PART I. FINANCIAL INFORMATION

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared by Streamline Health Solutions, Inc. (“Streamline Health^® or the Company”), pursuant to the rules and regulations applicable to quarterly reports on Form 10-Q of the U. S. Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Condensed Consolidated Financial Statements have been included. These Condensed Consolidated Financial Statements should be read in conjunction with the financial statements and notes thereto included in the most recent Streamline Health Solutions, Inc. Annual Report on Form 10-K, Commission File Number 0-28132. Operating results for the three months and six months ended July 31, 2009,2010, are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2010.2011.

A summary of the Company’s significant accounting policies is presented beginning on page 5245 of its fiscal year 20082010 Annual Report on Form 10-K. Users of financial information for interim periods are encouraged to refer to the footnotes contained in the Annual Report when reviewing interim financial results. There has been no material change in

In the accounting policies followed byfourth quarter of fiscal 2009 the Company duringmade its fifth generation software, accessANYware 5.0, generally available. In the first quarter of fiscal 2010, subsequent to the release, the Company completed a review by product of the estimated useful lives of its capitalized software development costs. After reviewing strategic plans, analyzing the historical useful life of the software products, forecasting product life cycles and demand expectations, the Company assigned a five year 2009.

The decrease in cashproduct life cycle for accessANYware versions prior to the latest version 5.0, have lasted longer than five years. Historical product and cash equivalents duringcustomer data shows that many customers remain on the first six months results primarily from cash generated by operating activities offset bysame primary version for five years or more after purchase, or product support and development continue for five years or more. The Company expects accessANYware 5.0 to also have a five year or longer product life cycle based on this historical data, and the impactestimated product development lifecycle. In addition, the useful life of investing activities, namely expenditures relating to softwarethe unamortized balance of development costs for prior accessANYware versions should also reflect an approximate five year life from their documented general release dates. The Company intends to actively sell and purchasessupport these products for a minimum five years while version 5.0 is being rolled out. This same policy will be applied to FolderView as it is generally a primary add-on component to accessANYware, and has had a similar historical life cycle. Upon Company review of equipment.the revenue projections, the estimated life cycle of accessANYware 5.0, and the remaining life cycle for prior accessANYware and FolderView releases, a five year estimated life is reasonable and proper.

The Company accounted for the change in useful life as a change in accounting estimate which is accounted for on a prospective basis effective February 1, 2010. For the three and six months ended July 31, 2010 the change resulted in a reduction of amortization expense of approximately $251,000 and $502,000, respectively; an increase in income from continuing operations and net income of $251,000 and $502,000, respectively; and a decrease in prepaid hardwarebasic and third party softwarediluted loss per share of $0.02 and $0.06, respectively. Amortization expense for future delivery is primarily due to the recognition of the cost of sale expense associated with revenue recorded during the current fiscal year.

Compensation expense is recognized over the requisite service period for which development cost began being capitalized relatingawards of equity instruments to employees based on the developmentgrant-date fair value of those awards expected to ultimately vest (with limited exceptions). Forfeitures are estimated on the date of the next generation of core software solutionsgrant and expanded work flow module development offset by amortization expense.

During the first six months of the current fiscal year, the Company granted 27,000140,000 options with a weighted average exercise price of $2.05$1.84 per share. During the same period 10,00071,000 options expired with an average exercise price of $1.95$1.86 per share and 6,00077,000 options were exercised under all plans at an average exercise price of $1.50$1.27 per share.

The basic earnings (loss) per common share are calculated using the weighted average number of common shares outstanding during the period.

The company hasfiscal 2010 and 2009 diluted net (loss) per common share calculation, excludes the effect of the common stock equivalents (stock options and restricted stock), as the inclusion thereof would be antidilutive. The Company had 847,000 and 667,000 equity award shares outstanding at July 31, 2010 and 2009, respectively that were not included the outstanding stock options in the computation of diluted lossnet (loss) per share forcalculation, as the three and six months ended July 31, 2009 and 2008 because the effectinclusion thereof would be anti-dilutive.antidilutive.

