UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the period ended August 31, 2002
[ ] Transition report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934.
For the transition period from ________ to __________
Commission file number 0-14401
SANDATA TECHNOLOGIES, INC.
(Exact name of small business issuer in its charter)
DELAWARE 11-2841799
(State or other jurisdiction of (I.R.S. Employee Identification No.)
incorporation or organization)
26 Harbor Park Drive
Port Washington, NY
(Address of principal executive offices)
11050
(Zip Code)
Issuer's telephone number, including area code: (516) 484-4400
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
---------------- -------------
APPLICABLE ONLY TO
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS
Check whether the issuer has filed all documents and reports required to be
filed by section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes____ No____
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of each of the issuer's classes of
common equity, as of October 8, 2002 was 2,481,808.
Transitional Small Business Disclosure Format (check one):
Yes____ No X
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SANDATA TECHNOLOGIES INC. AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of
August 31, 2002 (Unaudited) and May 31, 2002 (Audited).........................................3
Unaudited Condensed Consolidated Statements of Operations
for the three months ended August 31, 2002 and August 31, 2001.................................4
Unaudited Condensed Consolidated Statements of Cash Flows for
the three months ended August 31, 2002 and August 31, 2001.....................................5
Notes to Condensed Consolidated Financial Statements (Unaudited)................................6
Item 2. Management's Discussion and Analysis
or Plan of Operation ...........................................................................13
Item 3. Procedures and Controls..........................................................................16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................................................17
Item 2. Changes in Securities and Use of Proceeds........................................................17
Item 3. Defaults Upon Senior Securities..................................................................17
Item 4. Submission of Matters to a Vote of Security Holders..............................................17
Item 5. Other Information................................................................................17
Item 6. Exhibits and Reports on Form 8-K.................................................................17
Signature...................................................................................
Certifications..............................................................................
SANDATA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
August 31, 2002 May 31, 2002
--------------- ------------
(unaudited) (audited)
CURRENT ASSETS:
Cash and cash equivalents $ 2,162,312 $ 1,630,617
Accounts receivable, net of allowance for doubtful accounts
of $260,974 and $202,746 at 2002 and 2001, respectively 2,527,353 2,182,963
Receivables from affiliates 359,771 280,297
Notes receivable - officer -- 100,000
Inventories 48,250 45,342
Prepaid expenses and other current assets 235,140 345,349
Deferred income taxes 226,536 207,595
------------- ------------
Total Current Assets 5,559,362 4,792,163
FIXED ASSETS, NET 6,587,269 6,820,596
DEFERRED INCOME TAXES 141,349 171,579
OTHER ASSETS
Notes receivable 23,821 25,190
Cash surrender value of officer's life insurance, security
deposits and other assets 1,115,398 1,105,502
------------- --------------
Total Assets $ 13,427,199 $ 12,915,030
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 4,071,298 $ 2,781,550
Deferred/unearned revenue 38,100 16,367
Deferred income 71,650 103,258
Short term debt 3,750,000 --
------------- -------------
Total Current Liabilities 7,931,048 2,901,175
LONG-TERM DEBT -- 4,500,000
DEFERRED INCOME 10,572 21,142
------------- ------------
Total Liabilities 7,941,620 7,422,317
------------- ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.001 par value, 6,000,000 shares
authorized; 2,481,808 shares issued and
outstanding 2,482 2,482
Additional paid in capital 5,765,766 5,765,766
Retained earnings 1,186,621 1,193,755
Notes receivable - officers (1,469,290) (1,469,290)
------------- ----------
Total Shareholders' Equity 5,485,579 5,492,713
