10-Q 1 strm20241031_10q.htm FORM 10-Q strm20241031_10q.htm
0001008586 STREAMLINE HEALTH SOLUTIONS INC. false --01-31 Q3 2025 59,000 86,000 328,000 291,000 9,368,000 7,960,000 5,246,000 4,019,000 0.01 0.01 85,000,000 85,000,000 4,265,821 4,265,821 3,929,446 3,929,446 383,000 93,000 35,000 4,396 220,327 237,027 27,919 132,013 0 0 0 http://fasb.org/us-gaap/2024#PrimeRateMember 5 0 false false false false The securities held in the account of 121G, LLC (“121G”) may be deemed to be beneficially owned by Wyche “Tee” Green, III, the managing member of 121G. Mr. Green serves as Executive Chairman of the Company and is a member of the Company’s Board of Directors. The securities held in the account of The Ferayorni Family Trust may be deemed to be beneficially owned by Justin J. Ferayorni as co-trustee of The Ferayorni Family Trust. Mr. Ferayorni is a member of the Company’s board of directors. On March 27, 2024, the Company issued the shares of its common stock owed as part of the acquisition earnout liability related to the acquisition of Avelead Consulting, LLC (“Avelead”). The remaining obligation related to the acquisition earnout liability is to be settled in cash (refer to Note 3 – Business Combinations for more information). At that time, the acquisition earnout liability no longer qualified as a Level 3 fair value calculation and was removed from the hierarchy. As of that date, the Company recorded a valuation adjustment of $159,000 using the value of the shares issued adjusted for a discount for lack of marketability. As of April 30, 2024, the acquisition earnout liability no longer qualified as a Level 3 fair value calculation and was transferred out. See the table below for the roll-forward of values including the amount transitioned out of Level 3. Diluted net loss per share excludes the effect of shares that are anti-dilutive. For the three and nine months ended October 31, 2024, diluted earnings per share excludes 4,396 outstanding stock options, 220,327 unvested restricted shares of common stock, and 237,027 shares of common stock issuable through the exercise of warrants. For the three and nine months ended October 31, 2023, diluted earnings per share excludes 27,919 outstanding stock options and 132,013 unvested restricted shares of common stock. Includes the effect of vested and excludes the effect of unvested restricted shares of common stock, which are considered non-participating securities. As of October 31, 2024 and 2023, there were 220,327 and 132,013 unvested restricted shares of common stock outstanding, respectively. 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Table of Contents



 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended October 31, 2024

 

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

 

31-1455414

(State or other jurisdiction of

incorporation or organization)

 

(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

(Registrants telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.01 par value per share

 

STRM

 

Nasdaq Capital Market

 

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 (§ 232.405 of this chapter) 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.

 

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

 

The number of shares outstanding of the Registrant’s Common Stock, $0.01 par value per share, as of December 16, 2024, was 4,273,175

 



 

 

 

TABLE OF CONTENTS

 

   

Page

Part I.

FINANCIAL INFORMATION

3

Item 1.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3

 

Condensed Consolidated Balance Sheets at October 31, 2024 (unaudited) and January 31, 2024

3

 

Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended October 31, 2024 and 2023

5

 

Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended October 31, 2024 and 2023

6

 

Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended October 31, 2024 and 2023

7

 

Notes to Unaudited Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

30

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

46

Item 4.

Controls and Procedures

46

Part II.

OTHER INFORMATION

47

Item 1. Legal Proceedings

47

Item 1A.

Risk Factors

47

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

49

Item 3. Defaults Upon Senior Securities 49
Item 4.  Mine Safety Disclosures 49
Item 5.  Other Information 49

Item 6.

Exhibits

50

 

Signatures

51

 

 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

STREAMLINE HEALTH SOLUTIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(rounded to the nearest thousand dollars, except share and per share information)

 

  

October 31, 2024

  

January 31, 2024

 
  

(Unaudited)

     

ASSETS

        

Current assets:

        

Cash and cash equivalents

 $754,000  $3,190,000 

Accounts receivable, net of allowance for credit losses of $59,000 and $86,000, respectively

  2,824,000   4,237,000 

Contract receivables

  1,248,000   780,000 

Prepaid and other current assets

  567,000   629,000 

Total current assets

  5,393,000   8,836,000 

Non-current assets:

        

Property and equipment, net of accumulated amortization of $328,000 and $291,000 respectively

  52,000   88,000 

Capitalized software development costs, net of accumulated amortization of $9,368,000 and $7,960,000, respectively

  5,165,000   5,798,000 

Intangible assets, net of accumulated amortization of $5,246,000 and $4,019,000, respectively

  10,844,000   12,071,000 

Goodwill

  13,276,000   13,276,000 

Other

  1,236,000   1,666,000 

Total non-current assets

  30,573,000   32,899,000 

Total assets

 $35,966,000  $41,735,000 

 

See accompanying notes to condensed consolidated financial statements.

 

 

STREAMLINE HEALTH SOLUTIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

 

(rounded to the nearest thousand dollars, except share and per share information)

 

  

October 31, 2024

  

January 31, 2024

 
  

(Unaudited)

     

LIABILITIES AND STOCKHOLDERS’ EQUITY

        

Current liabilities:

        

Accounts payable

 $1,610,000  $1,253,000 

Accrued expenses

  1,518,000   2,023,000 

Current portion of term loan

  2,250,000   1,500,000 

Deferred revenues

  6,095,000   7,112,000 

Acquisition earnout liability

  377,000   1,794,000 

Total current liabilities

  11,850,000   13,682,000 

Non-current liabilities:

        

Term loan, net of current portion and deferred financing costs

  5,883,000   7,566,000 

Line of credit

     1,500,000 

Notes payable, net of deferred financing costs

  4,129,000    

Deferred revenues, less current portion

  190,000   173,000 

Total non-current liabilities

  10,202,000   9,239,000 

Total liabilities

  22,052,000   22,921,000 

Commitments and contingencies – Note 8

          

Stockholders’ equity:

        

Common stock, $0.01 par value per share, 85,000,000 shares authorized; 4,265,821 and 3,929,446 shares issued and outstanding, respectively

  43,000   39,000 

Additional paid in capital

  137,588,000   134,474,000 

Accumulated deficit

  (123,717,000)  (115,699,000)

Total stockholders’ equity

  13,914,000   18,814,000 

Total liabilities and stockholders’ equity

 $35,966,000  $41,735,000 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

STREAMLINE HEALTH SOLUTIONS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

(rounded to the nearest thousand dollars, except share and per share information)

 

  

Three Months Ended October 31,

  

Nine Months Ended October 31,

 
  

2024

  

2023

  

2024

  

2023

 

Revenues:

                

Software as a service

 $2,933,000  $3,924,000  $8,734,000  $10,630,000 

Maintenance and support

  878,000   1,070,000   2,651,000   3,327,000 

Professional fees and licenses

  608,000   1,139,000   1,841,000   3,278,000 

Total revenues

  4,419,000   6,133,000   13,226,000   17,235,000 

Operating expenses:

                

Cost of software as a service

  1,512,000   1,677,000   4,356,000   5,159,000 

Cost of maintenance and support

  42,000   129,000   127,000   250,000 

Cost of professional fees and licenses

  831,000   1,072,000   2,558,000   3,202,000 

Selling, general and administrative expense

  2,880,000   4,122,000   9,060,000   12,079,000 

Research and development

  1,134,000   1,304,000   3,569,000   4,310,000 

Impairment of goodwill

     9,813,000      9,813,000 

Impairment of long-lived assets

     963,000      963,000 

Total operating expenses

  6,399,000   19,080,000   19,670,000   35,776,000 

Operating loss

  (1,980,000)  (12,947,000)  (6,444,000)  (18,541,000)

Other (expense) income:

                

Interest expense

  (496,000)  (266,000)  (1,457,000)  (781,000)

