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, 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: (631) 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 17, 2000: 3,490,331
=========
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Netsmart Technologies, Inc. and Subsidiaries
Index
Part I: - Financial Information:
Item 1. Financial Statements: Page
----
Consolidated Balance Sheets - September 30, 2000 (Unaudited)
and December 31, 1999 1-2
Consolidated Statements of Operations (Unaudited)-
Nine Months Ended September 30, 2000 and 1999 and
three months ended September 30, 2000 and 1999 3
Consolidated Statements of Cash Flows (Unaudited)-
Nine Months Ended September 30, 2000 and 1999 4-5
Consolidated Statement of Stockholders' Equity (Unaudited)-
Nine Months Ended September 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
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NETSMART TECHNOLOGIES, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
September 30, December 31,
2000 1999
(Unaudited) -----------
---------
Assets:
Current Assets:
Cash and Cash Equivalents $ 1,555,292 $ 204,989
Accounts receivable- Net 5,949,144 5,789,734
Costs and Estimated Profits in Excess
of Interim Billings 3,394,127 4,253,072
Note Receivable 15,000 150,000
Other Current Assets 295,663 167,516
----------- -----------
Total Current Assets 11,209,226 10,565,311
----------- -----------
Property and Equipment - Net 507,868 534,864
----------- -----------
Other assets:
Software Development Costs - Net 817,217 310,722
Customer Lists - Net 2,148,151 2,399,108
Other Assets 93,407 162,472
---------- -----------
Total Other Assets 3,058,775 2,872,302
---------- -----------
Total Assets $ 14,775,869 $ 13,972,477
=========== ===========
See Notes to Consolidated Financial Statements.
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NETSMART TECHNOLOGIES, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
September 30, December 31,
2000 1999
(Unaudited) ------------
-----------
Liabilities and Stockholders' Equity:
Current Liabilities:
Notes Payable $ -- $ 882,404
Capitalized Lease Obligations 28,069 25,385
Accounts Payable 1,866,960 2,562,087
Accrued Expenses 1,062,615 1,243,548
Interim Billings in Excess of Costs and Estimated
Profits 3,249,864 3,750,847
Deferred Revenue 274,617 88,546
----------- ------------
Total Current Liabilities 6,482,125 8,552,817
----------- ------------
Capitalized Lease Obligations 43,227 64,627
----------- ------------
Commitments and Contingencies
Stockholders' Equity:
Common Stock - $.01 Par Value; Authorized
15,000,000 Shares; Issued 3,518,369 Shares
at September 30, 2000, 2,988,738 Shares at
December 31, 1999 35,183 29,887
Additional Paid-in Capital - Common Stock 20,446,902 18,657,579
Accumulated Deficit (11,931,758) (13,272,433)
----------- -----------
8,550,327 5,415,033
Less cost of Common Stock held in
Treasury 28,038 shares at September 30, 2000,
5,333 shares at December 31, 1999 299,810 60,000
----------- -----------
Total Stockholders' Equity 8,250,517 5,355,033
----------- -----------
Total Liabilities and Stockholders' Equity $ 14,775,869 $ 13,972,477
=========== ===========
See Notes to Consolidated Financial Statements.
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<TABLE>
NETSMART TECHNOLOGIES, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF OPERATIONS - (Unaudited)
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Nine months ended Three months ended
September 30, September 30,
----------------- ------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Software and Related
Systems and Services:
General $ 11,338,937 $12,911,693 $ 3,679,746 $ 4,231,190
Maintenance Contract
Services 2,553,221 1,672,774 906,250 539,120
---------- ---------- --------- ---------
Total Software and Related
Systems and Services 13,892,158 14,584,467 4,585,996 4,770,310
Data Center Services 1,716,129 1,462,054 511,539 469,324
---------- ---------- --------- ---------
Total Revenue 15,608,287 16,046,521 5,097,535 5,239,634
---------- ---------- --------- ---------
Cost of Revenue:
Software and Related
Systems and Services:
General 7,090,442 8,269,902 2,376,425 2,687,045
Maintenance Contract
Services 1,640,350 1,293,944 578,172 445,521
---------- ---------- --------- ---------
Total Software and Related
Systems and Services 8,730,792 9,563,846 2,954,597 3,132,566
Data Center Services 766,843 871,429 258,897 240,616
---------- ---------- --------- ---------
Total Cost of Revenue 9,497,635 10,435,275 3,213,494 3,373,182
---------- ---------- --------- ---------
Gross Profit 6,110,652 5,611,246 1,884,041 1,866,452
Selling, General and
Administrative Expenses 3,425,657 3,639,879 1,057,769 1,155,729
Cost of Warrants Issued and their Extension 181,000
Research and Development 1,052,151 600,219 348,132 209,889
---------- ---------- --------- ---------
Income before Interest Expense 1,451,844 1,371,148 478,140 500,834
Interest Expense 111,169 187,332 27,382 57,257
---------- ---------- --------- ---------
Net Income $ 1,340,675 $ 1,183,816 $ 450,758 $ 443,577
========== ========== ========= =========
Earnings Per Share of Common Stock:
Basic:
Net Income $ .40 $ .41 $ .13 $ .15
========== ========== ========= =========
Weighted Average Number of Shares of
Common Stock Outstanding 3,329,027 2,902,608 3,489,998 2,976,380
Diluted:
Net Income $ .36 $ .34 $ .12 $ .13
========== ========== ========= =========
Weighted Average Number of Shares of
Common Stock Outstanding 3,744,704 3,466,471 3,841,746 3,530,513
See Notes to Consolidated Financial Statements.
