UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~October 31, 2010~~April 30, 2011


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 0-28132

STREAMLINE HEALTH SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)


Delaware		31-1455414
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

10200 Alliance Road, Suite 200
Cincinnati, Ohio 45242-4716
(Address of principal executive offices) (Zip Code)

(513) 794-7100
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filero		Accelerated filero		Non-accelerated filero		Smaller reporting companyþ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

Number of shares of Registrant’s Common Stock ($.01 par value per share) issued and outstanding, as of ~~December 9, 2010: 9,796,517.~~June 8, 2011: 9,881,517.

PART I. FINANCIAL INFORMATION


Item 1.		CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

STREAMLINE HEALTH SOLUTIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

Assets


	(Unaudited)			(Audited)			(Unaudited)			(Audited)
	October 31,			January 31,			April 30, 2011			January 31, 2011
	2010			2010
Current assets:
Cash and cash equivalents	$	665,472		$	1,025,173		$	481,717		$	1,403,949
Accounts receivable, net of allowance for doubtful accounts of $100,000		2,408,822			1,922,279
Accounts receivable, net of allowance for doubtful accounts of $150,000 and $100,000, respectively								1,550,789			2,620,756
Contract receivables		705,472			1,182,308			663,375			680,096
Prepaid hardware and third party software for future delivery		204,263			149,281			55,363			72,259
Prepaid other, including prepaid customer maintenance contracts		1,121,857			1,363,332
Prepaid customer maintenance contracts								960,099			794,299
Other prepaid assets								257,464			200,056
Deferred income taxes		224,000			224,000			167,000			167,000

Total current assets		5,329,886			5,866,373			4,135,807			5,938,415


Property and equipment:
Computer equipment		3,162,406			2,987,039			2,785,062			2,708,819
Computer software		1,979,869			1,816,397			1,988,573			1,947,135
Office furniture, fixtures and equipment		747,867			747,867			747,867			747,867
Leasehold improvements		639,864			574,257			639,864			639,864

		6,530,006			6,125,560			6,161,366			6,043,685
Accumulated depreciation and amortization		(4,951,522	)		(4,344,432	)		(4,702,279	)		(4,517,860	)

		1,578,484			1,781,128			1,459,087			1,525,825

Other assets:
Contract receivables, less current portion		243,635			146,093			286,239			241,742
Capitalized software development costs, net of accumulated amortization of $12,312,492 and $10,411,828, respectively		8,090,628			8,049,292
Other, including deferred income taxes of $1,651,000		1,674,876			1,681,661
Capitalized software development costs, net of accumulated amortization of $13,325,939 and $12,832,347, respectively								7,866,472			7,575,064
Other, including deferred taxes of $711,000, respectively								737,134			734,376

Total other assets								8,889,845			8,551,182

	$	16,917,509		$	17,524,547		$	14,484,739		$	16,015,422

STREAMLINE HEALTH SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

Liabilities and Stockholders’ Equity


	(Unaudited)			(Audited)
	October 31,			January 31,			(Unaudited)			(Audited)
	2010			2010			April 30, 2011			January 31, 2011

Current liabilities:
Accounts payable	$	382,823		$	887,928		$	591,640		$	565,252
Accrued compensation		650,027			559,235			541,682			1,163,843
Accrued other expenses		485,862			476,504			247,904			480,422
Line of credit, current		2,400,000			—
Current portion of capital lease obligation		209,060			249,309
Current portion of deferred revenues		4,530,436			4,956,303
Capital lease obligation								132,299			183,637
Deferred revenues								4,902,831			5,766,795

Total current liabilities		8,658,208			7,129,279			6,416,356			8,159,949

Line of credit, non-current		—			900,000
Deferred revenues, less current portion		109,498			602,239
Capital lease obligation, less current portion		24,217			161,666
Accrued other expenses, non-current		7,763			—

Long-term liabilities:
Line of credit								1,500,000			1,200,000
Lease incentive liability, less current portion								57,748			61,034

Total liabilities		8,799,686			8,793,184			7,974,104			9,420,983


Stockholders’ equity:
Convertible redeemable preferred stock, $.01 par value per share 5,000,000 shares authorized, no shares issued		—			—
Common stock, $.01 par value per share, 25,000,000 shares authorized, 9,767,284 and 9,436,824 shares issued, respectively		97,673			94,368
Convertible redeemable preferred stock, $.01 par value per share, 5,000,000 shares authorized, no shares issued								—			—
Common stock, $.01 par value per share, 25,000,000 shares authorized, 9,881,517 and 9,856,517 shares issued and outstanding, respectively								98,815			98,565
Additional paid in capital		36,706,649			36,160,126			37,171,959			36,975,242
Accumulated other comprehensive income		—			5,620
Accumulated deficit		(28,686,499	)		(27,528,751	)		(30,760,139	)		(30,479,368	)

Total stockholders’ equity		8,117,823			8,731,363			6,510,635			6,594,439

	$	16,917,509		$	17,524,547		$	14,484,739		$	16,015,422

STREAMLINE HEALTH SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three ~~and Nine~~ Months Ended, ~~October 31,~~
(Unaudited)


	Three Months						Nine Months
	2010			2009			2010			2009			April 30, 2011			April 30, 2010
Revenues:
Systems sales	$	579,332		$	169,801		$	1,690,650		$	957,384		$	131,002		$	150,438
Services, maintenance and support		2,989,610			3,006,002			8,364,120			8,522,975			3,083,961			2,543,575
Application-hosting services		901,934			930,242			2,636,599			2,445,978
Software as a service														925,059			850,003

Total revenues		4,470,876			4,106,045			12,691,369			11,926,337			4,140,022			3,544,016


Operating expenses:
Cost of systems sales		737,385			658,294			2,255,780			2,091,989			540,952			737,889
Cost of services, maintenance and support		1,347,055			1,317,619			4,108,043			3,697,735			1,333,871			1,382,210
Cost of application-hosting services		480,327			407,953			1,409,453			1,203,606
Cost of software as a service														436,423			457,028
Selling, general and administrative		1,361,657			1,540,745			4,565,097			4,010,877			1,664,661			1,697,577
Product research and development		400,133			466,455			1,437,451			1,196,645			417,774			470,171

Total operating expenses		4,326,557			4,391,066			13,775,824			12,200,852			4,393,681			4,744,875

Operating profit (loss)		144,319			(285,021	)		(1,084,455	)		(274,515	)
Operating loss														(253,659	)		(1,200,859	)
Other income (expense):
Interest expense		(31,585	)		(12,137	)		(87,921	)		(30,254	)		(19,842	)		(22,335	)
Other income (expense)		(13,158	)		1,387			29,628			20,390
Miscellaneous income (expenses)														(4,955	)		51,809

Earnings (loss) before taxes		99,576			(295,771	)		(1,142,748	)		(284,379	)
Income taxes		(5,000	)		—			(15,000	)		(13,000	)
Loss before income taxes														(278,456	)		(1,171,385	)
Income tax (expense)														(2,315	)		(5,000	)

Net earnings (loss)	$	94,576		$	(295,771	)	$	(1,157,748	)	$	(297,379	)
Net loss													$	(280,771	)	$	(1,176,385	)

Basic and diluted net earnings (loss) per common share													$	(0.03	)	$	(0.13	)

Basic net earnings (loss) per common share	$	0.01		$	(0.03	)	$	(0.12	)	$	(0.03	)
Number of shares used in basic and diluted per common share computation														9,649,508			9,413,367


Diluted net earnings (loss) per common share	$	0.01		$	(0.03	)	$	(0.12	)	$	(0.03	)


Number of shares used in per common share computations:
Basic		9,536,051			9,423,211			9,486,233			9,385,969

Diluted		9,544,183			9,423,211			9,486,233			9,385,969

STREAMLINE HEALTH SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

~~Nine~~Three Months Ended, ~~October 31,~~
(Unaudited)


	2010			2009			April 30, 2011			April 30, 2010
Operating activities:
Net loss	$	(1,157,748	)	$	(297,379	)	$	(280,771	)	$	(1,176,385	)
Adjustments to reconcile net earnings (loss) to net cash (used in) provided by operating activities:
Loss on disposal of fixed assets		—			4,308
Long-term lease incentive		—			(48,842	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		2,550,778			2,039,232			691,345			837,019
Share-based compensation		414,486			204,259

Changes in assets and liabilities:
Accounts and contract receivables		(107,249	)		1,704
Other current assets		180,874			4,950
Accounts payable and accrued expenses		(405,364	)		(231,355	)
Loss on disposal of fixed asset								26,666			—
Stock-based compensation expense								196,967			87,446
Change in assets and liabilities:
Accounts, contract and installment receivables								1,042,191			1,222,930
Other assets								(209,070	)		(127,979	)
Accounts payable								26,388			(283,538	)
Accrued expenses								(857,965	)		(53,208	)
Deferred revenues		(918,608	)		(1,859,963	)		(863,964	)		(504,687	)

