U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the quarterly period year ended August 31, 1998
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from to
Commission file number 0-14401
SANDATA, INC.
(Name of Small Business Issuer in Its Charter)
Delaware 11-2841799
(State or Other Jurisdiction (IRS Employer
Incorporation or Organization) Identification No.)
26 Harbor Park Drive, Port Washington, NY 11050
(Address of Principal Executive Offices) (Zip Code)
516-484-9060
(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
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
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of each of the issuer's classes of common
equity, as of October 13, 1998 was 2,481,482 shares.
Transitional Small Business Disclosure Format (check one): Yes No X
<PAGE>
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1 FINANCIAL STATEMENTS:
CONSOLIDATED CONDENSED BALANCE
SHEETS as of August 31, 1998 (unaudited)
and May 31, 1998 3
UNAUDITED CONSOLIDATED CONDENSED
STATEMENTS OF OPERATIONS for the three
months ended August 31, 1998 and August 31, 1997 5
UNAUDITED CONSOLIDATED CONDENSED
STATEMENTS OF CASH FLOWS for the three
months ended August 31, 1998 and August 31, 1997 6
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS 7
Item 2 MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION 11
PART II OTHER INFORMATION 16
Item 1 LEGAL PROCEEDINGS 16
Item 2 CHANGES IN SECURITIES 16
Item 3 DEFAULTS UPON SENIOR SECURITIES 16
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 16
Item 5 OTHER INFORMATION 16
Item 6 EXHIBITS AND REPORTS ON FORM 8-K 16
<PAGE>
Sandata, Inc. and Subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEET
<TABLE>
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UNAUDITED AUDITED
August 31, May 31,
1998 1998
ASSETS:
CURRENT ASSETS
Cash and cash equivalents $ 493,938 $ 1,794,947
Accounts receivable, net of allowance for doubtful
accounts of $445,000 at August 31, 1998 and
$443,000 at May 31, 1998 1,416,068 1,611,457
Receivables from affiliates 564,312 619,687
Inventories 11,996 27,003
Prepaid expenses and other current assets 194,878 140,873
TOTAL CURRENT ASSETS 2,681,192 4,193,967
FIXED ASSETS, NET 6,497,580 5,814,381
OTHER ASSETS
Notes receivable 187,593 100,000
Cash surrender value of officer's life insurance,
security deposits and other 535,833 525,281
TOTAL ASSETS $9,902,198 $10,633,629
</TABLE>
See notes to consolidated condensed financial statements
<PAGE>
Sandata, Inc. and Subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEET
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
UNAUDITED AUDITED
August 31, May 31,
1998 1998
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES
Accounts payable and accrued expenses $1,697,894 $ 2,507,042
Current portion of long-term debt --- 22,296
Deferred/unearned revenue 61,658 23,410
Deferred income 177,540 186,358
TOTAL CURRENT LIABILITIES 1,937,092 2,739,106
DEFERRED INCOME 171,559 215,945
DEFERRED INCOME TAXES 382,000 382,000
TOTAL LIABILITIES 2,490,651 3,337,051
SHAREHOLDERS' EQUITY
Common stock 3,169 1,560
Additional paid in capital 5,776,902 4,173,091
Retained earnings 3,151,135 3,121,927
Notes receivable - officers (1,519,659) ---
TOTAL SHAREHOLDERS' EQUITY 7,411,547 7,296,578
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $9,902,198 $10,633,629
</TABLE>
See notes to consolidated condensed financial statements
<PAGE>
Sandata, Inc. and Subsidiaries
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
AUGUST 31,
1998 1997
REVENUES:
Service fees $3,223,510 $2,974,907
Other income 253,328 71,701
Interest income 24,398 34,280
3,501,236 3,080,888
COSTS AND EXPENSES:
Service Fees:
Operating 2,117,828 1,981,270
Selling, general and administrative 892,823 596,375
Depreciation and amortization 439,360 330,251
Interest expense 5,730 22,516
TOTAL COSTS AND EXPENSES 3,455,741 2,930,412
Earnings from operations before income taxes 45,495 150,476
Income tax expense 16,287 66,209
NET EARNINGS $ 29,208 $ 84,267
BASIC EARNINGS PER SHARE $ .01 $ .06
DILUTED EARNINGS PER SHARE $ .01 $ .04
</TABLE>
See notes to consolidated condensed financial statements
<PAGE>
Sandata, Inc. and Subsidiaries
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
AUGUST 31,
1998 1997
Cash flows from operating activities:
Net earnings $ 29,208 $ 84,267
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 439,360 330,251
Increase in allowance for doubtful accounts receivable 2,315 48,260
(Decrease) in deferred income (53,204) (71,701)
Increase in deferred revenue 38,248 26,755
Decrease (increase) in operating assets 131,607 (338,582)
(Decrease) in operating liabilities (809,148) (305,363)
Net cash (used in) operating activities (221,614) (226,113)
Cash flows from investing activities:
Collection of notes receivable - officers --- 102,867
Purchases of fixed assets (1,122,559) (599,216)
Decrease in receivables from affiliates 63,851 327,506