------------- -----------
Total Liabilities and Shareholders'
Equity $ 13,427,199 $ 12,915,030
============= ==============
SANDATA TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED AUGUST 31,
2002 2001
---- ----
REVENUES
Service fees $4,398,826 $ 4,392,328
Other income 79,520 98,742
Interest income 43,576 33,596
---------- ----------
4,521,922 4,524,666
COSTS AND EXPENSES
Operating 2,696,630 2,714,083
Selling, general and administrative 1,263,068 1,650,170
Depreciation and amortization 499,502 427,862
Interest expense 45,759 77,679
---------- -----------
TOTAL COSTS AND EXPENSES 4,504,959 4,869,794
---------- -----------
EARNINGS (LOSS) FROM OPERATIONS BEFORE INCOME TAX
EXPENSE (BENEFIT) 16,963 (345,128)
---------- -----------
INCOME TAX EXPENSE (BENEFIT) 24,097 (170,179)
---------- -----------
NET (LOSS) $ (7,134) $ (174,949)
========== ===========
BASIC AND DILUTED LOSS PER SHARE $ 0.00 (0.07)
========== ===========
BASIC WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 2,481,808 2,506,475
========== ===========
SANDATA TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED AUGUST 31,
2002 2001
---- ----
Cash flows from operating activities:
Net (loss) $ (7,134) $ (174,949)
Adjustments to reconcile net (loss) to net cash provided by operating
activities:
Depreciation and amortization 499,502 427,862
Gain on disposal of fixed assets -- (4,309)
Provision for doubtful accounts 58,228 17,101
Recognition of deferred income (42,179) (81,640)
Recognition of deferred revenue (19,489) 23,643
Deferred tax provision 11,289 (170,179)
(Increase) decrease in operating assets
Accounts Receivable (402,618) 63,503
Receivables from affiliates (79,474) 133,522
Inventories (2,908) (14,006)
Prepaid expenses and other current assets 110,209 171,354
Other assets (8,527) (2,307)
Increase (decrease) in operating liabilities
Accounts payable and accrued expenses 1,289,748 1,298,374
Deferred/unearned revenue 41,223 --
----------- ----------
Net cash provided by operating activities 1,447,870 1,687,969
----------- ----------
Cash flows from investing activities:
Purchases of fixed assets (266,175) (759,751)
----------- ----------
Net cash used in investing activities (266,175) (759,751)
----------- ----------
Cash flows from financing activities:
Principal payments on note payable -- (500,000)
Proceeds from note payable -- 500,000
Proceeds from note receivable officer 100,000 --
Proceeds from line of credit 500,000 1,450,000
Principal payments on line of credit (1,250,000) (850,000)
----------- ---------
Net cash (used in) provided by financing activities (650,000) 600,000
----------- ---------
Net increase in cash and cash equivalents 531,695 1,528,218
Cash and cash equivalents at the beginning of the year 1,630,617 475,578
----------- ------------
Cash and cash equivalents at the end of the year $ 2,162,312 $ 2,003,796
----------- ------------
SANDATA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Condensed Consolidated Balance Sheet as of August 31, 2002, the
Condensed Consolidated Statements of Operations for the three month periods
ended August 31, 2002 and 2001, and the Condensed Consolidated Statements of
Cash Flows for the three month periods ended August 31, 2002 and 2001 have been
prepared by Sandata Technologies, Inc. and Subsidiaries (the "Company") without
audit. In the opinion of management, all adjustments (which include only normal,
recurring adjustments) necessary to present fairly the financial position as of
August 31, 2002 and for all periods presented have been made.
For information concerning the Company's significant accounting policies,
reference is made to the Company's Annual Report on Form 10-KSB for the year
ended May 31, 2002. Results of operations for the period ended August 31, 2002
are not necessarily indicative of the operating results expected for the full
year.
New Accounting Pronouncements and Policies
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity
of three months or less to be cash equivalents. Due to the nature of its
operations, the Company deposits, on a monthly basis, amounts in financial
institutions for the payment of payroll liabilities for certain customers. Such
amounts are reduced when the Company pays such liabilities. Such reductions
generally occur over five to ten business days. At August 31, 2002, the Company
had amounts on deposit for these liabilities of approximately $1,800,000. The
Company has cash balances in banks in excess of the maximum amount insured by
the FDIC as of August 31, 2002.
