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 September 30, 1999
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 October 29, 1999: 2,982,477
=========
<PAGE>
Netsmart Technologies, Inc.
Index
Part I: - Financial Information:
Item 1. Financial Statements: Page
Consolidated Balance Sheets - September 30, 1999 (Unaudited)
and December 31, 1998 1-2
Consolidated Statements of Operations (Unaudited)-
Nine Months Ended September 30, 1999 and 1998 and
three months ended September 30, 1999 and 1998 3
Consolidated Statements of Cash Flows (Unaudited)-
Nine Months Ended September 30, 1999 and 1998 4-5
Consolidated Statement of Stockholders' Equity (Unaudited)-
Nine Months Ended September 30, 1999 6-7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
<PAGE>
NETSMART TECHNOLOGIES, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
September 30, December 31,
1999 1998
(Unaudited) -----------
------------
Assets:
Current Assets:
Cash and Cash Equivalents $ 80,104 $ 198,689
Accounts receivable- Net 5,480,832 3,600,025
Costs and Estimated Profits in Excess
of Interim Billings 3,789,191 2,899,695
Note Receivable 150,000
Other Current Assets 294,746 109,595
---------- ----------
Total Current Assets 9,644,873 6,958,004
---------- ----------
Property and Equipment - Net 523,046 354,036
---------- ----------
Other assets:
Software Development Costs - Net 111,925 142,450
Customer Lists - Net 2,482,429 2,733,392
Other Assets 183,768 101,064
---------- ----------
Total Other Assets 2,778,122 2,976,906
---------- ----------
Total Assets $12,946,041 $10,288,946
========== ==========
See Notes to Consolidated Financial Statements.
-1-
<PAGE>
NETSMART TECHNOLOGIES, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
September 30, December 31,
1999 1998
(Unaudited) -----------
------------
Liabilities and Stockholders' Equity:
Current Liabilities:
Notes Payable $ 1,304,413 $ 1,639,694
Capitalized Lease Obligations 24,755 27,283
Accounts Payable 2,159,928 2,166,333
Accrued Expenses 1,756,935 1,178,893
Interim Billings in Excess of Costs and Estimated
Profits 2,973,422 1,803,999
Due to Related Parties 84,000
Deferred Revenue 75,060 47,619
----------- -----------
Total Current Liabilities 8,294,513 6,947,821
----------- -----------
Capitalized Lease Obligations 71,090 57,033
----------- -----------
Commitments and Contingencies -- --
----------- -----------
Stockholders' Equity:
Preferred Stock, $.01 Par Value; Authorized 3,000,000
Series D 6% Redeemable Preferred
Stock - $.01 Par Value 3,000
Shares Authorized, none issued or
outstanding at September 30, 1999, 1,210
Issued and Outstanding at December 31, 1998
[Liquidation Preference of $1,210 and
redemption value of $1,210,000] -- 12
Additional Paid-in Capital - Series D
Preferred Stock 1,209,509
Common Stock - $.01 Par Value; Authorized
15,000,000 Shares; Issued 2,981,713 Shares
at September 30, 1999, 2,786,921 Shares at
December 31, 1998 29,816 27,869
Additional Paid-in Capital - Common Stock 18,524,008 17,203,904
Accumulated Deficit (13,913,386) (15,097,202)
---------- ----------
4,640,438 3,344,092
Less cost of 5,333 shares of Common Stock
held in Treasury 60,000 60,000
---------- ----------
Total Stockholders' Equity 4,580,438 3,284,092
---------- ----------
Total Liabilities and Stockholders' Equity $ 12,946,041 $ 10,288,946
========== ==========
See Notes to Consolidated Financial Statements.