In connection with the entering into of the revised revolving note, the Company also entered into an amended and restated continuing guaranty agreement. The terms of the continuing guaranty agreement remain the same as set forth in the guaranty agreement entered into on July 31, 2008, as amended on January 6, 2009, except that the trailing twelve months earnings before interest, taxes, depreciation and amortization (EBITDA). covenant that formerly required the Company to maintain certain levels of minimum tangible net worth has been eliminated.

The agreement contains other covenants including: Minimum Tangible Net Worth, Fixed Charge Coverage Ratio and Funded Indebtednessnote also continues to EBITDA. The loan is guaranteed by the Registrant and isbe secured by a first lien on all of the assets of the Registrant and its subsidiary. Company pursuant to security agreements entered into by the Company.

The Company was in compliance with all of the covenants at July 31, 2009.2010. The Company pays a commitment fee on the unused portion of the facility of 0.06%. The Company had borrowed $800,000 on the facilityoutstanding borrowings of $2,000,000 under this revolving loan as of July 31, 2009. This facility is scheduled to expire on August 1, 2010.

In addition to historical information contained herein, this Report on Form 10-Q contains forward-looking statements relating to the Company’s plans, strategies, expectations, intentions, etc. and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements contained herein are no guarantee of future performance and are subject to certain risks and uncertainties that are difficult to predict and actual results could differ materially from those reflected in the forward-looking statements. These risks and uncertainties include, but are not limited to, the timing of contract negotiations and executions and the related timing of the revenue recognition related thereto, the potential cancellation of existing contracts or clients not completing projects included in the backlog, the impact of competitive products and pricing, product demand and market acceptance, new product development, key strategic alliances with vendors that resell Streamline Health solutions, the ability of Streamline Health to control costs, availability of products obtained from third-party vendors, the healthcare regulatory environment, potential changes in legislation, regulatory and government funding affecting the healthcare industry, healthcare information system budgets, availability of healthcare information systems trained personnel for implementation of new systems, as well as maintenance of legacy systems, fluctuations in operating results and other risk factors that might cause such differences including those discussed herein, and including, effects of critical accounting policies and judgments, changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other similar entities, changes in economic, business and market conditions impacting the healthcare industry, the markets in which the Company operates and nationally, and the Company’s ability to maintain compliance with the terms of its credit facilities, but not limited to, discussions in the most recent Form 10-K, Part I, “Item 11. Business”, “Item 1A1A. Risk Factors”, Part II, “Item 77. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 88. Financial Statements and Supplemental Data.” In addition, other written or oral statements that constitute forward-looking statements may be made by or on behalf of the Company. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date thereof. The Registrant undertakes no obligation to publicly revise these forward-looking statements, to reflect events or circumstances that arise after the date hereof. Readers should carefully review the risk factors described in this and other documents Streamline Health Solutions, Inc. files from time to time with the Securities and Exchange Commission, including future Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.

Streamline Health’s discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires Streamline Health to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent liabilities. On an ongoing basis, Streamline Health evaluates its estimates, including those related to product revenues, bad debts, capitalized software development costs, income taxes, product assurance, support contracts, contingencies, and litigation. Streamline Health bases its estimates on historical experience and on various other assumptions that Streamline Health believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and revenue and expense recognition. Actual results may differ from these estimates under different assumptions or conditions.

Document imaging and workflow management technologies like those provided by Streamline Health are essential elements of a complete Electronic Health Record because they allow for the storage of unstructured data. Unstructured data may consist of patient record elements other than discrete data, such as hand written physician or nursing notes and document management solutions bridge the gap between current, predominantly paper-based processesphysician orders, photographs, audio, video, and transaction-based healthcare information systems by 1) electronically capturing document-centric information from disparate sources, 2) electronically directing that information through vital business processes, and 3) providing access to the information to authenticated users (such as physicians, nurses, administrative and financial personnel and payers) across the continuum of care. outside correspondence.

Streamline Health’s systems are designed for enterprise wide deployment to seamlessly connect disparate departmental systems, or silos of independent technologies whichsolutions create Friction Points^TM, in a common interoperable document management workflow solution.

