e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
|
|
|
(Mark One)
|
|
|
þ
|
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the fiscal year ended
January 31, 2011
|
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, OH
45242-4716
(Address of principal
executive offices) (Zip Code)
(513) 794-7100
(Registrants telephone
number, including area code)
Securities registered pursuant to Section 12
(b) of the Act:
Common Stock, $.01 par value
( Title of Class )
The NASDAQ Stock Market, Inc.
(Name of exchange on which
listed)
Securities registered pursuant to Section 12 (g) of
the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K,
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer or a non-accelerated
filer or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12h-2
of the Exchange Act. (Check one):
|
|
|
|
Large
accelerated
filer o
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Smaller
reporting
company þ
|
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the voting stock held by
nonaffiliates of the registrant, computed using the closing
price as reported by The NASDAQ Stock Market, Inc. for the
Registrants Common Stock on July 31, 2010, was
$10,285,778.
The number of shares outstanding of the Registrants Common
Stock, $.01 par value, as of April 13, 2011: 9,866,517.
DOCUMENTS
INCORPORATED BY REFERENCE
Certain portions of the Registrants Definitive Proxy
Statement for the Annual Meeting of Stockholders to be held on
May 25, 2011 are incorporated by reference into
Part III of this
Form 10-K
to the extent stated herein. Except with respect to information
specifically incorporated by reference in this
Form 10-K,
the Definitive Proxy Statement is not deemed to be filed as a
part hereof.
FORWARD-LOOKING
STATEMENTS
In addition to historical information contained herein, this
Annual Report on
Form 10-K
contains forward-looking statements relating to the
Companys 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 impact of competitive
products and pricing, product demand and market acceptance, new
product development, key strategic alliances with vendors that
resell the Company products, the ability of the Company to
control costs, availability of products produced from third
party vendors, the healthcare regulatory environment, potential
changes in legislation, regulation and government funding
affecting the healthcare industry, healthcare information
systems budgets, availability of healthcare information systems
trained personnel for implementation of new systems, as well as
maintenance of legacy systems, fluctuations in operating
results, effects of critical accounting policies and judgments,
changes in accounting policies or procedures as may be required
by the Financial Accountings Standards Board or other similar
entities, changes in economic, business and market conditions
impacting the healthcare industry, the markets in which the
Company operates and nationally, and the Companys ability
to maintain compliance with the terms of its credit facilities,
and other risk factors that might cause such differences
including those discussed herein, including, but not limited to,
discussions in the sections entitled Part I,
Item 1 Business, Item 1A Risk
Factors, Part II, Item 7 Managements
Discussion and Analysis of Financial Condition and Results of
Operations and Item 8 Financial Statements and
Supplemental Data. In addition, other written or oral
statements that constitute forward-looking statements may be
made by or on behalf of the Company. Readers are cautioned not
to place undue reliance on these forward-looking statements,
which reflect managements 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 the
Quarterly Reports on
Form 10-Q
and any Current Reports on
Form 8-K.
PART I
Company
Overview
Founded in 1989, Streamline Health Solutions, Inc.
(Streamline
Health®,
Streamline or the Company) is a supplier
of healthcare information technologies and services to
healthcare organizations. We are focused on developing and
licensing proprietary software solutions that increase
efficiency, and reduce the cost of care by integrating multiple
disparate systems, and improving the flow of information
essential to the complete Electronic Health Record (EHR) used
throughout the healthcare enterprise. The Company provides
integrated tools and technologies including document workflow,
document management,
e-forms,
connectivity, optical character recognition and business process
integration. The Companys systems provide healthcare
organizations with secure, convenient electronic access to many
forms of patient information from many locations, and enhance
larger existing transaction-centric hospital healthcare
information systems. 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 cost inefficiencies of traditional paper-based medical
records, and the ever-increasing cost of administering medical
care decrease the operating margins of healthcare organizations.
Streamline Health solutions integrate the customers
historical information systems with our document management and
workflow applications to increase efficiency, decrease cost, and
ultimately improve the timeliness and quality of information
used in patient care. The Companys document management
solutions provide access to a complete patient medical record,
including the structured data, such as laboratory results; and
related unstructured data, such as a doctors hand written
notes, consent forms, and outside correspondence. To complement
and enhance our document management solutions, the
Companys workflow-based services offer solutions to
inefficient and labor-intensive healthcare
1
business processes throughout the revenue cycle, such as chart
coding, abstracting and completion, remote physician referral
order processing, pre-admission registration scanning and
signature capture, financial screening, preoperative processing,
Medicare/Medicaid audit, private-payer audit, mitigation
processing, secondary billing services, explanation of benefits
processing, release of information processing, human resource
administration and supply chain management.
Based upon Streamline Healths experience in installing its
systems, a typical 500 bed hospital can produce in excess of
500,000 pages of new patient information each month. Even with
computerized admission, billing, laboratory and radiology
systems, individual physician document retrieval requests can be
as high as 100 documents per physician per day. The volume of
medical images such as digitized slides, videos and photographs
in the patient record are expanding as well. For many customers
space is at a premium. The adoption of the Companys
solutions can provide the ability to re-purpose the space
traditionally used for warehousing paper medical records, into
revenue generating patient care space. Thus, the ability to
store and retrieve documents electronically, rather than storing
voluminous paper records, decreases cost, increases revenue, and
provides access on a timely basis. These are critical
functionality features and benefits that the Companys
products provide to customers.
The Companys software solutions are delivered either by
purchased perpetual license which is installed locally in the
customers data center; or by subscription and accessed on
our company-hosted software systems through a secured
connection, which is a delivery method commonly referred to as
software-as-a-service (SaaS) or cloud computing. The hosting
center provides Streamline Healths complete suite of
document management and workflow products, which customers can
access and securely transmit data over a dedicated data
communications line or virtual private network (VPN) via the
internet. Streamline Health hosting services enable improved
security, and accessibility to patient records at significant
cost savings; with minimal up-front capital investment,
maintenance, and support costs. In addition, the healthcare
provider need not have knowledge of, expertise in, or control
over the technology infrastructure in the hosting center that
supports them. Hosted delivery systems allow customers to
realize the benefits of our systems with an accelerated return
on investment, and less economic risk.
The Companys success in providing valuable products to our
customers that improve the flow of essential information and
operational efficiency throughout the healthcare enterprise,
have led to lower cost of care and significant return on the
customers investment. These successes have earned us
customers that are among the most prestigious healthcare
providers in the world including: UC Health (University of
Cincinnati), Bronx Lebanon Hospital Center, University of
California San Francisco, The Childrens National
Medical Center in Washington, DC, Albert Einstein Healthcare
Network, Beth Israel Medical Center, New York Presbyterian
Hospital, and Memorial Sloan-Kettering Cancer Center. In Canada
we service Centre hospitalier de lUniversité de
Montréal, McGill University Health Centre, and
LAgence de la santé et des sociaux de Montreal, all
via our distribution partner Telus Health.
The Company operates primarily in one segment as a provider of
health information technology solutions that improve healthcare
processes and information flows within a healthcare facility.
Copies of documents filed by Streamline Health Solutions, Inc.
with the Securities and Exchange Commission, including annual
reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
etc., and all amendments to those reports, if any, can be found
at the web site www.streamlinehealth.net as soon as
practicable after such material is electronically filed with, or
furnished to, the Securities and Exchange Commission. Copies can
be downloaded free of charge from the Streamline Health web site
or directly from the Securities and Exchange Commission web
site,
http://www.sec.gov/.
Also, copies of Streamline Healths annual report on
Form 10-K
will be made available, free of charge, upon written request to
the Company. The Companys corporate office address is
10200 Alliance Road, Suite 200, Cincinnati, Ohio 45242.
All references to a fiscal year refer to the fiscal year
commencing February 1 in that calendar year and ending on
January 31 of the following year.
Products
Streamline Healths systems enable medical and
administrative personnel to more efficiently capture, store,
manage, route, retrieve and process vast amounts of clinical,
financial, patient and other information. Applications
2
within these systems fulfill the administrative and regulatory
needs of the Health Information Management, Patient Financial
Services, Administration and other hospital departments. These
systems have been specifically designed to integrate with any
Clinical Information System through various means, including the
proprietary software integration tool, STRM-IT. For example, the
Company has integrated its solutions with selected systems from
Telus Health (Oacis Electronic Medical Record), Siemens Medical
Solutions USA Inc., Cerner Corporation, Eclipsys Corporation
(merged with Allscripts Healthcare Solutions, Inc. in 2010),
Epic Systems, Lawson Software, and GE Healthcare
applications; thus enabling customers to use Streamline Health
solutions without the expense of replacing entire software
systems to gain the software functionality. By offering
electronic access to all the patient information components of
the medical record, this integration completes one of the most
difficult tasks necessary to create a complete Electronic Health
Record. Streamline Healths systems deliver enterprise-wide
access to fully updated patient information, which historically
was maintained on a variety of media, including paper, magnetic
disk, optical disk, and microfilm.
Streamline Healths health information management, patient
financial services, and administrative workflow solutions
provide financial, administrative, and clinical benefits to the
healthcare provider and facilitate more effective patient care.
These benefits include:
|
|
|
|
|
Easy to navigate, real-time computerized interfaces that are
physician-oriented and can be used at the point of patient care
|
|
|
|
Secured access to data under HIPAA standards to protect
patients healthcare information
|
|
|
|
Enterprise-wide access to patient lifetime medical records,
which assist in making informed clinical and financial decisions
|
|
|
|
Reduced costs for administrative personnel due to increased
workflow efficiency, as documents can be scanned, indexed, and
routed within an organization to all users who need to process
that information simultaneously, or in sequence as required
|
|
|
|
Increased productivity through the elimination of file
contention by providing multiple users simultaneous access to
patient medical records
|
|
|
|
Reduced costs and improved care through the reduction of
unnecessary testing and admissions
|
|
|
|
Improved cash flow through accelerated account receivable
collections and reductions in technical denials
(which occur when a third-party payer refuses payment because of
the providers inability to substantiate billing claims due
to loss of portions or all of the patient record)
|
|
|
|
Expedited treatment decisions, and fewer redundant tests as a
result of timely access to complete information
|
|
|
|
Fewer medical record errors by minimizing misfiled, lost and
improperly completed records; and
|
|
|
|
Increased security of patient information through improved
controls on access to confidential data and the creation of
audit trails that identify the persons who accessed or even
tried to access such information.
|
Streamline Healths systems employ an open architecture
that leverages enterprise technologies from Microsoft, Oracle
and Sun Microsystems, and are designed to work within a
healthcare enterprise. These systems include user interfaces
designed specifically by Streamline Health for physicians, and
other medical and administrative personnel in hospitals and
integrated healthcare networks. Streamline Healths health
information management workflow solutions incorporate advanced
features, including workflow and security features, which allow
customers to restrict direct access to confidential patient
information, secure Protected Health Information from
unauthorized indirect access and have audit trail features.
Streamline Health has developed innovative application tool sets
to enable users of existing Hospital Information System
applications to have a common user interface on a universal
workstation. Streamline Health has also developed its own
document and workflow management middleware to efficiently
provide the object-oriented business processes common to all of
its applications, such as scanning/indexing, faxing/printing,
data archiving migration, security and auditing. Through its
application software, document management middleware, and its
workflow, image and web-enabling tools, Streamline Health allows
the seamless merging of medical records
3
department information and Patient Financial Services department
back office functionality with existing clinical,
billing and administrative information systems at the desktop.
accessANYwaretm
Streamline Healths core technology is a document
management repository that provides enterprise access to a
patients document-based medical and financial records to
better coordinate patient care. The accessANYware family of
solutions work complementary to, and can be seamlessly
integrated with existing transaction-centric clinical, financial
and management information systems, allowing healthcare
providers to aggressively move toward a true EHR. It allows
authorized users to perform document searching, retrieval,
viewing, processing, printing and faxing, as well as report
generation all from a single login. It also provides
access to images such as digitized slides, videos and
photographs. In addition, it provides the ability to store and
retrieve document images of voluminous paper records on a timely
basis at the desktop. By streamlining their process with
accessANYware, healthcare organizations gain operational
efficiencies that result in a positive impact on the bottom line.
The Companys fifth-generation accessANYware architecture,
released in fiscal 2009, includes 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 as part of Streamline
Healths agreements with customers in Canada. Development
efforts continue on accessANYware releases 5.1 and later for
introduction to U.S. based customers in fiscal 2011. 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.x products.
Major improvements within the fifth generation software:
|
|
|
|
|
STRM-IT and accessANYware are now one product
|
|
|
|
Within the one application many modules may be added on to fit
customer needs, including selected functionality and workflows
|
|
|
|
Migration of platform from Java to Microsoft.NET
|
|
|
|
Patient worklist divided into filtering section and document grid
|
|
|
|
Role-based, LDAP compliant security function built in, makes for
easier administration
|
|
|
|
Microsoft SQL Server Capable (Future)
|
Benefits of the new architecture:
|
|
|
|
|
Cutting-edge service oriented architecture
|
|
|
|
Enhanced database design better enforces database table
relationships and constraints, prevents orphan records
|
|
|
|
Multi-entity, multi-timezone, and
multi-language
functionality
|
|
|
|
Provides for a higher level of integration with 3rd party
applications
|
|
|
|
Customizable user interfaces, sorts, grouping, filtering, and
workflow creation
|
|
|
|
Vastly improved product stability, which allows more
cost-effective support & troubleshooting
|
|
|
|
Platform enables future expansion and easier integration with
customers existing systems
|
|
|
|
Shorter testing cycles
|
|
|
|
Faster
time-to-market
|
|
|
|
Simplified installation
|
4
The accessANYware family of products includes:
|
|
|
|
|
accessANYware HIM is an enterprise wide,
HIPAA and HITECH secure application that provides hospital
organizations the ability to electronically store, search and
retrieve medical records from any location within the facility,
physician offices, off-site clinics and even from home. In
addition, accessANYware HIM provides a complete
chart deficiency management system that includes analysis,
electronic signature and management reports all from
a single login. accessANYware HIM allows the user to
securely view the entire medical record from a visit view or a
category-based longitudinal view of historical patient
information.
|
|
|
|
accessANYware PFS is a HIPAA and HITECH
secure application that allows any department of a healthcare
organization the ability to store, retrieve and process
document-centric information using a site-defined electronic
folder hierarchy with a user-friendly interface.
accessANYware PFS provides document management and
workflow capabilities for a hospital organizations
enterprise-wide departmental needs, such as Patient Financial
Services, Business Office, Human Resources, Materials
Management, and virtually any other department that has document
intensive storage, retrieval and processing needs.
|
|
|
|
Streamline Health Integration Tools
STRM-ITtm
supports powerful image-enabling and workflow technology that
allows healthcare users to immediately and simultaneously access
any patient information, including multimedia and paper-based
information, through their existing third-party clinical, HR
administrative or billing applications. STRM-IT also supports
direct, secure access to the entire patient chart and physician
inbox via integration. As a result, any application across the
entire enterprise can be image-enabled, including the Healthcare
Information Systems, Patient Billing Systems, Clinical Data
Repositories and others. When the Clinical Data Repository is
image-enabled, users can access any piece of information on the
same workstation and from the same screen display, including the
point of patient care. This means users can view traditional
electronic data and images simultaneously on the same screen
without signing in and out of multiple applications.
|
FolderView
FolderView complements the flagship solution, accessANYware, by
providing capture/indexing of non-patient centric documents,
storage in a historical repository, document search/viewing,
reporting, auditing and optional modules for Patient Financial
Services or Administrative Services applications. FolderView
provides a complete departmental document management solution
that addresses the content management needs of the full
organization in one application. Each department can create a
customized structure based on specific requirements, and
integrate department specific workflows to enhance the solution.
Significant features are multiple file type support, audio/video
support, version control features, email and fax integration,
and paperless markup capabilities.
Workflow
Solutions
The Companys departmental workflow-based solutions and
services offer solutions to specific healthcare business
processes within Health Information Management (HIM) and the
revenue cycle. These solutions offer value to all of the
constituents in the healthcare delivery process by enabling them
to simultaneously access and utilize Streamline Healths
advanced workflow applications to process information, on a
real-time basis from virtually any location, including the
physicians desktop, using web-based technology. Streamline
Healths solutions integrate its own proprietary document
management platform, application workflow modules, and image and
web-enabling tools that allow for the seamless merger of
back office functionality with existing Hospital
Information Systems at the desktop. Customers can purchase or
host the FolderView workflow, departmental workflows, or can
consult the Company to design custom workflows based on their
needs.
The Streamline Health departmental workflow solutions are:
|
|
|
|
|
Referral Order Workflow allows hospitals the ability to
electronically manage their inbound physician referral orders
through a workflow process from receipt through
pre-registration, and ultimately indexing into a central
electronic repository, accessANYware.
|
5
|
|
|
|
|
Chart Completion Workflow is a chart deficiency
management workflow that provides management reporting along
with providing analysts and clinicians the ability to remotely
analyze, electronically sign and complete deficient records. In
addition to a single login, Chart Completion Workflow delivers a
single user interface and integrated database. Therefore, from a
single system login, users with appropriate security have the
ability to search and retrieve information regarding patients
and cases (for chart analysis), view, print and fax patient
documents, as well as analyze or complete deficient documents.
The functions presented to the user vary with the users
security. For example, if the user is a clinician, they are
presented with an inbox function that displays a list of
incomplete charts (awaiting completion) and a list of
linked patients assigned to them. The clinician then
has the option to complete deficient charts or retrieve patient
information via searching or by clicking on the
linked patients within their inbox. This access may
occur from any workstation within the facility, the
physicians office, or some other remote site. With proper
security, the user is able to view, print and fax patient
information.
|
|
|
|
Coding Workflow provides workflow automation of the
coding and abstracting process by allowing hospital personnel to
electronically access documents to be coded and abstracted from
remote locations, including the employees home. It may
also be integrated with third-party encoding or abstracting
software, avoiding redundant data entry. Due to an acute
shortage of available coding personnel, there currently exists a
great demand for solutions to attract and retain qualified
coders and to make the coding process more efficient.
|
|
|
|
Release of Information Workflow fulfills internal and
external requests for patient information and allows for
automatic invoicing capability. It also provides the ability to
electronically search for, print, mail or fax information to
third parties that request copies of patient records.
|
|
|
|
Financial Screening Workflow manages the rising number of
self-pay accounts that healthcare providers are experiencing by
forwarding the financial documents at the time of receipt to
insurance specialists to expedite charity care program analysis.
|
|
|
|
Pre-Operative Workflow manages patient documents and
reduces cancelled/rescheduled surgeries by proactively providing
required document sets for the scheduled surgery facilitating
those that are missing.
|
|
|
|
AuditACE helps reduce
and/or
eliminate default states (absent documents, missed document
deadlines) and improve efficiency and productivity in managing
the federal governments Recovery Audit Contractor program
to minimize Medicare fraud and abuse.
|
Health
Information Management Suites
Streamline Health provides the opportunity to bundle solutions
to provide value offerings to customers. Customers can purchase
these bundled solutions based on their needs.
|
|
|
|
|
HIM Suite includes accessANYware Patient
Folders, Chart Completion Workflow, Release of Information
Workflow, Coding Workflow and Chart Tracking Workflow.
|
|
|
|
The PFS Suite includes accessANYware Non
Patient Folders, and a choice of three among the following
workflows: Referral Order Workflow, Pre-Operative Workflow,
Financial Screening Workflow, and administrative workflows.
|
|
|
|
The Enterprise Suite is a full offering of Streamline
Health solutions including the HIM Suite, the PFS Suite, and the
Streamline Health Integration Tools (STRM-IT).
|
Professional
Services
Streamline Health provides a full complement of professional
services to implement and enhance its software applications.
Streamline Health believes that high quality consulting and
professional implementation services are important to attracting
new customers and maintaining existing customer satisfaction.
These services include implementation and training, project
management, business process optimization, and custom software
development. The implementation and training services include
equipment and software installation, system integration and
comprehensive training. The project management services include
needs and cost/benefit analysis, hardware and software
configuration and business process management.
6
Competition
Several companies historically have dominated the Clinical
Information System software market and several of these
companies have either acquired, developed or are developing
their own document management and workflow technologies. The
industry is undergoing consolidation and realignment as
companies position themselves to compete more effectively.
Strategic alliances between vendors offering health information
management workflow and document management technologies and
vendors of other healthcare systems are increasing. Barriers to
entry to this market include technological and application
sophistication, the ability to offer a proven product, a
well-established customer base and distribution channels, brand
recognition, the ability to operate on a variety of operating
systems and hardware platforms, the ability to integrate with
pre-existing systems and capital for sustained development and
marketing activities. Streamline Health believes that these
barriers taken together represent a moderate to high level
barrier to entry. Foreign competition has not been a significant
factor in the market, to date.
Streamline Health has many competitors including Clinical
Information System vendors that are larger and more established
and have substantially more resources than Streamline Health. In
addition, information and document management companies serving
other industries may enter the market. Suppliers and companies
with whom Streamline Health may establish strategic alliances
may also compete with Streamline Health. Such companies and
vendors may either individually, or by forming alliances
excluding Streamline Health, place bids for large agreements in
competition with Streamline Health. A decision on the part of
any of these competitors to focus additional resources in the
image-enabling, workflow, and other markets addressed by
Streamline Health could have a material adverse effect on
Streamline Health.
Streamline Health believes that the principal competitive
factors in its market are customer recommendations and
references, company reputation, system reliability, system
features and functionality (including ease of use),
technological advancements, customer service and support,
breadth and quality of the systems, the potential for
enhancements and future compatible products, the effectiveness
of marketing and sales efforts, price, and the size and
perceived financial stability of the vendor. In addition,
Streamline Health believes that the speed with which companies
in its market can anticipate the evolving healthcare industry
structure and identify unmet needs are important competitive
factors. There can be no assurance that Streamline Health will
be able to compete successfully in the future against existing
or potential competitors.
Streamline Health believes that its principal competitors are:
Cerner Corporation; Eclipsys Corporation; Hyland Software, Inc.;
McKesson Inc.; MedPlus, Inc. (a subsidiary of Quest Diagnostics
Incorporated); Perceptive Vision, Inc. (a subsidiary of Lexmark
International, Inc.); Siemens Medical Solutions USA, Inc. (a
subsidiary of Siemens AG); and SoftMed Systems, Inc., (a unit of
3M).
Healthcare
Industry Trends impacting Streamline Health
Rapid
Technological Change and Evolving Market
The market for Streamline Healths systems and services is
characterized by rapidly changing technologies, regulatory
requirements, evolving industry standards and new product
introductions and enhancements that may render existing
solutions obsolete or less competitive. As a result, Streamline
Healths position in the healthcare information technology
market could change rapidly due to unforeseen changes in the
features and functions of competing products, as well as the
pricing models for such products. Streamline Healths
future success will depend, in part, upon Streamline
Healths ability to enhance its existing systems and
services and to develop and introduce new systems and services
to meet changing requirements. Streamline Health believes the
demand for its health information document management and
workflow solutions, which can supply document management
capabilities to complement the data-centric elements of an EHR,
will increase in future years.
Changes
and Consolidation in the Healthcare Industry
Streamline Health derives substantially all of its revenues from
providing hosted services, the licensing of software, providing
professional services and maintenance services within the
healthcare industry. Accordingly, the success of Streamline
Health is dependent upon the regulatory and economic conditions
in the healthcare industry.
7
Many healthcare providers are consolidating to establish
integrated healthcare delivery networks to take advantage of
economies of scale, greater marketing power and greater leverage
in negotiating with vendors who supply the industry with the
goods and services they require. The impact of such
consolidations, Streamline Health believes, will benefit
Streamline Health as more healthcare organizations investigate
methods to streamline operations, including outsourcing non-core
services to reduce costs and improve the quality of patient care
through the use of information technology, especially in the
paper intensive areas of Patient Medical Records, Patient
Financial Services, and Administrative Services.
The
U.S. Healthcare System, U.S. Government Policy and Legislative
Initiatives
The mixed public-private healthcare system in the United States
is the most expensive in the world, with healthcare costing more
per person than in any other nation. Current spending on
healthcare in the United States is estimated to be in excess of
$2.5 trillion dollars. According to the Department of Health and
Human Services most recent statistics, a greater portion of
gross domestic product (17.3%) is spent on healthcare in the
U.S. than in any other major industrialized country in the
world. The U.S. Department of Health and Human Services has
projected that health care as a percentage of GDP to be 19.3% or
$4.5 trillion dollars by 2019. It is widely accepted that the
current national system does not deliver an equivalent value for
the overall dollars spent. Streamline Health believes its
solutions can reduce healthcare costs for its customers, as has
been demonstrated in return on investment studies performed by a
number of customers which resulted in attractive payback periods.
In response to this projected growth in healthcare spending, the
healthcare industry is undergoing significant change as
regulatory measures imposed by governmental and private payers
have created significant pressures on healthcare providers to
control costs while improving the quality of patient care. At
the same time, the healthcare delivery system is experiencing a
shift from a highly fragmented group of non-allied healthcare
providers to integrated healthcare networks, which combine all
of the services, products and infrastructure necessary to
address the needs of consumers. Healthcare providers are seeking
to cut costs, increase productivity and revenue, while enhancing
the quality of patient care through improved access to
information throughout the entire hospital or integrated
healthcare network. The increased use of health information
technology can aid in creating a more efficient system for all
stakeholders.
The American Recovery and Reinvestment Act of 2009
(Stimulus Bill or ARRA) was enacted by
the United States Congress and signed into law by President
Barack Obama on February 17, 2009. ARRA allocated
approximately $19 billion for health information technology
investment to reduce direct spending for health benefits and
improve overall efficiency and safety. The provision of the
legislation that addresses health information technology
specifically is known as the HITECH Act. The Company has not yet
been able to measure any direct benefit from ARRA since its
passage, and cannot be certain that we will be a direct
financial beneficiary of any of its provisions. However,
significant funds appear to remain unallocated, and full
implementation remains in its infancy. Some highlights of the
HITECH Act that may directly or indirectly impact Streamline
Health are noted below:
|
|
|
|
|
Intends to modernize U.S. healthcare system with health
information technology (HIT) investments to reduce cost and
improve quality of patient care, focusing on preventable errors
and inefficient paper billing systems
|
|
|
|
Goal of full deployment of EHR by 2014
|
|
|
|
$19B investment in HITECH Provision includes $40 thousand per
physician in EHR adoption incentives beginning in 2011 payable
through 2016
|
|
|
|
HIT extension programs for regional adoption via Regional Health
Information Organizations (RHIO)
|
|
|
|
Funds earmarked to states to promote interoperable EHRs
|
|
|
|
Education programs to train clinicians in EHRs
|
|
|
|
Dramatically increase the number of HIT professionals (current
shortage to meet aggressive EHR adoption plans)
|
8
|
|
|
|
|
Create HIT grant and loan programs
|
|
|
|
Accelerate construction of National Health Information Network
(NHIN)
|
Published articles have proved it difficult to estimate the
number of physician offices using electronic medical records.
Surveys have reported as few as 15% of physicians using EHR and
as high as 50%. However, the process of developing
meaningful use as defined by HITECH, can depend on
how the effectiveness of the system in place is measured. A
Center for Disease Control (CDC) survey of doctors with EHR
systems reported that 10% reported having a
fully-functional system. Despite the enormous
investments in electronic medical record technology to date, the
majority of the patient records remain paper-based.
Streamline Health believes that the HIPAA (Health Insurance
Portability and Accountability Act) regulation are an additional
impetus for healthcare to embrace Streamline Health solutions as
a means of ensuring compliance with federal regulations.
Additionally, the healthcare industry is being strongly
encouraged by many professional medical organizations to make
greater use of information technology.
In 2007 the U.S. government required providers to move from
the ICD-9 (International Statistical Classification of Diseases
and Related Health Problems) to the significantly more complex
ICD-10 scheme. This change, along with 745 new diagnosis groups,
increases the need for more efficient and accurate medical
coding to reduce reimbursement risk.
