PROSPECTUS
808,026 Shares
NETSMART TECHNOLOGIES, INC.
Common Stock
Nasdaq SmallCap Market Trading Symbol: NTST
The selling stockholders may sell up to 808,026 shares of common stock
from time to time. These selling stockholders may sell their shares
* On the Nasdaq SmallCap Market.
* To a broker-dealer, including a market maker, who purchases the shares
for its own account.
* In private transactions or by gift.
The selling stockholders may also:
* pledge their shares from time to time, and the lender may sell the
shares upon foreclosure.
* sell their warrants in a private transaction or transfer them as a
gift, and the purchasers of the warrants may exercise the warrants and
sell the underlying shares of common stock.
The shares are being offered by the selling stockholders and are
issuable upon exercise of outstanding warrants held by the selling stockholders.
We will only receive proceed from the exercise of the warrants. We will not
receive any proceeds from the sale by the selling stockholders of their shares
of common stock. We will pay the cost of the preparation of this prospectus,
which is estimated at $10,000.
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Investing in shares of our common stock involves a high degree of risk.
You should purchase the shares only if you can afford to lose your entire
investment. See "Risk Factors," which begins on page 2.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined whether
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is January 11, 2000
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TABLE OF CONTENTS
Page
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Risk Factors 2
Use of Proceeds 4
Selling Stockholders 4
Plan of Distribution 6
Available Information 6
Incorporation of Certain Documents by Reference 7
Legal Matters 7
Experts 7
RISK FACTORS
This prospectus contains statements that plan or anticipate the future.
Forward-looking statements include statements about our future business plans
and strategies and the market for our products and most other statements that
are not historical in nature. In this prospectus, forward-looking statements are
generally identified by the words "anticipate," "plan," "believe," "expect,"
"estimate" and similar words. Because forward-looking statements involve future
risks and uncertainties, there are factors that could cause actual results to
differ materially from those expressed or implied, including, but not limited
to, those identified under "Risk Factors" in this prospectus and in our Form
10-K for 1998, those described in Management's Discussion and Analysis of
Financial Conditions and Results of Operations in our Form 10-K for 1998 and our
Form 10-Q for the quarter ended September 30, 1999, and those described and in
any other filings which are incorporated by reference in this prospectus, as
well as general economic conditions.
An investment in our common stock involves a high degree of risk. You
should consider carefully, along with other factors, the following risks and
should consult with your own legal, tax and financial advisors.
If we are unable to obtain additional capital, we may not be able to
develop our business and perform our contract obligations. We had working
capital of $1.4 million at September 30, 1999. Our cash position decreased from
$199,000 at December 31, 1998 to $80,000 at September 30, 1999. We require
substantial additional capital in order to expand and develop our business and
perform our obligations under our agreements and purchase orders. We have no
commitments from any person to provide us with any such capital. Our business
may suffer significantly if we do not obtain the capital when it is required.
Because we are dependent upon government contracts, our business may be
impaired by policies relating to entitlement programs. We market our health
information systems principally to behavioral health care facilities, many of
which are operated by government entities and include entitlement programs.
During 1998, we generated 52% of our revenue from contracts with government
agencies, as compared with 35% in 1997 and 31% in 1996. Government agencies
generally have the right to cancel contracts at their convenience. In addition,
we may lose business if government agencies reduce funding for entitlement
programs.
Our business is based on providing systems relating to behavioral health
organizations, and changes in government regulation of health care industry may
affect the market for our systems. We derive substantially all of our revenue
from our health information systems and services. The federal and state
governments have adopted numerous regulations relating to the health care
industry, including regulations relating to the payments to health care
providers for various services, and our systems are designed to provide
information based on these requirements. The adoption of new regulations can
have a significant effect upon the operations of health care providers,
particularly those operated by state agencies. We cannot predict the effect on
our business of future regulations by governments and payment practices by
government agencies. Furthermore, changes in regulations in the health care
field may force us to modify our health information systems to meet any new
record-keeping or other requirements. If that happens, we may not be able to
generate revenues sufficient to cover the costs of developing the modifications.
