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, 1999
[ ] 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 October 11, 1999 was 2,481,480 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 August 31, 1999 (unaudited)
and May 31, 1999 4
UNAUDITED CONSOLIDATED CONDENSED
STATEMENTS OF OPERATIONS for the three
months ended August 31, 1999 and August 31, 1998 6
UNAUDITED CONSOLIDATED CONDENSED
STATEMENTS OF CASH FLOWS for the three
months ended August 31, 1999 and August 31, 1998 7
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS 8
Item 2 - MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION 11
PART II - OTHER INFORMATION 14
Item 1 - LEGAL PROCEEDINGS 14
Item 2 - CHANGES IN SECURITIES 14
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY 14
HOLDERS
Item 5 - OTHER INFORMATION 14
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K 14
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SANDATA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
UNAUDITED AUDITED
August 31, May 31,
ASSETS: 1999 1999
CURRENT ASSETS
Cash and cash equivalents $ 814,516 $1,533,576
Accounts receivable, net of allowance for doubtful
accounts of $452,000 at August 31, 1999 and
$533,000 at May 31, 1999 2,091,752 2,034,248
Receivables from affiliates 485,168 924,426
Other receivables --- 1,100,000
Inventories 38,119 29,307
Prepaid expenses and other current assets 306,668 485,455
TOTAL CURRENT ASSETS 3,736,223 6,107,012
FIXED ASSETS, NET 8,432,759 7,169,002
OTHER ASSETS
Notes receivable 139,093 169,608
Cash surrender value of officer's life insurance,
security deposits and other 777,471 775,557
TOTAL ASSETS $13,085,546 $14,221,179
See notes to consolidated condensed financial statements
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SANDATA, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
UNAUDITED AUDITED
August 31, May 31,
1999 1999
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,930,080 $ 3,022,395
Current portion of long-term debt --- 2,500,000
Deferred/unearned revenue 125,128 13,633
Deferred income 308,887 335,385
TOTAL CURRENT LIABILITIES 2,364,095 5,871,413
LONG TERM DEBT 2,400,000 ---
DEFERRED INCOME 266,747 324,096
DEFERRED INCOME TAXES 535,000 535,000
TOTAL LIABILITIES 5,655,842 6,730,509
SHAREHOLDERS' EQUITY
Common stock 2,481 2,481
Additional paid in capital 5,772,079 5,772,079
Retained earnings 3,264,803 3,235,769
Notes receivable - officers (1,519,659) (1,519,659)
TOTAL SHAREHOLDERS' EQUITY 7,519,704 7,490,670
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $13,085,546 $14,221,179
See notes to consolidated condensed financial statements
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SANDATA, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED
AUGUST 31, AUGUST 31,
1999 1998
REVENUES:
Service fees $ 4,074,124 $ 3,223,510
Other income 88,016 253,328
Interest income 40,329 24,398
4,202,469 3,501,236
COSTS AND EXPENSES:
Service Fees:
Operating 2,593,738 2,117,828
Selling, general and administrative 938,359 892,823
Depreciation and amortization 572,703 439,360
Interest expense 48,120 5,730
TOTAL COSTS AND EXPENSES $ 4,152,920 3,455,741
Earnings from operations before income taxes 49,549 45,495
Income tax expense 20,515 16,287
NET EARNINGS $ 29,034 $ 29,208
BASIC EARNINGS PER SHARE $ .01 $ .01
DILUTED EARNINGS PER SHARE $ .01 $ .01
See notes to consolidated condensed financial statements
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SANDATA, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED
AUGUST 31, AUGUST 31,
1999 1998
Cash flows from operating activities:
Net earnings $ 29,034 $ 29,208
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 572,703 439,360
(Decrease) increase in allowance for doubtful accounts (81,235) 2,315
(Decrease) in deferred income (83,847) (53,204)
Increase in deferred revenue 111,495 38,248
Decrease in operating assets 1,322,307 131,607
(Decrease) in operating liabilities (1,092,315) (809,148)
Net cash provided by (used in) operating activities 778,142 (221,614)
Cash flows from investing activities:
Purchases of fixed assets (1,836,460) (1,122,559)
Decrease in receivables from affiliates 439,258 63,851
Net cash (used in) investing activities (1,397,202) (1,058,708)
Cash flows from financing activities:
Proceeds from stock transactions --- 1,609
Principal payments on term loan --- (22,296)
Proceeds from line of credit 600,000 250,000
Principal payments on line of credit (700,000) (250,000)
Net cash (used in) financing activities (100,000) (20,687)
(Decrease) in cash and cash equivalents (719,060) (1,301,009)
Cash and cash equivalents at beginning of period 1,533,576 1,794,947
Cash and cash equivalents at end of period $ 814,516 $ 493,938
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 August 31, 1999, the Consolidated
Condensed Statements of Operations for the three month period ended August 31,
1999 and 1998 and the Consolidated Condensed Statement of Cash Flows for the
three month period ended August 31, 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 August 31, 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, 1999. Results of Operations for the period ended August 31, 1999
are not necessarily indicative of the operating results expected for the full
year.
