NETSMART TECHNOLOGIES, INC.
146 NASSAU AVENUE
ISLIP, NEW YORK 11751
August 2, 2000
Securities and Exchange Commission
450 5th Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Dear Sirs:
Pursuant to regulations of the Securities and Exchange Commission, submitted
herewith for filing on behalf of Netsmart Technologies, Inc. (the "Company") is
the Company's Quarterly Report on Form 10- Q for the second quarter ended June
30, 2000.
This filing is being effected by direct transmission to the Commission's EDGAR
system.
Very truly yours,
Anthony F. Grisanti
Chief Financial Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarter Ended June 30, 2000
Commission File Number 0-21177
NETSMART TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3680154
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
146 Nassau Avenue, Islip, NY 11751
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 968-2000
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_X_ No__
Number of shares of common stock outstanding as of August 2, 2000: 3,488,581
Netsmart Technologies, Inc. and Subsidiaries
Index
Part I: - Financial Information:
Item 1. Financial Statements: Page
----
Consolidated Balance Sheets - June 30, 2000 (Unaudited)
and December 31, 1999 1-2
Consolidated Statements of Operations (Unaudited) -
Six Months Ended June 30, 2000 and June 30, 1999 3
Consolidated Statements of Cash Flows (Unaudited) -
Six Months Ended June 30, 2000 and June 30, 1999 4-5
Consolidated Statement of Stockholders' Equity (Unaudited) -
Six Months Ended June 30, 2000 6-7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
Part II
Item 1. Legal Proceedings 13
NETSMART TECHNOLOGIES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
June 30, December 31,
2000 1999
(Unaudited) ------------
---------
Assets:
Current Assets:
Cash and Cash Equivalents $ 271,995 $ 204,989
Accounts Receivable - Net 7,030,418 5,789,734
Costs and Estimated Profits in Excess
of Interim Billings 3,641,163 4,253,072
Note Receivable 60,000 150,000
Other Current Assets 301,093 167,516
---------- ----------
Total Current Assets 11,304,669 10,565,311
---------- ----------
Property and Equipment - Net 536,576 534,864
---------- ----------
Other Assets:
Software Development Costs - Net 788,711 310,722
Customer Lists - Net 2,232,470 2,399,108
Other Assets 95,906 162,472
---------- ----------
Total Other Assets 3,117,087 2,872,302
---------- ----------
Total Assets $14,958,332 $13,972,477
========== ==========
See Notes to Consolidated Financial Statements.
-1-
NETSMART TECHNOLOGIES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
June 30, December 31,
2000 1999
(Unaudited) ------------
---------
Liabilities and Stockholders' Equity:
Current Liabilities:
Notes Payable $ - $ 882,404
Capitalized Lease Obligations 27,144 25,385
Accounts Payable 2,287,418 2,562,087
Accrued Expenses 1,176,763 1,243,548
Interim Billings in Excess of Costs and Estimated
Profits 3,368,651 3,750,847
Deferred Revenue 249,790 88,546
---------- ----------
Total Current Liabilities 7,109,766 8,552,817
---------- ----------
Capitalized Lease Obligations 50,601 64,627
---------- ----------
Commitments and Contingencies
Stockholders' Equity:
Common Stock - $.01 Par Value; Authorized
15,000,000 Shares; Issued 3,516,619 Shares
at June 30, 2000, 2,988,738 Shares at
December 31, 1999 35,166 29,887
Additional Paid-in Capital - Common Stock 20,445,125 18,657,579
Accumulated Deficit (12,382,516) (13,272,433)
---------- ----------
8,097,775 5,415,033
Less cost of Common Stock held in
Treasury 28,038 shares at June 30, 2000,
5,333 shares at December 31, 1999 299,810 60,000
---------- ----------
Total Stockholders' Equity 7,797,965 5,355,033
---------- ----------
Total Liabilities and Stockholders' Equity $ 14,958,332 $ 13,972,477
========== ==========
See Notes to Consolidated Financial Statements.
