U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the quarterly period year ended February 28, 2002
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[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from TO
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Commission file number 0-14401
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SANDATA TECHNOLOGIES, INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 11-2841799
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
26 Harbor Park Drive, Port Washington, NY 11050
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(Address of Principal Executive Offices)
516-484-9060
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(Issuer's Telephone Number, Including Area Code)
` SANDATA, INC.
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Check whether the registrant 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
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APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of the issuer's common stock, as of
April 10, 2002 was 2,481,808 shares.
Transitional Small Business Disclosure Format (check one):
Yes No X
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INDEX
Page
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS:
CONDENSED CONSOLIDATED BALANCE 3
SHEETS as of February 28, 2002 (Unaudited)
and May 31, 2001 (Audited)
UNAUDITED CONDENSED CONSOLIDATED 5
STATEMENTS OF OPERATIONS for the three and
nine months ended February 28, 2002 and February 28, 2001
UNAUDITED CONDENSED CONSOLIDATED 6
STATEMENTS OF CASH FLOWS for the nine months
ended February 28, 2002 and February 28, 2001
NOTES TO CONDENSED CONSOLIDATED 7
FINANCIAL STATEMENTS
ITEM 2 - MANAGEMENT'S DISCUSSION AND 13
ANALYSIS OR PLAN OF OPERATION
PART II - OTHER INFORMATION 17
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 17
HOLDERS
ITEM 5 - OTHER INFORMATION 17
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 17
SANDATA, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
SANDATA TECHNOLOGIES, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED AUDITED
February 28, May 31,
2002 2001
------------- --------
ASSETS:
CURRENT ASSETS
Cash and cash equivalents $ 428,896 $475,578
Accounts receivable, net of allowance for doubtful
accounts of $410,000 and $347,000 respectively 2,322,523 2,160,675
Receivables from affiliates 312,688 802,787
Inventories 32,712 35,993
Prepaid expenses and other current assets 299,629 416,056
Costs in excess of billings and estimated earnings
on uncompleted contract 337,000
Deferred income taxes 383,476 274,470
---------- ----------
TOTAL CURRENT ASSETS 4,116,924 4,165,559
FIXED ASSETS, NET 6,873,446 6,036,203
DEFERRED INCOME TAXES 94,919 335,773
OTHER ASSETS
Notes receivable 26,193 117,262
Cash surrender value of officer's life insurance,
security deposits and other 1,053,392 866,774
----------- -----------
TOTAL ASSETS $12,164,874 $11,521,571
=========== ===========
See Notes to Condensed Consolidated Financial Statements
SANDATA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED AUDITED
February 28, May 31,
2002 2001
------------ --------
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES
Accounts payable and accrued expenses $1,705,651 $1,881,269
Deferred/unearned revenue 403,780 31,069
Deferred income 151,830 296,560
----------- ----------
TOTAL CURRENT LIABILITIES 2,261,261 2,208,898
LONG TERM DEBT 4,500,000 3,850,000
DEFERRED INCOME 31,713 124,401
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TOTAL LIABILITIES 6,792,974 6,183,299
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock 2,482 2,506
Additional paid in capital 5,765,766 5,803,704
Retained earnings 1,172,942 1,051,721
Notes receivable-officers (1,569,290) 1,519,659
----------- -----------
(1,519,659)
TOTAL SHAREHOLDERS' EQUITY 5,371,900 5,338,272
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $12,164,874 $11,521,571
============ ===========
See Notes to Condensed Consolidated Financial Statements
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
february 28, February 28,
2002 2001 2002 2001
---- ----- ---- ----
REVENUES:
Service fees $4,275,727 $4,304,970 $12,805,633 $13,257,225
Other income 80,444 93,793 347,653 278,185
Interest income 49,797 45,189 128,236 140,708
---------- ----------- ----------- -----------
4,405,968 4,443,952 13,281,522 13,676,118
---------- ---------- ----------- -----------
COSTS AND EXPENSES:
Operating 2,346,442 2,314,056 7,388,560 7,663,632
Selling, general and
administrative 1,118,258 1,355,707 4,097,567 3,645,773
Depreciation
and amortization 460,721 686,021 1,344,458 2,045,238
Interest expense 36,119 60,149 185,866 189,139
----------- ---------- ------------ -----------
TOTAL COSTS AND EXPENSES 3,961,540 4,415,933 13,016,451 13,543,782
----------- ---------- ------------ -----------
EARNINGS FROM OPERATIONS
BEFORE INCOME TAXES 444,428 28,019 265,071 132,336
Income tax expense 232,286 33,612 143,848 120,831
---------- --------- ----------- --------------
NET EARNINGS (LOSS) $ 212,142 $ (5,593) $ 121,223 11,505
============ =========== =========== ==============
BASIC AND DILUTED EARNINGS
(LOSS)
PER SHARE $ 0.09 $ (0.00) $ 0.05 $ 0.00
BASIC WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 2,481,808 2,506,475 2,498,343 2,506,475
DILUTED WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 2,481,808 2,506,475 2,498,343 2,617,056
See Notes to Condensed Consolidated Financial Statements
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<table>
<s> <c>
NINE MONTHS ENDED
February 28, February 28,
2002 2001
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Cash flows from operating activities:
Net earnings $121,223 $11,505
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 1,344,458 2,045,238
Gain on disposal of fixed assets (4,309) (122,956)
Provision for doubtful accounts 63,097 97,203
Change in deferred income 146,082 (135,333)
Change in deferred revenue (10,789) (15,816)
Change in operating assets (288,386) (299,445)
Change in costs in excess of billings and
estimated earnings on uncompleted contract (337,000) --
Change in operating liabilities ( 43,765) (212,888)
------------ ---------
Net cash provided by operating activities 990,611 1,367,508
----------- ---------
Cash flows from investing activities:
Purchases of fixed assets (2,177,392) (2,865,340)
Proceeds from sale/leaseback transaction --- 548,343
Proceeds from (repayments of) receivables from
affiliate, net 490,099 (287,061)
---------- -----------
Net cash used in investing activities (1,687,293) (2,604,058)
Cash flows from financing activities:
Proceeds from note payable 500,000 100,000
Principal payments on note payable (500,000) (100,000)
Proceeds from line of credit 2,900,000 800,000
Principal payments on line of credit (2,250,000) (650,000)
----------- ---------
Net cash provided by financing activities 650,000 150,000
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Net decrease in cash and cash equivalents (46,682) (1,086,550)
Cash and cash equivalents at beginning of period 475,578 1,229,718
---------- -----------
Cash and cash equivalents at end of period $ 428,896 $ 143,168
========== ===========
</table>
See Notes to Condensed Consolidated Financial Statements
SANDATA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Condensed Consolidated Balance Sheet as of February 28, 2002, the
Condensed Consolidated Statements of Operations for the three and nine month
periods ended February 28, 2002 and 2001 and the Condensed Consolidated
Statements of Cash Flows for the nine month periods ended February 28, 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 February 28, 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, 2001. Results of Operations for the period ended February 28, 2002
are not necessarily indicative of the operating results expected for the full
year.
New Accounting Pronouncements and Policies
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. The Company will adopt SFAS No. 144 in the beginning of
fiscal year ending May 31, 2003 and is still evaluating the effect on the
Company's financial position.
Revenue Recognition
Long-Term Contracting
The Company utilizes long-term contracts and recognizes revenue for
financial statement purposes under the percentage of completion method and,
therefore, takes into account the costs, estimated earnings and revenue-to-date
on contracts not yet completed.
The amount of revenue recognized at the financial statement date is the
portion of the total contract price that the direct labor costs expended to date
bears to the anticipated total direct labor costs, based on current estimates of
costs to complete. Direct labor costs include all direct labor, related
benefits, and subcontract costs. This method is used because management
considers direct labor costs to be the best available measure of progress on
these contracts.