Valuation adjustments

     1,182,000   (115,000)  1,905,000 

Other

        (2,000)  31,000 

Loss before income taxes

  (2,476,000)  (12,031,000)  (8,018,000)  (17,386,000)

Income tax benefit

     120,000      59,000 

Net loss

 $(2,476,000) $(11,911,000) $(8,018,000) $(17,327,000)

Basic and Diluted Earnings Per Share:

                

Net loss per common share – basic and diluted

 $(0.61) $(3.15) $(2.01) $(4.61)

Weighted average number of common shares – basic and diluted

  4,055,268   3,780,689   3,981,406   3,756,420 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

STREAMLINE HEALTH SOLUTIONS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

 

(rounded to the nearest thousand dollars, except share information)

 

          

Additional

      

Total

 
  

Common stock

  

Common stock

  

paid in

  

Accumulated

  

stockholders’

 
  

(Shares)

  

(Amount)

  

capital

  

deficit

  

equity

 
                     

Balance at January 31, 2024

  3,929,446  $39,000  $134,474,000  $(115,699,000) $18,814,000 

Restricted stock issued

  81,000   1,000   (1,000)      

Restricted stock forfeited

  (3,224)            

Surrender of shares

  (9,273)     (67,000)     (67,000)

Share-based compensation

        529,000      529,000 

Issuance of common stock

  123,502   1,000   769,000      770,000 

Offering expenses

        (4,000)     (4,000)

Net loss

           (2,739,000)  (2,739,000)

Balance at April 30, 2024

  4,121,451  $41,000  $135,700,000  $(118,438,000) $17,303,000 
                     

Restricted stock issued

  113,769   1,000   (1,000)      

Restricted stock forfeited

  (18,817)            

Surrender of shares

  (3,452)     (10,000)     (10,000)

Share-based compensation

        571,000      571,000 

Cashless exercise of warrants

  7,317             

Warrant liability reclassification

        837,000      837,000 

Net loss

           (2,803,000)  (2,803,000)

Balance at July 31, 2024

  4,220,268  $42,000  $137,097,000  $(121,241,000) $15,898,000 
                     

Restricted stock issued

  54,801   1,000   (1,000)      

Restricted stock forfeited

  (8,445)            

Surrender of shares

  (803)            

Share-based compensation

        492,000      492,000 

Net loss

           (2,476,000)  (2,476,000)

Balance at October 31, 2024

  4,265,821  $43,000  $137,588,000  $(123,717,000) $13,914,000 

 

          

Additional

      

Total

 
  

Common stock

  

Common stock

  

paid in

  

Accumulated

  

stockholders’

 
  

(Shares)

  

(Amount)

  

capital

  

deficit

  

equity

 
                     

Balance at January 31, 2023

  3,837,560  $38,000  $132,511,000  $(97,038,000) $35,511,000 

Restricted stock issued

  79,061   1,000   (1,000)      

Restricted stock forfeited

  (1,893)            

Surrender of shares

  (5,888)     (179,000)     (179,000)

Share-based compensation

        595,000      595,000 

Adoption of ASU 2016-13

           36,000   36,000 

Net loss

           (2,901,000)  (2,901,000)

Balance at April 30, 2023

  3,908,840  $39,000  $132,926,000  $(99,903,000) $33,062,000 
                     

Restricted stock issued

  25,714             

Restricted stock forfeited

  (5,133)            

Surrender of shares

  (3,337)     (73,000)     (73,000)

Share-based compensation

        630,000      630,000 

Net loss

           (2,515,000)  (2,515,000)

Balance at July 31, 2023

  3,926,084  $39,000  $133,483,000  $(102,418,000) $31,104,000 
                     

Restricted stock issued

  11,736             

Restricted stock forfeited

  (15,940)            

Surrender of shares

  (2,535)     (19,000)     (19,000)

Share-based compensation

        577,000      577,000 

Net loss

           (11,911,000)  (11,911,000)

Balance at October 31, 2023

  3,919,345  $39,000  $134,041,000  $(114,329,000) $19,751,000 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

STREAMLINE HEALTH SOLUTIONS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(rounded to the nearest thousand dollars)

 

  

Nine Months Ended October 31,

 
  

2024

  

2023

 

Net loss

 $(8,018,000) $(17,327,000)
         

Adjustments to reconcile net loss to net cash used in operating activities:

        

Depreciation and amortization

  3,594,000   3,264,000 

Accrued interest expense - notes payable

  507,000    

Valuation adjustments

  115,000   (1,905,000)

Benefit for deferred income taxes

     (104,000)

Share-based compensation expense

  1,483,000   1,626,000 

Impairment of goodwill

     9,813,000 

Impairment of long-lived assets

     963,000 

Provision for credit losses

  (58,000)   

Changes in assets and liabilities:

        

Accounts and contract receivables

  1,003,000   4,299,000 

Other assets

  (116,000)  (65,000)

Accounts payable

  357,000   109,000 

Accrued expenses and other liabilities

  (505,000)  (417,000)

Deferred revenue

  (1,000,000)  (2,417,000)

Net cash used in operating activities

  (2,638,000)  (2,161,000)

Cash flows from investing activities:

        

Purchases of property and equipment

     (47,000)

Capitalization of software development costs

  (667,000)  (1,562,000)

Net cash used in investing activities

  (667,000)  (1,609,000)

Cash flows from financing activities:

        

Repayment of bank term loan

  (1,000,000)  (500,000)

Repayment of line of credit

  (1,500,000)   

Proceeds from issuance of common stock

  100,000    

Proceeds from notes payable

  4,400,000    

Proceeds from line of credit

     500,000 

Payments of acquisition earnout liabilities

  (886,000)   

Payments for deferred financing costs

  (168,000)   

Repurchase of common shares to satisfy employee tax withholding

  (77,000)  (271,000)

Net cash provided (used in) by financing activities

  869,000   (271,000)

Net decrease in cash and cash equivalents

  (2,436,000)  (4,041,000)

Cash and cash equivalents at beginning of period

  3,190,000   6,598,000 

Cash and cash equivalents at end of period

 $754,000  $2,557,000 

 

See accompanying notes to condensed consolidated financial statements.

 

 

STREAMLINE HEALTH SOLUTIONS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2024

 

 

NOTE 1 BASIS OF PRESENTATION

 

Streamline Health Solutions, Inc. and each of its wholly-owned subsidiaries, Streamline Health, LLC, Avelead Consulting, LLC, Streamline Consulting Solutions, LLC and Streamline Pay & Benefits, LLC, (collectively, unless the context requires otherwise, “we,” “us,” “our,” “Streamline,” or the “Company”), operate in one segment as a provider of healthcare information technology solutions and associated services. The Company provides these capabilities through the licensing of its Coding & Clinical Documentation Improvement (CDI) solutions, eValuator coding analysis platform, RevID, and other workflow software applications and the use of such applications by software as a service (“SaaS”). The Company also provides audit services to help clients optimize their internal clinical documentation and coding functions, as well as implementation and consulting services to complement its software solutions. The Company’s software and services enable hospitals and integrated healthcare delivery systems in the United States and Canada to capture, store, manage, route, retrieve and process patient clinical, financial and other healthcare provider information related to the patient revenue cycle.

 

The accompanying unaudited condensed consolidated financial statements have been prepared by us pursuant to the rules and regulations applicable to quarterly reports on Form 10-Q of the U.S. Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading. The condensed consolidated financial statements include the accounts of Streamline Health Solutions, Inc. and each of its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. In the opinion of the Company’s management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the condensed consolidated financial statements have been included. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s most recent annual report on Form 10-K. Operating results for the three and nine months ended October 31, 2024, are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2025.

 

The Company has one operating segment and one reporting unit due to the singular nature of our products, product development and distribution process, and client base as a provider of computer software-based solutions and services for acute-care healthcare providers.

 

All amounts in the condensed consolidated financial statements, notes and tables have been rounded to the nearest thousand dollars, except share and per share amounts, unless otherwise indicated. All references to a fiscal year refer to the fiscal year commencing February 1 in that calendar year and ending on January 31 of the following calendar year.

