e10vq
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 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, Ohio 45242-4716
(Address of principal executive offices) (Zip Code)
(513) 794-7100
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer o   Accelerated filer o   Non-accelerated filer o   Smaller reporting company þ
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
Number of shares of Registrant’s Common Stock ($.01 par value per share) issued and outstanding, as of June 8, 2011: 9,881,517.
 
 

 

 


 

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 EX-11.1
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2

 

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PART I. FINANCIAL INFORMATION
Item 1.  
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
STREAMLINE HEALTH SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Assets
                 
    (Unaudited)     (Audited)  
    April 30, 2011     January 31, 2011  
 
               
Current assets:
               
Cash and cash equivalents
  $ 481,717     $ 1,403,949  
Accounts receivable, net of allowance for doubtful accounts of $150,000 and $100,000, respectively
    1,550,789       2,620,756  
Contract receivables
    663,375       680,096  
Prepaid hardware and third party software for future delivery
    55,363       72,259  
Prepaid customer maintenance contracts
    960,099       794,299  
Other prepaid assets
    257,464       200,056  
Deferred income taxes
    167,000       167,000  
 
           
Total current assets
    4,135,807       5,938,415  
 
           
 
               
Property and equipment:
               
Computer equipment
    2,785,062       2,708,819  
Computer software
    1,988,573       1,947,135  
Office furniture, fixtures and equipment
    747,867       747,867  
Leasehold improvements
    639,864       639,864  
 
           
 
    6,161,366       6,043,685  
Accumulated depreciation and amortization
    (4,702,279 )     (4,517,860 )
 
           
 
    1,459,087       1,525,825  
 
           
Other assets:
               
Contract receivables, less current portion
    286,239       241,742  
Capitalized software development costs, net of accumulated amortization of $13,325,939 and $12,832,347, respectively
    7,866,472       7,575,064  
Other, including deferred taxes of $711,000, respectively
    737,134       734,376  
 
           
Total other assets
    8,889,845       8,551,182  
 
           
 
  $ 14,484,739     $ 16,015,422  
 
           
See Notes to Condensed Consolidated Financial Statements

 

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STREAMLINE HEALTH SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Liabilities and Stockholders’ Equity
                 
    (Unaudited)     (Audited)  
    April 30, 2011     January 31, 2011  
 
               
Current liabilities:
               
Accounts payable
  $ 591,640     $ 565,252  
Accrued compensation
    541,682       1,163,843  
Accrued other expenses
    247,904       480,422  
Capital lease obligation
    132,299       183,637  
Deferred revenues
    4,902,831       5,766,795  
 
           
Total current liabilities
    6,416,356       8,159,949  
 
           
 
               
Long-term liabilities:
               
Line of credit
    1,500,000       1,200,000  
Lease incentive liability, less current portion
    57,748       61,034  
 
           
Total liabilities
    7,974,104       9,420,983  
 
           
 
               
Stockholders’ equity:
               
Convertible redeemable preferred stock, $.01 par value per share, 5,000,000 shares authorized, no shares issued
           
Common stock, $.01 par value per share, 25,000,000 shares authorized, 9,881,517 and 9,856,517 shares issued and outstanding, respectively
    98,815       98,565  
Additional paid in capital
    37,171,959       36,975,242  
Accumulated deficit
    (30,760,139 )     (30,479,368 )
 
           
Total stockholders’ equity
    6,510,635       6,594,439  
 
           
 
  $ 14,484,739     $ 16,015,422  
 
           
See Notes to Condensed Consolidated Financial Statements

 

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STREAMLINE HEALTH SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended,
(Unaudited)
                 
    April 30, 2011     April 30, 2010  
Revenues:
               
Systems sales
  $ 131,002     $ 150,438  
Services, maintenance and support
    3,083,961       2,543,575  
Software as a service
    925,059       850,003  
 
           
Total revenues
    4,140,022       3,544,016  
 
           
 
               
Operating expenses:
               
Cost of systems sales
    540,952       737,889  
Cost of services, maintenance and support
    1,333,871       1,382,210  
Cost of software as a service
    436,423       457,028  
Selling, general and administrative
    1,664,661       1,697,577  
Product research and development
    417,774       470,171  
 
           
Total operating expenses
    4,393,681       4,744,875  
 
           
Operating loss
    (253,659 )     (1,200,859 )
Other income (expense):
               
Interest expense
    (19,842 )     (22,335 )
Miscellaneous income (expenses)
    (4,955 )     51,809  
 
           
Loss before income taxes
    (278,456 )     (1,171,385 )
Income tax (expense)
    (2,315 )     (5,000 )
 
           
Net loss
  $ (280,771 )   $ (1,176,385 )
 
           
Basic and diluted net earnings (loss) per common share
  $ (0.03 )   $ (0.13 )
 
           
Number of shares used in basic and diluted per common share computation
    9,649,508       9,413,367  
 
           
See Notes to Condensed Consolidated Financial Statements

 

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STREAMLINE HEALTH SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended,
(Unaudited)
                 
    April 30, 2011     April 30, 2010  
Operating activities:
               
Net loss
  $ (280,771 )   $ (1,176,385 )
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
               
Depreciation and amortization
    691,345       837,019  
Loss on disposal of fixed asset
    26,666        
Stock-based compensation expense
    196,967       87,446  
Change in assets and liabilities:
               
Accounts, contract and installment receivables
    1,042,191       1,222,930  
Other assets
    (209,070 )     (127,979 )
Accounts payable
    26,388       (283,538 )
Accrued expenses
    (857,965 )     (53,208 )
Deferred revenues
    (863,964 )     (504,687 )
 
           
Net cash (used in) provided by operating activities
    (228,213 )     1,598  
 
           
 
               
Investing activities:
               
Purchases of property and equipment
    (157,681 )     (153,407 )
Capitalization of software development costs
    (785,000 )     (696,000 )
Other
          (34,344 )
 
           
Net cash used in investing activities
    (942,681 )     (883,751 )
 
           
 
               
Financing activities:
               
Net change under revolving credit facility
    300,000       800,000  
Proceeds from exercise of stock options and stock purchase plan
          83,041  
Payments on capital lease obligation
    (51,338 )      
 
           
Net cash provided by financing activities
    248,662       883,041  
 
           
(Decrease) Increase in cash and cash equivalents
    (922,232 )     888  
Cash and cash equivalents at beginning of period
    1,403,949       1,025,173  
 
           
Cash and cash equivalents at end of period
  $ 481,717     $ 1,026,061  
 
           
Supplemental cash flow disclosures:
               
