UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2022
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: 000-28132
STREAMLINE HEALTH SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
31-1455414
(I.R.S. Employer
Identification No.)
2400 Old Milton Pkwy., Box 1353
Alpharetta, GA 30009
(Address of principal executive offices) (Zip Code)
(888) 997-8732
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.01 par value per share
Trading Symbol
STRM
Name of each exchange on which registered
Nasdaq Capital Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒ No ☐
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth
company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☒
Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared
or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant, computed using the closing price as
reported by The NASDAQ Stock Market, Inc. for the Registrant’s Common Stock on July 31, 2021, the last business day of the Registrant’s most recently
completed second fiscal quarter, was $47,822,381.
The number of shares outstanding of the Registrant’s Common Stock, $.01 par value per share, as of April 18, 2022 was 48,104,880.
Documents incorporated by reference:
Information required by Part III is incorporated by reference from the Registrant’s Proxy Statement for its 2022 annual meeting of stockholders or an
amendment to this Annual Report on Form 10-K, which will be filed with the Securities and Exchange Commission within 120 days after the end of its
fiscal year ended January 31, 2022.
FORWARD-LOOKING STATEMENTS
We make forward-looking statements in this Annual Report on Form 10-K (the “Report”) and in other materials we file with the Securities and
Exchange Commission (“SEC”) or otherwise make public. These statements about future events and expectations are “forward-looking” within the
meaning of Sections 27A of the Securities Act of 1933, as amended, and 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In
this Report, both Part I, Item 1, “Business,” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” contain forward-looking statements. 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, customer 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 in Part I,
Item 1A, “Risk Factors” herein, and the other cautionary statements in other documents we file with the SEC, including 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;
● 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;
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● fluctuations in operating results;
● our future cash needs;
● the consummation of resources in researching acquisitions, business opportunities or financings and capital market transactions;
● the failure to adequately integrate past and future acquisitions into our business;
● critical accounting policies and judgments;
● changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other standard-setting
organizations;
● changes in economic, business and market conditions impacting the healthcare industry and the markets in which we operate;
● our ability to maintain compliance with the terms of our credit facilities; and
● our ability to maintain compliance with the continued listing standards of the Nasdaq Capital Market (“Nasdaq”).
Some of these factors and risks have been, and may further be, exacerbated by the COVID-19, pandemic.
Most of these factors are beyond our ability to predict or control. Any of these factors, or a combination of these factors, could materially affect our
future financial condition or results of operations and the ultimate accuracy of our forward-looking statements. There also are other factors that we may not
describe (generally because we currently do not perceive them to be material) that could cause actual results to differ materially from our expectations.
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.
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Item 1. Business
Company Overview
PART I
Incorporated in 1989, Streamline Health Solutions, Inc. is a provider of solutions and services in the middle of the revenue cycle for healthcare
providers throughout the United States and Canada. Streamline Health’s technology helps hospitals improve their financial performance by moving later
revenue cycle interventions earlier in the process to optimize their coding accuracy for every patient encounter prior to bill submission. By improving
coding accuracy before billing, providers can reduce revenue leakage, mitigate the risk of overbilling, and reduce days in accounts receivable. This enables
providers to achieve more predictable revenue streams using technology rather than manual intervention.
The Company provides computer software-based solutions, professional consulting and auditing and coding services, which capture, aggregate, and
translate structured and unstructured data to deliver intelligently organized, easily accessible predictive insights to its customers. Hospitals and physician
groups use the knowledge generated by Streamline Health to help them improve their financial performance.
The Company’s software solutions are delivered to customers either by access to the Company’s data center systems through a secure connection in a
software as a service (“SaaS”) delivery method or by a fixed-term or perpetual license, where such software is installed locally in the customer’s data
center.
The Company operates exclusively in one segment as a provider of health information technology solutions and associated services that improve
healthcare processes and information flows within a healthcare facility. The Company sells its solutions and services in North America to hospitals and
health systems through its direct sales force and its reseller partnerships.
As part of the Company’s strategic expansion into the revenue cycle management, acute-care healthcare space, the Company acquired all of the equity
interests of Avelead Consulting, LLC on August 16, 2021 on a cash- and debt-free basis.
Unless the context requires otherwise, references to “Streamline Health,” the “Company,” “we,” “us” and “our” in this Report are intended to mean
Streamline Health Solutions, Inc. and its wholly-owned subsidiaries. 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.
Solutions
The Company offers solutions and services to assist its customers in revenue cycle management including its two flagship technologies eValuatorTM
and Avelead Rev ID™. eValuator provides 100% automated coding analysis prior to billing. Rev ID offers reconciliation of clinical activity to patient
billing records prior to billing. In addition, the Company offers an array of professional services, including system implementation and coding audit
solutions and other software solutions such as Coding and Clinical Documentation Improvement (CDI), Avelead Compare and Financial Management. The
Company’s solutions and services are designed to improve the flow of critical patient information throughout the enterprise. The solutions and services
help to transform and structure information between disparate information technology systems into actionable data, giving the end user comprehensive
access to clinical and business intelligence to enhance billing accuracy and decision-making. Solutions can be accessed securely through SaaS or delivered
either by a perpetual license or by a fixed-term license installed locally.
eValuator Coding Analysis Platform - This technology is a cloud-based SaaS analytics solution that delivers the capability of fully automated analysis
on 100% of billing codes entered by a healthcare provider’s coding team. This is done on a pre-bill basis, enabling providers to identify and address their
highest-impact cases prior to bill drop. Rule sets are enabled for inpatient, outpatient and pro-fee cases. With eValuator, providers can add an audit function
on a pre-bill basis to all cases, allowing the provider to better optimize reimbursements and mitigate risk on its billing practices.
Avelead RevID Automated Revenue Reconciliation – RevID is a cloud-based SaaS automated charge reconciliation tool. RevID identifies
discrepancies between a provider’s clinical and billing departments and ensures that every medical service is tracked, accounted for, and ultimately
accurately billed thereby reducing revenue leakage. RevID functions on a pre-bill basis, allowing providers to catch mistakes and discrepancies prior to
bill-drop.
Avelead Data Comparison Engine (“DCE”, “Avelead Compare”) – Avelead Compare is a cloud-based SaaS system synchronization module that
compares different software hospitals use within their daily operations. Avelead Compare operates continuously and automates the comparison of multiple
software systems to identify any discrepancies or errors occurring across all systems on a daily basis. Additionally, the Avelead Compare module can be
utilized as a maintenance check when a hospital adds additional content or hires new physicians. It can also be utilized when a hospital converts to a new
system within the hospital enabling transparent, continuous, up-to-date notifications as to what has been built and what needs to be built.
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Coding & CDI Solutions - These solutions provide an integrated cloud-based software suite that enhances the productivity of CDI and Coding staff
and enables the seamless sharing of patient data. This suite of solutions includes workflows such as CDI, Abstracting and Physician Query.
Financial Management Solutions - These solutions enable financial staff across the healthcare enterprise to drill down quickly and deeply into
actionable and real-time financial data and key performance indicators to improve revenue realization and staff efficiency. This suite of solutions includes
individual workflows such as accounts receivable management, denials management, claims processing, spend management and audit management.
Patient Care Solution – Outside the Company’s primary focus of solutions in the middle of the revenue cycle for healthcare providers, the Company’s
Clinical Analytics solution enables customers to improve their patient care via cohort building and data visualization, fostering an open, continuous
learning culture inside a healthcare organization. Providers using Clinical Analytics are empowered with real-time, on-demand predicative insight for
improved patient outcomes. The last customer on this product did not renew in June 2020, and accordingly, the Company has no revenue or cost associated
with Patient Care Solutions since that date.
Services
Audit and Coding Services — The Company provides technology-enabled audit and coding services to help customers review and optimize their
internal clinical documentation and coding functions across the applicable segment of the customer’s enterprise. The Company provides these services
using experienced auditors and its eValuator proprietary software to improve the targeting of records with the highest likelihood of requiring an audit. The
audit services are provided for inpatient DRG coding auditing, outpatient APC auditing, HCC auditing and Physician/Pro-Fee services coding and auditing.
Software Services – Software services relates to implementation of our core software modules, including data collection, configuration of the software
based on the customers’ needs, training and support. Support services include non-specified upgrades to the software.
Professional Services – The Company’s professional services are typically associated with hospital revenue cycle assistance and include
troubleshooting, staff augmentation and “adhoc” services. Services may include, but are not limited to, review of workflow processes, development and
optimization of new workflows, optimization of interfaces, performance of audits and reconciliations, interim resources and project management of system
implementations or conversions
Cerner Command Language (CCL) Reporting – CCL writers provide reports that offer visibility into the revenue cycle from patient access through
collections. CCL is a programming language that is designed to streamline the query process in Cerner databases utilized by healthcare systems. CCL
reports provide data necessary for compliance and efficiency.
Custom Integration Services for CDI/Abstracting — The Company’s professional services team works with customers to design custom integrations
that integrate data to or from virtually any clinical, financial, or administrative system. By taking data and documents from multiple, disparate systems and
bringing them into one system, customers are able to maximize efficiencies and increase operational performance. The Company’s professional services
team also creates custom integrations that transfer data from the Company’s solutions into the customer’s external or internal systems.
Discontinued Operations
Enterprise Content Management (“ECM Assets”) – This legacy technology product has existed since the inception of the Company. This product
assists hospitals with workflow on electronic health records. Historically, this has been one of the largest products, in terms of revenue, for the Company.
This ECM Assets were sold on February 24, 2020 to Hyland Software in a transaction accounted for as a sale of assets. See Note 13 – Discontinued
Operations to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data”. For purposes of the
financial information that is contained herein, this business is accounted for as Discontinued Operations.
Custom Integration Services, Electronic Imaging and Database Monitoring for ECM Assets — The Company’s professional services team works
with customers to design custom integrations that integrate data to or from virtually any clinical, financial, or administrative system. These services were
sold to Hyland Software on February 24, 2020 in a transaction accounted for as sale of assets. See Note 13 – Discontinued Operations to our consolidated
financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data”. For purposes of the financial information that is contained
herein, this business is accounted for as Discontinued Operations.
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Customers and Strategic Partners
The Company continues to provide transformational data-driven solutions to some of the finest, most well-respected healthcare enterprises in the
United States and Canada. Customers are geographically dispersed throughout North America. The Company provides these solutions through a
combination of direct sales and relationships with strategic channel partners.
During fiscal 2021, one individual customer accounted for 10% or more of our continuing operations revenue and represented approximately $2.6
million of total continuing operations revenue. During fiscal 2020, no one individual customer accounted for 10% or more of our continuing operations
revenue. Three customers represented 24%, 16%, and 15%, respectively, of continuing operations accounts receivable as of January 31, 2022 and four
customers represented 31%, 16%, 14% and 13%, respectively, of continuing operations accounts receivable as of January 31, 2021. Many of our customers
are invoiced on an annual basis.
For more information regarding our major customers, please see “Risks Relating to Our Business - Our sales have been concentrated in a small number
of customers” in Part 1, Item 1A, “Risk Factors” herein.
Acquisitions and Divestitures
The Company regularly evaluates opportunities for acquisitions and divestitures for portions of the Company that may not align with current growth
strategies.
The Company acquired all of the equity interests of Avelead as part of the Company’s strategic expansion into the revenue cycle management, acute-
care healthcare space. The acquisition was completed on August 16, 2021. The aggregate consideration for the purchase of Avelead was approximately
$29.7 million (at fair value) consisting of (i) $12.5 million in cash, net of cash acquired, (ii) $6.5 million in common stock, and (iii) approximately $10.7
million in contingent consideration. The Company issued 5,021,972 shares of its restricted common stock to Avelead equity holders in connection with the
acquisition. See Note 3 - Business Combination and Divestiture to our consolidated financial statements included in Part II Item 8, “Financial Statements
and Supplementary Data” for additional information regarding the acquisition.
The Company divested its legacy ECM Assets, effective February 24, 2020, in a transaction accounted for as a sale of assets. This sale of assets is
consistent with the Company’s efforts to offer and invest in products that serve the middle of the revenue cycle, primarily for acute care healthcare
organizations. The Company signed the definitive agreement with respect to the sale of the ECM Assets in December 2019 and prepared and filed a proxy
statement to obtain stockholder approval of the transaction. We applied the standard of ASC 205-20-1 to ascertain the timing of accounting for the
discontinued operations. Based on ASC 205-20-1, the Company determined that it did not have the authority to sell the assets until the date of the
stockholder approval which was February 21, 2020. Accordingly, the Company did not present the ECM Assets as held for sale in previously filed financial
statements. On February 21, 2020, the Company having the authority and ability to consummate the sale of the ECM Assets, met the criteria to present
discontinued operations as described in ASC 205-20-1. Accordingly, the Company is reporting the results of operations and cash flows, and related balance
sheet items associated with the ECM Assets in discontinued operations in the accompanying consolidated statements of operations, cash flows and balance
sheets for the current and comparative prior periods. See Note 13 – Discontinued Operations to our consolidated financial statements included in Part II,
Item 8, “Financial Statements and Supplementary Data”.
Business Segments
We manage our business as one single business segment. Under ASC 280-10-50-11, two or more operating segments may be aggregated into a single
operating segment if they are considered to be similar. Operating segments are considered to be similar if they can be expected to have essentially the same
economic characteristics and future prospects. Using the aggregation guidance, the Company determined that it has one operating segment due to the
similar economic characteristics of the Company’s products, product development, distribution, regulatory environment and customer base as a provider of
computer software-based solutions and services for acute-care healthcare providers. The Company has two reporting units for evaluation of intangible
assets, Streamline Solutions and Avelead Solutions. For our total assets at January 31, 2022 and 2021 and total revenue and net loss for the fiscal years
ended January 31, 2022 and 2021, see our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data”
herein.
Contracts, License and Services Fees
The Company enters into agreements with its customers that specify the scope of the system to be installed and/or services to be provided by the
Company, as well as the agreed-upon pricing, applicable term duration and the timetable for the associated licenses and services.
For customers purchasing software to be installed locally or provided on a SaaS model, these are multi-element arrangements that include either a
perpetual or term license and right to access the applicable software functionality (whether installed locally at the customer site or the right to use the
Company’s solutions as a part of SaaS services), terms regarding maintenance and support services, and professional services for implementation,
integration, process engineering, optimization and training, as well as fees and payment terms for each of the foregoing. If the customer purchases solutions
on a perpetual license model, the customer is billed the license fee up front. Maintenance and support is provided on a term basis for separate fees, with an
initial term typically from one to five years in length. The maintenance and support fee is charged annually in advance, commencing either upon contract
execution or deployment of the solution in live production. If the customer purchases solutions on a term-based model, the customer is billed periodically a
combined access fee for a specified term, typically from one to seven years in length. The access fee includes the access rights along with all maintenance
and support services.
The Company also generally provides software and SaaS customers professional services for implementation, integration, process engineering,
optimization and training. These services and the associated fees are separate from the license, maintenance and access fees. Professional services are
provided on either a fixed-fee or hourly arrangements billable to customers based on agreed-to payment milestones (fixed fee) or monthly payment
structure on hours incurred (hourly). These services can either be included at the time the related locally installed software or SaaS solution is licensed as
part of the initial purchase agreement or added as an addendum to the existing agreement for services required after the initial implementation. 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, whereas for other SaaS and Software solutions such as CDI, RevID and Compare, it has
been determined that its implementation services are a distinct performance obligation and, accordingly, are recognized separately as professional services.
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For coding audit services customers, these review services are provided either through a stand-alone services agreement or services addendum to an
existing master agreement with the customer. These review services are available as either a one-time service or recurring monthly, quarterly or annual
review structure. These services are typically provided on a per reviewed account/chart basis. Monthly minimums are required where material discounts
have been offered. Payment typically occurs upon completion of the applicable review project.
The commencement of revenue recognition varies depending on the size and complexity of the system and/or services involved, the implementation or
performance schedule requested by the customer and usage by customers of SaaS for software-based components. The Company’s agreements are
generally non-cancellable but provide that the customer may terminate its agreement upon a material breach by the Company and/or or may delay certain
aspects of the installation or associated payments in such events. The Company does allow for termination for convenience in certain situations. Therefore,
it is difficult for the Company to accurately predict the revenue it expects to achieve in any particular period, and a termination or installation delay of one
or more phases of an agreement, or the failure of the Company to procure additional agreements, could have a material adverse effect on the Company’s
business, financial condition, and results of operations, as further discussed in Part 1, Item 1A, “Risk Factors” herein. Historically, the Company has not
experienced a material amount of contract cancellations; however, the Company sometimes experiences delays in the course of contract performance and
the Company accounts for them accordingly.
Third-Party License Fees
The Company incorporates software licensed from various third-party vendors into its proprietary software. The Company licenses these software
products and pays the required license fees when such software is delivered to customers.
Associates
As of January 31, 2022, the Company had 134 employees; a net increase of 67 employees during fiscal 2021. Of this increase in employees, 59 were
part of the Avelead acquisition. All employees are full-time employees. The Company utilizes independent contractors to supplement its staff, as needed.
None of the Company’s associates are represented by a labor union or subject to a collective bargaining agreement. The Company has never experienced a
work stoppage and believes that its employee relations are good. The Company’s success depends, to a significant degree, on its management, sales and
technical personnel.
For more information on contracts, backlog, acquisitions and research and development, see also Part II, Item 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”.
Competition
The eValuator product has little direct competition. The Company believes it is an industry leader in pre-bill auditing technology. We have seen
competition on similar products that are being utilized by customers as a pre-bill auditing tool, such as PwC Smart and 3M, however, these similar products
are intended to be utilized for post-bill auditing which is a different workflow than what is necessary for pre-bill auditing. We expect to have competition in
the pre-bill technology industry. Customer processes dictates that correcting errors prior to billing is much more efficient and effective than having an audit
after billing. There will be larger and more sophisticated competitors than our Company. Accordingly, using the time we have without direct competition is
critical to the Company’s success.
The RevID product has little direct competition. The Company believes RevID’s automated charge reconciliation technique, and the frequency of
charge reconciliation RevID enables are unique in the industry. There are products that purport to provide similar services, including nThrive’s Charge
Capture Audit Tool and CloudMed’s ReVint Tool set. The Company anticipates that additional competition may develop as pre-bill, daily charge
reconciliation becomes a standard within the industry.
The Avelead DCE product has little direct competition. The Company believes that few engines exist that can accurately compare the various software
systems used by hospitals, examples of other products include Vitalware, Craneware and nThrive’s Chargemaster toolkit. DCE is unique in that it can be
easily tuned to work with a wide array of hospital systems to create a bespoke offering for specific clients, easing transitions to new platforms or as an
ongoing maintenance check tool.
Regarding our Coding and CDI Solutions, eValuator Coding Analysis Platform, and Financial Management Solutions, several companies historically
have dominated the clinical information system software market. The industry is undergoing consolidation and realignment as companies position
themselves to compete more effectively. Strategic alliances between vendors of other healthcare systems are increasing. Barriers to entry to this market
include technological and application sophistication, the ability to offer a proven product, creating and utilizing a well-established customer base and
distribution channels, brand recognition, the ability to operate on a variety of operating systems and hardware platforms, the ability to integrate with pre-
existing systems and capital for sustained development and marketing activities. The Company has many competitors including clinical information system
vendors that are larger, more established and have substantially more resources than the Company.
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Regarding our Audit Services, there are numerous medium and small companies and independent consultants who offer these services. Barriers to
entry to this market include creating and utilizing a well-established customer base and distribution channels, brand recognition, establishing differentiators
for our services and capital for sustained development and marketing activities.
The Company believes that these obstacles taken together represent a moderate to high-level barrier to entry. The Company believes that the principal
competitive factors in its market are customer recommendations and references, company reputation, system reliability, system features and functionality
(including ease of use), technological advancements, customer service and support, breadth and quality of the systems, the potential for enhancements and
future compatible products, the effectiveness of marketing and sales efforts, price, and the size and perceived financial stability of the vendor. In addition,
the Company believes that the speed with which companies in its market can anticipate the evolving healthcare industry structure and identify unmet needs
are important competitive factors.
Additional Intellectual Property Rights
In addition to the software licenses described in other sections of this Item 1, “Business”, the Company also holds registered trademarks for its
Streamline Health® and other key trademarks used in selling its products. These marks are currently active, with registrations being valid for a period of 3
years each. The Company actively renews these marks at the end of each registration period.
Regulation
Our customers derive a substantial portion of their revenue from third-party private and governmental payors, including through Medicare, Medicaid
and other government-sponsored programs. Our customers also have express handling and retention obligations under information-based laws such as the
Health Insurance Portability and Accountability Act of 1996. There are no material regulatory proposals of which the Company is aware that we believe
currently have a high likelihood of passage that we anticipate would have a material impact on the operation or demand of the Company’s products and
services. However, the Company acknowledges there is currently great uncertainty in the U.S. healthcare market, generally, from a regulatory perspective.
In addition, there is regulatory uncertainty in the data and technology sectors as it relates to information security regulations. Material changes could have
unanticipated impact on demand or usability of the Company’s solutions, require the Company to incur additional development and/or operating costs (on a
one-time or recurring basis) or cause customers to terminate their agreements or otherwise be unable to pay amounts owed to the Company, as further
discussed in Part 1, Item 1A, “Risk Factors” herein.
Environmental Matters
We believe we are compliant in all material aspects with all applicable environmental laws. We do not anticipate that such compliance will have a
material effect on capital expenditures, earnings or the competitive position of our operations.
Code of Business Conduct and Ethics
We have a Code of Business Conduct and Ethics that guides and binds each of our employees, officers and directors which is available on the “Investor
Relations” page of our website, www.streamlinehealth.net, under the “Corporate Governance” tab. We use an anonymous compliance hotline for
employees and outside parties to report potential instances of noncompliance.
Available Information
Copies of documents filed by the Company with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, proxy statements and all amendments to those reports and statements, if any, can be found at the website http://investor.streamlinehealth.net as
soon as practicable after such material is electronically filed with, or furnished to, the SEC. The information contained on the Company’s website is not
part of, or incorporated by reference into, this Report. Copies can be downloaded free of charge from the Company’s website or directly from the SEC
website, https://www.sec.gov. Also, copies of the Company’s annual report on Form 10-K will be made available, free of charge, upon written request to
the Company, attention: Corporate Secretary, 2400 Old Milton Pkwy, Box 1353, Alpharetta, GA 30009.
Item 1A. Risk Factors
An investment in our common stock or other securities involves a number of risks. You should carefully consider each of the risks described below
before deciding to invest in our common stock or other securities. If any of the following risks develops 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.
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Risks Relating to Our Business
Our sales have been concentrated in a small number of customers.
Our revenues have been concentrated in a relatively small number of large customers, and we have historically derived a substantial percentage of our
total continuing operations revenue from a few customers. For fiscal years ended January 31, 2022 and 2021, our five largest customers accounted for 40%
and 39%, respectively, of our total continuing operations revenue. If one or more customers terminate all or any portion of a master agreement, delay
installations or if we fail to procure additional agreements, there could be a material adverse effect on our business, financial condition and results of
operations. See Note 9 - Major Customers to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary
Data”, herein for further information regarding representation of the Company’s largest individual major customers.
The ongoing COVID-19 pandemic and resulting adverse economic conditions has had and will likely continue to have an adverse effect on our
business, results of operations and financial condition.
The global outbreak of the coronavirus disease (COVID-19), which the World Health Organization characterized as a “pandemic” in March 2020, has
resulted in a crisis affecting economies and financial markets worldwide. The pandemic, and its attendant economic damage, has had an adverse impact on
our revenue and may continue to adversely affect our business, results of operations and financial condition. The ultimate extent of its impact on us will
depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of
COVID-19 and actions taken to contain COVID-19 or treat its impact, among others. These and other potential impacts of COVID-19 could therefore
continue to materially and adversely affect our business, results of operations and financial condition.
Prolonged unfavorable economic conditions which arose in response to COVID-19, by local, state and federal and numerous non-U.S. governmental
authorities imposing, among other restrictions, travel bans, business closures and other quarantine measures to practice social distancing, and other factors
such as recession or slowed economic growth, may continue to result in considerable uncertainty regarding the impact the pandemic will have on our
workforce and continued operations.
We have adjusted our business practices to combat the effects of COVID-19 by closing the Company’s primary corporate office, restricting employee
travel, implementing social distancing and additional sanitary measures. These actions are being taken in response to recommendations issued by local,
state and national government authorities. There has been no further reduction in the Company’s workforce as a result of the COVID-19 pandemic since
these initial adjustments, but we are not certain as to whether any additional reductions may be necessary in order to combat the effects of COVID-19-
related closures or economic downturns. We continue to closely monitor the events and impacts relating to the on-going COVID-19 pandemic, which has
impacted and could further adversely impact the Company’s business, results of operations and financial condition.
Over the last several years, we have completed acquisitions, including the acquisition of Avelead in the third quarter of 2021, and may undertake
additional acquisitions in the future. Any failure to adequately integrate past and future acquisitions into our business could have a material adverse
effect on us.
Acquisitions will require that we integrate into our existing operations separate companies that historically operated independently or as part of
another, larger organization, and had different systems, processes and cultures. Acquisitions may require integration of finance and administrative
organizations and involve exposure to different legal and regulatory regimes in jurisdictions in which we have not previously operated.
Over the last several years, we have completed acquisitions of businesses through asset and stock purchases, including the acquisition of Avelead in the
third quarter of 2021. We expect that we will make additional acquisitions in the future.
