UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended ~~October 31, 2013~~April 30, 2014



¨	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 incorporation or organization)		(I.R.S. Employer Identification No.)

1230 Peachtree Street, NE, Suite ~~1000,~~600,

Atlanta, GA 30309

(Address of principal executive offices) (Zip Code)

(404) ~~446-0050~~446-2052

(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. Yes x No o

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). Yes x No o

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares outstanding of the Registrant’s Common Stock, $.01 par value, as of ~~December 12, 2013: 17,392,444~~July 21, 2014: 18,178,454

Index to Financial Statements



TABLE OF CONTENTS
		Page
Part I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	2
	Condensed Consolidated Balance Sheets at ~~October 31, 2013~~April 30, 2014 and January 31, ~~2013~~2014	2
	Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~October 31,~~April 30, 2014 and 2013 ~~and 2012~~	4
	Condensed Consolidated Statements of Comprehensive Loss for the three months ended April 30, 2014 and 2013	5
	Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~October 31,~~April 30, 2014 and 2013 ~~and 2012~~	56
	Notes to Condensed Consolidated Financial Statements	67
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1816
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2924
Item 4.	Controls and Procedures	2924
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings	3026
Item 1A.	Risk Factors	26
Item 6.	Exhibits	3034
	Signatures	3135

Index to Financial Statements

PART I. FINANCIAL INFORMATION



Item 1.	FINANCIAL STATEMENTS

STREAMLINE HEALTH SOLUTIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



	October 31, 2013			January 31, 2013			April 30, 2014			January 31, 2014
ASSETS
Current assets:
Cash and cash equivalents	$	4,263,991		$	7,500,256		$	6,965,739		$	17,924,886
Accounts receivable, net of allowance for doubtful accounts of $109,000 and $134,000, respectively	6,885,405			8,685,017
Accounts receivable, net of allowance for doubtful accounts of $253,080 and $267,264, respectively							9,002,126			7,999,571
Contract receivables	1,387,147			1,481,819			195,841			1,181,606
Prepaid hardware and third party software for future delivery	25,463			22,777
Prepaid hardware and third-party software for future delivery							27,510			25,640
Prepaid client maintenance contracts	1,230,073			1,080,330			1,095,009			909,464
Other prepaid assets	963,771			997,024			1,919,881			1,407,515
Deferred income taxes							95,498			95,498
Other current assets	76,544			110,555			78,587			144,049
Total current assets	14,832,394			19,877,778			19,380,191			29,688,229
Non-current assets:
Property and equipment:
Computer equipment	3,496,270			3,420,452			3,830,157			3,769,564
Computer software	2,205,941			2,196,236			2,320,557			2,239,654
Office furniture, fixtures and equipment	886,664			843,274			900,900			889,080
Leasehold improvements	697,570			697,570			1,172,070			697,570
	7,286,445			7,157,532			8,223,684			7,595,868
Accumulated depreciation and amortization	(6,446,291		)	(5,958,727		)	(6,827,484		)	(6,676,824		)
Property and equipment, net	840,154			1,198,805			1,396,200			919,044
Capitalized software development costs, net of accumulated amortization of $9,085,345 and $7,949,352, respectively							11,537,757			10,238,357
Contract receivables, less current portion	87,105			126,626			69,684			78,395
Capitalized software development costs, net of accumulated amortization of $19,551,000 and $17,465,000, respectively	11,777,539			12,816,486
Deferred financing costs, net of accumulated amortization of $101,053 and $98,102, respectively							41,947			44,898
Intangible assets, net	12,044,903			8,188,131			12,489,756			12,175,634
Deferred financing costs, net	243,622			541,740
Goodwill	12,344,199			12,133,304			15,931,098			11,933,683
Other	543,087			383,708			781,725			500,634
Total non-current assets	37,880,609			35,388,800			42,248,167			35,890,645
	$	52,713,003		$	55,266,578		$	61,628,358		$	65,578,874

See accompanying ~~notes.~~notes to condensed consolidated financial statements.

Index to Financial Statements



	October 31, 2013			January 31, 2013			April 30, 2014			January 31, 2014
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,601,279		$	1,495,913		$	1,780,392		$	1,796,418
Accrued compensation	1,301,613			2,088,850			1,567,606			1,782,599
Accrued other expenses	1,838,952			1,325,039			801,963			554,877
Current portion of long-term debt	12,750,000			1,250,000			1,214,280			1,214,280
Deferred revenues	7,126,543			9,810,442			9,336,655			9,658,232
Current portion of consideration for earn-out	4,560,000			1,319,559
Current portion of deferred tax liability	—			35,619
Current portion of note payable							300,000			300,000
Current portion of capital lease obligation							112,345			105,573
Total current liabilities	29,178,387			17,325,422			15,113,241			15,411,979
Non-current liabilities:
Term loans	—			12,437,501			6,665,076			6,971,767
Warrants liability	6,393,435			3,649,349			2,979,704			4,117,725
Consideration for earn-out, less current portion	900,000			—
Royalty liability	2,225,000			—			2,302,200			2,264,000
Swap contract							132,800			111,086
Note payable							600,000			600,000
Lease incentive liability, less current portion	81,228			99,579			67,641			74,434
Deferred income tax liability, less current portion	792,506			529,709
Capital lease obligation							100,789			121,089
Deferred income tax liabilities							825,677			816,079
Total non-current liabilities	10,392,169			16,716,138			13,673,887			15,076,180
Total liabilities	39,570,556			34,041,560			28,787,128			30,488,159
Series A 0% Convertible Redeemable Preferred Stock, $.01 par value per share, $9,749,985 redemption value, 4,000,000 shares authorized, 3,249,995 shares issued and outstanding, net of unamortized preferred stock discount of $2,400,475 and $4,234,269, respectively	7,578,465			7,765,716
Series A 0% Convertible Redeemable Preferred Stock, $.01 par value per share, $8,849,985 and $8,849,985 redemption value, 4,000,000 shares authorized, 2,949,995 and 2,949,995 shares issued and outstanding, net of unamortized preferred stock discount of $3,020,551 and $3,250,317, respectively							5,829,434			5,599,668
Stockholders’ equity:
Common stock, $.01 par value per share, 25,000,000 shares authorized; 13,922,834 and 12,643,620 shares issued and outstanding, respectively	139,228			126,436
Convertible redeemable preferred stock, $.01 par value per share, 1,000,000 shares authorized, no shares issued	—			—
Common stock, $.01 par value per share, 25,000,000 shares authorized; 18,176,120 and 18,175,787 shares issued and outstanding, respectively							181,761			181,758
Additional paid in capital	51,040,745			49,178,389			77,196,787			76,983,088
Accumulated deficit	(45,615,991		)	(35,845,523		)	(50,233,952		)	(47,562,713		)
Accumulated other comprehensive loss							(132,800		)	(111,086		)
Total stockholders’ equity	5,563,982			13,459,302			27,011,796			29,491,047
	$	52,713,003		$	55,266,578		$	61,628,358		$	65,578,874

See accompanying ~~notes.~~notes to condensed consolidated financial statements.

Index to Financial Statements

STREAMLINE HEALTH SOLUTIONS, INC.

CONDENDSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three ~~and Nine~~ Months Ended ~~October 31,~~April 30,

(Unaudited)


	Three Months						Nine Months						Three Months Ended
	2013			2012			2013			2012			2014			2013
Revenues:
Systems sales	$	347,532		$	290,294		$	2,905,846		$	719,495		$	339,205		$	324,646
Professional services	966,962			1,089,814			2,925,553			3,153,672			608,951			919,351
Maintenance and support	3,523,551			3,148,442			10,524,595			7,797,263			4,171,812			3,380,600
Software as a service	1,893,489			2,005,813			5,622,237			5,358,120			1,831,202			1,848,741
Total revenues	6,731,534			6,534,363			21,978,231			17,028,550			6,951,170			6,473,338
Operating expenses:
Cost of systems sales	611,887			717,901			1,911,609			1,936,761			835,468			638,597
Cost of professional services	1,262,559			854,997			3,503,765			1,910,951			986,425			974,462
Cost of maintenance and support	739,887			918,750			2,519,952			2,349,745			960,186			984,588
Cost of software as a service	520,062			550,875			1,613,217			1,849,962			771,579			579,080
Selling, general and administrative	3,373,230			2,926,830			10,362,246			6,800,794			4,640,456			3,580,867
Research and development	1,370,178			866,659			3,627,336			1,833,865			2,350,443			1,097,010
Total operating expenses	7,877,803			6,836,012			23,538,125			16,682,078			10,544,557			7,854,604
Operating income (loss)	(1,146,269		)	(301,649		)	(1,559,894		)	346,472
Operating loss													(3,593,387		)	(1,381,266		)
Other income (expense):
Interest expense	(580,390		)	(895,142		)	(1,734,763		)	(1,494,161		)	(169,478		)	(566,565		)
Miscellaneous income (expenses)	(4,510,439		)	43,549			(6,316,867		)	55,805
Miscellaneous income (expense)													1,092,771			(742,265		)
Loss before income taxes	(6,237,098		)	(1,153,242		)	(9,611,524		)	(1,091,884		)	(2,670,094		)	(2,690,096		)
Income tax benefit (expense)	4,680			3,552,879			(158,944		)	3,519,879
Net earnings (loss)	$	(6,232,418	)	$	2,399,637		$	(9,770,468	)	$	2,427,995
Income tax expense													(1,145		)	(19,750		)
Net loss													(2,671,239		)	(2,709,846		)
Less: deemed dividends on Series A Preferred Shares	(374,162		)	(139,133		)	(731,309		)	(139,133		)	(229,766		)	(341,637		)
Net earnings (loss) attributable to common shareholders	$	(6,606,580	)	$	2,260,504		$	(10,501,777	)	$	2,288,862
Basic net earnings (loss) per common share	$	(0.50	)	$	0.18		$	(0.82	)	$	0.20
Net loss attributable to common shareholders													$	(2,901,005	)	$	(3,051,483	)
Basic net loss per common share													$	(0.16	)	$	(0.24	)
Number of shares used in basic per common share computation	13,257,943			12,393,352			12,884,711			11,346,428			18,146,232			12,534,474
Diluted net earnings (loss) per common share	$	(0.50	)	$	0.15		$	(0.82	)	$	0.18
Diluted net loss per common share													$	(0.16	)	$	(0.24	)
Number of shares used in diluted per common share computation	13,257,943			15,365,238			12,884,711			12,417,256			18,146,232			12,534,474

See accompanying ~~notes.~~notes to condensed consolidated financial statements.

Index to Financial Statements

STREAMLINE HEALTH SOLUTIONS, INC.

CONDENDSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Three Months Ended April 30,

(Unaudited)



	Three Months Ended
	2014			2013
Net loss	(2,671,239		)	$	(2,709,846	)
Other comprehensive loss, net of tax:
Fair value of interest rate swap liability	(21,714		)	—
Comprehensive loss	$	(2,692,953	)	$	(2,709,846	)

See accompanying notes to condensed consolidated financial statements.

Index to Financial Statements

STREAMLINE HEALTH SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

~~Nine~~Three Months Ended ~~October 31,~~April 30,

(Unaudited)


							Three Months Ended
	2013			2012			2014			2013
Operating activities:
Net earnings (loss)	$	(9,770,468	)	$	2,427,995
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Net loss							$	(2,671,239	)	$	(2,709,846	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	490,043			546,354			150,660			171,443
Amortization of capitalized software development costs	2,086,885			1,928,038			916,868			694,689
Amortization of intangible assets	946,228			256,976			358,879			314,488
Amortization of other deferred costs	296,942			227,881			38,838			82,814
Valuation adjustment for warrants liability	2,082,789			—			(1,138,021		)	645,354
Deferred tax expense	150,634			(3,564,612		)
Valuation adjustment for contingent earn-out	4,140,441			86,839
Net loss from conversion of convertible notes	—			56,682
Share-based compensation expense	1,203,919			645,407			442,876			467,401
Other valuation adjustments							38,200			—
Changes in assets and liabilities, net of assets acquired:
Accounts and contract receivables	2,509,842			(1,351,935		)	528,680			38,880
Other assets	(627,883		)	(482,785		)	(927,325		)	(414,056		)
Accounts payable	87,014			(137,107		)	(142,824		)	(768,793		)
Accrued expenses	(150,206		)	947,630			(378,084		)	(632,741		)
Deferred revenues	(2,683,899		)	881,677			(1,161,803		)	(598,984		)
Net cash provided by operating activities	762,281			2,469,040
Net cash used in operating activities							(3,944,295		)	(2,709,351		)
Investing activities:
Purchases of property and equipment	(106,392		)	(546,061		)	(592,498		)	(78,516		)
Capitalization of software development costs	(1,047,938		)	(1,571,420		)	(193,379		)	(460,177		)
Payment for acquisition, net of working capital acquired	(3,000,000		)	(12,161,634		)
Payment for acquisition, net of cash received							(5,890,402		)	—
Net cash used in investing activities	(4,154,330		)	(14,279,115		)	(6,676,279		)	(538,693		)
Financing activities:
Net proceeds from term loan	—			9,880,000
Principal repayments on term loans	(937,501		)	—
Principal repayments on term loan							(202,380		)	(312,501		)
Principal payments on capital lease obligation							(23,985		)	—
Payment of deferred financing costs	—			(1,246,107		)	(112,800		)	—
Proceeds from private placement	—			12,000,000
Payment of success fee	—			(700,000		)
Proceeds from exercise of stock options and stock purchase plan	1,093,285			161,823			592			61,512
Net cash provided by financing activities	155,784			20,095,716
(Decrease) increase in cash and cash equivalents	(3,236,265		)	8,285,641
Net cash used in financing activities							(338,573		)	(250,989		)
Decrease in cash and cash equivalents							(10,959,147		)	(3,499,033		)
Cash and cash equivalents at beginning of period	7,500,256			2,243,054			17,924,886			7,500,256
Cash and cash equivalents at end of period	$	4,263,991		$	10,528,695		$	6,965,739		$	4,001,223

See accompanying ~~notes.~~notes to condensed consolidated financial statements.

5
6

Index to Financial Statements

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATMENTS

(Unaudited)

NOTE A1 — BASIS OF PRESENTATION

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared by Streamline Health Solutions, Inc. ~~(the "Company"~~(“we”, “us”, “our”, or the “Company”), pursuant to the rules and regulations applicable to quarterly reports on Form 10-Q of the ~~U. S.~~U.S. Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading. In the opinion of our 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 our most recent annual report on Form 10-K, Commission File Number 0-28132. Operating results for the three ~~and nine~~ months ended ~~October 31, 2013~~April 30, 2014 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, ~~2014~~2015..

NOTE B2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

~~The Company's~~Our significant accounting policies are presented in “Note B2 – Significant Accounting Policies” in the fiscal year ~~2012~~2013 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 on Form 10-K when reviewing interim financial results.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles ~~("GAAP"~~(“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The FASB’s authoritative guidance on fair value measurements establishes a framework for measuring fair value, and expands disclosure about fair value measurements. This guidance enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. Under this guidance, assets and liabilities carried at fair value must be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value based on the short-term maturity of these instruments. Cash and cash equivalents are classified as Level 1. The carrying amount of ~~the Company’s~~our long-term debt approximates fair value since the interest rates being paid on the amounts approximate the market interest rate. Long-term debt isand the interest rate swap are classified as Level 2. The initial fair value of contingent consideration for earn-out, royalty liability, and warrants liability iswas determined by management with the assistance of an independent ~~third party~~third-party valuation ~~specialist. The Company~~specialist, and by management thereafter. We used a binomial model and the Black-Scholes option pricing model to estimate the fair value of the contingent consideration for earn-out and warrants ~~liability.~~liability, respectively. The fair value of the royalty liability is determined based on the probability-weighted revenue scenarios for the Clinical Looking Glass® solution licensed from Montefiore Medical Center (discussed below). The contingent consideration for ~~earn-out~~royalty liability and warrants liability are classified as Level 3.

Revenue Recognition

~~The Company derives~~We derive revenue from the sale of ~~internally developed~~internally-developed software either by licensing or by software as a service ~~("SaaS"~~(“SaaS”), through the direct sales force or through third-party resellers. Licensed, locally-installed clients utilize ~~the Company’s~~our support and maintenance services for a separate fee, whereas SaaS fees include support and maintenance. ~~The Company~~We also ~~derives~~derive revenue from professional services that support the implementation, configuration, training, and optimization of the applications. Additional revenues are also derived from reselling third-party software and hardware components.

