PART I
ITEM 1 - DESCRIPTION OF BUSINESS
Business Development
General
Sandata, Inc. (the "Company"), through its wholly-owned
subsidiaries, is engaged in the business of providing
computerized data processing services and custom software and
programming services, by utilizing Company-developed
software, and software acquired or licensed by the Company,
principally to the health care industry, but also to the
general commercial market. In addition, the Company provides
hardware maintenance of PCs, printers and networks and
training on PC software packages.
Applications of the Company's software include: a home health
care system, computerized preparation of management reports,
payroll processing, pharmacy prescription reimbursement and
electronic time card with voice recognition systems.
Generally, in providing data processing services, the Company
first receives data from its customers, then processes it and
generates reports based on such data. Services are provided
to customers by processing on the Company's equipment at its
premises. The Company also has available software which
permits information retrieval from customers' facilities
which communicate with the Company's computers at its data
center. This allows the Company's customers to have access
to processing hardware and software without a substantial
investment on their part. The Company also offers its
services on a turnkey basis. Turnkey computer systems offer
the customer total in-house capabilities through the
licensing of the Company's software for use on a customer's
computer. The Company's software is written in a variety of
software languages including COBOL, C and FoxPro.
The Company was incorporated in the State of New York in
June, 1978 and reincorporated in the State of Delaware in
December 1986, at which time it also assumed its present
name.
Business of Issuer
Principal Products and Services
Sandsport Home Attendant Reporting Programs ("SHARP"). The
Company, through its wholly-owned subsidiary, Sandsport Data
Services, Inc. ("Sandsport"), provides computer services to
vendor agencies which, pursuant to contracts with the Human
Resources Administration ("HRA") of the City of New York,
provide home attendant services to the elderly and infirm in
New York City. The Federal Government offers this program
(the "Home Attendant Program") to participating states and
municipalities as an optional part of its Medicaid program.
The Federal Government funds a substantial portion of the
program and in New York City, the State Department of Social
Services and New York City fund the balance of the program.
In New York City, the Home Attendant Program is administered
by HRA, which sub-contracts with proprietary and not-for-
profit agencies ("Vendor Agencies") to provide home attendant
services to those in need. HRA refers patients to Vendor
Agencies which, in turn, send home attendants to patients'
homes to assist in homemaking chores. Vendor Agencies also
provide periodic nurse's visits to patients. Vendor Agencies
enlist the Company's computer services to provide weekly time
sheets, billing, payroll processing and management reports.
For the fiscal years ended May 31, 1996 and 1995,
approximately $4,531,000 or 51% and $4,611,000 or 61%,
respectively, of the Company's total operating revenues were
derived from services rendered to Vendor Agencies.
Sandsport processes payroll, preparing paychecks indicating
year-to-date earnings and deductions, payroll journals and
payroll earnings and deduction summaries. Sandsport provides
computerized information which permits Vendor Agencies to
prepare on a quarterly basis their Employers Quarterly
Federal Tax Return, New York State unemployment insurance
returns, deposits for Federal unemployment insurance and all
required New York City tax returns and deposits. Annually,
Sandsport prepares for each Vendor Agency employee
Transmittal of Income and Tax Statements, reconciliation of
state tax withheld and Federal Unemployment Insurance
Returns. Sandsport also furnishes to Vendor Agencies employee
earning ledgers which enable them to review a full year's
earnings history for each of their employees.
In conjunction with SHARP products, Sandsport has developed
an electronic time card which allows the use of voice
recognition technology to assist in capturing payroll
information known as Sandata (R) SanTrax (TM) for its SHARP
clients. SanTrax is an automated timekeeping system designed
to monitor home attendants' arrival and departure times when
servicing clients in their homes. SanTrax works by
incorporating telephone technologies into the attendance
reporting process. Caregivers call their agency's own toll-
free number to record their arrival and departure from the
patient's side; the system automatically and immediately
confirms that the assigned caregiver is at the expected place
at the expected time for the approved and scheduled duration.
This data is used to produce weekly payroll and to
automatically prepare reimbursement submissions to first and
third party payors. For the fiscal years ended May 31, 1996
and 1995, approximately $1,891,000 or 21% and $94,000 or 1%,
respectively, of the Company's total operating revenues were
derived from services rendered relating to SanTrax.
Data Entry Services. The Company, through Sandsport,
provides data entry, editing and data conversion services to
various social services, municipal agencies, and the private
sector.
Specialized System Development and Processing. Sandsport
designs, implements and supports specialized system
applications based upon its analysis of a client's particular
need. Sandsport currently provides these services to an
affiliate, National Medical Health Card Systems, Inc.
("Health Card"), of which Mr. Brodsky was formerly Chairman
of the Board. P.W. Medical Management, Inc. ("PW"), of which
Mr. Brodsky is Chairman of the Board, is a principal
shareholder of Health Card. For the fiscal years 1996 and
1995, approximately $1,883,000 or 21% and $1,869,000 or 25%,
respectively, of the Company's total operating revenues were
derived through services rendered to Health Card. (See
"Certain Relationships and Related Transactions")
Sandata Home Health Pro(R). Since March 1988, the Company,
through its wholly-owned subsidiary, Sandata Home Health
Systems, Inc. ("SHHS"), has been marketing the Sandata Home
Health Pro(R) system ("Home Health Pro(R)) pursuant to an
exclusive license agreement with Omni Data Systems, Inc.
("Omni"), which agreement, as amended, terminated on February
28, 1993. SHHS and Omni settled litigation with respect to
the license agreement, whereby, pursuant to a settlement
agreement dated as of April 5, 1994, among other things, the
Company received a license from Omni to continue to use such
software and purchase certain derivative software from Omni
and was entitled to retain the customers assigned to it by
Omni. On June 15, 1995 SHHS granted an exclusive license to
an unaffiliated third party to market its Home Health Pro(R)
system. The agreement calls for SHHS to receive commissions
on all sales made by the unrelated party. SHHS has the right
to revoke this agreement if certain minimum sales targets are
not met. In addition, SHHS also granted to such licensee the
right to maintain Home Health Pro(R) customers as well as the
right to develop additional Home Health Pro(R) system
modules. Under the terms of such agreement, all additions and
modifications to the Home Health Pro(R) software remain the
property of SHHS.
Sanitation Management System. Prior to April 1, 1996, the
Company, through its wholly-owned subsidiary, Sandata
Spectrum, Inc., marketed Spectrum Solid Waste Management
Systems ("Sanitation") pursuant to an exclusive license
agreement with PW, an affiliate of the Company's Chairman.
(See "Certain Relationships and Related Transactions")
Sanitation is an integrated software package designed to
provide management with information needed for planning and
making daily decisions in the waste industry, including
management solutions for solid waste, liquid waste, hazardous
waste, transfer stations, recycling and landfill operations.
The Company sold the right to service its Sanitation
customers to a third party buyer as of April 1, 1996,
pursuant to a transaction in which the buyer paid the Company
$18,640 in the form of a promissory note made payable to the
Company. The note bears no interest and is payable in equal
monthly installments of $1,165 each, with the final payment
due on August 1, 1997. As a condition of the sale, the buyer
agreed to assume the Company's obligations under the existing
Sanitation software support and maintenance agreements.
Durable Medical Equipment System. Prior to May 1, 1994, the
Company, through its wholly-owned subsidiary, Sandata
Spectrum, Inc., marketed the Spectrum Durable Medical
Equipment System ("DME") pursuant to an exclusive license
agreement with PW, an affiliate of the Company's Chairman and
President. (See "Certain Relationships and Related
Transactions") DME is a comprehensive Billing Management
System, Inventory Management System, Order Processing
Management System, Cash Flow management System and Accounting
and Business Management System, providing for all aspects of
running a modern durable medical equipment dealership. (A
DME dealer sells such things as wheelchairs, oxygen tanks,
hospital beds and other supplies which are necessary for
patients who are confined to their home.) The Company sold
the right to service its DME customers, which business
accounted for approximately 22% of the total gross revenues
of the Company for the year ended May 31, 1994, to a third
party buyer as of May 1, 1994, pursuant to a transaction in
which the buyer paid the Company $64,690, consisting of
$44,000 in cash ($7,000 net of expenses of sale) and $20,690
in receivables from the buyer. As a condition of the sale,
the buyer agreed to assume the Company's obligations under
the previously existing DME software support and maintenance
agreements. Further, the Company retained the right to sell
the DME software source code to individual former DME
customers and is entitled to receive royalties from the buyer
based upon future software sales.
In September 1994, the agreement between the Company and the
purchaser was amended to specifically terminate the
purchaser's right and obligation under the DME software
support and maintenance agreements for a majority of the DME
customers at a cost to the Company of $25,000. In addition,
the purchaser was required to return to the Company all
copies of the DME software Source Code and agreed that the
DME Source Code is confidential and proprietary to the
Company. Simultaneously, the Company sold the right and
obligation under the DME support and maintenance agreements
to an unaffiliated third party and issued to that party an
exclusive license to sell the DME Source Code throughout the
United States for a minimum royalty payment of $50,000,
payable at a rate of $2,941 per month commencing January
1995.
Seasonality
The Company's revenues are not subject to seasonal
fluctuations.
Marketing and Distribution
The Company provides its computerized information processing
services to a variety of users, although principally to the
health care industry. Many of the Company's software
programs are, upon development, adaptable to customers in
related fields of enterprise. Thus, the components of the
Home Attendant Program - Medicaid reimbursable billing,
management reports, payroll processing, tax reports - may be
utilized in other settings.
With respect to SanTrax, once a customer has contracted to
utilize the service, it is assigned a toll-free number by the
Company, calls made to this number are processed directly
through the Company's software where reports are then
generated to the customer based upon its specific
requirements.
The Company markets its products and services throughout the
country by sales representatives directly employed by the
Company in addition to independent sales agents.
Competition
The computer services industry is characterized by
competition in the areas of service, quality, price,
technical expertise, software and marketing. The Company
competes with service bureaus and time-sharing services as
well as with companies which offer stand-alone systems.
The Company competes for customers on the basis of the range
and quality of its software and on its ability to develop
programs tailored to its customers' requirements. Many of
the Company's competitors have substantially greater
financial resources and substantially larger marketing,
technical and field organizations.
With respect to the Company's SHARP business, there has been
an increase in competitive pressure and uncertainty in recent
years, partly as a result of the City of New York requiring
all contracts with City agencies to undergo competitive
bidding. Although the Company has been awarded contracts
based on its bids, there can be no assurance that its bids
will be accepted in the future.
Customers
The Company's customer base is primarily drawn from the
health care industry. During the fiscal years 1996 and 1995,
the Company derived revenues from a group of customers who
are all funded by one governmental agency, amounting to
approximately $6,218,000 or 69% and $4,662,000 or 62% of
total operating revenues, respectively. The Company also
derived revenue from a related party for data processing and
computer design services. Such revenues during fiscal 1996
and 1995 amounted to $1,883,000 and $1,869,000, respectively.
Although the loss of any one of these customers would have a
material adverse effect on the Company, the Company believes
that its relationships with these customers are good.
Proprietary Rights
The Company filed a new United States Trademark application
which, when approved, will rename its voice recognition
timekeeping system to SanTrax. (See Item 3 - Legal
Proceedings)
The Company has not applied for Federal copyright
registration for its computer software systems now in
existence or being developed. However, the Company believes
that its systems are trade secrets and that they, together
with the documentation, manuals, training aids, instructions
and other materials supplied to users, are subject to the
proprietary rights of the Company and protected by applicable
trade secret laws. The Company generally seeks to obtain
trade secret protection pursuant to non-disclosure and
confidentiality agreements with its employees. Although the
Company's customers are advised that the Company retains
title to all of its products, and they agree to safeguard
against unauthorized use of such systems, there can be no
assurance that the Company will be able to protect against
misappropriation of its proprietary rights and trade secrets.