-2-
NETSMART TECHNOLOGIES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME - (Unaudited)
- --------------------------------------------------------------------------------
Six months ended Three months ended
June 30, June 30,
---------------- ------------------
2000 1999 2000 1999
---- ---- ---- ----
Revenues:
Software and Related
Systems and Services:
General $ 7,659,191 $ 8,680,503 $ 3,335,261 $ 4,569,805
Maintenance Contract
Services 1,646,971 1,133,654 879,713 534,923
---------- ---------- ---------- ---------
Total Software and Related
Systems and Services 9,306,162 9,814,157 4,214,974 5,104,728
Data Center Services 1,204,590 992,730 694,415 467,376
---------- ---------- ---------- ---------
Total Revenues 10,510,752 10,806,887 4,909,389 5,572,104
---------- ---------- ---------- ----------
Cost of Revenues:
Software and Related
Systems and Services:
General 4,714,017 5,582,857 1,959,791 2,842,372
Maintenance Contract
Services 1,062,178 848,423 541,835 450,540
---------- ---------- ---------- ----------
Total Software and Related
Systems and Services 5,776,195 6,431,280 2,501,626 3,292,912
Data Center Services 507,946 630,813 265,876 322,015
---------- ---------- ---------- ----------
Total Cost of Revenues 6,284,141 7,062,093 2,767,502 3,614,927
---------- ---------- ---------- ----------
Gross Profit 4,226,611 3,744,794 2,141,887 1,957,177
Selling, General and
Administrative Expenses 2,367,888 2,484,150 1,280,397 1,306,407
Cost of Warrants Issuance and Extension 181,000 --
Research and Development 704,019 390,330 382,063 188,134
---------- ---------- ---------- ----------
Income before Interest Expense 973,704 870,314 479,427 462,636
Interest Expense 83,787 130,075 26,310 49,498
---------- ---------- ---------- ----------
Net Income $ 889,917 $ 740,239 $ 453,117 $ 413,138
========== ========== ========== ==========
Earnings Per Share of Common Stock:
Basic:
Net Income $ .27 $ .26 $ .13 $ .14
========== ========== ========== ==========
Weighted Average Number of Shares of
Common Stock Outstanding 3,260,039 2,870,992 3,488,581 2,933,920
========== ========== ========== ==========
Diluted:
Net Income $ .24 $ .22 $ .12 $ .12
========== ========== ========== ==========
Weighted Average Number of Shares of
Common Stock Outstanding 3,753,687 3,405,633 3,891,884 3,461,993
========== ========== ========== ==========
See Notes to Consolidated Financial Statements.
-3-
NETSMART TECHNOLOGIES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Unaudited)
- --------------------------------------------------------------------------------
Six months ended
June 30
----------------
2000 1999
---- ----
Operating Activities:
Net Income $ 889,917 $ 740,239
Adjustments to Reconcile Net Income
to Net Cash [Used for] Provided by
Operating Activities:
Depreciation and Amortization 332,595 282,460
Financing Cost Related to Issuance
and Extension of Warrants 181,000 --
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (1,240,684) (1,876,648)
Costs and Estimated Profits in
Excess of Interim Billings 611,909 (216,821)
Other Current Assets (43,577) (53,161)
Other Assets 66,566 (2,600)
Increase [Decrease] in
Accounts Payable (274,669) 139,924
Accrued Expenses (66,785) 366,858
Interim Billings in Excess of
Costs and Estimated Profits (382,196) 1,020,010
Deferred Revenue 161,244 (38,099)
--------- ---------
Total Adjustments (654,597) (378,077)
--------- ---------
Net Cash - Operating Activities 235,320 362,162
--------- ---------
Investing Activities:
Acquisition of Property and Equipment (121,806) (192,632)
Software Development Costs (423,852)
--------- ---------
Net Cash - Investing Activities (545,658) (192,632)
--------- ---------
See Notes to Financial Statements.
-4-
NETSMART TECHNOLOGIES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Unaudited)
- --------------------------------------------------------------------------------
Six months ended
June 30
----------------
2000 1999
---- ----
Financing Activities:
Payments on Short term notes $ (882,404) $ (271,330)
Payment of Capitalized Lease Obligations (12,267) (21,495)
Repayment of Loans from Related Parties (84,000)
Proceeds from Capitalized Lease Obligation 40,000
Net Proceeds from Warrant Exercise 1,139,630
Net Proceeds from Stock Options Exercised 132,385 106,178
--------- ---------
Net Cash - Financing Activities 377,344 (230,647)
--------- ---------
Net Increase [Decrease] in Cash 67,006 (61,117)
Cash - Beginning of Period 204,989 198,689
--------- ---------
Cash - End of Period $ 271,995 $ 137,572
========= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the periods for:
Interest $ 83,787 $ 143,061
Income Taxes $ 95,395 $ 26,371
See Notes to Financial Statements.
