-----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, Hgtl8izP9lADWQhW5GMdM7ZUDjXr3VvwsfLSnPFS/DH00UO/49K4Et0lp4CPEHs9 Toy7GA0CdaRG7db7I9ng2A== 0000755465-02-000002.txt : 20020416 0000755465-02-000002.hdr.sgml : 20020416 ACCESSION NUMBER: 0000755465-02-000002 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020228 FILED AS OF DATE: 20020415 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SANDATA TECHNOLOGIES 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: 1934 Act SEC FILE NUMBER: 001-16675 FILM NUMBER: 02609864 BUSINESS ADDRESS: STREET 1: 26 HARBOR PARK DR CITY: PORT WASHINGTON STATE: NY ZIP: 11050 BUSINESS PHONE: 5164844400X215 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: SANDATA INC DATE OF NAME CHANGE: 19941014 FORMER COMPANY: FORMER CONFORMED NAME: SANDSPORT DATA SERVICES INC DATE OF NAME CHANGE: 19870520 10QSB 1 sand20210q.txt 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, 2002 -------------------------------------------- [ ] Transition report under Section 13 or 15(d) of the Exchange Act For the transition period from TO ---------------- ----------------------------- Commission file number 0-14401 --------------------------------------------------------- SANDATA TECHNOLOGIES, INC. - -------------------------------------------------------------------------------- (Exact Name of Small Business Issuer as Specified in Its Charter) Delaware 11-2841799 - ---------------------------------------- --------------------------------- (State or Other Jurisdiction of (I.R.S. 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) ` SANDATA, INC. - -------------------------------------------------------------------------------- (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 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 the issuer's common stock, as of April 10, 2002 was 2,481,808 shares. Transitional Small Business Disclosure Format (check one): Yes No X ------------- -------------- INDEX Page PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS: CONDENSED CONSOLIDATED BALANCE 3 SHEETS as of February 28, 2002 (Unaudited) and May 31, 2001 (Audited) UNAUDITED CONDENSED CONSOLIDATED 5 STATEMENTS OF OPERATIONS for the three and nine months ended February 28, 2002 and February 28, 2001 UNAUDITED CONDENSED CONSOLIDATED 6 STATEMENTS OF CASH FLOWS for the nine months ended February 28, 2002 and February 28, 2001 NOTES TO CONDENSED CONSOLIDATED 7 FINANCIAL STATEMENTS ITEM 2 - MANAGEMENT'S DISCUSSION AND 13 ANALYSIS OR PLAN OF OPERATION PART II - OTHER INFORMATION 17 ITEM 1 - LEGAL PROCEEDINGS 17 ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS 17 ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 17 ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY 17 HOLDERS ITEM 5 - OTHER INFORMATION 17 ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 17
SANDATA, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION SANDATA TECHNOLOGIES, INC. AND SUBSIDIARIES PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEETS UNAUDITED AUDITED February 28, May 31, 2002 2001 ------------- -------- ASSETS: CURRENT ASSETS Cash and cash equivalents $ 428,896 $475,578 Accounts receivable, net of allowance for doubtful accounts of $410,000 and $347,000 respectively 2,322,523 2,160,675 Receivables from affiliates 312,688 802,787 Inventories 32,712 35,993 Prepaid expenses and other current assets 299,629 416,056 Costs in excess of billings and estimated earnings on uncompleted contract 337,000 Deferred income taxes 383,476 274,470 ---------- ---------- TOTAL CURRENT ASSETS 4,116,924 4,165,559 FIXED ASSETS, NET 6,873,446 6,036,203 DEFERRED INCOME TAXES 94,919 335,773 OTHER ASSETS Notes receivable 26,193 117,262 Cash surrender value of officer's life insurance, security deposits and other 1,053,392 866,774 ----------- ----------- TOTAL ASSETS $12,164,874 $11,521,571 =========== ===========
See Notes to Condensed Consolidated Financial Statements SANDATA TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS UNAUDITED AUDITED February 28, May 31, 2002 2001 ------------ -------- LIABILITIES AND SHAREHOLDERS' EQUITY: CURRENT LIABILITIES Accounts payable and accrued expenses $1,705,651 $1,881,269 Deferred/unearned revenue 403,780 31,069 Deferred income 151,830 296,560 ----------- ---------- TOTAL CURRENT LIABILITIES 2,261,261 2,208,898 LONG TERM DEBT 4,500,000 3,850,000 DEFERRED INCOME 31,713 124,401 ----------- --------- TOTAL LIABILITIES 6,792,974 6,183,299 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Common stock 2,482 2,506 Additional paid in capital 5,765,766 5,803,704 Retained earnings 1,172,942 1,051,721 Notes receivable-officers (1,569,290) 1,519,659 ----------- ----------- (1,519,659) TOTAL SHAREHOLDERS' EQUITY 5,371,900 5,338,272 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $12,164,874 $11,521,571 ============ ===========
