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 February 28, 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 of (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 April 7, 1998 was 1,560,177 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
SHEETS as of February 28, 1998 (unaudited)
and May 31, 1997 3
UNAUDITED CONSOLIDATED CONDENSED
STATEMENTS OF OPERATIONS for the three and nine
months ended February 28, 1998 and February 28, 1997 5
UNAUDITED CONSOLIDATED CONDENSED
STATEMENTS OF CASH FLOWS for the nine
months ended February 28, 1998 and February 28, 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 17
Item 1 LEGAL PROCEEDINGS 17
Item 2 CHANGES IN SECURITIES 18
Item 3 DEFAULTS UPON SENIOR SECURITIES 18
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 18
Item 5 OTHER INFORMATION 18
Item 6 EXHIBITS AND REPORTS ON FORM 8-K 18
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SANDATA, INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
UNAUDITED AUDITED
February 28, May 31,
1998 1997
ASSETS:
CURRENT ASSETS
Cash and cash equivalents $1,389,497 $1,200,014
Accounts receivable - net of allowance for
doubtful accounts of $236,400 at February 28, 1998
and $331,000 at May 31, 1997 1,482,648 1,254,589
Receivables from affiliates 604,596 949,906
Receivable from former affiliate 711 12,074
Notes receivable - officers -- 102,867
Inventories 83,518 16,335
Prepaid expenses and other current assets 493,733 212,114
TOTAL CURRENT ASSETS 4,054,703 3,747,899
FIXED ASSETS, NET 5,500,050 5,279,512
OTHER ASSETS
Note receivable 100,000 100,000
Cash surrender value of officers' life insurance,
security deposits and other 464,865 411,137
TOTAL ASSETS $10,119,618 $9,538,548
See notes to consolidated condensed financial statements
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SANDATA, INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
UNAUDITED AUDITED
February 28, May 31,
1998 1997
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES
Accounts payable and accrued expenses $1,637,007 $1,691,456
Current portion of long-term debt 89,262 267,864
Deferred/unearned revenue 17,005 2,733
Deferred income 199,586 237,202
TOTAL CURRENT LIABILITIES 1,942,860 2,199,255
LONG-TERM DEBT -- 1,034,201
DEFERRED INCOME 260,329 243,305
DEFERRED INCOME TAXES 530,484 370,000
TOTAL LIABILITIES 2,733,673 3,846,761
SHAREHOLDERS' EQUITY
Common stock 1,560 1,216
Additional paid in capital 4,126,868 2,795,801
Retained earnings 3,257,517 3,031,656
7,385,945 5,828,673
Less Treasury stock -- (136,886)
TOTAL SHAREHOLDERS' EQUITY 7,385,945 5,691,787
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $10,119,618 $9,538,548
See notes to consolidated condensed financial statements
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SANDATA, INC.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
FEB. 28, FEB.28, FEB. 28, FEB. 28,
1998 1997 1998 1997
REVENUES:
Service fees $3,155,692 $2,810,319 $9,103,123 $7,921,193
Real estate rental income -- -- -- 134,700
Other income 61,831 69,703 205,264 238,260
Interest income 14,411 6,475 60,748 11,454
3,231,934 2,886,497 9,369,135 8,305,607
COSTS AND EXPENSES:
Service Fees:
Operating 2,077,541 1,738,617 5,928,295 4,708,979
Selling, general and administrative 728,559 604,070 1,970,007 1,620,253
Depreciation and amortization 347,377 331,282 1,024,022 928,283
Interest expense 10,294 55,923 46,456 160,860
3,163,771 2,729,892 8,968,780 7,418,375
Real Estate:
Operating -- -- -- 246,894
Depreciation and amortization -- -- -- 47,302
Interest expense -- -- -- 133,918
Real estate taxes -- -- -- 71,012
-- -- -- 499,126
TOTAL COSTS AND EXPENSES 3,163,771 2,729,892 8,968,780 7,917,501
Earnings from operations before income taxes 68,163 156,605 400,355 388,106
Income tax expense 30,285 69,125 174,494 171,310
NET EARNINGS $ 37,878 $ 87,480 $ 225,861 $ 216,796
BASIC EARNINGS PER SHARE $ .03 $ .10 $ .16 $ .26
DILUTED EARNINGS PER SHARE $ .02 $ .05 $ .11 $ .13
See notes to consolidated condensed financial statements
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SANDATA, INC.
