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 ended August 31, 2001
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[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from to
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Commission file number 0-14401
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SANDATA, INC.
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(Name of Small Business Issuer in Its Charter)
Delaware 11-2841799
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Incorporation or Organization) Identification No.)
26 Harbor Park Drive, Port Washington, NY 11050
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(Address of Principal Executive Offices) (Zip Code)
516-484-9060
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(Issuer's Telephone Number, Including Area Code)
(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 REGISTRANTS 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
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APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of each of the issuer's classes of common
equity, as of October ____, 2000 was _________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:
CONSOLIDATED CONDENSED BALANCE 3
SHEETS as of August 31, 2001 (Unaudited)
and May 31, 2001 (Audited)
UNAUDITED CONSOLIDATED CONDENSED 5
STATEMENTS OF OPERATIONS for the three
months ended August 31, 2001 and August 31, 2000
UNAUDITED CONSOLIDATED CONDENSED 6
STATEMENTS OF CASH FLOWS for the three
months ended August 31, 2001 and August 31, 2000
NOTES TO CONSOLIDATED CONDENSED 7
FINANCIAL STATEMENTS
Item 2 - MANAGEMENT'S DISCUSSION AND 14
ANALYSIS OR PLAN OF OPERATION
PART II - OTHER INFORMATION 17
Item 1 - LEGAL PROCEEDINGS 17
Item 2 - CHANGES IN SECURITIES 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
SANDATA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
UNAUDITED AUDITED
August 31, May 31,
2001 2001
---- ----
ASSETS:
CURRENT ASSETS
Cash and cash equivalents $2,003,796 $ 475,578
Accounts receivable, net of allowance for doubtful
accounts of $364,000 at August 31, 2001 and
$347,000 at May 31, 2001 2,080,071 2,160,675
Receivables from affiliates 669,265 802,787
Inventories 49,999 35,993
Prepaid expenses and other current assets 244,697 416,056
Deferred Income Taxes 279,101 274,470
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TOTAL CURRENT ASSETS 5,326,929 4,165,559
FIXED ASSETS, NET 6,372,401 6,036,203
DEFERRED INCOME TAXES 501,326 335,773
OTHER ASSETS
Notes receivable 115,883 117,262
Cash surrender value of officer's life insurance,
security deposits and other 870,460 866,774
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TOTAL ASSETS $13,186,999 $11,521,571
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See notes to consolidated condensed financial statements
SANDATA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
UNAUDITED AUDITED
August 31, May 31,
2001 2001
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 3,179,643 $ 1,881,269
Deferred/unearned revenue 54,712 31,069
Deferred income 257,100 296,560
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TOTAL CURRENT LIABILITIES 3,491,455 2,208,898
LONG TERM DEBT 4,450,000 3,850,000
DEFERRED INCOME 82,221 124,401
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TOTAL LIABILITIES 8,023,676 6,183,299
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COMMITMENTS AND CONTINGENCIES:
SHAREHOLDERS' EQUITY
Common stock 2,506 2,506
Additional paid in capital 5,803,704 5,803,704
Retained earnings 876,772 1,051,721
Notes receivable - officers (1,519,659) (1,519,659)
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TOTAL SHAREHOLDERS' EQUITY 5,163,323 5,338,272
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $13,186,999 $11,521,571
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See notes to consolidated condensed financial statements
SANDATA, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
AUGUST 31,
2001 2000
---- ----
REVENUES:
Service fees $4,392,328 $4,429,140
Other income 98,742 93,668
Interest income 33,596 48,608
4,524,666 4,571,416
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COSTS AND EXPENSES:
Operating 2,714,083 2,617,400
Selling, general and administrative 1,650,170 1,178,530
Depreciation and amortization 427,862 663,955
Interest expense 77,679 51,265
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TOTAL COSTS AND EXPENSES 4,869,794 4,511,150
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(LOSS) EARNINGS FROM OPERATIONS BEFORE INCOME TAXES (345,128) 60,266
Income tax (benefit) expense (170,179) 50,998
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NET (LOSS) EARNINGS $( 174,949) $ 9,268
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BASIC AND DILUTED (LOSS) EARNINGS PER SHARE $ (.07) $ .00
See notes to consolidated condensed financial statements
SANDATA, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
AUGUST 31,
2001 2000
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Cash flows from operating activities:
Net (loss) earnings $ (174,949) $ 9,268
Adjustments to reconcile net (loss) earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 427,862 663,955
Deferred income taxes (170,179) 45,490
(Loss) gain on the disposal of fixed assets (4,309) 3,893
Increase in allowance for doubtful accounts 17,101 13,000
Decrease in deferred income (81,640) (7,199)
Increase (decrease) of deferred revenue 23,643 (88,957)
Decrease in operating assets 218,544 381,830
Increase (decrease) in operating liabilities 1,298,374 (407,576)