If we are not able to take advantage of technological advances, our
business may suffer. Our customers require software which enables them to store,
retrieve and process very large quantities of data and to provide them with
instantaneous communications among the various data bases. Our business requires
us to take advantage of recent advances in software, computer and communications
technology. This technology has been developing at rapid rates in recent years,
and our future may be dependent upon our ability to use and develop or obtain
rights to products utilizing such technology.
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New technology may develop in a manner which may make our software obsolete. Our
inability to use new technology would have a significant adverse effect upon our
business.
Because of our size, we may have difficulty competing with larger
companies that offer similar services. Our customers in the human services
market include entitlement programs, managed care organizations, specialty care
facilities and other major information technology users which have a need for
access to information over a distributed data network. The software industry in
general, and the health information software business in particular, are highly
competitive. Other companies have the staff and resources to develop competitive
systems. We may not be able to compete successfully with such competitors. The
health information systems business is served by a number of major companies and
a larger number of smaller companies, many of which are better capitalized,
better known and have better marketing staffs than we have, and we may not be
able to compete effectively with such companies. We believe that price
competition is a significant factor in our ability to market our health
information systems and services.
Because we are dependent on our management, the loss of key executive
officers could harm our business. Our business is largely dependent upon our
senior executive officers, Messrs. James L. Conway, president and chief
executive officer, Anthony F. Grisanti, chief financial officer, John F.
Philips, vice president -- marketing, and Gerald O. Koop, vice president of the
Company and chief executive officer of our operating subsidiary, Creative
Socio-Medics Corp. Although we have employment agreements with Messrs. Conway,
Grisanti, Phillips and Koop, these agreement do not guarantee that the officers
will continue with us. Our business may be adversely affected if any of our key
management personnel or other key employees left our employ.
Because we lack patent protection, we cannot assure you that others will
not be able to use our proprietary information in competition with us. We have
no patent or copyright protection for our proprietary software, and we rely on
non-disclosure agreements with our employees. Since our business is dependent
upon our proprietary products, the unauthorized use or disclosure of this
information could harm our business.
Our growth may be limited if we cannot make acquisitions. 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. As of the date of this prospectus, we do not have any agreement or
understanding, either formal or informal, as to any acquisition.
If we make any acquisitions, they may disrupt or have a negative impact
on our business. If we make acquisitions, we could have difficulty integrating
the acquired companies' personnel and operations with our own. In addition, the
key personnel of the acquired business may not be willing to work for us. We
cannot predict the affect expansion may have on our core business. Regardless of
whether we are successful in making an acquisition, the negotiations could
disrupt our ongoing business, distract our management and employees and increase
our expenses.
We do not anticipate paying dividends on our common stock. We presently
intend to retain future earnings, if any, in order to provide funds for use in
the operation and expansion of our business and, accordingly, we do not
anticipate paying cash dividends on our Common Stock in the foreseeable future.
The rights of the holders of common stock may be impaired by the
potential issuance of preferred stock. Our certificate of incorporation gives
our board of directors the right to create new series of preferred stock. As a
result, the board of directors may, without stockholder approval, issue
Preferred Stock with voting, dividend, conversion, liquidation or other rights
which could adversely affect the voting power and equity interest of the holders
of common stock. The preferred stock, which could be issued with the right to
more than one vote per share, could be utilized as a method of discouraging,
delaying or preventing a change of control. The possible impact on takeover
attempts could adversely affect the price of our common stock. Although we have
no present intention to issue any additional shares of preferred stock or to
create any series of preferred stock, we may issue such shares in the future. If
we issue preferred stock in a manner which dilutes the voting rights of the
holders of the common stock, our listing on The Nasdaq SmallCap Market may be
impaired.
Shares may be issued pursuant to options which may affect the market
price of our common stock. We may issue stock upon the exercise of options to
purchase up to an aggregate 799,192 shares of common stock pursuant to our
long-term incentive plans.
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USE OF PROCEEDS
We intend to utilize any net proceeds received from the exercise of the
warrants for working capital and other corporate purposes. We cannot assure you
that any warrants will be exercised. We believe that the net proceeds are likely
to range from zero to approximately $2.5 million. This estimate assumes that
warrants to purchase 488,563 shares at $12.00 per share, which expire on
February 29, 2000, expire unexercised. If any warrants are exercised, our
management will have broad discretion to determine the use the proceeds.