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997
Cash flows from operating activities:
Net earnings $ 225,861 $216,796
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,024,022 975,585
(Gain) on disposal of fixed assets (184,642) (268,340)
(Gain) on transfer of facility -- (15,586)
(Decrease) in allowance for doubtful accounts receivable (94,600) (23,060)
(Decrease) in deferred income (20,592) (209,113)
Increase (decrease) in deferred revenue 14,272 (15,750)
(Increase) in operating assets (535,989) (732,586)
(Decrease) increase in operating liabilities (1,351) 420,342
Net cash provided by operating activities $426,981 348,288
Cash flows from investing activities:
Collection of note receivable - officer 102,867 --
Purchases of fixed assets (1,759,918) (1,430,729)
Decreases in receivables from affiliates 345,310 --
Collections of note receivable-former affiliates 11,363 77,100
Proceeds from sale/leaseback transaction 700,000 925,000
Net cash (used in) investing activities (600,378) (428,629)
Cash flows from financing activities:
Proceeds from stock transactions 1,575,683 --
Proceeds from private placement offering -- 1,532,061
Principal payments on term loan (212,803) (459,352)
Proceeds from line of credit -- 2,750,000
Principal payments on line of credit (1,000,000) (3,613,000)
Proceeds from notes payable - affiliates -- 3,010,000
Principal payments on notes payable - affiliates -- (3,175,000)
Net cash provided by financing activities 362,880 44,709
Increase (decrease) in cash and cash equivalents 189,483 (35,632)
Cash and cash equivalents at beginning of period 1,200,014 368,400
Cash and cash equivalents at end of period $ 1,389,497 $ 322,578
Note: As of July 31, 1995 the Company assumed lease obligations totaling
$4,143,140 as disclosed in the Notes to the Consolidated Condensed Financial
Statements in conjunction with the acquisition of a facility. As of November 1,
1996 a company affiliated with the Directors of the Company assumed certain
lease obligations relative to the transfer of a facility in the amount of
$3,140,884 as disclosed in the Notes to the Consolidated Condensed Financial
Statements.
See notes to consolidated condensed financial statements
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SANDATA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The Consolidated Condensed Balance Sheet as of February 28, 1998, the
Consolidated Condensed Statements of Operations for the three and nine-month
periods ended February 28, 1998 and February 28, 1997 and the Consolidated
Condensed Statement of Cash Flows for the nine-month periods ended
February 28, 1998 and February 28, 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 February 28, 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, 1997. Results of Operations for the period ended February 28, 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 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 ("Facility") from the Nassau County Industrial Development
Agency ("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 Mr. Brodsky in connection with
additional capital improvements. The Bonds bore interest at prime plus 3/4 of 1%
until August 11, 1995, at which time the interest rate became fixed at 9% for a
five-year term through September 1, 2000. At that time, the interest rate will
be adjusted to a rate of either prime plus 3/4 of 1%, or the applicable fixed
rate if offered by the Bank. As a condition to the issuance of the Bonds, the
NCIDA obtained title to the Facility which it then leased to 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
entered into a sublease agreement (the "First Sublease") with BSRI, whereby the
<PAGE>
Company, as sublessee, 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 a Second Amendment with BFS
Realty, LLC ("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. Amounts owed to affiliates of the Company in
connection with the construction and improvements were not assumed by BFS. The
Company and its Chairman have guaranteed the above obligation to the SBA and
NCIDA in connection with the foregoing.
<PAGE>
3. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings
per Share" 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 ("APB No. 15"),
"Earnings per Share" 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
No. 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 1,450,884 at February 28, 1998 and 841,733
at February 28, 1997. Diluted earnings per share are based on the
weighted-average number of shares of common stock and common stock equivalents
outstanding, which were as follows: 2,132,904 at February 28, 1998 and 1,687,213
at February 28, 1997. Options to purchase 74,000 shares of common stock in 1998
were outstanding at February 28, 1998 but 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. SALE/LEASEBACK TRANSACTION
In January, 1998, the Company consummated a Sale/Leaseback of certain fixed
assets (principally computer hardware, software and equipment). The fixed
assets, which had a net book value of approximately $515,000, were sold for
$700,000. The resulting gain of approximately $185,000 was recorded as deferred
income and is being recognized over the life of the lease, which is thirty- six
(36) months. Approximately $10,300 of deferred gain was recognized for the three
and nine months ended February 28, 1998. An unaffiliated third party purchased
the residual rights in such lease.