Acquisitions involve a number of risks, including, but not limited to:
● the potential failure to achieve the expected benefits of the acquisition, including the inability to generate sufficient revenue to offset acquisition
costs, or the inability to achieve expected synergies or cost savings;
● unanticipated expenses related to acquired businesses or technologies and their integration into our existing businesses or technology;
● the diversion of financial, managerial and other resources from existing operations;
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● the risks of entering into new markets in which we have little or no experience or where competitors may have stronger positions;
● potential write-offs or amortization of acquired assets or investments;
● the potential loss of key employees, customers or partners of an acquired business;
● delays in customer purchases due to uncertainty related to any acquisition;
● potential unknown liabilities associated with an acquisition; and
● the tax effects of any such acquisitions.
If we fail to successfully integrate Avelead or any other acquired businesses or fail to implement our business strategies with respect to acquisitions,
we may not be able to achieve projected results or support the amount of consideration paid for such acquired businesses, which could have an adverse
effect on our business and financial condition.
Finally, if we finance acquisitions by issuing equity or convertible or other debt securities, our existing stockholders may be diluted, or we could face
constraints related to the terms of and repayment obligations related to the incurrence of indebtedness. This could adversely affect the market price of our
securities.
We could consume resources in researching acquisitions, business opportunities or financings and capital market transactions that are not ultimately
consummated, which could materially adversely affect our financial condition and subsequent attempts to locate and acquire or invest in another
business.
We anticipate that the investigation of each specific acquisition or business opportunity and the negotiation, drafting, and execution of relevant
agreements, disclosure documents, and other instruments with respect to such transaction will require substantial management time and attention and
substantial costs for financial advisors, accountants, attorneys and other advisors. If a decision is made not to consummate a specific acquisition, business
opportunity or financing and capital market transaction, the costs incurred up to that point for the proposed transaction likely would not be recoverable.
Furthermore, even if an agreement is reached relating to a specific acquisition, investment target or financing, we may fail to consummate the investment or
acquisition for any number of reasons, including those beyond our control. Any such event could consume significant management time and result in a loss
to us of the related costs incurred, which could adversely affect our financial position and our ability to consummate other acquisitions and investments.
A significant increase in new SaaS contracts could reduce near-term profitability and require a significant cash outlay, which could adversely affect
near term cash flow and financial flexibility.
If new or existing customers purchase significant amounts of our SaaS services, we may have to expend a significant amount of initial setup costs and
time before those new customers are able to begin using such services, and we cannot begin to recognize revenues from those SaaS agreements until the
commencement of such services. Accordingly, we anticipate that our near-term cash flow, revenue and profitability may be adversely affected by
significant incremental setup costs from new SaaS customers that would not be offset by revenue until new SaaS customers go into production. While we
anticipate long-term growth in profitability through increases in recurring SaaS subscription fees and significantly improved profit visibility, any inability
to adequately finance setup costs for new SaaS solutions could result in the failure to put new SaaS solutions into production and could have a material
adverse effect on our liquidity, financial position and results of operations. In addition, this near-term cash flow demand could adversely impact our
financial flexibility and cause us to forego otherwise attractive business opportunities or investments.
We may not see the anticipated market interest or growth in our eValuator platform. In addition, coding audit services and associated software and
technologies represent a new market for the Company, and we may not see the anticipated market interest or growth due to being a new player in the
industry.
The Company is currently investing in the eValuator platform as well as new software-based technologies relating to high automation and machine-
based analytics regarding a customer’s coding audit process. The return on this investment requires that the product developments continue to be defined
and completed in a timely and cost-effective manner, there remains general interest in the marketplace (for both existing and future customers) for this
technology, the demand for the product generates sufficient revenue in light of the development costs and that the Company is able to execute a successful
product launch for these technologies. If the Company is unable to meet these requirements when launching these technologies, or if there is a delay in the
launch process, the Company may not see an increase in revenue to offset the current development costs or otherwise translate to added growth and
revenue for the Company.
Customers may exercise termination rights within their contracts, which may cause uncertainty in anticipated and future revenue streams.
The Company generally does not allow for termination of a customer’s agreement except at the end of the agreed upon term or for cause. However,
certain of the Company’s customer contracts provide that the customer may terminate the contract without cause prior to the end of the term of the
agreement by providing written notice, sometimes with relatively short notice periods. The Company also provides trial or evaluation periods for certain
customers, especially for new products and services. Furthermore, there can be no assurance that a customer will not cancel all or any portion of an
agreement, even without an express early termination right, and the Company may face additional costs or hardships collecting on amounts owed if a
customer terminates an agreement without such a right. Whether resulting from termination for cause or the limited termination for convenience rights
discussed above, the existence of contractual relationships with these customers is not an assurance that we will continue to provide services for our
customers through the entire term of their respective agreements. If customers representing a significant portion of our revenue terminated their agreements
unexpectedly, we may not, in the short-term, be able to replace the revenue and income from such contracts and this would have a material adverse effect
on the Company’s business, financial condition, results of operations and cash flows. In addition, customer contract terminations could harm our reputation
within the industry, especially any termination for cause, which could negatively impact our ability to obtain new customers.
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Changes in healthcare regulations impacting coding, payers and other aspects of the healthcare regulatory cycle could have substantial impact on our
financial performance, growth and operating costs.
Our sales and profitability depend, in part, on the extent to which coverage of and reimbursement for medical care provided is available from
governmental health programs, private health insurers, managed care plans and other third-party payors. Unanticipated regulatory changes could materially
impact the need for and/or value of our solutions. For example, if governmental or other third-party payors materially reduce reimbursement rates or fail to
reimburse our customers adequately, our customers may suffer adverse financial consequences. Changes in regulations affecting the healthcare industry,
such as any increased regulation by governmental agencies of the purchase and sale of medical products, or restrictions on permissible discounts and other
financial arrangements, could also directly impact the capabilities our solutions and services provide and the pricing arrangements we are required to offer
to be competitive in the market. Similarly, the U.S. Congress may adopt legislation that may change, override, conflict with or pre-empt the currently
existing regulations and which could restrict the ability of customers to obtain, use or disseminate patient health information and/or impact the value of the
functionality our products and services provide.
These situations would, in turn, reduce the demand for our solutions or services and/or the ability for a customer to purchase our solutions or services.
This could have a material impact on our financial performance. In addition, the speed with which the Company can respond to and address any such
changes when compared with the response of other companies in the same market (especially companies who may accurately anticipate the evolving
healthcare industry structure and identify unmet needs) are important competitive factors. If the Company is not able to address the modifications in a
timely manner compared with our competition, that may further reduce demand for our solutions and services.
The potential impact on us of new or changes in existing federal, state and local regulations governing healthcare information could be substantial.
Healthcare regulations issued to date have not had a material adverse effect on our business. However, we cannot predict the potential impact of new or
revised regulations that have not yet been released or made final, or any other regulations that might be adopted. The U.S. Congress may adopt legislation
that may change, override, conflict with or pre-empt the currently existing regulations and which could restrict the ability of customers to obtain, use or
disseminate patient health information. Although the features and architecture of our existing solutions can be modified, it may be difficult to address the
changing regulation of healthcare information.
The healthcare industry is highly regulated. Any material changes in the political, economic or regulatory healthcare environment that affect the group
purchasing business or the purchasing practices and operations of healthcare organizations, or that lead to consolidation in the healthcare industry,
could require us to modify our services or reduce the funds available to providers to purchase our solutions and services.
Our business, financial condition and results of operations depend upon conditions affecting the healthcare industry generally and hospitals and health
systems particularly. Our ability to grow will depend upon the economic environment of the healthcare industry, as well as our ability to increase the
number of solutions that we sell to our customers. The healthcare industry is highly regulated and is subject to changing political, economic and regulatory
influences. Factors such as changes in reimbursement policies for healthcare expenses, consolidation in the healthcare industry, regulation, litigation and
general economic conditions affect the purchasing practices, operation and, ultimately, the operating funds of healthcare organizations. In particular,
changes in regulations affecting the healthcare industry, such as any increased regulation by governmental agencies of the purchase and sale of medical
products, or restrictions on permissible discounts and other financial arrangements, could require us to make unplanned modifications to our solutions and
services, or result in delays or cancellations of orders or reduce funds and demand for our solutions and services.
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Our customers derive a substantial portion of their revenue from third-party private and governmental payors, including through Medicare, Medicaid
and other government-sponsored programs. Our sales and profitability depend, in part, on the extent to which coverage of and reimbursement for medical
care provided is available from governmental health programs, private health insurers, managed care plans and other third-party payors. If governmental or
other third-party payors materially reduce reimbursement rates or fail to reimburse our customers adequately, our customers may suffer adverse financial
consequences, which in turn, may reduce the demand for and ability to purchase our solutions or services.
We face significant competition, including from companies with significantly greater resources.
We currently compete with many other companies for the licensing of similar software solutions and related services. Several companies historically
have dominated the clinical information systems software market and several of these companies have either acquired, developed, or are developing their
own analytics and coding/clinical documentation improvement solutions, as well as the resultant workflow technologies. The industry is undergoing
consolidation and realignment as companies position themselves to compete more effectively. Many of these companies are larger than us and have
significantly more resources to invest in their business. In addition, information and document management companies serving other industries may enter
the market. Suppliers and companies with whom we may establish strategic alliances also may compete with us. Such companies and vendors may either
individually, or by forming alliances excluding us, place bids for large agreements in competition with us. A decision on the part of any of these
competitors to focus additional resources in any one of our three solutions stacks (coding audit solutions, analytics and coding/clinical documentation
improvement), workflow technologies and other markets addressed by us could have a material adverse effect on us.
The healthcare industry is evolving rapidly, which may make it more difficult for us to be competitive in the future.
The U.S. healthcare system is under intense pressure to improve in many areas, including modernization, universal access and controlling skyrocketing
costs of care. We believe that the principal competitive factors in our market are customer recommendations and references, company reputation, system
reliability, system features and functionality (including ease of use), technological advancements, customer service and support, breadth and quality of the
systems, the potential for enhancements and future compatible solutions, the effectiveness of marketing and sales efforts, price and the size and perceived
financial stability of the vendor. In addition, we believe that the speed with which companies in our market can anticipate the evolving healthcare industry
structure and identify unmet needs is an important competitive factor. If we are unable to keep pace with changing conditions and new developments, we
will not be able to compete successfully in the future against existing or potential competitors.
Rapid technology changes and short product life cycles could harm our business.
The market for our solutions and services is characterized by rapidly changing technologies, regulatory requirements, evolving industry standards and
new product introductions and enhancements that may render existing solutions obsolete or less competitive. As a result, our position in the healthcare
information technology market could change rapidly due to unforeseen changes in the features and functions of competing products, as well as the pricing
models for such products. Our future success will depend, in part, upon our ability to enhance our existing solutions and services and to develop and
introduce new solutions and services to meet changing requirements. Moreover, competitors may develop competitive products that could adversely affect
our operating results. We need to maintain an ongoing research and development program to continue to develop new solutions and apply new technologies
to our existing solutions but may not have sufficient funds with which to undertake such required research and development. If we are not able to foresee
changes or to react in a timely manner to such developments, we may experience a material, adverse impact on our business, operating results and financial
condition.
Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our solutions and services.
Our intellectual property, which represents an important asset to us, has some protection against infringement through copyright and trademark law.
We generally have little patent protection on our software. We rely upon license agreements, employment agreements, confidentiality agreements,
nondisclosure agreements and similar agreements to maintain the confidentiality of our proprietary information and trade secrets. Notwithstanding these
precautions, others may copy, reverse engineer or independently design technology similar to our solutions. If we fail to protect adequately our intellectual
property through trademarks and copyrights, license agreements, employment agreements, confidentiality agreements, nondisclosure agreements or similar
agreements, our intellectual property rights may be misappropriated by others, invalidated or challenged, and our competitors could duplicate our
technology or may otherwise limit any competitive technology advantage we may have. It may be necessary to litigate to enforce or defend our proprietary
technology or to determine the validity of the intellectual property rights of others. Any litigation, successful or unsuccessful, may result in substantial cost
and require significant attention by management and technical personnel.
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Due to the rapid pace of technological change, we believe our future success is likely to depend upon continued innovation, technical expertise,
marketing skills and customer support and services rather than on legal protection of our intellectual property rights. However, we have aggressively
asserted our intellectual property rights when necessary and intend to do so in the future.
We could be subjected to claims of intellectual property infringement that could be expensive to defend.
While we do not believe that our solutions and services infringe upon the intellectual property rights of third parties, the potential for intellectual
property infringement claims continually increases as the number of software patents and copyrighted and trademarked materials continues to rapidly
expand. Any claim for intellectual property right infringement, even if not meritorious, could be expensive to defend. If we were held liable for infringing
third party intellectual property rights, we could incur substantial damage awards, and potentially be required to cease using the technology, produce non-
infringing technology or obtain a license to use such technology. Such potential liabilities or increased costs could be material to us.
If we are unable to maintain effective internal control over financial reporting, we may fail to prevent or detect material misstatements in our financial
statements, in which case investors may lose confidence in the accuracy and completeness of our financial statements.
We are in the process of integrating our internal control over financial reporting and our other control environments with those of Avelead. In the
course of integration, we may encounter difficulties and unanticipated issues combining our respective accounting systems due to the complexity of our
financial reporting processes. We may also identify errors or misstatements that could require accounting adjustments. If we are unable to integrate and
maintain effective internal control over financial reporting of the combined company, timely or at all, we may fail to prevent or detect material
misstatements in our financial statements, in which case investors may lose confidence in the accuracy and completeness of our financial reports and the
market price of our securities may decline.
Third party products are essential to our software.
Our software incorporates software licensed from various vendors into our proprietary software. In addition, third-party, stand-alone software is
required to operate some of our proprietary software modules. The loss of the ability to use these third-party products, or ability to obtain substitute third-
party software at comparable prices, could have a material adverse effect on our ability to license our software.
Our solutions may not be error-free and could result in claims of breach of contract and liabilities.
Our solutions are very complex and may not be error-free, especially when first released. Although we perform extensive testing, failure of any
solution to operate in accordance with its specifications and documentation could constitute a breach of the license agreement and require us to correct the
deficiency. If such deficiency is not corrected within the agreed-upon contractual limitations on liability and cannot be corrected in a timely manner, it
could constitute a material breach of a contract allowing the termination thereof and possibly subjecting us to liability. Also, we sometimes indemnify our
customers against third-party infringement claims. If such claims are made, even if they are without merit, they could be expensive to defend. Our license
and SaaS agreements generally limit our liability arising from these types of claims, but such limits may not be enforceable in some jurisdictions or under
some circumstances. A significant uninsured or under-insured judgment against us could have a material adverse impact on us.
We could be liable to third parties from the use of our solutions.
Our solutions provide access to patient information used by physicians and other medical personnel in providing medical care. The medical care
provided by physicians and other medical personnel are subject to numerous medical malpractice and other claims. We attempt to limit any potential
liability of ours to customers by limiting the warranties on our solutions in our agreements with our customers (i.e., healthcare providers). However, such
agreements do not protect us from third-party claims by patients who may seek damages from any or all persons or entities connected to the process of
delivering patient care. We maintain insurance, which provides limited protection from such claims, if such claims result in liability to us. Although no
such claims have been brought against us to date regarding injuries related to the use of our solutions, such claims may be made in the future. A significant
uninsured or under-insured judgment against us could have a material adverse impact on us.
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Our SaaS and support services could experience interruptions.
We provide SaaS for many customers, including the storage of critical patient, financial and administrative data. In addition, we provide support
services to customers through our customer support organization. We have redundancies, such as backup generators, redundant telecommunications lines
and backup facilities built into our operations to prevent disruptions. However, complete failure of all generators, impairment of all telecommunications
lines or severe casualty damage to the primary building or equipment inside the primary building housing our hosting center or customer support facilities
could cause a temporary disruption in operations and adversely affect customers who depend on the application hosting services. Any interruption in
operations at our data center or customer support facility could cause us to lose existing customers, impede our ability to obtain new customers, result in
revenue loss, cause potential liability to our customers, and increase our operating costs.
Our business and operations would suffer in the event of computer system failures, cyber-attacks or a deficiency in our cybersecurity. Our SaaS
solutions are provided over an internet connection and any breach of security or confidentiality of protected health information could expose us to
significant expense and harm our reputation.
Despite the implementation of security measures, our internal computer systems, and those of third parties on which we rely, are vulnerable to damage
from a variety of causes, including computer viruses, malware, intentional or accidental mistakes or errors by users with authorized access to our computer
systems, natural disasters, terrorism, war, telecommunication and electrical failures, cyber-attacks or cyber-intrusions over the Internet, or attachments to
emails. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusions, including by computer hackers, non-U.S.
governments, extra-state actors and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions
from around the world have increased.
We provide remote SaaS solutions for customers, including the storage of critical patient, financial and administrative data. We have security measures
in place to prevent or detect misappropriation of protected health information. We must maintain facility and systems security measures to preserve the
confidentiality of data belonging to customers, as well as their patients, that resides on computer equipment in our data center, which we handle via
application hosting services, or that is otherwise in our possession. Notwithstanding efforts undertaken to protect data, it can be vulnerable to infiltration as
well as unintentional lapse. If any disruption or security breach was to result in a loss of or damage to our data or applications, or inappropriate disclosure
of confidential or proprietary information, we could face claims for contract breach, penalties and other liabilities for violation of applicable laws or
regulations, significant costs for remediation and re-engineering to prevent future occurrences and serious harm to our reputation.
In the current environment, there are numerous and evolving risks to cybersecurity and privacy, including criminal hackers, hacktivists, state-
sponsored intrusions, industrial espionage, employee malfeasance and human or technological error. High-profile security breaches at other companies and
in government agencies have increased in recent years, and security industry experts and government officials have warned about the risks of hackers and
cyber-attacks targeting businesses such as ours. Computer hackers and others routinely attempt to breach the security of technology products, services and
systems, and to fraudulently induce employees, customers, or others to disclose information or unwittingly provide access to systems or data. We can
provide no assurance that our current IT systems, software, or third-party services, or any updates or upgrades thereto will be fully protected against third-
party intrusions, viruses, hacker attacks, information or data theft or other similar threats.
Legislative or regulatory action in these areas is also evolving, and we may be unable to adapt our IT systems to accommodate these changes. We have
experienced and expect to continue to experience sophisticated attempted cyber-attacks of our IT networks. Although none of these attempted cyber-attacks
has had a material adverse impact on our operations or financial condition, we cannot guarantee that any such incidents will not have such an impact in the
future.
The loss of key personnel could adversely affect our business.
Our success depends, to a significant degree, on our management, sales force and technical personnel. We must recruit, motivate and retain highly
skilled managers, sales, consulting and technical personnel, including solution programmers, database specialists, consultants and system architects who
have the requisite expertise in the technical environments in which our solutions operate. Competition for such technical expertise is intense. Our failure to
attract and retain qualified personnel could have a material adverse effect on us.
Our future success depends upon our ability to grow, and if we are unable to manage our growth effectively, we may incur unexpected expenses and be
unable to meet our customers’ requirements.
We will need to expand our operations if we successfully achieve greater demand for our products and services. We cannot be certain that our systems,
procedures, controls and human resources will be adequate to support expansion of our operations. Our future operating results will depend on the ability of
our officers and employees to manage changing business conditions and to implement and improve our technical, administrative, financial control and
reporting systems. We may not be able to expand and upgrade our systems and infrastructure to accommodate these increases. Difficulties in managing any
future growth, including as a result of integrating any prior or future acquisition with our existing businesses, could cause us to incur unexpected expenses
or render us unable to meet our customers’ requirements, and consequently have a significant negative impact on our business, financial condition and
operating results.
We may not have access to sufficient or cost-efficient capital to support our growth, execute our business plans and remain competitive in our markets.
As our operations grow and as we implement our business strategies, we expect to use both internal and external sources of capital. In addition to cash
flow from normal operations, we may need additional capital in the form of debt or equity to operate and support our growth, execute our business plans
and remain competitive in our markets. We may have no or limited availability to such external capital, in which case our future prospects may be
materially impaired. Furthermore, we may not be able to access external sources of capital on reasonable or favorable terms. Our business operations could
be subject to both financial and operational covenants that may limit the activities we may undertake, even if we believe they would benefit the Company.
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Potential disruptions in the credit markets may adversely affect our business, including the availability and cost of short-term funds for liquidity
requirements and our ability to meet long-term commitments, which could adversely affect our results of operations, cash flows and financial
condition.
If internally generated funds are not available from operations, we may be required to rely on the banking and credit markets to meet our financial
commitments and short-term liquidity needs. Our access to funds under our revolving credit facility or pursuant to arrangements with other financial
institutions is dependent on the financial institution’s ability to meet funding commitments. Financial institutions may not be able to meet their funding
commitments if they experience shortages of capital and liquidity or if they experience high volumes of borrowing requests from other borrowers within a
short period of time.
We must maintain compliance with the terms of our existing credit facilities or receive a waiver for any non-compliance. The failure to maintain
compliance could have a material adverse effect on our ability to finance our ongoing operations and we may not be able to find an alternative lending
source if a default occurs.
On August 26, 2021, the Company and its subsidiaries entered into the Second Amended and Restated Loan and Security Agreement with Bridge
Bank. 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 $10,000,000. Amounts outstanding under the term loan of 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 and Restated Loan and Security Agreement, the Company discontinued the existing $3,000,000
revolving credit facility with Bridge Bank. 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 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 and Restated 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 of $500,000 in the second year, $1,000,000 in the third year,
$2,000,000 in the fourth year, and $3,000,000 in the fifth year, respectively, with the remaining outstanding principal balance and all accrued but unpaid
interest due in full on the maturity date. The Second Amended and Restated Loan and Security Agreement may also require early repayments if certain
conditions are met. The Second Amended and Restated Loan and Security Agreement is secured by substantially all of the assets of the Company, its
subsidiaries, and certain of its affiliates.
If we do not maintain compliance with all of the continuing covenants and other terms and conditions of our existing credit facilities or secure a waiver
for any non-compliance, we could be required to repay outstanding borrowings on an accelerated basis, which could subject us to decreased liquidity and
other negative impacts on our business, results of operations and financial condition. Furthermore, if we needed to do so, it may be difficult for us to find
an alternative lending source. In addition, because our assets are pledged as a security under our credit facilities, if we are not able to cure any default or
repay outstanding borrowings, our assets are subject to the risk of foreclosure by our lenders. Without a sufficient credit facility, we would be adversely
affected by a lack of access to liquidity needed to operate our business. Any disruption in access to credit could force us to take measures to conserve cash,
such as deferring important research and development expenses, which measures could have a material adverse effect on us.
15
Economic conditions in the U.S. and globally may have significant effects on our customers and suppliers that could result in material adverse effects
on our business, operating results and stock price.
Economic conditions in the U.S. and globally could deteriorate and cause the worldwide economy to enter into a stagnant period that could materially
adversely affect our customers’ access to capital or willingness to spend capital on our solutions and services or their levels of cash liquidity with which to
pay for solutions that they will order or have already ordered from us. In addition, the ongoing conflict between Russia and Ukraine could lead to
disruption, instability and volatility in global markets and industries that could negatively impact our operations. The U.S. government, and other
governments in jurisdictions in which we operate, have imposed severe sanctions and export controls against Russia and Russian interests and threatened
additional sanctions and controls. The impact of these measures, as well as potential responses to them by Russia, is currently unknown and they could
adversely affect our business, partners or customers. Challenging economic conditions also would likely negatively impact our business, which could result
in: (1) reduced demand for our solutions and services; (2) increased price competition for our solutions and services; (3) increased risk of collectability of
cash from our customers; (4) increased risk in potential reserves for doubtful accounts and write-offs of accounts receivable; (5) reduced revenues; and (6)
higher operating costs as a percentage of revenues.
All of the foregoing potential consequences of a deterioration of economic conditions are difficult to forecast and mitigate. As a consequence, our
operating results for a particular period are difficult to predict, and, therefore, prior results are not necessarily indicative of future results. Any of the
foregoing effects could have a material adverse effect on our business, results of operations, and financial condition and could adversely affect the market
price of our common stock and other securities.
The variability of our quarterly operating results can be significant.
Our operating results have fluctuated from quarter-to-quarter in the past, and we may experience continued fluctuations in the future. Future revenues
and operating results may vary significantly from quarter-to-quarter as a result of a number of factors, many of which are outside of our control. These
factors include: the relatively large size of customer agreements; unpredictability in the number and timing of software licenses and sales of application
hosting services; length of the sales cycle; delays in installations; changes in customers’ financial conditions or budgets; increased competition; the
development and introduction of new products and services; the loss of significant customers or remarketing partners; changes in government regulations,
particularly as they relate to the healthcare industry; the size and growth of the overall healthcare information technology markets; any liability and other
claims that may be asserted against us; our ability to attract and retain qualified personnel; national and local general economic and market conditions; and
other factors discussed in this Report and our other filings with the SEC.
The preparation of our financial statements requires the use of estimates that may vary from actual results.
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make
significant estimates that affect the financial statements. One of our most critical estimates is the capitalization of software development costs. Due to the
inherent nature of these estimates, we may be required to significantly increase or decrease such estimates upon determination of the actual results. Any
required adjustments could have a material adverse effect on us and our results of operations.
16
Failure to improve and maintain the quality of internal control over financial reporting and disclosure controls and procedures or other lapses in
compliance could materially and adversely affect our ability to provide timely and accurate financial information about us or subject us to potential
liability.
In connection with the preparation of the consolidated financial statements for each of our fiscal years, our management conducts a review of our
internal control over financial reporting. We are also required to maintain effective disclosure controls and procedures. Any failure to maintain adequate
controls or to adequately implement required new or improved controls could harm operating results, or cause failure to meet reporting obligations in a
timely and accurate manner.
Risks Relating to our Common Stock
The market price of our common stock is likely to be highly volatile as the stock market in general can be highly volatile.
