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 February 28, 1999
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
Commission file number 0-14401
SANDATA, INC.
(Exact Name of Small Business Issuer as Specified 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)
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 ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Check whether the registrant 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 12, 1999 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 February 28, 1999 (unaudited)
and May 31, 1998 3
UNAUDITED CONSOLIDATED CONDENSED
STATEMENTS OF OPERATIONS for the three and nine
months ended February 28, 1999 and February 28, 1998 5
UNAUDITED CONSOLIDATED CONDENSED
STATEMENTS OF CASH FLOWS for the nine months
ended February 28, 1999 and February 28, 1998 6
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS 7
Item 2 - MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION 12
PART II - OTHER INFORMATION 17
Item 1 - LEGAL PROCEEDINGS 17
Item 2 - CHANGES IN SECURITIES 17
Item 3 - DEFAULTS UPON SENIOR SECURITIES 17
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 17
Item 5 - OTHER INFORMATION 17
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K 17
<PAGE>
Sandata, Inc. and Subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<S> <C> <C>
UNAUDITED AUDITED
February 28, May 31,
1999 1998
ASSETS:
CURRENT ASSETS
Cash and cash equivalents $ 277,925 $ 1,794,947
Accounts receivable, net of allowance for doubtful
accounts of $422,000 and $443,000 respectively 2,133,473 1,611,457
Receivables from affiliates 584,148 619,687
Inventories 38,373 27,003
Prepaid expenses and other current assets 310,448 140,873
------------ ------------
TOTAL CURRENT ASSETS 3,414,367 4,193,967
FIXED ASSETS, NET 7,119,189 5,814,381
OTHER ASSETS
Notes receivable 174,365 100,000
Cash surrender value of officer's life insurance,
security deposits and other 764,708 525,281
------------ ------------
TOTAL ASSETS $ 11,472,629 $ 10,633,629
============ ============
See notes to consolidated condensed financial statements
</TABLE>
<PAGE>
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<S> <C> <C>
UNAUDITED AUDITED
February 28, May 31,
1999 1998
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,736,226 $ 2,507,042
Current portion of long-term debt --- 22,296
Deferred/unearned revenue 35,623 23,410
Deferred income 267,523 186,358
------------ ------------
TOTAL CURRENT LIABILITIES 2,039,372 2,739,106
LONG TERM DEBT 1,300,000 ---
DEFERRED INCOME 255,255 215,945
DEFERRED INCOME TAXES 382,000 382,000
------------ ------------
TOTAL LIABILITIES 3,976,629 3,337,051
SHAREHOLDERS' EQUITY
Common stock 2,481 1,560
Additional paid in capital 5,772,079 4,173,091
Retained earnings 3,241,101 3,121,927
Notes receivable-officers (1,519,659) ---
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 7,496,002 7,296,578
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 11,472,629 $ 10,633,629
============ ============
See notes to consolidated condensed financial statements
</TABLE>
<PAGE>
<TABLE>
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<S>
<C> <C> <C> <C>
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
1999 1998 1999 1998
---- ---- ---- ----
REVENUES:
Service fees $ 3,597,042 $ 3,155,692 $ 10,155,602 $ 9,103,123
Other income 55,118 61,831 352,832 205,264
Interest income 38,723 14,411 102,207 60,748
------------ ------------ ------------ ------------
3,690,883 3,231,934 10,610,641 9,369,135
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Operating 2,124,860 2,077,541 6,211,423 5,928,295
Selling, general and administrative 925,287 728,559 2,675,168 1,970,007
Depreciation and amortization 521,887 347,377 1,460,438 1,024,022
Interest expense 48,264 10,294 64,809 46,456
------------ ------------ ------------ ------------
TOTAL COSTS AND EXPENSES 3,620,298 3,163,771 10,411,838 8,968,780
------------ ------------ ------------ ------------
Earnings from operations before income taxes 70,585 68,183 198,803 400,355
Income tax expense 31,304 30,285 79,629 174,494
------------ ------------ ------------ ------------
NET EARNINGS $ 39,281 $ 37,878 $ 119,174 $ 255,861
============ ============ ============ ============
BASIC EARNINGS PER SHARE $ 0.02 $ 0.03 $ 0.05 $ 0.16
------------ ------------ ------------ ------------
DILUTED EARNINGS PER SHARE $ 0.02 $ 0.02 $ 0.05 $ 0.11
------------ ------------ ------------ ------------
See notes to consolidated condensed financial statements
</TABLE>
<PAGE>
<TABLE>
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<S> <C> <C>
NINE MONTHS ENDED
FEBRUARY 28,
1999 1998
Cash flows from operating activities:
Net earnings $ 119,174 $ 225,861
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,460,438 1,024,022
(Gain) on disposal of fixed assets (269,948) (184,642)
(Decrease) in allowance for doubtful accounts receivable (21,258) (94,600)
(Increase) in deferred income 120,475 (20,592)
(Increase) in deferred revenue 12,213 14,272
(Increase) in operating assets (917,902) (535,989)