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NETSMART TECHNOLOGIES, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS - (Unaudited)
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Nine months ended
September 30,
-----------------
2000 1999
---- ----
Operating Activities:
Net Income $ 1,340,675 $ 1,183,816
--------- ----------
Adjustments to Reconcile Net Income
to Net Cash [Used for] Provided by
Operating Activities:
Depreciation and Amortization 522,355 441,173
Financing Cost Related to Issuance
and Extension of Warrants 181,000
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (159,410) (1,880,807)
Costs and Estimated Profits in
Excess of Interim Billings 858,945 (889,496)
Other Current Assets 6,853 (35,151)
Other Assets 69,065 (82,704)
Increase [Decrease] in:
Accounts Payable (695,127) (6,405)
Accrued Expenses (180,933) 578,042
Interim Billings in Excess of
Costs and Estimated Profits (500,983) 1,169,423
Deferred Revenue 186,071 27,441
--------- ----------
Total Adjustments 287,836 (678,484)
--------- ----------
Net Cash - Operating Activities 1,628,511 505,332
--------- ----------
Investing Activities:
Acquisition of Property and Equipment (157,705) (328,695)
Software Development Costs (493,192) --
--------- ----------
Net Cash - Investing Activities (650,897) (328,695)
--------- ----------
See Notes to Financial Statements.
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NETSMART TECHNOLOGIES, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS - (Audited)
--------------------------------------------------------------------------------
Nine months ended
September 30
-----------------
2000 1999
---- ----
Financing Activities:
Payments on Short term notes $ (882,404) $ (335,281)
Payment of Capitalized Lease Obligations (18,716) (28,471)
Repayment of Loans from Related Parties (84,000)
Proceeds from Loan from Related Parties
Proceeds from Capitalized Lease Obligation 40,000
Net Proceeds from Warrant Exercise 1,139,630
Net Proceeds from Stock Options Exercised 134,179 112,530
--------- ---------
Net Cash - Financing Activities 372,689 (295,222)
--------- ---------
Net Increase [Decrease] in Cash 1,350,303 (118,585)
Cash - Beginning of Periods 204,989 198,689
--------- ---------
Cash - End of Periods $1,555,292 $ 80,104
========= =========
Supplemental Disclosure of Cash Flow Information
Cash paid during the periods for:
Interest $ 111,169 $ 206,193
Income Taxes $ 188,867 $ 38,667
See Notes to Financial Statements.
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NETSMART TECHNOLOGIES, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - (Unaudited)
--------------------------------------------------------------------------------
For the Nine Months Ended September 30, 2000
Common Stock $.01 Par Value Authorized
15,000,000 Shares Shares Amount
------ ------
Beginning Balance 2,988,738 $ 29,887
Common Stock Issued - Exercise of Options 321,998 3,219
Common Stock Issued - Exercise of Warrants 192,105 1,922
Common Stock Issued - Acquisition 15,528 155
--------- -------
Ending Balance 3,518,369 $ 35,183
========= =======
See Notes to Financial Statements.