The public trading of our common stock is based on many factors that could cause fluctuation in the price of our common stock. These factors may
include, but are not limited to:
● General economic and market conditions;
● Actual or anticipated variations in annual or quarterly operating results;
● Lack of or negative research coverage by securities analysts;
● Conditions or trends in the healthcare information technology industry;
● Changes in the market valuations of other companies in our industry;
● Announcements by us or our competitors of significant acquisitions, strategic partnerships, divestitures, joint ventures or other strategic
initiatives;
● Announced or anticipated capital commitments;
● Ability to maintain listing of our common stock on Nasdaq;
● Additions or departures of key personnel; and
● Sales and repurchases of our common stock by us, our officers and directors or our significant stockholders, if any.
Most of these factors are beyond our control. Further, as a result of our relatively small public float, our common stock may be less liquid, and the
trading price for our common stock may be more affected by relatively small volumes of trading than is the case for the common stock of companies with a
broader public ownership. These factors may cause the market price of our common stock to decline, regardless of our operating performance or financial
condition.
If equity research analysts do not publish research reports about our business or if they issue unfavorable commentary or downgrade our common
stock, the price of our common stock could decline.
The trading market for our common stock may rely in part on the research and reports that equity research analysts publish about our business and us.
We do not control the opinions of these analysts. The price of our stock could decline if one or more equity analysts downgrade our stock or if those
analysts issue other unfavorable commentary or cease publishing reports about our business or us. Furthermore, if no equity research analysts conduct
research or publish reports about our business and us, the market price of our common stock could decline.
17
All of our debt obligations and any preferred stock that we may issue in the future will have priority over our common stock with respect to payment in
the event of a bankruptcy, liquidation, dissolution or winding up.
In any bankruptcy, liquidation, dissolution or winding up of the Company, our shares of common stock would rank in right of payment or distribution
below all debt claims against us and all of our outstanding shares of preferred stock, if any. As a result, holders of our shares of common stock will not be
entitled to receive any payment or other distribution of assets in the event of a bankruptcy or upon a liquidation or dissolution until after all of our
obligations to our debt holders and holders of preferred stock have been satisfied. Accordingly, holders of our common stock may lose their entire
investment in the event of a bankruptcy, liquidation, dissolution or winding up of the Company. Similarly, holders of our preferred stock would rank junior
to our debt holders and creditors in the event of a bankruptcy, liquidation, dissolution or winding up of the Company.
There may be future sales or other dilution of our equity, which may adversely affect the market price of our common stock.
We are generally not restricted from issuing in public or private offerings additional shares of common stock or preferred stock, and other securities
that are convertible into or exchangeable for, or that represent a right to receive, common stock or preferred stock or any substantially similar securities.
Such offerings represent the potential for a significant increase in the number of outstanding shares of our common stock. The market price of our common
stock could decline as a result of sales of common stock, preferred stock or similar securities in the market made after an offering or the perception that
such sales could occur.
The issuance of preferred stock could adversely affect holders of shares of our common stock, which may negatively impact your investment.
Our Board of Directors is authorized to issue classes or series of preferred stock without any action on the part of the stockholders. The Board of
Directors also has the power, without stockholder approval, to set the terms of any such classes or series of preferred stock that may be issued, including
rights and preferences over the shares of common stock with respect to dividends or upon our dissolution, winding-up or liquidation, and other terms. If we
issue preferred stock in the future that has a preference over the shares of our common stock with respect to the payment of dividends or upon our
dissolution, winding up or liquidation, or if we issue preferred stock with voting rights that dilute the voting power of the shares of our common stock, the
rights of the holders of shares of our common stock or the market price of our common stock could be adversely affected.
As of January 31, 2022, we had no shares of preferred stock outstanding.
We do not currently intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend
solely on appreciation in the price of our common stock.
We have never declared or paid any cash dividends on our common stock and do not currently intend to do so for the foreseeable future. We currently
intend to invest our future earnings, if any, to fund our growth. Therefore, you are not likely to receive any dividends on your common stock for the
foreseeable future and the success of an investment in shares of our common stock will depend upon any future appreciation in its value. The trading price
of our common stock could decline and you could lose all or part of your investment.
Sales of shares of our common stock or securities convertible into our common stock in the public market may cause the market price of our common
stock to fall.
The issuance of shares of our common stock or securities convertible into our common stock in an offering from time to time could have the effect of
depressing the market price for shares of our common stock. In addition, because our common stock is thinly traded, resales of shares of our common stock
by our largest stockholders or insiders could have the effect of depressing market prices for our common stock.
18
If we are unable to maintain compliance with Nasdaq listing requirements, our stock could be delisted, and the trading price, volume and marketability
of our stock could be adversely affected.
Our common stock is listed on Nasdaq. We cannot assure you that we will be able to maintain compliance with Nasdaq’s current listing standards, or
that Nasdaq will not implement additional listing standards with which we will be unable to comply. Failure to maintain compliance with Nasdaq listing
requirements could result in the delisting of our shares from Nasdaq, which could have a material adverse effect on the trading price, volume and
marketability of our common stock. Furthermore, a delisting could adversely affect our ability to issue additional securities and obtain additional financing
in the future or result in a loss of confidence by investors or employees.
Note Regarding Risk Factors
The risk factors presented above are all of the ones that we currently consider material. However, they are not the only ones facing the Company.
Additional risks not presently known to us, or which we currently consider immaterial, may also adversely affect us. There may be risks that a particular
investor views differently from us, and our analysis might be wrong. If any of the risks that we face actually occur, our business, financial condition and
operating results could be materially adversely affected and could differ materially from any possible results suggested by any forward-looking statements
that we have made or might make. In such case, the market price of our common stock or other securities could decline and you could lose all or part of
your investment. 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.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
In March 2020, the Company moved its principal offices to a subleased office space at 11800 Amber Park Drive, Suite 125, Alpharetta, Georgia
30009. The office space totals 7,409 square feet and the sublease expires on March 31, 2023. In October 2021, we subleased this space to a third party for
the remaining lease period.
On August 16, 2021, contemporaneous with the acquisition of Avelead, the Company assumed a lease of office space at 1172 Satellite Boulevard NW,
Office Suite 100, Suwannee, Georgia 30024. The lease expires on February 28, 2022. The lease was renewed in February 2022 for one year at substantially
the same terms. The tenant of the lease is an entity controlled by the former owner and current President and Chief Executive Officer of Avelead.
Prior to occupying the subleased office space located in Alpharetta, Georgia, the Company occupied shared office space under a membership
agreement which provides for membership fees based on the number of contracted seats.
The Company believes that its space is adequate for its current needs and that suitable alternative space is available to accommodate expansion of the
Company’s operations.
Item 3. 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 4. Mine Safety Disclosures
Not applicable.
19
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The Company’s common stock trades on the NASDAQ Capital Market under the symbol STRM.
PART II
According to the Company’s stock transfer agent’s records, the Company had 228 stockholders of record as of April 18, 2022. Because brokers and
other institutions on behalf of stockholders hold many of such shares, the Company is unable to determine with complete accuracy the current total number
of stockholders represented by these record holders. The Company estimates that it has approximately 249 stockholders, based on information provided
by the Company’s stock transfer agent from its search of individual participants in security position listings.
The Company has never declared or paid any cash dividends on its common stock and does not currently intend to do so for the foreseeable future. The
Company currently intends to invest its future earnings, if any, to fund its growth.
For the fiscal year ended January 31, 2022, we issued an aggregate of 205,374 shares of common stock to 180 Consulting (as defined below) as
compensation for services provided 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 series of private placements in reliance on the exemption from registration available
under Section 4(a)(2) of the Securities Act, including Regulation D promulgated thereunder and the certificates representing such shares have a legend
imprinted on them 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.
180 Consulting has earned, cumulatively, through the Master Services Agreement, 521,077 shares of common stock through January 31, 2022. 78,031
shares of common stock were earned but not issued as of the end of our fiscal year ended January 31, 2022. In May 2021, the Company filed a Registration
Statement on Form S-3 to register 248,424 shares of stock that were previously issued to 180 Consulting pursuant to Rule 416 of the Securities Act of
1933. See Note 12 – Commitments and Contingencies to our consolidated financial statements included in Part II, Item 8, “Financial Statements and
Supplementary Data”.
The following table sets forth information with respect to our repurchases of common stock during the three months ended January 31, 2022:
November 1 - November 30
December 1 - December 31
January 1 - January 31
Total
Total Number of
Shares Purchased
(1)
Average Price Paid
per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Maximum
Number of Shares
that May Yet Be
Purchased under
the Plans or
Programs
—
39,016
20,891
59,907
$
$
—
1.49
1.37
1.45
—
—
—
—
—
—
—
—
(1) Amount represents shares surrendered by employees to satisfy tax withholding obligations resulting from restricted stock that vested during the three
months ended January 31, 2022.
Item 6. [Reserved]
.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Overview
The Company has determined it could best assist healthcare providers in improving their revenue cycle management by providing solutions and
services in the middle portion of the revenue cycle, that is, the revenue cycle operations from initial charge capture to bill drop. We continue to make
decisions supporting our focus in the middle of the revenue cycle. Our healthcare provider customers are acute-care hospitals and related clinics.
In late fiscal 2017, the Company introduced a new product for the middle of the revenue cycle, eValuator. This product has significant implications to
the timing and accuracy of our customers’ invoicing through rules that are created to review the accuracy of invoicing prior to the physical invoices being
released. This is a notable change to existing processes of our customers. The development activities continued through the end of fiscal 2018. There are
continued development efforts planned for eValuator in fiscal 2022, generally, in the same levels as fiscal 2021.
In August 2021, the Company acquired Avelead, a national provider of consulting services and software solutions focused on the middle of the revenue
cycle. Avelead’s flagship RevID software solution is a unique automated charge reconciliation tool that identifies discrepancies between a provider’s
clinical and billing departments, ensuring that every medical service is tracked, accounted for, and ultimately accurately billed, thereby reducing revenue
leakage. RevID’s 24-hour charge reconciliation is a significant improvement over legacy charge reconciliation methods in use today. There are significant
development activities planned for RevID, and other Avelead solutions in fiscal 2022.
With the focus on the middle of the revenue cycle, the Company is committed to leading an industry movement to improve hospitals’ financial
performance by moving billing interventions upstream, to improve coding accuracy before billing, enabling our customers to reduce revenue leakage,
mitigate both under-billing and over-billing risk, and reduce denials and days in accounts receivable.
20
By narrowing our focus to the middle of the revenue cycle, we believe there is a distinct and compelling value proposition that can help us attract more
customers. By innovating new technologies, we have been able to expand our target markets beyond just hospitals and into outpatient centers, clinics and
physician practices. Our revenue cycle solutions like eValuator, CDI, Abstracting, RevID, and Avelead Compare are competitive in the market and enabled
us to engage eight significant new customers in fiscal 2021. These eight new customers are some of the largest names in healthcare as we have focused our
salesforce on industry-leading customers whose processes are often duplicated by smaller facilities.
Acquisitions and Divestitures:
The Company divested its ECM Assets on February 24, 2020. As discussed above, such divestiture is consistent with the Company’s efforts to focus
on the middle of the revenue cycle and its pre-bill technology, eValuator. Management believes that the revenue cycle technology platforms have higher
growth opportunities than its legacy products, including the ECM Assets. The Company accounted for the sale of the ECM Assets as a sale of assets. See
Note 13 – Discontinued Operations to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data”.
On August 16, 2021, the Company completed an acquisition of Avelead, a recognized leader in providing solutions and services to improve Revenue
Integrity for healthcare providers nationwide. The Company believes Avelead’s solutions will complement and extend the value the Company can deliver
to its customers. Refer to Note 3 – Business Combination and Divestiture in our consolidated financial statements included in Part I, Item I, “Financial
Statements” for further information on the Avelead acquisition.
Macro-Economic Conditions:
Regardless of the state of the Affordable Care Act, the healthcare industry continues to face sweeping changes and new standards of care that are
putting greater pressure on healthcare providers to be more efficient in every aspect of their operations. We believe these changes represent ongoing
opportunities for our Company to work with our direct customers and various resellers to provide information technology solutions to help providers meet
these new requirements.
Near the end of the Company’s fiscal year ended January 31, 2020, the COVID-19 pandemic emerged globally, and it continued through the
Company’s fiscal year ended January 31, 2022. The pandemic, and its attendant economic damage, has had an adverse impact on our revenue and may
continue to adversely affect our business, results of operations and financial condition. The ultimate extent of its impact on us will depend on future
developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and
actions taken to contain COVID-19 or treat its impact among others. These and other potential impacts of COVID-19 could therefore continue to materially
and adversely affect our business, results of operations and financial condition.
In addition, the U.S. government, and other governments in jurisdictions in which we operate, have imposed severe sanctions and export controls
against Russia and Russian interests and threatened additional sanctions and controls. The impact of these measures, as well as potential responses to them
by Russia, is currently unknown and they could adversely affect our business, partners or customers.
21
Results of Operations
Statements of Operations for the fiscal years ended January 31 (in thousands):
Software licenses
Professional services
Audit services
Maintenance and support
Software as a service
Total revenues
Cost of sales
Selling, general and administrative
Research and development
Non-routine costs
Loss on exit of operating lease
Total operating expenses
Operating loss
Other income (expense), net
Income tax (expense) benefit
Loss from continuing operations
Adjusted EBITDA(1)
2022 (2)
2021
$ Change
% Change
$
$
$
1,057 $
2,026
1,896
4,323
8,077
17,379
8,577
11,931
4,782
2,856
—
28,146
(10,767)
3,959
(109)
(6,917) $
(2,037) $
590
618
1,891
4,586
3,661
11,346
5,689
8,565
2,933
—
105
17,292
(5,946)
(113)
1,260
(4,799)
(1,893)
467
1,408
5
(263)
4,416
6,033
2,888
3,366
1,849
2,856
(105)
10,854
(4,821)
4,072
(1,369)
(2,118)
(143)
79%
228%
0%
(6)%
121%
53%
51%
39%
63%
100%
(100)%
63%
81%
(3,604)%
(109)%
44%
8%
(1) Non-GAAP measure meaning net earnings (loss) before net interest expense, tax expense (benefit), depreciation, amortization, stock-based
compensation expense, transactional and other expenses that do not relate to our core operations. See “Use of Non-GAAP Financial Measures” below
for additional information and reconciliation.
(2) We acquired all of the equity interests of Avelead on August 16, 2021. All of the revenue and expenses associated with Avelead are included from that
date to the end of the Company’s fiscal year ended January 31, 2022.
The following table sets forth, for each fiscal year indicated, certain operating data as percentages of total revenues:
Statements of Operations (1)
Software licenses
Professional services
Audit services
Maintenance and support
Software as a service
Total revenues
Cost of sales
Selling, general and administrative
Research and development
Non-Routine costs
Loss on exit of operating lease
Total operating expenses
Operating loss
Other expense, net
Income tax (expense) benefit
Loss from continuing operations
Cost of Sales to Revenues ratio, by revenue stream:
Software licenses
Services, maintenance and support
Software as a service
Fiscal Year
2021
2020
6.1%
11.7
10.9
24.9
46.5
100.0%
49.4%
68.7
27.5
16.4
—
162.0%
(62.0)%
22.8
(0.6)
(39.8)%
45.9%
56.7%
42.3%
5.2%
5.4
16.7
40.4
32.3
100.0%
50.1%
75.5
25.9
—
0.9
152.4%
(52.4)%
(1.0)
11.1
(42.3)%
84.9%
46.3%
52.1%
(1) Because a significant percentage of the operating costs are incurred at levels that are not necessarily correlated with revenue levels, a variation in the
timing of software licenses and installations and the resulting revenue recognition can cause significant variations in operating results. As a result,
period-to-period comparisons may not be meaningful with respect to the past results nor are they necessarily indicative of the future results of the
Company in the near or long-term. The data in the table is presented solely for the purpose of reflecting the relationship of various operating elements
to revenues for the periods indicated.
22
Comparison of Fiscal 2021 with 2020
Revenues
(in thousands):
Software licenses:
Proprietary software - perpetual license
Term license
Professional services
Audit services
Maintenance and support
Software as a service
Total Revenues
Fiscal Year
2021
2020
2021 to 2020 Change
%
$
$
$
582 $
475
2,026
1,896
4,323
8,077
17,379 $
437 $
153
618
1,891
4,586
3,661
11,346 $
145
322
1,408
5
(263)
4,416
6,033
33%
210%
228%
0%
(6)%
121%
53%
Proprietary software and term licenses — Proprietary software revenues recognized in fiscal 2021 were $582,000, as compared to $437,000 in fiscal
2020. The Company is experiencing a shift in business from perpetual software licenses to software as a service. The increase in fiscal 2021 revenues as
compared to fiscal 2020 revenues was mainly driven by 3 larger perpetual license sales of our CDI & Abstracting that signed late in fiscal 2021. The
software license sales come primarily from our channel partners. The Company has the ability to influence sales of these products; however, the timing is
difficult to manage as sales are essentially the result of these channel partners. Term license revenue for fiscal 2021 increased $322,000 from fiscal 2020, to
$475,000 as one large customers’ multi-year term license renewed during fiscal 2021.
Professional services — Revenues from professional services in fiscal 2021 were $2,026,000 as compared to $618,000 in fiscal 2020. The increase in
professional services included $1,735,000 of Avelead professional services revenue recorded since the date of acquisition. The addition of Avelead
professional services revenue was offset by a decline in the legacy professional services revenue of $327,000. This decrease was due to a slower sales cycle
coupled with delays in ongoing implementation projects due to COVID-19. We anticipate an increase in professional services revenue in fiscal 2022 as a
result of contracts signed at the end of fiscal 2021 in addition to expected fiscal 2022 bookings.
Audit services — Audit services revenue for fiscal 2021, as compared to fiscal 2020 revenue, remained flat. Looking ahead to fiscal 2022, the
Company continues to see demand for on-shore, technically proficient auditors in the marketplace. The Company believes it has a competitive advantage
utilizing eValuator for these professional services. The Company expects modest growth for its audit services business during fiscal 2022.
Maintenance and support — Revenues from maintenance and support in fiscal 2021 were $4,323,000 as compared to $4,586,000 in fiscal 2020. The
decrease in maintenance and support revenue in fiscal 2021 was primarily driven by a decrease of $345,000 related to the Company’s sunsetting of the
clinical analytics software and a customer cancellation. This decrease was partially offset by maintenance revenue on new contracts. The Company expects
a slight decrease for the maintenance and support revenue for fiscal 2022 from pricing pressure and terminations offset with new sales.
23
Software as a service (SaaS) — Revenues from SaaS in fiscal 2021 were $8,077,000, as compared to $3,661,000 in fiscal 2020. The increases in SaaS
revenue in fiscal 2021 include $2,790,000 of Avelead SaaS revenue recorded since the date of acquisition. The remaining increase in fiscal 2021 revenue
was primarily attributable to growth associated with the Company’s eValuator product. The Company’s eValuator product had five significant sales during
fiscal 2020 that resulted in full year revenue for fiscal 2021 compared to partial year revenue in fiscal 2020 resulting in an increase to revenue of 1,278,000
year over year. The Company’s eValuator product had five new significant sales during fiscal 2021 that resulted in an increase to fiscal 2021 revenue of
$834,000 We experienced one customer termination during Fiscal 2021 resulting in an impact to fiscal 2021 revenue. The Company expects substantial
growth in its SaaS business, year-over-year, and sequentially, in each quarter of fiscal 2022.
Cost of Sales
(in thousands):
Cost of software licenses
Cost of professional services
Cost of audit services
Cost of maintenance and support
Cost of software as a service
Total cost of sales
Fiscal Year
2021
2020
2021 to 2020 Change
%
$
$
$
485 $
2,782
1,559
334
3,417
8,577 $
501 $
1,040
1,558
684
1,906
5,689 $
(16)
1,742
1
(350)
1,511
2,888
(3)%
168%
0%
(51)%
79%
51%
Total cost of sales includes personnel directly affiliated with earning the revenue, amortization of capitalized software expenditures, and royalties on
third-party licensing of products used by the Company to deliver its solutions and services. The increase in total cost of sales includes $2,563,000 of
Avelead cost of sales recorded since the date of acquisition. We incurred total amortization expense on internally developed software of $2,173,000 and
$1,662,000 in fiscal 2021 and fiscal 2020, respectively.
Cost of software licenses consists of costs associated with amortization of capitalized software costs for our CDI & Abstracting Solutions. The change
from fiscal 2020 to fiscal 2021 remained relatively flat due to lower capitalization rates for these software solutions.
The cost of professional services includes compensation and benefits for personnel and related expenses. The increase in cost of professional services
for fiscal 2021 includes $1,517,000 related to Avelead Consulting since the date of acquisition. The remaining increase is attributable to an increase in
employee costs related to compensation and benefits.
The cost of audit services includes compensation and benefits for audit services personnel, and related expenses. These costs remained consistent,
similar to revenue, from fiscal 2020 to fiscal 2021.
The cost of maintenance and support includes compensation and benefits for customer support personnel. Total cost of maintenance and support for
fiscal 2021 includes $40,000 related to Avelead since the date of acquisition. The addition of expense from the Avelead acquisition was offset by a decrease
in cost of maintenance and support from fiscal 2020 to fiscal 2021 resulting from a reduction of salary and salary related expenses for employees that were
terminated or reassigned to other products. The Company was able to redeploy existing resources to mitigate costs on certain legacy products.
The cost of SaaS solutions consists of costs (i) associated with amortization of capitalized software costs for our eValuator, Financial Management,
Avelead RevID and Avelead Compare Solutions, (ii) royalties payable to third-parties for use of their coding related content, and (iii) personnel and
network related expenses to provision the application for each customer. The increase in cost of SaaS for fiscal 2021 includes $1,006,000 related to Avelead
since the date of acquisition. The number of eValuator projects placed into service in fiscal 2021 compared to fiscal 2020, in addition to the increased
investment in eValuator during fiscal 2021, resulted in an increase in related amortization expense of $195,000. The royalty and network related agreements
are becoming variable as the cost is derived by attributes of the customer’s accessing the system. The royalties payable to third parties increased by
$247,000 for fiscal 2021 compared to fiscal 2020. The growth in royalties payable is directly attributable to new customers beginning to use the system and
triggering fees owed to the third-party coding content providers. The remaining year over year increase was driven by personnel related and infrastructure
related expenses. The Company invested in additional personnel to support SaaS solutions as the customer base has been expanding. The Company
anticipates the costs in these categories will continue to rise in fiscal 2022 as the Company continues to invest in eValuator and as new customers begin to
use the system.
24
Selling, General and Administrative Expense
(in thousands):
General and administrative expenses
Sales and marketing expenses
Total selling, general, and administrative expense
Fiscal Year
2021
2020
2021 to 2020 Change
%
$
$
$
7,896 $
4,035
11,931 $
5,550 $
3,015
8,565 $
2,346
1,020
3,366
42%
34%
39%
General and administrative expenses consist primarily of compensation and related benefits, reimbursable travel and entertainment expenses related to
our executive and administrative staff, general corporate expenses, amortization of intangible assets, and occupancy costs. The increase in general and
administrative expenses for fiscal 2021 as compared to fiscal 2020 is primarily attributed to the Avelead acquisition, resulting in an additional $1,178,000
expense for fiscal 2021. There was also an increase of professional fees of $464,000 primarily attributable to the Avelead acquisition, along with expenses
related to the Special Meeting of Stockholders held in connection with the Avelead acquisition. Further, share-based compensation was approximately
$429,000 higher in the fiscal 2021 as compared to the prior year. The Company has previously announced an initial accelerated vesting schedule of granted
equity awards for its executives in lieu of cash bonuses. These accelerated equity awards are causing a near-term increase in amortization of share-based
compensation for fiscal 2021. The remaining increase is primarily driven by salaries and benefits associated with the Company’s increase in executive and
administrative personnel.
Sales and marketing expenses consist primarily of compensation and related benefits and reimbursable travel and entertainment expenses related to our
sales and marketing staff, as well as advertising and marketing expenses, including trade shows. Sales and marketing expenses for fiscal 2021 increased by
approximately $647,000, as compared to fiscal 2020, due to the Avelead acquisition. The remaining increases are primarily due to an increase in salaries
and benefits associated with the Company’s expansion and upgrade of its direct and indirect sales personnel. The Company has had limited travel as a
result of the COVID-19 pandemic. The Company has been productive using web-based meeting media to continue its sales and customer service processes.
As hospitals open themselves up to visitors, the Company looks forward to resuming travel and meeting its customers and prospects face-to-face.
Research and Development
(in thousands):
Research and development expense
Plus: Capitalized research and development cost
Total research and development cost
Fiscal Year
2021
2020
2021 to 2020 Change
%
$
$
$
4,782 $
1,431
6,213 $
2,933 $
1,825
4,758 $
1,849
(394)
1,455
63%
(22)%
31%
Research and development expenses consist primarily of compensation and related benefits, the use of independent contractors for specific near-term
development projects and an allocated portion of general overhead costs, including occupancy costs, if material. Total research and development costs for
fiscal 2021 include $865,000 related to Avelead since the date of acquisition. The remaining increase was related to increased spend with our development
partner. The Company continues to focus on and be more efficient in research and development activities on those products with its highest growth
prospects, primarily eValuator. The Company expects fiscal 2022 total research and development spend to continue at approximately the same level as
fiscal 2021. For fiscal 2021, as a percentage of revenue, total research and development costs were 36%. In fiscal 2021, the Company was awarded $39,000
from the State of Georgia for its annual research and development tax credit. At the end of fiscal 2021, the cumulative balance of unused research and
development credits was $125,000. These research and development tax credits can be applied to current Georgia payroll taxes due. The fiscal 2022 and
future research and development tax credits are expected to be higher than fiscal 2021 due to the acquisition of Avelead.
