UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 ended MARCH 31, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to ____
Commission File Number: 0-21142
SANDSTON CORPORATION
(Exact name of small business issuer as specified in its charter)
MICHIGAN 38-2483796
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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(248) 723-3007
(Issuer's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities 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.
[X] YES [ ] No
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:
No par value Common Stock: 8,397,151 OUTSTANDING AS OF MAY 14, 2004
Transitional Small Business Disclosure Format: [ ] YES [X] NO
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SANDSTON CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEET
MARCH 31, 2004 AND DECEMBER 31, 2003
MARCH 31,
2004 DECEMBER 31,
(UNAUDITED) 2003
------------ ------------
ASSETS
Current assets:
Cash $ 30,000 $ 207,139
Accounts receivable, net of allowance for doubtful accounts of
$81,000 at December 31, 2003 - 3,087,911
Inventories - 1,498,800
Prepaid expenses and other current assets - 150,218
------------ ------------
Total current assets 30,000 4,944,068
Property and equipment, net of accumulated depreciation of $7,843,152
at December 31, 2003 - 1,596,129
Note receivable from customer - 51,132
Software and related development costs, net of amortization - 398,138
Goodwill, net of amortization - 2,922,122
Other intangible assets, net of amortization 217,952
------------ ------------
Total assets $ 30,000 $ 10,129,541
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable to related party under financing agreement $ - $ 1,952,528
Notes payable to bank - 63,750
Accounts payable - 1,363,150
Deferred revenue and other accrued expenses - 2,940,562
Subordinated debt - 4,511,500
Current maturities of long-term debt 173,667
------------ ------------
Total current liabilities - 11,005,157
Long-term debt, less current maturities - 2,332,723
------------ ------------
Total liabilities - 13,337,880
Stockholders' equity (deficit):
Common stock, no par value, 30,000,000 shares authorized,
3,148,894 shares outstanding 33,629,784 33,629,784
Accumulated comprehensive loss - (64,757)
Accumulated deficit (33,599,784) (36,773,366)
------------ ------------
Total shareholders' equity (deficit) 30,000 (3,208,339)
------------ ------------
Total liabilities and shareholders' equity (deficit) $ 30,000 $ 10,129,541
============ ============
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SANDSTON CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF DISCONTINUED OPERATIONS
FOR THE QUARTERS ENDED MARCH 31, 2004 AND 2003
QUARTER ENDED MARCH 31,
--------------------------------
2004 2003
(UNAUDITED) (UNAUDITED)
------------ ------------
Net revenues $ 3,478,720 $ 3,334,223
Cost of revenues 2,663,186 2,684,527
------------ ------------
Gross profit 815,534 649,696
Operating expenses:
Product development costs - software 102,227 165,787
Selling, general and administrative expenses 1,094,314 1,082,485
Gain on disposal of net asset (3,789,352) -0-
------------ ------------
Total operating expenses (2,592,811) 1,248,272
------------ ------------
Operating income (loss) 3,408,345 (598,576)
Other income (expense):
Interest expense (259,782) (205,595)
Sundry income, net of sundry expense 25,019 4,618
------------ ------------
Total other income (expense) (234,763) (200,977)
------------ ------------
Earnings (loss) before income tax benefit 3,173,582 (799,553)
Income tax benefit (Note 2) -- --
------------ ------------
Net earnings (loss) from discontinued operations $ 3,173,582 $ (799,553)
============ ============
Earnings (loss) per share (Note 4):
Basic $ 1.01 $ (0.25)
============ ============
Diluted $ .26 $ (0.25)
============ ============
Weighted average shares outstanding:
Basic 3,148,894 3,148,894
============ ============
Diluted (Note 3) 12,837,058 3,148,894
============ ============
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SANDSTON CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) FROM
DISCONTINUED OPERATIONS
FOR THE QUARTERS ENDED MARCH 31, 2004 AND 2003
QUARTER ENDED MARCH 31,
----------------------------
2004 2003
(UNAUDITED) (UNAUDITED)
----------- -----------
Net earnings (loss) from discontinued operations $3,173,582 $ (799,553)
Other comprehensive loss - foreign currency translation adjustment 64,757 (19,237)
---------- ----------
Comprehensive earnings (loss) from discontinued operations $3,238,339 $ (818,790)
========== ==========
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SANDSTON CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS OF DISCONTINUED OPERATIONS
FOR THE QUARTERS ENDED MARCH 31, 2004 AND 2003
QUARTER ENDED MARCH 31,
--------------------------------
2004 2003
(UNAUDITED) (UNAUDITED)
------------ ------------
Cash flows from operating activities:
Net earnings (loss) from discontinued operations $ 3,173,582 $ (799,553)
Adjustments to reconcile net earnings (loss) from discontinued
operations to net cash used in operating activities:
Gain on disposal of net assets (3,789,352) -0-
Depreciation 56,012 75,726
Amortization 70,973 76,301
Gain on disposal of property (983) (3,890)
Changes in assets and liabilities that provided (used) cash:
Accounts receivable 546,210 (165,114)
Inventories (1,833) 9,553