Net cash provided by (used in) operating activities		557,169			(183,086	)
Net cash (used in) provided by operating activities								(228,213	)		1,598


Investing activities:
Purchases of property and equipment		(447,470	)		(464,395	)		(157,681	)		(153,407	)
Capitalization of software development costs		(1,942,000	)		(2,879,000	)		(785,000	)		(696,000	)
Other		6,785			24,805			—			(34,344	)

Net cash used in investing activities		(2,382,685	)		(3,318,590	)		(942,681	)		(883,751	)


Financing activities:
Proceeds from stock purchase plan and exercise of stock options		135,341			65,900
Proceeds from municipal incentive agreement		8,172			—
Net change in bank line of credit		1,500,000			1,100,000
Payments on capital lease		(177,698	)		—
Net change under revolving credit facility								300,000			800,000
Proceeds from exercise of stock options and stock purchase plan								—			83,041
Payments on capital lease obligation								(51,338	)		—

Net cash provided by financing activities		1,465,815			1,165,900			248,662			883,041


Decrease in cash and cash equivalents		(359,701	)		(2,335,776	)
(Decrease) Increase in cash and cash equivalents								(922,232	)		888
Cash and cash equivalents at beginning of period		1,025,173			3,128,801			1,403,949			1,025,173

Cash and cash equivalents at end of period	$	665,472		$	793,025		$	481,717		$	1,026,061


Supplemental cash flow disclosures:
Interest paid	$	87,639		$	24,899		$	16,841		$	13,276

Income taxes paid	$	54,741		$	10,584		$	11,897		$	8,994

STREAMLINE HEALTH SOLUTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE A — BASIS OF PRESENTATION

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 nine~~ months ended ~~October 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.

NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the Company’s significant accounting policies is presented ~~beginning on page 45 of its~~in “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.

~~Useful Lives of Capitalized Software Development Costs~~Recently Adopted Accounting Pronouncements

ASU 2009-13. In ~~the fourth quarter of fiscal~~October 2009, the ~~Company made~~Financial 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 product~~best estimate of the ~~estimated useful lives~~standalone selling price of ~~its capitalized software development costs. After reviewing strategic plans, analyzing the historical useful life~~deliverables 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.x products, and revised the estimated useful lives of certain other products from three years to five years.selling price is not available.

The ~~product life cycle~~Company adopted ASU 2009-13 for ~~accessANYware versions prior to 5.x, have lasted longer than five years. Historical product~~all new and ~~customer data shows that many customers remain~~materially 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 the accessANYware 5.x products 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 5.x products are being rolled out. This same policy will be applied to FolderView as it is generally a primary add-on component to prior accessANYware versions, and has had a similar historical life cycle. FolderView will be embedded into version 5.1.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.x products, 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 as~~has not experienced a change in units of accounting ~~estimate which~~nor 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 on~~expected to remain consistent with prior periods and we do not expect a ~~prospective basis effective February 1, 2010. For the three and nine months ended October 31, 2010 the~~material change resulted in a reduction of amortization expense of approximately $251,000 and $753,000, respectively; an increase in income from continuing operations and net income of $251,000 and $753,000, respectively; and an increase in basic and diluted earnings (loss) per share of $0.03 and $0.08, respectively. Amortization expense for capitalized software development costs is included in cost of system sales in the ~~consolidated statement~~timing of ~~operations.~~revenue recognition from previous generally accepted accounting principles as applied in the prior period.

Revenue Recognition — Multiple-Deliverable Revenue Arrangements

The Company may bundle certain proprietary software technology licenses with post-contract customer support (“PCS”), and implementation services. The Company may also bundle software as a service (“SaaS”) offerings with implementation services. In addition, the Company may also bundle additional consulting services such as Business Process Management (“BPM”) and Revenue Cycle Management (“RCM”) services with proprietary software license agreements and SaaS subscriptions.

Provided that the undelivered elements in arrangements that include multiple elements are fixed and determinable, the Company allocates the total revenue to be earned under the arrangement to the elements based on their relative fair value of vendor specific objective evidence (“VSOE”), third-party evidence or estimated selling price, relative to the hierarchy. The amounts representing the fair value of the undelivered items are deferred until delivered, or recognized pro rata over the service contract.

NOTE C — EQUITY AWARDS

Compensation expense is recognized over the requisite service period for awards of equity instruments to employees based on the grant-date fair value of those awards expected to ultimately vest (with limited exceptions). Forfeitures are estimated on the date of the grant and revised if actual or expected forfeiture activity differs materially from original estimates.

During the ~~nine~~three months ended ~~October 31, 2010,~~April 30, 2011, the Company granted ~~139,916~~535,000 options with a weighted average exercise price of ~~$1.98~~$1.99 per share. During the same period ~~80,400~~45,266 options expired with an average exercise price of ~~$2.03~~$1.81 per share and ~~92,000~~no options were exercised under all ~~plans at an average exercise price of $1.05 per share.~~plans.

The fair value of each option grant during the quarter ended ~~October 31, 2010~~April 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 ~~0.541~~0.528 in 2010. The weighted average expected life of stock options isare five years and have a forfeiture rate of zero.

During the ~~first nine~~three months ~~of the current fiscal year,~~ended April 30, 2011, the Company granted ~~208,541~~25,000 restricted stock shares ~~with a weighted average fair value~~as 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 shares~~the grants are ~~subject~~nearly 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 25,422 restricted shares had their restriction period lapse; these shares had a weighted average fair value of $2.95 per share. In addition, 3,347 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.

NOTE D — EARNINGS PER SHARE

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 using~~is 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 ~~during~~for the period.

~~The fiscal 2010 and 2009 diluted~~ Diluted net earnings (loss) per common share ~~calculation, excludes~~reflects the ~~effect of some~~potential dilution that could occur if stock options, stock purchase plan commitments, and restricted stock were exercised into common stock, ~~equivalents,~~under certain circumstances, that then would share in the earnings of Streamline Health. The dilutive effect is calculated using the treasury stock method. A reconciliation of basic and diluted weighted average shares for basic and diluted EPS, as ~~the inclusion thereof would be anti-dilutive. The following table details the share amounts,~~well as ~~of the end of the third quarter:~~anti-dilutive securities is as follows:

For the Three Months Ended For the Nine Months Ended
October 31, October 31,
2010 2009 2010 2009
Stock options⁽¹⁾
593,398 642,882 605,398 642,882
Restricted stock⁽²⁾
217,048 25,422 217,048 25,422

Total anti-dilutive shares excluded 810,446 668,304 822,446 668,304


	Three Months Ended,
	April 30, 2011			April 30, 2010
Numerator for Basic and Diluted Loss per Share:
Net loss		(280,771	)		(1,176,385	)

Denominator for basic loss per share weighted average shares		9,649,508			9,413,367
Effect of dilutive securities⁽¹⁾
Stock options		—			—
Restricted stock		—			—

Denominator for basic loss per share, with assumed conversions		9,649,508			9,413,367

Basic net loss per common share		(0.03	)		(0.13	)

Diluted net loss per common share		(0.03	)		(0.13	)

Anti-dilutive securities:
Stock options, out-of-the-money		1,211,116			699,000


(1)		~~Option shares with prices ranging from $1.46 to $6.03~~Excluded common stock equivalents (stock options and ~~$0.53 to $6.03 were outstanding for~~restricted stock), as the three months ended October 31, 2010 and October 31, 2009, respectively. Option shares with prices ranging from $0.53 to $6.03 and $0.53 to $6.03 were outstanding for the nine months ended October 31, 2010 and October 31, 2009, respectively.

~~(2)~~		Performance based restricted stock awards, for which all necessary conditions of such contingently issuable shares have not been satisfied; Share prices ranging from $1.85 to $2.48 and $2.48 to $2.95 were outstanding for the three and months ended October 31, 2010 and October 31, 2009, respectively.inclusion thereof would be antidilutive.

NOTE E — CONTRACTUAL OBLIGATIONS

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

Line of Credit Operating Leases Capital Lease Fiscal Year Totals
2010 $ — 117,000 — $ 117,000
2011 2,400,000 396,000 250,000 3,046,000
2012 — 334,000 — 334,000
2013 — 320,000 — 320,000
2014 — 329,000 — 329,000
Thereafter — 164,000 — 164,000

Total $ 2,400,000 1,660,000 250,000 $ 4,310,000

On June 21, 2010, the Company 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 October 31, 2015.