25
Non-Routine Costs
(in thousands):
Non-routine costs
Fiscal Year
2021
2020
2021 to 2020 Change
%
$
$
2,856 $
— $
2,856
100%
Refer to Note 2 – Summary of Significant Accounting Policies - Other Operating Costs – Non-routine costs – in the consolidated financial statements
included in Part II, Item 8, “Financial Statements and Supplementary Data” for further details with respect to Non-routine costs. The Non-routine costs for
fiscal 2021 are primarily related to the transaction costs of Avelead acquisition and executive bonuses that were transactional in nature.
Loss on Exit of Operating Lease
(in thousands):
Loss on exit of operating lease
Fiscal Year
2021
2020
2021 to 2020 Change
%
$
$
— $
105 $
(105)
(100)%
Refer to Note 4 – Operating Leases in our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary
Data” for further details with respect to the Company’s former shared office arrangement in Atlanta. In fiscal 2020, we recorded $105,000 in cost related to
the remaining payments required under the agreement with the landlord on shared office space in Atlanta that was abandoned when the Company entered a
new lease for office space in Alpharetta, Georgia.
Other Income (Expense)
(in thousands):
Interest expense
Loss on early extinguishment of debt
Other
PPP Loan Forgiveness
Total other income (expense)
Fiscal Year
2021
2020
2021 to 2020 Change
%
$
$
$
(236) $
(43)
1,911
2,327
3,959 $
(51) $
—
(62)
—
(113) $
(185)
(43)
1,973
2,327
4,072
(363)%
(100)%
3,182%
100%
3604%
Interest expense consists of interest associated with the term loan, deferred financing costs, and less interest related to capitalization of software.
Interest expense increased for fiscal 2021 from the prior year primarily due to the $10,000,000 term loan with Bridge Bank (Refer to Note 5 – Debt in the
consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data”).
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. This revolving credit facility was replaced with the Second Amended and Restated Loan and Security Agreement that was put in place
on August 26, 2021. Accordingly, the Company wrote off $43,000 of deferred financing costs from this loan as a loss on extinguishment of debt
Other income for fiscal year includes a valuation adjustment of $1,851,000, related to the earnout liabilities associated with the Avelead acquisition
(Refer to Note 3 – Business Combination and Divestiture of the consolidated financial statements included in Part II, Item 8, “Financial Statements and
Supplementary Data”), and $64,000 related to the sublease of the Alpharetta location (Refer to Note 4 – Operating Leases of the consolidated financial
statements included in Part II, Item 8, “Financial Statements and Supplementary Data”). Other expense for fiscal 2020 includes valuation adjustments on
the Montefiore minimum royalty liability and certain foreign exchange transaction losses. Refer to Note 12 – Commitments and Contingencies to our
consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” for further information concerning the
resolution of the Montefiore liability.
PPP Loan Forgiveness for fiscal 2021 reflects the financial impact of the $2,301,000 PPP loan along with the accrued interest of $26,000 being
forgiven.
26
Provision for Income Taxes
For continuing operations for the fiscal 2021 and 2020, we recorded income tax expense of $109,000 and income tax benefit of $1,260,000,
respectively, which is comprised of estimated federal, state, and local income tax provisions. The income tax benefit from continuing operations was netted
with the income tax provision on discontinued operations as disclosed in prior filings resulting in $0 federal tax expense in fiscal 2020. The Company has a
substantial amount of net operating losses for federal and state income tax purposes. For fiscal 2021, the net income tax expense is reported under
continuing operations. Refer to Note 7 – Income Taxes – in the consolidated financial statements included in Part II, Item 8, “Financial Statements and
Supplementary Data” for more information on the Company’s adoption of ASU 2019-12.
Use of Non-GAAP Financial Measures
In order to provide investors with greater insight and allow for a more comprehensive understanding of the information used by management and the
Board of Directors in its financial and operational decision-making, the Company has supplemented the 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 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 severance 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 in nature. Adjusted EBITDA removes the impact of share-based compensation expense, which is another non-cash
item. Adjusted EBITDA per diluted share includes incremental shares in the share count that are considered anti-dilutive in a GAAP net loss position.
The Board of Directors and management also use these measures (i) as one of the primary methods for planning and forecasting overall expectations
and for evaluating, on at least a quarterly and annual basis, actual results against such expectations; and (ii) as a performance evaluation metric in
determining achievement of certain executive and associate incentive compensation programs.
Our lender uses a measurement that is similar to the Adjusted EBITDA measurement described herein to assess our operating performance. The lender
under our 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.
27
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 consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data”.
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 fiscal years ended January 31, 2022 and 2021 (amounts in thousands, except for share data). All of the items included in the
reconciliation from EBITDA and Adjusted EBITDA to net loss from continuing operations 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.
28
In thousands, except per share data
Adjusted EBITDA Reconciliation
Loss from continuing operations
Interest expense
Income tax expense (benefit)
Depreciation
Amortization of capitalized software development costs
Amortization of intangible assets
Amortization of other costs
EBITDA
Share-based compensation expense
Non-cash valuation adjustments to assets and liabilities
Non-routine Costs
Forgiveness of PPP Loan and accrued interest
Other non-recurring expenses
Loss on early extinguishment of debt
Loss on exit of operating lease
Adjusted EBITDA
Adjusted EBITDA margin (1)
Adjusted EBITDA per Diluted Share Reconciliation
Loss from continuing operations per common share — diluted
Net (loss) income per common share — diluted (3)
Adjusted EBITDA per adjusted diluted share (2)
Diluted weighted average shares (3)
Includable incremental shares — adjusted EBITDA (4)
Adjusted diluted shares
(1) Adjusted EBITDA as a percentage of GAAP net revenues.
$
$
$
$
$
Fiscal Year
2021
2020
(6,917)
236
109
68
1,848
1,281
449
(2,926)
2,216
(1,851)
2,856
(2,327)
(48)
43
—
(2,037)
$
$
(4,799)
51
(1,260)
64
1,662
491
359
(3,432)
1,403
31
—
—
—
—
105
(1,893)
(12)%
(17)%
(0.16)
(0.15)
(0.05)
$
$
$
42,815,239
458,335
43,273,574
(0.16)
0.01
(0.06)
30,152,383
488,359
30,640,742
(2) Adjusted EBITDA per adjusted diluted share for the Company’s common stock is computed using the treasury stock method.
(3) Diluted weighted average shares and diluted EPS for our common stock method was computed using the treasury stock method.
(4) The number of incremental shares that would be dilutive under an assumption that the Company is profitable during the reported period, which is only
applicable for a period in which the Company reports a GAAP net loss. If a GAAP profit is earned in the reported periods, no additional incremental
shares are assumed.
Application of Critical Accounting Policies
The following is a summary of the Company’s most critical accounting policies. Refer to Note 2 - Significant Accounting Policies to our consolidated
financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” for a complete discussion of the significant accounting
policies and methods used in the preparation of our consolidated financial statements.
29
Revenue Recognition
The Company derives revenue from the sale of internally developed software, either by licensing for local installation or by a SaaS delivery model,
through our direct sales force or through third-party resellers. Licensed, locally installed customers on a perpetual model utilize our support and
maintenance services for a separate fee, whereas term-based locally installed license fees and SaaS fees include support and maintenance. The Company
also derives revenue from professional services that support the implementation, configuration, training and optimization of the applications, as well as
audit services and consulting services The Company recognizes 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.
Performance obligations are the unit of accounting for revenue recognition and generally represent the distinct goods or services that are promised to
the customer. If we determine that we have not satisfied a performance obligation, we will defer recognition of the revenue until the performance obligation
is deemed to be satisfied. Maintenance and support and SaaS agreements are generally non-cancellable 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 right of refund terms are required, revenue is recognized upon the
satisfaction of such criteria. 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.
Refer to Note 2 - Significant Accounting Policies to our consolidated financial statements included in Part II, Item 8, “Financial Statements and
Supplementary Data” for additional information regarding our revenue recognition policies.
Allowance for Doubtful Accounts
Accounts and contract receivables are comprised of amounts owed the Company for solutions and services provided. Contracts with individual
customers and resellers determine when receivables are due and payable. In determining the allowances for doubtful accounts, the unpaid receivables are
reviewed periodically to determine the payment status based upon the most currently available information. During these periodic reviews, the Company
determines the required allowances for doubtful accounts for estimated losses to reduce total receivables reported to reflect only the amounts expected to be
paid.
Capitalized Software Development Costs
Software development costs for software to be sold, leased, or marketed are accounted for in accordance with Accounting Standards Codification
(“ASC”) 985-20, Software — Costs of Software to be Sold, Leased or Marketed. Costs associated with the planning and design phase of software
development are classified as research and development costs and are expensed as incurred. Once technological feasibility has been established, a portion
of the costs incurred in development, including coding, testing and quality assurance, are capitalized until available for general release to customers, and
subsequently reported at the lower of unamortized cost or net realizable value. Amortization is calculated on a solution-by-solution basis and is included in
Cost of software licenses on the consolidated statements of operations. Annual amortization is measured at the greater of a) the ratio of the software
product’s current gross revenues to the total of current and expected gross revenues or b) straight-line over the remaining economic life of the software
(typically two years). Unamortized capitalized costs determined to be in excess of the net realizable value of a solution are expensed at the date of such
determination.
Internal-use software development costs are accounted for in accordance with ASC 350-40, Internal-Use Software. The costs incurred in the
preliminary stages of development are expensed as research and development costs as incurred. Once an application has reached the development stage,
internal and external costs incurred to develop internal-use software are capitalized and amortized on a straight-line basis over the estimated useful life of
the software (typically three to four years). Maintenance and enhancement costs, including those costs in the post-implementation stages, are typically
expensed as incurred, unless such costs relate to substantial upgrades and enhancements to the software that result in added functionality, in which case the
costs are capitalized and amortized on a straight-line basis over the estimated useful life of the software. The Company reviews the carrying value for
impairment whenever facts and circumstances exist that would suggest that assets might be impaired or that the useful lives should be modified.
Amortization expense related to capitalized internal-use software development costs is included in Cost of software as a service on the consolidated
statements of operations.
30
Goodwill and Intangible Assets
Goodwill and other intangible assets were recognized in conjunction with the acquisitions of Interpoint Partners, LLC (“Interpoint”), Meta Health
Technology, Inc. (“Meta”), Clinical Looking Glass® (“CLG”), Opportune IT, Unibased Systems Architecture, Inc. (“Unibased”), and Avelead. Identifiable
intangible assets include purchased intangible assets with finite lives, which primarily consist of internally-developed software, customer relationships,
non-compete agreements and license agreements. Finite-lived purchased intangible assets are amortized over their expected period of benefit, which
generally ranges from one month to 15 years, using the straight-line method.
We assess the useful lives and possible impairment of existing recognized goodwill on at least an annual basis, and goodwill and intangible assets
when an event occurs that may trigger such a review. Factors considered important which could trigger a review include:
● significant under-performance relative to historical or projected future operating results;
● significant changes in the manner of use of the acquired assets or the strategy for the overall business;
● identification of other impaired assets within a reporting unit;
● disposition of a significant portion of an operating segment;
● significant negative industry or economic trends;
● significant decline in the Company’s stock price for a sustained period; and
● a decline in the market capitalization relative to the net book value.
Determining whether a triggering event has occurred involves significant judgment by the Company.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for tax
credits and loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. In assessing net deferred tax assets, we consider whether it is more likely than
not that some or all of the deferred tax assets will not be realized. We establish 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 7 - Income Taxes to our consolidated financial statements included in Part II, Item 8, “Financial
Statements and Supplementary Data” for further details.
Liquidity and Capital Resources
The Company’s liquidity is dependent upon numerous factors including: (i) the timing and amount of revenues 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 minor amounts of 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 the bank credit facilities. The Company believes that cash flows from operations and available credit facilities are adequate to fund
current obligations for twelve months from the date of issuance of the audit report on the Company’s consolidated financial statements. Cash and cash
equivalent balances at January 31, 2022 and 2021 were $9,885,000 and $2,409,000, respectively.
31
Capital Raise
On February 25, 2021, the Company entered into an underwriting agreement with Craig-Hallum Capital Group LLC, as the sole managing underwriter,
relating to the underwritten public offering of an aggregate of 10,062,500 shares of the Company’s common stock, par value $0.01 per share, which
included 1,312,500 shares of common stock sold pursuant to the underwriter’s exercise of an option to purchase additional shares of common stock to
cover over-allotments (the “Offering”). The price to the public in the Offering was $1.60 per share of common stock. The gross proceeds to the Company
from the Offering were approximately $16.1 million, before deducting underwriting discounts, commissions, and estimated offering expenses. The
Offering closed on March 2, 2021. The Company believes that cash flows from operations, the cash from the Offering and available credit facilities are
adequate to fund current obligations for the next twelve months from issuance of the financial statements included in this report. Continued expansion may
require the Company to take on additional debt or raise capital through issuance of equities, or a combination of both. There can be no assurance the
Company will be able to raise the capital required to fund further expansion.
Authorized Shares Amendment
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.
Credit Facility
The Company has liquidity through the Second Amended and Restated Loan and Security Agreement described in more detail in Note 5 – Debt in our
consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data”. The Company has a new 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 and Restated 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 as follows:
a. Minimum Cash. Borrowers shall, at all times, maintain unrestricted cash in an amount not less than (i) on the Closing Date and for the first
eleven (11) months immediately following the Closing Date, Five Million Dollars ($5,000,000) and (ii) at all times thereafter, Three Million
Dollars ($3,000,000).
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
October 31, 2021
January 31, 2022
April 30, 2022
July 31, 2022
October 31, 2022
January 31, 2023
Maximum Debt to
ARR Ratio
0.80 to 1.00
0.75 to 1.00
0.65 to 1.00
0.55 to 1.00
0.50 to 1.00
0.45 to 1.00
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
April 30, 2023
July 31, 2023
October 31, 2023
January 31, 2024 and on the last day of each quarter thereafter
Maximum Debt to
Adjusted EBITDA
Ratio
11.30 to 1.00
4.15 to 1.00
2.50 to 1.00
2.00 to 1.00
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 1.20 to 1.00, measured on a quarterly basis as of the last day of each fiscal quarter for the trailing four (4) quarter period then ended.
The Second Amended and Restated Loan 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 January 31, 2022, the Company was in
compliance with the Second Amended and Restated Loan and Security Agreement covenants.
32
PPP Loan
The Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, was signed into law on March 17, 2020. Among other
things, the CARES Act provided for a business loan program known as the Paycheck Protection Program (“PPP”). Qualifying companies were able to
borrow, through the U.S. Small Business Administration (“SBA”), up to two months of payroll expenses. On April 21, 2020, the Company received
approximately $2,301,000 through the SBA under the PPP. These funds were utilized by the Company to fund payroll expenses and avoid staffing
reductions during the slowdown resulting from COVID-19. The loan required principal payments, beginning after the seventh monthly anniversary, and
was required to be paid in two years. The PPP loan bore an interest rate of 1.0% per annum. In June 2021, the Company received notification that the PPP
loan principal amount of $2,301,000 and accrued interest of $26,000 had been forgiven in full.
Significant cash obligations
(in thousands)
Term loan (1)
As of January, 31
2022
2021
$
9,904 $
2,301
(1) Term loan balance is reported net of deferred financing costs of $96,000 and $0 as of January 31, 2022 and 2021, respectively. Refer to Note 5 - Debt
to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” for additional information. The
term loan balance as of January 31, 2022 was bank term debt under the Second Amended and Restated Loan and Security Agreement. The term loan
payable as of January 31, 2021 is the Company’s PPP loan.
Operating cash flow activities
(in thousands)
Loss from continuing operations
Non-cash adjustments to net loss
Cash impact of changes in assets and liabilities
Net cash used in operating activities
Fiscal Year
2021
2020
$
$
(6,917) $
1,884
1,149
(3,884) $
(4,799)
2,810
(1,504)
(3,493)
The use of cash from operating activities was relatively consistent between fiscal 2021 and 2020. The Company had a higher net loss from operations
and lower impact of changes in assets and liabilities in fiscal 2021 compared to fiscal 2020. Within non-cash adjustments to net loss, the Company
excluded the PPP loan and related interest of $2,327,000 that was forgiven in fiscal 2021 as well as the valuation adjustment of $1,851,000 on the
acquisition earnout liability. Net cash used in operating activities was adversely impacted by certain severance cost in 2019 that were paid in 2020 and
certain non-routine costs paid in 2021 associated with the acquisition.
The Company’s customers are well-established hospitals, medical facilities or major health information system companies that resell the Company’s
solutions, which have good credit histories, and payments have been received within normal time frames for the industry. However, some healthcare
organizations have experienced significant operating losses as a result of limits on third-party reimbursements from insurance companies and governmental
entities. Agreements with clients often involve significant amounts and contract terms typically require customers to make progress payments. Adverse
economic events, as well as uncertainty in the credit markets, may adversely affect the liquidity for some of our clients.
33
Investing cash flow activities
(in thousands)
Investment in Avelead, net of cash
Purchases of property and equipment
Proceeds from sale of ECM Assets
Capitalized software development costs
Net cash (used in) provided by investing activities
Fiscal Year
2021
2020
$
$
(12,470) $
(41)
800
(1,458)
(13,169) $
—
(44)
11,288
(1,784)
9,460
The cash used in investing activities for fiscal 2021 included the cash used to acquire Avelead, capitalized software development costs, off-set by the
release of escrowed funds in fiscal 2021 from the sale of the ECM Assets. Refer to Note 3 – Business Combination and Divestiture to our consolidated
financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” for further details on Avelead and the sale of the ECM
Assets. The proceeds from the sale of the ECM Assets in fiscal 2020 are net of direct transaction expenses. Refer to Note 13 – Discontinued Operations to
our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” for further details on the sale of the ECM
Assets. Operationally, the Company has a focused effort on the spend for software development projects that will result in in increasing its revenue. See
discussion and analysis in “Research and development costs” above.
Financing cash flow activities
(in thousands)
Proceeds from issuance of common stock
Payments for costs directly attributable to the issuance of common stock
Repayment of bank term loan
Proceeds from term loan payable
Payments related to settlement of employee shared-based awards
Payment of deferred financing costs
Payment on royalty liability
Other
Net cash provided by (used in) financing activities
Fiscal Year
2021
2020
$
$
16,100 $
(1,313)
—
10,000
(464)
(168)
—
(6)
24,149 $
—
—
(4,000)
2,301
(256)
—
(1,000)
12
(2,943)
The cash provided by financing activities for fiscal 2021 was primarily from the public Offering of the Company’s common stock, which closed on
March 2, 2021. Refer to Note 8 – Equity to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary
Data” for further details. Additionally, the Company received proceeds of $10,000,000 as a result of the Second Amended and Restated Loan and Security
Agreement entered into on August 26, 2021. Refer to Note 5 – Debt to our consolidated financial statements included in Part II, Item 8, “Financial
Statements and Supplementary Data” for further details. The cash used in financing activities for fiscal 2020 was primarily the result of the repayment of
the Company’s term loan on February 24, 2020, upon the closing of the sale of the ECM Assets. The Company was required to repay the term loan at close
and funding of the sale of the ECM Assets. Additionally, the Company filed for, and received, a PPP loan in the amount of $2,301,000.
Item 7A. 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.
34
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE COVERED BY REPORTS OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRMS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at January 31, 2022 and 2021
Consolidated Statements of Operations for the two years ended January 31, 2022
Consolidated Statements of Changes in Stockholders’ Equity for the two years ended January 31, 2022
Consolidated Statements of Cash Flows for the two years ended January 31, 2022
Notes to Consolidated Financial Statements
Schedule II — Valuation and Qualifying Accounts
36
38
40
41
42
43
69
All other financial statement schedules are omitted because they are not applicable or the required information is included in the consolidated financial
statements or notes thereto.
35
Report of Independent Registered Public Accounting Firm
Stockholders and Board of Directors
Streamline Health Solutions, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Streamline Health Solutions, Inc. and its subsidiaries (the “Company”) as of January 31,
2022 and 2021 and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the two years in the period
ended January 31, 2022, and the related notes and financial statement schedule II (collectively, the “financial statements”). In our opinion, the financial
statements present fairly, in all material respects, the financial position of the Company as of January 31, 2022 and 2021, and the results of its operations
and its cash flows for each of the two years in the period ended January 31, 2022, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or
required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical
audit matters or on the accounts or disclosures to which they relate.
Capitalized Software Development Costs
As described in Note 2 to the financial statements, the Company develops software within the scope of both ASC 350-40, Internal-Use Software (“Topic
350”) and ASC 985-20, Software – Costs of Software to be Sold, Leased or Marketed (“Topic 985”).
Internal-use software development costs are accounted for in accordance with Topic 350. Costs associated with the preliminary stages of development are
classified as research and development costs and expensed as incurred. Costs associated with the application development stage are capitalized.
Maintenance and enhancement costs, including costs in the post-implementation stages, are typically expensed as incurred, unless such costs relate to
substantial upgrades and enhancements that result in added functionality, in which case the costs are capitalized. Capitalized amounts are amortized on a
straight-line basis over the estimated useful life of the software.
Development costs for software to be sold, leased, or marketed are accounted for in accordance with Topic 985. Costs associated with the planning and
design phase of software development are classified as research and development costs and expensed as incurred. Once technological feasibility has been
established, a portion of the costs incurred in development, including coding, testing and quality assurance, are capitalized until available for general
release to clients, and subsequently reported at the lower of unamortized cost or net realizable value.
We identified capitalized software development costs as a critical audit matter. Our principal considerations for this determination were the high degree of
auditor judgment and subjectivity required in evaluating management’s determination of the activities and costs that qualify for capitalization and the
relevant software development guidance to be applied under the applicable accounting standards.
36
The primary procedures we performed to address this critical audit matter included:
● We obtained an understanding of the Company’s process for determining the activities and costs that qualify for capitalization and the relevant
software development guidance to be applied under the applicable accounting standards.
● We tested the mathematical accuracy of the roll forward of capitalized software and related amortization expense. We also tested the completeness
and accuracy of applicable system-generated reports, including reconcilements of details to associated sub-ledgers.
● For a sample of capitalized costs, we evaluated the relevance of the software development guidance applied, by performing the following:
○ We inspected underlying documentation and assessed the eligibility of costs for capitalization, to the application of the correct guidance,
and whether during the application development stage or after the attainment of technological feasibility, as applicable.
○ We recalculated the capitalized amount based on hours incurred and direct payroll related costs or associated vendor contracts and
invoices for work performed by third parties.
○ We evaluated the software implementation timelines and related underlying documentation supporting the capitalization periods for
implementation and development amounts as well as the date the costs were placed in service.
○ We inquired of project managers for significant projects to assess the nature of the costs, the time devoted to capitalizable activities and
the underlying documentation.
● For eligible costs within the scope of Topic 985, we assessed whether amortization was the greater of amortization derived from either a straight-
line basis or the ratio of current revenues to total current and anticipated revenues.
Valuation of Contingent Consideration and Acquired Intangible Assets
As described in Note 3 to the financial statements, on August 16, 2021, the Company acquired Avelead Consulting, LLC, which included contingent
consideration and acquired intangible assets. The contingent consideration was recorded at fair value on the acquisition date and is revalued each reporting
period until final settlement with changes in the fair value recognized within the consolidated statement of operations.
The Company estimated the fair value of the customer relationship intangible assets using the multi-period excess earnings method, which required
management to make significant estimates and assumptions related to forecasted revenue and earnings, attrition rates, and the selection of discount rates.
The Company estimated the fair value of the trade name and developed software technology intangible assets using the relief from royalty method, which
required management to make significant estimates and assumptions related to forecasted revenue and earnings, the obsolescence rate, and the selection of
discount rates. The Company estimated the fair value of the contingent consideration using a Monte Carlo simulation. The method required management to
make significant estimates and assumptions related to forecasted revenue, discount rates and revenue volatility.
We identified the valuation of contingent consideration and acquired intangible assets as a critical audit matter. Our principal consideration for this
determination included the high degree of auditor judgement and subjectivity in evaluating management’s valuation methodologies, particularly as it
related to evaluating the inputs and significant assumptions used to develop the fair value measurements.
The primary procedures we performed to address this critical audit matter included:
●
●
●
We obtained an understanding of management’s process for determining the fair value measurements of the contingent consideration and acquired
intangible assets.
We evaluated forward-looking assumptions, such as forecasted revenue and earnings and attrition rates used by management by performing
procedures that included, but not limited to, comparisons to industry and historical performance data, and sensitivity analysis to assess their
reasonableness.
Utilizing a valuation specialist, we evaluated the significant assumptions and methods utilized in developing the fair value of the contingent
consideration and acquired intangible assets, including:
○
○
○
We evaluated the reasonableness of the Company’s third-party valuation models and methodologies, expected cash flow calculations, and
reviewed significant assumptions.
We developed an independent calculation of the discount rates used and compared our rates to those used by management.
We prepared an independent calculation of the fair value of the contingent consideration and the intangible assets to test the accuracy of
management’s valuation models.
/s/ Dixon Hughes Goodman LLP
We have served as the Company’s auditor since 2019.
