SANDATA, INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
UNAUDITED AUDITED
February 28, May 31,
1997 1996
----------- -------
ASSETS:
CURRENT ASSETS
Cash and cash equivalents $332,768 $368,400
Accounts receivable - net of allowance for
doubtful accounts of $327,000 at February 28,
1997 and $350,000 at May 31, 1996 1,476,345 1,180,905
Receivables from affiliates 575,229 190,635
Receivable from former affiliate 26,363 26,258
Note receivable from former affiliate, net of
allowance for doubtful accounts of $0 at
February 28, 1997 and $119,000 at May 31,
1996, respectively -0- 77,100
Notes receivable - officers 102,867 102,867
Inventories 48,528 27,972
Prepaid expenses and other current assets 214,565 172,897
------- -------
TOTAL CURRENT ASSETS 2,776,665 2,147,034
FIXED ASSETS, NET 6,072,811 9,399,625
OTHER ASSETS
Cash surrender value of officers' life insurance,
security deposits and other 423,966 410,683
------- -------
TOTAL ASSETS $9,273,442 $11,957,342
---------- -----------
---------- -----------
See notes to consolidated condensed financial statements
CONSOLIDATED CONDENSED BALANCE SHEETS
UNAUDITED AUDITED
February 28, May 31,
1997 1996
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES
Accounts payable and accrued expenses $992,026 $1,022,058
Current portion of long-term debt 538,089 768,354
Note payable - affiliate 205,000 1,000,000
Deferred/unearned revenue 8,783 4,299
Deferred income 232,770 205,252
------- -------
TOTAL CURRENT LIABILITIES 1,976,668 2,999,963
LONG-TERM DEBT 89,262 4,322,234
NOTES PAYABLE - AFFILIATES 1,092,000 462,000
DEFERRED INCOME 209,240 177,530
DEFERRED INCOME TAXES 244,800 83,000
------- -------
TOTAL LIABILITIES 3,611,970 8,044,727
--------- ---------
SHAREHOLDERS' EQUITY
Common stock 1,216 816
Additional paid in capital 2,811,371 1,279,710
Retained earnings 2,985,771 2,768,975
Treasury stock (136,886) (136,886)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 5,661,472 3,912,615
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $9,273,442 $11,957,342
========== ===========
See notes to consolidated condensed financial statements
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
FEB. 28, FEB. 29, FEB. 28, FEB. 29,
1997 1996 1997 1996
------- -------- ------- -------
REVENUES:
Service fees $2,810,319 $2,188,151 $7,921,193 6,424,286
Real estate rental income -- 84,290 134,700 203,229
Other income 69,703 90,030 238,260 208,121
Interest income 6,475 10,031 11,454 29,728
--------- --------- --------- --------
2,886,497 2,372,502 8,305,607 6,865,364
--------- --------- --------- ---------
COSTS AND EXPENSES:
Service Fees:
Operating 1,738,617 1,198,900 4,708,979 3,575,432
Selling, general and
Administrative 604,070 463,250 1,620,253 1,550,188
Depreciation and amortization 331,282 282,603 928,283 743,029
Interest expense 55,923 56,379 160,860 160,179
--------- --------- --------- ---------
2,729,892 2,001,132 7,418,375 6,028,828
Real Estate:
Operating -- 125,915 246,894 368,900
Depreciation and amortization -- 45,064 47,302 62,648
Interest expense -- 88,808 133,918 196,463
Real estate taxes -- 39,000 71,012 82,000
-- 298,787 499,126 710,011
--------- --------- --------- ---------
TOTAL COSTS AND EXPENSES 2,729,892 2,299,919 7,917,501 6,738,839
--------- --------- --------- ---------
Earnings from operations before
income taxes 156,605 72,583 388,106 126,525
Income tax expense (benefit) 69,125 -- 171,310 (3,138)
------- ------ ------- -------
NET EARNINGS $87,480 $72,583 $216,796 129,663
======= ======= ======== ========
EARNINGS PER COMMON SHARE $0.04 $0.06 $0.11 $0.10
------- ------- -------- --------
Weighted average common shares
Outstanding 2,025,868 1,287,757 2,025,868 1,287,757
========= ========= ========= =========
See notes to consolidated condensed financial statements
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
FEBRUARY 28, FEBRUARY 29,
1997 1996
---- ----
Cash flows from operating activities:
Net earnings $216,796 $129,663
Adjustments to reconcile net earnings
to net cash
provided by (used in) operating activities:
Depreciation and amortization 975,585 805,677
(Gain) on disposal of fixed assets (268,340) --
(Gain) on transfer of facility (15,586) --
Decrease in allowance for doubtful accounts
Receivable (23,060) (53,000)