 

Going Concern

 

The Company’s financial statements are prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of obligations in the normal course of business. To date, the Company has not generated sufficient revenues to allow it to generate cash flow from operations and the Company anticipates the need for additional liquidity in the next twelve months. The Company has historically accumulated losses and used cash from its financing activities to supplement its operations. The Company’s current forecast projects the Company may not be able to maintain compliance with certain of its financial covenants under its current credit agreement with the term loan lender in the next twelve months. Further, our recent private placement notes payables have cross-default conditions with the senior term loan debt. These conditions raise substantial doubt about the ability of the Company to continue as a going concern within one year after the date that the financial statements are issued.

 

In view of these matters, continuation as a going concern is dependent upon the Company’s ability to achieve cash from operations and raise additional debt or equity capital to fund its ongoing operations. 

 

8

 

As of October 31, 2024, the Company had approximately $12.3 million of total outstanding debt associated with its term loan and private placement notes payables, $2.3 million of which is classified as a current liability. The Company’s ability to refinance its existing debt is based upon credit markets and economic forces that are outside of its control. There can be no assurance that the Company will be successful in raising additional capital or that such capital, if available, will be on terms that are acceptable to the Company.

 

The financial statements do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should the Company not continue as a going concern.

 

Reverse Stock Split

 

On September 25, 2024, the Company filed a Certificate of Amendment to the Company’s Certificate of Incorporation to effect a 1-for-15 reverse stock split pursuant to which each 15 shares of the Company’s issued and outstanding common stock immediately prior to the effective time, which was 12:01 am Eastern Daylight Time on October 4, 2024, were combined into one share of the Company’s common stock, without effecting a change to the par value per share of Common Stock. The Company’s common stock began trading on a split-adjusted basis when the market opened on October 4, 2024.

 

The Reverse Stock Split did not change the Company's authorized number of shares of common stock. The Reverse Stock Split did not change the par value of the common stock, therefore, the Company recorded an increase to additional paid in capital of $551,000 as of January 31, 2024 and an offsetting adjustment to the carrying value of common stock. No fractional shares were issued in connection with the Reverse Stock Split, and stockholders who would otherwise have been entitled to receive a fractional share instead received a cash payment equal to the fraction of a share of common stock in lieu of such fractional share. Proportionate adjustments were made to the number of shares authorized under the Company’s equity incentive plans, the number of shares subject to any award or purchase right under the Company’s equity incentive plans, and the exercise price or purchase price with respect to any stock option award or purchase right under the Company’s equity incentive plans. All shares of the Company’s common stock, stock-based instruments and per-share data included in these condensed consolidated financial statements have been retrospectively adjusted as though the Reverse Stock Split has been effected prior to all periods presented. All of the Company's equity incentive plans included existing conversion language in the event of a stock split and thus did not result in modification accounting or additional incremental expense as a result of this transaction.

 

9

 
 

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Our significant accounting policies are presented in “Note 2 – Significant Accounting Policies” in the Annual Report on Form 10-K for fiscal year 2023. Users of financial information for interim periods are encouraged to refer to the notes to the consolidated financial statements contained in the Annual Report on Form 10-K when reviewing interim financial results.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates and judgments, including those related to the recognition of revenue, share-based compensation, capitalization of software development costs, intangible assets, the allowance for credit losses, contingent consideration, and income taxes. Actual results could differ from those estimates.

 

Fair Value of Financial Instruments

 

The Financial Accounting Standards Board’s (“FASB”) authoritative guidance on fair value measurements establishes a framework for measuring fair value. This guidance enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. Under this guidance, assets and liabilities carried at fair value must be classified and disclosed in one of the following three categories:

 

Level 1: Quoted market prices in active markets for identical assets or liabilities.

 

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

 

Level 3: Unobservable inputs that are not corroborated by market data.

 

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value based on the short-term maturity of these instruments. Cash and cash equivalents are classified as Level 1. The acquisition earnout liability transferred out of Level 3 as of April 30, 2024. 

 

The table below provides information on the fair value of our liabilities on a recurring basis:

 

      

Quoted

  

Significant

     
      

Prices in

  

Other

  

Significant

 
      

Active

  

Observable

  

Unobservable

 
  

Total Fair

  

Markets

  

Inputs

  

Inputs

 
  

Value

  

(Level 1)

  

(Level 2)

  

(Level 3)

 

At January 31, 2024

                

Acquisition earnout liability (1)

 $1,794,000  $  $  $1,794,000 

 

(1)

On March 27, 2024, the Company issued the shares of its common stock owed as part of the acquisition earnout liability related to the acquisition of Avelead Consulting, LLC (“Avelead”). The remaining obligation related to the acquisition earnout liability is to be settled in cash (refer to Note 3 – Business Combinations for more information). At that time, the acquisition earnout liability no longer qualified as a Level 3 fair value calculation and was transferred out. As of that date, the Company recorded a valuation adjustment of $159,000 using the value of the shares issued adjusted for a discount for lack of marketability. See the table below for the roll-forward of values including the amount transitioned out of Level 3. 

 

10

 

The table below provides the Level 3 roll-forward on the fair value of our acquisition earnout liability for the nine months ended October 31, 2024. There was no Level 3 roll-forward activity for the three months ended October 31, 2024

 

  Nine-months ended 
  October 31, 2024 
Beginning balance $1,794,000 
Settlement – common stock  (690,000)
Settlement – cash  (447,000)
Realized loss  159,000 
Transfer out  (817,000)
Ending balance $ 

 

The value of the Company’s acquisition earnout liability at October 31, 2024, represents the remaining cash obligation of $377,000. The Company reached an agreement with the former owners of Avelead to settle the cash obligation by making periodic payments. The remaining outstanding amounts were originally contractually due by October 31, 2024. 

 

The fair value of the Company’s term loan under its Second Amended and Restated Loan and Security Agreement (as amended and modified, the “Second Amended and Restated Loan Agreement”) was determined through an analysis of the interest rate spread from the date of closing the loan ( August 2021) to the date of the most recent balance sheets, October 31, 2024 and January 31, 2024. 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 published “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 Second Amended and Restated Loan Agreement for the term loan. The fair value of the Company's term loan as of October 31, 2024 and January 31, 2024, was estimated to be $7,821,000 and $8,807,000, respectively, or a discount to book value of $179,000 and $193,000, respectively. The fair value of the Company's term loan represents a Level 2 measurement. 

 

The estimated fair value of the Company’s notes payable under its private placement notes payables was determined through an analysis of the interest rate spread from the date of closing of the private placement ( February 7, 2024) to the date of the most recent balance sheet, October 31, 2024. The Company estimated the yield of a 30-month treasury by interpolating the yields of the 1-month through 10-year treasury yields on February 7, 2024 (the “Issuance Date”) and the measurement date. A High Yield Index Option Adjusted Spread, as published by the Federal Reserve Bank of St. Louis, for the same dates was added to the treasury yield spread to calculate a High-Yield Spread Adjusted 30-Month Rate. This provided an estimated change to the effective interest rate spread of approximately 0.98% less than the Issuance Date. The fair value of the Company's notes payable as of October 31, 2024, was estimated to be $4,096,000, or a discount to book value of $33,000. The fair value of the Company's notes payable represents a Level 2 measurement. 

 

The estimated fair value of the warrant liability is calculated using a Black-Scholes pricing model. The model input uses the warrant strike prices of $5.70 and $5.85, market prices on the measurement dates ($5.10 as of  February 7, 2024, $4.50 as of  April 30, 2024, and $4.95 as of May 7, 2024) plus assumptions and model inputs for expected term, historical volatility and risk-free interest rate impact the fair value estimate. These assumptions are subjective and are generally derived from external (such as, risk-free rate of interest) and historical data (such as, volatility factor and expected term). The warrants carry a term of 48 months and the Company assumes they are held until expiration. The risk-free rate was determined from the U.S. Treasury published daily treasury yields corresponding with the remaining expected term which ranged between 4% - 5%. The Company’s common stock volatility was estimated between 91% - 92% utilizing its historical average closing price for preceding trading days equal to expected term remaining. 