Interest paid
  $ 16,841     $ 13,276  
 
           
Income taxes paid
  $ 11,897     $ 8,994  
 
           
See Notes to Condensed Consolidated Financial Statements

 

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STREAMLINE HEALTH SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A — BASIS OF PRESENTATION
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared by Streamline Health Solutions, Inc. (“Streamline Health® or the Company”), pursuant to the rules and regulations applicable to quarterly reports on Form 10-Q of the U. S. Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Condensed Consolidated Financial Statements have been included. These Condensed Consolidated Financial Statements should be read in conjunction with the financial statements and notes thereto included in the most recent Streamline Health Solutions, Inc. Annual Report on Form 10-K, Commission File Number 0-28132. Operating results for the three months ended April 30, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2012.
NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company’s significant accounting policies is presented in “Note B — Significant Accounting Policies” in the fiscal year 2010 Annual Report on Form 10-K. Users of financial information for interim periods are encouraged to refer to the footnotes contained in the Annual Report when reviewing interim financial results.
Recently Adopted Accounting Pronouncements
ASU 2009-13. In October 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2009-13 —Multiple-Deliverable Revenue Arrangements (ASU 2009-13). ASU 2009-13 requires a vendor to allocate revenue to each unit of accounting in many arrangements involving multiple deliverables based on the relative selling price of each deliverable. It also changes the level of evidence of standalone selling price required to separate deliverables by allowing a vendor to make its best estimate of the standalone selling price of deliverables when more objective evidence of selling price is not available.
The Company adopted ASU 2009-13 for all new and materially modified arrangements on a prospective basis beginning February 1, 2011. Upon review of the primary accounting literature, if we are unable to establish selling price using VSOE (vendor specific objective evidence) or third-party evidence, we will establish an estimated selling price. The estimated selling price is the price at which we would transact a sale if the product or service were sold on a stand-alone basis. The Company establishes a best estimate of selling price by considering internal factors relevant to pricing practices such as costs and margin objectives, stand alone sales prices of similar services and percentage of the fee charged for a primary service relative to a particular piece of licensed software. Additional consideration is also given to market conditions such as competitor pricing strategies and market trends. We regularly review VSOE for our professional services in addition to estimated selling price.

 

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The Company has not experienced a change in units of accounting nor was there a change in allocation of fair value to the various units of accounting. Historically, the Company has been able to obtain VSOE or third-party evidence for significant service deliverables. No material changes in assumptions, inputs or methodology used in determining VSOE or third-party evidence have been made. The pattern of revenue recognition is expected to remain consistent with prior periods and we do not expect a material change in the timing of revenue recognition from previous generally accepted accounting principles as applied in the prior period.
Revenue Recognition — Multiple-Deliverable Revenue Arrangements
The Company may bundle certain proprietary software technology licenses with post-contract customer support (“PCS”), and implementation services. The Company may also bundle software as a service (“SaaS”) offerings with implementation services. In addition, the Company may also bundle additional consulting services such as Business Process Management (“BPM”) and Revenue Cycle Management (“RCM”) services with proprietary software license agreements and SaaS subscriptions.
Provided that the undelivered elements in arrangements that include multiple elements are fixed and determinable, the Company allocates the total revenue to be earned under the arrangement to the elements based on their relative fair value of vendor specific objective evidence (“VSOE”), third-party evidence or estimated selling price, relative to the hierarchy. The amounts representing the fair value of the undelivered items are deferred until delivered, or recognized pro rata over the service contract.
NOTE C — EQUITY AWARDS
During the three months ended April 30, 2011, the Company granted 535,000 options with a weighted average exercise price of $1.99 per share. During the same period 45,266 options expired with an average exercise price of $1.81 per share and no options were exercised under all plans.
The fair value of each option grant during the quarter ended April 30, 2011 was estimated at the date of the grants using a Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rate of 2.50%, a dividend yield of zero percent; and a current weighted average volatility factor of the expected market price of Streamline Health’s Common Stock of 0.528 in 2010. The weighted average expected life of stock options are five years and have a forfeiture rate of zero.
During the three months ended April 30, 2011, the Company granted 25,000 restricted stock shares as executive inducement grants. These executive inducement grants were approved by the board pursuant to Nasdaq Marketplace Rule 5635(c)(4). The terms of the grants are nearly as practicable identical to the terms and conditions of the Company’s 2005 Incentive Compensation Plan.

 

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NOTE D — EARNINGS PER SHARE
The two-class method is used to calculate basic and diluted earnings (loss) per share (“EPS”) as unvested restricted stock awards are considered participating securities because they entitle holders to non-forfeitable rights to dividends or dividend equivalents during the vesting term. Under the two-class method, basic earnings (loss) per common share 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. A reconciliation of basic and diluted weighted average shares for basic and diluted EPS, as well as anti-dilutive securities is as follows:
                 
    Three Months Ended,  
    April 30, 2011     April 30, 2010  
Numerator for Basic and Diluted Loss per Share:
               
Net loss
    (280,771 )     (1,176,385 )
 
           
Denominator for basic loss per share weighted average shares
    9,649,508       9,413,367  
Effect of dilutive securities (1)
               
Stock options
           
Restricted stock
           
 
           
Denominator for basic loss per share, with assumed conversions
    9,649,508       9,413,367  
 
           
Basic net loss per common share
    (0.03 )     (0.13 )
 
           
Diluted net loss per common share
    (0.03 )     (0.13 )
 
           
Anti-dilutive securities:
               
Stock options, out-of-the-money
    1,211,116       699,000  
 
           
     
(1)  
Excluded common stock equivalents (stock options and restricted stock), as the inclusion thereof would be antidilutive.
NOTE E — CONTRACTUAL OBLIGATIONS
The following table details the remaining obligations, by fiscal year, as of the end of the quarter:
                                 
    Line of Credit     Operating Leases     Capital Lease     Fiscal Year Totals  
2011
  $ 1,502,000     $ 280,000     $ 132,000     $ 1,914,000  
2012
          334,000             334,000  
2013
          320,000             320,000  
2014
          329,000             329,000  
2015
          164,000             164,000  
Thereafter
                       
 
                       
Total
  $ 1,502,000     $ 1,427,000     $ 132,000     $ 3,061,000  
 
                       

 