-2-
<PAGE>
<TABLE>
NETSMART TECHNOLOGIES, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS - (Unaudited)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nine months ended Three months ended
September 30, September 30,
------------------ -------------------
1999 1998 1999 1998
---- ---- ---- ----
Revenue:
Software and Related
Systems and Services:
General $12,911,693 $ 6,204,279 $ 4,231,190 $ 2,700,517
Maintenance Contract
Services 1,672,774 1,009,690 539,120 348,331
---------- ---------- ---------- ----------
Total Software and Related
Systems and Services 14,584,467 7,213,969 4,770,310 3,048,848
Data Center Services 1,462,054 1,667,123 469,324 491,333
---------- ---------- ---------- ----------
Total Revenue 16,046,521 8,881,092 5,239,634 3,540,181
---------- ---------- ---------- ----------
Cost of Revenue:
Software and Related
Systems and Services:
General 8,269,902 3,859,990 2,687,045 1,672,215
Maintenance Contract
Services 1,293,944 732,501 445,521 228,859
---------- ---------- ---------- ----------
Total Software and Related
Systems and Services 9,563,846 4,592,491 3,132,566 1,901,074
Data Center Services 871,429 847,913 240,616 294,626
---------- ---------- ---------- ----------
Total Cost of Revenue 10,435,275 5,440,404 3,373,182 2,195,700
---------- ---------- ---------- ----------
Gross Profit 5,611,246 3,440,688 1,866,452 1,344,481
Selling, General and
Administrative Expenses 3,639,879 2,300,688 1,155,729 924,402
Related Party Administrative Expense -- 45,000 -- --
Product Development Expense 600,219 678,061 209,889 138,468
---------- ---------- ---------- ----------
Income from Continuing
Operations before interest 1,371,148 416,939 500,834 281,611
Interest Expense 187,332 270,139 57,257 121,238
---------- ---------- ---------- ----------
Income from Continuing Operations 1,183,816 146,800 443,577 160,373
---------- ---------- ---------- ----------
Loss from Discontinued Operations -- 380,905 -- 37,666
---------- ---------- ---------- ----------
Net Income (Loss) $ 1,183,816 $ (234,105) $ 443,577 $ 122,707
========== ========== ---------- ----------
Earnings Per Share of Common Stock:
Basic:
Income from Continuing Operations $ .41 $ .06 $ .15 $ .06
(Loss) from Discontinued Operations -- (.14) -- (.02)
---------- ---------- ---------- ----------
Net Income (Loss) $ .41 $ (.08) $ .15 $ .04
========== ========== ========== ==========
Weighted Average Number of Shares of
Common Stock Outstanding 2,902,608 2,779,075 2,976,380 2,781,588
Diluted:
Income from Continuing Operations $ .34 $ .06 $ .13 $ .06
(Loss) from Discontinued Operations -- (.14) (.02)
---------- ---------- ---------- ----------
Net Income (Loss) $ .34 $ (.08) $ .13 $ .04
========== ========== ========== ==========
Weighted Average Number of Shares of
Common Stock Outstanding 3,466,471 2,779,075 3,530,513 2,804,017
See Notes to Consolidated Financial Statements.
-3-
</TABLE>
<PAGE>
<TABLE>
NETSMART TECHNOLOGIES, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Unaudited)
- --------------------------------------------------------------------------------
<S> <C> <C>
Nine months ended
September 30
-----------------
1999 1998
---- ----
Operating Activities:
Net Income from Continuing
Operations $ 1,183,816 $ 146,800
--------- ---------
Adjustments to Reconcile Net Income
from Continuing Operations to Net
Cash Provided by [Used for] Operating Activities:
Depreciation and Amortization 441,173 411,511
Cash Used in Discontinued Operations -- (380,905)
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (1,880,807) (448,879)
Costs and Estimated Profits in
Excess of Interim Billings (889,496) (1,644,134)
Other Current Assets (35,151) (26,992)
Other Assets (82,704) 10,915
Increase [Decrease] in
Accounts Payable (6,405) 98,978
Accrued Expenses 578,042 192,179
Interim Billings in Excess of
Costs and Estimated Profits 1,169,423 817,213
Deferred Revenue 27,441 (54,517)
--------- ---------
Total Adjustments (678,484) (1,024,631)
--------- ---------
Net Cash - Operating Activities 505,332 (877,831)
--------- ---------
Investing Activities:
Purchase of Equipment (328,695) (126,112)
--------- ---------
Net Cash - Investing Activities (328,695) (126,112)
--------- ---------
See Notes to Financial Statements.
