UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
   
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 20102011
or
   
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                    to                    
Commission File Number: 0-28132
STREAMLINE HEALTH SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
   
Delaware 31-1455414
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10200 Alliance Road, Suite 200
Cincinnati, Ohio 45242-4716
(Address of principal executive offices) (Zip Code)
(513) 794-7100
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesoþ Noo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
       
Large accelerated filero Accelerated filero Non-accelerated filero Smaller reporting companyþ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ
Number of shares of Registrant’s Common Stock ($.01 par value per share) issued and outstanding, as of September 9, 2010: 9,752,284.13, 2011: 10,053,979.
 
 

 

 


 

TABLE OF CONTENTS
     
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 Exhibit 3.2EX-11.1
 Exhibit 11EX-31.1
 Exhibit 31.1EX-31.2
 Exhibit 31.2EX-32.1
 Exhibit 32.1EX-32.2
 Exhibit 32.2EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

 

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PART I. FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
STREAMLINE HEALTH SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Assets
                
 (Unaudited) (Audited)  (Unaudited) (Audited) 
 July 31, January 31,  July 31, 2011 January 31, 2011 
 2010 2010  
Current assets:  
Cash and cash equivalents $580,574 $1,025,173  $577,885 $1,403,949 
Accounts receivable, net of allowance for doubtful accounts of $150,000 and $100,000, respectively 2,036,329 1,922,279 
Accounts receivable, net of allowance for doubtful accounts of $140,000 and $100,000, respectively 2,151,458 2,620,756 
Contract receivables 1,071,707 1,182,308  535,941 680,096 
Prepaid hardware and third party software for future delivery 148,026 149,281  40,963 72,259 
Prepaid other, including prepaid customer maintenance contracts 1,473,427 1,363,332 
Prepaid customer maintenance contracts 925,667 794,299 
Other prepaid assets 217,187 200,056 
Deferred income taxes 224,000 224,000  167,000 167,000 
          
Total current assets 5,534,063 5,866,373  4,616,101 5,938,415 
     
  
Property and equipment:  
Computer equipment 3,158,277 2,987,039  2,815,087 2,708,819 
Computer software 1,896,255 1,816,397  2,037,063 1,947,135 
Office furniture, fixtures and equipment 747,867 747,867  747,867 747,867 
Leasehold improvements 582,429 574,257  639,864 639,864 
          
 6,384,828 6,125,560  6,239,881 6,043,685 
Accumulated depreciation and amortization  (4,756,133)  (4,344,432)  (4,895,412)  (4,517,860)
          
 1,628,695 1,781,128  1,344,469 1,525,825 
      
Other assets: 
Contract receivables, less current portion 226,431 146,093  274,647 241,742 
Capitalized software development costs, net of accumulated amortization of $11,665,809 and $10,411,828, respectively 8,069,311 8,049,292 
Other, including deferred income taxes of $1,651,000 and $1,651,000, respectively 1,678,686 1,681,661 
Capitalized software development costs, net of accumulated amortization of $13,833,284 and $12,832,347, respectively 7,965,127 7,575,064 
Other, including deferred income taxes of $711,000, respectively 738,475 734,376 
     
Total other assets 8,978,249 8,551,182 
          
 $17,137,186 $17,524,547  $14,938,819 $16,015,422 
          
See Notes to Condensed Consolidated Financial Statements.Statements

 

3


STREAMLINE HEALTH SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Liabilities and Stockholders’ Equity
        
 (Unaudited) (Audited)         
 July 31, January 31,  (Unaudited) (Audited) 
 2010 2010  July 31, 2011 January 31, 2011 
 
Current liabilities:  
Accounts payable $687,920 $887,928  $752,454 $565,252 
Accrued compensation 673,753 559,235  575,603 1,163,843 
Accrued other expenses 373,900 476,504  285,215 480,422 
Current portion of capital lease obligation 195,387 249,309 
Current portion of deferred revenues 4,956,267 4,956,303 
Capital lease obligation 132,299 183,637 
Deferred revenues 5,093,616 5,766,795 
          
Total current liabilities 6,887,227 7,129,279  6,839,187 8,159,949 
      
Deferred revenues, less current portion 273,745 602,239 
 
Long-term liabilities: 
Line of credit 2,000,000 900,000  1,250,000 1,200,000 
Capital lease, less current portion 132,299 161,666 
Lease incentive liability, less current portion 54,464 61,034 
          
Total Liabilities 9,293,271 8,793,184 
Total liabilities 8,143,651 9,420,983 
     
  
Stockholders’ equity:  
Convertible redeemable preferred stock, $.01 par value per share 5,000,000 shares authorized, no shares issued   
Common stock, $.01 par value per share, 25,000,000 shares authorized, 9,752,284 and 9,436,824 shares issued, respectively 97,523 94,368 
Convertible redeemable preferred stock, $.01 par value per share, 5,000,000 shares authorized, no shares issued   
Common stock, $.01 par value per share, 25,000,000 shares authorized, 10,053,979 and 9,856,517 shares issued and outstanding, respectively 100,539 98,565 
Additional paid in capital 36,527,467 36,160,126  37,461,711 36,975,242 
Accumulated other comprehensive income  5,620 
Accumulated deficit  (28,781,075)  (27,528,751)  (30,767,082)  (30,479,368)
          
Total stockholders’ equity 7,843,915 8,731,363  6,795,168 6,594,439 
          
 $17,137,186 $17,524,547  $14,938,819 $16,015,422 
          
See Notes to Condensed Consolidated Financial Statements.Statements

 

4


STREAMLINE HEALTH SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Six Months Ended July 31,
(Unaudited)
                                
 Three Months Six Months  Three Months Six Months 
 2010 2009 2010 2009  2011 2010 2011 2010 
Revenues:  
Systems sales $960,880 $440,539 $1,111,318 $787,583  $163,200 $960,880 $294,202 $1,111,318 
Services, maintenance and support 2,830,935 2,800,732 5,374,510 5,516,973  3,069,869 2,830,935 6,153,830 5,374,510 
Application-hosting services 884,662 828,222 1,734,665 1,515,736 
Software as a service 912,864 884,662 1,837,923 1,734,665 
                  
Total revenues 4,676,477 4,069,493 8,220,493 7,820,292  4,145,933 4,676,477 8,285,955 8,220,493 
         
  
Operating expenses:  
Cost of systems sales 780,506 768,035 1,518,395 1,433,695  627,550 780,506 1,168,502 1,518,395 
Cost of services, maintenance and support 1,378,778 1,315,986 2,760,988 2,380,116  1,155,667 1,378,778 2,489,538 2,760,988 
Cost of application-hosting services 472,098 363,848 929,126 795,653 
Cost of software as a service 417,868 472,098 854,291 929,126 
Selling, general and administrative 1,505,863 1,255,162 3,203,440 2,470,132  1,582,532 1,505,863 3,247,193 3,203,440 
Product research and development 567,147 383,943 1,037,318 730,190  342,157 567,147 759,931 1,037,318 
                  
Total operating expenses 4,704,392 4,086,974 9,449,267 7,809,786  4,125,774 4,704,392 8,519,455 9,449,267 
                  
Operating profit (loss)  (27,915)  (17,481)  (1,228,774) 10,506 
Operating income (loss) 20,159  (27,915)  (233,500)  (1,228,774)
Other income (expense):  
Interest expense  (34,001)  (10,651)  (56,336)  (18,117)  (21,791)  (34,001)  (41,633)  (56,336)
Other income (expense)  (9,023) 16,183 42,786 19,003 
Miscellaneous income (expenses)  (311)  (9,023)  (5,266) 42,786 
                  
Earnings (loss) before taxes  (70,939)  (11,949)  (1,242,324) 11,392 
Income taxes  (5,000)  (6,000)  (10,000)  (13,000)
Loss before income taxes  (1,943)  (70,939)  (280,399)  (1,242,324)
Income tax (expense)  (5,000)  (5,000)  (7,315)  (10,000)
                  
Net loss $(75,939) $(17,949) $(1,252,324) $(1,608) $(6,943) $(75,939) $(287,714) $(1,252,324)
                  
Basic and diluted net earnings (loss) per common share $(0.00) $(0.01) $(0.03) $(0.13)
          
Basic net loss per common share $(0.01) $(0.00) $(0.13) $(0.00)
Number of shares used in basic and diluted per common share computation 9,817,370 9,506,904 9,847,348 9,460,911 
                  
Diluted net loss per common share $(0.01) $(0.00) $(0.13) $(0.00)
         
 
Number of shares used in per common share computations: 
Basic 9,506,904 9,379,237 9,460,911 9,367,144 
         
Diluted 9,506,904 9,379,237 9,460,911 9,367,144 
         
See Notes to Condensed Consolidated Financial Statements.Statements

 

5


STREAMLINE HEALTH SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended July 31,
(Unaudited)
                