2. RELATED PARTY TRANSACTIONS
The Company entered into an agreement in November, 1996 with an affiliate
of the Company's Chairman, the Nassau County Industrial Development Agency
("NCIDA") and a bank (the "Agreement"). In connection with the Agreement, the
affiliate assumed allof the Company's obligations under a lease with the NCIDA
and entered into a sublease with the Company for its facility. The Company
conveyed to the affiliate the right to become owner of the facility upon
expiration of the lease. In addition, pursuant to a sublease, the Company has
assumed certain obligations owed by the affiliate to the NCIDA under the lease.
The affiliate has indemnified the Company with respect to certain obligations
relative to the lease and the Agreement. The Company made rent payments for its
facility amounting to $170,190 and $162,090 for the three months ended August
31, 1999 and 1998, respectively.
The Company makes various lease payments to affiliates of the Company's
Chairman. The payments for equipment rental amounted to $98,316 and $93,483 for
the three months ended August 31, 1999 and 1998, respectively.
The Company derives revenue from National Medical Health Card Systems, Inc.
("Health Card"), a company affiliated with the Company's Chairman of the Board,
for data base and operating system support, hardware leasing, maintenance and
related administrative services. The revenues generated from this company
amounted to $444,165 and $321,066 for the three months ended August 31, 1999
and 1998, respectively.
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 in
consideration of the Company's waiving certain rights relative to such
employees. In addition, the Company leases certain computer equipment to Health
Card at a monthly cost of $2,000 in addition to computer hardware for its data
processing center at a monthly cost of $31,000 pursuant to a verbal agreement.
Medical Arts Office Services, Inc. ("MAOS"), a company which the Company's
Chairman of the Board is the sole shareholder, provided the Company with
accounting, bookkeeping and paralegal services. For the three months ended
August 31, 1999 and 1998, the total payments made by the Company to MAOS were
$59,034 and $49,763, respectively.
3. NET EARNINGS PER COMMON SHARE
In 1997, the Financial Accounting Standards Board issued Standard No. 128 ("SFAS
No. 128"), "Earnings per Share". SFAS No. 128 replaced calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Basic earnings per share has been computed using the weighted average number of
shares of common stock outstanding. Diluted earnings per share has been computed
using the basic weighted average shares of common stock issued plus outstanding
stock options, in accordance with Staff Accounting Bulletin No. 98.
Basic earnings per share are based on the weighted-average number of shares of
common stock outstanding, which were 2,481,481 at August 31, 1999 and 2,050,860
at August 31, 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:
2,491,498 at August 31, 1999 and 2,243,866 at August 31, 1998.
Options to purchase 564,156 shares of common stock in 1999 were outstanding at
August 31,1999 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. SHAREHOLDERS' EQUITY
The Company has stock options outstanding under three stock option plans. As of
August 31, 1999, there were 2,536 options outstanding under an incentive stock
option plan adopted in October 1984 and subsequently amended. Options granted
under this plan were granted at exercise prices not less than fair market value
on the date of grant. Options outstanding under this plan expire in 2001. No
additional options may be granted under this plan.
As of August 31, 1999, there were 590,500 incentive options outstanding under a
stock option plan adopted in January 1995, which provides for both incentive and
nonqualified stock options and reserves 1,000,000 shares of common stock for
grant under the plan. The plan requires that options be granted at exercise
prices not less than the fair market value at the date of grant, over a ten-year
period. All options outstanding under this plan are currently exercisable at
prices ranging from $1.41 to $2.61 per share over a period of five years from
date of grant.
On July 14, 1998, Messrs. Bert E. Brodsky, Hugh Freund, Gary Stoller and Paul J.