Prepaid expenses and other current assets (101,271) (19,532)
Accounts payable (682,319) 170,727
Deferred revenue and accrued expenses 606,430 57,867
------------ ------------
Net cash used in operating activities (122,551) (597,915)
------------ ------------
Cash flows from investing activities:
Additions to property and equipment (35,715) (2,010)
Proceeds from disposals of property and equipment 4,149 2,824
Sale of net assets (198,664) -
------------ ------------
Net cash provided by (used in) investing activities (230,228) 815
------------ ------------
Cash flows from financing activities:
Net borrowings from related party under financing agreement 282,000 --
Proceeds from issuance of subordinated notes and warrants (Note 7) -- 625,000
Payments of long-term debt (48,066) (44,873)
Increase (decrease) in notes payable to banks (45,000) 30,367
------------ ------------
Net cash provided by financing activities 188,934 610,494
------------ ------------
Foreign currency translation effect on cash (13,294) (19,237)
------------ ------------
Net decrease in cash (177,139) (5,843)
Cash at beginning of period 207,139 103,802
------------ ------------
Cash at end of period $ 30,000 $ 97,959
============ ============
Supplemental disclosures of cash flow information:
Cash paid for interest $ 202,566 $ 188,403
Cash paid for income taxes -- --
Disposal of net assets:
Sales price - liabilities assumed $ 13,485,268
Cash (198,664)
All other assets (9,497,252)
------------
$ 3,789,352
============
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SANDSTON CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
NOTE 1 - BASIS OF PRESENTATION
Pursuant to a recommendation of Nematron Corporation's Board of Directors and approval by its shareholders on January 13, 2004, on March 31, 2004 Nematron sold to NC Acquisition Corporation ("Purchaser") all of its tangible and intangible assets, including its real estate, accounts, equipment, intellectual property, inventory, goodwill, and other intangibles, except for $30,000 in cash, (the "Net Asset Sale"). The Purchaser also assumed all of Nematron's liabilities pursuant to the Net Asset Sale. Following the Net Asset Sale, Nematron's only remaining assets were $30,000 in cash; it retained no liabilities. On April 1, 2004 the company amended its Articles of Incorporation to change its name to Sandston Corporation ("the "Company") and implement a shareholder approved five-for-one reverse stock split of the Company's common stock, whereby every five issued and outstanding shares of the Company's common stock became one share. Also, on April 1, 2004 Nematron sold a total of 5,248,257 post-split shares to Dorman Industries, LLC ("Dorman Industries") for $50,000. Dorman Industries is a Michigan Limited Liability Company wholly owned by Mr. Daniel J. Dorman, the Company's new Chairman of the Board. Pursuant to the purchase of the shares by Dorman Industries, Dorman Industries owns 62.5% of the outstanding common stock of the Company.
Effective April 1, 2004, the Company became a "public shell" corporation. The Company intends to use its public shell platform to build long-term shareholder value by acquiring and/or investing in and operating strategically positioned companies. The Company is expected to target companies with solid operating performance that are well managed and in several industry groups. The targeted companies are generally expected to have the following characteristics: sales volume of between $20 million and $250 million; value added manufacturing, distribution and business services; fragmented industries; experienced management; and consistent historical financial performance.
During the period prior to the Net Asset Sale, the Company owned the following wholly-owned subsidiaries: Nematron Limited, a United Kingdom corporation, Nematron Canada Inc., a Canadian corporation, A-OK Controls Engineering, Inc. ("A-OK Controls"), a Michigan corporation, and Optimation, Inc. ("Optimation"), an Alabama corporation (collectively, "Subsidiaries"). The assets and liabilities of the Subsidiaries were included in the Net Asset Sale described above.
The accompanying consolidated financial statements include the accounts of Sandston Corporation (formerly Nematron Corporation) and its Subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. To reflect the fact that the assets and liabilities of the business were sold at quarter end, the generic names of the financial statement included herein have been changed to reflect the fact that the operations giving rise to the assets and liabilities, revenue and expenses, and cash flows have been discontinued as of March 31, 2004. The accompanying consolidated financial statements include a Consolidated Condensed Balance Sheet, Consolidated Condensed Statements of Discontinued Operations, Consolidated Condensed Statements of Comprehensive Loss From Discontinued Operations and Consolidated Condensed Statements of Cash Flows of Discontinued Operations.
In the opinion of management, all adjustments considered necessary for a fair presentation of the consolidated financial statements of the discontinued operations for the interim periods have been included. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the Securities and Exchange Commission's rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's latest annual report on Form 10-KSB.