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NOTE F — DEBT
On April 13, 2011, the Company’s wholly owned subsidiary, Streamline Health, Inc., entered into a second amended and restated revolving note with Fifth Third Bank, Cincinnati, OH. The terms of the loan remain the same as set forth in the revolving note entered into on July 31, 2008, as amended on January 6, 2009, and October 21, 2009, except as follows: (i) the maximum principal amount that can be borrowed was increased to $3,000,000 from the prior maximum amount of $2,750,000, subject to the borrowing base limitation; and (ii) the maturity date of the loan has been extended to October 1, 2013 from October 1, 2011. The interest rate on the outstanding principal balance of the loan accrues at an annual floating rate of interest equal to the Adjusted Libor Rate (as defined in the revolving note) plus 3.25%, payable monthly. The interest rate on the note was 3.5% at April 30, 2011. In accordance with the revised maturity date, the outstanding balance on the note is classified as a long-term obligation at April 30, 2011.
In connection with entering into the second amended and restated revolving note in April 2011, the Company also entered into an amendment to the amended and restated continuing guaranty agreement. The terms of the continuing guarantee agreement remain the same as set forth in the guaranty agreement entered into on July 31, 2008, as amended on January 6, 2009 and on October 21, 2009, except that: (i) the minimum fixed charge coverage ratio covenant has been revised, whereas the Company shall maintain a minimum trailing twelve months fixed charge coverage ratio of 1.25, measured each fiscal quarter; (ii) the funded indebtedness to EBITDA covenant has been revised, whereas the Company shall report a funded indebtedness to EBITDA ratio no greater than 2.0, measured each fiscal quarter and; (iii) and a covenant has been added whereas the Company’s EBITDA shall cover its capitalized software development costs each fiscal quarter. The covenant becomes effective on October 31, 2011 and is calculated based on the trailing nine months. As of January 31, 2012 and thereafter, the calculation will be based on the trailing twelve months.
The note also continues to be secured by a first lien on all of the assets of the Company pursuant to security agreements entered into by the Company.
The Company was in compliance with all of the covenants at April 30, 2011. The Company pays a commitment fee on the unused portion of the facility of .06%. The Company had outstanding borrowings of $1,500,000 and $1,200,000 under this revolving loan as of April 30, 2011 and 2010, respectively.
NOTE G — COMMITTMENTS AND CONTINGENCIES
Streamline Health has entered into employment agreements with its officers and certain employees that generally provide annual salary, a minimum bonus, discretionary bonus, stock incentive provisions, and severance arrangements. In accordance with severance agreements in effect at April 30, 2011, the Company accrued $115,000, which will be paid in the second quarter of fiscal 2011.
As a result of a reduction in force implemented by management subsequent to the close of the quarter ended April 30, 2011, the Company accrued an additional $100,000 in the second quarter of fiscal 2011, in accordance with existing severance agreements.

 

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Item 2.  
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In addition to historical information contained herein, this Report on Form 10-Q contains forward-looking statements relating to the Company’s plans, strategies, expectations, intentions, etc. and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements contained herein are no guarantee of future performance and are subject to certain risks and uncertainties that are difficult to predict and actual results could differ materially from those reflected in the forward-looking statements. These risks and uncertainties include, but are not limited to, the timing of contract negotiations and executions and the related timing of the revenue recognition related thereto, the potential cancellation of existing contracts or clients not completing projects included in the backlog, the impact of competitive products and pricing, product demand and market acceptance, new product development, key strategic alliances with vendors that resell Streamline Health solutions, the ability of Streamline Health to control costs, availability of products obtained from third-party vendors, the healthcare regulatory environment, potential changes in legislation, regulatory and government funding affecting the healthcare industry, healthcare information system budgets, availability of healthcare information systems trained personnel for implementation of new systems, as well as maintenance of legacy systems, fluctuations in operating results and other risk factors that might cause such differences including those discussed herein, and including, effects of critical accounting policies and judgments, changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other similar entities, changes in economic, business and market conditions impacting the healthcare industry, the markets in which the Company operates and nationally, and the Company’s ability to maintain compliance with the terms of its credit facilities, but not limited to, discussions in the most recent Form 10-K, Part I, “Item 1 Business”, “Item 1A Risk Factors”, Part II, “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8 Financial Statements and Supplemental Data.” In addition, other written or oral statements that constitute forward-looking statements may be made by or on behalf of the Company. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date thereof. The Registrant undertakes no obligation to publicly revise these forward-looking statements, to reflect events or circumstances that arise after the date hereof. Readers should carefully review the risk factors described in this and other documents Streamline Health Solutions, Inc. files from time to time with the Securities and Exchange Commission, including future Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.
Streamline Health’s discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires Streamline Health to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent liabilities. On an ongoing basis, Streamline Health evaluates its estimates, including those related to product revenues, bad debts, capitalized software development costs, income taxes, support contracts, contingencies, and litigation. Streamline Health bases its estimates on historical experience and on various other assumptions that Streamline Health believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and revenue and expense recognition. Actual results may differ from these estimates under different assumptions or conditions.

 

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General
Streamline Health Solutions, Inc. (“Streamline Health®” or the “Company”) is a leading developer of workflow and document management technology solutions that drive process efficiencies and cost reductions for leading healthcare facilities throughout North America. Since our inception in 1989, Streamline Health’s technology solutions have seamlessly interfaced with our customers’ existing enterprise or departmental electronic medical record systems. The Company’s solutions efficiently integrate paper-based and unstructured data with electronic data in the areas of Health Information Management, Patient Financial Services, Human Resources, and Supply Chain Management to provide real-time comprehensive patient profiles and generate substantial operational savings. Streamline Health’s workflow and document management solutions assist hospitals in meeting the requirements of “meaningful use” to become eligible for significant incentive payments as outlined in the HITECH act (a provision of American Recovery and Reinvestment Act of 2009), and they are an integral part of an enterprise-wide Electronic Health Record (EHR). The Company sells its products and services in North America to remarketers, hospitals, clinical and ambulatory services through its direct sales force, and its reseller partnerships.
Streamline Health’s core technology is a secure document management repository called accessANYwareTM that collects, indexes, and intelligently routes unstructured, document-based medical and financial data throughout the enterprise. The accessANYware family of solutions work complementary to, and can be seamlessly integrated with existing transaction-centric clinical, financial and management information systems. The Company’s fifth-generation accessANYware architecture includes the consolidation of technology platforms onto the Microsoft.NET platform, and also the internationalization of the software to reach international markets.
The Company’s core technology is supplemented by departmental workflow-based solutions and services which offer solutions to specific healthcare business processes within Health Information Management (HIM) and the revenue cycle. Additionally, the Company offers a full complement of high quality consulting and implementation services to complement and enhance its software applications.
The Company’s software solutions are delivered either by purchased perpetual license which is installed locally in the customer’s data center; or by subscription and accessed by software as a service through a secure internet connection (also known as “SaaS”, and previously referred to as “application hosting services” in the Annual Report on Form 10-K; The Company believes SaaS is a more accurate label for this type of subscription services). A SaaS subscription provides Streamline Health’s complete suite of document management and workflow products, which also enables improved security, and accessibility to patient records at significant cost savings; with minimal up-front capital investment, maintenance, and support costs. In addition, the healthcare provider need not have knowledge of, expertise in, or control over the technology infrastructure in the data center that supports them. SaaS systems allow customers to realize the benefits of our systems with an accelerated return on investment, and less economic risk.
The Company operates primarily in one segment as a provider of health information technology solutions. The financial information required by Item 101(b) of Regulation S-K is contained in Item 6 Selected Financial Information of the Company’s January 31, 2011 Form 10-K.

