credit losses, 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 three months ended April 30, 2023 and 2022.
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, 2023 | ||||||||||||||||
| Acquisition earnout liability (1) | $ | $ | $ | $ | ||||||||||||
| At April 30, 2023 | ||||||||||||||||
| Acquisition earnout liability (1) | $ | $ | $ | $ | ||||||||||||
| (1) |
The
fair value of the Company’s term loan under its Second Amended and Restated Loan and Security Agreement (as amended and
modified, the “Second Amended and Restated Loan Agreement”) was determined through an analysis of the interest rate
spread from the date of closing the loan (August 2021) to the date of the most recent balance sheets, April 30, 2023 and January 31,
2023.
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.
Disaggregation of Revenue
The following table provides information about disaggregated revenue by type and nature of revenue stream:
| Three Months Ended | ||||||||
| April 30, 2023 | April 30, 2022 | |||||||
| Over time revenue | $ | $ | ||||||
| Point in time revenue | ||||||||
| Total revenue | $ | $ | ||||||
The Company includes revenue categories of (i) over time and (ii) point in time revenue. The Company includes revenue categories of (i) SaaS and (ii) maintenance and support as over time revenue. For point in time revenue, the performance obligation is recognized as the point in time when the obligation is fully satisfied. The Company includes (i) software licenses, (ii) professional services, and (iii) audit services as point in time revenue.
Contract Receivables and Deferred Revenues
The
Company receives payments from customers based upon contractual billing schedules. Contract receivables include amounts related to the
Company’s contractual right to consideration for completed performance obligations not yet invoiced. Deferred revenue includes
payments received in advance of performance under the contract. The Company’s contract receivables and deferred revenue are reported
on an individual contract basis at the end of each reporting period. Contract receivables are classified as current or noncurrent based
on the timing of when we expect to bill the customer. Deferred revenue is classified as current or noncurrent based on the timing of
when we expect to recognize revenue. In the three months ended April 30, 2023, 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 April 30, 2023 and January 31, 2023, the Company had deferred costs of $
Contract acquisition costs, which consist of sales commissions paid or payable, are 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 April 30, 2023 and January 31, 2023, deferred commission costs paid and payable, which are included on the consolidated balance sheets
within other non-current assets totaled $
| 10 |
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. For the three months ended April 30, 2023, the Company incurred total compensation expense related to share-based awards of $, which includes $ of capitalized non-employee stock compensation, compared to $ for the three months ended April 30, 2022.
The fair value of stock options granted are estimated at the date of grant using a Black-Scholes option pricing model. Option pricing model input assumptions such as expected term, expected volatility and risk-free interest rate impact the fair value estimate. These assumptions are subjective and are generally derived from external (such as, risk-free rate of interest) and historical data (such as, volatility factor and expected term). 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 closing price per share on the grant date. For the three months ended April 30, 2023, the Company issued shares of restricted common stock to employees, compared to shares of restricted common stock for the three months ended April 30, 2022.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 April 30, 2023, 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.
| 11 |
| Three Months Ended | ||||||||
| April 30, 2023 | April 30, 2022 | |||||||
| Basic and diluted loss per share: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted net loss per share of common stock from operations | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares outstanding – Basic (1) | ||||||||
| Effect of dilutive securities – Stock options and Restricted stock (2) | ||||||||
| Weighted average shares outstanding – Diluted | ||||||||
| (1) | |
| (2) |
Other Operating Costs
Acquisition-related Costs
For
the three months ended April 30, 2023 and 2022, the Company incurred certain acquisition-related costs related to the acquisition of
Avelead totaling $
Non-Cash Items
For
the three months ended April 30, 2023, the Company recorded capitalized software purchased with stock, totaling $
| 12 |
Accounting Pronouncements Recently Adopted
On
February 1, 2023, the Company adopted ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments (“ASU 2016-13”), as amended. ASU 2016-13 requires an allowance for expected credit losses
to be applied to financial assets at inception and reflect the risk of credit loss over the life of the asset. The Company estimated
current expected credit losses based on historical credit loss rates and applied an increase to account for future economic conditions.
The Company’s allowance for doubtful accounts as of January 31, 2023, prior to the adoption of ASU 216-13, was $
| January 31, 2023 | CECL Adoption | Provision adjustments | Write-offs & Recoveries | April 30, 2023 | ||||||||||||||||
| Allowance for credit losses | $ | ( | ) | $ | $ | ( | ) | |||||||||||||
For the period ended April 30, 2023, the Company estimated the current expected credit loss related to accounts receivable using historical credit loss rates and applied an increase to account for future economic conditions in accordance with ASU 2016-13. The Company had no further impact on the allowance for credit losses during the three month period ended April 30, 2023.
