Annual Report for Fiscal Year Ending 01-31, 2025 (Form 10-K)

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

Executive Overview

The Company has identified its primary role as aiding healthcare providers to enhance their revenue cycle management by concentrating on the intermediary stages of the revenue cycle, specifically from initial charge capture to bill drop. This strategic focus remains consistent as the Company continues to prioritize initiatives within this segment. Our clients predominantly consist of acute-care hospital systems and their affiliated clinics.

Our commitment to this segment is underscored by our two flagship software solutions: RevID and eValuator. The Company is dedicated to spearheading an industry-wide effort aimed at improving the financial performance of healthcare providers by shifting billing interventions upstream to enhance coding accuracy. As a result of our solutions, clients have reduced revenue leakage, mitigated risks of under-billing and over-billing, and reduced both denials and accounts receivable turnover.

By focusing on the intermediary stages of the revenue cycle, we believe we offer a distinctive and compelling value proposition that can help us attract more clients. Through innovation and strategic acquisitions, we have broadened our target markets beyond inpatient facilities to encompass outpatient centers, clinics, and physician practices. Our suite of revenue cycle solutions, including eValuator and RevID, is highly competitive, enabling us to secure five significant new clients and our first enterprise client (using multiple products) in fiscal 2024. These clients represent some of the most renowned names in healthcare, reflecting our salesforce's emphasis on industry-leading organizations whose processes often serve as benchmarks for smaller facilities.

On October 16, 2023, the Company announced it was executing a strategic restructuring designed to reduce expenses while maintaining the Company's ability to expand its SaaS business (the "Strategic Restructuring"). 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 recognized one-time restructuring costs associated with the workforce reduction of $759,000, which consisted of approximately $731,000 in severance and other employee termination-related expenses and approximately $28,000 in incurred legal fees, in fiscal 2023. As of January 31, 2025, the Company has recorded all expenses related to the Strategic Restructuring.

Acquisitions

On August 16, 2021, the Company completed an acquisition of Avelead, a recognized leader in providing solutions and services to improve revenue integrity for healthcare providers nationwide. Refer to Note 3 - Business Combination in our consolidated financial statements included in Part I, Item I, "Financial Statements" for further information on the Avelead acquisition.

Macro-Economic Conditions

Regardless of the state of the Affordable Care Act, the healthcare industry continues to face sweeping changes and new standards of care that are putting greater pressure on healthcare providers to be more efficient in every aspect of their operations. We believe these changes represent ongoing opportunities for our Company to work with our direct clients and various resellers to provide information technology solutions to help providers meet these new requirements.

The COVID-19 pandemic, and its attendant economic damage, had an adverse impact on our revenue. Our healthcare clients were significantly impacted by the pandemic, and continue to struggle with high turnover rates and a challenging labor market in clinical and administrative departments resulting in a backlog of IT projects. As a result, our market has become highly unpredictable, diminishing our ability to accurately forecast the timing of sales and implementations.

Results of Operations

Statements of Operations for the fiscal years ended January 31, 2025 and 2024 (in thousands):

		Fiscal Year
		2024				2023				$ Change				% Change
Software as a Service		$	11,839			$	14,075			$	(2,236	)			(16	)%
Maintenance and Support			3,490				4,318				(828	)			(19	)%
Professional fees and licenses			2,572				4,203				(1,631	)			(39	)%
Total revenues			17,901				22,596				(4,695	)			(21	)%
Cost of sales			9,562				11,053				(1,491	)			(13	)%
Selling, general and administrative			11,739				14,710				(2,971	)			(20	)%
Research and development			4,629				5,704				(1,075	)			(19	)%
Impairment of goodwill			-				9,813				(9,813	)			(100	)%
Impairment of long-lived assets			-				963				(963	)			(100	)%
Total operating expenses			25,930				42,243				(16,313	)			(39	)%
Operating loss			(8,029	)			(19,647	)			11,618				59	%
Other (expense) income, net			(2,130	)			904				(3,034	)			(336	)%
Income tax benefit			-				46				(46	)			(100	)%
Net loss		$	(10,159	)		$	(18,697	)		$	8,538				46	%
Adjusted EBITDA(1)		$	(1,296	)		$	(1,386	)		$	90				6	%

(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.