 2010 2009  2011 2010 
Operating activities:  
Net loss $(1,252,324) $(1,608) $(287,714) $(1,252,324)
Adjustments to reconcile net earnings (loss) to net cash (used in) provided by operating activities: 
Loss on disposal of fixed assets  4,308 
Long-term lease incentive   (48,842)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: 
Depreciation and amortization 1,708,706 1,338,653  1,391,822 1,708,706 
Share-based compensation 243,104 130,176 
Loss on disposal of fixed asset 26,667  
Stock-based compensation expense 395,732 243,104 
Provision for accounts receivable 50,000   40,000 50,000 
 
Changes in assets and liabilities: 
Accounts and contract receivables  (133,787) 70,560 
Other current assets  (114,459)  (175,275)
Accounts payable and accrued expenses  (188,093) 142,283 
Change in assets and liabilities: 
Accounts, contract and installment receivables 540,548  (133,787)
Other assets  (121,302)  (114,459)
Accounts payable 187,202 200,007 
Accrued expenses  (790,017)  (388,100)
Deferred revenues  (328,530)  (726,843)  (673,179)  (328,530)
          
Net cash (used in) provided by operating activities  (15,383) 733,412 
Net cash provided by (used in) operating activities 709,759  (15,383)
          
  
Investing activities:  
Purchases of property and equipment  (302,292)  (374,114)  (236,196)  (302,292)
Capitalization of software development costs  (1,274,000)  (2,020,000)  (1,391,000)  (1,274,000)
Other 2,974 15,205   2,974 
          
Net cash used in investing activities  (1,573,318)  (2,378,909)  (1,627,196)  (1,573,318)
          
  
Financing activities:  
Proceeds from stock purchase plan and exercise of stock options 127,391 58,400 
Net change in bank line of credit 1,100,000  
Payments on capital lease  (83,289)  
Net change under revolving credit facility 50,000 1,100,000 
Proceeds from exercise of stock options and stock purchase plan 92,711 127,391 
Payments on capital lease obligation  (51,338)  (83,289)
          
Net cash provided by financing activities 1,144,102 58,400  91,373 1,144,102 
          
 
Increase (decrease) in cash and cash equivalents  (444,599)  (1,587,097)
Decrease in cash and cash equivalents  (826,064)  (444,599)
Cash and cash equivalents at beginning of period 1,025,173 3,128,801  1,403,949 1,025,173 
          
Cash and cash equivalents at end of period $580,574 $1,541,704  $577,885 $580,574 
     
      
Supplemental cash flow disclosures:  
Interest paid $30,664 $17,989  $29,621 $30,664 
          
Income taxes paid $16,534 $9,686  $16,957 $16,534 
          
See Notes to Condensed Consolidated Financial Statements.Statements

 

6


STREAMLINE HEALTH SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A — BASIS OF PRESENTATION
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared by Streamline Health Solutions, Inc. (“Streamline Health® or the Company”), pursuant to the rules and regulations applicable to quarterly reports on Form 10-Q of the U. S. Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Condensed Consolidated Financial Statements have been included. These Condensed Consolidated Financial Statements should be read in conjunction with the financial statements and notes thereto included in the most recent Streamline Health Solutions, Inc. Annual Report on Form 10-K, Commission File Number 0-28132. Operating results for the three and six months ended July 31, 2010,2011 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2011.2012.
NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company’s significant accounting policies is presented beginning on page 45 of itsin “Note B — Significant Accounting Policies” in the fiscal year 2010 Annual Report on Form 10-K. Users of financial information for interim periods are encouraged to refer to the footnotes contained in the Annual Report when reviewing interim financial results.
Useful Lives of Capitalized Software Development CostsRecently Adopted Accounting Pronouncements
ASU 2009-13. In the fourth quarter of fiscalOctober 2009, the Company madeFinancial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2009-13 —Multiple-Deliverable Revenue Arrangements (ASU 2009-13). ASU 2009-13 requires a vendor to allocate revenue to each unit of accounting in many arrangements involving multiple deliverables based on the relative selling price of each deliverable. It also changes the level of evidence of stand-alone selling price required to separate deliverables by allowing a vendor to make its fifth generation software, accessANYware 5.0, generally available. In the first quarter of fiscal 2010, subsequent to the release, the Company completed a review by productbest estimate of the estimated useful livesstand-alone selling price of its capitalized software development costs. After reviewing strategic plans, analyzing the historical useful lifedeliverables when more objective evidence of the software products, forecasting product life cycles and demand expectations, the Company assigned a five year estimated useful life for costs capitalized for accessANYware 5.0, and revised the estimated useful lives of certain other products from three years to five years.selling price is not available.
The product life cycleCompany adopted ASU 2009-13 for accessANYware versions prior to the latest version 5.0, have lasted longer than five years. Historical productall new and customer data shows that many customers remainmaterially modified arrangements on the same primary version for five years or more after purchase, or product support and development continue for five years or more. The Company expects accessANYware 5.0 to also have a five year or longer product life cycle based on this historical data, and the estimated product development lifecycle. In addition, the useful life of the unamortized balance of development costs for prior accessANYware versions should also reflect an approximate five year life from their documented general release dates. The Company intends to actively sell and support these products for a minimum five years while version 5.0 is being rolled out. This same policy will be applied to FolderView as it is generally a primary add-on component to accessANYware, and has had a similar historical life cycle.prospective basis beginning February 1, 2011. Upon Company review of the revenue projections,primary accounting literature, if the Company is unable to establish selling price using VSOE (vendor specific objective evidence) or third-party evidence, the Company will establish an estimated life cycleselling price. The estimated selling price is the price at which the Company would transact a sale if the product or service were sold on a stand-alone basis. The Company establishes a best estimate of accessANYware 5.0,selling price by considering internal factors relevant to pricing practices such as costs and margin objectives, stand-alone sales prices of similar services and percentage of the remaining life cyclefee charged for prior accessANYwarea primary service relative to a particular piece of licensed software. Additional consideration is also given to market conditions such as competitor pricing strategies and FolderView releases, a five yearmarket trends. The Company regularly reviews VSOE for professional services in addition to estimated life is reasonable and proper.selling price.

 

7


The Company accounted for the change in useful life ashas not experienced a change in units of accounting estimate whichnor was there a change in allocation of fair value to the various units of accounting. Historically, the Company has been able to obtain VSOE or third-party evidence for significant service deliverables. No material changes in assumptions, inputs or methodology used in determining VSOE or third-party evidence have been made. The pattern of revenue recognition is accounted forexpected to remain consistent with prior periods and the Company does not expect a material change in the timing of revenue recognition from previous generally accepted accounting principles as applied in the prior period.
Revenue Recognition — Multiple-Deliverable Revenue Arrangements
The Company may bundle certain proprietary software technology licenses with post-contract customer support (“PCS”), and implementation services. The Company may also bundle software as a service (“SaaS”) offerings with implementation services. In addition, the Company may also bundle additional consulting services such as Business Process Management (“BPM”) and Revenue Cycle Management (“RCM”) services with proprietary software license agreements and SaaS subscriptions.
Provided that the undelivered elements in arrangements that include multiple elements are fixed and determinable, the Company allocates the total revenue to be earned under the arrangement to the elements based on a prospective basis effective February 1, 2010. Fortheir relative fair value of vendor specific objective evidence (“VSOE”), third-party evidence or estimated selling price, relative to the three andhierarchy. The amounts representing the fair value of the undelivered items are deferred until delivered, or recognized pro rata over the service contract.
NOTE C — EQUITY AWARDS
During the six months ended July 31, 2010 the change resulted in a reduction of amortization expense of approximately $251,000 and $502,000, respectively; an increase in income from continuing operations and net income of $251,000 and $502,000, respectively; and a decrease in basic and diluted loss per share of $0.02 and $0.06, respectively. Amortization expense for capitalized software development costs is included in cost of system sales in the consolidated statement of operations.
NOTE C — EQUITY AWARDS
Compensation expense is recognized over the requisite service period for awards of equity instruments to employees based on the grant-date fair value of those awards expected to ultimately vest (with limited exceptions). Forfeitures are estimated on the date of the grant and revised if actual or expected forfeiture activity differs materially from original estimates.
During the first six months of the current fiscal year,2011, the Company granted 140,000858,000 options with a weighted average exercise price of $1.84$1.94 per share. During the same period 71,000115,916 options expired with an average exercise price of $1.86$1.84 per share and 77,00032,598 options were exercised under all plans at an average exercise price of $1.27 per share.plans.
The fair value of each option grant during the quartersix months ended July 31, 20102011 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 are five years and have a forfeiture rate of zero.
         
  For the three  For the six 
  months ended,  months ended, 
  April 30, 2011  July 31, 2011 
Risk-free interest rate  2.50%  2.17%
Dividend yield      
Current weighted-average volatility factor of the expected market price of Common Stock  0.53   0.65 
Weighted-average expected life of stock options 5 years  5 years 
Forfeiture rate  0%  0%

8


During the first six months of the current fiscal year,ended July 31, 2011, the Company granted 209,000110,412 restricted stock shares with a weighted average fair value of $1.94$1.68 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.Directors. The shares have an approximate one-year restriction period. During the same period 25,000223,090 restricted shares had their restriction period lapse; these shares had a weighted average fair value of $2.95$1.92 per share. In addition, 1,600
During the six months ended July 31, 2011, the Company granted 25,000 restricted stock shares were forfeited prior to the lapse of the restriction period; these shares hadas executive inducement grants with a weighted average fair value of $2.00$1.91 per share. The restrictions lapsed immediately upon the grant of the shares, and the Company recognized $48,000 of compensation expense for the six months ended July 31, 2011 relating to these inducement grants. These executive inducement grants were approved by the board pursuant to Nasdaq Marketplace Rule 5635(c)(4). The terms of the grants are nearly as practicable identical to the terms and conditions of the Company’s 2005 Incentive Compensation Plan.