Recent Accounting Pronouncements Not Yet Adopted
The Company does not believe there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 3 — BUSINESS COMBINATION 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.
On
November 21, 2022, the Company made cash payments of $
| 13 |
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 term was for
The
Company entered into a lease for office space in Alpharetta, Georgia, on March 1, 2020. The lease terminated on March 31, 2023. At inception,
the Company recorded a right-of use asset of $
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 of
Avelead and that Seller is employed by the Company. The initial 36-month term lease commenced March 1, 2019 and expired on
NOTE 5 — DEBT
Outstanding principal balances consisted of the following at:
| April 30, 2023 | January 31, 2023 | |||||||
| Term loan | $ | $ | ||||||
| Financing cost payable | ||||||||
| Deferred financing cost | ( | ) | ( | ) | ||||
| Total | ||||||||
| Less: Current portion | ( | ) | ( | ) | ||||
| Non-current portion of debt | $ | $ | ||||||
Term Loan
On
November 29, 2022, the Company executed a Second Modification to Second Amended and Restated Loan Agreement (the “Second
Modification”). The Second Modification includes an expansion of the Company’s total borrowing to include a $
| 14 |
Under
the Second Amended and Restated Loan Agreement, the Company has a term loan facility with an initial maximum principal amount of
$
The Second Amended and Restated Loan Agreement includes customary financial covenants as follows:
| ● | Minimum
Cash. | |
| ● | 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 31, 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 |
The Second Amended and Restated Loan Agreement also includes customary negative covenants, subject to exceptions, which limit transfers, capital expenditures, indebtedness, certain liens, investments, acquisitions, dispositions of assets, restricted payments, and the business activities of the Company, as well as customary representations and warranties, affirmative covenants and events of default, including cross defaults and a change of control default. The line of credit also is subject to customary prepayment requirements. For the period ended April 30, 2023, the Company was in compliance with the Second Amended and Restated Loan Agreement covenants. Substantially all the assets of the Company are collateralized by the Second Amended and Restated Loan Agreement.
| 15 |
Forecasting our business has certain assumptions and inputs on sales volumes, implementation timing, and estimation of expenses that inherently vary as to timing and amounts. The Company utilizes scenarios in its forecasting that include a base case, management case and best case to understand a range of possible outcomes in association with the forecasting process. Our forecast has the Company not achieving the “maximum debt to Adjusted EBITDA ratio” and “Fixed Charge Coverage Ratio” covenants, as described herein, at April 30, 2024, and for several quarters, thereafter. The Company’s inputs and assumptions underlying the forecast may change in the coming periods based on the market environment and the performance of our business. The Company has a good working relationship with its current banking partner, Western Alliance Bank. The Company has successfully modified the terms, including covenants, of the Second Amended and Restated Loan Agreement with Western Alliance Bank in the past and is currently in the process of modifying such covenants currently. The Company has received an indication of interest from Western Alliance Bank to modify all the existing covenants to be consistent with the Company’s forecasting.
The
Company records costs related to the maintenance of the Second Amended and Restated Loan Agreement as deferred financing costs, net
of the term loan. These deferred financing costs are being amortized over the remaining term of the loan. The Company has incurred
$
NOTE 6 — INCOME TAXES
Income
tax expense increased to $
At
January 31, 2023, the Company had U.S. federal net operating loss carry forwards of $
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 $
Registration of Shares Issued to 180 Consulting
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 (“180 Consulting”). The Registration Statement was declared effective by the SEC on July 1, 2022.
| 16 |
Authorized Shares Increase
At the Annual Meeting of Stockholders held on June 7, 2022, the Company’s stockholders approved an amendment to the Streamline Health Solutions, Inc. Third Amended and Restated 2013 Stock Incentive Plan to increase the number of shares of the Company’s common stock authorized for issuance thereunder by shares, from shares to shares. The Company’s stockholders also approved an amendment to the Company’s Certificate of Incorporation, as amended, to increase the total number of authorized shares of the Company’s common stock from shares to shares.