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NETSMART TECHNOLOGIES, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - (Unaudited)
--------------------------------------------------------------------------------
For the Nine Months Ended September 30, 2000
Additional Paid-In Capital Common Stock Shares Amount
------ ------
Beginning Balance $ 18,657,579
Common Stock Issued - Exercise of Options 370,770
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 $ 20,446,902
==========
Accumulated Deficit
Beginning Balance $(13,272,433)
Net Income 1,340,675
----------
Ending Balance $(11,931,758)
==========
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 $ 8,250,517
==========
See Notes to Financial Statements.
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NETSMART TECHNOLOGIES, INC. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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(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, 2000 and the results of its operations for the nine and
three months ended September 30, 2000 and 1999 and the changes in cash flows for
the nine months ended September 30, 2000 and 1999. The results of operations
for the nine months ended September 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 September 30, 2000, stock options to purchase
321,998 shares were exercised and we received gross proceeds of $373,989.
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 nine months ended September 30, 2000, 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 $3,219 and $370,770,
respectively, and treasury stock increased by $239,810.
During the period ended September 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 a software product for $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 nine months ended September 30, 2000,
we incurred additional software development costs associated with this product
in the amount of $179,038, which is reflected in capitalized software
development costs.
(6) The Company was 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 resolved this action in an out of court
settlement in October 2000. The settlement of this action had no material
adverse effect on the operations of the Company.
-8-
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Nine months Ended September 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 adversely affected. Additionally, during the first nine months 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 nine months ended September 30, 2000 (the "September 2000
period") was $15,608,000, a decrease of $438,000, or 3%, from the revenue
for the nine months ended September 30, 1999 (the "September 1999 period"),
which was $16,047,000. The largest component of revenue was turnkey systems
labor revenue, which decreased to $4,913,000 in the September 2000 period,
from $5,860,000 in the September 1999 period, reflecting a 16% decrease.
This decrease reflects a planned allocation of personnel to our product
enhancement efforts. Revenue from third party hardware and software decreased
to $3,542,000 in the September 2000 period from $4,435,000 in the September 1999
period, which represents a decrease of 20%. 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. License revenue increased to $1,947,000 in the
September 2000 period from $1,729,000 in the September 1999 period,
reflecting an increase of 13%. 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 $2,553,000 in the September 2000 period from $1,673,000 in
the September 1999 period, reflecting an increase of 53%. As turnkey systems are
successfully completed, they are transitioned to the maintenance division.
During the September 2000 period we completed the turnkey systems for
approximately 30 new clients, for which we are performing maintenance
services. Revenue from the sales of our small turnkey division increased to
$937,000 in the September 2000 period from $887,000 in the September 1999
period, reflecting an increase of 6%. The data center (service bureau) revenue
increased to $1,716,000 in the September 2000 period from $1,462,000 in the
September 1999 period, reflecting an increase of 17%. 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.
Revenue from contracts from government agencies represented 50% of revenue in
the September 2000 period and 57% of revenue in the September 1999 period. This
decrease is the result of us performing on a substantial contract with a private
institution.
Gross profit increased to $6,111,000 in the September 2000 period from
$5,611,000 in the September 1999 period, reflecting a 9% increase. Our overall
gross margin was 39% in the September 2000 period compared to 35% in the
September 1999 period. The increase in gross margin was substantially
attributable to both 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.
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<PAGE>
Selling, general and administrative expenses were $3,426,000 in the September
2000 period, a decrease of 6% from the $3,640,000 in the September 1999 period.
This decrease was substantially the result of a decrease in sales commissions
and provision for bonuses.
In the September 2000 period we extended one series of our warrants for eight
months. An aggregate of $181,000 was charged to operations for the warrant
issuance, the warrant extension and the issuance of warrants for services
related to this transaction. As a result of the extension of the warrants, we
raised additional capital of $1,153,000.
We incurred product development expenses of $1,052,000 in the September 2000
period, an increase of 75% from the $600,000 in the September 1999 period.
Research and development expenses increased in the September 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 $111,000 in the September 2000 period, a decrease of
$76,000, or 41%, from the $187,000 in the September 1999 period. This decrease
was the result of lower borrowings during the September 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 September 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 September 2000 period, we paid all our outstanding
borrowings from the lender, and, at September 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 September 2000 period we generated
a net income of $1,341,000, or $.40 per share (basic) and $.36 per share
(diluted). For the September 1999 period, we generated net income of
$1,184,000, or $.41 per share (basic) and $.34 per share (diluted).
