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 November 30, 2001
----------------------------------------
[ ] 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 TECHNOLOGIES, INC.
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(Name of Small Business Issuer in Its Charter)
(Formerly Sandata, Inc.)
Delaware 11-2841799
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(State or Other Jurisdiction of (IRS Employer
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)
Formerly 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 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 January 8, 2002 was 2,506,473 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 3-4
SHEETS as of November 30, 2001 (Unaudited)
and May 31, 2001 (Audited)
UNAUDITED CONDENSED CONSOLIDATED 5
STATEMENTS OF OPERATIONS for the three and six
months ended November 30, 2001 and November 30, 2000
UNAUDITED CONDENSED CONSOLIDATED 6
STATEMENTS OF CASH FLOWS for the six
months ended November 30, 2001 and November 30, 2000
NOTES TO CONDENSED CONSOLIDATED 7-12
FINANCIAL STATEMENTS
Item 2 - MANAGEMENT'S DISCUSSION AND 13-16
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 18
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K 18
SANDATA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED UNAUDITED
November 30, May 31,
2001 2001
---- ----
ASSETS:
CURRENT ASSETS
Cash and cash equivalents $ 752,566 $ 475,578
Accounts receivable, net of allowance for doubtful
accounts of $389,000 at November 30, 2001 and
$347,000 at May 31, 2001 2,052,054 2,160,675
Receivables from affiliates 414,782 802,787
Inventories 33,758 35,993
Prepaid expenses and other current assets 290,061 416,056
Deferred Income Taxes 279,101 274,470
------------ ----------
TOTAL CURRENT ASSETS 3,822,322 4,165,559
FIXED ASSETS, NET 6,717,281 6,036,203
DEFERRED INCOME TAXES 419,585 335,773
OTHER ASSETS
Notes receivable 114,982 117,262
Cash surrender value of officer's life insurance,
security deposits and other 1,029,513 866,774
----------- ----------
Total Assets $12,103,683 $11,521,571
=========== ===========
See notes to condensed consolidated financial statements
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED AUDITED
November 30, May 31,
2001 2001
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 2,064,966 $ 1,881,269
Deferred/unearned revenue 33,681 31,069
Deferred income 205,418 296,560
---------- ---------
TOTAL CURRENT LIABILITIES 2,304,065 2,208,898
LONG TERM DEBT 4,500,000 3,850,000
DEFERRED INCOME 52,265 124,401
----------- -------
TOTAL LIABILITIES 6,856,330 6,183,299
--------- ---------
COMMITMENTS AND CONTINGENCIES:
SHAREHOLDERS' EQUITY
Common stock 2,506 2,506
Additional paid in capital 5,803,704 5,803,704
Retained earnings 960,802 1,051,721
Notes receivable - officers (1,519,659) (1,519,659)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 5,247,353 5,338,272
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $12,103,683 $11,521,571
=========== ===========
See notes to condensed consolidated financial statements
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
2001 2000 2001 2000
---- ---- ---- ----
REVENUES:
Service fees $ 4,137,580 $4,523,115 $8,529,906 $8,952,255
Other income 168,467 90,724 267,209 184,392
Interest income 44,843 46,911 78,439 95,519
-------------- ---------- ---------- ----------
4,350,890 4,660,750 8,875,554 9,232,166
--------- ---------- --------- ---------
COSTS AND EXPENSES:
Operating 2,328,035 2,732,176 5,042,118 5,349,576
Selling, general and administrative 1,329,139 1,111,536 2,979,309 2,290,066
Depreciation and amortization 455,875 695,262 883,737 1,359,217
Interest expense 72,068 77,725 149,747 128,990
--------- --------- --------- ---------
TOTAL COSTS AND EXPENSES 4,185,117 4,616,699 9,054,911 9,127,849
--------- --------- --------- ---------
EARNINGS (LOSS) FROM OPERATIONS
BEFORE INCOME TAXES 165,773 44,051 (179,357) 104,317
Income tax expense (benefit) 81,741 36,221 (88,438) 87,219
--------- ------ -------- -------
NET EARNINGS (LOSS) $ 84,032 $ 7,830 $ (90,919) $ 17,098
========= ========= ========== ========
BASIC AND DILUTED EARNINGS (LOSS) $ .03 $ .00 $ (.04) $ .01
PER SHARE ========= ========= ========= =========