 

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Signed Agreements — Backlog
At April 30, 2011 Streamline Health has master agreements and purchase orders from customers and remarketing partners for systems and related services (excluding support and maintenance, and transaction-based SaaS subscription revenues), which have not been delivered or installed which, if fully performed, would generate future revenues of approximately $4,947,000 compared with $4,240,000 at April 30, 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, net of the revenues recognized from backlog since April 30, 2010. At April 30, 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 $6,199,000 compared with $5,078,000 at April 30, 2010, through their respective renewal dates in fiscal year 2012 and 2011. This increase is primarily the result of new or renewed maintenance contracts that have entered their service period, and therefore, added to backlog, and net of recognized maintenance revenues since April 30, 2010. At April 30, 2011, Streamline Health has entered into SaaS agreements, which are expected to generate revenues in excess of $6,550,000 through their respective renewal dates in fiscal years 2011 through 2014. The software as a service backlog decreased from $9,310,000 at April 30, 2010, due to the decreased volume of new SaaS business and renewals, and recognized revenues from contracts signed in prior years.
Below is a summary of the backlog at April 30, 2011, January 31, 2011 and April 30, 2010:
                         
    April 30, 2011     January 31, 2011     April 30, 2010  
Streamline Health Software Licenses
  $ 82,000     $ 121,000     $ 188,000  
Custom Software
    29,000       42,000       107,000  
Hardware and Third Party Software
    107,000       66,000       145,000  
Professional Services
    4,729,000       4,629,000       3,800,000  
Software as a service
    6,550,000       7,362,000       9,310,000  
Recurring Maintenance
    6,199,000       5,384,000       5,078,000  
 
                 
Total
  $ 17,696,000     $ 17,604,000     $ 18,628,000  
 
                 
Streamline Health believes its future revenues will come from direct sales and remarketing agreements with other health information systems vendors similar to the Telus Health agreement that was entered into in December 2007. Streamline Health continues to actively pursue remarketing agreements with other companies.
The commencement of revenue recognition varies depending on the size and complexity of the system; the implementation schedule requested by the customer and usage by customers of the Company’s SaaS services. Therefore, it is difficult for the Company to accurately predict the revenue it expects to achieve in any particular period. Streamline Health’s master agreements generally provide that the customer may terminate its agreement upon a material breach by Streamline Health, or may delay certain aspects of the installation. There can be no assurance that a customer will not cancel all or any portion of a master agreement or delay installations. A termination or installation delay of one or more phases of an agreement, or the failure of Streamline Health to procure additional agreements, could have a material adverse effect on Streamline Health’s business, financial condition, and results of operations.

 

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Quarterly Operating Results
The Company recognized revenues in the first quarter of fiscal 2011 of $4.1 million, compared to $3.5 million of revenue recognized in the comparable prior quarter; an increase of $596,000, or 17%. The revenues recognized are derived primarily from recurring revenues recognized from SaaS subscriptions and recurring maintenance contracts. The Company incurred an operating loss of $254,000 in the first quarter of fiscal 2011, compared to an operating loss of $1.2 million in the first quarter of fiscal 2010. Operating expenses were $4.4 million, compared to $4.7 million in the comparable prior quarter; a decrease of $351,000 or 7% over the prior comparable quarter.
The Company’s revenues from proprietary systems sales have varied, and may continue to vary, significantly from quarter-to-quarter because of the volume and timing of systems sales and delivery. Professional services revenues also fluctuate from quarter-to-quarter because of the timing of the implementation services, project management, and timing of the recognition of revenues under generally accepted accounting principles. Conversely, revenues from SaaS subscription sales, and maintenance services do not fluctuate significantly from quarter-to-quarter, but have been increasing, on an annual basis, as the number of customers increase. Substantial portions of the operating expenses are fixed; therefore operating profits are expected to vary depending on the factors that drive fluctuations in revenues and the mix of proprietary system sales versus SaaS subscriptions sold.
Quarterly Statement of Operations(1)
                 
    Three Months Ended,  
    April 30, 2011     April 30, 2010  
 
               
Systems sales
    3.2 %     4.2 %
Services, maintenance and support
    74.5       71.8  
Software as a service
    22.3       24.0  
 
           
Total revenues
    100.0       100.0  
Cost of sales
    55.8       72.7  
Selling, general and administrative
    40.2       47.9  
Product research and development
    10.1       13.3  
 
           
Total operating expenses
    106.1       133.9  
 
           
Operating profit (loss)
    (6.1 )     (33.9 )
Other income (expense), net
    (0.6 )     0.8  
Income tax net benefit
           
 
           
Net earnings(loss)
    (6.7 )%     (33.1 )%
 
           
Cost of systems sales
    412.9 %     490.5 %
 
           
Cost of services, maintenance and support
    43.3 %     54.3 %
 
           
Cost of software as a service
    47.2 %     53.8 %
 
           
     
(1)  
Because a significant percentage of the operating costs are incurred at levels that are not necessarily correlated with revenue levels, a variation in the timing of systems sales and installations and the resulting revenue recognition can cause significant variations in operating results. As a result, period-to-period comparisons may not be meaningful with respect to the past operations nor are they necessarily indicative of the future operations of Streamline Health in the near or long-term. The data in the table is presented solely for the purpose of reflecting the relationship of various operating elements to revenues for the periods indicated.