On June 16, 2010 the Company entered into a minimum five year economic development incentive agreement with the City of Blue Ash, Ohio. This incentive agreement allows the Company to draw up to $130,000 for critical business functions. The terms of the agreement allow for any balance drawn to be forgiven by the City of Blue Ash upon meeting certain employment criteria. The Company has received $8,000 in reimbursements for capital expenditures as of October 31, 2010.


	Line of Credit		Operating Leases		Capital Lease		Fiscal Year Totals
2011	$	1,502,000	$	280,000	$	132,000	$	1,914,000
2012		—		334,000		—		334,000
2013		—		320,000		—		320,000
2014		—		329,000		—		329,000
2015		—		164,000		—		164,000
Thereafter		—		—		—		—

Total	$	1,502,000	$	1,427,000	$	132,000	$	3,061,000

NOTE F — DEBT

On ~~October 21, 2009,~~April 13, 2011, the ~~Company~~Company’s wholly owned subsidiary, Streamline Health, Inc., entered into ana second amended and restated revolving note with Fifth Third Bank, Cincinnati, OH. The terms of the loan remain the same as set forth in the revolving note entered into on ~~October~~July 31, 2008, as amended on January 6, 2009, and October 21, 2009, except as follows: (i) the maximum principal amount that can be borrowed was increased to ~~$2,750,000~~$3,000,000 from the prior maximum amount of ~~$2,000,000;~~$2,750,000, subject to the borrowing base limitation; and (ii) the maturity date of the loan ~~was~~has been extended to October 1, ~~2011~~2013 from ~~August~~October 1, ~~2010; and (iii) the~~2011. The interest rate on the outstanding principal balance ~~will accrue~~of the loan accrues at an annual floating rate of interest equal to the Adjusted Libor Rate (as defined in the revolving note) plus 3.25%., payable monthly. The interest rate on the note was ~~3.625%~~3.5% at ~~October 31, 2010.~~April 30, 2011. In accordance with the revised maturity date, the outstanding balance on the note is classified as a long-term obligation at April 30, 2011.

In connection with ~~the~~ entering into of the ~~revised~~second amended and restated revolving note in April 2011, the Company also entered into an amendment to the amended and restated continuing guaranty agreement. The terms of the continuing ~~guaranty~~guarantee agreement remain the same as set forth in the guaranty agreement entered into on ~~October~~July 31, 2008, as amended on January 6, 2009 and on October 21, 2009, except ~~that~~that: (i) the minimum fixed charge coverage ratio covenant ~~that formerly required~~has been revised, whereas the Company shall maintain a minimum trailing twelve months fixed charge coverage ratio of 1.25, measured each fiscal quarter; (ii) the funded indebtedness to ~~maintain certain levels of minimum tangible net worth~~EBITDA covenant has been ~~eliminated.~~revised, whereas the Company shall report a funded indebtedness to EBITDA ratio no greater than 2.0, measured each fiscal quarter and; (iii) and a covenant has been added whereas the Company’s EBITDA shall cover its capitalized software development costs each fiscal quarter. The covenant becomes effective on October 31, 2011 and is calculated based on the trailing nine months. As of January 31, 2012 and thereafter, the calculation will be based on the trailing twelve months.

The note also continues to be secured by a first lien on all of the assets of the Company pursuant to security agreements entered into by the Company.

The Company was in compliance with all of the covenants at ~~October 31, 2010.~~April 30, 2011. The Company pays a commitment fee on the unused portion of the facility of ~~0.06%~~.06%. The Company had outstanding borrowings of ~~$2,400,000~~$1,500,000 and $1,200,000 under this revolving loan as of ~~October 31, 2010.~~April 30, 2011 and 2010, respectively.

NOTE G — COMMITTMENTS AND CONTINGENCIES

Streamline Health has entered into employment agreements with its officers and certain employees that generally provide annual salary, a minimum bonus, discretionary bonus, stock incentive provisions, and severance arrangements. In accordance with severance agreements in effect at April 30, 2011, the Company accrued $115,000, which will be paid in the second quarter of fiscal 2011.

As a result of a reduction in force implemented by management subsequent to the close of the quarter ended April 30, 2011, the Company accrued an additional $100,000 in the second quarter of fiscal 2011, in accordance with existing severance agreements.


Item 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

General

~~Founded in 1989,~~ Streamline Health Solutions, Inc. (“Streamline Health^®”~~, “Streamline”~~ or the “Company”) is a ~~healthcare information~~leading developer of workflow and document management technology ~~company, which is focused on developing and licensing proprietary software~~ solutions that ~~improve document-centric information flows~~drive process efficiencies and ~~complement~~cost 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 addition,~~unstructured 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.~~

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. Examples of unstructured data are hand written physician or nursing notes, physician orders, photographs, audio, video, and outside correspondence.

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 is~~work complementary to, and can be seamlessly integrated with existing ~~disparate~~transaction-centric clinical, financial and ~~administrative~~management 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 hospital information systems with digitized 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.

Healthcare providers have significant need to streamline document-centric information flows to eliminate business process friction points. Streamline Health’s vision for its customers is a fully integrated business process across departments, vendors and existing clinical, billing and administrative applications. These comprehensive, cost-effective information systems deliver rapid access to fully updated and complete patient information. Streamline Health’s strategy is to remain a leader in document management and workflow technologies that supplement the existing clinical information system, provide cost-saving efficiency and enhanced safety through improved access to critical patient data.systems. The Company’s systems and services can also help a provider’s existing system to achieve “meaningful use” under the HITECH provisions of the American Recovery and Reinvestment Act of 2009 (ARRA); which allow for reimbursement by the U.S. federal government for health providers’ capital expenditures on health information technology. These benefits encourage physicians to adopt the Company’s solutions because of convenient access to documents not typically available in data-centric clinical information systems.

The Company operates primarily in one segment as a provider of health information technology solutions that streamline healthcare information flows within the healthcare facility. The financial information required by Item 101(b) of Regulation S-K is contained in Item 6. Selected Financial Information section of the Company’s January 31, 2010 Form 10-K.

~~Executive Overview~~

~~In 2009, the Company successfully made its~~ fifth-generation ~~software~~accessANYware architecture (accessANYware 5.0) generally-available, and has put the new architecture into production successfully in several large healthcare facilities in Canada. Subsequently, we have continued our investment in the accessANYware 5.x solution portfolio research and development. This development effort includes the consolidation of technology platforms onto the Microsoft.NET platform, and also the internationalization of the software to reach international markets.

The Company’s core technology is supplemented by departmental workflow-based solutions and services which ~~specifically included French Canadian language capabilities~~offer solutions to specific healthcare business processes within Health Information Management (HIM) and the revenue cycle. Additionally, the Company offers a full complement of high quality consulting and implementation services to complement and enhance its software applications.

The Company’s software solutions are delivered either by purchased perpetual license which is installed locally in the customer’s data center; or by subscription and accessed by software as ~~part~~a service through a secure internet connection (also known as “SaaS”, and previously referred to as “application hosting services” in the Annual Report on Form 10-K; The Company believes SaaS is a more accurate label for this type of subscription services). A SaaS subscription provides Streamline Health’s ~~agreements~~complete suite of document management and workflow products, which also enables improved security, and accessibility to patient records at significant cost savings; with ~~health care~~minimal up-front capital investment, maintenance, and support costs. In addition, the healthcare provider need not have knowledge of, expertise in, or control over the technology infrastructure in the data center that supports them. SaaS systems ~~in Canada via our international remarketing partner, Telus Health. In 2010 and into 2011 we are continuing development efforts on accessANYware 5.1 which we expect will be available~~allow customers to ~~our U.S. based customers in 2011. The enhanced version of~~realize the accessANYware 5.x products allow for expanded functionality, additional interoperability capabilities with existing third party healthcare health information systems, and shorter development periods for a faster time-to-market for new products. We have had positive reception to accessANYware 5.0 at the installed locations in Canada, and the Company plans to continue this momentum with future releases of 5.x products.

Prior versions of accessANYware are still available for sale, and the Company continues to provide full product support for prior versions, as we anticipate several years before all existing accessANYware customers complete a transition to the accessANYware 5.x platform.