In October 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 144 ("SFAS No. 144"), "Accounting
for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses the
accounting model for long-lived assets to be disposed of by sale and resulting
implementation issues. This statement requires that those long-lived assets be
measured at the lower of carrying amount or fair value less cost to sell,
whether reported in continuing operations or in discontinued operations.
Therefore, discontinued operations will no longer be measured at net realizable
value or include amounts for operating losses that have not yet occurred. It
also broadens the reporting of discontinued operations to include all components
of an entity with operations that can be distinguished from the rest of the
entity and that will be eliminated from the ongoing operations of the entity in
a disposal transaction. SFAS No. 144 is effective for the Company in fiscal
2003. The provisions of the interpretations that are applicable to the Company
were implemented on a prospective basis as of June 1, 2002, which had no
material effect on the Company's financial statements.
On April 30, 2002 the Financial Accounting Standards Board issued SFAS No.
145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections". SFAS No. 145 eliminates the
requirement that gains and losses from the extinguishment of debt be aggregated
and, if material, classified as an extraordinary item, net of the related income
tax effect and eliminates an inconsistency between the accounting for sale-
leaseback transactions and certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. Generally, SFAS No. 145
is effective for transactions occurring after May 15, 2002. The adoption of this
standard is expected to have no impact to the Company.
Statement of Financial Accounting Standards No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"), provides guidance on
the recognition and measurement of liabilities for costs associated with exit or
disposal activities. The provisions of this Statement are effective for exit or
disposal activities that are initiated after December 31, 2002. The Company is
currently reviewing SFAS 146 to determine the impact upon adoption.
2. RELATED PARTY TRANSACTIONS
a. Pursuant to an agreement (the "Agreement") involving the Company, Nassau
County Industrial Development Agency ("NCIDA"), BFS Realty, LLC (the
"Affiliate") HSBC Bank USA (successor to Marine Midland Bank) ("the "Bank") and
the U.S. Small Business Administration ("SBA"), the Affiliate borrowed
$3,350,000 in Industrial Development Revenue Bonds (the "Bonds") to finance the
acquisition of the Company's facility (the "Facility").
Under the terms of the Agreement, the Company is jointly and separately
liable to the NCIDA for all obligations owed by the Affiliate to the NCIDA under
the lease agreement between NCIDA, as landlord, and the Affiliate, as Tenant
(the "Lease"); however, the Affiliate has indemnified the Company with respect
to certain obligations relative to the Lease and the Agreement. The Company
subleases space from the Affiliate (see below). The Affiliate's obligations
under the Lease were guaranteed by Mr. Brodsky, the Company, Sandsport and
others. The Affiliate's obligations respecting repayment of the Bonds were also
guaranteed by Mr. Brodsky, the Company, Sandsport and others. The Bonds
currently bear interest at the rate of 9%, and the outstanding balance due on
the Bonds as of August 31, 2002 was $1,401,111.
The Company has also entered into a $750,000 loan agreement with the Long
Island Development Corporation ("LIDC"), under a guarantee by the SBA (the "SBA
Loan"). The SBA Loan was assigned to the Affiliate in November 1996; however,
repayment of the SBA Loan is guaranteed by the Company and various subsidiaries
of the Company. The SBA Loan is payable in 240 monthly installments of $6,255,
which includes principal and interest at a rate of 7.015%. The balance of the
SBA Loan as of August 31, 2002 was $592,036.
b. The Company derived revenue from National Medical Health Card Systems,
Inc. ("Health Card") a company affiliated with the Company's Chairman,
principally for data base and operating system support, hardware leasing,
maintenance and related administrative services. No revenues were generated from
Health Card for the three months ended August 31, 2002. The revenues generated
from Health Card amounted to approximately $367,000 for the three months ended
August 31, 2001 for various services. In addition the Company resells its
telephone services to Health Card. The billings for such telephone services
amounted to approximately $6,000 and $61,000 for the three months ended August
31, 2002 and 2001, respectively and are recorded as a reduction of operating
expense. The Company was owed approximately $43,000 from Health Card at August
31, 2002. Subsequent to August 31, 2002, the Company received approximately
$28,000 from Health Card.