~~The Company recognizes revenue in accordance with ASC 985-605,~~ ~~Software-Revenue Recognition~~ ~~and ASC 605-25~~ ~~Revenue Recognition — Multiple-element arrangements. The Company commences revenue recognition when the following criteria all have been met:~~

6
7

Index to Financial Statements

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

We recognize revenue in accordance with Accounting Standards Codification (ASC) 985-605, Software-Revenue Recognition, and ASC 605-25, Revenue Recognition — Multiple-element arrangements. We commence revenue recognition when the following criteria all have been met:

Persuasive evidence of an arrangement exists,

Delivery has occurred or services have been rendered,

The arrangement fees are fixed or determinable, and

Collection is considered ~~probable~~probable.

If ~~the Company determines~~we determine that any of the above criteria have not been met, ~~the Company~~we will defer recognition of the revenue until all the criteria have been met. Maintenance and support and SaaS agreements entered into are generally non-cancelable, or contain significant penalties for early cancellation, although clients typically have the right to terminate their contracts for cause if ~~the Company fails~~we fail to perform material obligations. However, if non-standard acceptance periods or non-standard performance criteria, cancellation or right of refund terms are required, revenue is recognized upon the satisfaction of such criteria, as applicable.

Revenues from resellers are recognized gross of royalty payments to resellers.

Multiple Element Arrangements

~~On February 1, 2011,~~We follow the ~~Company adopted~~accounting revenue guidance under Accounting Standards Update ~~No.~~(ASU) 2009-13, ~~Revenue Recognition (Topic 605),~~ “Multiple-Deliverable Revenue Arrangements — a consensus of the FASB Emerging Issues Task ~~Force”~~Force ~~(“ASU 2009-13”) on a prospective basis. ASU 2009-13 amended the accounting standards for revenue recognition for multiple deliverable revenue arrangements to:~~.

~~Provide updated guidance on how deliverables of an arrangement are separated, and how consideration is allocated;~~

~~Eliminate the residual method and require entities to allocate revenue using the relative selling price method and;~~

Require entities to allocate revenue to an arrangement using the estimated selling price (“ESP”) of deliverables if it does not have vendor specific objective evidence (“VSOE”) or third party evidence (“TPE”) of selling price.

Terms used in evaluation are as follows:

VSOE — the price at which an element is sold as a separate stand-alone transaction

TPE — the price of an element, charged by another company that is largely interchangeable in any particular transaction

ESP — ~~the Company’s~~our best estimate of the selling price of an element of the transaction

~~The Company follows~~We follow accounting guidance for revenue recognition of multiple-element arrangements to determine whether such arrangements contain more than one unit of accounting. Multiple-element arrangements require the delivery or performance of multiple solutions, services and/or rights to use assets. To qualify as a separate unit of accounting, the delivered item must have value to the client on a stand-alone basis. Stand-alone value to a client is defined in the guidance as those that can be sold separately by any vendor or the client could resell the item on a stand-alone basis. Additionally, if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item or items must be considered probable and substantially in the control of the vendor.

~~The Company has~~We have a defined pricing methodology for all elements of the arrangement and proper review of pricing to ensure adherence to ~~Company~~our policies. Pricing decisions include cross-functional teams of senior management, which uses market conditions, expected contribution margin, size of the client’s organization, and pricing history for similar solutions when establishing the selling price.

Software as a Service

~~The Company uses~~We use ESP to determine the value for a software as a service arrangement as ~~the Company~~we cannot establish VSOE and TPE is not a practical alternative due to differences in functionality from ~~the Company's~~our competitors. Similar to proprietary license sales, pricing decisions rely on the relative size of the client purchasing the solution and include calculating the equivalent value of maintenance and support on a present value basis over the term of the initial agreement period. Typically revenue recognition commences upon client ~~go-live~~go live on the system and is recognized ratably over the contract term. The software portion of SaaS for Health Information Management ~~("HIM"~~(“HIM”) products does not need material modification to achieve its contracted function. The software portion of SaaS for ~~the Company's~~our Patient Financial Services ~~("PFS"~~(“PFS”) products require material customization and setup processes to achieve their contracted function.

System Sales

~~Index to Financial Statements~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~The Company uses~~We use the residual method to determine fair value for proprietary software licenses sold in a multi-element arrangement. Under the residual method, ~~the Company allocates~~we allocate the total value of the arrangement first to the undelivered elements based on their VSOE and ~~allocates~~allocate the remainder to the proprietary software license fees.

Typically pricing decisions for proprietary software rely on the relative size and complexity of the client purchasing the solution. ~~Third party~~Third-party components are resold at prices based on a ~~cost plus~~cost-plus margin analysis. The proprietary software and ~~third~~ third-

Index to Financial Statements

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

party components do not need any significant modification to achieve ~~its~~their intended use. When these revenues meet all criteria for revenue recognition and are determined to be separate units of accounting, revenue is recognized. Typically this is upon shipment of components or electronic download of software. Proprietary licenses are perpetual in nature, and license fees do not include rights to version upgrades, fixes or service packs.

Maintenance and Support Services

The maintenance and support components are not essential to the functionality of the software, and clients renew maintenance contracts separately from software purchases at renewal rates materially similar to the initial rate charged for maintenance on the initial purchase of software. ~~The Company uses~~We use VSOE of fair value to determine fair value of maintenance and support services. Rates are set based on market rates for these types of services, and ~~the Company’s~~our rates are comparable to rates charged by ~~its~~our competitors, which isare based on the knowledge of the marketplace by senior management. Generally, maintenance and support is calculated as a percentage of the list price of the proprietary license being purchased by a client. Clients have the option of purchasing additional annual maintenance service renewals each year for which rates are not materially different from the initial rate but typically include a nominal rate increase based on the consumer price index. Annual maintenance and support agreements entitle clients to technology support, upgrades, bug fixes and service packs.

Term Licenses

~~The Company~~We cannot establish VSOE fair value of the undelivered element in term license arrangements. However, as the only undelivered element is post-contract customer support, the entire fee is recognized ratably over the contract term. Typically revenue recognition commences once the client goes live on the system. Similar to proprietary license sales, pricing decisions rely on the relative size of the client purchasing the solution. The software portion of ~~the Company's Collabra (“Coding”)~~our Collabra™ products generally do not require material modification to achieve their contracted function.

Professional Services

Professional services components that are not essential to the functionality of the software, from time to time, are sold separately by ~~the Company.~~us. Similar services are sold by other vendors, and clients can elect to perform similar services in-house. When professional services revenues are a separate unit of accounting, revenues are recognized as the services are performed.

Professional services components that are essential to the functionality of the software and are not considered a separate unit of accounting are recognized in revenue ratably over the life of the client, which approximates the duration of the initial contract term. ~~The Company defers~~We defer the associated direct costs for salaries and benefits expense for professional services contracts. As of ~~October 31, 2013~~April 30, 2014 and January 31, ~~2013, the Company~~2014, we had deferred costs of ~~approximately~~ $~~368,000~~599,000 and $~~201,000~~441,000, respectively. These deferred costs will be amortized over the identical term as the associated SaaS revenues. ~~Accumulated amortization~~Amortization expense of these costs was ~~approximately~~ $~~85,000~~27,000 and $~~35,000~~45,000 ~~as of October 31, 2013~~for the three months ended April 30, 2014 and ~~January 31,~~ 2013, respectively.

~~The Company uses~~We use VSOE of fair value based on the hourly rate charged when services are sold separately, to determine fair value of professional services. ~~The Company~~We typically ~~sells~~sell professional services on a ~~fixed fee~~fixed-fee basis. ~~The Company monitors~~We monitor projects to assure that the expected and historical rate earned remains within a reasonable range to the established selling price.

Severances

From time to time, ~~the Company will~~we enter into termination agreements with associates that may include supplemental cash payments, as well as contributions to health and other benefits for a specific time period subsequent to termination. For the three months ended ~~October 31, 2013~~April 30, 2014 and ~~2012~~2013, ~~the Company~~we incurred ~~approximately~~ ~~zero~~$451,000 and $~~207,000~~383,000 in severance expenses, ~~respectively, and~~ ~~$380,000~~ ~~and~~ ~~$277,000~~ ~~for the nine months ended October 31, 2013 and 2012,~~ respectively. At ~~October 31, 2013~~April 30, 2014 and January 31, ~~2013, the Company~~2014, we had accrued ~~for~~ ~~$13,000~~severances of $393,000 and ~~$548,000~~ ~~in severances,~~zero, respectively.

Equity Awards

~~Index to Financial Statements~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~The Company accounts~~We account for share-based payments based on the grant-date fair value of the awards with compensation cost recognized as expense over the requisite vesting period. ~~The Company~~We incurred total compensation expense related to stock-based awards of $~~378,000~~443,000 and $~~245,000~~467,000 for the three months ended ~~October 31,~~April 30, 2014 and 2013, ~~and 2012, respectively, and~~ ~~$1,204,000~~ ~~and~~ ~~$645,000~~ ~~for the nine months ended October 31, 2013 and~~ ~~2012~~, respectively.

The fair value of the stock options granted have been estimated at the date of grant using a Black-Scholes option pricing model. The option pricing model inputs ~~assumptions~~ such as expected term, expected volatility, and risk-free interest rate impact the fair value estimate. Further, the forfeiture rate impacts the amount of aggregate compensation. These assumptions are subjective and are generally derived from external (such as, risk-free rate of interest) and historical data (such as, volatility factor, expected term, and forfeiture rates). Future grants of equity awards accounted for as stock-based compensation could have a material impact on reported expenses depending upon the number, value and vesting period of future awards.

~~The Company issues~~

Index to Financial Statements

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

We issue restricted stock awards in the form of ~~Company~~our common stock. The fair value of these awards is based on the market close price per share on the day of grant. ~~The Company expenses~~We expense the compensation cost of these awards as the restriction period lapses, which is typically a one-year service period to the Company.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and for tax credit and loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. In assessing net deferred tax assets, ~~the Company considers~~we consider whether it is more likely than not that some or all of the deferred tax assets will not be realized. ~~The Company establishes~~We establish a valuation allowance when it is more likely than not that all or a portion of deferred tax assets will not be realized.

~~The Company provides~~We provide for uncertain tax positions and the related interest and penalties based upon management’s assessment of whether certain tax positions are more likely than not to be sustained upon examination by tax authorities. ~~As of~~ ~~October 31, 2013, the Company believes it has~~We believe we have appropriately accounted for any uncertain tax positions. ~~As part of the Meta acquisition (discussed at Note C, below), the Company assumed a current liability for an uncertain tax position, and expects to settle this amount in fiscal 2013. The Company has a~~ ~~$152,000~~ ~~reserve for uncertain tax positions and corresponding interest and penalties as of both~~ ~~October 31, 2013~~ ~~and January 31, 2013, respectively.~~

Net Earnings (Loss) Per Common Share

~~The Company presents~~We present basic and diluted earnings per share (“EPS”) data for ~~its~~our common stock. Basic EPS is calculated by dividing the net income (loss) attributable to ~~shareholders~~stockholders of the Company by the weighted average number of shares of common stock outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ~~shareholders~~stockholders and the weighted average number of shares of common stock outstanding adjusted for the effects of all dilutive potential common shares comprised of options granted, unvested restricted stocks, warrants and convertible preferred stock. Potential common stock equivalents that have been issued by ~~the Company~~us related to outstanding stock options, unvested restricted stock and warrants are determined using the treasury stock method, while potential common shares related to Series A Convertible Preferred Stock are determined using the “if converted” method.

~~The Company's~~Our unvested restricted stock awards and Series A Convertible Preferred stock are considered participating securities under ASC 260, ~~“Earnings~~Earnings Per ~~Share”~~Share, which means the security may participate in undistributed earnings with common stock. ~~The Company's~~Our 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. The holders of the Series A Preferred Stock would be entitled to share in dividends, on an as-converted basis, if the holders of common stock were to receive dividends, other than dividends in the form of common stock. In accordance with ASC 260, a company is required to use the two-class method when computing EPS when a company has a security that qualifies as a “participating security.” The two-class method is an earnings allocation formula that determines EPS for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. In determining the amount of net earnings to allocate to common stock holders, earnings are allocated to both common and participating securities based on their respective weighted-average shares outstanding for the period. Diluted EPS for ~~the Company's~~our common stock is computed using the more dilutive of the two-class method or the if-converted method.

In accordance with ASC 260, securities are deemed to not be participating in losses if there is no obligation to fund such losses. For the three ~~and nine~~ months ended ~~October 31,~~April 30, 2014 and 2013, the unvested restricted stock awards and the Series A Preferred Stock were not deemed to be participating since there was a net loss from operations. ~~For the three and nine months ended October~~

~~Index to Financial Statements~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~31, 2013, the effect of unvested restricted stock to the earnings per share calculation was immaterial.~~ As of ~~October 31, 2013~~April 30, 2014, there were ~~3,249,995~~2,949,995 shares of preferred stock outstanding, each share is convertible into one share of ~~the Company's~~our common stock. For the three ~~and nine~~ months ended ~~October 31,~~April 30, 2014 and 2013, the Series A Convertible Preferred Stock would have an anti-dilutive effect if included in diluted EPS and therefore, was not included in the calculation. As of ~~October 31, 2013~~April 30, 2014 and ~~January 31,~~ 2013, there were 29,698 and 137,327,, respectively, unvested restricted shares of common stock ~~outstanding. The unvested restricted shares at~~ ~~October 31, 2013~~ ~~and January 31, 2013~~outstanding that were excluded from the calculation as their effect would have been antidilutive.

Index to Financial Statements

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following is the calculation of the basic and diluted net earnings (loss) per share of common stock:

Three Months Ended
October 31, 2013 October 31, 2012
Net earnings (loss) $ (6,232,418 ) $ 2,399,637
Less: deemed dividends on Series A Preferred Stock (374,162 ) (139,133 )
Net earnings (loss) attributable to common shareholders $ (6,606,580 ) $ 2,260,504
Weighted average shares outstanding used in basic per common share computations 13,257,943
12,393,352
Stock options and restricted stock —
2,971,886
Number of shares used in diluted per common share computation 13,257,943
15,365,238
Basic net earnings (loss) per share of common stock $ (0.50 ) $ 0.18
Diluted net earnings (loss) per share of common stock $ (0.50 ) $ 0.15


	Nine Months Ended						Three Months Ended
	October 31, 2013			October 31, 2012			April 30, 2014			April 30, 2013
Net earnings (loss)	$	(9,770,468	)	$	2,427,995
Net loss							$	(2,671,239	)	$	(2,709,846	)
Less: deemed dividends on Series A Preferred Stock	(731,309		)	(139,133		)	(229,766		)	(341,637		)
Net earnings (loss) attributable to common shareholders	$	(10,501,777	)	$	2,288,862
Net loss attributable to common shareholders							$	(2,901,005	)	$	(3,051,483	)
Weighted average shares outstanding used in basic per common share computations	12,884,711			11,346,428			18,146,232			12,534,474
Stock options and restricted stock	—			1,070,828			—			—
Number of shares used in diluted per common share computation	12,884,711			12,417,256			18,146,232			12,534,474
Basic net earnings (loss) per share of common stock	$	(0.82	)	$	0.20
Diluted net earnings (loss) per share of common stock	$	(0.82	)	$	0.18
Basic net loss per share of common stock							$	(0.16	)	$	(0.24	)
Diluted net loss per share of common stock							$	(0.16	)	$	(0.24	)

Diluted net ~~earnings (loss)~~loss per share ~~exclude~~excludes the effect of ~~2,562,317~~2,605,552 and ~~2,585,079~~2,643,742 outstanding stock options for the three ~~and nine~~ months ended ~~October 31,~~April 30, 2014 and 2013, ~~and~~ ~~2012~~, respectively. The inclusion of these shares would be anti-dilutive. For the ~~nine~~three months ended ~~October 31,~~April 30, 2014 and 2013, the outstanding common stock warrants of 1,400,000 would have an anti-dilutive effect if included in diluted ~~EPS~~net loss per share and therefore were not included in the calculation. ~~There were~~ no ~~outstanding warrants as of~~ ~~October 31, 2012~~.