The Patient Protection and Affordable Care Act, and amended by
the Health Care and Education and Reconciliation Act of 2010
(collectively the Affordable Care Act) was signed
into law by President Obama on March 23, 2010. The
Affordable Care Act places substantial emphasis on the expansion
health care coverage to a significant amount of the currently
uninsured, and introduces a significant amount of new rules and
regulations affecting the complete continuum of care. Provisions
within the bill take effect at various dates from 2010 through
2014. Specifically, the implementation of the provisions in the
Affordable Care Act may create new requirements for healthcare
information technology, such as those offered by Streamline
Health, such as audit compliance to combat waste, fraud and
abuse. The Affordable Care Act, as passed, remains under
congressional debate, and has had several legal suits brought
against it in the Federal courts, challenging its
constitutionality. The Company has not yet been able to measure
any direct benefit from the Affordable Care Act since its
passage, and cannot be certain that we will be a direct
financial beneficiary of any of its provisions in the future.
Contracts
Overview
To supplement its direct sales force, the Company has
remarketing agreements with large healthcare industry partners.
A summary of these remarketing agreements are detailed below:
In 2002, Streamline Health entered into a five year Remarketing
Agreement with IDX Information Systems Corporation, which was
subsequently acquired by GE Healthcare, a unit of the General
Electric Company in January 2006. Under the terms of the
Remarketing Agreement, IDX/GE was granted a non-exclusive
worldwide license to distribute all Streamline Health document
workflow and document management software including
accessANYware, Coding Workflow, and hosting services to its
customers and prospective customers, as defined in the
Remarketing Agreement. The Agreement has an automatic annual
renewal provision and, after the initial five year term, which
ended January 30, 2007, can be cancelled by IDX/GE upon
90 days written notice to the Company. This automatic
annual renewal provision now extends the agreement through
January 30, 2012.
During the fourth quarter of fiscal 2010, Streamline Health
learned that GE Healthcare was shifting its organizational focus
to upgrading its current clients to GEs latest version
software to assist its customers in meeting meaningful use
criteria under the HITECH act. Streamline Healths
remarketing agreement with GE Healthcare remains in effect,
however the impact on Streamline Health will most likely be a
decline in net new sales opportunities from GE Healthcare.
Streamline Health believes that the opportunity to sell into GE
Healthcares current client base that does not have
Streamline Health products remains, as well as the continuing
ability to sell additional products and services into the
existing jointly owed client base through the remarketing
agreement. Streamline Health expects all signed contracts or
purchase orders with GE Healthcare to purchase proprietary
software, application hosting services, professional services,
and maintenance, to be fully honored.
9
In December 2007, Streamline Health entered into an agreement
with Telus Health (formerly Emergis, Inc.), a large
international telecommunications corporation based in Canada, in
which Telus Health is integrating Streamline Healths
accessANYware document management repository and document
workflow applications into its Oacis (Open Architecture Clinical
Information System) Electronic Health Record solution.
In June 2010, Streamline Health announced a referral marketing
agreement with MRO Corp. of King of Prussia, PA, a leading
provider of disclosure management applications and services for
healthcare organizations. Through the agreement, MRO will refer
Streamline Health document workflow and management solutions to
its hospital and healthcare customers seeking to bridge the
productivity gap between paper-based processes and
transaction-based healthcare information systems. Streamline
Health will refer MRO to its hospital and healthcare customers
looking for disclosure management applications and services,
such as ROI
Onlinetm.
Overall, this agreement expands penetration into new and
existing markets for both organizations, and offers healthcare
providers an opportunity to advance their facilitys
technology and processes with integrated solutions.
In February 2010, Streamline Health entered into a hosted
services agreement to provide its Audit Integrity Manager
Workflow solution, along with the option to buy additional
custom workflows as needed, to Childrens National Medical
Center in Washington D.C. The solution expedites its third-party
reimbursement and cash flow processes, and aid its compliance
processes.
In April 2010, Streamline Health entered into a hosted services
agreement with East Orange General Hospital in East Orange, NJ,
to implement Streamline Health document workflow solutions
integrated with GE
Centricity®
Enterprise clinical information solution. Through this
integrated solution, East Orange General Hospital looks to
enhance their health information management processes, boost
productivity and ultimately, improve patient care.
In September 2010, Streamline Health announced that Saint
Francis Hospital and Medical Center in Hartford, CT purchased a
license to implement Streamline Healths accessANYware
document workflow solutions to integrate with GE
Healthcares
Centricity®.
Through this integrated solution, Saint Francis Hospital and
Medical Center looks to increase productivity, improve
processes, and enhance the flow of information across the
healthcare enterprise, helping to enable a higher quality of
patient care. Saint Francis plans to deploy Streamline
Healths enterprise software license in their clinical,
patient financial services and administrative areas, while
installing the solution at their local data center facility.
Saint Francis Hospital and Medical Center is the third largest
hospital in Connecticut and the largest Catholic hospital in New
England.
In November 2010 we entered into a contract with a Texas based
hospital system for BPM services to implement Referral Order
Workflow (ROW). This solution will provide an automated means of
capturing and referring physician orders while routing to the
hospitals scheduling office, and linking the orders to the
patients medical record within Streamline Healths
enterprise document management repository.
In December 2010, Streamline Health announced that we have
entered into an agreement with a leading Canadian healthcare
system that will integrate Streamline Healths document
workflow solutions into its existing enterprise clinical
information system at an additional healthcare facility to
enable complete real-time electronic patient medical records.
Also in December 2010, Streamline Health Solutions announced
that one of the largest faith-based, nonprofit healthcare
delivery systems in the United States, will implement Streamline
Healths Suite of Health Information Management document
workflow solutions at one of its affiliate acute-care hospitals
that has served Texas for more than 20 years. The hospital
will integrate Streamline Health solutions into its
EpicCare®
medical record management system to enhance business processes,
improving employee productivity, and promoting improved patient
outcomes.
In fiscal 2010, the Company had revenues of $1,778,000 or 10% of
total revenues from Texas Health Resources, and $5,873,000 or
33% from GE Healthcare (remarketing partner). No other customers
contributed more than 10% of total revenues in fiscal 2010.
10
Signed
Agreements Backlog
Streamline Health enters into master agreements with its
customers that specify the scope of the system to be installed
and/or
services to be provided by Streamline Health, as well as the
agreed upon aggregate price and the timetable for
implementation. The master agreement typically provides that
Streamline Health will deliver the system in phases, thereby
allowing the customer flexibility in the timing of its receipt
of systems and to make adjustments that may arise based upon
changes in technology or changes in customer needs. The master
agreement also allows the customer to request additional
components as the installation progresses, which additions are
then separately negotiated as to price and terms. Historically,
customers have ultimately purchased systems and services in
addition to those originally contemplated by the master
agreement, although there can be no assurance that this trend
will continue in the future.
At January 31, 2011, Streamline Health has master
agreements and purchase orders from remarketing partners for
systems and related services (excluding support and maintenance,
and transaction-based revenues for the application-hosting
services) that have not been delivered, and or installed. These
systems and services are expected to be delivered over the next
several years. In addition, the Companys master agreements
also generally provide for a limited initial maintenance period
and require the customer to subscribe for maintenance and
support services on a monthly, quarterly, or annual basis.
Maintenance and support revenues are expected to increase in
future periods.
The commencement of revenue recognition varies depending on the
size and complexity of the system, the implementation schedule
requested by the customer and usage by customers of the
application-hosting services. Therefore, it is difficult for the
Company to accurately predict the revenue it expects to achieve
in any particular period. The Companys 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 Healths business,
financial condition, and results of operations. The Company does
not have a history of contract cancellations; however delays are
sometimes experienced in the course of the contract and are
accounted for accordingly.
See also ITEM 7, MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Backlog, for an explanation of the current year backlog compared
with the prior year backlog.
License
fees
The Company incorporates software licensed from various vendors
into its proprietary software. In addition, third-party,
stand-alone software is required to operate Streamline
Healths proprietary software. The Company licenses these
software products, and pays the required license fees when such
software is delivered to customers.
Employees
As of January 31, 2011, Streamline Health had
92 full-time employees, a net decrease of 5 during the
fiscal year. The Company utilizes independent contractors to
supplement its staff, as needed. None of the Companys
employees are represented by a labor union or subject to a
collective bargaining agreement. The Company has never
experienced a work stoppage and believes that its employee
relations are good.
Key
Personnel
Streamline Healths success depends, to a significant
degree, on its management, sales and technical personnel.
Streamline Health must recruit, motivate and retain highly
skilled managers, sales force, consulting and technical
personnel, including application programmers, database
specialists, consultants and system architects skilled in the
technical environments in which Streamline Healths systems
operate. Competition for such technical expertise is intense.
The failure to attract and retain qualified personnel could have
a material adverse impact on the Company.
11
Regulatory
Matters
The U.S. Department of Health and Human Services (HHS)
asked the Institute of Medicine of the National Academy of
Sciences to design a standardized model of an electronic health
record, in a move that may help spur nationwide acceptance of
EHRs. The impact of such a change, if implemented by HHS,
on current Streamline Health systems and services is unknown at
this time. However, Streamline Health believes that its systems
are sufficiently flexible to accommodate changing regulatory
requirements. Patient privacy is of utmost concern, as evidenced
by current HIPAA regulations. Streamline Healths systems
enable a healthcare organization to lock down Protected Health
Information, as defined by HIPAA, by preventing unauthorized
access and providing audit trails for every occurrence of access
to PHI.
Regulations
Relating to Confidentiality
Federal and state laws regulate the confidentiality of patient
records and the circumstances under which such records may be
released. These regulations govern both the disclosure and use
of Protected Health Information (PHI). Regulations governing
electronic health data privacy are continuing to evolve. The
Health Insurance Portability and Accountability Act (HIPAA) of
1996, enacted August 22, 1996, is designed to improve the
efficiency of healthcare by standardizing the interchange of
specified electronic data, and to protect the security and
confidentiality of PHI. The legislation requires that covered
entities comply with national standards for certain types of
electronic health information transactions and the data elements
used in such transactions, and adopt policies and practices to
ensure the integrity and confidentiality of PHI.
Regulations adopted pursuant to HIPAA include rules addressing
several areas. The Privacy Rule also extended the scope of
enforcement to PHI residing on non-electronic media, such as
paper, as well as to email, oral and written communications.
Streamline Health cannot predict the potential impact of new or
revised regulations that have not yet been released or made
final, or any other regulations that might be adopted. Congress
may adopt legislation that may change, override, conflict with,
or preempt the currently issued regulations. Additionally,
legislation governing the dissemination of patient health
information is also from time to time proposed and debated at
the state level. These laws or regulations, when adopted, could
restrict the ability of customers to obtain, use, or disseminate
PHI. Streamline Health believes that the features and
architecture of Streamline Healths systems are such that
it currently supports or should be able to make the necessary
modifications to its products, if required, to ensure support of
the HIPAA regulations, and other legislation or regulations.
However, if the regulations are unduly restrictive, this could
cause delays in the delivery of new versions of software and
adversely affect the licensing of Streamline Healths
software. Overall, Streamline Health believes the HIPAA
regulations will continue to stimulate healthcare organizations
to purchase computer-based EHR systems that automate the
collection, use, and disclosure of PHI, while maintaining
appropriate security and audit controls over the information.
However, there can be no assurance that an increase in the
purchase of new systems or additional use of Streamline Health
software and services will occur. The Company has not yet been
able to measure any direct benefit from HIPAA regulations, and
cannot be certain that we will be a direct financial beneficiary
of any of its provisions in the future.
Limited
Protection of Proprietary Technology
The success of Streamline Health depends on the protection of
its intellectual property rights relating to its proprietary
technology. Streamline Health relies on a combination of
confidentiality, nondisclosure, license, employment agreements,
trade secret laws, copyrights, and restrictions on the
disclosure of its intellectual property. Notwithstanding these
precautions, others may copy, reverse engineer or design
independently, technology similar to Streamline Healths
products. It may be necessary to litigate to enforce or defend
Streamline Healths proprietary technology or to determine
the validity of the intellectual property rights of others.
Streamline Health could also be required to defend itself
against claims made by third parties for intellectual property
right infringement. Any litigation, could be successful or
unsuccessful, may result in substantial cost and require
significant attention by management and technical personnel.
12
See also, PART I, ITEM 1, BUSINESS.
The following is a list of risk factors that affect the Company.
They are not listed in any particular order or relative
importance and no inferences should be given to the listing
order. In addition, risks and uncertainties not currently known
to the Company or that the Company currently deems to be
immaterial also may materially adversely affect the Company, its
financial condition
and/or
operating results.
The
variability of the Companys quarterly operating results
can be significant.
The Companys operating results have fluctuated from
quarter to quarter in the past, and the Company may experience
continued fluctuations in the future. Future revenues and
operating results may vary significantly from
quarter-to-quarter
as a result of a number of factors, many of which are outside
the control of the Company. These factors include: the
relatively large size of customer agreements; unpredictability
in the number and timing of system sales and sales of
applications hosting services; length of the sales cycle; delays
in installations; changes in customers financial condition
or budgets; increased competition; the development and
introduction of new products and services; the loss of
significant customers or remarketing partners; changes in
government regulations, particularly as to the healthcare
industry; the size and growth of the overall healthcare
information technology markets; any liability and other claims
that may be asserted against the Company; the Companys
ability to attract and retain qualified personnel; national and
local general economic and market conditions; and other factors
referenced or incorporated by reference in this
Form 10-K
and any other filings by the Company with the Securities and
Exchange Commission.
The
Companys sales have been concentrated in a small number of
customers.
The Companys revenues have been concentrated in a
relatively small number of large customers, and the Company has
historically derived a substantial percentage of its total
revenues from a few customers. 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 Healths business,
financial condition, and results of operations.
In
addition to direct sales, the Company relies on third party
remarketing alliances for a substantial portion of its
revenues.
The Company seeks to expand its distribution channels by
creating remarketing alliances with third parties who are
engaged in the sale of healthcare information systems, medical
records management and outsourcing, and other healthcare
information technology and patient care solutions. GE Healthcare
and Telus Health, the Companys major remarketing partners,
could choose to discontinue reselling Streamline Health
products, and significant customers could elect to discontinue
using the Companys products. The Company needs to ensure
that it expands its distribution channels to reduce the reliance
on a single major reseller.
If
we are unable to maintain and grow the Companys
remarketing relationship with GE Healthcare or enter into new
remarketing agreements, or similar alliances, failure to do so
could be materially adverse to the growth of our base
business.
In the fourth quarter of fiscal 2010, Streamline Health learned
of planned organizational changes by GE Healthcare which
could adversely affect Streamline Healths core
technologys sales. If Streamline Healths existing
remarketing agreement with GE Healthcare is terminated, or fails
to generate future new business, or the Company is unable to
enter other agreements with leading healthcare service
providers; the Company may be unable to maintain or increase
market presence. GE may have multiple relationships with other
third-parties and GE may not regard the Company as
significant to GEs business. GE Healthcare may pursue
relationships with our competitors or develop or acquire
products and services that compete with our products and
services. GE Healthcare may formally terminate its
relationship with the Company with little or no notice.
13
A
significant increase in new application hosting services
contacts could reduce near term profitability and require a
significant cash outlay which could adversely affect near term
cash flow.
If new or existing customers purchase significant amounts of
remote application hosting services, the Company may have to
expend a significant amount of initial setup costs and time
before those new customers are able to begin using such
services, and the Company cannot begin to recognize revenues
from those hosting agreements until the commencement of such
services. Accordingly, the Company anticipates that its near
term cash flow, revenue and profitability may be adversely
affected by significant incremental setup costs from new hosted
customers that would not be offset by revenue until new hosting
customers go into production. While the Company anticipates long
term growth in profitability through increases in recurring
hosting subscription fees and significantly improved profit
visibility, any inability to adequately finance setup costs for
new application hosting services, could result in the failure to
put new hosted services into production; and could have a
material adverse effect on the Companys liquidity,
financial position and results of operations.
Unsuccessful
implementation of the Companys products and services with
our customers may harm our future financial
success.
The Companys new customer projects could be complex and
require lengthy and significant work to implement our products
and services. Each customers situation may be different,
and unanticipated difficulties and delays may arise as a result
of failure by us or by the customer to meet respective
implementation responsibilities. If the customer implementation
process is not executed successfully or if execution is delayed,
our relationships with some of our customers may be adversely
impacted and our results of operations could be impacted
negatively. In addition, cancellation of any implementation of
our products and services after it has begun may involve loss to
us of time, effort and resources invested in the cancelled
implementation as well as lost opportunity for acquiring other
customers over that same period of time.
If
we are forced to reduce our prices, our business, financial
condition and results of operations could
suffer.
The Company may be subject to pricing pressures with respect to
our future sales arising from various sources, including
practices of managed care organizations, and government action
affecting reimbursement under Medicare, Medicaid and other
government health programs. The Companys customers and the
other entities with which we have a business relationship are
affected by changes in statutes, regulations and limitations in
governmental spending for Medicare, Medicaid and other programs.
Recent government actions and future legislative and
administrative changes could limit government spending for the
Medicare and Medicaid programs, limit payments to hospitals and
other providers, increase emphasis on competition, impose price
controls and create other programs that potentially could have
an adverse effect on our customers and the other entities with
which we have a business relationship. If our pricing
experiences significant downward pressure, our business will be
less profitable and our results of operations would be adversely
affected. In addition, because cash from sales funds some of our
working capital requirements, reduced profitability could
require us to raise additional capital sooner than we would
otherwise need.
The
Company needs to manage its costs while planning for
growth.
The Companys planned growth through its remote application
hosting line of business could continue to place a significant
strain on the Companys cash flow. This could also strain
the services and support operations, sales and administrative
personnel and other resources as they are requested to handle
the added work load with existing support resources. Streamline
Health believes that it must continue to focus on these remote
hosting services, develop new products, enhance existing
solutions and serve the needs of its existing and anticipated
customer base. The Companys ability to successfully
maintain and expand its operations will depend, in large part,
upon its ability to attract and retain highly qualified
employees. The Companys ability to manage its planned
growth effectively also will require the Company to continue to
improve its operational, management, and financial systems and
controls, to train, motivate, and manage its employees and to
judiciously manage its operating expenses in anticipation of
increased future revenues.
14
Consolidation
in the healthcare industry could adversely affect the
Companys business, financial condition and results of
operations.
Many healthcare industry participants are consolidating to
create integrated healthcare delivery systems with greater
market power. As provider networks and managed care
organizations consolidate, thus decreasing the number of market
participants, competition to provide products and services like
ours will become more intense, and the importance of
establishing relationships with key industry participants will
become greater. These industry participants may try to use their
market power to negotiate price reductions for our products and
services. Further, consolidation of management and billing
services through integrated delivery systems may decrease demand
for our products. If we were forced to reduce our prices, our
business would become less profitable unless we were able to
achieve corresponding reductions in our expenses.
The
potential impact on the Company of new or changes in existing
federal, state, and local regulations governing healthcare
information could be substantial.
Healthcare regulations issued to date have not had a material
adverse affect on the Companys business. However, the
Company cannot predict the potential impact of new or revised
regulations that have not yet been released or made final, or
any other regulations that might be adopted. Congress may adopt
legislation that may change, override, conflict with, or preempt
the currently existing regulations and which could restrict the
ability of customers to obtain, use, or disseminate patient
health information. Streamline Health believes that the features
and architecture of its existing solutions are such that it
currently supports or should be able to make the necessary
modifications to its products, if required, to ensure support of
HIPAA regulations, and other legislation or regulations, but
there can be no assurances.
The
healthcare industry is highly regulated. Any material changes in
the political, economic or regulatory healthcare environment
that affect the group purchasing business or the purchasing
practices and operations of healthcare organizations, or that
lead to consolidation in the healthcare industry, could require
us to modify the Companys services or reduce the funds
available to providers to purchase our products and
services.
Our business, financial condition and results of operations
depend upon conditions affecting the healthcare industry
generally and hospitals and health systems particularly. Our
ability to grow will depend upon the economic environment of the
healthcare industry generally as well as our ability to increase
the number of solutions that we sell to our customers. The
healthcare industry is highly regulated and is subject to
changing political, economic and regulatory influences. Factors
such as changes in reimbursement policies for healthcare
expenses, consolidation in the healthcare industry, regulation,
litigation, and general economic conditions affect the
purchasing practices, operation and, ultimately, the operating
funds of healthcare organizations. In particular, changes in
regulations affecting the healthcare industry, such as any
increased regulation by governmental agencies of the purchase
and sale of medical products, or restrictions on permissible
discounts and other financial arrangements, could require us to
make unplanned modifications of our products and services, or
result in delays or cancellations of orders or reduce funds and
demand for our products and services.
The Companys customers derive a substantial portion of
their revenue from third-party private and governmental payors,
including Medicare, Medicaid and other government sponsored
programs. Our sales and profitability depend, in part, on the
extent to which coverage of and reimbursement for medical care
provided is available from governmental health programs, private
health insurers, managed care plans and other third-party
payors. If governmental or other third-party payors materially
reduce reimbursement rates or fail to reimburse our customers
adequately, our customers may suffer adverse financial
consequences which, in turn, may reduce the demand for and
ability to purchase our products or services.
The Health Insurance Portability and Accountability Act (HIPAA)
of 1996, enacted August 22, 1996, is designed to improve
the efficiency of healthcare by standardizing the interchange of
specified electronic data, and to protect the security and
confidentiality of protected health information. HIPAA requires
that covered entities comply with national standards for certain
types of electronic health information transactions and the data
elements used in such transactions, and adopt policies and
practices to ensure the integrity and confidentiality of
Protected
15
Health Information. Streamline Health believes that the features
and architecture of Streamline Healths solutions are such
that it currently supports or should be able to make the
necessary modifications to its products, if required, to ensure
support of the HIPAA regulations, and other subsequent HIPAA
legislation or regulations. However, if the regulations are
unduly restrictive, this could cause delays in the delivery of
new versions of solutions and adversely affect the licensing of
the Companys solutions. However, there can be no assurance
that an increase in the purchase of new systems or additional
use of Streamline Health software and services will occur.
In February 2009, the United States Congress enacted the HITECH
Act, as part of the American Recovery and Reinvestment Act of
2009. The HITECH Act requires that hospitals and health systems
make investments in their clinical information systems,
including the adoption of electronic medical records. While we
believe that increased emphasis on electronic medical records by
hospitals and health systems will also drive demand for
SaaS-based tools, such as ours, to help rationalize and
standardize patient and clinical data for efficient and accurate
use, we cannot be certain whether or when such demand will
materialize nor can we be certain that we will benefit
from it.
In March 2010, President Obama signed into law the Patient
Protection and Affordable Care Act, amended by the Health Care
and Education and Reconciliation Act of 2010 (collectively, the
Affordable Care Act). The Affordable Care Act is a
sweeping measure designed to expand access to affordable health
insurance, control health care spending, and improve health care
quality. The law includes provisions to tie Medicare provider
reimbursement to health care quality and incentives; mandatory
compliance programs; enhanced transparency disclosure
requirements; increased funding and initiatives to address fraud
and abuse; and incentives to state Medicaid programs to promote
community-based care as an alternative to institutional
long-term care services, among many others. In addition, the law
provides for the establishment of a national voluntary pilot
program to bundle Medicare payments for hospital and post-acute
services, which could lead to changes in the delivery of health
care services. Likewise, many states have adopted or are
considering changes in health care policies as a result of state
budgetary shortfalls. The timetable for implementing many
provisions of the Affordable Care Act remains unsettled, and we
do not know what effect federal or state law proposals may have
on our business.
Streamline
Health faces significant competition, including from companies
with significantly greater resources.
The Company currently competes with many other companies for the
licensing of similar software solutions and related services.
Several companies historically have dominated the clinical
information systems software market and several of these
companies have either acquired, developed or are developing
their own document management and workflow technologies. The
industry is undergoing consolidation and realignment as
companies position themselves to compete more effectively. Many
of these companies are larger than Streamline Health and have
significantly more resources to invest in their business. In
addition, information and document management companies serving
other industries may enter the market. Suppliers and companies
with whom Streamline Health may establish strategic alliances
may also compete with Streamline Health. Such companies and
vendors may either individually, or by forming alliances
excluding Streamline Health, place bids for large agreements in
competition with Streamline Health. A decision on the part of
any of these competitors to focus additional resources in the
image-enabling, workflow, and other markets addressed by
Streamline Health could have a material adverse effect on
Streamline Health.
The
healthcare industry is evolving rapidly, which may make it more
difficult for the Company to be competitive in the
future.
The United States healthcare system is under intense pressure to
improve in many areas, including modernization, universal access
and controlling skyrocketing costs of care. Streamline Health
believes that the principal competitive factors in its market
are customer recommendations and references, company reputation,
system reliability, system features and functionality (including
ease of use), technological advancements, customer service and
support, breadth and quality of the systems, the potential for
enhancements and future compatible products, the effectiveness
of marketing and sales efforts, price and the size and perceived
financial stability of the vendor. In addition, the Company
believes that the speed with which companies in its market can
anticipate the evolving healthcare industry structure and
identify unmet needs are important competitive factors. There
can be no assurance
16
that Streamline Health will be able to keep pace with changing
conditions and new developments such that it will be able to
compete successfully in the future against existing or potential
competitors.
Rapid
technology changes and short product life cycles could harm
Streamline Healths business.
The market for Streamline Healths solutions and services
is characterized by rapidly changing technologies, regulatory
requirements, evolving industry standards and new product
introductions and enhancements that may render existing
solutions obsolete or less competitive. As a result, Streamline
Healths position in the healthcare information technology
market could change rapidly due to unforeseen changes in the
features and functions of competing products, as well as the
pricing models for such products. The Companys future
success will depend, in part, upon the Companys ability to
enhance its existing solutions and services and to develop and
introduce new solutions and services to meet changing
requirements. The Company needs to maintain an ongoing research
and development program to continue to develop new solutions and
apply new technologies to its existing products, but may not
have sufficient funds with which to undertake such required
research and development. If the Company is not able to foresee
changes
and/or to
react in a timely manner to such developments, the Company may
experience a material, adverse impact on its business, operating
results, and financial condition.
Streamline
Healths intellectual property rights are valuable, and any
inability to protect them could reduce the value of Streamline
Healths solutions and services.
The Company trademarks and copyrights its intellectual property,
which represents an important asset to the Company. Streamline
Health does not have any patent protection on any of its
software. The Company relies upon license agreements, employment
agreements, confidentiality, nondisclosure agreements, etc. to
maintain the confidentiality of Streamline Healths
proprietary information and trade secrets. Notwithstanding these
precautions, others may copy, reverse engineer or design
independently, technology similar to Streamline Healths
products. If the Company fails to adequately protect the
intellectual property through trademarks and copyrights, license
agreements, employment agreements, confidentiality,
nondisclosure agreements, etc., the intellectual property rights
may be misappropriated by others, invalidated, or challenged,
and our competitors could duplicate the Companys
technology or may otherwise limit any competitive technology
advantage the Company may have. It may be necessary to litigate
to enforce or defend Streamline Healths proprietary
technology or to determine the validity of the intellectual
property rights of others. Any litigation, could be successful
or unsuccessful, may result in substantial cost and require
significant attention by management and technical personnel.
The
Company could be subjected to claims of intellectual property
infringement, which claims could be expensive to
defend.
While the Company does not believe that its products and
services infringe upon the intellectual property rights of third
parties, the potential for intellectual property infringement
claims continually increases as the number of software patents
and copyrighted and trademarked materials continues to rapidly
expand. Any claim for intellectual property right infringement,
even if not meritorious, would be expensive to defend. If the
Company were to become liable for infringing third party
intellectual property rights, the Company could be liable for
substantial damage awards, and potentially be required to cease
using the technology, to produce non-infringing technology, or
to obtain a license to use such technology. Such potential
liabilities or increased costs could be materially adverse to
the Company.
Third
party products are essential to Streamline Healths
software.
Streamline Health software incorporates software licensed from
various vendors into its proprietary software. In addition,
third-party, stand-alone software is required to operate some of
the Companys proprietary software modules. The loss of the
ability to use these third party products, or ability to obtain
substitute third party software at comparable prices, could have
a material adverse affect on the ability to license Streamline
Health software.
17
Streamline
Healths solutions may not be error free and could result
in claims of breach of contract and
liabilities.