c. The Company makes lease and rent payments to affiliates of the Company's
Chairman. The payments for leased equipment were made to P.W. Capital Corp. and
P.W. Medical Management, Inc., and were approximately $54,000 and $95,000 for
the three months ended August 31, 2002 and 2001 respectively. The payments for
the Facility were made to the Affiliate, and were approximately $68,000 and
$143,000 for the three months ended August 31, 2002 and 2001 respectively.
d. Medical Arts Office Services, Inc. ("MAOS"), of which the Company's
Chairman is the sole shareholder, provided the Company with accounting,
bookkeeping and legal services. For the three months ended August 31, 2002 and
2001 the total payments made by the Company to MAOS were approximately $115,000
and $89,000, respectively.
3. NET EARNINGS (LOSS) PER COMMON SHARE
The Company computes earnings per share in accordance with Statement of
Financial Accounting Standards No. 128 "Earnings per Share". Basic earnings per
share has been computed using the weighted average number of shares of common
stock outstanding.
Options and warrants to purchase 1,388,599 shares of common stock were
outstanding at August 31, 2002, which were not included in the computation of
diluted earnings per share because the exercise effect would have been
anti-dilutive.
4. SHAREHOLDERS' EQUITY
Stock Options
On July 14, 1998, the Chairman, certain officers, directors, and a former
director and the spouse of an officer (who is an employee of Sandsport Data
Services, Inc. ("Sandsport") the Company's wholly owned subsidiary), exercised
their respective options and warrants to purchase an aggregate of 921,334 shares
of Common Stock. The exercise prices ranged from $1.38 to $2.61 per share for an
aggregate cost of $1,608,861. Payment for such shares was made to the Company in
the amount of $921 representing the par value of the shares, and a portion in
the form of non-recourse promissory notes due in July 2001, with interest at
eight and one-half percent (8 1/2%) per annum, payable annually, and secured by
the number of shares acquired ("Non-recourse Notes"). On July 14, 2001, the
Company agreed to extend the due dates of the Non-recourse Notes for one hundred
twenty days. On November 9, 2001, the due date of the notes was extended to
November 9, 2004 and the Company agreed to substitute full recourse unsecured
notes ("Recourse Notes") for the Non-recourse Notes it had previously accepted.
The Recourse Notes will bear interest at the rate of eight and one-half percent
(8 1/2%) per annum, payable annually, with the principal amount of each Recourse
Note, plus any accrued and unpaid interest, due and payable on November 9, 2004.
Effective December 1, 2001, the interest rate on the Recourse Notes was
changed to six percent (6%) per annum, and the shares and Recourse Note of the
spouse of the officer were both transferred to the officer.
During the year ended May 31, 2002, 24,667 shares of common stock were
surrendered by a former director and an employee in settlement of Non-recourse
Notes in the amount of $37,962. As of August 31, 2002, the outstanding balance
on Recourse Notes, including principal and accrued but unpaid interest, was
$1,512,679. During the period ended August 31, 2002, the Chairman repaid
$100,000 of his Recourse Note.
5. COMMITMENTS AND CONTINGENCIES
Litigation
a. In August of 1999, the Company's wholly-owned subsidiary, Sandsport was
named as a defendant in Greater Bright Light Home Care Services, Inc. et al. v.
Joseph Jeffries-El, El Equity Corporation, Sandsport Data Services, Inc. et al.
(Supreme Court of the State of New York, Kings County). Sandsport's contractual
obligation to Greater Bright Light involved the depositing of certain
government-issued checks into a specific bank account. Upon receiving written
notification from the agency issuing the checks to stop depositing them in that
account, Sandsport ceased depositing them. The plaintiff brought the action
against Joseph Jeffries-El and El Equity, and El Equity counterclaimed against
the plaintiff, each basing its claims on the financing agreement between them.
El Equity also cross-claimed against Sandsport, asserting that Sandsport
converted the government-issued checks to its own use. Although Sandsport is
named as a defendant, the Complaint seeks no affirmative relief against
Sandsport. Co-defendant Citibank has asserted indemnification claims against
Sandsport and all of the other defendants. Sandsport disputes all liability.