 

Using this methodology, the Company recorded an opening warrant liability of $881,000 as of February 7, 2024. Re-measurements as of April 30, 2024 and May 7, 2024 are reflected under the “Valuation adjustments” header on the condensed consolidated statement of operations as a valuation gain of $44,000 for the nine months ending October 31, 2024. There was no valuation adjustment recorded in the three months ended October 31, 2024. As of May 7, 2024, the Company had eliminated the potential cash settlement feature that caused liability accounting ensuring the warrants will be settled with shares, and accordingly, the warrants met the criteria for equity classification and reclassified $837,000 to paid in capital after a final re-measurement.

 

11

 

Revenue Recognition

 

We derive revenue from the sale of internally-developed software, either by licensing for local installation or by a SaaS delivery model, through the Company’s direct sales force or through third-party resellers. Licensed, locally-installed software customers on a perpetual model utilize the Company’s support and maintenance services for a separate fee, whereas term-based locally installed license fees and SaaS fees include support and maintenance. We also derive revenue from professional services that support the implementation, configuration, training and optimization of the applications, as well as audit services and consulting services.

 

We recognize revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, under the core principle of recognizing revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Certain contracts may include aspects of variable consideration as it relates to performance guarantees and service level agreements. Significant judgment is required to determine the standalone selling price (“SSP”) for each performance obligation, impact of variable consideration on total contract price, 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. 

 

Disaggregation of Revenue

 

The following table provides information about disaggregated revenue by type and nature of revenue stream:

 

  

Three Months Ended

  

Nine Months Ended

 
  

October 31, 2024

  

October 31, 2023

  

October 31, 2024

  

October 31, 2023

 

Over time revenue

 $4,419,000  $6,133,000  $13,091,000  $17,161,000 

Point in time revenue

        135,000   74,000 

Total revenue

 $4,419,000  $6,133,000  $13,226,000  $17,235,000 

 

 The Company includes revenue categories of (i) SaaS, (ii) maintenance and support, (iii) professional services, and (iv) audit services as over time revenue. For point in time revenue, the performance obligation is recognized as the point in time when the obligation is fully satisfied. The Company includes software licenses as point in time revenue.

 

Contract Receivables and Deferred Revenues

 

The Company receives payments from customers based upon contractual billing schedules. Contract receivables include amounts related to the Company’s contractual right to consideration for completed performance obligations not yet invoiced. Deferred revenue includes payments received in advance of performance under the contract. The Company’s contract receivables and deferred revenue are reported on an individual contract basis at the end of each reporting period. Contract receivables are classified as current or noncurrent based on the timing of when we expect to bill the customer. Deferred revenue is classified as current or noncurrent based on the timing of when we expect to recognize revenue. During the three and nine months ended October 31, 2024, the Company recognized approximately $1,253,000 and $5,878,000, respectively, in revenue from deferred revenues outstanding as of January 31, 2024. Revenue allocated to remaining performance obligations was $30,068,000 as of October 31, 2024, of which the Company expects to recognize approximately 46% over the next 12 months and the remainder thereafter. 

 

12

 

Deferred costs (costs to fulfill a contract and contract acquisition costs)

 

The Company defers the direct costs, which include salaries and benefits, for professional services related to SaaS contracts as a cost to fulfill a contract. These deferred costs will be amortized on a straight-line basis over the period of expected benefit which is the contractual term. As of October 31, 2024 and January 31, 2024, the Company had deferred costs of $68,000 and $77,000, respectively, net of accumulated amortization of $147,000 and $102,000, respectively. Amortization expense of these costs was $44,000 and $59,000 for the nine months ended October 31, 2024 and 2023, respectively, and is included in cost of SaaS in the condensed consolidated statements of operations. For the three months ended October 31, 2024 and 2023, the Company had amortization expense of $11,000 and $24,000, respectively. 

 

Contract acquisition costs, which consist of sales commissions paid or payable, are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions for initial and renewal contracts are deferred and then amortized on a straight-line basis over the contract term. As a practical expedient, the Company expenses sales commissions as incurred when the amortization period of related deferred commission costs is expected to be one year or less.

 

As of October 31, 2024 and January 31, 2024, deferred commission costs paid and payable, which are included on the consolidated balance sheets within other non-current assets totaled $1,157,000 and $1,461,000, respectively. Amortization expense associated with deferred sales commissions, which is included in selling, general and administrative expense in the condensed consolidated statements of operations, was $141,000 and $129,000 for the three months ended October 31, 2024 and 2023, respectively. For the nine months ended October 31, 2024 and 2023, the amortization expense associated with deferred sales commissions was $450,000 and $383,000, respectively. For the three and nine months ended October 31, 2024, the Company recorded an impairment of $93,000 for deferred commission costs. For the three and nine months ended October 31, 2023, the Company recorded an impairment of $35,000 for deferred commission costs. 

 

Allowance for Credit Losses

 

The Company estimates current expected credit losses based on historical credit loss rates and applied an increase to account for future economic conditions. The changes in the Company’s allowance for credit losses is as follows:

 

  

January 31, 2024

  

CECL Adoption

  

Provision adjustments

  

Write-offs & Recoveries

  

October 31, 2024

 

Allowance for credit losses

 $86,000  $   (58,000)  31,000  $59,000 

 

  January 31, 2023  CECL Adoption  Provision adjustments  Write-offs & Recoveries  October 31, 2023 
Allowance for credit losses $132,000  $(36,000) $  $  $96,000 

 

13

 

Equity Awards

 

The Company accounts for share-based payments based on the grant-date fair value of the awards with compensation cost recognized as expense over the requisite service period, and forfeitures are recognized as incurred. For awards to non-employees, the Company recognizes compensation expense in the same manner as if the entity had paid cash for the goods or services. The Company incurred total compensation expense related to share-based awards for the three and nine months ended October 31, 2024, of $451,000 and $1,483,000 respectively, net of $41,000 and $109,000, respectively, of capitalized non-employee stock compensation, compared to share-based compensation expense of $517,000 and $1,626,000, respectively, net of $60,000 and $176,000, respectively, of capitalized non-employee stock compensation, for the three and nine months ended October 31, 2023

 

The fair value of stock options granted are estimated at the date of grant using a Black-Scholes option pricing model. Option pricing model input assumptions such as expected term, expected volatility and risk-free interest rate impact the fair value estimate. These assumptions are subjective and are generally derived from external (such as, risk-free rate of interest) and historical data (such as, volatility factor and expected term). Future grants of equity awards accounted for as share-based compensation could have a material impact on reported expenses depending upon the number, value and vesting period of future awards.

 

The Company issues restricted stock awards in the form of Company common stock. The fair value of these awards is based on the market closing price per share on the grant date. For the three and nine months ended October 31, 2024, the Company issued 333 and 181,321 shares of restricted common stock, respectively, compared to 2,999 and 92,562 shares of restricted common stock for the three and nine months ended October 31, 2023, respectively. The Company expenses the compensation cost of these awards as the restriction period lapses.

 

Market-Based Awards

 

For awards with a market condition, the Company adjusts the grant date fair value for the condition. The Company used separate Monte Carlo valuation models, as of the grant date, to determine the expected length and fair value of this particular award. Both models used the Company's historical equity volatility, current stock price, and hurdle target price for vesting. The service period model also included an assumption for the Company's 10-year normalized risk-free rate. The associated compensation expense is recognized provided the service condition is provided regardless of whether the market condition is satisfied. 

 

On July 18, 2024, the Company, as a component of the Board awards discussed above, executed a Restricted Stock Agreement (the “Restricted Stock Agreement”) to issue 13,333 shares of restricted stock with a market vesting condition to a member of the Board. The shares will vest on the date the stock closes at a fair market value of at least $26.25 per share.