Research and Development
The Company incurred approximately $201,000 and $288,000
during the fiscal years 1996 and 1995, respectively, on
research and development. The Company incorporates its
research and development into its on-going business
activities. The Company's employees may develop new software
programs and expand or modify existing ones. After
determining that a program has reached technological
feasibility, the subsequent development costs are
capitalized. All other costs are expensed.
Employees
The Company and its subsidiaries employ 103 employees,
including 90 full-time and 13 part-time employees. The
Company believes that its success will depend in part on its
ability in a highly competitive environment to attract and
retain highly skilled technical, marketing and management
personnel.
The Company considers its employee relations to be
satisfactory. The Company is not a party to any collective
bargaining agreement.
ITEM 2 - DESCRIPTION OF PROPERTY
The Company and its subsidiaries currently occupy
approximately 25,000 square feet of office space located at
26 Harbor Park Drive, Port Washington, New York 11050 (the
"Facility"). As of July 31, 1995, by an Assignment and
Assumption and First Amendment to Lease between the Company
and BFS Sibling Realty Inc. (formerly Brodsky Sibling Realty
Inc.) ("BFS"), an affiliate of the Company substantially
owned by the Company's Chairman, the Company is the
beneficial owner of and leases the premises from the Nassau
County Industrial Development Agency ("NCIDA"). The Company
currently pays rent for the Facility to NCIDA in the amount
of $48,600 per month for a term expiring in September, 2005.
The expiration of the Lease term coincides with the
maturity date of the existing Bond financing through NCIDA,
which Bonds are held by a bank by which time the Company
currently intends to exercise its right to become record
owner of the Facility. The Company's facilities are adequate
for current purposes. (See "Certain Relationships and
Related Transactions" for a discussion of the Brodsky
Sibling Realty Inc. Project)
ITEM 3 - LEGAL PROCEEDINGS
Time Data Systems, Inc. vs. Time Trax Systems, Inc. was
commenced in May 1996 in United States District Court Eastern
District of Michigan. The complaint contained, among other
things, causes of action for infringement of a federally
registered trademark, and sought injunctive relief
restraining the defendant from using the name "TimeTrax". In
August 1996, the parties agreed to enter a Final Judgment on
Consent whereby, among other things, the Defendant is
restrained from using the name "TimeTrax". No monetary
damages were awarded and the Plaintiff agreed to dismiss the
litigation.
Other than as described above, the Company is not involved in
any material legal proceeding, other than that which is
nonmaterial and routine litigation incidental to its
business.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company's Common Stock is traded in over-the-counter
market under the symbol "SAND" on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ").
The table below sets forth high and low bid prices of the
Common Stock, as furnished by NASDAQ. The quotations set
forth below reflect interdealer prices without retail markup,
markdown or commission and may not necessarily represent
actual transactions.
<TABLE>
<CAPTION>
Bid Prices
High Low
<S> <C> <C>
Fiscal Year Ended
May 31, 1996
First Quarter $1-3/4 $1-3/4
Second Quarter 7-1/2 1-3/4
Third Quarter 3-1/4 2-1/4
Fourth Quarter 3-3/4 1-3/4
Fiscal Year Ended
May 31, 1995
First Quarter $2-3/8 $2-1/8
Second Quarter 2-1/4 2-1/4
Third Quarter 2-1/4 1
Fourth Quarter 2-3/4 1
</TABLE>
Holders
Management has been advised by its transfer agent (North
American Transfer Co.) that the approximate number of holders
of record of the Company's Common Stock, as of August 14,
1996 was 1,079.
Dividends
No cash dividends have been paid by the Company on its Common
Stock and no such payment is anticipated in the foreseeable
future.
Dividends are restricted pursuant to the terms of a revolving
credit and term loan agreement between the Company and a
bank.
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
The Company and its subsidiaries currently occupy their
offices located at 26 Harbor Park Drive, Port Washington, NY
11050. From June 1, 1994 to July 30, 1995 BFS Sibling Realty
Inc. (formerly Brodsky Sibling Realty Inc.) ("BFS"), an
affiliate of the Company substantially owned by the Company's
Chairman, leased the premises from the Nassau County
Industrial Development Agency ("NCIDA") and the Company
subleased the premises from BFS pursuant to the transaction
discussed below in "Liquidity and Capital Resources".
On April 20, 1994 the U.S. Small Business Administration (the
"SBA") authorized the sale of a $750,000 debenture in
connection with a loan in like amount to be made by the Long
Island Development Corporation (the "LIDC") to the Company
(See "Liquidity and Capital Resources" below for a more
detailed description of the LIDC transaction). Pursuant to
the SBA's requirements for the LIDC to consummate the loan,
the NCIDA transaction was amended whereby the Company became
the lessee of the premises as of July 31, 1995.
In May 1994 the Company announced the acceptance by the Board
of Directors of the Company of a proposal to take the Company
"private" for purposes of Federal Securities Laws. The
proposed privatization of the Company consisted of a
proposal from Bert Brodsky, Hugh Freund, Gary Stoller,
Leland H. Freund and Emily B. Freund (the "Proponents")
whereby stockholders of the Company would have received
$2.50 per share in cash for their shares of the Company's
common stock. In December 1994, the Proponents withdrew
their proposal, informing the Board of Directors that their
decision had been based on several factors, including the
substantial delays created by the need to comply with legal
and regulatory requirements, the costs associated with such
compliance and with such delays and the uncertainty
regarding the timing of the possible consummation of the
proposed transaction. The Company advanced certain fees on
behalf of the Proponents arising from the proposed transaction,
which are payable in January 1997.
On April 20, 1995, the Company's $2,000,000 secured revolving
credit agreement (the "Credit Agreement") with a bank (the
"Bank") was amended, extending the due date for two years to
April 1997 and revising the Company's financial covenants.
Contemporaneously, the Bank extended a two year term loan
(the "Term Loan") of $500,000 to the Company. The proceeds
of the Term Loan were used to partially repay outstanding
advances against the Company's Credit Agreement. (See
"Liquidity and Capital Resources" below)
Analysis of Operations
Fiscal Years ended May 31, 1996 compared with May 31, 1995
Service fee revenues for fiscal 1996 were $8,964,335, as
compared to $7,546,454 for the previous fiscal year, an
increase of $1,417,881 or 19%. The increase is largely
attributable to revenues derived from a new product called
SanTrax.
Real estate rental income of $285,048 for fiscal 1996 is
derived from the rental of space to companies affiliated with
the Company's Chairman.
Expenses Related to Services
Operating expenses were $5,038,472 for the year ended May 31,
1996, as compared to $4,795,157 for the year ended May 31,
1995, an increase of $243,315 or 5%. Costs associated with
the development of a new product, Sandata SanTrax, and its
operations including telephone, payroll and expenses related
to equipment were the primary factors for the increase in
operating expenses. The increase was partially offset by
decreased operating costs, primarily payroll costs, due to
the company granting an exclusive license to an unaffiliated
third party to market its Home Health Pro(R) System.
Selling, general and administrative expenses for fiscal 1996
were $1,988,115 compared to $1,958,617 in fiscal 1995, an
increase of approximately $29,498 or 2%. The increase is
partially due to an increase in payroll and related costs,
advertising and administrative costs primarily related to
SanTrax and existing product lines. The increase was
partially offset by decreased selling expenses due to the
Company granting an exclusive license to an unaffiliated
third party to market its Home Health Pro(R) System.
Depreciation and amortization was $1,093,264 for the year
ended May 31, 1996, as compared to $680,910 for the year
ended May 31, 1995, an increase of $412,354 or 61%. The
increase was primarily attributable to fixed asset additions,
including software capitalization costs.
Interest expense for fiscal 1996 was $216,862 compared to
$179,809 for fiscal 1995, an increase of $37,053 or 21%. The
increase is attributable to additional borrowings against the
Company's revolving credit agreement and commensurate
interest expense increases.
Expenses Related to Real Estate Operations
Expenses include all expenses related to the operation of the
Facility (defined below), including real estate taxes,
depreciation expense and interest expense.
Income Tax Expenses
Income tax benefit for fiscal 1996 was $8,000. Income tax
expense for fiscal 1995 was $74,444. The decrease in income
tax expense is primarily due to an increase in the net
operating loss carryforward in addition to a decrease in the
valuation allowance. The effective tax rates for fiscal 1996
and 1995 were (3.2)% and 74.9%, respectively.
Liquidity and Capital Resources
The Company's working capital deficiency as of May 31, 1996
was $852,929, a decrease from May 31, 1995 of $2,417,263.
As discussed below, the Company assumed various debt in
conjunction with the acquisition of the Facility. This
transaction increased the current portion of long-term debt
by approximately $505,000.
In addition, the Company has spent approximately $3,458,000
in fixed asset additions, including software capitalization
costs in connection with revenue growth and new product
development. The Company has also experienced an increase
in its accounts payable due in part to its increased
expenses in connection with its revenue growth.
On July 1, 1992, the Company loaned $1,000,000 to the
Company's Chairman, bearing interest at the prime rate plus
1-1/4% and was due July 1, 1995. On September 1, 1993, the
Company was issued a new note for the then outstanding
balance of $490,000, bearing interest at prime plus 1-1/4%
and being due April 30, 1994. On May 1, 1994, the Company
extended the due date of the note to the earlier of April
30, 1995 or as the Company may demand at any time after the
effective date of the then proposed privatization
transaction. The Chairman paid $340,000 of the outstanding
loan to the Company during the year ended May 31, 1995. On
May 1, 1995, the Company extended the due date of the note
to October 31, 1995. On July 31, 1995, the Chairman, as a
result of the assignment of the lease with the Nassau County
Industrial Development Agency ("NCIDA") from BFS Sibling
Realty Inc., formerly known as Brodsky Sibling Realty Inc.
("BFS"), an affiliate substantially owned by the Company's
Chairman, to Sandata, Inc., repaid $129,000. The remaining
balance of the note receivable was repaid by the Chairman
during the quarter ended February 29, 1996.
On July 31, 1993, the Company received a promissory note
from Compuflight, Inc. ("Compuflight"), a former affiliate
(the Company's Chairman was a principal stockholder and
Chairman of Compuflight through December 1, 1993) to
evidence the Company's accounts receivable from Compuflight.
The note was payable in increments of $20,000 per month
including interest at the rate of one percent above prime on
the unpaid balance and was due April 1, 1994. On November
1, 1993, the note was amended. The amended note is payable
in minimum increments of $20,000 per month with interest at
ten percent (10%) per annum and contains provisions for
accelerated payments based upon Compuflight achieving
certain results. Payments commenced on February 28, 1994 and
are to continue until such time as the indebtedness and any
accrued interest are paid in full. In connection with the
promissory note, the Company received a security interest in
substantially all the then existing assets of Compuflight,
which has been assigned to the Bank as collateral for the
Company's Credit Agreement with the Bank. At the present
time, Compuflight is indebted to the Company in the amount
of $222,139, of which $195,811 represents the balance due on
the note and $26,258 represents accounts receivable.
