PART I. FINANCIAL INFORMATION

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared by Streamline Health Solutions, Inc. (“Streamline Health^® or the Company”), pursuant to the rules and regulations applicable to quarterly reports on Form 10-Q of the U. S. Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Condensed Consolidated Financial Statements have been included. These Condensed Consolidated Financial Statements should be read in conjunction with the financial statements and notes thereto included in the most recent Streamline Health Solutions, Inc. Annual Report on Form 10-K, Commission File Number 0-28132. Operating results for the three and sixnine months ended JulyOctober 31, 2010, are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2011.

A summary of the Company’s significant accounting policies is presented beginning on page 45 of its fiscal year 2010 Annual Report on Form 10-K. Users of financial information for interim periods are encouraged to refer to the footnotes contained in the Annual Report when reviewing interim financial results.

In the fourth quarter of fiscal 2009 the Company made its fifth generation software, accessANYware 5.0, generally available. In the first quarter of fiscal 2010, subsequent to the release, the Company completed a review by product of the estimated useful lives of its capitalized software development costs. After reviewing strategic plans, analyzing the historical useful life of the software products, forecasting product life cycles and demand expectations, the Company assigned a five year estimated useful life for costs capitalized for accessANYware 5.0,5.x products, and revised the estimated useful lives of certain other products from three years to five years.

The product life cycle for accessANYware versions prior to the latest version 5.0,5.x, have lasted longer than five years. Historical product and customer data shows that many customers remain on the same primary version for five years or more after purchase, or product support and development continue for five years or more. The Company expects the accessANYware 5.05.x products to also have a five year or longer product life cycle based on this historical data, and the estimated product development lifecycle. In addition, the useful life of the unamortized balance of development costs for prior accessANYware versions should also reflect an approximate five year life from their documented general release dates. The Company intends to actively sell and support these products for a minimum five years while version 5.0 is5.x products are being rolled out. This same policy will be applied to FolderView as it is generally a primary add-on component to prior accessANYware versions, and has had a similar historical life cycle. FolderView will be embedded into version 5.1. Upon Company review of the revenue projections, the estimated life cycle of accessANYware 5.0,5.x products, and the remaining life cycle for prior accessANYware and FolderView releases, a five year estimated life is reasonable and proper.

The Company accounted for the change in useful life as a change in accounting estimate which is accounted for on a prospective basis effective February 1, 2010. For the three and sixnine months ended JulyOctober 31, 2010 the change resulted in a reduction of amortization expense of approximately $251,000 and $502,000,$753,000, respectively; an increase in income from continuing operations and net income of $251,000 and $502,000,$753,000, respectively; and a decreasean increase in basic and diluted lossearnings (loss) per share of $0.02$0.03 and $0.06,$0.08, respectively. Amortization expense for capitalized software development costs is included in cost of system sales in the consolidated statement of operations.

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

During the first sixnine months of the current fiscal year,ended October 31, 2010, the Company granted 140,000139,916 options with a weighted average exercise price of $1.84$1.98 per share. During the same period 71,00080,400 options expired with an average exercise price of $1.86$2.03 per share and 77,00092,000 options were exercised under all plans at an average exercise price of $1.27$1.05 per share.

The fair value of each option grant during the quarter ended JulyOctober 31, 2010 was estimated at the date of the grants using a Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rate of 2.50%, a dividend yield of zero percent; and a current weighted average volatility factor of the expected market price of Streamline Health’s Common Stock of 0.541 in 2010. The weighted average expected life of stock options areis five years and have a forfeiture rate of zero.

During the first sixnine months of the current fiscal year, the Company granted 209,000208,541 restricted stock shares with a weighted average fair value of $1.94 per share. These shares are subject to the 2005 Incentive Compensation Plan as amended, and are granted to certain independent members of the Board of Directors and employees. The shares have an approximate one-year restriction period. During the same period 25,00025,422 restricted shares had their restriction period lapse; these shares had a weighted average fair value of $2.95 per share. In addition, 1,6003,347 shares were forfeited prior to the lapse of the restriction period; these shares had a weighted average fair value of $2.00 per share.