The results of the discontinued operations for the three-month periods ended March 31, 2004 and 2003 are not necessarily indicative of the results to be expected for the full year. Additionally, pursuant to the Net Asset Sale, effective March 31, 2004 the Company has no revenue generating activities and its only assets are the $80,000 in cash it retained and generated through the sale of additional common stock, but also pursuant to the Net Asset Sale, the Purchaser assumed all of the Company's liabilities.
NOTE 2 - TAXES ON INCOME
The Company has net operating loss carryforwards ("NOLs") of approximately $29.4 million as of December 31, 2003 that may be applied against future taxable income and which expire at various dates between 2004 and 2023. Utilization of certain of these NOLs is subject to annual limitations under current Internal Revenue Service regulations. As of December 31, 2003, the Company has established a valuation allowance for the total estimated amount of the net deferred tax assets, including the amount attributed to the NOL, as realization of these net deferred tax assets is dependent upon generating sufficient taxable income prior to their expiration.
Income tax expense has not been recorded for the quarter ended March 31, 2004, as the Company estimates that the NOL carryforward will be utilized to offset the net income generated by the gain on disposal of assets, with an offsetting reduction in the valuation allowance.
NOTE 3 - STOCK BASED COMPENSATION
The Company has stock-based employee and director compensation plans, which are described more fully in Note 11 to the Company's December 31, 2003 financial statements. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net loss, as all options granted under those plans had an exercise price greater than or equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net loss and loss per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.
Three Months Ended March 31,
2004 2003
------------- ---------
Net earnings (loss) of discontinued operations as reported $ 3,173,582 $(799,553)
Deduct: Total stock-based employee compensation expense
determined under fair value-based method for all awards,
net of tax -- (54,787)
------------- ---------
Pro forma net earnings (loss) of discontinued operations $ 3,173,582 $(854,340)
============= =========
Earnings (loss) per share:
Basic, as reported $ 1.01 $ (0.25)
Diluted, as reported $ 0.26 $ (0.25)
Pro Forma
Basic $ 1.01 $ (0.27)
Diluted $ 0.26 $ (0.27)
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NOTE 4 - EARNINGS PER SHARE
The weighted average shares outstanding used in computing earnings and loss per share for the three-month periods ended March 31, 2004 and 2003 respectively, were 3,148,894, as adjusted for the one-for-five reverse stock split. Prior to the approval by the Board of Directors and shareholders of a one-for-five reverse stock split, there were 15,744,472 shares outstanding.
Earnings per share for quarter ended March 31, 2004 is as follows:
Income Shares Earnings
(Numerator) (Denominator) Per Share
----------- ------------- ---------
Basic EPS:
Net income $ 3,173,582 3,148,894 $ 1.01
=========== ============= =========
Diluted EPS:
Net income $ 3,173,582 3,148,894 $ 1.01
Effect of dilutive convertible securities 140,250 9,688,164 (0.75)
----------- ------------- ---------
Income available to common
shareholders plus assumed conversion $ 3,313,832 12,837,058 $ 0.26
=========== ============= =========
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Earnings per share for quarter ended March 31, 2003 is as follows:
Income Shares Earnings
(Numerator) (Denominator) Per Share
----------- ------------- ---------
Basic and diluted EPS:
Net loss $ (799,553) 3,148,894 $ (0.25)
=========== ============= =========
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For the three-month periods ended March 31, 2004 and 2003, outstanding options and warrants were not included in the computation of diluted loss per share because the inclusion of such securities is antidilutive. Information relative to the excluded options and warrants is as follows:
Outstanding Options Outstanding Warrants
---------------------------- ---------------------------
Expiration Expiration
Quarter Ended Amount Dates Amount Dates
-------------- --------- ------------ --------- ------------
March 31, 2004 2,017,528 2003 to 2011 5,361,504 2004 to 2008
March 31, 2003 2,017,528 2003 to 2011 4,791,333 2003 to 2007
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As a result of the Net Asset Sale described in Note 1, all warrants were canceled and substantially all options will expire by their terms effective June 30, 2004 whereunder employees forfeit unexercised options 90 days after termination.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2004 COMPARED WITH THREE MONTHS ENDED MARCH 31,
2003
Readers should refer to a description of the Net Asset Sale described in Note 1 to the financial statements included in this Form 10-QSB. As described therein, the net assets and businesses of the Registrant giving rise to reported results of the Registrant, as reflected in the Consolidated Condensed Balance Sheet, have been sold effective as of the close of business on March 31, 2004. Accordingly, Sandston Corporation became a "public shell" corporation and intends to use its public shell platform to build long-term shareholder value by acquiring and/or investing in, and operating strategically positioned companies. The Company is expected to target companies with solid operating performance that are well managed and in several industry groups. The targeted companies are generally expected to have the following characteristics: sales volume of between $20 million and $250 million; value added manufacturing, distribution and business services; fragmented industries; experienced management; and consistent historical financial performance. At this time, Company management is evaluating its investment alternatives and it has not recommended to the Board of Directors for their consideration any specific investment opportunities. However, as investment opportunities present themselves and management completes its due diligence on such opportunities, the timing and nature of potential investment targets may accelerate.
