STREAMLINE HEALTH SOLUTIONS, INC. Executive Overview
In fiscal 2016, the Company evaluated all of its solutions and determined it could best assist healthcare providers in improving their revenue cycle management by providing solutions and services in the middle portion of the revenue cycle, that is, the revenue cycle operations from initial charge capture to bill drop. Since that time in 2016, the Company continues to make decisions supporting our focus in the middle of the revenue cycle. In late fiscal 2017, the Company introduced a new product for the middle of the revenue cycle, eValuator. This product has significant implications to the timing and accuracy of our customers' invoicing through rules that are created to review the accuracy of invoicing prior to the physical invoices being released. This is a notable change to existing processes of our customers. The development activities continued through the end of fiscal 2018. There are continued development efforts planned for eValuator in fiscal 2020, generally, in the same levels as fiscal 2019 and 2018.
Fiscal year 2017 was the first full year of this new, more narrowly focused effort to sell solutions and services in the middle of the revenue cycle, improving healthcare providers' coding accuracy to help them capture all of the financial reimbursement they deserve for the patient care they provide. With this focus, the Company is committed to leading an industry movement to improve hospitals' financial performance by moving mid-cycle billing interventions upstream, to improve coding accuracy before billing, enabling our clients to reduce revenue leakage, mitigate overbill risk, and reduce denials and days in accounts receivable.
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By narrowing our focus to the middle of the revenue cycle we believe we have a more distinct and compelling value proposition that can help us attract more clients. By innovating new technologies, we have been able to expand our target markets beyond just hospitals and into outpatient centers, clinics and physician practices. Our coding solutions like CDI, Physician Query, Abstracting and eValuator are competitive in the market and enabled us to engage three significant new clients in fiscal year 2019. These three new clients are some of the largest names in healthcare as we moved upstream to clients that were more likely to change their internal processes to the pre-bill audit.
The Company divested its ECM Assets on
The Company has continued to implement and maintain tight cost and investment
controls so that the transition to focusing our efforts in the middle of the
revenue cycle has not resulted in a negative impact to our cash flows. While
there have been lower revenues as a result of the Company's focus on the
mid-revenue cycle products, the Company's earnings and EBITDA have expanded.
During fiscal 2019, the Company recorded non-recurring costs that are added back
to adjusted EBITDA. These costs include; (i)
Regardless of the state of the Affordable Care Act, the healthcare industry continues to face sweeping changes and new standards of care that are putting greater pressure on healthcare providers to be more efficient in every aspect of their operations. We believe these changes represent ongoing opportunities for our Company to work with our direct clients and partner with various resellers to provide information technology solutions to help providers meet these new requirements.
As reported nationally, near the end of the Company's fiscal year ended
21 Results of Operations
Statements of Operations for the fiscal years ended
2020 2019 $ Change % Change
Systems sales $ 1,219 $ 2,472 $ (1,253 ) (51 )%
Professional services 1,801 1,336 465 35 %
Audit services 1,712 1,118 594 53 %
Maintenance and support 11,309 12,586 (1,277 ) (10 )%
Software as a service 4,702 4,853 (151 ) (3 )%
Total revenues 20,743 22,365 (1,622 ) (7 )%
Cost of sales 7,480 8,137 (657 ) (8 )%
Selling, general and administrative 9,811 10,554 (743 ) (7 )%
Research and development 3,555 4,261 (706 ) (17 )%
Executive transition cost 789 - 789 100 %
Rationalization charges 388 - 388 100 %
Transaction costs 861 - 861 100 %
Impairment of long-lived assets - 3,681 (3,681 ) (100 )%
Loss on exit of operating lease - 1,034 (1,034 ) (100 )%
Total operating expenses 22,884 27,667 (4,783 ) (17 )%
Operating loss (2,141 ) (5,302 ) 3,161 (60 )%
Other expense, net (700 ) (563 ) (137 ) 24 %
Income tax benefit (22 ) - (22 ) 100 %
Net loss $ (2,863 ) $ (5,865 ) $ 3,002 (51 )%
Adjusted EBITDA(1) $ 3,133 $ 2,889 $ 244 8 %
(1) Non-GAAP measure meaning net earnings (loss) before net interest expense, tax
expense (benefit), depreciation, amortization, stock-based compensation
expense, transactional and other expenses that do not relate to our core
operations. See "Use of Non-GAAP Financial Measures" below for additional
information and reconciliation.
