NETSMART TECHNOLOGIES, INC.
146 NASSAU AVENUE
ISLIP, NEW YORK 11751
May 13, 1997
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 first quarter ended March
31, 1997.
This filing is being effected by direct transmission to the Commission's EDGAR
system.
Very truly yours,
Anthony F. Grisanti
Chief Financial Officer
<PAGE>
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 March 31, 1997
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 May 13, 1997: 6,798,203
<PAGE>
Netsmart Technologies, Inc.
Index
Part I: - Financial Information:
Item 1. Financial Statements: Page
----
Consolidated Balance Sheets - March 31, 1997
and December 31, 1996 1-3
Consolidated Statements of Operations-
Three Months Ended March 31, 1997 and March 31, 1996 4
Consolidated Statements of Cash Flows-
Three Months Ended March 31, 1997 and March 31, 1996 5-6
Consolidated Statement of Stockholders' Equity-
Three Months Ended March 31, 1997 7-8
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-14
<PAGE>
Netsmart Technologies, Inc.
Consolidated Balance Sheets
March 31, December 31,
1997 1996
Assets
Current Assets:
Cash $ 40,242 $ 998,317
Accounts receivable- Net 2,109,916 2,284,450
Costs and Estimated Profits in Excess
of Interim Billings 984,075 931,786
Other Current Assets 79,318 82,205
------------ -------------
Total current assets 3,213,551 4,296,758
---------- -----------
Property and Equipment - Net 394,154 382,586
----------- ------------
Other assets:
Software Development Costs 495,480 250,920
Investment in Joint Venture at Equity 210,701 120,546
Customer Lists 3,050,814 3,128,814
Other Assets 71,104 71,105
------------- -------------
Total Other Assets 3,828,099 3,571,385
----------- -----------
Total Assets $7,435,804 $8,250,729
========== ==========
See Notes to Financial Statements.
-1-
Netsmart Technologies, Inc.
<PAGE>
Consolidated Balance Sheets
March 31, December 31,
1997 1996
Liabilities and Stockholders' Equity:
Current Liabilities:
Notes Payable - Other $ 595,867 $ 590,031
Capitalized Lease Obligations 17,289 41,449
Accounts Payable 1,080,034 983,156
Accrued Expenses 877,936 991,075
Interim Billings in Excess of Costs
and Estimated Profits 985,418 1,102,105
Due to Related Parties 35,029 23,542
Deferred Revenue 68,116 88,420
------------- -----------
Total Current Liabilities 3,659,689 3,819,778
----------- ----------
Capitalized Lease Obligations - Forward 14,422 15,945
------------- -----------
See Notes to Financial Statements.
-2-
<PAGE>
Netsmart Technologies, Inc.
Consolidated Balance Sheets
March 31, December 31,
1997 1996
Total Current Liabilities - Forwarded $ 3,659,689 $ 3,819,778
--------- ------------
Capitalized Lease Obligations - Forwarded 14,422 15,945
-------------- ---------------
Commitments and Contingencies --
Stockholders' Equity:
Preferred Stock, $.01 Par Value;
Authorized 3,000,000 Shares;
Authorized, Issued and Outstanding:
Series D 6% Redeemable Preferred Stock
$.01 Par Value 3,000 Shares Authorized,
1,210 Issued and Outstanding
[Liquidation Preference of $1,210,000
at March 31, 1997 and
December 31, 1996, respectively 12 12
Additional Paid-in Capital - Preferred
Stock $1,209,509 - Series D at
March 31, 1997 and December 31, 1995 1,209,509 1,209,509
Common Stock - $.01 Par Value; Authorized
15,000,000 Shares; Issued and Outstanding
6,798,203 Shares at March 31, 1997 and
December 31, 1996 67,982 67,982
Additional Paid-in Capital - Common Stock 14,863,328 14,863,328
Accumulated Deficit (12,379,138) (11,725,825)
------------ ------------
Total Stockholders' Equity 3,761,693 4,415,006
------------ ------------
Total Liabilities and Stockholders' Equity $ 7,435,804 $ 8,250,729
=========== ===========
See Notes to Financial Statements.
-3-
Netsmart Technologies, Inc.