Healthcare organizations are seeking to improve business processes to reduce costs, and increase reimbursement rates and revenues, while also improving the quality of care. Business Process Management (BPM) and our newly organized Performance Management Group (PMG) are Streamline Health’s consulting services divisions that take advantage of what the Company believes is a significant growth opportunity; to provide departmental document workflow solutions, revenue cycle management, executive decision analysis consulting, and business process optimization services. In the third quarter of 2010 we entered into a contract with onebenefits of our ~~Texas based hospital~~ systems ~~for BPM services to implement our Referral Order Workflow (ROW). This solution will provide~~with an automated means of capturing and referring physician orders while routing to the hospital’s scheduling office, and linking the orders to the patient’s medical record within Streamline Health’s enterprise document management repository. Workflow solutions such as ROW are solutions targeted for departmental process improvements. These BPM and PMG implemented solutions provide for a quickaccelerated return on investment, ~~for customers by utilizing Streamline’s workflow management expertise.~~ and less economic risk.

The Company ~~views offerings such~~operates primarily in one segment as ~~ROW, as drivers~~a provider of ~~our future growth, as well as~~health information technology solutions. The financial information required by Item 101(b) of Regulation S-K is contained in Item 6 Selected Financial Information of the ~~success of our customers.~~

BPM’s focus will remain on departmental workflow and process improvement solutions, and PMG will focus on revenue cycle enhancement consulting and executive level decision analysis. Both use Streamline’s workflow technologies and expertise to improve the customer’s business operations.Company’s January 31, 2011 Form 10-K.

1312

Streamline Health delivers its products as licensed, locally-installed systems, or hosted systems in the Company’s data center. A desirable byproduct of hosted system sales is the recurring revenues from backlog fulfillment of these hosted contracts, which are typically five- year or more contract periods. Additionally, there are a high percentage of contract renewals after the initial term. As the Company continues to promote our hosted recurring revenue model, traditional license sales provide a significant impact to our short-term operating results. Licensed, locally installed contracts also provide for significant near-term operating cash flow, as we acquire more hosted customers for which cash is collected over the long term period of the hosted contract. The Company believes a combination of licensed, locally installed system sales along with growth in recurring revenue from hosted system sales is key to our long term success and return on investment for the Company’s stockholders. In the near term, management believes it is more appropriate to measure its success by revenue and revenue backlog, and level of earnings before interest, taxes, depreciation and amortization (EBITDA), rather than net profits. Furthermore, the Company expects that the near-term focus on these metrics will translate into the goal of sustained profitability over the long-term.

~~Operating Results~~Signed Agreements — Backlog

New bookings for the third quarter, excluding maintenance services, were in excess of $1.2 million. These new bookings include two new enterprise license contracts, and a large add-on enterprise license sale. 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 nine month periods ending October 31, 2010 of $4,471,000 and $12,691,000, compared to $4,106,000 and $11,926,000 in the comparable prior periods. The increased revenues recognized over the prior three and nine 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 an operating profit in the current quarter of $144,000 and an operating loss of $1,084,000 for the nine month period ending October 31, 2010. Comparatively, the Company incurred operating losses of $285,000 and $275,000 respectively, for the three and nine month periods ending October 31, 2009. Operating expenses in the three and nine month periods ending October 31, 2010 were $4,327,000 and $13,776,000 respectively, compared to $4,391,000 and $12,201,000 in the comparable prior three and nine month periods. The decrease in operating expenses over the prior quarter was due to decreased selling, general and administrative expenses in the third quarter of 2010. The increase in operating expenses over the prior nine month period was due to several factors including an increase in amortization of capitalized software development costs. This increase in amortization expense in fiscal 2010 is primarily due to 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, selling and marketing, professional fees, and increased compensation expenses.

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 systems 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 versus hosted contracts sold.

~~Quarterly Statement of Operations~~⁽¹⁾

Three Months Ended October 31, Nine Months Ended October 31,
2010 2009 2010 2009

Systems sales 13 % 4 % 13 % 8 %
Services, maintenance and support 66 73 66 71
Application-hosting services 21 23 21 21

Total revenues 100 % 100 % 100 % 100 %

Cost of sales 57 % 58 % 61 % 59 %
Selling, general and administrative 31 38 36 34
Product research and development 9 11 11 10

Total operating expenses 97 % 107 % 108 % 102 %

Operating profit (loss) 3 % (7 )% (8 )% (2 )%
Other income (expense), net (1 ) (— ) (1 ) (1 )
Income tax net benefit — (— ) (— ) (— )

Net earnings(loss) 2 % (7 )% (9 )% (3 )%

Cost of systems sales 127 % 388 % 133 % 218 %

Cost of services, maintenance and support 45 % 44 % 49 % 43 %

Cost of application-hosting services 53 % 44 % 54 % 49 %


~~(1)~~		Because a significant percentage of the operating costs are incurred at levels that are not necessarily correlated with revenue levels, a variation in the timing of systems sales and installations and the resulting revenue recognition can cause significant variations in operating results. As a result, period-to-period comparisons may not be meaningful with respect to the past operations nor are they necessarily indicative of the future operations of Streamline Health 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.

~~Backlog~~

~~Backlog consisted of the following (in thousands):~~

October 31, July 31, January 31, October 31,
2010 2010 2010 2009
Streamline Health software licenses $ 298 174 201 2,036
Custom software 42 62 105 140
Hardware and third party software 176 95 171 268
Professional services 3,293 3,981 3,977 3,156
Application-hosting services 8,068 8,818 9,414 10,897
Recurring maintenance 7,641 5,788 5,987 6,075

Total $ 19,518 18,918 19,855 22,572

At ~~October 31, 2010~~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 ~~application-hosting~~SaaS subscription revenues), which have not been delivered or installed ~~and~~which, if fully performed, would generate future revenues of approximately ~~$19,518,000~~$4,947,000 compared with ~~$22,572,000~~$4,240,000 at ~~October 31, 2009.~~April 30, 2010. The related systems and services are expected to be delivered over the next two to three years. The ~~overall decrease~~increase in the backlog ~~as compared to October 31, 2009~~ is ~~primarily~~ the result of ~~the recognition of revenues relating to the release of accessANYware 5.0 in the fourth quarter of fiscal 2009, along with the continued recognition of backlogged revenues relating to~~several contracts for new or add-on proprietary software licenses, professional services, or third-party hardware and software ~~for~~entered into during fiscal 2010, net of the ~~Canadian customer and others.~~

revenues recognized from backlog since April 30, 2010. At ~~October 31, 2010,~~April 30, 2011, Streamline Health had maintenance agreements or purchase orders, from customers and remarketing partners for maintenance, which if fully performed, will generate future revenues of approximately ~~$7,641,000~~$6,199,000 compared with ~~$6,075,000~~$5,078,000 at ~~October 31, 2009,~~April 30, 2010, through their respective renewal dates in fiscal year ~~2010~~2012 and 2011. ~~The~~This increase ~~results~~is primarily ~~from~~ the ~~signing~~result of new ~~proprietary software sales~~or renewed maintenance contracts ~~during the second half~~that have entered their service period, and therefore, added to backlog, and net of ~~fiscal 2009, and in the three quarters ended October 31,~~recognized maintenance revenues since April 30, 2010.

At ~~October 31, 2010,~~April 30, 2011, Streamline Health has entered into ~~application-hosting~~SaaS agreements, which are expected to generate revenues in excess of ~~$8,068,000~~$6,550,000 through their respective renewal dates in fiscal years ~~2010~~2011 through ~~2015.~~2014. The ~~application-hosting~~software as a service backlog decreased from ~~$10,897,000~~$9,310,000 at ~~October 31, 2009,~~April 30, 2010, due to the ~~continued recognition~~decreased volume of new SaaS business and renewals, and recognized revenues from contracts signed in ~~fiscal 2008 and 2009, and decreased volume of new application-hosting business through the end~~prior years.

Below is a summary of the ~~third quarter of 2010.~~backlog at April 30, 2011, January 31, 2011 and April 30, 2010:


	April 30, 2011		January 31, 2011		April 30, 2010
Streamline Health Software Licenses	$	82,000	$	121,000	$	188,000
Custom Software		29,000		42,000		107,000
Hardware and Third Party Software		107,000		66,000		145,000
Professional Services		4,729,000		4,629,000		3,800,000
Software as a service		6,550,000		7,362,000		9,310,000
Recurring Maintenance		6,199,000		5,384,000		5,078,000

Total	$	17,696,000	$	17,604,000	$	18,628,000

Streamline Health believes its future revenues will come from direct sales and remarketing agreements with other health information systems vendors similar to the Telus Health agreement that was entered into in December 2007. Streamline Health continues to actively pursue remarketing agreements with other companies.

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~~Company’s SaaS services. Therefore, it is difficult for the Company to 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 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.