Because of the effects of the Net Asset Sale, the discussion and analysis of results of operations following does not include any forward-looking statements, as the operations described herein have been discontinued effective as of the close of business on March 31, 2004.
Net revenues for the first quarter of 2004 increased $144,000 (4.3%) to $3,479,000 compared to $3,334,000 for the comparable period last year. The increase is attributable primarily to an increase in sales of software licenses, system integration services and repair services. Revenues from software licenses, system integration services and repair services increased in the current period compared to the prior year period because of an increased demand and response to increased marketing and sales efforts. Sales of hardware products decreased in most product categories as customers continued to show caution in their capital spending patterns.
Gross profit for the first quarter of 2004 increased $166,000 (25.5%) to $816,000 compared to $650,000 for the comparable period last year. Gross profit as a percentage of revenue in the first quarter of 2004 was 23.4% compared to 19.5% in the comparable period last year. The increase in the gross profit percentage results from better profit margins on software licenses, system integration services and repair services, which increased as a percentage of total sales in the first quarter of 2004.
Software product development expenses for the first quarter of 2004 decreased $64,000 (38.3%) to $102,000 compared to $166,000 for the comparable period last year. The decrease is attributable to a decrease in development staff and a short term shift to product support activities.
Selling, general and administrative expenses for the first quarter of 2004 increased $12,000 (1.1%) to $1,094,000 compared to $1,082,000 for the comparable period last year and decreased as a percentage of net revenue to 34.4% in the first quarter of 2004 from 37.4% in the comparable period last year. The increase results primarily from increases in audit and legal fees incurred in the current period compared to the year earlier period.
In connection with the Net Asset Sale consummated on March 31, 2004, the Company transferred all its assets other than $30,000 in cash, as well as all its liabilities, to the Purchaser. Liabilities assumed by the Purchaser exceeded the assets sold, which resulted in a non-cash gain of $3,789,352, which is recorded in the accompanying Consolidated Condensed Statement of Discontinued Operations.
Interest expense for the first quarter of 2004 increased $54,000 (26.4%) to $260,000 compared to $206,000 for the comparable period last year. The increase results primarily from higher overall average borrowing levels during the current period compared to the year ago period.
Sundry income was not significant in either reported period.
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 2004, the Company sold to NC Acquisition Corporation ("Purchaser") all of its tangible and intangible assets, including its real estate, accounts, equipment, intellectual property, inventory, goodwill, and other intangibles, except for $30,000 in cash, (the "Net Asset Sale"). The Purchaser also assumed all of the Company's liabilities pursuant to the Net Asset Sale. Following the Net Asset Sale, the Company's only remaining assets were $30,000 in cash; it retained no liabilities. On April 1, 2004, the Company amended its Articles of Incorporation to change its name to Sandston Corporation and implement a shareholder approved five-for-one reverse stock split of the Company's common stock, whereby every five issued and outstanding shares became one share. Also, on April 1, 2004 a total of 5,248,257 post-split shares were sold to Dorman Industries LLC ("Dorman Industries") for $50,000. Dorman Industries is a Michigan Limited Liability Company wholly owned by Mr. Daniel J. Dorman, the Company's new Chairman of the Board. Pursuant to the purchase of the shares by Dorman Industries, Dorman Industries owns 62.5% of the outstanding common stock of the Company.
Effective April 1, 2004, the Company became a "public shell" corporation and intends to use its public shell platform to build long-term shareholder value by acquiring and/or investing in, and operating strategically positioned companies. The Company is expected to target companies with solid operating performance that are well managed and in several industry groups. The targeted companies are generally expected to have the following characteristics: sales volume of between $20 million and $250 million; value added manufacturing, distribution and business services; fragmented industries; experienced management; and consistent historical financial performance.
The Company anticipates that the form of its investment would be providing strategic and operational oversight, portfolio and financial management, corporate development and corporate administrative services such as banking, insurance, regulatory compliance and treasury functions to portfolio businesses. In addition, add-on acquisitions will be identified for key industry groups within the Company's operations. The intent is that the Company will not function merely as a provider of capital or as an investment fund, but will use the knowledge, resources and relationships of the principals of its management to actively manage and participate in the growth of any acquired underlying portfolio businesses.