<PAGE>
Consolidated Statements of Operations
Three months ended
March 31,
1997 1996
Revenues:
Software and Related
Systems and Services:
General $ 763,517 $ 1,790,000
Maintenance Contract
Services 323,773 289,000
------------ -------------
Total Software and Related
Systems and Services 1,087,290 2,079,000
Data Center Services 484,520 481,000
------------ -------------
Total Revenues 1,571,810 2,560,000
----------- ------------
Cost of Revenues:
Software and Related
Systems and Services:
General 840,963 1,469,000
Maintenance Contract
Services 233,575 144,000
------------ -------------
Total Software and Related
Systems and Services 1,074,538 1,613,000
Data Center Services 340,077 285,000
------------ -------------
Total Cost of Revenues 1,414,615 1,898,000
----------- ------------
Gross Profit 157,195 662,000
Selling, General and
Administrative Expenses 638,765 455,000
Related Party Administrative
Expenses 45,000 5,000
Compensation expense -
Warrants and Options Granted -- 2,075,000
------------ ------------
Loss from Operations (526,570) (1,873,000)
Interest Expense 68,436 126,000
Equity in net loss of joint venture (58,307) --
----------- ------------
Net Loss $ (653,313) $(1,999,000)
=========== ============
Weighted average number of
shares of common stock 6,798,203 4,821,528
Loss per share $ (.10) $ (.42)
=============== ================
See Notes to Financial Statements.
-4-
<PAGE>
Netsmart Technologies, Inc.
Consolidated Statements of Cash Flows
Three months ended
March 31
1997 1996
---- ----
Operating Activities:
Net [Loss] $(653,313) $(1,999,000)
Adjustments to Reconcile Net Income [Loss]
to Net Cash [Used for] Provided by
Operating Activities:
Depreciation and Amortization 128,031 109,000
Administrative Expenses 5,000
Compensation Expense -
Warrants and Options Granted 2,075,000
Equity in Net Loss of Joint Venture 58,307
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable 174,534 217,000
Costs and Estimated Profits in
Excess of Interim Billings (52,289) (640,000)
Other Current Assets 2,887 (5,000)
Other Assets (1,000)
Increase [Decrease] in
Accounts Payable 96,879 441,000
Accrued Expenses (113,139) 136,000
Interim Billings in Excess of
Costs and Estimated Profits (116,687) 270,000
Due to Related Parties 11,487 65,000
Deferred Revenue (20,304) 77,000
----------- ------------
Total Adjustments 169,706 2,161,000
------------ ------------
Net Cash - Operating Activities -
Forward (483,607) 162,000
------------ ------------
Investing Activities:
Acquisition of Property and Equipment (47,659) (20,000)
Software Development Costs (258,500)
Investment in Joint Venture at Equity (148,462) (650,000)
------------ ------------
Net Cash - Investing Activities -
Forward (454,621) (670,000)
------------ ------------
See Notes to Financial Statements.
-5-
Netsmart Technologies, Inc.
<PAGE>
Consolidated Statements of Cash Flows
Three months ended
March 31
1997 1996
Net Cash - Operating Activities -
Forwarded $ (483,607) $ 162,000
------------ ---------
Net Cash - Investing Activities -
Forwarded (454,621) (670,000)
Financing Activities:
Proceeds from Short-Term Notes 764,000
(Payment) Proceeds of Short-Term Notes 5,836 (27,000)
Payment of Bank Note Payable (50,000)
Payment of Capitalized Lease
Obligations (25,683) (6,000)
Cash Overdraft 12,000
Deferred Public Offering Costs (114,000)
----------- ------------
Net Cash - Financing Activities (19,847) 579,000
Net Increase [Decrease] in Cash (958,075) 71,000
Cash - Beginning of Periods 998,317 _________
--------
Cash - End of Periods $ 40,242 $ 71,000
=========== ============
Supplemental Disclosure of Cash Flow
Information Cash paid during the periods
for:
Interest $ 90,722 $ 95,000
========= ============
See Notes to Financial Statements.
-6-
Netsmart Technologies, Inc.
Consolidated Statement of Stockholders' Equity
<PAGE>
For the Three Months Ended March 31, 1997
Series D Preferred Stock at .01 Par Value Shares Amount
------ ------
Beginning Balance 1,210 $ 12
-------- --------------
Ending Balance 1,210 12
============ ===============
Additional Paid-In Capital Preferred Stock
Beginning Balance $1,209,509
Ending Balance $1,209,509
Common Stock $.01 Par Value Authorized
15,000,000 Shares
Beginning Balance 6,798,203 67,982
----------- ------------
Ending Balance 6,798,203 $ 67,982
=========== ============
See Notes to Financial Statements.