NOTE 8 — COMMITMENTS AND CONTINGENCIES
Consulting Agreement with 180 Consulting, LLC
On
March 19, 2020, the Company entered into a Master Services Agreement (the “MSA”) with 180 Consulting, pursuant to which
180 Consulting has provided and will continue to provide a variety of consulting services in support of eValuator products including
product management, operational consulting, staff augmentation, internal systems platform integration and software engineering
services, among others, through separate executed statements of work (“SOWs”). On September 20, 2021, the Company
entered into a separate MSA in support of Avelead products. Certain 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 the Company under the MSA and the SOWs may share workspace and administrative costs with 121G
Consulting, LLC (“121G”). 180 Consulting earned and shares
for the three months ended April 30, 2023 and April 30, 2022, respectively, and has earned an aggregate of shares
through April 30, 2023. For services rendered by 180 Consulting during the three months ended April 30, 2023, the Company incurred
fees of $
Inclusive
of the MSA executed with 180 Consulting are SOWs that provide for the Company to sublicense a software through 180 Consulting that is
owned by 121G. This is a services agreement for access to software that assists the Company in implementing and integrating with our
clients’ technology. The license agreement is designed such that there is no material financial benefit that accrues to 121G. 180
Consulting licenses the software from 121G at cost. The Company paid approximately $
NOTE 9 - 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 lease for corporate office space from a selling equityholder of Avelead that is now employed by the Company. This lease
term ended February 2023. For the three months ended April 30, 2023 and April 30, 2022, the Company recorded rent expense of $
NOTE 10 — SUBSEQUENT EVENTS
We have evaluated subsequent events occurring after April 30, 2023, and based on our evaluation, we did not identify any events that would have required recognition or disclosure in these condensed consolidated financial statements.
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
We make forward-looking statements in this Quarterly Report on Form 10-Q (this “Report”) and in other materials we file with the SEC or otherwise make public. This Report, therefore, contains statements about future events and expectations which are forward-looking statements within the meaning of Sections 27A of the Securities Act of 1933, as amended (the “Securities Act”), and 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In addition, our senior management makes forward-looking statements to analysts, investors, the media and others. Statements with respect to expected revenue, income, receivables, backlog, client attrition, acquisitions and other growth opportunities, sources of funding operations and acquisitions, the integration of our solutions, the performance of our channel partner relationships, the sufficiency of available liquidity, research and development, and other statements of our plans, beliefs or expectations are forward-looking statements. These and other statements using words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would” and similar expressions also are forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement. The forward-looking statements we make are not guarantees of future performance, and we have based these statements on our assumptions and analyses in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. Forward-looking statements by their nature involve substantial risks and uncertainties that could significantly affect expected results, and actual future results could differ materially from those described in such statements. Management cautions against putting undue reliance on forward-looking statements or projecting any future results based on such statements or present or historical earnings levels.
Among the factors that could cause actual future results to differ materially from our expectations are the risks and uncertainties described under “Risk Factors” and elsewhere in our Annual Report on Form 10-K for the fiscal year ended January 31, 2023 and in our subsequent filings with the SEC, and include among others, the following:
| ● | competitive products and pricing; | |
| ● | product demand and market acceptance; | |
| ● | entry into new markets; | |
| ● | the extent to which health epidemics and other outbreaks of communicable diseases, including the ongoing coronavirus, or COVID-19, pandemic and the efforts to mitigate it, could disrupt our operations and/or materially and adversely affect our business and financial conditions; | |
| ● | the possibility that any of the anticipated benefits of the acquisition of Avelead Consulting, LLC (“Avelead”) will not be realized or will not be realized within the expected time period, the businesses of the Company and the Avelead segment may not be integrated successfully, or such integration may be more difficult, time-consuming or costly than expected, or revenues following the Avelead acquisition may be lower than expected; | |
| ● | new product and services development and commercialization; | |
| ● | key strategic alliances with vendors and channel partners that resell our products; | |
| ● | uncertainty in continued relationships with customers due to termination rights; | |
| ● | our ability to control costs; | |
| ● | availability, quality and security of products produced, and services provided by third-party vendors; |
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| ● | the healthcare regulatory environment; | |
| ● | potential changes in legislation, regulation and government funding affecting the healthcare industry; | |
| ● | healthcare information systems budgets; |
| ● | availability of healthcare information systems trained personnel for implementation of new systems, as well as maintenance of legacy systems; | |
| ● | the success of our relationships with channel partners; | |
| ● | fluctuations in operating results; | |
| ● | our future cash needs; | |
| ● | the consummation of resources in researching acquisitions, business opportunities or financings and capital market transactions; | |
| ● | the failure to adequately integrate past and future acquisitions into our business; | |
| ● | critical accounting policies and judgments; | |
| ● | 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 Unit Purchase Agreement (“UPA”) to acquire Avelead, a recognized leader in providing solutions and services to improve revenue integrity for healthcare providers nationwide. The Company believes Avelead’s solutions will complement and extend the value the Company can deliver to its customers. Operations for Avelead are included in the Company’s consolidated financial information from the acquisition date. Refer to Note 3 – Business Combination and Divestiture in our unaudited condensed consolidated financial statements included in Part I, Item I, “Financial Statements” for further information on the Avelead acquisition.
During the fiscal third quarter ended October 31, 2022, the Company strengthened its balance sheet through a capital raise. On October 24, 2022, the Company entered into purchase agreements with certain investors (the “2022 Offering”). Under these purchase agreements, 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.