The following table sets forth, for each fiscal year indicated, certain operating data as percentages of total revenues:

Statements of Operations (1)

		Fiscal Year
		2024				2023
Software as a service			66.1	%			62.3	%
Maintenance and support		19.5					19.1
Professional fees and licenses			14.4				18.6
Total revenues			100	%			100	%
Cost of sales			53.4	%			48.9	%
Selling, general and administrative			65.6				65.1
Research and development			25.9				25.2
Impairment of goodwill			-				43.4
Impairment of long-lived assets			-				4.3
Total operating expenses			144.9	%			186.9	%
Operating loss			(44.9	)%			(86.9	)%
Other (expense) income, net			(11.9	)			4.0
Income tax benefit			-				0.2
Net loss			(56.8	)%			(82.7	)%
Cost of Sales to Revenues ratio, by revenue stream:
Software as a service			50.2	%			46.7	%
Maintenance and support			4.7	%			7.3	%
Professional fees and licenses			134.5	%			99.1	%

(1)

A significant percentage of the operating costs are incurred at levels that are not necessarily correlated with revenue levels, therefore, a variation in the timing of software licenses and installations and the resulting revenue recognition can cause significant variations in operating results. As a result, period-to-period comparisons may not be meaningful with respect to the past results nor are they necessarily indicative of the future results of the Company in the near or long-term. The data in the table is presented solely for the purpose of reflecting the relationship of various operating elements to revenues for the periods indicated.

Comparison of Fiscal 2024 with Fiscal 2023

Revenues

		Fiscal Year								2024 to 2023 Change
(in thousands):		2024				2023				$				%
Software as a service		$	11,839			$	14,075			$	(2,236	)			(16	)%
Maintenance and support			3,490				4,318				(828	)			(19	)%
Professional fees and licenses			2,572				4,203				(1,631	)			(39	)%
Total Revenues		$	17,901			$	22,596			$	(4,695	)			(21	)%

Software as a service (SaaS)- Revenues from SaaS are primarily comprised of the Company's flagship products: eValuator and RevID. Revenues from SaaS in fiscal 2024were $11,839,000, as compared to $14,075,000 in fiscal 2023. The $2,236,000 decrease in SaaS revenue was primarily attributable to client non-renewals. In fiscal 2023, the Company received notice from a significant SaaS client of its intent not to renew its contract following the expiration of the current term on December 31, 2023. Fiscal 2024 SaaS revenue reflects losing eleven months of revenue related to that client comparedto fiscal 2023, totaling $3,812,000. There was no revenue recognized for that client in fiscal 2024. New client go lives and incremental full-year revenue from prior go lives provided the offset to the overall SaaS revenue decrease. The Company expects significant growth in its SaaS business year-over-year and forecasts the growth will increase sequentially throughout fiscal 2025 as the Company implements existing and new SaaS contracts supported by renewed focus on client acquisition efforts. As of January 31, 2025, the Company had approximately $1,700,000 in SaaS annual contract value for contracts thathas not been implemented.

Maintenance and support- Revenues from maintenance and support are derived from our legacy CDI and Abstracting products. In fiscal 2024, these revenues decreased by $828,000 compared to fiscal 2023. $951,000 of the revenue decline was the result of site terminations and reductions, which was partially offset by $123,000 of new revenue from existing clients related to CPI adjustments. As the Company maintains its focus on SaaS products, the Company expects maintenance and support revenue will continue to decrease in fiscal 2025as a result of pricing pressure, anticipated non-renewal of contracts and minimal new sales.

Professional fees and licenses- Revenues from professional fees and licenses include proprietary software, term license, professional services and audit and coding services revenues. Total professional fees and licenses revenues in fiscal 2024were $2,572,000, a decline of $1,631,000 as compared to $4,203,000 in fiscal 2023.

Term license revenue for fiscal 2024totaled $284,000, representing a $46,000 increase over fiscal 2023. The increase was primarily driven by one existing maintenance and support client who purchased a term license in fiscal 2024 partially offset by client non-renewals.

Professional services revenues in fiscal 2024were $649,000 as compared to $1,764,000 in fiscal 2023. Professional services revenue reflects the amounts allocated to the implementation of certain products and recognized as the implementation is completed. The overall decrease in professional services is a reflection of clients completing their product implementations in prior years.

Revenues from audit and coding services in fiscal 2024were $1,639,000, as compared to $2,201,000 in fiscal 2023. The decline in revenues from audit and coding service was result of discontinuation of services by certain clients which represented $910,000 of revenue during fiscal 2023, partially offset by $348,000 of new services for certain clients. The Company believes demand for its onshore, technically proficient coders and auditors in the marketplace is strong and that it has a competitive edge in providing audit and coding services as an offering with the eValuator solution as a technology-enabled service. The Company anticipates the audit and coding services business to remain relatively flat in fiscal 2025to support shifting demand among clients.