Streamline Healths solutions are very complex and may not
be error free, especially when first released. Although the
Company performs extensive testing, failure of any product to
operate in accordance with its specifications and documentation
could constitute a breach of the license agreement and require
Streamline Health to correct the deficiency. If such deficiency
is not corrected within the agreed upon contractual limitations
on liability and cannot be corrected in a timely manner, it
could constitute a material breach of a contract allowing the
termination thereof and possibly subjecting the Company to
liability. Also, Streamline Health sometimes indemnifies its
customers against third-party infringement claims. If such
claims are made, even if they are without merit, they could be
expensive to defend. Streamline Healths license agreement
generally limits the Companys liability arising from
claims such as described in the foregoing sentences, but such
limits may not be enforceable in some jurisdictions or under
some circumstances. A significant uninsured or under-insured
judgment against the Company could have a material adverse
impact on the Company.
The
Company could be liable to third parties from the use of the
Companys solutions.
The Companys solutions provide access to patient
information used by physicians and other medical personnel in
providing medical care. The medical care provided by physicians
and other medical personnel are subject to numerous medical
malpractice and other claims. The Company attempts to limit any
potential liability of the Company to customers by limiting the
warranties on its solutions in the Companys agreements
with the Companys customer, the healthcare provider.
However, such agreements do not protect the Company from third
party claims by patients who may seek damages from any or all
persons or entities connected to the process of delivering
patient care. The Company maintains insurance, which provides
limited protection from such claims, if such claims against the
Company would result in liability to the Company. Although no
such claims have been brought against the Company to date
regarding injuries related to the use of our solutions, such
claims may be made in the future. A significant uninsured or
under-insured judgment against the Company could have a material
adverse impact on the Company.
The
Companys remote application hosting services and support
services could experience interruptions.
The Company provides remote hosting services for many clients,
including the storage of critical patient, financial and
administrative data. In addition, it provides support services
to clients through the client support facility. The Company has
redundancies, such as backup generators, redundant
telecommunications lines, and backup facilities built into its
operations to prevent disruptions. However, complete failure of
all generators or impairment of all telecommunications lines or
severe casualty damage to the primary building or equipment
inside the primary building housing our hosting center or client
support facilities could cause a temporary disruption in
operations and adversely affect clients who depend on the
application hosting services. Any interruption in operations at
its data center or client support facility could cause the
Company to lose existing clients, impede our ability to obtain
new clients, result in revenue loss, cause potential liability
to our clients, and increase our operating costs.
The
Companys remote application hosting services are provided
over an internet connection. Any breach of security or
confidentiality of protected health information could expose the
Company to significant expense, and harm to the Companys
reputation.
The Company provides remote hosting services for clients,
including the storage of critical patient, financial and
administrative data. The Company has security measures in place
to prevent or detect misappropriation of Protected Heath
Information. The Company must maintain facility and systems
security measures to preserve the confidentiality of data
belonging to clients as well as their patients that resides on
computer equipment in the Data Center, which we handle via
application hosting services, or that is otherwise in the
Companys possession. Notwithstanding efforts undertaken to
protect data, it can be vulnerable to infiltration as well as
unintentional lapse. If confidential information is compromised,
the Company could face claims for contract breach, penalties and
other liabilities for violation of applicable laws or
regulations, significant costs for remediation and
re-engineering to prevent future occurrences, and serious harm
to the Companys reputation.
18
The
loss of key personnel could adversely affect Streamline
Healths business.
Streamline Healths success depends, to a significant
degree, on its management, sales force and technical personnel.
The Company must recruit, motivate, and retain highly skilled
managers, sales, consulting and technical personnel, including
application programmers, database specialists, consultants, and
system architects who have the requisite expertise in the
technical environments in which our solutions operate.
Competition for such technical expertise is intense. The
Companys failure to attract and retain qualified personnel
could have a material adverse effect on the Company.
The
Company may not have access to sufficient capital to be
competitive in its markets.
Streamline Health may need additional capital in the form of
loans or equity in order to operate and to be competitive. The
Company may be limited to the availability of such capital or
may not have any availability, in which case the Companys
future prospects may be materially impaired.
The
Company must maintain compliance with the terms of its existing
credit facilities. The failure to do so could have a material
adverse effect on the Companys ability to finance its
ongoing operations and the Company may not be able to find an
alternative lending source if a default would
occur.
On October 21, 2009, the Company entered into an amended
and restated revolving credit facility with its existing lender.
Upon doing so, the Company was able to negotiate modified terms
in which the minimum tangible net worth requirement was
eliminated. In the first quarter of fiscal 2011, the Company
entered into an amended and restated revolving note with Fifth
Third Bank, Cincinnati, OH. The terms of the loan remain the
same as set forth in the revolving note entered into on
July 31, 2008, as amended on January 6, 2009, and
October 31, 2009, except as follows: (i) the maximum
principal amount that can be borrowed was increased to
$3,000,000 from the prior maximum amount of $2,750,000, subject
to the borrowing base; (ii) the maturity date of the loan
has been extended to October 1, 2013 from October 1,
2011; (iii) the minimum fixed charge coverage ratio
covenant has been revised, to require that the Company shall
maintain a minimum trailing twelve months fixed charge coverage
ratio of 1.25, measured each fiscal quarter; (iv) the
funded indebtedness to EBITDA covenant has been revised, to
require that the Company shall report a funded indebtedness to
EBITDA ratio no greater than 2.0, measured each fiscal quarter
and; (v) a covenant has been added to require that the
Companys 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. There can be no assurances that the Company will be able
to maintain compliance with all of the continuing covenants and
other terms and conditions of this credit facility on an ongoing
basis. If not, the Company could be required to pay back the
amounts borrowed on an accelerated basis, which could subject
the Company to decreased liquidity and other negative impacts on
the Companys business, results of operations and financial
condition. Furthermore, if the Company would need to find an
alternative lending source, the Company may have difficulty in
doing so, particularly in the current credit environment which
is not favorable to borrowers. Without a sufficient credit
facility, the Company would be adversely affected by a lack of
access to liquidity needed to operate the Companys
business. Any disruption in access to credit could force the
Company to take measures to conserve cash, such as deferring
important research and development expenses, which measures
could have a material adverse effect on the Company.
Potential
disruptions in the credit markets may adversely affect the
Companys business, including the availability and cost of
short-term funds for liquidity requirements and our ability to
meet long-term commitments, which could adversely affect our
results of operations, cash flows and financial
condition.
If internal funds are not available from operations, the Company
may be required to rely on the banking and credit markets to
meet its financial commitments and short-term liquidity needs.
The Companys access to funds under its revolving credit
facility or pursuant to arrangements with other financial
institutions is dependent on the ability of the financial
institutions ability to meet funding commitments.
Financial institutions may not be able to meet their funding
commitments if they experience shortages of capital and
liquidity or if they experience high volumes of borrowing
requests from other borrowers within a short period of time.
19
Adverse
economic conditions in the United States and globally may have
significant effects on the Companys customers and
suppliers that would result in material adverse effects on the
Companys business, operating results and stock
price.
Adverse economic conditions in the United States and globally
and the concern that the worldwide economy may enter into a
prolonged recessionary period may materially adversely affect
the Companys customers access to capital or
willingness to spend capital on the Companys products and
services
and/or their
levels of cash liquidity in with which or willingness to pay for
products that they will order or have already ordered from the
Company. Continuing adverse economic conditions would also
likely negatively impact the Companys business, which
could result in: (1) reduced demand for the Companys
products and services; (2) increased price competition for
the Companys products and services; (3) increased
risk of collectability of cash from the Companys
customers; (4) increased risk in potential reserves for
doubtful accounts and write-offs of accounts receivable;
(5) reduced revenues; and (6) higher operating costs
as a percentage of revenues.
All of the foregoing potential consequences of current national
or global economic conditions are difficult to forecast and
mitigate. As a consequence, the Companys operating results
for a particular period are difficult to predict, and,
therefore, prior results are not necessarily indicative of
future results to be expected in future periods. Any of the
foregoing effects could have a material adverse effect on the
Companys business, results of operations and financial
condition and could adversely affect the Companys stock
price.
The
market price of the Companys common stock is likely to be
highly volatile as the stock market in general can be highly
volatile.
The public trading of the Companys common stock is based
on many factors, which could cause fluctuation in the price of
the Companys common stock. These factors may include, but
are not limited to:
|
|
|
|
|
General economic and market conditions;
|
|
|
|
Actual or anticipated variations in quarterly operating results;
|
|
|
|
Lack of research coverage by securities analysts;
|
|
|
|
Conditions or trends in the healthcare information technology
industry;
|
|
|
|
Changes in the market valuations of other companies in the
Companys industry;
|
|
|
|
Announcements by the Company or its competitors of significant
acquisitions, strategic partnerships, divestitures, joint
ventures or other strategic initiatives;
|
|
|
|
Capital commitments;
|
|
|
|
Additional or departures of key personnel; and
|
|
|
|
Sales and repurchases of the Companys common stock.
|
Many of these factors are beyond the Companys control.
These factors may cause the market price of the Companys
common stock to decline, regardless of the Companys
operating performance.
The
preparation of the Companys financial statements requires
the use of estimates that may vary from actual
results.
The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make significant
estimates that affect the financial statements. One of the
Companys most critical estimates is the amount of software
development costs to capitalize. Due to the inherent nature of
these estimates, the Company cannot provide absolute assurance
that it will not significantly increase or decrease such
estimates upon determination of the actual results. Any required
adjustments could have a material adverse effect on the Company
and its results of operations, and could result in the
restatement of the Companys prior period financial
statements.
20
Changes
in accounting standards could impact the Companys reported
earnings and financial condition.
The accounting standard setters, including the Financial
Accounting Standards Board, the U.S. Securities and
Exchange Commission and other regulatory bodies, periodically
change the financial accounting and reporting standards that
govern the preparation of the Companys consolidated
financial statements. These changes can be hard to predict and
can materially impact how the Company records and reports its
financial condition and results of operations. In some cases,
the Company could be required to apply a new or revised standard
retroactively, which could result in the restatement of the
Companys prior period financial statements.
Failure
to improve and maintain the quality of internal controls over
financial reporting could materially and adversely affect the
Companys ability to provide timely and accurate financial
information about the Company.
In connection with the preparation of the financial statements
for the Companys fiscal year end, management conducted a
review of the internal control structure over financial
reporting. No significant deficiencies or material weaknesses
were identified. However, management cannot be certain that
deficiencies will not arise in the future or be identified or
that the Company will be able to correct and maintain adequate
controls over financial processes and reporting in the future.
Any failure to maintain adequate controls or to adequately
implement required new or improved controls could harm operating
results or cause failure to meet reporting obligations in a
timely and accurate manner.
Foreign
currency risk
The Company is a receiver of currencies other than the
U.S. dollar. Accordingly, changes in the exchange rates,
and in particular a strengthening of the U.S. dollar, will
negatively affect the Companys net sales and gross margins
as expressed in U.S. dollars. There is also a risk that the
Company will have to adjust local currency product pricing due
to competitive pressures when there has been significant
volatility in foreign currency exchange rates.
A
limited number of stockholders have the ability to influence the
outcome of director elections and other matters requiring
stockholder approval.
The Company has several individual stockholders who are not
affiliated with the Company, who beneficially own in the
aggregate more than one-third of our outstanding common stock.
These non-affiliated stockholders, if they act together, could
exert substantial influence over matters requiring approval by
our stockholders, including the election of directors, the
amendment of our certificate of incorporation and by-laws and
the approval of mergers or other business combination
transactions. As to these matters and in other situations, the
Companys Board of Directors and management may disagree
with these stockholders as to whether the action opposed or
supported by them is in the best interest of our stockholders.
This concentration of ownership may discourage, delay or prevent
a change in control of the Company, which could deprive our
stockholders of an opportunity to receive a premium for their
stock as part of a sale of the Company and may negatively affect
the market price of our common stock.
Because of the aggregate size of their holdings, these
non-affiliated stockholders have the ability to significantly
influence the outcome of all matters submitted to a stockholder
vote. Their interests may differ from those of other holders of
our common stock in material respects. For example, they may
determine that the disposition of some or their shares of
Company common stock would be beneficial to them at a time when
such disposition could be detrimental to the other holders of
our common stock, and such dispositions could adversely affect
the market price of our shares.
These
risks are not exhaustive.
Other sections of this
Form 10-K
may include additional factors which could adversely impact the
Companys business and financial performance. Moreover, the
Company operates in a very competitive and rapidly changing
environment. New risk factors emerge from time to time and it is
not possible for the Companys management to predict all
risk factors, nor can the Company assess the impact of all
factors on the Companys business or the extent to which
any factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking
statements. Given these risks and uncertainties, investors
should not place undue reliance on forward-looking statements as
a prediction of actual results.
21
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None
Streamline Healths principal offices are located at 10200
Alliance Road, Suite 200, Cincinnati, OH
45242-4716.
The offices consist of approximately 21,700 square feet of
space under a lease that expires in October 2015. In addition,
Streamline Health leases dedicated collocation high security
data center space in the Cincinnati, OH area, for its hosting
services, hosting center operations, which lease expires in July
2015, but has automatic renewal provisions. The current rental
expense for all of these facilities approximates $353,000
annually.
Streamline Health believes that its facilities are adequate for
its current needs and that suitable alternative space is
available to accommodate expansion of Streamline Healths
operations.
|
|
Item 3.
|
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
Healths consolidated results of operations or consolidated
financial position.
|
|
Item 4.
|
(Removed
and Reserved)
|
EXECUTIVE
OFFICERS OF THE REGISTRANT
The names, ages, and positions held by the Executive Officers of
Streamline Health on April 13, 2011 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Appointed as
|
Name
|
|
Age
|
|
Position(1)
|
|
Executive Officer(2)
|
|
Robert E. Watson
|
|
|
54
|
|
|
President, Chief Executive Officer, and Director
|
|
|
2011
|
|
Gary M. Winzenread
|
|
|
45
|
|
|
Chief Operating Officer, and Senior Vice President of Product
Development and Implementation Services
|
|
|
2007
|
|
Richard D. Leach
|
|
|
55
|
|
|
Senior Vice President and Chief Marketing Officer
|
|
|
2011
|
|
Donald E. Vick, Jr.
|
|
|
47
|
|
|
Controller, Interim Chief Financial Officer, Interim Treasurer
and Interim Corporate Secretary
|
|
|
2002
|
|
|
|
|
(1) |
|
All current officers of Streamline Health hold office until
their successors are elected and qualified or until any removal
or resignation. Officers of Streamline Health are elected by the
Board of Directors and serve at the discretion of the Board. For
purposes of the descriptions of the background of Streamline
Healths Executive Officers, the term Company
refers to both Streamline Health Solutions, Inc. and its
predecessors LanVision Systems, Inc. and LanVision, Inc. |
|
(2) |
|
Represents date of appointment to Registrant or its predecessor. |
Robert E. Watson was appointed President and Chief Executive
Officer on February 1, 2011. Mr. Watson has over
25 years of experience in the healthcare information
technology industry as a CEO, Board member and advisor to many
different companies. Prior to joining the Company,
Mr. Watson was President and Chief Executive Officer and a
director of DocuSys, Inc., a leading provider of anesthesia
information systems that was acquired by Merge Healthcare Inc.
in March 2010. Immediately prior to joining the Company
Mr. Watson was engaged as a consultant to several venture
capital firms and growth stage healthcare companies. Prior to
joining DocuSys, he was Executive Vice President of Business
Development of Concuity, a healthcare division of Trintech, Plc.
Before that position, he was President and Chief Executive
Officer and a director at Concuity Inc, which was acquired by
Trintech, Plc. in
22
December 2006. Prior to joining Concuity in 2001, Watson was
acting Chief Executive Officer of HealthTrac Corporation, Vice
President and General Manager at Cerner Corporation while
serving as the Chief Executive Officer of its IQHealth business
unit and has been the founder or senior executive of several
successful healthcare organizations throughout his career.
Mr. Watson was a director of Satori Labs, Inc. which was
sold to Quality Systems, Inc. in 2011. He is currently a
director of Interpoint, LLC.
Gary M. Winzenread joined the Company in 2007 as the Director of
Product Strategy and shortly thereafter assumed responsibility
for Product Development as well. He was appointed Chief
Operating Officer in 2010. Mr. Winzenread was a consultant
to Streamline Health in 2007, and prior to that spent
8 years as the President and CEO of Praxis Solutions, the
software development consultancy he founded in 1998. As CEO of
Praxis, he led the company through many years of growth over 50%
per annum to a 40 person consultancy he successfully sold
in 2004 to Number Six Software of McLean, VA, with whom he
stayed in executive capacities through 2006.
Richard D. Leach joined the Company on March 14, 2011 as
Senior Vice President and Chief Marketing Officer.
Mr. Leach has assumed all responsibilities for managing and
directing the sales and marketing activities of Streamline
Health. Mr. Leach has over 20 years executive level
experience developing and marketing healthcare information and
technology products and services across multiple healthcare
verticals, including hospitals/health systems, health plans,
physician groups, leading web portal companies, home health
agencies, and consumers. Most recently he served as the Sr. Vice
President, Health Solutions for A.D.A.M, Inc., a publicly traded
company in Atlanta, Georgia from July 2008 to March 2011 where
he was responsible for the companys Health Solutions
business unit, which is the industrys leading provider of
consumer health information programs and decision support tools.
Within his business unit, Mr. Leach was the driver of
strategic direction and growth of the products and business
unit, including evaluation of business partnerships and channel
optimization, in addition to management of sales, operations,
marketing, editorial development, professional services and
product development. Mr. Leach also had functional
responsibility for corporate communications. Prior to ADAM,
Mr. Leach was an independent management consultant from
October 2006 to July 2008 while pursuing numerous
entrepreneurial ventures. His work was focused primarily on
business plan development, strategic marketing and general
management projects for early stage companies. He worked with
companies in a wide variety of businesses, including remote
patient monitoring, charitable giving, health/fitness, and
internet services for seniors. From July 2005 to September 2006,
Mr. Leach was Vice President of Sales and Marketing and a
partner with HealthTime, a
start-up
childhood obesity program. Mr. Leach was responsible for
developing sales and marketing programs designed to stimulate
physician participation and recruitment of participants.
Mr. Leach has held executive positions with a number of
other healthcare companies, including McKesson Health Solutions,
Consumer Health and Access Health.
Donald E. Vick, Jr. joined the Company in 1997, as
Assistant Controller. In 2002, he was appointed Controller and
Assistant Treasurer. In 2005 he was also appointed Assistant
Secretary. In 2008, he was appointed Interim Chief Financial
Officer, Interim Treasurer, and Interim Corporate Secretary.
Prior to joining Streamline Health, Mr. Vick served as
Assistant Controller of Cincom Systems, Inc., an international
software development and marketing company. Mr. Vick is a
Certified Public Accountant.
There are no family relationships between any Director or
Executive Officer and any other Director or Executive Officer of
the Registrant.
23
PART II
|
|
Item 5.
|
Market
For Registrants Common Equity, Related Stockholder Matters
And Issuer Purchases Of Equity Securities
|
(a) The Companys Common Stock trades on the Capital
Market tier of The NASDAQ Stock Market under the symbol STRM.
The table below sets forth the high and low sales prices for
Streamline Health Solutions, Inc. Common Stock for each of the
quarters in fiscal years 2010 and 2009, as reported by The
NASDAQ Stock Market, Inc.
|
|
|
|
|
|
|
|
|
Fiscal Year 2010
|
|
High
|
|
|
Low
|
|
|
4th Quarter (November 1, 2010 through January 31, 2011)
|
|
$
|
1.99
|
|
|
$
|
1.13
|
|
3rd Quarter (August 1, 2010 through October 31, 2010)
|
|
|
1.49
|
|
|
|
1.00
|
|
2nd Quarter (May 1, 2010 through July 31, 2010)
|
|
|
1.98
|
|
|
|
0.96
|
|
1st Quarter (February 1, 2010 through April 30, 2010)
|
|
|
2.74
|
|
|
|
1.90
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2009
|
|
High
|
|
|
Low
|
|
|
4th Quarter (November 1, 2009 through January 31, 2010)
|
|
$
|
2.58
|
|
|
$
|
2.06
|
|
3rd Quarter (August 1, 2009 through October 31, 2009)
|
|
|
2.94
|
|
|
|
2.10
|
|
2nd Quarter (May 1, 2009 through July 31, 2009)
|
|
|
3.58
|
|
|
|
1.98
|
|
1st Quarter (February 1, 2009 through April 30, 2009)
|
|
|
2.30
|
|
|
|
1.15
|
|
The market price of the Common Stock could be subject to
significant fluctuations based on factors such as announcements
of new products or customers by Streamline Health or its
competitors, quarterly fluctuations in Streamline Healths
financial results or other competitors financial results,
changes in analysts estimates of Streamline Healths
financial performance, general conditions in the healthcare
information technology industry and conditions in the financial
markets. In addition, the stock market, in general, has
experienced price and volume fluctuations which have
particularly affected the market price of high technology
companies and which have been often unrelated to the operating
performance of a specific company. Many technology companies,
including Streamline Health, experience significant fluctuations
in the market price of their equity securities. There can be no
assurance that the market price of the Common Stock will not
decline, or otherwise continue to experience significant
fluctuations in the future.
In connection with Mr. Watsons appointment as the
Companys President and Chief Executive Officer, the
Company and Mr. Watson entered into an Employment Agreement
on January 31, 2011. Pursuant to that agreement,
Mr. Watson was granted the opportunity to purchase 50,000
newly issued shares of common stock of the Company for $500
(i.e., their par value), and Mr. Watson completed such
purchase as of that date. The issuance of such
50,000 shares constituted an inducement grant pursuant to
NASDAQ Marketplace Rule 5635(c)(4). The sale and issuance
of those shares were deemed by the Company to be exempt from
registration under the Securities Act of 1933, as amended (the
Securities Act), by virtue of Section 4(2)
thereunder, as transactions by an issuer not involving any
public offering.
(b) According to the stock transfer agents records,
Streamline Health had 180 stockholders of record as of
April 13, 2011. Because brokers and other institutions on
behalf of stockholders hold many of such shares, Streamline
Health is unable to determine with complete accuracy the current
total number of stockholders represented by these record
holders. Streamline Health estimates that it has approximately
2,200 stockholders, based on information provided by the
Companys stock transfer agent from their search of
individual participants in security position listings.
(c) Streamline Health has not paid any cash dividends on
its Common Stock since its inception and does not intend to pay
any cash dividends in the foreseeable future.
24
MARKET
PRICE OF AND DIVIDENDS ON THE REGISTRANTS COMMON EQUITY
AND RELATED STOCK MATTERS
The graph below compares the cumulative total stockholder return
on Common Stock with the cumulative total return on the NASDAQ
U.S. Total Return Index and on the NASDAQ Computer and Data
Processing Services Stock Index for the period commencing
January 31, 2006 and ending January 31, 2011, assuming
an investment of $100 and the reinvestment of any dividends.
The comparison in the graph below is based upon historical data
and is not indicative of, nor intended to forecast the future
performance of Common Stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/31/061
|
|
1/31/071
|
|
1/31/081
|
|
1/31/091
|
|
1/31/101
|
|
1/31/111
|
|
Streamline Health Solutions, Inc. Common Stock
|
|
$
|
100.00
|
|
|
$
|
80.57
|
|
|
$
|
37.86
|
|
|
$
|
25.14
|
|
|
$
|
31.57
|
|
|
$
|
26.57
|
|
NASDAQ U.S. Total Return Index
|
|
$
|
100.00
|
|
|
$
|
107.25
|
|
|
$
|
103.01
|
|
|
$
|
51.20
|
|
|
$
|
74.73
|
|
|
$
|
95.43
|
|
NASDAQ Computer and Data Processing Services Stock Index
|
|
$
|
100.00
|
|
|
$
|
111.01
|
|
|
$
|
116.27
|
|
|
$
|
72.68
|
|
|
$
|
114.09
|
|
|
$
|
141.46
|
|
|
|
|
1 |
|
Assumes that $100.00 was invested on January 31, 2006 in
Common Stock at the closing price of $7.00 per share and at the
closing sales price of each index on that date and that all
dividends were reinvested. No dividends have been declared on
Common Stock. Stockholder returns over the indicated period
should not be considered indicative of future stockholder
returns. |
The information required above by Item 201(e) of
Regulation S-K
is not considered filed with the Securities and Exchange
Commission, and should not be deemed to be incorporated by
reference into any filing under the Securities Act or the
Securities Exchange Act, except to the extent that the Company
specifically incorporates it by reference.
25
|
|
Item 6.
|
Selected
Financial Data
|
The following table sets forth consolidated financial data with
respect to Streamline Health for each of the five years in the
period ended January 31, 2011. The information set forth
below should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and
related notes included elsewhere in this
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year(1)
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share data)
|
|
|
INCOME STATEMENT DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues(2)
|
|
$
|
17,606
|
|
|
$
|
18,208
|
|
|
$
|
16,286
|
|
|
$
|
16,684
|
|
|
$
|
15,961
|
|
Total operating expenses
|
|
|
19,457
|
|
|
|
16,855
|
|
|
|
17,632
|
|
|
|
17,388
|
|
|
|
15,779
|
|
Operating profit
(loss)(3,4)
|
|
|
(1,851
|
)
|
|
|
1,353
|
|
|
|
(1,346
|
)
|
|
|
(704
|
)
|
|
|
182
|
|
Net earnings
(loss)(3, 4
& 5)
|
|
|
(2,951
|
)
|
|
|
1,288
|
|
|
|
(1,375
|
)
|
|
|
(736
|
)
|
|
|
96
|
|
Basic net earnings (loss) per share of Common stock
|
|
|
(.31
|
)
|
|
|
.14
|
|
|
|
(.15
|
)
|
|
|
(.08
|
)
|
|
|
.01
|
|
Diluted net earnings (loss) per share of Common stock
|
|
|
(.31
|
)
|
|
|
.14
|
|
|
|
(.15
|
)
|
|
|
(.08
|
)
|
|
|
.01
|
|
Shares used in computing basic per share data
|
|
|
9,505
|
|
|
|
9,381
|
|
|
|
9,286
|
|
|
|
9,234
|
|
|
|
9,195
|
|
Shares used in computing diluted per share data
|
|
|
9,505
|
|
|
|
9,531
|
|
|
|
9,286
|
|
|
|
9,234
|
|
|
|
9,722
|
|
BALANCE SHEET DATA (at end of the year):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,404
|
|
|
$
|
1,025
|
|
|
$
|
3,129
|
|
|
$
|
2,189
|
|
|
$
|
3,317
|
|
Working capital (deficit)
|
|
|
(2,222
|
)
|
|
|
(1,263
|
)
|
|
|
(781
|
)
|
|
|
267
|
|
|
|
2,748
|
|
Total assets
|
|
|
16,015
|
|
|
|
17,525
|
|
|
|
16,732
|
|
|
|
16,099
|
|
|
|
15,301
|
|
Long-term debt, including current portion
|
|
|
1,200
|
|
|
|
900
|
|
|
|
800
|
|
|
|
|
|
|
|
1,000
|
|
Total stockholders equity
|
|
|
6,594
|
|
|
|
8,731
|
|
|
|
7,097
|
|
|
|
8,193
|
|
|
|
8,644
|
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
All references to a fiscal year refer to the fiscal year of
Streamline Health commencing February 1 of that calendar year
and ending on January 31 of the following year. |
|
(2) |
|
During fiscal 2008, the Company revised its historical financial
statements to reclassify revenue and costs related to certain
maintenance services. During a review of the accounting
treatment of its revenue recognition policies, the Company
determined that certain revisions to the accounting treatment of
its revenue recognition for royalty commissions paid to GE
Healthcare were necessary. The selected financial data presented
above reflect the revised amounts. |
|
(3) |
|
Operating profit (loss) and net earnings (loss) includes a
$100,000, $100,000, and $41,000 reduction in reserves due to
changes in estimates, in fiscal 2006, 2007, and 2008,
respectively; |
|
(4) |
|
Operating loss in fiscal 2010 includes an impairment charge to
capitalized software development costs of $755,000, and other
asset write-offs of $260,000. |
|
(5) |
|
Net loss in fiscal 2010 includes an incremental increase in the
valuation allowance for deferred tax assets of $997,000, which
is recorded as income tax expense. |
26
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
See also PART 1, ITEM 1, BUSINESS for general and
specific descriptions of Streamline Healths business.