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Net cash provided by operating activities 1,554,447 613,704
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Cash flows from investing activities:
Purchases of fixed assets (759,751) (915,048)
Proceeds from note payable 500,000 ---
Principal payments on note payable (500,000) ---
Decrease (Increase) in receivables from affiliates 133,522 (322,485)
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Net cash (used in) investing activities (626,229) (1,237,533)
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Cash flows from financing activities:
Proceeds from note payable --- 100,000
Proceeds from line of credit 1,450,000
Principal payments on line of credit (850,000) (100,000)
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Net cash provided by financing activities 600,000 ---
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Increase (Decrease) in cash and cash equivalents 1,528,218 (623,829)
Cash and cash equivalents at beginning of period 475,578 1,229,718
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Cash and cash equivalents at end of period $2,003,796 $ 605,889
========== ============
See notes to consolidated condensed financial statements
SANDATA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The Consolidated Condensed Balance Sheet as of August 31, 2001, the
Consolidated Condensed Statements of Operations for the three month period ended
August 31, 2001 and 2000 and the Consolidated Condensed Statements of Cash Flows
for the three month period ended August 31, 2001 and 2000 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 August 31, 2001 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 August 31, 2001
are not necessarily indicative of the operating results expected for the full
year.
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
August 31, 2001 was $1,574,445.
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, 2001 was $619,271.
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 $367,000 and $597,000 for the three months
ended August 31, 2001 and 2000, respectively, for various services. In addition
the Company resells its telephone services to Health Card. The billings for such
telephone services amounted to approximately $61,000 and $18,000 for the three
months ended August 31, 2001 and 2000 respectively and are recorded as a
reduction of operating expense. The Company was owed $400,892 from Health Card
at August 31, 2001. Subsequent to August 31, 2001, the Company received
approximately $185,500 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 $95,186 and $98,590 for the three months
ended August 31, 2001 and 2000, respectively. The payments for the Facility were
made to the Affiliate, and were $142,943 and $140,900 for the three months ended
August 31, 2001 and 2000, 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 paralegal services. For the three months ended August 31, 2001
and 2000 the total payments made by the Company to MAOS were $89,270 and
$59,434, respectively.
e. During the three months ended August 31, 2001 and 2000 the Company paid
an aggregate of $12,626 and $16,364, respectively 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, between Sandsport, Inc., a wholly owned subsidiary of the Company
("Sandsport"), and HSBC Bank USA (the "Credit Agreement"), 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. At August 31,
2001, the Group failed to meet one of the financial ratios, and the Bank 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, 2001, the outstanding balance on the Credit Agreement was $4,450,000.
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. Diluted earnings per share has been computed using the basic
weighted average shares of common stock issued adjusted for the dilutive effect
of outstanding stock options.
Basic earnings per share are based on the weighted-average number of shares
of common stock outstanding, which was 2,506,475 at August 31, 2001 and 2000.
Diluted earnings per share are based on the weighted-average number of shares of
common stock adjusted for the effects of assumed exercise of options and
warrants under the treasury stock method, which were as follows: 2,506,475 at
August 31, 2001 and 2,707,617 at August 31, 2000.
Options and warrants to purchase 1,721,773 shares of common stock were
outstanding at August 31, 2001 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 period. At
August 31, 2001, 201,142 options and warrants were included in the diluted
earnings per share calculation.
5. SHAREHOLDERS' EQUITY
Stock Options
The Company maintains the following stock option plans:
1995 Stock Option Plan
At August 31, 2001, there were 590,500 incentive options outstanding under
a stock option plan adopted in January 1995 (the "1995 Plan"), which provides
for both incentive and nonqualified stock options and reserves 1,000,000 shares
of common stock for grant under the plan. Of these options, 520,500 are held by
officers of the Company. The plan requires that incentive options be granted at
exercise prices not less than the fair market value at the date of grant, and
terminates in January 2005. All options outstanding under this plan are
exercisable at August 31, 2001 at prices ranging from $1.41 to $2.61 per share
over a period of five years from date of grant.
On July 14, 1997, the Company filed a Registration Statement on Form S-8
relative to reofferings of shares of Common Stock of the Company which may be
acquired pursuant to the 1995 Plan.