(Decrease) in operating liabilities (779,767) (1,351)
------------ ------------
Net cash provided by operating activities (336,575) 426,981
------------ ------------
Cash flows from investing activities:
Collection of note receivable - officer -- 102,867
Purchases of fixed assets (3,595,298) (1,75,918)
Decreases in receivables from affiliates 35,538 345,310
Collections of note receivable-former affiliates -- 11,363
Proceeds from sale/leaseback transaction 1,100,000 700,000
------------ ------------
Net cash (used in) investing activities (2,459,760) (600,378)
------------ ------------
Cash flows from financing activities:
Proceeds from stock transactions 1,609 1,575,683
Principal payments on term loan (22,296) (212,803)
Proceeds from line of credit 3,150,000 --
Principal payments on line of credit (1,850,000) (1,000,000)
------------ ------------
Net cash provided by financing activities 1,279,313 362,880
------------ ------------
(Decrease) increase in cash and cash equivalents (1,517,022) 189,483
Cash and cash equivalents at beginning of period 1,797,947 1,200,014
------------ ------------
Cash and cash equivalents at end of period $ 277,925 $ 1,389,497
============ ============
See notes to consolidated condensed financial statements
</TABLE>
<PAGE>
Sandata, Inc. and Subsidiaries
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The Consolidated Condensed Balance Sheet as of February 28, 1999, the
Consolidated Condensed Statements of Operations for the three and nine month
periods ended February 28, 1999 and 1998 and the Consolidated Condensed
Statement of Cash Flows for the nine month periods ended February 28, 1999 and
1998 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, 1999 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 February 28, 1999
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 a 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 Chairman 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 $208,000 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.
The Company derives revenue from Health Card for data processing and computer
services. The revenue generated amounted to $473,896 and $1,157,150 for the
three and nine months ended February 28, 1999 as compared to $ 574,684 and
$1,638,828 for the three and nine months ended February 28, 1998.
At February 28, 1999, the Company was owed $241,256 from Health Card, which was
received in full subsequent to February 28, 1999.
The Company makes various payments to certain affiliates of the Company's
Chairman. The payments are for equipment rental, which was $98,316 and $289,031
for the three and nine months ended February 28, 1999 as compared to $94,898 and
$287,483 for the three and nine months ended February 28, 1998; rent for the
Facility which was $167,490 and $491,670 for the three and nine months ended
February 28, 1999 as compared to $150,660 and $442,260 for the three and nine
months ended February 28, 1998; and accounting, bookkeeping and paralegal
services which was $39,231 and $148,588 for the three and nine months ended
February 28, 1999 as compared to $54,056 and $170,595 for the three and nine
months ended February 28, 1998.
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 2,336,364 at February 28, 1999 and
1,450,884 at February 28, 1998. 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: 2,544,282 at February 28, 1999 and 2,132,904 at February 28,
1998. Options to purchase 437,550 shares of common stock were outstanding at
February 28, 1999 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, 1999, 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 $830,000, were sold for
$1,100,000. The resulting gain of approximately $270,000 was recorded as
deferred income and is being recognized over the life of the lease, which is
thirty-six (36) months. Approximately $7,500 of deferred gain was recognized for
the three months ended February 28, 1999. An unaffiliated third party purchased
the residual rights in such lease.
5. STOCKHOLDERS' EQUITY
In October, 1996, the Company commenced a private offering, on a "best efforts
- -all or none" basis, to raise $1,500,000 by issuing an aggregate of 300,000
shares of Common Stock and five year warrants for the purchase of 150,000 shares
of Common Stock, at an exercise price of $7.00 per share. 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 (the "$5.00 Warrants") and 100,000 shares at $7.00 per
share (the "$7.00 Warrants") such warrants to be exercisable until December 22,
1998 (with respect to the $5.00 Warrants) and two years (with respect to the
$7.00 Warrants). The $5.00 Warrants have expired on such date without having
been exercised. 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 $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. The shares of Common Stock issued upon exercise have been
pledged as security for the debt.
In October 1998, the Board of Directors approved an amendment to the Company's
Certificate of Incorporation to increase the number of authorized common shares
from 3,000,000 to 6,000,000.