See Notes to Condensed Consolidated Financial Statements UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED NINE MONTHS ENDED february 28, February 28, 2002 2001 2002 2001 ---- ----- ---- ---- REVENUES: Service fees $4,275,727 $4,304,970 $12,805,633 $13,257,225 Other income 80,444 93,793 347,653 278,185 Interest income 49,797 45,189 128,236 140,708 ---------- ----------- ----------- ----------- 4,405,968 4,443,952 13,281,522 13,676,118 ---------- ---------- ----------- ----------- COSTS AND EXPENSES: Operating 2,346,442 2,314,056 7,388,560 7,663,632 Selling, general and administrative 1,118,258 1,355,707 4,097,567 3,645,773 Depreciation and amortization 460,721 686,021 1,344,458 2,045,238 Interest expense 36,119 60,149 185,866 189,139 ----------- ---------- ------------ ----------- TOTAL COSTS AND EXPENSES 3,961,540 4,415,933 13,016,451 13,543,782 ----------- ---------- ------------ ----------- EARNINGS FROM OPERATIONS BEFORE INCOME TAXES 444,428 28,019 265,071 132,336 Income tax expense 232,286 33,612 143,848 120,831 ---------- --------- ----------- -------------- NET EARNINGS (LOSS) $ 212,142 $ (5,593) $ 121,223 11,505 ============ =========== =========== ============== BASIC AND DILUTED EARNINGS (LOSS) PER SHARE $ 0.09 $ (0.00) $ 0.05 $ 0.00 BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,481,808 2,506,475 2,498,343 2,506,475 DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,481,808 2,506,475 2,498,343 2,617,056
See Notes to Condensed Consolidated Financial Statements UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED February 28, February 28, 2002 2001 ------------ ----------- Cash flows from operating activities: Net earnings $121,223 $11,505 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 1,344,458 2,045,238 Gain on disposal of fixed assets (4,309) (122,956) Provision for doubtful accounts 63,097 97,203 Change in deferred income 146,082 (135,333) Change in deferred revenue (10,789) (15,816) Change in operating assets (288,386) (299,445) Change in costs in excess of billings and estimated earnings on uncompleted contract (337,000) -- Change in operating liabilities ( 43,765) (212,888) ------------ --------- Net cash provided by operating activities 990,611 1,367,508 ----------- --------- Cash flows from investing activities: Purchases of fixed assets (2,177,392) (2,865,340) Proceeds from sale/leaseback transaction --- 548,343 Proceeds from (repayments of) receivables from affiliate, net 490,099 (287,061) ---------- ----------- Net cash used in investing activities (1,687,293) (2,604,058) Cash flows from financing activities: Proceeds from note payable 500,000 100,000 Principal payments on note payable (500,000) (100,000) Proceeds from line of credit 2,900,000 800,000 Principal payments on line of credit (2,250,000) (650,000) ----------- --------- Net cash provided by financing activities 650,000 150,000 ---------- --------- Net decrease in cash and cash equivalents (46,682) (1,086,550) Cash and cash equivalents at beginning of period 475,578 1,229,718 ---------- ----------- Cash and cash equivalents at end of period $ 428,896 $ 143,168 ========== ===========
See Notes to Condensed Consolidated Financial Statements SANDATA TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The Condensed Consolidated Balance Sheet as of February 28, 2002, the Condensed Consolidated Statements of Operations for the three and nine month periods ended February 28, 2002 and 2001 and the Condensed Consolidated Statements of Cash Flows for the nine month periods ended February 28, 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 February 28, 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, 2001. Results of Operations for the period ended February 28, 2002 are not necessarily indicative of the operating results expected for the full year. New Accounting Pronouncements and Policies 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. The Company will adopt SFAS No. 144 in the beginning of fiscal year ending May 31, 2003 and is still evaluating the effect on the Company's financial position. Revenue Recognition Long-Term Contracting The Company utilizes long-term contracts and recognizes revenue for financial statement purposes under the percentage of completion method and, therefore, takes into account the costs, estimated earnings and revenue-to-date on contracts not yet completed. The amount of revenue recognized at the financial statement date is the portion of the total contract price that the direct labor costs expended to date bears to the anticipated total direct labor costs, based on current estimates of costs to complete. Direct labor costs include all direct labor, related benefits, and subcontract costs. This method is used because management considers direct labor costs to be the best available measure of progress on these contracts. Revisions in estimates of costs and earnings during the life of the contracts are reflected in the accounting period in which such revisions become known. At the time a loss on a contract becomes known, the entire amount of the estimated loss is recognized in the financial statements. Billings in excess of estimated costs and earnings on uncompleted contracts are included in deferred/unearned revenue. 