(Decrease) increase in deferred income (209,113) 113,013
Recognition of deferred revenue (15,750) --
(Increase) decrease in operating assets (732,586) 702,814
Increase in operating liabilities 420,342 140,329
------- -------
Net cash provided by operating activities 348,288 1,838,496
------- ---------
Cash flows from investing activities:
Collection of note receivable - officer -- 150,000
Purchases of fixed assets (1,430,729) (2,280,974)
Increases in advances from affiliates -- 81,407
Repayment of advances to affiliates -- 35,937
Collections of note receivable-former
affiliates 77,100 160,285
Proceeds from sale/leaseback transaction 925,000 --
-------- -------
Net cash (used in) investing activities (428,629) (1,853,345)
Cash flows from financing activities:
Proceeds from private placement offering 1,532,061 --
Proceeds from term loan -- 1,112,000
Principal payments on term loan (459,352) (1,201,518)
Proceeds from line of credit 2,750,000 1,500,000
Principal payments on line of credit (3,613,000) (1,312,000)
Proceeds from notes payable - affiliates 3,010,000 --
Principal payments on notes payable
- affiliates (3,175,000) --
---------- ---------
Net cash provided by financing
Activities 44,709 98,482
--------- --------
(Decrease) increase in cash and cash
equivalents (35,632) 83,633
Cash and cash equivalents at beginning
of period 368,400 102,613
-------- -------
Cash and cash equivalents at end of
Period $332,768 $186,246
======== ========
<FN>
<F1>As of July 31, 1995 the Company assumed lease obligations totalling
$4,143,140 as disclosed in the Notes to the Consolidated Condensed Financial
Statements in conjunction with the acquisition of a facility.
<F2>Note: As of November 1, 1996 a company affiliated with the Directors
of the Company assumed certain lease obligations relative to the transfer
of a facility in the amount of $3,140,884 as disclosed in the Notes to the
Consolidated Condensed Financial Statements.
</FN>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The Consolidated Condensed Balance Sheet as of February 28, 1997, the
consolidated Condensed Statements of Operations for the three and nine-month
periods ended February 28, 1997 and February 29, 1996 and the Consolidated
Condensed Statement of Cash Flows for the nine-month periods ended
February 28, 1997 and February 29, 1996 have been prepared by Sandata, 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, 1997 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, 1996. Results of Operations for the period ended
February 28, 1997 are not necessarily indicative of the operating results
expected for the full year.
2. RELATED PARTY TRANSACTIONS
(A) On July 1, 1992, the Company loaned $1,000,000 to the Company's Chairman,
bearing interest at the prime rate plus 1-1/4%, which loan was originally due
July 1, 1995. On September 1, 1993, the Company was issued a new note for the
then outstanding balance of $490,000, bearing interest at prime plus 1-1/4% and
being due April 30, 1994. On May 1, 1994, the Company extended the due date of
the note to the earlier of April 30, 1995 or as the Company may demand at any
time after the effective date of the then proposed privatization transaction.
The Chairman paid $340,000 of the outstanding loan to the Company during the
year ended May 31, 1995. On May 1, 1995, the Company extended the due date of
the note to October 31, 1995. On July 31, 1995, the Chairman, as a result of
the assignment of the lease with the Nassau County Industrial Development
Agency ("NCIDA") from BFS Sibling Realty Inc., formerly known as Brodsky
Sibling Realty Inc. ("BFS"), an affiliate substantially owned by the
Company's Chairman, to Sandata, Inc., repaid $129,000. The remaining balance of
the note receivable was repaid by the Chairman during the quarter ended
February 29, 1996.
(B) On June 1, 1994, BFS, an affiliate substantially owned by the Company's
Chairman, borrowed $3,350,000 in the form of Industrial Development Revenue
Bonds ("Bonds") to finance costs incurred in connection with the acquisition,
renovation and equipping of the Company's office space located at 26 Harbor
Park Drive, Port Washington, New York (the "Facility" or the "Building") from
the NCIDA. These Bonds were subsequently purchased by a bank (the "Bank").
