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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 and six months ended July 31, 2010,April 30, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2011.2012.

A summary of the Company’s significant accounting policies is presented beginning on page 45 of itsin “Note B — Significant Accounting Policies” in the fiscal year 2010 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.

ASU 2009-13. In the fourth quarter of fiscalOctober 2009, the Company madeFinancial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2009-13 —Multiple-Deliverable Revenue Arrangements (ASU 2009-13). ASU 2009-13 requires a vendor to allocate revenue to each unit of accounting in many arrangements involving multiple deliverables based on the relative selling price of each deliverable. It also changes the level of evidence of standalone selling price required to separate deliverables by allowing a vendor to make 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 productbest estimate of the estimated useful livesstandalone selling price of its capitalized software development costs. After reviewing strategic plans, analyzing the historical useful lifedeliverables when more objective evidence of the software products, forecasting product life cycles and demand expectations, the Company assigned a five year estimated useful life for costs capitalized for accessANYware 5.0, and revised the estimated useful lives of certain other products from three years to five years.selling price is not available.

The product life cycleCompany adopted ASU 2009-13 for accessANYware versions prior to the latest version 5.0, have lasted longer than five years. Historical productall new and customer data shows that many customers remainmaterially modified arrangements on the same 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 estimated product development lifecycle. In addition, the useful life of the 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 support 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.prospective basis beginning February 1, 2011. Upon Company review of the revenue projections,primary accounting literature, if we are unable to establish selling price using VSOE (vendor specific objective evidence) or third-party evidence, we will establish an estimated selling price. The estimated selling price is the price at which we would transact a sale if the product or service were sold on a stand-alone basis. The Company establishes a best estimate of selling price by considering internal factors relevant to pricing practices such as costs and margin objectives, stand alone sales prices of similar services and percentage of the fee charged for a primary service relative to a particular piece of licensed software. Additional consideration is also given to market conditions such as competitor pricing strategies and market trends. We regularly review VSOE for our professional services in addition to 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.selling price.

The Company accounted for the change in useful life ashas not experienced a change in units of accounting estimate whichnor was there a change in allocation of fair value to the various units of accounting. Historically, the Company has been able to obtain VSOE or third-party evidence for significant service deliverables. No material changes in assumptions, inputs or methodology used in determining VSOE or third-party evidence have been made. The pattern of revenue recognition is accounted for onexpected to remain consistent with prior periods and we do not expect a prospective basis effective February 1, 2010. For the three and six months ended July 31, 2010 thematerial 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 basic and diluted loss per share of $0.02 and $0.06, respectively. Amortization expense for capitalized software development costs is included in cost of system sales in the consolidated statementtiming of operations.revenue recognition from previous generally accepted accounting principles as applied in the prior period.

During the first sixthree months of the current fiscal year,ended April 30, 2011, the Company granted 140,000535,000 options with a weighted average exercise price of $1.84$1.99 per share. During the same period 71,00045,266 options expired with an average exercise price of $1.86$1.81 per share and 77,000no options were exercised under all plans at an average exercise price of $1.27 per share.plans.

The fair value of each option grant during the quarter ended July 31, 2010April 30, 2011 was estimated at the date of the grants using a Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rate of 2.50%, a dividend yield of zero percent; and a current weighted average volatility factor of the expected market price of Streamline Health’s Common Stock of 0.5410.528 in 2010. The weighted average expected life of stock options are five years and have a forfeiture rate of zero.

During the first sixthree months of the current fiscal year,ended April 30, 2011, the Company granted 209,00025,000 restricted stock shares with a weighted average fair valueas executive inducement grants. These executive inducement grants were approved by the board pursuant to Nasdaq Marketplace Rule 5635(c)(4). The terms of $1.94 per share. These sharesthe grants are subjectnearly as practicable identical to the terms and conditions of the Company’s 2005 Incentive Compensation Plan as amended, and are granted to certain independent members of the Board of Directors and employees. The shares have an approximate one-year restriction period. During the same period 25,000 restricted shares had their restriction period lapse; these shares had a weighted average fair value of $2.95 per share. In addition, 1,600 shares were forfeited prior to the lapse of the restriction period; these shares had a weighted average fair value of $2.00 per share.Plan.