BASIC WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 2,506,475 2,506,475 2,506,475 2,506,475
========= ========= ========= =========
DILUTED WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 2,506,475 2,506,475 2,506,475 2,607,075
========== ========= ========= =========
See notes to condensed consolidated financial statements
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
NOVEMBER 30,
2001 2000
---- ----
Cash flows from operating activities:
Net (loss) earnings $ (90,919) $ 17,098
Adjustments to reconcile net (loss) earnings to net cash
provided by operating activities:
Depreciation and amortization 883,737 1,359,217
Gain on the disposal of fixed assets (4,309) (122,956)
Change in allowance for doubtful accounts 41,719 (36,964)
Change in deferred income (163,278) (48,563)
Change in deferred revenue 2,612 3,240
Change in operating assets 34,668 523,431
Change in operating liabilities 95,259 (460,747)
------ ---------
Net cash provided by operating activities 799,489 1,233,756
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Cash flows from investing activities:
Purchases of fixed assets (1,560,506) (1,944,208)
Proceeds in receivables from affiliates 388,005 ---
----------- -----------
Net cash used in investing activities (1,172,501) (1,944,208)
----------- ----------
Cash flows from financing activities:
Proceeds from note payable 500,000 300,000
Principal payments on note payable (500,000) (317,475)
Proceeds from line of credit 1,800,000 ---
Principal payments on line of credit (1,150,000) (100,000)
----------- ---------
Net cash provided by (used in) financing activities 650,000 (117,475)
------- ---------
Change in cash and cash equivalents 276,988 (827,927)
Cash and cash equivalents at beginning of period 475,578 1,229,718
------- ----------
Cash and cash equivalents at end of period $752,566 $ 401,791
======== ==========
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 November 30, 2001, the
Condensed Consolidated Statements of Operations for the three and six month
periods ended November 30, 2001 and 2000 and the Condensed Consolidated
Statements of Cash Flows for the six month periods ended November 30, 2001 and
2000 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 November 30, 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 November 30, 2001
are not necessarily indicative of the operating results expected for the full
year.
CHANGE OF COMPANY'S NAME
Sandata's Board of Directors determined that it would be in the best
interest of Sandata and its stockholders to amend Sandata's Certificate of
Incorporation to change Sandata's name to "Sandata Technologies, Inc." The Board
of Directors believes that the new name is more identifiable with the business
activities of Sandata and its Subsidiaries and that, accordingly, its adoption
will enhance Sandata's competitive position in its business. The proposal to
change Sandata's name to Sandata Technologies, Inc. was approved by the
shareholders of the Company at the Annual Shareholders Meeting on November 20,
2001 (see Item 4 of Part II, below). The Certificate of Amendment was filed on
November 21, 2001.
New Accounting Pronouncements
In October 2001, the FASB issued 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.
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
November 30, 2001 was $1,531,111.
The Company has also entered into a $750,000 loan agreement with the Long
Island Development Corporation ("LIDC"), under a guarantee by the SBA (the "SBA
Loan"). The SBA Loan was assigned to the Affiliate in November 1996; however,
repayment of the SBA Loan is guaranteed by the Company and various subsidiaries
of the Company. The SBA Loan is payable in 240 monthly installments of $6,255,
which includes principal and interest at a rate of 7.015%. The balance of the
SBA Loan as of November 30, 2001 was $612,640.
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 $581,000 and $948,000 and $1,211,000 and
$1,808,000 for the three and six months periods ended November 30, 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 $121,000 and $46,000 for the six months ended November
30, 2001 and 2000 respectively and are recorded as a reduction of operating
expense. The Company was owed $138,750 from Health Card at November 30, 2001.