-5-
NETSMART TECHNOLOGIES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - (Unaudited)
- --------------------------------------------------------------------------------
For the Six Months Ended June 30, 2000
Common Stock $.01 Par Value Authorized Shares Amount
15,000,000 Shares ------ ------
Beginning Balance 2,988,738 $ 29,887
Common Stock Issued - Exercise of Options 320,248 3,202
Common Stock Issued - Exercise of Warrants 192,105 1,922
Common Stock Issued - Acquisition 15,528 155
--------- -------
Ending Balance 3,516,619 $ 35,166
========= =======
See Notes to Financial Statements.
-6-
NETSMART TECHNOLOGIES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - (Unaudited)
- --------------------------------------------------------------------------------
For the Six Months Ended June 30, 2000
Additional Paid-In Capital Common Stock Shares Amount
------ ------
Beginning Balance $ 18,657,579
Common Stock Issued - Exercise of Options 368,993
Common Stock Issued - Acquisition 99,845
Issuance and Extension of Warrants 181,000
Costs Associated with the Issuance of Warrants (13,000)
Common Stock Issued - Exercise of Warrants 1,150,708
Ending Balance $ 20,445,125
==========
Accumulated Deficit
Beginning Balance $(13,272,433)
Net Income 889,917
----------
Ending Balance $(12,382,516)
==========
Treasury Stock
Beginning Balance 5,333 $ (60,000)
Purchase of Treasury Shares 22,705 (239,810)
------ ----------
Ending Balance 28,038 $ (299,810)
====== ==========
Total Stockholders Equity $ 7,797,965
==========
See Notes to Financial Statements.
-7-
NETSMART TECHNOLOGIES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position of the Company as
of June 30, 2000 and the results of its operations for the six months ended
June 30, 2000 and 1999 and the changes in cash flows for the six months ended
June 30, 2000 and 1999. The results of operations for the six months ended June
30, 2000 are not necessarily indicative of the results to be expected for the
full year.
(2) The accounting policies followed by the Company are set forth in Notes 1
and 2 to the Company's consolidated financial statements as filed in its Form
10-K for the year ended December 31, 1999.
(3) Income per share - Income per share is computed by dividing the net income
for the period by the weighted average number of shares of common stock. The
common stock equivalents are assumed converted to common stock when dilutive.
(4) During the period ended June 30, 2000, stock options to purchase 320,248
shares were exercised and we received gross proceeds of $372,195. Pursuant to
the option grants, employees had the right to pay for the exercise price of the
option by delivering shares of common stock owned by them. During the period,
the Company received 22,705 shares, having a value of $239,810, as the exercise
price of options. As a result, common stock and additional paid in capital
increased by $3,202 and $368,993, respectively, and treasury stock increased by
$239,810.
During the period ended June 30, 2000, warrants to purchase 192,105 shares were
exercised and the Company received gross proceeds of $1,152,630. As a result,
common stock and additional paid in capital increased by $1,922 and $1,150,708,
receptively.
(5) In January 2000, the Company acquired the Connex suite of managed care and
employee assistance program information system from Behavioral Health Partners,
Inc. The acquisition price consisted of approximately $39,266 in cash and
15,528 shares of common stock valued at $100,000. The purchase price was
allocated to software development costs and will be amortized over an estimated
life of five years. During the six months ended June 30, 2000, we incurred
additional software development costs associated with the employee assistance
program software in the amount of $132,061, which is reflected in research and
development expenses.
(6) The Company is the defendant in an action commenced in June 2000 seeking
damages of $2,000,000 for an alleged breach of a software license and service
development agreement. The Company believes that it has valid legal defenses to
such action.
-8-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Six months Ended June 30, 2000 and 1999
A significant portion of our revenue is derived from fixed price software
development contracts and licenses. We recognize this revenue on the estimated
percentage of completion basis. Since the billing schedules under the contracts
differ from the recognition of revenue, at the end of any period, these
contacts generally result in either costs and estimated profits in excess of
billing or billing in excess of cost and estimated profits. The largest
component of our revenue is based upon the time spent by our technical
personnel on a project. As a result, during the third and fourth quarters, when
many of our employees are on vacation and holidays, our revenue could be
affected. Additionally, during the first half of 2000, we implemented an
increased product enhancement effort relating principally to new product
functionality, technology upgrades and the addition of clinical content. In
addition, we undertook the development of a significant upgrade to our core
product which resulted in a migration to leading edge technologies. We
allocated to these projects personnel who had previously performed services for
clients which generated revenue.