-4-
</TABLE>
<PAGE>
NETSMART TECHNOLOGIES, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Audited)
- --------------------------------------------------------------------------------
Nine months ended
September 30
-----------------
1999 1998
---- ----
Financing Activities:
Proceeds (payments) on
Short term notes $ (335,281) $ 128,449
Payment of Capitalized Lease Obligations (28,471) (12,001)
Repayment of Loans from Related Parties (84,000)
Proceeds from Loan from Related Parties 112,000
Proceeds from Capitalized Lease Obligation 40,000
Payment for Treasury Stock (60,000)
Proceeds from Stock Options Exercised 112,530 8,325
--------- --------
Net Cash - Financing Activities (295,222) 176,773
--------- --------
Net [Decrease] in Cash (118,585) (827,170)
Cash - Beginning of Periods 198,689 854,979
--------- --------
Cash - End of Periods $ 80,104 $ 27,809
========= ========
Supplemental Disclosure of Cash Flow Information
Cash paid during the periods for:
Interest $ 206,193 $ 276,262
Income Taxes $ 38,667 16,934
See Notes to Financial Statements.
-5-
<PAGE>
NETSMART TECHNOLOGIES, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - (Unaudited)
- --------------------------------------------------------------------------------
For the Nine Months Ended September 30, 1999
Series D Preferred Stock at .01 Par Value Shares Amount
------ ------
Beginning Balance 1,210 $ 12
Elimination of Series D Preferred (1,210) (12)
--------- ---------
Ending Balance -- $ --
========= =========
Additional Paid-In Capital Preferred Stock
Beginning Balance $ 1,209,509
Elimination of Series D Preferred (1,209,509)
---------
Ending Balance $ --
=========
Common Stock $.01 Par Value Authorized
15,000,000 Shares
Beginning Balance 2,786,921 $ 27,869
Common Stock Issued - Exercise of Options 92,292 922
Common Stock Issued - Consulting 2,500 25
Common Stock Issued - Redemption
of Series D Preferred Stock 100,000 1,000
--------- ---------
Ending Balance 2,981,713 $ 29,816
========= =========
See Notes to Financial Statements.
-6-
<PAGE>
<TABLE>
NETSMART TECHNOLOGIES, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - (Unaudited)
- --------------------------------------------------------------------------------
<S> <C> <C>
For the Nine Months Ended September 30, 1999
Additional Paid-In Capital Common Stock Shares Amount
------ ------
Beginning Balance $ 17,203,904
Common Stock Issued - Exercise of Options 105,983
Common Stock Issued - Elimination of Series D Preferred 1,208,521
Common Stock Issued - Stock Issued to Consultant 5,600
----------
Ending Balance $ 18,524,008
==========
Accumulated Deficit
Beginning Balance $(15,097,202)
Net Income 1,183,816
----------
Ending Balance $(13,913,386)
==========
Treasury Stock
Beginning Balance 5,333 $ (60,000)
------ ----------
Ending Balance 5,333 $ (60,000)
====== ==========
Total Stockholders Equity $ 4,580,438
==========
See Notes to Financial Statements.
-7-
</TABLE>
<PAGE>
Netsmart Technologies, Inc.
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 September 30, 1999 and the results of its operations for the nine months
ended September 30, 1999 and 1998 and the changes in cash flows for the nine
months ended September 30, 1999 and 1998. The results of operations for the nine
months ended September 30, 1999 and 1998 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, 1998.
(3) Income (Loss) per share - Income (Loss) per share is computed by dividing
the net loss 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. During periods 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.
(4) During the period ended September 30, 1999, stock options to purchase 92,292
shares were exercised and the Company received gross proceeds of $106,905. As a
result, Common Stock and additional paid in capital increased $922 and $105,983
respectively.
During the period ended September 30, 1999, the Company issued 2,500 shares of
Common Stock to a consultant. The value of such shares, $5,625, was charged to
general and administrative expense.
(5) Pursuant to a March 25, 1999 agreement between the Company, Consolidated
Technology Group Ltd. ("Consolidated"), SIS Capital Corp., a wholly-owned
subsidiary of Consolidated ("SISC"), and a group of purchasers, consisting
principally of the Company's management and directors, on April 8, 1999,
Consolidated transferred to the Company the 1,210 shares of the Company's Series
D 6% Redeemable Preferred Stock ("Series D Preferred Stock"), including the
right to receive $145,200 of accumulated dividends and warrants to purchase
shares of the Company's common stock, for which the Company issued 100,000
shares of common stock to SISC. The shares of Series D Preferred Stock have been
canceled as well as the annual dividends of $72,600 associated with the Series D
Preferred Stock.