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The Company expanded its existing relationship with its debt partner, Western Alliance Bank, in the fourth quarter of 2022. On November 29, 2022, the Company executed a Second Modification to the Second Amended and Restated Loan Agreement (“Second Modification”). The Second Modification includes an expansion of the Company’s total borrowing to include a $2,000,000 non-formula revolving line of credit. The revolving line of credit will be co-terminus with the term loan, which matures on August 26, 2026. The Second Modification includes modified covenants through the term of the Second Amended and Restated Loan Agreement. See Item 1, Note 5 - Debt, for discussion of the Second Modification.
Results of Operations
Revenues
| Three Months Ended | ||||||||||||||||
| ($ in thousands): | April 30, 2023 | April 30, 2022 | Change | % Change | ||||||||||||
| Software as a service | $ | 3,175 | $ | 2,831 | $ | 344 | 12 | % | ||||||||
| Maintenance and support | 1,157 | 1,110 | 47 | 4 | % | |||||||||||
| Professional fees and licenses | 1,000 | 1,994 | (994 | ) | (50 | )% | ||||||||||
| Total Revenues | $ | 5,332 | $ | 5,935 | $ | (603 | ) | (10 | )% | |||||||
Software as a Service (SaaS) — For the three months ended April 30, 2023, revenue from SaaS increased $344,000 compared to the prior year period. The increase in SaaS revenue for the three month period ended April 30, 2023 is primarily due to new customers on the Company’s eValuator product. The Company did experience one customer on eValuator that did not renew its contract during the fiscal first quarter ended April 30, 2023. The Company expects continued growth in its SaaS business across its growth products of eValuator, RevID and Compare throughout fiscal 2023.
We have approximately $5.1 million in annualized contract value of contracts to be implemented as of April 30, 2023. The industry has been impacted by hospital personnel shortages and a backlog of hospital IT projects. This has resulted in slower contract-to-implementation timelines, which is delaying revenue recognition for such contracts. It is uncertain how long these headwinds will impact our implementation timelines. 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 ongoing implementation efforts.
Maintenance and support — For the three months ended April 30, 2023, revenue from maintenance and support increased $47,000 compared to the prior year period. 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.
Professional fees and licenses —For the three months ended April 30, 2023, revenue from software licenses remained consistent compared to the prior year period. The Company has shifted its business from perpetual software licenses to a software as a service (SaaS) model. Software license sales come solely from our channel partners; therefore, the periodic amounts are less predictable and consistent than recurring revenues.
For the three months ended April 30, 2023, revenue from professional services decreased by $862,000 compared to the prior year period. The decrease in professional fees and services is primarily driven by the termination of a client consulting agreement at the close of fiscal year 2022 that did not align with the Company’s long-term strategy. The Company is primarily focused on SaaS growth, and, accordingly, is not expecting growth in professional services.
For the three months ended April 30, 2023, revenue from audit services decreased $136,000 compared to the prior year periods. The decrease includes revenue from new audit service agreements offset by terminated agreements. The Company is primarily focused on utilizing audit services to support its technology, eValuator. Accordingly, the Company does not expect revenue growth in the future in audit services.
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Cost of Sales
| Three Months Ended | ||||||||||||||||
| ($ in thousands): | April 30, 2023 | April 30, 2022 | Change | % Change | ||||||||||||
| Cost of software as a service | $ | 1,589 | $ | 1,497 | $ | 92 | 6 | % | ||||||||
| Cost of maintenance and support | 89 | 46 | 43 | 93 | % | |||||||||||
| Cost of professional fees and licenses | 1,108 | 1,666 | (558 | ) | (33 | )% | ||||||||||
| Total Cost of Sales | $ | 2,786 | $ | 3,209 | $ | (423 | ) | (13 | )% | |||||||
Cost of software as a services (SaaS) - The cost of SaaS solutions is comprised of salaries, amortization of capitalized software development, and third-party content provider costs. For the three months ended April 30, 2023, the $92,000 increase as compared to the prior year period was primarily driven by an increase in third-party content provider costs due to increased transaction volume. The Company expects cost of SaaS will continue to increase as revenue increases.
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 $554,000 including the amortization of capitalized software which impacts margin by 17%. The Company expects margins related to SaaS solutions to increase in the future for clients currently in the process of implementation. Certain costs, such as labor and third-party content providers, impact the gross margin before a customer is fully implemented and revenue is recognized.
Cost of maintenance and support - The cost of maintenance and support includes compensation and benefits for client support personnel and the cost of third-party content provider contracts. The costs for the three months ended April 30, 2023 remained consistent with the comparable prior year period.
Cost of professional fees and licenses - The cost of professional fees and licenses include each of professional services, audit and coding services and software licenses.