Our revenue for the six months ended June 30, 2000 (the "June 2000 period") was
$10,511,000, a decrease of $296,000, or 3%, from the revenue for the six months
ended June 30, 1999 (the "June 1999 period"), which was $10,807,000. The
largest component of revenue was turnkey systems labor revenue, which decreased
to $3,521,000 in the June 2000 period, from $3,654,000 in the June 1999 period,
reflecting a 4% decrease. This decrease reflects the allocation of personnel to
our product enhancement efforts. Revenue from third party hardware and software
decreased to $2,246,000 in the June 2000 period from $3,245,000 in the June
1999 period, which represents a decrease of 31%. Sales of third party hardware
and software are made in connection with the sales of turnkey systems. These
sales are typically made at lower gross margins than our behavioral health
systems and services revenue. The data center (service bureau) revenue
increased to $1,205,000 in the June 2000 period from $993,000 in the June 1999
period, reflecting an increase of 21%. This increase is substantially the
result of work being performed for one particular client. There are no
assurances that revenue will continue at this rate for this client. License
revenue increased to $1,258,000 in the June 2000 period from $1,193,000 in the
June 1999 period, reflecting an increase of 5%. License revenue is generated as
part of a sale of a behavioral health information system pursuant to a contract
or purchase order that includes delivery of the system and maintenance.
Maintenance revenue increased to $1,647,000 in the June 2000 period from
$1,134,000 in the June 1999 period, reflecting an increase of 45%. As turnkey
systems are successfully completed, they are transitioned to the maintenance
division. During the June 2000 period, we completed the turnkey systems for
approximately 24 new clients, for which we are performing maintenance services.
Revenue from the sales of our small turnkey division increased to $634,000 in
the June 2000 period from $588,000 in the June 1999 period, reflecting an
increase of 8%.
Revenue from contracts from government agencies represented 47% of revenue in
the June 2000 period and 54% of revenue in the June 1999 period. This decrease
results from a substantial contract with a private institution.
Gross profit increased to $4,227,000 in the June 2000 period from $3,745,000 in
the June 1999 period, reflecting a 13% increase. Our overall gross margin was
40% in the June 2000 period compared to 35% in the June 1999 period. The
increase in gross margin was substantially attributable to the decrease in our
third party hardware and software revenue, which yields margins significantly
less than our revenue from our behavioral health systems and services and the
increase in maintenance revenue, which generates a higher gross margin since
the core costs and infrastructure investment have previously been established.
Selling, general and administrative expenses were $2,368,000 in the June 2000
period, a decrease of 5% from the $2,484,000 in the June 1999 period. This
decrease was substantially the result of a decrease in sales commissions.
-9-
In the June 2000 period we issued warrants for services rendered. We also
extended one series of our warrants for five months. An aggregate of $181,000
was charged to operations for the warrant issuance and the warrant extension.
We did not have a similar charge in the June 1999 period. As a result of the
exercise of warrants during the extension period, we raised additional capital
of $1,153,000.
We incurred research and development expenses of $704,000 in the June 2000
period, an increase of 80% from the $390,000 in the June 1999 period. Research
and development expenses increased in the June 2000 period as a result of
several major productive initiatives. These initiatives include the
repositioning of all of our products to thin client environment that will
facilitate alternative system delivery methods, including Internet and
application service provider channels. Additionally, a significant upgrade to
our core product was undertaken which migrated the product to more current
technologies and integrated customer specific requirements.
Interest expense was $84,000 in the June 2000 period, a decrease of $46,000, or
36%, from the $130,000 in the June 1999 period. This decrease was the result of
lower borrowings during the June 2000 period, in addition to a reduced cost of
borrowings. The most significant component of the interest expense on an
ongoing basis is the interest payable to our asset-based lender. We paid
interest on such loans at a rate equal to prime plus 5 % in the June 1999
period. In October 1999, we entered into a new credit facility agreement. The
interest rate of the new facility is 2% above the prime rate. During the June
2000 period, we paid all our outstanding borrowings from the lender, and, at
June 30, 2000, there were no obligations to the lender. This facility remains
available under the same terms and conditions if we need to borrow in the
future.
As a result of the foregoing factors, in the June 2000 period we generated a
net income of $890,000, or $.27 per share (basic) and $.24 per share (diluted).
