UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the period ended November 30, 2002
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from _______ to __________
Commission file number 0-14401
SANDATA TECHNOLOGIES, INC.
(Exact name of small business issuer in its charter)
DELAWARE 11-2841799
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
26 Harbor Park Drive
Port Washington, NY
(Address of principal executive offices)
11050
(Zip Code)
Issuer's telephone number, including area code: (516) 484-4400
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 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 January 12, 2003 was 2,481,808.
Transitional Small Business Disclosure Format (check one):
Yes No X
------ -------
SANDATA TECHNOLOGIES INC. AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of
November 30, 2002 (Unaudited) and May 31, 2002 (Audited).......................................3
Unaudited Condensed Consolidated Statements of Operations
for the three and six months ended November 30, 2002 and November 30, 2001.....................4
Unaudited Condensed Consolidated Statements of Cash Flows for
the six months ended November 30, 2002 and November 30, 2001...................................5
Notes to Condensed Consolidated Financial Statements (Unaudited)................................6
Item 2. Management's Discussion and Analysis
or Plan of Operation ...........................................................................15
Item 3. Procedures and Controls..........................................................................19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................................................20
Item 2. Changes in Securities and Use of Proceeds........................................................20
Item 3. Defaults Upon Senior Securities..................................................................20
Item 4. Submission of Matters to a Vote of Security Holders..............................................19
Item 5. Other Information................................................................................20
Item 6. Exhibits and Reports on Form 8-K.................................................................21
Signature...................................................................................22
Certifications..............................................................................23
SANDATA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
November 30, 2002 May 31, 2002
(unaudited) (audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 612,247 $ 1,630,617
Accounts receivable, net of allowance for doubtful accounts
of $239,696 and $202,746 at 2002 and 2001, respectively 2,112,025 2,182,963
Receivables from affiliates 270,178 280,297
Notes receivable - officer -- 100,000
Inventories 87,552 45,342
Prepaid expenses and other current assets 222,457 345,349
Deferred income taxes 214,099 207,595
--------- ----------
Total Current Assets 3,518,558 4,792,163
FIXED ASSETS, NET 6,481,560 6,820,596
DEFERRED INCOME TAXES 139,000 171,579
OTHER ASSETS
Notes receivable 22,434 25,190
Cash surrender value of officer's life insurance,
security deposits and other assets 1,121,408 1,105,502
---------- ----------
Total Assets $11,282,960 $12,915,030
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 2,961,074 $ 2,781,550
Deferred/unearned revenue - maintenance contracts 24,837 16,367
Deferred income - sales-leaseback 52,264 103,258
Short-term debt 2,750,000 --
------------ ----------
Total Current Liabilities 5,788,175 2,901,175
LONG-TERM DEBT -- 4,500,000
DEFERRED INCOME -- 21,142
----------- ----------
Total Liabilities 5,788,175 7,422,317
----------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.001 par value, 6,000,000 shares
authorized; 2,481,808 shares issued and outstanding 2,482 2,482
Additional paid in capital 5,765,766 5,765,766
Retained earnings 1,195,827 1,193,755
Notes receivable - officers (1,469,290) (1,469,290)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 5,494,785 5,492,713
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $11,282,960 $12,915,030
=========== ===========
SANDATA TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
November 30, November 30,
2002 2001 2002 2001
---- ---- ---- ----
REVENUES
Service fees $3,906,524 $4,137,580 $8,305,350 $8,529,906
Other income 67,543 168,467 147,063 267,209
Interest income 41,514 44,843 85,090 78,439
--------- --------- --------- ---------
4,015,581 4,350,890 8,537,503 8,875,554
COSTS AND EXPENSES
Operating 2,185,718 2,328,035 4,882,348 5,042,118
Selling, general and administrative 1,265,934 1,329,139 2,529,002 2,979,309
Depreciation and amortization 510,378 455,875 1,009,880 883,737
Interest expense 32,096 72,068 77,851 149,747
--------- --------- --------- ---------
TOTAL COSTS AND EXPENSES 3,994,126 4,185,117 8,499,081 9,054,911
--------- --------- --------- ---------
EARNINGS (LOSS) BEFORE INCOME TAXES 21,455 165,773 38,422 (179,357)
--------- --------- --------- ---------
INCOME TAX EXPENSE (BENEFIT) 12,253 81,741 36,350 (88,438)
--------- --------- --------- ---------
NET INCOME (LOSS) $ 9,202 $ 84,032 2,072 $(90,919)
========= ======== ========= ========
EARNINGS PER SHARE OF COMMON STOCK:
Basic income (loss) per share $ 0.00 $ 0.03 $ 0.00 $ (0.04)
========= ======== ======== =======
Dilutive income (loss) per share $ 0.00 $ 0.03 0.00 $ (0.04)
========= ======== ======== =======
Basic weighted average common shares
outstanding 2,481,808 2,506,475 2,481,808 2,506,475
========= ========= ========= =========
Dilutive weighted average common shares and
common stock equivalents outstanding 2,680,164 2,506,475 2,485,872 2,506,475
========= ========= ========= =========
SANDATA TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED NOVEMBER 30,
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 2,072 $ (90,919)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,009,880 883,737
Gain on disposal of fixed assets -- (4,309)
Provision for doubtful accounts 36,950 41,719
Recognition of deferred income (72,137) (163,278)
Recognition of deferred revenue (37,486) 2,612
Deferred tax provision 26,075 (88,438)
(Increase) decrease in operating assets