EXECUTIVE
OVERVIEW
Company
Initiatives and Strategy
Streamline Healths strategy is to continue to service
customers by providing solutions which create significant
operational and financial efficiencies across the entire
healthcare enterprise via the robust capabilities of our
document workflow solutions; while continuing to develop
cutting-edge products and service offerings to increase our
market share.
Over the past fiscal year, management has taken significant
steps to position the Company for future growth by improving
operational efficiency through re-alignment of personnel to
better serve customers, market and develop our products, and
manage cost. The Company has also re-evaluated the core
operating metrics to better measure the level of cash
generation, operational efficiency, and overall shareholder
value. The Company is focused on increasing recurring revenues
through our hosted solution delivery model, which will build
shareholder value, provide for more predictable annual revenues,
and higher operating margins.
Streamline Health is focused on marketing and further developing
its departmental workflow products because we feel there is a
significant opportunity to gain market share in an under-served
product space. Departmental workflow solutions, such as Coding
Workflow and Referral Order Workflow are lower cost, high
value-add products that can make an immediate financial and
operational impact for customers. These products have a quick
time to market and have significantly shorter sales cycles than
enterprise document management solutions. The Companys
departmental workflows are complemented by the further
development of the Business Process Management (BPM), and
Revenue Cycle Management Consulting service offerings.
Streamline Health consultants work directly with departmental
workflow customers to utilize workflow-based solutions, referred
to as Streamline Optimization Solutions, or SOS, which enable
customers to streamline their Patient Financial Services, Human
Resources and administrative document-centric processes. BPM is
also adding value to the Companys development efforts by
working directly with a key customer to develop the AuditACE
solution, which automates many of the time intensive tasks
within Medicare/Medicaid and private-payer insurance
reimbursement audit requests. AuditACE has proven to be an
effective Recovery Audit Contractor (RAC) product offering. The
Companys ability to tap into this underserved market with
high value-add solutions and services will be a major driver of
our growth.
Also in 2010, the Company has continued investing in the
accessANYware 5.x software platform research and development.
This development builds on the consolidation of technology
platforms onto the Microsoft.NET platform, and includes
internationalization of the software which was released in
accessANYware 5.0 in January 2010. In 2011, we expect
accessANYware 5.1 will be released to U.S. based customers.
The enhanced versions of the accessANYware 5.x products allow
for expanded functionality, additional interoperability
capabilities with existing third party healthcare health
information systems, and shorter development periods for a
faster
time-to-market
for new products. We have had positive reception to
accessANYware 5.0 at the installed locations in Canada, and the
Company plans to continue this momentum with future releases of
5.x products.
Prior versions of accessANYware are still available for sale,
and the Company continues to provide full product support for
these prior versions, as we anticipate several years before all
existing accessANYware customers complete a transition to the
accessANYware 5.x platform.
Building
the Recurring Revenue Stream
Recurring subscription revenues generated by hosted systems
sales provide enhanced visibility for future revenues based on
backlog fulfillment from hosted contracts. Typically these
systems are sold with a five year contract term, and have had a
high percentage of contract renewals after the initial contract
term. We believe that these software-as-a-service type offerings
position the Company to take advantage of increased market
opportunities at the lower end of the healthcare market.
Opportunities for these services are growing much faster than
the
27
marketplace in general. The Company believes that our hosted
services provide us with an advantage in the marketplace, as
many of our competitors do not have a comparable offering.
Factors that we believe have contributed to this significant
shift to the hosted delivery model are:
|
|
|
|
1.
|
Cloud computing systems are becoming more main stream and market
adoption has increased dramatically over the past few years.
|
|
|
2.
|
Small to mid-sized healthcare organizations do not have the
capital or the information technology staff to support complex,
locally installed software.
|
|
|
3.
|
Economic and regulatory factors, along with reduced access to
credit, have forced hospital organizations to reconsider their
capital purchases and look to operating lease alternatives, such
as Streamline Health hosted services, to meet their software
needs.
|
|
|
4.
|
Hosted services are an excellent hedge against future
obsolescence and provide a lower-risk alternative to traditional
licensed models.
|
Streamline Health now provides hosted services to UC Health,
Catholic Healthcare West, T. J. Sampson Community Hospital,
Bronx Lebanon Hospital Center, Marion General Medical Center,
the University of California San Francisco (UCSF), Massena
Medical Center, Columbus Ohio Vital Statistics, and
Childrens Medical Center of Columbus, OH, New York
Presbyterian Hospital, and Childrens National Medical
Center, Washington, D.C., among others. In addition,
Streamline Health has licensed its workflow and document
management solutions, which are installed at leading healthcare
providers including Parkview Health, Pro Health Care, Peace
Health, Texas Health Resources, Sarasota Memorial Hospital, the
Albert Einstein Healthcare Network, Beth Israel Medical Center,
and Memorial Sloan-Kettering Cancer Center, among others.
Product
Research & Development, Planning, &
Evaluation
The Company intends to continue product development efforts and
enhance the functionality, integration capabilities, and overall
value of the products provided to our customers, along with the
development of new applications demanded by the marketplace. In
particular, Streamline Health intends to increase the
functionality of its web-based applications. The Company has
continued to add new features, functionality and workflow
applications to our suite of products, including revenue cycle
management solutions such as remote coding, remote physician
order processing, pre-admission registration scanning, insurance
verification, explanation of benefits processing, and enterprise
compliance solutions.
Streamline Health has made investments to integrate our market
research and product planning efforts to enhance the level of
success of future product offerings. Older, less marketable
products are also being evaluated for discontinuation, and
reallocation of resources committed to those products. A more
focused approach on developing highly marketable products is
being implemented that will reduce future costs of development
and allow development resources to be focused on new products
that have been rigorously analyzed from a value-add and customer
demand perspective.
Strategic
Partnerships
The potential reduction of revenue from a major remarketing
partner, GE Healthcare, could have a material adverse effect on
the Companys ability to acquire new customers,
and/or
retain existing customers. The Company will continue to seek
beneficial partnerships, in addition to those with Telus Health,
MRO Inc, and Standard Register currently in place.
28
Results
of Operations
Statement of Operations for the fiscal years ended
January 31, 2011 and 2010, amounts in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
% Change
|
|
|
Systems sales
|
|
$
|
2,558
|
|
|
$
|
3,674
|
|
|
$
|
(1,116
|
)
|
|
|
(30
|
)%
|
Services, maintenance and support
|
|
|
11,498
|
|
|
|
11,233
|
|
|
|
265
|
|
|
|
2
|
%
|
Application-hosting services
|
|
|
3,550
|
|
|
|
3,301
|
|
|
|
249
|
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
17,606
|
|
|
|
18,208
|
|
|
|
(602
|
)
|
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
11,291
|
|
|
|
9,668
|
|
|
|
1,623
|
|
|
|
17
|
%
|
Selling, general and administrative
|
|
|
6,406
|
|
|
|
5,504
|
|
|
|
902
|
|
|
|
16
|
%
|
Product research and development
|
|
|
1,760
|
|
|
|
1,683
|
|
|
|
77
|
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
19,457
|
|
|
|
16,855
|
|
|
|
2,602
|
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
(1,851
|
)
|
|
|
1,353
|
|
|
|
(3,204
|
)
|
|
|
(237
|
)%
|
Other income (expense), net
|
|
|
(83
|
)
|
|
|
(25
|
)
|
|
|
(58
|
)
|
|
|
(232
|
)%
|
Income tax expense
|
|
|
(1,017
|
)
|
|
|
(40
|
)
|
|
|
(977
|
)
|
|
|
(2443
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings(loss)
|
|
$
|
(2,951
|
)
|
|
$
|
1,288
|
|
|
$
|
(4,239
|
)
|
|
|
(329
|
)%
|
Adjusted EBITDA(1)
|
|
$
|
2,886
|
|
|
$
|
4,416
|
|
|
$
|
(1,530
|
)
|
|
|
(35
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Non-GAAP measure meaning, Earnings before interest, Tax,
Depreciation, Amortization, and Stock-based compensation
expense. See Use of Non-GAAP Financial
Measures for additional information and reconciliation. |
The following table sets forth, for each fiscal year indicated,
certain operating data as percentages:
Statement
of Operations(1)
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2010
|
|
|
2009
|
|
|
Systems sales
|
|
|
14.5
|
%
|
|
|
20.2
|
%
|
Services, maintenance and support
|
|
|
65.3
|
|
|
|
61.7
|
|
Application-hosting services
|
|
|
20.2
|
|
|
|
18.1
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
100.0
|
|
|
|
100.0
|
|
Cost of sales
|
|
|
64.1
|
|
|
|
53.1
|
|
Selling, general and administrative
|
|
|
36.4
|
|
|
|
30.2
|
|
Product research and development
|
|
|
10.0
|
|
|
|
9.2
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
110.5
|
|
|
|
92.5
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
(10.5
|
)
|
|
|
7.4
|
|
Other income (expense), net
|
|
|
(.5
|
)
|
|
|
(.3
|
)
|
Income tax net loss
|
|
|
(5.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings(loss)
|
|
|
(16.8
|
)%
|
|
|
7.1
|
%
|
|
|
|
|
|
|
|
|
|
Cost of systems sales
|
|
|
149.6
|
%
|
|
|
81.5
|
%
|
|
|
|
|
|
|
|
|
|
Cost of services, maintenance and support
|
|
|
48.4
|
%
|
|
|
44.8
|
%
|
|
|
|
|
|
|
|
|
|
Cost of application-hosting services
|
|
|
53.6
|
%
|
|
|
49.7
|
%
|
|
|
|
|
|
|
|
|
|
29
|
|
|
(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. |
Fiscal 2010 revenue decreased approximately 3%, or $600,000 as
compared to fiscal 2009. A major factor in comparing the year
over year variance in licensed system sales is the significant
revenue from a single sale of $1.7 million recorded in
fiscal 2009 that was associated with the release of
accessANYware 5.0. The Company incurred an operating loss of
approximately $1.9 million in fiscal 2010, compared to
operating profit of $1.4 million in fiscal 2009.
Contributing factors to the fiscal 2010 loss included, non-cash
charges relating to impairment of capitalized software
development costs, and other tangible and intangible assets; and
increased stock-based compensation expenses primarily consisting
of restricted stock grants for key employee retention. The
fiscal 2010 net loss also includes significant cash charges
such as severance costs and other incentive compensation costs.
Cost of sales increased from 53% to 64% of revenue in fiscal
2010, and selling, general, and administrative increased from
30% to 36% of revenue. The increase in expenses, as described,
significantly increased expenses as a percentage of revenues.
Fiscal 2010 adjusted EBITDA, (a non-GAAP financial measure, see
Use of Non-GAAP Financial Measures for
additional information) which adjusts earnings by removing
significant non-cash charges during the year, was
$2.9 million as compared to $4.4 million in fiscal
year 2009, or a decrease of $1.5 million. The primary
driver of the year over year variance is due to the
$1.7 million proprietary license sale recognized in fiscal
2009 as part of the release of accessANYware 5.0, as well as
increases in cost of sales, and selling, general and
administrative expenses. This was offset by larger non-cash
items adjusted in EBITDA, including an increase of $977,000 tax
expense due to the increase in valuation allowance; an increase
in capitalized software amortization of $319,000 and a $755,000
impairment charge; and an increase in stock based compensation
expense of $403,000.
Comparison
of fiscal year 2010 with 2009
The approximate net increase in working capital deficit of
$960,000 at January 31, 2011 from January 31, 2010
resulted primarily from the following:
The $609,000 increase in accrued expenses at January 31,
2011 from January 31, 2010 is primarily due to increased
severance costs, including an increase in severance accruals of
$374,000; and an increase in bonus and incentive compensation
accruals of $317,000. Accounts payable decreased $323,000 due to
the timing of vendor payments at the end of the fiscal year.
The approximate $811,000 net increase in current deferred
revenues results primarily from the net addition of over
$300,000 of unearned maintenance revenues from two of the
Companys Canadian customers, and the year over year
increase in the volume of proprietary license sales and their
associated maintenance revenues. The remaining increase in
current deferred revenues comes from a $602,000 reclassification
from long-term deferred revenues to current for a long-term
maintenance contract which is in its final year. These increases
were offset by revenue recorded during fiscal 2010.
The Company increased its valuation allowance against deferred
tax assets in the amount of $997,000 to reduce the net
realizable value to $878,000 at January 31, 2011, from
$1,875,000 at January 31, 2010. Please refer to
Application of Critical Accounting Policies
Income Taxes for further details.
The Company extended the term of its working capital credit
facility during the first quarter of fiscal 2011. Please refer
to Contractual Obligations for further details.
The net decrease of $474,000 in capitalized software development
costs, a significant long-term asset, is attributable to the
capitalization of $2.7 million in new software costs. This
was offset by amortization of $2.4 million and the
impairment of capitalized software development costs of
$755,000. The impaired assets were completely written off the
balance sheet as of January 31, 2011. Please refer to
Application of Critical Accounting
30
Policies Capitalized Software Development
Costs, as well as Notes to the Consolidated
Financial, Note A Significant Accounting
Policies, for further details.
Revenues
Revenues consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
Proprietary software(1)
|
|
$
|
1,674
|
|
|
$
|
2,438
|
|
|
$
|
(764
|
)
|
|
|
(31
|
)%
|
Hardware & third party software(1)
|
|
|
884
|
|
|
|
1,236
|
|
|
|
(352
|
)
|
|
|
(28
|
)%
|
Professional services(2)
|
|
|
3,641
|
|
|
|
3,713
|
|
|
|
(72
|
)
|
|
|
(2
|
)%
|
Maintenance & support(2)
|
|
|
7,857
|
|
|
|
7,520
|
|
|
|
337
|
|
|
|
4
|
%
|
Application hosting services
|
|
|
3,550
|
|
|
|
3,301
|
|
|
|
249
|
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
17,606
|
|
|
$
|
18,208
|
|
|
$
|
(602
|
)
|
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Proprietary software, third-party software and third-party
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. This includes BPM and Revenue Cycle Management
Consulting services. |
Proprietary software Revenues
recognized from software sales in fiscal 2010 were $1,674,000,
as compared to $2,438,000 in fiscal 2009, a decrease of
$764,000, or 31%. In fiscal 2010, while the Company experienced
higher volume of new license sales in the third and fourth
quarters, the Company did not have an individually significant
proprietary software license sale recognized, such as that
experienced in fiscal 2009. The revenues relating to the release
of accessANYware 5.0, which were $1.7 million in fiscal
2009, significantly reduce the comparability between the fiscal
years.
Hardware and third party software
Revenues from hardware and third party software sales in fiscal
2010 were $884,000, a decrease of $352,000, or 28% from fiscal
2009. The decrease in hardware and third party software revenue
in fiscal 2009 is primarily attributable to a decrease in
hardware and third-party upgrades from the existing customer
base in fiscal 2010, as compared to fiscal 2009.
Professional services Revenues from
professional services in fiscal year 2010 were $3,641,000, a
decrease of $72,000, or 2% from fiscal 2009. The decrease is
primarily attributable to one customer which had significant
professional services revenue in fiscal 2009, which did not have
significant revenues in fiscal 2010. This decrease was offset by
additional professional services revenues that were earned on
existing customer projects, as well as from projects for new
customers attained during fiscal 2010.
Maintenance and support Revenues from
maintenance and support in fiscal year 2010 were $7,857,000, an
increase of $337,000, or 4% from fiscal 2009. The increase in
maintenance and support results from the addition of new
maintenance contracts with new customers in fiscal 2010, the
recognition of maintenance revenues from backlog subsequent to
the release of accessANYware 5.0 in fiscal 2009, the expansion
of existing systems by customers, and scheduled annual increases
for renewals.
Application hosting Revenues from
application-hosting services were $3,550,000 or an increase of
$249,000, or 8% from fiscal 2009. This increase is attributable
to the recognition of revenue out of backlog for one hosted
contract signed in a prior fiscal year. Revenues from hosted
customer agreements continue to be recognized out of backlog for
contracts signed over the last several years.
Revenues from remarketing partners
Total revenues from GE were $5,873,000, or 33% of total revenues
in fiscal year 2010 as compared to $5,639,000, or 31% in fiscal
2009. Revenues in fiscal 2010 were comprised of $205,000 for
hardware and third party software sales, $667,000 for Streamline
Health software, $1,491,000 for professional services,
$3,091,000 for maintenance and support revenues, and $419,000 of
hosting revenues.
31
Streamline Health relies on GE Healthcare for a significant
amount of its revenues, the loss of which would have a material
adverse affect on future results of operations. During the
fourth quarter of fiscal 2010, Streamline Health learned that GE
Healthcare was shifting its organizational focus to upgrading
its current clients to their latest version software to assist
its customers in meeting meaningful use criteria under the
HITECH act. Streamline Healths remarketing agreement with
GE Healthcare remains in effect, however the impact on
Streamline Health will most likely be a decline in net new sales
opportunities from GE Healthcare. Streamline Health believes
that the opportunity to sell into GE Healthcares current
client base that does not have Streamline Health products
remains, as well as the continuing ability to sell additional
products and services into the existing jointly owed client base
through the remarketing agreement. Streamline Health expects all
signed contracts or purchase orders with GE Healthcare to
purchase proprietary software, application hosting services,
professional services, and maintenance, are to be fully honored.
Total revenues from Telus Health were $1,073,000 in fiscal year
2010, or 6% of total revenues as compared to $2,071,000 in
fiscal year 2009, or 11% of total revenues. Fiscal 2010 revenues
were primarily comprised of $184,000 for Streamline Health
software, $387,000 for professional services, $270,000 for
maintenance, and $232,000 for hardware and third party software.
Cost
of Sales
Cost of sales consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
Cost of system sales
|
|
$
|
3,827
|
|
|
$
|
2,993
|
|
|
$
|
834
|
|
|
|
28
|
%
|
Cost of services, maintenance and support
|
|
|
5,561
|
|
|
|
5,033
|
|
|
|
528
|
|
|
|
10
|
%
|
Cost of application hosting
|
|
|
1,903
|
|
|
|
1,642
|
|
|
|
261
|
|
|
|
16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
$
|
11,291
|
|
|
$
|
9,668
|
|
|
$
|
1,623
|
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales consists of cost of systems sales, cost of
services, maintenance and support, and cost of
application-hosting services. Cost of systems sales includes
amortization and impairment of capitalized software
expenditures, royalties, and the cost of third-party hardware
and software. Cost of systems sales, as a percentage of systems
sales, varies from
period-to-period
depending on hardware and software configurations of the systems
sold. The cost of systems sales as a percentage of associated
revenues in fiscal year 2010 and 2009 were 150% and 82%,
respectively. The relatively fixed cost of the capitalized
software amortization, without the advent of impairment charges,
compared to the variable nature of system sales each quarter
causes these percentages to vary dramatically. The increase in
fiscal 2010 cost of sales is primarily the result of an
impairment charge on capitalized software development costs on
certain workflows of $755,000. The remaining increase includes
the increase in capitalized software development costs
amortization expense of $319,000, partially offset by reduced
hardware and third party software sales and the associated
direct costs.
Cost of services, maintenance and support as a percentage of
services, maintenance and support revenues in 2010 and 2009 were
48% and 45%, respectively. The cost of services, maintenance and
support includes compensation and benefits for support and
professional services personnel and the cost of third party
maintenance contracts. These increases are primarily due to the
increased professional services staffing costs and third party
maintenance contract costs associated with supporting an
increased customer base, and specifically the startup costs for
Revenue Cycle Management Consulting services.
The cost of application-hosting services in 2010 and 2009 as a
percentage of revenues was 53% and 50%, respectively. The cost
of application-hosting services operations is relatively fixed,
but subject to inflation for the goods and services it requires.
The increase is primarily attributable to increased depreciation
and third party license and maintenance expenses from hosting
center operations.
32
Selling,
General and Administrative Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
|
(In thousands):
|
|
|
Selling, general, and administrative
|
|
$
|
6,406
|
|
|
$
|
5,504
|
|
|
$
|
902
|
|
|
|
16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative expenses consist primarily
of compensation and related benefits and reimbursable travel and
living expenses related to the Companys 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. Selling, General and Administrative expenses in
fiscal 2010 and 2009 as a percentage of revenues were 36% and
30%, respectively. This increase in expense is primarily due to
executive officer severance expenses of $463,000 recognized in
fiscal 2010; and an increase of $403,000 in stock award expenses
consisting of restricted stock grants to retain key employees,
restricted stock granted as compensation to the non-employee
directors, an inducement grant of restricted stock to an
executive officer, and other options granted to key employees
during fiscal 2010. The increase in expenses also includes a
one-time executive inducement bonus of $65,000; as well as an
increase in the annual bonus accrual of $255,000 in fiscal 2010
as compared to the prior year. The Company also expensed
employee receivables of $188,000 that were deemed uncollectable
in fiscal 2010. These increases in costs were offset by cost
reductions made in the first half of fiscal 2010 which decreased
total selling and administrative costs.
Product
Research and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
Change
|
|
|
|
(In thousands):
|
|
|
Research and development expense
|
|
$
|
1,760
|
|
|
$
|
1,683
|
|
|
$
|
77
|
|
|
|
5
|
%
|
Capitalized research and development cost
|
|
|
2,701
|
|
|
|
3,668
|
|
|
|
(967
|
)
|
|
|
(26
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total R&D Cost(1)
|
|
$
|
4,461
|
|
|
$
|
5,351
|
|
|
$
|
(890
|
)
|
|
|
(17
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Total cash spend on research and development |
Product research and development expenses consist primarily of
compensation and related benefits; the use of independent
contractors for specific near-term development projects; and an
allocated portion of general overhead costs, including
occupancy. Research and development expenses in fiscal 2010 and
2009, as a percentage of revenues, were 10% and 9%,
respectively. Software capitalization decreased significantly
due to the completion of the new software platform accessANYware
5.0 in the fourth quarter of fiscal 2009, along with decreases
in staffing for development subsequent to the new release in
fiscal 2010.
Operating
Profit (Loss)
The Company incurred an operating loss of $1,851,000 in fiscal
2010, compared to an operating profit of $1,354,000 in fiscal
2009. In fiscal 2009, significant revenues recognized relating
to the general availability of accessANYware 5.0 and the
continued revenue recognition of hosted contracts; which were
coupled with targeted expense reductions and efficiency
initiatives, contributed to improved operating profits. In
fiscal 2010, no such similar sale was recognized, with recurring
operating costs remaining relatively level. Significant
incremental employment expenses regarding changes in management
as well as increased stock awards expense negatively affected
fiscal 2010 earnings. Other significant non-cash charges
included $755,000 for impairment of capitalized software
development costs, and other asset write-offs of $260,000.
Other
Income (Expense)
Interest expense in fiscal 2010 was $116,000 compared to $44,000
in fiscal 2009. Interest expense consists of interest on the
line of credit and interest on a capital lease for computer
equipment. Interest expense increased during 2010 because of
higher average balances outstanding under the Companys
working capital credit facility,
33
and a full year of interest payment on the capital lease
outstanding. Offsetting interest expense is other income of
$34,000 which is primarily foreign currency gains recognized on
Canadian receivables, an increase as compared to $19,000 in
fiscal 2009.
Provision
for Income Taxes
The Company recorded an increase to the valuation allowance in
fiscal 2010 for our deferred tax asset in the amount of
$997,000. The Company evaluated the likelihood that the deferred
tax asset on the balance sheet would be realized within five
years. The Company determined that the net realizable value of
the deferred tax assets was approximately $878,000 at
January 31, 2011 as compared to $1,875,000 at
January 31, 2010, resulting in the $997,000 increase in the
valuation allowance which is recorded as income tax expense. The
remainder of the tax provision at January 31, 2011 is
comprised of state and local taxes. The tax provision of $41,000
for fiscal 2009 consists of alternative minimum federal tax and
state and local provisions.
Net
Earnings (Loss)
The Company incurred a net loss of $2,951,000 in fiscal 2010,
compared to net earnings of $1,288,000 in fiscal 2009. A
decrease in proprietary license revenue and significant
increases in expense from significant cash and non-cash charges
as described in Operating Profit (Loss) section,
significantly impacted the results for fiscal 2010.
Backlog
At January 31, 2011 Streamline Health had master agreements
and purchase orders from customers and remarketing partners for
systems and related services (excluding support and maintenance,
and transaction-based application-hosting revenues), which have
not been delivered or installed which, if fully performed, would
generate future revenues of approximately $4,858,000 compared
with $4,454,000 at January 31, 2010. The related systems
and services are expected to be delivered over the next two to
three years. The increase in the backlog is the result of
several contracts for new or add-on proprietary software
licenses, professional services, or third-party hardware and
software entered into during fiscal 2010. At January 31,
2011, Streamline Health had maintenance agreements purchase
orders, from customers and remarketing partners for maintenance,
which if fully performed, will generate future revenues of
approximately $5,384,000 compared with $5,987,000 at
January 31, 2010, through their respective renewal dates in
fiscal year 2011 and 2012. The decrease results primarily from
the recognition in fiscal 2010 of maintenance revenue from one
long term maintenance contract for one large customer. At
January 31, 2011, Streamline Health had entered into
hosting agreements, which are expected to generate revenues in
excess of $7,362,000 through their respective renewal dates in
fiscal years 2011 through 2014. The application-hosting backlog
decreased from the $9,414,000 at January 31, 2010, due to
the decreased volume of new hosting business and renewals, and
recognized revenues from contracts signed in prior years.
Below is a summary of the backlog at January 31, 2011 and
2010:
|
|
|
|
|
|
|
|
|
|
|
January 31, 2011
|
|
|
January 31, 2010
|
|
|
Streamline Health Software Licenses
|
|
$
|
121,000
|
|
|
$
|
201,000
|
|
Custom Software
|
|
|
42,000
|
|
|
|
105,000
|
|
Hardware and Third Party Software
|
|
|
66,000
|
|
|
|
171,000
|
|
Professional Services
|
|
|
4,629,000
|
|
|
|
3,977,000
|
|
Application Hosting Services
|
|
|
7,362,000
|
|
|
|
9,414,000
|
|
Recurring Maintenance
|
|
|
5,384,000
|
|
|
|
5,987,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
17,604,000
|
|
|
$
|
19,855,000
|
|
|
|
|
|
|
|
|
|
|
Streamline Health believes its future revenues will come from
direct sales and remarketing agreements with other health
information systems vendors similar to the Telus Health
agreement that was entered into in December 2007. Streamline
Health continues to actively pursue remarketing agreements with
other companies.
The commencement of revenue recognition varies depending on the
size and complexity of the system; the implementation schedule
requested by the customer and usage by customers of the
application-hosting services.
34
Therefore, it is difficult for the Company to accurately predict
the revenue it expects to achieve in any particular period.
Streamline Healths 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 Healths business, financial
condition, and results of operations.
Application
of Critical Accounting Policies
Streamline Healths 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 on-going basis, Streamline Health evaluates its estimates,
including those related to product revenues, bad debts,
capitalized software development costs, income taxes, support
contracts, stock-based compensation expenses, 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
recognition. Actual results may differ from these estimates
under different assumptions or conditions.
Streamline Health believes the following critical accounting
policies affect its more significant judgments and estimates
used in the preparation of its consolidated financial statements.
Revenue
Recognition
The Company derives revenue from the licensing and sale of
systems, either directly to end-users or through third-party
resellers, comprising of internally developed software,
third-party software and hardware components; product support,
maintenance and professional services. The Company also sells
the software application through hosting services which also
provide high quality, transaction or subscription based document
imaging/management services from a central data center.
The Company recognizes revenue in accordance with
ASC 985-605,
Software-Revenue Recognition and
ASC 605-25
Revenue Recognition Multiple-element
arrangements. The Company commences revenue recognition when
the following criteria all have been met:
|
|
|
|
|
Persuasive evidence of an arrangement exists,
|
|
|
|
Delivery has occurred or services have been rendered,
|
|
|
|
The arrangement fees are fixed or determinable, and
|
|
|
|
Collection is considered probable
|
If the Company determines that any of the above criteria has not
been met, the Company will defer recognition of the revenue
until all the criteria have been met.