 

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Revenues
Revenues consisted of the following (in thousands):
                                 
    Three Months Ended,              
    April 30, 2011     April 30, 2010     Change     % Change  
Proprietary software (1)
  $ 39     $ 28     $ 11       39 %
Hardware & third party software (1)
    92       122       (30 )     (25 %)
Professional services (2)
    1,007       659       348       53 %
Maintenance & support (2)
    2,077       1,885       192       10 %
Software as a service
    925       850       75       9 %
 
                         
Total Revenues
  $ 4,140     $ 3,544     $ 596       17 %
 
                         
     
(1)  
Proprietary software and hardware are the components of the system sales line item
 
(2)  
Professional services and maintenance & support are the components of the service, maintenance and support line item. BPM consulting services are included in professional services.
Revenues for the three months ended April 30, 2011, were $4,140,000 compared with $3,544,000 in the comparable quarter of fiscal 2010. The quarter-over-quarter increase was a result of an increase in professional services and increases in recurring revenues from software maintenance and software as a service subscription revenue. The increase in professional services is primarily the result of increased revenue earned from implementations of systems and other professional services sold in prior quarters. The increase in software as a service subscription revenue is due to one SaaS customer contract sold in fiscal 2010 that reached go-live status and was able to begin ratable revenue recognition, as well as the continued recognition of subscription revenues from backlog. Additionally, the increase in recurring maintenance and support is due to revenues recognized for maintenance periods commencing on software sold since the close of the first quarter 2010.
Cost of Sales
Cost of sales consisted of the following (in thousands):
                                 
    Three Months Ended,              
    April 30, 2011     April 30, 2010     Change     % Change  
Cost of system sales
  $ 541     $ 738     $ (197 )     (27 %)
Cost of services, maintenance and support
    1,334       1,382       (48 )     (3 %)
Cost of software as a service
    436       457       (21 )     (5 %)
 
                         
Total cost of sales
  $ 2,311     $ 2,577     $ (266 )     (10 %)
 
                         
Cost of systems sales includes amortization of capitalized software expenditures, royalties, and the cost of third-party hardware and software. The decrease in the cost of systems sales is primarily the result of a $121,000 decrease in amortization due to products released in fiscal years 2006 and 2007 becoming fully amortized subsequent to the end of the first quarter of fiscal 2010.
Cost of services, maintenance and support includes compensation and benefits for support and professional services personnel and the cost of third party maintenance contracts. The decrease is primarily due to reductions in staffing for implementation services and BPM consulting, reductions in the cost of third-party maintenance contracts over the prior year comparable quarter. These reductions were partially offset by increased equity awards expense.

 

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The cost of software as a service operations is relatively fixed, but subject to annual increases for the goods and services it requires. The decrease is primarily attributable to several annual third party license and maintenance agreements that were re-negotiated, resulting in cost savings in the current quarter; net of additional depreciation on new infrastructure.
Selling, General and Administrative Expense
Selling, general and administrative expenses consisted of the following (in thousands):
                                 
    Three Months Ended,              
    April 30, 2011     April 30, 2010     Change     % Change  
Selling, general, and administrative
  $ 1,665     $ 1,698     $ (33 )     (2 %)
 
                         
Selling, General and Administrative expenses consist primarily of compensation and related benefits and reimbursable travel and living expenses related to the Company’s sales, marketing and administrative personnel; advertising and marketing expenses, including trade shows and similar type sales and marketing expenses; and general corporate expenses, including occupancy costs. This decrease over the respective comparable prior period is due to reductions in salaries, sales commissions, and professional fees over the prior comparable quarter, as well as policies implemented to reduce travel and living expenses. These decreases in expense were primarily offset by an increased stock-based compensation expenses, bad debt expense, bonus expense, and severance costs.
Product Research and Development Expense
Product research and development expenses consisted of the following (in thousands):
                                 
    Three Months Ended,              
    April 30, 2011     April 30, 2010     Change     % Change  
Research and development expense
  $ 418     $ 470     $ (52 )     (11 %)
Capitalized research and development cost
    785       696       89       13 %
 
                         
Total R&D Cost
  $ 1,203     $ 1,166     $ 37       3 %
 
                         
Product research and development expenses consist primarily of compensation and related benefits; the use of independent contractors for specific near-term development projects; and an allocated portion of general overhead costs, including occupancy. Research and development expenses decreased to $418,000 from $470,000 from the prior comparable quarter, primarily due to a increase in costs eligible for capitalization. The Company capitalized $785,000 and $696,000 resulting in total research and development expenditures of $1,203,000 and $1,166,000 in the first quarter of fiscal 2011 and 2010, respectively when considering both capitalized software development costs and non-capitalizable research and development expense for an increase of $37,000.

 

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Operating Loss
The Company incurred an operating loss of $254,000 in the first quarter of fiscal 2011, compared to an operating loss of $1,201,000 in the first quarter of fiscal 2010. Increased revenues from professional service fees, and continued increases in recurring revenues were aided by a reduction in operating expenses as part of cost of sales, selling, administrative, and research and development expenses.
Other Income (Expense)
Interest expense in first quarter of fiscal 2011 was $20,000 compared to $22,000 in the comparable prior quarter. Interest expense from the working capital facility was $13,000 in the first quarter of fiscal 2011 compared with $11,000 in the comparable prior quarter, primarily due to a larger average balance outstanding than in the prior comparable quarter. Interest expense from the capital lease decreased by $5,000 over the prior comparable quarter primarily due to a lower principal balance when compared to the prior year. The Company had foreign currency exchange gains of $22,000 and a loss on the disposal of a fixed asset of $27,000.
Provision for Income Taxes
The tax provision in the first quarter of fiscal 2011 and 2010 is comprised of primarily state and local provisions.
Net Loss
The Company incurred a net loss of $281,000 in fiscal 2011, compared to net loss of $1,176,000 in fiscal 2010.
Operational Metrics and Use of Non-GAAP Financial Measures
Streamline Health’s primary metrics used to assess the performance of the business include gross margin, cash flow from operations, non-GAAP Adjusted EBITDA (Non-GAAP measure meaning, “Earnings before interest, Tax, Depreciation, Amortization, and Stock-based compensation expense”; for explanation and reconciliation of all non-GAAP financial measures, see “Use of Non-GAAP Financial Measures”), non-GAAP Adjusted EBITDA less capitalized software development costs, and non-GAAP Adjusted EBITDA margin. Management uses these measures as i) one of the primary methods for planning and forecasting overall expectations and for evaluating, on at least a quarterly and annual basis, actual results against such expectations; and, ii) as a performance evaluation metric in determining achievement of certain executive and employee incentive compensation programs.