In October 1998, the Company adopted a stock option plan, reserving 1,000,000
shares of common stock for grant under the plan. Stock options granted under the
plan may be either statutory or non-statutory. As of February 28, 1999, an
aggregate of 293,550 statutory stock options were granted under the plan at an
exercise price of $3.00 per share. Such options are exercisable over a five-year
period and vest over a three-year period. Additionally, in October 1998 the
Company granted certain directors of the Company non-statutory stock options to
purchase an aggregate of 20,000 shares of the Company's common stock at an
exercise price of $3.00. These options vest immediately and are exercisable over
a five-year period.
In December, 1998, the Company granted 520,500 statutory options to certain
officers of the Company under a Stock Option Plan adopted in January 1995 at an
exercise price of $1.41 per share. These options vest immediately and are
exercisable over a five-year period.
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 $3,690,883 and $10,610,641 for the three and nine months ended
February 28, 1999 as compared to $3,231,934 and $9,369,135 for the three and
nine months ended February 28, 1998, increasing $458,949 and $1,241,506
respectively.
Service fee revenues were $3,597,042 and $10,155,602 for the three and nine
months ended February 28, 1999 as compared to $3,155,692 and $9,103,123 for the
three and nine months ended February 28, 1998, increasing $411,350 and
$1,052,479 respectively. The increases are attributable to revenues derived from
SanTrax(R) and SandataNET(R), offset by decreases in revenue from National
Medical Health Card Systems, Inc. ("Health Card").
Other income was $55,118 and $352,832 for the three and nine months ended
February 28, 1999 as compared to $61,831 and $205,264 for the three and nine
months ended February 28, 1998, decreasing $6,713 and increasing $147,568
respectively. The increase is attributable to an amount received from Health
Card in connection with its hiring employees of the Company, offset by a
decrease in income recognized on sales/leaseback transactions.
Expenses Related to Services
Operating expenses were $2,124,860 and $6,211,423 for the three and nine months
ended February 28, 1999 as compared to $2,077,541 and $5,928,295 for the three
and nine months ended February 28, 1998, increasing $47,319 and $283,128
respectively. Costs associated with SanTrax and its operations, including
payroll and telephone expenses, in addition to increases in costs associated
with SandataNET and its operations, primarily hardware purchases, were the
primary factors for the increases in operating expenses.
Selling, general and administrative expenses were $925,287 and $2,675,168 for
the three and nine months ended February 28, 1999, as compared to $728,559 and
$1,970,007 for the three and nine months ended February 28, 1998, an increase of
$196,728 and $705,161 respectively. The increases were 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 Telecommunications Corporation.
Depreciation and amortization expenses were $521,887 and $1,460,438 for the
three and nine months ended February 28, 1999 as compared to $347,377 and
$1,024,022 for the three and nine months ended February 28, 1998, an increase of
$174,510 and $436,416 respectively. The increases were primarily attributable to
fixed asset additions, including computer hardware and software capitalization
costs, in connection with ongoing computer system upgrades.
Interest expenses were $48,264 and $64,809 for the three and nine months ended
February 28, 1999 as compared to $10,294 and $46,456 for the three and nine
months ended February 28, 1998, an increase of $37,970 and $18,353 respectively.
The increases were a result of increased borrowings on the Company's Credit
Agreement.
Income Tax Expenses
Income tax expenses were $31,304 and $79,629 for the three and nine months ended
February 28, 1999 as compared to $30,285 and $174,494 for the three and nine
months period ended February 28, 1998, an increase of $1,019 and a decrease of
$94,865 respectively.
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.
Liquidity and Capital Resources
The Company's working capital decreased as of February 28, 1999 to $1,374,995,
as compared with $1,454,861 at May 31, 1998.
For the nine months ended February 28, 1999, the Company has spent approximately
$3,665,000 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 $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. 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 February 28,
1999, the outstanding balance on the Credit Agreement with the Bank was
$1,300,000.
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 $208,000 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.
<PAGE>
Sandata, Inc. and Subsidiaries
PART II - OTHER INFORMATION
Item 1 - LEGAL PROCEEDINGS:
Reference is made to Form 10-QSB for the period ended November 30,
1998.
Item 2 - CHANGES IN SECURITIES:
Reference is made to Part I - Item 1 - "Notes to Consolidated Condensed
Financial Statements" for a discussion of stock option grants
which were exempt under Section 4(2) of the Securities Act of 1933, as
amended.
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, 1999 By: /s/ Bert E. Brodsky
Bert E. Brodsky
Chairman of the Board
President, Chief Executive Officer,
Chief Financial Officer
<PAGE>
April 14, 1999
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, 1999 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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