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The following table sets forth, for each fiscal year indicated, certain operating data as percentages of total revenues:
Statements of Operations (1)
Fiscal Year
2019 2018
Systems sales 5.9 % 11.1 %
Professional services 8.7 6.0
Audit services 8.3 5.0
Maintenance and support 54.5 56.2
Software as a service 22.7 21.7
Total revenues 100.1 % 100.0 %
Cost of sales 36.1 36.4
Selling, general and administrative 47.3 47.2
Research and development 17.1 19.1
Executive transition cost 3.8 -
Rationalization charges 1.9 -
Transaction costs 4.2 -
Impairment of long-lived assets - 16.5
Loss on exit of operating lease - 4.6
Total operating expenses 110.4 123.8
Operating loss (10.3 ) (23.7 )
Other expense, net (3.4 ) (2.5 )
Income tax benefit (0.1 ) -
Net loss (13.8 )% (26.2 )%Cost of Sales to Revenues ratio, by revenue stream: Systems sales
83.8 % 38.1 %
Services, maintenance and support 34.0 % 41.2 %
Software as a service 30.1 % 20.4 %
(1) Because a significant percentage of the operating costs are incurred at
levels that are not necessarily correlated with revenue levels, a variation
in the timing of systems sales and installations and the resulting revenue
recognition can cause significant variations in operating results. As a
result, period-to-period comparisons may not be meaningful with respect to
the past results nor are they necessarily indicative of the future results of
the Company in the near or long-term. The data in the table is presented
solely for the purpose of reflecting the relationship of various operating
elements to revenues for the periods indicated.
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Comparison of fiscal year 2019 with 2018
Revenues
Fiscal Year 2019 to 2018 Change
(in thousands): 2019 2018 $ %
Systems sales:
Proprietary software - perpetual
license $ 936 $ 1,398 $ (462 ) (33 )%
Term license 180 899 (719 ) (80 )%
Hardware and third-party
software 103 175 (72 ) (41 )%
Professional services 1,801 1,336 465 35 %
Audit services 1,712 1,118 594 53 %
Maintenance and support 11,309 12,586 (1,277 ) (10 )%
Software as a service 4,702 4,853 (151 ) (3 )%
Total Revenues $ 20,743 $ 22,365 $ (1,622 ) (7 )%
Proprietary software and term licenses - Proprietary software revenues
recognized in fiscal 2019 were
Hardware and third-party software - Revenues from hardware and third-party
software sales in fiscal 2019 were
Professional services - Revenues from professional services in fiscal 2019 were
Audit services - Audit services revenue for fiscal 2019 increased, to
Maintenance and support - Revenues from maintenance and support in fiscal 2019
were
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Software as a service (SaaS) - Revenues from SaaS in fiscal 2019 were
Cost of Sales
Fiscal Year 2019 to 2018 Change
(in thousands): 2019 2018 $ %
Cost of systems sales $ 1,022 $ 942 $ 80 8 %
Cost of professional services 2,103 2,657 (554 ) (21 )%
Cost of audit services 1,255 1,373 (118 ) (9 )%
Cost of maintenance and support 1,685 2,173 (488 ) (22 )%
Cost of software as a service 1,415 992 423 43 %
Total cost of sales $ 7,480 $ 8,137 $ (657 ) (8 )%
Total cost of sales includes personnel directly affiliated with earning the
revenue, amortization and impairment of capitalized software expenditures,
depreciation and amortization, royalties and the cost of third-party hardware
and software. The Company realized cost savings from its cost containment
efforts in all categories of total cost of sales. The decrease in expense for
fiscal 2019 compared with fiscal 2018 was derived primarily due to its cost
reduction initiatives completed in fiscal 2017 and 2018, with the impacts being
fully realized in fiscal 2019. These cost increases offset a reduction in
amortization on internally-developed software. We incurred amortization expense
on internally-developed software of
Cost of systems sales varies from period-to-period depending on hardware and software configurations of the systems sold. The increase in cost of systems sales in fiscal 2019 from 2018 was primarily due to an increase in amortization of capitalized software costs due to an increased number of projects being placed into service in fiscal 2018 and 2019.