The Company’s software solutions can be provided on a subscription basis via “Software as a Service” (also referredHealthcare providers have significant need to as “SaaS”, “hosting”, or “Cloud Computing”) which is remotely hosted, or alternatively, licensed and installed locally. SaaS is the provision of dynamically scalable remote software, infrastructure and resources as a subscription service over a dedicated data communications line or virtual private line (VPN) via the Internet. Users of Software as a Service need not have knowledge of, expertise in, or control over the technology infrastructure in the hosting center that supports them.

In 2009, the licensingCompany successfully made its fifth-generation software architecture (accessANYware 5.0) generally-available. This development effort included the consolidation of technology platforms onto the Microsoft.NET platform, and also the internationalization of the software to reach international markets. This internationalization specifically included French Canadian language capabilities as part of Streamline Health’s proprietary software and third-party softwareagreements with a perpetual or term license fee on either an unlimited number of users (site license) or a specific number of users (concurrent users license) that is adjusted upward depending on the number of facilities (annual operating expense model) or the number of concurrent users (concurrent use model) using the software. Site-specific customization, interfaces with existing customer systems and other consulting services are sold on a fixed fee or a time and materials basis. Alternatively, with Streamline Health’s SaaS-based hosting services solutions, the SaaS hosting services agreements generally provide for utilizing Streamline Health’s software and third-party software on a recurring subscription or, for smaller departmental solutions, a fee per transaction basis.

New bookings for the quarter, excluding maintenance services, were in excess of $2 million. These new bookings consisted of a new enterprise license contract, a large add-on enterprise license sale, and three Business Process Management Services (BPM) group, whichdepartmental workflow solutions. Bookings reflect the aggregate of signed contracts and/or completed customer purchase orders approved and accepted by the Company as binding commitments to purchase its products and/or services. New bookings do not include maintenance services as these tend to be recurring in nature on an annual or more frequent basis.

The Company recognized revenues in the three and six month period ending July 31, 2010 of $4,676,000 and $8,220,000, compared to $4,069,000 and $7,820,000 in the comparable prior period. The increased revenues recognized over the prior three and six month periods are derived primarily from an increase in proprietary software systems sales, as well as recurring revenues recognized from application-hosting and maintenance revenues. The Company incurred operating losses in the three and six month period ending July 31, 2010 of $28,000 and $1,229,000 respectively. Comparatively, the Company incurred a loss of $17,000 and operating profit of $11,000 respectively, for the three and six month periods ending July 31, 2009. Operating expenses in the three and six month period ending July 31, 2010 were $4,704,000 and $9,449,000 respectively, compared to $4,087,000 and $7,810,000 in the comparable prior three and six month periods. The increase in operating expenses was due to several factors including an increase in amortization of capitalized software development costs. This increase in amortization expense is a dedicated consulting department focused on delivering custom document workflow solutions for our existing installed baseprimarily due to the general release of customers and new customers who have a need for stand-alone document workflow applicationsaccessANYware 5.0 in late fiscal 2009. In addition to improve departmental business processes. BPM services include custom workflow development, business process management, strategic planning, and custom reporting, among other consulting services. These new services will complement our existingamortization expense, the Company increased investments made in professional services which focus primarily on installation of our standard off-the-shelf software solutions.staffing, customer, professional fees, and increased compensation expenses.

At July 31, 2009,2010 Streamline Health has master agreements and purchase orders or royalty reports from customers and remarketing partners for systems and related services (excluding support and maintenance, and transaction-based application-hosting revenues), which have not been delivered or installed and accepted which, if fully performed, willwould generate future revenues of $23,397,000approximately $18,918,000 compared with $26,179,000 and $17,692,000$23,397,000 at the end of the fourth and second quarter of 2008 as follows:

At July 31, 2010, Streamline Health’s masterHealth has entered into application-hosting agreements, generally provide for an initial maintenance period and give the customer the right to subscribe for maintenance and support services on a monthly, quarterly, or annual basis. Maintenance and support revenues for fiscal years 2008, 2007 and 2006 were approximately $7,331,000, $6,861,000 and $5,711,000, respectively. Maintenance and support revenueswhich are expected to continue to increasegenerate revenues in excess of $8,818,000 through their respective renewal dates in fiscal years 2010 through 2015. The application-hosting backlog decreased from the $11,634,000 at July 31, 2009, as existing commitments are reneweddue to the continued recognition of revenues from contracts signed in fiscal 2008 and 2009, and decreased volume of new customers are added.application-hosting business through the end of the second quarter.