Cost of Revenue

		Fiscal Year								2024 to 2023 Change
(in thousands):		2024				2023				$				%
Cost of software as a service		$	5,939			$	6,573			$	(634	)			(10	)%
Cost of maintenance and support			164				315				(151	)			(48	)%
Cost of professional fees and licenses			3,459				4,165				(706	)			(17	)%
Total cost of sales		$	9,562			$	11,053			$	(1,491	)			(13	)%

Cost of software as a service (SaaS)- The Cost of SaaS consists of expenses associated with (i) amortization of capitalized software, (ii) royalties payable to third-parties for use of their coding related content, and (iii) personnel and network infrastructure required to deploy and support applications for each client. Expenses related to the Cost SaaS decreased $634,000 in fiscal 2024 compared to fiscal 2023. This change was driven by decreases of $311,000 and $543,000 in payroll and contractor expenses and computer software and maintenance, respectively, for fiscal 2024 compared to fiscal 2023. These decreases were partially offset by an increase in royalty expense of $178,000 and an increase of $103,000 related to amortization of capitalized software features that were put into service during the fiscal year. The Company expects amortization of capitalized software costs to stay relatively consistent in fiscal 2025 as compared to fiscal 2024.

Certain expenses included in our cost of SaaS are tied to volumes. These expenses include coding tools supporting eValuator and a third-party system that translates data from the hospital system to the Company's systems. In fiscal 2024 and 2023, cost of SaaS included non-cash amortization of capitalized software amounts of $2,357,000 and $2,229,000, respectively. The Company expects SaaS margins will expand as it implements new clients. Certain expenses included in Cost of SaaS, such as labor and third-party content providers, negatively impact gross margin before a client is fully implemented and revenue is recognized.

Cost of maintenance and support - The cost of maintenance and support includes compensation and benefits for client support personnel required to provide product support for clients on our CDI and Abstracting software licenses. Fiscal 2024 costs from maintenance and support decreased $151,000 from fiscal 2023. This cost decreased by approximately $145,000 related to payroll and contractor expense for client support personnel in fiscal 2024 compared to fiscal 2023. The Company continuously analyzes the allocation of its support resources and adjusts their alignment accordingly as the Company shifts away from license-based software to its flagship SaaS products. As clients move to other solutions, we expect these costs to continue to decline. The Company expects the overall cost of maintenance and support to remain relatively flat in fiscal 2025 compared to fiscal 2024.

Cost of professional fees and licenses- The cost of professional fees and licenses includes the cost of software licenses, the cost of professional services and the cost of audit and coding services. The aggregate cost of professional fees and licenses was $3,459,000and $4,165,000 for fiscal 2024and fiscal 2023,respectively. The$706,000decrease in cost of professional fees and licenses was attributable to a reduction of personnelcompensation and associated benefit expenses for fiscal 2024 as compared to fiscal 2023. $616,000 of the decrease was attributable to lower compensation and benefits expenses for internal audit services personnel, reflective of reduced audit services revenue.

Software license costs increased $53,000 from fiscal 2023to fiscal 2024as a result of higher amortization of development costs associated with the Company's Coding and CDI product. The Company fully amortized the remaining capitalized Coding and CDI software license costs in fiscal 2024 and does not anticipate recognizing any additional expense related to Coding and CDI software license revenues going forward.

The gross margin from professional fees and licenses revenue decreased in fiscal 2024as compared to fiscal 2023primarily due to the 39% decrease in related revenue including the high margin software license revenue which was partially offset by lower expenses related to the Company's audit services.

Selling, General and Administrative Expense

		Fiscal Year								2024 to 2023 Change
(in thousands):		2024				2023				$				%
General and administrative expenses		$	7,960			$	9,841			$	(1,881	)			(19	)%
Sales and marketing expenses			3,779				4,869				(1,090	)			(22	)%
Total selling, general, and administrative expense		$	11,739			$	14,710			$	(2,971	)			(20	)%

General and administrativeexpenses comprise various costs including compensation and associated benefits, reimbursable travel and entertainment expenses related to our executive and administrative staff, general corporate expenditures, amortization of intangible assets, and occupancy costs. For fiscal 2024, the decrease of $1,881,000 as compared to fiscal 2023 was primarily attributable to a reduction of $1,807,000 in employee compensation and related benefits and a $125,000 decrease in amortization costs.

In alignment with the Company's strategic plan to streamline operations, these expenses are strategically managed to support sustainable growth, enhanced profitability, and improved cash flows. This comprehensive approach reflects our commitment to simplifying our business operations while pursuing our overarching objectives.

Sales and marketing expenses primarily encompass compensation, associated benefits, travel and entertainment costs for our sales and marketing personnel. Additionally, sales and marketing expenses include costs from third parties related to advertising, marketing and trade show attendance. In fiscal 2024, sales and marketing expenses decreased by $1,090,000 compared to fiscal 2023. The decline in sales and marketing expense was comprised of a reduction in overall staff augmentation and other related expenses of approximately $1,122,000 partially offset by an increase of $162,000 related to professional fees and contractor expenses in fiscal 2024 as compared to fiscal 2023.