The cost of professional services includes compensation and benefits for personnel and related expenses. The decrease in expense for fiscal 2019 as compared with 2018 is primarily due to the decrease in professional services personnel as the implementation effort for SaaS implementations requires substantially less time than our legacy on-premise products.
The cost of audit services includes compensation and benefits for audit services personnel, and related expenses. The decrease in expense for fiscal 2019 compared to 2018 is attributed to the reduction in personnel. Again, the Company is beginning to receive renewed interest in its audit services as a result of the Company's on-shore capabilities and expertise in pre-billing audit and coding services. Further, the internal use of eValuator is making our coders and auditors more efficient. Accordingly, the Company is experiencing lower cost on higher volumes of revenue for Audit Services.
The cost of maintenance and support includes compensation and benefits for client support personnel and the cost of third-party maintenance contracts. The decrease in expense for fiscal 2019 as compared with 2018 was primarily due to a decrease in personnel costs and a reduction in third-party maintenance contracts. The decrease in the cost of maintenance and support is proportionate with the decrease in the corresponding revenue.
The cost of SaaS solutions is relatively fixed, subject to inflation for the goods and services it requires. The increase in expense for fiscal 2019 as compared to 2018 was primarily due to the increase in amortization expense as a result of the increased number projects being put into service in fiscal year 2018 and 2019, primarily related to the increased investment in eValuator.
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Selling, General and Administrative Expense
Fiscal Year 2019 to 2018 Change
(in thousands): 2019 2018 $ %
General and administrative expenses $ 5,951 $ 6,782 $ (831 ) (12 )%
Sales and marketing expenses 3,860 3,772 88 2 %
Total selling, general, and
administrative expense $ 9,811 $ 10,554 $ (743 ) (7 )%
General and administrative expenses consist primarily of compensation and
related benefits, reimbursable travel and entertainment expenses related to our
executive and administrative staff, general corporate expenses, amortization of
intangible assets, and occupancy costs. The decrease in general and
administrative expenses for fiscal 2019 as compared to fiscal 2018 is primarily
the result of lower bonus expense. A large portion of the bonuses for fiscal
year 2019 are included in the Company's CEO transition cost, while fiscal year
2018 bonuses of
Sales and marketing expenses consist primarily of compensation and related benefits and reimbursable travel and entertainment expenses related to our sales and marketing staff, as well as advertising and marketing expenses, including expenses related to trade shows. The slight increase in sales and marketing expense for fiscal 2019 compared with 2018 was primarily due to the Company's continued investment in its sales and marketing efforts. The Company's previously announced a rationalization that has little impact on sales and marketing expenses. The Company expects to continue investment in sales and marketing at the same levels of fiscal 2019, for fiscal 2020 in an effort to grow certain products, primarily eValuator, through personnel cost, trade shows expense, and sales, marketing, and investor relations consultant fees.