However, the Company is unable to predict the outcome of these claims and
accordingly, no adjustments have been made in the consolidated financial
statements in response to these claims.
b. On March 1, 2000, Dataline, Inc. ("Dataline") began a lawsuit against
MCI WorldCom Network Services, Inc. ("MCI") and the Company for alleged trade
libel and related counts, in the United States District Court for the Southern
District of New York. The court dismissed that lawsuit, with prejudice, on May
23, 2002. On May 4, 2001 MCI had brought a patent infringement lawsuit against
Dataline, alleging that it was infringing three MCI patents, under which the
Company has an exclusive license in New York City. Shortly thereafter, the
Company joined MCI in the suit against Dataline. Pursuant to a Settlement
Agreement dated January 1, 2002 among MCI, its parent (MCI Communications
Corporation), the Company, and Dataline, Dataline acknowledged the validity and
enforceability of the 3 MCI-owned patents that were the subject of the lawsuits.
There were no payments from either MCI or the Company to Dataline. As part of
the settlement, Dataline agreed to pay the Company $100,000 in cash and issue an
8% promissory note in the amount of $721,000. Due to the uncertainty of
realization of the note receivable, the Company is recognizing the income on the
note using the installment method of accounting. For the three months ended
August 31, 2002, the Company has recognized approximately $45,000 of income. In
addition, Sandata and Dataline entered into an Exclusive Service Agreement by
which Dataline agreed to use the Company's "call capture infrastructure" for all
of Dataline's time and attendance systems, and to pay royalties to the Company
for such use. The terms of the settlement also included mutual releases.
c. By letter dated June 26, 2002, a former employee of the Company asserted
claims for back wages of $410,000. The letter, from the employee's attorney,
also contained allegations of age discrimination and retaliatory discharge. The
letter also contained an offer of settlement. No formal litigation has been
started and the Company intends to pursue settlement negotiations. A provision
of $200,000 is included in accrued expenses relating to the asserted claim,
which represents the Company's best estimate of costs to be incurred. The amount
of the ultimate cost may vary from this estimate.
d. For description of the going private transaction, and of the
class-action lawsuits initiated in connection with such transaction, see Note 8.
Royalty Agreement
The Company has been granted a license under certain of MCI's patents which
permits the Company to continue to market and sell its SANTRAX time and
attendance verification product non-exclusively nationwide, and exclusively in
the home health care industries for the five New York boroughs, and that the
Company will pay MCI certain royalties, on a per call basis. The license remains
in effect until the last to expire of various patents held by MCI or until
October 19, 2010, whichever is later.
6. REVENUE BY PRODUCT LINE
The Company derives its revenue from several product lines that are similar in
nature. The following table provides the service fee revenues for the product
lines earned for the three month periods ended August 31, 2002 and 2001:
For the three months
ended August 31,
2002 2001
---- ----
Computerized information processing $1,564,344 $1,522,247
Telephone-based data collection 2,085,888 1,892,151
Technology infrastructure and outsourcing 11,150 402,292
Information technology 736,930 564,075
Other 514 11,563
---------- ----------
$4,398,826 $4,392,328
7. ECONOMIC DEPENDENCE
A significant number of the Company's customers (both for-profit and
not-for-profit companies) receive some or all of their funding from Federal and
State agencies. These customers' contracts with the Company are subject to
review and approval by a New York City governmental agency. For the three months
ended August 31, 2002, the Company received revenues from these customers
amounting to approximately $2,836,279, as compared to $2,667,000 for the three
months ended August 31, 2001. The Company was owed approximately $1,481,000 from
these customers at August 31, 2002.