 

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Additionally, the Company’s lenders use Adjusted EBITDA, to assess operating performance. The Company’s working capital credit agreement requires compliance with financial covenants certain of which are based on an Adjusted EBITDA measurement that is the same as the Adjusted EBITDA measurement reviewed by Company management. The current metrics are outlined in the table below:
                                 
    Three Months Ended,              
    April 30,     April 30,              
    2011     2010     Change     % Change  
Gross margin
  $ 1,829,000     $ 967,000       862,000       89 %
Gross margin %
    44 %     27 %     17 %        
Cash flow (used in) provided by operations
  $ (228,000 )   $ 2,000       (230,000 )     (115 %)
Adjusted EBITDA
  $ 630,000     $ (225,000 )     855,000       380 %
Adjusted EBITDA, less capitalized software development costs
  $ (155,000 )   $ (921,000 )     766,000       494 %
Adjusted EBITDA margin
    15 %     (6 %)     21 %        
Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of Company results as reported under GAAP. The Company compensates for such limitations by relying primarily on our GAAP results and using non-GAAP financial measures only as supplemental data. A reconciliation of non-GAAP to GAAP measures used is provided below, and investors are encouraged to carefully review this reconciliation. In addition, because these non-GAAP measures are not measures of financial performance under GAAP and are susceptible to varying calculations, these measures, as defined by the Company, may differ from and may not be comparable to similarly titled measures used by other companies. The following is a summary of non-GAAP measurements used by the Company:
EBITDA, Adjusted EBITDA, Adjusted EBITDA Less Capitalized Software Development Costs, Adjusted EBITDA Margin, and Adjusted EBITDA per diluted share
The Company defines: (i) EBITDA, as net income (loss) before net interest expense, income tax expense (benefit), depreciation and amortization; (ii) Adjusted EBITDA, as net income (loss) before net interest expense, income tax expense (benefit), depreciation, amortization, and stock-based compensation expense; (iii) Adjusted EBITDA Less Capitalized Software Development Costs, includes the effect of cash spent on research and development that was capitalized; (iv) Adjusted EBITDA Margin, as Adjusted EBITDA as a percentage of net revenue; and (v) Adjusted EBITDA per diluted share as adjusted EBITDA divided by adjusted diluted shares outstanding. EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EBITDA per diluted share are used to facilitate a comparison of our operating performance on a consistent basis from period to period and provide for a more complete understanding of factors and trends affecting our business than GAAP measures alone. These measures assist management and the Board and may be useful to investors in comparing the Company’s operating performance consistently over time as they remove the impact of our capital structure (primarily interest charges), asset base (primarily depreciation and amortization) and items outside the control of the management team (taxes). Adjusted EBITDA removes the impact of share-based compensation expense, which is another non-cash item outside of management control. Adjusted EBITDA per diluted share will include incremental shares in the share count that would be considered anti-dilutive in a GAAP net loss position.
EBITDA and its variants used by management are not measures of liquidity under GAAP, or otherwise, and are not alternatives to cash flow from continuing operating activities; therefore the Company suggests that readers of the quarterly reports refer to the Company’s Annual Report on Form 10-K for the year ended January 31, 2011 in the section “Use of Non-GAAP Financial Measures” for complete detail of the limitations of non-GAAP financial measures presented in this quarterly report.

 

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The following table sets forth a reconciliation of EBITDA and its variants used by management, as described to assess the Company’s on-going operating performance (amounts in thousands, except per share data):
                 
    Three Months Ended,  
    April 30, 2011     April 30, 2010  
Adjusted EBITDA Reconciliation
               
Net earnings (loss)
  $ (281 )   $ (1,176 )
Interest expense
    20       22  
Tax expenses
    2       5  
Depreciation and other amortization
    198       222  
Amortization of capitalized software development costs
    494       615  
 
           
EBITDA
    433       (312 )
 
           
Stock-based compensation expense
    197       87  
 
           
Adjusted EBITDA
  $ 630     $ (225 )
 
           
Capitalized software development costs
    785       696  
Adjusted EBITDA, less capitalized software development costs
    (155 )     (921 )
 
           
Adjusted EBITDA Margin (1)
    15 %     (6 %)
 
           
 
               
Adjusted EBITDA per diluted share
               
Earnings (loss) per share — diluted
  $ (0.03 )   $ (0.13 )
Interest expense (2)
    0.00       0.00  
Tax expenses (2)
    0.00       0.00  
Depreciation and other amortization (2)
    0.02       0.02  
Amortization of capitalized software development costs (2)
    0.05       0.07  
Stock-based compensation expense (2)
    0.02       0.01  
 
           
Adjusted EBITDA per adjusted diluted share
  $ 0.06     $ (0.03 )
 
           
 
               
Diluted weighted average shares
    9,649,508       9,413,367  
Includable incremental shares — adjusted EBITDA (3)
    8,108        
 
           
Adjusted diluted shares
  $ 9,657,616     $ 9,413,367  
 
           
     
(1)  
Adjusted EBITDA as a percentage of GAAP revenues
 
(2)  
Per adjusted diluted weighted average shares
 
(3)  
The number of incremental shares that would be dilutive under profit assumption, only applicable under a GAAP net loss. If GAAP profit is earned in the current period, no additional incremental shares are assumed. If negative adjusted EBITDA is incurred, no additional incremental shares are assumed for adjusted diluted shares.

 