-7-
Netsmart Technologies, Inc.
Consolidated Statement of Stockholders' Equity
For the Three Months Ended March 31, 1997
<PAGE>
Additional Paid-In Capital Common Stock Shares Amount
Beginning Balance $ 14,863,328
------------
Ending Balance $ 14,863,328
============
Accumulated Deficit
Beginning Balance $(11,725,825)
Net Loss (653,313)
Ending Balance $(12,379,138)
Total Stockholders' Equity $ 3,761,693
=============
See Notes to Financial Statements.
-8-
Netsmart Technologies, Inc.
Notes to Consolidated Financial Statements
<PAGE>
(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 March 31,1997 and the results of its operations for the three months ended
March 31,1997 and 1996 and the changes in cash flows for the three months ended
March 31,1997 and 1996.
(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 December
31, 1996 Form 10-K.
During the three months ended March 31, 1997, the Company invested in software
for a customer activated terminal for a major west coast utility. As a result of
this effort the Company capitalized software development costs in the amount of
$258,000.
(3) The results of operations for the three months ended March 31,1997 and 1996
are not necessarily indicative of the results to be expected for the full year.
(4) Loss per share - Loss per share is computed by dividing the net loss for the
period by the weighted average number of shares of common stock. For purposes of
computing weighted average number of shares of common stock outstanding the
Company has common stock equivalents. The common stock equivalents are assumed
converted to common stock, when dilutive. During periods of operations in which
losses were incurred, common stock equivalents were excluded from the weighted
average number of shares of common stock because their inclusion would be
anti-dilutive.
-9-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of operations
Three Months Ended March 31, 1997 and 1996
<PAGE>
The Company's revenue for the three months ended March 31, 1997 (the "March 1997
period") was $1,572,000, a decrease of $989,000, or 39% from the revenue for the
three months ended March 31, 1996 (the "March 1996 period") which was
$2,561,000. Approximately $857,000 of this decrease was the result of a decline
in revenue from IBN Limited ("IBN") which was $933,000 in the March 1996 period
and $76,000 in the March 1997 period. IBN represented the Company's most
significant customer in the March 1996 period , accounting for approximately
36.4% of revenue for the quarter. As of March 31, 1997, the contract was more
than 80% complete. The Company is continuing to provide professional services to
IBN, although revenues have declined substantially from the level during 1996.
The Company intends to expand its marketing effort for its CarteSmart System,
however, at March 31, 1997, the Company did not have any contracts for the
CarteSmart System. The remainder of the decrease in revenue for the March 1997
period was attributable to a decline in the Company's health information systems
divisions license revenue which was $70,000 for the March 1997 period, a
decrease of $98,000 or 58% from the revenue for the March 1996 period which was
$168,000. Although this decrease reflected reduced new business during the March
1997 period, the Company has experienced an increase in new order backlog in the
beginning of the second quarter. License revenue is generated as part of a sale
of a turnkey system pursuant to a contract or purchase order that includes
development of a turnkey system and maintenance.
Revenue from the Company's health information systems continued to represent the
Company's principal source of revenue in March 1997 period, accounting for
$1,396,000 or 92% of revenue. The largest component of revenue in the March 1997
period was data center (service bureau) revenue which increased to $485,000 from
$481,000 in the March 1996 period, reflecting a less than 1% increase. The
turnkey systems labor revenue decreased to $351,000 in the March 1997 period
from $410,000 in the March 1996 period, reflecting a decrease of 15%. This
decrease reflected reduced new business during the March 1997 period. The
Company has experienced an increase in new business in the beginning of the
second quarter. Maintenance revenue increased to $324,000 in the March 1997
period from $289,000 in the March 1996 period, reflecting an increase of 12%.
Revenue from third party hardware and software decreased to $212,000 in the
March 1997 period from $268,000 in the March 1996 period, a decrease of 21%.
Sales of third party hardware and software are made only in connection with the
sales of turnkey systems.
Revenue from contracts from government agencies represented 33% of revenue for
March 1997 period . The Company believes that such contracts will continue to
represent an important part of its business, particularly its health information
systems business..
Gross profit decreased to $157,000 in the March 1997 period from $663,000 in the
March 1996 period, a 83% decrease. Gross margin decreased to 10% in the March
1997 period from 26% in the March 1996 period. The decreases in both the gross
profit and gross margin were substantially the result of costs associated with
the IBN contract as well as a decrease in the health information systems license
revenue.