The aggregate cost incurred by BFS in conjunction with such acquisition,
renovation and equipping was approximately $4,377,000. In addition, the
Company incurred approximately $500,000 of indebtedness to affiliates of Mr.
Brodsky in connection with additional capital improvements. The Bonds bore
interest at prime plus 3/4 of 1% until August 11, 1995, at which time the
interest rate became fixed at 9% for a five-year term through September 1,
2000. At that time, the interest rate will be adjusted to a rate of either
prime plus 3/4 of 1%, or the applicable fixed rate if offered by the Bank.
As a condition to the issuance of the Bonds, the NCIDA obtained title to the
Facility, which it then leased to BFS.
(C) On June 21, 1994 (as of June 1, 1994), the Company and its Chairman
guaranteed the full and prompt payment of principal and interest of the Bonds
and the Company granted the Bank a security interest and lien on all the assets
of the Company. In connection with the issuance and sale of the Bonds, the
Company entered into a lease agreement (the "Sublease") with BFS, whereby the
Company leased the Facility for the conduct of its business and, in
consideration therefor, was obligated to make lease payments that at least
equal amounts due to satisfy the underlying Bond obligations.
(D) On July 31, 1995 (as of July 1, 1995), by an Assignment and Assumption and
First Amendment to Lease between the Company and BFS, the Company assumed the
obligations of BFS under the lease and became the direct tenant and the
beneficial owner of the Facility (collectively the "Assignment Transaction").
In connection with the Assignment Transaction, the Sublease was terminated.
During the period commencing July 1, 1995 and ending October 31, 1996 the
Company paid rent for the Facility to the NCIDA in the amount of $48,600 per
month, subject to adjustment based upon the then effective interest rate of
the Bonds, among other things. In connection with the Assignment
Transaction, the Company obtained the right to acquire the Facility upon
expiration of the lease with the NCIDA (the "Lease") and became directly
liable to the NCIDA for amounts due thereunder.
In connection with the Assignment Transaction, the Company assumed certain
indebtedness owed to affiliates of the Company's Chairman as follows: (i) the
$364,570 remaining balance of a 48-month term loan bearing interest at 8.7% per
annum, and (ii) the $428,570 remaining balance of a 42-month term loan bearing
interest at 8.91%. Each of the foregoing loans were incurred in connection
with the construction of improvements to the Building, are collateralized by
the assets of the primary obligor and are guaranteed by the Company's Chairman.
(E) On August 11, 1995, the Company entered into a $750,000 loan agreement with
the Long Island Development Corporation ("LIDC"), under a guarantee by the U.S.
Small Business Administration ("SBA") (the "SBA Loan"). The entire $750,000
proceeds have been used to repay a portion of the Bonds. The Company entered
into the Assignment Transaction primarily to satisfy certain requirements of
the SBA. The SBA Loan is payable in 240 monthly installments of $6,255, which
includes principal and interest at a rate of 7.015%.
As of November 1, 1996, the Company entered into an Assignment and Assumption
of and Second Amendment to Lease Agreement among BFS Realty, LLC, an
affiliate of the Company's Directors (the "Assignee"), the Bank and the Company
(the "Second Amendment").
In connection with the Second Amendment, (i) the Assignee assumed all of the
Company's obligations under the Lease with the NCIDA and entered into a
sublease with the Company for the Facility; and (ii) the Company conveyed to the
Assignee the right to become the owner of the Facility upon expiration of the
Lease. In addition, pursuant to the sublease, the Company has assumed certain
obligations owed by the Assignee to the NCIDA under the Lease. The Assignee has
indemnified the Company with respect to certain obligations relative to the
Lease and the Second Amendment.
As a result of the Second Amendment and related transactions discussed above,
the Company reduced its fixed assets, consisting of land, building and
improvement costs, by the amount of the cost thereof, net of accumulated
depreciation, in the amount of $3,125,298 and reduced its long term debt by
$3,140,884, which was assumed by the Assignee; the net difference was recorded
as other income in the financial statements. Amounts owed to affiliates of the
Company in connection with the construction and improvements were not assumed
by the Assignee. The Company and its Chairman have guaranteed the above
obligation to the SBA and NCIDA in connection with the foregoing.