Recent Accounting Pronouncements

In ~~February 2013,~~May 2014, the ~~Financial Accounting Standards Board ("FASB")~~FASB issued ~~an accounting standard update relating to improving~~ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the ~~reporting~~revenue recognition requirements in ASC 605, Revenue Recognition. The core principle of ~~reclassifications out of accumulated other comprehensive income. The update would require~~the guidance is that an entity should recognize revenue to ~~report~~depict the ~~effect~~transfer of ~~significant reclassifications out of accumulated other comprehensive income on~~promised goods or services to customers in an amount that reflects the ~~respective line items in net income if~~consideration to which the ~~amount being reclassified is required under GAAP~~entity expects to be ~~reclassified~~entitled in ~~its entirety~~exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to net income. For other amounts that are not required under GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under GAAP that provide additional detail about those amounts. The updateobtain or fulfill a contract. This guidance is effective ~~for reporting periods beginning after December 15, 2012. This standard did not have a material effect on the Company's consolidated financial position, results of operations, or cash flows.~~

~~Index to Financial Statements~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

In July 2013, FASB issued an accounting standard update relating to the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This update amends existing GAAP that required in certain cases, an unrecognized tax benefit, or portion of an unrecognized tax benefit, toand will be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward when such items exist in the same taxing jurisdiction. The amendments in this update are effectiveapplied for fiscal years, and interim periods within those years, beginning after December 15, ~~2013.~~2016. Early adoption is not permitted. The ~~amendments should~~guidance is to be applied ~~prospectively to all unrecognized tax benefits that exist at the effective date, and~~using one of two retrospective application ~~is permitted.~~methods. We ~~do not expect any~~are currently evaluating the impact ~~from~~of the adoption of this accounting standard update on our internal processes, operating results, and financial ~~statements.~~reporting. The impact is currently not known or reasonably estimable.

NOTE C3 — ACQUISITIONS

On December 7, 2011, the Company completed the acquisition of substantially all of the assets of Interpoint Partners, LLC (“Interpoint”). This acquisition expanded the Company’s product offering into business intelligence and revenue cycle performance management. The purchase agreement included a contingent earn-out provision, which has a settlement value of ~~$5,460,000~~ ~~at October 31, 2013 and had an estimated value of $1,320,000~~ at January 31, 2013. The purchase agreement provided that the contingent earn-out was to be paid in cash or an additional convertible subordinated note based on the acquired Interpoint operations financial performance for the 12~~-month period beginning July 1, 2012 and ending June 30, 2013.~~

The Company has agreed to a final earn-out and will pay Interpoint an aggregate consideration consisting of $1,300,000 in cash, the issuance of 400,000 shares of Company common stock on January 1, 2014, and the issuance of an unsecured, subordinated three-year note in the amount of $900,000 that matures on November 1, 2016 and accrues interest on the unpaid principal amount actually outstanding at a per annum rate equal to 8%. The 400,000 shares were valued at October 31, 2013 based upon the closing price of the Company's common stock on that date.

On ~~August 16, 2012, the Company acquired substantially all of the outstanding stock of Meta Health Technology, Inc., a New York corporation (“Meta”). The Company paid a total purchase price of approximately~~ ~~$14,790,000, consisting of cash payment of~~ ~~$13,288,000~~ ~~and the issuance of~~ ~~393,086~~ ~~shares of the Company's common stock at an agreed upon price of~~ ~~$4.07~~ ~~per share. The fair value of the common stock at the date of issuance was~~ ~~$3.82~~.

The acquisition of Meta represents the Company's on-going growth strategy, and is reflective of the solutions development process, which is led by the needs and requirements of clients and the marketplace in general. The Meta suite of solutions, when bundled with the Company's existing solutions, will help current and prospective clients better prepare for compliance with the ICD-10 transition. The Company believes that the integration of business analytics solutions with the coding solutions acquired in this transaction will position the Company to address the complicated issues of clinical analytics as clients prepare for the proposed changes in commercial and governmental payment models.

The purchase price was subject to certain adjustments related principally to the delivered working capital level, which was settled in the third quarter of fiscal 2013, and/or indemnification provisions. As a result of the final working capital settlement, the Company has recorded in accounts receivable $378,000 as of October 31, 2013, with a corresponding reduction in goodwill. Under the acquisition method of accounting, the purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date as follows:

~~Index to Financial Statements~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

August 16, 2012
Assets purchased:
Cash $ 1,126,000
Accounts receivable 2,300,000
Fixed assets 133,000
Other assets 513,000
Client relationships 4,464,000
Internally developed software 3,646,000
Trade name 1,588,000
Supplier agreements 1,582,000
Covenants not to compete 720,000
Goodwill(1) 8,073,000
Total assets purchased $ 24,145,000
Liabilities assumed:
Accounts payable and Accrued liabilities 1,259,000
Deferred revenue obligation, net 3,494,000
Deferred tax liability 4,602,000
Net assets acquired $ 14,790,000
Consideration:
Company common stock $ 1,502,000
Cash paid 13,288,000
Total consideration $ 14,790,000

~~_______________~~


~~(1)~~	~~Goodwill represents the excess of purchase price over the estimated fair value of net tangible and intangible assets acquired, which is not deductible for tax purposes.~~

AND STRATEGIC AGREEMENTS

On October 25, 2013, ~~the Company's wholly owned subsidiary, Streamline Health, Inc. ("Streamline"),~~we entered into a Software License and Royalty Agreement (the “Royalty Agreement”) with Montefiore Medical Center ~~("Montefiore"~~(“Montefiore”) pursuant to which ~~it acquired~~Montefiore granted us an exclusive, worldwide 15-year license ~~from Montefiore~~ of ~~its~~Montefiore’s proprietary clinical analytics platform solution, Clinical Looking ~~Glass ("CLG"~~Glass® (“CLG”). In addition, Montefiore assigned to ~~Streamline~~us the existing license agreement with a customer using CLG. As consideration under the Royalty Agreement, Streamline paid Montefiore a one-time initial base royalty fee of $3,000,000, ~~as well as~~and we are obligated to pay on-going quarterly royalty amounts related to future sublicensing of CLG by Streamline. Additionally, Streamline has committed that Montefiore will receive at least an additional $3,000,000 of on-going royalty payments within the first six and one-half years of the license term.

The Montefiore agreements were accounted for as a business combination with the purchase price representing the $3,000,000 initial base royalty fee, plus the present value of the $3,000,000 on-going royalty payment ~~commitment.The~~commitment. The purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their ~~estimate~~estimated fair values as of the acquisition date as follows:

12
11

Index to Financial Statements

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	October 25, 2013		Balance at October 25, 2013
Assets purchased:
License agreement	$	4,166,000	$	4,431,000
Existing customer relationship	408,000		408,000
Covenant not to compete	129,000		129,000
Working capital	124,000		124,000
Other assets	126,000		25,000
Goodwill(1)	272,000		108,000
Total assets purchased	$	5,225,000	$	5,225,000
Consideration:
Cash paid	$	3,000,000	3,000,000
Future royalty commitment	2,225,000		2,225,000
Total consideration	$	5,225,000	$	5,225,000

_______________


(1)	Goodwill represents the excess of purchase price over the estimated fair value of net tangible and intangible assets acquired, which is not deductible for tax purposes.

~~NOTE D — DERIVATIVE LIABILITIES~~On February 3, 2014, we completed the acquisition of Unibased Systems Architecture, Inc. (“Unibased”), a provider of patient access solutions, including enterprise scheduling and surgery management software, for healthcare organizations throughout the United States, pursuant to an Agreement and Plan of Merger dated January 16, 2014 (the “Merger Agreement”) for a total purchase price of $6,500,000, subject to net working capital and other customary adjustments. A portion of the total purchase price was withheld in escrow as described in the Merger Agreement for certain transaction and indemnification expenses.

~~In conjunction with~~Pursuant to the ~~private placement investment,~~Merger Agreement, we acquired all of the ~~Company~~ issued and outstanding common stock ~~warrants exercisable~~of Unibased, and Unibased became a wholly-owned subsidiary of Streamline. Under the terms of the Merger Agreement, Unibased stockholders received cash for ~~up to~~ ~~1,200,000~~ ~~shares~~each share of Unibased common stock ~~at an exercise~~held. The preliminary purchase price of ~~$3.99~~ ~~per share. The warrants were initially classified in stockholders' equity as additional paid in capital at~~was allocated to the ~~allocated amount, net of allocated transaction costs, of approximately~~ ~~$1,425,000~~. Effective October 31, 2012, upon shareholder approval of anti-dilution provisions that reset the warrants' exercise price if a dilutive issuance occurs, the warrants were reclassified as non-current derivative liabilities. Thetangible and intangible assets acquired and liabilities assumed based on their estimated fair ~~value of the warrants was approximately~~ ~~$4,139,000~~ ~~at October 31, 2012, with the difference between the fair value and carrying value recorded to additional paid in capital. Effective~~values as of the ~~reclassification~~acquisition date as derivative liabilities, the warrants are re-valued at each reporting date, with changes in fair value recognized in earnings each reporting period as a credit or charge to miscellaneous income (expense). The fair value of the warrants at ~~October 31, 2013~~ ~~was approximately~~ ~~$6,393,000, with the increase in fair value since~~ ~~January 31, 2013~~ ~~of approximately~~ ~~$2,083,000~~ ~~recognized as miscellaneous expense in the condensed consolidated statements of operations. The estimated fair value of the warrant liabilities as of~~ ~~October 31, 2013~~ ~~was computed using a Black-Scholes option pricing model simulations based on the following assumptions: annual volatility of~~ ~~58.77%; risk-free rate of~~ ~~0.97%, dividend yield of~~ ~~0.0%~~ ~~and expected life of approximately~~ ~~4.30~~ ~~years. The model also included assumptions to account for anti-dilutive provisions within the warrant agreement.~~follows:

~~During the~~ ~~three months ended July 31 2013~~, the Company recorded an immaterial correction of an error regarding the valuation of its common stock warrants originated during the third quarter of fiscal 2012 in conjunction with its private placement investment. The Company concluded there was a cumulative ~~$19,000~~ ~~overstatement of the loss before income taxes on its condensed consolidated statement of operations for the fiscal year ended January 31, 2013, as previously reported. The aforementioned cumulative~~ ~~$19,000~~ overstatement has been recorded in the condensed consolidated statement of operations for the three months ended April 30, 2013. The January 31, 2013 condensed consolidated balance sheet, as previously reported, reflects a ~~$51,000~~ ~~overstatement of deferred financing costs, a cumulative~~ ~~$150,000~~ ~~understatement of deemed dividends on Series A Preferred Stock, a~~ ~~$7,000~~ ~~overstatement of the Series A preferred stock, and a~~ ~~$602,000~~ ~~overstatement of additional paid in capital.~~



	Balance at February 3, 2014
Assets purchased:
Cash	$	59,000
Accounts receivable	487,000
Other assets	90,000
Deferred income taxes	1,332,000
Internally-developed software	2,017,000
Client relationships	647,000
Trade name	26,000
Goodwill (1)	2,656,000
Total assets purchased	7,314,000
Liabilities assumed:
Accounts payable and accrued liabilities	356,000
Deferred revenue obligation, net	840,000
Net assets acquired	$	6,118,000
Cash paid	$	6,118,000

_______________

During the three months ended October 31, 2013, the Company recorded an immaterial correction of an error regarding a $188,145 fiscal second quarter 2013 understatement of deemed dividends on its Series A Preferred Stock, with an offsetting understatement of additional paid in capital. These aforementioned condensed consolidated balance sheet adjustments have been recorded on the April 30, 2013 and October 31, 2013 condensed consolidated balance sheets, respectively. The Company concluded that the impact of the corrections was neither quantitatively nor qualitatively material to the prior fiscal year or the respective quarters ended in fiscal years 2012 and 2013.


(1)	Goodwill represents the excess of purchase price over the estimated fair value of net tangible and intangible assets acquired, which is not deductible for tax purposes.

13
12

Index to Financial Statements

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE E4 — LEASES

~~The Company rents~~We rent office and data center space and equipment under non-cancelable operating leases that expire at various times through fiscal year ~~2018~~.2022. Future minimum lease payments under non-cancelable operating leases for the next five fiscal years are as follows:


	Facilities		Equipment		Fiscal Year Totals		Facilities		Equipment		Fiscal Year Totals
2013 (three months remaining)	$	237,000	$	39,000	$	276,000
2014	717,000		151,000		868,000
2014 (nine months remaining)							$	516,000	$	6,000	$	522,000
2015	322,000		109,000		431,000		1,030,000		2,000		1,032,000
2016	162,000		2,000		164,000		969,000		2,000		971,000
2017	167,000		—		167,000		1,007,000		—		1,007,000
2018	85,000		—		85,000		1,039,000		—		1,039,000
Thereafter							2,435,000		—		2,435,000
Total	$	1,690,000	$	301,000	$	1,991,000	$	6,996,000	$	10,000	$	7,006,000

Rent and leasing expense for facilities and equipment was ~~approximately~~ $~~324,000~~378,000 and $~~256,000~~236,000 for the three months ended ~~October 31, 2013~~April 30, 2014 and ~~2012~~2013, respectively.

The Company has a capital lease to finance office equipment purchases. The balance of fixed assets is $272,000 and $261,000 as of April 30, 2014 and January 31, 2014, respectively, and ~~$877,000~~the balance of accumulated depreciation is $101,000 and ~~$702,000~~$76,000 for the ~~nine months ended October 31, 2013 and 2012, respectively.~~respective periods. The amortization expense of leased assets is included in depreciation expense.

NOTE F5 — DEBT

Term Loan and Line of Credit

On December 7, 2011, in conjunction with the Interpoint acquisition, the Company entered into a subordinated credit agreement with Fifth Third Bank in which the bank provided the Company with a $4,120,000 term loan, which was scheduled to mature on December 7, 2013, and a revolving line of credit, which was scheduled to mature on October 1, 2013.

~~In conjunction with the Meta acquisition, on~~ August 16, 2012, ~~the Company~~we amended the subordinated term loan and line of credit agreements with Fifth Third Bank, whereby Fifth Third Bank provided ~~the Company~~us with a $5,000,000 revolving line of credit, a $5,000,000 senior term loan and a $9,000,000 subordinated term loan, a portion of which was used to refinance the previously outstanding $4,120,000 subordinated term loan. Additionally, as part of the refinancing in August 2012, ~~the Company~~we mutually agreed to settle the success fee included in the previous subordinated term loan for $700,000. The difference between the $233,000 success fee accrued through the date of the amendment and the amount paid was recorded to deferred financing costs and is being amortized over the term of the amended loan. ~~The Company~~We paid a commitment fee in connection with the senior term loan of $75,000, which is included in deferred financing costs.

~~The Company will be~~We were required to pay a success fee in accordance with the amended subordinated term loan, which ishas been recorded in interest expense as accrued over the term of the loan. The success fee ~~is due~~was on the date the entire principal balance of the loan ~~becomes~~became due. The success fee ~~is accrued~~of $1,124,000 was paid when the subordinated term loan was paid in ~~accordance with the terms of the loan in an amount necessary to provide the lender a 17% internal rate of return through the date the success fee becomes due.~~full (see below).

Effective December 13, 2013, ~~the Company~~we amended and restated the senior credit agreement and amended the subordinated credit agreement to increase the senior term loan to ~~$8.5 million,~~$8,500,000, extend the maturity of the senior term loan and the revolving line of credit to December 1, 2018 and December 1, 2015, respectively, reduce the interest rates and revise the financial covenants. ~~The~~Simultaneously, the subordinated term loan, ~~matures~~which was scheduled to mature on August 16, ~~2014.~~2014, was paid in full. The loans are secured by substantially all of ~~the Company's~~our assets. The senior term loan principal balance is payable in monthly installments of ~~approximately~~ $101,000 commencing in January 2014, and will continue through the maturity date, with the full remaining unpaid principal balance due at maturity. ~~The entire unpaid principal balance of the subordinated term loan is due at maturity.~~ Borrowings under the senior term loan bear interest at a rate of LIBOR ~~(0.17%~~plus 4.75%. However, after the impact of our interest rate swap, the interest rate is fixed at ~~October 31, 2013) plus 4.75%, and borrowings under the subordinated term loan bear interest at 10% from August 16, 2012 and thereafter.~~6.42%. Accrued and unpaid interest on the senior and subordinated term loans is due monthly through maturity. Borrowings under the revolving loan bear interest at a rate equal to LIBOR plus 3.50%. A commitment fee of 0.40% ~~will be~~is incurred on the unused revolving line of credit balance, and is payable monthly. As of ~~October 31, 2013, the Company~~April 30, 2014, we had no outstanding borrowings under the line of credit and had accrued ~~approximately~~ $3,000 in unused balance commitment fees. The original proceeds of these loans were used to finance the cash portion of the acquisition purchase price and to cover any additional operating costs as a result of the Meta acquisition. A portion of the new senior term loan was used to refinance the previously outstanding $5,000,000 senior term loan. The Company will pay a commitment feeWe paid $116,000 in closing fees in connection with the new senior term loan that have been recorded as a debt discount and are being amortized to interest expense over the term of ~~$100,000, which will be included in deferred financing costs.~~the loan using the effective interest method.