For the June 1999 period, we generated net income of $740,000, or $.26 per
share (basic) and $.22 per share (diluted).
Three Months Ended June 30, 2000 and 1999
Our revenue for the three months ended June 30, 2000 (the "June 2000 quarter")
was $4,909,000, a decrease of $663,000, or 12%, from the revenue for the three
months ended June 30, 1999 (the "June 1999 quarter"), which was $5,572,000. The
largest component of revenue was turnkey systems labor revenue, which decreased
to $1,666,000 in the June 2000 quarter, from $2,092,000 in the June 1999
quarter, reflecting a 20% decrease. This decrease reflects the allocation of
personnel to our product enhancement efforts. Revenue from third party hardware
and software decreased to $764,000 in the June 2000 quarter from $1,513,000 in
the June 1999 quarter, which represents a decrease of 50%. Sales of third party
hardware and software are made in connection with the sales of turnkey systems.
These sales are typically made at lower gross margins than our behavioral
health systems and services revenue. The data center (service bureau) revenue
increased to $694,000 in the June 2000 quarter from $467,000 in the June 1999
quarter, reflecting an increase of 49%. This increase is substantially the
result of work being performed for one particular client. There are no
assurances that revenue will continue at this rate for this client.
License revenue decreased to $610,000 in the June 2000 quarter from $623,000
in the June 1999 quarter, reflecting a decrease of 2%. License revenue is
generated as part of a sale of a behavioral health information system pursuant
to a contract or purchase order that includes delivery of the system and
maintenance. Maintenance revenue increased to $880,000 in the June 2000 quarter
from $535,000 in the June 1999 quarter, reflecting an increase of 64%. As
turnkey systems are successfully completed, they are transitioned to the
maintenance division. During the June 2000 quarter, we completed the turnkey
systems for approximately 24 new clients, for which we are performing
maintenance services. Revenue from the sales of our small turnkey division
decreased to $295,000 in the June 2000 quarter from $342,000 in the June 1999
quarter, reflecting a decrease of 14%.
Revenue from contracts from government agencies represented 49% of revenue in
the June 2000 quarter and 52% of revenue in the June 1999 quarter. This
decrease results from a substantial contract with a private institution.
Gross profit increased to $2,142,000 in the June 2000 quarter from $1,957,000
in the June 1999 quarter, reflecting
-10-
a 9% increase. Our overall gross margin was 44% in the June 2000 quarter
compared to 35% in the June 1999 quarter. The increase in gross margin was
substantially attributable to the decrease in our third party hardware and
software revenue, which yields margins significantly less than our revenue from
our behavioral health systems and services, and the increase in maintenance
revenue, which generates a higher gross margin since the core costs and
infrastructure investment have previously been established.
Selling, general and administrative expenses were $1,280,000 in the June 2000
quarter, a decrease of 2% from the $1,306,000 in the June 1999 quarter. This
decrease was substantially the result of a decrease in sales commissions.
We incurred research and development expenses of $382,000 in the June 2000
quarter, an increase of 103% from the $188,000 in the June 1999 quarter.
Research and development expenses increased in the June 2000 quarter as a
result of several major productive initiatives. These initiatives include the
repositioning of all of our products to thin client environment that will
facilitate alternative system delivery methods, including Internet and
application service provider channels. Additionally, a significant upgrade to
our core product was undertaken which migrated the product to more current
technologies and integrated customer specific requirements.
Interest expense was $26,000 in the June 2000 quarter, a decrease of $23,000,
or 47%, from the $49,000 in the June 1999 quarter. This decrease was the result
of lower borrowings during the June 2000 quarter, in addition to a reduced cost
of borrowings. The most significant component of the interest expense on an
ongoing basis is the interest payable to our asset-based lender. We paid
interest on such loans at a rate equal to prime plus 5 % in the June 1999
quarter. In October 1999, we entered into a new credit facility agreement. The
interest rate of the new facility is 2% above the prime rate. During the June
2000 quarter, we paid all our outstanding borrowings from the lender, and, at
June 30, 2000, there were no obligations to the lender. This facility remains
available under the same terms and conditions if we need to borrow in the
future.
As a result of the foregoing factors, in the June 2000 quarter, we generated a
net income of $453,000, or $.13 per share (basic) and $.12 per share (diluted).
For the June 1999 quarter, we generated net income of $413,000, or $.14 per
share (basic) and $.12 per share (diluted).