Accounts receivable 33,988 66,902
Receivables from affiliates 10,119 388,005
Inventories (42,210) 2,235
Prepaid expenses and other current assets 122,892 125,990
Other assets (13,150) (160,459)
Increase (decrease) in operating liabilities
Accounts payable and accrued expenses 179,524 183,697
Deferred/unearned revenue 45,957 --
========== =========
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,302,474 1,187,494
========== =========
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (670,844) (1,560,506)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (670,844) (1,560,506)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on note payable -- (500,000)
Proceeds from note payable -- 500,000
Proceeds from note receivable officer. 100,000 --
Proceeds from line of credit 500,000 1,800,000
Principal payments on line of credit (2,250,000) (1,150,000)
---------- ---------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES (1,650,000) 650,000
---------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,018,370) 276,988
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,630,617 475,578
--------- -------
CASH AND CASH EQUIVALENTS, END OF THE PERIOD $ 612,247 $ 752,566
======== =======
SANDATA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Condensed Consolidated Balance Sheet as of November 30, 2002, the
Condensed Consolidated Statements of Operations for the three and six months
ended November 30, 2002 and 2001, and the Condensed Consolidated Statements of
Cash Flows for the six month periods ended November 30, 2002 and 2001 have been
prepared by Sandata Technologies, Inc. and Subsidiaries (the "Company") without
audit. In the opinion of management, all adjustments (which include only normal,
recurring adjustments) necessary to present fairly the financial position as of
November 30, 2002 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, 2002. Results of operations for the period ended November 30, 2002
are not necessarily indicative of the operating results expected for the full
year.
Selected Accounting Policies and New Pronouncements
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity
of three months or less to be cash equivalents. Due to the nature of its
operations, the Company deposits, on a monthly basis, amounts in financial
institutions for the payment of payroll liabilities for certain customers. Such
amounts are reduced when the Company pays such liabilities. Such reductions
generally occur over five to ten business days. At November 30, 2002, the
Company had amounts on deposit for these liabilities of approximately $676,000.
The Company has cash balances in banks in excess of the maximum amount insured
by the FDIC as of November 30, 2002.
In October 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 144 ("SFAS No. 144"), "Accounting
for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses the
accounting model for long-lived assets to be disposed of by sale and resulting
implementation issues. This statement requires that those long-lived assets be
measured at the lower of carrying amount or fair value less cost to sell,
whether reported in continuing operations or in discontinued operations.
Therefore, discontinued operations will no longer be measured at net realizable
value or include amounts for operating losses that have not yet occurred. It
also broadens the reporting of discontinued operations to include all components
of an entity with operations that can be distinguished from the rest of the
entity and that will be eliminated from the ongoing operations of the entity in
a disposal transaction. SFAS No. 144 is effective for the Company in fiscal
2003. The provisions of the interpretations that are applicable to the Company
were implemented on a prospective basis as of June 1, 2002, which had no
material effect on the Company's financial statements.
On April 30, 2002 the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". SFAS No. 145 eliminates the requirement that gains and losses from
the extinguishment of debt be aggregated and, if material, classified as an
extraordinary item, net of the related income tax effect and eliminates an
inconsistency between the accounting for sale-leaseback transactions and certain
lease modifications that have economic effects that are similar to
sale-leaseback transactions. Generally, SFAS No. 145 is effective for
transactions occurring after May 15, 2002. The adoption of this standard had no
material impact to the Company.
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities" ("SFAS No. 146"), provides guidance on the recognition and
measurement of liabilities for costs associated with exit or disposal
activities. The provisions of this Statement are effective for exit or disposal
activities that are initiated after December 31, 2002. The Company is currently
reviewing SFAS No. 146 to determine the impact upon adoption.
2. RELATED PARTY TRANSACTIONS
a. Pursuant to an agreement (the "Agreement") involving the Company, Nassau
County Industrial Development Agency ("NCIDA"), BFS Realty, LLC (the
"Affiliate") HSBC Bank USA (successor to Marine Midland Bank) (the "Bank") and
the U.S. Small Business Administration ("SBA"), the Affiliate borrowed
$3,350,000 in Industrial Development Revenue Bonds (the "Bonds") to finance the
acquisition of the Company's facility (the "Facility").
Under the terms of the Agreement, the Company is jointly and separately
liable to the NCIDA for all obligations owed by the Affiliate to the NCIDA under
the lease agreement between NCIDA, as landlord, and the Affiliate, as Tenant
(the "Lease"); however, the Affiliate has indemnified the Company with respect
to certain obligations relative to the Lease and the Agreement. The Company
subleases space from the Affiliate (see below). The Affiliate's obligations
under the Lease were guaranteed by Mr. Brodsky, the Company, Sandsport and
others. The Affiliate's obligations respecting repayment of the Bonds were also
guaranteed by Mr. Brodsky, the Company, Sandsport and others. The Bonds
currently bear interest at the rate of 9%, and the outstanding balance due on
the Bonds as of November 30, 2002 was $1,357,778.