The two-class method is used to calculate basic and diluted earnings (loss) per share (“EPS”) as unvested restricted stock awards are considered participating securities because they entitle holders to non-forfeitable rights to dividends or dividend equivalents during the vesting term. Under the two-class method, basic earnings (loss) per common share are calculated usingis computed by dividing the net earnings (loss) allocated to common stock holders by the weighted average number of common shares outstanding. In determining the amount of net earnings (loss) to allocate to common holders, earnings are allocated to both common shares and participating securities based on their respective weighted-average shares outstanding duringfor the period.

The following table details the remaining obligations, by fiscal year, as of the end of the quarter:

On June 21, 2010,April 13, 2011, the CompanyCompany’s wholly owned subsidiary, Streamline Health, Inc., entered into a Second Amendment to Lease Agreement with Alliance Street, LLC for the Company’s principal executive offices. The term of the lease has been extended for a five year term expiring July 31, 2015.

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 1.1 Business”, “Item 1A.1A Risk Factors”, Part II, “Item 7.7 Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8.8 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, 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.

Founded in 1989, Streamline Health Solutions, Inc. (“Streamline Health^®” or the “Company”) is a healthcare informationleading developer of workflow and document management technology company, which is focused on developing and licensing proprietary software solutions that improve document-centric information flowsdrive process efficiencies and complementcost reductions for leading healthcare facilities throughout North America. Since our inception in 1989, Streamline Health’s technology solutions have seamlessly interfaced with our customers’ existing enterprise or departmental electronic medical record systems. The Company’s solutions efficiently integrate paper-based and enhance existing transaction-centric hospital healthcare information systems. In additionunstructured data with electronic data in the areas of Health Information Management, Patient Financial Services, Human Resources, and Supply Chain Management to provide real-time comprehensive patient profiles and generate substantial operational savings. Streamline Health’s workflow and document management solutions assist hospitals in meeting the requirements of “meaningful use” to become eligible for significant incentive payments as outlined in the HITECH act (a provision of American Recovery and Reinvestment Act of 2009), and they are an integral part of an enterprise-wide Electronic Health provides consulting services specializing in enterprise connectivity, systems integration, and departmental process improvement.Record (EHR). The Company sells its products and services in North America to remarketers, hospitals, clinical and ambulatory services through its direct sales force, and its reseller partnerships. The Company also sells to direct remarketers, hospitals, clinical and ambulatory services.

Streamline Health’s core technology is a secure document management repository called accessANYware^TM that collects, indexes, and intelligently routes unstructured, document-based medical and financial data throughout the enterprise. The accessANYware family of solutions create a permanent document-based repository of historical health information that iswork complementary to, and can be seamlessly integrated with existing disparatetransaction-centric clinical, financial and administrativemanagement information systems, providing convenient electronic access to all forms of patient information from any location, including secure web-based access. These integrated solutions allow providers and administrators to link existing systems with documents, which can dramatically improve the availability of patient information while decreasing direct costs associated with document retrieval, work-in-process, chart processing, document retention, and archiving.