<PAGE>
5. STOCKHOLDERS' EQUITY
In October, 1996, the Company commenced a private offering, on a "best efforts
- -all or none" basis, to raise $1,500,000 by issuing an aggregate of 300,000
shares of Common Stock and five year warrants for the purchase of 150,000 shares
of Common Stock, at an exercise price of $7.00 per share. 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 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 were to be exercisable for one year (with respect to the
warrants exercisable at $5.00 per share) and two years (with respect to the
warrants exercisable at $7.00 per share). In September 1997 the warrants issued
to affiliates of the placement agent were modified so that they will be
redeemable upon notice from the Company without regard to the market price of
the Company's common stock. The Company has extended the expiration date of the
$5.00 warrants until April 21, 1998.
In August 1997 the Board of Directors of the Company authorized the redemption
of certain warrants. Prior to redemption, 48,500 warrants were exercised at
$7.00 per share generating proceeds of $339,500.
Pursuant to the terms of the Company's incentive stock option plan, on August 8,
1997, 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. The total proceeds generated from option exercises were $413,683.
During the three months ended November 30, 1997, 117,500 warrants were exercised
at $7.00 per share generating proceeds of $822,500. Treasury stock of 52,772
shares were utilized for stock issuances pursuant to the warrant exercise.
<PAGE>
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 $3,231,934 and $9,369,135 for the three and nine months ended
February 28, 1998 as compared to $2,886,497 and $8,305,607 for the three and
nine months ended February 28, 1997, increasing $345,437 and $1,063,528,
respectively.
Service fee revenue for the three and nine months ended February 28, 1998 was
$3,155,692 and $9,103,123, an increase of $345,373 and $1,181,930 for the same
periods of the prior fiscal year. The increase is attributable to revenues
derived from custom software programming and the SanTrax product.
Real estate rental income was $-0- for the three and nine months ended
February 28, 1998 as compared to $-0- and $134,700 for the three and nine months
ended February 28, 1997.
The decreases in expenses relating to rental income for the three and nine
months ended February 28, 1998 resulted from the Company's becoming the
beneficial owner and Lessee of the Facility as of July 31, 1995 in addition to
the effect of the subsequent Second Amendment transaction as of November 1, 1996
(as described below), whereby the Company became the Sublessee of the Facility.
Other income for the three and nine-month period ended February 28, 1998 was
$61,831 and $205,264, respectively as compared to $69,703 and $238,260 for the
three and nine month period ending February 28, 1997, decreasing $7,872 and
$32,996, respectively.
Expenses Related to Services
Operating expenses were $2,077,541 and $5,928,295 for the three and nine months
ended February 28, 1998 as compared to $1,738,617 and $4,708,979 for the three
and nine months ended February 28, 1997, increasing $338,924 and $1,219,316,
respectively.
Programming and payroll costs relating to existing applications and costs
associated with SanTrax and its operations, including telephone and equipment
rental, were the primary factors for the increase in operating expenses.
<PAGE>
SANDATA, INC.
AND SUBSIDIARIES
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Selling, general and administrative expenses were $728,559 and $1,970,007 for
the three and nine months ended February 28, 1998, as compared to $604,070 and
$1,620,253 for the three and nine months ended February 28, 1997, an increase of
$124,489 and $349,754, respectively. The increase is primarily due to an
increase in payroll costs associated with SanTrax and an increase in legal fees
relative to discovery proceedings in the MCI litigation referred to in "Part II,
Item 1 - Legal Proceedings" and professional and administrative costs related to
SanTrax and existing product lines.
Depreciation and amortization expenses were $347,377 and $1,024,022 for the
three and nine months ended February 28, 1998 as compared to $331,282 and
$928,283 for the three and nine months ended February 28, 1997, an increase of
$16,095 and $95,739, respectively. The increase was primarily attributable to
fixed asset additions, including software capitalization costs.
