Streamline Health(STRM) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's financial statements, management's analysis, market risk, and internal controls Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements and detailed notes for the period ended April 30, 2022 Condensed Consolidated Balance Sheets This section provides a snapshot of the company's assets, liabilities, and equity at specific dates Condensed Consolidated Balance Sheets (April 30, 2022 vs. January 31, 2022, in thousands) | Metric | April 30, 2022 | January 31, 2022 | Change | % Change | | :-------------------- | :------------- | :--------------- | :----- | :------- | | Total Assets | $59,962 | $61,815 | $(1,853) | -3.00% | | Total Current Assets | $13,709 | $15,119 | $(1,410) | -9.33% | | Total Liabilities | $28,520 | $27,771 | $749 | 2.70% | | Total Stockholders' Equity | $31,442 | $34,044 | $(2,602) | -7.64% | Unaudited Condensed Consolidated Statements of Operations This section details the company's revenues, expenses, and net loss over specific periods Unaudited Condensed Consolidated Statements of Operations (Three Months Ended April 30, 2022 vs. 2021, in thousands) | Metric | April 30, 2022 | April 30, 2021 | Change | % Change | | :-------------------- | :------------- | :------------- | :----- | :------- | | Total Revenue | $5,935 | $2,951 | $2,984 | 101.12% | | Operating Loss | $(3,177) | $(2,455) | $(722) | 29.41% | | Net Loss | $(2,787) | $(2,142) | $(645) | 30.11% | | Basic Net Loss Per Share | $(0.06) | $(0.06) | $0.00 | 0.00% | | Diluted Net Loss Per Share | $(0.06) | $(0.06) | $0.00 | 0.00% | Unaudited Condensed Consolidated Statements of Stockholders' Equity This section outlines changes in the company's equity components, including common stock and accumulated deficit Unaudited Condensed Consolidated Statements of Stockholders' Equity (April 30, 2022 vs. January 31, 2022, in thousands) | Metric | April 30, 2022 | January 31, 2022 | | :-------------------- | :------------- | :--------------- | | Common Stock | $481 | $478 | | Additional Paid in Capital | $119,407 | $119,225 | | Accumulated Deficit | $(88,446) | $(85,659) | | Total Stockholders' Equity | $31,442 | $34,044 | - Net loss for the three months ended April 30, 2022, was $(2,787,000), contributing to the accumulated deficit[14] Unaudited Condensed Consolidated Statements of Cash Flows This section presents the cash inflows and outflows from operating, investing, and financing activities Unaudited Condensed Consolidated Statements of Cash Flows (Three Months Ended April 30, 2022 vs. 2021, in thousands) | Cash Flow Activity | April 30, 2022 | April 30, 2021 | | :-------------------------------- | :------------- | :------------- | | Net cash used in operating activities | $(1,270) | $(478) | | Net cash used by investing activities | $(519) | $(378) | | Net cash (used in) provided by financing activities | $(141) | $14,614 | | Net (decrease) increase in cash and cash equivalents | $(1,930) | $14,318 | | Cash and cash equivalents at end of period | $7,955 | $16,727 | Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements NOTE 1 — BASIS OF PRESENTATION This note describes the company's operational segment and the accounting principles used in financial statement preparation - The Company operates as a single segment provider of healthcare information technology solutions and associated services, including licensing, SaaS, audit, and consulting services for hospitals in the US and Canada[21][23] - Financial statements are prepared in accordance with GAAP, with certain information condensed or omitted per SEC Form 10-Q rules[22] NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines key accounting policies, including revenue recognition, fair value, and share-based compensation - The fair value of the acquisition earnout liability decreased by $500,000 from January 31, 2022, to April 30, 2022, recognized in 'other expense' in the statement of operations[31] Disaggregated Revenue by Type (Three Months Ended April 30, 2022 vs. 2021, in thousands) | Revenue Type | April 30, 2022 | April 30, 2021 | | :-------------------------- | :------------- | :------------- | | Recurring revenue | $3,941 | $2,234 | | Non-recurring revenue | $1,994 | $717 | | Total revenue | $5,935 | $2,951 | - The Company recognized $2,288,000 in revenue from deferred revenues outstanding as of January 31, 2022, during the three months ended April 30, 2022[48] - Total compensation expense related to share-based awards was $326,000 for the three months ended April 30, 2022, a decrease from $565,000 in the prior comparable period[53] Non-routine Costs (Three Months Ended April 30, 2022 vs. 2021, in thousands) | Cost Type | April 30, 2022 | April 30, 2021 | | :----------------------- | :------------- | :------------- | | Professional fees | $90 | $91 | | Executive bonuses | — | $350 | | Total non-routine costs | $90 | $441 | NOTE 3 — BUSINESS COMBINATION AND DIVESTITURE This note details the Avelead acquisition, its financial impact, and the divestiture of the legacy ECM business - The Company acquired Avelead on August 16, 2021, for approximately $29.7 million, consisting of cash, common stock, and contingent consideration (earnout liability)[67][70] - The acquisition earnout liability, re-measured at fair value, resulted in a $500,000 valuation adjustment for the three months ended April 30, 2022[71] Avelead Acquisition: Allocation of Total Consideration to Net Assets (in thousands) | Asset Category | Amount | | :------------------------ | :----------- | | Net tangible assets (liabilities) | $(89) | | Goodwill | $12,377 | | Customer Relationships (SaaS) | $8,370 | | Customer Relationships (Consulting) | $1,330 | | Internally Developed Software | $6,380 | | Trademarks and Tradenames | $1,340 | | Net assets acquired and liabilities assumed | $29,708 | - For the three months ended April 30, 2022, Avelead contributed $2,561,000 to consolidated revenues and $(544,000) to the consolidated continuing operations loss[74] - The Company divested its legacy Enterprise Content Management (ECM) business on February 24, 2020, reporting its results as discontinued operations[79] NOTE 4 — OPERATING LEASES This note describes the company's operating lease arrangements, including right-of-use assets and liabilities - As of April 30, 2022, operating lease right-of-use assets totaled $173,000, with an associated current lease liability of $188,000[82] - The Company subleased its Alpharetta office space, expecting to receive $292,000 over the 18-month term, and recorded $48,000 as other income for the three months ended April 30, 2022[81][142] - The Suwanee office lease, assumed with the Avelead acquisition, was renewed for twelve months in February 2022, incurring $19,000 in rent expense for the three months ended April 30, 2022[85] NOTE 5 — DEBT This note details the company's term loan facility, interest rates, and compliance with debt covenants - On August 26, 2021, the Company entered into a Second Amended and Restated Loan and Security Agreement for a new $10,000,000 term loan facility with Bridge Bank[86] - The term loan bears interest at the Prime Rate plus 1.5%, with a Prime 'floor' rate of 3.25%, and requires increasing monthly principal and interest payments after the first year[86][87] Maximum Debt to ARR Ratio Covenants | Quarter Ending | Maximum Debt to ARR Ratio | | :------------- | :------------------------ | | October 31, 2021 | 0.80 to 1.00 | | January 31, 2022 | 0.75 to 1.00 | | April 30, 2022 | 0.65 to 1.00 | | July 31, 2022 | 0.55 to 1.00 | | October 31, 2022 | 0.50 to 1.00 | | January 31, 2023 | 0.45 to 1.00 | - The Company was in compliance with all covenants of the Second Amended and Restated Loan and Security Agreement for the period ended April 30, 2022[93] Outstanding Principal Balances on Term Loan (in thousands) | Metric | April 30, 2022 | January 31, 2022 | | :-------------- | :------------- | :--------------- | | Term loan | $10,000 | $10,000 | | Deferred financing cost | $(76) | $(96) | | Total | $9,924 | $9,904 | | Less: Current portion | $(375) | $(250) | | Non-current portion of debt | $9,549 | $9,654 | NOTE 6 — INCOME TAXES This note presents income tax expense, net operating loss carryforwards, and the effective income tax rate Income Tax Expense (Three Months Ended April 30, 2022 vs. 2021, in thousands) | Tax Type | April 30, 2022 | April 30, 2021 | | :---------------------- | :------------- | :------------- | | Federal | $(7) | - | | State | $(4) | $(9) | | Total current tax provision | $(11) | $(9) | - The Company had U.S. federal net operating loss carryforwards of $46,250,000 and state NOLs of $21,318,000 at January 31, 2022[98] - The effective income tax rate on continuing operations was approximately 21%, differing from the statutory rate primarily due to a full valuation allowance on net deferred tax assets[99] NOTE 7 — EQUITY This note discusses changes in equity, including public offerings, authorized shares, and stock incentive plans - On March 2, 2021, the Company completed a public offering of 10,062,500 shares of common stock at $1.60 per share, generating gross proceeds of approximately $16,100,000[102] - The Company amended its Certificate of Incorporation on May 24, 2021, to