STREAMLINE HEALTH SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Three Months Ended

Six Months Ended

July 31,

July 31,

2016

2015

2016

2015

Revenues:

  Systems sales

$

1,364,771

$

1,941,601

$

1,876,038

$

2,240,217

  Professional services

548,080

659,372

1,238,695

1,010,331

  Maintenance and support

3,732,488

3,627,118

7,488,041

7,281,183

  Software as a service

1,728,724

2,391,008

3,438,510

4,256,810

        Total revenues

7,374,063

8,619,099

14,041,284

14,788,541

Operating expenses:

  Cost of systems sales

671,631

694,794

1,417,115

1,421,585

  Cost of professional services

529,024

647,569

1,167,788

1,419,065

  Cost of maintenance and support

835,353

714,273

1,693,171

1,531,178

  Cost of software as a service

455,370

702,769

939,613

1,441,600

  Selling, general and administrative

3,341,949

3,779,114

6,940,790

8,285,288

  Research and development

2,108,567

2,233,356

3,830,754

4,457,549

        Total operating expenses

7,941,894

8,771,875

15,989,231

18,556,265

Operating loss

(567,831)

(152,776)

(1,947,947)

(3,767,724)

Other expense (income):

  Interest expense

(120,014)

(248,175)

(282,026)

(492,116)

  Miscellaneous income (expenses)

(44,756)

(159,814)

21,466

1,829,160

Loss before income taxes

(732,601)

(560,765)

(2,208,507)

(2,430,680)

  Income tax benefit (expense)

(1,701)

(3,414)

(3,402)

468

Net loss

$

(734,302)

$

(564,179)

$

(2,211,909)

$

(2,430,212)

Less: deemed dividends on Series A Preferred Shares

(418,506)

(325,018)

(803,225)

(620,675)

Net loss attributable to common shareholders

$

(1,152,808)

$

(889,197)

$

(3,015,134)

$

(3,050,887)

Basic net loss per common share

$

$

(0.05)

$

(0.16)

$

(0.16)

Number of shares used in basic per common share computation

18,628,288

19,393,547

18,614,622

Diluted net loss per common share

$

(0.06)

$

(0.05)

$

(0.16)

$

(0.16)

Number of shares used in diluted per common share computation

19,791,805

18,628,288

19,393,547

18,614,622

STREAMLINE HEALTH SOLUTIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

Assets

July 31,

2016

January 31,

2016

Current assets:

  Cash and cash equivalents

$

6,513,326

$

9,882,136

  Accounts receivable, net of allowance for doubtful

    accounts of $204,654 and $155,407, respectively

3,800,134

4,199,315

  Contract receivables

81,343

119,697

  Prepaid hardware and third-party software for

    future delivery

5,992

5,858

  Prepaid client maintenance contracts

840,908

956,913

  Other prepaid assets

1,208,222

941,532

  Other current assets

3,835

97,986

        Total current assets

12,453,760

16,203,437

Non-current assets:

Property and equipment:

  Computer equipment

2,689,226

2,647,135

  Computer software

807,813

801,895

  Office furniture, fixtures and equipment

683,443

683,443

  Leasehold improvements

729,348

729,348

4,909,830

4,861,821

  Accumulated depreciation and amortization

(3,026,510)

(2,407,746)

Property and equipment, net

1,883,320

2,454,075

 Contract receivables, less current portion

—

8,711

 Capitalized software development costs, net of

   accumulated amortization of $16,345,910 and

   $14,919,948, respectively

5,634,236

6,123,638

Intangible assets, net of accumulated amortization of

   $5,322,567 and $4,671,675, respectively

7,504,433

8,155,325

Deferred financing costs, net of accumulated

   amortization of zero and $84,531, respectively

—

270,147

Goodwill

16,184,667

16,184,667

Other

824,032

746,018

       Total non-current assets

32,030,688

33,942,581

$

44,484,448

$

50,146,018

STREAMLINE HEALTH SOLUTIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

Liabilities and Stockholders' Equity

July 31,

2016

January 31,

2016

Current liabilities:

  Accounts payable

$

733,179

$

1,136,779

  Accrued compensation

542,120

935,324

  Accrued other expenses

238,401

328,551

  Current portion of long-term debt

786,108

673,807

  Deferred revenues

9,982,283

10,447,280

  Current portion of capital lease obligation

223,749

592,642

        Total current liabilities

12,505,840

14,114,383

Non-current liabilities:

  Term loans

5,438,932

7,861,084

  Warrants liability

143,257

205,113

  Royalty liability

2,355,998

2,291,888

  Lease incentive liability

364,500

369,406

  Capital lease obligation

23,188

93,257

  Deferred revenues, less current portion

918,295

1,212,709

        Total non-current liabilities

9,244,170

12,033,457

        Total liabilities

21,750,010

26,147,840

Series A 0% Convertible Redeemable Preferred stock, $.01 par value per share, $8,849,985 redemption value, 4,000,000 shares authorized, 2,949,995 issued and outstanding, net of unamortized preferred stock discount of $72,710 and $875,935, respectively

8,777,275

7,974,050

Stockholders' equity:

  Common stock, $.01 par value per share, 45,000,000 shares

    authorized, 19,639,774 and 18,783,540 shares issued and

    outstanding, respectively

196,398

187,836

  Additional paid in capital

79,836,959

79,700,577

  Accumulated deficit

(66,076,194)

(63,864,285)

        Total stockholders' equity

13,957,163

16,024,128

$

44,484,448

$

50,146,018

STREAMLINE HEALTH SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Six Months Ended July 31,

2016

2015

Operating activities:

  Net loss

$

(2,211,909)

$

(2,430,212)

  Adjustments to reconcile net loss to net cash

provided by (used in) operating activities:

Depreciation

630,706

625,239

Amortization of capitalized software development costs

1,425,962

1,557,758

Amortization of intangible assets

650,892

674,460

Amortization of other deferred costs

115,113

83,868

Valuation adjustment for warrants liability

(61,856)

(1,268,084)

Share-based compensation expense

909,411

1,283,459

Other valuation adjustments

83,937

94,351

    Loss on disposal of property and equipment

567

34,228

    Gain on early extinguishment of lease liability

—

(33,059)

    Provision for accounts receivable

88,472

89,002

    Deferred tax benefit

—

(9,574)

  Changes in assets and liabilities, net of assets acquired:

Accounts and contract receivables

357,774

(2,122,715)

Other assets

(214,327)

319,862

Accounts payable

(403,600)

427,914

Accrued expenses

(472,420)

(276,301)

Deferred revenues

(759,411)

1,759,832

  Net cash provided by operating activities

139,311

810,028

Investing activities:

Purchases of property and equipment

(60,518)

(117,182)

Capitalization of software development costs

(936,560)

—

  Net cash used in investing activities

(997,078)

(117,182)

Financing activities:

Principal repayments on term loan

(2,075,172)

(990,506)

Principal payments on capital lease obligation

(438,962)

(403,701)

Recovery of deferred financing costs

—

2,111

Proceeds from exercise of stock options and stock purchase plan

14,793

207,779

Payments related to settlement of employee shared-based awards

(11,702)

—

  Net cash used in financing activities

(2,511,043)

(1,184,317)

Decrease in cash and cash equivalents

(3,368,810)

(491,471)

Cash and cash equivalents at beginning of period

9,882,136

6,522,600

Cash and cash equivalents at end of period

$

6,513,326

$

6,031,129

STREAMLINE HEALTH SOLUTIONS, INC.

Backlog

(Unaudited)

Table A

July 31,
2016

January 31,
2016

July 31,
2015

Streamline Health Software Licenses

$

15,133,000

$

21,586,000

$

20,996,000

Third Party Hardware and Software

200,000

200,000

220,000

Professional Services

5,563,000

5,803,000

5,934,000

Maintenance and Support

19,569,000

23,292,000

22,921,000

Software as a Service

13,177,000

16,264,000

19,600,000

    Total

$

53,642,000

$

67,146,000

$

69,671,000

STREAMLINE HEALTH SOLUTIONS, INC.