 

On September 4, 2024, the Restricted Stock Agreement was amended to rescind 6,666 shares of restricted stock. The remaining shares will vest in full upon the stock closing at a fair market value of at least $26.25 per share, but no earlier than July 18, 2025. The award modification was reevaluated using the same Monte Carlo valuation model and input as the original grant with a change to account for the minimum vesting period. The impacts of the modification were immaterial. 

 

Warrants

 

The Company reviews the specific terms for its warrants and applies the authoritative FASB guidance under ASC topics 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”) to account for the warrants as either equity-classified or liability-classified instruments. This review identifies if the warrants are freestanding financial instruments under ASC 480, should be defined as a liability under ASC 480, and whether the warrants meet all requirements of ASC 815 to be classified as equity, including whether the warrants are indexed to the Company’s own common stock, if there are conditions where warrant holders could potentially require “net cash settlement” in a circumstance that would be outside of the Company’s control, among other conditions for equity classification. This assessment requires the use of professional judgment and is conducted at the time of warrant issuance plus as of each subsequent quarterly period end date while the warrants are outstanding.

 

For the issued or modified warrants that qualify for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the condensed consolidated Statements of Operations as "valuation adjustments." The fair value of the warrants is estimated using a Black-Scholes pricing model.

 

14

 

Income Taxes

 

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for tax credit and loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. In assessing net deferred tax assets, the Company considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. The Company establishes a valuation allowance when it is more likely than not that all or a portion of deferred tax assets will not be realized. Refer to Note 6 – Income Taxes for further details.

 

The Company provides for uncertain tax positions and the related interest and penalties based upon management’s assessment of whether certain tax positions are more likely than not to be sustained upon examination by tax authorities. The Company believes it has appropriately accounted for any uncertain tax positions as of October 31, 2024.

 

Net Loss Per Common Share

 

The Company presents basic and diluted earnings per share (“EPS”) data for the Company’s common stock.

 

The Company’s warrants, unvested restricted stock awards, and options are considered non-participating securities because holders are not entitled to non-forfeitable rights to dividends or dividend equivalents during the vesting term or while unexercised. Diluted EPS for the Company’s common stock is computed using the treasury stock method.

 

The following is the calculation of the basic and diluted net loss per share of common stock for the three and nine months ended October 31, 2024 and 2023:

 

  

Three Months Ended

  

Nine Months Ended

 
  

October 31, 2024

  

October 31, 2023

  

October 31, 2024

  

October 31, 2023

 

Basic and diluted loss per share:

                

Net loss

 $(2,476,000) $(11,911,000) $(8,018,000) $(17,327,000)

Basic and diluted net loss per share of common stock

 $(0.61) $(3.15) $(2.01) $(4.61)

Weighted average shares outstanding – basic and diluted (1)(2)

  4,055,268   3,780,689   3,981,406   3,756,420 

 

(1)

Includes the effect of vested and excludes the effect of unvested restricted shares of common stock, which are considered non-participating securities. As of October 31, 2024 and 2023, there were 220,327 and 132,013 unvested restricted shares of common stock outstanding, respectively.

 

 

(2)

Diluted net loss per share excludes the effect of shares that are anti-dilutive. For the three and nine months ended October 31, 2024, diluted earnings per share excludes 4,396 outstanding stock options, 220,327 unvested restricted shares of common stock, and 237,027 shares of common stock issuable through the exercise of warrants. For the three and nine months ended October 31, 2023, diluted earnings per share excludes 27,919 outstanding stock options and 132,013 unvested restricted shares of common stock.

 

15

 

Restructuring

 

On October 16, 2023, the Company announced it was executing a strategic restructuring (the "Strategic Restructuring") designed to reduce expenses while maintaining the Company’s ability to expand its SaaS business. The Strategic Restructuring initiatives included a reduction in force, resulting in the termination of 26 employees, or approximately 24% of the Company’s workforce. To execute the Strategic Restructuring, the Company incurred one-time restructuring costs associated with the workforce reduction of $759,000, and the Company has recognized all expenses associated with the Strategic Restructuring as of the end of fiscal 2023. The costs pertain to severance and other employee termination-related costs and various professional fees the Company required to assist with execution of the Strategic Restructuring. For the nine months ended October 31, 2024, there were no costs incurred or accrued related to the Strategic Restructuring. The following is a reconciliation of the Strategic Restructuring liability reflected on the Company’s condensed consolidated balance sheet under “accrued expenses.”

 

  

(in thousands)

 
                  

As of October 31, 2024

 
  

Accrued Balance as of

  

2024

  

2024

  

Accrued Balance as of

  

Total Costs

  

Total

 
  

January 31, 2024

  

Expenses to Date

  

Cash Payments

  

October 31, 2024

  

Incurred to Date

  

Expected Costs

 

Severance expense

                        

Cost of sales

 $  $  $  $  $154  $154 

Selling, general, and administrative

  74      (74)     350   350 

Research and development

              227   227 

Total severance expense

 $74  $  $(74) $  $731  $731 

Professional fees

              28   28 

Total

 $74  $  $(74) $  $759  $759 

 

  

(in thousands)

 
                 
  

Accrued Balance as of

  

2023

  

2023

  

Accrued Balance as of

 
  

January 31, 2023

  

Expenses to Date

  

Cash Payments

  

October 31, 2023

 

Severance expense

                

Cost of sales

 $  $154  $  $154 

Selling, general, and administrative

     350      350 

Research and development

     227      227 

Total severance expense

 $  $731  $  $731 

Professional fees

     18      18 

Total

 $  $749  $  $749 

 

16

 

Non-Cash Items

 

For the three and nine months ended October 31, 2024 and 2023, the Company recorded a change in capitalized software purchased with stock, totaling $41,000 and $109,000, and $60,000 and $176,000, respectively, as non-cash items as it relates to non-cash investing activities in the condensed consolidated statements of cash flow.

 

For the nine months ended October 31, 2024, the Company settled the second year acquisition earnout liability in connection with the Avelead acquisition with the issuance of common shares in the amount of $690,000, issued warrants in the amount of $881,000 as debt discounts, settled the warrant liability of $837,000 with an equity based warrant, deferred financing costs for the Notes (refer to Note 5 – Debt) in the amount of $20,000 that was capitalized and paid in fiscal year 2023, and professional fees for the Common Stock Private Placement (refer to Note 7 – Equity) in the amount of $4,000, respectively, as non-cash items as it relates to financing activities in the condensed consolidated statements of cash flows. The Company did not have any similar non-cash financing activities in the nine months ended October 31, 2023. 

 

Recent Accounting Pronouncements Not Yet Adopted

 

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which improves guidance around the disclosures about a public entity’s reportable segments and additional details about a reportable segment’s expenses. ASU 2023-07 is effective for all public entities for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company’s adoption of ASU 2023-07 will be effective in the annual report for the fiscal year ending January 31, 2025. The adoption of this ASU is not expected to have a material impact on our consolidated financial statements or disclosures.

 

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which enhance the transparency and decision usefulness of income tax disclosures. For public entities, ASU 2023-09 is effective for annual periods beginning after December 15, 2024. The adoption of this ASU is not expected to have a material impact on our consolidated financial statements or disclosures.

 

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which improves financial reporting by requiring public entities to disclose additional information about specific expense categories in the notes of the financial statements at interim and annual reporting period. ASU 2024-03 is effective for all public entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. The adoption of this ASU is expected to improve reporting and does not have an overall material impact on our financial disclosures. 

 

17

 
 

NOTE 3 BUSINESS COMBINATION

 

Avelead Acquisition

 

The Company acquired all the equity interests of Avelead Consulting, LLC (“Avelead”) as part of the Company’s strategic expansion into the acute-care health care revenue cycle management industry (the “Transaction”). The Transaction was completed on August 16, 2021.