-8-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Nine Months Ended September 30, 1999 and 1998
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 quarter, these
contacts generally result in either costs and estimated profits in excess of
billing or billing in excess of cost and estimated profits. During 1999, we have
received contracts that are larger than in previous years and they provide for a
longer time between milestone payments. As a result, both our costs and
estimated profits in excess of billings and our billings in excess of cost and
estimated profits have increased at September 30, 1999. 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 is affected.
Our revenue for the nine months ended September 30, 1999 (the "September 1999
period") was $16,046,000, an increase of $7,165,000, or 81%, from the revenue
for the nine months ended September 30, 1998 (the "September 1998 period") which
was $8,881,000. The largest component of revenue in the September 1999 period
was turnkey systems labor revenue, which increased to $5,860,000 in the
September 1999 period, from $2,349,000 in the September 1998 period, reflecting
a 149% increase. This increase is substantially the result of growth in the
behavioral health information systems business and our ability to provide the
staff necessary to generate additional revenue from our outstanding contracts.
Revenue from third party hardware and software, increased to $4,435,000 in the
September 1999 period from $1,378,000 in the September 1998 period, an increase
of 222%. Sales of third party hardware and software are made in connection with
the sales of turnkey systems. The data center (service bureau) revenue decreased
to $1,462,000 in the September 1999 period from $1,667,000 in the September 1998
period, reflecting a decrease of 12%. This decrease was substantially the result
of a special project performed for a client during the September 1998 period
which did not continue at the same rate in the September 1999 period. License
revenue decreased to $1,729,000 in the September 1999 period from $1,791,000 in
the September 1998 period, a decrease of 3%. 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. During
the September 1999 period, our contracts generally had a longer term than our
contracts in the September 1998 period, resulting in license revenue recognized
over a longer period. At September 30, 1999, we had unrecognized license revenue
of approximately $2.4 million, as compared with $788,000 at September 30, 1998.
We expect that we will recognize this license revenue over the remaining terms
of the contracts, which we expect will be completed by December 31, 2000.
However, it is possible that a portion of the license revenue may not be
recognized until a later date. Maintenance revenue increased to $1,673,000 in
the September 1999 period from $1,010,000 in the September 1998 period,
reflecting an increase of 66%. Revenue from the sales of our small turnkey
division increased to $887,000 in the September 1999 period from $686,000 in the
September 1998 period, reflecting an increase of 29%.
Revenue from contracts from government agencies represented 57% of revenue for
the September 1999 period and 48% of revenue for the September 1998 period. This
increase reflects an increase in our contracts with state agencies.
Gross profit increased to $5,611,000 in the September 1999 period from
$3,441,000 in the September 1998 period, a 63% increase. Our overall gross
margin was 35% for the September 1999 period compared to 39% for the September
1998 period. The reduction in gross margin was substantially attributable to the
increase in our third party hardware and software revenue which yields margins
significantly less than our revenue from our behavioral health systems and
services. Additionally, in order to fill our backlog of orders for our
behavioral health systems, we hired additional technical personnel. Since there
is a period of approximately nine months between the
-9-
<PAGE>
commencement of employment and the ability to generate revenue, the increased
staffing had a negative impact upon our margins in the September 1999 period.
Selling, general and administrative expenses were $3,640,000 in the September
1999 period, an increase of 58% from the $2,301,000 in the September 1998
period. This increase was substantially the result of an increase in sales and
marketing salaries and related direct selling costs, commission expense and an
increase in the provision for incentive bonuses.
We incurred product development expenses of $600,000 in the September 1999
period, a decrease of 11% from the $678,000 in the September 1998 period. These
expenses were related to our behavioral health information systems products such
as our clinician workstation, behavioral health information system for Windows,
managed care and methadone dispensing products. The decline in product
development expense results from the reassignment during the first two quarters
of 1999 of personnel from product development to contract work.
Interest expense was $187,000 in the September 1999 period, a decrease of
$82,000, or 31%, from the $270,000 in the September 1998 period. This decrease
was the result of lower borrowings during the September 1999 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 October
1999, we entered into a new credit facility agreement with Silicon Valley Bank.