~~Streamline Health believes a large percentage of its future revenues will come from its remarketing agreements in place with health information systems vendors.~~

Quarterly Operating Results

The Company ~~continues~~recognized revenues in the first quarter of fiscal 2011 of $4.1 million, compared to ~~actively pursue remarketing agreements with other companies.~~$3.5 million of revenue recognized in the comparable prior quarter; an increase of $596,000, or 17%. The revenues recognized are derived primarily from recurring revenues recognized from SaaS subscriptions and recurring maintenance contracts. The Company incurred an operating loss of $254,000 in the first quarter of fiscal 2011, compared to an operating loss of $1.2 million in the first quarter of fiscal 2010. Operating expenses were $4.4 million, compared to $4.7 million in the comparable prior quarter; a decrease of $351,000 or 7% over the 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 SaaS 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 SaaS subscriptions sold.

Quarterly Statement of Operations⁽¹⁾


	Three Months Ended,
	April 30, 2011			April 30, 2010

Systems sales		3.2	%		4.2	%
Services, maintenance and support		74.5			71.8
Software as a service		22.3			24.0

Total revenues		100.0			100.0
Cost of sales		55.8			72.7
Selling, general and administrative		40.2			47.9
Product research and development		10.1			13.3

Total operating expenses		106.1			133.9

Operating profit (loss)		(6.1	)		(33.9	)
Other income (expense), net		(0.6	)		0.8
Income tax net benefit		—			—

Net earnings(loss)		(6.7	)%		(33.1	)%

Cost of systems sales		412.9	%		490.5	%

Cost of services, maintenance and support		43.3	%		54.3	%

Cost of software as a service		47.2	%		53.8	%


(1)		Because a significant percentage of the operating costs are incurred at levels that are not necessarily correlated with revenue levels, a variation in the timing of systems sales and installations and the resulting revenue recognition can cause significant variations in operating results. As a result, period-to-period comparisons may not be meaningful with respect to the past operations nor are they necessarily indicative of the future operations of Streamline Health 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.

1614

Revenues for the three months ended April 30, 2011, were $4,140,000 compared with $3,544,000 in the comparable quarter of fiscal 2010. The ~~quarterly, and year-to-date~~quarter-over-quarter increase was a result of an increase in professional services and increases in recurring revenues ~~was~~from software maintenance and software as a service subscription revenue. The increase in professional services is primarily the result of ~~several large proprietary~~increased revenue earned from implementations of systems and other professional services sold in prior quarters. The increase in software ~~sales during~~as a service subscription revenue is due to one SaaS customer contract sold in fiscal 2010 that reached go-live status and was able to begin ratable revenue recognition, as well as the ~~second and third quarters of 2010, and~~ continued recognition of ~~backlog~~subscription revenues from ~~hosted contracts. Professional service~~backlog. Additionally, the increase in recurring maintenance and ~~hardware and third party~~support is due to revenues recognized for maintenance periods commencing on software ~~sales decreased primarily from customer delays for systems implementation, decreases in~~sold since the ~~volume~~close of ~~hardware upgrades by existing clients, or delays in~~ the ~~purchase~~first quarter 2010.

~~Operating Expenses~~Sales

~~Operating expenses~~Cost of sales consisted of the following (in thousands):

For the Three Months Ended
October 31, Dollars Percent
2010 2009 Change Change
Cost of system sales $ 737 $ 658 $ 79 12 %
Cost of services, maintenance and support 1,347 1,318 29 2 %
Cost of application-hosting 480 408 72 18 %

Total cost of sales $ 2,564 $ 2,384 $ 180 8 %

Selling, general, and administrative 1,362 1,541 (179 ) (12 )%
Research and development 400 466 (66 ) (14 )%

Total operating expenses $ 4,326 $ 4,391 $ (65 ) (1 )%

For the Nine Months Ended
October 31, Dollars Percent
2010 2009 Change Change
Cost of system sales $ 2,256 $ 2,092 $ 164 8 %
Cost of services, maintenance and support 4,108 3,698 410 11 %
Cost of application-hosting 1,409 1,203 206 17 %

Total cost of sales $ 7,773 $ 6,993 $ 780 11 %

Selling, general, and administrative 4,565 4,011 554 14 %
Research and development 1,438 1,197 241 20 %

Total operating expenses $ 13,776 $ 12,201 $ 1,575 13 %

Three Months Ended,
April 30, 2011 April 30, 2010 Change % Change
Cost of system sales $ 541 $ 738 $ (197 ) (27 %)
Cost of services, maintenance and support 1,334 1,382 (48 ) (3 %)
Cost of software as a service 436 457 (21 ) (5 %)

Total cost of sales $ 2,311 $ 2,577 $ (266 ) (10 %)

Cost of systems sales includes amortization of capitalized software expenditures, royalties, and the cost of third-party hardware and software. The ~~increase~~decrease in the cost of systems sales ~~during the three month period ended October 31, 2010, over the prior comparable quarter,~~ is primarily the result of ~~the increases~~a $121,000 decrease in amortization ~~of capitalized software development costs~~ due to products released in fiscal years 2006 and 2007 becoming fully amortized subsequent to the timing of when certain products entered general availability, and increased hardware and third party software sales and the associated direct costs. The increase in the cost of systems sales during the nine month period ended October 31, 2010, over the prior comparable quarter, is primarily the resultend of the ~~increases in amortization~~first quarter of capitalized software development costs due to the general release of accessANYware 5.0. Additionally, this was offset by reduced hardware and third party software sales and the associated direct costs.fiscal 2010.

Cost of services, maintenance and support includes compensation and benefits for support and professional services personnel and the cost of third party maintenance contracts. The ~~year-to-date increase~~decrease is primarily due to ~~the increased investment~~reductions in ~~professional~~staffing for implementation services ~~staff~~ and ~~support for continued growth of the~~ BPM services through the second quarter 2010. Investment leveled off during the third quarter of fiscal 2010. The incremental costs incurred for the start-up of the PMG group, consisted of compensation and travel costs which occurred lateconsulting, reductions in the ~~third~~cost of third-party maintenance contracts over the prior year comparable quarter. These reductions were partially offset by increased equity awards expense.

1815

The ~~increases in the~~ cost of ~~application-hosting~~software as a service operations is relatively fixed, but subject to annual increases for the goods and services ~~operations over the three and nine months ended October 31, 2010, over the prior comparable periods, are~~it requires. The decrease is primarily attributable to ~~increased compensation, depreciation and~~several annual third party license and maintenance ~~expenses as a result~~agreements that were re-negotiated, resulting in cost savings in the current quarter; net of ~~the growing hosting center operations, as well as typical annual cost increases.~~additional depreciation on new infrastructure.

Selling, General and Administrative Expense

Selling, general and administrative expenses consisted of the following (in thousands):

Three Months Ended,
April 30, 2011 April 30, 2010 Change % Change
Selling, general, and administrative $ 1,665 $ 1,698 $ (33 ) (2 %)

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. ~~The quarterly~~This decrease over the comparable prior period is due to the reorganization of the sales and marketing staff, a decrease in bad debt expense, a decrease in commissions expense, offset by the re-instatement of bonuses. The year-to-date increase over the respective comparable prior period is due to ~~investment~~reductions in ~~customer initiatives; increases in~~salaries, sales commissions, ~~and other compensation expenses; re-instatement of bonuses; severance costs;~~ and professional fees ~~relating~~over the prior comparable quarter, as well as policies implemented to reduce travel and living expenses. These decreases in expense were primarily offset by an increased ~~compliance~~stock-based compensation expenses, bad debt expense, bonus expense, and ~~administration~~severance costs.

Product Research and Development Expense

Product research and development ~~costs are summarized as follows~~expenses consisted of the following (in thousands):

For the Three Months Ended
October 31, Dollars Percent
2010 2009 Change Change
Research and development expense $ 400 $ 466 $ (66 ) (55 )%
Capitalized research and development cost 668 859 (191 ) (22 )%

Total R&D Cost $ 1,068 $ 1,325 $ (257 ) (19 )%


	For the Nine Months Ended
	October 31,				Dollars			Percent			Three Months Ended,
	2010		2009		Change			Change			April 30, 2011		April 30, 2010		Change			% Change
Research and development expense	$	1,438	$	1,197	$	241			20	%	$	418	$	470	$	(52	)		(11	%)
Capitalized research and development cost		1,942		2,879		(937	)		(33	)%		785		696		89			13	%

Total R&D Cost	$	3,379	$	4,076	$	(697	)		(17	)%	$	1,203	$	1,166	$	37			3	%

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. Research and development expenses decreased ~~for~~to $418,000 from $470,000 from the three months ended October 31, 2010 due to reduced required resources necessary for current development projects. Research and development expense decreased for the nine month period ended October 31, 2010,prior comparable quarter, primarily due to a ~~decrease~~increase in costs eligible for capitalization. ~~However, the decrease~~The Company capitalized $785,000 and $696,000 resulting in total research and development ~~cost for~~expenditures of $1,203,000 and $1,166,000 in the ~~three~~first quarter of fiscal 2011 and ~~nine month periods ended October 31,~~ 2010, ~~over the prior comparable periods is the result of the reduced resources necessary for~~respectively when considering both capitalized software development costs and non-capitalizable research and development ~~efforts, subsequent to the release~~expense for an increase of ~~accessANYware 5.0 in the fourth quarter of fiscal 2009.~~$37,000.