Atlanta, GA
April 28, 2022
37
STREAMLINE HEALTH SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(rounded to the nearest thousand dollars, except share and per share information)
January 31,
2022
2021
$
9,885,000 $
Current assets:
ASSETS
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful accounts of $76,000 and $65,000,
respectively
Contract receivables
Assets held in escrow
Prepaid and other current assets
Current assets of discontinued operations
Total current assets
Non-current assets:
Property and equipment, net of accumulated amortization of $192,000 and $452,000
respectively
Right-of use asset for operating lease
Capitalized software development costs, net of accumulated amortization of $5,202,000
and $3,507,000, respectively
Intangible assets, net of accumulated amortization of $5,121,000 and $4,773,000,
respectively
Goodwill
Other
Long-term assets of discontinued operations
Total non-current assets
Total assets
$
See accompanying notes to consolidated financial statements.
38
3,823,000
843,000
—
568,000
—
15,119,000
123,000
218,000
5,555,000
16,763,000
23,089,000
948,000
—
46,696,000
61,815,000 $
2,409,000
2,929,000
174,000
800,000
416,000
587,000
7,315,000
104,000
391,000
5,945,000
624,000
10,712,000
873,000
13,000
18,662,000
25,977,000
January 31,
2022
2021
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Current portion of term loan, net of deferred financing costs
Deferred revenues
Current portion of operating lease obligation
Current portion of acquisition earnout liability
Current liabilities of discontinued operations
Total current liabilities
Non-current liabilities:
Term loan, net of current portion and deferred financing costs
Deferred revenues, less current portion
Operating lease obligations, less current portion
Acquisition earnout liability, less current portion
Other non-current liabilities
Total non-current liabilities
Total liabilities
Stockholders’ equity:
$
778,000 $
1,803,000
250,000
5,794,000
204,000
4,672,000
—
13,501,000
9,654,000
136,000
33,000
4,161,000
286,000
14,270,000
27,771,000
Common stock, $0.01 par value per share, 65,000,000 shares authorized; 47,840,950 and
31,597,975 shares issued and outstanding, respectively
Additional paid in capital
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
478,000
119,225,000
(85,659,000)
34,044,000
61,815,000 $
See accompanying notes to consolidated financial statements.
39
272,000
908,000
1,534,000
3,862,000
198,000
—
595,000
7,369,000
767,000
130,000
222,000
—
—
1,119,000
8,488,000
316,000
96,290,000
(79,117,000)
17,489,000
25,977,000
STREAMLINE HEALTH SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(rounded to the nearest thousand dollars, except share and per share information)
Fiscal Year
2021
2020
Revenues:
Software licenses
Professional services
Audit services
Maintenance and support
Software as a service
Total revenues
Operating expenses:
Cost of software licenses
Cost of professional services
Cost of audit services
Cost of maintenance and support
Cost of software as a service
Selling, general and administrative expense
Research and development
Non-routine costs
Loss on exit of membership agreement
Total operating expenses
Operating loss
Other expense:
Interest expense
Loss on early extinguishment of debt
Other
PPP Loan Forgiveness
Loss from continuing operations before income taxes
Income tax (expense) benefit
Loss from continuing operations
Income from discontinued operations:
Gain on sale of discontinued operations
Income from discontinued operations
Income tax expense
Income from discontinued operations, net of tax
Net income (loss)
Basic Earnings Per Share:
Continuing operations
Discontinued operations
Net income
Weighted average number of common shares - basic
Diluted Earnings Per Share:
Continuing operations
Discontinued operations
Net income (loss) per common share - diluted
Weighted average number of common shares - diluted
$
$
$
$
$
$
1,057,000 $
2,026,000
1,896,000
4,323,000
8,077,000
17,379,000
485,000
2,782,000
1,559,000
334,000
3,417,000
11,931,000
4,782,000
2,856,000
—
28,146,000
(10,767,000)
(236,000)
(43,000)
1,911,000
2,327,000
(6,808,000)
(109,000)
(6,917,000)
—
401,000
(26,000)
375,000
(6,542,000) $
(0.16) $
0.01
(0.15) $
42,815,239
(0.16) $
0.01
(0.15) $
43,273,574
590,000
618,000
1,891,000
4,586,000
3,661,000
11,346,000
501,000
1,040,000
1,558,000
684,000
1,906,000
8,565,000
2,933,000
—
105,000
17,292,000
(5,946,000)
(51,000)
—
(62,000)
—
(6,059,000)
1,260,000
(4,799,000)
6,013,000
356,000
(1,274,000)
5,095,000
296,000
(0.16)
0.17
0.01
30,152,383
(0.16)
0.17
0.01
30,640,742
See accompanying notes to consolidated financial statements.
40
STREAMLINE HEALTH SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(rounded to the nearest thousand dollars, except share information)
Balance at January 31, 2020
Restricted stock issued
Restricted stock forfeited
Surrender of stock
Share-based compensation expense
Net income
Balance at January 31, 2021
Exercise of Stock Options
Restricted stock issued
Issuance of Common Stock
Offering Expenses
Restricted stock forfeited
Surrender of stock
Share-based compensation expense
Net loss
Balance at January 31, 2022
Common
stock
shares
30,530,643
1,395,917
(166,490)
(162,095)
—
—
31,597,975
3,300
1,462,874
15,084,472
(50,100)
(257,571)
—
—
47,840,950
$
$
Common
stock
305,000
14,000
(2,000)
(1,000)
—
—
316,000
—
14,000
151,000
—
(3,000)
—
—
478,000
Additional
paid in
capital
95,113,000 $ (79,413,000) $
Accumulated
deficit
$
(14,000)
2,000
(255,000)
1,444,000
—
96,290,000
4,000
(14,000)
22,503,000
(1,313,000)
—
(461,000)
2,216,000
—
—
—
—
—
296,000
(79,117,000)
—
—
—
—
—
—
—
(6,542,000)
$ 119,225,000 $ (85,659,000) $
Total
stockholders’
equity
16,005,000
—
—
(256,000)
1,444,000
296,000
17,489,000
4,000
—
22,654,000
(1,313,000)
—
(464,000)
2,216,000
(6,542,000)
34,044,000
See accompanying notes to consolidated financial statements.
41
STREAMLINE HEALTH SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(rounded to the nearest thousand dollars, except share information)
Fiscal Year
2021
2020
Cash flows from operating activities:
Net income (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:
$
(6,542,000) $
375,000
(6,917,000)
Depreciation
Amortization of capitalized software development costs
Amortization of intangible assets
Amortization of other deferred costs
Amortization of Deferred Financing Costs
Valuation adjustments
Loss on early extinguishment of debt
Provision (benefit) for income taxes
Loss on exit of operating lease
Share-based compensation expense
Provision (benefit) for accounts receivable allowance
Forgiveness of PPP Loan
Changes in assets and liabilities:
Accounts and contract receivables
Other assets
Accounts payable
Accrued expenses and other liabilities
Deferred revenues
Net cash used in operating activities – continuing operations
Net cash provided by (used in) operating activities – discontinued operations
Cash flows from investing activities:
Investment in Avelead, net of cash acquired
Purchases of property and equipment
Proceeds from sale of ECM assets
Capitalization of software development costs
Net cash (used in) provided by investing activities – continuing operations
Cash flows from financing activities:
Proceeds from issuance of common stock
Payments for costs directly attributable to the issuance of common stock
Repayment of bank term loan
Proceeds from term loan payable
Payments related to settlement of employee shared-based awards
Payment of deferred financing costs
Payment on royalty liability
Other
Net cash provided by (used in) financing activities – continuing operations
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental cash flow disclosures:
Interest paid, net of amounts capitalized
Income taxes paid
68,000
1,848,000
1,281,000
449,000
51,000
(1,851,000)
43,000
95,000
—
2,216,000
11,000
(2,327,000)
(129,000)
(346,000)
17,000
533,000
1,074,000
(3,884,000)
380,000
(12,470,000)
(41,000)
800,000
(1,458,000)
(13,169,000)
16,100,000
(1,313,000)
—
10,000,000
(464,000)
(168,000)
—
(6,000)
24,149,000
7,476,000
2,409,000
9,885,000 $
153,000 $
21,000 $
$
$
$
See accompanying notes to consolidated financial statements.
42
296,000
5,095,000
(4,799,000)
64,000
1,662,000
491,000
359,000
—
31,000
—
(1,274,000)
105,000
1,403,000
(31,000)
—
(253,000)
(519,000)
(484,000)
(592,000)
344,000
(3,493,000)
(2,264,000)
—
(44,000)
11,288,000
(1,784,000)
9,460,000
—
—
(4,000,000)
2,301,000
(256,000)
—
(1,000,000)
12,000
(2,943,000)
760,000
1,649,000
2,409,000
17,000
—
STREAMLINE HEALTH SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2022 and 2021
NOTE 1 — ORGANIZATION AND DESCRIPTION OF BUSINESS
Streamline Health Solutions, Inc. and each of its wholly-owned subsidiaries, Streamline Health, LLC, Avelead Consulting, LLC, Streamline
Consulting, LLC and Streamline Pay & Benefits, LLC, (collectively, unless the context requires otherwise, “we”, “us”, “our”, “Streamline”, or the
“Company”) operates 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 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.
Fiscal Year
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 — SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Streamline Health Solutions, Inc. and its wholly-owned subsidiaries, Streamline Health,
LLC, Avelead Consulting, LLC, Streamline Consulting Solutions, LLC and Streamline Pay & Benefits, LLC. All significant intercompany transactions and
balances are eliminated in consolidation. All amounts in the consolidated financial statements, notes and tables have been rounded to the nearest thousand
dollars, except share and per share amounts, unless otherwise indicated.
Refer to Note – 3 Business Combination and Divestiture. Under ASC 280-10-50-11, two or more operating segments may be aggregated into a single
operating segment if they are considered to be similar. Operating segments are considered to be similar if they can be expected to have essentially the same
economic characteristics and future prospects. Using the aggregation guidance, the Company determined that it has one operating segment due to the
similar economic characteristics of the Company’s products, product development, distribution, regulatory environment and customer base as a provider of
computer software-based solutions and services for acute-care healthcare providers. The Company has two reporting units for evaluation of intangible
assets. These two reporting units are the legacy Streamline business and Avelead.
On February 24, 2020, the Company sold a portion of its business (the ECM Assets). We applied the standard of ASC 205-20-1 to ascertain the timing
of accounting for the discontinued operations. Based on ASC 205-20-1, the Company determined that upon receiving stockholder approval, which occurred
February 21, 2020, it was authorized to sell the ECM assets. By the Company having the authority and ability to consummate the sale of the ECM Assets, it
met the criteria to present discontinued operations as described in ASC 205-20-1. Accordingly, the Company is reporting the results of operations and cash
flows, and related balance sheet items associated with the ECM Assets in discontinued operations in the accompanying consolidated statements of
operations, cash flows and balance sheets for the current and comparative prior periods. Refer to Note 13 – Discontinued Operations for further details.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“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, stock-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.
Cash and Cash Equivalents
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash demand deposits. Cash deposits
are placed in Federal Deposit Insurance Corporation (“FDIC”) insured financial institutions. Cash deposits may exceed FDIC insured levels from time to
time. For purposes of the consolidated balance sheets and consolidated statements of cash flows, the Company considers all highly-liquid investments
purchased with an original maturity of three months or less to be cash equivalents.
43
Non-Cash Items
The Company had the following items that were non-cash items related to the consolidated statements of cash flows:
Forgiveness of PPP loan and accrued interest
Escrowed funds from sale of ECM Assets
Right-of Use Assets from operating lease
Capitalized software purchased with stock (Note 12)
Receivables
Fiscal Year
2021
2020
$
2,327,000 $
—
—
—
—
800,000
540,000
41,000
Accounts and contract receivables are comprised of amounts owed to the Company for licensed software, professional services, including coding audit
services, consulting services, maintenance services, and software as a service and are presented net of the allowance for doubtful accounts. The timing of
revenue recognition may not coincide with the billing terms of the customer contract, resulting in unbilled receivables or deferred revenues; therefore,
certain contract receivables represent revenues recognized prior to customer billings. Individual contract terms with customers or resellers determine when
receivables are due. Accounts receivable represent amounts that the entity has an unconditional right to consideration. For billings where the criteria for
revenue recognition have not been met, deferred revenue is recorded until the Company satisfies the respective performance obligations.
Allowance for Doubtful Accounts
The Company adjusts accounts receivable down to net realizable value with its allowance methodology. In determining the allowance for doubtful
accounts, aged receivables are analysed periodically by management. Each identified receivable is reviewed based upon the most recent information
available and the status of any open or unresolved issues with the customer preventing the payment thereof. Corrective action, if necessary, is taken by the
Company to resolve open issues related to unpaid receivables. During these periodic reviews, the Company determines the required allowances for doubtful
accounts for estimated losses resulting from the unwillingness of its customers or resellers to make required payments. The allowance for doubtful accounts
was approximately $76,000 and $65,000 at January 31, 2022 and 2021, respectively. The Company believes that its reserve is adequate, however, results
may differ in future periods.
Bad debt (benefit) expense for fiscal years 2021 and 2020 was as follows:
Bad debt expense (benefit)
Concessions Accrual
2021
2020
$
11,000 $
(31,000)
In determining the concessions accrual, the Company evaluates historical concessions granted relative to revenue. The Company records a provision,
reducing revenue, each period for the estimated amount of concessions incurred on the revenue recorded. The Company evaluates the amount of the
provision and the concession accrual each period. The concession accrual included in accrued other expenses on the Company’s consolidated balance
sheets was $152,000 and $99,000 as of January 31, 2022 and 2021, respectively.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the straight-line method, over the estimated useful lives of the related assets.
Estimated useful lives are as follows:
Computer equipment and software
Office equipment
Office furniture and fixtures
Leasehold improvements
3-4 years
5 years
5-7 years
Term of lease or estimated useful life, whichever is shorter
Depreciation expense for property and equipment in fiscal 2021 and 2020 was $68,000 and $64,000, respectively.
Normal repairs and maintenance are expensed as incurred. Replacements are capitalized and the property and equipment accounts are relieved of the
items being replaced or disposed of, if no longer of value. The related cost and accumulated depreciation of the disposed assets are eliminated and any gain
or loss on disposition is included in the results of operations in the year of disposal.
The Company wrote-off fully depreciated fixed assets during fiscal 2021 of $198,000. There was no impact to the consolidated statements of
operations as this eliminated the asset and accumulated depreciation of the fully depreciated fixed assets.
44
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. 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. Since our lease arrangements do not provide an implicit rate, we use our estimated incremental borrowing rate for the
expected remaining lease term at commencement date in determining the present value of future lease payments. We recognize operating lease cost on a
straight-line basis by aggregating any rent abatement with the total expected rental payments and amortizing the expense ratably over the term of the lease.
Sublease income is recognized as other income over the period of the lease, as the sublease is outside of the Company’s normal business operations. See
Note 4 – Operating Leases for further details.
Debt Issuance Costs
For fiscal 2021, costs of $130,000 related to the issuance of the Second Amended and Restated Loan and Security Agreement were capitalized as a
reduction to the carrying value of debt and are being accreted to interest expense over the term of the loan using the effective interest rate method. The
Company will also incur $200,000 in financing costs at the earlier of the term date of the loan, or pre-payment. These costs are being accreted, through
interest expense, to the full value of the $200,000 over the term of the loan.
Cost related to the issuance of the Loan and Security Agreement and Second Amended and Restated Loan and Security Agreement were capitalized
and amortized to interest expense on a straight-line basis, which is not materially different from the effective interest method, over the term of the related
debt, and presented on the Company’s consolidated balance sheets as a direct deduction from the carrying amount of the non-current portion of our term
loan.
Impairment of Long-Lived Assets
The Company reviews the carrying value of long-lived assets for impairment whenever facts and circumstances exist that would suggest that assets
might be impaired or that the useful lives should be modified. Among the factors the Company considers in making the evaluation are changes in market
position and profitability. If facts and circumstances are present which may indicate that the carrying amount of the assets may not be recoverable, the
Company will prepare a projection of the undiscounted cash flows of the specific asset or asset group and determine if the long-lived assets are recoverable
based on these undiscounted cash flows. If impairment is indicated, an adjustment will be made to reduce the carrying amount of these assets to their fair
values.
Capitalized Software Development Costs
Software development costs for software to be sold, leased, or marketed are accounted for in accordance with ASC 985-20, Software — Costs of
Software to be Sold, Leased or Marketed. Costs associated with the planning and design phase of software development are classified as research and
development costs and are expensed as incurred. Once technological feasibility has been established, a portion of the costs incurred in development,
including coding, testing and quality assurance, are capitalized until available for general release to customers, and subsequently reported at the lower of
unamortized cost or net realizable value. Amortization is calculated on a solution-by-solution basis and is included in Cost of software licenses on the
consolidated statements of operations. Annual amortization is measured at the greater of a) the ratio of the software product’s current gross revenues to the
total of current and expected gross revenues or b) straight-line over the remaining economic life of the software (typically two years). Unamortized
capitalized costs determined to be in excess of the net realizable value of a solution are expensed at the date of such determination. Capitalized software
development costs for software to be sold, leased, or marketed, net of accumulated amortization, totalled $846,000 and $1,103,000 as of January 31, 2022
and 2021, respectively.
Internal-use software development costs are accounted for in accordance with ASC 350-40, Internal-Use Software. The costs incurred in the
preliminary stages of development are expensed as research and development costs as incurred. Once an application has reached the development stage,
internal and external costs incurred to develop internal-use software are capitalized and amortized on a straight-line basis over the estimated useful life of
the software (typically three to four years). Maintenance and enhancement costs, including those costs in the post-implementation stages, are typically
expensed as incurred, unless such costs relate to substantial upgrades and enhancements to the software that result in added functionality, in which case the
costs are capitalized and amortized on a straight-line basis over the estimated useful life of the software. The Company reviews the carrying value for
impairment whenever facts and circumstances exist that would suggest that assets might be impaired or that the useful lives should be modified.
Amortization expense related to capitalized internal-use software development costs is included in Cost of software as a service on the consolidated
statements of operations. Capitalized software development costs for internal-use software, net of accumulated amortization, totaled $4,709,000 and
$4,842,000 as of January 31, 2022 and 2021, respectively.
45
The estimated useful lives of software (including software to be sold and internal-use software) are reviewed frequently and adjusted as appropriate to
reflect upcoming development activities that may include significant upgrades and/or enhancements to the existing functionality. The Company reviews, on
an on-going basis, the carrying value of its capitalized software development expenditures, net of accumulated amortization.
Amortization expense on all capitalized software development cost was $2,173,000 and $1,662,000 in fiscal 2021 and 2020, respectively. Further, the
Company recognized an impairment of approximately $84,000 and $164,000 in fiscal 2021 and fiscal 2020, respectively, related to cancelled or abandoned
enhancement projects during fiscal 2021 and fiscal 2020 that has been recognized within amortization expense. Additionally, in fiscal 2021, approximately
$154,000 of fully amortized and abandoned assets, including previously acquired assets, were cleared from their corresponding capitalization and
accumulated amortization balance sheet accounts.
The Company uses the “carry-over” method for amortizing capitalized software development costs. Under the “carry-over” method, the costs of the
enhancements are added to the unamortized costs of the previous version of the product and the combined amount is amortized over the remaining useful
life of the product. Including unamortized cost of the original product with the cost of the enhancement for purposes of applying the net realizable value
test and amortization provisions is consistent with accounting guidance for software companies that improve their software and discontinue selling or
marketing the older versions.
Amortization expense on internally-developed software included in:
Cost of software licenses
Cost of audit services
Cost of software as a service
Total amortization expense on internally-developed software
Fiscal Year
2021
2020
$
$
485,000 $
13,000
1,675,000
2,173,000 $
501,000
13,000
1,148,000
1,662,000
Interest capitalized to software development cost in fiscal 2021 and 2020 was $27,000 and $13,000, respectively. The interest capitalized to software
development cost reduces the Company’s interest expense recognized in the consolidated statements of operations.
Research and development expense was $4,782,000 and $2,933,000 in fiscal 2021 and 2020, respectively.
Fair Value of Financial Instruments
The FASB’s authoritative guidance on fair value measurements establishes a framework for measuring fair value, and expands disclosure about fair
value measurements. 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. For fiscal years 2021 and 2020, there were no transfers of assets or
liabilities between Levels 1, 2, or 3.
46
The table below provides information on our liabilities that are measured at fair value on a recurring basis:
Quoted
Prices in
Active
Markets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total Fair
Value
At January 31, 2022
Acquisition earnout liability (1)
$
8,833,000
$
– $
– $
8,833,000
(1) The fair value of the acquisition earnout liability is based upon a probability-weighted discounted cash flow that was completed at the date of
acquisition and updated as of January 31, 2022. The decrease in the valuation of the acquisition earnout liability was $1,851,000 from the date of
closing of the Avelead acquisition, August 16, 2021 to the end of the fiscal year, January 31, 2022. The valuation adjustment is recognized in “other
income” in the accompanying consolidated statement of operations.
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 2022) to the date of the most recent balance sheet, January 31, 2022. The term loan bears
interest at a per annum rate equal to the Prime Rate (as published in The Wall Street Journal) plus 1.5%, with a Prime “floor” rate of 3.25%. The prime rate
is variable and, thus accommodates changes in the market interest rate. However, the interest rate spread (the 1.5% added to the Prime Rate) is fixed. We
estimated the impact of the changes in the interest rate spread by analogizing the effect of the change in the Corporate bond rates, reduced for any changes
in the market interest rate. This provided us with an estimated change to the interest rate spread of approximately 0.5% from the date we entered the debt
agreement to the end of the fiscal year, January 31, 2022. The discount to the value of the debt as of January 31, 2022 was estimated to be $9,798,000, or a
discount to book value $202,000. Long-term debt is classified as Level 2.
The fair value of the PPP loan was determined based on discounting the loan amount as of January 31, 2021. The fair value using market rates the
Company believes would be available for similar types of financial instruments would have resulted in a lower fair value of $2,231,000 as compared to the
book value of $2,301,000, a reduction of $70,000.
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 our
direct sales force or through third-party resellers. Licensed, locally-installed customers on a perpetual model utilize our 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.
We recognize revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers (“ASC 606”), under
the core principle of recognizing revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods or services.
We commence revenue recognition (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
Often contracts 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-cancellable 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 right of refund terms are required, revenue is recognized upon the satisfaction of such criteria.
47
The determined transaction price is allocated based on the standalone selling price of the performance obligations in 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.
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.
48
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 customer’s enterprise. Audit services are a separate performance obligation. We recognize revenue
over time as the services are performed.
Disaggregation of Revenue
The following table provides information about disaggregated revenue by type and nature of revenue stream:
Recurring Revenue
Non-Recurring Revenue
Total revenue
Fiscal Year
2021
2020
$
$
12,400,000 $
4,979,000
17,379,000 $
8,247,000
3,099,000
11,346,000
The Company includes revenue categories of (i) maintenance and support and (ii) software as a service as recurring revenue for fiscal years ended
January 31, 2021 and January 31, 2020. The Company includes revenue categories of (i) software licenses, (ii) professional services, and (iii) audit services
as non-recurring revenue for the fiscal years ended January 31, 2021 and January 31, 2020. Avelead makes up $2,790,000 of the Recurring Revenue for
fiscal 2021 and $1,735,000 of the Non-Recurring Revenue for fiscal 2021.
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 revenues include payments received in
advance of performance under the contract. Our 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 year ended January 31, 2022, we recognized
approximately $3,702,000 in revenue from deferred revenues outstanding as of January 31, 2021. Revenue allocated to remaining performance obligations
was $19,112,000 as of January 31, 2022, of which the Company expects to recognize approximately 66% over the next 12 months and the remainder
thereafter.
Deferred costs (costs to fulfill a contract and contract acquisition costs)
We defer the direct costs, which include salaries and benefits, for professional services related to SaaS contracts as a cost to fulfill a contract. These
deferred costs will be amortized on a straight-line basis over the contractual term. As of January 31, 2022, and 2021, we had deferred costs of $125,000 and
$168,000, respectively, net of accumulated amortization of $93,000 and $126,000, respectively. Amortization expense of these costs was $110,000 and
$125,000 in fiscal 2021 and 2020, respectively. There were no impairment losses for these capitalized costs for the fiscal years 2021 and 2020. In fiscal
2021, the deferred cost to fulfill a contract and the associated accumulated amortization accounts were reduced by $143,000 for projects with fully
amortized costs.
Contract acquisition costs, which consist of sales commissions paid or payable, is considered incremental and recoverable costs of obtaining a contract
with a customer. Sales commissions for initial and renewal contracts are deferred and then amortized on a straight-line basis over the contract term. As a
practical expedient, we expense sales commissions as incurred when the amortization period of related deferred commission costs would have been one
year or less.
Deferred commissions costs paid and payable, which are included on the consolidated balance sheets within other non-current assets totalled $806,000
and $666,000, respectively, as of January 31, 2022 and 2021. In fiscal 2021 and 2020, $339,000 and $206,000, respectively, in amortization expense
associated with deferred sales commissions was included in selling, general and administrative expenses on the consolidated statements of operations.
There were no impairment losses for these capitalized costs for fiscal years 2021 and 2020.
49
Concentrations
Financial instruments, which potentially expose the Company to concentrations of credit risk, consist primarily of accounts receivable. The Company’s
accounts receivable are concentrated in the healthcare industry. However, the Company’s customers typically are well-established hospitals, medical
facilities or major health information systems companies with good credit histories that resell the Company’s solutions. Payments from customers have
been received within normal time frames for the industry. However, some hospitals and medical facilities have experienced significant operating losses as a
result of limits on third-party reimbursements from insurance companies and governmental entities and extended payment of receivables from these entities
is not uncommon.
To date, the Company has relied on a limited number of customers and remarketing partners for a substantial portion of its total revenues. The
Company expects that a significant portion of its future revenues will continue to be generated by a limited number of customers and its remarketing
partners.