The commencement of revenue recognition varies depending on the size and complexity of the system;system, the implementation schedule requested by the customer, and usage by customers of the application-hosting services. Therefore, Streamline Healthit is unabledifficult for the Company to accurately predict accurately the revenue it expects to achieve in any particular period. Streamline Health’s master agreements generally provide that the customer may terminate its agreement upon a material breach by Streamline Health, or may delay certain aspects of the installation. There can be no assurance that a customer will not cancel all or any portion of a master agreement or delay installations. A termination or installation delay of one or more phases of an agreement, or the failure of Streamline Health to procure additional agreements, could have a material adverse effect on Streamline Health’s business, financial condition, and results of operations.

The Company’squarterly, and year-to-date increase in revenues was primarily the result of two large proprietary software sales during the second quarter, and continued recognition of backlog revenues from systemshosted contracts. Professional service and hardware and third party software sales have varied,decreased primarily from customer delays, and may continue to vary, significantly from quarter-to-quarter because ofdecreases in the volume and timing of systems sales and delivery. Professional services revenues also fluctuate from quarter-to-quarter because of the timing of the implementation services, project management, customized programming provided and timing of the recognition of revenues under generally accepted accounting principles. Conversely, revenues from maintenance services do not fluctuate significantly from quarter-to-quarter, but have been increasing, on an annual basis, as the number of customers increase.

Operating expenses consisted of approximately $205,000 and increases of $204,000 in professional services revenues for the comparative six month periods due to normal scheduled annual increases in maintenance billing rates, and increased professional service activity for new hosting customers.following (in thousands):

Cost of Systems Sales

Cost of Services, Maintenance and Support

The increases in the prior period. This increase is due to increased professional services staffing costs and third party maintenance contract costs associated with supporting an increased customer base. As a percentage of services, maintenance and support revenues, the cost of such services, maintenance and support was 47% and 44% for the second quarter of fiscal 2009 and 2008, respectively. As a percentage of services, maintenance and support revenues, the cost of such services, maintenance and support was 43% and 44% for the first six months of fiscal 2009 and 2008, respectively.

Selling, General and Administrative expenses consist primarily of compensation and related benefits and reimbursable travel and living expenses related to the Company’s sales, marketing and administrative personnel; advertising and marketing expenses, including trade shows and similar type sales and marketing expenses; and general corporate expenses, including occupancy costs. Selling, General and Administrative expenses for the three months ended July 31, 2009 and 2008 were $1,255,162 and $1,883,071, respectively. Selling, General and Administrative expenses for the six months ended July 31, 2009 and 2008 were $2,470,132 and $3,482,494, respectively. This decrease of 33% and 29%increase over the respective comparable prior periods is due to effective cost management measures taken including; planned reductionsthe investment in salescustomer initiatives; increases in commissions and administrative expenses, the continued suspensionother compensation expenses; re-instatement of bonus plans,bonuses; increased bad debt expense; severance costs; and strategic decreases in headcount within the organization. The Company has been ableprofessional fees relating to capitalize on efficiencies gained in the current threeincreased compliance and six month periods by reducing expense and increasing cash flow. Commission plans for sales personnel were not suspended and commissions were paid and will continue to be accrued. The total decrease in bonus compensation expense for the quarter ended July 31, 2009 was approximately $182,000 and $325,000 compared to the corresponding three and six month periods. The financial impact of efficiencies gained during the prior three quarters will continue to have a positive effect on subsequent quarters in 2009.administration costs.