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) 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 Bonds currently bear interest at the rate of 9%, and the outstanding balance due on the Bonds as of February 28, 2002 was $1,487,778. 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 February 28, 2002 was $605,892. b. The Company derived revenue from National Medical Health Card Systems, Inc. ("Health Card") a company affiliated with the Company's Chairman, principally for data base and operating system support, hardware leasing, maintenance and related administrative services. The revenues generated from Health Card amounted to approximately $68,000 and $646,000 and $493,851 and $1,754,430 for the three and nine months periods ended February 28, 2002 and 2001, respectively, for various services. In addition the Company resells its telephone services to Health Card. The billings for such telephone services amounted to approximately $124,000 and $83,000 for the nine months ended February 28, 2002 and 2001, respectively and are recorded as a reduction of operating expense. The Company was owed $37,403 from Health Card at February 28, 2002. Subsequent to February 28, 2002, the Company received approximately $20,214 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 $64,198 and $216,638 for the three and nine months ended February 28, 2002 as compared to $96,193 and 239,767 for the three and nine months ended February 28, 2001. The payments for the Facility were made to the Affiliate, and were $47,878 and $328,691 for the three and nine months ended February 28, 2002 as compared to $124,002 and $421,835 for the three and nine months ended February 28, 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 paralegal services. For the three and nine months ended February 28, 2002 and 2001 the total payments made by the Company to MAOS were $46,591 and $270,803, as compared to $96,193 and $239,767, respectively. e. The Company paid an aggregate of $13,661 and $42,529, for the three and nine months ended February 28, 2002 as compared to $18,751 and $50,395 for the three and nine months ended February 28, 2001, on behalf of certain officers to companies affiliated with the Company's Chairman for payment of automobile leases. 3. DEBT NOTE Pursuant to the revolving credit agreement dated April 18, 1997, as amended (the "Credit Agreement"), between Sandsport, Inc., a wholly owned subsidiary of the Company ("Sandsport"), and HSBC Bank USA (the "Bank"), the Company, Sandsport and its sister subsidiaries (collectively, the "Group") are required to maintain certain levels of net worth and meet certain financial ratios in addition to various other affirmative and negative covenants. As of October 23, 2001 the Credit Agreement was amended with respect to one of the financial ratios, at the Company's request. As of February 28, 2002 the Group met the net worth and financial ratios requirements of the Credit Agreement. 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. 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 February 28, 2002, the outstanding balance on the Credit Agreement was $4,500,000; on April 4, 2002, the outstanding balance on the Credit Agreement was $3,800,000. 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). 4. NET EARNINGS 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 has been computed using the weighted average number of shares of common stock outstanding. Options and warrants to purchase 1,447,513 shares of common stock were outstanding at February 28, 2002 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 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 one of the Company's wholly owned subsidiaries), 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 acquired. 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. As of February 28, 2002 and 2001, the outstanding balance on such notes, including principal and accrued but unpaid interest, was $1,645,578 and $1,687,635, respectively. 6. COMMITMENTS AND CONTINGENCIES 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. An action was commenced against the Company and Health Card by a former executive of Health Card, Mary Casale, who alleged that employees of both Health Card and the Company engaged in sex discrimination as to Ms. Casale, and thus, violated Title VII of the Civil Rights Act of 1964. In February 2002 the matter was withdrawn from the Equal Employment Opportunity Commission, and was settled without any effect on the financial statements of the Company. 