Multiple Element Arrangements In arrangements
that include multiple elements (e.g., proprietary software,
other third party hardware and software components,
post-contract customer support (PCS) installation services,
and/or
training), the Company allocates the total revenue to be earned
under the arrangement to the elements based on their relative
fair value of vendor specific objective evidence (VSOE), which
is based on the price charged when that element is sold
separately. The amounts representing the fair value of VSOE of
the undelivered items such as PCS are deferred until delivered,
or recognized pro rata over the service contract, which is
typically one year.
Software License Arrangements The Company
utilizes the residual method to recognize software license fees
provided all other revenue recognition criteria have been met.
Under the residual method, the difference between the fair value
of VSOE of the undelivered elements and the total arrangement
fee is recognized as the
35
license fee upon delivery. The revenue related to the
undelivered elements are deferred until delivered
and/or
recognized pro rata over the term of the related service
contract.
Billings to customers recorded prior to the recognition of
revenues are classified as deferred revenues. Revenues
recognized prior to progress billings to customers are recorded
as contract receivables.
Each contract is reviewed quarterly by management to determine
the appropriateness of the revenue recognition criteria applied
to the individual contracts based upon the most currently
available information as to the status of the contract, the
customer comments, if any, and the status of any open or
unresolved issues with the customer.
Allowance
for Doubtful Accounts
Accounts and contract receivables are comprised of amounts owed
Streamline Health for licensed software, professional services,
including maintenance services and application-hosting services.
Contracts with individual customers and resellers determine when
receivables are due and payable. In determining the allowance
for doubtful accounts, each unpaid receivable greater than
ninety days old is reviewed monthly to determine the payment
status based upon the most currently available information as to
the status of the receivables, the customer comments, if any,
and the status of any open or unresolved issues with the
customer preventing the payment thereof. In addition, the
financial status of current customers is reviewed monthly to
determine the customers ability to pay their outstanding
balance. Corrective action, if necessary, is taken by the
Company to resolve open issues related to unpaid receivables.
During these monthly reviews, Streamline Health determines the
required allowances for doubtful accounts for estimated losses
resulting from the unwillingness or inability of its customers
or resellers to make required payments. If the financial
condition of the Companys customers or resellers were to
deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required. The
Companys customers typically have been well-established
hospitals, medical facilities, or major Healthcare Information
Systems companies that resell Streamline Health products, which
have good credit histories, and payments have been received
within normal time frames for the industry. However, some
healthcare facilities have experienced significant operating
losses and limited cash resources as a result of limits on
third-party reimbursements from insurance companies and
governmental entities. Extended payment of receivables is not
uncommon from such healthcare facilities.
Capitalized
Software Development Costs
Software development costs are accounted for in accordance with
ASC 985-20
Software Costs of Software to be Sold, Leased or
Marketed. Costs associated with the planning and designing
phase of software development, including coding and testing
activities necessary to establish technological feasibility are
classified as product research and development and are expensed
as incurred. Once technological feasibility has been determined,
a portion of the costs incurred in development, including
coding, testing, and product quality assurance, are capitalized
until available for general release to customers, and
subsequently reported at the lower of unamortized cost or net
realizable value. Amortization is calculated on a
product-by-product
basis and is over the estimated economic life of the software,
using the straight-line method. Amortization commences
immediately following when a product is available for general
release to customers. Unamortized capitalized costs determined
to be in excess of the net realizable value of a product are
expensed at the date of such determination. Streamline Health
reviews, on an on-going basis, the carrying value of its
capitalized software development expenditures, net of
accumulated amortization.
In the first quarter of fiscal 2010, subsequent to the release
of accessANYware 5.0 in fiscal 2009, the Company completed a
review by product of the estimated useful lives of its
capitalized software development costs. After reviewing
strategic plans, analyzing the historical useful life of the
software products, forecasting product life cycles and demand
expectations, the Company assigned a five year estimated useful
life for costs capitalized for accessANYware 5.x products, and
revised the estimated useful lives of certain other products
from three years to five years.
The product life cycle for accessANYware versions prior to 5.x,
have lasted longer than five years. Historical product and
customer data shows that many customers remain on the same
primary version for five years or more
36
after purchase, or product support and development continue for
five years or more. The Company expects accessANYware 5.x
products to also have a five year or longer product life cycle
based on this historical data, and the estimated product
development lifecycle. In addition, the useful life of the
unamortized balance of development costs for prior accessANYware
versions should also reflect an approximate five year life from
their documented general release dates. The Company intends to
actively sell and support these products for a minimum five
years while 5.x products are being rolled out. This same policy
will be applied to FolderView as it is generally a primary
add-on component to prior accessANYware versions, and has had a
similar historical life cycle. FolderView will be embedded into
version 5.1. Upon Company review of the revenue projections, the
estimated life cycle of accessANYware 5.x products, and the
remaining life cycle for prior accessANYware and FolderView
releases, a five year estimated life is reasonable and proper.
The Company accounted for the change in useful life as a change
in accounting estimate which is accounted for on a prospective
basis effective February 1, 2010. The change in useful
lives resulted in a reduction of amortization expense of
approximately $1,004,000 for fiscal 2010, as compared to what
would have otherwise been recognized under the prior useful
lives assigned.
During fiscal 2010, the Company performed its annual analysis of
current software products both generally available and in
process of development. Upon completion of this review, the
Company deemed the capitalized software development costs of
certain software products to be impaired. Unamortized
capitalized costs determined to be in excess of the net
realizable value of a product were expensed as of
January 31, 2011. For all products that were considered
impaired; their carrying values were reduced to zero, and an
impairment of $755,000 was recorded in cost of sales. All
products identified as impaired had reached technical
feasibility, but had not yet been released, and therefore were
not available for sale to customers.
Equity
Awards Stock-Based Compensation
The Company records equity award expenses in accordance with
ASC 718, Compensation Stock
Compensation, which requires the expensing of the fair value
of the equity award on a straight line basis, over the vesting
period. Future grants of equity awards could have a material
impact on reported expenses depending upon the number, value and
vesting period of future awards.
The fair value of stock options is estimated at the date of
grants using a Black-Scholes option pricing model using the
following weighted average assumptions of the risk-free interest
rate, dividend yield, volatility factor of the expected market
price of Streamline Healths common stock, the expected
life of stock options and a forfeiture rate. The Company
currently estimates volatility by using the historical
volatility of our common stock. The risk-free interest rate is
the implied yield currently available on U.S. Treasury
zero-coupon issues with a remaining term equal to the expected
term input to the Black-Scholes model. We estimate forfeitures
using a historical forfeiture rate.
Income
Taxes
Income taxes are accounted for under the provisions of
ASC 740, Income Taxes. Assumptions and estimates are
used in determining the appropriate amount of expense to record
for income taxes. These assumptions and estimates consider the
taxing jurisdictions in which the Company operates as well as
current tax regulations. Accruals are established for estimates
of tax effects for certain transactions, credits, and future
projected profitability of the Company based on our
interpretation of existing facts and circumstances. If these
assumptions and estimates were to change as a result of new
evidence or changes in circumstances, the change in estimate
could result in a material adjustment to the consolidated
financial statements. The Company believes that its income tax
positions and deductions will be sustained on audit and does not
anticipate adjustments that will result in a material change to
its financial position during the next twelve months. Therefore,
no reserves for uncertain tax positions have been recorded as of
January 31, 2011.
A key assumption in the determination of the recognized tax
benefit or (provision) is the amount of the valuation allowance
required to reduce the related deferred tax assets. A valuation
allowance reduces the deferred tax assets to a level which will,
more likely than not, be realized. Whether the deferred tax
assets will be realized depends on the generation of future
taxable income during the periods in which the deferred tax
asset become
37
deductible. The net deferred tax assets reflect
managements estimate of the amount which will, more likely
than not, reduce future taxable income. During fiscal 2010, the
Company revised its estimates and incrementally increased the
valuation allowance by $997,000, reducing the net realizable
value of the deferred tax assets to $878,000. The incremental
increase in the valuation allowance was recorded as income tax
expense in the Consolidated Statement of Operations.
Fair
Value Measurements
The Company determines fair value measurements using the fair
value hierarchy which distinguishes between (1) market
participant assumptions developed based on market data obtained
from independent sources (observable inputs) and (2) an
entitys own assumptions about market participant
assumptions developed based on the best information available
(unobservable inputs). The fair value hierarchy consists of
three broad levels, which gives the highest priority to
unadjusted quoted prices in active markets for identical assets
or liabilities (level 1) and the lowest priority to
unobservable inputs (level 3).
Use of
Non-GAAP Financial Measures
In order to provide investors with greater insight, allow for a
more comprehensive understanding of the information used by
management and the Board of Directors in its financial and
operational decision-making; the Company may supplement the
Consolidated Financial Statements presented on a GAAP basis in
this Annual Report on
Form 10-K
with the following non-GAAP financial measures: EBITDA, Adjusted
EBITDA, and Adjusted EBITDA Margin, and Adjusted EBITDA per
diluted share.
These non-GAAP financial measures have limitations as analytical
tools and should not be considered in isolation or as a
substitute for analysis of Company 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. We also provide a
reconciliation of non-GAAP to GAAP measures used. Investors are
encouraged to carefully review this reconciliation. In addition,
because these non-GAAP measures are not measures of financial
performance under GAAP and are susceptible to varying
calculations, these measures, as defined by the Company, may
differ from and may not be comparable to similarly titled
measures used by other companies.
EBITDA,
Adjusted EBITDA, 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
Margin, as Adjusted EBITDA as a percentage of net revenue; and
(iv) Adjusted EBITDA per diluted share as adjusted EBITDA
divided by adjusted diluted shares outstanding. EBITDA, Adjusted
EBITDA, Adjusted EBITDA Margin and Adjusted EBITDA per diluted
share are used to facilitate a comparison of our operating
performance on a consistent basis from period to period and
provide for a more complete understanding of factors and trends
affecting our business than GAAP measures alone. These measures
assist management and the Board and may be useful to investors
in comparing the Companys 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.
The Board of Directors and management also use these measures as
(i) one of the primary methods for planning and forecasting
overall expectations and for evaluating, on at least a quarterly
and annual basis, actual results against such expectations; and,
(ii) as a performance evaluation metric in determining
achievement of certain executive and employee incentive
compensation programs.
The Companys lenders use Adjusted EBITDA, to assess our
operating performance. The Companys working capital credit
agreement credit agreement requires delivery of compliance
reports certifying compliance with
38
financial covenants certain of which are based on an adjusted
EBITDA measurement that is the same as the Adjusted EBITDA
measurement reviewed by our management and Board of Directors.
EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are not
measures of liquidity under GAAP, or otherwise, and are not
alternatives to cash flow from continuing operating activities;
despite the advantages regarding the use and analysis of these
measures as mentioned above. EBITDA, Adjusted EBITDA, Adjusted
EBITDA Margin, and Adjusted EBITDA per diluted share as
disclosed in this Annual Report on
Form 10-K,
have limitations as analytical tools, and you should not
consider these measures in isolation, or as a substitute for
analysis of Company results as reported under GAAP; nor are
these measures intended to be measures of liquidity or free cash
flow for our discretionary use. Some of the limitations of
EBITDA, and its variations are:
|
|
|
|
|
EBITDA does not reflect our cash expenditures or future
requirements for capital expenditures or contractual commitments;
|
|
|
|
EBITDA does not reflect changes in, or cash requirements for,
our working capital needs;
|
|
|
|
EBITDA does not reflect the interest expense, or the cash
requirements to service interest or principal payments under our
credit agreement;
|
|
|
|
EBITDA does not reflect income tax payments we are required to
make; and
|
|
|
|
Although depreciation and amortization are non-cash charges, the
assets being depreciated and amortized often will have to be
replaced in the future, and EBITDA does not reflect any cash
requirements for such replacements.
|
Adjusted EBITDA has all the inherent limitations of EBITDA. To
properly and prudently evaluate our business, the Company
encourages readers to review the GAAP financial statements
included elsewhere in this Annual Report on
Form 10-K,
and not rely on any single financial measure to evaluate our
business. The Company also strongly urges readers to review the
reconciliation of GAAP net earnings (loss) to Adjusted EBITDA,
and GAAP earnings (loss) per diluted share to Adjusted EBITDA
per diluted share in this section, along with the Consolidated
Financial Statements included elsewhere in this Annual Report on
Form 10-K.
The following table sets forth a reconciliation of EBITDA and
Adjusted EBITDA to net income, a comparable GAAP-based measure,
as well as Earnings (loss) per diluted share to Adjusted EBITDA
per diluted share. All of the items included in the
reconciliation from net earnings (loss) to EBITDA to Adjusted
EBITDA and the related per share calculations are either
(i) recurring non-cash items or items that management does
not consider in assessing the Companys on-going operating
performance. In the case of the non-cash items, management
believes that investors may find it useful to assess the
Companys comparative operating performance because the
measures without such items are less susceptible to variances in
actual performance resulting from depreciation, amortization and
other non-cash charges and more reflective of other factors that
affect operating performance. In the case of the other
non-recurring items, management believes that investors may find
it useful to assess the Companys operating performance if
the measures are presented without these items because their
financial impact does not reflect ongoing operating performance.
39
The following table reconciles net earnings (loss) to EBITDA,
Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted EBITDA per
diluted share for the fiscal years ended January 31, 2011
and 2010 (amounts in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
Adjusted EBITDA Reconciliation
|
|
2010
|
|
|
2009
|
|
|
Net earnings (loss)
|
|
$
|
(2,951
|
)
|
|
$
|
1,288
|
|
Interest expense
|
|
|
117
|
|
|
|
44
|
|
Tax expenses
(1)
|
|
|
1,017
|
|
|
|
40
|
|
Depreciation and other amortization
|
|
|
850
|
|
|
|
769
|
|
Amortization of capitalized software development costs
(2)
|
|
|
3,175
|
|
|
|
2,100
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
2,208
|
|
|
|
4,241
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
678
|
|
|
|
275
|
|
Adjusted EBITDA
|
|
$
|
2,886
|
|
|
$
|
4,516
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
Margin(3)
|
|
|
16.4
|
%
|
|
|
24.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA per diluted share
|
|
2010
|
|
|
2009
|
|
|
Earnings (loss) per share diluted
|
|
$
|
(0.31
|
)
|
|
$
|
0.14
|
|
Interest
expense(4)
|
|
|
0.01
|
|
|
|
0.00
|
|
Tax
expenses(4)
|
|
|
0.11
|
|
|
|
0.00
|
|
Depreciation and other
amortization(4)
|
|
|
0.09
|
|
|
|
0.08
|
|
Amortization of capitalized software development costs
(4)(2)
|
|
|
0.33
|
|
|
|
0.22
|
|
Stock-based compensation
expense(4)
|
|
|
0.07
|
|
|
|
0.03
|
|
Adjusted EBITDA per adjusted diluted share
|
|
$
|
0.30
|
|
|
$
|
0.47
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares
|
|
|
9,504,986
|
|
|
|
9,530,891
|
|
Includable incremental shares adjusted
EBITDA(5)
|
|
|
83,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted diluted shares
|
|
$
|
9,588,339
|
|
|
$
|
9,530,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes a non-cash increase to the valuation allowance of
$997,000 during fiscal 2010 |
|
(2) |
|
Fiscal 2010 amortization expense includes $755,000 of impairment
charges for certain capitalized software development costs |
|
(3) |
|
Adjusted EBITDA as a percentage of GAAP revenues |
|
(4) |
|
Per adjusted diluted weighted average shares |
|
(5) |
|
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 |
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 Healths 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, capital expenditures, and (iii) the level of
operating expenses, all of which can vary significantly from
quarter-to-quarter.
Streamline Healths customers typically have been
well-established hospitals or medical facilities or major HIS
companies that resell Streamline Healths products, which
have good credit histories and payments have been received
within normal time frames for the industry. However, some
healthcare organizations have experienced significant operating
losses as a result of limits on third-party reimbursements from
insurance companies and
40
governmental entities. Agreements with customers often involve
significant amounts and contract terms typically require
customers to make progress payments. Current economic events, as
well as the uncertainty in the credit markets, have adversely
affected the availability of financing for some of our
customers. These recent events, to date, have not materially
impacted the quality of the Companys accounts receivable
balances or the ability to access our working capital facility.
Streamline Health has no significant obligations for capital
resources, other than the $1,206,000 borrowed under its working
capital facility at January 31, 2011, the non-cancelable
operating leases of approximately $1,543,000 payable over the
next five years, and $198,000 for capital leases payable within
one year. Capital expenditures for property and equipment in
2011 are not expected to exceed $1,000,000. Research and
development expense, net of capitalized software development
expenditures, was $1,760,000 and $1,683,000 in 2010 and 2009,
respectively. Streamline Health capitalized software development
expenditures were approximately $2,701,000 and $3,668,000 of in
2010 and 2009, respectively.
Net cash provided by operations in fiscal 2010 was $3,394,000,
an increase of approximately $1,260,000 from $2,134,000 in the
prior fiscal year. The increase was primarily the result of a
non-cash increase in the deferred tax asset valuation allowance
of $997,000 and impairment charges to capitalized software
development costs of $755,000; coupled with an increase in
stock-based compensation expense of approximately $400,000. See
the Consolidated Statements of Cash Flows for the individual
components comprising the net cash provided by operating
activities.
Net cash used in investing activities in fiscal 2010 was
$3,229,000, a decrease of $1,174,000 from $4,403,000 in the
prior fiscal year. The decrease was primarily the result of
decreased capital asset expenditures, and a reduction in the
capitalization of software development costs capitalized since
the accessANYware 5.0 release in fiscal 2009.
Net cash provided by financing activities in fiscal 2010 was
$214,000, an increase of $48,000 from $166,000 in the prior
fiscal year. The increase was primarily the result of the
increase to the balance of the line of credit, increased
proceeds from the exercise of stock options, and offset by
payments made on the capital lease.
Streamline Health believes that to replicate its existing
software would cost significantly more than the stated net book
value of $7,575,000 at January 31, 2011. Over the last
three years, Streamline Health has spent approximately
$15,756,000 in research and development, of which
$10 million, or 64%, has been capitalized. Amortization of
capitalized software expenditures during the last three years
has amounted to approximately $6,189,000 or a net increase in
capitalized software of approximately $2,696,000 during the last
three years; net of impairment charges of $755,000 and $409,000
in fiscal 2010 and 2008, respectively. Many of the programs
related to capitalized software development continue to have
significant value to Streamline Healths current solutions
and those under development, as the concepts, ideas, and
software code are readily transferable and are incorporated into
new products.
As part of the Companys strategy, we are intent on
increasing the level of recurring subscription revenues from
application hosting services. Hosted systems create a cash flow
deficiency in the early years of the hosted contract life as
significant capital investment is made to implement the system,
and cash payments for the service are received over the life of
the hosted contract. As the portfolio of hosted system customers
grows, the Company may need to obtain additional financing to
sustain the inherent deficiency in cash. There can be no
assurance that the Company will be able to obtain sufficient
financing through generation of cash through operations, sale of
assets, additional debt or equity financing, or other infusion
of capital.
At January 31, 2011, Streamline Health had cash on hand of
$1,404,000. 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 to the Company.
41
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.
Contractual
Obligations
The following table details the remaining future minimum
obligations, by fiscal year, as of the end of fiscal 2010 for
all contractual obligations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of Credit
|
|
|
Operating Leases
|
|
|
Capital Lease
|
|
|
Fiscal Year Totals
|
|
|
2011(1)
|
|
$
|
1,206,000
|
|
|
$
|
396,000
|
|
|
$
|
198,000
|
|
|
$
|
1,800,000
|
|
2012
|
|
|
|
|
|
|
334,000
|
|
|
|
|
|
|
|
334,000
|
|
2013
|
|
|
|
|
|
|
320,000
|
|
|
|
|
|
|
|
320,000
|
|
2014
|
|
|
|
|
|
|
329,000
|
|
|
|
|
|
|
|
329,000
|
|
2015
|
|
|
|
|
|
|
164,000
|
|
|
|
|
|
|
|
164,000
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,206,000
|
|
|
$
|
1,543,000
|
|
|
$
|
198,000
|
|
|
$
|
2,947,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In the first quarter of fiscal 2011, the Company agreed to an
amendment extending the line of credit term to mature on
October, 31, 2013 |
Working
Capital Facility
On October 21, 2009, Streamline Health entered into an
amended and restated revolving note with Fifth Third Bank,
Cincinnati, OH. The terms of the note 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:
|
|
|
|
|
The maximum principal amount that can be borrowed has increased
to $2,750,000 from the prior maximum amount of $2,000,000;
|
|
|
|
The maturity date of the loan has been extended to
October 1, 2011 from August 1, 2010; and
|
|
|
|
The interest rate on the outstanding principal balance will
accrue at an annual floating rate of interest equal to the
Adjusted Libor Rate (as defined in the revolving note) plus
3.25%;
|
|
|
|
The requirement to maintain certain levels of tangible net worth
has been eliminated.
|
In connection with the entering into of the revised revolving
note, the Company also entered into an amended and restated
continuing guaranty agreement. The terms of the continuing
guaranty agreement remain the same as set forth in the guaranty
agreement entered into on July 31, 2008, as amended on
January 6, 2009, and October 21, 2009 except that the
covenant that formerly required the Company to maintain certain
levels of minimum tangible net worth has been eliminated. The
loan 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.
Streamline Health was in compliance with all loan covenants at
January 31, 2011. The Company pays a commitment fee on the
unused portion of the facility of 0.06%. The Company had
outstanding borrowings of $1,200,000 as of January 31, 2011.
In the first quarter of fiscal 2011, the Company entered into a
new amended and restated revolving note with Fifth Third Bank,
Cincinnati, OH. The terms of the note remain the same as set
forth in the revolving note entered into on July 31, 2008,
as amended on January 6, 2009, and October 31, 2009,
except as follows: (i) the maximum principal amount that
can be borrowed was increased to $3,000,000 from the prior
maximum amount of $2,750,000,
42
subject to the borrowing base; (ii) the maturity date of
the loan has been extended to October 1, 2013 from
October 1, 2011; (iii) the minimum fixed charge
coverage ratio covenant has been revised, to require that the
Company shall maintain a minimum trailing twelve months fixed
charge coverage ratio of 1.25, measured each fiscal quarter;
(iv) the funded indebtedness to EBITDA covenant has been
revised, to require that the Company shall report a funded
indebtedness to EBITDA ratio no greater than 2.0, measured each
fiscal quarter and; (v) a covenant has been added to
require that the Companys EBITDA shall cover its
capitalized software development costs each fiscal quarter. The
covenant becomes effective on October 31, 2011 and is
calculated will be based on the trailing nine months. As of
January 31, 2012 and thereafter, the calculation will be
based on the trailing twelve months.
For details of the amended notes from previous years, see the
audited financial statements.
Operating
Leases
Streamline Health rents office, data center space and equipment
under non-cancelable operating leases that expire, at various
times, during the next three fiscal years. In fiscal 2010, the
Company renewed its lease agreement with Alliance Street, LLC
for the Companys principal executive offices. The lease
has been extended for a five year term expiring July 31,
2015. In connection with the lease, the property owner provided
certain lease inducements to the Company, including three month
rent allowance equivalent to $42,000. The rent allowance is
granted in three equal allotments on the first, second, and
third anniversaries of the lease execution date. The benefit
realized by the allowance will be recognized on a straight- line
basis over the term of the lease.
Capital
Lease
Streamline Health acquired additional computer equipment for the
application hosting services data center in January of 2009,
which are accounted for as a capitalized lease. The lease is
payable in quarterly installments through the lease term
expiring January of 2012.
Off
Balance Sheet Arrangements
Streamline Health does not have any off balance sheet
arrangements as of January 31, 2011.
Contingencies
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
Healths consolidated results of operations or consolidated
financial position.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
The Company is exposed to interest rate risk primarily through
its working capital credit facility with Fifth Third Bank. As of
January 31, 2011, the effective interest rate was 3.63%.
Based on borrowings of $1,200,000 as of January 31, 2011,
for each percentage point increase in the interest rate, annual
interest expense would increase by less than $15,000. This
analysis uses simplified assumptions such as
across-the-board
increases or decreases in the level of interest rates with no
other subsequent changes for the remainder of the period, and it
does not consider the impact of increases or decreases in the
outstanding debt, which generally occurs throughout the fiscal
year. Therefore, although it gives an indication of the
Companys exposure to changes in interest rates, it is not
intended to predict future results, which may vary significantly.
Currently, the Company does not have any financial instruments
for trading, other speculative purposes or to manage interest
rate exposure.
Streamline Health currently invests its cash balances, in excess
of its current needs in an interest bearing, or bank fee
reduction based, checking account. As such, Streamline Health
does not have any significant market risk exposure at
January 31, 2011.
43
|
|
ITEM 8.
|
Financial
Statements and Supplementary Data
|
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE COVERED BY
REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM
All other financial statement schedules are omitted because they
are not applicable or the required information is included in
the consolidated financial statements or notes thereto.
44
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Streamline Health Solutions, Inc.
Cincinnati, Ohio
We have audited the accompanying consolidated balance sheets of
Streamline Health Solutions, Inc. as of January 31, 2011
and 2010 and the related consolidated statements of operations,
changes in stockholders equity and cash flows for the
years then ended. In connection with our audits of the financial
statements, we have also audited the financial statement
schedule listed in the accompanying index. These financial
statements and schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall presentation of the financial statements and
schedule. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Streamline Health Solutions, Inc. at
January 31, 2011 and 2010, and the results of its
operations and its cash flows for the years then ended, in
conformity with accounting principles generally accepted in the
United States of America.