8. GOING PRIVATE TRANSACTION
The Company has received a proposal to engage in a going private
transaction. The proposed transaction is anticipated to be in the form of a
merger with an entity owned by an investor group to be led by Bert E. Brodsky,
the Company's Chief Executive Officer, and to include Directors Hugh Freund and
Gary Stoller as well as other investors (the "Acquiring Group"). Pursuant to the
proposal, the Company's shareholders (other than Mr. Brodsky, and the other
shareholders that shall comprise the "Acquiring Group") would receive $1.50
(subsequently revised to $1.91) per share of Common Stock of the Company (the
"Shares"), in cash. The proposal may be amended, modified or supplemented at any
time.
The Board of Directors has appointed a Special Committee (the "Committee"),
comprised of Ronald Fish and Martin Bernard, to review the proposed transaction.
The Committee has retained Brean Murray & Co., Inc. as its financial advisor,
and has retained its own legal counsel.
The proposed transaction would result in the acquisition of all of the
outstanding Shares other than the Shares owned by Mr. Brodsky and the other
shareholders that shall comprise the Acquiring Group. The final terms of any
acquisition will be based on negotiations between the Acquiring Group and the
Committee. The proposed acquisition will be subject to, among other things, (1)
the negotiation, execution, and delivery of a definitive agreement, (2) approval
of the proposed transaction by the Committee, the full Board of Directors and
the Company's shareholders, (3) receipt of a fairness opinion by the Committee,
(4) applicable regulatory approval, and (5) obtaining any necessary third-party
consents or waivers. There can be no assurance that a definitive merger
agreement will be executed and delivered, or that the proposed transaction will
be consummated.
On September 11, 2002, a stockholder of the Company filed a lawsuit in the
Delaware Chancery Court against the Company and the members of its Board of
Directors. (Eva Seitler v. Sandata Technologies, Inc., Bert E. Brodsky, Ronald
L. Fish, Martin Bernard, Hugh Freund, and Gary Stoller, Civil Action No.
19886-NC). The plaintiff alleges that the defendants breached their fiduciary
duties to the Company and the Company's public stockholders in connection with
Sandata Acquisition Corp.'s proposal to acquire all of the outstanding public
shares of the Company. The plaintiffs also allege, among other things, that the
directors serving on the special committee are not independent, and that the
merger consideration is inadequate. The complaint seeks certification of the
action as a class action, both preliminary and permanent injunction against the
proposed transaction, and rescission if it is not enjoined. On September 13,
another stockholder of the Company filed a separate lawsuit in the same court,
making substantially identical allegations and seeking substantially identical
remedies. The Company and the individual directors intend to vigorously defend
themselves. However, the Company is unable to predict the outcome of this matter
and, accordingly, no adjustments have been made in the condensed consolidated
financial statements in response to this matter.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
Revenues were $4,521,922 for the three months ended August 31, 2002 as
compared to $4,524,666 for the three months ended August 31, 2001, a decrease of
$2,744 or .06%.
Service fee revenue for the three months ended August 31, 2002 was
$4,398,826 as compared to $4,392,328 for the three months ended August 31, 2001
an increase of $6,498. or .15%.
Other income for the three months ended August 31, 2002 was $79,520 as
compared to $98,742 for the three months ended August 31, 2001. The decrease is
attributable to a decrease in income recognized on sales/leaseback transactions,
offset by payments received on notes receivable.
Expenses Related to Services
Operating expenses were $2,696,630 for the three months ended August 31,
2002 as compared to $2,714,083 for the three months ended August 31, 2001, a
decrease of $17,453 or .6%. Costs associated with payroll decreased this
quarter, offset by an increase in purchases for resale.
Selling, general and administrative expenses were $1,263,068 for the three
months ended August 31, 2002, as compared to $1,650,170 for the three months
ended August 31, 2001, a decrease of $387,102 or 23%. The decrease is primarily
due to a decrease in payroll.
On August 9, 2001 the Company announced that it had terminated the
employment of Stephen Davies as President of the Company, and would be
terminating approximately 30 other employees. Under the terms of Mr. Davies'
Employment Agreement, he is entitled to a severance payment equal to six (6)
months' base salary, or $100,000, and has 90 days from the date of termination
to exercise the 66,673 options that were vested on that date. The elimination of
approximately 30 positions from within the Company and its subsidiaries is
expected to generate between $1.7 million and $2 million in reduced expenses. In
addition, the Company paid approximately $47,000 in severance payments for
approximately 30 terminated employees.