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

The fiscal 2010 and 2009 diluted net earnings (loss) per common share calculation, excludes the effect of thesome common stock equivalents, (stock options and restricted stock), as the inclusion thereof would be antidilutive.anti-dilutive. The Company had 847,000 and 667,000 equity award shares outstanding at July 31, 2010 and 2009, respectively that were not included infollowing table details the diluted net (loss) per share calculation,amounts, as of the inclusion thereof would be antidilutive.end of the third quarter:

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

On October 21, 2009, the Company entered into an amended and restated revolving note with Fifth Third Bank, Cincinnati, OH. The terms of the loan remain the same as set forth in the revolving note entered into on JulyOctober 31, 2008, as amended on January 6, 2009, except as follows: (i) the maximum principal amount that can be borrowed was increased to $2,750,000 from the prior maximum amount of $2,000,000; (ii) the maturity date of the loan has beenwas extended to October 1, 2011 from August 1, 2010; and (iii) the interest rate on the outstanding principal balance will accrue at an annual floating rate of interest equal to the Adjusted Libor Rate (as defined in the revolving note) plus 3.25%. The interest rate on the note was 3.625% at JulyOctober 31, 2010.

In addition to historical information contained herein, this Report on Form 10-Q contains forward-looking statements relating to the Company’s plans, strategies, expectations, intentions, etc. and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements contained herein are no guarantee of future performance and are subject to certain risks and uncertainties that are difficult to predict and actual results could differ materially from those reflected in the forward-looking statements. These risks and uncertainties include, but are not limited to, the timing of contract negotiations and executions and the related timing of the revenue recognition related thereto, the potential cancellation of existing contracts or clients not completing projects included in the backlog, the impact of competitive products and pricing, product demand and market acceptance, new product development, key strategic alliances with vendors that resell Streamline Health solutions, the ability of Streamline Health to control costs, availability of products obtained from third-party vendors, the healthcare regulatory environment, potential changes in legislation, regulatory and government funding affecting the healthcare industry, healthcare information system budgets, availability of healthcare information systems trained personnel for implementation of new systems, as well as maintenance of legacy systems, fluctuations in operating results and other risk factors that might cause such differences including those discussed herein, and including, effects of critical accounting policies and judgments, changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other similar entities, changes in economic, business and market conditions impacting the healthcare industry, the markets in which the Company operates and nationally, and the Company’s ability to maintain compliance with the terms of its credit facilities, but not limited to, discussions in the most recent Form 10-K, Part I, “Item 1. Business”, “Item 1A. Risk Factors”, Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8. Financial Statements and Supplemental Data.” In addition, other written or oral statements that constitute forward-looking statements may be made by or on behalf of the Company. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date thereof. The Registrant undertakes no obligation to publicly revise these forward-looking statements, to reflect events or circumstances that arise after the date hereof. Readers should carefully review the risk factors described in this and other documents Streamline Health Solutions, Inc. files from time to time with the Securities and Exchange Commission, including future Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.

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

Founded in 1989, Streamline Health Solutions, Inc. (“Streamline Health^®”, “Streamline” or the “Company”) is a healthcare information technology company, which is focused on developing and licensing proprietary software solutions that improve document-centric information flows and complement and enhance existing transaction-centric hospital healthcare information systems. In addition, Streamline Health provides consulting services specializing in enterprise connectivity, systems integration, and departmental process improvement. The Company sells its products and services in North America through its direct sales force, and its reseller partnerships. The Company also sells to direct remarketers, hospitals, clinical and ambulatory services.

Document imaging and workflow management technologies like those provided by Streamline Health are essential elements of a complete Electronic Health Record because they allow for the storage of unstructured data. Unstructured data may consist of patient record elements other than discrete data. Examples of unstructured data such asare hand written physician or nursing notes, and physician orders, photographs, audio, video, and outside correspondence.