Research and Development

		Fiscal Year								2024 to 2023 Change
(in thousands):		2024				2023				$				%
Research and development expense		$	4,629			$	5,704			$	(1,075	)			(19	)%
Capitalized research and development cost			953				1,697				(744	)			(44	)%

Research and development expenses consist primarily of employee compensation and related benefits, the use of independent contractors for specific near-term development projects. Total research and development expense and capitalized research and development expense for fiscal 2024 were $4,629,000 and $953,000, respectively. The $1,075,000 decrease in research and development expense was driven by decreases of $1,178,000 for employee compensation and related benefits and a $589,000 decrease of independent contractor expense for fiscal 2024 compared to fiscal 2023. The decrease in employee and independent contractor expenses drove a reduction of capitalizable research and development cost, inclusive of capitalized stock compensation, of $740,000 in fiscal 2024 as compared to fiscal 2023. The Company continues to focus research and development activities on eValuator and RevID, its flagship SaaS solutions.

For fiscal 2024and fiscal 2023, as a percentage of revenue, research and development costs were approximately 26% and23%,respectively. While research and development costs decreased in fiscal 2024 compared to fiscal 2023, it's percentage change was not as significant as the corresponding revenue decrease as the Company continues to invest in the eValuator and RevID platforms. In fiscal 2023, the Company was awarded a $61,000 research and development tax credit from the State of Georgia. This tax credit did not recur in fiscal 2024. As of January 31, 2025, the Company had a $62,000 balance of unused research and development credits, as compared to $149,000 as of January 31, 2024. These research and development tax credits can be applied to current Georgia payroll taxes due.

Impairment of Goodwill

In the third quarter of fiscal 2024 and 2023, the Company tested the reporting unit's goodwill for possible impairment as of October 31, 2024 and 2023. Refer to Note 6 - Goodwill and Intangible Assets to our consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" for more information on the goodwill impairment testing.

The Company concluded that goodwill was impaired based on the weighted combination of the discounted debt-free net cash flow and the market capitalization method value estimates which resulted in a calculated fair value lower than its carrying value. The Company reported no goodwill impairments for fiscal 2024, and recorded an impairment of goodwill in the amount of $9,813,000 for fiscal 2023.

Impairment of long-lived assets

Intangible assets consist of the following:

						January 31, 2025
		Estimated Useful Life (years)				Gross Assets				Accumulated Amortization				Net Assets
Finite-lived assets:
Client relationships			10			$	8,370,000			$	2,895,000			$	5,475,000
Internally developed software			9				6,380,000				2,451,000			$	3,929,000
Trademarks and tradenames			15				1,340,000				309,000			$	1,031,000
Total						$	16,090,000			$	5,655,000			$	10,435,000

As mentioned above, in the third quarter of fiscal 2023, the Company tested long-lived assets, including intangible assets, for recoverability that, if failed, would indicate impairment as of October 31, 2023. The Company, in reviewing long-lived assets to define asset group(s), identified an abandoned asset. A separate long-lived asset for "client relationships" related to the Avelead acquisition was no longer going to be used following the Company's determination that these services were not part of its core offerings going forward and was classified as abandoned (the "Abandoned Asset"). The Company adjusted the Abandoned Asset's carrying value to its salvage value which would be zero given no future cash flows. In fiscal 2023, the Company recorded $963,000 for the impairment of the Abandoned Asset. No long-lived impairments were reported in fiscal 2024. The Company wrote-off the Abandoned Asset during fiscal 2024 with a gross asset value of $1,330,000. There was no impact to the consolidated statements of operations as this eliminated the asset and accumulated amortization of the fully amortized intangible assets.

Refer to Note 6 - Goodwill and Intangible Assets to our consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" for more information on the long-lived asset impairment testing.

Other (Expense) income

		Fiscal Year								2024 to 2023 Change
(in thousands):		2024				2023				$				%
Interest expense		$	(2,013	)		$	(1,071	)		$	(942	)			88	%
Acquisition earnout valuation adjustments			(115	)			1,944				(2,059	)			(106	)%
Other			(2	)			31				(33	)			(106	)%
Total other (expense) income		$	(2,130	)		$	904			$	(3,034	)			(336	)%

Interest expense consists of interest associated with the Company's term loan and the revolving line of credit, deferred interest associated with the Company's unsecured subordinated promissory notes, deferred financing costs, less interest related to capitalization of software. Interest expense increased in fiscal 2024 from the prior year period primarily due to the issuance of unsecured subordinated promissory notes in the first quarter of fiscal 2024, as well as the related deferred financing costs amortized through interest (Refer to Note 5 - Debt to our consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" for additional information). The Company expects that interest expense will be higher in fiscal 2025 due to the increasing principal value of its unsecured subordinated promissory notes and ongoing higher interest rates on its term loan.