8


NOTE D — EARNINGS PER SHARE
The two-class method is used to calculate basic and diluted earnings (loss) per share (“EPS”) as unvested restricted stock awards are considered participating securities because they entitle holders to non-forfeitable rights to dividends or dividend equivalents during the vesting term. Under the two-class method, basic earnings (loss) per common share are calculated usingis computed by dividing the net earnings (loss) allocated to common stock holders by the weighted average number of common shares outstanding. In determining the amount of net earnings (loss) to allocate to common holders, earnings are allocated to both common shares and participating securities based on their respective weighted-average shares outstanding duringfor the period.
The fiscal 2010 and 2009 diluted Diluted net earnings (loss) per common share calculation, excludesreflects the effect of thepotential dilution that could occur if stock options, stock purchase plan commitments, and restricted stock were exercised into common stock, equivalents (stock options and restricted stock), as the inclusion thereofunder certain circumstances, that then would be antidilutive. The Company had 847,000 and 667,000 equity award shares outstanding at July 31, 2010 and 2009, respectively that were not includedshare in the earnings of Streamline Health. The dilutive effect is calculated using the treasury stock method. A reconciliation of basic and diluted net (loss) per share calculation,weighted average shares for basic and diluted EPS, as well as anti-dilutive securities is as follows:
         
  Three Months Ended, 
  July 31, 2011  July 31, 2010 
Numerator for Basic and Diluted Loss per Share:        
Net loss  (6,943)  (75,939)
       
Denominator for basic loss per share weighted average shares  9,817,370   9,506,904 
Effect of dilutive securities(1)
        
Stock options      
Restricted stock      
       
Denominator for basic loss per share, with assumed conversions  9,817,370   9,506,904 
       
Basic net loss per common share  (0.00)  (0.01)
       
Diluted net loss per common share  (0.00)  (0.01)
       
Anti-dilutive securities:        
Stock options, out-of-the-money  1,272,467   847,000 
       

9


         
  Six Months Ended, 
  July 31, 2011  July 31, 2010 
Numerator for Basic and Diluted Loss per Share:        
Net loss  (287,714)  (1,252,324)
       
Denominator for basic loss per share weighted average shares  9,847,348   9,460,911 
Effect of dilutive securities(1)
        
Stock options      
Restricted stock      
       
Denominator for basic loss per share, with assumed conversions  9,847,348   9,460,911 
       
Basic net loss per common share  (0.03)  (0.13)
       
Diluted net loss per common share  (0.03)  (0.13)
       
Anti-dilutive securities:        
Stock options, out-of-the-money  1,282,467   847,000 
       
(1)Excluded common stock equivalents (stock options and restricted stock), as the inclusion thereof would be antidilutive.
NOTE E — CONTRACTUAL OBLIGATIONS
The following table details the remaining obligations including accrued interest, by fiscal year, as of the end of the quarter:
                                
 Line of Credit Operating Leases Capital Lease Fiscal Year Totals  Line of Credit Operating Leases Capital Lease Fiscal Year Totals 
2010 $ 233,000 115,000 $348,000 
2011 2,000,000 396,000 250,000 2,646,000  $1,256,000 $224,000 $137,000 $1,617,000 
2012  334,000  334,000   389,000  389,000 
2013  320,000  320,000   329,000  329,000 
2014  329,000  329,000   335,000  335,000 
2015  164,000  164,000 
Thereafter  164,000  164,000      
                  
Total $2,000,000 1,776,000 365,000 $4,141,000  $1,256,000 $1,441,000 $137,000 $2,834,000 
                  
NOTE F — DEBT
On June 21, 2010,April 13, 2011, the CompanyCompany’s wholly owned subsidiary, Streamline Health, Inc., entered into a Second Amendment to Lease Agreement with Alliance Street, LLC for the Company’s principal executive offices. The term of the lease has been extended for a five year term expiring July 31, 2015.
On June 16, 2010 the Company entered into a minimum five year economic development incentive agreement with the City of Blue Ash, Ohio. This incentive agreement allows the Company to draw up to $130,000 for critical business functions. The terms of the agreement allow for any balance drawn to be forgiven by the City of Blue Ash upon meeting certain employment criteria. No balance is outstanding as of July 31, 2010.
NOTE F — DEBT
On October 21, 2009, the Company entered into ansecond 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 July 31, 2008, as amended on January 6, 2009, and October 21, 2009, except as follows: (i) the maximum principal amount that can be borrowed was increased to $2,750,000$3,000,000 from the prior maximum amount of $2,000,000;$2,750,000, subject to the borrowing base limitation; and (ii) the maturity date of the loan has been extended to October 1, 20112013 from AugustOctober 1, 2010; and (iii) the2011. The interest rate on the outstanding principal balance will accrueof the loan accrues at an annual floating rate of interest equal to the Adjusted Libor Rate (as defined in the revolving note) plus 3.25%., payable monthly. The interest rate on the note was 3.625%3.5% at July 31, 2010.2011. In accordance with the revised maturity date, the outstanding balance on the note is classified as a long-term obligation at July 31, 2011.

 

910


In connection with the entering into of the revisedsecond amended and restated revolving note in April 2011, the Company also entered into an amendment to the amended and restated continuing guaranty agreement. The terms of the continuing guarantyguarantee agreement remain the same as set forth in the guaranty agreement entered into on July 31, 2008, as amended on January 6, 2009 and on October 21, 2009, except thatthat: (i) the minimum fixed charge coverage ratio covenant that formerly requiredhas been revised, whereas the Company shall maintain a minimum trailing twelve months fixed charge coverage ratio of 1.25, measured each fiscal quarter; (ii) the funded indebtedness to maintain certain levels of minimum tangible net worthEBITDA covenant has been eliminated.revised, whereas the Company shall report a funded indebtedness to EBITDA ratio no greater than 2.0, measured each fiscal quarter and; (iii) a covenant has been added whereas the Company’s EBITDA shall cover its capitalized software development costs each fiscal quarter. The covenant becomes effective on October 31, 2011 and is calculated based on the trailing nine months. As of January 31, 2012 and thereafter, the calculation will be based on the trailing twelve months.
The note also continues to be secured by a first lien on all of the assets of the Company pursuant to security agreements entered into by the Company.
The Company was in compliance with all of the covenants at July 31, 2010.2011. The Company pays a commitment fee on the unused portion of the facility of 0.06%.06%. The Company had outstanding borrowings of $2,000,000$1,250,000 and $1,200,000 under this revolving loan as of July 31, 2010.2011 and January 31, 2011, respectively.
NOTE G — FOREIGN CURRENCYCOMMITTMENTS AND CONTINGENCIES
Foreign currency hedge instruments are from time to time used to partially offsetStreamline Health has entered into employment agreements with its business exposure to foreign exchange riskofficers and certain employees that generally provide annual salary, a minimum bonus, discretionary bonus, and stock incentive provisions.
As a result of a reduction in force implemented by management during the Canadian dollar for the Company’s transactions with a current Canadian customer. The Company may enter into foreign currency forward and option contracts to offset some of the foreign exchange risk of expected future cash flows on certain forecasted revenue and cost of sales, and on certain existing accounts receivable and payable. However,quarter ended July 31, 2011, the Company may choose not to hedge certain foreign exchange exposures for a varietyexpensed $100,000 in the second quarter of reasons, including but not limited to immateriality. There were no outstanding foreign currency forward contracts at July 31, 2010.fiscal 2011, in accordance with severance agreements.