Streamline Health’s solutions create a permanent document-based repository of historical health information that is complementary and can be seamlessly integrated with existing disparate clinical, financial and administrative information systems, providing convenient electronic access to all forms of patient information from any location, including secure web-based access. These integrated solutions allow providers and administrators to link existing hospital information systems with digitized documents, which can dramatically improve the availability of patient information while decreasing direct costs associated with document retrieval, work-in-process, chart processing, document retention, and archiving.

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

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

In 2009, the Company successfully made its fifth-generation software architecture (accessANYware 5.0) generally-available.generally-available, and has put the new architecture into production successfully in several large healthcare facilities in Canada. Subsequently, we have continued our investment in the accessANYware 5.x solution portfolio research and development. This development effort includedincludes the consolidation of technology platforms onto the Microsoft.NET platform, and also the internationalization of the software to reach international markets. This internationalizationwhich specifically included French Canadian language capabilities as part of Streamline Health’s agreements with the Centre hospitalier de l’Université de Montréal (CHUM), the McGill University Health Centre (MUHC), and L’Agence de la santé et des sociaux de Montreal (l’Agence)health care systems in Canada via our distributioninternational remarketing partner, Telus Health. In 2010 and into 2011 we are continuing development efforts on accessANYware 5.1 which we expect will be available to our U.S. based customers in 2011. The enhanced version of the accessANYware 5.x products allow for expanded functionality, additional interoperability capabilities with existing third party healthcare health information systems, and shorter development periods for a faster time-to-market for new products. We have had positive reception to accessANYware 5.0 at the installed locations in Canada, and the Company plans to continue this momentum with future releases of 5.x products.

Prior versions of accessANYware are still available for sale, and the Company continues to provide full product support for prior versions, as we anticipate several years before all existing accessANYware customers complete a transition to the accessANYware 5.0. The Company will roll out accessANYware 5.0 over5.x platform.

Healthcare organizations are seeking to improve business processes to reduce costs, and increase reimbursement rates and revenues, while also improving the next several years. We have had positive reception to the product at the installed locations in Canada, and the Company’s sales team is actively informing new and existing customersquality of its benefits.

Streamline Health experienced a growth in application-hosting services contracts over the past two fiscal years. Many organizationsdelivers its products as licensed, locally-installed systems, or hosted systems in the current health information technology marketplace are shifting from licensed software which is locally installed in the health care organization’sCompany’s data center to hosted software solutions installed in the Streamline Health hosting center. As capital markets have been tight, it is often advantageous for healthcare providers to explore hosted solutions which have limited initial capital outlays. In addition, ARRA has provisions which increase the financial benefits to the hospitals who achieve “meaningful use” of health information technology in the near term. Coinciding with the release of accessANYware 5.0, and market climates observed, the Company has made a dramatic shift in strategy towards our hosted delivery model. A desirable byproduct of hosted system sales is the hosted model is much better visibility for future revenue streams based onrecurring revenues from backlog fulfillment fromof these hosted contracts, over typical fivewhich are typically five- year or more contract periods; as well asperiods. Additionally, there are a high percentage of contract renewals after the initial term. As we continuethe Company continues to gain traction inpromote our hosted recurring revenue model, traditional license sales can provide a significant impact to our short-term operating results. Licensed, locally installed contracts also provide for significant near-term operating cash flow, as we acquire more hosted customers for which cash is collected over the long term period of the hosted contract. The Company believes thisa combination of licensed, locally installed system sales along with growth in recurring revenue from hosted system sales is key to our long term success and return on investment for the Company’s stockholders. In the near term, management’s intentionmanagement believes it is more appropriate to measure its success by revenue and revenue backlog, and level of earnings before interest, taxes, depreciation and amortization (EBITDA), rather than net profits. Furthermore, the Company expects that the near-term focus on these metrics will translate into the goal of sustained profitability over the long-term.