3. NET EARNINGS PER COMMON SHARE
Earnings per share for the three and nine months ended February 28, 1997
includes the dilutive effect of outstanding stock options and warrants. The
number of common stock equivalents determined by applying the modified treasury
stock method included in the calculation of earnings per share for the three
and nine months ended February 28, 1997 was 1,184,135. Earnings per share for
the three and nine months ended February 29, 1996 include the dilutive effect
of outstanding stock options and warrants. The number of common stock
equivalents determined by applying the treasury stock method included in the
calculation of earnings per share for the three and nine months ended
February 29, 1996 was 523,802.
4. SALE/LEASEBACK TRANSACTION
In June 1996, the Company consummated a Sale/Leaseback of certain fixed assets
(principally furniture, fixtures, computer hardware and equipment). The fixed
assets, which had a net book value of approximately $657,000, were sold for
$925,000. The resulting gain of approximately $268,000 was recorded as
deferred income and is being recognized over the life of the lease, which is
forty-eight (48) months. Approximately $16,800 and $50,400 of deferred gain
was recognized for the three and nine months ended February 28, 1997. A
company affiliated with the Company's Chairman purchased the residual rights in
such lease.
5. STOCKHOLDERS' EQUITY
In October, 1996, the Company commenced a private offering, on a "best
efforts - all or none" basis, to raise $1,500,000 by issuing an aggregate of
300,000 shares of Common Stock and five year warrants for the purchase of
150,000 shares of Common Stock, at an exercise price of $7.00 per share.
Neither the shares of Common Stock, the warrants, nor the shares of Common
Stock underlying the warrants were registered under the Securities Act of
1933, as amended. In February 1997, the Company completed such private
offering. The net proceeds received in connection with the sale of 300,000
shares of its common stock were $1,271,985 after payment of expenses related
to the offering. Contemporaneously with the execution and delivery by the
Company of the letter of intent with regard to such private offering, certain
assignees of the placement agent acquired 100,000 shares of the Company's
Common Stock at a purchase price of $3.00 per share; the net proceeds from
the sale of such 100,000 shares were $260,076.
In connection with the closing of such private offering, an affiliate of the
placement agent entered into a financial consulting agreement with the Company,
pursuant to which, among other things, such affiliate will receive aggregate
annual payment of $36,000 and certain assignees of such affiliate received
warrants to purchase an aggregate of 200,000 shares of Common Stock
exercisable as follows: 100,000 shares at $5.00 per share and 100,000 shares at
$7.00 per share, such warrants to be exercisable for one year (with respect
to the warrants exercisable at $5.00 per share) and two years (with respect to
the warrants exercisable at $7.00 per share). The warrants issued in such
private offering, including those issued to investors as well as the assignees
of the placement agent's affiliate, are redeemable by the Company under
certain circumstances.
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 $2,886,497 and $8,305,607 for the three and nine months ended
February 28, 1997 as compared to $2,372,502 and $6,865,364 for the three and
nine months ended February 29, 1996, increasing $513,995 and $1,440,243,
respectively.
Service fee revenue for the three and nine months ended February 28, 1997 was
$2,810,319 and $7,921,193, an increase of $622,168 and $1,496,907 for the same
periods of the prior fiscal year. The increase is attributable to revenues
derived from a new product called SanTrax.
Real estate rental income was $-0- and $134,700 for the three and nine months
ended February 28, 1997 as compared to $84,290 and $203,229 for the three and
nine months ended February 29, 1996.
The decreases in rental income relating to the operation of the Facility for
the three and nine months ended February 28, 1997 resulted from the Company's
becoming the beneficial owner and lessee of the Facility as of July 31, 1995
in addition to the effect of the subsequent Second Amendment transaction as of
November 1, 1996 (as described below), whereby the Company became the sublessee
of the Facility.
Other income for the three and nine-month period ended February 28, 1997 was
$69,703 and $238,260, respectively as compared to $90,030 and $208,121 for the
three and nine month-period ending February 29, 1996. This increase is
partially due from the gain realized upon the sale of assets in connection
with the following sale/leaseback transaction.