 

1011


Item 2. 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In addition to historical information contained herein, this Report on Form 10-Q contains forward-looking statements relating to the Company’s plans, strategies, expectations, intentions, etc. and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements contained herein are no guarantee of future performance and are subject to certain risks and uncertainties that are difficult to predict and actual results could differ materially from those reflected in the forward-looking statements. These risks and uncertainties include, but are not limited to, the timing of contract negotiations and executions and the related timing of the revenue recognition related thereto, the potential cancellation of existing contracts or clients not completing projects included in the backlog, the impact of competitive products and pricing, product demand and market acceptance, new product development, key strategic alliances with vendors that resell Streamline Health solutions, the ability of Streamline Health to control costs, availability of products obtained from third-party vendors, the healthcare regulatory environment, potential changes in legislation, regulatory and government funding affecting the healthcare industry, healthcare information system budgets, availability of healthcare information systems trained personnel for implementation of new systems, as well as maintenance of legacy systems, fluctuations in operating results and other risk factors that might cause such differences including those discussed herein, and including, effects of critical accounting policies and judgments, changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other similar entities, changes in economic, business and market conditions impacting the healthcare industry, the markets in which the Company operates, and nationally, and the Company’s ability to maintain compliance with the terms of its credit facilities, but not limited to, discussions in the most recent Form 10-K, Part I, “Item 1.1 Business”, “Item 1A.1A Risk Factors”, Part II, “Item 7.7 Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8.8 Financial Statements and Supplemental Data.” In addition, other written or oral statements that constitute forward-looking statements may be made by or on behalf of the Company. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date thereof. The Registrant undertakes no obligation to publicly revise these forward-looking statements, to reflect events or circumstances that arise after the date hereof. Readers should carefully review the risk factors described in this and other documents Streamline Health Solutions, Inc. files from time to time with the Securities and Exchange Commission, including future Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.
Streamline Health’s discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires Streamline Health to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent liabilities. On an ongoing basis, Streamline Health evaluates its estimates, including those related to product revenues, bad debts, capitalized software development costs, income taxes, support contracts, contingencies, and litigation. Streamline Health bases its estimates on historical experience and on various other assumptions that Streamline Health believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and revenue and expense recognition. Actual results may differ from these estimates under different assumptions or conditions.

 

1112


General
Founded in 1989, Streamline Health Solutions, Inc. (“Streamline Health®” or the “Company”) is a healthcare informationleading developer of workflow and document management technology company, which is focused on developing and licensing proprietary software solutions that improve document-centric information flowsdrive process efficiencies and complementcost reductions for leading healthcare facilities throughout North America. Since our inception in 1989, Streamline Health’s technology solutions have seamlessly interfaced with our customers’ existing enterprise or departmental electronic medical record systems. The Company’s solutions efficiently integrate paper-based and enhance existing transaction-centric hospital healthcare information systems. In additionunstructured data with electronic data in the areas of Health Information Management, Patient Financial Services, Human Resources, and Supply Chain Management to provide real-time comprehensive patient profiles and generate substantial operational savings. Streamline Health’s workflow and document management solutions assist hospitals in meeting the requirements of “meaningful use” to become eligible for significant incentive payments as outlined in the HITECH act (a provision of American Recovery and Reinvestment Act of 2009), and they are an integral part of an enterprise-wide Electronic Health provides consulting services specializing in enterprise connectivity, systems integration, and departmental process improvement.Record (EHR). The Company sells its products and services in North America to remarketers, hospitals, clinical and ambulatory services through its direct sales force, and its reseller partnerships. The Company also sells to direct remarketers, hospitals, clinical and ambulatory services.
Document imaging and workflow management technologies like those provided by Streamline Health are essential elements of a complete Electronic Health Record because they allow for the storage of unstructured data. Unstructured data may consist of patient record elements other than discrete data, such as hand written physician or nursing notes and physician orders, photographs, audio, video, and outside correspondence.
Streamline Health’s core technology is a secure document management repository called accessANYwareTM that collects, indexes, and intelligently routes unstructured, document-based medical and financial data throughout the enterprise. The accessANYware family of solutions create a permanent document-based repository of historical health information that iswork complementary to, and can be seamlessly integrated with existing disparatetransaction-centric clinical, financial and administrativemanagement information systems, providing convenient electronic access to all forms of patient information from any location, including secure web-based access. These integrated solutions allow providers and administrators to link existing systems with documents, which can dramatically improve the availability of patient information while decreasing direct costs associated with document retrieval, work-in-process, chart processing, document retention, and archiving.
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, and provide cost savings and enhanced safety through improved access to critical patient data.systems. The Company’s systems and services can also help a provider’s existing system to achieve “meaningful use” under the HITECH provisions of the American Recovery and Reinvestment Act of 2009 (ARRA). 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.

12


Executive Overview
In 2009, the Company successfully made its fifth-generation softwareaccessANYware architecture (accessANYware 5.0) generally-available. 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 internationalization specifically included French Canadian language capabilities
The Company’s core technology is supplemented by departmental workflow-based solutions and services which offer solutions to specific healthcare business processes within Health Information Management (HIM) and the revenue cycle. Additionally, the Company offers a full complement of high quality consulting and implementation services to complement and enhance its software applications.
The Company’s software solutions are delivered either by purchased perpetual license which is installed locally in the customer’s data center; or by subscription and accessed through a secure internet connection (also known as part of“software as a service” or “SaaS”). A SaaS subscription provides Streamline Health’s agreementscomplete suite of document management and workflow products, which also enables improved security, and accessibility to patient records at significant cost savings; with minimal up-front capital investment, maintenance, and support costs. In addition, the Centre hospitalier de l’Université de Montréal (CHUM),healthcare provider need not have knowledge of, expertise in, or control over the McGill University Health Centre (MUHC),technology infrastructure in the data center that supports them. SaaS systems allow customers to realize the benefits of our systems with an accelerated return on investment, and L’Agence de la santé et des sociaux de Montreal (l’Agence) via our distribution partner Telus Health. 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 accessANYware 5.0. less economic risk.
The Company will roll out accessANYware 5.0 over the next several years. We have had positive reception to the product at the installed locationsoperates primarily in Canada, and the Company’s sales team is actively informing new and existing customers of its benefits.
In 2009, the Company established a Business Process Management (BPM) consulting services division to take advantage of what the Company believes is a significant growth opportunity to provide departmental document workflow solutions and Business Process Optimization Services. Many industry consultants believe healthcare organizations face an ever increasing demand to improve business processes and reduce costs, especially in the current economic climate. Business Process Management is a proven discipline which allows organizations to improve their business operations by identifying, automating and optimizing existing labor-intensive business processes that cause bottlenecks and inefficiencies. In February of 2010, the company entered into an agreement with the Children’s National Medical Center to provide BPM services to customize an enterprise audit compliance solution, AuditACE™. In addition to this strategic customer, the Company has had a positive response from other customers who are looking for ways to help manage the growing federal, state mandates and payer requirements for audit compliance. The Company views this service offeringone segment as a potential driver of significant growth.
Streamline Health experienced a growth in application-hosting services contracts over the past two fiscal years. Many organizations in the current health information technology marketplace are shifting from licensed software which is locally installed in the health care organization’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”provider of health information technology solutions. The financial information required by Item 101(b) of Regulation S-K is contained 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 byproductItem 6 Selected Financial Information of the hosted model is much better visibility for future revenue streams based on backlog fulfillment from hosted contracts over typical five year or more contract periods; as well as a high percentage of contract renewals after the initial term. As we continue to gain traction in our hosted recurring revenue model, traditional license sales can provide a significant impact to our operating results. The Company believes this combination is key to our long term success and return on investment for the Company’s stockholders. In the near term, management’s intention is to measure its success by revenue and revenue backlog, and level of earnings before interest, taxes, depreciation and amortization (EBITDA), rather than net profits.January 31, 2011 Form 10-K.

 

13


Operating ResultsSigned Agreements — Backlog
New bookings for the quarter, excluding maintenance services, were in excess of $2 million. These new bookings consisted of a new enterprise license contract, a large add-on enterprise license sale, and three Business Process Management (BPM) departmental workflow solutions. Bookings reflect the aggregate of signed contracts and/or completed customer purchase orders approved and accepted by the Company as binding commitments to purchase its products and/or services. New bookings do not include maintenance services as these tend to be recurring in nature on an annual or more frequent basis.
The Company recognized revenues in the three and six month period ending July 31, 2010 of $4,676,000 and $8,220,000, compared to $4,069,000 and $7,820,000 in the comparable prior period. The increased revenues recognized over the prior three and six month periods are derived primarily from an increase in proprietary software systems sales, as well as recurring revenues recognized from application-hosting and maintenance revenues. The Company incurred operating losses in the three and six month period ending July 31, 2010 of $28,000 and $1,229,000 respectively. Comparatively, the Company incurred a loss of $17,000 and operating profit of $11,000 respectively, for the three and six month periods ending July 31, 2009. Operating expenses in the three and six month period ending July 31, 2010 were $4,704,000 and $9,449,000 respectively, compared to $4,087,000 and $7,810,000 in the comparable prior three and six month periods. The increase in operating expenses was due to several factors including an increase in amortization of capitalized software development costs. This increase in amortization expense is primarily due to the general release of accessANYware 5.0 in late fiscal 2009. In addition to amortization expense, the Company increased investments made in professional services staffing, customer, professional fees, and increased compensation expenses.
The Company’s revenues from proprietary systems sales have varied, and may continue to vary, significantly from quarter-to-quarter because of the volume and timing of systems sales and delivery. Professional services revenues also fluctuate from quarter-to-quarter because of the timing of the implementation services, project management, and timing of the recognition of revenues under generally accepted accounting principles. Conversely, revenues from hosted systems sales, and maintenance services do not fluctuate significantly from quarter-to-quarter, but have been increasing, on an annual basis, as the number of customers increase. Substantial portions of the operating expenses are fixed; therefore operating profits are expected to vary depending on the factors that drive fluctuations in revenues and the mix of proprietary versus hosted contracts sold.