increase authorized common stock from 45,000,000 to 65,000,000 shares[104] - The Streamline Health Solutions, Inc. Third Amended and Restated 2013 Stock Incentive Plan was amended to increase authorized shares for issuance by 2,000,000 to 8,223,246 shares[105] NOTE 8 — COMMITMENTS AND CONTINGENCIES This note outlines commitments related to consulting agreements and other potential contingent liabilities - The Company has Master Services Agreements with 180 Consulting for various consulting services, under which 180 Consulting earned 577,147 shares cumulatively through April 30, 2022, and 56,070 shares for the three months ended April 30, 2022[108] - Fees paid to 180 Consulting totaled $389,000 for the three months ended April 30, 2022, and an additional $260,000 for services supporting Avelead products[108][109] NOTE 9 – DISCONTINUED OPERATIONS This note reports on the financial results and completion of transition services for discontinued operations Income from Discontinued Operations (Three Months Ended April 30, 2022 vs. 2021, in thousands) | Metric | April 30, 2022 | April 30, 2021 | | :-------------------- | :------------- | :------------- | | Revenues (Transition service fees) | — | $352 | | Expenses | — | $32 | | Income from discontinued operations | — | $320 | - The transition services related to the ECM Assets divestiture were completed in the third quarter of fiscal 2021[112] NOTE 10 - RELATED PARTY TRANSACTIONS This note discloses transactions with related parties, including research and development services and office leases - The Company incurred approximately $16,000 in research and development services from AscendTek, LLC, a company owned by one of the Avelead Sellers, for the three months ended April 30, 2022[113] - An office lease for corporate space was assumed from an Avelead Seller, which was renewed for 12 months in February 2022[113] NOTE 11 — SUBSEQUENT EVENTS This note confirms no material events requiring recognition or disclosure occurred after the reporting period - No events requiring recognition or disclosure in the condensed consolidated financial statements were identified after April 30, 2022[114] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial condition, operations, non-GAAP measures, and liquidity Forward-Looking Statements This section highlights forward-looking statements and key risk factors affecting future events and expectations - The report contains forward-looking statements regarding future events and expectations, which are subject to substantial risks and uncertainties[116] - Key risk factors include competitive products, product demand, market acceptance, the impact of COVID-19, and the successful integration of the Avelead acquisition[117] Results of Operations This section analyzes the company's revenues, cost of sales, and various operating expenses over the period Revenues This section details the breakdown of total revenue by type and explains the drivers of revenue changes Revenue Breakdown (Three Months Ended April 30, 2022 vs. 2021, in thousands) | Revenue Type | April 30, 2022 | April 30, 2021 | Change | % Change | | :-------------------------- | :------------- | :------------- | :----- | :------- | | Software licenses | $71 | $135 | $(64) | -47% | | Professional services | $1,244 | $78 | $1,166 | 1,495% | | Audit services | $679 | $504 | $175 | 35% | | Maintenance and support | $1,110 | $1,057 | $53 | 5% | | Software as a service | $2,831 | $1,177 | $1,654 | 141% | | Total Revenues | $5,935 | $2,951 | $2,984 | 101% | - The 101% increase in total revenue was primarily driven by a $1,654,000 increase in SaaS revenue (including $1,534,000 from Avelead) and a $1,166,000 increase in professional services revenue (including $1,027,000 from Avelead)[123][126][128] - Software license revenue decreased by 47% due to a shift from perpetual licenses to a SaaS model[125] Cost of Sales This section analyzes the components of cost of sales and the impact of the Avelead acquisition Cost of Sales Breakdown (Three Months Ended April 30, 2022 vs. 2021, in thousands) | Cost Type | April 30, 2022 | April 30, 2021 | Change | % Change | | :----------------------- | :------------- | :------------- | :----- | :------- | | Cost of software licenses | $101 | $137 | $(36) | -26% | | Cost of professional services | $1,126 | $214 | $912 | 426% | | Cost of audit services | $439 | $389 | $50 | 13% | | Cost of maintenance and support | $46 | $87 | $(41) | -47% | | Cost of software as a service | $1,497 | $610 | $887 | 145% | | Total cost of sales | $3,209 | $1,437 | $1,772 | 123% | - The overall cost of sales increased by 123%, primarily