Operating ~~Profit (loss)~~Loss

The Company incurred an operating ~~profit~~loss of ~~$144,000 and~~$254,000 in the first quarter of fiscal 2011, compared to an operating loss of ~~$1,084,000 for~~$1,201,000 in the ~~three~~first quarter of fiscal 2010. Increased revenues from professional service fees, and nine month periods ended October 31, 2010. Comparatively, during the prior three and nine month periods, the Company incurred operating losses of $285,000 and $275,000, respectively. The operating profit for the quarter was primarily due tocontinued increases in ~~proprietary software and maintenance~~recurring revenues were ~~offset~~aided by ~~increases~~a reduction in ~~capitalized software amortization~~operating expenses as part of cost of sales, selling, administrative, and ~~increased compensation. Similarly, increases in proprietary software sales~~research and recurring application-hosting revenues were offset by increased investment in customer initiatives, increased compensation, and a year-to-date increase in expense relating to amortization of capitalized software development ~~costs, which contributed to the operating loss for the nine month period ending October 31, 2010.~~expenses.

Other ~~Expense~~Income (Expense)

Interest expense ~~for the three and nine months ended October 31, 2010~~in first quarter of fiscal 2011 was ~~$32,000 and $88,000 respectively,~~$20,000 compared to ~~$12,000 and $30,000~~$22,000 in the comparable prior ~~periods. The increase in interest~~quarter. Interest expense ~~was related to~~from the working capital facility ~~interest and fees, as well as interest for~~was $13,000 in the first quarter of fiscal 2011 compared with $11,000 in the comparable prior quarter, primarily due to a larger average balance outstanding than in the prior comparable quarter. Interest expense from the capital lease ~~of capital equipment. Year-to-date other income of $30,000 is~~decreased by $5,000 over the prior comparable quarter primarily ~~made up of net unrealized~~due to a lower principal balance when compared to the prior year. The Company had foreign currency exchange gains of $22,000 and a loss on ~~outstanding payables and receivables.~~the disposal of a fixed asset of $27,000.

Provision for Income Taxes

The tax provision in the first quarter of fiscal ~~2010~~2011 and ~~2009~~2010 is comprised of primarily state and local provisions.

Net ~~loss~~Loss

The Company incurred ~~net income of $95,000 and~~ a ~~year-to-date~~net loss of ~~$1,158,000~~$281,000 in ~~the three and nine month periods ended October 31, 2010,~~fiscal 2011, compared to net ~~losses~~loss of ~~$296,000~~$1,176,000 in fiscal 2010.

Operational Metrics and ~~$297,000 in~~Use of Non-GAAP Financial Measures

Streamline Health’s primary metrics used to assess the ~~comparable prior periods ended October 31, 2009. Increases in proprietary software sales~~performance of the business include gross margin, cash flow from operations, non-GAAP Adjusted EBITDA (Non-GAAP measure meaning, “Earnings before interest, Tax, Depreciation, Amortization, and ~~recurring application-hosting revenues were offset by increased investment in customer initiatives,~~Stock-based compensation expense”; for explanation and ~~increased expense relating to amortization~~reconciliation of all non-GAAP financial measures, see “Use of Non-GAAP Financial Measures”), non-GAAP Adjusted EBITDA less capitalized software development costs, and non-GAAP Adjusted EBITDA margin. Management uses these measures as i) 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 employee incentive compensation programs.

Additionally, the Company’s lenders use Adjusted EBITDA, to assess operating performance. The Company’s working capital credit agreement requires compliance with financial covenants certain of which ~~contributed~~are based on an Adjusted EBITDA measurement that is the same as the Adjusted EBITDA measurement reviewed by Company management. The current metrics are outlined in the table below:

Three Months Ended,
April 30, April 30,
2011 2010 Change % Change
Gross margin $ 1,829,000 $ 967,000 862,000 89 %
Gross margin % 44 % 27 % 17 %
Cash flow (used in) provided by operations $ (228,000 ) $ 2,000 (230,000 ) (115 %)
Adjusted EBITDA $ 630,000 $ (225,000 ) 855,000 380 %
Adjusted EBITDA, less capitalized software development costs $ (155,000 ) $ (921,000 ) 766,000 494 %
Adjusted EBITDA margin 15 % (6 %) 21 %

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. A reconciliation of non-GAAP to GAAP measures used is provided below, and investors are encouraged to carefully review this reconciliation. In addition, because these non-GAAP measures are not measures of financial performance under GAAP and are susceptible to varying calculations, these measures, as defined by the Company, may differ from and may not be comparable to similarly titled measures used by other companies. The following is a summary of non-GAAP measurements used by the Company:

EBITDA, Adjusted EBITDA, Adjusted EBITDA Less Capitalized Software Development Costs, Adjusted EBITDA Margin, and Adjusted EBITDA per diluted share

The Company defines: (i) EBITDA, as net income (loss) before net interest expense, income tax expense (benefit), depreciation and amortization; (ii) Adjusted EBITDA, as net income (loss) before net interest expense, income tax expense (benefit), depreciation, amortization, and stock-based compensation expense; (iii) Adjusted EBITDA Less Capitalized Software Development Costs, includes the effect of cash spent on research and development that was capitalized; (iv) Adjusted EBITDA Margin, as Adjusted EBITDA as a percentage of net revenue; and (v) Adjusted EBITDA per diluted share as adjusted EBITDA divided by adjusted diluted shares outstanding. EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EBITDA per diluted share are used to facilitate a comparison of our operating performance on a consistent basis from period to period and provide for a more complete understanding of factors and trends affecting our business than GAAP measures alone. These measures assist management and the Board and may be useful to investors in comparing the Company’s operating performance consistently over time as they remove the impact of our capital structure (primarily interest charges), asset base (primarily depreciation and amortization) and items outside the control of the management team (taxes). Adjusted EBITDA removes the impact of share-based compensation expense, which is another non-cash item outside of management control. Adjusted EBITDA per diluted share will include incremental shares in the share count that would be considered anti-dilutive in a GAAP net loss position.

EBITDA and its variants used by management are not measures of liquidity under GAAP, or otherwise, and are not alternatives to cash flow from continuing operating activities; therefore the Company suggests that readers of the quarterly reports refer to the ~~loss~~Company’s Annual Report on Form 10-K for the ~~current nine month period.~~year ended January 31, 2011 in the section “Use of Non-GAAP Financial Measures” for complete detail of the limitations of non-GAAP financial measures presented in this quarterly report.

2018

The following table sets forth a reconciliation of EBITDA and its variants used by management, as described to assess the Company’s on-going operating performance (amounts in thousands, except per share data):

Three Months Ended,
April 30, 2011 April 30, 2010
Adjusted EBITDA Reconciliation

Net earnings (loss) $ (281 ) $ (1,176 )
Interest expense 20 22
Tax expenses 2 5
Depreciation and other amortization 198 222
Amortization of capitalized software development costs 494 615

EBITDA 433 �� (312 )

Stock-based compensation expense 197 87

Adjusted EBITDA $ 630 $ (225 )

Capitalized software development costs 785 696
Adjusted EBITDA, less capitalized software development costs (155 ) (921 )

Adjusted EBITDA Margin⁽¹⁾
15 % (6 %)

Adjusted EBITDA per diluted share

Earnings (loss) per share — diluted $ (0.03 ) $ (0.13 )
Interest expense⁽²⁾
0.00 0.00
Tax expenses⁽²⁾
0.00 0.00
Depreciation and other amortization⁽²⁾
0.02 0.02
Amortization of capitalized software development costs⁽²⁾
0.05 0.07
Stock-based compensation expense⁽²⁾
0.02 0.01

Adjusted EBITDA per adjusted diluted share $ 0.06 $ (0.03 )

Diluted weighted average shares 9,649,508 9,413,367
Includable incremental shares — adjusted EBITDA⁽³⁾
8,108 —

Adjusted diluted shares $ 9,657,616 $ 9,413,367


(1)		Adjusted EBITDA as a percentage of GAAP revenues

(2)		Per adjusted diluted weighted average shares

(3)		The number of incremental shares that would be dilutive under profit assumption, only applicable under a GAAP net loss. If GAAP profit is earned in the current period, no additional incremental shares are assumed. If negative adjusted EBITDA is incurred, no additional incremental shares are assumed for adjusted diluted shares.