At this time, Company management is evaluating its investment alternatives and it has not recommended to the Board of Directors for their consideration any specific investment opportunities. However, as investment opportunities present themselves and management completes its due diligence on such opportunities, the timing and nature of potential investment targets may accelerate.
Current operating expenses of the Company are being funded with available cash retained from the Net Asset Sale and from cash generated by the sale of additional shares of common stock to Dorman Industries. While it is the Company's objective to ultimately be able to use the securities of the Company as a currency in the acquisition of portfolio businesses, it is clear that the initial acquisitions of portfolio businesses will require the Company to be infused with capital thereby diluting the Company's shareholders, including Dorman Industries to the extent that it does not participate in the capital infusion.
The Company's sole business activity is pursuing the acquisition of an operating company and/or its assets. If an acquisition does take place within the next twelve months, the Company will need to raise additional capital to consummate the acquisition. The Company's cash resources are very limited, and even if an acquisition does not take place within the next twelve months, the Company may still need to attempt to raise sufficient capital to continue its operations. There can be no guarantee that the Company could raise the needed capital for an acquisition or to continue operations on any terms or conditions.
The Company currently has only one employee but, would expect that in connection with an acquisition of an operating company, the company's number of employees would increase significantly.
UNCERTAINTIES RELATING TO FORWARD LOOKING STATEMENTS
Parts of this Form 10-QSB contain certain "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Statements
containing the words "believes," "anticipates," "estimates," "expects,"
"intends," "plans," "seeks," "will," "may," "should," "would," "projects,"
"predicts," "continues," and similar expressions or the negative of these terms
constitute forward-looking statements that involve risks and uncertainties. We
intend such forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995, and are including this statement for purposes of
invoking these safe harbor provisions. Such statements are based on current
expectations and are subject to risks, uncertainties and changes in condition,
significance, value and effect, including those discussed in the section
entitled "Risk Factors" contained in our Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2003. Such risks, uncertainties and changes in
condition, significance, value and effect could cause the Company's actual
results to differ materially from those anticipated events. Except as may be
required under federal law, we undertake no obligation to update publicly any
forward-looking statements for any reason, even if new information becomes
available or other events occur.
Risks and uncertainties may include the following:
- The potential inability to identify potential investment opportunities;
- The potential inability to raise sufficient additional equity to acquire targeted entities, or to acquire less than 100% ownership of a target company or it's assets;
- A decline in the capital markets or changes in the capital markets that would cause available capital at unattractive interest rates;
- Delays in performing due diligence activities on targeted entities, if any;
- The potential inability to close the acquisition of targeted entities, if any, by reason of seller-influenced or seller-determined contingencies;
- The inability of the Company to successfully implement its strategy.
ITEM 3. CONTROLS AND PROCEDURES
Our principal executive and principal financial officer has concluded, based on his evaluation within 90 days of the filing date of this report, that our disclosure controls and procedures are effective for gathering, analyzing and disclosing the information we are required to disclose in our reports filed under the Securities Exchange Act of 1934. There have been no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the previously mentioned evaluation.
Grant Thornton, the Company's independent auditor advised the Company during the performance of the audit of the Company's consolidated financial statements at December 31, 2003 of a reportable condition under standards established by the American Institute of Certified Public Accountants. In the application of Emerging Issues Task Force Consensus 00-27, "Application of Issue No. 98-5 to certain Convertible Instruments" ("EITF 00-27") in the determination of the value of the beneficial conversion features connected with the issuance of convertible securities with detachable warrants, an adjustment resulted increasing interest expense and common stock. This is a complex area of accounting involving the computation of intrinsic values inherent in relative values of the instruments. In response to the observations made by Grant Thornton, the Company will implement certain enhancements to its internal controls and procedures. During the first quarter of 2004 there were no convertible instruments that presented a reportable condition. The company is still evaluating a course of action that will be implemented during 2004 to address this concern, however, the first quarter of 2004 was focused on completing the Net Asset Sale.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On April 1, 2004, the Company amended its Articles of Incorporation to change
its name to Sandston Corporation and implement a shareholder approved
five-for-one reverse stock split of the Company's common stock. The Company also
sold 5,248,257 post-split shares of the Company's common stock to Dorman
Industries for $50,000. Mr. Daniel J. Dorman, the Company's new Chairman of the
Board, is the sole owner of Dorman Industries. Mr. Dorman and Dorman Industries
are accredited investors and purchased the shares, which were not registered
under the Securities Act of 1933, as amended (the "Act"), in reliance upon
Section 4(2) of the Act. The Company relied upon the exemption from registration
based on the (a) fact that there was a single purchaser, (b) purchaser's
financial and other information provided to the Company, and (c) lack of general
solicitation in the offering.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Registrant held its Annual Meeting of Shareholders for the year ended December 31, 2002 on January 13, 2004.
There was five matters voted upon, which included the election of Directors. The following table sets forth the results of the voting on the election of Directors.