The cost of professional fees includes compensation and benefits for personnel and related expenses. For the three months ended April 30, 2023, a decrease in professional services costs was driven by a large customer contract cancellation resulting in lower personnel and third-party contractor cost of $558,000. This lower cost of professional fees is expected to continue, when compared with prior year, throughout fiscal year 2023.
The cost of audit services includes compensation and benefits for audit services personnel, and related expenses. These costs for the three months ended April 30, 2023 increased $68,000 compared to the respective prior year period due to an increase in employee related expenses.
The cost of software licenses decreased by $43,000 due to lower amortization of development costs related to the Company’s coding/CDI product. The Company expects software license costs to continue to decrease due to the maturity of the non-SaaS software products.
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Selling, General and Administrative Expense
| Three Months Ended | ||||||||||||||||
| ($ in thousands): | April 30, 2023 | April 30, 2022 | Change | % Change | ||||||||||||
| General and administrative expenses | $ | 2,584 | $ | 2,779 | $ | (195 | ) | (7 | )% | |||||||
| Sales and marketing expenses | 1,222 | 1,722 | (500 | ) | (29 | )% | ||||||||||
| Total selling, general, and administrative expense | $ | 3,806 | $ | 4,501 | $ | (695 | ) | (15 | )% | |||||||
General and administrative expenses consist primarily of compensation and related benefits, reimbursable travel and entertainment expenses related to our executive and administrative staff, general corporate expenses, amortization of intangible assets, and occupancy costs. For the three months ended April 30, 2023, the decrease in general and administrative expenses of $195,000 was driven primarily by severance expense, which accounted for a decrease of $118,000 over the prior year period, as part of the Company’s strategic plan to simplify the Company’s business in order to drive sustainable growth and improve 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 General and administrative expenses and Sales and marketing expense for each period.
Sales and marketing expenses consist primarily of compensation and related benefits and travel and entertainment expenses related to our sales and marketing staff, as well as advertising and marketing expenses, including trade shows. For the three months ended April 30, 2023, the decrease of $500,000 was primarily driven by a decrease in salaries, benefits, and accrued severance of $232,000, associated with the Company’s previously announced alignment, and expansion and upgrade of its direct and indirect sales personnel, as well as a decrease in professional services of $240,000.
Research and Development
| Three Months Ended | ||||||||||||||||
| ($ in thousands): | April 30, 2023 | April 30, 2022 | Change | % Change | ||||||||||||
| Research and development expense | $ | 1,701 | $ | 1,312 | $ | 389 | 30 | % | ||||||||
| Capitalized research and development cost | $ | 404 | $ | 510 | $ | (106 | ) | (21 | )% | |||||||
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 months ended April 30, 2023 increased by approximately $389,000 compared to the prior year period. The increase was primarily driven by (i) lower costs capitalized to capitalized research and development cost, (ii) the ongoing architectural improvement project for RevID and Compare products, and (iii) a project to utilize artificial intelligence on the rules engine of eValuator.
Capitalized research and development costs for the three months ended April 30, 2023 decreased by approximately $106,000 compared to the prior year period due primarily to fewer projects being capitalized than in the prior quarter.
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We expect total research and development costs (primarily research and development expense) will continue at levels consistent with the first quarter throughout the remainder of fiscal 2023. As the Company completes its investment in the architecture of the Avelead technology, the Company plans to replace this effort with a project for the user interface on eValuator. The artificial intelligence project on the rules within eValuator should come to a close in the Company’s fiscal second quarter ending July 31, 2023.
Acquisition-related Costs
| Three Months Ended | ||||||||||||||||
| ($ in thousands): | April 30, 2023 | April 30, 2022 | Change | % Change | ||||||||||||
| Acquisition-related Costs | $ | 35 | $ | 90 | $ | (55 | ) | (61 | )% | |||||||
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 months ended April 30, 2023 and April 30, 2022, the Company incurred certain acquisition-related costs related to the acquisition of Avelead totaling $35,000 and $90,000, respectively, consisting primarily of fees for professional services.
Other Income (Expense)
| Three Months Ended | ||||||||||||||||
| ($ in thousands): | April 30, 2023 | April 30, 2022 | Change | % Change | ||||||||||||
| Interest expense | $ | (248 | ) | $ | (132 | ) | $ | (116 | ) | 88 | % | |||||
| Acquisition earnout valuation adjustments | 364 | 500 | (136 | ) | (27 | )% | ||||||||||
| Miscellaneous income | 32 | 33 | (1 | ) | (3 | )% | ||||||||||
| Total other (expense) income | $ | 148 | $ | 401 | $ | (253 | ) | (63 | )% | |||||||
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 months ended April 30, 2023 from the comparable prior year period primarily due to the $10,000,000 term loan with Western Alliance Bank (See Note 5 – Debt) and increased interest rates. The interest rate increases that have been put into effect to date, are expected to continue to increase interest expense (year over year) through the remainder of fiscal 2023.