New Bookings

 (Unaudited)

Table B

Three Months Ended

July 31, 2016

Value

Streamline Health Software licenses

$

413,000

24%

Software as a service

--

0%

Maintenance and support

649,000

38%

Professional services

545,000

32%

Hardware & third party software

107,000

6%

Total bookings

$

Reconciliation of Non-GAAP Financial Measures

(Unaudited)

Table C

This press release contains a non-GAAP financial measure under the rules of the U.S. Securities and Exchange Commission for adjusted EBITDA. This non-GAAP information supplements and is not intended to represent a measure of performance in accordance with disclosures required by generally accepted accounting principles. Non-GAAP financial measures are used internally to manage the business, such as in establishing an annual operating budget. Non-GAAP financial measures are used by Streamline Health's management in its operating and financial decision-making because management believes these measures reflect ongoing business in a manner that allows meaningful period-to-period comparisons. Accordingly, the Company believes it is useful for investors and others to review both GAAP and non-GAAP measures in order to (a) understand and evaluate current operating performance and future prospects in the same manner as management does and (b) compare in a consistent manner the Company's current financial results with past financial results. The primary limitations associated with the use of non-GAAP financial measures are that these measures may not be directly comparable to the amounts reported by other companies and they do not include all items of income and expense that affect operations. The Company's management compensates for these limitations by considering the company's financial results and outlook as determined in accordance with GAAP and by providing a detailed reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures in the tables attached to this press release. Streamline Health defines "adjusted EBITDA" as net earnings (loss) plus interest expense, tax expense, depreciation and amortization expense of tangible and intangible assets, stock-based compensation expense, significant non-recurring operating expenses, and transactional related expenses including: gains and losses on debt and equity conversions, associate severances and related restructuring expenses, associate inducements, professional and advisory fees, and internal direct costs incurred to complete transactions.

Reconciliation of net earnings (loss) to non-GAAP adjusted EBITDA (in thousands)

Adjusted EBITDA Reconciliation

Three Months Ended,

Six Months Ended,

July 31, 2016

July 31, 2015

July 31, 2016

July 31, 2015

Net loss

$

(734)

$

(564)

$

(2,212)

$

(2,430)

    Interest expense

120

248

282

492

    Income tax expense

2

3

3

—

    Depreciation

310

311

631

625

    Amortization of capitalized software 
development costs

710

775

1,426

1,558

    Amortization of intangible assets

325

337

651

674

    Amortization of other costs

36

7

80

48

EBITDA

769

1,117

861

967

    Share-based compensation expense

432

631

909

1,283

    Loss on disposal of fixed assets

—

—

1

34

    Associate severances and other costs
relating to transactions or corporate
restructuring

110

67

110

206

   Non-cash valuation adjustments to
assets and liabilities

14

49

22

(1,173)

    Transaction related professional fees,
advisory fees and other internal direct
costs

236

7

255

20

    Other non-recurring income

—

—

—

(750)

Adjusted EBITDA

$

1,561

$

1,871

$

2,158

$

587

Adjusted EBITDA Margin⁽¹⁾

21%

22%

15%

4%

Adjusted EBITDA per diluted share

Loss per share - diluted

$

(0.06)

$

(0.05)

$

(0.16)

$

(0.16)

Adjusted EBITDA per adjusted diluted
share ⁽²⁾

$

0.07

$

0.09

$

0.10

$

0.03

Diluted weighted average shares

19,791,805

18,628,288

19,393,547

18,614,622

    Includable incremental shares —
adjusted EBITDA ⁽³⁾

3,376,285

2,237,608

3,313,870

2,623,593

Adjusted diluted shares

23,168,090

20,865,896

22,707,417

21,238,215

(1)

Adjusted EBITDA as a percentage of GAAP revenues

(2)

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

(3)

The number of incremental shares that would be dilutive under profit assumption, only applicable under a GAAP net loss. If GAAP profit is earned in the current period, no additional incremental shares are assumed.