Also, in our opinion, the financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
Chicago, Illinois
April 13, 2011
/s/ BDO
USA, LLP
45
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,403,949
|
|
|
$
|
1,025,173
|
|
Accounts receivable, net of allowance for doubtful accounts of
$100,000
|
|
|
2,620,756
|
|
|
|
1,922,279
|
|
Contract receivables
|
|
|
680,096
|
|
|
|
1,182,308
|
|
Prepaid hardware and third party software for future delivery
|
|
|
72,259
|
|
|
|
149,281
|
|
Prepaid customer maintenance contracts
|
|
|
794,299
|
|
|
|
1,058,282
|
|
Other prepaid assets
|
|
|
200,056
|
|
|
|
305,050
|
|
Deferred income taxes
|
|
|
167,000
|
|
|
|
224,000
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
5,938,415
|
|
|
|
5,866,373
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
Computer equipment
|
|
|
2,708,819
|
|
|
|
2,987,039
|
|
Computer software
|
|
|
1,947,135
|
|
|
|
1,816,397
|
|
Office furniture, fixtures and equipment
|
|
|
747,867
|
|
|
|
747,867
|
|
Leasehold improvements
|
|
|
639,864
|
|
|
|
574,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,043,685
|
|
|
|
6,125,560
|
|
Accumulated depreciation and amortization
|
|
|
(4,517,860
|
)
|
|
|
(4,344,432
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
1,525,825
|
|
|
|
1,781,128
|
|
Contract receivables, less current portion
|
|
|
241,742
|
|
|
|
146,093
|
|
Capitalized software development costs, net of accumulated
amortization of $12,832,347 and $10,411,828, respectively
|
|
|
7,575,064
|
|
|
|
8,049,292
|
|
Other, including deferred taxes of $711,000 and $1,651,000,
respectively
|
|
|
734,376
|
|
|
|
1,681,661
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,015,422
|
|
|
$
|
17,524,547
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
565,252
|
|
|
$
|
887,928
|
|
Accrued compensation
|
|
|
1,163,843
|
|
|
|
559,235
|
|
Accrued other expenses
|
|
|
480,422
|
|
|
|
476,504
|
|
Current portion of capital lease obligations
|
|
|
183,637
|
|
|
|
249,309
|
|
Current portion of deferred revenues
|
|
|
5,766,795
|
|
|
|
4,956,303
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
8,159,949
|
|
|
|
7,129,279
|
|
Deferred revenues, less current portion
|
|
|
|
|
|
|
602,239
|
|
Line of credit
|
|
|
1,200,000
|
|
|
|
900,000
|
|
Lease incentive liability, less current portion
|
|
|
61,034
|
|
|
|
|
|
Capital lease obligation, less current portion
|
|
|
|
|
|
|
161,666
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
9,420,983
|
|
|
|
8,793,184
|
|
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, 9,856,517 and
9,436,824 shares issued and outstanding, respectively
|
|
|
98,565
|
|
|
|
94,368
|
|
Additional paid in capital
|
|
|
36,975,242
|
|
|
|
36,160,126
|
|
Accumulated other comprehensive income
|
|
|
|
|
|
|
5,620
|
|
Accumulated (deficit)
|
|
|
(30,479,368
|
)
|
|
|
(27,528,751
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
6,594,439
|
|
|
|
8,731,363
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,015,422
|
|
|
$
|
17,524,547
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
46
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2010
|
|
|
2009
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Systems sales
|
|
$
|
2,557,797
|
|
|
$
|
3,673,522
|
|
Services, maintenance and support
|
|
|
11,497,969
|
|
|
|
11,233,183
|
|
Application-hosting services
|
|
|
3,550,225
|
|
|
|
3,301,493
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
17,605,991
|
|
|
|
18,208,198
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Cost of systems sales
|
|
|
3,827,313
|
|
|
|
2,993,442
|
|
Cost of services, maintenance and support
|
|
|
5,561,578
|
|
|
|
5,033,145
|
|
Cost of application-hosting services
|
|
|
1,902,521
|
|
|
|
1,641,576
|
|
Selling, general and administrative
|
|
|
6,406,190
|
|
|
|
5,503,580
|
|
Product research and development
|
|
|
1,759,694
|
|
|
|
1,682,773
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
19,457,296
|
|
|
|
16,854,516
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
(1,851,305
|
)
|
|
|
1,353,682
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(116,392
|
)
|
|
|
(43,823
|
)
|
Other income (expenses)
|
|
|
34,080
|
|
|
|
18,749
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes
|
|
|
(1,933,617
|
)
|
|
|
1,328,608
|
|
Income tax (expense)
|
|
|
(1,017,000
|
)
|
|
|
(40,500
|
)
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(2,950,617
|
)
|
|
$
|
1,288,108
|
|
|
|
|
|
|
|
|
|
|
Basic net earnings (loss) per common share
|
|
$
|
(.31
|
)
|
|
$
|
.14
|
|
|
|
|
|
|
|
|
|
|
Number of shares used in basic per common share computation
|
|
|
9,504,986
|
|
|
|
9,381,285
|
|
|
|
|
|
|
|
|
|
|
Diluted net earnings (loss) per common share
|
|
$
|
(.31
|
)
|
|
$
|
.14
|
|
|
|
|
|
|
|
|
|
|
Number of shares used in diluted per common share computation
|
|
|
9,504,986
|
|
|
|
9,530,891
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
47
CONSOLIDATED
STATEMENTS OF CHANGES IN
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Convertible
|
|
|
|
|
|
Additional
|
|
|
other
|
|
|
|
|
|
Total
|
|
|
|
redeemable
|
|
|
Common
|
|
|
paid in
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
stockholders
|
|
|
|
preferred stock
|
|
|
stock
|
|
|
capital
|
|
|
income
|
|
|
(deficit)
|
|
|
equity
|
|
|
Balance at January 31, 2009
|
|
$
|
|
|
|
$
|
93,548
|
|
|
$
|
35,820,417
|
|
|
$
|
|
|
|
$
|
(28,816,859
|
)
|
|
$
|
7,097,106
|
|
Stock issued to Employee Stock Purchase Plan and exercise of
stock options
|
|
|
|
|
|
|
465
|
|
|
|
65,435
|
|
|
|
|
|
|
|
|
|
|
|
65,900
|
|
Restricted stock issued
|
|
|
|
|
|
|
355
|
|
|
|
(355
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
274,629
|
|
|
|
|
|
|
|
|
|
|
|
274,629
|
|
Unrecognized benefit of foreign currency forward contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,620
|
|
|
|
|
|
|
|
5,620
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,288,108
|
|
|
|
1,288,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2010
|
|
|
|
|
|
|
94,368
|
|
|
|
36,160,126
|
|
|
|
5,620
|
|
|
|
(27,528,751
|
)
|
|
|
8,731,363
|
|
Stock issued to Employee Stock Purchase Plan and exercise of
stock options
|
|
|
|
|
|
|
1,335
|
|
|
|
139,306
|
|
|
|
|
|
|
|
|
|
|
|
140,641
|
|
Restricted stock issued
|
|
|
|
|
|
|
2,862
|
|
|
|
(2,362
|
)
|
|
|
|
|
|
|
|
|
|
|
500
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
678,172
|
|
|
|
|
|
|
|
|
|
|
|
678,172
|
|
Recognized benefit of foreign currency forward contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,620
|
)
|
|
|
|
|
|
|
(5,620
|
)
|
Net (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,950,617
|
)
|
|
|
(2,950,617
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2011
|
|
$
|
|
|
|
$
|
98,565
|
|
|
$
|
36,975,242
|
|
|
$
|
|
|
|
$
|
(30,479,368
|
)
|
|
$
|
6,594,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
48
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2010
|
|
|
2009
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(2,950,617
|
)
|
|
$
|
1,288,108
|
|
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,270,902
|
|
|
|
2,868,997
|
|
Impairment loss on capitalized software development costs
|
|
|
754,709
|
|
|
|
|
|
Deferred tax provision
|
|
|
997,000
|
|
|
|
|
|
Loss on disposal of fixed assets
|
|
|
1,050
|
|
|
|
4,308
|
|
Share-based compensation expense
|
|
|
678,172
|
|
|
|
274,629
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts, contract and installment receivables
|
|
|
(291,914
|
)
|
|
|
(1,098,299
|
)
|
Other assets
|
|
|
440,379
|
|
|
|
54,664
|
|
Accounts payable
|
|
|
(322,676
|
)
|
|
|
174,020
|
|
Accrued expenses
|
|
|
608,526
|
|
|
|
264,627
|
|
Deferred revenues
|
|
|
208,253
|
|
|
|
(1,697,272
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
3,393,784
|
|
|
|
2,133,782
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(530,434
|
)
|
|
|
(698,698
|
)
|
Capitalization of software development costs
|
|
|
(2,701,000
|
)
|
|
|
(3,668,000
|
)
|
Other
|
|
|
2,622
|
|
|
|
(36,612
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(3,228,812
|
)
|
|
|
(4,403,310
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Net change under revolving credit facility
|
|
|
300,000
|
|
|
|
100,000
|
|
Proceeds from exercise of stock options and stock purchase plan
|
|
|
141,141
|
|
|
|
65,900
|
|
Payments on capital lease
|
|
|
(227,337
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
213,804
|
|
|
|
165,900
|
|
|
|
|
|
|
|
|
|
|
(Decrease) Increase in cash and cash equivalents
|
|
|
378,776
|
|
|
|
(2,103,628
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
1,025,173
|
|
|
|
3,128,801
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
1,403,949
|
|
|
$
|
1,025,173
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
74,898
|
|
|
$
|
34,507
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
47,658
|
|
|
$
|
7,265
|
|
|
|
|
|
|
|
|
|
|
Property and equipment additions financed by capital leases
|
|
$
|
|
|
|
$
|
410,975
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
49
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTE A
|
ORGANIZATION
AND DESCRIPTION OF BUSINESS
|
Streamline Health Solutions, Inc. (Streamline Health
or the Company) operates in one segment as a
provider of Healthcare Information Technology through the
licensing of its Electronic Health Information Management,
Patient Financial Services and other Workflow software
applications and the use of such applications through its
application-hosting services as an Application Service Provider.
Streamline Health also provides implementation and consulting
services to complement its product line. Streamline
Healths software and services enable hospitals and
integrated healthcare delivery systems in the United States and
Canada to capture, store, manage, route, retrieve, and process
vast amounts of patient clinical, financial and other healthcare
provider information.
Fiscal
Year
All references to a fiscal year refer to the fiscal year
commencing February 1 in that calendar year and ending on
January 31 of the following year.
|
|
NOTE B
|
SIGNIFICANT
ACCOUNTING POLICIES
|
Basis of
Presentation
The consolidated financial statements include the accounts of
Streamline Health Solutions, Inc. and its subsidiary, Streamline
Health, Inc. All significant intercompany transactions are
eliminated in consolidation.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
Cash and
Cash Equivalents
Financial instruments that potentially subject us to
concentrations of credit risk consist principally of cash demand
deposits. Cash deposits are placed in Federal Deposit Insurance
Corporation (FDIC) insured financial institutions.
Cash deposits may exceed FDIC insured levels from time to time.
For purposes of the Consolidated Statements of Cash Flows, the
Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Receivables
Accounts and contract receivables are comprised of amounts owed
to Streamline Health for licensed software, professional
services, including maintenance services and application-hosting
services and are presented net of the allowance for doubtful
accounts. The timing of revenue recognition may not coincide
with the billing terms of the customer contract, resulting in
unbilled receivables or deferred revenues; therefore certain
contract receivables represent revenues recognized prior to
customer billings. Individual contract terms with customers or
resellers determine when receivables are due.
Allowance
for Doubtful Accounts
In determining the allowance for doubtful accounts, aged
receivables are analyzed monthly by management. Each identified
receivable is reviewed based upon the most recent information
available, the customer comments, if any, and the status of any
open or unresolved issues with the customer preventing the
payment thereof. Corrective action, if necessary, is taken by
the Company to resolve open issues related to unpaid
receivables. During these monthly reviews, Streamline Health
determines the required allowances for doubtful accounts for
estimated losses resulting from the unwillingness or inability
of its customers or resellers to make required payments. The
allowance for doubtful accounts was $100,000 at January 31,
2011 and 2010.
50
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Property
and Equipment
Property and equipment are stated at cost. Depreciation is
computed using the straight-line method, over the estimated
useful lives of the related assets. Estimated useful lives are
as follows:
|
|
|
|
|
Computer equipment and software
|
|
|
3-4 years
|
|
Office equipment
|
|
|
5 years
|
|
Office furniture and fixtures
|
|
|
7 years
|
|
Leasehold improvements
|
|
|
Term of lease
|
|
In fiscal 2010, the Company entered into a Second Amendment to
Lease the Agreement signed in fiscal 2005 with Alliance Street,
LLC for the Companys principal executive offices. The term
of the lease has been extended for a five year term expiring
July 31, 2015. In connection with the amendment, the
property owner provided certain lease inducements to the
Company, including a three month rent allowance equivalent to
$42,000. The rent allowance is granted in three equal allotments
on the first, second, and third anniversaries of the amendment
execution date. The Company has accounted for the value of these
inducements by recognizing the total allowance benefit over the
term of the lease, and recording the rent allowance as a prepaid
lease expense.
Depreciation expense for property and equipment in fiscal 2010
and 2009 was $850,000 and $769,000, respectively.
Leased computer equipment and software meeting certain criteria
are capitalized and the present value of the related lease
payments is recorded as a liability. Depreciation of the
capitalized lease assets is computed on the straight-line method
over the term of the lease.
Normal repair and maintenance is expensed as incurred.
Replacements are capitalized and the property and equipment
accounts are relieved of the items being replaced or disposed
of, or if no longer of value. The related cost and accumulated
depreciation of the disposed assets are eliminated and any gain
or loss on disposition is included in the results of operations
in the year of disposal.
Impairment
of Long-Lived Assets
Streamline Health reviews the carrying value of the long-lived
assets whenever facts and circumstances exist that would suggest
that assets might be impaired or that the useful lives should be
modified. Among the factors the Company considers in making the
evaluation are changes in market position and profitability. If
facts and circumstances are present which may indicate
impairment is probable, the Company will prepare a projection of
the undiscounted cash flows of the specific asset and determine
if the long-lived assets are recoverable based on these
undiscounted cash flows. If impairment is indicated, an
adjustment will be made to reduce the carrying amount of these
assets to their fair value.
Capitalized
Software Development Costs
Software development costs associated with the planning and
designing phase of software development, including coding and
testing activities necessary to establish technological
feasibility, are classified as product research and development
and are expensed as incurred. Once technological feasibility has
been determined, a portion of the costs incurred in development,
including coding, testing, and product quality assurance, are
capitalized and subsequently reported at the lower of
unamortized cost or net realizable value. Streamline Health
capitalized approximately $2,701,000 and $3,668,000 in fiscal
2010 and 2009, respectively.
Streamline Health reviews, on an on-going basis, the carrying
value of its capitalized software development expenditures, net
of accumulated amortization. Unamortized capitalized costs
determined to be in excess of the net realizable value of a
product are expensed at the date of such determination.
Amortization is provided on a
product-by-product
basis over the estimated economic life of the software, using
the straight-line method. Amortization commences when a product
is available for general release to customers. In the first
quarter of
51
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
fiscal 2010, the Company revised the estimated useful lives of
certain products capitalized in software development costs. See
Note C for further description of this change in accounting
estimate.
Amortization expense was approximately $2,420,000 and $2,100,000
in fiscal 2010 and 2009, respectively.
Additionally, fiscal 2010 includes $755,000 of additional
expense due to impairment of certain capitalized software
development costs. During fiscal 2010, the Company performed its
annual analysis of current software products both generally
available and in process of development. Upon completion of this
review, the Company deemed the capitalized software development
costs of certain software products to be impaired. Unamortized
capitalized costs determined to be in excess of the net
realizable value of a product were expensed as of
January 31, 2011. For all products that were considered
impaired; their carrying values were reduced to zero, and an
impairment of $755,000 was recorded in cost of sales. All
products identified as impaired had reached technical
feasibility, but had not yet been released, and therefore were
not available for sale to customers.
Research and development expense, net of capitalized amounts,
was $1,760,000 and $1,683,000 in fiscal 2010 and 2009,
respectively.
Fair
Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses approximate
fair value based on the short-term maturity of these
instruments. The carrying amount of the Companys long-term
debt approximates fair value due to the variable interest rate
associated with the debt.
Revenue
Recognition
The Company derives revenue from the licensing and sale of
systems, either directly to end-users or through third-party
resellers, comprising of internally developed software,
third-party software and hardware components; product support,
maintenance and professional services. The Company also sells
the software application through hosting services which also
provide high quality, transaction or subscription based document
imaging/management services from a central data center.
The Company recognizes revenue In accordance with
ASC 985-605,
Software-Revenue Recognition and
ASC 605-25
Revenue Recognition Multiple-element
arrangements. The Company commences revenue recognition when
the following criteria all have been met:
|
|
|
|
|
Persuasive evidence of an arrangement exists,
|
|
|
|
Delivery has occurred or services have been rendered,
|
|
|
|
The arrangement fees are fixed or determinable, and
|
|
|
|
Collection is considered probable
|
If the Company determines that any of the above criteria has not
been met, the Company will defer recognition of the revenue
until all the criteria have been met.
Multiple Element Arrangements In arrangements
that include multiple elements (e.g., proprietary software,
other third party hardware and software components,
post-contract customer support (PCS) installation
services,
and/or
training), the Company allocates the total revenue to be earned
under the arrangement to the elements based on their relative
fair value of vendor specific objective evidence
(VSOE), which is based on the price charged when
that element is sold separately. The amounts representing the
fair value of VSOE of the undelivered items such as PCS are
deferred until delivered, or recognized pro rata over the
service contract, which is typically one year.
Software License Arrangements The Company
utilizes the residual method to recognize software license fees
provided all other revenue recognition criteria have been met.
Under the residual method, the difference between the fair value
of VSOE of the undelivered elements and the total arrangement
fee is recognized as the
52
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
license fee upon delivery of the license to the customer. The
revenue related to the undelivered elements are deferred until
delivered
and/or
recognized pro rata over the term of the related service
contract.
Billings to customers recorded prior to the recognition of
revenues are classified as deferred revenues. Revenues
recognized prior to progress billings to customers are recorded
as contract receivables.
Concentrations
Financial instruments, which potentially expose Streamline
Health to concentrations of credit risk, consist primarily of
accounts receivable. Streamline Healths accounts
receivable are concentrated in the healthcare industry. However,
Streamline Healths customers typically are
well-established hospitals, medical facilities, or major Health
Information Systems companies that resell Streamline
Healths solutions that have good credit histories and
payments have been received within normal time frames for the
industry. However, some hospitals and medical facilities have
experienced significant operating losses as a result of limits
on third-party reimbursements from insurance companies and
governmental entities and extended payment of receivables from
these entities is not uncommon.
To date, Streamline Health has relied on a limited number of
customers and remarketing partners for a substantial portion of
its total revenues. Streamline Health expects that a significant
portion of its future revenues will continue to be generated by
a limited number of customers and its remarketing partners.
Streamline Health currently buys all of its hardware and some
major software components of its Healthcare Information Systems
from third-party vendors. Although there are a limited number of
vendors capable of supplying these components, management
believes that other suppliers could provide similar components
on comparable terms.
Equity
Awards
The Company is required to recognize compensation cost for
share-based payments based on their grant-date fair value from
the beginning of the fiscal period in which the recognition
provisions are first applied. The Company incurred total annual
compensation expense related to stock-based awards of $678,000
and $275,000 in fiscal 2010 and 2009, respectively.
The fair value of the stock options granted in 2010 and 2009 was
estimated at the date of grants using a Black-Scholes option
pricing model. Option pricing model input assumptions such as
expected term, expected volatility, and risk-free interest rate
impact the fair value estimate. Further, the forfeiture rate
impacts the amount of aggregate compensation. These assumptions
are subjective and are generally derived from external (such as,
risk free rate of interest) and historical data (such as,
volatility factor, expected term, and forfeiture rates). Future
grants of equity awards accounted for as stock-based
compensation could have a material impact on reported expenses
depending upon the number, value and vesting period of future
awards.
The Company issues restricted stock awards in the form of
Company common stock. The fair value of these awards is based on
the market close price per share on the day of grant. The
Company expenses the compensation cost of these awards as the
restriction period lapses, which is typically a one year service
period to the Company.
Income
Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and for tax credit
carry-forwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to
be recovered or settled. In assessing net deferred tax assets,
the Company considers whether it is more likely than not that
some or all of the deferred tax assets will not be realized. The
Company establishes a valuation allowance when it is more likely
than not that all or a portion of deferred tax assets will not
be realized. During fiscal 2010, the Company increased the
valuation allowance as it was determined
53
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
more likely than not that an additional portion of the deferred
tax assets will not be realized. See Note F for further
details.
The Company believes that its income tax positions and
deductions will be sustained on audit. A tax position is
recognized as a benefit only if it is more likely than not that
the tax position would be sustained in a tax examination. No
reserves for uncertain tax positions have been recorded as of
January 31, 2010. The Company would recognize any
corresponding interest and penalties associated with its income
tax positions in income tax expense.
Comprehensive
Income (Loss)
Comprehensive income (loss) consists of two components, net
income (loss) and other comprehensive income. Other
comprehensive income (loss) refers to revenue, expenses, gains,
and losses that under generally accepted accounting principles
are recorded as an element of shareholders equity but are
excluded from net income (loss). The Companys other
comprehensive income (loss) consists of the effective portion of
foreign currency hedge instruments.
The following table summarizes the components of comprehensive
income (loss), net of taxes:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2010
|
|
|
2009
|
|
|
Net earnings (loss)
|
|
$
|
(2,950,617
|
)
|
|
$
|
1,288,108
|
|
Change in unrecognized gain on foreign currency hedges
|
|
|
(5,620
|
)
|
|
|
5,620
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
(2,956,237
|
)
|
|
$
|
1,293,728
|
|
|
|
|
|
|
|
|
|
|
Net
Earnings (Loss) Per Common Share
The two-class method is used to calculate basic and diluted
earnings (loss) per share 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 is computed by dividing
the net earnings (loss) allocated to common stock holders by the
weighted average number of common shares outstanding. In
determining the amount of net earnings (loss) to allocate to
common holders, earnings are allocated to both common shares and
participating securities based on their respective
weighted-average shares outstanding for the period. Diluted net
earnings (loss) per common share reflects the potential dilution
that could occur if stock options, stock purchase plan
commitments, and restricted stock were exercised into common
stock, under certain circumstances, that then would share in the
earnings of Streamline Health. The dilutive effect is calculated
using the treasury stock method.
The following is the calculation of the basic and diluted net
earnings (loss) per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2010
|
|
|
2009
|
|
|
Net earnings (loss)
|
|
$
|
(2,950,617
|
)
|
|
$
|
1,288,108
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding used in basic per common
share computations
|
|
|
9,504,986
|
|
|
|
9,381,285
|
|
Stock options and restricted stock
|
|
|
|
|
|
|
149,606
|
|
|
|
|
|
|
|
|
|
|
Number of average shares used in diluted per common share
computation
|
|
|
9,504,986
|
|
|
|
9,530,891
|
|
Basic net earnings (loss) per share of common stock
|
|
$
|
(.31
|
)
|
|
$
|
.14
|
|
|
|
|
|
|
|
|
|
|
Diluted net earnings (loss) per share of common stock
|
|
$
|
(.31
|
)
|
|
$
|
.14
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share exclude the effect of 942,000
and 166,382 outstanding stock options in fiscal 2010 and 2009,
respectively. The inclusion of these shares would be
anti-dilutive.
54
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At January 31, 2011 and 2010, there were 223,090 and 35,502
unvested restricted shares of common stock outstanding. The
unvested restricted shares meet the requirements for
participating securities but were not included in the
computation of basic and diluted loss per share in fiscal 2010
as losses are not allocated to unvested restricted shares per
the agreement.
Recent
Accounting Pronouncements
In October 2009, the FASB issued ASU
2009-13
Revenue Recognition (Topic 605), which applies to the
revenue recognition of multiple element arrangements. The new
guidance states that if vendor specific objective evidence or
third party evidence for deliverables in an arrangement cannot
be determined, companies will be required to develop a best
estimate of the selling price to separate deliverables and
allocate arrangement consideration using the relative selling
price method. The accounting guidance will be applied
prospectively and will become effective during the first quarter
of fiscal year 2011. Early adoption is allowed. The Company
believes the adoption of this guidance will not have a material
impact on the Companys Consolidated Financial Statements.
In October 2009, the FASB issued ASU
2009-14
Software (Topic 985), which applies to certain revenue
arrangements that include software elements. Previously,
companies that sold tangible products with more than
incidental software were required to apply software
revenue recognition guidance. This guidance often delayed
revenue recognition for the delivery of the tangible product.
Under the new guidance, tangible products that have software
components that are essential to the functionality
of the tangible product will be excluded from the software
revenue recognition guidance. The new guidance will include
factors to help companies determine what is essential to
the functionality. Software-enabled products will now be
subject to other revenue guidance and will likely follow the
guidance for multiple deliverable arrangements issued by the
FASB in September 2009. The new guidance is to be applied on a
prospective basis for revenue arrangements entered into or
materially modified in fiscal years beginning on or after
June 15, 2010, with earlier application permitted. If a
company elects earlier application and the first reporting
period of adoption is not the first reporting period in the
companys fiscal year, the guidance must be applied through
retrospective application from the beginning of the
companys fiscal year and the company must disclose the
effect of the change to those previously reported periods. The
Company believes the adoption of this guidance will not have a
material impact on the Companys Consolidated Financial
Statements.
In February 2010, the FASB issued amended guidance on subsequent
events. Under this amended guidance, SEC filers are no longer
required to disclose the date through which subsequent events
have been evaluated in originally issued and revised financial
statements. This guidance was effective immediately and the
Company adopted these new requirements for the period ended
April 30, 2010. The Company considered subsequent events
and any impact to the financial statements and disclosures, if
any, for fiscal 2010.
|
|
NOTE C
|
CHANGE
IN ACCOUNTING ESTIMATE
|
In the first quarter of fiscal 2010, the Company completed a
review by product of the estimated useful lives of its
capitalized software development costs. Upon completion of this
review the Company assigned a five year estimated useful life
for costs capitalized for accessANYware 5.x products, and
revised the estimated useful lives of certain other products
from three years to five years.
The product life cycle for accessANYware versions prior to 5.x,
have lasted longer than five years. Historical product and
customer data shows that many customers remain on the same
primary version for five years or more after purchase, or
product support and development continue for five years or more.
The Company expects the accessANYware 5.x products to also have
a five year or longer product life cycle based on this
historical data, and the estimated product development
lifecycle. In addition, the useful life of the unamortized
balance of development costs for prior accessANYware versions
should also reflect an approximate five year life from their
documented general release dates. The Company intends to
actively sell and support these products for a minimum five
years while 5.x products are being rolled out. This same policy
will be applied to FolderView as it is generally a primary
add-on component to prior accessANYware versions, and has had a
similar historical life cycle. Upon Company
55
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
review of the revenue projections, the estimated life cycle of
accessANYware 5.x products, and the remaining life cycle for
prior accessANYware and FolderView releases, a five year
estimated life is reasonable and proper.
The Company accounted for the change in useful life as a change
in accounting estimate which is accounted for on a prospective
basis effective February 1, 2010. For the year ended
January 31, 2011, the change resulted in a reduction of
amortization expense of approximately $1,004,000; an increase in
income from continuing operations and net income of $1,004,000;
and a decrease in basic and diluted loss per share of $0.11.
Amortization expense for capitalized software development costs
is included in cost of system sales in the consolidated
statements of operations.
Streamline Health rents office and data center space and
equipment under non-cancelable operating leases that expire at
various times through fiscal year 2015. Future minimum lease
payments under non-cancelable operating leases for the next four
fiscal years and thereafter are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facilities
|
|
|
Equipment
|
|
|
Fiscal Year Totals
|
|
|
2011
|
|
$
|
377,000
|
|
|
$
|
19,000
|
|
|
$
|
396,000
|
|
2012
|
|
|
315,000
|
|
|
|
19,000
|
|
|
|
334,000
|
|
2013
|
|
|
315,000
|
|
|
|
5,000
|
|
|
|
320,000
|
|
2014
|
|
|
329,000
|
|
|
|
|
|
|
|
329,000
|
|
2015
|
|
|
164,000
|
|
|
|
|
|
|
|
164,000
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,500,000
|
|
|
$
|
43,000
|
|
|
$
|
1,543,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent expense was $431,000 and $384,000 for fiscal years 2010 and
2009, respectively.
In January 2010, the Company acquired additional computer
equipment for the application hosting services data center,
which are accounted for as capitalized leases. The lease is
payable in quarterly installments of $58,000, through January
2012. The terms of the lease call for a bargain purchase option
of $1 at the end of the lease term. The following is an analysis
of the leased property under capital leases by major classes:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2010
|
|
|
2009
|
|
|
Computer equipment
|
|
$
|
215,427
|
|
|
$
|
215,427
|
|
Computer software
|
|
|
118,381
|
|
|
|
118,381
|
|
Other
|
|
|
77,167
|
|
|
|
77,167
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
410,975
|
|
|
|
410,975
|
|
Accumulated depreciation
|
|
|
122,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net value of leased property
|
|
$
|
288,940
|
|
|
$
|
410,975
|
|
|
|
|
|
|
|
|
|
|
The present value of the future lease payments upon inception of
$411,000 was based on interest rates implicit in the lease
agreement at the inception of the lease. The total obligation
for principal and interest under the capital lease for the
remainder of the term is $198,000 in 2011. The total obligations
of the minimum lease payments, less the amount representing
interest of $14,000 is reflected in the January 31, 2011
balance sheet as a current obligation of $184,000.
56
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On July 31, 2008, the Company entered into a revolving loan
agreement with Fifth Third Bank in the principal amount of
$2,000,000. The interest rate on amounts borrowed accrued at a
variable rate based on the trailing twelve months earnings
before interest, taxes, depreciation and amortization
(EBITDA). The agreement contained financial
covenants including: Minimum tangible net worth, maximum fixed
charge coverage ratio and maximum funded indebtedness to EBITDA
ratio.
On January 6, 2009, the Company entered into a revised
revolving note with Fifth Third Bank, Cincinnati, OH. The terms
of the loan remained the same as set forth in the revolving note
entered into on July 30, 2008 except that the borrowing
base limitation was modified and set at the lesser of 80% of the
net amount of borrowers eligible accounts receivable (less
than 90 days) or two times trailing twelve month EBITDA of
the Company. The previous limitation was the lesser of 80% of
the net amount of borrowers eligible accounts receivable
(less than 90 days) or the tangible net worth of Streamline
Health Solutions, Inc.