Interest expense was $10,294 and $46,456 for the three and nine months ended
February 28, 1998 as compared to $55,923 and $160,860 for the three and nine
months ended February 28, 1997, a decrease of $45,629 and $114,404 respectively.
The decreases are primarily due to less outstanding debt.
Expenses Related to Real Estate Operations
Expenses relating to real estate operations were $0 for the three and nine
months ended February 28, 1998 as compared to $-0- and $499,126 for the three
and nine months ended February 28, 1997.
The decreases in expenses relating to the operation of the Facility resulted
from the Company becoming the beneficial owner and lessee of the Facility as of
July 31, 1995 in addition to the effect of the subsequent Second Amendment
transaction as of November 1, 1996 (as described below), whereby the Company
became the sublessee of the Facility.
The Company has reported real estate operating expenses only through the period
ended November 1, 1996. The Company does not expect to incur any costs in the
future that relate to real estate operations.
Income Tax Expenses
Income tax expenses were $30,285 and $174,494 for the three and nine months
ended February 28, 1998 as compared to $69,125 and $171,310 for the three and
nine months ended February 28, 1997, a decrease of $38,840 and an increase of
$3,184, respectively.
<PAGE>
Liquidity and Capital Resources
The Company's working capital was $2,111,873 as of February 28, 1998 as compared
to $1,548,644 as of May 31, 1997, an increase of $563,229.
The Company has spent approximately $1,760,000 in fixed asset additions,
including software capitalization costs in connection with revenue growth and
new product development. The Company expects the current levels of capital
expenditures to continue.
In October, 1996, the Company commenced a private offering, on a "best efforts
- -all or none" basis, to raise $1,500,000 by issuing an aggregate of 300,000
shares of Common Stock and five year warrants for the purchase of 150,000 shares
of Common Stock, at an exercise price of $7.00 per share. 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 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 were to be exercisable for one year (with respect to the
warrants exercisable at $5.00 per share) and two years (with respect to the
warrants exercisable at $7.00 per share). In September 1997 the warrants issued
to affiliates of the placement agent were modified so that they will be
redeemable upon notice from the Company without regard to the market price of
the Company's common stock. The Company has extended the expiration date of the
$5.00 warrants until April 21, 1998.
In August 1997 the Board of Directors of the Company authorized the redemption
of certain warrants. Prior to redemption, 48,500 warrants were exercised at
$7.00 per share, generating proceeds of $339,500.
Pursuant to the terms of the Company's incentive stock option plan, on August 8,
1997, 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. The total proceeds generated from option exercises were $413,683.
During the three months ended November 30, 1997, 117,500 warrants were exercised
at $7.00 per share, generating proceeds of $822,500. Treasury stock of 52,772
shares were utilized for stock issuances pursuant to the warrant exercises.
<PAGE>
As discussed above in Note 2 to the Consolidated Condensed Financial Statements,
in November 1996, in connection with the Second Amendment of the Lease for the
Company's Facility, the Company assumed certain obligations of BFS and BFS has
indemnified the Company with respect to such assumed obligations.
On April 18, 1997, the Company's wholly owned subsidiary, Sandsport, entered
into 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
3/4% 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 Mr. Brodsky. 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. No assurance can
be given that the Group will be able to meet these net worth and financial
requirements in the future, and/or that the Bank will continue to grant to the
Group waivers. Although in the past the Bank has renewed its loans to the
Company when they matured, there can be no assurance that it will continue to do
so or that the Company, if the Bank does not renew the loan, will be able to
arrange alternative financing on terms satisfactory to it.
As of February 28, 1998, the outstanding balance on the Credit Agreement with
the Bank was $0.
The Company believes the results of its continued operations, together with the
available Credit Line and proceeds from the recent private offering and the
option and warrant exercises should be adequate to fund presently foreseeable
working capital requirements.
IDA/SBA Financing
On June 1, 1994, BFS Sibling Realty, Inc. ("BSRI") formerly known as Brodsky
Sibling Realty, Inc., a company affiliated with 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 Mr. Brodsky in
connection with additional capital improvements. The Bonds bore interest at
prime plus 3/4 of 1% until August 11, 1995, at which time the interest rate
became fixed at 9% for a five-year term through September 1, 2000. At that time,
the interest rate will be adjusted to a rate of either prime plus 3/4 of 1%, or
the applicable fixed rate if offered by the Bank. As a condition to the issuance
of the Bonds, the NCIDA obtained title to the Facility which it then leased to
BSRI.