The interest rate of the new facility is 2% above the prime rate.
Related party administrative expense was $45,000 in the September 1998 period.
These charges were incurred pursuant to a management services agreement with our
then principal stockholder to provide general business, management and financial
consulting services for a monthly fee of $15,000. This agreement was mutually
terminated, effective April, 1 1998.
The net loss from our discontinued operations, the smart card division, was
$381,000 in the September 1998 period.
As a result of the foregoing factors, we generated a net income of $1,184,000,
or $.41 per share (basic) and $.34 per share (diluted), in the September 1999
period. For the September 1998 period, we generated net income from continuing
operations of $147,000, or $.06 per share (basic and diluted), a loss from
discontinued operations of $381,000, or $.14 per share (basic and diluted), and
a net loss of $234,000, or $.08 per share (basic and diluted).
Although our net income increased on a quarter to quarter basis, our revenue for
the third quarter of 1999 was less than our revenue for the second quarter of
1999. We believe that the level of revenue was affected on a short-term basis by
both a reduction in sales of third party hardware and software, on which we
realize a lower gross margin than on our own behavioral health systems and
services, and by employee vacations during the quarter.
Three Months Ended September 30, 1999 and 1998
Our revenue for the three months ended September 30, 1999 (the "September 1999
quarter") was $5,240,000, an increase of $1,699,000, or 48% from the revenue for
the three months ended September 30, 1998 (the "September 1998 quarter"), which
was $3,540,000. The largest component of revenue in the September 1999 quarter
was turnkey systems labor revenue, which increased to $2,206,000 in the
September 1999 quarter from $1,015,000 in the September 1998 quarter, reflecting
a 117% increase. This increase is substantially the result of growth in the
behavioral health information systems business and our ability to provide the
staff necessary to generate additional revenue. Revenue from third party
hardware and software, increased to $1,190,000 in the September 1999 quarter
from $681,000 in the September 1998 quarter an increase of 75%. Sales of third
party hardware and software are made in connection with the sales of turnkey
systems. The data center (service bureau) revenue decreased to $469,000 in the
September 1999 quarter from $491,000 in the September 1998 quarter, reflecting a
decrease of
-10-
<PAGE>
4%. This decrease was substantially the result of a special project performed
for a client during the September 1998 quarter which did not continue at the
same rate in the September 1999 quarter. License revenue decreased to $536,000
in the September 1999 quarter from $760,000 in the September 1998 quarter, a
decrease of 30%. 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. During the September 1999 quarter, our
contracts generally had a longer term than our contracts in the September 1998
period, resulting in license revenue recognized over a longer period. At
September 30, 1999, we had unrecognized license revenue of approximately $2.4
million, as compared with $788,000 at September 30, 1998. We expect that we will
recognize this license revenue over the remaining terms of the contracts, which
we expect will be completed by December 31, 2000. However, it is possible that a
portion of the license revenue may not be recognized until a later date.
Maintenance revenue increased to $539,000 in the September 1999 quarter from
$348,000 in the September 1998 quarter, reflecting an increase of 55%. Revenue
from the sales of our small turnkey division increased to $299,000 in the
September 1999 quarter from $244,000 in the September 1998 quarter, reflecting
an increase of 23%.
Revenue from contracts from government agencies represented 49% of revenue for
the September 1999 quarter and 57% of revenue for the September 1998 quarter.
This decline reflects work performed for a major customer in the private sector.
Gross profit increased to $1,866,000 in the September 1999 quarter from
$1,344,000 in the September 1998 quarter, a 39% increase. Our overall gross
margin was 36% for the September 1999 quarter compared to 38% for the September
1998 quarter. The reduction in gross margin was substantially attributable to
the increase in our third party hardware and software revenue which yields
margins significantly less than revenue from our behavioral health systems and
services. Additionally, in order to fill our backlog of orders for our
behavioral health systems, we hired additional technical personnel. Since there
is a period of approximately nine months between the commencement of employment
and the ability to generate revenue, the increased staffing had a negative
impact upon our margins in the September 1999 period.