On June 1, 1994, BFS borrowed $3,350,000 in the form of
Industrial Development Revenue Bonds ("Bonds") to finance
costs incurred in connection with the acquisition,
renovation and equipping of the Company's new office space
located at 26 Harbor Park Drive, Port Washington, New York
(the "Facility" or the "Building") from the NCIDA. These
Bonds were subsequently purchased by the Bank. The
aggregate cost incurred by BFS in conjunction with such
acquisition, renovation and equipping was approximately
$4,377,000. In addition, the Company incurred approximately
$500,000 in connection with additional capital improvements.
The Bonds bore interest at prime plus 3/4 of 1% until August
11, 1995, at which time the interest rate became fixed at 9%
for a five-year term through September 1, 2000. At that
time, the interest rate will be adjusted (at the Company's
option) to a rate of either prime plus 3/4 of 1%, or the
applicable fixed rate if offered by the Bank. Commencing
October 1, 1995, principal, together with interest, is being
repaid in equal monthly installments based on a 15 year
amortization, with the balance of unpaid principal due
September 1, 2005.
On June 21, 1994 (as of June 1, 1994), the Company and its
Chairman guaranteed the full and prompt payment of principal
and interest of the Bonds and the Company granted the Bank a
security interest and lien on all the assets of the Company.
In connection with the issuance and sale of the Bonds, the
Company entered into a lease agreement (the "Sublease") with
BFS, whereby the Company leased the Facility for the conduct
of its business and, in consideration therefor, was obligated
to make lease payments that at least equal amounts due to satisfy
the underlying Bond obligations.
As of July 31, 1995, by an Assignment and Assumption and
First Amendment to Lease between the Company and BFS, the
Company became the beneficial owner of and leases the
Facility from the NCIDA (collectively the "Assignment
Transaction"). In connection with the Assignment
Transaction, the Sublease was terminated. The Company
currently pays rent for the Facility to the NCIDA in the
amount of $48,600 per month, subject to adjustment based
upon the then effective interest rate, among other things,
for a term expiring in September, 2005. The expiration of
the Lease term coincides with the maturity date of the
existing Bond financing through the NCIDA. Upon the
expiration of such term, the Company currently intends to
exercise its rights to become record owner of the Facility.
In connection with the Assignment Transaction, the Company
assumed certain indebtedness owed to affiliates of the
Company's Chairman as follows: (i) the $364,570 remaining
balance of a 48-month term loan bearing interest at 8.7% per
annum, and (ii) the $428,570 remaining balance of a 42-month
term loan bearing interest at 8.91%. Each of the foregoing
loans were incurred in connection with the construction of
improvements to the Building, are collateralized by the
assets of the primary obligor and are guaranteed by the
Company's Chairman.
On August 11, 1995, the Company entered into a $750,000 loan
agreement with the Long Island Development Corporation
("LIDC"), under a guarantee by the U.S. Small Business
Administration ("SBA"). The entire $750,000 proceeds have
been used to repay a portion of the Bond indebtedness to the
Bank. The Company entered into the Assignment Transaction
primarily to satisfy certain requirements of the SBA. The
Term Loan is payable in 240 monthly installments of $6,255,
which includes principal and interest at a rate of 7.015%.
On April 20, 1995 the Company's $2,000,000 secured revolving
credit agreement (the "Credit Agreement") with the Bank was
amended, extending the due date for a period of two years.
Upon maturity, the Company may, at its option convert the
outstanding principal balance of the Credit Agreement to a
five-year self-amortizing term loan. The amended Credit
Agreement revised the Company's requirements to maintain a
stated net worth amount and maximum net loss amount, plus
specific working capital and liquidity ratios, capital
expenditure limitations and restrictions on the payment of
dividends. Contemporaneously, the Bank tended a two-year
term loan (the "Term Loan") of $500,000 to the Company. The
proceeds of the Term Loan were used to partially repay
outstanding advances against the Company's Credit Agreement.
Principal and interest of the Term Loan are to be repaid over
a 24-month period. At May 31, 1996 and 1995, the Company
failed to meet certain financial covenants required under the
Credit Agreement and Term Loan, for which the Bank has
granted waivers. As of May 31, 1996 there is a balance of
$1,038,000 remaining on the line of credit and $229,158
remaining on the Term Loan.
In December of 1994, the Company entered into a
sales/leaseback transaction whereby certain fixed assets were
sold for $300,000 and concurrently leased back by the
Company. The proceeds were used to partially repay
outstanding advances against the Company's revolving credit
agreement. In February 1995, the Company entered into two
sales/leaseback transactions whereby certain fixed assets
were sold for $559,334 and concurrently leased back by the
Company. The proceeds were used to partially repay
outstanding advances against the Company's Credit Agreement.
In June 1995, the Company entered into a sales/leaseback
transaction whereby certain fixed assets were sold for
$500,000 and concurrently leased back to the Company. The
proceeds were used to partially repay outstanding advances
against the Company's Credit Agreement.
In September 1995, the Company entered into a sales/leaseback
transaction whereby certain fixed assets were sold for
$326,000 and concurrently leased back to the Company. The
proceeds were used to partially repay outstanding advances
against the Company's Credit Agreement.
The Company believes the results of its continued operations,
together with the available Credit Line, Term Loan and
financings from the IDA and SBA should be adequate to fund
presently foreseeable working capital requirements.
Prospects for the Future, Trends and Other Events
On June 15, 1995 the Company entered into a licensing
agreement with an unrelated third party, to market its Home
Health Pro(R) system in order to continue focusing on SHARP,
its core business, and continued development of its new
product known as SanTrax. The agreement calls for the
Company to receive commissions on all sales made by the
unrelated party. The Company has the right to revoke this
agreement if certain minimum sales targets are not met. In
addition, there has been an increase in competitive pressure
and uncertainty in the Company's SHARP business in recent
years, partly as the result of the City of New York requiring
all contracts with City agencies to undergo competitive
bidding. Furthermore, the Company notes that, to a major
extent, the success of its SHARP business rests with a key
officer of the Company, who has established various
relationships with the Company's SHARP customers over the
years.
Except as discussed above, the Company has no knowledge of
any specific prospects, industry, or other trends, events or
uncertainties that might have a material impact on the
Company's net sales or income from continuing operations, or
that would increase the value of the shares in the long-term
or the short-term.
The Company believes that inflation and changing prices have
not had a material impact on the Company's operations.
ITEM 7 - FINANCIAL STATEMENTS
Sandata, Inc. and Subsidiaries
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Certified Public
Accountants
Financial Statements
Consolidated Balance Sheets as of May 31, 1996
and 1995
Consolidated Statements of Income for the years
ended May 31, 1996 and 1995
Consolidated Statements of Shareholders' Equity
for the years ended May 31, 1996 and 1995
Consolidated Statements of Cash Flows for the years
ended May 31, 1996 and 1995
Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Marcum & Kliegman LLP
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
May 31,
ASSETS (Notes 4 and 8) 1996 1995
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $368,400 $102,613
Accounts receivable, net of allowance
for doubtful accounts of $350,000
and $304,000 at 1996 and 1995,
respectively 1,180,905 784,808
Receivables from affiliates (Note 8) 190,635 1,058,757
Receivable from former affiliate
(Note 9) 26,258 77,459
Note receivable from former affiliate,
net of allowance for doubtful accounts
of $119,000 in 1996 (Note 9) 77,100 240,000
Notes receivable - officers (Notes 8
and 13) 102,867 -0-
Note receivable - officer (Note 8) -0- 150,000
Inventories 27,972 26,222
Income taxes receivable (Note 6) -0- 66,000
Prepaid expenses and other current assets 172,897 88,153
------- ---------
Total Current Assets 2,147,034 2,594,012
FIXED ASSETS, NET (Notes 2, 3, 7
and 11) 9,399,625 3,564,208
OTHER ASSETS
Note receivable from former affiliate,
net of allowance for doubtful accounts
of $119,000 in 1995 (Note 9) -0- 58,199
Advances to affiliates (Note 8) -0- 61,000
Notes receivable - officers (Notes 8
and 13) -0- 102,867
Cash surrender value of officer's life
insurance, security deposits and other 410,683 327,766
------- -------
Total Assets $11,957,342 $6,708,052
----------- ----------
----------- ----------
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
---- ----
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued
expenses $1,022,058 $601,106
Current portion of long-term debt
(Note 4) 768,354 250,000
Note payable - affiliate (Note 5 ) 1,000,000 -0-
Deferred/unearned revenue 4,299 34,751
Deferred income (Note 11) 205,252 143,821
--------- ---------
Total Current Liabilities 2,999,963 1,029,678
LONG-TERM DEBT (Note 4) 4,322,234 1,679,166
NOTES PAYABLE - AFFILIATES (Note 5 ) 462,000 -0-
DEFERRED INCOME (Note 11) 177,530 205,642
DEFERRED INCOME TAXES (Note 6) 83,000 140,444
------ -------
Total Liabilities 8,044,727 3,054,930
--------- ---------
COMMITMENTS AND CONTINGENCIES
(Notes 4, 7, 8 and 14)
SHAREHOLDERS' EQUITY (Note 10)
Common stock; par value $.001; authorized
3,000,000 shares in 1996 and 1995, 816,727
issued; 763,955 shares outstanding 816 816
Additional paid in capital 1,279,710 1,279,710
Retained earnings 2,768,975 2,509,482
--------- ---------
4,049,501 3,790,008
Less Treasury stock - at cost (52,772
shares in 1996 and 1995) (136,886) (136,886)
--------- --------
Total Shareholders' Equity 3,912,615 3,653,122
--------- ---------
Total Liabilities and Shareholders'
Equity $11,957,342 $6,708,052
----------- ----------
----------- ----------
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
Years ended May 31,
1996 1995
---- ----
<S> <C> <C>
REVENUES:
Service fees (Notes 1, 2 and 8) $8,964,335 $7,546,454
Real estate rental income 285,048 ---
Other income (Note 11) 277,982 75,523
Interest income (Notes 8 and 9) 34,858 91,969
------- ------
$9,562,223 $7,713,946
---------- ----------
COSTS AND EXPENSES:
Service Fees:
Operating (Note 3) 5,038,472 4,795,157
Selling, general and administrative 1,988,115 1,958,617
Depreciation and amortization 1,093,264 680,910
Interest expense 216,862 179,809
--------- --------
$8,336,713 $7,614,493
--------- ---------
Real Estate:
Operating 472,310 ---
Depreciation and amortization 88,779 ---
Interest expense 289,629 ---
Real estate taxes 123,299 ---
------- ------
974,017 ---
------- ------
TOTAL COSTS AND EXPENSES $9,310,730 $7,614,493
--------- ---------
Earnings from operations before
income taxes 251,493 99,453
Income tax expense (benefit) (Note 6) (8,000) 74,444
------- ------
NET EARNINGS $259,493 $25,009
-------- -------
-------- -------
EARNINGS PER COMMON SHARE $0.16 $0.03
Weighted average common shares
outstanding (Note 1) $1,586,423 $763,955
--------- --------
--------- --------
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended May 31, 1996 and 1995
Add'l
Common Stock paid-in Retained Treasury Total
Shares Amount capital Earnings Stock
------ ----- ------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at
June 1, 1994 816,727 816 1,279,710 2,484,473 136,886)3,628,113
Net earnings --- --- --- 25,009 --- 25,009
------- ---- --------- --------- -------- ---------
Balance at
May 31, 1995 816,727 816 1,279,710 2,509,482 (136,886) 3,653,122
Net earnings --- --- --- 259,493 --- 259,493
------- ---- --------- --------- -------- ---------
Balance at
May 31, 1996 816,727 $816 1,279,710$2,768,975$(136,886)$3,912,615
------- ---- --------- --------- -------- ---------
------- ---- --------- --------- -------- ---------
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended May 31,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $259,493 $25,009
Adjustments to reconcile net
earnings to net cash provided by
operating activities:
Depreciation and amortization 1,182,043 680,910
(Gain) on disposal of fixed assets (242,552) 353,706)
Provision for losses on accounts
receivable 45,516 192,748
Recognition of deferred income (209,233) (75,522)
Recognition of deferred revenue (91,886) 272,977)
Deferred tax provision (benefit) (57,444) 95,444
(Increase) decrease in operating
assets
Accounts receivable (441,613) 232,886
Receivables from affiliates 868,122 (567,484)
Receivable from former affiliate 51,201 (3,227)
Inventories (1,750) 66,288
Prepaid expenses and other current
assets (84,744) 29,685
Income taxes receivable 66,000 (41,000)
Other assets (82,917) (85,273)
Increase (decrease) in operating
liabilities
Accounts payable and accrued
expenses 420,952 (189,116)
Deferred revenue 61,434 211,123
Deferred income 242,552 353,706
------- -------
Net cash provided by operating
activities 1,985,174 299,494
--------- -------
Cash flows from investing activities:
Purchases of fixed assets (3,457,703) (2,992,460)
Proceeds from sale/leaseback
transactions 825,935 859,334
Issuance of notes receivable
- officer, net -- (102,867)
Collection of note receivable
- officer 150,000 340,000
Collection of note receivable
- former affiliate 221,099 266,822
Advances to affiliates 61,000 431,529
Net cash used in investing
activities (2,199,669) (1,197,642)
--------- ---------
Cash flows from financing
activities:
Proceeds from term loans 979,166 --
Proceeds from notes payable
- affiliates 1,462,000 --
Principal payments on term loan (1,319,718) (20,834)
Proceeds from line of credit 1,500,000 2,875,000
Principal payments on line of
credit (2,141,166) (2,125,000)
--------- ---------
Net cash provided by financing
activities 480,282 729,166
------- -------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 265,787 (168,982)
Cash and cash equivalents at beginning
of year 102,613 271,595
------- -------
Cash and cash equivalents at end
of year $368,400 $102,613
------- -------
------- -------
<FN>
<F1>
Supplemental Disclosure of Noncash Investing and Financing
Activities:
The Company assumed $4,143,140 of debt in 1996 as disclosed in
the Notes to the Consolidated Financial Statements in
conjunction with the acquisition of a facility.