In June 1996, the Company consummated a sale/leaseback of certain fixed assets
(principally furniture, fixtures, computer hardware and equipment). The fixed
assets, which had a net book value of approximately $657,000, were sold for
$925,000. The resulting gain of approximately $268,000 was recorded as
deferred income and is being recognized over the life of the lease, which is
forty-eight (48) months. Approximately $16,800 and $50,400 of deferred gain
was recognized for the three and nine months ended February 28, 1997.
Expenses Related to Services
Operating expenses increased $539,717 or 45% and $1,133,547 or 32% for the
three and nine months ended February 28, 1997 as compared to the three and
nine months ended February 29, 1996.
Programming and payroll costs relating to existing applications and costs
associated with SanTrax and its operations, including telephone and expenses
related to equipment, were the primary factors for the increase in operating
expenses.
Selling, general and administrative expenses were $604,070 and $1,620,253 for
the three and nine months ended February 28, 1997, as compared to $463,250 and
$1,550,188 for the three and nine months ended February 29, 1996, a decrease of
$140,820 and $70,065, respectively. The increase is primarily due to an
increase in advertising, promotion and payroll costs associates with SanTrax
and an increase in legal and professional fees and administrative costs
related to SanTrax and existing product lines.
Depreciation and amortization expense increased $48,679 and $185,254 to
$331,282 and $928,283 for the three and nine months ended February 28, 1997 as
compared to $282,603 and $743,029 for the three and nine months ended
February 29, 1996. The increase was primarily attributable to fixed asset
additions, including software capitalization costs.
Interest expense was $55,923 and $160,860 for the three and nine months ended
February 28, 1997 as compared to $56,379 and $160,179 for the three and nine
months ended February 29, 1996.
Expenses Related to Real Estate Operations
Operating expenses were $-0- and $246,894 for the three and nine months ended
February 28, 1997, as compared to $125,915 and $368,900 for the three and nine
months ended February 29, 1996, a decrease of $125,915 and $122,006,
respectively.
Interest expense was $-0- and $133,918 for the three and nine months ended
February 28, 1997 as compared to $88,808 and $196,463 for the three and nine
months ended February 29, 1996.
The decreases in expenses relating to the operation of the Facility for the
three and nine months ended February 28, 1997 resulted from the Company's
becoming the beneficial owner and lessee of the Facility as of July 31, 1995 in
addition to the effect of the subsequent Second Amendment transaction as of
November 1, 1996 (as described below), whereby the Company became the sublessee
of the Facility.
The Company has reported real estate operating expenses only through the period
ended November 1, 1996. The Company does not expect to incur any costs in the
future.
Income Tax Expenses
Income tax expense for the three and nine months ended February 28, 1997 was
$69,125 and $171,310, respectively. For the three and nine months ended
February 29, 1996, the income tax benefit was $-0- and $3,138, respectively.
The tax benefit arose from the filing of amended tax returns for prior years
which has resulted in a refund of an overpayment.
Liquidity and Capital Resources
The Company's working capital increased as of February 28, 1997 to $799,997, as
compared with a deficiency at May 31, 1996 of $852,929.
In June 1996, the Company entered into a sales/leaseback transaction whereby
certain fixed assets were sold for $925,000 and concurrently leased back to the
Company. The proceeds were used to repay outstanding advances against the
Company's Credit Agreement (as defined below).
The Company has spent approximately $1,431,000 in fixed asset additions,
primarily computer hardware and software capitalization costs in connection
with revenue growth and new product development. The Company does not expect
the previous levels of capital expenditures to continue.
In October, 1996, the Company commenced a private offering, on a "best
efforts - all or none" basis, to raise $1,500,000 by issuing an aggregate of
300,000 shares of Common Stock and five year warrants for the purchase of
150,000 shares of Common Stock, at an exercise price of $7.00 per share.
Neither the shares of Common Stock, the warrants, nor the shares of Common
Stock underlying the warrants were registered under the Securities Act of
1933, as amended. In February 1997, the Company completed such private
offering. The net proceeds received in connection with the sale of 300,000
shares of its common stock were $1,271,985 after payment of expenses related
to the offering. Contemporaneously with the execution and delivery by the
Company of the letter of intent with regard to such private offering, certain
assignees of the placement agent acquired 100,000 shares of the Company's
Common Stock at a purchase price of $3.00 per share; the net proceeds from
the sale of such 100,000 shares were $260,076.