The Company has also entered into a $750,000 loan agreement with the Long
Island Development Corporation ("LIDC"), under a guarantee by the SBA (the "SBA
Loan"). The SBA Loan was assigned to the Affiliate in November 1996; however,
repayment of the SBA Loan is guaranteed by the Company and various subsidiaries
of the Company. The SBA Loan is payable in 240 monthly installments of $6,255,
which includes principal and interest at a rate of 7.015%. The balance of the
SBA Loan as of November 30, 2002 was $584,924.
b. The Company derived revenue from National Medical Health Card Systems,
Inc. ("Health Card") a company affiliated with the Company's Chairman,
principally for database and operating system support, hardware leasing,
maintenance and related administrative services. No revenues were generated from
Health Card for the three and six months ended November 30, 2002. The revenues
generated from Health Card amounted to approximately $581,000 and $1,211,000 for
the three and six months ended November 30, 2001 for various services. In
addition the Company resells its telephone services to Health Card. The billings
for such telephone services amounted to approximately $10,000 and $121,000 for
the six months ended November 30, 2002 and 2001, respectively and are recorded
as a reduction of operating expense. The Company was owed approximately $3,000
from Health Card at November 30, 2002. Subsequent to November 30, 2002, the
Company received approximately $3,000 from Health Card.
c. The Company makes lease and rent payments to affiliates of the Company's
Chairman. The payments for leased equipment were made to P.W. Capital Corp. and
P.W. Medical Management, Inc., and were approximately $54,000 and $108,000 for
the three and six months ended November 30, 2002 as compared to approximately
$71,000 and $166,000 for the three and six months ended November 30, 2001. The
payments for the Facility were made to the Affiliate, and were approximately
$68,000 and $136,000 for the three and six months ended November 30, 2002 as
compared to approximately $138,000 and $281,000 for the three and six months
ended November 30, 2001.
d. Medical Arts Office Services, Inc. ("MAOS"), of which the Company's
Chairman is the sole shareholder, provided the Company with accounting,
bookkeeping and legal services. For the three and six months ended November 30,
2002 and 2001 the total payments made by the Company to MAOS were approximately
$162,000 and $277,000, as compared to approximately $135,000 and $224,000 for
the three and six months ended November 30, 2001.
3. DEBT
Credit Agreement
The Company's wholly-owned subsidiary, Sandsport Data Services, Inc.
("Sandsport"), has a revolving credit agreement (the "Credit Agreement") with
the Bank which allows Sandsport to borrow amounts up to $4,500,000 and is due on
June 14, 2003. Interest accrues on amounts outstanding under the Credit
Agreement at a rate equal to the London Interbank Offered Rate ("LIBOR") plus 2%
and will be paid quarterly in arrears or, at Sandsport's option, interest may
accrue at the Bank's prime rate. The Credit Agreement requires Sandsport to pay
a fee equal to 1/4% per annum 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
indebtedness under the Credit Agreement is guaranteed by the Company and
Sandsport's sister subsidiaries (the "Group"). All of the Group's assets are
pledged to the Bank as collateral for the amounts due under the Credit
Agreement, which pledge is secured by a first lien on all equipment owned by
members of the Group, as well as a collateral assignment of $2,000,000 of life
insurance payable on the life of the Company's Chairman. In addition, the
Company is restricted in its ability to declare and pay dividends pursuant to
the Credit Agreement. The Group's guaranty to the Bank was subsequently modified
to include all indebtedness incurred by the Company under the amended Credit
Agreement dated August 24, 2001 (see below).
On August 24, 2001, Sandsport, the Company and the other members of the
Group, and the Bank, entered into the Third Amendment and Waiver (the "Third
Amendment") to the Credit Agreement. Pursuant to the Third Amendment,
Sandsport's covenants to the Bank to maintain a certain net worth, and to
maintain certain financial ratios, were revised on a going-forward basis and the
noncompliance with the existing covenants was waived by the Bank. In addition,
in connection with the Third Amendment, Sandsport and each member of the Group
executed and delivered to the Bank a Collective Amended and Restated Security
Agreement, pursuant to which the Bank's security interest was extended to
include a security interest in all of the personal and fixture property of
Sandsport, the Company and the members of the Group. As of November 30, 2002 the
Group failed to meet the working capital requirement of the Credit Agreement,
and the Bank granted the Group a waiver. In the past the Group has failed to
meet certain of the financial ratios, and the Bank has granted the Group a
waiver. There can be no assurance that the Bank will continue to grant waivers
if the Group fails to meet certain financial covenants in the future. The
outstanding balance on the Credit Agreement with the Bank was $2,750,000 at
November 30, 2002.
4. NET EARNINGS (LOSS) PER COMMON SHARE
The Company computes earnings per share in accordance with Statement of
Financial Accounting Standards No. 128 "Earnings per Share." Basic earnings per
share have been computed using the weighted average number of shares of common
stock outstanding.