</FN>
</TABLE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation
The consolidated financial statements include the accounts of
Sandata, Inc. and its wholly owned subsidiaries: Sandsport
Data Services, Inc., Sandata Home Health Systems, Inc.,
Sandata Spectrum, Inc., SanTrax Systems, Inc., SanTrax
Productivity, Inc. and Sandata Inteck, Inc. Sandata Inteck,
Inc. is an inactive subsidiary. All significant intercompany
accounts and transactions have been eliminated in consolidation.
b. Nature of Business and Economic Dependency
Sandata, Inc. and Subsidiaries (the "Company") are primarily
engaged in the business of providing computerized data
processing services using Company-developed and licensed
software principally to the healthcare industry. The Company
primarily operates in the New York metropolitan area. During
fiscal 1996 and 1995, the Company received revenues from a
group of customers who are all funded by one governmental
agency, amounting to approximately $6,218,000 and $4,662,000,
respectively.
c. Fixed Assets
Fixed assets are recorded at cost. Depreciation and amortization are
computed principally by the straight-line method over the lesser of the
estimated useful lives or lease terms of the related assets.
d. Income Taxes
The primary objectives of accounting for income taxes are to (a) recognize
the amount of tax payable for the current year and (b) recognize the amount
of deferred tax liability or asset based on management's assessment of the
tax consequences of events that have been reflected in the Company's
financial statements or tax returns.
e. Software Costs
The Company capitalizes expenditures incurred for the development of existing
software which has already reached technological feasibility and expenses all
other costs. Amortization is computed on the straight-line method over the
estimated useful life of the software.
f. Inventories
Inventories, consisting of computer equipment held for resale, are stated at
the lower of cost or market; cost is determined using the specific
identification method.
g. Net Earnings Per Common Share
Net earnings per common share is computed by dividing net
earnings by the weighted average number of common shares
outstanding. Earnings per common share for the fiscal year
1996 includes the dilutive effect of outstanding stock
options and warrants. The number of common stock equivalents
determined by applying the modified treasury stock method
included in the calculation of earnings per common share for
the year ended May 31, 1996 was 822,468. The effect of stock
options and warrants on the calculation of earnings per
common share was antidilutive in fiscal year 1995.
h. Revenue Recognition
The Company recognizes revenues and direct costs as the
contractual service is rendered and the expense associated with
such service is incurred. Included in accounts receivable are
unbilled amounts approximating $3,000 and $53,000 at May 31,
1996, and 1995, respectively. Revenues from hardware and
software maintenance contracts are deferred and recognized over
the life of the contracts.
i. Statement of Cash Flows
The Company paid income taxes of approximately $4,000 and
$35,000 and interest of approximately $506,000 and $180,000
for the years ended May 31, 1996 and 1995, respectively.
For purposes of the statement of cash flows, the Company
considers all short-term investments with an original
maturity of three months or less to be cash equivalents.
j. Use of Estimates in the Financial Statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
NOTE 2 - SALE OF DME SOFTWARE
a. On May 1, 1994, the Company sold its Durable Medical
Equipment System business ("DME") to an unaffiliated third
party for $64,690, consisting of $44,000 in cash ($7,000 net
of expenses of sale) and $20,690 in receivables from the
purchaser. As a condition of the sale, the purchaser agreed
to assume the Company's obligations under the previously
existing DME software support and maintenance agreements.
The Company has also retained the right to sell the DME
software Source Code to certain former DME customers and is
entitled to receive royalties from the purchaser based upon
future software sales for which the Company expects to
recover the related capitalized software costs with a net
book value of $88,000 and $122,000 as of May 31, 1996, and
1995, respectively, which are classified as fixed assets in
the accompanying balance sheets.
b. In September 1994, the agreement between the Company and
the purchaser was amended to specifically terminate the
purchaser's right and obligation under the DME software
support and maintenance agreements for a majority of the DME
customers at a cost to the Company of $25,000. In addition,
the purchaser was required to return to the Company all
copies of the DME software Source Code and agreed that the
DME Source Code is confidential and proprietary to the
Company.
Simultaneously with the amendment to the agreement with the
purchaser, the Company sold the right and obligation under
the DME software support and maintenance agreements to an
unaffiliated third party for $67,850 ($46,425 net of expenses
of sale). In addition, the Company also issued an exclusive
license to sell the DME Source Code throughout the United
States to the third party. In consideration for the license,
the Company is entitled to receive a minimum royalty of
$50,000, payable at a rate of $2,941 per month commencing
January 1995. The Company has received payments through June
1996.
<TABLE>
<CAPTION>
NOTE 3 - FIXED ASSETS
Fixed assets consist of the following:
Useful May 31,
Life 1996 1995
------ ---- ----
<S> <C> <C> <C>
Computer equipment and
software costs 5 years $7,622,391 $5,451,140
Furniture, fixtures and
automobiles 4-7 years 289,218 376,428
Leasehold improvements 10 years 726,737 862,804
Building and improvements 39 years 4,085,620 ---
Land 791,280 ---
--------- -------
$13,515,246 $6,690,372
Less accumulated depreciation
and amortization 4,115,621 3,126,164
---------- ---------
$9,399,625 $3,564,208
---------- ----------
<FN>
<F1>
Depreciation and amortization expense relating to fixed assets (other than
software costs) amounted to approximately $673,000 and $297,000 in 1996 and
1995, respectively.
The cost of assets under capital leases and accumulated amortization on these
assets amounted to $4,876,900 and $88,779, respectively, at May 31, 1996.
Unamortized software costs amounted to approximately $1,890,000 and
$1,399,000 at May 31, 1996 and 1995, respectively. Amortization expense for
these costs totaled approximately $509,000 and $384,000 in 1996 and 1995,
respectively.
Research and development expenses amounted to approximately $201,000 and
$288,000 in 1996 and 1995, respectively.
</FN>
</TABLE>
NOTE 4 - DEBT
On February 10, 1993, the Company entered into a secured revolving credit
agreement (the "Credit Agreement") as amended, with a bank (the "Bank") to
borrow up to $2,000,000 which was payable on February 10, 1995 at 3/4% above
the prime lending rate. In June 1994, the Credit Agreement was amended
restating the Company's requirements to maintain a stated net worth amount
and a maximum net loss amount, plus specific working capital and liquidity
ratios, capital expenditure limitations and restrictions on the payment of
dividends.
On April 20, 1995, the Credit Agreement with the Bank was amended extending
the due date for a period of two years. Upon maturity, the Company may, at
its option, convert the then outstanding principal balance of the advances
under the Credit Agreement into a five (5) year term loan payable in
sixty (60) equal monthly principal installments plus interest at 3/4% above
the Bank's prime rate. The amended Credit Agreement also revised the
Company's requirements to maintain a stated net worth amount, a maximum net
loss amount, plus specific working capital and liquidity ratios,
capital expenditure limitations and restrictions on the payment of dividends.
Also on April 20, 1995, a two-year term loan (the "Term
Loan") in the amount of $500,000 was advanced by the Bank to
the Company. The proceeds of the Term Loan were used to
partially repay outstanding advances against the Company's
Credit Agreement. The Term Loan is payable in twenty-four
(24) monthly principal installments of $20,834 plus interest
at 3/4% above the Bank's prime rate, through April 1997.
Both the Credit Agreement and the Term Loan are
collateralized by all the assets of the Company. The Term
Loan is guaranteed on an unlimited basis by the Company's
Chairman and the Credit Agreement is guaranteed on a limited
basis by the Company's Chairman, to a maximum of $1,000,000.
In addition, the Company has assigned its right to the
promissory note due from Compuflight, Inc. and its security
interest in the assets of Compuflight, Inc. to the Bank as
additional collateral.
At May 31, 1996 and 1995 the Company failed to meet certain
financial covenants required under the Credit Agreement and
Term Loan, for which the Bank has granted waivers.
On June 1, 1994, BFS, an affiliate substantially owned by
the Company's Chairman, borrowed $3,350,000 in the form of
Industrial Development Revenue Bonds ("Bonds") to finance
costs incurred in connection with the acquisition,
renovation and equipping of the Company's new office space
located at 26 Harbor Park Drive, Port Washington, New York
(the "Facility" or the "Building") from the NCIDA. These
Bonds were subsequently purchased by a bank (the "Bank").
The Bonds bore interest at prime plus 3/4 of 1% until August
11, 1995, at which time the interest rate became fixed at 9%
for a five-year term through September 1, 2000. At that
time, the interest rate will be adjusted (at the Company's
option) to a rate of either prime plus 3/4 of 1%, or the
applicable fixed rate if offered by the Bank. Commencing
October 1, 1995, principal, together with interest, is being
repaid in equal monthly installments based on a 15 year
amortization, with the balance of unpaid principal due
September 1, 2005.
On June 21, 1994 (as of June 1, 1994), the Company and its
Chairman guaranteed the full and prompt payment of principal
and interest of the bonds and the Company granted the Bank a
security interest and lien on all the assets of the Company.