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 nine-month periods ended February 28, 2002 and 2001: For the three months ended For the nine months ended February 28, February 28, 2002 2001 2002 2001 ---- ---- ---- ---- Computerized information processing $1,542,295 $1,554,706 $4,549,494 $4,494,550 Telephone-based data collection 1,889,577 1,846,956 5,635,923 5,693,817 Technology infrastructure and outsourcing 90,457 480,360 711,876 1,483,410 Information technology 752,614 422,232 1,768,093 1,583,416 Other 784 716 140,247 2,032 ----------- ---------- ----------- ------------ $ 4,275,727 $4,304,970 $12,805,633 $13,257,225 =========== ========== =========== ===========
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 and nine months ended February 28, 2002, the Company received revenues from these customers amounting to approximately $2,647,000, as compared to $2,711,000 and $7,933,000 as compared to $8,021,000, for the three and nine months ended February 28, 2001. The Company was owed approximately $1,327,180 and $1,326,270 from these customers at February 28, 2002 and 2001, respectively. 9. SUBSEQUENT EVENTS NASDAQ Compliance By letter dated April 1, 2002, NASDAQ notified the Company that the Company's Common Stock had failed to maintain a minimum market value of public float of $1,000,000 over the preceding 30 consecutive trading days, as required by NASDAQ rules (the "MVPF Rule"). The market value of public float ("MVPF") is the dollar amount determined by multiplying the closing bid price by the number of outstanding shares of the Company's Common Stock excluding shares held by the Company's directors, officers and beneficial owners of 10% or more of the Company's shares. The Company has until July 1, 2002, to regain compliance with the MVPF Rule. If at any time prior to July 1, 2002, the MVPF is at least $1,000,000 for a minimum of 10 consecutive trading days, NASDAQ's staff will determine if the Company complies with the MVPF Rule. If the requirement is not met by such date, NASDAQ is required to notify the Company that it must begin the process of delisting the Company's Common Stock, at which time the Company will determine whether to request a hearing on the matter or pursue other options. SANDATA TECHNOLOGIES, 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 $4,405,968 and $13,281,522 for the three and nine months ended February 28, 2002 as compared to $4,443,952 and $13,676,118 for the three and nine months ended February 28, 2001, an decrease of $37,984 and of $394,596, respectively. The decrease for the three month period is primarily attributable to a decrease in service fee revenue and other income derived from sales leasebacks offset slightly by higher interest income. The decrease in the nine month period is attributable to a decrease in SandataNet sales revenues due to the sale of certain contracts, partially off-set by the purchase price received for them and a decrease in revenue derived from NMHC offset by an increase in SandataNet consulting. Service fee revenues were $4,275,727 and $12,805,633 for the three and nine months ended February 28, 2002 as compared to $4,304,970 and $13,257,225 for the three and nine months ended February 28, 2001 a decrease of $29,243 and a decrease of $451,592, respectively. The decrease for the three month period was primarily attributable to a decrease in revenues derived from NMHC of $385,000, and of revenues for SandataNet of $55,000, offset by an increase in SandataNet consulting fees of $375,000 and Santrax $40,000. The decrease for the nine-month period was primarily attributable to a decrease in revenues derived from Sharp of $13,127, Santrax of $57,894 outsourcing of $633,318, offset by increases in SandataNet of $184,677 and Pro-Health of $68,070 . Other income for the three and nine months ended February 28, 2002 was $80,444 and $347,653, as compared to $93,793 and $278,185 for the three and nine months ended February 28, 2001, respectively. The decrease for the three month period is attributed to a decrease in revenue recognized from sales leaseback transactions. The increase for the nine month period is primarily attributable to the sale of certain customer accounts from SandataNet to a non-affiliated company in the amount of $79,000. Expenses Related to Services Operating expenses were $2,346,442 and, $7,388,560 for the three and nine months ended February 28, 2002 as compared to $2,314,056 and $7,663,632 for the three and nine months ended February 28, 2001, an increase of $32,386 and