Nominees Votes For Votes Withheld Total Votes
---------------- --------- -------------- -----------
Daniel J. Dorman 13,937,335 124,752 14,062,087
Lawrence DeFiore 13,937,035 125,052 14,062,087
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Mr. Matthew S. Galvez will continue as a Director of the Registrant.
The four additional proposals voted upon at the meeting included the following:
Proposal 1. To approve a proposal to sell substantially all of the Company's assets and liabilities to NC Acquisition Corporation, a company whose owners are the Company's senior and subordinated debt holders. The tabulation of votes on Proposal 1 was as follows:
For 8,484,974
Against 50,614
Abstentions 81,666
Broker non-votes 5,444,833
----------
Total 14,062,087
==========
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Proposal 2. To approve the purchase of 5,248,257 shares of Common Stock by Dorman Industries, LLC. The tabulation of votes on Proposal 2 was as follows:
For 8,463,447
Against 71,279
Abstentions 82,528
Broker non-votes 5,444,833
----------
Total 14,062,087
==========
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Proposal 3. To approve a five-for-one reverse stock split with respect to the Company's Common Stock and an amendment to the Company's Amended and Restated Articles of Incorporation ("Articles") to effect the reverse stock split. The tabulation of votes on Proposal 3 was as follows:
For 13,930,193
Against 48,319
Abstentions 83,575
----------
Total 14,062,087
==========
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Proposal 4. To amend the Articles to change the Company's name to Sandston Corporation. The tabulation of votes on Proposal 4 was as follows:
For 13,944,538
Against 29,443
Abstentions 88,106
----------
Total 14,062,087
==========
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits included herewith are set forth on the Index to Exhibits, which is incorporated herein by reference.
(b) In April 2004, the Company filed the following two Current Reports on Form 8-K:
- April 04, 2004, reporting the notification that the Registrant's certifying accountant intends to resign.
- April 15, 2004, reporting 1) the sale of substantially all the assets and liabilities of the Registrant and 2) the change in control of the Registrant pursuant to the sale of common stock to Dorman Industries.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SANDSTON CORPORATION
MAY 14, 2004 /S/ DANIEL J. DORMAN
------------------------------- -----------------------------------------
DATE CHAIRMAN AND PRINCIPAL FINANCIAL OFFICER
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INDEX TO EXHIBITS
Exhibit Number Description of Exhibit
-------------- ----------------------
2.0 Asset Purchase Agreement dated March 31, 2004 between NC
Acquisition Corp., as Purchaser and Nematron Corporation, as
Seller, and filed as Exhibit 2(a) to the Registrant's Form 8-K
filed on April 15, 2004 and incorporated herein by reference.
3.01 Amended and Restated Articles of Incorporation, as amended,
filed as Exhibit 3.1 to the Registrant's Form 10-QSB for the
quarterly period ended September 30, 1999 and incorporated
herein by reference.
3.02 Certificate of Amendment to the Articles of Incorporation
filed April 1, 2004 with the Michigan Department of Labor and
Economic Growth.
31.0 Certification of President, CEO and Chief Accounting Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.0 Certification of President, CEO and Chief Accounting Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
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EXHIBIT 3.02
BCS/CD-515 (Rev. 12/03)
CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION
FOR USE BY DOMESTIC PROFIT AND NONPROFIT CORPORATIONS
(Please read information and instructions on the last page)
1. The present name of the corporation is:
2. The identification number assigned by the Bureau is:
Pursuant to the provisions of Act 284, Public Acts of 1972, (profit corporations), or Act 162, Public Acts of 1982 (nonprofit corporations), the undersigned corporation executes the following Certificate:
3. Article __________________ of the Articles of Incorporation is hereby amended to read as follows:
MICHIGAN DEPARTMENT OF LABOR & ECONOMIC GROWTH
BUREAU OF COMMERCIAL SERVICES
Date Received (FOR BUREAU USE ONLY)
This document is effective on the date filed, unless a subsequent effective date
within 90 days after received date is stated in the document.
Name
Address
City State ZIP Code
EFFECTIVE DATE:
DOCUMENT WILL BE RETURNED TO THE NAME AND ADDRESS YOU ENTER ABOVE.
IF LEFT BLANK DOCUMENT WILL BE MAILED TO THE REGISTERED OFFICE. - -
Christopher C. Maseo, Esquire, Miro Weiner & Kramer
38500 Woodward Avenue, Suite 100
Bloomfield Hills, Michigan 48304
Nematron Corporation
333652
I
ARTICLE I
The name of the corporation is Sandston Corporation.
Article III of the Articles of Incorporation is hereby amended and restated to read in its entirety as set forth on Exhibit A attached hereto and made a part hereof.
