UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB/A
AMENDMENT NO. 1
[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
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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
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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
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AMENDMENT TO QUARTERLY REPORT
ON FORM 10-QSB
FOR THE QUARTER ENDED NOVEMBER 30, 2002
The Quarterly Report on Form 10-QSB for Sandata Technologies, Inc. and
Subsidiaries (the "Company") for the quarter ended November 30, 2002 is hereby
amended and restated to the extent, and only to the extent of amending the
following sections of the items.
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Notes to Condensed Consolidated Financial Statements (Unaudited)
5. SHAREHOLDERS' EQUITY
Stock Options
On July 14, 1998, the Chairman, certain officers, directors, and a former
director (Bert E. Brodsky, Hugh Freund and Gary Stoller) and the spouse of an
officer, Carol Freund (who is 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. 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 to reflect fair market value, and the
shares and Recourse Note of the spouse of an officer, Carol Freund, 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, 2002, 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 Data
Services, Inc. ("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). Greater Bright Light Home Care Services, Inc. ("GBL") is a
not-for-profit corporation that was organized to render home care attendant
services to individuals selected as eligible recipients by the City of New York
acting through the Department of Social Services of the Human Resources
Administration ("HRA"). Pursuant to its agreement with HRA, GBL was entitled to
reimbursement checks from the New York State Department of Health Medicaid
Management Information System for the services it provided ("MMIS Checks").
Before GBL could provide home care attendant services it was required to
demonstrate to HRA that it obtained a $1.2 million line of credit. Joseph
Jeffries El represented to GBL that he would provide it with the $1.2 million
line of credit that HRA required in exchange for an annual fee of $120,000
payable in twelve equal monthly installments of $10,000. GBL and Joseph Jeffries
El's company, El Equity Corporation ("El Equity"), thereafter entered into an
Escrow Agreement pursuant to which El Equity was to receive a portion of the
funds received from MMIS. The MMIS checks were to be deposited in a specified
account at Marine Midland Bank. GBL alleged that El Equity misappropriated the
MMIS funds. GBL further alleged that El Equity breached the Escrow Agreement
because it failed to provide GBL with the $1.2 million line of credit.
Sandsport had been retained by GBL to pick up its MMIS checks and deposit
them in a designated account at Marine Midland Bank. El Equity alleged that
Sandsport's agreement with GBL prohibited it from depositing the MMIS funds into
any other account absent written instructions signed by both GBL and El Equity.
El Equity alleged that Sandsport, pursuant to GBL's instructions, deposited
certain MMIS checks into an account other than the designated account. El Equity
therefore asserted cross-claims against Sandsport for breach of contract and
conversion. 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 and has denied any wrongdoing. 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 (Bert E.
Brodsky, Hugh Freund and Gary Stoller) 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, Carol Freund, 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, to reflect fair market value, and the shares and note of
the spouse of the officer, Carol Freund, 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.
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 28, 2003 By: /s/ Bert E. Brodsky
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Bert E. Brodsky
Chairman of the Board,
Chief Executive Officer,
Chief Financial Officer
CERTIFICATION
I, Bert E. Brodsky, Chief Executive Officer and Chief Financial Officer,
certify that:
1. I have reviewed this amended quarterly report on Form 10-QSB of
Sandata Technologies, Inc. and its Subsidiaries;
2. Based on my knowledge, this amended 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 information included in this
amended 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 28, 2003 /s/Bert E. Brodsky
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Bert E. Brodsky,
Chief Executive Officer
and Chief Financial Officer
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.
/s/Bert E. Brodsky
Bert E. Brodsky
Chief Executive Officer and Chief Financial Officer
January 28, 2003