During the three and six months ended November 30, 2002, 198,356 and 4,064
options and warrants to purchase shares of common stock, were included in the
dilutive earnings per share calculation. Options and warrants to purchase
486,213 and 1,356,713 shares of common stock, for the three and six months ended
November 30, 2002, respectively, were outstanding at November 30, 2002, were not
included in the computation of diluted earnings per share because the options
were not in the money, during the aforementioned periods.
5. SHAREHOLDERS' EQUITY
Stock Options
On July 14, 1998, the Chairman, certain officers, directors, and a former
director and the spouse of an officer (who is an employee of Sandsport)
exercised their respective options and warrants to purchase an aggregate of
921,334 shares of Common Stock. The exercise prices ranged from $1.38 to $2.61
per share for an aggregate cost of $1,608,861. Payment for such shares was made
to the Company in the amount of $921 representing the par value of the shares,
and a portion in the form of non-recourse promissory notes due in July 2001,
with interest at eight and one-half percent (8 1/2%) per annum, payable
annually, and secured by the number of shares acquired ("Non-recourse Notes").
On July 14, 2001, the Company agreed to extend the due dates of the Non-recourse
Notes for one hundred twenty days. On November 9, 2001, the due date of the
notes was extended to November 9, 2004 and the Company agreed to substitute full
recourse unsecured notes ("Recourse Notes") for the Non-recourse Notes it had
previously accepted. The Recourse Notes bear interest at the rate of eight and
one-half percent (8 1/2%) per annum, payable annually, with the principal amount
of each Recourse Note, plus any accrued and unpaid interest, due and payable on
November 9, 2004.
Effective December 1, 2001, the interest rate on the Recourse Notes was
changed to six percent (6%) per annum, and the shares and Recourse Note of the
spouse of an officer were both transferred to the officer.
During the year ended May 31, 2002, 24,667 shares of common stock were
surrendered by a former director and an employee in settlement of Non-recourse
Notes in the amount of $37,962. As of November 30, 2002 , the outstanding
balance on Recourse Notes, including principal and accrued but unpaid interest,
was $1,505,646. On August 22, 2003, the Chairman repaid $100,000 of his Recourse
Note.
6. COMMITMENTS AND CONTINGENCIES
Litigation
a. In August of 1999, the Company's wholly-owned subsidiary, Sandsport was
named as a defendant in Greater Bright Light Home Care Services, Inc. et al. v.
Joseph Jeffries-El, El Equity Corporation, Sandsport Data Services, Inc. et al.
(Supreme Court of the State of New York, Kings County). Sandsport's contractual
obligation to Greater Bright Light involved the depositing of certain
government-issued checks into a specific bank account. Upon receiving written
notification from the agency issuing the checks to stop depositing them in that
account, Sandsport ceased depositing them. The plaintiff brought the action
against Joseph Jeffries-El and El Equity, and El Equity counterclaimed against
the plaintiff, each basing its claims on the financing agreement between them.
El Equity also cross-claimed against Sandsport, asserting that Sandsport
converted the government-issued checks to its own use. Although Sandsport is
named as a defendant, the Complaint seeks no affirmative relief against
Sandsport. Co-defendant Citibank has asserted indemnification claims against
Sandsport and all of the other defendants. Sandsport disputes all liability.
However, the Company is unable to predict the outcome of these claims and
accordingly, no adjustments have been made in the consolidated financial
statements in response to these claims.
b. On March 1, 2000, Dataline, Inc. ("Dataline") began a lawsuit against
MCI WorldCom Network Services, Inc. ("MCI") and the Company for alleged trade
libel and related counts, in the United States District Court for the Southern
District of New York. The court dismissed that lawsuit, with prejudice, on May
23, 2002. On May 4, 2001 MCI had brought a patent infringement lawsuit against
Dataline, alleging that it was infringing three MCI patents, under which the
Company has an exclusive license in New York City. Shortly thereafter, the
Company joined MCI in the suit against Dataline. Pursuant to a Settlement
Agreement dated January 1, 2002 among MCI, its parent (MCI Communications
Corporation), the Company, and Dataline, Dataline acknowledged the validity and
enforceability of the 3 MCI-owned patents that were the subject of the lawsuits.
There were no payments from either MCI or the Company to Dataline. As part of
the settlement, Dataline agreed to pay the Company $100,000 in cash and issue an
8% promissory note in the amount of $721,000. Due to the uncertainty of
realization of the note receivable, the Company is recognizing the income on the
note using the installment method of accounting. For the three and six months
ended November 30, 2002, the Company has recognized approximately $45,000 and
$90,000 respectively, of income. In addition, Sandata and Dataline entered into
an Exclusive Service Agreement by which Dataline agreed to use the Company's
"call capture infrastructure" for all of Dataline's time and attendance systems,
and to pay royalties to the Company for such use. The terms of the settlement
also included mutual releases.
c. By letter dated June 26, 2002, a former employee of the Company asserted
claims for back wages of $410,000. The letter, from the employee's attorney,
also contained allegations of age discrimination and retaliatory discharge. The
letter also contained an offer of settlement. No formal litigation has been
started and the Company intends to pursue settlement negotiations. A provision
of $200,000 is included in accrued expenses relating to the asserted claim,
which represents the Company's best estimate of costs to be incurred. The amount
of the ultimate cost may vary from this estimate.
d. For description of the going private transaction, and of the
class-action lawsuits initiated in connection with such transaction, see Note 9.