~~Index to Financial Statements~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

The significant covenants as set forth in the term loans and line of credit ~~are~~were as follows: (i) maintain ~~adjusted EBITDA~~minimum liquidity of $4,000,000 as of ~~the end of the fiscal quarter on a trailing four fiscal quarter basis greater than: $5,000,000, (after consideration of certain acquisition~~April 30, 2014 and ~~transaction costs), on January 31, 2014 and~~monthly thereafter; (ii) maintain a fixed charge coverage ratio for the fiscal quarter ending ~~January~~July 31, ~~2013~~2014 (excluding the April 30, 2014 fiscal quarter) and each fiscal quarter thereafter of not less than ~~1.20:~~1.10:1 calculated quarterly on a trailing four quarter basis thereafter; (iii) on a consolidated basis, maintain ratio of ~~funded debt and~~ senior funded debt

Index to Financial Statements

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

to adjusted EBITDA as of the end of any fiscal quarter less than ~~3.5:~~2.50:1, ~~and 2.5:1, respectively,~~ calculated quarterly on a trailing four fiscal quarter basis beginning ~~January~~July 31, ~~2014.~~2014 (excluding the April 30, 2014 fiscal quarter). The Company is prohibited from paying dividends on common and preferred stock. The Company was in compliance with ~~all financial~~the applicable loan covenants ~~applicable for the period ended October 31, 2013.~~at April 30, 2014.

Outstanding principal balances on ~~long-term~~ debt consisted of the following at:


	October 31, 2013		January 31, 2013		April 30, 2014		January 31, 2014
Senior term loan(1)	$	3,750,000	$	4,688,000	$	8,095,000	$	8,298,000
Subordinated term loan	9,000,000		9,000,000
Note payable					900,000		900,000
Capital lease					213,000		227,000
Total	12,750,000		13,688,000		9,208,000		9,425,000
Less: Current portion	12,750,000		1,250,000		1,627,000		1,620,000
Non-current portion of long-term debt	$	—	$	12,438,000
Non-current portion of debt					$	7,581,000	$	7,805,000

_______________


(1)	Amount represents total principal due, therefore, it is not reduced by the debt discount of $216,000 and $112,000 as of April 30, 2014 and January 31, 2014, respectively. In the condensed consolidated balance sheets, the term loan is presented net of this discount.

Future principal repayments of ~~long-term~~ debt consisted of the following at ~~October 31, 2013~~April 30, 2014:

Payments Due by Period
2013 2014
Senior term loan $ 312,000
$ 3,438,000
Subordinated term loan —
9,000,000
Total principal repayments $ 312,000
$ 12,438,000



	Senior Term Loan		Note Payable		Capital Lease (1)		Total
2014	$	1,012,000	$	300,000	$	131,000	$	1,443,000
2015	1,214,000		300,000		107,000		1,621,000
2016	1,214,000		300,000		—		1,514,000
2017	1,214,000		—		—		1,214,000
2018 and thereafter	3,441,000		—		—		3,441,000
Total repayments	$	8,095,000	$	900,000	$	238,000	$	9,233,000

~~As discussed below,~~_______________


(1)	Future minimum lease payments include principal plus interest.

Note Payable

In November 2013, as part of the ~~Company~~settlement of the earn-out consideration in connection with the Interpoint acquisition, we issued an unsecured, subordinated ~~three-year~~three-year note in the amount of ~~$900,000~~$900,000 that matures on November 1, 2016 and accrues interest on the unpaid principal amount actually outstanding at a per annum rate equal to 8%. The promissory note ~~was issued November 20, 2013 and~~ has annual principal payments of $300,000 due on November 1, 2014, 2015 and 2016.

~~Contingent Earn-Out Provision~~

As part of the asset purchase, Interpoint is entitled to receive additional consideration contingent upon certain financial performance measurements during a one year earn-out period commencing July 1, 2012 and ending on June 30, 2013. The earn-out consideration is calculated as twice the recurring revenue for the earn-out period recognized by the acquired Interpoint operations from specific contracts defined in the asset purchase agreement, plus one times Interpoint revenue derived from the Company's customers, less ~~$3,500,000~~. The earn-out consideration, if any, was due no later than July 31, 2013 in cash or through the issuance of a note with terms identical to the terms of the Convertible Note (which was converted on June 15, 2012, see "Note F - Debt" in the Notes to the Consolidated Financial Statements as part of the annual report on Form 10-K for the year ended January 31, 2013), except with respect to issue date, conversion date and prepayment date. The earn-out note restricts conversion or prepayment at any time prior to the ~~one~~ ~~year anniversary of the issue date.~~

~~As of October 31, 2013, the Company calculated the payment obligation in connection with the earn-out to be~~ ~~$5,460,000. As of January 31, 2013, the Company estimated the payment obligation to be~~ ~~$1,320,000. A cumulative change in value of the earn-out of~~ ~~$4,140,000~~ ~~was recorded for the nine months ended October 31, 2013.~~

~~Index to Financial Statements~~NOTE 6 — CONVERTIBLE PREFERRED STOCK

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~NOTE G — STOCKHOLDERS' EQUITY~~

~~In October 2013, 750,000 shares of the Company's~~ Series A Convertible Preferred Stock were converted into Common Stock. As a result, Series A Convertible Preferred Stock was reduced by $919,000, with the offsetting increase to Common Stock and Additional Paid in Capital. As of October 31, 2013, 3,249,995

At April 30, 2014, we had 2,949,995 shares of Series A Convertible Redeemable Preferred Stock ~~remained~~(the “Preferred Stock”) outstanding.

~~On November 27, 2013,~~ Each share of the ~~Company closed its public offering of3,450,000shares~~Preferred Stock is convertible into one share of the Company's common stock. The Preferred Stock does not pay a dividend, however, the holders are entitled to receive dividends equal (on an as-if-converted-to-common-stock basis) to and in the same form as dividends (other than dividends in the form of common stock) actually paid on shares of the common stock. The Preferred Stock has voting rights on a modified as-if-converted-to-common-stock-basis. The Preferred Stock has a non-participating liquidation right equal to the original issue price plus accrued unpaid dividends, which are senior to the Company’s common ~~stock, including 450,000~~stock. The Preferred Stock can be converted to common shares ~~issued in connection with an overallotment option exercised~~at any time by the ~~underwriters,~~holders, or at athe option of the Company if the arithmetic average of the daily volume weighted average price of the common stock for the ten day period prior to the ~~public of $6.50~~measurement date is greater than $8.00 per ~~share. Aggregate net proceeds from~~share, and the ~~offering were approximately $20,345,000 after deducting $1,680,00 in underwriting discounts and commissions, and estimated offering expenses payable by~~average daily trading volume for the ~~Company of approximately $400,000.~~

60 day period immediately prior to the measurement date exceeds 100,000 shares. The conversion price is $3.00 per share, subject to certain adjustments.

16
14

Index to Financial Statements

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

At any time following August 31, 2016, each share of Preferred Stock is redeemable at the option of the holder for an amount equal to the initial issuance price of $3.00 (adjusted to reflect stock splits, stock dividends or similar events) plus any accrued and unpaid dividends thereon. The Preferred Stock are classified as temporary equity as the securities are redeemable solely at the option of the holder.

NOTE H7 — INCOME TAXES

Income tax expense consists of federal, state and local tax provisions. For the ~~nine~~three months ended ~~October 31, 2013~~April 30, 2014 and ~~2012~~2013, ~~the Company~~we recorded federal tax ~~provisions~~expense of ~~$126,000~~zero and $~~(3,565,000)~~11,000, respectively. For the ~~nine~~three months ended ~~October 31, 2013~~April 30, 2014 and ~~2012~~2013, ~~the Company~~we recorded state and local tax ~~provisions~~expense of $~~33,000~~1,000 and $~~30,000~~9,000, respectively. Included in the second fiscal quarter 2013 tax expense is an expense of approximately $100,000 related to an immaterial error correction to the Company's January 31, 2013 net deferred tax liability related to the Interpoint acquisition. The Company concluded that the impact of the correction was not quantitatively and qualitatively material to the prior fiscal year end and the respective quarters ended in 2012 and 2013.

NOTE I8 — SUBSEQUENT EVENTS

On ~~November 14, 2013, the Company announced that it has~~May 7, 2014, we signed ~~letters of intent~~a definitive agreement to purchase two companies to augment its existing solutions across the entire patient experience. The transactions are subject to the negotiation and execution of definitive acquisition agreements and the satisfaction of typical and customary closing conditions, including approvalacquire substantially all of the ~~respective Boards~~assets of ~~Directors of the Company~~CentraMed, Inc. CentraMed provides healthcare enterprises with cost and ~~the targets and the targets’ shareholders. There can be no assurance~~spend management solutions in a software as ~~to whether or when the acquisitions may be completed or as to the actual terms of the acquisitions.~~

a service model. The transaction expected to close first in the fiscal fourth quarter of 2013 would add patient access and scheduling capabilities. The target company sells these solutions generally under a perpetual license model, however the Company intends to transition this revenue stream into a SaaS-based model much like the Company has done with that of Meta. For the twelve months ended June 30, 2013, total revenues were $3.9 million of which $3.2 million were recurring. The letter of intentdefinitive agreement provides that at closing ~~the Company would~~we will pay ~~approximately $6.5~~$4.8 million in cash for such assets. The transaction is subject to certain closing conditions; if those conditions are met, the ~~target company.~~

~~The~~transaction would close as early as the second ~~transaction, which is in the due diligence stage, is expected to close in the fiscal fourth~~ quarter of ~~2013 or in the~~ fiscal first quarter of 2014, and would add additional financial and operational analytics to the Company’s existing suite of solutions. The letter of intent provides that at closing the Company anticipates paying approximately $13.75 million in a combination of cash and shares of the Company’s common stock.

2014.

17
15

Index to Financial Statements

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

FORWARD-LOOKING STATEMENTS

In addition to historical information contained herein, this quarterly report on Form 10-Q contains forward-looking statements relating to plans, strategies, expectations, intentions, etc. of Streamline Health Solutions, Inc. (“we”, “us”, “our”, or the ~~"Company"~~“Company”) 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 execution of contracts 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 solutions and pricing, solution demand and market acceptance, new solution development, key strategic alliances with vendors that resell ~~the Company’s~~our solutions, ~~the~~our ability ~~of the Company~~ to control costs, availability of solutions from ~~third party~~third-party vendors, the healthcare regulatory environment, potential changes in legislation, regulation and government funding affecting the healthcare industry, healthcare information systems budgets, availability of healthcare information systems trained personnel for implementation of new systems, as well as maintenance of legacy systems, fluctuations in operating results, effects of critical accounting policies and judgments, changes in accounting policies or procedures as may be required by the Financial Accountings Standards Board or other similar entities, changes in economic, business and market conditions impacting the healthcare industry generally and the markets in which ~~the Company operates~~we operate and nationally, and ~~the Company’s~~our ability to maintain compliance with the terms of ~~its~~our credit facilities, and other risk factors that might cause such differences including those discussed herein, including, but not limited to, discussions in the sections entitled Part I, “Item 1. Financial Statements” and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” In addition, other written or oral statements that constitute forward-looking statements may be made by us or on our behalf. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect ~~management's~~management’s analysis only as of the date thereof. We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date ~~hereof.~~hereof, except as required by law. Readers should carefully review the risk factors described in ~~this~~Part II, Item 1A herein and in other documents we file from time to time with the Securities and Exchange Commission, including the annual report on Form 10-K, quarterly reports on Form 10-Q and any current reports on Form 8-K.

The following discussion and analysis should be read in conjunction with ~~the Company's~~our Condensed Consolidated Financial Statements and related Notes included elsewhere in this Quarterly Report on ~~From~~Form 10-Q.

18
16

Index to Financial Statements

Results of Operations

~~Acquisition of Meta Health Technology, Inc.~~

On August 16, 2012, the Company acquired substantially all of the outstanding stock of Meta Health Technology, Inc., a New York corporation (“Meta”). The Company paid a total purchase price of approximately $14,790,000, consisting of a cash payment of $13,288,000 and the issuance of 393,086 shares of our common stock at an agreed upon price of $4.07 per share. The fair value of the common stock at the date of issuance was $3.82. As of October 31, 2012, the Company had acquired 100% of Meta’s outstanding shares. The purchase price was subject to certain adjustments related principally to the delivered working capital level, which was settled in the fourth quarter of fiscal 2013, and/or indemnification provisions. Under the acquisition method of accounting, the purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The operations of Meta are consolidated with the results of the Company from August 16, 2012.

~~Statement of Operations for the three and nine months ended October 31, 2013 and 2012 (amounts in thousands):~~

Three Months Ended
October 31, 2013 October 31, 2012 Change % Change
Systems sales $ 348
$ 290
$ 58
20 %
Professional services 967
1,090
(123 ) (11 )%
Maintenance and support 3,524
3,148
376
12 %
Software as a service 1,893
2,006
(113 ) (6 )%
Total revenues 6,732
6,534
198
3 %
Cost of sales 3,135
3,042
93
3 %
Selling, general and administrative 3,373
2,927
446
15 %
Product research and development 1,370
867
503
58 %
Total operating expenses 7,878
6,836
1,042
15 %
Operating loss (1,146 ) (302 ) (844 ) > 100%
Other expense, net (5,091 ) (851 ) (4,240 ) > 100%
Income tax benefit 5
3,553
(3,548 ) (100 )%
Net earnings (loss) $ (6,232 ) $ 2,400
$ (8,632 ) > 100%
Adjusted EBITDA(1) $ 553
$ 1,602
$ (1,049 ) (65 )%

Nine Months Ended
October 31, 2013 October 31, 2012 Change % Change
Systems sales $ 2,906
$ 719
$ 2,187
> 100%
Professional services 2,925
3,154
(229 ) (7 )%
Maintenance and support 10,525
7,797
2,728
35 %
Software as a service 5,622
5,358
264
5 %
Total revenues 21,978
17,028
4,950
29 %
Cost of sales 9,549
8,047
1,502
19 %
Selling, general and administrative 10,362
6,801
3,561
52 %
Product research and development 3,627
1,834
1,793
98 %
Total operating expenses 23,538
16,682
6,856
41 %
Operating profit (loss) (1,560 ) 346
(1,906 ) > 100%
Other income (expense), net (8,051 ) (1,438 ) (6,613 ) > 100%
Income tax expense (159 ) 3,520
(3,679 ) > 100%
Net earnings (loss) $ (9,770 ) $ 2,428
$ (12,198 ) > 100%
Adjusted EBITDA(1) $ 3,920
$ 4,822
$ (902 ) (19 )%

~~_______________~~

~~Index to Financial Statements~~


~~(1)~~	Non-GAAP measure meaning earnings before interest, tax, depreciation, amortization, stock-based compensation expense, transactional and one-time costs. See “Use of Non-GAAP Financial Measures” below for additional information and reconciliation.

~~System Sales Revenues~~

~~System sales revenues consisted of the following (in thousands):~~

Three Months Ended
October 31, 2013 October 31, 2012 Change % Change
System Sales (1):
Proprietary software $ 128
$ 27
$ 101
> 100%
Term licenses 217
144
73
51 %
Hardware & third party software 3
119
(116 ) (97 )%
Total System Sales Revenues $ 348
$ 290
$ 58
20 %

Nine Months Ended
October 31, 2013 October 31, 2012 Change % Change
System Sales (1):
Proprietary software $ 2,099
$ 162
$ 1,937
> 100%
Term licenses 730
144
586
> 100%
Hardware & third party software 77
413
(336 ) (81 )%
Total System Sales Revenues $ 2,906
$ 719
$ 2,187
> 100%

~~_______________~~


~~(1)~~	~~Proprietary software, hardware, and term licenses are the components of the system sales line item. Term licenses are comprised of Meta software only.~~

Proprietary software and term licenses — Proprietary software revenues recognized for the three ~~and nine~~ months ended ~~October 31, 2013~~April 30, 2014 increased by $~~101,000~~29,000, or ~~over 100%~~37%, ~~and $1,937,000, or~~ over ~~100%, respectively, over the~~ the prior comparable ~~periods. The nine-month period~~period. This increase is attributable to ~~a significant new~~ sales in ~~the~~our Collabra suite ~~during the second fiscal quarter. Recurring Collabra term license sales~~ of ~~$217,000~~ ~~and $730,000 during the three and nine month periods ended October 31, 2013, respectively, are incremental revenues provided by the acquired Meta operations.~~solutions.

Hardware and ~~third party~~third-party software — Revenues from hardware and ~~third party~~third-party software sales for the three ~~and nine~~ months ended ~~October 31, 2013~~April 30, 2014 were $~~3,000~~7,000, a decrease of $~~116,000~~13,000, or ~~97%~~65%, ~~and $77,000, a decrease of $336,000, or 81%, respectively,~~ over ~~the~~ the prior comparable ~~periods. These decreases~~period. Fluctuations from period to period are ~~primarily attributable to~~ a ~~reduction in customer demand for third party peripheral devices as compared to the prior year comparable period.~~function of client demand.