due to the Avelead acquisition, which accounted for $1,710,000 of the increase[129] - Cost of professional services increased by $912,000, with Avelead contributing $903,000 to this increase[131] - Cost of SaaS solutions increased by $887,000, with Avelead contributing $807,000[134] Selling, General and Administrative Expense This section details changes in SG&A expenses, including the impact of the Avelead acquisition Selling, General and Administrative Expense (Three Months Ended April 30, 2022 vs. 2021, in thousands) | Expense Type | April 30, 2022 | April 30, 2021 | Change | % Change | | :-------------------------- | :------------- | :------------- | :----- | :------- | | General and administrative expenses | $2,779 | $1,732 | $1,047 | 60% | | Sales and marketing expenses | $1,722 | $819 | $903 | 110% | | Total selling, general, and administrative expense | $4,501 | $2,551 | $1,950 | 76% | - The 76% increase in total SG&A was largely due to the Avelead acquisition, which contributed $544,000 to general and administrative expenses and $442,000 to sales and marketing expenses[135][136] - Increased salaries and benefits for direct and indirect sales personnel also contributed to the rise in sales and marketing expenses[136] Research and Development This section analyzes R&D expenses and capitalized costs, including the impact of the Avelead acquisition Research and Development Costs (Three Months Ended April 30, 2022 vs. 2021, in thousands) | R&D Metric | April 30, 2022 | April 30, 2021 | Change | % Change | | :------------------------ | :------------- | :------------- | :----- | :------- | | Research and development expense | $1,312 | $977 | $335 | 34% | | Plus: Capitalized research and development cost | $510 | $378 | $132 | 35% | | Total research and development cost | $1,822 | $1,355 | $467 | 34% | - The 34% increase in R&D expenses includes $393,000 related to Avelead, partially offset by decreased spending with third-party vendors[137] - Capitalized R&D costs increased by $132,000, with $208,000 attributed to Avelead[138] Non-routine Costs This section details non-routine costs, primarily transaction costs related to the Avelead acquisition Non-routine Costs (Three Months Ended April 30, 2022 vs. 2021, in thousands) | Cost Type | April 30, 2022 | April 30, 2021 | Change | % Change | | :----------------------- | :------------- | :------------- | :----- | :------- | | Non-routine costs | $90 | $441 | $(351) | -80% | - Non-routine costs decreased by 80% to $90,000, primarily consisting of transaction costs for the Avelead acquisition, compared to $441,000 in the prior year which included executive bonuses[139] Other Income (Expense) This section explains changes in interest expense and other income, including acquisition-related adjustments Other Income (Expense) (Three Months Ended April 30, 2022 vs. 2021, in thousands) | Item | April 30, 2022 | April 30, 2021 | Change | % Change | | :------------------ | :------------- | :------------- | :----- | :------- | | Interest expense | $(132) | $(13) | $(119) | 915% | | Other | $533 | $15 | $518 | 3453% | | Total other income | $401 | $2 | $399 | 19,950% | - Interest expense increased significantly due to the $10,000,000 term loan with Bridge Bank[141] - Other income includes a $500,000 valuation adjustment related to Avelead acquisition earnout liabilities and $48,000 from the Alpharetta office sublease[142] Provision for Income Taxes This section details income tax expense and the company's substantial net operating loss carryforwards - Income tax expense was $11,000 for the three months ended April 30, 2022, compared to $9,000 in the prior year, primarily due to estimated federal, state, and local income tax provisions[143] - The Company maintains a substantial amount of net operating losses for tax purposes[143] Use of Non-GAAP Financial Measures This section explains the use of non-GAAP measures like Adjusted EBITDA to supplement GAAP results - The Company uses non-GAAP financial measures (EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted EBITDA per diluted share) to provide greater insight into operating performance, supplementing GAAP results[144][147] Adjusted EBITDA Reconciliation (Three Months Ended April 30, 2022 vs. 2021, in thousands, except per share data) | Metric | April 30, 2022 | April 30, 2021 | | :----------------------------------------- | :------------- | :------------- | | Loss from continuing operations | $(2,787) | $(2,462) | | EBITDA | $(1,561) | $(1,682) | | Adjusted EBITDA | $(1,693) | $(660) | | Adjusted EBITDA margin | (29)% | (22)% | | Adjusted EBITDA per adjusted diluted