Konigsberg, officers and directors of the Company, 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, and secured by the number of shares exercised.
In October 1998, the Board of Directors approved an amendment to the Company's
Certificate of Incorporation to increase the number of authorized shares of
common stock 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 incentive or non-statutory. As of August 31, 1999, an
aggregate of 397,620 incentive stock options were granted under the plan at an
exercise price of $3.00 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.
SANDATA, INC. AND SUBSIDIARIES
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Revenues were $4,202,469 for the three months ended August 31, 1999 as compared
to $3,501,236 for the three months ended August 31, 1998, an increase of
$703,233 or 20.0%.
Service fee revenue for the three months ended August 31, 1999 was $4,074,124 as
compared to $3,223,510 for the three months ended August 31, 1998, an increase
of $850,614 or 26.4%. The increase is primarily attributable to revenues derived
from SanTrax(R) and SandataNET(R).
Other income for the three months ended August 31, 1999 was $88,016, as compared
to $253,328 for the three months ended August 31, 1998 The decrease is
attributable to an amount received in the prior period from Health Card in
connection with its hiring employees of the Company offset by an increase in
income recognized on sales/leaseback transactions.
Expenses Related to Services
Operating expenses were $2,593,738 for the three months ended August 31, 1999 as
compared to $2,117,828 for the three months ended August 31, 1998, an increase
of $475,910 or 22.5%. Costs associated with SandataNET and other product
lines, including payroll and related expenses and equipment rental payments,
were the primary factors for the increase in operating expenses.
Selling, general and administrative expenses were $938,359 for the three months
ended August 31, 1999, as compared to $892,823 for the three months ended August
31, 1998, an increase of $45,536 or 5.1%. The increase was primarily due to
increases in consulting, payroll and commission expenses relative to increased
efforts to increase sales in the SanTrax product line, and certain royalties
payable to MCI Telecommunication Corporation, offset by a decrease in legal
expenses.
Depreciation and amortization expense increased $133,343 to $572,703 for the
three months ended August 31, 1999 as compared to $439,360 for the three months
ended August 31, 1998. 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 $48,120 for the three months ended August 31, 1999 as
compared to $5,730 for the three months ended August 31, 1998. The increase was
a result of increased borrowings on the Company's Credit Agreement.
Income Tax Expenses
Income tax expense for the three months ended August 31, 1999 was $20,515
as compared to $16,287 for the three months ended August 31, 1998.
Liquidity and Capital Resources
The Company's working capital increased as of August 31, 1999 to $1,372,128,
as compared with $235,599 at May 31, 1999.
For the three months ended August 31, 1999, the Company spent approximately
$1,836,000 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. Bert E. Brodsky, Hugh Freund, Gary Stoller and Paul J.
Konigsberg, officers and directors of the Company, 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, and secured by the number of shares exercised.
On April 18, 1997, the Company's wholly owned subsidiary, Sandsport,
entered into a revolving credit agreement (the "Credit Agreement") with a bank
(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 Bank has approved an increase in the Credit Agreement to $4,500,000
and extended the term of the Facility an additional three years. The
Company recorded the debt as a long term liability at August 31, 1999 as a
result of the Bank extending the repayment date of the Credit Agreement. 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's 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, failed to meet these net worth and financial ratios, and the Bank has
granted the Group waivers. As of August 31, 1999, the outstanding balance on the
Credit Agreement with the Bank was $2,400,000.
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 leases certain computer equipment to Health Card at a monthly cost
of $2,000 in addition to computer hardware for its data processing center at a
monthly cost of $31,000 pursuant to a verbal agreement.
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. The Company
upgrades its computer systems from time to time as part of its ongoing
operations. Accordingly, it is anticipated that the Company will incur
significant expenditures in connection with such upgrades. 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.
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SANDATA, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 - LEGAL PROCEEDINGS:
None
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)
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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, 1999 By: /s/ Bert E. Brodsky
Bert E. Brodsky
Chairman of the Board, President
Chief Executive Officer,
Chief Financial Officer
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October 15, 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 August 31, 1999 for Sandata Inc. If you have any questions or comments,
please contact me at (516)484-4400, extension 303.
Very truly yours,
Barbara E. Dale
Paralegal
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<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> AUG-31-1999
<EXCHANGE-RATE> 1
<CASH> 814,516
<SECURITIES> 0
<RECEIVABLES> 3,028,560
<ALLOWANCES> 451,640
<INVENTORY> 38,119
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