Acquisition earnout valuation adjustments for fiscal 2024 totaled a loss of $115,000 as compared to a gain of $1,944,000 for fiscal 2023. The valuation adjustments are related to the acquisition earnout liabilities associated with the Avelead acquisition (Refer to Note 3 - Business Combination of the consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data").

Other income for fiscal 2023 primarily includes income related to the sublease of the Alpharetta location (Refer to Note 4 - Operating Leases).

Provision for Income Taxes

For fiscal 2024 and fiscal 2023, we recorded $0 and $46,000 of income tax benefit, respectively, which is comprised of estimated federal, state, and local income tax provisions. The Company has a substantial amount of net operating losses for federal and state income tax purposes. The Company recorded an increase to the federal income tax valuation allowance in each of fiscal 2024 and fiscal 2023 of approximately $1.9 and $4.0 million, respectively, which offset related tax benefits for operating losses.

Use of Non-GAAP Financial Measures

In order to provide investors with greater insight and allow for a more comprehensive understanding of the information used by management and the Board of Directors in its financial and operational decision-making, the Company has supplemented the Consolidated Financial Statements presented on a GAAP basis in this Report with the following non-GAAP financial measures: EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin.

These non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of Company results as reported under GAAP. The Company compensates for such limitations by relying primarily on our GAAP results and using non-GAAP financial measures only as supplemental data. We also provide a reconciliation of non-GAAP to GAAP measures used. Investors are encouraged to carefully review this reconciliation. In addition, because these non-GAAP measures are not measures of financial performance under GAAP and are susceptible to varying calculations, these measures, as defined us, may differ from and may not be comparable to similarly titled measures used by other companies.

EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin

We define: (i) EBITDA as net earnings (loss) before net interest expense, income tax expense (benefit), depreciation and amortization; (ii) Adjusted EBITDA as net earnings (loss) before net interest expense, income tax expense (benefit), depreciation, amortization, share-based compensation expense, valuation adjustments, restructuring charges, transaction related expenses and other expenses that do not relate to our core operations such as severance and impairment charges; and (iii) Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of GAAP net revenue. EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin are used to facilitate a comparison of our operating performance on a consistent basis from period to period and provide for a supplemental understanding of factors and trends affecting our business than GAAP measures alone. These measures assist management and the Board and may be useful to investors in comparing our operating performance consistently over time as they remove the impact of our capital structure (primarily interest charges), asset base (primarily depreciation and amortization), items outside the control of the management team (taxes) and expenses that do not relate to our core operations including: transaction-related expenses (such as professional and advisory services), corporate restructuring expenses (such as severances) and other operating costs that are expected to be non-recurring in nature. Adjusted EBITDA removes the impact of share-based compensation expense, which is another non-cash item.

The Board of Directors and management also use these measures (i) as one of the primary methods for planning and forecasting overall expectations and for evaluating, on at least a quarterly and annual basis, actual results against such expectations; and (ii) as a performance evaluation metric in determining achievement of certain executive and associate incentive compensation programs.

Our lender uses a measurement that is similar to the Adjusted EBITDA measurement described herein to assess our operating performance. The lender under our Loan Agreement requires delivery of compliance reports certifying compliance with financial covenants, certain of which are based on a measurement that is similar to the Adjusted EBITDA measurement reviewed by our management and Board of Directors.

EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are not measures of liquidity under GAAP or otherwise and are not alternatives to cash flow from continuing operating activities, despite the advantages regarding the use and analysis of these measures as mentioned above. EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin, as disclosed in this Report have limitations as analytical tools, and you should not consider these measures in isolation or as a substitute for analysis of our results as reported under GAAP; nor are these measures intended to be measures of liquidity or free cash flow for our discretionary use. Some of the limitations of EBITDA and its variations are:

	●	EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
	●	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 Agreement;
	●	EBITDA does not reflect income tax payments that we may be required to make; and
	●	Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements.

Adjusted EBITDA has all the inherent limitations of EBITDA. To properly and prudently evaluate our business, the Company encourages readers to review the GAAP financial statements included elsewhere in this Report, and not rely on any single financial measure to evaluate our business. We also strongly urge readers to review the reconciliation of these non-GAAP financial measures to the most comparable GAAP measure in this section, along with the consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data".