Research and Development
Fiscal Year 2019 to 2018 Change
(in thousands): 2019 2018 $ %
Research and development expense $ 3,555 $ 4,261 $ (706 ) (17 )%
Plus: Capitalized research and
development cost 3,358 3,003 355 12 %
Total research and development cost $ 6,913 $ 7,264 $ (351 ) (5 )%
Research and development expenses consist primarily of compensation and related
benefits, the use of independent contractors for specific near-term development
projects and an allocated portion of general overhead costs, including occupancy
costs. The Company invested in its technology relatively consistently between
fiscal 2019 and 2018. The lower total cost comes from fewer personnel and the
Company's desire to focus development activities on those products with its
highest growth prospects. However, more of the cost in fiscal 2019 was
apportioned to enhancements. This is primarily related to the Company's
investment in its new eValuator product. In fiscal 2018 tax year, the Company
was awarded
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Executive Transition Cost
Fiscal Year 2019 to 2018 Change
(in thousands): 2019 2018 $ %
Executive transition cost $ 789 $ - $ 789 100 %
We recorded
Rationalization Costs
Fiscal Year 2019 to 2018 Change
(in thousands): 2019 2018 $ %Rationalization charges$ 388 $ -$ 388 100 %
In the fourth quarter of fiscal 2019, we implemented a rationalization plan to
make the operation of the Company more efficient and for the purpose of aligning
its personnel needs and capital requirements in light of the Company's sale of
its enterprise content management business. The rationalization plan included a
reduction in workforce resulting in the termination of approximately twenty (20)
employees, or approximately twenty percent (20%) of the Company's workforce. As
a result of the rationalization plan, the Company recorded
Transaction Costs
Fiscal Year 2019 to 2018 Change
(in thousands): 2019 2018 $ %
Transaction costs $ 861 $ - $ 861 100 %
In fiscal 2019, the Company incurred cost to (i) sale the ECM Assets and (ii)
account for the immaterial correction of an error. In the sale of the ECM
Assets, the Company incurred approximately
Impairment of Long-Lived Assets
Fiscal Year 2019 to 2018 Change
(in thousands): 2019 2018 $ %
Impairment of long-lived assets $ -
The Company acquired a product known as Clinical Analytics in its portfolio in
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Loss on Exit of Operating Lease
Fiscal Year 2019 to 2018 Change
(in thousands): 2019 2018 $ %
Loss on exit of operating lease $ -
In an effort to reduce ongoing operating expenses, we closed our
Refer to Note 12 - Commitments and Contingencies in our consolidated financial
statements included in Part II, Item 8 for further details and development with
respect to the shared office arrangement in
Other Expense
Fiscal Year 2019 to 2018 Change
(in thousands): 2019 2018 $ %
Interest expense $ (309 ) $ (384 ) $ 75 (20 )%
Loss on early extinguishment of debt (150 ) - (150 ) 100 %
Miscellaneous expense (241 ) (179 ) (62 ) 35 %
Total other expense $ (700 ) $ (563 ) $ (137 ) 24 %
Interest expense consists of interest and commitment fees on the revolving
credit facility and interest on the term loans, and is inclusive of deferred
financing cost amortization. Amortization of deferred financing cost was
The Company refinanced its term loan and revolving credit facility to a new bank
on
The increase in miscellaneous expense in fiscal 2019 as compared to fiscal 2018 was primarily a result of losses from (i) certain failed financing cost, and (ii) losses from the acquisition of certain options from individuals that were about to expire, and were vacillating between in the money and out of the money. The Company had a minor amount of failed financing cost that it recorded as a miscellaneous expense on certain banks that it was not successful in completing the refinance. Additionally, the Company purchased certain options that were close to being "in the money" to allow the forfeited options back into the Company's Employee Stock Compensation Plan pool. Other items reported in miscellaneous expense are the valuation adjustments on the Montefiore minimum royalty liability and certain foreign exchange losses. The foreign exchange losses have been extinguished in fiscal 2019 due to a conversion of a contract that was required to be settled in Canadian dollars, to the contract being settled in US dollars. Refer to Note 12 - Commitments and Contingencies to our consolidated financial statements included in Part II, Item 8 for further information concerning the Montefiore liability.