Professional services — Revenues from professional services for the three ~~and nine~~ months ended ~~October 31, 2013~~April 30, 2014 were ~~$967,000,~~$609,000, a decrease of ~~$123,000,~~$310,000, or ~~11%~~34%, ~~and $2,926,000, a decrease of $228,000, or 7%, respectively,~~ from the prior comparable ~~periods. Professional services provided by the acquired Meta operations for the nine months ended October 31, 2013 were $1,319,000, and were offset by a~~period. This decrease ~~in legacy services due~~is primarily attributable to the ~~timing~~nature of recognizing professional services revenues once certain milestones are met, which ~~revenue could be recognized based on services performed.~~can cause fluctuations from period to period.

Maintenance and support — Revenues from maintenance and support for the three ~~and nine~~ months ended ~~October 31, 2013~~April 30, 2014 were ~~$3,524,000,~~$4,172,000, an increase of ~~$375,000,~~$791,000, or ~~12%~~23%, ~~and $10,525,000, an increase of $2,727,000, or 35%, respectively,~~ from the prior comparable ~~periods. The nine-month period~~period. This increase ~~results largely~~resulted from ~~revenue provided by the~~prior fiscal year additions to our Collabra client base, as well as from $196,000 resulting from CLG, acquired ~~Meta operations (acquired~~ in ~~August 2012) of $4,042,000 for the nine months ended~~ October ~~31,~~ 2013, and ~~was partially offset by planned attrition of certain perpetual license customers.~~$385,000 resulting from Unibased, acquired in February 2014. Typically, maintenance renewals include a price increase based on the prevailing consumer price index.

Software as a Service (SaaS) — Revenues from SaaS for the three ~~and nine~~ months ended ~~October 31, 2013~~April 30, 2014 were ~~$1,893,000,~~$1,831,000, a decrease of ~~$112,000,~~$18,000, or 6%1%, ~~and $5,622,000, an increase of $264,000, or 5%, respectively,~~ from the prior comparable ~~periods. The~~period. This decrease ~~during the three-month period ended October 31, 2013~~ resulted from the expiration of certain customer ~~agreements. The nine-month period increase is attributable to~~agreements, offset by the start of revenue recognition ~~of add-on SaaS contracts signed, primarily in our Opportunity AnyWare product line.~~for a client that went live during the period.

~~Index to Financial Statements~~

Cost of Sales

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

Three Months Ended
(in thousands): October 31, 2013 October 31, 2012 Change % Change
Cost of systems sales $ 612
$ 718
$ (106 ) (15 )%
Cost of professional services 1,262
855
407
48 %
Cost of maintenance and support 740
918
(178 ) (19 )%
Cost of software as a service 520
551
(31 ) (6 )%
Total cost of sales $ 3,134
$ 3,042
$ 92
3 %


	Nine Months Ended									Three Months Ended
(in thousands):	October 31, 2013		October 31, 2012		Change			% Change		April 30, 2014		April 30, 2013		Change			% Change
Cost of systems sales	$	1,912	$	1,937	$	(25	)	(1	)%	$	835	$	639	$	196		31	%
Cost of professional services	3,504		1,911		1,593			83	%	986		974		12			1	%
Cost of maintenance and support	2,520		2,350		170			7	%	960		985		(25		)	(3	)%
Cost of software as a service	1,613		1,850		(237		)	(13	)%	772		579		193			33	%
Total cost of sales	$	9,549	$	8,048	$	1,501		19	%	$	3,553	$	3,177	$	376		12	%

The ~~increases~~increase in cost of sales for the three ~~and nine~~ months ended ~~October 31, 2013~~April 30, 2014 from the comparable ~~periods are~~prior period is primarily the result of incremental operational costs incurred for the acquired ~~Meta~~Unibased operations as well as the amortization of the internally-developed software acquired as part of the ~~Meta~~Unibased acquisition.

Cost of systems sales includes amortization and impairment of capitalized software expenditures, royalties, and the cost of third-party hardware and software. Cost of systems sales, as a percentage of systems sales, varies from period-to-period depending on hardware and software configurations of the systems sold. The relatively fixed cost of the capitalized software amortization, without the addition of any impairment charges, compared to the variable nature of system sales, causes these percentages to vary dramatically.

The cost of professional services includes compensation and benefits for personnel and related expenses. The increase in expense is primarily due to incremental operational costs associated with the acquired ~~Meta~~Unibased operations, as well as increases in staffing for our ~~Opportunity AnyWare~~OpportunityAnyWare™ services line.

The cost of maintenance and support includes compensation and benefits for client support personnel and the cost of ~~third party~~third-party maintenance contracts. The ~~increase~~decrease in expense is primarily due to ~~incremental operational costs associated with~~a decrease in the ~~acquired Meta operations.~~number of employees in the support function.

The cost of software as a service is relatively fixed, ~~but~~ subject to inflation for the goods and services it requires. The ~~decreases are~~increase is related to incremental data center costs that were incurred in the ~~prior comparable periods~~three months ended April 30, 2014 that had no comparable expense for the ~~three and nine months ended October 31, 2013.~~prior comparable period.

Selling, General and Administrative Expense

Three Months Ended
(in thousands): October 31, 2013 October 31, 2012 Change % Change
General and administrative expenses $ 2,519
$ 2,263
$ 256
11 %
Sales and marketing expenses 854
664
190
29 %
Total selling, general, and administrative $ 3,373
$ 2,927
$ 446
15 %

21
17

Index to Financial Statements


	Nine Months Ended								Three Months Ended
(in thousands):	October 31, 2013		October 31, 2012		Change		% Change		April 30, 2014		April 30, 2013		Change		% Change
General and administrative expenses	$	7,995	$	5,116	$	2,879	56	%	$	3,582	$	2,843	$	739	26	%
Sales and marketing expenses	2,367		1,685		682		40	%	1,058		738		320		43	%
Total selling, general, and administrative	$	10,362	$	6,801	$	3,561	52	%	$	4,640	$	3,581	$	1,059	30	%

General and administrative expenses consist primarily of compensation and related benefits and reimbursable travel and entertainment expenses related to ~~the Company’s~~our executive and administrative staff, general corporate expenses, amortization of intangible assets, and occupancy costs. The ~~increases~~increase over the prior year ~~are~~is primarily due professional service fees incurred, as well as to the incremental increase for general and administrative expenses associated with the acquired ~~Meta~~Unibased operations. Amortization of intangible assets added incremental expense to the three ~~and nine~~ months ended ~~October 31, 2013~~April 30, 2014 due to the amortization of assets acquired as part of the acquisition of ~~Interpoint~~CLG and ~~Meta. The Company~~Unibased. We recognized ~~approximately $315,000 and~~ $~~946,000~~359,000~~, respectively,~~ in amortization expense for the three ~~and nine~~ months ended ~~October 31, 2013~~April 30, 2014 for acquired intangible assets as compared to ~~$250,000 and $276,000, respectively,~~$314,000 in the prior comparable ~~periods. The Company~~period. We also incurred increased expense due to ~~investor relations and acquisition search activities, as well as additional costs from executive severances~~audit and other ~~costs associated with our corporate office move to Atlanta, Georgia.~~professional services.

Sales and marketing expenses consist primarily of compensation and related benefits and reimbursable travel and entertainment expenses related to ~~the Company’s~~our sales and marketing staff; advertising and marketing expenses, including trade shows and similar type sales and marketing expenses. The increase in sales and marketing expense reflects an increase in costs associated with increased trade show activity and other marketing programs.

Product Research and Development

Three Months Ended
(in thousands): October 31, 2013 October 31, 2012 Change % Change
Research and development expense $ 1,370
$ 867
$ 503
58 %
Plus: Capitalized research and development cost 250
601
(351 ) (58 )%
Total R&D cost $ 1,620
$ 1,468
$ 152
10 %


	Nine Months Ended									Three Months Ended
(in thousands):	October 31, 2013		October 31, 2012		Change			% Change		April 30, 2014		April 30, 2013		Change			% Change
Research and development expense	$	3,627	$	1,834	$	1,793		98	%	$	2,350	$	1,097	$	1,253		114	%
Plus: Capitalized research and development cost	1,048		1,571		(523		)	(33	)%	193		460		(267		)	(58	)%
Total R&D cost	$	4,675	$	3,405	$	1,270		37	%
Total research and development cost										$	2,543	$	1,557	$	986		63	%

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 expense increased due to ~~higher support for newly released software versions, which also decreased~~incremental development staffing from the ~~number of hours available~~acquired CLG and Unibased business. During the current period, our development efforts shifted to besolutions involving development costs that are not capitalized ~~which is reflected in the capitalized research and development costs. The acquired Meta operations contributed an incremental $524,000 and $1,292,500, respectively, in research~~due to rapid release cycles. Research and development expenses for the three ~~and nine~~ months ended October 31, 2013. The hours available for capitalization decreased for the HIM product line, and costs not eligible for capitalization increased compared to the prior comparable periods. Research and development expenses for the nine months ended October 31, 2013April 30, 2014 and ~~2012~~2013, as a percentage of revenues, were ~~17%~~34% and ~~11%~~17%, respectively.

Other Income (Expense)

Interest expense for the three months ended ~~October 31, 2013~~April 30, 2014 and ~~2012~~2013 ~~were $580,000~~was $169,000 and ~~$895,000, respectively, and $1,735,000 and $1,494,000, respectively, for the nine months ended October 31, 2013 and 2012.~~$567,000, respectively. Interest expense consists of interest and commitment fees on the line of credit, interest (including accruals for success fees) on the term loans entered into in conjunction with the Interpoint and Meta acquisitions, interest on the ~~convertible~~2013 note ~~entered into in conjunction with the Interpoint acquisition,~~payable, and is inclusive of deferred financing cost amortization expense. Interest expense decreased for the three months ended ~~October 31, 2013~~April 30, 2014 over the prior comparable period due to the payoff of the ~~interest accrued on the convertible note entered~~

~~Index to Financial Statements~~

into in conjunction with the Meta Acquisition, which was converted into shares of preferred stock on November, 1 2012. Interest expense increased for the nine months ended October 31, 2013 over the prior comparable period primarily due to increases from thesubordinated term loan ~~interest and success fees, and amortization of deferred financing costs related to the Meta acquisition. The Company~~in January 2014. We also recorded a valuation adjustment to ~~its~~our warrants liability ~~recorded~~of $(1,138,000) and $645,000 as miscellaneous (income) expense ~~of $412,000 and~~ ~~$2,083,000, respectively,~~ for the three ~~and nine~~ months ended ~~October 31,~~April 30, 2014 and 2013, respectively, using assumptions made by management to adjust to the current fair market value of the warrants at ~~October 31, 2013~~.the end of each fiscal period.

Provision for Income Taxes

~~The Company~~We recorded tax expense ~~(benefit)~~ of ~~$(5,000)~~$1,000 and ~~$12,000,~~$20,000, respectively, for the three months ended ~~October 31, 2013 and 2012 and $159,000 and $45,000, respectively, for the nine months ended October 31, 2013~~April 30, 2014 and ~~2012~~2013, which is comprised of estimated federal, state and local tax provisions. Included in the nine months ended October 31, 2013, tax expense of approximately $100,000 from the second fiscal quarter related to an immaterial error correction to the Company's January 31, 2013 net deferred tax liability related to the Interpoint acquisition. The Company concluded that the impact of the correction was neither quantitatively nor qualitatively material to the prior fiscal year end or the respective quarters ended in 2012 and 2013.

Backlog

Index to Financial Statements


	October 31, 2013		October 31, 2012		April 30, 2014		April 30, 2013
Company proprietary software	$	2,529,000	$	3,650,000	$	2,006,000	$	3,304,000
Hardware and third-party software	20,000		84,000		54,000		77,000
Professional services	7,141,000		4,348,000		6,948,000		8,040,000
Maintenance and support	28,234,000		21,535,000		27,114,000		23,017,000
Software as a service	17,087,000		19,117,000		26,808,000		18,607,000
Total	$	55,011,000	$	48,734,000	$	62,930,000	$	53,045,000

At ~~October 31, 2013~~April 30, 2014, ~~the Company~~we had master agreements and purchase orders from clients and remarketing partners for systems and related services ~~which~~that have not been delivered or installed which, if fully performed, would generate future revenues of ~~approximately~~ $~~55,011,000~~62,930,000 compared with $~~48,734,000~~53,045,000 at ~~October 31, 2012~~April 30, 2013.

~~The Company’s~~Our proprietary software backlog consists primarily of signed agreements to purchase software licenses and term licenses.

Third-party hardware and software consists of signed agreements to purchase third-party hardware or third-party software licenses that have not been delivered to the client. These are products that ~~the Company resells~~we resell as components of the solution a client purchases. The decrease in backlog is primarily due to a reduction in the volume of third-party sales as opposed to the prior comparable period. These items are expected to be delivered in the next twelve months as implementations commence.

Professional services backlog consists of signed contracts for services that have yet to be performed. Typically, backlog is recognized within twelve months of the contract signing. The ~~increase~~decrease in professional services backlog ~~is due to several clients~~results from the recognition of milestones that ~~signed contracts during fiscal~~ ~~2012~~had been delayed for ~~add-on solutions, upgrades, or expansion~~long periods of ~~services at additional locations for which contracted services have not yet been performed.~~time.

Maintenance and support backlog consists of maintenance agreements for licenses of ~~the Company’s~~our proprietary software and ~~third party~~third-party hardware and software with clients and remarketing partners for which either an agreement has been signed or a purchase order under a master agreement has been received. ~~The Company includes~~We include in backlog the signed agreements through their respective renewal dates. Typical maintenance contracts are for a one year term and are renewed annually. Clients typically prepay maintenance and support which is billed 30-60 days prior to the beginning of the maintenance period. Maintenance and support backlog at ~~October 31, 2013~~April 30, 2014 was $~~28,234,000~~27,114,000 as compared to $~~21,535,000~~23,017,000 at ~~October 31, 2012~~April 30, 2013. A significant portion of this increase is due to backlog added by ~~Meta~~Unibased maintenance contracts. Additionally, ~~as part of~~several clients signed multi-year renewals ~~contracts are typically subject to an annual increase in fees based on market rates and inflationary metrics.~~during the current period.

At ~~October 31, 2013~~April 30, 2014, ~~the Company~~we had entered into ~~software as a service~~SaaS agreements ~~which~~that are expected to generate revenues of $~~17,087,000~~26,808,000 through their respective renewal dates in fiscal years ~~2013~~2014 through ~~2018.~~2019. Typical SaaS terms are one to seven years in length. The commencement of revenue recognition for SaaS varies depending on the size and complexity of

~~Index to Financial Statements~~

the system, the implementation schedule requested by the client, and ultimately the official go-live on the system. Therefore, it is difficult for ~~the Company~~us to accurately predict the revenue it expects to achieve in any particular period.

All of ~~the Company’s~~our master agreements are generally non-cancelable but provide that the client may terminate its agreement upon a material breach by ~~the Company,~~us, or may delay certain aspects of the installation. There can be no assurance that a client will not cancel all or any portion of a master agreement or delay portions of the agreement. A termination or delay in one or more phases of an agreement, or ~~the failure of the Company~~our inability to ~~procure~~obtain additional agreements, could have a material adverse effect on ~~the Company’s~~our financial condition, and results of operations.

Use of Non-GAAP Financial Measures

In order to provide investors with greater insight, and allow for a more comprehensive understanding of the information used by management and the board of directors in its financial and operational decision-making, ~~the Company~~we may supplement the Condensed Consolidated Financial Statements presented on a GAAP basis in this quarterly report on Form 10-Q with the following non-GAAP financial measures: EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted EBITDA per diluted share.

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

Index to Financial Statements

EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted EBITDA per diluted share

~~The Company defines:~~We define: (i) EBITDA as net earnings (loss) before net interest expense, income tax expense (benefit), depreciation and amortization; (ii) Adjusted EBITDA as net earnings (loss) before net interest expense, income tax expense (benefit), depreciation, amortization, stock-based compensation expense, and transaction expenses and other ~~one-time costs;~~expenses that do not relate to our core operations; (iii) Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of net revenue; and (iv) 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~~our operating performance consistently over time as they remove the impact of our capital structure (primarily interest charges), asset base (primarily depreciation and amortization), items outside the control of the management team (taxes), and ~~costs~~expenses that ~~we expect~~do not relate to ~~be non-recurring~~our core operations including: ~~transaction related~~transaction-related expenses (such as professional and advisory services), corporate restructuring expenses (such as severances), and other operating costs that are expected to be non-recurring. Adjusted EBITDA removes the impact of share-based compensation expense, which is another non-cash item. Adjusted EBITDA per diluted share ~~will include~~includes incremental shares in the share count that ~~would be~~are considered anti-dilutive in a GAAP net loss position.