SELLING STOCKHOLDERS
The following table and discussion sets forth:
* the name of each selling stockholder,
* the nature of any position, office or other material relationship, if
any, which the selling stockholder has had with us or any of our
affiliates within the last three years,
* the number of shares of common stock owned by each selling stockholder as
of December 31, 1999, o the number of shares of common stock offered
for each selling stockholder's account, and o the percentage owned by
each selling stockholder after completion of the offering.
The shares of common stock being sold pursuant to this prospectus are
issuable upon the exercise of outstanding warrants. Except for the warrants
issued to Dominick & Dominick LLC and Emerging Technology Ventures, Inc., which
are described below, the warrants expire on February 29, 2000 and are
exercisable at $6.00 per share as to 287,491 shares, and $12.00 per share as to
448,535 shares. In December 1999, we extended the expiration date of these
warrants from December 31, 1999 to February 29, 2000.
The following table includes, under the column headed "Number of Shares
Owned Prior to Offering" the shares of common stock issuable upon exercise of
the warrants held by such person as well as any other options or warrants which
are exercisable on December 31, 1999 or become exercisable on or prior to
February 29, 2000. The number of shares listed in the column headed "Number of
Shares Offered For Account of Selling Stockholder" represents the number of
shares of common stock issuable upon exercise of the warrants.
<S> <C> <C> <C> <C>
Number Number of
of Shares Shares Offered Number of Percentage
Owned Prior For Account of Shares Owned Owned
Selling Stockholder to Offering Selling Stockholder After Offering After Offering
------------------- ----------- -------------------- -------------- --------------
Lewis S. Schiller 105,553 105,553 0 --
Storm R. Morgan 88,166 87,500 666 *
Barbara Dyson 1,916 1,916 0 --
Kennan Kroll 1,000 1,000 0 --
Mike Libbee and Cindy Libbee 10,555 10,555 0 --
Raj R. Doodnauth 6,749 6,749 0 --
William Giblin 1,916 1,916 0 --
Bettyjean Kroll 2,166 2,166 0 --
James L. Conway 199,582 51,333 124,333 4.1%
Geraldine Conway 199,582 23,916 124,333 4.1%
James L. Conway, Jr. 5,000 5,000 -- --
Teresa Conway McTigue 5,000 5,000 -- --
Joanna Flecken 1,666 1,666 -- --
John Avena 1,196 666 530 *
Leonard M. Luttinger 52,083 52,083 -- --
Thomas L. Evans 12,500 12,500 -- --
Joel Brown 38,888 38,888 -- --
E. Gerald Kay 38,888 38,888 -- --
DLB, Inc. 41,319 41,319 -- --
Norman Hoskin 19,444 19,444 -- --
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<TABLE>
<S> <C> <C> <C> <C>
Number Number of
of Shares Shares Offered Number of Percentage
Owned Prior For Account of Shares Owned Owned
Selling Stockholder to Offering Selling Stockholder After Offering After Offering
------------------- ----------- -------------------- -------------- --------------
Martin Hodas 35,444 19,444 16,000 *
Grazyna B. Wnuk 19,444 19,444 -- --
The Trinity Group - I, Inc. 8,333 8,333 -- --
Ronald Feldstein 14,166 14,166 -- --
Elliot Davis, Inc. 14,166 14,166 -- --
Harold Halperin 833 833 -- --
Saggi Capital Corp. 78,958 78,958 -- --
SMACS Holdings, Inc. 38,541 38,541 -- --
Bridge Ventures, Inc. 40,416 40,416 -- --
Henry Uffmann 2,333 2,000 333 *
Dominick & Dominick LLC 60,000 60,000 -- --
Emerging Technology Ventures, Inc. 12,000 12,000 -- --
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* Less than 1%.
Mr. Lewis S. Schiller was our chairman of the board and chief executive
prior to April 1998. In connection with his resignation, we exchanged general
releases with Mr. Schiller. The shares owned by The Trinity Group-I, Inc. are
deemed to be beneficially owned by Mr. Schiller. Mr. Schiller is the chairman
of the board of The Trinity Group -I. For more than five years prior to April
1998, Mr. Schiller was also chairman of the board and chief executive officer of
Consolidated Technology Group Ltd., now known as The Sagemark Companies Ltd.,
which, through a subsidiary was our largest stockholder.