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Liquidity and Capital Resources
Traditionally, Streamline Health has funded its operations, working capital needs, and capital expenditures primarily from a combination of cash generated by operations, bank loans, and revolving lines of credit. Streamline Health’s liquidity is dependent upon numerous factors including: (i) the timing and amount of revenues and collection of contractual amounts from customers, (ii) amounts invested in research and development, capital expenditures, and (iii) the level of operating expenses, all of which can vary significantly from quarter-to-quarter.
Streamline Health has no significant obligations for capital resources, other than the $1,500,000 borrowed under its bank line of credit at April 30, 2011, the non-cancelable operating leases of approximately $1,427,000 payable over the next four years, and $132,000 for capital leases. Capital expenditures for property and equipment for fiscal 2011 are not expected to exceed $1,500,000.
Net cash used in operations in the first quarter of fiscal 2011 was $228,000, an increase of approximately $230,000 from the prior comparable quarter. The increase was primarily due to a $244,000 decrease in accrued compensation expenses, which included payment on executive severance agreements, executive inducement incentives, fiscal 2010 annual bonus and commission payments; and was offset primarily by fiscal 2011 annual bonuses accrued, and severance agreements accrued during the first quarter; the $864,000 decrease in deferred revenues which reflects the revenue recognition of prepaid maintenance contracts during fiscal 2011, net of any additional payments received in 2011; as well as a $316,000 decrease in accrued other expenses, primarily payment of professional fee accruals and other expenses.
Net cash used in investing activities in the first quarter of fiscal 2011 was $942,000, an increase of $59,000 from the prior comparable quarter. This increase was primarily due to the increase in capitalized software development costs, which is the result of certain projects reaching technological feasibility for which development cost began being capitalized relating to the development of the Company’s core solutions and the expanded work flow module development.
The net cash provided by financing activities in the first quarter of fiscal 2011 was $249,000, a decrease of $634,000 which is primarily the net change on the line of credit of $500,000, as well as a decrease in proceeds received for exercise of stock options, and payments on the capital lease obligation.
At April 30, 2011, Streamline Health had cash on hand of $482,000, and total eligible borrowings on the line of credit of approximately $2,029,000, or $529,000 in excess availability under the line of credit. Streamline Health believes that its present cash position, combined with cash generation currently anticipated from operations, the availability of the revolving credit facility, and possible access to new funding sources will be sufficient to meet anticipated cash requirements for the next twelve months. However, continued expansion of the Company will require additional resources. The Company may need to incur debt, obtain an additional infusion of capital, or a combination of both, depending on the extent of the expansion of the Company and future revenues and expenses. However, there can be no assurance Streamline Health will be able to do so. The Company is evaluating financing options available to the Company.

 

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Notwithstanding the current levels of revenues and expenses, for the foreseeable future, Streamline Health will need to continually assess its revenue prospects compared to its then current expenditure levels. If it does not appear likely that revenues will increase, it may be necessary to reduce operating expenses or raise cash through additional borrowings, the sale of assets, or other equity financing. Certain of these actions will require current lender approval. However, there can be no assurance Streamline Health will be successful in any of these efforts. If it is necessary to significantly reduce operating expenses, this could have an adverse effect on future operating performance.
To date, inflation has not had a material impact on Streamline Health’s revenues or expenses.
Item 3.  
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For quantitative and qualitative disclosures about market risk, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of the Annual Report on Form 10-K for the fiscal year ended January 31, 2011. The Company’s exposures to market risk have not changed materially since January 31, 2011.
Item 4.  
CONTROLS AND PROCEDURES
Streamline Health maintains disclosure controls and procedures that are designed to ensure that there is reasonable assurance that the information required to be disclosed in Streamline Health’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to Streamline Health’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based on the definition of “disclosure controls and procedures” in Exchange Act Rules 13a-15(e) and 15d-15(e). In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of Streamline Health’s senior management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Streamline Health’s disclosure controls and procedures to provide reasonable assurance of achieving the desired objectives of the disclosure controls and procedures. Based on that evaluation, Streamline Health’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that there is reasonable assurance that Streamline Health’s disclosure controls and procedures were effective as of the end of the period covered by this report.
There were no material changes in the Company’s internal controls over financial reporting during the three months ended April 30, 2011 that have affected or are reasonably likely to materially affect the Company’s internal controls over financial reporting.

 

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Part II. OTHER INFORMATION
Item 1.  
LEGAL PROCEEDINGS
Streamline Health is, from time to time, a party to various legal proceedings and claims, which arise, in the ordinary course of business. Streamline Health is not aware of any legal matters that will have a material adverse effect on Streamline Health’s consolidated results of operations or consolidated financial position.
Item 1A.  
RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, “Item 1A, Risk Factors” in the Annual Report on Form 10-K for the fiscal year ended January 31, 2011. The risk factors in the Annual Report have not materially changed since January 31, 2011, but are not the only risks facing the Company. In addition, risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company, its financial condition and/or operating results.
Item 2.  
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
As previously reported in the Company’s Form 8-Ks filed with the Commission on March 14, 2011 and April 28, 2011, in the first fiscal quarter of 2011, the Company granted 200,000 stock options to Mr. Rick Leach and 100,000 stock options to Mr. Stephen Murdock, the Company’s Chief Marketing Officer and Chief Financial Officer, respectively, at an exercise price of $2.00 per share. The Company also granted each of Messrs. Leach and Murdock the right to purchase 10,000 shares of newly issued shares of common stock for $100 (i.e. their par value).
The Company also granted 200,000 stock options to an employee at an exercise price of $2.00 per share; and also 15,000 stock options to a non-employee consultant at an exercise price of $1.82 per share. The Company also granted an employee the right to purchase 5,000 shares of newly issued shares of common stock for $50 (i.e. their par value).
These option and share awards were inducement grants pursuant to Nasdaq Marketplace Rule 5365(c)(4) in connection with the commencement of employment with the Company, and were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended, as securities not issued in a public offering.

 

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Item 3.  
DEFAULTS UPON SENIOR SECURITIES
The Company was not in default of its existing credit facility at April 30, 2011.
Item 6.  
EXHIBITS
(a) Exhibits
         
  3.1 (a)  
Certificate of Incorporation of Streamline Health Solutions, Inc. (*)
       
 
  3.1 (b)  
Certificate of Incorporation of Streamline Health Solutions, Inc., amendment No. 1 (*)
       
 
  3.2    
Bylaws of Streamline Health Solutions, Inc. (*)
       
 
  10.1    
Employment Agreement dated January 31, 2011 between Streamline Health Solutions, Inc. and Robert E. Watson (*)
       
 
  10.2    
Employment agreement among Streamline Health Solutions Inc., Streamline Health, Inc. and Rick Leach effective March 8, 2011 (*)
       
 
  10.3    
Employment agreement among Streamline Health Solutions Inc., Streamline Health, Inc. and Stephen H. Murdock effective April 22, 2011 (*)
       
 
  10.4    
Second Amended and Restated Revolving Note, effective April 13, 2011, between Streamline Health, Inc. and Fifth Third Bank (*)
       
 
  10.5    
Amendment No. 1 to the Amended and Restated Continuing Guaranty Agreement, effective April 13, 2011, between Streamline Health Solutions, Inc. and the Fifth Third Bank (*)
       
 
  11    
Computation of earnings (loss) per common share**
       
 
  31.1    
Certification of Chief Executive Officer pursuant to Rule 13a -14(a) and Rule 15d — 14(a) of the Securities Exchange Act, as Amended**
       
 
  31.2    
Certification of Chief Financial Officer pursuant to Rule 13a -14(a) and Rule 15d — 14(a) of the Securities Exchange Act, as Amended**
       
 
  32.1    
Certification of the Chief Executive Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002**
       
 
  32.2    
Certification of the Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002**
     
(*)  
Incorporated herein by reference from, the Registrant’s SEC filings.
 