Collections of note receivable-former affiliates --- 11,363
Net cash (used in) investing activities (1,058,708) (157,480)
Cash flows from financing activities:
Proceeds from stock transactions 1,609 753,183
Principal payments on term loan (22,296) (34,201)
Proceeds from line of credit 250,000 ---
Principal payments on line of credit (250,000) (500,000)
Net cash provided by financing activities (20,687) 218,982
(Decrease) in cash and cash equivalents (1,301,009) (164,611)
Cash and cash equivalents at beginning of period 1,794,947 1,200,014
Cash and cash equivalents at end of period $ 493,938 $1,035,403
</TABLE>
See notes to consolidated condensed financial statements
<PAGE>
Sandata, Inc. and Subsidiaries
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STTEMENTS
(Unaudited)
1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The Consolidated Condensed Balance Sheet as of August 31, 1998, the Consolidated
Condensed Statements of Operations for the three month period ended August 31,
1998 and 1997 and the Consolidated Condensed Statement of Cash Flows for the
three month period ended August 31, 1998 and 1997 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, 1998 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, 1998. Results of Operations for the period ended August 31, 1998
are not necessarily indicative of the operating results expected for the full
year.
2. RELATED PARTY TRANSACTIONS
On June 1, 1994, BFS Sibling Realty, Inc. ("BSRI") formerly known as Brodsky
Sibling Realty, Inc., a company affiliated with certain of the Company's
Directors, borrowed $3,350,000 in the form of Industrial Development Revenue
Bonds ("Bonds") to finance costs incurred in connection with the acquisition of
the Company's facility (the "Facility") from the NCIDA, and for renovating and
equipping the Facility. These Bonds were subsequently purchased by a bank (the
"Bank"). The aggregate cost incurred by BSRI 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 the
Company's Chairman 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 BSRI.
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, as
sublessee, entered into a sublease agreement (the "First Sublease") with BSRI,
whereby the Company leased the Facility for the conduct of its business and, in
consideration therefor, was obligated to make lease payments in at least equal
amounts due to satisfy the underlying Bond obligations.
On July 31, 1995, by an Assignment and Assumption and First Amendment to Lease
between the Company and BSRI, the Company assumed the obligations of BSRI under
the lease and became the direct tenant and the beneficial owner of the Facility
(collectively the "First Amendment"). In connection with the First Amendment,
the First 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
First Amendment, the Company obtained the right to acquire the Facility upon
expiration of the Lease with the NCIDA and became directly liable to the NCIDA
for amounts due thereunder. Furthermore, in connection with the First Amendment,
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 Facility,
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 were used to repay a portion of the Bonds. The Company entered into the
First Amendment 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 the Second Amendment with BFS
(which succeeded to the interest of BSRI with respect to the Second Amendment),
the NCIDA and the Bank. In connection with the Second Amendment, (i) BFS assumed
all of the Company's obligations under the Lease with the NCIDA and entered into
the Second Sublease with the Company, as sublessee, for the Facility; and (ii)
the Company conveyed to BFS the right to become the owner of the Facility upon
expiration of the Lease. In addition, pursuant to the Second Sublease, the
Company has assumed certain obligations owed by BFS to the NCIDA under the
Lease. BFS 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 BFS; the net difference was recorded as other
income in the financial statements in fiscal 1997.
As of June 1, 1998, National Medical Health Card Systems, Inc., ("Health Card")
of which the Company's Chairman is President, a member of the Board of Directors
and a principal shareholder, hired 11 employees of the Company in order to
provide development, enhancement, modification and maintenance services,
previously provided by the Company. The Company was paid $200,000 in
consideration of the Company's waiving certain rights relative to such
employees. In addition, the Company began leasing certain computer equipment to
Health Card for $2,000 per month as well as computer hardware for its data
processing center at a monthly cost of $20,000 from the Company pursuant to a
verbal agreement. The Company is expected to continue to provide to Health Card
consulting services related to Health Card's information systems.