Selling, general and administrative expenses were $639,000 in the March 1997
period, an increase of 40% from the $455,000 in the March 1996 period. This
increase was the result of an increase in personnel and salaries in the sales
and marketing and administrative areas as well as an increase in other direct
sales expenses and insurance.
During the March 1996 period, the Company incurred non cash compensation charges
of $2.1 million arising out of the issuance by the Company of warrants and
options having exercise prices which were less than the market value of the
Common Stock at the date of approval by the board of directors. No such charges
were incurred during the March 1997 period.
In the March 1997 period the Company recognized its 50% share of its loss in its
joint venture corporation with respect to the purchase of SATC software. The
amount of such loss was $58,000.
<PAGE>
Interest expense was $68,000 in the March 1997 period, a decrease of $58,000, or
46% from the $126,000 in the March 1996 period . This is a result of less
borrowings during the March 1997 period. The most significant component of the
interest expense on an ongoing basis is the interest payable to the Company's
asset-based lender, which it pays interest equal to the greater if 18% per annum
or prime plus 8% plus a fee of 1% of the face amount of the invoice.
Related party administrative expense was $45,000 in the March 1997 period, an
increase of $40,000 from the $5,000 in the March 1996 period. This increase was
the result of an agreement with The Trinity Group to provide general business,
management and financial consulting services for a monthly fee of $15,000.
As a result of the foregoing factors, the Company incurred a net loss of
$653,000, or $.10, per share in the March 1997 period, as compared with a net
loss of $2.0 million, or $.42, per share in the March 1996 period.
Liquidity and Capital Resources
The Company had a working capital deficit of $446,000 at March 31, 1997 as
compared to a working capital surplus of $477,000 at December 31, 1996. The
decrease in working capital for the three months ended March 31, 1997 was
substantially due to the net loss incurred for the three months ended March 31,
1997 as well as the Company's investment in its capitalized software project for
the customer activated terminals. The Company also invested an additional
$148,000 in its CCAC joint venture during the three months ended March 31, 1997.
The Company's cash balances were $40,000 at March 31, 1997 as compared to
$998,000 at December 31, 1996.
The Company's principal source of funds, other than revenue, is an accounts
receivable financing agreement with an asset based lender whereby it may borrow
up to 80% of eligible accounts receivable up to a maximum of $750,000. As of
March 31, 1997, the outstanding borrowings under this facility was $596,000.
At March 31, 1997, accounts receivable and costs and estimated profits in excess
of interim billings were approximately $3 million, representing approximately
180 days of revenue based on annualizing the revenue for the three months ended
March 31, 1997, although no assurance can be given that revenue will continue at
the same level as the three month period. Accounts receivable at March 31, 1997
decreased by $174,000 from $2,284,000 at December 31, 1996 to $2 110,000 at
March 31, 1997. At March 31, 1997 IBN accounted for 21% of the total gross
accounts receivable balance. No other customer accounted for more than 10% of
the accounts receivable balance.
The Company is currently seeking to raise additional working capital. No
assurance can be given as to the ability of the Company to obtain additional
working capital and failure to obtain additional working capital could have a
material adverse affect on the Company and its financial condition.
<PAGE>
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.
Chairman of the Board May 14, 1997
- --------------------------------- (Principal Executive Officer)
Lewis S. Schiller
Chief Financial Officer May 14, 1997
- --------------------------------- (Principal Financial and
Anthony F. Grisanti Accounting Officer)
<PAGE>
NETSMART TECHNOLOGIES, INC.
EXHIBIT 11.1 - CALCULATION OF EARNINGS PER SHARE
Three Months Ended
March 31, 1997
Primary EPS Fully Diluted EPS
Net Loss $ (653,313) $ (653,313)
Dividend Adjustment (18,150) (18,150)
------------ ------------
Adjusted Net Loss $ (671,463) $ (671,463)
============= ============
Loss Per Share:
Loss Per Share - Note 1 $ (.10)
================
Loss Per Share - Assuming Full
Dilution - Note 2 $ (.09)
=============
Note 1: Computed by dividing net loss by the weighted average number of
common shares (6,798,203) for the three months ended March 31, 1997.
Adjusting it by items (i) to (iv) below using the modified treasury
stock method of calculating earnings per share.