Liquidity and Capital Resources

Traditionally, Streamline Health has funded its operations, working capital needs, and capital expenditures primarily from a combination of cash generated by operations, bank loans, and revolving lines of credit. Streamline Health’s liquidity is dependent upon numerous factors including: (i) the timing and amount of revenues and collection of contractual amounts from customers, (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.

Streamline Health has no significant obligations for capital resources, ~~consisting of~~other than the ~~$2,400,000~~$1,500,000 borrowed under its bank line of credit at ~~October 31, 2010, and~~April 30, 2011, the non-cancelable operating leases of approximately ~~$1,660,000~~$1,427,000 payable over the next ~~five~~four years, ~~$250,000~~and $132,000 for a capital ~~lease, and an economic development incentive from the City of Blue Ash, Ohio up to a maximum amount of $130,000.~~leases. Capital expenditures for property and equipment ~~in 2010~~for fiscal 2011 are not expected to exceed ~~$1,000,000.~~$1,500,000.

Net cash ~~provided by~~used in operations ~~for~~in the ~~nine months ended~~first quarter of fiscal 2011 was ~~$565,000, as compared to cash used for operations~~$228,000, an increase of ~~$183,000 in~~approximately $230,000 from the prior comparable ~~period. Significant decreases~~quarter. The increase was primarily due to a $244,000 decrease in accrued compensation expenses, which included payment on executive severance agreements, executive inducement incentives, fiscal 2010 annual bonus and commission payments; and was offset primarily by fiscal 2011 annual bonuses accrued, and severance agreements accrued during the first quarter; the $864,000 decrease in deferred revenues and increases in software amortization and share-based compensation expenses offset the net loss incurred and decreases in accounts payable for a net cash provided by operation. Deferred revenues reflectwhich reflects the revenue recognition of prepaid maintenance contracts during fiscal ~~2010,~~2011, net of any additional payments received in ~~2010, along with the timing~~2011; as well as a $316,000 decrease in accrued other expenses, primarily payment of ~~any payments received.~~professional fee accruals and other expenses.

Net cash used in investing activities in the first quarter of fiscal 2011 was ~~$2,383,000,~~$942,000, an ~~improvement~~increase of ~~$936,000~~$59,000 from the prior comparable ~~period.~~quarter. This ~~decrease~~increase was primarily due to the ~~decrease~~increase in capitalized software development costs, ~~as a~~which is the result of ~~accessANYware 5.0~~certain projects reaching ~~general release in late 2009~~technological feasibility for which ~~had significant~~ development ~~costs~~cost began being capitalized inrelating to the ~~prior year.~~development of the Company’s core solutions and the expanded work flow module development.

The net cash provided by financing activities in the first quarter of fiscal 2011 was $249,000, a decrease of $634,000 which is primarily the net change ~~of cash received from~~on the line of credit of $500,000, as well as a decrease in proceeds received ~~from the employee stock purchase plan, and from the~~for exercise of stock ~~options. The increase in cash provided by financing activities is due to~~options, and payments on the ~~increased draw against the line of credit as of October 31, 2010.~~capital lease obligation.

At ~~October 31, 2010,~~April 30, 2011, Streamline Health had cash on hand of ~~$665,000,~~$482,000, and ~~availability~~total eligible borrowings on the line of ~~$350,000~~credit of approximately $2,029,000, or $529,000 in excess availability under the line of credit. The Company’s revolving credit facility matures October 1, 2011. The Company is currently evaluating our financing options available, including renewal or replacement of its current revolving credit facility. Streamline Health believes that its present cash position, combined with cash generation currently anticipated from operations, the availability ~~and expected renewal or replacement~~ 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 combination of both, depending on the extent of the expansion of the Company and future revenues and expenses. However, there can be no assurance Streamline Health will be able to do so. The Company is evaluating financing options available to the Company.

2120

Notwithstanding the current levels of revenues and 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 or raise cash through additional borrowings, the sale of assets, or other equity 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 significantly reduce operating expenses, this could have an adverse effect on future operating performance.

To date, inflation has not had a material impact on Streamline Health’s revenues or expenses.


Item 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For quantitative and qualitative disclosures about market risk, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of the ~~annual report~~Annual Report on Form 10-K for the fiscal year ended January 31, ~~2010.~~2011. The Company’s exposures to market risk have not changed materially since January 31, ~~2010.~~2011.


Item 4.		CONTROLS AND PROCEDURES

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 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-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 Officer 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~~report.

There were no material changes in ~~Streamline Health’s~~the Company’s internal ~~control or in the other~~ controls over financial reporting during the ~~quarter~~three months ended ~~October 31, 2010~~April 30, 2011 that ~~could materially affect,~~have affected or isare reasonably likely to materially affect the Company’s internal controls over financial reporting.

2221

Part II. OTHER INFORMATION


Item 1.		LEGAL PROCEEDINGS

Streamline Health is, from time to time, a party to various legal proceedings and claims, which arise, in the ordinary course of business. Streamline Health is not aware of any legal matters that will have a material adverse effect on Streamline Health’s consolidated results of operations or consolidated financial position.


Item 1A.		RISK FACTORS

In addition to the other information set forth in this report, ~~and the risk factors set forth below,~~ you should carefully consider the risk factors discussed in Part I, “Item 1A, Risk Factors” in the Annual Report on Form 10-K for the fiscal year ended January 31, ~~2010.~~2011. The risk factors in the Annual Report have not materially changed since January 31, ~~2010,~~2011, but are not the only risks facing the Company. In addition, risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company, its financial condition and/or operating results.


Item 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

As previously reported in the Company’s Form 8-Ks filed with the Commission on March 14, 2011 and April 28, 2011, in the first fiscal quarter of 2011, the Company granted 200,000 stock options to Mr. Rick Leach and 100,000 stock options to Mr. Stephen Murdock, the Company’s Chief Marketing Officer and Chief Financial Officer, respectively, at an exercise price of $2.00 per share. The Company also granted each of Messrs. Leach and Murdock the right to purchase 10,000 shares of newly issued shares of common stock for $100 (i.e. their par value).

The Company also granted 200,000 stock options to an employee at an exercise price of $2.00 per share; and also 15,000 stock options to a non-employee consultant at an exercise price of $1.82 per share. The Company also granted an employee the right to purchase 5,000 shares of newly issued shares of common stock for $50 (i.e. their par value).

These option and share awards were inducement grants pursuant to Nasdaq Marketplace Rule 5365(c)(4) in connection with the commencement of employment with the Company, and were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended, as securities not issued in a public offering.


Item 3.		DEFAULTS UPON SENIOR SECURITIES

The Company was not in default of its existing credit facility at ~~October 31, 2010.~~April 30, 2011.


Item 6.		EXHIBITS

(a) Exhibits


3.1	(a)	Certificate of Incorporation of Streamline Health Solutions, Inc. (*)

3.1	(b)	Certificate of Incorporation of Streamline Health Solutions, Inc., amendment No. 1 (*)

3.2		Bylaws of Streamline Health Solutions, Inc. ~~as amended~~(*)

10.1		Employment Agreement dated January 31, 2011 between Streamline Health Solutions, Inc. and ~~restated on October~~Robert E. Watson (*)

10.2		Employment agreement among Streamline Health Solutions Inc., Streamline Health, Inc. and Rick Leach effective March 8, 2011 (*)

10.3		Employment agreement among Streamline Health Solutions Inc., Streamline Health, Inc. and Stephen H. Murdock effective April 22, ~~2010~~2011 (*)

10.4		Second Amended and Restated Revolving Note, effective April 13, 2011, between Streamline Health, Inc. and Fifth Third Bank (*)

10.5		Amendment No. 1 to the Amended and Restated Continuing Guaranty Agreement, effective April 13, 2011, between Streamline Health Solutions, Inc. and the Fifth Third Bank (*)

11		Computation of earnings (loss) per common ~~share~~share**

31.1		Certification of Chief Executive Officer pursuant to Rule 13a -14(a) and Rule 15d — 14(a) of the Securities Exchange Act, as ~~Amended~~Amended**

31.2		Certification of Chief Financial Officer pursuant to Rule 13a -14(a) and Rule 15d — 14(a) of the Securities Exchange Act, as ~~Amended~~Amended**

32.1		Certification of the Chief Executive Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of ~~2002~~2002**

32.2		Certification of the Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of ~~2002~~2002**


(*)		Incorporated herein by reference from, the Registrant’s SEC filings.

		(See INDEX TO EXHIBITS)

(**)		Included herein.