In connection with the issuance and sale of the bonds, the
Company entered into a lease agreement (the "Sublease") with
BFS, whereby the Company leased the Facility for the conduct
of its business and, in consideration therefor, was obligated
to make lease payments that at least equal amounts due to
satisfy the underlying Bond obligations.
As of July 31, 1995, by an Assignment and Assumption and
First Amendment to Lease between the Company and BFS, the
Company assumed certain indebtedness owed to affiliates of
the Company's Chairman as follows: (i) the $364,570
remaining balance of a 48-month term loan bearing interest
at 8.7% per annum, and (ii) the $428,570 remaining balance
of a 42-month term loan bearing interest at 8.91%. Each of
the foregoing loans were incurred in connection with the
construction of improvements to the Building, are
collateralized by the assets of the primary obligor and are
guaranteed by the Company's Chairman.
On August 11, 1995, the Company entered into a $750,000 loan
agreement with the Long Island Development Corporation
("LIDC"), under a guarantee by the U.S. Small Business
Administration ("SBA"). The entire $750,000 proceeds have
been used to repay a portion of the Bond indebtedness to the
Bank. The Company entered into the Assignment Transaction
primarily to satisfy certain requirements of the SBA. The
Term Loan is payable in 240 monthly installments of $6,255, which
includes principal and interest at a rate of 7.015%.
In connection with the February 1995 sale/leaseback, the
Company has issued irrevocable letters of credit in the
amount of $375,000 for the benefit of the lessor. One
letter of credit in the amount of $225,000 is cancellable on
January 31, 1997 if the Company meets certain financial
targets. The remaining letter of credit expires upon the
termination of the lease.
<TABLE>
<CAPTION>
Maturities of long term debt at May 31, 1996 are as follows:
Principal
Year ending May 31, Repayments
----------
<C> <C>
1997 $768,354
1998 668,911
1999 424,800
2000 404,067
2001 405,743
Thereafter 2,418,713
---------
$5,090,588
---------
---------
</TABLE>
NOTE 5 - NOTES PAYABLE - AFFILIATES
The note payable - affiliates which is evidenced by a note
represents amounts borrowed from a company affiliated with the
Company's Chairman. Subsequent to May 31, 1996, $850,000 of the
demand note, which is non-interest bearing, was repaid.
The notes payable - affiliates represents amounts borrowed from
two companies affiliated with the Company's Chairman. The notes
bear interest at prime plus 3/4% and are due December 2000 and
May 2001, respectively.
NOTE 6 - INCOME TAXES
The income tax expense (benefit) is comprised of the following:
<TABLE>
<CAPTION>
Year ended May 31,
1996 1995
------ ------
<S> <C> <C>
Current
Federal $(98,000) $(66,000)
State 8,000 27,000
Deferred - Federal and state 82,000 113,444
------- -------
$(8,000) $74,444
------- -------
------- -------
</TABLE>
The Company's effective income tax rate differs from the
statutory U.S. Federal income tax rate as a result of the
following:
<TABLE>
<CAPTION>
Year ended May 31,
1996 1995
----- -----
<S> <C> <C>
Statutory U.S. Federal tax rate 34.0% 34.0%
State taxes 3.2 17.9
Nondeductible items 37.4 22.6
Current benefit - tax expense in
excess of book (110.3) --
Net change in items giving rise to
deferred taxes 32.5 0.4
----- -----
(3.2)% 74.9%
----- -----
----- -----
<FN>
<F1>
As of May 31, 1996 and 1995, depreciation gave rise to
deferred tax liabilities of approximately $696,000 and
$407,000, respectively, allowance for doubtful accounts,
vacation accruals, deferred gains, net operating loss
carryforwards, credits and contribution carryovers gave rise
to deferred tax assets of approximately $613,000 and
$267,000, respectively, net of a valuation allowance of
$86,000 and $210,000, respectively. These amounts are
presented net in the consolidated balance sheet as of May
31, 1996 and 1995, as a noncurrent deferred tax liability.
</FN>
</TABLE>
NOTE 7- COMMITMENTS AND CONTINGENCIES
The Company leases office space and equipment. Until July
31, 1995, the office space was sublet from an affiliate of
the Company substantially owned by the Company's Chairman
(the "Affiliate"), under a sublease agreement expiring on
September 1, 2005. The sublease agreement provides for
rental payments to be made to the lessor in an amount equal
to the principal and interest requirement on the bonds of the
lessor (see Note 7). Such amount was $97,200 and $545,382
for the years ended May 31, 1996 and 1995, respectively, and
includes all real estate taxes and operating costs.
As of July 31, 1995, by an Assignment and Assumption and
First Amendment to Lease between the Company and the
Affiliate, the Company is the beneficial owner of and leases
the premises from the Nassau County Industrial Development
Agency ("NCIDA"). The Company currently pays rent for the
facility to NCIDA in the amount of $48,600 per month for a
term expiring in September, 2005. Such amount was $486,000
for the year ended May 31, 1996.
The equipment is leased on a monthly basis at a rate of
approximately $31,000 per month from a company owned by a
shareholder of the Company (See Note 8).
In September 1989, the Company entered into a sale/leaseback
transaction whereby certain fixed assets, including computer
hardware and software, were sold for $700,000 and
concurrently leased back by the Company (See Note 11). The
lease was noncancellable for four years and required annual
minimum rental payments of $230,000 through September 1993.
In March 1995, these assets were purchased by the Company
from an affiliated company for $300,000.
In February 1993, the Company entered into two separate
sale/leaseback transactions whereby certain fixed assets were
sold in the aggregate, for $492,000 and concurrently leased
back by the Company (See Note 11). The leases are
noncancellable for four years and require annual minimum
rental payments of $144,000 through 1997. Rental expense in
connection with these operating leases amounted to
approximately $144,000 in fiscal 1996 and 1995, respectively.
In December 1994, the Company entered into a sale/leaseback
transaction whereby certain fixed assets were sold for
$300,000 and concurrently leased back by the Company (See
Note 11). The lease is noncancellable for three years and
requires annual minimum rental payments of $81,156 through
1997.
In February 1995, the Company entered into two separate
sale/leaseback transactions whereby certain fixed assets were
sold, in the aggregate, for approximately $559,000 and
concurrently leased back by the Company (See Note 11). The
leases are noncancellable for three years and require annual
minimum rental payments of $173,520 through 1998.
Rental expense in connection with these December 1994 and
February 1995 sale/leaseback operating leases amounted to
approximately $254,700 and $105,000 in fiscal 1996 and 1995,
respectively.
In June 1995, the Company entered into a sale/leaseback
transaction whereby certain fixed assets were sold for
$500,000 and concurrently leased back by the Company (See
Note 11). The lease is noncancellable for thirty-eight (38)
months and requires annual minimum rental payments of
$149,280 through 1998.
In September 1995, the Company entered into a sale/leaseback
transaction whereby certain fixed assets were sold for
approximately $326,000 and concurrently leased back by the
Company (See Note 110). The lease is noncancellable for five
years and requires annual minimum rental payments of $66,216
through 2000.
Rental expense in connection with these June 1995 and
September 1995 sale/leaseback operating leases amounted to
approximately $204,000 in fiscal 1996.
Total office space and equipment rental expense amounted to
approximately $1,163,000 and $1,180,000 in fiscal 1996 and
1995, respectively.
Future minimum lease payments for all noncancellable
operating leases at May 31, 1996 are as follows:
<TABLE>
<CAPTION>
Amount
------
<C> <C>
Year ending May 31,
1997 $1,306,936
1998 1,078,144
1999 774,536
2000 748,074
2001 657,170
Thereafter 2,529,066
----------
$7,093,926
----------
----------
<FN>
<F1>
The Company is involved in litigation through the normal
course of business. The Company believes that the resolution
of these matters will not have a material adverse effect on
the financial position of the Company.
</FN>
</TABLE>
NOTE 8 - RELATED PARTY TRANSACTIONS
a. The Company derives revenue from a company affiliated
with the Company's Chairman of the Board for data processing
services and computer software design. The revenues
generated from this company, which are included in operating
revenue, amounted to $1,883,000 and $1,869,000 for the years
ended May 31, 1996 and 1995, respectively. At May 31, 1996,
the Company was owed approximately $192,000 by such
affiliate, of which $100,000 was received subsequent to May
31, 1996.
b. On July 1, 1992, the Company loaned $1,000,000 to the
Company's Chairman, bearing interest at the prime rate plus
1-1/4% and was due July 1, 1995. On September 1, 1993, the
Company was issued a new note for the then outstanding
balance of $490,000, bearing interest at prime plus 1-1/4%
and being due April 30, 1994. On May 1, 1994, the Company
extended the due date of the note to the earlier of April
30, 1995 or as the Company may demand at any time after the
effective date of the then proposed privatization transaction.
The Chairman paid $340,000 of the outstanding loan to the
Company during the year ended May 31, 1995. On May 1, 1995,
the Company extended the due date of the note to October 31, 1995.
On July 31, 1995, the Chairman, as a result of the assignment of
the lease with the Nassau County Industrial Development Agency
("NCIDA") from BFS Sibling Realty Inc., formerly known as Brodsky
Sibling Realty Inc. ("BFS"), an affiliate substantially owned
by the Company's Chairman, to Sandata, Inc., repaid $129,000.
The remaining balance of the note receivable was repaid by the Chairman
during the quarter ended February 29, 1996.
c. On June 1, 1994, BFS, an affiliate substantially owned by
the Company's Chairman, borrowed $3,350,000 in the form of
Industrial Development Revenue Bonds ("Bonds") to finance
costs incurred in connection with the acquisition,
renovation and equipping of the Company's new office space
located at 26 Harbor Park Drive, Port Washington, New York
(the "Facility" or the "Building") from the NCIDA. These
Bonds were subsequently purchased by a bank (the "Bank").
The aggregate cost incurred by BFS in conjunction with such
acquisition, renovation and equipping was approximately
$4,377,000. In addition, the Company incurred approximately
$500,000 in connection with additional capital improvements.
The Bonds bore interest at prime plus 3/4 of 1% until August
11, 1995, at which time the interest rate became fixed at 9%
for a five-year term through September 1, 2000. At that
time, the interest rate will be adjusted (at the Company's
option) to a rate of either prime plus 3/4 of 1%, or the
applicable fixed rate if offered by the Bank. Commencing
October 1, 1995, principal, together with interest, is being
repaid in equal monthly installments based on a 15 year
amortization, with the balance of unpaid principal due
September 1, 2005.
d. On June 21, 1994 (as of June 1, 1994), the Company and
its Chairman guaranteed the full and prompt payment of
principal and interest of the Bonds and the Company granted
the Bank a security interest and lien on all the assets of
the Company. In connection with the issuance and sale of
the Bonds, the Company entered into a lease agreement (the
"Sublease") with BFS, whereby the Company leased the
Facility for the conduct of its business and, in
consideration therefor, was obligated to make lease payments
that at least equal amounts due to satisfy the underlying
Bond obligations.
As of July 31, 1995, by an Assignment and Assumption and
First Amendment to Lease between the Company and BFS, the
Company became the beneficial owner of and leases the
Facility from the NCIDA (collectively the "Assignment
Transaction"). In connection with the Assignment
Transaction, the Sublease was terminated. The Company
currently pays rent for the Facility to the NCIDA in the
amount of $48,600 per month, subject to adjustment based
upon the then effective interest rate, among other things,
for a term expiring in September, 2005. The expiration of
the lease term coincides with the maturity date of the
existing Bond financing through the NCIDA. Upon the
expiration of such term, the Company currently intends to
exercise its rights to become record owner of the Facility.