 

As of January 31, 2024, the estimated aggregate value of the second year earnout consideration was $1,794,000. On March 27, 2024, the Company issued 105,958 unregistered securities in the form of restricted common stock, par value $0.01 per share, with respect to the second year earnout consideration. For the three and nine months ended October 31, 2024, the Company made cash payments of $200,000 and $887,000 respectively, related to the second year earnout consideration. The remaining outstanding amounts were originally contractually due by October 31, 2024. The remaining cash liability is reflected on the Company’s condensed consolidated balance sheet as “acquisition earnout liability” and totaled $377,000 as of October 31, 2024

 

 

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. 

 

The Company has moved to a virtual office model and does not have a physical office space. Membership agreements and daily space rentals are leveraged by the Company when groups need to meet in person with the costs expensed as incurred. For the three and nine months ended October 31, 2024 and 2023, the Company recorded $9,000 and $25,000, respectively, and $6,000 and $16,000, respectively, related to such office space rentals.

 

Alpharetta Office Lease

 

On October 1, 2021, the Company entered into an agreement with a third-party to sublease its office space in Alpharetta, Georgia. The sublease term was for 18 months, which coincided with the Company’s underlying lease (see below). The Company received $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 sublease terminated on March 31, 2023. For the nine months ended October 31, 2024 and 2023, the Company recorded $0 and $32,000, respectively, as other income related to the sublease. There was no income related to the sublease in the three months ended October 31, 2024 and 2023.

 

The Company entered into a lease for office space in Alpharetta, Georgia, on March 1, 2020. The lease terminated on March 31, 2023. At inception, the Company recorded a right-of use asset of $540,000, and related current and long-term operating lease obligation in the accompanying consolidated balance sheet. The Company used a discount rate of 6.5% to determine the lease liability. For the nine months ended October 31, 2024 and 2023, the Company had lease operating costs of approximately $0 and $32,000, respectively. There was no expense related to lease operating costs in the three months ended October 31, 2024 and 2023

 

Suwanee Office Lease

 

Upon acquiring Avelead on August 16, 2021 (refer to Note 3 – Business Combination), the Company assumed an operating lease agreement for the corporate office space of Avelead. The lessor is an entity controlled by one of the Sellers and that Seller is a former employee of the Company. The initial 36-month term lease commenced March 1, 2019, and expired on February 28, 2022. The Company previously renewed the lease for an additional 12-month term which expired February 28, 2023, and was not renewed. For the nine months ended October 31, 2024 and 2023, the Company recorded rent expense of $0 and $6,000, respectively. There was no expense recorded for the three months ended October 31, 2024 and 2023

 

18

 
 

NOTE 5 DEBT

 

Outstanding principal balances consisted of the following at October 31, 2024:

 

  

October 31, 2024

  

January 31, 2024

 

Term loan

 $8,000,000  $9,000,000 

Financing cost payable

  177,000   135,000 

Less: Deferred financing cost

  (44,000)  (69,000)

Total

  8,133,000   9,066,000 

Less: Current portion of term loan

  (2,250,000)  (1,500,000)

Non-current portion of term loan

 $5,883,000  $7,566,000 

 

  October 31, 2024  January 31, 2024 
Notes payable and accrued interest  $4,907,000  $ 
Less: Discount on notes payable  (642,000)   
Less: Deferred financing costs  (136,000)   
Total  4,129,000    
Less: Current portion of notes payable      
Non-current portion of notes payable $4,129,000  $ 

 

Term Loan and Revolving Line of Credit

 

On November 29, 2022, the Company executed a Second Modification to Second Amended and Restated Loan Agreement (the “Second Modification”). The Second Modification includes an expansion of the Company’s total borrowing to include a $2,000,000 non-formula revolving line of credit. The revolving line of credit will be co-terminus with the term loan and matures on August 26, 2026. Amounts outstanding under the line of credit portion of the Second Amended and Restated Loan Agreement bear interest at a per annum rate equal to the Prime Rate (as published in The Wall Street Journal) plus 1.5%, with a Prime “floor” rate of 3.25%. The Second Modification amended certain financial covenants in the Second Amended and Restated Loan Agreement. 

 

Under the Second Amended and Restated Loan Agreement, the Company has a term loan facility with an initial maximum principal amount of $10,000,000. Amounts outstanding under the Second Amended and Restated Loan Agreement bear interest at a per annum rate equal to the Prime Rate (as published in The Wall Street Journal) plus 1.5%, with a Prime “floor” rate of 3.25%. The Second Amended and Restated Loan Agreement has a five-year term, and the maximum principal amount was advanced in a single-cash advance on or about the original closing date ( August 2021). Interest is due monthly, and the Company shall make monthly interest-only payments through the one-year anniversary of the original closing date. Under the Second Amended and Restated Loan Agreement, principal repayments are required 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 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 Agreement may also require early repayments if certain conditions are met.

 

19

 

The Company executed a Third Modification and Waiver to Second Amended and Restated Loan Agreement (the “Third Modification”) and a Fourth Modification to Second Amended and Restated Loan Agreement (the “Fourth Modification”) on February 7, 2024 and April 5, 2024, respectively (collectively, the “Third and Fourth Modifications”). The Third and Fourth Modifications reestablished the customary financial covenants for the Second Amended and Restated Loan Agreement as follows:

 

 

Minimum Adjusted EBITDA. Commencing with the quarter ending January 31, 2024, the Company shall maintain Adjusted EBITDA, measured on a quarterly basis as of the last day of each fiscal quarter, in an amount not less than the amounts (or, in the case of amounts set forth in parentheses, no worse than the amounts) set forth under the heading “Minimum Adjusted EBITDA” as of, and for each of the dates appearing adjacent to such “Minimum Adjusted EBITDA.”

 

  Minimum  

Quarter Ending

 

Adjusted EBITDA

 
January 31, 2024 $(5,750,000)
April 30, 2024  (4,560,000)
July 31, 2024  (2,960,000)
October 31, 2024  (1,500,000)
January 31, 2025  430,000 

 

 

Maximum ARR Net Leverage Ratio. The Company's ARR Net Leverage 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 ARR Net Leverage Ratio” as of, and for each of the dates appearing adjacent to such “Maximum ARR Net Leverage Ratio.”

 

  

Maximum

  

ARR Net Leverage

Quarter Ending

 

Ratio

April 30, 2024

  

0.50 to 1.00

 

July 31, 2024

  

0.45 to 1.00

 

October 31, 2024

  

0.40 to 1.00

 

January 31, 2025

  

0.35 to 1.00

 

 

20

 
 

Maximum Debt to Adjusted EBITDA Ratio. Commencing with the quarter ending April 30, 2025, the Company's 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.”

 

  

Maximum

  

Debt to Adjusted

  

EBITDA

Quarter Ending

 

Ratio

April 30, 2025

  

3.50 to 1.00

 

July 31, 2025

  

3.00 to 1.00

 

October 31, 2025

  

2.50 to 1.00

 

January 31, 2026 and on the last day of each quarter thereafter

  

2.00 to 1.00

 

 

 

Fixed Charge Coverage Ratio. Commencing with the quarter ending April 30, 2025, the Company 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.

 

On November 13, 2024, the Company executed the Fifth Modification to Second Amended and Restated Loan and Security Agreement (the “Fifth Modification”) that amended, among other things, the Minimum Adjusted EBITDA and Maximum ARR Net Leverage Ratio covenants. Refer to Note 11 – Subsequent Events for additional information regarding the Fifth Modification. 