Selling, general and administrative expenses were $1,156,000 in the September
1999 quarter, an increase of 25% from the $924,000 in the September 1998
quarter. This increase was substantially the result of an increase in sales and
marketing salaries and related direct selling costs and an increase in the
provision for incentive bonuses.
We incurred product development expense of $210,000 in the September 1999
quarter, an increase of 52% from the $138,000 in the September 1998 quarter.
These expenses were related to our behavioral health information systems
products such as our clinician workstation, behavioral health information system
for Windows, managed care and methadone dispensing products.
Interest expense was $57,000 in the September 1999 quarter, a decrease of
$64,000, or 53% from the $121,000 in the September 1998 quarter. This decrease
was the result of lower borrowings during the September 1999 quarter, in
addition to a reduction in the 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 October 1999 we entered into a new credit facility agreement with
Silicon Valley Bank. The interest rate of the new facility is 2% above the prime
rate.
The net loss from our discontinued operations, the smart card division, was
$38,000 in the September 1998 quarter.
As a result of the foregoing factors, we generated a net income of $443,000, or
$.15 per share (basic) and $.13 per diluted share (diluted) in the September
1999 quarter as compared to a net income of $123,000, or $.04 per share (basic
and diluted) in the September 1998 quarter.
-11-
<PAGE>
Liquidity and Capital Resources
We had working capital of $1,350,000 at September 30, 1999 as compared to
working capital of $10,000 at December 31, 1998. Our cash position decreased
from $199,000 at December 31, 1998 to $80,000 at September 30, 1999. The
increase in working capital for the nine months ended September 30, 1999 was
substantially due to the net income after adding back depreciation and
amortization.
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 $2,000,000. At September
30, 1999, the outstanding borrowings under this facility were $1,304,000 and the
maximum amount available under this formula was $1,658,000. In October 1999 we
entered into a new credit facility agreement with Silicon Valley Bank. The new
facility allows us to access up to $3.5 million of eligible accounts receivable
at an interest rate of 2% above the prime rate. The previous credit facility
only allowed us to draw $2 million at 5% above the prime rate.
At September 30, 1999, accounts receivable and costs and estimated profits in
excess of interim billings were approximately $9.3 million, representing
approximately 156 days of revenue based on annualizing the revenue for the nine
months ended September 30, 1999, although no assurance can be given that revenue
will continue at the same level as the nine month period. Accounts receivable at
September 30, 1999 increased by $1.881,000 million from $3,600,000 at December
31, 1998 to $5,481,000 at September 30, 1999. We believe that, the income from
operations, the availability with our new asset based lender and the cash on
hand, will be sufficient to enable us to continue to operate without additional
funding.
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, 1998 and in other documents filed by us
with the Securities and Exchange Commission.
-12-
<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.
/s/James L. Conway President, Chief Executive November 4, 1999
- ------------------ Officer and Director (Principal
James L. Conway Executive Officer)
/s/Anthony F. Grisanti Chief Financial Officer November 4, 1999
- ---------------------- (Principal Financial and
Anthony F. Grisanti Accounting Officer)
NETSMART TECHNOLOGIES, INC.
EXHIBIT 11.1 - CALCULATION OF EARNINGS PER SHARE
Nine Months ended September 30,
1999 1998
---- ----
Average shares outstanding 2,902,608 2,779,075
Dilutive effect of stock options
and warrants computed by use
of treasury stock method 563,863 --
--------- ---------
3,466,471 2,779,075
--------- ---------
Computation of Earnings Per
Share=Net Income/Average
common and common share
equivalent shares $ 1,183,810 $ (234,105)
outstanding 3,466,471 2,779,075
--------- ---------
Earnings Per Share $ .34 $ (.08)
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1999
<CASH> 80,104
<SECURITIES> 0
<RECEIVABLES> 5,480,832
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,644,873
<PP&E> 523,046
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,946,041
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 29,816
<OTHER-SE> 4,550,622
<TOTAL-LIABILITY-AND-EQUITY> 12,946,041
<SALES> 0
<TOTAL-REVENUES> 16,046,521
<CGS> 10,435,275
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,240,098
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 187,332
<INCOME-PRETAX> 1,183,816
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,183,816
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,183,816
<EPS-BASIC> .41
<EPS-DILUTED> .34
</TABLE>