28 Provision for Income Taxes
We recorded tax expense of
Use of Non-GAAP Financial Measures
In order to provide investors with greater insight, and allow for a more comprehensive understanding of the information used by management and the Board of Directors in its financial and operational decision-making, the Company has supplemented the Consolidated Financial Statements presented on a GAAP basis in this annual report on Form 10-K with the following non-GAAP financial measures: EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EBITDA per diluted share.
These non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of Company results as reported under GAAP. The Company compensates for such limitations by relying primarily on our GAAP results and using non-GAAP financial measures only as supplemental data. We also provide a reconciliation of non-GAAP to GAAP measures used. Investors are encouraged to carefully review this reconciliation. In addition, because these non-GAAP measures are not measures of financial performance under GAAP and are susceptible to varying calculations, these measures, as defined by the Company, may differ from and may not be comparable to similarly titled measures used by other companies.
EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted EBITDA per diluted share
We define: (i) EBITDA as net earnings (loss) before net interest expense, income tax expense (benefit), depreciation and amortization; (ii) Adjusted EBITDA as net earnings (loss) before net interest expense, income tax expense (benefit), depreciation, amortization, stock-based compensation expense, transaction related expenses and other expenses that do not relate to our core operations such as severances and impairment charges; (iii) Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of GAAP net revenue; and (iv) Adjusted EBITDA per diluted share as Adjusted EBITDA divided by adjusted diluted shares outstanding. EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EBITDA per diluted share are used to facilitate a comparison of our operating performance on a consistent basis from period to period and provide for a more complete understanding of factors and trends affecting our business than GAAP measures alone. These measures assist management and the board and may be useful to investors in comparing our operating performance consistently over time as they remove the impact of our capital structure (primarily interest charges), asset base (primarily depreciation and amortization), items outside the control of the management team (taxes) and expenses that do not relate to our core operations including: transaction-related expenses (such as professional and advisory services), corporate restructuring expenses (such as severances) and other operating costs that are expected to be non-recurring. Adjusted EBITDA removes the impact of share-based compensation expense, which is another non-cash item. Adjusted EBITDA per diluted share includes incremental shares in the share count that are considered anti-dilutive in a GAAP net loss position.
The Board of Directors and management also use these measures (i) as one of the primary methods for planning and forecasting overall expectations and for evaluating, on at least a quarterly and annual basis, actual results against such expectations; and (ii) as a performance evaluation metric in determining achievement of certain executive and associate incentive compensation programs.
Our lender uses a measurement that is similar to the Adjusted EBITDA measurement described herein to assess our operating performance. The lender under our Loan and Security Agreement requires delivery of compliance reports certifying compliance with financial covenants, certain of which are based on a measurement that is similar to the Adjusted EBITDA measurement reviewed by our management and Board of Directors.
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EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are not measures of liquidity under GAAP or otherwise, and are not alternatives to cash flow from continuing operating activities, despite the advantages regarding the use and analysis of these measures as mentioned above. EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted EBITDA per diluted share, as disclosed in this annual report on Form 10-K have limitations as analytical tools, and you should not consider these measures in isolation or as a substitute for analysis of our results as reported under GAAP; nor are these measures intended to be measures of liquidity or free cash flow for our discretionary use. Some of the limitations of EBITDA and its variations are:
? EBITDA does not reflect our cash expenditures or future requirements for
capital expenditures or contractual commitments;
? EBITDA does not reflect changes in, or cash requirements for, our working
capital needs;
? EBITDA does not reflect the interest expense, or the cash requirements to
service interest or principal payments under our Loan and Security Agreement ;
? EBITDA does not reflect income tax payments that we may be required to make;
and
? Although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized often will have to be replaced in the future, and
EBITDA does not reflect any cash requirements for such replacements.