Goodwill and Intangible Assets
Goodwill and other intangible assets were recognized in conjunction with the Avelead Consulting, Interpoint, Meta, CLG and Opportune IT
acquisitions, as well as the Unibased acquisition (prior to divestiture of such assets). Identifiable intangible assets include purchased intangible assets with
finite lives, which primarily consist of internally-developed software and customer relationships. Finite-lived purchased intangible assets are amortized
over their expected period of benefit, which generally ranges from one to 15 years, using the straight-line method.
The Company assesses the useful lives and possible impairment of intangible assets when an event occurs that may trigger such a review. Factors
considered important which could trigger a review include:
● significant underperformance relative to historical or projected future operating results;
● significant changes in the manner of use of the acquired assets or the strategy for the overall business;
● identification of other impaired assets within a reporting unit;
● disposition of a significant portion of an operating segment;
● significant negative industry or economic trends;
● significant decline in the Company’s stock price for a sustained period; and
● a decline in the market capitalization relative to the net book value.
Determining whether a triggering event has occurred involves significant judgment by the Company.
The Company assesses goodwill annually (as of November 1), or more frequently when events and circumstances, such as the ones mentioned above,
occur indicating that the recorded goodwill may be impaired. During the years ended January 31, 2022 and 2021, the Company did not note any of the
above qualitative factors, which would be considered a triggering event for goodwill impairment. In assessing qualitative factors to determine whether it is
more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company assesses relevant events and circumstances that
may impact the fair value and the carrying amount of a reporting unit. The identification of relevant events and circumstances and how these may impact a
reporting unit’s fair value or carrying amount involve significant judgments by management. These judgments include the consideration of macroeconomic
conditions, industry and market considerations, cost factors, overall financial performance, events which are specific to the Company and trends in the
market price of the Company’s common stock. Each factor is assessed to determine whether it impacts the impairment test positively or negatively, and the
magnitude of any such impact.
50
Reporting units are determined based on the organizational structure the entity has in place at the date of the impairment test. A reporting unit is an
operating segment or component business unit with the following characteristics: (a) it has discrete financial information, (b) segment management
regularly reviews its operating results (generally an operating segment has a segment manager who is directly accountable to and maintains regular contact
with the chief operating decision maker to discuss operating activities, financial results, forecasts or plans for the segment), and (c) its economic
characteristics are dissimilar from other units (this contemplates the nature of the products and services, the nature of the production process, the type or
class of customer for the products and services and the methods used to distribute the products and services). The Company determined that it has one
operating segment and two reporting units.
The Company estimates the fair value of its reporting unit using the income approach, via discounted cash flow valuation models which include, but
are not limited to, assumptions such as a “risk-free” rate of return on an investment, the weighted average cost of capital of a market participant and future
revenue, operating margin, working capital and capital expenditure trends. Determining the fair value of reporting units and goodwill includes significant
judgment by management, and different judgments could yield different results.
The Company performed its annual assessment of goodwill during the fourth quarter of fiscal 2021, using the approach described above. Based on the
analysis performed, the fair value of the reporting units exceeded the carrying amount of the reporting unit, including goodwill, and, therefore, a goodwill
impairment loss was not recognized.
Equity Awards
The Company accounts for share-based payments based on the grant-date fair value of the awards with compensation cost recognized as expense over
the requisite service period. For awards to non-employees, the Company recognizes compensation expense in the same manner as if the entity had paid
cash for the goods or services. The Company incurred total annual compensation expense related to stock-based awards of $2,216,000 in fiscal 2021, and
$1,444,000 in fiscal 2020 which includes $41,000 of capitalized non-employee stock compensation.
The fair value of the 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. Effective fiscal 2021, the Company
changed its accounting to recognize forfeitures as they occur, which was determined to be an immaterial change from its historical practice. 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 stock-based compensation could have a material impact on reported expenses
depending upon the number, value and vesting period of future awards.
51
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 to the Company. In fiscal 2021 and 2020, 257,571 and 162,095 shares of common stock were surrendered to the Company to satisfy tax
withholding obligations totaling $464,000 and $256,000, respectively, in connection with the vesting of restricted stock awards. Shares surrendered by the
restricted stock award recipients in accordance with the applicable plan are deemed cancelled, and therefore are not available to be reissued. The Company
awarded 562,500 and 748,245 shares of restricted stock to Section 16 officers and directors of the Company in fiscal 2021 and 2020, respectively.
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. See Note 7 - 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 January 31, 2022, the Company believes it has appropriately
accounted for any uncertain tax positions.
Net Earnings (Loss) Per Common Share
The Company presents basic and diluted earnings per share (“EPS”) data for our common stock.
Our unvested restricted stock awards are considered non-participating securities because holders are not entitled to non-forfeitable rights to dividends
or dividend equivalents during the vesting term. In accordance with ASC 260, securities are deemed not to be participating in losses if there is no obligation
to fund such losses. Diluted EPS for our common stock is computed using the treasury stock method.
52
The following is the calculation of the basic and diluted net loss per share of common stock:
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 (1):
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) income
Weighted average shares outstanding - Basic (1)
Effect of dilutive securities - Stock options and Restricted stock (2)
Weighted average shares outstanding – Diluted
Basic net (loss) income per share of common stock
Diluted net (loss) income per share of common stock
Fiscal Year
2021
2020
(6,917,000) $
(0.16) $
375,000 $
0.01 $
(4,799,000)
(0.16)
5,095,000
0.17
(6,917,000) $
(0.16) $
(4,799,000)
(0.16)
375,000 $
0.01 $
(6,542,000) $
42,815,239
458,335
43,273,574
(0.15) $
(0.15) $
5,095,000
0.17
296,000
30,152,383
488,359
30,640,742
0.01
0.01
$
$
$
$
$
$
$
$
$
$
$
(1) Excludes the effect of unvested restricted shares of common stock, which are considered non-participating securities. As of January 31, 2022 and
2021, there were 1,043,350 and 931,125 unvested restricted shares of common stock, respectively.
(2) Diluted net loss per share excludes the effect of shares that are anti-dilutive. As of January 31, 2022, there were 1,062,130 outstanding stock
options and 1,043,350 unvested restricted shares of common stock. As of January 31, 2021, there were 625,830 outstanding stock options and
931,125 unvested restricted shares of common stock.
Other Operating Costs
Non-routine Costs
Separation agreement expense
Broker Fees
Professional Fees
Executive Bonuses
Loss on exit from operating lease
Total
Fiscal Year 2021
706,000
553,000
850,000
705,000
42,000
2,856,000
$
$
For fiscal 2021, the Company incurred certain non-routine costs totalling $2,856,000. The Company incurred transaction costs related to the
acquisition of Avelead consisting of a separation agreement, broker fees and professional services. The Company paid certain executive bonuses for the
successful capital raise and closing of the Avelead acquisition. Finally, the Company subleased its Alpharetta office to a third-party effective October 1,
2021. The Company retains certain obligations, and accordingly, will continue to report the Right of Use Asset (see Note 4 – Operating Leases). The
Company incurred certain fees and expenses associated with the sublease.
Loss on Exit of Membership Agreement
For fiscal 2020, minimum fees due under the Company’s former shared office arrangement totaled approximately $105,000. The Company recorded an
expense for the minimum future commitment under the agreement and accrued the cost to the accompanying consolidated balance sheet in fiscal 2020 to
reflect the liability at the time it abandoned the space. Refer to Note 4 – Operating Leases.
Loss Contingencies
We are subject to the possibility of various loss contingencies arising in the normal course of business. We consider the likelihood of the loss or
impairment of an asset or the incurrence of a liability as well as our ability to reasonably estimate the amount of loss in determining loss contingencies. An
estimated loss contingency is accrued when it is probable that a liability has been incurred or an asset has been impaired, and the amount of loss can be
reasonably estimated. We regularly evaluate current information available to us to determine whether to accrue for a loss contingency and adjust any
previous accrual.
53
Accounting Pronouncements Recently Adopted
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU is intended
to simplify various aspects related to accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifying
certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective for annual periods beginning after
December 15, 2020 and interim periods within those annual periods, with early adoption permitted. An entity that elects early adoption must adopt all the
amendments in the same period. Most amendments within this ASU are required to be applied on a prospective basis, while certain amendments must be
applied on a retrospective or modified retrospective basis. The standard became effective for us on February 1, 2021. The adoption of this ASU did not
have a material impact on our consolidated financial statements or disclosures. Refer to Note 7 – Income Taxes – in the consolidated financial statements
included in Part II, Item 8, “Financial Statements and Supplementary Data” for more information on the Company’s adoption of ASU 2019-12 for further
details.
In October 2021, the FASB issued ASU No. 2021-08, Accounting for Contract Assets and Contract Liabilities From Contracts With Customers (“ASU
2021-08”), which amends the accounting for contract assets acquired and contract liabilities assumed from contracts with customers in business
combinations (“acquired contract balances”). The amendment results in a shift from previous guidance which required similar assets and liabilities to be
accounted for at fair value at the acquisition date. The amendments in the Update require that an entity (acquirer) recognize, and measure acquired contract
balances in accordance with ASC Topic 606. For instance, at the acquisition date, the acquirer would account for the related revenue contracts acquired
under ASC 606, as if it had originated the contracts. The Company elected to early adopt ASU 2021-08 in the quarter ended October 31, 2021 (which
includes retroactive adoption for any acquisitions in the current fiscal year). The impact of adopting the new standard is that it eliminated the need to
discount deferred revenue acquired from Avelead of $236,000. As a result of the Company not discounting deferred revenue upon acquiring Avelead,
revenues are higher and net loss is lower in the post-acquisition period of the same amount.
Recent Accounting Pronouncements Not Yet Adopted
In November 2019, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments, which improves guidance around accounting for financial losses on accounts receivable. For smaller reporting entities, ASU 2016-13 is
effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. We do not anticipate that the adoption
of this ASU will have a material impact on our consolidated financial statements.
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 is effective for reporting periods beginning after
December 15, 2021, with early adoption permitted. We do not anticipate that the adoption of this ASU will have a material impact on our consolidated
financial statements.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832):Disclosures by Business Entities about Government
Assistance (“ASU 2021-10”), which aims to provide increased transparency by requiring business entities to disclose information about certain types of
government assistance they receive in the notes to the financial statements. Entities are required to provide the new disclosures prospectively for all
transactions with a government entity that are accounted for under either a grant or a contribution accounting model and are reflected in the financial
statements at the date of initially applying the new amendments, and to new transactions entered into after that date. Retrospective application of the
guidance is permitted. The guidance in ASU 2021-10 is effective for financial statements of all entities, including private companies, for annual periods
beginning after December 15, 2021, with early application permitted. We do not anticipate that the adoption of this ASU will have a material impact on our
consolidated financial statements.
54
NOTE 3 — BUSINESS COMBINATION AND DIVESTITURE
Avelead Acquisition
The Company acquired all of the equity interests of Avelead as part of the Company’s strategic expansion into the revenue cycle management, acute-
care healthcare space (the “Transaction”). The Transaction was completed on August 16, 2021.
The aggregate consideration for the purchase of Avelead was approximately $29.7 million (at fair value) consisting of (i) $12.4 million in cash, net of
cash acquired, (ii) $0.1 million in holdback, which was paid to sellers during the fourth fiscal quarter of 2021 (iii) $6.5 million in common stock, and (iv)
approximately $10.7 million in contingent consideration (see below). The Company issued 5,021,972 shares of its restricted common stock (the
“Acquisition Restricted Common Stock”). The Acquisition Restricted Common Stock has a fair value as of the closing date of acquisition of $6.5 million.
Additionally, the Company contracted two types of contingent consideration; the first is referred to herein as “SaaS Contingent Consideration” and the
second is referred to herein as “Renewal Contingent Consideration.” The SaaS Contingent Consideration and Renewal Contingent Consideration have an
aggregate value of approximately $10.7 million as of the date of closing. The owners of Avelead are also referred to herein as “Sellers” and are enumerated
in the UPA (as defined below).
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 $11.9 million. Additionally, the Company paid
$285,000 of the Sellers’ closing costs, $285,000 related to the working capital adjustment as defined in the UPA. Finally, at closing, the Company issued
the Acquisition Restricted Common Stock with a fair value of approximately $6.5 million, based on a 30-day average of the closing price of the Company’s
common stock prior to the closing date. The SaaS Contingent Consideration and the Renewal Contingent Consideration described in more detail below
were included in the UPA as potential future consideration for the Transaction. These are reflected on the Company’s balance sheet as “Acquisition earnout
liability.”
The Company acquired Avelead on a cash-free and debt-free basis. The Transaction was structured as a purchase of units (equity), however, Avelead
was taxed as a partnership. Accordingly, the Company realized a step-up in the tax basis of the assets acquired and the goodwill is tax deductible. The gross
deferred tax assets and liabilities will be consolidated, and the gross deferred tax assets have a full valuation allowance.
The contingent consideration is comprised of “SaaS Contingent Consideration” and “Renewal Contingent Consideration” which are described in more
detail as follows:
● The SaaS Contingent Consideration is calculated based upon Avelead’s recurring SaaS revenue recognized during the first and second year. The
Company will pay the SaaS Contingent Consideration as follows: (i) 50% in cash and (ii) 50% in shares of Company common stock valued at the
time the earnout is paid subject to a collar, as described below.
● The first year of SaaS Contingent Consideration is calculated as 75% of Avelead’s recognized SaaS revenue from September 1, 2021 to
August 31, 2022. The first-year payment is subject to a deduction of $665,000 spread equally between the cash and common stock
portion of the earnout consideration. The first year earnout will be paid on or about October 15, 2022, subject to a dispute and resolution
period. Assuming that Avelead is within 80% of its forecasted SaaS revenue in the first year earnout, the Company agreed to a floor and
ceiling on the value of the Company’s restricted common stock issued as consideration for the earnout. That collar has a floor of $3.50
per share and a ceiling of $5.50 per share for the first year earnout.
● The second year of SaaS Contingent Consideration is calculated as 40% of Avelead’s recognized SaaS revenue from September 1, 2022
to August 31, 2023. The second year earnout will be paid on or about October 15, 2023, subject to a dispute and resolution period.
Assuming that Avelead is within 80% of its forecasted SaaS revenue in the second year earnout, the Company agreed to a floor and
ceiling on the Company’s restricted common stock issued as consideration for the earnout. That collar has a floor of $4.50 per share and a
ceiling of $6.50 per share for the second year earnout.
1
If Avelead does not achieve 80% of its forecasted revenue, the price per share will revert back to the Company’s market price based upon
a 30-day average.
55
● The Renewal Contingent Consideration is tied directly to a successful renewal of a specific customer of Avelead. To meet the definition of a
renewal, Avelead must achieve a minimum threshold of contracted revenue in an updated, annual, renewed contract with the specified customer.
The renewal occurs on or about June 1, 2022 and June 1, 2023. The Company will remit the Renewal Contingent Consideration on or about each
of October 15, 2022 and 2023, respectively. The Renewal Contingent Consideration is payable in shares of Company restricted common stock
valued as of the date of closing. Accordingly, upon achieving the Renewal Contingent Consideration, the Company will issue 627,747 shares of
restricted common stock on or about each of October 15, 2022 and October 15, 2023, subject to a dispute and resolution period. The Renewal
Contingent Consideration is either earned or not earned based upon the renewal of the specified customer at the minimum amount of contracted
revenue. There is no pro-ration of the underlying Renewal Contingent Consideration.
The components of the total consideration are as follows:
(in thousands)
Components of total consideration, net of cash acquired:
Cash
Cash, seller expenses
Cash, working capital adjustment
Restricted Common Stock
Acquisition earnout liabilities
Total consideration
$
$
11,900
285
285
6,554
10,684(a)
29,708
(a)
Acquisition earnout liabilities represent the net present value and risk adjusted probability of the required future payments underlying the
Company’s SaaS Contingent Consideration and Renewal Contingent Consideration as described above. Due to the dates that the Company is
required to measure, report and agree on the calculations, $4,672,000 of the acquisition earnout liability is shown as a short-term liability and
$4,161,000 is shown as a long-term liability as of January 31, 2022.
The acquisition earnout liability is re-measured on a quarterly basis and the change to the liability is recorded as a valuation adjustment recorded
through “other expenses” in the accompanying consolidated statements of operations. The valuation adjustment recorded for the period ended
January 31, 2022, was $1,851,000. A range of possible outcomes is not available under the specific valuation method that was used in determining
fair value of the acquisition earnout liability.
The Company is presenting the allocation of the total consideration to net tangible and intangible assets as of the date of the closing of Avelead as
follows:
(in thousands)
Net tangible assets:
Accounts receivable
Unbilled revenue
Prepaid expenses
Fixed assets
Accounts payable
Accrued expenses
Deferred revenues
Net tangible assets
Goodwill
Customer Relationships (SaaS)
Customer Relationships (Consulting)
Internally Developed Software
Trademarks and Tradenames
Net assets acquired and liabilities assumed
$
$
1,246
200
178
37
(490)
(397)
(863)
(89)
12,377
8,370
1,330
6,380
1,340
29,708
The Company determined the fair value of the customer relationship intangible assets and the trade name and developed software technology
intangible assets using the multi-period excess earning method and the relief from royalty method, respectively. The intangible assets recorded as a result
of the Avelead acquisition, and their related estimated useful lives are as follows:
Goodwill
Customer Relationships (SaaS)
Customer Relationships (Consulting)
Internally Developed Software
Trademarks and Tradenames
56
Estimated
Useful Lives
Indefinite
10 years
8 years
9 years
15 years
The Company’s unaudited pro forma revenues and (loss) income from continuing operations, assuming Avelead was acquired on February 1, 2020, are
as follows. The unaudited pro forma information is not necessarily indicative of the results of operations that the Company would have reported had the
acquisition actually occurred at the beginning of these periods nor is it necessarily indicative of future results. The unaudited pro forma financial
information does not reflect the impact of future events that may occur after the acquisition, including, but not limited to, anticipated costs savings from
synergies or other operational improvements. The nature and amount of any material, nonrecurring pro forma adjustments directly attributable to the
business combination are included in the pro forma revenue and net earnings reflected below (unaudited):
(UNAUDITED)
Year Ended January 31,
2022
2021
Revenues
Operating expenses
Non-routine costs
Loss on exit from membership agreement
Operating loss
Other expenses
PPP loan forgiveness
Income tax (expense) benefit
Loss from continuing operations
$
$
22,631,000 $
(31,278,000)
(4,284,000)
—
(12,931,000)
1,312,000
3,059,000
(109,000)
(8,669,000) $
19,707,000
(25,164,000)
—
(105,000)
(5,562,000)
(710,000)
712,000
1,370,000
(4,190,000)
Non-routine costs are primarily costs associated with the acquisition. Included in the pro forma schedule (above) for the fiscal year ended January 31,
2022 are $1,428,000 of expenses paid by the Sellers in the transaction.
Included in the accompanying consolidated statement of operations for the year ended January 31, 2022 (since the closing of the Avelead acquisition)
are $4,524,000 and $(1,506,000) of Avelead revenue and loss from continuing operations.
Refer to Note 2 – Summary of Significant Accounting Policies – Other operating costs -Non-routine costs. Costs related to the acquisition of Avelead
are expensed as incurred.
The Company entered into one employment agreement and one separation agreement with each of the two Sellers. Included in the transaction costs of
Avelead is the cost of a two-year separation agreement with one Seller. This separation agreement was expensed at the closing of the transaction as there
were no material future obligations of the Seller to the Company within non-routine costs. 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 583,333 shares of the Company’s common stock to the Sellers at Closing. These options have a strike price
of $1.53 per share, the closing stock price on the trading date immediately preceding the closing. 500,000 options were awarded to one Seller that will vest,
monthly, over a three (3) year service period. The remaining 83,333 options were awarded to another Seller and vested immediately upon issuance. The
Company utilized the Black-Scholes method to determine the grant-date fair value of these options. The 83,333 options have a grant-date fair value of
approximately $6,000 and are recorded in non-routine cost in the accompanying consolidated statement of operations. The 500,000 options have a grant-
date fair value of approximately $395,000 and are expensed over the vesting period within selling, general, and administrative expense.
Additionally, the Company granted 100,000 restricted stock awards (RSAs) to certain Avelead employees as of the closing date.
ECM Assets Divestiture
On February 24, 2020, the Company sold a portion of its business (the “ECM Assets”). Accordingly, the Company is reporting the results of operations
and cash flows, and related balance sheet items associated with the ECM Assets in discontinued operations in the accompanying consolidated statements of
operations, cash flows and balance sheets for the current and comparative prior periods. Refer to Note 13 – 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.
57
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 months which coincides with the Company’s underlying lease (see below). The Company expects to receive
$292,000 from the sublessee over the term of the sublease. The sublease did not relieve the Company of its original obligation under the lease, and
therefore the Company did not adjust the operating lease right-of-use asset and related liability. The Company incurred an amount of fees and expenses to
enter into the Sublease Agreement that were recorded as “non-routine” for fiscal 2021. As of January 31, 2022, the Company recorded $64,000 as other
income related to the sublease.
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 $540,000, and related current and long-term operating lease obligation in the accompanying consolidated
balance sheet. As of January 31, 2022, operating lease right-of use assets totaled $218,000, and the associated lease liability is included in both current and
long-term liabilities of $204,000 and $33,000, respectively. The Company used a discount rate of 6.5% to the determine the lease liability. As of January
31, 2022 and 2021, the Company had lease operating costs of approximately $194,000 and $178,000, respectively. The Company paid cash of
approximately $203,000 and $132,000 for the lease in 2021 and 2020, respectively.
Maturities of operating lease liabilities associated with the Company’s operating lease as of January 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
$
$
210,000
35,000
245,000
(8,000)
237,000
Upon signing the Alpharetta lease in March 2020, the Company abandoned its shared office space in Atlanta and recorded an expense and related
liability of $105,000 for the minimum remaining payments required under the agreement with the landlord. The associated expense is recorded in “Loss on
exit of membership agreement” in the accompanying statements of operations and is recorded in “accrued expenses” in the accompanying balance sheet.
The membership agreement did not qualify as a lease as the owner had substantive substitution rights.
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 36-month term lease commenced March 1, 2019 and expires on February 28, 2022. As of January
31, 2022, the Company recorded $40,000 in rent expense. The lessor is an entity controlled by one of the Sellers that is employed by the Company. In
February 2022, the Company renewed the lease for twelve months. The Company will make monthly lease payments of $5,998.67 for a total of $71,984
over the term of the lease. The lease will automatically renew at the end of the lease unless a 90-day written cancellation is given by either party.
NOTE 5 — DEBT
Term Loan Agreement and Discontinuance of Revolving Credit Facility
On August 26, 2021, the Company and its subsidiaries entered into the Second Amended and Restated Loan and Security Agreement with Bridge
Bank. 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 $10,000,000. Amounts outstanding under the term loan of 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 and Restated Loan and Security Agreement, the Company discontinued the existing $3,000,000
revolving credit facility with Bridge Bank. 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 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 and Restated 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
$500,000 in the second year, $1,000,000 in the third year, $2,000,000 in the fourth year, and $3,000,000 in the fifth year, respectively, with the remaining
outstanding principal balance and all accrued but unpaid interest due in full on the maturity date. The Second Amended and Restated Loan and Security
Agreement may also require early repayments if certain conditions are met. The Second Amended and Restated Loan and Security Agreement is secured
by substantially all of the assets of the Company, its subsidiaries, and certain of its affiliates.
The Company recorded $130,000 in deferred financing costs related to the Second Amended and Restated Loan and Security Agreement. These
deferred financing costs are being amortized over the term of the loan. The Company will also incur $200,000 in financing costs at the earlier of the term
date of the loan, or pre-payment. These costs are being accreted, through interest expense, to the full value of the $200,000 over the term of the loan.
58
The Second Amended and Restated Loan and Security Agreement includes customary financial covenants as follows:
a. Minimum Cash. Borrowers shall, at all times, maintain unrestricted cash of Borrowers at Bank in an amount not less than (i) on the Closing Date
and for the first eleven (11) months immediately following the Closing Date, Five Million Dollars ($5,000,000) and (ii) at all times thereafter,
Three Million Dollars ($3,000,000).
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
October 31, 2021
January 31, 2022
April 30, 2022
July 31, 2022
October 31, 2022
January 31, 2023
Maximum Debt to
ARR Ratio
0.80 to 1.00
0.75 to 1.00
0.65 to 1.00
0.55 to 1.00
0.50 to 1.00
0.45 to 1.00
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
April 30, 2023
July 31, 2023
October 31, 2023
January 31, 2024 and on the last day of each quarter thereafter
Maximum Debt to
Adjusted EBITDA
Ratio
11.30 to 1.00
4.15 to 1.00
2.50 to 1.00
2.0 to 1.00
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 1.20 to 1.00, measured on a quarterly basis as of the last day of each fiscal quarter for the trailing four (4) quarter period then ended.
The Second Amended and Restated Loan 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 January 31, 2022, the Company was in
compliance with the Second Amended and Restated Loan and Security Agreement covenants.
Term Loan and Revolving Credit Facility with Bridge Bank
On March 2, 2021, the Company entered into an Amended and Restated Loan and Security Agreement, which replaced and superseded the Loan and
Security Agreement, consisting of a $3,000,000 revolving credit facility (the “Amended Loan and Security Agreement”). This revolving credit facility was
replaced with the Second Amended and Restated Loan and Security Agreement (above) that was put in place on August 26, 2021. Accordingly, the
Company wrote-off $43,000 of deferred financing costs from this loan as a loss on extinguishment of debt in the accompanying consolidated statement of
operations. The Amended Loan and Security Agreement had a two-year term and included customary financial covenants including the requirements that
the Company achieve certain EBITDA levels and certain recurring revenue levels. The Company could not deviate by more than twenty percent its
recurring revenue projections over a trailing three-month basis. Additionally, the Company’s Bank EBITDA, measured on a monthly basis over a trailing
three-month period then ended, could not deviate by more than 30% or $300,000. The Amended Loan and Security Agreement facility bore interest at a per
annum rate equal to the higher of (a) the Prime Rate (as published in The Wall Street Journal) plus 1.00%, with a “floor” Prime Rate of 4.0%. The
Amended Loan and Security agreement was secured by substantially all of our assets.
