| Summary of Significant Accounting Policies | NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES Our significant accounting policies
are presented in “Note 2 – Significant Accounting Policies” in the fiscal year 2020 Annual Report on Form 10-K. Users
of financial information for interim periods are encouraged to refer to the footnotes to the consolidated financial statements contained
in the Annual Report on Form 10-K when reviewing interim financial results. Use of Estimates The preparation of financial
statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, management evaluates
its estimates and judgments, including those related to the recognition of revenue, share-based compensation, capitalization of software
development costs, intangible assets, the allowance for doubtful accounts, and income taxes. Actual results could differ from those estimates. Reclassification ASC 606-10-25-19(a) provides
guidance on the presentation of revenue as it relates to identifying distinct performance obligations in contracts containing multiple
deliverables. As the Company has begun to shift to a primarily SaaS solution, the professional services revenue related to implementation
of SaaS contracts has grown. With this growth, and expected continued growth, of professional services which are not determined to be
a distinct performance obligation for our SaaS contracts, we have reclassified SaaS professional services from professional services revenue
and cost of sales on the consolidated statement of operations to Software as a Service revenue and cost of sales. For the three months
ended April 30, 2020, the reclassification of revenue was $29,000 and the reclassification of cost of sales was $23,000. Fair Value of Financial Instruments The Financial Accounting Standards
Board’s (“FASB”) authoritative guidance on fair value measurements establishes a framework for measuring fair value.
This guidance enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a
hierarchy for ranking the quality and reliability of the information used to determine fair values. Under this guidance, assets and liabilities
carried at fair value must be classified and disclosed in one of the following three categories: Level 1: Quoted market prices
in active markets for identical assets or liabilities. Level 2: Observable market-based
inputs or unobservable inputs that are corroborated by market data. Level 3: Unobservable inputs
that are not corroborated by market data. The carrying amounts of cash and cash equivalents,
accounts receivable, accounts payable and accrued expenses approximate fair value based on the short-term maturity of these instruments.
Cash and cash equivalents are classified as Level 1. The carrying amount of our long-term debt approximates fair value since the variable
interest rates being paid on the amounts approximate the market interest rate. Long-term debt is classified as Level 2. There were no
transfers of assets or liabilities between Levels 1, 2, or 3 during the three months ended April 30, 2021 and 2020. The fair value of the PPP loan was determined based
on discounting the loan amount as of January 31, 2021. The fair value using market rates the Company believes would be available for similar
types of financial instruments would have resulted in a lower fair value of $2,231,000 as compared to the book value of $2,301,000, a
reduction of $70,000. Revenue Recognition We derive revenue from the sale
of internally-developed software, either by licensing for local installation or by a SaaS delivery model, through our direct sales force
or through third-party resellers. Licensed, locally-installed customers on a perpetual model utilize our support and maintenance services
for a separate fee, whereas term-based locally installed license fees and SaaS fees include support and maintenance. We also derive revenue
from professional services that support the implementation, configuration, training and optimization of the applications, as well as audit
services provided to help customers review their internal coding audit processes. We recognize revenue in accordance
with ASC 606, Revenue from Contracts with Customers We recognize revenue (Step 5
below) in accordance with that core principle after applying the following steps:
● Step 1: Identify the contract(s) with a customer
● Step 2: Identify the performance obligations in the contract
● Step 3: Determine the transaction price
● Step 4: Allocate the transaction price to the performance obligations in the contract
● Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation Contracts may contain more than
one performance obligation. Performance obligations are the unit of accounting for revenue recognition and represent the distinct goods
or services that are promised to the customer. Revenue is recognized net of any taxes collected from customers and subsequently remitted
to governmental authorities. If we determine that we have
not satisfied a performance obligation, we defer recognition of the revenue until the performance obligation is satisfied. Maintenance
and support and SaaS agreements are generally non-cancelable or contain significant penalties for early cancellation, although customers
typically have the right to terminate their contracts for cause if we fail to perform material obligations. However, if non-standard acceptance
periods, non-standard performance criteria, or cancellation or a right of refund terms are required, revenue may not be recognized until
the satisfaction of such criteria. The transaction price is allocated
based on the standalone selling price of the performance obligations in the contract. Significant judgment is required to determine the
standalone selling price (“SSP”) for each performance obligation and whether the amount allocated to each performance obligation
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 the 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. Contract Combination The Company may execute more
than one contract or agreement with a single customer. The Company evaluates whether the agreements were negotiated as a package with
a single objective, whether the amount of consideration to be paid in one agreement depends on the price and/or performance of another