Royalty Agreement
The Company has been granted a license under certain of MCI's patents which
permits the Company to continue to market and sell its SANTRAX time and
attendance verification product non-exclusively nationwide, and exclusively in
the home health care industries for the five New York boroughs, and that the
Company will pay MCI certain royalties, on a per call basis. The license remains
in effect until the last to expire of various patents held by MCI or until
October 19, 2010, whichever is later.
7. REVENUE BY PRODUCT LINE
The Company derives its revenue from several product lines that are similar
in nature. The following table provides the service fee revenues for the product
lines earned for the three and six month periods ended November 30, 2002 and
2001:
For the three months ended For the six months ended
November 30, November 30,
2002 2001 2002 2001
---- ---- ---- ----
Computerized information processing 1,474,963 1,484,952 3,020,227 3,007,197
Telephone-based data collection 2,134,823 1,854,195 4,220,712 3,746,346
Technology infrastructure and outsourcing 9,453 213,553 20,602 615,845
Information technology 287,285 581,883 1,043,295 1,145,958
Other -- 2,997 514 14,560
---------- ---------- ---------- ----------
$3,906,524 $4,137,580 $8,305,350 $8,529,906
========== ========== ========== ==========
8. ECONOMIC DEPENDENCE
A significant number of the Company's customers (both for-profit and
not-for-profit companies) receive some or all of their funding from Federal and
State agencies. These customers' contracts with the Company are subject to
review and approval by a New York City governmental agency. For the three months
ended November 30, 2002 and 2001, the Company received revenues from these
customers amounting to approximately $2,762,000, and $2,619,000, respectively.
For the six months ended November 30, 2002 and 2001, the Company received
revenues from these customers for approximately $5,599,000 and $5,286,000,
respectively. The Company was owed approximately $1,568,000 from these customers
at November 30, 2002.
9. GOING PRIVATE TRANSACTION
The Company entered into a Merger Agreement dated as of October 28, 2002 by
and among the Company, Sandata Acquisition Corp. and Bert E. Brodsky, Hugh
Freund and Gary Stoller. The Merger Agreement provides for the merger of Sandata
Acquisition Corp. with and into the Company, with the Company continuing as the
surviving corporation. Prior to the effective time of the merger, Messrs.
Brodsky, Freund and Stoller and members of their immediate families have agreed
to contribute all of the Company's stock owned by them to Sandata Acquisition
Corp. and at the effective time of the merger, (i) each share of the Company's
common stock, other than stock owned by Messrs. Brodsky, Freund and Stoller and
members of their immediate families and Sandata Acquisition Corp., will be
converted into the right to receive the merger consideration of $1.91 in cash
and (ii) each outstanding share of Sandata Acquisition Corp. will be converted
into one share of common stock of the surviving corporation. Pursuant to the
Merger Agreement, all outstanding options to purchase common stock of the
Company will be cancelled and converted into the right to receive a cash payment
equal to the product of the number of shares subject to the option and the
difference between the merger consideration of $1.91 and the per share exercise
price of the option. Under the Merger Agreement, options held by the Messrs.
Brodsky, Freund and Stoller and members of their immediate families will be
cancelled and the holders of those options will not be entitled to receive any
consideration. The Board of Directors of the Company, acting upon the unanimous
recommendation of a Special Committee of the Board, comprised of two
non-management directors who are not materially interested in the transaction,
unanimously approved the merger. In reaching its decision to recommend the
merger to the full Board, the Special Committee received a fairness opinion from
the Committee's financial advisor, Brean Murray & Co., Inc.
Completion of the merger is subject to customary closing conditions,
including, among others, stockholder approval, that no actions or proceedings
are pending seeking to prevent consummation of the merger and that no injunction
preventing the consummation of the merger is in effect.
On September 11, 2002, a shareholder of the Company filed a lawsuit in the
Delaware Chancery Court against the Company and the members of its Board of
Directors. (Eva Seitler v. Sandata Technologies, Inc., Bert E. Brodsky, Ronald
L. Fish, Martin Bernard, Hugh Freund, and Gary Stoller, Civil Action No.
19886-NC). The plaintiff alleges that the defendants breached their fiduciary
duties to the Company and the Company's public shareholders in connection with
Sandata Acquisition Corp.'s proposal to acquire all of the outstanding public
shares of the Company. The plaintiffs also allege, among other things, that the
directors serving on the special committee are not independent, and that the
merger consideration is inadequate. The complaint seeks certification of the
action as a class action, both a preliminary and permanent injunction against
the proposed transaction, and rescission if it is not enjoined. On September 13,
another shareholder of the Company filed a separate lawsuit in the same court,
making substantially identical allegations and seeking substantially identical
remedies. These actions were consolidated by the Delaware Chancery Court in an
order dated October 22, 2002 (Civil Action No. 19886-NC).