   
(See INDEX TO EXHIBITS)
 
(**)  
Included herein.

 

23


Table of Contents

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  STREAMLINE HEALTH SOLUTIONS, INC.
 
 
DATE: June 8, 2011  By:   /s/ Robert E. Watson    
    Robert E. Watson   
    Chief Executive Officer   
     
DATE: June 8, 2011  By:   /s/ Stephen H. Murdock    
    Stephen H. Murdock   
    Chief Financial Officer   

 

24


Table of Contents

INDEX TO EXHIBITS
             
Exhibit No.   Description of Exhibit    
       
 
   
  3.1 (a)  
Certificate of Incorporation of Streamline Health Solutions, Inc. f/k/a/ LanVision Systems, Inc. (Previously filed with the Commission and incorporated herein by reference from, the Registrant’s (LanVision System, Inc.) Registration Statement on Form S-1, File Number 333-01494, as filed with the Commission on April 15, 1996.)
  *
       
 
   
  3.1 (b)  
Certificate of Incorporation of Streamline Health Solutions, Inc. f/k/a LanVision Systems, Inc., amendment No. 1. (Previously filed with the Commission and incorporated herein by reference from the Registrant’s Form 10-Q, as filed with the Commission on September 8, 2006.)
  *
       
 
   
  3.2    
Bylaws of Streamline Health Solutions, Inc. as amended and restated on July 22, 2010, and previously filed with the Commission and incorporated herein by reference from the Registrant’s Form 10-Q, as filed with the Commission on September 9, 2010.
  *
       
 
   
  10.1 #  
Employment Agreement dated January 31, 2011 between Streamline Health Solutions, Inc. and Robert E. Watson, (Previously filed with the Commission, and incorporated herein by reference from, Exhibit 10.2 of the Registrant’s Form 8-K, as filed with the Commission on February 3, 2011.)
  *
       
 
   
  10.2 #  
Employment agreement among Streamline Health Solutions Inc., Streamline Health, Inc. and Rick Leach effective March 8, 2011. (Previously filed with the Commission, and incorporated herein by reference from, Exhibit 10.1 of the Registrant’s Form 8-K, as filed with the Commission on March 14, 2011.)
  *
       
 
   
  10.3 #  
Employment agreement among Streamline Health Solutions Inc., Streamline Health, Inc. and Stephen H. Murdock effective April 22, 2011. (Previously filed with the Commission, and incorporated herein by reference from, Exhibit 10.1 of the Registrant’s Form 8-K, as filed with the Commission on April 22, 2011.)
  *
       
 
   
  10.4    
Second Amended and Restated Revolving Note, effective April 13, 2011, between Streamline Health, Inc. and Fifth Third Bank. (Previously filed with the Commission, and incorporated herein by reference to exhibit 10.1 of the Registrant’s Form 8-K, as filed with the Commission on April 18, 2011.)
  *

 

25


Table of Contents

             
Exhibit No.   Description of Exhibit    
       
 
   
  10.5    
Amendment No. 1 to the Amended and Restated Continuing Guaranty Agreement, effective April 13, 2011, between Streamline Health Solutions, Inc. and the Fifth Third Bank. (Previously filed with the Commission, and incorporated herein by reference to exhibit 10.2 of the Registrant’s Form 8-K, as filed with the Commission on April 18, 2011.)
  *
       
 
   
  11.1    
Statement Regarding Computation of Per Share Earnings
  **
       
 
   
  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.
  **
     
*  
Included herein as indicated
 
**  
Included herin
 
#  
Management Contracts and Compensatory Arrangements.

 

26

exv11w1
EXHIBIT 11
STREAMLINE HEALTH SOLUTIONS, INC.
Computation of (loss) per share
                 
    Three Months Ended  
    April 30, 2011     April 30, 2010  
 
Net (loss)
  $ (280,771 )   $ (1,176,385 )
 
           
Average shares outstanding
    9,649,508       9,413,367  
Stock options & purchase plan:
               
Total options & purchase plan shares
           
Assumed treasury stock buyback
           
Convertible redeemable preferred stock assumed converted
           
 
           
Number of shares used in per common share computation
    9,649,508       9,413,367  
 
           
 
               
Basic net ( loss ) per share of common stock
  $ (0.03 )   $ (0.13 )
 
           
 
               
Diluted net ( loss ) per share of common stock
  $ (0.03 )   $ (0.13 )
 
           

 

 

exv31w1
Exhibit 31.1
STREAMLINE HEALTH SOLUTIONS, INC.
Certification of Chief Executive Officer pursuant to Rule 13a -14(a) and
Rule 15d — 14(a) of the Securities Exchange Act, as Amended
I, Robert E. Watson, certify that:
I have reviewed this quarterly report on Form 10-Q 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 registrant’s 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 control over financial reporting, or caused such internal control 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 registrant’s 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 change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting.
         
June 8, 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 Rule 13a -14(a) and
Rule 15d — 14(a) of the Securities Exchange Act, as Amended
I, Stephen H. Murdock, certify that:
I have reviewed this quarterly report on Form 10-Q 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 registrant’s 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 control over financial reporting, or caused such internal control 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 registrant’s 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 change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting.
         
June 8, 2011  /s/ Stephen H. Murdock    
  Chief Financial Officer   
     

 

 

exv32w1
EXHIBIT 32.1
STREAMLINE HEALTH SOLUTIONS, INC.
Certification of the Chief Executive Officer Pursuant to
18 U.S.C. 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002
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:
  (1)  
The Quarterly Report on Form 10-Q of the Company for the quarter ended July 31, 2010 (the “Report”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
 
  (2)  
The information contained in the Report fairly presents, in all material respects, the financial condition, and results of operations of the Company.
June 8, 2011
     
/s/ Robert E. Watson
   
     
Chief Executive Officer and President
   
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 of the Chief Financial Officer Pursuant to
18 U.S.C. 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002
I, Stephen H. Murdock, 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:
  (3)  
The Quarterly Report on Form 10-Q of the Company for the quarter ended July 31, 2010 (the “Report”) fully complies with the requirements of section 13(a) or 15 (d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
 
  (4)  
The information contained in the Report fairly presents, in all material respects, the financial condition, and results of operations of the Company.
June 8, 2011
     
/s/ Stephen H. Murdock
   
     
Chief Financial Officer
   
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.