agreement, or whether the goods or services promised in the agreements represent a single performance obligation. The conclusions reached
can impact the allocation of the transaction price to each performance obligation and the timing of revenue recognition related to those
arrangements. Software Licenses The Company’s software
license agreements provide the customer with the right to use functional intellectual property. Implementation, support, and other services
are typically considered distinct performance obligations when sold with a software license unless these services are determined to significantly
modify the software. Revenue for software licenses is recognized at a point in time, typically, when the software is made available for
electronic download. Maintenance and Support Services Our maintenance and support obligations
include multiple performance obligations, with the two largest being rights to unspecified product upgrades or enhancements, and technical
support. We believe that the multiple performance obligations within our overall maintenance and support services can be viewed as a single
performance obligation since both the unspecified upgrades and technical support are comprised of promises to stand ready to fulfill the
various underlying activities during the contract term. Maintenance and support agreements entitle customers to technology support, version
upgrades, bug fixes and service packs. We recognize maintenance and support revenue ratably over the contract term. Professional Services The Company provides various
professional services to customers with software licenses. These include project management, software implementation and software modification
services. Revenue from agreements to provide professional services are generally distinct from the other promises in the contract and
are recognized as the related services are performed. Consideration payable under these agreements is either fixed fee or on a time-and-materials
basis, and is recognized over time as the services are performed. Software as a Service SaaS-based contracts include
a right to use the Company’s platform, implementation, support and other services which represent a single promise to provide continuous
access to its software solutions. The Company recognizes revenue over the contract term. Audit Services The Company provides technology-enabled
coding audit services to help customers review and optimize their internal clinical documentation and coding functions across the applicable
segment of the client’s enterprise. Audit services are a separate performance obligation. We recognize revenue as the services are
performed. Disaggregation of Revenue The following table provides
information about disaggregated revenue by type and nature of revenue stream:
Three Months Ended April 30, 2021
Recurring Revenue
Non- recurring Revenue Total
Software licenses $ — $ 135,000 $ 135,000
Professional services — 78,000 78,000
Audit services — 504,000 504,000
Maintenance and support 1,057,000 — 1,057,000
Software as a service 1,177,000 — 1,177,000
Total revenue: $ 2,234,000 $ 717,000 $ 2,951,000 Contract Receivables and Deferred Revenues The Company receives payments
from customers based upon contractual billing schedules. Contract receivables include amounts related to the Company’s contractual
right to consideration for completed performance obligations not yet invoiced. Deferred revenues include payments received in advance
of performance under the contract. Our contract receivables and deferred revenue are reported on an individual contract basis at the end
of each reporting period. Contract receivables are classified as current or noncurrent based on the timing of when we expect to bill the
customer. Deferred revenue is classified as current or noncurrent based on the timing of when we expect to recognize revenue. In the three
months ended April 30, 2021, we recognized approximately $1,653,000 in revenue from deferred revenues outstanding as of January 31, 2021.
Revenue allocated to remaining performance obligations was $16,556,000 as of April 30, 2021, of which the Company expects to recognize
approximately 53% over the next 12 months and the remainder thereafter. Deferred costs (costs to fulfill a contract and
contract acquisition costs) We defer the direct costs, which
include salaries and benefits, for professional services related to SaaS contracts as a cost to fulfill a contract. These deferred costs
will be amortized on a straight-line basis over the period of expected benefit which is the contractual term. As of April 30, 2021 and
January 31, 2021, we had deferred costs of $144,000 and $168,000, respectively, net of accumulated amortization of $166,000 and $126,000,
respectively. Amortization expense of these costs was $39,000 and $33,000 in the three months ended April 30, 2021 and 2020, respectively,
and is included in various costs of revenue in the condensed consolidated statements of operations. There were no impairment losses for
these capitalized costs for these periods. Contract acquisition costs, which
consist of sales commissions paid or payable, is considered incremental and recoverable costs of obtaining a contract with a customer.
Sales commissions for initial and renewal contracts are deferred and then amortized on a straight-line basis over the contract term. As
a practical expedient, we expense sales commissions as incurred when the amortization period of related deferred commission costs is expected
to be one year or less. As of April 30, 2021 and January
31, 2021, deferred commission costs paid and payable, which are included on the consolidated balance sheets within other non-current assets
totaled $715,000 and $666,000, respectively, net of accumulated amortization of $342,000 and $285,000, respectively. In the three months
ended April 30, 2021 and 2020, $70,000 and $31,000, respectively, in amortization expense associated with deferred sales commissions was
included in selling, general and administrative expenses in the condensed consolidated statements of operations. There were no impairment
losses for these capitalized costs for these periods. Equity Awards The Company accounts for share-based
payments based on the grant-date fair value of the awards with compensation cost recognized as expense over the requisite service period.