On December 23, 2002 the Company entered into a nonbinding Memorandum of
Understanding among the Company, the members of its Board of Directors and the
plaintiffs in these actions. Pursuant to the Memorandum, Sandata Acquisition
Corp. agreed to increase its offer set forth in the Merger Agreement, to $2.21
for each outstanding share of Sandata common stock. The Memorandum also provides
for the parties to the lawsuits to use their best efforts to agree upon,
execute, and present to the Court a formal Stipulation of Settlement in order to
obtain the approval of the Court of the settlement and release of the
consolidated actions. The parties agreed that the Stipulation of Settlement will
provide, among other things, (i) that Sandata Acquisition Corp. will increase
its offer contained in the merger agreement to $2.21 per share of Sandata common
stock and (ii) for a complete release and settlement of all claims against
Sandata, the members of its Board, Sandata Acquisition Corp. and their
respective predecessors, successors, assignees, parents, subsidiaries, counsel,
accountants, attorneys, affiliates, agents and representatives, including
without limitation, investment banks or bankers or commercial banks and any
past, present, or future officers, directors, or employees of defendants and
their predecessors, successors, assignees, parents, subsidiaries, counsel,
accountants, attorneys, affiliates, agents and representatives, which have been,
or could have been, asserted relating to Sandata Acquisition Corp.'s proposal.
The Memorandum further provides that the parties to the consolidated actions
will petition the Court for final certification of a non-opt out class defined
as all holders of Company common stock as of August 5, 2002, through and
including the closing date of the Merger Agreement. The settlement contemplated
by the Memorandum is subject to the execution of a formal Stipulation and
Settlement, the consummation of the merger transaction with Sandata Acquisition
Corp. for $2.21 per share of Company common stock, final approval of the Court
of the settlement, including certification of a class, and the dismissal of the
consolidated actions by the Court. The Memorandum also provides that, subject to
approval of the Court, none of the defendants will object to an application by
plaintiff's counsel for attorneys' fees and expenses in an amount not to exceed
$60,000. The Company is unable to predict the outcome of this matter and,
accordingly, no adjustments have been made in the condensed consolidated
financial statements in response to this matter.
SANDATA TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2-MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
Revenues were $4,015,581 and $8,537,503 for the three and six months ended
November 30, 2002 as compared to $4,350,890 and $8,875,554 for the three and six
months ended November 30, 2001, a decrease of $335,309 or 8% and $338,051 or 4%
respectively. The decreases are primarily due to the decreases in service fee
revenue and other income.
Service fee revenue for the three and six months ended November 30, 2002
was $3,906,524 and $8,305,350 as compared to $4,137,580 and $8,529,906 for the
three and six months ended November 30, 2001 a decrease of $231,056 or 6%, and
$224,558 or 3% respectively. The decrease in service fee revenue is attributable
to decreases in technology infrastructure and outsourcing of $204,100 and
$595,243, information technology $294,598 and $102,663, offset by increases in
telephone-based data collection of $280,628 and $474,336, for the three and six
months ended November 30, 2002, respectively.
Other income for the three and six months ended November 30, 2002 was
$67,543 and $147,063 as compared to $168,467 and $267,209 for the three and six
months ended November 30, 2001. The decrease is attributable to a decrease in
income recognized on sales/leaseback transactions.
Expenses Related to Services
Operating expenses were $2,185,718 and $4,882,348 for the three and six
months ended November 30, 2002 as compared to $2,328,035 and $5,042,118 for the
three and six months ended November 30, 2001, a decrease of $142,317 and
$159,770, respectively. Decreased equipment rentals and decreased payroll costs,
as discussed further below, are the primary reasons for the reduction in
operating expenses.
Selling, general and administrative expenses were $1,265,934 and $2,529,002
for the three and six months ended November 30, 2002, as compared to $1,329,139
and $2,979,309 for the three and six months ended November 30, 2001, a decrease
of $63,205 and $450,307, respectively. The decrease is primarily due to a
decrease in payroll, as discussed further below, partially offset by expenses
related to the Company going private (see Note 9).
On August 9, 2001 the Company announced that it had terminated the
employment of Stephen Davies as President of the Company, and would be
terminating approximately 30 other employees. Under the terms of Mr. Davies'
Employment Agreement, he is entitled to a severance payment equal to six (6)
months' base salary, or $100,000, and has 90 days from the date of termination
to exercise the 66,673 options that were vested on that date. The elimination of
approximately 30 positions from within the Company and its subsidiaries
generated approximately $1.7 million in reduced expenses and capitalized
software. In addition, the Company paid approximately $47,000 in severance
payments for approximately 30 terminated employees.
Depreciation and amortization expense were $510,378 and $1,009,880 for the
three and six months ended November 30, 2002 as compared to $455,875 and
$883,737 for the three and six months ended November 30, 2001 an increase of
$54,503 and $126,143, respectively. The increase was primarily attributable to
the write-off of developed software that occurred in the year ended May 31,
2001, which resulted in decreased amortization expense in last year's quarter,
as well as additional fixed assets being amortized during the six months ended
November 30, 2002.