Subsequent to November 30, 2001, the Company received approximately $27,000 from
Health Card.
c. The Company makes lease and rent payments to affiliates of the Company's
Chairman. The payments for leased equipment were made to P.W. Capital Corp. and
P.W. Medical Management, Inc., and were $71,140 and $166,326 for the three and
six months ended November 30, 2001 as compared to $105,807 and 204,397 for the
three and six months ended November 30, 2000. The payments for the Facility were
made to the Affiliate, and were $137,869 and $280,812 for the three and six
months ended November 30, 2001 as compared to $140,612 and $281,224 for the
three and six months ended November 30, 2000.
As of November 1, 2001, the Company and the Affiliate amended the Lease
Agreement (as amended, the "Lease"). The Lease provides that, effective August
1, 2001, the rent payable by the Company shall be an aggregate annual rent of
$280,604. While formerly the Company made estimated monthly real estate tax,
utility and maintenance-expense payments to the Landlord, the Lease now provides
that the Company will pay its pro-rata share of such expenses directly, to the
entities to whom payment must be made. The Company estimates that such monthly
expenses will approximate an aggregate of $280,800 per year. The annual rent
will increase by 5% per year during the term of the Lease. The annual expenses
are also expected to increase, although the Company cannot estimate by how much.
The Lease expires July, 2010.
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 six months ended November
30, 2001 and 2000 the total payments made by the Company to MAOS were $134,942
and $224,212, as compared to $84,141 and $143,574, respectively.
e. The Company paid an aggregate of $16,241 and $28,867, for the three and
six months ended November 30, 2001 as compared to $18,364 and $37,348 for the
three and six months ended November 30, 2000, 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 November 30, 2001 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 November 30, 2001, the outstanding balance on the Credit Agreement was
$4,500,000; on January 8, the outstanding balance on the Credit Agreement was
$4,350,000.
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.
Options and warrants to purchase 1,468,438 shares of common stock were
outstanding at November 30, 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. For
the three and six months ended November 30, 2001, no options and warrants were
included in the diluted earnings per share calculation.
5. SHAREHOLDERS' EQUITY
Stock Options
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.
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 November 30, 2001 and 2000, the outstanding balance on
such notes, including principal and accrued but unpaid interest, was $1,660,001
and $1,653,493, respectively.
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 three and six-month periods ended November 30, 2001 and
2000:
For the three months ended For the six months ended
November 30, November 30,
2001 2000 2001 2000
---- ---- ---- ----
Computerized information processing 1,484,952 1,465,613 $3,007,199 $2,939,843
Telephone-based data collection 1,854,195 1,912,520 3,746,346 3,846,862
Technology infrastructure and outsourcing 213,553 486,516 615,845 1,003,050
Information technology 581,883 657,704 1,145,958 1,161,185
Other 2,997 762 14,560 1,315
--------- --------- ---------- ----------
$4,137,580 $4,523,115 $8,529,908 $8,952,255
========== ========== ========= =========
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
six-months ended November 30, 2001, the Company received revenues from these
customers amounting to approximately $2,619,000, as compared to $2,555,000 and
$5,286,000 as compared to $5,309,000, for the three and six months ended
November 30, 2000. The Company was owed approximately $1,508,090 and $1,315,700
from the customers at November 30, 2001 and 2000, respectively.
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 $4,350,890 and $8,875,554 for the three and six months ended
November 30, 2001 as compared to $4,660,750 and $9,232,166 for the three and six
months ended November 30, 2000, a decrease of $309,860 and $356,610,
respectively.
Service fee revenue for the three and six months ended November 30, 2001
was $4,137,580 and $8,529,906 as compared to $4,523,115 and $8,952,255 for the
three and six months ended November 30, 2000, a decrease of $385,535 and
$422,347 respectively. The decrease for the six-month period is primarily
attributable to a decrease in revenues derived from Sharp of $6,306, Santrax of
$100,516 outsourcing of $387,205, and SandataNET of $1,982, offset by increases
in Pro-Health of $73,662 .