The following table reconciles EBITDA and Adjusted EBITDA to net loss for the fiscal years ended January 31, 2025 and 2024 (amounts in thousands). All of the items included in the reconciliation from EBITDA and Adjusted EBITDA to net loss are either recurring non-cash items, or items that management does not consider in assessing our on-going operating performance. In the case of the non-cash items, management believes that investors may find it useful to assess the Company's comparative operating performance because the measures without such items are less susceptible to variances in actual performance resulting from depreciation, amortization and other expenses that do not relate to our core operations and are more reflective of other factors that affect operating performance. In the case of items that do not relate to our core operations, management believes that investors may find it useful to assess our operating performance if the measures are presented without these items because their financial impact does not reflect ongoing operating performance.

		Fiscal Year
(in thousands)		2024				2023
Adjusted EBITDA Reconciliation
Net loss		$	(10,159	)		$	(18,697	)
Interest expense			2,013				1,071
Income tax expense (benefit)			-				(46	)
Depreciation and amortization			4,344				4,229
EBITDA			(3,802	)			(13,443	)
Share-based compensation expense			1,964				2,102
Impairment of goodwill			-				9,813
Impairment of long-lived assets			-				963
Non-cash valuation adjustments			115				(1,944	)
Acquisition-related costs, severance, and transaction-related bonuses			427				397
Other non-recurring expenses			-				(33	)
Restructuring charges			-				759
Adjusted EBITDA		$	(1,296	)		$	(1,386	)
Adjusted EBITDA margin (1)			(7	)%			(6	)%

(1)	Adjusted EBITDA as a percentage of GAAP net revenues.

Application of Critical Accounting Policies

The following is a summary of the Company's most critical accounting policies. Refer to Note 2 - Significant Accounting Policies to our consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" for a complete discussion of the significant accounting policies and methods used in the preparation of our consolidated financial statements.

Revenue Recognition

The Company derives revenue from the sale of internally developed software, either by licensing for local installation or by a SaaS delivery model, through our direct sales force or through third-party resellers. Licensed, locally installed 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 and consulting services The Company recognizes revenue to depict the transfer of promised goods or services to clients 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 client. If we determine that we have not satisfied a performance obligation, we will defer recognition of the revenue until the performance obligation is deemed to be satisfied. Maintenance and support and SaaS agreements are generally non-cancellable or contain significant penalties for early cancellation, although 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. 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. The Company recognizes revenue for implementation for certain of its eValuator SaaS solution over the contract term, as it has been determined that those implementation services are not a distinct performance obligation. Services for other SaaS and Software solutions such as CDI, RevID and Compare, have been determined as a distinct performance obligation. For these agreements, the Company estimates SSP of its software licenses using the residual approach when the software license is sold with other services and observable SSPs exist for the other services. The Company estimates the SSP for maintenance, professional services, software as a service and audit services based on observable standalone sales.

Refer to Note 2 - Significant Accounting Policies to our consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" for additional information regarding our revenue recognition policies.

Capitalized Software Development Costs

Internal-use software development costs are accounted for in accordance with ASC 350-40, Internal-Use Software. The costs incurred in the preliminary stages of development are expensed as research and development costs as incurred. Once an application has reached the development stage, internal and external costs incurred to develop internal-use software are capitalized and amortized on a straight-line basis over the estimated useful life of the software (typically three to four years). Maintenance and enhancement costs, including those costs in the post-implementation stages, are typically expensed as incurred, unless such costs relate to substantial upgrades and enhancements to the software that result in added functionality, in which case the costs are capitalized and amortized on a straight-line basis over the estimated useful life of the software. The Company reviews the carrying value for impairment whenever facts and circumstances exist that would suggest that assets might be impaired or that the useful lives should be modified. Amortization expense related to capitalized internal-use software development costs is included in Cost of software as a service on the consolidated statements of operations.

Goodwill and Intangible Assets

Goodwill and other intangible assets were recognized in conjunction with the acquisitions of Interpoint Partners, LLC ("Interpoint"), Meta Health Technology, Inc. ("Meta"), Clinical Looking Glass® ("CLG"), Opportune IT, Unibased Systems Architecture, Inc. ("Unibased"), and Avelead. Identifiable intangible assets include purchased intangible assets with finite lives, which primarily consist of internally-developed software, client relationships, non-compete agreements and license agreements. Finite-lived purchased intangible assets are amortized over their expected period of benefit, which generally ranges from one month to 15 years, using the straight-line method.