Revisions in estimates of costs and earnings during the life of the
contracts are reflected in the accounting period in which such revisions become
known. At the time a loss on a contract becomes known, the entire amount of the
estimated loss is recognized in the financial statements. Billings in excess of
estimated costs and earnings on uncompleted contracts are included in
deferred/unearned revenue.
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) 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 Bonds currently bear
interest at the rate of 9%, and the outstanding balance due on the Bonds as of
February 28, 2002 was $1,487,778.
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 February 28, 2002 was $605,892.
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. The revenues generated from
Health Card amounted to approximately $68,000 and $646,000 and $493,851 and
$1,754,430 for the three and nine months periods ended February 28, 2002 and
2001, respectively, for various services. In addition the Company resells its
telephone services to Health Card. The billings for such telephone services
amounted to approximately $124,000 and $83,000 for the nine months ended
February 28, 2002 and 2001, respectively and are recorded as a reduction of
operating expense. The Company was owed $37,403 from Health Card at February 28,
2002. Subsequent to February 28, 2002, the Company received approximately
$20,214 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 $64,198 and $216,638 for the three and
nine months ended February 28, 2002 as compared to $96,193 and 239,767 for the
three and nine months ended February 28, 2001. The payments for the Facility
were made to the Affiliate, and were $47,878 and $328,691 for the three and nine
months ended February 28, 2002 as compared to $124,002 and $421,835 for the
three and nine months ended February 28, 2001.
d. Medical Arts Office Services, Inc. ("MAOS"), of which the Company's
Chairman is the sole shareholder, provided the Company with accounting,
bookkeeping and paralegal services. For the three and nine months ended February
28, 2002 and 2001 the total payments made by the Company to MAOS were $46,591
and $270,803, as compared to $96,193 and $239,767, respectively.
e. The Company paid an aggregate of $13,661 and $42,529, for the three and
nine months ended February 28, 2002 as compared to $18,751 and $50,395 for the
three and nine months ended February 28, 2001, on behalf of certain officers to
companies affiliated with the Company's Chairman for payment of automobile
leases.
3. DEBT NOTE
Pursuant to the revolving credit agreement dated April 18, 1997, as amended
(the "Credit Agreement"), between Sandsport, Inc., a wholly owned subsidiary of
the Company ("Sandsport"), and HSBC Bank USA (the "Bank"), the Company,
Sandsport and its sister subsidiaries (collectively, the "Group") are required
to maintain certain levels of net worth and meet certain financial ratios in
addition to various other affirmative and negative covenants. As of October 23,
2001 the Credit Agreement was amended with respect to one of the financial
ratios, at the Company's request. As of February 28, 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 February 28, 2002, the outstanding balance on the Credit Agreement was
$4,500,000; on April 4, 2002, the outstanding balance on the Credit Agreement
was $3,800,000.
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).
4. NET EARNINGS 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 1,447,513 shares of common stock were
outstanding at February 28, 2002 and were not included in the computation of
diluted earnings per share because the exercise price of the options was greater
than the average market price of the common stock for the respective periods.
5. 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 one of the
Company's wholly owned subsidiaries), 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 acquired. 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. As of February 28, 2002 and 2001, the
outstanding balance on such notes, including principal and accrued but unpaid
interest, was $1,645,578 and $1,687,635, respectively.
6. COMMITMENTS AND CONTINGENCIES
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.
An action was commenced against the Company and Health Card by a former
executive of Health Card, Mary Casale, who alleged that employees of both Health
Card and the Company engaged in sex discrimination as to Ms. Casale, and thus,
violated Title VII of the Civil Rights Act of 1964. In February 2002 the matter
was withdrawn from the Equal Employment Opportunity Commission, and was settled
without any effect on the financial statements of the Company.