3. NET EARNINGS PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS
128"), which establishes standards for computing and presenting earnings per
share. The new standard replaces the presentation of primary earnings per share
prescribed by Accounting Principles Board Option No. 15 "Earnings per Share"
("APB 15"), with a presentation of basic earnings per share and also requires
dual presentation of basic and diluted earnings per share on the face of the
statement of operations for all entities with complex capital structures. Basic
earnings per share excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share is computed similarly to
fully diluted earnings per share pursuant to APB 15. The Company adopted SFAS
128 in the third quarter of fiscal 1998 and has restated all prior periods in
its financial statements.
Basic earnings per share are based on the weighted-average number of shares of
common stock outstanding, which were 2,050,860 at August 31, 1998 and 1,382,235
at August 31, 1997. 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:
2,243,866 at August 31, 1998 and 2,293,221 at August 31, 1997. Options to
purchase 174,000 shares of common stock in 1998 were outstanding at August 31,
1998 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.
4. 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. 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 $1,256,415 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 one year financial consulting agreement
("Financial Consulting Agreement") with the Company, pursuant to which, among
other things, such affiliate will receive aggregate annual payments 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 until December 22, 1998 (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.
In August, 1997 the Board of Directors authorized the execution and delivery of
a notice of redemption to holders of such warrants. As a result, there were a
total of 166,000 warrants exercised at $7.00 per share. The net proceeds
generated from warrant exercises were $1,105,827. In September, 1997 the Company
withdrew its election to redeem warrants issued pursuant to the Financial
Consulting Agreement discussed above.
In August 1997 pursuant to the terms of the Company's incentive stock option
plan, certain officers of the Company exercised 206,667 options at an exercise
price of $1.79 per share and 23,333 options at an exercise price of $1.875 per
share. Other option exercises by employees of the Company amounted to an
aggregate of 222 shares at an exercise price of $1.875 per share. The net
proceeds generated from option exercises during the fiscal year ended May 31,
1998 were $408,693.
On July 14, 1998 Messrs. Brodsky, Freund, Stoller, Konigsberg, Gerald Shapiro, a
former director of the Company and Carol Freund, the spouse of Hugh Freund 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 $1,609 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. The shares of Common Stock issued upon exercise have
been pledged as security for the debt.
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 $3,501,236 for the three months ended August 31, 1998 as compared
to $3,080,888 for the three months ended August 31, 1997, an increase of
$420,348 or 13.6%.
Service fee revenue for the three months ended August 31, 1998 was $3,223,510 as
compared to $2,974,907 for the three months ended August 31, 1997, an increase
of $181,627 or 6.1%. The increase is attributable to revenues derived from
SanTrax(R) and SandataNET(R), offset by a decrease in revenues from Health Card.
Other income for the three month period ended August 31, 1998 was $253,328, as
compared to $71,701 for the three months ended August 31, 1997. The increase is
attributable to an amount received from Health Card in connection with its
hiring employees of the Company.
Expenses Related to Services
Operating expenses were $2,117,828 for the three months ended August 31, 1998 as
compared to $1,981,270 for the three months ended August 31, 1997, an increase
of $136,558 or 6.9%. Costs associated with SandataNET and its operations,
including payroll and hardware purchases, in addition to increases in costs of
operations for other product lines, including payroll, telephone and rent, were
the primary factors for the increase in operating expenses.
Selling, general and administrative expenses were $892,823 for the three months
ended August 31, 1998, as compared to $596,375 for the three months ended August
31, 1997, an increase of $296,448 or 49.7%. The increase was primarily due to
increases in consulting, payroll and commission expenses relative to increased
efforts to increase sales in the SanTrax and SandataNET product lines, and
certain royalties payable to MCI Telecommunication Corporation.
Depreciation and amortization expense increased $109,109 to $439,360 for the
three months ended August 31, 1998 as compared to $330,251 for the three months
ended August 31, 1997. The increase was primarily attributable to fixed asset
additions, including computer hardware and software capitalization costs in
connection with ongoing computer system upgrades.
Interest expense was $5,730 for the three month period ended August 31, 1998 as
compared to $22,516 for the three month period ended August 31, 1997. The
decrease was attributable to less outstanding debt.
Income Tax Expenses
Income tax expense for the three month period ended August 31, 1998 was $12,605
as compared to $66,209 for the three month period ended August 31, 1997.
IDA/SBA Financing
On June 1, 1994, BFS Sibling Realty, Inc. ("BSRI") formerly known as Brodsky
Sibling Realty, Inc., a company affiliated with certain of the Company's
Directors, borrowed $3,350,000 in the form of Industrial Development Revenue
Bonds ("Bonds") to finance costs incurred in connection with the acquisition of
the Company's Facility from the NCIDA, and for renovating and equipping the
Facility. These Bonds were subsequently purchased by a bank (the "Bank"). The
aggregate cost incurred by BSRI 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 the Company's Chairman
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
BSRI.