Depreciation and amortization expense increased $71,640 to $499,502 for the
three months ended August 31, 2002 as compared to $427,862 for the three months
ended August 31, 2001. The increase was primarily attributable to the write-off
of developed software that occurred in the year ended May 31, 2001, which
resulted in decreased amortization expense in last year's quarter.
Interest expense was $45,759 for the three months ended August 31, 2002 as
compared to $77,679 for the three months ended August 31, 2001. The decrease was
a result of decreased borrowings on the Company's Credit Agreement.
Income Tax Expenses (Benefit)
Income tax expense for the three months ended August 31, 2002 was $24,097
as compared to income tax benefit of $170,179 for the three months ended August
31, 2001. The increase in income tax expense is due to higher pretax income.
Liquidity and Capital Resources
The Company has a working capital deficit as of August 31, 2002 of
$2,371,686, as compared to working capital of $1,890,988 at May 31, 2002. The
primary factor is a result of the revolver becoming short-term liability of
which $3,750,000 is due in June 2003.
For the three months ended August 31, 2002, the Company spent approximately
$266,000 in fixed asset additions, of which $229,000 was for software
capitalization costs in connection with revenue growth and new product
development. The Company expects the current levels of capital expenditures to
continue.
On July 14, 1998, the Chairman, certain officers, directors and a former
director and the spouse of an officer and an employee of Sandsport Data
Services, Inc. ("Sandsport"), the Company's wholly owned subsidiary, exercised
their respective options and warrants to purchase an aggregate of 921,334 shares
of Common Stock at exercise prices ranging from $1.38 to $2.61 per share for an
aggregate cost of $1,608,861. Payment for such shares was made to the Company in
the amount of $921 representing the par value of the shares, and a portion in
the form of non-recourse promissory notes due in July 2001, with interest at
eight and one-half percent (8-1/2%) per annum, payable annually, and secured by
the number of shares exercised. On July 14, 2001, the Company agreed to extend
the due dates of such notes for one hundred twenty days until November 11, 2001.
On November 9, 2001, the Company agreed to substitute full recourse unsecured
Notes for the Notes it had previously accepted in connection with these option
and warrant exercises. Such notes will bear interest at the rate of eight and
one-half percent (8 1/2%) per annum, payable annually, with the principal amount
of each such Note, plus any accrued and unpaid interest, due and payable on
November 9, 2004.
As of December 1, 2001, the interest rate on the notes was changed to six
percent (6%) per annum, and the shares and note of the spouse of the officer
were both transferred to the officer. During the year ended May 31, 2002, 24,667
shares of common stock were surrendered by a former director and an employee in
settlement of notes in the amount of $37,962. As of August 31, 2002, the
outstanding balance on such notes, including principal and accrued but unpaid
interest, was $1,512,679.
On April 18, 1997, the Company's wholly owned subsidiary, Sandsport,
entered into a revolving credit agreement (the "Credit Agreement") with HSBC
Bank USA, which allows Sandsport to borrow amounts up to $3,000,000. Interest
accrues on amounts outstanding under the Credit Agreement at a rate equal to the
London Interbank Offered Rate plus 2% and will be paid quarterly in arrears or,
at Sandsport's option, interest may accrue at the Bank's prime rate. The Credit
Agreement requires Sandsport to pay a fee equal to 1/4% per annum payable on the
unused average daily balance of amounts under the Credit Agreement. In addition,
there are other fees and charges imposed based upon Sandsport's failure to
maintain certain minimum balances. The Credit Agreement has been amended by the
Bank to permit Sandsport to borrow amounts up to $4,500,000 until February 14,
2003. Interest accrues at the same rate as the original Credit Agreement. The
indebtedness under the Credit Agreement is guaranteed by the Company and
Sandsport's sister subsidiaries (the "Group"). All of the Group's assets are
pledged to the Bank as collateral for amounts due under the Credit Agreement,
which pledge is secured by a first lien on all equipment owned by members of the
Group, as well as a collateral assignment of $2,000,000 of life insurance
payable on the life of the Company's Chairman. The Group's guaranty to the Bank
was modified to include all indebtedness incurred by the Company under the
Credit Agreement. On April 11, 2002, the Bank approved the extension of the
termination date of the Credit Agreement to June 14, 2003 (from February 14,
2003).