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

At JulyOctober 31, 2010 Streamline Health has master agreements and purchase orders from customers and remarketing partners for systems and related services (excluding support and maintenance, and transaction-based application-hosting revenues), which have not been delivered or installed and if fully performed, would generate future revenues of approximately $18,918,000$19,518,000 compared with $23,397,000$22,572,000 at JulyOctober 31, 2009. The related systems and services are expected to be delivered over the next two to three years. The overall decrease in the backlog as compared to JulyOctober 31, 2009 is primarily the result of the recognition of revenues relating to the release of accessANYware 5.0 in the fourth quarter of fiscal 2009, along with the continued recognition of backlogged revenues relating to professional services, hardware and software for the Canadian clientcustomer and others, as well as the recognition in fiscal 2009 of maintenance revenue from one long term maintenance contract for one large customer.others.

Revenues consisted of the following (in thousands):

Operating expenses consisted of the following (in thousands):

The increases in the cost of application-hosting services operations over the three and sixnine months ended JulyOctober 31, 2010, over the prior comparable period,periods, are primarily attributable to increased compensation, depreciation and third party license and maintenance expenses as a result of the growing hosting center operations, as well as typical annual cost increases.

The Company incurred an operating lossesprofit of $28,000$144,000 and $1,229,000an operating loss of $1,084,000 for the three and sixnine month periodperiods ended JulyOctober 31, 2010. Comparatively, during the prior three and sixnine month periods, the Company incurred an operating losslosses of $17,000$285,000 and an$275,000, respectively. The operating profit of $11,000, respectively. Increasesfor the quarter was primarily due to increases in proprietary software and maintenance revenues were offset by increases in capitalized software amortization and increased compensation. Similarly, increases in proprietary software sales and recurring application-hosting revenues were offset by increased investment in customer initiatives, increased compensation, and increaseda year-to-date increase in expense relating to amortization of capitalized software development costs, which contributed to the lossesoperating loss for the three and sixnine month periodsperiod ending JulyOctober 31, 2010.

Traditionally, Streamline Health has funded its operations, working capital needs, and capital expenditures primarily from a combination of cash generated by operations, bank loans, and revolving lines of credit. Streamline Health’s liquidity is dependent upon numerous factors including: (i) the timing and amount of revenues and collection of contractual amounts from customers, (ii) amounts invested in research and development and capital expenditures, and (iii) the level of operating expenses, all of which can vary significantly from quarter-to-quarter.

Streamline Health has obligations for capital resources, consisting of the $2,000,000$2,400,000 borrowed under its bank line of credit at JulyOctober 31, 2010, and non-cancelable operating leases of approximately $1,776,000$1,660,000 payable over the next five years, $365,000$250,000 for a capital lease, and an economic development incentive from the City of Blue Ash, Ohio up to a maximum amount of $130,000. Capital expenditures for property and equipment in 2010 are not expected to exceed $1,000,000.

Net cash used forprovided by operations for the sixnine months ended was $15,000,$565,000, as compared to cash provided byused for operations of $733,000$183,000 in the prior comparable period. In addition toSignificant decreases in deferred revenues and increases in software amortization and share-based compensation expenses offset the net loss incurred the changeand decreases in accounts payable for a net cash for operations was the result of significant cash collections during the second quarter offsetting a significant amount of new contracts and accounts receivable, and a decrease in deferredprovided by operation. Deferred revenues which reflectsreflect the revenue recognition of prepaid maintenance contracts during fiscal 2010, net of any additional payments received in 2010, along with the timing of any payments received.

Notwithstanding the current levels of revenues and expenses, for the foreseeable future, Streamline Health will need to continually assess its revenue prospects compared to its then current expenditure levels. If it does not appear likely that revenues will increase, it may be necessary to reduce operating expenses or raise cash through additional borrowings, the sale of assets, or other equity financing. Certain of these actions will require current lender approval. However, there can be no assurance Streamline Health will be successful in any of these efforts. If it is necessary to significantly reduce operating expenses, this could have an adverse effect on future operating performance.

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

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

Part II. OTHER INFORMATION

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

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

The Company was not in default of its existing credit facility at JulyOctober 31, 2010.

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.