Other income for the three and six months ended November 30, 2001 was
$168,467 and $267,209, as compared to $90,724 and $184,392 for the three and six
months ended November 30, 2000, respectively. The increase is 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 $2,328,035 and $5,042,118 for the three and six
months ended November 30, 2001 as compared to $2,732,176 and $5,349,576 for the
three and six months ended November 30, 2000, a decrease of $404,141 and
307,458, respectively. Costs associated with payroll and related expenses of
$304,375 decreased, office supplies decreased $19,000 and telephone expenses
decreased $186,230. These decreases were partially offset by an increase in
maintenance contracts of $18,700, equipment rental payments of $66,000,
equipment purchases of $73,811 and postage of $43,636.
Selling, general and administrative expenses were $1,329,139 and $2,979,309
for the three and six months ended November 30, 2001, as compared to $1,111,536
and 2,290,066 for the three and six months ended November 30, 2000, an increase
of $217,603 and $689,243, respectively. The increase for the six-month period
was primarily due to increases in sales staff of $276,610, legal expenses of
$140,000, in addition to payroll and related expenses of $272,633 relative to
the increased efforts to increase sales in the SanTrax, Outsourcing and
Information Technology product lines.
Depreciation and amortization expense decreased $239,387 and $475,480 to
$455,875 and $883,737 for the three and six months ended November 30, 2001 as
compared to $695,262 and $1,359,217 for the three and six months ended November
30, 2000, 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 $72,068 and $148,747 for the three and six months
ended November 30, 2001 as compared to $77,725 and $128,990 for the three and
six months ended November 30, 2000. The decrease for the quarter was due to
lower interest rates. The increase for the six months 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; the 66,673 options that were vested on that
date have since expired. 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.
Income Tax (Benefit) Expenses
Income tax expense and (benefit) for the three and six months ended
November 30, 2001 was $81,741 and ($88,438) as compared to income tax expense of
$36,221 and $87,219 for the three and six months ended November 30, 2000. The
increase in income tax expense for the three months is due to an increase in
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 November 30, 2001 to
$1,518,257, 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 $183,697,
decreases in accounts receivable of $108,621, receivable from affiliates of
$388,055 and prepaid expenses of $125,990, offset by an increase in cash of
$276,988.
For the three and six months ended November 30, 2001, the Company spent
approximately $801,000 and $1,561,000 in fixed asset additions, of which
$603,000 and $1,278,000 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 November 30, 2001 and 2000, the outstanding balance on
such notes, including principal and accrued but unpaid interest, was $1,660,001
and $1,653,493, 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. 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 November 30, 2001
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 November 30, 2001, the outstanding balance on the
Credit Agreement with the Bank was $4,500,000. As of January 8, 2002, the
outstanding balance on the Credit Agreement was $4,350,000.
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:
A. The Registrant held its Annual Meeting of Shareholders on November 20,
2001.
B. Five (5) directors were elected at the Annual Meeting to serve until the
next Annual Meeting of Shareholders and until their respective successors are
duly elected and qualified, or until their earlier resignation or removal. The
names of these directors and votes cast in favor of their election and votes
withheld are as follows:
Name Votes For Votes Withheld
Bert E. Brodsky 1,589,641 0
Hugh Freund 1,589,641 0
Gary Stoller 1,589,641 0
Ronald L. Fish 1,589,641 0
Martin Bernard 1,589,641 0
C. An amendment to the Certificate of Incorporation, which would change the
Company's corporate name, was approved as set forth below:
Votes For Votes Against
1,586,993 2,819
Item 5 - OTHER INFORMATION:
None
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibit Index
10.27 Lease Agreement dated November 1, 2001, between the Company and
BFS Sibling Realty, Inc. for premises at 26 Harbor Park Drive,
Port Washington, New York.
(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. AND SUBSIDIARIES
-------------------------------------------
(Registrant)
Date: January 14, 2002 By: /s/ Bert E. Brodsky
------------------------------- --------------------------------
Bert E. Brodsky
Chairman of the Board,
Chief Executive Officer,
Chief Financial Officer