We assess the useful lives and possible impairment of existing recognized goodwill on at least an annual basis, and goodwill and intangible assets when an event occurs that may trigger such a review. Factors considered important which could trigger a review include:

	●	significant under-performance relative to historical or projected future operating results;
	●	significant changes in the manner of use of the acquired assets or the strategy for the overall business;
	●	identification of other impaired assets within a reporting unit;
	●	disposition of a significant portion of an operating segment;
	●	significant negative industry or economic trends;
	●	significant decline in the Company's stock price for a sustained period; and
	●	a decline in the market capitalization relative to the net book value.

The Company completed an interim goodwill assessment as of October 31, 2024 and it's annual assessment for fiscal 2024 as of November 1, 2024. The Company's fair value is not substantially in excess of its carrying value which introduces risk that testing for impairment does not pass the first step and requires detailed testing on an interim basis. The Company used a weighted sum of income and market approaches to determine the fair value of the Company's goodwill. Under the income approach, the fair value was based on the present value of the estimated debt-free, discounted cash flows that the reporting unit is expected to generate. Cash flow projections were based on management's estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate was based on the weighted average cost of capital appropriate for the Company. Under the market approach, the fair value was based on the Company's market capitalization adjusted for a control premium, which was determined by assessing recent change in control transactions of comparable companies.

Refer to Note 6 - Goodwill and Intangible Assets for additional information regarding our goodwill and intangible testing.

The fair value of our reporting unit and intangible assets is subjective in nature and involves the use of significant estimates and assumptions, particularly related to future operating results and cash flows. These estimates and assumptions include, but are not limited to, revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, control premiums, and future economic and market conditions. If we do not achieve our forecasts or the Company's share price declines further, it is possible the goodwill of the Company could be deemed to be impaired again in a future period.

The risks and potential impacts on the fair value of our goodwill and long-lived assets are included in our risk factor disclosures referenced under "Item 1A. Risk Factors".

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for tax credits and loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. In assessing net deferred tax assets, we consider whether it is more likely than not that some or all of the deferred tax assets will not be realized. We establish a valuation allowance when it is more likely than not that all or a portion of deferred tax assets will not be realized. Refer to Note 7 - Income Taxes to our consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" for further details.

Liquidity and Capital Resources

Overview

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 minor amounts of capital expenditures. Capital expenditures generally include computer hardware and computer software to support internal development efforts or SaaS data center infrastructure. Operations are funded with cash generated by operations, borrowings under the bank credit facilities and unsecured subordinated promissory notes and sales of the Company's common stock. 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. Cash and cash equivalent balances at January 31, 2025 and 2024 were $2,183,000 and $3,190,000, respectively.

Capital Raise

Debt Private Placement

On February 1, 2024, the Company entered into a securities purchase agreement with certain accredited investors, including certain directors and officers of the Company, pursuant to which the Company agreed to sell to the investors unsecured subordinated promissory notes in the aggregate principal amount of $4.4 million and 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.

Common Stock Private Placement

On February 6, 2024, the Company completed the sale of 17,543 shares of the Company's common stock to an accredited investor at a purchase price of $5.70 per share for an aggregate purchase price of $100,000 (the "Common Stock Private Placement").

Authorized Shares Amendment

At the 2023 Annual Meeting of Stockholders (the "2023 Annual Meeting") held on June 15, 2023, the Company's stockholders approved an amendment to the 2013 Plan to increase the number of shares of the Company's common stock authorized for issuance thereunder by 66,666 shares, from 681,549 shares to 748,216 shares.

Credit Facility

The Company has liquidity through the Loan Agreement with Western Alliance Bank ("WAB"). On November 29, 2022, the Company executed the Second Modification (the "Second Modification") to the Loan Agreement which expanded the Company's total borrowing to include a $2,000,000 revolving line of credit. The revolving line of credit is co-terminus with the term loan portion of the Loan Agreement and matures on August 26, 2026. There are no requirements to draw on the line of credit. Amounts outstanding under the line of credit portion of the 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%. On November 13, 2024, the Company executed the Fifth Modification (the "Fifth Modification") to the Loan Agreement which amended certain financial covenants under the Loan Agreement. Refer to Note 5 - Debt to our consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" for additional information regarding the Loan Agreement, the Second Modification, and the Fifth Modification. At January 31, 2025, there was a $1,000,000 outstanding balance on the revolving line of credit.

Under the Loan Agreement, the Company has a term loan facility with an initial, maximum, principal amount of $10,000,000. Amounts outstanding under the 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 Fifth Modification includes customary financial covenants as follows:

a.

Maximum ARR Net Leverage Ratio. Commencing with the month ended September 30, 2024, Borrowers' ARR Net Leverage Ratio, measured on a monthly basis as of the last day of each month, 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
Month Ending		Ratio
September 30, 2024			0.68 to 1.00
October 31, 2024			0.66 to 1.00
November 30, 2024			0.64 to 1.00
December 31, 2024			0.60 to 1.00
January 31, 2025			0.35 to 1.00
April 30, 2025			0.35 to 1.00

b.