Acquisition earnout valuation adjustments for the three months ended April 30, 2023 include a valuation adjustment of $364,000 compared to $500,000 for the prior year 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”).
Miscellaneous income for the three months ended April 30, 2023 includes $33,000 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”).
Provision for Income Taxes
We recorded income tax expense of $53,000 and $11,000 for the three months ended April 30, 2023 and 2022, respectively, which is comprised of estimated federal, state and local income tax provisions. The Company has a substantial amount of net operating losses for federal and state income tax purposes.
| 23 |
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 and Adjusted EBITDA Margin.
These non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of Company results as reported under GAAP. The Company compensates for such limitations by relying primarily on our GAAP results and using non-GAAP financial measures only as supplemental data. We also provide a reconciliation of non-GAAP to GAAP measures used. Investors are encouraged to carefully review this reconciliation. In addition, because these non-GAAP measures are not measures of financial performance under GAAP and are susceptible to varying calculations, these measures, as defined by us, may differ from and may not be comparable to similarly titled measures used by other companies.
EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin
We define: (i) EBITDA as net earnings (loss) before net interest expense, income tax expense (benefit), depreciation and amortization; (ii) Adjusted EBITDA as net earnings (loss) before net interest expense, income tax expense (benefit), depreciation, amortization, share-based compensation expense, transaction related expenses and other expenses that do not relate to our core operations such as severances and impairment charges; and (iii) Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of GAAP net revenue. EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are used to facilitate a comparison of our operating performance on a consistent basis from period to period and provide for a supplemental 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.
The Board of Directors and management also use these measures (i) as one of the primary methods for planning and forecasting overall expectations and for evaluating, on at least a quarterly and annual basis, actual results against such expectations; and (ii) as a performance evaluation metric in determining achievement of certain executive and associate incentive compensation programs.
Our lender uses a measurement that is similar to the Adjusted EBITDA measurement described herein to assess our operating performance. The lender under our Second Amended and Restated Loan 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 supplemental information provided by these measures regarding the use and analysis of these measures as mentioned above. EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin, as disclosed in this Report have limitations as analytical tools, and you should not consider these measures in isolation or as a substitute for analysis of our results as reported under GAAP; nor are these measures intended to be measures of liquidity or free cash flow for our discretionary use. Some of the limitations of EBITDA and its variations are:
| ● | EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; |
| 24 |
| ● | EBITDA does not reflect changes in, or cash requirements for, our working capital needs; | |
| ● | EBITDA does not reflect the interest expense, or the cash requirements to service interest or principal payments under our Second Amended and Restated Loan Agreement; | |
| ● | EBITDA does not reflect income tax payments that we may be required to make; and | |
| ● | Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements. |
Adjusted EBITDA has all the inherent limitations of EBITDA. To properly and prudently evaluate our business, 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 for the three months ended April 30, 2023 (amounts in thousands). All of the items included in the reconciliation from EBITDA and Adjusted EBITDA to net loss are either recurring non-cash items, or items that management does not consider in assessing our on-going operating performance. In the case of the non-cash items, management believes that investors may find it useful to assess the Company’s comparative operating performance because the measures without such items are less susceptible to variances in actual performance resulting from depreciation, amortization and other expenses that do not relate to our core operations and are more reflective of other factors that affect operating performance. In the case of items that do not relate to our core operations, management believes that investors may find it useful to assess our operating performance if the measures are presented without these items because their financial impact does not reflect ongoing operating performance.
| Three Months Ended | ||||||||
| In thousands | April 30, 2023 | April 30, 2022 | ||||||
| Adjusted EBITDA Reconciliation | ||||||||
| Loss from continuing operations | $ | (2,901 | ) | $ | (2,787 | ) | ||
| Interest expense | 248 | 132 | ||||||
| Income tax expense | 53 | 11 | ||||||
| Depreciation and amortization | 1,031 | 1,083 | ||||||
| EBITDA | $ | (1,569 | ) | $ | (1,561 | ) | ||
| Share-based compensation expense | 572 | 326 | ||||||
| Non-cash valuation adjustments | (364 | ) | (500 | ) | ||||
| Acquisition-related cost, severance, and transaction-related bonuses | 57 | 501 | ||||||
| Other non-recurring expenses | (33 | ) | (48 | ) | ||||
| Adjusted EBITDA | $ | (1,337 | ) | $ | (1,282 | ) | ||
| Adjusted EBITDA margin (1) | (25 | )% | (22 | )% | ||||
| (1) | Adjusted EBITDA as a percentage of GAAP net revenue. |
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Application of Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reporting period. Management considers an accounting policy to be critical if the accounting policy requires management to make particularly difficult, subjective, or complex judgments about matters that are inherently uncertain. A summary of our critical accounting policies is included in Note 2 to our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended January 31, 2023. There have been no material changes to the critical accounting policies disclosed in our Annual Report on Form 10-K for the fiscal year ended January 31, 2023.