On December 11, 2019, the Company entered into a Loan and Security Agreement (the “Loan and Security Agreement”) with Bridge Bank, a division
of Western Alliance Bank (“Bridge Bank”), consisting of a $4,000,000 term loan and a $2,000,000 revolving credit facility. The proceeds from the term
loan were used to repay all outstanding balances under the Company’s then existing term loan with Wells Fargo Bank. In February 2020, the Company
repaid the $4,000,000 outstanding term loan with Bridge Bank in full, with proceeds from the sale of the ECM Assets, as required under the Loan and
Security Agreement.
The revolving credit facility had a maturity date of twenty-four months and advances bore interest at a per annum rate equal to the higher of (a) the
Prime Rate (as published in The Wall Street Journal) plus 1.25% or (b) 6.25%. The revolving credit facility could be advanced based upon 80% of eligible
accounts receivable, as defined in the Loan and Security Agreement.
Term Loan related to “The Coronavirus Aid, Relief, and Economic Security Act”
The Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, was signed into law on March 17, 2020. Among other
things, the CARES Act provided for a business loan program known as the Paycheck Protection Program (“PPP”). Qualifying companies were able to
borrow, through the U.S. Small Business Administration (“SBA”), up to two months of payroll expenses. On April 21, 2020, the Company received
approximately $2,301,000 through the SBA under the PPP. These funds were utilized by the Company to fund payroll expenses and avoid further staffing
reductions during the slowdown resulting from COVID-19.
The PPP loan carried an interest rate of 1.0% per annum. Principal and interest payments were due, beginning on the tenth month from the effective
date, sufficient to satisfy the loan on the second anniversary date. However, under certain criteria, the loan could be forgiven.
In June 2021, the Company was notified that the full $2,301,000 of the PPP loan and accrued interest of $26,000 had been forgiven. The loan amount
and accrued interest were recognized as an extinguishment of debt and has been recorded as other income on the consolidated statement of operations.
59
Outstanding principal balances on debt consisted of the following at:
Term loan
Deferred financing cost
Total
Less: Current portion
Non-current portion of debt
January 31, 2022(a)
January 31, 2021(b)
$
$
10,000,000 $
(96,000)
9,904,000
(250,000)
9,654,000 $
2,301,000
—
2,301,000
(1,534,000)
767,000
(a) The term loan as of January 31, 2022 is related to the new term loan agreement that the Company entered into on August 26, 2021 with Bridge Bank
(see description above).
(b) The term loan as of January 21, 2021 is related to the Company’s PPP loan (see description above). The PPP loan was forgiven in June 2021.
NOTE 6 — GOODWILL AND INTANGIBLE ASSETS
The goodwill activity is summarized as follows:
Balance at January 31, 2021
Acquisition of Avelead
Balance at January 31, 2022
Intangible assets consist of the following:
Goodwill
10,712,000
12,377,000
23,089,000
Finite-lived assets:
Customer relationships
Internally Developed Software
Trademarks and Tradenames
Total
Estimated
Useful Life
Gross Assets
Accumulated
Amortization
Net Assets
January 31, 2022
$
8-10 years
9 years
15 years
$
14,164,000
6,380,000
1,340,000
21,884,000
4,755,000 $
325,000
41,000
5,121,000
9,409,000
6,055,000
1,299,000
16,763,000
Estimated
Useful Life
Gross Assets
Accumulated
Amortization
Net Assets
January 31, 2021
Finite-lived assets:
Customer relationships
5-10 years
$
5,397,000
$
4,773,000 $
624,000
The Company recognized amortization expense on intangible assets of $1,281,000 and $491,000 for fiscal years 2021 and 2020, respectively.
Amortization over the next five fiscal years for intangible assets is estimated as follows:
2022
2023
2024
2025
2026
Thereafter
Total
Annual
Amortization Expense
1,971,000
1,801,000
1,801,000
1,801,000
1,801,000
7,588,000
16,763,000
$
$
The Company wrote-off fully amortized intangible assets during fiscal 2021 of $933,000. There was no impact to the consolidated statements of
operations as this eliminated the asset and accumulated amortization of the fully amortized intangible assets.
60
NOTE 7 — INCOME TAXES
For fiscal 2021 and 2020, income taxes for continuing operations consist of the following:
Current tax (expense) benefit:
Federal
State
Total current tax expense
Deferred tax (expense) benefit:
Federal
State
Total deferred tax (expense) benefit
Total provision
Fiscal Year
2021
2020
— $
(14,000)
(14,000) $
(80,000) $
(15,000)
(95,000) $
(109,000) $
—
(14,000)
(14,000)
1,274,000
—
1,274,000
1,260,000
$
$
$
$
$
The Company adopted ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12
removes the exception to the basic intraperiod model in ASC 740-20-45-7. The benefit from income taxes from continuing operations, reported for fiscal
year 2020, are offset by taxes on the gain on sale and taxes from operations of discontinued operations.
During fiscal year 2020, the Company had a loss from continuing operations and income from discontinued operations. The Company did not elect to
early adopt ASU 2019-12 for the 2020 fiscal year; therefore, the income from discontinued operations was considered a source of taxable income to realize
a partial tax benefit for the loss generated by continuing operations. As such, the financial statements for the 2020 fiscal year reflects tax expense in
discontinued operations and a tax benefit in continuing operations. Applying the change on a prospective basis, this did not occur during the 2021 fiscal
year and as such created a difference in the effective tax rate presentation for continuing operations between fiscal years 2020 and 2021.
The income tax benefit differs from the amount computed using the federal statutory income tax rates of 21% for fiscal 2021 and 2020 continuing
operations as follows:
Federal tax benefit at statutory rate
State and local tax expense, net of federal
Increase in valuation allowance
Permanent items:
PPP Loan
Other
Reserve for uncertain tax position
R&D Credit (Federal)
Expiring carryforwards
Stock-based compensation
Other
Income tax expense
Fiscal Year
2021
2020
(1,430,000) $
26,000
1,950,000
(483,000)
3,000
(24,000)
120,000
—
(45,000)
(8,000)
109,000 $
(1,272,000)
11,000
419,000
—
5,000
35,000
(174,000)
5,000
(305,000)
16,000
(1,260,000)
$
$
61
The Company provides deferred income taxes for temporary differences between assets and liabilities recognized for financial reporting and income
tax purposes. The income tax effects of these temporary differences and credits are as follows:
Deferred tax assets:
Allowance for doubtful accounts
Deferred revenue
Accruals
Net operating loss carryforwards
Stock compensation expense
Property and equipment
R&D credit
Other
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Finite-lived intangible assets
Total deferred tax liabilities
Net deferred tax liabilities
January 31,
2022
2021
$
$
24,000 $
60,000
168,000
10,908,000
510,000
(6,000)
1,334,000
23,000
13,021,000
(12,318,000)
703,000
(798,000)
(798,000)
(95,000) $
16,000
12,000
47,000
8,651,000
367,000
(5,000)
1,431,000
7,000
10,526,000
(9,992,000)
534,000
(534,000)
(534,000)
—
At January 31, 2022, the Company had U.S. federal net operating loss carry forwards of $46,250,000 and $29,083,000 of these net operating losses
expire at various dates through fiscal 2038. The remaining $17,167,000 of these net operating losses can be carried forward indefinitely under the
provisions of the Tax Cuts and Jobs Act (TCJA). The TCJA also eliminated the ability to carry back net operating losses. The Company also had state net
operating loss carry forwards of $21,318,000 and Federal R&D credit carry forwards of $1,575,000 and Georgia R&D credit carry forwards of $94,000, all
of which expire at various dates through fiscal 2041.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that all or some portion of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable
income and tax planning strategies in making this assessment. The Company established a valuation allowance of $12,318,000 and $9,992,000 at January
31, 2022 and 2021, respectively. The increase in the valuation allowance of $2,326,000 was driven primarily by federal net operating losses.
The Company and its subsidiaries are subject to U.S. federal income tax as well as income taxes in multiple state and local jurisdictions. The Company
has concluded all U.S. federal tax matters for years through January 31, 2018. All material state and local income tax matters have been concluded for
years through January 31, 2017. The Company is no longer subject to IRS examination for periods prior to the tax year ended January 31, 2018; however,
carry forward losses that were generated prior to the tax year ended January 31, 2018 may still be adjusted by the IRS if they are used in a future period.
The Company has recorded a reserve, including interest and penalties, for uncertain tax positions of $315,000 and $339,000 as of January 31, 2022 and
2021, respectively. As of January 31, 2022 and 2021, the Company had no accrued interest and penalties associated with unrecognized tax benefits.
62
A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits (excluding interest and penalties) is as follows:
Beginning of fiscal year
Additions for tax positions for the current year
Additions for tax positions of prior years
Subtractions for tax positions of prior years
End of fiscal year
NOTE 8 — EQUITY
Capital Raise
$
$
2021
2020
339,000 $
4,000
—
(28,000)
315,000 $
304,000
33,000
2,000
—
339,000
On February 25, 2021, the Company entered into an underwriting agreement with Craig-Hallum Capital Group LLC, as the sole managing underwriter,
relating to the underwritten public offering of an aggregate of 10,062,500 shares of the Company’s common stock, par value $0.01 per share, which
included 1,312,500 shares of common stock sold pursuant to the underwriter’s exercise of an option to purchase additional shares of common stock to
cover over-allotments (the “Offering”). The price to the public in the Offering was $1.60 per share of common stock. The gross proceeds to the Company
from the Offering were approximately $16.1 million, before deducting underwriting discounts, commissions and estimated offering expenses. The Offering
closed on March 2, 2021.
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 248,424 shares of common stock issued to 180 Consulting, LLC (“180 Consulting”). The Registration
Statement was declared effective by the SEC on July 14, 2021.
Authorized Shares Increase
On May 24, 2021, the Company amended its Certificate of Incorporation to increase the total number of authorized shares of the Company’s common
stock from 45,000,000 shares to 65,000,000 shares (the “Charter Amendment”). The Charter Amendment was previously approved by the board of
directors of the Company, subject to stockholder approval, approved by the Company’s stockholders at the 2021 Annual Meeting of Stockholders of the
Company, held on May 20, 2021 (the “Annual Meeting”), and ratified by the Company’s stockholders on July 29, 2021 at the Special Meeting (as defined
and described in further detail below).
At the Annual Meeting, the Company’s stockholders approved an amendment to the Streamline Health Solutions, Inc. Third Amended and Restated
2013 Stock Incentive Plan to increase the number of shares of the Company’s common stock authorized for issuance thereunder by 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.
NOTE 9 — MAJOR CUSTOMERS
During fiscal 2021, one individual customer accounted for 10% or more of our continuing operations revenue. This customer accounted for 15% of
total continuing operations revenue for fiscal 2021. During fiscal 2020, no one individual customer accounted for 10% or more of our continuing
operations revenue. Three customers represented 24%, 16%, and 15%, respectively, of continuing operations accounts receivable as of January 31, 2022
and 4 customers represented 31%, 16%, 14% and 13%, respectively, of continuing operations accounts receivable as of January 31, 2021. Many of our
customers are invoiced on an annual basis.
NOTE 10 — EMPLOYEE RETIREMENT PLAN
The Company has established a 401(k) retirement plan that covers all associates. Company contributions to the plan may be made at the discretion of
the board of directors. The Company’s matched amount is 50% up to the first 4% of compensation deferred by each associate. The total compensation
expense for this matching contribution was $188,000 and $164,000 in fiscal 2021 and 2020, respectively.
NOTE 11 — STOCK-BASED COMPENSATION
Stock Option Plans
The Company’s Third Amended and Restated 2013 Stock Incentive Plan (the “2013 Plan”) replaced the 2005 Incentive Compensation Plan (the “2005
Plan”). The 2005 Plan expired based upon its terms. Accordingly, all the outstanding awards and any unallocated pool of un-issued options under the 2005
Plan were re-characterized to the 2013 Plan. Under these plans, the Company is authorized to issue equity awards (stock options, stock appreciation rights
or “SARs”, and restricted stock) to directors and associates of the Company. Under the 2013 Plan, as amended, the Company is authorized to issue a
number of shares not to exceed 8,223,246. The options granted under the 2013 Plan have terms of ten years or less, and typically vest and become fully
exercisable ratably over three years of continuous service to the Company from the date of grant. At January 31, 2022 and 2021, options to purchase
937,130 and 500,830 shares of the Company’s common stock, respectively, had been granted and were outstanding under these plans. There are no SARs
outstanding.
63
Inducement grants are approved by the Company’s compensation committee pursuant to NASDAQ Marketplace Rule 5635(c)(4). The terms of the
grants were nearly identical to the terms and conditions of the Company’s stock incentive plans in effect at the time of each inducement grant. For the year
ended January 31, 2021 and 2020, with regard to inducement grants, no stock options were issued, no options expired, no options were forfeited, and no
stock options were exercised. As of January 31, 2022 and 2021, there were 125,000 options outstanding, respectively, under inducement grants.
A summary of stock option activity follows:
Outstanding as of January 31, 2021
Granted
Exercised
Expired
Forfeited
Outstanding as of January 31, 2022
Exercisable as of January 31, 2022
Vested or expected to vest as of January 31, 2022
Weighted
Average
Exercise
Price
Options
Remaining
Life in
Years
Aggregate
intrinsic
value
625,830 $
583,333
(3,300)
(137,033)
(6,700)
1,062,130 $
628,854 $
1,061,307 $
3.45
1.53
1.35
1.65
1.35
2.65
3.42
2.65
6.11 $
3.75 $
6.11 $
21,000
20,000
21,000
583,333 options were granted in fiscal 2021, with a weighted average grant date fair value of $1.53. No options were granted or exercised in fiscal
2020.
The fiscal 2021 and 2020 stock-based compensation was estimated at the date of grant using a Black-Scholes option pricing model with the following
weighted average assumptions for each fiscal year:
Expected life
Risk-free interest rate
Weighted average volatility factor
Dividend yield
Forfeiture rate
2021
5.01 years
2020
0.75%
0.72
—
—
—
—
—
—
—
At January 31, 2022, there was $335,000 of unrecognized compensation cost related to non-vested stock-option awards. That cost is expected to be
recognized over a remaining weighted average period of 2.54 years. The expense associated with stock option awards was $69,000 and $22,000,
respectively, for fiscal 2021 and 2020. Cash received from the exercise of options was $5,000 in fiscal 2021. No options were exercised during fiscal 2020.
The 2013 Plan contains change in control provisions whereby any outstanding equity awards under the plans subject to vesting, which have not fully
vested as of the date of the change in control, shall automatically vest and become immediately exercisable. One of the change in control provisions is
deemed to occur if there is a change in beneficial ownership, or authority to vote, directly or indirectly, of securities representing 20% or more of the total
of all of the Company’s then-outstanding voting securities, unless through a transaction arranged by or consummated with the prior approval of the Board
of Directors. Other change in control provisions relate to mergers and acquisitions or a determination of change in control by the Company’s Board of
Directors.
64
Restricted Stock
The Company is authorized to grant restricted stock awards to associates and directors under the 2013 Plan. The Company has also issued restricted
stock as inducement grants to certain new employees. The restrictions on the shares granted generally lapse over a one- to four-year term of continuous
employment from the date of grant. On March 4, 2021, our CEO was awarded 150,000 shares of restricted stock that will vest in four substantially equal
quarterly installments commencing on the first anniversary of the date of grant. On June 17, 2020, our CEO was awarded 150,000 shares of restricted stock
that will vest in four substantially equal quarterly installments commencing on the first anniversary of the date of grant. On October 17, 2019, our CEO was
awarded 250,000 shares of restricted stock: 50,000 of which vested upon grant, 100,000 shares that vested in four substantially equal quarterly installments
commencing on the first anniversary of the date of grant, and 100,000 shares that were subject to performance-based vesting based upon the achievement
of certain growth rates of revenue specified in agreement. However, performance was not achieved by July 31, 2020, resulting in the grants being forfeited.
The grant date fair value per share of restricted stock, which is based on the closing price of our common stock on the grant date, is expensed on a straight-
line basis as the restriction period lapses. The shares represented by restricted stock awards are considered outstanding at the grant date, as the recipients
are entitled to voting rights. A summary of restricted stock award activity for fiscal 2021 and 2020 is presented below:
Non-vested balance at January 31, 2020
Granted
Vested
Forfeited
Non-vested balance at January 31, 2021
Granted
Vested
Forfeited
Non-vested balance at January 31, 2022
Non-vested
Number of
Shares
Weighted
Average
Grant Date
Fair Value
803,498 $
1,158,245
(864,128)
(166,490)
931,125 $
1,257,000
(1,095,175)
(50,100)
1,043,000 $
1.22
1.07
1.18
1.16
1.09
1.71
1.33
1.48
1.57
At January 31, 2022, there was $1,024,000 of unrecognized compensation cost related to restricted stock awards. That cost is expected to be
recognized over a remaining period of 2.03 years.
The expense associated with restricted stock awards for associates and directors was $1,667,000 and $1,075,000, respectively, for fiscal 2021 and
2020.
65
NOTE 12— COMMITMENTS AND CONTINGENCIES
Royalty Liability
On October 25, 2013, we entered into a Software License and Royalty Agreement (the “Royalty Agreement”) with Montefiore Medical Center
(“Montefiore”) pursuant to which Montefiore granted us an exclusive, worldwide 15-year license of Montefiore’s proprietary clinical analytics platform
solution, Clinical Looking Glass® (“CLG”), now known as our Clinical Analytics solution. In addition, Montefiore assigned to us the existing license
agreement with a customer using CLG. As consideration under the Royalty Agreement, we paid Montefiore a one-time initial base royalty fee of
$3,000,000. Additionally, we originally committed that Montefiore would receive at least an additional $3,000,000 of on-going royalty payments related to
future sublicensing of CLG by us within the first nine and one-half years of the license term. On July 1, 2018, we entered into a joint amendment to the
Royalty Agreement and the existing Software License and Support Agreement with Montefiore to modify the payment obligations of the parties under both
agreements. According to the modified provisions, our obligation to pay on-going royalties under the Royalty Agreement was replaced with the obligation
to (i) provide maintenance services for 24 months and waive associated maintenance fees, and (ii) pay $1,000,000 in cash by October 31, 2020. As a result
of the commitment to fulfill a portion of our obligation by providing maintenance services at no cost, the royalty liability was significantly reduced, with a
corresponding increase to deferred revenues.
On October 1, 2020, the Company agreed with Montefiore that it would pay, in cash, (i) $500,000 upon signing a settlement and release agreement,
and (ii) $490,000 on November 1, 2020. The difference between the $990,000 in cash payment and the $1,000,000 payment obligation was due to the
settlement of outstanding costs made on behalf of the Company for Montefiore. The Company executed the settlement and release agreement shortly after
October 1, 2020 and made the scheduled payments. The Company retains the exclusive licensing rights for the underlying software through the term of the
original agreement (2028).
Consulting Agreement with 180 Consulting
On March 19, 2020 the Company entered into a Master Services Agreement (the “MSA”) with 180 Consulting, pursuant to which 180 Consulting
has provided and will continue to provide a variety of consulting services including product management, operational consulting, staff augmentation,
internal systems platform integration and software engineering services, among others, through separate executed statements of work (“SOWs”). The
Company has entered into ten SOWs under the MSA. Some of the SOWs include the ability to earn stock at a conversion rate to be calculated 20 days after
the execution of the related SOW. 180 Consulting earned a cumulative number of shares through January 31, 2022 totaling 521,077, and 272,653 shares for
the year ended January 31, 2022. For services rendered by 180 Consulting during fiscal 2021, the Company incurred fees of $1,439,000. In addition, on
February 22, 2022, the Company issued to 180 Consulting an aggregate of 78,031 shares as compensation for services previously rendered during the
three-months ended January 31, 2022. Such 78,031 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. During fiscal 2020, the Company incurred fees to 180 Consulting
totaling $701,000. Of those fees, approximately $75,000 was related to capitalized software development, and the remaining was operating cost. 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).
On September 20, 2021, the Company entered into an additional Master Services Agreement with 180 Consulting to provide a variety of
consulting services including product management, operational consulting, staff augmentation, internal systems platform integration and software
engineering services, among others, to the Company in support of the Avelead products acquired through separate executed SOW’s. As of January 31,
2022, the Company has entered into one SOW under the Avelead MSA. For services rendered by 180 Consulting during fiscal 2021, the Company incurred
fees totaling $288,000.
Litigation
We are, from time to time, a party to various legal proceedings and claims, which arise in the ordinary course of business. We are not aware of any
legal matters that could have a material adverse effect on the Company’s consolidated results of operations, financial position or cash flows.
NOTE 13 – DISCONTINUED OPERATIONS
On February 24, 2020, the Company consummated the previously announced sale of the Company’s legacy Enterprise Content Management business
(the “ECM Assets”) pursuant to that certain Asset Purchase Agreement, dated December 17, 2019, as amended (the “Asset Purchase Agreement”), to
Hyland Software, Inc. (the “Purchaser”),
Pursuant to the Asset Purchase Agreement, the Purchaser acquired the ECM Assets and assumed certain liabilities of the Company for a purchase price
of $16.0 million, subject to certain adjustments for customer prepayments as set forth in the Asset Purchase Agreement.
At closing, the Company received approximately $5.4 million in net proceeds after (i) repaying the Company’s $4.0 million term loan with Bridge
Bank, (ii) adjusting for certain customer prepayments, (iii) recording the escrow funds of $800,000 and (iv) incurring certain transaction costs. The gain on
the sale of assets is summarized as follows:
Net Proceeds, including escrowed funds
Net tangible assets sold:
Accounts Receivable
Prepaid Expenses
Deferred Revenues
Net tangible assets sold
Capitalized software development costs
Goodwill
Transaction cost
Gain on sale of discontinued operations
$
12,088,000
(1,130,000)
(576,000)
4,010,000
2,304,000
(1,772,000)
(4,825,000)
(1,782,000)
6,013,000
$
The transaction costs were primarily broker costs and costs of legal and accounting to effect the transaction. The Company allocated $4,825,000 in
goodwill to the sale of the ECM Assets using a valuation of the ECM Assets and the remaining, go-forward business, to bifurcate its existing goodwill as of
February 24, 2020. The amount of goodwill to be included in that carrying amount was based on the relative fair values of the business to be disposed of
and the portion of the reporting unit that will be retained using our fair value approach as outlined in Note 2. Further, in accordance ASC 350-20-35-3A,
when only a portion of goodwill is allocated to a business to be disposed of, the remaining portion of the goodwill associated with the reporting unit to be
retained was tested for impairment and no impairment was recognized.
66
The Company reclassified the following assets and liabilities for discontinued operations in the accompanying consolidated balance sheets:
Current assets of discontinued operations:
Accounts receivable
Current assets of discontinued operations
Long-term assets of discontinued operations:
Property and equipment, net
Long-term assets of discontinued operations
Current liabilities of discontinued operations:
Accrued expenses
Deferred revenues
Current liabilities of discontinued operations
$
$
$
$
$
$
January 31, 2022
January 31, 2021
As of
— $
— $
— $
— $
— $
—
— $
587,000
587,000
13,000
13,000
8,000
587,000
595,000
For fiscal 2021 and 2020, the Company recorded the following into discontinued operations in the accompanying consolidated statements of
operations:
Revenues:
Maintenance and support
Software as a service
Transition service fees
Total revenues
Expenses:
Cost of Sales
Transition service cost
Deferred financing cost
Total expenses
Income from discontinued operations
Fiscal Year
2021
2020
$
$
$
$
— $
—
498,000
498,000 $
5,000
92,000
—
97,000 $
401,000 $
412,000
138,000
394,000
944,000
294,000
166,000
128,000
588,000
356,000
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.
67
NOTE 14 - RELATED PARTY TRANSACTIONS
In the second quarter of fiscal year 2019, in connection with the appointment of Wyche T. “Tee” Green, III, Chairman of the Board of the Company
and Managing Member of 121G, LLC (“121G”), as interim President and Chief Executive Officer of the Company, we entered into a consulting agreement
with 121G Consulting, LLC (“121G Consulting”), to provide an assessment of the Company’s innovation and growth teams and strategies and to develop a
set of prioritized recommendations to be consolidated into a strategic plan for the Company’s leadership team. Mr. Green is a member of 121G Consulting,
and, accordingly, has a financial interest in that entity. In October 2019, Mr. Green was appointed as President and Chief Executive Officer of the Company
on a full-time basis. Subsequent to Mr. Green joining the Company on a full-time basis, the Company’s relationship with 121G Consulting was terminated.
No fees were incurred from 121G for fiscal 2021. For fiscal 2020, 121G Consulting fees totaled $107,000.
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. From the
acquisition date to the year ended January 31, 2022, the Company incurred approximately $64,000 in research and development services provided by
AscendTek. Additionally, we assumed a lease for corporate office space from a Seller that is now employed by the Company. See Note 4 – Operating
Leases.