Interest expense was $32,096 and $77,851 for the three and six months ended
November 30, 2002 as compared to $72,068 and $149,747 for the three and six
months ended November 30, 2001. The decrease was a result of decreased
borrowings on the Company's Credit Agreement, and the decrease in the rate due
to market conditions.
Income Tax Expenses (Benefit)
Income tax expense for the three and six months ended November 30, 2002 was
$12,253 and $36,350, respectively, as compared to income tax expense (benefit)
of $81,741 and ($88,438) for the three and six months ended November 30, 2001,
respectively. The increase in income tax expense for the six months ended
November 30, 2002 as compared to the six months ended November 30, 2001 is
primarily due to the decrease in the deferred tax asset. The deferred tax asset
primarily decreased due to the decrease in the net operating loss utilized in
the deferred tax calculation. The Company had taxable income that utilized a
portion of its net operating loss during the six months ended November 30, 2002.
Liquidity and Capital Resources
The Company has a working capital deficit as of November 30, 2002 of
$2,269,617, as compared to working capital of $1,890,988 at May 31, 2002. The
primary factor is a result of net repayments of the Credit Agreement of
$1,750,000 and the Credit Agreement becoming a short-term liability versus a
long-term liability, of which $2,750,000 is due in June 2003.
For the three and six months ended November 30, 2002, the Company spent
approximately $405,000 and $671,000 in fixed asset additions, of which $228,000
and $457,000 respectively, was for software capitalization costs in connection
with revenue growth and new product development. The Company expects the current
levels of capital expenditures to continue.
On July 14, 1998, the Chairman, certain officers, directors and a former
director and the spouse of an officer and an employee of Sandsport Data
Services, Inc. ("Sandsport"), the Company's wholly owned subsidiary, exercised
their respective options and warrants to purchase an aggregate of 921,334 shares
of Common Stock at exercise prices ranging from $1.38 to $2.61 per share for an
aggregate cost of $1,608,861. Payment for such shares was made to the Company in
the amount of $921 representing the par value of the shares, and a portion in
the form of non-recourse promissory notes due in July 2001, with interest at
eight and one-half percent (8-1/2%) per annum, payable annually, and secured by
the number of shares exercised. On July 14, 2001, the Company agreed to extend
the due dates of such notes for one hundred twenty days until November 11, 2001.
On November 9, 2001, the Company agreed to substitute full recourse unsecured
Notes for the Notes it had previously accepted in connection with these option
and warrant exercises. Such notes will bear interest at the rate of eight and
one-half percent (8 1/2%) per annum, payable annually, with the principal amount
of each such Note, plus any accrued and unpaid interest, due and payable on
November 9, 2004.
As of December 1, 2001, the interest rate on the notes was changed to six
percent (6%) per annum, and the shares and note of the spouse of the officer
were both transferred to the officer. During the year ended May 31, 2002, 24,667
shares of common stock were surrendered by a former director and an employee in
settlement of notes in the amount of $37,962. As of November 30, 2002, the
outstanding balance on such notes, including principal and accrued but unpaid
interest, was $1,505,646.
On April 18, 1997, the Company's wholly owned subsidiary, Sandsport,
entered into a revolving credit agreement (the "Credit Agreement") with HSBC
Bank USA, which allows Sandsport to borrow amounts up to $3,000,000. Interest
accrues on amounts outstanding under the Credit Agreement at a rate equal to the
London Interbank Offered Rate plus 2% and will be paid quarterly in arrears or,
at Sandsport's option, interest may accrue at the Bank's prime rate. The Credit
Agreement requires Sandsport to pay a fee equal to 1/4% per annum payable on the
unused average daily balance of amounts under the Credit Agreement. In addition,
there are other fees and charges imposed based upon Sandsport's failure to
maintain certain minimum balances. The Credit Agreement has been amended by the
Bank to permit Sandsport to borrow amounts up to $4,500,000 until February 14,
2003. Interest accrues at the same rate as the original Credit Agreement. The
indebtedness under the Credit Agreement is guaranteed by the Company and
Sandsport's sister subsidiaries (the "Group"). All of the Group's assets are
pledged to the Bank as collateral for amounts due under the Credit Agreement,
which pledge is secured by a first lien on all equipment owned by members of the
Group, as well as a collateral assignment of $2,000,000 of life insurance
payable on the life of the Company's Chairman. The Group's guaranty to the Bank
was modified to include all indebtedness incurred by the Company under the
Credit Agreement. On April 11, 2002, the Bank approved the extension of the
termination date of the Credit Agreement to June 14, 2003 (from February 14,
2003).