Adjusted EBITDA has all the inherent limitations of EBITDA. To properly and prudently evaluate our business, the Company encourages readers to review the GAAP financial statements included elsewhere in this annual report on Form 10-K, and not rely on any single financial measure to evaluate our business. We also strongly urge readers to review the reconciliation of these non-GAAP financial measures to the most comparable GAAP measure in this section, along with the consolidated financial statements included in Part II, Item 8.
The following table reconciles EBITDA and Adjusted EBITDA to net loss, and
Adjusted EBITDA per diluted share to loss per diluted share for the fiscal years
ended
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Fiscal Year
In thousands, except per share data 2019 2018
Adjusted EBITDA Reconciliation
Net loss $ (2,863 ) $ (5,865 )
Interest expense 309 384
Income tax expense 22 -
Depreciation 137 450
Amortization of capitalized software development costs 1,458 1,160
Amortization of intangible assets 554 937
Amortization of other costs 237 346
EBITDA (146 ) (2,588 )
Share-based compensation expense 934 629
Impairment of long-lived assets - 3,681
Loss on disposal of fixed assets - 7
Non-cash valuation adjustments to assets and liabilities 64 126
Executive transition cost (1) 725 -
Rationalization charges 388 -
Transaction costs 861 -
Loss on early extinguishment of debt 150 -
Loss on exit of operating lease - 1,034
Other non-recurring expenses 157 -
Adjusted EBITDA $ 3,133 $ 2,889
Adjusted EBITDA margin (2) 15 % 13 %
Adjusted EBITDA per Diluted Share Reconciliation
Net income (loss) per common share - diluted $ (0.13 ) $ (0.30 )
Adjusted EBITDA per adjusted diluted share $ 0.12 $ 0.13
Diluted weighted average shares (3) 22,739,679 19,540,980
Includable incremental shares - adjusted EBITDA (4) 2,343,382 3,065,402
Adjusted diluted shares 25,083,061 22,606,382
(1) Executive transition cost on the consolidated statement of operations
includes
included within Share-based compensation expense in the Adjusted EBITDA
calculation above.
(2) Adjusted EBITDA as a percentage of GAAP net revenues.
(3) Adjusted EBITDA per adjusted diluted share for the Company's common stock is
computed using the more dilutive of the two-class method or the if-converted
method.
(4) The number of incremental shares that would be dilutive under profit
assumption, only applicable under a GAAP net loss. If GAAP profit is earned
in the current period, no additional incremental shares are assumed.
Application of Critical Accounting Policies
The following is a summary of the Company's most critical accounting policies. Refer to Note 2 - Significant Accounting Policies to our consolidated financial statements included in Part II, Item 8 for a complete discussion of the significant accounting policies and methods used in the preparation of our consolidated financial statements.
31 Revenue Recognition
The Company derives revenue from the sale of internally-developed software, either by licensing for local installation or by a software as a service ("SaaS") delivery model, through our direct sales force or through third-party resellers. Licensed, locally-installed clients on a perpetual model utilize our support and maintenance services for a separate fee, whereas term-based locally installed license fees and SaaS fees include support and maintenance. The Company also derives revenue from professional services that support the implementation, configuration, training and optimization of the applications, as well as audit services provided to help clients review their internal coding audit processes. Additional revenues are also derived from reselling third-party software and hardware components. The Company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
Performance obligations are the unit of accounting for revenue recognition and generally represent the distinct goods or services that are promised to the customer. If we determine that we have not satisfied a performance obligation, we will defer recognition of the revenue until the performance obligation is deemed to be satisfied. Maintenance and support and SaaS agreements are generally non-cancelable or contain significant penalties for early cancellation, although clients typically have the right to terminate their contracts for cause if we fail to perform material obligations. However, if non-standard acceptance periods, non-standard performance criteria, or cancellation or right of refund terms are required, revenue is recognized upon the satisfaction of such criteria. Significant judgment is required to determine the standalone selling price ("SSP") for each performance obligation, the amount allocated to each performance obligation and whether it depicts the amount that the Company expects to receive in exchange for the related product and/or service. As the selling prices of the Company's software licenses are highly variable, the Company estimates SSP of its software licenses using the residual approach when the software license is sold with other services and observable SSPs exist for the other services. The Company estimates the SSP for maintenance, professional services, and audit services based on observable standalone sales.
