-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ab/yKNx3TECZPzdhgTXSv4jAyICy5IoPIHxkcArgRA583e2HrHAktMWELlE8jU+5 N0m8v2yijXzZLuXiPuAIxw== 0000755465-99-000009.txt : 19990415 0000755465-99-000009.hdr.sgml : 19990415 ACCESSION NUMBER: 0000755465-99-000009 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990228 FILED AS OF DATE: 19990414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SANDATA INC CENTRAL INDEX KEY: 0000755465 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 112841799 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-14401 FILM NUMBER: 99593557 BUSINESS ADDRESS: STREET 1: 26 HARBOR PARK DR CITY: PORT WASHINGTON STATE: NY ZIP: 11050 BUSINESS PHONE: 5164849060 MAIL ADDRESS: STREET 1: 26 HARBOR PARK DR CITY: PORT WASHINGTON STATE: NY ZIP: 11050 FORMER COMPANY: FORMER CONFORMED NAME: SDS INC DATE OF NAME CHANGE: 19870818 FORMER COMPANY: FORMER CONFORMED NAME: SANDSPORT DATA SERVICES INC DATE OF NAME CHANGE: 19870520 10QSB 1 10QSB 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 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 Sandata, Inc. and Subsidiaries CONSOLIDATED CONDENSED BALANCE SHEETS 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
CONSOLIDATED CONDENSED BALANCE SHEETS 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
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS 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
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS 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
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. 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) 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 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 EX-27 2 FDS --
5 (Replace this text with the legend) 0000755465 SANDATA, INC. 1 $ 9-MOS MAY-31-1999 JUN-01-1998 FEB-28-1999 1 277,925 0 3,139,520 421,899 38,373 3,414,367 14,717,290 7,598,101 11,472,629 2,039,372 0 0 0 2,481 4,252,420 11,472,629 10,155,602 10,610,641 0 10,347,029 0 0 64,809 198,803 79,629 119,174 0 0 0 119,174 .05 .05
-----END PRIVACY-ENHANCED MESSAGE-----