In addition, pursuant to the Credit Agreement, the Group is required to
maintain certain levels of net worth and meet certain financial ratios in
addition to various other affirmative and negative covenants. As of August 24,
2001, Sandsport, the Company and the other members of the Group, and the Bank,
entered into the Third Amendment and Waiver (the "Third Amendment") to the
Credit Agreement. Pursuant to the Third Amendment, Sandsport's covenants to the
Bank to maintain a certain net worth and to maintain certain financial ratios
were revised, on a going-forward basis, and the noncompliance with the existing
covenants was waived by the Bank. In addition, in connection with the Third
Amendment, Sandsport and each member of the Group executed and delivered to the
Bank a Collective Amended and Restated Security Agreement, pursuant to which the
Bank's security interest was extended to include a security interest in all of
the personal and fixture property of Sandsport, the Company and the members of
the Group. On October 23, 2001 the Credit Agreement was amended with respect to
one of the financial ratios, at the Company's request. At November 30, 2002 the
Group failed to meet the working capital requirement of the Credit Agreement,
and the Bank granted the Group a waiver. In the past, the Group has failed to
meet certain of the financial ratios, and the Bank has granted the Group a
waiver. There can be no assurance that the Bank will continue to grant waivers
if the Group fails to meet the net worth and financial ratios in the future.
Management does not anticipate any problems in renewing the line of credit
and/or negotiating alternative debt financing. If such waivers are not granted,
any loans outstanding under the Credit Agreement become immediately due and
payable, which may have an adverse effect on the Company's business, operations
or financial condition. As of November 30, 2002, the outstanding balance on the
Credit Agreement with the Bank was $2,750,000.
The Company believes the results of its continued operations, together with
the available credit line, should be adequate to fund presently foreseeable
working capital requirements.
SANDATA TECHNOLIGIES, INC. AND SUBSIDIARIES
ITEM 3-PROCEDURES AND CONTROLS
Within the 90 days prior to the date of this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, primarily Bert Brodsky, the Company's Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures pursuant to
Exchange Act Rule 13a-14. Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation.
SANDATA TECHNOLOGIES, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 - LEGAL PROCEEDINGS
Reference is made to Notes 6 and 9 to the Condensed Consolidated Financial
Statements comprising Part I, Item 1 of this Form 10-QSB.
Item 2 - CHANGES IN SECURITIES
The Company's ability to declare and pay dividends is restricted pursuant
to the terms of a Revolving Credit Agreement dated April 18, 1997 between the
company and HSBC Bank USA, formerly Marine Midland Bank (the "Bank"), and also
under the terms of the Guaranty Agreement dated June 1, 1994 by and among the
Company (as a guarantor), BFS Realty, LLC (an affiliate of the Company's
Chairman), and the Bank (among others). The Guarantee Agreement was entered into
in connection with the IDA/SBA Financing discussed in Item 6 of the Annual
Report on Form 10-KSB for the year ended May 31, 2002, filed with the SEC on
August 27, 2002.
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
(a) Exhibits
99.1 Certification Pursuant to Sarbanes Oxley Act, Section 302
99.2 Certification Pursuant to Sarbanes Oxley Act, Section 906
(b) Reports on Form 8-K
1. Current Report on Form 8-K filed September 18, 2002
reporting under Item 5 the Company's acceptance of a
proposal to engage in a going private transaction, subject
to the conditions specified in the press release
comprising an Exhibit to the Report.
2. Current Report on Form 8-K filed November 4, 2002 reporting
under Item 5 that the Company entered into an Agreement
and Plan of Merger dated as of October 28, 2002 by and
between the Company, Sandata Acquisition Corp., Bert E.
Brodsky, Hugh Freund and Gary Stoller, subject to the
terms and conditions specified in the Merger Agreement and
press release comprising Exhibits to the Report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SANDATA TECHNOLOGIES, INC.
(Registrant)
Date: January 14, 2003 By: /s/ Bert E. Brodsky
-----------------------
Bert E. Brodsky
Chairman of the Board,
Chief Executive Officer,
Chief Financial Officer
EXHIBIT 99.1
CERTIFICATION
I, Bert E. Brodsky, Chief Executive Officer and Chief Financial Officer,
certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Sandata
Technologies, Inc. and its Subsidiaries;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of
Sandata Technologies, Inc. and its Subsidiaries as of, and for, the periods
presented in this quarterly report.
4. As both Chief Executive Officer and Chief Financial Officer, I am
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant, and I
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to me by others within those entities,
particularly during the period in which this quarterly is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report my conclusions about the
effectiveness of the disclosure controls and procedures based on my
evaluation as of the Evaluation Date;
5. As both Chief Executive Officer and Chief Financial Officer I have
disclosed, based on my most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons performing
the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data, and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. As both Chief Executive Officer and Chief Financial Officer, I have
indicated in this quarterly report whether or not there were significant changes
in internal controls subsequent to the date of my most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: January 14, 2003 /s/Bert E. Brodsky
----------------------------------
Bert E. Brodsky, Chief Executive
Officer and Chief Financial Officer
EXHIBIT 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Sandata Technologies, Inc. (the
"Company") on Form 10-Q for the period ended November 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), Bert E.
Brodsky, Chief Executive Officer and Chief Financial Officer of the Company,
certifies, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
January 14, 2003 /s/Bert E. Brodsky
------------------------------
Bert E. Brodsky
Chief Executive Officer
and Chief Financial Officer