Product 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. DuringResearch and development expenses increased from the secondprior comparable quarter, of fiscal 2009,primarily due to a decrease in costs eligible for capitalization. However, the decrease in total research and development expenses decreased approximately $627,000 or 62% when compared with the comparable prior quarter of fiscal 2008. This is primarily a result of certain research and development projects reaching technological feasibility resulting in increased capitalized software development costs associated with the new products under development. The Company capitalized, in accordance with Statement of Financial Accounting Standards No. 86,Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed, approximately $1,071,000 and $511,000 of product research and development costs in the second quarter of fiscal 2009 and 2008 and approximately $2,020,000 and $1,411,000 in the first six months of fiscal 2009 and 2008, respectively. These increases in capitalized development costs relate primarily to costs incurred to bring to market the next generation of accessANYware^TM and workflow products.

The tax provision in the first quarter of fiscal 2010 and 2009 is comprised of primarily state and local provisions.

The Company incurred net losses of $76,000 and $1,252,000 in the resultthree and six month periods ended July 31, 2010, compared to net losses of efficiencies gained from improved cost management. These improvements$18,000 and $2,000 in the comparable prior periods ended July 31, 2009. Increases in proprietary software sales and recurring application-hosting revenues were offset by increased investment in customer initiatives, compensation, and increased expense relating to amortization of capitalized software development costs, which contributed to the decrease in application-hostingloss for the current three and licensed system revenues.six month periods.

Net cash used in investing activities was $1,573,000, an improvement of $806,000 from the prior comparable period. This decrease was primarily due to the decrease in capitalized software in fiscal 2007, 2008 and 2009. The Company believes that a significant shift in market demand toward hosted services is occurringdevelopment costs, as a result of better market adoption, numerous customersaccessANYware 5.0 reaching general release in late 2009 which had significant development costs capitalized in the prior year.

At July 31, 2010, Streamline Health had cash on hand of $580,574, and availability of $46,000 under the line of credit. Streamline Health believes that its present cash position, combined with cash generation currently anticipated from operations, the availability of the revolving credit facility, and possible access to new funding sources will be sufficient to meet anticipated cash requirements for the next twelve months. However, continued expansion of the Company will require additional resources. The Company may need to incur debt, obtain an additional infusion of capital, or a historycombination of hosting success,both, depending on the extent of the expansion of the Company and more recently, economic developments that have created scarce capital dollars for most hospital organizations. Our strategic initiatives to reorganize our resources to focus on software as a service via our hosting solutions,future revenues and growth into Canada, should produce improved results in 2009 and beyond as recurring hosted revenues are anticipated to grow.expenses. However, there can be no assurance Streamline Health will be able to do so. The Company is evaluating financing options available.

Streamline Health carefully monitors operating expenses. As a result ofNotwithstanding the current levels of revenues and operating loss,expenses, for the foreseeable future, Streamline Health will need to continually assess its revenue prospects compared to its then current expenditure levels. If it does not appear likely that revenues will increase, it may be necessary to reduce operating expenses which the Company undertook late in the third quarter 2008 and into 2009 through attrition, bonus suspension, and downsizing of the staff, or raise cash through additional borrowings, the sale of assets, or issue additionalother equity or a combination thereof.financing. Certain of these actions will require current lender approval. However, there can be no assurance Streamline Health will be successful in any of these efforts. If it is necessary to furthersignificantly reduce operating expenses, this could have an adverse effect on future operating performance.

Streamline Health maintains disclosure controls and procedures that are designed to ensure that there is reasonable assurance that the information required to be disclosed in Streamline Health’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to Streamline Health’s management, including its Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based on the definition of “disclosure controls and procedures” in Exchange Act Rules 13a-15(e) and 15d-14(e)15d-15(e). In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of Streamline Health’s senior management, including the Chief Executive Officer and Interim Chief Financial Officer, of the effectiveness of the design and operation of Streamline Health’s disclosure controls and procedures to provide reasonable assurance of achieving the desired objectives of the disclosure controls and procedures. Based on that evaluation, Streamline Health’s management, including the Chief Executive and Interim Chief Financial Officer, concluded that there is reasonable assurance that Streamline Health’s disclosure controls and procedures were effective as of the end of the period covered by this report and there have been no material changes in Streamline Health’s internal control or in the other controls during the quarter ended July 31, 20092010 that could materially affect, or is reasonably likely to materially affect, internal controls over financial reporting.

(a) Exhibits

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.