Three Months Ended September 30, 2000 and 1999
Our revenue for the three months ended September 30, 2000 (the "September 2000
quarter") was $5,098,000, a decrease of $142,000, or 3%, from the revenue
for the three months ended September 30, 1999 (the "September 1999 quarter"),
which was $5,240,000. The largest component of revenue was turnkey systems
labor revenue, which decreased to $1,392,000 in the September 2000 quarter, from
$2,206,000 in the September 1999 quarter, reflecting a 37% decrease. This
decrease reflects a planned allocation of personnel to our product enhancement
efforts. Revenue from third party hardware and software increased to
$1,296,000 in the September 2000 quarter from $1,190,000 in the September
1999 quarter, which represents an increase of 9%. 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. License revenue increased
to $689,000 in the September 2000 quarter from $536,000 in the September
1999 quarter, reflecting an increase of 29%. 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 $906,000 in the September 2000 quarter from
$539,000 in the September 1999 quarter, reflecting an increase of 68%. As
turnkey systems are successfully completed, they are transitioned to the
maintenance division. During the September 2000 quarter we completed the turnkey
systems for 6 new clients, for which we are performing maintenance services.
Revenue from the sales of our small turnkey division increased to $304,000 in
the September 2000 quarter from $299,000 in the September 1999 quarter,
reflecting an increase of 1%. The data center (service
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<PAGE>
bureau) revenue increased to $512,000 in the September 2000 quarter from
$469,000 in the September 1999 quarter, reflecting an increase of 9%.
Revenue from contracts from government agencies represented 53% of revenue in
the September 2000 quarter and 49% of revenue in the September 1999 quarter.
This increase is the result of us performing on substantial contracts with two
public entities.
Gross profit increased to $1,884,000 in the September 2000 quarter from
$1,867,000 in the September 1999 quarter, reflecting a 1% increase. Our
overall gross margin was 37% in the September 2000 quarter compared to 36%
in the September 1999 quarter. The increase in gross profit was
substantially attributable to the increase in maintenance revenue. The
increased maintenance revenue can be performed at a higher gross margin since
the core costs and infrastructure investment have previously been established.
The increase in gross margin was substantially offset by a decrease in our
third party hardware and software revenue, which yields margins significantly
less than our revenue from our behavioral health systems and services. The
increased gross margin was also reduced by the decrease in our turnkey
systems labor revenue.
Selling, general and administrative expenses were $1,058,000 in the September
2000 quarter, a decrease of 8% from the $1,156,000 in the September 1999
quarter. This decrease was substantially the result of a decrease in the
provision for bonuses.
We incurred product development expenses of $348,000 in the September 2000
quarter, an increase of 66% from the $210,000 in the September 1999 quarter.
Research and development expenses increased in the September 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 $27,000 in the September 2000 quarter, a decrease of
$30,000, or 52%, from the $57,000 in the September 1999 quarter. This
decrease was the result of lower borrowings during the September 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 September 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 September 2000 quarter, we paid all our outstanding
borrowings from the lender and, at September 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 September 2000 quarter, we
generated a net income of $451,000, or $13 per share (basic) and $.12 per share
(diluted). For the September 1999 quarter, we generated net income of $444,000,
or $.15 per share (basic) and $.13 per share (diluted).
Liquidity and Capital Resources
We had working capital of $4,727,000 at September 30, 2000 as compared to
working capital of $2,012,000 at December 31, 1999. Our cash position
increased from $205,000 at December 31, 1999 to $1,555,000 million at
September 30, 2000. The increase in working capital for the September 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 $1,274,000.
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<PAGE>
Our principal source of funds, other than from operations, 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 September 30, 2000, there were no outstanding borrowings under this
facility and the maximum amount available to borrow under this formula was $2.4
million.
At September 30, 2000, accounts receivable and costs and estimated profits in
excess of interim billings were approximately $9.3 million, representing
approximately 162 days of revenue based on annualizing the revenue for the
September 2000 period, although no assurance can be given that revenue will
continue at the same level as the September 2000 period.
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 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.
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
specific 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.
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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.
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. The
Company resolved this action in an out of court settlement in October 2000. The
settlement of this action had no material adverse effect on the operations of
the Company.
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<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 3, 2000
------------------- Officer and Director
James L. Conway (Principal Executive Officer)
/s/ Anthony F. Grisanti Chief Financial Officer November 3, 2000
----------------------- (Principal Financial and
Anthony F. Grisanti Accounting Officer)