BCS/CD-515 (Rev. 12/03)
COMPLETE ONLY ONE OF THE FOLLOWING:
4. (FOR AMENDMENTS ADOPTED BY UNANIMOUS CONSENT OF INCORPORATORS BEFORE THE FIRST MEETING OF THE BOARD OF DIRECTORS OR TRUSTEES.)
The foregoing amendment to the Articles of Incorporation was duly adopted on the _____________ day of _______________ , __________ , in accordance with the provisions of the Act by the unanimous consent of the incorporator(s) before the first meeting of the Board of Directors or Trustees.
Signed this __________ day of _____________________ , _____________
(Signature) (Signature)
(Type or Print Name) (Type or Print Name)
(Signature) (Signature)
(Type or Print Name) (Type or Print Name)
5. (FOR PROFIT AND NONPROFIT CORPORATIONS WHOSE ARTICLES STATE THE CORPORATION IS ORGANIZED ON A STOCK OR ON A MEMBERSHIP BASIS.)
The foregoing amendment to the Articles of Incorporation was duly adopted on the __________________ day of _____________________ , __________ , by the shareholders if a profit corporation, or by the shareholders or members if a nonprofit corporation (check one of the following) at a meeting the necessary votes were cast in favor of the amendment.
by written consent of the shareholders or members having not less than the minimum number of votes required by statute in accordance with Section 407(1) and (2) of the Act if a nonprofit corporation, or Section 407(1) of the Act if a profit corporation. Written notice to shareholders or members who have not consented in writing has been given. (Note: Written consent by less than all of the shareholders or members is permitted only if such provision appears in the Articles of Incorporation.)
by written consent of all the shareholders or members entitled to vote in accordance with section 407(3) of the Act if a nonprofit corporation, or Section 407(2) of the Act if a profit corporation. by consents given by electronic transmission in accordance with Section 407(3) if a profit corporation. by the board of a profit corporation pursuant to section 611(2).
Profit Corporations and Professional Service Corporations
Signed this _____ day of _____________ , ________ By ______________________________________________
Nonprofit Corporations
13th
January 2004
4
29th March 2004
John Dunlap
BCS/CD-515 (Rev. 12/03)
6. (FOR A NONPROFIT CORPORATION WHOSE ARTICLES STATE THE CORPORATION IS ORGANIZED ON A DIRECTORSHIP BASIS.)
The foregoing amendment to the Articles of Incorporation was duly adopted on the ____________ day of ____________________ , ______________ by the directors of a nonprofit corporation whose articles of incorporation state it is organized on a directorship basis (check one of the following) at a meeting the necessary votes were cast in favor of the amendment by written consent of all directors pursuant to Section 525 of the Act.
Signed this ______________ day of __________________________ , ___________ By _______________________________________________________________________
INFORMATION AND INSTRUCTIONS
This form may be used to draft your Certificate of Amendment to the Articles of Incorporation. A document required or permitted to be filed under the act cannot be filed unless it contains the minimum information required by the act. The format provided contains only the minimal information required to make the document fileable and may not meet your needs. This is a legal document and agency staff cannot provide legal advice.
Submit one original of this document. Upon filing, the document will be added to the records of the Bureau of Commercial Services. The original will be returned to your registered office address, unless you enter a different address in the box on the front of this document.
Since the document will be maintained on electronic format, it is important that the filing be legible. Documents with poor black and white contrast, or otherwise illegible, will be rejected. This Certificate is to be used pursuant to the provisions of section 631 of Act 284, P.A. of 1972, or Act 162, P.A. of 1982, for the purpose of amending the Articles of Incorporation of a domestic profit corporation or nonprofit corporation. Do not use this form for restated articles.
Item 2 - Enter the identification number previously assigned by the Bureau. If
this number is unknown, leave it blank. Item 3 - The article(s) being amended
must be set forth in its entirety. However, if the article being amended is
divided into separately identifiable sections, only the sections being amended
need be included.
For nonprofit charitable corporations, if an amendment changes the term of existence to other than perpetual, Attorney General Consent should be obtained at the time of dissolution. Contact Michigan Attorney General, Consumer Protection and Charitable Trust Division at (517) 373-1152.
This document is effective on the date endorsed "filed" by the Bureau. A later effective date, no more than 90 days after the date of delivery, may be stated as an additional article.
SIGNATURES:
PROFIT CORPORATIONS: (Complete either Item 4 or Item 5)
1) Item 4 must be signed by at least a majority of the Incorporators listed in the Articles of Incorporation.
2) Item 5 must be signed by an authorized officer or agent of the corporation.
NONPROFIT CORPORATIONS: (Complete either Item 4, Item 5 or Item 6)
1) Item 4 must be signed by all of the incorporators listed in the Article of Incorporation.