14


Quarterly Statement of Operations(1)
                 
  Three Months Ended July 31,  Six Months Ended July 31, 
  2010  2009  2010  2009 
 
Systems sales  20.5%  10.8%  13.5%  10.1%
Services, maintenance and support  60.5   68.8   65.4   70.5 
Application-hosting services  19.0   20.4   21.1   19.4 
             
Total revenues  100.0   100.0   100.0   100.0 
Cost of sales  56.3   60.2   63.4   58.9 
Selling, general and administrative  32.2   30.8   39.0   31.6 
Product research and development  12.1   9.4   12.6   9.3 
             
Total operating expenses  100.6   100.4   114.9   99.9 
             
Operating profit (loss)  (0.6)  (0.4)  (14.9)  0.1 
Other income (expense), net  (1.0)     (0.3)   
Income tax net benefit        (0.1)  (0.1)
             
Net earnings (loss)  (1.6)%  (0.4)%  (15.2)%  0.0%
             
Cost of systems sales  81.2%  174.3   136.6%  182.0%
             
Cost of services, maintenance and support  48.7%  47.0%  51.4%  43.1%
             
Cost of application-hosting services  53.4%  43.9%  53.6%  52.5%
             
(1)Because a significant percentage of the operating costs are incurred at levels that are not necessarily correlated with revenue levels, a variation in the timing of systems sales and installations and the resulting revenue recognition can cause significant variations in operating results. As a result, period-to-period comparisons may not be meaningful with respect to the past operations nor are they necessarily indicative of the future operations of Streamline Health in the near or long-term. The data in the table is presented solely for the purpose of reflecting the relationship of various operating elements to revenues for the periods indicated.
Backlog
Backlog consisted of the following (in thousands):
                 
  July 31,  April 30,  January 31,  July 31, 
  2010  2010  2010  2009 
Streamline Health software licenses $174  $188  $201  $2,012 
Custom software  62   107   105   166 
Hardware and third party software  95   145   171   407 
Professional services  3,981   3,800   3,977   3,805 
Application-hosting services  8,818   9,310   9,414   11,634 
Recurring maintenance  5,788   5,078   5,987   5,373 
             
Total $18,918   18,628  $19,855  $23,397 
             
At July 31, 20102011 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-hostingSaaS subscription revenues), which have not been delivered or installed andwhich, if fully performed, would generate future revenues of approximately $18,918,000$4,805,000 compared with $23,397,000$4,312,000 at July 31, 2009.2010. The related systems and services are expected to be delivered over the next two to three years. The overall decreaseincrease in the backlog as compared to July 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 toseveral contracts for professional services, or third-party hardware and software forentered into subsequent to the Canadian client and others, as well asprior year comparable quarter end, net of the recognition in fiscal 2009 of maintenance revenuerevenues recognized from one long term maintenance contract for one large customer.

15


backlog since July 31, 2010. At July 31, 2010,2011, Streamline Health had maintenance agreements or purchase orders, from customers and remarketing partners for maintenance, which if fully performed, will generate future revenues of approximately $5,788,000$6,009,000 compared with $5,373,000$5,788,000 at July 31, 2009,2010, through their respective renewal dates in fiscal year 20102012 and 2011. TheThis increase resultsis primarily from the signingresult of new proprietary software salesor renewed maintenance contracts during the second halfthat have entered their service period, and therefore, added to backlog, net of fiscal 2009, and in the first half of fiscalrecognized maintenance revenues since July 31, 2010.
At July 31, 2010,2011, Streamline Health has entered into application-hostingSaaS agreements, which are expected to generate revenues in excess of $8,818,000$7,275,000 through their respective renewal dates in fiscal years 20102011 through 2015.2014. The application-hostingsoftware as a service backlog decreased to $7,275,000 from the $11,634,000$8,818,000 at July 31, 2009,2010, due to the continued recognition ofrecognized revenues from backlog on contracts signed in fiscal 2008 and 2009, and decreased volumeprior years, net of new application-hostingSaaS business, through the endconversions from license to SaaS, and contract renewals.
Below is a summary of the second quarter.backlog at July 31, 2011, January 31, 2011 and July 31, 2010:
             
  July 31, 2011  January 31, 2011  July 31, 2010 
Streamline Health Software Licenses $51,000  $121,000  $174,000 
Custom Software  29,000   42,000   62,000 
Hardware and Third Party Software  152,000   66,000   95,000 
Professional Services  4,573,000   4,629,000   3,981,000 
Software as a service  7,275,000   7,362,000   8,818,000 
Recurring Maintenance  6,009,000   5,384,000   5,788,000 
          
Total $18,089,000  $17,604,000  $18,918,000 
          
Streamline Health believes its future revenues will come from its direct sales force, as well as remarketing agreements with third-party health information systems vendors. Streamline Health continues to actively pursue additional remarketing agreements with other companies.
The commencement of revenue recognition varies depending on the size and complexity of the system,system; the implementation schedule requested by the customer and usage by customers of the application-hostingCompany’s SaaS services. Therefore, it is difficult for the Company to accurately predict the revenue it expects to achieve in any particular period. Streamline Health’s master agreements generally provide that the customer may terminate its agreement upon a material breach by Streamline Health, or may delay certain aspects of the installation. There can be no assurance that a customer will not cancel all or any portion of a master agreement or delay installations. A termination or installation delay of one or more phases of an agreement, or the failure of Streamline Health to procure additional agreements, could have a material adverse effect on Streamline Health’s business, financial condition, and results of operations.

14


Streamline Health believes a large percentage of its future revenues will come from its remarketing agreements in place with health information systems vendors.
Operating Results
The Company continuesrecognized revenues in the three and six month periods ending July 31, 2011 of $4,146,000 and $8,286,000, compared to actively pursue remarketing agreements with other companies.$4,676,000 and $8,220,000; a decrease of $530,000 and an increase of $66,000 respectively. The revenues recognized are derived primarily from recurring revenues recognized from SaaS subscriptions and recurring maintenance contracts. The Company earned an operating profit of $20,000 in the second quarter of fiscal 2011 and incurred an operating loss of $234,000 for the six month period ended July 31, 2011. In the prior year comparable periods the Company incurred operating losses of $28,000 and $1,229,000, respectively. Operating expenses for the three and six month periods ending July 31, 2011 were $4,126,000 and $8,519,000, compared to $4,704,000 and $9,449,000 in the comparable prior periods; a decrease of $578,000 or 12% and $930,000 or 10%, respectively over the prior comparable periods.
The Company’s revenues from proprietary systems sales have varied, and may continue to vary, significantly from quarter-to-quarter because of the volume and timing of systems sales and delivery. Professional services revenues also fluctuate from quarter-to-quarter because of the timing of the implementation services, project management, and timing of the recognition of revenues under generally accepted accounting principles. Conversely, revenues from SaaS subscription sales, and maintenance services do not fluctuate significantly from quarter-to-quarter, but have been increasing, on an annual basis, as the number of customers increase. Substantial portions of the operating expenses are fixed; therefore operating profits are expected to vary depending on the factors that drive fluctuations in revenues and the mix of proprietary system sales versus SaaS subscriptions sold.
Statement of Operations(1)
                 
  Three Months Ended July 31,  Six Months Ended July 31, 
  2011  2010  2011  2010 
Systems sales  4%  20%  4%  14%
Services, maintenance and support  74   61   74   65 
Application-hosting services  22   19   22   21 
             
Total revenues  100%  100%  100%  100%
             
Cost of sales  53%  56%  55%  63%
Selling, general and administrative  38   32   39   39 
Product research and development  8   12   9   13 
             
Total operating expenses  99%  100%  103%  115%
             
Operating profit (loss)  1%  (1)%  (3)%  (15)%
Other income (expense), net  (1)%  (1)%  (1)%   
Income tax net benefit            
             
Net earnings(loss)     (2)%  (4)%  (15)%
             
Cost of systems sales  385%  81%  397%  137%
             
Cost of services, maintenance and support  38%  49%  41%  51%
             
Cost of application-hosting services  46%  53%  47%  54%
             
(1)Because a significant percentage of the operating costs are incurred at levels that are not necessarily correlated with revenue levels, a variation in the timing of systems sales and installations and the resulting revenue recognition can cause significant variations in operating results. As a result, period-to-period comparisons may not be meaningful with respect to the past operations nor are they necessarily indicative of the future operations of Streamline Health in the near or long-term. The data in the table is presented solely for the purpose of reflecting the relationship of various operating elements to revenues for the periods indicated.