Mr. Storm R. Morgan was a director from 1996 until June 1998. We had an
informal consulting agreement with SMI, Inc., a corporation of which Mr. Morgan
was the sole stockholder and an officer and director. In June 1998, we sold
our CarteSmart business to a corporation formed by Mr. Morgan and Mr. Leonard M.
Luttinger.
Mr. James L. Conway has been our president and a director since January 199
and our chief executive officer since April 1998. From 1993 until April 1998, he
was president of S-Tech, which, until April 1998, was a wholly-owned subsidiary
of Sagemark Companies Ltd. Shares owned by Mr. Conway and Geraldine Conway, Mr.
Conway's wife, include (a) 70,000 shares of Common Stock issuable upon exercise
of options owned by Mr. Conway, (b) 51,333 shares of common stock issuable upon
exercise of the warrants held by Mr. Conway, and (c) 23,916 shares of common
stock issuable upon exercise of warrants held by Mrs. Conway. Mr. and Mrs.
Conway each disclaims beneficial interest in the securities owned by the other.
Shares included under the heading "Number of Shares Offered for the Account of
Selling Stockholder" include only the shares held by Mr. or Mrs. Conway, as the
case may be.
Mr. Leonard M. Luttinger was a director and executive officer until June
1998. In June 1998, we sold our CarteSmart business to a corporation formed by
Mr. Luttinger and Mr. Storm R. Morgan.
Messrs. E. Gerald Kay and Norman Hoskin were members of our board of
directors prior to April 1998. In connection with their resignation we
exchanged general releases with them.
DLB, Inc. is controlled by Ms. Carol Schiller. Ms. Schiller is the wife of
Mr. Lewis S. Schiller, and Mr. Schiller disclaims any beneficial interest in DLB
or in securities owned by DLB.
Saggi Capital Corp. is controlled by Ms. Sharon Will.
SMACS Holdings, Inc. and Bridge Ventures, Inc. are controlled by Mr. Harris
Freedman.
The shares being sold by Dominick & Dominick LLC are issuable upon
exercise of warrants issued pursuant to an financial advisory agreement we have
with Dominick & Dominick. Warrants to purchase a maximum of 100,000 shares of
common stock are issuable pursuant to that agreement. The shares included in
this prospectus reflect the shares issuable upon exercise of those warrants that
are outstanding as of January 5, 2000. The warrants are exercisable at $5.45 per
share until October 4, 2004. The shares owned by Dominick & Dominick do not
include any shares which that firm may own in its capacity as a market maker.
See "Plan of Distribution." Mr. Paul Kennedy is the president of Dominick.
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The shares being sold by Emerging Technology Ventures, Inc. are issuable
upon exercise of warrants issued pursuant to an agreement we have with Emerging
Technology Ventures. Warrants to purchase a maximum of 20,000 shares of common
stock are issuable pursuant to that agreement. The shares included in this
prospectus reflect the shares issuable upon exercise of those warrants that are
outstanding as of January 5, 2000. The warrants are exercisable at $4.20 per
share until October 4, 2004. Mr. Francis X. Murphy is president of Emerging
Technology Ventures.
PLAN OF DISTRIBUTION
The selling stockholders named under the caption "Selling Stockholders"
may sell up to 808,026 shares of common stock from time to time. These selling
stockholders may sell their shares
* On the Nasdaq SmallCap Market.
* To a broker-dealer, including a market maker, who purchases the shares
for its own account.
* In private transactions or by gift.
The selling stockholders may also:
* pledge their shares from time to time, and the lender may sell the
shares upon foreclosure.
* sell their warrants in a private transaction or transfer them as a
gift, and the purchasers of the warrants may exercise the warrants and
sell the underlying shares of common stock.
The shares of common stock offered by the selling stockholders are
issuable upon exercise of warrants held by the selling stockholders. None of
such warrants have been exercised as of the date of this prospectus.