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, as
sublessee, entered into a sublease agreement (the "First Sublease") with BSRI,
whereby the Company leased the Facility for the conduct of its business and, in
consideration therefor, was obligated to make lease payments in at least equal
amounts due to satisfy the underlying Bond obligations.
On July 31, 1995, by an Assignment and Assumption and First Amendment to Lease
between the Company and BSRI, the Company assumed the obligations of BSRI under
the lease and became the direct tenant and the beneficial owner of the Facility
(collectively the "First Amendment"). In connection with the First Amendment,
the First 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
First Amendment, the Company obtained the right to acquire the Facility upon
expiration of the Lease with the NCIDA and became directly liable to the NCIDA
for amounts due thereunder. Furthermore, in connection with the First Amendment,
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 Facility,
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 were used to repay a portion of the Bonds. The Company entered into the
First Amendment 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 the Second Amendment with BFS
(which succeeded to the interest of BSRI with respect to the Second Amendment),
the NCIDA and the Bank. In connection with the Second Amendment, (i) BFS assumed
all of the Company's obligations under the Lease with the NCIDA and entered into
the Second Sublease with the Company, as sublessee, for the Facility; and (ii)
the Company conveyed to BFS the right to become the owner of the Facility upon
expiration of the Lease. In addition, pursuant to the Second Sublease, the
Company has assumed certain obligations owed by BFS to the NCIDA under the
Lease. BFS 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 BFS; the net difference was recorded as other
income in the financial statements in fiscal 1997.
<PAGE>
Liquidity and Capital Resources
The Company's working capital decreased as of August 31, 1998 to $744,100, as
compared with $1,454,861 at May 31, 1998.
For the three months ended August 31, 1998, the Company has spent approximately
$1,123,000 in fixed asset additions, including computer hardware and 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 Messrs. Brodsky, Freund, Stoller, Konigsberg, Gerald Shapiro, a
former director of the Company and Carol Freund, the spouse of Hugh Freund 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 $1,609 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. The shares of Common Stock issued upon exercise have
been pledged as security for the debt.
On April 18, 1997, the Company's wholly owned subsidiary, Sandsport, entered
into a revolving credit agreement (the "Credit Agreement") with the Bank which
allows Sandsport to borrow and re-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 required Sandsport to pay a commitment fee in the amount of $30,000
and 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 will expire on March 1, 2000. The indebtedness
under the Credit Agreement is guaranteed by the Company and Sandsport's sister
subsidiaries (the "Group"). The collateral for the Facility is 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.
All of the Group assets are pledged to the Bank as collateral for the amounts
due under the Credit Agreement. The Group's guaranty to the Bank was modified to
conform covenants to comply with those in 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. The Group has, in the past,
under prior agreements with the Bank, failed to meet these net worth and
financial ratios, and the Bank has granted the Group waivers. As of August 31,
1998, there is no balance owed to the Bank on the Credit Agreement.
As of June 1, 1998, Health Card hired 11 employees of the Company in order to
provide development, enhancement, modification and maintenance services,
previously provided by the Company. The Company was paid $200,000 consideration
of the Company's waiving certain rights relative to such employees. In addition,
the Company began leasing certain computer equipment to Health Card for $2,000
per month as well as computer hardware for its data processing center at a
monthly cost of $20,000 from the Company pursuant to a verbal agreement. The
Company is expected to continue to provide to Health Card consulting services
related to Health Card's information systems.
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.
Year 2000
The Company believes that its computer systems and those of its major customers
and suppliers are substantially Year 2000 compliant and anticipates that the
Company will be in full compliance by May 1999. The Company upgrades its
computer systems from time to time as part of its ongoing operations and is
currently planning Year 2000 compliance to occur in conjunction with its planned
conversion to a new software platform. Accordingly, it is anticipated that the
Company will incur significant expenditures in connection with such conversion.
However, the Company does not expect any material effect on its results of
operations or financial position solely as a result of Year 2000 compliance
issues.
PART II - OTHER INFORMATION
Item 1 - LEGAL PROCEEDINGS:
Reference is made to Form 10-KSB, May 31, 1998.
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:
Exhibit 27 - Financial Data Schedule (Electronic Filing Only)
<PAGE>
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: October 15, 1998 By: /s/ Bert E. Brodsky
Bert E. Brodsky
Chairman of the Board
President, Chief Executive Officer,
Chief Financial Officer
<PAGE>
October 15, 1998
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 August 31, 1998 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
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