a decrease of $275,072, respectively. The increase for the three month period is primarily due to an increase in purchases for resale, partially offset by a decrease in equipment rental expense. Costs associated with payroll and related expenses of $600,000 decreased, office supplies decreased $19,000, telephone expenses decreased $249,000, and equipment rental expense decreased $92,000. These decreases were partially offset by an increase in maintenance contracts of $25,000, building related expenses of $27,000, postage of $36,000, purchases for resale of $ 433,000and an increase reserve to allowance for doubtful account of $159,000. Selling, general and administrative expenses were $1,018,258 and $4,097,567 for the three and nine months ended February 28, 2002, as compared to $1,355,707 and 3,645,773 for the three and nine months ended February 28, 2001, a decrease of $237,451 and an increase of $451,794, respectively. The decrease for the three month period is primarily due to a decrease in legal expenses and decrease in senior management salaries. The increase for the nine-month period was primarily due to increases in sales staff of $194,000, legal expenses of $77,000, in addition to payroll and related expenses of $164,800 relative to the increased efforts to increase sales in the SanTrax, Outsourcing and Information Technology product lines. Depreciation and amortization expense decreased $225,300 and $700,780 to $460,721 and $1,344,458 for the three and nine months ended February 28, 2002 as compared to $686,021 and $2,045,238 for the three and nine months ended February 28, 2001, respectively. The decrease was primarily attributable to the reduction in the assets base due to the impairment of developed software that occurred in the year ended May 31, 2001. Interest expense was $36,119 and $185,866 for the three and nine months ended February 28, 2002 as compared to $60,149 and $189,139 for the three and nine months ended February 28, 2001. The decrease for the quarter and the nine month period was due to lower interest rates. 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; the 66,673 options that were vested on that date have since expired. Income Tax Expenses Income tax expense for the three and nine months ended February 28, 2002 was $232,286 and $143,848 as compared to income tax expense of $33,612 and $120,831 for the three and nine months ended February 28, 2001. The increase in income tax expense for the three months is due to an increase in pretax income in the current three month period. The decrease of a deferred tax asset for net operating loss carryforwards, and a reduction of a deferred tax liability associated with the different recognition of software development costs for tax and financial statement purposes. Liquidity and Capital Resources The Company's working capital decreased as of February 28, 2002 to $1,856,000, as compared with $1,957,000 at May 31, 2001. The primary factors that contributed to the decrease were decreases in accounts payable of $176,000, decreases in accounts receivable of $162,000, receivable from affiliates of $490,000, prepaid expenses of $116,000, and a decrease in cash of $47,000 offset by increases of costs in excess of billings and earnings on uncompleted contracts of approximately $337,000, and deferred income of approximately $227,000. For the three and nine months ended February 28, 2002, the Company spent approximately $617,000 and $2,177,000 in fixed asset additions, of which $559,000 and $1,837,000 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. As of February 28, 2002 and 2001, the outstanding balance on such notes, including principal and accrued but unpaid interest, was $1,645,578 and $1,687,635, respectively. 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. As of February 28, 2002 the Group met the net worth and financial ratios requirements of the Credit Agreement. 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. 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 February 28, 2002, the outstanding balance on the Credit Agreement with the Bank was $4,500,000. As of April 4, 2002, the outstanding balance on the Credit Agreement was $3,800,000. 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 TECHNOLOGIES, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION Item 1 - LEGAL PROCEEDINGS: Reference is made to Note 6 to the Financial Statements comprising Part I, Item 1 of this Form 10-QSB. 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: (a) Exhibits None (b) Reports on Form 8-K None 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:April 12, 2002 By: /s/ Bert E. Brodsky ----------------------- Bert E. Brodsky Chairman of the Board, Chief Executive Officer, Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----