At April 30, 2011 Streamline Health has master agreements and purchase orders from customers and remarketing partners for systems and related services (excluding support and maintenance, and transaction-based SaaS subscription revenues), which have not been delivered or installed which, if fully performed, would generate future revenues of approximately $4,947,000 compared with $4,240,000 at April 30, 2010. The related systems and services are expected to be delivered over the next two to three years. The increase in the near term. Coincidingbacklog is the result of several contracts for new or add-on proprietary software licenses, professional services, or third-party hardware and software entered into during fiscal 2010, net of the revenues recognized from backlog since April 30, 2010. At April 30, 2011, Streamline Health had maintenance agreements purchase orders, from customers and remarketing partners for maintenance, which if fully performed, will generate future revenues of approximately $6,199,000 compared with $5,078,000 at April 30, 2010, through their respective renewal dates in fiscal year 2012 and 2011. This increase is primarily the releaseresult of accessANYware 5.0,new or renewed maintenance contracts that have entered their service period, and market climates observed,therefore, added to backlog, and net of recognized maintenance revenues since April 30, 2010. At April 30, 2011, Streamline Health has entered into SaaS agreements, which are expected to generate revenues in excess of $6,550,000 through their respective renewal dates in fiscal years 2011 through 2014. The software as a service backlog decreased from $9,310,000 at April 30, 2010, due to the decreased volume of new SaaS business and renewals, and recognized revenues from contracts signed in prior years.

The commencement of revenue recognition varies depending on the size and complexity of the system; the implementation schedule requested by the customer and usage by customers of the Company’s SaaS services. Therefore, it is difficult for the Company has madeto accurately predict 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 dramatic shift in strategy towards our hosted delivery model. A desirable byproductmaterial breach by Streamline Health, or may delay certain aspects of the hosted model is much better visibility for future revenue streams based on backlog fulfillment from hosted contracts over typical five yearinstallation. 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 contract periods; as well asphases of an agreement, or the failure of Streamline Health to procure additional agreements, could have a high percentagematerial adverse effect on Streamline Health’s business, financial condition, and results of contract renewals after the initial term. As we continue to gain traction in our hosted recurring revenue model, traditional license sales can provide a significant impact to our operating results. The Company believes this combination is key to our long term success and return on investment for the Company’s stockholders. In the near term, management’s intention is to measure its success by revenue and revenue backlog, and level of earnings before interest, taxes, depreciation and amortization (EBITDA), rather than net profits.operations.

The Company recognized revenues in the three and six month period ending July 31, 2010first quarter of $4,676,000 and $8,220,000,fiscal 2011 of $4.1 million, compared to $4,069,000 and $7,820,000$3.5 million of revenue recognized in the comparable prior period.quarter; an increase of $596,000, or 17%. 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-hostingSaaS subscriptions and recurring maintenance revenues.contracts. The Company incurred an operating lossesloss of $254,000 in the three and six month period ending July 31, 2010first quarter of $28,000 and $1,229,000 respectively. Comparatively, the Company incurred afiscal 2011, compared to an operating loss of $17,000 and operating profit$1.2 million in the first quarter of $11,000 respectively, for the three and six month periods ending July 31, 2009.fiscal 2010. Operating expenses in the three and six month period ending July 31, 2010 were $4,704,000 and $9,449,000 respectively,$4.4 million, compared to $4,087,000 and $7,810,000$4.7 million in the comparable prior three and six month periods. The increase in operating expenses was due to several factors including an increase in amortizationquarter; a decrease of capitalized software development costs. This increase in amortization expense is primarily due to$351,000 or 7% over the general release of accessANYware 5.0 in late fiscal 2009. In addition to amortization expense, the Company increased investments made in professional services staffing, customer, professional fees, and increased compensation expenses.prior comparable quarter.

The Company’s revenues from proprietary systems sales have varied, and may continue to vary, significantly from quarter-to-quarter because of 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, and timing of the recognition of revenues under generally accepted accounting principles. Conversely, revenues from hosted systemsSaaS subscription sales, and maintenance services do not fluctuate significantly from quarter-to-quarter, but have been increasing, on an annual basis, as the number of customers increase. Substantial portions of the operating expenses are fixed; therefore operating profits are expected to vary depending on the factors that drive fluctuations in revenues and the mix of proprietary system sales versus hosted contractsSaaS subscriptions sold.

Revenues consisted of the following (in thousands):