In connection with the Assignment Transaction, the Company
assumed certain indebtedness owed to affiliates of the
Company's Chairman as follows: (i) the $364,570 remaining
balance of a 48-month term loan bearing interest at 8.7% per
annum, and (ii) the $428,570 remaining balance of a 42-month
term loan bearing interest at 8.91%. Each of the foregoing
loans were incurred in connection with the construction of
improvements to the Building, are collateralized by the
assets of the primary obligor and are guaranteed by the
Company's Chairman.
On August 11, 1995, the Company entered into a $750,000 loan
agreement with the Long Island Development Corporation
("LIDC"), under a guarantee by the U.S. Small Business
Administration ("SBA"). The entire $750,000 proceeds have
been used to repay a portion of the Bond indebtedness to the
Bank. The Company entered into the Assignment Transaction
primarily to satisfy certain requirements of the SBA. The
Term Loan is payable in 240 monthly installments of $6,255,
which includes principal and interest at a rate of 7.015%.
e. During fiscal 1995, the Company advanced $60,000 to an
affiliate substantially owned by several officers of the
Company. These advances, which were non-interest bearing,
were paid back to the Company by May 31, 1996.
f. Due from Officers in the amount of $102,867, which is
evidenced by notes, represents the amount advanced by the
Company to pay certain fees arising from the proposed
privatization. These notes bear interest at prime plus 1%
and are due January 1, 1997.
g. The Company makes various lease payments to certain
affiliated companies. The payments are for: equipment
rental, which was $381,113 and $385,206 in fiscal 1996 and
1995, respectively, consulting services which was -0- in
fiscal 1996 and $199,800 in fiscal 1995, respectively, and
building rent which was $97,200 and $545,382 in fiscal 1996
and 1995, respectively.
h. In September 1989, the Company entered into a
sale/leaseback transaction whereby certain fixed assets
including computer hardware and software were sold for
$700,000 and concurrently leased back by the Company. In
March 1995, these assets were purchased by the Company from
an affiliated company for $300,000.
NOTE 9 - NOTE RECEIVABLE FROM FORMER AFFILIATE
On July 31, 1993, the Company received a promissory note
from Compuflight, Inc. ("Compuflight"), a former affiliate
(the Company's Chairman was a principal stockholder and
Chairman of Compuflight through December 1, 1993) to
evidence the Company's accounts receivable from Compuflight.
The note was payable in increments of $20,000 per month
including interest at the rate of one percent above prime on
the unpaid balance and was due April 1, 1994. On November
1, 1993, the note was amended. The amended note is payable
in minimum increments of $20,000 per month with interest at
ten percent (10%) per annum and contains provisions for
accelerated payments based upon Compuflight achieving
certain results. Payments commenced on February 28, 1994 and
are to continue until such time as the indebtedness and any
accrued interest are paid in full. In connection with the
promissory note, the Company received a security interest in
substantially all the then existing assets of Compuflight,
which has been assigned to the Bank as collateral for the
Company's Credit Agreement with the Bank. At the present
time, Compuflight is indebted to the Company in the amount
of $222,139, of which $195,881 represents the balance due on
the note and $26,258 represents accounts receivable.
NOTE 10 - SHAREHOLDERS' EQUITY
a. Common Stock Purchase Warrants
In February 1991, the Company issued 400,000 common stock
purchase warrants to the Company's Chairman. The warrants
are exercisable in equal annual amounts over a ten-year
period. For each warrant, the Chairman may purchase one
share of common stock at an exercise price of $2.64 per
share, representing the fair market value of such stock on
the date the warrants were issued. On January 25, 1995, the
Chairman exchanged these warrants (which were previously
exchanged on August 10, 1992 at an exchange price of $1.79
per share) for warrants to purchase one share of common
stock at an exchange price of $1.38 per share, representing
the fair market value of such stock at January 24, 1995.
b. Changes in Authorized Shares
In May 1995, the Company's Certificate of Incorporation was
amended, pursuant to stockholder vote, to decrease the
number of authorized shares of Common Stock of the Company
from 10,000,000 to 3,000,000 and eliminate all authorized
shares of Preferred Stock.
c. Stock Options
In October 1984, the Company adopted an incentive stock
option plan which reserved 161,444 shares of common stock.
The plan requires that all options be granted at exercise
prices not less than the fair market value at the date of
grant. In April 1989, the Company amended its incentive
stock option plan to reflect revisions necessitated by the
Tax Reform Act of 1986 and to increase the number of shares
subject to the plan from 161,444 to 278,110. In December
1990, the Company's Incentive Plan was amended pursuant to
stockholder vote by increasing the number of shares
available for options to 416,667.
In November 1986, the Company adopted a nonqualified stock
option plan which reserved 111,111 shares of common stock
that may be granted to employees, officers and directors. In
April 1989, the Company amended its nonqualified stock
option plan by increasing the number of shares from 111,111
shares to 227,778 shares.
In January 1995, the Company adopted a stock option plan
providing for both incentive and nonqualified stock options,
which reserves 1,000,000 shares of common stock for grant
under the plan. The plan requires that all options be
granted at exercise prices not less than the fair market
value at the date of grant, over a ten-year period. In
addition, the Company granted officers of the Company
incentive options to purchase 82,000 shares of the Company's
common stock at an exercise price of $1.51 per share. These
options are exercisable over a five-year period. In March
1996, the Company granted officers of the Company incentive
options to purchase 100,000 shares of the Company's common
stock at an exercise price of $2.34. These options are
exercisable over a five-year period.
Summary information with respect to the stock option plans
follows:
<TABLE>
<CAPTION>
Range of Outstanding Outstanding
exercise options options
prices granted exercisable
-------- ----------- -----------
<S> <C> <C> <C>
Balance, June 1, 1994 1.79 - 1.875 276,593 276,593
Granted 1.38 - 1.753 58,334 233,334
Canceled 1.79 - 1.875 (33,890) (33,890)
Balance, May 31, 1995 1.38 - 1.875 601,037 476,037
Granted 2.34 100,000 100,000
Canceled 1.75 - 1.875 (125,778) (778)
Balance, May 31, 1996 1.38 - 2.34 575,259 575,259
</TABLE>
NOTE 11 - SALE/LEASEBACK TRANSACTIONS
In September 1989, the Company consummated a sale/leaseback of
certain fixed assets (principally furniture, fixtures, computer
hardware and software and equipment). The fixed assets, which
had a net book value of approximately $440,000 were sold for
$700,000. The resulting gain of $260,000 was recorded as
deferred income and is being recognized over the life of the
lease. In March 1995, these assets were purchased by the
Company from an affiliated company for $300,000.
In February 1993, the Company entered into two separate
sale/leaseback transactions of certain fixed assets
(principally computer hardware and software). The fixed
assets, which had a net book value of approximately $389,000,
were sold for $492,000. The resulting gain on the sale of
$103,000 was recorded as deferred income and is being
recognized over the lives of the leases. Approximately
$26,000 of the deferred gain was recognized for fiscal 1996
and 1995, respectively.
In December 1994, the Company entered into a sale/leaseback
of certain fixed assets (principally computer hardware and
software). The fixed assets, which had a net book value of
approximately $115,000 were sold for $300,000. The resulting
gain of approximately $185,000 was recorded as deferred
income and is being recognized over the life of the lease.
Approximately $62,000 and $31,000 of the deferred gain was
recognized for fiscal 1996 and 1995, respectively.
In February 1995, the Company entered into two separate
sale/leaseback transactions of certain fixed assets
(principally leasehold improvements and equipment). The fixed
assets, which had a net book value of approximately $391,000,
were sold for approximately $559,000. The resulting gain on
the sale of approximately $168,000 was recorded as deferred
income and is being recognized over the lives of the leases.
Approximately $56,000 and $19,000 of the deferred gain was
recognized for fiscal 1996 and 1995, respectively.
In June 1995, the Company entered into a sale/leaseback
transaction of certain fixed assets (principally furniture,
fixtures, computer hardware and software and equipment). The
fixed assets, which had a net book value of approximately
$332,000 were sold for $500,000. The resulting gain of
$168,000 was recorded as deferred income and is being
recognized over the life of the lease, which is thirty-eight
(38) months. Approximately $52,900 of the deferred gain was
recognized for fiscal 1996.
In September 1995, the Company entered into a sale/leaseback
transaction of certain fixed assets (principally computer
hardware). The fixed assets, which had a net book value of
approximately $251,000, were sold for approximately $326,000.
The resulting gain of approximately $75,000 was recorded as
deferred income and is being recognized over the life of the
lease, which is sixty (60) months. Approximately $12,500 of
the deferred gain was recognized for fiscal 1996.
NOTE 12 - LITIGATION SETTLEMENT
The Company was a plaintiff in an action seeking payment of
past due accounts receivable in the amount of approximately
$262,000. The defendant interposed a counterclaim seeking
damages in the aggregate of $12,000,000 alleging false
billings, improper maintenance and the insertion by the
Company of a so-called "time bomb" into computer systems
sold by the Company to the defendant. The action was settled
in fiscal 1995 whereby the Company received $169,000 in
settlement of the outstanding accounts receivable. The
remaining balance was written off to the allowance account.
NOTE 13 - PROPOSED PRIVATIZATION OF THE COMPANY
The Company filed a Form 8-K with the Securities and
Exchange Commission, announcing the acceptance by the Board
of Directors of the Company of a proposal by Bert E.
Brodsky, Hugh Freund, Gary Stoller, Leland H. Freund and
Emily B. Freund (collectively the "Proponents") to take the
Company "private" for purposes of Federal securities law. At
that time the Board of Directors also appointed two of its
members to a committee of independent directors for the
purpose of reviewing the proposed transaction to consider
the fairness of the transaction with respect to the
stockholders of the Company and to make recommendations to
the Board. The offer proposed to all outside stockholders of
the Company was $2.50 for each of their shares, which
approximated 229,800 shares in the aggregate.
In December 1994, the Board of Directors of the Company was
informed by the Proponents that they had withdrawn their
proposal to take the Company "private". In notifying the
Company of their decision to withdraw their proposal, the
Proponents informed the Board of Directors that their
decision had been based on several factors, including the
substantial delays created by the need to comply with legal
and regulatory requirements, the costs associated with such
compliance and such delays and the uncertainty regarding the
timing of the possible consummation of the proposed
transaction. The Company advanced certain fees on behalf of
the Proponents arising from the proposed transaction, which
are payable in January 1997 (See Note 8).
NOTE 14 - Retirement Plan
The Company has a 401(k) savings plan covering all eligible
employees in which the Company matches a portion of the
employees' contribution. The amount of this match was
$14,409 and $14,736 in fiscal 1996 and 1995, respectively.
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On February 28, 1995 the Company dismissed Grant Thornton
LLP as its independent public accountants. Such
determination was made by the Company's Board of Directors.
Grant Thornton LLP served as the Company's independent
public accountants with respect to the fiscal years ended
May 31, 1993 and May 31, 1994.
Grant Thornton LLP's report on the Company's financial
statements as of May 31, 1993 and 1994 and for the years
then ended neither contains an adverse opinion or a
disclaimer of opinion nor is qualified or modified as to
audit scope or accounting principles. In addition, such
report is not qualified or modified as to uncertainty,
except that it includes an explanatory paragraph with regard
to the fact that the outcome of certain litigation cannot be
determined and, accordingly, no provision for any resulting
liability has been included in the relevant financial
statements.