On October 21, 2009, the Company entered into an amended
and restated revolving note with Fifth Third Bank. 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, except as follows: (i) the maximum
principal amount that can be borrowed was increased to
$2,750,000 from the prior maximum amount of $2,000,000;
(ii) the maturity date of the loan has been extended to
October 1, 2011 from August 1, 2010; and
(iii) the interest rate on the outstanding principal
balance will accrue at an annual floating rate of interest equal
to the Adjusted Libor Rate (as defined in the revolving note)
plus 3.25%, payable monthly. The interest rate on the note was
3.63% at January 31, 2011.
In connection with the entering into of the revised revolving
note in October 2009, the Company also entered into an amended
and restated continuing guaranty agreement. The terms of the
continuing guarantee agreement remain the same as set forth in
the guaranty agreement entered into on July 31, 2008, as
amended on January 6, 2009, except that the covenant that
formerly required the Company to maintain certain levels of
minimum tangible net worth has been eliminated.
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
January 31, 2011. The Company pays a commitment fee on the
unused portion of the facility of .06%. The Company had
outstanding borrowings of $1,200,000 and $900,000 under this
revolving loan as of January 31, 2011 and 2010,
respectively.
In the first quarter of fiscal 2011, the Company entered into an
amended and restated revolving note with Fifth Third Bank,
Cincinnati, OH. The terms of the loan remain the same as set
forth in the revolving note entered into on July 31, 2008,
as amended on January 6, 2009, and October 31, 2009,
except as follows: (i) the maximum principal amount that
can be borrowed was increased to $3,000,000 from the prior
maximum amount of $2,750,000, subject to the borrowing base;
(ii) the maturity date of the loan has been extended to
October 1, 2013 from October 1, 2011; (iii) the
minimum fixed charge coverage ratio covenant has been revised,
to require that the Company shall maintain a minimum trailing
twelve months fixed charge coverage ratio of 1.25, measured each
fiscal quarter; (iv) the funded indebtedness to EBITDA
covenant has been revised, to require that the Company shall
report a funded indebtedness to EBITDA ratio no greater than
2.0, measured each fiscal quarter and; (v) a covenant has
been added to require that the Companys 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. In accordance with the
revised maturity date, the outstanding balance on the note is
classified as a long-term obligation at January 31, 2011.
57
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Income taxes consist of the following:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2010
|
|
|
2009
|
|
|
Federal tax expense:
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
|
|
|
$
|
(26,000
|
)
|
Deferred
|
|
|
(997,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(997,000
|
)
|
|
|
(26,000
|
)
|
|
|
|
|
|
|
|
|
|
State tax expense:
|
|
|
|
|
|
|
|
|
Current
|
|
|
(20,000
|
)
|
|
|
(14,500
|
)
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,000
|
)
|
|
|
(14,500
|
)
|
|
|
|
|
|
|
|
|
|
Federal and state income tax expense
|
|
$
|
(1,017,000
|
)
|
|
$
|
(40,500
|
)
|
|
|
|
|
|
|
|
|
|
The income tax provision for income taxes differs from the
Federal statutory rate as follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2010
|
|
|
2009
|
|
|
Federal tax benefit (expense) at statutory rate
|
|
$
|
664,230
|
|
|
$
|
(448,461
|
)
|
State and local taxes, net of federal benefit (expense)
|
|
|
(12,135
|
)
|
|
|
(11,428
|
)
|
Change in valuation allowance
|
|
|
(1,698,071
|
)
|
|
|
585,217
|
|
Permanent items
|
|
|
(43,445
|
)
|
|
|
(128,473
|
)
|
Alternative minimum tax expense
|
|
|
|
|
|
|
(26,000
|
)
|
Other
|
|
|
72,421
|
|
|
|
(11,355
|
)
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
(1,017,000
|
)
|
|
$
|
(40,500
|
)
|
|
|
|
|
|
|
|
|
|
Streamline Health provides deferred income taxes for temporary
differences between assets and liabilities recognized for
financial reporting and income tax purposes. The income tax
effects of these temporary differences and credits are as
follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2010
|
|
|
2009
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carry forwards
|
|
$
|
10,278,852
|
|
|
$
|
9,881,084
|
|
Accrued expenses
|
|
|
133,081
|
|
|
|
75,065
|
|
Stock compensation expenses
|
|
|
308,728
|
|
|
|
97,768
|
|
Property and equipment
|
|
|
151,626
|
|
|
|
99,829
|
|
Other
|
|
|
35,600
|
|
|
|
53,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,907,887
|
|
|
|
10,206,816
|
|
Less valuation allowance
|
|
|
(10,029,887
|
)
|
|
|
(8,331,816
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
878,000
|
|
|
|
1,875,000
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
878,000
|
|
|
$
|
1,875,000
|
|
|
|
|
|
|
|
|
|
|
58
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At January 31, 2011, Streamline Health had Federal net
operating loss carry forwards of approximately $29,000,000 which
expire at various dates through 2031. Streamline Health also has
an Alternative Minimum Tax net operating loss carry forward of
approximately $27,000,000, which has an unlimited carry forward
period. Certain changes in stock ownership can result in a
limitation on the amount of these net operating loss carry
forwards that can be utilized each year.
As of January 31, 2011, a valuation allowance of
$10.0 million is required to reduce the deferred tax
assets, primarily relating to net operating loss carry forwards,
to a level currently believed will be utilized to offset future
earnings before income taxes based upon the current backlog and
forecasts over the next five years. The valuation allowance is
required due to the inability to predict on a longer term basis
that Streamline Health will more likely than not attain levels
of profitability required to utilize additional loss carry
forwards. Upon the completion of the Companys fiscal 2011
annual budget and analysis of projected future earnings, the
Company recorded an additional $997,000 to the valuation
allowance on the deferred tax asset as of January 31, 2011.
This reduced the net realizable value of the deferred tax asset
to $878,000.
This increase was primarily attributable to the potential
decline in software revenues due to the Companys
understanding that our remarketing partner, GE Healthcare, has
shifted the focus of its sales efforts. The potential reduction
in the sales pipeline for new Streamline Health customers
creates significant uncertainty; and could have a material
adverse effect on the Companys ability to increase
and/or
maintain revenues and market share for its products. The Company
will continue to evaluate at a minimum on an annual basis,
whether or not a continued valuation allowance is necessary.
The Company and its subsidiary are subject to U.S. Federal
income tax as well as income taxes in multiple state and local
jurisdictions. The Company has concluded all U.S. Federal
tax matters for years through January 31, 2009. All
material state and local income tax matters have been concluded
for years through January 31, 2004.
The Company believes that its income tax positions and
deductions will be sustained on audit and does not anticipate
adjustments that will result in a material change to its
financial position during the next twelve months. Therefore, no
reserves for uncertain tax positions have been recorded as of
January 31, 2011.
During fiscal year 2010, one customer, exclusive of remarketing
partners, accounted for 10% of total revenues and also
represents 11% of total accounts receivable as of
January 31, 2011.
Streamline Health recognizes a significant amount of revenue
from remarketing agreements with GE Healthcare and Telus Health.
GE Healthcare accounted for 33% and 31% of revenues in fiscal
2010 and 2009, respectively. Telus Health accounted for 6% and
11% of revenues in fiscal 2010 and 2009, respectively. At
January 31, 2011 and 2010, approximately 38% and 61%,
respectively, of Streamline Healths accounts receivables
were due from remarketing partners.
|
|
NOTE H
|
EMPLOYEE
RETIREMENT PLAN
|
Streamline Health has established a 401(k) retirement plan that
covers all employees. Company contributions to the plan may be
made at the discretion of the Board of Directors. The Company
matches 100% up to the first 4% of compensation deferred by each
employee in the 401(k) plan. The total compensation expense for
this matching contribution was $278,000 and $284,000 in fiscal
2010 and 2009, respectively.
|
|
NOTE I
|
EMPLOYEE
STOCK PURCHASE PLAN
|
Streamline Health has an Employee Stock Purchase Plan under
which employees may purchase up to 500,000 shares of common
stock. Under the plan, eligible employees may elect to
contribute, through payroll deductions, up to 10% of their base
pay to a trust during any plan year, July 1 through
June 30, of the following year. At June 30 of each year,
the plan issues for the benefit of the employees shares of
common stock at the lesser of (a) 85% of the fair market
value of the common stock on July 1, of the prior year, or
(b) 85% of the fair market value
59
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of the common stock on June 30, of the current year. At
January 31, 2011, 217,453 shares remain that can be
purchased under the plan.
The Company recognized compensation expense of $20,000 and
$28,000 for fiscal years 2010 and 2009, respectively under this
plan.
During fiscal 2010 31,492 shares were purchased at the
price of $1.24; during fiscal 2009, 35,540 shares were
purchased at the price of $1.39 per share.
The purchase price at June 30, 2011, will be 85% of the
lower of (a) the closing price on July 1, 2010 ($1.35)
or (b) of the closing price on June 30, 2011.
|
|
NOTE J
|
STOCK
BASED COMPENSATION
|
Stock
Option Plans
Streamline Healths 1996 Employee Stock Option Plan
authorized the grant of options to employees for Streamline
Healths Common Stock. The options granted have terms of
ten years or less and generally vest and become fully
exercisable ratably over three years of continuous employment
from the date of grant. At January 31, 2011, options to
purchase 17,500 shares of Streamline Healths Common
Stock have been granted and are outstanding under the Plan. No
more options can be granted under this plan.
Streamline Healths 1996 Non-Employee Directors Stock
Option Plan authorized the grant of options for shares of
Streamline Healths Common Stock. The options granted have
terms of ten years or less, and vest and become fully
exercisable ratably over three years of continuous service as a
director from the date of grant. At January 31, 2011, there
are no outstanding options to purchase shares of Streamline
Health Common Stock under the Plan. No more options can be
granted under this plan.
Streamline Healths 2005 Incentive Compensation Plan which
authorizes the Company to issue up to 1,000,000 equity awards
(Stock Options, Stock Appreciation Rights
(SARs), and Restricted Stock) to directors and
employees of the Company. The options granted have terms of ten
years or less, and typically vest and become fully exercisable
ratably over three years of continuous service to the Company
from the date of grant. At January 31, 2011, options to
purchase 524,564 shares of Streamline Health Common Stock
have been granted and are outstanding under the Plan and
203,733 shares remain available to be awarded. There are no
SARs outstanding under the plan.
In fiscal 2010, an executive inducement grant was approved by
the board pursuant to Nasdaq Marketplace Rule 5635(c)(4).
The terms of the grant are nearly as practicable identical to
the terms and conditions of the Companys 2005 Incentive
Compensation Plan. At January 31, 2011, 50,000 shares
of restricted stock were granted and 400,000 stock options were
issued and outstanding. Please see Restricted Stock
section for information on the restricted shares.
60
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of stock option activity is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
average
|
|
|
|
|
|
average
|
|
|
|
|
|
|
exercise
|
|
|
|
|
|
exercise
|
|
|
|
Options
|
|
|
price
|
|
|
Options
|
|
|
price
|
|
|
Outstanding beginning of year
|
|
$
|
637,882
|
|
|
$
|
2.22
|
|
|
$
|
634,882
|
|
|
$
|
2.21
|
|
Granted
|
|
|
549,916
|
|
|
|
2.26
|
|
|
|
29,000
|
|
|
|
2.09
|
|
Exercised
|
|
|
(102,000
|
)
|
|
|
1.00
|
|
|
|
(11,000
|
)
|
|
|
1.50
|
|
Expired
|
|
|
(143,734
|
)
|
|
|
1.87
|
|
|
|
(15,000
|
)
|
|
|
1.90
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding end of year
|
|
|
942,064
|
|
|
$
|
2.42
|
|
|
|
637,882
|
|
|
$
|
2.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable end of year
|
|
|
352,646
|
|
|
$
|
2.72
|
|
|
|
361,954
|
|
|
$
|
2.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate intrinsic value of outstanding options at year end
|
|
$
|
1,752,239
|
|
|
|
|
|
|
$
|
1,409,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate intrinsic value of exercisable options at year end
|
|
$
|
655,922
|
|
|
|
|
|
|
$
|
799,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant date fair value of options granted during
year
|
|
$
|
.84
|
|
|
|
|
|
|
$
|
1.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intrinsic value of Options exercised during the year
|
|
$
|
189,720
|
|
|
|
|
|
|
$
|
24,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The 2010 stock-based compensation was estimated at the date of
grants using a Black-Scholes option pricing model with the
following weighted average assumptions for each fiscal year:
risk-free interest rate of 2.50%, a dividend yield of zero
percent; a weighted average volatility factor of the expected
market price of Streamline Healths Common Stock of .538 in
fiscal 2010, and .563 in fiscal 2009, a weighted average
expected life of stock options of five years and a forfeiture
rate of zero. The following table summarizes the options as of
January 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
Number of
|
|
exercise
|
|
Remaining
|
|
|
options
|
|
price
|
|
life in years
|
|
Outstanding
|
|
|
942,064
|
|
|
$
|
2.42
|
(1)
|
|
|
8.5
|
|
Exercisable
|
|
|
352,646
|
|
|
$
|
2.72
|
(2)
|
|
|
6.8
|
|
|
|
|
(1) |
|
The exercise prices range from $1.46 to $6.03, of which
586,398 shares are between $1.46 and $2.00 per share,
310,666 shares are between $2.08 and $4.35 per share, and
45,000 shares are between $5.17 and $6.03 per share. |
|
(2) |
|
The exercise prices range from $1.46 to $6.03, of which
176,985 shares are between $1.46 and $2.00 per share,
130,661 shares are between $2.08 and $4.35 per share, and
45,000 shares are between $5.17 and $6.03 per share. |
61
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table is a summary of non-vested shares under the
stock option plans at January 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Non-vested
|
|
|
average
|
|
|
|
number of
|
|
|
grant-date
|
|
|
|
shares
|
|
|
fair value
|
|
|
Balance at January 31, 2009
|
|
|
397,052
|
|
|
$
|
1.82
|
|
Granted
|
|
|
29,000
|
|
|
|
1.33
|
|
Vested
|
|
|
(145,124
|
)
|
|
|
1.95
|
|
Forfeited
|
|
|
(5,000
|
)
|
|
|
1.80
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2010
|
|
|
275,928
|
|
|
|
1.30
|
|
Granted
|
|
|
549,916
|
|
|
|
0.84
|
|
Vested
|
|
|
(129,492
|
)
|
|
|
1.35
|
|
Forfeited
|
|
|
(106,934
|
)
|
|
|
1.13
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2011
|
|
|
589,418
|
|
|
$
|
0.91
|
|
|
|
|
|
|
|
|
|
|
At January 31, 2011, there was approximately $481,000 of
compensation cost that has not yet been recognized related to
non-vested stock-option awards. That cost is expected to be
recognized over a remaining weighted average period of three
years.
The expense associated with stock option awards was $182,000 and
$203,000, for fiscal 2010 and 2009, respectively.
Cash received from exercise of options and the employee stock
purchase plan was $141,000 and $66,000, respectively, in fiscal
2010 and 2009.
The 1996 Employee Stock Option Plan and the 2005 Incentive
Compensation Plan contains change of control provisions whereby
any outstanding equity awards under the plans subject to
vesting, which have not fully vested as of the date of the
change in control, shall automatically vest and become
immediately exercisable. One of the change in control provisions
is deemed to occur if there is a change in beneficial ownership,
or authority to vote, directly or indirectly, securities
representing 20% or more of the total of all of Streamline
Healths then outstanding voting securities, unless through
a transaction arranged by, or consummated with the prior
approval of the Board of Directors. Other change in control
provisions relate to mergers and acquisitions or a determination
of change in control by Streamline Healths Board of
Directors.
Restricted
Stock
The Company grants restricted stock awards under the 2005
Incentive Compensation Plan to employees and members of the
Board of Directors. The restrictions on the shares granted
generally lapse over a one year term of continuous employment
from the date of grant. The grant date fair value per share of
restricted stock, which is the stock price on the grant date, is
expensed on a straight-line basis as the restriction period
lapses. The shares
62
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
represented by restricted stock awards are considered
outstanding at the grant date, as the recipients are entitled to
voting rights. A summary of restricted stock award activity for
the period is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Non-vested
|
|
|
average
|
|
|
|
number of
|
|
|
grant date
|
|
|
|
shares
|
|
|
fair value
|
|
|
Non-vested balance at January 1, 2009
|
|
$
|
|
|
|
$
|
|
|
Granted
|
|
|
35,502
|
|
|
|
2.82
|
|
Vested
|
|
|
|
|
|
|
|
|
Forfeited/expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested balance at January 31, 2010
|
|
|
35,502
|
|
|
|
2.82
|
|
Granted
|
|
|
289,548
|
|
|
|
1.40
|
|
Vested
|
|
|
(98,613
|
)
|
|
|
2.22
|
|
Forfeited/expired
|
|
|
(3,347
|
)
|
|
|
2.00
|
|
|
|
|
|
|
|
|
|
|
Non-vested balance at January 31, 2011
|
|
$
|
223,090
|
|
|
$
|
1.25
|
|
|
|
|
|
|
|
|
|
|
At January 31, 2011, there was approximately $109,000 of
compensation cost that has not yet been recognized related to
restricted stock awards. That cost is expected to be recognized
over a remaining period of one year.
The expense associated with restricted stock awards was $476,000
and $44,000 for fiscal 2010 and 2009, respectively.
|
|
NOTE K
|
COMMITMENTS
AND CONTINGENCIES
|
Application
Hosting Services
Streamline Health enters into long-term agreements to provide
document imaging/management and workflow services to its
healthcare customers on an outsourced basis from a central data
center. Streamline Health guarantees specific
up-time and response time performance
standards, which, if not met may result in reduced revenues, as
a penalty, for the month in which the standards are not met.
There were no contingencies of this nature as of
January 31, 2011.
Employment
Agreements
Streamline Health has entered into employment agreements with
its officers and employees that generally provide annual salary,
a minimum bonus, discretionary bonus, stock incentive
provisions, and severance arrangements.
In fiscal 2010, the Company expensed employee advances that were
granted in accordance with employment agreements, that were
deemed to be uncollectable, in the amount of $188,000. These
receivables were recorded as other assets.
In accordance with severance agreements entered into during
fiscal 2010, the Company accrued $349,000 at January 31,
2011, which will be paid in fiscal 2011.
Reserved
Common Stock
As of January 31, 2011, Streamline Health has reserved
1,363,250 shares of common stock authorized for issuance in
connection with various Equity Award Plans and the Employee
Stock Purchase Plan.
63
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Litigation
There are, from time to time, claims pending against Streamline
Health Solutions, Inc. and its subsidiary. There were no
outstanding legal claims as of January 31, 2011.
|
|
NOTE L
|
QUARTERLY
RESULTS OF OPERATIONS (UNAUDITED)
|
The following sets forth selected unaudited quarterly financial
information for fiscal years 2010 and 2009. In the opinion of
management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation of the
condensed consolidated financial information have been included.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
2010
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenues
|
|
$
|
3,544
|
|
|
$
|
4,676
|
|
|
$
|
4,470
|
|
|
$
|
4,916
|
|
|
$
|
17,606
|
|
Gross profit
|
|
|
967
|
|
|
|
2,044
|
|
|
|
1,906
|
|
|
|
1,397
|
|
|
|
6,315
|
|
Operating profit (loss)(d)
|
|
|
(1,200
|
)
|
|
|
(28
|
)
|
|
|
144
|
|
|
|
(767
|
)
|
|
|
(1,851
|
)
|
Net earnings (loss)(e)
|
|
|
(1,176
|
)
|
|
|
(76
|
)
|
|
|
95
|
|
|
|
(1,793
|
)
|
|
|
(2,951
|
)
|
Basic net (loss) earnings per share(a)
|
|
|
(.12
|
)
|
|
|
(.01
|
)
|
|
|
.01
|
|
|
|
(.18
|
)
|
|
|
(.31
|
)
|
Diluted net (loss) earnings per share(a)
|
|
|
(.12
|
)
|
|
|
(.01
|
)
|
|
|
.01
|
|
|
|
(.18
|
)
|
|
|
(.31
|
)
|
Weighted average shares outstanding
|
|
|
9,413
|
|
|
|
9,507
|
|
|
|
9,753
|
|
|
|
9,561
|
|
|
|
9,505
|
|
Stock Price(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
2.74
|
|
|
$
|
1.98
|
|
|
$
|
1.49
|
|
|
$
|
1.99
|
|
|
$
|
2.74
|
|
Low
|
|
$
|
1.90
|
|
|
$
|
0.96
|
|
|
$
|
1.00
|
|
|
$
|
1.13
|
|
|
$
|
0.96
|
|
Quarter and year-end close
|
|
$
|
1.93
|
|
|
$
|
1.24
|
|
|
$
|
1.27
|
|
|
$
|
1.86
|
|
|
$
|
1.86
|
|
Cash dividends declared(c)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
2010
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenues
|
|
$
|
3,751
|
|
|
$
|
4,069
|
|
|
$
|
4,106
|
|
|
$
|
6,282
|
|
|
$
|
18,208
|
|
Gross profit
|
|
|
1,589
|
|
|
|
1,622
|
|
|
|
1,722
|
|
|
|
3,607
|
|
|
|
8,540
|
|
Operating profit (loss)
|
|
|
30
|
|
|
|
(17
|
)
|
|
|
(285
|
)
|
|
|
1,628
|
|
|
|
1,354
|
|
Net earnings (loss)
|
|
|
16
|
|
|
|
(18
|
)
|
|
|
(296
|
)
|
|
|
1,585
|
|
|
|
1,288
|
|
Basic net (loss) earnings per share(a)
|
|
|
.00
|
|
|
|
(.00
|
)
|
|
|
(.03
|
)
|
|
|
.17
|
|
|
|
.14
|
|
Diluted net (loss) earnings per share(a)
|
|
|
.00
|
|
|
|
(.00
|
)
|
|
|
(.03
|
)
|
|
|
.17
|
|
|
|
.14
|
|
Weighted average shares outstanding
|
|
|
9,355
|
|
|
|
9,371
|
|
|
|
9,398
|
|
|
|
9,401
|
|
|
|
9,381
|
|
Stock Price(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
2.30
|
|
|
$
|
3.58
|
|
|
$
|
2.94
|
|
|
$
|
2.58
|
|
|
$
|
3.58
|
|
Low
|
|
$
|
1.15
|
|
|
$
|
1.98
|
|
|
$
|
2.10
|
|
|
$
|
2.06
|
|
|
$
|
1.15
|
|
Quarter and year-end close
|
|
$
|
2.21
|
|
|
$
|
2.79
|
|
|
$
|
2.35
|
|
|
$
|
2.21
|
|
|
$
|
2.21
|
|
Cash dividends declared(c)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Quarterly amounts may not be additive |
|
(b) |
|
Based on data available through The NASDAQ Stock Market, Inc. |
|
(c) |
|
Streamline Health has not paid a dividend on its Common Stock
since its inception and does not intend to pay any cash
dividends in the foreseeable future |
|
(d) |
|
Includes in the fourth quarter of fiscal year 2010, a $755,000
impairment charge of capitalized software development costs |
|
(e) |
|
Includes $997,000 incremental increase to the valuation
allowance for deferred tax assets, recorded as income tax
expense in the fourth quarter of fiscal 2010 |
64
Schedule II
Valuation and Qualifying Accounts and Reserves
Streamline
Health Solutions, Inc.
For the two years ended January 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
Costs and
|
|
|
Other
|
|
|
|
|
|
Balance at
|
|
Description
|
|
of Period
|
|
|
Expenses
|
|
|
Accounts
|
|
|
Deductions
|
|
|
End of Period
|
|
|
|
(In thousands)
|
|
|
Year ended January 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
100
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
$
|
100
|
|
Year ended January 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
100
|
|
|
$
|
50
|
|
|
|
|
|
|
|
50
|
|
|
$
|
100
|
|
|
|
ITEM 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosures
|
None.
|
|
ITEM 9A
|
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
Healths Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified in the
SECs rules and forms, and that such information is
accumulated and communicated to Streamline Healths
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 Healths senior management,
including the Chief Executive Officer and Interim Chief
Financial Officer, of the effectiveness of the design and
operation of Streamline Healths disclosure controls and
procedures to provide reasonable assurance of achieving the
desired objectives of the disclosure controls and procedures.
Based on that evaluation, Streamline Healths management,
including the Chief Executive Officer and Interim Chief
Financial Officer, concluded that there is reasonable assurance
that Streamline Healths disclosure controls and procedures
were effective as of the end of the period covered by this
report.
65
MANAGEMENTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining
adequate internal control over financial reporting of Streamline
Health Solutions, Inc. (as defined in
Rule 13a-15(f)
under the Securities Exchange Act of 1934, as amended). Internal
controls over financial reporting are designed to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles in the United States of America.
Strong internal controls are an objective that is reinforced
through the Companys Code of Conduct and Ethics,
which sets forth our commitment to conduct business with
integrity, and within both the letter and the spirit of the law.
The Companys internal control over financial reporting
includes a Control Self-Assessment Program that is conducted
annually. Management takes appropriate action to correct any
identified control deficiencies. Because of its inherent
limitations, any system of internal control over financial
reporting, no matter how well designed, may not prevent or
detect misstatements due to the possibility that a control can
be circumvented or overridden or that misstatements due to error
or fraud may occur that are not detected. Also, because of
changes in conditions, internal control effectiveness may vary
over time.
Management assessed the effectiveness of the Companys
internal control over financial reporting as of January 31,
2011, using criteria established in Internal Control
Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) and concluded that the Company maintained effective
internal control over financial reporting as of January 31,
2011, based on these criteria.
This annual report does not include an attestation report of the
Companys independent registered public accounting firm
regarding internal control over financial reporting.
Managements report was not subject to attestation by the
Companys independent registered public accounting firm
pursuant to rules of the Securities and Exchange Commission that
permits the Company to provide only managements report in
this annual report.
This report shall not be deemed to be filed for purposes of
Section 18 of the Exchange Act or otherwise subject to the
liabilities of that section, unless the registrant specifically
states that the report is to be considered filed
under the Exchange Act or incorporates it by reference into a
filing under the Securities Act or the Exchange Act.
There have been no changes in Streamline Healths internal
control or in the other controls during the quarter ended
January 31, 2011 that could materially affect, or is
reasonably likely to materially affect, internal controls over
financial reporting.
66
|
|
ITEM 9B.
|
Other
Information
|
None
PART III
|
|
ITEM 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required by Items 401, 405 and
407(c)(3),(d)(4) and (d)(5) of
Regulation S-K
is incorporated herein by reference from Streamline
Healths definitive proxy statement for its Annual
Stockholders Meeting to be held on May 25, 2011 from the
information appearing under the captions Election of
Directors, Board of Directors Meetings and
Committees Stock Ownership by Certain Beneficial
Owners and Management, and Compliance with
Section 16(a) of the Exchange Act. Certain
information regarding Streamline Healths Executive
Officers is set forth in Part I, of this
Form 10-K
under the caption Executive Officers of the
Registrant.
The information relating to the Code of Ethics required by
Items 406 of
Regulation S-K
is included herein by reference to Exhibit 14.1 to this
Form 10-K.
Streamline Health has adopted the Code of Ethics that applies to
all of its directors, officers (including its chief executive
officer, chief financial officer, chief accounting officer,
controller and any person performing similar functions) and
employees. Streamline Health has also made the Code of Ethics
available on its website at www.streamlinehealth.net and will
provide a copy, free of charge, upon request.
|
|
ITEM 11.
|
Executive
Compensation
|
The information required by Items 402 and 407(e)(4) and
(e)(5) of
Regulation S-K
is incorporated herein by reference from Streamline
Healths definitive proxy statement for its Annual
Stockholders Meeting to be held on May 25, 2011 from the
information appearing under the caption Executive
Compensation.
|
|
ITEM 12.
|
Securities
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by Item 403 of
Regulation S-K
is incorporated herein by reference from Streamline
Healths Definitive Proxy Statement for its Annual
Stockholders Meeting to be held on May 25, 2011 from
the information appearing under the caption Stock
Ownership by Certain Beneficial Owners and Management.