 

The Second Amended and Restated Loan Agreement also includes customary negative covenants, subject to exceptions, which limit transfers, capital expenditures, indebtedness, certain liens, investments, acquisitions, dispositions of assets, restricted payments, and the business activities of the Company, as well as customary representations and warranties, affirmative covenants and events of default, including a cross default provision with the Second Amended and Restated Loan Agreement and a change of control default provision. The line of credit also is subject to customary prepayment requirements. Substantially all the assets of the Company are collateralized by the Second Amended and Restated Loan Agreement. For the period ended October 31, 2024, the Company was not in compliance with certain covenants under the Second Amended and Restated Loan and Security Agreement. Subsequent to the period ended October 31, 2024, the Company entered into the Fifth Modification, whereby certain covenants were modified. As a result, the Company was in compliance with all modified debt covenants. However, the Company’s current forecast projects the Company may not be able to maintain compliance with certain of its financial covenants under the Second Amended and Restated Loan Agreement in the future. Refer to Note 1 – Basis of Presentation for detail regarding the Company’s assessment as a going concern.

 

The Company records costs related to the maintenance of the Second Amended and Restated Loan Agreement as deferred financing costs, net of the term loan. These deferred financing costs are being amortized over the remaining term of the loan. The Company has incurred $250,000 in financing costs which become payable 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 $250,000 over the remaining term of the loan.

 

21

 

Debt Private Placement

 

On February 1, 2024, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain accredited investors, including certain directors and officers of the Company (collectively, the “Investors”), pursuant to which the Company agreed to sell to the Investors unsecured subordinated promissory notes (the “Notes”) in the aggregate principal amount of $4.4 million and warrants (the “Warrants”) to purchase up to an aggregate of 267,728 shares of the Company’s common stock in a private placement (the “Debt Private Placement”). The closing of the Debt Private Placement occurred on February 7, 2024 (the “Closing Date”).

 

Notes Payable

 

The Notes bear interest at a rate of 15% per annum and mature on August 7, 2026 (the “Maturity Date”). All accrued and unpaid interest on the Notes will be capitalized and added to the outstanding principal balance of the Notes and will be payable in cash on the Maturity Date. The Company may redeem the Notes, in whole or in part, prior to the Maturity Date without any premium or penalty. In the event the Company prepays any portion of the then outstanding principal balance of the Notes on or before the twelve (12) month anniversary of the Closing Date, in addition to such prepayment of the principal balance, the Company must pay to the Investors a prepayment fee (in accordance with the each Investor’s pro-rata share of the Notes) in an amount equal to the amount of interest that would have accrued but for the prepayment from the date of such prepayment through such twelve (12) month anniversary of the Closing Date.

 

The Notes also include customary negative covenants, subject to exceptions, which limit dispositions of assets and the business activities of the Company, as well as customary representations and warranties, affirmative covenants and events of default, including a cross default provision with the Second Amended and Restated Loan Agreement and a change of control default provision.

 

The rights of each Investor to receive payments under the Notes are subordinate to the rights of Western Alliance Bank (“WAB”), pursuant to a subordination agreement which the Investors entered into with WAB concurrently with the Debt Private Placement.

 

The Company allocated the original total proceeds at inception from the Debt Private Placement and Common Stock Private Placement (refer to Note 7 – Equity) across the securities issued in connection with the offerings. The Company has recorded the Notes at a relevant residual fair value of $3,538,000, consisting of the $4,400,000 face value of the notes and $862,000 discount. The Company allocated $183,000 in issuance costs. The discount is being accreted and the financing costs amortized as interest expense over the term of the Notes using the effective interest method. 

 

22

 

Warrants

 

The Warrants have an exercise price of $5.70 (except for Warrants issued to the Company’s directors and officers which have an exercise price of $5.85), are immediately exercisable, and will expire on the fourth anniversary of the Closing Date. The Warrants are subject to customary adjustments for certain transactions affecting the Company’s capitalization. The terms of the Warrants preclude a holder thereof from exercising such holder’s Warrants, and the Company from giving effect to such exercise, if after giving effect to the issuance of common stock upon such exercise, the holder (together with the holder’s affiliates and any other persons acting as a group together with the holder or any of the holder’s affiliates) would beneficially own in excess of 9.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of common stock upon such exercise.

 

The Notes and the Warrants described above were offered in a private placement under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and/or Regulation D promulgated thereunder and, along with the common stock underlying the Warrants, were "restricted securities" under the Securities Act or applicable state securities laws. Accordingly, the Notes, the Warrants and the common stock underlying the Warrants may not be offered or sold in the United States absent registration with the SEC or an applicable exemption from such registration requirements and in accordance with applicable state securities laws. The securities were offered and sold to “accredited investors” as that term is defined in Rule 501(a) under the Securities Act.

 

The Warrants contain a registration rights provision for the Company to provide the Warrant holder with registered common stock upon their exercise of a Warrant. If the Company is not able to deliver registered common stock for exercised Warrants that results in the Warrant holder acquiring registered common stock, then the Warrant holder has the discretion to request the Company remit cash compensation up to the corresponding purchase price. Accordingly, the Company determined the feature required liability accounting treatment upon issuance. On May 7, 2024, the Company filed a Registration Statement on Form S-3 (Registration No. 333-279190), as amended by that certain Pre-Effective Amendment No. 1 to Form S-3 filed on May 24, 2024 (collectively, the “Registration Statement”), for purpose of registering for resale 267,728 shares of common stock underlying the Warrants. The Registration Statement was declared effective by the SEC on June 10, 2024. The filing of the Registration Statement eliminated the potential cash settlement feature that caused liability accounting ensuring the Warrants will be settled with shares, and accordingly, the Warrants met the criteria for equity classification and reclassified them to paid in capital after a final re-measurement. 

 

The Company allocated the total proceeds from the Debt Private Placement and Common Stock Private Placement (refer to Note 7 – Equity) across the securities issued in connection with offerings. The Company recorded an initial liability of $881,000 for the Warrants at fair value using a Black-Scholes model. The Company immediately recognized $46,000 in issuance costs as expense related to the agreements for the Warrants. For the three months ended July 31, 2024, the Company reclassified the $837,000 remeasured value of the Warrants as additional paid in capital on the condensed consolidated Balance Sheet. 

 

23

 
 

NOTE 6 INCOME TAXES

 

Income tax expense was $0 for the nine months ended October 31, 2024, compared to income tax benefit of $59,000 in the prior year comparable period. The effective income tax rate on continuing operations of approximately 0% differs from our combined federal and state statutory rate of 24% primarily due to the full valuation allowance the Company currently maintains on its net deferred tax asset.

 

The Company has recorded $346,000 and $340,000 in reserves for uncertain tax positions as of October 31, 2024 and January 31, 2024, respectively.

 

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, 2020. All material state and local income tax matters have been concluded for years through January 31, 2019. The Company is no longer subject to IRS examination for periods prior to the tax year ended January 31, 2020; however, carryforward losses that were generated prior to the tax year ended January 31, 2020, may still be adjusted by the IRS if they are used in a future period. 

 

 

NOTE 7 EQUITY

 

Common Stock Private Placement

 

On February 6, 2024, the Company completed the sale of 17,543 shares of the Company’s common stock to Matthew W. Etheridge at a purchase price of $5.70 per share for an aggregate purchase price of $100,000 (the “Common Stock Private Placement”). Mr. Etheridge became a director of the Company subsequent to the closing of the Debt Private Placement. 

 

The common stock described above was offered in a private placement under Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder and has not been registered under the Securities Act or applicable state securities laws. Accordingly, such common stock may not be offered or sold in the United States absent registration with the SEC or an applicable exemption from such registration requirements and in accordance with applicable state securities laws. The common stock was offered and sold to an “accredited investor” as that term is defined in Rule 501(a) under the Securities Act.

 

The Company allocated the total proceeds of the Common Stock Private Placement across the underlying components. As a result, $77,000 of net proceeds, comprised of $81,000 of the proceeds less $4,000 of issuance costs, were recorded for the Common Stock Private Placement as equity.

 

Registration of Shares Issued to 180 Consulting

 

On June 28, 2023, the Company filed a Registration Statement on Form S-3 (Registration No. 333-272993) for purpose of registering for resale 26,275 shares of common stock issued to 180 Consulting, LLC (“180 Consulting”). The Registration Statement was declared effective by the SEC on July 10, 2023.