The board of directors and management also use 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 associate incentive compensation programs.

~~The Company’s lenders use~~Our lender uses Adjusted EBITDA to assess our operating performance. The ~~Company’s~~lender under our credit agreements ~~with its lender require~~requires delivery of compliance reports certifying compliance with financial covenants certain of which are based on an adjusted EBITDA measurement that is the same as the Adjusted EBITDA measurement reviewed by our management and board of directors.

EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are not measures of liquidity under GAAP, or otherwise, and are not alternatives to cash flow from continuing operating activities, despite the advantages regarding the use and analysis of these measures as mentioned above. EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted EBITDA per diluted share as disclosed in this quarterly report on Form 10-Q, have limitations as analytical tools, and you should not consider these measures in isolation, or as a substitute for analysis of ~~Company~~our results as reported under GAAP; nor are these measures intended to be measures of liquidity or free cash flow for our discretionary use. Some of the limitations of EBITDA, and its variations are:

~~Index to Financial Statements~~

EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

EBITDA does not reflect the interest expense, or the cash requirements to service interest or principal payments under our credit agreement;

EBITDA does not reflect income tax payments we are required to make; and

Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements.

Adjusted EBITDA has all the inherent limitations of EBITDA. To properly and prudently evaluate our business, ~~the Company encourages~~we encourage readers to review the GAAP financial statements included elsewhere in this quarterly report on Form 10-Q, and not rely on any single financial measure to evaluate our business. ~~The Company~~We also strongly ~~urges~~urge readers to review the reconciliation of GAAP net earnings (loss) to Adjusted EBITDA, and GAAP earnings (loss) per diluted share to Adjusted EBITDA per diluted share in this section, along with the Consolidated Financial Statements included elsewhere in this quarterly report on Form 10-Q.

The following table sets forth a reconciliation of EBITDA and Adjusted EBITDA to net earnings (loss), a comparable GAAP-based measure, as well as earnings (loss) per diluted share to Adjusted EBITDA per diluted share. All of the items included in the reconciliation from net earnings (loss) to EBITDA to Adjusted EBITDA and the related per share calculations are either recurring non-cash items, or items that management does not consider in assessing ~~the Company’s~~our on-going operating performance. In the case of the non-cash items, management believes that investors may find it useful to assess ~~the Company’s~~our comparative operating performance because the measures without such items are less susceptible to variances in actual performance resulting from depreciation, amortization and other ~~non-recurring~~ expenses that do not relate to our core operations and more

Index to Financial Statements

reflective of other factors that affect operating performance. In the case of ~~the other non-recurring~~ items that do not relate to our core operations, management believes that investors may find it useful to assess ~~the Company’s~~our operating performance if the measures are presented without these items because their financial impact does not reflect ongoing operating performance.

~~Index to Financial Statements~~

The following table reconciles net earnings (loss) to EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted EBITDA per diluted share for the three ~~and nine~~ months ended ~~October 31, 2013~~April 30, 2014 and ~~2012~~2013 (amounts in thousands, except per share data):


	Three Months Ended						Nine Months Ended						Three Months Ended
Adjusted EBITDA Reconciliation	October 31, 2013			October 31, 2012			October 31, 2013			October 31, 2012			April 30, 2014			April 30, 2013
Net earnings (loss)	$	(6,232	)	$	2,400		$	(9,770	)	$	2,428
Net loss													$	(2,671	)	$	(2,710	)
Interest expense	580			895			1,735			1,494			169			567
Income tax expense (benefit)	(5		)	(3,553		)	159			(3,520		)
Income tax expense													1			20
Depreciation	152			184			490			547			151			171
Amortization of capitalized software development costs	691			708			2,087			1,928			917			695
Amortization of intangible assets	314			229			946			257			359			314
Amortization of other costs	23			—			47			—			27			10
EBITDA	(4,477		)	863			(4,306		)	3,134			(1,047		)	(933		)
Stock-based compensation expense	378			245			1,204			645
Share-based compensation expense													443			467
Associate severances and other costs relating to transactions or corporate restructuring	—			—			383			—			451			383
Non-cash valuation adjustments to assets and liabilities	4,514			—			6,223			—			(1,100		)	645
Transaction related professional fees, advisory fees, and other internal direct costs	138			494			363			1,043			164			74
Other non-recurring operating expenses	—			—			53			—			574			49
Adjusted EBITDA	$	553		$	1,602		$	3,920		$	4,822		$	(515	)	$	685
Adjusted EBITDA margin(1)	8		%	25		%	18		%	28		%	(7		)%	11		%

Earnings (loss) per share — diluted	$	(0.50	)	$	0.15		$	(0.82	)	$	0.18		$	(0.16	)	$	(0.24	)
Adjusted EBITDA per adjusted diluted share (2)	$	0.03		$	0.10		$	0.22		$	0.39		$	(0.03	)	$	0.04
Diluted weighted average shares	13,257,943			15,365,238			12,884,711			12,417,256			18,146,232			12,534,474
Includable incremental shares — adjusted EBITDA(3)	5,058,763			—			5,130,937			—			—			5,213,514
Adjusted diluted shares	18,316,706			15,365,238			18,015,648			12,417,256			18,146,232			17,747,988

_______________


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


(2)	Adjusted EBITDA per adjusted diluted share for ~~the Company's~~our common stock is computed using the more dilutive of the two-class method or the if-converted ~~method~~method.


(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~~assumed.

Application of Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reporting period. Management considers an accounting policy to be critical if the accounting policy requires management to make particularly difficult, subjective or complex judgments about matters that are inherently uncertain. A summary of our critical accounting policies is included in ITEM 7. Management’s Discussion ~~And~~and Analysis Ofof Financial Condition ~~And~~and Results Ofof Operations, of Part II, of our Annual Report on Form 10-K for the fiscal year ended January 31, ~~2013.~~2014. There have been no material changes to the critical accounting policies disclosed in our Annual Report on Form 10-K for the fiscal year ended January 31, ~~2013.~~2014.

Liquidity and Capital Resources

~~The Company’s~~Our liquidity is dependent upon numerous factors including: (i) the timing and amount of revenues and collection of contractual amounts from clients, (ii) amounts invested in research and development, capital expenditures, and (iii) the level of operating expenses, all of which can vary significantly from quarter-to-quarter. ~~The Company’s~~Our primary cash requirements include regular payment of payroll and other business expenses, interest payments on debt, and capital expenditures. Capital expenditures

Index to Financial Statements

generally include computer hardware and computer software to support internal

~~Index to Financial Statements~~

development efforts or infrastructure in the SaaS data center. Operations are funded by cash generated by operations and borrowings under credit facilities. ~~The Company believes~~We believe that cash flows from operations and available credit facilities are adequate to fund current obligations for the next twelve months. Cash and cash equivalents balances at ~~October 31, 2013~~April 30, 2014 and January 31, ~~2013~~2014 were $~~4,264,000~~6,966,000 and $17,925,000, respectively. The decrease in cash was primarily the result of the Unibased acquisition. As of April 30, 2014, we had $~~$7,500,000~~11,682,000 ~~, respectively.~~in accounts receivable, of which $2,427,000 is in deferred revenue and therefore is not reflected on the balance sheet. We believe that with the collections of outstanding accounts receivable, we will maintain liquidity of $4,000,000 as required by our debt covenants. Continued expansion may require ~~the Company~~us to take on additional debt, or raise capital through issuance of equities, or a combination of both. There can be no assurance ~~the Company~~we will be able to raise the capital required to fund further expansion.

Significant cash obligations

(in thousands) As of October 31, As of January 31,
2013 2013
Term loans (1) $ 12,750
$ 13,688
Interpoint Partners note payable (1) 900
—
Interpoint Partners earn-out (1) 1,300
1,320
Capital leases (2) 284
—



(in thousands)	As of April 30, 2014		As of January 31, 2014
Term loans (1)	$	8,095	$	8,298
Note payable (1)	900		900
Capital leases (1)	213		227
Royalty liability (2)	2,302		2,264

_______________


(1)	Reference “Note F5 – Debt” in the Notes to the Condensed Consolidated Financial Statements for additional information.


(2)	~~The Company entered into a capital lease~~Reference “Note 3 – Acquisitions and Strategic Agreements” in the Notes to the Condensed Consolidated Financial Statements for ~~computer equipment that will commence November 1, 2013. The lease is for a 24-month period and we will be obligated to pay approximately $284,000 over that period.~~additional information.

Operating cash flow activities


(in thousands)	Nine Month Ended						Three Months Ended
	October 31, 2013			October 31, 2012			April 30, 2014			April 30, 2013
Net earnings (loss)	$	(9,770	)	$	2,428
Non-cash adjustments to net earnings (loss)	11,398			184
Net loss							$	(2,671	)	$	(2,710	)
Non-cash adjustments to net loss							808			2,376
Cash impact of changes in assets and liabilities	(866		)	(143		)	(2,081		)	(2,375		)
Operating cash flow	$	762		$	2,469		$	(3,944	)	$	(2,709	)

~~Net~~The increase in net cash ~~provided by~~used in operating activities ~~in fiscal~~ ~~2013~~ ~~decreased in the current year~~is primarily due to ~~a decrease~~an increase in profitability, offset by ~~several~~lower non-cash valuation adjustments. Additional non-cash adjustments include amortization expense from capitalized software development costs and intangible assets, warrant liability mark-to-market charges and an increased ~~share based~~share-based compensation expense.

~~The Company’s~~Our clients typically have been well-established hospitals or medical facilities or major health information system companies that resell ~~the Company’s~~our solutions, which have good credit histories and payments have been received within normal time frames for the industry. However, some healthcare organizations have experienced significant operating losses as a result of limits on third-party reimbursements from insurance companies and governmental entities. Agreements with clients often involve significant amounts and contract terms typically require clients to make progress payments. Adverse economic events, as well as uncertainty in the credit markets, may adversely affect the availability of financing for some of our clients.

Investing cash flow activities


(in thousands)	Nine Months Ended						Three Months Ended
(in thousands)	October 31, 2013			October 31, 2012			April 30, 2014			April 30, 2013
Purchases of property and equipment	$	(106	)	$	(546	)	$	(592	)	$	(79	)
Capitalized software development costs	(1,048		)	(1,571		)	(193		)	(460		)
Payments for acquisitions	(3,000		)	(12,162		)	(5,891		)	—
Investing cash flow	$	(4,154	)	$	(14,279	)	$	(6,676	)	$	(539	)

The ~~decrease~~increase in cash used for investing activities is primarily a result of ~~a reduction in~~ the ~~hours eligible for capitalization,~~cash expended to acquire the Unibased business, as well as, ~~a decrease in capital expenditures as compared~~asset purchases related to the ~~prior comparable fiscal quarter. The Company estimates that to replicate its existing internally developed~~expansion of our Atlanta office, partially offset by lower internal software ~~would cost significantly more than the stated net book value of $11,778,000, including acquired internally developed software of Meta and Interpoint, at~~ ~~October 31, 2013~~.development costs being eligible for capitalization. Many of the programs related to capitalized software development ~~continue to have significant value to the Company’s current solutions~~

27
22

Index to Financial Statements

continue to have significant value to our current solutions and those under development, as the concepts, ideas, and software code, are readily transferable and are incorporated into new solutions.

Financing cash flow activities


(in thousands)	Nine Months Ended						Three Months Ended
	October 31, 2013			October 31, 2012			April 30, 2014			April 30, 2013
Net change in borrowings	$	(938	)	$	9,880
Principal repayments on term loan							$	(202	)	$	(313	)
Principal payments on capital lease obligation							(24		)	—
Payment of deferred financing costs							(113		)	—
Proceeds from the exercise of stock options and stock purchase plans	1,094			162			—			62
Payment of deferred financing costs	—			(1,246		)
Proceeds from private placement	—			12,000
Payment of success fee	—			(700		)
Financing cash flow	$	156		$	20,096		$	(339	)	$	(251	)

The ~~decrease~~increase in cash ~~from~~used in financing activities was primarily the result of ~~proceeds from the private placement during the nine months ended October 31, 2012~~an absence of stock option exercises and the ~~net change in borrowings, offset by an increase in proceeds from the exercise~~payment of ~~stock options.~~

deferred financing costs.

28
23

Index to Financial Statements

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~Not applicable.~~Interest Rate Risk

We had cash and cash equivalents totaling $6,966,000 as of April 30, 2014. The cash and cash equivalents are held for working capital purposes in deposit accounts. We do not enter into investments for trading or speculative purposes. We are not exposed, nor do we anticipate being exposed, to material risks due to changes in market interest rates given the historical low levels of interest being earned on short-term fixed-rate cash operating accounts.

Our senior credit facility as of April 30, 2014 consisted of a $8,095,000 outstanding senior term loan and a $5,000,000 revolving line of credit with no amount outstanding. Interest on the senior term loan is payable monthly at LIBOR plus 4.75%. Our exposure to interest rate risk under the senior credit facility depends on the extent to which we utilize the facility. To reduce our exposure to rising interest rates, we entered into an interest rate swap for outstanding principal balance of the senior term loan. The interest rate swap effectively fixes the LIBOR rate at a fixed rate of 1.67%. As such, a hypothetical change of 1% from prevailing interest rates as of April 30, 2014 would not have an effect on our interest expense.

Foreign Currency Exchange Risk

To date, we have one client agreement denominated in Canadian dollars and therefore we have limited exposure to foreign currency rate fluctuations related to our revenue. We do not currently engage in foreign currency hedging transactions. A hypothetical change of 10% in foreign currency exchange rates would not have a material effect on our consolidated financial condition or results of operations.

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this quarterly report on Form 10-Q, an evaluation was performed under the supervision and with the participation of our senior management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures to provide reasonable assurance of achieving the desired objectives of the disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. ~~Based~~In light of the material weaknesses noted in our annual report on ~~that evaluation,~~Form 10-K for the fiscal year ended January 31, 2014, our ~~management, including the~~ Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective ~~at the reasonable assurance level~~ as of the end of the period covered by this quarterly report on Form 10-Q.

Changes in Internal Control over Financial Reporting

There were no material changes in our internal control over financial reporting during the most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect our internal ~~controls~~control over financial reporting.

As discussed under Part II, Item 9A of the Company’s Form 10-K for the fiscal year ended January 31, 2014, our management identified certain material weaknesses in our system of internal control over financial reporting in connection with its assessment of the effectiveness of the Company’s internal control over financial reporting as of January 31, 2014.

Subsequent to April 30, 2014, as part of our efforts to improve our finance and accounting function and to remediate the material weaknesses that existed in our internal control over financial reporting and our disclosure controls and procedures, we developed a remediation plan (the “Remediation Plan”) pursuant to which we have implemented, or plan to implement, a number of measures. The Remediation Plan, among other things, includes the following:

•Staffing: In addition to a realignment of our accounting staff structure and operations, we intend to add a new revenue accounting specialist position to better ensure compliance with our revenue recognition policies.

•Policies and procedures: We engaged a professional services firm to assist us with enhancing our policies and procedures related to revenue recognition, contracting and other areas reflected in the material weaknesses described under Part II, Item 9A of the Company’s Form 10-K for the fiscal year ended January 31, 2014.

•Systems: We are currently implementing a series of incremental software solutions to enhance our documentation in critical areas such as revenue recognition and stock-based compensation.

The Remediation Plan is being implemented by our Chief Financial Officer, with significant involvement from our Chief Executive Officer and Chief Accounting Officer, as well as other key leaders where appropriate.

Index to Financial Statements

We believe that actions taken from April 30, 2014 to date have improved the effectiveness of our internal control over financial reporting, but we have not completed all corrective processes and procedures discussed above. We will continue to monitor the effectiveness of our internal control over financial reporting in the areas affected by the material weaknesses, and we will perform any additional necessary procedures, as well as implement any new resources and policies, deemed necessary by management to ensure that our consolidated financial statements continue to be fairly stated in all material respects.

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PART II. OTHER INFORMATION



Item 1.	LEGAL PROCEEDINGS

We are, from time to time, a party to various legal proceedings and claims, which arise, in the ordinary course of business. We are not aware of any legal matters that ~~will~~are expected to have a material adverse effect on our consolidated results of operations or consolidated financial position and cash flows.