In addition, pursuant to the Credit Agreement, the Group is required to
maintain certain levels of net worth and meet certain financial ratios in
addition to various other affirmative and negative covenants. As of August 24,
2001, Sandsport, the Company and the other members of the Group, and the Bank,
entered into the Third Amendment and Waiver (the "Third Amendment") to the
Credit Agreement. Pursuant to the Third Amendment, Sandsport's covenants to the
Bank to maintain a certain net worth and to maintain certain financial ratios
were revised, on a going-forward basis, and the noncompliance with the existing
covenants was waived by the Bank. In addition, in connection with the Third
Amendment, Sandsport and each member of the Group executed and delivered to the
Bank a Collective Amended and Restated Security Agreement, pursuant to which the
Bank's security interest was extended to include a security interest in all of
the personal and fixture property of Sandsport, the Company and the members of
the Group. On October 23, 2001 the Credit Agreement was amended with respect to
one of the financial ratios, at the Company's request. At August 31, 2002 the
Group met the net worth and financial ratios requirements of the Credit
Agreement. In the past, the Group has failed to meet certain of the financial
ratios, and the Bank has granted the Group a waiver. There can be no assurance
that the Bank will continue to grant waivers if the Group fails to meet the net
worth and financial ratios in the future. If such waivers are not granted, any
loans outstanding under the Credit Agreement become immediately due and payable,
which may have an adverse effect on the Company's business, operations or
financial condition. As of August 31, 2002, the outstanding balance on the
Credit Agreement with the Bank was $3,750,000.
The Company believes the results of its continued operations, together with
the available credit line, should be adequate to fund presently foreseeable
working capital requirements.
ITEM 3 - PROCEDURES AND CONTROLS
Within the 90 days prior to the date of this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, primarily the Company's Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Exchange Act Rule
13a-14. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective. There were no significant changes in the Company's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Reference is made to Notes 5 and 8 to the Condensed Consolidated Financial
Statements comprising Part I, Item 1 of this Form 10-QSB.
ITEM 2 - CHANGES IN SECURITIES
The Company's ability to declare and pay dividends is restricted pursuant
to the terms of a Revolving Credit Agreement dated April 18, 1997 between the
company and HSBC Bank USA, formerly Marine Midland Bank (the "Bank"), and also
under the terms of the Guaranty Agreement dated June 1, 1994 by and among the
Company (as a guarantor), BFS Realty, LLC (an affiliate of the Company's
Chairman), and the Bank (among others). The Guarantee Agreement was entered into
in connection with the IDA/SBA Financing discussed in Item 6 of the Annual
Report on Form 10-KSB for the year ended May 31, 2002, filed with the SEC on
August 27, 2002.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Certification Pursuant to Sarbanes Oxley Act, Section 302
99.2 Certification Pursuant to Sarbanes Oxley Act, Section 906
(b) Reports on Form 8-K
1. Current Report on Form 8-K filed August 23, 2002 reporting
under Item 5 the Company's regaining compliance with certain
Nasdaq Marketplace Rules, as detailed in the press release
comprising an Exhibit to the Report.
2. Current Report on Form 8-K filed September 18, 2002
reporting under Item 5 the Company's acceptance of a proposal
to engage in a going private transaction, subject to the
conditions specified in the press release comprising an
Exhibit to the Report.
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.
SANDATA TECHNOLOGIES, INC.
--------------------------
(Registrant)
Date: October 15, 2002 By: /s/ Bert E. Brodsky
-------------------------
Bert E. Brodsky
Chairman of the Board,
Chief Executive Officer,
Chief Financial Officer