Liquidity and Capital Resources
We had working capital of $4,195,000 at June 30, 2000 as compared to working
capital of $2,013,000 at December 31, 1999. Our cash position increased from
$205,000 at December 31, 1999 to $272,000 at June 30, 2000. The increase in
working capital for the June 2000 period was substantially due to net income
after adding back depreciation and amortization as well as from capital
received from the exercise of warrants and options totaling $1,053,000.
Our principal source of funds, other than revenue, is an accounts receivable
financing agreement with an asset based lender which permits us to borrow up to
80% of eligible accounts receivable up to a maximum of $3.5 million. At June
30, 2000, there were no outstanding borrowings under this facility and the
maximum amount available to borrow under this formula was $2.3 million.
At June 30, 2000, accounts receivable and costs and estimated profits in excess
of interim billings were approximately $10.7 million, representing
approximately 183 days of revenue based on annualizing the revenue for the June
2000 period, although no assurance can be given that revenue will continue at
the same level as the June 2000 period. Accounts receivable at June 30, 2000
increased by $1.2 million from $5.8 million at December 31, 1999 to $7 million
at June 30, 2000.
Based on our outstanding contracts and our continuing business, we believe that
our cash flow from operations, the availability under our financing agreement
and our cash on hand will be sufficient to enable us to continue to
-11-
operate without additional funding, although it is possible that we may need
additional funding if our business does not develop as we anticipate or if our
expenses, including our software development costs relating to our expansion of
our product line and our marketing costs for seeking to expand the market for
our products and services to include smaller clinics and facilities and sole
group practitioners exceed our expectation.
Furthermore, if we continue to grow at the existing rate into 2001 and beyond,
we may require additional funding. We are exploring various long term funding
possibilities, although we cannot give any assurances that we will be able to
obtain financing, and our failure to obtain financing could impair our ability
to grow.
An important part of our growth strategy is to acquire other businesses that
are related to our current business. Such acquisitions may be made with cash or
our securities or a combination of cash and securities. To the extent that we
require cash, we may have to borrow the funds or issue equity. We have no
commitments from any financing source and we may not be able to raise any cash
necessary to complete an acquisition. If we fail to make any acquisitions our
future growth may be limited.
Year 2000 Compliance
The "Year 2000 Issue" refers generally to the problems that some software may
have in determining the correct century for the year. For example, software
with date-sensitive functions that is not Year 2000 compliant may not be able
to determine whether "00" means 1900 or 2000, which may result in computer and
other failures or the creation of erroneous results.
We believe that our present software products are Year 2000 compliant, and that
any changes which may be required to software which we have delivered in the
past would be made pursuant to new contracts with the clients to provide them
with a current version of our products.
We have defined Year 2000 compliant as the ability to:
* correctly handle date information needed for the December 31, 1999
to January 1, 2000 date change;
* function according to the product documentation provided for this date
change, without changes in operation resulting from the advent of a
new century, assuming correct configuration;
* where appropriate, respond to two-digit date input in a way that
resolves the ambiguity as to century in a disclosed, defined and
predetermined manner;
* if the date elements in interfaces and data storage specify the
century, store and provide output of date information in ways
that are unambiguous as to century; and
* recognize year 2000 as a leap year.
To date, we have not experienced any material expense relating to Year 2000
compliance.
Forward Looking Statements
Statements in this Form 10-Q include forward-looking statements that address,
among other things, our expectations with respect to the development of our
business. In addition to these statements, other information including
words such as "seek" "anticipate," "believe," "plan," "estimate," "expect,"
"intend" and other similar expressions are forward looking statements. Actual
results could differ materially from those currently anticipated due to a
number of factors, including those identified in this Form 10-Q, our Annual
Report on Form 10-K for the year ended December 31, 1999 and in other documents
filed by us with the Securities and Exchange Commission.
-12-
Part II
Item 1. Legal Proceedings
On June 6, 2000, we were named in an action demanding damages of $2,000,000 for
an alleged breach of a software license and service development agreement. We
believe that we have valid legal defenses to such action.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NETSMART TECHNOLOGIES, INC.
- -------------------------- President, Chief Executive August 8, 2000
James L. Conway Officer and Director (Principal
Executive Officer)
- -------------------------- Chief Financial Officer August 8, 2000
Anthony F. Grisanti (Principal Financial and
Accounting Officer)