During the fiscal years ended May 31, 1993 and 1994 and the
period from June 1, 1994 to February 28, 1995, there were no
disagreements with Grant Thornton LLP on any matter of
accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of such
firm, would have caused it to make reference to the subject
matter of the disagreements in connection with its report.
On February 28, 1995, the Board of Directors of the Company
approved the engagement of the firm of Marcum & Kliegman LLP
to serve as the Company's independent auditors for the
fiscal year ending May 31, 1995.
PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following persons are the Directors and executive
officers of the Company.
<TABLE>
<CAPTION>
Name Age Positions and Offices
Presently Held with
the Company
<S> <C> <C>
Bert E. Brodsky 53 Chairman of the Board,
President and Treasurer
Hugh Freund 58 Executive Vice President
and Director
Gary Stoller 43 Executive Vice President
and Director
</TABLE>
Bert E. Brodsky has been Chairman of the Board and Treasurer
of the Company since June 1, 1983 and President since
December, 1989. From August, 1983, through November, 1984
and from December, 1988 through January, 1991, Mr. Brodsky
served as Chairman of the Board of National Medical Health
Card Systems, Inc., a provider of computerized prescription
benefit management services and a former wholly-owned
subsidiary of the Company. From October 1983 through
December 1993, Mr. Brodsky served as Chairman of the Board
of Compuflight, Inc. ("Compuflight"), a provider of
computerized flight planning services. Since August 1980,
Mr. Brodsky has served as Chairman of the Board of P.W.
Medical Management, Inc., which provides financial and
consulting services to physicians. Since 1979, Mr. Brodsky
has also served as President of Bert Brodsky Associates,
Inc., which provides consulting services.
Hugh Freund, a founder of the Company, was the Company's
President from 1978 to November, 1986, and a Director of the
Company since its formation in 1978. Since November 1986,
Mr. Freund has served as an Executive Vice President of the
Company. Mr. Freund is also President of Sandsport Data
Services, Inc., the Company's wholly-owned health care data
processing subsidiary. In addition to managing the
Company's operations, Mr. Freund has been responsible for
the marketing efforts of the Company.
Gary Stoller joined the Company at the time of its formation
in 1978 as its Senior Programmer and Analyst and has been an
Executive Vice President and a Director of the Company since
January, 1983. Mr. Stoller has been responsible for
computer design, programming and operations of the Company
as its Chief Information Officer and is the architect of the
SHARP and SanTrax systems.
Each Director will hold office until the next Annual Meeting
of Stockholders or until his successor is elected and
qualified. Each executive officer will hold office until
the next regular meeting of the Board of Directors following
the next Annual Meeting of Stockholders or until his or her
successor is elected or appointed and qualified.
To the Company's knowledge, based solely upon a review of
copies of Forms 3, 4 and 5 furnished to the Company and
written representations that no other reports were required
during the fiscal year ended May 31, 1996, all Section 16(a)
filing requirements applicable to the Company's officers,
Directors and 10% shareholders were complied with, except
with respect to three Directors, each of whom filed one late
report on Form 5, reporting one transaction, respectively.
ITEM 10 - EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information concerning
the compensation of Bert E. Brodsky, the Chairman and Chief
Executive Officer of the Company, for the fiscal years ended
May 31, 1996, 1995 and 1994, respectively. No other person
serving as an executive officer of the Company for the fiscal
year ended May 31, 1996 had a total salary and bonus for such
year in excess of $100,000:
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
Awards Payouts
Secu-
Name Other Re- rities- All
and Annual stricted Under- LTIP Other
Prin- Compen-Stock lying Pay- Compen-
cipal Salary Bonus sation Awards Options/ outs sation
Position Year ($) ($) ($) ($) SARs(#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bert E.
Brodsky
Chairman
of the
Board 1996 200,000 -0- 12,259 -0- 44,000 -0- 20,310
(2) (3)
Bert E.
Brodsky
Chairman
of the
Board 1995 191,654 -0- 11,872 -0- 416,667 -0- 7,448
(1) (2) (4) (3)
Bert E.
Brodsky
Chairman
of the
Board 1994 171,960 -0- 11,872 -0- -0- -0- 5,849
(1) (2) (4) (3)
<FN>
<F1>
(1) Includes $163,800 paid to Mr. Brodsky as a consulting fee.
<F2>
(2) Includes personal benefits relating to the use of
Company-leased automobiles provided for business purposes in
the amounts of $12,259, $11,872 and $11,872 for fiscal years
ended May 31, 1996, 1995 and 1994, respectively.
<F3>
(3) Represents insurance premiums paid by the Company on behalf of
Mr. Brodsky for a life insurance policy on Mr. Brodsky's life, the
benefit of which is payable to Mr. Brodsky's wife.
<F4>
(4) Represents cancellation of 416,667 options and warrants and the
issuance of a like number at a lower exercise price.
</FN>
</TABLE>
Option/SAR Grants in Last Fiscal Year
The following table sets forth certain information
concerning individual grants of stock options to Bert E.
Brodsky, Chairman and Chief Executive Officer of the
Company, during the fiscal year ended May 31, 1996:
<TABLE>
<CAPTION>
Individual Grants
Name Number of Percent of
Securities Total Options/
Underlying SARs Granted to Exercise Expira-
Options/SARs Employees in or Base tion
Granted Fiscal Year Price Date
(#) (%) ($/Sh)
<S> <C> <C> <C> <C>
Bert E. Brodsky 44,000 4.4 2.34 3/14/01
</TABLE>
Aggregated Option/SAR Exercise in Last Fiscal Year and Fiscal Year-End
Option Value Table
The following table sets forth certain information
concerning the value of unexercised options and warrants
held by Bert E. Brodsky, Chairman and Chief Executive
Officer of the Company, for the fiscal year ended May 31, 1996:
<TABLE>
<CAPTION>
No. of
Securi-
ties Under Value of
lying Un- Unexerci-
Exercised sed in-the-
Options Money Options
Shares and Warrants and Warrants
Acquir- at 5/31/96 at 5/31/96
ed On Value (#) Exerci- ($)Exerci-
Exerci- Reali- sable/Un- sable/Un-
Name se (#) zed ($) exercisable exercisable
<S> <C> <C> <C> <C>
Bert E.
Brodsky -0- -0- 422,667/200,000 500,754/274,000
</TABLE>
Compensation of Directors
Directors' fees totaling $6,750 and $9,000 were paid in
quarterly installments to one director during the fiscal
years ended May 31, 1996 and 1995, respecively.
Employment Contracts, Termination of Employment and
Change-in-Control Arrangements
In May 1992, Mr. Brodsky and the Company entered into a
deferred compensation agreement pursuant to which the
Company will pay (i) to Mr. Brodsky a lump sum ranging from
$75,000 to $255,000 if he voluntarily terminates his
employment with the Company after attaining 55 years of age
or (ii) to Mr. Brodsky's beneficiary a lump sum ranging from
$200,000 to $450,000 in the event of Mr. Brodsky's death
during the term of his employment with the Company. The
amount of the payment is dependent upon the age of Mr.
Brodsky at the time of termination of employment or death.
The Company has obtained insurance on Mr. Brodsky's life to
fund its obligations under the above agreement.
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth the beneficial share
ownership of (i) each person who is known by the Company to
be the beneficial owner of more than five (5%) percent of
the Company's Common Stock; (ii) each of the Company's
directors; and (iii) all of the Company's executive officers
and directors as a group. The ownership percentages
indicated are calculated, on a fully-diluted basis, in
accordance with Rule 13d-3 promulgated pursuant to the
Securities Exchange Act of 1934, as amended, which
attributes beneficial ownership of securities to a person or
entity who holds options or warrants to purchase such securities.
<TABLE>
<CAPTION>
Name of Director and Approximate
Name and Address of Percentage of
Beneficial Owner Number of Shares Outstanding Shares
<S> <C> <C>
Bert E. Brodsky
26 Harbor Park Drive
Port Washington, NY 660,687 (1) 55.7% (1)
Hugh Freund
26 Harbor Park Drive
Port Washington, NY 254,132 (2) 28.9% (2)
Gary Stoller
26 Harbor Park Drive
Port Washington, NY 216,425 (3) 24.9% (3)
All executive officers
and Directors as a group
(3 persons) 1,131,244 (1)(2)(3) 80.3% 1)(2)(3)
<FN>
<F1>
(1) Includes 6,239 shares of Common Stock owned by Mr.
Brodsky's adult children; includes presently exercisable
options to purchase 74,000 shares of Common Stock at $1.79
per share under the Company's Employees' Incentive Stock
Option Plan (the "Incentive Plan"); includes presently
exercisable options to purchase 44,000 shares of Common
Stock at $1.51 per share under the Company's 1995 Stock
Option Plan (the "1995 Plan"); includes presently
exercisable options to purchase 44,000 shares of Common
Stock at $2.34 per share under the 1995 Plan; includes
presently exercisable options to purchase 60,667 shares of
Common Stock at $1.38 per share under the Company's 1986
Non-Qualified Stock Option Plan (the "Non-Qualified Plan");
includes presently exercisable warrants to purchase 200,000
shares of Common Stock at $1.38 per share under a Warrant
Agreement which expires in August, 2001; includes 68,352
shares of the Company's Common Stock owned by the trusts
established for the benefit of Mr. Brodsky's four children,
of which Mr. Brodsky is a trustee.
<F2>
(2) Excludes 50,710 shares of Common Stock owned by Mr.
Freund's adult children. As set forth in Mr. Freund's
Schedule 13-G, filed with the Securities and Exchange
Commission on February 9, 1996, Mr. Freund disclaims any
beneficial interest in, or voting or dispositive control
over, such shares; includes presently exercisable options to
purchase 43,000 shares of Common Stock at $1.79 per share
under the Incentive Plan; includes presently exercisable
options to purchase 18,000 shares of Common Stock at $1.51
per share under the 1995 Plan; includes presently
exercisable options to purchase 36,000 shares of Common
Stock at $2.34 per share under the 1995 Plan; includes
presently exercisable options to purchase 18,000 shares of
Common Stock at $1.38 per share under the Non-Qualified
Plan.
<F3>
(3) Includes presently exercisable options to purchase
46,667 shares of Common Stock at $1.79 per share under the
Incentive Plan; includes presently exercisable options to
purchase 20,000 shares of Common Stock at $1.51 per share
under the 1995 Plan; includes presently exercisable options
to purchase 20,000 shares of Common Stock at $2.34 per share
under the 1995 Plan; includes presently exercisable options
to purchase 20,000 shares of Common Stock at $1.38 per share
under the Non-Qualified Plan.
</FN>
</TABLE>
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In May 1994 the Company announced the acceptance by the Board
of Directors of the Company of a proposal to take the Company
"private" for purposes of Federal Securities Laws. The proposed
privatization of the Company consisted of a proposal from Bert
Brodsky, Hugh Freund, Gary Stoller, Leland H. Freund and Emily B.
Freund (the "Proponents") whereby stockholders of the Company
would have received $2.50 per share in cash for their shares of
the Company's common stock. In December 1994, the Proponents withdrew
their proposal, informing the Board of Directors that their
decision had been based on several factors, including the
substantial delays created by the need to comply with legal
and regulatory requirements, the costs associated with such
compliance and with such delays and the uncertainty regarding the
timing of the possible consummation of the proposed transaction.