Securities authorized for issuance under equity compensation
plans required by Item 201(d) of
Regulation S-K
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Number of securities
|
|
|
|
securities to be
|
|
|
|
|
|
remaining available
|
|
|
|
issued upon
|
|
|
Weighted-average
|
|
|
for future issuance
|
|
|
|
exercise of
|
|
|
exercise price of
|
|
|
under equity
|
|
|
|
outstanding
|
|
|
outstanding
|
|
|
compensation plans
|
|
|
|
options, warrants
|
|
|
options, warrants
|
|
|
(excluding securities
|
|
Plan category
|
|
and rights)
|
|
|
and rights
|
|
|
reflected in column (a))
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Equity compensation plans approved by security holders
|
|
|
542,064
|
(1, 2)
|
|
$
|
2.44
|
|
|
|
421,186
|
(5)
|
Equity compensation plans not approved by security holders
|
|
|
400,000
|
(3)
|
|
$
|
2.38
|
|
|
|
|
(4)
|
Total
|
|
|
942,064
|
(1, 2 &
3)
|
|
$
|
2.42
|
|
|
|
421,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes 17,500 options that can be exercised under the 1996
Employee Stock Option Plan. |
|
(2) |
|
Includes 524,564 options that can be exercised under the 2005
Incentive Compensation Plan. |
|
(3) |
|
Includes 400,000 options granted under an inducement grant with
terms as nearly as practicable identical to the terms and
conditions of the Companys 2005 Incentive Compensation
Plan. The share and option awards are inducement grants,
pursuant to Nasdaq Marketplace Rule 5635(c)(4). |
67
|
|
|
(4) |
|
The Companys Board of Directors has not established any
specific number of shares that could be issued without
stockholder approval. Inducement grants to new key employees
will be determined on a
case-by-case
basis. Other than possible inducement grants, the Company
expects that all equity awards will be made under stockholder
approved plans |
|
(5) |
|
Includes 203,733 shares to be issued from the 2005
Incentive Compensation Plan, and 217,453 shares to be
issued from the Employee Stock Purchase Plan |
|
|
ITEM 13.
|
Certain
Relationships, Related Transactions and Directors
Independence
|
The information required by Item 404 and 407(a) of
Regulation S-K
is incorporated herein by reference from Streamline
Healths definitive proxy statement for its Annual
Stockholders Meeting to be held on May 25, 2011 from the
information appearing under the captions Transactions with
Related Persons, Promoters, and Certain Control Persons
and Board of Directors Meetings and Committees.
|
|
ITEM 14.
|
Principal
Accounting Fees and Services
|
The following table sets forth the aggregate fees for the
Company for the fiscal years 2010 and 2009 for audit and other
services provided to Streamline Health by BDO USA, LLP,
including its foreign affiliates.
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Audit Fees
|
|
$
|
194,000
|
|
|
$
|
173,000
|
|
Audit-Related Fees
|
|
|
|
|
|
|
|
|
Tax Fees
|
|
|
15,000
|
|
|
|
10,000
|
|
All Other Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fees
|
|
$
|
209,000
|
|
|
$
|
183,000
|
|
|
|
|
|
|
|
|
|
|
The Company has engaged BDO USA, LLP to the audit of the
financial statements, in addition to tax consulting and
compliance services for Canadian transactions. The
Companys Audit Committee has considered whether the
provision of the tax and consulting services is compatible with
maintaining the independence of BDO USA, LLP. All fees to BDO
USA, LLP are pre-approved by the Audit Committee of the Board of
Directors.
PART IV
|
|
ITEM 15.
|
Exhibits,
Financial Statement Schedules
|
Financial
Statements
(a)1. The financial statements listed in ITEM 8 in the
Index to Consolidated Financial Statements on page 44 are
filed as part of this report.
(a)2. The Financial Statement Schedule on page 65 is filed
as part of this report.
(b). Exhibits
See Index to Exhibits on page 70 of this report.
The exhibits are filed with or incorporated by reference in this
report.
68
SIGNATURES
Pursuant to the requirements of section 13 or 15
(d) 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.
Robert E. Watson
Chief Executive Officer
DATE: April 12, 2011
Pursuant to the requirements of the Securities and Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant in the capacities and on the
date indicated.
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Robert
E. Watson
/s/
Robert E. Watson
|
|
Chief Executive Officer
And Director
(Principal Executive Officer)
|
|
April 12, 2011
|
|
|
|
|
|
/s/ Jonathan
R. Phillips
Jonathan
R. Phillips
|
|
Director
|
|
April 12, 2011
|
|
|
|
|
|
/s/ Edward
J. VonderBrink
Edward
J. VonderBrink
|
|
Director
|
|
April 12, 2011
|
|
|
|
|
|
/s/ Richard
C. Levy
Richard
C. Levy, M.D.
|
|
Director
|
|
April 12, 2011
|
|
|
|
|
|
/s/ Andrew
L. Turner
Andrew
L. Turner
|
|
Director
|
|
April 12, 2011
|
|
|
|
|
|
/s/ Jay
D. Miller
Jay
D. Miller
|
|
Director
|
|
April 12, 2011
|
|
|
|
|
|
/s/ Donald
E. Vick, Jr.
Donald
E. Vick, Jr.
|
|
Interim Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
April 12, 2011
|
69
INDEX TO
EXHIBITS
EXHIBITS
|
|
|
|
|
|
|
Exhibit No.
|
|
Description of Exhibit
|
|
|
|
|
3
|
.1(a)
|
|
Certificate of Incorporation of Streamline Health Solutions,
Inc. f/k/a/ LanVision Systems, Inc. (Previously filed with the
Commission and incorporated herein by reference from, the
Registrants (LanVision System, Inc.) Registration
Statement on
Form S-1,
File Number
333-01494,
as filed with the Commission on April 15, 1996.)
|
|
|
|
3
|
.1(b)
|
|
Certificate of Incorporation of Streamline Health Solutions,
Inc. f/k/a LanVision Systems, Inc., amendment No. 1.
(Previously filed with the Commission and incorporated herein by
reference from the Registrants
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
Registrants
Form 10-Q,
as filed with the Commission on September 9, 2010
|
|
|
|
3
|
.3
|
|
Certificate of the Designations, Powers, Preferences and Rights
of the Convertible Preferred Stock (Par Value $.01 Per Share) of
Streamline Health Solutions, Inc. f/k/a/ LanVision Systems, Inc.
(Previously filed with the Commission, and incorporated herein
by reference from, the Registrants (LanVision Systems,
Inc.) Registration Statement on
Form S-1,
File Number
333-01494,
as filed with the Commission on April 15, 1996.)
|
|
|
|
4
|
.1
|
|
Specimen Common Stock Certificate of Streamline Health
Solutions, Inc. f/k/a LanVision Systems, Inc. (Previously filed
with the Commission, and incorporated herein by reference from,
the Registrants (LanVision Systems, Inc.) Registration
Statement on
Form S-1,
File Number
333-01494,
as filed with the Commission on April 15, 1996.)
|
|
|
|
4
|
.2
|
|
Form of Warrant Agreement (including Form of Warrant
Certificate) of Streamline Health Solutions, Inc. with respect
to Warrants to purchase Common Stock (Previously filed with the
Commission and incorporated herein by reference from, the
Registrants Registration Statement on
Form S-3,
File Number
333-166843,
as filed with the Commission on May 14, 2010.)
|
|
|
|
4
|
.3
|
|
Form of Unit Agreement (including Form of Unit Certificate) of
Streamline Health
|
|
|
|
10
|
.1#
|
|
Streamline Health Solutions, Inc. f/k/a LanVision Systems, Inc.
1996 Employee Stock Option Plan. (Previously filed with the
Commission, and incorporated herein by reference from, the
Registrants (LanVision Systems, Inc.) Registration
Statement on
Form S-1,
File Number
333-01494,
as filed with the Commission on April 15, 1996.)
|
|
|
|
10
|
.2(a)#
|
|
Streamline Health Solutions, Inc. f/k/a LanVision Systems, Inc.
1996 Non-Employee Directors Stock Option Plan. (Previously filed
with the Commission, and incorporated herein by reference from,
the Registrants (LanVision Systems, Inc.) Registration
Statement on
Form S-1,
File Number
333-01494,
as filed with the Commission on April 15, 1996.)
|
|
|
|
10
|
.2(b)#
|
|
First Amendment to Streamline Health Solutions, Inc.
f/k/a/LanVision Systems, Inc. 1996 Non-Employee Directors Stock
Option Plan. (Previously filed with the Commission, and
incorporated herein by reference from, Exhibit 4.1(b) of,
the Registrants (LanVision Systems, Inc.) Registration
Statement on
Form S-8,
file number
333-20765,
as filed with the Commission on January 31, 1997.)
|
|
|
|
10
|
.2(c)#
|
|
Second Amendment to Streamline Health Solutions, Inc. f/k/a
LanVision Systems, Inc. 1996 Non-Employee Directors Stock Option
Plan. (Previously filed with the Commission, and incorporated
herein by reference from, Amendment No. 1 to the
Registrants (LanVision Systems, Inc.) Statement on
Form S-8,
file number
333-20765,
as filed with the Commission on March 1, 2001.)
|
|
|
|
10
|
.3#
|
|
Streamline Health Solutions, Inc. f/k/a LanVision Systems, Inc.
1996 Employee Stock Purchase Plan. (Previously filed with the
Commission, and incorporated herein by reference from, the
Registrants (LanVision Systems, Inc. ) Registration
Statement on
Form S-1,
File Number
333-01494,
as filed with the Commission on April 15, 1996.)
|
|
|
|
10
|
.4#
|
|
2005 Incentive Compensation Plan of Streamline Health Solutions,
Inc. f/k/a LanVision Systems, Inc. (Previously filed with the
Commission, and incorporated herein by reference from,
Exhibit 10.1 of the Registrants (LanVision Systems,
Inc.)
Form 8-K,
as filed with the Commission on May 26, 2005.)
|
|
|
|
10
|
.5#
|
|
Employment Agreement between Streamline Health, Inc. f/k/a
LanVision, Inc. and Donald E. Vick effective December 3,
1996. (Previously filed with the Commission, and incorporated
herein by reference from, Exhibit 10.5 of the
Registrants (LanVision Systems, Inc.)
Form 10-K
for the fiscal year ended January 31, 2002, as filed with
the Commission on April 29, 2002.)
|
|
|
|
|
|
|
|
|
|
Exhibit No.
|
|
Description of Exhibit
|
|
|
|
|
10
|
.5(a)#
|
|
Amendment No. 1 to the Employment Agreement between
Streamline Health, Inc. f/k/a LanVision, Inc. and Donald E. Vick
effective January 27, 2006 (Previously filed with the
Commission, and incorporated herein by reference from,
Exhibit 10.4 of the Registrants (LanVision Systems,
Inc.)
Form 8-K,
as filed with the Commission on January 31, 2006.)
|
|
|
|
10
|
.5(b)#
|
|
Employment Agreement among Streamline Health Solutions, Inc.,
Streamline Health, Inc. and Donald E. Vick effective
August 9, 2010 (Previously filed with the Commission, and
incorporated herein by reference from, Exhibit 10.1 of the
Registrants (LanVision Systems, Inc.)
Form 8-K,
as filed with the Commission on August 10, 2010.)
|
|
|
|
10
|
.6#
|
|
Employment Agreement dated January 31, 2011 between
Streamline Health Solutions, Inc. and Robert E. Watson,
(Previously filed with the Commission, and incorporated herein
by reference from, Exhibit 10.2 of the Registrants
Form 8-K,
as filed with the Commission on February 3, 2011.)
|
|
|
|
10
|
.7#
|
|
Employment Agreement among Streamline Health Solutions, Inc.
f/k/a/ LanVision Systems, Inc., Streamline Health, Inc. f/k/a
LanVision, Inc. and J. Brian Patsy effective February 1,
2003 (Previously filed with the Commission, and incorporated
herein by reference from, Exhibit 10.7 of the
Registrants (LanVision Systems, Inc.)
Form 10-K
for the fiscal year ended January 31, 2004, as filed with
the Commission on April 8, 2004.)
|
|
|
|
10
|
.7(a)#
|
|
Amendment No. 1 dated January 27, 2005 to the
Employment Agreement among J. Brian Patsy, Streamline Health
Solutions, Inc. f/k/a LanVision Systems, Inc. and Streamline
Health Inc. f/k/a LanVision, Inc. (Previously filed with the
Commission, and incorporated herein by reference from,
Exhibit 10.1 of the Registrants (LanVision Systems,
Inc.)
Form 8-K,
as filed with the Commission on February 1, 2005.)
|
|
|
|
10
|
.7(b)#
|
|
Amendment No. 2 dated January 27, 2006 to the
Employment Agreement among J. Brian Patsy, Streamline Health
Solutions, Inc. f/k/a LanVision Systems, Inc. and Streamline
Health, Inc. f/k/a LanVision, Inc. (Previously filed with the
Commission, and incorporated herein by reference from,
Exhibit 10.1 of the Registrants (LanVision Systems,
Inc.)
Form 8-K,
as filed with the Commission on January 31, 2006.)
|
|
|
|
10
|
.8(a)#
|
|
Employment Agreement among Streamline Health Solutions, Inc.
f/k/a/ LanVision Systems, Inc., Streamline Health, Inc. f/k/a
LanVision, Inc. and Joseph O. Brown, II, effective
February 1, 2004. (Previously filed with the Commission,
and incorporated herein by reference from, Exhibit 10.1 of
the Registrants
Form 10-Q
for the fiscal quarter ended October 31, 2007, as filed
with the Commission on December 7, 2007.)
|
|
|
|
10
|
.8(b)#
|
|
Amendment No. 1 dated November 27, 2007 to the
Employment Agreement among Joseph O. Brown, II, Streamline
Health Solutions, Inc. and Streamline Health, Inc. (Previously
filed with the Commission, and incorporated herein by reference
from, Exhibit 10.8(b) of the Registrants
Form 10-K
for the fiscal year ended January 31, 2008, as filed with
the Commission on April 7, 2008.)
|
|
|
|
10
|
.9#
|
|
Employment agreement among Streamline Health Solutions, Inc.
Streamline Health, Inc. and Gary M. Winzenread effective
June 1, 2008. (Previously filed with the Commission, and
incorporated herein by reference from, Exhibit 10 of the
Registrants
Form 8-K,
as filed with the Commission on June 12, 2008.)
|
|
|
|
10
|
.10#
|
|
Employment agreement among Streamline Health, Inc. and B. Scott
Boyden, Jr. effective June 16, 2008. (Previously filed with
the Commission, and incorporated herein by reference from,
Exhibit 10 of the Registrants
Form 8-K,
as filed with the Commission on June 26, 2008.)
|
|
|
|
10
|
.11
|
|
Lease Agreement dated July 30, 2004 between Streamline
Health, Inc. f/k/a LanVision, Inc. and The Western and Southern
Live Insurance Company (Previously filed with the Commission,
and incorporated herein by reference from, Exhibit 10.1 of
the Registrants (LanVision Systems, Inc.)
Form 10-Q
for the fiscal quarter ended July 31, 2004, as filed with
the Commission on September 10, 2004
|
|
|
|
10
|
.11(b)
|
|
First Amendment to Lease and Acceptance of Delivery for office
space between Streamline Health, Inc. f/k/a LanVision, Inc. (a
wholly owned subsidiary) and The Western and Southern Life
Insurance Company, effective January 31, 2005. (Previously
filed with the Commission, and incorporated herein by reference
from, Exhibit 10.11(c) of the Registrants (LanVision
Systems, Inc.)
Form 10-K
for the fiscal year ended January 31, 2005, as filed with
the Commission on April 8, 2005.)
|
|
|
|
|
|
|
|
|
|
Exhibit No.
|
|
Description of Exhibit
|
|
|
|
|
10
|
.11(c)
|
|
Second Amendment to Lease Agreement for office space between
Streamline Health, Inc. f/k/a LanVision, Inc. and Alliance
Street, LLC, a Delaware limited liability company, successor in
interest to The Western and Southern Life Insurance Company, by
assignment, effective June 21, 2010 (Previously filed with
the Commission, and incorporated herein by reference from,
Exhibit 10.1 of the Registrants
Form 8-K,
as filed with the Commission on June 22, 2010.)
|
|
|
|
10
|
.12
|
|
Streamline Health Solutions, Inc. f/k/a LanVision Systems, Inc.
Guarantee of Lease Agreement between Streamline Health, Inc.
f/k/a LanVision, Inc. and The Western and Southern Life
Insurance Company (Previously filed with the Commission, and
incorporated herein by reference from, Exhibit 10.2 of the
Registrants (LanVision Systems, Inc.)
Form 10-Q
for the fiscal quarter ended July 31, 2004, as filed with
the Commission on September 10, 2004.)
|
|
|
|
10
|
.13(a)**
|
|
Reseller Agreement between IDX Information Systems Corporation
and Streamline Health, Inc. f/k/a LanVision, Inc. entered into
on January 30, 2002. (Previously filed with the Commission,
and incorporated herein by reference from, Exhibit 10.11 of
the Registrants (LanVision Systems, Inc.)
Form 10-K
for the fiscal year ended January 31, 2002, as filed with
the Commission on April 29, 2002.)
|
|
|
|
10
|
.13(b)
|
|
First Amendment to the Reseller Agreement between IDX
Information Systems Corporation and Streamline Health, Inc.
f/k/a LanVision, Inc. entered into on January 30, 2002
(Previously filed with the Commission, and incorporated herein
by reference from, Exhibit 10 of the Registrants
(LanVision Systems, Inc.)
Form 10-Q
for the quarter ended April 30, 2002, as filed with the
Commission on June 4, 2002.)
|
|
|
|
10
|
.14
|
|
Form of Indemnification Agreement for all directors and officers
of Streamline Health Solutions, Inc. (Previously filed with the
Commission, and incorporated herein by reference from,
Exhibit 10.1 of the Registrants (LanVision Systems,
Inc.)
Form 8-K,
as filed with the Commission on June 7, 2006
|
|
|
|
10
|
.15***#
|
|
Directors Compensation
|
|
|
|
10
|
.16(a)
|
|
Amended and Restated Revolving Note, dated October 21,
2009, between Streamline Health, Inc. and Fifth Third Bank.
(Previously filed with the Commission, and incorporated herein
by reference to exhibit 10.1 of the Registrants
Form 8-K,
as filed with the Commission on October 26, 2009.)
|
|
|
|
10
|
.16(b)
|
|
Amended and Restated Continuing Guaranty Agreement, dated
October 21, 2009, between Streamline Health Solutions, Inc.
and the Fifth Third Bank. (Previously filed with the Commission,
and incorporated herein by reference to exhibit 10.2 of the
Registrants
Form 8-K,
as filed with the Commission on October 26, 2009.)
|
|
|
|
10
|
.16(c)
|
|
Security Agreement, dated October 21, 2009, between
Streamline Health Solutions, Inc. and Fifth Third Bank.
(Previously filed with the Commission, and incorporated herein
by reference to exhibit 10.3 of the Registrants
Form 8-K,
as filed with the Commission on October 26, 2009.)
|
|
|
|
10
|
.17(a)
|
|
Term Lease Master Agreement, and associated documents, dated
January 19, 2010 between Streamline Health, Inc. (a wholly
owned subsidiary of the Registrant) and IBM Credit LLC.
(Previously filed with the Commission, and incorporated herein
by reference from, Exhibit 10.1 of the Registrants
Form 8-K,
as filed with the Commission on January 22, 2010.)
|
|
|
|
10
|
.17(b)
|
|
Term Lease Supplement, dated January 19, 2010, between
Streamline Health, Inc. and IBM Credit LLC. (Previously filed
with the Commission, and incorporated herein by reference from,
Exhibit 10.2 of the Registrants
Form 8-K,
as filed with the Commission on January 22, 2010.)
|
|
|
|
10
|
.18#
|
|
Separation Agreement dated January 31, 2011 by and between
Streamline Health Solutions, Inc. and J. Brian Patsy (Previously
filed with the Commission, and incorporated herein by reference
from, Exhibit 10.1 of the Registrants
Form 8-K,
as filed with the Commission on February 3, 2011
|
|
|
|
10
|
.19#
|
|
Employment agreement among Streamline Health Solutions Inc.,
Streamline Health, Inc. and Rick Leach effective March 8,
2011. (Previously filed with the Commission, and incorporated
herein by reference from, Exhibit 10.1 of the
Registrants
Form 8-K,
as filed with the Commission on March 14, 2011.)
|
|
|
|
11
|
.1
|
|
Statement Regarding Computation of Per Share Earnings***
|
|
|
|
14
|
.1
|
|
Code of Ethics (Previously filed with the Commission, and
incorporated herein by reference from, Exhibit 14.1 of the
Registrants (LanVision Systems, Inc.)
Form 10-K
for the fiscal year ended January 31, 2004, as filed with
the Commission on April 8, 2004.)
|
|
|
|
21
|
.1
|
|
Subsidiaries of the Registrant***
|
|
|
|
|
|
|
|
|
|
Exhibit No.
|
|
Description of Exhibit
|
|
|
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting
Firm BDO USA, LLP***
|
|
|
|
31
|
.1
|
|
Certification by Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002***
|
|
|
|
31
|
.2
|
|
Certification by Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002***
|
|
|
|
32
|
.1
|
|
Certification by Chief Executive Officer pursuant to U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002***
|
|
|
|
32
|
.2
|
|
Certification by Chief Financial Officer pursuant to U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002***
|
|
|
|
|
|
** |
|
The Company has applied for Confidential Treatment of portions
of this agreement with the Securities and Exchange Commission |
|
*** |
|
Included herein |
|
# |
|
Management Contracts and Compensatory Arrangements. |
exv10w15
Exhibit 10.15
STREAMLINE HEALTH SOLUTIONS, INC.
DIRECTOR COMPENSATION
The Company currently pays each of the independent Directors fees of: (i) an annual retainer of
$5,000, (ii) $1,500 for each regularly scheduled Board meeting attended in person or $500 for a
telephonic meeting, and (iii) $1,500 per day for each special meeting or committee meeting attended
in person on days when there are no Board meetings or $500 if these meetings are telephonic. In
addition, committee chairmen are paid an annual retainer of $2,500, and the Chairman of the Board
is paid an annual retainer of $35,000. The Chairman of the Board is not compensated for Committee
meeting fees. All annual retainers are paid immediately following the annual shareholders meeting.
Employee directors are not separately compensated as a member of the Board of Directors. See the
Summary Compensation Table for information relating to their compensation as an officer of the
Company. In 2010, all of the annual retainers were paid to the independent Directors in restricted
stock.
In order to attract and retain high quality non-employee independent Directors, the Company
currently has a policy of granting each independent Director 15,000 nonqualified stock options upon
first being appointed or elected to the Board. Incumbent Directors, excluding the Chairman of the
Board, are granted annually $25,000 in restricted stock with a one year vesting period. The
Chairman of the Board is granted annually $40,000 in restricted stock with a one year vesting
period. The options vest ratably over a three year period, and terminate between 30 and 90 days
following termination as a Director. These awards are pursuant to the Companys 2005 Incentive
Compensation Plan at a value or exercise price equal to the closing price on the date the awards
are approved by the Board of Directors. The Company believes that the awarding of stock options
and restricted stock to Directors is a necessary component of their total compensation, including
their Directors fees, and as an incentive to work to increase the Companys operating results and
stock price.
exv11w1
Exhibit 11.1
STREAMLINE HEALTH SOLUTIONS, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
|
2010 |
|
|
2009 |
|
Net earnings (loss) |
|
$ |
(2,950,617 |
) |
|
$ |
1,288,108 |
|
|
|
|
|
|
|
|
Average shares outstanding |
|
|
9,504,986 |
|
|
|
9,381,285 |
|
Stock options and restricted stock |
|
|
|
|
|
|
149,606 |
|
|
|
|
|
|
|
|
Number of shares used in per
common share computation |
|
|
9,504,986 |
|
|
|
9,530,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net earnings (loss) per share of common Stock |
|
$ |
(.31 |
) |
|
$ |
.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net earnings (loss) per share of common stock |
|
$ |
(.31 |
) |
|
$ |
.14 |
|
|
|
|
|
|
|
|
exv21w1
Exhibit 21.1
|
|
|
|
|
|
|
STREAMLINE HEALTH SOLUTIONS, INC.
|
SUBSIDIARIES OF THE REGISTRANT
|
|
|
|
|
|
|
|
|
|
|
Jurisdiction of |
|
|
|
|
Name |
|
Incorporation |
|
|
% Owned |
|
Streamline Health, Inc. |
|
Ohio |
|
|
100 |
% |
exv23w1
Exhibit 23.1
STREAMLINE HEALTH SOLUTIONS, INC.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Streamline Health Solutions, Inc.
Cincinnati, Ohio
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No.
333-166843) and on Form S-8 (Nos. 333-28055, 333-18625, 333-20765, 333-125393) of Streamline Health
Solutions, Inc. of our report dated April 13, 2011, relating to the consolidated financial
statements and financial statement schedule, which appears in this Annual Report on Form 10-K.
/s/ BDO USA, LLP
Chicago, Illinois
April 13, 2011
exv31w1
Exhibit 31.1
Streamline Health Solutions, Inc.
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert E. Watson, certify that:
I have reviewed this annual report on Form 10-K of Streamline Health Solutions, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented in this report;
The registrants other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the Registrant and have:
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal controls over financial reporting, or caused such internal controls over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any changes in the registrants internal control over financial reporting
that occurred during the registrants most recent fiscal quarter that has materially affected or is
reasonable expected to materially affect the registrants internal control over financial
reporting; and
The registrants other certifying officer and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the registrants auditors and the audit committee
of the registrants board of directors (or persons performing the equivalent functions):
All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrants ability
to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal controls over financial reporting.
|
|
|
|
|
|
|
|
April 13, 2011 |
/s/ Robert E. Watson
|
|
|
Chief Executive Officer and |
|
|
President |
|
|
exv31w2
Exhibit 31.2
Streamline Health Solutions, Inc.
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Donald E. Vick, Jr., certify that:
I have reviewed this annual report on Form 10-K of Streamline Health Solutions, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this report;
The registrants other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the Registrant and have:
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal controls over financial reporting, or caused such internal controls over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any changes in the registrants internal control over financial reporting
that occurred during the registrants most recent fiscal quarter that has materially affected or is
reasonable expected to materially affect the registrants internal control over financial
reporting; and
The registrants other certifying officer and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the registrants auditors and the audit committee
of the registrants board of directors (or persons performing the equivalent functions):
All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrants ability
to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal controls over financial reporting.
|
|
|
|
|
|
|
|
April 13, 2011 |
/s/ Donald E. Vick, Jr.
|
|
|
Interim Chief Financial Officer |
|
|
|
|
exv32w1
Exhibit 32.1
STREAMLINE HEALTH SOLUTIONS, INC.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
I, Robert E. Watson, Chief Executive Officer and President of Streamline Health Solutions, Inc.
(the Company), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C
Section 1350, that:
The Annual Report on Form 10-K of the Company for the annual period ended January 31, 2011 (the
Report) fully complies with the requirements of section 13(a) of the Securities Exchange Act of
1934 (15 U.S.C 78m); and
The information contained in the Report fairly presents, in all material respects, the financial
condition, and results of operations of the Company.
/s/ Robert E. Watson
Chief Executive Officer and
President
April 13, 2011
A signed original of this written statement required by Section 906 has been provided to the
Company and will be retained by the Company and furnished to the Securities and Exchange Commission
or its staff upon request.
exv32w2
Exhibit 32.2
STREAMLINE HEALTH SOLUTIONS, INC.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
I, Donald E. Vick, Jr., Interim Chief Financial Officer of Streamline Health Solutions, Inc. (the
Company), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C Section
1350, that:
The Annual Report on Form 10-K of the Company for the annual period ended January 31, 2011 (the
Report) fully complies with the requirements of section 13(a) of the Securities Exchange Act of
1934 (15 U.S.C 78m); and
The information contained in the Report fairly presents, in all material respects, the financial
condition, and results of operations of the Company.
/s/ Donald E. Vick, Jr.
Interim Chief Financial Officer
April 13, 2011
A signed original of this written statement required by Section 906 has been provided to the
Company and will be retained by the Company and furnished to the Securities and Exchange Commission
or its staff upon request.