7. 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 and nine-month periods ended February 28, 2002 and
2001:
For the three months ended For the nine months ended
February 28, February 28,
2002 2001 2002 2001
---- ---- ---- ----
Computerized information processing $1,542,295 $1,554,706 $4,549,494 $4,494,550
Telephone-based data collection 1,889,577 1,846,956 5,635,923 5,693,817
Technology infrastructure and outsourcing 90,457 480,360 711,876 1,483,410
Information technology 752,614 422,232 1,768,093 1,583,416
Other 784 716 140,247 2,032
----------- ---------- ----------- ------------
$ 4,275,727 $4,304,970 $12,805,633 $13,257,225
=========== ========== =========== ===========
</table>
8. 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 and
nine months ended February 28, 2002, the Company received revenues from these
customers amounting to approximately $2,647,000, as compared to $2,711,000 and
$7,933,000 as compared to $8,021,000, for the three and nine months ended
February 28, 2001. The Company was owed approximately $1,327,180 and $1,326,270
from these customers at February 28, 2002 and 2001, respectively.
9. SUBSEQUENT EVENTS
NASDAQ Compliance
By letter dated April 1, 2002, NASDAQ notified the Company that the
Company's Common Stock had failed to maintain a minimum market value of public
float of $1,000,000 over the preceding 30 consecutive trading days, as required
by NASDAQ rules (the "MVPF Rule"). The market value of public float ("MVPF") is
the dollar amount determined by multiplying the closing bid price by the number
of outstanding shares of the Company's Common Stock excluding shares held by the
Company's directors, officers and beneficial owners of 10% or more of the
Company's shares. The Company has until July 1, 2002, to regain compliance with
the MVPF Rule. If at any time prior to July 1, 2002, the MVPF is at least
$1,000,000 for a minimum of 10 consecutive trading days, NASDAQ's staff will
determine if the Company complies with the MVPF Rule. If the requirement is not
met by such date, NASDAQ is required to notify the Company that it must begin
the process of delisting the Company's Common Stock, at which time the Company
will determine whether to request a hearing on the matter or pursue other
options.
SANDATA TECHNOLOGIES, INC. AND SUBSIDIARIES
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Revenues were $4,405,968 and $13,281,522 for the three and nine months
ended February 28, 2002 as compared to $4,443,952 and $13,676,118 for the three
and nine months ended February 28, 2001, an decrease of $37,984 and of $394,596,
respectively. The decrease for the three month period is primarily attributable
to a decrease in service fee revenue and other income derived from sales
leasebacks offset slightly by higher interest income. The decrease in the nine
month period is attributable to a decrease in SandataNet sales revenues due to
the sale of certain contracts, partially off-set by the purchase price received
for them and a decrease in revenue derived from NMHC offset by an increase in
SandataNet consulting.
Service fee revenues were $4,275,727 and $12,805,633 for the three and nine
months ended February 28, 2002 as compared to $4,304,970 and $13,257,225 for the
three and nine months ended February 28, 2001 a decrease of $29,243 and a
decrease of $451,592, respectively. The decrease for the three month period was
primarily attributable to a decrease in revenues derived from NMHC of $385,000,
and of revenues for SandataNet of $55,000, offset by an increase in SandataNet
consulting fees of $375,000 and Santrax $40,000. The decrease for the nine-month
period was primarily attributable to a decrease in revenues derived from Sharp
of $13,127, Santrax of $57,894 outsourcing of $633,318, offset by increases in
SandataNet of $184,677 and Pro-Health of $68,070 .
Other income for the three and nine months ended February 28, 2002 was
$80,444 and $347,653, as compared to $93,793 and $278,185 for the three and nine
months ended February 28, 2001, respectively. The decrease for the three month
period is attributed to a decrease in revenue recognized from sales leaseback
transactions. The increase for the nine month period is primarily attributable
to the sale of certain customer accounts from SandataNet to a non-affiliated
company in the amount of $79,000.