For awards to non-employees, the Company recognizes compensation expense in the same manner as if the entity had paid cash for the goods
or services. The Company incurred total compensation expense related to share-based awards of $565,000 and $263,000 in the three months
ended April 30, 2021 and 2020, respectively. The fair value of the stock options
granted was estimated at the date of grant using a Black-Scholes option pricing model. Option pricing model input assumptions such as
expected term, expected volatility and risk-free interest rate impact the fair value estimate. Further, the forfeiture rate impacts the
amount of aggregate compensation. These assumptions are subjective and are generally derived from external (such as, risk-free rate of
interest) and historical data (such as, volatility factor, expected term and forfeiture rates). Future grants of equity awards accounted
for as share-based compensation could have a material impact on reported expenses depending upon the number, value and vesting period
of future awards. The Company issues restricted
stock awards in the form of Company common stock. The fair value of these awards is based on the market close price per share on the grant
date. The Company expenses the compensation cost of these awards as the restriction period lapses, which is typically a one- to four-year
service period. Income Taxes Income taxes are accounted for
under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and
for tax credit and loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or settled. In assessing net deferred tax
assets, the Company considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. The
Company establishes a valuation allowance when it is more likely than not that all or a portion of deferred tax assets will not be realized.
Refer to Note 5 - Income Taxes for further details. The Company provides for uncertain
tax positions and the related interest and penalties based upon management’s assessment of whether certain tax positions are more
likely than not to be sustained upon examination by tax authorities. At April 30, 2021, the Company believes it has appropriately accounted
for any uncertain tax positions. Net Earnings (Loss) Per Common Share The Company presents basic and
diluted earnings per share (“EPS”) data for our common stock. Our unvested restricted stock
awards are considered non-participating securities because holders are not entitled to non-forfeitable rights to dividends or dividend
equivalents during the vesting term. In accordance with ASC 260, securities are deemed not to be participating in losses if there is no
obligation to fund such losses. Diluted EPS for our common stock is computed using the treasury stock method. The following is the calculation
of the basic and diluted net earnings (loss) per share of common stock for the three months ended April 30, 2021 and 2020:
Three Months Ended
April 30, 2021 April 30, 2020
Basic earnings (loss) per share:
Continuing operations
Loss from continuing operations, net of tax $ (2,462,000 ) $ (977,000 )
Basic net loss per share of common stock from continuing operations $ (0.07 ) $ (0.03 )
Discontinued operations
Income available to common stockholders from discontinued operations $ 320,000 $ 4,650,000
Basic net earnings per share of common stock from discontinued operations $ 0.01 $ 0.16
Diluted earnings (loss) per share (1):
Continuing operations
Income available to common stockholders from continuing operations $ (2,462,000 ) $ (977,000 )
Diluted net loss per share of common stock from continuing operations $ (0.07 ) $ (0.03 )
Discontinued operations
Income available to common stockholders from discontinued operations $ 320,000 $ 4,650,000
Diluted net earnings per share of common stock from discontinued operations $ 0.01 $ 0.15
Weighted average shares outstanding - Basic (1) 37,497,958 29,767,814
Effect of dilutive securities - Stock options, Restricted stock 686,807 269,902
Weighted average shares outstanding – Diluted 38,184,765 30,037,716
(1) Excludes the effect of unvested restricted shares of common stock, which are considered non-participating securities. As of April 30, 2021 and 2020, there were 1,387,325 and 1,124,708 unvested restricted shares of common stock outstanding, respectively. Other Operating Costs Non-routine Costs The Company incurred certain
non-routine costs of approximately $350,000 associated with a one-time bonus to certain key executives for successful completion of the
capital raise, and costs of approximately $91,000 in connection with the ongoing evaluation of potential partnerships and strategic arrangements. Loss on Exit from Membership
Agreement As of April 30, 2020, future
minimum fees due under the shared office arrangement totaled $105,000. Accordingly, we recorded an expense for the minimum future commitment
under the agreement and accrued the cost to the accompanying consolidated balance sheet. Refer to Note 3 – Operating Leases. Non-Cash Items The Company had the following
items that were non-cash items related to the condensed consolidated statements of cash flows:
April 30,
2021 2020
Escrowed funds from sale of ECM Assets $ — $ 800,000
Right-of Use Assets from operating lease — 540,000 Accounting Pronouncements Recently Adopted In December 2019, the FASB issued
ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes Recent Accounting Pronouncements Not Yet Adopted In November 2019, the FASB issued
ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which improves
guidance around accounting for financial losses on accounts receivable. For smaller reporting entities,
ASU 2016-13 is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. |