1998 Stock Option Plan
At August 31, 2001 there were 901,779 incentive stock options outstanding
under a stock option plan adopted in October 1998, (the "1998 Plan") which
provides for both incentive and nonqualified stock options and reserves
1,000,000 shares of common stock for grant under the plan. The plan requires
that incentive options be granted at exercise prices not less than the fair
market value at the date of grant and terminates in August 2008. Of the options
outstanding at August 31, 2001, 473,155 were exercisable at prices ranging from
$1.31 to $3.00 over three to five years from the date of grant.
2000 Stock Option Plan
In October 2000 the Board of Directors approved the adoption of a stock
option plan (the "2000 Plan"). The 2000 Plan was subsequently adopted by
Shareholders at the Company's Annual Meeting on November 20, 2000. At August 31,
2001, there were 155,500 incentive options outstanding under the plan, which
provides for both incentive and nonqualified stock options and reserves
1,500,000 shares of common stock for issuance in connection with option grants.
The 2000 Plan terminates in September 2010. Options outstanding under the plan
vest over a seven-year period commencing December 31, 2000 and ending December
31, 2007 and are exercisable at $3.00 per share over a period of ten years from
the date of grant. At August 31, 2001, there were 33,333 options currently
exercisable.
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 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.
As of August 31, 2001 and 2000, the outstanding balance on such notes, including
principal and accrued but unpaid interest, was $1,619,396 and $1,618,948,
respectively.
In October 1998, the Company granted certain directors of the Company
non-qualified stock options to purchase an aggregate of 20,000 shares of the
Company's common stock under the 1998 Plan at an exercise price of $3.00. These
options vest immediately and are exercisable over a five-year period.
In December 1998, the Company granted 520,500 incentive options to certain
officers of the Company under the 1995 Plan at an exercise price of $1.41 per
share. These options vest immediately and are exercisable over a five-year
period.
In February 2000, the Company granted its Chairman incentive stock options
to purchase an aggregate of 350,000 shares under the 1998 Plan at an exercise
price of $1.31. These options vest and are exercisable over a five year period.
In April 2000, the Company granted certain directors of the Company
non-qualified stock options to purchase an aggregate of 72,000 shares under the
1998 Plan at an exercise price of $3.00. These options vest and are exercisable
over a six year period.
In April 2000, the Company granted its President incentive stock options to
purchase an aggregate of 100,000 shares under the 1998 Plan at an exercise price
of $3.00. In October 2000, the Company granted its President incentive stock
options to purchase 150,000 shares under the 2000 plan, at an exercise price of
$3.00 per share. The employment of the Company's President was terminated on
August 6, 2001, at which date the President became entitled to exercise, for
ninety days, those options which had already vested. Those options consisted of
33,340 shares under the 1998 Plan, and 33,333 under the 2000 Plan.
In November 2000, the Company granted certain directors of the Company
non-qualified stock options to purchase an aggregate of 20,000 shares of the
Company's common stock under the 1998 Plan at an exercise price of $3.00. These
options vest over a three-year period and are exercisable over a five-year
period.
Restricted Stock Grant Plan
On September 1, 2000 the Board of Directors approved the adoption of the
Company's 2000 Restricted Stock Grant Plan (the "Stock Grant Plan"). The Stock
Grant Plan was subsequently adopted by the Shareholders at the Company's Annual
Meeting on November 20, 2000. The Stock Grant Plan provides for the issuance of
shares that are subject to both standard restrictions on the sale or transfer of
such shares (e.g., the standard seven year vesting schedule set forth in the
Stock Grant Plan) and/or restrictions that the Board may impose, such as
restrictions relating to length of service, corporate performance, or other
restrictions. As of August 31, 2001, no grants had been made under the Stock
Grant Plan and, therefore, no shares had vested under it. There are 700,000
shares of Common Stock reserved for issuance in connection with grants made
under the Stock Grant Plan.
6. COMMITMENTS AND CONTINGENCIES
On April 2, 2001, the Company was served with a First Amended Complaint
filed by Dataline, Inc. against MCI WorldCom and the Company for alleged trade
libel and related counts, in the United States District Court of the Southern
District of New York, Civil Action No. 00-CV-1578. On September 27, 2001, the
Court dismissed the case with prejudice.