The Company advanced certain fees on behalf of the Proponents
arising from the proposed transaction, which are payable in January 1997.
On July 1, 1992, the Company loaned $1,000,000 to the
Company's Chairman, bearing interest at the prime rate plus
1-1/4% and due July 1, 1995. On September 1, 1993, the
Company and Mr. Brodsky amended such note with a new note
for the then outstanding balance of $490,000 (the
"Substituted Note"), bearing interest at prime plus 1-1/4%
and due April 30, 1994. On May 1, 1994, the Company
extended the due date of the Substituted Note to the earlier
of April 30, 1995 or as the Company may demand at any time
after the effective date of the then proposed (but
subsequently withdrawn) privatization transaction as
discussed above. On May 1, 1995, the Company extended the
due date of the note to October 31, 1995. On July 31, 1995,
the Chairman, as a result of the assignment of the lease
with the Nassau County Industrial Development Agency
("NCIDA") from BFS Sibling Realty Inc., formerly known as
Brodsky Sibling Realty Inc. ("BFS"), an affiliate
substantially owned by the Company's Chairman, to Sandata,
Inc., repaid $129,000. The remaining balance of the note
receivable was repaid by the Chairman during the quarter
ended February 29, 1996.
On July 31, 1993, the Company received a promissory note
from Compuflight, a former affiliate (the Company's Chairman
was a principal stockholder and Chairman of Compuflight
through December 1, 1993) to evidence the Company's accounts
receivable from Compuflight. The note was payable in
increments of $20,000 per month including interest at the
rate of 1% above prime on the unpaid balance and was due
April 1, 1994. On November 1, 1993, the note was amended.
The amended note is payable in minimum increments of $20,000
per month with interest at 10% per annum and contains
provisions for accelerated payments based upon Compuflight's
achieving certain results. Payments commenced on February
28, 1994 and are to continue until such time as the
indebtedness and any accrued interest is paid. In
connection with the promissory note, the Company received a
security interest in substantially all the then existing
assets of Compuflight, which has been assigned to the Bank
as collateral for the Company's $2,000,000 Credit Agreement
with the Bank. At the present time, Compuflight is indebted
to the Company in the amount of $222,139, of which $195,881
represents the balance due on the note and $26,258 represents
accounts receivable.
On June 1, 1994, BFS borrowed $3,350,000 in the form of
Industrial Development Revenue Bonds ("Bonds") to finance
costs incurred in connection with the acquisition,
renovation and equipping of the Company's new office space
located at 26 Harbor Park Drive, Port Washington, New York
(the "Facility" or the "Building") from the NCIDA. These
Bonds were subsequently purchased by a bank (the "Bank").
The aggregate cost incurred by BFS in conjunction with such
acquisition, renovation and equipping was approximately
$4,377,000. In addition, the Company incurred approximately
$500,000 in connection with additional capital improvements.
The Bonds bore interest at prime plus 3/4 of 1% until August
11, 1995, at which time the interest rate became fixed at 9%
for a five-year term through September 1, 2000. At that
time, the interest rate will be adjusted (at the Company's
option) to a rate of either prime plus 3/4 of 1%, or the
applicable fixed rate if offered by the Bank. Commencing
October 1, 1995, principal, together with interest, is being
repaid in equal monthly installments based on a 15 year
amortization, with the balance of unpaid principal due
September 1, 2005.
On June 21, 1994 (as of June 1, 1994), the Company and its
Chairman guaranteed the full and prompt payment of principal
and interest of the Bonds and the Company granted the Bank a
security interest and lien on all the assets of the Company.
In connection with the issuance and sale of the Bonds, the
Company entered into a lease agreement (the "Sublease") with
BFS, whereby the Company leased the Facility for the conduct
of its business and, in consideration therefor, was
obligated to make lease payments that at least equal amounts
due to satisfy the underlying Bond obligations.
As of July 31, 1995, by an Assignment and Assumption and
First Amendment to Lease between the Company and BFS, the
Company became the beneficial owner of and leases the
Facility from the NCIDA (collectively the "Assignment
Transaction"). In connection with the Assignment
Transaction, the Sublease was terminated. The Company
currently pays rent for the Facility to the NCIDA in the
amount of $48,600 per month, subject to adjustment based
upon the then effective interest rate, among other things,
for a term expiring in September, 2005. The expiration of
the lease term coincides with the maturity date of the
existing Bond financing through the NCIDA. Upon the
expiration of such term, the Company currently intends to
exercise its rights to become record owner of the Facility.
In connection with the Assignment Transaction, the Company
assumed certain indebtedness owed to affiliates of the
Company's Chairman as follows: (i) the $364,570 remaining
balance of a 48-month term loan bearing interest at 8.7% per
annum, and (ii) the $428,570 remaining balance of a 42-month
term loan bearing interest at 8.91%. Each of the foregoing
loans were incurred in connection with the construction of
improvements to the Building, are collateralized by the
assets of the primary obligor and are guaranteed by the
Company's Chairman.
On August 11, 1995, the Company entered into a $750,000 loan
agreement with the Long Island Development Corporation
("LIDC"), under a guarantee by the U.S. Small Business
Administration ("SBA"). The entire $750,000 proceeds have
been used to repay a portion of the Bond indebtedness to the
Bank. The Company entered into the Assignment Transaction
primarily to satisfy certain requirements of the SBA. The
Term Loan is payable in 240 monthly installments of $6,255,
which includes principal and interest at a rate of 7.015%.
From time to time during the last two years, the Company has
made loans to Document Storage & Management Inc., a New York
corporation ("Document Storage"), of which Messrs. Bert E.
Brodsky, Hugh Freund and Gary Stoller are certain of the
principal shareholders, officers and directors. During such
time, the highest amount owed to the Company was $168,123.
On November 18, 1994, Document Storage repaid the entire
principal and accrued interest then outstanding to the
Company.
In December 1994 and January 1995, $40,000 and $20,000,
respectively, was advanced to Document Storage. These
advances, which were non-interest bearing, were paid back to
the Company by May 31, 1996.
These advances have been used by Document Storage to improve
the common areas of the premises occupied by the Company and
Document Storage, among others.
The Company derives revenue from a company affiliated with
the Company's Chairman of the Board, principally for data
processing services. The revenues generated from this
company, which are included in operating revenue, amounted
to $1,883,000 and $1,869,000 for the years ended May 31,
1996 and 1995, respectively. Included in the current year
revenues are billings of $1,559,000 for computer software
design services. Subsequent to May 31, 1996, the Company
received $100,000 from such affiliate in payment of amounts
due, totaling approximately $192,000 at May 31, 1996.
The Company leases various equipment from a company
affiliated with the Company's Chairman. The equipment is
leased on a monthly basis at a rate of approximately $24,000
per month.
ITEM 13 - EXHIBITS, LISTS AND REPORTS ON FORM 8-K
(a) Exhibits
3(A)(i) Certificate of Incorporation and Amendments
thereto including Certificate of Ownership and Merger (DE)
and Agreement and Plan of Merger (1)
3(A)(ii) Certificate of Amendment to Certificate of
Incorporation filed July 27, 1993 (1)
3(A)(iii) Certificate of Amendment to Certificate
of Incorporation filed May 26, 1995 (1)
3(B) By-Laws (1)
4(A) Nassau County Industrial Development
Agency Industrial Development Revenue Bonds (1994 Brodsky
Sibling Realty Inc. Project) dated June 1, 1994 (1)
4(B) Revolving Credit Agreement dated as of
April 20, 1995 by and among Sandsport Data Services, Inc.
and Marine Midland Bank (1)
4(C) Nassau County Industrial Development
Agency Industrial Development Revenue Bonds (1994 Brodsky
Silbing Realty Inc. Project) Assumption and Amendment of
Certain Agreements dated July 1, 1995 (1)
4(D) Loan Agreement dated August 11, 1995
between Sandata, Inc. and Long Island Development
Corporation (1)
4(E) "504" Note dated August 11, 1995 from the
Long Island Development Corporation to Sandata, Inc. (1)
10(A) License Agreement dated as of September
1, 1988 by and among Sandata, Inc., Sandata Images, Inc.,
Sandata Spectrum, Inc., P.W. Medical Management, Inc., P.W.
Spectrum, Inc. and P.W. Subsidiary I, Inc., d/b/a Images (1)
10(B) Amendment to License Agreement by and
among Sandata, Inc., Sandata Images, Inc., Sandata Spectrum,
Inc., P.W. Medical Management, Inc., P.W. Spectrum, Inc. and
P.W. Subsidiary I, Inc., d/b/a Images dated August 31, 1989
(1)
10(C) Amendment to License Agreement by and
among Sandata, Inc., Sandata Images, Inc., Sandata Spectrum,
Inc., P.W. Medical Management, Inc., P.W. Spectrum, Inc. and
P.W. Subsidiary I, Inc., d/b/a Images dated December 1, 1990
(1)
10(D) Software License Agreement and
Distribution Agreement between Sandata Home Health Systems,
Inc. and Fastrack Healthcare Systems, Inc. dated as of June
15, 1995 (1)
10(E) Employees' Incentive Stock Option Plan
(1)
10(F) First Amendment to Incentive Stock Option
Plan dated April 4, 1989 (1)
10(G) Second Amendment to Incentive Stock
Option Plan dated December 18, 1990 (1)
10(H) 1986 Non-Qualified Stock Option Plan (1)
10(I) Amendment to 1986 Non-Qualified Stock
Option Plan dated April 4, 1989 (1)
10(J) 1995 Stock Option Plan (1)
10(K) Common Stock Purchase Warrants as issued
to Bert E. Brodsky (1)
10(L) Deferred Compensation Plan dated May 1,
1992 between the Registrant and Bert E. Brodsky (1)
16 Letter re Change in Certifying Accountant
(1)
21 Subsidiaries of Registrant
27 Financial Data Schedule (for electronic
filing)
(1) The Company hereby incorporates the footnoted Exhibit
by reference in accordance with Rule 12b-32, as such Exhibit
was originally filed as an Exhibit to the Company's Report
on Form 10-KSB for the fiscal year ended May 31, 1995.
(b) Reports on Form 8-K
None.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> MAY-31-1996
<CASH> 368,400
<SECURITIES> 0
<RECEIVABLES> 1,753,140
<ALLOWANCES> 468,877
<INVENTORY> 27,972
<CURRENT-ASSETS> 2,147,034
<PP&E> 13,515,248
<DEPRECIATION> 4,115,623
<TOTAL-ASSETS> 11,957,342
<CURRENT-LIABILITIES> 2,999,963
<BONDS> 0
<COMMON> 816
0
0
<OTHER-SE> 3,911,799
<TOTAL-LIABILITY-AND-EQUITY> 11,957,342
<SALES> 8,964,335
<TOTAL-REVENUES> 9,562,223
<CGS> 0
<TOTAL-COSTS> 8,804,239
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 506,91
<INCOME-PRETAX> 251,493
<INCOME-TAX> (8,000)
<INCOME-CONTINUING> 259,493
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 259,493
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
EXHIBIT 21
21 SUBSIDIARIES OF REGISTRANT
% of State of
Name Ownership Incorporation
Sandata Inteck, Inc. 100% Delaware
Sandata Spectrum, Inc. 100% Delaware
Sandsport Data Services, Inc. 100% New York
Sandata Home Health Systems, Inc. 100% Delaware
SanTrax Systems, Inc. 100% New York
SanTrax Productivity, Inc. 100% Delaware