Refer to Note 2 - Significant Accounting Policies to our consolidated financial statements included in Part II, Item 8 for additional information regarding our revenue recognition policies.
Allowance for Doubtful Accounts
Accounts and contract receivables are comprised of amounts owed the Company for solutions and services provided. Contracts with individual clients and resellers determine when receivables are due and payable. In determining the allowances for doubtful accounts, the unpaid receivables are reviewed periodically to determine the payment status based upon the most currently available information. During these periodic reviews, the Company determines the required allowances for doubtful accounts for estimated losses resulting from the unwillingness or inability of its clients or resellers to make required payments.
Capitalized Software Development Costs
Software development costs for software to be sold, leased, or marketed are accounted for in accordance with Accounting Standards Codification ("ASC") 985-20, Software - Costs of Software to be Sold, Leased or Marketed. Costs associated with the planning and design phase of software development are classified as research and development costs and are expensed as incurred. Once technological feasibility has been established, a portion of the costs incurred in development, including coding, testing and quality assurance, are capitalized until available for general release to clients, and subsequently reported at the lower of unamortized cost or net realizable value. Amortization is calculated on a solution-by-solution basis and is included in Cost of system sales on the consolidated statements of operations. Annual amortization is measured at the greater of a) the ratio of the software product's current gross revenues to the total of current and expected gross revenues or b) straight-line over the remaining economic life of the software (typically three to five years). Unamortized capitalized costs determined to be in excess of the net realizable value of a solution are expensed at the date of such determination.
Internal-use software development costs are accounted for in accordance with ASC
350-40,
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We assess the useful lives and possible impairment of existing recognized goodwill on at least an annual basis, and goodwill and intangible assets when an event occurs that may trigger such a review. Factors considered important which could trigger a review include:
? significant under-performance relative to historical or projected future
operating results;
? significant changes in the manner of use of the acquired assets or the
strategy for the overall business;
? identification of other impaired assets within a reporting unit;
? disposition of a significant portion of an operating segment;
? significant negative industry or economic trends;
? significant decline in the Company's stock price for a sustained period; and
? a decline in the market capitalization relative to the net book value.
Determining whether a triggering event has occurred involves significant judgment by the Company.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for tax credits and loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. In assessing net deferred tax assets, we consider whether it is more likely than not that some or all of the deferred tax assets will not be realized. We establish a valuation allowance when it is more likely than not that all or a portion of deferred tax assets will not be realized. Refer to Note 7 - Income Taxes to our consolidated financial statements included in Part II, Item 8 for further details.
Liquidity and Capital Resources
The Company's liquidity is dependent upon numerous factors including: (i) the
timing and amount of revenues and collection of contractual amounts from
clients, (ii) amounts invested in research and development and capital
expenditures, and (iii) the level of operating expenses, all of which can vary
significantly from quarter-to-quarter. The Company's primary cash requirements
include regular payment of payroll and other business expenses, principal and
interest payments on debt and capital expenditures. Capital expenditures
generally include computer hardware and computer software to support internal
development efforts or SaaS data center infrastructure. Operations are funded
with cash generated by operations and borrowings under credit facilities. The
Company believes that cash flows from operations and available credit facilities
are adequate to fund current obligations for the next twelve months. Cash and
cash equivalent balances at
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The Company has liquidity through the Loan and Security Agreement described in
more detail in Note 5 - Debt to our consolidated financial statements included
in Part II, Item 8. The Company has a
The Loan and Security Agreement also requires the Company to (i) achieve a
minimum asset coverage ratio of at least 0.75 to 1.00 from
The Company was in compliance with the asset coverage ratio covenant, however,
was not compliant with the EBITDA covenant, as described above. An appropriate
waiver was received by
The Loan and Security Agreement prohibits the Company from declaring or paying any dividend or making any other payment or distribution, directly or indirectly, on account of equity interests issued by the Company if such equity interests: (a) mature or are mandatorily redeemable pursuant to a sinking fund obligation or otherwise (except as a result of a change of control or asset sale so long as any rights of the holders thereof upon the occurrence of a change of control or asset sale event shall be subject to the prior repayment in full of the loans and all other obligations that are accrued and payable upon the termination of the Loan and Security Agreement), (b) are redeemable at the option of the holder thereof, in whole or in part, (c) provide for the scheduled payments of dividends in cash, or (d) are or become convertible into or exchangeable for indebtedness or any other equity interests that would constitute disqualified equity interests pursuant to clauses (a) through (c) hereof, in each case, prior to the date that is 180 days after the maturity date of the Loan and Security Agreement.