Item 1A.	RISK FACTORS

An investment in our common stock or other securities involves a number of risks. You should carefully consider each of the risks described below before deciding to invest in our common stock or other securities. If any of the following risks develops into actual events, our business, financial condition or results of operations could be negatively affected, the market price of our common stock or other securities could decline, and you may lose all or part of your investment.

Risks Relating to Our Business

Our sales have been concentrated in a small number of clients.

Our revenues have been concentrated in a relatively small number of large clients, and we have historically derived a substantial percentage of our total revenues from a few clients. For the fiscal years ended January 31, 2014 and 2013, our five largest clients accounted for 31% and 27% of our total revenues, respectively. There can be no assurance that a client 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 our failure to procure additional agreements, could have a material adverse effect on our business, financial condition and results of operations.

A significant increase in new SaaS contracts could reduce near term profitability and require a significant cash outlay, which could adversely affect near term cash flow and financial flexibility.

If new or existing clients purchase significant amounts of our SaaS services, we may have to expend a significant amount of initial setup costs and time before those new clients are able to begin using such services, and we cannot begin to recognize revenues from those SaaS agreements until the commencement of such services. Accordingly, we anticipate that our near term cash flow, revenue and profitability may be adversely affected by significant incremental setup costs from new SaaS clients that would not be offset by revenue until new SaaS clients go into production. While we anticipate long-term growth in profitability through increases in recurring SaaS subscription fees and significantly improved profit visibility, any inability to adequately finance setup costs for new SaaS solutions, could result in the failure to put new SaaS solutions into production; and could have a material adverse effect on our liquidity, financial position and results of operations. In addition, this near term cash flow demand could adversely impact our financial flexibility and cause us to forego otherwise attractive business opportunities or investments.

Failure to manage our expenses and efficiently allocate our financial and human capital as we grow could limit our growth potential and adversely impact our results of operation and financial condition.

During periods of growth, our financial and human capital assets can experience significant pressures. We are currently experiencing a period of growth primarily through acquisitions and in our SaaS lines of business, and this could continue to place a significant strain on our cash flow. This growth also adds strain to our services and support operations, sales and administrative personnel and other resources as they are requested to manage the added work load with existing resources. We believe that we must continue to focus on remote hosting services, develop new solutions, enhance existing solutions and serve the needs of our existing and prospective client base. Our ability to manage our planned growth effectively also will require us to continue to improve our operational, management and financial systems and controls, to train, motivate and manage our associates and to judiciously manage our operating expenses in anticipation of increased future revenues. Our failure to properly manage resources may limit our growth potential and adversely impact our results of operation and financial condition.

The potential impact on us of new or changes in existing federal, state and local regulations governing healthcare information could be substantial.

Index to Financial Statements

Healthcare regulations issued to date have not had a material adverse effect on our business. However, we cannot predict the potential impact of new or revised regulations that have not yet been released or made final, or any other regulations that might be adopted. The U.S. Congress may adopt legislation that may change, override, conflict with or preempt the currently existing regulations and which could restrict the ability of clients to obtain, use or disseminate patient health information. We believe that the features and architecture of our existing solutions are such that we currently support or should be able to make the necessary modifications to our solutions, if required, by legislation or regulations, but there can be no assurances.

The healthcare industry is highly regulated. Any material changes in the political, economic or regulatory healthcare environment that affect the group purchasing business or the purchasing practices and operations of healthcare organizations, or that lead to consolidation in the healthcare industry, could require us to modify our services or reduce the funds available to providers to purchase our solutions and services.

Our business, financial condition and results of operations depend upon conditions affecting the healthcare industry generally and hospitals and health systems particularly. Our ability to grow will depend upon the economic environment of the healthcare industry generally as well as our ability to increase the number of solutions that we sell to our clients. The healthcare industry is highly regulated and is subject to changing political, economic and regulatory influences. Factors such as changes in reimbursement policies for healthcare expenses, consolidation in the healthcare industry, regulation, litigation and general economic conditions affect the purchasing practices, operation and, ultimately, the operating funds of healthcare organizations. In particular, changes in regulations affecting the healthcare industry, such as any increased regulation by governmental agencies of the purchase and sale of medical products, or restrictions on permissible discounts and other financial arrangements, could require us to make unplanned modifications of our solutions and services, or result in delays or cancellations of orders or reduce funds and demand for our solutions and services.

Our clients derive a substantial portion of their revenue from third-party private and governmental payors, including through Medicare, Medicaid and other government-sponsored programs. Our sales and profitability depend, in part, on the extent to which coverage of and reimbursement for medical care provided is available from governmental health programs, private health insurers, managed care plans and other third-party payors. If governmental or other third-party payors materially reduce reimbursement rates or fail to reimburse our clients adequately, our clients may suffer adverse financial consequences, which in turn, may reduce the demand for and ability to purchase our solutions or services.

We face significant competition, including from companies with significantly greater resources.

We currently compete with many other companies for the licensing of similar software solutions and related services. Several companies historically have dominated the clinical information systems software market and several of these companies have either acquired, developed or are developing their own content management, analytics and coding/clinical documentation improvement solutions as well as the resultant workflow technologies. The industry is undergoing consolidation and realignment as companies position themselves to compete more effectively. Many of these companies are larger than us and have significantly more resources to invest in their business. In addition, information and document management companies serving other industries may enter the market. Suppliers and companies with whom we may establish strategic alliances also may compete with us. Such companies and vendors may either individually, or by forming alliances excluding us, place bids for large agreements in competition with us. A decision on the part of any of these competitors to focus additional resources in any one of our three solutions stacks (content management, analytics and coding/clinical documentation improvement), workflow technologies and other markets addressed by us could have a material adverse effect on us.

The healthcare industry is evolving rapidly, which may make it more difficult for us to be competitive in the future.

The U.S. healthcare system is under intense pressure to improve in many areas, including modernization, universal access and controlling skyrocketing costs of care. We believe that the principal competitive factors in our market are client recommendations and references, company reputation, system reliability, system features and functionality (including ease of use), technological advancements, client service and support, breadth and quality of the systems, the potential for enhancements and future compatible solutions, the effectiveness of marketing and sales efforts, price and the size and perceived financial stability of the vendor. In addition, we believe that the speed with which companies in our market can anticipate the evolving healthcare industry structure and identify unmet needs are important competitive factors. There can be no assurance that we will be able to keep pace with changing conditions and new developments such that we will be able to compete successfully in the future against existing or potential competitors.

Rapid technology changes and short product life cycles could harm our business.

The market for our solutions and services is characterized by rapidly changing technologies, regulatory requirements, evolving industry standards and new product introductions and enhancements that may render existing solutions obsolete or

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less competitive. As a result, our position in the healthcare information technology market could change rapidly due to unforeseen changes in the features and functions of competing products, as well as the pricing models for such products. Our future success will depend, in part, upon our ability to enhance our existing solutions and services and to develop and introduce new solutions and services to meet changing requirements. Moreover, competitors may develop competitive products that could adversely affect our operating results. We need to maintain an ongoing research and development program to continue to develop new solutions and apply new technologies to our existing solutions but may not have sufficient funds with which to undertake such required research and development. If we are not able to foresee changes or to react in a timely manner to such developments, we may experience a material, adverse impact on our business, operating results and financial condition.

Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our solutions and services.

Our intellectual property, which represents an important asset to us, has some protection against infringement through copyright and trademark law. We do not have any patent protection on any of our software. We rely upon license agreements, employment agreements, confidentiality agreements, nondisclosure agreements and similar agreements to maintain the confidentiality of our proprietary information and trade secrets. Notwithstanding these precautions, others may copy, reverse engineer or design independently, technology similar to our solutions. If we fail to protect adequately our intellectual property through trademarks and copyrights, license agreements, employment agreements, confidentiality agreements, nondisclosure agreements or similar agreements, our intellectual property rights may be misappropriated by others, invalidated or challenged, and our competitors could duplicate our technology or may otherwise limit any competitive technology advantage we may have. It may be necessary to litigate to enforce or defend our proprietary technology or to determine the validity of the intellectual property rights of others. Any litigation could be successful or unsuccessful, may result in substantial cost and require significant attention by management and technical personnel.

Due to the rapid pace of technological change, we believe our future success is likely to depend upon continued innovation, technical expertise, marketing skills and client support and services rather than on legal protection of our property rights. However, we have in the past, and intend in the future, to assert aggressively our intellectual property rights when necessary.

We could be subjected to claims of intellectual property infringement, which could be expensive to defend.

While we do not believe that our solutions and services infringe upon the intellectual property rights of third parties, the potential for intellectual property infringement claims continually increases as the number of software patents and copyrighted and trademarked materials continues to rapidly expand. Any claim for intellectual property right infringement, even if not meritorious, would be expensive to defend. If we were to become liable for infringing third party intellectual property rights, we could be liable for substantial damage awards, and potentially be required to cease using the technology, to produce non-infringing technology or to obtain a license to use such technology. Such potential liabilities or increased costs could be materially adverse to us.

Over the last several years, we have completed a number of acquisitions and may undertake additional acquisitions in the future. Any failure to adequately integrate past and future acquisitions into our business could have a material adverse effect on us.

Over the last several years, we have completed several acquisitions of businesses through asset and stock purchases. We expect that we will make additional acquisitions in the future.

Acquisitions involve a number of risks, including, but not limited to:

the potential failure to achieve the expected benefits of the acquisition, including the inability to generate sufficient revenue to offset acquisition costs, or the inability to achieve expected synergies or cost savings;

unanticipated expenses related to acquired businesses or technologies and its integration into our existing businesses or technology;

the diversion of financial, managerial, and other resources from existing operations;

the risks of entering into new markets in which we have little or no experience or where competitors may have stronger positions;

potential write-offs or amortization of acquired assets or investments;

Index to Financial Statements

the potential loss of key employees, clients, or partners of an acquired business;

delays in client purchases due to uncertainty related to any acquisition;

potential unknown liabilities associated with an acquisition; and

the tax effects of any such acquisitions.

If we fail to successfully integrate acquired businesses or fail to implement our business strategies with respect to acquisitions, we may not be able to achieve projected results or support the amount of consideration paid for such acquired businesses, which could have an adverse effect on our business and financial condition.

Finally, if we finance acquisitions by issuing equity or convertible or other debt securities, our existing stockholders may be diluted, or we could face constraints related to the terms of and repayment obligations related to the incurrence of indebtedness. This could adversely affect the market price of our common stock.

Third party products are essential to our software.

Our software incorporates software licensed from various vendors into our proprietary software. In addition, third party, stand-alone software is required to operate some of our proprietary software modules. The loss of the ability to use these third party products, or ability to obtain substitute third party software at comparable prices, could have a material adverse effect on our ability to license our software.

Our solutions may not be error-free and could result in claims of breach of contract and liabilities.

Our solutions are very complex and may not be error-free, especially when first released. Although we perform extensive testing, failure of any solution to operate in accordance with its specifications and documentation could constitute a breach of the license agreement and require us to correct the deficiency. If such deficiency is not corrected within the agreed upon contractual limitations on liability and cannot be corrected in a timely manner, it could constitute a material breach of a contract allowing the termination thereof and possibly subjecting us to liability. Also, we sometimes indemnify our clients against third-party infringement claims. If such claims are made, even if they are without merit, they could be expensive to defend. Our license and SaaS agreements generally limit our liability arising from claims such as described in the foregoing sentences, but such limits may not be enforceable in some jurisdictions or under some circumstances. A significant uninsured or under-insured judgment against us could have a material adverse impact on us.

We could be liable to third parties from the use of our solutions.

Our solutions provide access to patient information used by physicians and other medical personnel in providing medical care. The medical care provided by physicians and other medical personnel are subject to numerous medical malpractice and other claims. We attempt to limit any potential liability of ours to clients by limiting the warranties on our solutions in our agreements with our clients (i.e., healthcare providers). However, such agreements do not protect us from third-party claims by patients who may seek damages from any or all persons or entities connected to the process of delivering patient care. We maintain insurance, which provides limited protection from such claims, if such claims result in liability to us. Although no such claims have been brought against us to date regarding injuries related to the use of our solutions, such claims may be made in the future. A significant uninsured or under-insured judgment against us could have a material adverse impact on us.

Our SaaS and support services could experience interruptions.

We provide SaaS for many clients, including the storage of critical patient, financial and administrative data. In addition, we provide support services to clients through our client support organization. We have redundancies, such as backup generators, redundant telecommunications lines and backup facilities built into our operations to prevent disruptions. However, complete failure of all generators or impairment of all telecommunications lines or severe casualty damage to the primary building or equipment inside the primary building housing our hosting center or client support facilities could cause a temporary disruption in operations and adversely affect clients who depend on the application hosting services. Any interruption in operations at our data center or client support facility could cause us to lose existing clients, impede our ability to obtain new clients, result in revenue loss, cause potential liability to our clients and increase our operating costs.

Our SaaS solutions are provided over an internet connection. Any breach of security or confidentiality of protected health information could expose us to significant expense and harm our reputation.

Index to Financial Statements

We provide remote SaaS solutions for clients, including the storage of critical patient, financial and administrative data. We have security measures in place to prevent or detect misappropriation of protected health information. We must maintain facility and systems security measures to preserve the confidentiality of data belonging to clients as well as their patients that resides on computer equipment in our data center, which we handle via application hosting services, or that is otherwise in our possession. Notwithstanding efforts undertaken to protect data, it can be vulnerable to infiltration as well as unintentional lapse. If confidential information is compromised, we could face claims for contract breach, penalties and other liabilities for violation of applicable laws or regulations, significant costs for remediation and re-engineering to prevent future occurrences and serious harm to our reputation.

The loss of key personnel could adversely affect our business.

Our success depends, to a significant degree, on our management, sales force and technical personnel. We must recruit, motivate and retain highly skilled managers, sales, consulting and technical personnel, including solution programmers, database specialists, consultants and system architects who have the requisite expertise in the technical environments in which our solutions operate. Competition for such technical expertise is intense. Our failure to attract and retain qualified personnel could have a material adverse effect on us.

Our future success depends upon our ability to grow, and if we are unable to manage our growth effectively, we may incur unexpected expenses and be unable to meet our clients’ requirements.

We will need to expand our operations if we successfully achieve greater demand for our products and services. We cannot be certain that our systems, procedures, controls and human resources will be adequate to support expansion of our operations. Our future operating results will depend on the ability of our officers and employees to manage changing business conditions and to implement and improve our technical, administrative, financial control and reporting systems. We may not be able to expand and upgrade our systems and infrastructure to accommodate these increases. Difficulties in managing any future growth, including as a result of integrating any prior or future acquisition with our existing businesses, could cause us to incur unexpected expenses, render us unable to meet our clients’ requirements, and consequently have a significant negative impact on our business, financial condition and operating results.

We may not have access to sufficient or cost efficient capital to support our growth, execute our business plans and remain competitive in our markets.

As our operations grow and as we implement our business strategies, we expect to use both internal and external sources of capital. In addition to cash flow from normal operations, we may need additional capital in the form of debt or equity to operate and to support our growth, execute our business plans and remain competitive in our markets. We may be limited as to the availability of such external capital or may not have any availability, in which case our future prospects may be materially impaired. Furthermore, we may not be able to access external sources of capital on reasonable or favorable terms. Our business operations could be subject to both financial and operational covenants that may limit the activities we may undertake, even if we believe they would benefit our company.

Potential disruptions in the credit markets may adversely affect our business, including the availability and cost of short-term funds for liquidity requirements and our ability to meet long-term commitments, which could adversely affect our results of operations, cash flows and financial condition.

If internally generated funds are not available from operations, we may be required to rely on the banking and credit markets to meet our financial commitments and short-term liquidity needs. Our access to funds under our revolving credit facility or pursuant to arrangements with other financial institutions is dependent on the financial institution's ability to meet funding commitments. Financial institutions may not be able to meet their funding commitments if they experience shortages of capital and liquidity or if they experience high volumes of borrowing requests from other borrowers within a short period of time.

We must maintain compliance with the terms of our existing credit facilities. The failure to do so could have a material adverse effect on our ability to finance our ongoing operations and we may not be able to find an alternative lending source if a default occurs.