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. The Company believes its cash on-hand along with its term debt and revolving credit line is sufficient to support its operations until it is able to continually generate cash from operations. At April 30, 2023, the Company had cash on its balance sheet of $5,987,000.
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.
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.
The Company has liquidity through the Second Amended and Restated Loan 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 Agreement bear interest at a per annum rate equal to the Prime Rate (as published in The Wall Street Journal) plus 1.5%, with a Prime “floor” rate of 3.25%. The Second Modification amended the covenants of the Second Amended and Restated Loan Agreement. Refer to Note 5 – Debt for information regarding the Second Modification. At April 30, 2023, there was no outstanding balance on the revolving line of credit.
The Second Amended and Restated Loan Agreement includes customary financial covenants, including the requirements that the Company achieve certain EBITDA levels and fixed coverage ratios and maintain certain cash balances and certain recurring revenue levels. The Second Amended and Restated Loan Agreement also includes customary negative covenants, subject to exceptions, which limit transfers, capital expenditures, indebtedness, certain liens, investments, acquisitions, dispositions of assets, restricted payments, and the business activities of the Company, as well as customary representations and warranties, affirmative covenants and events of default, including cross defaults and a change of control default. As of April 30, 2023, the Company was in compliance with all debt covenants under the Second Amended and Restated Loan Agreement.
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Forecasting our business has certain assumptions and inputs on sales volumes, implementation timing, and estimation of expenses that inherently vary as to timing and amounts. The Company utilizes scenarios in its forecasting that include a base case, management case and best case to understand a range of possible outcomes in association with the forecasting process. Our forecast has the Company not achieving the “maximum debt to Adjusted EBITDA ratio” and “Fixed Charge Coverage Ratio” covenants, as described herein, at April 30, 2024, and for several quarters, thereafter. The Company’s inputs and assumptions underlying the forecast may change in the coming periods based on the market environment and the performance of our business. The Company has a good working relationship with its current banking partner, Western Alliance Bank. The Company has successfully modified the terms, including covenants, of the Second Amended and Restated Loan Agreement with Western Alliance Bank in the past and is currently in the process of modifying such covenants. The Company has received an indication of interest from Western Alliance Bank to modify the existing covenants to be consistent with the Company’s forecasting.
On November 22, 2022, the Company paid the first year earnout payment to the selling equityholders of Avelead in accordance with the UPA. (See Item 1, Note 3 – Business Acquisition and Divestiture.) The Company paid cash of $2,012,000 and issued 1,871,037 shares of restricted common stock, $0.01 par value. The estimated aggregate value of the first year earnout was approximately $5,000,000. The second (and final) year earnout payment, if any, will be payable on or about October 15, 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 April 30, 2023 and January 31, 2023 were approximately $5,987,000 and $6,598,000, 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.
Significant cash obligations
| (in thousands) | April 30, 2023 | January 31, 2023 | ||||||
| Term loan (1) | $ | 9,617 | $ | 9,714 | ||||
| Acquisition earnout liability (2) | 3,374 | 3,378 | ||||||
| (1) |
Term loan balance is reported net of deferred financing costs of $96,000 and $105,000 as of April 30, 2023 and January 31, 2023, respectively, and financing cost payable of $88,000 and $69,000 as of April 30, 2023 and January 31, 2022, respectively. Refer to Note 5 – Debt for additional information. The term loan payable as of April 30, 2023 and January 31, 2023 was bank term debt under the Second Amended and Restated Loan Agreement. |
| (2) | The fair value of the acquisition earnout liability is based upon a probability-weighted discounted cash flow as of April 30, 2023 and January 31, 2023, respectively. The second year earnout will be paid on or about October 15, 2023, subject to a dispute and resolution period. Refer to Note 3 — Business Combination and Divestiture for additional information. |
Operating cash flow activities
| Three months Ended | ||||||||
| (in thousands) | April 30, 2023 | April 30, 2022 | ||||||
| Net loss from continuing operations | $ | (2,901 | ) | $ | (2,787 | ) | ||
| Non-cash adjustments to net loss | 1,306 | 942 | ||||||
| Cash impact of changes in assets and liabilities | 1,721 | 575 | ||||||
| Net cash provided by (used in) operating activities | $ | 126 | $ | (1,270 | ) | |||
The lower use of cash used in operating activities is due to the higher non-cash adjustments and changes in assets and liabilities for the three months ended April 30, 2023. For the three months ended April 30, 2013, accounts and contract receivables decreased by approximately $3,900,000, and deferred revenues decreased $1,042,000 compared with the prior year period. In addition, accrued expenses as of April 30, 2023 decreased by approximately $800,000 as compared with the prior year period, primarily due to accrued bonuses that were paid at the beginning of fiscal year 2023.