Upon closing and funding of the sale of the ECM Assets, the Company repaid the
Term Loan; however, the Company will continue to have access to the revolving
credit facility. Accordingly, the Company has classified the term loan as
current as of
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The Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES
Act, was signed into law on
As discussed in Note 14 to the audited and consolidated financial statements,
the Company signed a definitive agreement to sell its legacy ECM business to
Significant cash obligations
As of January, 31
(in thousands) 2020 2019
Term loan (1) $ 3,825 $ 3,948
Royalty liability (2) 969 905
Refer to Note 12 - Commitments and Contingencies, Note 5 - Debt and Note 14 -
Subsequent Events to our consolidated financial statements included in Part II,
Item 8 for additional information. Subsequent to year end, the Company settled
the term loan at the time of closing on the sale of the ECM Assets on
Operating cash flow activities
Fiscal Year
(in thousands) 2019 2018
Net loss $ (2,863 ) $ (5,865 )
Non-cash adjustments to net loss 3,576 8,452
Cash impact of changes in assets and liabilities (721 ) (1,190 )
Net cash (used in) provided by operating activities
The decrease in net cash provided by operating activities is primarily due to
the impacts of the Company's non-recurring expenses of approximately
The Company's clients typically have been well-established hospitals, medical facilities or major health information system companies that resell the Company's solutions, which have good credit histories, and payments have been received within normal time frames for the industry. However, some healthcare organizations have experienced significant operating losses as a result of limits on third-party reimbursements from insurance companies and governmental entities. Agreements with clients often involve significant amounts and contract terms typically require clients to make progress payments. Adverse economic events, as well as uncertainty in the credit markets, may adversely affect the liquidity for some of our clients.
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Investing cash flow activities
Fiscal Year
(in thousands) 2019 2018
Purchases of property and equipment $ (52 ) $ (21 )
Proceeds from sales of property and equipment - 21
Capitalized software development costs (3,358 ) (3,003 )
Net cash used in investing activities $ (3,410 ) $ (3,003 ) Cash used for investing activities in fiscal 2019 was approximately
The Company estimates that to replicate its existing internally-developed
software would cost significantly more than the stated net book value of
Financing cash flow activities
Fiscal Year
(in thousands) 2019 2018
Proceeds from issuance of common stock $ 9,663 $ -
Payments for costs directly attributable to the
issuance of common stock (711 ) -
Proceeds from term loan 4,000 -
Principal payments on term loan (4,030 ) (597 )
Payments related to settlement of employee
shared-based awards (99 ) (62 )
Redemption of Series A Convertible Preferred Stock (5,791 ) -
Fees paid for redemption of Series A Convertible
Preferred Stock (22 ) -
Payment of deferred financing costs (325 ) (23 )
Other 6 44
Net cash provided by (used in) financing activities
The substantial increase in cash from financing activities in fiscal 2019 over
the prior year was primarily the result of the Company's private placement that
occurred in the third quarter of fiscal 2019. The Company raised
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