 

On May 7, 2024, the Company filed a Registration Statement on Form S-3 (Registration No. 333-279190), as amended by that certain Pre-Effective Amendment No. 1 to Form S-3 filed on May 24, 2024, for purpose of registering for resale 37,647 shares of common stock issued to 180 Consulting. The Registration Statement was declared effective by the SEC on June 10, 2024.

 

2024 Omnibus Incentive Compensation Plan

 

At the 2024 Annual Meeting of Stockholders held on June 13, 2024, the Company’s stockholders approved the Streamline Health Solutions, Inc. 2024 Omnibus Incentive Compensation Plan (the “2024 Plan”). The 2024 Plan replaced the Streamline Health Solutions, Inc. Third Amended and Restated 2013 Stock Incentive Plan (as amended, the “2013 Plan”). The Compensation Committee of the Board of Directors administers the 2024 Plan and approves the grant and terms of awards (consistent with the terms of the 2024 Plan).

 

The 2024 Plan permits the grant of any or all of the following types of awards to grantees: stock options, including non-qualified options and incentive stock options (“ISOs”); stock appreciation rights (“SARs”); restricted stock; deferred stock and restricted stock units; performance units and performance shares; dividend equivalents; and other stock-based awards. Eligible grantees include employees, officers, non-employee consultants and non-employee directors of the Company and its affiliates. A total of 449,260 shares of common stock were initially available for issuance under the 2024 Plan.

 

24

 
 

NOTE 8 COMMITMENTS AND CONTINGENCIES

 

Consulting Agreement with 180 Consulting, LLC

 

On March 19, 2020, the Company entered into a Master Services Agreement (the “MSA”) with 180 Consulting, pursuant to which 180 Consulting has provided and will continue to provide a variety of consulting services in support of eValuator products including product management, operational consulting, staff augmentation, internal systems platform integration and software engineering services, among others, through separate executed statements of work (“SOWs”). On September 20, 2021, the Company entered into a separate MSA in support of Avelead products. As of December 2023, all outstanding SOWs under both MSAs were effectively replaced by two new SOWs. As of October 31, 2024, there were three active SOWs under the eValuator MSA. One of the active SOWs includes the ability to earn stock at a conversion rate to be calculated 20 days after the execution of the related SOW. The MSA includes a termination clause upon a 90-day written notice. While no related party has a direct or indirect material interest in this MSA or the related SOWs, individuals providing services to the Company under the MSA and the SOWs may share workspace and administrative costs with 121G Consulting, LLC (“121G”). Mr. Green is a “member” of 121G, and, accordingly, has a financial interest in that entity. 180 Consulting earned 85,221 and 23,879 shares for the nine months ended October 31, 2024 and 2023, respectively, and has earned an aggregate of 183,875 shares of the Company’s common stock through October 31, 2024. For the three months ended October 31, 2024 and 2023, 180 Consulting earned 30,753 and 6,669 shares, respectively. For services rendered by 180 Consulting during the three and nine months ended October 31, 2024, the Company incurred fees of $642,000 and $1,965,000. The Company incurred fees of $639,000 and $2,558,000 for services rendered by 180 Consulting during the three and nine months ended October 31, 2023, respectively. For the three and nine months ended October 31, 2024, the Company recorded capitalized non-employee stock compensation of $41,000 and $109,000. The Company recorded capitalized non-employee stock compensation of $60,000 and $176,000, for the three and nine months ended October 31, 2023, respectively. The Company paid fees of $582,000 and $1,472,000 for services rendered by 180 Consulting during the three and nine months ended October 31, 2024, respectively. For the three and nine months ended October 31, 2023, the Company paid fees of $626,000 and $2,354,000, respectively, for services rendered by 180 Consulting.

 

Inclusive of the MSA executed with 180 Consulting are SOWs that provide for the Company to sublicense software through 180 Consulting that is owned by 121G. This is a services agreement for access to software that assists the Company in implementing and integrating with our clients’ technology. The license agreement is designed such that there is no material financial benefit that accrues to 121G. 180 Consulting licenses the software from 121G at cost. The Company paid approximately $230,000 and $453,000, and $87,000 and $468,000 for the SOWs that include the sublicense agreement for the three and nine months ended October 31, 2024 and 2023, respectively, which are included in the aforementioned totals above.

 

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 are reasonably possible to have a material adverse effect on the Company’s condensed consolidated results of operations, financial position or cash flows.

 

25

 
 

NOTE 9 - RELATED PARTY TRANSACTIONS

 

Avelead Office Lease

 

The Company acquired Avelead on August 16, 2021. Accordingly, the Company assumed a lease for corporate office space from one of the selling shareholders of Avelead who was employed by the company through August 2023. This lease term ended February 2023. For the nine months ended October 31, 2024 and 2023, the Company recorded rent expense of $0 and $6,000, respectively. There was no expense recorded in the three months ended October 31, 2024 and 2023. Refer to Note 3 – Business Combination for additional information. 

 

Debt Private Placement

 

The following related parties participated in the Debt Private Placement (Refer to Note 5 – Debt for additional information): 

 

Name of Investor Investment Amount  Warrants Granted 
121G, LLC (1) $1,000,000   59,829 
Matthew W. Etheridge (2)  1,000,000   61,403 
Jonathan R. Phillips (3)  50,000   2,991 
The Ferayorni Family Trust (4)  500,000   29,914 

 

(1) The securities held in the account of 121G, LLC (“121G”) may be deemed to be beneficially owned by Wyche “Tee” Green, III, the managing member of 121G. Mr. Green serves as Executive Chairman of the Company and is a member of the Board.

(2) Mr. Etheridge became a member of the Board subsequent to the closing of the Debt Private Placement.
(3) Mr. Phillips is a member of the Board.
(4) The securities held in the account of The Ferayorni Family Trust may be deemed to be beneficially owned by Justin J. Ferayorni as co-trustee of The Ferayorni Family Trust. Mr. Ferayorni is a member of the Board.

 

Common Stock Private Placement

 

On February 6, 2024, the Company completed the sale of 17,543 shares of the Company’s common stock to Matthew Etheridge at a purchase price of $5.70 per share for an aggregate purchase price of $100,000. Mr. Etheridge became a director of the Company subsequent to the closing of the Debt Private Placement.

 

26

 
 

NOTE 10 - GOODWILL AND INTANGIBLE ASSETS

 

Goodwill represents the excess cost over fair value of the net assets of acquired businesses and is not amortized. The Company performs an impairment assessment of goodwill annually during the fourth quarter of its fiscal year with a valuation date of November 1, or more frequently if a triggering event occurs.

 

The Company’s intangible assets consist of client relationships, acquired and developed technology, and trade names. These assets are recorded at cost, less accumulated amortization and impairment, if any. All the Company’s intangible assets are definite lived and amortized on a straight-line basis over their estimated useful lives. Subsequent testing of intangible assets is conducted when a triggering event occurs that would indicate impairment may exist.

 

During the quarter ended  October 31, 2024, the Company's market capitalization fell below the Company's carrying value of equity for a prolonged period of time (the “2024 Triggering Event”). Based on the 2024 Triggering Event, the Company identified indicators of possible impairment and initiated testing using a valuation date of October 31, 2024. The impairment tests were conducted under guidance of ASC Topic 360, Impairment and Disposal of Long-Lived Assets (“ASC 360”) for certain long-lived assets, including capitalized contract costs, developed technology, client relationships and trade names, and in accordance with ASC Topic 350, Intangibles – Goodwill and Other (“ASC 350”) with respect to the reporting unit’s goodwill.

 

In October 2023, the Company was notified by a legacy client of its intent to not renew its contract as of its end date on December 31, 2023. The Company also announced the acceleration of its Strategic Restructuring that was designed to reduce costs while maintaining the Company’s ability to expand its SaaS business. Both the client termination and the execution of the Strategic Restructuring were announced on October 16, 2023. Following these announcements, the Company’s share price declined significantly (collectively, the