Expenses Related to Services
Operating expenses were $2,346,442 and, $7,388,560 for the three and nine
months ended February 28, 2002 as compared to $2,314,056 and $7,663,632 for the
three and nine months ended February 28, 2001, an increase of $32,386 and a
decrease of $275,072, respectively. The increase for the three month period is
primarily due to an increase in purchases for resale, partially offset by a
decrease in equipment rental expense. Costs associated with payroll and related
expenses of $600,000 decreased, office supplies decreased $19,000, telephone
expenses decreased $249,000, and equipment rental expense decreased $92,000.
These decreases were partially offset by an increase in maintenance contracts of
$25,000, building related expenses of $27,000, postage of $36,000, purchases for
resale of $ 433,000and an increase reserve to allowance for doubtful account of
$159,000.
Selling, general and administrative expenses were $1,018,258 and $4,097,567
for the three and nine months ended February 28, 2002, as compared to $1,355,707
and 3,645,773 for the three and nine months ended February 28, 2001, a decrease
of $237,451 and an increase of $451,794, respectively. The decrease for the
three month period is primarily due to a decrease in legal expenses and decrease
in senior management salaries. The increase for the nine-month period was
primarily due to increases in sales staff of $194,000, legal expenses of
$77,000, in addition to payroll and related expenses of $164,800 relative to the
increased efforts to increase sales in the SanTrax, Outsourcing and Information
Technology product lines.
Depreciation and amortization expense decreased $225,300 and $700,780 to
$460,721 and $1,344,458 for the three and nine months ended February 28, 2002 as
compared to $686,021 and $2,045,238 for the three and nine months ended February
28, 2001, respectively. The decrease was primarily attributable to the reduction
in the assets base due to the impairment of developed software that occurred in
the year ended May 31, 2001.
Interest expense was $36,119 and $185,866 for the three and nine months
ended February 28, 2002 as compared to $60,149 and $189,139 for the three and
nine months ended February 28, 2001. The decrease for the quarter and the nine
month period was due to lower interest rates.
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; the 66,673 options that were vested on that
date have since expired.
Income Tax Expenses
Income tax expense for the three and nine months ended February 28, 2002
was $232,286 and $143,848 as compared to income tax expense of $33,612 and
$120,831 for the three and nine months ended February 28, 2001. The increase in
income tax expense for the three months is due to an increase in pretax income
in the current three month period. The decrease of a deferred tax asset for net
operating loss carryforwards, and a reduction of a deferred tax liability
associated with the different recognition of software development costs for tax
and financial statement purposes.
Liquidity and Capital Resources
The Company's working capital decreased as of February 28, 2002 to
$1,856,000, as compared with $1,957,000 at May 31, 2001. The primary factors
that contributed to the decrease were decreases in accounts payable of $176,000,
decreases in accounts receivable of $162,000, receivable from affiliates of
$490,000, prepaid expenses of $116,000, and a decrease in cash of $47,000 offset
by increases of costs in excess of billings and earnings on uncompleted
contracts of approximately $337,000, and deferred income of approximately
$227,000.
For the three and nine months ended February 28, 2002, the Company spent
approximately $617,000 and $2,177,000 in fixed asset additions, of which
$559,000 and $1,837,000 respectively 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. As of February 28, 2002 and
2001, the outstanding balance on such notes, including principal and accrued but
unpaid interest, was $1,645,578 and $1,687,635, respectively.
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. As of February 28, 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 February 28, 2002, the outstanding balance on the
Credit Agreement with the Bank was $4,500,000. As of April 4, 2002, the
outstanding balance on the Credit Agreement was $3,800,000.
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.
SANDATA TECHNOLOGIES, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 - LEGAL PROCEEDINGS:
Reference is made to Note 6 to the Financial Statements comprising Part I,
Item 1 of this Form 10-QSB.
Item 2 - CHANGES IN SECURITIES:
None
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
None
(b) Reports on Form 8-K
None
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:April 12, 2002 By: /s/ Bert E. Brodsky
-----------------------
Bert E. Brodsky
Chairman of the Board,
Chief Executive Officer,
Chief Financial Officer