In connection with the closing of such private offering, an affiliate of the
placement agent entered into a financial consulting agreement with the Company,
pursuant to which, among other things, such affiliate will receive aggregate
annual payment of $36,000 and certain assignees of such affiliate received
warrants to purchase an aggregate of 200,000 shares of Common Stock
exercisable as follows: 100,000 shares at $5.00 per share and 100,000 shares
at $7.00 per share, such warrants to be exercisable for one year (with
respect to the warrants exercisable at $5.00 per share) and two years (with
respect to the warrants exercisable at $7.00 per share). The warrants
issued in such private offering, including those issued to investors as well
as the assignees of the placement agent's affiliate, are redeemable by the
Company under certain circumstances.
On July 1, 1992, the Company loaned $1,000,000 to the Company's Chairman,
bearing interest at the prime rate plus 1-1/4% which loan was originally due
July 1, 1995. On September 1, 1993, the Company was issued a new note for the
then outstanding balance of $490,000, bearing interest at prime plus 1-1/4% and
being due April 30, 1994. On May 1, 1994, the Company extended the due date of
the note to the earlier of April 30, 1995 or as the Company may demand at any
time after the effective date of the then proposed privatization transaction.
The Chairman paid $340,000 of the outstanding loan to the Company during the
year ended May 31, 1995. On May 1, 1995, the Company extended the due date of
the note to October 31, 1995. On July 31, 1995, the Chairman, as a result of
the assignment of the lease with the Nassau County Industrial Development
Agency ("NCIDA") from BFS Sibling Realty Inc., formerly known as Brodsky
Sibling Realty Inc. ("BFS"), an affiliate substantially owned by the
Company's Chairman, to Sandata, Inc., repaid $129,000. The remaining balance
of the note receivable was repaid by the Chairman during the quarter ended
February 29, 1996.
On July 31, 1993, the Company received a promissory note from Compuflight, Inc.
("Compuflight"), a former affiliate (the Company's Chairman was a principal
stockholder and Chairman of Compuflight through December 1, 1993) to evidence
the Company's accounts receivable from Compuflight. The note was payable in
increments of $20,000 per month including interest at the rate of one percent
above prime on the unpaid balance and was due April 1, 1994. On November 1,
1993, the note was amended. The amended note is payable in minimum increments
of $20,000 per month with interest at ten percent (10%) per annum and contains
provisions for accelerated payments based upon Compuflight achieving certain
results. Payments commenced on February 28, 1994 and continued until such time
as the indebtedness and any accrued interest thereon were paid in full. The
remaining balance of $118,781 owed on the note, which was deemed by the Company
as uncollectible, was charged against an allowance account during the quarter
ended February 28, 1997. In connection with the promissory note, the Company
received a security interest in substantially all the then existing assets of
Compuflight, which has been assigned to the Bank as collateral for the
Company's Credit Agreement with the Bank. As of February 28, 1997,
Compuflight is indebted to the Company in the amount of $26,363, representing
accounts receivable.
On June 1, 1994, BFS, an affiliate substantially owned by the Company's
Chairman, borrowed $3,350,000 in the form of Industrial Development Revenue
Bonds ("Bonds") to finance costs incurred in connection with the acquisition,
renovation and equipping of the Company's office space located at 26 Harbor Pk
Drive, Port Washington, New York (the "Facility" or the "Building") from the
NCIDA. These Bonds were subsequently purchased by a bank (the "Bank"). The
aggregate cost incurred by BFS in conjunction with such acquisition, renovation
and equipping was approximately $4,377,000. In addition, the Company incurred
approximately $500,000 of indebtedness to affiliates of Mr. Brodsky in
connection with additional capital improvements. The Bonds bore interest at
prime plus 3/4 of 1% until August 11, 1995, at which time the interest rate
became fixed at 9% for a five-year term through September 1, 2000. At that
time, the interest rate will be adjusted to a rate of either prime plus 3/4 of
1%, or the applicable fixed rate if offered by the Bank. As a condition to the
issuance of the Bonds, the NCIDA obtained title to the Facility, which it then
leased to BFS.