NOTE 15 — SUBSEQUENT EVENTS
We have evaluated subsequent events occurring after January 31, 2021, and based on our evaluation we did not identify any events that would have
required recognition or disclosure in these consolidated financial statements, except for the following:
Departure and Appointment of Certain Officers
We have previously disclosed by way of current reports on Form 8-K filed with the SEC that on February 14, 2022, William G. Garvis, the Company’s
Senior Vice President and Chief Operating Officer, departed effective February 14, 2022. The Company also announced effective March 22, 2022,
Randolph “Randy” Salisbury will depart effective April 15, 2022. Mr. Salisbury previously served as the Company’s Senior Vice President and Chief Sales
and Marketing Officer. Mr. Salisbury is entitled to receive the severance accorded to him in his employment agreement for a separation without cause.
68
Schedule II
Valuation and Qualifying Accounts and Reserves
Streamline Health Solutions, Inc and Subsidiaries.
For the two years ended January 31, 2022
Description
Year ended January 31, 2022:
Allowance for doubtful accounts
Year ended January 31, 2021:
Allowance for doubtful accounts
(1) Uncollectible accounts written off, net of recoveries.
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
(1)
Deductions
Balance at End
of
Period
$
$
65
96
$
$
11 $
— $
(31) $
— $
76
65
69
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. 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©) as of the end of the period covered by this Report (January 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 January 31, 2022.
Avelead, which was acquired on August 16, 2021, was excluded from the scope of assessment of the effectiveness of our disclosure controls and
procedures as of January 31, 2022.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-
15(f) of the Exchange Act. Our internal control over financial reporting is a process designed by, and under the supervision of, our President and Chief
Executive Officer and Senior Vice President and Chief Financial Officer and effected by our management and our Board of Directors to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
An internal control material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote
likelihood that a material misstatement of the consolidated financial statements will not be prevented or detected.
Our management, including our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our internal
control over financial reporting as of January 31, 2022, and concluded that our internal control over financial reporting was effective as of January 31,
2022. In making the assessment of internal control over financial reporting, management used the criteria established in Internal Control - Integrated
Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
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 consolidated
financial statements included in Part II, Item 8, “Financial Statements” for further information on the Avelead acquisition). In accordance with the general
guidance issued by the staff of the SEC, Avelead have been excluded from the scope of management’s report on internal control over financial reporting for
the year ended January 31, 2022. As part of the ongoing integration of Avelead, we are in the process of incorporating the controls and related procedures.
Other than incorporating the Avelead controls, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) that occurred during the year ended January 31, 2022 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
We have performed additional analyses and other procedures to enable management to conclude that our consolidated financial statements included in
this report fairly, in all material respects, our financial condition and results of operations as of the year ended January 31, 2022.
Item 9B. Other Information
None.
70
Item 10. Directors, Executive Officers and Corporate Governance
PART III
Information regarding directors, executive officers and corporate governance will be set forth in the proxy statement for our 2022 annual meeting of
stockholders, which will be filed with the SEC within 120 days after the end of the fiscal year covered by this Report and is incorporated herein by
reference.
Item 11. Executive Compensation
Information regarding executive compensation will be set forth in the proxy statement for our 2022 annual meeting of stockholders, which will be filed
with the SEC within 120 days after the end of the fiscal year covered by this Report and is incorporated herein by reference.
Item 12. Securities Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information regarding security ownership of certain beneficial owners and management and related stockholder matters will be set forth in the proxy
statement for our 2022 annual meeting of stockholders, which will be filed with the SEC within 120 days after the end of the fiscal year covered by this
Report and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions and Directors Independence
Information regarding certain relationships and related transactions and director independence will be set forth in the proxy statement for our 2022
annual meeting of stockholders, which will be filed with the SEC within 120 days after the end of the fiscal year covered by this Report and is incorporated
herein by reference.
Item 14. Principal Accountant Fees and Services
The Independent Registered Public Accounting Firm is Dixon Hughes Goodman LLP (PCAOB Firm ID No. 57) located in Atlanta, Georgia.
Information regarding principal accountant fees and services will be set forth in the proxy statement for our 2022 annual meeting of stockholders, which
will be filed with the SEC within 120 days after the end of the fiscal year covered by this Report and is incorporated herein by reference.
(32) Item 15. Exhibits and Financial Statement Schedulesa) See Index to Consolidated Financial Statements and Schedule Covered by Reports of
Registered Public Accounting Firms included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Report. See Index to
Exhibits contained in this Report.
PART IV
(b) Exhibits
See Index to Exhibits contained in this Report.
Item 16. Form 10-K Summary
None.
71
EXHIBITS
INDEX TO EXHIBITS
2.1
2.2
2.3
3.1
3.2
3.2
4.1
Asset Purchase Agreement, dated December 17, 2019, by and among the Company, Streamline Health, Inc., and Hyland Software, Inc.
(Incorporated by reference from Exhibit 2.1 of the Company’s Current Report on Form 8-K, as filed with the SEC on December 18, 2019).
Amendment No. 1 to the Asset Purchase Agreement, dated January 7, 2020, by and among the Company, Streamline Health, Inc., and
Hyland Software, Inc. (Incorporated by reference from Exhibit 10.6 of the Company’s Quarterly Report on Form 10-Q, as filed with the
SEC on January 7, 2020).
Unit Purchase Agreement, dated August 16, 2021, by and among Streamline Health Solutions, Inc., Avelead Consulting, LLC, Jawad
Shaikh and Badar Shaikh (Incorporated by reference from Exhibit 2.1 of the Company’s Current Report on Form 8-K, as filed with the SEC
on August 18, 2021).
Certificate of Incorporation of Streamline Health Solutions, Inc. f/k/a/ LanVision Systems, Inc., as amended through August 19, 2014
(Incorporated by reference from Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on September 15,
2014).
Certificate of Amendment of Certificate of Incorporation of Streamline Health Solutions, Inc. (Incorporated by reference from Exhibit 3.1
of the Company’s Current Report on Form 8-K, as filed with the SEC on May 24, 2021).
Amended and Restated Bylaws of Streamline Health Solutions, Inc., as amended and restated through March 28, 2014 (Incorporated by
reference from Exhibit 3.1 of the Company’s Current Report on Form 8-K, as filed with the SEC on April 3, 2014).
Specimen Common Stock Certificate of Streamline Health Solutions, Inc. (Incorporated by reference from the Company’s Registration
Statement on Form S-1, File Number 333-01494, as filed with the SEC on April 15, 1996).
4.2*
Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934.
72
10.1#
10.2#
Streamline Health Solutions, Inc. 1996 Employee Stock Purchase Plan, as amended and restated effective July 1, 2013 (Incorporated by
reference from the Registration Statement on Form S-8, File Number 333-188763, as filed with the Commission on May 22, 2013).
2005 Incentive Compensation Plan of Streamline Health Solutions, Inc. (Incorporated by reference from Exhibit 10.1 of the Company’s
Current Report on Form 8-K, as filed with the SEC on May 26, 2005).
10.2(a)#
Amendment No. 1 to 2005 Incentive Compensation Plan of Streamline Health Solutions, Inc.(Incorporated by reference from Annex 1 of
the Company’s Definitive Proxy Statement on Schedule 14A, as filed with the SEC on April 13, 2011).
10.2(b)#
Amendment No. 2 to 2005 Incentive Compensation Plan of Streamline Health Solutions, Inc. (Incorporated by reference from Exhibit 4.3 of
the Company’s Registration Statement on Form S-8, as filed with the SEC on November 15, 2012).
10.2(c)#
Amendment No. 3 to 2005 Incentive Compensation Plan of Streamline Health Solutions, Inc. (Incorporated by reference from Exhibit
10.2(c) of the Company’s Current Report on Form 8-K, as filed with the SEC on October 20, 2020).
10.3#
Streamline Health Solutions, Inc. Third Amended and Restated 2013 Stock Incentive Plan (Incorporated by reference from Appendix A to
the Company’s Definitive Proxy Statement on Schedule 14A, as filed with the SEC on April 22, 2019).
10.3(a)#
Amendment No. 1 to Streamline Health Solutions, Inc. Third Amended and Restated 2013 Stock Incentive Plan (Incorporated by reference
from Exhibit 10.1 of the Company’s Current Report on Form 8-K, as filed with the SEC on May 24, 2021).
10.3(b)#
Form of Restricted Stock Award Agreement for Non-Employee Directors (Incorporated by reference from Exhibit 10.2 of the Company’s
Current Report on Form 8-K, as filed with the SEC on August 25, 2014).
10.3(c)#
Form of Restricted Stock Award Agreement for Executives (Incorporated by reference from Exhibit 10.3 of the Company’s Current Report
on Form 8-K, as filed with the SEC on August 25, 2014).
10.3(d)#
Form of Stock Option Agreement for Executives (Incorporated by reference from Exhibit 10.4 of the Company’s Current Report on Form 8-
K, as filed with the SEC on August 25, 2014).
10.4#
10.5#
10.6#
10.7#
10.8#
10.9#
Employment Agreement, dated October 17, 2019, by and between the Company and Wyche T. “Tee” Green, III (Incorporated by reference
from Exhibit 10.2 of the Company’s Current Report on Form 8-K, as filed with the SEC on October 18, 2019).
Employment Agreement dated September 10, 2018 by and between Streamline Health Solutions, Inc. and Thomas J. Gibson (Incorporated
by reference from Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on September 12, 2018).
Employment Agreement dated February 5, 2020 by and between Streamline Health Solutions, Inc. and Randolph W. Salisbury
(Incorporated by reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K, as filed with the SEC on February 6, 2020).
Employment Agreement dated August 1, 2019 by and between Streamline Health Solutions, Inc. and William G. Garvis (Incorporated by
reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K, as filed with the SEC on August 6, 2019).
Employment Agreement, dated as of August 16, 2021, by and between Avelead Consulting, LLC and Jawad Shaikh (Incorporated by
reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K, as filed with the SEC on August 18, 2021).
Restricted Stock Agreement by and between Streamline Health Solutions, Inc. and Jawad Shaikh, dated as of August 16, 2021 (Incorporated
by reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K, as filed with the SEC on August 18, 2021).
10.10#
Restricted Stock Agreement by and between Streamline Health Solutions, Inc. and Badar Shaikh, dated as of August 16, 2021 (Incorporated
by reference from Exhibit 10.2 of the Company’s Current Report on Form 8-K, as filed with the SEC on August 18, 2021).
10.11#
Form of Indemnification Agreement for all directors and officers of Streamline Health Solutions, Inc. (Incorporated by reference from
Exhibit 10.1 of the Company’s Current Report on Form 8-K, as filed with the SEC on June 7, 2006).
10.12
10.12(a)
Software License and Royalty Agreement dated October 25, 2013 between Streamline Health, Inc. and Montefiore Medical Center
(Incorporated by reference from Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on December 17,
2013).
Joint Amendment dated July 1, 2018, to the Software License and Support Agreement and the Software License and Royalty Agreement by
and between Streamline Health, Inc. and Montefiore Medical Center (Incorporated by reference from Exhibit 10.2 of the Company’s
Quarterly Report on Form 10-Q, as filed with the SEC on September 12, 2018).
73
10.13
10.13(a)
10.13(b)
10.14
10.15
10.16
10.16(a)
10.16(b)
10.16(c)
10.16(d)
10.17
21.1*
23.1*
24
31.1*
31.2*
32.1*
32.2*
101
Loan and Security Agreement dated as of December 11, 2019 by and among Bridge Bank, a division of Western Alliance Bank, Streamline
Health Solutions, Inc. and Streamline Health, Inc. (Incorporated by reference from Exhibit 10.5 of the Company’s Quarterly Report on
Form 10-Q, as filed with the SEC on January 7, 2020).
Amended and Restated Loan and Security Agreement dated as of March 2, 2021 by and among Western Alliance Bank, Streamline Health
Solutions, Inc. and Streamline Health, Inc. (Incorporated by reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K, as
filed with the SEC on March 2, 2021).
Second Amended and Restated Loan and Security Agreement, dated August 26, 2021, by and among Streamline Health Solutions, Inc.,
Streamline Health, Inc., Streamline Pay & Benefits, LLC, Streamline Consulting Solutions, LLC, Avelead Consulting, LLC and Western
Alliance Bank (Incorporated by reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K, as filed with the SEC on
August 30, 2021.
Securities Purchase Agreement, dated October 10, 2019, between the Company and each purchaser identified on the signature pages thereto
(Incorporated by reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K, as filed with the SEC on October 11, 2019).
Registration Rights Agreement, dated October 10, 2019, between the Company and each of the several purchasers signatory thereto
(Incorporated by reference from Exhibit 10.2 of the Company’s Current Report on Form 8-K, as filed with the SEC on October 11, 2019).
Master Services and Non-Disclosure Agreement, dated as of March 18, 2020, by and between Streamline Health Solutions, Inc. and 180
Consulting, LLC (Incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on
March 25, 2020).
Statement of Work #1 to the Master Services and Non-Disclosure Agreement, dated as of March 18, 2020, by and between Streamline
Health Solutions, Inc. and 180 Consulting, LLC (Incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-
K, as filed with the SEC on March 25, 2020).
Statement of Work #2 to the Master Services and Non-Disclosure Agreement, dated as of March 18, 2020, by and between Streamline
Health Solutions, Inc. and 180 Consulting, LLC (Incorporated by reference from Exhibit 10.3 to the Company’s Current Report on Form 8-
K, as filed with the SEC on March 25, 2020).
Statement of Work #3 to the Master Services and Non-Disclosure Agreement, dated as of March 18, 2020, by and between Streamline
Health Solutions, Inc. and 180 Consulting, LLC (Incorporated by reference from Exhibit 10.4 to the Company’s Current Report on Form 8-
K, as filed with the SEC on March 25, 2020).
Statement of Work #4 to the Master Services and Non-Disclosure Agreement, dated as of March 18, 2020, by and between Streamline
Health Solutions, Inc. and 180 Consulting, LLC (Incorporated by reference from Exhibit 10.6 to the Company’s Quarterly Report on Form
10-Q, as filed with the SEC on September 10, 2020).
Sublease Agreement (Incorporated by reference from Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q, as filed with the SEC
on June 11, 2020).
Subsidiaries of Streamline Health Solutions, Inc.
Consent of Independent Registered Public Accounting Firm - Dixon Hughes Goodman LLP
Power of Attorney (included in signature page)
Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification by Chief Executive Officer pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
Certification by Chief Financial Officer pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
The following financial information from Streamline Health Solutions, Inc.’s Annual Report on Form 10-K for the fiscal year ended January
31, 2022 filed with the SEC on April 28, 2022, formatted in XBRL includes: (i) Consolidated Balance Sheets at January 31, 2022 and 2021,
(ii) Consolidated Statements of Operations for the two years ended January 31, 2022, (iii) Consolidated Statements of Changes in
Stockholders’ Equity for the two years ended January 31, 2022, (iv) Consolidated Statements of Cash Flows for the two years ended
January 31, 2022, and (v) the Notes to Consolidated Financial Statements.
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
Inline XBRL Instance Document
Inline XBRL Taxonomy Extension Schema Document
Inline XBRL Taxonomy Extension Calculation Linkbase Document
Inline XBRL Taxonomy Extension Definition Linkbase Document
Inline XBRL Taxonomy Extension Label Linkbase Document
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Cover Page Interactive Data File (embedded within the Inline XBRL document)
*
Filed herewith.
# Management Contracts and Compensatory Arrangements.
Our SEC file number reference for documents filed with the SEC pursuant to the Exchange Act, is 000-28132.
74
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
STREAMLINE HEALTH SOLUTIONS, INC.
By:
/S/ WYCHE T. “TEE” GREEN, III
Wyche T. “Tee” Green, III
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints Wyche T. “Tee” Green, III and Thomas J. Gibson, and each of them, his
attorneys-in-fact, each with the power of substitution, for him and in his name, place and stead, in any and all capacities, to sign this annual report on Form
10-K and any and all amendments to this annual report on Form 10-K, and to file the same, with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and all intents and purposes as he might or could do in person, hereby ratifying and confirming all that such attorneys-in-
fact and agents or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
DATE: April 28, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the date indicated.
/S/ WYCHE T. “TEE” GREEN, III
Wyche T. “Tee” Green, III
/s/ JONATHAN R. PHILLIPS
Jonathan R. Phillips
/s/ JUSTIN FERAYORNI
Justin Ferayorni
/s/ JUDITH E. STARKEY
Judith E. Starkey
/s/ KENAN H. LUCAS
Kenan H. Lucas
/s/ THOMAS J. GIBSON
Thomas J. Gibson
Chief Executive Officer and Director
(Principal Executive Officer)
Director
Director
Director
Director
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
75
April 28, 2022
April 28, 2022
April 28, 2022
April 28, 2022
April 28, 2022
April 28, 2022
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
Exhibit 4.2
Streamline Health Solutions, Inc. (the “Company,” “we,” “our,” and “us”) has authority to issue 70,000,000 shares of all classes of stock,
consisting of 65,000,000 shares of Common Stock, par value $0.01 per share (the “Common Stock”), and 5,000,000 shares of Preferred Stock, par value
$0.01 per share (the “Preferred Stock”). The following summary describes the Common Stock of the Company, which is the only class of securities of the
Company registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended.
The following description is a summary and does not purport to be complete. It is subject to and qualified in its entirety by reference to (i) our
Certificate of Incorporation, as amended through May 24, 2021 (as so amended, the “Certificate of Incorporation”), and (ii) our Amended and Restated
Bylaws, as amended and restated through March 28, 2014 (as so amended, the “Bylaws”), each of which is incorporated by reference as an exhibit to the
Annual Report on Form 10-K of which this Exhibit 4.2 is a part. We encourage you to read our Certificate of Incorporation, our Bylaws and the applicable
provisions of the Delaware General Corporation Law (the “DGCL”), for additional information.
Common Stock
Voting. Holders of Common Stock are entitled to one vote per share for the election of directors and on all other matters that require stockholder
approval, subject in all cases to the rights of any outstanding Preferred Stock, if any. Holders of our Common Stock do not have cumulative voting rights.
Our Bylaws provide that the holders of a majority of all of the shares of our capital stock issued, outstanding and entitled to vote shall constitute a
quorum for the transaction of business. When a quorum is present, the affirmative vote of the majority of shares of our capital stock present in person or
represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless the question is one upon which by
express provisions of an applicable law, our Certificate of Incorporation or our Bylaws a different vote is required, in which case such express provision
shall govern and control the decision of such question. Our Bylaws provide that, when a quorum is present at a meeting of stockholders at which directors
are to be elected, directors are elected by a plurality of the votes of the shares of capital stock present in person or represented by proxy at the meeting and
entitled to vote on the election of directors. Our Certificate of Incorporation provides that the affirmative vote of the holders of not less than 66 2/3% of the
outstanding shares of Common Stock entitled to vote upon the election of directors shall be required to effect: (1) an amendment to the Certificate of
Incorporation, (2) a merger or consolidation of the Company with or into another corporation, or the sale or transfer of all or substantially all of the assets
of the Company to another entity; or (3) the removal of a member of the Board of Directors.
Dividends and Other Distributions. Subject to the rights of holders of any then outstanding shares of our Preferred Stock, our holders of Common
Stock are entitled to receive such dividends as may be declared from time to time by our Board of Directors from funds legally available therefor. We do
not currently pay cash dividends on our Common Stock, and we currently intend to retain any future earnings for use in our business. Any future
determination as to the declaration of dividends on our Common Stock will be made at the discretion of the Board of Directors and will depend on our
earnings, operating and financial condition, capital requirements and other factors deemed relevant by the Board of Directors, including the applicable
requirements of the DGCL, which provides that dividends are payable only out of surplus or net profits for the fiscal year in which the dividend is declared
and/or the preceding fiscal year. The payment of dividends on our Common Stock may be restricted by the provisions of credit agreements or other
financing documents that we may enter into or the terms of securities that we may issue from time to time.
Merger, Consolidation or Sale of Assets. Subject to any preferential rights of any outstanding Preferred Stock, if any, holders of our Common
Stock shall be entitled to receive all cash, securities and other property received by us pro rata on the basis of the number of shares of Common Stock held
by each of them in any of the following situations: (1) our merger or consolidation with or into another corporation in which we do not survive, (2) the sale
or transfer of all or substantially all of our assets to another entity or (3) a merger or consolidation in which we are the surviving entity but the Common
Stock shall be exchanged for stock, securities or property of another entity.
Distribution on Dissolution. After payment or provision for all liabilities, and subject to any preferential rights of any outstanding Preferred Stock,
if any, in the event of our liquidation, dissolution or winding up, holders of our Common Stock are entitled to receive a portion of the remaining funds to be
distributed. Such funds shall be paid to the holders of our Common Stock pro rata on the basis of the number of shares of Common Stock held by each of
them.
Other Rights. The shares of our Common Stock are not subject to any redemption provisions and are not convertible. Holders of our Common
Stock do not have any preemptive rights enabling such holders to purchase, subscribe for or receive shares of any class of our Common Stock or any other
securities convertible into shares of any class of our Common Stock or any redemption rights. Holders of Common Stock have no sinking fund rights.
All outstanding shares of our Common Stock are fully paid and non-assessable. All shares of Common Stock have equal rights and preferences.
The rights, preferences and privileges of holders of our Common Stock are subject to, and may be adversely affected by, those of the holders of
Preferred Stock, and will be subject to those of the holders of any shares of our Preferred Stock that we may issue in the future. As of April 28, 2022, we
had no shares of Preferred Stock outstanding.
Listing
Our Common Stock is listed on the NASDAQ Capital Market under the symbol “STRM.”
Transfer Agent and Registrar
The transfer agent and registrar for our Common Stock is Computershare Inc., 250 Royall Street, Canton, Massachusetts 02021.
Delaware Anti-Takeover Law and Provisions of our Certificate of Incorporation and Bylaws
Delaware Anti-Takeover Law. We are subject to Section 203 of the DGCL. Section 203 generally prohibits a public Delaware corporation from
engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person
became an interested stockholder, unless:
● prior to the date of such business combination, the board of directors of the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested stockholder;
● upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding (a) shares owned by persons who are directors and also officers of the corporation and (b)
shares issued under employee stock plans under which employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer; or
● on or subsequent to the date of such business combination, the business combination is approved by the board of directors of the
corporation and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting stock that is not owned by the interested stockholder.
Section 203 defines a business combination to include:
● any merger or consolidation involving the corporation and the interested stockholder or any merger or consolidation involving the
corporation and another entity that is caused by the interested stockholder;
● any sale, lease, exchange, mortgage, pledge, transfer or other disposition involving the interested stockholder of 10% or more of the
assets of the corporation;
● subject to exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the
interested stockholder;
● any transaction involving the corporation that has the effect of increasing the proportionate share of its stock owned by the interested
stockholder; or
● any receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by
or through the corporation.
In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock
of the corporation and any affiliate or associate of such entity or person.
Our Certificate of Incorporation and Bylaws. Provisions of our Certificate of Incorporation and Bylaws may delay or discourage transactions
involving an actual or potential change in our control or change in our management, including transactions in which stockholders might otherwise receive a
premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests. Therefore, these provisions could
adversely affect the price of our Common Stock. Among other things, our Certificate of Incorporation and Bylaws:
● permit our Board of Directors to issue up to 5,000,000 shares of Preferred Stock, with such designations, powers, preferences and rights
as our Board of Directors may authorize (including the right to approve an acquisition or other change in control);
● provide that the authorized number of directors may be changed only by the Board of Directors;
● provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative
vote of a majority of directors then in office, even if less than a quorum; and
● do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of capital stock entitled to vote in
any election of directors to elect all of the directors standing for election, if they should so choose).
The amendment or repeal of any of these provisions of our Certificate of Incorporation would require approval of holders of not less than 66 2/3%
of the outstanding shares of Common Stock entitled to vote upon the election of directors. Our Bylaws may be amended by an affirmative vote of a
majority of the entire Board of Directors.
STREAMLINE HEALTH SOLUTIONS, INC.
SUBSIDIARIES OF STREAMLINE HEALTH SOLUTIONS, INC.
Exhibit 21.1
Name
Streamline Health, LLC
Avelead Consulting, LLC
Streamline Consulting, LLC
Streamline Pay & Benefits, LLC
Jurisdiction of
Incorporation
Delaware
Delaware
Delaware
Delaware
% Owned
100%
100%
100%
100%
Exhibit 23.1
STREAMLINE HEALTH SOLUTIONS, INC.
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Wyche T. “Tee” Green, certify that:
I have reviewed this annual report on Form 10-K of Streamline Health Solutions, Inc.
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.
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.
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;
● designed such disclosure control 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;
● designed such internal controls over financial reporting, or caused such internal controls 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;
● 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
● 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 (the registrant’s fourth fiscal quarter in the case on an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting.
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):
● 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
● 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.
April 28, 2022
/S/ WYCHE T. “TEE” GREEN, III
Chief Executive Officer and President
STREAMLINE HEALTH SOLUTIONS, INC.
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Thomas J. Gibson, certify that:
I have reviewed this annual report on Form 10-K of Streamline Health Solutions, Inc.
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.
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.
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;
● 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;
● designed such internal controls over financial reporting, or caused such internal controls 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;
● 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
● 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 (the registrant’s fourth fiscal quarter in the case on an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting.
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):
● 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
● 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.
April 28, 2022
/s/ THOMAS J. GIBSON
Chief Financial Officer
STREAMLINE HEALTH SOLUTIONS, INC.
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 T. “Tee” Green, 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:
● The annual report on Form 10-K of the Company for the annual period ended January 31, 2022 (the “Report”) fully complies with the
requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
● The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/S/ WYCHE T. “TEE” GREEN, III
Chief Executive Officer and President
April 28, 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.
STREAMLINE HEALTH SOLUTIONS, INC.
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:
● The annual report on Form 10-K of the Company for the annual period ended January 31, 2022 (the “Report”) fully complies with the
requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
● 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
Chief Financial Officer
April 28, 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.