(i) Assumes that 369,117 1995 Stock Incentive Plan stock
options outstanding at March 31, 1997 were exercised at the
beginning of the period and that the proceeds were used to purchase
treasury stock at the average market price of the Company's common
stock for the period as quoted on the NASDAQ, retire debt redeem
preferred stock and to invest the balance.
(ii) Assumes that 129,500 1995 Stock Incentive Plan stock
options outstanding at March 31, 1997 were exercised at the
beginning of the period and that the proceeds were used to purchase
treasury stock at the average market price of the Company's common
stock for the period as quoted on the NASDAQ, retire debt and to
invest the balance.
(iii)Assumes Series B common stock purchase warrants to
purchase and aggregate of 877,500 common shares were exercised at
the beginning of the period and that the proceeds were used to
purchase treasury stock at the average market price of the Company's
common stock for the period as quoted on the NASDAQ, retire debt,
redeem preferred stock and to invest the balance.
(iv)Assumes common stock purchase warrants to purchase an
aggregate of 56,250 shares were exercised at the beginning of the
period and that the proceeds were used to purchase treasury stock at
the average market price of the Company's common stock for the
period as quoted on the NASDAQ, retire debt, redeem preferred stock
and to invest the balance.
The proceeds received from the above transactions would then be used to purchase
treasury stock up to 20%, retire debt redeem preferred stock and the remaining
balance invested.
<PAGE>
NETSMART TECHNOLOGIES, INC.
EXHIBIT 11.1 - COMPUTATION OF EARNINGS PER SHARE [CONTINUED]
Note 2: Computed by dividing net loss by the weighted average number of
common shares (6,798,203) for the three months ended March 31, 1997
adjusting it by items (i) to (iv) below using the modified treasury
stock method of calculating earnings per share.
(i) Assumes that 369,117 1995 Stock Incentive Plan stock
options outstanding at March 31, 1997 were exercised at the
beginning of the period and that the proceeds were used to purchase
treasury stock at the market price of the Company's common stock at
March 31, 1996 as quoted on the NASDAQ, retire debt redeem preferred
stock and to invest the balance.
(ii) Assumes that 129,500 1995 Stock Incentive Plan stock
options outstanding at March 31, 1997 were exercised at the
beginning of the period and that the proceeds were used to purchase
treasury stock at the market price of the Company's common stock at
March 31, 1997 as quoted on the NASDAQ, retire debt and to invest
the balance.
(iii)Assumes Series B common stock purchase warrants to
purchase and aggregate of 877,500 common shares were exercised at
the beginning of the period and that the proceeds were used to
purchase treasury stock at the market price of the Company's common
stock at March 31, 1997 as quoted on the NASDAQ, retire debt, redeem
preferred stock and to invest the balance.
(iv)Assumes that stock options to purchase 56,250 shares were
exercised at the beginning of the period and that the proceeds were
used to purchase treasury stock at the market price of the Company's
common stock at March 31, 1997 as quoted on the NASDAQ , retire
debt, redeem preferred stock and to invest the balance.
The proceeds received from the above transactions would then be used to purchase
treasury stock up to 20%, retire debt redeem preferred stock and the remaining
balance invested.
Note: This calculation is submitted in accordance with the Securities Act of
1934 Release No. 9083 although it is contrary to Para. 40 of APB 15 because it
may produce an anti-dillutive result.
NOTE - THIS CALCULATION IS SUBMITTED IN ACCORDANCE WITH THE SECURITIES EXCHANGE
ACT OF 1934 RELEASE NO. 9083, ALTHOUGH IT IS CONTRARY TO PARA. 40 OF APB 15
BECAUSE IT MAY PRODUCE AN ANTIDILUTIVE RESULT.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS FILED AS
PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 40,242
<SECURITIES> 0
<RECEIVABLES> 2,109,916
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,213,551
<PP&E> 750,627
<DEPRECIATION> 356,473
<TOTAL-ASSETS> 7,435,804
<CURRENT-LIABILITIES> 3,659,689
<BONDS> 0
0
12
<COMMON> 67,982
<OTHER-SE> 3,693,699
<TOTAL-LIABILITY-AND-EQUITY> 7,435,804
<SALES> 1,571,810
<TOTAL-REVENUES> 1,571,810
<CGS> 1,414,615
<TOTAL-COSTS> 1,444,615
<OTHER-EXPENSES> 683,765
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68,436
<INCOME-PRETAX> (653,313)
<INCOME-TAX> 0
<INCOME-CONTINUING> (653,313)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (653,313)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.09)
<PAGE>
</TABLE>