<PAGE>
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%
<PAGE>
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 income
in the financial statements. Amounts owed to affiliates of the Company in
connection with the construction and improvements were not assumed by BFS. The
Company and its Chairman have guaranteed the above obligation to the SBA and
NCIDA in connection with the foregoing.
Termination of Negotiations with National Medical Health Card Systems, Inc.
On June 19, 1997, the Company announced that it had commenced negotiations for a
potential business combination with National Medical Health Card Systems, Inc.
("Health Card"), a company affiliated with the Company's Chairman of the Board.
In January 1998 the Company terminated such negotiations with Health Card.
<PAGE>
SANDATA, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 - LEGAL PROCEEDINGS:
MCI Telecommunications Corporation v. Sandata, Inc. On April 10, 1997, the
Company received notice that MCI had commenced an action against it in the
United States District Court for the Eastern District of New York alleging that
the Company's SanTrax time and attendance system infringes on certain patent
rights allegedly owned by plaintiff. The complaint seeks compensatory and treble
damages with interest and injunctive relief. The Company intends to vigorously
defend this action. On May 13, 1997, the Company filed its Answer. Among other
things, pursuant to the Answer, the Company denies that its product infringes
MCI's patent rights and asserts certain affirmative defenses. In addition, the
Answer contains a counterclaim challenging the validity of MCI's alleged patent
rights.
Notwithstanding the foregoing, because of the uncertainties of litigation, no
assurances can be given as to the outcome of the MCI litigation. In the event
that the Company were not to prevail in this litigation the Company could be
required to pay significant damages to MCI and could be enjoined from further
use of the SanTrax system as it presently exists. Although a negative outcome in
the MCI litigation would have a material adverse affect on the Company,
including, but not limited to, its operations and financial condition, the
Company believes that, if it is held that the Company's system infringes MCI's
patent rights, the Company would attempt to design a system to replace SanTrax
or would attempt to negotiate with MCI to utilize its system, although no
assurances can be given that the Company would be successful in these attempts.
At the present time, the Company cannot assess the possible cost of implementing
a new system or obtaining rights from MCI.
Since late 1993, the Company has been engaged from time to time in negotiations
relating to the use of MCI's telephone services in connection with the SanTrax
system. In late 1996, MCI and the Company discussed, among other things, that
the Company could pay a lesser per call charge for such services if the Company
and MCI agreed that the Company's technology did not violate U.S. Patent
5,255,183 (the "Katz Patent"), which is the subject of the MCI litigation. No
such agreement was ever reached.
For the fiscal year ended May 31, 1997 and three months ended February 28, 1998,
approximately 33% and 37% of the Company's revenues, respectively, were derived
from fees associated with the SanTrax product.
The Company has been advised that MCI owns a second Katz patent (the "Second
Patent") which issued last year, and is related to the Katz Patent. MCI has
charged the Company with infringement of the Second Patent, but the Company does
not believe that it violates the Second Patent. In addition, the Company has
been advised that MCI owns a pending patent application relating to the Katz
Patent. The Second Patent or the pending application could be amended by MCI.
There can be no assurances that the pending patent application will not issue as
a patent with claims that cover the SanTrax system, or that the Second Patent
will not be amended to have claims that cover the SanTrax system.
Other than as described above, the Company is not involved in any material legal
proceeding, other than that which is nonmaterial and routine litigation
incidental to its business.
<PAGE>
Item 2 - CHANGES IN SECURITIES:
Reference is made to "Part I, Item 2 - Management's Discussion and Analysis or
Plan of Operation" for a discussion of a private offering to accredited
investors.
Item 3 - DEFAULTS UPON SENIOR SECURITIES:
None
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None
Item 5 - OTHER INFORMATION:
None
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K:
Exhibit 27 - Financial Data Schedule (Electronic Filing Only)
<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: April 14, 1998 By: /s/ Bert E. Brodsky
Bert E. Brodsky
Chairman of the Board
President, Chief Executive Officer,
Chief Financial Officer
<PAGE>
April 14, 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 February 28, 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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