 

1615


Revenues
Revenues consisted of the following (in thousands):
                                
 For the Three Months Ended July 31, Dollars Percent  Three Months Ended,     
 2010 2009 Change Change  July 31, 2011 July 31, 2010 Change % Change 
Proprietary software(1)
 $674 $91 $583  641% $14 $674 $(660)  (98%)
Hardware & third party software(1)
 287 349  (62)  (18%) 149 287  (138)  (48%)
Professional services(2)
 928 953  (25)  (3%) 868 929  (61)  (7%)
Maintenance & support(2)
 1,902 1,848 54  3% 2,202 1,902 300  16%
Application-hosting services 885 828 57  7%
Software as a service 913 884 29  3%
              
Total Revenues $4,676 $4,069 $607  15% $4,146 $4,676 $(530)  (11%)
              
                
 For the Six Months Ended July 31, Dollars Percent 
 2010 2009 Change Change 
Proprietary software(1)
 $702 $134 $568  424%
Hardware & third party software(1)
 409 653  (244)  (37%)
Professional services(2)
 1,587 1,755  (168)  (10%)
Maintenance & support(2)
 3,787 3,762 25  1%
Application-hosting services 1,735 1,516 219  14%
       
Total Revenues $8,220 $7,820 $400  5%
       
                 
  Six Months Ended,       
  July 31, 2011  July 31, 2010  Change  % Change 
Proprietary software(1)
 $51  $702  $(651)  (93%)
Hardware & third party software(1)
  242   409   (167)  (41%)
Professional services(2)
  1,875   1,587   288   18%
Maintenance & support(2)
  4,279   3,787   492   13%
Software as a service  1,839   1,735   104   6%
              
Total Revenues $8,286  $8,220  $66   1%
              
(1) Proprietary software and hardware are the components of the system sales line item
 
(2) Professional services and maintenance & support are the components of the service, maintenance and support line item. BPM consulting services are included in professional services.
Revenues for the three and six month periods ended July 31, 2011, were $4,146,000 and $8,286,000 respectively; as compared to $4,676,000 and $8,220,000 respectively in the comparable periods of fiscal 2010. The quarterly decrease was primarily attributable to two large proprietary license sales recognized in the second quarter of fiscal 2010, that had no comparable sales in fiscal 2011; which resulted in a significant decrease in proprietary licensed software sales. The decrease in proprietary software revenues were partially offset by increases in recurring revenues from software maintenance and software as a service subscription revenue. The increase in software as a service subscription revenue on a quarterly and year-to-date basis is due to one SaaS customer contract sold in fiscal 2010 that reached go-live status in the first quarter of fiscal 2011 and was able to begin ratable revenue recognition, as well as the continued recognition of subscription revenues from backlog. Additionally, the increase in recurring maintenance and support is due to revenues wasrecognized for maintenance periods commencing on software sold since the close of the second quarter 2010. The year-to-date increase in professional services is primarily the result of two large proprietary software sales during the second quarter,increased revenue earned from implementations of systems and continued recognition of backlog revenues from hosted contracts. Professional service and hardware and third party software sales decreased primarily from customer delays, and decreasesother professional services sold in the volume of hardware upgrades by existing clients, or delays in the purchase of hardware and third party software.prior quarters.

 

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Operating ExpensesCost of Sales
Operating expensesCost of sales consisted of the following (in thousands):
                 
  For the Three Months Ended July 31,  Dollars  Percent 
  2010  2009  Change  Change 
Cost of system sales $780  $768  $12   2%
Cost of services, maintenance and support  1,379   1,316   63   5%
Cost of application-hosting  472   364   108   30%
             
Total cost of sales $2,631  $2,448  $183   8%
             
Selling, general, and administrative  1,506   1,255   251   20%
Research and development  567   384   183   48%
             
Total operating expenses $4,704  $4,087  $617   15%
             
                 
  For the Six Months Ended July 31,  Dollars  Percent 
  2010  2009  Change  Change 
Cost of system sales $1,518  $1,434  $84   6%
Cost of services, maintenance and support  2,761   2,380   381   16%
Cost of application-hosting  929   796   133   17%
             
Total cost of sales $5,208  $4,610  $598   13%
             
Selling, general, and administrative  3,204   2,470   734   30%
Research and development  1,037   730   307   42%
             
Total operating expenses $9,449  $7,810  $1,639   21%
             
                 
  Three Months Ended,       
  July 31, 2011  July 31, 2010  Change  % Change 
Cost of system sales $628  $781  $(153)  (20%)
Cost of services, maintenance and support  1,156   1,379   (223)  (16%)
Cost of software as a service  418   472   (54)  (11%)
              
Total cost of sales $2,202  $2,632  $(430)  (16%)
              
                 
  Six Months Ended,       
  July 31, 2011  July 31, 2010  Change  % Change 
Cost of system sales $1,169  $1,518  $(349)  (23%)
Cost of services, maintenance and support  2,490   2,761   (271)  (10%)
Cost of software as a service  854   929   (75)  (8%)
              
Total cost of sales $4,513  $5,208  $(695)  (13%)
              
Cost of systems sales includes amortization of capitalized software expenditures, royalties, and the cost of third-party hardware and software. The increasequarterly and year-to-date decrease in the cost of systems sales during the three and six month periods ended July 31, 2010, over the prior comparable quarter, is primarily the result of the increasesquarterly and year-to-date decreases in capitalized software amortization of capitalized software development costs$132,000 and $253,000, respectively; primarily due to the general releaseproducts released in prior years becoming fully amortized in fiscal 2011. Cost of accessANYware 5.0. Additionally, thissystems sales was offset byalso reduced on a quarterly and year-to-date basis due to a decrease in third-party hardware and third party software sales andover the associated direct costs.prior year comparable periods.
Cost of services, maintenance and support includes compensation and benefits for support and professional services personnel and the cost of third party maintenance contracts. The increasequarterly and year-to-date decrease is primarily due to reduced salary and benefits expenses during fiscal 2011, primarily through the increased investmentreduction in professional services staffforce in the second quarter; and support for continued growth of the BPM services.
The increasesreductions in the cost of application-hosting services operations over the three and six months ended July 31, 2010,third-party provider maintenance contracts over the prior year comparable period, arequarter. These reductions were partially offset by increased expense due to the increased use of third-party outside contractors.
The cost of software as a service operations is relatively fixed, but is generally subject to annual increases for the goods and services required. The quarterly and year-to-date decrease is primarily attributable to increased compensation, depreciationreductions in salary and related benefits through reduced staffing; as well as several annual third party provider license and maintenance expenses as a result of the growing hosting center operations, as well as typical annualagreements that were re-negotiated, resulting in quarterly and year-to-date cost increases.savings.

 

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Selling, General and Administrative Expense
Selling, general and administrative expenses consisted of the following (in thousands):
                 
  Three Months Ended,       
  July 31, 2011  July 31, 2010  Change  % Change 
Selling, general, and administrative $1,583  $1,506  $77   5%
              
                 
  Six Months Ended,       
  July 31, 2011  July 31, 2010  Change  % Change 
Selling, general, and administrative $3,247  $3,203  $44   1%
              
Selling, General and Administrative expenses consist primarily of compensation and related benefits and reimbursable travel and living expenses related to the Company’s sales, marketing and administrative personnel; advertising and marketing expenses, including trade shows and similar type sales and marketing expenses; and general corporate expenses, including occupancy costs. ThisThe quarterly and year-to-date increase over the respective comparable prior periodsperiod is due to the investment in customer initiatives; increases in equity awards expense, performance bonus accruals, increased travel and living expenses, and increased investor relations costs. These quarterly and year-to-date increases were offset by reduced commissions expense, reduced use of third-party outside consultants, and other compensation expenses; re-instatement of bonuses; increasedreduced bad debt expense; severance costs; and professional fees relating to increased compliance and administration costs.expense.
Product Research and Development Expense
Product research and development costs are summarized as followsexpenses consisted of the following (in thousands):
                                
 For the Three Months Ended July 31, Dollars Percent  Three Months Ended,     
 2010 2009 Change Change  July 31, 2011 July 31, 2010 Change % Change 
Research and development expense $567 $384 $183  48% $342 $567 $(225)  (40%)
Capitalized research and development cost 578 1,071  (493)  (46)% 606 578 28  5%
                
Total R&D Cost $1,145 $1,455 $(310)  (21%) $948 $1,145 $(197)  (17%)
                
                
 For the Six Months Ended July 31, Dollars Percent 
 2010 2009 Change Change 
Research and development expense $1,037 $730 $307  42%
Capitalized research and development cost 1,274 2,020  (746)  (37)%
         
Total R&D Cost $2,311 $2,750 $(439)  (16)%
         
                 
  Six Months Ended,       
  July 31, 2011  July 31, 2010  Change  % Change 
Research and development expense $760  $1,037  $(277)  (27%)
Capitalized research and development cost  1,391   1,274   117   9%
              
Total R&D Cost $2,151  $2,311  $(160)  (7%)
              
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. ResearchQuarterly and year-to-date research and development expenses increaseddecreased $225,000 and $277,000, respectively, from the prior comparable quarter,periods. These decreases in research and development expense and the offsetting increases in capitalized software development costs, are primarily due to a decreasean increase in costs eligible for capitalization. However, the decreasecapitalization, decreased product support costs, and reductions in development staffing that were partially offset by increased use of third-party outside contractors. The total research and development cost for the threeexpenditures on a quarterly and six month period ended July 31, 2010 over the prior comparable period is the result of the reduced resources necessary for researchyear-to-date basis have decreased by $197,000 and development efforts, subsequent to the release of accessANYware 5.0 in the fourth quarter of fiscal 2009.
Operating Profit (loss)
The Company incurred operating losses of $28,000 and $1,229,000 for the three and six month period ended July 31, 2010. Comparatively, during the prior three and six month periods, the Company incurred an operating loss of $17,000 and an operating profit of $11,000, respectively. Increases in proprietary software sales and recurring application-hosting revenues were offset by increased investment in customer initiatives, increased compensation, and increased expense relating to amortization of$160,000, respectively when considering both capitalized software development costs contributedand non-capitalizable research and development expense; this is primarily due to the lossesaforementioned reductions in force, and less cost for product support as compared to the three and six month periods ending July 31, 2010.prior comparable periods.