~~(See INDEX TO EXHIBITS)~~

INDEX TO EXHIBITS


Exhibit No.			Description of Exhibit

	3.1	(a)	Certificate of Incorporation of Streamline Health Solutions, Inc. f/k/a/ LanVision Systems, Inc. ~~Previously~~(Previously filed with the Commission and incorporated herein by reference from, the Registrant’s (LanVision System, Inc.) Registration Statement on Form S-1, File Number 333-01494, as filed with the Commission on April 15, 1996.)	*

	3.1	(b)	Certificate of Incorporation of Streamline Health Solutions, Inc. f/k/a LanVision Systems, Inc., amendment No. ~~1 Previously~~1. (Previously filed with the Commission and incorporated herein by reference from the Registrant’s Form 10-Q, as filed with the Commission on September 8, 2006.)	*

	3.2		Bylaws of Streamline Health Solutions, Inc. as amended and restated on July 22, 2010, and previously filed with the Commission and incorporated herein by reference from the Registrant’s Form 10-Q, as filed with the Commission on September 9, 2010.	*

	1110.1	#	Employment Agreement dated January 31, 2011 between Streamline Health Solutions, Inc. and Robert E. Watson, (Previously filed with the Commission, and incorporated herein by reference from, Exhibit 10.2 of the Registrant’s Form 8-K, as filed with the Commission on February 3, 2011.)	*

	10.2	#	Employment agreement among Streamline Health Solutions Inc., Streamline Health, Inc. and Rick Leach effective March 8, 2011. (Previously filed with the Commission, and incorporated herein by reference from, Exhibit 10.1 of the Registrant’s Form 8-K, as filed with the Commission on March 14, 2011.)	*

	10.3	#	Employment agreement among Streamline Health Solutions Inc., Streamline Health, Inc. and Stephen H. Murdock effective April 22, 2011. (Previously filed with the Commission, and incorporated herein by reference from, Exhibit 10.1 of the Registrant’s Form 8-K, as filed with the Commission on April 22, 2011.)	*

	10.4		Second Amended and Restated Revolving Note, effective April 13, 2011, between Streamline Health, Inc. and Fifth Third Bank. (Previously filed with the Commission, and incorporated herein by reference to exhibit 10.1 of the Registrant’s Form 8-K, as filed with the Commission on April 18, 2011.)	*


Exhibit No.		Description of Exhibit

	10.5	Amendment No. 1 to the Amended and Restated Continuing Guaranty Agreement, effective April 13, 2011, between Streamline Health Solutions, Inc. and the Fifth Third Bank. (Previously filed with the Commission, and incorporated herein by reference to exhibit 10.2 of the Registrant’s Form 8-K, as filed with the Commission on April 18, 2011.)	*

	11.1	Statement Regarding Computation of ~~Earnings (Loss)~~ Per ~~Common~~ Share Earnings	**

	31.1	Certification ofby Chief Executive Officer pursuant to ~~Rule 13a - -14(a) and Rule 15d — 14(a)~~Section 302 of the ~~Securities Exchange~~Sarbanes-Oxley Act ~~as Amended~~of 2002.	**

	31.2	Certification ofby Chief Financial Officer pursuant to ~~Rule 13a - -14(a) and Rule 15d — 14(a)~~Section 302 of the ~~Securities Exchange~~Sarbanes-Oxley Act ~~as Amended~~of 2002.	**

	32.1	Certification ~~of the~~by Chief Executive Officer ~~Pursuant~~pursuant to 18 U.S.C. Section 1350, as adopted pursuant to ~~section~~Section 906 of the Sarbanes-Oxley Act of ~~2002~~2002.	**

	32.2	Certification ~~of the~~by Chief Financial Officer ~~Pursuant~~pursuant to 18 U.S.C. Section 1350, as adopted pursuant to ~~section~~Section 906 of the Sarbanes-Oxley Act of ~~2002~~2002.	**


*		Included herein as indicated

**		Included herin

#		Management Contracts and Compensatory Arrangements.

2526


	Page

Part I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Balance Sheets at ~~October 31, 2010~~April 30, 2011 and January 31, ~~2010~~2011		3

Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~October 31,~~April 30, 2011 and 2010 ~~and 2009~~		5

Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~October 31,~~April 30, 2011 and 2010 ~~and 2009~~		6

Notes to Condensed Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		11

Item 3.3 Quantitative and Qualitative Disclosure About Market Risk		2221

Item 4. Controls and Procedures		2221

Part II. OTHER INFORMATION

Item 1. Legal Proceedings		2322

Item ~~1A.~~1A Risk Factors		2322

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds		22

Item 3. Defaults upon Senior Securities		23

Item 6. Exhibits		23

Signatures		24

~~Exhibit 11~~EX-11.1
~~Exhibit 31.1~~EX-31.1
~~Exhibit 31.2~~EX-31.2
~~Exhibit 32.1~~EX-32.1
~~Exhibit 32.2~~EX-32.2


	STREAMLINE HEALTH SOLUTIONS, INC.
DATE: ~~December 9, 2010~~June 8, 2011	By:	/s/ ~~J. Brian Patsy~~Robert E. Watson
		~~J. Brian Patsy~~Robert E. Watson
		Chief Executive Officer ~~(Principal Executive Officer)~~

DATE: ~~December 9, 2010~~June 8, 2011	By:	/s/ ~~Donald E. Vick, Jr.~~Stephen H. Murdock
		~~Donald E. Vick, Jr.~~Stephen H. Murdock
		~~Interim~~ Chief Financial Officer ~~(Principal Financial Officer, and~~ ~~Principal Accounting Officer)~~


	For the Three Months Ended				For the Nine Months Ended
	October 31,				October 31,
	2010		2009		2010		2009
Stock options⁽¹⁾		593,398		642,882		605,398		642,882
Restricted stock⁽²⁾		217,048		25,422		217,048		25,422

Total anti-dilutive shares excluded		810,446		668,304		822,446		668,304


	Three Months Ended October 31,						Nine Months Ended October 31,
	2010			2009			2010			2009

Systems sales		13	%		4	%		13	%		8	%
Services, maintenance and support		66			73			66			71
Application-hosting services		21			23			21			21

Total revenues		100	%		100	%		100	%		100	%

Cost of sales		57	%		58	%		61	%		59	%
Selling, general and administrative		31			38			36			34
Product research and development		9			11			11			10

Total operating expenses		97	%		107	%		108	%		102	%

Operating profit (loss)		3	%		(7	)%		(8	)%		(2	)%
Other income (expense), net		(1	)		(—	)		(1	)		(1	)
Income tax net benefit		—			(—	)		(—	)		(—	)

Net earnings(loss)		2	%		(7	)%		(9	)%		(3	)%

Cost of systems sales		127	%		388	%		133	%		218	%

Cost of services, maintenance and support		45	%		44	%		49	%		43	%

Cost of application-hosting services		53	%		44	%		54	%		49	%


	October 31,		July 31,		January 31,		October 31,
	2010		2010		2010		2009
Streamline Health software licenses	$	298		174		201		2,036
Custom software		42		62		105		140
Hardware and third party software		176		95		171		268
Professional services		3,293		3,981		3,977		3,156
Application-hosting services		8,068		8,818		9,414		10,897
Recurring maintenance		7,641		5,788		5,987		6,075

Total	$	19,518		18,918		19,855		22,572


(1)		Proprietary software and hardware are the components of the system sales line item

(2)		Professional services and maintenance & support are the components of the service, maintenance and support line item. BPM ~~and PMG~~ consulting services are included in professional services.


	Three Months Ended,
	April 30,			April 30,
	2011			2010			Change			% Change
Gross margin	$	1,829,000		$	967,000			862,000			89	%
Gross margin %		44	%		27	%		17	%
Cash flow (used in) provided by operations	$	(228,000	)	$	2,000			(230,000	)		(115	%)
Adjusted EBITDA	$	630,000		$	(225,000	)		855,000			380	%
Adjusted EBITDA, less capitalized software development costs	$	(155,000	)	$	(921,000	)		766,000			494	%
Adjusted EBITDA margin		15	%		(6	%)		21	%


	For the Nine Months Ended
	October 31,				Dollars			Percent
	2010		2009		Change			Change
Proprietary software⁽¹⁾	$	1,104	$	148	$	956			646	%
Hardware & third party software⁽¹⁾		586		809		(223	)		(28	%)
Professional services⁽²⁾		2,567		2,968		(401	)		(14	%)
Maintenance & support⁽²⁾		5,797		5,555		242			4	%
Application-hosting services		2,637		2,446		191			8	%

Total Revenues	$	12,691	$	11,926	$	765			6	%