On June 21, 1994 (as of June 1, 1994), the Company and its Chairman guaranteed
the full and prompt payment of principal and interest of the Bonds and the
Company granted the Bank a security interest and lien on all the assets of the
Company. In connection with the issuance and sale of the Bonds, the Company
entered into a lease agreement (the "Sublease") with BFS, whereby the Company
leased the Facility for the conduct of its business and, in consideration
therefor, was obligated to make lease payments that at least equal amounts due
to satisfy the underlying Bond obligations.
On July 31, 1995 (as of July 1, 1995), by an Assignment and Assumption and
First Amendment to Lease between the Company and BFS, the Company assumed the
obligations of BFS under the lease and became the direct tenant and the
beneficial owner of the Facility (collectively the "Assignment Transaction").
In connection with the Assignment Transaction, the Sublease was terminated.
During the period commencing July 1, 1995 and ending October 31, 1996 the
Company paid rent for the Facility to the NCIDA in the amount of $48,600 per
month, subject to adjustment based upon the then effective interest rate of the
Bonds, among other things. In connection with the Assignment Transaction,
the Company obtained the right to acquire the Facility upon expiration of the
lease with the NCIDA (the "Lease") and became directly liable to the NCIDA for
amounts due thereunder. In connection with the Assignment Transaction, the
Company assumed certain indebtedness owed to affiliates of the Company's
Chairman as follows:(i) the $364,570 remaining balance of a 48-month term loan
bearing interest at 8.7% per annum, and (ii) the $428,570 remaining balance of
a 42-month term loan bearing interest at 8.91%. Each of the foregoing loans
were incurred in connection with the construction of improvements to the
Building, are collateralized by the assets of the primary obligor and are
guaranteed by the Company's Chairman.
On August 11, 1995, the Company entered into a $750,000 loan agreement with the
Long Island Development Corporation ("LIDC"), under a guarantee by the U.S.
Small Business Administration ("SBA") (the "SBA Loan"). The entire $750,000
proceeds have been used to repay a portion of the Bonds. The Company entered
into the Assignment Transaction primarily to satisfy certain requirements of
the SBA. The SBA Loan is payable in 240 monthly installments of $6,255, which
includes principal and interest at a rate of 7.015%.
As of November 1, 1996, the Company entered into an Assignment and Assumption
of and Second Amendment to Lease Agreement among BFS Realty, LLC, an affiliate
of the Company's Directors (the "Assignee"), the Bank and the Company (the
"Second Amendment"). In connection with the Second Amendment, (i) the
Assignee assumed all of the Company's obligations under the Lease with the
NCIDA and entered into a sublease with the Company for the Facility; and (ii)
the Company conveyed to the Assignee the right to become the owner of the
Facility upon expiration of the Lease. In addition, pursuant to the sublease,
the Company has assumed certain obligations owed by the Assignee to the NCIDA
under the Lease. The Assignee has indemnified the Company with respect to
certain obligations relative to the Lease and the Second Amendment.
As a result of the Second Amendment and related transactions discussed above,
the Company reduced its fixed assets, consisting of land, building and
improvement costs, by the amount of the cost thereof, net of accumulated
depreciation, in the amount of $3,125,298 and reduced its long term debt by
$3,140,884, which was assumed by the Assignee; the net difference was recorded
as other income in the financial statements. Amounts owed to affiliates of the
Company in connection with the construction and improvements were not assumed
by the Assignee. The Company and its Chairman have guaranteed the above
obligation to the SBA and NCIDA in connection with the foregoing.
On April 20, 1995 the Company's wholly owned subsidiary, Sandsport Data
Services, Inc. ("Sandsport") amended its $2,000,000 secured revolving credit
agreement (the "Credit Agreement") with the Bank, extending the due date to
April 20, 1997. Upon maturity, Sandsport may, at its option, convert the then-
outstanding principal balance of the advances under the Credit Agreement into a
five-year term loan payable in sixty equal monthly principal installments, plus
interest at 3/4% above the Bank's prime rate. However, the Company has
accepted a commitment from the Bank to restructure the Credit Facility as
discussed below. Also, pursuant to the Credit Agreement, on April 20, 1995,
a two year loan (the "Term Loan") in the amount of $500,000 was advanced by
the Bank to Sandsport (which amount constitutes part of the total credit
facility available under the Credit Agreement). The proceeds of the Term
Loan were used to partially repay outstanding advances against the Credit
Agreement. The Term Loan is payable in 24 monthly principal installments of
$20,834, plus interest at 3/4% above the Bank's prime rate, through
April 1997. All of Sandsport's, the Company's and Company's subsidiaries' (the
"Group") assets are pledged to the Bank as collateral for the amounts due under
the Credit Agreement. The Group is prohibited from incurring additional
indebtedness except under certain circumstances. 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. The Group has, in the past, failed to meet these net worth
and financial ratios, and the Bank has granted the Group waivers. No assurance
can be given that the Group will be able to meet thee net worth and financial
requirements in the future, and/or that the Bank will continue to grant the
Group waivers. As of February 28, 1997 there is a balance of $175,000
outstanding on the Credit Facility and $62,486 remaining on the Term Loan.