 

1918


Other ExpenseOperating Profit (Loss)
InterestThe Company incurred an operating profit of $20,000 in the second quarter of fiscal 2011, compared to an operating loss of $28,000 in the second quarter of fiscal 2010. The Company had a changeover in management during the first quarter of fiscal 2011 and the subsequent across-the-board analysis of staffing levels, processes, and costs, resulted in significant reductions of operating expenses. These reductions were coupled with decreases in capitalized software amortization expense; which resulted in quarterly and year-to-date decreases in operating expenses of $579,000 or 12%, and $930,000 or 10%, respectively.
Other Income (Expense)
Quarterly and year-to-date interest expense forin the threesecond quarter of fiscal 2011 was $22,000 and six months ended July 31, 2010 was$42,000 respectively, compared to $34,000 and $56,000 respectively, compared to $11,000 and $18,000 in the comparable prior periods. The increase in interestInterest expense was related tofrom the working capital facility interest and fees. The increasewas $17,000 in the interest expense resultssecond quarter of fiscal 2011 compared with $22,000 in the comparable prior quarter, primarily fromdue to a larger average balance outstanding than in the prior comparable periods and the interestquarter. Interest expense from the capital lease for equipment entered into in January 2010.decreased by $7,000 and $12,000, respectively over the prior comparable three and six month periods; primarily due to a lower principal balance.
Provision for Income Taxes
The quarterly and year-to-date tax provision in the first quarter of fiscal 20102011 and 20092010 is comprised of primarily state and local provisions.
Net lossLoss
The Company incurred quarterly and year-to-date net losses of $7,000 and $288,000 respectively in fiscal 2011; as compared to quarterly and year-to-date net losses of $76,000 and $1,252,000 respectively in fiscal 2010.
Operational Metrics and Use of Non-GAAP Financial Measures
Streamline Health’s primary metrics used to assess the threeperformance of the business include gross margin, cash flow from operations, non-GAAP Adjusted EBITDA (A non-GAAP measure meaning, “Earnings before Interest, Tax, Depreciation, Amortization, and six month periods ended July 31, 2010, compared to net lossesStock-based compensation expense”; for explanation and reconciliation of $18,000 and $2,000 in the comparable prior periods ended July 31, 2009. Increases in proprietary software sales and recurring application-hosting revenues were offset by increased investment in customer initiatives, compensation, and increased expense relating to amortizationall non-GAAP financial measures, see “Use of Non-GAAP Financial Measures”), non-GAAP Adjusted EBITDA less capitalized software development costs, and non-GAAP Adjusted EBITDA margin. Management uses these measures as i) one of the primary methods for planning and forecasting overall expectations and for evaluating, on at least a quarterly and annual basis, actual results against such expectations; and, ii) as a performance evaluation metric in determining achievement of certain executive and employee incentive compensation programs.

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Additionally, the Company’s lenders use Adjusted EBITDA, to assess operating performance. The Company’s working capital credit agreement requires compliance with financial covenants certain of which contributedare based on an Adjusted EBITDA measurement that is the same as the Adjusted EBITDA measurement reviewed by Company management. The current metrics are outlined in the table below:
                 
  Six Months Ended,       
  July 31,  July 31,       
  2011  2010  Change  % Change 
Gross margin $3,774,000  $3,012,000   762,000   25%
Gross margin %  46%  37%  9%    
Cash flow provided by (used in) operations $710,000  $(15,000)  725,000   4833%
Adjusted EBITDA $1,549,000  $766,000   783,000   102%
Adjusted EBITDA, less capitalized software development costs $158,000  $(508,000)  666,000   131%
Adjusted EBITDA margin  19%  9%  10%    
Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of Company results as reported under GAAP. The Company compensates for such limitations by relying primarily on our GAAP results and using non-GAAP financial measures only as supplemental data. A reconciliation of non-GAAP to GAAP measures used is provided below, and investors are encouraged to carefully review this reconciliation. In addition, because these non-GAAP measures are not measures of financial performance under GAAP and are susceptible to varying calculations, these measures, as defined by the Company, may differ from and may not be comparable to similarly titled measures used by other companies. The following is a summary of non-GAAP measurements used by the Company:
EBITDA, Adjusted EBITDA, Adjusted EBITDA Less Capitalized Software Development Costs, Adjusted EBITDA Margin, and Adjusted EBITDA per diluted share
The Company defines: (i) EBITDA, as net income (loss) before net interest expense, income tax expense (benefit), depreciation and amortization; (ii) Adjusted EBITDA, as net income (loss) before net interest expense, income tax expense (benefit), depreciation, amortization, and stock-based compensation expense; (iii) Adjusted EBITDA Less Capitalized Software Development Costs, includes the effect of cash spent on research and development that was capitalized; (iv) Adjusted EBITDA Margin, as Adjusted EBITDA as a percentage of net revenue; and (v) Adjusted EBITDA per diluted share as adjusted EBITDA divided by adjusted diluted shares outstanding. EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EBITDA per diluted share are used to facilitate a comparison of our operating performance on a consistent basis from period to period and provide for a more complete understanding of factors and trends affecting our business than GAAP measures alone. These measures assist management and the Board and may be useful to investors in comparing the Company’s operating performance consistently over time as they remove the impact of our capital structure (primarily interest charges), asset base (primarily depreciation and amortization) and items outside the control of the management team (taxes). Adjusted EBITDA removes the impact of share-based compensation expense, which is another non-cash item. Adjusted EBITDA per diluted share will include incremental shares in the share count that would be considered anti-dilutive in a GAAP net loss position.

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EBITDA and its variants used by management are not measures of liquidity under GAAP, or otherwise, and are not alternatives to cash flow from continuing operating activities; therefore the Company suggests that readers of the quarterly reports refer to the lossCompany’s Annual Report on Form 10-K for the current threeyear ended January 31, 2011 in the section “Use of Non-GAAP Financial Measures” for complete detail of the limitations of non-GAAP financial measures presented in this quarterly report.
The following table sets forth a reconciliation of EBITDA and six month periods.its variants used by management, as described to assess the Company’s on-going operating performance (amounts in thousands, except per share data):
                 
  Three Months Ended,  Six Months Ended, 
  July 31,  July 31,  July 31,  July 31, 
Adjusted EBITDA Reconciliation 2011  2010  2011  2010 
Net loss $(7) $(76) $(288) $(1,252)
Interest expense  22   34   42   56 
Income tax expense  5   5   7   10 
Depreciation and other amortization  193   233   391   455 
Amortization of capitalized software development costs  507   639   1,001   1,254 
             
EBITDA  720   835   1,153   523 
             
Stock-based compensation expense  199   155   396   243 
             
Adjusted EBITDA $919  $990  $1,549  $766 
             
Capitalized software development costs  606   578   1,391   1,274 
Adjusted EBITDA, less capitalized software development costs  313   412   158   (508)
             
Adjusted EBITDA Margin(1)
  22%  21%  19%  9%
             
                 
Adjusted EBITDA per diluted share
                
Earnings (loss) per share — diluted $(0.00) $(0.01) $(0.03) $(0.13)
Interest expense(2)
  0.00   0.00   0.00   0.00 
Tax expenses(2)
  0.00   0.00   0.00   0.00 
Depreciation and other amortization(2)
  0.02   0.02   0.04   0.05 
Amortization of capitalized software development costs(2)
  0.05   0.07   0.10   0.13 
Stock-based compensation expense(2)
  0.02   0.02   0.04   0.03 
             
Adjusted EBITDA per adjusted diluted share $0.09  $0.10  $0.15  $0.08 
             
                 
Diluted weighted average shares  9,817,370   9,506,904   9,847,348   9,460,911 
Includable incremental shares — adjusted EBITDA(3)
  12,715   19,336   17,951   19,336 
             
                 
Adjusted diluted shares $9,830,085  $9,526,240   9,865,299   9,480,247 
             
(1)Adjusted EBITDA as a percentage of GAAP revenues
(2)Per adjusted diluted shares
(3)The number of incremental shares that would be dilutive under profit assumption, only applicable under a GAAP net loss. If GAAP profit is earned in the current period, no additional incremental shares are assumed. If negative adjusted EBITDA is incurred, no additional incremental shares are assumed for adjusted diluted shares.