share | $(0.04) | $(0.02) | Application of Critical Accounting Policies This section confirms no material changes to critical accounting policies since the last annual report - There have been no material changes to the critical accounting policies disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2022[156] Liquidity and Capital Resources This section assesses the company's cash position, funding sufficiency, and compliance with debt covenants - Cash and cash equivalents were $7,955,000 at April 30, 2022, down from $9,885,000 at January 31, 2022[158][164] - The Company believes its cash on hand and the $10,000,000 term loan facility are sufficient to fund operations for the next twelve months[158][164] - The Company was in compliance with all financial covenants under the Second Amended and Restated Loan and Security Agreement as of April 30, 2022[163] Operating Cash Flow Activities (Three Months Ended April 30, 2022 vs. 2021, in thousands) | Metric | April 30, 2022 | April 30, 2021 | | :------------------------------ | :------------- | :------------- | | Net loss from continuing operations | $(2,787) | $(2,462) | | Net cash used in operating activities | $(1,270) | $(478) | - Net cash used in investing activities was $519,000 for the three months ended April 30, 2022, primarily for capitalized software development costs, an increase from $378,000 in the prior year[167] - Net cash used in financing activities was $141,000 for the three months ended April 30, 2022, compared to $14,614,000 provided in the prior year due to the public offering of common stock[169] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section notes the company's exemption from market risk disclosures as a smaller reporting company - The Company is exempt from providing quantitative and qualitative disclosures about market risk as it qualifies as a 'smaller reporting company'[170] Item 4. Controls and Procedures This section details the evaluation of disclosure controls and changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures This section confirms the effectiveness of disclosure controls, excluding the recently acquired Avelead - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of April 30, 2022[171] - Avelead, acquired on August 16, 2021, was excluded from the scope of the assessment of disclosure controls and procedures[171] Changes in Internal Control over Financial Reporting This section notes the ongoing integration of Avelead's controls and no other material changes - Avelead was excluded from the scope of management's report on internal control over financial reporting for the year ended January 31, 2022, with integration of its controls ongoing[173] - No other material changes in internal control over financial reporting occurred during the quarter ended April 30, 2022, apart from the Avelead integration[173] PART II. OTHER INFORMATION This section covers additional information including risk factors, equity sales, exhibits, and signatures Item 1A. Risk Factors This section refers to existing risk factors, noting no material changes but exacerbation by COVID-19 - No material changes to the risk factors disclosed in the Annual Report on Form 10-K for the year ended January 31, 2022, were identified[176] - Many existing risk factors have been, and are expected to continue to be, aggravated by the impact of the ongoing COVID-19 pandemic[176] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details unregistered equity sales for services and acquisitions, and common stock repurchases - The Company issued 78,031 shares of common stock to 180 Consulting as compensation for services rendered during the three months ended January 31, 2022, in an unregistered private placement[178] - 5,021,972 shares of restricted common stock, valued at $6.5 million, were issued as part of the consideration for the Avelead acquisition in an unregistered private placement[179] Common Stock Repurchases (Three Months Ended April 30, 2022) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--------------------- | :------------------------------- | :--------------------------- | | February 1 - February 28 | 35,676 | $1.44 | | March 1 - March 31 | 57,320 | $1.38 | | April 1 - April 30 | 2,705 | $1.60 | | Total | 95,701 | $1.41 | - The repurchased shares represent shares surrendered by employees to satisfy tax withholding obligations from vested restricted stock[180] Item 6. Exhibits This section provides an index to the exhibits filed with the Form 10-Q, including corporate documents Signatures This section contains the certifications of the Chief Executive Officer and Chief Financial Officer