In December 2013, we amended and restated our previously outstanding senior credit agreement and amended the subordinated credit agreement to increase the senior term loan to $8,500,000, reduce the interest rates, and extend the maturity of the senior term loan and the revolving line of credit to December 1, 2018 and December 1, 2015, respectively. In January 2014, the subordinated term loan was paid in full. The outstanding senior term loan is secured by substantially all of our assets. We are subject to certain financial and operational covenants pursuant to the senior credit facility. We received a waiver from

Index to Financial Statements

the lender for noncompliance with certain loan covenants at January 31, 2014. If we do not maintain compliance with all of the continuing covenants and other terms and conditions of the credit facility or secure a waiver for any non-compliance, we could be required to repay outstanding borrowings on an accelerated basis, which could subject us to decreased liquidity and other negative impacts on our business, results of operations and financial condition. Furthermore, if we needed to do so, it may be difficult for us to find an alternative lending source, particularly in the current credit environment that is not favorable to borrowers. In addition, because our assets are pledged as a security under our credit facilities, if we are not able to cure any default or repay outstanding borrowings, our assets are subject to the risk of foreclosure by our lender. Without a sufficient credit facility, we would be adversely affected by a lack of access to liquidity needed to operate our business. Any disruption in access to credit could force us to take measures to conserve cash, such as deferring important research and development expenses, which measures could have a material adverse effect on us.

Our outstanding preferred stock and warrants have significant redemption and repayment rights that could have a material adverse effect on our liquidity and available financing for our ongoing operations.

In August 2012, we completed a private offering of preferred stock, warrants and convertible notes to a group of investors for gross proceeds of $12 million. In November 2012, the convertible notes converted into shares of preferred stock. The preferred stock is redeemable at the option of the holders thereof anytime after August 31, 2016 if not previously converted into shares of common stock. We may not achieve the thresholds required to trigger automatic conversion of the preferred stock and, alternatively, holders may not voluntarily elect to convert the preferred stock into common stock. The election of the holders of our preferred stock to call for redemption of the preferred stock could subject us to decreased liquidity and other negative impacts on our business, results of operations, and financial condition. For additional information regarding the terms, rights and preferences of the preferred stock and warrants, see Note 15 to our consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended January 31, 2014 and our other SEC filings.

Current economic conditions in the United States and globally may have significant effects on our clients and suppliers that would result in material adverse effects on our business, operating results and stock price.

Current economic conditions in the United States and globally and the concern that the worldwide economy may enter into a prolonged recessionary period may materially adversely affect our clients' access to capital or willingness to spend capital on our solutions and services or their levels of cash liquidity with which to pay for solutions that they will order or have already ordered from us. Continuing adverse economic conditions would also likely negatively impact our business, which could result in: (1) reduced demand for our solutions and services; (2) increased price competition for our solutions and services; (3) increased risk of collectability of cash from our clients; (4) increased risk in potential reserves for doubtful accounts and write-offs of accounts receivable; (5) reduced revenues; and (6) higher operating costs as a percentage of revenues.

All of the foregoing potential consequences of the current economic conditions are difficult to forecast and mitigate. As a consequence, our operating results for a particular period are difficult to predict, and, therefore, prior results are not necessarily indicative of future results to be expected in future periods. Any of the foregoing effects could have a material adverse effect on our business, results of operations, and financial condition and could adversely affect our stock price.

The variability of our quarterly operating results can be significant.

Our operating results have fluctuated from quarter-to-quarter in the past, and we may experience continued fluctuations in the future. Future revenues and operating results may vary significantly from quarter-to-quarter as a result of a number of factors, many of which are outside of our control. These factors include: the relatively large size of client agreements; unpredictability in the number and timing of system sales and sales of application hosting services; length of the sales cycle; delays in installations; changes in client's financial condition or budgets; increased competition; the development and introduction of new products and services; the loss of significant clients or remarketing partners; changes in government regulations, particularly as they relate to the healthcare industry; the size and growth of the overall healthcare information technology markets; any liability and other claims that may be asserted against us; our ability to attract and retain qualified personnel; national and local general economic and market conditions; and other factors discussed in any other filings by us with the SEC.

The preparation of our financial statements requires the use of estimates that may vary from actual results.

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make significant estimates that affect the financial statements. One of our most critical estimates is the capitalization of software development costs. Due to the inherent nature of these estimates, we may be required to significantly

Index to Financial Statements

increase or decrease such estimates upon determination of the actual results. Any required adjustments could have a material adverse effect on us and our results of operations, and could result in the restatement of our prior period financial statements.

Failure to improve and maintain the quality of internal control over financial reporting and disclosure controls and procedures or other lapses in compliance could materially and adversely affect our ability to provide timely and accurate financial information about us or subject us to potential liability.

In connection with the preparation of the consolidated financial statements for each of our fiscal years, our management conducts a review of our internal control over financial reporting. We are also required to maintain effective disclosure controls and procedures. At January 31, 2014, we identified material weaknesses in our internal controls over financial reporting. These material weaknesses are discussed further within Item 9A “Controls and Procedures” of the Annual Report on Form 10-K for the fiscal year ended January 31, 2014. Management cannot be certain that other deficiencies will not arise in the future or be identified or that we will be able to correct and maintain adequate controls over financial processes and reporting and disclosure controls and procedures in the future. Any failure to maintain adequate controls or to adequately implement required new or improved controls could harm operating results, or cause failure to meet reporting obligations in a timely and accurate manner.

Our operations are subject to foreign currency risk.

In connection with our expansion into foreign markets, which currently consists of Canada, we are a receiver of currencies other than the U.S. dollar. Accordingly, changes in exchange rates, and in particular a strengthening of the U.S. dollar, will negatively affect our net sales and gross margins as expressed in U.S. dollars. There is also a risk that we will have to adjust local currency solution pricing due to competitive pressures when there has been significant volatility in foreign currency exchange rates.

Risks Relating to an Investment in Our Securities

The market price of our common stock is likely to be highly volatile as the stock market in general can be highly volatile.

The public trading of our common stock is based on many factors that could cause fluctuation in the price of our common stock. These factors may include, but are not limited to:

General economic and market conditions;

Actual or anticipated variations in annual or quarterly operating results;

Lack of or negative research coverage by securities analysts;

Conditions or trends in the healthcare information technology industry;

Changes in the market valuations of other companies in our industry;

Announcements by us or our competitors of significant acquisitions, strategic partnerships, divestitures, joint ventures or other strategic initiatives;

Announced or anticipated capital commitments;

Ability to maintain listing of our common stock on The Nasdaq Capital Market;

Additions or departures of key personnel; and

Sales and repurchases of our common stock by us, our officers and directors or our significant stockholders, if any.

Most of these factors are beyond our control. These factors may cause the market price of our common stock to decline, regardless of our operating performance or financial condition.

If equity research analysts do not publish research reports about our business or if they issue unfavorable commentary or downgrade our common stock, the price of our common stock could decline.

Index to Financial Statements

The trading market for our common stock may rely in part on the research and reports that equity research analysts publish about our business and us. We do not control the opinions of these analysts. The price of our stock could decline if one or more equity analysts downgrade our stock or if those analysts issue other unfavorable commentary or cease publishing reports about our business or us. Furthermore, if no equity research analysts conduct research or publish reports about our business and us, the price of our stock could decline.

All of our debt obligations, our existing preferred stock and any preferred stock that we may issue in the future will have priority over our common stock with respect to payment in the event of a bankruptcy, liquidation, dissolution or winding up.

In any bankruptcy, liquidation, dissolution or winding up of the Company, our shares of common stock would rank in right of payment or distribution below all debt claims against us and all of our outstanding shares of preferred stock, if any. As a result, holders of our shares of common stock will not be entitled to receive any payment or other distribution of assets in the event of a bankruptcy or upon the liquidation or dissolution until after all of our obligations to our debt holders and holders of preferred stock have been satisfied. Accordingly, holders of our common stock may lose their entire investment in the event of a bankruptcy, liquidation, dissolution or winding up of our company. Similarly, holders of our preferred stock would rank junior to our debt holders and creditors in the event of a bankruptcy, liquidation, dissolution or winding up of the Company.

There may be future sales or other dilution of our equity, which may adversely affect the market price of our shares of common stock.

We are generally not restricted from issuing in public or private offerings additional common stock or preferred stock (with the exception of certain restrictions under our outstanding preferred stock), including any securities that are convertible into or exchangeable for, or that represent a right to receive, common stock or preferred stock or any substantially similar securities. Such offerings represent the potential for a significant increase in the number of outstanding shares of our common stock. The market price of our common stock could decline as a result of sales of common stock or preferred stock or similar securities in the market made after an offering or the perception that such sales could occur.

In addition to our currently outstanding preferred stock, the issuance of an additional series of preferred stock could adversely affect holders of shares of our common stock, which may negatively impact your investment.

Our Board of Directors is authorized to issue classes or series of preferred stock without any action on the part of the stockholders. The Board of Directors also has the power, without stockholder approval, to set the terms of any such classes or series of preferred stock that may be issued, including dividend rights and preferences over the shares of common stock with respect to dividends or upon our dissolution, winding-up and liquidation and other terms. If we issue preferred stock in the future that has a preference over the shares of our common stock with respect to the payment of dividends or upon our dissolution, winding up and liquidation, or if we issue preferred stock with voting rights that dilute the voting power of the shares of our common stock, the rights of the holders of shares of our common stock or the market price of shares of our common stock could be adversely affected.

As of July 21, 2014, we had 2,949,995 shares of preferred stock outstanding. For additional information regarding the terms, rights and preferences of such stock, see Note 15 to our consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended January 31, 2014 and our other SEC filings.

We do not currently intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend solely on appreciation in the price of our common stock.

We have never declared or paid any cash dividends on our common stock and do not currently intend to do so for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth. Therefore, you are not likely to receive any dividends on your common stock for the foreseeable future and the success of an investment in shares of our common stock will depend upon any future appreciation in its value. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price you paid for your shares.

Sales of shares of our common stock or securities convertible into our common stock in the public market may cause the market price of our common stock to fall.

The issuance of shares of our common stock or securities convertible into our common stock in an offering from time to time could have the effect of depressing the market price for shares of our common stock. In addition, because our common stock is thinly traded, resales of shares of our common stock by our largest stockholders or insiders could have the effect of depressing market prices for shares of our common stock.

Index to Financial Statements

Note Regarding Risk Factors

The risk factors presented above are all of the ones that we currently consider material. However, they are not the only ones facing our company. Additional risks not presently known to us, or which we currently consider immaterial, may also adversely affect us. There may be risks that a particular investor views differently from us, and our analysis might be wrong. If any of the risks that we face actually occur, our business, financial condition and operating results could be materially adversely affected and could differ materially from any possible results suggested by any forward-looking statements that we have made or might make. In such case, the trading price of our common stock or other securities could decline and you could lose all or part of your investment. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.



Item 6.	EXHIBITS

See Index to Exhibits.

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Index to Financial Statements

SIGNATURES

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



		STREAMLINE HEALTH SOLUTIONS, INC.
DATE: ~~December 16, 2013~~July 24, 2014	By:	/S/ Robert E. Watson
		Robert E. Watson Chief Executive Officer
DATE: ~~December 16, 2013~~July 24, 2014	By:	/S/ Nicholas A. Meeks
		Nicholas A. Meeks Chief Financial Officer

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Index to Financial Statements

INDEX TO ~~EXHIBITS~~

EXHIBITS



Exhibit No.	Description of Exhibit
~~3.1(a)~~10.1	Certificate of Incorporation of Streamline Health Solutions, Inc. f/k/a/ LanVision Systems, Inc. (Incorporated herein by reference to Exhibit 3.1 of the 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. (Incorporated herein by reference~~1 to ~~Exhibit 3.1(b) of the Quarterly Report on Form 10-Q, as filed with the Commission on September 8, 2006.)~~
~~3.1(c)~~	Streamline Health Solutions, Inc. Certificate of Designation of Preferences, Rights and Limitations of Series A 0% Convertible Preferred Stock (Incorporated herein by reference to Exhibit 10.8 of the Current Report on Form 8-K, as filed with the Commission on August 21, 2012.)
~~3.2~~	Bylaws of Streamline Health Solutions, Inc., as amended and restated on July 22, 2010 (Incorporated herein by reference to Exhibit 3.2 of the Quarterly Report on Form 10-Q, as filed with the Commission on September 9, 2010.)
~~10.1*#~~	Employment Agreement dated ~~September 8, 2013~~March 6, 2014 between Streamline Health Solutions, Inc. and Jack W. Kennedy Jr. (Incorporated by reference from Exhibit 10.14(b) of the Form 10-Q, as filed with the Commission on June 13, 2014.)
10.2*10.2	~~Software License~~Amended and ~~Royalty~~Restated Employment Agreement ~~dated October 25, 2013 between Streamline Health, Inc. and Montefiore Medical Center~~
10.3*	~~Settlement Agreement and Mutual Release dated as of November 20, 2013 by and~~ among Streamline Health Solutions, Inc., ~~IPP Acquisition, LLC, IPP Holding Company, LLC, W. Ray Cross, as seller representative,~~Streamline Health, Inc. and ~~each~~Richard D. Nelli effective February 20, 2014. (Incorporated by reference from Exhibit 10.9 of the ~~members of IPP Holding Company, LLC named therein~~Form 10-Q, as filed with the Commission on June 13, 2014.)
10.4*10.3	~~Subordinated Promissory Note~~Employment Agreement dated ~~November 20, 2013 made~~March 6, 2014 by ~~IPP Acquisition, LLC~~ and between Streamline Health Solutions, Inc. and Lois E. Rickard. (Incorporated by reference from Exhibit 10.23 of the Form 10-Q, as filed with the Commission on June 13, 2014.)
10.5*10.4	Employment Agreement dated February 3, 2014 by and between Streamline Health Solutions, Inc. and Randolph Salisbury (Incorporated by reference from Exhibit 10.24 of the Form 10-Q, as filed with the Commission on June 13, 2014.)
10.5	Amendment No. 1 and Waiver under Amended and Restated Senior Credit Agreement dated as of ~~December 13, 2013~~April 15, 2014 by and between Streamline Health, Inc. and Fifth Third Bank
10.6*	~~Amendment No. 3 to Subordinated Credit Agreement dated~~ (Incorporated by reference from Exhibit 10.18 of the Form 10-Q, as ~~of December~~filed with the Commission on June 13, ~~2013 by and between Streamline Health, Inc. and Fifth Third Bank~~2014.)
31.1*	Certification by Chief Executive Officer pursuant to Rule 13a-14(a) ~~or 15d-14(a)~~ of the Exchange Act ~~pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~
31.2*	Certification by Chief Financial Officer pursuant to Rule 13a-14(a) ~~or 15d-14(a)~~ of the Exchange Act ~~pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~
32.1*	Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350 ~~as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~
32.2*	Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350 ~~as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~
101	The following financial information from Streamline Health Solutions, Inc.'s’s Quarterly Report on Form 10-Q for the three month period ended ~~October 31, 2013~~April 30, 2014 filed with the SEC on ~~December 16, 2013,~~July 24, 2014, formatted in XBRL includes: (i) Condensed Consolidated Balance Sheets at ~~October 31, 2013~~April 30, 2014 and January 31, ~~2013,~~2014, (ii) Condensed Consolidated Statements of Operations for ~~three and nine month~~three-month periods ended ~~October 31,~~April 30, 2014 and 2013, (iii) Condensed Consolidated Statements of Comprehensive Loss for three-month periods ended April 30, 2014 and ~~2012, (iii)~~2013, (iv) Condensed Consolidated Statements of Cash Flows for the ~~nine month~~three-month periods ended ~~October 31,~~April 30, 2014 and 2013, and ~~2012, and (iv)~~(v) Notes to the Condensed Consolidated Financial Statements.

_______________


*	~~Included herein~~


#	~~Management Contracts and Compensatory Arrangements.~~Filed herewith.

Our SEC file number reference for documents filed with the SEC pursuant to the Securities Exchange Act of ~~1943,~~1934, as amended, is ~~0-281~~000-28132.

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	August 16, 2012
Assets purchased:
Cash	$	1,126,000
Accounts receivable	2,300,000
Fixed assets	133,000
Other assets	513,000
Client relationships	4,464,000
Internally developed software	3,646,000
Trade name	1,588,000
Supplier agreements	1,582,000
Covenants not to compete	720,000
Goodwill(1)	8,073,000
Total assets purchased	$	24,145,000
Liabilities assumed:
Accounts payable and Accrued liabilities	1,259,000
Deferred revenue obligation, net	3,494,000
Deferred tax liability	4,602,000
Net assets acquired	$	14,790,000
Consideration:
Company common stock	$	1,502,000
Cash paid	13,288,000
Total consideration	$	14,790,000



	Payments Due by Period
	2013		2014
Senior term loan	$	312,000	$	3,438,000
Subordinated term loan	—		9,000,000
Total principal repayments	$	312,000	$	12,438,000



(in thousands)	As of October 31,		As of January 31,
(in thousands)	2013		2013
Term loans (1)	$	12,750	$	13,688
Interpoint Partners note payable (1)	900		—
Interpoint Partners earn-out (1)	1,300		1,320
Capital leases (2)	284		—

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