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 has been commenced against the Company and Health Card by a
former executive of Health Card, Mary Casale, who alleges 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. The matter is
presently pending before New York City office of the Equal Employment
Opportunity Commission (`EEOC"). The EEOC has made no findings or other
determinations as to the merits of the parties' claims or defenses. The Company
is being defended pursuant to an employment practices liability insurance
policy, the coverage of which is subject to various terms, conditions, and
exclusions. In the opinion of the Company's management, this complaint is
entirely without merit as against the Company and is very unlikely to have a
material adverse effect on the financial condition 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 quarters ended August 31, 2001 and 2000:
For the three months ended August 31,
2001 2000
---- ----
Computerized information processing $1,522,247 $1,474,230
Telephone-based data collection 1,892,151 1,934,342
Technology infrastructure and outsourcing 402,292 516,534
Information technology 564,075 503,481
Other 11,563 533
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$4,392,328 $4,429,140
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. During the quarters
ended August 31, 2001 and 2000, the Company received revenues from these
customers amounting to approximately $2,667,000 and $2,754,000, respectively.
The Company was owed approximately $1,364,000 and $1,103,000 from the customers
at August 31, 2001 and 2000, respectively.
SANDATA, 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 $4,524,666 for the three months ended August 31, 2001 as
compared to $4,571,416 for the three months ended August 31, 2000, a decrease of
$46,750 or 1.02%.
Service fee revenue for the three months ended August 31, 2001 was
$4,392,328 as compared to $4,429,140 for the three months ended August 31, 2000,
a decrease of $36,812 or .83%. The decrease is primarily attributable to a
reduction in revenues derived from Sharp of $2,510, Santrax of $42,191 and
outsourcing of $103,262, offset with the increases in SandataNET of $60,624 and
Pro Health of $50,527.
Other income for the three months ended August 31, 2001 was $98,742, as
compared to $93,668 for the three months ended August 31, 2000. The increase is
attributable to the increase in fees to affiliates of $1,300 and an insurance
settlement of $7,700 offset slightly by a decrease in income recognized on
sales/leaseback transactions of $11,474.
Expenses Related to Services
Operating expenses were $2,714,083 for the three months ended August 31,
2001 as compared to $2,617,400 for the three months ended August 31, 2000, an
increase of $96,683 or 3.69%. Costs associated with payroll and related expenses
of $15,306 and equipment purchases of $96,766 increased this quarter offset by a
decrease in equipment rental payments of $15,389.
Selling, general and administrative expenses were $1,650,170 for the three
months ended August 31, 2001, as compared to $1,178,530 for the three months
ended August 31, 2000, an increase of $471,640 or 40%. The increase was
primarily due to increases in legal expenses of $62,640 consulting of $32,000,
in addition to payroll and related expenses of $356,000 and commission expenses
of $21,000 relative to increased efforts to increase sales in the SanTrax and
SandataNET product lines.
Depreciation and amortization expense decreased $236,093 to $427,862 for
the three months ended August 31, 2001 as compared to $663,955 for the three
months ended August 31, 2000. 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 $77,677 for the three months ended August 31, 2001 as
compared to $51,265 for the three months ended August 31, 2000. The increase was
a result of increased borrowings on the Company's Credit Agreement.
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.
Income Tax (Benefit) Expenses
Income tax benefit for the three months ended August 31, 2001 was $170,179
as compared to income tax expense of $50,998 for the three months ended August
31, 2000. The decrease in income tax expense is due to lower pretax income, the
recognition 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 August 31, 2001 to
$1,835,474, as compared with $1,956,661 at May 31, 2001. The primary factor that
contributed to the decrease was an increase in accounts payable of $1,298,374,
decreases in accounts receivable of $63,604, receivable from affiliates of
$133,522 and prepaid expenses of $171,354, offset by an increase in cash of
$1,528,218.
For the three months ended August 31, 2001, the Company spent approximately
$760,000 in fixed asset additions, of which $675,000 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.
As of August 31, 2001 and 2000, the outstanding balance on such notes, including
principal and accrued but unpaid interest, was $1,619,396 and $1,618,948,
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.
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. At May 31, 2001,
the Group failed to meet these net worth and financial ratios, and the Bank
granted the Group a waiver. 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. At August 31,
2001, the Group failed to meet one of the financial ratios, and the Bank 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, 2001, the outstanding balance on the Credit Agreement with the Bank
was $4,450,000.
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.
One June 9, 2001, the Company gave a promissory note to National Medical
Health Card Systems, Inc. ("Health Card"), a company affiliated with the
Company's Chairman of the Board, in the principal amount of $500,000 with
interest at the rate of 7%, which was due on June 8, 2002. This note was paid in
full on August 15, 2001.
SANDATA, 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
The Company filed a report on Form 8-K for events dated August
6 and 8 relating to the termination of the employment of the
Company's President and the elimination of approximately 30
positions.
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.
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(Registrant)
Date: October 12, 2001 By: /s/ Bert E. Brodsky
---------------- -----------------------------------------
Bert E. Brodsky
Chairman of the Board,
Chief Executive Officer,
Chief Financial Officer