On February 13, 1997, Sandsport received a commitment from the Bank to
restructure the Credit Facility. Such commitment has been accepted by
Sandsport as of March 4, 1997. Consummation of the restructuring of such
facility is subject to the negotiation, execution and delivery of formal
documentation acceptable to Sandsport and the Bank, among other things. It
is anticipated that the credit facility will be restructured as described
below. However, no assurances can be given in that Sandsport has not fully
negotiated the required documentation and it is not known at this time whether
or not such documentation will be acceptable to Sandsport or the Bank. In
addition, other factors such as proposals from competing financial institutions
may be considered. However, management of Sandsport considers it likely that
the credit facility will be restructured with the Bank. The restructured
facility (the "Restructured Facility") allows Sandsport to borrow up to
$3,000,000 and contemplates the satisfaction of the existing facility. Under
the Restructured Facility, Sandsport may borrow and reborrow amounts up to
$3,000,000. Interest will accrue on amounts outstanding under the
Restructured Facility 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 Restructured Facility
requires Sandsport to pay a commitment fee in the amount of $30,000 and a
fee equal to 1/4% percent per annum payable on the unused average daily
balance of the Restructured Facility. In addition, there are other fees and
charges imposed based upon Sandsport's failure to maintain certain minimum
balances. The Restructured Facility will expire on March 1, 2000. The
Restructured Facility is guaranteed by the Company and Sandsport's sister
subsidiaries. The collateral for the Restructured Facility will be a first
lien on all equipment owned by Sandsport and the guarantors, as well as a
collateral assignment of $2,000,000 of life insurance payable on the life of
Mr. Brodsky. The Restructured Facility contemplates that the Group will be
required to meet certain covenants similar to those described above with
regard to the existing Credit Agreement. The Group's guaranty to the Bank,
relating to the bonds discussed above, is anticipated to be modified to
conform covenants described therein to comply with those in the Restructured
Facility.
The Company believes the results of its continued operations, together with the
available credit line and Term Loan as well as the proceeds from the recent
private offering, should be adequate to fund presently foreseeable working
capital requirements.
PART II - OTHER INFORMATION
Item 1 - LEGAL PROCEEDINGS:
MCI Telecommunications Corporation v. Sandata, Inc. The Company received
notice of this action on April 10, 1997. Plaintiff commenced this action in
the United States District Court for the Eastern District of New York alleging
that the Company's SanTrax time and attendance system infringes on certain
patent rights allegedly owned by Plaintiff. The Complaint seeks compensatory
and treble damages with interest and injunctive relief. The Company believes
that its product does not infringe on such patent rights and intends to
vigorously defend this action; however, in that the litigation has only
recently been commenced, no assurances as to the outcome can be given.
Item 2 - CHANGES IN SECURITIES:
Reference is made to "Part I, Item 2 - Management's Discussion and Analysis or
Plan of Operation" for a discussion of the Company's recent private offering to
accredited investors.
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:
Exhibit 27 - Financial Data Schedule (Electronic Filing Only)
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, INC.
(Registrant)
Date: April 14 , 1997 By: /s/ Bert E. Brodsky
Bert E. Brodsky
Chairman of the Board
President, Chief Executive
Officer,
Chief Financial Officer
April 14, 1997
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549
Re: Sandata, Inc., File No. 0-14401
Dear Sir or Madam,
Transmitted herewith through the EDGAR system is Form 10-QSB for the quarter
ending February 28, 1997 for Sandata Inc. If you have any questions or
comments, please contact me at (516)484-4400, extension 215.
Very truly yours,
Linda Scarpantonio
Legal Coordinator