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Liquidity and Capital Resources
Traditionally, Streamline Health has funded its operations, working capital needs, and capital expenditures primarily from a combination of cash generated by operations, bank loans, and revolving lines of credit. Streamline Health’s liquidity is dependent upon numerous factors including: (i) the timing and amount of revenues and collection of contractual amounts from customers, (ii) amounts invested in research and development, and capital expenditures, and (iii) the level of operating expenses, all of which can vary significantly from quarter-to-quarter.
Streamline Health has no significant obligations for capital resources, consisting ofother than the $2,000,000$1,250,000 borrowed under its bank line of credit at July 31, 2010, and2011, the non-cancelable operating leases of approximately $1,776,000$1,441,000 payable over the next fivefour years, $365,000and $132,000 for a capital lease, and an economic development incentive from the City of Blue Ash, Ohio up to a maximum amount of $130,000.leases. Capital expenditures for property and equipment in 2010for fiscal 2011 are not expected to exceed $1,000,000.$1,500,000.
Net cash used forprovided by operations for the six monthsmonth period ended July 31, 2011 was $15,000, as compared to cash provided by operations$710,000, an increase of $733,000 inapproximately $725,000 from the prior year comparable period. In additionquarter. The increase was primarily due to thea $541,000 decrease in net loss incurred, the change in 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 athe $673,000 decrease in deferred revenues which reflects the revenue recognition of prepaid maintenance contracts during fiscal 2010,2011, net of any additional payments received in 2011; as well as a $790,000 decrease in accrued expenses, primarily payment on executive severance agreements, executive inducement incentives, fiscal 2010 along withannual bonus and commission payments; and was offset primarily by fiscal 2011 annual bonuses accrued, and severance agreements accrued during the timingfirst six months of any payments received.fiscal 2011.

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Net cash used in investing activities for the six month period ended July 31, 2011 was $1,573,000,$1,627,000, an improvementincrease of $806,000$54,000 from the prior comparable period.quarter. This decreaseincrease was primarily due to the decreaseincrease in capitalized software development costs, as awhich is the result of accessANYware 5.0certain projects reaching general releasetechnological feasibility for which development cost began being capitalized relating to the development of the Company’s core solutions and the expanded work flow module development. Increases in late 2009 which had significantcapitalized software development costs capitalized in the prior year.were partially offset by reduced purchases of capital assets.
The net cash provided by financing activities for the six month period ended July 31, 2011 was $91,000, a decrease of $1,053,000 which is primarily the net change of cash received fromon the line of credit of $50,000 for the six months ended July 31, 2011 as compared to a net change of $1,100,000 for the six months ended July 31, 2010. This was coupled with decrease in proceeds received from the employee stock purchase plan, and from thefor exercise of stock options.options, and payments on the capital lease obligation.
At July 31, 2010,2011, Streamline Health had cash on hand of $580,574,$578,000, and availabilitytotal eligible borrowings on the line of $46,000credit of approximately $1,790,000, or $540,000 in excess availability under the line of credit. Streamline Health believes that its present cash position, combined with cash generation currently anticipated from operations, the availability of the revolving credit facility, and possible access to new funding sources will be sufficient to meet anticipated cash requirements for the next twelve months. However, continued expansion of the Company will require additional resources. The Company may need to incur debt, obtain an additional infusion of capital, or a combination of both, depending on the extent of the expansion of the Company and future revenues and expenses. However, there can be no assurance Streamline Health will be able to do so. The Company is evaluating financing options available.available to the Company.

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Notwithstanding the current levels of revenues and expenses, for the foreseeable future, Streamline Health will need to continually assess its revenue prospects compared to its then current expenditure levels. If it does not appear likely that revenues will increase, it may be necessary to reduce operating expenses or raise cash through additional borrowings, the sale of assets, or other equity financing. Certain of these actions will require current lender approval. However, there can be no assurance Streamline Health will be successful in any of these efforts. If it is necessary to significantly reduce operating expenses, this could have an adverse effect on future operating performance.
To date, inflation has not had a material impact on Streamline Health’s revenues or expenses.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For quantitative and qualitative disclosures about market risk, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of the annual reportAnnual Report on Form 10-K for the fiscal year ended January 31, 2010.2011. The Company’s exposures to market risk have not changed materially since January 31, 2010.2011.

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Item 4T.4. CONTROLS AND PROCEDURES
Streamline Health maintains disclosure controls and procedures that are designed to ensure that there is reasonable assurance that the information required to be disclosed in Streamline Health’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to Streamline Health’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based on the definition of “disclosure controls and procedures” in Exchange Act Rules 13a-15(e) and 15d-15(e). In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of Streamline Health’s senior management, including the Chief Executive Officer and Interim Chief Financial Officer, of the effectiveness of the design and operation of Streamline Health’s disclosure controls and procedures to provide reasonable assurance of achieving the desired objectives of the disclosure controls and procedures. Based on that evaluation, Streamline Health’s management, including the Chief Executive Officer and Interim Chief Financial Officer, concluded that there is reasonable assurance that Streamline Health’s disclosure controls and procedures were effective as of the end of the period covered by this report and there have beenreport.
There were no material changes in Streamline Health’sthe Company’s internal control or in the other controls over financial reporting during the quarterthree months ended July 31, 20102011 that could materially affect,have affected or isare reasonably likely to materially affect the Company’s internal controls over financial reporting.

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Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Streamline Health is, from time to time, a party to various legal proceedings and claims, which arise, in the ordinary course of business. Streamline Health is not aware of any legal matters that will have a material adverse effect on Streamline Health’s consolidated results of operations or consolidated financial position.
Item 1A. RISK FACTORS
In addition to the other information set forth in this report, and the risk factors set forth below, you should carefully consider the risk factors discussed in Part I, “Item 1A, Risk Factors” in the Annual Report on Form 10-K for the fiscal year ended January 31, 2010.2011. The risk factors in the Annual Report have not materially changed since January 31, 2010,2011, but are not the only risks facing the Company. In addition, risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company, its financial condition and/or operating results.

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Item 3. DEFAULTS UPON SENIOR SECURITIES
The Company was not in default of its existing credit facility at July 31, 2010.2011.

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Item 6. EXHIBITS
(a) 
(a)Exhibits
 
3.1(a)3.1(a) Certificate of Incorporation of Streamline Health Solutions, Inc. (*)
 
 3.1(b)3.1(b) Certificate of Incorporation of Streamline Health Solutions, Inc., amendment No. 1 (*)
 
 3.2 Bylaws of Streamline Health Solutions, Inc. as amended and restated on July 22, 2010(*)
 
 1111.1 Computation of earnings (loss) per common shareshare**
 
 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a)13a -14(a) and Rule 15d-14(a)15d — 14(a) of the Securities Exchange Act, as AmendedAmended**
 
 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a)13a -14(a) and Rule 15d-14(a)15d — 14(a) of the Securities Exchange Act, as AmendedAmended**
 
 32.1 Certification of the Chief Executive Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 20022002**
 
 32.2 Certification of the Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 20022002**
(*) Incorporated herein by reference from, the Registrant’s SEC filings.
(See (See INDEX TO EXHIBITS)
(**)Included herein.

 

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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: September 9, 201013, 2011 By:  /s/ J. Brian PatsyRobert E. Watson   
  J. Brian PatsyRobert E. Watson  
  Chief Executive Officer  
   
DATE: September 9, 201013, 2011 By:  /s/ Donald E. Vick, Jr.Stephen H. Murdock   
  Donald E. Vick, Jr.Stephen H. Murdock  
  Interim Chief Financial Officer  

 

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INDEX TO EXHIBITS
     
Exhibit No. Description of Exhibit
     
 3.1(a) Certificate of Incorporation of Streamline Health Solutions, Inc. f/k/a/ LanVision Systems, Inc. Previously(Previously filed with the Commission and incorporated herein by reference from, the Registrant’s (LanVision System, Inc.) Registration Statement on Form S-1, File Number 333-01494, as filed with the Commission on April 15, 1996.)*
     
 3.1(b) Certificate of Incorporation of Streamline Health Solutions, Inc. f/k/a LanVision Systems, Inc., amendment No. 1 Previously1. (Previously filed with the Commission and incorporated herein by reference from the Registrant’s Form 10-Q, as filed with the Commission on September 8, 2006.)*
     
 3.2  Bylaws of Streamline Health Solutions, Inc. as amended and restated on July 22, 2010, and previously filed with the Commission and incorporated herein by reference from the Registrant’s Form 10-Q, as filed with the Commission on September 9, 2010.*
     
 1111.1  Statement Regarding Computation of Earnings (Loss) Per Common Share Earnings**
     
 31.1  Certification ofby Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)Section 302 of the Securities ExchangeSarbanes-Oxley Act as Amendedof 2002.**
     
 31.2  Certification ofby Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)Section 302 of the Securities ExchangeSarbanes-Oxley Act as Amendedof 2002.**
     
 32.1  Certification of theby Chief Executive Officer Pursuantpursuant to 18 U.S.C. Section 1350, as adopted pursuant to sectionSection 906 of the Sarbanes-Oxley Act of 20022002.**
     
 32.2  Certification of theby Chief Financial Officer Pursuantpursuant to 18 U.S.C. Section 1350, as adopted pursuant to sectionSection 906 of the Sarbanes-Oxley Act of 20022002.**
*Incorporated by reference herein as indicated
**Included herein

 

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