2) Item 5 or 6 must be signed by either the president, vice-president, chairperson or vice-chairperson. NONREFUNDABLE FEES: Make remittance payable to the State of Michigan. Include corporation name and identification number on check or money order
......................................................................... $10.00
ADDITIONAL FEES DUE FOR INCREASED AUTHORIZED SHARES OF PROFIT CORPORATIONS ARE:
each additional 20,000 authorized shares or portion thereon.....................
maximum fee per filing for first 10,000,000 authorized shares...................
each additional 20,000 authorized shares or portion thereof in
excess of 10,000,000 shares.....................................................
maximum fee per filing for authorized shares in excess of 10,000,000 shares.....
1.
2.
3.
4.
5.
6.
7.
8.
9.
To submit by mail:
Michigan Department of Labor & Economic Growth
Bureau of Commercial Services - Corporation Division
7150 Harris Drive
P.O. Box 30054
Lansing, MI 48909
To submit in person:
2501 Woodlake Circle
Okemos, MI
Telephone: (517) 241-6470
Fees may be paid by VISA or Mastercard when delivered in
person to our office.
MICH-ELF (Michigan Electronic Filing System):
First Time Users: Call (517) 241-6420, or visit our website at
http://www.michigan.gov/corporations
Customer with MICH-ELF Filer Account: Send document to (517) 241-9845
The Department of Labor & Economic Growth will not discriminate against any
individual or group because of race, sex, religion, age, national origin, color,
marital status, disability or political beliefs. If you need help with reading,
writing, hearing, etc., under the Americans with Disabilities Act, you may make
your needs known to this agency.
$ 200,000.00
$ 30.00
$ 5,000.00
$ 30.00
Christopher C. Maeso, Esquire Christopher C. Maeso, Esquire (248) 258-1221
EXHIBIT A
I. CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION NEMATRON CORPORATION
ARTICLE III
The total authorized capital stock is:
1. Common Stock: 30,000,000 shares
2. A statement of all or any of the relative rights, preferences and limitations of the shares of each class is as follows:
Subject to the preferences accorded the holders of any other class of stock pursuant to these Articles of Incorporation or action of the Board of Directors taken with respect to such preferences, holders of Common Stock are entitled to receive such dividends as may be declared by the Board of Directors of the corporation from time to time and, in the event of any liquidation, dissolution or winding up of the corporation, the holders of Common Stock will be entitled to receive pro rata all of the remaining assets of the corporation available for distribution. Each issued and outstanding share of Common Stock is entitled to one vote.
No holder of any shares of any class of stock of this corporation shall have any preemptive or preferential right to subscribe for, or to purchase, any part of a new or additional issue of stock or any other reacquired shares of stock of any class whatsoever or of any securities convertible into stock of any class whatsoever, whether now or hereafter authorized and whether issued for cash or other consideration.
Effective at 9:00 a.m., Detroit, Michigan time on the date of filing of this Certificate of Amendment with the Michigan Department of Labor & Economic Growth Bureau of Commercial Services, every five outstanding shares of the corporation's Common Stock will be combined into and automatically become one share of outstanding share of the corporation's Common Stock. The corporation will not issue fractional shares on account of the foregoing reverse stock split; all shares that are held by a shareholder as of the effective date hereof shall be aggregated and each fractional share resulting from the reverse stock split after giving effect to such aggregation shall be cancelled.
In lieu of any interest in a fractional share to which a shareholder would otherwise be entitled as a result of such reverse stock split, such shareholder will be paid a cash amount for such fractional shares equal to the product obtained by multiplying (a) the fraction to which the shareholder would otherwise be entitled by (b) the per share closing price of the corporation's Common Stock on the day immediately prior to the effective time of the reverse stock split, as such price is reported on the Over The Counter Bulletin Board.
EXHIBIT 31
CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES OXLEY ACT OF 2002
I, Daniel J. Dorman, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Sandston Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. 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 we have:
a) designed such internal controls to ensure that material information relating to the registrant, including its consolidated subsidiaries, (collectively the "Company") is made known by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's internal controls 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 the conclusions about the effectiveness of the disclosure controls and procedures based on my evaluation as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors:
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. I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2004 /s/ Daniel J. Dorman ---------------------------------------- Daniel J. Dorman Chairman and Principal Financial Officer |
See also the certification pursuant to Section 906 of the Sarbanes Oxley Act of 2002, which is also attached to this report as an Exhibit.
EXHIBIT 32
Sandston Corporation
Certification of President and CEO and Chief Accounting Officer 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 on Form 10-QSB of Sandston Corporation (the "Company") for the quarter ended March 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Daniel J. Dorman, as President and Chief Executive and Accounting Officer of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
(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 results of operations of the Company.
/s/ Daniel J. Dorman ------------------------------- Name: Daniel J. Dorman Title: Chairman and Principal Financial Officer Date: May 14, 2004 |
This certification accompanies the Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.