The selling stockholders may sell the shares at a negotiated price or at
the market price or both. They may sell their shares directly to the purchasers
or they may use brokers. If they use a broker, the selling stockholders may pay
a brokerage fee or commission or they may sell the shares to the broker at a
discount from the market price. The purchasers of the shares may also pay a
brokerage fee or other charge. The compensation to a particular broker-dealer
may exceed customary commissions. We do not know of any arrangements by any of
the selling stockholders for the sale of any of their shares.
The selling stockholders and broker-dealers, if any, acting in
connection with sales by the selling stockholders may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act, and
any commission received by them and any profit on the resale by them of the
securities may be deemed to be underwriting discounts and commissions under the
Securities Act.
Dominick & Dominick LLC, one of the selling stockholders, is a
registered broker-dealer and presently makes a market in our stock. This firm
may continue to make a market in our stock. However, as long as a distribution
is taking place and to the extent that Dominick & Dominick continues to make a
market in our stock, Dominick & Dominick will designate itself as a "passive
market maker" under Regulation M of the Exchange Act and will limit its market
making activities in accordance with applicable regulations.
We have advised the selling stockholders that the anti-manipulative
rules under the Exchange Act, which are set forth in Regulation M, may apply to
their sales in the market. We have furnished the selling stockholders with a
copy of Regulation M, and we have informed them that they should deliver a copy
of this prospectus when they sell any shares.
AVAILABLE INFORMATION
We file annual, quarter and periodic reports, proxy statements and other
information with the Securities and Exchange Commission using the EDGAR system.
You may read and copy any material we file with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy
and information statements and other information regarding issues that file
electronically with the SEC. The address of such site is http//www.sec.gov.
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We have filed a registration statement with the SEC relating to the
offering of the shares. The registration statement contains information which is
not included in this prospectus. You may inspect or copy the registration
statement at the SEC's Public Reference Room or its Internet site.
We furnish our stockholders with annual reports containing audited
financial statements and with such other periodic reports as we from time to
time deem appropriate or as may be required by law. We use the calendar year as
our fiscal year.
You should rely only on the information contained in this prospectus and
the information that we have referred you to. We have not authorized any person
to provide you with any information that is different.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We have filed the following documents with the SEC. We are incorporating
these documents in this prospectus, and they are a part of this prospectus.
(1) Our Annual Report on Form 10-K for the year ended December 31,
1998, which we amended by three amendments on Form 10-K/A;
(2) Our Quarterly Reports on Form 10-Q for the quarters ended March 31,
1999, June 30, 1999 and September 30, 1999;
(3) Our Proxy Statement for our 1999 Annual Meeting of Stockholders;
(4) Our Current Report on Form 8-K, dated March 25, 1999, which we filed
with the SEC on March 30, 1999; and
(5) Our registration statement on Form 8-A, which became effective on
August 13, 1996.
We are also incorporating by reference in this prospectus all documents
which we file pursuant to Section 13(a), 13(c), 14 or 15 of the Securities
Exchange Act of 1934, as amended, after the date of this prospectus. Such
documents are incorporated by reference in this prospectus and are a part this
prospectus from the date we file the documents with the SEC.
If we file with the SEC any document that contains information which is
different from the information contained in this prospectus, you may rely only
on the most recent information which we have filed with the SEC.
We will provide a copy of the documents referred to above without charge
if you request the information from us. However, we may charge you for the cost
of providing any exhibits to any of these documents unless we specifically
incorporate the exhibits in this prospectus. You should contact Mr. Anthony F.
Grisanti, Chief Financial Officer, Netsmart Technologies, Inc., 146 Nassau
Avenue, Islip, New York 11751, telephone (516) 968-2000, if you wish to receive
any of such material.
LEGAL MATTERS
The validity of the common stock offered hereby has been passed upon by
our counsel, Esanu Katsky Korins & Siger, LLP. An attorney who is of counsel at
such firm and the defined benefit plan for such attorney own a total of 4,000
shares of common stock.
EXPERTS
The consolidated financial statements incorporated by reference in this
prospectus to the extent and for the periods indicated in their reports have
been audited by Richard A. Eisner & Company, LLP , independent certified public
accountants, and Moore Stephens, P.C., independent certified public accountants,
and are included herein in reliance upon the authority of such firms as experts
in accounting and auditing in giving such reports.
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