Minimum Adjusted EBITDA. Commencing with the month ended September 30, 2024, Borrowers shall maintain Adjusted EBITDA, measured on a monthly basis as of the last day of each month, 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
Month Ending		Adjusted EBITDA
September 30, 2024			(225,000	)
October 31, 2024			(500,000	)
November 30, 2024			(150,000	)
December 31, 2024			(100,000	)
January 31, 2025 and on the last day of each month thereafter through April 30, 2025			0

The Loan Agreement includes customary negative covenants, subject to exceptions, which limit transfers, capital expenditures, indebtedness, certain liens, investments, acquisitions, dispositions of assets, restricted payments, and the business activities of the Company, as well as customary representations and warranties, affirmative covenants and events of default, including cross defaults and a change of control default. The line of credit is also subject to customary prepayment requirements. For the period ended January 31, 2025, the Company was not in compliance with certain financial covenants under the Loan Agreement; however, on March 27, 2025, the Company received a waiver from WAB in connection with the execution of the Third Modification (as defined below). Refer to Note 5 - Debt to our consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" for more information.

On March 27, 2025, the Company executed the Sixth Modification and Waiver (the "Sixth Modification") to the Loan Agreement. Refer to Note 14 - Subsequent Events to our consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" for additional information regarding the Sixth Modification.

Significant cash obligations

			As of January, 31
(in thousands)			2025			2024
Term loan (1)		$	7,709		$	9,066
Notes payable (2)			4,415			-
Acquisition earnout liability (3)			377			1,794
Line of credit (4)			1,000			1,500

(1)	Term loan balance is reported net of unamortized deferred financing costs of $36,000 and $69,000 plus accrued financing costs payable of $245,000 and $135,000 each as of January 31, 2025 and 2024, respectively. Refer to Note 5 - Debt to our consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" for additional information. The term loan balance as of January 31, 2025 and January 31, 2024 was bank term debt.
(2)	Refer to Note 5 - Debt for additional information. The cash obligation is net of discounts on notes payable of $573,000 and deferred financing costs of $107,000.
(3)	The fair value of the acquisition earnout liability is based upon a probability-weighted discounted cash flow as of January 31, 2024. As of January 31, 2025, the acquisition earnout liability reflects the remaining cash balance. Refer to Note 3 - Business Combination for additional information.
(4)	Refer to Note 5 - Debt for additional information.

Operating cash flow activities

		Fiscal Year
(in thousands)		2024				2023
Net loss		$	(10,159	)		$	(18,697	)
Non-cash adjustments to net loss			7,567				15,151
Cash impact of changes in assets and liabilities			1,078				1,331
Net cash used in operating activities		$	(1,514	)		$	(2,215	)

The Company had a lower net loss from operations and lower non-cash adjustments to net loss primarily due goodwill and intangible impairments than fiscal 2024.

Investing cash flow activities

		Fiscal Year
(in thousands)		2024				2023
Purchases of property and equipment			(7	)			(54	)
Capitalized software development costs			(851	)			(1,567	)
Net cash used in investing activities		$	(858	)		$	(1,621	)

The cash used in investing activities for fiscal 2024 and fiscal 2023 includes capitalized software development costs. The Company expects continued capitalizable projects associated with the Company's flagship products; however, the rate of capitalization may temporarily remain constant or decrease as a result of the Strategic Restructuring.

Financing cash flow activities

		Fiscal Year
(in thousands)		2024				2023
Proceeds from issuance of common stock		$	100			$	-
Proceeds from line of credit			1,000				1,500
Payments of acquisition earnout liabilities			(886	)			-
Repayment of line of credit			(1,500	)			-
Repayment of bank term loan			(1,500	)			(750	)
Proceeds from notes payable			4,400				-
Repurchase of common shares to satisfy employee tax withholding			(81	)			(280	)
Payment of deferred financing costs			(168	)			(44	)
Other			-				2
Net cash provided by financing activities		$	1,365			$	428

The cash provided by financing activities for fiscal 2024 was primarily attributable to proceeds from issuance of unsecured subordinated promissory notes in connection with the Company's debt private placement, draws on the line of credit offset by the principal payments on the term loan and line of credit and payments related to the acquisition and earnout liabilities. Refer to Note 5 - Debt to our consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" for more information.

The cash provided by financing activities for fiscal 2023 was primarily attributable to draws on the Company's line of credit offset by principal payments on the term loan and repurchases of the Company's stock related to employee tax withholdings.