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Investing cash flow activities
| Three months Ended | ||||||||
| (in thousands) | April 30, 2023 | April 30, 2022 | ||||||
| Purchases of property and equipment | $ | (29 | ) | $ | — | |||
| Capitalized software development costs | (404 | ) | (519 | ) | ||||
| Net cash used in investing activities | $ | (433 | ) | $ | (519 | ) | ||
The cash used in investing activities for the three months ended April 30, 2023 and April 30, 2022, includes capitalized software development costs. Operationally, the Company has a more focused effort on the spend for software development projects. See discussion and analysis in “Research and development costs” above.
Financing cash flow activities
| Three months Ended | ||||||||
| (in thousands) | April 30, 2023 | April 30, 2022 | ||||||
| Repayment of term loan payable | $ | (125 | ) | $ | — | |||
| Payments related to settlement of employee share-based awards | $ | (179 | ) | $ | (141 | ) | ||
| Net cash used in financing activities | $ | (304 | ) | $ | (141 | ) | ||
The cash used in financing activities in the three months ended April 30, 2023 and April 30, 2022, includes payments related to settlement of employee share-based awards. The Company also made principal payments related to the Second Amended and Restated Loan Agreement for the three months ended April 30, 2023.
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 April 30, 2023. 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 April 30, 2023.
Changes in Internal Control over Financial Reporting
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 April 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
We are, from time to time, a party to various legal proceedings and claims, which arise in the ordinary course of business. We are not aware of any legal matters that could have a material adverse effect on 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, 2023 which Annual Report includes a detailed discussion of the Company’s risk factors. There have been no material changes to the risk factors as disclosed in our Annual Report. 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 April 30, 2023, the Company issued to 180 Consulting an aggregate of 100,927 shares of common stock as compensation for services previously rendered during the three months ended January 31, 2023. Such shares were issued pursuant to the Master Services Agreement, effective March 19, 2020, by and between the Company and 180 Consulting and related statements of work. The shares were issued in a private placement in reliance on the exemption from registration available under Section 4(a)(2) of the Securities Act, including Regulation D promulgated thereunder and the certificate representing such shares has a legend imprinted on it stating that the shares have not been registered under the Securities Act and cannot be transferred until properly registered under the Securities Act or pursuant to an exemption from such registration.
The following table sets forth information with respect to our repurchases of common stock during the three months ended April 30, 2023:
| Total | Maximum | |||||||||||||||
| Number of | Number | |||||||||||||||
| Shares | of Shares | |||||||||||||||
| Purchased | that May | |||||||||||||||
| Total | as Part of | Yet Be | ||||||||||||||
| Number of | Publicly | Purchased | ||||||||||||||
| Shares | Average | Announced | under the | |||||||||||||
| Purchased | Price Paid | Plans or | Plans or | |||||||||||||
| (1) | per Share | Programs | Programs | |||||||||||||
| February 1 - February 28 | 36,427 | $ | 2.25 | — | — | |||||||||||
| March 1 - March 31 | 49,638 | 1.87 | — | — | ||||||||||||
| April 1 - April 30 | 2,261 | 1.75 | — | — | ||||||||||||
| Total | 88,326 | $ | 2.02 | — | — | |||||||||||
| (1) | Amount represents shares surrendered by employees to satisfy tax withholding obligations resulting from restricted stock that vested during the three months ended April 30, 2023. |
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Item 6. EXHIBITS
See Index to Exhibits.
INDEX TO EXHIBITS
| * | Filed herewith. |
Our SEC file number reference for documents filed with the SEC pursuant to the Securities Exchange Act of 1934, as amended, is 000-28132.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| STREAMLINE HEALTH SOLUTIONS, INC. | ||
| DATE: June 14, 2023 | By: | /s/ WYCHE T. “TEE” GREEN, III |
Wyche T. “Tee” Green, III Chief Executive Officer | ||
| DATE: June 14, 2023 | By: | /s/ Thomas J. Gibson |
| Thomas J. Gibson | ||
| Chief Financial Officer | ||
| 31 |
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: June 14, 2023 | /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: June 14, 2023 | /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 April 30, 2023 (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 | |
| June 14, 2023 |
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 April 30, 2023 (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 | |
| June 14, 2023 |
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.